<PAGE>
Pilgrim America
Bank and Thrift Fund
[Artwork]
Annual Report
December 31, 1996
- --------------------------------------------------------------------------------
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-020197 022897
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
Fund Advisors and Agents
- --------------------------------------------------------------------------------
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.
Pilgrim America Funds
<PAGE>
- --------------------------------------------------------------------------------
Pilgrim America Bank and Thrift Fund
Annual Report
December 31, 1996
----------
Table of Contents
Letter to Shareholders................................................. 4
Portfolio of Investments............................................... 7
Statement of Assets and Liabilities.................................... 9
Statement of Operations................................................ 10
Statements of Changes in Net Assets.................................... 11
Financial Highlights................................................... 12
Notes to Financial Statements.......................................... 13
Independent Auditors' Report........................................... 16
Tax Information........................................................ 17
----------
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Pilgrim America Funds
3
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholders:
Pilgrim America Bank and Thrift Fund (the "Fund") had an exceptional year and
fourth quarter. In the fourth quarter total return based on net asset value was
16.2%(1), far surpassing the 11.8%, 10.2% and 8.3% returns achieved respectively
by the Standard & Poor's Major Regional Bank Index (the "MRBI")(2), the Dow
Jones Industrial Average Index (the "Dow") and the Standard & Poor's 500 Index
(the "S&P")(3). For the full year, the Fund's total return at net asset value
was 41.1% which compares to 36.6%, 28.9% and 23.0% respectively achieved by the
MRBI, the Dow and the S&P. This performance is especially gratifying since it
follows gains that were just short of 50% in the preceding year(4).
Our increase in net asset value also was reflected positively in the 43.5% total
return at market for the year. The Fund started the year trading at a 13.2%
discount to net asset value and ended the year at an 11.7% discount to net asset
value. However, the road was a little rocky as the discount was as high as 23.2%
in July. Astute investors with the courage of their convictions could have
earned even better returns if they had purchased the stock when it was trading
at the highest discount.
Part of our good performance came from continued consolidation in the banking
and thrift industry. In the fourth quarter alone we benefited from the announced
acquisition of Vallicorp Holdings, Inc. by Westamerica Bancorp, Standard Federal
Bank by ABN Amro, Roosevelt Financial Group, Inc. by Mercantile Bancorporation
and Eldorado Bancorp by Commerce Security. We believe that consolidation in the
bank and thrift group will continue.
As a shareholder you probably want to know what you can expect to achieve this
year after two years of exceptional back-to-back gains. The easy money has been
made in my opinion. The overall market is not cheap and is subject to a
correction if interest rates and inflationary expectations rise. While banks'
relative P/E ratios rose during the year, in my opinion they are still
reasonably priced when compared to the market as a whole. Those who compare the
relative valuations to the l980's say that bank stocks are fully valued.
However, if you compare them to relative valuations that they achieved in the
1960's and 1970's, they are still reasonably priced especially when one
considers that the rates of return that banks are achieving are higher and that
the industry is consolidating today
Pilgrim America Funds
4
<PAGE>
Pilgrim America Bank and Thrift Fund
and it was not during the 1980's. However, stock selection should be very
important this year.
In the last quarter we added to our positions in Alabama National Bancorp, Ugly
Duckling Corp., Laurel Capital Group, Inc. Peoples Heritage Financial Group, US
Bancorp, BankNorth Group Inc., Greater Bay Bancorp (formerly Cupertino National
Bancorp), North Valley Bancorp and Commercial Federal Corp. New positions were
established in National City Bancorp and Michaels Stores Inc. We participated in
two new issues: Granite Financial and Matrix Capital Corp. and sold these
positions when they reached our price objectives. A new position in PonceBank
was taken and sold later in the quarter at a gain when we began to have concerns
about its credit quality. On a price basis, we reduced our positions in National
City Corp., Bank of New York and Commerce Bancshares, Inc. First of America
reached our price objective and our full position was sold.
We expect that as the banks report fourth quarter results, there will be no
major surprises. We believe the positive factors affecting the group should
outweigh the negatives and enable the group to turn in another good if not
spectacular year in 1997.
We realized significant capital gains in 1996 resulting in a substantial
distribution of $1.93 a share to our shareholders on January 13, 1997. The
Fund's current policy is to maintain a 7.0% annual payout of net asset value. 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 A. Dorf, C.F.A.
