<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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 9, 1997.
Prospectus
Pilgrim America Bank and Thrift Fund, Inc.
[PILGRIM AMERICA FUNDS LOGO]
40 NORTH CENTRAL AVENUE, SUITE 1200, PHOENIX, ARIZONA 85004
(800) 331-1080
Pilgrim America Bank and Thrift Fund, Inc. (the 'Fund') is a diversified
open-end management investment company. The Fund's primary investment objective
is long-term capital appreciation. Income is its secondary objective. The Fund
seeks to achieve its objectives by investing primarily in equity securities of
national and state-chartered banks (other than money center banks), thrifts, the
holding or parent companies of such depository institutions, and in savings
accounts of mutual thrifts. These portfolio securities are selected principally
on the basis of fundamental investment value and potential for future growth,
including securities of institutions that the Fund believes are well-positioned
to take advantage of opportunities currently developing in the banking and
thrift industries. There is no assurance that the Fund will achieve its
objectives. See 'Investment Objectives and Policies.'
------------------------
PILGRIM AMERICA INVESTMENTS, INC. is the Fund's investment manager (the
'Investment Manager').
------------------------------
The Fund offers two classes of shares, with varying types and amounts of sales
and distribution charges. These Pilgrim America Purchase Options(Trademark)
permit you to choose the method of purchasing shares that best suits your
investment strategy.
This Prospectus presents information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about the
Fund, dated October , 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*
<TABLE>
<S> <C>
Investment Objectives The Fund's primary investment objective is to achieve long-term
capital appreciation. Income is its secondary objective. There can
be no assurance that the Fund will achieve its investment
objectives.
History of the Fund The Fund was organized in 1985 as a closed-end investment company
and its shares were listed on the New York Stock Exchange. On
, 1997 the Fund converted to an open-end investment
company and all outstanding shares became 'Class A' shares.
Primary Investment Strategy The Fund seeks to achieve its investment objectives by investing
primarily in equity securities of national and state chartered
banks (other than money center banks), thrifts, the holding or
parent companies of such depository institutions, and in savings
accounts of mutual thrifts.
General Investment Guidelines o Under normal circumstances, at least 65% of the Fund's total
assets is invested in equity securities of national and
state-chartered banks (other than money center banks), thrifts,
holding or parent companies of such depository institutions, and
in savings accounts of mutual thrifts.
o Up to 35% of the Fund's total assets may be invested in equity
securities of money center banks, other financial services
companies, other issuers deemed suitable by the Investment
Manager, debt securities, and securities of other investment
companies.
Principal Risk Factors o Investments in equity securities involve exposure to financial
and market risks. You can expect fluctuation in the value of the
Fund's portfolio securities and the Fund's shares.
o Because the Fund's portfolio is concentrated in the banking and
thrift industries, it may be subject to greater risk than a
portfolio that is not concentrated in one industry.
o The value of the Fund's investments in the banking and thrift
industries will be impacted by state and federal legislation and
regulations and regional and general economic conditions.
Investment Manager Pilgrim America Investments, Inc.
Shareholder Servicing Agent Pilgrim America Group, Inc.
</TABLE>
- ------------------
* This summary description should be read in conjunction with the more complete
description of the Fund's investment objectives and policies set forth
elsewhere in this Prospectus. For information regarding the purchase and
redemption of shares of the Fund, refer to the 'Shareholder Guide.' For
information regarding the risk factors of the Fund, refer to 'Investment
Practices and Risk Considerations' below.
2
<PAGE>
SUMMARY OF EXPENSES
Shares of the Fund are available through independent financial professionals,
national and regional brokerage firms and other financial institutions
(Authorized Dealers). You may select from two separate classes of shares: Class
A and Class B.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- -------
<S> <C> <C>
Maximum initial sales charge imposed on purchases (as a percentage of offering
price)......................................................................... 5.75%(a) None
Maximum contingent deferred sales charge (CDSC) (at the lower of original
purchase price or the redemption proceeds)..................................... None(b) 5.00%(c)
Redemption Fees.................................................................. None(d) None
Exchange Fees.................................................................... None(d) None
</TABLE>
The Fund has no sales charges on reinvested dividends.
- ------------------
(a) Reduced for purchases of $50,000 and over. See 'Class A Shares: Initial
Sales Charge Alternative.'
(b) A CDSC of no more than 1.00% for shares redeemed in the first or second
year, depending on the amount of purchase, is assessed on redemptions of
Class A shares that were purchased without an initial sales charge as part
of an investment of $1 million or more. See 'Class A Shares: Initial Sales
Charge Alternative.'
(c) Imposed upon redemption within 6 years from purchase with scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'
(d) A 2% fee will be imposed on redemptions or exchanges of Class A shares
acquired prior to , 1997 until , 1998. The Fund
reserves the right to waive or reduce the fee in whole or in part.
The percentages shown below reflect the estimated Annual Operating Expenses for
Class A and Class B shares of the Fund. The percentages set forth under 'Other
Expenses' are based upon the historical expenses of the Fund for the fiscal year
ended December 31, 1996 (during which the Fund operated as a closed-end
investment company), and are restated to reflect fees expected to be incurred by
the Fund as an open-end investment company.
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT (12B-1) OTHER OPERATING
FEES(A) FEES(B) EXPENSES EXPENSES
----------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Class A............ 0.76% 0.25% 0.42% 1.43%
Class B............ 0.76% 1.00% 0.42% 2.18%
</TABLE>
- ------------------
(a) The Fund pays the Investment Manager a fee at an annual rate of 1.00% of the
average daily net assets of the Fund for the first $30 million of net
assets; 0.75% of the average daily net assets of the next $95 million of net
assets; and 0.70% of the average daily net assets in excess of $125 million.
(b) As a result of distribution (Rule 12b-1) fees, a long-term investor may pay
more than the economic equivalent of the maximum sales charge allowed by the
Rules of the National Association of Securities Dealers, Inc. (NASD).
The purpose of the above table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly as a shareholder in
the Fund. For more complete descriptions of the various costs and expenses,
please refer to appropriate sections of this Prospectus.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (i)
reinvestment of all dividends and distributions, (ii) 5% annual return and (iii)
redemption at the end of the period (unless otherwise noted):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A............. $ 71 $ 100 $ 131 $219
Class B............. $ 72 $ 98 $ 137 $232
Class B (assuming
no redemption).... $ 22 $ 68 $ 117 $232
</TABLE>
Use of the assumed 5% return is required by the Securities and Exchange
Commission. The example is not an illustration of past or future investment
results and should not be considered a representation of past or future
expenses; actual expenses may be more or less than those shown.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial information which has been derived
from the financial statements in the Fund's Annual Report dated December 31,
1996 and Semi-Annual Report dated June 30, 1997. For the fiscal years ended
December 31, 1996 and 1995, the information in the table below 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>
SIX
MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
1997 ------------------------------------------------------------------------------
(UNAUDITED) 1996 1995(A) 1994 1993 1992
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period $ 17.84 $ 14.83 $ 10.73 $ 11.87 $ 12.46 $ 10.12
--------- --------- --------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income 0.13 0.32 0.31 0.26 0.26 0.22
Net realized and unrealized
gain (loss) on
investments 4.00 5.18 4.78 (0.53) 0.75 2.93
--------- --------- --------- --------- --------- ---------
Total from investment
operations 4.13 5.50 5.09 (0.27) 1.01 3.15
--------- --------- --------- --------- --------- ---------
Less distributions:
Net investment income -- 0.32 0.31 0.22 0.26 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
Paid-in capital -- -- -- -- -- 0.12
--------- --------- --------- --------- --------- ---------
Total distributions -- 2.49 0.99 0.87 0.99 0.81
--------- --------- --------- --------- --------- ---------
Other:
Reduction in net asset value
from rights offering -- -- -- -- (0.61) --
--------- --------- --------- --------- --------- ---------
Net asset value, end of
period $ 21.97 $ 17.84 $ 14.83 $ 10.73 $ 11.87 $ 12.46
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Closing Market Price, end of
period $ 19.00 $ 15.75 $ 12.88 $ 9.13 $ 10.88 $ 11.63
TOTAL INVESTMENT RETURN AT
MARKET VALUE (B) 20.63% 43.48% 52.81% (8.85)% 1.95%(c) 31.53%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions) $ 311 $ 252 $ 210 $ 152 $ 168 $ 141
Ratios to average net assets
Expenses 0.91%(d) 1.01% 1.05% 1.28% 0.91% 1.24%
Net investment income 1.61%(d) 1.94% 2.37% 2.13% 2.08% 2.00%
Portfolio turnover rate 5%(e) 21% 13% 14% 17% 20%
Average commission rate paid $ 0.0600 -- -- -- -- --
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1991 1990 1989 1988 1987
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period $ 7.49 $ 10.26 $ 9.54 $ 8.17 $ 9.09
--------- --------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income 0.24 0.31 0.30 0.31 0.22
Net realized and unrealized
gain (loss) on
investments 3.33 (2.20) 1.50 1.43 (0.87)
--------- --------- --------- --------- ---------
Total from investment
operations 3.57 (1.89) 1.80 1.74 (0.65)
--------- --------- --------- --------- ---------
Less distributions:
Net investment income 0.24 0.31 0.31 0.37 0.22
In excess of net investment
income -- -- -- -- --
Realized capital gains -- -- 0.44 -- 0.05
Paid-in capital 0.70 0.57 0.33 -- --
--------- --------- --------- --------- ---------
Total distributions 0.94 0.88 1.08 0.37 0.27
--------- --------- --------- --------- ---------
Other:
Reduction in net asset value
from rights offering -- -- -- -- --
--------- --------- --------- --------- ---------
Net asset value, end of
period $ 10.12 $ 7.49 $ 10.26 $ 9.54 $ 8.17
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Closing Market Price, end of
period $ 9.50 $ 7.13 $ 9.13 $ 7.75 $ 6.25
TOTAL INVESTMENT RETURN AT
MARKET VALUE (B) 47.52% (12.45)% 32.25% 30.17% (17.79)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(millions) $ 101 $ 75 $ 103 $ 96 $ 82
Ratios to average net assets
Expenses 1.31% 1.29% 1.26% 1.18% 1.13%
Net investment income 2.68% 3.59% 4.15% 3.28% 2.31%
Portfolio turnover rate 31% 46% 63% 43% 76%
Average commission rate paid -- -- -- -- --
</TABLE>
- ------------------
(a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former
investment manager, in a transaction that closed on April 7, 1995.
