Pilgrim America
Bank and Thrift Fund
QUARTERLY REPORT
September 30, 1997
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Pilgrim America Bank and Thrift Fund
THIRD QUARTER REPORT
September 30, 1997
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Table of Contents
Letter to Shareholders ..................................................... 2
Shareholder Letter Footnotes ............................................... 5
Annual Shareholder Meeting ................................................. 6
Portfolio of Investments ................................................... 7
Fund Advisors and Agents ................................................... 9
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Pilgrim America Bank and Thrift Fund
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LETTER TO SHAREHOLDERS
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Dear Shareholders,
We are pleased to report that Pilgrim America Bank and Thrift Fund (the Fund)
had an exceptional third quarter. Our net asset value (NAV) increased by
16.4%(1), substantially outpacing the three indices that compare to our Fund.
During the quarter the Dow Jones Industrials Average Index (the DOW) increased
4.0%, the Standard & Poors 500 Index ( the S&P)(2) increased 7.5% and the S&P
Major Regional Banks Index (MBRI)(3) increased 12.5%. Our stock price rose an
even greater 30.0% as the discount to net asset value was almost eliminated. For
the nine months ended September 30, 1997, we also had excellent results. Our NAV
rose 43.4%(1) and our stock price increased 56.8%. The Dow, the S&P and MRBI
were up 24.9%, 29.6% and 36.7%, respectively. The bank and thrift group
performed very well throughout the quarter and for the year to date. It was
extremely gratifying to turn in such pleasant numbers in such a strong market,
since we are still running the Fund in what we believe is a relatively
conservative fashion that attempts to preserve principal in a more adverse
economic environment.
The recent decline in the market should encourage the Fed to leave interest
rates unchanged. Thus, the favorable environment that the group faces is likely
to continue for a while longer.
Third quarter bank and thrift earnings were favorable with most meeting or
exceeding expectations. Also, there were some signs that the exceptional loss
experience in the commercial lending area was starting to move toward more
normal loss ratios. Credit card and substandard lending continue to be the
problem lending areas. We have very little exposure to these areas except for
our holding of Fleet Financial Group which has recently announced that it will
be acquiring Advantas credit card business.
During the quarter we added to our positions in BNC Corp., Commercial Federal
Corp., Fleet Financial Group, Inc., Summit Bancshares, Inc., Schuff Steel Co.
and UnionBanCal.
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Pilgrim America Bank and Thrift Fund
We participated in an initial offering of First International Bancorp during the
quarter and received only a small amount of stock which we sold at about a 25%
gain.
New positions were established in Bank of the Ozarks, Prime Bancshares, Inc. and
Reliance Group Holdings.
On a valuation basis our positions were partially reduced in CoreState Financial
Corp., Independent Bank Corp., Sterling Bancshares, Inc. and Mercantile
Bankshares, Corporation.
An acquisition of CENFED Financial Corp. was announced in the quarter resulting
in our selling our entire position. We received shares of Mercantile
Bancorporation when it acquired Roosevelt Financial Group, Inc. and sold our
entire position. Our last piece of Zions Bancorporation was reluctantly sold as
well. We scaled out of this stock as valuations kept rising. Our final sale was
at relative nose bleed levels for us but still hurt because this is a fine
company that performed very well for us. Our entire position in Ugly Duckling
Corp. was also sold. We became concerned with the large component of earnings
coming from gain on sale accounting and a deterioration in credit quality.
During the quarter our American Federal Bank, FSB holdings were acquired by CCB
Financial Corp. whose shares we have retained. Collective Bancorp, Inc. was also
acquired during the quarter by Summit Bancorp. We also retained these shares.
Last but not least, our position in Pacific Century Financial Corp. was
increased when Pacific acquired our holding in CU Bancorp.
Although our turnover ratio is relatively low, the success that we have been
having in the marketplace will result in a larger year-end distribution than you
have been accustomed to receiving. Currently, we have realized over $30 million
of capital gains that will be distributed to shareholders as a year-end
distribution.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan,
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Pilgrim America Bank and Thrift Fund
which provides an easy and cost effective way to acquire additional shares of
the Fund, without incurring a sales charge. Should you decide to switch from
cash dividends to automatic reinvestment, please notify your broker or contact
the Transfer Agent, c/o DST Systems, Inc., P.O. Box 418368 Kansas City, Missouri
64141-6368 or call (800) 992-0180.
On October 16, 1997, shareholders of the Fund approved the conversion from a
closed-end investment company to an open-end investment company. On October 20,
1997, the Fund began operating as an open-end investment company. Due to the
conversion, the Fund will only be sending out annual and semi-annual reports to
shareholders.
