PILGRIM REGIONAL BANKSHARES INC, DEF 14A, 1996-01-17

PILGRIM REGIONAL BANKSHARES INC
DEF 14A, 1996-01-17

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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:

/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12

Pilgrim Regional BankShares, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

N/A

(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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/X/ Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
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previously. Identify the previous filing by registration statement number,
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PILGRIM AMERICA
GROUP, INC.

PILGRIM REGIONAL BANKSHARES INC.

TWO RENAISSANCE SQUARE
40 NORTH CENTRAL AVENUE, SUITE 1200
PHOENIX, ARIZONA 85004

January 22, 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, March 15, 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:

- 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.

- 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.

- 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 thrift industries.

The Fund is also seeking approval of the following proposals:

- Change of Fund's Name. The Fund's name would be changed to "Pilgrim
America Bank and Thrift Fund, Inc."

- 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
believes 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.

- 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 and Chairman of the Board
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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 MARCH 15, 1996

------------------------

To the Shareholders:

A Special Meeting of Shareholders of Pilgrim Regional BankShares Inc. (the
"Fund") will be held on Friday, March 15, 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 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 thrift
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 Bank and Thrift Fund, Inc.

3. To determine that 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 19, 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 22, 1996
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
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PILGRIM REGIONAL BANKSHARES INC.

PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON MARCH 15, 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 Friday, March 15, 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 the following changes to the Fund's investment policies:

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 Bank and Thrift Fund, Inc.

3. To determine that 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 24, 1996.
Shareholders of the Fund whose shares of Common Stock are held by nominees such
as brokers, can vote their proxies by contacting their respective nominee. 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.
As the meeting date approaches, certain shareholders of the Fund may receive a
telephone call from a representative of SCC if the Fund has not yet received
their vote. Authorization to permit SCC to execute proxies may be obtained by
telephonic or electronically transmitted instructions from shareholders of the
Fund. 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 Fund has received
an opinion of its Maryland counsel that addresses the validity, under the
applicable law of the State of Maryland, of authorization to execute a proxy
given orally. The opinion given by the Fund's Maryland counsel concludes that a
Maryland court would find that there is no Maryland law or public policy against
the acceptance of proxies signed by an orally-authorized agent provided it
adheres to the procedures set forth below. The cost of this assistance is
expected to be approximately $15,000. The costs associated with such
solicitation and the Meeting will be borne by the Fund.

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In all cases where a telephonic proxy is solicited, the SCC representative
is required to ask for each shareholder's full name, address, social security or
employer identification number, title (if the shareholder is authorized to act
on behalf of an entity, such as a corporation), the number of shares owned and
to confirm that the shareholder has received the proxy statement card in the
mail. 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 the
shareholder's 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. SCC will record the shareholder's instructions
on the card. Within 72 hours, SCC will send the shareholder a letter or mailgram
to confirm his or her vote and asking the shareholder to call SCC immediately if
his or her instructions are not correctly reflected in the confirmation.

If the shareholder wishes to participate in the meeting of shareholders,
but does not wish to give his or her proxy by telephone, the shareholder may
still submit the proxy card originally sent with the proxy statement or attend
in person. Should shareholders require additional information regarding the
proxy or replacement proxy cards, they may contact SCC toll-free at
1-800-733-8481, Extension 425. Any proxy given by a shareholder, 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 19, 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 14,141,241.452 shares of Common Stock outstanding
and entitled to vote as of such record date, representing total net assets of
approximately $209,758,920.

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.

For Proposal 3, determining that 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

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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 31, 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 31, 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 banking and related
industries and the trend toward consolidation in these industries.

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

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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 invest 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

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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 temporary
defensive investments. When the Investment Manager determines that it is in the
best interest of the Fund to assume a temporary 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 temporary defensive position, it
will not be able to pursue its investment objective. Assumption of a temporary
defensive position is purely discretionary with the Investment Manager, and it
is believed the Fund has yet to assume a temporary 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.