(b) Total return is calculated at market value without deduction of sales
commissions and assuming reinvestment of all dividends and distributions
during the period.
(c) Calculation of total return excludes the effect of the per share dilution
resulting from the Rights Offering as the total account value of a fully
subscribed shareholder was minimally impacted.
(d) Annualized.
(e) Non-annualized. On an annualized basis the portfolio turnover rate would be
10%.
4
<PAGE>
PAST PERFORMANCE OF THE FUND
The following bar chart, line graph and tables provide information about the
Fund's past performance. Prior to , 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.
5
<PAGE>
The line graph below shows the growth of an initial investment of $10,000 with
reinvestment of all dividends and distributions. The graph shows the Fund's
performance since June 30, 1987 compared to the performance of two relevant
unmanaged indices, the Standard & Poor's 500 and the Standard & Poor's Major
Regional Banks Index. The Fund's performance is shown both with and without the
imposition of the sales load currently associated with Class A shares of the
Fund.
[LINE GRAPH]
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
- ------------------
(1) The line graph shows the value of $10,000 invested on June 30, 1987 and held
through June 30, 1997 compared to the unmanaged S&P 500 Index and the
unmanaged S&P Major Regional Banks Index.
(2) Carl Dorf, the Fund's Portfolio Manager, began managing the Fund in January
1991.
(Footnotes continued on next page)
6
<PAGE>
(Footnotes continued from previous page)
(3) Average annual total returns are based on the Fund's net asset value and
assume reinvestment of all dividends and distributions exclude sales
charges, and assume 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.
INVESTMENT PERFORMANCE
MORNINGSTAR RATINGS. For the three-year, five-year, and ten-year periods ended
June 30, 1997, the Fund had a 5-star, a 4-star, and a 5-star Morningstar
risk-adjusted performance rating, respectively, when rated among 47, 39, and 30
domestic equity closed-end funds.(1) The Fund's overall rating through June 30,
1997, is 5-stars.(2) For the three-year, five-year, and ten-year periods ended
June 30, 1997, the Fund's risk score places it 21, 24, and 16 out of 47, 39, and
30 funds in the domestic equity closed-end fund category, respectively.(3)
- ------------------
(1) The Fund was ranked as a closed-end fund. If the Fund were reviewed as an
open-end fund, factoring in the applicable fees and expenses, the ratings
might be different.
(2) The Fund's overall rating is based upon a weighted average of its
performance for the three-year, five- year and ten-year periods ended June
30, 1997.
(3) On Morningstar's risk-adjusted performance rating system, funds 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.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund primarily seeks long-term capital appreciation; a secondary objective
is income. The Fund pursues its objectives by investing, under normal market
conditions, at least 65% of its total assets in equity securities of (i)
national and state-chartered banks (other than money center banks), (ii)
thrifts, (iii) the holding or parent companies of such depository institutions,
and (iv) in savings accounts of mutual thrifts, which investment may entitle the
investor to participate in future stock conversions of the mutual thrifts. These
portfolio securities are selected principally on the basis of fundamental
investment value and potential for future growth, including securities of
institutions that the Fund believes are well positioned to take advantage of the
attractive investment opportunities developing in the banking and thrift
industries. In making decisions concerning the selection of portfolio securities
for the Fund, the Investment Manager conducts its own evaluation of the
depository institution which is a potential investment by the Fund and does not
take into account the credit rating of the debt securities issued by such
institution. These equity securities include common stocks and securities
convertible into common stock (including convertible bonds, convertible
preferred stock, and warrants) but do not include non-convertible preferred
stocks or adjustable rate preferred stocks.
The Investment Manager believes that a number of factors may contribute to the
potential for growth in the value of equity securities of depository
institutions, including the fact that such depository institutions are:
(i) located in geographic regions experiencing strong economic growth
and able to participate in such growth;
(ii) well-managed and currently providing above-average returns on
assets and shareholders' equity;
(iii) attractive candidates for acquisition by a money center bank or
another regional bank, as defined in 'The Banking and Thrift Industries,'
below, or attractive partners for business combinations, as a result of
opportunities created by the trend towards deregulation and interstate
banking or in order to create larger, more efficient banking combinations;
(iv) expanding their business into new financial services or
geographic areas that have become or may become permissible due to an
easing of regulatory constraints; or
(v) investing assets in technology that is intended to increase
productivity.
The Investment Manager also believes that factors may contribute to increased
earnings of securities of depository institutions, including the following:
(i) changes in the sources of revenues of banks, such as the
implementation of certain new transaction-based fees;
(ii) a focus on variable rate pricing of bank products, which is less
sensitive than fixed pricing to cyclical interest rate changes;
(iii) the ability, as a result of liberalization of regulation, to
offer financial products and services which may have a higher rate of
return than traditional banking and financial services products;
(iv) the recent implementation of share repurchase programs by certain
banks; or
(v) a trend towards increased savings and investing as the average age
of the population of the United States gets older.
The Fund's policy of investing under normal market conditions at least 65% of
its total assets in the equity securities of (i) national and state-chartered
banks (other than money center banks), (ii) thrifts, (iii) the holding or parent
companies of such depository institutions, and (iv) in savings accounts of
mutual thrifts is fundamental and may not be changed without a Majority Vote. As
used in this Prospectus, the term 'Majority Vote' means the affirmative vote of
(a) more than 50% of the outstanding shares of the Fund or (b) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy, whichever is
less.
The Fund invests the remaining 35% of its total assets in the equity securities,
including preferred stocks or adjustable rate preferred stocks, of money center
banks, other financial services companies, other issuers deemed suitable by the
Investment Manager (which may include companies that are not in financial
services industries), in Debt Securities, and in securities of other investment
companies. 'Debt Securities'
8
<PAGE>
are nonconvertible debt securities (including certificates of deposit,
commercial paper, notes, bonds or debentures) that are either issued or
guaranteed by the United States Government or agency thereof ('U.S. Government
securities') or issued by a corporation or other issuer and rated investment
grade or comparable quality by at least one nationally recognized rating
organization.
With respect to 75% of its total assets, the Fund will not purchase securities
of any one issuer, other than U.S. Government securities, if immediately after
such purchase more than 5% of the value of the Fund's total assets would be
invested in such issuer.
When the Investment Manager determines that it is in the best interest of the
Fund to assume a defensive position due to an unusual degree of financial
unsteadiness or risk existing in the banking or thrift industry, the Fund may
invest more than 25% and as much as 100% of its total assets in Short-Term Debt
Securities. 'Short-Term Debt Securities' are Debt Securities maturing within one
year from the date of purchase. To the extent that the Fund is in a defensive
position, it will not be able to pursue its investment objective.
The Fund will not invest more than 15% of its 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.
RISK CONSIDERATIONS
The investment objectives and policies described above should be carefully
considered before investing. There is no assurance that the Fund will achieve
its investment objectives. As with any security, an investment in the Fund's
shares involves certain risks, including loss of principal. An investment in the
Fund's shares cannot be considered a complete investment program. Because the
Fund's investment portfolio will be concentrated in specific segments of the
banking and thrift industries, the shares may be subject to greater risk than
the shares of a fund whose portfolio is less concentrated. See 'The Banking and
Thrift Industries.'
