<PAGE>
Pilgrim Regional BankShares(SM)
Annual Report
December 31, 1995
Dear Shareholder:
It was a very good year. Banks and thrifts were favored stock groups propelled
by reasonable valuations, good earnings growth and consolidation. Pilgrim
Regional BankShares (the "Fund") capitalized on those conditions: the Fund's
total return based on net asset value was 49.7%* for the year. For the year
ended December 31st, 1995, Lipper Analytical Services, Inc. ranked the Fund
ninth out of a universe of 154 closed-end equity funds based on total return at
net asset value.*** Lipper also ranked the Fund seventh out of a universe of 102
closed-end equity funds for the five years ended December 31, 1995. The Fund's
1995 return compares to returns of 36.9%, 37.5% and 57.5%, for the Dow Jones
Industrial Average Index (the "Dow"), the Standard & Poor's 500 Index (the
"S&P"), and the S&P Major Regional Bank Index**, respectively. In the fourth
quarter, the Fund's total return based on net asset value was 8.0%*, while the
above mentioned indices were up 7.5%, 6.0%, and 8.9%, respectively. Our
underperformance relative to the S&P Major Regional Bank Index reflects the fact
that in 1995 smaller banks lagged the performance of the larger banks which
comprise that index.
I believe the bank sector still offers good value, although the fundamental
factors are mixed. Bank stocks are selling at reasonable valuations compared to
the market as a whole and I believe that consolidation will continue. In real
estate, it is said that the three most important factors are location, location
and location. In the banking and thrift area, today I believe the three most
important factors to consider are consolidation, consolidation and
consolidation. While I am still positive on the bank and thrift sector, I do not
anticipate that the Fund's return will approach the nearly 50% increase that we
achieved last year.
Turning to banking industry trends, recent year end earnings reports from banks
reflect fourth quarter restructuring charges related to acquisitions and cost
cutting programs, although overall results came in as expected. On the positive
side, banks are very profitable and are generating excess capital which they are
using to repurchase their stock, improving per share earnings. Cost control
generally is excellent and good mergers are improving bottom line earnings.
Negative trends include a slowing in loan demand, increased credit card and
consumer loan losses, and unsustainably low loan loss provisions.
Low loan loss provisions are a product of the troughing of the credit cycle
which has resulted in charge-offs and problem assets that are below historical
levels. As the credit cycle changes direction, higher charge-offs will cause
many banks to take higher loan loss provisions. This increase in provisions will
be even more pronounced for banks which have run down their reserve levels by
failing to take loss provisions that match even current charge-offs. It appears
likely, then, that many banks will need higher loss provisions in the future,
meaning that to the extent this is true, future earnings potential is dampened.
Of all banking trends, I still believe that credit card debt needs to be watched
most closely, as credit card losses and delinquencies have increased in recent
months. Some banks have indicated their belief that credit card losses will peak
in the first quarter of this year and that the problems are associated with
previous card solicitations that had inadequate credit standards. These banks
claim to have improved their standards and adjusted their pricing; however, I
remain skeptical. I believe that too many people have been given too many credit
cards without being adequately screened and that the lure of fat profits has
caused too many banks to reach too deeply into the population base. Some banks
already are
<PAGE>
paying the price for this and I believe that the result will be worse than
expected. Thus, I believe banks which have high levels of credit card exposure
could be subject to earnings disappointments. We are trying to factor this into
our stock selection process.
So far margins have not turned out to be as much of a problem as I had feared.
Fourth quarter margins were mixed, but if interest rates continue to decline, I
believe margins at most banks will come under pressure. When interest rates rose
in 1994 and early 1995, banks did not have to raise the rates they paid on
deposits by the full amount of the increase in the rates they received on their
earning assets. Conversely, if interest rates continue to decline, banks will
not be able to reduce their already low deposit rates by as much as the yields
on their earning assets are likely to decline.