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.
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Pilgrim America Bank and Thrift Fund
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SHAREHOLDER LETTER FOOTNOTES
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ALL PERFORMANCE INFORMATION SHOWN IN THIS REPORT FOR THE FUND REFLECTS THE
HISTORICAL EXPENSE LEVELS OF THE FUND AS A CLOSED-END INVESTMENT COMPANY WITHOUT
ADJUSTMENT FOR THE HIGHER ANNUAL EXPENSES OF AN OPEN-END FUND. PERFORMANCE WOULD
HAVE BEEN LOWER IF ADJUSTED FOR THESE CHARGES AND EXPENSES. PERFORMANCE DATA
REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE RESULTS.
(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 66.7%, 29.6% and 20.3% for the one,
five and ten-year periods ended September 30, 1997, respectively.
Average annual total returns based on NYSE market prices assuming
reinvestment of all dividends and distributions and no commissions were
98.0%, 28.7% and 21.7% for the one, five and ten-year periods ended
September 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 & Poors 500 Index.
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.
This letter contains statements that may be "forward-looking statements". Actual
results could differ materially from those projected in the "forward-looking
statements".
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 managers
views are subject to change at any time based on market and other conditions.
Pilgrim America Bank and Thrift 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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SHAREHOLDER MEETING
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SPECIAL MEETING
A Special meeting of shareholders was held at the offices of the Fund on October
16, 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
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I. Proposal for the election of a Director:
John P. Burke 9,443,440 614,303 - - 10,057,743
II. To convert the Fund from a closed-end investment company to an open-end
investment company:
7,409,992 1,244,416 237,661 1,165,674 10,057,743
III. If proposal No. 2 is approved, to approve an amended Investment
Management Agreement:
7,426,340 1,050,361 415,368 1,165,674 10,057,743
IV. If proposal No. 2 is approved, to approve the adoption of a distribution
plan pursuant to Rule 12b-1:
7,232,740 1,229,572 429,757 1,165,674 10,057,743
V. To transact such other business as may properly come before the Special
Meeting of Shareholders or any adjournments thereof:
9,039,049 524,109 494,585 - 10,057,743
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Pilgrim America Bank and Thrift Fund
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PORTFOLIO OF INVESTMENTS as of September 30, 1997 (Unaudited)
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COMMON STOCKS: 95.8%
Market
Shares Industry/Issuer Value
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Automotive: 0.2%
30,000 (a) Keystone Automotive Industries, Inc. $ 633,750
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Banks: 90.2%
80,500 Alabama National Bancorporation (AL) 1,947,094
151,155 BB&T Corp. (NC) 8,077,345
114,000 (a) BNC Corp. (ND) 1,795,500
218,175 BSB Bancorp, Inc. (NY) 5,999,812
87,000 Bank of Boston Corp. (MA) 7,694,063
270,000 Bank of New York Company, Inc. (NY) 12,960,000
88,200 Bank of the Ozarks (AR) 1,730,925
88,000 Banknorth Group, Inc. (VT) 4,807,000
44,500 CCB Financial Corp. (NC) 3,587,813
378,000 Charter One Financial, Inc. (OH) 22,349,250
100,500 Columbia Bancorp (MD) 2,914,500
349,000 Comerica Inc. (MI) 27,549,187
97,917 Commerce Bancshares, Inc. (MO) 5,764,863
245,500 Commercial Federal Corp. (NE) 11,569,188
126,000 Community Bank System, Inc. (NY) 3,654,000
107,737 Community First Bankshares, Inc. (ND) 5,225,244
195,000 Compass Bancshares, Inc. (AL) 7,580,625
253,758 CoreStates Financial Corp. (PA) 16,795,608
4,375 First Financial Corp. (WI) 149,023
1,100 First National Bank Anchorage (AK) 2,557,500
278,437 First Security Corp. (UT) 8,283,501
181,704 Fleet Financial Group Inc. (RI) 11,912,969
91,160 Greater Bay Bancorp (CA) 3,908,488
10,000 (a) Hamilton Bancorp Inc. (FL) 275,000
13,500 Home Federal Bancorp (IN) 436,219
111,474 Independent Bank Corp. (MI) 3,636,839
55,000 InterWest Bancorp, Inc. (WA) 2,213,750
179,400 KeyCorp (OH) 11,414,325
42,437 Laurel Capital Group, Inc. (PA) 1,063,577
20,000 MainStreet BankGroup, Inc. (VA) 580,000
345,000 Mercantile Bankshares Corp. (MD) 11,212,500
19,250 (a) National City Bancorporation (MN) 529,375
251,600 National City Corp. (OH) 15,489,125
42,694 North Dallas Bank & Trust Co. (TX) 1,707,760
16,850 North Valley Bancorp (CA) 530,775
