<PAGE>
As filed with the U.S. Securities and Exchange Commission on August 12, 1997.
SECURITIES ACT FILE NO. 33-
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. |_|
Post-Effective Amendment No. __ |_|
and/or
Registration Statement Under The Investment Company Act Of 1940 |_|
Amendment No. 7 |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>
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM LOCATION IN PROSPECTUS
(CAPTION)
<S> <C> <C>
Part A
Item 1. Cover Page....................................................... Cover Page
Item 2. Synopsis......................................................... The 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................................ The Fund's 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
LOCATION IN STATEMENT OF
Part B ADDITIONAL INFORMATION
(CAPTION)
Item 10. Cover Page ...................................................... Cover Page
Item 11. Table of Contents ............................................... Table of Contents
Item 12. General Information and History ................................. Organization of Pilgrim
................................................................. America Bank and
................................................................. Thrift Fund, Inc.; General
................................................................. Information
Item 13. Investment Objectives and Policies .............................. Supplemental Discussion of Risks
................................................................. Associated With the
................................................................. Fund's Investment
................................................................. Policies and Investment
................................................................. Techniques; 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 Services .......................... 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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Prospectus
Pilgrim America Bank and Thrift Fund, Inc.
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(TM) 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 ___, 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 ___, 1997.
<PAGE>
PILGRIM AMERICA BANK AND THRIFT FUND, INC. AT A GLANCE*
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 _____, 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.
- --------------------
*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.
<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
Class A Class B
------- -------
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)
The Fund has no exchange fees or sales charges on reinvested dividends.
- -----------------------
(a) Reduced for purchases of $50,000 and over. See "Class A
Shares: Initial Sales Charge Alternative."
(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."
The percentages shown below reflect the estimated Annual Operating Expenses for
Class A and Class B shares of the Fund. The percentages 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 management investment company),
and are restated to reflect current fees for each class of shares.
Annual Operating Expenses (As a Percentage of Average Net Assets)
Total Fund
Management Distribution Operating
Fees(1) (12b-1) Fees (2) Other Expenses Expenses
---------- ---------------- -------------- --------
Class A -- 0.25% -- --
Class B -- 1.00% -- --
- ----------------------
(1) 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.
(2) 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).
3
<PAGE>
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) 5%
annual return and (ii) 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................................... $-- $-- $-- $--
Class B................................... $-- $-- $-- $--
Class B (assuming no redemption).......... $-- $-- $-- $--
</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.
4
<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 as of
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 has
been audited by KPMG Peat Marwick LLP, independent auditors. For all periods
ending prior to December 31, 1995, the financial information was audited by the
Fund's former auditors. Financial information for the six-month period ended
June 30, 1997 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 _____, 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, which contains further information about the Fund's performance,
and which is available to Shareholders upon request and without charge.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------
Six
months
ended
June 30,
1997 1996 1995(a) 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value
beginning of year ..... $17.84 $14.83 $10.73 $11.87 $12.46 $10.12 $7.49 $10.26 $9.54 $8.17 $9.09
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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 0.22
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 (0.87)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ............ 4.13 5.50 5.09 (0.27) 1.01 3.15 3.57 (1.89) 1.80 1.74 (0.65)
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Net investment income . -- 0.32 0.31 0.22 0.26 0.22 0.24 0.31 0.31 0.37 0.22
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 -- 0.05
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 0.27
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Other:
Reduction in net asset
value from rights
offering ............ -- -- -- -- (0.61) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
year .................. $21.97 $17.84 $14.83 $10.73 $11.87 $12.46 $10.12 $7.49 $10.26 $9.54 $8.17
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Closing Market Price,
end of year ........... $19.06 $15.75 $12.88 $9.13 $10.88 $11.63 $9.50 $7.13 $9.13 $7.75 $6.25
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% (17.79)%
Ratios/Supplemental Data
Net assets, end of year
(millions) ............ $311 $252 $210 $152 $168 $141 $101 $75 $103 $96 $82
Ratios to average net
assets
Expenses .............. 0.91%(d) 1.01% 1.05% 1.28% 0.91% 1.24% 1.31% 1.29% 1.26% 1.18% 1.13%
Net investment income . 1.61%(d) 1.94% 2.37% 2.13% 2.08% 2.00% 2.68% 3.59% 4.15% 3.28% 2.31%
Portfolio turnover rate 5% 21% 13% 14% 17% 20% 31% 46% 63% 43% 76%
</TABLE>
5
<PAGE>
- --------------
(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) Annualized.
6
<PAGE>
PAST PERFORMANCE OF THE FUND
The following bar chart, line graph and tables provide information about the
Fund's past performance. Prior to ________________, 1997, the Fund operated as
a closed-end investment company. Upon conversion to an open-end investment
company on __________, 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
__________, 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 22.6%
1994 8.1%
1995 12.5%
1996 31.8%
1997 63.3%
Balance as of 6/30 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 full participation in the 1992 and 1993 rights
offerings.
7
<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]
SPRBNK S&P 500 B&T FUND B&T Fund
Excluding With
Current Sales
Sales Charge Charge
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 21,930 20,669
6/30/94 19,791 18,323 23,695 22,333
6/30/95 22,254 23,094 26,648 25,116
6/30/96 29,849 29,095 35,114 33,095
6/30/97 45,851 39,188 57,341 54,044
The tables below show the total return for the Fund compared to the Standard &
Poor's 500 and the Standard & Poor's Major Regional Banks Index for the one-,
three-, five-, and ten-year periods ended June 30,1997. 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.
<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% 26.2% 19.1%
(Excluding Current Sales Charge)
- --------------------------------------- --------------- --------------- -------------- ---------------
Bank & Thrift Fund(4) 53.9% 31.6% 24.7% 18.4%
(Including Current Sales Charge)
- --------------------------------------- --------------- --------------- -------------- ---------------
S&P 500 Index 34.7% 28.8% 19.8% 14.6%
- --------------------------------------- --------------- --------------- -------------- ---------------
S&P Major Regional Bank 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.
(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 full participation in the 1992 and 1993
rights offerings.
(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 full
participation in the 1992 and 1993 rights offerings.
8
<PAGE>
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. The Fund's overall rating through June 30, 1997, is
5-stars.(1) For the three-year and five-year periods ended June 30, 1997, the
Fund's risk score places it 21 and 24 out of 47 and 39 funds in the domestic
equity closed-end fund category, respectively.(2)
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. 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 industry. 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
- ---------------
(1) 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.
(2) On Morningstar's risk-adjusted performance rating system, funds falling
into 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.
9
<PAGE>
(iv) expanding their business into new financial services or
geographic areas that become permissible due to an easing of
regulatory constraints.
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" 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 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 total 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. See the Statement of Additional Information for more
detailed information on some of these investment techniques and information on
certain types of securities in which the Fund may invest.
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 objective. 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 and, in
particular,
10
<PAGE>
will be affected by economic and regulatory developments in the banking and
thrift industries. See "The Banking and Thrift Industries."
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
level and before various bank regulatory agencies. The likelihood of any
changes and the impact such changes might have are impossible to determine.
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.
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 total assets in securities that
are illiquid.
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
11
<PAGE>
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.
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 which may or may not exceed the income received from the securities
purchased with borrowed funds.
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.
12
<PAGE>
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
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
13
<PAGE>
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 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 are 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.
14
<PAGE>
SHAREHOLDER GUIDE
Pilgrim America Purchase Options(TM)
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>
Maximum Sales Annual Maximum Automatic
Charge on Distribution Maximum Conversion
Class Purchases CDSC Fees (d) Purchase to Class A
----- --------- ---- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
A 5.75% (a) 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.
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 purchase payments
15
<PAGE>
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 Which
On Purchases of: CDSC Allowance 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 to 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:
Year of Redemption After Purchase CDSC
--------------------------------- ----
First................................................... 5%
Second.................................................. 4%
Third................................................... 3%
Fourth.................................................. 3%
Fifth................................................... 2%
Sixth................................................... 1%
Seventh and following................................... 0%
To determine the CDSC payable on redemptions of Class B shares, the 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
16
<PAGE>
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 for the Fund or for 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 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 will
not affect any CDSC which may be imposed upon the redemption of shares of the
Fund which imposes a CDSC. 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
17
<PAGE>
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. 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.
18
<PAGE>
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(TM)--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 Pilgrim America.
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.
19
<PAGE>
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 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. Fees paid by the Fund under the
Rule 12b-1 Plans may be used to finance distribution of the shares of the Fund
and the servicing of shareholders of the Fund.
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 NAV 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 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.
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).
20
<PAGE>
<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
Authorized Dealer $1,000 ($250 for IRAs). Visit or consult your Fund is $100. Visit or consult your
Authorized Dealer. Authorized Dealer.
- ---------------------- ------------------------------------------------- ----------------------------------------------
By mail Make your check payable to Pilgrim America Fill out the account additions form included
Funds and mail it, along with a completed New on the bottom of your account statement
Account Application, to the address indicated along with your check payable to the Fund
on the New Account Application. Please and mail them in the envelope provided with
indicate an Authorized Dealer on the the account statement. Remember to write
application. your account number on the check.
- ---------------------- ------------------------------------------------- ----------------------------------------------
By wire Call the Pilgrim America Order Department at Call the Pilgrim America Order Department at
(800) 336-3436 to obtain an account number and (800) 336-3436 to obtain a wire reference
indicate an Authorized Dealer on the account. number. Give that number to your bank and
Instruct your bank to wire funds to the Fund in have them wire the funds in the same manner
care of: 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 the funds you must complete the
New Account Application and send it to:
Pilgrim America Order Dept.
P.O. Box 4193568
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.
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 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,
21
<PAGE>
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 net asset value 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 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
22
<PAGE>
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 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 _____, 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 Pilgrim America Fund. The exchange privilege may be modified
at any time or terminated upon 60 days' written notice to shareholders.
How to Redeem Shares
Shares of the Fund will be redeemed at the NAV (less any applicable CDSC and/or
federal income tax withholding) next determined after receipt of a redemption
request in good form on any day the New York Stock Exchange is open for
business.
23
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------ -------------------------------------------------------------------------------------
Method Procedures
- ------------------------------------ -------------------------------------------------------------------------------------
<S> <C>
Redemption By Contacting Your Authorized Dealers may communicate redemption orders by wire or telephone to the
Authorized Dealer 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. But, this aspect of the Expedited Redemption
privilege will NOT automatically be assigned to you. If you want to take advantage
of this aspect of the privilege, please check the appropriate box and attach a
voided check to the New Account Application. Under normal circumstances, proceeds
will be transmitted to your bank on the second business day following receipt of
your instructions, provided redemptions may be made. To effect an Expedited
Redemption, please call the Transfer Agent at (800) 992-0180. In the event that
share certificates have been issued, you may not request a wire redemption by
telephone or wire. This option is not available for retirement accounts.
- ------------------------------------ -------------------------------------------------------------------------------------
</TABLE>
Systematic Withdrawal Plan. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount in excess of $100 made to
yourself, or to anyone else you properly designate, as long as the account has
a current value of at least $10,000. During the withdrawal period, you may
purchase additional shares for deposit to your account if the additional
purchases are equal to at least one year's scheduled withdrawals, or $1,200,
whichever is greater. There are no separate charges to you under this Plan,
although a CDSC may apply if you purchased Class A or B shares. 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.
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
24
<PAGE>
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
________, 1997. On _________, 1997, shareholders approved open-ending the Fund
and since _______, 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 1.00% of the first
$30,000,000 of average daily net assets, 0.75% of the next $95,000,000 of
25
<PAGE>
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 mutual
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.
Distributor. In addition to providing for the expenses discussed above, the
Rule 12b-1 Plan also recognizes that the Investment Manager may use its
investment management fees or other resources to pay expenses associated with
activities primarily intended to result in the promotion and distribution of
the Fund's shares. The Distributor will, from time to time, pay to Authorized
Dealers in connection with the sale or distribution of shares of the Fund
material compensation in the form of merchandise or trips. Salespersons and any
other person entitled to receive any compensation for selling or servicing Fund
shares may receive different compensation with respect to one particular class
of shares over another in the Fund.
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 will place orders to execute the
securities transactions that are designed to implement the Fund's investment
objectives and policies. The Investment Manager will use its reasonable efforts
to place all purchase and sale transactions with brokers, dealers and banks
("brokers") that provide "best execution" of these orders. In placing purchase
and sale transactions, the Investment Manager 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
26
<PAGE>
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 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 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.
27
<PAGE>
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.
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.
28
<PAGE>
<TABLE>
<S> <C>
PILGRIM AMERICA BANK PILGRIM AMERICA
AND THRIFT FUND, INC. Funds
</TABLE>
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004
1-800-331-1080
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C> <C>
PILGRIM AMERICA BANK AND THRIFT FUND, INC. AT A GLANCE.................... Investment Manger
Pilgrim America Investments, Inc.
40 North Central Avenue, Suite 1200
SUMMARY OF EXPENSES....................................................... Phoenix, Arizona 85004
FINANCIAL HIGHLIGHTS...................................................... Distributor
Pilgrim America Securities, Inc.
40 North Central Avenue, Suite 1200
PAST PERFORMANCE OF THE FUND.............................................. Phoenix, Arizona 85004
INVESTMENT OBJECTIVES AND POLICIES ....................................... Shareholder Servicing Agent
Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200
INVESTMENT PRACTICES AND RISK CONSIDERATIONS.............................. Phoenix, Arizona 85004
THE BANKING AND THRIFT INDUSTRIES......................................... Transfer Agent
Investors Fiduciary Trust Company
c/o DST Systems, Inc.
SHAREHOLDER GUIDE......................................................... P.O. Box 419368
Kansas City, Missouri 64141-6368
Pilgrim America Purchase Options(TM)....................................
Purchasing Shares.......................................................
Exchange Privileges and Restrictions.................................... Custodian
Systematic Exchange Privilege........................................... Investors Fiduciary Trust Company
How to Redeem Shares.................................................... 127 W. 10th Street/14th Floor
Kansas City, Missouri 64105
MANAGEMENT OF THE FUND....................................................
