EXPLANATORY NOTE
On June 3, 1998, an old version of the Statement of Additional Information
for Pilgrim America Bank and Thrift Fund, Inc. (the "Fund") was mistakenly filed
on the EDGAR system. In order to correct that error, we are re-filing the
current version of the Fund's Statement of Additional Information, dated May 1,
1998. This version of the Statement of Additional Information is unchanged from
the Statement of Additional Information filed as Part B of post-effective
amendment no. 1 on April 30, 1998 or from the definitive version of the
Statement of Additional Information filed on May 11, 1998.
<PAGE>
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004
(800) 992-0180
Statement of Additional Information
dated May 1, 1998
Pilgrim America Bank and Thrift Fund, Inc. (the "Fund") is an open-end
management investment company commonly known as a mutual fund. The Fund's
primary investment objective is long-term capital appreciation. Income is the
secondary objective. The Fund seeks to achieve its objectives by investing
primarily in equity securities of national and state-chartered banks (other than
money center banks), thrifts, the holding or parent companies of such depository
institutions, and in savings accounts of mutual thrifts. These portfolio
securities are selected principally on the basis of fundamental investment value
and potential for future growth, including securities of institutions that the
Fund believes are well-positioned to take advantage of opportunities currently
developing in the banking and thrift industries. There is no assurance that the
Fund will achieve its objectives.
This Statement of Additional Information is not a prospectus and it should be
read in conjunction with the Fund's Prospectus, dated May 1, 1998
("Prospectus"), which has been filed with the Securities and Exchange Commission
("SEC"). Copies of the Prospectus may be obtained at no charge by calling (800)
992-0180.
TABLE OF CONTENTS
Page
ORGANIZATION OF PILGRIM AMERICA BANK AND THRIFT FUND, INC.......2
MANAGEMENT OF THE FUND..........................................2
INVESTMENT RESTRICTIONS.........................................8
PORTFOLIO TRANSACTIONS..........................................9
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................11
DETERMINATION OF SHARE PRICE...................................15
SHAREHOLDER SERVICES AND PRIVILEGES............................16
DISTRIBUTIONS..................................................18
TAX CONSIDERATIONS.............................................18
SHAREHOLDER INFORMATION........................................20
CALCULATION OF PERFORMANCE DATA................................21
GENERAL INFORMATION............................................23
FINANCIAL STATEMENTS...........................................23
<PAGE>
ORGANIZATION OF PILGRIM AMERICA BANK AND THRIFT FUND, INC.
Pilgrim America Bank and Thrift Fund, Inc. is an open-end management investment
company commonly known as a mutual fund. The Fund was incorporated in Maryland
in November, 1985 under the name "Pilgrim Regional BankShares, Inc." as a
closed-end, diversified management investment company. The Fund changed its name
from "Pilgrim Regional BankShares, Inc." to "Pilgrim America Bank and Thrift
Fund, Inc." in April, 1996. The Fund operated as a closed-end fund prior to
October 17, 1997. On October 16, 1997, shareholders approved open-ending the
Fund and since October 17, 1997, the Fund has operated as an open-end fund.
The authorized capital stock of the Fund consists of 100,000,000 shares of
common stock having a par value of $.001 per share. Holders of shares of the
Fund have one vote for each share held, and a proportionate fraction of a vote
for each fraction of a share held. All shares issued and outstanding are fully
paid and non-assessable, transferable, and redeemable at the option of the
shareholder. Shares have no preemptive rights. Shares have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Directors can elect 100% of the Directors if they choose to do
so, and in such event the holders of the remaining shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors.
The Board of Directors may classify or reclassify any unissued shares of the
Fund into shares of another class or series by setting or changing in any one or
more respects, from time to time, prior to the issuance of such shares, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or qualifications of such shares. Any such
classification or reclassification will comply with the provisions of the
Investment Company Act of 1940 (the "1940 Act").
MANAGEMENT OF THE FUND
Board of Directors. The Fund is managed by its Board of Directors. The Directors
and Officers of the Fund are listed below. An asterisk (*) has been placed next
to the name of each Director who is an "interested person," as that term is
defined in the 1940 Act, by virtue of that person's affiliation with the Fund or
Pilgrim America Investments, Inc., the Fund's investment manager (the
"Investment Manager").
Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix, Arizona
85016. (Age 58.) Director. Realtor, Coldwell Banker Success Realty (formerly,
The Prudential Arizona Realty), for more than the last five years. Ms. Baldwin
is also Vice President, United States Olympic Committee (November 1996 -
Present), and formerly Treasurer, United States Olympic Committee (November 1992
- - November 1996). Ms. Baldwin also is a director and/or trustee of each of the
funds managed by the Investment Manager.
John P. Burke, 260 Constitution Plaza, Hartford, Connecticut 06310. (Age 66.)
Director. Commissioner of Banking, State of Connecticut (January 1995 -
Present). Mr. Burke was formerly President of Bristol Savings Bank (August 1992-
January 1995) and President of Security Savings and Loan (November 1989 - August
1992). Mr. Burke is also a director and/or trustee of each of the funds managed
by the Investment Manager.
Al Burton, 2300 Coldwater Canyon, Beverly Hills, California 90210. (Age 70.)
Director. President of Al Burton Productions, for more than the last five years.
Formerly, Vice President, First Run Syndication, Castle Rock Entertainment (July
1992 - November 1994). Mr. Burton also is a director and/or trustee of each of
the funds managed by the Investment Manager.
Bruce S. Foerster, 4045 Sheridan Avenue, Suite 432, Miami Beach, Florida 33140.
(Age 57.) Director. President, South Beach Capital Markets Advisory Corporation
(January 1995 - Present); Governor of the Philadelphia Stock Exchange (October
1997 - Present); Director of 2Connect Express, Inc. (December 1997 - Present),
Mako Marine International (January 1996 - December 1997) and Aurora Capital,
Inc. (since February 1995). Mr. Foerster was formerly Director of Mako Marine
International (January 1996 - December 1997) and Managing Director Equity
Syndicate, Lehman Brothers (June 1992 - December 1994). Mr. Foerster also is a
director and/or trustee of each of the funds managed by the Investment Manager.
Jock Patton, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age
52.) Director. Private Investor. Director of Artisoft, Inc. (August
1994-Present). Formerly President and Co-owner, StockVal, Inc. (April 1993 -
June 1997). Mr. Patton was also formerly a partner and director of the law firm
of Streich, Lang, P.A. (1972 - 1993). Mr. Patton is also a director and/or
trustee of each of the funds managed by the Investment Manager.
Robert W. Stallings*, 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004. (Age 49.) Chairman, Chief Executive Officer and President. Chairman,
Chief Executive Officer and President of Pilgrim America Group, Inc. (since
December 1994); Chairman, Pilgrim America Investments, Inc. (since December
1994); Director, Pilgrim America Securities, Inc. (since December 1994);
Chairman, Chief Executive Officer and President of Pilgrim Government Securities
Income Fund, Inc., Pilgrim America Investment Funds, Inc. and Pilgrim America
Master Series, Inc. (since April 1995). Chairman, President and Chief Executive
Officer of WESAV Investments, Inc. 2 (May 1991 - Present), Express America T.C.
Corp. and EAMC Liquidation Corp. (December 1996 - Present); Chairman of WESAV
Investments Corp. (August 1992 - Present); Chairman and Chief Executive Officer
of Pilgrim America Capital Corporation (formerly, Express America Holdings
Corporation) ("Pilgrim America") (August 1990 - Present).
The Fund pays each Director who is not an interested person a pro rata share, as
described below, of (i) an annual retainer of $20,000; (ii) $1,500 per quarterly
and special Board meeting; (iii) $500 per committee meeting; (iv) $500 per
special telephonic meeting; and (v) out-of-pocket expenses. The pro rata share
paid by the Fund is based on the Fund's average net assets as a percentage of
the average net assets of all the funds managed by the Investment Manager for
which the Directors serve in common as directors/trustees.
Compensation of Directors.
The following table sets forth information regarding compensation of Directors
by the Fund and other funds managed by the Investment Manager for the fiscal
year ended December 31, 1997. Officers of the Fund and Directors who are
interested persons of the Fund do not receive any compensation from the Fund or
any other funds managed by the Investment Manager. In the column headed "Total
Compensation From Registrant and Fund Complex Paid to Directors," the number in
parentheses indicates the total number of boards in the Fund Complex on which
the Director serves.
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
<S> <C> <C> <C> <C>
Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued Annual Registrant
Compensation As Part of Benefits and Fund
from Fund Upon Complex Paid
Name of Person, Position Registrant Expenses Retirement to Directors
Mary A. Baldwin*, Director....................... $4,474 N/A N/A $28,300
(5 boards)
John P. Burke* **, Director...................... $3,422 N/A N/A $21,400
(5 boards)
Al Burton*, Director............................. $4,491 N/A N/A $28,400
(5 boards)
Bruce S. Foerster*, Director.................... $4,491 N/A N/A $28,400
(5 boards)
Jock Patton*, Director ........................ $4,491 N/A N/A $28,400
(5 boards)
Robert W. Stallings***, Director and Chairman.... $0 N/A N/A $0
(5 boards)
</TABLE>
- ---------------------------------------------
* Member of the Audit Committee.
