N-30D 1 e-7806.txt SEMI-ANNUAL REPORT DATED 09-30-2001 SEMI-ANNUAL REPORT September 30, 2001 CLASSES A, B, C, M, AND T INCOME FUNDS Pilgrim GNMA Income Pilgrim National Tax-Exempt Bond Pilgrim Intermediate Bond Pilgrim Strategic Income Pilgrim High Yield Pilgrim High Yield II Pilgrim High Yield Bond Pilgrim Money Market ING Pilgrim Money Market Lexington Money Market Trust TABLE OF CONTENTS -------------------------------------------------------------------------------- Letter to Shareholders ....................... 1 Portfolio Managers' Reports .................. 2 Index Descriptions ........................... 22 Statements of Assets and Liabilities ......... 24 Statements of Operations ..................... 28 Statements of Changes in Net Assets .......... 33 Financial Highlights ......................... 38 Notes to Financial Statements ................ 48 Portfolios of Investments .................... 64 (THIS PAGE INTENTIONALLY LEFT BLANK) LETTER TO SHAREHOLDERS -------------------------------------------------------------------------------- Dear Shareholders: We are pleased to present the September 30, 2001 Semi-Annual Report for the Pilgrim Funds. In February 2001, ING Pilgrim Group, Inc. and ING Pilgrim Investments, Inc. became ING Pilgrim Group, LLC and ING Pilgrim Investments, LLC, respectively. Our fund family now has many funds of varying which provide core investment choices for the serious investor. There are ten Income Funds included in this Semi-Annual Report. At ING Pilgrim, we are dedicated to providing core investments for the serious investor. We believe that the key to success is matching quality core investments to the individual needs of investors. Core investments are the foundation of every portfolio and the basis of other important investment decisions. Pilgrim prides itself on providing a family of core investments designed to help you reach your financial goals. Our goal is for every investor to have a successful types investment experience.SM Sincerely, ING Pilgrim Group, LLC November 15, 2001 1 PILGRIM GNMA INCOME FUND Portfolio Managers' Report -------------------------------------------------------------------------------- Portfolio Management Team: Denis P. Jamison CFA; Roseann G. McCarthy, Co-Portfolio Managers, ING Pilgrim Investments, LLC. Goal: The Pilgrim GNMA Income Fund (the "Fund") seeks to generate a high level of current income with an investment portfolio that stresses liquidity and safety of principal. The Fund only purchases securities whose interest and principal payments are guaranteed by the United States Government or its agencies. These securities include mortgage-backed securities issued by the Government National Mortgage Agency (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and U.S. Treasury bonds, notes, and bills. Normally, at least 80% of the Fund's assets are invested in GNMA mortgages. The principal risks to which shareholders are exposed relate to changes in general market interest rates. When interest rates rise, mortgage and bond prices decline and this tends to reduce the net asset value of the Fund. If interest rates suddenly decline, mortgage prepayments will increase; this tends to limit the upside price performance of mortgages and the Fund. Management seeks to mitigate these risks through correct mortgage selection and adjusting the asset mix between mortgages and U.S. Treasury bonds. Market Overview: While slumbering during most of the June quarter, the bond market staged a strong rally during the summer. This was in response to clear signs of an economic slowdown. Unemployment claims began to escalate during the quarter and the stock market rolled over once again. Surveys of consumer confidence indicated that spending would soon be cut back. The already weakening business trends were reinforced by the reaction to the terrorist attacks on September 11th. The Lehman Brothers Aggregate Bond Index gained 5.20% during the six months ended September 30, 2001. Short-and intermediate-term securities did just as well as long-term bonds because the Federal Reserve reacted quickly to the weakening trends and lowered the overnight borrowing rates to 2.5% compared with 6.5% at the start of the year. Nonetheless, it is likely that the economy will shrink over the next six months. This will lead to rising unemployment and keep inflationary pressures in check. Accordingly, monetary policy will remain very accommodative in the months ahead; short-term interest rates could fall to 2% by the start of next year. Performance: The Fund continues to enjoy strong returns among its peer group. For the six-month period ended September 30, 2001, the Fund's Class A shares, excluding sales charges, provided a total return of 5.36% compared to the Lehman Brothers Mortgage-Backed Securities Index which returned 5.27%. This lifted the total return for the last twelve months to 13.16%. The Pilgrim GNMA Income Fund continues to rank in the top 10% of all GNMA Funds for the past one, three, five, and ten-year periods as reported by Lipper*. Dividends of record for the six-month period ended September 30, 2001 totaled 24.3 cents per share. Portfolio Specifics: The Fund's portfolio remained relatively long throughout the rally even as mortgage prepayment risk reduced the effective maturities and performance potential of many of our competitors. We did this by reducing the portfolio's cash position from 9% of assets to about 2%; also, our holdings of U.S. Treasury inflation-protected securities-TIPS-were sold. Cash from these actions plus that from net shareholder purchases were used to buy call-protected GNMA multi-family mortgages, low coupon single-family mortgages, and long-term U.S. Treasury bonds. By minimizing mortgage prepayment risk and staying fully invested, the Fund was able to outperform its competitors during this bull market. We are confident that our aggressive posture will serve our shareholders well during the current quarter. Longer-term, risks are building for bond market investors and a significant change in the structure of the portfolio may soon be warranted. Market Outlook: Since September 11th, both the Federal Reserve and the federal government have focused in on the need to shore up the economy. Short-term interest rates were lowered 100 basis points in three weeks. Congress and the President agreed to sizeable relief-related spending and are debating a meaningful income tax cut. Once it becomes clear that these efforts are putting the economy back on track, bond yields should begin to trend higher on a sustained basis. Current yields throughout the high-grade fixed income market provide very little cushion should interest rates rise and bonds prices fall. The bond market is likely to enter a very difficult period sometime during the coming year. We have prepared strategies designed to minimize losses and preserve capital and will implement them once it becomes clear that a bearish trend is developing. * The Fund ranked third out of 59 GNMA Funds for the one-year period, third out of 48 funds for the three-year period, second out of 39 funds for the five-year period, and second out of 22 funds for the ten-year period, as of 9/30/01. Lipper rankings are based on average annual total returns not including sales charges for the periods indicated. Rankings are for Class A shares only; other share classes may vary. 2 Portfolio Managers' Report PILGRIM GNMA INCOME FUND --------------------------------------------------------------------------------
Average Annual Total Returns for the Periods Ended September 30, 2001 ------------------------------------------------------------------------------------- Since Inception Since Inception Since Inception of Class B of Class C of Class M and T 1 Year 5 Year 10 Year 10/6/00 10/13/00 2/26/01 ------ ------ ------- ------- -------- ------- Including Sales Charge: Class A (1) 7.82% 7.12% 7.01% -- -- -- Class B (2) -- -- -- 7.64% -- -- Class C (3) -- -- -- -- 11.08% -- Class M (4) -- -- -- -- -- 3.31% Class T (5) -- -- -- -- -- 2.65% Excluding Sales Charge: Class A 13.16% 8.17% 7.53% -- -- -- Class B -- -- -- 12.64% -- -- Class C -- -- -- -- 12.08% -- Class M -- -- -- -- -- 6.72% Class T -- -- -- -- -- 6.65% Lehman Brothers Mortgage-Backed Securities Index 12.34% 8.09% 7.56% 12.34%(6) 12.34%(6) 5.88%(7)
Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim GNMA Income Fund against the Lehman Brothers Mortgage-Backed Securities Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. 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. This report contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio managers, only through the end of the period as stated on the cover. The managers' views are subject to change at any time based on market and other conditions. Fund holdings are subject to change daily. (1) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% for the since inception return. (3) Reflects deduction of the Class C deferred sales charge of 1% for the since inception return. (4) Reflects deduction of the maximum Class M sales charge of 3.25% (5) Reflects deduction of the Class T deferred sales charge of 4% for the since inception return. (6) Since inception performance for index is shown from 10/1/00. (7) Since inception performance for index is shown from 3/1/01. Principal Risk Factor(s): Exposure to financial and interest rate risks and prepayment risk of mortgage related securities. Fluctuations in the value of the Fund's shares can be expected in response to changes in interest rates. The value of an investment in the Fund is not guaranteed and will fluctuate. See accompanying index descriptions on page 22. 