Pilgrim America
Bank and Thrift Fund
Semi-Annual Report
June 30, 1997
<PAGE>
Pilgrim America Bank and Thrift Fund
Semi-Annual Report
June 30, 1997
Table of Contents
Letter to Shareholders .................................................... 2
Shareholder Letter Footnotes .............................................. 5
Annual Shareholder Meeting ................................................ 6
Portfolio of Investments .................................................. 7
Statement of Assets and Liabilities ....................................... 9
Statement of Operations ................................................... 10
Statement of Changes in Net Assets ........................................ 11
Financial Highlights ...................................................... 12
Notes to Financial Statements ............................................. 13
Fund Advisors and Agents .................................................. 17
1
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Pilgrim America Bank and Thrift Fund
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LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholders:
Pilgrim America Bank and Thrift Fund (the "Fund") had an even better second
quarter than our strong first quarter. Total return based on net asset value
("NAV") was 15.3%.(1) Bank and thrift stocks underperformed industrials in this
quarter resulting in our return trailing the 17.1%, and 17.5% returns achieved
respectively by the Dow Jones Industrials Average Index (the "DOW") and the
Standard & Poor's 500 Index (the "S&P")(2). However, we surpassed the 13.9%
turned in by the S&P Major Regional Banks Index (the "MRBI"). For the six months
ended June 30, 1997, our 23.2% increase in NAV surpassed the returns achieved by
all of the other indices. The DOW, the S&P and the MRBI were up 20.1%, 20.6% and
21.5%, respectively.
The current environment for equities is almost perfect and valuations tend to
reflect this. The economy continues to expand but is not overheating. Interest
rates have been declining and the economic environment is not putting any
pressure on the Fed to raise them. In our opinion, while valuations for the
market as a whole are not cheap, the bank and thrift sector is still relatively
attractive.
In general, reported second quarter bank and thrift earnings have met or
exceeded expectations. Earnings quality is also improving as loss provisions for
many banks are now matching or nearly matching net charge-offs. Some banks are
building reserves by providing for more than they are charging off.
We always like to look for what could change this almost perfect environment and
we will share our thoughts with you. The banking industry is a cyclical growth
industry and the positive side of the cycle has been extended. At some point
credit quality will deteriorate and loss provisions will have to be increased.
Current provisions are still not high enough to provide for this contingency.
Most of the losses that are currently being experienced are related to consumer
credit, but there are very early warning signs that commercial and industrial
loan losses could pick up.
2
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Pilgrim America Bank and Thrift Fund
Also, the rates of return that banks are currently achieving are exceptional.
This allows them to generate excess capital and, in most cases, this excess
capital is being used to buy back stock. The increased stock prices of most
banks make this practice less attractive than it was at lower prices and the
premium that the banks have to pay relative to their book value is resulting in
slower growth in common equity and in some cases an actual decline in per share
book value. In our opinion, some of this capital should be saved for a rainy day
and some banks are not doing so.
A positive for the industry is that regulations have been liberalized which has
resulted in some banks acquiring stock brokerage firms and others gaining an
opportunity to expand their existing investment businesses as well. The trend
seems to be toward further liberalization.
Consolidation in the industry should continue. We benefited in the quarter from
the acquisition of Vallicorp by Westamerica Bancorp, Standard Federal by ABN
Amro Bank NV, and the announced acquisition of First Financial Corp by
Associated Bancorp. Also, First Union's proposed acquisition of Signet at 3.5
times Signet's June 30, 1997 book value, and 23.3 and 18.8 times its estimated
1997 and 1998 earnings, respectively, has raised the bar even higher in terms of
what banks are willing to pay to acquire market share in desirable areas.
In the most recent quarter we added to our positions in National City
Bancorporation, US Bancorp, Commercial Federal Corp. and Devon Group.
New positions were established in BNC Corp, Home Federal Bancorp, Summit
Holdings Southeast, ARM Financial Group, Inc., and Keystone Automotive
Industries, Inc. We participated in two new issues in the quarter that we
disposed of shortly after acquiring them: Life Financial Corp. and Acorn
Products, Inc. We made money on Life and broke even on Acorn.
We reduced our position in Ugly Duckling Corp. in the quarter and on a valuation
basis partially scaled back our holdings of the following issues: Cenfed
Financial Corp., Independent Bank Corp., Commerce Bancshares, Inc., Mercantile
Bankshares Corp., Regions Financial Corp., Sterling
3
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Pilgrim America Bank and Thrift Fund
Bancshares, Inc. and Zions Bancorporation. Our entire positions were sold in
First Financial Bankshares, First American Corp and Southwest Bancorp of Texas
as these issues reached our price objectives.
