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Pilgrim America
Bank and Thrift Fund
First Quarter Report
March 31, 1997
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Pilgrim America
Bank and Thrift Fund
First Quarter Report
March 31, 1997
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Table of Contents
Letter to Shareholders.................................. 4
Shareholder Letter Footnotes............................ 7
Portfolio of Investments................................ 8
Fund Advisors and Agents................................ 10
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Pilgrim America Bank and Thrift Fund
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Letter to Shareholders
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Dear Shareholders:
Pilgrim America Bank and Thrift Fund (the "Fund") had an exceptional first
quarter. Total return based on net asset value ("NAV") was 6.8%(1); far
surpassing the 2.6% and 2.7% returns achieved by the Dow Jones Industrial
Average Index (the "Dow") and the Standard & Poor's 500 Index (the "S&P")(2),
respectively. We also slightly exceeded the 6.6% return achieved by the Standard
& Poor's Major Regional Bank Index (the "MRBI")(3). It was a good quarter for
bank and thrift stocks.
As we sit here and write this letter we are reminded of the opening sentence of
A Tale of Two Cities: "It was the best of times, it was the worst of times". The
market (bank and thrift stocks in particular) has continued to perform well
since the end of the first quarter. Year to date total return based on NAV
through April 30, 1997 was 9.7%(1). This is about what we expected to achieve in
the Fund for the full year. While we do not claim to or try to be a market
timer, we believe that the market has passed the fair valuation stage and has
entered the overvaluation stage. Usually this later stage reaches excesses
before some event triggers a significant correction. We have probably not
reached this stage of valuation yet but bargains are few and far between.
In contrast, the discount at which the Fund trades has unfortunately widened,
which produces greater value for new shareholders. Yet in our opinion, bank and
thrift stocks are still reasonably priced compared to the market as a whole.
Although we prefer buying stocks when no one else wants them, this is clearly
not the case today. With one exception, the fundamentals that make the industry
tick are in good shape.
The exception to the above statement is credit card charge-offs. The recent loss
rate has risen to a new high of 6.9%-70 basis points higher than the peak of
6.2% following the last recession in June,
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Pilgrim America Bank and Thrift Fund
1992. What will it be if we ever do have another recession? We have attempted to
focus on owning those banks that have average to below average credit card
exposure. While delinquencies appear to be stable at around 5.4%, this statistic
could be misleading due to the increased level of personal bankruptcies. Many
loans go bad without ever missing a payment.
We have recently raised a little cash in the Fund as some securities reached our
price objective.
Our performance in the quarter was hurt a little by our small exposure to the
sub-prime auto sector. One company after another in this sector has blown up
and earnings quality has been deteriorating. This has shown up with gain on
sale rising as a percent of earnings. While we avoided the bombs, we were hit
with a couple of bullets. First Enterprise Financial Group, Inc. and Ugly
Duckling Corp. performed poorly on a price basis in this environment.
Consolidation in the industry continues and we benefited during the quarter from
the announced acquisitions of CU Bancorp by Pacific Century Financial Corp.
(formerly Bancorp Hawaii, Inc.), Collective Bancorp, Inc. by Summit Bancorp, and
American Federal Bank, FSB by CCB Financial.
We added to positions during the quarter in North Valley Bancorp, Laurel Capital
Group, Inc., USBANCORP, Inc. and National City Bancorporation of Minnesota. New
positions were established in Southwest Bancorporation of Texas, Inc. (a new
issue), First Enterprise Financial Group, Inc. (a new issue), MainStreet
BankGroup, Inc., UnionBanCal Corp. and Hamilton Bancorp, Inc. (a new issue).
Two new issues that we participated in and sold at gains after they achieved our
objectives were National Auto Finance and AmerUs Life Holdings.
The rest of our position in Ponce Bank was sold due to our concern about the
credit quality of this company. Eldorado Bancorp was also sold since its price
reflected most of what we were scheduled to receive from its acquisition.