3 PILGRIM NATIONAL TAX-EXEMPT BOND FUND Portfolio Managers' Report -------------------------------------------------------------------------------- Portfolio Management Team: Robert Schonbrunn, Managing Director and Portfolio Manager; Alan Segars, CFA, Managing Director and Portfolio Manager, Furman Selz Capital Management LLC. Goal: The Pilgrim National Tax-Exempt Bond Fund (the "Fund") seeks to provide investors with a high level of current income that is exempt from Federal income taxes, consistent with preservation of capital. Using a disciplined investment philosophy, the Fund invests in a diversified portfolio of tax-exempt bonds. In selecting specific issues the following criteria are used under normal market conditions: Minimum rating of BBB by S&P or Baa by Moody's, or of comparable quality if not rated. Not more than 25% of the Fund's total assets will be invested in municipal securities: (1) whose issuers are located in the same state; and (2) whose interest payments are derived from revenues of similar projects. At least 80% of the Fund's total assets will be invested in municipal securities. At least 80% of the Fund's total assets will be invested in securities whose interest is not a preference item for purposes of the Federal alternative minimum tax. Market Overview: Municipal bonds ended the six months through September 30, 2001 in a strong position. Interest rates had been declining before the terrorist attack on September 11th, which added to the strength of bonds as investors looked for safety and stability to offset their equity holdings. The flight to quality, which is generally associated with U.S. Treasury bonds, also includes high-grade municipal bonds. Since the attack, demand for municipal bonds has increased substantially, which has pushed interest rates down. The seeds of a recession were already sown prior to the attack, and the actual incident removed any doubts that a recession would follow. The Federal Reserve ("the Fed") has been reducing the key Federal Funds Rate throughout the year, and since the attack has cut twice more, bringing the Fed Funds rate to a historically low 2.5%. At the same time, the Fed has been pumping money into the system to avoid liquidity problems in these most unsettled times. With the Fed operating at the short end of the interest rate curve using formal rate reductions and open market policy, short-term interest rates declined far more than the longer-term sectors of the market. >From March 31, 2001 until September 28, 2001 AA-rated general obligations due in one year declined by 116 basis points while similar 30-year bonds declined by 12 basis points. (a basis point equals 1/100th of one percent.) Performance: For the six-month period ended September 30, 2001, the Fund's Class A shares, excluding sales charges, provided a total return of 2.27% compared to a return of 3.48% for the Lehman Brothers Municipal Bond Index and 5.20% for the Lehman Brothers Aggregate Bond Index. Portfolio Specifics: The Fund is positioned with higher yielding bonds, which sell at premiums to their maturity and call prices. The yield curve has steepened significantly during the past six months as short-term rates have dropped substantially while longer-term rates have declined modestly. The call features of some of the Fund's longer maturity issues are limiting appreciation as lower short-term rates are increasing the probability of early calls. This high yielding portfolio should perform well in a less volatile period. The Fund has an average quality rating of Aa by Moody's and AA by Standard and Poor's. We believe that the issues currently held were not directly impacted by the terrorist attack. Market Outlook: We believe that interest rates can continue to decline as the recession unfolds. The September 11th attack has directly affected the municipal bond market by increasing the severity and possibly the length of the recession. Tax revenues decline and municipal expenses increase during recessions, putting pressure on the financial backing of virtually all municipal issues. New York and certain agencies that are directly involved with the World Trade Center must be carefully analyzed for potential deficiencies. Airport, seaport and recreational issues may be significantly impacted by changes over time in our collective behavior. It is too early to draw any solid conclusions about these specific issues, but they must be closely monitored. In this unsettled time, investment quality is extremely important in an effort to avoid credit problems. With interest rates low, the prospect of substantial refinancing of municipal debt is likely. We believe that this is a favorable environment for municipal bonds and that our investment style will participate in it. 4 PILGRIM NATIONAL Portfolio Managers' Report TAX-EXEMPT BOND FUND -------------------------------------------------------------------------------- Average Annual Total Returns for the Periods Ended September 30, 2001 ---------------------------------------- Since Inception 1 Year 11/8/99 ------ ------- Including Sales Charge: Class A (1) 4.08% 4.80% Class B (2) 3.53% 4.66% Class C (3) 7.43% 6.70% Excluding Sales Charge: Class A 9.26% 7.53% Class B 8.53% 6.67% Class C 8.43% 6.70% Lehman Brothers Municipal Bond Index 10.40% 9.26%(4) Lehman Brothers Aggregate Bond Index 12.95% 10.17%(4) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim National Tax-Exempt Bond Fund against the Lehman Brothers Municipal Bond Index and the Lehman Brothers Aggregate Bond Index. The Indices have an inherent performance advantage over the Fund since they have no cash in their portfolios, impose no sales charges and incur no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment Manager has waived certain fees and expenses otherwise payable by the Fund. Total returns would have been lower had there been no waiver to the Fund. 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. This report contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio managers, only through the end of the period as stated on the cover. The portfolio managers' views are subject to change at any time based on market and other conditions. Fund holdings are subject to change daily. (1) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 4%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) Since inception performance for index is shown from 11/01/99. Principal Risk Factor(s): Exposure to credit, market and interest rate risk. Fluctuations in the value of the Fund's shares can be expected in response to changes in interest rates. The Fund's investments in mortgage-related securities may entail prepayment risk. Investments in municipal obligations pose special risks. To the extent that the Fund's assets are invested in municipal obligations payable from revenue or similar projects, the Fund will be subject to the peculiar risks presented by such projects. Income received from the Fund may be subject to state and local taxes, as well as the federal alternative minimum tax. See accompanying index descriptions on page 22. 5 PILGRIM INTERMEDIATE BOND FUND Portfolio Manager's Report -------------------------------------------------------------------------------- Portfolio Management: James Kauffmann, Vice-President and Senior Portfolio Manager, ING Investment Management, LLC. Goal: The Pilgrim Intermediate Bond Fund (the "Fund") seeks to provide investors with a high level of current income, consistent with the preservation of capital and liquidity by investing at least 65% of its total assets in investment grade debt securities. Market Overview: The six months ended September 30, 2001 is best discussed in terms of pre-and post-September 11th. The residual stress from last year's bursting technology bubble, central bank tightening around the world and higher energy prices provoked a sharp deceleration of global economic growth. Declining corporate profitability; the California energy crisis; the possibility of an Argentinean default; and, the consumer facing the largest reduction in household net worth in recent history, combined to force the Fed to cut interest rates by 50 basis points at each of its April and May FOMC meeting. However, a sluggish economy persisted and the Fed reduced rates by 25 basis points at its June and its August meetings bringing the Fed Funds rate to 3.5%. Despite investor apprehension and a general global economic uneasiness, the U.S. credit markets, although pricing in the increasing risk of recession, performed well through August 31st. For the five months ended August 31, 2001, the investment grade credit sector delivered 171 basis points of excess return relative to like duration treasuries. Then, on September 11th, the unimaginable happened as terrorists crashed commercial airliners into the World Trade Centers and the Pentagon forcing the markets to close for an extended period of time. On September 14th, when the markets reopened, the Fed made a pre-emptive interest rate cut of 50 basis points to insure liquidity and to bolster the security of the banking system. Their move caused the treasury curve to steepen to levels last seen in October 1992 when the Fed Funds rate stood at 3%, which served to shore up the banks and to bring the economy out of recession. However, within an hour of opening, investors experienced a year's worth of market movement as all of the fundamental weaknesses in the economy were priced into the market and spreads widened to January 2001 levels. "Flight to quality" was the underlying theme and predictably, treasuries were the most desired asset class with corporates suffering their worst month ever with 222 basis points of negative excess return. Within the corporate sector, the worst performing sector relative to treasuries, was industrials (-269 basis points) followed by bank/finance (-128 basis points) and utilities (-104 basis points). Performance: For the six-month period ended September 30, 2001, the Fund's Class A shares, excluding sales charges, provided a total return of 7.22% compared to 5.20% for the Lehman Brothers Aggregate Bond Index for the same period. Portfolio Specifics: During the six-month period ended September 30, 2001, the Fund was able to capitalize on the changing economic conditions that prevailed by reallocating between broad market sectors, making proper sector and security selection, and taking advantage of pricing dislocations between the new and secondary corporate issues. Being overweight in corporates relative to treasuries and mortgage-backed securities going into the second quarter, the Fund was able to take advantage of the spread tightening that extended through the second