As filed with the Securities and Exchange Commission on August 14, 1998
Securities Act File No. 33-91706
Investment Company Act File No. 811-9040
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
Registration Statement Under The Securities Act Of 1933 /x/
Pre-Effective Amendment No. ___ / /
Post-Effective Amendment No. 6 /x/
and/or
Registration Statement Under The Investment Company Act Of 1940 /x/
Amendment No. 7 /x/
(Check appropriate box or boxes)
Pilgrim America Masters Series, Inc.
(Exact Name of Registrant Specified in Charter)
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 334-3444
James M. Hennessy, Esq.
Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
(Name and Address of Agent for Service)
With copies to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<S> <C> <C> <C>
/ / Immediately upon filing pursuant to paragraph (b) / / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1) / / on (date) pursuant to paragraph (a)(1)
/x/ 75 days after filing pursuant to paragraph (a)(2) / / on (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>
If appropriate, check the following box:
/ / This post-effective amendment designated a new effective date for a
previously filed post-effective amendment.
<PAGE>
PILGRIM AMERICA MASTERS SERIES, INC.
CROSS REFERENCE SHEET
N-1A Item
<TABLE>
<CAPTION>
Location in Prospectus
Part A (Caption)
<S> <C> <C>
Item 1. Cover Page................................ Cover Page
Item 2. Synopsis.................................. The Equity Funds at a Glance;
Summary of Expenses
Item 3. Condensed Financial Information........... Financial Highlights
Item 4. General Description of Registrant.......... The Funds' Investment
Objectives and Policies;
Investment Practices and
Risk Considerations
Item 5. Management of the Registrant.............. Management of the Funds
Item 5A. Management's Discussion of Fund
Performance............................. *
Item 6. Capital Stock and Other Securities........ Dividends, Distributions & Taxes;
Additional Information
Item 7. Purchase of Securities Being Offered...... Pilgrim America Purchase Options
Item 8. Redemption or Repurchase.................. How to Redeem Shares
Item 9. Pending Legal Proceedings................. Not Applicable
</TABLE>
<TABLE>
<CAPTION>
Location in Statement of
Part B Additional Information
(Caption)
<S> <C> <C>
Item 10. Cover Page................................. Cover Page
Item 11. Table of Contents.......................... Table of Contents
Item 12. General Information and History............ Organization of Pilgrim America
America Advisory Funds, Inc.;
General Information
Item 13. Investment Objectives and Policies......... Supplemental Description of
Investments; Supplemental
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
</TABLE>
<PAGE>
PILGRIM AMERICA FUNDS
PROSPECTUS
November 1, 1998
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004
(800) 992-0180
The Pilgrim America Funds are a family of diversified, open-end and closed-end
management investment companies. This Prospectus describes the open-end
investment company portfolios, also known as mutual funds (the Funds), each of
which have its own investment objectives and policies.
<TABLE>
<S> <C>
Pilgrim America Bank and Thrift Fund Pilgrim America High Yield Fund
(Bank and Thrift Fund) (High Yield Fund)
Pilgrim America MagnaCap Fund Pilgrim America Strategic Income Fund
(MagnaCap Fund) (Strategic Income Fund)
Pilgrim America MidCap Value Fund Pilgrim Government Securities Income Fund
(MidCap Value Fund) (Government Securities Income Fund)
Pilgrim America LargeCap Value Fund
(LargeCap Value Fund)
Pilgrim America Asia-Pacific Equity Fund
(Asia-Pacific Equity Fund)
</TABLE>
Each Fund offers different classes of shares, with varying types and amounts
of sales and distribution charges. These Pilgrim America Purchase OptionsTM
permit you to choose the method of purchasing shares that best suits your
investment strategy.
This Prospectus presents information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about each
Fund, dated November 1, 1998, as amended from time to time, has been filed
with the Securities and Exchange Commission and is incorporated by reference
into this Prospectus (that is, it is legally considered a part of this
Prospectus). This Statement is available free upon request by calling Pilgrim
America Group, Inc. (Shareholder Servicing Agent) at (800) 992-0180.
Investment in the Funds involves investment risk, including risk of loss of
principal. The Funds' shares are not obligations, deposits, or accounts of a
bank and are not guaranteed by a bank. In addition, the Funds' shares are not
insured by the Federal Deposit Insurance Corporation, the Federal Reserve
Board, or any other agency.
Like all mutual fund shares, neither the Securities and Exchange Commission
nor any state securities commission have approved or disapproved these
securities or passes upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
<PAGE>
THE EQUITY FUNDS AT A GLANCE*
<TABLE>
<CAPTION>
Fund Objectives and Policies Strategy
<S> <C> <C>
Bank and Long-term capital appreciation Portfolio securities are selected principally
Thrift Fund and income is its secondary on the basis of fundamental investment value
objective. and potential for future growth, including
securities of institutions that the Fund
Invests primarily in equity believes are well-positioned to take advantage
securities of national and of opportunities currently developing in the
state-chartered banks (other than banking and thrift industries.
money center banks), thrifts, the
holding or parent companies of such Principal risk factors: exposure to financial
depository institutions, and in and market risks that accompany an investment
savings accounts of mutual thrifts. in equities, and exposure to the financial and
Up to 35% of the Fund's total market risks of the banking and thrift
assets may be invested in equity industries, which may present greater risk
securities of money center banks, than a portfolio that is not concentrated in a
other financial services companies, group of related industries. Bank and thrift
other issuers deemed suitable by stocks may will be impacted by state and
the Investment Manager, debt federal legislation and regulations and
securities, and securities of other regional and general economic conditions.
investment companies.
You can expect fluctuation in the value of the
Normally fully invested. Fund's portfolio securities and the Fund's
shares.*
Pilgrim America Investments, Inc.
serves as Investment Manager for
Bank and Thrift Fund.
MagnaCap Long term growth of capital with The Investment Manager generally selects
Fund income as a secondary companies that meet the Fund's disciplined
consideration. Invests in equity investment strategy : consistent dividend
securities that are determined to increases; substantial dividend substantial
be of high quality by the increases; reinvested substantial earnings;
Investment Manager based upon strong balance sheets; and attractive prices.
certain selection criteria.
Normally fully invested. Principal risk factors: exposure to financial
and market risks that accompany an investment
in equities. You can expect fluctuation in
Pilgrim America Investments, the value of the Fund's portfolio securities
Inc., serves as Investment and the Fund's shares.*
Manager for MagnaCap Fund.
MidCap Long-term capital appreciation. A 'value' manager that seeks to identify
Value Fund middle capitalization companies having one or
Invests in equity securities of more of the following characteristics: they
companies believed to be are undergoing fundamental change; are
undervalued that have a market undervalued; and are misunderstood by the
capitalization of between investment community. Investment prospects
$200million and $5 billion. are viewed on a long-term basis and not on
market timing.
Normally fully invested.
Cramer Rosenthal McGlynn, LLC., Principal risk factors: exposure to financial
provides portfolio management and market risks that accompany an investment in
services for the MidCap Value equities. You can expect fluctuation in the
Fund. value of the Fund's portfolio securities and
the Fund's shares.*
LargeCap Long-term capital appreciation. Seeks large capitalization companies believed
Value Fund to present a good value based upon price
Invests in equity securities compared to projected earnings.
issued by companies believed to
be undervalued that generally Principal risk factors: exposure to
have a market capitalization of financial and market risks that accompany an
at least $5 billion. investment in equities. You can expect
fluctuation in the value of the Fund's
Normally fully invested. portfolio securities and the Fund's shares.*
Pilgrim America Investments, Inc.
serves as Investment Manager for
LargeCap Value Fund.
Asia-Pacific Equity Long-term capital appreciation. A combination of macroeconomic overview of
Fund region, specific country analysis, setting
Invests in equity securities of target country weightings, industry analysis
companies based in the Asia-Pacific and stock selection.
region, which includes China, Hong Kong,
Indonesia, Korea, Malaysia, Philippines, Principal risk factors: exposure to financial
Singapore, Taiwan and Thailand, but and market risks that accompany an investment
does not include Japan or Australia. in equities and exposure to changes in currency
exchange rates and other risks of foreign
Normally fully invested. investment. You can expect fluctuation in the
value of the Fund's portfolio securities and
HSBC Asset Management Americas Inc. the Fund's shares.*
and HSBC Asset Management Hong Kong
Limited, subsidiaries of HSBC
Holdings plc, provides portfolio
management services for Asia-Pacific
Equity Fund.
<FN>
* This summary description should be read in conjunction with the more
complete description of the Fund's investment objectives and policies set
forth elsewhere in this Prospectus. For information regarding the purchase
and redemption of shares of the Fund, refer to the 'Shareholder Guide.' For
information regarding the risk factors of the Fund, refer to 'Investment
Practices and Risk Considerations' below.
</FN>
</TABLE>
<PAGE>
THE INCOME FUNDS AT A GLANCE*
<TABLE>
<CAPTION>
Fund Objectives and Policies Strategy
<S> <C> <C>
High Yield Fund High level of current income with capital The Investment Manager selects
appreciation as a secondary objective. high-yielding fixed income securities
Invests at least 65% of its assets in a that do not, in its opinion, involve
diversified portfolio of high-yielding undue risk relative to the securities'
debt securities commonly referred to as return characteristics.
'junk bonds.' May also invest up to 35%
of its total assets in other types of Principal risk factors: exposure to
fixed income securities, preferred and financial, market and interest rate
common stocks, warrants and other risks and greater credit risks than
securities. with higher-rated bonds. You can
normally expect greater fluctuation in
Normally fully invested. the value of the Fund's shares than for
the Government Securities Income Fund,
particularly in response to economic
Pilgrim America Investments, Inc. serves downturns.*
as Investment Manager for High Yield
Fund.
Strategic Income Fund High level of current income. Invests in The Investment Manager adjusts the
at least two of the following four weighting among these four sectors to
sectors: in investment-grade debt of U. seek an attractive balance between
S. corporations, U. S. Government potential income and potential
securities, lower-rated high yield debt volatility. The Fund may invest in
of U. S. corporations commonly referred sectors indirectly through investment
to as "junk bonds", and senior variable in open-end and closed-end investment
or floating rate loans. companies.
Normally fully invested. Principal Risk Factors: exposure to
financial, market, interest rate and
Pilgrim America Investments, Inc. serves credit risks. High yield bonds and senior
as Investment Manager for Strategic loans normally present greater credit
Income Fund. risks than investment grade bonds. Senior
loans trade on an unregulated limited secondary
market, and are less liquid than publicly traded
securities. If the Fund invests in other
investment companies and it will bear expenses
associated with those investment companies in
addition to its own expenses.*
Government Securities High level of current income consistent The Investment Manager analyzes various
Income Fund with liquidity and preservation of U.S. Government securities and selects
capital. Normally invests at least 70% of those offering the highest yield
its assets in securities issued or consistent with maintaining liquidity
guaranteed by the U.S. Government, or and preserving capital.
certain of its agencies and
instrumentalities. The Fund does not Principal risk factors: exposure to
invest in highly leveraging derivatives, financial and interest rate risks, and
such as swaps, interest-only or prepayment risk on mortgage related
principal-only stripped mortgage-backed securities. You can normally expect
securities or interest rate futures fluctuation in the value of the Fund's
contracts. shares in response to changes in
interest rates, and relatively little
Normally fully invested. fluctuation in the absence of such
changes.*
Pilgrim America Investments, Inc. serves
as Investment Manager for for Government
Securities Income Fund.
<FN>
* This summary description should be read in conjunction with the more complete
description of the Fund's investment objectives and policies set forth elsewhere
in this Prospectus. For information regarding the purchase and redemption of
shares of the Fund, refer to the 'Shareholder Guide.' For information regarding
the risk factors of the Fund, refer to 'Investment Practices and Risk
Considerations' below.
</FN>
</TABLE>
<PAGE>
SUMMARY OF EXPENSES
Shares of the Funds are available through independent financial professionals,
national and regional brokerage firms and other financial institutions
(Authorized Dealers). For each Fund, you may select from up to three separate
classes of shares: Class A, Class B and Class M.
Shareholder Transaction Expenses
<TABLE>
<S> <C> <C> <C>
Class A Class B Class M(1)
Maximum initial sales charge imposed on purchases of the Equity Funds
(as a percentage of offering price) 5.75%(2) None 3.50%(2)
Maximum initial sales charge imposed on purchases of the Income Funds
(as a percentage of offering price) 4.75%(2) None 3.25%(2)
Maximum contingent deferred sales charge (CDSC) on each fund (at the lower
of original purchase price or the redemption proceeds) None (3) 5.00%(4) None
The Funds have no redemption fees, exchange fees or sales charges on
reinvested dividends.
<FN>
(1) Bank and Thrift Fund and Strategic Income Fund do not offer Class M
shares.
(2) Reduced for purchases of $50,000 and over. See 'Class A Shares: Initial
Sales Charge Alternative' and 'Class M Shares: Lower Initial Sales Charge
Alternative.
(3) A CDSC of no more than 1.00% for shares redeemed in the first or second
year, depending on the amount of purchase, is assessed on redemptions of
Class A shares that were purchased without an initial sales charge as part
of an investment of $1 million or more. See 'Class A Shares: Initial Sales
Charge Alternative.
(4) Imposed upon redemption within 6 years from purchase. Fee has scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'
</FN>
</TABLE>
The table below reflects the Annual Operating Expenses incurred by the Class
A, B and M shares of each Fund for the fiscal year ended June 30, 1998. The
Annual Operating Expenses for certain Funds are subject to waivers that are
described in the footnotes following the table. The "Examples" to the right of
the table show the cumulative expenses you would pay on a $1,000 investment,
assuming (i) reinvestment of all dividends and distributions, (ii) 5% annual
return and (iii) redemption at the end of the period (unless otherwise noted):
<TABLE>
Annual Operating Expenses Examples
(As a Percentage of Average Net Assets)
<S> <C> <C> <C> <C> <C> <C>
Bank and Thrift Fund Class A Class B Class A Class B Class B+
Management fees 0.__% 0.__% After 1 year
Distribution
(12b-1 fees)(1) 0.25% 1.00% After 3 years
Other Expenses 0. % 0. % After 5 years
Total fund After 10 years (2) (2)
operating expenses % %
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MagnaCap Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 0.__% 0.__% 0.__% After 1 year
Distribution (12b-1
fees) (1) 0.30% 1.00% 0.75% After 3 years
Other Expenses 0.__% 0.__% 0.__% After 5 years
Total fund
operating expenses % % % After 10 years (2) (2)
MidCap Value Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 1.00% 1.00% 1.00% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.50% 0.50% 0.50% After 5 years
Total fund
operating expenses(3) 1.75% 2.50% 2.25% After 10 years (2) (2)
LargeCap Value Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 1.00% 1.00% 1.00% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.50% 0.50% 0.50% After 5 years
Total fund
operating expenses(3) 1.75% 2.50% 2.25% After 10 years (2) (2)
Asia-Pacific Equity Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 1.25% 1.25% 1.25% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.50% 0.50% 0.50% After 5 years
Total fund After 10 years (2) (2)
operating expenses(3) 2.00% 2.75% 2.50%
High Yield Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees(3)(4) 0.60% 0.60% 0.60% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0.15% 0.15% 0.15% After 5 years
Total fund After 10 years (2) (2)
operating expenses(3) 1.00% 1.75% 1.50%
Strategic Income Fund Class A Class B Class A Class B Class B+
Management fees(3)(5) 0.60% 0.60% After 1 year
Distribution (12b-1
(fees) (1)(6) 0.25% 1.00% After 3 years
Other Expenses 0.15% 0.15% After 5 years
Total fund After 10 years (2) (2)
operating expenses 1.00% 1.75%
Government Sec. Inc. Fund Class A Class B Class M Class A Class B Class B+ Class M
Management fees 0.50% 0.50% 0.50% After 1 year
Distribution (12b-1
fees) (1) 0.25% 1.00% 0.75% After 3 years
Other Expenses 0. % 0. % 0. % After 5 years
Total fund After 10 years (2) (2)
operating expenses(8) % % %
<FN>
+ Assumes no redemption at end of period.
(1) As a result of distribution (Rule 12b-1) fees, a long term
investor may pay more than the economic equivalent of the maximum
sales charge allowed by the Rules of the National Association of
Securities Dealers, Inc. (NASD).
(2) Assumes Class B shares converted to Class A shares at the end of
the eighth year following purchase.
(3) The Investment Manager has entered into expense limitation
agreements under which it will limit expenses, excluding
distribution fees, interest, taxes, brokerage and extraordinary
expenses to 1.50% for MidCap Value Fund and LargeCap Value Fund,
1.75% for Asia-Pacific Equity Fund, and 0.75% for High Yield Fund
and Strategic Income Fund. These expense limitations will apply
to each Fund individually until at least December 31, 1998,
except that the expense limitation for Strategic Income Fund will
apply until at least December 31, 1999. Prior to the waiver and
reimbursement of Fund expenses, the total annualized fund
operating expenses, excluding interest, taxes, brokerage, and
extraordinary expenses, for the fiscal year ended June 30, 1998
were __%, __% and __% of the average net assets of the Class A,
Class B, and Class M shares, respectively, of MidCap Value Fund,
__%, __% and __% of the average net assets of the Class A, Class
B and Class M shares, respectively, of LargeCap Value Fund, __%,
__%, and __% of the average net assets of the Class A, Class B,
and Class M shares, respectively, of Asia-Pacific Equity Fund,
and __%, __% and __% of the average net assets of the Class A,
Class B and Class M shares, respectively, of High Yield Fund.
(4) The management fees for High Yield Fund have been restated to
reflect current fees.
(5) The Investment Manager will waive its investment management fee
from Strategic Income Fund to the extent such fees arise from the
Fund's investment in other investment companies managed by the
Investment Manager ("Affiliated Funds")
(6) The Distributor will waive that portion of its distribution
(12b-1) fee from Strategic Income Fund in proportion to the
Fund's investment in an Affiliated Fund to reflect its allocable
share of the distribution fee paid by the Affiliated Fund.
(7) The Investment Manager has agreed to reimburse the Government
Securities Income Fund to the extent that the gross operating
costs and expenses of the Fund, excluding any interest, taxes,
brokerage commissions, amortization of organizational expenses,
extraordinary expenses, and distribution fees on Class B and
Class M shares in excess of an annual rate of 0.25% of the
average daily net assets of these classes, exceed 1.50% of the
Fund's average daily net assets on the first $40 million of net
assets and 1.00% of average daily net assets in excess of $40
million for any one fiscal year. Without such waiver, the
annualized total fund operating expenses for the fiscal year
ended June 30, 1998 would have been __% for Class A, __% for
Class B and __% for Class M.
</FN>
</TABLE>
The purpose of the above table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly as a shareholder
in a Fund. For more complete descriptions of the various costs and expenses,
please refer to 'Shareholder Guide' and 'Management of the Funds.' Use of the
assumed 5% return in the Examples is required by the Securities and Exchange
Commission. The Examples are not an illustration of past or future investment
results, and should not be considered a representation of past or future
expenses, actual expenses may be more or less than those shown.
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
The following tables present condensed financial information about each Fund.
The tables present historical information based upon a share outstanding through
each Fund's fiscal year. This information has been derived from the financial
statements that are in each Fund's Annual Report dated as of June 30, 1998.
Further information about each Fund's performance is contained in that Fund's
Annual Report, which may be obtained without charge.
Bank and Thrift Fund
For the six-month period ended June 30, 1998 and the periods ended December 31,
1997, 1996, and 1995, the information in the table below, with the exception of
the information in the row labeled "Total Investment Return at Net Asset Value"
for periods prior to January 1, 1997, has been audited by KPMG Peat Marwick LLP,
independent auditors. For all periods ending prior to December 31, 1995, the
financial information, with the exception of the information in the row labeled
"Total Investment Return at Net Asset Value", was audited by another independent
auditor. The information in the row labeled "Total Investment Return at Net
Asset Value" has not been audited for periods prior to January 1, 1997. Prior to
October 17, 1997, the Class A shares were designated as Common Stock and the
Fund operated as a closed-end investment company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
1998* 1997 1996 1995(b) 1994 1993 1992
CLASS A CLASS B CLASS A CLASS B(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period................ ______ ______ $17.84 $25.25 $14.83 $10.73 $11.87 $12.46 $10.12
Income (loss) from
investment
operations:
Net investment
income.............. ______ ______ 0.34 0.04 0.32 0.31 0.26 0.26 0.22
Net realized and
unrealized gain
(loss) on
investments......... ______ ______ 10.83 2.92 5.18 4.78 (0.53) 0.75 2.93
Total from
investment
operations............ ______ ______ 11.17 2.96 5.50 5.09 (0.27) 1.01 3.15
Less distributions:
Net investment
income.............. ______ ______ 0.31 0.04 0.32 0.31 0.22 0.26 0.22
In excess of net
investment
income.............. ______ ______ -- -- 0.03 0.03 -- -- --
Realized capital
gains............... ______ ______ 2.65 2.04 2.14 0.65 0.65 0.73 0.47
Paid-in capital....... ______ ______ 0.18 0.28 -- -- -- -- 0.12
Total
distributions......... ______ ______ 3.14 2.36 2.49 0.99 0.87 0.99 0.81
Other:
Reduction in net
asset value from
rights offering.. ______ ______ -- -- -- -- -- (0.61) --
Net asset value, end
of period............. ______ ______ $25.87 $25.85 $17.84 $14.83 $10.73 $11.87 $12.46
Closing Market
Price, end of
period................ ______ ______ -- -- $15.75 $12.88 $9.13 $10.88 $11.63
TOTAL INVESTMENT
RETURN AT MARKET
VALUE(c).............. ______ ______ -- -- 43.48% 52.81% (8.85)% 1.95%(d) 31.53%
TOTAL INVESTMENT
RETURN AT NET ASSET
VALUE(e).............. ______ ______ 64.86% 11.88% 41.10% 49.69% (1.89)% 7.79%(f) 32.36(g)%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period
$(millions)........... ______ ______ $383 $76 $252 $210 $152 $168 $141
Ratios to average
net assets
Expenses.............. ______ ______ 1.10% 1.85%(h) 1.01% 1.05% 1.28% 0.91% 1.24%
Net investment
income.............. ______ ______ 1.39% 0.99%(h) 1.94% 2.37% 2.13% 2.08% 2.00%
Portfolio turnover
rate.................. ______ ______ 22% 22% 21% 13% 14% 17% 20%
Average commission
rate paid............. ______ ______ $0.013 $0.013 -- -- -- -- --
<FN>
(a) From the period October 20, 1997 (initial offering of Class B shares)
through December 31, 1997.
(b) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former investment
manager, in a transaction that closed on April 7, 1995.
(c) Total return is calculated at market value without deduction of sales
commissions and assuming reinvestment of all dividends and distributions during
the period.
(d) Calculation of total return excludes the effect of the per share dilution
resulting from the 1993 Rights Offering as the total account value of a fully
subscribed shareholder was minimally impacted.
(e) Total return is calculated at net asset value without deduction of sales
commissions and assumes reinvestment of all dividends and distributions during
the period. Total investment returns based on net asset value, which can be
higher or lower than market value, may result in substantially different returns
than total returns based on market value. Total returns for less than one year
are not annualized. For all periods prior to January 1, 1997 the total returns
presented are unaudited.
(f) Total return is calculated assuming full participation in the 1993 rights
offering.
(g) Total return is calculated assuming no participation in the 1992 rights
offering.
(h) Annualized.
* Effective June 30, 1998, Bank and Thrift Fund changed its year end to June 30.
</FN>
</TABLE>
<PAGE>
YEAR ENDED DECEMBER 31,
1991 1990 1989
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period................ $7.49 $10.26 $9.54
Income (loss) from
investment
operations:
Net investment
income.............. 0.24 0.31 0.30
Net realized and
unrealized gain
(loss) on
investments......... 3.33 (2.20) 1.50
Total from
investment
operations............ 3.57 (1.89) 1.80
Less distributions:
Net investment
income.............. 0.24 0.31 0.31
In excess of net
investment
income.............. -- -- --
Realized capital
gains............... -- -- 0.44
Paid-in capital....... 0.70 0.57 0.33
Total
distributions......... 0.94 0.88 1.08
Other:
Reduction in net
asset value from
rights offering.. -- -- --
-- -- --
Net asset value, end
of period............. $10.12 $7.49 $10.26
Closing Market
Price, end of
period................ $9.50 $7.13 $9.13
TOTAL INVESTMENT
RETURN AT MARKET
VALUE(c).............. 47.52% (12.45)% 32.25%
TOTAL INVESTMENT
RETURN AT NET ASSET
VALUE(e).............. 49.49% (18.14)% 20.79%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period $101 $75 $103
Ratios to average
net assets
Expenses.............. 1.31% 1.29% 1.26%
Net investment
income.............. 2.68% 3.59% 4.15%
Portfolio turnover
rate.................. 31% 46% 63%
Average commission
rate paid............. -- -- --
<PAGE>
MagnaCap Fund
For the fiscal year ended June 30, 1998 and the periods ended June 30, 1997,
1996 and 1995, the information in the table below has been audited by KPMG Peat
Marwick LLP, independent auditors. For all periods ending prior to July 1, 1994,
the financial information was audited by another independent auditor.
<TABLE>
<CAPTION>
Class A
Year Ended June 30,
1998 1997 1996 1995(b) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period .......................... _____ $16.69 $14.03 $12.36 $12.05 $11.98 $10.93 $10.74 $10.52
Income from investment operations:
Net investment income ........... _____ 0.10 0.09 0.12 0.15 0.14 0.13 0.20 0.15
Net realized and unrealized gain
(loss) on investments ......... _____ 4.16 2.87 2.29 0.89 0.82 1.16 0.33 1.24
Total from investment
operations .................. _____ 4.26 2.96 2.41 1.04 0.96 1.29 0.53 1.39
Less distributions from:
Net investment income ........... _____ 0.10 0.06 0.14 0.14 0.12 0.24 0.16 0.17
Distributions in excess of net
investment income ............. _____ 0.02 -- -- -- -- -- -- --
Realized gains on investments ... _____ 4.16 0.24 0.60 0.59 0.77 -- 0.18 1.00
Distributions in excess of net
realized gains ................ _____ 0.75 -- -- -- -- -- -- --
Total distributions ........... _____ 5.03 0.30 0.74 0.73 0.89 0.24 0.34 1.17
Net asset value, end of period ... _____ $15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98 $ 10.93 $ 10.74
Total Return(c) .................. _____ 30.82% 21.31% 20.61% 9.13% 8.21% 11.93% 5.21% 13.84%
</TABLE>
<TABLE>
Ratios/Supplemental Data
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net assets, end of period (in
thousands) __________ $290,355 $235,393 $211,330 $190,435 $197,250 $196,861 $199,892 $224,059
Ratios to average net assets:
Expenses _____ 1.46% 1.68% 1.59% 1.53% 1.53% 1.60% 1.50% 1.50%
Net investment income. _____ 0.64% 0.54% 0.98% 1.16% 1.09% 1.20% 2.00% 1.40%
Portfolio turnover rate _____ 77% 15% 6% 7%36% 49% 182% 12% --
Average commission rate paid. _____ $0.0 686 -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class M
Year Year Year July 17, Year Year July 17,
Ended Ended Ended 1995(a) to Ended Ended 1995(a) to
June 30, June 30, June 30, June 30, June 30, June 30, June 30,
1989 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period........................... $9.12 _____ $16.59 $14.22 _____ $16.63 $14.22
Income from investment operations:
Net investment income............ 0.17 _____ -- 0.06 _____ 0.02 0.08
Net realized and unrealized gain
(loss) on investments.......... 1.39 _____ 4.13 2.61 _____ 4.16 2.63
Total from investment
operations................... 1.56 _____ 4.13 2.67 _____ 4.18 2.71
Less distributions from:
Net investment income............ 0.16 _____ -- 0.06 _____ 0.02 0.06
Distributions in excess of net
investment income.............. -- _____ -- -- _____ 0.01 --
Realized gains on investments.... -- _____ 4.13 0.24 _____ 4.16 0.24
Distributions in excess of net
realized gains................. -- _____ 0.78 -- _____ 0.75 --
Total distributions............ 0.16 _____ 4.91 0.30 _____ 4.94 0.30
Net asset value, end of period.... $10.52 _____ $15.81 $16.59 _____ $15.87 $16.63
Total Return(c)................... 17.32% _____ 29.92% 18.98% _____ 30.26% 19.26%
Ratios/Supplemental Data
Net assets, end of period (in
thousands)....................... $204,552 _____ $37,427 $10,509 _____ $6,748 $1,961
Ratios to average net assets:
Expenses......................... 1.60% _____ 2.16% 2.38%(d) _____ 1.91% 2.13%(d)
Net investment income............ 1.80% _____ (0.04%) 0.07%(d) _____ 0.22% 0.32%(d)
Portfolio turnover rate........... 129% _____ 77% 15% _____ 77% 15%
Average commission rate paid...... -- _____ $0.0686 -- _____ $0.0686 --
<FN>
(a) Commencement of offering of shares.
(b) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(c) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(d) Annualized.
</FN>
</TABLE>
<PAGE>
Pilgrim America MidCap Value Fund
The information in the table below has been audited by KPMG Peat Marwick LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Class B Class M
Ten Ten Ten
Months Months Months
Year Year Ended Year Year Ended Year Year Ended
Ended Ended June Ended Ended June Ended Ended June
June 30, June 30, 30, June 30, June 30, 30, June 30, June 30, 30,
1998 1997 1996(a) 1998 1997 1996(a) 1998 1997 1996(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period... _____ $11.99 $10.00 ____ $11.94 $10.00 _____ $11.93 $10.00
Income from investment operations:
Net investment income (loss)......... _____ (0.02) 0.13 ____ (0.05) 0.07 _____ (0.03) 0.06
Net realized and unrealized gains on
investments........................ _____ 2.85 1.91 ____ 2.76 1.90 _____ 2.76 1.91
Total from investment operations.... _____ 2.83 2.04 ____ 2.71 1.97 _____ 2.73 1.97
Less distributions:
Net investment income................. _____ -- 0.05 ____ -- 0.03 _____ -- 0.04
In excess of net investment income.... _____ 0.07 -- ____ 0.05 -- _____ 0.06 --
Realized gains on investments......... _____ 0.11 -- ____ 0.11 -- _____ 0.11 --
Total distributions................. _____ 0.18 0.05 ____ 0.16 0.03 _____ 0.17 0.04
Net asset value, end of period.......... _____ $14.64 $11.99 ____ $14.49 $11.94 _____ $14.49 $11.93
Total Return(b)......................... _____ 23.89% 20.48% ____ 22.95% 19.80% _____ 23.21% 19.82%
Ratios/Supplemental Data
Net assets, end of period (000's). _____ $16,985 $2,389 ____ $23,258 $2,123 _____ $8,378 $1,731
Ratios to average net assets:
Expenses(c)(d)(e)..................... _____ 1.75% 1.75%(f) ____ 2.50% 2.50%(f) _____ 2.25% 2.25%(f)
Net investment income (loss)(c)(d)(e). _____ (0.13)% 2.00%(f) ____ (0.90)% 1.27%(f) _____ (0.63)% 1.16%(f)
Portfolio turnover rate................. _____ 86% 60%(f) ____ 86% 60%(f) _____ 86% 60%(f)
Average commission rate paid............ _____ $0.0592 -- ____ $0.0592 -- _____ $0.0592 --
<FN>
(a) The Fund commenced operations on September 1, 1995.
(b) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(c) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1997, the ratios of expenses to average net assets were 1.94%, 2.69% and
2.44% and the ratios of net investment income (loss) to average net assets were
(0.32)%, (1.11)% and (0.81)% for Class A, B and M shares, respectively.
(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratios of expenses to average net assets were 4.91%,
5.32% and 4.72% and the annualized ratios of net investment income (loss) to
average net assets were (1.17)%, (1.56)% and (1.32)% for Class A, B and M
shares, respectively.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were _____, _______ and
_____ and the ratios of net investment income (loss) to average net assets were
_____, ______ and _____ for Class A, B and M shares, respectfully.
(f) Annualized.
</FN>
</TABLE>
<PAGE>
Pilgrim America LargeCap Value Fund(a)
The information in the table below has been audited by KPMG Peat Marwick LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Class B Class M
Ten Ten Ten
Months Months Months
Year Year Ended Year Year Ended Year Year Ended
Ended Ended June Ended Ended June Ended Ended June
June 30, June 30, 30, June 30, June 30, 30, June 30, June 30, 30,
1998 1997 1996(b) 1998 1997 1996(b) 1998 1997 1996(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period... _____ $11.77 $10.00 ____ $11.71 $10.00 _____ $11.73 $10.00
Income from investment operations:
Net investment income (loss)......... _____ 0.06 0.07 ____ (0.02) 0.06 _____ -- 0.06
Net realized and unrealized gains on
investments........................ _____ 2.63 1.87 ____ 2.59 1.81 _____ 2.62 1.83
Total from investment operations.... _____ 2.69 1.94 ____ 2.57 1.87 _____ 2.62 1.89
Less distributions:
Net investment income................. _____ -- 0.07 ____ -- 0.06 _____ -- 0.06
In excess of net investment income.... _____ 0.05 0.01 ____ -- 0.01 _____ 0.01 0.01
Realized gains on investments......... _____ 0.24 0.09 ____ 0.24 0.09 _____ 0.24 0.09
Total distributions................. _____ 0.29 0.17 ____ 0.24 0.16 _____ 0.25 0.16
Net asset value, end of period.......... _____ $14.17 $11.77 ____ $14.04 $11.71 _____ $14.10 $11.73
Total Return(c)......................... _____ 23.24% 19.56% ____ 22.23% 18.85% _____ 22.58% 19.06%
Ratios/Supplemental Data
Net assets, end of period (000's). _____ $8,961 $2,530 ____ $13,611 $1,424 _____ $4,719 $1,240
Ratios to average net assets:
Expenses(d)(e)(f)..................... _____ 1.75% 1.75%(g) ____ 2.50% 2.50%(g) _____ 2.25% 2.25%(g)
Net investment income (loss)(d)(e)(f). _____ 0.41% 0.65%(g) ____ (0.35)% (0.25)%(g) _____ (0.10)% 0.06%(g)
Portfolio turnover rate................. _____ 86% 59%(g) ____ 86% 59%(g) _____ 86% 59%(g)
Average commission rate paid............ _____ $0.0586 -- ____ $0.0586 -- _____ $0.0586 --
<FN>
(a) Since November 1, 1997, the Investment Manager has provided investment
advisory services directly to the Fund. Prior to that date, a different firm
served as Portfolio Manager to the Fund.
(b) The Fund commenced operations on September 1, 1995.
(c) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1997, the ratios of expenses to average net assets were 2.33%, 3.08% and
2.83% and the ratios of net investment income (loss) to average net assets were
(0.18)%, (0.91)% and (0.68)% for Class A, B and M shares, respectively.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratios of expenses to average net assets were 5.44%,
5.79% and 5.90% and the annualized ratios of net investment income (loss) to
average net assets were (3.04)%, (3.53)% and (3.59)% for Class A, B and M
shares, respectively.
(f) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were _____, _______ and
_____ and the ratios of net investment income (loss) to average net assets were
_____, ______ and _____ for Class A, B and M shares, respectfully.
(g) Annualized.
</FN>
</TABLE>
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
The information in the table below has been audited by KPMG Peat Marwick LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Class B Class M
Ten Ten Ten
Months Year Months Year Months
Year Year Ended Ended Year Ended Ended Year Ended
Ended Ended June June Ended June June Ended June
June 30, June 30, 30, 30, June 30, 30, 30, June 30, 30,
1998 1997 1996(a) 1998 1997 1996(a) 1998 1997 1996(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period... _____ $10.35 $10.00 ____ $10.31 $10.00 _____ $10.32 $10.00
Income from investment operations:
Net investment income (loss)......... _____ 0.02 0.03 ____ (0.07) (0.01) _____ (0.05) --
Net realized and unrealized gains on
investments and foreign
currency transactions.............. _____ 0.58 0.34 ____ 0.59 0.32 _____ 0.59 0.33
Total from investment operations.... _____ 0.60 0.37 ____ 0.52 0.31 _____ 0.54 0.33
Less distributions:
Net investment income................. _____ -- -- ____ -- -- _____ -- --
In excess of net investment income.... _____ -- 0.02 ____ -- -- _____ -- 0.01
Realized gains on investments......... _____ -- -- ____ -- -- _____ -- --
Tax return of capital ................ _____ 0.02 -- ____ -- -- _____ -- --
Total distributions................. _____ 0.02 0.02 ____ -- -- _____ -- 0.01
Net asset value, end of period.......... _____ $10.93 $10.35 ____ $10.83 $10.31 _____ $10.86 $10.32
Total Return(b)......................... _____ 5.78% 3.76% ____ 5.04% 3.19% _____ 5.26% 3.32%
Ratios/Supplemental Data
Net assets, end of period (000's). _____ $32,485 $18,371 ____ $30,169 $17,789 _____ $11,155 $6,476
Ratios to average net assets:
Expenses(c)(d)(e)..................... _____ 2.00% 2.00%(f) ____ 2.75% 2.75%(f) _____ 2.50% 2.50%(f)
Net investment income (loss)(c)(d)(e). _____ 0.00% 0.33%(f) ____ (0.79)% (0.38)%(f) _____ (0.55)% (0.16)%(f)
Portfolio turnover rate................. _____ 38% 15%(f) ____ 38% 15%(f) _____ 38% 15%(f)
Average commission rate paid............ _____ $0.0096 -- ____ $0.0096 -- _____ $0.0096 --
<FN>
(a) The Fund commenced operations on September 1, 1995.
(b) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(c) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1997, the ratios of expenses to average net assets were 2.54%, 3.29% and
3.04% and the ratios of net investment income (loss) to average net assets were
(0.53)%, (1.33)% and (1.09)% for Class A, B and M shares, respectively.
(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratios of expenses to average net assets were 3.47%,
4.10% and 3.88% and the annualized ratios of net investment income (loss) to
average net assets were (1.14)%, (1.73)% and (1.53)% for Class A, B and M
shares, respectively.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were _____, _______ and
_____ and the ratios of net investment income (loss) to average net assets were
_____, ______ and _____ for Class A, B and M shares, respectfully.
(f) Annualized.
</FN>
</TABLE>
<PAGE>
High Yield Fund
For the fiscal year ended June 30, 1998 and the periods ended June 30, 1997,
1996 and the eight-month period ended June 30, 1995, the information in the
table below has been audited by KPMG Peat Marwick LLP, independent auditors. For
all periods ending prior to November 1, 1994, the financial information was
audited by another independent auditor. Information for High Yield Fund for the
fiscal years ended October 31, 1986 through October 31, 1989 was not included in
such Fund's 1994 financial statements.
<TABLE>
<CAPTION>
Class A
Eight Months
Year Ended June 30, Ended Year Ended October 31,
June 30,
1998 1997 1996 1995(b)(c) 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of
period........................... ____ $6.36 $6.15 $5.95 $6.47 $5.77 $5.70
Income (loss) from investment
operations:
Net investment income............ ____ 0.61 0.59 0.35 0.54 0.53 0.63
Net realized and unrealized gain
(loss) on investments.......... ____ 0.43 0.16 0.21 (0.51) 0.70 0.07
Total from investment
operations................... ____ 1.04 0.75 0.56 0.03 1.23 0.70
Less distributions from:
Net investment income............ ____ 0.60 0.54 0.36 0.55 0.53 0.63
Realized gains on investments.... ____ -- -- -- -- -- --
-- -- -- -- -- --
Total distributions............ ____ 0.60 0.54 0.36 0.55 0.53 0.63
Net asset value, end of period.... ____ $6.80 $6.36 $6.15 $5.95 $6.47 $5.77
Total Return(d)................... ____ 17.14% 12.72% 9.77% 0.47% 22.12% 12.65%
Ratios/Supplemental Data
Net assets, end of period
(`000's)......................... ____ $35,940 $18,691 $15,950 $16,046 $18,797 $17,034
Ratios to average net assets:
Expenses......................... ____ 1.00%(e) 1.00%(f) 2.25%(g)(h) 2.00%(h) 2.02% 2.03%
Net investment income............ ____ 9.54%(e) 9.46%(f) 8.84%(g)(h) 8.73%(h) 8.36% 10.93%
Portfolio turnover rate........... ____ 394% 339% 166% 192% 116% 193%
</TABLE>
<TABLE>
<CAPTION>
Class A Class B Class M
Year Year July 17, Year Year July 17,
Year Ended Ended Ended 1995(a) to Ended Ended 1995(a) to
October 31, June 30, June 30, June 30, June 30, June 30, June 30,
1991 1990 1989 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period........................... $5.03 $6.46 $7.29 _____ $6.36 $6.20 _____ $6.36 $6.20
Income (loss) from investment
operations:
Net investment income............ 0.66 0.82 0.88 _____ 0.57 0.48 _____ 0.58 0.50
Net realized and unrealized gain
(loss) on investments.......... 0.74 (1.40) (0.80) _____ 0.41 0.14 _____ 0.41 0.14
Total from investment
operations................... 1.40 (0.58) 0.08 _____ 0.98 0.62 _____ 0.99 0.64
Less distributions from:
Net investment income............ 0.68 0.85 0.91 _____ 0.56 0.46 _____ 0.57 0.48
Realized gains on investments.... 0.05 -- -- _____ -- -- _____ -- --
Total distributions............ 0.73 0.85 0.91 _____ 0.56 0.46 _____ 0.57 0.48
Net asset value, end of period.... $5.70 $5.03 $6.46 _____ $6.78 $6.36 _____ $6.78 $6.36
Total Return(d)................... 30.00% (10.08)% 0.94% _____ 16.04% 10.37% _____ 16.29% 10.69%
Ratios/Supplemental Data
Net assets, end of period
(in thousands)................... $23,820 $21,598 $31,356 _____ $40,225 $2,374 _____ $8,848 $1,243
Ratios to average net assets:
Expenses......................... 1.89% 1.75% 1.79% _____ 1.75%(e) 1.75%(f)(g) _____ 1.50%(e) 1.50%(f)(g)
Net investment income............ 12.40% 14.11% 12.61% _____ 8.64%(e) 9.02%(f)(g) _____ 8.93%(e) 9.41%(f)(g)
Portfolio turnover rate........... 173% 183% 210% _____ 394% 339% _____ 394% 339%
<FN>
(a) Commencement of offering of shares.
(b) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(c) Effective November 1, 1994, High Yield Fund changed its year end to June 30.
(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(e) Prior to the waiver and reimbursement of expenses for the year ended June
30, 1997, the ratios of expenses to average net assets were 1.42%, 2.17% and
1.92% and the ratios of net investment income to average net assets were 9.09%,
8.18% and 8.47% for Class A, B and M shares, respectively.
(f) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the ratios of expenses to average net assets were 2.19%, 2.94%
(annualized) and 2.69% (annualized) for Class A, B and M shares, respectively.
Prior to the waiver and reimbursement of expenses for the period ended June 30,
1996, the ratios of net investment income to average net assets were 8.27%,
8.05% (annualized) and 8.51% (annualized) for Class A, B and M shares,
respectively.
(g) Annualized.
(h) Prior to the waiver of expenses, the annualized ratio of expenses to average
net assets was 2.35% in 1995 and 2.07% in 1994 for Class A shares. Prior to the
waiver of expenses, the annualized ratio of net investment income to average net
assets was 8.74% in 1995 and 8.66% in 1994 for Class A shares.
</FN>
</TABLE>
<PAGE>
Government Securities Income Fund*
For the fiscal year ended June 30, 1998 and the periods ended June 30, 1997,
1996 and 1995, the information in the table below has been audited by KPMG Peat
Marwick LLP, independent auditors. For all periods ending prior to July 1, 1994,
the financial information was audited by another independent auditor.
<TABLE>
<CAPTION>
Class A
Year Ended June 30,
1998 1997 1996 1995(b) 1994 1993(c) 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period...................... ____ $12.59 $12.97 $12.73 $13.96 $13.76 $13.76 $13.79 $14.23 $14.23
Income (loss) from investment
operations:
Net investment income....... ____ 0.69 0.75 0.84 0.84 1.13 1.19 1.25 1.25 1.31
Net realized and unrealized
gain (loss) on
investments............... ____ 0.20 (0.32) 0.24 (1.17) 0.18 -- (0.03) (0.38) 0.02
Total from investment
operations.............. ____ 0.89 0.43 1.08 (0.33) 1.31 1.19 1.22 0.87 1.33
Less distributions from:
Net investment income....... ____ 0.69 0.75 0.84 0.90 1.11 1.19 1.25 1.31 1.33
Distributions in excess of
net investment income..... ____ 0.04 -- -- -- -- -- -- -- --
Tax return of capital....... ____ 0.04 0.06 -- -- -- -- -- -- --
Total distributions....... ____ 0.77 0.81 0.84 0.90 1.11 1.19 1.25 1.31 1.33
Net asset value, end of
period...................... ____ $12.71 $12.59 $12.97 $12.73 $13.96 $13.76 $13.76 $13.79 $14.23
Total Return(d)............... ____ 7.33% 3.34% 8.96% (2.50)% 9.82% 8.98% 9.27% 6.51% 10.10%
Ratios/Supplemental Data
Net assets, end of period
(`000's).................. ____ $29,900 $38,753 $43,631 $61,100 $87,301 $96,390 $110,674 $122,212 $144,769
Ratios to average net assets:
Expenses.................... ____ 1.42% 1.51%(e) 1.40%(g) 1.21% 1.12% 1.10% 1.14% 1.14% 1.06%
Net investment income....... ____ 5.78% 5.64%(e) 6.37%(g) 6.44% 8.06% 8.59% 9.09% 9.02% 9.45%
Portfolio turnover rate....... ____ 172% 170% 299% 402% 466% 823% 429% 448% 537%
</TABLE>
<TABLE>
<CAPTION>
Class B Class M
Year Year July 17, Year Year July 17,
Ended Ended 1995(a) to Ended Ended 1995(a) to
June 30, June 30, June 30, June 30, June 30, June 30,
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period...................... ____ $12.59 $12.95 ____ $12.59 $12.95
Income (loss) from investment
operations:
Net investment income....... ____ 0.67 0.66 ____ 0.70 0.68
Net realized and unrealized
gain (loss) on
investments............... ____ 0.11 (0.37) ____ 0.14 (0.36)
Total from investment
operations.............. ____ 0.78 0.29 ____ 0.84 0.32
Less distributions from:
Net investment income....... ____ 0.67 0.65 ____ 0.70 0.68
Distributions in excess of
net investment income..... ____ 0.02 -- ____ -- --
Tax return of capital....... ____ -- -- ____ 0.01 --
-- -- ---- --
Total distributions....... ____ 0.69 0.65 ____ 0.71 0.68
Net asset value, end of
period...................... ____ $12.68 $12.59 ____ $12.72 $12.59
Total Return(d)............... ____ 6.38% 2.25% ____ 6.88% 2.52%
Ratios/Supplemental Data
Net assets, end of period
(`000's).................. ____ $1,534 $73 ____ $61 $24
Ratios to average net assets:
Expenses.................... ____ 2.17% 2.26%(e)(f) ____ 1.92% 2.01%(e)(f)
Net investment income....... ____ 4.92% 4.98%(e)(f) ____ 5.25% 5.73%(e)(f)
Portfolio turnover rate....... ____ 172% 170% ____ 172% 170%
<FN>
(a) Commencement of offering of shares.
(b) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(c) During this period, average daily borrowings were $11,038,044, average
monthly shares outstanding were 6,429,755 and average daily borrowings per share
were $1.72. The Fund earned income and realized capital gains as a result of
entering into reverse repurchase agreements during the six months from July to
December 1992. Such transactions constituted borrowing transactions and, as a
result, the Fund exceeded its 10% borrowing limitations during that period.
Therefore, the Fund's performance was higher than it would have been had the
Fund adhered to its investment restrictions. This borrowing technique was
discontinued subsequent to December 1992 until April 4, 1995, when shareholders
approved a change in the Fund's investment policies.
(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratio of expenses to average net assets was 1.57%,
2.41% and 2.16% for Class A, B and M shares, respectively. Prior to the waiver
and reimbursement of expenses for the period ended June 30, 1996, the annualized
ratio of net investment income to average net assets was 5.74%, 4.83% and 5.58%
for Class A, B and M shares, respectively.
(f) Annualized.
(g) Prior to the waiver of expenses the ratio of expenses to average net assets
was 1.54% and the ratio of net investment income to average net assets was 6.23%
for Class A shares.
* Prior to April 4, 1995, the Fund had an investment policy of normally
investing at least 70% of its assets in Government National Mortgage Association
(GNMA) certificates. Effective April 4, 1995, the Fund's policy changed to
normally investing at least 70% of its assets in securities issued or guaranteed
by the U.S. Government, or certain of its agencies and instrumentalities.
</FN>
</TABLE>
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
Bank and Thrift Fund. The Fund primarily seeks long-term capital appreciation; a
secondary objective is income. The Fund pursues its objectives by investing,
under normal market conditions, at least 65% of its total assets in equity
securities of (i) national and state-chartered banks (other than money center
banks), (ii) thrifts, (iii) the holding or parent companies of such depository
institutions, and (iv) in savings accounts of mutual thrifts, which investment
may entitle the investor to participate in future stock conversions of the
mutual thrifts. These portfolio securities are selected principally on the basis
of fundamental investment value and potential for future growth, including
securities of institutions that the Fund believes are well positioned to take
advantage of the attractive investment opportunities developing in the banking
and thrift industries. In making decisions concerning the selection of portfolio
securities for the Fund, the Investment Manager conducts its own evaluation of
the depository institution which is a potential investment by the Fund and does
not take into account the credit rating of the debt securities issued by such
institution. These equity securities include common stocks and securities
convertible into common stock (including convertible bonds, convertible
preferred stock, and warrants) but do not include non-convertible preferred
stocks or adjustable rate preferred stocks. An investment in the Fund's shares
cannot be considered a complete investment program. Because the Fund's
investment portfolio will be concentrated in specific segments of the banking
and thrift industries, the shares may be subject to greater risk than the shares
of a fund whose portfolio is less concentrated.
The Investment Manager believes that a number of factors may contribute to the
potential for growth in the value of equity securities of depository
institutions, including the fact that such depository institutions are:
(i) located in geographic regions experiencing strong economic growth
and able to participate in such growth;
(ii) well-managed and currently providing above-average returns on
assets and shareholders' equity;
(iii) attractive candidates for acquisition by a money center bank or
another regional bank, as defined in 'The Banking and Thrift
Industries,' below, or attractive partners for business combinations,
as a result of opportunities created by the trend towards deregulation
and interstate banking or in order to create larger, more efficient
banking combinations;
(iv) expanding their business into new financial services or
geographic areas that have become or may become permissible due to an
easing of regulatory constraints; or
(v) investing assets in technology that is intended to increase
productivity.
The Investment Manager also believes that factors may contribute to increased
earnings of securities of depository institutions, including the following:
(i) changes in the sources of revenues of banks, such as the
implementation of certain new transaction-based fees;
(ii) a focus on variable rate pricing of bank products, which is less
sensitive than fixed pricing to cyclical interest rate changes;
(iii) the ability, as a result of liberalization of regulation, to
offer financial products and services which may have a higher rate of
return than traditional banking and financial services products;
(iv) the recent implementation of share repurchase programs by certain
banks; or
(v) a trend towards increased savings and investing as the average age
of the population of the United States gets older.
The Fund's policy of investing under normal market conditions at least 65% of
its total assets in the equity securities of (i) national and state-chartered
banks (other than money center banks), (ii) thrifts, (iii) the holding or parent
companies of such depository institutions, and (iv) in savings accounts of
mutual thrifts is fundamental and may only be changed with approval of the
shareholders of the Fund.
The Fund invests the remaining 35% of its total assets in the equity securities,
including preferred stocks or adjustable rate preferred stocks, of money center
banks, other financial services companies, other issuers deemed suitable by the
Investment Manager (which may include companies that are not in financial
services industries), in securities of other investment companies and in
nonconvertible debt securities (including certificates of deposit, commercial
paper, notes, bonds or debentures) that are either issued or guaranteed by the
United States Government or agency thereof or issued by a corporation or other
issuer and rated investment grade or comparable quality by at least one
nationally recognized rating organization. The Fund may also invest in
short-term, investment grade debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'
MagnaCap Fund. The Fund's objective is growth of capital, with dividend income
as a secondary consideration. In selecting investments for the Fund,
preservation of capital is also an important consideration. The Fund normally
seeks its objectives by investing primarily in equity securities issued by
companies that the Investment Manager determines are of high quality based upon
the selection criteria described below. The equity securities in which the Fund
may invest include common stocks, securities convertible into common stocks,
rights or warrants to subscribe for or purchase common stocks, repurchase
agreements, and foreign securities (including American Depository Receipts
(ADRs)), although it is anticipated that the Fund normally will be invested as
fully as practicable in equity securities in accordance with its investment
policies. Assets of the Fund not invested in equity securities may be invested
in high quality debt securities, as described in "Investment
Techniques--Temporary Defensive and other Short-Term Positions." In a period
that the Investment Manager believes presents weakness in the stock market or in
economic conditions, the Fund may establish a defensive position to attempt to
preserve capital and increase its investment in these instruments.
MagnaCap Fund is managed in accordance with the philosophy that companies that
can best meet the Fund's objectives have paid increasing dividends or have had
the capability to pay rising dividends from their operations. Normally, stocks
are acquired only if at least 65% of the Fund's assets are invested in companies
that meet the following criteria:
1. Consistent dividends. A company must have paid or had the
financial capability from its operations to pay a dividend in 8
out of the last 10 years.
2. Substantial dividend increases. A company must have increased its
dividend or had the financial capability from its operations to
have increased its dividend at least 100% over the past 10 years.
3. Reinvested earnings. Dividend payout must be less than 65% of
current earnings.
4. Strong balance sheet. Long term debt should be no more than 25%
of the company's total capitalization or a company's bonds must
be rated at least A- or A-3.
5. Attractive price. A company's current share price should be in
the lower half of the stock's price/earnings ratio range for the
past ten years, or the ratio of the share price to its
anticipated future earnings must be an attractive value in
relation to the average for its industry peer group or that of
the Standard & Poor's 500 Composite Stock Price Index.
The Investment Manager may also consider other factors in selecting investments
for the Fund. The remainder of the Fund's assets may be invested in equity
securities that the Investment Manager believes have growth potential because
they represent an attractive value. MagnaCap Fund may not invest more than 5% of
its total assets in the securities of companies which, including predecessors,
have not had a record of at least three years of continuous operations, and it
may not invest in any restricted securities.
MidCap Value Fund. This Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective through investment in
equity securities issued by companies with middle market capitalizations, i.e.,
market capitalizations between $200 million and $5 billion, although the Fund
may also invest to a limited degree in companies that have larger or smaller
market capitalizations. The equity securities in which the Fund may invest
include common stock, convertible securities, preferred stock and warrants. The
Fund will normally be invested as fully as practicable (at least 80%) in equity
securities of companies with middle market capitalizations. The Fund may also
invest in high-quality debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'
The Fund is managed in accordance with the disciplined investment style that the
Portfolio Manager, Cramer Rosenthal McGlynn, LLC (CRM), employs in managing
midcap value portfolios. As a value adviser, CRM does not attempt to time market
fluctuations; rather it relies on stock selection to achieve investment results,
seeking out those stocks that are undervalued and, in some cases, neglected by
financial analysts. The Portfolio Manager's investment philosophy is to take
advantage of periodic inefficiencies that develop in the valuation of publicly
traded companies. Generally, its approach to finding such companies is to first
identify dynamic change that can be material to a company's operations. Dynamic
change means change within a company that is likely to have a material impact on
its operations. Examples include new senior management, new products or markets,
or any material divestitures, acquisitions, or mergers. The philosophy is that
this type of change often creates misunderstanding in the marketplace that can
result in a company's stock being undervalued relative to its future prospects
and peer group. The Portfolio Manager seeks to identify this change at an early
stage and conduct an evaluation of the company's business. In applying this
approach, the Portfolio Manager focuses on middle capitalization companies where
dynamic change can be material.
CRM seeks companies that it believes will look different in the future in terms
of their operations, finances, and/or management. Once change is identified, the
Portfolio Manager conducts an evaluation of a company that includes creating a
financial model based principally upon projected cash flow, as opposed to
reported earnings. The company's stock is evaluated in the context of what the
market is willing to pay for the shares of comparable companies and what a
strategic buyer would pay for the whole company. CRM also evaluates the degree
of investor recognition of a company by monitoring the number of sell side
analysts who closely follow the company and the nature of the shareholder base.
Before deciding to purchase a stock CRM conducts a business analysis to
corroborate its observations and assumptions, including, in most instances,
discussions with management, customers and suppliers. Also, an important
consideration is the extent to which management holds an ownership interest in a
company. In its overall assessment, CRM seeks stocks that have a favorable
risk/reward ratio over an 18 to 24 month holding period.
LargeCap Value Fund. This Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective through investing at
least 80% of its assets in equity securities and at least 65% of its assets in
equity securities issued by companies with large market capitalizations that the
Portfolio Manager believes sell at reasonable prices relative to their projected
earnings. The Portfolio Manager's investment goal is to participate in up
markets while cushioning the portfolio during a downturn. A company with a
market capitalization (outstanding shares multiplied by price per share) of over
$5 billion is considered to have large market capitalization, although the Fund
may also invest to a limited degree in companies that have a market
capitalization between $1 billion and $5 billion. The equity securities in which
the Fund may invest include common stock, convertible securities, preferred
stock, ADRs, and warrants. The Fund will normally be invested as fully as
practicable (at least 80%) in equity securities and will normally invest at
least 65% of its assets in companies with large market capitalizations. The Fund
may also invest in high-quality debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'
Asia-Pacific Equity Fund. This Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve this objective through investment in
equity securities listed on stock exchanges in countries in the Asia-Pacific
region or issued by companies based in this region. Asia-Pacific countries in
which the Fund invests include, but are not limited to, China, Hong Kong,
Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, but do
not include Japan and Australia. The equity securities in which the Fund may
invest include common stock, convertible securities, preferred stock, warrants,
American Depositary Receipts (ADRs), European Depositary Receipts and other
depositary receipts. The Fund will normally be invested as fully as practicable
(at least 80%) in equity securities of Asia-Pacific issuers. The Fund may also
invest in high-quality debt securities, as described in 'Investment
Techniques--Temporary Defensive and Other Short-Term Positions.'
The Fund will be managed using the investment philosophy that the Portfolio
Manager, HSBC Asset Management Americas, Inc. and HSBC Asset Management Hong
Kong Limited (HSBC), employ in managing private Asia-Pacific portfolios.
Investment decisions are based upon a disciplined approach that takes into
consideration the following factors: (i) macroeconomic overview of the region;
(ii) specific country analysis; (iii) setting target country weightings; (iv)
evaluation of industry sectors within each country; and (v) selection of
specific stocks. Decisions on company selection include analysis of such
fundamental factors as absolute rates of change of earnings growth, earnings
growth relative to the market and industry, quality of earnings and stability of
earnings growth, quality of management and product line, interest rate
sensitivity and liquidity of the stock. HSBC seeks to take profits when the
Portfolio Manager believes that a market or stock has risen fairly or
disproportionately to other investment opportunities.
The criteria used by the Fund to determine whether an issuer is based in the
Asia-Pacific region are: (1) the country in which the issuer was organized; (2)
the country in which the principal securities market for that issuer is located;
(3) the country in which the issuer derives at least 50% of its revenues or
profits from goods produced or sold, investments made, or services performed; or
(4) the country in which the issuer has at least 50% of its assets situated.
High Yield Fund. This Fund's primary investment objective is to seek a high
level of current income and its secondary objective is capital appreciation,
with preservation of capital as a consideration. The Fund normally seeks to
achieve its objectives by investing at least 65% of its assets in a diversified
portfolio of higher yielding debt securities, including preferred stock and
convertible securities (High Yield Securities), that do not in the opinion of
the Investment Manager involve undue risk relative to their expected return
characteristics. High Yield Securities, which are commonly known as junk bonds,
are ordinarily lower rated and include equivalent unrated securities.
Assets of the Fund not invested in High Yield Securities (ordinarily not to
exceed 35% of the Fund's assets) may be invested in common stocks; preferred
stocks rated Baa or better by Moody's Investor Services, Inc. (Moody's) or BBB
or better by Standard and Poor's Corporation (S&P); debt obligations of all
types rated Baa or higher by Moody's or BBB or better by S&P; U.S. Government
securities; warrants; foreign debt securities of any rating (not to exceed 10%
of the Fund's total assets at the time of investment); money market instruments,
including repurchase agreements on U.S. Government securities; other mortgage-
related securities; financial futures and related options; and participation
interests and assignments in floating rate loans and notes. See 'Investment
Practices and Risk Considerations--High Yield Securities' for information on
High Yield Securities.