Legal Counsel
Dechert Price & Rhoads
DIVIDENDS, DISTRIBUTIONS AND TAXES........................................ 1500 K Street, N.W.
Washington, D.C. 20005
PERFORMANCE INFORMATION...................................................
Independent Auditors
KPMG Peat Marwick LLP
ADDITIONAL INFORMATION.................................................... 725 South Figueroa Street
Los Angeles, California 90017
NEW ACCOUNT APPLICATION................................................... PROSPECTUS
OCTOBER __, 1997
</TABLE>
<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 __, 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 ___, 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>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ORGANIZATION OF PILGRIM AMERICA BANK AND THRIFT FUND, INC.........................................................2
MANAGEMENT OF THE FUND............................................................................................2
SUPPLEMENTAL DISCUSSION OF RISKS..................................................................................8
INVESTMENT RESTRICTIONS...........................................................................................8
PORTFOLIO TRANSACTIONS...........................................................................................10
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................11
DETERMINATION OF SHARE PRICE.....................................................................................15
SHAREHOLDER SERVICES AND PRIVILEGES..............................................................................16
DISTRIBUTIONS....................................................................................................18
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 _____, 1997. On _____, 1997, shareholders approved open-ending the Fund and
since _____, 1997, the Fund has operated as an open-end fund.
The authorized capital stock of the Fund consists of 100,000,000 shares 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 57.) Director. Realtor, 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); 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, 100 West Clarendon, Phoenix, Arizona 85013. (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>
Compensation Table
<TABLE>
<CAPTION>
- ------------------------------------------------------ ------------------ -------------- --------------- -------------------
Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued Annual Registrant
Compensation As Part of Benefits and Fund
from Fund Upon Complex Paid
Name of Person, Position Registrant Expenses Retirement to Directors
- ------------------------------------------------------ ------------------ -------------- --------------- -------------------
<S> <C> <C> <C> <C>
Mary A. Baldwin*, 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 39.) 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 56.)
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).
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).
Principal Shareholders. As of December 31, 1996, the Directors and Officers of
the Fund as a group owned less than 1% of the outstanding shares of the Fund.
As of December 31, 1996, 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 July 15, 1997, the Investment Manager had assets under management of
approximately $2.3 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 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
- 5 -
<PAGE>
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 ___________, 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 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
- 6 -
<PAGE>
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 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.
- 7 -
<PAGE>
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.
SUPPLEMENTAL DISCUSSION OF RISKS
ASSOCIATED WITH THE FUND'S INVESTMENT
POLICIES AND INVESTMENT TECHNIQUES
Additional information concerning risks associated with certain of the Fund's
investments is set forth below.
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
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
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 total assets in illiquid securities, measured at
the time of investment.
Borrowing
The Fund may borrow up to 15% of the value of its total assets to obtain
short-term credits as are necessary for the clearance of securities
transactions. Under 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. Leveraging by means of borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the Fund's net
asset value, and money borrowed will be subject to interest and other costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income received from the
securities purchased with borrowed funds.
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 defensive positions.
- 8 -
<PAGE>
(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.
(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 total assets would be invested in such
securities.
- 9 -
<PAGE>
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 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
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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
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.
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<PAGE>
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 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 adviser's 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
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<PAGE>
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 written request such difference in sales charge is not paid, the
redemption of an appropriate number of shares in escrow to realize such
difference will be made. If the proceeds from a total redemption are
inadequate, the investor will be liable to the Distributor for the difference.
In the event of a total redemption of the account prior to fulfillment of the
Letter of Intent, the additional sales charge due will be deducted from the
proceeds of the redemption and the balance will be forwarded to the investor.
By completing the Letter of Intent section of the Shareholder Application, an
investor grants to the Distributor a security interest in the shares in escrow
and agrees to irrevocably appoint the Distributor as his attorney-in-fact with
full power of substitution to surrender for redemption any or all shares for
the purpose of paying any additional sales charge due and authorizes the
Transfer Agent or Sub-Transfer Agent to receive and redeem shares and pay the
proceeds as directed by the Distributor. The investor or the securities dealer
must inform the Transfer Agent or the Distributor that this Letter is in effect
each time a purchase is made.
If at any time prior to or after completion of the Letter of Intent the
investor wishes to cancel the Letter of Intent, the investor must notify the
Distributor in writing. If, prior to the completion of the Letter of Intent,
the investor requests the Distributor to liquidate all shares held by the
investor, the Letter of Intent will be terminated automatically. Under either
of these situations, the total purchased may be less than the amount specified
in the Letter of Intent. If so, the Distributor will redeem at NAV to remit to
the Distributor and the appropriate authorized dealer an amount equal to the
difference between the dollar amount of the sales charge actually paid and the
amount of the sales charge that would have been paid on the total purchases if
made at one time.
The value of shares of the Fund plus shares of the other open-end funds
distributed by the Distributor (excluding Pilgrim America General Money Market
Shares) can be combined with a current purchase to determine the reduced sales
charge and applicable offering price of the current purchase. The reduced sales
charge 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 apply on a non-cumulative basis, to purchases
made at one time by the customers of a single dealer, in excess of $1 million.
The Letter of Intent option may be modified or discontinued at any time.
Shares of the Fund and other 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
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<PAGE>
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.
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
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<PAGE>
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 to the
effect that (1) such conversion will not constitute taxable events for federal
tax purposes; and (2) the payment of different dividends on Class A and Class B
shares does not result in the Fund dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986. The Class B
shares so converted will no longer be subject to the higher expenses borne by
Class B shares. The conversion will be effected at the relative net asset
values per share of the two Classes.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of each
class of 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
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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
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.
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<PAGE>
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).
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.
- 17 -
<PAGE>
10. Proceeds of a redemption may be delayed up to 15 days or
longer until the check used to purchase the shares being redeemed
has been paid by the bank upon which it was drawn.
DISTRIBUTIONS
As noted in the Prospectus, shareholders have the privilege of reinvesting both
income dividends and capital gains distributions, if any, in additional shares
of the respective class of the Fund at the then current net asset value, with
no sales charge. Alternatively, a shareholder can elect at any time to receive
dividends and/or capital gains distributions in cash. In the absence of such an
election, each purchase of shares of a class of 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
still at any time after a purchase of Fund shares request that dividends and/or
capital gains distributions be paid to him in cash.
TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax considerations
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 Company.
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, among other things: (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock
or securities and gains from the sale or other disposition of foreign
currencies, or other income (including gains from options, futures contracts
and forward contracts) derived with respect to the Fund's business of investing
in stocks, securities or currencies; (b) derive less than 30% of its gross
income from the sale or other disposition of the following assets held for less
than three months: (i) stock and securities, (ii) options, futures and forward
contracts (other than options, futures and forward contracts on foreign
currencies), and (iii) foreign currencies (and options, futures and forward
contracts on foreign currencies) which are not directly related to the Fund's
principal business of investing in stocks and securities (or options and
futures with respect to stock or securities); (c) diversify its holdings so
that, at the end of each quarter, (i) at least 50% of the value of the Fund's
total assets is represented by cash and cash items, U.S. government securities,
securities of other regulated investment companies, and other securities, with
such other securities limited in respect of any one issuer to an amount not
greater in value than 5% of the Fund's total assets and to not more than 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of the Fund's total assets is invested in the securities (other than
U.S. government securities or securities of other regulated investment
companies) of any one issuer or of any two or more issuers that the Fund
controls and that are determined to be engaged in the same business or similar
or related businesses; and (d) distribute at least 90% of its investment
company taxable income (which includes, among other items, dividends, interest
and net short-term capital gains in excess of net long-term capital losses)
each taxable year. The 30% limitation mentioned above will no longer apply to
taxable years of the Fund beginning after August 5, 1997.
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.
- 18 -
<PAGE>
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 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 one year and
generally otherwise will be short-term. Any loss realized on a sale or exchange
will be disallowed to the extent that the shares disposed of are replaced
(including replacement through the reinvesting of dividends and capital gain
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30
- 19 -
<PAGE>
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.
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>
Rules of state and local taxation of ordinary income dividends and capital
gains dividends from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the Fund.
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).
- 21 -
<PAGE>
Prior to _____________, 1997, the Fund operated as a closed-end investment
company. Upon conversion of the Fund to an open-end investment company on
______________, 1997, all outstanding shares of Common Stock of the Fund were
designated as Class A shares. Performance information for the period prior to
___________, 1997 reflects the performance of the Fund as a closed-end fund.
Performance information presented by the Fund for all periods is 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 __________, 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
______________, 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. 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.
- 22 -
<PAGE>
Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including age characteristics, of various countries and regions in which 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; and (iv) the number of
shareholders in the Fund or other Pilgrim America Funds and the dollar amount
of the assets under management.
In addition, reports and promotional literature may contain information
concerning the 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., 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, 127 W. 10th Street, 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, are
incorporated herein by reference, from the Fund's Annual Report to Shareholders
dated December 31, 1996. Copies of the Fund's 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
<TABLE>
<S> <C>
(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
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
(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 Accountants
(12) -- Not Applicable
(13) -- Form of Investment Letter*
(14) -- Prototype Retirement Plans*
(15)(A) -- Service and Distribution Plan for Class A Shares
</TABLE>
- --------
*To be filed in an amendment on or prior to the effectiveness of this
Registration Statement.
<PAGE>
<TABLE>
<S> <C>
(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
</TABLE>
<PAGE>
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 June 30, 1997:
Title of Class Number of Recordholders
Pilgrim America Bank and
Thrift Fund, Inc.
-- Class A 17,835
-- Class B None
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.
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.
<PAGE>
(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.
Positions and Offices Positions and Offices
Name with the Distributor with the Registrant
- ---- -------------------- -------------------
Robert W. Stallings Chairman, Director. Chairman, Director.
James R. Reis Vice Chairman, Director, Executive Vice President,
Assistant Secretary. Treasurer, Assistant
James M. Hennessy Senior Vice President, Senior Vice President,
Secretary. Secretary.
(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
4th day of August, 1997.
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
By: /s/ Robert W. Stallings
-----------------------------
Robert W. Stallings
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Robert W. Stallings, James R.
Reis, James M. Hennessy, Jeffrey S. Puretz, Jeffrey L. Steele and Karen L.
Anderberg, or any one of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all pre- and
post-effective amendments to this Registration Statement, and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes, may lawfully do or cause to be done by virtue
hereof.
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.
SIGNATURE TITLE DATE
/s/ Robert W. Stallings Director and President August 4, 1997
- ---------------------- (Principal Executive Officer)
Robert W. Stallings
/s/ James R. Reis Treasurer and Secretary August 4, 1997
- ---------------------- (Principal Financial and
James R. Reis Accounting Officer)
/s/ Mary A. Baldwin Director August 4, 1997
- ----------------------
Mary A. Baldwin
<PAGE>
/s/ John P. Burke Director August 4, 1997
- ----------------------
John P. Burke
/s/ Al Burton Director August 4, 1997
- ----------------------
Al Burton
/s/ Bruce S. Foerster Director August 4, 1997
- ----------------------
Bruce S. Foerster
/s/ Jock Patton Director August 4, 1997
- ----------------------
Jock Patton
<PAGE>
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
PILGRIM AMERICA BANK AND THRIFT FUND, INC., a Maryland corporation
(hereinafter called "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The text of the Charter of the Corporation is hereby restated to
read in its entirety as follows:
FIRST: The name of the corporation (which is hereinafter called the
"Corporation") is: Pilgrim America Bank and Thrift Fund, Inc.
SECOND: The purposes for which the Corporation is formed are as
follows:
(a) To act as a diversified open-end investment company of the
management type registered as such with the Securities and Exchange Commission
pursuant to the Investment Company Act of 1940, and
(b) To carry on any and all business, transactions and activities
permitted by the Maryland General Corporation Law which may be deemed desirable
by the Board of Directors of the Corporation, whether or not identical with or
related to the business described in the foregoing paragraph of this Article, as
well as all activities and things necessary and incidental thereto, to the full
extent empowered by such laws.
THIRD: The post office address of the principal office of the
Corporation in the State of Maryland is c/o The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21201. The resident agent of the
Corporation in this State is The Corporation Trust Incorporated, whose post
office address is 32 South Street, Baltimore, Maryland 21201.
FOURTH: The total number of shares of stock of all classes which the
Corporation has authority to issue is one hundred million (100,000,000) shares
of the par value of One Tenth of One Cent ($.001) and of the aggregate par value
of one hundred thousand ($100,000). Until such time as the Board determines
otherwise in accordance with these Articles, the Common Stock shall be divided
into two classes consisting of sixty million (60,000,000) shares of Class A
Common Stock and forty million (40,000,000) shares of Class B Common Stock.
<PAGE>
(a) Except as otherwise provided in the Charter, each share of Common
Stock of the Corporation shall represent the same interest in the Corporation
and have identical voting, dividend, liquidation and other rights, except that
(i) expenses related to the distribution of a class of shares shall be borne
solely by such class; (ii) the bearing of any such expenses solely by shares of
a class shall be appropriately reflected (in the manner determined by the Board
of Directors) in the net asset value, dividends, distribution and liquidation
rights of the shares of such class; and (iii) each class may be subject to a
front-end sales load, a contingent deferred sales charge and/or a Rule 12b-1
distribution fee as determined by the Board of Directors from time to time. All
shares of a particular class shall represent an equal proportionate interest in
that class, and each share of any particular class shall be equal to each other
share of that class.
(b) Each share of the Class B Common Stock of the Corporation shall be
converted automatically into shares (including fractions thereof) of the Class A
Common Stock of the Corporation at such times as may be determined by the Board
of Directors in accordance with the Investment Company Act of 1940, applicable
rules and regulations thereunder and of the applicable rules and regulations of
the National Association of Securities Dealers, Inc. and pursuant to such
procedures as may be established from time to time by the Board of Directors and
disclosed in the Corporation's then current prospectus for such Class A and
Class B Common Stock. The conversion will be effected at the relative net asset
values per share of the two Classes. On the Conversion Date, the shares of the
Class B Common Stock of the Corporation converted into shares of the Class A
Common Stock will cease to accrue dividends and will no longer be outstanding
and the rights of the holders thereof will cease (except the right to receive
declared but unpaid dividends to the Conversion Date).
