<PAGE>
AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1998
SECURITIES ACT FILE NO. 333-33445
INVESTMENT COMPANY ACT FILE NO. 811-4504
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 1 /X/
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 9 /X/
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
(FORMERLY PILGRIM REGIONAL BANKSHARES, INC.)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
40 NORTH CENTRAL AVENUE
SUITE 1200
PHOENIX, ARIZONA 85004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 800-331-1080
------------------------
JAMES M. HENNESSY, ESQ.
PILGRIM AMERICA INVESTMENTS, INC.
40 NORTH CENTRAL AVENUE
SUITE 1200
PHOENIX, ARIZONA 85004
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
JEFFREY S. PURETZ, ESQ.
DECHERT PRICE & RHOADS
1775 EYE STREET, N.W.
WASHINGTON, D.C. 20006
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX):
/ / Immediately upon filing pursuant to paragraph (b)
/x/ On May 1, 1998 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / On (date) pursuant to paragraph (a)(2) of Rule 485
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
LOCATION IN PROSPECTUS
N-1A ITEM (CAPTION)
- ---------- -------------------------------------------------
<S> <C> <C>
PART A
Item 1. Cover Page....................................... Cover Page
Item 2. Synopsis......................................... Pilgrim America Bank and Thrift Fund, Inc. at a
Glance; Summary of Expenses
Item 3. Condensed Financial Information.................. Financial Highlights
Item 4. General Description of Registrant................ Investment Objectives and Policies; Investment
Practices and Risk Considerations; The Banking
and Thrift Industries
Item 5. Management of the Registrant..................... Management of the Fund
Item 5A. Management's Discussion of Company Performance... Not Applicable
Item 6. Capital Stock and Other Securities............... Shareholder Guide
Item 7. Purchase of Securities Being Offered............. Purchasing Shares
Item 8. Redemption or Repurchase......................... How to Redeem Shares
Item 9. Pending Legal Proceedings........................ Not Applicable
<CAPTION>
LOCATION IN STATEMENT OF
ADDITIONAL INFORMATION
(CAPTION)
-------------------------------------------------
PART B
<S> <C> <C>
Item 10. Cover Page....................................... Cover Page
Item 11. Table of Contents................................ Table of Contents
Item 12. General Information and History.................. Organization of Pilgrim America Bank and Thrift
Fund, Inc.; General Information
Item 13. Investment Objectives and Policies............... Investment Restrictions
Item 14. Management of the Company........................ Management of the Fund
Item 15. Control Persons and Principal Holders of
Securities..................................... Management of the Fund
Item 16. Investment Advisory and Other Practices.......... Management of the Fund
Item 17. Brokerage Allocation and Other Practices......... Portfolio Transactions
Item 18. Capital Stock and Other Securities............... Organization of Pilgrim America Bank and Thrift
Fund, Inc.; General Information
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered.................................. Determination of Share Price; Additional Purchase
and Redemption Information
Item 20. Tax Status....................................... Tax Considerations
Item 21. Underwriters..................................... Management of the Fund
Item 22. Calculation of Performance Data.................. Calculation of Performance Data
Item 23. Financial Statements............................. Financial Statements
</TABLE>
<PAGE>
Prospectus
[LOGO] Pilgrim America Bank and Thrift Fund, Inc.
40 NORTH CENTRAL AVENUE, SUITE 1200, PHOENIX, ARIZONA 85004
(800) 992-0180
The Pilgrim America Funds are a family of diversified open-end and closed-end
management investment companies. This prospectus describes the Pilgrim America
Bank and Thrift Fund, Inc. (the 'Fund').
The Fund is a diversified open-end management investment company. The Fund's
primary investment objective is long-term capital appreciation. Income is its
secondary objective. The Fund seeks to achieve its objectives by investing
primarily in equity securities of national and state-chartered banks (other than
money center banks), thrifts, the holding or parent companies of such depository
institutions, and in savings accounts of mutual thrifts. These portfolio
securities are selected principally on the basis of fundamental investment value
and potential for future growth, including securities of institutions that the
Fund believes are well-positioned to take advantage of opportunities currently
developing in the banking and thrift industries. There is no assurance that the
Fund will achieve its objectives. See 'Investment Objectives and Policies.'
------------------------
PILGRIM AMERICA INVESTMENTS, INC. is the Fund's investment manager
(the 'Investment Manager').
------------------------------
The Fund offers two classes of shares, with varying types and amounts of sales
and distribution charges. These Pilgrim America Purchase Options(Trademark)
permit you to choose the method of purchasing shares that best suits your
investment strategy.
This Prospectus presents information you should know before investing. Please
keep it for future reference. A Statement of Additional Information about the
Fund, dated May 1, 1998, has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus (that is, it is
legally considered a part of this Prospectus). The Statement of Additional
Information is available free upon request by calling Pilgrim America Group,
Inc. ('Shareholder Servicing Agent') at (800) 992-0180.
------------------------
INVESTMENT IN THE FUND INVOLVES INVESTMENT RISK, INCLUDING THE RISK OF LOSS OF
PRINCIPAL. THE FUND'S SHARES ARE NOT OBLIGATIONS, DEPOSITS OR ACCOUNTS OF A BANK
AND ARE NOT GUARANTEED BY A BANK. IN ADDITION, THE FUND'S SHARES ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
<PAGE>
PILGRIM AMERICA BANK AND THRIFT FUND, INC. AT A GLANCE*
<TABLE>
<S> <C>
Investment Objectives The Fund's primary investment objective is to
achieve long-term capital appreciation.
Income is its secondary objective. There can
be no assurance that the Fund will achieve
its investment objectives.
History of the Fund The Fund was organized in 1985 as a
closed-end investment company and its shares
were listed on the New York Stock Exchange.
On October 17, 1997, the Fund converted to an
open-end investment company and all
outstanding shares became 'Class A' shares.
The Fund commenced offering 'Class B' shares
on October 20, 1997.
Primary Investment Strategy The Fund seeks to achieve its investment
objectives by investing primarily in equity
securities of national and state chartered
banks (other than money center banks),
thrifts, the holding or parent companies of
such depository institutions, and in savings
accounts of mutual thrifts.
General Investment Guidelines o Under normal circumstances, at least 65% of
the Fund's total assets is invested in equity
securities of national and state-chartered
banks (other than money center banks),
thrifts, holding or parent companies of
such depository institutions, and in
savings accounts of mutual thrifts.
o Up to 35% of the Fund's total assets may be
invested in equity securities of money center
banks, other financial services companies,
other issuers deemed suitable by the
Investment Manager, debt securities, and
securities of other investment companies.
Principal Risk Factors o Investments in equity securities involve
exposure to financial and market risks. You
can expect fluctuation in the value of the
Fund's portfolio securities and the Fund's
shares.
o Because the Fund's portfolio is
concentrated in the banking and thrift
industries, it may be subject to greater
risk than a portfolio that is not
concentrated in one industry.
o The value of the Fund's investments in the
banking and thrift industries will be
impacted by state and federal legislation
and regulations and regional and general
economic conditions.
Investment Manager Pilgrim America Investments, Inc.
Shareholder Servicing Agent Pilgrim America Group, Inc.
</TABLE>
- ------------------
* This summary description should be read in conjunction with the more complete
description of the Fund's investment objectives and policies set forth
elsewhere in this Prospectus. For information regarding the purchase and
redemption of shares of the Fund, refer to the 'Shareholder Guide.' For
information regarding the risk factors of the Fund, refer to 'Investment
Practices and Risk Considerations' below.
2
<PAGE>
SUMMARY OF EXPENSES
Shares of the Fund are available through independent financial professionals,
national and regional brokerage firms and other financial institutions
(Authorized Dealers). You may select from two separate classes of shares: Class
A and Class B.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B
--------- -------
<S> <C> <C>
Maximum initial sales charge imposed on purchases
(as a percentage of offering price)............. 5.75%(a) None
Maximum contingent deferred sales charge (CDSC)
(at the lower of original purchase price or the
redemption proceeds)............................ None(b) 5.00%(c)
Redemption Fees................................... None(d) None
Exchange Fees..................................... None(d) None
</TABLE>
The Fund has no sales charges on reinvested dividends.
- ------------------
(a) Reduced for purchases of $50,000 and over. See 'Class A Shares: Initial
Sales Charge Alternative.'
(b) A CDSC of no more than 1.00% for shares redeemed in the first or second
year, depending on the amount of purchase, is assessed on redemptions of
Class A shares that were purchased without an initial sales charge as part
of an investment of $1 million or more. See 'Class A Shares: Initial Sales
Charge Alternative.'
(c) Imposed upon redemption within 6 years from purchase with scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'
(d) Until October 17, 1998, a 2% fee will be imposed on redemptions or exchanges
of Class A shares acquired prior to October 17, 1997. The Fund reserves the
right to waive or reduce the fee in whole or in part.
The percentages shown below reflect the estimated Annual Operating Expenses for
Class A and Class B shares of the Fund. The percentages set forth under 'Other
Expenses' are based upon the historical expenses of the Fund for the fiscal year
ended December 31, 1997 (during which the Fund operated as a closed-end
investment company for approximately 10 months), and are restated to reflect
fees expected to be incurred by the Fund operating as an open-end investment
company for a full year.
ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
DISTRIBUTION TOTAL FUND
MANAGEMENT (12B-1) OTHER OPERATING
FEES(A) FEES(B) EXPENSES EXPENSES
----------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Class A............ 0.73% 0.25% 0.23% 1.21%
Class B............ 0.73% 1.00% 0.23% 1.96%
</TABLE>
- ------------------
(a) The Fund pays the Investment Manager a fee at an annual rate of 1.00% of the
average daily net assets of the Fund for the first $30 million of net
assets; 0.75% of the average daily net assets of the next $95 million of net
assets; and 0.70% of the average daily net assets in excess of $125 million.
(b) As a result of distribution (Rule 12b-1) fees, a long-term investor may pay
more than the economic equivalent of the maximum sales charge allowed by the
Rules of the National Association of Securities Dealers, Inc. (NASD).
The purpose of the above table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly as a shareholder in
the Fund. For more complete descriptions of the various costs and expenses,
please refer to appropriate sections of this Prospectus.
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (i)
reinvestment of all dividends and distributions, (ii) 5% annual return and (iii)
redemption at the end of the period (unless otherwise noted):
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A*......... $ 69 $ 94 $ 120 $196
Class B.......... $ 70 $ 92 $ 126 $209
Class B (assuming
no redemption). $ 20 $ 62 $ 106 $209
</TABLE>
* The example does not include the 2% redemption fee imposed on redemptions
prior to October 17, 1998 of Class A shares acquired prior to October 17, 1997.
Use of the assumed 5% return is required by the Securities and Exchange
Commission. This example is not an illustration of past or future investment
results and should not be considered a representation of past or future
expenses; actual expenses may be more or less than those shown.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial information which has been derived
from the financial statements in the Fund's Annual Report dated December 31,
1997. For the fiscal years ended December 31, 1997, 1996 and 1995, the
information in the table below, with the exception of the information in the row
labeled 'Total Investment Return at Net Asset Value' for periods prior to
January 1, 1997, has been audited by KPMG Peat Marwick LLP, independent
auditors. For all periods ending prior to December 31, 1995, the financial
information, with the exception of the information in the row labeled 'Total
Investment Return at Net Asset Value,' was audited by the Fund's former
auditors. The information in the row labeled 'Total Investment Return at Net
Asset Value' has not been audited for periods prior to January 1, 1997. Prior to
October 17, 1997, the Class A shares were designated as Common Stock and the
Fund operated as a closed-end investment company. This information should be
read in conjunction with the Financial Statements and Notes thereto included in
the Fund's 1997 Annual Report to Shareholders which contains further information
about the Fund's performance, and which is available to Shareholders upon
request and without charge.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1997 1996 1995(B) 1994 1993 1992 1991 1990 1989
-------------------------- ------ ------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A CLASS B(A)
---------- -------------
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period............. $17.84 $ 25.25 $14.83 $10.73 $11.87 $12.46 $10.12 $ 7.49 $10.26 $ 9.54
---------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Income (loss) from
investment
operations:
Net investment
income .......... 0.34 0.04 0.32 0.31 0.26 0.26 0.22 0.24 0.31 0.30
Net realized and
unrealized gain
(loss) on
investments...... 10.83 2.92 5.18 4.78 (0.53) 0.75 2.93 3.33 (2.20) 1.50
---------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Total from
investment
operations......... 11.17 2.96 5.50 5.09 (0.27) 1.01 3.15 3.57 (1.89) 1.80
---------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Less distributions:
Net investment
income........... 0.31 0.04 0.32 0.31 0.22 0.26 0.22 0.24 0.31 0.31
In excess of net
investment
income........... -- -- 0.03 0.03 -- -- -- -- -- --
Realized capital
gains............ 2.65 2.04 2.14 0.65 0.65 0.73 0.47 -- -- 0.44
Paid-in capital.... 0.18 0.28 -- -- -- -- 0.12 0.70 0.57 0.33
---------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Total
distributions...... 3.14 2.36 2.49 0.99 0.87 0.99 0.81 0.94 0.88 1.08
---------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Other:
Reduction in net
asset value from
rights offering.. -- -- -- -- -- (0.61) -- -- -- --
---------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Net asset value, end
of period.......... $25.87 $ 25.85 $17.84 $14.83 $10.73 $11.87 $12.46 $10.12 $ 7.49 $10.26
---------- ------ ------ ------- ------ ------ ------ ------ ------ ------
---------- ------ ------ ------- ------ ------ ------ ------ ------ ------
Closing Market
Price, end of
period............. -- -- $15.75 $12.88 $ 9.13 $10.88 $11.63 $ 9.50 $ 7.13 $ 9.13
TOTAL INVESTMENT
RETURN AT MARKET
VALUE(C)........... -- -- 43.48% 52.81 % (8.85)% 1.95%(d) 31.53% 47.52% (12.45)% 32.25%
TOTAL INVESTMENT
RETURN AT NET ASSET
VALUE(E)........... 64.86% 11.88% 41.10% 49.69 % (1.89)% 7.79%(F) 32.36%(G) 49.49% (18.14)% 20.79%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period
$(millions)........ $ 383 $ 76 $ 252 $ 210 $ 152 $ 168 $ 141 $ 101 $ 75 $ 103
Ratios to average
net assets
Expenses........... 1.10% 1.85%(h) 1.01% 1.05 % 1.28% 0.91% 1.24% 1.31% 1.29% 1.26%
Net investment
income........... 1.39% 0.99%(h) 1.94% 2.37 % 2.13% 2.08% 2.00% 2.68% 3.59% 4.15%
Portfolio turnover
rate............... 22% 22% 21% 13 % 14% 17% 20% 31% 46% 63%
Average commission
rate paid.......... $0.013 $ 0.013 -- -- -- -- -- -- -- --
<CAPTION>
1988
------
<S> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value,
beginning of
period............. $ 8.17
------
Income (loss) from
investment
operations:
Net investment
income .......... 0.31
Net realized and
unrealized gain
(loss) on
investments...... 1.43
------
Total from
investment
operations......... 1.74
------
Less distributions:
Net investment
income........... 0.37
In excess of net
investment
income........... --
Realized capital
gains............ --
Paid-in capital.... --
------
Total
distributions...... 0.37
------
Other:
Reduction in net
asset value from
rights offering.. --
------
Net asset value, end
of period.......... $ 9.54
------
------
Closing Market
Price, end of
period............. $ 7.75
TOTAL INVESTMENT
RETURN AT MARKET
VALUE(C)........... 30.17%
TOTAL INVESTMENT
RETURN AT NET ASSET
VALUE(E)........... 22.58%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period
$(millions)........ $ 96
Ratios to average
net assets
Expenses........... 1.18%
Net investment
income........... 3.28%
Portfolio turnover
rate............... 43%
Average commission
rate paid.......... --
</TABLE>
- ------------------
(a) From the period October 20, 1997 (initial offering of Class B shares)
through December 31, 1997.