The Fund may invest in the securities of banks or thrifts that are relatively
smaller, engaged in business mostly within their geographic region, and are less
well-known to the general investment community than the money center and larger
regional banks. Traditionally, the Fund has concentrated its investments in
banks located in the Eastern and Midwestern States; however, all investments are
at the discretion of the Investment Manager and may be concentrated in other
areas. The shares of depository institutions in which the Fund may invest may
not be listed or traded on a national securities exchange or on the National
Association of Securities Dealers Automated Quotation System ('NASDAQ'); as a
result there may be limitations on the Fund's ability to dispose of them at
times and at prices that are most advantageous to the Fund. The Fund will not
invest more than 15% of its total assets in securities that are illiquid.
As discussed further below, changes in state and Federal law are producing
significant changes in the banking and financial services industries.
Deregulation has resulted in the diversification of certain financial products
and services offered by banks and financial services companies, creating
increased competition between them. A number of states have authorized banks
within their boundaries to acquire or be acquired by banks located in states
that have adopted reciprocal legislation. Concurrently, traditional banking
restrictions on intrastate mergers and consolidations have been eliminated
within several states. Although regional banks involved in intrastate and
interstate mergers and acquisitions may benefit from such regulatory changes,
those which do not participate in such consolidation may find that it is
increasingly difficult to compete effectively against larger banking
combinations. Proposals to change the laws and regulations governing banks and
companies that control banks are frequently introduced at the federal and state
level and before various bank regulatory agencies. The likelihood of any changes
and the impact such changes might have are impossible to determine.
9
<PAGE>
LEGISLATION, REGULATIONS, AND POLICIES AFFECTING THE BANKING INDUSTRY. The last
few years have seen a significant amount of regulatory and legislative activity
focused on the expansion of bank powers and diversification of services that
banks may offer. These expanded powers have exposed banks to well-established
competitors and have eroded the distinctions between regional banks, community
banks, thrifts and other financial institutions. Pending legislation,
specifically the Financial Services Competition Act of 1997, which has been
approved by the House Banking Committee, if enacted in its present form, would
continue this trend. The proposed legislation would repeal key provisions of the
Glass-Steagall Act which historically has limited the scope of banking
organizations' securities activities. The proposed legislation would not only
eliminate banks' restrictions on affiliations with securities firms, but also
would permit affiliations with insurance companies and would require federally
chartered savings associations to convert to either national bank or state
charters. The proposed legislation, if enacted, would also permit bank holding
companies to engage in non-financial activities and commercial entities to
acquire banks, subject to certain limitations.
LEGISLATION, REGULATIONS, AND POLICIES AFFECTING THE THRIFT INDUSTRY. The
thrifts in which the Fund invests generally are subject to the same risks as
banks discussed above. Such risks include interest rate changes, credit risks,
and regulatory risks. Because thrifts differ in certain respects from banks,
however, thrifts may be affected by such risks in a different manner than banks.
Traditionally, thrifts have different and less diversified products than banks,
have a greater concentration of real estate in their lending portfolio, and are
more concentrated geographically than banks. Thrifts and their holding companies
are subject to extensive government regulation and supervision including regular
examinations of thrift holding companies by the Office of Thrift Supervision
(the 'OTS'). Such regulations have undergone substantial change since the 1980's
and will probably change in the next few years.
Certain recent legislation, as well as the pending Financial Services
Competition Act of 1997, are likely to have a significant impact on the thrift
industry. For example, the recent merger of the Savings Association Insurance
Fund into the Bank Insurance Fund has eliminated most of the higher deposit
insurance premiums paid by thrifts, making thrifts more competitive with banks.
In addition, the proposed Financial Services Competition Act of 1997, if enacted
in its present form, would require federally chartered savings associations to
convert their charters to either national bank or state charters. State
chartered savings associations would be treated as commercial banks. Thrifts
also would lose many of their existing powers and the OTS would be folded into
the Office of the Comptroller of the Currency, which is the primary regulator of
national banks.
INVESTMENT TECHNIQUES
TEMPORARY DEFENSIVE AND OTHER SHORT-TERM POSITIONS. When the Investment Manager
determines that it is in the best interest of the Fund to assume a temporary
defensive position due to an unusual degree of financial unsteadiness or risk
existing in the banking and related industries, the Fund may invest more than
25% and as much as 100% of its total assets in Short-Term Debt Securities. To
the extent that the Fund is in a temporary defensive position, it will not be
able to pursue its investment objective. Assuming a temporary defensive position
is purely discretionary with the Investment Manager.
OTHER INVESTMENT COMPANIES. The Fund may invest in shares issued by investment
companies. The Fund is limited in the degree to which it may invest in shares of
another investment company in that it may not, at the time of the purchase, (1)
acquire more than 3% of the outstanding voting shares of the investment company,
(2) invest more than 5% of the Fund's total assets in the investment company, or
(3) invest more than 10% of the Fund's total assets in all investment company
holdings. As a shareholder in any investment company, the Fund will bear its
ratable share of the investment company's expenses, including management fees in
the case of a management investment company.
ILLIQUID SECURITIES. The Fund may invest in an illiquid or restricted security
if the Investment Manager believes that it presents an attractive investment
opportunity. Generally, a security is considered illiquid if it cannot be
disposed of within seven days. Its illiquidity might prevent the sale of such a
security at a time when the Investment Manager might wish to sell, and these
securities could have the effect of decreasing the overall level of the Fund's
liquidity. Further, the lack of an established secondary market may make it
10
<PAGE>
more difficult to value illiquid securities, requiring the Fund to rely on
judgments that may be somewhat subjective in determining value, which could vary
from the amount that the Fund could realize upon disposition.
Restricted securities, including placements, are subject to legal or contractual
restrictions on resale. They can be eligible for purchase without Securities and
Exchange Commission ('SEC') registration by certain institutional investors
known as 'qualified institutional buyers,' and under the Fund's procedures,
restricted securities could be treated as liquid. However, some restricted
securities may be illiquid and restricted securities that are treated as liquid
could be less liquid than registered securities traded on established secondary
markets. The Fund may not invest more than 15% of its total assets in illiquid
securities, measured at the time of investment.
BORROWING. The Fund may borrow money from banks to obtain short-term credits as
are necessary for the clearance of securities transactions, but not in an amount
exceeding 15% of its total assets. Borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the Fund's net
asset value ('NAV'), and money borrowed will be subject to interest and other
costs. Under the Investment Company Act of 1940, as amended (the '1940 Act'),
the Fund is required to maintain continuous asset coverage of 300% with respect
to such borrowings and to sell (within three days) sufficient portfolio holdings
to restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Fund's holdings may
be disadvantageous from an investment standpoint.
THE FUND: DIVERSIFICATION AND CHANGES IN POLICIES
The Fund is diversified, so that with respect to 75% of its assets, it may not
invest more than 5% of its assets (measured at market value at the time of
investment) in securities of any one issuer, except that this restriction does
not apply to U.S. Government securities.
The Fund's primary investment objective is to achieve long-term capital
appreciation. Income is its secondary objective. These investment objectives are
'fundamental.' Fundamental policies may only be changed with the approval of a
Majority Vote of shareholders of the Fund. Other investment policies of the Fund
may be changed by the Board of Directors. The Fund is subject to investment
restrictions that are described in the Statement of Additional Information under
'Investment Restrictions.' Some of those restrictions are designated as
'fundamental.' These fundamental restrictions as well as the diversified status
of the Fund require a Majority Vote of the shareholders of the Fund to be
changed.
THE BANKING AND THRIFT INDUSTRIES
The Fund invests at least 65% of its total assets in the equity securities of
(i) national and state-chartered banks other than Money Center Banks (as defined
below); (ii) thrifts, (iii) the holding or parent companies of such
institutions; and also in savings accounts of mutual thrifts which investment
may entitle the investor to participate in future stock conversions of the
mutual thrifts.
As of December 31, 1996, the commercial banking industry in the United States
comprised approximately 11,454 state or federally chartered banks, many of which
are subsidiaries of bank holding companies. Bank holding companies are separate
legal entities that own the stock of, and receive a substantial portion of their
income from, one or more bank subsidiaries. Although commercial banks range in
size from small banks under $10 million in total assets to the largest bank
holding companies with assets well over $100 billion, they can be classified
into three general categories. A 'Money Center Bank' is a bank or bank holding
company that is typically located in an international financial center and has a
strong international business with a significant percentage of its assets
outside the United States. 'Regional Banks' are banks and bank holding companies
which provide full service banking, often operating in two or more states in the
same geographic area, and whose assets are primarily related to domestic
business. Regional Banks are smaller than Money Center Banks and also may
include banks conducting business in a single state or city and banks operating
in a limited number of states in one or more geographic regions. The third
category which constitutes the majority in number of banking organizations are
typically smaller institutions that are
11
<PAGE>
more geographically restricted and less well-known than Money Center Banks or
Regional Banks and are commonly described as 'Community Banks.'