(c) The Board of Directors shall have full power and authority to adopt
such other terms and conditions concerning the conversion of shares as they deem
appropriate; provided such terms and conditions are not inconsistent with the
terms contained in this Section Fourth and subject to any restrictions or
requirements under the Investment Company Act of 1940 and the rules, regulations
and interpretations thereof promulgated or issued by the Securities and Exchange
Commission, and conditions or limitations contained in any order issued by the
Securities and Exchange Commission applicable to the Corporation, or any
restrictions or requirements under the Internal Revenue Code of 1986, as
amended, and the rules, regulations and interpretations promulgated or issued
thereunder.
FIFTH: The number of directors of the Corporation shall be six and the
names of those who are currently in office and who will serve as such directors
until the election of directors next succeeding their election and until their
successors are duly chosen and qualified are as follows:
Mary A. Baldwin
John P. Burke
Al Burton
Bruce S. Foerster
Jock Patton
Robert W. Stallings
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<PAGE>
The By-Laws of the Corporation may fix the number of directors at a
number greater or less than that named in these Articles of Incorporation and
may authorized the Board of Directors, by the vote of a majority of the entire
Board of Directors, to increase or decrease the number of directors fixed by
these Articles of Incorporation or by the By-Laws within the limits specified
from time to time in the By-Laws, provided that in no case shall the number of
directors by less than three or the number of stockholders, whichever is less,
and to fill the vacancies created by any such increase in the number of
directors. Unless otherwise provided by the By-Laws of the Corporation, the
directors of the Corporation need not be stockholders therein.
SIXTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the
directors and stockholders:
(a) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of its stock of any class,
whether now or hereafter authorized, and securities convertible into shares of
its stock, of any class or classes, whether now or hereafter authorized, for
such consideration as the Board of Directors may deem advisable.
(b) The Board of Directors of the Corporation shall be authorized, from
time to time, to classify or to reclassify any unissued shares of stock of the
Corporation into one or more additional or other classes by setting or changing
in any one or more respects the designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms and conditions of redemption of such shares of stock
and pursuant to such classification or reclassification to increase or decrease
the number of authorized shares of any class. Without limiting the generality of
the foregoing, the dividends and distributions of investment income and capital
gains with respect to the stock of the Corporation and with respect to each
class that may hereafter be created shall be in such amount as may be declared
from time to time by the Board of Directors, and such dividends and
distributions may vary from class to class to such extent and for such purposes
as the Board of Directors may deem appropriate, including but not limited to,
the purpose of complying with the requirements of regulatory or legislative
authorities. The stock of the Corporation may be issued in one or more series as
the Directors may, without stockholder approval, authorize. Each series shall be
preferred over all other series in respect of the assets allocated to that
series. The shares of stock in each series shall at all times be divided into
shares having a par value of $.001, each of which shall represent an equal
proportionate interest in the series with each other share of the same series,
none having priority on preference over another.
(c) The Board of Directors of this Corporation is hereby empowered to
authorize the issuance from time to time of fractional shares of stock of this
Corporation, whether now or hereafter authorized, and any fractional shares so
issued shall entitle the holders thereof to exercise voting rights, receive
dividends and participate in the distribution of assets of the Corporation in
the event of liquidation or dissolution to the extent of their proportionate
interest represented by such fractional shares.
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<PAGE>
(d) Except to the extent otherwise prohibited by applicable law, the
Corporation may enter into any management or investment advisory contract or
underwriting contract or any other type of contract with, and may otherwise
engage in any transaction or do business with, any person, firm or corporation
or any subsidiary or other affiliate of any such person, firm or corporation and
may authorize such person, firm or corporation or such subsidiary or other
affiliate to enter into any other contracts or arrangements with any other
person, firm or corporation which relate to the Corporation or the conduct of
its business, notwithstanding that any directors or officers of the Corporation
are or may subsequently become partners, directors, officers, stockholders or
employees of such person, firm or corporation or of such subsidiary or other
affiliate or may have a material financial interest in any such contract,
transaction or business; and except to the extent otherwise provided by
applicable law, no such contract or transaction or business shall be invalidated
or voidable or in any way affected thereby nor shall any such directors or
officers of the Corporation be liable to the Corporation or to any stockholder
or creditor thereof or to any other person for any loss incurred solely because
of the entering into and performance of such contract or the engaging in such
transaction or business or the existence of such material financial interest
therein, provided that such relationship to such person, firm or corporation or
said subsidiary or affiliate or such material financial interest was disclosed
or otherwise known to the Board of Directors prior to the Corporation's entering
into such contract or engaging in such transaction or business and in the case
of directors of the Corporation that any requirements of the Maryland General
Corporation Law have been satisfied; and provided further that nothing herein
shall protect any director or officer of the Corporation from liability to the
Corporation or its security holders to which he would be otherwise subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office.
(e) The method of computing the "net asset value" of each share of
stock of the Corporation shall be determined by or pursuant to the direction of
the Board of Directors of the Corporation; and subject to the authority of the
Board of Directors to change the method of such computation, such net asset
value shall be computed as follows:
The net asset value per share is determined on a daily basis, by
dividing the value of the Corporation's portfolio securities plus all cash and
other assets (including dividends accrued but not collected) less all
liabilities (including accrued expenses but excluding capital and surplus) by
the number of shares outstanding. The net asset value per share will be made
available for publication.
Each security will be valued on the basis of the last sales price on
the valuation date on the principal exchange on which traded or the NASDAQ
system. Securities in which there were no transactions on the valuation date
will be valued by taking the mean between the latest "bid" and "asked" prices.
Securities for which quotations are not readily available and other assets will
be valued at fair value as determined in good faith by the Board of Directors.
Notwithstanding the above, Short Term Debt Securities with maturities of 60 days
or less are valued at amortized cost.
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<PAGE>
The Board of Directors is empowered in its absolute discretion to
establish other methods of determining the net asset value of the shares of
stock whenever such methods are deemed by it to be necessary or desirable in
order (i) to enable the Corporation to comply with any provision of the
Investment Company Act of 1940, or any rule or regulation thereunder, or (ii) to
more fairly and accurately reflect the net asset value for such shares of stock.
(f) Any determination made in good faith and, so far as accounting
matters are involved, in accordance with generally accepted accounting
principles by or pursuant to the direction of the Board of Directors as to the
amount of the assets, debts, obligations or liabilities of the Corporation, as
to the amount of any reserves or charges set up and the propriety thereof, as to
the time of or purpose for creating such reserves or charges, as to the use,
alteration or cancellation or any reserves or charges (whether or not any debt,
obligation or liability for which such reserves or charges shall have been
created shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged), as to the price or closing bid or asked
price of any investment owned or held by the Corporation, as to the market value
of any investment or fair value of any other asset of the Corporation, as to the
number of shares of the Corporation outstanding, as to the ability to liquidate
investments in orderly fashion, or as to any other matters relating to the
issue, sale, purchase or other acquisition or disposition of investments or
shares of the Corporation, shall be final and conclusive and shall be binding
upon the Corporation and all holders of its shares, past, present and future,
and shares of the Corporation are issued and sold on the condition and
understanding that any and all such determinations shall be binding as
aforesaid.
(g) Unless otherwise expressly provided in the Charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, on each matter submitted to a vote of stockholders, each
holder of a share of capital stock of the Corporation shall be entitled to one
vote for each share standing in such holder's name on the books of the
Corporation, irrespective of the class or series thereof, and all shares of all
classes and series shall vote together as a single class; provided, however,
that (a) as to any matter with respect to which a separate vote of any class or
series is required by the Investment Company Act of 1940, as amended, and in
effect from time to time, or any rules, regulations or orders issued thereunder,
or by the Maryland General Corporation Law, such requirement as to a separate
vote by that class or series shall apply in lieu of a general vote of all
classes and series as described above; (b) in the event that the separate vote
requirements referred to in (a) above apply with respect to one or more classes
or series, then subject to paragraph (c) below, the shares of all other classes
and series not entitled to a separate vote shall vote together as a single
class; and (c) as to any matter which in the judgment of the Board of Directors
(which shall be conclusive) does not affect the interest of a particular class
or series, such class or series shall not be entitled to any vote and only the
holders of shares of the one or more affected classes and series shall be
entitled to vote.
(h) The stockholders of the Corporation may remove any director of the
Corporation prior to the expiration of his term of office for cause, and not
otherwise, by the affirmative vote of a majority to all votes entitled to be
cast for the election of directors.
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<PAGE>
(i) The Corporation reserves the right to make, from time to time, any
amendments of its Articles of Incorporation which may now or hereafter be
authorized by law, including any amendments which alter the contract rights of
any class of outstanding stock as expressly set forth in the Articles of
Incorporation.
(j) Except to the extent otherwise specifically provided in the
Articles of Incorporation or By-Laws of the Corporation, the Corporation may
authorize or take any corporate action (including, but without limitation, any
amendment to its Articles of Incorporation) upon the affirmative vote of the
holders of a majority of the outstanding shares of stock entitled to vote
thereon, notwithstanding any provision of the Maryland General Corporation Law
which would otherwise require more than a majority vote of the outstanding
shares of stock to authorize or take such action.
(k) (1) All shares now or hereafter authorized shall be subject to
redemption and redeemable at the option of the stockholder pursuant to the
applicable provisions of the Investment Company Act and laws of the State of
Maryland, including any applicable rules and regulations thereunder. Each holder
of shares of capital stock of the Corporation shall be entitled to require the
Corporation to redeem all or any part of the shares of capital stock of the
Corporation standing in the name of such holder on the books of the Corporation,
and all shares of capital stock issued by the Corporation shall be subject to
redemption by the Corporation, at the redemption price of such shares as in
effect from time to time as may be determined by the Board of Directors of the
Corporation in accordance with the provisions hereof, subject to the right of
the Board of Directors of the Corporation to suspend the right of redemption of
shares of capital stock of the Corporation or postpone the date of payment of
such redemption price in accordance with provisions of applicable law. The
redemption price of shares of capital stock of the Corporation shall be the net
asset value thereof as determined by the Board of Directors of the Corporation
from time to time in accordance with the provisions of applicable law, less the
amount of any applicable redemption charge or deferred sales charge, redemption
fee or other amount imposed by the Board of Directors (to the extent consistent
with applicable law) or provided for in the Charter of the Corporation. The
Board of Directors may establish procedures for redemption of stock.
(2) A redemption fee of two percent (2%) of the then net asset value of
Class A Common Stock shares shall be imposed with respect to Class A Common
Stock shares into which shares of the Common Stock of the Corporation have been
reclassified pursuant to Article SECOND of these Articles of Amendment and
Restatement and that are outstanding on the date that the Corporation converts
to an open-end investment company. The redemption will apply to such shares that
are redeemed or that are exchanged for shares of another open-end Pilgrim
America Fund including Pilgrim America Money Market Shares on or before the one
year anniversary date of the date on which the Corporation converts to an
open-end investment company. The proceeds of the aforesaid redemption fee shall
be retained by the Corporation. With the approval of the Board of Directors, the
aforesaid redemption fee may be reduced or waived, in whole or in part, and any
reductions or waivers may vary among the stockholders.
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<PAGE>
(3)(i) The term "Minimum Amount" when used herein shall mean one
thousand dollars ($1,000) unless otherwise fixed by the Board of Directors from
time to time. The Board of Directors may establish differing Minimum Amounts for
categories of holders of stock based on such criteria as the Board of Directors
may deem appropriate.
(ii) If the net asset value of the shares of a class of stock held by a
stockholder shall be less than the Minimum Amount then in effect with respect to
the category of holders in which the stockholder is included, the Corporation
may redeem all of those shares, upon notice given to the holder in accordance
with paragraph (iii) of this subsection (d), to the extent that the Corporation
may lawfully effect such redemption under the laws of the State of Maryland.
(iii) The notice referred to in paragraph (ii) of this subsection (d)
shall be in writing personally delivered or deposited in the mail at least
thirty days (or such other time as the Board of Directors may specify from time
to time) prior to such redemption. If mailed, notice shall be addressed to the
stockholder at his post office address as shown on the books of the Corporation,
and sent by first class mail, postage prepaid. The price for shares acquired by
the Corporation pursuant to this subsection (d) shall be an amount equal to the
net asset value of such shares, less the amount of any applicable redemption
charge or deferred sales charge or other amount payable on such redemptions
pursuant to the terms of issuance of such shares or imposed by the Board of
Directors (to the extent consistent with applicable law) or provided for in the
Charter of the Corporation.
(4) Payment by the Corporation for shares of stock of the Corporation
surrendered to it for redemption shall be made by the Corporation within seven
days of such surrender out of the funds legally available therefor, provided
that the Corporation may suspend the right of the stockholders to redeem shares
of stock and may postpone the right of those holders to receive payment for any
shares when permitted or required to do so by applicable statutes or
regulations. Payment of the aggregate price of shares surrendered for redemption
may be made in cash or, at the option of the Corporation, wholly or partly in
such portfolio securities of the Corporation as the Corporation shall select.
(l) Unless otherwise provided by the Board of Directors, no holder of
stock of any class shall be entitled to preemptive rights to subscribe for or
purchase or receive any part of any new or additional issue of stock of any
class of the Corporation or securities convertible into stock of any class of
the Corporation.
SEVENTH: The following provision is hereby adopted for the purpose of
indemnifying the directors of the Corporation:
To the maximum extent permitted by the Maryland General Corporation Law
as from time to time amended, but subject to any limitations which may be
imposed pursuant to the Investment Company Act of 1940 or any rule or regulation
thereunder, the Corporation shall indemnify its currently acting and its former
directors, officers and agents and those persons
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<PAGE>
who, at the request of the Corporation, serve or have served another
corporation, partnership, joint venture, trust or other enterprise in one or
more of such capacities.
