<PAGE>
As filed with the U.S. Securities and Exchange Commission on October 15, 1997
Securities Act File No. 333-33445
Investment Company Act File No. 811-4504
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM N-1A
Registration Statement Under The Securities Act Of 1933 |X|
Pre-Effective Amendment No. 1 |X|
Post-Effective Amendment No._ |_|
and/or
Registration Statement Under The Investment Company Act Of 1940 |X|
Amendment No. 8 |X|
(Check appropriate box or boxes)
--------------------
Pilgrim America Bank and Thrift Fund, Inc.
(Formerly Pilgrim Regional BankShares, Inc.)
(Exact Name of Registrant as Specified in Charter)
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004
(Address of Principal Executive Offices)
Registrant's Telephone number, including Area Code: 800-331-1080
--------------------
James M. Hennessy, Esq.
Pilgrim America Investments, Inc.
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004
(Name and Address of Agent for Service)
--------------------
With copies to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this registration statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The Registrant hereby elects to register an indefinite number of shares of
common stock under the Securities Act of 1933 pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
CROSS REFERENCE SHEET
N-1A Item
Location in Prospectus
----------------------
Part A (Caption)
- ------ ---------
<S> <C> <C>
Item 1. Cover Page...................................... Cover Page
Item 2. Synopsis........................................ Pilgrim America Bank and Thrift
Fund, Inc. at a Glance; Summary of
Expenses
Item 3. Condensed Financial Information................. Financial Highlights
Item 4. General Description of Registrant............... Investment Objectives and Policies;
Investment Practices and Risk
Considerations; The Banking and Thrift
Industries
Item 5. Management of the Registrant.................... Management of the Fund
Item 5A. Management's Discussion of Company
Performance................................. Not Applicable
Item 6. Capital Stock and Other Securities.............. Shareholder Guide
Item 7. Purchase of Securities Being Offered............ Purchasing Shares
Item 8. Redemption or Repurchase........................ How to Redeem Shares
Item 9. Pending Legal Proceedings....................... Not Applicable
<CAPTION>
Location in Statement of
Additional Information
----------------------
Part B (Caption)
- ------ ---------
<S> <C> <C>
Item 10. Cover Page...................................... Cover Page
Item 11. Table of Contents............................... Table of Contents
Item 12. General Information and History................. Organization of Pilgrim America Bank and
Thrift Fund, Inc.; General Information
Item 13. Investment Objectives and Policies.............. Investment Restrictions
Item 14. Management of the Company....................... Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities.................................. Management of the Fund
Item 16. Investment Advisory and Other
Practices................................... Management of the Fund
Item 17. Brokerage Allocation and Other
Practices................................... Portfolio Transactions
Item 18. Capital Stock and Other Securities.............. Organization of Pilgrim America Bank and
Thrift Fund, Inc.; General Information
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered............................... Determination of Share Price; Additional
Purchase and Redemption Information
Item 20. Tax Status...................................... Tax Considerations
Item 21. Underwriters.................................... Management of the Fund
Item 22. Calculation of Performance Data................. Calculation of Performance Data
Item 23. Financial Statements............................ Financial Statements
</TABLE>
<PAGE>
Prospectus
Pilgrim America Bank and Thrift Fund, Inc.
PILGRIM AMERICA FUNDS [LOGO]
40 NORTH CENTRAL AVENUE, SUITE 1200, PHOENIX, ARIZONA 85004
(800) 331-1080
Pilgrim America Bank and Thrift Fund, Inc. (the 'Fund') is a diversified
open-end management investment company. The Fund's primary investment objective
is long-term capital appreciation. Income is its secondary objective. The Fund
seeks to achieve its objectives by investing primarily in equity securities of
national and state-chartered banks (other than money center banks), thrifts, the
holding or parent companies of such depository institutions, and in savings
accounts of mutual thrifts. These portfolio securities are selected principally
on the basis of fundamental investment value and potential for future growth,
including securities of institutions that the Fund believes are well-positioned
to take advantage of opportunities currently developing in the banking and
thrift industries. There is no assurance that the Fund will achieve its
objectives. See 'Investment Objectives and Policies.'
------------------------
PILGRIM AMERICA INVESTMENTS, INC. is the Fund's investment manager (the
'Investment Manager').
------------------------------
The Fund offers two classes of shares, with varying types and amounts of sales
and distribution charges. These Pilgrim America Purchase Options(Trademark)
permit you to choose the method of purchasing shares that best suits your
investment strategy.
This Prospectus presents information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about the
Fund, dated October 17, 1997, has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus (that is, it is
legally considered a part of this Prospectus). The Statement of Additional
Information is available free upon request by calling Pilgrim America Group,
Inc. ('Shareholder Servicing Agent') at (800) 331-1080.
------------------------
INVESTMENT IN THE FUND INVOLVES INVESTMENT RISK, INCLUDING THE RISK OF LOSS OF
PRINCIPAL. THE FUND'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF A BANK
AND ARE NOT GUARANTEED BY A BANK. IN ADDITION, THE FUND'S SHARES ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 17, 1997.
<PAGE>
PILGRIM AMERICA BANK AND THRIFT FUND, INC. AT A GLANCE*
<TABLE>
<S> <C>
Investment Objectives The Fund's primary investment objective is to achieve long-term
capital appreciation. Income is its secondary objective. There can
be no assurance that the Fund will achieve its investment
objectives.
History of the Fund The Fund was organized in 1985 as a closed-end investment company
and its shares were listed on the New York Stock Exchange. On
October 17, 1997 the Fund converted to an open-end investment
company and all outstanding shares became 'Class A' shares.
Primary Investment Strategy The Fund seeks to achieve its investment objectives by investing
primarily in equity securities of national and state chartered
banks (other than money center banks), thrifts, the holding or
parent companies of such depository institutions, and in savings
accounts of mutual thrifts.
General Investment Guidelines o Under normal circumstances, at least 65% of the Fund's total
assets is invested in equity securities of national and
state-chartered banks (other than money center banks), thrifts,
holding or parent companies of such depository institutions, and
in savings accounts of mutual thrifts.
o Up to 35% of the Fund's total assets may be invested in equity
securities of money center banks, other financial services
companies, other issuers deemed suitable by the Investment
Manager, debt securities, and securities of other investment
companies.
Principal Risk Factors o Investments in equity securities involve exposure to financial
and market risks. You can expect fluctuation in the value of the
Fund's portfolio securities and the Fund's shares.
o Because the Fund's portfolio is concentrated in the banking and
thrift industries, it may be subject to greater risk than a
portfolio that is not concentrated in one industry.
o The value of the Fund's investments in the banking and thrift
industries will be impacted by state and federal legislation and
regulations and regional and general economic conditions.
Investment Manager Pilgrim America Investments, Inc.
Shareholder Servicing Agent Pilgrim America Group, Inc.
</TABLE>
- ------------------
* This summary description should be read in conjunction with the more complete
description of the Fund's investment objectives and policies set forth
elsewhere in this Prospectus. For information regarding the purchase and
redemption of shares of the Fund, refer to the 'Shareholder Guide.' For
information regarding the risk factors of the Fund, refer to 'Investment
Practices and Risk Considerations' below.
2
<PAGE>
SUMMARY OF EXPENSES
Shares of the Fund are available through independent financial professionals,
national and regional brokerage firms and other financial institutions
(Authorized Dealers). You may select from two separate classes of shares: Class
A and Class B.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- -------
<S> <C> <C>
Maximum initial sales charge imposed on purchases (as a percentage of offering
price)......................................................................... 5.75%(a) None
Maximum contingent deferred sales charge (CDSC) (at the lower of original
purchase price or the redemption proceeds)..................................... None(b) 5.00%(c)
Redemption Fees.................................................................. None(d) None
Exchange Fees.................................................................... None(d) None
</TABLE>
The Fund has no sales charges on reinvested dividends.
- ------------------
(a) Reduced for purchases of $50,000 and over. See 'Class A Shares: Initial
Sales Charge Alternative.'
(b) A CDSC of no more than 1.00% for shares redeemed in the first or second
year, depending on the amount of purchase, is assessed on redemptions of
Class A shares that were purchased without an initial sales charge as part
of an investment of $1 million or more. See 'Class A Shares: Initial Sales
Charge Alternative.'
(c) Imposed upon redemption within 6 years from purchase with scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'
(d) Until October 17, 1998, a 2% fee will be imposed on redemptions or
exchanges of Class A shares acquired prior to October 17, 1997. The Fund
reserves the right to waive or reduce the fee in whole or in part.
The percentages shown below reflect the estimated Annual Operating Expenses for
Class A and Class B shares of the Fund. The percentages set forth under 'Other
Expenses' are based upon the historical expenses of the Fund for the fiscal year
ended December 31, 1996 (during which the Fund operated as a closed-end
investment company), and are restated to reflect fees expected to be incurred by
the Fund as an open-end investment company.
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT (12B-1) OTHER OPERATING
FEES(A) FEES(B) EXPENSES EXPENSES
----------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Class A............ 0.76% 0.25% 0.42% 1.43%
Class B............ 0.76% 1.00% 0.42% 2.18%
</TABLE>
- ------------------
(a) The Fund pays the Investment Manager a fee at an annual rate of 1.00% of the
average daily net assets of the Fund for the first $30 million of net
assets; 0.75% of the average daily net assets of the next $95 million of net
assets; and 0.70% of the average daily net assets in excess of $125 million.
(b) As a result of distribution (Rule 12b-1) fees, a long-term investor may pay
more than the economic equivalent of the maximum sales charge allowed by the
Rules of the National Association of Securities Dealers, Inc. (NASD).
The purpose of the above table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly as a shareholder in
the Fund. For more complete descriptions of the various costs and expenses,
please refer to appropriate sections of this Prospectus.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (i)
reinvestment of all dividends and distributions, (ii) 5% annual return and (iii)
redemption at the end of the period (unless otherwise noted):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A.......... $ 71 $ 100 $ 131 $219
Class B.......... $ 72 $ 98 $ 137 $232
Class B (assuming
no redemption). $ 22 $ 68 $ 117 $232
</TABLE>
Use of the assumed 5% return is required by the Securities and Exchange
Commission. The example is not an illustration of past or future investment
results and should not be considered a representation of past or future
expenses; actual expenses may be more or less than those shown.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial information which has been derived
from the financial statements in the Fund's Annual Report dated December 31,
1996 and Semi-Annual Report dated June 30, 1997. For the fiscal years ended
December 31, 1996 and 1995, the information in the table below, with the
exception of the information in the row labeled "Total Investment Return At Net
Asset Value," has been audited by KPMG Peat Marwick LLP, independent auditors.
For all periods ending prior to December 31, 1995, the financial information,
with the exception of the information in the row labeled "Total Investment
Return At Net Asset Value," was audited by the Fund's former auditors. Financial
information for the six-month period ended June 30, 1997 and the information in
the row labeled "Total Investment Return At Net Asset Value" has not been
audited. Financial information is not presented for Class B shares since no
shares of that class were publicly issued as of the date of this Prospectus.
Prior to October 17, 1997, the Class A shares were designated as Common Stock
and the Fund operated as a closed-end investment company. This information
should be read in conjunction with the Financial Statements and Notes thereto
included in the Fund's 1996 Annual Report to Shareholders and 1997 Semi-Annual
Report to Shareholders, which contain further information about the Fund's
performance, and which are available to Shareholders upon request and without
charge.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1997 ---------------------------------------------------------------------------------
(UNAUDITED) 1996 1995(A) 1994 1993 1992 1991 1990 1989 1988
------------ ------ ------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................ $ 17.84 $14.83 $10.73 $11.87 $12.46 $10.12 $ 7.49 $10.26 $ 9.54 $ 8.17
------------ ------ ------- ------ ------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income ........ 0.13 0.32 0.31 0.26 0.26 0.22 0.24 0.31 0.30 0.31
Net realized and unrealized
gain (loss) on
investments................. 4.00 5.18 4.78 (0.53) 0.75 2.93 3.33 (2.20) 1.50 1.43
------------ ------ ------- ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.................... 4.13 5.50 5.09 (0.27) 1.01 3.15 3.57 (1.89) 1.80 1.74
------------ ------ ------- ------ ------ ------ ------ ------ ------ ------
Less distributions:
Net investment income......... -- 0.32 0.31 0.22 0.26 0.22 0.24 0.31 0.31 0.37
In excess of net investment
income...................... -- 0.03 0.03 -- -- -- -- -- -- --
Realized capital gains........ -- 2.14 0.65 0.65 0.73 0.47 -- -- 0.44 --
Paid-in capital............... -- -- -- -- -- 0.12 0.70 0.57 0.33 --
------------ ------ ------- ------ ------ ------ ------ ------ ------ ------
Total distributions............ -- 2.49 0.99 0.87 0.99 0.81 0.94 0.88 1.08 0.37
------------ ------ ------- ------ ------ ------ ------ ------ ------ ------
Other:
Reduction in net asset value
from rights offering........ -- -- -- -- (0.61) -- -- -- -- --
------------ ------ ------- ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period........................ $ 21.97 $17.84 $14.83 $10.73 $11.87 $12.46 $10.12 $ 7.49 $10.26 $ 9.54
------------ ------ ------- ------ ------ ------ ------ ------ ------ ------
------------ ------ ------- ------ ------ ------ ------ ------ ------ ------
Closing Market Price, end of
period........................ $ 19.00 $15.75 $12.88 $ 9.13 $10.88 $11.63 $ 9.50 $ 7.13 $ 9.13 $ 7.75
TOTAL INVESTMENT RETURN AT
MARKET VALUE (B).............. 20.63% 43.48% 52.81 % (8.85)% 1.95%(c) 31.53% 47.52% (12.45)% 32.25% 30.17%
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE (unaudited)(d).... 23.15% 41.10% 49.69% (1.89)% 7.79%(e) 32.36%(f)49.49% (18.14)% 20.79% 22.58%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions).................... $ 311 $ 252 $ 210 $ 152 $ 168 $ 141 $ 101 $ 75 $ 103 $ 96
Ratios to average net assets
Expenses...................... 0.91%(g) 1.01% 1.05 % 1.28% 0.91% 1.24% 1.31% 1.29% 1.26% 1.18%
Net investment income......... 1.61%(g) 1.94% 2.37 % 2.13% 2.08% 2.00% 2.68% 3.59% 4.15% 3.28%
Portfolio turnover rate........ 5%(h) 21% 13 % 14% 17% 20% 31% 46% 63% 43%
Average commission rate paid... $ 0.0600 -- -- -- -- -- -- -- -- --
<CAPTION>
1987
------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period........................ $ 9.09
------
Income (loss) from investment
operations:
Net investment income ........ 0.22
Net realized and unrealized
gain (loss) on
investments................. (0.87)
------
Total from investment
operations.................... (0.65)
------
Less distributions:
Net investment income......... 0.22
In excess of net investment
income...................... --
Realized capital gains........ 0.05
Paid-in capital............... --
------
Total distributions............ 0.27
------
Other:
Reduction in net asset value
from rights offering........ --
------
Net asset value, end of
period........................ $ 8.17
------
------
Closing Market Price, end of
period........................ $ 6.25
TOTAL INVESTMENT RETURN AT
MARKET VALUE (B).............. (17.79)%
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE (unaudited)(d).... (6.90)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions).................... $ 82
Ratios to average net assets
Expenses...................... 1.13%
Net investment income......... 2.31%
Portfolio turnover rate........ 76%
Average commission rate paid... --
</TABLE>
- ------------------
(a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former
investment manager, in a transaction that closed on April 7, 1995.
(b) Total return is calculated at market value without deduction of sales
commissions and assuming reinvestment of all dividends and distributions
during the period.
(c) Calculation of total return excludes the effect of the per share dilution
resulting from the Rights Offering as the total account value of a fully
subscribed shareholder was minimally impacted.
(d) Total return is calculated based on net asset value without deduction of
sales commissions and assumes reinvestment of all dividends and
distributions during the period. Total investment returns based on net
asset value, which can be higher or lower than market value, may result in
substantially different returns than total return based on market value.
(e) Total return is calculated assuming full participation in the 1993 rights
offering.
(f) Total return is calculated assuming no participation in the 1992 rights
offering.
(g) Annualized.
(h) Non-annualized. On an annualized basis the portfolio turnover rate would be
10%.
4
<PAGE>
PAST PERFORMANCE OF THE FUND
The following bar chart, line graph and tables provide information about the
Fund's past performance. Prior to October 17, 1997, the Fund operated as a
closed-end investment company. Upon conversion to an open-end investment company
on October 17, 1997, all outstanding shares of common stock of the Fund were
designated as Class A shares. All performance information shown below for the
Fund reflects the historical expense levels of the Fund as a closed-end
investment company without adjustment for the higher annual expenses of the
Fund's Class A shares. Performance would have been lower if adjusted for these
charges and expenses. Because Class B shares were not offered prior to October
17, 1997, performance information for Class B shares is not provided.
The investment strategies used for the Fund since its conversion to an open-end
fund may vary somewhat from the strategies used prior to conversion in that
open-end funds are subject to constraints on illiquid assets to which closed-end
funds are not subject, and attention must be paid to the cash flow needs of
open-end funds from the sale and redemption of shares. The past performance
information should not be considered a prediction of future performance of the
Fund.
The bar chart below illustrates the Fund's risks and performance by showing the
changes in the Fund's performance from year to year over a ten-year period.
[BAR-CHART]
1988 2.1%
1989 16.2%
1990 -3.2%
1991(1) 14.8%
1992 35.6%
1993 19.3%
1994 8.1%
1995 12.5%
1996 31.8%
1997 63.3%
Annual Total Return for Fiscal Year Ended June 30 of Year Shown (2)
- ------------------
(1) Carl Dorf, the Fund's Portfolio Manager, began managing the Fund in January
1991.
(2) The Fund's performance is based on the Fund's net asset value and assumes
reinvestment of all dividends and distributions, excludes sales charges, and
assumes no participation in the 1992 rights offering and full participation
in the 1993 rights offering.
5
<PAGE>
The line graph below shows the growth of an initial investment of $10,000 with
reinvestment of all dividends and distributions. The graph shows the Fund's
performance since June 30, 1987 compared to the performance of two relevant
unmanaged indices, the Standard & Poor's 500 and the Standard & Poor's Major
Regional Banks Index. The Fund's performance is shown both with and without the
imposition of the sales load currently associated with Class A shares of the
Fund.
[LINE GRAPH]
<TABLE>
<CAPTION>
SPRBNK S&P 500 B&T FUND B&T Fundd
Excluding With
Current Sales
Sales Charge Charge
<S> <S> <S> <S> <S>
6/30/87 10,000 10,000 10,000 9,425
6/30/88 9,814 9,309 10,213 9,626
6/30/89 11,292 11,216 11,872 11,189
6/30/90 9,659 13,062 11,493 10,832
6/30/91 10,922 14,027 13,193 12,434
6/30/92 15,568 15,905 17,893 16,864
6/30/93 19,593 18,069 21,350 20,123
6/30/94 19,791 18,323 23,069 21,742
6/30/95 22,254 23,094 25,943 24,452
6/30/96 29,849 29,095 34,185 32,220
6/30/97 45,851 39,188 55,825 52,615
</TABLE>
Balance as of 6/30 of Year Shown
<TABLE>
<CAPTION>
- --------------------------------------- --------------- --------------- -------------- ---------------
Average Annual Total Returns One Three Five Ten
Ended 6/30/97 Year Years Years Years
- --------------------------------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Bank & Thrift Fund(3) 63.3% 34.3% 25.6% 18.8%
(Excluding Current Sales Charge)
- --------------------------------------- --------------- --------------- -------------- ---------------
Bank & Thrift Fund(4) 53.9% 31.6% 24.1% 18.1%
(Including Current Sales Charge)
- --------------------------------------- --------------- --------------- -------------- ---------------
S&P 500 Index 34.7% 28.8% 19.8% 14.6%
- --------------------------------------- --------------- --------------- -------------- ---------------
S&P Major Regional Banks Index 53.6% 32.3% 24.1% 16.5%
- --------------------------------------- --------------- --------------- -------------- ---------------
</TABLE>
- ------------------
(1) The line graph shows the value of $10,000 invested on June 30, 1987 and held
through June 30, 1997 compared to the unmanaged S&P 500 Index and the
unmanaged S&P Major Regional Banks Index.
(2) Carl Dorf, the Fund's Portfolio Manager, began managing the Fund in January
1991.
(Footnotes continued on next page)
6
<PAGE>
(Footnotes continued from previous page)
(3) Average annual total returns are based on the Fund's net asset value and
assume reinvestment of all dividends and distributions, exclude sales
charges, and assume no participation in the 1992 rights offering and full
participation in the 1993 rights offering.
(4) Average annual total returns are based on the Fund's net asset value and
assume reinvestment of all dividends and distributions, include the maximum
initial Class A sales charge of 5.75%, and assume no participation in the
1992 rights offering and full participation in the 1993 rights offering.
INVESTMENT PERFORMANCE
MORNINGSTAR RATINGS. For the three-year, five-year, and ten-year periods ended
June 30, 1997, the Fund had a 5-star, a 4-star, and a 5-star Morningstar
risk-adjusted performance rating, respectively, when rated among 47, 39, and 30
domestic equity closed-end funds.(1) The Fund's overall rating through June 30,
1997, is 5-stars.(2) For the three-year, five-year, and ten-year periods ended
June 30, 1997, the Fund's risk score places it 21, 24, and 16 out of 47, 39, and
30 funds in the domestic equity closed-end fund category, respectively.(3)
- ------------------
(1) The Fund was ranked as a closed-end fund. If the Fund were reviewed as an
open-end fund, factoring in the applicable fees and expenses, the ratings
might be different.
(2) The Fund's overall rating is based upon a weighted average of its
performance for the three-year, five- year and ten-year periods ended June
30, 1997.
(3) On Morningstar's risk-adjusted performance rating system, funds ranking in
the top 10% of all funds within their category are awarded five stars and
funds in the next 22.5% receive four stars. Morningstar ratings are
calculated from each fund's three-, five-, and ten-year returns (with fee
adjustments, if any) in excess of 90-day Treasury bill returns, and a risk
factor that reflects fund performance below 90-day Treasury bill returns.
The ratings are subject to change every month. To determine a fund's risk
score, Morningstar ranks funds for the three-, five-, and ten-year periods
based upon their downside volatility compared to a 90-day Treasury bill.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund primarily seeks long-term capital appreciation; a secondary objective
is income. The Fund pursues its objectives by investing, under normal market
conditions, at least 65% of its total assets in equity securities of (i)
national and state-chartered banks (other than money center banks), (ii)
thrifts, (iii) the holding or parent companies of such depository institutions,
and (iv) in savings accounts of mutual thrifts, which investment may entitle the
investor to participate in future stock conversions of the mutual thrifts. These
portfolio securities are selected principally on the basis of fundamental
investment value and potential for future growth, including securities of
institutions that the Fund believes are well positioned to take advantage of the
attractive investment opportunities developing in the banking and thrift
industries. In making decisions concerning the selection of portfolio securities
for the Fund, the Investment Manager conducts its own evaluation of the
depository institution which is a potential investment by the Fund and does not
take into account the credit rating of the debt securities issued by such
institution. These equity securities include common stocks and securities
convertible into common stock (including convertible bonds, convertible
preferred stock, and warrants) but do not include non-convertible preferred
stocks or adjustable rate preferred stocks.
The Investment Manager believes that a number of factors may contribute to the
potential for growth in the value of equity securities of depository
institutions, including the fact that such depository institutions are:
(i) located in geographic regions experiencing strong economic growth
and able to participate in such growth;
(ii) well-managed and currently providing above-average returns on
assets and shareholders' equity;
(iii) attractive candidates for acquisition by a money center bank or
another regional bank, as defined in 'The Banking and Thrift Industries,'
below, or attractive partners for business combinations, as a result of
opportunities created by the trend towards deregulation and interstate
banking or in order to create larger, more efficient banking combinations;
(iv) expanding their business into new financial services or
geographic areas that have become or may become permissible due to an
easing of regulatory constraints; or
(v) investing assets in technology that is intended to increase
productivity.
The Investment Manager also believes that factors may contribute to increased
earnings of securities of depository institutions, including the following:
(i) changes in the sources of revenues of banks, such as the
implementation of certain new transaction-based fees;
(ii) a focus on variable rate pricing of bank products, which is less
sensitive than fixed pricing to cyclical interest rate changes;
(iii) the ability, as a result of liberalization of regulation, to
offer financial products and services which may have a higher rate of
return than traditional banking and financial services products;
(iv) the recent implementation of share repurchase programs by certain
banks; or
(v) a trend towards increased savings and investing as the average age
of the population of the United States gets older.
The Fund's policy of investing under normal market conditions at least 65% of
its total assets in the equity securities of (i) national and state-chartered
banks (other than money center banks), (ii) thrifts, (iii) the holding or parent
companies of such depository institutions, and (iv) in savings accounts of
mutual thrifts is fundamental and may not be changed without a Majority Vote. As
used in this Prospectus, the term 'Majority Vote' means the affirmative vote of
(a) more than 50% of the outstanding shares of the Fund or (b) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy, whichever is
less.
The Fund invests the remaining 35% of its total assets in the equity securities,
including preferred stocks or adjustable rate preferred stocks, of money center
banks, other financial services companies, other issuers deemed suitable by the
Investment Manager (which may include companies that are not in financial
services industries), in Debt Securities, and in securities of other investment
companies. 'Debt Securities'
8
<PAGE>
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 ('U.S. Government
securities') or issued by a corporation or other issuer and rated investment
grade or comparable quality by at least one nationally recognized rating
organization.
With respect to 75% of its total assets, the Fund will not purchase securities
of any one issuer, other than U.S. Government securities, if immediately after
such purchase more than 5% of the value of the Fund's total assets would be
invested in such issuer.
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 or thrift industry, 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' 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.
The Fund will not invest more than 15% of its net assets in illiquid
securities, measured at the time of investment.
INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The following pages contain information about certain types of securities in
which the Fund may invest and strategies the Fund may employ in pursuit of its
investment objective.
RISK CONSIDERATIONS
The investment objectives and policies described above should be carefully
considered before investing. There is no assurance that the Fund will achieve
its investment objectives. As with any security, an investment in the Fund's
shares involves certain risks, including loss of principal. An investment in the
Fund's shares cannot be considered a complete investment program. Because the
Fund's investment portfolio will be concentrated in specific segments of the
banking and thrift industries, the shares may be subject to greater risk than
the shares of a fund whose portfolio is less concentrated. See 'The Banking and
Thrift Industries.'
The Fund may invest in the securities of banks or thrifts that are relatively
smaller, engaged in business mostly within their geographic region, and are less
well-known to the general investment community than the money center and larger
regional banks. Traditionally, the Fund has concentrated its investments in
banks located in the Eastern and Midwestern States; however, all investments are
at the discretion of the Investment Manager and may be concentrated in other
areas. The shares of depository institutions in which the Fund may invest may
not be listed or traded on a national securities exchange or on the National
Association of Securities Dealers Automated Quotation System ('NASDAQ'); as a
result there may be limitations on the Fund's ability to dispose of them at
times and at prices that are most advantageous to the Fund. The Fund will not
invest more than 15% of its net assets in securities that are illiquid.
As discussed further below, changes in state and Federal law are producing
significant changes in the banking and financial services industries.
