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PILGRIM REGIONAL BANKSHARES(SM)
Third Quarter Report
September 30, 1995
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Dear Shareholder:
The third quarter proved to be a very good quarter for Pilgrim Regional
BankShares, (the "Fund"). The Fund's net asset value rose 14.7%*,
significantly outperforming the 7.9% gain turned in by the Standard & Poor's
500 Index (the "S&P") and the 5.7% gain recorded by the Dow Jones Industrial
Average Index (the "Dow"). We also outpaced the strong 14.0% gain posted by
the S&P Major Regional Banks Index**, which we will normally lag in a strong
bank stock market. For the nine months ended September 30, 1995 the Fund's
net asset value rose 38.6%*, surpassing the 29.8% and 27.3% respective gains
turned in by the S&P and the Dow, while trailing the 44.7% gain exhibited
by the S&P Major Regional Banks Index.
The bank and thrift stock market has been benefiting from the high level of
consolidation taking place in these industries. The market rightly approved
the proposed merger between Chase Manhattan Corp. and Chemical Banking Corp.,
which should benefit shareholders of both banks. The Fund did not participate
in this transaction but finally is getting its share of these deals.
During the third quarter the Fund benefited from the proposed acquisition of
Integra Financial Corp. by National City Corp., and is benefiting significantly
in the fourth quarter from the proposed offers for First Interstate Bancorp by
Wells Fargo & Co., and, more recently, by First Bank Systems.
However, the acquisition game can be a double-edged sword and unfortunately not
all of the mergers that occurred benefited the Fund. Corestates Financial
Corp.'s offer for Meridian Bancorp, was, in our opinion, too generous, and had
an adverse impact on the stock of Corestates and a beneficial impact on the
shares of Meridian. The Fund owned Corestates at the time of the offer and did
not own Meridian. This situation highlights the flip side of the consolidation
trend in the bank stock market: the risk in owning shares in banks that make
dilutive acquisitions.
The anticipated reduction in FDIC insurance costs that we discussed in our
last quarterly letter did indeed occur this quarter and boosted reported
earnings for nearly all banks. Quarterly results therefore generally came in
at or above expectations. Credit quality, though, appears to have reached a
cyclical bottom with a number of banks now starting to show some increases in
non-performing assets, although the absolute levels of non-performing assets
are still quite low by historical standards.
A primary area for credit quality problems at some banks is in credit card
lending and, to a lesser degree, in consumer lending. We have been concerned
about the credit card sector for some time and therefore hold only one
company in the Fund with national credit card exposure -- Bank of New York
Co., Inc. We are watching this company very closely and thus far its credit
card delinquencies and loss experience have been better than most of its
peers.
In October the stock market awakened to the potential problems in the credit
card area and bank stocks across the board corrected, with the hardest hits
taken by those companies with significant credit card exposure. The Fund's
relative performance during this correction was excellent since it was
underweighted in these institutions.
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In the last cycle, credit card losses peaked at about 5.5% of credit card
loans. This time around some banks are already experiencing losses of 5% and
it is still early in this cycle.
We believe that the loss experience of the last cycle will be exceeded by the
losses this time around and that credit cards will be the major credit
problem this cycle. The earnings impact, however, will obviously vary from
bank to bank depending on each bank's lending policies and exposure to credit
card lending. While all institutions initially may be tarnished with the same
brush by the market, this could create stock-picking opportunities.
In the third quarter, the Fund added to its positions in Keycorp, Eldorado
Bancorp, Roosevelt Financial Group Inc., and Standard Federal Bancorp, as
these stocks appeared to offer excellent value at the time. The Fund also
initiated a position in Union Planters Corp. The Fund reduced positions in
Home Interstate Bancorp and First of America Bank Corp. due to asset quality
disappointments in the former and earnings disappointments in the latter. The
Fund reduced positions in Mercantile Bancorporation, Mercantile Bankshares
Corp., and BSB Bancorp based solely on price.
The Fund liquidated its entire position in Sterling Financial Corp. due to
disappointing earnings and the likelihood of this situation worsening. The
Fund took profits from shorter term trading positions in HMN Financial, Inc.
and NBD Bancorp Inc. We were tempted to hold the NBD Bancorp position but
were not comfortable with the mix of business it will be acquiring when the
merger with First Chicago Corp. is completed. The Fund also disposed of its
position in Marshall & Illsley Corp. based on price appreciation.
Under the Fund's policy of maintaining a 7.0% annual payout, our next
distribution is to be declared in December, 1995, payable in January, 1996. If
you are currently receiving cash distributions, you may elect instead to have
your distributions reinvested in additional shares of the Fund by notifying your
broker or contacting the transfer agent, Investors Fiduciary Trust Company, P.O.
