SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
- ----------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- ----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- ----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ----------------------------------------------------------------------------
(5) Total fee paid:
- ----------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- ----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- ----------------------------------------------------------------------------
(3) Filing party:
- ----------------------------------------------------------------------------
(4) Date filed:
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<PAGE>
Pilgrim America Bank and Thrift Fund, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
August 28, 1997
Dear Shareholder:
Your Board of Directors has called a Special Meeting of Shareholders of Pilgrim
America Bank and Thrift Fund, Inc. (the "Fund") to be held on October 16, 1997
to consider a number of proposals, including the approval for the conversion of
the Fund from a closed-end to an open-end investment company (the "Conversion").
The following important facts about the Conversion are outlined below:
Conversion to an open end-investment company will eliminate the
discount and will allow shareholders of the Fund to realize promptly the
full value of the underlying assets by redeeming their shares at net asset
value less a temporary redemption fee.
There will be no change in the Fund's investment objective and
strategy. Pilgrim America Investments, Inc. (`PAII") will continue to be
the Investment Manager to the Fund.
Operating as an open-end investment company will allow the Fund the
ability to raise new capital by selling shares at net asset value plus any
applicable sales commission.
Shareholders will have the opportunity to exchange their shares for
shares of any other open-end Pilgrim America Fund including Pilgrim America
Money Market Shares without payment of any additional sales charge.
However, exchanges and redemptions of pre-conversion shares during the
first twelve months after the Conversion will be subject to a 2.0%
redemption fee, to be retained by the Fund, in order to stabilize assets
and to offset portfolio transaction costs.
Shareholders are also being asked to approve one Director, to approve an amended
Investment Management Agreement and to approve the adoption of a distribution
plan. After careful consideration, the Board of Directors unanimously approved
these proposals and recommends that shareholders vote "FOR" all proposals.
Your vote is important regardless of the number of shares you own. In order to
avoid the added cost of follow-up solicitations and possible adjournments,
please take a few minutes to read the proxy statement and cast your vote. It is
important that your vote be received by no later than October 15, 1997.
<PAGE>
The Fund is using Shareholders Communications Corporation, a professional proxy
solicitation firm, to assist shareholders in the voting process. As the date of
the meeting approaches, if we have not already heard from you, you may receive a
telephone call from Shareholders Communications reminding you to exercise your
right to vote.
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
ROBERT W. STALLINGS,
President and Chairman of the Board
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Pilgrim America Bank and Thrift Fund, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 331-1080
Notice of Special Meeting of Shareholders to be Held on October 16, 1997
To the Shareholders:
A Special Meeting of Shareholders of Pilgrim America Bank and Thrift Fund, Inc.
(the "Fund") will be held on Thursday, October 16, 1997 at 10:00 a.m., local
time, at the offices of the Fund, 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004 for the following purposes:
1. To elect one Director until his successor is elected and qualified;
2. To approve a proposal to convert the Fund from a closed-end investment
company to an open-end investment company, which proposal includes the
following:
(a) Changing the Fund's subclassification from a closed-end investment
company to an open-end investment company;
(b) Approving changes to the Fund's Articles of Incorporation to:
i. Reflect the Fund's status as an open-end investment company; and
ii. Enable the Fund to establish multiple classes of shares;
3. If Proposal No. 2 is approved, to approve an amended Investment Management
Agreement;
4. If Proposal No. 2 is approved, to approve the adoption of a distribution
plan pursuant to Rule 12b-1; and
5. To transact such other business as may properly come before the Special
Meeting of Shareholders or any adjournments thereof.
Please be advised that the Fund will NOT convert to an open-end investment
company unless the required favorable vote of the shareholders is obtained on
proposal nos. 2, 3 and 4. If any of those three proposals is rejected, the Fund
will continue to operate as a closed-end investment company.
Shareholders of record at the close of business on August 21, 1997 are entitled
to notice of, and to vote at, the meeting. Your attention is called to the
accompanying Proxy Statement. Regardless of whether you plan to attend the
meeting, PLEASE COMPLETE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD so
that a quorum will be present and a maximum number of shares may be voted. If
you are present at the meeting, you may change your vote, if desired, at that
time.
<PAGE>
By Order of the Board of Directors
JAMES M. HENNESSY, Secretary
August 28, 1997
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<PAGE>
Pilgrim America Bank and Thrift Fund, Inc.
PROXY STATEMENT
Special Meeting of Shareholders to be held on October 16, 1997
This Proxy Statement is furnished by the Board of Directors of Pilgrim America
Bank and Thrift Fund, Inc. (the "Fund") in connection with the Fund's
solicitation of voting instructions for use at the Special Meeting of
Shareholders of the Fund (the "Meeting") to be held on October 16, 1997, at
10:00 a.m., local time, at the offices of the Fund, 40 North Central Avenue,
Suite 1200, Phoenix, Arizona 85004 for the purposes set forth below and in the
accompanying Notice of Special Meeting. At the Meeting, the shareholders of the
Fund will be asked:
1. To elect one Director until his successor is elected and qualified;
2. To approve a proposal to convert the Fund from a closed-end investment
company to an open-end investment company, which proposal includes the
following:
(a) Changing the Fund's subclassification from a closed-end investment
company to an open-end investment company;
(b) Approving changes to the Fund's Articles of Incorporation to:
i. Reflect the Fund's status as an open-end investment company; and
ii. Enable the Fund to establish multiple classes of shares;
3. If Proposal No. 2 is approved, to approve an amended Investment Management
Agreement;
4. If Proposal No. 2 is approved, to approve the adoption of a distribution
plan pursuant to Rule 12b-1; and
5. To transact such other business as may properly come before the Special
Meeting of Shareholders or any adjournments thereof.
Solicitation of Proxies
Solicitation of proxies is being made primarily by the mailing of this Notice
and Proxy Statement with its enclosures on or about August 28, 1997.
Shareholders of the Fund whose shares of Common Stock are held by nominees, such
as brokers, can vote their proxies by contacting their respective nominee. In
addition to the solicitation of proxies by mail, officers of the Fund and
employees of Pilgrim America Investments, Inc. ("PAII" or the "Investment
Manager"), Investment Manager to the Fund, and its affiliates, without
additional compensation, may solicit proxies in person or by telephone,
telegraph, facsimile, or oral communication. The Fund has
<PAGE>
retained a professional proxy solicitation firm to assist with any necessary
solicitation of proxies. As the meeting date approaches, certain shareholders of
the Fund may receive a telephone call from the professional proxy solicitation
firm asking the shareholder to vote. It is expected that soliciting fees and
expenses will be approximately $20,000. The costs associated with such
solicitation and the Meeting will be borne by the Fund.
A shareholder may revoke the accompanying proxy at any time prior to its use by
filing with the Fund a written revocation or duly executed proxy bearing a later
date. In addition, any shareholder who attends the Meeting in person may vote by
ballot at the Meeting, thereby canceling any proxy previously given. The persons
named in the accompanying proxy will vote as directed by the proxy, but in the
absence of voting directions in any proxy that is signed and returned, they
intend to vote FOR each of the proposals and may vote in their discretion with
respect to other matters not now known to the Board of the Fund that may be
presented at the Meeting.
Voting Rights
Each share of the Common Stock, $.001 par value, of the Fund (the "Common
Stock") is entitled to one vote. Shareholders of the Fund at the close of
business on August 21, 1997 (the "Record Date") will be entitled to be present
and give voting instructions for the Fund at the Meeting with respect to their
shares of Common Stock owned as of such Record Date. As of July 31, 1997, there
were 14,141,241 shares of Common Stock outstanding and entitled to vote as of
such record date, representing total net assets of $325,325,801.
A majority of the outstanding shares of the Fund on the Record Date, represented
in person or by proxy, must be present to constitute a quorum for the
transaction of the Fund's business at the Meeting.
Approval of Proposals 1 and 2 requires the affirmative vote of the holders of a
majority of the outstanding shares of the Fund. A "Majority Vote" is required
for the approval of Proposals 3 and 4. For purposes of this requirement, a
"Majority Vote" shall mean a "majority of the outstanding voting securities" of
the Fund as defined in the Investment Company Act of 1940, as amended (the "1940
Act"), i.e., (i) 67% or more of the shares of the Fund present at the Meeting,
if more than 50% of the outstanding shares of the Fund are present or
represented by proxy, or (ii) more than 50% of the outstanding shares of the
Fund, whichever is less.
If a quorum is not present at the Meeting, or if a quorum is present but
sufficient votes to approve any or all of the Proposals are not received, the
persons named as proxies may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. In determining whether to adjourn the
Meeting, the following factors may be considered: the nature of the Proposals
that are the subject of the Meeting, the percentage of votes actually cast, the
percentage of negative votes actually cast, the nature of any further
solicitation and the information to be provided to shareholders with respect to
the reasons for the solicitation. Any adjournment will require the affirmative
vote of a majority of those shares represented at the Meeting in person or by
proxy. A shareholder vote may be taken on one or more of the Proposals in this
proxy statement prior to any adjournment if sufficient votes have been received
with respect to a
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Proposal. If a shareholder abstains from voting as to any matter, or if a broker
returns a "non-vote" proxy, indicating a lack of authority to vote on a matter,
then the shares represented by such abstention or non-vote shall, with respect
to matters to be determined by a majority of the votes cast on such matter, be
deemed present at the Special Meeting for purposes of determining a quorum, but
shall not be deemed represented at the Special Meeting for purposes of
calculating the vote with respect to such matter. With respect to matters
requiring the affirmative vote of a majority of the total shares outstanding, an
abstention or broker non-vote will be considered present for purposes of
determining the existence of a quorum, but will have the effect of a vote
against such matters.
To the knowledge of the Fund, as of July 31, 1997, no current Director of the
Fund owns 1% or more of outstanding shares of the Fund and the officers and
Directors of the Fund own, as a group, less than 1% of the shares of the Fund.
To the knowledge of the Fund, as of July 31, 1997, no person owned beneficially
more than 5% of the outstanding shares of the Fund.
The Investment Manager
PAII, whose address is 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004, is the Investment Manager of the Fund.
THE FUND WILL NOT CONVERT TO AN OPEN-END INVESTMENT COMPANY UNLESS THE REQUIRED
FAVORABLE VOTE OF SHAREHOLDERS IS OBTAINED ON PROPOSAL NOS. 2, 3 AND 4. IF ANY
OF THOSE THREE PROPOSALS IS REJECTED, THE FUND WILL CONTINUE TO OPERATE AS A
CLOSED-END INVESTMENT COMPANY.
PROPOSAL NO. 1
Election of Director
One person is being submitted for election to serve as a Director until his
successor is duly elected and qualified. On May 5, 1997, the Board unanimously
voted to increase the number of Directors of the Board from five to six, as
provided for in the Fund's Amended and Restated Articles of Incorporation, and
elected John P. Burke to fill the newly created vacancy. The election of John P.
Burke is now being submitted to the shareholders. The other five Directors, Mary
A. Baldwin, Al Burton, Bruce S. Foerster, Jock Patton and Robert W. Stallings,
were last elected by the shareholders at the Annual Meeting of Shareholders held
on April 24, 1997.
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<PAGE>
The following table sets forth the name of the nominee and certain additional
information.
<TABLE>
<S> <C> <C>
Principal Occupation
Nominee Age for the Last Five Years
John P. Burke 65 Director of the Fund and Director or Trustee of each 1997
of the Funds in the Pilgrim America Group of Funds;
Commissioner of Banking, State of Connecticut
(January 1995-Present); formerly President, Bristol
Savings Bank (August 1992-January 1995); and
President, Security Savings and Loan (November
1989-August 1992).
<FN>
During the Fund's fiscal year ended December 31, 1996, the Board held four
meetings. Each of the Directors, except for John P. Burke, who commenced service
as Director on May 5, 1997, attended all of the meetings.
</FN>
</TABLE>
Committees
The Board has an Audit Committee whose function is to meet with the independent
accountants of the Fund in order to review the scope of the Fund's audit, the
Fund's financial statements and interim accounting controls, and to meet with
Fund management concerning these matters, among other things. This Committee
currently consists of all of the Independent Directors (Mary A. Baldwin, John P.
Burke, Al Burton, Bruce Foerster and Jock Patton). During 1996, the Audit
Committee met two times. Each of the Independent Directors, except for John
Burke, who commenced service as a Director on May 5, 1997, attended both of the
Audit Committee meetings. The Fund does not have a nominating or compensation
committee.
Remuneration of Board Members and Officers
The Fund pays each Independent Director, in addition to out-of-pocket expenses,
the Fund's pro rata share, based on all of the investment companies in the
Pilgrim America Group of Funds, of (i) an annual retainer of $20,000; (ii)
$1,500 per quarterly and special Board meeting; (iii) $500 per committee
meeting; and (iv) $100 per special telephonic meeting. The pro rata share paid
by the Fund is based upon the Fund's average net assets for the previous quarter
as a percentage of the average net assets of all of the funds in the Pilgrim
America Group of Funds for which the Board Members serve in common as
directors/trustees.