The fourth quarter proved to be an active one for the Fund. The Fund received a
significant boost in the fourth quarter from the proposed acquisition of First
Interstate Bancorp, the Fund's third largest position, by Wells Fargo and
Company. Also in the fourth quarter, I added to existing Fund positions in:
BanPonce Corp., Corestates Financial Corp., Fleet Financial Group, Peoples
Heritage Financial Group, Union Planters Corp., Columbia Bancorp, Sterling
Bancshares, Charter One Financial and Fidelity Financial BankShares Corp. New
positions were established in InterWest Bancorp, Inc. and Mountain Parks
Financial Corp. The Fund also participated in the initial offering of Investors
Financial Services and sold the position after realizing a good gain fairly
quickly. I reduced the Fund's position in Commerce Bancshares, Inc. and Zions
Bancorp on a price basis, and also reduced our position in Oriental Bank &
Trust. Centura Banks became too expensive so I sold our entire position. Our
Fund's proxy statement, which was distributed in late January, contains a number
of significant items and should be reviewed carefully. I believe that the
proposed investment policy revisions will enable shareholders to benefit more
from consolidation in the industry. I also believe that keeping the Fund in its
closed-end format will benefit shareholders.
Under the Fund's policy of maintaining a 7.0% annual payout, our next
distribution is to be declared in June, 1996, payable in July, 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.
* 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.
2
<PAGE>
Average annual total return based on NYSE market prices, assuming reinvestment
of all distributions and no commissions, were 52.8%, 23.2% and 11.0% for the one
and five year periods and for the period January 24, 1986 (commencement of
operations) to December 31, 1995, respectively. With commissions of
approximately 1.50% (based on purchases of 1,000 shares), the average annual
total returns were 50.5%, 22.8% and 10.8% for the same periods, respectively.
Average annual total return on a net asset value basis, assuming reinvestment of
all distributions was 49.7%, 26.3% and 13.0% for the one and five year periods
and for the period January 24, 1986 (commencement of operations) to December 31,
1995, respectively. Sales charges or commissions are not reflected in these
total returns.
** The S&P Major Regional Bank Index is a capitalization-weighted index
designed to measure the performance of the major regional banks within the
Standard & Poor's 500 Index.
*** Wall Street Journal, January 25th, 1996
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.
3
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
MARKET
SHARES COMMON STOCKS: 101.8% VALUE
------ ------
<C> <S> <C>
REGIONAL BANKS*: 73.7%
276,450 BSB Bancorp (NY)............................ $ 6,842,137
37,500 Bancorp Hawaii, Inc. (HI)................... 1,345,313
67,000 Bank of Boston (MA)......................... 3,098,750
150,000 Bank of New York (NY)....................... 7,312,500
62,000 BanPonce Corp. (PR)......................... 2,414,125
64,647 CB Bankshares (HI).......................... 1,874,763
52,700 CPB, Inc. (HI).............................. 1,686,400
394,000 Comerica, Inc. (MI)......................... 15,809,250
256,588 Commerce Bancshares, Inc. (MO).............. 9,814,491
130,000 Compass Bancshares, Inc. (AL)............... 4,290,000
233,758 Corestates Financial Corp. (PA)............. 8,853,584
630 Farmers & Merchants Bancorp (CA)............ 1,165,500
45,000 First American Corp. (TN)................... 2,131,875
78,564 First of America Bank Corp. (MI)............ 3,486,278
70,900 First Interstate Bancorp (CA)............... 9,677,850
1,100 First National Bank Anchorage (AK).......... 1,721,500
163,750 First Security Corp. (UT)................... 6,304,375
52,725 First Western Bancorp, Inc. (PA)............ 1,449,938