(b) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former
investment manager, in a transaction that closed on April 7, 1995.
(c) Total return is calculated at market value without deduction of sales
commissions and assuming reinvestment of all dividends and distributions
during the period.
(d) Calculation of total return excludes the effect of the per share dilution
resulting from the 1993 Rights Offering as the total account value of a
fully subscribed shareholder was minimally impacted.
(e) Total return is calculated at net asset value without deduction of sales
commissions and assumes reinvestment of all dividends and distributions
during the period. Total investment returns based on net asset value, which
can be higher or lower than market value, may result in substantially
different returns than total return based on market value. Total returns
for less than one year are not annualized. For all periods prior to January
1, 1997 the total returns presented are unaudited.
(f) Total return is calculated assuming full participation in the 1993 rights
offering.
(g) Total return is calculated assuming no participation in the 1992 rights
offering.
(h) Annualized.
4
<PAGE>
PAST PERFORMANCE OF THE FUND
The following bar chart, line graph and tables provide information about the
Fund's past performance. Prior to October 17, 1997, the Fund operated as a
closed-end investment company. Upon conversion to an open-end investment company
on October 17, 1997, all outstanding shares of common stock of the Fund were
designated as Class A shares. All performance information prior to October 17,
1997 shown below for the Fund reflects the historical expense levels of the Fund
as a closed-end investment company without adjustment for the higher annual
expenses of the Fund's Class A shares. Performance would have been lower if
adjusted for these charges and expenses. Performance information for periods
after October 17, 1997, reflects Class A expenses. The Fund also offers Class B
shares which are subject to different fees and expenses which will affect their
performance.
The investment strategies used for the Fund since its conversion to an open-end
fund may vary somewhat from the strategies used prior to conversion in that
open-end funds are subject to constraints on illiquid assets to which closed-end
funds are not subject, and attention must be paid to the cash flow needs of
open-end funds from the sale and redemption of shares. The past performance
information should not be considered a prediction of future performance of the
Fund.
The bar chart below illustrates the Fund's risks and performance by showing the
changes in the Fund's performance from year to year over a ten-year period.
[CHART]
1988 1989 1990 1991(1) 1992 1993 1994 1995 1996 1997
- ---- ---- ---- ------- ---- ---- ---- ---- ---- ----
22.6% 20.8% -18.1% 49.5% 32.4% 7.8% -1.9% 49.7% 41.4% 64.9%
Annual Total Return for Fiscal Year Ended December 31 of Year Shown (2)
- ------------------
(1) Carl Dorf, the Fund's Portfolio Manager, began managing the Fund in January
1991.
(2) The Fund's performance is based on the Fund's net asset value and assumes
reinvestment of all dividends and distributions, excludes sales charges, and
assumes no participation in the 1992 rights offering and full participation
in the 1993 rights offering.
5
<PAGE>
The line graph below shows the growth of an initial investment of $10,000 with
reinvestment of all dividends and distributions. The graph shows the Fund's
performance from December 31, 1987 through December 31, 1997 compared to the
performance of two relevant unmanaged indices, the Standard & Poor's 500 and the
Standard & Poor's Major Regional Banks Index. The Fund's performance is shown
both with and without the imposition of the sales load currently associated with
Class A shares of the Fund. An investor cannot invest directly into an index.
[CHART]
<TABLE>
<CAPTION>
S&P Major
Bank & Thrift Fund S&P 500 Regional
Bank & Thrift Fund (including current sales charge) Index Banks Index
-------------------- -------------------------------- ------- ------
<S> <C> <C> <C> <C>
1987 10,000 9,425 10,000 10,000
1988 12,260 11,555 11,655 12,677
1989 14,810 13,959 15,342 15,314
1990 12,129 11,432 14,867 10,920
1991(1) 18,134 17,091 19,388 19,544
1992 24,009 22,628 20,864 24,878
1993 25,881 24,393 22,963 26,375
1994 25,390 23,930 23,266 24,925
1995 38,008 35,823 32,001 39,246
1996 53,630 50,546 39,345 53,618
1997 88,436 83,314 52,472 80,511
</TABLE>
Balance as of 12/31 of Year Shown
Average Annual Total One Three Five Ten
Returns Ended 12/31/97 Year Years Years Years
- ---------------------- ---- ----- ----- -----
Bank & Thrift Fund(2) 64.9% 51.6% 29.8% 24.3%
(excluding current
sales charge)
Bank & Thrift Fund(3) 55.4% 48.6% 28.3% 23.6%
(including current
sales charge)
S&P 500 Index 33.4% 31.1% 20.3% 18.1%
S&P Major Regional
Banks Index 50.6% 47.9% 26.5% 22.9%
- ------------------
(1) Carl Dorf, the Fund's Portfolio Manager, began managing the Fund in January
1991.
(Footnotes continued on next page)
6
<PAGE>
(Footnotes continued from previous page)
(2) Average annual total returns are based on the Fund's net asset value and
assume reinvestment of all dividends and distributions, exclude sales
charges, and assume no participation in the 1992 rights offering and full
participation in the 1993 rights offering.
(3) Average annual total returns are based on the Fund's net asset value and
assume reinvestment of all dividends and distributions, include the maximum
initial Class A sales charge of 5.75%, and assume no participation in the
1992 rights offering and full participation in the 1993 rights offering.
INVESTMENT PERFORMANCE
MORNINGSTAR RATINGS. For the three-year, five-year, and ten-year periods ended
December 31, 1997, the Fund had a 5-star Morningstar risk-adjusted performance
rating when rated among 2,332, 1,292 and 676 open-end domestic equity funds.(1)
The Fund's overall rating through December 31, 1997, is 5-stars.(2) For the
three-year, five-year, and ten-year periods ended December 31, 1997, the Fund's
risk score places it 85, 532 and 249 out of 2,332, 1,292, and 676 funds in the
domestic equity open-end fund category, respectively.(3)
- ------------------
(1) Prior to October 17, 1997, this Fund was rated as a closed-end fund, which
had a different fee structure. Fee structures are incorporated into
Morningstar ratings. If this Fund had been rated using the fee structure of
an open-end fund, ratings for those periods may have been different. Ratings
are for the Class A share class only; other classes may vary.
(2) The Fund's overall rating is based upon a weighted average of its
performance for the three-year, five- year and ten-year periods ended
December 31, 1997.
(3) On Morningstar's risk-adjusted performance rating system, funds ranking in
the top 10% of all funds within their category are awarded five stars.
Morningstar ratings are calculated from each fund's three-, five-, and
ten-year returns (with fee adjustments, if any) in excess of 90-day Treasury
bill returns, and a risk factor that reflects fund performance below 90-day
Treasury bill returns. The ratings are subject to change every month. To
determine a fund's risk score, Morningstar ranks funds for the three-,
five-, and ten-year periods based upon their downside volatility compared to
a 90-day Treasury bill.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund primarily seeks long-term capital appreciation; a secondary objective
is income. The Fund pursues its objectives by investing, under normal market
conditions, at least 65% of its total assets in equity securities of (i)
national and state-chartered banks (other than money center banks), (ii)
thrifts, (iii) the holding or parent companies of such depository institutions,
and (iv) in savings accounts of mutual thrifts, which investment may entitle the
investor to participate in future stock conversions of the mutual thrifts. These
portfolio securities are selected principally on the basis of fundamental
investment value and potential for future growth, including securities of
institutions that the Fund believes are well positioned to take advantage of the
attractive investment opportunities developing in the banking and thrift
industries. In making decisions concerning the selection of portfolio securities
for the Fund, the Investment Manager conducts its own evaluation of the
depository institution which is a potential investment by the Fund and does not
take into account the credit rating of the debt securities issued by such
institution. These equity securities include common stocks and securities
convertible into common stock (including convertible bonds, convertible
preferred stock, and warrants) but do not include non-convertible preferred
stocks or adjustable rate preferred stocks.
The Investment Manager believes that a number of factors may contribute to the
potential for growth in the value of equity securities of depository
institutions, including the fact that such depository institutions are:
(i) located in geographic regions experiencing strong economic growth
and able to participate in such growth;
(ii) well-managed and currently providing above-average returns on
assets and shareholders' equity;
(iii) attractive candidates for acquisition by a money center bank or
another regional bank, as defined in 'The Banking and Thrift Industries,'
below, or attractive partners for business combinations, as a result of
opportunities created by the trend towards deregulation and interstate
banking or in order to create larger, more efficient banking combinations;
(iv) expanding their business into new financial services or
geographic areas that have become or may become permissible due to an
easing of regulatory constraints; or
(v) investing assets in technology that is intended to increase
productivity.
The Investment Manager also believes that factors may contribute to increased
earnings of securities of depository institutions, including the following:
(i) changes in the sources of revenues of banks, such as the
implementation of certain new transaction-based fees;
(ii) a focus on variable rate pricing of bank products, which is less
sensitive than fixed pricing to cyclical interest rate changes;
(iii) the ability, as a result of liberalization of regulation, to
offer financial products and services which may have a higher rate of
return than traditional banking and financial services products;
(iv) the recent implementation of share repurchase programs by certain
banks; or
(v) a trend towards increased savings and investing as the average age
of the population of the United States gets older.
The Fund's policy of investing under normal market conditions at least 65% of
its total assets in the equity securities of (i) national and state-chartered
banks (other than money center banks), (ii) thrifts, (iii) the holding or parent
companies of such depository institutions, and (iv) in savings accounts of
mutual thrifts is fundamental and may not be changed without a Majority Vote. As
used in this Prospectus, the term 'Majority Vote' means the affirmative vote of
(a) more than 50% of the outstanding shares of the Fund or (b) 67% or more of
the shares present at a meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy, whichever is
less.
8
<PAGE>
The Fund invests the remaining 35% of its total assets in the equity securities,
including preferred stocks or adjustable rate preferred stocks, of money center
banks, other financial services companies, other issuers deemed suitable by the
Investment Manager (which may include companies that are not in financial
services industries), in Debt Securities, and in securities of other investment
companies. 'Debt Securities' are nonconvertible debt securities (including
certificates of deposit, commercial paper, notes, bonds or debentures) that are
either issued or guaranteed by the United States Government or agency thereof
('U.S. Government securities') or issued by a corporation or other issuer and
rated investment grade or comparable quality by at least one nationally
recognized rating organization.
With respect to 75% of its total assets, the Fund will not purchase securities
of any one issuer, other than U.S. Government securities, if immediately after
such purchase more than 5% of the value of the Fund's total assets would be
invested in such issuer.
When the Investment Manager determines that it is in the best interest of the
Fund to assume a defensive position due to an unusual degree of financial
unsteadiness or risk existing in the banking or thrift industry, the Fund may
invest more than 25% and as much as 100% of its total assets in Short-Term Debt
Securities. 'Short-Term Debt Securities' are Debt Securities maturing within one
year from the date of purchase. To the extent that the Fund is in a defensive
position, it will not be able to pursue its investment objective.
The Fund will not invest more than 15% of its net assets in illiquid securities,
measured at the time of investment.
INVESTMENT PRACTICES AND RISK CONSIDERATIONS
The following pages contain information about certain types of securities in
which the Fund may invest and strategies the Fund may employ in pursuit of its
investment objective.
RISK CONSIDERATIONS
The investment objectives and policies described above should be carefully
considered before investing. There is no assurance that the Fund will achieve
its investment objectives. As with any security, an investment in the Fund's
shares involves certain risks, including loss of principal. An investment in the
Fund's shares cannot be considered a complete investment program. Because the
Fund's investment portfolio will be concentrated in specific segments of the
banking and thrift industries, the shares may be subject to greater risk than
the shares of a fund whose portfolio is less concentrated. See 'The Banking and
Thrift Industries.'
The Fund may invest in the securities of banks or thrifts that are relatively
smaller, engaged in business mostly within their geographic region, and are less
well-known to the general investment community than the money center and larger
regional banks. Traditionally, the Fund has concentrated its investments in
banks located in the Eastern and Midwestern States; however, all investments are
at the discretion of the Investment Manager and may be concentrated in other
areas. The shares of depository institutions in which the Fund may invest may
not be listed or traded on a national securities exchange or on the National
Association of Securities Dealers Automated Quotation System ('NASDAQ'); as a
result there may be limitations on the Fund's ability to dispose of them at
times and at prices that are most advantageous to the Fund. The Fund will not
invest more than 15% of its net assets in securities that are illiquid.
As discussed further below, changes in state and Federal law are producing
significant changes in the banking and financial services industries.
Deregulation has resulted in the diversification of certain financial products
and services offered by banks and financial services companies, creating
increased competition between them. In addition, state and federal legislation
authorizing interstate acquisitions as well as interstate branching has
facilitated the increasing consolidation of the banking and thrift industries.
Although regional banks involved in intrastate and interstate mergers and
acquisitions may benefit from such regulatory changes, those which do not
participate in such consolidation may find that it is increasingly difficult to
compete effectively against larger banking combinations. Proposals to change the
laws and regulations governing banks and companies that control banks are
frequently introduced at the
9
<PAGE>
federal and state levels and before various bank regulatory agencies. The
likelihood of any changes and the impact such changes might have are impossible
to determine.
LEGISLATION, REGULATIONS, AND POLICIES AFFECTING THE BANKING INDUSTRY. The last
few years have seen a significant amount of regulatory and legislative activity
focused on the expansion of bank powers and diversification of services that
banks may offer. These expanded powers have exposed banks to well-established
competitors and have eroded the distinctions between regional banks, community
banks, thrifts and other financial institutions. Pending legislation,
specifically the proposed Financial Services Act of 1998, which has been
approved by the House Banking Committee, if enacted in its most recent form,
would continue this trend. The proposed legislation would repeal key provisions
of the Glass-Steagall Act which historically has limited the scope of banking
organizations' securities activities. The proposed legislation would not only
eliminate banks' restrictions on affiliations with securities firms, but also
would permit affiliations with insurance companies. The latest version of the
legislation would not require federally chartered savings associations to
convert to either national bank or state charters, as had been the case with
earlier proposals. The proposed legislation would impose new restrictions on the
activities of thrift institutions and their holding companies.
LEGISLATION, REGULATIONS, AND POLICIES AFFECTING THE THRIFT INDUSTRY. The
thrifts in which the Fund invests generally are subject to the same risks as
banks discussed above. Such risks include interest rate changes, credit risks,
and regulatory risks. Because thrifts differ in certain respects from banks,
however, thrifts may be affected by such risks in a different manner than banks.