** Mr. Burke was elected to the Board of Directors at the May 5, 1997 Board
meeting.
*** "Interested person," as defined in the Investment Company Act of 1940, of
the Fund because of affiliation with the Investment Manager.
Officers.
James R. Reis, Executive Vice President, Treasurer, Assistant Secretary,
Principal Accounting Officer. 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004. (Age 40.) Director, Vice Chairman (since December 1994),
Executive Vice President (since April 1995), and Treasurer (since September
1996), Pilgrim America Group, Inc. and Pilgrim America Investments, Inc.;
Director (since December 1994), Vice Chairman (since November 1995) and
Assistant Secretary (since January 1995) of Pilgrim America Securities, Inc.;
Executive Vice President, Treasurer, Assistant Secretary and Principal
Accounting Officer of each of the other funds in the Pilgrim America Group of
Funds; Chief Credit Officer (since June 1997) of Pilgrim America Prime Rate
Trust; Chief Financial Officer (since December 1993), Vice Chairman and
Assistant Secretary (since April 1993) and former President (May 1991 - December
1993), Pilgrim America (formerly, Express America Holdings Corporation); Vice
Chairman (since April 1993) and former President (May 1991 - December 1993),
Express America Mortgage Corporation.; Vice Chairman and Treasurer (since
December 1996) Express America T.C. Corp. and EAMC Liquidation Corp.; Director,
President and Assistant Secretary (since August 1992) WESAV Investments Corp.;
Assistant Secretary (since May 1991) WESAV Investments, Inc. 2.
Stanley Vyner, Executive Vice President. 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004. (Age 46.) President and Chief Executive Officer (since
August 1996), Pilgrim America Investments, Inc.; Executive Vice President (since
July 1996) of most of the funds in the Pilgrim America Group of funds. Formerly
Chief Executive Officer (November 1993 - December 1995) HSBC Asset Management,
Americas, Inc., and Chief Executive Officer, and Actuary (May 1986 - October
1993), HSBC Life.
James M. Hennessy, Senior Vice President and Secretary. 40 North Central Avenue,
Suite 1200, Phoenix, Arizona 85004. (Age 49.)
Senior Vice President and Secretary (since April 1995), Pilgrim America
(formerly, Express America Holdings Corporation), Pilgrim America Group, Inc.,
Pilgrim America Investments, Inc., and Pilgrim America Securities, Inc.; Senior
Vice President and Secretary of each of the funds in the Pilgrim America Group
of funds. Senior Vice President and Secretary, Express America T.C. Corp. and
EAMC Liquidation Corp. Formerly Senior Vice President, Express America Mortgage
Corporation (June 1992 - August 1994) and President, Beverly Hills Securities
Corp. (January 1990 - June 1992).
Carl Dorf, Senior Vice President and Senior Portfolio Manager. 40 North Central
Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 57.)
Senior Vice President (since February 1997), Pilgrim America Investments, Inc.
Formerly Vice President, Pilgrim America Investments, Inc. (August 1995 -
February 1997). Formerly Vice President, Pilgrim America Bank and Thrift Fund,
Inc. (January 1996 - May 1997). Formerly Vice President, Pilgrim Management
Corporation (January 1991 - April 1995).
Robert S. Naka, Vice President and Assistant Secretary. 40 North Central Avenue,
Suite 1200, Phoenix, Arizona 85004. (Age 34.)
Vice President, Pilgrim America Investments, Inc. (since April 1997) and Pilgrim
America Group, Inc. (since February 1997). Vice President and Assistant
Secretary of each of the funds in the Pilgrim America Group of funds. Formerly
Assistant Vice President, Pilgrim America Group, Inc. (August 1995 - February
1997). Formerly Operations Manager, Pilgrim Group, Inc. (April 1992 - April
1995).
Principal Shareholders. As of April 1, 1998, the Directors and Officers of the
Fund as a group owned less than 1% of the outstanding shares of the Fund. As of
April 1, 1998, to the knowledge of management, no person owned beneficially or
of record more than 5% of the outstanding shares of any class of the Fund except
as follows: Merrill Lynch Pierce Fenner & Smith for the sole benefit of its
customers, 4800 Deer Lake Drive, Jacksonville, Florida 32246-6484 owned 9.92% of
the Class A shares and 31.66% of the Class B shares, and Charles Schwab & Co.,
Inc., 101 Montgomery Street, San Francisco, California owned 5.62% of the Class
A shares.
Investment Manager. The Investment Manager serves as investment manager to the
Fund and has overall responsibility for the management of the Fund. The
Investment Management Agreement between the Fund and the Investment Manager
requires the Investment Manager to oversee the provision of all investment
advisory and portfolio management services for the Fund. The Investment Manager,
which was organized in December 1994, is registered as an investment adviser
with the SEC and serves as investment adviser to four other registered
investment companies (or series thereof) as well as privately managed accounts.
As of December 31, 1997, the Investment Manager had assets under management of
approximately $3.2 billion.
The Investment Manager is a wholly-owned subsidiary of Pilgrim America Group,
Inc., which itself is a wholly-owned subsidiary of Pilgrim America, a Delaware
corporation, the shares of which are traded on the NASDAQ National Market System
and which is a holding company that through its subsidiaries engages in the
financial services business. The Investment Manager pays all of its expenses
arising from the performance of its obligations under the Investment Management
Agreement, including all executive salaries and expenses of the Directors and
Officers of the Fund who are employees of the Investment Manager or its
affiliates and office rent for the Fund. Other expenses incurred in the
operation of the Fund are borne by it, including, without limitation, investment
advisory fees; brokerage commissions; interest; legal fees and expenses of
attorneys; fees of independent auditors, transfer agents and dividend disbursing
agents, accounting agents, and custodians; the expense of obtaining quotations
for calculating the Fund's net asset value; taxes, if any, and the preparation
of the Fund's tax returns; cost of stock certificates and any other expenses
(including clerical expenses) of issue, sale, repurchase or redemption of
shares; expenses of registering and qualifying shares of the Fund under federal
and state laws and regulations; expenses of printing and distributing reports,
notices and proxy materials to existing shareholders; expenses of printing and
filing reports and other documents filed with governmental agencies; expenses of
annual and special shareholder meetings; expenses of printing and distributing
prospectuses and statements of additional information to existing shareholders;
fees and expenses of Directors of the Fund who are not employees of the
Investment Manager or its affiliates; membership dues in the Investment Company
Institute; insurance premiums; and extraordinary expenses such as litigation
expenses.
The Fund pays the Investment Manager a fee of 1.00% of the first $30,000,000 of
average daily net assets, 0.75% of the next $95,000,000 of average daily net
assets and 0.70% of average daily net assets in excess of $125,000,000. The fees
are computed and accrued daily and paid monthly. For the fiscal years ended
December 31, 1995, 1996, and 1997, the Fund paid management fees to the
Investment Manager of $1,421,324, $1,746,917, and $2,361,103, respectively.
Prior to October 17, 1997, the Investment Manager was paid management fees based
on average weekly net assets.
The Investment Management Agreement will remain in effect for two years
following its date of execution, and thereafter will automatically continue for
successive annual periods as long as such continuance is specifically approved
at least annually by (a) the Board of Directors or (b) the vote of a "majority"
(as defined in the 1940 Act) of the Fund's outstanding shares voting as a single
class; provided, that in either event the continuance is also approved by at
least a majority of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Investment Manager by vote cast in person at a
meeting called for the purpose of voting on such approval.
The Investment Management Agreement is terminable without penalty with not less
than 60 days' notice by the Board of Directors or by a vote of the holders of a
majority of the Fund's outstanding shares voting as a single class, or upon not
less than 60 days' notice by the Investment Manager. The Investment Management
Agreement will terminate automatically in the event of its "assignment" (as
defined in the 1940 Act).
Distributor. Shares of the Fund are distributed by Pilgrim America Securities,
Inc. (the "Distributor") pursuant to an Underwriting Agreement between the Fund
and the Distributor. The Underwriting Agreement requires the Distributor to use
its best efforts on a continuing basis to solicit purchases of shares of the
Fund. The Fund and the Distributor have agreed to indemnify each other against
certain liabilities. At the discretion of the Distributor, all sales charges may
at times be reallowed to an authorized dealer ("Authorized Dealer"). If 90% or
more of the sales commission is reallowed, such Authorized Dealer may be deemed
to be an "underwriter" as that term is defined under the Securities Act of 1933,
as amended. The Underwriting Agreement will remain in effect for two years and
from year to year thereafter only if its continuance is approved annually by a
majority of the Board of Directors who are not parties to such agreement or
"interested persons" of any such party and must be approved either by votes of a
majority of the Directors or a majority of the outstanding voting securities of
the Fund. See the Prospectus for information on how to purchase and sell shares
of the Fund, and the charges and expenses associated with an investment.