Box 419338, Kansas City, MO, 64141-6338, (800) 548-4521.
Thank you for giving us the opportunity to help you achieve your investment
needs. As always, we welcome your comments and questions.
Sincerely,
/s/ Carl A. Dorf
Carl A. Dorf, C.F.A.
Vice President and Senior Portfolio Manager
Pilgrim America Group, Inc.
*Non-annualized total return calculated at net asset value and assuming the
reinvestment of all distributions. Sales charges or commissions are not
reflected in these total returns.
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** The Standard & Poor's Major Regional Banks Index is a capitalization-weighted
index of all stocks designed to measure the performance of the major regional
banks sector of the S&P.
Average annual total return based on NYSE market prices, assuming
reinvestment of all distributions and no commissions, were 18.4%, 24.6%, and
10.4% for the one- and five-year periods and for the period January 24th,
1986 (commencement of operations) to September 30, 1995, respectively. With
commissions of approximately 1.50% (based on purchases of 1,000 shares), the
average annual total returns were 16.7%, 24.3%, and 10.2% for the same
periods, respectively.
Average annual total return on a net asset value basis, assuming reinvestment
of all distributions was 26.5%, 27.2%, and 12.4% for the one- and five- year
period and for the period January 24, 1986 (commencement of operations) to
September 30, 1995, respectively. Sales charges or commissions are not
reflected in these total returns.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
Pilgrim Regional BankShares is a closed-end management investment company
listed on the New York Stock Exchange (NYSE:PBS). The Fund's primary
investment objective is long-term capital appreciation, with income as a
secondary objective. The Fund seeks to achieve its objectives by investing
primarily in the equity securities of regional banks and the bank holding
companies of such banks.
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3
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Portfolio of Investments as of September 30, 1995 (Unaudited)
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<TABLE>
<CAPTION>
Market
Shares COMMON STOCKS: 97.5% Value
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<C> <S> <C>
Regional Banks*: 70.5%
184,300 BSB Bancorp (NY)............................................ $ 5,759,375
37,500 Bancorp Hawaii, Inc. (HI)................................... 1,265,625
67,000 Bank of Boston (MA)........................................ 3,190,875
150,000 Bank of New York (NY)....................................... 6,975,000
40,000 Banponce Corp. (PR)......................................... 1,555,000
64,647 CB Bankshares (HI).......................................... 1,939,410
52,700 CPB, Inc. (HI).............................................. 1,686,400
99,800 Centura Banks, Inc. (NC).................................... 3,318,350
394,000 Comerica, Inc. (MI)......................................... 14,331,750
263,418 Commerce Bancshares, Inc. (MO).............................. 10,405,011
130,000 Compass Bancshares, Inc. (AL)............................... 4,062,500
208,758 Corestates Financial Corp. (PA)............................. 7,645,762
630 Farmers & Merchants Bancorp (CA)............................ 1,178,888
45,000 First American Corp. (TN)................................... 1,940,625
78,564 First of America Bank Corp. (MI)............................ 3,378,252
70,900 First Interstate Bancorp (CA)............................... 7,143,175
1,100 First National Bank Anchorage (AK).......................... 1,688,500
163,750 First Security Corp. (UT)................................... 5,137,656
35,150 First Western Bancorp, Inc. (PA)............................ 1,186,313
88,704 Fleet Financial Group, Inc. (RI)............................ 3,348,576
110,000 Hawkeye Bancorp (IA)........................................ 2,805,000
95,600 Integra Financial Corp. (PA)................................ 5,556,750
239,400 Keycorp (OH)................................................ 8,199,450
27,760 Mercantile Bancorporation, Inc. (MO)........................ 1,242,260
280,000 Mercantile Bankshares Corp. (MD)............................ 7,630,000
195,000 National City Corp. (OH).................................... 6,020,625
84,000 One Valley Bancorp, Inc. (WV)............................... 2,772,000
55,000 Peoples Heritage Financial Group (ME)....................... 1,003,750
70,000 Provident Bancorp, Inc. (OH)................................ 2,905,000
117,700 Regions Financial Corp. (AL)................................ 4,781,562
71,400 Southern National Corp. (NC)................................ 1,874,250
55,000 Southtrust Corp. (AL)....................................... 1,381,875
30,000 Union Planters Corp. (TN)................................... 892,500
45,500 U.S. Bancorp (OR)........................................... 1,285,375
76,600 Vallicorp Holdings, Inc. (CA)............................... 1,110,700
99,000 Zions Bancorp (UT).......................................... 6,063,750
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Total................................................ 142,661,890
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Community Banks: 10.9%
47,000 Columbia Bancorp (MD)....................................... 799,000
63,000 Community Bank System, Inc. (NY)............................ 2,126,250
13,500 El Capitan National Bancshares, Inc. (CA)................... 398,250
65,000 Eldorado Bancorp (CA)....................................... 975,000
</TABLE>
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4
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<TABLE>
<CAPTION>
Market
Shares Value
