SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant X
Filed by a party other than the registrant
Check the appropriate box:
X Preliminary proxy statement
Definitive proxy statement
Definitive additional materials
Soliciting material pursuant to Rule 14a-11(c) or
Rule 14a-12
Pilgrim Regional Bank Shares Inc.
(Name of Registrant as Specified in Its Charter)
Pilgrim Regional Bank Shares Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
X $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
$500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
Fee computed on table below per Exchange Act
Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
__________________________________________________________
(2) Aggregate number of securities to which transaction
applies:
________________________________________________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act
Rule 0-11:
________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________
Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identifying the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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<PAGE>
PILGRIM REGIONAL BANKSHARES INC.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
January , 1996
Dear Shareholder:
We are pleased to enclose the Notice and Proxy Statement for
the Special Meeting of Shareholders of Pilgrim Regional
BankShares Inc. (the "Fund"), to be held at 10:00 a.m., local
time, _________, February __, 1996 at the offices of the Fund.
Please take the time to read the Proxy Statement and cast your
vote, since it covers matters that are important to the Fund and
to you as a shareholder.
At the Special Meeting, Fund shareholders will be asked to
consider and vote on several proposals.
First, the Fund is seeking approval of an amendment to the
following three fundamental investment policies:
o Investment policy regarding regional banks. A change
is proposed to permit the Fund to expand the types of
depository institutions in which it normally invests at
least 65% of its assets to include (1) regional banks
and their holding companies which have less than $1
billion in consolidated assets (the current limit), (2)
state-chartered banks, and (3) thrift institutions, and
(4) in savings accounts of mutual thrifts.
o Investment restriction against investing more than 25%
of the Fund's assets in any industry other than the
banking industry. An amendment of this restriction
would allow the Fund to pursue the proposed investment
policy discussed above.
o Fundamental investment restriction against investing in
other investment companies. The elimination of this
restriction would permit the Fund to invest in other
investment companies.
The Board of Directors of the Fund believes that the
adoption of these changes will allow the Fund to pursue a more
flexible investment strategy that would reflect the changes in
the banking and related industries.
The Fund is also seeking approval of the following
proposals:
o Change of Fund's Name. The Fund's name would be
changed to "Pilgrim America BankShares Inc."
o Determination that the Fund will remain a closed-end
investment company. The Fund is required to hold a vote
on whether the Fund should convert from a closed-end
investment company to an open-end investment company.
The Board of Directors believes that the closed-end
nature of the Fund has been important to the Fund's
investment strategies to date, and that conversion to
an open-end investment company could have a detrimental
effect by causing the Fund to change its investment
strategies to decrease its holdings in less liquid
securities. The Board belives this conversion could
also expose the Fund to risks of a substantial
reduction in size and a corresponding increase in the
Fund's expense ratio and could cause the Fund to
realize substantial long-term capital gains upon the
sale of its holdings, which would be taxed to Fund
shareholders. Accordingly, the Board recommends that
shareholders approve the Fund retaining its closed end
status.
o Other Proposals. The Fund is asking shareholders to
elect Directors for the upcoming year, and to ratify
the appointment of new independent auditors, KPMG Peat
Marwick LLP.
The Directors of the Fund have concluded that the proposals
are in the best interests of the Fund and its shareholders and
recommend that you vote FOR each of the proposals, which are
described in more detail in the enclosed Proxy Statement.
We appreciate your participation and prompt response in this
matter and thank you for your continued support.
Sincerely,
Robert W. Stallings
President
Pilgrim Regional BankShares Inc.
_________________
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 331-1080
Notice of Special Meeting of Shareholders
to be Held on ___________, 1996
To the Shareholders:
A Special Meeting of Shareholders of Pilgrim Regional
BankShares Inc. (the "Fund") will be held on __________,
_________, 1996 at 10:00 a.m., local time, at the offices of the
Fund, Two Renaissance Square, 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004 for the following purposes:
1. To approve or disapprove the following changes to the Fund's
investment policies:
a. To amend the Fund's fundamental investment policy of
normally investing at least 65% of its total assets in
equity securities of regional banks to expand the types
of depository institutions in which the Fund may invest
and to allow the Fund to invest in savings accounts of
mutual thrifts.
b. To amend the Fund's fundamental investment restriction
on investing more than 25% of the Fund's assets in any
industry other than the banking industry to provide
that the Fund may not invest more than 25% of its
assets in any industry other than banking and related
industries.
c. To eliminate the Fund's fundamental investment
restriction on investing in the securities of other
investment companies.
2. To approve an amendment to the Fund's Restated Articles of
Incorporation to change the name of the Fund from Pilgrim
Regional Bank Shares Inc. to Pilgrim America BankShares Inc.
3. To determine whether the Fund should remain a closed-end
investment company.
4. To elect five directors to serve until their successors are
elected and qualified.
5. To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors for the Fund for the fiscal year ending
December 31, 1996.
6. To transact such other business as may properly come before
the Special Meeting of Shareholders or any adjournments
thereof.
Shareholders of record at the close of business on [January
2, 1996] are entitled to notice of, and to vote at, the meeting.
Your attention is called to the accompanying Proxy Statement.
Regardless of whether you plan to attend the meeting, PLEASE
COMPLETE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD so
that a quorum will be present and a maximum number of shares may
be voted. If you are present at the meeting, you may change your
vote, if desired, at that time.
By Order of the Board of Directors
Nancy L. Peden
Assistant Secretary
January __, 1996
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
<PAGE>
Pilgrim Regional BankShares Inc.
PROXY STATEMENT
Special Meeting of Shareholders to be held on __________, 1996
This Proxy Statement is furnished by the Board of Directors
of Pilgrim Regional BankShares Inc. (the "Fund") in connection
with the Fund's solicitation of voting instructions for use at a
Special Meeting of Shareholders of the Fund (the "Meeting") to be
held on __________, ___________, 1996, at 10:00 a.m., local time,
at the offices of the Fund, Two Renaissance Square, 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004 for the
purposes set forth below and in the accompanying Notice of
Special Meeting. At the Meeting, the shareholders of the Fund
will be asked:
1. To approve or disapprove the following changes to the
Fund's investment policies:
a. To amend the Fund's fundamental investment policy
of normally investing at least 65% of its total
assets in equity securities of regional banks to
expand the types of depository institutions in
which the Fund may invest and to allow the Fund to
invest in savings accounts of mutual thrifts.
b. To amend the Fund's fundamental investment
restriction on investing more than 25% of the
Fund's assets in any industry other than the
banking industry to provide that the Fund may not
invest more than 25% of its assets in any industry
other than banking and related industries.
c. To eliminate the Fund's fundamental investment
restriction on investing in the securities of
other investment companies.
2. To approve an amendment to the Fund's Restated Articles
of Incorporation to change the name of the Fund from
Pilgrim Regional Bank Shares Inc. to Pilgrim America
BankShares Inc.
3. To determine whether the Fund should remain a closed-
end investment company.
4. To elect five directors to serve until their successors
are elected and qualified.
5. To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors for the Fund for the fiscal year
ending December 31, 1996.
6. To transact such other business as may properly come
before the Special Meeting of Shareholders or any
adjournments thereof.
Solicitation of proxies is being made primarily by the
mailing of this Notice and Proxy Statement with its enclosures on
or about January __, 1996. In addition to the solicitation of
proxies by mail, officers of the Fund and employees of Pilgrim
America Investments, Inc. ("Pilgrim America" or the "Investment
Manager"), investment adviser to the Fund and its affiliates,
without additional compensation, may solicit proxies in person or
by telephone, telegraph, facsimile, or oral communication.
Shareholder Communications Corporation ("SCC") has been engaged
to assist in the solicitation of proxies. Authorization to
execute proxies may be obtained by telephonic or electronically
transmitted instructions. Proxies that are obtained
telephonically will be recorded in accordance with the procedures
set forth below. Management of the Fund believes that these
procedures are reasonably designed to ensure that the identity of
the shareholder casting the vote is accurately determined and
that the voting instructions of the shareholder are accurately
determined. The cost of this assistance is expected to be
approximately $_____. The costs associated with such
solicitation and the Meeting will be borne by the Fund.