Strategic Income Fund. This Fund's investment objective is to seek a high level
of current income. The Fund normally seeks to achieve its objective by investing
in securities from one or more of the following four sectors:
o investment-grade debt of U.S. corporations,
o U.S. Government securities,
o lower-rated high yield debt of U.S. corporations, and
o senior variable or floating rate loans of U.S. corporations,
partnerships, limited liability companies or business entities
organized under U.S. law or domiciled in Canada or U.S.
territories or possessions.
Based on current or anticipated market conditions, the Investment Manager
adjusts the weighting of assets among the sectors to seek an attractive balance
between potential income and potential volatility. Under normal circumstances,
the Fund invests in securities from at least two sectors; however, the Fund may
invest up to 100% of its assets in any sector.
The Fund may seek to achieve its objective by investing directly in individual
securities within the above sectors, or by investing in affiliated or
unaffiliated open-end or closed-end investment companies that invest in these
sectors. For instance, the Fund could invest in high yield debt by investing in
Pilgrim America High Yield Fund, and could invest in U.S. Government securities
by investing in Pilgrim Government Securities Income Fund. The Fund could invest
in senior variable or floating rate loans by investing in closed-end funds that
concentrate in this sector, sometimes referred to as "prime rate" funds. This
may include investments in Pilgrim America Prime Rate Trust. Pilgrim America
High Yield Fund, Pilgrim Government Securities Income Fund and Pilgrim America
Prime Rate Trust are each managed by the Investment Manager. Pilgrim America
High Yield Fund and Pilgrim Government Securities Income Fund are described in
this prospectus. The Fund may also invest in open-end or closed-end funds that
are not managed by the Investment Manager.
The Fund has sought and intends to seek additional exemptive relief from the
Securities and Exchange Commission which, if granted, would permit the Fund
considerable flexibility in investing in affiliated and non-affiliated open-end
and closed-end funds. However, until the exemptive relief described above is
obtained, the Fund may only invest in (i) other open-end Pilgrim America Funds,
(ii) U.S. Government securities and (iii) short-term paper. Until the exemptive
relief described above is obtained, the Fund will be inhibited from investing in
certain of the sectors described above. There can be no assurance that the
exemptive relief described above will be obtained.
Government Securities Income Fund. This Fund's investment objective is to seek
high current income, consistent with liquidity and preservation of capital. The
Fund normally seeks to achieve its objectives by investing at least 70% of its
total assets in securities issued or guaranteed by the U.S. Government and the
following agencies or instrumentalities of the U.S. Government: GNMA, Federal
National Mortgage Association (FNMA), and the Federal Home Loan Mortgage
Corporation (FHLMC). The 70% threshold may not be met due to changes in value of
the Fund's portfolio or due to the sale of portfolio securities due to
redemptions. In such instances, further purchases by the Fund will be of U.S.
Government securities until the 70% level is restored. The remainder of the
Fund's assets may be invested in securities issued by other agencies and
instrumentalities of the U.S. Government and in instruments collateralized by
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
The U.S. Government securities in which the Fund may invest include, but are not
limited to, the following: (1) direct obligations of the U.S. Treasury including
Treasury bills (maturities of one year or less), Treasury notes (maturities of
one to ten years), and Treasury bonds (generally maturities of greater than ten
years and up to 30 years), and (2) mortgage-backed securities that are issued or
guaranteed by GNMA, FNMA, or FHLMC. The Fund may invest in short-term,
intermediate-term and long-term U.S. Government securities. The Investment
Manager will determine the exact composition and weighted average maturity of
the Fund's portfolio on the basis of its judgment of existing market conditions.
The Fund does not invest in highly leveraged derivatives, such as swaps,
interest-only or principal-only stripped mortgage-backed securities, or interest
rate futures contracts.
INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The following pages contain information about certain types of securities in
which one or more the Funds may invest and strategies the Funds may employ in
pursuit of the investment objectives. See the Statement of Additional
Information for more detailed information on these investment techniques and the
securities in which the Funds may invest.
Risk Considerations
The investment objectives and policies of the Funds described above should be
carefully considered before investing. There is no assurance that a Fund will
achieve its investment objectives. As with any security, an investment in a
Fund's shares involves certain risks, including loss of principal. Each Fund is
subject to varying degrees of financial, market and credit risks.
Temporary Defensive and Other Short-Term Positions. Each Fund's assets may be
invested in certain short-term, high-quality debt instruments (and, in the case
of Bank and Thrift Fund, investment grade debt instruments) and in U.S.
Government securities for the following purposes: (i) to meet anticipated
day-to-day operating expenses; (ii) pending the Investment Manager's or
Portfolio Manager's ability to invest cash inflows; (iii) to permit the Fund to
meet redemption requests; and (iv) for temporary defensive purposes. Bank and
Thrift Fund, MagnaCap Fund, LargeCap Value Fund, MidCap Value Fund and
Asia-Pacific Equity Fund may also invest in such securities if the Fund's assets
are insufficient for effective investment in equities.
Although it is expected that each Fund will normally be invested consistent with
its investment objectives and policies, the short-term instruments in which a
Fund (except Government Securities Income Fund) may invest include: (i)
short-term obligations of the U.S. Government and its agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities; (iii) commercial paper, including master notes; (iv) bank
obligations, including certificates of deposit, time deposits and bankers'
acceptances; and (v) repurchase agreements. LargeCap Value Fund, MidCap Value
Fund and Asia-Pacific Equity Fund may also invest in long-term U.S. Government
securities and money market funds, while Asia-Pacific Equity Fund may invest in
short-term obligations of foreign governments and their agencies,
instrumentalities, authorities, or political subdivisions. The short-term
instruments in which Government Securities Income Fund may invest include
short-term U.S. Government securities and repurchase agreements on U.S.
Government securities. The Funds will normally invest in short-term instruments
that do not have a maturity of greater than one year.
Bank and Thrift Fund: Securities of Banks and Thrifts. Bank and Thrift Fund
invests primarily in equity securities of banks and thrifts. A 'money center
bank' is a bank or bank holding company that is typically located in an
international financial center and has a strong international business with a
significant percentage of its assets outside the United States. 'Regional banks'
are banks and bank holding companies which provide full service banking, often
operating in two or more states in the same geographic area, and whose assets
are primarily related to domestic business. Regional banks are smaller than
money center banks and also may include banks conducting business in a single
state or city and banks operating in a limited number of states in one or more
geographic regions. The third category which constitutes the majority in number
of banking organizations are typically smaller institutions that are more
geographically restricted and less well-known than money center banks or
regional banks and are commonly described as 'community banks.'
The Bank and Thrift Fund may invest in the securities of banks or thrifts that
are relatively smaller, engaged in business mostly within their geographic
region, and are less well-known to the general investment community than money
center and larger regional banks. The shares of depository institutions in which
the Fund may invest may not be listed or traded on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System ('NASDAQ'); as a result there may be limitations on the Fund's
ability to dispose of them at times and at prices that are most advantageous to
the Fund.
The profitability of banks and thrifts is largely dependent upon interest rates
and the resulting availability and cost of capital funds over which these
concerns have limited control, and, in the past, such profitability has shown
significant fluctuation as a result of volatile interest rate levels. In
addition, general economic conditions are important to the operations of these
concerns, with exposure to credit losses resulting from financial difficulties
of borrowers.
Changes in state and Federal law are producing significant changes in the
banking and financial services industries. Deregulation has resulted in the
diversification of certain financial products and services offered by banks and
financial services companies, creating increased competition between them. In
addition, state and federal legislation authorizing interstate acquisitions as
well as interstate branching has facilitated the increasing consolidation of the
banking and thrift industries. Although regional banks involved in intrastate
and interstate mergers and acquisitions may benefit from such regulatory
changes, those which do not participate in such consolidation may find that it
is increasingly difficult to compete effectively against larger banking
combinations. Proposals to change the laws and regulations governing banks and
companies that control banks are frequently introduced at the federal and state
levels and before various bank regulatory agencies. The likelihood of any
changes and the impact such changes might have are impossible to determine.
The last few years have seen a significant amount of regulatory and legislative
activity focused on the expansion of bank powers and diversification of services
that banks may offer. These expanded powers have exposed banks to
well-established competitors and have eroded the distinctions between regional
banks, community banks, thrifts and other financial institutions.
The thrifts in which the Bank and Thrift Fund invests generally are subject to
the same risks as banks discussed above. Such risks include interest rate
changes, credit risks, and regulatory risks. Because thrifts differ in certain
respects from banks, however, thrifts may be affected by such risks in a
different manner than banks. Traditionally, thrifts have different and less
diversified products than banks, have a greater concentration of real estate in
their lending portfolio, and are more concentrated geographically than banks.
Thrifts and their holding companies are subject to extensive government
regulation and supervision including regular examinations of thrift holding
companies by the Office of Thrift Supervision (the 'OTS'). Such regulations have
undergone substantial change since the 1980's and will probably change in the
next few years.
Midcap Company Equity Securities. The MidCap Value Fund will invest
substantially all of its assets, and MagnaCap Fund, Bank and Thrift Fund,
LargeCap Value Fund and Asia-Pacific Equity Fund may invest, in the equity
securities of middle capitalization companies. Investment in middle
capitalization companies may involve greater risk than is customarily associated
with securities of larger, more established companies. These securities may be
less marketable and subject to more abrupt or erratic market movements than
securities of larger companies.
Investments in Foreign Securities. Asia-Pacific Equity Fund invests primarily,
and MagnaCap Fund may invest up to 5% of its total assets in certain foreign
securities (including ADRs). High Yield Fund may invest up to 10% of its total
assets in debt obligations (including preferred stocks) issued or guaranteed by
foreign corporations, certain supranational entities (such as the World Bank)
and foreign governments (including political subdivisions having taxing
authority) or their agencies or instrumentalities, including ADRs.
These securities may be denominated in either U.S. dollars or in non-U.S.
currencies.
There are certain risks in owning foreign securities, including those resulting
from: (i) fluctuations in currency exchange rates; (ii) devaluation of
currencies; (iii) political or economic developments and the possible imposition
of currency exchange blockages or other foreign governmental laws or
restrictions; (iv) reduced availability of public information concerning
issuers; (v) accounting, auditing and financial reporting standards or other
regulatory practices and requirements that are not uniform when compared to
those applicable to domestic companies; and (vi) settlement and clearance
procedures in some countries that may not be reliable and can result in delays
in settlement; (vii) higher transactional and custodial expenses than for
domestic securities; and (viii) limitations on foreign ownership of equity
securities. Also, securities of many foreign companies may be less liquid and
the prices more volatile than those of domestic companies. With certain foreign
countries, there is the possibility of expropriation, nationalization,
confiscatory taxation and limitations on the use or removal of funds or other
assets of the Funds, including the withholding of dividends.
Emerging Market Investments. Asia-Pacific Equity Fund may invest in emerging
market securities issued by companies based in emerging market countries in the
Asia-Pacific region. An emerging market country is generally considered to be a
country whose economy is less developed or mature than economies in other more
developed countries or whose markets are undergoing a process of relatively
basic development. 'Emerging market countries' consist of all countries
determined by the World Bank or the United Nations to have developing or
emerging economies and markets. Because of less developed markets and economies
and, in some countries, less mature governments and governmental institutions,
the risks of investing in foreign securities can be intensified in the case of
investments in issuers domiciled or doing substantial business in emerging
market countries.
In addition to the risks generally of investing in emerging market securities,
there are particular risks associated with investing in developing Asia-Pacific
countries including: (i) certain markets, such as those of China, being in the
earliest stages of development; (ii) high concentration of market capitalization
and trading volume in a small number of issuers representing a limited number of
industries, as well as a high concentration of investors and financial
intermediaries; (iii) political and social uncertainties; (iv) over-dependence
on exports, especially with respect to primary commodities, making these
economies vulnerable to changes in commodity prices; (v) overburdened
infrastructure and obsolete financial systems; (vi) environmental problems;
(vii) less well developed legal systems than many other industrialized nations;
and (viii) less reliable custodial services and settlement practices.
Corporate Debt Securities. Strategic Income Fund may invest up to 100% of its
assets in investment-grade debt of U.S. corporations, while High Yield Fund may
invest in these and in lower-rated corporate debt securities. In addition, each
Fund may also invest in high quality short-term corporate debt for temporary
defensive purposes. See "Temporary Defensive and Other Short-Term Positions"
below. Corporate debt securities include corporate bonds, debentures, notes and
other similar corporate debt instruments, including convertible securities. The
investment return on a corporate debt security reflects interest earnings and
changes in the market value of the security. The market value of a corporate
debt security will generally increase when interest rates decline, and decrease
when interest rates rise. There is also the risk that the issuer of a debt
security will be unable to pay interest or principal at the time called for by
the instrument. Investments in corporate debt securities that are rated below
investment grade are described in "High Yield Securities" below.
High Yield Securities. High Yield Fund and Strategic Income Fund may invest in
High Yield Securities, which are high yield/high risk debt securities that are
rated lower than Baa by Moody's or BBB by S&P, or if not rated by Moody's or
S&P, of equivalent quality. High Yield Securities often are referred to as 'junk
bonds' and include certain corporate debt obligations, higher yielding preferred
stock and mortgage-related securities, and securities convertible into the
foregoing. Investments in High Yield Securities generally provide greater income
and increased opportunity for capital appreciation than investments in higher
quality debt securities, but they also typically entail greater potential price
volatility and principal and income risk. Generally, the Fund will invest in
securities rated no lower than B by Moody's or S&P, unless the Investment
Manager believes the financial condition of the issuer or other available
protections reduce the risk to the Fund. For example, the Fund may invest in
such a security if the Investment Manager believes the issuer's assets are
sufficient for the issuer to repay its outstanding obligations. Nevertheless,
the Fund may invest in securities rated C or D if the Investment Manager
perceives greater value in these securities than it believes is reflected in
such securities' prevailing market price.
High Yield Securities are not considered to be investment grade. They are
regarded as predominantly speculative with respect to the issuing company's
continuing ability to meet principal and interest payments. The prices of High
Yield Securities have been found to be less sensitive to interest-rate changes
than higher-rated investments, but more sensitive to adverse economic downturns
or individual corporate developments. A projection of an economic downturn or of
a period of rising interest rates, for example, could cause a decline in High
Yield Securities prices. In the case of High Yield Securities structured as
zero-coupon or pay-in-kind securities, their market prices are affected to a
greater extent by interest rate changes, and therefore tend to be more volatile
than securities that pay interest periodically and in cash.
The secondary market in which High Yield Securities are traded is generally less
liquid than the market for higher grade bonds. Less liquidity in the secondary
trading market could adversely affect the price at which the Fund could sell a
High Yield Security, and could adversely affect the daily net asset value of the
Fund's shares. At times of less liquidity, it may be more difficult to value
High Yield Securities because this valuation may require more research, and
elements of judgment may play a greater role in the valuation since there is
less reliable, objective data available. In pursuing the Fund's objectives, the
Investment Manager seeks to identify situations in which the rating agencies
have not fully perceived the value of the security.
Based upon the weighted average ratings of all High Yield Securities held during
High Yield Fund's most recent fiscal year ended June 30, 1998, the percentage of
the Fund's total High Yield Securities represented by (1) High Yield Securities
rated by a nationally recognized statistical rating organization, separated into
each applicable rating category (Aaa, Baa, Ba, B, Caa, or Ca by Moody's or AAA,
BBB, BB, B, CCC, or CC by S&P) by monthly dollar-weighted average is AAA--__%,
BBB--__%, BB--____%, B--____%, CCC--____%, and CC--____%, respectively, and (2)
unrated High Yield Securities as a group--____%.
The following are excerpts from Moody's description of its bond ratings:
Ba--judged to have speculative elements; their future cannot be considered as
well assured. B--generally lack characteristics of a desirable investment.
Caa--are of poor standing; such issues may be in default or there may be present
elements of danger with respect to principal or interest. Ca--speculative in a
high degree; often in default. C--lowest rate class of bonds; regarded as having
extremely poor prospects. Moody's also applies numerical indicators 1, 2 and 3
to rating categories. The modifier 1 indicates that the security is in the
higher end of its rating category; 2 indicates a mid-range ranking; and 3
indicates a ranking towards the lower end of the category. The following are
excerpts from S&P's description of its bond ratings: BB, B, CCC, CC,
C--predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with terms of the obligation; BB indicates the lowest
degree of speculation and C the highest. S&P applies indicators '+,' no
character, and '-' to its rating categories. The indicators show relative
standing within the major rating categories.
Other Investment Companies. Strategic Income Fund, LargeCap Value Fund, MidCap
Value Fund, Asia-Pacific Equity Fund and Bank and Thrift Fund may each invest in
other investment companies ("Underlying Funds"). LargeCap Value Fund, MidCap
Value Fund, Asia-Pacific Equity Fund and Bank and Thrift Fund currently may not
(i) invest more than 10% of their total assets in other investment companies,
(ii) invest more than 5% of their total assets in any one investment company, or
(iii) purchase greater than 3% of the total outstanding securities of any one
Underlying Fund. Strategic Income Fund currently may invest up to 100% of its
assets in open-end investment companies ("mutual funds") for which PAII serves
as the Investment Manager.
Strategic Income Fund has sought and intends to seek additional exemptive relief
from the Securities and Exchange Commission which, if granted, would permit the
Fund to invest in both (i) mutual funds and closed-end investment companies for
which PAII serves as Investment Manager ("Affiliated Funds"), and (ii) mutual
funds and closed-end investment companies for which PAII does not serve as
Investment Manager ("Unaffiliated Funds"). If such relief is granted, the Fund
will have considerable flexibility in investing in Affiliated Funds and
Unaffiliated Funds. In addition, if the exemptive relief described above is
granted, the Strategic Income Fund will be able to purchase shares directly from
affiliated closed-end funds. There can be no assurance that the exemptive relief
will be obtained.
To the extent that the assets of the Strategic Income Fund are invested in
Underlying Funds, the Fund's investment performance is directly related to the
investment performance of the Underlying Funds held. The ability of the
Strategic Income Fund to meet its investment objective is directly related to
the ability of the Underlying Funds to meet their objectives, as well as to the
allocation among the Underlying Funds by the Investment Manager. There can be no
assurance that the investment objective of the Strategic Income Fund or any
Underlying Fund will be achieved.
There are some potential disadvantages associated with investing in other
investment companies. For example, you would indirectly bear additional fees.
The Underlying Funds pay various fees, including, management fees,
administration fees, and custody fees. By investing in those Underlying Funds
indirectly, you indirectly pay a proportionate share of the expenses of those
funds (including management fees, administration fees, and custodian fees), and
you also pay the expenses of the Fund. However, the Investment Manager has
agreed to waive a portion of its management fee from the Strategic Income Fund
in proportion to the Fund's investment in an Affiliated Fund. In addition, you
will bear your proportionate share of expenses related to the distribution of
the Fund's Shares, and also may indirectly bear expenses paid by an Underlying
Fund related to the distribution of its shares. However, to the extent that
assets of Strategic Income Fund are invested in Affiliated Funds, the
Distributor has agreed to waive a portion of the Fund's distribution (12b-1) fee
in proportion to the Fund's investment in an Affiliated Fund to reflect its
allocable share of the distribution fee paid by the Affiliated Fund. The
Strategic Income Fund may only buy shares of a load fund where the Investment
Manager reasonably believes the shares may be purchased without a sales load
through quantity discounts, waivers or otherwise. The Fund will aggregate any
sales charges and distribution and shareholder service expenses it pays on
Underlying Funds to ensure that such aggregate amounts do not exceed limits
imposed by the NASD.
There are some potential advantages associated with an investment in a
closed-end investment company. For example, a Fund may be able to purchase
closed-end fund shares at a discount to net asset value, thereby yielding assets
at work for the Fund that are greater than the amount invested. In addition, if
a Fund invests in a closed-end fund that is exchange listed, it may be able to
get exposure to relatively illiquid assets through a liquid investment.
If the exemptive relief described above is granted, the Strategic Income Fund
may be required to comply with a condition that an Unaffiliated Fund whose
shares are purchased by the Fund is not obligated to redeem more than 1% of the
Unaffiliated Fund's outstanding securities held by the Fund during any 30 day
period. In such a case, shares held by the Strategic Income Fund in excess of 1%
of an Unaffiliated Fund's outstanding securities will be considered illiquid,
and therefore, together with other such securities, may not exceed 15% of the
Fund's net assets. In light of the various legal constraints on buying and
selling shares of Unaffiliated Funds, occasions may arise when the Investment
Manager might not take advantage of certain opportunities to invest in an
Unaffiliated Fund, and may seek suitable alternatives.
Some Unaffiliated Funds may elect to make payment for the redemption of shares
by a distribution in kind of securities from its portfolio, instead of in cash.
If a Fund receives securities as part of an in kind redemption from an
Underlying Fund, the Fund may receive and hold such securities if the Investment
Manager believes it is in the best interest of shareholders, whether or not the
purchase of such securities would have been permitted by the investment
objectives and policies of the Fund.
The securities that these Unaffiliated Funds might hold may include, but are not
limited to, High Yield Securities, Senior Loans, U.S. Government securities,
short term instruments, and various fixed income securities. In certain
instances, some of the Unaffiliated Funds may also buy or sell interest rate
futures contracts relating to debt securities and/or write or buy put and call
options relating to interest rate futures contracts. Depending on an
Unaffiliated Fund's investment objective, policies, and restrictions, additional
risks may be created by a Fund's investment in an Unaffiliated Fund.
Unaffiliated Funds may follow some or all of the investment practices of the
Fund and may follow other investment practices. The Investment Manager has no
control over the investment activities of the Unaffiliated Funds. There may, in
fact, be additional investment practices, not discussed in this Prospectus or in
the Statement of Additional Information, that the Unaffiliated Funds may engage
in from time to time. In addition, an Underlying Fund may be able to invest
defensively in assets other than those normally called for by the Underlying
Fund's investment objectives or policies. In such a case, an investment in the
Underlying Fund may not represent the sectors to the degree contemplated by the
Investment Manager when it invested in the Underlying Fund.
As a result of the Fund's investment in the Underlying Funds, you may receive
taxable capital gains distributions to a greater extent than would be the case
if you invested directly in the Underlying Funds. See "Dividends, Distributions
and Taxes."
Investment decisions by the investment advisers of the Underlying Funds are made
independently of the Fund and the Investment Manager. Therefore, the investment
adviser of one Underlying Fund may be purchasing shares of the same issuer whose
shares are being sold by the investment adviser of another Underlying Fund. The
result of this would be an indirect expense to the Fund without accomplishing
any investment purpose.
The Investment Manager will select the Affiliated and Unaffiliated Funds in
which the Fund will invest based on a variety of factors including, but not
limited to, investment style and objective, total return performance, asset
size, industry rankings, operational data, various portfolio statistics and
other factors it believes are important.
PPR, which is an affiliated closed-end fund in which Strategic Income Fund may
be able to invest, invests primarily in Senior Loans and is subject to credit
and other risks. See "Senior Loans" below. PPR is traded in the New York Stock
Exchange. Shares of PPR may trade at a discount or at a premium to NAV. If PPR
is trading at a premium to NAV, PPR may issue more shares, which could put
downward pressure on the market price of PPR's shares. PPR may borrow to acquire
additional income-producing investments when the Investment Manager believes
that the use of borrowed proceeds will enhance PPR's yield. Borrowing for
investment purposes increases both investment opportunity and investment risk.
Capital raised through borrowings will be subject to interest and other costs.
There can be no assurance that PPR's income from borrowed proceeds will exceed
these costs. In the event of a default on one or more Senior Loans or other
interest-bearing instruments held by PPR, borrowing would exaggerate the loss to
PPR and may exaggerate the effect on PPR's NAV. PPR may borrow up to 33 1/3%, or
such other percentage permitted by law, of its total assets (including the
amount borrowed) less all liabilities other than borrowings.
Senior Loans. The Strategic Income Fund may invest in interests in variable or
floating rate loans ("Senior Loans"), which, in most circumstances, are fully
collateralized by assets of a corporation, partnership, limited liability
company, or other business entity. The Strategic Income Fund will invest only in
Senior Loans that are U.S. dollar-denominated. Senior Loans are considered loans
that hold a senior position in the capital structure of the borrower. These may
include loans that hold the most senior position, that hold an equal ranking
with other senior debt, or loans that are, in the judgment of the Investment
Manager, in the category of senior debt of the borrower. Senior Loans that the
Strategic Income Fund may acquire include participation interests in lease
financings ("Lease Participations").
Substantial increases in interest rates may cause an increase in loan defaults
as borrowers may lack resources to meet higher debt service requirements. Senior
Loans generally require the consent of the borrower prior to sale or assignment,
which may delay or impede the Strategic Income Fund's ability to sell the Senior
Loans. Senior Loans will be considered illiquid, and therefore, together with
other such securities, may not exceed 15% of the Fund's net assets.
Credit Risks. Although the Strategic Income Fund will generally invest in Senior
Loans that will be fully collateralized with assets whose market value, at the
time of acquisition, equals or exceeds the principal amount of the Senior Loan,
the collateral may decline in value, be relatively illiquid, or may lose all or
substantially all of its value subsequent to the Fund's investment in such
Senior Loan, causing the Senior Loan to be undercollateralized. Senior Loans are
also subject to the risk of nonpayment of scheduled interest or principal
payments. To the extent that the Strategic Income Fund's investment is in a
Senior Loan acquired from another lender, the Fund may be subject to certain
credit risks with respect to that lender.
Limited Secondary Market for Senior Loans. Although it is growing, the secondary
market for Senior Loans is currently limited. There is no organized exchange or
board of trade on which Senior Loans may be traded. Accordingly, some or many of
the Senior Loans in which the Strategic Income Fund invests will be relatively
illiquid. The Fund may have difficulty disposing of illiquid assets if it needs
cash to repay debt, to pay dividends, to pay expenses or to take advantage of
new investment opportunities. In addition, because the secondary market for
Senior Loans may be limited, it may be difficult to value Senior Loans.
Hybrid Loans. Hybrid Loans are similar to Senior Loans that generally offer less
covenant or other protections than traditional Senior Loans while still being
collateralized. The Strategic Income Fund may invest only in Hybrid Loans that
are secured debt of the borrower, although they may not in all instances be
considered senior debt of the borrower. Hybrid Loans may not include covenants
that are typical of Senior Loans. As a result, Hybrid Loans present additional
risks besides those associated with traditional Senior Loans. Because the
lenders in Hybrid Loans waive or forego certain loan covenants, their
negotiating power or voting rights in the event of a default may be diminished.
In addition, because the Fund's security interest in some of the collateral may
be subordinate to other creditors, the risk of nonpayment of interest or loss of
principal may be greater than would be the case with conventional Senior Loans.
Subordinated and Unsecured Loans. The Strategic Income Fund may also invest up
to ___% of its total assets, measured at the time of investment, in subordinated
and unsecured loans. The Fund may acquire a subordinated loan only if, at the
time of acquisition, it acquires or holds a Senior Loan from the same borrower.
The primary risk arising from a holder's subordination is the potential loss in
the event of default by the issuer of the loans. Unsecured loans are not secured
by any specific collateral of the borrower. They may pose a greater risk of
nonpayment of interest or loss of principal than do secured loans. The Strategic
Income Fund will acquire unsecured loans only where the Investment Manager
believes, at the time of acquisition, that the Fund would have the right to
payment upon default that is not subordinate to any other creditor.
Restricted and Illiquid Securities. Each Fund may invest in restricted and
illiquid securities. A Fund may invest in an illiquid or restricted security if
the Investment Manager believes that it presents an attractive investment
opportunity. Generally, a security is considered illiquid if it cannot be
disposed of within seven days at approximately the value at which it is carried.
This illiquidity might prevent the sale of the security at a time when the
Investment Manager might wish to sell, and these securities could have the
effect of decreasing the overall level of the Fund's liquidity. Further, the
lack of an established secondary market may make it more difficult to value
illiquid securities, requiring the Fund to rely on judgments that may be
somewhat subjective in determining value, which could vary from the amount the
Fund could realize upon disposition. Each Fund may only invest up to 15% of its
net assets in illiquid securities.
Restricted securities, including private placements, are subject to legal or
contractual restrictions on resale. They can be eligible for purchase without
Securities and Exchange Commission registration by certain institutional
investors known as 'qualified institutional buyers,' and under the Fund's
procedures, restricted securities could be treated as liquid. However, some
restricted securities may be illiquid and restricted securities that are treated
as liquid could be less liquid than registered securities traded on established
secondary markets.
Mortgage-Related Securities. Government Securities Income Fund, High Yield Fund
and Strategic Income Fund may invest up to 100% of their assets in certain types
of mortgage-related securities. High Yield Fund may invest up to 35% of its
total assets in mortgage-related securities. Investments in mortgage-related
securities involve certain risks. Although mortgage loans underlying a
mortgage-backed security may have maturities of up to 30 years, the actual
average life of a mortgage-backed security typically will be substantially less
because (1) the mortgages will be subject to normal principal amortization, and
(2) may be prepaid prior to maturity due to the sale of the underlying property,
the refinancing of the loan or foreclosure. Early prepayment may expose a Fund
to a lower rate of return upon reinvestment of the principal. Prepayment rates
vary widely and cannot be accurately predicted. They may be affected by changes
in market interest rates. Therefore, prepayments will be reinvested at rates
that are available upon receipt, which likely will be higher or lower than the
original yield on the certificates. Accordingly, the actual maturity and
realized yield on mortgage-backed securities will vary from the designated
maturity and yield on the original security based upon the prepayment experience
of the underlying pool of mortgages.
Like other fixed income securities, when interest rates rise, the value of a
mortgage-backed security generally will decline; however, when interest rates
are declining, the value of mortgage-backed securities with prepayment features
may not increase as much as other fixed income securities. The rate of
prepayments on underlying mortgages will affect the price and volatility of a
mortgage-related security, and may have the effect of shortening or extending
the effective maturity of the security beyond what was anticipated at the time
of the purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase. In
addition, the value of these securities may fluctuate in response to the
market's perception of the creditworthiness of the issuers of mortgage-related
securities owned by a Fund. Additionally, although mortgages and
mortgage-related securities are generally supported by some form of government
or private guarantee and/or insurance, there is no assurance that private
guarantors or insurers will be able to meet their obligations.
U.S. Government Securities. Each Fund may invest in U.S. Government securities.
U.S. Government securities include direct obligations of the U.S. Treasury (such
as U.S. Treasury bills, notes and bonds) and obligations directly issued or
guaranteed by U.S. Government agencies or instrumentalities. Some obligations
issued or guaranteed by agencies or instrumentalities of the U.S. Government are
backed by the full faith and credit of the U.S. Government (such as GNMA
certificates); others are backed only by the right of the issuer to borrow from
the U.S. Treasury (such as obligations of FNMA); and still others are backed
only by the credit of the instrumentality (such as obligations of FHLMC), and
thus may be subject to varying degrees of credit risk. While U.S. Government
securities provide substantial protection against credit risk, they do not
protect investors against price declines in the securities due to changing
interest rates. Investors also should refer to the discussion of
'Mortgage-Related Securities.'
Investment Techniques
Borrowing. Bank and Thrift Fund may borrow money from banks to obtain short-term
credits as are necessary for the clearance of securities transactions, but not
in an amount exceeding 15% of its total assets. All Funds except Bank and Thrift
may borrow from banks solely for temporary or emergency purposes up to certain
amounts (10% of total assets in the case of Government Securities Income Fund,
5% of total assets in the case of MagnaCap Fund and High Yield Fund, and 33 1/3%
of total assets in the case of MidCap Value Fund, LargeCap Value Fund,
Asia-Pacific Equity Fund and Strategic Income Fund). Government Securities
Income Fund may not make any additional investment while any such borrowings
exceed 5% of its total assets. The Government Securities Income Fund's entry
into reverse repurchase agreements and dollar-roll transactions and any Fund's
entry into delayed delivery transactions (including those related to pair-offs)
shall not be subject to the above limits on borrowings. Borrowing may exaggerate
the effect of any increase or decrease in the value of portfolio securities or
the net asset value (NAV) of a Fund, and money borrowed will be subject to
interest costs.
Foreign Currency Transactions. Substantially all of the assets of the
Asia-Pacific Equity Fund will be invested in securities denominated in foreign
currencies and a corresponding portion of the Fund's revenues will be received
in such currencies. Unfavorable changes in the relationship between the U.S.
dollar and the relevant foreign currencies, therefore, will adversely affect the
value of the Fund's shares. The Asia-Pacific Equity Fund ordinarily will not
engage in hedging transactions to guard against the risk of currency
fluctuation. However, the Fund reserves the right to do so, and, toward this
end, may enter into forward foreign currency contracts. This investment
technique is described in the Statement of Additional Information.
Dollar Roll Transactions. Government Securities Income Fund and Strategic Income
Fund may engage in dollar roll transactions with respect to mortgage-backed
securities issued by GNMA, FNMA and FHLMC in order to enhance portfolio returns
and manage prepayment risks. In a dollar roll transaction, the Fund sells a
mortgage security held in the portfolio to a financial institution such as a
bank or broker-dealer, and simultaneously agrees to repurchase a substantially
similar security from the institution at a later date at an agreed upon price.
During the period between the sale and repurchase, the Fund will not be entitled
to receive interest and principal payments on the securities sold. Proceeds of
the sale will be invested in short-term instruments, and the income from these
investments, together with any additional fee income received on the sale, could
generate income for the Fund exceeding the yield on the sold security. When it
enters into a dollar roll transaction, the Fund will maintain with its custodian
in a segregated account cash and/or liquid assets in a dollar amount sufficient
to make payment for the obligations to be repurchased. These securities are
marked to market daily and are maintained until the transaction is settled.
Lending Portfolio Securities. In order to generate additional income, MagnaCap
Fund, High Yield Fund, Strategic Income Fund and Government Securities Income
Fund may lend its portfolio securities in an amount up to 33 1/3% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. No lending may be made with any companies
affiliated with the Investment Manager. The borrower at all times during the
loan must maintain with that Fund cash or high quality securities or an
irrevocable letter of credit equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan, the
borrower pays the Fund any dividends or interest paid on such securities, and
the Fund may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower who has
delivered equivalent collateral or a letter of credit. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower fail financially.
Pairing Off Transactions. Government Securities Income Fund and Strategic Income
Fund engages in a pairing-off transaction when it commits to purchase a security
at a future date, and then the Fund 'pairs-off' the purchase with a sale of the
same security prior to or on the original settlement date. At all times when the
Fund has an outstanding commitment to purchase securities, the Fund will
maintain with its custodian in a segregated account cash and/or liquid assets
equal to the value of the outstanding purchase commitments. When the time comes
to pay for the securities acquired on a delayed delivery basis, the Fund will
meet its obligations from the available cash flow, sale of the securities held
in the separate account, sale of other securities or, although it would not
normally expect to do so, from sale of the when-issued securities themselves
(which may have a market value greater or less than the Fund's payment
obligation). Whether a pairing-off transaction produces a gain for the Fund
depends upon the movement of interest rates. If interest rates decease, then the
money received upon the sale of the same security will be greater than the
anticipated amount needed at the time the commitment to purchase the security at
the future date was entered and the Fund will experience a gain. However, if
interest rates increase, then the money received upon the sale of the same
security will be less than the anticipated amount needed at the time the
commitment to purchase the security at the future date was entered and the Fund
will experience a loss.
Reverse Repurchase Agreements. Government Securities Income Fund and Strategic
Income Fund may enter into reverse repurchase agreement transactions, which
involve the sale of U.S. Government Securities held by the Fund, with an
agreement that the Fund will repurchase the securities at an agreed upon price
and date. The Fund will employ reverse repurchase agreements when necessary to
meet unanticipated net redemptions and avoid liquidation of portfolio
investments during unfavorable market conditions. At the time it enters into a
reverse repurchase agreement, the Fund will place in a segregated account with
its custodian cash and/or liquid assets having a dollar value equal to the
repurchase price. Reverse repurchase agreements, together with the Fund's other
borrowings, may not exceed 33 1/3% of the Fund's total assets.
Use of Derivatives. Generally, derivatives can be characterized as financial
instruments whose performance is derived, at least in part, from the performance
of an underlying asset or assets. The Funds will not invest in highly leveraging
derivatives, such as interest-only or principal-only stripped mortgage-backed
securities or swaps. In the case of MidCap Value Fund, LargeCap Value Fund and
Asia-Pacific Equity Fund, it is expected that derivatives will not ordinarily be
used for any of the Funds, but a Fund may make occasional use of certain
derivatives for hedging. For example, MidCap Value Fund, LargeCap Value Fund and
Asia-Pacific Equity Fund may purchase put options, which give the Fund the right
to sell a security it holds at a specified price. A Fund would purchase an
option to attempt to preserve the value of securities that it holds, which it
could do by exercising the option if the price of the security falls below the
'strike price' for the option. The Funds will not engage in any other type of
options transactions.
Another use of derivatives that only may be employed by the Asia-Pacific Equity
Fund is to enter into forward currency contracts and foreign exchange futures
('futures') contracts, which provide for delivery of a certain amount of foreign
currency to the Fund on a specified date. The Fund would enter into a forward
currency or futures contract when it intends to purchase or sell a security
denominated in a foreign currency and it desires to 'lock in' the U.S. dollar
price of the security. The Funds will not engage in any other type of forward
contracts or futures contracts. For additional information on options and
foreign currency contracts, see 'Supplemental Discussion of Risks Associated
with the Funds' Use of Investment Policies and Investment Techniques--Options on
Securities' and '--Foreign Currency Exchange Transactions' in the Statement of
Additional Information.
Government Securities Income Fund, Strategic Income Fund and High Yield Fund may
invest in U.S. Government agency mortgage-backed securities issued or guaranteed
by the U.S. Government or one of its agencies or instrumentalities, including
GNMA, FNMA, and FHLMC. These instruments might be considered derivatives. The
primary risks associated with these instruments is the risk that their value
will change with changes in interest rates and prepayment risk. For information
on mortgage-backed securities, see 'Investment Practices and Risk
Considerations--Mortgage-Related Securities' in this Prospectus, 'Investment
Objectives and Policies--U.S. Government Securities' in Government Securities
Income Fund's Statement of Additional Information, and 'Investment Objectives
and Policies--Mortgage-Related Securities' in High Yield Fund's Statement of
Additional Information.
Other uses of derivatives that may be employed only by High Yield Fund and
Strategic Income Fund include writing covered call options; purchasing call
options; and engaging in financial futures and related options. It is expected
that these instruments ordinarily will not be used for High Yield Fund or
Strategic Income Fund; however, the Fund may make occasional use of these
techniques. When a Fund writes a covered call option, it receives a premium for
entering into a contract to sell a security in the future at an agreed upon
price and date. A Fund would write a call option if it believes that the premium
would increase total return. The primary risk of writing call options is that,
during the option period, the covered call writer has, in return for the premium
on the option, given up the opportunity to profit from a price increase in the
underlying securities above the exercise price. A Fund may purchase call options
for the purpose of 'closing out' a position on a security on which it has
already written a call option.
High Yield Fund and Strategic Income Fund also may use financial futures
contracts and related options for 'hedging' purposes. A Fund would purchase a
financial futures contract (such as an interest rate futures contract or
securities index futures contract) to protect against a decline in the value of
its portfolio or to gain exposure to securities which the Fund otherwise wishes
to purchase. A risk of using financial futures contracts for hedging purposes is
that the Investment Manager might imperfectly judge the market's direction, so
that the hedge might not correlate to the market's movements and may be
ineffective. Furthermore, if a Fund buys a futures contract to gain exposure to
securities, the Fund is exposed to the risk of change in the value of the
underlying securities. For information on options on securities and financial
futures and related options, see 'Investment Objectives and Policies--Option
Writing' and '--Financial Futures Contracts and Related Options' in High Yield
Fund's Statement of Additional Information.
DIVERSIFICATION AND CHANGES IN POLICIES
Each Fund is diversified, so that with respect to 75% of its assets, it may not
invest more than 5% of its assets (measured at market value at the time of
investment) in securities of any one issuer, except that this restriction does
not apply to U.S. Government securities.
The first sentence in the description of each Fund under 'The Funds' Investment
Objectives and Policies,' above, states the Fund's investment objectives. These
investment objectives are 'fundamental.' The other investment policies of
Government Securities Income Fund described in the first paragraph under 'The
Funds' Investment Objectives and Policies--Government Securities Income Fund'
are also 'fundamental.' Fundamental policies may only be changed with the
approval of a majority of shareholders of the pertinent Fund. Unless otherwise
specified, other investment policies of any of the Funds may be changed by the
Board of Directors of that Fund without shareholder approval. Each Fund is
subject to investment restrictions that are described in that Fund's Statement
of Additional Information under 'Investment Restrictions.' Some of those
restrictions are designated as 'fundamental.' These fundamental restrictions as
well as the diversified status of each Fund require a vote of a majority of the
shareholders of the relevant Fund to be changed.
YEAR 2000 COMPLIANCE
Like other financial organizations, the Funds could be adversely affected if the
computer systems used by the Investment Manager and the Funds' other service
providers do not properly process and calculate date-related information after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Year
2000 Problem could have a negative impact on handling securities trades, payment
of interest and dividends, pricing, and account services. The Investment Manager
is taking steps that it believes are reasonably designed to address the Year
2000 Problem with respect to computer systems that it uses and to obtain
reasonable assurances that comparable steps are being taken by the Funds' other
major service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Funds nor can
there be any assurance that the Year 2000 Problem will not have an adverse
effect on the companies whose securities are held by the Funds or on global
markets or economies, generally.
<PAGE>
SHAREHOLDER GUIDE
Pilgrim America Purchase OptionsTM
Depending upon the Fund, you may select from two or three separate classes of
shares: Class A, Class B and Class M, each of which represents an identical
interest in a Fund's investment portfolio but are offered with different sales
charges and distribution fee (Rule 12b-1) arrangements. These sales charges and
fees are shown and contrasted in the chart below.
<TABLE>
<CAPTION>
Class A Class B Class M(1)
<S> <C> <C> <C>
Maximum Initial Sales Charge on Purchases
Bank and Thrift Fund...................................... 5.75% (2) None N/A
MagnaCap Fund, MidCap Value Fund, LargeCapValue Fund,
Asia-Pacific Equity Fund................................. 5.75% (2) None 3.50%
Strategic Income Fund 4.75%(2) None N/A
High Yield Fund and Government Securities Income Fund..... 4.75% (2) None 3.25%
CDSC.......................................................... None (3) 5.00% (4) None
Annual Distribution Fees (5).................................. 0.25% (6) 1.00% 0.75%
Maximum Purchase.............................................. Unlimited $250,000 $1,000,000
Automatic Conversion to Class A............................... N/A 8 Years N/A
<FN>
(1) Bank and Thrift Fund and Strategic Income Fund do not offer Class M
shares.
(2) Imposed upon purchase. Reduced for purchases of $50,000 or more.
(3) For investments of $1 million or more, a CDSC of no more than 1% is
assessed on redemptions made within one or two years from purchase,
depending on the amount of purchase. See 'Class A Shares: Initial
Sales Charge Alternative.
(4) Imposed upon redemption within 6 years from purchase. Fee has
scheduled reductions after the first year. See 'Class B Shares:
Deferred Sales Charge Alternative.
(5) Annual asset-based distribution charge.
(6) MagnaCap Fund imposes an annual distribution fee of 0.30%.
</FN>
</TABLE>
When choosing between classes, investors should carefully consider the ongoing
annual expenses along with the initial sales charge or CDSC. The relative impact
of the initial sales charges and ongoing annual expenses will depend on the
length of time a share is held. Orders for Class B shares and Class M shares in
excess of $250,000 and $1,000,000, respectively, will be accepted as orders for
Class A shares or declined. You should discuss which Class of shares is right
for you with your Authorized Dealer.
Class A Shares: Initial Sales Charge Alternative. Class A shares of the Funds
are sold at the NAV per share in effect plus a sales charge as described in the
following table. For waivers or reductions of the Class A shares sales charges,
see 'Special Purchases without a Sales Charge' and 'Reduced Sales Charges.'
Bank and Thrift Fund, MagnaCap Fund, MidCap Value Fund,
LargeCap Value Fund and Asia-Pacific Equity Fund
<TABLE>
<CAPTION>
Dealers'
Reallowance
As a % of Offering As a % of as a % of
Amount of Transaction Price Per Share NAV Offering Price
<S> <C> <C> <C>
Less than $50,000..................................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000........................ 4.50% 4.71% 3.75%
$100,000 but less than $250,000....................... 3.50% 3.63% 2.75%
$250,000 but less than $500,000....................... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000..................... 2.00% 2.04% 1.75%
</TABLE>
High Yield Fund, Strategic Income Fund
and Government Securities Income Fund
<TABLE>
<CAPTION>
Dealers'
Reallowance as
As a % of Offering As a % of a % of
Amount of Transaction Price Per Share NAV Offering Price
<S> <C> <C> <C>
Less than $50,000................................. 4.75% 4.99% 4.25%
$50,000 but less than $100,000.................... 4.50% 4.71% 4.00%
$100,000 but less than $250,000................... 3.50% 3.63% 3.00%
$250,000 but less than $500,000................... 2.50% 2.56% 2.25%
$500,000 but less than $1,000,000................. 2.00% 2.04% 1.75%
</TABLE>
There is no initial sales charge on purchases of $1,000,000 or more. However,
the Distributor will pay Authorized Dealers of record commissions at the rates
shown in the table below for investments subject to a CDSC. If shares are
redeemed within one or two years of purchase, depending on the amount of the
purchase, a CDSC will be imposed on certain redemptions as follows:
<TABLE>
<CAPTION>
Dealer Period During
On Purchases of: CDSC Allowance Which CDSC Applies
<S> <C> <C> <C>
$1,000,000 but less than $2,500,000..................................... 1.00% 1.00% 2 Years
$2,500,000 but less than $5,000,000..................................... 0.50% 0.50% 1 Year
$5,000,000 and over..................................................... 0.25% 0.25% 1 Year
</TABLE>
Class B Shares: Deferred Sales Charge Alternative. If you choose the deferred
sales charge alternative, you will purchase Class B shares at their NAV per
share without the imposition of a sales charge at the time of purchase. Class B
shares that are redeemed within six years of purchase, however, will be subject
to a CDSC as described in the table that follows. Class B shares of the Funds
are subject to a distribution fee at an annual rate of 1.00% of the average
daily net assets of the Class, which is higher than the distribution fees of
Class A or Class M shares. The higher distribution fees mean a higher expense
ratio, so Class B shares pay correspondingly lower dividends and may have a
lower NAV than Class A or Class M shares. In connection with sales of Class B
shares, the Distributor compensates Authorized Dealers at a rate of 4% of
purchase payments subject to a CDSC. Orders for Class B shares in excess of
$250,000 will be accepted as orders for Class A shares or declined.
The amount of the CDSC is determined as a percentage of the lesser of the NAV of
the Class B shares at the time of purchase or redemption. No charge will be
imposed for any net increase in the value of shares purchased during the
preceding six years in excess of the purchase price of such shares or for shares
acquired either by reinvestment of net investment income dividends or capital
gain distributions. The percentage used to calculate the CDSC will depend on the
number of years since you invested the dollar amount being redeemed according to
the following table:
Year of
Redemption
After Purchase CDSC
First........................................................... 5%
Second.......................................................... 4%
Third........................................................... 3%
Fourth.......................................................... 3%
Fifth........................................................... 2%
Sixth........................................................... 1%
Seventh and following........................................... 0%
To determine the CDSC payable on redemptions of Class B shares, the Funds will
first redeem shares in accounts that are not subject to a CDSC; second, shares
acquired through reinvestment of net investment income dividends and capital
gain distributions; third, shares purchased more than 6 years prior to
redemption; and fourth, shares subject to a CDSC in the order in which such
shares were purchased. Using this method, your sales charge, if any, will be at
the lowest possible rate.
Class B shares will automatically convert into Class A shares approximately
eight years after purchase. For additional information on the CDSC and the
conversion of Class B shares, see the Statement of Additional Information.
Class M Shares: Lower Initial Sales Charge Alternative. An investor who
purchases Class M shares pays a sales charge at the time of purchase that is
lower than the sales charge applicable to Class A shares and does not pay any
CDSC upon redemption. Class M shares have a higher annual distribution fee than
Class A shares, but lower than Class B. The higher distribution fees mean a
higher expense ratio than Class A but lower than Class B. Class M shares pay
correspondingly lower dividends and may have a lower NAV per share than Class A
shares, but generally pay higher dividends and have a higher NAV per share than
Class B shares. Orders for Class M shares in excess of $1,000,000 will be
accepted as orders for Class A shares or declined. The public offering price of
Class M shares is the NAV of each Fund plus a sales charge, which, as set forth
below, varies based on the size of the purchase:
MagnaCap Fund, MidCap Value Fund,
LargeCap Value Fund and Asia-Pacific Equity Fund
<TABLE>
<CAPTION>
Dealers'
Reallowance
As a % of Offering As a % of as a % of
Amount of Transaction Price Per Share NAV Offering Price
<S> <C> <C> <C>
Less than $50,000............................................... 3.50% 3.63% 3.00%
$50,000 but less than $100,000.................................. 2.50% 2.56% 2.00%
$100,000 but less than $250,000................................. 1.50% 1.52% 1.00%
$250,000 but less than $500,000................................. 1.00% 1.01% 1.00%
$500,000 and over............................................... None None None
</TABLE>
High Yield Fund and Government Securities Income Fund
<TABLE>
<CAPTION>
Dealers'
Reallowance
As a % of Offering As a % of as a % of
Amount of Transaction Price Per Share NAV Offering Price
<S> <C> <C> <C>
Less than $50,000............................................... 3.25% 3.36% 3.00%
$50,000 but less than $100,000.................................. 2.25% 2.30% 2.00%
$100,000 but less than $250,000................................. 1.50% 1.52% 1.25%
$250,000 but less than $500,000................................. 1.00% 1.01% 1.00%
$500,000 and over............................................... None None None
</TABLE>
Class M are not offered by Bank and Thrift Fund and Strategic Income Fund and do
not convert to Class A.
Reduced Sales Charges. An investor may immediately qualify for a reduced sales
charge on a purchase of Class A or Class M shares of a Fund or other open-end
funds in the Pilgrim America Funds which offer Class A shares, Class M Shares,
or shares with front-end sales charges ('Participating Funds') by completing the
Letter of Intent section of the Application. Executing the Letter of Intent
expresses an intention to invest during the next 13 months a specified amount,
which, if made at one time, would qualify for a reduced sales charge. An amount
equal to the Letter amount multiplied by the maximum sales charge imposed on
purchases of the applicable Fund and class will be restricted within your
account to cover additional sales charges that may be due if your actual total
investment fails to qualify for the reduced sales charges. See the New Account
Application or the Statement of Additional Information for details on the Letter
of Intent option or contact the Shareholder Servicing Agent at (800) 992-0180
for more information.
The sales charge for your investment may also be reduced by taking into account
the current value of your existing holdings in the Fund or any other open-end
funds in the Pilgrim America Funds (excluding Pilgrim America General Money
Market Shares) ('Rights of Accumulation'). The reduced sales charges apply to
quantity purchases made at one time or on a cumulative basis over any period of
time by: (i) an investor; (ii) the investor's spouse and children under the age
of majority; (iii) the investor's custodian account(s) for the benefit of a
child under the Uniform Gifts to Minors Act; (iv) a trustee or other fiduciary
of a single trust estate or a single fiduciary account (including a pension,
profit-sharing and other employee benefit plans qualified under Section 401 of
the Internal Revenue Code); and (v) by trust companies, registered investment
advisers, banks and bank trust departments for accounts over which they exercise
exclusive discretionary investment authority and which are held in a fiduciary,
agency, advisory, custodial or similar capacity. See the New Account Application
or the Statement of Additional Information for details or contact the
Shareholder Servicing Agent at (800) 992-0180 for more information.
For the purposes of Rights of Accumulation and the Letter of Intent Privilege,
shares held by investors in the Pilgrim America Funds which impose a CDSC may be
combined with Class A or Class M shares for a reduced sales charge but will not
affect any CDSC which may be imposed upon the redemption of shares of a Fund
which imposes a CDSC.
Waivers of CDSC. The CDSC on Class A or Class B shares will be waived in the
following cases. In determining whether a CDSC is applicable, it will be assumed
that shares held in the shareholder's account that are not subject to such
charge are redeemed first.
1) The CDSC on Class A or Class B shares will be waived in the case of
redemption following the death or permanent disability of a
shareholder if made within one year of death or initial
determination of permanent disability. The waiver is available for
total or partial redemptions of shares of each Fund owned by an
individual or an individual in joint tenancy (with rights of
survivorship), but only for those shares held at the time of death
or initial determination of permanent disability.
2) The CDSC also may be waived for Class B Shares redeemed pursuant to
a Systematic Withdrawal Plan, up to a maximum of 12% per year of a
shareholder's account value based on the value of the account at
the time the plan is established and annually thereafter, provided
all dividends and distributions are reinvested and the total
redemptions do not exceed 12% annually.
3) The CDSC also will be waived in the case of a total or partial
redemption of shares in a Fund in connection with any mandatory
distribution from a tax-deferred retirement plan or an IRA. The
shareholder must have attained the age of 70 1/2 to qualify for the
CDSC waiver relating to mandatory distributions. The waiver does
not apply in the case of a tax-free rollover or transfer of assets,
other than one following a separation of service. The shareholder
must notify the Transfer Agent either directly or through the
Distributor, at the time of redemption, that the shareholder is
entitled to a waiver of the CDSC. The CDSC Waiver Form included in
the New Account Application must be completed and provided to the
Transfer Agent at the time of the redemption request. The waiver
will be granted subject to confirmation of the grounds for the
waiver. The foregoing waivers may be changed at any time.
Reinstatement Privilege. Class B shareholders who have redeemed their shares in
any open-end Pilgrim America Fund within the previous 90 days may repurchase
Class B shares at NAV (at the time of reinstatement) in an amount up to the
redemption proceeds. Reinstated Class B shares will retain their original cost
and purchase date for purposes of the CDSC. The amount of any CDSC also will be
reinstated.
To exercise this privilege, a written order for the purchase of shares must be
received by the Transfer Agent or be postmarked within 90 days after the date of
redemption. This privilege can be used only once per calendar year. If a loss is
incurred on the redemption and the reinstatement privilege is used, some or all
of the loss may not be allowed as a tax deduction. See 'Tax Considerations' in
the Statement of Additional Information.
Special Purchase without a Sales Charge. Class A or Class M shares may be
purchased at NAV without a sales charge by:
1) Class A or Class M shareholders who have redeemed their shares in
any open-end Pilgrim America Fund within the previous 90 days.
These shareholders may repurchase shares at NAV in an amount
equal to their net redemption proceeds. Authorized Dealers who
handle these purchases may charge fees for this service.
2) Any person who can document that Fund shares were purchased with
proceeds from the redemption (within the previous 90 days) of
shares from any unaffiliated mutual fund on which a sales charge
was paid or which were subject at any time to a CDSC, and which
unaffiliated fund was: with respect to purchases of Bank and
Thrift Fund, a fund invested primarily in financial services
entities; with respect to purchases of MagnaCap Fund, a domestic
growth fund; with respect to purchases of the MidCap Value Fund,
a mid-cap fund; with respect to purchases of the LargeCap Value
Fund, a large-cap fund; with respect to purchases of the
Asia-Pacific Equity Fund, a fund investing in companies based in
the Asia-Pacific region; with respect to purchases of High Yield
Fund, a high yield bond fund; with respect to Strategic Income
Fund, a strategic income fund; and with respect to purchases of
Government Securities Income Fund, a government securities fund.
3) Any charitable organization or governmental entity that has
determined that a Fund is a legally permissible investment and
which is prohibited by applicable law from paying a sales charge
or commission in connection with the purchase of shares of any
mutual fund.
4) Officers, directors and full-time employees, and their families
of Pilgrim America Capital Corporation (Pilgrim America) and its
subsidiaries.
5) Certain fee based broker-dealers or registered representatives
thereof or registered investment advisers under certain
circumstances making investments on behalf of their clients.
6) Shareholders who have authorized the automatic transfer of
dividends from the same class of another Pilgrim America Fund
distributed by the Distributor or from Pilgrim America Prime Rate
Trust.
7) Registered investment advisors, trust companies and bank trust
departments investing in Class A shares on their own behalf or on
behalf of their clients, provided that the aggregate amount
invested in any Fund alone or in any combination of shares of any
Fund plus Class A shares of certain other Participating Funds as
described herein under 'Pilgrim America Purchase
Options(Trademark)--Reduced Sales Charges', during the 13 month
period commencing with the first investment pursuant hereto
equals at least $1 million. The Distributor may pay Authorized
Dealers through which purchases are made an amount up to 0.50% of
the amount invested, over a 12 month period following the
transaction.
8) Broker-dealers, who have signed selling group agreements with the
Distributor, and registered representatives and employees of such
broker-dealers, for their own accounts or for members of their
families (defined as current spouse, children, parents,
grandparents, uncles, aunts, siblings, nephews, nieces, step
relations, relations-at-law and cousins).
9) Broker-dealers using third party administrators for qualified
retirement plans who have entered into an agreement with the
Pilgrim America Funds or an affiliate, subject to certain
operational and minimum size requirements specified from
time-to-time by the Pilgrim America Funds.
10) Accounts as to which a banker or broker-dealer charges an account
management fee ('wrap accounts').
11) Any registered investment company for which PAII serves as
investment manager.
The Funds may terminate or amend the terms of offering shares at NAV to
these investors at any time. For additional information, contact the
Shareholder Servicing Agent at (800) 992-0180, or see the Statement of
Additional Information.
Incentives. The Distributor, at its expense, will provide additional promotional
incentives to Authorized Dealers in connection with sales of shares of the Funds
and other open-end Pilgrim America Funds. In some instances, additional
compensation or promotional incentives will be offered to Authorized Dealers
that have sold or may sell significant amounts of shares during specified
periods of time. Such compensation and incentives may include, but are not
limited to, cash, merchandise, trips and financial assistance in connection with
pre-approved conferences or seminars, sales or training programs for invited
sales personal, payment for travel expenses (including meals and lodging)
incurred by sales personnel to various locations for such seminars or training
programs, seminars for the public, advertising and sales campaigns regarding the
Funds or other open-end Pilgrim America Funds and/or other events sponsored by
Authorized Dealers. In addition, the Distributor may, at its own expense, pay
concessions in addition to those described above to dealers that satisfy certain
criteria established from time to time by the Distributor. These conditions
relate to increasing sales of shares of the Funds over specified periods and to
certain other factors. These payments may, depending on the dealer's
satisfaction of the required conditions, be periodic and may be up to (1) 0.30%
of the value of the Funds' shares sold by the dealer during a particular period,
and (2) 0.10% of the value of the Funds' shares held by the dealer's customers
for more than one year, calculated on an annual basis.
Rule 12b-1 Plan. Each Fund has a distribution plan pursuant to Rule 12b-1 under
the 1940 Act applicable to each class of shares of that Fund (Rule 12b-1 Plan).
Under the Rule 12b-1 Plan, the Distributor may receive from each Fund an annual
fee in connection with the offering, sale and shareholder servicing of the
Fund's Class A, Class B and Class M shares.
Distribution and Servicing Fees As compensation for services rendered and
expenses borne by the Distributor in connection with the distribution of
shares of the Funds and in connection with services rendered to
shareholders of each Fund, each Fund pays the Distributor servicing fees
and distribution fees up to the annual rates set forth below (calculated
as a percentage of each Fund's average daily net assets attributable to
that class):
Class A Shares
Servicing Distribution
Fund Fee Fee
Bank and Thrift Fund, MidCap
Value Fund, LargeCap Value Fund,
Asia-Pacific Equity Fund 0.25% n/a*
MagnaCap Fund 0.25% 0.05%
High Yield Fund,
Strategic Income Fund and
Government Securities Income Fund 0.25% n/a
*Subject to increase by action of the Fund's Directors to a rate not
exceeding .10% per annum.
Class B Shares
Servicing Distribution
Funds Fee Fee
All Funds 0.25% 0.75%
Class M Shares
Servicing Distribution
Fund Fee Fee
All Funds except Bank and Thrift
Fund and Strategic Income Fund 0.25% 0.50%*
*Subject to increase by action of the Fund's Directors to a rate not
exceeding 0.75% per annum.