4
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
Fiscal Year Ended December 31, 1996
<S> <C> <C>
Total Compensation
from Fund and Fund
Aggregate Compensation Complex to
from Fund Directors (1)
Fund Directors
Mary A. Baldwin $3,207 $28,600
John P. Burke(2) $ 0 $ 0
Al Burton $3,207 $28,600
Bruce S. Foerster $3,207 $28,600
Jock Patton $3,207 $28,600
Robert W. Stallings $ 0 $ 0
<FN>
(1) The Fund Complex consists of the following funds in the Pilgrim America
Group of Funds: Pilgrim America Masters Series, Inc., which consists of
Pilgrim America Masters Asia-Pacific Equity Fund, Pilgrim America
Masters MidCap Value Fund, and Pilgrim America Masters LargeCap Value
Fund; Pilgrim America Investment Funds, Inc., which consists of Pilgrim
America MagnaCap Fund and Pilgrim America High Yield Fund; Pilgrim
Government Securities Income Fund, Inc.; Pilgrim America Bank and
Thrift Fund, Inc.; and Pilgrim America Prime Rate Trust.
(2) Commenced service as a Director on May 5, 1997.
</FN>
</TABLE>
Vote Required
The affirmative vote of the holders of a majority of the outstanding shares of
stock of the Fund is required to approve the election of the nominee.
PROPOSAL NO. 2
Conversion Of The Fund From A Closed-End Investment Company To An Open-End
Investment Company
Background
The Fund was organized in 1986 as a closed-end management investment company. A
closed-end structure, among other things, permits management of an investment
company's portfolio without attention to cash flow needs to which open-end
investment companies are subject because of sales and redemptions of shares. At
the same time, however, shares of closed-end investment companies frequently
trade at a discount from their net asset value.
Shares of the Fund have traded consistently at a discount since April 21, 1993.
At times the discount has grown to as large as 23.3 % (as of July 16, 1996). As
of July 31, 1997, the Fund's shares were trading at $20.50 per share and the net
asset value was $23.01 per share, resulting in
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<PAGE>
a discount of 10.91%. For information on the history of the discount at which
the Fund's shares have traded, see page __.
The Fund's Board of Directors has monitored the Fund's discount from net asset
value for many years. At a meeting held on August 4, 1997, the Board of
Directors, at the request of the Investment Manager, considered the issue of
conversion of the Fund to open-end status. The Board reviewed materials
presented to it by Fund management, including information concerning the
differences between closed-end and open-end investment companies, the Fund's
operations and performance to date, and the possible effects of conversion on
the Fund. At that meeting, the Investment Manager recommended that the Fund be
converted to an open-end investment company. The Investment Manager advised the
Board that the benefits of elimination of the Fund's discount, together with the
right of redemption for shareholders, could be expected to outweigh the
potential drawbacks resulting from open-ending the Fund. The Board was informed
that, following a conversion, shareholders would be able to redeem their shares
at net asset value, less any applicable redemption fees, rather than sell their
shares in the secondary market through broker-dealers at a discount to net asset
value. The Board was also informed that, while conversion to open-end form may
result in shrinkage of the Fund resulting from redemption requests, conversion
would create the opportunity, which the Fund does not currently enjoy, to
achieve the investment benefits associated with greater asset size through sales
of Fund shares.
After taking into consideration the potential drawbacks of a conversion of the
Fund to open-end form, the Board of Directors determined that the right of
redemption in the Fund's shares provided to shareholders and the elimination of
the Fund's discount as a result of such a conversion were sufficient to outweigh
such drawbacks, and that conversion to open-end form would be in the best
interests of the Fund and its shareholders. The Board also determined that the
potential increase in expenses for the Fund's shareholders, as described below,
is sufficiently small that it likely would be more than offset by the increase
in the carrying value of the Fund's shares to a shareholder upon conversion. As
a result, the Board unanimously approved the recommendation of the Investment
Manager to submit to shareholders a proposal to convert the Fund from a
closed-end investment company to an open-end investment company. The Board also
considered and unanimously approved the amendment of the Fund's
sub-classification under the 1940 Act from that of a closed-end investment
company to that of an open-end investment company and unanimously approved the
amendment and restatement of the Fund's Articles of Incorporation to provide for
such conversion. In addition, the Board considered and unanimously approved
related amendments to the Fund's Investment Management Agreement, amendments to
the By-laws of the Fund, a distribution plan pursuant to Rule 12b-1 under the
1940 Act and an Underwriting Agreement.
Shareholders of the Fund are now being asked to consider the conversion of the
Fund from a closed-end to an open-end investment company approved by the Board
of Directors, and certain related matters in connection with the conversion. If
this Proposal and the related Proposals are approved by the shareholders, the
Fund will be converted to an open-end investment company, subject to a
registration statement for the Fund under the Securities Act of 1933, as
amended, becoming effective and thereby allowing the continuous offering of
shares of the Fund. If this Proposal or one of the related Proposals is not
approved, or if the Fund's registration statement does not become effective, the
Fund will remain a closed-end investment company.
6
<PAGE>
The factors considered by the Board in making its recommendation to convert the
Fund from a closed-end fund to an open-end fund are discussed in greater detail
below.
This proxy contains certain statements that may be deemed to be "forward-looking
statements." Actual results could differ materially from those projected in the
forward-looking statements as a result of uncertainties set forth in the Proxy.
Comparison Between Closed-End and Open-End Investment Companies
Generally, closed-end funds, such as the Fund, neither redeem their outstanding
stock nor generally engage in the continuous sale of new securities; therefore,
a closed-end fund operates with a relatively fixed capitalization. Shareholders
who wish to buy or sell shares generally must do so through a broker-dealer, and
receive or obtain whatever price the market may bear. This price may be more or
less than the net asset value per share of the closed-end fund's shares. In
contrast, open-end funds issue redeemable securities entitling shareholders to
surrender those securities to the fund and receive in return their proportionate
share of the value of the fund's net assets (less any redemption fee charged by
the fund). Also, open-end funds generally issue new shares at the fund's net
asset value.
In addition to the structural distinctions between the two types of funds,
several other distinctions exist. These distinctions can give rise to advantages
and disadvantages to the fund if, on the one hand, it remains a closed-end fund
or if, on the other hand, it converts to open-end. Based upon information
provided by the Investment Manager, the Board of Directors has considered the
advantages and disadvantages to the Fund and its shareholders associated with
remaining closed-end or converting to open-end. The most significant advantages
and disadvantages are discussed below.
Advantages of Converting to an Open-End Investment Company
1. Elimination of Discount; Redeemability of Shares
If the Fund converts to open-end status, shareholders will be able to realize
the value of their shares by redeeming their shares at the then current net
asset value of the shares less any applicable redemption fee, rather than at a
discount from net asset value (less any brokerage costs) of the type that has
characterized the Fund's shares since April, 1993, and which has been as high as
23.3%. Since the commencement of the operations of the Fund, its shares have
frequently traded at a discount to market value (although on occasion the shares
have traded at a premium). The table below shows the discount or premium at
which the Fund's shares have traded at the end of each calendar quarter since
June 30, 1992:
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Calendar Premium/(Discount)
Quarter Ended Market Price Net Asset Value to Net Asset Value
6/30/97 $19.063 $21.97 (13.23)%
3/31/97 $15.500 $19.05 (18.64)%
12/31/96 $15.750 $17.84 (11.72)%
9/30/96 $14.000 $17.23 (18.75)%
6/28/96 $12.625 $15.78 (19.99)%
3/29/96 $12.625 $15.53 (18.71)%
12/31/95 $12.875 $14.83 (13.18)%
9/29/95 $12.375 $14.30 (13.46)%
6/30/95 $11.000 $12.97 (15.19)%
3/31/95 $10.125 $11.69 (13.39)%
12/30/94 $ 9.125 $10.73 (14.96)%
9/30/94 $11.125 $12.03 (7.52)%
6/30/94 $11.125 $12.04 (7.60)%
3/31/94 $10.125 $11.55 (12.34)%
12/31/93 $10.875 $11.87 (8.38)%
9/30/93 $11.125 $12.54 (11.28)%
6/30/93 $11.625 $12.65 (8.10)%
3/31/93 $13.375 $13.32 0.41%
12/31/92 $11.625 $12.46 (6.70)%
9/30/92 $10.875 $11.11 (2.12)%
6/30/92 $11.000 $11.39 (3.42)%
</TABLE>
Conversion to an open-end investment company will eliminate the discount and
will allow shareholders of the Fund to realize promptly the full value of the
underlying assets. It will also eliminate any possibility that the Fund's shares
will trade at a premium over net asset value.
Shareholders should note that if the proposal to convert the Fund to an open-end
investment company is approved by the shareholders, or even upon notice of the
Board's approval of conversion, the discount may be reduced prior to the date of
conversion to the extent investors may purchase shares in the open market in
anticipation of the prospect of the Fund becoming an open-end investment
company.
2. Ability to Raise New Capital through the Continuous Offering of Common
Stock
A closed-end fund is prohibited by the 1940 Act from issuing shares at a
discount to net asset value. Therefore, as long as the Fund is trading at a
discount, it is not possible to raise new capital, except by means of a rights
offering, which would have a dilutive effect on the interests of
non-participating shareholders. As an open-end investment company, the Fund
would be able to sell shares to the public at net asset value (plus, if
applicable, a sales load). The Investment Manager has advised the Board that it
believes that, given the Fund's strong performance record and other factors,
shares of the Fund could be successfully marketed in an open-end format,
although no assurance can be given as to such results. The ability to raise new
capital may give the Fund additional flexibility to invest assets in furtherance
of its investment objective, since with
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<PAGE>
net new cash flow the manager is able to reposition the portfolio or take
advantage of new opportunities without having to sell other securities.
3. Exchange Privilege
If the Fund converts to an open-end fund, shareholders will be allowed to
participate in an exchange privilege that allows shareholders of the Fund to
exchange their shares for shares of any other open-end Pilgrim America Fund
including Pilgrim America Money Market Shares at net asset value without payment
of any additional sales charge. However, a 2.0% redemption fee will apply to any
exchange of pre-conversion shares made during the first twelve months following
the conversion. In addition, owners of shares of other open-end Pilgrim America
Funds, excluding shareholders of Class M shares, will be able to exchange their
shares for shares of the same class of the Fund at net asset value. Details of
the exchange privilege will be disclosed in the Fund's Prospectus and Statement
of Additional Information.
4. Voting Rights
If the Fund converts to open-end form, the Fund will not ordinarily hold annual
shareholder meetings. The shares of the Fund currently are listed on the New
York Stock Exchange ("NYSE"). Exchange rules generally provide for annual
meetings of the shareholders of listed companies for the election of directors.
If the proposal to convert the Fund to an open-end investment company is
approved, the Fund's shares will be delisted and voting for the election of
directors will be determined solely by reference to the 1940 Act and to Maryland
corporate law. The effect, in light of the Board's adoption of amended and
restated By-Laws that go into effect if this Proposal is approved, is that the
Fund will not be required to hold an annual meeting in any year in which the
election of Directors is not required to be acted upon under the 1940 Act. By
not holding annual shareholder meetings, the Fund will save the costs of
preparing proxy materials and soliciting shareholders' votes on the usual
proposals contained therein. Based on the number of outstanding shares and
shareholders as of the Record Date, such costs would aggregate approximately
$60,000 per year.
Under the 1940 Act, the Fund would be required to hold a shareholder meeting if
the number of directors elected by the shareholders were less than a majority of
the total number of directors, or if a change were sought in the fundamental
investment policies of the Fund, or if a material change were sought in the
Investment Management Agreement or in a distribution plan adopted pursuant to
Rule 12b-1 under the 1940 Act.
The holders of shares of the Fund will continue to have one vote for each share
held on each matter submitted to a vote of shareholders if the Fund converts to
an open-end investment company, except that each class of shares will have
exclusive voting rights on any matter submitted to shareholders that relates
solely to its distribution arrangement and separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class.
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<PAGE>
5. Shareholder Services
If this Proposal is approved and the Fund becomes an open-end investment
company, shareholders will have access to additional services. Details of these
services will be disclosed in the Fund's Prospectus and Statement of Additional
Information. In addition to the exchange privilege discussed above, these
services include:
Pre-Authorized Investment Plan. Shareholders will be able to establish a
pre-authorized investment plan to purchase shares with automatic bank
account debiting.
Systematic Exchange Privilege. Shareholders will be able to 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 the shareholder's account to an identically
registered account in the same class of any other Pilgrim America Fund
(subject to any redemption fee for the Fund).
Systematic Withdrawal Plan. Shareholders will be able to elect to have
monthly, quarterly, semi-annual or annual payments in any fixed amount in
excess of $100 made to the shareholder, or to anyone else the shareholder
properly designates, as long as the account has a current value of at least
$10,000 (subject to any redemption fee for the Fund).