In all cases where a telephonic proxy is solicited, the SCC
representative is required to ask you for your full name,
address, social security or employer identification number, title
(if you are authorized to act on behalf of an entity, such as a
corporation), and the number of shares owned. If the information
solicited agrees with the information provided to SCC by the
Fund, then the SCC representative has the responsibility to
explain the process, read the proposals listed on the proxy card,
and ask for your instructions on each proposal. The SCC
representative, although he or she is permitted to answer
questions about the process, is not permitted to recommend to the
shareholder how to vote, other than to read any recommendations
set forth in the proxy statement. Within 72 hours, SCC will send
you a letter or mailgram to confirm your vote and asking you to
call SCC immediately if your instructions are not correctly
reflected in the confirmation.
If you wish to participate in the meeting of Shareholders,
but do not wish to give your proxy by telephone, you may still
submit the proxy card originally sent with your proxy statement
or attend in person. Replacement proxy cards may be obtained by
calling
1-800-______________. Any proxy given by you, whether in writing
or by telephone is revocable.
Each share of Common Stock, $.001 par value, of the Fund
(the "Common Stock") is entitled to one vote. A shareholder may
revoke the accompanying proxy or a proxy given telephonically at
any time prior to its use by filing with the Fund a written
revocation or duly executed proxy bearing a later date. In
addition, any shareholder who attends the Meeting in person may
vote by ballot at the Meeting, thereby cancelling any proxy
previously given. The persons named in the accompanying proxy
will vote as directed by the proxy, but in the absence of voting
directions in any proxy that is signed and returned, they intend
to vote FOR each of the proposals and may vote in their
discretion with respect to other matters not now known to the
Board of the Fund that may be presented at the Meeting.
Shareholders of the Fund at the close of business on
[January 2, 1996] (the "Record Date") will be entitled to be
present and give voting instructions for the Fund at the Meeting
with respect to their shares of Common Stock owned as of such
record date. Each share of Common Stock is entitled to one vote.
As of December 31, 1995, there were _____________ shares of
Common Stock outstanding and entitled to vote as of such record
date, representing total net assets of approximately
$_____________.
A majority of the outstanding shares of the Fund on the
Record Date, represented in person or by proxy, must be present
to constitute a quorum for the transaction of the Fund's business
at the Meeting.
A "Majority Vote" is required for the approval of Proposals
1a, 1b and 1c. For the purposes of this requirement, a "Majority
Vote" shall mean a "majority of the outstanding voting
securities" of the Fund as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"), i.e., (i) 67% or more of
the shares of the Fund present at the Meeting if more than 50% of
the outstanding shares of the Fund are represented at the Meeting
in person or by proxy, or (ii) more than 50% of the outstanding
shares of the Fund, whichever is less. The vote of a majority of
the shares outstanding is required for the approval of Proposal
2. If the change in investment policy in Proposal 1a is not
approved by the shareholders, Proposal 1b will not be adopted,
even if the shareholder vote necessary to adopt it is received.
Proposal 3, determining whether the Fund should remain a
closed-end company, no minimum vote is required to remain closed-
end. To convert the Fund to an open-end investment company, a
Majority Vote, as defined above, against the Proposal is
required. A majority of the votes cast at the Meeting is
required for the election of Board Members (Proposal 4) and for
the ratification of independent accountants (Proposal 5).
If a quorum is not present at a Meeting, or if a quorum is
present but sufficient votes to approve any or all of the
Proposals are not received, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further
solicitation of proxies. In determining whether to adjourn the
Meeting, the following factors may be considered: the nature of
the Proposals that are the subject of the Meeting, the percentage
of votes actually cast, the percentage of negative votes actually
cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for
the solicitation. Any adjournment will require the affirmative
vote of a majority of those shares represented at the Meeting in
person or by proxy. A shareholder vote may be taken on one or
more of the Proposals in this combined proxy statement prior to
any adjournment if sufficient votes have been received with
respect to a Proposal. If a shareholder abstains from voting as
to any matter, then the shares held by such shareholder shall be
deemed present at the Special Meeting of the Fund for purposes of
determining a quorum and for purposes of calculating the vote
with respect to such matter, but shall not be deemed to have been
voted in favor or against such matter. If a broker returns a
"non-vote" proxy, indicating a lack of authority to vote on a
matter, then the shares covered by such non-vote shall be deemed
present at the Special Meeting for purposes of determining a
quorum, but shall not be deemed represented at the Special
Meeting for purposes of calculating the vote with respect to such
matter.
To the knowledge of the Fund, as of December ___, 1995, no
current Director of the Fund owns 1% or more of outstanding
shares of the Fund and the officers and Directors of the Fund
own, as a group, less than 1% of the shares of the Fund. To the
knowledge of the Fund, as of December __, 1995, no person owned
beneficially more than 5% of the outstanding shares of the Fund.
Pilgrim America, whose address is Two Renaissance Square, 40
North Central Avenue, Suite 1200, Phoenix, Arizona 85004, is the
Investment Manager of the Fund.
1. a. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT
POLICY REGARDING INVESTMENT IN REGIONAL BANK SHARES
The Fund's Board of Directors has approved a change in the
fundamental investment policies of the Fund. The primary
investment objective of the Fund is capital appreciation, and
income is a secondary objective. The Fund's fundamental policies
currently provide the following:
The Fund seeks to achieve its objectives by investing,
under normal market conditions, at least 65% of its
total assets in equity securities of Regional Banks
with consolidated assets of $1 billion or more and the
bank holding companies of such banks.
For these purposes, equity securities include common stocks and
securities convertible into common stock (such as convertible
bonds, convertible preferred stock, and warrants) but do not
include non-convertible preferred stocks or adjustable rate
preferred stocks.
The Fund's Board of Directors has approved a change in the
Fund's investment policy to expand the type of depository
institutions in which the Fund may invest in seeking its
investment objectives. The new policy would be as follows:
The Fund seeks to achieve its objectives by 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.
The purpose of this change is to provide the Fund with greater
flexibility in pursuing its investment objectives and to better
enable the Fund to select portfolio securities that are believed
to be well positioned to take advantage of attractive investment
opportunities developing in the banking industry and the trend
toward consolidation in the banking industry.
The policy of investing at least 65% in equity securities of
regional banks and their holding companies has been designated in
the prospectuses for the Fund as fundamental, and a change in
this policy requires approval of a Majority Vote (as defined
above).
Background of the Current Investment Policy
When the Fund adopted its investment policy regarding
regional banks at the time of the Fund's initial public offering
in 1986, the Fund's prospectus noted a distinction between the
activities of regional banks and those of smaller banks and
thrifts. These smaller banks and thrifts, which include savings
and loan associations and savings banks, typically offered fewer
services than larger regional banks and limited their activities
to smaller geographical areas. Because of these differences, the
manager of the Fund then believed that regional banks offered the
best potential for future growth and were best able to take
advantage of trends that the manager perceived in the banking
industry, including the trends toward deregulation and interstate
banking.
The Fund has continued to make this distinction between the
various types of banks. In the Fund's prospectus for its 1993
rights offering, the distinctions between the various types of
commercial banks were described as follows:
Although commercial banks range in size from small
banks under $10 million in total assets to the largest
bank holding companies with assets well over $100
billion, they can be classified into three general
categories. 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 typically 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 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". (emphasis added).
Effect of the Proposed Amendment
The Fund's Investment Manager has told the Board of
Directors that, increasingly, the distinction between regional
banks and smaller community banks and thrifts has become blurred.
In particular, there is a growing trend for thrifts and community
banks to offer many of the same services as regional banks, and
to expand their business in new geographic areas. Many community
banks and thrifts, as well as smaller regional banks, have been
acquired by regional banks, and the Investment Manager believes
that other depository institutions will be attractive candidates
for acquisition. The Investment Manager also believes that the
same type of opportunities that the Fund sought when it commenced
operations in 1986, including opportunities from trends in the
banking industry towards deregulation, consolidation, and
interstate banking, are now presented by a broader array of
depository institutions.