Traditionally, thrifts have different and less diversified products than banks,
have a greater concentration of real estate in their lending portfolio, and are
more concentrated geographically than banks. Thrifts and their holding companies
are subject to extensive government regulation and supervision including regular
examinations of thrift holding companies by the Office of Thrift Supervision
(the 'OTS'). Such regulations have undergone substantial change since the 1980's
and will probably change in the next few years.
Certain recent legislation, as well as the pending Financial Services Act of
1998, are likely to have a significant impact on the thrift industry. For
example, the recent merger of the Savings Association Insurance Fund into the
Bank Insurance Fund has eliminated most of the higher deposit insurance premiums
paid by thrifts, making thrifts more competitive with banks. In addition, the
proposed Financial Services Act of 1998, if enacted in its most recent form,
would treat both federally and state chartered savings associations as
commercial banks, effectively causing thrifts to lose many of their existing
powers.
INVESTMENT TECHNIQUES
TEMPORARY DEFENSIVE AND OTHER SHORT-TERM POSITIONS. When the Investment Manager
determines that it is in the best interest of the Fund to assume a temporary
defensive position due to an unusual degree of financial unsteadiness or risk
existing in the banking and related industries, the Fund may invest more than
25% and as much as 100% of its total assets in Short-Term Debt Securities. To
the extent that the Fund is in a temporary defensive position, it will not be
able to pursue its investment objective. Assuming a temporary defensive position
is purely discretionary with the Investment Manager.
OTHER INVESTMENT COMPANIES. The Fund may invest in shares issued by investment
companies. The Fund is limited in the degree to which it may invest in shares of
another investment company in that it may not, at the time of the purchase, (1)
acquire more than 3% of the outstanding voting shares of the investment company,
(2) invest more than 5% of the Fund's total assets in the investment company, or
(3) invest more than 10% of the Fund's total assets in all investment company
holdings. As a shareholder in any investment company, the Fund will bear its
ratable share of the investment company's expenses, including management fees in
the case of a management investment company.
ILLIQUID SECURITIES. The Fund may invest in an illiquid or restricted security
if the Investment Manager believes that it presents an attractive investment
opportunity. Generally, a security is considered illiquid if it cannot be
disposed of within seven days. Its illiquidity might prevent the sale of such a
security at a time when the Investment Manager might wish to sell, and these
securities could have the effect of decreasing the overall level of the Fund's
liquidity. Further, the lack of an established secondary market may make it more
difficult to value illiquid securities, requiring the Fund to rely on judgments
that may be somewhat
10
<PAGE>
subjective in determining value, which could vary from the amount that the Fund
could realize upon disposition.
Restricted securities, including placements, are subject to legal or contractual
restrictions on resale. They can be eligible for purchase without Securities and
Exchange Commission ('SEC') registration by certain institutional investors
known as 'qualified institutional buyers,' and under the Fund's procedures,
restricted securities could be treated as liquid. However, some restricted
securities may be illiquid and restricted securities that are treated as liquid
could be less liquid than registered securities traded on established secondary
markets. The Fund may not invest more than 15% of its net assets in illiquid
securities, measured at the time of investment.
BORROWING. The Fund may borrow money from banks to obtain short-term credits as
are necessary for the clearance of securities transactions, but not in an amount
exceeding 15% of its total assets. Borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the Fund's net
asset value ('NAV'), and money borrowed will be subject to interest and other
costs. Under the Investment Company Act of 1940, as amended (the '1940 Act'),
the Fund is required to maintain continuous asset coverage of 300% with respect
to such borrowings and to sell (within three days) sufficient portfolio holdings
to restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Fund's holdings may
be disadvantageous from an investment standpoint.
THE FUND: DIVERSIFICATION AND CHANGES IN POLICIES
The Fund is diversified, so that with respect to 75% of its assets, it may not
invest more than 5% of its assets (measured at market value at the time of
investment) in securities of any one issuer, except that this restriction does
not apply to U.S. Government securities.
The Fund's primary investment objective is to achieve long-term capital
appreciation. Income is its secondary objective. These investment objectives are
'fundamental.' Fundamental policies may only be changed with the approval of a
Majority Vote of shareholders of the Fund. Other investment policies of the Fund
may be changed by the Board of Directors. The Fund is subject to investment
restrictions that are described in the Statement of Additional Information under
'Investment Restrictions.' Some of those restrictions are designated as
'fundamental.' These fundamental restrictions as well as the diversified status
of the Fund require a Majority Vote of the shareholders of the Fund to be
changed.
THE BANKING AND THRIFT INDUSTRIES
The Fund invests at least 65% of its total assets in the equity securities of
(i) national and state-chartered banks other than Money Center Banks (as defined
below); (ii) thrifts, (iii) the holding or parent companies of such
institutions; and also in savings accounts of mutual thrifts which investment
may entitle the investor to participate in future stock conversions of the
mutual thrifts.
As of December 31, 1996, the commercial banking industry in the United States
comprised approximately 11,454 state or federally chartered banks, many of which
are subsidiaries of bank holding companies. Bank holding companies are separate
legal entities that own the stock of, and receive a substantial portion of their
income from, one or more bank subsidiaries. Although commercial banks range in
size from small banks under $10 million in total assets to the largest bank
holding companies with assets well over $100 billion, they can be classified
into three general categories. A 'Money Center Bank' is a bank or bank holding
company that is typically located in an international financial center and has a
strong international business with a significant percentage of its assets
outside the United States. 'Regional Banks' are banks and bank holding companies
which provide full service banking, often operating in two or more states in the
same geographic area, and whose assets are primarily related to domestic
business. Regional Banks are smaller than Money Center Banks and also may
include banks conducting business in a single state or city and banks operating
in a limited number of states in one or more geographic regions. The third
category which constitutes the majority in number of banking organizations are
typically smaller institutions that are
11
<PAGE>
more geographically restricted and less well-known than Money Center Banks or
Regional Banks and are commonly described as 'Community Banks.'
The thrift industry in the United States is comprised of over 1,300 institutions
with assets of over $769 billion. Thrifts and thrift holding companies differ
from banks and bank holding companies in the range of their permissible
activities and the degree of regulation. Thrifts resemble community banks in
that they hold a substantial portion of their portfolio in mortgage, consumer
and small business loans. Thrifts are restricted in the mix of assets on their
balance sheet by the qualified thrift lender rules and are required to have
certain minimum percentages of mortgages, credit cards and student loans with
specified maximum percentages of consumer and commercial loans.
The banking and thrift industries are subject to extensive governmental
regulations which may limit both the amounts and types of loans and other
financial commitments which may be made and the interest rates and fees which
may be charged. Recently enacted and currently proposed legislation would have
an impact on the present status of the thrift industry. See 'Investment
Practices and Risk Considerations-- Legislation, Regulations, and Policies
Affecting the Thrift Industry'. The profitability of these concerns is largely
dependent upon interest rates and the resulting availability and cost of capital
funds over which these concerns have limited control, and, in the past, such
profitability has shown significant fluctuation as a result of volatile interest
rate levels. In addition, general economic conditions are important to the
operations of these concerns, with exposure to credit losses resulting from
financial difficulties of borrowers.
Banks and bank holding companies are subject to extensive government regulation
limiting their activities. Federally chartered banks and state-chartered banks
whose deposits are insured by the Federal Deposit Insurance Corporation and bank
holding companies are subject to federal supervision and regulation and, in
certain situations, to state laws applicable to financial institutions. Federal
banking authorities receive comprehensive reports on, and conduct examinations
of, a number of aspects of a federally-regulated bank's business and condition,
including its dividends, capital ratios, allowances for loan losses and other
aspects of the bank's financial condition and operation. A national bank must
obtain prior regulatory approval if it wishes to pay dividends on its common or
preferred stock if the total of all dividends in any calendar year exceeds the
aggregate of the bank's net profits, as defined, for that year and its retained
net profits (net profits less dividends paid) for the two proceeding years. A
national bank may not pay a dividend on its common stock if the dividend would
exceed net undivided profits then on hand. Federally-regulated banks are
required to maintain designated minimum ratios of capital to total assets. These
ratios were recently revised to call for higher levels of capital and may be
increased in the future. State banking agencies regulate and supervise
state-charted banks under regulations which may be similar to those existing
under federal law.
Bank holding companies are required to register and file reports with the Board
of Governors of the Federal Reserve System and are subject to examinations of
certain aspects of their businesses and their subsidiaries' businesses. The
principal sources of a bank holding company's income are dividends and interest
from its subsidiaries. Under Federal law, banks are subject to certain
restrictions on extensions of credit to, and certain other transactions with,
their bank holding companies and certain other affiliates, and on investments in
stock or other securities thereof. Such restrictions prevent bank holding
companies and such other affiliates from borrowing from their banks unless the
loans are secured in specified amounts. Further, such secured loans, other
transactions and investments by their banks are generally limited in amount as
to the bank holding company and as to each of such other affiliates to 10% of
the bank's capital and surplus and as to the bank holding company and all such
affiliates to an aggregate of 20% of the bank's capital and surplus. Any
combination between banks and bank holding companies requires prior approval of
appropriate Federal and state bank regulatory agencies.
Thrift holding companies can be stock or mutual companies. Thrift holding
companies, unlike bank holding companies, have historically been given broad
powers. For example, holding companies that own a single thrift can engage in
any activities that do not threaten the safety of the subsidiary thrift. Thrift
holding companies are allowed to engage in more business lines than banks are,
such as real estate acquisition, development, management, sales and rentals, and
insurance agency businesses. Thrift holding
12
<PAGE>
companies must comply with a variety of strict statutory and regulatory
requirements and restrictions and undergo regular examinations by the OTS
whereas banks are regulated by the Federal Reserve Board. The underlying thrifts
are also restricted in the scope and manner of their interaction with the parent
company. The activities in which a thrift holding company is permitted to engage
will depend on the number of thrifts controlled.
Certain economic factors are of particular importance to the banking industry.
The availability and cost of funds to banks is important to their profitability;
consequently, higher capital ratios, high deposit insurance premiums, volatile
interest rates and general economic conditions can have an impact on their
financial performance and condition. Banking legislation, enacted in 1989 and
1991, in general, has broadened the regulatory powers of federal bank regulatory
agencies. Among other things, this legislation grants federal banking agencies
the authority to approve special assessments on insured depository institutions
with respect to maintaining the deposit insurance fund. The quality of a bank's
portfolio of loans can be adversely affected by depressed market conditions in
certain industries. Examples of such industries that have affected the loan
portfolios of some banks include commercial real estate, international business,
agriculture and energy. Smaller Regional Banks, Community Banks, and thrifts can
be particularly affected by such conditions if the economic base of the area in
which they are located is closely tied to a depressed industry, such as family
farming.
SHAREHOLDER GUIDE
PILGRIM AMERICA PURCHASE OPTIONS(TRADEMARK)
You may select from two separate classes of shares: Class A and Class B, both of
which represent an identical interest in the Fund's investment portfolio, but
are offered with different sales charges and distribution fee (Rule 12b-1)
arrangements. These sales charges and fees are shown and contrasted in the chart
below.
<TABLE>
<CAPTION>
ANNUAL AUTOMATIC
MAXIMUM SALES DISTRIBUTION MAXIMUM CONVERSION
CLASS CHARGE ON PURCHASES (A) CDSC FEES(D) PURCHASE TO CLASS A
- ----- ------------------------ ----- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
A.... 5.75% None (b) 0.25% Unlimited N/A
B.... None 5.00%(c) 1.00% $250,000 After 8 Years
</TABLE>
- ------------------
(a) Imposed upon purchase. Reduced for purchases of $50,000 or more.
(b) For investments of $1 million or more, a contingent deferred sales charge
'CDSC' of no more than 1% is assessed on redemptions made within one or two
years from purchase, depending on the amount of purchase. See 'Class A
Shares: Initial Sales Charge Alternative.'
(c) Imposed upon redemption within 6 years from purchase with scheduled
reductions after the first year. See 'Class B Shares: Deferred Sales Charge
Alternative.'
(d) Annual asset-based distribution charge.
When choosing between classes, investors should carefully consider the ongoing
annual expenses along with the initial sales charge or CDSC. The relative impact
of the initial sales charges and ongoing annual expenses will depend on the
length of time a share is held. Orders for Class B shares in excess of $250,000
will be accepted as orders for Class A shares or declined. You should discuss
which class of shares is right for you with your Authorized Dealer.
13
<PAGE>
CLASS A SHARES: INITIAL SALES CHARGE ALTERNATIVE. Class A shares of the Fund
are sold at the NAV per share in effect plus a sales charge as described in the
following table. For waivers or reductions of the Class A shares sales charges,
see 'Special Purchases without a Sales Charge' and 'Reduced Sales Charges.'
<TABLE>
<CAPTION>
DEALERS'
REALLOWANCE AS
AS A % OF OFFERING AS A % OF A % OF
AMOUNT OF TRANSACTION PRICE PER SHARE NAV OFFERING PRICE
- ------------------------------------- ------------------ --------- --------------
<S> <C> <C> <C>
Less than $50,000.................... 5.75% 6.10% 5.00%
$50,000 but less than $100,000....... 4.50% 4.71% 3.75%
$100,000 but less than $250,000...... 3.50% 3.63% 2.75%
$250,000 but less than $500,000...... 2.50% 2.56% 2.00%
$500,000 but less than $1,000,000.... 2.00% 2.04% 1.75%
</TABLE>
There is no initial sales charge on purchases of $1,000,000 or more. However,
the Distributor will pay Authorized Dealers of record commissions at the rates
shown in the table below for investments subject to a CDSC. If shares are
redeemed within one or two years of purchase, depending on the amount of the
purchase, a CDSC will be imposed on certain redemptions as follows:
<TABLE>
<CAPTION>
DEALER PERIOD DURING
ON PURCHASES OF: CDSC ALLOWANCE WHICH CDSC APPLIES
- --------------------------------------- ----- --------- ------------------
<S> <C> <C> <C>
$1,000,000 but less than $2,500,000.... 1.00% 1.00% 2 Years
$2,500,000 but less than $5,000,000.... 0.50% 0.50% 1 Year
$5,000,000 and over.................... 0.25% 0.25% 1 Year
</TABLE>
CLASS A SHARES: REDEMPTION FEE. Upon the conversion of the Fund to open-end
status, the Fund's outstanding shares were designated Class A shares. No sales
charge was due as a result of the conversion. However, if such shares are
redeemed or exchanged for shares of another open-end Pilgrim America Fund prior
to one year from date of conversion, they will be subject to a 2% redemption fee
payable to the Fund. The Fund reserves the right to waive or reduce the
redemption fee in whole or in part.
CLASS B SHARES: DEFERRED SALES CHARGE ALTERNATIVE. If you choose the deferred
sales charge alternative, you will purchase Class B shares at their NAV per
share without the imposition of a sales charge at the time of purchase. Class B
shares that are redeemed within six years of purchase, however, will be subject
to a CDSC as described in the table that follows. Class B shares of the Fund are
subject to a distribution fee at an annual rate of 1.00% of the average daily
net assets of the Class, which is higher than the distribution fee for Class A
shares. The higher distribution fee means a higher expense ratio, so Class B
shares pay correspondingly lower dividends and may have a lower NAV than Class A
shares. In connection with sales of Class B shares, the Distributor compensates
Authorized Dealers at a rate of 4% of purchase payments subject to a CDSC.