Retirement Plans. The Fund will have available prototype qualified
retirement plans for both corporations and for self-employed individuals.
It will also have 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.
6. New York Stock Exchange Listing Fees
If the Fund were to become an open-end fund, it would no longer be listed on the
NYSE. Delisting from the NYSE would save the Fund listing fees. Currently, these
fees amount to approximately $25,000 per year.
Advantages of Remaining a Closed-End Investment Company
1. Portfolio Management
Because they do not have to be concerned about maintaining cash to be able to
pay redemptions, and because they do not have inflows of new capital from
offering new shares, closed-end funds generally may be more fully invested than
open-end funds. In contrast, many open-end funds maintain a buffer of cash and
highly liquid assets to meet net redemptions, and must consider cash flow needs
when making investment decisions. Open-end funds face the possibility of having
to liquidate portfolio securities at an inopportune time to meet redemption
demands. Closed-end funds, therefore, may invest with less emphasis on
liquidity.
10
<PAGE>
The larger reserves of cash or cash equivalents required to operate as an
open-end investment company when net redemptions are anticipated could reduce
the Fund's investment flexibility and the scope of its investment opportunities.
The Fund's portfolio may be restructured by selling portfolio securities to
accommodate the need for larger reserves of cash or cash equivalents than would
otherwise be maintained. In connection with any such restructuring, there may be
an increase in transactional costs and portfolio turnover and an adverse effect
on investment return.
The Investment Manager has advised the Fund's Board that it does not expect any
significant changes in the Fund's investment strategies as a result of
open-ending, and that the Fund's investment strategies do not rely on the
closed-end format. The Investment Manager has further informed the Board that
the Fund could still be substantially invested in equity securities in
furtherance of its objective. The open-end format would require management of
cash flow for incoming and outgoing cash. This difference likely may cause a
slight sacrifice in total return performance. However, the Investment Manager
handles cash flow management for other open-end funds, and while cash flow adds
a complexity to fund management, the Investment Manager has advised the Board
that it normally should not interrupt portfolio strategy. As an example, as of
December 31, 1996, cash and other short-term investments constituted just 2.4%
of the net assets of Pilgrim America MagnaCap Fund, which is a series of an
open-end Pilgrim America Fund managed by the Investment Manager that has total
net assets close to that of the Fund. In comparison, the Fund typically has
maintained a cash position of 2.0% as a closed-end fund.
2. Liquidity
An open-end investment company is subject to federal regulatory requirements
that no more than 15% of its net assets may be invested in securities that are
not readily marketable. The Fund is currently not subject to any such
restriction. If the Fund is converted to an open-end fund, it will be restricted
from investing more than 15% of its net assets in illiquid securities.
If the Fund converts to open-end form, some restructuring may be required to
satisfy the liquidity requirements imposed upon open-end funds. Based on the
Fund's portfolio as of July 8, 1997, the maximum amount that the Fund would be
required to restructure in connection with the conversion was approximately 10%
of the Fund's portfolio. However, the Investment Manager believes that this
degree of turnover likely overstates the level of restructuring that actually
would be required, because it is based upon assumptions of portfolio liquidity
that depend upon the average daily trading volume in portfolio securities. That
approach probably understates the market's ability to absorb additional trading
volume for many Fund positions, and, in fact, under normal conditions, the
market may be able to bear heavier volumes and still sustain prices. The actual
amount of restructuring, if any, that may be needed will be determined at the
discretion of the Investment Manager at a date closer to the date of the actual
conversion.
3. Expenses; Potential Net Redemptions
Conversion of the Fund to open-end form would result in an immediate increase in
the Fund's expenses as a percentage of average net assets ("expense ratio")
because the Fund would bear certain expenses that it currently does not bear,
including increased transfer agency expenses and an annual distribution fee. An
open-end investment company, unlike a closed-end investment
11
<PAGE>
company, is permitted to finance activities primarily intended to result in the
sale of fund shares by adopting a plan of distribution pursuant to Rule 12b-1
under the 1940 Act. If the Fund is converted to an open-end investment company,
shares of the Fund currently held by its shareholders will be classified as
Class A shares and will be subject to an annual distribution fee of 0.25%. See
Proposal No. 4 below. After conversion, the Fund's expense ratio, currently
0.91%, would increase for Class A shares to approximately 1.26% (including
distribution fees), assuming the same net assets.
In addition, conversion to an open-end investment company could result in
immediate redemptions of Fund shares, which could be substantial, and,
consequently, a marked reduction in the size of the Fund. Elimination of the
Fund's discount creates a strong incentive for shareholders to recover the
Fund's historical discount by redeeming their shares. In addition, market
professionals who view closed-end funds as arbitrage opportunities could have
taken or could take sizable positions in shares of the Fund prior to conversion
for the purpose of profiting through redemption immediately following an
open-ending. This phenomenon could serve to increase the percentage of Fund
shares subject to redemption requests. Other closed-end funds that have
converted to open-end funds have experienced redemptions that exceed sales after
conversion, and, in some instances, net redemptions that have been substantial.
The Fund bears this risk. A decrease in net assets could result in less
diversification or in smaller portfolio positions in its investments, which
could adversely affect total return performance. In addition, as a result of any
decrease in size resulting from redemptions, the Fund could experience a further
increase in its expense ratio. It is estimated that if the Fund's net assets
decrease to $200,000,000 due to redemption requests, the Fund's expense ratio
would increase to approximately 1.32% (including distribution fees) for Class A
shares. A higher expense ratio hurts the Fund's total return performance.
The Investment Manager and its affiliates have advised the Board that, while no
assurances can be given, they believe that the Fund can be successfully marketed
as an open-end fund to attract new assets.
To mitigate immediate redemptions and their attendant costs, the Board of
Directors decided that it is in the best interests of the current shareholders
to implement a 2.0% redemption fee during the first 12 months following the
conversion. This fee applies only to shares that are outstanding at the time of
conversion, and not to Class A shares issued after conversion. This temporary
redemption fee, which would be paid to the Fund, is intended to moderate any
adverse impact on the Fund's investment operations resulting from satisfying
redemption and exchange requests with a resulting decrease in net asset value.
The implementation of a temporary redemption fee is intended to discourage
current shareholders from immediately exercising their right to redeem or
exchange, and to compensate the Fund and its remaining shareholders for costs
associated with meeting redemption requests. The Fund reserves the right to
waive or reduce the redemption fee in whole or in part before the end of the
twelve month period.
Significant net redemptions could cause the Fund to become too small to be
considered economically viable. In such circumstances, the Board of Directors
would consider alternatives to continuing the Fund's operations. The Fund has no
plans to pursue such alternatives at this time.
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<PAGE>
4. Potential Tax Consequences
If the Fund experiences net redemptions after converting to an open-end fund,
the Fund would be required to sell portfolio securities. Many of the Fund's
portfolio securities have appreciated in value and, if sold, would result in
realization of capital gains. The portfolio activity that may be necessitated by
redemption requests following conversion could result in the Fund's realization
of significant capital gains in addition to those historically incurred in the
ordinary course, which would be distributed to shareholders. Such distributions
would be taxable to the shareholders who receive them. As of July 31, 1997,
based on a share's net asset value of $23.01, the Fund had net undistributed
realized short-term capital gains of $0.13 per share and net undistributed
realized long term capital gains of $2.10 per share. The Fund estimates that if
it were required to sell 25% of each of its July 31, 1997 portfolio positions
(at their July 31, 1997 valuations) to meet potential redemption requests, net
undistributed realized short term capital gains would be $0.30 per share and net
undistributed realized long term capital gains would be $5.21 per share.
Distributed net short-term capital gains are taxable to recipient shareholders
as ordinary income and long term capital gains are taxable as capital gains.
Even in the absence of conversion, the unrealized capital appreciation will be
realized in the future. However, if there are redemptions due to conversion, the
gains will be realized sooner than they would have been as a closed-end fund
without redemptions.
5. Dividends
The Fund intends to continue to provide the opportunity for shareholders to
reinvest income dividends and capital gains distributions in shares of the Fund.
Effective upon conversion to an open-end investment company, such reinvestments
in shares would be made at net asset value, rather than, as is currently the
case, at the lesser of market value plus commissions or net asset value. As a
result, shareholders would be unable to reinvest dividends in additional shares
of the Fund at a discount to net asset value.
6. New York Stock Exchange Listing
The Fund is currently listed on the NYSE. Conversion to an open-end fund would
result in a loss of this listing. This could be disadvantageous for the Fund
because some investors may consider a listing on the NYSE to be important.
7. Blue Sky Costs
Because the Fund is listed on the NYSE, the offering of its shares is not
required to be registered under the securities laws of most states. As an
open-end investment company, the Fund would incur expenses in connection with
registering or providing notification of its offering in the states. It is
expected that these expenses would be approximately $23,000 on an annual basis.
8. Leverage
The ability to borrow is more restricted in the case of open-end funds than it
is in the case of closed-end funds. Closed-end funds can also issue preferred
stock, which is not permitted to
13
<PAGE>
open-end funds. However, the Fund has never engaged in such activities and has
no intention to engage in such activities in the future.
Prior Recommendation
On March 15, 1996, the Fund held a shareholder meeting to vote on whether the
Fund should convert to an open-end fund. That vote was held pursuant to a
provision in the Fund's Amended and Restated Articles of Incorporation that
required that a meeting of shareholders be held in the first six months of 1996
for the purpose of determining whether the Fund should convert to an open-end
fund. At that time, the Investment Manager recommended to the Board, and the
Board recommended to shareholders that the shareholders vote to have the Fund
remain a closed-end fund. The shareholders voted for the Fund to remain
closed-end.
In 1996, the Investment Manager advised the Board that as of January 9, 1996
nearly 31% of the Fund's net assets were securities that were illiquid or
marginally liquid. As a result, the Investment Manager advised that conversion
to an open-end fund would require the Fund to sell its less-liquid securities,
and that conforming to the 15% limit on illiquid securities could limit the
Fund's future investment flexibility and its potential opportunity to achieve
higher returns through investment in less liquid securities.
The Board recommended that the Fund remain a closed-end fund partly based upon
the view that conversion to an open-end fund could have a detrimental effect on
the long-term investment goals of the Fund by requiring the Fund to change its
investment strategies to decrease its holdings in less liquid securities and to
sell securities for the purposes of meeting redemptions.
At the August 4, 1997 meeting, the Investment Manager told the Board that it now
believes that the investment objective of the Fund can be sought and the Fund
can be effectively managed within the constraints on portfolio illiquidity
imposed by the open-end structure.
As described above, the Investment Manager reported that some restructuring of
the portfolio may be necessary in connection with the conversion, but that the
Fund's portfolio is now more liquid than it was in 1996, and indeed, as of July
15, 1997, only four of the Fund's holdings were not listed on a national
securities exchange or NASDAQ. Further, the Investment Manager reported that in
its belief there are sufficient attractive investment opportunities in liquid
securities to permit the Fund to effectively pursue its investment objective and
policies in an open-end format that is subject to constraints on liquidity.
Further, the Investment Manager reported to the Board its belief that the Fund
can be successfully marketed so that to the extent it is subject to net
redemptions, new sales ultimately should help the Fund increase its net assets.
Of course, there can be no assurance that the Fund can be successfully marketed
and that net redemptions will not occur.
Conversion to an Open-End Investment Company
The conversion of the Fund to an open-end investment company will be
accomplished, subject to shareholder approval, by: (i) filing Amended and
Restated Articles of Incorporation for the Fund with the Maryland State
Department of Assessments and Taxation and (ii) changing the Fund's
14
<PAGE>
subclassification under the 1940 Act from a closed-end investment company to an
open-end investment company. In addition, since shares of an open-end investment
company are offered to the public on a continuous basis, the Fund will enter
into a Underwriting Agreement with Pilgrim America Securities, Inc. ("PASI" or
the "Distributor") in a form approved by the Board, including a majority of the
Independent Directors. A registration statement under the Securities Act of
1933, as amended, covering the offering of the shares of the Fund and
appropriate state securities law qualifications and notices will be filed.
Certain costs, many of which will be nonrecurring, will be incurred in
connection with the change from a closed-end to an open-end investment company,
including costs associated with the seeking of necessary government clearances,
blue sky notification fees, the preparation of a registration statement and
prospectus as required by federal securities laws (including printing and
mailing costs), the costs of preparing this Proxy Statement, transfer agent fees
relating to the conversion, and legal fees and accounting fees related to the
foregoing. The Fund estimates that these additional costs, which will be paid by
the Fund, will be approximately $400,000. Management anticipates that
substantially all of these costs will be incurred by the Fund prior to the
effective date of the conversion.