Fees paid under the Rule 12b-1 Plan may be used to cover the expenses of the
Distributor from the sale of Class A, Class B or Class M shares of the Funds,
including payments to Authorized Dealers, and for shareholder servicing. These
fees may be used to pay the costs of the following: payments to Authorized
Dealers; promotional activities; preparation and distribution of advertising
materials and sales literature; expenses of organizing and conducting sales
seminars; personnel costs and overhead of the Distributor; printing of
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders; supplemental payments to
Authorized Dealers that provide shareholder services; interest on accrued
distribution expenses; and costs of administering the Rule 12b-1 Plan. No more
than 0.75% per annum of a Fund's average net assets may be used to finance
distribution expenses, exclusive of shareholder servicing payments, and no
Authorized Dealer may receive shareholder servicing payments in excess of 0.25%
per annum of a Fund's average net assets held by the Authorized Dealer's clients
or customers. With respect to Class A shares of MagnaCap Fund, High Yield Fund
and Government Securities Income Fund, the Distributor will be reimbursed for
its actual expenses incurred under the 12b-1 Plan. The Distributor has incurred
costs and expenses with respect to Class A shares that may be reimbursable in
future months or years in the amounts of $ __________ for MagnaCap Fund (0. __%
of its net assets), $ _________ for High Yield Fund (0.%__ of its net assets),
and $ _________ for Government Securities Income Fund ( ___% of its net assets)
as of June 30, 1998. With respect to Class A shares of all other Funds and the
Class B and Class M shares of each Fund, the Distributor will receive payment
without regard to actual distribution expenses that it incurs. Fees paid by one
of the Funds under the Rule 12b-1 Plan may be used to finance distribution of
the shares of that Fund and the servicing of shareholders of the Fund as well as
the other Pilgrim America Funds.
Under the Rule 12b-1 Plan, ongoing payments will be made on a quarterly basis to
Authorized Dealers for distribution and shareholder servicing as set forth
below.
Class A and B Shares
Servicing
Fund Fee
All Funds .25%
Class M Shares
Servicing Distribution
Fund Fee Fee
Magna Cap Fund, MidCap
Value Fund, LargeCap Value Fund,
Asia-Pacific Equity Fund .25% .40%
High Yield Fund and Government
Securities Income Fund .25% .15%
Payments are calculated as a percentage of the Fund's average daily NAV
attributed to each class of shares that are registered in the name of that
Authorized Dealer as nominee or held in a shareholder account that designates
that Authorized Dealer as the dealer of record. Rights to these ongoing payments
begin to accrue in the 13th month following a purchase of Class A or B shares
and on the anniversary date in the 1st month following the date of purchase of
Class M shares, and they cease upon exchange (or purchase) into Pilgrim America
General Money Market Shares. The payments are also subject to the continuation
of the relevant distribution plan, the terms of the service agreements between
dealers and the Distributor, and any applicable limits imposed by the National
Association of Securities Dealers, Inc.
Other Expenses. In addition to the management fee and other fees described
previously, each Fund pays other expenses, such as legal, audit, transfer agency
and custodian out-of-pocket fees, proxy solicitation costs, and the compensation
of Directors who are not affiliated with the Investment Manager. Most Fund
expenses are allocated proportionately among all of the outstanding shares of
that Fund. However, the Rule 12b-1 Plan fees for each class of shares are
charged proportionately only to the outstanding shares of that class.
Purchasing Shares
Your Authorized Dealer can help you establish and maintain your account, and the
Shareholder Servicing Agent is available to assist you with any questions you
may have.
The Fund reserves the right to liquidate sufficient shares to recover annual
Transfer Agent fees should the investor fail to maintain his/her account value
at a minimum of $1,000.00 ($250.00 for IRA's).
<TABLE>
<CAPTION>
Method Initial Investment Additional Investment
<S> <C> <C>
By contacting your The minimum initial investment in a Fund is The minimum for additional investment in a
Authorized Dealer $1,000 ($250 for IRAs). Fund is $100.
By Mail Visit or consult an Authorized Dealer. Visit or consult your Authorized Dealer.
Make your check payable to the Pilgrim Fill out the Account Additions form
America Funds and mail it, along with a included on the bottom of your account
completed Application, to the address statement along with your check payable to
indicated on the Application. Please the Fund and mail them in the envelope
indicate an Authorized Dealer on the New provided with the account statement.
Account Application. Remember to write your account number on
the check.
By wire Call the Pilgrim America Operations Department Call the Pilgrim America Operations Dept.
at (800) 336-3436 to obtain an account at (800) 336-3436 to obtain a wire
number and indicate an Authorized Dealer on reference number. Give that number to your
the account. Instruct your bank to wire bank and have them wire the funds in the
funds to the Fund in care of: same manner described under 'Initial
Investors Fiduciary Trust Co. Investment.'
ABA #101003621
Kansas City, MO
credit to:
Pilgrim
(Fund)
A/C #751-8315; for further credit to:
Shareholder A/C
#
(A/C # you received over the telephone)
Shareholder Name:
(Your Name Here)
After wiring funds you must complete the
New Account Application and send it to:
Pilgrim America Funds.
P.O. Box 419368
Kansas City, MO 64141-6368
</TABLE>
The Funds and the Distributor reserve the right to reject any purchase order.
Please note third party checks, money orders and checks drawn on non-US banks
(even if payment may be effected through a US bank) will not be accepted. The
Investment Manager reserves the right to waive minimum investment amounts.
Price of Shares. Purchase, sale and exchange orders are effected at NAV for the
respective class of shares of each Fund, determined after the order is received
by the Transfer Agent or Distributor, plus any applicable sales charge (Public
Offering Price).
Purchases of each class of a Fund's shares are effected at that Fund's Public
Offering Price determined after a purchase order has been received in proper
form. A purchase order will be deemed to be in proper form when all of the
required steps set forth above under "Purchase of Shares" have been completed.
In the case of an investment by wire, however, the order will be deemed to be in
proper form after the telephone notification and the federal funds wire have
been received. A shareholder who purchases by wire must submit an application
form in a timely fashion. If an order or payment by wire is received after the
close regular trading on the New York Stock Exchange, (normally 4:00 p.m.
Eastern Time), the shares will not be credited until the next business day.
You will receive a confirmation of each new transaction in your account, which
also will show you the number of Fund shares you own including the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Funds will not be issued
unless you request them in writing.
Determination of Net Asset Value. The NAV of each class of each Fund's shares
will be determined daily as of the close of regular trading on the New York
Stock Exchange (usually at 4:00 p.m. New York City time) on each day that it is
open for business. Each class' NAV represents that class' pro rata share of that
Fund's net assets as adjusted for any class specific expenses (such as fees
under a Rule 12b-1 plan), and divided by that class' outstanding shares. In
general, the value of each Fund's assets is based on actual or estimated market
value, with special provisions for assets not having readily available market
quotations and short-term debt securities. The NAV per share of each class of
each Fund will fluctuate in response to changes in market conditions and other
factors. Portfolio securities for which market quotations are readily available
are stated at market value. Short-term debt securities having a maturity of 60
days or less are valued at amortized cost, unless the amortized cost does not
approximate market value. Securities prices may be obtained from automated
pricing services. In other cases, securities are valued at their fair value as
determined in good faith by the Board of Directors, although the actual
calculations will be made by persons acting under the supervision of the Board.
For information on valuing foreign securities, see each Fund's Statement of
Additional Information.
Pre-Authorized Investment Plan. You may establish a pre-authorized investment
plan to purchase shares with automatic bank account debiting. For further
information on pre-authorized investment plans, see the New Account Application
or contact the Shareholder Servicing Agent at (800) 992-1080.
Retirement Plans. The Funds have available prototype qualified retirement plans
for both corporations and for self-employed individuals. They also have
available prototype IRA and Simple IRA plans (for both individuals and
employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans
and Tax Sheltered Retirement Plans for employees of public educational
institutions and certain non-profit, tax-exempt organizations. Investors
Fiduciary Trust Company ('IFTC') acts as the custodian under these plans. For
further information, contact the Shareholder Servicing Agent at (800) 992-1080.
IFTC currently receives a $12 custodian fee annually for the maintenance of such
accounts.
Telephone Orders. The Funds and their Transfer Agent will not be responsible for
the authenticity of phone instructions or losses, if any, resulting from
unauthorized shareholder transactions if they reasonably believe that such
instructions were genuine. The Funds and their Transfer Agent have established
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include: (i) recording telephone instructions for
exchanges and expedited redemptions; (ii) requiring the caller to give certain
specific identifying information; and (iii) providing written confirmation to
shareholders of record not later than five days following any such telephone
transactions. If the Funds and their Transfer Agent do not employ these
procedures, they may be liable for any losses due to unauthorized or fraudulent
telephone instructions. Telephone redemptions may be executed on all accounts
other than retirement accounts.
Exchange Privileges and Restrictions. An exchange privilege is available.
Exchange requests may be made in writing to the Transfer Agent or by calling the
Transfer Agent at (800) 992-0180. There is no specific limit on exchange
frequency; however, the Funds are intended for long term investment and not as a
trading vehicle. The Investment Manager reserves the right to prohibit excessive
exchanges (more than four per year). The Investment Manager reserves the right,
upon 60 days' prior notice, to restrict the frequency of, otherwise modify, or
impose charges of up to $5.00 upon exchanges. The total value of shares being
exchanged must at least equal the minimum investment requirement of the fund
into which they are being exchanged.
Shares of one class of a Fund may be exchanged for shares of that same class of
any other open-end Pilgrim America Fund other than Pilgrim America General Money
Market Shares ('Money Market'), at NAV without payment of any additional sales
charge. If you exchange and subsequently redeem your shares, any applicable CDSC
will be based on the full period of the share ownership. Shares of a Fund that
are not subject to a CDSC may be exchanged for shares of Money Market, and
shares of Money Market acquired in the exchange may subsequently be exchanged
for shares of an open-end Pilgrim America Fund of the same class as the original
shares acquired. Shares of a Fund that are subject to a CDSC may be redeemed to
purchase shares of Money Market upon payment of the CDSC. Shareholders
exercising the exchange privilege with any other open-end Pilgrim America Funds
should carefully review the prospectus of that fund. Exchanges of shares are
sales and may result in a gain or loss for federal and state income tax
purposes. You will automatically be assigned the telephone exchange privilege
unless you mark the box on the New Account Application that signifies you do not
wish to have this privilege. The exchange privilege is only available in states
where shares of the fund being acquired may be legally sold.
Systematic Exchange Privilege. With an initial account balance of at least
$5,000 and subject to the information and limitations outlined above, you may
elect to have a specified dollar amount of shares systematically exchanged,
monthly, quarterly, semi-annually or annually (on or about the 10th of the
applicable month), from your account to an identically registered account in the
same class of any other open-end Pilgrim America Fund. The exchange privilege
may be modified at any time or terminated upon 60 days written notice to
shareholders.
How to Redeem Shares
Shares of each Fund will be redeemed at the NAV (less any applicable CDSC and/or
federal income tax withholding) next determined after receipt of a redemption
request in good form on any day the New York Stock Exchange is open for
business.
<TABLE>
<CAPTION>
Method Procedures
<S> <C>
Redemption By Contacting Your Authorized Dealers may communicate redemption
Authorized Dealer orders by wire or telephone to the Distributor. These
firms may charge for their services in connection with your redemption
request, but neither the Funds nor the Distributor imposes any such charge.
Redemption By Mail A written request for redemption must be received by the Transfer Agent in order
to constitute a valid tender. If certificated shares have been issued, the
certificate must accompany the written request. The Transfer Agent may also
require a signature guarantee by an eligible guarantor. It will also be necessary
for corporate investors and other associations to have an appropriate
certification on file authorizing redemptions by a corporation or an association
before a redemption request will be considered in proper form. A suggested form
of such certification is provided on the New Account Application. If you are
entitled to a CDSC waiver, you must complete the CDSC waiver form in the New
Account Application. To determine whether a signature guarantee or other
documentation is required, shareholders may call the Shareholder Servicing Agent
at (800) 992-1080.
Expedited Redemption The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (maximum $100,000) mailed to an
address which has been on record with the Pilgrim America Funds for at least 30
days. This privilege is automatically assigned to you unless you check the box on
the New Account Application which signifies that you do not wish to utilize such
option. The Expedited Redemption Privilege additionally allows you to effect a
liquidation from your account and have the proceeds (minimum $5,000) wired to
your pre-designated bank account. But, this aspect of the Expedited Redemption
privilege will NOT automatically be assigned to you. If you want to take
advantage of this aspect of the privilege, please check the appropriate box and
attach a voided check to the New Account Application. Under normal circumstances,
proceeds will be transmitted to your bank on the second business day following
receipt of your instructions, provided redemptions may be made. To effect an
Expedited Redemption, please call the Transfer Agent at (800) 992-0180 and select
option 3. In the event that share certificates have been issued, you may not
request a wire redemption by telephone or wire. This option is not available for
retirement accounts.
</TABLE>
Systematic Withdrawal Plan. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount in excess of $100 made to
yourself, or to anyone else you properly designate, as long as the account has a
current value of at least $10,000. During the withdrawal period, you may
purchase additional shares for deposit to your account if the additional
purchases are equal to at least one year's scheduled withdrawals, or $1,200
whichever is greater. There are no separate charges to you under this Plan,
although a CDSC may apply if you purchased Class A or B shares.
The number of full and fractional shares equal in value to the amount of the
payment will be redeemed at NAV (less any applicable CDSC). Such redemptions are
normally processed on the fifth day prior to the end of the month, quarter or
year. Checks are then mailed or proceeds are forwarded to your bank account on
or about the first of the following month. Shareholders who elect to have a
systematic cash withdrawal must have all dividends and capital gains reinvested.
To establish a systematic cash withdrawal, please complete the Systematic
Withdrawal Plan section of the New Account Application. To have funds deposited
to your bank account, follow the instructions on the New Account Application.
You may change the amount, frequency and payee, or terminate this plan by giving
written notice to the Transfer Agent. As shares of a Fund are redeemed under the
Plan, you may realize a capital gain or loss for income tax purposes. A
Systematic Withdrawal Plan may be modified at any time by the Fund or terminated
upon written notice by you or the relevant Fund.
Payments. Payment to shareholders for shares redeemed or repurchased ordinarily
will be made within seven days after receipt by the Transfer Agent of a written
request in good order. A Fund may delay the mailing of a redemption check until
the check used to purchase the shares being redeemed has cleared which may take
up to 15 days or more. To reduce such delay, all purchases should be made by
bank wire or federal funds. A Fund may suspend the right of redemption under
certain extraordinary circumstances in accordance with the Rules of the
Securities and Exchange Commission. Due to the relatively high cost of handling
small investments, the Funds reserve the right upon 30 days written notice to
redeem, at NAV, the shares of any shareholder whose account (except for IRAs)
has a value of less than $1,000, other than as a result of a decline in the NAV
per share. Each Fund intends to pay in cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, a Fund may make payment
wholly or partly in securities at their then current market value equal to the
redemption price. In such case, a Fund could elect to make payment in securities
for redemptions in excess of $250,000 or 1% of its net assets during any 90-day
period for any one shareholder. An investor may incur brokerage costs in
converting such securities to cash.
MANAGEMENT OF THE FUNDS
More about the Funds. Bank and Thrift Fund is the single series of Pilgrim
America Bank and Thrift Fund, Inc., which is a registered investment company
that was incorporated in Maryland in November, 1985 as a closed-end, diversified
management investment company. The Fund operated as a closed-end fund prior to
October 17, 1997. On October 16, 1997, shareholders approved open-ending the
Fund and since October 17, 1997, the Fund has operated as an open-end fund.
MagnaCap Fund and High Yield Fund are series of Pilgrim America Investment
Funds, Inc., which is a registered investment company that was organized as a
Maryland corporation in July 1969.
MidCap Value Fund, LargeCap Value Fund, Asia-Pacific Equity Fund and Strategic
Income Fund are series of Pilgrim America Advisory Funds, Inc., which is a
registered investment company that was organized as a Maryland corporation in
April, 1995.
Government Securities Income Fund is the single series of Pilgrim Government
Securities Income Fund, Inc., which is a registered investment company that was
organized as a California corporation in May 1984.
Each Fund is governed by its Board of Directors, which oversees the operations
of the Fund. The majority of Directors are not affiliated with the Investment
Manager.
Investment Manager. The Investment Manager has overall responsibility for the
management of the Funds. Each Fund and the Investment Manager have entered into
an agreement that requires the Investment Manager to provide or oversee all
investment advisory and portfolio management services for the Fund. Each
agreement also requires the Investment Manager to assist in managing and
supervising all aspects of the general day-to-day business activities and
operations of the Funds, including custodial, transfer agency, dividend
disbursing, accounting, auditing, compliance and related services. The
Investment Manager provides the Funds with office space, equipment and personnel
necessary to administer the Funds. Each agreement with the Investment Manager
can be canceled by the Board of Directors of each Fund upon 60 days written
notice. Organized in December 1994, the Investment Manager is registered as an
investment adviser with the Securities and Exchange Commission. The Investment
Manager acquired certain assets of the previous adviser to the Funds in a
transaction that closed on April 7, 1995.
The Investment Manager and Pilgrim America Securities, Inc. (Distributor), the
Funds' principal underwriter, are indirect, wholly owned subsidiaries of Pilgrim
America Capital Corporation (NASDAQ: PACC). Through its subsidiaries, Pilgrim
America Capital Corporation engages in the financial services business, focusing
on providing investment advisory, administrative and distribution services to
open-end and closed-end investment companies and private accounts. For more
information on Pilgrim America Capital Corporation please see the Statement of
Additional Information.
The Investment Manager bears its expenses of providing the services described
above. Bank and Thrift Fund pays the Investment Manager a fee at an annual rate
of 1.00% of the first $30,000,000 of average daily net assets, 0.75% of the next
$95,000,000 of average daily net assets, and 0.70% of average daily net assets
in excess of $125,000,000. These fees are computed and accrued daily and paid
monthly.
MagnaCap Fund pays the Investment Manager a fee at an annual rate of 1.00% of
the average daily net assets of the Fund up to $30 million; 0.75% of the average
daily net assets above $30 million to $250 million; 0.625% of the average daily
net assets above $250 million to $500 million; and 0.50% of the average daily
net assets in excess of $500 million.
High Yield Fund and Strategic Income Fund each pay the Investment Manager a fee
at an annual rate of 0.60% of the average daily net assets of the Fund. LargeCap
Value Fund and MidCap Value Fund each pay the Investment Manager a fee at an
annual rate of 1.00% of the Fund's average daily net assets, and the
Asia-Pacific Fund pay the Investment Manager a fee at an annual rate of 1.25% of
the Fund's average daily net assets.
Government Securities Income Fund pays the Investment Manager a fee at an annual
rate of 0.50% of the average daily net assets of the Fund up to $500 million;
0.45% of the average daily net assets above $500 million to $1 billion; and
0.40% of the average daily net assets in excess of $1 billion. The agreement
with the Investment Manager for the Government Securities Income Fund provides
that the Investment Manager will reimburse the Government Securities Income Fund
to the extent that the gross operating costs and expenses of that Fund,
excluding any interest, taxes, brokerage commissions, amortization of
organizational expenses, extraordinary expenses, and distribution (Rule 12b-1)
fees on Class B and Class M shares in excess of an annual rate of 0.25% of the
average daily net assets of these classes, exceed 1.50% of the Fund's average
daily net asset value for the first $40 million of net assets and 1.00% of
average daily net assets in excess of $40 million for any one fiscal year. This
reimbursement policy cannot be changed unless the agreement is amended, which
would require shareholder approval.
The Investment Manager has entered into expense limitation agreements with
respect to certain of the Funds, pursuant to which the Investment Manager has
agreed to waive or limit its fees and to assume other expenses so that the total
annual ordinary operating expenses of these Funds (which excludes interest,
taxes, brokerage commissions, extraordinary expenses such as litigation, other
expenses not incurred in the ordinary course of such Fund's business, expenses
of any counsel or other persons or services retained by the Company's directors
who are not "interested persons" (as defined in the 1940 Act) of the Investment
Manager, and amounts payable pursuant to a plan adopted in accordance with Rule
12b-1 under the 1940 Act) do not exceed: 0.75% for High Yield Fund and Strategic
Income Fund; 1.50% for LargeCap Value Fund and MidCap Value Fund; and 1.75% for
Asia-Pacific Equity Fund.
The expense limitation agreements provide that these expense limitations shall
continue until December 31, 1998 for High Yield Fund, LargeCap Value Fund,
MidCap Value Fund and Asia-Pacific Equity Fund, and until December 31, 1999 for
Strategic Income Fund. The Investment Manager may extend, but may not shorten,
the period of these limitations without the consent of the Funds, so long as the
extension is at the same expense limitation amount discussed above. Each Fund
described above will at a later date reimburse the Investment Manager for
management fees waived and other expenses assumed by the Investment Manager
during the previous 36 months, but only if, after such reimbursement, the Fund's
expense ratio does not exceed the percentage described above. The Investment
Manager will only be reimbursed for fees waived or expenses assumed after the
effective date of the expense limitation agreements. Each expense limitation
agreement will terminate automatically upon termination of the respective
investment management agreement with the Investment Manager, and may be
terminated by the Investment Manager or the Fund upon 90 days written notice.
The Portfolio Managers. For Asia-Pacific Equity Fund and MidCap Value Fund, the
Investment Manager has engaged two of the most respected institutional
investment advisers in the world. For portfolios similar to these Funds, these
firms usually require large investment minimums to open an account, and their
services for these types of portfolios are typically available only to wealthy
individuals and large institutional clients. The Portfolio Managers have been
selected primarily on the basis of their successful application of a consistent,
well-defined, long-term investment approach over a period of several market
cycles.
Asia-Pacific Equity Fund. HSBC Asset Management Americas Inc. and HSBC Asset
Management Hong Kong Limited (collectively, HSBC) serve jointly as Portfolio
Manager to the Asia-Pacific Equity Fund. The firms are part of HSBC Asset
Management, the global investment advisory and fund management business unit of
HSBC Holdings plc (founded as the Hong Kong and Shanghai Banking Corporation in
1865) which, with headquarters in London, is one of the world's largest banking
and financial organizations. HSBC Asset Management manages over approximately
$49 billion of assets worldwide for a wide variety of institutional, retail and
private clients, with a minimum investment size for private accounts of $10
million for Asia-Pacific investors. HSBC Asset Management has advisory
operations in Hong Kong and Singapore, among other locations. Its parent company
has over a century of operations in local economies throughout the Asia-Pacific
region.
Fredric Lutcher III, Managing Director, Chief Financial Officer, HSBC Americas,
Ian Burden, Chief Investment Officer, HSBC Hong Kong, and Man Wing Chung,
Director, HSBC Hong Kong, are primarily responsible for portfolio management of
Asia-Pacific Equity Fund. Mr. Lutcher joined HSBC in 1997, and has over 20 years
of investment experience. Prior to joining HSBC, Mr. Lutcher was with Merrill
Lynch Asset Management. Mr. Burden has been with HSBC for 17 years, and has 24
years investment experience. Mr. Chung has been with HSBC for 5 years, and has
10 years investment experience.
MidCap Value Fund. Cramer Rosenthal McGlynn, LLC. (CRM) serves as Portfolio
Manager to the MidCap Value Fund. CRM's predecessor was founded in 1973 to
manage portfolios for a select number of high net worth individuals and their
related foundations, endowment funds, pension plans and other entities, and CRM
currently manages approximately $4 billion for more than 200 individual and
institutional clients, with a minimum investment size for private accounts of $5
million. The three founding principals of CRM have each spent over 35 years in
the investment business. The firm has managed investments in small and middle
capitalization companies for __ years. Accounts managed by Cramer Rosenthal own
in the aggregate approximately ____% of the outstanding voting securities of
Pilgrim America.
Gerald B. Cramer, Chairman of CRM, Edward D. Rosenthal, Vice Chairman of CRM,
Ronald H. McGlynn, Manager, President and Chief Executive Officer of CRM, Jay B.
Abramson, Executive Vice President and Director of Research of CRM, and Michael
Prober, Portfolio Manager and Research Analyst, are primarily responsible for
portfolio management of MidCap Value Fund. Messrs. Cramer, Rosenthal and McGlynn
founded CRM's predecessor in 1973. Mr. Abramson has been with CRM or its
predecessor for 13 years. Mr. Prober has been with CRM for 6 years.
Each Portfolio Manager serves the pertinent Fund under an agreement with the
Investment Manager. Each Portfolio Manager has discretion to purchase and sell
securities for the portfolio of its respective Fund in accordance with that
Fund's objectives, policies and restrictions. Although the Portfolio Managers
are subject to the general supervision by the Board of Directors and the
Investment Manager, the Board and/or the Investment Manager do not evaluate the
investment merits of specific securities transactions. The agreement with each
Portfolio Manager may be terminated by the Board of Directors of the Funds, by
the Investment Manager or by the Portfolio Manager. Thus, it is possible that in
the future, one or more of the current Portfolio Managers would no longer be
engaged for a Fund. It is not anticipated that Portfolio Managers will be
replaced in the ordinary course of operations.
As compensation for their services to the Funds, the Investment Manager (and not
the Fund) pays HSBC and CRM fees at annual rates of 0.50% of the average daily
net assets of the Asia-Pacific Equity and MidCap Value Funds, respectively.
Investment Personnel.
Howard N. Kornblue, Senior Vice President, Head of Equity and Senior Portfolio
Manager for the Investment Manager. Mr. Kornblue is a co-manager of MagnaCap
Fund and has served as a portfolio manager of MagnaCap Fund since 1989. Prior to
joining Pilgrim America Group (and its predecessor) in 1986, Mr. Kornblue was
Vice President, Director of Research and Portfolio Manager at First Wilshire
Securities Management; supervised mergers and acquisitions for Getty Oil
Company; was portfolio manager and research analyst in both the fixed-income and
equity departments for Western Asset Management Company; and was research
analyst and pension fund manager at Southern California Edison Company. Mr.
Kornblue received a B.S. from U.C.L.A., and M.S. and M.B.A. from U.S.C.
Carl Dorf, C.F.A., Senior Vice President and Senior Portfolio Manager of Bank
and Thrift Fund has been managing the Fund's portfolio since January 1991, when
he joined the Investment Manager's predecessor. Mr. Dorf is also a Senior Vice
President of the Investment Manager. Prior to joining the Investment Manager's
predecessor, he was a principal of Dorf & Associates Investment Counsel. His 30
plus years of portfolio management and research experience include positions
with Moody's Investors Service, Inc., as an analyst in the Banking & Finance
Department; with Nuveen Corp. as a financial securities analyst; with Loews
Corp. as a fund manager with responsibility for $150 to $250 million in utility
and financial stocks; with BA Investment Management Corp. as a senior financial
stock analyst; and with RNC Capital Management as manager of 150 individual,
pension, and profit-sharing accounts. A Chartered Financial Analyst, Mr. Dorf
earned both BBA/Finance and Investments and MBA/Finance and Investments degrees
from the Bernard Baruch School of Business and Public Administration, The City
College of New York.
G. David Underwood, Vice President, Director of Research and Senior Portfolio
Manager for the Investment Manager, is a co-manager of MagnaCap Fund and
Portfolio Manager of LargeCap Value Fund. Prior to joining the Investment
Manager in December, 1996, Mr. Underwood served as Director of Funds Management
for First Interstate Capital Management. Mr. Underwood's prior experience
includes a 10 year association with Integra Trust Company of Pittsburgh where he
served as Director of Research and Senior Portfolio Manager and two years with
C.S. McKee Investment Advisors as a Portfolio Manager. A Chartered Financial
Analyst and past president of the Pittsburgh Society of Financial Analysts, Mr.
Underwood received his B.S. degree from Arizona State University and has done
graduate work in economics and finance at Washington and Jefferson College. He
is a graduate of Pennsylvania Bankers Trust School.
Jeffery B. Cross, Vice President of the Investment Manager, is a co-manager of
MagnaCap Fund. Mr. Cross joined Pilgrim America in August 1997 from Delta
Ventures Financial Council, Inc., where he was in charge of equity analysis.
Prior to joining Delta Ventures in 1991, he was executive vice president of a
manufacturing engineer consulting firm. Mr. Cross began his business career in
the 1970's working as a junior equity analyst for John Cross & Associates, an
SEC-registered investment advisor in Cincinnati, Ohio. He is an advisory
director of the CAD Institute. Mr. Cross has three Magna Cum Laude Bachelor of
Science degrees from Miami University, Oxford, Ohio, in Chemistry, Physics, and
Mathematics. He has a masters degree from Stanford University and has done
post-graduate work in business and chemical engineering at Arizona State
University.
Howard Tiffen, Senior Vice President and Senior Portfolio Manager of the
Investment Manager, serves as a co-manager of Strategic Income Fund. He is also
the President, Chief Operating Officer and Senior Portfolio Manager of Pilgrim
America Prime Rate Trust, another fund managed by the Investment Manager. He has
had primary responsibility for investment management of various divisions of
Bank of America (and its predecessor, Continental Bank).
Kevin G. Mathews, Senior Vice President and Senior Portfolio Manager of the
Investment Manager, has served as Portfolio Manager of High Yield Fund since
June 1995 serves as the Allocation Manager for Strategic Income Fund and also
served as Portfolio Manager of Government Securities Income Fund from June 1995
through September 1996. Prior to joining the Investment Manager, Mr. Mathews was
a Vice President and Senior Portfolio Manager with Van Kampen American Capital.
Since 1987, Mr. Mathews' responsibilities included the management of open-end
high yield bond funds, two New York Stock Exchange listed closed-end bond funds,
variable annuity high yield products and individual institutional high yield
asset managed accounts. In a prior position, Mr. Mathews was a high yield
portfolio fixed income credit analyst. Mr. Mathews received a B.A. from the
University of Illinois and an M.B.A. from Drake University.
Charles G. Ullerich, Vice President of the Investment Manager, has served as
Portfolio Manager of Government Securities Income Fund since September 1996 and
served as Assistant Portfolio Manager of that Fund from August 1995 to September
1996. Mr. Ullerich also serves as co-manager of Strategic Income Fund. Prior to
joining Pilgrim America Group, Mr. Ullerich was Vice President of Treasury
Services for First Liberty Bank of Macon, GA, where he was Portfolio Manager for
a conservatively-managed $150 million mortgage and treasury securities
portfolio, since 1991. Before that, he was an internal auditor for Georgia
Federal Bank in Atlanta. Mr. Ullerich received a B.S. from Arizona State
University, and he holds the professional designations of Chartered Financial
Analyst and Certified Internal Auditor. He is Past President of the Georgia
Chapter of the Arizona State University Alumni Association.
Distributor. In addition to providing for the expenses discussed above, the Rule
12b-1 Plan also recognizes that the Investment Manager may use its investment
management fees or other resources to pay expenses associated with activities
primarily intended to result in the promotion and distribution of the Funds'
shares. The Distributor will, from time to time, pay to Authorized Dealers in
connection with the sale or distribution of shares of a Fund material
compensation in the form of merchandise or trips. Salespersons and any other
person entitled to receive any compensation for selling or servicing Fund shares
may receive different compensation with respect to one particular class of
shares over another in a Fund.
Shareholder Servicing Agent. Pilgrim America Group, Inc. serves as Shareholder
Servicing Agent for the Funds. The Shareholder Servicing Agent is responsible
for responding to written and telephonic inquiries from shareholders. Each Fund
pays the Shareholder Servicing Agent a monthly fee on a per-contact basis, based
upon incoming and outgoing telephonic and written correspondence.
Portfolio Transactions. The Investment Manager, or Portfolio Manager in the case
of MidCap Value Fund and Asia-Pacific Equity Fund, will place orders to execute
securities transactions that are designed to implement each Fund's investment
objectives and policies. The Investment Manager, or Portfolio Manager, will use
its reasonable efforts to place all purchase and sale transactions with brokers,
dealers and banks ('brokers') that provide 'best execution' of these orders. In
placing purchase and sale transactions, the Investment Manager, or Portfolio
Managers, may consider brokerage and research services provided by a broker to
Portfolio Manager or the Investment Manager or their affiliates, and a Fund may
pay a commission for effecting a securities transaction that is in excess of the
amount another broker would have charged if the Investment Manager or Portfolio
Manager determines in good faith that the amount of commission is reasonable in
relation to the value of the brokerage and research services provided by the
broker. Consistent with this policy, portfolio transactions may be executed by
brokers affiliated with a Portfolio Manager or the Investment Manager, so long
as the commission paid to the affiliated broker is reasonable and fair compared
to the commission that would be charged by an unaffiliated broker in a
comparable transaction. In addition, the Investment Manager or Portfolio Manager
may place securities transactions with brokers that provide certain services to
a Fund. The Investment Manager or Portfolio Manager also may consider a broker's
sale of Fund shares if the Investment Manager is satisfied that the Fund would
receive best execution of the transaction from that broker.
DIVIDENDS, DISTRIBUTIONS & TAXES
Dividends and Distributions. In the case of Bank and Thrift Fund, MidCap Value
Fund, LargeCap Value Fund, and Asia-Pacific Equity Fund, dividends and
distributions from net investment income and capital gains, if any, will be paid
at least annually. MagnaCap Fund makes semi-annual payments from net investment
income and one or more payments from net realized capital gains, if any. High
Yield Fund, Strategic Income Fund and Government Securities Income Fund each
have a policy of paying monthly dividends from their net investment income, and
paying capital gains, if any, annually. Dividends and distributions will be
determined on a class basis.
Any dividends and distributions paid by a Fund will be automatically reinvested
in additional shares of the respective class of that Fund, unless you elect to
receive distributions in cash. When a dividend or distribution is paid, the NAV
per share is reduced by the amount of the payment.
You may, upon written request or by completing the appropriate section of the
New Account Application in this Prospectus, elect to have all dividends and
other distributions paid on a Class A, B or M account in a Fund invested into a
Pilgrim America Fund which offers Class A, B or M shares. Both accounts must be
of the same class. If you are a shareholder of Pilgrim America Prime Rate Trust,
whose shares are not held in a broker or nominee account, you may, upon written
request, elect to have all dividends invested into a pre-existing Class A
account of any open-end Pilgrim America Fund which offers Class A, B, or M
shares. Distributions are invested into the selected funds at the net asset
value as of the payable date of the distribution only if shares of such selected
funds have been registered for sale in the investor's state.
Federal Taxes. Each Fund intends to operate as a 'regulated investment company'
under the Internal Revenue Code. To qualify, a Fund must meet certain income,
asset diversification and distribution requirements. In any fiscal year in which
a Fund so qualifies and distributes to shareholders all of its taxable income,
the Fund itself generally is relieved of federal income and excise taxes.
Dividends paid out of a Fund's investment company taxable income (including
dividends, interest and short-term capital gains) will be taxable to a U.S.
shareholder as ordinary income. If a portion of a Fund's income consists of
dividends paid by U.S. corporations, a portion of the dividends paid by the Fund
may be eligible for the corporate dividends-received deduction. The Funds expect
that distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses), if any, designated as capital gain
dividends should be taxable as long-term capital gains, regardless of how long
the shareholder has held the Fund's shares, but the rate of tax will depend on
the Fund's holding period for the assets whose sale results in the gain.
All dividends and capital gains are taxable whether they are reinvested or
received in cash, unless you are exempt from taxation or entitled to tax
deferral. Early each year, you will be notified as to the amount and federal tax
status of all dividends and capital gains paid during the prior year. Such
dividends and capital gains may also be subject to state or local taxes.
Dividends declared in October, November, or December with a record date in such
month and paid during the following January will be treated as having been paid
by a Fund and received by shareholders on December 31 of the calendar year in
which declared, rather than the calendar year in which the dividends are
actually received.
Upon the sale or other disposition of shares of a Fund, a shareholder may
realize a gain or loss which will be a capital gain or loss if the shares are
held as a capital asset and, if so, may be eligible for reduced federal tax
rates, depending on the shareholder's holding period for the shares.
If you have not furnished a certified correct taxpayer identification number
(generally your Social Security number) and have not certified that withholding
does not apply, or if the Internal Revenue Service has notified the Fund that
the taxpayer identification number listed on your account is incorrect according
to their records or that you are subject to backup withholding, federal law
generally requires the Fund to withhold 31% from any dividends and/or
redemptions (including exchange redemptions). Amounts withheld are applied to
your federal tax liability; a refund may be obtained from the Service if
withholding results in overpayment of taxes. Federal law also requires the Fund
to withhold 30% or the applicable tax treaty rate from ordinary dividends paid
to certain nonresident alien, non-U.S. partnership and non-U.S. corporation
shareholder accounts.
Asia-Pacific Equity Fund may be required to pay withholding and other taxes
imposed by various countries in connection with its investments outside the U.S.
generally at rates from 10% to 40%, which would reduce a Fund's investment
income.
This is a brief summary of some of the tax laws that affect your investment in a
Fund. Please see the Statement of Additional Information and your tax adviser
for further information.
PERFORMANCE INFORMATION
From time to time, a Fund may advertise its average annual total return over
various periods of time as well as the Fund's current yield. The total return
figures show the average percentage change in value of an investment in the Fund
from the beginning date of the measuring period. The figures reflect changes in
the price of the Fund's shares and assume that any income dividends and/or
capital gains distributions made by the Fund during the period were reinvested
in shares of the Fund. Figures will be given for one, five and ten year periods
(if applicable) and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis). Total
returns and current yield are based on past results and are not necessarily a
prediction of future performance. The Fund will compute its yield by dividing
its net investment income per share during a 30-day base period by the maximum
offering price on the last day of the base period. This 30-day yield is then
compounded over six monthly periods and multiplied by two to provide an
annualized yield.
A Fund may also publish a distribution rate in investor communications preceded
or accompanied by a copy of the current Prospectus. The current distribution
rate for a Fund is the annualization of the Fund's distribution per share
divided by the maximum offering price per share of a Fund at the respective
month-end. The current distribution rate may differ from current yield because
the distribution rate may contain items of capital gain and other items of
income, while yield reflects only earned net investment income. In each case,
the yield, distribution rates and total return figures will reflect all
recurring charges against Fund income and will assume the payment of the maximum
sales load.
Additional Performance Quotations. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.
ADDITIONAL INFORMATION
More about the Funds. Each Fund's Articles of Incorporation permit the Directors
to authorize the creation of additional series, each of which may issue separate
classes of shares. A Fund may be terminated and liquidated under certain
circumstances.
Shareholders have certain voting rights. Each share of each Fund is given one
vote. Matters such as approval of new investment advisory agreements and changes
in fundamental policies of a Fund will require the affirmative vote of the
shareholders of that Fund. Matters affecting a certain class of a Fund will only
be voted on by shareholders of that particular class and Fund. The Funds are not
required to hold annual shareholder meetings, although special shareholder
meetings may be held from time to time.
<PAGE>
PILGRIM AMERICA BANK AND THRIFT FUND.
PILGRIM AMERICA MAGNACAP FUND
PILGRIM AMERICA MIDCAP VALUE FUND
PILGRIM AMERICA LARGECAP VALUE FUND
PILGRIM AMERICA ASIA-PACIFIC EQUITY FUND
PILGRIM AMERICA HIGH YIELD FUND
PILGRIM AMERICA STRATEGIC INCOME FUND
PILGRIM GOVERNMENT SECURITIES INCOME FUND
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004
1-800-992-0180
Table of Contents
Page
THE FUNDS.............................................................
THE FUNDS AT A GLANCE.................................................
SUMMARY OF EXPENSES...................................................
FINANCIAL HIGHLIGHTS..................................................
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES.........................
INVESTMENT PRACTICES AND RISK CONSIDERATIONS..........................
All Funds: Diversification and Changes in Policies................
SHAREHOLDER GUIDE.....................................................
Pilgrim America Purchase OptionsTM................................
Purchasing Shares.................................................
Exchange Privileges and Restrictions..............................
Systematic Exchange Privilege.....................................
How to Redeem Shares..............................................
MANAGEMENT OF THE FUNDS...............................................
DIVIDENDS, DISTRIBUTIONS AND TAXES....................................
PERFORMANCE INFORMATION...............................................
ADDITIONAL INFORMATION................................................
NEW ACCOUNT APPLICATION...............................................
Investment Manager
Pilgrim America Investments, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004-4408
Distributor
Pilgrim America Securities, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004-4408
Shareholder Servicing Agent
Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004-4408
Transfer Agent
DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368
Custodian
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
Legal Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
Independent Auditors
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017
<PAGE>
PILGRIM AMERICA ADVISORY FUNDS, INC.
Pilgrim America Asia-Pacific Equity Fund
Pilgrim America MidCap Value Fund
Pilgrim America LargeCap Value Fund
Pilgrim America Strategic Income Fund
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004
(800) 992-0180
Statement of Additional Information
dated November 1, 1998
Pilgrim America Advisory Funds, Inc. (the "Company") is an open-end management
investment company commonly known as a mutual fund. The Company currently
consists of four separate diversified investment funds, Pilgrim America
Asia-Pacific Equity Fund ("Asia-Pacific Equity Fund"), Pilgrim America MidCap
Value Fund ("MidCap Value Fund"), Pilgrim America LargeCap Value Fund ("LargeCap
Value Fund") and Pilgrim America Strategic Income Fund ("Strategic Income 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 Prospectus, dated November 1, 1998, which has been
filed with the Securities and Exchange Commission ("SEC"). Copies of the
Prospectus may be obtained at no charge by calling (800) 992-0180.
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
Organization of Pilgrim America Advisory Funds, Inc...........................3
Management of The Funds.......................................................3
Supplemental Description of Investments......................................13
Supplemental Investment Techniques...........................................36
Investment Restrictions......................................................36
Portfolio Transactions.......................................................38
Additional Purchase and Redemption Information...............................40
Determination of Share Price.................................................45
Shareholder Services and Privileges..........................................45
Distributions................................................................48
Tax Considerations...........................................................48
Shareholder Information......................................................53
Calculation of Performance Data..............................................54
General Information..........................................................56
Financial Statements.........................................................57
<PAGE>
ORGANIZATION OF PILGRIM AMERICA ADVISORY FUNDS, INC.
Pilgrim America Advisory Funds, Inc. is an open-end management investment
company commonly known as a mutual fund. The Company currently consists of four
separate diversified investment funds, Asia-Pacific Equity Fund, MidCap Value
Fund, LargeCap Value Fund and Strategic Income Fund (each a "Fund" and
collectively the "Funds"), each with its own investment objective and policies.
The Company changed its name from "Pilgrim America Masters Series, Inc." to
"Pilgrim America Advisory Funds, Inc." in _________, 1998. In addition, the word
"Masters" was removed from the name of each Fund at the same time.
The authorized capital stock of the Company 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. The Company is managed by its Board of Directors. The
Directors and Officers of the Company 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 the
Company or Pilgrim America Investments, Inc., the Company's investment manager
(the "Investment Manager").
Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix,
Arizona 85016. (Age 59) Director. Realtor, Coldwell Banker Success
Realty (formerly, The Prudential Arizona Realty) for more than the
last five years. Ms. Baldwin is also Vice President, United States
Olympic Committee (November 1996 - Present), and formerly Treasurer,
United States Olympic Committee (November 1992 - November 1996). Ms.
Baldwin is also a director and/or trustee of each of the funds managed
by the Investment Manager.
John P. Burke, 260 Constitution Plaza, Hartford, Connecticut 06130.
(Age 66) Director. Commissioner of Banking, State of Connecticut
(January 1995 - Present). Mr. Burke was formerly President of Bristol
Savings Bank (August 1992 - January 1995) and President of Security
Savings and Loan (November 1989 - August 1992). Mr. Burke is also a
director and/or trustee of each of the funds managed by the Investment
Manager.
Al Burton, 2300 Coldwater Canyon, Beverly Hills, California 90210.
(Age 70) Director. President of Al Burton Productions for more than
the last five years; formerly Vice President, First Run Syndication,
Castle Rock Entertainment (July 1992 - November 1994). Mr. Burton is
also a director and/or trustee of each of the funds managed by the
Investment Manager.
Jock Patton, 40 North Central Avenue, Suite 1200, Phoenix, AZ 85004.
(Age 52) Director. Private Investor. Director of Artisoft, Inc. Mr.
Patton was formerly President and Co-owner, StockVal, Inc. (April 1993
- June 1997) and a partner and director of the law firm of Streich,
Lang, P.A. (1972 - 1993). Mr. Patton is also a director and/or trustee
of each of the funds managed by the Investment Manager.
*Robert W. Stallings, 40 North Central Avenue, Suite 1200, Phoenix, AZ
85004. (Age 49) Chairman, Chief Executive Officer, and President.
Chairman, Chief Executive Officer and President of Pilgrim America
Group, Inc. (since December 1994); Chairman, Pilgrim America
Investments, Inc. (since December 1994); Director, Pilgrim America
Securities, Inc. (since December 1994); Chairman, Chief Executive
Officer and President of Pilgrim America Bank and Thrift Fund, Inc.,
Pilgrim Government Securities Income Fund, Inc. and Pilgrim America
Investment Funds, Inc. (since April 1995). Chairman and Chief
Executive Officer of Pilgrim America Prime Rate Trust (since April
1995). Chairman and Chief Executive Officer of Pilgrim America Capital
Corporation (formerly, Express America Holdings Corporation) ("Pilgrim
America") (since August 1990).
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) $500
per special telephonic meeting; and (v) out-of-pocket expenses. The pro rata
share paid by the Funds is based on the Funds' average net assets as a
percentage of the average net assets of all the funds managed by the Investment
Manager for which the Directors serve in common as directors/trustees.
Compensation of Directors.
The following table sets forth information regarding compensation of Directors
by the Company and other funds managed by the Investment Manager for the fiscal
year ended June 30, 1998. Officers of the Company and Directors who are
interested persons of the Company do not receive any compensation from the Fund
or any other funds managed by the Investment Manager. In the column headed
"Total Compensation From Registrant and Fund Complex Paid to Directors," the
number in parentheses indicates the total number of boards in the fund complex
on which the Director serves.
Compensation Table
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued Annual Registrant
Compensation As Part of Benefits and Fund
from Fund Upon Complex Paid
Name of Person, Position Registrant Expenses Retirement to Directors
<S> <C> <C> <C> <C>
Mary A. Baldwin(1), Director...................... $_____ N/A N/A $______
(5 boards)
John P. Burke(1)(2), Director .................... $_____ N/A N/A $______
(5 boards)
Al Burton(1), Director............................ $_____ N/A N/A $______
(5 boards)
Bruce S. Foerster(1)(3), Former Director......... $_____ N/A N/A $______
(5 boards)
Jock Patton(1), Director ....................... $_____ N/A N/A $______
(5 boards)
Robert W. Stallings(3), Director and Chairman..... $0 N/A N/A $0
(5 boards)
</TABLE>
_________________________________
(1) Member of the Audit Committee.
(2) Commenced service as Trustee on May 5, 1997.
(3) Mr. Foerster resigned as a Director of the Company effective September 30,
1998.
(4) "Interested person," as defined in the Investment Company Act of 1940, of
the the Company because of the affiliation with the Investment Manager.
Officers
James R. Reis, Executive Vice President and Assistant Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 41)
Director, Vice Chairman (since December 1994), and Executive Vice
President (since April 1995), Pilgrim America Group, Inc. ("PAGI") and
PAII; Director (since December 1994), Vice Chairman (since November
1995) and Assistant Secretary (since January 1995) of PASI; Executive
Vice President and Assistant Secretary of each of the other funds in
the Pilgrim America Group of Funds; Chief Financial Officer (since
December 1993), Vice Chairman and Assistant Secretary (since April
1993) and former President (May 1991 - December 1993), Pilgrim America
(formerly Express America Holdings Corporation). Presently serves or
has served as an officer or director of other affiliates of Pilgrim
America.
Stanley D. Vyner, Executive Vice President
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 48)
Executive Vice President (since August 1996), PAGI; President and Chief
Executive Officer (since August 1996), PAII; Executive Vice President
of (since July 1996) of most of the funds in the Pilgrim America Group
of Funds. Formerly Chief Executive Officer (November 1993 - December
1995) HSBC Asset Management Americas, Inc., and Chief Executive
Officer, and Actuary (May 1986 - October 1993) HSBC Life Assurance Co.
James M. Hennessy, Executive Vice President and Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 49)
Executive Vice President and Secretary (since April 1998), Pilgrim
America (formerly Express America Holdings Corporation), PAGI, PASI and
PAII; Executive Vice President and Secretary of each of the funds in
the Pilgrim America Group of Funds. Formerly Senior Vice President,
Pilgrim America (April 1995 - April 1998); Senior Vice President,
Express America Mortgage Corporation (June 1992 August 1994) and
President, Beverly Hills Securities Corp. (January 1990 - June 1992).
Michael J. Roland, Senior Vice President and Principal Financial
Officer
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004.
(Age 40) Senior Vice President and Chief Financial Officer, PAGI,
PAII, PASI (since June 1998) and Pilgrim America Financial (since
August, 1998). He served in same capacity from January, 1995 - April,
1997. Chief Financial Officer of Endeaver Group (April, 1997 to June,
1998).
Robert S. Naka, Vice President and Assistant Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 35)
Vice President, PAII (since April 1997) and Pilgrim America Group, Inc.
(since February 1997). Vice President and Assistant Secretary of each
of the funds in the Pilgrim America Group of Funds. Formerly Assistant
Vice President, Pilgrim America Group, Inc. (August 1995 - February
1997). Formerly Operations Manager, Pilgrim Group, Inc. (April 1992 -
April 1995).
Robyn L. Ichilov, Vice President and Treasurer
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 30)
Vice President, PAII (since August 1997) and Pilgrim America Financial
(since May 1998), Accounting Manager (since November 1995). Formerly
Assistant Vice President and Accounting Supervisor for Paine Webber
(June, 1993 - April, 1995).
Principal Shareholders. As of ____________, 1998, the Directors and Officers of
the Company as a group owned less than 1% of any class of the Fund's outstanding
shares. As of _______________, 1998, to the knowledge of management, no person
owned beneficially or of record more than 5% of the outstanding shares of any
class of the Funds, except as follows: [TO BE PROVIDED BY AMENDMENT].
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 the Company and the Investment Manager
requires the Investment Manager to oversee the provision of all investment
advisory and portfolio management services for the Funds. The Investment
Manager, which was organized in December 1994, is registered as an investment
adviser with the SEC and serves as investment adviser to five other registered
investment companies (or series thereof). As of _______________, 1998, the
Investment Manager had assets under management of approximately $___ billion.
The Investment Manager, with the approval of the Company's Board of Directors,
may select and employ investment advisers to serve as portfolio manager for any
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.
Since November 1, 1997, the Investment Manager has provided investment advisory
services to the LargeCap Value Fund pursuant to the Investment Management
Agreement. Prior to that time, investment advisory services were provided to the
LargeCap Value Fund by a Portfolio Manager selected by the Investment Manager.
The Investment Manager has employed Portfolio Managers to provide investment
advisory services to the Asia-Pacific Equity Fund and the MidCap Value Fund.
More information regarding the Portfolio Managers is provided below.
The Investment Manager is a wholly-owned subsidiary of Pilgrim America Group,
Inc., which is itself a wholly-owned subsidiary of Pilgrim America Capital
Corporation, a Delaware corporation, the shares of which are traded on the
NASDAQ National Market System (NASDAQ: PACC) and which is a holding company that
through its subsidiaries engages in the financial services business.
The Investment Manager pays all of its expenses arising from the performance of
its obligations under the Investment Management Agreement, including all fees
payable to the Portfolio Managers, executive salaries and expenses of the
Directors and Officers of the Company who are employees of the Investment
Manager or its affiliates and office rent of the Company. 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 the Company are borne by the Funds, including, without limitation, investment
advisory fees; brokerage commissions; interest; legal fees and expenses of
attorneys; fees of independent auditors, transfer agents and dividend disbursing
agents, accounting agents, and custodians; the expense of obtaining quotations
for calculating each Fund's net asset value; taxes, if any, and the preparation
of each Fund's tax returns; cost of stock certificates and any other expenses
(including clerical expenses) of issue, sale, repurchase or redemption of
shares; expenses of registering and qualifying shares of the Funds under federal
and state laws and regulations; salary 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 the
Company 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), 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), and the Strategic Income Fund pays the Investment Manager a monthly fee
in arrears equal to 1/12 of 0.60% of the Fund's average daily net assets during
the month (approximately 0.60% on an annual basis). The Investment Manager
waives its management fee from Strategic Income Fund to the extent such fees
arise from the Fund's investment in other investment companies managed by the
Investment Manager. For the fiscal period of September 1, 1995 (commencement of
operations) to June 30, 1996, Asia-Pacific Equity Fund, MidCap Value Fund, and
LargeCap Value Fund paid management fees to the Investment Manager of $169,861,
$19,762, and $18,405, respectively. For the fiscal year ended June 30, 1997,
Asia-Pacific Equity Fund, MidCap Value Fund, and LargeCap Value Fund paid
management fees to the Investment Manager of $773,252, $250,512, and $174,325,
respectively. For the fiscal year ended June 30, 1998, Asia-Pacific Equity Fund,
MidCap Value Fund and LargeCap Value Fund paid management fees to the Investment
Manager of $____, $____ and $_____ respectively.
The Investment Manager has entered into an expense limitation agreement the
Company, pursuant to which the Investment Manager has agreed to waive or limit
its fees and to assume other expenses so that the total annual ordinary
operating expenses of the Funds (which excludes interest, taxes, brokerage
commissions, extraordinary expenses such as litigation, other expenses not
incurred in the ordinary course of such Fund's business, expenses of any counsel
or other persons or services retained by the Company's directors who are not
"interested persons" (as defined in the 1940 Act) of the Investment Manager, and
amounts payable pursuant to a plan adopted in accordance with Rule 12b-1 under
the 1940 Act) do not exceed: 0.75% for Strategic Income Fund; 1.50% for LargeCap
Value Fund and MidCap Value Fund; and 1.75% for Asia-Pacific Equity Fund.
The expense limitation agreements provide that these expense limitations shall
continue until December 31, 1998 for LargeCap Value Fund, MidCap Value Fund and
Asia-Pacific Equity Fund, and until December 31, 1999 for Strategic Income Fund.
The Investment Manager may extend, but may not shorten, the period of these
limitations without the consent of the Funds, so long as the extension is at the
same expense limitation amount discussed above. Each Fund will at a later date
reimburse the Investment Manager for management fees waived and other expenses
assumed by the Investment Manager during the previous 36 months, but only if,
after such reimbursement, the Fund's expense ratio does not exceed the
percentage described above. The Investment Manager will only be reimbursed for
fees waived or expenses assumed after the effective date of the expense
limitation agreements. Each expense limitation agreement will terminate
automatically upon termination of the respective investment management agreement
with the Investment Manager, and may be terminated by the Investment Manager or
the Fund upon 90 days written notice.
Portfolio Managers. The Investment Manager has entered into Portfolio Management
Agreements with Portfolio Managers to provide investment advisory services to
certain of the Funds. The Investment Manager recommends Portfolio Managers to
the Board of Directors of the Company primarily on the basis of their successful
application of a consistent, well-defined, long-term investment approach over a
period of several market cycles. Each Portfolio Manager has discretion to
purchase and sell securities for its Fund in accordance with that Fund's
investment objective, policies and restrictions. Although the Portfolio Managers
are subject to general supervision by the Investment Manager, the Investment
Manager does not evaluate the investment merits of specific securities
transactions.
HSBC Asset Management -- HSBC Asset Management Americas Inc. and HSBC Asset
Management Hong Kong Limited (collectively HSBC) serve collectively as Portfolio
Managers to the Asia-Pacific Equity Fund. HSBC is part of HSBC Asset Management,
the global investment advisory and fund management business of the HSBC Group,
which, with headquarters in London, is one of the world's largest banking and
financial organizations. HSBC Asset Management currently manages over
approximately $49 billion of assets globally for a wide variety of
institutional, retail and private clients, with a minimum account size of $10
million for Asia-Pacific investors. As compensation for its services to the
Asia-Pacific Equity Fund, the Investment Manager pays HSBC a monthly fee in
arrears equal to 1/12 of 0.50% of the Fund's average daily net assets managed
during the month. For the fiscal period of September 1, 1995 (commencement of
operations) to June 30, 1996, the Investment Manager paid portfolio management
fees to HSBC of $62,403. For the fiscal year ended June 30, 1997, the Investment
Manager paid portfolio management fees to HSBC of $307,103. For the fiscal year
ended June 30, 1998, the Investment Manager paid portfolio management fees to
HSBC of $227,782.
Cramer Rosenthal McGlynn, LLC -- Cramer Rosenthal McGlynn, LLC. (CRM), serves as
Portfolio Manager to the MidCap Value Fund. CRM is registered as an investment
adviser under the Investment Advisers Act of 1940. The principal shareholders
and portfolio managers of CRM have significant experience in managing the money
of pension plans, endowment funds, other institutions and individuals. CRM's
predecessor 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 over 35
years in the investment business. CRM manages approximately $4 billion for more
than 200 individual and institutional clients, with a minimum account size of $5
million. As compensation for its services to the MidCap Value Fund, the
Investment Manager pays CRM a monthly fee in arrears equal to 1/12 of 0.50% of
the Fund's average daily net assets managed during the month. For the fiscal
period of September 1, 1995 (commencement of operations) to June 30, 1996, the
Investment Manager paid portfolio management fees to CRM of $125,000. For the
fiscal year ended June 30, 1997, the Investment Manager paid portfolio
management fees to CRM of $193,080. For the fiscal year ended June 30, 1998, the
Investment Manager paid portfolio management fees to CRM of $375,196. Accounts
managed by CRM own in the aggregate approximately _____% of the outstanding
voting securities of Pilgrim America.
Former Portfolio Manager for LargeCap Value Fund -- Ark Asset Management Co.,
Inc. (Ark) served as Portfolio Manager to the LargeCap Value Fund from September
1, 1995 through October 31, 1997. For the fiscal period of September 1, 1995
(commencement of operations) to June 30, 1996, the Investment Manager paid
portfolio management fees to Ark of $4,996. For the fiscal year ended June 30,
1997, the Investment Manager paid portfolio management fees to Ark of $60,843.
For the period from July 1, 1997 through October 31, 1997, the Portfolio Manager
paid portfolio management fees to Ark of $79,173.
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 the
Company 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. The Company 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 the Company. See the Prospectus of the Company for information on
how to purchase and sell shares of the Funds, and the charges and expenses
associated with an investment.
For the fiscal period of September 1, 1995 (commencement of operations) to June
30, 1996, total commissions allowed to other dealers under the Funds'
underwriting arrangements were approximately $836,554 for Asia-Pacific Equity
Fund, $90,542 for MidCap Value Fund, and $70,285 for Large Cap Value Fund. For
that same period, the Distributor retained approximately $28,873 or
approximately 3.3% of the total commissions assessed on shares of Asia-Pacific
Equity Fund, approximately $27,485 or approximately 23.3% of total commissions
assessed on shares of MidCap Value Fund, and approximately $70,285 or
approximately 27.8% of total commissions assessed on shares of LargeCap Value
Fund.
For the fiscal year ended June 30, 1997, total commissions allowed to other
dealers under the Funds' underwriting arrangements were approximately $756,504
for Asia-Pacific Equity Fund, $871,644 for MidCap Value Fund, and $479,658 for
LargeCap Value Fund. For that same period, the Distributor retained
approximately $109,236 or approximately 14.4% of the total commissions assessed
on shares of Asia-Pacific Equity Fund, approximately $95,048 or approximately
10.9% of total commissions assessed on shares of MidCap Value Fund, and
approximately $45,962 or approximately 9.58% of total commissions assessed on
shares of LargeCap Value Fund.
For the fiscal year ended June 30, 1998, total commissions allowed to other
dealers under the Funds' underwriting arrangements were approximately $________
for Asia-Pacific Equity Fund, $________ for MidCap Value Fund, and $__________
for LargeCap Value Fund. For that same period, the Distributor retained
approximately $_________ or approximately _____% of the total commissions
assessed on shares of Asia-Pacific Equity Fund, approximately $_______ or
approximately _____% of total commissions assessed on shares of MidCap Value
Fund, and approximately $_________ or approximately ____% of total commissions
assessed on shares of LargeCap Value Fund.
Rule 12b-1 Plans. The Company has a distribution plan pursuant to Rule 12b-1
under the 1940 Act applicable to each class of shares offered by each Fund
("Rule 12b-1 Plans"). The Company intends to operate the Rule 12b-1 Plans in
accordance with their terms and the National Association of Securities Dealers,
Inc. rules concerning sales charges. Under the Rule 12b-1 Plans, 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
Plans 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 Plans.
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 Plans
also recognize 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. In addition, the Distributor may, at its own expense, pay
concessions in addition to those described above to dealers that satisfy certain
criteria established from time to time by the Distributor. These conditions
relate to increasing sales of shares of the Funds over specified periods and to
certain other factors. These payments may, depending on the dealer's
satisfaction of the required conditions, be periodic and may be up to (1) 0.30%
of the value of the Funds' shares sold by the dealer during a particular period,
and (2) 0.10% of the value of the Funds' shares held by the dealer's customers
for more than one year, calculated on an annual basis.