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<C> <S> <C>
Community Banks (continued)
43,106 First Financial Bankshares (TX).................................................. $ 1,347,062
198,480 Home Interstate Bancorp (CA)..................................................... 2,443,884
105,200 Independent Bank Corp. (MI)...................................................... 3,077,100
42,694 North Dallas Bank & Trust (TX)................................................... 1,355,535
170,333 Oriental Bank & Trust (PR)....................................................... 3,704,743
290,575 Security Shares, Inc. (TX)....................................................... 1,888,737
150,000 Sterling Bancshares, Inc. (TX)................................................... 2,587,500
61,950 Today's Bancorp, Inc. (IL)....................................................... 1,277,719
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Total...................................................................... 21,980,780
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Thrifts: 16.1%
100,000 American Federal Bank (SC)....................................................... 1,525,000
140,000 Cenfed Financial Corp. (CA)...................................................... 3,325,000
300,000 Charter One Financial, Inc. (OH)................................................. 8,850,000
160,000 Collective Bancorp, Inc. (NJ).................................................... 4,140,000
99,750 Fidelity Financial Bankshares Corp. (VA)......................................... 1,371,563
9,187 Laurel Capital Group, Inc. (PA).................................................. 148,140
360,000 Roosevelt Financial Group (MO)................................................... 6,390,000
160,000 Security First Corp. (OH)........................................................ 2,410,000
113,200 Standard Federal Bank (MI)....................................................... 4,414,800
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Total...................................................................... 32,574,503
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Total Common Stocks (Cost $116,107,268).................................... 197,217,173
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<CAPTION>
Principal
Amount COMMERCIAL PAPER: 2.3% Value
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<C> <S> <C> <C>
$4,689,000 Cargill, Inc., 6.35%, Due 10/02/95........................................... 4,689,000
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Total Commercial Paper (Cost $4,689,000)................................ 4,689,000
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Total Investments in Securities (Cost: $120,796,268)................. 99.8% 201,906,173
Cash and Other Assets in Excess of Liabilities - Net................. 0.2% 369,298
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Total Net Assets......................................... 100.0% $ 202,275,471
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<CAPTION>
Cost for federal income tax purposes is $120,796,268. Net unrealized appreciation consists of:
<S> <C>
Gross Unrealized Appreciation ................................... $ 81,226,068
Gross Unrealized Depreciation ................................... (116,163)
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Net Unrealized Appreciation................................. $ 81,109,905
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</TABLE>
* Banks with total assets of $1 billion or more.
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5
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Pilgrim America
Funds
================================================
OPEN-END FUNDS
================================================
ELITE SERIES:
PILGRIM AMERICA MAGNACAP FUND
PILGRIM AMERICA HIGH YIELD FUND
PILGRIM GOVERNMENT SECURITIES INCOME FUND
MASTERS SERIES:
PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND
PILGRIM AMERICA MASTERS MIDCAP VALUE FUND
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
CLOSED-END FUNDS
==================================================
PILGRIM REGIONAL BANKSHARES(SM)
PILGRIM PRIME RATE TRUST(TM)
MONEY MARKET FUND
==================================================
PILGRIM AMERICA GENERAL MONEY MARKET SHARES
Pilgrim America General Money Market Shares is a class of the Cortland
General Money Market Fund Series of Cortland Trust, Inc.
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Prospectuses containing more complete information about the money market and
open-end funds, including charges and expenses, may be obtained from PILGRIM
AMERICA SECURITIES, INC. Please read the prospectuses carefully before you
invest or send money.
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6
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--------------------------------------------
Two Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004-4424
--------------------------------------------
INVESTMENT MANAGER
Pilgrim America Investments, Inc.
Two Renaissance Square
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004-4424
SHAREHOLDER SERVICING AGENT
Investors Fiduciary Trust Company
P.O. Box 419338
Kansas City, Missouri 64141
1-800-548-4521
TRANSFER AGENT
Investors Fiduciary Trust Company
P.O. Box 419338
Kansas City, Missouri 64141
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PILGRIM AMERICA
FUNDS
This report is submitted for the general information of
the shareholders of the fund.
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PILGRIM AMERICA
FUNDS
======================
PILGRIM REGIONAL
BANKSHARES(SM)
======================
Third Quarter Report
September 30, 1995
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