The Fund believes that neither the Fund nor its shareholders will realize any
gain or loss for tax purposes as a result of the Fund's conversion. However, the
shareholders will recognize a gain or loss if they later redeem their shares to
the extent that the redemption proceeds are greater or less than the respective
adjusted tax bases of their shares. Payment for any such redemption (less any
applicable redemption fee, such as the temporary 2.0% redemption fee described
above) normally will be made within seven days after receipt of a proper request
for redemption, in accordance with redemption procedures that will be specified
in the Prospectus. The Fund may suspend the right of redemption under certain
extraordinary circumstances in accordance with the rules of the Securities and
Exchange Commission. The Board of Directors also reserves the right to redeem
Fund shares in kind. If redemptions are made in kind, a shareholder would incur
transaction costs in disposing of any securities received. The Fund has no
current intention to redeem Fund shares in kind.
Amendment of the Fund's Articles of Incorporation
If the proposed conversion to an open-end investment company is approved, the
Fund will file Amended and Restated Articles of Incorporation, in the form
approved by the Board of Directors at their meeting on August 4, 1997. A copy of
the Amended and Restated Articles of Incorporation, which reflect the amendments
contemplated by Proposal No. 2, is attached hereto as Appendix A. The Amended
and Restated Articles of Incorporation reflect the designation of the Fund as an
open-end investment company, increase the authorized capital stock to 100
million shares, authorize the issuance of multiple classes of redeemable
securities at net asset value, designate 60 million shares as Class A shares and
40 million shares as Class B shares, authorize the Board to increase the number
of authorized shares of any class and to reclassify unissued shares without
shareholder approval, and provide that the Fund's outstanding common stock will
be redeemable at the option of the shareholders. The Board of Directors has
adopted amended By-Laws, which will go into effect upon conversion to an
open-end company, reflecting the necessary conforming changes.
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<PAGE>
The proposed Amended and Restated Articles of Incorporation are expected to be
filed with the State of Maryland to become effective simultaneously with the
conversion. The filing will not be made, however, until shortly before a
registration statement under the Securities Act of 1933 covering the offering of
the shares of the Fund is anticipated to become effective.
Implementation Of A Multiple Class Plan
In connection with the conversion of the Fund to an open-end investment company,
the Fund proposes the implementation of a Multiple Class Plan to permit the Fund
to provide investors with several different purchase alternatives. These
alternative purchase arrangements permit each investor to choose the method of
purchasing shares that is most beneficial given the amount of the investor's
investment, the length of time the investor expects to hold Fund shares, and
other relevant circumstances.
On August 4, 1997, the Board of Directors of the Fund, including all of the
Independent Directors, considered and approved the Multiple Class Plan and
amendments to the Articles of Incorporation to implement the Multiple Class
Plan. In so doing, the Board of Directors considered several factors, including
that the Multiple Class Plan would (i) allow investors to choose the purchasing
option which best suits their individual situation, thereby attracting new
investors and assets to the Fund to the benefit of the Fund and its
shareholders, (ii) facilitate distribution of the Fund's shares, and (iii)
maintain the competitive position of the Fund in relation to other funds that
have implemented similar distribution arrangements.
In connection with the Multiple Class Plan, the Fund intends to designate Class
A and Class B shares. The two classes would be subject to differing sales loads
or contingent deferred sales charges ("CDSCs"), which will be described in the
Fund's Prospectus and Statement of Additional Information. The sales loads and
CDSCs will not apply to shares outstanding at the time of conversion. The
implementation of the Multiple Class Plan will not affect the net asset value of
a current shareholder's investment in the Fund.
Upon conversion, the currently issued and outstanding shares of common stock
will be reclassified as Class A shares. The front-end sales charge for Class A
shares purchased after conversion will be as follows:
<TABLE>
<S> <C>
As a % of Offering
Amount of Transaction Price Per Share
Less than $50,000 5.75%
$50,000 but less than $100,000 4.50%
$100,000 but less than $250,000 3.50%
$250,000 but less than $500,000 2.50%
$500,000 but less than $1,000,000 2.00%
</TABLE>
There is no initial sales charge on purchases of $1,000,000 or more. However, a
CDSC will apply to purchases of Class A shares of $1,000,000 or more (on which
no initial sales charge was paid) made after conversion and redeemed within 2
years of purchase according to the following declining scale:
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<PAGE>
<TABLE>
<S> <C> <C>
Period During
On Purchases of: CDSC Which CDSC Applies
$1,000,000 but less than $2,500,000 1.00% 2 Years
$2,500,000 but less than $5,000,000 0.50% 1 Year
$5,000,000 and over 0.25% 1 Year
</TABLE>
Each Class A and Class B share will represent an identical interest in the
investment portfolio of the Fund and have the same rights except that each class
will bear certain expenses specifically related to the distribution of its
shares. Although the legal rights of Class A and Class B shares will be the
same, it is likely that the different expenses borne by each class will result
in different net asset values per share and distributions. Class B shares will
have higher expense ratios and pay lower dividends than Class A shares. Each
class will have exclusive voting rights with respect to its plan of distribution
adopted pursuant to Rule 12b-1 under the 1940 Act. The two classes will have
exchange privileges to permit the exchange into the same class of other open-end
Pilgrim America Funds pursuant to terms to be described in the Fund's Prospectus
and Statement of Additional Information.
The Fund will also be subject to requirements that an initial investment in Fund
shares and any subsequent investment be in a specified minimum amount. The
minimum initial investment requirement will be $1,000 ($250 for IRAs) for all
shares, and the minimum for additional investments will be $100. The Fund
reserves the right to redeem all of the shares of any shareholder whose account
has a net asset value of less than $1,000 ($250 for IRAs). The Fund will give
such shareholders 30 days' prior written notice. The Fund may reserve the right
to waive the minimum. Any such minimum investment requirement will not apply to
existing shareholders at the time of conversion, except with respect to minimums
for subsequent investments.
The Fund currently has a policy to make semi-annual distributions equal to 3.5%
of its net asset value (7% on an annualized basis). If the Fund converts to
open-end form, this policy will be discontinued and dividends and distributions
from net investment income and capital gains, if any, will be determined on a
class basis and paid at least annually.
Under Maryland law and the Articles of Incorporation, as amended, the Board of
Directors will have the authority to increase the number of shares of any class
the Fund is authorized to issue and may reclassify unissued shares into
additional classes of stock.
Vote Required
Under the Fund's Articles of Incorporation, amendments to the Articles of
Incorporation must be approved by an affirmative vote of the holders of a
majority of the outstanding shares of stock entitled to vote thereon.
Accordingly, the proposal regarding a change in the Fund's subclassification
under the 1940 Act from a closed-end investment company to an open-end
investment company, which includes amending the Fund's Articles of
Incorporation, requires the affirmative vote of the holders of a majority of the
outstanding shares of stock of the Fund.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 2.
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<PAGE>
PROPOSAL NO. 3
If Proposal No. 2 Is Approved, To Approve An Amended Investment Management
Agreement
Shareholders are being requested to approve amending the current Investment
Management Agreement to reflect the Fund's status as an open-end company. If
shareholders approve the Fund's conversion to an open-end investment company,
the current Investment Management Agreement will be amended as proposed (as so
amended, the "Amended Investment Management Agreement"). The form of Amended
Investment Management Agreement appears as Appendix B to this Proxy Statement.
If the Fund does not convert to an open-end investment company, the current
Investment Management Agreement will continue in effect.
The terms of the Amended Investment Management Agreement are substantially the
same as the current Investment Management Agreement, except that the management
fee will be determined based upon average daily net assets rather than average
weekly net assets. The fee rate and breakpoints will otherwise remain the same.
The Amended Investment Management Agreement will also have a technical amendment
to identify the Fund as an open-end fund rather than a closed-end fund.
The Current Investment Management Agreement
After receiving shareholder approval, on April 7, 1995, the Fund entered into an
investment management agreement (the "current Investment Management Agreement"),
pursuant to which PAII serves as the investment manager to the Fund. On February
3, 1997, the Board of Directors of the Fund, including a majority of the
Independent Directors, approved the continuation of the current Investment
Management Agreement for a period of one year through April 7, 1998. In their
consideration of this matter, the Board received information relating to, among
other things, the nature, quality and extent of the advisory and other services
provided to the Fund by PAII.
The current Investment Management Agreement provides that, subject to the
direction of the Board of Directors of the Fund, PAII is required to provide all
investment advisory and portfolio management services for the Fund. It also
requires PAII to assist in managing and supervising all aspects of the
operations of the Fund. PAII provides the Fund with office space, equipment and
personnel necessary to administer the Fund.
Investment Management Fee. The current Investment Management Agreement provides
that as compensation for its services to the Fund, PAII is paid a monthly fee at
an annual rate of 1% on the first $30 million of average weekly net assets for
the Fund, 0.75% of the next $95 million of average weekly net assets and 0.70%
on average weekly net assets in excess of $125 million. For the fiscal year
ended December 31, 1996, the investment management fee paid by the Fund to PAII
aggregated $1,746,917. For the twelve months ended June 30, 1997, the Fund paid
$1,954,571 in investment management fees.
Liability of the Investment Manager. The current Investment Management Agreement
provides that the Investment Manager shall not be liable to the Fund or any
shareholder of the Fund for any act or omission in the course of, or connected
with, any services rendered under the current
18
<PAGE>
Investment Management Agreement, except by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties under the current Investment
Management Agreement.
Duration and Termination. The current Investment Management Agreement continues
in effect from year to year if approved annually (a) by the Board of Directors
of the Fund, or by a majority of the outstanding voting securities of the Fund,
and (b) by a majority of the Directors who are not parties to such agreement or
interested persons (as defined in the 1940 Act) of any such party by a vote cast
in person at a meeting called for the purpose of voting on such approval. The
current Investment Management Agreement is not assignable and may be terminated
without penalty on 60 days' written notice at the option of either party thereto
or by a vote of the majority of the outstanding voting securities of the Fund.
The Amended Investment Management Agreement
On August 4, 1997, a majority of the Board of Directors, including all of the
Independent Directors, approved the Amended Investment Management Agreement
between the Fund and PAII subject to the approval by the shareholders of the
conversion of the Fund to an open-end investment company. Upon effectiveness of
the conversion of the Fund to an open-end investment company, the current
Investment Management Agreement will be terminated and the Amended Investment
Management Agreement will become effective.
The terms of the Amended Investment Management Agreement are essentially the
same as the terms of the current Investment Management Agreement, except that
under the Amended Investment Management Agreement, the management fee will be
determined based upon average daily net assets rather than average weekly net
assets. The fee rate and breakpoints will otherwise remain the same. As a
result, the fee payable to PAII by the Fund will be accrued daily and paid
monthly at an annual rate of 1% on the first $30 million of average daily net
assets for the Fund, 0.75% of the next $95 million of average daily net assets
and 0.70% on average daily net assets in excess of $125 million.
For the twelve months ended June 30, 1997, the Fund paid $1,954,571 in
investment management fees to the Investment Manager based on average weekly net
assets. If the fee had been calculated on average daily net assets, the fee
would have been $1,970,570 for the same period. This results in an immaterial
difference of $15,999 or a 0.82% increase in fees paid. This equates to only
$0.001 per share.
Information Concerning PAII
PAII, which was organized in December 1994, is registered as an investment
adviser with the Securities and Exchange Commission. PAII serves as investment
adviser to four other registered investment companies (or series thereof) as
well as privately managed accounts. As of July 15, 1997, PAII had total assets
under management of approximately $2.3 billion.
PAII is a wholly-owned subsidiary of Pilgrim America Group, Inc., which itself
is a wholly-owned subsidiary of Pilgrim America Capital Corporation ("PACC")
(NASDAQ: PACC) (formerly,
19
<PAGE>
Express America Holdings Corporation). PACC is a holding company that through
its subsidiaries engages in the financial services business, focusing on
providing investment advisory, administrative and distribution services to
open-end and closed-end investment companies.
PAII does not act as investment adviser to any other registered investment
companies with investment objectives and policies similar to those of the Fund.
See Appendix C to this proxy statement for a list of the directors and principal
executive officers of PAII.
Vote Required
The proposal to approve the Amended Investment Management Agreement requires
approval by a Majority Vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 3.
PROPOSAL NO. 4
If Proposal No. 2 Is Approved, To Approve The Adoption Of A Plan Of Distribution
Pursuant To Rule 12b-1 Under The 1940 Act
At the August 4, 1997 meeting, the Board of Directors of the Fund, including all
of the Independent Directors, approved the adoption of plans of distribution for
Class A shares and for Class B shares pursuant to Rule 12b-1 under the 1940 Act.
Because the shareholders of the Fund at the time of conversion will become
holders of Class A shares, the shareholders must approve the Rule 12b-1 plan for
Class A shares (the "Plan"). The Board of Directors recommends the Plan to the
shareholders of the Fund for approval at the Meeting. A form of the proposed
Plan is attached as Appendix D.
In considering whether or not to approve the Plan, the Directors reviewed, among
other things, the nature and scope of the services to be provided by the
Distributor, the purchase options that may be available to shareholders under
the Multiple Class Plan described under Proposal No. 2, and the higher fees
payable to the Distributor if the Plan is adopted. The Board also considered the
potential benefits of the Plan to shareholders. The Directors took into account
the competitive market environment in which the Fund will operate as an open-end
investment company. The Board concluded that such services would help the Fund
maintain or increase its assets.