Orders for Class B shares in excess of $250,000 will be accepted as orders for
Class A shares or declined.
The amount of the CDSC charge is determined as a percentage of the lesser of the
NAV of the Class B shares at the time of purchase or redemption. No charge will
be imposed for any net increase in the value of shares purchased during the
preceding six years in excess of the purchase price of such shares or for shares
acquired either by reinvestment of net investment income dividends or capital
gain distributions. The percentage used to calculate the CDSC will depend on the
number of years since you invested the dollar amount being redeemed according to
the following table:
<TABLE>
<CAPTION>
YEAR OF
REDEMPTION
AFTER PURCHASE CDSC
- ---------------------------- ----
<S> <C>
First..................... 5%
Second.................... 4%
Third..................... 3%
Fourth.................... 3%
Fifth..................... 2%
Sixth..................... 1%
Seventh and following..... 0%
</TABLE>
14
<PAGE>
To determine the CDSC payable on redemptions of Class B shares, the Fund will
first redeem shares in accounts that are not subject to a CDSC; second, shares
acquired through reinvestment of net investment income dividends and capital
gain distributions; third, shares purchased more than 6 years prior to
redemption; and fourth, shares subject to a CDSC in the order in which such
shares were purchased. Using this method, your sales charge, if any, will be at
the lowest possible CDSC rate.
Class B shares will automatically convert into Class A shares approximately
eight years after purchase. For additional information on the CDSC and the
conversion of Class B shares, see the Statement of Additional Information.
REDUCED SALES CHARGES. An investor may immediately qualify for a reduced sales
charge on a purchase of Class A shares of the Fund or of other open-end funds in
the Pilgrim America Funds which offer Class A shares or shares with front-end
sales charges ('Participating Funds') by completing the Letter of Intent section
of the New Account Application. Executing the Letter of Intent expresses an
intention to invest a specified amount during the next 13 months, which, if made
at one time, would qualify for a reduced sales charge. An amount equal to the
Letter amount multiplied by the maximum sales charge imposed on purchases of the
applicable fund and class will be restricted within your account to cover
additional sales charges that may be due if your actual total investment fails
to qualify for the reduced sales charges. See the New Account Application or the
Statement of Additional Information for details on the Letter of Intent option
or contact the Shareholder Servicing Agent at (800) 992-0180 for more
information.
The sales charge for your investment may also be reduced by taking into account
the current value of your existing holdings in the Fund or any other open-end
funds in the Pilgrim America Funds (excluding Pilgrim America General Money
Market shares) ('Rights of Accumulation'). The reduced sales charges apply to
quantity purchases made at one time or on a cumulative basis over any period of
time by: (i) an investor; (ii) the investor's spouse and children under the age
of majority; (iii) the investor's custodian account(s) for the benefit of a
child under the Uniform Gifts to Minors Act; (iv) a trustee or other fiduciary
of a single trust estate or a single fiduciary account (including a pension,
profit-sharing and other employee benefit plans qualified under Section 401 of
the Internal Revenue Code); and (v) trust companies, registered investment
advisers, banks and bank trust departments for accounts over which they exercise
exclusive discretionary investment authority and which are held in a fiduciary,
agency, advisory, custodial or similar capacity. See the New Account Application
or the Statement of Additional Information for details or contact the
Shareholder Servicing Agent at (800) 992-0180 for more information.
For purposes of Rights of Accumulation and the Letter of Intent Privilege,
shares held by investors in the open-end Pilgrim America Funds which impose a
CDSC may be combined with Class A shares for a reduced sales charge but such
combination will not affect any CDSC which may be imposed upon the redemption of
those shares. Additionally, shares held by investors in Class M shares of other
Pilgrim America Funds may be combined with Class A Shares for a reduced sales
charge.
WAIVERS OF CDSCS. The CDSC on Class A or Class B shares will be waived in the
case of a redemption following the death or permanent disability of a
shareholder if made within one year of death or initial determination of
permanent disability. The waiver is available for total or partial redemptions
of shares of the Fund owned by an individual or an individual in joint tenancy
(with rights of survivorship), but only for those shares held at the time of
death or initial determination of permanent disability. The CDSC also may be
waived for Class B Shares redeemed pursuant to a Systematic Withdrawal Plan, up
to a maximum of 12% per year of a shareholder's account value based on the value
of the account at the time the plan is established and annually thereafter,
provided all dividends and distributions are reinvested and the total
redemptions do not exceed 12% annually. In determining whether a CDSC is
applicable, it will be assumed that shares held in the shareholder's account
that are not subject to such charge are redeemed first.
The CDSC also will be waived in the case of a total or partial redemption of
shares of the Fund in connection with any mandatory distribution from a
tax-deferred retirement plan or an IRA. The shareholder must have attained the
age of 70 1/2 to qualify for the CDSC waiver relating to mandatory
distributions. The waiver does not apply in the case of a tax-free rollover or
transfer of assets, other than one following a separation of service. The
shareholder must notify the Transfer Agent either directly or
15
<PAGE>
through the Distributor, at the time of redemption, that the shareholder is
entitled to a waiver of the CDSC. The CDSC Waiver Form included in the New
Account Application must be completed and provided to the Transfer Agent at the
time of the redemption request. The waiver will be granted subject to
confirmation of the grounds for the waiver. The foregoing waivers may be changed
at any time.
REINSTATEMENT PRIVILEGE. Class B shareholders who have redeemed their shares in
any open-end Pilgrim America Fund within the previous 90 days may repurchase
Class B shares at NAV (at the time of reinstatement) in an amount up to the
redemption proceeds. Reinstated Class B shares will retain their original cost
and purchase date for purposes of the CDSC. The amount of any CDSC also will be
reinstated.
To exercise this privilege, a written order for the purchase of shares must be
received by the Transfer Agent or be postmarked within 90 days after the date of
redemption. This privilege can be used only once per calendar year. If a loss is
incurred on the redemption and the reinstatement privilege is used, some or all
of the loss may not be allowed as a tax deduction. See 'Tax Considerations' in
the Statement of Additional Information.
SPECIAL PURCHASES WITHOUT A SALES CHARGE. Class A shares may be purchased at
NAV without a sales charge by:
1) Class A shareholders who have redeemed their shares in any open-end
Pilgrim America Fund within the previous 90 days. These shareholders
may repurchase shares at NAV in an amount equal to their net redemption
proceeds. Authorized Dealers who handle these purchases may charge fees
for this service.
2) Any person who can document that Fund shares were purchased with
proceeds from the redemption (within the previous 90 days) of shares
from any unrelated mutual fund on which a sales charge was paid or
which were subject at any time to a CDSC.
3) Any charitable organization or governmental entity that has determined
that the Fund is a legally permissible investment and which is
prohibited by applicable law from paying a sales charge or commission
in connection with the purchase of shares of any mutual fund.
4) Officers, directors and full-time employees of Pilgrim America Capital
Corporation and its subsidiaries.
5) Certain fee based broker-dealers or registered representatives thereof
or registered investment advisers under certain circumstances making
investments on behalf of their clients.
6) Shareholders who have authorized the automatic transfer of dividends
from the same class of another open-end Pilgrim America Fund
distributed by the Distributor or from Pilgrim America Prime Rate
Trust.
7) Registered investment advisors, trust companies and bank trust
departments investing in Class A shares on their own behalf or on
behalf of their clients, provided that the aggregate amount invested in
the Fund or in any combination of shares of the Fund plus Class A
shares of certain other Participating Funds as described herein under
'Pilgrim America Purchase Options(Trademark)--Reduced Sales Charges',
during the 13 month period commencing with the first investment
pursuant hereto equals at least $1 million. The Distributor may pay
Authorized Dealers through which purchases are made an amount up to
0.50% of the amount invested, over a 12 month period following the
transaction.
8) Accounts as to which a bank or broker-dealer charges an account
management fee ('wrap accounts').
9) Broker-dealers, who have signed selling group agreements with the
Distributor, and registered representatives and employees of such
broker-dealers, for their own accounts or for members of their families
(defined as current spouse, children, parents, grandparents, uncles,
aunts, siblings, nephews, nieces, step relations, relations-at-law and
cousins).
10) Broker-dealers using third party administrators for qualified
retirement plans who have entered into an agreement with Pilgrim
America Funds or an affiliate, subject to certain operational and
minimum size requirements specified from time to time by the Pilgrim
America Funds.
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<PAGE>
The Fund may terminate or amend the terms of offering shares of the Fund at NAV
to these investors at any time. For additional information, contact the
Shareholder Servicing Agent at (800) 992-0180, or see the Statement of
Additional Information.
INCENTIVES. The Distributor, at its expense, will provide additional
promotional incentives to Authorized Dealers in connection with sales of shares
of the Fund and other open-end funds in the Pilgrim America Funds. In some
instances, additional compensation or promotional incentives will be offered to
Authorized Dealers that have sold or may sell significant amounts of shares.
Such compensation and incentives may include, but are not limited to, cash,
merchandise, trips and financial assistance in connection with pre-approved
conferences or seminars, sales or training programs for invited sales personnel,
payment for travel expenses (including meals and lodging) incurred by sales
personnel to various locations for such seminars or training programs, seminars
for the public, advertising and sales campaigns regarding the Fund or other
mutual funds in the Pilgrim America Group and/or other events sponsored by
Authorized Dealers.
In addition, the Distributor will, at its own expense, pay concessions in
addition to those described above to dealers that satisfy certain criteria
established from time to time by the Distributor. These conditions relate to
increasing sales of shares of the Fund over specified periods and to certain
other factors. These payments may, depending on the dealer's satisfaction of the
required conditions, be periodic and may be up to (1) 0.25% of the value of the
Fund's shares sold by the dealer during a particular period, and (2) 0.10% of
the value of the Fund's shares held by the dealer's customers for more than one
year, calculated on an annual basis.
RULE 12B-1 PLANS. The Fund has a distribution plan pursuant to Rule 12b-1 under
the 1940 Act applicable to each class of shares of the Fund ('Rule 12b-1 Plan').
Under the Rule 12b-1 Plan, the Distributor may receive from the Fund an annual
fee in connection with the offering, sale and shareholder servicing of Class A
and Class B shares at an annual rate of up to 0.35% and 1.00%, respectively, of
the average daily net assets of Class A and Class B shares of the Fund.
Currently, the Board of Directors has approved annual fees of 0.25% and 1.00%,
respectively, which are accrued daily and paid monthly. Of these amounts, fees
equal to an annual rate of 0.25% of the average daily net assets of the Fund are
for shareholder servicing for each of the classes. Fees paid under the Rule
12b-1 Plan may be used to cover the expenses of the Distributor from the sale of
Class A or Class B shares of the Fund, including payments to Authorized Dealers,
and for shareholder servicing. These fees may be used to pay the costs of the
following: payments to Authorized Dealers; promotional activities; preparation
and distribution of advertising materials and sales literature; expenses of
organizing and conducting sales seminars; personnel costs and overhead of the
Distributor; printing of prospectuses and statements of additional information
(and supplements thereto) and reports for other than existing shareholders;
supplemental payments to Authorized Dealers that provide shareholder services;
interest on accrued distribution expenses; and costs of administering the Rule
12b-1 Plan. With respect to the Fund's Class B shares, no more than 0.75% per
annum of the average net assets of Class B shares of the Fund may be used to
finance distribution expenses, exclusive of shareholder servicing payments. With
respect to Class A and Class B shares of the Fund, no Authorized Dealer may
receive shareholder servicing payments in excess of 0.25% per annum of the
Fund's average net assets held by the Authorized Dealer's clients or customers.
The Distributor will receive payment under the Rule 12b-1 Plans without regard
to actual distribution expenses that it incurs.
Under the Rule 12b-1 Plans, ongoing payments will be made on a quarterly basis
to Authorized Dealers for both distribution and shareholder servicing at the
annual rate of 0.25% of the Fund's average daily net assets of each of the Class
A and Class B shares that are registered in the name of that Authorized Dealer
as nominee or held in a shareholder account that designates that Authorized
Dealer as the dealer of record. Rights to these ongoing payments begin to accrue
in the 13th month following a purchase of Class A or B shares and they cease
upon exchange (or purchase) into Pilgrim America General Money Market Shares.
The payments are also subject to the continuation of the relevant distribution
plan, the terms of service agreements between dealers and the Distributor, and
any applicable limits imposed by the National Association of Securities Dealers,
Inc. The distribution and service fees for Class A shares acquired prior to the
Fund's conversion to an open-end investment company will be paid to the
Distributor.
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<PAGE>
OTHER EXPENSES. In addition to the management fee and other fees described
previously, the Fund pays other expenses, such as legal, audit, transfer agency
and custodian out-of-pocket fees, proxy solicitation costs, and the compensation
of Directors who are not affiliated with the Investment Manager. Most Fund
expenses are allocated proportionately among each of the classes of the Fund.
However, the Rule 12b-1 Plans' fees for each class of shares are charged
proportionately only to the outstanding shares of that class.
PURCHASING SHARES
Your Authorized Dealer can help you establish and maintain your account, and the
Shareholder Servicing Agent is available to assist you with any questions you
may have.
The Fund reserves the right to liquidate sufficient shares to recover annual
Transfer Agent fees should the investor fail to maintain his/her account value
at a minimum of $1,000.00 ($250.00 for Qualified Retirement Accounts).
<TABLE>
<CAPTION>
METHOD INITIAL INVESTMENT ADDITIONAL INVESTMENT
<S> <C> <C>
By contacting your The minimum initial investment in the Fund is The minimum for additional investment in the Fund
Authorized Dealer $1,000 ($250 for Qualified Retirement Accounts). is $100. Visit or consult your Authorized Dealer.
Visit or consult your Authorized Dealer.
By mail Make your check payable to Pilgrim America Funds Fill out the account additions form included on
and mail it, along with a completed New Account the bottom of your account statement along with
Application, to the address indicated on the New your check payable to the Fund and mail them in
Account Application. Please indicate an Authorized the envelope provided with the account statement.
Dealer on the application. Remember to write your account number on the
check.
By wire For first time orders, call the Pilgrim America Call the Pilgrim America Order Department at (800)
Order Department at (800) 336-3436 to obtain an 336-3436 to obtain a wire reference number. Give
account number and indicate an Authorized Dealer that number to your bank and have them wire the
on the account. Instruct your bank to wire funds funds in the same manner described under 'Initial
to the Fund in care of: Investment.'
Investors Fiduciary Trust Co.
ABA #101003621
Kansas City, MO
credit to:
Pilgrim America Bank and Thrift Fund, Inc.
A/C# 752-4854 for further credit to:
Shareholder A/C
# -----------------------------------------
(A/C # you received over the telephone)
Shareholder Name:
------------------------------------------
(Your Name Here)
After wiring funds you must complete the New
Account Application and send it to:
Pilgrim America Order Dept.