Fund management believes that the proposed new investment
policy would better reflect the changes that have occurred in the
banking industry and would allow the Fund to take greater
advantage of the investment opportunities offered by community
banks and thrifts. The proposed investment policy would also
allow the Fund to invest assets in savings accounts of mutual
thrifts, which would allow the Fund to purchase securities at an
advantageous price should such thrifts convert to stock
companies.
In sum, the effect of the proposed amendment would be to
change the Fund's primary investment policy, i.e. the way the
Fund invests at least 65% of its assets, as follows:
(i) remove the restriction on investment in regional banks
having less than $1 billion in consolidated assets,
(ii) allow the Fund to increase its investment in thrifts
and state-chartered and community banks,
(iii) allow the Fund to increase its investment in the
savings accounts of mutual thrifts.
The Fund will retain unchanged its policy permitting the
Fund to invest 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 Pilgrim America, and
in Debt Securities. "Debt Securities" for these purposes are
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. Investments by the
Fund pursuant to this policy are not restricted to investments in
financial institutions or to any other industry, or to
investments in U.S. companies, but may be made solely at the
discretion of Pilgrim America and the Fund, subject, of course,
to the other investment restrictions imposed by the Fund.
The Fund would also retain unchanged its policy regarding
defensive investments. When the Investment Manager determines
that it is in the best interest of the Fund to assume a defensive
position due to an unusual degree of financial unsteadiness or
risk existing in the banking and related industries, the Fund may
invest more than 25% and as much as 100% of its total assets in
Short-Term Debt Securities. "Short-Term Debt Securities" for
these purposes are Debt Securities maturing within one year from
the date of purchase. To the extent that the Fund is in a
defensive position, it will not be able to pursue its investment
objective. Assumption of a defensive position is purely
discretionary with the Investment Manager, and it is believed the
Fund has yet to assume a defensive position since it commenced
operations.
Also unchanged is that the Fund has no policy regarding the
degree of liquidity of the securities it will purchase.
Recommendation and Required Vote
Assuming a quorum is present, a Majority Vote, as defined
above, is required to approve the amendment to the Fund's
investment policy.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT
SHAREHOLDERS OF THE FUND VOTE FOR THE PROPOSED
CHANGES TO THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTMENT IN REGIONAL BANK SHARES
1. b. PROPOSAL TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT
RESTRICTION ON INVESTING MORE THAN 25% OF THE FUND'S
ASSETS IN ANY INDUSTRY OTHER THAN THE BANKING INDUSTRY.
If Proposal 1a, changing the Fund's investment policy
regarding investment in regional banks, is adopted, the Fund will
be investing at least 65% of its assets in the equity securities
of commercial banks, and in other types of depository
institutions and in the depository accounts of mutual savings and
loans institutions. Currently, the Fund is subject to an
investment restriction that prohibits the Fund from investing
more than 25% of its total assets in any industry or industries
other than the banking industry, except for temporary or
defensive purposes. Because the types of depository institutions
in which the Fund would be permitted to invest under the proposed
new investment policy may not be considered to be part of the
"banking" industry, the current restriction could limit the
ability of the Fund to invest in depository institutions to the
extent that would otherwise be permitted under the Fund's
proposed new investment policy.
Accordingly, the Board of Directors has recommended that the
Fund's investment restriction be amended as follows:
[The Fund may not] invest more than 25% of its total
assets in any industry or industries other than the
banking and related industries, except for temporary or
defensive positions.
This proposal will only be adopted if the shareholders of
the Fund approve the adoption of Proposal 1a.
Recommendation and Required Vote
Assuming a quorum is present, a Majority Vote, as defined
above, is required to approve the amendment to the Fund's
investment restriction.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT
SHAREHOLDERS OF THE FUND VOTE FOR THE PROPOSED
CHANGES TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
1. c. PROPOSAL TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT
RESTRICTION ON INVESTING IN THE SECURITIES OF OTHER
INVESTMENT COMPANIES.
The Board has also proposed that the Fund's fundamental
investment restriction on investing in the securities of other
investment companies be eliminated so that the Fund may invest
in other investment companies. The purpose of the proposed
change is to provide the Fund greater flexibility in pursuing its
investment objective. Approval of the recommended change does
not automatically mean that the Fund would purchase securities of
other investment companies. An investment analysis would be
conducted before investment decisions on those securities, just
as they are currently conducted on other portfolio candidates.
Lifting the restriction on investing in investment companies will
provide the flexibility to take advantage of investment
opportunities arising from other investment companies. Under
current law, investment by the Fund in other investment companies
would be limited by the 1940 Act.
If the Fund were to invest in another investment company,
the underlying investment company would incur expenses for advice
and operations. Therefore, the Fund's shareholders would pay for
the expenses of the Fund and also contribute to the expenses
borne by a fund held in its portfolio. Thus, there could be a
layering of fees. However, an investment company may nonetheless
present an attractive investment opportunity. Further, if shares
of other closed-end companies are considered, they may trade at a
discount, in which case, the Fund would have the advantage of
getting a "premium" on its investment dollar.
Currently, the Fund's investment restriction regarding
investing in the securities of other investment companies is as
follows:
[The Fund may not] purchase securities of other
investment companies, except in connection with a
merger, consolidation, acquisition or reorganization.
If the shareholders approve this proposal, this restriction would
be eliminated. If so eliminated, investment in investment
companies would still be subject to limitations under applicable
law.
Under the 1940 Act, the Fund is subject to various
restrictions in purchasing the securities of closed-end and open-
end investment companies. The 1940 Act currently limits the
Fund, immediately after a purchase, to: (i) owning no more than
3% of the total outstanding voting stock of any other investment
company; (ii) having no more than 5% of its total assets invested
in securities of another single investment company; and (iii)
investing no more than 10% of its total assets in the securities
of other investment companies .
Recommendation and Required Vote
Assuming a quorum is present, a Majority Vote, as defined
above, is required to approve the elimination of the Fund's
investment policy.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT
SHAREHOLDERS OF THE FUND VOTE FOR THE ELIMINATION OF
THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
REGARDING INVESTMENT IN THE SECURITIES
OF OTHER INVESTMENT COMPANIES
2. PROPOSAL TO AMEND THE FUND'S RESTATED ARTICLES OF
INCORPORATION TO CHANGE THE NAME OF THE FUND
The Investment Manager proposes to amend the Fund's Restated
Articles of Incorporation (the "Amendment") to change the name of
the Fund. The name of the Fund, Pilgrim Regional BankShares
Inc., reflects the current investment policy of the Fund which is
to invest at least 65% of its assets in the equity securities of
regional banks. The Investment Manager believes it is in the
best interest of the Fund to change its investment policy and
investment restrictions as described in Proposals 1a and 1b. To
reflect this change the Investment Manager proposes to amend the
Restated Articles of Incorporation to change the name of the
Fund. This name change will only be proposed if the shareholders
of the Fund approve the adoption of Proposal 1a. It is also
proposed to change the name of the Fund from "Pilgrim" to
"Pilgrim America" to conform the Fund's name to the name of the
family of funds managed by the Investment Manager. Therefore, if
proposal 1a is approved by shareholders of the Fund, the
Investment Manager proposes to amend the Restated Articles of
Incorporation to change the name of the Fund to:
"Pilgrim America BankShares Inc."
If Proposal 1a is not approved by shareholders, the
Investment Manager proposes to amend the Restated Articles of
Incorporation to change the name of the Fund to:
"Pilgrim America Regional BankShares Inc."
Recommendation and Required Vote
Assuming a quorum is present, the affirmative vote of the
holders of a majority of the outstanding shares of the Fund is
required to approve the amendment of the Fund's Restated Articles
of Incorporation.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT
SHAREHOLDERS OF THE FUND VOTE FOR THE AMENDMENT TO
THE FUND'S RESTATED ARTICLES OF INCORPORATION
3. PROPOSAL TO REMAIN A CLOSED-END INVESTMENT COMPANY
Background
The Articles of Incorporation of the Fund require that, in
the first six months of 1996, the Board of Directors call a
meeting of shareholders for the purposes of determining whether
the Fund should be converted from a closed-end investment company
to an open-end investment company. A Majority Vote, as
previously defined, would be required for such a conversion.