Rule 12b-1 Plans. The Fund has a distribution plan pursuant to Rule 12b-1 under
the 1940 Act applicable to each class of shares of the Fund ("Rule 12b-1 Plan").
The Fund intends to operate the Rule 12b-1 Plans in accordance with its terms
and the National Association of Securities Dealers, Inc.'s rules concerning
sales charges. Under the Rule 12b-1 Plans, the Distributor may be entitled to
payment each month in connection with the offering, sale, and shareholder
servicing of Class A and Class B shares in amounts not to exceed the following:
with respect to Class A shares at an annual rate of up to 0.35% of the average
daily net assets of the Class A shares of the Fund; with respect to Class B
shares at an annual rate of up to 1.00% of the average daily net assets of the
Class B shares of the Fund. The Board of Directors has approved under the Rule
12b-1 Plans payments of the following amounts to the Distributor each month in
connection with the offering, sale, and shareholder servicing of Class A and
Class B shares as follows: (i) with respect to Class A shares at an annual rate
equal to 0.25% of the average daily net assets of the Class A shares of the Fund
and (ii) with respect to Class B shares at an annual rate equal to 1.00% of the
average daily net assets of the Class B shares of the Fund. Of these amounts,
fees equal to an annual rate of 0.25% of the average daily net assets of the
Fund are for shareholder servicing for each of the classes.
Under the Rule 12b-1 Plans, ongoing payments will be made on a quarterly basis
to Authorized Dealers for both distribution and shareholder servicing at the
annual rate of 0.25% of the Fund's average daily net assets of Class A and Class
B shares that are registered in the name of that Authorized Dealer as nominee or
held in a shareholder account that designates that Authorized Dealer as the
dealer of record. Rights to these ongoing payments begin to accrue in the 13th
month following a purchase of Class A or B shares. These fees may be used to
cover the expenses of the Distributor primarily intended to result in the sale
of Class A and Class B shares of the Fund, including payments to Authorized
Dealers for selling shares of the Fund and for servicing shareholders of these
classes of the Fund. Activities for which these fees may be used include:
preparation and distribution of advertising materials and sales literature;
expenses of organizing and conducting sales seminars; overhead of the
Distributor; printing of prospectuses and statements of additional information
(and supplements thereto) and reports for other than existing shareholders;
payments to dealers and others that provide shareholder services; and costs of
administering the Rule 12b-1 Plan. The fees for Class A shares acquired prior to
the Fund's conversion to an open-end investment company will be paid to the
Distributor.
In the event a Rule 12b-1 Plan is terminated in accordance with its terms, the
obligations of the Fund to make payments to the Distributor pursuant to the Rule
12b-1 Plan will cease and the Fund will not be required to make any payments for
expenses incurred after the date the Plan terminates. The Distributor will
receive payment under the Rule 12b-1 Plan without regard to actual distribution
expenses it incurs.
In addition to providing for the expenses discussed above, the Rule 12b-1 Plans
also recognize that the Investment Manager and/or the Distributor may use their
resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Fund's shares and other funds
managed by the Investment Manager. In some instances, additional compensation or
promotional incentives may be offered to dealers that have sold or may sell
significant amounts of shares during specified periods of time. Such
compensation and incentives may include, but are not limited to, cash,
merchandise, trips and financial assistance to dealers in connection with
pre-approved conferences or seminars, sales or training programs for invited
sales personnel, payment for travel expenses (including meals and lodging)
incurred by sales personnel and members of their families, or other invited
guests, to various locations for such seminars or training programs, seminars
for the public, advertising and sales campaigns regarding the Fund or other
funds managed by the Investment Manager and/or other events sponsored by
dealers.
The Rule 12b-1 Plans have been approved by the Board of Directors, including all
of the Directors who are not interested persons of the Fund as defined in the
1940 Act. Each Rule 12b-1 Plan must be renewed annually by the Board of
Directors, including a majority of the Directors who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of the Rule 12b-1 Plan, cast in person at a meeting called for that
purpose. It is also required that the selection and nomination of such Directors
be committed to the Directors who are not interested persons. The Rule 12b-1
Plans and any distribution or service agreement may be terminated as to the Fund
at any time, without any penalty, by such Directors or by a vote of a majority
of the Fund's outstanding shares on 60 days' written notice. The Distributor or
any dealer or other firm may also terminate their respective distribution or
service agreement at any time upon written notice.
In approving each Rule 12b-1 Plan, the Board of Directors has determined that
differing distribution arrangements in connection with the sale of new shares of
the Fund are necessary and appropriate in order to meet the needs of different
potential investors. Therefore, the Board of Directors, including those
Directors who are not interested persons of the Fund, concluded that, in the
exercise of their reasonable business judgment and in light of their fiduciary
duties, there is a reasonable likelihood that the Rule 12b-1 Plans as tailored
to each class of the Fund, will benefit the Fund and its shareholders.
Each Rule 12b-1 Plan and any distribution or service agreement may not be
amended to increase materially the amount spent for distribution expenses as to
the Fund without approval by a majority of the Fund's outstanding shares, and
all material amendments to a Plan or any distribution or service agreement shall
be approved by the Directors who are not interested persons of the Fund, cast in
person at a meeting called for the purpose of voting on any such amendment.
The Distributor is required to report in writing to the Board of Directors at
least quarterly on the monies reimbursed to it under each Rule 12b-1 Plan, as
well as to furnish the Board with such other information as may reasonably be
requested in connection with the payments made under the Rule 12b-1 Plan in
order to enable the Board to make an informed determination of whether the Rule
12b-1 Plan should be continued.
Total distribution expenses incurred by the Distributor for the costs of
promotion and distribution of the Fund's Class A shares for the fiscal year
ended December 31, 1997 were $495,472, including expenses for: advertising -
$18,519; salaries and commissions - $287,588; printing, postage, and handling -
$50,070; brokers' servicing fees - $110,264; and miscellaneous and other
promotional activities - $29,031. Total distribution expenses incurred by the
Distributor for the costs of promotion and distribution of the Fund's Class B
shares for the fiscal year ended December 31, 1997 were $74,483, including
expenses for: advertising -- $2,784; salaries and commissions -- $43,239;
printing, postage, and handling -- $7,528; brokers' servicing fees -- $16,578;
and miscellaneous and other promotional activities -- $4,354. Of the total
amount incurred by the Distributor during the last year, $301,898 was for the
costs of personnel of the Distributor and its affiliates involved in the
promotion and distribution of the Fund's shares.
Under the Glass-Steagall Act and other applicable laws, certain banking
institutions are prohibited from distributing investment company shares.
Accordingly, such banks may only provide certain agency or administrative
services to their customers for which they may receive a fee from the
Distributor under a Rule 12b-1 Plan. If a bank were prohibited from providing
such services, shareholders would be permitted to remain as shareholders and
alternate means for continuing the servicing of such shareholders would be
sought. In such event, changes in services provided might occur and such
shareholders might no longer be able to avail themselves of any automatic
investment or other service then being provided by the bank. It is not expected
that shareholders would suffer any adverse financial consequences as a result of
any of these occurrences.
INVESTMENT RESTRICTIONS
The Fund has adopted the investment restrictions listed below relating to the
investment of the Fund's assets and its activities. Restrictions 1 through 10
are fundamental policies that may not be changed without the approval of the
holders of a majority of the outstanding voting securities of the Fund (which
for this purpose and under the Investment Company Act of 1940 means the lesser
of (i) 67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (ii) more than 50% of the outstanding
shares). The Fund may not:
(1) Invest more than 25% of its total assets in any industry or
group of related industries other than the banking and thrift
industries, except for temporary or defensive positions.
(2) Borrow, except that it may borrow in an amount up to 15% of
its total assets to obtain such short-term credits as are
necessary for the clearance of securities transactions.
(3) Invest in repurchase agreements maturing in more than 7 days,
if as a result of such investment more than 10% of the Fund's
total assets would be invested in such repurchase agreements.
(4) Purchase securities for which there are legal or contractual
restrictions on resale, if as a result of such purchase more
than 10% of the Fund's total assets would be invested in such
securities.
(5) Invest more than 5% of the value of its net assets in
marketable warrants to purchase common stock.
(6) Purchase securities of any one issuer, other than U.S.
Government securities, if immediately after such purchase more
than 5% of the value of the Fund's total assets would be
invested in such issuer or the Fund would own more than 10% of
the outstanding voting securities of an issuer or more than
10% of any class of securities of an issuer, except that up to
25% of the Fund's total assets may be invested without regard
to the restrictions in this Item 6. For this purpose, all
outstanding bonds and other evidences of indebtedness shall be
deemed within a single class regardless of maturities,
priorities, coupon rates, series, designations, conversion
rights, security or other differences.
(7) Act as an underwriter of securities of other issuers, except,
to the extent that it may be deemed to act as an underwriter
in certain cases when disposing of restricted securities (See
also Item 4 above.).