On August 4, 1997, the Board of Directors of the Fund approved the conversion of
the Fund from a closed-end investment company to an open-end investment company,
subject to shareholder approval at a special meeting of shareholders to be held
in October. We believe that the conversion to an open-end investment company is
in the best interests of the Fund's shareholders primarily because it will allow
shareholders to purchase and redeem Fund shares at NAV instead of a discounted
market price.
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
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim America Group, Inc.
/s/ Carl Dorf
Carl Dorf, C.F.A.
Senior Vice President and Senior Portfolio Manager
Pilgrim America Investments, Inc.
4
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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 63.3%, 26.2% and 19.1% for the one, five
and ten-year periods ended June 30, 1997, respectively.
Average annual total returns based on NYSE market prices assuming
reinvestment of all dividends and distributions and no commissions were
76.5%, 22.7% and 19.4% for the one, five and ten-year periods ended June
30, 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 Banks 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.
5
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Pilgrim America Bank and Thrift Fund
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ANNUAL SHAREHOLDER MEETING
- --------------------------------------------------------------------------------
ANNUAL MEETING
An annual meeting of shareholders was held at the offices of the Fund on April
24, 1997. A brief description of each matter voted upon as well as the voting
results are outlined below:
Shares
Shares voted against Shares Broker
voted for or withheld abstained non-vote Total
--------- ----------- --------- -------- -----
I. Proposal for the election of Directors:
Mary A. Baldwin 12,099,050 212,658 - - 12,311,708
Al Burton 12,090,952 220,756 - - 12,311,708
Bruce S. Foerster 12,102,119 209,589 - - 12,311,708
Jock Patton 12,101,069 210,639 - - 12,311,708
Robert W. Stallings 12,099,972 211,736 - - 12,311,708
II. Ratification of KPMG Peat Marwick LLP as independent auditors for the Fund
for the fiscal year ending December 31, 1997:
12,077,673 128,445 105,589 - 12,311,707
III. Approval to transact such other business as may properly come before the
annual meeting of shareholders or any adjournments thereof:
11,546,116 433,414 332,177 - 12,311,707
6
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Pilgrim America Bank and Thrift Fund
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PORTFOLIO OF INVESTMENTS as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS: 94.2%
Market
Shares Industry/Issuer Value
------ --------------- -----
Automotive: 0.2%
30,000 (a) Keystone Automotive Industries, Inc. 510,000
----------
Banks: 88.8%
80,500 Alabama National Bancorporation (AL) 1,801,188
100,000 American Federal Bank, FSB (SC) 3,225,000
151,155 BB&T Corp. (NC) 6,801,975
145,450 BSB Bancorp, Inc. (NY) 5,563,463
15,000 (a) BNC Corp. (ND) 189,375
87,000 Bank of Boston Corp. (MA) 6,269,438
270,000 Bank of New York Company, Inc. (NY) 11,745,000
88,000 Banknorth Group, Inc. (VT) 4,070,000
103,400 CENFED Financial Corp. (CA) 3,567,300
169,371 CU Bancorp (CA) 2,582,911
378,000 Charter One Financial, Inc. (OH) 20,364,750
280,000 Collective Bancorp, Inc. (NJ) 12,565,000
100,500 Columbia Bancorp (MD) 2,399,438
349,000 Comerica Inc. (MI) 23,732,000
97,917 Commerce Bancshares, Inc. (MO) 4,430,744
220,500 Commercial Federal Corp. (NE) 8,186,063
126,000 Community Bank System, Inc. (NY) 3,559,500