quarter. However, with mounting evidence of a widespread economic downturn and the strong possibility of a recession that would be deeper and longer than many were anticipating, we began reducing the overweight to corporates and increased the Fund's mortgage allocation to a neutral weight relative to the index. Within the corporate allocation, the Fund was being repositioned more defensively--reducing the industrial overweight, rotating out of cyclical sectors such as airlines, leisure, and department stores into more defensive sectors such as consumer products and supermarkets, and increasing the Fund's exposure to utilities. While the Fund was not totally out of cyclical securities on September 11th, it was sufficiently repositioned such that the Fund continued to outperform the Lehman Aggregate Bond Index for the third quarter. Also contributing to performance was the Fund's slightly long duration relative to the index as interest rates declined significantly throughout the time period represented. Market Outlook: Without question, today's financial world is riskier, and the markets are re-pricing the uncertainty that exist in this post-terrorist attack environment. Looking forward, with spreads close to January 2001 levels, there is some value in holding corporates, and it is important to remember opportunities exist in the credit markets, as individuals will continue to drive cars, buy groceries and need electricity. The Fund will continue to favor utilities, energy, supermarkets and consumer products, and underweight airlines, department stores, gaming and leisure sectors. In addition the Fund's mortgage position will remain neutral to the benchmark, defensive from a liquidity standpoint, and predominately invested in agency pass-through issues. With respect to yield curve positioning and the belief that the Fed will continue to ease rates, the investment strategy is to maintain its slightly long duration position relative to the index. Additionally, due to the steepness of the curve and the risk of under-performance in the front-end and uncertainty surrounding government surpluses and the ability to buy back treasury debt at the long end, the strategy is to maintain the Fund's position in the intermediate part of the treasury curve. 6 Portfolio Manager's Report PILGRIM INTERMEDIATE BOND FUND -------------------------------------------------------------------------------- Average Annual Total Returns for the Periods Ended September 30, 2001 ---------------------------------------- Since Inception 1 Year 12/15/98 ------ -------- Including Sales Charge: Class A (1) 13.13% 6.63% Class B (2) 12.81% 6.73% Class C (3) 16.77% 7.67% Excluding Sales Charge: Class A 18.73% 8.50% Class B 17.81% 7.67% Class C 17.77% 7.67% Lehman Brothers Aggregate Bond Index 12.95% 6.76%(4) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim Intermediate Bond Fund against the Lehman Brothers Aggregate Bond Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment Manager has waived certain fees and expenses otherwise payable by the Fund. Total returns would have been lower had there been no waiver to the Fund. 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. This report contains statements that may be "forward-looking" statements. Actual results may 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 as stated on the cover. The portfolio manager's views are subject to change at any time based on market and other conditions. Fund holdings are subject to change daily. (1) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) Since inception performance for index is shown from 12/01/98. Principal Risk Factor(s): Exposure to credit, market and interest rate risk. Fluctuations in the value of the Fund's shares can be expected in response to changes in interest rates. The Fund's investments in mortgage-related securities may entail prepayment risk. The Fund may invest a portion of its assets in high yield debt securities. Higher yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio and in some cases, the lower market price for those instruments. The Fund may also invest a portion of its assets in foreign securities. International investing does pose special risks, including currency fluctuation and political risks not found in investments that are solely domestic. See accompanying index descriptions on page 22. 7 PILGRIM STRATEGIC INCOME FUND Portfolio Managers' Report -------------------------------------------------------------------------------- Portfolio Management Team: Robert K. Kinsey, Vice President and Edwin Schriver, Senior Vice President, ING Pilgrim Investments, LLC. Goal: The Pilgrim Strategic Income Fund (the "Fund") seeks maximum total return by investing at least 60% of its total assets in debt securities issued by U.S. and foreign corporations, U.S. and foreign governments and their agencies that are rated in one of the top four categories by a nationally recognized statistical rating agency. Market Overview: The investment grade bond market continues to post positive returns for 2001; the widely watched Lehman Brothers Aggregate Bond Index returned 8.39% year to date. The horrifying events in New York and Washington, DC on September 11th was initially met with a dramatic flight to quality and significant underperformance of riskier sectors. Major central banks moved quickly to flood the system with liquidity through repo and direct easings. The bonds of airlines and insurers were particularly hard hit, but all credit sectors sustained damage. Nevertheless, the Lehman Brothers Aggregate Bond Index eked out a positive 1.16% for September while the corporate subsector dropped 0.34%. The high yield bond market sustained its worst monthly performance ever during September, with most indexes falling about 6.5%. This wiped out gains from July and August leaving the market down about 4.5% for the quarter and year-to-date performance near 0%. In late September, Moody's reversed a downward trend in default projections, raising their 2001 estimate to 10% and predicting a peak of 11% in the first half of 2002. Actual defaults may very well be higher than that over the short term, but current bond prices reflect expectations of much higher default experience over an extended period of time. Performance: For the six-month period ended September 30, 2001, the Fund's Class A shares, excluding sales charges, provided a total return of 0.15% compared to the Lehman Brothers Aggregate Bond Index which returned 5.20% for the same period. Portfolio Specifics: The investment grade component of the fund continues to produce superior positive returns. Beginning in August we upgraded the credit quality of the portfolio in anticipation of a seasonal risk aversion move in bonds that frequently occurs in the fourth quarter. This move proved fortunate in the face of the credit markets reaction to the unforeseen terrorist's attacks on the United States. As soon as the bond market was functioning -- albeit at shortened days -- we began to aggressively buy corporate bonds at wider levels. We added Bristol Squibb Myers, Disney, Wells Fargo, Qwest, Delhaize, and Exelon. Moreover, we extended the duration of our Worldcom and Province of Quebec holdings in order to increase our spread duration. We remain neutral on mortgages, asset-backed securities, and agencies, and underweight the long end of the curve. The non-dollar portion of the fund remains hedged and short in duration. Exposure to high yield as a percentage of the portfolio was reduced earlier in the summer as part of the previously mentioned credit quality upgrade. This is now allowing us to increase exposure to the sector at very attractive spread levels. High yield spread levels are very near record territory and we see attractive opportunities across the credit spectrum. Market Outlook: In the bond market past exogenous events such as the debt crisis in the Pacific Rim, the Russian default, and the subsequent collapse of Long Term Capital, are often marked by dire predictions and the re-pricing of risk system wide. However, the worst of the forecasts rarely prove out in the year ahead, and in hindsight the darkest days reveal themselves as buying opportunities. Most market observers agree that the US is either in recession now or will enter one shortly. But we believe that many spread sectors are now priced for just such an environment. While we remain highly selective as to particular issuers, we are net buyers of risk. That is, we continue to add spread product and spread duration; and in the fourth quarter we plan to go down in credit quality perhaps by adding to our high yield allocation. The direction of rates is harder to forecast: unprecedented Fed easings and increased federal spending we believe will surely lead to an increase in the issuance of Treasuries. Long rates may stay high relative to short rates for the near term. Our non-dollar position is hedged, and the high yield allocation is 18%. With respect to the high yield portion of the fund, we remain optimistic on the longer-term prospects. Therefore, we are maintaining a modestly aggressive credit risk exposure with the average credit quality approximating single B. Additionally, we will likely increase high yield as a percentage of the portfolio over the coming months. Moody's now projects defaults to peak at approximately 11% in early 2002. Current bond prices reflect an expectation of default rates of over 11% for an extended period of time, providing cause for optimism that significant bond 8 Portfolio Managers' Report PILGRIM STRATEGIC INCOME FUND -------------------------------------------------------------------------------- appreciation is probable at some point for long-term investors. Default rates last peaked at 13% in 1991, a year in which high yield returns exceeded 35%. Average Annual Total Returns for the Periods Ended September 30, 2001 ---------------------------------------- Since Inception 1 Year 7/27/98 ------ ------- Including Sales Charge: Class A (1) -1.29% 1.12% Class B (2) -1.45% 1.55% Class C (3) 2.52% 2.36% Excluding Sales Charge: Class A 3.66% 2.67% Class B 3.40% 2.34% Class C 3.50% 2.36% Lehman Brothers Aggregate Bond Index 12.95% 7.36%(4) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim Strategic Income Fund against the Lehman Brothers Aggregate Bond Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment Manager has waived certain fees and expenses otherwise payable by the Fund. Total returns would have been lower had there been no waiver to the Fund. 