(8) Purchase or sell real estate, commodities, commodity futures
contracts, or oil or gas exploration or development programs;
or sell short, or write, purchase, or sell straddles, spreads
or combinations thereof.
(9) Make loans, except that the Fund may purchase or hold Debt
Securities in accordance with its investment policies and
objectives.
(10) Purchase securities on margin or hypothecate, mortgage or
pledge any of its assets except for the purpose of securing
borrowings permitted by Item 2 above and then only in an
amount up to 15% of the value of the Fund's total assets at
the time of borrowing.
The following investment restrictions may be changed by the Board of Directors
without shareholder approval. Appropriate notice will be given of any changes in
these restrictions made by the Board of Directors. The Fund may not:
(11) Participate on a joint or joint and several basis in any
trading account in securities.
(12) Purchase securities of any issuer for the purposes of
exercising control or management, except in connection with a
merger, consolidation, acquisition or reorganization.
(13) Invest more than 5% of the Fund's total assets in securities
of any issuer which, together with its predecessors, has been
in continuous operation less than three years.
(14) Purchase or retain the securities of any issuer if those
officers or Directors of the Fund or officers or Directors of
the Investment Manager who each own beneficially more than 1/2
of 1% of the securities of that issuer together own more than
5% of the securities of such issuer.
(15) Invest in illiquid securities if, as a result, more than
15% of the Fund's net assets would be invested in such
securities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in a percentage from a change in values of portfolio
securities or amount of total assets will not be considered a violation of any
of the foregoing restrictions.
PORTFOLIO TRANSACTIONS
The Investment Management Agreement authorizes the Investment Manager to select
the brokers or dealers that will execute the purchase and sale of investment
securities for the Fund. In all purchases and sales of securities for the Fund,
the primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Investment Management Agreement, the Investment
Manager determines, subject to the instructions of and review by the Board of
Directors of the Fund, which brokers are to be eligible to execute portfolio
transactions for the Fund. Purchases and sales of securities in the
over-the-counter market will generally be executed directly with a
"market-maker," unless in the opinion of the Investment Manager, a better price
and execution can otherwise be obtained by using a broker for the transaction.
In placing portfolio transactions, the Investment Manager will use its best
efforts to choose a broker capable of providing the brokerage services necessary
to obtain the most favorable price and execution available. The full range and
quality of brokerage services available will be considered in making these
determinations, such as the size of the order, the difficulty of execution, the
operational facilities of the firm involved, the firm's risk in positioning a
block of securities, and other factors such as the firm's ability to engage in
transactions in shares of banks and thrifts that are not listed on an organized
stock exchange. The Investment Manager will seek to obtain the best commission
rate available from brokers that are believed to be capable of providing
efficient execution and handling of the orders. In those instances where it is
reasonably determined that more than one broker can offer the brokerage services
needed to obtain the most favorable price and execution available, consideration
may be given to those brokers that supply research and statistical information
to the Fund and/or the Investment Manager, and provide other services in
addition to execution services. Consistent with this policy, portfolio
transactions may be executed by brokers affiliated with the Pilgrim America
Group, so long as the commission paid to the affiliated broker is reasonable and
fair compared to the commission that would be charged by an unaffiliated broker
in a comparable transaction. The placement of portfolio brokerage with
broker-dealers who have sold shares of the Fund is subject to rules adopted by
the National Association of Securities Dealers, Inc. ("NASD"). Provided the
Fund's officers are satisfied that the Fund is receiving the most favorable
price and execution available, the Fund may also consider the sale of the Fund's
shares as a factor in the selection of broker-dealers to execute its portfolio
transactions.
While it will continue to be the Fund's general policy to seek first to obtain
the most favorable price and execution available, in selecting a broker to
execute portfolio transactions for the Fund, the Fund may also give weight to
the ability of a broker to furnish brokerage and research services to the Fund
or the Investment Manager, even if the specific services were not imputed to the
Fund and were useful to the Investment Manager in advising other clients. In
negotiating commissions with a broker, the Fund may therefore pay a higher
commission than would be the case if no weight were given to the furnishing of
these supplemental services, provided that the amount of such commission has
been determined in good faith by the Investment Manager to be reasonable in
relation to the value of the brokerage and research services provided by such
broker.
Purchases of Fund securities also may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers which specialize in the types of securities which the Fund will
be holding, unless better executions are available elsewhere. Dealers and
underwriters usually act as principals for their own account. Purchases from
underwriters will include a concession paid by the issuer to the underwriter and
purchases from dealers will include the spread between the bid and the asked
price. If the execution and price offered by more than one dealer or underwriter
are comparable, the order may be allocated to a dealer or underwriter which has
provided such research or other services as mentioned above.
Some securities considered for investment by the Fund may also be appropriate
for other clients served by the Fund's Investment Manager. If the purchase or
sale of securities consistent with the investment policies of the Fund and one
or more of these other clients serviced by the Investment Manager is considered
at or about the same time, transactions in such securities will be allocated
among the Fund and the Investment Manager's other clients in a manner deemed
fair and reasonable by the Investment Manager. Although there is no specified
formula for allocating such transactions, the various allocation methods used by
the Investment Manager, and the results of such allocations, are subject to
periodic review by the Board of Directors.
For the years ended December 31, 1995, 1996, and 1997, the total brokerage
commissions paid by the Fund amounted to approximately $49,000, $85,000, and
$90,000, respectively.
The Fund places no restrictions on portfolio turnover. While the Fund may from
time to time sell a security it has held for a short period of time, the Fund
has no policy of engaging in short-term trading or generating short-term gains.
The annual rate of the Fund's portfolio turnover during the fiscal years ended
December 31, 1995, 1996, and 1997, was 13%, 21%, and 22%, respectively.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Fund are offered at the net asset value next computed following
receipt of the order by the dealer (and/or the Distributor) or by the Fund's
transfer agent, DST Systems, Inc. ("Transfer Agent"), plus, for Class A shares,
a varying sales charge depending upon the amount of money invested, as set forth
in the Prospectus. Authorized dealers will be paid commissions on shares sold in
Classes A and B, at net asset value, which at the time of investment would have
been subject to the imposition of a contingent deferred sales charge if
liquidated. The Distributor may, from time to time, at its discretion, allow the
selling dealer to retain 100% of such sales charge, and such dealer may
therefore be deemed an "underwriter" under the Securities Act of 1933, as
amended. The Distributor, at its expense, may also provide additional
promotional incentives to dealers in connection with sales of shares of the Fund
and other funds managed by the Investment Manager. In some instances, such
incentives may be made available only to dealers whose representatives have sold
or are expected to sell significant amounts of such shares. The incentives may
include payment for travel expenses, including lodging, incurred in connection
with trips taken by qualifying registered representatives and members of their
families to locations within or outside of the United States, merchandise or
other items. Dealers may not use sales of the Fund's shares to qualify for the
incentives to the extent such may be prohibited by the laws of any state.
Certain investors may purchase shares of the Fund with liquid assets with a
value which is readily ascertainable by reference to a domestic exchange price
and which would be eligible for purchase by the Fund consistent with the Fund's
investment policies and restrictions. These transactions only will be effected
if the Investment Manager intends to retain the security in the Fund as an
investment. Assets so purchased by the Fund will be valued in generally the same
manner as they would be valued for purposes of pricing the Fund's shares, if
such assets were included in the Fund's assets at the time of purchase. The Fund
reserves the right to amend or terminate this practice at any time.
Special Purchases at Net Asset Value. Class A shares of the Fund may be
purchased at net asset value, without a sales charge, by persons who have
redeemed their Class A shares of the Fund or shares of other funds managed by
the Investment Manager in accordance with the terms of such privileges
established for such funds within the previous 90 days. The amount that may be
so reinvested in the Fund is limited to an amount up to, but not exceeding, the
redemption proceeds (or to the nearest full share if fractional shares are not
purchased). In order to exercise this privilege, a written order for the
purchase of shares must be received by the Transfer Agent, or be postmarked,
within 90 days after the date of redemption. This privilege may only be used
once per calendar year. Payment must accompany the request and the purchase will
be made at the then current net asset value of the Fund. Such purchases may also
be handled by a securities dealer who may charge a shareholder for this service.
If the shareholder has realized a gain on the redemption, the transaction is
taxable and any reinvestment will not alter any applicable Federal capital gains
tax. If there has been a loss on the redemption and a subsequent reinvestment
pursuant to this privilege, some or all of the loss may not be allowed as a tax
deduction depending upon the amount reinvested, although such disallowance is
added to the tax basis of the shares acquired upon the reinvestment.
Class A shares may also be purchased at net asset value by any person who can
document that Fund shares were purchased with proceeds from the redemption
(within the previous 90 days) of shares from any unrelated mutual fund on which
a sales charge was paid or which were subject, at any time, to a contingent
deferred sales charge.