The Rule 12b-1 Plans have been approved by the Board of Directors, including all
of the Directors who are not interested persons of the Company 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 the Company and who have no direct or indirect
financial interest in the operation of the Rule 12b-1 Plan, cast in person at a
meeting called for that purpose. It is also required that the selection and
nomination of such Directors be committed to the Directors who are not
interested persons. Each 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 the Company, 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 Plans 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 the Company, cast in
person at a meeting called for the purpose of voting on any such amendment.
The Distributor is required to report in writing to the Board of Directors at
least quarterly on the monies reimbursed to it under each Rule 12b-1 Plan, as
well as to furnish the Board with such other information as may be reasonably be
requested in connection with the payments made under the Rule 12b-1 Plan in
order to enable the Board to make an informed determination of whether the Rule
12b-1 Plan should be continued.
Total distribution expenses incurred by the Distributor for the costs of
promotion and distribution of each Fund's Class A, B, and M shares for the
fiscal year ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Asia-Pacific Equity Fund Class A Class B Class M
<S> <C> <C> <C>
Advertising.................................. $ ------- $ ------ $ ------
Printing..................................... ------- ------ ------
Salaries & Commissions....................... ------- ------ ------
Broker Servicing............................. ------- ------ ------
Miscellaneous................................ ------- ------ ------
MidCap Value Fund
Advertising.................................. $ ------- $ ------- $ ------
Printing..................................... ------- ------- ------
Salaries & Commissions....................... ------- ------- ------
Broker Servicing............................. ------- ------- ------
Miscellaneous................................ ------- ------- ------
LargeCap Value Fund
Advertising.................................. $ ------- $ ------- $ ------
Printing..................................... ------- ------- ------
Salaries & Commissions....................... ------- ------- ------
Broker Servicing............................. ------- ------- ------
Miscellaneous................................ ------- ------- ------
</TABLE>
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 and risks of certain of the Funds'
investments are set forth below.
Common Stock, Convertible Securities and Other Equity Securities. The Funds
(other than Strategic Income Fund) 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 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
(except Strategic Income Fund) may invest in securities of foreign issuers in
the form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities representing securities of foreign issuers.
These securities may not necessarily be denominated in the same currency as the
securities they represent. ADRs are receipts typically issued by a United States
bank or trust company evidencing ownership of the underlying foreign securities.
EDRs are receipts issued by a European financial institution evidencing a
similar arrangement. Generally, ADRs, in registered form, are designed for use
in the United States securities markets, and EDRs, in bearer form, are designed
for use in European securities markets.
When-Issued Securities and Delayed-Delivery Transactions. In order to secure
prices or yields deemed advantageous at the time, the Funds may purchase or sell
securities on a when-issued or a delayed-delivery basis. The Funds will enter
into a when-issued transaction for the purpose of acquiring portfolio securities
and not for the purpose of leverage. In such transactions, delivery of the
securities occurs beyond the normal settlement periods, but no payment or
delivery is made by, and no interest accrues to, the Fund prior to the actual
delivery or payment by the other party to the transaction. Due to fluctuations
in the value of securities purchased on a when-issued or a delayed-delivery
basis, the yields obtained on such securities may be higher or lower than the
yields available in the market on the dates when the investments are actually
delivered to the buyers. Similarly, the sale of securities for delayed-delivery
can involve the risk that the prices available in the market when delivery is
made may actually be higher than those obtained in the transaction itself. Each
Fund will establish a segregated account with the Custodian consisting of cash
and/or liquid assets in an amount equal to the amount of its when-issued and
delayed-delivery commitments which will be "marked to market" daily.
High Yield Securities. The Strategic Income Fund may invest in High Yield
Securities, which are debt securities that are rated lower than Baa by Moody's
or BBB by S&P. These securities tend to have speculative characteristics or are
speculative, and generally involve more risk of loss of principal and income
than higher-rated securities. Also, their yields and market values tend to
fluctuate more. Fluctuations in value do not affect the cash income from the
securities, but are reflected in the Strategic Income Fund's net asset value.
The greater risks and fluctuations in yield and value occur, in part, because
investors generally perceive issuers of lower-rated and unrated securities to be
less creditworthy.
Many fixed income securities may present risks based on payment expectations.
For example, a fixed income security may contain redemption or call provisions.
These features allow an issuer to call, or buy back, these securities.
Typically, an issuer will exercise a redemption or call provision when interest
rates decline, in order to take advantage of less expensive financing. Such a
call or redemption is usually made at par or at a premium to par. The Strategic
Income Fund then would be forced to replace a called security with a lower
yielding security, thereby decreasing the Fund's rate of return. High Yield
Securities are subject to special risks. These risks cannot be eliminated, but
may be reduced significantly through a careful analysis of prospective portfolio
securities and through diversification.
The yields earned on High Yield Securities generally are related to the quality
ratings assigned by recognized rating agencies. The medium- to lower-rated and
unrated securities in which the Strategic Income Fund invests tend to offer
higher yields than those of other securities with the same maturities because of
the additional risks associated with them. These risks include:
High Yield Bond Market. A severe economic downturn or increase in interest rates
might increase defaults in High Yield Securities issued by highly leveraged
companies. An increase in the number of defaults could adversely affect the
value of all outstanding High Yield Securities, thus disrupting the market for
such securities.
Sensitivity to interest rate and economic changes. High Yield Securities are
more sensitive to adverse economic changes or individual corporate developments
but less sensitive to interest rate changes than are Treasury or investment
grade bonds. As a result, when interest rates rise, causing bond prices to fall,
the value of high yield debt bonds tend not to fall as much as Treasury or
investment grade corporate bonds. Conversely when interest rates fall, high
yield bonds tend to underperform Treasury and investment grade corporate bonds
because high yield bond prices tend not to rise as much as the prices of these
bonds.
The financial stress resulting from an economic downturn or adverse corporate
developments could have a greater negative effect on the ability of issuers of
High Yield Securities to service their principal and interest payments, to meet
projected business goals and to obtain additional financing than on more
creditworthy issuers. Holders of High Yield Securities could also be at greater
risk because High Yield Securities are generally unsecured and subordinate to
senior debt holders and secured creditors. If the issuer of a High Yield
Security owned by the Strategic Income Fund defaults, the Fund may incur
additional expenses to seek recovery. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of High Yield Securities and the Strategic Income Fund's net asset
value. Furthermore, in the case of High Yield Securities structured as zero
coupon or pay-in-kind securities, their market prices are affected to a greater
extent by interest rate changes and thereby tend to be more speculative and
volatile than securities which pay in cash.
Payment Expectations. High Yield Securities present risks based on payment
expectations. For example, High Yield Securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Strategic Income Fund may have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Also, the
value of High Yield Securities may decrease in a rising interest rate market. In
addition, there is a higher risk of non-payment of interest and/or principal by
issuers of High Yield Securities than in the case of investment grade bonds.
Liquidity and Valuation Risks. Lower-rated bonds are typically traded among a
smaller number of broker-dealers rather than in a broad secondary market.
Purchasers of High Yield Securities tend to be institutions, rather than
individuals, a factor that further limits the secondary market. To the extent
that no established retail secondary market exists, many High Yield Securities
may not be as liquid as Treasury and investment grade bonds. The ability of the
Company's Board of Directors to value or sell High Yield Securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of High Yield
Securities more than other securities, especially in a thinly-traded market. To
the extent the Strategic Income Fund owns illiquid or restricted High Yield
Securities, these securities may involve special registration responsibilities,
liabilities and costs, and liquidity and valuation difficulties.
Zero Coupon and Pay-In-Kind Securities. The Strategic Income Fund may invest in
zero coupon and pay-in-kind securities, which do not pay interest in cash. In
the event of a default, the Fund may receive no return on its investment.
Taxation. Special tax consideration are associated with investing in High Yield
Securities structured as zero coupon or pay-in-kind securities. The Strategic
Income Fund reports the interest on these securities as income even though it
receives no cash interest until the security's maturity or payment date.
Limitations of Credit Ratings. The credit ratings assigned to High Yield
Securities may not accurately reflect the true risks of an investment. Credit
ratings typically evaluate the safety of principal and interest payments, rather
than the market value risk of High Yield Securities. In addition, credit
agencies may fail to adjust credit ratings to reflect rapid changes in economic
or company conditions that affect a security's market value. Although the
ratings of recognized rating services such as Moody's and S&P are considered,
the Investment Manager primarily relies on its own credit analysis, which
includes a study of existing debt, capital structure, ability to service debts
and to pay dividends, the issuer's sensitivity to economic conditions, its
operating history and the current trend of earnings. Thus, the achievement of
the Strategic Income Fund's investment objective may be more dependent on the
Investment Manager's own credit analysis than might be the case for a fund which
invests in higher quality bonds. The Investment Manager continually monitors the
investments in the Strategic Income Fund's portfolio and carefully evaluates
whether to dispose of or retain High Yield Securities whose credit ratings have
changed. The Strategic Income Fund may retain a security whose rating has been
changed.
Option Writing. The Strategic Income Fund may write only covered call option
contracts. Currently, the principal exchanges on which such options may be
written are the Chicago Board Option Exchange and the American, Philadelphia and
Pacific Stock Exchanges. In addition, and in certain instances, the Strategic
Income Fund may purchase and sell options in the over-the-counter market ("OTC
Options"). The Strategic Income Fund's ability to close option positions
established in the over-the-counter market may be more limited than in the case
of exchange-traded options. The writing of option contracts is a highly
specialized activity that involves investment techniques and risks different
from those ordinarily associated with investment companies. A call option gives
the purchaser of the option the right to buy the underlying security from the
writer at the exercise price at any time prior to the expiration of the
contract, regardless of the market price of the security during the option
period. The premium paid to the writer is the consideration for undertaking the
obligations under the option contract. The writer forgoes the opportunity to
profit from an increase in the market price of the underlying security above the
exercise price so long as the option remains open and covered, except insofar as
the premium represents such a profit.
The Strategic Income Fund may purchase options only to close out a position. In
order to close out a position, the Strategic Income Fund will make a "closing
purchase transaction"-- the purchase of a call option on the same security with
the same exercise price and expiration date as the call option that it has
previously written on any particular security. The Strategic Income Fund will
effect a closing purchase transaction so as to close out any existing call
option on a security that it intends to sell. The Strategic Income Fund will
realize a profit or loss from a closing purchase transaction if the amount paid
to execute a closing purchase transaction is less or more than the amount
received from the sale thereof. In determining the term of any option written,
the Strategic Income Fund will consider the Internal Revenue Code's limitations
on the sale or disposition of securities held for less than three months in
order to maintain its status as a regulated investment company.
The staff of the Securities and Exchange Commission (the "SEC") has taken the
position that purchased over-the-counter options ("OTC Options") and the assets
used as cover for written OTC Options are illiquid securities. The Strategic
Income Fund will write OTC Options only with primary U.S. Government Securities
dealers recognized by the Board of Governors of the Federal Reserve System or
member banks of the Federal Reserve System ("primary dealers"). In connection
with these special arrangements, the Strategic Income Fund intends to establish
standards for the creditworthiness of the primary dealers with which it may
enter into OTC Option contracts and those standards, as modified from time to
time, will be implemented and monitored by the Investment Manager. Under these
special arrangements, the Fund will enter into contracts with primary dealers
that provide that the Fund has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value,
as determined in good faith through negotiation between the parties, but that in
no event will exceed a price determined pursuant to a formula contained in the
contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Fund for writing the option, plus the
amount, if any, by which the option is "in-the-money." The formula will also
include a factor to account for the difference between the price of the security
and the strike price of the option if the option is written "out-of-the-money."
"Strike price" refers to the price at which an option will be exercised. "Cover
assets" refers to the amount of cash or liquid assets that must be segregated to
collateralize the value of the futures contracts written by the Fund. Under such
circumstances, the Strategic Income Fund will treat as illiquid that amount of
the cover assets equal to the amount by which the formula price for the
repurchase of the option is greater than the amount by which the market value of
the security subject to the option exceeds the exercise price of the option (the
amount by which the option is "in-the-money"). Although each agreement will
provide that the Strategic Income Fund's repurchase price shall be determined in
good faith (and that it shall not exceed the maximum determined pursuant to the
formula), the formula price will not necessarily reflect the market value of the
option written. Therefore, the Strategic Income Fund might pay more to
repurchase the OTC Option contract than the Fund would pay to close out a
similar exchange traded option.
The Strategic Income Fund will receive a premium (less any commissions) from the
writing of such contracts, and it is believed that the total return to the Fund
can be increased through such premiums consistent with the Fund's investment
objectives. Generally, the Fund expects that options written by it will be
conducted on recognized securities exchanges.
In determining the Strategic Income Fund's net asset value, the current market
value of any option written by the Fund is subtracted from net asset value. If
the current market value of the option exceeds the premium received by the Fund,
the excess represents an unrealized loss, and, conversely, if the premium
exceeds the current market value of the option, such excess would be unrealized
gain.
Financial Futures Contracts and Related Options. The Strategic Income Fund may
use financial futures contracts and related options to hedge against changes in
the market value of its portfolio securities or securities that it intends to
purchase. Hedging is accomplished when an investor takes a position in the
futures market opposite to his cash market position. There are two types of
hedges -- long (or buying) and short (or selling) hedges. Historically, prices
in the futures market have tended to move in concert with cash market prices,
and prices in the futures market have maintained a fairly predictable
relationship to prices in the cash market. Thus, a decline in the market value
of securities in the Strategic Income Fund's portfolio may be protected against
to a considerable extent by gains realized on futures contracts sales.
Similarly, it is possible to protect against an increase in the market price of
securities that the Strategic Income Fund may wish to purchase in the future by
purchasing futures contracts.
The Strategic Income Fund may purchase or sell any financial futures contracts
which are traded on a recognized exchange or board of trade. Financial futures
contracts consist of interest rate futures contracts and securities index
futures contracts. A public market presently exists in interest rate futures
contracts covering long-term U.S. Treasury bonds, U.S. Treasury notes,
three-month U.S. Treasury bills and GNMA certificates. Securities index futures
contracts are currently traded with respect to the Standard & Poor's 500
Composite Stock Price Index and such other broad-based stock market indices as
the New York Stock Exchange Composite Stock Index and the Value Line Composite
Stock Price Index. A clearing corporation associated with the exchange or board
of trade on which a financial futures contract trades assumes responsibility for
the completion of transactions and also guarantees that open futures contracts
will be performed.
An interest rate futures contract obligates the seller of the contract to
deliver, and the purchaser to take delivery of, the interest rate securities
called for in the contract at a specified future time and at a specified price.
A stock index assigns relative values to the common stocks included in the
index, and the index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. An option on a financial futures contract
gives the purchaser the right to assume a position in the contract (a long
position if the option is a call and short position if the option is a put) at a
specified exercise price at any time during the period of the option.
In contrast to the situation when the Strategic Income Fund purchases or sells a
security, no security is delivered or received by the Fund upon the purchase or
sale of a financial futures contract. Initially, the Fund will be required to
segregate with its custodian bank an amount of cash and/or liquid assets. This
amount is known as initial margin and is in the nature of a performance bond or
good faith deposit on the contract. The current initial margin deposit required
per contract is approximately 5% of the contract amount. Brokers may establish
deposit requirements higher than this minimum. Subsequent payments, called
variation margin, will be made to and from the account on a daily basis as the
price of the futures contract fluctuates. This process is known as marking to
market. At the time of purchase of a futures contract or a call option on a
futures contract, an amount of cash, U. S. Government securities or other
appropriate high-grade securities equal to the market value of the futures
contract minus the Strategic Income Fund's initial margin deposit with respect
thereto will be segregated with the Fund's custodian bank to collateralize fully
the position and thereby ensure that it is not leveraged. The extent to which
the Strategic Income Fund may enter into financial futures contracts and related
options may also be limited by the requirements of the Internal Revenue Code for
qualification as a regulated investment company.
The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Although financial futures contracts by their terms call for actual delivery or
acceptance of securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery. Closing out is
accomplished by effecting an offsetting transaction. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller immediately would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.
The Strategic Income Fund will pay commissions on financial futures contracts
and related options transactions. These commissions may be higher than those
that would apply to purchases and sales of securities directly.
Limitations on Futures Contracts and Related Options. The Strategic Income Fund
may not engage in transactions in financial futures contracts or related options
for speculative purposes but only as a hedge against anticipated changes in the
market value of its portfolio securities or securities that it intends to
purchase. The Strategic Income Fund may not purchase or sell financial futures
contracts or related options if, immediately thereafter, the sum of the amount
of initial margin deposits on the Fund's existing futures and related options
positions and the premiums paid for related options would exceed 2% of the
market value of the Fund's total assets after taking into account unrealized
profits and losses on any such contracts. At the time of purchase of a futures
contract or a call option on a futures contract, an amount of cash, U.S.
Government securities or other appropriate high-grade debt obligations equal to
the market value of the futures contract minus the Fund's initial margin deposit
with respect thereto will be segregated with the Fund's custodian bank to
collateralize fully the position and thereby ensure that it is not leveraged.
The extent to which the Strategic Income Fund may enter into financial futures
contracts and related options also may be limited by the requirements of the
Internal Revenue Code for qualification as a regulated investment company. See
"Federal Tax Treatment of Dividends and Distributions."
Risks Relating to Futures Contracts and Related Options. Positions in futures
contracts and related options may be closed out only on an exchange that
provides a secondary market for such contracts or options. The Strategic Income
Fund will enter into an option or futures position only if there appears to be a
liquid secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular option or futures contract at any
specific time. Thus, it may not be possible to close out a futures or related
option position. In the case of a futures position, in the event of adverse
price movements the Strategic Income Fund would continue to be required to make
daily margin payments. In this situation, if the Fund has insufficient cash to
meet daily margin requirements it may have to sell portfolio securities at a
time when it may be disadvantageous to do so. In addition, the Fund may be
required to take or make delivery of the securities underlying the futures
contracts it holds. The inability to close out futures positions also could have
an adverse impact on the Fund's ability to hedge its portfolio effectively.
There are several risks in connection with the use of futures contracts as a
hedging device. While hedging can provide protection against an adverse movement
in market prices, it can also preclude a hedger's opportunity to benefit from a
favorable market movement. In addition, investing in futures contracts and
options on futures contracts will cause the Fund to incur additional brokerage
commissions and may cause an increase in the Fund's portfolio turnover rate.
The successful use of futures contracts and related options also depends on the
ability of the Investment Manager to forecast correctly the direction and extent
of market movements within a given time frame. To the extent market prices
remain stable during the period a futures contract or option is held by the Fund
or such prices move in a direction opposite to that anticipated, the Fund may
realize a loss on the hedging transaction that is not offset by an increase in
the value of its portfolio securities. As a result, the Strategic Income Fund's
return for the period may be less than if it had not engaged in the hedging
transaction.
The use of futures contracts by the Strategic Income Fund involves the risk of
imperfect correlation in movements in the price of futures contracts and
movements in the price of the securities that are being hedged. If the price of
the futures contract moves more or less than the price of the securities being
hedged, a Fund will experience a gain or loss that will not be completely offset
by movements in the price of the securities. It is possible that, where the Fund
has sold futures contracts to hedge its portfolio against a decline in the
market, the market may advance and the value of securities held in the Fund's
portfolio may decline. If this occurred, the Fund would lose money on the
futures contract and would also experience a decline in value in its portfolio
securities. Where futures are purchased to hedge against a possible increase in
the prices of securities before the Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline; if the Fund then determines not to invest in
securities (or options) at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the futures
that would not be offset by a reduction in the price of the securities
purchased.
The market prices of futures contracts may be affected if participants in the
futures market elect to close out their contracts through off-setting
transactions rather than to meet margin deposit requirements. In such a case,
distortions in the normal relationship between the cash and futures markets
could result. Price distortions could also result if investors in futures
contracts opt to make or take delivery of the underlying securities rather than
to engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, due to the fact that, from the
point of view of speculators, the deposit requirements in the futures markets
are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of market trends may still not result in a successful transaction.
Compared to the purchase or sale of futures contracts, the purchase of put or
call options on futures contracts involves less potential risk for the Fund
because the maximum amount at risk is the premium paid for the options plus
transaction costs. However, there may be circumstances when the purchase of an
option on a futures contract would result in a loss to the Fund while the
purchase or sale of the futures contract would not have resulted in a loss, such
as when there is no movement in the price of the underlying securities.
Mortgage-Related Securities. The Strategic Income Fund may invest in certain
types of mortgage related securities. One type of mortgage-related security
includes certificates that represent pools of mortgage loans assembled for sale
to investors by various governmental and private organizations. These securities
provide a monthly payment, which consists of both an interest and a principal
payment that is in effect a "pass-through" of the monthly payment made by each
individual borrower on his or her residential mortgage loan, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
residential property, refinancing, or foreclosure, net of fees or costs that may
be incurred. Some certificates (such as those issued by the Government National
Mortgage Association) are described as "modified pass-through." These securities
entitle the holder to receive all interest and principal payments owed on the
mortgage pool, net of certain fees, regardless of whether the mortgagor actually
makes the payment.
A major governmental guarantor of pass-through certificates is the Government
National Mortgage Association ("GNMA"). GNMA guarantees, with the full faith and
credit of the United States government, the timely payments of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) are backed by
pools of FHA-insured or VA-guaranteed mortgages. Other governmental guarantors
(but not backed by the full faith and credit of the United States Government)
include the Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA purchases residential mortgages from a
list of approved seller/services that include state and federally chartered
savings and loan associations, mutual saving banks, commercial banks, credit
unions and mortgage bankers.
GNMA Certificates. Certificates of the GNMA ("GNMA Certificates") evidence an
undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds, in that principal is paid back monthly as payments of principal,
including prepayments, on the mortgages in the underlying pool are passed
through to holders of GNMA Certificates representing interests in the pool,
rather than returned in a lump sum at maturity. The GNMA Certificates that the
Strategic Income Fund may purchase are the "modified pass-through" type.
"Modified pass-through" GNMA Certificates entitle the holder to receive a share
of all interest and principal payments paid or owed to the mortgage pool, net of
fees paid or due to the "issuer" and GNMA regardless of whether or not the
mortgagor actually makes the payment.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or the Farmers' Home
Administration ("FMHA") or guaranteed by the Veterans Administration ("VA").
GNMA is also empowered to borrow without limitation from the U.S. Treasury, if
necessary, to make payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is likely to
be substantially less than the stated maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal investment
long before the maturity of the mortgages in the pool. Foreclosures impose no
risk of loss of the principal balance of a Certificate, because of the GNMA
guarantee, but foreclosure may impact the yield to shareholders because of the
need to reinvest proceeds of foreclosure. As prepayment rates of individual
mortgage pools vary widely, it is not possible to predict accurately the average
life of a particular issue of GNMA Certificates. However, statistics published
by the FHA indicate that the average life of single family dwelling mortgages
with 25 to 30-year maturities, the type of mortgages backing the vast majority
of GNMA Certificates, is approximately 12 years. Prepayments are likely to
increase in periods of falling interest rates. It is customary to treat GNMA
Certificates as 30-year mortgage-backed securities that prepay fully in the
twelfth year.
Yield Characteristics of GNMA Certificates. The coupon rate of interest of GNMA
Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the certificates, by the amount of the fees
paid to GNMA and the issuer. The coupon rate by itself, however, does not
indicate the yield that will be earned on GNMA Certificates. First, GNMA
Certificates may be issued at a premium or discount rather than at par, and,
after issuance, GNMA Certificates may trade in the secondary market at a premium
or discount. Second, interest is earned monthly, rather than semi-annually as
with traditional bonds; monthly compounding raises the effective yield earned.
Finally, the actual yield of a GNMA Certificate is influenced by the prepayment
experience of the mortgage pool underlying it. For example, if interest rates
decline, prepayments may occur faster than had been originally projected and the
yield to maturity and the investment income of the Fund would be reduced.
FHLMC Securities. "FHLMC" is a federally chartered corporation created in 1970
through enactment of Title III of the Emergency Home Finance Act of 1970. Its
purpose is to promote development of a nationwide secondary market in
conventional residential mortgages. The FHLMC issues two types of mortgage
pass-through securities, mortgage participation certificates ("PCs") and
guaranteed mortgage certificates ("GMCs"). PCs resemble GNMA Certificates in
that each PC represents a pro rata share of all interest and principal payments
made or owed on the underlying pool. The FHLMC guarantees timely payment of
interest on PCs and the ultimate payment of principal. Like GNMA Certificates,
PCs are assumed to be prepaid fully in their twelfth year. GMCs also represent a
pro rata interest in a pool of mortgages. However, these instruments pay
interest annually and return principal once a year in guaranteed minimum
payments. The expected average life of these securities is approximately ten
years.
FNMA Securities. "FNMA" is a federally chartered and privately owned corporation
that was established in 1938 to create a secondary market in mortgages insured
by the FHA. It was originally established as a government agency and was
transformed into a private corporation in 1968. FNMA issues guaranteed mortgage
pass-through certificates ("FNMA Certificates"). FNMA Certificates resemble GNMA
Certificates in that each FNMA Certificate represents a pro rata share of all
interest and principal payments made or owed on the underlying pool. FNMA
guarantees timely payment of interest on FNMA certificates and the full return
of principal. Like GNMA Certificates, FNMA Certificates are assumed to be
prepaid fully in twelfth year.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may
in addition be the originators of the underlying mortgage loans as well as the
guarantors of the pass-through certificates. Pools created by such
non-governmental issuers generally offer a higher rate of return than
governmental pools because there are no direct or indirect governmental
guarantees of payments in the former pools. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance. The
insurance and guarantees are issued by government entities, private insurers and
the mortgage poolers.
The Strategic Income Fund expects that governmental or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described above. As new types of pass-through securities are developed and
offered to investors, the Investment Manager may, consistent with the Strategic
Income Fund's investment objectives, policies and restrictions, consider making
investments in such new types of securities.
Other types of mortgage-related securities include debt securities that are
secured, directly or indirectly, by mortgages on commercial real estate or
residential rental properties, or by first liens on residential manufactured
homes (as defined in section 603(6) of the National Manufactured Housing
Construction and Safety Standards Act of 1974), whether such manufactured homes
are considered real or personal property under the laws of the states in which
they are located.
Securities in this investment category include, among others, standard
mortgage-backed bonds and newer collateralized mortgage obligations ("CMOs").
Mortgage-backed bonds are secured by pools of mortgages, but unlike pass-through
securities, payments to bondholders are not determined by payments on the
mortgages. The bonds consist of a single class, with interest payable
periodically and principal payable on the stated date of maturity. CMOs have
characteristics of both pass-through securities and mortgage-backed bonds. CMOs
are secured by pools of mortgages, typically in the form of "guaranteed"
pass-through certificates such as GNMA, FNMA, or FHLMC securities. The payments
on the collateral securities determine the payments to bondholders, but there is
not a direct "pass-through" of payments. CMOs are structured into multiple
classes, each bearing a different date of maturity. Monthly payments of
principal received from the pool of underlying mortgages, including prepayments,
is first returned to investors holding the shortest maturity class. Investors
holding the longest maturity class receive principal only after the shorter
maturity classes have been retired.
CMOs are issued by entities that operate under order from the SEC exempting such
issuers from the provisions of the 1940 Act. Until recently, the staff of the
SEC had taken the position that such issuers were investment companies and that,
accordingly, an investment by an investment company (such as the Strategic
Income Fund) in the securities of such issuers was subject to the limitations
imposed by Section 12 of the 1940 Act. However, in reliance on SEC staff
interpretations, the Strategic Income Fund may invest in securities issued by
certain "exempted issuers" without regard to the limitations of Section 12 of
the 1940 Act. In its interpretation, the SEC staff defined "exempted issuers" as
unmanaged, fixed asset issuers that: (a) invest primarily in mortgage-backed
securities; (b) do not issue redeemable securities as defined in Section
2(a)(32) of the 1940 Act; (c) operate under the general exemptive orders
exempting them from all provisions of the 1940 Act; and (d) are not registered
or regulated under the 1940 Act as investment companies.
Investments in mortgage-related securities involve certain risks. In periods of
declining interest rates, prices of fixed income securities tend to rise.
However, during such periods, the rate of prepayment of mortgages underlying
mortgage-related securities tends to increase, with the result that such
prepayments must be reinvested by the issuer at lower rates. In addition, the
value of such securities may fluctuate in response to the market's perception of
the creditworthiness of the issuers of mortgage-related securities owned by the
Strategic Income Fund. Because investments in mortgage-related securities are
interest sensitive, the ability of the issuer to reinvest favorably in
underlying mortgages may be limited by government regulation or tax policy. For
example, action by the Board of Governors of the Federal Reserve System to limit
the growth of the nation's money supply may cause interest rates to rise and
thereby reduce the volume of new residential mortgages. Additionally, although
mortgages and mortgage-related securities are generally supported by some form
of government or private guarantees and/or insurance, there is no assurance that
private guarantors or insurers will be able to meet their obligations. Further,
stripped mortgage-backed securities are likely to experience greater price
volatility than other types of mortgage securities. The yield to maturity on the
interest only class is extremely sensitive, both to changes in prevailing
interest rates and to the rate of principal payments (including prepayments) on
the underlying mortgage assets. Similarly, the yield to maturity on CMO
residuals is extremely sensitive to prepayments on the related underlying
mortgage assets. In addition, if a series of a CMO includes a class that bears
interest at an adjustable rate, the yield to maturity on the related CMO
residual will also be extremely sensitive to changes in the level of the index
upon which interest rate adjustments are made. A Fund could fail to fully
recover its initial investment in a CMO residual or a stripped mortgage-backed
security.
Subordinated Mortgage Securities. The Strategic Income Fund may also invest in
subordinated mortgage securities that have certain characteristics and certain
associated risks. In general, the subordinated mortgage securities in which the
Fund may invest consist of a series of certificates issued in multiple classes
with a stated maturity or final distribution date. One or more classes of each
series may be entitled to receive distributions allocable only to principal,
principal prepayments, interest or any combination thereof prior to one or more
other classes, or only after the occurrence of certain events, and may be
subordinated in the right to receive such distributions on such certificates to
one or more senior classes of certificates. The rights associated with each
class of certificates are set forth in the applicable pooling and servicing
agreement, form of certificate and offering documents for the certificates.
The subordination terms are usually designed to decrease the likelihood that the
holders of senior certificates will experience losses or delays in the receipt
of their distributions and to increase the likelihood that the senior
certificate holders will receive aggregate distributions of principal and
interest in the amounts anticipated. Generally, pursuant to such subordination
terms, distributions arising out of scheduled principal, principal prepayments,
interest or any combination thereof that otherwise would be payable to one or
more other classes of certificates of such series (i.e., the subordinated
certificates) are paid instead to holders of the senior certificates. Delays in
receipt of scheduled payments on mortgage loans and losses on defaulted mortgage
loans are typically borne first by the various classes of subordinated
certificates and then by the holders of senior certificates.
In some cases, the aggregate losses in respect of defaulted mortgage loans that
must be borne by the subordinated certificates and the amount of the
distributions otherwise distributable on the subordinated certificates that
would, under certain circumstances, be distributable to senior certificate
holders may be limited to a specified amount. All or any portion of
distributions otherwise payable to holders of subordinated certificates may, in
certain circumstances, be deposited into one or more reserve accounts for the
benefit of the senior certificate holders. Since a greater risk of loss is borne
by the subordinated certificate holders, such certificates generally have a
higher stated yield than the senior certificates.
Interest on the certificates generally accrues on the aggregate principal
balance of each class of certificates entitled to interest at an applicable
rate. The certificate interest rate may be a fixed rate, a variable rate based
on current values of an objective interest index or a variable rate based on a
weighted average of the interest rate on the mortgage loans underlying or
constituting the mortgage assets. In addition, the underlying mortgage loans may
have variable interest rates.
Generally, to the extent funds are available, interest accrued during each
interest accrual period on each class of certificates entitled to interest is
distributable on certain distribution dates until the aggregate principal
balance of the certificates of such class has been distributed in full.
The amount of interest that accrues during any interest accrual period and over
the life of the certificates depends primarily on the aggregate principal
balance of the class of certificates, which, unless otherwise specified, depends
primarily on the principal balance of the mortgage assets for each such period
and the rate of payment (including prepayments) of principal of the underlying
mortgage loans over the life of the trust.
A series of certificates may consist of one or more classes as to which
distributions allocable to principal will be allocated. The method by which the
amount of principal to be distributed on the certificates on each distribution
date is calculated and the manner in which such amount could be allocated among
classes varies and could be effected pursuant to a fixed schedule, in relation
to the occurrence of certain events or otherwise. Special distributions are also
possible if distributions are received with respect to the mortgage assets, such
as is the case when underlying mortgage loans are prepaid.
A mortgage-related security that is senior to a subordinated residential
mortgage security will not bear a loss resulting from the occurrence of a
default on an underlying mortgage until all credit enhancement protecting such
senior holder is exhausted. For example, the senior holder will only suffer a
credit loss after all subordinated interests have been exhausted pursuant to the
terms of the subordinated residential mortgage security. The primary credit risk
to the Strategic Income Fund by investing in subordinated residential mortgage
securities is potential losses resulting from defaults by the borrowers under
the underlying mortgages. The Fund would generally realize such a loss in
connection with a subordinated residential mortgage security only if the
subsequent foreclosure sale of the property securing a mortgage loan does not
produce an amount at least equal to the sum of the unpaid principal balance of
the loan as of the date the borrower went into default, the interest that was
not paid during the foreclosure period and all foreclosure expenses.
The Investment Manager will seek to limit the risks presented by subordinated
residential mortgage securities by reviewing and analyzing the characteristics
of the mortgage loans that underlie the pool of mortgages securing both the
senior and subordinated residential mortgage securities. The Investment Manager
has developed a set of guidelines to assist in the analysis of the mortgage
loans underlying subordinated residential mortgage securities. Each pool
purchase is reviewed against the guidelines. The Strategic Income Fund seeks
opportunities to acquire subordinated residential mortgage securities where, in
the view of the Investment Manager, the potential for a higher yield on such
instruments outweighs any additional risk presented by the instruments. The
Investment Manager will seek to increase yield to shareholders by taking
advantage of perceived inefficiencies in the market for subordinated residential
mortgage securities.
Credit Enhancement. Credit enhancement for the senior certificates comprising a
series is provided by the holders of the subordinated certificates to the extent
of the specific terms of the subordination and, in some cases, by the
establishment of reserve funds. Depending on the terms of a particular pooling
and servicing agreement, additional or alternative credit enhancement may be
provided by a pool insurance policy and/or other insurance policies, third party
limited guaranties, letters of credit, or similar arrangements. Letters of
credit may be available to be drawn upon with respect to losses due to mortgagor
bankruptcy and with respect to losses due to the failure of a master service to
comply with its obligations, under a pooling and servicing agreement, if any, to
repurchase a mortgage loan as to which there was fraud or negligence on the part
of the mortgagor or originator and subsequent denial of coverage under a pool
insurance policy, if any. A master service may also be required to obtain a pool
insurance policy to cover losses in an amount up to a certain percentage of the
aggregate principal balance of the mortgage loans in the pool to the extent not
covered by a primary mortgage insurance policy by reason of default in payments
on mortgage loans.
Optional Termination of a Trust. A pooling and servicing agreement may provide
that the depositor and master service could effect early termination of a trust,
after a certain specified date or the date on which the aggregate outstanding
principal balance of the underlying mortgage loans is less than a specific
percentage of the original aggregate principal balance of the underlying
mortgage loans by purchasing all of such mortgage loans at a price, unless
otherwise specified, equal to the greater of a specified percentage of the
unpaid principal balance of such mortgage loans, plus accrued interest thereon
at the applicable certificate interest rate, or the fair market value of such
mortgage assets. Generally, the proceeds of such repurchase would be applied to
the distribution of the specified percentage of the principal balance of each
outstanding certificate of such series, plus accrued interest, thereby retiring
such certificates. Notice of such optional termination would be given by the
trustee prior to such distribution date.
Underlying Mortgage Loans. The underlying trust assets are a mortgage pool
generally consisting of mortgage loans on single, multi-family and mobile home
park residential properties. The mortgage loans are originated by savings and
loan associations, savings banks, commercial banks or similar institutions and
mortgage banking companies.
Various services provide certain customary servicing functions with respect to
the mortgage loans pursuant to servicing agreements entered into between each
service and the master service. A service duties generally include collection
and remittance of principal and interest payments, administration of mortgage
escrow accounts, collection of insurance claims, foreclosure procedures and, if
necessary, the advance of funds to the extent certain payments are not made by
the mortgagors and are recoverable under applicable insurance policies or from
proceeds of liquidation of the mortgage loans.
The mortgage pool is administered by a master service who (a) establishes
requirements for each service, (b) administers, supervises and enforces the
performance by the services of their duties and responsibilities under the
servicing agreements, and (c) maintains any primary insurance, standard hazard
insurance, special hazard insurance and any pool insurance required by the terms
of the certificates. The master service may be an affiliate of the depositor and
also may be the service with respect to all or a portion of the mortgage loans
contained in a trust fund for a series of certificates.
Senior Loans. The Strategic Income Fund may invest in interests in variable or
floating rate Senior Loans, which, in most circumstances, are fully
collateralized by assets of a corporation, partnership, limited liability
company, or other business entity that is organized or domiciled in the United
States, Canada or in U.S. territories and/or possessions. Strategic Income Fund
invests in Senior Loans that have interest rates that float periodically based
upon a benchmark indicator of prevailing interest rates, such as the Prime Rate
or LIBOR, and will invest only in Senior Loans that are U.S. dollar-denominated.
Generally, the Senior Loans in which Strategic Income Fund invests are fully
collateralized with assets and/or cash flow that PAII believes have a market
value at the time of acquisition that equals or exceeds the principal amount of
the Senior Loan. Strategic Income Fund also only purchases interests in Senior
Loans of borrowers that PAII believes can meet debt service requirements from
cash flow. Strategic Income Fund does not invest in Senior Loans whose interest
rates are tied to non-domestic interest rates other than LIBOR.
Senior Loans vary from other types of debt in that they generally hold the most
senior position in the capital structure of a borrower. Priority liens are
obtained by the lenders that typically provide the first right to cash flows or
proceeds from the sale of a borrower's collateral if the borrower becomes
insolvent (subject to the limitations of bankruptcy law, which may provide
higher priority to certain claims such as, for example, employee salaries,
employee pensions and taxes). Thus, Senior Loans are generally repaid before
unsecured bank loans, corporate bonds, subordinated debt, trade creditors, and
preferred or common stockholders.
Senior Loans that Strategic Income Fund may acquire include participation
interests in lease financings ("Lease Participations") where the collateral
quality, credit quality of the borrower and the likelihood of payback are
believed by PAII to be the same as those applied to conventional Senior Loans. A
Lease Participation is also required to have a floating interest rate that is
indexed to a benchmark indicator of prevailing interest rates, such as LIBOR or
the Prime Rate.
Substantial increases in interest rates may cause an increase in loan defaults
as borrowers may lack resources to meet higher debt service requirements. The
value of Strategic Income Fund's assets may also be affected by other
uncertainties such as economic developments affecting the market for Senior
Loans or affecting borrowers generally. Also, a default on a Senior Loan in
which the Fund has invested or a sudden and extreme increase in prevailing
interest rates may cause a decline in the Fund's net asset value.
The maximum period of time of interest rate reset on any Senior Loans in which
Strategic Income Fund may invest is one year. In addition, the Strategic Income
Fund will ordinarily maintain a dollar-weighted average time to next interest
rate adjustment on its Senior Loans of 90 days or less. In the event of a change
in the benchmark interest rate on a Senior Loan, the rate payable to lenders
under the Senior Loan will, in turn, change at the next scheduled reset date. If
the benchmark rate goes up, the Strategic Income Fund as lender would earn
interest at a higher rate, but only on and after the reset date. If the
benchmark rate goes down, the Strategic Income Fund as lender would earn
interest at a lower rate, but only on and after the reset date.
Senior Loans generally are arranged through private negotiations between a
borrower and several financial institutions ("lenders") represented in each case
by an agent ("agent"), which usually is one or more of the lenders. On behalf of
the lenders, generally the agent is primarily responsible for negotiating the
loan agreement ("loan agreement"), which establishes the terms and conditions of
the Senior Loan and the rights of the borrower and the lenders. The agent and
the other original lenders typically have the right to sell interests
("participations") in their share of the Senior Loan to other participants. The
agent and the other original lenders also may assign all or a portion of their
interests in the Senior Loan to other participants.
Strategic Income Fund's investment in Senior Loans generally may take one of
several forms including: acting as one of the group of lenders originating a
Senior Loan (an "original lender"); purchase of an assignment ("assignment") or
a portion of a Senior Loan from a third party, or acquiring a participation in a
Senior Loan. The Fund may pay a fee or forego a portion of interest payments to
the lender selling a participation or assignment under the terms of such
participation or assignment. The Fund may serve as the agent or co-agent for a
Senior Loan.
When Strategic Income Fund is an original lender or acquires an assignment, it
will have a direct contractual relationship with the borrower, may enforce
compliance by the borrower with the terms of the Senior Loan agreement, and may
have rights with respect to any funds acquired by other lenders through set-off.
Certain decisions, such as reducing the amount or increasing the time for
payment of interest on or repayment of principal of a Senior Loan, or releasing
collateral therefor, frequently require the unanimous vote or consent of all
lenders affected.
When Strategic Income Fund is a purchaser of an assignment it typically succeeds
to all the rights and obligations under the loan agreement of the assigning
lender and becomes a lender under the loan agreement with the same rights and
obligations as the assigning lender. Assignments are, however, arranged through
private negotiations, and the rights and obligations acquired by the purchaser
of an assignment may be more limited than those held by the assigning lender.
Strategic Income Fund also may invest in participations in Senior Loans. With
respect to any given Senior Loan, the rights of the Fund when it acquires a
participation may be more limited than the rights of original lenders or of
investors who acquire an assignment. Participations may entail certain risks
relating to the creditworthiness of the parties from which the participations
are obtained. Participation by the Fund in a lender's portion of a Senior Loan
typically results in the Fund having a contractual relationship only with the
lender, not with the borrower. The Fund has the right to receive payments of
principal, interest and any fees to which it is entitled only from the lender
selling the participation and only upon receipt by such lender of such payments
from the borrower. In connection with purchasing participations, the Fund
generally will have no right to enforce compliance by the borrower with the
terms of the Senior Loan agreement, nor any rights with respect to any funds
acquired by other lenders through set-off against the borrower with the result
that the Fund may be subject to delays, expenses and risks that are greater than
those that exist where the Fund is the original lender, and the Fund may not
directly benefit from the collateral supporting the Senior Loan because it may
be treated as a creditor of the lender instead of the borrower. As a result, the
Fund may assume the credit risk of both the borrower and the lender selling the
participation. In the event of insolvency of the lender selling a participation,
the Fund may be treated as a general creditor of such lender, and may not
benefit from any set-off between such lender and the borrower. In the event of
bankruptcy or insolvency of the borrower, the obligation of the borrower to
repay the Senior Loan may be subject to certain defenses that can be asserted by
such borrower as a result of improper conduct of the lender selling the
participation.
In acquiring a Senior Loan, PAII considers the following factors: positive
cashflow coverage of debt service; adequate working capital; appropriate capital
structure; leverage ratio consistent with industry norms; historical experience
of attaining business and financial projections; the quality and experience of
management; and adequate collateral coverage. Strategic Income Fund does not
impose any minimum standard regarding the rating of any outstanding debt
securities of borrowers.
Senior Loans usually include restrictive covenants which must be maintained by
the borrower. Such covenants, in addition to the timely payment of interest and
principal, may include mandatory prepayment provisions arising from free cash
flow, restrictions on dividend payments and usually state that a borrower must
maintain specific minimum financial ratios as well as establishing limits on
total debt. A breach of a covenant, which is not waived by the agent, is
normally an event of acceleration, i.e., the agent has the right to call the
outstanding Senior Loan. In addition, loan covenants may include mandatory
prepayment provisions stemming from free cash flow. Free cash flow is cash that
is in excess of capital expenditures plus debt service requirements of principal
and interest. The free cash flow shall be applied to prepay the Senior Loan in
an order of maturity described in the loan documents. Under certain interests in
Senior Loans, Strategic Income Fund may have an obligation to make additional
loans upon demand by the borrower. The Fund intends to reserve against such
contingent obligations by segregating sufficient assets in high quality
short-term liquid investments or borrowing to cover such obligations.
Senior Loans, unlike certain bonds, usually do not have call protection. This
means that interests comprising the Fund's portfolio, while having a stated one
to ten-year term, may be prepaid, often without penalty. Senior Loans frequently
require full or partial prepayment of a loan when there are asset sales or a
securities issuance. Prepayments on Senior Loans may also be made by the
borrower at its election. The rate of such prepayments may be affected by, among
other things, general business and economic conditions, as well as the financial
status of the borrower. Prepayment would cause the actual duration of a Senior
Loan to be shorter than its stated maturity. Prepayment may be deferred by the
Fund. This should, however, allow the Fund to reinvest in a new loan and
recognize as income any unamortized loan fees. In many cases this will result in
a new facility fee payable to the Fund. Because interest rates paid on these
Senior Loans periodically fluctuate with the market, it is expected that the
prepayment and a subsequent purchase of a new Senior Loan by the Fund will not
have a material adverse impact on the yield of the portfolio.
Strategic Income Fund may be required to pay and may receive various fees and
commissions in the process of purchasing, selling and holding Senior Loans. The
amount of fees is negotiated at the time of transaction.
Credit Risk. PAII performs its own independent credit analysis of the borrower.
In so doing, PAII may use information and credit analyses from the agents that
originate or administer loans, other lenders investing in a Senior Loan, and
other sources. These analyses will continue on a periodic basis for any Senior
Loan purchased by the Fund. Credit analysis may be difficult to perform for many
issuers. Information about interests in Senior Loans generally will not be in
the public domain, and interests are generally not currently rated by any
nationally recognized rating service. Many issuers have not issued securities to
the public and are not subject to reporting requirements under federal
securities laws. Generally, issuers are required to provide financial
information to lenders, including the Fund, and information may be available
from other Senior Loan participants or agents that originate or administer
Senior Loans.
While all investments involve some amount of risk, Senior Loans generally
involve less risk than equity instruments of the same issuer because the payment
of principal of and interest on debt instruments is a contractual obligation of
the issuer that, in most instances, takes precedence over the payment of
dividends, or the return of capital, to the issuer's shareholders. Senior Loans
are also subject to the risk of nonpayment of scheduled interest or principal
payments. In the event of a failure to pay scheduled interest or principal
payments on Senior Loans held by the Fund, the Fund could experience a reduction
in its income, and would experience a decline in the market value of the
particular Senior Loan so affected, and may experience a decline in the NAV of
Fund Shares or the amount of its dividends.
In the event of a bankruptcy of the borrower, the Fund could experience delays
or limitations with respect to its ability to realize the benefits of the
collateral securing the Senior Loan. Among the credit risks involved in a
bankruptcy would be an assertion that the pledging of collateral to secure the
Senior Loan constituted a fraudulent conveyance or preferential transfer that
would have the effect of nullifying or subordinating the Fund's rights to the
rights of other creditors of the borrower under applicable law.
Collateral. Senior Loans typically will be secured by pledges of collateral from
the borrower in the form of tangible assets such as cash, accounts receivable,
inventory, property, plant and equipment, common and/or preferred stock of
subsidiaries, and intangible assets including trademarks, copyrights, patent
rights and franchise value. Strategic Income Fund may also receive guarantees as
a form of collateral. In some instances, the Fund may invest in Senior Loans
that are secured only by stock of the borrower or its subsidiaries or
affiliates. The value of the collateral may decline below the principal amount
of the Senior Loan subsequent to the Fund's investment in such Senior Loan. In
addition, to the extent that collateral consists of stock of the borrower or its
subsidiaries or affiliates, the Fund will be subject to the risk that this stock
may decline in value, be relatively illiquid, or may lose all or substantially
all of its value, causing the Senior Loan to be undercollateralized.
If the agent becomes aware that the value of the collateral has declined, the
agent may take action as it deems necessary for the protection of its own
interests and the interests of the other lenders, including, for example, giving
the borrower an opportunity to provide additional collateral or accelerating the
loan. There is no assurance, however, that the borrower would provide additional
collateral or that the liquidation of the existing collateral would satisfy the
borrower's obligation in the event of nonpayment of scheduled interest or
principal, or that such collateral could be readily liquidated.
Limited Secondary Market. Although it is growing, the secondary market for
Senior Loans is currently limited. There is no organized exchange or board of
trade on which Senior Loans may be traded; instead, the secondary market for
Senior Loans is an unregulated inter-dealer or inter-bank market. Accordingly,
some or many of the Senior Loans in which the Fund invests will be illiquid. In
addition, Senior Loans in which the Fund invests generally require the consent
of the borrower prior to sale or assignment. These consent requirements may
delay or impede the Fund's ability to sell Senior Loans. The Fund may have
difficulty disposing of illiquid assets if it needs cash to pay redemptions, to
pay dividends, to pay expenses or to take advantage of new investment
opportunities.
In addition, because the secondary market for Senior Loans may be limited, it
may be difficult to value Senior Loans. Market quotations may not be available
and valuation may require more research than for liquid securities. In addition,
elements of judgment may play a greater role in the valuation, because there is
less reliable, objective data available.
Hybrid Loans. The growth of the syndicated loan market has produced loan
structures with characteristics similar to Senior Loans but which resemble bonds
in some respects, and generally offer less covenant or other protections than
traditional Senior Loans while still being collateralized ("Hybrid Loans").
Strategic Income Fund may invest in Hybrid Loans that are secured debt of the
borrower, although they may not in all instances be considered senior debt of
the borrower. With Hybrid Loans, the Fund may not possess a senior claim to all
of the collateral securing the Hybrid Loan. Hybrid Loans also may not include
covenants that are typical of Senior Loans, such as covenants requiring the
maintenance of minimum interest coverage ratios. As a result, Hybrid Loans
present additional risks besides those associated with traditional Senior Loans,
although they may provide a relatively higher yield. Because the lenders in
Hybrid Loans waive or forego certain loan covenants, their negotiating power or
voting rights in the event of a default may be diminished. As a result, the
lenders' interests may not be represented as significantly as in the case of a
conventional Senior Loan. In addition, because the Fund's security interest in
some of the collateral may be subordinate to other creditors, the risk of
nonpayment of interest or loss of principal may be greater than would be the
case with conventional Senior Loans. Strategic Income Fund will invest only in
Hybrid Loans which meet credit standards established by PAII with respect to
Hybrid Loans and nonetheless provide certain protections to the lender such as
collateral maintenance or call protection.
Subordinated and Unsecured Loans. The Strategic Income Fund may invest up to 5%
of its assets in subordinated and unsecured loans. The primary risk arising from
a holder's subordination is the potential loss in the event of default by the
issuer of the loans. Subordinated loans in an insolvency bear an increased
share, relative to senior secured lenders, of the ultimate risk that the
borrower's assets are insufficient to meet its obligations to its creditors.
Unsecured loans are not secured by any specific collateral of the borrower. They
do not enjoy the security associated with collateralization and may pose a
greater risk of nonpayment of interest or loss of principal than do secured
loans. Strategic Income Fund will acquire unsecured loans only where the
Investment Manager believes, at the time of acquisition, that the Fund would
have the right to payment upon default that is not subordinate to any other
creditor.
Zero Coupon and Pay-In-Kind Securities. The Strategic Income Fund may invest in
zero coupon and pay-in-kind securities. Zero coupon, or deferred interest
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or a specified date when the securities
begin paying current interest (the "cash payment date") and therefore are issued
and traded at a discount from their face amounts or par value. The discount
varies, depending on the time remaining until maturity or cash payment date,
prevailing interest rates, liquidity of the security and the perceived credit
quality of the issuer. The discount, in the absence of financial difficulties of
the issuer, decreases as the final maturity or cash payment date of the security
approaches. The market prices of zero coupon and delayed interest securities
generally are more volatile than the market prices of securities that pay
interest periodically and are likely to respond to changes in interest rates to
a greater degree than do non-zero coupon securities having similar maturities
and credit quality. Current federal income tax law requires holders of zero
coupon securities to report as interest income each year the portion of the
original issue discount on such securities (other than tax-exempt original issue
discount from a zero coupon security) that accrues that year, even though the
holders receive no cash payments of interest during the year.
Pay-in-kind securities are securities that pay interest or dividends through the
issuance of additional securities. The Strategic Income Fund will be required to
report as income annual inclusions of original issue discount over the life of
such securities as if it were paid on a current basis, although no cash interest
or dividend payments are received by the Fund until the cash payment date or the
securities mature. Under certain circumstances, the Fund could also be required
to include accrued market discount or capital gain with respect to its
pay-in-kind securities.
The risks associated with lower rated debt securities apply to these securities.
Zero coupon and pay-in-kind securities are also subject to the risk that in the
event of a default, the Fund may realize no return on its investment, because
these securities do not pay cash interest.
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.
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 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.
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 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, and LargeCap Value Fund and Asia-Pacific Equity Fund may
invest, 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 (except Strategic Income Fund) 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.
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.
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.
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 the
making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with
applicable guidelines established by the SEC and any
guidelines established by the Board of Directors;
(5) borrow money or pledge, mortgage, or hypothecate its assets,
(a) except that a Fund may borrow from banks, but only if
immediately after each borrowing and continuing thereafter
there is asset coverage of 300%; and (b) and except that the
following shall not be considered a pledge, mortgage, or
hypothecation of a Fund's assets for these purposes: entering
into reverse repurchase agreements; transactions in options,
futures, options on futures, and forward currency contracts;
the deposit of assets in escrow in connection with the writing
of covered put and call options; and the purchase of
securities on a "when-issued" or delayed delivery basis;
collateral arrangements with respect to initial or variation
margin and other deposits for futures contracts, options on
futures contracts, and forward currency contracts;
(6) issue senior securities, except insofar as a Fund may be
deemed to have issued a senior security by reason of borrowing
money in accordance with that Fund's borrowing policies, and
except for purposes of this investment restriction, collateral
or escrow arrangements with respect to the making of short
sales, purchase or sale of futures contracts or related
options, purchase or sale of forward currency contracts,
writing of stock options, and collateral arrangements with
respect to margin or other deposits respecting futures
contracts, related options, and forward currency contracts are
not deemed to be an issuance of a senior security;
(7) act as an underwriter of securities of other issuers, except,
when in connection with the disposition of portfolio
securities, a Fund may be deemed to be an underwriter under
the federal securities laws;
(8) purchase or sell real estate (other than marketable securities
representing interests in, or backed by, real estate or
securities of companies that deal in real estate or
mortgages).
The Funds are also subject to the following restrictions and policies that are
not fundamental and may, therefore, be changed by the Board of Directors
(without shareholder approval). Unless otherwise indicated, a Fund may not:
(1) invest in securities that are illiquid if, as a result of such
investment, more than 15% of the total assets of the Fund (taken
at market value at the time of such investment) would be invested
in such securities;
(2) invest in companies for the purpose of exercising control or
management;
(3) purchase or sell physical commodities or commodities contracts
(which, for purposes of this restriction, shall not include
foreign currency or forward foreign currency contracts), except
any Fund may engage in interest rate futures contracts, stock
index futures contracts, futures contracts based on other
financial instruments or securities, and options on such futures
contracts;
(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 the
Company's Liquidity Procedures) if by reason of such investment
the Fund's aggregate investment in such securities will exceed
10% to the Fund's total assets;
(7) invest more than 5% of the value of its total assets in
securities of issuers which have been in continuous operation
less than three years;
(8) invest in puts, calls, straddles, spreads or any combination
thereof if, as a result of such investment, more than 5% of the
total assets of the Fund (taken at market value at the time of
such investment) would be invested in such securities;
(9) loan portfolio securities unless collateral values are
continuously maintained at no less than 100% by "marking to
market" daily;
(10) invest in real estate limited partnerships.
Other non-fundamental policies include the following: each Fund may not purchase
securities on margin; make short sales, except for short sales "against the
box," or purchase or retain in its portfolio any security if an officer or
Director of the Company 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 to the Fund and were useful to the Investment Manager and/or
Portfolio Manager in advising other clients. In negotiating commissions with a
broker, the Fund may therefore pay a higher commission than would 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
Investment Manager or Portfolio Manager to be reasonable in relation to the
value of the brokerage and research services provided by such broker.
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.
The Funds place no restrictions on portfolio turnover. While any of the Funds
may from time to time sell a security it has held for a short period of time,
none of the Funds has a policy of engaging in short-term trading or generating
short-term gains. The annual rate of the Funds' portfolio turnover during the
fiscal year ended June 30, 1997 was 38% for Asia-Pacific Equity Fund, 86% for
MidCap Value Fund, and 86% for LargeCap Value Fund. The annual rate of the
Funds' portfolio turnover during the fiscal year ended June 30, 1998 was ___%
for Asia-Pacific Equity Fund, ___% for MidCap Value Fund, and ___% for LargeCap
Value Fund.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are offered at the net asset value next computed following
receipt of the order by the dealer (and/or the Distributor) or by the Company's
transfer agent, DST Systems, Inc. ("Transfer Agent"), plus, for Class A and
Class M shares, a varying sales charge depending upon the class of shares
purchased and the amount of money invested, as set forth in the Prospectus.
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. The
Company reserves the right to amend or terminate this practice at any time.
Special Purchases at Net Asset Value. Class A or Class M shares of the Funds may
be purchased at net asset value, without a sales charge, by persons who have
redeemed their Class A or Class M Shares of a Fund (or shares of other funds
managed by the Investment Manager in accordance with the terms of such
privileges established for such funds) within the previous 90 days. The amount
that may be so reinvested in the Fund is limited to an amount up to, but not
exceeding, the redemption proceeds (or to the nearest full share if fractional
shares are not purchased). In order to exercise this privilege, a written order
for the purchase of shares must be received by the Transfer Agent, or be
postmarked, within 90 days after the date of redemption. This privilege may only
be used once per calendar year. Payment must accompany the request and the
purchase will be made at the then current net asset value of the Fund. Such
purchases may also be handled by a securities dealer who may charge a
shareholder for this service. If the shareholder has realized a gain on the
redemption, the transaction is taxable and any reinvestment will not alter any
applicable Federal capital gains tax. If there has been a loss on the redemption
and a subsequent reinvestment pursuant to this privilege, some or all of the
loss may not be allowed as a tax deduction depending upon the amount reinvested,
although such disallowance is added to the tax basis of the shares acquired upon
the reinvestment.
Any person who can document that Fund shares were purchased with proceeds from
the redemption (within the previous 90 days) of shares from any unaffiliated
mutual fund on which a sales charge was paid or which were subject at any time
to a CDSC, and which unaffiliated fund was: with respect to purchases of the
MidCap Value Fund, a mid-cap fund; with respect to purchases of the LargeCap
Value Fund, a large-cap fund; with respect to purchases of the Asia-Pacific
Equity Fund, a fund investing in companies based in the Asia-Pacific region; and
with respect to Strategic Income Fund, a strategic income fund.
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
the Company (or the other open-end Pilgrim America Funds) 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 open-end Pilgrim America Funds 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 the Company and
officers, directors and full-time employees of the Investment Manager, any
Portfolio Manager, the Distributor, The Company's service providers or
affiliated corporations thereof or any trust, pension, profit-sharing or other
benefit plan for such persons, broker-dealers, for their own accounts or for
members of their families (defined as current spouse, children, parents,
grandparents, uncles, aunts, siblings, nephews, nieces, step-relations,
relations at-law, and cousins) employees of such broker-dealers (including their
immediate families) and discretionary advisory accounts of the Investment
Manager or any Portfolio Manager, may purchase Class A or Class M Shares of a
Fund at net asset value without a sales charge. Such purchaser may be required
to sign a letter stating that the purchase is for his own investment purposes
only and that the securities will not be resold except to the Fund. The Company
may, under certain circumstances, allow registered investment adviser's to make
investments on behalf of their clients at net asset value without any commission
or concession.
Class A or M shares may also be purchased at net asset value by certain fee
based registered investment advisers, trust companies and bank trust departments
under certain circumstances making investments on behalf of their clients and by
shareholders who have authorized the automatic transfer of dividends from the
same class of another open-end fund managed by the Investment Manager or from
Pilgrim America Prime Rate Trust.
Letters of Intent and Rights of Accumulation. An investor may immediately
qualify for a reduced sales charge on a purchase of Class A or Class M shares of
any of the Funds or any open-end Pilgrim America Funds which offers Class A
shares, Class M shares or shares with front-end sales charges, by completing the
Letter of Intent section of the Shareholder Application in the Prospectus (the
"Letter of Intent" or "Letter"). By completing the Letter, the investor
expresses an intention to invest during the next 13 months a specified amount
which if made at one time would qualify for the reduced sales charge. At any
time within 90 days after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder Application, with the
Letter of Intent section completed, may be filed with the Fund. After the Letter
of Intent is filed, each additional investment made will be entitled to the
sales charge applicable to the level of investment indicated on the Letter of
Intent as described above. Sales charge reductions based upon purchases in more
than one investment in the Pilgrim America Funds will be effective only after
notification to the Distributor that the investment qualifies for a discount.