At the Fund's October 1995 Board meeting, the Board
considered the issue of conversion to open-end status. In
particular, the Board reviewed materials presented to it by Fund
management, including detailed information concerning the legal
and operational differences between closed-end and open-end
investment companies, the Fund's operations and performance to
date as a closed-end fund, the historic relationship between the
market price of its shares and their net asset value, and the
possible effects of conversion on the Fund. The Board voted
unanimously in favor of the Fund remaining a closed-end
investment company and recommended that a proposal to that effect
be presented to the shareholders.
In particular, the Board believes that the closed-end nature
of the Fund has been important to the Fund's investment
strategies, and that performance to date as a closed-end fund has
served its shareholders well. The Board further believes that
conversion of the Fund to an open-end investment company could
have a detrimental effect on the long-term investment goals of
the Fund by requiring the Fund to change its investment
strategies to decrease its holdings in less liquid securities and
to sell securities to increase its cash reserves for the purposes
of meeting redemptions. A conversion could also expose the Fund
to risks of a substantial reduction in size and a corresponding
increase in the Fund's expenses as a percentage of net asset
value. Moreover, sale of Fund holdings could cause the Fund to
realize substantial long term capital gains, which would be taxed
to Fund shareholders.
Because open-end investment companies are required to redeem
their shares at net asset value, conversion of the Fund to an
open-end investment company would have the effect of eliminating
any discount between the market value per share and the net asset
value per share of the shares of the Fund. The Fund's shares
have historically traded at both a discount and a premium to the
net asset value, although at most times they have traded at a
discount to net asset value. As of December 29, 1995, the market
price of a share of the Fund was $_____, and the net asset value
per share was $_____.
While conversion would eliminate the possibility of the
Fund's shares ever trading at a discount from net asset value,
the Board believes that eliminating the possibility of a discount
does not justify the significant change in the Fund's investment
strategy, the risk of reduced size, and the potential adverse
effect on the Fund's investment performance, the expenses that
conversion would entail, and the likely realization of capital
gains, which would be taxed to shareholders. The factors
considered by the Board are discussed in greater detail below.
Comparison between Closed-End and Open-End Investment Companies
Generally, closed-end funds, such as the Fund, neither
redeem outstanding shares of their stock nor continuously offer
new stock for sale; therefore, a closed-end fund operates with a
relatively fixed capitalization. Shareholders who wish to buy or
sell their shares generally must do so through a broker-dealer,
and receive or obtain whatever price the market will bear. This
price may be more or less than the net asset value per share of
the closed-end fund's shares. Open-end funds, on the other hand,
issue redeemable shares entitling shareholders to tender for
their proportionate share of a fund's net asset value. Also,
open-end funds generally issue new shares at the fund's net asset
value.
In addition to the structural distinctions between the two
types of funds, several other significant distinctions exist.
These distinctions give rise to advantages and disadvantages to
the Fund if, on the one hand, it remains closed-end or if, on the
other hand, it converts to open-end. Based upon a report
provided by the Investment Manager, the Board of Directors has
considered the advantages and disadvantages to the Fund and its
shareholders associated with remaining closed-end or converting
to open-end. The Board considered these advantages and
disadvantages in reaching its conclusion that the Fund should
remain closed-end. These advantages and disadvantages are
described below.
Advantages of Remaining a Closed-End Investment Company
1. Investment Strategies
Because they do not have to be concerned about maintaining
cash to be able to pay redemptions, and because they usually do
not have inflows of new capital from offering new shares, closed-
end funds may be more fully invested than open-end funds. In
contrast, open-end funds generally maintain some buffer of cash
and highly liquid assets to meet net redemptions and must
consider cash flow needs when making investment decisions. Open-
end funds always face the possibility of having to liquidate
portfolio securities at an inopportune time to meet redemption
demands. Closed-end funds, therefore, have more flexibility to
invest with greater emphasis on long-term appreciation.
As stated in the Fund's prospectus dated January 24, 1986
and the Fund's prospectus dated June 1, 1993, the primary
investment objective of the Fund is long-term capital
appreciation. Income is only a secondary objective. As of
December 31, 1995, ___% of the Fund's assets were invested in
equity securities. Apart from a short time in 19__ and 1993
following rights offerings, the Fund has been fully invested
consistent with its objectives and policies. In keeping with its
goal of long-term capital appreciation, the portfolio turnover of
the Fund is low. For the period ended December 31, 1995, the
portfolio turnover rate was ___%. Fund management believes that
this low portfolio turnover rate is partially due to the fact
that, as a closed-end fund, the Fund has not had to meet
fluctuating demands for cash.
The Board of Directors believes that the Fund's investment
strategies as a closed-end fund has produced favorable results
for shareholders. The Fund recently received a five star rating
from Morningstar, Inc. for investment companies in the Closed-end
Equity Fund category, which includes over 40 funds. This is the
highest ranking given by Morningstar. As of December 15, 1995,
total year-to-date return based on net asset value was _____%.
Between January 1, 1995 and December 31, 1995, the Fund grew from
$____________ to $_______________ in total assets, which increase
is attributable in large part to capital appreciation. If the
Fund's investment strategies were to change or the size of the
Fund were to decrease, the Fund's performance could be affected.
While the Fund's performance record is not entirely due to
the closed-end nature of the Fund (other factors include the
quality of Fund management and the timeliness of the Fund's
investment strategy), the Investment Manager has reported to the
Board that the closed-end structure has contributed to this
performance. It has enabled the Fund to be more fully invested,
and has allowed the Fund to be managed without an emphasis on the
liquidity of its securities. As discussed below, the closed-end
nature of the Fund allows it to invest in a greater percentage of
relatively illiquid securities, that in the opinion of the Fund's
manager, have above-average long-term appreciation opportunity.
Fund management believes that this flexibility has enhanced
performance and has been in the best interests of the Fund and
its shareholders.
As an open-end investment company, the Fund would be more
vulnerable to market swings. Large net purchases of shares may
occur around market highs and net redemptions around market lows,
which may be bad times to invest or liquidate portfolio
positions. In a falling market, for example, redemptions may
increase and liquidation of portfolio securities in an open-end
fund must increase to meet those redemptions. In the event
temporary investments and borrowing are exhausted, the Fund would
have to raise cash quickly, and might be forced to sell
securities with good growth prospects or that have the greatest
liquidity, which, in either instance, the Fund might prefer to
hold. Moreover, net redemptions tend to have a "snowball" effect
in that they may in turn cause still more redemptions. This
could magnify the impact of any market changes.
Fund management believes that a strategy to address net
redemptions would, at least in the short term, be inconsistent
with the Fund's investment objectives and detrimental to the
interests of shareholders. As discussed above, the Fund's
investment strategy emphasizes acquisitions for long-term
investment. The Fund often acquires and holds securities of
banking companies that it believes are potential candidates for
acquisition. A strategy to address net redemptions would require
the Fund to modify this strategy, and perhaps to sell some of its
holdings.
2. Liquidity
In general, under current federal law and the law of some
states, open-end funds may not have more than 15% of their
holdings in illiquid securities. In addition, the laws of some
states limit investment by open-end funds in restricted
securities (unless liquid under certain procedures) to 10% of the
total assets of a fund. Closed-end funds, on the other hand,
face no such restrictions.
Some of the bank securities in which the Fund invests are
not listed or traded on a national securities exchange or on the
National Association of Securities Dealers Automated Quotation
System, or they may be listed but trade infrequently. As a
result, the market for these securities may not be as active as
that of some exchange-or NASDAQ-traded securities. Consequently,
such securities could be deemed to be illiquid securities. The
Fund currently has no policy regarding the degree of liquidity of
the securities it purchases. The Fund's Investment Manager has
reported to the Board that as of _____, 199__ nearly ____% of the
Fund's net assets are securities that are illiquid or marginally
liquid under SEC guidelines.
The Investment Manager has reported to the Board that it
believes that the ability to invest in less liquid securities has
made an important contribution to the Fund's performance. In the
event of conversion to an open-end fund, the Fund would be
required to sell securities in order to meet the liquidity
requirements for open-end funds. This would require a sell-off
of many of the positions described above. Fund management
believes that it is in the best interests of the Fund to retain
its current holdings. A limitation on the ability of the Fund to
hold illiquid securities would also limit the Fund's future
investment flexibility and possibly its performance.