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Pilgrim America Bank and Thrift Fund
We reduced our positions in the following securities based on their reaching or
approaching our price objectives: CU Bancorp, Zions Bancorporation, First
Security Corp., Roosevelt Financial Group, Inc., Standard Federal Bank, KeyCorp,
National City Corp., CoreStates Financial Corp., Commerce Bancshares, Inc.,
CENFED Financial Corp. and Vallicorp Holdings, Inc.
The Fund's current policy is to maintain a 7.0% annual payout of NAV. The next
distribution will be declared June, 1997. 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/ Robert W. Stallings
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Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim America Group, Inc.
/s/ Carl A. Dorf, C.F.A.
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Carl A. Dorf, C.F.A.
Senior Vice President and Senior Portfolio Manager
Pilgrim America Investments, Inc.
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Pilgrim America Bank and Thrift Fund
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SHAREHOLDER LETTER FOOTNOTES
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(1) Total return calculated at NAV 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 NAV, assuming reinvestment of all
dividends and distributions were 43.9%, 24.0% and 17.2% for the one, five
and ten-year periods ended March 31, 1997, respectively.
Average annual total returns based on NYSE market prices assuming
reinvestment of all dividends and distributions and no commissions were
44.0%, 18.2% and 16.0% for the one, five and ten-year periods ended
March 31, 1997, 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 is an unmanaged index of 500 common stocks and is a generally
accepted measure of stock market performance.
(3) 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.
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.
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Pilgrim America Bank and Thrift Fund
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PORTFOLIO OF INVESTMENTS as of March 31, 1997 (Unaudited)
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COMMON STOCKS: 98.8%
Market
Shares Industry/Issuer Value
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Banks: 93.4%
80,500 Alabama National Bancorporation (AL) $1,449,000
100,000 American Federal Bank, FSB (SC) 2,700,000
151,156 BB&T Corp. (NC) (formerly Southern National Corp.) 5,630,560
145,450 BSB Bancorp, Inc. (NY) 4,418,044
87,000 Bank of Boston Corp. (MA) 5,829,000
270,000 Bank of New York Company, Inc. (NY) 9,922,500
88,000 Banknorth Group, Inc. (VT) 3,564,000
124,000 CENFED Financial Corp. (CA) 4,123,000
169,371 CU Bancorp (CA) 2,455,883
378,000 Charter One Financial, Inc. (OH) 16,584,750
280,000 Collective Bancorp, Inc. (NJ) 10,815,000
100,500 Columbia Bancorp (MD) 2,211,000
349,000 Comerica Inc. (MI) 19,674,875
142,917 Commerce Bancshares, Inc. (MO) 6,520,588
190,500 Commercial Federal Corp. (NE) 6,429,375
126,000 Community Bank System, Inc. (NY) 2,961,000
107,737 Community First Bankshares, Inc. (ND) 3,339,847
130,000 Compass Bancshares, Inc. (AL) 5,785,000
283,758 CoreStates Financial Corp. (PA) 13,478,505
45,000 First American Corp. (TN) 2,863,125
33,882 First Financial Bankshares, Inc. (TX) 1,321,398
4,375 First Financial Corp. (WI) 114,297
1,100 First National Bank Anchorage (AK) 1,999,250
185,625 First Security Corp. (UT) 5,963,203
161,704 Fleet Financial Group, Inc. (RI) 9,257,554
91,160 Greater Bay Bancorp (CA) 2,484,112
10,000(a) Hamilton Bancorp Inc. (FL) 172,500
115,983 Independent Bank Corp. (MI) 4,436,350
55,000 InterWest Bancorp, Inc. (WA) 1,773,750
179,400 KeyCorp (OH) 8,745,750
42,437 Laurel Capital Group, Inc. (PA) 901,786
20,000 MainStreet BankGroup, Inc. (VA) 402,500
280,000 Mercantile Bankshares Corp. (MD) 9,450,000
12,500(a) National City Bancorporation (MN) 278,125
251,600 National City Corp. (OH) 11,730,850
42,694 North Dallas Bank & Trust Co. (TX) 1,550,347
16,850 North Valley Bancorp (CA) 408,612
37,500 Pacific Century Financial Corp. (HI)
(formerly Bancorp Hawaii, Inc.) 1,607,813
162,000 Peoples Heritage Financial Group (ME) 4,981,500
124,000 Popular Inc. (PR) (formerly BanPonce Corp.) 4,402,000