The thrift industry is comprised of over 1,300 institutions with assets of over
$769 billion. Thrifts and thrift holdings companies differ from banks and bank
holding companies in the range of their permissible activities and the degree of
regulation. Thrifts resemble community banks in that they hold a substantial
portion of their portfolio in mortgage, consumer and small business loans.
Thrifts are restricted in the mix of assets on their balance sheet by the
qualified thrift lender rules and are required to have certain minimum
percentages of mortgages, credit cards and student loans with specified maximum
percentages of consumer and commercial loans.
The banking and thrift industries are subject to extensive governmental
regulations which may limit both the amounts and types of loans and other
financial commitments which may be made and the interest rates and fees which
may be charged. Recently enacted and currently proposed legislation would have
an impact on the present status of the thrift industry. See 'Investment
Practices and Risk Considerations--Legislation, Regulations, and Policies
Affecting the Thrift Industry'. The profitability of these concerns is largely
dependent upon interest rates and the resulting availability and cost of capital
funds over which these concerns have limited control, and, in the past, such
profitability has shown significant fluctuation as a result of volatile interest
rate levels. In addition, general economic conditions are important to the
operations of these concerns, with exposure to credit losses resulting from
financial difficulties of borrowers.
Banks and bank holding companies are subject to extensive government regulation
limiting their activities. Federally chartered banks and state-chartered banks
whose deposits are insured by the Federal Deposit Insurance Corporation and bank
holding companies are subject to Federal supervision and regulation and, in
certain situations, to state laws applicable to financial institutions. Federal
banking authorities receive comprehensive reports on and conduct examinations of
a number of aspects of a federally-regulated bank's business and condition,
including its dividends, capital ratios, allowances for loan losses and other
aspects of the bank's financial condition and operation. A national bank must
obtain prior regulatory approval if it wishes to pay dividends on its common or
preferred stock if the total of all dividends in any calendar year exceeds the
aggregate of the bank's net profits, as defined, for that year and its retained
net profits (net profits less dividends paid) for the two proceeding years. A
national bank may not pay a dividend on its common stock if the dividend would
exceed net undivided profits then on hand. Federally-regulated banks are
required to maintain designated minimum ratios of capital to total assets. These
ratios were recently revised to call for higher levels of capital and may be
increased in the future. State banking agencies regulate and supervise
state-charted banks under regulations which may be similar to those existing
under Federal law.
Bank holding companies are required to register and file reports with the Board
of Governors of the Federal Reserve System and are subject to examinations of
certain aspects of their businesses and their subsidiaries' businesses. The
principal sources of a bank holding company's income are dividends and interest
from its subsidiaries. Under Federal law, banks are subject to certain
restrictions on extensions of credit to, and certain other transactions with,
their bank holding companies and certain other affiliates, and on investments in
stock or other securities thereof. Such restrictions prevent bank holding
companies and such other affiliates from borrowing from their banks unless the
loans are secured in specified amounts. Further, such secured loans, other
transactions and investments by their banks are generally limited in amount as
to the bank holding company and as to each of such other affiliates to 10% of
the bank's capital and surplus and as to the bank holding company and all such
affiliates to an aggregate of 20% of the bank's capital and surplus. Any
combination between banks and bank holding companies requires prior approval of
appropriate Federal and state bank regulatory agencies.
Thrift holding companies can be stock or mutual companies. Thrift holding
companies, unlike bank holding companies, have historically been given broad
powers. For example, holding companies that own a single thrift can engage in
any activities that do not threaten the safety of the subsidiary thrift. Thrift
holding companies are allowed to engage in more business lines than banks are,
such as real estate acquisition, development, management, sales and rentals, and
insurance agency businesses. Thrift holding
12
<PAGE>
companies must comply with a variety of strict statutory and regulatory
requirements and restrictions and undergo regular examinations by the OTS
whereas banks are regulated by the Federal Reserve Board. The underlying thrifts
are also restricted in the scope and manner of their interaction with the parent
company. The activities in which a thrift holding company is permitted to engage
will depend on the number of thrifts controlled.
Certain economic factors are of particular importance to the banking industry.
The availability and cost of funds to banks is important to their profitability;
consequently, higher capital ratios, high deposit insurance premiums, volatile
interest rates and general economic conditions can have an impact on their
financial performance and condition. Banking legislation, enacted in 1989 and
1991, in general, has broadened the regulatory powers of federal bank regulatory
agencies. Among other things, this legislation grants federal banking agencies
the authority to approve special assessments on insured depository institutions
with respect to maintaining the deposit insurance fund. The quality of a bank's
portfolio of loans can be adversely affected by depressed market conditions in
certain industries. Examples of such industries that have affected the loan
portfolios of some banks include commercial real estate, international business,
agriculture and energy. Smaller Regional Banks, Community Banks, and thrifts can
be particularly affected by such conditions if the economic base of the area in
which they are located is closely tied to a depressed industry, such as family
farming.
SHAREHOLDER GUIDE
PILGRIM AMERICA PURCHASE OPTIONS(TRADEMARK)
You may select from two separate classes of shares: Class A and Class B, both of
which represent an identical interest in the Fund's investment portfolio, but
are offered with different sales charges and distribution fee (Rule 12b-1)
arrangements. These sales charges and fees are shown and contrasted in the chart
below.
<TABLE>
<CAPTION>
ANNUAL AUTOMATIC
MAXIMUM SALES DISTRIBUTION MAXIMUM CONVERSION
CLASS CHARGE ON PURCHASES (A) CDSC FEES(D) PURCHASE TO CLASS A
- ----- ------------------------ ----- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
A.... 5.75% None (b) 0.25% Unlimited N/A
B.... None 5.00%(c) 1.00% $250,000 After 8 Years
</TABLE>
- ------------------
(a) Imposed upon purchase. Reduced for purchases of $50,000 or more.
(b) For investments of $1 million or more, a CDSC of no more than 1% is assessed
on redemptions made within one or two years from purchase, depending on the
amount of purchase. See 'Class A Shares: Initial Sales Charge Alternative.'
(c) Imposed upon redemption within 6 years from purchase with scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'
(d) Annual asset-based distribution charge.
When choosing between classes, investors should carefully consider the ongoing
annual expenses along with the initial sales charge or CDSC. The relative impact
of the initial sales charges and ongoing annual expenses will depend on the
length of time a share is held. Orders for Class B shares in excess of $250,000
will be accepted as orders for Class A shares or declined. You should discuss
which class of shares is right for you with your Authorized Dealer.
13
<PAGE>
CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of the Fund
are sold at the NAV per share in effect plus a sales charge as described in the
following table. For waivers or reductions of the Class A shares sales charges,
see 'Special Purchases without a Sales Charge' and 'Reduced Sales Charges.'
<TABLE>
<CAPTION>
DEALERS'
REALLOWANCE AS
AS A % OF OFFERING AS A % OF A % OF
AMOUNT OF TRANSACTION PRICE PER SHARE NAV OFFERING PRICE
- ------------------------------------- ------------------ --------- --------------
<S> <C> <C> <C>
Less than $50,000.................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000....... 4.50% 4.71% 3.75%
$100,000 but less than $250,000...... 3.50% 3.63% 2.75%
$250,000 but less than $500,000...... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000.... 2.00% 2.04% 1.75%
</TABLE>
There is no initial sales charge on purchases of $1,000,000 or more. However,
the Distributor will pay Authorized Dealers of record commissions at the rates
shown in the table below for investments subject to a CDSC. If shares are
redeemed within one or two years of purchase, depending on the amount of the
purchase, a CDSC will be imposed on certain redemptions as follows:
<TABLE>
<CAPTION>
DEALER PERIOD DURING
ON PURCHASES OF: CDSC ALLOWANCE WHICH CDSC APPLIES
- --------------------------------------- ----- --------- ------------------
<S> <C> <C> <C>
$1,000,000 but less than $2,500,000.... 1.00% 1.00% 2 Years
$2,500,000 but less than $5,000,000.... 0.50% 0.50% 1 Year
$5,000,000 and over.................... 0.25% 0.25% 1 Year
</TABLE>
CLASS A SHARES: REDEMPTION FEE. Upon the conversion of the Fund to open-end
status, the Fund's outstanding shares were designated Class A shares. No sales
charge was due as a result of the conversion. However, if such shares are
redeemed or exchanged for shares of another open-end Pilgrim America Fund prior
to one year from date of conversion, they will be subject to a 2% redemption fee
payable to the Fund. The Fund reserves the right to waive or reduce the
redemption fee in whole or in part.