<PAGE>
3. Size of the Fund and the Fund's Expense Ratios
Open-end funds tend to be more subject to fluctuations in
size than closed-end funds due to the possibility of net
redemptions. Depending on the size of the discount of share
value to net asset value, conversion of the Fund could result in
a substantial number of shares being presented for redemption.
This could result in a decline in the size of the Fund. As of
December 31, 1994, the Fund had $155.1 in total assets. By
December 31, 1995, total assets had grown to approximately $___
million.
Decreasing the size of the Fund would likely result in
increased expenses per share. The Fund incurs certain
operational expenses, including investment advisory fees,
custodial fees, transfer agency fees, legal and audit fees, and
others. The Fund's current Investment Management Agreement
provides investment management fees with breakpoints that reduce
the per share fee as the Fund's assets increase.(1) For the year
ended December 31, 1995, this amounted to an advisory fee of
___%, expressed as a ratio to average net assets. If the Fund
were to shrink to $150,000,000 or $100,000,000, the advisory fee
expressed as a ratio to net assets would be .79% and .83%,
respectively.
Some of the Fund's other expenses, such as custody fees, are
likely to decrease if the Fund's assets decrease on an absolute
basis, although they may increase as a percentage of total
assets. Other expenses, such as professional and Directors fees,
are more fixed and will either remain the same or decrease more
slowly than the asset shrinkage. Thus, a reduction in the Fund's
size would result in expenses being spread over fewer assets, and
would increase the expense ratio of the Fund, i.e., the ratio of
expenses to average net assets.
In addition, if the expense ratio were to increase by too
much, it could impede the ability of the Fund to compete with
other, similar Funds. This could result in further redemptions
by shareholders. Fund management believes that if the Fund were
to shrink to less than $50,000,000 in total assets, there would
be a risk that the Fund would not be economically viable, and
might have to be liquidated or merged with another investment
company.
____________________________
(1) Currently, the investment management fees as a percentage of
average net assets are:
Average Weekly
Net Assets Management Fees
$0 to $30 million 1.00%
Next $95 million 0.75%
over $125 million 0.70%
<PAGE>
4. Tax Ramifications
In meeting shareholder redemptions if the Fund converts to
open end, the Fund would be required to sell portfolio
securities. The Fund owns many securities that have been held
for a considerable time and that have current market values in
excess of their original cost. These appreciated securities
represent a substantial portion of the net asset value of the
Fund. Should the Fund convert to an open-end structure, there
are adverse tax consequences that would occur if there are
significant redemptions made by shareholders. First, those
shareholders who redeem their shares would face a tax liability
on the gains recognized upon redemption. Second, capital gains
would be realized by the Fund as it sells securities to raise
cash to meet such redemptions. As required by the Internal
Revenue Code for regulated investment companies, these gains
would be passed on to the remaining shareholders in the form of
distributions and would be taxable to the shareholders at the
current capital gains tax rate. To make this distribution, the
Fund may be required to sell additional portfolio securities,
thereby reducing further the size of the Fund and, possibly,
creating additional capital gain.
As of December 31, 1995, the Fund reflected an appreciation
over book value of securities held of $__ million. The
Investment Manager reported to the Board that it is likely that
the Fund would recognize some capital gain if it were required to
sell portfolio securities in connection with converting to an
open-end fund, and the gain would be passed on to shareholders
who would have to pay taxes on it. For example, assuming that
the capital gains rate is 28% and assuming that the securities
representing 100% of the total unrealized appreciation at
December 31, 1995 ($__________________________) are liquidated,
this translates to a potential tax liability of
$________________________, based on __________ shares outstanding
at December 31, 1995, or $_________ per share. This represents
_____% of the $_____________ market price at that date. If
securities representing 50% of the total unrealized appreciation
were liquidated, the potential tax liability would be
$________________________, or $_______ per share, representing
______ % of the market price on that date.
The factors described in numbers 1 through 4 above were
considered by the Board to be the most important factors in
considering the question of converting to an open-end fund.
Other factors that are less important but that the Board also
considered are described below.
5. New York Stock Exchange Listing
The Fund is currently listed on the New York Stock Exchange
(the "NYSE"). Conversion to an open-end fund would result in the
loss of this listing. This could be disadvantageous for the Fund
because some investors may consider a listing on the NYSE to be
important.
6. Reporting of Net Asset Value
As an open-end fund, the Fund would be required to compute
net asset value on a daily basis, as opposed to on a weekly basis
for a closed-end fund. This would result in increased expenses
for the Fund.
7. Blue Sky Restrictions and Costs
Because the Fund is listed on the NYSE, the offering of its
shares is not required to be registered under the securities laws
of most states. As an open-end fund no longer listed on the
NYSE, it would be required to observe certain state investment
limitations from which it is now exempt. For example, the laws
of some states limit the investment by open-end funds in
restricted securities (unless liquid under certain procedures) to
10% of the total assets of a fund. While state investment
limitations probably would not require changing fundamental
investment policies of the Fund and may not have a significant
impact on the Fund's investment operations, the Fund would incur
expenses in connection with registering in the states. It is
estimated that this cost would be approximately $60,000 to
$80,000 annually.
8. Underwriting Costs
If the Fund were to convert to open-end status it would need
to sell new shares in order to offset redemptions or to grow. A
principal underwriter would be needed for selling the new shares.
The cost of underwriting could be paid either by purchasers (in
the form of a front-end load) or by current stockholders (in the
form of a Rule 12b-1 distribution plan, which would require
separate shareholder approval). Redemption fees and contingent
deferred sales charges may also be employed. Currently, Rule
12b-1 fees for the open-end investment companies in the Pilgrim
America Group range from an annual rate of .25% to 1.0%. In any
case, a selling effort would likely result in increased costs to
the Fund.
9. Leverage; Raising Capital
The ability to borrow is more restricted in the case of
open-end funds than it is in the case of closed-end funds.
Closed-end funds can also issue preferred stock, not permitted to
open-end funds. The Fund to date has not utilized this
additional flexibility.
Advantages of Conversion to an Open-End Investment Company
1. Redeemability of Shares; Benefit to Stockholders
If the Fund converts to open-end status, shareholders would
be able to tender their shares for the pro rata portion of the
Fund's net asset value represented by such shares. Since the
commencement of operations of the Fund, its shares have
frequently traded at a discount to market value (although on
occasion the shares have traded at a premium). Thus, upon
conversion of the Fund to an open-end investment company,
shareholders of the Fund could realize promptly the full value of
the underlying assets. However, if the Fund is converted to an
open-end fund, any discount on the Fund's shares would most
likely be reduced prior to the date of such conversion because
the market, in anticipation of the ability to redeem shares at
net asset value, would most likely cause the market price for the
Fund's shares to increase to net asset value. In addition, if
the Fund were to institute a redemption fee, the benefit
resulting from the discount would be further reduced.
Although conversion would eliminate the possibility of
suffering a discount on a sale of Fund shares, it would also
eliminate the possibility of realizing a premium. Moreover, the
discount to net asset value can also benefit stockholders.
Stockholders of the Fund who participate in the dividend
reinvestment plan currently benefit from lower reinvestment
prices because of the discount. In addition, the discount allows
shareholders who purchase at a discount to have more assets than
they invested working for them. This can enhance returns from
investment in the Fund and enhance yield in relation to other
dividend-paying securities.
The Board of Directors is concerned that the benefit to
redeeming shareholders would come at the expense of the Fund and
shareholders who remain in the Fund. Fund management believes
that conversion would hurt performance and would limit the
ability of the Fund to hold less liquid securities, which have
helped its performance. In particular, the Board is concerned
that, to meet redemptions, the Fund would be required to (1) sell
some holdings that have substantial capital appreciation, which
would result in mandatory distributions and taxation to
shareholders for realized gains, and (2) to dispose of positions
of less liquidity. At December 31, 1995, approximately ___% of
the Fund's total asset value represented the unrealized capital
appreciation of securities held by the Fund. The recognition of
capital gains could largely offset gains that a shareholder would
realize through redemption, or, if a shareholder redeems prior to
a distribution, cause remaining shareholders to bear the entire
tax burden.