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. This report contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio managers, only through the end of the period as stated on the cover. The portfolio managers' views are subject to change at any time based on market and other conditions. Fund holdings are subject to change daily. (1) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) Since inception performance for index is shown from 08/01/98. Principal Risk Factor(s): High yield bonds have exposure to financial, market and interest rate risks. High yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio, and in some cases, the lower market prices for those instruments. The Fund's investments in mortgage-related securities may entail prepayment risk. The Fund may invest up to 30% of its total assets in securities payable in foreign currencies. International investing does pose special risks, including currency fluctuation and political risks not found in domestic investments. See accompanying index descriptions on page 22. 9 PILGRIM HIGH YIELD FUND Portfolio Managers' Report -------------------------------------------------------------------------------- Portfolio Management Team: Russ Stiver, CFA, Edwin Schriver, Andy Mitchell, Co-Portfolio Managers, ING Pilgrim Investments, LLC. Goal: The Pilgrim High Yield Fund (the "Fund") seeks to provide a high level of current income with capital appreciation as a secondary objective by investing in BBB and lower-rated debt securities. Market Overview: Prior to September 11th, the high yield market had been driven for several months by growing expectations of improved economic conditions by late this year. Excess inventories had been pared back in many industries and aggressive Federal Reserve actions to ease monetary policy were expected to translate into increased spending and investment. Improving returns in most industries were tempered by declining fundamentals and bond prices within the wireline telecommunications sector. The events of September 11th had a dramatic impact on the domestic economy and, in turn, the high yield market. Virtually every industry experienced at least a short-term disruption, leading to widespread earnings warnings and economist predictions of a recession. With no precedent for predicting how long and how deep the recession will be, earnings visibility for both the fourth quarter and 2002 became quite limited. Investor response to the terrorist situation was a flight to quality, precipitating a sharp drop in both the equity and high yield markets. Within high yield, portfolio managers generally sold both second-tier and third-tier securities to raise cash. As a result, the lowest yielding but least risky securities significantly outperformed the rest of the market. On an industry basis, issuers most directly impacted by the events, such as airlines, aerospace, hotels and gaming, experienced the largest declines. Issuers in cyclical industries, as well as the telecom sector, also underperformed based on their susceptibility to general economic weakness. Performance: For the six-month period ended September 30, 2001, the Fund's Class A shares, excluding sales charges, returned -8.13% compared to a return of -6.42% for the Lehman Brothers High Yield Bond Index and -4.57% for the Credit Suisse First Boston High Yield Bond Index. Portfolio Specifics: While the Fund underperformed for the six-month period, it did perform well during periods of neutral or positive market conditions. The primary factors in high yield fund performance are sector weightings, portfolio quality and issuer selection. With respect to sector weightings, Fund performance was negatively impacted by an overweight position in wireline telecommunications. While we have reduced the degree of wireline telecom overweighting significantly over the past year, this sector underperformed the rest of the high yield market by a wide margin over the past two quarters, magnifying the impact of even a reduced overweight position and translating into approximately 1.9% underperformance for the Fund. Regarding credit quality, the Fund seeks to provide a high current yield. To earn that yield, the Fund has maintained an underweight position in the highest quality BB rated segment of the market. Because this segment of the market outperformed by over 8% over the past two quarters, fund performance was impacted by approximately 0.5%. We believe that issuer selection had a modest positive impact on the Fund during the period, partially offsetting the impacts discussed above. Market Outlook: Monetary and fiscal policymakers around the world reacted to the terrorist attacks with aggressive monetary policy easing and special assistance for the airline industry. Stimulative fiscal policies are also likely to be adopted, including tax breaks, additional programs to assist particular industries (hotels, restaurants) and funding for the rebuilding of lower Manhattan. It is too early to tell how long the recession will last. Economists who had been projecting stronger growth late this year have now pushed back any recovery until sometime in 2002. Eventually, people will return to their normal lives, albeit with a few added inconveniences in the name of security. Many companies with the resources to survive a long recession, companies that previously offered little yield in their bonds, now offer very attractive returns. As such, it is our opinion that now is a great time to be investing in high yield bonds. The Fund's cash position was raised to around 7% in August, with the intention of reinvesting in attractive second-tier issuers. In light of the current market uncertainty, we intend to maintain cash levels of 5% or more until greater stability returns. The fund is now well-diversified, both from a sector and issuer standpoint. Reinvestment will be done selectively, focused on second tier companies with substantial liquidity positions and the flexibility to cut expenditures during an economic slowdown. 10 Portfolio Managers' Report PILGRIM HIGH YIELD FUND --------------------------------------------------------------------------------
Average Annual Total Returns for the Periods Ended September 30, 2001 --------------------------------------------------------------------------- Since Inception Since Inception of Class B and M of Class C 1 Year 5 Year 10 Year 7/17/95 5/27/99 ------ ------ ------- ------- ------- Including Sales Charge: Class A (1) -20.66% -3.76% 4.46% -- -- Class B (2) -21.22% -3.84% -- -0.48% -- Class C (3) -18.12% -- -- -- -12.44% Class M (4) -19.87% -4.01% -- -0.75% -- Excluding Sales Charge: Class A -16.70% -2.81% 4.97% -- -- Class B -17.58% -3.60% -- -0.48% -- Class C -17.39% -- -- -- -12.44% Class M -17.25% -3.38% -- -0.22% -- Credit Suisse First Boston High Yield Bond Index -4.92% 3.00% 7.76% 4.38%(5) -2.00%(6) Lehman Brothers High Yield Bond Index -5.69% 2.67% 7.54% 4.15%(5) -2.76%(6)
Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim High Yield Fund against the Credit Suisse First Boston High Yield Bond Index and the Lehman Brothers High Yield Bond Index. The Indices have an inherent performance advantage over the Fund since they have no cash in their portfolio, impose no sales charges and incur no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment Manager has waived certain fees and expenses otherwise payable by the Fund. Total returns would have been lower had there been no waiver to the Fund. 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. This report contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio managers, only through the end of the period as stated on the cover. The portfolio managers' views are subject to change at any time based on market and other conditions. Fund holdings are subject to change daily. (1) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 2%, respectively, for the 1 year and 5 year returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) Reflects deduction of the maximum Class M sales charge of 3.25%. (5) Since inception performance for index is shown from 8/1/95. (6) Since inception performance for index is shown from 6/1/99. Principal Risk Factor(s): Exposure to financial, market and interest rate risks. Higher yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio, and in some cases, the lower market prices for those instruments. See accompanying index descriptions on page 22. 