Based upon their review, the Directors, including a majority of the Independent
Directors, determined that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders.
Under the Rule 12b-1 Plan for Class A shares of the Fund, the Distributor may
receive from the Fund an annual fee in connection with the offering, sale and
shareholder servicing of Class A shares at an annual rate of up to 0.35% of the
average daily net assets of the Fund. Management has proposed and the Board of
Directors has approved for an indefinite period of time a limit on annual fees
in connection with Class A shares at an annual rate of 0.25% of the average
daily net assets of Class A shares of the Fund. Fees equal to an annual rate of
0.25% of the average daily
20
<PAGE>
net assets of Class A shares the Fund is for shareholder servicing. Fees paid
under the Plan may be used to cover the expenses of the Distributor from the
sale of Class A shares of the Fund, including payments to authorized dealers,
and for shareholder servicing. These fees also 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 12b-1 Plan. No authorized dealer may receive shareholder
servicing payments in excess of 0.25% per annum of the Fund's average daily net
assets held by the authorized dealer's clients or customers. The Distributor
will receive payment under the Plan without regard to actual distribution
expenses that it incurs.
Under the Rule 12b-1 Plan, ongoing payments will be made on a quarterly basis to
authorized dealers for both distribution and shareholder servicing at the annual
rate of 0.25% of the Fund's average daily net assets of Class A 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, and that are subject to an agreement with the authorized dealer. Rights
to these ongoing payments begin to accrue on the anniversary date in the 13th
month following a purchase of Class A shares, and they cease upon exchange (or
purchase) into Pilgrim America Money Market Shares. The payments are also
subject to the continuation of the relevant distribution plan, the terms of the
service agreements between dealers and the Distributor, and any applicable
limits imposed by the National Association of Securities Dealers, Inc. However,
the distribution fees relating to pre-conversion shares will be paid to the
Distributor.
Pursuant to the terms of the Plan, the Distributor will provide to the Directors
on a quarterly basis a written report on the amounts expended under the Plan and
the purposes for which such expenditures were made.
As required by Rule 12b-1 under the 1940 Act, if approved by the shareholders,
the Plan will continue in effect from year to year, provided such continuance is
approved at least annually by a majority of the Board of Directors and a
majority of the Independent Directors by votes cast in person at a meeting
called for the purpose of voting on the continuation of the Plan. The Plan may
not be amended to increase materially the amount to be spent for the services
described therein without approval by a majority of the outstanding voting
securities of the Fund affected by the Plan. All material amendments of the Plan
must also be approved by the Directors in the manner described above. The Plan
may be terminated at any time without payment of any penalty by vote of a
majority of the Independent Directors of the Fund or by the vote of a majority
of the outstanding shares of the Fund (as defined in the 1940 Act) on not more
than 60 days' written notice to any other party to such Plan. The Plan will
automatically terminate in the event of its assignment (as defined in the 1940
Act). So long as the Plan is in effect, the selection and nomination of the
Independent Directors will be committed to the discretion of the Independent
Directors. If the Plan is terminated or not continued, there will be no further
payments of any amounts except those previously accrued.
21
<PAGE>
Vote Required
The proposed Plan requires approval by a Majority Vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL NO. 4.
GENERAL INFORMATION
Other Matters to Come Before the Meeting
The Fund's management does not know of any matters to be presented at the
Meeting other than those described in this Proxy Statement. If other business
should properly come before the Meeting, the proxyholders will vote thereon in
accordance with their best judgment.
Executive Officers of the Fund
The following persons currently are principal executive officers of the Fund:
<TABLE>
<S> <C> <C>
Position with Principal Occupation
Name the Fund for the Last Five Years
Robert W. Stallings Chairman of the Board, Chairman, Chief Executive Officer and
(Age 48) Chief Executive Officer and President of Pilgrim America Group, Inc.
President (since April 1995) (since December 1994); Chairman, Pilgrim
America Investments, Inc. (since December
1994); Director, Pilgrim America Securities,
Inc. (since December 1994); Chairman, Chief
Executive Officer and President of Pilgrim
Government Securities Income Fund, Inc.,
Pilgrim America Investment Funds, Inc. and
Pilgrim America Masters Series, Inc. (since
April 1995). Chairman and Chief Executive
Officer of Pilgrim America Prime Rate Trust
(since April 1995). Chairman and Chief
Executive Officer of Pilgrim America Capital
Corporation (formerly, Express America
Holdings Corporation) ("Pilgrim America")
(since August 1990).
James R. Reis Executive Vice President Director, Vice Chairman (since December 1994),
(Age 39) (since April 1995), Executive Vice President (since April 1995),
Treasurer, Assistant and Treasurer (since September 1996), Pilgrim
Secretary, Principal America Group, Inc. and PAII; Director (since
22
<PAGE>
Accounting Officer (since December 1994), Vice Chairman (since November
May 1997) 1995) and Assistant Secretary (since January
1995) of PASI; Executive
Vice President,
Treasurer, Assistant
Secretary and Principal
Accounting Officer of
most of the other funds
in the Pilgrim America
Group of Funds; Chief
Financial Officer (since
December 1993), Vice
Chairman and Assistant
Secretary (since April
1993)and former President
1991-December 1993),
Pilgrim America; Vice
Chairman (since April
1993) and former
President 1991-December
1993), Express America
Mortgage Corporation.
Stanley D. Vyner Executive Vice President Executive Vice President (since August 1996),
(Age 46) (since July 1996) Pilgrim America Group, Inc.; President and
Chief Executive Officer
(since August 1996),
PAII; Executive Vice
President (since July
1996)of most of the funds
in the Pilgrim America
Group of Funds. Formerly
Chief Executive Officer
(November 1993-December
1995), HSBC Asset
Management, Americas,
Inc., and Chief Executive
Officer, and Actuary (May
1986-October 1993), HSBC
Life.
James M. Hennessy Senior Vice President and Senior Vice President and Secretary (since
(Age 48) Secretary (since April 1995) April 1995), Pilgrim America, Pilgrim America
Group, Inc., PASI and PAII. Senior Vice
President and Secretary of each of the funds in
the Pilgrim America Group of Funds. Formerly Senior
Vice President, Express America Mortgage
Corporation (June 1992 August 1994) and
President, Beverly Hills Securities Corp. (January
1990 - June 1992).
Carl Dorf Senior Vice President Senior Vice President (since February 1997),
(Age 56) (since May 1997) PAII. Co-Portfolio Manager of Pilgrim America
23
<PAGE>
MagnaCap Fund (since May 1997). Formerly Vice
President, Pilgrim America Bank & Thrift Fund,
Inc. (January 1996 - May 1997).
Robert S. Naka Vice President (since May Vice President, PAII (since April 1997) and
(Age 34) 1997) and Asst. Secretary Pilgrim America Group, Inc. (since February
(since July 1996) 1997). Vice President and Assistant Secretary
of each of the funds in the Pilgrim America
Group of Funds. Formerly Assistant Vice
President, Pilgrim America Group, Inc. (August
1995 - February 1997).
</TABLE>
Shareholder Proposals
If Proposal Nos. 2, 3 and 4 are not approved, then proposals of shareholders
intended to be presented at the Fund's next annual meeting must be received at
the Fund's principal executive offices by November 11, 1997 and must comply with
all other legal requirements in order to be included in the Fund's proxy
statement and form of proxy for that meeting. If Proposal Nos. 2, 3 and 4 are
approved then the Fund will convert to open-end form and will not hold annual or
other regular meetings of shareholders, in which case proposals of shareholders
must be received by the Fund a reasonable time prior to the mailing of the proxy
materials for a meeting of shareholders. The submission by a shareholder of a
proposal for inclusion in the proxy statement does not guarantee that it will be
included. Shareholder proposals are subject to certain regulations under the
federal securities laws.
Reports to Shareholders
The Fund will furnish, without charge, a copy of the Annual Report and the most
recent Semi-Annual Report regarding the Fund on request. Requests for such
reports should be directed to Pilgrim America at Two Renaissance Square, 40
North Central Avenue, Suite 1200, Phoenix, Arizona 85004 or to the Fund at (800)
331-1080.
Section 16(a) Beneficial Ownership Reporting Compliance
U.S. securities laws require that the Fund's shareholders owning more than 10%
of outstanding shares, Directors, and officers, as well as affiliated persons of
the Fund's Investment Manager, report their ownership of the Fund's shares and
any changes in that ownership. During the fiscal year ended December 31, 1996,
the filing dates for these reports were met. In making this disclosure, the Fund
has relied on the written representations of the persons affected and copies of
their relevant findings.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED, PROMPT
EXECUTION AND RETURN OF THE ENCLOSED PROXY IS
24
<PAGE>
REQUESTED. A SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE.
JAMES M. HENNESSY, Secretary
August 28, 1997
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
25
<PAGE>
APPENDIX A
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
PILGRIM AMERICA BANK AND THRIFT FUND, INC., a Maryland corporation
(hereinafter called "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The text of the Charter of the Corporation is hereby restated to
read in its entirety as follows:
FIRST: The name of the corporation (which is hereinafter called the
"Corporation") is: Pilgrim America Bank and Thrift Fund, Inc.
SECOND: The purposes for which the Corporation is formed are as follows:
(a) To act as a diversified open-end investment company of the
management type registered as such with the Securities and Exchange
Commission pursuant to the Investment Company Act of 1940, and
(b) To carry on any and all business, transactions and activities
permitted by the Maryland General Corporation Law which may be deemed
desirable by the Board of Directors of the Corporation, whether or not
identical with or related to the business described in the foregoing
paragraph of this Article, as well as all activities and things necessary
and incidental thereto, to the full extent empowered by such laws.
THIRD: The post office address of the principal office of the Corporation
in the State of Maryland is c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21201. The resident agent of the Corporation in this
State is The Corporation Trust Incorporated, whose post office address is 32
South Street, Baltimore, Maryland 21201.
FOURTH: The total number of shares of stock of all classes which the
Corporation has authority to issue is one hundred million (100,000,000) shares
of the par value of One Tenth of One Cent ($.001) and of the aggregate par value
of one hundred thousand ($100,000). Until such time as the Board determines
otherwise in accordance with these Articles, the Common Stock shall be divided
into two classes consisting of sixty million (60,000,000) shares of Class A
Common Stock and forty million (40,000,000) shares of Class B Common Stock.
A-1
<PAGE>
(a) Except as otherwise provided in the Charter, each share of Common Stock
of the Corporation shall represent the same interest in the Corporation and have
identical voting, dividend, liquidation and other rights, except that (i)
expenses related to the distribution of a class of shares shall be borne solely
by such class; (ii) the bearing of any such expenses solely by shares of a class
shall be appropriately reflected (in the manner determined by the Board of
Directors) in the net asset value, dividends, distribution and liquidation
rights of the shares of such class; and (iii) each class may be subject to a
front-end sales load, a contingent deferred sales charge and/or a Rule 12b-1
distribution fee as determined by the Board of Directors from time to time. All
shares of a particular class shall represent an equal proportionate interest in
that class, and each share of any particular class shall be equal to each other
share of that class.
(b) Each share of the Class B Common Stock of the Corporation shall be
converted automatically into shares (including fractions thereof) of the Class A
Common Stock of the Corporation at such times as may be determined by the Board
of Directors in accordance with the Investment Company Act of 1940, applicable
rules and regulations thereunder and of the applicable rules and regulations of
the National Association of Securities Dealers, Inc. and pursuant to such
procedures as may be established from time to time by the Board of Directors and
disclosed in the Corporation's then current prospectus for such Class A and
Class B Common Stock. The conversion will be effected at the relative net asset
values per share of the two Classes. On the Conversion Date, the shares of the
Class B Common Stock of the Corporation converted into shares of the Class A
Common Stock will cease to accrue dividends and will no longer be outstanding
and the rights of the holders thereof will cease (except the right to receive
declared but unpaid dividends to the Conversion Date).
(c) The Board of Directors shall have full power and authority to adopt
such other terms and conditions concerning the conversion of shares as they deem
appropriate; provided such terms and conditions are not inconsistent with the
terms contained in this Section Fourth and subject to any restrictions or
requirements under the Investment Company Act of 1940 and the rules, regulations
and interpretations thereof promulgated or issued by the Securities and Exchange
Commission, and conditions or limitations contained in any order issued by the
Securities and Exchange Commission applicable to the Corporation, or any
restrictions or requirements under the Internal Revenue Code of 1986, as
amended, and the rules, regulations and interpretations promulgated or issued
thereunder.
