<PAGE>
Pilgrim America
Bank and Thrift Fund
[LOGO]
THIRD QUARTER REPORT
SEPTEMBER 30, 1996
<PAGE>
Pilgrim America Bank and Thrift Fund
THIRD QUARTER REPORT
September 30, 1996
---------
Table of Contents
Letter to Shareholders..................................4
Shareholder Letter Footnotes............................7
Portfolio of Investments................................8
---------
[LOGO]
Pilgrim America Funds
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder:
Pilgrim America Bank and Thrift Fund (the "Fund") had an exceptional third
quarter. Our net asset value rose 14.1%1 exceeding the 13.1% achieved by the
Standard & Poor's Major Regional Bank Index (the "MRBI")2 and far surpassing the
3.1% and 4.7% gains turned in respectively by the Standard & Poor's 500 Index
(the "S&P")3 and Dow Jones Industrial Average Index (the "Dow"). Year to date,
our net asset value was up 21.4%1 slightly behind the 22.2% rise of the MRBI and
considerably ahead of the respective 13.5% and 16.9% increases in the S&P and
the Dow.
In addition, the stock price of the Fund rose 15.9%1 in the third quarter,
narrowing the discount that the Fund sells at in comparison to its net asset
value. In an attempt to get the Fund's story better known by Wall Street, we
met with Wall Street analysts that cover closed-end funds. We believe that this
has resulted in increased recognition for the Fund and has contributed to the
improvement in its stock price.
Third quarter earnings have been coming in as expected or slightly better. Loan
growth continues to slow, credit quality continues to be good except in the
consumer area especially in the credit card area which continues to deteriorate.
Stock buybacks continue as banks and thrifts attempt to utilize the excess
capital that their current good rate of return is generating. However, the
increased valuation that the market has placed on the bank and thrift group has
reduced the bottom line contribution that this activity accomplishes.
Consolidation activity picked up again in the quarter with NationsBank's
announced acquisition of Boatmen's. Although we did not own Boatmen's, we
benefited from the strong performance of the
4
<PAGE>
Pilgrim America Bank and Thrift Fund
group after the announcement. We also benefited more directly in the quarter
from the proposed acquisition of one of our holdings, Fidelity Financial
Bankshares, by Southern National Corp.
The recapitalization of the Savings Association Insurance Fund ("SAIF") has
finally taken place. This resulted in a one time charge to capital for those
thrifts and banks with SAIF insured deposits. Reported earnings for these
institutions looked poor in the quarter, but the market correctly looked through
this. The thrift group was strong as their deposit insurance costs on an
ongoing basis will now decline resulting in an average benefit to earnings of
approximately 6%-7%.
We had a lot of trading activity in the quarter. We added to our existing
positions in Eldorado Bancorp, Westernbank of Puerto Rico, Ugly Duckling Corp,
Union Planters Corp, MacFrugal's Bargains Close-Out, West Coast Bancorp,
Columbia Bancorp, Laurel Capital Group, Inc . and Fleet Financial Group, Inc.
New positions were established in Cupertino National Bancorp, Alabama National
Bancorp, US Bancorp Inc.(PA)., North Valley Bancorp and First Financial Corp. A
small position outside the bank and thrift area, Devon Group, was also added.
Stocks that hit our price objectives and were lightened up on were: First of
America Bank Corp., First Financial Bancshares, Home Interstate Bancorp, BSB
Bancorp, National City Corp, Comerica, Inc. and Vallicorp Holdings, Inc.
Roosevelt Financial Group, Inc.'s earnings were disappointing , resulting in our
reducing our holdings of this issue.
We sold our entire positions in One Valley Bancorp, Inc., US Bancorp(OR), Bank
United and Today's Bancorp, Inc. as these securities reached our price
objectives. The performance of CB Bankshares disappointed us and resulted in
the sale of our entire position in this security.
Banks and thrifts have performed very well this year. We believe that some of
the larger ones are approaching fair value and that the best opportunities for
price appreciation is in some of the smaller capitalization names. This of
course excludes the possibility of appreciation resulting from a company being
acquired and we believe that this activity should continue for quite some time.
5
<PAGE>
Pilgrim America Bank and Thrift Fund
The Fund's current policy is to maintain a 7.0% annual payout of net asset
value. The next distribution for the Fund is scheduled to occur in December,
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 419541, Kansas City, MO 64141, (800) 548-4521.
Thank you for giving us the opportunity to help you achieve your investment
goals. As always, we welcome your comments and questions.
Sincerely,
/s/ Carl Dorf
Carl A. Dorf, C.F.A.
Vice President and Senior Portfolio Manager
6
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
SHAREHOLDER LETTER FOOTNOTES
- --------------------------------------------------------------------------------
(1) Total return calculated at net asset value and assuming reinvestment of all
dividends and distributions. Sales charges or commissions are not
reflected in these total returns.
Average annual total returns based on a net asset value basis, assuming
reinvestment of all dividends and distributions were 31.07%, 22.71% and
15.43% for the one, five and ten year periods ended September 30, 1996,
respectively. Sales charges or commissions are not reflected in these total
returns.
Average annual total returns based on NYSE market prices assuming
reinvestment of all dividends and distributions and no commissions were
23.06%, 16.90% and 14.39% for the one, five and ten year periods ended
September 30, 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.
(2) 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.
(3) The S&P is an unmanaged index of 500 common stocks and is a generally
accepted measure of stock market performance.
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.
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 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 banks and thrifts.