Carl A. Dorf, C.F.A.
Vice President and Senior Portfolio Manager
Pilgrim America Investments, Inc.
- --------------------------------------------------------------------------------
Pilgrim America Funds
5
<PAGE>
Pilgrim America Bank and Thrift Fund
(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 41.1%, 24.9% and 17.7%
for the one, five and ten year periods ended December 31, 1996,
respectively
Average annual total returns based on NYSE market prices assuming
reinvestment of all dividends and distributions and no commissions were
43.5%, 22.5% and 17.2% for the one, five and ten year periods ended
December 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.
(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.
(4) Total return for the year ended December 31, 1995, based on net asset value
and assuming no sales charges, was 49.7%.
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
costs.
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 bank and thrifts.
Pilgrim America Funds
6
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1996
- --------------------------------------------------------------------------------
COMMON STOCKS: 107.9%
<TABLE>
<CAPTION>
Market
Shares Industry/Issuer Value
------ --------------- -----
<S> <C> <C>
Banks: 102.6%
80,500 Alabama National Bancorp (AL) $ 1,428,875
100,000 American Federal Bank (SC) 1,887,500
145,450 BSB Bancorp (NY) 3,890,788
37,500 Bancorp Hawaii, Inc. (HI) 1,575,000
87,000 Bank of Boston (MA) 5,589,750
270,000 Bank of New York (NY) 9,112,500
88,000 BankNorth Group, Inc. (VT) 3,652,000
124,000 BancPonce Corp. (PR) 4,185,000
251,371 CU Bancorp (CA) 2,922,191
154,000 Cenfed Financial Corp. (CA) 4,504,500
378,000 Charter One Financial, Inc. (OH) 15,876,000
280,000 Collective Bancorp (NJ) 9,835,000
100,500 Columbia Bancorp (MD) 2,135,625
349,000 Comerica, Inc. (MI) 18,278,875
192,917 Commerce Bancshares, Inc. (MO) 8,922,411
127,000 Commercial Federal Corp. (NE) 6,096,000
63,000 Community Bank Systems, Inc. (NY) 2,472,750
107,737 Community First Bankshares (ND) 2,962,767
130,000 Compass Bancshares, Inc. (AL) 5,167,500
293,758 Corestates Financial Corp. (PA) 15,238,696
29,500 Eldorado Bancorp (CA) 652,688
111,750 Fidelity Financial Bankshares (VA) 2,779,781
45,000 First American Corp. (TN) 2,593,125
33,882 First Financial Bancshares, Inc. (TX) 1,355,280
4,375 First Financial Corp. (WI) 107,187
1,100 First National Bank Anchorage (AK) 1,823,250
245,625 First Security Corp. (UT) 8,289,844
161,704 Fleet Financial Group, Inc. (RI) 8,064,987
91,160 Greater Bay Bancorp (CA) 2,222,027
115,983 Independent Bank Corp. (MI) 3,957,920
55,000 InterWest Bancorp, Inc. (WA) 1,773,750
239,400 Keycorp (OH) 12,089,700
30,687 Laurel Capital Group, Inc. (PA) 514,007
280,000 Mercantile Bankshares Corp. (MD) 8,960,000
7,500 (a) National City Bancorporation (MN) 155,625
332,600 National City Corp. (OH) 14,925,425
42,694 North Dallas Bank & Trust Co. (TX) 1,515,637
11,850 North Valley Bancorp (CA) 254,775
162,000 Peoples Heritage Financial Group (ME) 4,536,000
21,200 Poncebank (PR) 530,000
72,700 Regions Financial Corp. (AL) 3,757,681
310,000 Roosevelt Financial Group, Inc. (MO) 6,510,000
160,000 Security First Corp. (OH) 2,900,000
See Accompanying Notes to Financial Statements.