72,700 Regions Financial Corp. (AL) 4,034,850
30,000 Roosevelt Financial Group, Inc. (MO) 652,500
160,000 Security First Corp. (OH) 3,020,000
290,575(a)(b) Security Shares, Inc. (TX) 2,288,278
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Pilgrim America Bank and Thrift Fund
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PORTFOLIO OF INVESTMENTS as of March 31, 1997 (Unaudited)
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Market
Shares Industry/Issuer Value
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Banks (continued)
55,000 SouthTrust Corp. (AL) $1,986,875
5,000 Southwest Bancorporation of Texas, Inc. (TX) 96,250
48,200 Standard Federal Bank (MI) 2,795,600
433,125 Sterling Bancshares, Inc. (TX) 6,496,875
122,200 Summit Bancshares, Inc. (TX) 3,024,450
35,100 TCF Financial Corp. (MN) 1,390,838
36,700 USBANCORP, Inc. (PA) 1,633,150
171,900 Union Planters Corp. (TN) 6,983,437
70,000 UnionBanCal Corp. (CA) 3,867,500
53,036 Vallicorp Holdings, Inc. (CA) 1,080,609
27,500 West Coast Bancorp (OR) 594,687
230,000 Westernbank Puerto Rico (PR) 3,823,750
44,000 Zions Bancorporation (UT) 5,225,000
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251,731,398
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Finance: 2.7%
82,000(a) First Enterprise Financial Group, Inc. 594,500
366,000(a) Ugly Duckling Corp. 6,725,250
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7,319,750
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Printing: 0.9%
75,400(a) Devon Group, Inc. 2,224,300
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Retail: 1.8%
129,900(a) Mac Frugal's Bargains Close-Outs Inc. 3,442,350
80,000(a) Michael's Stores, Inc. 1,470,000
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4,912,350
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Total Common Stocks (Cost $131,142,505) 266,187,798
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SHORT-TERM INVESTMENTS: 1.1%
Principal
Amount Value
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U.S. Agency Discount Notes: 1.1%
$2,955,000 Federal Home Loan Bank Discount Note,
5.04% due 04/01/97 2,955,000
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Total Short-Term Investments
(Cost $2,955,000) 2,955,000
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Total Investments in Securities
(Cost $134,097,505) 99.9% 269,142,798
Cash and Other Assets in Excess of
Liabilities-Net 0.1% 304,422
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Total Net Assets 100.0% $269,447,220
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Cost for federal income tax purposes is $134,097,505. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation $135,506,791
Gross Unrealized Depreciation (461,498)
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Net Unrealized Appreciation $135,045,293
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(a) Non-income producing security
(b) 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.
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Pilgrim America Bank and Thrift Fund
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FUND ADVISORS AND AGENTS
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INVESTMENT MANAGER INSTITUTIONAL INVESTORS AND ANALYSTS
Pilgrim America Investments, Inc. Call Pilgrim America Bank and Thrift Fund
Two Renaissance Square 1-800-336-3436, Extension 8261
40 North Central Avenue
Suite 1200
Phoenix, AZ 85004-4424
SHAREHOLDER SERVICING AGENT TRANSFER AGENT
Investors Fiduciary Trust Company Investors Fiduciary Trust Company
P.O. Box 419541 P.O. Box 419541
Kansas City, Missouri 64141 Kansas City, Missouri 64141
WRITTEN REQUESTS
Please mail all account inquiries and other comments to:
Pilgrim America Bank and Thrift Fund Account Services
c/o Pilgrim America Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4424
TOLL-FREE SHAREHOLDER INFORMATION
Call us from 9:00 a.m. to 7:00 p.m. Eastern time on any business day for
account or other information, at 1-800-331-1080.
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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
Pilgrim America
Funds
"Our goal is for every investor to have a successful investment 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-050797 053097
