<PAGE>
- --------------------------------------------------------------------------------
Pilgrim America Bank and Thrift Fund
First Quarter Report
March 31, 1996
- --------------------------------------------------------------------------------
Dear Shareholder:
After a strong 1995, Pilgrim America Bank and Thrift Fund, Inc. (the "Fund"),
known prior to April 8, 1996 as Pilgrim Regional BankShares, Inc., started 1996
on a slower note. The Fund's total return based on net asset value was 4.7%* in
the first quarter of 1996, trailing the respective total returns on 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 (the "S&P MRBI") of 9.8%,
5.4% and 8.5%, respectively. The Dow has been propelled by the market's current
attraction to cyclical companies and the S&P MRBI continues to benefit from
strong market performances by the larger banks. Two clear examples of the
outperformance of larger banks in the first quarter are Wells Fargo and Company
and First Interstate Bancorp, which appreciated 20.9% and 27.1%, respectively,
in market value during the quarter. This greatly enhanced the return on the S&P
MRBI since Wells Fargo and First Interstate accounted for a combined 12% of this
m arket weighted index as of March 31, 1996. While Wells Fargo (which acquired
First Interstate Bancorp) is one of our larger positions, it represents only
3.2% of our Fund.
If the Fund had owned only large banks, the Fund would have performed better in
the first quarter. Instead, our concern over credit quality and earnings
volatility has kept us away from most of the larger names. So far our concerns
have been premature. Non-performing asset levels for the industry remain very
low by historical standards and show few signs of rising, except in the consumer
credit and credit card areas. My approach has been to buy quality stocks and
wait for their value to be discovered, rather than to buy lesser quality stocks
that, on the surface, appear inexpensive but embody risks that require investors
to try to be smart enough to get out before problems arise and the ax falls. Our
approach led to relative underperformance in the first quarter, but it is still
early in the game.
Another reason we have not emphasized larger banks is that these banks are less
likely to be acquired in the current consolidation wave. We try to choose names
for the Fund that have distinct takeover potential as a bonus to go along with
attractive fundamentals. In this regard, the Fund benefited in the first quarter
from the proposed acquisition of Today's Bancorp, Inc., a small Illinois bank,
by Mercantile Bancorporation, Inc.
We are pleased to report that all of the proposals presented to shareholders at
our annual meeting passed with an approval rate on all issues of over 80% of the
shares voted. The primary proposals voted on at the meeting included:
determination that the Fund will remain a closed-end investment company, change
of the Fund's name, and amendment of the Fund's fundamental investment policies
to increase its flexibility to invest in thrifts and certain other types of
institutions. We wish to clear up what may b e a misperception in the minds of
some shareholders regarding the elimination of the Fund's previous fundamental
investment restriction against investing in the securities of other investment
companies. We may invest sparingly in companies structured as invest-
1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ment companies, but do not plan to use this liberalization to invest in mutual
funds.
We are considering investing a portion of the Fund in financial services
companies and, possibly, industrial companies. We wish to emphasize that the
Fund is a bank and thrift stock fund and will invest at least 65% of its assets
in these sectors. If we invest a portion of the remaining funds in any other
areas, it will be because we believe the companies we select offer exceptional
opportunities. For now, we still believe there are very attractive investment
opportunities available in the bank and thr ift sector.
Among the developments in the thrift industry, the initial goodwill lawsuit
filed by several thrifts against the federal government was argued before the US
Supreme Court in April 1996. The plaintiffs in this test case have sued the
government for breach of contract, which the plaintiffs contend occurred when
the government changed capital requirements after encouraging them to acquire
insolvent thrifts. Numerous other thrifts have similar claims and their cases
are on hold, awaiting the results of the te st case. The plaintiffs won the case
in Claims Court and won the first appeal. The government has now appealed to the
Supreme Court.
We have developed a strong conviction that this lawsuit will be successfully
resolved in favor of the plaintiffs. It appears that damages will have to be
paid in cash, although the amount of these damages is highly conjectural and
will have to be determined in a separate trial. We are looking to increase our
exposure to thrifts with goodwill lawsuits, provided we can do so without
investing in poor quality, risky companies. So far, few new names have met these
criteria, as many thrifts with goodwill case's do not meet our quality
parameters and most of the rest appear to have a large percentage of the
potential goodwill damages fully imbedded in their prices.