Deregulation has resulted in the diversification of certain financial products
and services offered by banks and financial services companies, creating
increased competition between them. A number of states have authorized banks
within their boundaries to acquire or be acquired by banks located in states
that have adopted reciprocal legislation. Concurrently, traditional banking
restrictions on intrastate mergers and consolidations have been eliminated
within several states. Although regional banks involved in intrastate and
interstate mergers and acquisitions may benefit from such regulatory changes,
those which do not participate in such consolidation may find that it is
increasingly difficult to compete effectively against larger banking
combinations. Proposals to change the laws and regulations governing banks and
companies that control banks are frequently introduced at the federal and state
levels and before various bank regulatory agencies. The likelihood of any
changes and the impact such changes might have are impossible to determine.
9
<PAGE>
LEGISLATION, REGULATIONS, AND POLICIES AFFECTING THE BANKING INDUSTRY. The last
few years have seen a significant amount of regulatory and legislative activity
focused on the expansion of bank powers and diversification of services that
banks may offer. These expanded powers have exposed banks to well-established
competitors and have eroded the distinctions between regional banks, community
banks, thrifts and other financial institutions. Pending legislation,
specifically the Financial Services Competition Act of 1997, which has been
approved by the House Banking Committee, if enacted in its present form, would
continue this trend. The proposed legislation would repeal key provisions of the
Glass-Steagall Act which historically has limited the scope of banking
organizations' securities activities. The proposed legislation would not only
eliminate banks' restrictions on affiliations with securities firms, but also
would permit affiliations with insurance companies and would require federally
chartered savings associations to convert to either national bank or state
charters. The proposed legislation, if enacted, would also permit bank holding
companies to engage in non-financial activities and commercial entities to
acquire banks, subject to certain limitations.
LEGISLATION, REGULATIONS, AND POLICIES AFFECTING THE THRIFT INDUSTRY. The
thrifts in which the Fund invests generally are subject to the same risks as
banks discussed above. Such risks include interest rate changes, credit risks,
and regulatory risks. Because thrifts differ in certain respects from banks,
however, thrifts may be affected by such risks in a different manner than banks.
Traditionally, thrifts have different and less diversified products than banks,
have a greater concentration of real estate in their lending portfolio, and are
more concentrated geographically than banks. Thrifts and their holding companies
are subject to extensive government regulation and supervision including regular
examinations of thrift holding companies by the Office of Thrift Supervision
(the 'OTS'). Such regulations have undergone substantial change since the 1980's
and will probably change in the next few years.
Certain recent legislation, as well as the pending Financial Services
Competition Act of 1997, are likely to have a significant impact on the thrift
industry. For example, the recent merger of the Savings Association Insurance
Fund into the Bank Insurance Fund has eliminated most of the higher deposit
insurance premiums paid by thrifts, making thrifts more competitive with banks.
In addition, the proposed Financial Services Competition Act of 1997, if enacted
in its present form, would require federally chartered savings associations to
convert their charters to either national bank or state charters. State
chartered savings associations would be treated as commercial banks. Thrifts
also would lose many of their existing powers and the OTS would be folded into
the Office of the Comptroller of the Currency, which is the primary regulator of
national banks.
INVESTMENT TECHNIQUES
TEMPORARY DEFENSIVE AND OTHER SHORT-TERM POSITIONS. 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. To
the extent that the Fund is in a temporary defensive position, it will not be
able to pursue its investment objective. Assuming a temporary defensive position
is purely discretionary with the Investment Manager.
OTHER INVESTMENT COMPANIES. The Fund may invest in shares issued by investment
companies. The Fund is limited in the degree to which it may invest in shares of
another investment company in that it may not, at the time of the purchase, (1)
acquire more than 3% of the outstanding voting shares of the investment company,
(2) invest more than 5% of the Fund's total assets in the investment company, or
(3) invest more than 10% of the Fund's total assets in all investment company
holdings. As a shareholder in any investment company, the Fund will bear its
ratable share of the investment company's expenses, including management fees in
the case of a management investment company.
ILLIQUID SECURITIES. The Fund may invest in an illiquid or restricted security
if the Investment Manager believes that it presents an attractive investment
opportunity. Generally, a security is considered illiquid if it cannot be
disposed of within seven days. Its illiquidity might prevent the sale of such a
security at a time when the Investment Manager might wish to sell, and these
securities could have the effect of decreasing the overall level of the Fund's
liquidity. Further, the lack of an established secondary market may make it
10
<PAGE>
more difficult to value illiquid securities, requiring the Fund to rely on
judgments that may be somewhat subjective in determining value, which could vary
from the amount that the Fund could realize upon disposition.
Restricted securities, including placements, are subject to legal or contractual
restrictions on resale. They can be eligible for purchase without Securities and
Exchange Commission ('SEC') registration by certain institutional investors
known as 'qualified institutional buyers,' and under the Fund's procedures,
restricted securities could be treated as liquid. However, some restricted
securities may be illiquid and restricted securities that are treated as liquid
could be less liquid than registered securities traded on established secondary
markets. The Fund may not invest more than 15% of its net assets in illiquid
securities, measured at the time of investment.
BORROWING. The Fund may borrow money from banks to obtain short-term credits as
are necessary for the clearance of securities transactions, but not in an amount
exceeding 15% of its total assets. Borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the Fund's net
asset value ('NAV'), and money borrowed will be subject to interest and other
costs. Under the Investment Company Act of 1940, as amended (the '1940 Act'),
the Fund is required to maintain continuous asset coverage of 300% with respect
to such borrowings and to sell (within three days) sufficient portfolio holdings
to restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Fund's holdings may
be disadvantageous from an investment standpoint.
THE FUND: DIVERSIFICATION AND CHANGES IN POLICIES
The Fund is diversified, so that with respect to 75% of its assets, it may not
invest more than 5% of its assets (measured at market value at the time of
investment) in securities of any one issuer, except that this restriction does
not apply to U.S. Government securities.
The Fund's primary investment objective is to achieve long-term capital
appreciation. Income is its secondary objective. These investment objectives are
'fundamental.' Fundamental policies may only be changed with the approval of a
Majority Vote of shareholders of the Fund. Other investment policies of the Fund
may be changed by the Board of Directors. The Fund is subject to investment
restrictions that are described in the Statement of Additional Information under
'Investment Restrictions.' Some of those restrictions are designated as
'fundamental.' These fundamental restrictions as well as the diversified status
of the Fund require a Majority Vote of the shareholders of the Fund to be
changed.
THE BANKING AND THRIFT INDUSTRIES
The Fund invests at least 65% of its total assets in the equity securities of
(i) national and state-chartered banks other than Money Center Banks (as defined
below); (ii) thrifts, (iii) the holding or parent companies of such
institutions; and also in savings accounts of mutual thrifts which investment
may entitle the investor to participate in future stock conversions of the
mutual thrifts.
As of December 31, 1996, the commercial banking industry in the United States
comprised approximately 11,454 state or federally chartered banks, many of which
are subsidiaries of bank holding companies. Bank holding companies are separate
legal entities that own the stock of, and receive a substantial portion of their
income from, one or more bank subsidiaries. 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 smaller than Money Center Banks and also may
include banks conducting business in a single state or city and banks operating
in a limited number of states in one or more geographic regions. The third
category which constitutes the majority in number of banking organizations are
typically smaller institutions that are
11
<PAGE>
more geographically restricted and less well-known than Money Center Banks or
Regional Banks and are commonly described as 'Community Banks.'
The thrift industry is comprised of over 1,300 institutions with assets of over
$769 billion. Thrifts and thrift holdings companies differ from banks and bank
holding companies in the range of their permissible activities and the degree of
regulation. Thrifts resemble community banks in that they hold a substantial
portion of their portfolio in mortgage, consumer and small business loans.
Thrifts are restricted in the mix of assets on their balance sheet by the
qualified thrift lender rules and are required to have certain minimum
percentages of mortgages, credit cards and student loans with specified maximum
percentages of consumer and commercial loans.
The banking and thrift industries are subject to extensive governmental
regulations which may limit both the amounts and types of loans and other
financial commitments which may be made and the interest rates and fees which
may be charged. Recently enacted and currently proposed legislation would have
an impact on the present status of the thrift industry. See 'Investment
Practices and Risk Considerations-- Legislation, Regulations, and Policies
Affecting the Thrift Industry'. The profitability of these concerns is largely
dependent upon interest rates and the resulting availability and cost of capital
funds over which these concerns have limited control, and, in the past, such
profitability has shown significant fluctuation as a result of volatile interest
rate levels. In addition, general economic conditions are important to the
operations of these concerns, with exposure to credit losses resulting from
financial difficulties of borrowers.
Banks and bank holding companies are subject to extensive government regulation
limiting their activities. Federally chartered banks and state-chartered banks
whose deposits are insured by the Federal Deposit Insurance Corporation and bank
holding companies are subject to federal supervision and regulation and, in
certain situations, to state laws applicable to financial institutions. Federal
banking authorities receive comprehensive reports on, and conduct examinations
of, a number of aspects of a federally-regulated bank's business and condition,
including its dividends, capital ratios, allowances for loan losses and other
aspects of the bank's financial condition and operation. A national bank must
obtain prior regulatory approval if it wishes to pay dividends on its common or
preferred stock if the total of all dividends in any calendar year exceeds the
aggregate of the bank's net profits, as defined, for that year and its retained
net profits (net profits less dividends paid) for the two proceeding years. A
national bank may not pay a dividend on its common stock if the dividend would
exceed net undivided profits then on hand. Federally-regulated banks are
required to maintain designated minimum ratios of capital to total assets. These
ratios were recently revised to call for higher levels of capital and may be
increased in the future. State banking agencies regulate and supervise
state-charted banks under regulations which may be similar to those existing
under federal law.
Bank holding companies are required to register and file reports with the Board
of Governors of the Federal Reserve System and are subject to examinations of
certain aspects of their businesses and their subsidiaries' businesses. The
principal sources of a bank holding company's income are dividends and interest
from its subsidiaries. Under Federal law, banks are subject to certain
restrictions on extensions of credit to, and certain other transactions with,
their bank holding companies and certain other affiliates, and on investments in
stock or other securities thereof. Such restrictions prevent bank holding
companies and such other affiliates from borrowing from their banks unless the
loans are secured in specified amounts. Further, such secured loans, other
transactions and investments by their banks are generally limited in amount as
to the bank holding company and as to each of such other affiliates to 10% of
the bank's capital and surplus and as to the bank holding company and all such
affiliates to an aggregate of 20% of the bank's capital and surplus. Any
combination between banks and bank holding companies requires prior approval of
appropriate Federal and state bank regulatory agencies.
Thrift holding companies can be stock or mutual companies. Thrift holding
companies, unlike bank holding companies, have historically been given broad
powers. For example, holding companies that own a single thrift can engage in
any activities that do not threaten the safety of the subsidiary thrift. Thrift
holding companies are allowed to engage in more business lines than banks are,
such as real estate acquisition, development, management, sales and rentals, and
insurance agency businesses. Thrift holding
12
<PAGE>
companies must comply with a variety of strict statutory and regulatory
requirements and restrictions and undergo regular examinations by the OTS
whereas banks are regulated by the Federal Reserve Board. The underlying thrifts
are also restricted in the scope and manner of their interaction with the parent
company. The activities in which a thrift holding company is permitted to engage
will depend on the number of thrifts controlled.
Certain economic factors are of particular importance to the banking industry.
The availability and cost of funds to banks is important to their profitability;
consequently, higher capital ratios, high deposit insurance premiums, volatile
interest rates and general economic conditions can have an impact on their
financial performance and condition. Banking legislation, enacted in 1989 and
1991, in general, has broadened the regulatory powers of federal bank regulatory
agencies. Among other things, this legislation grants federal banking agencies
the authority to approve special assessments on insured depository institutions
with respect to maintaining the deposit insurance fund. The quality of a bank's
portfolio of loans can be adversely affected by depressed market conditions in
certain industries. Examples of such industries that have affected the loan
portfolios of some banks include commercial real estate, international business,
agriculture and energy. Smaller Regional Banks, Community Banks, and thrifts can
be particularly affected by such conditions if the economic base of the area in
which they are located is closely tied to a depressed industry, such as family
farming.
SHAREHOLDER GUIDE
PILGRIM AMERICA PURCHASE OPTIONS(TRADEMARK)
You may select from two separate classes of shares: Class A and Class B, both of
which represent an identical interest in the Fund's investment portfolio, but
are offered with different sales charges and distribution fee (Rule 12b-1)
arrangements. These sales charges and fees are shown and contrasted in the chart
below.
<TABLE>
<CAPTION>
ANNUAL AUTOMATIC
MAXIMUM SALES DISTRIBUTION MAXIMUM CONVERSION
CLASS CHARGE ON PURCHASES (A) CDSC FEES(D) PURCHASE TO CLASS A
- ----- ------------------------ ----- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
A.... 5.75% None (b) 0.25% Unlimited N/A
B.... None 5.00%(c) 1.00% $250,000 After 8 Years
</TABLE>
- ------------------
(a) Imposed upon purchase. Reduced for purchases of $50,000 or more.
(b) For investments of $1 million or more, a CDSC of no more than 1% is assessed
on redemptions made within one or two years from purchase, depending on the
amount of purchase. See 'Class A Shares: Initial Sales Charge Alternative.'
(c) Imposed upon redemption within 6 years from purchase with scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'
(d) Annual asset-based distribution charge.
When choosing between classes, investors should carefully consider the ongoing
annual expenses along with the initial sales charge or CDSC. The relative impact
of the initial sales charges and ongoing annual expenses will depend on the
length of time a share is held. Orders for Class B shares in excess of $250,000
will be accepted as orders for Class A shares or declined. You should discuss
which class of shares is right for you with your Authorized Dealer.
13
<PAGE>
CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of the Fund
are sold at the NAV per share in effect plus a sales charge as described in the
following table. For waivers or reductions of the Class A shares sales charges,
see 'Special Purchases without a Sales Charge' and 'Reduced Sales Charges.'
<TABLE>
<CAPTION>
DEALERS'
REALLOWANCE AS
AS A % OF OFFERING AS A % OF A % OF
AMOUNT OF TRANSACTION PRICE PER SHARE NAV OFFERING PRICE
- ------------------------------------- ------------------ --------- --------------
<S> <C> <C> <C>
Less than $50,000.................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000....... 4.50% 4.71% 3.75%
$100,000 but less than $250,000...... 3.50% 3.63% 2.75%
$250,000 but less than $500,000...... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000.... 2.00% 2.04% 1.75%
</TABLE>
There is no initial sales charge on purchases of $1,000,000 or more. However,
the Distributor will pay Authorized Dealers of record commissions at the rates
shown in the table below for investments subject to a CDSC. If shares are
redeemed within one or two years of purchase, depending on the amount of the
purchase, a CDSC will be imposed on certain redemptions as follows:
<TABLE>
<CAPTION>
DEALER PERIOD DURING
ON PURCHASES OF: CDSC ALLOWANCE WHICH CDSC APPLIES
- --------------------------------------- ----- --------- ------------------
<S> <C> <C> <C>
$1,000,000 but less than $2,500,000.... 1.00% 1.00% 2 Years
$2,500,000 but less than $5,000,000.... 0.50% 0.50% 1 Year
$5,000,000 and over.................... 0.25% 0.25% 1 Year
</TABLE>
CLASS A SHARES: REDEMPTION FEE. Upon the conversion of the Fund to open-end
status, the Fund's outstanding shares were designated Class A shares. No sales
charge was due as a result of the conversion. However, if such shares are
redeemed or exchanged for shares of another open-end Pilgrim America Fund prior
to one year from date of conversion, they will be subject to a 2% redemption fee
payable to the Fund. The Fund reserves the right to waive or reduce the
redemption fee in whole or in part.
CLASS B SHARES: DEFERRED SALES CHARGE ALTERNATIVE. If you choose the deferred
sales charge alternative, you will purchase Class B shares at their NAV per
share without the imposition of a sales charge at the time of purchase. Class B
shares that are redeemed within six years of purchase, however, will be subject
to a CDSC as described in the table that follows. Class B shares of the Fund are
subject to a distribution fee at an annual rate of 1.00% of the average daily
net assets of the Class, which is higher than the distribution fee for Class A
shares. The higher distribution fee means a higher expense ratio, so Class B
shares pay correspondingly lower dividends and may have a lower NAV than Class A
shares. In connection with sales of Class B shares, the Distributor compensates
Authorized Dealers at a rate of 4% of purchase payments subject to a CDSC.
Orders for Class B shares in excess of $250,000 will be accepted for Class A
shares or declined.
The amount of the CDSC charge is determined as a percentage of the lesser of the
NAV of the Class B shares at the time of purchase or redemption. No charge will
be imposed for any net increase in the value of shares purchased during the
preceding six years in excess of the purchase price of such shares or for shares
acquired either by reinvestment of net investment income dividends or capital
gain distributions. The percentage used to calculate the CDSC will depend on the
number of years since you invested the dollar amount being redeemed according to
the following table:
<TABLE>
<CAPTION>
YEAR OF
REDEMPTION
AFTER PURCHASE CDSC
- ---------------------------- ----
<S> <C>
First..................... 5%
Second.................... 4%
Third..................... 3%
Fourth.................... 3%
Fifth..................... 2%
Sixth..................... 1%
Seventh and following..... 0%
</TABLE>
14
<PAGE>
To determine the CDSC payable on redemptions of Class B shares, the Fund will
first redeem shares in accounts that are not subject to a CDSC; second, shares
acquired through reinvestment of net investment income dividends and capital
gain distributions; third, shares purchased more than 6 years prior to
redemption; and fourth, shares subject to a CDSC in the order in which such
shares were purchased. Using this method, your sales charge, if any, will be at
the lowest possible CDSC rate.
Class B shares will automatically convert into Class A shares approximately
eight years after purchase. For additional information on the CDSC and the
conversion of Class B shares, see the Statement of Additional Information.
REDUCED SALES CHARGES. An investor may immediately qualify for a reduced sales
charge on a purchase of Class A shares of the Fund or of other open-end funds in
the Pilgrim America Funds which offer Class A shares or shares with front-end
sales charges ('Participating Funds') by completing the Letter of Intent section
of the New Account Application. Executing the Letter of Intent expresses an
intention to invest a specified amount during the next 13 months, which, if made
at one time, would qualify for a reduced sales charge. An amount equal to the
Letter amount multiplied by the maximum sales charge imposed on purchases of the
applicable fund and class will be restricted within your account to cover
additional sales charges that may be due if your actual total investment fails
to qualify for the reduced sales charges. See the New Account Application or the
Statement of Additional Information for details on the Letter of Intent option
or contact the Shareholder Servicing Agent at (800) 331-1080 for more
information.
The sales charge for your investment may also be reduced by taking into account
the current value of your existing holdings in the Fund or any other open-end
funds in the Pilgrim America Funds (excluding Pilgrim America General Money
Market shares) ('Rights of Accumulation'). The reduced sales charges apply to
quantity purchases made at one time or on a cumulative basis over any period of
time by: (i) an investor; (ii) the investor's spouse and children under the age
of majority; (iii) the investor's custodian account(s) for the benefit of a
child under the Uniform Gifts to Minors Act; (iv) a trustee or other fiduciary
of a single trust estate or a single fiduciary account (including a pension,
profit-sharing and other employee benefit plans qualified under Section 401 of
the Internal Revenue Code); and (v) trust companies, registered investment
advisers, banks and bank trust departments for accounts over which they exercise
exclusive discretionary investment authority and which are held in a fiduciary,
agency, advisory, custodial or similar capacity. See the New Account Application
or the Statement of Additional Information for details or contact the
Shareholder Servicing Agent at (800) 331-1080 for more information.
For purposes of Rights of Accumulation and the Letter of Intent Privilege,
shares held by investors in the open-end Pilgrim America Funds which impose a
CDSC may be combined with Class A shares for a reduced sales charge but such
combination will not affect any CDSC which may be imposed upon the redemption of
those shares. Additionally, shares held by investors in Class M shares of other
Pilgrim America Funds may be combined with Class A Shares for a reduced sales
charge.
WAIVERS OF CDSCS. The CDSC on Class A or Class B shares will be waived in the
case of a redemption following the death or permanent disability of a
shareholder if made within one year of death or initial determination of
permanent disability. The waiver is available for total or partial redemptions
of shares of the Fund owned by an individual or an individual in joint tenancy
(with rights of survivorship), but only for those shares held at the time of
death or initial determination of permanent disability. The CDSC also may be
waived for Class B Shares redeemed pursuant to a Systematic Withdrawal Plan, up
to a maximum of 12% per year of a shareholder's account value based on the value
of the account at the time the plan is established and annually thereafter,
provided all dividends and distributions are reinvested and the total
redemptions do not exceed 12% annually. In determining whether a CDSC is
applicable, it will be assumed that shares held in the shareholder's account
that are not subject to such charge are redeemed first.
The CDSC also will be waived in the case of a total or partial redemption of
shares of the Fund in connection with any mandatory distribution from a
tax-deferred retirement plan or an IRA. The shareholder must have attained the
age of 70 1/2 to qualify for the CDSC waiver relating to mandatory
distributions. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation of service. The
shareholder must notify the Transfer Agent either directly or through the
Distributor, at the time of redemption, that the shareholder is entitled to a
waiver of the CDSC.
15
<PAGE>
The CDSC Waiver Form included in the New Account Application must be completed
and provided to the Transfer Agent at the time of the redemption request. The
waiver will be granted subject to confirmation of the grounds for the waiver.
The foregoing waivers may be changed at any time.
REINSTATEMENT PRIVILEGE. Class B shareholders who have redeemed their shares in
any open-end Pilgrim America Fund within the previous 90 days may repurchase
Class B shares at NAV (at the time of reinstatement) in an amount up to the
redemption proceeds. Reinstated Class B shares will retain their original cost
and purchase date for purposes of the CDSC. The amount of any CDSC also will be
reinstated.
To exercise this privilege, a written order for the purchase of shares must be
received by the Transfer Agent or be postmarked within 90 days after the date of
redemption. This privilege can be used only once per calendar year. If a loss is
incurred on the redemption and the reinstatement privilege is used, some or all
of the loss may not be allowed as a tax deduction. See 'Tax Considerations' in
the Statement of Additional Information.
SPECIAL PURCHASES WITHOUT A SALES CHARGE. Class A shares may be purchased at
NAV without a sales charge by:
1) Class A shareholders who have redeemed their shares in any open-end
Pilgrim America Fund within the previous 90 days. These shareholders
may repurchase shares at NAV in an amount equal to their net redemption
proceeds. Authorized Dealers who handle these purchases may charge fees
for this service.
2) Any person who can document that Fund shares were purchased with
proceeds from the redemption (within the previous 90 days) of shares
from any unrelated mutual fund on which a sales charge was paid or
which were subject at any time to a CDSC.
3) Any charitable organization or governmental entity that has determined
that the Fund is a legally permissible investment and which is
prohibited by applicable law from paying a sales charge or commission
in connection with the purchase of shares of any mutual fund.
4) Officers, directors and full-time employees of Pilgrim America Capital
Corporation and its subsidiaries.
5) Certain fee based broker-dealers or registered representatives thereof
or registered investment advisers under certain circumstances making
investments on behalf of their clients.
6) Shareholders who have authorized the automatic transfer of dividends
from the same class of another open-end Pilgrim America Fund
distributed by the Distributor or from Pilgrim America Prime Rate
Trust.
7) Registered investment advisors, trust companies and bank trust
departments investing in Class A shares on their own behalf or on
behalf of their clients, provided that the aggregate amount invested in
the Fund or in any combination of shares of the Fund plus Class A
shares of certain other Participating Funds as described herein under
'Pilgrim America Purchase Options(Trademark)--Reduced Sales Charges',
during the 13 month period commencing with the first investment
pursuant hereto equals at least $1 million. The Distributor may pay
Authorized Dealers through which purchases are made an amount up to
0.50% of the amount invested, over a 12 month period following the
transaction.
8) Accounts as to which a banker or broker-dealer charges an account
management fee ('wrap accounts').
9) Broker-dealers, who have signed selling group agreements with the
Distributor, and registered representatives and employees of such
broker-dealers, for their own accounts or for members of their families
(defined as current spouse, children, parents, grandparents, uncles,
aunts, siblings, nephews, nieces, step relations, relations-at-law and
cousins).
10) Broker-dealers using third party administrators for qualified
retirement plans who have entered into an agreement with Pilgrim
America Funds or an affiliate, subject to certain operational and
minimum size requirements specified from time to time by the Pilgrim
America Funds.
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<PAGE>
The Fund may terminate or amend the terms of offering shares of the Fund at NAV
to these investors at any time. For additional information, contact the
Shareholder Servicing Agent at (800) 331-1080, or see the Statement of
Additional Information.
INCENTIVES. The Distributor, at its expense, will provide additional
promotional incentives to Authorized Dealers in connection with sales of shares
of the Fund and other open-end funds in the Pilgrim America Funds. In some
instances, additional compensation or promotional incentives will be offered to
Authorized Dealers that have sold or may sell significant amounts of shares.
Such compensation and incentives may include, but are not limited to, cash,
merchandise, trips and financial assistance in connection with pre-approved
conferences or seminars, sales or training programs for invited sales personnel,
payment for travel expenses (including meals and lodging) incurred by sales
personnel to various locations for such seminars or training programs, seminars
for the public, advertising and sales campaigns regarding the Fund or other
mutual funds in the Pilgrim America Group and/or other events sponsored by
Authorized Dealers.
In addition, the Distributor will, at its own expense, pay concessions in
addition to those described above to dealers that satisfy certain criteria
established from time to time by the Distributor. These conditions relate to
increasing sales of shares of the Fund over specified periods and to certain
other factors. These payments may, depending on the dealer's satisfaction of the
required conditions, be periodic and may be up to (1) 0.25% of the value of the
Fund's shares sold by the dealer during a particular period, and (2) 0.10% of
the value of the Fund's shares held by the dealer's customers for more than one
year, calculated on an annual basis.
RULE 12B-1 PLANS. The Fund has a distribution plan pursuant to Rule 12b-1 under
the 1940 Act applicable to each class of shares of the Fund ("Rule 12b-1 Plan").
Under the Rule 12b-1 Plan, the Distributor may receive from the Fund an annual
fee in connection with the offering, sale and shareholder servicing of Class A
and Class B shares at an annual rate of up to 0.35% and 1.00%, respectively, of
the average daily net assets of Class A and Class B shares of the Fund.
Currently, the Board of Directors has approved annual fees of 0.25% and 1.00%,
respectively, which are accrued daily and paid monthly. Of these amounts, fees
equal to an annual rate of 0.25% of the average daily net assets of the Fund are
for shareholder servicing for each of the classes. Fees paid under the Rule
12b-1 Plan may be used to cover the expenses of the Distributor from the sale of
Class A or Class B shares of the Fund, including payments to Authorized Dealers,
and for shareholder servicing. These fees may be used to pay the costs of the
following: payments to Authorized Dealers; promotional activities; preparation
and distribution of advertising materials and sales literature; expenses of
organizing and conducting sales seminars; personnel costs and overhead of the
Distributor; printing of prospectuses and statements of additional information
(and supplements thereto) and reports for other than existing shareholders;
supplemental payments to Authorized Dealers that provide shareholder services;
interest on accrued distribution expenses; and costs of administering the Rule
12b-1 Plan. With respect to the Fund's Class B shares, no more than 0.75% per
annum of the average net assets of Class B shares of the Fund may be used to
finance distribution expenses, exclusive of shareholder servicing payments. With
respect to Class A and Class B shares of the Fund, no Authorized Dealer may
receive shareholder servicing payments in excess of 0.25% per annum of the
Fund's average net assets held by the Authorized Dealer's clients or customers.