7
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1996
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Market
Shares Industry/Issuer Value
------ --------------- -----
<S> <C> <C>
Banks (continued)
290,575 (a)(b) Security Shares, Inc. (TX) $ 1,888,738
71,400 Southern National Corp. (NC) 2,588,250
55,000 Southtrust Corp. (AL) 1,918,125
88,200 Standard Federal Bank (MI) 5,016,375
288,750 Sterling Bancshares Inc. (TX) 5,450,156
122,200 Summit Bancshares, Inc. (TX) 2,795,325
35,100 TCF Financial Corp. (MN) 1,526,850
171,900 Union Planters Corp. (TN) 6,704,100
32,600 US Bancorp (OR) 1,381,425
98,036 Vallicorp Holdings, Inc. (CA) 1,997,483
27,500 West Coast Bancorp (OR) 498,437
100,000 Westernbank of Puerto Rico (PR) 2,350,000
84,000 Zions Bancorp (UT) 8,736,000
----------------
258,853,681
----------------
Finance: 2.8%
366,000 (a) Ugly Duckling Corp. 7,137,000
----------------
Printing: 0.8%
75,400 (a) Devon Group 2,073,500
----------------
Retail: 1.7%
129,900 (a) MacFrugal's Bargains Close-Out 3,393,638
80,000 (a) Michael's Stores, Inc. 960,000
----------------
4,353,638
----------------
Total Common Stocks (Cost $136,566,935) 272,417,819
----------------
<CAPTION>
SHORT-TERM INVESTMENTS: 2.7%
Principal
Amount Value
<S> <C> <C>
Repurchase Agreements: 2.7%
$6,830,000 Merrill Lynch Repurchase Agreement, 5.75% due 01/02/97
(Collateralized by $6,924,000 U.S. Treasury Bonds, 6.625%
Due 07/31/01) 6,830,000
----------------
Total Short-Term Investments (Cost $6,830,000) 6,830,000
----------------
Total Investments in Securities (Cost $143,396,935) 110.6% 279,247,819
Liabilities in Excess of Cash and Other Assets-Net (10.6) (26,905,741)
--------- ----------------
Total Net Assets 100.0% $252,342,078
========= ================
</TABLE>
- -----------------------
Cost for federal income tax purposes is $143,397,682. Net unrealized
appreciation consists of:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $135,867,011
Gross Unrealized Depreciation (16,874)
----------------
Net Unrealized Appreciation $135,850,137
================
</TABLE>
(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
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES as of December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value
Unaffiliated Issuers (Cost $134,959,129) $ 270,529,081
Affiliated Issuers (Cost $1,670,806) 1,888,738
Short-term investments at amortized cost 6,830,000
Cash 11,152
Dividends and interest receivable 571,272
Prepaid expenses 6,814
--------------------
Total assets 279,837,057
--------------------
LIABILITIES:
Dividends payable 27,316,635
Payable to affiliate 5,710
Accrued expenses 172,634
--------------------
Total liabilities 27,494,979
--------------------
NET ASSETS (equivalent to $17.84 per share, based on 14,141,241
shares outstanding) $ 252,342,078
====================
Net Assets Consist of:
Paid-in capital $ 119,423,407
Accumulated distributions in excess of net investment income (431,916)
Accumulated distributions in excess of net realized gain on investments (2,500,297)
Net unrealized appreciation of investments 135,850,884
--------------------
Net assets $ 252,342,078
====================
</TABLE>
See Accompanying Notes to Financial Statements
9
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $13,452) $ 6,564,358
Interest 250,087
-------------------
Total investment income 6,814,445
-------------------
EXPENSES:
Investment management fees 1,746,917
Reports to shareholders 131,406
Recordkeeping and pricing fees 124,733
Miscellaneous expense 112,975
Professional fees 64,280
Custodian fees 54,393
Transfer agent and registrar fees 50,150
Insurance expense 30,845
Trustees' fees 16,580
Amortization of organization expense 1,376
-------------------
Total expenses 2,333,655
Less: Earnings credits (1,218)
-------------------
Net expenses 2,332,437
-------------------
Net investment income 4,482,008
-------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS:
Net realized gain on investments 29,471,619
Change in unrealized appreciation of investments 43,705,991
-------------------
Net gain on investments 73,177,610
-------------------
Net increase in net assets resulting from operations $77,659,618
===================
</TABLE>
See Accompanying Notes to Financial Statements
10
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