We are pleased with our stock selection: our incremental purchases have
performed well and our sales also have been good on balance. Our trading
activity picked up considerably in the quarter. During the quarter we added to
our positions in Collective Bancorp, Inc., Bank of Boston, Laurel Capital Group,
Inc., Union Planters Corp., InterWest Bancorp, Inc., Sterling Bancshares, Inc.,
Columbia Bancorp, and Corestates Financial Corp. We established new positions in
Summit Bancshares, Inc., Commercial Federal Corp., West Coast Bancorp, and
BankNorth Group, Inc.
We either reduced or sold our entire positions in the following securities
based on their prices reaching our objectives: First Interstate Bancorp.,
BSB Bancorp, Commerce Bancshares, Inc., Standard Federal Bank, First
Western Bancorp, Inc., and Provident Bancorp, Inc. We sold a small amount
of Comerica, Inc. because of its disproportionate large weighting in the
Fund. We eliminated Mercantile Bancorporation, Inc. and CPB, Inc. from the
Fund because of disappointing earnings and we eliminated our positions
in Eldorado Bancorp and Farmers & Merchants Bancorp due to our concern about
their credit quality. We also reduced our position in Oriental Bank & Trust.
2
<PAGE>
- --------------------------------------------------------------------------------
Pilgrim America Bank and Thrift Fund
First Quarter Report
March 31, 1996
- --------------------------------------------------------------------------------
As for the Fund's stock price, we are disturbed by the fact that the increase in
net asset value that we have achieved has not been reflected in the market price
of the Fund's stock. In April 1996, the Fund traded at a discount to net asset
value of up to 20%, up from an 11.3% discount as recently as January of this
year. While this expanded discount is frustrating to me, in our opinion it has
created an opportunity for the astute investor.
Under the Fund's policy of maintaining a 7.0% annual payout of net asset value,
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 work towards achieving 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 reinvestment of all
distributions. Sales charges or commissions are not reflected in these total
returns.
Average annual total return on a net asset value basis, assuming reinvestment of
all distributions was 43.88%, 23.79% and 13.81% for the one and five year
periods and for the period January 24, 1986 (commencement of operations) to
March 31, 1996, respectively. Sales charges or commissions are not reflected in
these total returns.
Average annual total return based on NYSE market prices, assuming reinvestment
of all distributions and no commissions were 35.04%, 18.22% and 10.84% for the
one and five year periods and for the period January 24, 1986 (commencement of
operations) to March 31, 1996, respectively. Due to variances in investors
broker commission rates, market returns are presented without the deduction of
such commissions. Applying the appropriate commissions will result in lower
total returns at market.
** 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.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 America Bank and Thrift Fund is a closed-end management investment
company listed on the New York Stock Exchange (NYSE:PBS). The company's primary
investment objective is long-term capital appreciation, with income as a
secondary objective. The company seeks to achieve its objectives by investing
primarily in the equity securities of banks and thrifts or their holding
companies.