37,500 Pacific Century Financial Corp. (HI) 2,022,656
162,000 Peoples Heritage Financial Group (ME) 6,854,625
124,000 Popular Inc. (PR) 6,572,000
43,000 Prime Bancshares Inc. (TX) 817,000
65,400 Regions Financial Corp. (AL) 2,403,450
240,000 Security First Corp. (OH) 4,560,000
290,575 (a)(b) Security Shares, Inc. (TX) 2,978,394
55,000 SouthTrust Corp. (AL) 2,708,750
323,125 Sterling Bancshares, Inc. (TX) 6,422,109
375,900 Summit Bancorp (NJ) 16,704,056
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Pilgrim America Bank and Thrift Fund
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PORTFOLIO OF INVESTMENTS as of September 30, 1997 (Unaudited)
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Market
Shares Industry/Issuer Value
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Banks (continued)
124,200 Summit Bancshares, Inc. (TX) $ 4,253,850
35,100 TCF Financial Corp. (MN) 2,051,156
171,900 Union Planters Corp. (TN) 9,604,913
85,000 UnionBanCal Corp. (CA) 7,352,500
64,300 USBANCORP, Inc. (PA) 4,147,350
27,500 West Coast Bancorp (OR) 852,500
18,451 Westamerica Bancorp (CA) 1,609,850
230,000 Westernbank Puerto Rico (PR) 4,140,000
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313,957,902
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Building Products: 0.6%
200,000 (a) Schuff Steel Co. 2,050,000
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Finance: 0.1%
82,000 (a) First Enterprise Financial Group, Inc. 389,500
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Insurance: 1.8%
151,000 ARM Financial Group, Inc. 3,595,688
160,000 Reliance Group Holdings 2,170,000
20,000 (a) Summit Holdings Southeast, Inc. 402,500
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6,168,188
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Printing: 1.1%
93,200 (a) Devon Group, Inc. 3,821,200
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Retail: 1.8%
129,900 (a) MacFrugal's Bargains Close-Outs Inc. 3,961,950
80,000 (a) Michael's Stores, Inc. 2,445,000
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6,406,950
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Total Common Stocks (Cost $134,455,591) 333,427,490
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SHORT-TERM INVESTMENTS: 4.0%
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<CAPTION>
Principal
Amount Value
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<S> <C> <C>
U.S. Agency Discount Notes: 4.0%
$14,000,000 Federal Home Loan Bank Discount Note, 5.92% due 10/01/97 14,000,000
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Total Short-Term Investments (Cost $14,000,000) 14,000,000
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Total Investments in Securities (Cost $148,455,591) 99.8% 347,427,490
Cash and Other Assets in Excess of Liabilities-Net 0.2% 499,094
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Total Net Assets 100.0% $347,926,584
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Cost for federal income tax purposes is $148,455,591. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation $ 199,361,522
Gross Unrealized Depreciation (389,623)
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Net Unrealized Appreciation $ 198,971,899
===============
(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 INDEPENDENT AUDITORS
Pilgrim America Investments, Inc. KPMG Peat Marwick LLP
40 North Central Avenue, Suite 1200 725 South Figueroa Street
Phoenix, Arizona 85004 Los Angeles, California 90017
DISTRIBUTOR WRITTEN REQUESTS
Pilgrim America Securities, Inc.
40 North Central Avenue, Suite 1200 Please mail all account inquiries and
Phoenix, Arizona 85004 other comments to:
Shareholder Servicing Agent Pilgrim America Bank and Thrift Fund
Pilgrim America Group, Inc. Account Services
40 North Central Avenue, Suite 1200 c/o Pilgrim America Group, Inc.
Phoenix, Arizona 85004 40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
TRANSFER AGENT
DST Systems, Inc. TOLL-FREE SHAREHOLDER INFORMATION
P.O. Box 419368
Kansas City, Missouri 64141-6368 Call us from 9:00 a.m. to 7:00 p.m. Eastern time
on any business day for account or other
CUSTODIAN information, at 1-800-331-1080.
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City , Missouri 64105
LEGAL COUNSEL This report and the financial statements
Dechert Price & Rhoads contained herein are submitted for the general
1500 K Street, N.W. information of the shareholders of the Fund. This
Washington, D.C. 20005 report is not authorized for distrubution to
prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
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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-110597-112897