138,704 Fleet Financial Group Inc. (RI)............. 5,652,188
110,000 Hawkeye Bancorp (IA)........................ 2,928,750
95,600 Integra Financial Corp. (PA)................ 6,022,800
239,400 Keycorp (OH)................................ 8,678,250
27,760 Mercantile Bancorporation, Inc. (MO)........ 1,276,960
280,000 Mercantile Bankshares Corp. (MD)............ 7,805,000
195,000 National City Corp. (OH).................... 6,459,375
84,000 One Valley Bancorp, Inc. (WV)............... 2,625,000
77,000 Peoples Heritage Financial Group (ME)....... 1,751,750
70,000 Provident Bancorp, Inc. (OH)................ 3,290,000
117,700 Regions Financial Corp. (AL)................ 5,061,100
71,400 Southern National Corp. (NC)................ 1,874,250
55,000 Southtrust Corp. (AL)....................... 1,409,375
34,900 Union Planters Corp. (TN)................... 1,112,437
45,500 U.S. Bancorp (OR)........................... 1,529,937
76,600 Vallicorp Holdings, Inc. (CA)............... 1,062,825
84,000 Zions Bancorp (UT).......................... 6,741,000
------------
Total................................... 154,559,626
------------
COMMUNITY BANKS: 11.1%
54,500 Columbia Bancorp (MD)....................... 940,125
63,000 Community Bank System, Inc. (NY)............ 2,016,000
13,500 El Capitan National Bancshares, Inc. (CA)... 391,500
71,500 Eldorado Bancorp (CA)....................... 1,152,938
</TABLE>
See Notes to Financial Statements
4
<PAGE>
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<C> <S> <C>
COMMUNITY BANKS (CONTINUED)
43,106 First Financial Bankshares (TX)............. $ 1,444,051
208,404 Home Interstate Bancorp (CA)................ 2,552,949
110,460 Independent Bank Corp. (MI)................. 2,996,228
72,500 (a)(b) Mountain Parks Financial Corp. (CO)......... 1,613,125
42,694 North Dallas Bank & Trust (TX).............. 1,376,881
148,116 Oriental Bank & Trust (PR).................. 2,443,914
290,575 (a)(b) Security Shares, Inc. (TX).................. 1,925,059
170,000 Sterling Bancshares, Inc. (TX).............. 2,975,000
61,950 Today's Bancorp, Inc. (IL).................. 1,374,516
------------
Total................................... 23,202,286
------------
THRIFTS: 17.0%
100,000 American Federal Bank (SC).................. 1,525,000
140,000 Cenfed Financial Corp. (CA)................. 3,360,000
360,000 Charter One Financial, Inc. (OH)............ 11,025,000
160,000 Collective Bancorp, Inc. (NJ)............... 4,060,000
111,750 Fidelity Financial Bankshares Corp. (VA).... 1,564,500
17,500 InterWest Bancorp, Inc. (WA)................ 356,563
9,187 Laurel Capital Group, Inc. (PA)............. 142,398
360,000 Roosevelt Financial Group (MO).............. 6,930,000
160,000 Security First Corp. (OH)................... 2,300,000
113,200 Standard Federal Bank (MI).................. 4,457,250
------------
Total................................... 35,720,711
------------
Total Common Stocks (Cost $121,337,730). 213,482,623
------------
<CAPTION>
PRINCIPAL
AMOUNT SHORT-TERM INVESTMENTS: 1.2% VALUE
- ---------- -----
<C> <S> <C>
$2,608,000 Lehman Securities Repurchase Agreement,
5.70%, Due 01/02/96 (Collateralized by
$2,475,000, U.S. Treasury Notes, 8.88%,
due 11/15/97)............................. 2,608,000
------------
Total Short-Term Investments
(Cost $2,608,000)..................... 2,608,000
------------
TOTAL INVESTMENTS IN SECURITIES
(COST: $123,945,730) ............. 103.0% 216,090,623
------------
LIABILITIES IN EXCESS OF CASH
AND OTHER ASSETS.................. (3.0) (6,337,548)
------------
TOTAL NET ASSETS................ 100.0% $209,753,075
============
Cost for federal income tax purposes is $123,945,730. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation........... $ 92,211,268
Gross Unrealized Depreciation........... (66,375)
------------
Net Unrealized Appreciation........... $ 92,144,893
============
</TABLE>
* Banks with total assets of $1 billion or more.