The Distributor will receive payment under the Rule 12b-1 Plans without regard
to actual distribution expenses that it incurs.
Under the Rule 12b-1 Plans, ongoing payments will be made on a quarterly basis
to Authorized Dealers for both distribution and shareholder servicing at the
annual rate of 0.25% of the Fund's average daily net assets of each of the Class
A and Class B shares that are registered in the name of that Authorized Dealer
as nominee or held in a shareholder account that designates that Authorized
Dealer as the dealer of record. Rights to these ongoing payments begin to accrue
in the 13th month following a purchase of Class A or B shares and they cease
upon exchange (or purchase) into Pilgrim America General Money Market Shares.
The payments are also subject to the continuation of the relevant distribution
plan, the terms of service agreements between dealers and the Distributor, and
any applicable limits imposed by the National Association of Securities Dealers,
Inc. The distribution and service fees for Class A shares acquired prior to the
Fund's conversion to an open-end investment company will be paid to the
Distributor.
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<PAGE>
OTHER EXPENSES. In addition to the management fee and other fees described
previously, the Fund pays other expenses, such as legal, audit, transfer agency
and custodian out-of-pocket fees, proxy solicitation costs, and the compensation
of Directors who are not affiliated with the Investment Manager. Most Fund
expenses are allocated proportionately among each of the classes of the Fund.
However, the Rule 12b-1 Plans' fees for each class of shares are charged
proportionately only to the outstanding shares of that class.
PURCHASING SHARES
Your Authorized Dealer can help you establish and maintain your account, and the
Shareholder Servicing Agent is available to assist you with any questions you
may have.
The Fund reserves the right to liquidate sufficient shares to recover annual
Transfer Agent fees should the investor fail to maintain his/her account value
at a minimum of $1,000.00 ($250.00 for IRA's).
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENT
<S> <C> <C>
By contacting your The minimum initial investment in the Fund is The minimum for additional investment in the Fund
Authorized Dealer $1,000 ($250 for IRAs). Visit or consult your is $100. Visit or consult your Authorized Dealer.
Authorized Dealer.
By mail Make your check payable to Pilgrim America Funds Fill out the account additions form included on
and mail it, along with a completed New Account the bottom of your account statement along with
Application, to the address indicated on the New your check payable to the Fund and mail them in
Account Application. Please indicate an Authorized the envelope provided with the account statement.
Dealer on the application. Remember to write your account number on the
check.
By wire Call the Pilgrim America Order Department at (800) Call the Pilgrim America Order Department at (800)
336-3436 to obtain an account number and indicate 336-3436 to obtain a wire reference number. Give
an Authorized Dealer on the account. Instruct your that number to your bank and have them wire the
bank to wire funds to the Fund in care of: funds in the same manner described under 'Initial
Investment.'
Investors Fiduciary Trust Co.
ABA #101003621
Kansas City, MO
credit to:
Pilgrim America Bank and Thrift Fund, Inc.
A/C# 752-4854 for further credit to:
Shareholder A/C
# -----------------------------------------
(A/C # you received over the telephone)
Shareholder Name:
------------------------------------------
(Your Name Here)
After wiring funds you must complete the New
Account Application and send it to:
Pilgrim America Order Dept.
P.O. Box 419368
Kansas City, MO 64141-6368
</TABLE>
The Fund and the Distributor reserve the right to reject
any purchase order.
The Investment Manager reserves the right to waive the
minimum investment amounts.
Please note third party checks will not be accepted.
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<PAGE>
PRICE OF SHARES. Purchase, sale and exchange orders are effected at NAV for the
respective class of shares of the Fund, determined after the order is received
by the Transfer Agent or Distributor, plus any applicable sales charge (Public
Offering Price).
Purchases of each class of the Fund's shares are effected at the Fund's Public
Offering Price determined after a purchase order has been received in proper
form. A purchase order will be deemed to be in proper form when all of the
required steps set forth above under 'Purchase of Shares' have been completed.
In the case of an investment by wire, however, the order will be deemed to be in
proper form after the telephone notification and the federal funds wire have
been received. A shareholder who purchases by wire must submit an application
form in a timely fashion. If an order or payment by wire is received after the
close of the New York Stock Exchange, 4:00 p.m. Eastern Time (1:00 p.m., Pacific
Time), the shares will not be credited until the next business day.
You will receive a confirmation of each new transaction in your account, which
also will show you the number of Fund shares you own including the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Fund will not be issued
unless you request them in writing.
DETERMINATION OF NET ASSET VALUE. The NAV of each class of the Fund's shares
will be determined daily as of the close of trading on the New York Stock
Exchange (usually at 4:00 p.m. New York City time) on each day that it is open
for business. Each class' NAV represents that class' pro rata share of the
Fund's net assets as adjusted for any class specific expenses (such as fees
under a Rule 12b-1 plan), divided by that class' outstanding shares. In general,
the value of the Fund's assets is based on actual or estimated market value,
with special provisions for assets not having readily available market
quotations and short-term debt securities. The NAV per share of each class of
shares of the Fund will fluctuate in response to changes in market conditions
and other factors. Portfolio securities for which market quotations are readily
available are stated at market value. Short-term debt securities having a
maturity of 60 days or less are valued at amortized cost, unless the amortized
cost does not approximate market value. Securities prices may be obtained from
automated pricing services. In other cases, securities are valued at their fair
value as determined in good faith by the Board of Directors of the Fund,
although the actual calculations will be made by persons acting under the
supervision of the Board.
PRE-AUTHORIZED INVESTMENT PLAN. You may establish a pre-authorized investment
plan to purchase shares with automatic bank account debiting. For further
information on pre-authorized investment plans, see the New Account Application
or contact the Shareholder Servicing Agent at (800) 331-1080.
RETIREMENT PLANS. The Fund has available prototype qualified retirement plans
for both corporations and for self-employed individuals. It also has available
prototype IRA and Simple IRA plans (for both individuals and employers),
Simplified Employee Pension Plans, Pension and Profit Sharing Plans and Tax
Sheltered Retirement Plans for employees of public educational institutions and
certain non-profit, tax-exempt organizations. Investors Fiduciary Trust Company
('IFTC') acts as the custodian under these plans. For further information,
contact the Shareholder Servicing Agent at (800) 331-1080. IFTC currently
receives a $12.00 custodian fee annually for maintenance of IRA accounts.
TELEPHONE ORDERS. The Fund and its Transfer Agent will not be responsible for
the authenticity of phone instructions or losses, if any, resulting from
unauthorized shareholder transactions if they reasonably believe that such
instructions were genuine. The Fund and its Transfer Agent have established
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include: (i) recording telephone instructions for
exchanges and expedited redemptions; (ii) requiring the caller to give certain
specific identifying information; and (iii) providing written confirmation to
shareholders of record not later than five days following any such telephone
transactions. If the Fund and its Transfer Agent do not employ these procedures,
they may be liable for any losses due to unauthorized
19
<PAGE>
or fraudulent telephone instructions. Telephone redemptions may be executed on
all accounts other than retirement accounts.
EXCHANGE PRIVILEGES AND RESTRICTIONS
An exchange privilege is available. Exchange requests may be made in writing to
the Transfer Agent or by calling the Transfer Agent at (800) 992-0180. There is
no specific limit on exchange frequency; however, the shares in the Fund are
intended for long term investment and not as a trading vehicle. The Investment
Manager reserves the right to prohibit excessive exchanges (more than four per
year). The Investment Manager reserves the right, upon 60 days' prior notice, to
restrict the frequency of, otherwise modify, or impose charges of up to $5.00
upon exchanges. The total value of shares being exchanged must at least equal
the minimum investment requirement of the fund into which they are being
exchanged.
Shares of one class of the Fund may be exchanged for shares of that same class
of any other open-end Pilgrim America Fund other than Pilgrim America General
Money Market Shares ('Money Market'), at NAV without payment of any additional
sales charge. If you exchange and subsequently redeem your shares, any
applicable CDSC will be based on the full period of the share ownership. Shares
of the Fund that are not subject to a CDSC may be exchanged for shares of Money
Market, and shares of Money Market acquired in the exchange may subsequently be
exchanged for shares of any open-end Pilgrim America Fund of the same class as
the original shares acquired. Shares of the Fund that are subject to a CDSC may
be redeemed to purchase shares of Money Market upon payment of the CDSC.
Shareholders of the Fund at the time of the Fund's conversion from a closed-end
investment company to an open-end investment company who exchange their Class A
shares issued upon conversion at any time before October 17, 1998 shall be
subject to a 2% redemption fee payable to the Fund. The Fund reserves the right
to waive or reduce the redemption fee in whole or in part. Shareholders
exercising the exchange privilege with any of Pilgrim America Fund's other
open-end funds should carefully review the prospectus of that fund. Exchanges of
shares are sales and may result in a gain or loss for federal and state income
tax purposes. You will automatically be assigned the telephone exchange
privilege unless you mark the box on the New Account Application that signifies
that you do not wish to have this privilege. The exchange privilege is only
available in states where shares of the Fund being acquired may be legally sold.
SYSTEMATIC EXCHANGE PRIVILEGE. Subject to the information and limitations
outlined above, you may elect to have a specified dollar amount of shares
systematically exchanged monthly, quarterly, semi-annually or annually (on or
about the 10th of the applicable month), from your account to an identically
registered account in the same class of any other open-end Pilgrim America Fund.
The exchange privilege may be modified at any time or terminated upon 60 days'
written notice to shareholders.
20
<PAGE>
HOW TO REDEEM SHARES
Shares of the Fund will be redeemed at the NAV (less any applicable CDSC,
redemption fee, and/or federal income tax withholding) next determined after
receipt of a redemption request in good form on any day the New York Stock
Exchange is open for business.
<TABLE>
<CAPTION>
METHOD PROCEDURES
<S> <C>
Redemption By Contacting Your Authorized Dealers may communicate redemption orders by wire or telephone to
Authorized Dealer the Distributor. These firms may charge for their services in connection with
your redemption request, but neither the Fund nor the Distributor imposes any
such charge.
Redemption by Mail A written request for redemption must be received by the Transfer Agent in
order to constitute a valid tender. If certificated shares have been issued,
the certificate must accompany the written request. The Transfer Agent may
also require a signature guarantee by an eligible guarantor. It will also be
necessary for corporate investors and other associations to have an
appropriate certification on file authorizing redemptions by a corporation or
an association before a redemption request will be considered in proper form.
A suggested form of such certification is provided on the New Account
Application. If you are entitled to a CDSC waiver, you must complete the CDSC
waiver form in the New Account Application. To determine whether a signature
guarantee or other documentation is required, shareholders may call the
Shareholder Servicing Agent at (800) 331-1080.
Expedited Redemption The Expedited Redemption Privilege allows you to effect a liquidation from
your account via a telephone call and have the proceeds (maximum $50,000)
mailed to an address which has been on record with Pilgrim America for at
least 60 days. This privilege is automatically assigned to you unless you
check the box on the New Account Application which signifies that you do not
wish to utilize such option. The Expedited Redemption Privilege additionally
allows you to effect a liquidation from your account and have the proceeds
(minimum $5,000) wired to your pre-designated bank account. This aspect of the
Expedited Redemption privilege will NOT automatically be assigned to you. If
you want to take advantage of this aspect of the privilege, please check the
appropriate box and attach a voided check to the New Account Application.
Under normal circumstances, proceeds will be transmitted to your bank on the
second business day following receipt of your instructions, provided
redemptions may be made. To effect an Expedited Redemption, please call the
Transfer Agent at (800) 992-0180. In the event that share certificates have
been issued, you may not request a wire redemption by telephone or wire. This
option is not available for retirement accounts.
</TABLE>
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount in excess of $100 made to
yourself, or to anyone else you properly designate, as long as the account has a
current value of at least $10,000. During the withdrawal period, you may
purchase additional shares for deposit to your account if the additional
purchases are equal to at least one year's scheduled withdrawals, or $1,200,
whichever is greater. There are no separate charges to you under this Plan,
although a CDSC may apply. Shareholders of the Fund at the time of the Fund's
conversion to an open-end investment company may redeem the Class A shares
received upon the conversion through a Systematic Withdrawal Plan, but the
shares redeemed will be subject to a 2% redemption fee.
21
<PAGE>
The number of full and fractional shares equal in value to the amount of the
payment will be redeemed at NAV (less any applicable CDSC or redemption fee).
Such redemptions are normally processed on the fifth day prior to the end of the
month, quarter or year. Checks are then mailed or proceeds are forwarded to your
bank account on or about the first of the following month. Shareholders who
elect to have a systematic cash withdrawal must have all dividends and capital
gains reinvested. To establish a systematic cash withdrawal, please complete the
Systematic Withdrawal Plan section of the New Account Application. To have funds
deposited to your bank account, follow the instructions on the New Account
Application.
You may change the amount, frequency and payee, or terminate this plan by giving
written notice to the Transfer Agent. As shares of the Fund are redeemed under
the Plan, you may realize a capital gain or loss for income tax purposes. A
Systematic Withdrawal Plan may be modified at any time by the Fund or terminated
upon written notice by you or the Fund.
PAYMENTS. Payment to shareholders for shares redeemed or repurchased ordinarily
will be made within three days after receipt by the Transfer Agent of a written
request in good order. The Fund may delay the mailing of a redemption check
until the check used to purchase the shares being redeemed has cleared which may
take up to 15 days or more. To reduce such delay, all purchases should be made
by bank wire of federal funds. The Fund may suspend the right of redemption
under certain extraordinary circumstances in accordance with the Rules of the
Securities and Exchange Commission. Due to the relatively high cost of handling
small investments, the Fund reserves the right upon 30 days' written notice to
redeem, at NAV, the shares of any shareholder whose account (except for IRAs)
has a value of less than $1,000, other than as a result of a decline in the NAV
per share. The Fund intends to pay in cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, the Fund may make payment
wholly or partly in securities at their then current market value equal to the
redemption price. In such case, the Fund could elect to make payment in
securities for redemptions in excess of $250,000 or 1% of its net assets during
any 90-day period for any one shareholder. An investor may incur brokerage costs
in converting such securities to cash.
MANAGEMENT OF THE FUND
MANAGEMENT OF THE FUND. The Fund is a registered investment company that was
incorporated in Maryland in November, 1985 as a closed-end, diversified
management investment company. The Fund operated as a closed-end fund prior to
October 17, 1997. On October 16, 1997, shareholders approved open-ending the
Fund and since October 17, 1997, the Fund has operated as an open-end fund. The
Fund is governed by a Board of Directors, which oversees the operations of the
Fund. The majority of Directors are not affiliated with the Investment Manager.
INVESTMENT MANAGER. Pilgrim America Investments, Inc. ('PAII' or the
'Investment Manager') serves as Investment Manager. The Investment Manager is
responsible for managing the general day-to-day operations of the Fund including
selecting the Fund's investments and placing the Fund's portfolio transactions.
The Fund and the Investment Manager have entered into an agreement that requires
the Investment Manager to provide all investment advisory and portfolio
management services for the Fund. It also requires the Investment Manager to
assist in managing and supervising all aspects of the general day-to-day
business activities and operations of the Fund, including custodial, transfer
agency, dividend disbursing, accounting, auditing, compliance and related
services. The Investment Manager provides the Fund with office space, equipment
and personnel necessary to administer the Fund. The agreement with the
Investment Manager can be canceled by the Board of Directors of the Fund upon 60
days' written notice. Organized in December 1994, the Investment Manager is
registered as an investment adviser with the Securities and Exchange Commission.
The Investment Manager bears its expenses of providing the services described
above. The Fund pays the Investment Manager a fee at an annual rate based on a
percentage of average daily net assets. The fee is
22
<PAGE>
1.00% of the first $30,000,000 of average daily net assets, 0.75% of the next
$95,000,000 of average daily net assets, and 0.70% of average daily net assets
in excess of $125,000,000. These fees are computed and accrued daily and paid
monthly.
The Investment Manager and Pilgrim America Securities, Inc. ('Distributor'), the
Fund's principal underwriter, are wholly owned subsidiaries of Pilgrim America
Group, Inc. ('Shareholder Servicing Agent'), which is a wholly owned subsidiary
of Pilgrim America Capital Corporation (NASDAQ: PACC). Through its subsidiaries,
Pilgrim America Capital Corporation engages in the financial services business,
focusing on providing investment advisory, administrative and distribution
services to open-end and closed-end investment companies and private accounts.
INVESTMENT PERSONNEL. Carl Dorf, C.F.A., Senior Vice President and Senior
Portfolio Manager of the Fund, has been managing the Fund's portfolio since
January 1991, when he joined the Investment Manager's predecessor. Mr. Dorf is
also a Senior Vice President of the Investment Manager, and is a co-portfolio
manager of Pilgrim America MagnaCap Fund, a series of another open-end fund
managed by the Investment Manager. Prior to his joining the Investment Manager's
predecessor, he was a principal of Dorf & Associates Investment Counsel. His 30
plus years of portfolio management and research experience include positions
with Moody's Investors Service, Inc. as an analyst in the Banking & Finance
Department; with Nuveen Corp. as a financial securities analyst; with Loews
Corp. as a fund manager with responsibility for $150 to $250 million in utility
and financial stocks; with BA Investment Management Corp. as a senior stock
analyst; and with RNC Capital Management as manager of 150 individual, pension,
and profit-sharing accounts. A Chartered Financial Analyst, Mr. Dorf earned both
BBA/Finance and Investments and MBA/Finance and Investments degrees from the
Bernard Baruch School of Business and Public Administration, The City College of
New York.
SHAREHOLDER SERVICING AGENT. Pilgrim America Group, Inc. serves as Shareholder
Servicing Agent for the Fund. The Shareholder Servicing Agent is responsible for
responding to written and telephonic inquiries from shareholders. The Fund pays
the Shareholder Servicing Agent a monthly fee on a per-contact basis, based upon
incoming and outgoing telephonic and written correspondence.
PORTFOLIO TRANSACTIONS. The Investment Manager places orders to execute the
securities transactions that are designed to implement the Fund's investment
objectives and policies. The Investment Manager uses its reasonable efforts to
place all purchase and sale transactions with brokers, dealers and banks
('brokers') that provide 'best execution' of these orders. In placing purchase
and sale transactions, the Investment Manager may consider brokerage and
research services provided by a broker to the Investment Manager, and the Fund
may pay a commission for effecting a securities transaction that is in excess of
the amount another broker would have charged if the Investment Manager
determines in good faith that the amount of commission is reasonable in relation
to the value of the brokerage and research services provided by the broker. In
addition, the Investment Manager may place securities transactions with brokers
that provide certain services to the Fund. The Investment Manager also may
consider a broker's sale of Fund shares if the Investment Manager is satisfied
that the Fund would receive best execution of the transaction from that broker.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Dividends and distributions from net investment
income and capital gains, if any, will be determined on a class basis for the
Fund and paid at least annually.
Any dividends and distributions paid by the Fund will be automatically
reinvested in additional shares of the respective class of the Fund, unless you
elect to receive distributions in cash. When a dividend or distribution is paid,
the NAV per share is reduced by the amount of the payment.
You may, upon written request or by completing the appropriate section of the
New Account Application in this Prospectus, elect to have all dividends and
other distributions paid on a Class A or B account in the
23
<PAGE>
Fund invested into a Pilgrim America Fund which offers Class A or B shares. Both
accounts must be of the same class. If you are a shareholder of Pilgrim America
Prime Rate Trust, whose shares are not held in a broker or nominee account, you
may, upon written request, elect to have all dividends invested into a pre-
existing Class A account of any open-end Pilgrim America Fund. Distributions are
invested into the selected funds at the net asset value as of the payable date
of the distribution only if shares of such selected funds have been registered
for sale in the investor's state.
FEDERAL TAXES. The Fund intends to operate as a 'regulated investment company'
under the Internal Revenue Code. In any fiscal year in which the Fund so
qualifies and distributes to shareholders all of its net investment income and
net realized capital gains, the Fund itself is relieved of federal income tax.
All dividends and capital gains are taxable whether they are reinvested or
received in cash, unless you are exempt from taxation or entitled to tax
deferral. Early each year, you will be notified as to the amount and federal tax
status of all dividends and capital gains paid during the prior year. Such
dividends and capital gains may also be subject to state or local taxes.
Dividends declared in October, November, or December with a record date in such
month and paid during the following January will be treated as having been paid
by the Fund and received by shareholders on December 31 of the calendar year in
which declared, rather than the calendar year in which the dividends are
actually received.
If you have not furnished a certified correct taxpayer identification number
(generally your Social Security number) and have not certified that withholding
does not apply, or if the Internal Revenue Service has notified the Fund that
the taxpayer identification number listed on your account is incorrect according
to their records or that you are subject to backup withholding, federal law
generally requires the Fund to withhold 31% from any dividends and/or
redemptions (including exchange redemptions). Amounts withheld are applied to
your federal tax liability; a refund may be obtained from the Service if
withholding results in overpayment of taxes. Federal law also requires the Fund
to withhold 30% or the applicable tax treaty rate from ordinary dividends paid
to certain nonresident alien, non-U.S. partnership and non-U.S. corporation
shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the Fund. Please see the Statement of Additional Information and your tax
adviser for further information.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its average annual total return over
various periods of time. These total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for one, five and ten year periods (if applicable) and may
be given for other periods as well (such as from commencement of the Fund's
operations, or on a year-by-year basis). Total returns and current yield are
based on past results and are not necessarily a prediction of future
performance.
ADDITIONAL PERFORMANCE QUOTATIONS. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.
24
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUND. The Fund's Articles of Incorporation permit the Directors
to authorize the creation of additional series, each of which may issue separate
classes of shares. The Fund may be terminated and liquidated under certain
circumstances.
VOTING RIGHTS. Shareholders have certain voting rights. Each share of the Fund
is given one vote. Matters to be acted upon that affect the Fund as a whole,
including approval of a new investment advisory agreement and changes in the
Fund's fundamental policies, will require the affirmative vote of the
shareholders of the Fund. Matters affecting a certain class of shares of the
Fund will only be voted on by shareholders of that particular class. As a
Maryland corporation, the Fund is not required to hold annual shareholder
meetings, although special shareholder meetings may be held from time to time.
25
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26
<PAGE>
PILGRIM AMERICA BANK
AND THRIFT FUND, INC.
40 NORTH CENTRAL AVENUE, SUITE 1200, PHOENIX, ARIZONA 85004
1-800-331-1080
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PILGRIM AMERICA BANK AND THRIFT FUND, INC. AT A GLANCE...... 2
SUMMARY OF EXPENSES......................................... 3
FINANCIAL HIGHLIGHTS........................................ 4
PAST PERFORMANCE OF THE FUND................................ 5
INVESTMENT OBJECTIVES AND POLICIES.......................... 8
INVESTMENT PRACTICES AND RISK CONSIDERATIONS................ 9
THE BANKING AND THRIFT INDUSTRIES........................... 11
SHAREHOLDER GUIDE........................................... 13
Pilgrim America Purchase Options(Trademark)............... 13
Purchasing Shares......................................... 18
Exchange Privileges and Restrictions...................... 20
How to Redeem Shares...................................... 21
MANAGEMENT OF THE FUND...................................... 22
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................... 23
PERFORMANCE INFORMATION..................................... 24
ADDITIONAL INFORMATION...................................... 25
</TABLE>
PILGRIM AMERICA FUNDS
INVESTMENT MANAGER
Pilgrim America Investments, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
DISTRIBUTOR
Pilgrim America Securities, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
SHAREHOLDER SERVICING AGENT
Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368
CUSTODIAN
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017
PROSPECTUS
OCTOBER 17, 1997
<PAGE>
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004
(800) 331-1080
Statement of Additional Information
dated October 17, 1997
Pilgrim America Bank and Thrift Fund, Inc. (the "Fund") is an open-end
management investment company commonly known as a mutual fund. The Fund's
primary investment objective is long-term capital appreciation. Income is the
secondary objective. The Fund seeks to achieve its objectives by investing
primarily in equity securities of national and state-chartered banks (other than
money center banks), thrifts, the holding or parent companies of such depository
institutions, and in savings accounts of mutual thrifts. These portfolio
securities are selected principally on the basis of fundamental investment value
and potential for future growth, including securities of institutions that the
Fund believes are well-positioned to take advantage of opportunities currently
developing in the banking and thrift industries. There is no assurance that the
Fund will achieve its objectives.
This Statement of Additional Information is not a prospectus and it should be
read in conjunction with the Fund's Prospectus, dated October 17, 1997
("Prospectus"), which has been filed with the Securities and Exchange Commission
("SEC"). Copies of the Prospectus may be obtained at no charge by calling (800)
331-1080.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ORGANIZATION OF PILGRIM AMERICA BANK AND THRIFT FUND, INC....................2
MANAGEMENT OF THE FUND.......................................................2
INVESTMENT RESTRICTIONS......................................................8
PORTFOLIO TRANSACTIONS.......................................................9
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..............................10
DETERMINATION OF SHARE PRICE................................................15
SHAREHOLDER SERVICES AND PRIVILEGES.........................................15
DISTRIBUTIONS...............................................................17
TAX CONSIDERATIONS..........................................................18
SHAREHOLDER INFORMATION.....................................................21
CALCULATION OF PERFORMANCE DATA.............................................21
GENERAL INFORMATION.........................................................23
FINANCIAL STATEMENTS........................................................23
</TABLE>
<PAGE>
ORGANIZATION OF PILGRIM AMERICA BANK AND THRIFT FUND, INC.
Pilgrim America Bank and Thrift Fund, Inc. is an open-end management investment
company commonly known as a mutual fund. The Fund was incorporated in Maryland
in November, 1985 under the name "Pilgrim Regional BankShares, Inc." as a
closed-end, diversified management investment company. The Fund changed its name
from "Pilgrim Regional BankShares, Inc." to "Pilgrim America Bank and Thrift
Fund, Inc." in April, 1996. The Fund operated as a closed-end fund prior to
October 17, 1997. On October 16, 1997, shareholders approved open-ending the
Fund and since October 17, 1997, the Fund has operated as an open-end fund.
The authorized capital stock of the Fund consists of 100,000,000 shares of
common stock having a par value of $.001 per share. Holders of shares of the
Fund have one vote for each share held, and a proportionate fraction of a vote
for each fraction of a share held. All shares issued and outstanding are fully
paid and non-assessable, transferable, and redeemable at the option of the
shareholder. Shares have no preemptive rights. Shares have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Directors can elect 100% of the Directors if they choose to do
so, and in such event the holders of the remaining shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors.
The Board of Directors may classify or reclassify any unissued shares of the
Fund into shares of another class or series by setting or changing in any one or
more respects, from time to time, prior to the issuance of such shares, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or qualifications of such shares. Any such
classification or reclassification will comply with the provisions of the
Investment Company Act of 1940 (the "1940 Act").