11 PILGRIM HIGH YIELD FUND II Portfolio Managers' Report -------------------------------------------------------------------------------- Portfolio Management Team: Edwin Schriver, Russ Stiver, CFA, Andy Mitchell, Co-Portfolio Managers, ING Pilgrim Investments, LLC. Goal: The Pilgrim High Yield Fund II (the "Fund") seeks to provide total returns in the form of both dividends and capital appreciation by investing in high yield debt securities. Market Overview: Prior to September 11th, the high yield market had been driven for several months by growing expectations of improved economic conditions by late this year. Excess inventories had been pared back in many industries and aggressive Federal Reserve actions to ease monetary policy were expected to translate into increased spending and investment. Improving investment returns in most industries were tempered by declining bond prices within the telecommunications sector. The events of September 11th had a dramatic impact on the domestic economy, and in turn, the high yield market. Virtually every industry experienced at least a short-term disruption, leading to widespread earnings warnings and economist predictions of a recession. With no precedent for predicting how long and how deep the recession will be, earnings visibility for both the fourth quarter and 2002 became quite limited. Investor response to the terrorist situation was a flight to quality, precipitating a sharp drop in both the equity and high yield markets. Within high yield, portfolio managers generally sold both second-tier and third-tier securities to raise cash. As a result, the lowest yielding but least risky securities significantly outperformed the rest of the market. On an industry basis, issuers most directly impacted by the events, such as airlines, aerospace, hotels and gaming, experienced the largest declines. Issuers in cyclical industries, as well as the telecom sector, also underperformed based on their susceptibility to general economic weakness. Performance: For the six-month period ended September 30, 2001, the Fund's Class A shares, excluding sales charges, returned -9.77% compared to a return of -6.42% for the Lehman Brothers High Yield Bond Index and -6.81% for the Merrill Lynch High Yield Master II Index. Portfolio Specifics: While the Fund underperformed over the six-month period, it did perform well during periods of neutral or positive market conditions. The primary factors in high yield fund performance are sector weightings, portfolio quality and issuer selection. With respect to sector weightings, fund performance was negatively impacted by an overweight position in wireline telecommunications. While we have reduced the degree of wireline telecom overweighting significantly over the past year, this sector underperformed the rest of the high yield market by a wide margin over the past two quarters, magnifying the impact of even a reduced overweight position. This overweighting, negatively impacted performance by approximately 2.6%. Regarding credit quality, the Fund seeks to provide a high current yield. To earn that yield, the Fund has maintained an underweight position in the highest quality BB rated segment of the market. Because this segment of the market outperformed by over 8% over the past two quarters, fund performance was negatively impacted by approximately 2.1%. We believe that issuer selection had a modest positive impact on the Fund during the period, partially offsetting the impacts discussed above. Market Outlook: Monetary and fiscal policymakers around the world reacted to the terrorist attacks with aggressive monetary policy easing and special assistance for the airline industry. Stimulative fiscal policies are also likely to be adopted, including tax breaks, additional programs to assist particular industries (hotels, restaurants) and funding for the rebuilding of lower Manhattan. It is too early to tell how long the recession will last. Economists who had been projecting stronger growth late this year have now pushed back any recovery until sometime in 2002. Eventually, people will return to their normal lives, albeit with a few added inconveniences in the name of security. Many companies with the resources to survive a long recession, companies that previously offered little yield in their bonds, now offer attractive yields. As such, it is our opinion that now is a great time to be investing in high yield bonds. 12 Portfolio Managers' Report PILGRIM HIGH YIELD FUND II --------------------------------------------------------------------------------
Average Annual Total Returns for the Periods Ended September 30, 2001 ---------------------------------------------- Since Inception Since Inception of Class A, B and C of Class T 1 Year 3/27/98 3/31/00 ------ ------- ------- Including Sales Charge: Class A (1) -21.27% -5.79% -- Class B (2) -21.50% -5.62% -- Class C (3) -18.58% -5.05% -- Class T (4) -20.54% -- -16.12% Excluding Sales Charge: Class A -17.38% -4.49% -- Class B -17.87% -5.05% -- Class C -17.86% -5.05% -- Class T -17.64% -- -14.68% Lehman Brothers High Yield Bond Index -5.69% -1.59%(5) -2.73%(6)
Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim High Yield Fund II against the Lehman Brothers High Yield Bond Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment Manager has waived certain fees and expenses otherwise payable by the Fund. Total returns would have been lower had there been no waiver to the Fund. 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. This report contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio managers, only through the end of the period as stated on the cover. The portfolio managers' views are subject to change at any time based on market and other conditions. Fund holdings are subject to change daily. (1) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1-year return. (4) Reflects deduction of the Class T deferred sales charge of 4% and 3%, respectively, for the 1 year and since inception returns. (5) Since inception performance for index is shown from 04/01/98. (6) Since inception performance for index is shown from 04/01/00. Principal Risk Factor(s): Exposure to financial, market and interest rate risks. Higher yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio and in some cases, the lower market price for those instruments. Up to 35% of total assets may be invested in foreign securities. International investing does pose special risks, including currency fluctuation and political risks not found in investments that are solely domestic. Risks of foreign investing are generally intensified for investments in emerging markets. See accompanying index descriptions on page 22. 13 Portfolio Managers' Report PILGRIM HIGH YIELD BOND FUND -------------------------------------------------------------------------------- Portfolio Management Team: Greg Jacobs, CFA and Kurt Kringelis, CFA, ING Investment Management, LLC. Goal: The Pilgrim High Yield Bond Fund (the "Fund") seeks to provide investors with high levels of current income and total return by investing at least 65% of its total assets in high yield bonds. Market Overview: Although the Fed eased interest rates a total of 150 basis points during the five-month period ending August 31, 2001, economic uncertainty continued to dampen any positive momentum an accommodative monetary environment would normally create for high yield bonds. Although cautious, investors seemed to be waiting for signs the economy would recover during the second half of 2001 and, in August, data seemed to indicate the economy was stabilizing. However, any expectations were quickly reversed with the September 11th terrorist attacks on the World Trade Centers and the Pentagon. In the months leading up to September 11th, the high yield market had begun to show signs of weakness. Distressed securities, which returned 26.9% through the first three months of the year, significantly underperformed all other rating categories. Also contributing to the market's weakness was the persistent underperfomance of the telecommunications sector as a whole, which includes cable, media, wireline, wireless and internet. By June, with the highest quality issuers trading off by as much as 30%, the telecommunications sector appeared to have bottomed. However, the enterprise values of many lower-tier companies in this sector were substantially below their debt levels leaving little or no residual value for unsecured creditors. For the second quarter, the telecommunications sector had a total return of -18.26% and -34.52% for 12 months ended June 30, 2001. As would be expected, after the terrorist attacks, liquidity in the high yield market contracted significantly, but rationally. The sectors an investor would anticipate being hit hard (i.e., airlines, leisure, consumer cyclicals) suffered and those sectors one would expect to hold up (i.e., energy, utilities, cable) performed well. Immediately following September 11th, the Fed cut interest rates an additional 50 basis points. The importance of their move to the high yield market is that liquidity is injected into the financial markets and the risk of a near term sell-off decrease. However, the liquidity of many lower-tiered credits will be tested in the coming months due to the increased economic and political risks, and the likelihood banks will tighten lending standards and be less willing to negotiate lending agreements with distressed borrowers. While the twelve-month default rate at 10% continues to be much higher than the long-term average of 3.5%, it is unlikely investors will begin to see the full impact on default rates until the first half of 2002. Performance: For the six-month period ended September 30, 2001, the Fund's Class A share, excluding sales charges, provided a total return of -6.52% compared to the Lehman Brothers High Yield Bond Index which returned -6.42% for the same period. Portfolio Specifics: Performance can be attributed to its more defensive posture relative to the index. Prior to the attacks in New York and Washington, D.C., the Fund had been positioned for an anticipated economic slowdown in that not only had its exposure to higher quality BB issues been increased, its sector allocation was also more defensively positioned. The Fund benefited from an overweight, relative to the index, to foods, supermarkets and cable, and an underweight position to telecommunications and airlines, which were the two worst performing sectors in the second quarter, returning -15.9% and -25.0% respectively. Market Outlook: The outlook for the economy remains negative, and the expectation is the Fed will continue easing rates through at least year-end. Although the high yield market is offering yields that are at historically high levels, the best value is in the higher quality part of the universe. Additionally, while sectors such as airlines, lodging and automotive are trading at record wide spreads, they are currently not perceived as attractive buying opportunities. There is too much economic and political risk to consider materially extending the risk profile of the Fund. Therefore, the Fund will remain conservatively positioned with a focus on the BB and high B part of the universe. 