2. Raising Capital
A closed-end fund trading at a discount may not be able to
raise capital through share sales when it believes further
investment would be advantageous because the 1940 Act restricts
the ability of a closed-end fund to sell new shares at a price
below net asset value. (A closed-end fund, however, may raise
capital through the issuance of rights to existing shareholders
to purchase additional shares of the Fund, subject to certain
limitations). Open-end funds, on the other hand, are priced at
net asset value and therefore can sell additional shares at any
time. By raising new capital, an open-end fund may be able to
achieve greater economies of scale. However, in the case of the
Fund, the possibility that the Fund will be able to increase its
size is speculative in that the Fund's management believes that,
at least in the short term, the Fund would be likely to
experience shrinkage if it converts. Further, any possibility of
achieving greater economies of scale is also speculative,
particularly since any efforts to market the Fund likely would be
accompanied by consideration of a Rule 12b-1 distribution plan
that would be paid from Fund assets and would increase expenses.
3. NYSE Listing Fees
If the Fund were to become an open-end fund, it would no
longer be listed on the NYSE. Delisting from the NYSE would save
the Fund listing fees. Currently, these fees amount to $24,260
per year. However, as discussed above, the Fund would incur
additional expenses from registering the offering of the Fund's
shares pursuant to state blue sky laws. The Fund is currently
exempt from registration in most states as a result of its NYSE
listing.
4. Voting Rights
The voting rights of Fund shareholders would not change if
the Fund converted to an open-end investment company.
Shareholders would continue to be entitled to one vote per share
and would not have cumulative voting rights.
A registered investment company incorporated in Maryland,
such as the Fund, is not required under Maryland laws to hold
annual shareholder meetings if its Articles of Incorporation or
By-Laws provide. The Fund's By-Laws currently provide that the
Annual Meeting of Shareholders for the election of Directors and
the transaction of other proper business shall be held on a date
within 31 days after the first day of April of every year. In
addition, as a company whose shares currently are traded on the
New York Stock Exchange, the Fund is required by the regulations
of that Exchange to hold annual meetings of shareholders. If the
Fund were to convert to open-end, it would delist and no longer
be subject to the regulations of the New York Stock Exchange. In
such circumstance, the Board could amend the Fund's By-Laws to
provide that the Fund would not be required to hold annual
meetings of shareholders in any year except as required by law,
saving the Fund the cost of those meetings. These meetings cost
approximately $50,000 per year.
5. Stockholder Services
Open-end funds typically provide more services to
stockholders than closed-end funds. These could include
membership by the Fund in a "family of funds" consisting of a
number of series of common stock of the Fund having different
investment guidelines and objectives which could offer
stockholders the option to transfer their investments between
series, use of the Fund for retirement plans, and permitting
stockholders to effect some or all of the above transactions by
telephone. The cost of such services would normally be borne by
the Fund rather than by individual stockholders.
In addition to the relative inherent qualities of closed-end
and open-end investment companies, certain negative results will
necessarily derive from the act of conversion itself:
Expenses Resulting From Conversion
The Fund would incur considerable expense, including legal,
accounting, and other expenses of establishing a new structure.
These expenses have been estimated to range from $190,000 to
$220,000. These expenses could be offset somewhat by charging a
redemption fee for the first few months that the fund is open-
ended.
Other expenses would include filing a Certificate of
Amendment to the Fund's Restated Articles of Incorporation, which
amendment would have to be approved by the stockholders of the
Fund. In connection with such amendments, the Board would have
to make any necessary changes to the By-Laws of the Fund. The
Fund would be required to file a registration statement with the
SEC covering the offering of shares of the Fund, and register the
shares with the appropriate states. As a result, the Fund would
incur filing fees in connection with the SEC and state
registrations, as well as printing and mailing costs.
The Fund would also incur expenses in connection with the
payment of any redemption of shares of the Fund. Redemptions
would result in increased brokerage costs and increased
recognition of taxable gains and losses.
Issues in the Event the Fund Converts to an Open-End Fund
In the event the Fund's shareholders vote to convert the
Fund to an open-end investment company, additional actions would
have to be taken in order to effect the conversion. The Fund's
Articles of Incorporation would have to be amended, requiring
another shareholder's vote. In addition, it is likely that the
Investment Manager would recommend that Board of Directors
consider the institution of a redemption fee and the adoption of
a distribution plan. In the event that the Board of Directors
did adopt a distribution plan, shareholder approval for the plan
would be required. The Board would consider whether the Fund
would reserve the right to meet redemptions by delivering
portfolio securities rather than paying redemption proceeds in
cash.
Given the number of steps required, it is estimated that the
conversion process will take approximately six to nine months.
In recommending to the Board that the Fund remain a closed-
end investment company, the Board considered certain conflicts of
interest. Mr. Stallings, who is an executive officer and
Chairman of the Fund is also an officer and director of the
Investment Manager to the Fund. In addition, the officers of the
Fund are also officers of the Investment Manager. The Investment
Manager receives management fees from the Fund. The amount of
these fees would decline approximately in proportion to any
reduction in the Fund's assets resulting from redemptions.
The proposal to remain a closed-end investment company was
unanimously adopted by the Board, including all of the directors
who are not "interested" persons of the Fund within the meaning
of the 1940 Act.
Recommendation and Required Vote
There is no minimum vote required to remain a closed-end
investment company. However, to convert the Fund to an open-end
investment company, a Majority Vote, as defined above, against
the proposal will be required.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT SHAREHOLDERS
OF THE FUND VOTE FOR THE PROPOSAL TO
REMAIN A CLOSED-END INVESTMENT COMPANY
4. TO ELECT FIVE DIRECTORS TO SERVE UNTIL THEIR SUCCESSORS ARE
ELECTED AND QUALIFIED
At the Meeting, five Directors will be elected to serve as
directors, each to serve until his or her successor is duly
elected and qualified. Each of the nominees are currently
Directors. Mary Baldwin, Al Burton, Bruce Foerster, and Robert
Stallings were last elected at the Special Meeting of
Shareholders held on April 4, 1995. On August 28, 1995, the
Board unanimously voted to increase the number of Directors of
the Board from four to five, as provided for in the By-Laws of
the Fund, and elected Jock Patton to fill the newly created
Director's vacancy. Each nominee has consented to serve as a
Director if elected; however, should any nominee become
unavailable to accept election, an event not now anticipated, the
persons named in the proxy will vote in their discretion for
another person or persons who may be nominated as Director.
The following table sets forth the name of each nominee and
certain additional information.
Principal Occupation
for the Last Five Year First Became
Nominee Years a Board Member
Mary A. Baldwin, Director of the 1995
Ph.D. Fund; Realtor, The
Age 55 Prudential Arizona
Realty for more
than the last five
years; Treasurer,
United States
Olympic Committee;
Director or Trustee
of each of the
Funds in the
Pilgrim America
Group; Formerly on
the teaching staff
at Arizona State
University.
Al Burton Director of the 1986
Age 66 Fund; President of
A l B u r t o n
Productions for
more than the last
five years;
Executive Producer,
Castle Rock
Entertainment;
Director or Trustee
of each of the
Funds in the
Pilgrim America
Group.
<PAGE>
Bruce S. Foerster Director of the 1995
Age 53 Fund; President and
Chief Executive
Officer, South
Beach Capital
(January 1995-
Present); Director
or Trustee of each
of the Funds in the
Pilgrim America
Group; Managing
Director US Equity
Syndicates Desk,
Lehman Brothers
(June 1992-December
1994); Managing
Director Equity
Transactions
Group/Equity
Syndicate, Paine
Webber Incorporated
(September 1984-May
1992).
Jock Patton Director of the 1995
Age 49 Fund; President,
StockVal, Inc.
(since 1992);
Director and co-
owner, StockVal,
Inc. (1982-
p r e s e n t ) .
Director, Artisoft,
Inc.; Partner and
director, Streich,
Lang (1972-1992);
Director or Trustee
of each of the
Funds in the
Pilgrim America
Group (since August
1995).