MANAGEMENT OF THE FUND
Board of Directors. The Fund is managed by its Board of Directors. The Directors
and Officers of the Fund are listed below. An asterisk (*) has been placed next
to the name of each Director who is an "interested person," as that term is
defined in the 1940 Act, by virtue of that person's affiliation with the Fund or
Pilgrim America Investments, Inc., the Fund's investment manager (the
"Investment Manager").
Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix, Arizona
85016. (Age 58.) Director. Realtor, Coldwell Banker Success Realty (formerly,
The Prudential Arizona Realty), for more than the last five years. Ms. Baldwin
is also Vice President, United States Olympic Committee (November 1996 -
Present), and formerly Treasurer, United States Olympic Committee (November 1992
- - November 1996). Ms. Baldwin also is a director and/or trustee of each of the
funds managed by the Investment Manager.
John P. Burke, 260 Constitution Plaza, Hartford, Connecticut 06310. (Age 65.)
Director. Commissioner of Banking, State of Connecticut (January 1995 -
Present). Mr. Burke was formerly President of Bristol Savings Bank (August 1992-
January 1995) and President of Security Savings and Loan (November 1989 - August
1992). Mr. Burke is also a director and/or trustee of each of the funds managed
by the Investment Manager.
Al Burton, 2300 Coldwater Canyon, Beverly Hills, California 90210. (Age 69.)
Director. President of Al Burton Productions, for more than the last five years.
Formerly, Vice President, First Run Syndication, Castle Rock Entertainment (July
1992 - November 1994). Mr. Burton also is a director and/or trustee of each of
the funds managed by the Investment Manager.
Bruce S. Foerster, 4045 Sheridan Avenue, Suite 432, Miami Beach, Florida 33140.
(Age 56.) Director. President, South Beach Capital Markets Advisory Corporation
(January 1995 - Present); Governor of the Philadelphia Stock Exchange (October
1997 - Present); Director of Mako Marine International (since January 1996) and
Aurora Capital, Inc. (since February 1995). Mr. Foerster was formerly Managing
Director, Equity Syndicate, Lehman Brothers (June 1992 - December 1994). Mr.
Foerster also is a director and/or trustee of each of the funds managed by the
Investment Manager.
-2-
<PAGE>
Jock Patton, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age
51.) Director. Private Investor; Director of Artisoft, Inc. (August
1994-Present). Formerly President and Co-owner, StockVal, Inc. (April 1993 -
June 1997). Mr. Patton was also formerly a partner and director of the law firm
of Streich, Lang, P.A. (1972 - 1993). Mr. Patton is also a director and/or
trustee of each of the funds managed by the Investment Manager.
Robert W. Stallings*, 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004. (Age 48.) Chairman, Chief Executive Officer and President. Chairman,
Chief Executive Officer and President of Pilgrim America Group, Inc. (since
December 1994); Chairman, Pilgrim America Investments, Inc. (since December
1994); Director, Pilgrim America Securities, Inc. (since December 1994);
Chairman, Chief Executive Officer and President of Pilgrim Government Securities
Income Fund, Inc., Pilgrim America Investment Funds, Inc. and Pilgrim America
Master Series, Inc. (since April 1995). Chairman and Chief Executive Officer of
Pilgrim America Capital Corporation (formerly, Express America Holdings
Corporation)("Pilgrim America")(since August 1990).
The Fund pays each Director who is not an interested person a pro rata share, as
described below, of (i) an annual retainer of $20,000; (ii) $1,500 per quarterly
and special Board meeting; (iii) $500 per committee meeting; (iv) $100 per
special telephonic meeting; and (v) out-of-pocket expenses. The pro rata share
paid by the Fund is based on the Fund's average net assets as a percentage of
the average net assets of all the funds managed by the Investment Manager for
which the Directors serve in common as directors/trustees.
Compensation of Directors.
The following table sets forth information regarding compensation of Directors
by the Fund and other funds managed by the Investment Manager for the fiscal
year ended December 31, 1996. Officers of the Fund and Directors who are
interested persons of the Fund do not receive any compensation from the Fund or
any other funds managed by the Investment Manager. In the column headed "Total
Compensation From Registrant and Fund Complex Paid to Directors," the number in
parentheses indicates the total number of boards in the Fund Complex on which
the Director serves.
-3-
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
============================================================================================================================
Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued Annual Registrant
Compensation As Part of Benefits and Fund
from Fund Upon Complex Paid
Name of Person, Position Registrant Expenses Retirement to Directors
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mary A. Baldwin*, Director........................... $3,207 N/A N/A $28,600
(5 boards)
- ----------------------------------------------------------------------------------------------------------------------------
John P. Burke* **, Director.......................... $0 N/A N/A $0
(5 boards)
- ----------------------------------------------------------------------------------------------------------------------------
Al Burton*, Director................................. $3,207 N/A N/A $28,600
(5 boards)
- ----------------------------------------------------------------------------------------------------------------------------
Bruce S. Foerster*, Director........................ $3,207 N/A N/A $28,600
(5 boards)
- ----------------------------------------------------------------------------------------------------------------------------
Jock Patton*, Director ............................ $3,207 N/A N/A $28,600
(5 boards)
- ----------------------------------------------------------------------------------------------------------------------------
Robert W. Stallings***, Director and Chairman........ $0 N/A N/A $0
(5 boards)
============================================================================================================================
</TABLE>
- ---------------------------------------------
* Member of the Audit Committee.
** Mr. Burke was elected to the Board of Directors at the May 5, 1997 Board
meeting.
*** "Interested person," as defined in the Investment Company Act of 1940, of
the Fund because of the affiliation with the Investment Manager.
Officers.
James R. Reis, Executive Vice President, Treasurer, Assistant Secretary,
Principal Acting Officer. 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004. (Age 39.)
Director, Vice Chairman (since December 1994), Executive Vice President (since
April 1995), and Treasurer (since September 1996), Pilgrim America Group, Inc.
and Pilgrim America Investments, Inc.; Director (since December 1994), Vice
Chairman (since November 1995) and Assistant Secretary (since January 1995) of
Pilgrim America Securities, Inc.; Executive Vice President, Treasurer, Assistant
Secretary and Principal Accounting Officer of each of the other funds in the
Pilgrim America Group of Funds; Chief Financial Officer (since December 1993),
Vice Chairman and Assistant Secretary (since April 1993) and former President
(May 1991 - December 1993), Pilgrim America (formerly, Express America Holdings
Corporation); Vice Chairman (since April 1993) and former President (May 1991 -
December 1993), Express America Mortgage Corporation.
Stanley Vyner, Executive Vice President. 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004. (Age 46.)
Executive Vice President (since August 1996), Pilgrim America Group, Inc.;
President and Chief Executive Officer (since August 1996), Pilgrim America
Investments, Inc.; Executive Vice President (since July 1996) of most of the
funds in the Pilgrim America Group of Funds. Formerly Chief Executive Officer
(November 1993 - December 1995) HSBC Asset Management, Americas, Inc., and Chief
Executive Officer, and Actuary (May 1986 - October 1993), HSBC Life.
-4-
<PAGE>
James M. Hennessy, Senior Vice President and Secretary. 40 North Central Avenue,
Suite 1200, Phoenix, Arizona 85004. (Age 48.)
Senior Vice President and Secretary (since April 1995), Pilgrim America
(formerly, Express America Holdings Corporation), Pilgrim America Group, Inc.,
Pilgrim America Investments, Inc., and Pilgrim America Securities, Inc.; Senior
Vice President and Secretary of each of the funds in the Pilgrim America Group
of Funds. Formerly Senior Vice President, Express America Mortgage Corporation
(June 1992 - August 1994) and President, Beverly Hills Securities Corp. (January
1990 - June 1992).
Carl Dorf, Senior Vice President and Senior Portfolio Manager. 40 North Central
Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 57.)
Senior Vice President (since February 1997), Pilgrim America Investments, Inc.
Formerly Vice President, Pilgrim America Investments, Inc. (August 1995 -
February 1997). Formerly Vice President, Pilgrim America Bank and Thrift Fund,
Inc. (January 1996 - May 1997). Formerly Vice President, Pilgrim Management
Corporation (January 1991 - April 1995).
Robert S. Naka, Vice President and Assistant Secretary. 40 North Central Avenue,
Suite 1200, Phoenix, Arizona 85004. (Age 34.)
Vice President, Pilgrim America Investments, Inc. (since April 1997) and Pilgrim
America Group, Inc. (since February 1997). Vice President and Assistant
Secretary of each of the funds in the Pilgrim America Group of Funds. Formerly
Assistant Vice President, Pilgrim America Group, Inc. (August 1995 - February
1997). Formerly Operations Manager, Pilgrim Group, Inc. (April 1992 - April
1995).
Principal Shareholders. As of September 30, 1997, the Directors and Officers of
the Fund as a group owned less than 1% of the outstanding shares of the Fund. As
of September 30, 1997, to the knowledge of management, no person owned
beneficially or of record more than 5% of the outstanding shares of the Fund.
Investment Manager. The Investment Manager serves as investment manager to the
Fund and has overall responsibility for the management of the Fund. The
Investment Management Agreement between the Fund and the Investment Manager
requires the Investment Manager to oversee the provision of all investment
advisory and portfolio management services for the Fund. The Investment Manager,
which was organized in December 1994, is registered as an investment adviser
with the SEC and serves as investment adviser to four other registered
investment companies (or series thereof) as well as privately managed accounts.
As of September 30, 1997, the Investment Manager had assets under management of
approximately $2.6 billion.
The Investment Manager is a wholly-owned subsidiary of Pilgrim America Group,
Inc., which itself is a wholly-owned subsidiary of Pilgrim America, a Delaware
corporation, the shares of which are traded on the NASDAQ National Market System
and which is a holding company that through its subsidiaries engages in the
financial services business. The Investment Manager pays all of its expenses
arising from the performance of its obligations under the Investment Management
Agreement, including all executive salaries and expenses of the Directors and
Officers of the Fund who are employees of the Investment Manager or its
affiliates and office rent of the Fund. Other expenses incurred in the operation
of the Fund are borne by it, including, without limitation, investment advisory
fees; brokerage commissions; interest; legal fees and expenses of attorneys;
fees of independent auditors, transfer agents and dividend disbursing agents,
accounting agents, and custodians; the expense of obtaining quotations for
calculating the Fund's net asset value; taxes, if any, and the preparation of
the Fund's tax returns; cost of stock certificates and any other expenses
(including clerical expenses) of issue, sale, repurchase or redemption of
shares; expenses of registering and qualifying shares of the Fund under federal
and state laws and regulations; salary and other expenses of the employees of
Investment Manager engaged in registering and qualifying shares of the Fund
under federal and state laws and regulations; expenses of printing and
distributing reports, notices and proxy materials to existing shareholders;
expenses of printing and filing reports and other documents filed with
governmental agencies; expenses of annual and special shareholder meetings;
expenses of printing and distributing prospectuses and statements of additional
information to existing shareholders; fees and expenses of Directors of the Fund
who are not employees of the Investment Manager or its affiliates; membership
-5-
<PAGE>
dues in the Investment Company Institute; insurance premiums; and extraordinary
expenses such as litigation expenses.
The Fund pays the Investment Manager a fee of 1.00% of the first $30,000,000 of
average daily net assets, 0.75% of the next $95,000,000 of average daily net
assets and 0.70% of average daily net assets in excess of $125,000,000. The fees
are computed and accrued daily and paid monthly. For the fiscal years ended
December 31, 1994, 1995, and 1996, the Fund paid management fees to the
Investment Manager of $1,313,792, $1,421,324, and $1,746,917, respectively.
Prior to October 17, 1997, the Investment Manager was paid management fees based
on average weekly net assets.
The Investment Management Agreement will remain in effect for two years
following its date of execution, and thereafter will automatically continue for
successive annual periods as long as such continuance is specifically approved
at least annually by (a) the Board of Directors or (b) the vote of a "majority"
(as defined in the 1940 Act) of the Fund's outstanding shares voting as a single
class; provided, that in either event the continuance is also approved by at
least a majority of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Investment Manager by vote cast in person at a
meeting called for the purpose of voting on such approval.
The Investment Management Agreement is terminable without penalty with not less
than 60 days' notice by the Board of Directors or by a vote of the holders of a
majority of the Fund's outstanding shares voting as a single class, or upon not
less than 60 days' notice by the Investment Manager. The Investment Management
Agreement will terminate automatically in the event of its "assignment" (as
defined in the 1940 Act).
Distributor. Shares of the Fund are distributed by Pilgrim America Securities,
Inc. (the "Distributor") pursuant to an Underwriting Agreement between the Fund
and the Distributor. The Underwriting Agreement requires the Distributor to use
its best efforts on a continuing basis to solicit purchases of shares of the
Fund. The Fund and the Distributor have agreed to indemnify each other against
certain liabilities. At the discretion of the Distributor, all sales charges may
at times be reallowed to an authorized dealer ("Authorized Dealer"). If 90% or
more of the sales commission is reallowed, such Authorized Dealer may be deemed
to be an "underwriter" as that term is defined under the Securities Act of 1933,
as amended. The Underwriting Agreement will remain in effect for two years and
from year to year thereafter only if its continuance is approved annually by a
majority of the Board of Directors who are not parties to such agreement or
"interested persons" of any such party and must be approved either by votes of a
majority of the Directors or a majority of the outstanding voting securities of
the Fund. See the Prospectus for information on how to purchase and sell shares
of the Fund, and the charges and expenses associated with an investment.
Rule 12b-1 Plans. The Fund has a distribution plan pursuant to Rule 12b-1 under
the 1940 Act applicable to each class of shares of the Fund ("Rule 12b-1 Plan").
The Fund intends to operate the Rule 12b-1 Plans in accordance with its terms
and the National Association of Securities Dealers, Inc.'s rules concerning
sales charges. Under the Rule 12b-1 Plans, the Distributor may be entitled to
payment each month in connection with the offering, sale, and shareholder
servicing of Class A and Class B shares in amounts not to exceed the following:
with respect to Class A shares at an annual rate of up to 0.35% of the average
daily net assets of the Class A shares of the Fund; with respect to Class B
shares at an annual rate of up to 1.00% of the average daily net assets of the
Class B shares of the Fund. The Board of Directors has approved under the Rule
12b-1 Plans payments of the following amounts to the Distributor each month in
connection with the offering, sale, and shareholder servicing of Class A and
Class B shares as follows: (i) with respect to Class A shares at an annual rate
equal to 0.25% of the average daily net assets of the Class A shares of the Fund
and (ii) with respect to Class B shares at an annual rate equal to 1.00% of the
average daily net assets of the Class B shares of the Fund. Of these amounts,
fees equal to an annual rate of 0.25% of the average daily net assets of the
Fund are for shareholder servicing for each of the classes.
Under the Rule 12b-1 Plans, ongoing payments will be made on a quarterly basis
to Authorized Dealers for both distribution and shareholder servicing at the
annual rate of 0.25% of the Fund's average daily net assets of Class A and Class
B shares that are registered in the name of that Authorized Dealer as nominee or
held in a shareholder
-6-
<PAGE>
account that designates that Authorized Dealer as the dealer of record. Rights
to these ongoing payments begin to accrue in the 13th month following a purchase
of Class A or B shares. These fees may be used to cover the expenses of the
Distributor primarily intended to result in the sale of Class A and Class B
shares of the Fund, including payments to Authorized Dealers for selling shares
of the Fund and for servicing shareholders of these classes of the Fund.
Activities for which these fees may be used include: preparation and
distribution of advertising materials and sales literature; expenses of
organizing and conducting sales seminars; overhead of the Distributor; printing
of prospectuses and statements of additional information (and supplements
thereto) and reports for other than existing shareholders; payments to dealers
and others that provide shareholder services; and costs of administering the
Rule 12b-1 Plan. The fees for Class A shares acquired prior to the Fund's
conversion to an open-end investment company will be paid to the Distributor.
In the event a Rule 12b-1 Plan is terminated in accordance with its terms, the
obligations of the Fund to make payments to the Distributor pursuant to the Rule
12b-1 Plan will cease and the Fund will not be required to make any payments for
expenses incurred after the date the Plan terminates. The Distributor will
receive payment under the Rule 12b-1 Plan without regard to actual distribution
expenses it incurs.
In addition to providing for the expenses discussed above, the Rule 12b-1 Plans
also recognize that the Investment Manager and/or the Distributor may use their
resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's shares and other funds
managed by the Investment Manager. In some instances, additional compensation or
promotional incentives may be offered to dealers that have sold or may sell
significant amounts of shares during specified periods of time. Such
compensation and incentives may include, but are not limited to, cash,
merchandise, trips and financial assistance to dealers in connection with
pre-approved conferences or seminars, sales or training programs for invited
sales personnel, payment for travel expenses (including meals and lodging)
incurred by sales personnel and members of their families, or other invited
guests, to various locations for such seminars or training programs, seminars
for the public, advertising and sales campaigns regarding the Fund or other
funds managed by the Investment Manager and/or other events sponsored by
dealers.
The Rule 12b-1 Plans have been approved by the Board of Directors, including all
of the Directors who are not interested persons of the Fund as defined in the
1940 Act. Each Rule 12b-1 Plan must be renewed annually by the Board of
Directors, including a majority of the Directors who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Rule 12b-1 Plan, cast in person at a meeting called for that
purpose. It is also required that the selection and nomination of such Directors
be committed to the Directors who are not interested persons. The Rule 12b-1
Plans and any distribution or service agreement may be terminated as to the Fund
at any time, without any penalty, by such Directors or by a vote of a majority
of the Fund's outstanding shares on 60 days' written notice. The Distributor or
any dealer or other firm may also terminate their respective distribution or
service agreement at any time upon written notice.
In approving each Rule 12b-1 Plan, the Board of Directors has determined that
differing distribution arrangements in connection with the sale of new shares of
the Fund are necessary and appropriate in order to meet the needs of different
potential investors. Therefore, the Board of Directors, including those
Directors who are not interested persons of the Fund, concluded that, in the
exercise of their reasonable business judgment and in light of their fiduciary
duties, there is a reasonable likelihood that the Rule 12b-1 Plans as tailored
to each class of the Fund, will benefit the Fund and its shareholders.
Each Rule 12b-1 Plan and any distribution or service agreement may not be
amended to increase materially the amount spent for distribution expenses as to
the Fund without approval by a majority of the Fund's outstanding shares, and
all material amendments to a Plan or any distribution or service agreement shall
be approved by the Directors who are not interested persons of the Fund, cast in
person at a meeting called for the purpose of voting on any such amendment.
The Distributor is required to report in writing to the Board of Directors at
least quarterly on the monies reimbursed to it under each Rule 12b-1 Plan, as
well as to furnish the Board with such other information as may
-7-
<PAGE>
reasonably be requested in connection with the payments made under the Rule
12b-1 Plan in order to enable the Board to make an informed determination of
whether the Rule 12b-1 Plan should be continued.
Under the Glass-Steagall Act and other applicable laws, certain banking
institutions are prohibited from distributing investment company shares.
Accordingly, such banks may only provide certain agency or administrative
services to their customers for which they may receive a fee from the
Distributor under a Rule 12b-1 Plan. If a bank were prohibited from providing
such services, shareholders would be permitted to remain as shareholders and
alternate means for continuing the servicing of such shareholders would be
sought. In such event, changes in services provided might occur and such
shareholders might no longer be able to avail themselves of any automatic
investment or other service then being provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.
<PAGE> INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions listed below relating to the
investment of the Fund's assets and its activities. Restrictions 1 through 10
are fundamental policies that may not be changed without the approval of the
holders of a majority of the outstanding voting securities of the Fund (which
for this purpose and under the Investment Company Act of 1940 means the lesser
of (i) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares). The Fund may not:
(1) Invest more than 25% of its total assets in any industry or
industries other than the banking and thrift industries,
except for temporary or defensive positions.
(2) Borrow, except that it may borrow in an amount up to 15% of
its total assets to obtain such short-term credits as are
necessary for the clearance of securities transactions.
(3) Invest in repurchase agreements maturing in more than 7 days,
if as a result of such investment more than 10% of the Fund's
total assets would be invested in such repurchase agreements.
(4) Purchase securities for which there are legal or contractual
restrictions on resale, if as a result of such purchase more
than 10% of the Fund's total assets would be invested in such
securities.
(5) Invest more than 5% of the value of its net assets in
marketable warrants to purchase common stock.
(6) Purchase securities of any one issuer, other than U.S.
Government securities, if immediately after such purchase more
than 5% of the value of the Fund's total assets would be
invested in such issuer or the Fund would own more than 10% of
the outstanding voting securities of an issuer or more than
10% of any class of securities of an issuer, except that up to
25% of the Fund's total assets may be invested without regard
to the restrictions in this Item 6. For this purpose, all
outstanding bonds and other evidences of indebtedness shall be
deemed within a single class regardless of maturities,
priorities, coupon rates, series, designations, conversion
rights, security or other differences.
(7) Act as an underwriter of securities of other issuers, except,
to the extent that it may be deemed to act as an underwriter
in certain cases when disposing of restricted securities (See
also Item 4 above.).
(8) Purchase or sell real estate, commodities, commodity futures
contracts, or oil or gas exploration or development programs;
or sell short, or write, purchase, or sell straddles, spreads
or combinations thereof.
-8-
<PAGE>
(9) Make loans, except that the Fund may purchase or hold Debt
Securities in accordance with its investment policies and
objectives.
(10) Purchase securities on margin or hypothecate, mortgage or
pledge any of its assets except for the purpose of securing
borrowings permitted by Item 2 above and then only in an
amount up to 15% of the value of the Fund's total assets at
the time of borrowing.
The following investment restrictions may be changed by the Board of Directors
without shareholder approval. Appropriate notice will be given of any changes in
these restrictions made by the Board of Directors. The Fund may not:
(11) Participate on a joint or joint and several basis in any
trading account in securities.
(12) Purchase securities of any issuer for the purposes of
exercising control or management, except in connection with a
merger, consolidation, acquisition or reorganization.
(13) Invest more than 5% of the Fund's total assets in securities
of any issuer which, together with its predecessors, has been
in continuous operation less than three years.
(14) Purchase or retain the securities of any issuer if those
officers or Directors of the Fund or officers or Directors of
the Investment Manager who each own beneficially more than 1/2
of 1% of the securities of that issuer together own more than
5% of the securities of such issuer.
(15) Invest in illiquid securities if, as a result, more than 15%
of the Fund's net assets would be invested in such securities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in a percentage from a change in values of portfolio
securities or amount of total assets will not be considered a violation of any
of the foregoing restrictions.
PORTFOLIO TRANSACTIONS
The Investment Management Agreement authorizes the Investment Manager to select
the brokers or dealers that will execute the purchase and sale of investment
securities for the Fund. In all purchases and sales of securities for the Fund,
the primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Investment Management Agreement, the Investment
Manager determines, subject to the instructions of and review by the Board of
Directors of the Fund, which brokers are to be eligible to execute portfolio
transactions of the Fund. Purchases and sales of securities in the
over-the-counter market will generally be executed directly with a
"market-maker," unless in the opinion of the Investment Manager, a better price
and execution can otherwise be obtained by using a broker for the transaction.
In placing portfolio transactions, the Investment Manager will use its best
efforts to choose a broker capable of providing the brokerage services necessary
to obtain the most favorable price and execution available. The full range and
quality of brokerage services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm's risk in positioning a
block of securities, and other factors such as the firm's ability to engage in
transactions in shares of banks and thrifts that are not listed on an organized
stock exchange. The Investment Manager will seek to obtain the best commission
rate available from brokers that are believed to be capable of providing
efficient execution and handling of the orders. In those instances where it is
reasonably determined that more than one broker can offer the brokerage services
needed to obtain the most favorable price and execution available, consideration
may be given to those brokers that supply research and statistical information
to the Fund and/or the Investment Manager, and provide other services in
addition to execution services. Consistent with this policy, portfolio
transactions may
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be executed by brokers affiliated with the Pilgrim America Group, so long as the
commission paid to the affiliated broker is reasonable and fair compared to the
commission that would be charged by an unaffiliated broker in a comparable
transaction. The placement of portfolio brokerage with broker-dealers who have
sold shares of the Fund is subject to rules adopted by the National Association
of Securities Dealers, Inc. ("NASD"). Provided the Fund's officers are satisfied
that the Fund is receiving the most favorable price and execution available, the
Fund may also consider the sale of the Fund's shares as a factor in the
selection of broker-dealers to execute its portfolio transactions.
While it will continue to be the Fund's general policy to seek first to obtain
the most favorable price and execution available, in selecting a broker to
execute portfolio transactions for the Fund, the Fund may also give weight to
the ability of a broker to furnish brokerage and research services to the Fund
or the Investment Manager, even if the specific services were not imputed just
to the Fund and were useful to the Investment Manager in advising other clients.
In negotiating commissions with a broker, the Fund may therefore pay a higher
commission than would otherwise be the case if no weight were given to the
furnishing of these supplemental services, provided that the amount of such
commission has been determined in good faith by the Investment Manager to be
reasonable in relation to the value of the brokerage and research services
provided by such broker, which services either produce a direct benefit to the
Fund or assist the Investment Manager in carrying out its responsibilities to
the Fund.
Purchases of Fund securities also may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers which specialize in the types of securities which the Fund will
be holding, unless better executions are available elsewhere. Dealers and
underwriters usually act as principals for their own account. Purchases from
underwriters will include a concession paid by the issuer to the underwriter and
purchases from dealers will include the spread between the bid and the asked
price. If the execution and price offered by more than one dealer or underwriter
are comparable, the order may be allocated to a dealer or underwriter which has
provided such research or other services as mentioned above.
Some securities considered for investment by the Fund may also be appropriate
for other clients served by the Fund's Investment Manager. If the purchase or
sale of securities consistent with the investment policies of the Fund and one
or more of these other clients serviced by the Investment Manager is considered
at or about the same time, transactions in such securities will be allocated
among the Fund and the Investment Manager's other clients in a manner deemed
fair and reasonable by the Investment Manager. Although there is no specified
formula for allocating such transactions, the various allocation methods used by
the Investment Manager, and the results of such allocations, are subject to
periodic review by the Board of Directors.
For the years ended December 31, 1994, 1995, and 1996, the total brokerage
commissions paid by the Fund amounted to approximately $37,000, $49,000, and
$85,000, respectively.
The Fund places no restrictions on portfolio turnover. While the Fund may from
time to time sell a security it has held for a short period of time, the Fund
has no policy of engaging in short-term trading or generating short-term gains.
The annual rate of the Fund's portfolio turnover during the fiscal years ended
December 31, 1994, 1995, and 1996, was 14%, 13%, and 21%, respectively.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are offered at the net asset value next computed following
receipt of the order by the dealer (and/or the Distributor) or by the Fund's
transfer agent, DST Systems, Inc. ("Transfer Agent"), plus, for Class A shares,
a varying sales charge depending upon the amount of money invested, as set forth
in the Prospectus. Authorized dealers will be paid commissions on shares sold in
Classes A and B, at net asset value, which at the time of investment would have
been subject to the imposition of a contingent deferred sales charge if
liquidated. The Distributor may, from time to time, at its discretion, allow the
selling dealer to retain 100% of such sales charge, and such dealer may
therefore be deemed an "underwriter" under the Securities Act of 1933, as
amended. The Distributor, at its expense, may also provide additional
promotional incentives to dealers in connection with sales of shares of the Fund
and other funds managed by the Investment Manager. In some instances, such
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incentives may be made available only to dealers whose representatives have sold
or are expected to sell significant amounts of such shares. The incentives may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives and members of their
families to locations within or outside of the United States, merchandise or
other items. Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of any state.