P.O. Box 419368
Kansas City, MO 64141-6368
</TABLE>
The Fund and the Distributor reserve the right to reject any purchase order. The
Investment Manager reserves the right to waive the minimum investment amounts.
Please note third party checks will not be accepted.
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<PAGE>
PRICE OF SHARES. Purchase, sale and exchange orders are effected at NAV for the
respective class of shares of the Fund, determined after the order is received
by the Transfer Agent or Distributor, plus any applicable sales charge (Public
Offering Price).
Purchases of each class of the Fund's shares are effected at the Fund's Public
Offering Price determined after a purchase order has been received in proper
form. A purchase order will be deemed to be in proper form when all of the
required steps set forth above under 'Purchase of Shares' have been completed.
In the case of an investment by wire, however, the order will be deemed to be in
proper form after the telephone notification and the federal funds wire have
been received. A shareholder who purchases by wire must submit an application
form in a timely fashion. If an order or payment by wire is received after the
close of the New York Stock Exchange, 4:00 p.m. Eastern Time (1:00 p.m., Pacific
Time), the shares will not be credited until the next business day.
You will receive a confirmation of each new transaction in your account, which
also will show you the number of Fund shares you own including the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Fund will not be issued
unless you request them in writing.
DETERMINATION OF NET ASSET VALUE. The NAV of each class of the Fund's shares
will be determined daily as of the close of trading on the New York Stock
Exchange (usually at 4:00 p.m. New York City time) on each day that it is open
for business. Each class' NAV represents that class' pro rata share of the
Fund's net assets as adjusted for any class specific expenses (such as fees
under a Rule 12b-1 plan), divided by that class' outstanding shares. In general,
the value of the Fund's assets is based on actual or estimated market value,
with special provisions for assets not having readily available market
quotations and short-term debt securities. The NAV per share of each class of
shares of the Fund will fluctuate in response to changes in market conditions
and other factors. Portfolio securities for which market quotations are readily
available are stated at market value. Short-term debt securities having a
maturity of 60 days or less are valued at amortized cost, unless the amortized
cost does not approximate market value. Securities prices may be obtained from
automated pricing services. In other cases, securities are valued at their fair
value as determined in good faith by the Board of Directors of the Fund,
although the actual calculations will be made by persons acting under the
supervision of the Board.
PRE-AUTHORIZED INVESTMENT PLAN. You may establish a pre-authorized investment
plan to purchase shares with automatic bank account debiting. For further
information on pre-authorized investment plans, see the New Account Application
or contact the Shareholder Servicing Agent at (800) 992-0180.
RETIREMENT PLANS. The Fund has available prototype qualified retirement plans
for both corporations and for self-employed individuals. It also has available
prototype IRA, Roth IRA and Simple IRA plans (for both individuals and
employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans
and Tax Sheltered Retirement Plans for employees of public educational
institutions and certain non-profit, tax-exempt organizations. Investors
Fiduciary Trust Company ('IFTC') acts as the custodian under these plans. For
further information, contact the Shareholder Servicing Agent at (800) 992-0180.
IFTC currently receives a $12.00 custodian fee annually for maintenance of such
accounts.
TELEPHONE ORDERS. The Fund and its Transfer Agent will not be responsible for
the authenticity of phone instructions or losses, if any, resulting from
unauthorized shareholder transactions if they reasonably believe that such
instructions were genuine. The Fund and its Transfer Agent have established
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include: (i) recording telephone instructions for
exchanges and expedited redemptions; (ii) requiring the caller to give certain
specific identifying information; and (iii) providing written confirmation to
shareholders of record not later than five days following any such telephone
transactions. If the Fund and its Transfer Agent do not employ these procedures,
they may be liable for any losses due to unauthorized
19
<PAGE>
or fraudulent telephone instructions. Telephone redemptions may be executed on
all accounts other than retirement accounts.
EXCHANGE PRIVILEGES AND RESTRICTIONS
An exchange privilege is available. Exchange requests may be made in writing to
the Transfer Agent or by calling the Shareholder Servicing Agent at (800)
992-0180. There is no specific limit on exchange frequency; however, the shares
in the Fund are intended for long term investment and not as a trading vehicle.
The Investment Manager reserves the right to prohibit excessive exchanges (more
than four per year). The Investment Manager reserves the right, upon 60 days'
prior notice, to restrict the frequency of, otherwise modify, or impose charges
of up to $5.00 upon exchanges. The total value of shares being exchanged must at
least equal the minimum investment requirement of the fund into which they are
being exchanged.
Shares of one class of the Fund may be exchanged for shares of that same class
of any other open-end Pilgrim America Fund other than Pilgrim America General
Money Market Shares ('Money Market'), at NAV without payment of any additional
sales charge. If you exchange and subsequently redeem your shares, any
applicable CDSC will be based on the full period of the share ownership. Shares
of the Fund that are not subject to a CDSC may be exchanged for shares of Money
Market, and shares of Money Market acquired in the exchange may subsequently be
exchanged for shares of any open-end Pilgrim America Fund of the same class as
the original shares acquired. Shares of the Fund that are subject to a CDSC may
be redeemed to purchase shares of Money Market upon payment of the CDSC.
Shareholders of the Fund at the time of the Fund's conversion from a closed-end
investment company to an open-end investment company who exchange their Class A
shares issued upon conversion at any time before October 17, 1998 shall be
subject to a 2% redemption fee payable to the Fund. The Fund reserves the right
to waive or reduce the redemption fee in whole or in part. Shareholders
exercising the exchange privilege with any of Pilgrim America Fund's other
open-end funds should carefully review the prospectus of that fund. Exchanges of
shares are sales and may result in a gain or loss for federal and state income
tax purposes. You will automatically be assigned the telephone exchange
privilege unless you mark the box on the New Account Application that signifies
that you do not wish to have this privilege. The exchange privilege is only
available in states where shares of the Fund being acquired may be legally sold.
SYSTEMATIC EXCHANGE PRIVILEGE. Subject to the information and limitations
outlined above, you may elect to have a specified dollar amount of shares
systematically exchanged monthly, quarterly, semi-annually or annually (on or
about the 10th of the applicable month), from your account to an identically
registered account in the same class of any other open-end Pilgrim America Fund.
The exchange privilege may be modified at any time or terminated upon 60 days'
written notice to shareholders.
20
<PAGE>
HOW TO REDEEM SHARES
Shares of the Fund will be redeemed at the NAV (less any applicable CDSC,
redemption fee, and/or federal income tax withholding) next determined after
receipt of a redemption request in good form on any day the New York Stock
Exchange is open for business.
<TABLE>
<CAPTION>
METHOD PROCEDURES
<S> <C>
Redemption By Contacting Your Authorized Dealers may communicate redemption orders by wire or telephone to
Authorized Dealer the Distributor. These firms may charge for their services in connection with
your redemption request, but neither the Fund nor the Distributor imposes any
such charge.
Redemption by Mail A written request for redemption must be received by the Transfer Agent in
order to constitute a valid tender. If certificated shares have been issued,
the certificate must accompany the written request. The Transfer Agent may
also require a signature guarantee by an eligible guarantor. It will also be
necessary for corporate investors and other associations to have an
appropriate certification on file authorizing redemptions by a corporation or
an association before a redemption request will be considered in proper form.
A suggested form of such certification is provided on the New Account
Application. If you are entitled to a CDSC waiver, you must complete the CDSC
waiver form in the New Account Application. To determine whether a signature
guarantee or other documentation is required, shareholders may call the
Shareholder Servicing Agent at (800) 992-0180.
Expedited Redemption The Expedited Redemption Privilege allows you to effect a liquidation from
your account via a telephone call and have the proceeds (maximum $100,000)
mailed to an address which has been on record with Pilgrim America for at
least 30 days. This privilege is automatically assigned to you unless you
check the box on the New Account Application which signifies that you do not
wish to utilize such option. The Expedited Redemption Privilege additionally
allows you to effect a liquidation from your account and have the proceeds
(minimum $5,000) wired to your pre-designated bank account. This aspect of the
Expedited Redemption privilege will NOT automatically be assigned to you. If
you want to take advantage of this aspect of the privilege, please check the
appropriate box and attach a voided check to the New Account Application.
Under normal circumstances, proceeds will be transmitted to your bank on the
second business day following receipt of your instructions, provided
redemptions may be made. To effect an Expedited Redemption, please call the
Shareholder Servicing Agent at (800) 992-0180. In the event that share
certificates have been issued, you may not request a wire redemption by
telephone or wire. This option also is not available for retirement accounts.
</TABLE>
SYSTEMATIC WITHDRAWAL PLAN. You may elect to have monthly, quarterly,
semi-annual or annual payments in any fixed amount in excess of $100 made to
yourself, or to anyone else you properly designate, as long as the account has a
current value of at least $10,000. During the withdrawal period, you may
purchase additional shares for deposit to your account if the additional
purchases are equal to at least one year's scheduled withdrawals, or $1,200,
whichever is greater. There are no separate charges to you under this Plan,
although a CDSC may apply. Shareholders of the Fund at the time of the Fund's
conversion to an open-end investment company may redeem the Class A shares
received upon the conversion through a Systematic Withdrawal Plan, but the
shares redeemed will be subject to a 2% redemption fee.
21
<PAGE>
The number of full and fractional shares equal in value to the amount of the
payment will be redeemed at NAV (less any applicable CDSC or redemption fee).
Such redemptions are normally processed on the fifth day prior to the end of the
month, quarter or year. Checks are then mailed or proceeds are forwarded to your
bank account on or about the first of the following month. Shareholders who
elect to have a systematic cash withdrawal must have all dividends and capital
gains reinvested. To establish a systematic cash withdrawal, please complete the
Systematic Withdrawal Plan section of the New Account Application. To have funds
deposited to your bank account, follow the instructions on the New Account
Application.
You may change the amount, frequency and payee, or terminate this plan by giving
written notice to the Transfer Agent. As shares of the Fund are redeemed under
the Plan, you may realize a capital gain or loss for income tax purposes. A
Systematic Withdrawal Plan may be modified at any time by the Fund or terminated
upon written notice by you or the Fund.
PAYMENTS. Payment to shareholders for shares redeemed or repurchased ordinarily
will be made within three days after receipt by the Transfer Agent of a written
request in good order. The Fund may delay the mailing of a redemption check
until the check used to purchase the shares being redeemed has cleared which may
take up to 15 days or more. To reduce such delay, all purchases should be made
by bank wire of federal funds. The Fund may suspend the right of redemption
under certain extraordinary circumstances in accordance with the Rules of the
Securities and Exchange Commission. Due to the relatively high cost of handling
small investments, the Fund reserves the right upon 30 days' written notice to
redeem, at NAV, the shares of any shareholder whose account (except for IRAs)
has a value of less than $1,000, other than as a result of a decline in the NAV
per share. The Fund intends to pay in cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, the Fund may make payment
wholly or partly in securities at their then current market value equal to the
redemption price. In such case, the Fund could elect to make payment in
securities for redemptions in excess of $250,000 or 1% of its net assets during
any 90-day period for any one shareholder. An investor may incur brokerage costs
in converting such securities to cash.
MANAGEMENT OF THE FUND
MANAGEMENT OF THE FUND. The Fund is a registered investment company that was
incorporated in Maryland in November, 1985 as a closed-end, diversified
management investment company. The Fund operated as a closed-end fund prior to
October 17, 1997. On October 16, 1997, shareholders approved open-ending the
Fund and since October 17, 1997, the Fund has operated as an open-end fund. The
Fund is governed by a Board of Directors, which oversees the operations of the
Fund. The majority of Directors are not affiliated with the Investment Manager.
INVESTMENT MANAGER. Pilgrim America Investments, Inc. ('PAII' or the
'Investment Manager') serves as Investment Manager. The Investment Manager is
responsible for managing the general day-to-day operations of the Fund including
selecting the Fund's investments and placing the Fund's portfolio transactions.
The Fund and the Investment Manager have entered into an agreement that requires
the Investment Manager to provide all investment advisory and portfolio
management services for the Fund. It also requires the Investment Manager to
assist in managing and supervising all aspects of the general day-to-day
business activities and operations of the Fund, including custodial, transfer
agency, dividend disbursing, accounting, auditing, compliance and related
services. The Investment Manager provides the Fund with office space, equipment
and personnel necessary to administer the Fund. The agreement with the
Investment Manager can be canceled by the Board of Directors of the Fund upon 60
days' written notice. Organized in December 1994, the Investment Manager is
registered as an investment adviser with the Securities and Exchange Commission.
The Investment Manager bears its expenses of providing the services described
above. The Fund pays the Investment Manager a fee at an annual rate based on a
percentage of average daily net assets. The fee is
22
<PAGE>
1.00% of the first $30,000,000 of average daily net assets, 0.75% of the next
$95,000,000 of average daily net assets, and 0.70% of average daily net assets
in excess of $125,000,000. These fees are computed and accrued daily and paid
monthly.
The Investment Manager and Pilgrim America Securities, Inc. ('Distributor'), the
Fund's principal underwriter, are wholly owned subsidiaries of Pilgrim America
Group, Inc. ('Shareholder Servicing Agent'), which is a wholly owned subsidiary
of Pilgrim America Capital Corporation (NASDAQ: PACC). Through its subsidiaries,
Pilgrim America Capital Corporation engages in the financial services business,
focusing on providing investment advisory, administrative and distribution
services to open-end and closed-end investment companies and private accounts.
INVESTMENT PERSONNEL. Carl Dorf, C.F.A., Senior Vice President and Senior
Portfolio Manager of the Fund, has been managing the Fund's portfolio since
January 1991, when he joined the Investment Manager's predecessor. Mr. Dorf is
also a Senior Vice President of the Investment Manager. Prior to his joining the
Investment Manager's predecessor, he was a principal of Dorf & Associates
Investment Counsel. His 30 plus years of portfolio management and research
experience include positions with Moody's Investors Service, Inc. as an analyst
in the Banking & Finance Department; with Nuveen Corp. as a financial securities
analyst; with Loews Corp. as a fund manager with responsibility for $150 to $250
million in utility and financial stocks; with BA Investment Management Corp. as
a senior stock analyst; and with RNC Capital Management as manager of 150
individual, pension, and profit-sharing accounts. A Chartered Financial Analyst,
Mr. Dorf earned both BBA/Finance and Investments and MBA/Finance and Investments
degrees from the Bernard Baruch School of Business and Public Administration,
The City College of New York.
SHAREHOLDER SERVICING AGENT. Pilgrim America Group, Inc. serves as Shareholder
Servicing Agent for the Fund. The Shareholder Servicing Agent is responsible for
responding to written and telephonic inquiries from shareholders. The Fund pays
the Shareholder Servicing Agent a monthly fee on a per-contact basis, based upon
incoming and outgoing telephonic and written correspondence.