Legislation, Regulation and Policies Affecting the Thrift Industry. The
thrifts in which the Fund seeks to invest generally are subject to the same
risks as the banks in which the Fund currently invests. 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. Such regulations have undergone substantial change
in the past decade and are likely to continue to experience substantial change
in the coming years. Significant developments have included: deregulation of
interest rates; additional conversions of thrift institutions from mutual to
stock form; increased competition with other types of financial institutions;
regional expansion; increased numbers of mergers and acquisitions; increased
numbers of failures or federally assisted takeovers in the late 1980's (although
the rate of failures has decreased in recent years); increases in capital
requirements; the de-regulation and subsequent re-regulation of thrifts'
business operations; and the enactment of significant legislation to finance the
Savings Association Insurance Fund ("SAIF") (formerly, the Federal Savings and
Loan Insurance Corporation) and generally to restructure the industry. From time
to time, changes in law and regulation have permitted greater diversification of
the financial products of both banks and thrifts and increased their ability to
expand by acquisition or branching across state lines and to engage in
non-banking activities. Thrifts currently pay substantially higher deposit
insurance premiums to the SAIF than banks pay to the Bank Insurance Fund.
Congress may in the future equalize the premiums, and a one time charge may be
necessary to accomplish this, but there can be no assurance whether or when
Congress will enact such legislation. The thrifts in which the Fund may invest
may also be exposed to risks from creating, dealing or holding derivative
instruments.

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

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types of depository institutions and in the depository accounts of mutual
savings and loan 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 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 thrift industries,
except for temporary 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 from their net
asset value, in which case, the Fund would have the advantage of getting a
"premium" on its investment dollar (although there is no assurance that the Fund
would realize a premium when it sells the shares).

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;

6
<PAGE> 10
(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. The name change reflecting the Fund's changed investment
policies 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 Bank and Thrift Fund, 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 Restated 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

7
<PAGE> 11
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
$12.875, and the net asset value per share was $14.83.

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

8
<PAGE> 12
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, 98% of the Fund's total assets were invested in equity
securities. Apart from a short time in 1992 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 12.96%. 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.1 This is the highest ranking
given by Morningstar. For the year ended December 31, 1995, the total return
based on net asset value was 49.69%. Between January 1, 1995 and December 31,
1995, the Fund grew from $155,088,190 to $217,964,468 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 may have a "snowball" effect in that the adverse effects on the
Fund 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. These securities may be
relatively illiquid. A strategy to address net redemptions would require the
Fund to modify this strategy by investing primarily in more liquid securities,
and perhaps to sell some of its holdings.

- ---------------

1 Morningstar proprietary ratings reflect historical risk-adjusted
performance as of 11/30/95. The ratings are subject to change every month. Past
performance is no guarantee of future results. Morningstar ratings are
calculated from the Fund's three-, five-, and ten- year average annual returns
(if available) in excess of 90-day Treasury bill returns with appropriate fee
adjustments, and a risk factor that reflects fund performance below 90-day
T-bill returns. The Fund was rated against 93, 77 and 17 equity funds for the
three-, five- and ten- year periods. Ten percent of funds in a rating universe
receive five stars, 22.5% receive four stars, 35% receive three stars, 22.5%
receive two stars and 10% receive one star.

9
<PAGE> 13
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 January 9, 1996
nearly 31% 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.

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 $218 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.2 For the year ended December 31, 1995, this amounted to an
advisory fee of .78%, 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

- ---------------

2 Currently, the investment management fees as a percentage of average net
assets are:

<TABLE>
<CAPTION>
AVERAGE WEEKLY
NET ASSETS MANAGEMENT FEES
-------------- ---------------
<S> <C>
$0 to $30 million 1.00%
Next $95 million 0.75%
over $125 million 0.70%
</TABLE>

10
<PAGE> 14
the Fund would not be economically viable, and might have to be liquidated or
merged with another investment company.