(a) Affiliated company (see Note 3)
(b) Non-income producing security
See Notes to Financial Statements
5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments in securities, at value
Unaffiliated issuers (Cost $117,987,424)..................... $209,944,439
Affiliated issuers (Cost $3,350,306)......................... 3,538,184
Short-term investments at amortized cost..................... 2,608,000
Cash........................................................... 9,515
Receivables:
Dividends and interest....................................... 651,956
Securities sold.............................................. 1,209,000
Prepaid expenses and other assets ............................. 3,962
------------
Total Assets .......................................... 217,965,056
------------
LIABILITIES:
Securities purchased........................................... 462,500
Dividends payable.............................................. 7,489,202
Management fees payable........................................ 138,889
Accrued expenses............................................... 121,390
------------
Total Liabilities...................................... 8,211,981
------------
NET ASSETS
(equivalent to $14.83 per share based on 14,141,241
shares issued and outstanding)............................... $209,753,075
============
Net Assets Consist of:
Paid-in capital.............................................. $119,431,703
Accumulated distributions in excess of
net investment income....................................... (219,591)
Accumulated distributions in excess of
net realized gain on investments............................ (1,801,930)
Net unrealized appreciation of investments................... 92,144,893
------------
Net Assets ............................................ $209,555,075
============
</TABLE>
See Notes to Financial Statements
6
<PAGE>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<TABLE>
<S> <C>
INVESTMENT INCOME:
Income:
Dividends (Net of foreign taxes of $17,703)................... $ 5,982,992
Interest...................................................... 269,223
Other income.................................................. 3,968
-----------
Total investment income.................................... 6,256,183
-----------
Expenses:
Investment management fees.................................... 1,421,324
Recordkeeping and pricing fees................................ 100,402
Miscellaneous expenses........................................ 72,923
Transfer agent and registrar fees............................. 67,488
Reports to shareholders....................................... 66,440
Professional fees............................................. 55,360
Custodian fees................................................ 44,840
Amortization of organization expenses......................... 33,478
Insurance expense............................................. 31,813
Directors' fees............................................... 18,574
Administrative servicing costs................................ 5,988
-----------
Total expenses............................................. 1,918,630
Less: Custodian credits.................................... (1,967)
-----------
Net expenses............................................... 1,916,663
-----------
Net investment income...................................... 4,339,520
-----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gains on investments............................. 10,039,472
Net change in unrealized appreciation of investments.......... 57,607,407
-----------
Net gain on investments.................................... 67,646,879
-----------
Net increase in net assets resulting from operations.... $71,986,399
===========
</TABLE>
See Notes to Financial Statements
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Operations:
Net investment income........................ $ 4,339,520 $ 3,581,925
Net realized gains on investments............ 10,039,472 9,483,756
Net change in unrealized appreciation
(depreciation) of investments............... 57,607,407 (16,977,420)
------------ ------------
Net increase (decrease) in net assets
resulting from operations................... 71,986,399 (3,911,739)
------------ ------------
Distributions to Shareholders:
Distributions from net investment income..... (4,339,520) (3,032,451)
Distributions in excess of net