PORTFOLIO TRANSACTIONS. The Investment Manager places orders to execute the
securities transactions that are designed to implement the Fund's investment
objectives and policies. The Investment Manager uses its reasonable efforts to
place all purchase and sale transactions with brokers, dealers and banks
('brokers') that provide 'best execution' of these orders. In placing purchase
and sale transactions, the Investment Manager may consider brokerage and
research services provided by a broker to the Investment Manager, and the Fund
may pay a commission for effecting a securities transaction that is in excess of
the amount another broker would have charged if the Investment Manager
determines in good faith that the amount of commission is reasonable in relation
to the value of the brokerage and research services provided by the broker. In
addition, the Investment Manager may place securities transactions with brokers
that provide certain services to the Fund. The Investment Manager also may
consider a broker's sale of Fund shares if the Investment Manager is satisfied
that the Fund would receive best execution of the transaction from that broker.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS. Dividends and distributions from net investment
income and capital gains, if any, will be determined on a class basis for the
Fund and paid at least annually.
Any dividends and distributions paid by the Fund will be automatically
reinvested in additional shares of the respective class of the Fund, unless you
elect to receive distributions in cash. When a dividend or distribution is paid,
the NAV per share is reduced by the amount of the payment.
You may, upon written request or by completing the appropriate section of the
New Account Application in this Prospectus, elect to have all dividends and
other distributions paid on a Class A or B account in the Fund invested into
another Pilgrim America Fund which offers Class A or B shares. Both accounts
must be
23
<PAGE>
of the same class. If you are a shareholder of Pilgrim America Prime Rate Trust,
whose shares are not held in a broker or nominee account, you may, upon written
request, elect to have all dividends invested into a pre-existing Class A
account of any open-end Pilgrim America Fund. Distributions are invested into
the selected funds at the net asset value as of the payable date of the
distribution only if shares of such selected funds have been registered for sale
in the investor's state.
FEDERAL TAXES. The Fund intends to operate as a 'regulated investment company'
under the Internal Revenue Code. To qualify, the Fund must meet certain income,
asset diversification and distribution requirements. In any fiscal year in which
the Fund so qualifies and distributes to shareholders all of its taxable income,
the Fund itself is relieved of federal income tax.
Dividends paid out of the Fund's investment company taxable income (including
dividends, interest and short-term capital gains) will be taxable to a U.S.
shareholder as ordinary income. If a portion of the Fund's income consists of
dividends paid by U.S. corporations, a portion of the dividends paid by the Fund
may be eligible for the corporate dividends-received deduction. Distributions of
net capital gains (the excess of net long-term capital gains over net short-term
capital losses), if any, designated as capital gain dividends will be taxable as
long-term capital gains, regardless of how long the shareholder has held the
Fund's shares, but the rate of tax will depend on the Fund's holding period for
the assets whose sale results in the gain.
All dividends and capital gains are taxable whether they are reinvested or
received in cash, unless you are exempt from taxation or entitled to tax
deferral. Early each year, you will be notified as to the amount and federal tax
status of all dividends and capital gains paid during the prior year. Such
dividends and capital gains may also be subject to state or local taxes.
Dividends declared in October, November, or December with a record date in such
month and paid during the following January will be treated as having been paid
by the Fund and received by shareholders on December 31 of the calendar year in
which declared, rather than the calendar year in which the dividends are
actually received.
Upon the sale or other disposition of shares of the Fund, a shareholder may
realize a gain or loss which will be a capital gain or loss if the shares are
held as a capital asset and, if so, may be eligible for reduced federal tax
rates, depending on the shareholder's holding period for the shares.
If you have not furnished a certified correct taxpayer identification number
(generally your Social Security number) and have not certified that withholding
does not apply, or if the Internal Revenue Service has notified the Fund that
the taxpayer identification number listed on your account is incorrect according
to their records or that you are subject to backup withholding, federal law
generally requires the Fund to withhold 31% from any dividends and/or
redemptions (including exchange redemptions). Amounts withheld are applied to
your federal tax liability; a refund may be obtained from the Service if
withholding results in overpayment of taxes. Federal law also requires the Fund
to withhold 30% or the applicable tax treaty rate from ordinary dividends paid
to certain nonresident alien, non-U.S. partnership and non-U.S. corporation
shareholder accounts.
This is a brief summary of some of the tax laws that affect your investment in
the Fund. Please see the Statement of Additional Information and your tax
adviser for further information.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise its average annual total return over
various periods of time. These total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for one, five and ten year periods (if applicable) and may
be given for other periods as well (such as from commencement of the Fund's
24
<PAGE>
operations, or on a year-by-year basis). Total returns and current yield are
based on past results and are not necessarily a prediction of future
performance.
ADDITIONAL PERFORMANCE QUOTATIONS. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.
ADDITIONAL INFORMATION
MORE ABOUT THE FUND. The Fund's Articles of Incorporation permit the Directors
to authorize the creation of additional series, each of which may issue separate
classes of shares. The Fund may be terminated and liquidated under certain
circumstances.
VOTING RIGHTS. Shareholders have certain voting rights. Each share of the Fund
is given one vote. Matters to be acted upon that affect the Fund as a whole,
including approval of a new investment advisory agreement and changes in the
Fund's fundamental policies, will require the affirmative vote of the
shareholders of the Fund. Matters affecting a certain class of shares of the
Fund will only be voted on by shareholders of that particular class. As a
Maryland corporation, the Fund is not required to hold annual shareholder
meetings, although special shareholder meetings may be held from time to time.
25
<PAGE>
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26
<PAGE>
Pilgrim America Funds
NEW ACCOUNT APPLICATION
SEND COMPLETED APPLICATION TO: PILGRIM AMERICA FUNDS, P.O. BOX 419368, KANSAS
CITY, MISSOURI 64141-6368
SECTIONS 1 THROUGH 6 MUST BE COMPLETED FOR YOUR ACCOUNT TO BE ESTABLISHED.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
TYPE OF ACCOUNT
(Check one only)
/ / INDIVIDUAL
- ----------------- -------------- ---------------- ------------------------
First Name Middle Initial Last Name Social Security Number*
(first individual only)
/ / JOINT TENANT
- ----------------- -------------- --------------------------------------------
Joint Tenant's Middle Initial Last Name
First Name
/ / GIFT/TRANSFER TO MINOR
- ----------------------------------------------- -------------------------------
Custodian's Name (one only) Minor's Name (one only)
- ----------------------------------------------- -------------------------------
Under Uniform Gift/Transfers to Minor's Social Security Number*
Minors Act of (State)
/ / GUARDIANSHIP/CONSERVATORSHIP
- ------------------------ ------------------------ --------------------------
Guardian/Conservator Ward/Incompetent or Ward/Incompetent or
Minor's Name (one only) Minor's Social Security
Number*
/ / CORPORATION, PARTNERSHIP, TRUST OR OTHER ORGANIZATION
- ---------------------------------------------- -------------------------------
Exact Name of Corporation, Partnership or Taxpayer Identification Number*
other Organization
- --------------------------------------------------------------------------------
Trustee Accounts Only: Name of all Trustees required by trust agreement to
sell/purchase shares
- --------------------- ---------------------- -----------------------------
Date of Trust Name of Trust Taxpayer Identification
Agreement Number*
/ / OTHER
- --------------------------------------------------------------------------------
* Pilgrim America Funds reserve the right to reject any application which does
not include a certified Social Security Number or Taxpayer Identification
Number ('TIN'), or does not indicate that such number has been applied for by
checking the 'Awaiting TIN' box on page 29.
- --------------------------------------------------------------------------------
2. MAILING ADDRESS
- ---------------------------------- -------- ------ ----- ----------
Street Address Apartment City State Zip Code
Number
( ) ( )
- ------------------- -----------------------
Business Phone Home Phone
27
<PAGE>
- --------------------------------------------------------------------------------
3. INVESTMENT INFORMATION
PLEASE INDICATE DOLLAR AMOUNT AND FUND IN SPACES PROVIDED. $1,000 MINIMUM FOR
EACH FUND. IF MORE THAN ONE FUND IS SELECTED, ACCOUNT MUST HAVE IDENTICAL
REGISTRATIONS, CLASS OF SHARES AND OPTIONS. IF NO CLASS OF SHARES IS SELECTED,
CLASS A SHARES WILL BE AUTOMATICALLY SELECTED.
CLASS OF SHARES (CHECK
FUND NAME AMOUNT ONE)*
1. $ A / / B / / M / /
------------------------------- -------
2. $ A / / B / / M / /
------------------------------- -------
3. $ A / / B / / M / /
------------------------------- -------
4. $ A / / B / / M / /
------------------------------- -------
5. $ A / / B / / M / /
------------------------------- -------
6. $ A / / B / / M / /
------------------------------- -------
/ / A check payable to the Pilgrim America Funds is included for $ .
----------
/ / Payment has been made by Dealer purchase on
------------
(Date)
$
------------ ------------------------------------------------
(Amount) (Order Number)
/ / Payment has been made by Federal funds wire on
--------------- -------
(Reference No.) (Date)
$
------------------ ---------------
(Account No.) (Amount)
* Pilgrim America Bank and Thrift Fund, Inc. does not offer Class M shares.
- --------------------------------------------------------------------------------
4. DIVIDEND AND DISTRIBUTION OPTIONS
(Check one only) -- If no option is selected, all distributions will be
reinvested.
/ / Reinvest all dividends and capital gains.
/ / Reinvest all dividends and capital gains into an existing account in
another Pilgrim America Fund using the Dividend Transfer Option.
-------------------------------------- ----------------------------------
Fund Name Account Number
/ / Pay all dividends and reinvest I request the payable distributions
capital gains. be: (Check one.)
/ / Pay all capital gains in cash and
reinvest dividends. / / Sent to the address in Section 2.
/ / Pay all dividends and capital / / Directly deposited in my bank
gains. account. (Please attach a voided
check to Section 6). If voided
(IF ANY PAY OPTION IS SELECTED, check is not enclosed, will
COMPLETE INFORMATION AT RIGHT) be sent to address in Section 2.
/ / Sent to a special payee listed in
Section 9.
- --------------------------------------------------------------------------------
5. AUTHORIZED DEALER INFORMATION
- ----------------------------------- ---------------------------------------
Authorized Dealer Name Registered Representative's Name
- ----------------------------------- ---------------------------------------
Branch Office Address Branch # Registered Representative's Number
- ----------------------------------- -------------------- ---------------
City State Zip Code
- ----------------------------------- ---------------------------------------
Registered Representative's Phone Authorized Signature of Authorized
Dealer
28
<PAGE>
- --------------------------------------------------------------------------------
6. SIGNATURES
I have read the prospectus and application for the Fund in which I am investing
and agree to its terms. I am also aware that Telephone Exchange and Redemption
Privileges exist and that these privileges are automatically available unless
affirmatively declined. I also understand that if Pilgrim America, the Fund, the
Transfer Agent or the Sub-Transfer Agent fail to follow the procedures outlined
in the prospectus and in the Telephone Transaction Authorization hereto, such
entity may be liable for losses due to unauthorized or fraudulent instructions.
I further understand that I must carefully review each account confirmation
statement or other documentation of transactions that I receive to ensure that
my instructions have been properly acted upon. If any discrepancies are noted, I
agree to notify Pilgrim America, the Fund, the Transfer Agent or the
Sub-Transfer Agent in a timely manner, but in no event more than 15 days from
receipt of such confirmation statement or documentation of transaction. Failure
to notify one of the above entities on a timely basis will relieve such entities
of any liability with respect to the transaction and any discrepancy. See the
Exchange Privileges and Restrictions and How to Redeem Shares sections in the
Prospectus for procedures. I am of legal age. Sign below exactly as printed in
Section 1. For joint registration, all must sign.
ATTACH VOIDED CHECK HERE [PICTURE OF A RIGHT ARROW]
(IF APPROPRIATE)
For Corporations, Trusts, or Partnerships: We hereby certify that each of the
persons listed below has been duly elected, and is now legally holding the
offices set forth opposite his/her name and has the authority to make this
authorization. Please print titles below if signing on behalf of a business or
trust to establish this account.
CERTIFICATION: UNDER PENALTIES OF PERJURY, I/WE CERTIFY THAT:
I am not subject to backup withholding because I have not been notified by the
IRS that I am subject to backup withholding as a result of a failure to report
all interest or dividends or because the IRS has notified me that I am no longer
subject to backup withholding (if you are currently subject to backup
withholding as a result of a failure to report all interest or dividends, please
cross out the preceding statement), AND (CHECK AS APPROPRIATE):
/ / The number shown above is my correct TIN, or that of the minor named in
section 1.
/ / Awaiting TIN. I have not previously been issued a TIN, have applied for one
or intend to apply for one in the near future, and am waiting for a number
to be issued to me. I understand that if I do not provide a certified TIN to
Pilgrim America within 60 days, Pilgrim America is required to commence 31%
backup withholding until I provide a certified TIN and may be required
immediately to impose 31% backup withholding on certain withdrawals from my
account until I provide a certified TIN.
/ / Exempt Payee. The account owner is an exempt payee. Individuals cannot be
exempt. Check this box only after reading the instructions on page 39 to see
whether the account owner is an exempt payee. (You must still provide a
TIN.)
Permanent address for tax purposes: ---------- ------- ----- ------- -------
Street City State Country Postal
Address Code
NOTE: THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISIONS OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID
BACKUP WITHHOLDING.
- ------------------------------------ ---------------------------------------
Signature Date President, Trustee, General Partner
or Title
- ------------------------------------ ---------------------------------------
Signature Date Co-owner, Secretary of Corporation,
Co-Trustee, etc.
CHECK THE APPROPRIATE BOXES BELOW AND PROVIDE THE REQUESTED INFORMATION
/ / I am a United States Citizen.
/ / I am a non-resident alien* (a Form W-8 will be provided to you by Pilgrim
America. Please complete it as requested as soon as possible).
/ / I am a resident alien and a social security number has been supplied on page
one of this New Account application (a Form 1078 will be provided to you by
Pilgrim America. Please complete it and return it as requested).
/ / If not a United States Citizen, please indicate what country you are a
permanent tax resident of:
----------------------------------------------------------------------------
* If the Pilgrim America account will be registered in joint registration with
another individual or individuals, each non-resident alien must complete and
return a Form W-8.
- --------------------------------------------------------------------------------
29
<PAGE>
7. PURCHASE OPTIONS
REDUCED SALES CHARGE
/ / I qualify for a Reduced Sales Charge with the account(s) listed below.
Included are the account numbers of all classes of shares of Pilgrim
America Funds that I or my immediate family (spouse and children under
age 21) already own.
- ------------------------------------ ---------------------------------------
Fund Name Account Number
- ------------------------------------ ---------------------------------------
Fund Name Account Number
- ------------------------------------ ---------------------------------------
Fund Name Account Number
- --------------------------------------------------------------------------------
LETTER OF INTENT (Check one only)
/ / I wish to establish a new Letter of Intent. (If Reduced Sales Charge or
90-day backdate privilege is applicable, provide the amount and
account(s) information below.) I agree to the terms of the Letter of
Intent as set forth in the Prospectus and Statement of Additional
Information, and grant Pilgrim America Securities, Inc. a security
interest in the escrowed shares as set forth in the Statement of
Additional Information. I understand that I am not obligated to invest
an aggregate amount equal to the amount checked below, but if I do not,
Pilgrim America Securities, Inc. may deduct the amount of any sales
charge owed from the escrowed shares.
/ / Please apply this purchase to an existing Letter of Intent with the
account(s) listed below.
/ / Please amend my existing Letter of Intent with the new amount indicated
below.