Class A shares of the Fund may also be purchased at net asset value by any
state, county, or city, or any instrumentality, department, authority or agency
thereof that has determined that the Fund is a legally permissible investment
and that is prohibited by applicable investment law from paying a sales charge
or commission in connection with the purchase of shares of any registered
management investment company ("an eligible governmental authority"). If an
investment by an eligible governmental authority at net asset value is made
though a dealer who has executed a selling group agreement with respect to the
Fund (or the other funds in the Pilgrim America Group) the Distributor may pay
the selling firm 0.25% of the Offering Price.
Shareholders of Pilgrim America General Money Market Shares who acquired their
shares by using all or a portion of the proceeds from the redemption of Class A
shares of other funds in the Pilgrim America Group distributed by the
Distributor may reinvest such amount plus any shares acquired through dividend
reinvestment in Class A shares of the Fund at its current net asset value,
without a sales charge.
Officers, directors and bona fide full-time employees of the Fund and officers,
directors and full-time employees of the Investment Manager, the Distributor,
the Fund's service providers or affiliated corporations thereof or any trust,
pension, profit-sharing or other benefit plan for such persons, broker-dealers,
for their own accounts or for members of their families (defined as current
spouse, children, parents, grandparents, uncles, aunts, siblings, nephews,
nieces, step-relations, relations at-law, and cousins), employees of such
broker-dealers (including their immediate families) and discretionary advisory
accounts of the Investment Manager, may purchase Class A shares of the Fund at
net asset value without a sales charge. Such purchaser may be required to sign a
letter stating that the purchase is for his own investment purposes only and
that the securities will not be resold except to the Fund. The Fund may, under
certain circumstances, allow registered investment advisers to make investments
on behalf of their clients at net asset value without any commission or
concession.
Class A shares may also be purchased at net asset value by certain fee based
registered investment advisers, trust companies and bank trust departments under
certain circumstances making investments on behalf of their clients and by
shareholders who have authorized the automatic transfer of dividends from the
same class of another open-end fund managed by the Investment Manager or from
Pilgrim America Prime Rate Trust.
Letters of Intent and Rights of Accumulation. An investor may immediately
qualify for a reduced sales charge on a purchase of Class A shares of the Fund
or any open-end fund in the Pilgrim America Funds which offers Class A shares or
shares with front-end sales charges, by completing the Letter of Intent section
of the Shareholder Application in the Prospectus (the "Letter of Intent" or
"Letter"). By completing the Letter, the investor expresses an intention to
invest during the next 13 months a specified amount which if made at one time
would qualify for the reduced sales charge. At any time within 90 days after the
first investment which the investor wants to qualify for the reduced sales
charge, a signed Shareholder Application, with the Letter of Intent section
completed, may be filed with the Fund. After the Letter of Intent is filed, each
additional investment made will be entitled to the sales charge applicable to
the level of investment indicated on the Letter of Intent as described above.
Sales charge reductions based upon purchases in more than one investment in the
Pilgrim America Funds will be effective only after notification to the
Distributor that the investment qualifies for a discount. The shareholder's
holdings in the Investment Manager's open-end funds (excluding Pilgrim America
General Money Market Shares) acquired within 90 days before the Letter of Intent
is filed will be counted towards completion of the Letter of Intent but will not
be entitled to a retroactive downward adjustment of sales charge until the
Letter of Intent is fulfilled. Any redemptions made by the shareholder during
the 13-month period will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the Letter of Intent have been
completed. If the Letter of Intent is not completed within the 13-month period,
there will be an upward adjustment of the sales charge as specified below,
depending upon the amount actually purchased (less redemption) during the
period.
An investor acknowledges and agrees to the following provisions by completing
the Letter of Intent section of the Shareholder Application in the Prospectus. A
minimum initial investment equal to 25% of the intended total investment is
required. An amount equal to the maximum sales charge or 5.75% of the total
intended purchase will be held in escrow at Pilgrim America Group, in the form
of shares, in the investor's name to assure that the full applicable sales
charge will be paid if the intended purchase is not completed. The shares in
escrow will be included in the total shares owned as reflected on the monthly
statement; income and capital gain distributions on the escrow shares will be
paid directly by the investor. The escrow shares will not be available for
redemption by the investor until the Letter of Intent has been completed, or the
higher sales charge paid. If the total purchases, less redemptions, equal the
amount specified under the Letter, the shares in escrow will be released. If the
total purchases, less redemptions, exceed the amount specified under the Letter
and is an amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made by the Distributor and the dealer with
whom purchases were made pursuant to the Letter of Intent (to reflect such
further quantity discount) on purchases made within 90 days before, and on those
made after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the applicable offering price.
If the total purchases, less redemptions, are less than the amount specified
under the Letter, the investor will remit to the Distributor an amount equal to
the difference in dollar amount of sales charge actually paid and the amount of
sales charge which would have applied to the aggregate purchases if the total of
such purchases had been made at a single account in the name of the investor or
to the investor's order. If within 10 days after the written request such
difference in sales charge is not paid, the redemption of an appropriate number
of shares in escrow to realize such difference will be made. If the proceeds
from a total redemption are inadequate, the investor will be liable to the
Distributor for the difference. In the event of a total redemption of the
account prior to fulfillment of the Letter of Intent, the additional sales
charge due will be deducted from the proceeds of the redemption and the balance
will be forwarded to the investor. By completing the Letter of Intent section of
the Shareholder Application, an investor grants to the Distributor a security
interest in the shares in escrow and agrees to irrevocably appoint the
Distributor as his attorney-in-fact with full power of substitution to surrender
for redemption any or all shares for the purpose of paying any additional sales
charge due and authorizes the Transfer Agent or Sub-Transfer Agent to receive
and redeem shares and pay the proceeds as directed by the Distributor. The
investor or the securities dealer must inform the Transfer Agent or the
Distributor that this Letter is in effect each time a purchase is made.
If at any time prior to or after completion of the Letter of Intent the investor
wishes to cancel the Letter of Intent, the investor must notify the Distributor
in writing. If, prior to the completion of the Letter of Intent, the investor
requests the Distributor to liquidate all shares held by the investor, the
Letter of Intent will be terminated automatically. Under either of these
situations, the total purchased may be less than the amount specified in the
Letter of Intent. If so, the Distributor will redeem at net asset value to remit
to the Distributor and the appropriate authorized dealer an amount equal to the
difference between the dollar amount of the sales charge actually paid and the
amount of the sales charge that would have been paid on the total purchases if
made at one time.
The value of shares of the Fund plus shares of the other open-end funds
distributed by the Distributor (excluding Pilgrim America General Money Market
Shares) can be combined with a current purchase to determine the reduced sales
charge and applicable offering price of the current purchase. The reduced sales
charge applies to quantity purchases made at one time or on a cumulative basis
over any period of time by (i) an investor, (ii) the investor's spouse and
children under the age of majority, (iii) the investor's custodian accounts for
the benefit of a child under the Uniform Gift to Minors Act, (iv) a trustee or
other fiduciary of a single trust estate or a single fiduciary account
(including a pension, profit-sharing and/or other employee benefit plans
qualified under Section 401 of the Code), by trust companies' registered
investment advisors, banks and bank trust departments for accounts over which
they exercise exclusive investment discretionary authority and which are held in
a fiduciary, agency, advisory, custodial or similar capacity.
The reduced sales charge also applies on a non-cumulative basis, to purchases
made at one time by the customers of a single dealer, in excess of $1 million.
The Letter of Intent option may be modified or discontinued at any time.
Shares of the Fund and other funds of the Pilgrim America Group (excluding
Pilgrim America General Money Market Shares) purchased and owned of record or
beneficially by a corporation, including employees of a single employer (or
affiliates thereof) including shares held by its employees, under one or more
retirement plans, can be combined with a current purchase to determine the
reduced sales charge and applicable offering price of the current purchase,
provided such transactions are not prohibited by one or more provisions of the
Employee Retirement Income Security Act or the Internal Revenue Code.
Individuals and employees should consult with their tax advisors concerning the
tax rules applicable to retirement plans before investing.
Redemptions. Payment to shareholders for shares redeemed will be made within
three days after receipt by the Fund's Transfer Agent of the written request in
proper form, except that the Fund may suspend the right of redemption or
postpone the date of payment as to the Fund during any period when (a) trading
on the New York Stock Exchange is restricted as determined by the SEC or such
exchange is closed for other than weekends and holidays; (b) an emergency exists
as determined by the SEC making disposal of portfolio series or valuation of net
assets of the Fund not reasonably practicable; or (c) for such other period as
the SEC may permit for the protection of the Fund's shareholders. At various
times, the Fund may be requested to redeem shares for which it has not yet
received good payment. Accordingly, the Fund may delay the mailing of a
redemption check until such time as it has assured itself that good payment has
been collected for the purchase of such shares, which may take up to 15 days or
longer.
The Fund intends to pay in cash for all shares redeemed, but under abnormal
conditions that make payment in cash unwise, the Fund may make payment wholly or
partly in securities at their then current market value equal to the redemption
price. In such case, an investor may incur brokerage costs in converting such
securities to cash. However, the Fund has elected to be governed by the
provisions of Rule 18f-1 under the 1940 Act, which contain a formula for
determining the minimum amount of cash to be paid as part of any redemption. In
the event the Fund liquidates portfolio securities to meet redemptions, it
reserves the right to reduce the redemption price by an amount equivalent to the
pro-rated cost of such liquidation not to exceed one percent of the net asset
value of such shares.