14 Portfolio Managers' Report PILGRIM HIGH YIELD BOND FUND -------------------------------------------------------------------------------- Average Annual Total Returns for the Periods Ended September 30, 2001 ---------------------------------------- Since Inception 1 Year 12/15/98 ------ -------- Including Sales Charge: Class A (1) -7.59% 0.48% Class B (2) -8.14% 0.56% Class C (3) -4.74% 1.43% Excluding Sales Charge: Class A -3.00% 2.24% Class B -3.75% 1.44% Class C -3.86% 1.43% Lehman Brothers High Yield Bond Index -5.69% -1.41%(4) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim High Yield Bond Fund against the Lehman Brothers High Yield Bond Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment Manager has waived certain fees and expenses otherwise payable by the Fund. Total returns would have been lower had there been no waiver to the Fund. 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. This report contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio managers, only through the end of the period as stated on the cover. The portfolio managers' views are subject to change at any time based on market and other conditions. Fund holdings are subject to change daily. (1) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1% for the 1 year return. (4) Since inception performance for index is shown from 12/01/98. Principal Risk Factor(s): High yield bonds have exposure to financial, market and interest rate risks. High yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio, and in some cases, the lower market prices for those instruments. See accompanying index descriptions on page 22. 15 PILGRIM MONEY MARKET FUND Portfolio Managers' Report -------------------------------------------------------------------------------- Portfolio Management Team: Denis P. Jamison, CFA; Roseann G. McCarthy, Co-Portfolio Managers, ING Pilgrim Investments, LLC. Goal: The Pilgrim Money Market Fund (the "Fund") seeks to provide a high level of current income while preserving capital and liquidity. The portfolio may achieve this objective by investing in short-term U.S. Government Securities and U.S. dollar denominated high quality money market instruments. Money market securities are considered high quality if rated A-1 or better by Standard & Poor's Ratings Group or P-1 by Moody's Investor Services, Inc. These securities are determined to present minimal credit risk. Market Overview: The Federal Open Market Committee (FOMC) continued to guide short-term interest rates lower during the period. Initially, the Fed used an aggressive easing campaign by cutting short-term interest rates in 50 basis point increments. However, as the economy appeared to be bottoming, the Fed lifted its foot off of the monetary accelerator and began a more cautious approach. In late June and August, the Federal Reserve lowered short-term rates in 25 basis points increments. The horrific events of September 11th altered the Federal Reserve's policy. The committee was forced to shore up the U.S. financial system and become the provider of liquidity in an unsettled market. The Fed immediately responded and lowered the federal funds target rate 50 basis points to 3.0% in the wake of the terrorist attacks. By the end of the quarter, the Fed had slashed the overnight federal funds target rate a total of 350 basis points since January. This is one of the most aggressive easing cycles taken on by a rate-setting committee in years. The tragedy merely strengthened the weakening economic trends that were already in place and the economic picture is still bleak. Some data during the quarter seemed uplifting: domestic motor vehicle sales and the National Association Purchasing Managers (NAPM) Manufacturing Index fell only slightly and the Non-manufacturing NAPM Index actually registered an increase. Moreover, the housing sector continues to demonstrate unbelievable resilience. However, the deterioration in the labor market since the terrorist atrocities will far outweigh the good news. Payroll cuts have become broad based, spanning across most industry groups, and layoffs are the highest in years. Initial and continuing jobless benefit claims have soared. The high volume of claims underscores the trend in employment that was already in place before the attacks and has since worsened. Consumer spending will stall as a result of the deteriorating employment picture. As expected, the Fed lowered the federal funds rate target another 50 basis points to 2.50% at its scheduled October meeting. Moreover, the door was left wide open for further cuts. Portfolio Specifics: The average maturity of the Fund was less than 14 days at the end of the period. The Fund continues to have erratic cash flows. In excess of $15 million may come in or go out of the Fund on any given day. Therefore, we have laddered the maturities of the portfolio. This strategy allows us to have an ample amount of maturities to meet daily cash flow requirements. During the period, we were also hesitant to extend the maturity of the portfolio because of the heightened credit risk associated with weaker business conditions. Market Outlook: The Federal Reserve will continue to move quickly to shore up confidence, while Congress deliberates over a $75 billion stimulus package of tax cuts. The Fed's most recent rate cut leaves no doubt the committee is concerned about an increasingly uncertain economic outlook. At the same time, the uncertainties are not all negative. If conditions in the coming weeks improve, the Federal Reserve may refrain from lowering short-term rates further. We believe the committee will respond and lower short-term rates to 2.0%. Loose monetary policy coupled with another timely tax cut will help to lessen the inevitable contraction in the economy and could help pave the way for economic growth early next year. Principal Risk Factor(s): An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. 16 (THIS PAGE INTENTIONALLY LEFT BLANK) 17 ING PILGRIM MONEY MARKET FUND Portfolio Manager's Report -------------------------------------------------------------------------------- Portfolio Management: Jennifer J. Thompson, CFA, Vice President, ING Investment Management, LLC. Goal: The ING Pilgrim Money Market Fund (the "Fund") seeks to provide investors with a high level of current income as is consistent with the preservation of capital and liquidity and the maintenance of a stable $1.00 net asset value per share. Market Overview: The second quarter began with the expectation that the Federal Reserve Board's Federal Open Market Committee (the "FOMC" or the "Fed") would need to continue lowering its Fed Funds target if the US economy was to avoid falling into a recession in the second half 2002. The first rate cut had occurred in a surprise inter-meeting move on January 3, 2002 and was quickly followed by an additional 50 basis points decrease at its regularly scheduled meeting later that month. Still, the economy remained sluggish, and sighting declining business profitability, weak expansion of the economy and slow growth abroad, the Fed eased its Fed Funds rate 50 basis points in March, April and May as well as an additional 25 basis points at its June 27th meeting. In total, for the first half of 2002, the Fed had aggressively reduced its Fed Funds target by 275 basis points. However, with continued weak corporate earnings, increased layoffs and a less robust consumer throughout the summer, the Fed, at its August 27th meeting, eased rates an additional 25 basis points to 3.5%. With this, investors were predicting an end to the Fed's easing cycle as early as fourth quarter or early 2002. Unfortunately, no one could predict the dramatic events that were about to unfold mid-September. September began with participants hoping for signs of an earnings bottom and investors were looking for clear indications of which direction the economy would take--weaken further or begin a fourth quarter recovery. Everything changed rapidly on September 11th when terrorists crashed commercial airplanes into the World Trade Centers and the Pentagon. The Fed responded immediately by injecting billions of dollars into the banking system in the seven days immediately following the attack. On September 17th, the day the markets opened, the FOMC decreased its Fed Funds target by 50 basis points to 3% with expectations they would again cut rates at their regularly scheduled October 2nd meeting. The Fed's combined response brought overnight rates on repurchase agreements to as low as 0.50%. As would be expected, yields on short paper dropped dramatically throughout the third quarter with one-year LIBOR decreasing from 4.18% to 2.64% and one month LIBOR decreasing from 3.86% to 2.63%. Similarly, rates on money funds declined as well. Portfolio Specifics: Throughout the period, the Fund's average maturity remained longer than competitors. Purchases of 9-month and 1-year paper were made in advance of each decline in the Fed Funds rate, which contributed to the Fund's performance and has kept its yield and returns high. Market Outlook: The economic outlook continues negative with expectations for a recovery extended possibly to the second half of 2002. With Americans preparing for a prolonged period of U.S.-led military action against terrorism, most market participants expect the FOMC to continue lowering its Fed Funds target rate in the fourth quarter by as much as 50 basis points to 2.0%. Bearing in mind that rates remaining at this low level could over-stimulate the economy and, therefore, the Fed will need to raise rate to remove the stimulus, the Fund will focus new purchases in paper maturing in less than six months. Principal Risk Factor(s): An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. 