If establishing a Letter of Intent, you will need to purchase over a
thirteen-month period in accordance with the provisions of the Prospectus
and Statement of Additional Information. The aggregate amount of these
purchases will be at least equal to the amount listed below:
/ / $50,000 / / $100,000 / / $250,000 / / $500,000 / / $1,000,000
- ------------------------------------ ---------------------------------------
Fund Name Account Number
- ------------------------------------ ---------------------------------------
Fund Name Account Number
- --------------------------------------------------------------------------------
PRE-AUTHORIZED INVESTMENT PLAN -- AUTOMATIC INVESTING
/ / I wish to invest on a monthly, quarterly, semi-annual or annual basis,
directly from my checking account into the following fund(s).
(PLEASE COMPLETE THE PRE-AUTHORIZED INVESTMENT PLAN AGREEMENT HEREIN AND
ATTACH A VOIDED CHECK TO SECTION 6.)
- -------------------- ---------------------- ------------------------------
Fund Name Fund Name Fund Name
Amount $ , to start / / 5th or / / 20th of ,
------------ ------- --------------
Minimum $100 Month Year
/ / monthly / / quarterly / / semi-annually / / annually
- --------------------------------------------------------------------------------
SPECIAL PURCHASE WITHOUT A SALES CHARGE
/ / I (We) declare that the investment referenced herein is exempt from the
imposition of the normal front-end sales charge for the reason(s) listed
below (please refer to the 'Special Purchases Without a Sales Charge'
section of the prospectus):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This privilege will only be granted upon confirmation of your entitlement.
- --------------------------------------------------------------------------------
8. ADDITIONAL OPTIONS
TELEPHONE EXCHANGE PRIVILEGE -- IF ACCEPTED, ACCOUNTS MUST HAVE THE SAME
ACCOUNT INFORMATION, OPTIONS AND CLASS OF SHARES. UNLESS YOU DECLINE THIS
PRIVILEGE BY CHECKING THE BOX BELOW, YOU WILL AUTOMATICALLY BE ASSIGNED IT.*
/ / I decline telephone exchange, and do not want this privilege. (See
Exchange Privileges and Restrictions section for procedures.)
- --------------------------------------------------------------------------------
30
<PAGE>
EXPEDITED REDEMPTION PRIVILEGE -- AVAILABLE ON ALL NON-RETIREMENT ACCOUNTS.
UNLESS YOU DECLINE THIS PRIVILEGE, YOU WILL AUTOMATICALLY BE ASSIGNED THE
ABILITY TO REQUEST, VIA THE TELEPHONE, REDEMPTION PROCEEDS TO BE SENT TO THE
ADDRESS IN SECTION 2.*
/ / I wish to redeem shares by telephone and request that the proceeds be
directly deposited into my bank account. (Please attach a voided check
to Section 6.) (If voided check is not enclosed, proceeds will be sent
to address in Section 2.)
/ / I decline telephone redemption, and do not want this privilege.
See Expedited Redemption section for procedures.
* Pilgrim America is authorized to act upon instructions received from you or
anyone other than yourself representing himself as acting as your
representative who can provide personal identification information as it
appears in Pilgrim America's records.
Pilgrim America will employ reasonable procedures to confirm that instructions
communicated over the telephone are genuine. The Funds and their agents will
not be liable for any loss, injury, damage, or expense incurred as a result of
instructions communicated by telephone reasonably believed to be genuine. By
accepting this privilege, you agree to hold the Funds and their agents
harmless from any loss, claims, or liability arising from their compliance
with such instructions. Telephone exchange and expedited redemption privileges
are subject to the terms and conditions set forth in each Fund's Prospectus
and Statement of Additional Information.
- --------------------------------------------------------------------------------
SYSTEMATIC EXCHANGE PRIVILEGE
/ /I have at least $5,000 in my Pilgrim America________________Fund account,
for which no certificates have been issued and I would like to exchange:
$ (min. of $50) into the Fund, Account #
-------- ---------------- ---------
$ (min. of $50) into the Fund, Account #
-------- ---------------- ---------
$ (min. of $50) into the Fund, Account #
-------- ---------------- ---------
on a / / monthly or / / quarterly basis starting in the month of
-----------
(Systematic Exchange Privilege is only available within the same Class of
Shares)
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (SWP)
(Minimum account balance for a SWP is $10,000.)
(Class B SWP's are processed free of contingent deferred sales charge if 12%
or less of account value is redeemed on an annual basis.)
/ / I wish to automatically withdraw $ from this account.
----------------
Minimum $100
/ / Monthly / / Quarterly / / Semi-Annually / / Annually
I request this distribution be: (Check One)
/ / Sent to the address listed in Section 2. To begin of .
---------- --------
(Withdrawal will occur about 5 business days prior to the end of the
month.)
/ / Sent to the payee listed in Section 9. To begin of .
---------- --------
(Withdrawal will occur about 5 business days prior to the end of the
month.)
/ / Directly deposited in my bank account. (Please attach a voided check to
Section 6.)
To begin of .
---------- --------
(Withdrawal will occur about 5 business days prior to the end of
the month.)
- --------------------------------------------------------------------------------
9. INTERESTED PARTY MAIL/DIVIDEND MAIL
/ / I wish to have my distributions sent to the address listed below.
/ / I wish to have duplicate confirmation statements sent to the interested
party listed below.
----------------------------------------------------------------------------
Name of Individual
----------------------------------------------------------------------------
Street Address
-------------------- ------------------------------------- -------------
City State Zip Code
- --------------------------------------------------------------------------------
THIS APPLICATION IS NOT A PART OF THE PROSPECTUS.
31
<PAGE>
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32
<PAGE>
AUTHORIZED DEALER AGREEMENT
Under these plans, the Authorized Dealer signing the application acts as
principal in all purchases of Fund shares and appoints Pilgrim America as its
agent to execute the purchases and to confirm each purchase to the Investor.
Pilgrim America remits semi-monthly to the Authorized Dealer the amount of its
commissions. The Authorized Dealer hereby guarantees the genuineness of the
signature(s) on the application and represents that he is a duly licensed
Authorized Dealer and may lawfully sell Fund shares in the state designated by
the Investor's mailing address, and that he has entered into a Selling Group
Agreement with the Distributor with respect to the sale of fund shares. The
Authorized Dealer signature on the Application signifies acceptance of the
concession terms, and acceptance of responsibility for obtaining additional
sales charges if specified purchases are not completed.
Cut on perforated line
-------------------------------------------------------------------------------
DETACH HERE AND RETURN THIS TO YOUR BANK IF YOU ARE
ESTABLISHING A PRE-AUTHORIZED INVESTMENT PLAN
(AUTHORIZATION TO HONOR CHECKS OR DEBIT INSTRUCTIONS DRAWN BY DST SYSTEMS, INC.,
ON BEHALF OF THE PILGRIM AMERICA FUNDS, FOR AUTOMATIC PURCHASE PLAN)
PRE-AUTHORIZED INVESTMENT PLAN AGREEMENT
As a convenience, I (we) hereby request and authorize you to pay and charge
to my (our) account checks or debit instructions drawn on my (our) account by
DST Systems, Inc., the Fund's Agent and payable to the order of the Fund
provided there are sufficient collected funds in said account to pay the same
upon presentation: I (we) agree that your rights with respect to each such check
or debit instruction shall be the same as if it were a check or debit
instructions drawn on you and signed personally by me (us). This authority is to
remain in effect until revoked in writing and until you actually receive such
notice. I (we) agree that you shall be fully protected in honoring any such
checks or debit instructions.
I (we) further agree that if any such check or debit instruction is
dishonored, whether with or without cause and whether intentionally or
inadvertently, you shall be under no liability whatsoever.
Signature(s) of Depositor(s) (signed exactly as shown on bank records)
X
-------------------------------------------------------------------------------
X
-------------------------------------------------------------------------------
19
- ------------------------------------------------------------------------- ----
Date Signed
(PLEASE PRINT)
Name of Depositor (as shown on bank records)
------------------------------------
Bank Account Number
-------------------------------------------------------------
Name of Bank
--------------------------------------------------------------------
Address of Bank
-----------------------------------------------------------------
City/State/Zip of Bank
----------------------------------------------------------
33
<PAGE>
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34
<PAGE>
Pilgrim America Funds
INSTRUCTIONS FOR COMPLETING THE NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
This New Account Application can be used to open a new Pilgrim America Account,
establish Shareholder privileges on existing accounts and be used in providing
documentation for certain transactions. The completed Application should be
forwarded along with your investment check payable to the Pilgrim America Group,
or other appropriate documentation to: PILGRIM AMERICA FUNDS, P.O. BOX 419368,
KANSAS CITY, MISSOURI 64141-6368.
This New Account Application may not be used to open a qualified retirement plan
account for which Investors Fiduciary Trust Company acts as custodian.
1 ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
Check the appropriate box and provide the information requested. Unless
specified, accounts with more than one owner will be assumed to be 'Joint
Tenants With Rights of Survivorship'.
All investors must sign the Account Application, and authorize the requested
privileges.
For a child who is under the age of majority in your state of residence,
'Gift/transfer to minor' registration must be utilized.
2 MAILING ADDRESS
- --------------------------------------------------------------------------------
This is the address of record for your account. All account confirmation
statements will be forwarded to this address.
3 INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
State the fund(s) in which you are investing and the dollar amount of the
investment. (Minimum initial investment is $1,000).
4 DIVIDEND AND DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
Pilgrim America offers several options for the treatment of dividends and
capital gains distributions, if any, from your Pilgrim America investment.
You can have these payments distributed to you, or any other recipient you
choose, in cash; in additional shares of the Fund which is paying the
distribution or; in shares of another Pilgrim America Fund, at NAV without sales
charge, via the Dividends Transfer Option. The Dividend Transfer Option is
available only for open-end funds within Pilgrim America Funds.
5 AUTHORIZED DEALER INFORMATION
- --------------------------------------------------------------------------------
Your financial professional can complete this section.
6 SIGNATURES
- --------------------------------------------------------------------------------
All investors and authorized signers should sign in order to process the New
Account Application and to certify your Social Security, Tax Identification
Number or if applicable, your foreign status.
35
<PAGE>
7 PILGRIM AMERICA PURCHASE OPTIONS(TRADEMARK)
- --------------------------------------------------------------------------------
You can qualify for reduced sales charges via the Letter of Intent or Rights of
Accumulation privileges.
The Letter of Intent allows you to qualify for reduced sales charges
immediately.
Rights of Accumulation allow you to use the total of all of your Pilgrim America
open-end fund investments in determining the sales charge of a current
investment.
The Pre-Authorized Investment Plan provides a systematic method of investing
periodically in the Pilgrim America Fund(s) of your choice. Minimum investments
of at least $100 can be automatically debited from your bank account
periodically for investment purposes.
8 ADDITIONAL OPTIONS
- --------------------------------------------------------------------------------
The Telephone Exchange privilege will automatically be assigned to you unless
you check the box in Section 8 which states that you do not wish to have this
privilege.
The Expedited Redemption privilege allows you to effect a liquidation from your
account via a telephone call and have the proceeds (Maximum of $100,000) mailed
to your address of record. This privilege is automatically assigned to you
unless you check the box in this section which states you do not want to take
advantage of this privilege.
The Expedited Redemption privilege additionally allows you to effect a
liquidation from your account and have the proceeds (minimum $5,000) wired to
your pre-designated bank account. This privilege is NOT automatically assigned
to you. If you want to take advantage of this privilege, please check the
appropriate box and attach a voided check to Section 6 of the New Account
Application.
The Systematic Exchange Privilege allows you to automatically exchange shares of
one fund for shares of the same class of another fund in regular pre-determined
amounts and at regular pre-determined intervals.
The Systematic Withdrawal Plan allows you to automatically have a specific share
or dollar amount ($100 minimum) liquidated from your account monthly, quarterly,
semi-annually, or annually and forwarded to you or the payee of your choosing as
long as the account has a current value of at least $10,000. Amounts designated
for deposit to your bank account can be forwarded via the Automated Clearing
House system by attaching a voided check for such basic account to Section 6 of
the New Account Application.
9 INTERESTED PARTY MAIL/DIVIDEND MAIL
- --------------------------------------------------------------------------------
You may authorize an additional party to receive copies of your confirmation
statements (your Authorized Dealer will automatically receive such copies). If
you wish to have additional copies of your confirmation statements mailed to an
address other than your address of record, check the appropriate box in Section
9 and indicate such address.
You may have your cash dividend payments forwarded to an address other than your
address of record by so indicating in Section 9. (If you wish your cash
dividends to be forwarded to a bank for deposit to an account, refer to Section
4 of the New Account Application).
36
<PAGE>
PILGRIM AMERICA FUNDS CLASS A AND B
CONTINGENT DEFERRED SALES CHARGE WAIVER FORM
(TO BE COMPLETED ONLY IF THE UNDERSIGNED BELIEVES THAT HE IS ENTITLED
TO A WAIVER OF THE CONTINGENT DEFERRED SALES CHARGE.)
If you believe you are entitled to a waiver of the Contingent Deferred
Sales Charge in accordance with the terms set forth in the prospectus, you must
complete this Contingent Deferred Sales Charge Waiver Form and send it the
Fund's Transfer Agent at its address given below. The waiver will only be
granted upon confirmation of your entitlement.
Check the item below which the undersigned is relying upon for a waiver of
the Contingent Deferred Sales Charge and send any required documents specified
therein:
/ / Redemption is made upon the death or permanent disability of
shareholder. (Enclose either a certified death certificate or
certification of permanent disability (see below), whichever is
appropriate).
/ / Redemption is made in connection with mandatory distributions (upon
attainment of age 70 1/2) from an IRA or other qualified retirement
plan. (Enclose a certified birth certificate. Please contact Pilgrim
America for a Distribution Request Form for IRA or other qualified
retirement plan accounts where IFTC acts as custodian which must
accompany this Contingent Deferred Sales Charge Waiver Form).
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
Signature
--------------------------------------------------------------
(Exactly as on Account Registration)
DATE
-------------------------------------------------------------------
Name(s)
----------------------------------------------------------------
------------------------------------------------------------------------
(Please Print)
MAIL THE COMPLETED WAIVER FORM TO:
PILGRIM AMERICA FUNDS, P.O. BOX 419368, KANSAS CITY, MO 64141-6368
DEFINITION OF DISABILITY
An individual will be considered disabled if he meets the definition
thereof in Section 72(m)(7) of the Internal Revenue Code, which in pertinent
part defines a person as disabled if such peron is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or to be of long
continued and indefinite duration.
CERTIFICATION OF DISABILITY
I _____________________________________ certify that I am a licensed physician
Licensed Physician Name
in the State of _______________________________________________________________,
License # ____________ and that _________________ is under my care and is unable
to perform the material duties of his or her regular occupation or employment;
or is unable to engage in any substantial gainful activity by reason of a
physical or mental impairment which may result in death or be of continued and
indefinite duration. Date of determination of disability _______________________
Physician Signature Date
----------------------- ------------------------------
37
<PAGE>
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38
<PAGE>
IMPORTANT INFORMATION REGARDING COMPLETION OF THE APPLICATION
Effective in 1989, the Fund, and other payers, must, according to IRS
regulations, withhold 31% of reportable dividends (whether paid or accrued) and
redemption payments if a shareholder fails to provide a taxpayer identification
number, and a certification that he is not subject to backup withholding in the
SIGNATURES section of the Account Application form.