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. If the Fund
is required to sell these appreciated securities to meet significant redemptions
made by shareholders, adverse tax consequences would occur. 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 $92.1 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 the maximum federal capital gains rate is
28% and assuming that the securities representing 100% of the total unrealized
appreciation at December 31, 1995 ($92,144,893) are liquidated, this translates
to a potential tax liability of $25,800,570, based on 14,141,241.452 shares
outstanding at December 31, 1995, or $1.82 per share. This represents 12.3% of
the $14.83 net asset value at that date. If securities representing 50% of the
total unrealized appreciation were liquidated, the potential tax liability would
be $12,900,285, or $.91 per share, representing 6.2% of the net asset value 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.

11
<PAGE> 15
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%. 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 42.3% 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

12
<PAGE> 16
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, 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 amendment, 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

13
<PAGE> 17
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 shareholder approval. In addition, it is likely that the
Investment Manager would recommend that the Board of Directors consider the
institution of a redemption fee (which may or may not be temporary) 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
approved 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.

14
<PAGE> 18
The following table sets forth the name of each nominee and certain
additional information.

<TABLE>
<CAPTION>
YEAR FIRST
BECAME A
PRINCIPAL OCCUPATION BOARD
NOMINEE AGE FOR THE LAST FIVE YEARS MEMBER
- ---------------------------- --- -------------------------------------------------- ----------
<S> <C> <C> <C>
Mary A. Baldwin, Ph.D. ..... 55 Director of the Fund; Realtor, The Prudential 1995
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................... 66 Director of the Fund; President of Al Burton 1986
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.
Bruce S. Foerster........... 53 Director of the Fund; President and Chief 1995
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................. 49 Director of the Fund; President, StockVal, Inc. 1995
(since 1992); Director and co-owner, StockVal,
Inc. (1982-present). 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).
Robert W. Stallings*........ 46 Chairman, Chief Executive Officer and President of 1995
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 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).
</TABLE>

- ---------------
* As an officer of Pilgrim America Investments, Inc., the Fund's investment
adviser, Mr. Stallings is an "interested person" of the Fund, as defined in
the Investment Company Act of 1940.

During the Fund's fiscal year ended December 31, 1995, the Board held seven
meetings. Mr. Burton attended all meetings. Ms. Baldwin, Mr. Foerster and Mr.
Stallings, who became directors in April 1995, each attended five 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 all 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

15
<PAGE> 19
Audit Committee. Ms. Baldwin and Mr. Foerster, who became directors in April
1995, and Mr. Patton, who became a director in August 1995, each attended the
October 23, 1995 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.

COMPENSATION TABLE

FISCAL YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
TOTAL
COMPENSATION
FROM FUND AND
FUND COMPLEX
NAME OF PERSON, POSITION AGGREGATE COMPENSATION FROM FUND TO DIRECTORS(1)
- -------------------------------------------------- -------------------------------- ---------------
<S> <C> <C>
Al Burton, Director............................... $6,446 $35,550
Mary A. Baldwin, Director(2)...................... $2,467 $18,300
Bruce S. Foerster, Director(2).................... $2,467 $18,400
Jock Patton, Director(3).......................... $1,437 $ 8,800
Robert W. Stallings, Director(2).................. $ 0 $ 0
</TABLE>
- ---------------
(1) The Fund Complex consists of the following funds in the Pilgrim America
Group: Pilgrim America Master Series, Inc., which consists of Pilgrim
America Masters Asia-Pacific Equity Fund, Pilgrim America Masters MidCap
Value Fund, and Pilgrim America Masters LargeCap Value Fund, Pilgrim America
Investment Funds, Inc., which consists of Pilgrim America MagnaCap Fund and
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

16
<PAGE> 20
recommendation from the 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
October 25, 1995. Such auditing firm's report on the financial statements for
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

17
<PAGE> 21
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.