18 (THIS PAGE INTENTIONALLY LEFT BLANK) 19 LEXINGTON MONEY MARKET TRUST Portfolio Managers' Report -------------------------------------------------------------------------------- Portfolio Management Team: Denis P. Jamison, CFA; Roseann G. McCarthy, Co-Portfolio Managers, ING Pilgrim Investments, LLC. Goal: The Lexington Money Market Trust (the "Trust") seeks to provide high current income while preserving capital and liquidity. This objective is achieved by investing in short-term U.S. Government Securities and U.S. dollar denominated high quality money market instruments. The Trust primarily invests in the commercial paper of "First Tier" credits. First Tier obligations are those that are rated within the top two credit rating categories of all Nationally Recognized Statistical Rating Organizations (NRSRO). These securities are determined to present minimal credit risk. Market Overview: The Federal Open Market Committee (FOMC) continued to guide short-term interest rates lower during the period. Initially, the Fed used an aggressive easing campaign by cutting short-term interest rates in 50 basis point increments. However, as the economy appeared to be bottoming, the Fed lifted its foot off of the monetary accelerator and began a more cautious approach. In late June and August, the Federal Reserve lowered short-term rates in 25 basis points increments. The horrific events of September 11th altered the Federal Reserve's policy. The committee was forced to shore up the U.S. financial system and become the provider of liquidity in an unsettled market. The Fed immediately responded and lowered the federal funds target rate 50 basis points to 3.0% in the wake of the terrorist attacks. By the end of the quarter, the Fed had slashed the overnight federal funds target rate a total of 350 basis points since January. This is one of the most aggressive easing cycles taken on by a rate-setting committee in years. The tragedy merely strengthened the weakening economic trends that were already in place and the economic picture is still bleak. Some data during the quarter seemed uplifting: domestic motor vehicle sales and the National Association of Purchasing Managers (NAPM) Manufacturing Index fell only slightly and the Non-manufacturing NAPM Index actually registered an increase. Moreover, the housing sector continues to demonstrate unbelievable resilience. However, the deterioration in the labor market since the terrorist atrocities will far outweigh the good news. Payroll cuts have become broad based, spanning across most industry groups, and layoffs are the highest in years. Initial and continuing jobless benefit claims have soared. The high volume of claims underscores the trend in employment that was already in place before the attacks and has since worsened. Consumer spending will stall as a result of the deteriorating employment picture. As expected, the Fed lowered the federal funds rate target another 50 basis points to 2.50% at its scheduled October meeting. Moreover, the door was left wide open for further cuts. Portfolio Specifics: The average maturity of the Trust was less than 20 days at the end of the period. During the period, we were hesitant to extend the maturity of the portfolio because of the heightened credit risk associated with weaker business conditions. Many companies may find themselves financially stressed during an economic slowdown. We anticipate the Fed will continue to guide short-term rates lower. Therefore, we will purchase longer dated securities when they offer value and only in companies that are financially sound. Otherwise, we will invest in shorter dated commercial paper to help lift the yield as much as possible in this low rate environment. Market Outlook: The Federal Reserve will continue to move quickly to shore up confidence, while Congress deliberates over a $75 billion stimulus package of tax cuts. The Fed's most recent rate cut leaves no doubt the committee is concerned about an increasingly uncertain economic outlook. At the same time, the uncertainties are not all negative. If conditions in the coming weeks improve, the Federal Reserve may refrain from lowering short-term rates further. We believe the committee will respond and lower short-term rates to 2.0%. Loose monetary policy coupled with another timely tax cut will help to lessen the inevitable contraction in the economy and could help pave the way for economic growth early next year. Principal Risk Factor(s): An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. 20 (THIS PAGE INTENTIONALLY LEFT BLANK) 21 INDEX DESCRIPTIONS -------------------------------------------------------------------------------- The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index comprised of 520 mortgage-backed securities with an average yield of 7.58%. The average coupon of the index is 6.85%. The Lehman Brothers Aggregate Bond Index is widely recognized, unmanaged index of publicly issued fixed rate U.S. government, investment grade mortgage-backed and corporate debt securities. The Lehman Brothers Municipal Bond Index is comprised of 8,000 bonds. These bonds are all investment grade fixed-rate, long term maturities (greater than two years) and are selected from issues larger than $50 million. The Lehman Brothers High Yield Bond Index is comprised of non-investment grade bonds with maturities between seven and ten years. The Merrill Lynch High Yield Master II Index is comprised of over 1,300 high yield bonds, intended to be representative of the high yield market as a whole. The Credit Suisse First Boston High Yield Bond Index is an index of high yield bonds rated BB or below. The National Association of Purchasing Managers Index (NAPM) is an indicator of economic activity based on a survey of over 250 companies within 21 industries covering all 50 states. All indices are unmanaged. An investor cannot invest directly in an index. 22 (THIS PAGE INTENTIONALLY LEFT BLANK) 23 STATEMENTS OF ASSETS AND LIABILITIES as of September 30, 2001 (Unaudited) --------------------------------------------------------------------------------
Pilgrim Pilgrim Pilgrim Pilgrim Pilgrim GNMA Income National Tax-Exempt Intermediate Strategic High Yield Fund Bond Fund Bond Fund Income Fund Fund ------------- ------------ ----------- ------------ ------------- ASSETS: Investments in securities at value* $ 610,688,259 $ 22,312,745 $53,635,748 $ 51,545,768 $ 152,300,145 Short-term investments at amortized cost 13,939,944 1,516,000 5,856,000 1,943,000 11,052,000 Cash 122,737 546 428 19,215 10,531 Receivables: Investment securities sold -- -- 30,594,620 -- 2,184,618 Fund shares sold 9,815,073 66,278 2,247,612 2,287,988 181,689 Dividends and interest 3,667,382 302,891 600,135 945,402 5,445,846 Unrealized appreciation on forward foreign currency contracts -- -- -- 10,873 -- Prepaid expenses 218,284 11,702 2,469 28,554 29,086 Reimbursement due from manager -- 6,153 -- 49,435 74,097 ------------- ------------ ----------- ------------ ------------- Total assets 638,451,679 24,216,315 92,937,012 56,830,235 171,278,012 ------------- ------------ ----------- ------------ ------------- LIABILITIES: Payable for investment securities purchased 17,909,020 -- 33,652,048 33,238 -- Unrealized depreciation on forward foreign currency contracts -- -- -- 18,943 -- Payable for fund shares redeemed 10,122,563 272,944 2,948,515 3,097,944 2,731,104 Payable to affiliates 484,773 14,658 44,607 48,489 267,602 Other accrued expenses and liabilities 204,921 38,781 49,962 184,079 220,758 ------------- ------------ ----------- ------------ ------------- Total liabilities 28,721,277 326,383 36,695,132 3,382,693 3,219,464 ------------- ------------ ----------- ------------ ------------- NET ASSETS $ 609,730,402 $ 23,889,932 $56,241,880 $ 53,447,542 $ 168,058,548 ============= ============ =========== ============ ============= NET ASSETS WERE COMPRISED OF: Paid-in capital $ 591,254,269 $ 22,638,955 $53,113,660 $ 63,317,048 $ 364,959,094 Undistributed (distributions in excess of) net investment income 3,067,694 260 464 904,259 (3,216,887) Accumulated net realized gain (loss) on investments and foreign currencies (16,109,113) (19,366) 2,175,796 (9,647,558) (172,480,447) Net unrealized appreciation (depreciation) of investments and foreign currencies 31,517,552 1,270,083 951,960 (1,126,207) (21,203,212) ------------- ------------ ----------- ------------ ------------- NET ASSETS $ 609,730,402 $ 23,889,932 $56,241,880 $ 53,447,542 $ 168,058,548 ============= ============ =========== ============ ============= * Cost of securities $ 579,170,707 $ 21,042,662 $52,683,788 $ 52,666,193 $ 173,503,113
See Accompanying Notes to Financial Statements 24 STATEMENTS OF ASSETS AND LIABILITIES as of September 30, 2001 (Unaudited) --------------------------------------------------------------------------------
Pilgrim Pilgrim National Pilgrim Pilgrim Pilgrim GNMA Income Tax-Exempt Intermediate Strategic High Yield Fund Bond Fund Bond Fund Income Fund Fund ------------- ------------ ------------ ------------ -------------- Class A: Net Assets $ 501,887,330 $ 22,654,179 $ 41,618,159 $ 37,328,938 $ 44,713,902 Shares authorized 780,000,000 unlimited unlimited unlimited 80,000,000 Par Value $ 0.010 $ 0.001 $ 0.001 $ 0.000 $ 0.000 Shares outstanding 56,708,871 2,150,587 3,916,947 3,269,548 13,324,203 Net asset value and redemption price per share $ 8.85 $ 10.53 $ 10.63 $ 11.42 $ 3.36 Maximum offering price per share (4.75%)(1) $ 9.29 $ 11.06 $ 11.16 $ 11.99 $ 3.53 Class B: Net Assets $ 66,102,337 $ 927,236 $ 7,657,381 $ 10,568,597 $ 113,735,620 Shares authorized 100,000,000 unlimited unlimited unlimited 80,000,000 Par Value $ 0.010 $ 0.001 $ 0.001 $ 0.000 $ 0.000 Shares outstanding 7,489,459 88,138 721,365 947,372 34,022,381 Net asset value and redemption price per share(2) $ 8.83 $ 10.52 $ 10.62 $ 11.16 $ 3.34 Maximum offering price per share $ 8.83 $ 10.52 $ 10.62 $ 11.16 $ 3.34 Class C: Net Assets $ 25,751,604 $ 308,517 $ 6,966,340 $ 5,248,286 $ 4,302,605 Shares authorized 50,000,000 unlimited unlimited unlimited 20,000,000 Par Value $ 0.010 $ 0.001 $ 0.001 $ 0.000 $ 0.000 Shares outstanding 2,916,647 29,289 656,163 449,526 1,289,023 Net asset value and redemption price per share(2) $ 8.83 $ 10.53 $ 10.62 $ 11.68 $ 3.34 Maximum offering price per share $ 8.83 $ 10.53 $ 10.62 $ 11.68 $ 3.34 Class M: Net Assets $ 348,043 n/a n/a n/a $ 5,303,663 Shares authorized 10,000,000 n/a n/a n/a 5,000,000 Par Value $ 0.010 n/a n/a n/a $ 0.000 Shares outstanding 39,286 n/a n/a n/a 1,582,304 Net asset value and redemption price per share $ 8.86 n/a n/a n/a $ 3.35 Maximum offering price per share (3.25%)(3) $ 9.16 n/a n/a n/a $ 3.46 Class Q: Net Assets $ 804,347 n/a n/a $ 301,721 $ 2,758 Shares authorized 50,000,000 n/a n/a unlimited 20,000,000 Par Value $ 0.010 n/a n/a $ 0.000 $ 0.000 Shares outstanding 90,823 n/a n/a 27,917 822 Net asset value and redemption price per share $ 8.86 n/a n/a $ 10.81 $ 3.35 Maximum offering price per share $ 8.86 n/a n/a $ 10.81 $ 3.35 Class T: Net Assets $ 14,836,741 n/a n/a n/a n/a Shares authorized 10,000,000 n/a n/a n/a n/a Par Value $ 0.010 n/a n/a n/a n/a Shares outstanding 1,676,536 n/a n/a n/a n/a Net asset value and redemption price per share(2) $ 8.85 n/a n/a n/a n/a Maximum offering price per share $ 8.85 n/a n/a n/a n/a