CLASS B SHARES: DEFERRED SALES CHARGE ALTERNATIVE. If you choose the deferred
sales charge alternative, you will purchase Class B shares at their NAV per
share without the imposition of a sales charge at the time of purchase. Class B
shares that are redeemed within six years of purchase, however, will be subject
to a CDSC as described in the table that follows. Class B shares of the Fund are
subject to a distribution fee at an annual rate of 1.00% of the average daily
net assets of the Class, which is higher than the distribution fee for Class A
shares. The higher distribution fee means a higher expense ratio, so Class B
shares pay correspondingly lower dividends and may have a lower NAV than Class A
shares. In connection with sales of Class B shares, the Distributor compensates
Authorized Dealers at a rate of 4% of purchase payments subject to a CDSC.
Orders for Class B shares in excess of $250,000 will be accepted for Class A
shares or declined.
The amount of the CDSC charge is determined as a percentage of the lesser of the
NAV of the Class B shares at the time of purchase or redemption. No charge will
be imposed for any net increase in the value of shares purchased during the
preceding six years in excess of the purchase price of such shares or for shares
acquired either by reinvestment of net investment income dividends or capital
gain distributions. The percentage used to calculate the CDSC will depend on the
number of years since you invested the dollar amount being redeemed according to
the following table:
<TABLE>
<CAPTION>
YEAR OF
REDEMPTION
AFTER PURCHASE CDSC
- ---------------------------- ----
<S> <C>
First..................... 5%
Second.................... 4%
Third..................... 3%
Fourth.................... 3%
Fifth..................... 2%
Sixth..................... 1%
Seventh and following..... 0%
</TABLE>
14
<PAGE>
To determine the CDSC payable on redemptions of Class B shares, the Fund will
first redeem shares in accounts that are not subject to a CDSC; second, shares
acquired through reinvestment of net investment income dividends and capital
gain distributions; third, shares purchased more than 6 years prior to
redemption; and fourth, shares subject to a CDSC in the order in which such
shares were purchased. Using this method, your sales charge, if any, will be at
the lowest possible CDSC rate.
Class B shares will automatically convert into Class A shares approximately
eight years after purchase. For additional information on the CDSC and the
conversion of Class B shares, see the Statement of Additional Information.
REDUCED SALES CHARGES. An investor may immediately qualify for a reduced sales
charge on a purchase of Class A shares of the Fund or of other open-end funds in
the Pilgrim America Funds which offer Class A shares or shares with front-end
sales charges ('Participating Funds') by completing the Letter of Intent section
of the New Account Application. Executing the Letter of Intent expresses an
intention to invest a specified amount during the next 13 months, which, if made
at one time, would qualify for a reduced sales charge. An amount equal to the
Letter amount multiplied by the maximum sales charge imposed on purchases of the
applicable fund and class will be restricted within your account to cover
additional sales charges that may be due if your actual total investment fails
to qualify for the reduced sales charges. See the New Account Application or the
Statement of Additional Information for details on the Letter of Intent option
or contact the Shareholder Servicing Agent at (800) 331-1080 for more
information.
The sales charge for your investment may also be reduced by taking into account
the current value of your existing holdings in the Fund or any other open-end
funds in the Pilgrim America Funds (excluding Pilgrim America General Money
Market shares) ('Rights of Accumulation'). The reduced sales charges apply to
quantity purchases made at one time or on a cumulative basis over any period of
time by: (i) an investor; (ii) the investor's spouse and children under the age
of majority; (iii) the investor's custodian account(s) for the benefit of a
child under the Uniform Gifts to Minors Act; (iv) a trustee or other fiduciary
of a single trust estate or a single fiduciary account (including a pension,
profit-sharing and other employee benefit plans qualified under Section 401 of
the Internal Revenue Code); and (v) trust companies, registered investment
advisers, banks and bank trust departments for accounts over which they exercise
exclusive discretionary investment authority and which are held in a fiduciary,
agency, advisory, custodial or similar capacity. See the New Account Application
or the Statement of Additional Information for details or contact the
Shareholder Servicing Agent at (800) 331-1080 for more information.
For purposes of Rights of Accumulation and the Letter of Intent Privilege,
shares held by investors in the open-end Pilgrim America Funds which impose a
CDSC may be combined with Class A shares for a reduced sales charge but such
combination will not affect any CDSC which may be imposed upon the redemption of
those shares. Additionally, shares held by investors in Class M shares of other
Pilgrim America Funds may be combined with Class A Shares for a reduced sales
charge.
WAIVERS OF CDSCS. The CDSC on Class A or Class B shares will be waived in the
case of a redemption following the death or permanent disability of a
shareholder if made within one year of death or initial determination of
permanent disability. The waiver is available for total or partial redemptions
of shares of the Fund owned by an individual or an individual in joint tenancy
(with rights of survivorship), but only for those shares held at the time of
death or initial determination of permanent disability. The CDSC also may be
waived for Class B Shares redeemed pursuant to a Systematic Withdrawal Plan, up
to a maximum of 12% per year of a shareholder's account value based on the value
of the account at the time the plan is established and annually thereafter,
provided all dividends and distributions are reinvested and the total
redemptions do not exceed 12% annually. In determining whether a CDSC is
applicable, it will be assumed that shares held in the shareholder's account
that are not subject to such charge are redeemed first.
The CDSC also will be waived in the case of a total or partial redemption of
shares of the Fund in connection with any mandatory distribution from a
tax-deferred retirement plan or an IRA. The shareholder must have attained the
age of 70 1/2 to qualify for the CDSC waiver relating to mandatory
distributions. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation of service. The
shareholder must notify the Transfer Agent either directly or through the
Distributor, at the time of redemption, that the shareholder is entitled to a
waiver of the CDSC.
15
<PAGE>
The CDSC Waiver Form included in the New Account Application must be completed
and provided to the Transfer Agent at the time of the redemption request. The
waiver will be granted subject to confirmation of the grounds for the waiver.
The foregoing waivers may be changed at any time.
REINSTATEMENT PRIVILEGE. Class B shareholders who have redeemed their shares in
any open-end Pilgrim America Fund within the previous 90 days may repurchase
Class B shares at NAV (at the time of reinstatement) in an amount up to the
redemption proceeds. Reinstated Class B shares will retain their original cost
and purchase date for purposes of the CDSC. The amount of any CDSC also will be
reinstated.
To exercise this privilege, a written order for the purchase of shares must be
received by the Transfer Agent or be postmarked within 90 days after the date of
redemption. This privilege can be used only once per calendar year. If a loss is
incurred on the redemption and the reinstatement privilege is used, some or all
of the loss may not be allowed as a tax deduction. See 'Tax Considerations' in
the Statement of Additional Information.
SPECIAL PURCHASES WITHOUT A SALES CHARGE. Class A shares may be purchased at
NAV without a sales charge by:
1) Class A shareholders who have redeemed their shares in any open-end
Pilgrim America Fund within the previous 90 days. These shareholders
may repurchase shares at NAV in an amount equal to their net redemption
proceeds. Authorized Dealers who handle these purchases may charge fees
for this service.
2) Any person who can document that Fund shares were purchased with
proceeds from the redemption (within the previous 90 days) of shares
from any unrelated mutual fund on which a sales charge was paid or
which were subject at any time to a CDSC.
3) Any charitable organization or governmental entity that has determined
that the Fund is a legally permissible investment and which is
prohibited by applicable law from paying a sales charge or commission
in connection with the purchase of shares of any mutual fund.
4) Officers, directors and full-time employees of Pilgrim America Capital
Corporation and its subsidiaries.
5) Certain fee based broker-dealers or registered representatives thereof
or registered investment advisers under certain circumstances making
investments on behalf of their clients.
6) Shareholders who have authorized the automatic transfer of dividends
from the same class of another open-end Pilgrim America Fund
distributed by the Distributor or from Pilgrim America Prime Rate
Trust.
7) Registered investment advisors, trust companies and bank trust
departments investing in Class A shares on their own behalf or on
behalf of their clients, provided that the aggregate amount invested in
the Fund or in any combination of shares of the Fund plus Class A
shares of certain other Participating Funds as described herein under
'Pilgrim America Purchase Options(Trademark)--Reduced Sales Charges',
during the 13 month period commencing with the first investment
pursuant hereto equals at least $1 million. The Distributor may pay
Authorized Dealers through which purchases are made an amount up to
0.50% of the amount invested, over a 12 month period following the
transaction.
8) Accounts as to which a banker or broker-dealer charges an account
management fee ('wrap accounts').
9) Broker-dealers, who have signed selling group agreements with the
Distributor, and registered representatives and employees of such
broker-dealers, for their own accounts or for members of their families
(defined as current spouse, children, parents, grandparents, uncles,
aunts, siblings, nephews, nieces, step relations, relations-at-law and
cousins).