Certain investors may purchase shares of the Fund with liquid assets with a
value which is readily ascertainable by reference to a domestic exchange price
and which would be eligible for purchase by the Fund consistent with the Fund's
investment policies and restrictions. These transactions only will be effected
if the Investment Manager intends to retain the security in the Fund as an
investment. Assets so purchased by the Fund will be valued in generally the same
manner as they would be valued for purposes of pricing the Fund's shares, if
such assets were included in the Fund's assets at the time of purchase. The Fund
reserves the right to amend or terminate this practice at any time.
Special Purchases at Net Asset Value. Class A shares of the Fund may be
purchased at net asset value, without a sales charge, by persons who have
redeemed their Class A shares of the Fund or shares of other funds managed by
the Investment Manager in accordance with the terms of such privileges
established for such funds within the previous 90 days. The amount that may be
so reinvested in the Fund is limited to an amount up to, but not exceeding, the
redemption proceeds (or to the nearest full share if fractional shares are not
purchased). In order to exercise this privilege, a written order for the
purchase of shares must be received by the Transfer Agent, or be postmarked,
within 90 days after the date of redemption. This privilege may only be used
once per calendar year. Payment must accompany the request and the purchase will
be made at the then current net asset value of the Fund. Such purchases may also
be handled by a securities dealer who may charge a shareholder for this service.
If the shareholder has realized a gain on the redemption, the transaction is
taxable and any reinvestment will not alter any applicable Federal capital gains
tax. If there has been a loss on the redemption and a subsequent reinvestment
pursuant to this privilege, some or all of the loss may not be allowed as a tax
deduction depending upon the amount reinvested, although such disallowance is
added to the tax basis of the shares acquired upon the reinvestment.
Class A shares may also be purchased at net asset value by any person who can
document that Fund shares were purchased with proceeds from the redemption
(within the previous 90 days) of shares from any unrelated mutual fund on which
a sales charge was paid or which were subject, at any time, to a contingent
deferred sales charge.
Class A shares of the Fund may also be purchased at net asset value by any
state, county, or city, or any instrumentality, department, authority or agency
thereof that has determined that the Fund is a legally permissible investment
and that is prohibited by applicable investment law from paying a sales charge
or commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). If an
investment by an eligible governmental authority at net asset value is made
though a dealer who has executed a selling group agreement with respect to the
Fund (or the other funds in the Pilgrim America Group) the Distributor may pay
the selling firm 0.25% of the Offering Price.
Shareholders of Pilgrim America General Money Market Shares who acquired their
shares by using all or a portion of the proceeds from the redemption of Class A
shares of other funds in the Pilgrim America Group distributed by the
Distributor may reinvest such amount plus any shares acquired through dividend
reinvestment in Class A shares of the Fund at its current net asset value,
without a sales charge.
Officers, directors and bona fide full-time employees of the Fund and officers,
directors and full-time employees of the Investment Manager, the Distributor,
the Fund's service providers or affiliated corporations thereof or any trust,
pension, profit-sharing or other benefit plan for such persons, broker-dealers,
for their own accounts or for members of their families (defined as current
spouse, children, parents, grandparents, uncles, aunts, siblings, nephews,
nieces, step-relations, relations at-law, and cousins), employees of such
broker-dealers (including their immediate families) and discretionary advisory
accounts of the Investment Manager, may purchase Class A shares of the Fund at
net asset value without a sales charge. Such purchaser may be required to sign a
letter stating that
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the purchase is for his own investment purposes only and that the securities
will not be resold except to the Fund. The Fund may, under certain
circumstances, allow registered investment advisers to make investments on
behalf of their clients at net asset value without any commission or concession.
Class A shares may also be purchased at net asset value by certain fee based
registered investment advisers, trust companies and bank trust departments under
certain circumstances making investments on behalf of their clients and by
shareholders who have authorized the automatic transfer of dividends from the
same class of another open-end fund managed by the Investment Manager or from
Pilgrim America Prime Rate Trust.
Letters of Intent and Rights of Accumulation. An investor may immediately
qualify for a reduced sales charge on a purchase of Class A shares of the Fund
or any open-end fund in the Pilgrim America Funds which offers Class A shares or
shares with front-end sales charges, by completing the Letter of Intent section
of the Shareholder Application in the Prospectus (the "Letter of Intent" or
"Letter"). By completing the Letter, the investor expresses an intention to
invest during the next 13 months a specified amount which if made at one time
would qualify for the reduced sales charge. At any time within 90 days after the
first investment which the investor wants to qualify for the reduced sales
charge, a signed Shareholder Application, with the Letter of Intent section
completed, may be filed with the Fund. After the Letter of Intent is filed, each
additional investment made will be entitled to the sales charge applicable to
the level of investment indicated on the Letter of Intent as described above.
Sales charge reductions based upon purchases in more than one investment in the
Pilgrim America Funds will be effective only after notification to the
Distributor that the investment qualifies for a discount. The shareholder's
holdings in the Investment Manager's open-end funds (excluding Pilgrim America
General Money Market Shares) acquired within 90 days before the Letter of Intent
is filed will be counted towards completion of the Letter of Intent but will not
be entitled to a retroactive downward adjustment of sales charge until the
Letter of Intent is fulfilled. Any redemptions made by the shareholder during
the 13-month period will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the Letter of Intent have been
completed. If the Letter of Intent is not completed within the 13-month period,
there will be an upward adjustment of the sales charge as specified below,
depending upon the amount actually purchased (less redemption) during the
period.
An investor acknowledges and agrees to the following provisions by completing
the Letter of Intent section of the Shareholder Application in the Prospectus. A
minimum initial investment equal to 25% of the intended total investment is
required. An amount equal to the maximum sales charge or 5.75% of the total
intended purchase will be held in escrow at Pilgrim America Group, in the form
of shares, in the investor's name to assure that the full applicable sales
charge will be paid if the intended purchase is not completed. The shares in
escrow will be included in the total shares owned as reflected on the monthly
statement; income and capital gain distributions on the escrow shares will be
paid directly by the investor. The escrow shares will not be available for
redemption by the investor until the Letter of Intent has been completed, or the
higher sales charge paid. If the total purchases, less redemptions, equal the
amount specified under the Letter, the shares in escrow will be released. If the
total purchases, less redemptions, exceed the amount specified under the Letter
and is an amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made by the Distributor and the dealer with
whom purchases were made pursuant to the Letter of Intent (to reflect such
further quantity discount) on purchases made within 90 days before, and on those
made after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the applicable offering price.
If the total purchases, less redemptions, are less than the amount specified
under the Letter, the investor will remit to the Distributor an amount equal to
the difference in dollar amount of sales charge actually paid and the amount of
sales charge which would have applied to the aggregate purchases if the total of
such purchases had been made at a single account in the name of the investor or
to the investor's order. If within 10 days after the written request such
difference in sales charge is not paid, the redemption of an appropriate number
of shares in escrow to realize such difference will be made. If the proceeds
from a total redemption are inadequate, the investor will be liable to the
Distributor for the difference. In the event of a total redemption of the
account prior to fulfillment of the Letter of Intent, the additional sales
charge due will be deducted from the proceeds of the redemption and the balance
will be forwarded to the investor. By completing the Letter of Intent section of
the Shareholder Application, an investor grants to the Distributor a security
interest in the shares in escrow and agrees to irrevocably appoint the
Distributor as his attorney-in-fact with full power of substitution to surrender
for redemption any or all shares for the purpose of
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<PAGE>
paying any additional sales charge due and authorizes the Transfer Agent or
Sub-Transfer Agent to receive and redeem shares and pay the proceeds as directed
by the Distributor. The investor or the securities dealer must inform the
Transfer Agent or the Distributor that this Letter is in effect each time a
purchase is made.
If at any time prior to or after completion of the Letter of Intent the investor
wishes to cancel the Letter of Intent, the investor must notify the Distributor
in writing. If, prior to the completion of the Letter of Intent, the investor
requests the Distributor to liquidate all shares held by the investor, the
Letter of Intent will be terminated automatically. Under either of these
situations, the total purchased may be less than the amount specified in the
Letter of Intent. If so, the Distributor will redeem at net asset value to remit
to the Distributor and the appropriate authorized dealer an amount equal to the
difference between the dollar amount of the sales charge actually paid and the
amount of the sales charge that would have been paid on the total purchases if
made at one time.
The value of shares of the Fund plus shares of the other open-end funds
distributed by the Distributor (excluding Pilgrim America General Money Market
Shares) can be combined with a current purchase to determine the reduced sales
charge and applicable offering price of the current purchase. The reduced sales
charge applies to quantity purchases made at one time or on a cumulative basis
over any period of time by (i) an investor, (ii) the investor's spouse and
children under the age of majority, (iii) the investor's custodian accounts for
the benefit of a child under the Uniform Gift to Minors Act, (iv) a trustee or
other fiduciary of a single trust estate or a single fiduciary account
(including a pension, profit-sharing and/or other employee benefit plans
qualified under Section 401 of the Code), by trust companies' registered
investment advisors, banks and bank trust departments for accounts over which
they exercise exclusive investment discretionary authority and which are held in
a fiduciary, agency, advisory, custodial or similar capacity.
The reduced sales charge also applies on a non-cumulative basis, to purchases
made at one time by the customers of a single dealer, in excess of $1 million.
The Letter of Intent option may be modified or discontinued at any time.
Shares of the Fund and other funds of the Pilgrim America Group (excluding
Pilgrim America General Money Market Shares) purchased and owned of record or
beneficially by a corporation, including employees of a single employer (or
affiliates thereof) including shares held by its employees, under one or more
retirement plans, can be combined with a current purchase to determine the
reduced sales charge and applicable offering price of the current purchase,
provided such transactions are not prohibited by one or more provisions of the
Employee Retirement Income Security Act or the Internal Revenue Code.
Individuals and employees should consult with their tax advisors concerning the
tax rules applicable to retirement plans before investing.
Redemptions. Payment to shareholders for shares redeemed will be made within
three days after receipt by the Fund's Transfer Agent of the written request in
proper form, except that the Fund may suspend the right of redemption or
postpone the date of payment as to the Fund during any period when (a) trading
on the New York Stock Exchange is restricted as determined by the SEC or such
exchange is closed for other than weekends and holidays; (b) an emergency exists
as determined by the SEC making disposal of portfolio series or valuation of net
assets of the Fund not reasonably practicable; or (c) for such other period as
the SEC may permit for the protection of the Fund's shareholders. At various
times, the Fund may be requested to redeem shares for which it has not yet
received good payment. Accordingly, the Fund may delay the mailing of a
redemption check until such time as it has assured itself that good payment has
been collected for the purchase of such shares, which may take up to 15 days or
longer.
The Fund intends to pay in cash for all shares redeemed, but under abnormal
conditions that make payment in cash unwise, the Fund may make payment wholly or
partly in securities at their then current market value equal to the redemption
price. In such case, an investor may incur brokerage costs in converting such
securities to cash. However, the Fund has elected to be governed by the
provisions of Rule 18f-1 under the 1940 Act, which contain a formula for
determining the minimum amount of cash to be paid as part of any redemption. In
the event the Fund liquidates portfolio securities to meet redemptions, it
reserves the right to reduce the redemption price by an amount equivalent to the
pro-rated cost of such liquidation not to exceed one percent of the net asset
value of such shares.
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Due to the relatively high cost of handling small investments, the Fund reserves
the right, upon 30 days' written notice, to redeem, at net asset value (less any
applicable deferred sales charge), the shares of any shareholder whose account
has a value of less than $1,000 in the Fund, other than as a result of a decline
in the net asset value per share. Before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares in the account is less than the minimum amount and will allow the
shareholder 30 days to make an additional investment in an amount that will
increase the value of the account to at least $1,000 before the redemption is
processed. This policy will not be implemented where the Fund has previously
waived the minimum investment requirements.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.
Certain purchases of Class A shares and most Class B shares may be subject to a
CDSC or redemption fee. For purchase payments subject to such CDSC, the
Distributor may pay out of its own assets a commission from 0.25% to 1.00% of
the amount invested for Class A purchases over $1 million and 4% of the amount
invested for Class B shares.
Shareholders will be charged a CDSC or redemption fee if certain of those shares
are redeemed within the applicable time periods as stated in the Prospectus.
No CDSC or redemption fee is imposed on any shares subject to a CDSC or
redemption fee to the extent that those shares (i) are no longer subject to the
applicable holding period, (ii) resulted from reinvestment of distributions on
CDSC or redemption fee shares or (iii) were exchanged for shares of another fund
managed by the Investment Manager, provided that the shares acquired in such
exchange and subsequent exchanges will continue to remain subject to the CDSC,
if applicable, until the applicable holding period expires.
The CDSC or redemption fee will be waived for certain redemptions of shares upon
(i) the death or permanent disability of a shareholder, or (ii) in connection
with mandatory distributions from an Individual Retirement Account ("IRA") or
other qualified retirement plan. The CDSC or redemption fee will be waived in
the case of a redemption of shares following the death or permanent disability
of a shareholder if the redemption is made within one year of death or initial
determination of permanent disability. The waiver is available for total or
partial redemptions of shares owned by an individual or an individual in joint
tenancy (with rights of survivorship), but only for redemptions of shares held
at the time of death or initial determination of permanent disability. The CDSC
or redemption fee will also be waived in the case of a total or partial
redemption of shares in connection with any mandatory distribution from a
tax-deferred retirement plan or an IRA. The waiver does not apply in the case of
a tax-free rollover or transfer of assets, other than one following a separation
from services. The shareholder must notify the Fund either directly or through
the Distributor at the time of redemption that the shareholder is entitled to a
waiver of CDSC or redemption fee. The waiver will then be granted subject to
confirmation of the shareholder's entitlement. The CDSC or redemption fee, which
may be imposed on Class A shares purchased in excess of $1 million, will also be
waived for registered investment advisers, trust companies and bank trust
departments investing on their own behalf or on behalf of their clients.
A redemption fee of 2% will be imposed for a one-year period following
conversion of the Fund from a closed-end investment company to an open-end
investment company on Fund shares acquired prior to the conversion. This fee
shall also apply if converted shares are exchanged for shares of another
open-end Pilgrim America Fund. The Fund reserves the right to waive or reduce
the redemption fee in whole or in part.
Conversion of Class B Shares. A shareholder's Class B shares will automatically
convert to Class A shares in the Fund on the first business day of the month in
which the eighth anniversary of the issuance of the Class B shares occurs,
together with a pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares. The conversion of
Class B shares into Class A shares is subject to the continuing availability of
an opinion of counsel or an Internal Revenue Service ("IRS") ruling, if the
Investment Manager
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deems it advisable to obtain such advice, to the effect that (1) such conversion
will not constitute a taxable event for federal income tax purposes; and (2) the
payment of different dividends on Class A and Class B shares does not result in
the Fund dividends or distributions constituting "preferential dividends" under
the Internal Revenue Code of 1986, as amended. The Class B shares so converted
will no longer be subject to the higher expenses borne by Class B shares. The
conversion will be effected at the relative net asset values per share of the
two Classes.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of each class
of the Fund's shares will be determined once daily as of the close of trading on
the New York Stock Exchange (4:00 p.m. New York time) during each day on which
that Exchange is open for trading. As of the date of this Statement of
Additional Information, the New York Stock Exchange is closed on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
Portfolio securities listed or traded on a national securities exchange or
included in the NASDAQ National Market System will be valued at the last
reported sale price on the valuation day. Securities traded on an exchange or
NASDAQ for which there has been no sale that day and other securities traded in
the over-the-counter market will be valued at the average of the last reported
bid and ask price on the valuation day. In cases in which securities are traded
on more than one exchange, the securities are valued on the exchange designated
by or under the authority of the Board of Directors as the primary market.
Securities for which quotations are not readily available and all other assets
will be valued at their respective fair values as determined in good faith by or
under the direction of the Board of Directors of the Fund.
In computing a class of the Fund's net asset value, all class-specific
liabilities incurred or accrued are deducted from the class' net assets. The
resulting net assets are divided by the number of shares of the class
outstanding at the time of the valuation and the result (adjusted to the nearest
cent) is the net asset value per share.
The per share net asset value of Class A shares generally will be higher than
the per share net asset value of Class B shares, reflecting daily expense
accruals of the higher distribution fees applicable to Class B shares. It is
expected, however, that the per share net asset value of the classes will tend
to converge immediately after the payment of dividends or distributions that
will differ by approximately the amount of the expense accrual differentials
between the classes.
Orders received by dealers prior to the close of trading on the New York Stock
Exchange will be confirmed at the offering price computed as of the close of
trading on that Exchange provided the order is received by the Distributor prior
to its close of business that same day (normally 4:00 P.M. Pacific time). It is
the responsibility of the dealer to insure that all orders are transmitted
timely to the Fund. Orders received by dealers after the close of trading on the
New York Stock Exchange will be confirmed at the next computed offering price as
described in the Prospectus.
SHAREHOLDER SERVICES AND PRIVILEGES
As discussed in the Prospectus, the Fund provides a Pre-Authorized Investment
Program for the convenience of investors who wish to purchase shares of the Fund
on a regular basis. Such a Program may be started with an initial investment
($1,000 minimum) and subsequent voluntary purchases ($100 minimum) with no
obligation to continue. The Program may be terminated without penalty at any
time by the investor or the Fund. The minimum investment requirements may be
waived by the Fund for purchases made pursuant to (i) employer-administered
payroll deduction plans, (ii) profit-sharing, pension, or individual or any
employee retirement plans, or (iii) purchases made in connection with plans
providing for periodic investments in Fund shares.
For investors purchasing shares of the Fund under a tax-qualified individual
retirement or pension plan or under a group plan through a person designated for
the collection and remittance of monies to be invested in shares of the
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Fund on a periodic basis, the Fund may, in lieu of furnishing confirmations
following each purchase of Fund shares, send statements no less frequently than
quarterly pursuant to the provisions of the Securities Exchange Act of 1934, as
amended, and the rules thereunder. Such quarterly statements, which would be
sent to the investor or to the person designated by the group for distribution
to its members, will be made within five business days after the end of each
quarterly period and shall reflect all transactions in the investor's account
during the preceding quarter.
All shareholders will receive a confirmation of each new transaction in their
accounts, which will also show the total number of Fund shares owned by each
shareholder, the number of shares being held in safekeeping by the Fund's
Transfer Agent for the account of the shareholder and a cumulative record of the
account for the entire year. SHAREHOLDERS MAY RELY ON THESE STATEMENTS IN LIEU
OF CERTIFICATES. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL NOT BE ISSUED
UNLESS THE SHAREHOLDER REQUESTS THEM IN WRITING.
Self-Employed and Corporate Retirement Plans. For self-employed individuals and
corporate investors that wish to purchase shares of the Fund, there is available
through the Fund a Prototype Plan and Custody Agreement. The Custody Agreement
provides that Investors Fiduciary Trust Company, Kansas City, Missouri, will act
as Custodian under the Plan, and will furnish custodial services for an annual
maintenance fee of $12.00 for each participant, with no other charges. (This fee
is in addition to the normal Custodian charges paid by the Fund.) The annual
contract maintenance fee may be waived from time to time. For further details,
including the right to appoint a successor Custodian, see the Plan and Custody
Agreements as provided by the Fund. Employers who wish to use shares of the Fund
under a custodianship with another bank or trust company must make individual
arrangements with such institution.
Individual Retirement Accounts. Investors having earned income are eligible to
purchase shares of the Fund under an IRA pursuant to Section 408(a) of the
Internal Revenue Code. An individual who creates an IRA may contribute annually
certain dollar amounts of earned income, and an additional amount if there is a
non-working spouse. Simple IRA plans which employers may establish on behalf of
their employees are also available. Copies of model Custodial Account Agreements
are available from the Distributor. Investors Fiduciary Trust Company, Kansas
City, Missouri, will act as the Custodian under these model Agreements, for
which it will charge the investor an annual fee of $12.00 for maintaining the
Account (such fee is in addition to the normal custodial charges paid by the
Fund). Full details on the IRA and Simple IRA are contained in IRS required
disclosure statements, and the Custodian will not open an IRA until seven (7)
days after the investor has received such statement from the Fund. An IRA using
shares of the Fund may also be used by employers who have adopted a Simplified
Employee Pension Plan.
Purchases of Fund shares by Section 403(b) and other retirement plans are also
available. It is advisable for an investor considering the funding of any
retirement plan to consult with an attorney or to obtain advice from a competent
retirement plan consultant.
Telephone Redemption and Exchange Privileges. As discussed in the Prospectus,
the telephone redemption and exchange privileges are available for all
shareholder accounts; however, retirement accounts may not utilize the telephone
redemption privilege. The telephone privileges may be modified or terminated at
any time. The privileges are subject to the conditions and provisions set forth
below and in the Prospectus.
1. Telephone redemption and/or exchange instructions received in
good order before the pricing of the Fund on any day on which the
New York Stock Exchange is open for business (a "Business Day"),
but not later than 4:00 p.m. eastern time, will be processed at
that day's closing net asset value. For each exchange, the
shareholder's account may be charged an exchange fee. There is no
fee for telephone redemption; however, redemptions of Class A and
Class B shares may be subject to a contingent deferred sales
charge or redemption fee (See "Redemption of Shares" in the
Prospectus).
-16-
<PAGE>
2. Telephone redemption and/or exchange instructions should
be made by dialing 1-800-992-0180.
3. Pilgrim America Group will not permit exchanges in
violation of any of the terms and conditions set forth in the
Fund's Prospectus or herein.
4. Telephone redemption requests must meet the following
conditions to be accepted by Pilgrim America Group:
(a) Proceeds of the redemption may be directly
deposited into a predetermined bank account, or
mailed to the current address on the
registration. This address cannot reflect any
change within the previous sixty (60) days.
(b) Certain account information will need to be
provided for verification purposes before the
redemption will be executed.
(c) Only one telephone redemption (where proceeds are
being mailed to the address of record) can be
processed within a 30 day period.
(d) The maximum amount which can be liquidated and
sent to the address of record at any one time is
$50,000.
(e) The minimum amount which can be liquidated and
sent to a predetermined bank account is $5,000.
5. If the exchange involves the establishment of a new account,
the dollar amount being exchanged must at least equal the minimum
investment requirement of the Pilgrim America Fund being acquired.
6. Any new account established through the exchange privilege
will have the same account information and options except as
stated in the Prospectus.
7. Certificated shares cannot be redeemed or exchanged by
telephone but must be forwarded to Pilgrim America Group and
deposited into your account before any transaction may be
processed.
8. If a portion of the shares to be exchanged are held in escrow
in connection with a Letter of Intent, the smallest number of full
shares of the Pilgrim America Fund to be purchased in the exchange
having the same aggregate net asset value as the shares being
exchanged shall be substituted in the escrow account. Shares held
in escrow may not be redeemed until the Letter of Intent has
expired and/or the appropriate adjustments have been made to the
account.
9. Shares may not be exchanged and/or redeemed unless an
exchange and/or redemption privilege is offered pursuant to the
Fund's then-current prospectus.
10. Proceeds of a redemption may be delayed up to 15 days or
longer until the check used to purchase the shares being redeemed
has been paid by the bank upon which it was drawn.
DISTRIBUTIONS
As noted in the Prospectus, shareholders have the privilege of reinvesting both
income dividends and capital gains distributions, if any, in additional shares
of the respective class of the Fund at the then current net asset value, with no
sales charge. Alternatively, a shareholder can elect at any time to receive
dividends and/or capital gains
-17-
<PAGE>
distributions in cash. In the absence of such an election, each purchase of
shares of a class of the Fund is made upon the condition and understanding that
the Transfer Agent is automatically appointed the shareholder's agent to receive
his dividends and distributions upon all shares registered in his name and to
reinvest them in full and fractional shares of the respective class of the Fund
at the applicable net asset value in effect at the close of business on the
reinvestment date. A shareholder may at any time after a purchase of Fund shares
request that dividends and/or capital gains distributions be paid to him in
cash.
TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax considerations
generally affecting the Fund and its shareholders. This discussion does not
provide a detailed explanation of all tax consequences, and shareholders are
advised to consult their own tax advisers with respect to the particular
consequences to them of an investment in the Fund.
Qualification as a Regulated Investment Company. The Fund intends to qualify as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). To so qualify, the Fund must, with respect to each taxable
year, among other things: (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock or securities and gains from the sale or
other disposition of foreign currencies, or other income (including gains from
options, futures contracts and forward contracts) derived with respect to the
Fund's business of investing in stocks, securities or currencies; (b) for
taxable years beginning prior to August 6, 1997, derive less than 30% of its
gross income from the sale or other disposition of the following assets held for
less than three months: (i) stock and securities, (ii) options, futures and
forward contracts (other than options, futures and forward contracts on foreign
currencies), and (iii) foreign currencies (and options, futures and forward
contracts on foreign currencies) which are not directly related to the Fund's
principal business of investing in stocks and securities (or options and futures
with respect to stock or securities); (c) diversify its holdings so that, at the
end of each quarter, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities, with such other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the Fund's total assets and to not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of the Fund's total assets is invested in the securities (other than U.S.
Government securities or securities of other regulated investment companies) of
any one issuer or of any two or more issuers that the Fund controls and that are
determined to be engaged in the same business or similar or related businesses;
and (d) distribute at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses).
The status of the Fund as a regulated investment company does not involve
government supervision of management or of its investment practices or policies.
As a regulated investment company, the Fund generally will be relieved of
liability for U.S. federal income tax on that portion of its investment company
taxable income and net realized capital gains which it distributes to its
shareholders. Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement also are subject to a nondeductible 4%
excise tax. To prevent application of the excise tax, the Fund intends to make
distributions in accordance with the calendar year distribution requirement.
Distributions. Dividends of investment company taxable income (including net
short-term capital gains) are taxable to shareholders as ordinary income.
Distributions of investment company taxable income may be eligible for the
corporate dividends-received deduction to the extent attributable to the Fund's
dividend income from U.S. corporations, and if other applicable requirements are
met. However, the alternative minimum tax applicable to corporations may reduce
the benefit of the dividends-received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) designated by the Fund as capital gain dividends are taxable to
shareholders as long-term capital gains, regardless of the length of time the
Fund's shares have been held by a shareholder, and are not eligible for the
dividends-received deduction. Generally, dividends
-18-
<PAGE>
and distributions are taxable to shareholders, whether received in cash or
reinvested in shares of the Fund. Any distributions that are not from the Fund's
investment company taxable income or net capital gain may be characterized as a
return of capital to shareholders or, in some cases, as capital gain.
Shareholders will be notified annually as to the federal tax status of dividends
and distributions they receive and any tax withheld thereon. Recent tax
legislation creates an additional category of capital gain called "mid-term
capital gain." The Fund will monitor developments regarding mid-term capital
gain and the appropriate application of the recently revised capital gain tax
rules to the Fund and its shareholders.
Dividends, including capital gain dividends, declared in October, November, or
December with a record date in such month and paid during the following January
will be treated as having been paid by the Fund and received by shareholders on
December 31 of the calendar year in which declared, rather than the calendar
year in which the dividends are actually received.
Distributions by the Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, the distribution nevertheless may be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
Original Issue Discount. Certain of the debt securities acquired by the Fund may
be treated as debt securities that were originally issued at a discount.