FIFTH: The number of directors of the Corporation shall be six and the
names of those who are currently in office and who will serve as such directors
until the election of directors next succeeding their election and until their
successors are duly chosen and qualified are as follows:
Mary A. Baldwin
John P. Burke
Al Burton
Bruce S. Foerster
Jock Patton
Robert W. Stallings
A-2
<PAGE>
The By-Laws of the Corporation may fix the number of directors at a number
greater or less than that named in these Articles of Incorporation and may
authorized the Board of Directors, by the vote of a majority of the entire Board
of Directors, to increase or decrease the number of directors fixed by these
Articles of Incorporation or by the By-Laws within the limits specified from
time to time in the By-Laws, provided that in no case shall the number of
directors by less than three or the number of stockholders, whichever is less,
and to fill the vacancies created by any such increase in the number of
directors. Unless otherwise provided by the By-Laws of the Corporation, the
directors of the Corporation need not be stockholders therein.
SIXTH: The following provisions are hereby adopted for the purpose of
defining, limiting and regulating the powers of the Corporation and of the
directors and stockholders:
(a) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of its stock of any
class, whether now or hereafter authorized, and securities convertible into
shares of its stock, of any class or classes, whether now or hereafter
authorized, for such consideration as the Board of Directors may deem
advisable.
(b) The Board of Directors of the Corporation shall be authorized,
from time to time, to classify or to reclassify any unissued shares of
stock of the Corporation into one or more additional or other classes by
setting or changing in any one or more respects the designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms and conditions of
redemption of such shares of stock and pursuant to such classification or
reclassification to increase or decrease the number of authorized shares of
any class. Without limiting the generality of the foregoing, the dividends
and distributions of investment income and capital gains with respect to
the stock of the Corporation and with respect to each class that may
hereafter be created shall be in such amount as may be declared from time
to time by the Board of Directors, and such dividends and distributions may
vary from class to class to such extent and for such purposes as the Board
of Directors may deem appropriate, including but not limited to, the
purpose of complying with the requirements of regulatory or legislative
authorities. The stock of the Corporation may be issued in one or more
series as the Directors may, without stockholder approval, authorize. Each
series shall be preferred over all other series in respect of the assets
allocated to that series. The shares of stock in each series shall at all
times be divided into shares having a par value of $.001, each of which
shall represent an equal proportionate interest in the series with each
other share of the same series, none having priority on preference over
another.
(c) The Board of Directors of this Corporation is hereby empowered to
authorize the issuance from time to time of fractional shares of stock of
this Corporation, whether now or hereafter authorized, and any fractional
shares so issued shall entitle the holders thereof to exercise voting
rights, receive dividends and participate in the distribution of assets of
the Corporation in the event of liquidation or dissolution to the extent of
their proportionate interest represented by such fractional shares.
A-3
<PAGE>
(d) Except to the extent otherwise prohibited by applicable law, the
Corporation may enter into any management or investment advisory contract
or underwriting contract or any other type of contract with, and may
otherwise engage in any transaction or do business with, any person, firm
or corporation or any subsidiary or other affiliate of any such person,
firm or corporation and may authorize such person, firm or corporation or
such subsidiary or other affiliate to enter into any other contracts or
arrangements with any other person, firm or corporation which relate to the
Corporation or the conduct of its business, notwithstanding that any
directors or officers of the Corporation are or may subsequently become
partners, directors, officers, stockholders or employees of such person,
firm or corporation or of such subsidiary or other affiliate or may have a
material financial interest in any such contract, transaction or business;
and except to the extent otherwise provided by applicable law, no such
contract or transaction or business shall be invalidated or voidable or in
any way affected thereby nor shall any such directors or officers of the
Corporation be liable to the Corporation or to any stockholder or creditor
thereof or to any other person for any loss incurred solely because of the
entering into and performance of such contract or the engaging in such
transaction or business or the existence of such material financial
interest therein, provided that such relationship to such person, firm or
corporation or said subsidiary or affiliate or such material financial
interest was disclosed or otherwise known to the Board of Directors prior
to the Corporation's entering into such contract or engaging in such
transaction or business and in the case of directors of the Corporation
that any requirements of the Maryland General Corporation Law have been
satisfied; and provided further that nothing herein shall protect any
director or officer of the Corporation from liability to the Corporation or
its security holders to which he would be otherwise subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
(e) The method of computing the "net asset value" of each share of
stock of the Corporation shall be determined by or pursuant to the
direction of the Board of Directors of the Corporation; and subject to the
authority of the Board of Directors to change the method of such
computation, such net asset value shall be computed as follows:
The net asset value per share is determined on a daily basis, by
dividing the value of the Corporation's portfolio securities plus all cash
and other assets (including dividends accrued but not collected) less all
liabilities (including accrued expenses but excluding capital and surplus)
by the number of shares outstanding. The net asset value per share will be
made available for publication.
Each security will be valued on the basis of the last sales price on
the valuation date on the principal exchange on which traded or the NASDAQ
system. Securities in which there were no transactions on the valuation
date will be valued by taking the mean between the latest "bid" and "asked"
prices. Securities for which quotations are not readily available and other
assets will be valued at fair value as determined in good faith by the
Board of Directors. Notwithstanding the above, Short Term Debt Securities
with maturities of 60 days or less are valued at amortized cost.
The Board of Directors is empowered in its absolute discretion to
establish other methods of determining the net asset value of the shares of
stock whenever such methods are deemed by it
A-4
<PAGE>
to be necessary or desirable in order (i) to enable the Corporation to
comply with any provision of the Investment Company Act of 1940, or any
rule or regulation thereunder, or (ii) to more fairly and accurately
reflect the net asset value for such shares of stock.
(f) Any determination made in good faith and, so far as accounting
matters are involved, in accordance with generally accepted accounting
principles by or pursuant to the direction of the Board of Directors as to
the amount of the assets, debts, obligations or liabilities of the
Corporation, as to the amount of any reserves or charges set up and the
propriety thereof, as to the time of or purpose for creating such reserves
or charges, as to the use, alteration or cancellation or any reserves or
charges (whether or not any debt, obligation or liability for which such
reserves or charges shall have been created shall have been paid or
discharged or shall be then or thereafter required to be paid or
discharged), as to the price or closing bid or asked price of any
investment owned or held by the Corporation, as to the market value of any
investment or fair value of any other asset of the Corporation, as to the
number of shares of the Corporation outstanding, as to the ability to
liquidate investments in orderly fashion, or as to any other matters
relating to the issue, sale, purchase or other acquisition or disposition
of investments or shares of the Corporation, shall be final and conclusive
and shall be binding upon the Corporation and all holders of its shares,
past, present and future, and shares of the Corporation are issued and sold
on the condition and understanding that any and all such determinations
shall be binding as aforesaid.
(g) Unless otherwise expressly provided in the Charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, on each matter submitted to a vote of
stockholders, each holder of a share of capital stock of the Corporation
shall be entitled to one vote for each share standing in such holder's name
on the books of the Corporation, irrespective of the class or series
thereof, and all shares of all classes and series shall vote together as a
single class; provided, however, that (a) as to any matter with respect to
which a separate vote of any class or series is required by the Investment
Company Act of 1940, as amended, and in effect from time to time, or any
rules, regulations or orders issued thereunder, or by the Maryland General
Corporation Law, such requirement as to a separate vote by that class or
series shall apply in lieu of a general vote of all classes and series as
described above; (b) in the event that the separate vote requirements
referred to in (a) above apply with respect to one or more classes or
series, then subject to paragraph (c) below, the shares of all other
classes and series not entitled to a separate vote shall vote together as a
single class; and (c) as to any matter which in the judgment of the Board
of Directors (which shall be conclusive) does not affect the interest of a
particular class or series, such class or series shall not be entitled to
any vote and only the holders of shares of the one or more affected classes
and series shall be entitled to vote.
(h) The stockholders of the Corporation may remove any director of the
Corporation prior to the expiration of his term of office for cause, and
not otherwise, by the affirmative vote of a majority to all votes entitled
to be cast for the election of directors.
(i) The Corporation reserves the right to make, from time to time, any
amendments of its Articles of Incorporation which may now or hereafter be
authorized by law, including any
A-5
<PAGE>
amendments which alter the contract rights of any class of outstanding
stock as expressly set forth in the Articles of Incorporation.
(j) Except to the extent otherwise specifically provided in the
Articles of Incorporation or By-Laws of the Corporation, the Corporation
may authorize or take any corporate action (including, but without
limitation, any amendment to its Articles of Incorporation) upon the
affirmative vote of the holders of a majority of the outstanding shares of
stock entitled to vote thereon, notwithstanding any provision of the
Maryland General Corporation Law which would otherwise require more than a
majority vote of the outstanding shares of stock to authorize or take such
action.
(k)
(1) All shares now or hereafter authorized shall be subject to
redemption and redeemable at the option of the stockholder pursuant to
the applicable provisions of the Investment Company Act and laws of
the State of Maryland, including any applicable rules and regulations
thereunder. Each holder of shares of capital stock of the Corporation
shall be entitled to require the Corporation to redeem all or any part
of the shares of capital stock of the Corporation standing in the name
of such holder on the books of the Corporation, and all shares of
capital stock issued by the Corporation shall be subject to redemption
by the Corporation, at the redemption price of such shares as in
effect from time to time as may be determined by the Board of
Directors of the Corporation in accordance with the provisions hereof,
subject to the right of the Board of Directors of the Corporation to
suspend the right of redemption of shares of capital stock of the
Corporation or postpone the date of payment of such redemption price
in accordance with provisions of applicable law. The redemption price
of shares of capital stock of the Corporation shall be the net asset
value thereof as determined by the Board of Directors of the
Corporation from time to time in accordance with the provisions of
applicable law, less the amount of any applicable redemption charge or
deferred sales charge, redemption fee or other amount imposed by the
Board of Directors (to the extent consistent with applicable law) or
provided for in the Charter of the Corporation. The Board of Directors
may establish procedures for redemption of stock.
(2) A redemption fee of two percent (2%) of the then net asset
value of Class A Common Stock shares shall be imposed with respect to
Class A Common Stock shares into which shares of the Common Stock of
the Corporation have been reclassified pursuant to Article SECOND of
these Articles of Amendment and Restatement and that are outstanding
on the date that the Corporation converts to an open-end investment
company. The redemption will apply to such shares that are redeemed or
that are exchanged for shares of another open-end Pilgrim America Fund
including Pilgrim America Money Market Shares on or before the one
year anniversary date of the date on which the Corporation converts to
an open-end investment company. The proceeds of the aforesaid
redemption fee shall be retained by the Corporation. With the approval
of the Board of Directors, the aforesaid redemption fee may be reduced
or waived, in whole or in part, and any reductions or waivers may vary
among the stockholders.
(3)
(i) The term "Minimum Amount" when used herein shall mean
one thousand dollars ($1,000) unless otherwise fixed by the Board
of Directors from time to time.
A-6
<PAGE>
The Board of Directors may establish differing Minimum Amounts
for categories of holders of stock based on such criteria as the
Board of Directors may deem appropriate.
(ii) If the net asset value of the shares of a class of
stock held by a stockholder shall be less than the Minimum Amount
then in effect with respect to the category of holders in which
the stockholder is included, the Corporation may redeem all of
those shares, upon notice given to the holder in accordance with
paragraph (iii) of this subsection (d), to the extent that the
Corporation may lawfully effect such redemption under the laws of
the State of Maryland.
(iii) The notice referred to in paragraph (ii) of this
subsection (d) shall be in writing personally delivered or
deposited in the mail at least thirty days (or such other time as
the Board of Directors may specify from time to time) prior to
such redemption. If mailed, notice shall be addressed to the
stockholder at his post office address as shown on the books of
the Corporation, and sent by first class mail, postage prepaid.
The price for shares acquired by the Corporation pursuant to this
subsection (d) shall be an amount equal to the net asset value of
such shares, less the amount of any applicable redemption charge
or deferred sales charge or other amount payable on such
redemptions pursuant to the terms of issuance of such shares or
imposed by the Board of Directors (to the extent consistent with
applicable law) or provided for in the Charter of the
Corporation.
(4) Payment by the Corporation for shares of stock of the
Corporation surrendered to it for redemption shall be made by the
Corporation within seven days of such surrender out of the funds
legally available therefor, provided that the Corporation may suspend
the right of the stockholders to redeem shares of stock and may
postpone the right of those holders to receive payment for any shares
when permitted or required to do so by applicable statutes or
regulations. Payment of the aggregate price of shares surrendered for
redemption may be made in cash or, at the option of the Corporation,
wholly or partly in such portfolio securities of the Corporation as
the Corporation shall select.
(l) Unless otherwise provided by the Board of Directors, no holder of
stock of any class shall be entitled to preemptive rights to subscribe for
or purchase or receive any part of any new or additional issue of stock of
any class of the Corporation or securities convertible into stock of any
class of the Corporation.