107,737 Community First Bankshares, Inc. (ND) 4,134,407
195,000 Compass Bancshares, Inc. (AL) 6,556,875
283,758 CoreStates Financial Corp. (PA) 15,251,993
4,375 First Financial Corp. (WI) 128,516
1,100 First National Bank Anchorage (AK) 2,007,500
278,437 First Security Corp. (UT) 7,604,811
161,704 Fleet Financial Group Inc. (RI) 10,227,778
91,160 Greater Bay Bancorp (CA) 2,803,172
10,000 (a) Hamilton Bancorp Inc. (FL) 267,500
13,500 Home Federal Bancorp (IN) 384,750
131,474 Independent Bank Corp. (MI) 3,763,443
55,000 InterWest Bancorp, Inc. (WA) 2,172,500
179,400 KeyCorp (OH) 10,023,975
42,437 Laurel Capital Group, Inc. (PA) 896,482
20,000 MainStreet BankGroup, Inc. (VA) 550,000
250,000 Mercantile Bankshares Corp. (MD) 10,000,000
19,250 (a) National City Bancorporation (MN) 421,094
251,600 National City Corp. (OH) 13,209,000
42,694 North Dallas Bank & Trust Co. (TX) 1,611,699
16,850 North Valley Bancorp (CA) 480,225
37,500 Pacific Century Financial Corp. (HI) 1,734,375
162,000 Peoples Heritage Financial Group (ME) 6,135,750
124,000 Popular Inc. (PR) 5,006,500
65,400 Regions Financial Corp. (AL) 2,068,275
30,000 Roosevelt Financial Group, Inc. (MO) 660,000
160,000 Security First Corp. (OH) 3,600,000
290,575 (a)(b) Security Shares, Inc. (TX) 2,615,175
55,000 SouthTrust Corp. (AL) 2,275,625
373,125 Sterling Bancshares, Inc. (TX) 6,996,094
122,200 Summit Bancshares, Inc. (TX) 3,360,500
See Accompanying Notes to Financial Statements
7
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Pilgrim America Bank and Thrift Fund
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PORTFOLIO OF INVESTMENTS as of June 30, 1997 (Unaudited)
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Market
Shares Industry/Issuer Value
------ --------------- -----
Banks (continued)
35,100 TCF Financial Corp. (MN) $ 1,733,063
171,900 Union Planters Corp. (TN) 8,917,313
70,000 UnionBanCal Corp. (CA) 5,031,250
64,300 USBANCORP, Inc. (PA) 3,504,350
27,500 West Coast Bancorp (OR) 859,375
18,451 Westamerica Bancorp (CA) 1,402,276
230,000 Westernbank Puerto Rico (PR) 4,255,000
56,000 Zions Bancorporation (UT) 2,107,000
-----------
275,810,781
-----------
Finance: 1.4%
82,000 (a) First Enterprise Financial Group, Inc . 461,250
246,000 (a) Ugly Duckling Corp. 3,813,000
-----------
4,274,250
-----------
Insurance: 1.1%
151,000 ARM Financial Group, Inc. 3,020,000
20,000 (a) Summit Holdings Southeast, Inc. 340,000
-----------
3,360,000
-----------
Printing: 1.0%
93,200 (a) Devon Group, Inc. 3,331,900
-----------
Retail: 1.7%
129,900 (a) MacFrugal's Bargains Close-Outs Inc. 3,539,775
80,000 (a) Michael's Stores, Inc. 1,695,000
-----------
5,234,775
-----------
Total Common Stocks (Cost $130,135,039) 292,521,706
-----------
SHORT-TERM INVESTMENTS: 5.8%
<TABLE>
<CAPTION>
Principal
Amount
- ---------
<S> <C> <C>
Repurchase Agreements: 5.8%
Merrill Lynch Repurchase Agreement, 5.40% due 07/01/97
(Collateralized by $17,925,000 U.S. Treasury Bonds, 6.625%
$18,210,000 Due 07/31/01) 18,210,000
------------
Total Short-Term Investments (Cost $18,210,000) 18,210,000
------------
Total Investments in Securities (Cost $148,345,039)
100.0% 310,731,706
Liabilities in Excess of Cash and Other Assets-Net (0.0) (41,384)
----- ------------
Total Net Assets 100.0% $310,690,322
===== ============
</TABLE>
- ------------
Cost for federal income tax purposes is $148,345,039. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation $162,704,540
Gross Unrealized Depreciation (317,873)
------------
Net Unrealized Appreciation $162,386,667
============
(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.