Original issue discount can generally be defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income is actually received by the Fund, original
issue discount that accrues on a debt security in a given year generally is
treated for federal income tax purposes as interest and, therefore, such income
would be subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by the
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of the Fund, at a constant yield to maturity which takes
into account the semi-annual compounding of interest.
Other Investment Companies. It is possible that by investing in other investment
companies, the Fund may not be able to meet the calendar year distribution
requirement and may be subject to federal income and excise tax. The
diversification and distribution requirements applicable to the Fund may limit
the extent to which the Fund will be able to invest in other investment
companies.
Sale or Other Disposition of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, and generally will be long-term
if the shareholder's holding period for the shares is more than eighteen months,
mid-term if the shareholder's holding period is more than one year but not more
than eighteen months, and short-term if the shareholder's holding period is not
more than one year. Any loss realized on a sale or exchange will be disallowed
to the extent that the shares disposed of are replaced (including replacement
through the reinvesting of dividends and capital gain distributions in the Fund)
within a period of 61 days beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of the Fund's shares held by the shareholder for six months or less
will be treated for federal income tax purposes as a long-term capital loss to
the extent of any distributions of capital gain dividends received by the
shareholder with respect to such shares.
-19-
<PAGE>
In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the shares
exchanged all or a portion of the sales charge incurred in acquiring those
shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
Backup Withholding. The Fund generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number or social security number and to make such certifications
as the Fund may require, (2) the IRS notifies the shareholder or the Fund that
the shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect, or (3) when required
to do so, the shareholder fails to certify that he is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
Foreign Shareholders. Taxation of a shareholder who, as to the United States, is
a nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the dividend. Such a foreign shareholder would generally be
exempt from U.S. federal income tax on gains realized on the sale of shares of
the Fund, capital gain dividends and amounts retained by the Fund that are
designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
Foreign noncorporate shareholders may be subject to backup withholding on
distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless such shareholders furnish the Fund with proper
certification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund, including the
applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Prospectus. Future legislative or administrative changes or
court decisions may significantly change the conclusions expressed herein, and
any such changes or decisions may have a retroactive effect with respect to the
transaction contemplated herein.
-20-
<PAGE>
Other Taxes. Distributions by the Fund and sales or other dispositions of shares
of the Fund also may be subject to state and local taxes, and the rules of state
and local taxation may differ from the rules of federal income taxation
summarized above. This discussion does not purport to deal with all of the tax
consequences applicable to shareholders. Shareholders are advised to consult
their own tax advisers for details with respect to the particular tax
consequences to them of an investment in the Fund.
SHAREHOLDER INFORMATION
Certificates representing shares of the Fund will not normally be issued to
shareholders. The Transfer Agent will maintain an account for each shareholder
upon which the registration and transfer of shares are recorded, and any
transfers shall be reflected by bookkeeping entry, without physical delivery.
The Transfer Agent will require that a shareholder provide requests in writing,
accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.).
The Fund reserves the right, if conditions exist that make cash payments
undesirable, to honor any request for redemption or repurchase order with
respect to shares of the Fund by making payment in whole or in part in readily
marketable securities chosen by the Fund and valued as they are for purposes of
computing the Fund's net asset value (redemption-in-kind). If payment is made in
securities, a shareholder may incur transaction expenses in converting theses
securities to cash. The Fund has elected, however, to be governed by Rule 18f-1
under the 1940 Act as a result of which the Fund is obligated to redeem shares
with respect to any one shareholder during any 90-day period solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of the period.
CALCULATION OF PERFORMANCE DATA
The Fund may, from time to time, include "total return" in advertisements or
reports to shareholders or prospective investors. Quotations of average annual
total return will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Fund over periods of 1, 5 and 10
years (up to the life of the Fund), calculated pursuant to the following formula
which is prescribed by the SEC:
P(1 + T)((n)) = ERV
Where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
From time to time, the Fund may advertise its average annual total return over
various periods of time. These total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for one, five and ten year periods (if applicable) and may
be given for other periods as well (such as from commencement of the Fund's
operations, or on a year-by-year basis).
Prior to October 17, 1997, the Fund operated as a closed-end investment company.
Upon conversion of the Fund to an open-end investment company on October 17,
1997, all outstanding shares of Common Stock of the Fund were designated as
Class A shares. Performance information for the period prior to October 17, 1997
reflects the performance of the Fund as a closed-end fund. Performance
information presented by the Fund for all periods is
-21-
<PAGE>
restated to reflect the current maximum front-end sales load payable by the
Class A shares of the Fund. Performance information for the period prior to
October 17, 1997 has not been adjusted to reflect annual Rule 12b-1 fees of
Class A shares plus additional expenses incurred in connection with operating as
an open-end investment company. Performance would have been lower if adjusted
for these charges and expenses. Performance information for all periods after
October 17, 1997 reflects Class A's annual Rule 12b-1 fees and other expenses
associated with open-end investment companies.
The Fund's average annual total returns for Class A shares based on net asset
value per share for the one-, five-and ten-year periods ended December 31, 1996
and for the period from inception of the Fund on January 24, 1986 to December
31, 1996, were 32.98%, 23.40%, 17.05% and 14.66%, respectively. Performance
information for Class B shares is not presented because Class B shares were not
outstanding during any of these periods.
Quotations of yield for the Fund will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
a - b
2[(-----+1)((6)) - 1]
cd
where
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
Additional Performance Quotations. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.
Total returns are based on past results and are not necessarily a prediction of
future performance.
Performance Comparisons. In reports or other communications to shareholders or
in advertising material, the Fund may compare the performance of its Class A and
Class B shares with that of other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc., Morningstar, Inc., CDA
Technologies, Inc., Value Line, Inc. or similar independent services that
monitor the performance of mutual funds or with other appropriate indexes of
investment securities. In addition, certain indexes may be used to illustrate
historic performance of select asset classes. The performance information may
also include evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Business Week, Forbes, Fortune, Institutional Investor, Money and The Wall
Street Journal. If the Fund compares its performance to other funds or to
relevant indexes, the Fund's performance will be stated in the same terms in
which such comparative data and indexes are stated, which is normally total
return rather than yield. For these purposes the performance of the Fund, as
well as the performance of such investment companies or indexes, may not reflect
sales charges, which, if reflected, would reduce performance results.
Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including age characteristics, of various regions in which the Fund may invest,
as compiled by various organizations, and projections of such information; (ii)
the performance of U. S. equity and debt markets; (iii) the geographic
distribution of the Fund's portfolio; (iv) the number of shareholders
-22-
<PAGE>
in the Fund or other Pilgrim America Funds and the dollar amount of the assets
under management; (v) descriptions of the trend in consolidation of commercial
banks in the United States, including forecasts of the decline in the number of
such banks, and discussions of the impact of such trends; (vi) descriptions of
the trends in technology utilized by financial institutions, and discussions of
the impact of such trends; (vii) comparisons of the average price to earnings
ratio, price to book ratio, and price to cash flow of the Fund, individual
stocks in the Fund's portfolio, the Standard & Poor's 500 Index, or comparable
bank indices, and descriptions of such comparisons; (viii) quotes from the
portfolio manager of the Fund or other industry specialists; (ix) lists or
statistics of certain of the Fund's holdings including, but not limited to,
portfolio composition, sector weightings, portfolio turnover rate, number of
holdings, average market capitalization, and modern portfolio theory statistics;
and (x) NASDAQ symbols for each class of shares of the Fund.
In addition, reports and promotional literature may contain information
concerning the Investment Manager or affiliates of the Fund or the Investment
Manager, including (i) performance rankings of other funds managed by the
Investment Manager, or the individuals employed by the Investment Manager who
exercise responsibility for the day-to-day management of the Fund, including
rankings of mutual funds published by Lipper Analytical Services, Inc.,
Morningstar, Inc., CDA Technologies, Inc., Value Line, Inc. or other rating
services, companies, publications or other persons who rank mutual funds or
other investment products on overall performance or other criteria; and (ii)
lists of clients, the number of clients, or assets under management.
GENERAL INFORMATION
Custodian. The cash and securities owned by the Fund are held by Investors
Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri 64105, as
Custodian, which takes no part in the decisions relating to the purchase or sale
of the Fund's portfolio securities.
Legal Counsel. Legal matters for the Fund are passed upon by Dechert Price &
Rhoads, 1500 K Street, N.W., Washington, D.C. 20005.
Independent Auditors. KPMG Peat Marwick LLP, 725 South Figueroa Street, Los
Angeles, California 90017, acts as independent auditors for the Fund.
Other Information. The Fund is registered with the SEC as an open-end management
investment company. Such registration does not involve supervision of the
management or policies of the Fund by any governmental agency. The Prospectus
and this Statement of Additional Information omit certain of the information
contained in the Registration Statement filed with the SEC and copies of this
information may be obtained from the SEC upon payment of the prescribed fee or
examined at the SEC in Washington, D.C. without charge.
Investors in the Fund will be kept informed of their progress through
semi-annual reports showing portfolio composition, statistical data and any
other significant data, including financial statements audited by the
independent certified public accountants.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 1996 and the
six-month period ended June 30, 1997 are incorporated herein by reference from
the Fund's Annual Report to Shareholders dated December 31, 1996 and Semi-Annual
Report to Shareholders dated June 30, 1997, respectively. Copies of the Fund's
Annual Report and Semi-Annual Report may be obtained without charge by
contacting the Fund at 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004, (800) 331-1080.
-23-
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements
Contained in Part A:
Financial Highlights
Contained in Part B:
Incorporated by reference from the Registrant's 1996 Annual
Report:
-- Portfolio of Investments as of December 31, 1996
-- Statement of Assets and Liabilities as of December 31, 1996
-- Statement of Operations for the year ended December 31, 1996
-- Statement of Changes in Net Assets for the years ended
December 31, 1996 and 1995
-- Notes to Financial Statements
-- Report of Independent Auditors
Incorporated by reference from the Registrant's 1997 Semi-Annual
Report:
-- Portfolio of Investments as of June 30, 1997
-- Statement of Assets and Liabilities as of June 30, 1997
-- Statement of Operations for the six months ended June 30, 1997
-- Statement of Changes in Net Assets for the six months ended
June 30, 1997 and the year ended December 31, 1996
-- Notes to Financial Statements
Contained in Part C:
-- None
(b) Exhibits
(1) -- Amended and Restated Articles of Incorporation*
(2) -- Amended and Restated Bylaws*
(3) -- Not Applicable
(4) -- Not Applicable
(5) -- Form of Amended and Restated Investment
Management Agreement*
(6)(A) -- Form of Underwriting Agreement*
<PAGE>
(6)(B) -- Form of Selling Group Agreement
(7) -- Not Applicable
(8) -- Form of Custodian Agreement
(9) -- Form of Recordkeeping Agreement
(10) -- Opinion and Consent of Dechert Price & Rhoads
(11) -- Consent of Independent Auditors
(12) -- Not Applicable
(13) -- Not Applicable
(14) -- Incorporated by reference from the Registrant's
previous filing on Form N-2, Investment Company
Act File No. 811-4504
(15)(A) -- Service and Distribution Plan for Class A
Shares*
(15)(B) -- Service and Distribution Plan for Class B
Shares*
(16) -- Schedule of Computation of Performance
Quotations*
(17) -- Financial Data Schedule
(18) -- Form of Plan Adopted Pursuant to Rule 18f-3*
- ------------
* Previously filed in Registrant's initial Registration Statement on Form N-1A,
as filed with the Securities and Exchange Commission on August 12, 1997.
ITEM 25. Persons Controlled by or under Common Control with Registrant
None.
ITEM 26. Number of Holders of Securities
The following information is given as of September 30, 1997:
<TABLE>
<CAPTION>
Title of Class Number of Recordholders
-------------- -----------------------
<S> <C>
Pilgrim America Bank and
Thrift Fund, Inc.
-- Class A 16,112
-- Class B None
</TABLE>
ITEM 27. Indemnification
Section 2-418 of the General Corporation Law of the State of Maryland,
Article Seventh of the Company's Articles of Incorporation, Article VII of the
Company's Bylaws, the Investment Management Agreement filed as Exhibit 5, and
the Underwriting Agreement filed as Exhibit 6(A) provide for indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant, pursuant to the foregoing provisions or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such a director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
<PAGE>
ITEM 28. Business and Other Connections of the Investment Manager
Information as to the directors and officers of the Investment Manager,
together with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by the directors and officers of
the Investment Manager in the last two years, is included in its application for
registration as an investment adviser on Form ADV (File No. 801-48282) filed
under the Investment Advisers Act of 1940 and is incorporated herein by
reference thereto.
ITEM 29. Principal Underwriters
(a) Pilgrim America Investment Funds, Inc., Pilgrim America
Masters Series, Inc., Pilgrim Government Securities Income Fund, Inc.
(b) The following are directors and officers of Pilgrim America
Securities, Inc. The principal address of these persons is 40 North Central
Avenue, Suite 1200, Phoenix, Arizona 85004.
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with the Distributor with the Registrant
---- -------------------- -------------------
<S> <C> <C>
Robert W. Stallings Chairman, Director. Chairman, Director.
James R. Reis Vice Chairman, Director, Assistant Executive Vice President, Treasurer,
Secretary Assistant Secretary, Principal
Acting Officer.
James M. Hennessy Senior Vice President, Secretary. Senior Vice President, Secretary.
</TABLE>
(c) Not applicable.
ITEM 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained at the offices of the Registrant or Pilgrim America
Group, Inc., the Shareholder Servicing Agent, at 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004.
ITEM 31. Management Services
None.
ITEM 32. Undertakings
(a) Not applicable.
(b) Not Applicable.
(c) Registrant undertakes to furnish to each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Phoenix and State of Arizona, on the
13th day of October, 1997.
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
By: /s/ Robert W. Stallings
------------------------
Robert W. Stallings
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert W. Stallings
- ------------------------
Robert W. Stallings Director and President October 13, 1997
(Principal Executive Officer)
/s/ James R. Reis
- ------------------------
James R. Reis Treasurer and Assistant Secretary October 13, 1997
(Principal Financial Accounting
Officer)
/s/ Mary A. Baldwin
- ------------------------
Mary A. Baldwin* Director October 13, 1997
/s/ John P. Burke
- ------------------------
John P. Burke* Director October 13, 1997
/s/ Al Burton
- ------------------------
Al Burton* Director October 13, 1997
/s/ Bruce S. Foerster
- ------------------------
Bruce S. Foerster* Director October 13, 1997
/s/ Jock Patton
- ------------------------
Jock Patton* Director October 13, 1997
</TABLE>
<PAGE>
*By:/s/ Robert W. Stallings
-------------------------------------------
Robert W. Stallings, Attorney-in-fact**
** Powers of attorney were previously filed in the Fund's Registration Statement
on Form N-1A (File No. 333-33445) and are incorporated by reference herein.
<PAGE>
Pilgrim America Securities, Inc. Return to:
Restatement: July 17, 1996 Two Renaissance Square
40 N. Central Ave., Ste 1200
Phoenix, AZ 85004-4424
(602) 417-8100 or (800) 334-3444
Selling Group Agreement
Selling Agents Copy
- --------------------------------------------------------------------------------
Broker/Dealer:
As Principal Underwriter and exclusive Selling Agent for each of the investment
companies in the Pilgrim America Securities, Inc. group of funds, listed on
Appendix "A" hereto and referred to collectively as the "Funds" or individually
as the "Fund", we understand that you are a member of the National Association
of Securities Dealers, Inc., and, on the basis of such understanding, invite you
to become a member of the Selling Group to distribute the shares of the Funds on
the following terms.
1. N.A.S.D. Rules: Reference is hereby specifically made to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc.(the "N.A.S.D.
Rules"), which incorporated herein as if set forth in full. It is agreed that
all of the requirements of said rules and all other rules or regulations that
are now or may become applicable to transactions hereunder, including state
"blue sky" laws, will be fully met.
- --------------------------------------------------------------------------------
2. Orders: An order for shares of any Fund received from you will be confirmed
only at the appropriate offering price applicable to that order, as described in
such Fund's then current Prospectus. The procedure relating to orders and the
handling thereof will be subject to instructions released by us from time to
time. Orders should be transmitted to our office or other offices authorized by
us for this purpose. The dealer or his/her customer may, however, mail a
completed application with a check payable to the Fund directly to the Fund's
shareholder servicing agent for transmission to the Fund's office in Phoenix,
Arizona. All orders are subject to acceptance in Phoenix, Arizona, and we as
agent for the Funds reserve the right in our sole discretion to reject any
order. The minimum initial investment for each Fund is set forth in its then
current Prospectus.
- --------------------------------------------------------------------------------
3. Concessions:
(a) Any sales charges and dealers' concessions will be as set forth in the
current Prospectus of each Fund.
(b) Where payment is due hereunder, we agree to send payment for dealers'
concessions and Plan payments to your address as it appears on our records. You
must notify us of address changes and promptly negotiate such payments. Any such
payments that remain outstanding for 12 months shall be void and the obligation
represented thereby shall be extinguished.
(c) With respect to Funds which impose a Contingent Deferred Sales Charge
("CDSC"), we agree to compensate selling firms at a specified rate as disclosed
in each Fund's current prospectus on purchase payments only for those shares
which are subject to the CDSC at the time of investment.
(d) We reserve the right to reclaim any commission payment from a broker/dealer
if we later determine the CDSC waiver applied at the time of investment.
(e) We reserve the right to modify the CDSC waiver at any time. We will promptly
notify each member of the Selling Group of any modification thereto.
- --------------------------------------------------------------------------------
4. Remittance: Remittance by dealers should be made by check or wire, payable to
the appropriate Fund (not to us) and sent to the Fund's servicing agent. Stock
certificates, if the Fund has a policy of issuing them and where specifically
requested, will be delivered only after checks have cleared. Payments must be
received promptly pursuant to Article III, Section 26 (m) of the N.A.S.D. Rules,
otherwise the right is reserved, without notice, to cancel the sale, in which
event you will be held responsible for any loss to the Fund, or to us, including
loss of profit resulting from your failure to make payment.
- --------------------------------------------------------------------------------
5. Selling Group Activities: In addition to purchasing shares of any Fund
through us as Selling Agent, you shall purchase such shares only from your
customers, in which case you shall pay the applicable net asset value determined
in accordance with the Fund's then current Prospectus and Statement of
Additional Information, less any applicable CDSC, if the Fund imposes a CDSC.
(a) Shares of any Fund may be liquidated by sale thereof to such Fund or to us
as Agent for such Fund at the applicable net asset value, less any applicable
CDSC, determined in the manner described in its then current Prospectus and
Statement of Additional Information. All certificates for shares repurchased
must be delivered to us as Agent for the Fund upon settlement. If delivery is
not made within ten (10) days from the date of the transaction, the right is
reserved, without notice, to cancel the transaction, in which event you will be
held responsible for any loss to the Fund, or to us, including loss of profit
resulting from your failure to make payment.
(b) In no event shall you withhold placing orders so as to profit from such
withholding by a change in the net asset value from that used in determining the
price to your customer, or otherwise. You shall make no purchases except for the
purpose of covering orders received by you and then such purchases must be made
only at the applicable offering price (less your concession), or at the net
asset value price of a Fund which imposes
<PAGE>
a CDSC, provided, however, that the foregoing does not prevent the purchase of
shares by you for your own bonafide investment. All sales to your customers
shall be at the applicable offering prices determined in accordance with the
Fund's then current Prospectus.
- --------------------------------------------------------------------------------
6. Refund of Sales Charge: If the shares of any Fund confirmed to you hereunder
are repurchased by such Fund, or by us as Agent for such Fund, or are tendered
for liquidation to such Fund, within seven (7) business days after such
confirmation of your original order, then you shall forthwith repay to such Fund
the full concession allowed to you on such sale and we shall forthwith repay to
such Fund our share of the sales charge thereon. We shall notify you of such
repurchase or redemption within ten (10) days from the day on which the
certificate or redemption order is delivered to us or to such Fund.
- --------------------------------------------------------------------------------
7. Representations: No person is authorized to make any representation relating
to the shares of any Fund, except those contained in its then current Prospectus
and Statement of Additional Information which you agree to deliver to investors
in accordance with applicable regulations and in such information as we may
issue as Supplemental Information to such Prospectus and Statement of Additional
Information. In ordering shares of any Fund you shall rely solely and
conclusively on the representations contained in its then current Prospectus,
Statement of Additional Information, and Supplemental Information, if any,
additional copies of which are and will be available on request. In no
transaction shall you have any authority whatever to act as agent for any Fund,
or for us, or for any other distributor, and nothing in this Agreement shall
constitute either of us the agent of the other, or shall constitute you or any
Fund the agent of the other.
- --------------------------------------------------------------------------------
8. Modification and Termination: We reserve the right, in our discretion and
without notice to you or to any distributor, to suspend sales, to withdraw any
offering, to change the offering prices or to modify or cancel this Agreement
(including the provision for Plan payments described in Section 3) which shall
be construed in accordance with the laws of the State of Arizona. This agreement
may be canceled at any time by you upon thirty (30) days written notice.
- --------------------------------------------------------------------------------
9. Investors Account Instructions: If an investor's account is established
without the investor signing the application form, the dealer represents that
the instructions relating to the registration (including the investor's tax
identification number) and selected options furnished to the Fund (whether on
the application form, in some other document, or orally) are in accordance with
the investor's instructions, and the dealer agrees to indemnify the Fund, its
transfer agent, shareholder servicing agent, and us for any loss or liability
resulting from acting upon such instructions. We agree to hold harmless and
indemnify you for any loss or liability arising out of our negligence in
processing such instructions.
- --------------------------------------------------------------------------------
10. Acceptance of Terms: If the foregoing completely expresses the terms of the
Agreement between us, please so signify by executing, in the space provided, the
annexed duplicate of this Agreement and return it to us, retaining the original
copy for your own files. This Agreement shall become effective upon the earlier
of our receipt of a signed copy hereof or the first order placed by you for any
of the Fund's shares, which order shall constitute acceptance of this Agreement.
This Agreement shall supersede all prior Selling Group Agreements relating to
the shares of any of the Funds. All amendments to this Agreement, including any
changes made pursuant to Appendix "A" shall take effect as of the date or the
first order placed by you for any of the Funds shares after the date set forth
in the notice of amendment sent to you by the undersigned.
- --------------------------------------------------------------------------------
Dealer's Acceptance
_______________________________________ Pilgrim America Securities, Inc.
Firm Name
_______________________________________
Address
_______________________________________
_______________________________________
Phone Number
By_____________________________
By_____________________________________
Authorized Officer Signature
By ____________________________________
Authorized Officer Name & Title--Please Print
Date___________________19____
<PAGE>
Pilgrim America Securities, Inc. Return to:
Two Renaissance Square
40 N. Central Ave., Ste. 1200
Phoenix, AZ 85004-4424
(602) 417-8100 or (800) 334-3444
Service Agreement
- --------------------------------------------------------------------------------
Broker/Dealer:
This Service Agreement is entered into with respect to the Pilgrim America Group
of Funds (each a "Fund" and, collectively, the "Funds"), as identified on
Schedule "A" attached hereto.
1. To the extent you provide services and assistance to your customers who own
Fund shares, including, but not limited to, answering routine inquires regarding
the Fund, assisting in changing dividend options, account designations and
addresses, we shall pay you a service fee prorated and paid quarterly after the
required period of investment based, as reflected on Schedule A, on the average
net asset value of shares of the Fund which are attributable to customers of
your firm.
- --------------------------------------------------------------------------------
2. In no event may the aggregate annual service fee paid to you exceed .25% of
the average daily net asset value of the net assets of the Fund held in your
customers' accounts which are eligible for payment pursuant to this Agreement.
- --------------------------------------------------------------------------------
3. You shall furnish us and the Fund with information as shall reasonably be
requested by the Fund's Board of Directors with respect to the service fees paid
to you pursuant to the Schedule.
- --------------------------------------------------------------------------------
4. This Agreement will terminate automatically by any act that terminates the
Funds' Service and Distribution Plans, and will terminate automatically in the
event of the assignment of this Agreement.
- --------------------------------------------------------------------------------
5. The provisions of the Underwriting Agreement between the Fund and us, insofar
as they relate to the Funds' Service and Distribution Plans, are incorporated
herein by reference.
- --------------------------------------------------------------------------------
This Agreement shall take effect on the _______ day of ________________, 19___,
and the terms and provisions thereof are hereby accepted and agreed to by us and
evidenced by our executions hereof.
Dealer's Acceptance Pilgrim America Securities, Inc.
_________________________________________ By ____________________________
Firm Name
By_______________________________________
Authorized Officer Signature
By_______________________________________
Authorized Officer Name & Title-Please Print
<PAGE>
APPENDIX "A"
TO SELLING GROUP AGREEMENT
PILGRIM AMERICA GROUP OF FUNDS
FUND CUSIP # NASDAQ
- ---- ------- ------
SYMBOL
PILGRIM AMERICA MAGNACAP FUND
CLASS A 720901 10 7 PMCFX
CLASS B 720901 20 6 PMGBX
CLASS M 720901 30 5 PMCMX
PILGRIM AMERICA HIGH YIELD FUND
CLASS A 720901 40 4 PIHYX
CLASS B 720901 50 3 PIHBX
CLASS M 720901 60 2 PIHMX
PILGRIM GOVERNMENT SECURITIES INCOME FUND
CLASS A 720902 10 5 PGMAX
CLASS B 720902 20 4 *
CLASS M 720902 30 3 *
PILGRIM AMERICA MASTERS ASIA PACIFIC EQUITY FUND
CLASS A 721429 10 8 PMAAX
CLASS B 721429 20 7 PMBBX
CLASS M 721429 30 6 PMAMX
PILGRIM AMERICA MASTERS MIDCAP VALUE FUND
CLASS A 721429 40 5 PMVAX
CLASS B 721429 50 4 PMVBX
CLASS M 721429 60 3 PMVMX
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
CLASS A 721429 70 2 PLVAX
CLASS B 721429 80 1 PLVBX
CLASS M 721429 88 4 PLVMX
PILGRIM AMERICA BANK & THRIFT FUND
CLASS A 720904101 PBTAX
CLASS B 720904200 PBTBX
PILGRIM AMERICA GENERAL MONEY MARKET SHARES
220714 50 5 *
* TO BE ANNOUNCED
<PAGE>
CUSTODY AGREEMENT
THIS AGREEMENT dated as of the ____ day of _________, 1997, is made by
and between INVESTORS FIDUCIARY TRUST COMPANY, a trust company chartered under
the laws of the state of Missouri, having its trust office located at 127 West
10th Street, Kansas City, Missouri 64105 ("Custodian"), and PILGRIM AMERICA BANK
AND THRIFT FUND, INC., a Maryland corporation, having its principal office and
place of business at Two Renaissance Square, 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004.
WITNESSETH:
WHEREAS, Fund desires to appoint Investors Fiduciary Trust Company as
Custodian of the Fund; and
WHEREAS, Investors Fiduciary Trust Company is willing to accept such
appointment;
NOW THEREFORE, for and in consideration of the mutual promises
contained herein, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN. Fund hereby constitutes and appoints
Custodian as custodian of the Assets (as defined below) at any time
owned by the Fund. For purposes of this Agreement, the term "Assets"
shall mean investment securities, and cash.