EIGHTH: The duration of the Corporation shall be perpetual.
SECOND: Each share (including for this purpose a fraction of a share)
of Common Stock issued and outstanding immediately prior to these Articles of
Amendment and Restatement becoming effective, shall, at such effective time, be
reclassified automatically, and without any action or choice on the part of the
holder, into a share (or the same fraction of a share) of Class A Common Stock.
Shares of Class A Common Stock resulting from the aforesaid reclassification and
that are outstanding on the date that the Corporation converts to an open-end
investment company shall be subject, without limitation, to the redemption fee
provided for in Article SIXTH, paragraph l(2) of the Charter of the Corporation
as set forth in Article FIRST of these Articles of Amendment and Restatement,
subject to the reduction and waiver provisions contained therein. Outstanding
certificates representing issued and outstanding shares of Common Stock
immediately prior to these Articles of Amendment and Restatement becoming
effective, shall upon these Articles of Amendment and Restatement becoming
effective be deemed to represent the same number of shares of Class A Common
Stock. Certificates representing shares of the Class A Common Stock resulting
from the aforesaid reclassification need not be issued until certificates
representing the shares of Common Stock so reclassified, if issued, have been
received by the Corporation or its agent duly endorsed for transfer with the
request that a new certificate be provided. The Class A Common Stock and Class B
Common Stock shall have the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as set forth in the Charter of the Corporation as
herein amended and restated.
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<PAGE>
THIRD: The Corporation desires to amend and restate its Charter as
currently in effect. The provisions set forth in these Articles of Amendment and
Restatement are all the provisions of the Charter currently in effect as herein
amended. The current address of the principal office of the Corporation, the
name and address of the Corporation's current resident agent, the current number
of directors of the Corporation and their names are as set forth herein.
FOURTH: The foregoing amendment and restatement of the Articles of
Incorporation of the Corporation was duly and unanimously approved and advised
by unanimous consent of the Board of Directors and approved by a majority of the
shareholders of the Corporation.
FIFTH: The total number of shares of capital stock that the Corporation
had authority to issue immediately prior to these Articles of Amendment and
Restatement becoming effective was fifty million (50,000,000) shares of the par
value of One Tenth of One Cent ($.001) per share and of the aggregate par value
of fifty thousand dollars ($50,000) all of which shares were designated Common
Stock. The total number of shares of capital stock that the Corporation has
authority to issue upon these Articles of Amendment and Restatement becoming
effective is one hundred million (100,000,000) shares, all of the par value of
One Tenth of One Cent ($.001) per share, and of the aggregate par value of one
hundred thousand dollars ($100,000). Sixty million (60,000,000) of the
authorized shares of Common Stock of the Corporation are classified as Class A
Common Stock, and forty million (40,000,000) of such shares are classified as
Class B Common Stock.
SIXTH: These Articles of Amendment and Restatement shall become
effective on __________, 1997 at _____ p.m. Eastern Time.
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<PAGE>
IN WITNESS WHEREOF, PILGRIM AMERICA BANK AND THRIFT FUND, INC. has
caused these articles to be signed in its name and on its behalf by its
President and witnessed by its Secretary on ___________, 1997.
PILGRIM AMERICA BANK AND THRIFT
FUND, INC.
By:_________________________
Robert W. Stallings, President
Witnessed By:
______________________
James M. Hennessy, Secretary
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<PAGE>
THE UNDERSIGNED, President of PILGRIM AMERICA BANK AND THRIFT FUND,
INC., who executed on behalf of said corporation the foregoing Articles of
Amendment and Restatement, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation, the foregoing
Articles of Amendment and Restatement to be the corporate act of said
corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
______________________
Robert W. Stallings
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<PAGE>
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
(a Maryland corporation)
BY-LAWS
(Amended and Restated as of ________, 1997)
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders
shall be held at the principal office of the Corporation in the State of
Maryland or at such other place within or without the State of Maryland as may
from time to time be designated by the Board of Directors and stated in the
notice of meeting.
Section 2. Annual Meetings. An annual meeting of stockholders
for the election of directors and the transaction of such other business as may
properly come before the meeting shall be held at such time and place as the
Board of Directors shall select. The Corporation shall not be required to hold
an annual meeting of its stockholders in any year in which the election of
directors is not required to be acted upon under the Investment Company Act of
1940, as amended.
Section 3. Special or Extraordinary Meetings. Special or
extraordinary meetings of the stockholders for any purpose or purposes may be
called by the Chairman of the Board of Directors, if any, or by the President or
by the Board of Directors. In addition, such special or extraordinary meetings
shall be called by the Secretary upon receipt of the request in writing
<PAGE>
signed by stockholders entitled to cast at least 25% of all the votes entitled
to be cast at the meeting stating the purpose of the meeting and the matters
proposed to be acted on and upon payment by such stockholders of the estimated
costs of preparing and mailing a notice of the meeting.
Section 4. Notice of Meeting of Stockholders. Not less than
ten days' and not more than ninety days' written or printed notice of every
meeting of stockholders, stating the time and place thereof (and the purpose of
any special or extraordinary meeting), shall be given to each stockholder
entitled to vote thereat and each other stockholder entitled to notice, by
leaving the same with him or at his residence or usual place of business or by
mailing it, postage prepaid, and addressed to him at his address as it appears
upon the books of the Corporation.
Each person who is entitled to notice of any meeting waives
notice if he is present at the meeting, attends in person or by proxy or who
either before or after the meeting signs a waiver of notice which is filed with
the records of stockholders meetings.
Section 5. Closing of Transfer Books, Record Dates. The Board
of Directors may direct that the stock transfer books of the Corporation be
closed for a stated period not exceeding twenty days for the purpose of making
any proper determination with respect to stockholders, including which
stockholders are entitled to notice of and to vote at the meeting, receive a
dividend or be allotted other rights. If such books are closed for the purpose
of determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days immediately
preceding such meeting. In lieu of providing for
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the closing of the stock transfer books, the Board of Directors may set a date,
not exceeding ninety days and not less than ten days preceding the date of any
meeting of stockholders, and not exceeding ninety days preceding any dividend
payment date or any date for the allotment of rights, as a record date for the
determination of the stockholders entitled to notice of and to vote at such
meeting, or entitled to receive such dividends or rights, as the case may be;
and only stockholders of record on such date shall be entitled to notice of and
to vote at such meeting or to receive such dividends or rights, as the case may
be.
Section 6. Quorum, Adjournment of Meetings. The presence in
person or by proxy of stockholders entitled to cast a majority of all votes
entitled to be cast at the meeting shall constitute a quorum at all meetings of
the stockholders except with respect to any matter which, under applicable
statutes or regulatory requirements, requires approval by a separate vote of one
or more classes of stock, in which case the presence in person or by proxy of
the holders of a majority of the shares of stock of each class required to vote
as a class on the matter shall constitute a quorum; and a majority of all votes
cast at a meeting at which a quorum is present is sufficient to approve any
matter which properly comes before the meeting, unless otherwise provided by
applicable law, the Articles of Incorporation or the By-Laws of the Corporation.
If at any meeting of the stockholders there shall be less than a quorum present,
the stockholders present at such meeting may, without further notice, adjourn
the same from time to time (but not more than 120 days after the original record
date for such meeting) until a quorum shall attend, but no business shall be
transacted at any such adjourned meeting except such as might have been lawfully
transacted had the meeting not been adjourned.
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Section 7. Voting and Inspectors. At all meetings of
stockholders every stockholder of record entitled to vote thereat shall be
entitled to vote at such meeting either in person or by proxy appointed by
instrument in writing subscribed by such stockholder or his duly authorized
attorney. Unless a proxy provides otherwise, such proxy is not valid more than
eleven months after its date.
At any election of Directors, the Board of Directors prior
thereto may, or, if they have not so acted, the Chairman of the meeting may, and
upon the request of the holders of ten percent (10%) of the stock entitled to
vote at such election shall, appoint two inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Director shall be appointed such
Inspector.
The Chairman of the meeting may cause a vote by ballot to be
taken upon any election or matter, and such vote shall be taken upon the request
of the holders of ten percent (10%) of the stock entitled to vote on such
election or matter.
Section 8. Conduct of Stockholders Meetings. The meetings of
the stockholders shall be presided over by the Chairman of the Board, or if he
shall not be present or if there is no Chairman, by the President, or if he
shall not be present, by a Vice-President, or if neither the President nor any
Vice-President is present, by a chairman to be elected at the meeting. The
Secretary of the Corporation, if present, shall act as Secretary of such
meetings, or if he is not
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<PAGE>
present, an Assistant Secretary shall so act, if neither the Secretary nor an
Assistant Secretary is present, then the meeting shall elect a secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At
every meeting of the stockholders, all proxies shall be received and taken in
charge of and all ballots shall be received and canvassed by the secretary of
the meeting, who shall decide all questions touching the qualification of
voters, the validity of the proxies, and the acceptance or rejection of votes,
unless inspectors of election shall have been appointed as provided in Section
7, in which event such inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Office. The business and
property of the Corporation shall be conducted and managed under the direction
of a Board of Directors consisting of six Directors, which number may be
increased and decreased as provided in Section 2 of this Article. Directors
shall be elected annually, by written ballot at the annual meeting of
stockholders or a special meeting held for that purpose; provided, however, that
if no annual meeting of the stockholders of the Corporation is required to be
held in a particular year pursuant to Section 2 of Article I of these By-Laws,
Directors shall be elected at the next annual meeting held. The term of office
of each Director shall be from the time of his or her election and
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qualification until the election of Directors next succeeding his or her
election and until his or her successor shall have been elected and shall have
been qualified.
Section 2. Increase or Decrease in Number of Directors. The
Board of Directors, by the vote of a majority of the entire Board, may increase
the number of Directors to a number not exceeding fifteen, and may elect
Directors to fill the vacancies created by any such increase in the number of
Directors until the next annual meeting held as provided in Article I, Section 2
hereof or until their successors are duly elected and qualify. The Board of
Directors, by the vote of a majority of the entire Board, may decrease the
number of Directors to a number not less than three but any such decrease shall
not affect the term of office of any Director. Vacancies occurring other than by
reason of any such increase shall be filled as provided by the Maryland General
Corporation Law.
Section 3. Place of Meeting. The Directors may hold their
meetings, have one or more offices, and keep the books of the Corporation
outside the State of Maryland, at any office or offices of the Corporation or at
any such other place as they may from time to time determine, and in the case of
meetings, as they may from time to time determine or as shall be specified in
the respective notices of such meetings or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and on such notice, if any, as the
Directors may from time to time determine.
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Section 5. Special Meetings. Special meetings of the Board of
Directors may be held from time to time upon call of the Chairman of the Board
of Directors, if any, the President or two or more of the Directors, by oral or
telegraphic or written notice duly served on each Director not less than one
business day before such meeting or if sent or mailed to each Director not less
than three business days before such meeting. Each Director who is entitled to
notice waives such notice if he either before or after the meeting signs a
waiver of the notice which is filed with the minutes of the meeting or is
present at the meeting. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. Quorum. One third of the Directors then in office
(but in no event less than two Directors), shall constitute a quorum for the
transaction of business. If at any meeting of the Board there shall be less than
a quorum present, a majority of those present may adjourn the meeting from time
to time until a quorum shall have been obtained. The act of the majority of the
Directors present at any meeting at which there is a quorum shall be the act of
the Directors, except as may be otherwise specifically provided by applicable
law, by the Articles of Incorporation or by these By-Laws.
Section 7. Telephonic Meetings, Etc. The members of the Board
of Directors or any committee of the Board of Directors may participate in a
meeting by means of a conference telephone or similar communications equipment
if all persons participating in such meeting can hear each other at the same
time, and participation in a meeting by these means constitutes presence in
person at such meeting.
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Section 8. Executive Committee. The Board of Directors may, by
the affirmative vote of a majority of the entire Board, elect from the Directors
an Executive Committee to consist of such number of Directors (but not less than
two) as the Board may from time to time determine. The Board of Directors by
such affirmative vote shall have power at any time to change the members of such
Committee and may fill vacancies in the Committee by election from the
Directors. When the Board of Directors is not in session, the Executive
Committee shall have and may exercise any or all of the powers of the Board of
Directors in the management of the business and affairs of the Corporation
(including the power to authorize the seal of the Corporation to be affixed to
all papers which may require it) except as provided by law and except the power
to increase or decrease the size of, or fill vacancies on the Board. The
Executive Committee may fix its own rules of procedure, and may meet, when and
as provided by such rules or by resolution of the Board of Directors, but in
every case the presence of majority shall be necessary to constitute a quorum.
In the absence of any member of the Executive Committee the members thereof
present at any meeting, whether or not they constitute a quorum, may appoint a
member of the Board of Directors to act in the place of such absent member.
Section 9. Other Committees. The Board of Directors, by the
affirmative vote of a majority of the entire Board, may appoint other committees
which shall in each case consist of such number of members (not less than two)
and shall have and may exercise such powers as the Board may determine in the
resolution appointing them. A majority of all members of any such
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committee may determine its action, and fix the time and place of its meetings,
unless the Board of Directors shall otherwise provide. The Board of Directors
shall have power at any time to change the members and powers of any such
committee, to fill vacancies, and to discharge any such committee.
Section 10. Informal Action by Directors. Except to the extent
otherwise specifically provided by applicable law, any action required or
permitted to be taken at any meeting of the Board of Directors or any Committee
thereof may be taken without a meeting, if a written consent to such action is
signed by all members of the Board or Committee and is filed with the minutes of
proceedings of the Board or Committee.
Section 11. Compensation of Directors. Directors shall be
entitled to receive such compensation from the Corporation for their services as
Directors as may from time to time be voted by the Board of Directors.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the
Corporation shall be chosen by the Board of Directors. These may include a
Chairman of the Board, and shall include a President, one or more Vice
Presidents (the number thereof to be determined by the Board of Directors), a
Secretary and a Treasurer. The Chairman of the Board, if any, shall be selected
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from among the Directors. The Board of Directors may also in its discretion
appoint Assistant Secretaries, Assistant Treasurers, and other officers, agents
and employees, who shall have such authority and perform such duties as the
Board may determine. The Board of Directors may fill any vacancy which may occur
in any office. Any two offices, except those of President and Vice President,
may be held by the same person, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity, if such instrument is required
by law or these By-Laws to be executed, acknowledged or verified by two or more
officers.