December 31, December 31,
1996 1995
------------------ ------------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 4,482,008 $ 4,339,520
Net realized gain on investments 29,471,619 10,039,472
Change in unrealized appreciation of investments 43,705,991 57,607,407
------------------ ------------------
Net increase in net assets resulting from operations 77,659,618 71,986,399
------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income (4,482,008) (4,339,520)
Distributions in excess of net investment income (395,707) (477,369)
Distributions from capital gains (30,200,965) (9,123,342)
------------------ ------------------
Total distributions (35,078,680) (13,940,231)
------------------ ------------------
CAPITAL SHARE TRANSACTIONS:
Issuance from dividend reinvestment 8,065 --
------------------ ------------------
Total increase in net assets 42,589,003 58,046,168
NET ASSETS:
Beginning of year 209,753,075 151,706,907
------------------ ------------------
End of year (including accumulated distributions in
excess of net investment income of $431,916 and $21,591,
respectively) $ 252,342,078 $ 209,753,075
================== ==================
</TABLE>
See Accompanying Notes to Financial Statements
11
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1996 1995(a) 1994 1993 1992 1991
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value,
beginning of year $ 14.83 $ 10.73 $ 11.87 $ 12.46 $ 10.12 $ 7.49
--------- --------- --------- --------- --------- ---------
Income (loss) from investment
operations:
Net investment income 0.32 0.31 0.26 0.26 0.22 0.24
Net realized and
unrealized gain
(loss) on investments 5.18 4.78 (0.53) 0.75 2.93 3.33
--------- --------- --------- --------- --------- ---------
Total from investment
operations 5.50 5.09 (0.27) 1.01 3.15 3.57
--------- --------- --------- --------- --------- ---------
Less distributions:
Net investment income 0.32 0.31 0.22 0.26 0.22 0.24
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
--------- --------- --------- --------- --------- ---------
Total distributions 2.49 0.99 0.87 0.99 0.81 0.94
--------- --------- --------- --------- --------- ---------
Other:
Reduction in net asset
value from rights
offering -- -- -- (0.61) -- --
--------- --------- --------- --------- --------- ---------
Net asset value,
end of year $ 17.84 $ 14.83 $ 10.73 $ 11.87 $ 12.46 $ 10.12
========= ========= ========= ========= ========= =========
Closing market price,
end of year $ 15.75 $ 12.88 $ 9.13 $ 10.88 $ 11.63 $ 9.50
Total Investment
Return at MKT (b) 43.48% 52.81% (8.85)% 1.95%(c) 31.53% 47.52%
Ratios/Supplemental Data
Net assets, end of year
(millions) $ 252 $ 210 $ 152 $ 168 $ 141 $ 101
Ratios to average net assets:
Expenses 1.01% 1.05% 1.28% 0.91% 1.24% 1.31%
Net investment income 1.94% 2.37% 2.13% 2.08% 2.00% 2.68%
Portfolio turnover rate 21% 13% 14% 17% 20% 31%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1990 1989 1988 1987
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Per Share Operating
Performance
Net Asset Value,
beginning of year $ 10.26 $ 9.54 $ 8.17 $ 9.09
--------- -------- ---------- ---------
Income (loss) from investment
operations:
Net investment income 0.31 0.30 0.31 0.22
Net realized and
unrealized gain
(loss) on investments (2.20) 1.50 1.43 (0.87)
--------- -------- ---------- ---------
Total from investment
operations (1.89) 1.80 1.74 (0.65)
--------- -------- ---------- ---------
Less distributions:
Net investment income 0.31 0.31 0.37 0.22
In excess of net
investment income -- -- -- --
Realized capital gains -- 0.44 -- 0.05
Paid-in capital 0.57 0.33 -- --
--------- -------- ---------- ---------
Total distributions 0.88 1.08 0.37 0.27
--------- -------- ---------- ---------
Other:
Reduction in net asset
value from rights
offering -- -- -- --
--------- -------- ---------- ---------
Net asset value,
end of year $ 7.49 $ 10.26 $ 9.54 $ 8.17
========= ======== ========== =========
Closing market price,
end of year $ 7.13 $ 9.13 $ 7.75 $ 6.25
Total Investment
Return at MKT (b) (12.45)% 32.25% 30.17% (17.79)%
Ratios/Supplemental Data
Net assets, end of year
(millions) $ 75 $ 103 $ 96 $ 82
Ratios to average net assets:
Expenses 1.29% 1.26% 1.18% 1.13%
Net investment income 3.59% 4.15% 3.28% 2.31%
Portfolio turnover rate 46% 63% 43% 76%
</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.