Due to the relatively high cost of handling small investments, the Fund reserves
the right, upon 30 days' written notice, to redeem, at net asset value (less any
applicable deferred sales charge), the shares of any shareholder whose account
has a value of less than $1,000 in the Fund, other than as a result of a decline
in the net asset value per share. Before the Fund redeems such shares and sends
the proceeds to the shareholder, it will notify the shareholder that the value
of the shares in the account is less than the minimum amount and will allow the
shareholder 30 days to make an additional investment in an amount that will
increase the value of the account to at least $1,000 before the redemption is
processed. This policy will not be implemented where the Fund has previously
waived the minimum investment requirements.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.
Certain purchases of Class A shares and most Class B shares may be subject to a
CDSC or redemption fee. For purchase payments subject to such CDSC, the
Distributor may pay out of its own assets a commission from 0.25% to 1.00% of
the amount invested for Class A purchases over $1 million and 4% of the amount
invested for Class B shares.
Shareholders will be charged a CDSC or redemption fee if certain of those shares
are redeemed within the applicable time periods as stated in the Prospectus.
No CDSC or redemption fee is imposed on any shares subject to a CDSC or
redemption fee to the extent that those shares (i) are no longer subject to the
applicable holding period, (ii) resulted from reinvestment of distributions on
CDSC or redemption fee shares or (iii) were exchanged for shares of another fund
managed by the Investment Manager, provided that the shares acquired in such
exchange and subsequent exchanges will continue to remain subject to the CDSC,
if applicable, until the applicable holding period expires.
The CDSC or redemption fee will be waived for certain redemptions of shares upon
(i) the death or permanent disability of a shareholder, or (ii) in connection
with mandatory distributions from an Individual Retirement Account ("IRA") or
other qualified retirement plan. The CDSC or redemption fee will be waived in
the case of a redemption of shares following the death or permanent disability
of a shareholder if the redemption is made within one year of death or initial
determination of permanent disability. The waiver is available for total or
partial redemptions of shares owned by an individual or an individual in joint
tenancy (with rights of survivorship), but only for redemptions of shares held
at the time of death or initial determination of permanent disability. The CDSC
or redemption fee will also be waived in the case of a total or partial
redemption of shares in connection with any mandatory distribution from a
tax-deferred retirement plan or an IRA. The waiver does not apply in the case of
a tax-free rollover or transfer of assets, other than one following a separation
from services. The shareholder must notify the Fund either directly or through
the Distributor at the time of redemption that the shareholder is entitled to a
waiver of CDSC or redemption fee. The waiver will then be granted subject to
confirmation of the shareholder's entitlement. The CDSC or redemption fee, which
may be imposed on Class A shares purchased in excess of $1 million, will also be
waived for registered investment advisers, trust companies and bank trust
departments investing on their own behalf or on behalf of their clients.
A redemption fee of 2% will be imposed for a one-year period following
conversion of the Fund from a closed-end investment company to an open-end
investment company on Fund shares acquired prior to the conversion. This fee
shall also apply if converted shares are exchanged for shares of another
open-end Pilgrim America Fund. The Fund reserves the right to waive or reduce
the redemption fee in whole or in part.
Conversion of Class B Shares. A shareholder's Class B shares will automatically
convert to Class A shares in the Fund on the first business day of the month in
which the eighth anniversary of the issuance of the Class B shares occurs,
together with a pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares. The conversion of
Class B shares into Class A shares is subject to the continuing availability of
an opinion of counsel or an Internal Revenue Service ("IRS") ruling, if the
Investment Manager deems it advisable to obtain such advice, to the effect that
(1) such conversion will not constitute a taxable event for federal income tax
purposes; and (2) the payment of different dividends on Class A and Class B
shares does not result in the Fund dividends or distributions constituting
"preferential dividends" under the Internal Revenue Code of 1986, as amended.
The Class B shares so converted will no longer be subject to the higher expenses
borne by Class B shares. The conversion will be effected at the relative net
asset values per share of the two Classes.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of each class
of the Fund's shares will be determined once daily as of the close of trading on
the New York Stock Exchange (4:00 p.m. New York time) during each day on which
that Exchange is open for trading. As of the date of this Statement of
Additional Information, the New York Stock Exchange is closed on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
Portfolio securities listed or traded on a national securities exchange or
included in the NASDAQ National Market System will be valued at the last
reported sale price on the valuation day. Securities traded on an exchange or
NASDAQ for which there has been no sale that day and other securities traded in
the over-the-counter market will be valued at the average of the last reported
bid and ask price on the valuation day. In cases in which securities are traded
on more than one exchange, the securities are valued on the exchange designated
by or under the authority of the Board of Directors as the primary market.
Securities for which quotations are not readily available and all other assets
will be valued at their respective fair values as determined in good faith by or
under the direction of the Board of Directors of the Fund.
In computing a class of the Fund's net asset value, all class-specific
liabilities incurred or accrued are deducted from the class' net assets. The
resulting net assets are divided by the number of shares of the class
outstanding at the time of the valuation and the result (adjusted to the nearest
cent) is the net asset value per share.
The per share net asset value of Class A shares generally will be higher than
the per share net asset value of Class B shares, reflecting daily expense
accruals of the higher distribution fees applicable to Class B shares. It is
expected, however, that the per share net asset value of the classes will tend
to converge immediately after the payment of dividends or distributions that
will differ by approximately the amount of the expense accrual differentials
between the classes.
Orders received by dealers prior to the close of trading on the New York Stock
Exchange will be confirmed at the offering price computed as of the close of
trading on that Exchange provided the order is received by the Distributor prior
to its close of business that same day (normally 4:00 P.M. Pacific time). It is
the responsibility of the dealer to insure that all orders are transmitted
timely to the Fund. Orders received by dealers after the close of trading on the
New York Stock Exchange will be confirmed at the next computed offering price as
described in the Prospectus.
SHAREHOLDER SERVICES AND PRIVILEGES
As discussed in the Prospectus, the Fund provides a Pre-Authorized Investment
Program for the convenience of investors who wish to purchase shares of the Fund
on a regular basis. Such a Program may be started with an initial investment
($1,000 minimum) and subsequent voluntary purchases ($100 minimum) with no
obligation to continue. The Program may be terminated without penalty at any
time by the investor or the Fund. The minimum investment requirements may be
waived by the Fund for purchases made pursuant to (i) employer-administered
payroll deduction plans, (ii) profit-sharing, pension, or individual or any
employee retirement plans, or (iii) purchases made in connection with plans
providing for periodic investments in Fund shares.
For investors purchasing shares of the Fund under a tax-qualified individual
retirement or pension plan or under a group plan through a person designated for
the collection and remittance of monies to be invested in shares of the Fund on
a periodic basis, the Fund may, in lieu of furnishing confirmations following
each purchase of Fund shares, send statements no less frequently than quarterly
pursuant to the provisions of the Securities Exchange Act of 1934, as amended,
and the rules thereunder. Such quarterly statements, which would be sent to the
investor or to the person designated by the group for distribution to its
members, will be made within five business days after the end of each quarterly
period and shall reflect all transactions in the investor's account during the
preceding quarter.
All shareholders will receive a confirmation of each new transaction in their
accounts, which will also show the total number of Fund shares owned by each
shareholder, the number of shares being held in safekeeping by the Fund's
Transfer Agent for the account of the shareholder and a cumulative record of the
account for the entire year. SHAREHOLDERS MAY RELY ON THESE STATEMENTS IN LIEU
OF CERTIFICATES. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL NOT BE ISSUED
UNLESS THE SHAREHOLDER REQUESTS THEM IN WRITING.
Self-Employed and Corporate Retirement Plans. For self-employed individuals and
corporate investors that wish to purchase shares of the Fund, there is available
through the Fund a Prototype Plan and Custody Agreement. The Custody Agreement
provides that Investors Fiduciary Trust Company, Kansas City, Missouri, will act
as Custodian under the Plan, and will furnish custodial services for an annual
maintenance fee of $12.00 for each participant, with no other charges. (This fee
is in addition to the normal Custodian charges paid by the Fund.) The annual
contract maintenance fee may be waived from time to time. For further details,
including the right to appoint a successor Custodian, see the Plan and Custody
Agreements as provided by the Fund. Employers who wish to use shares of the Fund
under a custodianship with another bank or trust company must make individual
arrangements with such institution.
Individual Retirement Accounts. Investors having earned income are eligible to
purchase shares of the Fund under an IRA pursuant to Section 408(a) of the
Internal Revenue Code. An individual who creates an IRA may contribute annually
certain dollar amounts of earned income, and an additional amount if there is a
non-working spouse. Simple IRA plans which employers may establish on behalf of
their employees are also available. Roth IRA plans which enable employed and
self-employed individuals to make non-deductible contributions, and, under
certain circumstances, effect tax-free withdrawals, are also available. Copies
of model Custodial Account Agreements are available from the Distributor.