R o b e r t W . Chairman, Chief 1995
Stallings* Executive Officer
Age 46 and President of
the Fund (since
April 1995);
Chairman, Chief
Executive Officer
and President,
Pilgrim America
Group, Inc. and
Pilgrim America
Investments, Inc.
(since December
1994); Director,
Pilgrim America
Securities, Inc.
(since December
1994); Chairman and
Chief Executive
Officer, Express
America Holdings
Corporation (since
August 1990) and
Express America
M o r t g a g e
Corporation (since
M a y 1 9 9 1 ) ;
Chairman, Chief
Executive Officer
and President, of
each of the Funds
in the Pilgrim
America Group
(since April 1995);
Formerly Chairman
and Chief Executive
Officer of First
Western Partners,
Inc. of Scottsdale,
A r i z o n a , a
consulting and
management services
firm to financial
institutions and
private investors
(February 1990-
December 1991);
Chairman and Chief
Executive Officer
of Western Savings
& Loan Assoc.
(April 1989-
February 1990).
_______________
* As an officer of Pilgrim America, the Fund's investment
adviser, Mr. Stallings is an "interested person" of the
Fund, as defined in the 1940 Act.
During the Fund's fiscal year ended December 31, 1995, the
Board held [five] meetings. Mr. Burton attended all meetings.
Ms. Baldwin, Mr. Foerster and Mr. Stallings, who became directors
in April 1995, each attended [three] meetings. Mr. Patton, who
became a director in August 1995, attended [two meetings].
Committees
The Board has an Audit Committee whose function is to meet
with the independent accountants of the Fund in order to review
the scope of the Fund's audit, the Fund's financial statements
and interim accounting controls; and to meet with Fund management
concerning these matters, among other things. This Committee
currently consists of four of the independent directors (Mary A.
Baldwin, Al Burton, Bruce Foerster and Jock Patton). During
1995, the Audit Committee met [two] times. [Mr. Burton attended
all of the meetings of the Audit Committee. Ms. Baldwin and Mr.
Foerster, who became directors in April 1995, and Mr. Jock
Patton, who became a director in August 1995, each attended one
meeting. The Fund does not have a nominating or compensation
committee.]
Remuneration of Board Members and Officers
The Fund pays each "disinterested" Director, in addition to
out-of-pocket expenses, the Fund's pro rata share, based on all
of the investment companies in the Pilgrim America Group of: (i)
an annual retainer of $20,000; (ii) $1,500 per quarterly and
special Board meeting; (iii) $500 per committee meeting; and (iv)
$100 per special telephonic meeting. The pro rata share paid by
the Fund is based upon the Fund's average net assets for the
previous quarter as a percentage of the average net assets of all
of the funds in the Pilgrim America Group for which the Board
Members serve in common as directors/trustees.
<PAGE>
Compensation Table
Fiscal Year Ended December 31, 1995
Total
Compensation
from Fund and
Fund Complex
Name of Person, Aggregate Compensation to Directors(1)
Position from Fund
Al Burton, Director $6,466 $35,550
Mary A. Baldwin, $2,467 $18,300
Director(2)
Bruce S. Foerster, $2,467 $18,400
Director(2)
Jock Patton, $1,437 $ 8,800
Director(3)
Robert W. Stallings, $0 $0
Director(2)
_______________
(1) The Fund Complex consists of the following funds in the
Pilgrim America Group: Pilgrim America Master Series, Inc.,
which consists of the Pilgrim America Masters Asia-Pacific
Equity Fund, the Pilgrim America Masters MidCap Value Fund,
and the Pilgrim America Masters LargeCap Value Fund, Pilgrim
America Investment Funds, Inc., which consists of the
Pilgrim America MagnaCap Fund and the Pilgrim America High
Yield Fund, Pilgrim Government Securities Income Fund, Inc.,
Pilgrim Regional BankShares, Inc., and Pilgrim Prime Rate
Trust.
(2) Commenced service as a director on April 5, 1995.
(3) Commenced service as a director on August 28, 1995.
Recommendation and Required Vote
The affirmative vote of the holders of a simple majority of
the shares of the Fund represented at the meeting, assuming a
quorum is present, is required to approve the election of the
nominees.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT SHAREHOLDERS
OF THE FUND VOTE FOR THE ELECTION OF THE NOMINEES
5. RATIFICATION OF THE SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS
At a meeting of the Board held on June 7, 1995, the Board,
including a majority of directors who are not "interested
persons" as defined in the 1940 Act, as well as the directors who
were members of the Audit Committee, selected the accounting firm
of KPMG Peat Marwick LLP to act as the independent auditors of
the Fund for the fiscal year ending December 31, 1995.
Selection of KPMG Peat Marwick LLP resulted in a change in
the Fund's independent auditor from the auditor used in prior
years. A different auditing firm had served as independent
auditors for the Fund with respect to its financial statements
for the fiscal year ending December 31, 1994 and prior years.
The Board considered the services of the former auditing firm to
have been satisfactory. However, based upon a recommendation
from Investment Manager, the Directors deemed it appropriate at
the meeting on June 7, 1995 to select KPMG Peat Marwick LLP as
independent auditors. The Board has selected KPMG Peat Marwick
LLP after considering that firm's experience as independent
auditors to investment companies.
The former auditing firm resigned as independent auditors of
the Fund on August 24, 1995. Such auditing firm's report on the
financial statements for the either of the past two years has not
contained an adverse opinion or disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope, or
accounting principles. During the Fund's two most recent fiscal
years, there were no disagreements with the former auditing firm
on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of that firm,
would have caused it to make reference to the subject matter of
the disagreement(s) in connection with its report.
KPMG Peat Marwick LLP are independent auditors and have no
direct financial or material indirect financial interest in the
Fund. Representatives of KPMG Peat Marwick LLP are not expected
to be at the Meeting.
The Board's selection is submitted to the shareholders for
ratification.
Recommendation and Required Vote
The affirmative vote of the holders of a majority of the
shares of the Fund represented at the meeting, assuming a quorum
is present, is required for the ratification of the selection of
independent auditors.
THE BOARD OF DIRECTORS OF THE FUND RECOMMENDS THAT SHAREHOLDERS
OF THE FUND RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS FOR THE FUND FOR THE YEAR ENDING DECEMBER
31, 1996
GENERAL INFORMATION
Other Matters to Come Before the Meeting
The Fund's management does not know of any matters to be
presented at the Meeting other than those described in this Proxy
Statement. If other business should properly come before the
Meeting, the proxyholders will vote thereon in accordance with
their best judgment.
<PAGE>
Executive Officers of the Fund
The following persons currently are principal executive
officers of the Fund:
Principal Occupation
Name Position with for the
the Fund Last Five Years
Robert W. Stallings Chairman of the Chairman, Chief Executive
(Age 46) Board, Chief Officer and President of
Executive the Fund (since April
Officer and 1995); Chairman, Chief
President Executive Officer and
(since April President, Pilgrim
1995) America Group, Inc. and
Pilgrim America
Investments, Inc. (since
December 1994); Chairman,
Pilgrim America
Securities, Inc. (since
December 1994); Chairman
and Chief Executive
Officer, Express America
Holdings Corporation
(since August 1990) and
Express America Mortgage
Corporation (since May
1991); Chairman, Chief
Executive Officer and
President of each of the
funds in the Pilgrim
America Group (since
April 1995); Formerly
Chairman and Chief
Executive Officer of
First Western Partners,
Inc. of Scottsdale,
Arizona, a consulting and
management services firm
to financial institutions
and private investors
(February 1990-December
1991); Chairman and Chief
Executive Officer of
Western Savings & Loan
Assoc. (April 1989-
February 1990).
<PAGE>
James R. Reis Executive Vice Vice Chairman (since
(Age 38) President December 1994) and
(since April Executive Vice President
1995) (since April 1995),
Pilgrim America Group,
Inc. and Pilgrim America
Investments, Inc.; a
director (since December
1994) and Assistant
Secretary (since April
1995), Pilgrim America
Securities, Inc.;
Executive Vice President
of each of the Funds in
the Pilgrim America Group
(since April 1995); Vice
Chairman and Chief
Financial Officer,
Express America Holdings
Corporation (since
December 1993); President
and Chief Financial
Officer, Express America
Holdings Corporation (May
1991 - December 1993);
Vice Chairman (since
December 1993), Express
America Mortgage
Corporation and former
President (May 1991 -
December 1993); President
and Chief Financial
Officer, First Western
Partners, Inc. (February
1990 - December 1991).