7
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Bank and Thrift Fund
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of September 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 97.8%
Market
Shares Industry/Issuer Value
------ --------------- -----
<C> <S> <C>
Banks: 93.9%
70,000 Alabama National Bancorp (AL) $1,085,000
100,000 American Federal Bank (SC) 1,762,500
145,450 BSB Bancorp (NY) 3,690,794
37,500 Bancorp Hawaii, Inc. (HI) 1,462,500
87,000 Bank of Boston (MA) 5,035,125
300,000 Bank of New York (NY) 8,812,500
60,000 BankNorth Group, Inc. (VT) 2,242,500
124,000 BanPonce Corp. (PR) 3,348,000
251,371 CU Bancorp (CA) 2,576,555
154,000 Cenfed Financial Corp. (CA) 3,811,500
378,000 Charter One Financial, Inc. (OH) 15,120,000
280,000 Collective Bancorp (NJ) 7,980,000
100,500 Columbia Bancorp (MD) 1,909,500
349,000 Comerica, Inc. (MI) 17,973,500
226,588 Commerce Bancshares, Inc. (MO) 8,836,932
102,000 Commercial Federal Corp. (NE) 4,386,000
63,000 Community Bank Systems, Inc. (NY) 2,157,750
130,000 Compass Bancshares, Inc. (AL) 4,468,750
293,758 Corestates Financial Corp. (PA) 12,705,034
110,596(a) Cupertino National Bancorp (CA) 1,714,238
29,500 Eldorado Bancorp (CA) 542,062
111,750 Fidelity Financial Bankshares (VA) 2,570,250
45,000 First American Corp. (TN) 2,160,000
33,564 First of America Bank Corp. (MI) 1,766,306
33,882 First Financial Bancshares, Inc. (TX) 1,177,400
3,500 First Financial Corp. (WI) 84,000
1,100 First National Bank Anchorage (AK) 1,694,000
245,625 First Security Corp. (UT) 6,754,687
161,704 Fleet Financial Group, Inc. (RI) 7,195,828
110,460 Independent Bank Corp. (MI) 3,230,955
55,000 InterWest Bancorp, Inc. (WA) 1,622,500
239,400 Keycorp (OH) 10,533,600
29,937 Laurel Capital Group, Inc. (PA) 464,023
280,000 Mercantile Bankshares Corp. (MD) 8,295,000
84,500(b) Mountain Parks Financial Corp. (CO) 2,408,250
357,600 National City Corp. (OH) 15,063,900
42,694 North Dallas Bank & Trust Co. (TX) 1,419,576
4,500 North Valley Bancorp (CA) 98,437
137,000 Peoples Heritage Financial Group (ME) 3,202,375
72,700 Regions Financial Corp. (AL) 3,498,688
310,000 Roosevelt Financial Group, Inc. (MO) 5,308,750
160,000 Security First Corp. (OH) 2,300,000
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Bank and Thrift Fund
- ------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of September 30, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
Market
Shares Industry/Issuer Value
------ --------------- -----
<C> <S> <C>
Banks (continued)
290,575(b)(c) Security Shares, Inc. (TX) $ 2,179,312
71,400 Southern National Corp. (NC) 2,374,050
55,000 Southtrust Corp. (AL) 1,677,500
88,200 Standard Federal Bank (MI) 4,035,150
288,750 Sterling Bancshares Inc. (TX) 4,295,156
122,200 Summit Bancshares, Inc. (TX) 2,566,200
35,100 TCF Financial Corp. (MN) 1,320,638
171,900 Union Planters Corp. (TN) 6,102,450
20,000 US Bancorp (OR) 770,000
98,036 Vallicorp Holdings, Inc. (CA) 1,666,612
22,000 West Coast Bancorp (OR) 431,750
100,000 Westernbank of Puerto Rico (PR) 1,575,000
84,000 Zions Bancorp (UT) 7,434,000
-------------
36,427,818
-------------
Finance: 1.9%
341,000(b) Ugly Duckling Corp. 4,560,875
-------------
Printing: 0.7%
75,400(b) Devon Group 1,771,900
-------------
Retail: 1.3%
129,900(b) MacFrugal's Bargains Close-Out 3,068,888
-------------
Total Common Stocks (Cost $133,760,504) 45,829,481
-------------
SHORT-TERM INVESTMENTS: 2.1%
Principal
Amount
------
U.S. Agency Discount Notes: 2.1%
$5,045,000 Federal Home Loan Bank Discount Note, 5.45% due 10/01/96 5,045,000
-------------
Total Short-Term Investments (Cost $5,045,000) 5,045,000
-------------
Total Investments (Cost $138,805,504) 99.9% 50,874,481
Cash and Other Assets in Excess of Liabilities-Net 0.1% 295,661
-------- -------------
Total Net Assets 100.0% $ 51,170,142
======= ============
--------------------------
Cost for federal income tax purposes is $138,805,502. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $104,818,536
Gross Unrealized Depreciation (280,294)
-------------
Net Unrealized Appreciation $104,538,242
=============
</TABLE>
(a) Affiliated Company
(b) Non-income producing security
(c) Affiliated company and a direct placement security restricted as
to resale. It has been valued at fair value as determined by
policies set by the Board of Directors.
9
<PAGE>
Pilgrim America Bank and Thrift Fund
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 419541
Kansas City, Missouri 64141
1-800-548-4521
TRANSFER AGENT
Investors Fiduciary Trust Company
P.O. Box 419541
Kansas City, Missouri 64141
<PAGE>
Pilgrim America Funds
MASTERS SERIES
--------------
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
ELITE SERIES
------------
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
[LOGO]
Pilgrim America
Funds
"Our goal is for every investor to have a successful invetsment experience."
Prospectuses containing more complete information regarding the funds, including
charges and expenses, may be obtained by calling Pilgrim America Securities,
Inc. Distributor at 1-800-334-3444. Please read the prospectuses carefully
before you invest or send money.
16-SS-110796 112996