Section 2. Term of Office. Unless otherwise specifically
determined by the Board of Directors, the term of office of all officers shall
be one year and until their respective successors are chosen and qualify,
provided, however, that said term of office shall not create any contract rights
in the officer. If the Board of Directors in its judgment finds that the best
interests of the Corporation will be served, the Board of Directors may remove
any officer of the Corporation at any time with or without cause.
Section 3. The President shall be the chief executive officer
and head of the Corporation and, subject to the Board of Directors, shall have
the general control and management of the business and affairs of the
Corporation. If no Chairman of the Board be appointed, or, if appointed, said
Chairman is absent, the President shall, if present, preside at all meetings of
the stockholders and the Board of Directors.
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Section 4. The Chairman of the Board shall preside at all
meetings of the stockholders and the Board of Directors at which he shall be
present. Subject to the provisions of Section 2, he shall have such other powers
and duties as shall be prescribed by the Board of Directors, and shall undertake
such other assignments as may be requested by the President.
Section 5. The Chairman or one or more Vice Presidents shall
have and exercise such powers and duties of the President in the absence or
inability of the President as may be assigned to them, respectively, by
resolution of the Board of Directors or, to the extent not so assigned, as the
President may assign to them, respectively. In the absence or inability of the
President, the powers and duties of the President not assigned by the Board of
Directors or the President shall evolve upon the Chairman or in his absence the
Vice Chairman or in his absence the senior Vice President.
Section 6. The Secretary shall have custody of the seal of the
Corporation. He shall keep the minutes of the meetings of the stockholders,
Board of Directors and any committees thereof, and he shall attend to the giving
and serving of all notices of the Corporation. He shall have charge of the stock
certificate book and such other books and papers as the Board may direct; and he
shall perform such other duties as may be incidental to his office or as may be
assigned to him by the Board of Directors. He shall also keep or cause to be
kept a stock book, containing the names, alphabetically arranged, of all persons
who are stockholders of the Corporation showing their places of residence, the
number and class or series of any class of shares of stock held by them
respectively, and the dates when they respectively became the
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owners of record thereof, and such book shall be open for inspection as
prescribed by the laws of the State of Maryland.
Section 7. The Treasurer shall have the care and custody of
the funds and securities of the Corporation and shall deposit the same in the
name of the Corporation in such bank or banks or other depositories and subject
to withdrawal in such manner as these By-Laws or the Board of Directors may
determine; he shall, if required by the Board of Directors, give such bond for
the faithful discharge of his duties in such form as the Board of Directors may
require.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificates of Shares. Each stockholder of the
Corporation shall be entitled upon request to a certificate or certificates for
the full number of shares of each class of stock of the Corporation owned by him
in such form as the Board of Directors may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation shall
be transferable on the books of the Corporation by the holder thereof in person
or by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
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such proof of the authenticated of the signature as the Corporation or its
agents may reasonably require. In the case of shares not represented by
certificates, the same or similar requirements may be imposed by the Board of
Directors.
Section 3. Stock Ledgers. The stock ledgers of the
Corporation, containing the names and addresses of the stockholders and the
number of shares held by them respectively, shall be kept at the principal
offices of the Corporation, or if the Corporation employs a transfer agent, at
the offices of the transfer agent of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board
of Directors may determine the conditions upon which a new certificate of stock
of the Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their discretion,
require the owner of such certificate or his legal representative to give bond,
with sufficient surety to the Corporation and the transfer agent, if any, to
indemnify it and such transfer agent against any and all loss or claims which
may arise by reason of the issue of a new certificate in the place of the one so
lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate
seal, in such form and bearing such inscriptions as it may determine.
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ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board
of Directors.
ARTICLE VII
INDEMNIFICATION
Section 1. The Corporation shall indemnify its Directors to
the fullest extent that indemnification of directors is permitted by the
Maryland General Corporation Law. The Corporation shall indemnify its officers
to the same extent as its Directors and to such further extent as is consistent
with law. The Corporation shall indemnify its Directors and officers who while
serving as Directors or officers also serve at the request of the Corporation as
a director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan to the fullest extent consistent with law. The indemnification and
other rights provided by this Article shall continue as to a person who has
ceased to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person. This Article shall not protect
any such person against any liability to the Corporation or any stockholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling conduct").
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Section 2. Any current or former director or officer of the
Corporation seeking indemnification within the scope of this Article shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent permissible under the
Maryland General Corporation Law. The person seeking indemnification shall
provide to the Corporation a written affirmation of his good faith belief that
the standard of conduct necessary for indemnification by the Corporation has
been met and a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be met: (a)
the person seeking indemnification shall provide a security in form and amount
acceptable to the Corporation for his undertaking; (b) the Corporation is
insured against losses arising by reason of the advance; or (c) a majority of a
quorum of Directors of the corporation who are neither interested persons as
defined in the Investment Company Act of 1940, nor parties to the proceeding
("disinterested non-party Directors"), or independent legal counsel, in a
written opinion, shall have determined, based on a review of facts readily
available to the Corporation at the time the advance is proposed to be made,
that there is reason to believe that the person seeing indemnification will
ultimately be found to be entitled to indemnification.
Section 3. At the request of any person claiming
indemnification under this Article, the Board of Directors shall determine, or
cause to be determined, in a manner consistent with the Maryland General
Corporation Law, whether the standards required by this Article have
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been met. In addition, indemnification shall be made only following: (a) a final
decision on the merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by reason of disabling
conduct or (b) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the person to be indemnified was not
liable by reason of disabling conduct by (i) the vote of a majority of a quorum
of disinterested non-party Directors or (ii) an independent legal counsel in a
written opinion.
Section 4. Employees and agents who are not officers or
Directors of the Corporation may be indemnified, and reasonable expenses may be
advanced to such employees or agents, as may be provided by action of the Board
of Directors or by contract, subject to any limitations imposed by the
Investment Company Act of 1940.
Section 5. The Board of Directors may make further provision
consistent with law for indemnification and advance of expenses to Directors,
officers, employees and agents by resolution, agreement or otherwise. The
indemnification provided by this Article shall not be deemed exclusive of any
other right, with respect to indemnification or otherwise, to which those
seeking indemnification may be entitled under any insurance or other agreement
or resolution of stockholders or disinterested Directors or otherwise. The
rights provided to any person by this Article shall be enforceable against the
Corporation by such person who shall be presumed to have relied upon it in
serving or continuing to serve as a director, officer, employee, or agent as
provided above.
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Section 6. References in this Article are to the Maryland
General Corporation Law and to the Investment Company Act of 1940 as from time
to time amended. No amendment of these By-Laws shall effect any right of any
person under this Article based on any event, omission or proceeding prior to
the amendment.
Section 7. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee, or agent of
the Corporation or who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise, or employee
benefit plan against any liability asserted against and incurred by such person
in any such capacity or arising out of such person's position; provided, that no
insurance may be purchased which would indemnify any Director or officer of the
Corporation against any liability to the Corporation or to its security holders
to which he would otherwise be subject by reason of disabling conduct.
ARTICLE VIII
AMENDMENT OF BY-LAWS
The By-Laws of the Corporation may be altered, amended, added
to or repealed by the stockholders or by majority vote of the entire Board of
Directors, but any such alteration,
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amendment, addition or repeal of the By-Laws by the Board of Directors may be
altered or repealed by the stockholders.
<PAGE>
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT is made as of the _____ day of ________,
1997, by and between PILGRIM AMERICA BANK AND THRIFT FUND, INC. (formerly
Pilgrim Regional BankShares, Inc.), a Maryland corporation (the "Company"), and
PILGRIM AMERICA INVESTMENTS, INC., a Delaware corporation (the "Manager"), with
respect to the following recital of fact.
W I T N E S S E T H:
WHEREAS, the Company is registered as an open-end, diversified,
management investment company, under the Investment Company Act of 1940, as
amended; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended and is engaged in the business of
supplying investment advice, investment management and administrative services,
as an independent contractor; and
WHEREAS, the Company desires to retain the Manager to render advice and
services to the Company pursuant to the terms and provisions of this Agreement,
and the Manager is interested in furnishing said advice and services.
NOW, THEREFORE, in consideration of the covenants and the mutual
promises hereinafter set forth, the parties hereto, intending to be legally
bound hereby, mutually agree as follows:
1. INVESTMENT MANAGEMENT. The Manager shall manage the
Company's affairs and shall supervise all aspects of the Company's
operations, including the investment and reinvestment of the cash,
securities or other properties comprising the Company's assets, subject
at all times to the policies and control of the Company's Board of
Directors. The Manager shall give the Company the benefit of its best
judgment, efforts and facilities in rendering its services as Manager.
2. DUTIES OF THE INVESTMENT MANAGER. In carrying out its
obligation under paragraph 1 hereof, the Manager shall:
(a) supervise and manage all aspects of the Company's
operations;
(b) provide the Company with such executive,
administrative and clerical services as are deemed
advisable by the Company's Board of Directors;
(c) arrange, but not pay for, the periodic updating
and filing of prospectuses and supplements thereto,
proxy material, tax returns, reports to the Company's
shareholders and reports to and filings with the
Securities and Exchange Commission and state Blue Sky
authorities;
(d) provide the Company with, or obtain for it,
adequate office space and all necessary office
equipment and service, including telephone service,
heat, utilities, stationery supplies and similar
items for the Company's principal office;
(e) provide the Board of Directors of the Company on
a regular basis with financial reports and analyses
on the Company's operations and the operations of
comparable investment companies;
<PAGE>
(f) obtain and evaluate pertinent information about
significant developments and economic, statistical
and financial data, domestic, foreign and otherwise,
whether affecting the economy generally or the
portfolio of the Company, and whether concerning the
individual issuers whose securities are included in
the Company's portfolio or the activities in which
they engage, or with respect to securities which the
Manager considers desirable for inclusion in the
Company's portfolio;
(g) determine what issuers and securities shall be
represented in the Company's portfolio and regularly
report them to the Company's Board of Directors;
(h) formulate and implement continuing programs for
the purchases and sales of the securities of such
issuers and regularly report thereon to the Company's
Board of Directors; and
(I) take, on behalf of the Company, all actions which
appear necessary to carry into effect such purchase
and sale programs and supervisory functions as
aforesaid, including the placing of orders for the
purchase and sale of portfolio securities, it being
understood that the Company shall reimburse the
Manager for the costs of such actions upon proper
accounting.
3. BROKER-DEALER RELATIONSHIPS. The Manager is responsible
for decisions to buy and sell securities for the Company, broker-dealer
selection, and negotiation of its brokerage commission rates. The
Manager's primary consideration in effecting a security transaction
will be execution at the most favorable price.
In selecting a broker-dealer to execute each particular
transaction, the Manager will take the following into consideration:
the best net price available; the reliability, integrity and financial
condition of the broker-dealer; the size of and difficulty in executing
the order; the value of the expected contribution of the broker-dealer
to the investment performance of the Company on a continuing basis; and
other factors such as the broker-dealer's ability to engage in
transactions in shares of issuers which are typically not listed on an
organized stock exchange. Accordingly, the price to the Company in any
transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered. Subject to such
policies as the Board of Directors may determine, the Manager shall not
be deemed to have acted unlawfully or to have breached any duty created
by this Agreement or otherwise solely by reason of its having caused
the Company to pay a broker or dealer that provides brokerage and
research services to the Manager an amount of commission for effecting
a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction, if the Manager determines in good faith that such
amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer,
viewed in terms of either that particular transaction or the Manager's
overall responsibilities with respect to the Company.
The Manager is further authorized to allocate the orders
placed by it on behalf of the Company to such brokers and dealers who
also provide research or statistical material, or other services to the
Company or the Manager. Such allocations shall be in such amounts and
proportions as the Manager shall determine and the Manager will report
on said allocations regularly to the Board of Directors of the Company
indicating the brokers to whom such allocations have been made and the
basis therefor.
4. CONTROL BY BOARD OF DIRECTORS. Any management or
supervisory activities undertaken by the Manager pursuant to this
Agreement, as well as other activities undertaken by the Manager on
behalf of the Company pursuant thereto, shall at all times be subject
to any directives of the Board of Directors of the Company.
5. COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out
is obligations under this Agreement, the Manager shall at all times
conform to:
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(a) all applicable provisions of the Investment Company
Act of 1940 and any rules and regulations adopted thereunder,
as amended; and
(b) the provisions of the Registration Statement of the
Company under the Securities Act of 1933 and the Investment
Company Act of 1940, as amended; and
(c) the provisions of the Articles of Incorporation of
the Company, as amended; and
(d) the provisions of the By-laws of the Company, as
amended; and
(d) any other applicable provisions of state and Federal
law.