4
<PAGE>
Portfolio of Investments as of March 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
Market
Shares COMMON STOCKS: 96.5% Value
Banks: 78.6%
17,500 Bancorp Hawaii, Inc. (HI) $ 1,317,187
87,000 Bank of Boston (MA) 4,317,375
150,000 Bank of New York (NY) 7,725,000
30,000 BankNorth Group, Inc. (VT) 1,057,500
62,000 BanPonce Corp. (PR)
2,867,500
248,450 BSB Bancorp (NY) 6,459,700
64,647 CB Bankshares (HI) 1,987,895
65,500 Columbia Bancorp (MD) 1,310,000
369,000 Comerica, Inc. (Ml) 15,405,750
226,588 Commerce Bancshares, Inc. (MO) 7,873,933
63,000 Community Bank System, Inc. (NY) 1,953,000
130,000 Compass Bancshares, Inc. (AL) 4,192,500
243,758 Corestates Financial Corp. (PA) 10,329,245
45,000 First American Corp. (TN) 2,002,500
43,106 First Financial Bancshares (TX) 1,530,263
40,900 First Interstate Bancorp (CA) 7,096,150
1,100 First National Bank Anchorage (AK) 1,749,000
78,564 First of America Bank Corp. (Ml) 3,643,406
245,625 First Security Corp. (UT) 6,816,094
138,704 Fleet Financial Group, Inc. (RI) 5,617,512
208,404 Home Interstate Bancorp (CA) 2,865,555
110,460 Independent Bank Corp. (MI) 3,051,457
95,600 Integra Financial Corp. (PA) 6,703,950
239,400 Keycorp (OH) 9,246,825
280,000 Mercantile Bankshares Corp. (MD) 7,350,000
72,500(a) Mountain Parks Financial Corp. (CO) 1,776,250
195,000 National City Corp. (OH) 6,849,375
42,694 North Dallas Bank & Trust (TX) 1,398,229
84,000 One Valley Bancorp, Inc. (WV) 2,635,500
102,916 Oriental Bank & Trust (PR) 1,698,114
77,000 Peoples Heritage Financial Group (ME) 1,674,750
117,700 Regions Financial Corp. (AL) 5,164,088
290,575(a)(b) Security Shares, Inc. (TX) 2,034,025
71,400 Southern National Corp. (NC) 1,981,350
55,000 Southtrust Corp. (AL) 1,519,375
288,750 Sterling Bancshares, Inc. (TX) 4,042,500
122,200 Summit Bancshares, Inc. (TX) 2,107,950
61,950 Today's Bancorp, Inc. (IL) 1,827,525
45,500 U.S. Bancorp (OR) 1,547,000
136,900 Union Planters Corp. (TN) 4,141,225
108,036 Vallicorp Holdings, Inc. (CA) 1,647,551
9,500 West Coast Bancorp (OR) 185,250
84,000 Zions Bancorp (UT) 5,943,000
-----------
Total Banks 172,642,354
-----------
5
<PAGE>
Portfolio of Investments as of March 31, 1996 (Unaudited)
Market
Shares Value
Thrifts: 17.9%
100,000 American Federal Bank (SC) $ 1,500,000
140,000 Cenfed Financial Corp. (CA) 3,500,000
360,000 Charter One Financial, Inc. (OH) 12,150,000
280,000 Collective Bancorp, Inc. (NJ) 7,070,000
30,000 Commercial Federal Corp. (NE) 1,166,250
111,750 Fidelity Financial Bankshares Corp. (VA) 1,480,687
40,000 InterWest Bancorp, Inc. (WA) 875,000
13,337 Laurel Capital Group, Inc. (PA) 210,058
360,000 Roosevelt Financial Group (MO) 6,660,000
160,000 Security First Corp. (OH) 1,955,000
63,200 Standard Federal Bank (Ml) 2,686,000
----------
Total Thrifts 39,252,995
----------
Total Common Stocks (Cost: $121,676,943) 211,895,349
-----------
<TABLE>
<CAPTION>
Principal
Amount SHORT-TERM INVESTMENTS: 2.8% Value
<S> <C> <C> <C>
$ 6,223,000 Lehman Securities Repurchase Agreement, 5.35%. Due 04/01/96
(Collateralized by $5,655,000. U.S. Treasury Notes. 7.875%.
Due 02/15/21) 6,223,000
---------
Total Short-Term Investments (Cost: $6,223,000) 6,223,000
-----------
Total Investments in Securities (Cost: $127,899,943) 99.3% 218,118,349
Cash and other assets in excess of liabilities 0.7 1,495,888
----- -----------
Total Net Assets 100.0% $219,614,237
===== ============
</TABLE>
Cost for federal income tax purposes is $127,899,943. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation $ 90,218,406
Gross Unrealized Depreciation
Net Unrealized Appreciation $ 90,218,406
(a) Affiliated company
(b) Non-income producing security
6
<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 America Bank and Thrift Fund
Pilgrim America Prime Rate Trust
Money Market Fund
Pilgrim America General Money Market Shares
Pilgrim America
Funds
"Our goal is for every investor to have a successful investment experience."
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 prospectuses carefully
before you invest or send money.
<PAGE>
- ----------------------------------------
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
"Our goal is for every investor to have a successful investment experience."
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.
16-SS-050196 052496
Pilgrim America
Funds
PILGRIM AMERICA
BANK AND THRIFT FUND
First Quarter Report
March 31, 1996