<PAGE>
James M. Hennessy Senior Vice Senior Vice President and
(Age 46) President and Secretary, Express
Secretary America Holdings
(since April Corporation, Pilgrim
1995) America Group, Inc., and
each of the funds in the
Pilgrim America Group
(since April 1995).
Senior Vice President,
Express America Mortgage
Corporation (June 1992 -
August 1994). President,
Beverly Hills Securities
Corp (January 1990 - June
1992).
<PAGE>
Daniel A. Norman Senior Vice Director and Senior Vice
(Age 38) President President, Pilgrim
(since April America Group, Inc.;
1995) Director, Senior Vice
President and Assistant
Secretary, Pilgrim
America Investments,
Inc., Senior Vice
President of Pilgrim
America Securities, Inc.
(since December 1994);
Senior Vice President of
each of the funds in the
Pilgrim America Group
(since April 1995);
Senior Vice President,
Express America Holdings
Corporation (since April
1995); Senior Vice
President, Express
America Mortgage
Corporation (since
February 1992); Chief
Financial Officer, Prime
Financial, Inc. (December
1985 - February 1992).
<PAGE>
Nancy L. Peden Senior Vice Senior Vice President and
(Age 39) President and Assistant Secretary,
Assistant Pilgrim America Group,
Secretary Inc. (since April 1995);
(since 1993) Vice President of
Operations, The Pilgrim
Group Inc. (for more than
the past five years prior
to April 1995); Senior
Vice President and
Assistant Secretary,
Pilgrim MagnaCap Fund,
Inc. (since 1993),
Pilgrim America Masters
Series, Inc. (since April
1995), Pilgrim America
Investment Funds, Inc.
(since April 1995),
Pilgrim Government
Securities Income Fund,
Inc. (since 1984) and
Pilgrim Prime Rate Trust
(since 1987).
<PAGE>
Michael J. Roland, Senior Vice Senior Vice President,
CPA President and Treasurer and Chief
(Age 37) Treasurer Financial Officer,
(since January Pilgrim America Group,
1995) Inc., Pilgrim America
Investments, Inc. and
Pilgrim America
Securities, Inc. (since
April 1995); Senior Vice
President and Treasurer
of each of the funds in
the Pilgrim America Group
(since April 1995);
Partner at the consulting
firm of Corporate Savings
Group, in Newport Beach,
California (July 1994 -
December 1994); Vice
President, Pacific
Financial Asset
Management Corp. (PFAMCo)
Funds (1992 - June 1994);
Director of Financial
Reporting, Pacific Mutual
Life Insurance Company
(1988 - 1992).
<PAGE>
Shareholder Proposals
It is anticipated that the next annual meeting of the Fund
will be held in 1997. Any proposals of shareholders that are
intended to be presented at the Fund's next annual meeting must
be received at the Fund's principal executive offices within a
reasonable period of time before the proxy solicitation for that
meeting is made and must comply with all other legal requirements
in order to be included in the Fund's proxy statement and form of
proxy for that meeting.
Reports to Shareholders
The Fund will furnish, without charge, a copy of the Annual
Report and the most recent Semi-Annual Report regarding the Fund
on request. Requests for such reports should be directed to
Pilgrim America at Two Renaissance Square, Suite 1200, 40 North
Central Avenue, Phoenix, Arizona 85004 or to the Fund at (800)
331-1080.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE
ASSURED, PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS
REQUESTED. A SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED
FOR YOUR CONVENIENCE.
Nancy L. Peden
Assistant Secretary
January ___, 1996
Two Renaissance Square, Suite 1200
40 North Central Avenue
Phoenix, Arizona 85004
<PAGE>
VOTING INSTRUCTION/PROXY
PILGRIM REGIONAL BANKSHARES INC.
THE UNDERSIGNED OWNER OF COMMON STOCK, PAR VALUE $.001 PER SHARE,
(THE "COMMON STOCK") OF PILGRIM REGIONAL BANKSHARES INC. (THE
"FUND") HEREBY INSTRUCTS _______________ TO VOTE THE SHARES OF
THE COMMON STOCK HELD BY HIM OR HER AT THE SPECIAL MEETING OF
SHAREHOLDERS OF THE FUND TO BE HELD AT _____ A.M., LOCAL TIME, ON
__________, 1996 AT TWO RENAISSANCE SQUARE, 40 NORTH CENTRAL
AVENUE, SUITE 1200, PHOENIX, ARIZONA 85004 AND AT ANY ADJOURNMENT
THEREOF, IN THE MANNER DIRECTED BELOW WITH RESPECT TO THE MATTERS
REFERRED TO IN THE PROXY STATEMENT FOR THE MEETING, RECEIPT OF
WHICH IS HEREBY ACKNOWLEDGED, AND IN __________'S DISCRETION,
UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENT THEREOF.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING
PROPOSALS.
1. TO APPROVE THE FOLLOWING CHANGES TO THE FUND'S INVESTMENT
POLICIES:
A. TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTMENT IN REGIONAL BANK SHARES.
_____ FOR _____ AGAINST _____ ABSTAIN
B. TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT
RESTRICTION ON INVESTING MORE THAN 25% OF ITS
ASSETS IN THE SECURITIES OF ANY INDUSTRY OTHER
THAN THE BANKING INDUSTRY
_____ FOR _____ AGAINST _____ ABSTAIN
C. TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT
RESTRICTION REGARDING INVESTING IN THE SECURITIES
OF OTHER INVESTMENT COMPANIES.
_____ FOR _____ AGAINST _____ ABSTAIN
2. TO APPROVE OR DISAPPROVE AN AMENDMENT OF THE FUND'S
RESTATED ARTICLES OF INCORPORATION TO CHANGE THE NAME
OF THE FUND.
_____ FOR _____ AGAINST _____ ABSTAIN
3. TO DETERMINE WHETHER THE FUND SHOULD REMAIN A CLOSED-
END INVESTMENT COMPANY.
_____ FOR _____ AGAINST _____ ABSTAIN
4. TO ELECT FIVE DIRECTORS TO SERVE UNTIL THEIR SUCCESSORS
ARE ELECTED AND QUALIFY.
NOMINEES: MARY A. BALDWIN, AL BURTON,
BRUCE S. FOERSTER, JOCK PATTON,
ROBERT W. STALLINGS
_____ FOR ALL NOMINEES _____ WITHHOLD AUTHORITY TO
VOTE FOR ALL NOMINEES
WITHHOLD AUTHORITY TO VOTE WITH RESPECT TO THE FOLLOWING
NOMINEE(S) ONLY
5. TO RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS FOR THE FUND FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1996.
_____ FOR _____ AGAINST _____ ABSTAIN
6. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME
BEFORE THE SPECIAL MEETING OF SHAREHOLDERS OR ANY
ADJOURNMENTS THEREOF.
_____ FOR _____ AGAINST _____ ABSTAIN
THESE VOTING INSTRUCTIONS WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THIS VOTING INSTRUCTION WILL BE VOTED FOR
ALL PROPOSALS.
SHAREHOLDER SHARES RECEIPT OF THE NOTICE OF MEETING AND
PROXY STATEMENT IS HEREBY ACKNOWLEDGED:
DATED: __________________, 1996
_______________________________________
_______________________________________
SIGNATURE OF SHAREOWNER(S)
THIS VOTING INSTRUCTION SHALL BE SIGNED EXACTLY AS YOUR NAME(S)
APPEARS HEREON. IF AS AN ATTORNEY, EXECUTOR, GUARDIAN OR IN SOME
REPRESENTATIVE CAPACITY OR AS AN OFFICER OF A CORPORATION, PLEASE
ADD TITLE AS SUCH. JOINT OWNERS MUST EACH SIGN.
PLEASE VOTE, SIGN AND DATE THIS VOTING INSTRUCTION AND RETURN IT
IN THE ENCLOSED ENVELOPE.