6. EXPENSES. The expenses connected with the Company shall
be allocable between the Company and the Manager as follows:
(a) The Manager shall furnish at its expense and without cost
to the Company, the services of a President, Secretary and one
or more Vice Presidents of the Company, to the extent that
such additional officers may be required by the Company for
the proper conduct of its affairs;
(b) Nothing in Subparagraph (a) hereof shall be construed to
require the Manager to bear the portion allocable to the
Company of the salary of the Manager's portfolio trader and
the compensation paid to personnel working under his or her
direction to the extent such salary and compensation does not
exceed $15,000 per annum. Notwithstanding the obligation of
the Company to bear the expense of the items referred to
above, the Manager may pay the salaries, including any
applicable employment or payroll taxes and other salary costs,
of the personnel carrying out such functions and the Company
shall reimburse the Manager therefor upon proper accounting;
(c) The Manager shall bear the cost of the portion allocable
to the Company of the salary of the Manager's portfolio trader
and the compensation paid to personnel working under his or
her direction to the extent such salary and compensation
exceeds $15,000 per annum;
(d) The Company shall pay or cause to be paid all expenses of
the stock transfer or dividend agent or agents appointed by
the Company;
(e) The Company assumes and shall pay or cause to be paid all
other expenses of the Company, including, without limitation:
the charges and expenses of the registrar, any custodian or
depository appointed by the Company for the safekeeping of its
cash, portfolio securities and other property, and any
accounting agent appointed by the Company; broker's
commissions chargeable to the Company in connection with
portfolio securities transactions to which the Company is a
party; all taxes, including securities issuance and transfer
taxes, and corporate fees payable by the Company to Federal,
state or other governmental agencies; the cost and expense of
engraving or printing of stock certificates representing
shares of the Company; all costs and expenses in connection
with the registration and maintenance of registration of the
Company and its shares with the Securities and Exchange
Commission and various states and other jurisdictions
(including filing fees and legal fees and disbursements of
counsel); the costs and expenses of preparing (including
typesetting) prospectuses (including supplements thereto) of
the Company, proxy statements and reports to shareholders; and
of printing and distributing such items to the Company's
shareholders, all expenses of shareholders' and directors'
meetings; fees and travel expenses of directors or members of
any advisory board or committee; all expenses incident to the
payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses
of any outside service used for pricing of the Company's
shares; charges and expenses of legal counsel, including
counsel to the directors of the Company who are not interested
persons (as defined in the Investment Company Act of 1940, as
amended) of the
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Company, and of independent accountants, in
connection with any matter relating to the Company; membership
dues of industry associations; interest payable on Company
borrowings; postage; insurance premiums on property or
personnel (including officers and directors) of the Company
which inure to its benefit; extraordinary expenses (including,
but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and
all other charges and costs of the Company's operation unless
otherwise explicitly provided therein.
7. DELEGATION OF RESPONSIBILITIES. The Manager may, but should
be under no duty to, perform services on behalf of the Company which
are not required by this Agreement upon the request of the Company's
Board of Directors. Such services will be performed on behalf of the
Company and the Manager's charge in rendering such services may be
billed monthly to the Company, subject to examination by the Company's
independent accountants. Payment or assumption by the Manager of any
Company expense that the Manager is not required to pay or assume under
this Agreement shall not relieve the Manager of any of its obligations
to the Company nor obligate the Manager to pay or assume any similar
Company expense on any subsequent occasions.
8. COMPENSATION. For the services to be rendered and the
expenses assumed by the Manager, the Company shall pay to the Manager
monthly compensation of the sum of the amounts determined by applying
the following annual rates to the Company's average daily net assets:
1.0% of the first $30 million of the Company's average daily net
assets, .75% of the Company's average daily net assets of the next $95
million of average daily net assets, and .70% of the average daily net
assets in excess of $125 million. Except as hereinafter set forth,
compensation under this Agreement shall be calculated and accrued daily
and the amounts of daily accruals shall be paid monthly. If this
Agreement becomes effective subsequent to the first day of a month or
shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculation of fees set forth above. Payment
of the Manager's compensation for the preceding month shall be made as
promptly as possible after completion of the computations contemplated
above.
9. NON-EXCLUSIVITY. The services of the Manager to the Company
are not to be deemed to be exclusive, and the Manager shall be free to
render investment management and corporate administrative or other
services to others (including other investment companies) and to engage
in other activities, so long as its services under this Agreement are
not impaired thereby. It is understood and agreed that officers and
directors of the Manager may serve as officers or directors of the
Manager to the extent permitted by law; and that the officers and
directors of the Manager are not prohibited from engaging in any other
business activity or from rendering services to any other person, or
from serving as partners, officers or directors of any other firm or
corporation, including other investment companies.
10. TERM AND APPROVAL. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force
and effect until April 7, 1999, unless sooner terminated as hereinafter
provided, and shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least
annually:
(a) (i) by the Company's Board of Directors or (ii)
by the vote of a majority of the Company's
outstanding voting securities (as defined in Section
2(a)(42) of the Investment Company Act of 1940, as
amended), and
(b) by the affirmative vote of a majority of the
directors who are not parties to this Agreement or
interested persons of a party to this Agreement
(other than as Company directors), by votes cast in
person at a meeting specifically called for such
purpose.
11. TERMINATION. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Company's Board of
Directors or by vote of a majority of the Company's outstanding
securities (as defined in Section 2(a)(42) of the Investment Company
Act of 1940, as amended), or by the Manager, on sixty (60) days'
written notice to the other party. This Agreement shall
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automatically terminate in the event of its assignment, the term
"assignment" having the meaning defined in Section 2(a)(4) of the
Investment Company Act of 1940, as amended.
12. LIABILITY OF THE MANAGER. In the absence of willful
misfeasance, bad faith or gross negligence on the part of the Manager
or any of its officers, directors or employees or reckless disregard by
the Manager of its duties under this Agreement, the Manager shall not
be liable to the Company or to any shareholder of the Company for any
act or omission in the course, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
13. NOTICES. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other
party at such address as such other party may designate for the receipt
of such notice. Until further notice to the other party, it is agreed
that the address of the Manager and that of the Company for this
purpose shall be Two Renaissance Square, 40 N. Central Avenue, Suite
1200, Phoenix, Arizona 85004.
14. QUESTIONS OF INTERPRETATION. Any question of
interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the
Investment Company Act of 1940, as amended, shall be resolved by
reference to such term or provision of the Act and to interpretations
thereof, if any, by the United States Courts or in the absence of any
controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission issued pursuant to said Act.
In addition, where the effect of a requirement of the Investment
Company Act of 1940, as amended, reflected in any provision of this
Agreement is revised by rule, regulation or order of the Securities and
Exchange Commissions, such provisions shall be deemed to incorporate
the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers on the day and
year first above written.
PILGRIM AMERICA
BANK AND THRIFT FUND, INC.
Attest: By:________________________________
Title: _______________________________ Title: ____________________________
PILGRIM AMERICA INVESTMENTS, INC.
Attest: By:________________________________
Title: _______________________________ Title: ____________________________
5
<PAGE>
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
40 NORTH CENTRAL AVENUE
PHOENIX, ARIZONA 85004
____________, 1997
Pilgrim America Securities, Inc.
40 North Central Avenue
Phoenix, Arizona 85004
Re: Underwriting Agreement
Gentlemen:
Pilgrim America Bank and Thrift Fund, Inc. is a Maryland corporation
operating as an open-end management investment company (hereinafter referred to
as the "Company"). The Company is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"), and its shares are registered
under the Securities Act of 1933, as amended (the "1933 Act"). The Company
desires to offer and sell the authorized but unissued shares of the Company to
the public in accordance with applicable federal and state securities laws.
You have informed us that your company, Pilgrim America Securities,
Inc. ("PAS"), is registered as a broker-dealer under the provisions of the
Securities Exchange Act of 1934 and that PAS is a member in good standing of the
National Association of Securities Dealers, Inc. You have indicated your desire
to act as the exclusive selling agent and principal underwriter for Company
shares. We have been authorized by the Company to execute and deliver this
Agreement to you by a resolution of our Board of Directors (the "Directors")
adopted at a meeting of the Directors, at which a majority of Directors,
including a majority of our Directors who are not otherwise interested persons
of our investment manager or its related organizations, were present and voted
in favor of the said resolution approving this Agreement.
1. Appointment of Underwriter. Upon the execution of this
Agreement and in consideration of the agreements on your part herein expressed
and upon the terms and conditions set forth herein, we hereby appoint you as the
exclusive sales agent for distribution of the shares (other than sales made
directly by the Company without sales charge) and agree that we will deliver to
you such shares as you may sell. You agree to use your best efforts to promote
the sale of the shares, but you are not obligated to sell any specific number of
the shares.
2. Independent Contractor. You will undertake and discharge
your obligations hereunder as an independent contractor and shall have no
authority or power to obligate or bind the Company by your actions, conduct or
contracts, except that you are authorized to accept orders for the purchase or
repurchase of the shares as our agent. You may appoint sub-agents or distribute
the shares through dealers (or otherwise) as you may determine necessary or
desirable from time to
<PAGE>
time. This Agreement shall not, however, be construed as authorizing any dealer
or other person to accept orders for sale or repurchase on our behalf or to
otherwise act as our agent for any purpose.
3. Offering Price. Shares of the Company shall be offered at a
price equivalent to their net asset value plus, as appropriate, a variable
percentage of the public offering price as a sales load, as set forth in the
Company's Prospectus. On each business day on which the New York Stock Exchange
is open for business, we will furnish you with the net asset value of the
shares, which shall be determined and become effective as of the close of
business of the New York Stock Exchange on that day. The net asset value so
determined shall apply to all orders for the purchase of the shares received by
dealers prior to such determination, and you are authorized in your capacity as
our agent to accept orders and confirm sales at such net asset value; provided
that, such dealers notify you of the time when they received the particular
order and that the order is placed with you prior to your close of business on
the day on which the applicable net asset value is determined. To the extent
that our Shareholder Servicing and Transfer Agent (collectively, "Agent") and
the Custodian(s) for any pension, profit-sharing, employer or self-employed plan
receive payments on behalf of the investors, such Agent and Custodian(s) shall
be required to record the time of such receipt with respect to each payment, and
the applicable net asset value shall be that which is next determined and
effective after the time of receipt by them. In all events, you shall forthwith
notify all of the dealers comprising your selling group and the Agent and
Custodian(s) of the effective net asset value as received from us. Should we at
any time calculate our net asset value more frequently than once each business
day, you and we will follow procedures with respect to such additional price or
prices comparable to those set forth above in this Section 3.
4. Sales Commission.
(a) You shall be entitled to receive a sales
commission on the sale of shares of
the Company in the amounts and according to the procedures set forth in the
Company's Prospectus then in effect under the 1933 Act (including any
supplements or amendments thereto).
(b) In addition to the payments of the sales
commissions to you provided for in paragraph 4(a), you may also receive
reimbursement for expenses or a maintenance or trail fee as may be required by
and described in the distribution plans adopted by the Company pursuant to Rule
12b-1 under the 1940 Act (the "Distribution Plan").
(c) You may allow appointed sub-agents or dealers
such commissions or discounts (not exceeding the total sales commission) as you
shall deem advisable, so long as any such commissions or discounts are set forth
in the Company's then current Prospectus, to the extent required by the
applicable federal and state securities laws.
5. Payment of Shares. At or prior to the time of delivery of
any of our shares you will pay or cause to be paid to the Custodian, for our
account, an amount in cash equal to the net asset value of such shares. In the
event that you pay for shares sold by you prior to your receipt of payment from
purchasers, you are authorized to reimburse yourself for the net asset value of
such shares from the offering price of such shares when received by you.
6. Registration of Shares. No shares shall be registered on
our books until (i) receipt by us of your written request therefor; (ii) receipt
by the Custodian and Agent of a certificate
-2-
<Page
signed by an officer of the Company stating the amount to be received therefor;
and (iii) receipt of payment of that amount by the Custodian. We will provide
for the recording of all shares purchased in unissued form in "book accounts",
unless a request in writing for certificates is received by the Agent, in which
case certificates for shares in such names and amounts as is specified in such
writing will be delivered by the Agent, as soon as practicable after
registration thereof on the books.
7. Purchases for Your Own Account. You shall not purchase
shares for your own account for purposes of resale to the public, but you may
purchase shares for your own investment account upon your written assurance that
the purchase is for investment purposes only and that the shares will not be
resold except through redemption by us.
8. Sale of Shares to Affiliates. You may sell the shares at
net asset value, plus a varying sales charge as appropriate, pursuant to a
uniform offer described in the Company's current Prospectus (i) to our Directors
and officers, our investment manager or your company or affiliated companies
thereof, (ii) to the bona fide, full time employees or sales representatives of
any of the foregoing who have acted as such for at least ninety (90) days, (iii)
to any trust, pension, profit-sharing, or other benefit plan for such persons,
or (iv) to any other person set forth in the Company's then current Prospectus;
provided that such sales are made in accordance with the rules and regulations
under the 1940 Act and that such sales are made upon the written assurance of
the purchaser that the purchases are made for investment purposes only, not for
the purpose of resale to the public and that the shares will not be resold
except through redemption by us.
9. Allocation of Expenses.
(a) We will pay the following expenses in connection
with the sales and distribution of shares of the Company:
(i) expenses pertaining to the preparation
of our audited and certified financial statements to be included in any
amendments ("Amendments") to our Registration Statement under the 1933 Act,
including the Prospectuses and Statements of Additional Information included
therein;
(ii) expenses pertaining to the preparation
(including legal fees) and printing of all Amendments or supplements filed with
the Securities and Exchange Commission, including the copies of the Prospectuses
and Statements of Additional Information included in such Amendments and the
first ten (10) copies of the definitive Prospectuses and Statements of
Additional Information or supplements thereto, other than those necessitated by
or related to your (including your "Parents") activities where such amendments
or supplements result in expenses which we would not otherwise have incurred;
(iii) expenses pertaining to the
preparation, printing, and distribution of any reports or communications,
including Prospectuses and Statements of Additional Information, which are sent
to our existing shareholders;
(iv) filing and other fees to federal and
state securities regulatory authorities necessary to register and maintain
registration of the shares; and
-3-
<PAGE>
(v) expenses of the Agent, including all
costs and expenses in connection with the issuance, transfer and registration of
the shares, including but not limited to any taxes and other governmental
charges in connection therewith.
(b) Except to the extent that you are entitled to
reimbursement under the provisions of any of the Distribution Plans for the
Company, you will pay the following expenses:
(i) expenses of printing additional copies
of the Prospectus and Statement of Additional Information and any amendments or
supplements thereto which are necessary to continue to offer our shares to the
public;
(ii) expenses pertaining to the preparation
(excluding legal fees) and printing of all amendments and supplements to our
Registration Statement if the Amendment or supplement arises from or is
necessitated by or related to your (including your "Parent") activities where
those expenses would not otherwise have been incurred by us; and
(iii) expenses pertaining to the printing of
additional copies, for use by you as sales literature, of reports or other
communications which have been prepared for distribution to our existing
shareholders or incurred by you in advertising, promoting and selling our shares
to the public.