See Accompanying Notes to Financial Statements
8
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Pilgrim America Bank and Thrift Fund
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STATEMENT OF ASSETS AND LIABILITIES June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS:
Investments in securities at market value
Unaffiliated Issuers (Cost $128,464,233) $289,906,531
Affiliated Issuers (Cost $1,670,806) 2,615,175
Short-term investments at amortized cost 18,210,000
Cash 1,857,053
Receivables:
Dividends and interest receivable 584,663
Securities sold 411,486
Prepaid expenses 40,855
------------
Total assets 313,625,763
------------
LIABILITIES:
Securities purchased 2,755,625
Accrued expenses 179,816
------------
Total liabilities 2,935,441
------------
NET ASSETS (equivalent to $21.97 per share, based on 14,141,241
shares outstanding) $310,690,322
============
Net Assets Consist of:
Paid-in capital $119,423,407
Undistributed net investment income 1,798,462
Accumulated net realized gain on investments 27,081,786
Net unrealized appreciation of investments 162,386,667
------------
Net assets $310,690,322
============
See Accompanying Notes to Financial Statements
9
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Pilgrim America Bank and Thrift Fund
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STATEMENT OF OPERATIONS For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
INCOME:
Dividends (net of foreign withholding taxes of $8,234) $ 3,228,802
Interest 266,022
-----------
Total investment income 3,494,824
-----------
EXPENSES:
Investment management fees 1,027,973
Reports to shareholders 52,399
Transfer agent and registrar fees 51,080
Recordkeeping and pricing fees 42,280
Custodian fees 32,799
Professional fees 22,726
Trustees' fees 21,850
Miscellaneous expense 16,465
Insurance expense 1,052
-----------
Total expenses 1,268,624
Less: Earnings credits (4,178)
-----------
Net expenses 1,264,446
-----------
Net investment income 2,230,378
-----------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS:
Net realized gain on investments 29,582,083
Change in unrealized appreciation of investments 26,535,783
-----------
Net gain on investments 56,117,866
-----------
Net increase in net assets resulting from operations $58,348,244
===========
See Accompanying Notes to Financial Statements
10
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Pilgrim America Bank and Thrift Fund
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STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year
June 30, Ended
1997 December 31,
(Unaudited) 1996
------------ --------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,230,378 $ 4,482,008
Net realized gain on investments 29,582,083 29,471,619
Change in unrealized appreciation of investments 26,535,783 43,705,991
------------- -------------
Net increase in net assets resulting from operations 58,348,244 77,659,618
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income -- (4,482,008)
Distributions in excess of net investment income -- (395,707)
Distributions from capital gains -- (30,200,965)
------------- -------------
Total distributions -- (35,078,680)
------------- -------------
CAPITAL SHARE TRANSACTIONS:
Issuance from dividend reinvestment -- 8,065
------------- -------------
Total increase in net assets 58,348,244 42,589,003
------------- -------------
NET ASSETS:
Beginning of period 252,342,078 209,753,075
------------- -------------
End of period (including undistributed net investment
income of $1,798,462 and accumulated distributions
in excess of net investment income of $431,916) $310,690,322 $ 252,342,078
============= =============
</TABLE>
See Accompanying Notes to Financial Statements
11
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Pilgrim America Bank and Thrift Fund
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FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
1997 ------------------------------------------------------------------------------------
(Unaudited) 1996 1995(a) 1994 1993 1992 1991 1990
------------- --------- ----------- ------------ ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value,
beginning of period $ 17.84 $ 14.83 $ 10.73 $ 11.87 $ 12.46 $ 10.12 $ 7.49 $ 10.26
---------- --------- --------- ----------- ---------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income 0.13 0.32 0.31 0.26 0.26 0.22 0.24 0.31
Net realized and unrealized
gain (loss) on investments 4.00 5.18 4.78 (0.53) 0.75 2.93 3.33 (2.20)
---------- --------- --------- ----------- ---------- --------- --------- ---------
Total from investment
operations 4.13 5.50 5.09 (0.27) 1.01 3.15 3.57 (1.89)
---------- --------- --------- ----------- ---------- --------- --------- ---------
Less distributions:
Net investment income -- 0.32 0.31 0.22 0.26 0.22 0.24 0.31
In excess of net investment
income -- 0.03 0.03 -- -- -- -- --
Realized capital gains -- 2.14 0.65 0.65 0.73 0.47 -- --
Paid-in capital -- -- -- -- -- 0.12 0.70 0.57
---------- --------- --------- ----------- ---------- --------- --------- ---------
Total distributions -- 2.49 0.99 0.87 0.99 0.81 0.94 0.88
---------- --------- --------- ----------- ---------- --------- --------- ---------
Other:
Reduction in net asset value
from rights offering -- -- -- -- (0.61) -- -- --
---------- --------- --------- ----------- ---------- --------- --------- ---------
Net asset value, end of period $ 21.97 $ 17.84 $ 14.83 $ 10.73 $ 11.87 $ 12.46 $ 10.12 $ 7.49
========== ========= ========= =========== ========== ========= ========= =========
Closing market price,
end of period $ 19.00 $ 15.75 $ 12.88 $ 9.13 $ 10.88 $ 11.63 $ 9.50 $ 7.13
Total Investment
Return at MKT (b) 20.63% 43.48% 52.81% (8.85)% 1.95%(c) 31.53% 47.52% (12.45)%
Ratios/Supplemental Data
Net assets, end of year