investment income........................... (477,369) --
Distributions from realized capital gains.... (9,123,342) (9,319,903)
------------ ------------
Total distributions.................... (13,940,231) (12,352,354)
------------ ------------
Capital Share Transactions:
Net increase in net assets derived from
net change in the number of outstanding
shares(a)................................... -- 131,059
------------ ------------
Total increase (decrease) in net
assets............................... 58,046,168 (16,133,034)
Net assets, at the beginning of the year....... 151,706,907 167,839,941
------------ ------------
Net assets, at the end of the year
(including distributions in excess of net
investment income and accumulated
undistributed net investment income of
$(21,939) and $582,953, respectively)..... $209,753,075 $151,706,907
============ ============
</TABLE>
(a) A summary of capital share transactions is as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
Shares Value Shares Value
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Shares issued in payment
of distributions from
net investment income
and capital gains........ (149,065) $(1,737,877) 223,732 2,467,540
Shares repurchased........ 149,065 1,737,877 (223,732) (2,336,481)
-------- ----------- -------- -----------
Net increase -- $ -- -- $ 131,059
======== =========== ======== ===========
</TABLE>
See Notes to Financial Statements
8
<PAGE>
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
JANUARY 24,
YEAR ENDED DECEMBER 31, 1986(a) TO
---------------------------------------------------------------------------------- DECEMBER 31,
1995(a) 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- ------- ------- ------- ------- ------- ------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net Asset Value,
beginning of period...... $ 10.73 $ 11.87 $ 12.46 $ 10.12 $ 7.49 $ 10.26 $ 9.54 $ 8.17 $ 9.09 $ 9.30
------- -------- ------- ------- ------ ------- ------ ------ ------- -------
Income (loss) from
investment operations:
Net investment income.... 0.31 0.26 0.26 0.22 0.24 0.31 0.30 0.31 0.22 0.24
Net realized and
unrealized gain
(loss) on investments.. 4.78 (0.53) 0.75 2.93 3.33 (2.20) 1.50 1.43 (0.87) (0.28)
------- -------- ------- ------- ------ ------- ------ ------ ------- -------
Total from investment
operations............ 5.09 (0.27) 1.01 3.15 3.57 (1.89) 1.80 1.74 (0.65) (0.04)
------- -------- ------- ------- ------ ------- ------ ------ ------- -------
Less Distributions:
Distributions from
net investment income.. 0.31 0.22 0.26 0.22 0.24 0.31 0.31 0.37 0.22 0.17
Distributions in execess
of net investment
income................. 0.03 -- -- -- -- -- -- -- -- --
Distributions from
realized capital gains. 0.65 0.65 0.73 0.47 -- -- 0.44 -- 0.05 --
Distributions from
paid-in capital -- -- -- 0.12 0.70 0.33 -- -- -- --
------- -------- ------- ------- ------ ------- ------ ------ ------- -------
Total distributions... 0.99 0.87 0.99 0.81 0.94 0.88 1.08 0.37 0.27 0.17
------- -------- ------- ------- ------ ------- ------ ------ ------- -------
Other:
Reduction in
Net Asset Value
from rights offering... -- -- (0.61) -- -- -- -- -- -- --
------- -------- ------- ------- ------ ------- ------ ------ ------- -------
Net Asset Value,
end of period............ $ 14.83 $ 10.73 $ 11.87 $ 12.46 $10.12 $ 7.49 $10.26 $ 9.54 $ 8.17 $ 9.09
======= ======== ======= ======= ====== ======= ====== ====== ======= =======
Closing Market Value,
end of period............ $ 12.88 $ 9.13 $ 10.88 $ 11.63 $ 9.50 $ 7.13 $ 9.13 $ 7.75 $ 6.25 $ 7.88
Total investment
return (c)............... 52.81% (8.85)% 1.95%(d) 31.53% 47.52% (12.45)% 32.25% 30.17% (17.79)% (13.76)%(b)
RATIOS/SUPPLEMENTAL DATA
Net Assets, end of period
(in millions)............ $209.8 $151.7 $167.8 $140.6 $101.1 $ 74.9 $102.6 $95.7 $ 82.2 $ 91.5
Ratio of expenses to
average net assets....... 1.05% 1.28% 0.91% 1.24% 1.31% 1.29% 1.26% 1.18% 1.13% 1.04%(b)
Ratio of net income
to average net assets.... 2.37% 2.13% 1.08% 2.00% 2.68% 3.59% 4.15% 3.28% 2.31% 2.59%(b)
Portfolio turnover rate.... 13% 14% 17% 20% 31% 46% 63% 43% 76% 33%(b)
</TABLE>
- ------------------
(a) Effective date of the Company's initial registration under the Securities
Act of 1933, as amended.
(b) Annualized.
(c) Total return 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 Rights Offering as the total account value of a fully
subscribed shareholder was minimally impacted.