10. Furnishing of Information. We will furnish to you such
information with respect to our company and its shares, in such form and signed
by such of our officers as you may reasonably request, and we warrant that the
statements therein contained when so signed will be true and correct. We will
also furnish you with such information and will take such action as you may
reasonably request in order to qualify our shares for sale to the public under
the Blue Sky Laws or in jurisdictions in which you may wish to offer them. We
will furnish you at least annually with audited financial statements of our
books and accounts certified by independent public accountants, and with such
additional information regarding our financial condition, as you may reasonably
request from time to time.
11. Conduct of Business. Other than the currently effective
Prospectus and Statement of Additional Information, you will not issue any sales
material or statements except literature or advertising which conforms to the
requirements of federal and state securities laws and regulations and which have
been filed, where necessary, with the appropriate regulatory authorities. You
will furnish us with copies of all such material prior to their use and no such
material shall be published if we shall reasonably and promptly object.
You shall comply with the applicable federal and state laws and
regulations where our shares are offered for sale and conduct your affairs with
us and with dealers, brokers or investors in accordance with the Conduct Rules
of the National Association of Securities Dealers, Inc.
12. Redemption or Repurchase within Seven Days. If shares are
tendered to us for redemption or are repurchased by us within seven (7) business
days after your acceptance of the original purchase order for such shares, you
will immediately refund to us the full amount of any sales commission (net of
allowances to dealers or brokers) allowed to you on the original sale, and will
promptly, upon receipt thereof, pay to us any refunds from dealers or brokers of
the balance of
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<PAGE>
sales commissions reallowed by you. We shall notify you of such tender for
redemption within ten (10) days of the day on which notice of such tender for
redemption is received by us.
13. Other Activities. Your services pursuant to this Agreement
shall not be deemed to be exclusive, and you may render similar services and act
as an underwriter, distributor or dealer for other investment companies in the
offering of their shares.
14. Term of Agreement. This Agreement shall become effective
on the date of its execution and shall remain in effect for a period of two (2)
years from the date of this Agreement. This Agreement shall continue annually
thereafter for successive one (1) year periods if approved at least annually (i)
by a vote of a majority of the outstanding voting securities of the Company or
by a vote of the Directors of the Company, and (ii) by a vote of a majority of
the Directors of the Company who are not interested persons or parties to this
Agreement (other than as Directors of the Company), cast in person at a meeting
called for the purpose of voting on this Agreement.
15. Termination. This Agreement: (i) may be terminated at any
time without the payment of any penalty, either by vote of the Directors of the
Company or by a vote of a majority of the outstanding voting securities of the
Company, on sixty (60) days' written notice to you; (ii) shall terminate
immediately in the event of its assignment; and (iii) may be terminated by you
on sixty (60) days' written notice to us.
16. Suspension of Sales. We reserve the right at all times to
suspend or limit the public offering of the shares upon written notice to you,
and to reject any order in whole or in part.
17. Miscellaneous. This Agreement shall be subject to the laws
of the State of Maryland and shall be interpreted and construed to further and
promote the operation of the Company as an open-end investment company. As used
herein, the terms "Net Asset Value," "Offering Price," "Investment Company,"
"Open-End Investment Company," "Assignment," "Principal Underwriter,"
"Interested Person," "Parents," and "Majority of the Outstanding Voting
Securities," shall have the meanings set forth in the 1933 Act and the 1940 Act,
as applicable, and the rules and regulations promulgated thereunder.
18. Liability. Nothing contained herein shall be deemed to
protect you against any liability to us or to our shareholders to which you
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties hereunder, or by reason of your
reckless disregard of your obligations and duties hereunder.
-5-
<PAGE>
If the foregoing meets with your approval, please acknowledge your
acceptance by signing each of the enclosed counterparts hereof and returning
such counterparts to us, whereupon this shall constitute a binding agreement as
of the date first above written.
Very truly yours,
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
By:
-----------------------------
Agreed to and Accepted:
PILGRIM AMERICA SECURITIES, INC.
By:
---------------------------
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<PAGE>
INDEPENDENT AUDITOR'S 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.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
August 8, 1997
<PAGE>
Service and Distribution Plan for
Pilgrim America Bank and Thrift Fund, Inc.
Class A Shares
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, Pilgrim America Bank and Thrift Fund, Inc. (the "Company")
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, shares of common stock of the Company are divided into classes
of shares, one of which is designated Class A;
WHEREAS, the Company employs Pilgrim America Securities, Inc. (the
"Distributor") as distributor of the securities of which it is the issuer; and
WHEREAS, the Company and the Distributor have entered into an
Underwriting Agreement pursuant to which the Company has employed the
Distributor in such capacity during the continuous offering of shares of the
Company.
NOW, THEREFORE, the Company hereby adopts with respect to its Class A
shares, and the Distributor hereby agrees to the terms of the Plan, in
accordance with Rule 12b-l under the Act, on the following terms and conditions:
1. A. The Company shall pay to the Distributor, as the distributor of
the Class A shares of the Company, a fee for distribution of the shares at the
rate of up to 0.10% on an annualized basis of the average daily net assets of
the Company's Class A shares, provided that, at any time such payment is made,
whether or not this Plan continues in effect, the making thereof will not cause
the limitation upon such payments established by this Plan to be exceeded. Such
fee shall be calculated and accrued daily and paid at such intervals as the
Board of Directors shall determine, subject to any applicable restriction
imposed by rules of the National Association of Securities Dealers, Inc.
B. The Company shall pay to the Distributor, as the
distributor of the Class A shares of the Company, a service fee at the rate of
0.25% on an annualized basis of the average daily net assets of the Company's
Class A shares, provided that, at any time such payment is made, whether or not
this Plan continues in effect, the making thereof will not cause the limitation
upon such payments established by this Plan to be exceeded. Such fee shall be
calculated and accrued daily and paid at such intervals as the Board of
Directors shall determine, subject to any applicable restriction imposed by
rules of the National Association of Securities Dealers, Inc.
2. The amount set forth in paragraph 1.A. of this Plan shall be paid
for the Distributor's services as distributor of the shares of the Company in
connection with any activities or expenses primarily intended to result in the
sale of the Class A shares of the Company, including, but not limited to,
payment of compensation, including incentive compensation, to securities dealers
(which may include the Distributor itself) and other financial institutions and
organizations (collectively, the "Service Organizations") to obtain various
distribution related and/or administrative services for the Company. These
services include,
<PAGE>
among other things, processing new shareholder account applications, preparing
and transmitting to the Company's Transfer Agent computer processable tapes of
all transactions by customers and serving as the primary source of information
to customers in providing information and answering questions concerning the
Company and their transactions with the Company. The Distributor is also
authorized to engage in advertising, the preparation and distribution of sales
literature and other promotional activities on behalf of the Company. In
addition, this Plan hereby authorizes payment by the Company of the cost of
printing and distributing Company Prospectuses and Statements of Additional
Information to prospective investors and of implementing and operating the Plan.
Distribution expenses also include an allocation of overhead of the Distributor
and accruals for interest on the amount of distribution expenses that exceed
distribution fees and contingent deferred sales charges received by the
Distributor. Payments under the Plan are not tied exclusively to actual
distribution and service expenses, and the payments may exceed distribution and
service expenses actually incurred.
The amount set forth in paragraph 1.B. of this Plan may be used by the
Distributor to pay securities dealers (which may include the Distributor itself)
and other financial institutions and organizations for servicing shareholder
accounts, including a continuing fee which may accrue immediately after the sale
of shares.
3. The Plan shall not take effect with respect to the Class A shares of
the Company until it has been approved by a vote of the shareholders of the
Class A shares of the Company.
4. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-l Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall
take effect. The Plan shall continue in full force and effect as to the Class A
shares of the Company for so long as such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in paragraph
4.
6. The Distributor shall provide to the Directors of the Company, and
the Directors shall review, at least quarterly, a written report of the amounts
so expended and the purposes for which such expenditures were made.
7. This Plan may be terminated at any time, without payment of any
penalty, by vote of the Directors of the Company, by vote of a majority of the
Rule 12b-l Directors, or by a vote of a majority of the outstanding voting
securities of Class A shares of the Company on not more than 30 days' written
notice to any other party to the Plan.
-2-
<PAGE>
8. This Plan may not be amended to increase materially the amount of
distribution fee (including any service fee) provided for in paragraph 1 hereof
unless such amendment is approved in the manner provided for initial approval in
paragraph 3 hereof, and no material amendment to the Plan shall be made unless
approved in the manner provided for approval and annual renewal in paragraph 4
hereof.
9. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Company
shall be committed to the discretion of the Directors who are not such
interested persons.
10. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
IN WITNESS WHEREOF, the Company and the Distributor have executed this
Service and Distribution Plan as of the ____ day of ________, 1997.
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
By:
PILGRIM AMERICA SECURITIES, INC.
By:
-----------------------------
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<PAGE>
Service and Distribution Plan for
Pilgrim America Bank and Thrift Fund, Inc.
Class B Shares
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, Pilgrim America Bank and Thrift Fund, Inc. (the "Company")
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, shares of common stock of the Company are divided into classes
of shares, one of which is designated Class B;
WHEREAS, the Company employs Pilgrim America Securities, Inc. (the
"Distributor") as distributor of the securities of which it is the issuer; and
WHEREAS, the Company and the Distributor have entered into an
Underwriting Agreement pursuant to which the Company has employed the
Distributor in such capacity during the continuous offering of shares of the
Company.
NOW, THEREFORE, the Company hereby adopts with respect to its Class B
shares, and the Distributor hereby agrees to the terms of the Plan, in
accordance with Rule 12b-1 under the Act, on the following terms and conditions:
1. A. The Company shall pay to the Distributor, as the distributor of
the Class B shares of the Company, a fee for distribution of the shares at the
rate of up to 0.75% on an annualized basis of the average daily net assets of
the Company's Class B shares, provided that, at any time such payment is made,
whether or not this Plan continues in effect, the making thereof will not cause
the limitation upon such payments established by this Plan to be exceeded. Such
fee shall be calculated and accrued daily and paid at such intervals as the
Board of Directors shall determine, subject to any applicable restriction
imposed by rules of the National Association of Securities Dealers, Inc.
B. The Company shall pay to the Distributor, as the distributor of
the Class B shares of the Company, a service fee at the rate of 0.25% on an
annualized basis of the average daily net assets of the Company's Class B
shares, provided that, at any time such payment is made, whether or not this
Plan continues in effect, the making thereof will not cause the limitation upon
such payments established by this Plan to be exceeded. Such fee shall be
calculated and accrued daily and paid at such intervals as the Board of
Directors shall determine, subject to any applicable restriction imposed by
rules of the National Association of Securities Dealers, Inc.
2. The amount set forth in paragraph 1.A. of this Plan shall be paid
for the Distributor's services as distributor of the shares of the Company in
connection with any activities or expenses primarily intended to result in the
sale of the Class B shares of the Company, including, but not limited to,
payment of compensation, including incentive compensation, to securities dealers
(which may include the Distributor itself) and other financial institutions and
organizations (collectively, the "Service Organizations") to obtain various
distribution related and/or administrative services for the Company. These
services include, among other things, processing new shareholder account
applications, preparing and transmitting to the Company's Transfer Agent
computer processable tapes of all transactions by customers
<PAGE>
and serving as the primary source of information to customers in providing
information and answering questions concerning the Company and their
transactions with the Company. The Distributor is also authorized to engage in
advertising, the preparation and distribution of sales literature and other
promotional activities on behalf of the Company. In addition, this Plan hereby
authorizes payment by the Company of the cost of printing and distributing
Prospectuses and Statements of Additional Information to prospective investors
and of implementing and operating the Plan. Distribution expenses also include
an allocation of overhead of the Distributor and accruals for interest on the
amount of distribution expenses that exceed distribution fees and contingent
deferred sales charges received by the Distributor. Payments under the Plan are
not tied exclusively to actual distribution and service expenses, and the
payments may exceed distribution and service expenses actually incurred.
The amount set forth in paragraph 1.B. of this Plan may be used by the
Distributor to pay securities dealers (which may include the Distributor itself)
and other financial institutions and organizations for servicing shareholder
accounts, including a continuing fee which may accrue immediately after the sale
of shares.
3. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-l Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
4. After approval as set forth in paragraph 3, this Plan shall take
effect. The Plan shall continue in full force and effect as to the Class B
shares of the Company for so long as such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in paragraph
3.
5. The Distributor shall provide to the Directors of the Company, and
the Directors shall review, at least quarterly, a written report of the amounts
so expended and the purposes for which such expenditures were made.
6. This Plan may be terminated at any time, without payment of any
penalty, by vote of the Directors of the Company, by vote of a majority of the
Rule 12b-l Directors, or by a vote of a majority of the outstanding voting
securities of Class B shares of the Company on not more than 30 days' written
notice to any other party to the Plan.
7. This Plan may not be amended to increase materially the amount of
distribution fee (including any service fee) provided for in paragraph 1 hereof
unless such amendment is approved by a vote of the shareholders of the Class B
shares of the Company, and no material amendment to the Plan shall be made
unless approved in the manner provided for approval and annual renewal in
paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the Company
shall be committed to the discretion of the Directors who are not such
interested persons.
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<PAGE>
9. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
IN WITNESS WHEREOF, the Company and the Distributor have executed this
Service and Distribution Plan as of the ____ day of ________, 1997.
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
By:
-------------------------------
PILGRIM AMERICA SECURITIES, INC.
By:
-------------------------------
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<PAGE>
EXHIBIT 16
COMPUTATION OF PERFORMANCE QUOTATIONS
PROVIDED IN RESPONSE TO ITEM 22
(UNAUDITED)
Pilgrim America Bank and Thrift Fund, Inc.