10) Broker-dealers using third party administrators for qualified
retirement plans who have entered into an agreement with Pilgrim
America Funds or an affiliate, subject to certain operational and
minimum size requirements specified from time to time by the Pilgrim
America Funds.
16
<PAGE>
The Fund may terminate or amend the terms of offering shares of the Fund at NAV
to these investors at any time. For additional information, contact the
Shareholder Servicing Agent at (800) 331-1080, or see the Statement of
Additional Information.
INCENTIVES. The Distributor, at its expense, will provide additional
promotional incentives to Authorized Dealers in connection with sales of shares
of the Fund and other open-end funds in the Pilgrim America Funds. In some
instances, additional compensation or promotional incentives will be offered to
Authorized Dealers that have sold or may sell significant amounts of shares.
Such compensation and incentives may include, but are not limited to, cash,
merchandise, trips and financial assistance in connection with pre-approved
conferences or seminars, sales or training programs for invited sales personnel,
payment for travel expenses (including meals and lodging) incurred by sales
personnel to various locations for such seminars or training programs, seminars
for the public, advertising and sales campaigns regarding the Fund or other
mutual funds in the Pilgrim America Group and/or other events sponsored by
Authorized Dealers.
In addition, the Distributor will, at its own expense, pay concessions in
addition to those described above to dealers that satisfy certain criteria
established from time to time by the Distributor. These conditions relate to
increasing sales of shares of the Fund over specified periods and to certain
other factors. These payments may, depending on the dealer's satisfaction of the
required conditions, be periodic and may be up to (1) 0.25% of the value of the
Fund's shares sold by the dealer during a particular period, and (2) 0.10% of
the value of the Fund's shares held by the dealer's customers for more than one
year, calculated on an annual basis.
RULE 12B-1 PLANS. The Fund has a distribution plan pursuant to Rule 12b-1 under
the 1940 Act applicable to each class of shares of the Fund (Rule 12b-1 Plan).
Under the Rule 12b-1 Plan, the Distributor may receive from the Fund an annual
fee in connection with the offering, sale and shareholder servicing of Class A
and Class B shares at an annual rate of up to 0.35% and 1.00%, respectively, of
the average daily net assets of Class A and Class B shares of the Fund.
Currently, the Board of Directors has approved annual fees of 0.25% and 1.00%,
respectively, which are accrued daily and paid monthly. Of these amounts, fees
equal to an annual rate of 0.25% of the average daily net assets of the Fund are
for shareholder servicing for each of the classes. Fees paid under the Rule
12b-1 Plan may be used to cover the expenses of the Distributor from the sale of
Class A or Class B shares of the Fund, including payments to Authorized Dealers,
and for shareholder servicing. These fees may be used to pay the costs of the
following: payments to Authorized Dealers; promotional activities; preparation
and distribution of advertising materials and sales literature; expenses of
organizing and conducting sales seminars; personnel costs and overhead of the
Distributor; printing of prospectuses and statements of additional information
(and supplements thereto) and reports for other than existing shareholders;
supplemental payments to Authorized Dealers that provide shareholder services;
interest on accrued distribution expenses; and costs of administering the Rule
12b-1 Plan. With respect to the Fund's Class B shares, no more than 0.75% per
annum of the average net assets of Class B shares of the Fund may be used to
finance distribution expenses, exclusive of shareholder servicing payments. With
respect to Class A and Class B shares of the Fund, no Authorized Dealer may
receive shareholder servicing payments in excess of 0.25% per annum of the
Fund's average net assets held by the Authorized Dealer's clients or customers.
The Distributor will receive payment under the Rule 12b-1 Plans without regard
to actual distribution expenses that it incurs.
Under the Rule 12b-1 Plans, ongoing payments will be made on a quarterly basis
to Authorized Dealers for both distribution and shareholder servicing at the
annual rate of 0.25% of the Fund's average daily net assets of each of the Class
A and Class B shares that are registered in the name of that Authorized Dealer
as nominee or held in a shareholder account that designates that Authorized
Dealer as the dealer of record. Rights to these ongoing payments begin to accrue
in the 13th month following a purchase of Class A or B shares and they cease
upon exchange (or purchase) into Pilgrim America General Money Market Shares.
The payments are also subject to the continuation of the relevant distribution
plan, the terms of service agreements between dealers and the Distributor, and
any applicable limits imposed by the National Association of Securities Dealers,
Inc. The distribution and service fees for Class A shares acquired prior to the
Fund's conversion to an open-end investment company will be paid to the
Distributor.
17
<PAGE>
OTHER EXPENSES. In addition to the management fee and other fees described
previously, the Fund pays other expenses, such as legal, audit, transfer agency
and custodian out-of-pocket fees, proxy solicitation costs, and the compensation
of Directors who are not affiliated with the Investment Manager. Most Fund
expenses are allocated proportionately among each of the classes of the Fund.
However, the Rule 12b-1 Plans' fees for each class of shares are charged
proportionately only to the outstanding shares of that class.
PURCHASING SHARES
Your Authorized Dealer can help you establish and maintain your account, and the
Shareholder Servicing Agent is available to assist you with any questions you
may have.
The Fund reserves the right to liquidate sufficient shares to recover annual
Transfer Agent fees should the investor fail to maintain his/her account value
at a minimum of $1,000.00 ($250.00 for IRA's).
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENT
------ ------------------ ---------------------
<S> <C> <C>
By contacting your The minimum initial investment in the Fund is The minimum for additional investment in the Fund
Authorized Dealer $1,000 ($250 for IRAs). Visit or consult your is $100. Visit or consult your Authorized Dealer.
Authorized Dealer.
By mail Make your check payable to Pilgrim America Funds Fill out the account additions form included on
and mail it, along with a completed New Account the bottom of your account statement along with
Application, to the address indicated on the New your check payable to the Fund and mail them in
Account Application. Please indicate an Authorized the envelope provided with the account statement.
Dealer on the application. Remember to write your account number on the
check.
By wire Call the Pilgrim America Order Department at (800) Call the Pilgrim America Order Department at (800)
336-3436 to obtain an account number and indicate 336-3436 to obtain a wire reference number. Give
an Authorized Dealer on the account. Instruct your that number to your bank and have them wire the
bank to wire funds to the Fund in care of: funds in the same manner described under 'Initial
Investment.'
Investors Fiduciary Trust Co.
ABA #101003621
Kansas City, MO
credit to:
Pilgrim America Bank and Thrift Fund, Inc.
A/C# 752-4854 for further credit to:
Shareholder A/C
# -----------------------------------------
(A/C # you received over the telephone)
Shareholder Name:
------------------------------------------
(Your Name Here)
After wiring funds you must complete the New
Account Application and send it to:
Pilgrim America Order Dept.
P.O. Box 419368
Kansas City, MO 64141-6368
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.
</TABLE>
18
<PAGE>
PRICE OF SHARES. Purchase, sale and exchange orders are effected at NAV for the
respective class of shares of the Fund, determined after the order is received
by the Transfer Agent or Distributor, plus any applicable sales charge (Public
Offering Price).
Purchases of each class of the Fund's shares are effected at the Fund's Public
Offering Price determined after a purchase order has been received in proper
form. A purchase order will be deemed to be in proper form when all of the
required steps set forth above under 'Purchase of Shares' have been completed.
In the case of an investment by wire, however, the order will be deemed to be in
proper form after the telephone notification and the federal funds wire have
been received. A shareholder who purchases by wire must submit an application
form in a timely fashion. If an order or payment by wire is received after the
close of the New York Stock Exchange, 4:00 p.m. Eastern Time (1:00 p.m., Pacific
Time), the shares will not be credited until the next business day.
You will receive a confirmation of each new transaction in your account, which
also will show you the number of Fund shares you own including the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Fund will not be issued
unless you request them in writing.
DETERMINATION OF NET ASSET VALUE. The NAV of each class of the Fund's shares
will be determined daily as of the close of trading on the New York Stock
Exchange (usually at 4:00 p.m. New York City time) on each day that it is open
for business. Each class' NAV represents that class' pro rata share of the
Fund's net assets as adjusted for any class specific expenses (such as fees
under a Rule 12b-1 plan), divided by that class' outstanding shares. In general,
the value of the Fund's assets is based on actual or estimated market value,
with special provisions for assets not having readily available market
quotations and short-term debt securities. The NAV per share of each class of
shares of the Fund will fluctuate in response to changes in market conditions
and other factors. Portfolio securities for which market quotations are readily
available are stated at market value. Short-term debt securities having a
maturity of 60 days or less are valued at amortized cost, unless the amortized
cost does not approximate market value. Securities prices may be obtained from
automated pricing services. In other cases, securities are valued at their fair
value as determined in good faith by the Board of Directors of the Fund,
although the actual calculations will be made by persons acting under the
supervision of the Board.