(Section references are to the Internal Revenue Code, as amended).
BACKUP WITHHOLDING
You are subject to backup withholding if:
(1) You fail to furnish your taxpayer identification number to the Fund in
the manner required, OR
(2) The Internal Revenue Service notifies the Fund that you furnished an
incorrect taxpayer identification number, OR
(3) You are notified that you are subject to backup withholding under section
3406(a)(1)(C), OR
(4) For an interest or dividend account opened after December 31, 1983, you
fail to certify to the payer that you are not subject to backup withholding
under (3) above, or fail to certify your taxpayer identification number.
For payments other than interest or dividends, you are subject to backup
withholding only if (1) or (2) above applies.
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS 5, application for a Social Security Number Card, or Form
SS 4, application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number. Write 'applied for' in the space provided for a taxpayer identification
number on the application and check the 'Awaiting TIN' box in the SIGNATURES
section of this application.
WHAT NUMBER TO GIVE
Give the social security number or employer identification number of the record
owner of the account. If the account belongs to you as an individual, give your
social security number. If the account is in more than one name or is not in the
name of the actual owner, see the chart below for guidelines on which number to
report in completing the account registration section:
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Certain payees are specifically exempted from backup withholding on ALL
payments. Check the 'Exempt Payee' box in the Signature section if your account
falls into one of the following categories. We will still need your taxpayer
identification number.
o A corporation
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan.
o A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a non exempt trust described in
section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of 1940.
Payments of DIVIDENDS not generally subject to backup withholding include the
following:
o Payments to nonresident aliens subject to withholding under section 1441.
o Payments to partnerships NOT engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Beginning January 1, 1984, payers
must generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
- ------------------------------- -------------------------
GUIDELINES FOR DETERMINING GIVE THE
PROPER NUMBER SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ------------------------------- -------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person(1)
4. Custodian account to a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor The adult or if the minor
is the only contributor,
the minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for incompetent person(3)
a designated ward, minor
or incompetent person
7. a. The usual revocable The grantor-trustee(5)
savings trust account
(grantor is also
trustee)
b. So called trust
account that is not a The actual owner(1)
legal or valid trust
under state law
8. Sole proprietorship The owner(1)
account
- ------------------------------- -------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- ------------------------------- -------------------------
9. A valid trust, estate or Legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated
in the account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held The partnership
in the name of the
business
13. Association, club or The organization
other tax exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of Agriculture
in the name of a public
entity (such as a state
or local government,
school district, or
prison) that receives
agricultural program
payments
- ------------------------------- -------------------------
39
<PAGE>
PILGRIM AMERICA BANK
AND THRIFT FUND, INC.
40 NORTH CENTRAL AVENUE, SUITE 1200, PHOENIX, ARIZONA 85004
1-800-992-0180
TABLE OF CONTENTS
PAGE
----
PILGRIM AMERICA BANK AND THRIFT FUND, INC. AT A GLANCE...... 2
SUMMARY OF EXPENSES......................................... 3
FINANCIAL HIGHLIGHTS........................................ 4
PAST PERFORMANCE OF THE FUND................................ 5
INVESTMENT OBJECTIVES AND POLICIES.......................... 8
INVESTMENT PRACTICES AND RISK CONSIDERATIONS................ 9
THE BANKING AND THRIFT INDUSTRIES........................... 11
SHAREHOLDER GUIDE........................................... 13
Pilgrim America Purchase Options(Trademark)............... 13
Purchasing Shares......................................... 18
Exchange Privileges and Restrictions...................... 20
How to Redeem Shares...................................... 21
MANAGEMENT OF THE FUND...................................... 22
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................... 23
PERFORMANCE INFORMATION..................................... 24
ADDITIONAL INFORMATION...................................... 25
NEW ACCOUNT APPLICATION..................................... 27
INVESTMENT MANAGER
Pilgrim America Investments, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
DISTRIBUTOR
Pilgrim America Securities, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
SHAREHOLDER SERVICING AGENT
Pilgrim America Group, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368
CUSTODIAN
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
LEGAL COUNSEL
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017
PROSPECTUS
MAY 1, 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>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ORGANIZATION OF PILGRIM AMERICA BANK AND THRIFT FUND, INC.........................................................2
MANAGEMENT OF THE FUND............................................................................................2
INVESTMENT RESTRICTIONS...........................................................................................8
PORTFOLIO TRANSACTIONS............................................................................................9
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................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
</TABLE>
<PAGE>
ORGANIZATION OF PILGRIM AMERICA BANK AND THRIFT FUND, INC.
Pilgrim America Bank and Thrift Fund, Inc. is an open-end management investment
company commonly known as a mutual fund. The Fund was incorporated in Maryland
in November, 1985 under the name "Pilgrim Regional BankShares, Inc." as a
closed-end, diversified management investment company. The Fund changed its name
from "Pilgrim Regional BankShares, Inc." to "Pilgrim America Bank and Thrift
Fund, Inc." in April, 1996. The Fund operated as a closed-end fund prior to
October 17, 1997. On October 16, 1997, shareholders approved open-ending the
Fund and since October 17, 1997, the Fund has operated as an open-end fund.
The authorized capital stock of the Fund consists of 100,000,000 shares of
common stock having a par value of $.001 per share. Holders of shares of the
Fund have one vote for each share held, and a proportionate fraction of a vote
for each fraction of a share held. All shares issued and outstanding are fully
paid and non-assessable, transferable, and redeemable at the option of the
shareholder. Shares have no preemptive rights. Shares have non-cumulative voting
rights, which means that the holders of more than 50% of the shares voting for
the election of Directors can elect 100% of the Directors if they choose to do
so, and in such event the holders of the remaining shares voting for the
election of Directors will not be able to elect any person or persons to the
Board of Directors.
The Board of Directors may classify or reclassify any unissued shares of the
Fund into shares of another class or series by setting or changing in any one or
more respects, from time to time, prior to the issuance of such shares, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or qualifications of such shares. Any such
classification or reclassification will comply with the provisions of the
Investment Company Act of 1940 (the "1940 Act").
MANAGEMENT OF THE FUND
Board of Directors. The Fund is managed by its Board of Directors. The Directors
and Officers of the Fund are listed below. An asterisk (*) has been placed next
to the name of each Director who is an "interested person," as that term is
defined in the 1940 Act, by virtue of that person's affiliation with the Fund or
Pilgrim America Investments, Inc., the Fund's investment manager (the
"Investment Manager").
Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix, Arizona
85016. (Age 58.) Director. Realtor, Coldwell Banker Success Realty (formerly,
The Prudential Arizona Realty), for more than the last five years. Ms. Baldwin
is also Vice President, United States Olympic Committee (November 1996 -
Present), and formerly Treasurer, United States Olympic Committee (November 1992
- - November 1996). Ms. Baldwin also is a director and/or trustee of each of the
funds managed by the Investment Manager.
John P. Burke, 260 Constitution Plaza, Hartford, Connecticut 06310. (Age 65.)
Director. Commissioner of Banking, State of Connecticut (January 1995 -
Present). Mr. Burke was formerly President of Bristol Savings Bank (August 1992-
January 1995) and President of Security Savings and Loan (November 1989 - August
1992). Mr. Burke is also a director and/or trustee of each of the funds managed
by the Investment Manager.
Al Burton, 2300 Coldwater Canyon, Beverly Hills, California 90210. (Age 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
- 2 -
<PAGE>
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.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
Compensation Table
- ---------------------------------------------------- ------------------ -------------- --------------- ---------------------
Pension or Total
Retirement Compensation
Benefits Estimated From
Aggregate Accrued Annual Registrant
Compensation As Part of Benefits and Fund
from Fund Upon Complex Paid
Name of Person, Position Registrant Expenses Retirement to Directors
- ---------------------------------------------------- ------------------ -------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Mary A. Baldwin*, Director.......................... $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
- 4 -
<PAGE>
(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
- 5 -
<PAGE>
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.
- 6 -
<PAGE>
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.
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<PAGE>
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
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<PAGE>
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
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<PAGE>
"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.
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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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.
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<PAGE>
Telephone Redemption and Exchange Privileges. As discussed in the Prospectus,
the telephone redemption and exchange privileges are available for all
shareholder accounts; however, retirement accounts may not utilize the telephone
redemption privilege. The telephone privileges may be modified or terminated at
any time. The privileges are subject to the conditions and provisions set forth
below and in the Prospectus.
1. Telephone redemption and/or exchange instructions
received in good order before the pricing of the Fund on
any day on which the New York Stock Exchange is open for
business (a "Business Day"), but not later than 4:00 p.m.
eastern time, will be processed at that day's closing net
asset value. For each exchange, the shareholder's account
may be charged an exchange fee. There is no fee for
telephone redemption; however, redemptions of Class A and
Class B shares may be subject to a contingent deferred
sales charge or redemption fee (See "Redemption of Shares"
in the Prospectus).
2. Telephone redemption and/or exchange instructions should
be made by dialing 1-800-992-0180.
3. Pilgrim America 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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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;
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<PAGE>
(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.
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<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements
Contained in Part A:
-- Financial Highlights
Contained in Part B:
Incorporated by reference from the Registrant's 1997
Annual Report:
-- Portfolio of Investments as of December 31, 1997
-- Statement of Assets and Liabilities as of December 31, 1997
-- Statement of Operations for the year ended December 31,
1997
-- Statement of Changes in Net Assets for the years ended
December 31, 1997 and 1996
-- Notes to Financial Statements
-- Report of Independent Auditors
Contained in Part C:
-- None
(b) Exhibits
(1) -- Amended and Restated Articles of
Incorporation*
(2) -- Amended and Restated Bylaws*
(3) -- Not Applicable
(4) -- Not Applicable
(5) -- Form of Amended and Restated Investment
Management Agreement*
(6)(A) -- Form of Underwriting Agreement*
(6)(B) -- Form of Selling Group Agreement**
(7) -- Not Applicable
(8) -- Form of Custodian Agreement**
(9) -- Form of Recordkeeping Agreement**
(10) -- Opinion and Consent of Dechert Price &
Rhoads**
<PAGE>
(11) -- Consent of Independent Auditors
(12) -- Not Applicable
(13) -- Not Applicable
(14) -- Incorporated by reference from the
Registrant's previous filing on Form
N-2, Investment Company Act File No.
811-4504
(15)(A) -- Service and Distribution Plan for Class A
Shares*
(15)(B) -- Service and Distribution Plan for Class B
Shares*
(16) -- Schedule of Computation of Performance
Quotations*
(17) -- Financial Data Schedule
(18) -- Form of Plan Adopted Pursuant to
Rule 18f-3*
- --------------
* Previously filed with Registrant's initial Registration Statement on
Form N-1A, as filed with the Securities and Exchange Commission on August
12, 1997.
** Previously filed with Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A, as filed with the Securities and
Exchange Commission on October 15, 1997.
ITEM 25. Persons Controlled by or under Common Control with Registrant
None.
ITEM 26. Number of Holders of Securities
The following information is given as of March 31, 1998:
Title of Class Number of Recordholders
-- Class A 37,590
-- Class B 27,582
ITEM 27. Indemnification
Section 2-418 of the General Corporation Law of the State of Maryland,
Article Seventh of the Company's Articles of Incorporation, Article VII of the
Company's Bylaws, the Investment Management Agreement filed as Exhibit 5, and
the Underwriting Agreement filed as Exhibit 6(A) provide for indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant, pursuant to the foregoing
provisions or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange
C-2
<PAGE>
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such a
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 28. Business and Other Connections of the Investment Manager
Information as to the directors and officers of the Investment
Manager, together with information as to any other business, profession,
vocation or employment of a substantial nature engaged in by the directors and
officers of the Investment Manager in the last two years, is included in its
application for registration as an investment adviser on Form ADV (File No.
801-48282) filed under the Investment Advisers Act of 1940 and is incorporated
herein by reference thereto.
ITEM 29. Principal Underwriters
(a) Pilgrim America Investment Funds, Inc., Pilgrim America
Masters Series, Inc., Pilgrim Government Securities Income Fund, Inc.
(b) The following are directors and officers of Pilgrim America
Securities, Inc. The principal address of these persons is 40 North
Central Avenue, Suite 1200, Phoenix, Arizona 85004.
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with the Distributor with the Registrant
<S> <C> <C>
Robert W. Stallings Chairman, Director. Chairman, Director.
James R. Reis Vice Chairman, Director, Assistant Executive Vice President, Treasurer,
Secretary Assistant Secretary, Principal
Accounting Officer.
James M. Hennessy Senior Vice President, Secretary. Senior Vice President, Secretary.
(c) Not applicable.
</TABLE>
ITEM 30. Location of Accounts and Records
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained at the offices of the Registrant or Pilgrim America
Group, Inc., the Shareholder Servicing Agent, at 40 North Central Avenue, Suite
1200, Phoenix, Arizona 85004.
ITEM 31. Management Services
None.
ITEM 32. Undertakings
(a) Not applicable.
C-3
<PAGE>
(b) Not Applicable.
(c) Registrant undertakes to furnish to each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, Registrant
certifies that it meets all of the requirements for effectiveness of this
registration statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Phoenix, and the State of Arizona, on the 28th day of April, 1998.
PILGRIM AMERICA BANK AND THRIFT FUND, INC.
By: /s/ James M. Hennessy
---------------------------------------
James M. Hennessy, Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
- ------------------------- Director and President April 28, 1998
Robert W. Stallings* (Principal Executive Officer)
- ------------------------- Treasurer and Assistant Secretary April 28, 1998
James R. Reis* (Principal Financial Accounting
Officer)
- ------------------------- Director April 28, 1998
Mary A. Baldwin*
- ------------------------- Director April 28, 1998
John P. Burke*
- ------------------------- Director April 28, 1998
Al Burton*
- ------------------------- Director April 28, 1998
Bruce S. Foerster*
- ------------------------- Director April 28, 1998
Jock Patton*
</TABLE>
*By: /s/ James M. Hennessy
--------------------------------------
James M. Hennessy, Attorney-in-fact**
** Powers of attorney were previously filed with the Fund's initial
Registration Statement on Form N-1A (File No. 333-3345) on August 12,
1997, and are incorporated by reference herein.
<PAGE>
EXHIBIT INDEX
Exhibit 11 Consent of Independent Auditors
Exhibit 17 (EDGAR Exhibit 27) Financial Data Schedules
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Pilgrim America Bank and Thrift Fund:
We consent to the use of our report incorporated herein by reference and
to the references to our firm under the headings "Financial Highlights"
in the Prospectus and "Independent Auditors" in the Statement of
Additional Information.
KPMG Peat Marwick LLP
Los Angeles, California
April 29, 1998
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<TABLE> <S> <C>
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<S> <C>
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<PERIOD-END> DEC-31-1997
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<DISTRIBUTIONS-OF-GAINS> 3,942
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<SHARES-REINVESTED> 112
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</TABLE>