(e) On April 7, 1995, the Investment Manager acquired the rights to manage the
Fund and certain other mutual funds previously managed by Pilgrim
Management Corporation.
See Notes to Financial Statements
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Pilgrim Regional BankShares (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified, closed-end, management
investment company. The investment objective of the Fund is to invest at least
65% of its total assets in equity securities of regional banks with consolidated
assets of $1 billion or more and the bank holding companies of such banks. The
following is a summary of the significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Security Valuation. Investments in securities traded on a national
securities exchange or included on the NASDAQ National Market System are
valued at the last reported sale price. Securities traded on an exchange or
NASDAQ for which there has been no sale and securities traded in the over-
the-counter market are valued at the mean between the last reported bid and
asked prices. Securities for which market quotations are not readily
available are valued at their respective fair values as determined in good
faith and in accordance with policies established by the Board of
Directors. Investments in securities maturing in less than 60 days are
valued at amortized cost, which when combined with accrued interest,
approximates market value.
B. Security Transactions and Revenue Recognition. Securities transactions are
accounted for on the trade date. Realized gains or losses are reported on
the basis of identified cost of securities delivered. Interest income is
recorded on an accrual basis and dividend income is recorded on the ex-
dividend date.
C. Federal Income Taxes. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its taxable
income to its shareholders. Therefore, no federal income tax provision is
required.
D. Distribution to Shareholders. The Fund records distributions to its
shareholders on the ex-date. The amount of distributions from net
investment income and net realized capital gains are determined in
accordance with federal income tax regulations, which may differ from
generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. Key differences are the
treatment of short-term capital gains, organization costs and other timing
differences. To the extent that these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their
federal tax-basis treatment; temporary differences do not require
reclassifications. Distributions which exceed net investment income and net
realized capital gains for financial reporting purposes but not for tax
purposes are reported as distributions in excess of net investment income
and/or realized capital gains. To the extent they exceed net investment
income and net realized capital gains for tax purposes, they are reported
as a tax return of capital. Accordingly, amounts as of December 31, 1995
have been reclassified to reflect an increase in paid in capital of
$3,077,594, a decrease in accumulated distributions in excess of net
investment income of $127,175 and a decrease in accumulated distributions
in excess of net realized gain on investments of $2,950,419.
E. Dividend Reinvestments. Pursuant to the Automatic Dividend Reinvestment
Plan, Investors Fiduciary Trust Co., the Plan Agent, may purchase, from
time to time, shares of the Fund's common stock on the open market to
satisfy dividend reinvestments. Such shares will be purchased only when the
closing sale or bid price, plus commission, is less than the net asset
value per share of the stock. If the
10
<PAGE>
market price plus commissions is equal to or exceeds the net asset value,
new shares valued at the net asset value most recently calculated will be
issued.
F. Deferred Organization Expenses. All expenses incurred in connection with
the organization and registration of the Fund under the Investment Company
Act of 1940 and the Securities Act of 1933 were paid by the Fund. These
organization expenses are being amortized over a period of ten years from
the effective date of its registration.
G. Use of Estimates. Management of the Fund has made certain estimates and
assumptions relating to the reporting of assets and liabilities to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
H. Repurchase Agreements. The Repurchase Agreement held at December 31, 1995
was entered into on December 29, 1995 and matures on January 2, 1996. The
Fund's custodian takes possession of the collateral pledged for investments
in repurchase agreements. The underlying collateral is valued daily on a
mark-to-market basis to ensure that the value, including accrued interest,
is at least equal to the repurchase price. In the event of default of the
obligations to repurchase, the Fund has the right to liquidate the
collateral and apply the proceeds in satisfaction of the obligation. Under
certain circumstances, in the event of default or bankruptcy by the other
party to the agreement, realization and/or retention of the collateral may
be subject to legal proceedings.
NOTE 2 - INVESTMENTS
For the year ended December 31, 1995, the cost of purchases and the proceeds
from the sale of securities, excluding short-term notes, were $23,238,474 and
$27,058,423, respectively.