The shareholder's holdings in the Investment Manager's funds (excluding Pilgrim
America General Money Market Shares) acquired within 90 days before the Letter
of Intent is filed will be counted towards completion of the Letter of Intent
but will not be entitled to a retroactive downward adjustment of sales charge
until the Letter of Intent is fulfilled. Any redemptions made by the shareholder
during the 13-month period will be subtracted from the amount of the purchases
for purposes of determining whether the terms of the Letter of Intent have been
completed. If the Letter of Intent is not completed within the 13-month period,
there will be an upward adjustment of the sales charge as specified below,
depending upon the amount actually purchased (less redemption) during the
period.
An investor acknowledges and agrees to the following provisions by completing
the Letter of Intent section of the Shareholder Application in the Prospectus. A
minimum initial investment equal to 25% of the intended total investment is
required. An amount equal to the maximum sales charge or 5.75% of the total
intended purchase will be held in escrow at Pilgrim America Funds, in the form
of shares, in the investor's name to assure that the full applicable sales
charge will be paid if the intended purchase is not completed. The shares in
escrow will be included in the total shares owned as reflected on the monthly
statement; income and capital gain distributions on the escrow shares will be
paid directly by the investor. The escrow shares will not be available for
redemption by the investor until the Letter of Intent has been completed, or the
higher sales charge paid. If the total purchases, less redemptions, equal the
amount specified under the Letter, the shares in escrow will be released. If the
total purchases, less redemptions, exceed the amount specified under the Letter
and is an amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made by the Distributor and the dealer with
whom purchases were made pursuant to the Letter of Intent (to reflect such
further quantity discount) on purchases made within 90 days before, and on those
made after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the applicable offering price.
If the total purchases, less redemptions, are less than the amount specified
under the Letter, the investor will remit to the Distributor an amount equal to
the difference in dollar amount of sales charge actually paid and the amount of
sales charge which would have applied to the aggregate purchases if the total of
such purchases had been made at a single account in the name of the investor or
to the investor's order. If within 10 days after written request such difference
in sales charge is not paid, the redemption of an appropriate number of shares
in escrow to realize such difference will be made. If the proceeds from a total
redemption are inadequate, the investor will be liable to the Distributor for
the difference. In the event of a total redemption of the account prior to
fulfillment of the Letter of Intent, the additional sales charge due will be
deducted from the proceeds of the redemption and the balance will be forwarded
to the Investor. By completing the Letter of Intent section of the Shareholder
Application, an investor grants to the Distributor a security interest in the
shares in escrow and agrees to irrevocably appoint the Distributor as his
attorney-in-fact with full power of substitution to surrender for redemption any
or all shares for the purpose of paying any additional sales charge due and
authorizes the Transfer Agent or Sub-Transfer Agent to receive and redeem shares
and pay the proceeds as directed by the Distributor. The investor or the
securities dealer must inform the Transfer Agent or the Distributor that this
Letter is in effect each time a purchase is made.
If at any time prior to or after completion of the Letter of Intent the investor
wishes to cancel the Letter of Intent, the investor must notify the Distributor
in writing. If, prior to the completion of the Letter of Intent, the investor
requests the Distributor to liquidate all shares held by the investor, the
Letter of Intent will be terminated automatically. Under either of these
situations, the total purchased may be less than the amount specified in the
Letter of Intent. If so, the Distributor will redeem at NAV to remit to the
Distributor and the appropriate authorized dealer an amount equal to the
difference between the dollar amount of the sales charge actually paid and the
amount of the sales charge that would have been paid on the total purchases if
made at one time.
The value of shares of the Fund plus shares of the other open-end funds
distributed by the Distributor (excluding Pilgrim America General Money Market
Shares) can be combined with a current purchase to determine the reduced sales
charge and applicable offering price of the current purchase. The reduced sales
charge apply to quantity purchases made at one time or on a cumulative basis
over any period of time by (i) an investor, (ii) the investor's spouse and
children under the age of majority, (iii) the investor's custodian accounts for
the benefit of a child under the Uniform gift to Minors Act, (iv) a trustee or
other fiduciary of a single trust estate or a single fiduciary account
(including a pension, profit-sharing and/or other employee benefit plans
qualified under Section 401 of the Code), by trust companies' registered
investment advisors, banks and bank trust departments for accounts over which
they exercise exclusive investment discretionary authority and which are held in
a fiduciary, agency, advisory, custodial or similar capacity.
The reduced sales charge also apply on a non-cumulative basis, to purchases made
at one time by the customers of a single dealer, in excess of $1 million. The
Letter of Intent option may be modified or discontinued at any time.
Shares of the Fund and other open-end Pilgrim America Funds (excluding Pilgrim
America General Money Market Shares) purchased and owned of record or
beneficially by a corporation, including employees of a single employer (or
affiliates thereof) including shares held by its employees, under one or more
retirement plans, can be combined with a current purchase to determine the
reduced sales charge and applicable offering price of the current purchase,
provided such transactions are not prohibited by one or more provisions of the
Employee Retirement Income Security Act or the Internal Revenue Code.
Individuals and employees should consult with their tax advisors concerning the
tax rules applicable to retirement plans before investing.
Redemptions. Payment to shareholders for shares redeemed will be made within
seven days after receipt by the Company's Transfer Agent of the written request
in proper form, except that the Company 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, the Company 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, the Company
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 the Company redeems such shares
and sends the proceeds to the shareholder, it will notify the shareholder that
the value of the shares in the account is less than the minimum amount and will
allow the shareholder 30 days to make an additional investment in an amount that
will increase the value of the account to at least $1,000 before the redemption
is processed. This policy will not be implemented where a Fund has previously
waived the minimum investment requirements.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.
Certain purchases of Class A shares and most Class B shares may be subject to a
CDSC. For purchase payments subject to such CDSC, the Distributor may pay out of
its own assets a commission from 0.25% to 1.00% of the amount invested for Class
A purchases over $1 million and 4% of the amount invested for Class B shares.
Shareholders will be charged a CDSC if certain of those shares are redeemed
within the applicable time period as stated in the prospectus.
No CDSC is imposed on any shares subject to a CDSC to the extent that those
shares (i) are no longer subject to the applicable holding period, (ii) resulted
from reinvestment of distributions on CDSC shares or (iii) were exchanged for
shares of another fund managed by the Investment Manager, provided that the
shares acquired in such exchange and subsequent exchanges will continue to
remain subject to the CDSC, if applicable, until the applicable holding period
expires.
The CDSC will be waived for certain redemptions of shares upon (i) the death or
permanent disability of a shareholder, or (ii) in connection with mandatory
distributions from an Individual Retirement Account ("IRA") or other qualified
retirement plan. The CDSC will be waived in the case of a redemption of shares
following the death or permanent disability of a shareholder if the redemption
is made within one year of death or initial determination of permanent
disability. The waiver is available for total or partial redemptions of shares
owned by an individual or an individual in joint tenancy (with rights of
survivorship), but only for redemptions of shares held at the time of death or
initial determination of permanent disability. The CDSC will also be waived in
the case of a total or partial redemption of shares in connection with any
mandatory distribution from a tax-deferred retirement plan or an IRA. The waiver
does not apply in the case of a tax-free rollover or transfer of assets, other
than one following a separation from services. The shareholder must notify the
Fund either directly or through the Distributor at the time of redemption that
the shareholder is entitled to a waiver of CDSC. The waiver will then be granted
subject to confirmation of the shareholder's entitlement.
The CDSC, which may be imposed on Class A shares purchased in excess of $1
million, will also be waived for registered investment advisors, trust companies
and bank trust departments investing on their own behalf or on behalf of their
clients.
Conversion of Class B Shares. A shareholder's Class B shares will automatically
convert to Class A shares in the Fund on the first business day of the month in
which the eighth anniversary of the issuance of the Class B shares occurs,
together with a pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares. The conversion of
Class B shares into Class A shares is subject to the continuing availability of
an opinion of counsel or an Internal Revenue Service ("IRS") ruling to the
effect that (1) such conversion will not constitute taxable events for federal
tax purposes; and (2) the payment of different dividends on Class A and Class B
shares does not result in the Fund's dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986. The Class B
shares so converted will no longer be subject to the higher expenses borne by
Class B shares. The conversion will be effected at the relative net asset values
per share of the two Classes.
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 regular
trading on the New York Stock Exchange (normally 4:00 p.m. New York time) during
each day on which that Exchange is open for trading. As of the date of this
Statement of Additional Information, the New York Stock Exchange is closed on
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
Portfolio securities listed or traded on a national securities exchange or
included in the NASDAQ National Market System will be valued at the last
reported sale price on the valuation day. Securities traded on an exchange or
NASDAQ for which there has been no sale that day and other securities traded in
the over-the-counter market will be valued at the last reported bid price on the
valuation day. In cases in which securities are traded on more than one
exchange, the securities are valued on the exchange designated by or under the
authority of the Board of Directors as the primary market. Securities for which
quotations are not readily available and all other assets will be valued at
their respective fair values as determined in good faith by or under the
direction of the Board of Directors of the Company. Any assets or liabilities
initially expressed in terms of non-U.S. dollar currencies are translated into
U.S. dollars at the prevailing market rates as quoted by one or more banks or
dealers on the day of valuation.
In computing a class of a Fund's net asset value, all class-specific liabilities
incurred or accrued are deducted from the class' net assets. The resulting net
assets are divided by the number of shares of the class outstanding at the time
of the valuation and the result (adjusted to the nearest cent) is the net asset
value per share.
The per share net asset value of Class A shares generally will be higher than
the per share net asset value of shares of the other classes, reflecting daily
expense accruals of the higher distribution fees applicable to Class B and Class
M shares. It is expected, however, that the per share net asset value of the
classes will tend to converge immediately after the payment of dividends or
distributions that will differ by approximately the amount of the expense
accrual differentials between the classes.
Orders received by dealers prior to the close of regular trading on the New York
Stock Exchange will be confirmed at the offering price computed as of the close
of regular trading on the Exchange provided the order is received by the
Distributor prior to its close of business that same day (normally 4:00 P.M.
Pacific time). It is the responsibility of the dealer to insure that all orders
are transmitted timely to the Fund. Orders received by dealers after the close
of regular trading on the New York Stock Exchange will be confirmed at the next
computed offering price as described in the Prospectus.
SHAREHOLDER SERVICES AND PRIVILEGES
As discussed in the Prospectus, the Company 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 the Company. The minimum investment requirements may be
waived by the Company 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, the Company 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. (This fee
is in addition to the normal Custodian charges paid by the Funds.) The annual
contract maintenance fee may be waived from time to time. For further details,
including the right to appoint a successor Custodian, see the Plan and Custody
Agreements as provided by the Company. Employers who wish to use shares of a
Fund under a custodianship with another bank or trust company must make
individual arrangements with such institution.
Individual Retirement Accounts. Investors having earned income are eligible to
purchase shares of a Fund under an IRA pursuant to Section 408(a) of the
Internal Revenue Code. An individual who creates an IRA may contribute annually
certain dollar amounts of earned income, and an additional amount if there is a
non-working spouse. Copies of a model Custodial Account Agreement are available
from the Distributor. Investors Fiduciary Trust Company, Kansas City, Missouri,
will act as the Custodian under this model Agreement, for which it will charge
the investor an annual fee of $12.00 for maintaining the Account (such fee is in
addition to the normal custodial charges paid by the Funds). Full details on the
IRA are contained in an IRS required disclosure statement, and the Custodian
will not open an IRA until seven (7) days after the investor has received such
statement from the Company. An IRA using shares of a Fund may also be used by
employers who have adopted a Simplified Employee Pension Plan.
Purchases of Fund shares by Section 403(b) and other retirement plans are also
available. It is advisable for an investor considering the funding of any
retirement plan to consult with an attorney or to obtain advice from a competent
retirement plan consultant.
Telephone Redemption and Exchange Privileges. As discussed in the Prospectus,
the telephone redemption and exchange privileges are available for all
shareholder accounts; however, retirement accounts may not utilize the telephone
redemption privilege. The telephone privileges may be modified or terminated at
any time. The privileges are subject to the conditions and provisions set forth
below and in the Prospectus.
1. Telephone redemption and/or exchange instructions received in
good order before the pricing of a Fund on any day on which the
New York Stock Exchange is open for business (a "Business Day"),
but not later than 4:00 p.m. eastern time, will be processed at
that day's closing net asset value. For each exchange, the
shareholder's account may be charged an exchange fee. There is no
fee for telephone redemption; however, redemptions of Class A and
Class B shares may be subject to a contingent deferred sales
charge (See "Redemption of Shares" in the Prospectus).
2. Telephone redemption and/or exchange instructions should be
made by dialing 1-800-992-0180 and selecting option 3.
3. Pilgrim America Funds will not permit exchanges in violation of
any of the terms and conditions set forth in the Funds' Prospectus
or herein.
4. Telephone redemption requests must meet the following
conditions to be accepted by Pilgrim America Funds:
(a) Proceeds of the redemption may be directly
deposited into a predetermined bank account, or
mailed to the current address on the
registration. This address cannot reflect any
change within the previous sixty (60) days.
(b) Certain account information will need to be
provided for verification purposes before the
redemption will be executed.
(c) Only one telephone redemption (where proceeds are
being mailed to the address of record) can be
processed with in a 30 day period.
(d) The maximum amount which can be liquidated and
sent to the address of record at any one time is
$50,000.
(e) The minimum amount which can be liquidated and
sent to a predetermined bank account is $5,000.
5. If the exchange involves the establishment of a new account,
the dollar amount being exchanged must at least equal the minimum
investment requirement of the Pilgrim America Fund being acquired.
6. Any new account established through the exchange privilege will
have the same account information and options except as stated in
the Prospectus.
7. Certificated shares cannot be redeemed or exchanged by
telephone but must be forwarded to Pilgrim America and deposited
into your account before any transaction may be processed.
8. If a portion of the shares to be exchanged are held in escrow
in connection with a Letter of Intent, the smallest number of full
shares of the Pilgrim America Fund to be purchased on the exchange
having the same aggregate net asset value as the shares being
exchanged shall be substituted in the escrow account. Shares held
in escrow may not be redeemed until the Letter of Intent has
expired and/or the appropriate adjustments have been made to the
account.
9. Shares may not be exchanged and/or redeemed unless an exchange
and/or redemption privilege is offered pursuant to the Funds'
then-current prospectus.
10. Proceeds of a redemption may be delayed up to 15 days or
longer until the check used to purchase the shares being redeemed
has been paid by the bank upon which it was drawn.
DISTRIBUTIONS
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) 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 (c) distribute at least 90% of
its investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses) each taxable year.
The 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.
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. The Funds expect that
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 should be taxable to shareholders as long-term capital gains,
regardless of the length of time the Fund's shares have been held by a
shareholder, and are not eligible for the dividends-received deduction.
Generally, dividends and distributions are taxable to shareholders, whether
received in cash or reinvested in shares of a Fund. Any distributions that are
not from a Fund's investment company taxable income or net capital gain may be
characterized as a return of capital to shareholders or, in some cases, as
capital gain. Shareholders will be notified annually as to the federal tax
status of dividends and distributions they receive and any tax withheld thereon.
Dividends, including capital gain dividends, declared in October, November, or
December with a record date in such month and paid during the following January
will be treated as having been paid by a Fund and received by shareholders on
December 31 of the calendar year in which declared, rather than the calendar
year in which the dividends are actually received.
Distributions by a Fund reduce the net asset value of the Fund shares. Should a
distribution reduce the net asset value below a shareholder's cost basis, the
distribution nevertheless may be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
be careful to consider the tax implication of buying shares just prior to a
distribution by a Fund. The price of shares purchased at that time includes the
amount of the forthcoming distribution, but the distribution will generally be
taxable to them.
Original Issue Discount. Certain of the debt securities acquired by the Funds
may be treated as debt securities that were originally issued at a discount.
Original issue discount can generally be defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income is actually received by the Funds, original
issue discount that accrues on a debt security in a given year generally is
treated for federal income tax purposes as interest and, therefore, such income
would be subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Funds at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by a
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of a Fund, at a constant yield to maturity which takes into
account the semi-annual compounding of interest.
Foreign Currency Transactions. Under the Code, gains or losses attributable to
fluctuations in foreign currency exchange rates which occur between the time a
Fund accrues income or other receivable or accrues expenses or other liabilities
denominated in a foreign currency and the time a Fund actually collects such
receivable 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.
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 is available that involves marking to market the Funds' PFIC stock at
the end of each taxable year with the result that unrealized gains are treated
as though they were realized and are reported as ordinary income; any
mark-to-market losses, as well as loss from an actual disposition of PFIC stock,
are reported as ordinary loss to the extent of any net mark-to-market gains
included in income in prior years.
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, receivable and payable, 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.
The foreign tax credit limitation rules do not apply to certain electing
individual taxpayers who have limited creditable foreign taxes and no foreign
source income other than passive investment-type income. The foreign tax credit
is eliminated with respect to foreign taxes withheld on dividends if the
dividend-paying shares or the shares of the Fund are held by the Fund or the
shareholders, as the case may be, for less than 16 days (46 days in the case of
preferred shares) during the 30-day period (90-day period for preferred shares)
beginning 15 days (45 days for preferred shares) before the shares become
ex-dividend. 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. The taxation of equity options (including
options on narrow-based stock indices) and over-the-counter options on debt
securities is governed by Code Section 1234. Pursuant to Code Section 1234, with
respect to a put or call option that is purchased by the Fund, if the option is
sold, any resulting gain or loss will be a capital gain or loss, and will be
short-term or long term, depending upon the holding period of the option. If the
option expires, the resulting loss is a capital loss and is short-term or
long-term, depending upon the holding period of the option. If the option is
exercised, the cost of the option, in the case of a call option, is added to the
basis of the purchased security and, in the case of a put option, reduces the
amount realized on the underlying security in determining gain or loss.
Certain options and financial contracts in which the Funds may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses
("60/40"); however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income or
loss. Also, section 1256 contracts held by a Fund at the end of each taxable
year (and on certain other dates as prescribed under the Code) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of the straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income when
distributed to shareholders.
A Fund may make one or more of the elections available under the Code which are
applicable to straddles. If a Fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Notwithstanding any of the foregoing, a Fund may recognize gain (but not loss)
from a constructive sale of certain "appreciated financial positions" if the
Fund enters into a short sale, notional principal contract, futures or forward
contract transaction with respect to the appreciated position or substantially
identical property. Appreciated financial positions subject to this constructive
sale treatment are interests (including options, futures and forward contracts
and short sales) in stock, partnership interests, certain activity traded trust
instruments and certain debt instruments. Constructive sale treatment does not
apply to certain transactions closed in the 90-day period ending with the 30th
day after the close of the Fund's taxable year, if certain conditions are met.
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," unless
certain constructive sale rules (discussed above) apply, 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. Recent
legislation, however, alters this treatment by treating certain short sales
against the box and other transactions as a constructive sale of the underlying
security held by the Fund, thereby requiring current recognition of gain, as
described more fully under "Options and Hedging Transactions" above. Similarly,
if a Fund enters into a short sale of property that becomes substantially
worthless, the Fund will recognize gain at that time as though it had closed the
short sale. Future Treasury regulations may apply similar treatment to other
transactions with respect to property that becomes substantially worthless.
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, which generally may be eligible for reduced Federal
tax rates, depending on the shareholder's holding period for the shares. Any
loss realized on a sale or exchange will be disallowed to the extent that the
shares disposed of are replaced (including replacement through the reinvesting
of dividends and capital gain distributions in a Fund) within a period of 61
days beginning 30 days before and ending 30 days after the disposition of the
shares. In such a case, the basis of the shares acquired will be adjusted to
reflect the disallowed loss. Any loss realized by a shareholder on the sale of a
Fund's shares held by the shareholder for six months or less will be treated for
federal income tax purposes as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the shareholder with respect
to such shares.
In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the shares
exchanged all or a portion of the sales charge incurred in acquiring those
shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
Backup Withholding. Each Fund generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish a Fund with the shareholder's correct taxpayer
identification number or social security number and to make such certifications
as a Fund may require, (2) the IRS notifies the shareholder or a Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
Other Taxes. Distributions also may be subject to state, local and foreign
taxes. U.S. tax rules applicable to foreign investors may differ significantly
from those outlined above. This discussion does not purport to deal with all of
the tax consequences applicable to shareholders. Shareholders are advised to
consult their own tax advisers for details with respect to the particular tax
consequences to them of an investment in a Fund.
SHAREHOLDER INFORMATION
Certificates representing shares of a particular Fund will not normally be
issued to shareholders. The Transfer Agent will maintain an account for each
shareholder upon which the registration and transfer of shares are recorded, and
any transfers shall be reflected by bookkeeping entry, without physical
delivery.
The Transfer Agent will require that a shareholder provide requests in writing,
accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.).
The Company 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. The Company 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.
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).
a - b 6
2 [(----- + 1) - 1]
cd
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., Value Line, Inc. or similar independent services that
monitor the performance of mutual funds or with other appropriate indexes of
investment securities. In addition, certain indexes may be used to illustrate
historic performance of select asset classes. The performance information may
also include evaluations of the Funds published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Business Week, Forbes, Fortune, Institutional Investor, Money and The Wall
Street Journal. If a Fund compares its performance to other funds or to relevant
indexes, the Fund's performance will be stated in the same terms in which such
comparative data and indexes are stated, which is normally total return rather
than yield. For these purposes the performance of the Fund, as well as the
performance of such investment companies or indexes, may not reflect sales
charges, which, if reflected, would reduce performance results.
Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including but not limited to 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 worldwide equity and
debt markets; (iii) the capitalization of U.S. and foreign stock markets
prepared or published by the International Finance Corporation, Morgan Stanley
Capital International or a similar financial organization; (iv) the geographic
distribution of a Fund's portfolio; (v) the major industries located in various
jurisdictions; (vi) the number of shareholders in the Funds or other Pilgrim
America Funds and the dollar amount of the assets under management; (vii)
descriptions of investing methods such as dollar-cost averaging, best day/worst
day scenarios, etc.; (viii) comparisons of the average price to earnings ratio,
price to book ratio, price to cash flow and relative currency valuations of the
Funds and individual stocks in a Fund's portfolio, appropriate indices and
descriptions of such comparisons; (ix) quotes from the portfolio manager of a
Fund or other industry specialists, (x) lists or statistics of certain of a
Fund's holdings including, but not limited to, portfolio composition, sector
weightings, portfolio turnover rate, number of holdings, average market
capitalization, and modern portfolio theory statistics; and (xi) NASDAQ symbols
for each class of shares of each Fund.
In addition, reports and promotional literature may contain information
concerning the Investment Manager, the Portfolio Managers, Pilgrim America,
Pilgrim America Group, Inc. or affiliates of the Company, the Investment
Manager, the Portfolio Managers, Pilgrim America or Pilgrim America Group, Inc.
including (i) performance rankings of other funds managed by the Investment
Manager or a Portfolio Manager, or the individuals employed by the Investment
Manager or 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; (ii)
lists of clients, the number of clients, or assets under management; (iii)
information regarding the acquisition of the Pilgrim America Funds by Pilgrim
America; (iv) the past performance of Pilgrim America and Pilgrim America Group,
Inc.; (v) the past performance of other funds managed by the Investment Manager;
and (vi) information regarding rights offerings conducted by closed-end funds
managed by the Investment Manager.
The average annual total returns for each class of shares of each Fund for the
one-year period ended June 30, 1998 and for the period of September 1, 1995
(commencement of operations) to June 30, 1998 (assuming deduction of any sales
load charge) is as follows:
One Year Since Inception
LargeCap Value Fund
Class A ____% ____%
Class B ____% ____%
Class M ____% ____%
MidCap Value Fund
Class A ____% ____%
Class B ____% ____%
Class M ____% ____%
Asia-Pacific Equity Fund
Class A ____% ____%
Class B ____% ____%
Class M ____% ____%
GENERAL INFORMATION
Custodian. The cash and securities owned by each Fund are held by Investors
Fiduciary Trust Company, 801 Pennsylvania, 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 the Company are passed upon by Dechert Price &
Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006.
Independent Auditors. KPMG Peat Marwick LLP, 725 South Figueroa Street, Los
Angeles, California 90017, acts as independent auditors for the Company.
Other Information. The Company is registered with the SEC as an open-end
management investment company. Such registration does not involve supervision of
the management or policies of the Company by any governmental agency. The
Prospectus and this Statement of Additional Information omit certain of the
information contained in the Registration Statement filed with the SEC and
copies of this information may be obtained from the SEC upon payment of the
prescribed fee or examined at the SEC in Washington, D.C. without charge.
Investors in the Funds will be kept informed of their progress through
semi-annual reports showing portfolio composition, statistical data and any
other significant data, including financial statement audited by independent
certified public accountants.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended June 30, 1998, are
incorporated herein by reference, from the Funds' Annual Report to Shareholders
dated June 30, 1998. Copies of the Funds' Annual Report may be obtained without
charge by contacting the Company at Suite 1200, 40 North Central Avenue,
Phoenix, Arizona 84005, (800) 992-0180.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements
Contained in Part A:
Financial Highlights
Contained in Part B:
Incorporated by reference to Registrant's June 30, 1998 annual report
(audited):
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Investment Portfolio
Notes to Financial Statements
(b) Exhibits
(1) (A) Form of Articles of Incorporation
(B) Form of Amendment to Articles of Incorporation
(C) Form of Articles Supplementary designating Pilgrim America
Strategic Income Fund
(2) Form of Amended and Restated Bylaws(1)
(3) Not Applicable
(4) Specimen security(2)
(5) (A) Form of Investment Management Agreement
(B) Form of Supplement to Investment Management Agreement relating
to Strategic Income Fund
(C) Form of Portfolio Management Agreement with HSBC Asset Management
Americas Inc. and HSBC Asset Management Hong Kong Limited
relating to Asia-Pacific Equity Fund
(D) Form of Portfolio Management Agreement with Cramer Rosenthal
McGlynn, LLC
(6) (A) Form of Underwriting Agreement
(B) Form of Supplement to Underwriting Agreement relating to
Strategic Income Fund
(C) Form of Selling Group Agreement
(D) Form of Service Agreement with broker-dealers
(7) Not Applicable
(8) (A) Form of Custody Agreement
(B) Form of Recordkeeping Agreement
(9) (A) Form of Service Agreement with Pilgrim America Group, Inc.
(B) Form of Supplement to Service Agreement
(10) Opinion and Consent of Dechert Price & Rhoads
(11) Consent of Independent Auditors*
(12) Not Applicable
(13) Form of Investment Letter
(14) Not Applicable
(15) (A) Form of Service and Distribution Plan for Class A Shares
(B) Form of Service and Distribution Plan for Class B Shares
(C) Form of Service and Distribution Plan for Class M Shares
(16) Not Applicable
(17) Not Applicable
(18) Form of Multiple Class Plan Adopted Pursuant to Rule 18f-3
(27) Financial Data Schedules
* To be filed by amendment.
(1) Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-1A as filed on October 30, 1996.
(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
None.
ITEM 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of July 31, 1998
Pilgrim America Masters Asia-Pacific Equity Fund
Class A 2,399
Class B 2,483
Class M 978
Pilgrim America Masters MidCap Value Fund
Class A 1,590
Class B 2,232
Class M 947
Pilgrim America Masters LargeCap Value Fund
Class A 501
Class B 782
Class M 381
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
Underwriting 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 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.
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 (a) the Registrant, (b) Pilgrim
America Group, Inc., (c) Pilgrim America Investments, Inc., (d) the Portfolio
Managers, (e) the Custodians and (e) the Transfer Agent. The address of each is
as follows:
(a) Pilgrim America Masters Series, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(b) Pilgrim America Investments, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(c) Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(d) HSBC Asset Management Americas Inc.
250 Park Avenue
New York, New York 10177
HSBC Asset Management Hong Kong Limited
Citibank Tower
3 Garden Road, 10th Floor
Hong Kong
Cramer Rosenthal McGlynn, LLC
520 Madison Avenue
New York, New York 10022
(e) Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
(f) 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 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 10th day of August, 1998.
PILGRIM AMERICA MASTERS SERIES, INC.
By: /s/ Robert W. Stallings
Robert W. Stallings
President and Chief Executive Officer
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, President and August 10, 1998
Robert W. Stallings Chief Executive Officer
(Principal Executive Officer)
Director August 10, 1998
Mary A. Baldwin *
Director August 10, 1998
John P. Burke *
Director August 10, 1998
Al Burton *
Director August 10, 1998
Bruce S. Foerster *
Director August 10, 1998
Jock Patton *
Principal Financial Officer August 10, 1998
Michael J. Roland *
* By: /s/ Robert W. Stallings
Robert W. Stallings
Attorney-in-Fact**
** Powers of Attorney for the Directors are incorporated by reference to
Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A as
filed on September 29, 1997. The Power of Attorney for Michael J. Roland is
included herein.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned, being the
duly elected Principal Financial Officer of Pilgrim America Masters Series, Inc.
(the "Fund"), constitutes and appoints Robert W. Stallings, James M. Hennessy,
Jeffrey S. Puretz, Jeffrey L. Steele, and Karen L. Anderberg and each of them,
his true and lawful attorneys-in-fact and agents with full power of substitution
and resubstitution for him in his name, place and stead, in any and all
capacities, to sign the Fund's registration statement and any and all amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
conforming all that said attorneys-in-fact and agents, or any of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Dated: August 10, 1998
/s/ Michael J. Roland
Michael J. Roland
<PAGE>
EXHIBIT LIST
Exhibit Number Name of Exhibit
(1)(A) Form of Articles of Incorporation
(1)(B) Form of Amendment to Articles of Incorporation
(1)(C) Form of Articles Supplementary designating Pilgrim America
Strategic Income Fund
(5)(A) Form of Investment Management Agreement
(5)(B) Form of Supplement to Investment Management Agreement
relating to Strategic Income Fund
(5)(C) Form of Portfolio Management Agreement with HSBC Asset
Management Americas Inc. and HSBC Asset Management Hong Kong
Limited relating to Asia-Pacific Equity Fund
(5)(D) Form of Portfolio Management Agreement with Cramer Rosenthal
McGlynn, LLC
(6)(A) Form of Underwriting Agreement
(6)(B) Form of Supplement to Underwriting Agreement relating to
Strategic Income Fund
(6)(C) Form of Selling Group Agreement
(6)(D) Form of Service Agreement with broker-dealers
(8)(A) Form of Custody Agreement
(8)(B) Form of Recordkeeping Agreement
(9)(A) Form of Service Agreement with Pilgrim America Group, Inc.
(9)(B) Form of Supplement to Service Agreement
(10) Opinion and Consent of Dechert Price & Rhoads
(13) Form of Investment Letter
(15)(A) Form of Service and Distribution Plan for Class A Shares
(15)(B) Form of Service and Distribution Plan for Class B Shares
(15)(C) Form of Service and Distribution Plan for Class M Shares
(18) Form of Multiple Class Plan Adopted Pursuant to Rule 18f-3
(27) Financial Data Schedules
ARTICLES OF INCORPORATION
OF
PILGRIM AMERICA MASTERS SERIES, INC.
ARTICLE I
INCORPORATOR
THE UNDERSIGNED, Lawrence B. Stoller, whose post office address is 477 Madison
Avenue, New York, New York 10022, being at least eighteen (18) years of age,
does hereby act as incorporator to form a corporation under and by virtue of the
Maryland General Corporation Law.
ARTICLE II
NAME
2.1 Name. The name of the corporation is Pilgrim America Masters Series, Inc.
(the "Corporation").
2.2 Name Reservation. The Corporation acknowledges that it uses the name
"Pilgrim America Masters" in its corporate name and in the name of any series
designated pursuant to Article V hereof only with the permission of
Pilgrim.America Investments, Inc., a Delaware corporation that serves as
investment manager to the Corporation (the "Investment Manager"), and agrees
that the Investment Manager shall control the use of the name "Pilgrim America
Masters" by the Corporation. The Corporation further agrees that if the
Investment Manager, its successors or assigns should at any time cease to be
investment manager to the Corporation, the Corporation shall, at the written
request of the Investment Manager or its successors or assigns eliminate the
name "Pilgrim America Masters" from its corporate name and any materials or
documents referring to the Corporation, and will not henceforth use the name
"Pilgrim America Masters" in the conduct of the Corporation's business, except
to any extent specifically agreed to by the Investment Manager. The Corporation
further acknowledges that the Investment Manager reserves the right to grant the
non-exclusive right to use the name "Pilgrim America Masters" to any other
persons or entities, including other investment companies, whether now in
existence or hereafter created. The provisions of this paragraph are binding on
the corporation, its successors and assigns and on its directors, officers,
stockholders, creditors and all other persons claiming under or through it.
ARTICLE III
CORPORATE PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed is to act as an
investment company under the federal Investment Company Act of 1940, and to
exercise and enjoy all the powers, rights and privileges granted to, or
conferred upon, corporations by the General Laws of the State of Maryland. The
Corporation shall exercise and enjoy all such powers, rights and privileges to
the extent not inconsistent with these Articles of Incorporation.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the State
of Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The name of the Corporation's resident agent in the
State of Maryland is The Corporation Trust Incorporated, a corporation of the
State of Maryland, and the post office address of the resident agent is 32 South
Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
5.1 Authorized Shares. The total number of shares of capital stock which the
Corporation shall have authority to issue is one billion (1,000,000,000) shares
of the par value of one cent ($0.01) per share and of the aggregate par value of
ten million dollars ($10,000,000), all of which shares are designated Common
Stock.
5.2 Authorization of Stock Issuance. The Board of Directors may authorize the
issuance and sale of capital stock of the corporation, including stock of any
class or series, from time to time in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration as
the Board of Directors shall determine, subject to any limits required by then
applicable law. All shares shall be issued on a fully paid and non-assessable
basis.
5.3 Fractional Shares. The Corporation may issue fractional shares. Any
fractional share shall carry proportionately the rights of a whole share,
excepting the right to receive a certificate evidencing such fractional share,
but including, without limitation, the right to vote and the right to receive
dividends.
5.4 Power to Classify. The Board of Directors of the Corporation may classify
and reclassify any unissued shares of capital stock into one or more additional
or other classes or series as may be established from time to time by setting or
changing in any one or more respects the designations, preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of stock, or shares of any existing class or series of stock.
Except as otherwise provided herein, all references herein to capital stock
shall apply without discrimination to the shares of each class or series of
stock. Pursuant to such power, the Board of Directors has initially designated
two hundred million shares of its capital stock into three series of shares of
capital stock of the Corporation, the names of which and the number of shares
allocated to each are as follows:
Number of Shares Initially
Name of Series Allocated
MidCap Value Fund Seventy million
LargeCap Value Fund Seventy million
Asia-Pacific Equity Fund Sixty Million
5.5 Classes and Series - General. The relative preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of each class or series
of stock of the Corporation shall be as follows, unless otherwise provided in
Articles Supplementary hereto:
(a) Assets Belonging to Class or Series. All consideration received by
the Corporation for the issue or sale of stock of a particular series,
together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any reinvestment
of such proceeds in whatever form the same may be, shall irrevocably
belong to that series for all purposes, subject only to the rights of
creditors and to the terms and conditions of each class (if any) of
that series, and shall be so recorded on the books of account of the
Corporation. Any assets, income, earnings, profits or proceeds thereof,
funds or payments that are not readily attributable to a particular
series shall be allocated to and among any one or more series in such
manner and on such basis as the Board of Directors, in its sole
discretion, shall deem fair and equitable, and items so allocated to a
particular series shall belong to that series. Each such allocation
shall be conclusive and binding upon the stockholders of all series for
all purposes.
(b) Liabilities Belonging to Class or Series. The assets belonging to
each series shall be charged with the liabilities of the Corporation in
respect of that series and with all expenses, costs, charges and
reserves attributable to that series and shall be so recorded on the
books of account of the Corporation; provided, however, that identified
costs, expenses, charges, reserves and liabilities properly allocable
to a particular class of a series shall be charged to and borne solely
by such class. .Any general liabilities, expenses, costs, charges or
reserves of the Corporation that are not readily identifiable as
belonging to any particular class or series shall be allocated and
charged to and among any one or more of the classes or series in such
manner and on such basis as the Board of Directors in its sole
discretion deems fair and equitable, and any items so allocated to a
particular class or series shall be charged to, and shall be a
liability belonging to, that class or series. Each such allocation
shall be conclusive and binding upon the stockholders of all classes
and series for all purposes.
(c) Income. The Board of Directors shall have full discretion, to the
extent not inconsistent with the General Laws of the State of Maryland
and the Investment Company Act of 1940, to determine which items shall
be treated as income and which items shall be treated as capital. Each
such determination shall be conclusive and binding.
(d) Dividends and Distributions. The holders of each class or series of
capital stock of record as of a date determined by the Board of
Directors from time to time shall be entitled, from funds or other
assets legally available therefor, to dividends and distributions,
including distributions of capital gains, in such amounts and at such
times as may be determined by the Board of Directors. The Board of
Directors may determine that no dividend or distribution shall be
payable on shares as to which the purchase order, payment or both have
not been received by a specified date. Any such dividends or
distributions may be declared payable in cash, property or shares of
the class or series, as determined by the Board of Directors or
pursuant to a standing resolution or program adopted or approved by the
Board of Directors. Dividends and distributions may be declared with
such frequency, including daily, as the Board of Directors may
determine and in any reasonable manner, including by standing
resolution, by resolutions adopted only once or with such frequency as
the Board of Directors may determine, or by formula or other similar
method of determination, whether or not the amount of the dividend or
distribution so declared can be calculated at the time of such
declaration. The Board of Directors may establish payment dates for
such dividends and distributions on any basis, including payment that
is less frequent than the effectiveness of such declarations. The Board
of Directors shall have the discretion to designate for such dividends
and distributions amounts sufficient to enable the Corporation or any
class or series thereof to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986 or any successor or comparable
statute, and regulations promulgated thereunder (collectively, the
"IRC"), and to avoid liability of the Corporation or any class or
series for Federal income tax in respect of a given year and to make
other appropriate adjustments in connection therewith. Nothing in the
foregoing sentence shall limit the authority of the Board of Directors
to designate greater or lesser amounts for such dividends or
distributions. The amounts of dividends and distributions declared and
paid with respect to the various classes or series of capital stock and
the timing of declaration and payment of such dividends and
distributions may vary among such classes and series.
(e) Equality. Each share of each series or class shall be equal to each
other share of that class or series and shall represent an equal
proportionate interest in the assets belonging to that series or class,
subject to the liabilities belonging to that series or class. The Board
of Directors may from time to time divide or combine the shares of any
particular series or class into a greater or lesser number of shares of
that series or class without thereby changing the proportionate
beneficial interest in the assets belonging to that series or class or
in any way affecting the rights of shares of any other series or class.
(f) Conversion or Exchange Rights. Subject to compliance with the
requirements of the Investment Company Act of 1940, the Board of
Directors shall have the authority to provide that holders of shares of
any series or class shall have the right to convert or exchange such
shares into shares of one or more other series or classes in accordance
with such requirements and procedures as may be established by the
Board of Directors.
(g) Tax Elections. The Board of Directors shall have the power, in its
discretion, to make such elections as to the tax status of the
Corporation or any series or class of the Corporation as may be
permitted or required by the IRC without the vote of stockholders of
the Corporation or any series or class.
(h) Liquidation. At any time there are no shares outstanding for a
particular class or series, the Board of directors may liquidate such
class or series in accordance with applicable law. In the event of the
liquidation or dissolution of the Corporation, or of a class or series
thereof when there are shares outstanding of the Corporation or of such
class or series, as applicable, the stockholders of such, or of each,
class or series, as applicable, shall be entitled to receive, when and
as declared by the Board of Directors, the excess of the assets
attributable to that class or series over the liabilities of that class
or series, determined as provided herein and including assets and
liabilities allocated pursuant to sections (a) and (b) of this Article
5.5. Any such excess amounts will be distributed to each stockholder of
the applicable class or series in proportion to the number of
outstanding shares of that class or series held by that stockholder and
recorded on the books of the Corporation. Subject to the requirements
of applicable law, dissolution of a class or series may be accomplished
by distribution of assets to stockholders of that class or series as
provided herein, by the transfer of assets attributable to that class
or series to another class or series of the Corporation, by the
exchange of shares of that class or series for shares of another class
or series of the Corporation, or in any other legal manner.
(i) Voting Rights. On each matter submitted to a vote of stockholders,
each holder of a share of capital stock of the Corporation shall be
entitled to one vote for each full share, and a fractional vote for
each fractional share of stock standing in such holder's name on the
books of the corporation, irrespective of the class or series thereof,
and all shares of all classes and series shall vote together as a
single class, provided that (1) when the Maryland General Corporation
Law or the Investment Company Act of 1940 requires that a class or
series vote separately with respect to a given matter, the separate
voting requirements of the applicable law shall govern with respect to
the affected class(es) and/or series and other classes and series shall
vote as a single class and (2) unless otherwise required by those laws,
no class or series shall vote on any matter which does not affect the
interest of that class or series.
(i) Quorum. The presence in person or by proxy of the holders of
one-third of the shares of stock of the Corporation entitled to vote
thereat, without regard to class or series, shall constitute a quorum
at any meeting of the stockholders, except with respect to any matter
which, under applicable statutes or regulatory requirements, requires
approval by a separate vote of one or more classes or series of stock,
in which case the presence in person or by proxy of the holders of
one-third of the shares of stock of each class or series required to
vote as a class on the matter shall constitute a quorum. If at any
meeting of the stockholders there shall be less than a quorum present,
the stockholders present at such meeting may, without further notice,
adjourn the same from time to time until a quorum shall be present.
5.6 Authorizing Vote. Notwithstanding any provision of the General Laws of the
State of Maryland requiring for any purpose a proportion greater than a majority
of all votes entitled to be cast, the affirmative vote of the holders of a
majority of the total number of shares of the Corporation, or of a class or
series of the Corporation, as applicable, outstanding and entitled to vote under
such circumstances pursuant to these Articles of Incorporation and the By-Laws
of the Corporation shall be effective for such purpose, except to the extent
otherwise required by the Investment Company Act of 1940 and rules thereunder;
provided that, to the extent consistent with the General Laws of the State of
Maryland and other applicable law, the By-Laws may provide for authorization to
be by the vote of a proportion less than a majority of the votes of the
Corporation, or of a class or series.
5.7 Preemptive Rights. No stockholder of the Corporation shall be entitled as of
right to subscribe for, purchase, or otherwise acquire any shares of any classes
or series, or any other securities of the Corporation that the Corporation
proposes to issue or sell; and any or all of such shares or securities of the
Corporation, whether now or hereafter authorized or created, may be issued, or
may be reissued or transferred if the same have been reacquired, and sold to
such persons, firms, corporations and associations, and for such lawful
consideration, and on such terms as the Board of Directors in its discretion may
determine, without first offering the same, or any thereof, to any said
stockholder.
5.8 Redemption.
(a) The Board of Directors shall authorize the Corporation, to the
extent it has funds or other property legally available therefor and
subject to such reasonable conditions as the directors may determine,
to permit each holder of shares of capital stock of the Corporation, or
of any class or series, to require the Corporation to redeem all or any
part of the shares standing in the name of such holder on the books of
the Corporation, at the applicable redemption price of such shares
(which may reflect the deduction of such fees and charges as the Board
of Directors may establish from time to time) determined in accordance
with procedures established by the Board of Directors of the
Corporation from time to time in accordance with applicable law.
(b) Without limiting the generality of the foregoing, the Board of
Directors may authorize the Corporation, at its option and to the
extent permitted by and in accordance with the conditions of applicable
law, to redeem stock of the Corporation, or of any class or series,
owned by any stockholder under circumstances deemed appropriate by the
Board of Directors in its sole discretion from time to time, such
circumstances including but not limited to (1) failure to provide the
Corporation with a tax identification number and (2) failure to
maintain ownership of a specified minimum number or value of shares of
any class or series of stock of the Corporation, such redemption to be
effected at such price, at such time and subject to such conditions as
may be required or permitted by applicable law.
(c) Payment for redeemed stock shall be made in cash unless, in the
opinion of the Board of Directors, which shall be conclusive,
conditions exist which make it advisable for the Corporation to make
payment wholly or partially in securities or other property or assets
of the class or series of the shares being redeemed. Payment made
wholly or partially in securities or other property or assets may be
delayed to such reasonable extent, not inconsistent with applicable
law, as is reasonably necessary under the circumstances. No stockholder
shall have the right, except as determined by the Board of Directors,
to have his shares redeemed in such securities, property or other
assets.
(d) All rights of a stockholder with respect to a share redeemed,
including the right to receive dividends and distributions with respect
to such share, shall cease and determine as of the time as of which the
redemption price to be paid for such shares shall be fixed, in
accordance with applicable law, except the right of such stockholder to
receive payment for such shares as provided herein.
(e) Notwithstanding any other provision of this Article 5.8, the Board
of Directors may suspend the right of stockholders of any or all
classes or series of shares to require the Corporation to redeem shares
held by them for such periods and to the extent permitted by, or in
accordance with, the Investment Company Act of 1940. The Board of
Directors may, in the absence of a ruling by a responsible regulatory
official, terminate such suspension at such time as the Board of
Directors, in its discretion, shall deem reasonable, such determination
to be conclusive.
(f) Shares of any class or series which have been redeemed shall
constitute authorized but unissued shares subject to classification and
reclassification as provided in these Articles of Incorporation.
5.9 Repurchase of Shares. The Board of Directors may by resolution from time to
time authorize the Corporation to purchase or otherwise acquire, directly or
through an agent, shares of any class or series of its outstanding stock upon
such terms and conditions and for such consideration as permitted by applicable
law and determined to be reasonable by the Board of Directors and to take all
other steps deemed necessary in connection therewith. Shares so purchased or
acquired shall have the status of authorized but unissued shares.
5.10 Valuation. Subject to the requirements of applicable law, the Board of
Directors may, in its absolute discretion, establish the basis or method, timing
and frequency for determining the value of assets belonging to each class or
series and for determining the net asset value of each share of each class or
series for purposes of sales, redemptions, repurchases or otherwise. Without
limiting the foregoing, the Board of Directors may determine that the net asset
value per share of any class or series should be maintained at a designated
constant value and may establish procedures, not inconsistent with applicable
law, to accomplish that result. Such procedures may include a requirement, in
the event of a net loss with respect to the particular class or series from time
to time, for automatic pro rata capital contributions from each stockholder of
that class or series in amounts sufficient to maintain the designated constant
share value.
5.11 Certificates. Subject to the requirements of the Maryland General
corporation Law, the Board of Directors may authorize the issuance of some or
all of the shares of any or all classes or series without certificates and may
establish such conditions as it may determine in connection with the issuance of
certificates.
5.12 Shares Subject to Articles and Bylaws. All persons who shall acquire shares
of capital stock in the Corporation shall acquire the same subject to the
provisions of these Articles of Incorporation and the By-Laws of the
Corporation, as each may be amended, supplemented and/or restated from time to
time.
ARTICLE VI
BOARD OF DIRECTORS
6.1 Number of Directors. Prior to the issuance of stock, the number of directors
of the Corporation shall be at least one and after the issuance of stock shall
be as provided in the By-Laws, provided that the By-Laws may, subject to the
limitations of the Maryland General Corporation Law, fix a different number of
directors and may authorize a majority of the directors to increase or decrease
the number of directors set by these Articles or the By-Laws within limits set
by the By-Laws and to fill vacancies created by an increase in the number of
directors. Unless otherwise provided by the By-Laws, the directors of the
Corporation need not be stockholders of the Corporation. Robert W. Stallings
shall serve as the director of the Corporation until the first annual meeting
and until his successors are elected and qualify.
6.2 Removal of Directors. Subject to the limits of the Investment Company Act of
1940 and unless otherwise provided by the By-Laws, a director may be removed,
with or without cause, by the affirmative vote of a majority of (a) the Board of
Directors, (b) a committee of the Board of Directors appointed for such purpose,
or (c) the stockholders by vote of a majority of the outstanding shares of the
Corporation.
6.3 Liability of Directors and Officers.
(a) To the fullest extent permitted by the Maryland General corporation
Law and the Investment Company Act of 1940, no director or officer of
the Corporation shall be liable to the Corporation or to its
stockholders for money damages. No amendment to these Articles of
Incorporation or repeal of any of its provisions shall limit or
eliminate the benefits provided to directors and officers under this
provision with respect to any act or omission that occurred prior to
such amendment or repeal.
(b) In performance of his duties, a director is entitled to rely on any
information, opinion, report, or statement, including any financial
statement or other financial data, prepared by others, to the extent
not inconsistent with the General Laws of the State of Maryland. A
person who performs his duties in accordance with the standards of
Article 2-405.1 of the Maryland General Corporation Law or otherwise in
accordance with applicable law shall have no liability by reason of
being or having been a director of the Corporation.
6.4 Powers of Directors. In addition to any powers conferred herein or in the
By-Laws, the Board of Directors may, subject to any express limitations
contained in these Articles of Incorporation or in the By-Laws, exercise the
full extent of powers conferred by the General Laws of the State of Maryland or
other applicable law upon corporations or directors thereof and the enumeration
and definition of particular powers herein or in the By-Laws shall in no way be
deemed to restrict or otherwise limit those lawfully conferred powers. In
furtherance and without limitation of the foregoing, the Board of Directors
shall have power:
(a) to make, alter, amend or repeal from time to time the By-Laws of
the Corporation except as otherwise provided by the By-Laws;
(b) subject to the requirements of the Investment Company Act of 1940
and the General Laws of the State of Maryland, to authorize the
Corporation to enter into contracts with any person, including any
firm, corporation, trust or association in which a director, officer,
employee or stockholder of the Corporation may be interested. Such
contracts may be for any lawful purpose, whether or not such purpose
involves delegating functions normally performed by the board of
directors or officers of a corporation, including, but not limited to,
the provision of investment management for the Corporation's investment
portfolio, the distribution of securities issued by the Corporation,
the administration of the Corporation's affairs, the provision of
transfer agent services with respect to the Corporation's shares of
capital stock, and the custody of the Corporation's assets. Any person
(including its affiliates) may be retained in multiple capacities
pursuant to one or more contracts and may also perform services,
including similar or identical services, for others, including other
investment companies. Subject to the requirements of applicable law,
such contracts may provide for compensation to be paid by the
Corporation in such amounts, including payments of multiple amounts for
persons (including their affiliates) acting in multiple capacities, as
the Board of Directors shall determine in its discretion to be proper
and reasonable.
(c) to authorize from time to time the payment of compensation to the
Directors for services to the Corporation, including fees for
attendance at meetings of the Board of Directors and committees
thereof.
6.5 Determinations by Board of Directors. Any determination made by or pursuant
to the direction of the Board of Directors and in accordance with the standards
set by the General Laws of the State of Maryland shall be final and conclusive
and shall be binding upon the Corporation and upon all stockholders, past,
present and future, of each class and series.
ARTICLE VII
PROVISIONS FOR DEFINING, LIMITING AND REGULATING
THE POWERS OF THE CORPORATION AND THE DIRECTORS
AND STOCKHOLDERS
7.1 Location of Meetings. offices and Books. Both directors and stockholders may
hold meetings within or without the State of Maryland and abroad, and the
Corporation may have one or more offices and may keep its books within or
without the State of Maryland and abroad at such places as the directors shall
determine.
7.2 Meetings of Shareholders. Except as otherwise provided in the By-Laws, in
accordance with applicable law, the Corporation shall not be required to hold an
annual meeting of shareholders in any year unless required by applicable law.
Election of directors, whether by the directors or by stockholders, need not be
by ballot unless the By-Laws so provide.
7.3 Inspection of Records. Stockholders of the Corporation shall have only such
rights to inspect and copy the records, documents, accounts and books of the
Corporation and to request statements regarding its affairs as are provided by
the Maryland General Corporation Law, subject to such reasonable regulations,
not contrary to the General Laws of the State of Maryland, as the Board of
Directors may from time to time adopt regarding the conditions and limits of
such rights.
7.4 Indemnification. The Corporation, including its successors and assigns,
shall indemnify its directors and officers and make advance payment of related
expenses to the fullest extent permitted, and in accordance with the procedures
required, by the General Laws of the State of Maryland and the Investment
Company Act of 1940. The By-Laws may provide that the Corporation shall
indemnify its employees and/or agents in any manner and within such limits as
permitted by applicable law. Such indemnification shall be in addition to any
other right or claim to which any director, officer, employee or agent may
otherwise be entitled. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise or
employee benefit plan, against any liability (including, with respect to
employee benefit plans, excise taxes) asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether or
not the Corporation would have had the power to indemnify against such
liability. The rights provided to any person by this Article 7.4 shall be
enforceable against the corporation by such person who shall be presumed to have
relied upon such rights in serving or continuing to serve in the capacities
indicated herein. No amendment of these Articles of Incorporation shall impair
the rights of any person arising at any time with respect to events occurring
prior to such amendment.
7.5 Wholly-Owned Subsidiaries. The Corporation may own all or any portion of the
securities of, make loans to, or contribute to the costs or other financial
requirements of any company that is wholly owned by the Corporation or by the
Corporation and by one or more other investment companies and is primarily
engaged in the business of providing, at cost, management, administrative or
related services to the Corporation or to the Corporation and other investment
companies.
7.6 Amendments. The Corporation reserves the right to amend, alter, change or
repeal any provision of these Articles of Incorporation, and all rights
conferred upon stockholders herein are granted subject to this reservation.
7.7 References to Statutes. Articles and By-Laws. All references herein to
statutes, to these Articles of Incorporation or to the By-Laws shall be deemed
to refer to those statutes, Articles or By-Laws as they are amended and in
effect from time to time.
IN WITNESS WHEREOF, the undersigned incorporator of Pilgrim America
Masters Series, Inc. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to be his act.
Dated this 21st day of April, 1995.
_______________________
Lawrence B. Stoller
T:\BARTO\PILGRIM\PAMS\articles.doc, August 11, 1998, 2:02 PM
PILGRIM AMERICA MASTERS SERIES, INC.
ARTICLES OF AMENDMENT
PILGRIM AMERICA MASTERS SERIES, INC., a Maryland corporation having its
principal office in the State of Maryland in Baltimore City (hereinafter called
the "Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
First: The charter of the Corporation is hereby amended by striking
out Sections 2.1 and 2.2 of Article II of the Articles of Incorporation and
inserting in lieu thereof the following:
2.1 The name of the corporation is Pilgrim America Advisory Funds,
Inc. (the "Corporation").
2.2 The Corporation acknowledges that it uses the name "Pilgrim
America" in its corporate name and in the name of any series
designated pursuant to Article V hereof only with the permission of
Pilgrim America Investments, Inc., a Delaware corporation that serves
as investment manager to the Corporation (the "Investment Manager"),
and agrees that the Investment Manager shall control the use of the
name "Pilgrim America" by the Corporation. The Corporation further
agrees that if the Investment Manager, its successors or assigns
should at any time cease to be investment manager to the Corporation,
the Corporation shall, at the written request of the Investment
Manager or its successors or assigns eliminate the name "Pilgrim
America" from its corporate name and any materials or documents
referring to the Corporation, and henceforth will not use the name
"Pilgrim America" in the conduct of the Corporation's business, except
to any extent agreed to by the Investment Manager. The Corporation
further acknowledges that the Investment Manager reserves the right to
grant the non-exclusive right to use the name "Pilgrim America" to any
other persons or entities, including other investment companies,
whether now in existence or hereafter created. The provisions of this
paragraph are binding on the Corporation, its successors and assigns
and on its directors, officers, stockholders, creditors and all other
persons claiming under or through it.
Second: The foregoing amendment to such Articles of Incorporation of
the Corporation was approved by a majority of the entire Board of Directors of
the Corporation; the charter amendment is limited to changes expressly permitted
by Section 2-605 of Subtitle 6 of Title 2 of the Maryland General Corporation
Law to be made without action by the stockholders, and the Corporation is
registered as an open-end investment company under the Investment Company Act of
1940.
Third: The undersigned President of the Corporation acknowledges these
Articles of Amendment to be the corporate act of the Corporation and states to
the best of his knowledge, information and belief that the matters and facts set
forth in these Articles with respect to authorization and approval are true in
all material respects and that this statement is made under the penalties of
perjury.
IN WITNESS WHEREOF, Pilgrim America Masters Series, Inc. has caused this
instrument to be signed in its name and on its behalf by its President, Robert
W. Stallings, and attested by its Secretary, James M. Hennessy, on the ___ day
of August, 1998.
ATTEST: PILGRIM AMERICA MASTERS SERIES, INC.
By:
- --------------------------- ------------------------------ (SEAL)
James M. Hennessy Robert W. Stallings
Secretary President
PILGRIM AMERICA MASTERS SERIES, INC.
ARTICLES SUPPLEMENTARY
PILGRIM AMERICA MASTERS SERIES, INC., a Maryland corporation having its
principal office in the State of Maryland in Baltimore City (the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: There is hereby established and designated one additional series of
Common Stock, designated Strategic Income Fund, consisting of seventy million
(70,000,000) shares of the Corporation's authorized capital stock. Seventy
million (70,000,000) shares of the Corporation are hereby classified as
Strategic Income Fund shares.
SECOND: The preference, rights, voting powers, restrictions, limitations as
to dividends, qualifications, and terms and conditions of redemptions of shares
of Strategic Income Fund are as set forth in Article V of the Articles of
Incorporation of the Corporation, as amended.
THIRD: Shares of Strategic Income Fund were classified by vote of a
majority of the Board of Directors at a meeting on August 3, 1998 in accordance
with procedures established in Section 5.4 of Article V of the Corporation's
Articles of Incorporation, as amended.
IN WITNESS WHEREOF, PILGRIM AMERICA MASTERS SERIES, INC. has caused these
presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on August 7, 1998. ATTEST: PILGRIM AMERICA MASTERS
SERIES, INC.
By: /s/ James M. Hennessy By: /s/ Robert W. Stallings
James M. Hennessy Robert W. Stallings
Secretary President
THE UNDERSIGNED, President of Pilgrim America Masters Series, Inc., who
executed on behalf of the Corporation the foregoing Articles Supplementary of
which this certificate is made a part, hereby acknowledges that these Articles
Supplementary are the act of the Corporation, that to the best of his knowledge,
information and belief the matters and facts set forth herein relating to the
authorization and approval of the Articles supplementary are true in all
material respects and that this statement is made under the penalties of
perjury.
By: /s/ Robert W. Stallings
Robert W. Stallings
President
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made this day of June, 1995 between Pilgrim America Masters
Series, Inc. (the "Fund"), a Maryland corporation, and Pilgrim America
Investments, Inc. (the "Manager"), a Delaware corporation (the "Agreement").
WHEREAS, the Fund is an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Fund is authorized to issue shares of beneficial interest
in separate series with each such series representing interests in a separate
portfolio of securities and other assets;
WHEREAS, the Fund currently proposes to offer shares in three series,
may offer shares of additional series in the future, and currently intends to
offer shares of additional series in the future;
WHEREAS, the Fund desires to avail itself of the services of the
Manager for the provision of advisory, management, administrative, and other
services for the Fund; and
WHEREAS, the Manager is willing to render such services to the Fund;
NOW, THEREFORE, in consideration of the premises, the promises and
mutual covenants herein contained, it is agreed between the parties as follows:
1. Appointment. The Fund hereby appoints the Manager, subject to the
direction of the Board of Directors, for the period and on the terms set forth
in this Agreement, to provide advisory, management, administrative, and other
services, as described herein, with respect to each series of the Fund
(individually and collectively referred to herein as "Series"). The Manager
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
In the event the Fund establishes and designates additional series
with respect to which it desires to retain the Manager to render advisory
services hereunder, it shall notify the Manager in writing. If the Manager is
willing to render such services, it shall notify the Fund in writing, whereupon
such additional series shall become a Series hereunder.