2. DUTIES AND RESPONSIBILITIES OF CUSTODIAN.
A. Delivery of Assets. Except as permitted by the Investment
Company Act of 1940, Fund will deliver or cause to be
delivered to Custodian all Assets acquired and owned by it
during the time this Agreement shall continue in effect,
including all documentation required by Fund to be delivered
to Custodian relating to or evidencing the interests in loans
acquired by the Fund. Custodian shall have no responsibility
or liability whatsoever for or on account of Assets or loan
documents not so delivered. All Assets so delivered to
Custodian (other than bearer securities) shall be registered
in the name of Fund or its nominee, or of a nominee of
Custodian, or shall be properly endorsed and in form for
transfer satisfactory to Custodian.
B. Delivery of Accounts and Records. Fund shall turn over to
Custodian all of the Fund's relevant accounts and records
previously maintained by it. Custodian shall be entitled to
rely conclusively on the completeness and correctness of the
accounts and records turned over to it by Fund, and Fund shall
indemnify and hold Custodian harmless of and from any and all
expenses, damages and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other
deficiency of such accounts and records or in the failure of
Fund to provide any portion of such or to provide in a timely
manner any other information needed by the Custodian
knowledgeably to perform its function hereunder.
<PAGE>
C. Delivery of Assets to Third Parties. Custodian will receive
delivery of and keep safely the Assets of Fund delivered to it
from time to time segregated in a separate account. Custodian
will not deliver, assign, pledge or hypothecate any such
Assets to any person except as permitted by the provisions of
this Agreement or any agreement executed by it according to
the terms of Section 2.S. of this Agreement. Upon delivery of
any such Assets to a subcustodian pursuant to Section 2.S. of
this Agreement, Custodian will create and maintain records
identifying those Assets which have been delivered to the
subcustodian as belonging to the Fund. The Custodian is
responsible for the securities and monies of Fund only until
they have been transmitted to and received by other persons as
permitted under the terms of this Agreement, except for
securities and monies transmitted to subcustodians appointed
under Section 2.S. of this Agreement, for which Custodian
remains responsible to the extent provided in Section 2.S. of
this Agreement. Custodian may participate directly or
indirectly through a subcustodian in the Depository Trust
Company, Treasury/Federal Reserve Book Entry System or
Participant Trust Company (PTC) or other depository approved
by the Fund (as such entities are defined at 17 CFR Section
270.17f-4(b)) (each a "Depository" and collectively the
"Depositories").
D. Registration of Securities. The Custodian shall at all times
hold registered securities of the Fund in the name of the
Custodian, the Fund, or a nominee of either of them, unless
specifically directed by instructions to hold such registered
securities in so-called "street name," provided that, in any
event, all such securities and other Assets shall be held in
an account of the Custodian containing only Assets of the
Fund, or only Assets held by the Custodian as a fiduciary or
custodian for customers, and provided further, that the
records of the Custodian at all times shall indicate the Fund
or other customer for which such securities and other Assets
are held in such account and the respective interests therein.
If, however, the Fund directs the Custodian to maintain
securities in "street name", notwithstanding anything
contained herein to the contrary, the Custodian shall be
obligated only to utilize its best efforts to timely collect
income due the Fund on such securities and to notify the Fund
of relevant corporate actions including, without limitation,
pendency of calls, maturities, tender or exchange offers. All
Assets, and the ownership thereof by Fund, which are held by
Custodian hereunder, however, shall at all times be
identifiable on the records of the Custodian. The Fund agrees
to hold Custodian and its nominee harmless for any liability
as a record holder of securities held in custody.
E. Exchange of Assets. Upon receipt of instructions as defined
herein in Section 3.A, Custodian will exchange, or cause to be
exchanged, Assets held by it for the account of Fund for other
Assets issued or paid in connection with any reorganization,
recapitalization, merger, consolidation, split-up of shares,
change of par value, conversion, refinancing or otherwise, and
will deposit any such Assets in accordance with the terms of
any reorganization or protective plan. Without instructions,
Custodian is authorized to exchange securities held by it in
2
<PAGE>
temporary form for securities in definitive form, to effect an
exchange of shares when the par value of the stock is changed,
and upon receiving payment therefor, to surrender Assets held
by it at maturity or when advised of earlier call for
redemption, except that Custodian shall receive instructions
prior to surrendering any convertible security.
F. Purchases of Investments of the Fund. Fund will, on each
business day on which a purchase of Assets shall be made by
it, deliver to Custodian instructions which shall specify with
respect to each such purchase:
1. The name of the issuer and description of the Asset;
2. The number of shares or the principal amount
purchased, and accrued interest, if any;
3. The trade date;
4. The settlement date;
5. The purchase price per unit and the brokerage
commission, taxes and other expenses payable in
connection with the purchase;
6. The total amount payable upon such purchase; and
7. The name of the person from whom or the broker or
dealer through whom the purchase was made.
In accordance with such instructions, Custodian will pay for
out of monies held for the account of Fund, but only insofar
as monies are available therein for such purpose, and receive
the Assets so purchased by or for the account of Fund except
that Custodian may in its sole discretion advance funds to the
Fund which may result in an overdraft because the monies held
by the Custodian on behalf of the Fund are insufficient to pay
the total amount payable upon such purchase. Except as
otherwise instructed by Fund, such payment shall be made by
the Custodian only upon receipt of Assets: (a) by the
Custodian; (b) by a clearing corporation of a national
exchange of which the Custodian is a member; or (c) by a
Depository. Notwithstanding the foregoing, (i) in the case of
a repurchase agreement, the Custodian may release funds to a
Depository prior to the receipt of advice from the Depository
that the securities underlying such repurchase agreement have
been transferred by book-entry into the account maintained
with such Depository by the Custodian, on behalf of its
customers, provided that the Custodian's instructions to the
Depository require that the Depository make payment of such
funds only upon transfer by book-entry of the securities
underlying the repurchase agreement in such account; (ii) in
the case of time deposits, call account deposits, currency
deposits and other deposits, foreign
3
<PAGE>
exchange transactions, futures contracts or options, the
Custodian may make payment therefor before receipt of an
advice or confirmation evidencing said deposit or entry into
such transaction; (iii) in the case of the purchase of
securities, the settlement of which occurs outside of the
United States of America, the Custodian may make, or cause a
subcustodian appointed pursuant to Section 2.S.2. of this
Agreement to make, payment therefor in accordance with
generally accepted local custom and market practice; and (iv)
in the case of interests in loans, Custodian shall make
payment therefor and additional advances relating thereto at
such times and to such parties as instructed by Fund without
regard to the time of delivery to Custodian of documentation
evidencing the Fund's interest in the loan or the additional
advance, as applicable.
G. Sales and Deliveries of Investments of the Fund - Other than
Options and Futures. Fund will, on each business day on which
a sale of Assets of Fund has been made, deliver to Custodian
instructions specifying with respect to each such sale:
1. The name of the issuer and description of the Assets;
2. The number of shares or principal amount sold, and
accrued interest, if any;
3. The date on which the Assets sold were purchased or
other information identifying the Assets sold and to
be delivered;
4. The trade date;
5. The settlement date;
6. The sale price per unit and the brokerage commission,
taxes or other expenses payable in connection with
such sale;
7. The total amount to be received by Fund upon such
sale; and
8. The name and address of the broker or dealer through
whom or person to whom the sale was made.
In accordance with such instructions, Custodian will deliver
or cause to be delivered the Assets thus designated as sold
for the account of Fund to the broker or other person
specified in the instructions relating to such sale. Except as
otherwise instructed by Fund, such delivery shall be made upon
receipt of payment therefor: (a) in such form as is
satisfactory to the Custodian; (b) credit to the account of
the Custodian with a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c)
credit to the account of the Custodian, on behalf of its
customers, with a Depository. Notwithstanding the foregoing:
(i) in the case of securities held in physical form, such
securities shall
4
<PAGE>
be delivered in accordance with "street delivery custom" to a
broker or its clearing agent; (ii) in the case of the sale of
securities, the settlement of which occurs outside of the
United States of America, the Custodian may make, or cause a
subcustodian appointed pursuant to Section 2.S.2. of this
Agreement to make, payment therefor in accordance with
generally accepted local custom and market practice; and (iii)
in the case of the sale of an interest in a loan, the
Custodian shall receive the purchase price for the account of
Fund and deliver the loan documents relating to the interest
sold as instructed by Fund.
H. Purchases or Sales of Security Options, Options on Indices and
Security Index Futures Contracts. Fund will, on each business
day on which a purchase or sale of the following options
and/or futures shall be made by it, deliver to Custodian
instructions which shall specify with respect to each such
purchase or sale:
1. In the case of security options:
a. The underlying security;
b. The price at which purchased or sold;
c. The expiration date;
d. The number of contracts;
e. The exercise price;
f. Whether the transaction is an opening,
exercising, expiring or closing transaction;
g. Whether the transaction involves a put or
call;
h. Whether the option is written or purchased;
i. Market on which option traded;
j. Name and address of the broker or dealer
through whom the sale or purchase was made.
2. In the case of options on indices:
a. The index;
b. The price at which purchased or sold;
c. The exercise price;
d. The premium;
e. The multiple;
f. The expiration date;
g. Whether the transaction is an opening,
exercising, expiring or closing transaction;
h. Whether the transaction involves a put or
call;
i. Whether the option is written or purchased;
j. The name and address of the broker or dealer
through whom the sale or purchase was made,
or other applicable settlement instructions.
5
<PAGE>
3. In the case of security index futures contracts:
a. The last trading date specified in the
contract and, when available, the closing
level, thereof;
b. The index level on the date the contract is
entered into;
c. The multiple;
d. Any margin requirements;
e. The need for a segregated margin account (in
addition to instructions, and if not already
in the possession of Custodian, Fund shall
deliver a substantially complete and
executed custodial safekeeping account and
procedural agreement which shall be
incorporated by reference into this Custody
Agreement); and
f. The name and address of the futures
commission merchant through whom the sale or
purchase was made, or other applicable
settlement instructions.
4. In the case of options on index future contracts:
a. The underlying index future contract;
b. The premium;
c. The expiration date;
d. The number of options;
e. The exercise price;
f. Whether the transaction involves an opening,
exercising, expiring or closing transaction;
g. Whether the transaction involves a put or
call;
h. Whether the option is written or purchased;
and
i. The market on which the option is traded.
I. Securities Pledged or Loaned. If specifically allowed for in
the prospectus of Fund:
1. Upon receipt of instructions, Custodian will release
or cause to be released securities held in custody to
the pledgee designated in such instructions by way of
pledge or hypothecation to secure any loan incurred
by Fund; provided, however, that the securities shall
be released only upon payment to Custodian of the
monies borrowed, except that in cases where
additional collateral is required to secure a
borrowing already made, further securities may be
released or caused to be released for that purpose
upon receipt of instructions. Upon receipt of
instructions, Custodian will pay, but only from funds
available for such purpose, any such loan upon
redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note
or notes evidencing such loan.
2. Upon receipt of instructions, Custodian will release
securities held in custody to the borrower designated
in such instructions; provided, however,
6
<PAGE>
that the securities will be released only upon
deposit with Custodian of full cash collateral as
specified in such instructions, and that Fund will
retain the right to any dividends, interest or
distribution on such loaned securities. Upon receipt
of instructions and the loaned securities, Custodian
will release the cash collateral to the borrower.
J. Routine Matters. Custodian will, in general, attend to all
routine and mechanical matters in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings
with Assets of Fund except as may be otherwise provided in
this Agreement or directed from time to time by the Fund in
writing.
K. Deposit Account. Custodian will open and maintain one or more
special purpose deposit accounts in the name of Custodian
("Accounts"), subject only to draft or order by Custodian upon
receipt of instructions. All monies received by Custodian from
or for the account of Fund shall be deposited in said
Accounts. Barring events not in the control of the Custodian
such as strikes, lockouts or labor disputes, riots, war or
equipment or transmission failure or damage, fire, flood,
earthquake or other natural disaster, action or inaction of
governmental authority or other causes beyond its control, at
9:00 a.m., Kansas City time, on the second business day after
deposit of any check into Fund's Account, Custodian agrees to
make Fed Funds available to the Fund in the amount of the
check. Deposits made by Federal Reserve wire will be available
to the Fund immediately and ACH wires will be available to the
Fund on the next business day. Income earned on the Assets
will be credited to Fund based on the schedule attached as
Exhibit A. The Custodian will be entitled to reverse any
credited amounts where credits have been made and monies are
not finally collected. If monies are collected after such
reversal, the Custodian will credit Fund in that amount.
Custodian may open and maintain Accounts in such banks or
trust companies as may be designated by it or by properly
authorized resolution of the governing Board of the Fund, such
Accounts, however, to be in the name of Custodian and subject
only to its draft or order.
L. Income and other Payments to Fund. Custodian will:
1. Collect, claim and receive and deposit for the
account of Fund all income and other payments which
become due and payable on or after the effective date
of this Agreement with respect to the Assets held
under this Agreement, and credit the account of Fund
in accordance with the schedule attached hereto as
Exhibit A. If for any reason, the Fund is credited
with income that is not subsequently collected,
Custodian may reverse that credited amount;
2. Execute ownership and other certificates and
affidavits for all federal, state and local tax
purposes in connection with the collection of bond
and note coupons; and
7
<PAGE>
3. Take such other action as may be necessary or proper
in connection with:
a. the collection, receipt and deposit of such
income and other payments, including but not
limited to the presentation for payment of:
1. all coupons and other income items
requiring presentation; and
2. all other securities which may
mature or be called, redeemed,
retired or otherwise become payable
and regarding which the Custodian
has actual knowledge, or should
reasonably be expected to have
knowledge; and
b. the endorsement for collection, in the name
of Fund, of all checks, drafts or other
negotiable instruments.
Custodian, however, will not be required to institute suit or
take other extraordinary action to enforce collection except
upon receipt of instructions and upon being indemnified to its
satisfaction against the costs and expenses of such suit or
other actions. Custodian will receive, claim and collect all
stock dividends, rights and other similar items and will deal
with the same pursuant to instructions.
M. Payment of Dividends and other Distributions. On the
declaration of any dividend or other distribution on the
shares of the Fund ("Fund Shares") by the governing Board of
the Fund, Fund shall deliver to Custodian instructions with
respect thereto. On the date specified in such instructions
for the payment of such dividend or other distribution,
Custodian will pay out of the monies held for the account of
Fund, insofar as the same shall be available for such
purposes, and credit to the account of the Dividend Disbursing
Agent for Fund, such amount as may be specified in such
instructions.
N. Shares of Fund Purchased by Fund. Whenever any Fund Shares are
repurchased or redeemed by Fund, Fund or its agent shall
advise Custodian of the aggregate dollar amount to be paid for
such shares and shall confirm such advice in writing. Upon
receipt of such advice, Custodian shall charge such aggregate
dollar amount to the account of Fund and either deposit the
same in the account maintained for the purpose of paying for
the repurchase or redemption of Fund Shares or deliver the
same in accordance with such advice. Custodian shall not have
any duty or responsibility to determine that Fund Shares have
been removed from the proper shareholder account or accounts
or that the proper number of such shares have been cancelled
and removed from the shareholder records.
O. Shares of Fund Purchased from Fund. Whenever Fund Shares are
purchased from Fund, Fund will deposit or cause to be
deposited with Custodian the amount
8
<PAGE>
received for such shares. Custodian shall not have any duty or
responsibility to determine that Fund Shares purchased from
Fund have been added to the proper shareholder account or
accounts or that the proper number of such shares have been
added to the shareholder records.
P. Proxies and Notices. Custodian will promptly deliver or mail
or have delivered or mailed to Fund all proxies properly
signed, all notices of meetings, all proxy statements, all
payment and rate notices and other notices, requests or
announcements affecting or relating to Assets held by
Custodian for Fund and will, upon receipt of instructions,
execute and deliver or cause its nominee to execute and
deliver or mail or have delivered or mailed such proxies or
other authorizations as may be required. Except as provided by
this Agreement or pursuant to instructions hereafter received
by Custodian, neither it nor its nominee will exercise any
power inherent in any Assets, including any power to vote the
same, or execute any proxy, power of attorney, or other
similar instrument voting any of Assets, or give any consent,
approval or waiver with respect thereto, or take any other
similar action.
Q. Disbursements. Custodian will pay or cause to be paid insofar
as funds are available for the purpose, bills, statements and
other obligations of Fund (including but not limited to
obligations in connection with the conversion, exchange or
surrender of Assets owned by Fund, interest charges, dividend
disbursements, taxes, management fees, custodian fees, legal
fees, auditors' fees, transfer agents' fees, brokerage
commissions, compensation to personnel, and other operating
expenses of Fund) pursuant to instructions of Fund setting
forth the name of the person to whom payment is to be made,
the amount of the payment, and the purpose of the payment.
R. Daily Statement of Accounts. Custodian will, within a
reasonable time, render to Fund as of the close of business on
each day, a detailed statement of the amounts received or paid
and of Assets received or delivered for the account of Fund
during said day. Custodian will, from time to time, upon
request by Fund, render a detailed statement of the Assets
held for Fund under this Agreement, and Custodian will
maintain such books and records as are necessary to enable it
to do so and will permit such persons as are authorized by
Fund, including Fund's independent public accountants, access
to such records or confirmation of the contents of such
records; and if demanded, will permit federal and state
regulatory agencies to examine the securities, books and
records. Upon the written instructions of Fund or as demanded
by federal or state regulatory agencies, Custodian will
instruct any subcustodian to give such persons as are
authorized by Fund, including Fund's independent public
accountants, access to such records or confirmation of the
contents of such records; and if demanded, to permit federal
and state regulatory agencies to examine the books, records
and securities held by subcustodian which relate to Fund.
9
<PAGE>
S. Appointment of Subcustodians.
1. Notwithstanding any other provisions of this
Agreement, all or any of the Assets of Fund may be
held in Custodian's own custody or in the custody of
one or more other banks or trust companies selected
by Custodian. Any such subcustodian must have the
qualifications required for custodian under the
Investment Company Act of 1940, as amended. Any such
subcustodians may participate directly or indirectly
in any Depository. Custodian shall be responsible to
the Fund for any loss, damage or expense suffered or
incurred by the Fund resulting from the actions or
omissions of any subcustodian selected and appointed
by Custodian (except subcustodians appointed at the
request of Fund and as provided in Subsection 2
below) to the same extent Custodian would be
responsible to the Fund under Section 4 of this
Agreement if it committed the act or omission itself.
Custodian is not responsible for Depositories except
to the extent such entities are responsible to
Custodian. Upon request of the Fund, Custodian shall
be willing to contract with other subcustodians
reasonably acceptable to the Custodian for purposes
of (i) effecting third-party repurchase transactions
with banks, brokers, dealers, or other entities
through the use of a common custodian or
subcustodian, or (ii) providing depository and
clearing agency services with respect to certain
variable rate demand note securities, or (iii) for
other reasonable purposes specified by Fund;
provided, however, that the Custodian shall be
responsible to the Fund for any loss, damage or
expense suffered or incurred by the Fund resulting
from the actions or omissions of any such
subcustodian only to the same extent such
subcustodian is responsible to the Custodian. The
Fund shall be entitled to review the Custodian's
contracts with any such subcustodians appointed at
the request of Fund.
2. Notwithstanding any other provisions of this
Agreement, Fund's foreign securities (as defined in
Rule 17f-5(c)(1) under the Investment Company Act of
1940) and Fund's cash or cash equivalents, in amounts
deemed by the Fund to be reasonably necessary to
effect Fund's foreign securities transactions, may be
held in the custody of one or more banks or trust
companies acting as subcustodians, according to
Section 2.S.1; and thereafter, pursuant to a written
contract or contracts as approved by Fund's governing
Board, may be transferred to an account maintained by
such subcustodian with an eligible foreign custodian,
as defined in Rule 17f-5(c)(2), provided that any
such arrangement involving a foreign custodian shall
be in accordance with the provisions of Rule 17f-5
under the Investment Company Act of 1940 as that Rule
may be amended from time to time. The Custodian shall
be responsible for the monies and securities of Fund
held by eligible foreign subcustodians to the extent
the eligible foreign subcustodians are liable to the
domestic subcustodian with which the Custodian
contracts for foreign subcustody purposes.
10
<PAGE>
T. Adoption of Procedures. Custodian and Fund hereby adopt the
Funds Transfer Operating guidelines attached hereto as Exhibit
B. Custodian and Fund may from time to time adopt procedures
as they agree upon, and Custodian may conclusively assume that
no procedure approved by Fund, or directed by Fund, conflicts
with or violates any requirements of its prospectus,
declaration of trust, bylaws, or any rule or regulation of any
regulatory body or governmental agency. Fund will be
responsible to notify Custodian of any changes in statutes,
regulations, rules or policies which might necessitate changes
in Custodian's responsibilities or procedures.
U. Overdrafts. In the event Custodian or any subcustodian shall,
in its sole discretion, advance cash or securities for any
purpose (including but not limited to loan advances,
securities settlements, purchase or sale of foreign exchange
or foreign exchange contracts and assumed settlement) for the
benefit of Fund, the advance shall be payable by the Fund on
demand. Any such cash advance shall be subject to an overdraft
charge at the rate set forth in the then-current fee schedule
from the date advanced until the date repaid. As security for
each such advance, Fund hereby grants Custodian and such
subcustodian a lien on and security interest in all property
at any time held for the account of Fund, including without
limitation all Assets acquired with the amount advanced.
Should the Fund fail to repay the advance within a reasonable
time after written notice from Custodian, the Custodian and
such subcustodian shall be entitled to utilize available cash
and to dispose of Assets pursuant to applicable law to the
extent necessary to obtain reimbursement of the amount
advanced and any related overdraft charges.
V. Exercise of Rights; Tender Offers. Upon receipt of
instructions, the Custodian shall: (a) deliver warrants, puts,
calls, rights or similar securities to the issuer or trustee
thereof, or to the agent of such issuer or trustee, for the
purpose of exercise or sale, provided that the new securities,
cash or other assets, if any, are to be delivered to the
Custodian; and (b) deposit securities upon invitations for
tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian or the
tendered securities are to be returned to the Custodian.
3. INSTRUCTIONS.
A. The term "instructions", as used herein, means written
(including telecopied) or oral instructions to Custodian which
Custodian reasonably believes were given by a designated
representative of Fund. Fund shall provide Custodian, as often
as necessary, written instructions naming one or more
designated representatives to give instructions in the name
and on behalf of Fund, which instructions may be received and
accepted from time to time by Custodian as conclusive evidence
of the authority of any designated representative to act for
Fund and may be considered to be in full force and effect (and
Custodian will be fully protected in acting in reliance
thereon) until receipt by Custodian of notice to the contrary.
11
<PAGE>
Unless such written instructions delegating authority to any
person to give instructions specifically limit such authority
or require that the approval of anyone else will first have
been obtained, Custodian will be under no obligation to
inquire into the right of the person giving such instructions
to do so. Notwithstanding any of the foregoing provisions of
this Section 3 no authorizations or instructions received by
Custodian from Fund, will be deemed to authorize or permit any
director, trustee, officer, employee, or agent of Fund to
withdraw any of the Assets of Fund upon the mere receipt of
such authorization or instructions from such director,
trustee, officer, employee or agent. Notwithstanding any other
provision of this Agreement, Custodian, upon receipt (and
acknowledgment if required at the discretion of Custodian) of
the instructions of a designated representative of Fund will
undertake to deliver for Fund's account monies (provided such
monies are on hand or available) in connection with Fund's
transactions and to wire transfer such monies to such broker,
dealer, subcustodian, bank or other agent specified in such
instructions by a designated representative of Fund.
B. No later than the next business day immediately following each
oral instruction, Fund will send Custodian written
confirmation of such oral instruction. At Custodian's sole
discretion, Custodian may record on tape, or otherwise, any
oral instruction whether given in person or via telephone,
each such recording identifying the date and the time of the
beginning and ending of such oral instruction.
C. If Custodian shall provide Fund direct access to any
computerized recordkeeping and reporting system used hereunder
or if Custodian and Fund shall agree to utilize any electronic
system of communication, Fund shall be fully responsible for
any and all consequences of the use or misuse of the terminal
device, passwords, access instructions and other means of
access to such system(s) which are utilized by, assigned to or
otherwise made available to the Fund. Fund agrees to implement
and enforce appropriate security policies and procedures to
prevent unauthorized or improper access to or use of such
system(s). Custodian shall be fully protected in acting
hereunder upon any instructions, communications, data or other
information received by Custodian by such means as fully and
to the same effect as if delivered to Custodian by written
instrument signed by the requisite authorized
representative(s) of Fund. Fund shall indemnify and hold
Custodian harmless from and against any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liability which may be suffered or incurred by Custodian as a
result of the use or misuse, whether authorized or
unauthorized, of any such system(s) by Fund or by any person
who acquires access to such system(s) through the terminal
device, passwords, access instructions or other means of
access to such system(s) which are utilized by, assigned to or
otherwise made available to the Fund, except to the extent
attributable to any negligence or willful misconduct by
Custodian.
12
<PAGE>
4. LIMITATION OF LIABILITY OF CUSTODIAN.
A. Custodian shall at all times use reasonable care and due
diligence and act in good faith in performing its duties under
this Agreement. Custodian shall hold harmless and indemnify
Fund from and against any loss or liability arising out of
Custodian's negligence, willful misconduct, or bad faith.
Custodian shall not be responsible for, and the Fund shall
indemnify and hold Custodian harmless from and against, any
loss or liability arising out of actions taken by Custodian
pursuant to this Agreement or any instructions provided to it
hereunder, provided that Custodian has acted in good faith and
with due diligence and reasonable care. Neither party shall be
liable to the other for consequential, special or punitive
damages. Custodian may request and obtain the advice and
opinion of counsel for Fund, or of its own counsel with
respect to questions or matters of law, and it shall be
without liability to Fund for any action taken or omitted by
it in good faith, in conformity with such advice or opinion.
If Custodian reasonably believes that it could not prudently
act according to the instructions of the Fund or the Fund's
counsel, it may in its discretion, with notice to the Fund,
not act according to such instructions.
B. Custodian may rely upon the advice and statements of Fund and
Fund's accountants and other persons believed by, it in good
faith, to be expert in matters upon which they are consulted,
and Custodian shall not be liable for any actions taken, in
good faith, upon such advice and statements.
C. If Fund requests Custodian in any capacity to take, with
respect to any Assets, any action which involves the payment
of money by it, or which in Custodian's opinion might make it
or its nominee liable for payment of monies or in any other
way, Custodian, upon notice to Fund given prior to such
actions, shall be and be kept indemnified by Fund in an amount
and form satisfactory to Custodian against any liability on
account of such action; provided, however, that nothing herein
shall obligate Custodian to take any such action except in its
sole discretion.
D. Custodian shall be entitled to receive, and Fund agrees to pay
to Custodian, on demand, reimbursement for such cash
disbursements, costs and expenses as may be agreed upon from
time to time by Custodian and Fund.
E. Custodian shall be protected in acting as custodian hereunder
upon any instructions, advice, notice, request, consent,
certificate or other instrument or paper reasonably appearing
to it to be genuine and to have been properly executed and
shall, unless otherwise specifically provided herein, be
entitled to receive as conclusive proof of any fact or matter
required to be ascertained from Fund hereunder, instructions
or a certificate signed by the Fund's President, or other
authorized officer.