(millions) $ 311 $ 252 $ 210 $ 152 $ 168 $ 141 $ 101 $ 75
Ratios to average net assets:
Expenses 0.91%(d) 1.01% 1.05% 1.28% 0.91% 1.24% 1.31% 1.29%
Net investment income 1.61%(d) 1.94% 2.37% 2.13% 2.08% 2.00% 2.68% 3.59%
Portfolio turnover rate 5%(e) 21% 13% 14% 17% 20% 31% 46%
Average commission rate paid $ 0.0600 -- -- -- -- -- -- --
<CAPTION>
1989 1988 1987
----------- ----------- -------------
<S> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value,
beginning of period $ 9.54 $ 8.17 $ 9.09
--------- --------- ------------
Income (loss) from investment
operations:
Net investment income 0.30 0.31 0.22
Net realized and unrealized
gain (loss) on investments 1.50 1.43 (0.87)
--------- --------- ------------
Total from investment
operations 1.80 1.74 (0.65)
--------- --------- ------------
Less distributions:
Net investment income 0.31 0.37 0.22
In excess of net investment
income -- -- --
Realized capital gains 0.44 -- 0.05
Paid-in capital 0.33 -- --
--------- --------- ------------
Total distributions 1.08 0.37 0.27
--------- --------- ------------
Other:
Reduction in net asset value
from rights offering -- -- --
--------- --------- ------------
Net asset value, end of period $ 10.26 $ 9.54 $ 8.17
========= ========= ============
Closing market price,
end of period $ 9.13 $ 7.75 $ 6.25
Total Investment
Return at MKT (b) 32.25% 30.17% (17.79)%
Ratios/Supplemental Data
Net assets, end of year
(millions) $ 103 $ 96 $ 82
Ratios to average net assets:
Expenses 1.26% 1.18% 1.13%
Net investment income 4.15% 3.28% 2.31%
Portfolio turnover rate 63% 43% 76%
Average commission rate paid -- -- --
</TABLE>
- ------------
(a) 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.
(b) Total return is calculated at market value without deduction of sales
commissions and assuming reinvestment of all dividends and distributions
during the period.
(c) 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.
(d) Annualized.
(e) Non-annualized. On an annualized basis the portfolio turnover rate would be
10%.
See Accompanying Notes to Financial Statements
12
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Pilgrim America Bank and Thrift Fund
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NOTES TO FINANCIAL STATEMENTS as of June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Note 1 -- Significant Accounting Policies
Pilgrim America Bank and Thrift Fund, Inc. 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 and their holding
companies with consolidated assets of less than $1 billion, state-chartered
banks, thrift institutions and savings accounts of mutual thrifts. 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 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. Distributions 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 tax return of capital.
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 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.
13
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997 (Continued)
- --------------------------------------------------------------------------------
F. 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.
G. Repurchase Agreement. The Repurchase Agreement held at June 30, 1997 was
entered on June 30, 1997 and matures on July 1, 1997. 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 six months ended June 30, 1997, the cost of purchases and the proceeds
from the sale of securities, excluding short-term notes, were $14,173,017 and
$50,190,933, respectively.
Note 3 -- Investment in Affiliate
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 Fund. At June 30, 1997, the Fund had the following holdings in
affiliated companies:
Security Shares, Inc.
--------------------------------------------------
Acquisition Dates ......... September, 1994
Shares Held ............... 290,575
Cost ........................ $1,670,806
Market Value ............... $2,615,175
Percent of Net Assets ...... 0.84%
There was no dividend income from affiliates during the six months ended June
30, 1997.
Note 4 -- Capital Stock
At June 30, 1997 the authorized capital consisted of 50,000,000 shares of $.001
par value common stock.
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Pilgrim America Bank and Thrift Fund
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NOTES TO FINANCIAL STATEMENTS as of June 30, 1997 (Continued)
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Note 5 -- Investment Management Fee and Other Transactions with Affiliates
The Fund has an investment management agreement with Pilgrim America
Investments, Inc. (the "Manager"), a wholly owned subsidiary of Pilgrim America
Group, Inc. to provide 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 at an annual rate of 1% on the first $30 million of average weekly
net assets of 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 June
30, 1997, the Fund owed the Manager $2,211 for investment management and
administrative services.
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 six months ended June 30,
1997, the Fund received earnings credits of $4,178.
Note 7 -- Subsequent Event
On August 4, 1997, the Board of Directors of the Fund approved the conversion of
the Fund from a closed-end investment company to an open-end investment company,
subject to shareholder approval at a special meeting of shareholders to be held
in October, 1997.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (Unaudited)
The Fund offers a Dividend Reinvestment and Cash Purchase Plan which enables
investors to con-veniently 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.
15
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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.
<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
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-080597 082597