2. Services of the Manager. The Manager represents and warrants that
it is registered as an investment adviser under the Investment Advisers Act of
1940 and will maintain such registration for so long as required by applicable
law. Subject to the general supervision of the Board of Directors of the Fund,
the Manager shall provide the following advisory, management, administrative,
and other services with respect to the Series:
(a) Provide general, overall advice and guidance with respect to the
Series and provide advice and guidance to the Fund's Directors, and oversee the
management of the investments of the Series and the composition of each Series'
portfolio of securities and investments, including cash, and the purchase,
retention and disposition thereof, in accordance with each Series' investment
objective or objectives and policies as stated in the Fund's current
registration statement, which management shall be provided by others selected by
the Manager and approved by the Board of Directors as provided below or directly
by the Manager as provided in Section 3 of this Agreement;
(b) In the event that the Manager wishes to select others to render
investment management services, the Manager shall analyze, select and recommend
for consideration by the Fund's Board of Directors investment advisory firms
(however organized) to provide investment advice to one or more of the Series,
and, at the expense of the Manager, engage (which engagement may also be by the
Fund) such investment advisory firms to render investment advice and manage the
investments of such Series and the composition of each such Series' portfolio of
securities and investments, including cash, and the purchase, retention and
disposition thereof, in accordance with the Series' investment objective or
objectives and policies as stated in the Fund's current registration statement
(any such firms approved by the Board of Directors and engaged by the Fund
and/or the Manager are referred to herein as "Portfolio Managers");
(c) Periodically monitor and evaluate the performance of the Portfolio
Managers with respect to the investment objectives and policies of the Series;
(d) Monitor the Portfolio Managers for compliance with the investment
objective or objectives, policies and restrictions of each Series, the 1940 Act,
Subchapter M of the Internal Revenue Code, and if applicable, regulations under
such provisions, and other applicable law;
(e) If appropriate, analyze and recommend for consideration by the
Fund's Board of Directors termination of a contract with a Portfolio Manager
under which the Portfolio Manager provided investment advisory services to one
or more of the Series;
(f) Supervise Portfolio Managers with respect to the services that
such Portfolio Managers provide under respective portfolio management agreements
("Portfolio Management Agreements"), although the Manager is not authorized,
except as provided in Section 3 of the Agreement, directly to make
determinations with respect to the investment of a Series' assets or the
purchase or sale of portfolio securities or other investments for a Series;
(g) Provide all supervisory, management, and administrative services
reasonably necessary for the operation of the Series other than the investment
advisory services performed by the Portfolio Managers, including, but not
limited to, (i) coordinating all matters relating to the operation of the
Series, including any necessary coordination among the Portfolio Managers,
custodian, transfer agent, dividend disbursing agent, and portfolio accounting
agent (including pricing and valuation of the Series' portfolios), accountants,
attorneys, and other parties performing services or operational functions for
the Fund; (ii) maintaining or supervising the maintenance by third parties
selected by the Manager of such books and records of the Fund and the Series as
may be required by applicable federal or state law; (iii) preparing or
supervising the preparation by third parties selected by the Manager of all
federal, state, and local tax returns and reports relating to the Series
required by applicable law; (iv) preparing and filing and arranging for the
distribution of proxy materials and periodic reports to shareholders of the
Series as required by applicable law; (v) preparing and arranging for the filing
of registration statements and other documents with the Securities and Exchange
Commission (the "SEC") and other federal and state regulatory authorities as may
be required by applicable law; (vi) taking such other action with respect to the
Fund as may be required by applicable law in connection with the Series,
including without limitation the rules and regulations of the SEC and other
regulatory agencies; and (vii) providing the Fund, at the Manager's expense,
with adequate personnel, office space, communications facilities, and other
facilities necessary for operation of the Series as contemplated in this
Agreement.
(h) Render to the Board of Directors of the Fund such periodic and
special reports as the Board may reasonably request; and
(i) Make available its officers and employees to the Board of
Directors and officers of the Fund for consultation and discussions regarding
the administration and management of the Series and services provided to the
Fund under this Agreement.
3. Investment Management Authority. In the event the Manager wishes to
render investment management services directly to a Series, then with respect to
any such Series, the Manager, subject to the supervision of the Fund's Board of
Directors, will provide a continuous investment program for the Series'
portfolio and determine the composition of the assets of the Series' portfolio,
including determination of the purchase, retention, or sale of the securities,
cash, and other investments contained in the portfolio. The Manager will provide
investment research and conduct a continuous program of evaluation, investment,
sales, and reinvestment of the Series' assets by determining the securities and
other investments that shall be purchased, entered into, sold, closed, or
exchanged for the Series, when these transactions should be executed, and what
portion of the assets of the Series should be held in the various securities and
other investments in which it may invest, and the Manager is hereby authorized
to execute and perform such services on behalf of the Series. To the extent
permitted by the investment policies of the Series, the Manager shall make
decisions for the Series as to foreign currency matters and make determinations
as to, and execute and perform, foreign currency exchange contracts on behalf of
the Series. The Manager will provide the services under this Agreement in
accordance with the Series' investment objective or objectives, policies, and
restrictions as stated in the Fund's Registration Statement filed with the SEC,
as amended. Furthermore:
(a) The Manager will manage the Series so that each will qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code. In
managing the Series in accordance with these requirements, the Manager shall be
entitled to receive and act upon advice of counsel to the Fund or counsel to the
Manager.
(b) The Manager will conform with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Fund's Board of
Directors, and the provisions of the Registration Statement of the Fund under
the Securities Act of 1933 and the 1940 Act, as supplemented or amended.
(c) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Series as well as any other
investment advisory clients, the Manager may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to, aggregate the
securities to be so sold or purchased with those of its other clients where such
aggregation is not inconsistent with the policies set forth in the Registration
Statement. In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the Manager in
a manner that is fair and equitable in the judgment of the Manager in the
exercise of its fiduciary obligations to the Fund and to such other clients.
(d) In connection with the purchase and sale of securities of the
Series, the Manager will arrange for the transmission to the custodian for the
Fund on a daily basis, of such confirmation, trade tickets, and other documents
and information, including, but not limited to, Cusip, Sedol, or other numbers
that identify securities to be purchased or sold on behalf of the Series, as may
be reasonably necessary to enable the custodian to perform its administrative
and recordkeeping responsibilities with respect to the Series. With respect to
portfolio securities to be purchased or sold through the Depository Trust
Company, the Manager will arrange for the prompt transmission of the
confirmation of such trades to the Fund's custodian.
(e) The Manager will assist the custodian or portfolio accounting
agent for the Fund in determining, consistent with the procedures and policies
stated in the Registration Statement for the Fund, the value of any portfolio
securities or other assets of the Series for which the custodian or portfolio
accounting agent seeks assistance or review from the Manager. The Manager will
monitor on a daily basis the determination by the custodian or portfolio
accounting agent for the Fund of the value of portfolio securities and other
assets of the Series and the determination of net asset value of the Series;
provided, however, that the Manager shall, in the absence of bad faith, have no
liability whatsoever for any mistakes or errors of judgment in providing the
foregoing valuation-related services.
(f) The Manager will make available to the Fund, promptly upon
request, all of the Series' investment records and ledgers as are necessary to
assist the Fund to comply with requirements of the 1940 Act and the Investment
Advisers Act of 1940, as well as other applicable laws. The Manager will furnish
to regulatory authorities having the requisite authority any information or
reports in connection with such services which may be requested in order to
ascertain whether the operations of the Fund are being conducted in a manner
consistent with applicable laws and regulations.
(g) The Manager will regularly report to the Fund's Board of Directors
on the investment program for the Series and the issuers and securities
represented in the Series' portfolio, and will furnish the Fund's Board of
Directors with respect to the Series such periodic and special reports as the
Directors may reasonably request.
(h) In connection with its responsibilities under this Section 3, the
Manager is responsible for decisions to buy and sell securities and other
investments for the Series' portfolio, broker-dealer selection, and negotiation
of brokerage commission rates. The Manager's primary consideration in effecting
a security transaction will be to obtain the best execution for the Series,
taking into account the factors specified in the Prospectus and/or Statement of
Additional Information for the Fund, which include price (including the
applicable brokerage commission or dollar spread), the size of the order, the
nature of the market for the security, the timing of the transaction, the
reputation, experience and financial stability of the broker-dealer involved,
the quality of the service, the difficulty of execution, execution capabilities
and operational facilities of the firms involved, and the firm's risk in
positioning a block of securities. Accordingly, the price to the Series in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified, in the judgment of the Manager in the
exercise of its fiduciary obligations to the Fund, by other aspects of the
portfolio execution services offered. Subject to such policies as the Board of
Directors may determine and consistent with Section 28(e) of the Securities
Exchange Act of 1934, the Manager shall not be deemed to have acted unlawfully
or to have breached any duty created by this Agreement or otherwise solely by
reason of its having caused the Series to pay a broker-dealer for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Manager
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Manager's overall responsibilities with respect to the Series and to its other
clients as to which it exercises investment discretion. To the extent consistent
with these standards and in accordance with Section 11(a) of the Securities and
Exchange Act of 1934 and Rule 11a2-2(T) thereunder, the Manager is further
authorized to allocate the orders placed by it on behalf of the Series to the
Manager if it is registered as a broker-dealer with the SEC, to an affiliated
broker-dealer, or to such brokers and dealers who also provide research or
statistical material or other services to the Series, the Manager or an
affiliate of the Manager. Such allocation shall be in such amounts and
proportions as the Manager shall determine consistent with the above standards,
and the Manager will report on said allocation regularly to the Board of
Directors of the Fund indicating the broker-dealers to which such allocations
have been made and the basis therefor.
4. Conformity with Applicable Law. The Manager, in the performance of
its duties and obligations under this Agreement, shall act in conformity with
the Registration Statement of the Fund and with the instructions and directions
of the Board of Directors of the Fund and will conform to, and comply with, the
requirements of the 1940 Act and all other applicable federal and state laws and
regulations.
5. Exclusivity. The services of the Manager to the Fund under this
Agreement are not to be deemed exclusive, and the Manager, or any affiliate
thereof, shall be free to render similar services to other investment companies
and other clients (whether or not their investment objectives and policies are
similar to those of any of the Series) and to engage in other activities, so
long as its services hereunder are not impaired thereby.
6. Documents. The Fund has delivered properly certified or
authenticated copies of each of the following documents to the Manager and will
deliver to it all future amendments and supplements thereto, if any:
(a) certified resolution of the Board of Directors of the Fund
authorizing the appointment of the Manager and approving the form of this
Agreement;
(b) the Registration Statement as filed with the SEC and any
amendments thereto; and
(c) exhibits, powers of attorney, certificates and any and all other
documents relating to or filed in connection with the Registration Statement
described above.
7. Records. The Manager agrees to maintain and to preserve for the
periods prescribed under the 1940 Act any such records as are required to be
maintained by the Manager with respect to the Series by the 1940 Act. The
Manager further agrees that all records which it maintains for the Series are
the property of the Fund and it will promptly surrender any of such records upon
request.
8. Expenses. During the term of this Agreement, the Manager will pay
all expenses incurred by it in connection with its activities under this
Agreement, except such expenses as are assumed by the Fund under this Agreement
and such expenses as are assumed by a Portfolio Manager under its Portfolio
Management Agreement. The Manager further agrees to pay all fees payable to the
Portfolio Managers, executive salaries and expenses of the Directors and
officers of the Fund who are employees of the Manager or its affiliates, and
office rent of the Fund. The Fund shall be responsible for all of the other
expenses of its operations, including, without limitation, the management fee
payable hereunder; brokerage commissions; interest; legal fees and expenses of
attorneys; fees of auditors, transfer agents and dividend disbursing agents, and
custodians; the expense of obtaining quotations for calculating each Fund's net
asset value; taxes, if any, and the preparation of the Fund's tax returns; cost
of stock certificates and any other expenses (including clerical expenses) of
issue, sale, repurchase or redemption of shares; expenses of registering and
qualifying shares of the Fund under federal and state laws and regulations
(including the salary of employees of the Manager engaged in the registering and
qualifying of shares of the Fund under federal and state laws and regulations or
a pro-rata portion of the salary of employees to the extent so engaged);
expenses of printing and distributing reports, notices and proxy materials to
existing shareholders; expenses of printing and filing reports and other
documents filed with governmental agencies; expenses of annual and special
shareholder meetings; expenses of printing and distributing prospectuses and
statements of additional information to existing shareholders; fees and expenses
of Directors of the Fund who are not employees of the Manager or any Portfolio
Manager, or their affiliates; membership dues in the Investment Company
Institute; insurance premiums; and extraordinary expenses such as litigation
expenses. To the extent the Manager incurs any costs or performs any services
which are an obligation of the Fund, as set forth herein, the Fund shall
promptly reimburse the Manager for such costs and expenses. To the extent the
services for which the Fund is obligated to pay are performed by the Manager,
the Manager shall be entitled to recover from the Fund only to the extent of its
costs for such services.
9. Compensation. For the services provided by the Manager pursuant to
this Agreement, the Fund will pay to the Manager a monthly fee, in arrears,
equal to 1/12th of the corresponding percentage of the average daily net assets
of each Series during the month. For purposes of the immediately preceding
sentence, the corresponding percentages are as follows:
Pilgrim Masters MidCap Value fund 1.00%
Pilgrim Masters LargeCap Value Fund 1.00%
Pilgrim Masters Asia-Pacific Equity Fund 1.25%
Payment of the fee will be due by the 10th day of the following month. Payment
of the above fees shall be in addition to any amount paid to the Manager for the
salary of its employees engaged in registering and qualifying shares of the Fund
under federal and state law as provided in Section 8. The fee will be
appropriately pro-rated to reflect any portion of a calendar month that this
Agreement is not in effect between us.
10. Liability of the Manager. The Manager may rely on information
reasonably believed by it to be accurate and reliable. Except as may otherwise
be required by the 1940 Act or the rules thereunder, neither the Manager nor its
stockholders, officers, directors, employees, or agents shall be subject to, and
the Fund will indemnify such persons from and against, any liability for, or any
damages, expenses, or losses incurred in connection with, any act or omission
connected with or arising out of any services rendered under this Agreement,
except by reason of willful misfeasance, bad faith, or gross negligence in the
performance of the Manager's duties, or by reason of reckless disregard of the
Manager's obligations and duties under this Agreement. Except as may otherwise
be required by the 1940 Act or the rules thereunder, neither the Manager nor its
stock holders, officers, directors, employees, or agents shall be subject to,
and the Fund will indemnify such persons from and against, any liability for, or
any damages, expenses, or losses incurred in connection with, any act or
omission by a Portfolio Manager or any of the Portfolio Manager's stockholders
or partners, officers, directors, employees, or agents connected with or arising
out of any services rendered under a Portfolio Management Agreement, except by
reason of willful misfeasance, bad faith, or gross negligence in the performance
of the Manager's duties under this Agreement, or by reason of reckless disregard
of the Manager's obligations and duties under this Agreement.
11. Continuation and Termination. This Agreement shall become
effective on the date first written above or on such later date that it is
approved by the Fund's Board of Directors, including a majority of those
Directors who are not interested persons (as such term is defined in the 1940
Act) of the Manager or the Fund. Unless terminated as provided herein, the
Agreement shall continue in full force and effect for two (2) years from the
effective date of this Agreement, and shall continue from year to year
thereafter with respect to each Series so long as such continuance is
specifically approved at least annually (i) by the vote of a majority of the
Board of Directors of the Fund, or (ii) by vote of a majority of the outstanding
voting shares of the Fund (as defined in the 1940 Act), and provided continuance
is also approved by the vote of a majority of the Board of Directors of the Fund
who are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of the Fund or the Manager, cast in person at a meeting called for the
purpose of voting on such approval. This Agreement may not be amended in any
material respect without a majority vote of the outstanding voting shares (as
defined in the 1940 Act).
However, any approval of this Agreement by the holders of a majority
of the outstanding shares (as defined in the 1940 Act) of a Series shall be
effective to continue this Agreement with respect to such Series notwithstanding
(i) that this Agreement has not been approved by the holders of a majority of
the outstanding shares of any other Series or (ii) that this Agreement has not
been approved by the vote of a majority of the outstanding shares of the Fund,
unless such approval shall be required by any other applicable law or otherwise.
This Agreement may be terminated by the Fund at any time, without the payment of
any penalty, by vote of a majority of the entire Board of Directors of the Fund
or by a vote of a majority of the outstanding voting shares of the Fund, or with
respect to a Series, by vote of a majority of the outstanding voting shares of
such Series, on sixty (60) days' written notice to the Manager, or by the
Manager at any time, without the payment of any penalty, on sixty (60) days'
written notice to the Fund. This Agreement will automatically and immediately
terminate in the event of its "assignment" (as described in the 1940 Act).
12. Use of Name. It is understood that the name "Pilgrim America
Investments, Inc." or any derivative thereof (including the name "Pilgrim" and
the phrase "Pilgrim America") or logo associated with that name is the valuable
property of the Manager and its affiliates, and that the Fund and/or the Series
have the right to use such name (or derivative or logo) only so long as this
Agreement shall continue with respect to such Fund and/or Series. Upon
termination of this Agreement, the Fund (or Series) shall forthwith cease to use
such name (or derivative or logo) and, in the case of the Fund, shall promptly
amend its Articles of Incorporation to change its name (if such name is included
therein).
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
14. Applicable Law.
(a) This Agreement shall be governed by the laws of the State of
Arizona, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or any
rules or order of the SEC thereunder.
(b) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby and, to this extent, the provisions of this
Agreement shall be deemed to be severable.
(c) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
PILGRIM AMERICA MASTER SERIES, INC.
By:______________________________
______________________________
Title
PILGRIM AMERICA INVESTMENTS, INC.
By:______________________________
______________________________
Title
SUPPLEMENT TO
INVESTMENT MANAGEMENT AGREEMENT
Pilgrim America Masters Series, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
August 7, 1998
Pilgrim America Investments, Inc.
40 North Central Avenue
Phoenix, Arizona 85004
Re: Strategic Income Fund
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company") and
Pilgrim America Investments, Inc. (the "Investment Manager") as follows:
1. This Company is an open-end investment company organized as a Maryland
corporation, and consisting of such investment portfolios as have been or
may be established by the Directors of the Company from time to time. A
separate series of shares of common stock of the Company is offered to
investors with respect to each investment portfolio. The Strategic Income
Fund (the "Fund") is a separate investment portfolio of the Company.
2. The Company and the Investment Manager have entered into an Investment
Management Agreement ("Agreement") dated June 8, 1995 pursuant to which the
Company has employed the Investment Manager to provide investment
management and other services specified in the Agreement, and the
Investment Manager has accepted such employment.
3. As provided in paragraph 1 of the Agreement, the Company hereby appoints
the Investment Manager to serve as Investment Manager with respect to the
Fund, and the Investment Manager accepts such appointment, the terms and
conditions of such employment to be governed by the Agreement, which is
hereby incorporated herein by reference.
4. As provided in paragraph 9 of the Agreement and subject to further
conditions as set forth therein, the Company shall with respect to the Fund
pay the Investment Manager a monthly fee on the tenth day of each month,
based upon the average daily net assets of the Fund during the preceding
month as follows: a fee at an annual rate of 0.60%.
5. This Supplement and the Agreement shall become effective with respect to
the Fund on August 14, 1998 and shall continue in effect with respect to
the Fund after April 1, 1999 only so long as the continuance is
specifically approved at least annually (a) by the vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the Fund
or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's
Directors who are not parties to the Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Agreement may be terminated
with respect to the Fund at any time, without the payment of any penalty,
by a vote of a majority of the outstanding voting securities (as defined in
the 1940 Act) of the Fund or by a vote of a majority of the Company's
entire Board of Directors on 60 days' written notice to the Investment
Manager or by the Investment Manager on 60 days' written notice to the
Company. The Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act).
If the foregoing correctly sets forth the agreement between the Company and
the Investment Manager, please so indicate by signing and returning to the
Company the enclosed copy hereof
Very truly yours,
PILGRIM AMERICA MASTERS SERIES, INC.
By:
---------------------------------
Title:
ACCEPTED:
PILGRIM AMERICA INVESTMENTS, INC.
By:---------------------------------
Title:
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 27th day of April, 1995 between Pilgrim America
Investments, Inc., a Delaware corporation (the "Manager"), and HSBC Asset
Management Americas Inc., a New York corporation ("HSBC Americas"), and HSBC
Asset Management Hong Kong Limited, a Hong Kong corporation ("HSBC Hong Kong")
(HSBC Americas and HSBC Hong Kong being jointly referred to herein as the
"Portfolio Manager").
WHEREAS, Pilgrim America Masters Series, Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, management investment company;
WHEREAS, the Fund is authorized to issue separate series, each of
which will offer a separate class of shares of common stock, each series having
its own investment objective or objectives, policies, and limitations;
WHEREAS, the Fund currently proposes to offer shares in three series,
may offer shares of additional series in the future, and currently intends to
offer shares of additional series in the future;
WHEREAS, pursuant to a Management Agreement, dated the date hereof
(the "Management Agreement"), a copy of which has been provided to the Portfolio
Manager, the Fund has retained the Manager to render advisory, management, and
administrative services with respect to each of the Fund's series; and
WHEREAS, pursuant to authority granted to the Manager in the
Management Agreement, the Manager wishes to retain the Portfolio Manager to
furnish investment advisory services to one or more of the series of the Fund,
and the Portfolio Manager is willing to furnish such services to the Fund and
the Manager;
NOW, THEREFORE, in consideration of the premises and the promises and
mutual covenants herein contained, it is agreed between the Manager and the
Portfolio Manager as follows:
I. Appointment. The Manager hereby appoints the Portfolio Manager to
act as the investment adviser and manager to the Pilgrim America Masters
Asia-Pacific Equity Fund series of the Fund (the "Series") for the periods and
on the terms set forth in this Agreement. The Portfolio Manager accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
In the event the Fund designates one or more series (other than the
Series) with respect to which the Manager wishes to retain the Portfolio Manager
to render investment advisory services hereunder, it shall notify the Portfolio
Manager in writing. If the Portfolio Manager is willing to render such services,
it shall notify the Manager in writing, whereupon such series shall become a
Series hereunder, and be subject to this Agreement.
2. Portfolio Management Duties. Subject to the supervision of the
Fund's Board of Directors and the Manager, the Portfolio Manager will provide a
continuous investment program for the Series' portfolio and determine in its
discretion the composition of the assets of the Series' portfolio, including
determination of the purchase, retention, or sale of the securities, cash, and
other investments contained in the portfolio. The Portfolio Manager will provide
investment research and conduct a continuous program of evaluation, investment,
sales, and reinvestment of the Series' assets by determining the securities and
other investments that shall be purchased, entered into, sold, closed, or
exchanged for the Series, when these transactions should be executed, and what
portion of the assets of the Series should be held in the various securities and
other investments in which it may invest. To the extent permitted by the
investment policies of the Series, the Portfolio Manager shall make decisions
for the Series as to foreign currency matters and make determinations as to and
execute and perform foreign currency exchange contracts on behalf of the Series.
The Portfolio Manager will provide the services under this Agreement in
accordance with the Series' investment objective or objectives, policies, and
restrictions as stated in the Fund's Registration Statement filed with the
Securities and Exchange Commission ("SEC"), as amended, copies of which shall be
sent to the Portfolio Manager by the Manager. The Portfolio Manager further
agrees as follows:
(a) The Portfolio Manager will not take any action that would cause
the Series to fail to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code.
(b) The Portfolio Manager will conform with the 1940 Act and all rules
and regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Fund's Board of
Directors of which the Portfolio Manager has been sent a copy, and the
provisions of the Registration Statement of the Fund filed under the Securities
Act of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, of
which the Portfolio Manager has received a copy.
(c) The Portfolio Manager will vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Series are invested.
The Portfolio Manager will maintain appropriate records detailing its voting of
proxies on behalf of the Fund and will provide to the Fund at least annually a
report setting forth the proposals voted on and how the Series' shares were
voted since the prior report, including the name of the corresponding issuers.
(d) On occasions when the Portfolio Manager deems the purchase or sale
of a security to be in the best interest of the Series as well as of other
investment advisory clients of the Portfolio Manager or any of its affiliates,
the Portfolio Manager may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to be so
sold or purchased with those of its other clients where such aggregation is not
inconsistent with the policies set forth in the Registration Statement. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Portfolio Manager in a
manner that is fair and equitable in the judgment of the Portfolio Manager in
the exercise of its fiduciary obligations to the Fund and to such other clients,
subject to review by the Manager and the Fund's Board of Directors.
(e) In connection with the purchase and sale of securities for the
Series, the Portfolio Manager will arrange for the transmission to the custodian
and portfolio accounting agent for the Series on a daily basis, such
confirmation, trade tickets, and other documents and information, including, but
not limited to, Cusip, Sedol, or other numbers that identify securities to be
purchased or sold on behalf of the Series, as may be reasonably necessary to
enable the custodian and portfolio accounting agent to perform its
administrative and recordkeeping responsibilities with respect to the Series.
With respect to portfolio securities to be settled through the Depository Trust
Company, the Portfolio Manager will arrange for the prompt transmission of the
confirmation of such trades to the Fund's custodian and portfolio accounting
agent.
(f) The Portfolio Manager will assist the custodian and portfolio
accounting agent for the Fund in determining or confirming, consistent with the
procedures and policies stated in the Registration Statement for the Fund, the
value of any portfolio securities or other assets of the Series for which the
custodian and portfolio accounting agent seeks assistance from or identifies for
review by the Portfolio Manager. The parties acknowledge that the Portfolio
Manager is not a custodian of Series' assets and will not take possession or
custody of such assets.
(g) The Portfolio Manager will make available to the Fund and the
Manager, promptly upon request, all of the Series' investment records and
ledgers maintained by the Portfolio Manager (which shall not include the records
and ledgers maintained by the custodian or portfolio accounting agent for the
Fund) as are necessary to assist the Fund and the Manager to comply with
requirements of the 1940 Act and the Investment Advisers Act of 1940 (the
"Advisers Act"), as well as other applicable laws. The Portfolio Manager will
furnish to regulatory authorities having the requisite authority any information
or reports in connection with such services in respect to the Series which may
be requested in order to ascertain whether the operations of the Fund are being
conducted in a manner consistent with applicable laws and regulations.
(h) The Portfolio Manager will provide reports to the Fund's Board of
Directors for consideration at meetings of the Board on the investment program
for the Series and the issuers and securities represented in the Series'
portfolio, and will furnish the Fund's Board of Directors with respect to the
Series such periodic and special reports as the Directors and the Manager may
reasonably request. The Portfolio Manager will provide the Manager, no later
than the 20th day following the end of each of the first three fiscal quarters
of the Series and the 45th day following the end of the Series' fiscal year, a
letter to shareholders (to be subject to review and editing by the Manager)
containing a discussion of those factors referred to in Item 5A(a) of 1940 Act
Form N-1A in respect of both the prior quarter and the fiscal year to date.
3. Broker-Dealer Selection. The Portfolio Manager is authorized to
make decisions to buy and sell securities and other investments for the Series'
portfolio, broker-dealer selection, and negotiation of brokerage commission
rates. The Portfolio Manager's primary consideration in effecting a security
transaction will be to obtain the best execution for the Series, taking into
account the factors specified in the prospectus and/or statement of additional
information for the Fund, and determined in consultation with the Manager, which
include price (including the applicable brokerage commission or dollar spread),
the size of the order, the nature of the market for the security, the timing of
the transaction, the reputation, the experience and financial stability of the
broker-dealer involved, the quality of the service, the difficulty of execution,
and the execution capabilities and operational facilities of the firm involved,
and the firm's risk in positioning a block of securities. Accordingly, the price
to the Series in any transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified, in the judgment
of the Portfolio Manager in the exercise of its fiduciary obligations to the
Fund, by other aspects of the portfolio execution services offered. Subject to
such policies as the Fund's Board of Directors may determine and consistent with
Section 28(e) of the Securities Exchange Act of 1934, the Portfolio Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of its having caused the
Series to pay a broker-dealer for effecting a portfolio investment transaction
in excess of the amount of commission another broker-dealer would have charged
for effecting that transaction, if the Portfolio Manager determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker-dealer, viewed in
terms of either that particular transaction or the Portfolio Manager's or the
Manager's overall responsibilities with respect to the Series and to their
respective other clients as to which they exercise investment discretion. The
Portfolio Manager will consult with the Manager to the end that portfolio
transactions on behalf of the Series are directed to broker-dealers on the basis
of criteria reasonably considered appropriate by the Manager. To the extent
consistent with these standards, the Portfolio Manager is further authorized to
allocate the orders placed by it on behalf of the Series to the Portfolio
Manager if it is registered as a broker-dealer with the SEC, to an affiliated
broker-dealer, or to such brokers and dealers who also provide research or
statistical material, or other services to the Series, the Portfolio Manager, or
an affiliate of the Portfolio Manager. Such allocation shall be in such amounts
and proportions as the Portfolio Manager shall determine consistent with the
above standards, and the Portfolio Manager will report on said allocation
regularly to the Fund's Board of Directors indicating the broker-dealers to
which such allocations have been made and the basis therefor.
4. Disclosure about Portfolio Manager. The Portfolio Manager has
reviewed the Registration Statement for the Fund filed with the SEC that
contains disclosure about the Portfolio Manager, and represents and warrants
that, with respect to the disclosure about the Portfolio Manager or information
relating, directly or indirectly, to the Portfolio Manager, such Registration
Statement contains, as of the date hereof, no untrue statement of any material
fact and does not omit any statement of a material fact which was required to be
stated therein or necessary to make the statements contained therein not
misleading. Each of HSBC Americas and HSBC Hong Kong further represents and
warrants that it is a duly registered investment adviser under the Advisers Act.
The Manager acknowledges that it has received from HSBC Americas and HSBC Hong
Kong, not less than 48 hours prior to the execution and delivery of this
Agreement, a copy of each such party's Form ADV, Part II.
5. Expenses. During the term of this Agreement, the Portfolio Manager
will pay all expenses incurred by it and its staff and for their activities in
connection with its portfolio management duties under this Agreement, except as
provided in Section 11. The Manager or the Fund shall be responsible for all the
expenses of the Fund's operations.
6. Compensation. For the services provided, the Manager will pay the
Portfolio Manager a monthly fee, in arrears, equal to 1/12 of .50% of the
Series' average daily net assets during the month. Payment of the fee will be
due on the 10th day of the following month. The fee will be appropriately
prorated to reflect any portion of a calendar month that this Agreement is not
in effect among the parties. In accordance with the provisions of the Management
Agreement, the Manager is solely responsible for the payment of fees to the
Portfolio Manager, and the Portfolio Manager agrees to seek payment of its fees
solely from the Manager; provided, however, that if the Fund fails to pay the
Manager all or a portion of the management fee under said Management Agreement
when due, and the amount that was paid is insufficient to cover the Portfolio
Manager's fee under this Agreement for the period in question, then the
Portfolio Manager may enforce against the Fund any rights it may have as a
third-party beneficiary under the Management Agreement and the Manager will (i)
not be obligated to pay to the Portfolio Manager the deficiency until actually
collected from the Fund and (ii) take all steps appropriate under the
circumstances to collect the amount due from the Fund.
7. Compliance.
(a) The Portfolio Manager agrees that it shall immediately notify the
Manager and the Fund (1) in the event that the SEC has censured the Portfolio
Manager; placed limitations upon its activities, functions or operations;
suspended or revoked its registration as an investment adviser; or has commenced
proceedings or an investigation that may result in any of these actions, or (2)
upon having a reasonable basis for believing that the Series has ceased to
qualify or might not qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code. The Portfolio Manager further agrees to notify
the Manager and the Fund immediately of any material fact known to the Portfolio
Manager respecting or relating to the Portfolio Manager that is not contained in
the Registration Statement or prospectus for the Fund (which describes the
Series), or any amendment or supplement thereto, or of any statement contained
therein that becomes untrue in any material respect.
(b) The Manager agrees that it shall immediately notify the Portfolio
Manager (1) in the event that the SEC has censured the Manager or the Fund;
placed limitations upon either of their activities, functions, or operations;
suspended or revoked the Manager's registration as an investment adviser; or has
commenced proceedings or an investigation that may result in any of these
actions, or (2) upon having a reasonable basis for believing that the Series has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code.
8. Books and Records. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Portfolio Manager hereby agrees that all records
which it maintains for the Series are the property of the Fund and further
agrees to surrender promptly to the Fund any of such records upon the Fund's or
the Manager's request, although the Portfolio Manager may, at its own expense,
make and retain a copy of such records. The Portfolio Manager further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-l under the 1940 Act and to preserve the
records required by Rule 204-2 under the Advisers Act for the period specified
in the Rule.
9. Cooperation; Confidentiality. Each party to this Agreement agrees
to cooperate with the other party and with all appropriate governmental
authorities having the requisite jurisdiction (including, but not limited to,
the SEC) in connection with any investigation or inquiry relating to this
Agreement or the Fund. Subject to the foregoing, the Portfolio Manager shall
treat as confidential all information pertaining to the Fund and actions of the
Fund, the Manager and the Portfolio Manager, and the Manager shall treat as
confidential and use only in connection with the Series all information
furnished to the Fund or the Manager by the Portfolio Manager, in connection
with its duties under the agreement except that the aforesaid information need
not be treated as confidential if required to be disclosed under applicable law,
if generally available to the public through means other than by disclosure by
the Portfolio Manager or the Manager, or if available from a source other than
the Manager, Portfolio Manager or this Fund.
10. Representations Respecting Portfolio Manager. The Manager agrees
that neither the Manager, nor affiliated persons of the Manager, shall give any
information or make any representations or statements in connection with the
sale of shares of the Series concerning the Portfolio Manager or the Series
other than the information or representations contained in the Registration
Statement, prospectus, or statement of additional information for the Fund's
shares, as they may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved in advance by the Portfolio Manager, except with the prior
permission of the Portfolio Manager. The parties agree that in the event that
the Manager or an affiliated person of the Manager sends sales literature or
other promotional material to the Portfolio Manager for its approval and the
Portfolio Manager has not commented within 10 days, the Manager and its
affiliated persons may use and distribute such sales literature or other
promotional material.
11. Additional Covenants of the Portfolio Manager.
(a) During the first year following the effectiveness of the Fund's
initial registration statement, the Portfolio Manager will make available
Stanley D. Vyner or Stella S. M. Yiu to accompany representatives of the Fund's
distributor on twelve (12) days of "road show" marketing/due diligence
presentations to dealers and potential dealers in the Fund's shares, the timing
and location (within the United States) of such twelve presentations to be
chosen by the Manager following consultation with the Portfolio Manager.
Thereafter, the Portfolio Manager will make Mr. Vyner or Ms. Yiu available for
six (6) days of such presentations per year on the terms specified in the
immediately preceding sentence. The Portfolio Manager may substitute a senior
member of its firm for Mr. Vyner or Ms. Yiu, if such individual is reasonably
acceptable to the Manager. The Manager will reimburse the Portfolio Manager, or
cause the Fund's distributor to reimburse the Portfolio Manager, for the
reasonable out-of-pocket expenses incurred by the Portfolio Manager in assisting
in such presentations.
(b) During the term of this Agreement and during the six-month period
beginning the date that this Agreement terminates, neither the Portfolio Manager
nor any of the Portfolio Manager's affiliates will serve or act as an investment
adviser or sub-investment adviser to any other SEC-registered open-end
investment company or series thereof having investment objectives similar to
those of the Series. The Portfolio Manager shall not be bound by this covenant
in the event that the termination is not voluntarily effected by the Portfolio
Manager, and shall not be bound by this covenant for any period in the event
that the Portfolio Manager does not receive compensation for its services from
the Manager or the Fund as required by the terms of this agreement. Furthermore,
the Portfolio Manager shall not be bound by this covenant with respect to any
SEC registered open-end investment company or series thereof to which the
Portfolio Manager is appointed as investment adviser or subadviser pursuant to
any merger, acquisition or any other corporate action to which HSBC Holdings
p.l.c, or any of its subsidiaries is a party and which involves the change in
ownership of an investment advisory business or company.
12. Control. Notwithstanding any other provision of the Agreement, it
is understood and agreed that the Fund shall at all times retain the ultimate
responsibility for and control of all functions performed pursuant to this
Agreement and has reserved the right to reasonably direct any action hereunder
taken on its behalf by the Portfolio Manager.
13. Liability. Except as may otherwise be required by the 1940 Act or
the rules thereunder or other applicable law, and subject to the applicable
provisions of Paragraph 2(f) of this Agreement (which deal with non-investment
advisory services), the Manager agrees that the Portfolio Manager, any
affiliated person of the Portfolio Manager, and each person, if any, who, within
the meaning of Section 15 of the 1933 Act controls the Portfolio Manager (1)
shall bear no responsibility and shall not be subject to any liability for any
act or omission respecting any series of the Fund that is not a Series
hereunder, and (2) shall not be liable for, or subject to any damages, expenses,
or losses in connection with, any act or omission connected with or arising out
of any services rendered under this Agreement, except by reason of willful
misfeasance, bad faith, or gross negligence in the performance of the Portfolio
Manager's duties, or by reason of reckless disregard of the Portfolio Manager's
obligations and duties under this Agreement.
14. Duration and Termination.
(a) This Agreement shall become effective on the date first indicated
above, subject to the condition subsequent that the Fund's Board of Directors,
including a majority of those Directors who are not interested persons (as such
term is defined in the 1940 Act) of the Manager or the Portfolio Manager, and
the initial shareholder(s) of the Series, shall have approved this Agreement by
the time the Fund's initial Registration Statement under the 1933 Act shall
become effective. Unless terminated as provided herein, this Agreement shall
remain in full force and effect for two years from such date and continue on an
annual basis thereafter with respect to each Series covered by this Agreement;
provided that such annual continuance is specifically approved each year by (a)
the Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of each Series, and
(b) the vote of a majority of those Directors who are not parties to this
Agreement or interested persons (as such term is defined in the 1940 Act) of any
such party to this Agreement cast in person at a meeting called for the purpose
of voting on such approval. However, any approval of this Agreement by the
holders of a majority of the outstanding shares (as defined in the 1940 Act) of
a Series shall be effective to continue this Agreement with respect to such
Series notwithstanding (i) that this Agreement has not been approved by the
holders of a majority of the outstanding shares of any other Series or (ii) that
this agreement has not been approved by the vote of a majority of the
outstanding shares of the Fund, unless such approval shall be required by any
other applicable law or otherwise. Notwith standing the foregoing, this
Agreement may be terminated with respect to any Series covered by this
Agreement: (a) by the Manager at any time without penalty, upon sixty (60) days'
written notice to the Portfolio Manager and the Fund, (b) at any time without
payment of any penalty by the Fund, by the Fund's Board of Directors or a
majority of the outstanding voting securities of each Series, upon sixty (60)
days' written notice to the Manager and the Portfolio Manager, or (c) by the
Portfolio Manager upon requisite notice, as provided below, at any time after
two years from the date of this agreement, or, in the event that the Series'
total assets are less than $50 million on the first annual anniversary from the
date of the effectiveness of the Fund's initial Registration Statement, at any
time after such first annual anniversary; and requisite notice for these
purposes shall be three (3) months written notice unless the Fund or the Manager
requests additional time to find a replacement for the Portfolio Manager, in
which case the Portfolio Manager shall allow the additional time requested by
the Fund or Manager not to exceed three (3) additional months beyond the initial
three-month notice period; provided further, however, that the Portfolio Manager
may terminate this Agreement at any time without penalty, effective upon written
notice to the Manager and the Fund, in the event either the Portfolio Manager
(acting in good faith) or the Manager ceases to be registered as an investment
adviser under the Advisers Act or otherwise becomes legally incapable of
providing investment management services pursuant to its respective contract
with the Fund, or in the event the Manager becomes bankrupt or otherwise
incapable of carrying out its obligations under this Agreement, or in the event
that the Portfolio Manager does not receive compensation for its services from
the Manager or the Fund as required by the terms of this agreement. In the event
of termination for any reason, all records of each Series for which the
Agreement is terminated shall promptly be returned to the Manager or the Fund,
free from any claim or retention of rights in such record by the Portfolio
Manager, although the Portfolio Manager may, at its own expense, make and retain
a copy of such records. This Agreement shall automatically terminate in the
event of its assignment (as such term is described in the 1940 Act). In the
event this Agreement is terminated or is not approved in the manner described
above, the Sections or Paragraphs numbered 2(g), 8, 9, 10, 11(b), 12, 13 and 16
of this Agreement shall remain in effect, as well as any applicable provision of
this Section numbered 14 and, to the extent that only amounts are owed to the
Portfolio Manager as compensation for services rendered while the agreement was
in effect, Section 6.
(b) Notices.
Any notice must be in writing and shall be sufficiently given (1) when
delivered in person, (2) when dispatched by telegram or electronic facsimile
transfer (confirmed in writing by postage prepaid first class air mail
simultaneously dispatched), (3) when sent by internationally recognized
overnight courier service (with receipt confirmed by such overnight courier
service), or (4) when sent by registered or certified mail, to the other party
at the address of such party set forth below or at such other address as such
party may from time to time specify in writing to the other party.
If to the Fund:
Pilgrim America Masters Series, Inc.
10100 Santa Monica Boulevard, 21st Floor
Los Angeles, CA 90067-4112
Attention: James M. Hennessy
If to the Portfolio Manager:
HSBC Asset Management Americas, Inc.
250 Park Avenue
New York, NY 10177-0012
Attention: Stanley D. Vyner
15. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) the holders of a majority of the
outstanding voting securities of the Series, and (ii) the Directors of the Fund,
including a majority of the Directors of the Fund who are not interested persons
of any party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval, if such approval is required by applicable
law.
16. Use of Name.
(a) It is understood that the name "Pilgrim America Investments, Inc."
or any derivative thereof (including the name "Pilgrim" and the phrase "Pilgrim
America") or logo associated with that name is the valuable property of the
Manager and/or its affiliates, and that the Portfolio Manager has the right to
use such name (or derivative or logo) only with the approval of the Manager and
only so long as the Manager is Manager to the Fund and/or the Series. Upon
termination of the Management Agreement between the Fund and the Manager, the
Portfolio Manager shall forthwith cease to use such name (or derivative or
logo).
(b) It is understood that the names "HSBC Asset Management Americas
Inc." and "HSBC Asset Management Hong Kong Ltd." or any derivative thereof or
logo associated with that name is the valuable property of the Portfolio Manager
and its affiliates and that the Fund and/or the Series have the right to use
such name (or derivative or logo) in offering materials of the Fund with the
approval of the Portfolio Manager and for so long as the Portfolio Manager is a
portfolio manager to the Fund and/or the Series. Upon termination of this
Agreement, the Manager shall forthwith cause the Fund to cease to use such name
(or derivative or logo).
17. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of New
York, provided that nothing herein shall be construed in a manner inconsistent
with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder,
and without regard for the conflicts of laws principle thereof. The term
"affiliate" or "affiliated person" as used in this Agreement shall mean
"affiliated person" as defined in Section 2(a)(3) of the 1940 Act.
(b) The Manager and the Portfolio Manager acknowledge that the Fund
enjoys the rights of a third-party beneficiary under this Agreement, and the
Manager acknowledges that the Portfolio Manager enjoys the rights of a third
party beneficiary under the Management Agreement.
(c) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(d) To the extent permitted under Section 14 of this Agreement, this
Agreement may only be assigned by any party with the prior written consent of
the other parties.
(e) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby, and to this extent, the provisions of this
Agreement shall be deemed to be severable.
(f) Nothing herein shall be construed as constituting the Portfolio
Manager as an agent or co-partner of the Manager, or constituting the Manager as
an agent or co-partner of the Portfolio Manager. Nothing herein shall be
construed as constituting HSBC Americas as an agent or co-partner of HSBC Hong
Kong, or constituting HSBC Hong Kong an agent or co-partner of HSBC Americas, it
being understood that references in this Agreement to such parties as the
Portfolio Manager are made for convenience only.
(g) This agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
PILGRIM AMERICA INVESTMENTS, INC.
By:____________________________
____________________________
Title
HSBC ASSET MANAGEMENT AMERICAS INC.
By:____________________________
____________________________
Title
HSBC ASSET MANAGEMENT HONG KONG LIMITED
By:____________________________
____________________________
Title
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 2nd day of January, 1998 between Pilgrim America
Investments, Inc., a Delaware corporation (the "Manager"), and Cramer Rosenthal
McGlynn, LLC, a Delaware limited liability company (the "Portfolio Manager").
WHEREAS, Pilgrim America Masters Series, Inc. (the "Fund") is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end, management investment company;
WHEREAS, the Fund is authorized to issue separate series, each of which
will offer a separate class of shares of common stock, each series having its
own investment objective or objectives, policies, and limitations;
WHEREAS, the Fund currently proposes to offer shares in three series,
may offer shares of additional series in the future, and currently intends to
offer shares of additional series in the future;
WHEREAS, pursuant to a Management Agreement, dated June 8, 1995 (the
"Management Agreement"), which was last renewed by the Board of Directors of the
Fund on May 5, 1997, a copy of which has been provided to the Portfolio Manager,
the Fund has retained the Manager to render advisory, management, and
administrative services with respect to each of the Fund's series; and
WHEREAS, pursuant to authority granted to the Manager in the Management
Agreement, the Manager wishes to retain the Portfolio Manager to furnish
investment advisory services to one or more of the series of the Fund, and the
Portfolio Manager is willing to furnish such services to the Fund and the
Manager;
NOW, THEREFORE, in consideration of the premises and the promises and
mutual covenants herein contained, it is agreed between the Manager and the
Portfolio Manager as follows:
1. Appointment. The Manager hereby appoints the Portfolio Manager to
act as the investment adviser and manager to the Pilgrim America Masters MidCap
Value Fund series of the Fund (the "Series") for the periods and on the terms
set forth in this Agreement. The Portfolio Manager accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
In the event the Fund designates one or more series (other than the
Series) with respect to which the Manager wishes to retain the Portfolio Manager
to render investment advisory services hereunder, it shall notify the Portfolio
Manager in writing. If the Portfolio Manager is willing to render such services,
it shall notify the Manager in writing, whereupon such series shall become a
Series hereunder, and be subject to this Agreement.
2. Portfolio Management Duties. Subject to the supervision of the
Fund's Board of Directors and the Manager, the Portfolio Manager will provide a
continuous investment program for the Series' portfolio and determine in its
discretion the composition of the assets of the Series' portfolio, including
determination of the purchase, retention, or sale of the securities, cash, and
other investments contained in the portfolio. The Portfolio Manager will provide
investment research and conduct a continuous program of evaluation, investment,
sales, and reinvestment of the Series' assets by determining the securities and
other investments that shall be purchased, entered into, sold, closed, or
exchanged for the Series, when these transactions should be executed, and what
portion of the assets of the Series should be held in the various securities and
other investments in which it may invest. To the extent permitted by the
investment policies of the Series, the Portfolio Manager shall make decisions
for the Series as to foreign currency matters and make determinations as to and
execute and perform foreign currency exchange contracts on behalf of the Series.
The Portfolio Manager will provide the services under this Agreement in
accordance with the Series' investment objective or objectives, policies, and
restrictions as stated in the Fund's Registration Statement filed with the
Securities and Exchange Commission ("SEC"), as amended, copies of which shall be
sent to the Portfolio Manager by the Manager. The Portfolio Manager further
agrees as follows:
(a) The Portfolio Manager will not take any action that would cause the
Series to fail to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code.
(b) The Portfolio Manager will conform with the 1940 Act and all rules
and regulations thereunder, all other applicable federal and state laws and
regulations, with any applicable procedures adopted by the Fund's Board of
Directors of which the Portfolio Manager has been sent a copy, and the
provisions of the Registration Statement of the Fund filed under the Securities
Act of 1933 (the "1933 Act") and the 1940 Act, as supplemented or amended, of
which the Portfolio Manager has received a copy.
(c) The Portfolio Manager will vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Series are invested.
The Portfolio Manager will maintain appropriate records detailing its voting of
proxies on behalf of the Fund and will provide to the Fund at least annually a
report setting forth the proposals voted on and how the Series' shares were
voted since the prior report, including the name of the corresponding issuers.
(d) On occasions when the Portfolio Manager deems the purchase or sale
of a security to be in the best interest of the Series as well as of other
investment advisory clients of the Portfolio Manager or any of its affiliates,
the Portfolio Manager may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to be so
sold or purchased with those of its other clients where such aggregation is not
inconsistent with the policies set forth in the Registration Statement. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Portfolio Manager in a
manner that is fair and equitable in the judgment of the Portfolio Manager in
the exercise of its fiduciary obligations to the Fund and to such other clients,
subject to review by the Manager and the Fund's Board of Directors.
(e) In connection with the purchase and sale of securities for the
Series, the Portfolio Manager will arrange for the transmission to the custodian
and portfolio accounting agent for the Series on a daily basis, such
confirmation, trade tickets, and other documents and information, including, but
not limited to, Cusip, Sedol, or other numbers that identify securities to be
purchased or sold on behalf of the Series, as may be reasonably necessary to
enable the custodian and portfolio accounting agent to perform its
administrative and recordkeeping responsibilities with respect to the Series.
With respect to portfolio securities to be settled through the Depository Trust
Company, the Portfolio Manager will arrange for the prompt transmission of the
confirmation of such trades to the Fund's custodian and portfolio accounting
agent.
(f) The Portfolio Manager will assist the custodian and portfolio
accounting agent for the Fund in determining or confirming, consistent with the
procedures and policies stated in the Registration Statement for the Fund, the
value of any portfolio securities or other assets of the Series for which the
custodian and portfolio accounting agent seeks assistance from or identifies for
review by the Portfolio Manager. The parties acknowledge that the Portfolio
Manager is not a custodian of Series' assets and will not take possession or
custody of such assets.
(g) The Portfolio Manager will make available to the Fund and the
Manager, promptly upon request, all of the Series' investment records and
ledgers maintained by the Portfolio Manager (which shall not include the records
and ledgers maintained by the custodian or portfolio accounting agent for the
Fund) as are necessary to assist the Fund and the Manager to comply with
requirements of the 1940 Act and the Investment Advisers Act of 1940 (the
"Advisers Act"), as well as other applicable laws. The Portfolio Manager will
furnish to regulatory authorities having the requisite authority any information
or reports in connection with such services in respect to the Series which may
be requested in order to ascertain whether the operations of the Fund are being
conducted in a manner consistent with applicable laws and regulations.
(h) The Portfolio Manager will provide reports to the Fund's Board of
Directors for consideration at meetings of the Board on the investment program
for the Series and the issuers and securities represented in the Series'
portfolio, and will furnish the Fund's Board of Directors with respect to the
Series such periodic and special reports as the Directors and the Manager may
reasonably request. The Portfolio Manager will provide the Manager, no later
than the 20th day following the end of each of the first three fiscal quarters
of the Series and the 45th day following the end of the Series' fiscal year, a
letter to shareholders (to be subject to review and editing by the Manager)
containing a discussion of those factors referred to in Item 5A(a) of 1940 Act
Form N-1A in respect of both the prior quarter and the fiscal year to date.
3. Broker-Dealer Selection. The Portfolio Manager is authorized to make
decisions to buy and sell securities and other investments for the Series'
portfolio, broker-dealer selection, and negotiation of brokerage commission
rates. The Portfolio Manager's primary consideration in effecting a security
transaction will be to obtain the best execution for the Series, taking into
account the factors specified in the prospectus and/or statement of additional
information for the Fund, and determined in consultation with the Manager, which
include price (including the applicable brokerage commission or dollar spread),
the size of the order, the nature of the market for the security, the timing of
the transaction, the reputation, the experience and financial stability of the
broker-dealer involved, the quality of the service, the difficulty of execution,
and the execution capabilities and operational facilities of the firm involved,
and the firm's risk positioning a block of securities. Accordingly, the price to
the Series in any transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified, in the judgment
of the Portfolio Manager in the exercise of its fiduciary obligations to the
Fund, by other aspects of the portfolio execution services offered. Subject to
such policies as the Fund's Board of Directors may determine and consistent with
Section 28(e) of the Securities Exchange Act of 1934, the Portfolio Manager
shall not be deemed to have acted unlawfully or to have breached any duty
created by this Agreement or otherwise solely by reason of its having caused the
Series to pay a broker-dealer for effecting a portfolio investment transaction
in excess of the amount of commission another broker-dealer would have charged
for effecting that transaction, if the Portfolio Manager determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker-dealer, viewed in
terms of either that particular transaction or the Portfolio Manager's or the
Manager's overall responsibilities with respect to the Series and to their
respective other clients as to which they exercise investment discretion. The
Portfolio Manager will consult with the Manager to the end that portfolio
transactions on behalf of the Series are directed to broker-dealers on the basis
of criteria reasonably considered appropriate by the Manager. To the extent
consistent with these standards, the Portfolio Manager is further authorized to
allocate the orders placed by it on behalf of the Series to the Portfolio
Manager if it is registered as a broker-dealer with the SEC, to an affiliated
broker-dealer, or to such brokers and dealers who also provide research or
statistical material, or other services to the Series, the Portfolio Manager, or
an affiliate of the Portfolio Manager. Such allocation shall be in such amounts
and proportions as the Portfolio Manager shall determine consistent with the
above standards, and the Portfolio Manager will report on said allocation
regularly to the Fund's Board of Directors indicating the broker-dealers to
which such allocations have been made and the basis therefor.
4. Disclosure about Portfolio Manager. The Portfolio Manager has
reviewed the Registration Statement for the Fund filed with the SEC that
contains disclosure about the Portfolio Manager, and represents and warrants
that, with respect to the disclosure about the Portfolio Manager, such
Registration Statement contains, as of the date hereof, no untrue statement of
any material fact and does not omit any statement of a material fact which was
required to be stated therein or necessary to make the statements contained
therein not misleading. The Portfolio Manager further represents and warrants
that it will take the steps necessary to become a duly registered investment
adviser under the Advisers Act no later than the effective date of this
Agreement. The Portfolio Manager will provide the Manager with a copy of the
Portfolio Manager's Form ADV, Part II at the time the Form ADV is filed with the
SEC.
5. Expenses. During the term of this Agreement, the Portfolio Manager
will pay all expenses incurred by it and its staff and for their activities in
connection with its portfolio management duties under this Agreement, except as
provided in Section 11. The Manager or the Fund shall be responsible for all the
expenses of the Fund's operations.
6. Compensation. For the services provided, the Manager will pay the
Portfolio Manager a monthly fee, in arrears, equal to 1/12 of .50% of the
Series' average daily net assets during the month. Payment of the fee will be
due on the 10th day of the following month. The fee will be appropriately
prorated to reflect any portion of a calendar month that this Agreement is not
in effect among the parties. In accordance with the provisions of the Management
Agreement, the Manager is solely responsible for the payment of fees to the
Portfolio Manager, and the Portfolio Manager agrees to seek payment of its fees
solely from the Manager; provided, however, that if the Fund fails to pay the
Manager all or a portion of the management fee under said Management Agreement
when due, and the amount that was paid is insufficient to cover the Portfolio
Manager's fee under this Agreement for the period in question, then the
Portfolio Manager may enforce against the Fund any rights it may have as a
third-party beneficiary under the Management Agreement and the Manager will (i)
not be obligated to pay to the Portfolio Manager the deficiency until actually
collected from the Fund and (ii) take all steps appropriate under the
circumstances to collect the amount due from the Fund.
7. Compliance.
(a) The Portfolio Manager agrees that it shall immediately notify the
Manager and the Fund (1) in the event that the SEC has censured the Portfolio
Manager; placed limitations upon its activities, functions or operations;
suspended or revoked its registration as an investment adviser; or has commenced
proceedings or an investigation that may result in any of these actions, or (2)
upon having a reasonable basis for believing that the Series has ceased to
qualify or might not qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code. The Portfolio Manager further agrees to notify
the Manager and the Fund immediately of any material fact known to the Portfolio
Manager respecting or relating to the Portfolio Manager that is not contained in
the Registration Statement or prospectus for the Fund (which describes the
Series), or any amendment or supplement thereto, or of any statement contained
therein that becomes untrue in any material respect.
(b) The Manager agrees that it shall immediately notify the Portfolio
Manager (1) in the event that the SEC has censured the Manager or the Fund;
placed limitations upon either of their activities, functions, or operations;
suspended or revoked the Manager's registration as an investment adviser; or has
commenced proceedings or an investigation that may result in any of these
actions, or (2) upon having a reasonable basis for believing that the Series has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code.
8. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Portfolio Manager hereby agrees that all records which
it maintains for the Series are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's or the
Manager's request, although the Portfolio Manager may, at its own expense, make
and retain a copy of such records. The Portfolio Manager further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act and to
preserve the records required by Rule 204-2 under the Advisers Act for the
period specified in the Rule.
9. Cooperation; Confidentiality. Each party to this Agreement agrees to
cooperate with the other party and with all appropriate governmental authorities
having the requisite jurisdiction (including, but not limited to, the SEC) in
connection with any investigation or inquiry relating to this Agreement or the
Fund. Subject to the foregoing, the Portfolio Manager shall treat as
confidential all information pertaining to the Fund and actions of the Fund, the
Manager and the Portfolio Manager, and the Manager shall treat as confidential
and use only in connection with the Series all information furnished to the Fund
or the Manager by the Portfolio Manager, in connection with its duties under the
agreement except that the aforesaid information need not be treated as
confidential if required to be disclosed under applicable law, if generally
available to the public through means other than by disclosure by the Portfolio
Manager or the Manager, or if available from a source other than the Manager,
Portfolio Manager or this Fund.
10. Representations Respecting Portfolio Manager. The Manager agrees
that neither the Manager, nor affiliated persons of the Manager, shall give any
information or make any representations or statements in connection with the
sale of shares of the Series concerning the Portfolio Manager or the Series
other than the information or representations contained in the Registration
Statement, prospectus, or statement of additional information for the Fund's
shares, as they may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved in advance by the Portfolio Manager, except with the prior
permission of the Portfolio Manager. The parties agree that in the event that
the Manager or an affiliated person of the Manager sends sales literature or
other promotional material to the Portfolio Manager for its approval and the
Portfolio Manager has not commenced within 10 days, the Manager and its
affiliated persons may use and distribute such sales literature or other
promotional material.
11. Additional Covenants of the Portfolio Manager.
(a) The Portfolio Manager will make available Gerald Cramer or Edward
Rosenthal to accompany representatives of the Fund's distributor for six (6)
days per year of "road show" marketing/due diligence presentations to dealers
and potential dealers in the Fund's shares, the timing and location (within the
United States) of such six presentations to be chosen by the Manager following
consultation with the Portfolio Manager. The Portfolio Manager may substitute a
senior member of its firm for Mr. Cramer or Mr. Rosenthal, if such individual is
reasonably acceptable to the Manager. The Manager will reimburse the Portfolio
Manager, or cause the Fund's distributor to reimburse the Portfolio Manager, for
the reasonable out-of-pocket expenses incurred by the Portfolio Manager in
assisting in such presentations.
(b) During the term of this Agreement and during the six-month period
beginning the date that this Agreement terminates, neither the Portfolio Manager
nor any of the Portfolio Manager's affiliates will serve or act as an investment
adviser or sub-investment adviser to any other SEC-registered open-end
investment company or series thereof having investment objectives similar to
those of the Series. The Portfolio Manager shall not be bound by this covenant
with respect to the period following the termination of this Agreement in the
event the termination is not voluntarily effected by the Portfolio Manager, and
shall not be bound by this covenant for any period in the event that the
Portfolio Manager does not receive compensation for its services from the
Manager or the Fund as required by the terms of this agreement.
12. Control. Notwithstanding any other provisions of the Agreement, it
is understood and agreed that the Fund shall at all times retain the ultimate
responsibility for and control of all functions performed pursuant to this
Agreement and has reserved the right to reasonably direct any action hereunder
taken on its behalf by the Portfolio Manager.
13. Liability. Except as may otherwise be required by the 1940 Act or
the rules thereunder or other applicable law, and subject to the applicable
provisions of Paragraph 2(f) of this Agreement (which deal with non-investment
advisory services), the Manager agrees that the Portfolio Manager, any
affiliated person of the Portfolio Manager, and each person, if any, who, within
the meaning of Section 15 of the 1933 Act controls the Portfolio Manager (1)
shall bear no responsibility and shall not be subject to any liability for any
act or omission respecting any series of the Fund that is not a Series
hereunder, and (2) shall not be liable for, or subject to any damages, expenses,
or losses in connection with, any act or omission connected with or arising out
of any services rendered under this Agreement, except by reason of willful
misfeasance, bad faith, or gross negligence in the performance of the Portfolio
Manager's duties, or by reason of reckless disregard of the Portfolio Manager's
obligations and duties under this Agreement.