SEVENTH: The following provision is hereby adopted for the purpose of
indemnifying the directors of the Corporation:
To the maximum extent permitted by the Maryland General Corporation
Law as from time to time amended, but subject to any limitations which may
be imposed pursuant to the Investment Company Act of 1940 or any rule or
regulation thereunder, the Corporation shall indemnify its currently acting
and its former directors, officers and agents and those persons who, at the
request of the Corporation, serve or have served another corporation,
partnership, joint venture, trust or other enterprise in one or more of
such capacities.
EIGHTH: The duration of the Corporation shall be perpetual.
A-7
<PAGE>
SECOND: Each share (including for this purpose a fraction of a share) of
Common Stock issued and outstanding immediately prior to these Articles of
Amendment and Restatement becoming effective, shall, at such effective time, be
reclassified automatically, and without any action or choice on the part of the
holder, into a share (or the same fraction of a share) of Class A Common Stock.
Shares of Class A Common Stock resulting from the aforesaid reclassification and
that are outstanding on the date that the Corporation converts to an open-end
investment company shall be subject, without limitation, to the redemption fee
provided for in Article SIXTH, paragraph l(2) of the Charter of the Corporation
as set forth in Article FIRST of these Articles of Amendment and Restatement,
subject to the reduction and waiver provisions contained therein. Outstanding
certificates representing issued and outstanding shares of Common Stock
immediately prior to these Articles of Amendment and Restatement becoming
effective, shall upon these Articles of Amendment and Restatement becoming
effective be deemed to represent the same number of shares of Class A Common
Stock. Certificates representing shares of the Class A Common Stock resulting
from the aforesaid reclassification need not be issued until certificates
representing the shares of Common Stock so reclassified, if issued, have been
received by the Corporation or its agent duly endorsed for transfer with the
request that a new certificate be provided. The Class A Common Stock and Class B
Common Stock shall have the preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as set forth in the Charter of the Corporation as
herein amended and restated.
THIRD: The Corporation desires to amend and restate its Charter as
currently in effect. The provisions set forth in these Articles of Amendment and
Restatement are all the provisions of
A-8
<PAGE>
the Charter currently in effect as herein amended. The current address of the
principal office of the Corporation, the name and address of the Corporation's
current resident agent, the current number of directors of the Corporation and
their names are as set forth herein.
FOURTH: The foregoing amendment and restatement of the Articles of Incorporation
of the Corporation was duly and unanimously approved and advised by unanimous
consent of the Board of Directors and approved by a majority of the shareholders
of the Corporation.
FIFTH: The total number of shares of capital stock that the Corporation had
authority to issue immediately prior to these Articles of Amendment and
Restatement becoming effective was fifty million (50,000,000) shares of the par
value of One Tenth of One Cent ($.001) per share and of the aggregate par value
of fifty thousand dollars ($50,000) all of which shares were designated Common
Stock. The total number of shares of capital stock that the Corporation has
authority to issue upon these Articles of Amendment and Restatement becoming
effective is one hundred million (100,000,000) shares, all of the par value of
One Tenth of One Cent ($.001) per share, and of the aggregate par value of one
hundred thousand dollars ($100,000). Sixty million (60,000,000) of the
authorized shares of Common Stock of the Corporation are classified as Class A
Common Stock, and forty million (40,000,000) of such shares are classified as
Class B Common Stock.
SIXTH: These Articles of Amendment and Restatement shall become effective on
__________, 1997 at _____ p.m. Eastern Time.
A-9
<PAGE>
IN WITNESS WHEREOF, PILGRIM AMERICA BANK AND THRIFT FUND, INC. has caused
these articles to be signed in its name and on its behalf by its President and
witnessed by its Secretary on ___________, 1997. PILGRIM AMERICA BANK AND THRIFT
FUND, INC.
By: _________________________
Robert W. Stallings, President
Witnessed By:
- ----------------------
James M. Hennessy, Secretary
A-10
<PAGE>
THE UNDERSIGNED, President of PILGRIM AMERICA BANK AND THRIFT FUND, INC.,
who executed on behalf of said corporation the foregoing Articles of Amendment
and Restatement, of which this certificate is made a part, hereby acknowledges,
in the name and on behalf of said corporation, the foregoing Articles of
Amendment and Restatement to be the corporate act of said corporation and
further certifies that, to the best of his knowledge, information and belief,
the matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
----------------------
Robert W. Stallings
A-11
<PAGE>
APPENDIX B
INVESTMENT MANAGEMENT AGREEMENT
THIS INVESTMENT MANAGEMENT AGREEMENT is made as of the _____ day of ________,
1997, by and between PILGRIM AMERICA BANK AND THRIFT FUND, INC. (formerly
Pilgrim Regional BankShares, Inc.), a Maryland corporation (the "Company"), and
PILGRIM AMERICA INVESTMENTS, INC., a Delaware corporation (the "Manager"), with
respect to the following recital of fact.
W I T N E S S E T H:
WHEREAS, the Company is registered as an open-end, diversified, management
investment company, under the Investment Company Act of 1940, as amended; and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended and is engaged in the business of
supplying investment advice, investment management and administrative services,
as an independent contractor; and
WHEREAS, the Company desires to retain the Manager to render advice and
services to the Company pursuant to the terms and provisions of this Agreement,
and the Manager is interested in furnishing said advice and services.
NOW, THEREFORE, in consideration of the covenants and the mutual promises
hereinafter set forth, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:
1. Investment Management. The Manager shall manage the Company's
affairs and shall supervise all aspects of the Company's operations,
including the investment and reinvestment of the cash, securities or other
properties comprising the Company's assets, subject at all times to the
policies and control of the Company's Board of Directors. The Manager shall
give the Company the benefit of its best judgment, efforts and facilities
in rendering its services as Manager.
2. Duties of the Investment Manager. In carrying out its obligation
under paragraph 1 hereof, the Manager shall:
(a) supervise and manage all aspects of the Company's operations;
(b) provide the Company with such executive, administrative and
clerical services as are deemed advisable by the Company's Board of
Directors;
(c) arrange, but not pay for, the periodic updating and filing of
prospectuses and supplements thereto, proxy material, tax returns,
reports to the Company's shareholders and reports to and filings with
the Securities and Exchange Commission and state Blue Sky authorities;
(d) provide the Company with, or obtain for it, adequate office
space and all necessary office equipment and service, including
telephone service, heat, utilities, stationery supplies and similar
items for the Company's principal office;
(e) provide the Board of Directors of the Company on a regular
basis with financial reports and analyses on the Company's operations
and the operations of comparable investment companies;
B-1
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(f) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic,
foreign and otherwise, whether affecting the economy generally or the
portfolio of the Company, and whether concerning the individual
issuers whose securities are included in the Company's portfolio or
the activities in which they engage, or with respect to securities
which the Manager considers desirable for inclusion in the Company's
portfolio;
(g) determine what issuers and securities shall be represented in
the Company's portfolio and regularly report them to the Company's
Board of Directors;
(h) formulate and implement continuing programs for the purchases
and sales of the securities of such issuers and regularly report
thereon to the Company's Board of Directors; and
(i) take, on behalf of the Company, all actions which appear
necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders
for the purchase and sale of portfolio securities, it being understood
that the Company shall reimburse the Manager for the costs of such
actions upon proper accounting.
3. Broker-Dealer Relationships. The Manager is responsible for
decisions to buy and sell securities for the Company, broker-dealer
selection, and negotiation of its brokerage commission rates. The Manager's
primary consideration in effecting a security transaction will be execution
at the most favorable price.
In selecting a broker-dealer to execute each particular transaction, the
Manager will take the following into consideration: the best net price
available; the reliability, integrity and financial condition of the
broker-dealer; the size of and difficulty in executing the order; the value of
the expected contribution of the broker-dealer to the investment performance of
the Company on a continuing basis; and other factors such as the broker-dealer's
ability to engage in transactions in shares of issuers which are typically not
listed on an organized stock exchange. Accordingly, the price to the Company in
any transaction may be less favorable than that available from another
broker-dealer if the difference is reasonably justified by other aspects of the
portfolio execution services offered. Subject to such policies as the Board of
Directors may determine, the Manager shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Company to pay a broker or dealer that
provides brokerage and research services to the Manager an amount of commission
for effecting a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction, if the Manager determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of either that
particular transaction or the Manager's overall responsibilities with respect to
the Company.
The Manager is further authorized to allocate the orders placed by it on
behalf of the Company to such brokers and dealers who also provide research or
statistical material, or other services to the Company or the Manager. Such
allocations shall be in such amounts and proportions as the Manager shall
determine and the Manager will report on said allocations regularly to the Board
of Directors of the Company indicating the brokers to whom such allocations have
been made and the basis therefor.
4. Control by Board of Directors. Any management or supervisory
activities undertaken by the Manager pursuant to this Agreement, as well as
other activities undertaken by the Manager on behalf of the Company
pursuant thereto, shall at all times be subject to any directives of the
Board of Directors of the Company.
B-2
<PAGE>
5. Compliance with Applicable Requirements. In carrying out is
obligations under this Agreement, the Manager shall at all times conform
to:
(a) all applicable provisions of the Investment Company Act of
1940 and any rules and regulations adopted thereunder, as amended; and
(b) the provisions of the Registration Statement of the Company
under the Securities Act of 1933 and the Investment Company Act of
1940, as amended; and
(c) the provisions of the Articles of Incorporation of the
Company, as amended; and
(d) the provisions of the By-laws of the Company, as amended; and
(e) any other applicable provisions of state and Federal law.
6. Expenses. The expenses connected with the Company shall be
allocable between the Company and the Manager as follows:
(a) The Manager shall furnish at its expense and without cost to
the Company, the services of a President, Secretary and one or more
Vice Presidents of the Company, to the extent that such additional
officers may be required by the Company for the proper conduct of its
affairs;
(b) Nothing in Subparagraph (a) hereof shall be construed to
require the Manager to bear the portion allocable to the Company of
the salary of the Manager's portfolio trader and the compensation paid
to personnel working under his or her direction to the extent such
salary and compensation does not exceed $15,000 per annum.
Notwithstanding the obligation of the Company to bear the expense of
the items referred to above, the Manager may pay the salaries,
including any applicable employment or payroll taxes and other salary
costs, of the personnel carrying out such functions and the Company
shall reimburse the Manager therefor upon proper accounting;
(c) The Manager shall bear the cost of the portion allocable to
the Company of the salary of the Manager's portfolio trader and the
compensation paid to personnel working under his or her direction to
the extent such salary and compensation exceeds $15,000 per annum;
(d) The Company shall pay or cause to be paid all expenses of the
stock transfer or dividend agent or agents appointed by the Company;
(e) The Company assumes and shall pay or cause to be paid all
other expenses of the Company, including, without limitation: the
charges and expenses of the registrar, any custodian or depository
appointed by the Company for the safekeeping of its cash, portfolio
securities and other property, and any accounting agent appointed by
the Company; broker's commissions chargeable to the Company in
connection with portfolio securities transactions to which the Company
is a party; all taxes, including securities issuance and transfer
taxes, and corporate fees payable by the Company to Federal, state or
other governmental agencies; the cost and expense of engraving or
printing of stock certificates representing shares of the Company; all
costs and expenses in connection with the registration and maintenance
of registration of the Company and its shares with the Securities and
Exchange Commission and various states and other jurisdictions
(including filing fees and legal fees and disbursements of counsel);
the costs and expenses of preparing (including typesetting)
prospectuses (including supplements thereto) of the Company, proxy
statements and reports to shareholders; and of printing and
distributing such items to the Company's shareholders, all expenses of
shareholders' and directors' meetings; fees and travel expenses of
directors or members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any
outside service used for pricing of the Company's
B-3
<PAGE>
shares; charges and expenses of legal counsel, including counsel to
the directors of the Company who are not interested persons (as
defined in the Investment Company Act of 1940, as amended) of the
Company, and of independent accountants, in connection with any matter
relating to the Company; membership dues of industry associations;
interest payable on Company borrowings; postage; insurance premiums on
property or personnel (including officers and directors) of the
Company which inure to its benefit; extraordinary expenses (including,
but not limited to, legal claims and liabilities and litigation costs
and any indemnification related thereto); and all other charges and
costs of the Company's operation unless otherwise explicitly provided
therein.
7. Delegation of Responsibilities. The Manager may, but should be
under no duty to, perform services on behalf of the Company which are not
required by this Agreement upon the request of the Company's Board of
Directors. Such services will be performed on behalf of the Company and the
Manager's charge in rendering such services may be billed monthly to the
Company, subject to examination by the Company's independent accountants.
Payment or assumption by the Manager of any Company expense that the
Manager is not required to pay or assume under this Agreement shall not
relieve the Manager of any of its obligations to the Company nor obligate
the Manager to pay or assume any similar Company expense on any subsequent
occasions.