See Accompanying Notes to Financial Statements
12
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996
- --------------------------------------------------------------------------------
Note 1 - Significant Accounting Policies
Pilgrim America Bank and Thrift Fund, Inc. ("The Fund", formerly Pilgrim
Regional BankShares prior to April 8, 1996) 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-charted 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 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. Distribution to Shareholders. The Fund pays distributions of its net
investment income semi-annually and distributes capital gains, if any, at
least annually. 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 temporary 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. Accordingly, amounts as of December 31, 1996 have been
reclassifited to reflect a decrease in paid in capital of $16,361, a
decrease in accumulated distributions in excess of net investment income of
$14,618 and an increase in accumulated distributions in excess of net
realized gains on investments of $30,979.
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
13
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Continued)
- --------------------------------------------------------------------------------
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.
F. Deferred Organization Expenses. All expenses incurred in connection with
the organization and registration of the Fund under the Investment Company
Act of 1940 and the Securities Act of 1933 were paid by the Fund.
These organization expenses were being amortized over a period of ten years
from the effective date of its registration. Such costs were fully
amortized as of December 31, 1996.
G. 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.
H. Repurchase Agreement. 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 liqidate the collateraland 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 year ended December 31, 1996, the cost of purchases and the proceeds
from the sale of securities, excluding short-term notes, were $47,797,382 and
$62,039,795, 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 December 31, 1996, the Fund had the following holdings in
affiliated companies:
<TABLE>
<CAPTION>
Acquisition Shares Market % of
Date Held Cost Value Net Assets
---- ---- ---- ----- ----------
<S> <C> <C> <C> <C> <C>
Security Shares, Inc. September, 1994 290,575 $1,670,806 $1,888,738 0.75%
</TABLE>
There was no dividend income from affiliates during the year ended December 31,
1996.
Note 4 - Capital Stock
At December 31, 1996, the authorized capital consisted of 50,000,000 shares of
$.001 par value common stock.
14
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Continued)
- --------------------------------------------------------------------------------
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 for 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
December 31, 1996, the Fund owed the Manager $5,710 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 year ended December 31,
1996, the Fund received earnings credits of $1,218.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN (Unaudited)
The Fund offers a Dividend Reinvestment and Cash Purchase Plan which enables
investors to conveniently 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
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Pilgrim America Bank and Thrift Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Pilgrim America Bank and Thrift Fund (the
"Fund") as of December 31, 1996, and the related statement of operations for the
year then ended, and the changes in net assets and financial highlights for each
of the years in the two-year period ended December 31, 1996. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. For all periods ending
prior to January 1, 1995, the financial highlights were audited by other
auditors whose report thereon dated January 19, 1995, expressed an unqualified
opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Pilgrim America Bank and Thrift Fund as of December 31, 1996, the results of its
operations for the year then ended, and the changes in its net assets and its
financial highlights for each of the years in the two-year period ended December
31, 1996 in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
January 23, 1997
16
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
TAX INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Fund's fiscal year end (December
31, 1996) as to the federal tax status of distributions received by the Fund's
shareholders. Accordingly, the Fund is hereby advising you that the following
dividends were declared during the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
Type of Dividend Per Share Amount Declaration Date Payable Date
---------------- ---------------- ---------------- ------------
<S> <C> <C> <C>
Ordinary Income $0.1667 06/28/96 07/18/96
0.1782 12/20/96 01/13/97 (1)
-------
Total $0.3449
=======
Capital Gains $0.3821 06/28/96 07/18/96
1.7535 (2) 12/20/96 01/13/97 (1)
-------
Total $2.1356
=======
</TABLE>
(1) Taxable in 1996.
(2) $0.0418 is a short-term capital gain distribution which is
considered ordinary income for tax purposes.
Corporate shareholders are generally entitled to take the dividend received
deduction on the portion of the Fund's dividend distribution that qualifies
under tax law. The percentage of the Fund's fiscal year 1996 net investment
income dividends that qualify for the corporate dividend received deductions is
99.67%.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Fund. In January 1997, you
should have received an IRS Form 1099 DIV regarding the federal tax status of
the dividends and distributions received by you in calendar year 1996.
17