NOTE 3 - INVESTMENT IN AFFILIATES
Affiliated companies, as defined in Section 2(a)(3) of the Investment Company
Act of 1940, are companies 5% or more of whose outstanding voting shares are
held by the Funds. At December 31, 1995, the Fund had the following holdings in
affiliated companies:
<TABLE>
<CAPTION>
Mountain Parks
Financial Corp. Security Shares, Inc.
--------------- ---------------------
<S> <C> <C>
Acquisition Dates September 29, 1995 to September 19, 1994 to
December 12, 1995 September 28, 1994
Shares Held 72,500 290,575
Cost $1,679,500 $1,670,806
Market Value $1,613,125 $1,925,059
</TABLE>
There was no dividend income from affiliates during the fiscal year ended
December 31, 1995.
NOTE 4 - CAPITAL STOCK
At December 31, 1995, the authorized capital consisted of 50,000,000 shares of
$.001 par value common stock.
NOTE 5 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
As of April 7, 1995, Express America Holdings Corporation ("Express America"),
acquired the rights to manage and distribute Pilgrim America MagnaCap Fund
(formerly Pilgrim MagnaCap Fund) Pilgrim America High Yield Fund (formerly
Pilgrim High Yield Trust), and Pilgrim Government Securities Income Fund
(formerly Pilgrim GNMA Fund), and the rights to manage Pilgrim Prime Rate Trust
and Pilgrim Regional BankShares (collectively, the "Acquired Funds"). In
conjunction with the acquisition, a new investment organization was formed, and
is known as Pilgrim America Group Inc. ("PAG"), a wholly owned subsidiary of
ExpressAmerica.
On April 7, 1995, the Fund entered into a new investment management agreement
with Pilgrim America Investments, Inc. (the "Manager"), a
wholly owned subsidiary of PAG to provide
11
<PAGE>
investment management and administrative services. Pursuant to this Investment
Management Agreement, the Manager furnishes all investment advice, office space
and salaries of personnel needed by the Fund, except those involved with
portfolio trading activity (up to a maximum of $15,000 per annum). As
compensation for its services, the Manager is paid a monthly fee which is equal
to the annual rate of 1% on the first $30 million of average weekly net assets
for the Fund, 0.75% of the next $95 million of average weekly net assets and
0.70% on average weekly net assets in excess of $125 million. At December 31,
1995, the Fund owed the Manager $138,889 for investment management and
administrative services.
The Fund had an investment management agreement with Pilgrim Management
Corporation (the "Former Manager"), to provide advisory and management services
which terminated on April 7, 1995. The fee arrangement was identical to the
investment management agreement currently in effect with the Manager.
Commencing April 7, 1995, certain officers and directors of the Company are also
officers and/or directors of the Manager. From January 1, 1995 to April 7,
1995 certain officers and/or directors of the Fund were also officers and/or
directors of the Former Manager.
NOTE 6 - CUSTODIAL AGREEMENT
Investors Fiduciary Trust Company (IFTC) serves as the Fund's custodian and
recordkeeper. Custody fees paid to IFTC are reduced by earnings credits based
on the cash balances held by IFTC for the Fund. For the year ended December 31,
1995, the Fund received earnings credits of $1,967.
DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN (UNAUDITED)
The Fund offers a Dividend Reinvestment and Cash Purchase Plan which enables
investors to conveniently add to their holdings at reduced costs. Should you
desire further information concerning this plan, please contact the Shareholder
Servicing Agent at (800) 548-4521.
12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Pilgrim Regional BankShares:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Pilgrim Regional BankShares, as of
December 31, 1995, and the related statements of operations and changes in net
assets and financial highlights for the year then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. For all periods ending
prior to January 1, 1995 the statement of changes in net assets and financial
highlights were audited by other auditors whose report thereon dated January 19,
1995 expressed an unqualified opinion on those financial statements and
financial highlights.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pilgrim Regional BankShares as of December 31, 1995, the results of its
operations, changes in its net assets and its financial highlights for the year
then ended as indicated above in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
February 12, 1996
13
<PAGE>
TAX INFORMATION (UNAUDITED)
The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (December
31, 1995) as to the federal tax status of distributions received by the Fund's
shareholders. Accordingly, the Fund is hereby advising you that the following
dividends were declared during the fiscal year ended December 31, 1995.