Investors Fiduciary Trust Company, Kansas City, Missouri, will act as the
Custodian under these model Agreements, for which it will charge the investor an
annual fee of $12.00 for maintaining the Account (such fee is in addition to the
normal custodial charges paid by the Fund). Full details on the IRA and Simple
IRA are contained in IRS required disclosure statements, and the Custodian will
not open an IRA until seven (7) days after the investor has received such
statement from the Fund. An IRA using shares of the Fund may also be used by
employers who have adopted a Simplified Employee Pension Plan.
Purchases of Fund shares by Section 403(b) and other retirement plans are also
available. It is advisable for an investor considering the funding of any
retirement plan to consult with an attorney or to obtain advice from a competent
retirement plan consultant.
Telephone Redemption and Exchange Privileges. As discussed in the Prospectus,
the telephone redemption and exchange privileges are available for all
shareholder accounts; however, retirement accounts may not utilize the telephone
redemption privilege. The telephone privileges may be modified or terminated at
any time. The privileges are subject to the conditions and provisions set forth
below and in the Prospectus.
1. Telephone redemption and/or exchange instructions received in
good order before the pricing of the Fund on any day on which the
New York Stock Exchange is open for business (a "Business Day"),
but not later than 4:00 p.m. eastern time, will be processed at
that day's closing net asset value. For each exchange, the
shareholder's account may be charged an exchange fee. There is no
fee for telephone redemption; however, redemptions of Class A and
Class B shares may be subject to a contingent deferred sales
charge or redemption fee (See "Redemption of Shares" in the
Prospectus).
2. Telephone redemption and/or exchange instructions should be
made by dialing 1-800-992-0180.
3. Pilgrim America Funds will not permit exchanges in violation of
any of the terms and conditions set forth in the Fund's Prospectus
or herein.
4. Telephone redemption requests must meet the following
conditions to be accepted by Pilgrim America Group:
(a) Proceeds of the redemption may be directly
deposited into a predetermined bank account, or
mailed to the current address on the
registration. This address cannot reflect any
change within the previous sixty (60) days.
(b) Certain account information will need to be
provided for verification purposes before the
redemption will be executed.
(c) Only one telephone redemption (where proceeds are
being mailed to the address of record) can be
processed within a 30 day period.
(d) The maximum amount which can be liquidated and
sent to the address of record at any one time is
$50,000.
(e) The minimum amount which can be liquidated and
sent to a predetermined bank account is $5,000.
5. If the exchange involves the establishment of a new account,
the dollar amount being exchanged must at least equal the minimum
investment requirement of the Pilgrim America Fund being acquired.
6. Any new account established through the exchange privilege will
have the same account information and options except as stated in
the Prospectus.
7. Certificated shares cannot be redeemed or exchanged by
telephone but must be forwarded to Pilgrim America Funds at P.O.
Box 419368, Kansas City, MO 64141 and deposited into your account
before any transaction may be processed.
8. If a portion of the shares to be exchanged are held in escrow
in connection with a Letter of Intent, the smallest number of full
shares of the Pilgrim America Fund to be purchased in the exchange
having the same aggregate net asset value as the shares being
exchanged shall be substituted in the escrow account. Shares held
in escrow may not be redeemed until the Letter of Intent has
expired and/or the appropriate adjustments have been made to the
account.
9. Shares may not be exchanged and/or redeemed unless an exchange
and/or redemption privilege is offered pursuant to the Fund's
then-current prospectus.
10. Proceeds of a redemption may be delayed up to 15 days or
longer until the check used to purchase the shares being redeemed
has been paid by the bank upon which it was drawn.
DISTRIBUTIONS
As noted in the Prospectus, shareholders have the privilege of reinvesting both
income dividends and capital gains distributions, if any, in additional shares
of the respective class of the Fund at the then current net asset value, with no
sales charge. Alternatively, a shareholder can elect at any time to receive
dividends and/or capital gains distributions in cash. In the absence of such an
election, each purchase of shares of a class of the Fund is made upon the
condition and understanding that the Transfer Agent is automatically appointed
the shareholder's agent to receive his dividends and distributions upon all
shares registered in his name and to reinvest them in full and fractional shares
of the respective class of the Fund at the applicable net asset value in effect
at the close of business on the reinvestment date. A shareholder may at any time
after a purchase of Fund shares request that dividends and/or capital gains
distributions be paid to him in cash.
TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax considerations
generally affecting the Fund and its shareholders. This discussion does not
provide a detailed explanation of all tax consequences, and shareholders are
advised to consult their own tax advisers with respect to the particular
federal, state, local and foreign tax consequences to them of an investment in
the Fund. This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations issued thereunder, and judicial and
administrative authorities as in effect on the date of this Statement of
Additional Information, all of which are subject to change, which change may be
retroactive.
Qualification as a Regulated Investment Company. The Fund intends to qualify as
a regulated investment company under the Internal Revenue Code of 1986, as
amended (the "Code"). To so qualify, the Fund must, with respect to each taxable
year, among other things: (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock or securities and gains from the sale or
other disposition of foreign currencies, or other income (including gains from
options, futures contracts and forward contracts) derived with respect to the
Fund's business of investing in stocks, securities or currencies; (b) diversify
its holdings so that, at the end of each quarter, (i) at least 50% of the value
of the Fund's total assets is represented by cash and cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities, with such other securities limited in respect of any one
issuer to an amount not greater in value than 5% of the Fund's total assets and
to not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of the Fund's total assets is invested in
the securities (other than U.S. Government securities or securities of other
regulated investment companies) of any one issuer or of any two or more issuers
that the Fund controls and that are determined to be engaged in the same
business or similar or related businesses; and (c) distribute at least 90% of
its investment company taxable income (which includes, among other items,
dividends, interest and net short-term capital gains in excess of net long-term
capital losses).
The status of the Fund as a regulated investment company does not involve
government supervision of management or of its investment practices or policies.
As a regulated investment company, the Fund generally will be relieved of
liability for U.S. federal income tax on that portion of its investment company
taxable income and net realized capital gains which it distributes to its
shareholders. Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement also are subject to a nondeductible 4%
excise tax. To prevent application of the excise tax, the Fund intends to make
distributions in accordance with the calendar year distribution requirement.
Distributions. Dividends of investment company taxable income (including net
short-term capital gains) are taxable to shareholders as ordinary income.
Distributions of investment company taxable income may be eligible for the
corporate dividends-received deduction to the extent attributable to the Fund's
dividend income from U.S. corporations, and if other applicable requirements are
met. However, the alternative minimum tax applicable to corporations may reduce
the benefit of the dividends-received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) designated by the Fund as capital gain dividends are not eligible for
the dividends-received deduction and will generally be taxable to shareholders
as either "20% Rate Gain" or "28% Rate Gain," depending upon the Fund's holding
period for the assets sold. "20% Rate Gains" arise from sales of assets held by
the Fund for more than 18 months and are subject to a maximum tax rate of 20%;
"28% Rate Gains" arise from sales of assets held by the Fund for more than one
year but no more than 18 months and are subject to a maximum tax rate of 28%.
Net capital gains from assets held for one year of less will be taxed as
ordinary income. Distributions will be subject to these capital gains rates
regardless of how long a shareholder has held Fund shares. Generally, dividends
and distributions are taxable to shareholders, whether received in cash or
reinvested in shares of the Fund. Any distributions that are not from the Fund's
investment company taxable income or net capital gain may be characterized as a
return of capital to shareholders or, in some cases, as capital gain.
Shareholders will be notified annually as to the federal tax status of dividends
and distributions they receive and any tax withheld thereon.
Dividends, including capital gain dividends, declared in October, November, or
December with a record date in such month and paid during the following January
will be treated as having been paid by the Fund and received by shareholders on
December 31 of the calendar year in which declared, rather than the calendar
year in which the dividends are actually received.
Distributions by the Fund reduce the net asset value of the Fund's shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, the distribution nevertheless may be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
Original Issue Discount. Certain of the debt securities acquired by the Fund may
be treated as debt securities that were originally issued at a discount.
Original issue discount can generally be defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income is actually received by the Fund, original
issue discount that accrues on a debt security in a given year generally is
treated for federal income tax purposes as interest and, therefore, such income
would be subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by the
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of the Fund, at a constant yield to maturity which takes
into account the semi-annual compounding of interest.