EXECUTIVE OFFICERS OF THE FUND

The following persons currently are principal executive officers of the
Fund:

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE
NAME POSITION WITH THE FUND LAST FIVE YEARS
- ------------------------- ------------------------- -----------------------------------------
<S> <C> <C>
Robert W. Stallings...... Chairman of the Board, Chairman, Chief Executive Officer and
(Age 46) Chief Executive Officer President of the Fund (since April 1995);
and President (since Chairman, Chief Executive Officer and
April 1995) President, Pilgrim 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).
James R. Reis............ Executive Vice President Vice Chairman (since December 1994) and
(Age 38) (since April 1995) Executive Vice President (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).
James M. Hennessy........ Senior Vice President and Senior Vice President and Secretary,
(Age 46) Secretary (since April Express America Holdings Corporation,
1995) Pilgrim America Group, Inc., Pilgrim
America Securities, Inc., Pilgrim America
Investments, 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).
</TABLE>

18
<PAGE> 22
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE
NAME POSITION WITH THE FUND LAST FIVE YEARS
- ------------------------- ------------------------- -----------------------------------------
<S> <C> <C>
Daniel A. Norman......... Senior Vice President Director and Senior Vice President,
(Age 38) (since April 1995) Pilgrim America Group, Inc.; Director,
Senior Vice President and Assistant
Secretary, Pilgrim America Investments,
Inc., Director and 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).
Nancy L. Peden........... Senior Vice President and Senior Vice President and Assistant
(Age 39) Assistant Secretary Secretary, Pilgrim America Group, Inc.
(since 1993) (since April 1995); 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 America
Masters Series, Inc. (since April 1995),
Pilgrim America Investment Funds, Inc.
(since April 1995), Pilgrim Government
Securities Income Fund, Inc. (since 1993)
and Pilgrim Prime Rate Trust (since
1987).
Michael J. Roland, CPA... Senior Vice President and Senior Vice President, Treasurer and
(Age 37) Treasurer (since January Chief Financial Officer, Pilgrim America
1995) Group, 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).
</TABLE>

19
<PAGE> 23
SHAREHOLDER PROPOSALS

It is anticipated that the next annual meeting of the Fund will be held in
April 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, 40
North Central Avenue, Suite 1200, 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 22, 1996
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004

20
<PAGE> 24
PILGRIM AMERICA GROUP
PROXY SERVICES
P.O. BOX 9162
FARMINGDALE, NY 11735

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
ROBERT W. STALLINGS OR JAMES M. HENNESSY (PROXIES) TO VOTE THE SHARES OF THE
COMMON STOCK HELD BY HIM AT THE SPECIAL MEETING OF SHAREHOLDERS OF THE FUND TO
BE HELD AT 10:00 A.M., LOCAL TIME, ON MARCH 15, 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 THE PROXIES' DISCRETION, UPON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.

PLEASE VOTE, SIGN AND DATE THIS VOTING INSTRUCTION AND RETURN IT IN THE
ENCLOSED ENVELOPE.

THESE VOTING INSTRUCTIONS WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS
MADE, THIS VOTING INSTRUCTION WILL BE VOTED FOR ALL PROPOSALS.

- -------------------------------------------------------------------------------
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION TO
YOUR FUND, WE STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN
YOUR BALLOT AS SOON AS POSSIBLE. YOUR VOTE IS IMPORTANT REGARDLESS
OF THE NUMBER OF SHARES YOU OWN.
- -------------------------------------------------------------------------------

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 TITLES AS SUCH. JOINT OWNERS MUST EACH
SIGN.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS /X/
- --------------------------------------------------------------------------------
PILGRIM REGIONAL BANKSHARES INC.

VOTE ON PROPOSALS 1. TO APPROVE THE FOLLOWING CHANGES TO THE FUND'S
INVESTMENT POLICIES:

FOR AGAINST ABSTAIN 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 an amendment of the Fund's restated
/ / / / / / articles of incorporation to change the name of the
Fund.

FOR AGAINST ABSTAIN 3. To determine that the Fund should remain a
/ / / / / / closed-end investment company.

FOR ALL EXCEPT 4. Election of Directors: 1) Mary A. Baldwin,
/ / / / / / 2) Al Burton, 3) Bruce S. Foerster, 4) Jock Patton,
5) Robert W. Stallings

------ ------ ------ ------ ------
To withhold authority to vote, mark the "For All
Except" box and write the nominee's number on
the line.

FOR AGAINST ABSTAIN 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.

- ---------------------------- ---------------------------- ------------------
SIGNATURE SIGNATURE (JOINT OWNERS) DATE