PRE-AUTHORIZED INVESTMENT PLAN. You may establish a pre-authorized investment
plan to purchase shares with automatic bank account debiting. For further
information on pre-authorized investment plans, see the New Account Application
or contact the Shareholder Servicing Agent at (800) 331-1080.
RETIREMENT PLANS. The Fund has available prototype qualified retirement plans
for both corporations and for self-employed individuals. It also has available
prototype IRA and Simple IRA plans (for both individuals and employers),
Simplified Employee Pension Plans, Pension and Profit Sharing Plans and Tax
Sheltered Retirement Plans for employees of public educational institutions and
certain non-profit, tax-exempt organizations. Investors Fiduciary Trust Company
('IFTC') acts as the custodian under these plans. For further information,
contact the Shareholder Servicing Agent at (800) 331-1080. IFTC currently
receives a $12.00 custodian fee annually for maintenance of IRA accounts.
TELEPHONE ORDERS. The Fund and its Transfer Agent will not be responsible for
the authenticity of phone instructions or losses, if any, resulting from
unauthorized shareholder transactions if they reasonably believe that such
instructions were genuine. The Fund and its Transfer Agent have established
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include: (i) recording telephone instructions for
exchanges and expedited redemptions; (ii) requiring the caller to give certain
specific identifying information; and (iii) providing written confirmation to
shareholders of record not later than five days following any such telephone
transactions. If the Fund and its Transfer Agent do not employ these procedures,
they may be liable for any losses due to unauthorized
19
<PAGE>
or fraudulent telephone instructions. Telephone redemptions may be executed on
all accounts other than retirement accounts.
EXCHANGE PRIVILEGES AND RESTRICTIONS
An exchange privilege is available. Exchange requests may be made in writing to
the Transfer Agent or by calling the Transfer Agent at (800) 992-0180. There is
no specific limit on exchange frequency; however, the shares in the Fund are
intended for long term investment and not as a trading vehicle. The Investment
Manager reserves the right to prohibit excessive exchanges (more than four per
year). The Investment Manager reserves the right, upon 60 days' prior notice, to
restrict the frequency of, otherwise modify, or impose charges of up to $5.00
upon exchanges. The total value of shares being exchanged must at least equal
the minimum investment requirement of the fund into which they are being
exchanged.
Shares of one class of the Fund may be exchanged for shares of that same class
of any other open-end Pilgrim America Fund other than Pilgrim America General
Money Market Shares ('Money Market'), at NAV without payment of any additional
sales charge. If you exchange and subsequently redeem your shares, any
applicable CDSC will be based on the full period of the share ownership. Shares
of the Fund that are not subject to a CDSC may be exchanged for shares of Money
Market, and shares of Money Market acquired in the exchange may subsequently be
exchanged for shares of any open-end Pilgrim America Fund of the same class as
the original shares acquired. Shares of the Fund that are subject to a CDSC may
be redeemed to purchase shares of Money Market upon payment of the CDSC.
Shareholders of the Fund at the time of the Fund's conversion from a closed-end
investment company to an open-end investment company who exchange their Class A
shares issued upon conversion at any time before , 1998 shall be subject
to a 2% redemption fee payable to the Fund. The Fund reserves the right to waive
or reduce the redemption fee in whole or in part. Shareholders exercising the
exchange privilege with any of Pilgrim America Fund's other open-end funds
should carefully review the prospectus of that fund. Exchanges of shares are
sales and may result in a gain or loss for federal and state income tax
purposes. You will automatically be assigned the telephone exchange privilege
unless you mark the box on the New Account Application that signifies that you
do not wish to have this privilege. The exchange privilege is only available in
states where shares of the Fund being acquired may be legally sold.
SYSTEMATIC EXCHANGE PRIVILEGE. Subject to the information and limitations
outlined above, you may elect to have a specified dollar amount of shares
systematically exchanged monthly, quarterly, semi-annually or annually (on or
about the 10th of the applicable month), from your account to an identically
registered account in the same class of any other open-end Pilgrim America Fund.
The exchange privilege may be modified at any time or terminated upon 60 days'
written notice to shareholders.
20
<PAGE>
HOW TO REDEEM SHARES
Shares of the Fund will be redeemed at the NAV (less any applicable CDSC,
redemption fee, and/or federal income tax withholding) next determined after
receipt of a redemption request in good form on any day the New York Stock
Exchange is open for business.
<TABLE>
<CAPTION>
METHOD PROCEDURES
------ ----------
<S> <C>
Redemption By Contacting Your Authorized Dealers may communicate redemption orders by wire or telephone to
Authorized Dealer the Distributor. These firms may charge for their services in connection with
your redemption request, but neither the Fund nor the Distributor imposes any
such charge.
Redemption by Mail A written request for redemption must be received by the Transfer Agent in
order to constitute a valid tender. If certificated shares have been issued,
the certificate must accompany the written request. The Transfer Agent may
also require a signature guarantee by an eligible guarantor. It will also be
necessary for corporate investors and other associations to have an
appropriate certification on file authorizing redemptions by a corporation or
an association before a redemption request will be considered in proper form.
A suggested form of such certification is provided on the New Account
Application. If you are entitled to a CDSC waiver, you must complete the CDSC
waiver form in the New Account Application. To determine whether a signature
guarantee or other documentation is required, shareholders may call the
Shareholder Servicing Agent at (800) 331-1080.
Expedited Redemption The Expedited Redemption Privilege allows you to effect a liquidation from
your account via a telephone call and have the proceeds (maximum $50,000)
mailed to an address which has been on record with Pilgrim America for at
least 60 days. This privilege is automatically assigned to you unless you
check the box on the New Account Application which signifies that you do not
wish to utilize such option. The Expedited Redemption Privilege additionally
allows you to effect a liquidation from your account and have the proceeds
(minimum $5,000) wired to your pre-designated bank account. This aspect of the
Expedited Redemption privilege will NOT automatically be assigned to you. If
you want to take advantage of this aspect of the privilege, please check the
appropriate box and attach a voided check to the New Account Application.
Under normal circumstances, proceeds will be transmitted to your bank on the
second business day following receipt of your instructions, provided
redemptions may be made. To effect an Expedited Redemption, please call the
Transfer Agent at (800) 992-0180. In the event that share certificates have
been issued, you may not request a wire redemption by telephone or wire. This
option is not available for retirement accounts.
</TABLE>
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount in excess of $100 made to
yourself, or to anyone else you properly designate, as long as the account has a
current value of at least $10,000. During the withdrawal period, you may
purchase additional shares for deposit to your account if the additional
purchases are equal to at least one year's scheduled withdrawals, or $1,200,
whichever is greater. There are no separate charges to you under this Plan,
although a CDSC may apply. Shareholders of the Fund at the time of the Fund's
conversion to an open-end investment company may redeem the Class A shares
received upon the conversion through a Systematic Withdrawal Plan, but the
shares redeemed will be subject to a 2% redemption fee.
21
<PAGE>
The number of full and fractional shares equal in value to the amount of the
payment will be redeemed at NAV (less any applicable CDSC or redemption fee).
Such redemptions are normally processed on the fifth day prior to the end of the
month, quarter or year. Checks are then mailed or proceeds are forwarded to your
bank account on or about the first of the following month. Shareholders who
elect to have a systematic cash withdrawal must have all dividends and capital
gains reinvested. To establish a systematic cash withdrawal, please complete the
Systematic Withdrawal Plan section of the New Account Application. To have funds
deposited to your bank account, follow the instructions on the New Account
Application.
You may change the amount, frequency and payee, or terminate this plan by giving
written notice to the Transfer Agent. As shares of the Fund are redeemed under
the Plan, you may realize a capital gain or loss for income tax purposes. A
Systematic Withdrawal Plan may be modified at any time by the Fund or terminated
upon written notice by you or the Fund.
PAYMENTS. Payment to shareholders for shares redeemed or repurchased ordinarily
will be made within three days after receipt by the Transfer Agent of a written
request in good order. The Fund may delay the mailing of a redemption check
until the check used to purchase the shares being redeemed has cleared which may
take up to 15 days or more. To reduce such delay, all purchases should be made
by bank wire of federal funds. The Fund may suspend the right of redemption
under certain extraordinary circumstances in accordance with the Rules of the
Securities and Exchange Commission. Due to the relatively high cost of handling
small investments, the Fund reserves the right upon 30 days' written notice to
redeem, at NAV, the shares of any shareholder whose account (except for IRAs)
has a value of less than $1,000, other than as a result of a decline in the NAV
per share. The Fund intends to pay in cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, the Fund may make payment
wholly or partly in securities at their then current market value equal to the
redemption price. In such case, the Fund could elect to make payment in
securities for redemptions in excess of $250,000 or 1% of its net assets during
any 90-day period for any one shareholder. An investor may incur brokerage costs
in converting such securities to cash.