Sale or Other Disposition of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, and the rate of tax will depend
on the shareholder's holding period for the shares. Any loss realized on a sale
or exchange will be disallowed to the extent that the shares disposed of are
replaced (including replacement through the reinvesting of dividends and capital
gain distributions in the Fund) within a period of 61 days beginning 30 days
before and ending 30 days after the disposition of the shares. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss. Any loss realized by a shareholder on the sale of the Fund's shares held
by the shareholder for six months or less will be treated for federal income tax
purposes as a long-term capital loss to the extent of any distributions of
capital gain dividends received by the shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the shares
exchanged all or a portion of the sales charge incurred in acquiring those
shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
Backup Withholding. The Fund generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish the Fund with the shareholder's correct taxpayer
identification number or social security number and to make such certifications
as the Fund may require, (2) the IRS notifies the shareholder or the Fund that
the shareholder has failed to report properly certain interest and dividend
income to the IRS and to respond to notices to that effect, or (3) when required
to do so, the shareholder fails to certify that he is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
Foreign Shareholders. Taxation of a shareholder who, as to the United States, is
a nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder. If the income from the Fund is not effectively connected with
a U.S. trade or business carried on by a foreign shareholder, ordinary income
dividends will be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) upon the gross amount of the dividend. Such a foreign shareholder
would generally be exempt from U.S. federal income tax on gains realized on the
sale of shares of the Fund, capital gain dividends and amounts retained by the
Fund that are designated as undistributed capital gains. If the income from the
Fund is effectively connected with a U.S. trade or business carried on by a
foreign shareholder, then ordinary income dividends, capital gain dividends and
any gains realized upon the sale of shares of the Fund will be subject to U.S.
federal income tax at the rates applicable to U.S. citizens or domestic
corporations.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund, including the
applicability of foreign taxes.
SHAREHOLDER INFORMATION
Certificates representing shares of the Fund will not normally be issued to
shareholders. The Transfer Agent will maintain an account for each shareholder
upon which the registration and transfer of shares are recorded, and any
transfers shall be reflected by bookkeeping entry, without physical delivery.
The Transfer Agent will require that a shareholder provide requests in writing,
accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.).
The Fund reserves the right, if conditions exist that make cash payments
undesirable, to honor any request for redemption or repurchase order with
respect to shares of the Fund by making payment in whole or in part in readily
marketable securities chosen by the Fund and valued as they are for purposes of
computing the Fund's net asset value (redemption-in-kind). If payment is made in
securities, a shareholder may incur transaction expenses in converting theses
securities to cash. The Fund has elected, however, to be governed by Rule 18f-1
under the 1940 Act as a result of which the Fund is obligated to redeem shares
with respect to any one shareholder during any 90-day period solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of the period.
CALCULATION OF PERFORMANCE DATA
The Fund may, from time to time, include "total return" in advertisements or
reports to shareholders or prospective investors. Quotations of average annual
total return will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in the Fund over periods of 1, 5 and 10
years (up to the life of the Fund), calculated pursuant to the following formula
which is prescribed by the SEC:
P(1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
From time to time, the Fund may advertise its average annual total return over
various periods of time. These total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for one, five and ten year periods (if applicable) and may
be given for other periods as well (such as from commencement of the Fund's
operations, or on a year-by-year basis).
Prior to October 17, 1997, the Fund operated as a closed-end investment company.
Upon conversion of the Fund to an open-end investment company on October 17,
1997, all outstanding shares of Common Stock of the Fund were designated as
Class A shares. Performance information for the period prior to October 17, 1997
reflects the performance of the Fund as a closed-end fund. Performance
information presented by the Fund for all periods is restated to reflect the
current maximum front-end sales load payable by the Class A shares of the Fund.
Performance information for the period prior to October 17, 1997 has not been
adjusted to reflect annual Rule 12b-1 fees of Class A shares plus additional
expenses incurred in connection with operating as an open-end investment
company. Performance would have been lower if adjusted for these charges and
expenses. Performance information for all periods after October 17, 1997
reflects Class A's annual Rule 12b-1 fees and other expenses associated with
open-end investment companies.
The Fund's average annual total returns for Class A shares based on net asset
value per share including the maximum Class A sales charge for the one-, five-
and ten-year periods ended December 31, 1997 and for the period from inception
of the Fund on January 24, 1986 to December 31, 1997, were 55.36%, 28.25%,
23.60% and 17.94%, respectively. The average annual total return for the Class B
shares based on net asset value per share including the maximum contingent
deferred sales charge for the period October 20, 1997 (commencement of sale of
Class B shares) to December 31, 1997 was 6.90%.
Quotations of yield for the Fund will be based on all investment income per
share earned during a particular 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income") and
are computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
a-b 6
2[(---- + 1) - 1]
cd
where
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period.
Additional Performance Quotations. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.
Total returns are based on past results and are not a prediction of future
performance.
Performance Comparisons. In reports or other communications to shareholders or
in advertising material, the Fund may compare the performance of its Class A and
Class B shares with that of other mutual funds as listed in the rankings
prepared by Lipper Analytical Services, Inc., Morningstar, Inc., CDA
Technologies, Inc., Value Line, Inc. or similar independent services that
monitor the performance of mutual funds or with other appropriate indexes of
investment securities. In addition, certain indexes may be used to illustrate
historic performance of select asset classes. The performance information may
also include evaluations of the Fund published by nationally recognized ranking
services and by financial publications that are nationally recognized, such as
Business Week, Forbes, Fortune, Institutional Investor, Money and The Wall
Street Journal. If the Fund compares its performance to other funds or to
relevant indexes, the Fund's performance will be stated in the same terms in
which such comparative data and indexes are stated, which is normally total
return rather than yield. For these purposes the performance of the Fund, as
well as the performance of such investment companies or indexes, may not reflect
sales charges, which, if reflected, would reduce performance results. Prior to
October 17, 1997, the Fund was rated as a closed-end fund, which had a different
fee structure. Fee structures are incorporated into certain ratings. If the Fund
had been rated using the fee structure of an open-end fund, ratings for those
periods may have been different.
Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including age characteristics, of various regions in which the Fund may invest,
as compiled by various organizations, and projections of such information; (ii)
the performance of U.S. equity and debt markets; (iii) the geographic
distribution of the Fund's portfolio; (iv) the number of shareholders in the
Fund or other Pilgrim America Funds and the dollar amount of the assets under
management; (v) descriptions of the trend in consolidation of commercial banks
in the United States, including forecasts of the decline in the number of such
banks, and discussions of the impact of such trends; (vi) descriptions of the
trends in technology utilized by financial institutions, and discussions of the
impact of such trends; (vii) comparisons of the average price to earnings ratio,
price to book ratio, and price to cash flow of the Fund, individual stocks in
the Fund's portfolio, the Standard & Poor's 500 Index, or comparable bank
indices, and descriptions of such comparisons; (viii) quotes from the portfolio
manager of the Fund or other industry specialists; (ix) lists or statistics of
certain of the Fund's holdings including, but not limited to, portfolio
composition, sector weightings, portfolio turnover rate, number of holdings,
average market capitalization, and modern portfolio theory statistics; (x)
NASDAQ symbols for each class of shares of the Fund; and (xi) descriptions of
the benefits of working with investment professionals in selecting investments.
In addition, reports and promotional literature may contain information
concerning the Investment Manager, Pilgrim America, Pilgrim America Group, Inc.
or affiliates of the Fund, the Investment Manager, Pilgrim America or Pilgrim
America Group, Inc. including (i) performance rankings of other funds managed by
the Investment Manager, or the individuals employed by the Investment Manager
who exercise responsibility for the day-to-day management of the Fund, including
rankings of mutual funds published by Lipper Analytical Services, Inc.,
Morningstar, Inc., CDA Technologies, Inc., or other rating services, companies,
publications or other persons who rank mutual funds or other investment products
on overall performance or other criteria; (ii) lists of clients, the number of
clients, or assets under management; (iii) information regarding the acquisition
of the Pilgrim America Funds by Pilgrim America; (iv) the past performance of
Pilgrim America and Pilgrim America Group, Inc.; (v) the past performance of
other funds managed by the Investment Manager; and (vi) information regarding
rights offerings conducted by closed-end funds managed by the Investment
Manager.
GENERAL INFORMATION
Custodian. The cash and securities owned by the Fund are held by Investors
Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri 64105, as
Custodian, which takes no part in the decisions relating to the purchase or sale
of the Fund's portfolio securities.
Legal Counsel. Legal matters for the Fund are passed upon by Dechert Price &
Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006.
Independent Auditors. KPMG Peat Marwick LLP, 725 South Figueroa Street, Los
Angeles, California 90017, acts as independent auditors for the Fund.
Other Information. The Fund is registered with the SEC as an open-end management
investment company. Such registration does not involve supervision of the
management or policies of the Fund by any governmental agency. The Prospectus
and this Statement of Additional Information omit certain of the information
contained in the Registration Statement filed with the SEC and copies of this
information may be obtained from the SEC upon payment of the prescribed fee or
examined at the SEC in Washington, D.C. without charge.
Investors in the Fund will be kept informed of their progress through
semi-annual reports showing portfolio composition, statistical data and any
other significant data, including financial statements audited by the
independent certified public accountants.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended December 31, 1997 are
incorporated herein by reference from the Fund's Annual Report to Shareholders.
Copies of the Fund's Annual Report and any subsequent Semi-Annual Report may be
obtained without charge by contacting the Fund at 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004, (800) 992-0180.