14. Duration and Termination.
(a) This Agreement shall become effective on the date first indicated
above, subject to the condition that the Fund's Board of Directors, including a
majority of those Directors who are not interested persons (as such term is
defined in the 1940 Act) of the Manager or the Portfolio Manager, and the
shareholder(s) of the Series, shall have approved this Agreement. Unless
terminated as provided herein, this Agreement shall remain in full force and
effect until May 1, 1988 and continue on an annual basis thereafter with respect
to each Series covered by this Agreement; provided that such annual continuance
is specifically approved each year by (a) the Board of Directors of the Fund, or
by the vote of a majority of the outstanding voting securities (as defined in
the 1940 Act) of each Series, and (b) the vote of a majority of those Directors
who are not parties to this Agreement or interested persons (as such term is
defined in the 1940 Act) of any such party to this Agreement cast in person at a
meeting called for the purpose of voting on such approval. However, any approval
of this Agreement by the holders of a majority of the outstanding shares (as
defined in the 1940 Act) of a Series shall be effective to continue this
Agreement with respect to such Series notwithstanding (i) that this Agreement
has not been approved by the holders of a majority of the outstanding shares of
any other Series or (ii) that this agreement has not been approved by the vote
of a majority of the outstanding shares of the Fund, unless such approval shall
be required by any other applicable law or otherwise. Notwithstanding the
foregoing, this Agreement may be terminated with respect to any Series covered
by this Agreement: (a) by the Manager at any time without penalty, upon sixty
(60) days' written notice to the Portfolio Manager and the Fund, (b) at any time
without payment of any penalty by the Fund, by the Fund's Board of Directors or
a majority of the outstanding voting securities of each Series, upon sixty (60)
days' written notice to the Manager and the Portfolio Manager, or (c) by the
Portfolio Manager upon requisite notice, as provided below, at any time after
two years from the date of this agreement; and requisite notice for these
purposes shall be three (3) months written notice unless the Fund or the Manager
requests additional time to find a replacement for the Portfolio Manager, in
which case the Portfolio Manager shall allow the additional time requested by
the Fund or Manager shall allow the additional time requested by the Fund or
Manager not to exceed three (3) additional months beyond the initial three-month
notice period (however, in the event that such additional time is requested, the
covenant described in Section 11(b) of this agreement shall apply as if the
agreement terminates at the end of the initial three (3) month period); provided
further, however, that the Portfolio Manager may terminate this Agreement at any
time without penalty, effective upon written notice to the Manager and the Fund,
in the event either the Portfolio Manager (acting in good faith) or the Manager
ceases to be registered as an investment adviser under the Advisers Act or
otherwise becomes legally incapable of providing investment management services
pursuant to its respective contract with the Fund, or in the event the Manager
becomes bankrupt or otherwise incapable of carrying out its obligations under
this Agreement, or in the event that the Portfolio Manager does not receive
compensation for its services form the Manager or the Fund as required by the
terms of this agreement. In the event of termination for any reason, all records
of each Series for which the Agreement is terminated shall promptly be returned
to the Manager or the Fund, free from any claim or retention of rights in such
record by the Portfolio Manager, although the Portfolio Manager may, at its own
expense, make and retain a copy of such records. This Agreement shall
automatically terminate in the event of its assignment (as such term is
described in the 1940 Act). In the event this Agreement is terminated or is not
approved in the manner described above, the Sections or Paragraphs numbered
2(g), 8, 9, 10, 11(b), 12, 13 and 16 of this Agreement shall remain in effect,
as well as any applicable provision of this Section numbered 14 and, to the
extent that only amounts are owed to the Portfolio Manager as compensation for
services rendered while the agreement was in effect, Section 6.
(b) Notices.
Any notice must be in writing and shall be sufficiently given (1) when
delivered in person, (2) when dispatched by telegram or electronic facsimile
transfer (confirmed in writing by postage prepaid first class air mail
simultaneously dispatched), (3) when sent by internationally recognized
overnight courier service (with receipt confirmed by such overnight courier
service), or (4) when sent by registered or certified mail, to the other party
at the address of such party set forth below or at such other address as such
party may from time to time specify in writing to the other party.
If to the Fund:
Pilgrim America Masters Series, Inc.
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
Attention: James M. Hennessy
If to the Portfolio Manager:
Cramer Rosenthal McGlynn, LLC
520 Madison Avenue
New York, NY 10022
Attention: Gerald B. Cramer
15. Amendments. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, and no amendment of this Agreement shall be effective
until approved by an affirmative vote of (i) the holders of a majority of the
outstanding voting securities of the Series, and (ii) the Directors of the Fund,
including a majority of the Directors of the Fund who are not interested persons
of any party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval, if such approval is required by applicable
law.
16. Use of Name.
(a) It is understood that the name "Pilgrim America Investments, Inc."
or any derivative thereof (including the name "Pilgrim" and the phrase "Pilgrim
America") or logo associated with that name is the valuable property of the
Manager and/or its affiliates, and that the Portfolio Manager has the right to
use such name (or derivative or logo) only with the approval of the Manager and
only so long as the Manager is Manager to the Fund and/or the Series. Upon
termination of the Management Agreement between the Fund and the Manager, the
Portfolio Manager shall forthwith cease to use such name (or derivative or
logo).
(b) It is understood that the name "Cramer Rosenthal McGlynn, LLC" or
any derivative thereof or logo associated with that name is the valuable
property of the Portfolio Manager and its affiliates and that the Fund and/or
the Series have the right to use such name (or derivative or logo) in offering
materials of the Fund with the approval of the Portfolio Manager and for so long
as the Portfolio Manager is a portfolio manager to the Fund and/or the Series.
Upon termination of this Agreement, the Manager shall forthwith cause the Fund
to cease to use such name (or derivative or logo).
17. Miscellaneous.
(a) This Agreement shall be governed by the laws of the State of New
York, provided that nothing herein shall be construed in a manner inconsistent
with the 1940 Act, the Advisers Act or rules or orders of the SEC thereunder,
and without regard for the conflicts of laws principle thereof. The term
"affiliate" or "affiliated person" as used in this Agreement shall be
"affiliated person" as defined in Section 2(a)(3) of the 1940 Act.
(b) The Manager and the Portfolio Manager acknowledge that the Fund
enjoys the rights of a third-party beneficiary under this Agreement, and the
Manager acknowledges that the Portfolio Manager enjoys the rights of a third
party beneficiary under the Management Agreement.
(c) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(d) To the extent permitted under Section 13 of this Agreement, this
Agreement may only be assigned by any party with the prior written consent of
the other parties.
(e) If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby, and to this extent, the provisions of this
Agreement shall be deemed to be severable.
(f) Nothing herein shall be construed as constituting the Portfolio
Manager as an agent or co-partner of the Manager, or constituting the Manager as
an agent or co-partner of the Portfolio Manager.
(g) This agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first above written.
PILGRIM AMERICA INVESTMENTS, INC.
By: _________________________________
_________________________________
Title
CRAMER ROSENTHAL McGLYNN, LLC
By: _________________________________
_________________________________
Title
PILGRIM AMERICA MASTERS SERIES, INC.
Pilgrim America Masters Asia-Pacific Equity Fund
Pilgrim America Masters MidCap Value Fund
Pilgrim America Masters LargeCap Value Fund
40 N. Central Avenue, Suite 1200
Phoenix, Arizona 85004
April 7, 1998
Pilgrim America Securities, Inc.
40 N. Central Avenue, Suite 1200
Phoenix, Arizona 85004
Re: Restated Underwriting Agreement
Gentlemen:
Pilgrim America Masters Series, Inc. is a Maryland corporation
operating as an open-end management investment company (hereinafter referred to
as the "Company"). The Company is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"), and its shares are registered
under the Securities Act of 1933, as amended (the "1933 Act"). The Company
consists of three separate series: Pilgrim America Masters Asia-Pacific Equity
Fund, Pilgrim America Masters LargeCap Value Fund and Pilgrim America Masters
MidCap Value Fund (the "Funds"). The Company on behalf of the Funds desires to
offer and sell the authorized but unissued shares of the Funds to the public in
accordance with applicable federal and state securities laws.
You have informed us that your company, Pilgrim America Securities,
Inc. ("PAS"), is registered as a broker-dealer under the provisions of the
Securities Exchange Act of 1934 and that PAS is a member in good standing of the
National Association of Securities Dealers, Inc. You have indicated your desire
to act as the exclusive selling agent and principal underwriter for the shares
of the Funds. We have been authorized by the Company to execute and deliver this
Agreement to you by a resolution of our Board of Directors (the "Directors")
adopted at a meeting of the Directors, at which a majority of Directors,
including a majority of our Directors who are not otherwise interested persons
of our investment manager or its related organizations, were present and voted
in favor of the said resolution approving this Agreement.
1. Appointment of Underwriter. Upon the execution of this Agreement and
in consideration of the agreements on your part herein expressed and upon the
terms and conditions set forth herein, we hereby appoint you as the exclusive
sales agent for distribution of the shares (other than sales made directly by
the Company without sales charge) and agree that we will deliver to you such
shares as you may sell. You agree to use your best efforts to promote the sale
of the shares, but you are not obligated to sell any specific number of the
shares.
2. Independent Contractor. You will undertake and discharge your
obligations hereunder as an independent contractor and shall have no authority
or power to obligate or bind the Company or the Funds by your actions, conduct
or contracts, except that you are authorized to accept orders for the purchase
or repurchase of the shares as our agent. You may appoint sub-agents or
distribute the shares through dealers (or otherwise) as you may determine
necessary or desirable from time to time. This Agreement shall not, however, be
construed as authorizing any dealer or other person to accept orders for sale or
repurchase on our behalf or to otherwise act as our agent for any purpose.
3. Offering Price. Shares of the Funds shall be offered at a price
equivalent to their net asset value plus, as appropriate, a variable percentage
of the public offering price as a sales load, as set forth in the Funds'
Prospectus. On each business day on which the New York Stock Exchange is open
for business, we will furnish you with the net asset value of the shares, which
shall be determined and become effective as of the close of business of the New
York Stock Exchange on that day. The net asset value so determined shall apply
to all orders for the purchase of the shares received by dealers prior to such
determination, and you are authorized in your capacity as our agent to accept
orders and confirm sales at such net asset value; provided that, such dealers
notify you of the time when they received the particular order and that the
order is placed with you prior to your close of business on the day on which the
applicable net asset value is determined. To the extent that our Shareholder
Servicing and Transfer Agent (collectively, "Agent") and the Custodian(s) for
any pension, profit-sharing, employer or self-employed plan receive payments on
behalf of the investors, such Agent and Custodian(s) shall be required to record
the time of such receipt with respect to each payment, and the applicable net
asset value shall be that which is next determined and effective after the time
of receipt by them. In all events, you shall forthwith notify all of the dealers
comprising your selling group and the Agent and Custodian(s) of the effective
net asset value as received from us. Should we at any time calculate our net
asset value more frequently than once each business day, you and we will follow
procedures with respect to such additional price or prices comparable to those
set forth above in this Section 3.
4. Sales Commission. (a) You shall be entitled to receive a sales
commission on the sale of shares of the Funds in the amounts and according to
the procedures set forth in the Funds' Prospectus then in effect under the 1933
Act (including any supplements or amendments thereto).
(b) In addition to the payments of the sales commissions to you
provided for in paragraph 4(a), you may also receive reimbursement for expenses
or a maintenance or trail fee as may be required by and described in the
distribution plans adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act
(the "Distribution Plan").
(c) You may allow appointed sub-agents or dealers such commissions or
discounts (not exceeding the total sales commission) as you shall deem
advisable, so long as any such commissions or discounts are set forth in the
Fund's then current Prospectus, to the extent required by the applicable federal
and state securities laws.
5. Payment of Shares. At or prior to the time of delivery of any of our
shares you will pay or cause to be paid to the Custodian, for our account, an
amount in cash equal to the net asset value of such shares. In the event that
you pay for shares sold by you prior to your receipt of payment from purchasers,
you are authorized to reimburse yourself for the net asset value of such shares
from the offering price of such shares when received by you.
6. Registration of Shares. No shares shall be registered on our books
until (i) receipt by us of your written request therefor; (ii) receipt by the
Custodian and Agent of a certificate signed by an officer of the Company stating
the amount to be received therefor; and (iii) receipt of payment of that amount
by the Custodian. We will provide for the recording of all shares purchased in
unissued form in "book accounts", unless a request in writing for certificates
is received by the Agent, in which case certificates for shares in such names
and amounts as is specified in such writing will be delivered by the Agent, as
soon as practicable after registration thereof on the books.
7. Purchases for Your Own Account. You shall not purchase shares for
your own account for purposes of resale to the public, but you may purchase
shares for your own investment account upon your written assurance that the
purchase is for investment purposes only and that the shares will not be resold
except through redemption by us.
8. Sale of Shares to Affiliates. You may sell the Class A and Class M
shares at net asset value, without a sales charge as appropriate, pursuant to a
uniform offer described in the Fund's current Prospectus (i) to our Directors
and officers, our investment manager or your company or affiliated companies
thereof, (ii) to the bona fide, full time employees or sales representatives of
any of the foregoing who have acted as such for at least ninety (90) days, (iii)
to any trust, pension, profit-sharing, or other benefit plan for such persons,
or (iv) to any other person set forth in the Funds' then current Prospectus;
provided that such sales are made in accordance with the rules and regulations
under the 1940 Act and that such sales are made upon the written assurance of
the purchaser that the purchases are made for investment purposes only, not for
the purpose of resale to the public and that the shares will not be resold
except through redemption by us.
9. Allocation of Expenses.
(a) We will pay the following expenses in connection with the sales
and distribution of shares of the Funds:
(i) expenses pertaining to the preparation of our audited and
certified financial statements to be included in any amendments
("Amendments") to our Registration Statement under the 1933 Act,
including the Prospectuses and Statements of Additional Information
included therein;
(ii) expenses pertaining to the preparation (including legal
fees) and printing of all Amendments or supplements filed with the
Securities and Exchange Commission, including the copies of the
Prospectuses and Statements of Additional Information included in such
Amendments and the first ten (10) copies of the definitive
Prospectuses and Statements of Additional Information or supplements
thereto, other than those necessitated by or related to your
(including your "Parents") activities where such amendments or
supplements result in expenses which we would not otherwise have
incurred;
(iii) expenses pertaining to the preparation, printing, and
distribution of any reports or communications, including Prospectuses
and Statements of Additional Information, which are sent to our
existing shareholders;
(iv) filing and other fees to federal and state securities
regulatory authorities necessary to register and maintain registration
of the shares; and
(v) expenses of the Agent, including all costs and expenses in
connection with the issuance, transfer and registration of the shares,
including but not limited to any taxes and other governmental charges
in connection therewith.
(b) Except to the extent that you are entitled to reimbursement under
the provisions of any of the Distribution Plans for the Funds, you
will pay the following expenses:
(i) expenses of printing additional copies of the Prospectus and
Statement of Additional Information and any amendments or supplements
thereto which are necessary to continue to offer our shares to the
public;
(ii) expenses pertaining to the preparation (excluding legal
fees) and printing of all amendments and supplements to our
Registration Statement if the Amendment or supplement arises from or
is necessitated by or related to your (including your "Parent")
activities where those expenses would not otherwise have been incurred
by us; and
(iii) expenses pertaining to the printing of additional copies,
for use by you as sales literature, of reports or other communications
which have been prepared for distribution to our existing shareholders
or incurred by you in advertising, promoting and selling our shares to
the public.
10. Furnishing of Information. We will furnish to you such information
with respect to our company and its shares, in such form and signed by such of
our officers as you may reasonably request, and we warrant that the statements
therein contained when so signed will be true and correct. We will also furnish
you with such information and will take such action as you may reasonably
request in order to qualify our shares for sale to the public under the Blue Sky
Laws or in jurisdictions in which you may wish to offer them. We will furnish
you at least annually with audited financial statements of our books and
accounts certified by independent public accountants, and with such additional
information regarding our financial condition, as you may reasonably request
from time to time.
11. Conduct of Business. Other than the currently effective Prospectus
and Statement of Additional Information, you will not issue any sales material
or statements except literature or advertising which conforms to the
requirements of federal and state securities laws and regulations and which have
been filed, where necessary, with the appropriate regulatory authorities. You
will furnish us with copies of all such material prior to their use and no such
material shall be published if we shall reasonably and promptly object.
You shall comply with the applicable federal and state laws and
regulations where our shares are offered for sale and conduct your affairs with
us and with dealers, brokers or investors in accordance with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.
12. Redemption or Repurchase within Seven Days. If shares are tendered
to us for redemption or are repurchased by us within seven (7) business days
after your acceptance of the original purchase order for such shares, you will
immediately refund to us the full amount of any sales commission (net of
allowances to dealers or brokers) allowed to you on the original sale, and will
promptly, upon receipt thereof, pay to us any refunds from dealers or brokers of
the balance of sales commissions reallowed by you. We shall notify you of such
tender for redemption within ten (10) days of the day on which notice of such
tender for redemption is received by us.
13. Other Activities. Your services pursuant to this Agreement shall
not be deemed to be exclusive, and you may render similar services and act as an
underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. Term of Agreement. This Agreement shall remain in effect until
April 7, 1999, and shall continue annually thereafter for successive one (1)
year periods if approved at least annually (i) by a vote of a majority of the
outstanding voting securities of the Funds or by a vote of the Directors of the
Company, and (ii) by a vote of a majority of the Directors of the Company who
are not interested persons or parties to this Agreement (other than as Directors
of the Company), cast in person at a meeting called for the purpose of voting on
this Agreement.
15. Termination. This Agreement: (i) may be terminated at any time
without the payment of any penalty, either by vote of the Directors of the
Company or by a vote of a majority of the outstanding voting securities of each
Fund, on sixty (60) days' written notice to you; (ii) shall terminate
immediately in the event of its assignment; and (iii) may be terminated by you
on sixty (60) days' written notice to us.
16. Suspension of Sales. We reserve the right at all times to suspend
or limit the public offering of the shares upon written notice to you, and to
reject any order in whole or in part.
17. Miscellaneous. This Agreement shall be subject to the laws of the
State of Maryland and shall be interpreted and construed to further and promote
the operation of the Company as an open-end investment company. As used herein,
the terms "Net Asset Value," "Offering Price," "Investment Company," "Open-End
Investment Company," "Assignment," "Principal Underwriter," "Interested Person,"
"Parents," and "Majority of the Outstanding Voting Securities," shall have the
meanings set forth in the 1933 Act and the 1940 Act, as applicable, and the
rules and regulations promulgated thereunder.
18. Liability. Nothing contained herein shall be deemed to protect you
against any liability to us or to our shareholders to which you would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of your duties hereunder, or by reason of your reckless
disregard of your obligations and duties hereunder.
If the foregoing meets with your approval, please acknowledge your
acceptance by signing each of the enclosed counterparts hereof and returning
such counterparts to us, whereupon this shall constitute a binding agreement as
of the date first above written.
Very truly yours,
PILGRIM AMERICA MASTERS SERIES, INC.
(on behalf of Pilgrim America Masters Asia
Pacific Equity Fund, Pilgrim America Masters
MidCap Value Fund and Pilgrim America Masters
LargeCap Value Fund)
By: ___________________________________
Title: ___________________________________
Agreed to and Accepted:
PILGRIM AMERICA SECURITIES, INC.
By: ______________________________
Title: ______________________________
SUPPLEMENT TO
UNDERWRITING AGREEMENT
Pilgrim America Masters Series, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
August 7, 1998
Pilgrim America Securities, Inc.
40 North Central Avenue
Phoenix, Arizona 85004
Re: Strategic Income Fund
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company") and
Pilgrim America Securities, Inc. (the "Distributor") as follows:
1. This Company is an open-end investment company organized as a Maryland
corporation, and consisting of such investment portfolios as have been or
may be established by the Directors of the Company from time to time. A
separate series of shares of common stock of the Company is offered to
investors with respect to each investment portfolio. The Strategic Income
Fund (the "Fund") is a separate investment portfolio of the Company.
2. The Company and the Distributor hare parties to a Restated Underwriting
Agreement ("Agreement") dated April 7, 1998 pursuant to which the Company
has appointed the Distributor as exclusive sales agent for distribution of
shares of the Company, and the Distributor has accepted such appointment.
3. The Company and the Distributor hereby adopt the Agreement with respect to
the Fund, and acknowledge that the terms and conditions of such employment
will be governed by the Agreement, which is hereby incorporated herein by
reference.
4. This Supplement and the Agreement shall become effective with respect to
the Fund on August 14, 1998 and shall continue in effect with respect to
the Fund after April 1, 1999 only so long as the continuance is
specifically approved at least annually (a) by the vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the Fund
or by the Company's Board of Directors and (b) by the vote, cast in person
at a meeting called for the purpose, of a majority of the Company's
Directors who are not parties to the Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Agreement may be terminated
with respect to the Fund at any time, without the payment of any penalty,
by a vote of a majority of the outstanding voting securities (as defined in
the 1940 Act) of the Fund or by a vote of a majority of the Company's
entire Board of Directors on 60 days' written notice to the Distributor or
by the Distributor on 60 days' written notice to the Company. The Agreement
shall terminate automatically in the event of its assignment (as defined in
the 1940 Act).
If the foregoing correctly sets forth the agreement between the Company and
the Distributor, please so indicate by signing and returning to the Company the
enclosed copy hereof
Very truly yours,
PILGRIM AMERICA MASTERS SERIES, INC.
By:________________________________
Title:
ACCEPTED:
PILGRIM AMERICA SECURITIES, INC.
By:________________________________
Title:
Pilgrim America Securities, Inc. Return to:
Restatement: July 17, 1996 Two Renaissance Square
40 N. Central Ave., Ste 1200
Phoenix, AZ 85004-4424
(602) 417-8100 or (800) 334-3444
Selling Group Agreement
Selling Agents Copy
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Broker/Dealer:
As Principal Underwriter and exclusive Selling Agent for each of the investment
companies in the Pilgrim America Securities, Inc. group of funds, listed on
Appendix "A" hereto and referred to collectively as the "Funds" or individually
as the "Fund", we understand that you are a member of the National Association
of Securities Dealers, Inc., and, on the basis of such understanding, invite you
to become a member of the Selling Group to distribute the shares of the Funds on
the following terms.
1. N.A.S.D. Rules: Reference is hereby specifically made to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.(the "N.A.S.D.
Rules"), which incorporated herein as if set forth in full. It is agreed that
all of the requirements of said rules and all other rules or regulations that
are now or may become applicable to transactions hereunder, including state
"blue sky" laws, will be fully met.
- --------------------------------------------------------------------------------
2. Orders: An order for shares of any Fund received from you will be confirmed
only at the appropriate offering price applicable to that order, as described in
such Fund's then current Prospectus. The procedure relating to orders and the
handling thereof will be subject to instructions released by us from time to
time. Orders should be transmitted to our office or other offices authorized by
us for this purpose. The dealer or his/her customer may, however, mail a
completed application with a check payable to the Fund directly to the Fund's
shareholder servicing agent for transmission to the Fund's office in Phoenix,
Arizona. All orders are subject to acceptance in Phoenix, Arizona, and we as
agent for the Funds reserve the right in our sole discretion to reject any
order. The minimum initial investment for each Fund is set forth in its then
current Prospectus.
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3. Concessions:
(a) Any sales charges and dealers' concessions will be as set forth in the
current Prospectus of each Fund.
(b) Where payment is due hereunder, we agree to send payment for dealers'
concessions and Plan payments to your address as it appears on our records. You
must notify us of address changes and promptly negotiate such payments. Any such
payments that remain outstanding for 12 months shall be void and the obligation
represented thereby shall be extinguished.
(c) With respect to Funds which impose a Contingent Deferred Sales Charge
("CDSC"), we agree to compensate selling firms at a specified rate as disclosed
in each Fund's current prospectus on purchase payments only for those shares
which are subject to the CDSC at the time of investment.
(d) We reserve the right to reclaim any commission payment from a broker/dealer
if we later determine the CDSC waiver applied at the time of investment.
(e) We reserve the right to modify the CDSC waiver at any time. We will promptly
notify each member of the Selling Group of any modification thereto.
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4. Remittance: Remittance by dealers should be made by check or wire, payable to
the appropriate Fund (not to us) and sent to the Fund's servicing agent. Stock
certificates, if the Fund has a policy of issuing them and where specifically
requested, will be delivered only after checks have cleared. Payments must be
received promptly pursuant to Article III, Section 26 (m) of the N.A.S.D. Rules,
otherwise the right is reserved, without notice, to cancel the sale, in which
event you will be held responsible for any loss to the Fund, or to us, including
loss of profit resulting from your failure to make payment.
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5. Selling Group Activities: In addition to purchasing shares of any Fund
through us as Selling Agent, you shall purchase such shares only from your
customers, in which case you shall pay the applicable net asset value determined
in accordance with the Fund's then current Prospectus and Statement of
Additional Information, less any applicable CDSC, if the Fund imposes a CDSC.
(a) Shares of any Fund may be liquidated by sale thereof to such Fund or to us
as Agent for such Fund at the applicable net asset value, less any applicable
CDSC, determined in the manner described in its then current Prospectus and
Statement of Additional Information. All certificates for shares repurchased
must be delivered to us as Agent for the Fund upon settlement. If delivery is
not made within ten (10) days from the date of the transaction, the right is
reserved, without notice, to cancel the transaction, in which event you will be
held responsible for any loss to the Fund, or to us, including loss of profit
resulting from your failure to make payment.
(b) In no event shall you withhold placing orders so as to profit from such
withholding by a change in the net asset value from that used in determining the
price to your customer, or otherwise. You shall make no purchases except for the
purpose of covering orders received by you and then such purchases must be made
only at the applicable offering price (less your concession), or at the net
asset value price of a Fund which imposes a CDSC, provided, however, that the
foregoing does not prevent the purchase of shares by you for your own bonafide
investment. All sales to your customers shall be at the applicable offering
prices determined in accordance with the Fund's then current Prospectus.
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6. Refund of Sales Charge: If the shares of any Fund confirmed to you hereunder
are repurchased by such Fund, or by us as Agent for such Fund, or are tendered
for liquidation to such Fund, within seven (7) business days after such
confirmation of your original order, then you shall forthwith repay to such Fund
the full concession allowed to you on such sale and we shall forthwith repay to
such Fund our share of the sales charge thereon. We shall notify you of such
repurchase or redemption within ten (10) days from the day on which the
certificate or redemption order is delivered to us or to such Fund.
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7. Representations: No person is authorized to make any representation relating
to the shares of any Fund, except those contained in its then current Prospectus
and Statement of Additional Information which you agree to deliver to investors
in accordance with applicable regulations and in such information as we may
issue as Supplemental Information to such Prospectus and Statement of Additional
Information. In ordering shares of any Fund you shall rely solely and
conclusively on the representations contained in its then current Prospectus,
Statement of Additional Information, and Supplemental Information, if any,
additional copies of which are and will be available on request. In no
transaction shall you have any authority whatever to act as agent for any Fund,
or for us, or for any other distributor, and nothing in this Agreement shall
constitute either of us the agent of the other, or shall constitute you or any
Fund the agent of the other.
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8. Modification and Termination: We reserve the right, in our discretion and
without notice to you or to any distributor, to suspend sales, to withdraw any
offering, to change the offering prices or to modify or cancel this Agreement
(including the provision for Plan payments described in Section 3) which shall
be construed in accordance with the laws of the State of Arizona. This agreement
may be canceled at any time by you upon thirty (30) days written notice.
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9. Investors Account Instructions: If an investor's account is established
without the investor signing the application form, the dealer represents that
the instructions relating to the registration (including the investor's tax
identification number) and selected options furnished to the Fund (whether on
the application form, in some other document, or orally) are in accordance with
the investor's instructions, and the dealer agrees to indemnify the Fund, its
transfer agent, shareholder servicing agent, and us for any loss or liability
resulting from acting upon such instructions. We agree to hold harmless and
indemnify you for any loss or liability arising out of our negligence in
processing such instructions.
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10. Acceptance of Terms: If the foregoing completely expresses the terms of the
Agreement between us, please so signify by executing, in the space provided, the
annexed duplicate of this Agreement and return it to us, retaining the original
copy for your own files. This Agreement shall become effective upon the earlier
of our receipt of a signed copy hereof or the first order placed by you for any
of the Fund's shares, which order shall constitute acceptance of this Agreement.
This Agreement shall supersede all prior Selling Group Agreements relating to
the shares of any of the Funds. All amendments to this Agreement, including any
changes made pursuant to Appendix "A" shall take effect as of the date or the
first order placed by you for any of the Funds shares after the date set forth
in the notice of amendment sent to you by the undersigned.
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Dealer's Acceptance
_______________________________ Pilgrim America Securities, Inc.
Firm Name
_______________________________
Address
_______________________________
_______________________________
Phone Number
By___________________________
By_____________________________
Authorized Officer Signature
By_____________________________
Authorized Officer Name &
Title--Please Print
Date___________________19____
<PAGE>
APPENDIX "A"
TO SELLING GROUP AGREEMENT
PILGRIM AMERICA GROUP OF FUNDS
NASDAQ
FUND CUSIP # SYMBOL
PILGRIM AMERICA MAGNACAP FUND
CLASS A 720901 10 7 PMCFX
CLASS B 720901 20 6 PMGBX
CLASS M 720901 30 5 PMCMX
PILGRIM AMERICA HIGH YIELD FUND
CLASS A 720901 40 4 PIHYX
CLASS B 720901 50 3 PIHBX
CLASS M 720901 60 2 PIHMX
PILGRIM GOVERNMENT SECURITIES INCOME FUND
CLASS A 720902 10 5 PGMAX
CLASS B 720902 20 4 PGBMX
CLASS M 720902 30 3 PGMMX
PILGRIM AMERICA MASTERS ASIA PACIFIC EQUITY FUND
CLASS A 721429 10 8 PMAAX
CLASS B 721429 20 7 PMBBX
CLASS M 721429 30 6 PMAMX
PILGRIM AMERICA MASTERS MIDCAP VALUE FUND
CLASS A 721429 40 5 PMVAX
CLASS B 721429 50 4 PMVBX
CLASS M 721429 60 3 PMVMX
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
CLASS A 721429 70 2 PLVAX
CLASS B 721429 80 1 PLVBX
CLASS M 721429 88 4 PLVMX
PILGRIM AMERICA BANK AND THRIFT FUND
(effective October 20, 1997)
CLASS A 720904101 PBTAX
CLASS B 720904200 PBTBX
PILGRIM AMERICA GENERAL MONEY MARKET SHARES
220714 50 5 *
* TO BE ANNOUNCED
Pilgrim America Securities, Inc. Return to:
Two Renaissance Square
40 N. Central Ave., Ste. 1200
Phoenix, AZ 85004-4424
(602) 417-8100 or (800) 334-3444
Service Agreement
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Broker/Dealer:
This Service Agreement is entered into with respect to the Pilgrim America Group
of Funds (each a "Fund" and, collectively, the "Funds"), as identified on
Schedule "A" attached hereto.
1. To the extent you provide services and assistance to your customers who own
Fund shares, including, but not limited to, answering routine inquires regarding
the Fund, assisting in changing dividend options, account designations and
addresses, we shall pay you a service fee prorated and paid quarterly after the
required period of investment based, as reflected on Schedule A, on the average
net asset value of shares of the Fund which are attributable to customers of
your firm.
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2. In no event may the aggregate annual service fee paid to you exceed .25% of
the average daily net asset value of the net assets of the Fund held in your
customers' accounts which are eligible for payment pursuant to this Agreement.
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3. You shall furnish us and the Fund with information as shall reasonably be
requested by the Fund's Board of Directors with respect to the service fees paid
to you pursuant to the Schedule.
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4. This Agreement will terminate automatically by any act that terminates the
Funds' Service and Distribution Plans, and will terminate automatically in the
event of the assignment of this Agreement.
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5. The provisions of the Underwriting Agreement between the Fund and us, insofar
as they relate to the Funds' Service and Distribution Plans, are incorporated
herein by reference.
- --------------------------------------------------------------------------------
This Agreement shall take effect on the _______ day of ________________, 19___,
and the terms and provisions thereof are hereby accepted and agreed to by us and
evidenced by our executions hereof.
Dealer's Acceptance Pilgrim America Securities, Inc.
__________________________________ By ___________________________
Firm Name
By________________________________
Authorized Officer Signature
By________________________________
Authorized Officer
Name & Title-Please Print
CUSTODY AGREEMENT
THIS AGREEMENT dated as of the 14th day of June, 1995 is made by and
between INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under the
laws of the state of Missouri, having its trust office located at 127 West 10th
Street, Kansas City, Missouri 64105 ("Custodian"), and PILGRIM AMERICA MASTERS
SERIES, INC., a Maryland corporation, having its principal office and place of
business at Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004.
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
Custodian of the securities and monies of the investment portfolio of each
series of Fund (each a "Portfolio"); and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for and in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN. Fund hereby constitutes and appoints Custodian as
custodian of the securities and monies at any time owned by the Fund,
including all existing and future Portfolios.
2. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets
Except as permitted by the Investment Company Act of 1940, Fund will
deliver or cause to be delivered to Custodian all portfolio securities
acquired by it and monies owned by it during the time this Agreement
shall continue in effect. Custodian shall have no responsibility or
liability whatsoever for or on account of securities or monies not so
delivered. All securities so delivered to Custodian (other than bearer
securities) shall be registered in the name of Fund or its nominee, or
of a nominee of Custodian, or shall be properly endorsed and in form
for transfer satisfactory to Custodian.
B. Delivery of Accounts and Records
Fund shall turn over to Custodian all of the Fund's relevant accounts
and records previously maintained by it. Custodian shall be entitled
to rely conclusively on the completeness and correctness of the
accounts and records turned over to it by Fund, and Fund shall
indemnify and hold Custodian harmless of and from any and all
expenses, damages and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other deficiency of
such accounts and records or in the failure of Fund to provide any
portion of such or to provide in a timely manner any other information
needed by the Custodian knowledgeably to perform its function
hereunder.
C. Delivery of Assets to Third Parties
Custodian will receive delivery of and keep safely the assets of each
Portfolio delivered to it from time to time segregated in a separate
account. Custodian will not deliver, assign, pledge or hypothecate any
such assets to any person except as permitted by the provisions of
this Agreement or any agreement executed by it according to the terms
of Section 2.S. of this Agreement. Upon delivery of any such assets to
a subcustodian pursuant to Section 2.S. of this agreement, Custodian
will create and maintain records identifying those assets which have
been delivered to the subcustodian as belonging to the applicable
Portfolio. The Custodian is responsible for the securities and monies
of Fund only until they have been transmitted to and received by other
persons as permitted under the terms of this Agreement, except for
securities and monies transmitted to subcustodians appointed under
Section 2.S. of this Agreement, for which Custodian remains
responsible to the extent provided in Section 2.S. of this Agreement.
Custodian may participate directly or indirectly through a
subcustodian in the Depository Trust Company, Treasury/Federal Reserve
Book Entry System or Participant Trust Company (PTC) or other
depository approved by the Fund (as such entities are defined at 17
CFR Section 270.17f-4(b)) (each a "Depository" and collectively the
"Depositories").
D. Registration of Securities
The Custodian shall at all times hold registered securities of the
Fund in the name of the Custodian, the Fund, or a nominee of either of
them, unless specifically directed by instructions to hold such
registered securities in so-called "street name," provided that, in
any event, all such securities and other assets shall be held in an
account of the Custodian containing only assets of the Fund, or only
assets held by the Custodian as a fiduciary or custodian for
customers, and provided further, that the records of the Custodian at
all times shall indicate the Fund or other customer for which such
securities and other assets are held in such account and the
respective interests therein. If, however, the Fund directs the
Custodian to maintain securities in "street name", notwithstanding
anything contained herein to the contrary, the Custodian shall be
obligated only to utilize its best efforts to timely collect income
due the Fund on such securities and to notify the Fund of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers. All securities, and the
ownership thereof by Fund, which are held by Custodian hereunder,
however, shall at all times be identifiable on the records of the
Custodian. The Fund agrees to hold Custodian and its nominee harmless
for any liability as a record holder of securities held in custody.
E. Exchange of Securities
Upon receipt of instructions as defined herein in Section 3.A,
Custodian will exchange, or cause to be exchanged, portfolio
securities held by it for the account of Fund for other securities or
cash issued or paid in connection with any reorganization,
recapitalization, merger, consolidation, split-up of shares, change of
par value, conversion or otherwise, and will deposit any such
securities in accordance with the terms of any reorganization or
protective plan. Without instructions, Custodian is authorized to
exchange securities held by it in temporary form for securities in
definitive form, to effect an exchange of shares when the par value of
the stock is changed, and upon receiving payment therefor, to
surrender bonds or other securities held by it at maturity or when
advised of earlier call for redemption, except that Custodian shall
receive instructions prior to surrendering any convertible security.
F. Purchases of Investments of the Fund
Fund will, on each business day on which a purchase of securities
shall be made by it, deliver to Custodian instructions which shall
specify with respect to each such purchase:
1. The name of the Portfolio of the Fund making such purchase;
2. The name of the issuer and description of the security;
3. The number of shares or the principal amount purchased, and
accrued interest, if any;
4. The trade date;
5. The settlement date;
6. The purchase price per unit and the brokerage commission, taxes
and other expenses payable in connection with the purchase;
7. The total amount payable upon such purchase; and
8. The name of the person from whom or the broker or dealer through
whom the purchase was made.
In accordance with such instructions, Custodian will pay for out of
monies held for the account of Fund, but only insofar as monies are
available therein for such purpose, and receive the portfolio
securities so purchased by or for the account of Fund except that
Custodian may in its sole discretion advance funds to the Fund which
may result in an overdraft because the monies held by the Custodian on
behalf of the Fund are insufficient to pay the total amount payable
upon such purchase. Except as otherwise instructed by Fund, such
payment shall be made by the Custodian only upon receipt of
securities: (a) by the Custodian; (b) by a clearing corporation of a
national exchange of which the Custodian is a member; or (c) by a
Depository. Notwithstanding the foregoing, (i) in the case of a
repurchase agreement, the Custodian may release funds to a Depository
prior to the receipt of advice from the Depository that the securities
underlying such repurchase agreement have been transferred by
book-entry into the account maintained with such Depository by the
Custodian, on behalf of its customers, provided that the Custodian's
instructions to the Depository require that the Depository make
payment of such funds only upon transfer by book-entry of the
securities underlying the repurchase agreement in such account; (ii)
in the case of time deposits, call account deposits, currency deposits
and other deposits, foreign exchange transactions, futures contracts
or options, the Custodian may make payment therefor before receipt of
an advice or confirmation evidencing said deposit or entry into such
transaction; and (iii) in the case of the purchase of securities, the
settlement of which occurs outside of the United States of America,
the Custodian may make, or cause a subcustodian appointed pursuant to
Section 2.S.2. of this Agreement to make, payment therefor in
accordance with generally accepted local custom and market practice.
G. Sales and Deliveries of Investments of the Fund - Other than Options
and Futures Fund will, on each business day on which a sale of
investment securities of Fund has been made, deliver to Custodian
instructions specifying with respect to each such sale:
1. The name of the Portfolio of the Fund making such sale;
2. The name of the issuer and description of the securities;
3. The number of shares or principal amount sold, and accrued
interest, if any;
4. The date on which the securities sold were purchased or other
information identifying the securities sold and to be delivered;
5. The trade date;
6. The settlement date;
7. The sale price per unit and the brokerage commission, taxes or
other expenses payable in connection with such sale;
8. The total amount to be received by Fund upon such sale; and
9. The name and address of the broker or dealer through whom or
person to whom the sale was made.
In accordance with such instructions, Custodian will deliver or cause
to be delivered the securities thus designated as sold for the account
of Fund to the broker or other person specified in the instructions
relating to such sale. Except as otherwise instructed by Fund, such
delivery shall be made upon receipt of payment therefor: (a) in such
form as is satisfactory to the Custodian; (b) credit to the account of
the Custodian with a clearing corporation of a national securities
exchange of which the Custodian is a member; or (c) credit to the
account of the Custodian, on behalf of its customers, with a
Depository. Notwithstanding the foregoing: (i) in the case of
securities held in physical form, such securities shall be delivered
in accordance with "street delivery custom" to a broker or its
clearing agent; or (ii) in the case of the sale of securities, the
settlement of which occurs outside of the United States of America,
the Custodian may make, or cause a subcustodian appointed pursuant to
Section 2.S.2. of this Agreement to make, payment therefor in
accordance with generally accepted local custom and market practice.
H. Purchases or Sales of Security Options, Options on Indices and
Security Index Futures Contracts
Fund will, on each business day on which a purchase or sale of the
following options and/or futures shall be made by it, deliver to
Custodian instructions which shall specify with respect to each such
purchase or sale:
1. The name of the Portfolio of the Fund making such purchase or
sale;
2. Security Options
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening, exercising, expiring
or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased;
i. Market on which option traded;
j. Name and address of the broker or dealer through whom the
sale or purchase was made.
3. Options on Indices
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening, exercising, expiring
or closing transaction;
h. Whether the transaction involves a put or call;
i. Whether the option is written or purchased;
j. The name and address of the broker or dealer through whom
the sale or purchase was made, or other applicable
settlement instructions.
4. Security Index Futures Contracts
a. The last trading date specified in the contract and, when
available, the closing level, thereof;
b. The index level on the date the contract is entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in addition to
instructions, and if not already in the possession of
Custodian, Fund shall deliver a substantially complete and
executed custodial safekeeping account and procedural
agreement which shall be incorporated by reference into this
Custody Agreement); and
f. The name and address of the futures commission merchant
through whom the sale or purchase was made, or other
applicable settlement instructions.
5. Option on Index Future Contracts
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening, exercising,
expiring or closing transaction;
g. Whether the transaction involves a put or call;
h. Whether the option is written or purchased; and
i. The market on which the option is traded.
I. Securities Pledged or Loaned
If specifically allowed for in the prospectus of Fund:
1. Upon receipt of instructions, Custodian will release or cause to
be released securities held in custody to the pledgee designated
in such instructions by way of pledge or hypothecation to secure
any loan incurred by Fund; provided, however, that the securities
shall be released only upon payment to Custodian of the monies
borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, further securities
may be released or caused to be released for that purpose upon
receipt of instructions. Upon receipt of instructions, Custodian
will pay, but only from funds available for such purpose, any
such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes
evidencing such loan.
2. Upon receipt of instructions, Custodian will release securities
held in custody to the borrower designated in such instructions;
provided, however, that the securities will be released only upon
deposit with Custodian of full cash collateral as specified in
such instructions, and that Fund will retain the right to any
dividends, interest or distribution on such loaned securities.
Upon receipt of instructions and the loaned securities, Custodian
will release the cash collateral to the borrower.
J. Routine Matters
Custodian will, in general, attend to all routine and mechanical
matters in connection with the sale, exchange, substitution, purchase,
transfer, or other dealings with securities or other property of Fund
except as may be otherwise provided in this Agreement or directed from
time to time by the Fund in writing.
K. Deposit Account
Custodian will open and maintain one or more special purpose deposit
accounts in the name of Custodian ("Accounts"), subject only to draft
or order by Custodian upon receipt of instructions. All monies
received by Custodian from or for the account of a Portfolio shall be
deposited in said Account of the applicable Portfolio. Barring events
not in the control of the Custodian such as strikes, lockouts or labor
disputes, riots, war or equipment or transmission failure or damage,
fire, flood, earthquake or other natural disaster, action or inaction
of governmental authority or other causes beyond its control, at 9:00
a.m., Kansas City time, on the second business day after deposit of
any check into Fund's Account, Custodian agrees to make Fed Funds
available to the Fund in the amount of the check. Deposits made by
Federal Reserve wire will be available to the Fund immediately and ACH
wires will be available to the Fund on the next business day. Income
earned on the portfolio securities will be credited to the applicable
Portfolio of the Fund based on the schedule attached as Exhibit A. The
Custodian will be entitled to reverse any credited amounts where
credits have been made and monies are not finally collected. If monies
are collected after such reversal, the Custodian will credit the
applicable Portfolio in that amount. Custodian may open and maintain
Accounts in such banks or trust companies as may be designated by it
or by properly authorized resolution of the governing Board of the
Fund, such Account, however, to be in the name of Custodian and
subject only to its draft or order.
L. Income and other Payments to Fund Custodian will:
1. Collect, claim and receive and deposit for the account of Fund
all income and other payments which become due and payable on or
after the effective date of this Agreement with respect to the
securities deposited under this Agreement, and credit the account
of Fund in accordance with the schedule attached hereto as
Exhibit A. If for any reason, the Fund is credited with income
that is not subsequently collected, Custodian may reverse that
credited amount;
2. Execute ownership and other certificates and affidavits for all
federal, state and local tax purposes in connection with the
collection of bond and note coupons; and
3. Take such other action as may be necessary or proper in
connection with:
a. the collection, receipt and deposit of such income and other
payments, including but not limited to the presentation for
payment of:
1. all coupons and other income items requiring
presentation; and
2. all other securities which may mature or be called,
redeemed, retired or otherwise become payable and
regarding which the Custodian has actual knowledge, or
should reasonably be expected to have knowledge; and
b. the endorsement for collection, in the name of Fund, of all
checks, drafts or other negotiable instruments.
Custodian, however, will not be required to institute suit or
take other extraordinary action to enforce collection except upon
receipt of instructions and upon being indemnified to its
satisfaction against the costs and expenses of such suit or other
actions. Custodian will receive, claim and collect all stock
dividends, rights and other similar items and will deal with the
same pursuant to instructions.
M. Payment of Dividends and other Distributions
On the declaration of any dividend or other distribution on the shares
of the Fund ("Fund Shares") by the governing Board of the Fund, Fund
shall deliver to Custodian instructions with respect thereto. On the
date specified in such instructions for the payment of such dividend
or other distribution, Custodian will pay out of the monies held for
the account of Fund, insofar as the same shall be available for such
purposes, and credit to the account of the Dividend Disbursing Agent
for Fund, such amount as may be specified in such instructions.
N. Shares of Fund Purchased by Fund
Whenever any Fund Shares are repurchased or redeemed by Fund, Fund or
its agent shall advise Custodian of the aggregate dollar amount to be
paid for such shares and shall confirm such advice in writing. Upon
receipt of such advice, Custodian shall charge such aggregate dollar
amount to the account of Fund and either deposit the same in the
account maintained for the purpose of paying for the repurchase or
redemption of Fund Shares or deliver the same in accordance with such
advice. Custodian shall not have any duty or responsibility to
determine that Fund Shares have been removed from the proper
shareholder account or accounts or that the proper number of such
shares have been cancelled and removed from the shareholder records.
O. Shares of Fund Purchased from Fund
Whenever Fund Shares are purchased from Fund, Fund will deposit or
cause to be deposited with Custodian the amount received for such
shares. Custodian shall not have any duty or responsibility to
determine that Fund Shares purchased from Fund have been added to the
proper shareholder account or accounts or that the proper number of
such shares have been added to the shareholder records.
P. Proxies and Notices
Custodian will promptly deliver or mail or have delivered or mailed to
Fund all proxies properly signed, all notices of meetings, all proxy
statements and other notices, requests or announcements affecting or
relating to securities held by Custodian for Fund and will, upon
receipt of instructions, execute and deliver or cause its nominee to
execute and deliver or mail or have delivered or mailed such proxies
or other authorizations as may be required. Except as provided by this
Agreement or pursuant to instructions hereafter received by Custodian,
neither it nor its nominee will exercise any power inherent in any
such securities, including any power to vote the same, or execute any
proxy, power of attorney, or other similar instrument voting any of
such securities, or give any consent, approval or waiver with respect
thereto, or take any other similar action.
Q. Disbursements
Custodian will pay or cause to be paid insofar as funds are available
for the purpose, bills, statements and other obligations of Fund
(including but not limited to obligations in connection with the
conversion, exchange or surrender of securities owned by Fund,
interest charges, dividend disbursements, taxes, management fees,
custodian fees, legal fees, auditors' fees, transfer agents' fees,
brokerage commissions, compensation to personnel, and other operating
expenses of Fund) pursuant to instructions of Fund setting forth the
name of the person to whom payment is to be made, the amount of the
payment, and the purpose of the payment.
R. Daily Statement of Accounts
Custodian will, within a reasonable time, render to Fund as of the
close of business on each day, a detailed statement of the amounts
received or paid and of securities received or delivered for the
account of Fund during said day. Custodian will, from time to time,
upon request by Fund, render a detailed statement of the securities
and monies held for Fund under this Agreement, and Custodian will
maintain such books and records as are necessary to enable it to do so
and will permit such persons as are authorized by Fund, including
Fund's independent public accountants, access to such records or
confirmation of the contents of such records; and if demanded, will
permit federal and state regulatory agencies to examine the
securities, books and records. Upon the written instructions of Fund
or as demanded by federal or state regulatory agencies, Custodian will
instruct any subcustodian to give such persons as are authorized by
Fund, including Fund's independent public accountants, access to such
records or confirmation of the contents of such records; and if
demanded, to permit federal and state regulatory agencies to examine
the books, records and securities held by subcustodian which relate to
Fund.
S. Appointment of Subcustodians
1. Notwithstanding any other provisions of this Agreement, all or
any of the monies or securities of Fund may be held in
Custodian's own custody or in the custody of one or more other
banks or trust companies selected by Custodian. Any such
subcustodian must have the qualifications required for custodian
under the Investment Company Act of 1940, as amended. Any such
subcustodians may participate directly or indirectly in any
Depository. Custodian shall be responsible to the Fund for any
loss, damage or expense suffered or incurred by the Fund
resulting from the actions or omissions of any subcustodian
selected and appointed by Custodian (except subcustodians
appointed at the request of Fund and as provided in Subsection 2
below) to the same extent Custodian would be responsible to the
Fund under Section 4 of this Agreement if it committed the act or
omission itself. Custodian is not responsible for Depositories
except to the extent such entities are responsible to Custodian.
Upon request of the Fund, Custodian shall be willing to contract
with other subcustodians reasonably acceptable to the Custodian
for purposes of (i) effecting third-party repurchase transactions
with banks, brokers, dealers, or other entities through the use
of a common custodian or subcustodian, or (ii) providing
depository and clearing agency services with respect to certain
variable rate demand note securities, or (iii) for other
reasonable purposes specified by Fund; provided, however, that
the Custodian shall be responsible to the Fund for any loss,
damage or expense suffered or incurred by the Fund resulting from
the actions or omissions of any such subcustodian only to the
same extent such subcustodian is responsible to the Custodian.
The Fund shall be entitled to review the Custodian's contracts
with any such subcustodians appointed at the request of Fund.
2. Notwithstanding any other provisions of this Agreement, Fund's
foreign securities (as defined in Rule 17f-5(c)(1) under the
Investment Company Act of 1940) and Fund's cash or cash
equivalents, in amounts deemed by the Fund to be reasonably
necessary to effect Fund's foreign securities transactions, may
be held in the custody of one or more banks or trust companies
acting as subcustodians, according to Section 2.S.1; and
thereafter, pursuant to a written contract or contracts as
approved by Fund's governing Board, may be transferred to an
account maintained by such subcustodian with an eligible foreign
custodian, as defined in Rule 17f-5(c)(2), provided that any such
arrangement involving a foreign custodian shall be in accordance
with the provisions of Rule 17f-5 under the Investment Company
Act of 1940 as that Rule may be amended from time to time. The
Custodian shall be responsible for the monies and securities of
Fund held by eligible foreign subcustodians to the extent the
eligible foreign subcustodians are liable to the domestic
subcustodian with which the Custodian contracts for foreign
subcustody purposes.
T. Adoption of Procedures
Custodian and Fund may from time to time adopt procedures as they
agree upon, and Custodian may conclusively assume that no procedure
approved by Fund, or directed by Fund, conflicts with or violates any
requirements of its prospectus, articles of incorporation, bylaws, or
any rule or regulation of any regulatory body or governmental agency.
Fund will be responsible to notify Custodian of any changes in
statutes, regulations, rules or policies which might necessitate
changes in Custodian's responsibilities or procedures.
U. Overdrafts
In the event Custodian or any subcustodian shall, in its sole
discretion, advance cash or securities for any purpose (including but
not limited to securities settlements, purchase or sale of foreign
exchange or foreign exchange contracts and assumed settlement) for the
benefit of any Portfolio, the advance shall be payable by the Fund on
demand. Any such cash advance shall be subject to an overdraft charge
at the rate set forth in the then-current fee schedule from the date
advanced until the date repaid. As security for each such advance,
Fund hereby grants Custodian and such subcustodian a lien on and
security interest in all property at any time held for the account of
the applicable Portfolio, including without limitation all assets
acquired with the amount advanced. Should the Fund fail to repay the
advance within a reasonable time after written notice from Custodian,
the Custodian and such subcustodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets pursuant to
applicable law to the extent necessary to obtain reimbursement of the
amount advanced and any related overdraft charges.
V. Exercise of Rights; Tender Offers
Upon receipt of instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar securities to the issuer or
trustee thereof, or to the agent of such issuer or trustee, for the
purpose of exercise or sale, provided that the new securities, cash or
other assets, if any, are to be delivered to the Custodian; and (b)
deposit securities upon invitations for tenders thereof, provided that
the consideration for such securities is to be paid or delivered to
the Custodian or the tendered securities are to be returned to the
Custodian.
3. INSTRUCTIONS.
A. The term "instructions", as used herein, means written (including
telecopied) or oral instructions to Custodian which Custodian
reasonably believes were given by a designated representative of Fund.
Fund shall provide Custodian, as often as necessary, written
instructions naming one or more designated representatives to give
instructions in the name and on behalf of Fund, which instructions may
be received and accepted from time to time by Custodian as conclusive
evidence of the authority of any designated representative to act for
Fund and may be considered to be in full force and effect (and
Custodian will be fully protected in acting in reliance thereon) until
receipt by Custodian of notice to the contrary. Unless such written
instructions delegating authority to any person to give instructions
specifically limit such authority or require that the approval of
anyone else will first have been obtained, Custodian will be under no
obligation to inquire into the right of the person giving such
instructions to do so. Notwithstanding any of the foregoing provisions
of this Section 3 no authorizations or instructions received by
Custodian from Fund, will be deemed to authorize or permit any
director, trustee, officer, employee, or agent of Fund to withdraw any
of the securities or similar investments of Fund upon the mere receipt
of such authorization or instructions from such director, trustee,
officer, employee or agent.
Notwithstanding any other provision of this Agreement, Custodian, upon
receipt (and acknowledgment if required at the discretion of
Custodian) of the instructions of a designated representative of Fund
will undertake to deliver for Fund's account monies, (provided such
monies are on hand or available) in connection with Fund's
transactions and to wire transfer such monies to such broker, dealer,
subcustodian, bank or other agent specified in such instructions by a
designated representative of Fund.
B. No later than the next business day immediately following each oral
instruction, Fund will send Custodian written confirmation of such
oral instruction. At Custodian's sole discretion, Custodian may record
on tape, or otherwise, any oral instruction whether given in person or
via telephone, each such recording identifying the date and the time
of the beginning and ending of such oral instruction.
C. If Custodian shall provide Fund direct access to any computerized
recordkeeping and reporting system used hereunder or if Custodian and
Fund shall agree to utilize any electronic system of communication,
Fund shall be fully responsible for any and all consequences of the
use or misuse of the terminal device, passwords, access instructions
and other means of access to such system(s) which are utilized by,
assigned to or otherwise made available to the Fund. Fund agrees to
implement and enforce appropriate security policies and procedures to
prevent unauthorized or improper access to or use of such system(s).
Custodian shall be fully protected in acting hereunder upon any
instructions, communications, data or other information received by
Custodian by such means as fully and to the same effect as if
delivered to Custodian by written instrument signed by the requisite
authorized representative(s) of Fund. Fund shall indemnify and hold
Custodian harmless from and against any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liability which
may be suffered or incurred by Custodian as a result of the use or
misuse, whether authorized or unauthorized, of any such system(s) by
Fund or by any person who acquires access to such system(s) through
the terminal device, passwords, access instructions or other means of
access to such system(s) which are utilized by, assigned to or
otherwise made available to the Fund, except to the extent
attributable to any negligence or willful misconduct by Custodian.
4. LIMITATION OF LIABILITY OF CUSTODIAN.
A. Custodian shall at all times use reasonable care and due diligence and
act in good faith in performing its duties under this Agreement.
Custodian shall hold harmless and indemnify Fund from and against any
loss or liability arising out of Custodian's negligence, willful
misconduct, or bad faith. Custodian shall not be responsible for, and
the Fund shall indemnify and hold Custodian harmless from and against,
any loss or liability arising out of actions taken by Custodian
pursuant to this Agreement or any instructions provided to it
hereunder, provided that Custodian has acted in good faith and with
due diligence and reasonable care. Neither party shall be liable to
the other for consequential, special or punitive damages. Custodian
may request and obtain the advice and opinion of counsel for Fund, or
of its own counsel with respect to questions or matters of law, and it
shall be without liability to Fund for any action taken or omitted by
it in good faith, in conformity with such advice or opinion. If
Custodian reasonably believes that it could not prudently act
according to the instructions of the Fund or the Fund's counsel, it
may in its discretion, with notice to the Fund, not act according to
such instructions.
B. Custodian may rely upon the advice and statements of Fund and Fund's
accountants and other persons believed by, it in good faith, to be
expert in matters upon which they are consulted, and Custodian shall
not be liable for any actions taken, in good faith, upon such advice
and statements.
C. If Fund requests Custodian in any capacity to take, with respect to
any securities, any action which involves the payment of money by it,
or which in Custodian's opinion might make it or its nominee liable
for payment of monies or in any other way, Custodian, upon notice to
Fund given prior to such actions, shall be and be kept indemnified by
Fund in an amount and form satisfactory to Custodian against any
liability on account of such action; provided, however, that nothing
herein shall obligate Custodian to take any such action except in its
sole discretion.
D. Custodian shall be entitled to receive, and Fund agrees to pay to
Custodian, on demand, reimbursement for such cash disbursements, costs
and expenses as may be agreed upon from time to time by Custodian and
Fund.
E. Custodian shall be protected in acting as custodian hereunder upon any
instructions, advice, notice, request, consent, certificate or other
instrument or paper reasonably appearing to it to be genuine and to
have been properly executed and shall, unless otherwise specifically
provided herein, be entitled to receive as conclusive proof of any
fact or matter required to be ascertained from Fund hereunder,
instructions or a certificate signed by the Fund's President, or other
authorized officer.
F. Without limiting the generality of the foregoing, Custodian shall be
under no duty or obligation to inquire into, and shall not be liable
for:
1. The validity of the issue of any securities purchased by or for
Fund, the legality of the purchase thereof or evidence of
ownership required by Fund to be received by Custodian, or the
propriety of the decision to purchase or amount paid therefor;
2. The legality of the sale of any securities by or for Fund, or the
propriety of the amount for which the same are sold;
3. The legality of the issue or sale of any Fund Shares, or the
sufficiency of the amount to be received therefor;
4. The legality of the repurchase or redemption of any Fund Shares,
or the propriety of the amount to be paid therefor; or
5. The legality of the declaration of any dividend by Fund, or the
legality of the issue of any Fund Shares in payment of any
dividend.
G. Custodian shall not be liable for, or considered to be Custodian of,
any money represented by any check, draft, wire transfer, clearing
house funds, uncollected funds, or instrument for the payment of money
to be received by it on behalf of Fund, until Custodian actually
receives such money, provided only that it shall advise Fund promptly
if it fails to receive any such money in the ordinary course of
business, and use its best efforts and cooperate with Fund toward the
end that such money shall be received.
H. Except for any subcustodians or eligible foreign custodians appointed
under Section 2.S. to the extent provided therein, Custodian shall not
be responsible for loss occasioned by the acts, neglects, defaults or
insolvency of any broker, bank, trust company, or any other person
with whom Custodian may deal in the absence of negligence or bad faith
on the part of Custodian.
I. Notwithstanding anything herein to the contrary, Custodian may, and
with respect to any foreign subcustodian appointed under Section 2.S.2
must, provide Fund for its approval, agreements with banks or trust
companies which will act as subcustodians for Fund pursuant to Section
2.S of this Agreement.
J. Custodian shall not be responsible or liable for the failure or delay
in performance of its obligations under this Agreement, or those of
any entity for which it is responsible hereunder, arising out of or
caused, directly or indirectly, by circumstances beyond the affected
entity's reasonable control, including, without limitation: any
interruption, loss or malfunction of any utility, transportation,
computer (hardware or software) or communication service; inability to
obtain labor, material, equipment or transportation, or a delay in
mails; governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornados, acts of God or public enemy,
revolutions, or insurrection.
5. COMPENSATION. Fund will pay to Custodian such compensation as is stated in
the Fee Schedule from time to time agreed to in writing by Custodian and
Fund. Custodian may charge such compensation against monies held by it for
the account of Fund. Custodian will also be entitled, notwithstanding the
provisions of Sections 4.C. or 4.D. hereof, to charge against any monies
held by it for the account of Fund the amount of any loss, damage,
liability, advance, or expense for which it shall be entitled to
reimbursement under the provisions of this Agreement including fees or
expenses due to Custodian for other services provided to the Fund by the
Custodian. Custodian will not be entitled to reimbursement by Fund for any
loss or expenses of any subcustodian, except to the extent Custodian would
be entitled to reimbursement hereunder if it incurred the loss or expense
itself directly.