F. Without limiting the generality of the foregoing, Custodian
shall be under no duty or obligation to inquire into, and
shall not be liable for:
13
<PAGE>
1. The validity of the issue of any Assets purchased by
or for Fund, the legality of the purchase thereof,
the validity, completeness, correctness or
sufficiency of any loan documents required by Fund to
be received by Custodian, the sufficiency of the
evidence of ownership of Assets required by Fund to
be received by Custodian, or the propriety of the
decision to purchase or amount paid for any Assets;
2. The legality of the sale of any Assets by or for
Fund, or the propriety of the amount for which the
same are sold;
3. The legality of the issue or sale of any Fund Shares,
or the sufficiency of the amount to be received
therefor;
4. The legality of the repurchase or redemption of any
Fund Shares, or the propriety of the amount to be
paid therefor; or
5. The legality of the declaration of any dividend by
Fund, or the legality of the issue of any Fund Shares
in payment of any dividend.
G. Custodian shall not be liable for, or considered to be
Custodian of, any money represented by any check, draft, wire
transfer, clearing house funds, uncollected funds, or
instrument for the payment of money to be received by it on
behalf of Fund, until Custodian actually receives such money,
provided only that it shall advise Fund promptly if it fails
to receive any such money in the ordinary course of business,
and use its best efforts and cooperate with Fund toward the
end that such money shall be received.
H. Except for any subcustodians or eligible foreign custodians
appointed under Section 2.S. to the extent provided therein,
Custodian shall not be responsible for loss occasioned by the
acts, neglects, defaults or insolvency of any broker, bank,
trust company, or any other person with whom Custodian may
deal in the absence of negligence or bad faith on the part of
Custodian.
I. Notwithstanding anything herein to the contrary, Custodian
may, and with respect to any foreign subcustodian appointed
under Section 2.S.2 must, provide Fund for its approval,
agreements with banks or trust companies which will act as
subcustodians for Fund pursuant to Section 2.S of this
Agreement.
J. Custodian shall not be responsible or liable for the failure
or delay in performance of its obligations under this
Agreement, or those of any entity for which it is responsible
hereunder, arising out of or caused, directly or indirectly,
by circumstances beyond the affected entity's reasonable
control, including, without limitation: any interruption, loss
or malfunction of any utility, transportation, computer
(hardware or software) or communication service; inability to
obtain labor, material, equipment or transportation, or a
delay in mails; governmental or
14
<PAGE>
exchange action, statute, ordinance, rulings, regulations or
direction; war, strike, riot, emergency, civil disturbance,
terrorism, vandalism, explosions, labor disputes, freezes,
floods, fires, tornados, acts of God or public enemy,
revolutions, or insurrection.
5. COMPENSATION. Fund will pay to Custodian such compensation as is stated
in the Fee Schedule from time to time agreed to in writing by Custodian
and Fund. Custodian may charge such compensation against monies held by
it for the account of Fund. Custodian will also be entitled,
notwithstanding the provisions of Sections 4.C. or 4.D. hereof, to
charge against any monies held by it for the account of Fund the amount
of any loss, damage, liability, advance, or expense for which it shall
be entitled to reimbursement under the provisions of this Agreement
including fees or expenses due to Custodian for other services provided
to the Fund by the Custodian. Custodian will not be entitled to
reimbursement by Fund for any loss or expenses of any subcustodian,
except to the extent Custodian would be entitled to reimbursement
hereunder if it incurred the loss or expense itself directly.
6 TERMINATION. This Agreement shall continue in effect until terminated
by either party by notice in writing received by the other party not
less than ninety (90) days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement, Fund
will pay to Custodian such compensation for its reimbursable
disbursements, costs and expenses paid or incurred to such date. The
governing Board of Fund will, forthwith upon giving or receiving notice
of termination of this Agreement, appoint as successor custodian a
qualified bank or trust company. Custodian will, upon termination of
this Agreement, deliver to the successor custodian so appointed, at
Custodian's office, all securities then held by Custodian hereunder,
duly endorsed and in form for transfer, all funds, loan documents and
other properties of Fund deposited with or held by Custodian hereunder,
or will co-operate in effecting changes in book-entries at the
Depositories. In the event no written order designating a successor
custodian has been delivered to Custodian on or before the date when
such termination becomes effective, then Custodian may deliver the
securities, funds and properties of Fund to a bank or trust company at
the selection of Custodian and meeting the qualifications for
custodian, if any, set forth in the governing documents of the Fund and
having not less that Two Million Dollars ($2,000,000) aggregate
capital, surplus and undivided profits, as shown by its last published
report. Upon delivery to a successor custodian, Custodian will have no
further obligations or liabilities under this Agreement. Thereafter
such bank or trust company will be the successor custodian under this
Agreement and will be entitled to reasonable compensation for its
services. In the event that no such successor custodian can be found,
Fund will submit to its shareholders, before permitting delivery of the
cash and securities owned by Fund to anyone other than a successor
custodian, the question of whether Fund will be liquidated or function
without a custodian. Notwithstanding the foregoing requirement as to
delivery upon termination of this Agreement, Custodian may make any
other delivery of the securities, funds, loan documents and property of
Fund which is permitted by the Investment Company Act of 1940, Fund's
governing documents then in
15
<PAGE>
effect or apply to a court of competent jurisdiction for the
appointment of a successor custodian.
7. NOTICES. Notices, requests, instructions and other writings received by
Fund at Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004, or at such other address as Fund may have
designated to Custodian in writing, will be deemed to have been
properly given to Fund hereunder; and notices, requests, instructions
and other writings received by Custodian at its offices at 127 West
10th Street, 14th Floor, Kansas City, Missouri 64105, or to such other
address as it may have designated to Fund in writing, will be deemed to
have been properly given to Custodian hereunder.
8. MISCELLANEOUS.
A. This Agreement is executed and delivered in the State of
Missouri and shall be governed by the laws of said state.
B. All the terms and provisions of this Agreement shall be
binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective successors and
permitted assigns.
C. No provisions of the Agreement may be amended or modified, in
any manner except by a written agreement properly authorized
and executed by both parties hereto.
D. The captions in this Agreement are included for convenience of
reference only, and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effect.
E. This Agreement may be executed in two or more counterparts,
each of which will be deemed an original but all of which
together will constitute one and the same instrument.
F. If any part, term or provision of this Agreement is determined
to be illegal, in conflict with any law or otherwise invalid,
the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations
of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or
provision held to be illegal or invalid.
G. Custodian will not release the identity of Fund to an issuer
which requests such information pursuant to the Shareholder
Communications Act of 1985 for the specific purpose of direct
communications between such issuer and Fund unless the Fund
directs the Custodian otherwise.
H. This Agreement may not be assigned by either party without
prior written consent of the other party.
16
<PAGE>
I. If any provision of the Agreement, either in its present form
or as amended from time to time, limits, qualifies, or
conflicts with the Investment Company Act of 1940 and the
rules and regulations promulgated thereunder, such statues,
rules and regulations shall be deemed to control and supersede
such provision without nullifying or terminating the remainder
of the provisions of this Agreement.
J. The representations and warranties and the indemnification
extended hereunder are intended to and shall continue after
and survive the expiration, termination or cancellation of
this Agreement.
K. The Custody Agreement between Custodian and Fund, then known
as Pilgrim Regional Bankshares, Inc. dated as of October 1,
1989, is hereby cancelled and superseded effective as of the
date hereof, except that all rights, duties and liabilities
which may have arisen under such Custody Agreement prior to
the effectiveness hereof shall continue and survive.
Otherwise, this Agreement does not in any way affect any other
agreements entered into between the parties hereto.
17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly respective authorized officers.
INVESTORS FIDUCIARY TRUST COMPANY
By:
---------------------------------------
Title:
------------------------------------
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
By:
---------------------------------------
Title:
------------------------------------
<PAGE>
EXHIBIT A
- ---------
<TABLE>
<CAPTION>
INVESTORS FIDUCIARY TRUST COMPANY
AVAILABILITY SCHEDULE BY TRANSACTION TYPE
==========================================================================================================================
TRANSACTION DTC PHYSICAL FED
==========================================================================================================================
TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE CREDIT DATE FUNDS TYPE
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Calls Puts As Received C or F* As Received C or F*
- --------------------------------------------------------------------------------------------------------------------------
Maturities As Received C or F* Mat. Date C or F* Mat. Date F
- --------------------------------------------------------------------------------------------------------------------------
Tender Reorgs. As Received C As Received C N/A
- --------------------------------------------------------------------------------------------------------------------------
Dividends Paydate C Paydate C N/A
- --------------------------------------------------------------------------------------------------------------------------
Floating Rate Int. Paydate C Paydate C N/A
- --------------------------------------------------------------------------------------------------------------------------
Floating Rate Int. N/A As Rate Received C N/A
(No Rate)
- --------------------------------------------------------------------------------------------------------------------------
Mtg. Backed P&I Paydate C Paydate + 1 Bus. C Paydate F
Day
- --------------------------------------------------------------------------------------------------------------------------
Fixed Rate Int. Paydate C Paydate C Paydate F
- --------------------------------------------------------------------------------------------------------------------------
Euroclear N/A C Paydate C
==========================================================================================================================
</TABLE>
Legend
- ------
- ------------------------------------------------------------------
TRANSACTION CREDIT DATE FUNDS TYPE
- ------------------------------------------------------------------
Loan Payments As Received F
- ------------------------------------------------------------------
C = Clearinghouse Funds
F = Fed Funds
N/A = Not Applicable
* Availability based on how received.
19
<PAGE>
RECORDKEEPING AGREEMENT
THIS AGREEMENT made as of this ____ day of _________, 1997, by and
between PILGRIM AMERICA BANK AND THRIFT FUND, INC., a Maryland corporation,
having its principal place of business at Two Renaissance Square, 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004 ("Fund"), and INVESTORS
FIDUCIARY TRUST COMPANY, a state chartered trust company organized and existing
under the laws of the State of Missouri, having its principal place of business
at 127 West 10th Street, Kansas City, Missouri, 64105 ("IFTC"):
WITNESSETH:
In consideration of the mutual promises herein contained, the parties
hereto, intending to be legally bound, mutually covenant and agree as follows:
1. Appointment of Recordkeeping Agent. Fund hereby constitutes and
appoints IFTC as Recordkeeping Agent for the Fund to perform certain
accounting and recordkeeping functions related to portfolio
transactions required of Fund as a registered investment company in
compliance with Rule 31a of the Investment Company Act of 1940 ("1940
Act") and to calculate daily the Fund's net asset value.
2. Representations and Warranties of Fund.
A. Fund represents and warrants that it is a corporation duly
organized as heretofore described and existing and in good
standing under the laws of Maryland.
B. Fund represents and warrants that it has the power and
authority under applicable laws, its articles of incorporation
and bylaws, and has taken all action necessary, to enter into
and perform this Agreement.
C. Fund represents and warrants that it has determined that the
computerized recordkeeping system to be used by IFTC in
maintaining accounting records of Fund hereunder, (the
"System") is appropriate and suitable for Fund's needs.
D. Fund shall preserve the confidentiality of the System and the
tapes, books, reference manuals, instructions, records,
programs, documentation and information of, and other
materials relevant to, the System and the business of IFTC
("Confidential Information"). Fund shall not voluntarily
disclose such Confidential Information to any other person
other than its own employees who reasonably have a need to
know such information pursuant to this Agreement. Fund shall
return all such Confidential Information to IFTC upon
termination or expiration of this Agreement.
E. Fund has been informed that the System is licensed for use by
IFTC from a third party ("Licensor"). Fund acknowledges that
IFTC and Licensor have proprietary rights in and to the System
and all other IFTC and Licensor programs, code,
<PAGE>
techniques, know-how, data bases, supporting documentation,
data formats and procedures, including without limitation any
changes or modifications made at the request or expense or
both of Fund (collectively, the "Protected Information"). Fund
acknowledges that the Protected Information constitutes
confidential material and trade secrets of IFTC and Licensor.
Fund shall preserve the confidentiality of the Protected
Information, and Fund hereby acknowledges that any
unauthorized use, misuse, disclosure or taking of Protected
Information, residing or existing internal or external to a
computer, computer system, or computer network, or the knowing
and unauthorized accessing or causing to be accessed of any
computer, computer system, or computer network, may be subject
to civil liabilities and criminal penalties under applicable
law. Fund shall so inform employees and agents who have access
to the Protected Information or to any computer equipment
capable of accessing the same. Licensor is intended to be and
shall be third party beneficiaries of the Fund's obligations
and undertakings contained in this paragraph.
F. If IFTC shall provide Fund direct access to the System or if
IFTC and Fund shall agree to utilize any electronic system of
communication, Fund shall be fully responsible for any and all
consequences of the use or misuse of the terminal device,
passwords, access instructions and other means of access to
such System which are utilized by, assigned to or otherwise
made available to the Fund. Fund agrees to implement and
enforce appropriate security policies and procedures to
prevent unauthorized or improper access to or use of such
System. IFTC shall be fully protected in acting hereunder upon
any instructions, communications, data or other information
received by IFTC by such means as fully and to the same effect
as if delivered to IFTC by written instrument signed by the
requisite authorized representative(s) of the Fund. Fund shall
indemnify and hold IFTC harmless from and against any and all
costs, expenses, losses, liabilities, damages, charges and
counsel fees which may be asserted against or incurred by IFTC
as a consequence of the use or misuse, whether authorized or
unauthorized, of the System or other computerized
recordkeeping and reporting system to which IFTC provides Fund
direct access hereunder or of any other electronic system of
communication used hereunder by Fund or by any person who
acquires access to any such system through the terminal
device, passwords, access instructions or other means of
access to any such system which are utilized by, assigned to
or otherwise made available to the Fund, except to the extent
attributable to any negligence or willful misconduct by IFTC.
3. Representation and Warranties of IFTC
A. It is a trust company duly organized and existing and in good
standing under the laws of the State of Missouri.
B. It has the requisite power and authority under applicable
laws, by its charter and bylaws, and by agreement to enter
into this Agreement and has taken all action
2
<PAGE>
necessary to enter into and perform the services contemplated
herein and this Agreement has been duly executed and delivered
by IFTC and constitutes a legal, valid and binding obligation
of IFTC, enforceable in accordance with its terms.
4. Duties and Responsibilities of IFTC
A. Fund shall turn over to IFTC all of Fund's accounts and
records previously maintained. IFTC shall be entitled to rely
conclusively on the completeness and correctness of the
accounts and records turned over to it by Fund and Fund shall
indemnify and hold IFTC harmless of and from any and all
expenses, damages and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy or other
deficiency of such accounts and records or in the failure of
Fund to provide any portion of such or to provide in a timely
manner any other information needed by IFTC to perform its
function hereunder.
B. Accounts and Records
1. IFTC, with the direction and as interpreted by the
Fund or Fund's accountants and/or other advisors,
will prepare and maintain in complete, accurate, and
current form all accounts and records needed to be
maintained as a basis for calculation of the Fund's
net asset value and as further agreed upon by the
parties in writing, and will preserve such records in
the manner and for the periods required by the 1940
Act or such longer period as the parties may agree
upon in writing.
2. Unless the information necessary to perform the above
functions is furnished in writing or its electronic
or digital equivalent to IFTC prior to the next close
of the New York Stock Exchange and calculation of the
Fund's net asset value, IFTC shall incur no liability
and the Fund shall indemnify and hold IFTC harmless
from and against any liability in connection
therewith.
3. It shall be the responsibility of Fund to furnish
IFTC with the declaration, record and payment dates
and amounts of any dividends or income and any other
special actions required concerning the assets in the
portfolio when such information is not readily
available from generally accepted securities industry
services or publications.
4. The accounts and records maintained and preserved by
IFTC shall be the property of the Fund and shall be
made available to the Fund for inspection or
reproduction within a reasonable time, upon demand.
5. IFTC shall assist Fund's independent accountants, or
upon approval of Fund or upon demand, any regulatory
body, in any requested review of Fund's accounts and
records maintained by IFTC but shall be reimbursed
3
<PAGE>
by Fund for all expenses and employee time invested
in any such review outside of routine and normal
periodic reviews.
6. Upon receipt from Fund of any necessary information,
IFTC shall provide information from the books and
records it maintains for Fund that Fund needs for tax
returns, questionnaires, or periodic reports to
shareholders and such other reports and information
requests as Fund and IFTC shall agree upon from time
to time.
7. IFTC and Fund may from time to time adopt procedures
as they agree upon, and IFTC may conclusively assume
that any procedure approved by Fund, or directed by
Fund, does not conflict with or violate any
requirements of Fund's prospectus, declaration of
trust, bylaws, or any rule or regulation of any
applicable regulatory body or governmental agency.
Fund shall be responsible to notify IFTC of any
changes in statutes, rules, requirements, or policies
which may necessitate changes in IFTC's
responsibilities or procedures.
8. IFTC will calculate the Fund's net asset value in
accordance with the Fund's prospectus once daily.
IFTC will price the securities of the Fund for which
market quotations are available by the use of outside
services designated by Fund which are normally used
and contracted with for this purpose; all other
securities and foreign currency holdings and all
loans and interests in loans held by the Fund will be
priced in accordance with Fund's instructions.
5. Limitation of Liability of IFTC
A. IFTC shall not be responsible or liable for, and Fund shall
indemnify and hold IFTC harmless from and against, any loss or
liability arising out of IFTC's action or omission to act
pursuant hereto, except for any loss or damage arising from
any negligent act or willful misconduct of IFTC. IFTC shall
indemnify and hold harmless Fund from and against any loss or
liability arising from such negligence or willful misconduct.
The Fund agrees to minimize any potential monetary loss(es) by
reprocessing shareholder transactions or employing any other
customary procedures to reduce such monetary loss(es). Neither
party shall be liable to the other for consequential, special,
or punitive damages. IFTC may request and obtain the advice
and opinion of counsel for Fund or its own counsel at the
expense of Fund with respect to questions or matters of law,
and it shall be without liability to Fund for any action taken
or omitted by it in good faith, in conformity with such advice
or opinion.
B. IFTC may rely upon the advice and statements of Fund, its
distributor, its management company and its accountants,
officers and other authorized individuals (as provided by
corporate resolution to IFTC) and others believed by it in
good
4
faith to be expert in matters upon which they are consulted.
Actions or inaction taken in reliance on such advice and
statements shall not be considered "negligent" and IFTC shall
not be liable for any actions taken in good faith upon such
advice and statements.
C. If Fund requests IFTC in any capacity to take any action which
involves the payment of money by it, or which in IFTC's
opinion might make it liable for payment of money or in any
other way, IFTC shall be and be kept indemnified by Fund in an
amount and form satisfactory to IFTC against any liability on
account of such action; provided, however that IFTC shall not
be obligated to expend its own moneys or to take any such
action except in IFTC's sole discretion.
D. IFTC shall be entitled to receive and Fund agrees to pay to
IFTC, on demand, reimbursement for such cash disbursements,
costs and expenses as may be agreed upon in writing from time
to time by IFTC and Fund.
E. IFTC shall be protected in acting hereunder upon any
instructions, advice, notice, request, consent, certificate or
other instrument or paper appearing to it to be genuine and to
have been properly executed and shall, unless otherwise
specifically provided herein, be entitled to receive as
conclusive proof of any fact or matter required to be
ascertained from Fund as determined by IFTC, instructions or a
certificate signed by Fund's President or other officer of
Fund as requested by IFTC.
F. Without limiting the generality of the foregoing, IFTC shall
be under no duty or obligation to inquire into, and shall not
be liable for:
1. The validity of the issue of any assets purchased by
or for Fund, or the legality of the purchase thereof,
the sufficiency of the evidence of ownership of any
assets of Fund, or the propriety of the decision to
purchase or amount paid for any assets;
2. The legality of the sale of any assets by or for
Fund, or the propriety of the amount for which the
same are sold;
3. The legality of the issue or sale of any shares of
Fund, or the sufficiency of the amount to be received
therefore;
4. The legality of the purchase, repurchase or
redemption of any shares of Fund, or the propriety of
the amount to be paid therefore; or
5. The legality of the declaration of any dividend by
Fund, or the legality of the issue of any shares of
Fund in payment of any dividend.
5
<PAGE>
G. IFTC shall not be liable for, or considered to be the
custodian of, any money represented by any check, draft, wire
transfer, clearing house funds, uncollected funds, or
instrument for the payment of money received by it on behalf
of Fund, until IFTC actually receives such money, provided
only that it shall advise Fund promptly if it fails to receive
any such moneys in the ordinary course of business, and use
reasonable efforts and cooperate with Fund toward the end that
such money shall be received.
H. Notwithstanding anything herein to the contrary, it is
expressly understood and agreed that IFTC shall have no
responsibility to Fund, the Fund's shareowners or any other
person or entity for moneys or securities of Fund held by
banks or trust companies as custodians in the absence of
negligence or willful misconduct of IFTC.
I. IFTC shall not use any information made available to it under
the terms of this Agreement for any purpose other than
complying with its duties and responsibilities under this
Agreement or as specifically authorized by Fund in writing to
IFTC.
6. Force Majeure. IFTC shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising
out of or caused, directly or indirectly, by circumstances beyond its
reasonable control, including without limitation any interruption, loss
or malfunction of any utility, transportation, computer (hardware or
software) or communication service; or inability to obtain labor,
material, equipment or transportation; nor shall any such failure or
delay give Fund any additional right to terminate this Agreement.
7. Compensation. Fund shall pay to IFTC such compensation at such time as
may from time to time be agreed upon in writing by IFTC and Fund. Fund
shall also reimburse IFTC for all out-of-pocket expenses incurred by
IFTC in connection with services performed pursuant to this Agreement.
8. Procedures. IFTC and Fund may from time to time adopt procedures as
they agree upon, and IFTC may conclusively assume that any procedure
approved or directed by Fund or its accountants or other advisors does
not conflict with or violate any requirements of Fund's prospectus,
articles of incorporation, bylaws, any applicable law, rule or
regulation, or any order, decree or agreement by which the Fund may be
bound.
9. Termination. This Agreement shall continue in effect until terminated
by either party by notice in writing received by the other party not
less than ninety (90) days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement:
A. Fund shall pay to IFTC its fees and compensation due hereunder
and its reimbursable disbursements, costs and expenses paid or
incurred to such date.
6
<PAGE>
B. Fund shall designate a successor (which may be Fund) by notice
in writing to IFTC on or before the termination date.
C. IFTC shall deliver to the successor, or if none has been
designated, to Fund, at IFTC's office, all records, funds and
other properties of Fund deposited with or held by IFTC
hereunder. In the event that neither a successor nor Fund
takes delivery of all records, funds and other properties of
Fund by the termination date, IFTC's sole obligation with
respect thereto from the termination date until delivery to a
successor or Fund shall be to exercise reasonable care to hold
the same in custody in its form and condition as of the
termination date, and IFTC shall be entitled to reasonable
compensation therefor, including but not limited to all of its
out-of-pocket costs and expenses incurred in connection
therewith.
10. Notices. Notices, requests, instructions and other writings received by
Fund at Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004, or at such address as Fund may have designated
to IFTC in writing, shall be deemed to have been properly given to Fund
hereunder; and notices, requests, instructions and other writings
received by IFTC at its offices at 127 West 10th Street, Kansas City,
MO 64105, or to such other address as it may have designated to Fund in
writing, shall be deemed to have been properly given to IFTC hereunder.
11. Miscellaneous
A. This Agreement is executed and delivered in the State of
Missouri and shall be governed by the laws of said state.
B. All terms and provisions of this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted
assigns.
C. No provisions of the Agreement may be amended or modified in
any manner except by a written agreement properly authorized
and executed by both parties hereto.
D. The captions in the Agreement are included for convenience of
reference only, and in no way define or limit any of the
provisions hereof or otherwise affect their construction or
effort.
E. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
F. If any part, term or provision of this Agreement is determined
to be illegal, in conflict with any law or otherwise invalid,
the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations
of the
7
<PAGE>
parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to
be illegal or invalid.
G. This Agreement may not be assigned by either party without
prior written consent in writing of the other party.
H. The representations and warranties, the indemnification
extended hereunder, and the provisions of Section 2.D. and
2.E. are intended to and shall continue after and survive the
expiration, termination or cancellation of this Agreement.
I. The Recordkeeping Agreement between IFTC and Fund, then known
as Pilgrim Regional Bankshares, Inc. dated as of December 1,
1986; is hereby cancelled and superseded effective as of the
date hereof, except that all rights, duties and liabilities
which may have arisen under such Agreement prior to the
effectiveness hereof shall continue and survive. Otherwise,
this Agreement does not in any way affect any other agreements
entered into between the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective and duly authorized corporate or trust officers.
INVESTORS FIDUCIARY TRUST COMPANY
By:
----------------------------------
Title:
-------------------------------
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
By:
----------------------------------
Title:
-------------------------------
8
<PAGE>
[LETTERHEAD OF DECHERT PRICE & RHOADS]
October 14, 1997
Pilgrim America Bank & Thrift Fund, Inc.
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004
Re: Registration under the Securities Act of 1933, as amended
and the Investment Companv Act of 1940 as amended
Ladies and Gentlemen:
In connection with the registration under the Securities Act of 1933,
as amended, of an indefinite number of shares of common stock to be issued by
Pilgrim America Bank and Thrift Fund, Inc. (the "Company"), and the registration
of the Company as an open end management investment company under the Investment
Company Act of 1940, as amended, we have examined such matters as we have deemed
necessary to give this opinion.
On the basis of the foregoing, it is our opinion that the shares have
been duly authorized and, when paid for as contemplated by the Company's
Registration Statement, will be validly issued, fully paid, and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm therein.
Very truly yours,
/s/ Dechert, Price & Rhoads
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pilgrim America Bank and Thrift Fund:
We consent to the use of our report incorporated herein by reference
and to the references to our firm under the headings "Financial Highlights" in
the Prospectus and "Independent Auditors" in the Statement of Additional
Information.
KPMG Peat Marwick LLP
Los Angeles, California
October 14, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000784055
<NAME> Pilgrim America Bank and Thrift Fund
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 148,345
<INVESTMENTS-AT-VALUE> 310,732
<RECEIVABLES> 996
<ASSETS-OTHER> 1,857
<OTHER-ITEMS-ASSETS> 41
<TOTAL-ASSETS> 313,626
<PAYABLE-FOR-SECURITIES> 2,756
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 180
<TOTAL-LIABILITIES> 2,936
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119,423
<SHARES-COMMON-STOCK> 14,141,241
<SHARES-COMMON-PRIOR> 14,141,241
<ACCUMULATED-NII-CURRENT> 1,798
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27,082
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 162,387
<NET-ASSETS> 310,690
<DIVIDEND-INCOME> 3,229
<INTEREST-INCOME> 265
<OTHER-INCOME> 0
<EXPENSES-NET> 1,264
<NET-INVESTMENT-INCOME> 2,230
<REALIZED-GAINS-CURRENT> 29,582
<APPREC-INCREASE-CURRENT> 26,536
<NET-CHANGE-FROM-OPS> 58,348
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 58,348
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 431,916
<OVERDIST-NET-GAINS-PRIOR> 2,500
<GROSS-ADVISORY-FEES> 1,028
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,269
<AVERAGE-NET-ASSETS> 279,012
<PER-SHARE-NAV-BEGIN> 17.84
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 4.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 21.97
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