MANAGEMENT OF THE FUND
MANAGEMENT OF THE FUND. The Fund is a registered investment company that was
incorporated in Maryland in November, 1985 as a closed-end, diversified
management investment company. The Fund operated as a closed-end fund prior to
, 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
22
<PAGE>
1.00% of the first $30,000,000 of average daily net assets, 0.75% of the next
$95,000,000 of average daily net assets, and 0.70% of average daily net assets
in excess of $125,000,000. These fees are computed and accrued daily and paid
monthly.
The Investment Manager and Pilgrim America Securities, Inc. ('Distributor'), the
Fund's principal underwriter, are wholly owned subsidiaries of Pilgrim America
Group, Inc. ('Shareholder Servicing Agent'), which is a wholly owned subsidiary
of Pilgrim America Capital Corporation (NASDAQ: PACC). Through its subsidiaries,
Pilgrim America Capital Corporation engages in the financial services business,
focusing on providing investment advisory, administrative and distribution
services to open-end and closed-end investment companies and private accounts.
INVESTMENT PERSONNEL. Carl Dorf, C.F.A., Senior Vice President and Senior
Portfolio Manager of the Fund, has been managing the Fund's portfolio since
January 1991, when he joined the Investment Manager's predecessor. Mr. Dorf is
also a Senior Vice President of the Investment Manager, and is a co-portfolio
manager of Pilgrim America MagnaCap Fund, a series of another open-end fund
managed by the Investment Manager. Prior to his joining the Investment Manager's
predecessor, he was a principal of Dorf & Associates Investment Counsel. His 30
plus years of portfolio management and research experience include positions
with Moody's Investors Service, Inc. as an analyst in the Banking & Finance
Department; with Nuveen Corp. as a financial securities analyst; with Loews
Corp. as a fund manager with responsibility for $150 to $250 million in utility
and financial stocks; with BA Investment Management Corp. as a senior stock
analyst; and with RNC Capital Management as manager of 150 individual, pension,
and profit-sharing accounts. A Chartered Financial Analyst, Mr. Dorf earned both
BBA/Finance and Investments and MBA/Finance and Investments degrees from the
Bernard Baruch School of Business and Public Administration, The City College of
New York.
SHAREHOLDER SERVICING AGENT. Pilgrim America Group, Inc. serves as Shareholder
Servicing Agent for the Fund. The Shareholder Servicing Agent is responsible for
responding to written and telephonic inquiries from shareholders. The Fund pays
the Shareholder Servicing Agent a monthly fee on a per-contact basis, based upon
incoming and outgoing telephonic and written correspondence.
PORTFOLIO TRANSACTIONS. The Investment Manager places orders to execute the
securities transactions that are designed to implement the Fund's investment
objectives and policies. The Investment Manager uses its reasonable efforts to
place all purchase and sale transactions with brokers, dealers and banks
('brokers') that provide 'best execution' of these orders. In placing purchase
and sale transactions, the Investment Manager may consider brokerage and
research services provided by a broker to the Investment Manager, and the Fund
may pay a commission for effecting a securities transaction that is in excess of
the amount another broker would have charged if the Investment Manager
determines in good faith that the amount of commission is reasonable in relation
to the value of the brokerage and research services provided by the broker. In
addition, the Investment Manager may place securities transactions with brokers
that provide certain services to the Fund. The Investment Manager also may
consider a broker's sale of Fund shares if the Investment Manager is satisfied
that the Fund would receive best execution of the transaction from that broker.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Dividends and distributions from net investment
income and capital gains, if any, will be determined on a class basis for the
Fund and paid at least annually.
Any dividends and distributions paid by the Fund will be automatically
reinvested in additional shares of the respective class of the Fund, unless you
elect to receive distributions in cash. When a dividend or distribution is paid,
the NAV per share is reduced by the amount of the payment.
You may, upon written request or by completing the appropriate section of the
New Account Application in this Prospectus, elect to have all dividends and
other distributions paid on a Class A or B account in the
23
<PAGE>
Fund invested into a Pilgrim America Fund which offers Class A or B shares. Both
accounts must be of the same class. If you are a shareholder of Pilgrim America
Prime Rate Trust, whose shares are not held in a broker or nominee account, you
may, upon written request, elect to have all dividends invested into a pre-
existing Class A account of any open-end Pilgrim America Fund. Distributions are
invested into the selected funds at the net asset value as of the payable date
of the distribution only if shares of such selected funds have been registered
for sale in the investor's state.
FEDERAL TAXES. The Fund intends to operate as a 'regulated investment company'
under the Internal Revenue Code. In any fiscal year in which the Fund so
qualifies and distributes to shareholders all of its net investment income and
net realized capital gains, the Fund itself is relieved of federal income tax.
All dividends and capital gains are taxable whether they are reinvested or
received in cash, unless you are exempt from taxation or entitled to tax
deferral. Early each year, you will be notified as to the amount and federal tax
status of all dividends and capital gains paid during the prior year. Such
dividends and capital gains may also be subject to state or local taxes.
Dividends declared in October, November, or December with a record date in such
month and paid during the following January will be treated as having been paid
by the Fund and received by shareholders on December 31 of the calendar year in
which declared, rather than the calendar year in which the dividends are
actually received.
If you have not furnished a certified correct taxpayer identification number
(generally your Social Security number) and have not certified that withholding
does not apply, or if the Internal Revenue Service has notified the Fund that
the taxpayer identification number listed on your account is incorrect according
to their records or that you are subject to backup withholding, federal law
generally requires the Fund to withhold 31% from any dividends and/or
redemptions (including exchange redemptions). Amounts withheld are applied to
your federal tax liability; a refund may be obtained from the Service if
withholding results in overpayment of taxes. Federal law also requires the Fund
to withhold 30% or the applicable tax treaty rate from ordinary dividends paid
to certain nonresident alien, non-U.S. partnership and non-U.S. corporation
shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the Fund. Please see the Statement of Additional Information and your tax
adviser for further information.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its average annual total return over
various periods of time. These total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for one, five and ten year periods (if applicable) and may
be given for other periods as well (such as from commencement of the Fund's
operations, or on a year-by-year basis). Total returns and current yield are
based on past results and are not necessarily a prediction of future
performance.
ADDITIONAL PERFORMANCE QUOTATIONS. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.
24
<PAGE>
ADDITIONAL INFORMATION
MORE ABOUT THE FUND. The Fund's Articles of Incorporation permit the Directors
to authorize the creation of additional series, each of which may issue separate
classes of shares. The Fund may be terminated and liquidated under certain
circumstances.
VOTING RIGHTS. Shareholders have certain voting rights. Each share of the Fund
is given one vote. Matters to be acted upon that affect the Fund as a whole,
including approval of a new investment advisory agreement and changes in the
Fund's fundamental policies, will require the affirmative vote of the
shareholders of the Fund. Matters affecting a certain class of shares of the
Fund will only be voted on by shareholders of that particular class. As a
Maryland corporation, the Fund is not required to hold annual shareholder
meetings, although special shareholder meetings may be held from time to time.
25
<PAGE>
PILGRIM AMERICA BANK [PILGRIM AMERICA FUNDS LOGO]
AND THRIFT FUND, INC.
40 NORTH CENTRAL AVENUE, SUITE 1200, PHOENIX, ARIZONA 85004
1-800-331-1080
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PILGRIM AMERICA BANK AND THRIFT FUND, INC. AT A GLANCE...... 2
SUMMARY OF EXPENSES......................................... 3
FINANCIAL HIGHLIGHTS........................................ 4
PAST PERFORMANCE OF THE FUND................................ 5
INVESTMENT OBJECTIVES AND POLICIES.......................... 8
INVESTMENT PRACTICES AND RISK CONSIDERATIONS................ 9
THE BANKING AND THRIFT INDUSTRIES........................... 11
SHAREHOLDER GUIDE........................................... 13
Pilgrim America Purchase Options(Trademark)............... 13
Purchasing Shares......................................... 18
Exchange Privileges and Restrictions...................... 20
How to Redeem Shares...................................... 21
MANAGEMENT OF THE FUND...................................... 22
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................... 23
PERFORMANCE INFORMATION..................................... 24
ADDITIONAL INFORMATION...................................... 25
</TABLE>
INVESTMENT MANGER
Pilgrim America Investments, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
DISTRIBUTOR
Pilgrim America Securities, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
SHAREHOLDER SERVICING AGENT
Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
TRANSFER AGENT
Investors Fiduciary Trust Company
c/o DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368
CUSTODIAN
Investors Fiduciary Trust Company
127 W. 10th Street/14th Floor
Kansas City, Missouri 64105
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017
PROSPECTUS
OCTOBER , 1997