6. TERMINATION. This Agreement shall continue in effect until terminated by
either party by notice in writing received by the other party not less than
ninety (90) days prior to the date upon which such termination shall take
effect. Upon termination of this Agreement, Fund will pay to Custodian such
compensation for its reimbursable disbursements, costs and expenses paid or
incurred to such date. The governing Board of Fund will, forthwith upon
giving or receiving notice of termination of this Agreement, appoint as
successor custodian a qualified bank or trust company. Custodian will, upon
termination of this Agreement, deliver to the successor custodian so
appointed, at Custodian's office, all securities then held by Custodian
hereunder, duly endorsed and in form for transfer, all funds and other
properties of Fund deposited with or held by Custodian hereunder, or will
co-operate in effecting changes in book-entries at the Depositories. In the
event no written order designating a successor custodian has been delivered
to Custodian on or before the date when such termination becomes effective,
then Custodian may deliver the securities, funds and properties of Fund to
a bank or trust company at the selection of Custodian and meeting the
qualifications for custodian, if any, set forth in the governing documents
of the Fund and having not less that Two Million Dollars ($2,000,000)
aggregate capital, surplus and undivided profits, as shown by its last
published report. Upon delivery to a successor custodian, Custodian will
have no further obligations or liabilities under this Agreement. Thereafter
such bank or trust company will be the successor custodian under this
Agreement and will be entitled to reasonable compensation for its services.
In the event that no such successor custodian can be found, Fund will
submit to its shareholders, before permitting delivery of the cash and
securities owned by Fund to anyone other than a successor custodian, the
question of whether Fund will be liquidated or function without a
custodian. Notwithstanding the foregoing requirement as to delivery upon
termination of this Agreement, Custodian may make any other delivery of the
securities, funds and property of Fund which is permitted by the Investment
Company Act of 1940, Fund's governing documents then in effect or apply to
a court of competent jurisdiction for the appointment of a successor
custodian.
7. NOTICES. Notices, requests, instructions and other writings received by
Fund at Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004, or at such other address as Fund may have
designated to Custodian in writing, will be deemed to have been properly
given to Fund hereunder; and notices, requests, instructions and other
writings received by Custodian at its offices at 127 West 10th Street, 14th
Floor, Kansas City, Missouri 64105, or to such other address as it may have
designated to Fund in writing, will be deemed to have been properly given
to Custodian hereunder.
8. MISCELLANEOUS.
A. This Agreement is executed and delivered in the State of Missouri and
shall be governed by the laws of said state.
B. All the terms and provisions of this Agreement shall be binding upon,
inure to the benefit of, and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. No provisions of the Agreement may be amended or modified, in any
manner except by a written agreement properly authorized and executed
by both parties hereto.
D. The captions in this Agreement are included for convenience of
reference only, and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect.
E. This Agreement may be executed in two or more counterparts, each of
which will be deemed an original but all of which together will
constitute one and the same instrument.
F. If any part, term or provision of this Agreement is determined to be
illegal, in conflict with any law or otherwise invalid, the remaining
portion or portions shall be considered severable and not be affected,
and the rights and obligations of the parties shall be construed and
enforced as if the Agreement did not contain the particular part, term
or provision held to be illegal or invalid.
G. Custodian will not release the identity of Fund to an issuer which
requests such information pursuant to the Shareholder Communications
Act of 1985 for the specific purpose of direct communications between
such issuer and Fund unless the Fund directs the Custodian otherwise.
H. This Agreement may not be assigned by either party without prior
written consent of the other party.
I. If any provision of the Agreement, either in its present form or as
amended from time to time, limits, qualifies, or conflicts with the
Investment Company Act of 1940 and the rules and regulations
promulgated thereunder, such statues, rules and regulations shall be
deemed to control and supersede such provision without nullifying or
terminating the remainder of the provisions of this Agreement.
J. The representations and warranties and the indemnification extended
hereunder are intended to and shall continue after and survive the
expiration, termination or cancellation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly respective authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By: _______________________________
Title: ____________________________
PILGRIM AMERICA MASTERS SERIES, INC.
By: _______________________________
Title: ____________________________
<PAGE>
EXHIBIT A
<TABLE>
INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE
<CAPTION>
TRANSACTION DTC PHYSICAL
TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE
<S> <C> <C> <C> <C>
Calls Puts As Received C or F* As Received C or F*
Maturities As Received C or F* Mat. Date C or F*
Tender Reorgs. As Received C As Received C
Dividends Paydate C Paydate C
Floating Rate Int. Paydate C Paydate C
Floating Rate Int. N/A As Rate Received C
(No Rate)
Mtg. Backed P&I Paydate C Paydate + 1 Bus. C
Day
Fixed Rate Int. Paydate C Paydate C
Euroclear N/A C Paydate C
Legend
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.
</TABLE>
<TABLE>
<CAPTION>
TYPE CREDIT DATE FUNDS TYPE
<S> <C> <C>
Calls Puts
Maturities Mat. Date F
Tender Reorgs. N/A
Dividends N/A
Floating Rate Int. N/A
Floating Rate Int. N/A
(No Rate)
Mtg. Backed P&I Paydate F
Fixed Rate Int. Paydate F
Euroclear
</TABLE>
Legend
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.
RECORDKEEPING AGREEMENT
THIS AGREEMENT made as of this 14th day of June, 1995, by and between
PILGRIM AMERICA MASTERS SERIES, INC., a Maryland corporation, having its
principal place of business at Two Renaissance Square, 40 North Central Avenue,
Suite 1200, Phoenix, Arizona 85004 ("Fund"), and INVESTORS FIDUCIARY TRUST
COMPANY, a state chartered trust company organized and existing under the laws
of the State of Missouri, having its principal place of business at 127 West
10th Street, Kansas City, Missouri, 64105 ("IFTC"):
WITNESSETH: In consideration of the mutual promises herein contained, the
parties hereto, intending to be legally bound, mutually covenant and agree as
follows:
1. Appointment of Recordkeeping Agent
Fund hereby constitutes and appoints IFTC as Recordkeeping Agent for all
existing and any future series of the Fund (the "Portfolios") to perform
certain accounting and recordkeeping functions related to portfolio
transactions required of Fund as a registered investment company in
compliance with Rule 31a of the Investment Company Act of 1940 ("1940 Act")
and to calculate daily each Portfolio's net asset value.
2. Representations and Warranties of Fund
A. Fund represents and warrants that it is a corporation duly organized
as heretofore described and existing and in good standing under the
laws of Maryland.
B. Fund represents and warrants that it has the power and authority under
applicable laws, its articles of incorporation and bylaws, and has
taken all action necessary, to enter into and perform this Agreement.
C. Fund represents and warrants that it has determined that the
computerized recordkeeping system to be used by IFTC in maintaining
accounting records of Fund hereunder (the "Portfolio Accounting
System") is appropriate and suitable for Fund's needs.
D. Fund shall preserve the confidentiality of the Portfolio Accounting
System and the tapes, books, reference manuals, instructions, records,
programs, documentation and information of, and other materials
relevant to, the Portfolio Accounting System and the business of IFTC
("Confidential Information"). Fund shall not voluntarily disclose such
Confidential Information to any other person other than its own
employees who reasonably have a need to know such information pursuant
to this Agreement. Fund shall return all such Confidential Information
to IFTC upon termination or expiration of this Agreement.
E. Fund has been informed that the Portfolio Accounting System is
licensed for use by IFTC from DST Systems, Inc. ("Licensor"), and Fund
acknowledges that IFTC and Licensor have proprietary rights in and to
the Portfolio Accounting System and all other IFTC or Licensor
programs, code, techniques, know-how, data bases, supporting
documentation, data formats and procedures, including without
limitation any changes or modifications made at the request or expense
or both of Fund (collectively, the "Protected Information"). Fund
acknowledges that the Protected Information constitutes confidential
material and trade secrets of IFTC and Licensor. Fund shall preserve
the confidentiality of the Protected Information, and Fund hereby
acknowledges that any unauthorized use, misuse, disclosure or taking
of Protected Information, residing or existing internal or external to
a computer, computer system, or computer network, or the knowing and
unauthorized accessing or causing to be accessed of any computer,
computer system, or computer network, may be subject to civil
liabilities and criminal penalties under applicable law. Fund shall so
inform employees and agents who have access to the Protected
Information or to any computer equipment capable of accessing the
same. Licensor is intended to be and shall be a third party
beneficiary of the Fund's obligations and undertakings contained in
this paragraph.
F. If IFTC shall provide Fund direct access to the Portfolio Accounting
System or if IFTC and Fund shall agree to utilize any electronic
system of communication, Fund shall be fully responsible for any and
all consequences of the use or misuse of the terminal device,
passwords, access instructions and other means of access to such
system(s) which are utilized by, assigned to or otherwise made
available to the Fund. Fund agrees to implement and enforce
appropriate security policies and procedures to prevent unauthorized
or improper access to or use of such system(s). IFTC shall be fully
protected in acting hereunder upon any instructions, communications,
data or other information received by IFTC by such means as fully and
to the same effect as if delivered to IFTC by written instrument
signed by the requisite authorized representative(s) of the Fund. Fund
shall indemnify and hold IFTC harmless from and against any and all
costs, expenses, losses, liabilities, damages, charges and counsel
fees which may be asserted against or incurred by IFTC as a
consequence of the use or misuse, whether authorized or unauthorized,
of the Portfolio Accounting System or other computerized recordkeeping
and reporting system to which IFTC provides Fund direct access
hereunder or of any other electronic system of communication used
hereunder by Fund or by any person who acquires access to such
system(s) through the terminal device, passwords, access instructions
or other means of access to such system(s) which are utilized by,
assigned to or otherwise made available to the Fund, except to the
extent attributable to any negligence or willful misconduct by IFTC.
3. Representation and Warranties of IFTC
A. It is a trust company duly organized and existing and in good standing
under the laws of the State of Missouri.
B. It has the requisite power and authority under applicable laws, by its
charter and bylaws, and by agreement to enter into this Agreement and
has taken all action necessary to enter into and perform the services
contemplated herein and this Agreement has been duly executed and
delivered by IFTC and constitutes a legal, valid and binding
obligation of IFTC, enforceable in accordance with its terms.
4. Duties and Responsibilities of IFTC
A. Fund shall turn over to IFTC all of Fund's accounts and records
previously maintained. IFTC shall be entitled to rely conclusively on
the completeness and correctness of the accounts and records turned
over to it by Fund and Fund shall indemnify and hold IFTC harmless of
and from any and all expenses, damages and losses whatsoever arising
out of or in connection with any error, omission, inaccuracy or other
deficiency of such accounts and records or in the failure of Fund to
provide any portion of such or to provide in a timely manner any other
information needed by IFTC to perform its function hereunder.
B. Accounts and Records
1. IFTC, with the direction and as interpreted by the Fund or Fund's
accountants and/or other advisors, will prepare and maintain in
complete, accurate, and current form all accounts and records
needed to be maintained as a basis for calculation of each
Portfolio's net asset value and as further agreed upon by the
parties in writing, and will preserve such records in the manner
and for the periods required by the 1940 Act or such longer
period as the parties may agree upon in writing.
2. Unless the information necessary to perform the above functions
is furnished in writing or its electronic or digital equivalent
to IFTC prior to the next close of the New York Stock Exchange
and calculation of the Portfolio's net asset values, IFTC shall
incur no liability and the Fund shall indemnify and hold IFTC
harmless from and against any liability in connection therewith.
3. It shall be the responsibility of Fund to furnish IFTC with the
declaration, record and payment dates and amounts of any
dividends or income and any other special actions required
concerning the securities in the portfolio when such information
is not readily available from generally accepted securities
industry services or publications.
4. The accounts and records maintained and preserved by IFTC shall
be the property of the Fund and shall be made available to the
Fund for inspection or reproduction within a reasonable time,
upon demand.
5. IFTC shall assist Fund's independent accountants, or upon
approval of Fund or upon demand, any regulatory body, in any
requested review of Fund's accounts and records maintained by
IFTC but shall be reimbursed by Fund for all expenses and
employee time invested in any such review outside of routine and
normal periodic reviews.
6. Upon receipt from Fund of any necessary information, IFTC shall
provide information from the books and records it maintains for
Fund that Fund needs for tax returns, questionnaires, or periodic
reports to shareholders and such other reports and information
requests as Fund and IFTC shall agree upon from time to time.
7. IFTC and Fund may from time to time adopt procedures as they
agree upon, and IFTC may conclusively assume that any procedure
approved by Fund, or directed by Fund, does not conflict with or
violate any requirements of Fund's prospectus, declaration of
trust, bylaws, or any rule or regulation of any applicable
regulatory body or governmental agency. Fund shall be responsible
to notify IFTC of any changes in statutes, rules, requirements,
or policies which may necessitate changes in IFTC's
responsibilities or procedures.
8. IFTC will calculate each Portfolio's net asset value in
accordance with the Fund's prospectus once daily. IFTC will price
the securities and foreign currency holdings of the Portfolios
for which market quotations are available by the use of outside
services designated by Fund which are normally used and
contracted with for this purpose; all other securities and
foreign currency holdings will be priced in accordance with
Fund's instructions.
5. Limitation of Liability of IFTC
A. IFTC shall not be responsible or liable for, and Fund shall indemnify
and hold IFTC harmless from and against, any loss or liability arising
out of IFTC's action or omission to act pursuant hereto, except for
any loss or damage arising from any negligent act or willful
misconduct of IFTC. IFTC shall indemnify and hold harmless Fund from
and against any loss or liability arising from such negligence or
willful misconduct. The Fund agrees to minimize any potential monetary
loss(es) by reprocessing shareholder transactions or employing any
other customary procedures to reduce such monetary loss(es). Neither
party shall be liable to the other for consequential, special, or
punitive damages. IFTC may request and obtain the advice and opinion
of counsel for Fund or its own counsel at the expense of Fund with
respect to questions or matters of law, and it shall be without
liability to Fund for any action taken or omitted by it in good faith,
in conformity with such advice or opinion.
B. IFTC may rely upon the advice and statements of Fund, its distributor,
its management company and its accountants, officers and other
authorized individuals (as provided by corporate resolution to IFTC)
and others believed by it in good faith to be expert in matters upon
which they are consulted. Actions or inaction taken in reliance on
such advice and statements shall not be considered "negligent" and
IFTC shall not be liable for any actions taken in good faith upon such
advice and statements.
C. If Fund requests IFTC in any capacity to take any action which
involves the payment of money by it, or which in IFTC's opinion might
make it liable for payment of money or in any other way, IFTC shall be
and be kept indemnified by Fund in an amount and form satisfactory to
IFTC against any liability on account of such action; provided,
however that IFTC shall not be obligated to expend its own moneys or
to take any such action except in IFTC's sole discretion.
D. IFTC shall be entitled to receive and Fund agrees to pay to IFTC, on
demand, reimbursement for such cash disbursements, costs and expenses
as may be agreed upon in writing from time to time by IFTC and Fund.
E. IFTC shall be protected in acting hereunder upon any instructions,
advice, notice, request, consent, certificate or other instrument or
paper appearing to it to be genuine and to have been properly executed
and shall, unless otherwise specifically provided herein, be entitled
to receive as conclusive proof of any fact or matter required to be
ascertained from Fund as determined by IFTC, instructions or a
certificate signed by Fund's President or other officer of Fund as
requested by IFTC.
F. Without limiting the generality of the foregoing, IFTC shall be under
no duty or obligation to inquire into, and shall not be liable for:
1. The validity of the issue of any securities purchased by or for
Fund, or the legality of the purchase thereof;
2. The legality of the sale of any securities by or for Fund, or the
propriety of the amount for which the same are sold;
3. The legality of the issue or sale of any shares of Fund, or the
sufficiency of the amount to be received therefore;
4. The legality of the purchase of any shares of Fund, or the
propriety of the amount to be paid therefore; or
5. The legality of the declaration of any dividend by Fund, or the
legality of the issue of any shares of Fund in payment of any
dividend.
G. IFTC shall not be liable for, or considered to be the custodian of,
any money represented by any check, draft, wire transfer, clearing
house funds, uncollected funds, or instrument for the payment of money
received by it on behalf of Fund, until IFTC actually receives such
money, provided only that it shall advise Fund promptly if it fails to
receive any such moneys in the ordinary course of business, and use
reasonable efforts and cooperate with Fund toward the end that such
money shall be received.
H. Notwithstanding anything herein to the contrary, it is expressly
understood and agreed that IFTC shall have no responsibility to Fund,
the Fund's shareowners or any other person or entity for moneys or
securities of Fund held by banks or trust companies as custodians in
the absence of negligence or willful misconduct of IFTC.
I. IFTC shall not use any information made available to it under the
terms of this Agreement for any purpose other than complying with its
duties and responsibilities under this Agreement or as specifically
authorized by Fund in writing to IFTC.
6. Force Majeure
IFTC shall not be responsible or liable for any failure or delay in
performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable
control, including without limitation any interruption, loss or malfunction
of any utility, transportation, computer (hardware or software) or
communication service; or inability to obtain labor, material, equipment or
transportation; nor shall any such failure or delay give Fund any
additional right to terminate this Agreement.
7. Additional Funds
IFTC shall act as recordkeeper for additional Portfolios of Fund upon 30
days notice to IFTC provided IFTC consents to such arrangement. Rates or
charges for such additional Portfolios shall be as agreed by IFTC and Fund
in writing.
8. Compensation
Fund shall pay to IFTC such compensation at such time as may from time to
time be agreed upon in writing by IFTC and Fund. Fund shall also reimburse
IFTC for all out-of-pocket expenses incurred by IFTC in connection with
services performed pursuant to this Agreement.
9. Procedures. IFTC and Fund may from time to time adopt procedures as they
agree upon, and IFTC may conclusively assume that any procedure approved or
directed by Fund or its accountants or other advisors does not conflict
with or violate any requirements of Fund's prospectus, articles of
incorporation, bylaws, any applicable law, rule or regulation, or any
order, decree or agreement by which the Fund may be bound.
10. Termination. This Agreement shall continue in effect until terminated by
either party by notice in writing received by the other party not less than
ninety (90) days prior to the date upon which such termination shall take
effect. Upon termination of this Agreement:
A. Fund shall pay to IFTC its fees and compensation due hereunder and its
reimbursable disbursements, costs and expenses paid or incurred to
such date.
B. Fund shall designate a successor (which may be Fund) by notice in
writing to IFTC on or before the termination date.
C. IFTC shall deliver to the successor, or if none has been designated,
to Fund, at IFTC's office, all records, funds and other properties of
Fund deposited with or held by IFTC hereunder. In the event that
neither a successor nor Fund takes delivery of all records, funds and
other properties of Fund by the termination date, IFTC's sole
obligation with respect thereto from the termination date until
delivery to a successor or Fund shall be to exercise reasonable care
to hold the same in custody in its form and condition as of the
termination date, and IFTC shall be entitled to reasonable
compensation therefor, including but not limited to all of its
out-of-pocket costs and expenses incurred in connection therewith.
11. Notices
Notices, requests, instructions and other writings received by Fund at Two
Rennaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004, or at such address as Fund may have designated to IFTC in writing,
shall be deemed to have been properly given to Fund hereunder; and notices,
requests, instructions and other writings received by IFTC at its offices
at 127 West 10th Street, Kansas City, MO 64105, or to such other address as
it may have designated to Fund in writing, shall be deemed to have been
properly given to IFTC hereunder.
12. Miscellaneous
A. This Agreement is executed and delivered in the State of Missouri and
shall be governed by the laws of said state.
B. All terms and provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. No provisions of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed
by both parties hereto.
D. The captions in the Agreement are included for convenience of
reference only, and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effort.
E. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
F. If any part, term or provision of this Agreement is determined to be
illegal, in conflict with any law or otherwise invalid, the remaining
portion or portions shall be considered severable and not be affected,
and the rights and obligations of the parties shall be construed and
enforced as if the Agreement did not contain the particular part, term
or provision held to be illegal or invalid.
G. This Agreement may not be assigned by either party without prior
written consent in writing of the other party.
H. The representations and warranties, the indemnification extended
hereunder, and the provisions of Section 2.D. and 2.E. are intended to
and shall continue after and survive the expiration, termination or
cancellation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective and duly authorized corporate or trust officers.
INVESTORS FIDUCIARY TRUST COMPANY
By: _________________________________
Title: ______________________________
PILGRIM AMERICA MASTERS SERIES, INC.
By: _________________________________
Title: ______________________________
SERVICE AGREEMENT
This Agreement made on the 29th day of July, 1996 by and between Pilgrim America
Masters Series, Inc., a Maryland Corporation having its principal place of
business at Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004 (the "Fund"), and Pilgrim America Group Inc., a Delaware
corporation having its principal place of business at Two Renaissance Square, 40
North Central Avenue, Suite 1200, Phoenix, Arizona 85004 ("PAGI"):
WITNESSETH:
WHEREAS, the Fund is party to a transfer agent agreement with IFTC
wherein IFTC provides all transaction processing and record keeping for the
Fund's shareholders and would provide shareholder services for the Fund if the
Fund so desired, and
WHEREAS, the Fund has determined that PAGI is capable of providing
superior shareholder services to the Fund in conjunction with IFTC as the
Transfer Agent, and
WHEREAS, the Fund desires to appoint PAGI as Shareholder Service Agent
and PAGI desires to accept such appointment:
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Scope of Appointment
Fund hereby appoints PAGI as Shareholder Service Agent and as such PAGI hereby
accepts such appointment and agrees that it will provide the Fund with services
which include but are not limited to the following:
A. Reviewing correspondence pertaining to any former, existing or new
shareholder account, processing such correspondence for proper record
keeping, and responding promptly to correspondence from shareholders and
dealers.
B. Receiving telephone calls pertaining to any former, existing or new
shareholder account, verbally responding to such calls and when required
responding in writing and maintaining prior record keeping regarding such
calls from shareholders and dealers and responses thereto.
C. PAGI further agrees that the scope of this appointment does not include any
services required to be provided by a registered broker-dealer or
registered transfer agent.
<PAGE>
Certain Representations and Warranties of PAGI and the Fund
PAGI represents and warrants to the Fund that:
A. It is a corporation duly organized and existing and in good standing under
the laws of Delaware.
B. It is duly qualified to carry on its business in the State of Arizona.
C. It has and will continue to have and maintain the necessary facilities,
equipment and personnel to perform its duties and obligations under this
agreement.
D. PAGI is empowered under applicable laws and by its charter and bylaws to
enter into this Agreement.
The Fund represents and warrants to PAGI that:
A. It is a corporation duly organized and existing and in good standing under
the laws of Maryland.
B. It is an open-end diversified management investment company registered
under the Investment Company Act of 1940, as amended.
C. The Fund is empowered under applicable laws and by its charter and bylaws
to enter into this Agreement.
Compensations and Expenses
In consideration for its services here under as Shareholder Service Agent, the
Fund will pay to PAGI reasonable compensations for all services rendered as
Agent, and all its reasonable out-of-pocket expenses incurred in connection with
the agency. Such compensation is set forth in a separate schedule to be agreed
to by the Fund and PAGI, a copy of which is attached hereto.
The Fund agrees to promptly reimburse PAGI for all reasonable out-of-pocket
expenses or disbursements incurred by PAGI in connection with the performance of
services under this Agreement including, but not limited to, expenses for
postage, express delivery services, envelopes, forms, telephone communication
expenses and stationary supplies. PAGI agrees to furnish to the Fund's Board of
Directors, upon request, reasonable documentation of any expenses for which
reimbursement is sought.
<PAGE>
Indemnifications
PAGI shall at all times use reasonable care, due diligence and act in good faith
in performing its duties under this Agreement. PAGI shall not be responsible
for, and the Fund shall indemnify and hold PAGI harmless from and against, any
and all losses, damages, costs, charges, counsel fees, payments, expenses and
liability which may be asserted against PAGI or for which PAGI may be held
liable, arising out of or attributable to all actions of PAGI required to be
taken by PAGI pursuant to this Agreement provided that PAGI has acted in good
faith and with due diligence and reasonable care. The Fund shall not be
responsible for, and PAGI shall indemnify and hold harmless the Fund from and
against, any and all losses, damages, costs, charges, counsel fees, payments,
expenses, and liability which any be asserted against the Fund or for which the
Fund may be held liable, arising out of or attributable to all actions of PAGI
required to be taken by PAGI pursuant to this Agreement in which PAGI has not
acted in good faith and with due diligence and reasonable care.
Termination of Agreement
This Agreement shall be in effect for an initial period of ______ years and
thereafter may be terminated by either party upon receipt of 60 days' written
notice.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers, to be effective as of the
day and year first above written.
PILGRIM AMERICA GROUP, INC.
By: ___________________________________
Title:__________________________________
PILGRIM AMERICA MASTERS SERIES, INC.
(On behalf of Pilgrim America Series
Asia-Pacific Equity Fund, Pilgrim America
Masters LargeCap Value Fund and Pilgrim
America Masters MidCap Value Fund)
By:____________________________________
Title:_________________________________
SUPPLEMENT TO
SERVICE AGREEMENT
Pilgrim America Masters Series, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
August 7, 1998
Pilgrim America Group, Inc.
40 North Central Avenue
Phoenix, Arizona 85004
Re: Strategic Income Fund
Dear Sirs:
This will confirm the agreement between the undersigned (the "Company")
and Pilgrim America Group, Inc. ( "PAGI") as follows:
1. This Company is an open-end investment company organized as a Maryland
corporation, and consisting of such investment portfolios as have been
or may be established by the Directors of the Company from time to
time. A separate series of shares of common stock of the Company is
offered to investors with respect to each investment portfolio. The
Strategic Income Fund (the "Fund") is a separate investment portfolio
of the Company.
2. The Company and the PAGI have entered into a Service Agreement
("Agreement") dated July 29, 1996 pursuant to which the Company has
appointed PAGI to provide shareholder services to the Company, and PAGI
has accepted such appointment.
3. The Company and PAGI hereby adopt the Agreement with respect to the
Fund, and acknowledge that the terms and conditions of such employment
will be governed by the Agreement, which is hereby incorporated herein
by reference.
4. This Supplement and the Agreement shall become effective with respect
to the Fund on August 14, 1998 and shall continue until July 29, 1999,
and thereafter may be terminated by either party upon receipt of 60
days written notice.
If the foregoing correctly sets forth the agreement between the Company
and PAGI, please so indicate by signing and returning to the Company the
enclosed copy hereof
Very truly yours,
PILGRIM AMERICA MASTERS SERIES, INC.
By:_________________________
Title:
ACCEPTED:
PILGRIM AMERICA GROUP, INC.
By:_________________________
Title:
DECHERT PRICE & RHOADS
1500 K STREET, N.W.
WASHINGTON, D.C. 20005
TELEPHONE: (202) 626-3300
FAX: (202) 626-3334
June 21, 1995
Pilgrim America Masters Series, Inc.
10100 Santa Monica Boulevard
Los Angeles, CA 90067
Gentlemen:
In connection with the registration under the Securities Act of 1933 of an
indefinite number of shares of common stock of the Pilgrim America Masters
Asia-Pacific Equity Fund, Pilgrim America Masters MidCap Value Fund, and Pilgrim
America Masters LargeCap Value Fund series of shares of Pilgrim America Masters
Series, Inc. (the "Company"), we have examined such matters as we have deemed
necessary to give this opinion.
On the basis of the foregoing, it is our opinion that the shares have been
duly authorized and, when paid for as contemplated by the Company's Registration
Statement, will be validly issued, fully paid, and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm therein.
Very truly yours,
/s/ Dechert Price & Rhoads
June __, 1995
Pilgrim America Investments, Inc.
10100 Santa Monica Boulevard
Los Angeles, California 90067
Dear Sirs:
Pilgrim America Masters Series, Inc. hereby accepts your offer to
purchase shares of Pilgrim America Masters Asia-Pacific Equity Fund, Pilgrim
America Masters MidCap Value Fund, and Pilgrim America Masters LargeCap Value
Fund (each a "Fund" and, collectively, the "Funds") in the following amounts for
an aggregate purchase price of $100,000:
<TABLE>
<CAPTION>
Number
Price of Shares Dollar
Name of Fund per Share Purchased Amount Purchased
<S> <C> <C> <C> <C>
Pilgrim America Masters Asia-Pacific Equity Fund
Class A $10.00 3,200.00 $32,000.00
Class B $10.00 100.00 $ 1,000.00
Class M $10.00 100.00 $ 1,000.00
Pilgrim America Masters MidCap Value Fund
Class A $10.00 3,100.00 $31,000.00
Class B $10.00 100.00 $ 1,000.00
Class M $10.00 100.00 $ 1,000.00
Pilgrim America Masters LargeCap Value Fund
Class A $10.00 3,100.00 $31,000.00
Class B $10.00 100.00 $ 1,000.00
Class M $10.00 100.00 $ 1,000.00
Total: $100,000.00
</TABLE>
This agreement is subject to the understanding that you have no present
intention of selling or redeeming the shares so acquired.
Any redemption of shares of a Fund by you will be reduced by a pro rata
portion of any then unamortized organization expenses of the Fund. This
proration will be calculated by dividing the number
<PAGE>
Pilgrim America Investments, Inc.
June __, 1995
Page 2
of shares to be redeemed by the aggregate number of shares held which represent
the initial capital of the Fund.
Sincerely,
-----------------------------------
Accepted:
- -----------------------------------
Service and Distribution Plan for
Pilgrim America Masters Series, Inc.
Pilgrim America Masters Asia-Pacific Equity Fund
Pilgrim America Masters MidCap Value Fund
Pilgrim America Masters LargeCap Value Fund
Pilgrim America Strategic Income Fund
Class A Shares
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, the Pilgrim America Masters Series, Inc. (the "Company") engages
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently divided into
three series, PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND, PILGRIM AMERICA
MASTERS MIDCAP VALUE FUND, PILGRIM AMERICA MASTERS LARGECAP VALUE FUND and
PILGRIM AMERICA STRATEGIC INCOME FUND (the "Funds");
WHEREAS, shares of common stock of the Funds are divided into classes of
shares, one of which is designated Class A;
WHEREAS, the Company employs Pilgrim America Securities, Inc. (the
"Distributor") as distributor of the securities of which it is the issuer; and
WHEREAS, the Company and the Distributor have entered into an Underwriting
Agreement pursuant to which the Company has employed the Distributor in such
capacity during the continuous offering of shares of the Company.
NOW, THEREFORE, the Company hereby adopts on behalf of the Funds with
respect to its Class A shares, and the Distributor hereby agrees to the terms of
the Plan, in accordance with Rule 12b-l under the Act, on the following terms
and conditions:
1. A. The Funds shall pay to the Distributor, as the distributor of the
Class A shares of the Funds, a fee for distribution of the shares at the rate of
up to 0.10% on an annualized basis of the average daily net assets of the Funds'
Class A shares, provided that, at any time such payment is made, whether or not
this Plan continues in effect, the making thereof will not cause the limitation
upon such payments established by this Plan to be exceeded. Such fee shall be
calculated and accrued daily and paid at such intervals as the Board of
Directors shall determine, subject to any applicable restriction imposed by
rules of the National Association of Securities Dealers, Inc.
B. The Funds shall pay to the Distributor, as the distributor of the Class
A shares of the Funds, a service fee at the rate of 0.25% on an annualized basis
of the average daily net assets of the Funds' Class A shares, provided that, at
any time such payment is made, whether or not this Plan continues in effect, the
making thereof will not cause the limitation upon such payments established by
this Plan to be exceeded. Such fee shall be calculated and accrued daily and
paid at such intervals as the Board of Directors shall determine, subject to any
applicable restriction imposed by rules of the National Association of
Securities Dealers, Inc.
2. The amount set forth in paragraph 1.A. of this Plan shall be paid for
the Distributor's services as distributor of the shares of the Funds in
connection with any activities or expenses primarily intended to result in the
sale of the Class A shares of the Funds, including, but not limited to, payment
of compensation, including incentive compensation, to securities dealers (which
may include the Distributor itself) and other financial institutions and
organizations (collectively, the "Service Organizations") to obtain various
distribution related and/or administrative services for the Funds. These
services include, among other things, processing new shareholder account
applications, preparing and transmitting to the Funds' Transfer Agent computer
processable tapes of all transactions by customers and serving as the primary
source of information to customers in providing information and answering
questions concerning the Funds and their transactions with the Funds. The
Distributor is also authorized to engage in advertising, the preparation and
distribution of sales literature and other promotional activities on behalf of
the Funds. In addition, this Plan hereby authorizes payment by the Fund of the
cost of printing and distributing Fund Prospectuses and Statements of Additional
Information to prospective investors and of implementing and operating the Plan.
Distribution expenses also include an allocation of overhead of the Distributor
and accruals for interest on the amount of distribution expenses that exceed
distribution fees and contingent deferred sales charges received by the
Distributor. Payments under the Plan are not tied exclusively to actual
distribution and service expenses, and the payments may exceed distribution and
service expenses actually incurred.
The amount set forth in paragraph 1.B. of this Plan may be used by the
Distributor to pay securities dealers (which may include the Distributor itself)
and other financial institutions and organizations for servicing shareholder
accounts, including a continuing fee which may accrue immediately after the sale
of shares.
3. The Plan shall not take effect with respect to the Class A shares of the
Funds until it has been approved by a vote of the shareholders of the Class A
shares of each of the Funds, which may consist of the sole shareholder of the
Class A shares prior to the commencement of the public offering of such shares.
4. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-l Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall take
effect. The Plan shall continue in full force and effect as to the Class A
shares of the Funds for so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph 4.
6. The Distributor shall provide to the Directors of the Company, and the
Directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
7. This Plan may be terminated as to each Fund at any time, without payment
of any penalty, by vote of the Directors of the Company, by vote of a majority
of the Rule 12b-l Directors, or by a vote of a majority of the outstanding
voting securities of Class A shares of the Funds on not more than 30 days'
written notice to any other party to the Plan.
8. This Plan may not be amended to increase materially the amount of
distribution fee (including any service fee) provided for in paragraph 1 hereof
unless such amendment is approved in the manner provided for initial approval in
paragraph 3 hereof, and no material amendment to the Plan shall be made unless
approved in the manner provided for approval and annual renewal in paragraph 4
hereof.
9. While this Plan is in effect, the selection and nomination of Directors
who are not interested persons (as defined in the Act) of the Company shall be
committed to the discretion of the Directors who are not such interested
persons.
10. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
11. The provisions of this Plan are severable as to each series, and any
action to be taken with respect to this Plan shall be taken separately for each
series affected by the matter.
<PAGE>
IN WITNESS WHEREOF, the Company, on behalf of the Funds, and the
Distributor have executed this Service and Distribution Plan as of the ____ day
of ________, 1998.
PILGRIM AMERICA MASTERS SERIES, INC.
By: _______________________________
PILGRIM AMERICA SECURITIES, INC.
By: _______________________________
Service and Distribution Plan for
Pilgrim America Masters Series, Inc.
Pilgrim America Masters Asia-Pacific Equity Fund
Pilgrim America Masters MidCap Value Fund
Pilgrim America Masters LargeCap Value Fund
Pilgrim America Strategic Income Fund
Class B Shares
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, the Pilgrim America Masters Series, Inc. (the "Company") engages
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently divided into
three series, PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND, PILGRIM AMERICA
MASTERS MIDCAP VALUE FUND, PILGRIM AMERICA MASTERS LARGECAP VALUE FUND and
PILGRIM AMERICA STRATEGIC INCOME FUND (the "Funds");
WHEREAS, shares of common stock of the Funds are divided into classes of
shares, one of which is designated Class B;
WHEREAS, the Company employs Pilgrim America Securities, Inc. (the
"Distributor") as distributor of the securities of which it is the issuer; and
WHEREAS, the Company and the Distributor have entered into an Underwriting
Agreement pursuant to which the Company has employed the Distributor in such
capacity during the continuous offering of shares of the Company.
NOW, THEREFORE, the Company hereby adopts on behalf of the Funds with
respect to its Class B shares, and the Distributor hereby agrees to the terms of
the Plan, in accordance with Rule 12b-l under the Act, on the following terms
and conditions:
1. A. The Funds shall pay to the Distributor, as the distributor of the
Class B shares of the Funds, a fee for distribution of the shares at the rate of
up to 0.10% on an annualized basis of the average daily net assets of the Funds'
Class B shares, provided that, at any time such payment is made, whether or not
this Plan continues in effect, the making thereof will not cause the limitation
upon such payments established by this Plan to be exceeded. Such fee shall be
calculated and accrued daily and paid at such intervals as the Board of
Directors shall determine, subject to any applicable restriction imposed by
rules of the National Association of Securities Dealers, Inc.
B. The Funds shall pay to the Distributor, as the distributor of the Class
B shares of the Funds, a service fee at the rate of 0.25% on an annualized basis
of the average daily net assets of the Funds' Class B shares, provided that, at
any time such payment is made, whether or not this Plan continues in effect, the
making thereof will not cause the limitation upon such payments established by
this Plan to be exceeded. Such fee shall be calculated and accrued daily and
paid at such intervals as the Board of Directors shall determine, subject to any
applicable restriction imposed by rules of the National Association of
Securities Dealers, Inc.
2. The amount set forth in paragraph 1.A. of this Plan shall be paid for
the Distributor's services as distributor of the shares of the Funds in
connection with any activities or expenses primarily intended to result in the
sale of the Class B shares of the Funds, including, but not limited to, payment
of compensation, including incentive compensation, to securities dealers (which
may include the Distributor itself) and other financial institutions and
organizations (collectively, the "Service Organizations") to obtain various
distribution related and/or administrative services for the Funds. These
services include, among other things, processing new shareholder account
applications, preparing and transmitting to the Funds' Transfer Agent computer
processable tapes of all transactions by customers and serving as the primary
source of information to customers in providing information and answering
questions concerning the Funds and their transactions with the Funds. The
Distributor is also authorized to engage in advertising, the preparation and
distribution of sales literature and other promotional activities on behalf of
the Funds. In addition, this Plan hereby authorizes payment by the Fund of the
cost of printing and distributing Fund Prospectuses and Statements of Additional
Information to prospective investors and of implementing and operating the Plan.
Distribution expenses also include an allocation of overhead of the Distributor
and accruals for interest on the amount of distribution expenses that exceed
distribution fees and contingent deferred sales charges received by the
Distributor. Payments under the Plan are not tied exclusively to actual
distribution and service expenses, and the payments may exceed distribution and
service expenses actually incurred.
The amount set forth in paragraph 1.B. of this Plan may be used by the
Distributor to pay securities dealers (which may include the Distributor itself)
and other financial institutions and organizations for servicing shareholder
accounts, including a continuing fee which may accrue immediately after the sale
of shares.
3. The Plan shall not take effect with respect to the Class B shares of the
Funds until it has been approved by a vote of the shareholders of the Class B
shares of each of the Funds, which may consist of the sole shareholder of the
Class B shares prior to the commencement of the public offering of such shares.
4. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-l Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall take
effect. The Plan shall continue in full force and effect as to the Class B
shares of the Funds for so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph 4.
6. The Distributor shall provide to the Directors of the Company, and the
Directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
7. This Plan may be terminated as to each Fund at any time, without payment
of any penalty, by vote of the Directors of the Company, by vote of a majority
of the Rule 12b-l Directors, or by a vote of a majority of the outstanding
voting securities of Class B shares of the Funds on not more than 30 days'
written notice to any other party to the Plan.
8. This Plan may not be amended to increase materially the amount of
distribution fee (including any service fee) provided for in paragraph 1 hereof
unless such amendment is approved in the manner provided for initial approval in
paragraph 3 hereof, and no material amendment to the Plan shall be made unless
approved in the manner provided for approval and annual renewal in paragraph 4
hereof.
9. While this Plan is in effect, the selection and nomination of Directors
who are not interested persons (as defined in the Act) of the Company shall be
committed to the discretion of the Directors who are not such interested
persons.
10. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
11. The provisions of this Plan are severable as to each series, and any
action to be taken with respect to this Plan shall be taken separately for each
series affected by the matter.
<PAGE>
IN WITNESS WHEREOF, the Company, on behalf of the Funds, and the
Distributor have executed this Service and Distribution Plan as of the ____ day
of ________, 1998.
PILGRIM AMERICA MASTERS SERIES, INC.
By: _______________________________
PILGRIM AMERICA SECURITIES, INC.
By: _______________________________
Service and Distribution Plan for
Pilgrim America Masters Series, Inc.
Pilgrim America Masters Asia-Pacific Equity Fund
Pilgrim America Masters MidCap Value Fund
Pilgrim America Masters LargeCap Value Fund
Class M Shares
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, the Pilgrim America Masters Series, Inc. (the "Company") engages
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are currently divided into
three series, PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND, PILGRIM AMERICA
MASTERS MIDCAP VALUE FUND and PILGRIM AMERICA LARGECAP VALUE FUND (the "Funds");
WHEREAS, shares of common stock of the Funds are divided into classes of
shares, one of which is designated Class M;
WHEREAS, the Company employs Pilgrim America Securities, Inc. (the
"Distributor") as distributor of the securities of which it is the issuer; and
WHEREAS, the Company and the Distributor have entered into a Underwriting
Agreement pursuant to which the Company has employed the Distributor in such
capacity during the continuous offering of shares of the Company.
NOW, THEREFORE, the Company hereby adopts on behalf of the Funds with
respect to its Class M shares, and the Distributor hereby agrees to the terms of
the Plan, in accordance with Rule 12b-1 under the Act, on the following terms
and conditions:
1. A. The Funds shall pay to the Distributor, as the distributor of the
Class M shares of the Funds, a fee for distribution of the shares at the rate of
up to 0.75% on an annualized basis of the average daily net assets of the Funds'
Class M shares, provided that, at any time such payment is made, whether or not
this Plan continues in effect, the making thereof will not cause the limitation
upon such payments established by this Plan to be exceeded. Such fee shall be
calculated and accrued daily and paid at such intervals as the Board of
Directors shall determine, subject to any applicable restriction imposed by
rules of the National Association of Securities Dealers, Inc.
B. The Funds shall pay to the Distributor, as the distributor of the Class
M shares of the Funds, a service fee at the rate of 0.25% on an annualized basis
of the average daily net assets of the Funds' Class M shares, provided that, at
any time such payment is made, whether or not this Plan continues in effect, the
making thereof will not cause the limitation upon such payments established by
this Plan to be exceeded. Such fee shall be calculated and accrued daily and
paid at such intervals as the Board of Directors shall determine, subject to any
applicable restriction imposed by rules of the National Association of
Securities Dealers, Inc.
2. The amount set forth in paragraph 1.A. of this Plan shall be paid for
the Distributor's services as distributor of the shares of the Funds in
connection with any activities or expenses primarily intended to result in the
sale of the Class M shares of the Funds, including, but not limited to, payment
of compensation, including incentive compensation, to securities dealers (which
may include the Distributor itself) and other financial institutions and
organizations (collectively, the "Service Organizations") to obtain various
distribution related and/or administrative services for the Funds. These
services include, among other things, processing new shareholder account
applications, preparing and transmitting to the Funds' Transfer Agent computer
processable tapes of all transactions by customers and serving as the primary
source of information to customers in providing information and answering
questions concerning the Funds and their transactions with the Funds. The
Distributor is also authorized to engage in advertising, the preparation and
distribution of sales literature and other promotional activities on behalf of
the Funds. In addition, this Plan hereby authorizes payment by the Funds of the
cost of printing and distributing Fund Prospectuses and Statements of Additional
Information to prospective investors and of implementing and operating the Plan.
Distribution expenses also include an allocation of overhead of the Distributor
and accruals for interest on the amount of distribution expenses that exceed
distribution fees received by the Distributor. Payments under the Plan are not
tied exclusively to actual distribution and service expenses, and the payments
may exceed distribution and service expenses actually incurred.
The amount set forth in paragraph 1.B. of this Plan may be used by the
Distributor to pay securities dealers (which may include the Distributor itself)
and other financial institutions and organizations for servicing shareholder
accounts, including a continuing fee which may accrue immediately after the sale
of shares.
3. The Plan shall not take effect with respect to the Class M shares of the
Funds until it has been approved by a vote of the then sole shareholders of the
Class M shares of each of the Funds, which may consist of the sole shareholder
of the Class M shares prior to the commencement of the public offering of such
shares.
4. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-l Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall take
effect. The Plan shall continue in full force and effect as to the Class M
shares of the Funds for so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in paragraph 4.
6. The Distributor shall provide to the Directors of the Company, and the
Directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
7. This Plan may be terminated as to each Fund at any time, without payment
of any penalty, by vote of the Directors of the Company, by vote of a majority
of the Rule 12b-l Directors, or by a vote of a majority of the outstanding
voting securities of Class M shares of the Funds on not more than 30 days'
written notice to any other party to the Plan.
8. This Plan may not be amended to increase materially the amount of
distribution fee (including any service fee) provided for in paragraph 1 hereof
unless such amendment is approved in the manner provided for initial approval in
paragraph 3 hereof, and no material amendment to the Plan shall be made unless
approved in the manner provided for approval and annual renewal in paragraph 4
hereof.
9. While this Plan is in effect, the selection and nomination of Directors
who are not interested persons (as defined in the Act) of the Company shall be
committed to the discretion of the Directors who are not such interested
persons.
10. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
11. The provisions of this Plan are severable as to each series, and any
action to be taken with respect to this Plan shall be taken separately for each
series affected by the matter.
IN WITNESS WHEREOF, the Company, on behalf of the Funds, and the
Distributor have executed this Service and Distribution Plan as of the ____ day
of _________, 1997.
PILGRIM AMERICA MASTERS SERIES, INC.
By: _______________________________
PILGRIM AMERICA SECURITIES, INC.
By: _______________________________
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
FOR
PILGRIM AMERICA MASTERS SERIES, INC.
Pilgrim America Masters Asia-Pacific Equity Fund
Pilgrim America Masters Midcap Value Fund
Pilgrim America Masters Largecap Value Fund
Pilgrim America Strategic Income Fund
WHEREAS, the Pilgrim America Masters Series, Inc. ("Masters Series")
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, shares of common stock of the Masters Series are currently divided
into three separate series, including the PILGRIM AMERICA MASTERS ASIA-PACIFIC
EQUITY FUND, PILGRIM AMERICA MASTERS MIDCAP VALUE FUND, PILGRIM AMERICA MASTERS
LARGECAP VALUE FUND AND PILGRIM AMERICA STRATEGIC INCOME FUND (the "Funds");
WHEREAS, the Masters Series desires to adopt, on behalf of each of the
Funds, a Multiple Class Plan pursuant to Rule 18f-3 under the Act (the "Plan")
with respect to each of the Funds; and
WHEREAS, pursuant to a Restated Underwriting Agreement dated April 7, 1998,
the Masters Series on behalf of each Fund employs Pilgrim America Securities,
Inc. ("PASI") as distributor of the securities of which it is the issuer.
NOW, THEREFORE, the Masters Series hereby adopts, on behalf of the Funds,
the Plan, in accordance with Rule 18f-3 under the Act on the following terms and
conditions:
1. Features of the Classes. Each of the Funds (except Pilgrim America
Strategic Income Fund ("PASIF")) issues its shares of common stock in three
classes: "Class A Shares," "Class B Shares" and "Class M Shares." PASIF issues
its shares in two classes: Class A Shares and Class B Shares. Shares of each
class of a Fund shall represent an equal pro rata interest in such Fund and,
generally, shall have identical voting, dividend, liquidation, and other rights,
preferences, powers, restrictions, limitations, qualifications and terms and
conditions, except that: (a) each class shall have a different designation; (b)
each class of shares shall bear any Class Expenses, as defined in Section 5
below; and (c) each class shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its distribution arrangement
and each class shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class. In addition, Class A, Class B and Class M shares shall have the
features described in Sections 2, 5 and 6 below.
2. Sales Charge Structure.
(a) Class A Shares. Class A shares of a Fund shall be offered at the
then-current net asset value plus a front-end sales charge. The front-end sales
charge shall be in such amount as is disclosed in a Fund's current prospectus or
prospectus supplement and shall be subject to reductions for larger purchases
and such waivers or reductions as are determined or approved by the Board of
Directors. There is no initial front-end sales charge on purchases of an amount
as disclosed in the prospectus. Class A shares generally shall not be subject to
a contingent deferred sales charge provided, however, that such a charge may be
imposed when shares are redeemed within one or two years of purchase and/or in
such other cases as is disclosed in the Fund's current prospectus or supplement
thereto subject to the supervision of the Board of Directors.
(b) Class B Shares. Class B shares of a Fund shall be offered at the
then-current net asset value without the imposition of a front-end sales charge.
A contingent deferred sales charge in such amount as is described in a Fund's
current prospectus or prospectus supplement shall be imposed on Class B shares,
subject to such waivers or reductions as are described in the Fund's prospectus
or supplement thereto, subject to the supervision of the Fund's Board of
Directors.
(c) Class M Shares. Class M shares of a Fund shall be offered at the
then-current net asset value plus a front-end sales charge that is lower than
the sales charge applicable to Class A. The front-end sales charge shall be in
such amount as is disclosed in a Fund's current prospectus or prospectus
supplement and shall be subject to reductions for larger purchases and such
waivers or reductions as are described in the Fund's prospectus or supplement
thereto, subject to the supervision of the Fund's Board of Directors. Orders for
Class M shares in excess of an amount as disclosed in the prospectus will be
accepted as an order for Class A shares or declined.
3. Service and Distribution Plans. Each class of shares of each Fund has
adopted a Rule 12b-1 plan (except that a plan has not been adopted with respect
to Class M shares of PASIF) each with the following terms:
(a) Class A Shares. Class A shares of each Fund may pay PASI monthly a
fee at an annual rate of 0.35% of the average daily net assets of the Fund's
Class A shares for distribution or service activities (each as defined in
paragraph (d), below), as designated by PASI. PASI, on behalf of Class A shares
of each Fund, may pay Authorized Dealers quarterly a fee at the annual rate of
0.25% of the average daily net assets of the Fund's Class A shares for
distribution and service activities (as defined in paragraph (d), below)
rendered to Class A Shareholders.
(b) Class B Shares. Class B shares of each Fund may pay PASI monthly a
fee at the annual rate of 1.00% of the average daily net assets of the Fund's
Class B shares for distribution or service activities (as defined in paragraph
(d), below), as designated by PASI. PASI, on behalf of Class B shares of each
Fund, may pay Authorized Dealers quarterly a fee at the annual rate of 0.25% of
the average daily net assets of the Fund's Class B shares for distribution and
service activities (as defined in paragraph (d), below) rendered to Class B
shareholders.
(c) Class M Shares. Class M shares of each Fund may pay PASI monthly a
fee at the annual rate of 1.00% of the average daily net assets of the Fund's
Class M shares for distribution or service activities (as defined in paragraph
(d), below) as designated by PASI. PASI, on behalf of Class M shares, may pay
Authorized Dealers quarterly a fee at the annual rate of 0.65% of the average
daily net assets of the Fund's Class M shares for distribution and service
activities (as defined in paragraph (d), below) rendered to Class M
shareholders.
(d) Distribution and Service Activities.
(i) As used herein, the term "distribution services" shall include
services rendered by PASI as distributor of the shares of a Fund in connection
with any activities or expenses primarily intended to result in the sale of
shares of a Fund, including, but not limited to, compensation to registered
representatives or other employees of PASI to other broker-dealers that have
entered into an Authorized Dealer Agreement with PASI, compensation to and
expenses of employees of PASI who engage in or support distribution of the
Funds' shares; telephone expenses; interest expense; printing of prospectuses
and reports for other than existing shareholders; preparation, printing and
distribution of sales literature and advertising materials; and profit and
overhead on the foregoing.
(ii) As used herein, the term "service activities" shall mean
activities in connection with the provision of personal, continuing services to
investors in each Fund, excluding transfer agent and subtransfer agent services
for beneficial owners of shares of a Fund, aggregating and processing purchase
and redemption orders, providing beneficial owners with account statements,
processing dividend payments, providing subaccounting services for Fund shares
held beneficially, forwarding shareholder communications to beneficial owners
and receiving, tabulating and transmitting proxies executed by beneficial
owners; provided, however, that if the National Association of Securities
Dealers Inc. ("NASD") adopts a definition of "service fee" for purposes of
Section 26(d) of the Rules of Fair Practice of the NASD that differs from the
definition of "service activities" hereunder, or if the NASD adopts a related
definition intended to define the same concept, the definition of "service
activities" in this Paragraph shall be automatically amended, without further
action of the Board of Directors, to conform to such NASD definition. Overhead
and other expenses of PASI related to its "service activities," including
telephone and other communications expenses, may be included in the information
regarding amounts expended for such activities.
4. Compliance Standards. Masters Series desires that investors in the Funds
select the Fund that best suits his or her investment objective, and also the
sales financing method that best suits his or her particular financial
situation. In this connection, PASI has established standards which govern sales
of shares of the Funds in order to assist investors in making investment
decisions and to help ensure proper supervision of purchase recommendations.
PASI is requested to share these standards with authorized dealers wherever
possible and practicable.
5. Allocation of Income and Expenses. (a) The gross income of each Fund
shall, generally, be allocated to each class on the basis of net assets. To the
extent practicable, certain expenses (other than Class Expenses as defined below
which shall be allocated more specifically) shall be subtracted from the gross
income on the basis of the net assets of each class of the Fund. These expenses
include:
(1) Expenses incurred by the Masters Series (for example, fees of
Directors, auditors and legal counsel) not attributable to a particular Fund or
to a particular class of shares of a Fund ("Corporate Level Expenses"); and
(2) Expenses incurred by a Fund not attributable to any particular
class of the Fund's shares (for example, advisory fees, custodial fees, or other
expenses relating to the management of the Fund's assets) ("Fund Expenses").
(b) Expenses attributable to a particular class ("Class Expenses") shall be
limited to: (i) payments made pursuant to a 12b-1 plan; (ii) transfer agent fees
attributable to a specific class; (iii) printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders of a specific class; (iv) Blue Sky
registration fees incurred by a class; (v) SEC registration fees incurred by a
class; (vi) the expense of administrative personnel and services to support the
shareholders of a specific class; (vii) litigation or other legal expenses
relating solely to one class; and (viii) directors' fees incurred as a result of
issues relating to one class. Expenses in category (i) above must be allocated
to the class for which such expenses are incurred. All other "Class Expenses"
listed in categories (ii)-(viii) above may be allocated to a class but only if
the President and Chief Financial Officer have determined, subject to Board
approval or ratification, which of such categories of expenses will be treated
as Class Expenses, consistent with applicable legal principles under the Act and
the Internal Revenue Code of 1986, as amended.
Therefore, expenses of a Fund shall be apportioned to each class of shares
depending on the nature of the expense item. Corporate Level Expenses and Fund
Expenses will be allocated among the classes of shares based on their relative
net asset values. Approved Class Expenses shall be allocated to the particular
class to which they are attributable. In addition, certain expenses may be
allocated differently if their method of imposition changes. Thus, if a Class
Expense can no longer be attributed to a class, it shall be charged to a Fund
for allocation among classes, as determined by the Board of Directors. Any
additional Class Expenses not specifically identified above which are
subsequently identified and determined to be properly allocated to one class of
shares shall not be so allocated until approved by the Board of Directors of the
Masters Series in light of the requirements of the Act and the Internal Revenue
Code of 1986, as amended.
6. Exchange Privileges. Shares of one class of a Fund that have been held
for a minimum of 30 days may be exchanged for shares of that same class of any
other Pilgrim America Group mutual fund other than Pilgrim Money Market Shares
("Money Market"), at NAV without payment of any additional sales charge.
However, a sales charge, equal to the excess, if any, of the sales charge rate
applicable to the shares being acquired over the sales charge rate previously
paid, may be assessed on exchanges from Pilgrim Government Securities Income
Fund and Pilgrim High Yield Fund. If a shareholder exchanges and subsequently
redeems his or her shares, any applicable Contingent Deferred Sales Charge fee
will be based on the full period of the share ownership. Class A Shares of a
Fund may be exchanged for shares of Money Market, and shares of the Money Market
may be exchanged for Class A or Class M shares of any Fund upon payment of the
excess, if any, of the sales charge applicable to the Class A or Class M shares
over the sales charge rate previously paid.
7. Conversion Features. A shareholder's Class B shares will automatically
convert to Class A shares in the Fund on the first business day of the month in
which the eighth anniversary of the issuance of the Class B shares occurs,
together with a pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares. The conversion of
Class B shares into Class A shares is subject to the continuing application of
an Internal Revenue Service ruling to the effect that (1) such conversion will
not constitute taxable events for federal tax purposes; and (2) the payment of
different dividends on Class A and Class B shares does not result in the Fund's
dividends or distributions constituting "preferential dividends" under the
Internal Revenue Code of 1986. The Class B shares so converted will no longer be
subject to the higher expenses borne by Class B shares. The conversion will be
effected at the relative net asset values per share of the two Classes.
8. Quarterly and Annual Reports. The Directors shall receive quarterly and
annual statements concerning all allocated Class Expenses and distribution and
servicing expenditures complying with paragraph (b)(3)(ii) of Rule 12b-1, as it
may be amended from time to time. In the statements, only expenditures properly
attributable to the sale or servicing of a particular class of shares will be
used to justify any distribution or servicing fee or other expenses charged to
that class. Expenditures not related to the sale or servicing of a particular
class shall not be presented to the Directors to justify any fee attributable to
that class. The statements, including the allocations upon which they are based,
shall be subject to the review and approval of the independent Directors in the
exercise of their fiduciary duties.
9. Accounting Methodology. (a) The following procedures shall be
implemented in order to meet the objective of properly allocating income and
expenses among the Funds:
(1) On a daily basis, a fund accountant shall calculate the Plan Fee to
be charged to each 12b-1 class of shares by calculating the average daily net
asset value of such shares outstanding and applying the applicable fee rate of
the respective class to the result of that calculation.
(2) The fund accountant will allocate designated Class Expenses, if
any, to the respective classes.
(3) The fund accountant shall allocate income and Corporate Level and
Fund Expenses among the respective classes of shares based on the net asset
value of each class in relation to the net asset value of the Fund for Fund
Expenses, and in relation to the net asset value of the Masters Series for
Corporate Level Expenses. These calculations shall be based on net asset values
at the beginning of the day.
(4) The fund accountant shall then complete a worksheet, developed for
purposes of complying with this Section of this Plan, using the allocated income
and expense calculations from Paragraph (3) above, and the additional fees
calculated from Paragraphs (1) and (2) above.
(5) The fund accountant shall develop and use appropriate internal
control procedures to assure the accuracy of its calculations and appropriate
allocation of income and expenses in accordance with this Plan.
10. Waiver or Reimbursement of Expenses. Expenses may be waived or
reimbursed by any adviser to the Masters Series, by the Masters Series'
underwriter or any other provider of services to the Masters Series without the
prior approval of the Masters Series' Board of Directors.
11. Effectiveness of Plan. This Plan shall not take effect until it has
been approved by votes of a majority of both (a) the Directors of the Masters
Series and (b) those Directors of the Masters Series who are not "interested
persons" of the Masters Series (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan, cast in person at a
meeting (or meetings) called for the purpose of voting on this Plan.
12. Material Modifications. This Plan may not be amended to modify
materially its terms unless such amendment is approved in the manner provided
for initial approval in paragraph 10 hereof.
13. Limitation of Liability. The Directors of the Masters Series and the
shareholders of each Fund shall not be liable for any obligations of the Masters
Series or any Fund under this Plan, and PASI or any other person, in asserting
any rights or claims under this Plan, shall look only to the assets and property
of the Masters Series or such Funds in settlement of such right or claim, and
not to such Directors or shareholders.
<PAGE>
IN WITNESS WHEREOF, the Masters Series, on behalf of the Funds, has
adopted this Multiple Class Plan as of the ___th day of ______, 1998.
PILGRIM AMERICA MASTERS SERIES,INC.
By: _____________________________
Name:____________________________
Title:___________________________
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 944689
<NAME> Pilgrim America Masters Asia-Pacific Equity Fund
<SERIES>
<NUMBER> 011
<NAME> Class A
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 41,706
<INVESTMENTS-AT-VALUE> 33,798
<RECEIVABLES> 4,074
<ASSETS-OTHER> 351
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 38,223
<PAYABLE-FOR-SECURITIES> 1,476
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 975
<TOTAL-LIABILITIES> 2,451
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,577
<SHARES-COMMON-STOCK> 2,687
<SHARES-COMMON-PRIOR> 2,972
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 126
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 19,770
<ACCUM-APPREC-OR-DEPREC> (7,909)
<NET-ASSETS> 16,375
<DIVIDEND-INCOME> 497
<INTEREST-INCOME> 80
<OTHER-INCOME> 0
<EXPENSES-NET> 653
<NET-INVESTMENT-INCOME> (76)
<REALIZED-GAINS-CURRENT> (17,598)
<APPREC-INCREASE-CURRENT> (13,550)
<NET-CHANGE-FROM-OPS> (31,224)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,339
<NUMBER-OF-SHARES-REDEEMED> 2,624
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (38,037)
<ACCUMULATED-NII-PRIOR> 0
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