8. Compensation. For the services to be rendered and the expenses
assumed by the Manager, the Company shall pay to the Manager monthly
compensation of the sum of the amounts determined by applying the following
annual rates to the Company's average daily net assets: 1.0% of the first
$30 million of the Company's average daily net assets, .75% of the
Company's average daily net assets of the next $95 million of average daily
net assets, and .70% of the average daily net assets in excess of $125
million. Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily and the amounts of daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to
the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall
be prorated in a manner consistent with the calculation of fees set forth
above. Payment of the Manager's compensation for the preceding month shall
be made as promptly as possible after completion of the computations
contemplated above.
9. Non-Exclusivity. The services of the Manager to the Company are not
to be deemed to be exclusive, and the Manager shall be free to render
investment management and corporate administrative or other services to
others (including other investment companies) and to engage in other
activities, so long as its services under this Agreement are not impaired
thereby. It is understood and agreed that officers and directors of the
Manager may serve as officers or directors of the Manager to the extent
permitted by law; and that the officers and directors of the Manager are
not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners,
officers or directors of any other firm or corporation, including other
investment companies.
10. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect
until April 7, 1999, unless sooner terminated as hereinafter provided, and
shall continue in force and effect from year to year, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Company's Board of Directors or (ii) by the vote
of a majority of the Company's outstanding voting securities (as
defined in Section 2(a)(42) of the Investment Company Act of 1940, as
amended), and
(b) by the affirmative vote of a majority of the directors who
are not parties to this Agreement or interested persons of a party to
this Agreement (other than as Company directors), by votes cast in
person at a meeting specifically called for such purpose.
B-4
<PAGE>
11. Termination. This Agreement may be terminated at any time, without
the payment of any penalty, by vote of the Company's Board of Directors or
by vote of a majority of the Company's outstanding securities (as defined
in Section 2(a)(42) of the Investment Company Act of 1940, as amended), or
by the Manager, on sixty (60) days' written notice to the other party. This
Agreement shall automatically terminate in the event of its assignment, the
term "assignment" having the meaning defined in Section 2(a)(4) of the
Investment Company Act of 1940, as amended.
12. Liability of the Manager. In the absence of willful misfeasance,
bad faith or gross negligence on the part of the Manager or any of its
officers, directors or employees or reckless disregard by the Manager of
its duties under this Agreement, the Manager shall not be liable to the
Company or to any shareholder of the Company for any act or omission in the
course, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
13. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of
the Manager and that of the Company for this purpose shall be Two
Renaissance Square, 40 N. Central Avenue, Suite 1200, Phoenix, Arizona
85004.
14. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the Investment Company Act of 1940, as
amended, shall be resolved by reference to such term or provision of the
Act and to interpretations thereof, if any, by the United States Courts or
in the absence of any controlling decision of any such court, by rules,
regulations or orders of the Securities and Exchange Commission issued
pursuant to said Act. In addition, where the effect of a requirement of the
Investment Company Act of 1940, as amended, reflected in any provision of
this Agreement is revised by rule, regulation or order of the Securities
and Exchange Commissions, such provisions shall be deemed to incorporate
the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers on the day and year first above written.
PILGRIM AMERICA
BANK AND THRIFT FUND, INC.
Attest: By:____________________________________
Title: _________________ Title: ________________________________
PILGRIM AMERICA INVESTMENTS, INC.
Attest: By:____________________________________
Title: __________________ Title: ________________________________
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<PAGE>
APPENDIX C
Set forth below is the name, address and principal occupation of the principal
executive officer and each director of Pilgrim America Investments, Inc. The
business address of each such person is 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004.
<TABLE>
<S> <C>
Name and Position with
Investment Manager Principal Occupation
Robert W. Stallings Chairman, Chief Executive Officer and President of Pilgrim
Chairman of the Board of Directors America Group, Inc.; Chairman, Pilgrim America Investments,
Inc.; Director, Pilgrim America Securities, Inc.;
Chairman, Chief Executive Officer and President of
Pilgrim America Bank and Thrift Fund, Inc., Pilgrim
Government Securities Income Fund, Inc., Pilgrim America
Investment Funds, Inc. and Pilgrim America Masters
Series, Inc. Chairman and Chief Executive Officer of
Pilgrim America Prime Rate Trust (since April 1995).
Chairman and Chief Executive Officer of Pilgrim America
Capital Corporation (formerly, Express America
Holdings Corporation) ("Pilgrim America").
James R. Reis Director, Vice Chairman, Executive Vice President, and
Vice Chairman of the Board of Directors Treasurer, Pilgrim America Group and PAII; Director, Vice
Chairman and Assistant
Secretary of PASI; Executive
Vice President, Treasurer,
Assistant Secretary and
Principal Accounting Officer
of each of the other funds in
the Pilgrim America Group of
Funds; Chief Financial
Officer, Vice Chairman and
Assistant Secretary, Pilgrim
America (formerly, Express
America Holdings
Corporation); Vice Chairman,
Express America Mortgage
Corporation.
Stanley D. Vyner Executive Vice President, Pilgrim America Group, Inc.; President
President and Chief Executive Officer and Chief Executive Officer, Pilgrim America Investments, Inc.;
Executive Vice President of
most of the funds in the
Pilgrim America Group of
Funds.
</TABLE>
C-1
<PAGE>
APPENDIX D
Service and Distribution Plan for
Pilgrim America Bank and Thrift Fund, Inc.
Class A Shares
D-1
<PAGE>
SERVICE AND DISTRIBUTION PLAN
WHEREAS, Pilgrim America Bank and Thrift Fund, Inc. (the "Company") engages
in business as an open-end management investment company and is registered as
such under the Investment Company Act of 1940, as amended (the "Act");
WHEREAS, shares of common stock of the Company are divided into classes of
shares, one of which is designated Class A;
WHEREAS, the Company employs Pilgrim America Securities, Inc. (the
"Distributor") as distributor of the securities of which it is the issuer; and
WHEREAS, the Company and the Distributor have entered into an Underwriting
Agreement pursuant to which the Company has employed the Distributor in such
capacity during the continuous offering of shares of the Company.
NOW, THEREFORE, the Company hereby adopts with respect to its Class A
shares, and the Distributor hereby agrees to the terms of the Plan, in
accordance with Rule 12b-l under the Act, on the following terms and conditions:
1.
A. The Company shall pay to the Distributor, as the distributor
of the Class A shares of the Company, a fee for distribution of the
shares at the rate of up to 0.10% on an annualized basis of the
average daily net assets of the Company's Class A shares, provided
that, at any time such payment is made, whether or not this Plan
continues in effect, the making thereof will not cause the limitation
upon such payments established by this Plan to be exceeded. Such fee
shall be calculated and accrued daily and paid at such intervals as
the Board of Directors shall determine, subject to any applicable
restriction imposed by rules of the National Association of Securities
Dealers, Inc.
B. The Company shall pay to the Distributor, as the distributor
of the Class A shares of the Company, a service fee at the rate of
0.25% on an annualized basis of the average daily net assets of the
Company's Class A shares, provided that, at any time such payment is
made, whether or not this Plan continues in effect, the making thereof
will not cause the limitation upon such payments established by this
Plan to be exceeded. Such fee shall be calculated and accrued daily
and paid at such intervals as the Board of Directors shall determine,
subject to any applicable restriction imposed by rules of the National
Association of Securities Dealers, Inc.
2. The amount set forth in paragraph 1.A. of this Plan shall be paid for
the Distributor's services as distributor of the shares of the Company in
connection with any activities or expenses primarily intended to result in the
sale of the Class A shares of the Company, including, but not limited to,
payment of compensation, including incentive compensation, to securities dealers
(which may include the Distributor itself) and other financial institutions and
organizations (collectively, the "Service Organizations") to obtain various
distribution related and/or administrative services for the Company. These
services include, among other things, processing new shareholder account
applications, preparing and transmitting to the Company's Transfer Agent
computer processable tapes of all transactions by customers and serving as the
primary source of information to customers in providing information and
answering questions concerning the Company and their transactions with the
Company. The Distributor is also authorized to engage in advertising, the
preparation and distribution of sales literature and other promotional
activities on behalf of the Company. In addition, this Plan hereby authorizes
payment by the Company of the cost of printing and distributing Company
Prospectuses and Statements of Additional Information to prospective investors
and of implementing and operating the Plan. Distribution expenses also include
an allocation of overhead of the Distributor and accruals for
D-2
<PAGE>
interest on the amount of distribution expenses that exceed distribution fees
and contingent deferred sales charges received by the Distributor. Payments
under the Plan are not tied exclusively to actual distribution and service
expenses, and the payments may exceed distribution and service expenses actually
incurred.
The amount set forth in paragraph 1.B. of this Plan may be used by the
Distributor to pay securities dealers (which may include the Distributor itself)
and other financial institutions and organizations for servicing shareholder
accounts, including a continuing fee which may accrue immediately after the sale
of shares.
3. The Plan shall not take effect with respect to the Class A shares of the
Company until it has been approved by a vote of the shareholders of the Class A
shares of the Company.
4. This Plan shall not take effect until it, together with any related
agreements, has been approved by votes of a majority of both (a) the Directors
of the Company and (b) those Directors of the Company who are not "interested
persons" of the Company (as defined in the Act) and who have no direct or
indirect financial interest in the operation of this Plan or any agreements
related to it (the "Rule 12b-l Directors"), cast in person at a meeting (or
meetings) called for the purpose of voting on this Plan and such related
agreements.
5. After approval as set forth in paragraphs 3 and 4, this Plan shall take
effect. The Plan shall continue in full force and effect as to the Class A
shares of the Company for so long as such continuance is specifically approved
at least annually in the manner provided for approval of this Plan in paragraph
4.
6. The Distributor shall provide to the Directors of the Company, and the
Directors shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
7. This Plan may be terminated at any time, without payment of any penalty,
by vote of the Directors of the Company, by vote of a majority of the Rule 12b-l
Directors, or by a vote of a majority of the outstanding voting securities of
Class A shares of the Company on not more than 30 days' written notice to any
other party to the Plan.
8. This Plan may not be amended to increase materially the amount of
distribution fee (including any service fee) provided for in paragraph 1 hereof
unless such amendment is approved in the manner provided for initial approval in
paragraph 3 hereof, and no material amendment to the Plan shall be made unless
approved in the manner provided for approval and annual renewal in paragraph 4
hereof.
9. While this Plan is in effect, the selection and nomination of Directors
who are not interested persons (as defined in the Act) of the Company shall be
committed to the discretion of the Directors who are not such interested
persons.
10. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof, for a period of
not less than six years from the date of this Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
IN WITNESS WHEREOF, the Company and the Distributor have executed this
Service and Distribution Plan as of the ____ day of ________, 1997.
D-3
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PILGRIM AMERICA BANK AND THRIFT FUND, INC.
By:
PILGRIM AMERICA SECURITIES, INC.
By:
D-4
<PAGE>
PILGRIM AMERICA FUNDS
PROXY SERVICES
P.O. BOX 9148
FARMINGDALE, NY 11735
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
The undersigned owner of Common Stock, par value $.001 per share (the "Common
Stock") of Pilgrim America Bank and Thrift Fund, Inc. (the "Fund") hereby
instructs Robert W. Stallings or James M. Hennessy (Proxies) to vote the shares
of the Common Stock held by him at the Special Meeting of Shareholders of the
Fund to be held at 10:00 a.m., local time, on October 16, 1997 at 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004 and at any adjournment
thereof, in the manner directed below with respect to the matters referred to in
the Proxy Statement for the meeting, receipt of which is hereby acknowledged,
and in the Proxies' discretion, upon such other matters as may properly come
before the meeting or any adjournment thereof.
Please vote, sign and date this voting instruction and return it in the enclosed
envelope.
These voting instructions will be voted as specified. If no specification is
made, this voting instruction will be voted FOR all proposals.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
/X/ THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS.
KEEP THIS PORTION FOR YOUR RECORDS.
DETACH AND RETURN THIS PORTION ONLY.
THIS PROXY CA6RD IS VALID ONLY WHEN SIGNED AND DATED
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
This voting instruction shall be signed exactly as your name(s) appears hereon.
If as an attorney, executor, guardian or in some representative capacity or as
an officer of a corporation, please add titles as such. Joint owners must each
sign.
<TABLE>
<S> <C> <C>
Vote On Director For Withhold
1. Election of Director: John P. Burke / / / /
</TABLE>
<TABLE>
<S> <C> <C> <C>
Vote On Proposals
2. To convert the Fund from a closed-end investment For Against Abstain
company to an open-end investment company / / / / / /
3. If Proposal No.2 is approved, to approve an amended
Investment Management Agreement
/ / / / / /
4. If Proposal No.2 is approved, to approve the
adoption of a distribution plan pursuant to Rule
12b-1 / / / / / /
5. To transact such other business as may properly
come before the Special Meeting of Shareholders or
any adjournments thereof
/ / / / / /
</TABLE>
IN ORDER TO AVOID THE ADDITIONAL EXPENSE OF FURTHER SOLICITATION TO YOUR FUND,
WE STRONGLY URGE YOU TO REVIEW, COMPLETE AND RETURN YOUR BALLOT AS SOON AS
POSSIBLE. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