<TABLE>
<CAPTION>
Type of Dividend Per Share Amount Declaration Date Payable Date
- ---------------- ---------------- ---------------- ------------
<S> <C> <C> <C>
Ordinary Income $0.1853 06/30/95 07/24/95
0.1553 12/19/95 01/15/96(1)
-------
Total $0.3406
=======
Capital Gains $0.2708 06/30/95 07/24/95
0.3743(2) 12/19/95 01/15/96(1)
-------
Total $0.6451
=======
</TABLE>
(1) Taxable in 1995
(2) $0.0022 is a short-term capital gain distribution which is considered
ordinary income for tax purposes.
Corporate shareholders are generally entitled to take the dividend received
deduction on the portion of the Fund's dividend distribution that qualifies
under tax law. The percentage of the Fund's fiscal year 1995 net investment
income dividends that qualify for the corporate dividend received deductions is
99.92%.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Fund. In January 1996, your
should have received an IRS Form 1099 DIV regarding the federal tax status of
the dividends and distributions received by you in calendar year 1995.
14
<PAGE>
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.
- -------------------
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 Prospectus carefully before you invest
or send money.
<PAGE>
Pilgrim America
Funds
PILGRIM REGIONAL
BANKSHARES(SM)
- -------------------------------
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 64141-6338
1-800-548-4521
TRANSFER AGENT
Investors Fiduciary Trust Company
P.O. Box 419338
Kansas City, Missouri 64141-6338
-------
Pilgrim America
Funds
This report is submitted for the general information of
the shareholders of the fund. This report is not
authorized for distribution to prospective investors
in the fund unless preceded or accompanied
by an effective prospectus.
Annual Report
December 31, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 123,945,730
<INVESTMENTS-AT-VALUE> 216,090,623
<RECEIVABLES> 1,860,956
<ASSETS-OTHER> 3,962
<OTHER-ITEMS-ASSETS> 9,515
<TOTAL-ASSETS> 217,965,056
<PAYABLE-FOR-SECURITIES> 462,500
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,749,481
<TOTAL-LIABILITIES> 8,211,981
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119,431,703
<SHARES-COMMON-STOCK> 14,141,241
<SHARES-COMMON-PRIOR> 14,141,241
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 21,591
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,801,930
<ACCUM-APPREC-OR-DEPREC> 92,144,893
<NET-ASSETS> 209,753,075
<DIVIDEND-INCOME> 5,982,992
<INTEREST-INCOME> 269,223
<OTHER-INCOME> 3,968
<EXPENSES-NET> (1,916,663)
<NET-INVESTMENT-INCOME> 4,339,520
<REALIZED-GAINS-CURRENT> 10,039,472
<APPREC-INCREASE-CURRENT> 57,607,407
<NET-CHANGE-FROM-OPS> 71,986,399
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,339,520)
<DISTRIBUTIONS-OF-GAINS> (9,123,342)
<DISTRIBUTIONS-OTHER> (477,369)
<NUMBER-OF-SHARES-SOLD> (149,065)
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 149,065
<NET-CHANGE-IN-ASSETS> 58,046,168
<ACCUMULATED-NII-PRIOR> 582,953
<ACCUMULATED-GAINS-PRIOR> 232,359
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,421,324
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,918,630
<AVERAGE-NET-ASSETS> 183,403,205
<PER-SHARE-NAV-BEGIN> 10.73
<PER-SHARE-NII> 0.31
<PER-SHARE-GAIN-APPREC> 4.78
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> (0.65)
<RETURNS-OF-CAPITAL> (0.03)
<PER-SHARE-NAV-END> 14.83
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