Total Return for One Year Ended 6/30/97
P(1 + T)((n)) = ERV
$1000(1 + T)((1)) = 1,539.10
1 + T = 1.5391
T = 0.5391
T = 53.91%
Total Return for Five Years Ended 6/30/97
$1000 (1 + R)((5)) = 3,020.15
(1 + R)((5)) = 3.020
1 + R = 1.2474
R = 0.2474
R = 24.74%
Total Return for Ten Years Ended 6/30/97
$1000(1 + T)((10)) = 5,404.85
(1 + T)((10)) = 5.4048
1 + T = 1.1838
T = 0.1838
T = 18.38%
<PAGE>
MULTIPLE CLASS PLAN
PURSUANT TO RULE 18F-3
FOR
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
WHEREAS, Pilgrim America Bank and Thrift Fund, Inc. (the "Fund")
engages in business as an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended (the
"Act");
WHEREAS, the Fund desires to adopt a Multiple Class Plan pursuant to
Rule 18f-3 under the Act (the "Plan"); and
WHEREAS, pursuant to an Underwriting Agreement dated ___________, 1997,
the Fund employs Pilgrim America Securities, Inc. ("PASI") as distributor of the
securities of which it is the issuer.
NOW, THEREFORE, the Fund hereby adopts the Plan, in accordance with
Rule 18f-3 under the Act on the following terms and conditions:
1. FEATURES OF THE CLASSES. The Fund issues its shares of common stock
in two classes: "Class A Shares" and "Class B Shares." Shares of each class of
the Fund shall represent an equal pro rata interest in the Fund and, generally,
shall have identical voting, dividend, liquidation, and other rights,
preferences, powers, restrictions, limitations, qualifications and terms and
conditions, except that: (a) each class shall have a different designation; (b)
each class of shares shall bear any Class Expenses, as defined in Section 5
below; and (c) each class shall have exclusive voting rights on any matter
submitted to shareholders that relates solely to its distribution arrangement
and each class shall have separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class. In addition, Class A and Class B shares shall have the features
described in Sections 2, 5 and 6 below.
2. SALES CHARGE STRUCTURE.
(a) Class A Shares. Class A shares of the Fund shall be
offered at the then-current net asset value plus a front-end sales charge. The
front-end sales charge shall be in such amount as is disclosed in the Fund's
current prospectus or prospectus supplement and shall be subject to reductions
for larger purchases and such waivers or reductions as are determined or
approved by the Board of Directors. There is no initial front-end sales charge
on purchases of an amount as disclosed in the prospectus. Class A shares
generally shall not be subject to a contingent deferred sales charge provided,
however, that such a charge may be imposed when shares are redeemed within one
or two years of purchase and/or in such other cases as is disclosed in the
Fund's current prospectus or supplement thereto subject to the supervision of
the Board of Directors.
<PAGE>
(b) Class B Shares. Class B shares of the Fund shall be
offered at the then-current net asset value without the imposition of a
front-end sales charge. A contingent deferred sales charge in such amount as is
described in the Fund's current prospectus or prospectus supplement shall be
imposed on Class B shares, subject to such waivers or reductions as are
described in the Fund's prospectus or supplement thereto, subject to the
supervision of the Fund's Board of Directors.
3. SERVICE AND DISTRIBUTION PLANS. Each class of shares of the Fund has
adopted a Rule 12b-1 plan each with the following terms:
(a) Class A Shares. Class A shares of the Fund may pay PASI
monthly a fee at an annual rate of 0.35% of the average daily net assets of the
Fund's Class A shares for distribution or service activities (each as defined in
paragraph (c), below), as designated by PASI. PASI, on behalf of Class A shares
of the Fund, may pay Authorized Dealers quarterly a fee at the annual rate of
0.25% of the average daily net assets of the Fund's Class A shares for
distribution and service activities (as defined in paragraph (c), below)
rendered to Class A Shareholders.
(b) Class B Shares. Class B shares of the Fund may pay PASI
monthly a fee at the annual rate of 1.00% of the average daily net assets of the
Fund's Class B shares for distribution or service activities (as defined in
paragraph (c), below), as designated by PASI. PASI, on behalf of Class B shares
of the Fund, may pay Authorized Dealers quarterly a fee at the annual rate of
0.25% of the average daily net assets of the Fund's Class B shares for
distribution and service activities (as defined in paragraph (c), below)
rendered to Class B shareholders.
(c) Distribution and Service Activities.
(i) As used herein, the term "distribution services"
shall include services rendered by PASI as distributor of the shares of the Fund
in connection with any activities or expenses primarily intended to result in
the sale of shares of the Fund, including, but not limited to, compensation to
registered representatives or other employees of PASI to other broker-dealers
that have entered into an Authorized Dealer Agreement with PASI, compensation to
and expenses of employees of PASI who engage in or support distribution of the
Fund's shares; telephone expenses; interest expense; printing of prospectuses
and reports for other than existing shareholders; preparation, printing and
distribution of sales literature and advertising materials; and profit and
overhead on the foregoing.
(ii) As used herein, the term "service activities"
shall mean activities in connection with the provision of personal, continuing
services to investors in the Fund, excluding transfer agent and subtransfer
agent services for beneficial owners of shares of the Fund, aggregating and
processing purchase and redemption orders, providing beneficial owners with
account statements, processing dividend payments, providing subaccounting
services for Fund shares held beneficially, forwarding shareholder
communications to beneficial owners and receiving, tabulating and transmitting
proxies executed by beneficial owners; provided, however, that if the National
Association of Securities Dealers Inc. ("NASD") adopts a definition of "service
fee" for purposes of Rule 2830 of the Conduct Rules of the NASD that differs
from the
-2-
<PAGE>
definition of "service activities" hereunder, or if the NASD adopts a
related definition intended to define the same concept, the definition of
"service activities" in this Paragraph shall be automatically amended, without
further action of the Board of Directors, to conform to such NASD definition.
Overhead and other expenses of PASI related to its "service activities,"
including telephone and other communications expenses, may be included in the
information regarding amounts expended for such activities.
4. COMPLIANCE STANDARDS. The Fund desires that investors in the Fund
select the sales financing method that best suits his or her particular
financial situation. In this connection, PASI has established standards which
govern sales of shares of the Fund in order to assist investors in making
investment decisions and to help ensure proper supervision of purchase
recommendations. PASI is requested to share these standards with authorized
dealers wherever possible and practicable.
5. ALLOCATION OF INCOME AND EXPENSES. (a) The gross income of the Fund
shall, generally, be allocated to each class on the basis of net assets. To the
extent practicable, certain expenses (other than Class Expenses as defined below
which shall be allocated more specifically) shall be subtracted from the gross
income on the basis of the net assets of each class of the Fund. These expenses
include expenses incurred by the Fund (for example, fees of Directors, auditors
and legal counsel, advisory fees, custodial fees, or other expenses relating to
the management of the Fund's assets) not attributable to any particular class of
the Fund's shares ("Fund Expenses").
(b) Expenses attributable to a particular class ("Class
Expenses") shall be limited to: (i) payments made pursuant to a 12b-1 plan; (ii)
transfer agent fees attributable to a specific class; (iii) printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders of a specific class;
(iv) Blue Sky registration fees incurred by a class; (v) SEC registration fees
incurred by a class; (vi) the expense of administrative personnel and services
to support the shareholders of a specific class; (vii) litigation or other legal
expenses relating solely to one class; and (viii) directors' fees incurred as a
result of issues relating to one class. Expenses in category (i) above must be
allocated to the class for which such expenses are incurred. All other "Class
Expenses" listed in categories (ii)-(viii) above may be allocated to a class but
only if the President and Chief Financial Officer have determined, subject to
Board approval or ratification, which of such categories of expenses will be
treated as Class Expenses, consistent with applicable legal principles under the
Act and the Internal Revenue Code of 1986, as amended.
Therefore, expenses of the Fund shall be apportioned to each class of
shares depending on the nature of the expense item. Fund Expenses will be
allocated among the classes of shares based on their relative net asset values.
Approved Class Expenses shall be allocated to the particular class to which they
are attributable. In addition, certain expenses may be allocated differently if
their method of imposition changes. Thus, if a Class Expense can no longer be
attributed to a class, it shall be charged to the Fund for allocation among
classes, as determined by the Board of Directors. Any additional Class Expenses
not specifically identified above which are subsequently identified and
determined to be properly allocated to one class of shares
-3-
<PAGE>
shall not be so allocated until approved by the Board of Directors of the Fund
in light of the requirements of the Act and the Internal Revenue Code of 1986,
as amended.
6. EXCHANGE PRIVILEGES. Shares of one class of the Fund that have been
held for a minimum of 30 days may be exchanged for shares of that same class of
any other Pilgrim America Group mutual fund other than Pilgrim America Money
Market Shares ("Money Market"), at NAV without payment of any additional sales
charge. However, a sales charge, equal to the excess, if any, of the sales
charge rate applicable to the shares being acquired over the sales charge rate
previously paid, may be assessed on exchanges from Pilgrim America Government
Securities Income Fund and Pilgrim America High Yield Fund. If a shareholder
exchanges and subsequently redeems his or her shares, any applicable Contingent
Deferred Sales Charge fee will be based on the full period of the share
ownership. Class A Shares of the Fund may be exchanged for shares of Money
Market, and shares of Money Market may be exchanged for Class A shares of any
Fund upon payment of the excess, if any, of the sales charge applicable to the
Class A shares over the sales charge rate previously paid.
7. CONVERSION FEATURES. A shareholder's Class B shares will
automatically convert to Class A shares in the Fund on the first business day of
the month in which the eighth anniversary of the issuance of the Class B shares
occurs, together with a pro rata portion of all Class B shares representing
dividends and other distributions paid in additional Class B shares. The Class B
shares so converted will no longer be subject to the higher expenses borne by
Class B shares. The conversion will be effected at the relative net asset values
per share of the two Classes.
8. QUARTERLY AND ANNUAL REPORTS. The Directors shall receive quarterly
and annual statements concerning all allocated Class Expenses and distribution
and servicing expenditures complying with paragraph (b)(3)(ii) of Rule 12b-1, as
it may be amended from time to time. In the statements, only expenditures
properly attributable to the sale or servicing of a particular class of shares
will be used to justify any distribution or servicing fee or other expenses
charged to that class. Expenditures not related to the sale or servicing of a
particular class shall not be presented to the Directors to justify any fee
attributable to that class. The statements, including the allocations upon which
they are based, shall be subject to the review and approval of the independent
Directors in the exercise of their fiduciary duties.
9. ACCOUNTING METHODOLOGY. The following procedures shall be
implemented in order to meet the objective of properly allocating income and
expenses among the classes:
(1) On a daily basis, a fund accountant shall calculate the
Plan Fee to be charged to each 12b-1 class of shares by calculating the average
daily net asset value of such shares outstanding and applying the applicable fee
rate of the respective class to the result of that calculation.
(2) The fund accountant will allocate designated Class
Expenses, if any, to the respective classes.
-4-
<PAGE>
(3) The fund accountant shall allocate income and Fund
Expenses among the respective classes of shares based on the net asset value of
each class in relation to the net asset value of the Fund for Fund Expenses.
These calculations shall be based on net asset values at the beginning of the
day.
(4) The fund accountant shall then complete a worksheet,
developed for purposes of complying with this Section of this Plan, using the
allocated income and expense calculations from Paragraph (3) above, and the
additional fees calculated from Paragraphs (1) and (2) above.
(5) The fund accountant shall develop and use appropriate
internal control procedures to assure the accuracy of its calculations and
appropriate allocation of income and expenses in accordance with this Plan.
10. WAIVER OR REIMBURSEMENT OF EXPENSES. Expenses may be waived or
reimbursed by the investment manager to the Fund, by the Fund's underwriter or
any other provider of services to the Fund without the prior approval of the
Fund's Board of Directors.
11. EFFECTIVENESS OF PLAN. This Plan shall not take effect until it has
been approved by votes of a majority of both (a) the Directors of the Fund and
(b) those Directors of the Fund who are not "interested persons" of the Fund (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of this Plan, cast in person at a meeting (or meetings) called for the
purpose of voting on this Plan.
12. MATERIAL MODIFICATIONS. This Plan may not be amended to modify
materially its terms unless such amendment is approved in the manner provided
for initial approval in paragraph 11 hereof.
13. LIMITATION OF LIABILITY. The Directors of the Fund and the
shareholders of the Fund shall not be liable for any obligations of the Fund
under this Plan, and PASI or any other person, in asserting any rights or claims
under this Plan, shall look only to the assets and property of the Fund in
settlement of such right or claim, and not to such Directors or shareholders.
-5-
<PAGE>
IN WITNESS WHEREOF, the Fund has adopted this Multiple Class Plan as of
the ____ day of _________, 1997, to be effective _________, 1997.
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
-6-
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 784055
<NAME> Pilgrim America Bank and Thrift Fund
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 143,397
<INVESTMENTS-AT-VALUE> 279,248
<RECEIVABLES> 571
<ASSETS-OTHER> 18
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 279,837
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<TOTAL-LIABILITIES> 27,495
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 14,141
<SHARES-COMMON-PRIOR> 14,141
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<OVERDISTRIBUTION-GAINS> 2,500
<ACCUM-APPREC-OR-DEPREC> 135,851
<NET-ASSETS> 252,342
<DIVIDEND-INCOME> 6,564
<INTEREST-INCOME> 250
<OTHER-INCOME> 0
<EXPENSES-NET> 2,332
<NET-INVESTMENT-INCOME> 4,482
<REALIZED-GAINS-CURRENT> 29,472
<APPREC-INCREASE-CURRENT> 43,706
<NET-CHANGE-FROM-OPS> 77,680
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,482
<DISTRIBUTIONS-OF-GAINS> 30,201
<DISTRIBUTIONS-OTHER> 396
<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 42,589
<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 22
<OVERDIST-NET-GAINS-PRIOR> 1,802
<GROSS-ADVISORY-FEES> 1,747
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,334
<AVERAGE-NET-ASSETS> 230,622
<PER-SHARE-NAV-BEGIN> 14.83
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 5.18
<PER-SHARE-DIVIDEND> 0.32
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