---------- (1) Maximum offering price is computed at 100/95.25 of net asset value. On purchases of $50,000 or more, the offering price is reduced. (2) Redemption price per share may be reduced for any applicable contingent deferred sales charge. (3) Maximum offering price is computed at 100/96.75 of net asset value. On purchases of $50,000 or more, the offering price is reduced. See Accompanying Notes to Financial Statements 25 STATEMENTS OF ASSETS AND LIABILITIES as of September 30, 2001 (Unaudited) --------------------------------------------------------------------------------
Pilgrim Pilgrim Pilgrim ING Pilgrim Lexington High Yield High Yield Money Market Money Market Money Market Fund II Bond Fund Fund Fund Trust ------------- ------------ ------------- ------------- ----------- ASSETS: Investments in securities at value* $ 208,657,981 $ 35,693,191 $ -- $ -- $ -- Short-term investments at amortized cost 20,641,000 1,716,000 105,865,481 584,003,182 57,896,808 Cash 180 550 20,680 836 95,240 Receivables: Fund shares sold 43,497 857,266 1,936,257 1,260,328 43,198 Dividends and interest 8,162,806 978,845 -- 4,383,966 -- Other -- 151 2,186 919 -- Prepaid expenses 90,577 1,677 25,764 130,968 12,967 Reimbursement due from manager 194,956 76,488 -- 760,466 11,899 ------------- ------------ ------------- ------------- ----------- Total assets 237,790,997 39,324,168 107,850,368 590,540,665 58,060,112 ------------- ------------ ------------- ------------- ----------- LIABILITIES: Payable for investment securities purchased -- 490,431 -- 7,056,163 -- Payable for fund shares redeemed 1,240,845 55,410 2,657,573 2,629,431 57,450 Payable to affiliates 303,849 40,956 89,311 296,034 23,710 Other accrued expenses and liabilities 1,592,410 76,504 54,432 343,466 217,509 ------------- ------------ ------------- ------------- ----------- Total liabilities 3,137,104 663,301 2,801,316 10,325,094 298,669 ------------- ------------ ------------- ------------- ----------- NET ASSETS $ 234,653,893 $ 38,660,867 $ 105,049,052 $ 580,215,571 $57,761,443 ============= ============ ============= ============= =========== NET ASSETS WERE COMPRISED OF: Paid-in capital $ 840,016,020 $ 45,988,051 $ 104,974,571 $ 580,215,855 $57,761,172 Undistributed (distributions in excess of) net investment income (4,220,293) 1,090 74,494 (27,700) -- Accumulated net realized gain (loss) on investments (408,307,050) (4,198,497) (13) 27,416 271 Net unrealized depreciation of investments (192,834,784) (3,129,777) -- -- -- ------------- ------------ ------------- ------------- ----------- NET ASSETS $ 234,653,893 $ 38,660,867 $ 105,049,052 $ 580,215,571 $57,761,443 ============= ============ ============= ============= =========== * Cost of securities $ 401,418,112 $ 38,822,968 -- -- --
See Accompanying Notes to Financial Statements 26 STATEMENTS OF ASSETS AND LIABILITIES as of September 30, 2001 (Unaudited) --------------------------------------------------------------------------------
Pilgrim Pilgrim Pilgrim ING Pilgrim Lexington High Yield High Yield Money Market Money Market Money Market Fund II Bond Fund Fund Fund Trust ------------- ------------ ------------ ------------- ------------ Class A: Net Assets $ 46,593,258 $ 31,747,155 $ 49,722,577 $ 565,100,011 $ 57,761,443 Shares authorized unlimited unlimited unlimited unlimited unlimited Par Value $ 0.000 $ 0.001 $ 0.000 $ 0.001 $ 0.010 Shares outstanding 6,366,267 3,808,288 49,729,031 565,120,054 57,761,172 Net asset value and redemption price per share $ 7.32 $ 8.34 $ 1.00 $ 1.00 $ 1.00 Maximum offering price per share (4.75%)(1) $ 7.68 $ 8.75 $ 1.00 $ 1.00 $ 1.00 Class B: Net Assets $ 147,753,883 $ 5,691,570 $ 38,079,290 $ 2,288,531 n/a Shares authorized unlimited unlimited unlimited unlimited n/a Par Value $ 0.000 $ 0.001 $ 0.000 $ 0.001 n/a Shares outstanding 20,119,484 682,902 38,083,700 2,288,880 n/a Net asset value and redemption price per share(2) $ 7.34 $ 8.33 $ 1.00 $ 1.00 n/a Maximum offering price per share $ 7.34 $ 8.33 $ 1.00 $ 1.00 n/a Class C: Net Assets $ 25,138,397 $ 1,222,142 $ 17,247,185 $ 1,772,795 n/a Shares authorized unlimited unlimited unlimited unlimited n/a Par Value $ 0.000 $ 0.001 $ 0.000 $ 0.001 n/a Shares outstanding 3,424,791 146,635 17,250,936 1,772,621 n/a Net asset value and redemption price per share(2) $ 7.34 $ 8.33 $ 1.00 $ 1.00 n/a Maximum offering price per share $ 7.34 $ 8.33 $ 1.00 $ 1.00 n/a Class I: Net Assets n/a n/a n/a $ 11,054,234 n/a Shares authorized n/a n/a n/a unlimited n/a Par Value n/a n/a n/a $ 0.001 n/a Shares outstanding n/a n/a n/a 11,054,483 n/a Net asset value and redemption price per share n/a n/a n/a $ 1.00 n/a Maximum offering price per share n/a n/a n/a $ 1.00 n/a Class Q: Net Assets $ 2,424,997 n/a n/a n/a n/a Shares authorized unlimited n/a n/a n/a n/a Par Value $ 0.000 n/a n/a n/a n/a Shares outstanding 330,493 n/a n/a n/a n/a Net asset value and redemption price per share $ 7.34 n/a n/a n/a n/a Maximum offering price per share $ 7.34 n/a n/a n/a n/a Class T: Net Assets $ 12,743,358 n/a n/a n/a n/a Shares authorized unlimited n/a n/a n/a n/a Par Value $ 0.000 n/a n/a n/a n/a Shares outstanding 1,737,459 n/a n/a n/a n/a Net asset value and redemption price per share(2) $ 7.33 n/a n/a n/a n/a Maximum offering price per share $ 7.33 n/a n/a n/a n/a
---------- (1) Maximum offering price is computed at 100/95.25 of net asset value. On purchases of $50,000 or more, the offering price is reduced. (2) Redemption price per share may be reduced for any applicable contingent deferred sales charge. See Accompanying Notes to Financial Statements 27 STATEMENTS OF OPERATIONS (Unaudited) --------------------------------------------------------------------------------
Pilgrim GNMA Income Fund Pilgrim National Tax-Exempt Bond Fund -------------------------------------------- -------------------------------------------- Six Three Six Five Months Ended Months Ended Year Ended Months Ended Months Ended Period Ended September 30, March 31, December 31, September 30, March 31, October 31, 2001 2001 2000 2001 2001 2000(1) ------------ ----------- ------------ -------- ---------- ----------- INVESTMENT INCOME: Interest $ 18,893,379 $ 7,393,546 $ 27,343,268 $593,905 $ 537,870 $ 1,194,627 ------------ ----------- ------------ -------- ---------- ----------- Total investment income 18,893,379 7,393,546 27,343,268 593,905 537,870 1,194,627 ------------ ----------- ------------ -------- ---------- ----------- EXPENSES: Investment management fees 1,433,348 565,984 1,949,162 58,589 48,847 101,496 Distribution and service fees: Class A 589,607 248,850 377,532 39,087 32,912 104,444 Class B 264,848 44,553 819 3,680 1,960 -- Class C 88,157 11,343 2,634 1,820 1,838 -- Class M 1,020 195 -- -- -- -- Class Q 722 109 -- -- -- -- Class T 51,725 11,318 -- -- -- -- Transfer agent fees 377,530 142,267 631,637 18,988 16,608 55,554 Shareholder reporting fees 210,927 27,533 229,673 5,953 4,912 8,415 Registration and filing fees 111,601 27,111 82,813 25,096 4,822 30,803 Recordkeeping and pricing fees 11,163 5,489 -- -- 8,429 -- Professional fees 194,150 20,500 32,946 10,960 9,043 14,999 Custody fees 142,633 13,590 77,000 7,270 5,999 58,861 Shareholder servicing fees -- -- 1,151 -- -- 50,893 Directors' fees 3,660 7,800 104,275 1,803 1,539 4,190 Insurance fees 2,226 991 -- 1,146 369 -- Miscellaneous fees 13,660 11,800 181,173 1,802 1,481 1,681 Administrative fees 283,187 106,940 151,465 11,718 9,769 -- Merger fees -- 47,913 -- -- -- -- ------------ ----------- ------------ -------- ---------- ----------- Total expenses 3,780,164 1,294,286 3,822,280 187,912 148,528 431,336 ------------ ----------- ------------ -------- ---------- ----------- Less: Waived and reimbursed fees -- -- -- 49,223 42,130 234,950 ------------ ----------- ------------ -------- ---------- ----------- Net expenses 3,780,164 1,294,286 3,822,280 138,689 106,398 196,386 ------------ ----------- ------------ -------- ---------- ----------- Net investment income 15,113,215 6,099,260 23,520,988 455,216 431,472 998,241 ------------ ----------- ------------ -------- ---------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments (139,684) 2,155,030 (3,100,065) 38,666 44,668 (102,700) Net change in unrealized appreciation of investments 15,418,404 10,658,686 14,939,928 44,406 860,228 365,449 ------------ ----------- ------------ -------- ---------- ----------- Net realized and unrealized gain on investments 15,278,720 12,813,716 11,839,863 83,072 904,896 262,749 ------------ ----------- ------------ -------- ---------- ----------- Increase in net assets resulting from operations $ 30,391,935 $18,912,976 $ 35,360,851 $538,288 $1,336,368 $ 1,260,990 ============ =========== ============ ======== ========== ===========
---------- (1) The Fund commenced operations on November 8, 1999. See Accompanying Notes to Financial Statements 28 STATEMENTS OF OPERATIONS (Unaudited) --------------------------------------------------------------------------------
Pilgrim Intermediate Bond Fund Pilgrim Strategic Income Fund --------------------------------------------- ----------------------------- Six Five Six Nine Months Ended Months Ended Year Ended Months Ended Months Ended September 30, March 31, October 31, September 30, March 31, 2001 2001 2000 2001 2001 ---------- ---------- ----------- ----------- ----------- INVESTMENT INCOME: Dividends $ 30,917 $ 57,288 $ -- $ 65,591 $ 45,732 Interest (net of foreign withholding tax)* 1,417,442 1,288,624 2,732,297 2,147,909 1,007,496 ---------- ---------- ----------- ----------- ----------- Total investment income 1,448,359 1,345,912 2,732,297 2,213,500 1,053,228 ---------- ---------- ----------- ----------- ----------- EXPENSES: Investment management fees 113,713 83,074 182,829 117,396 60,425 Distribution and service fees: Class A 64,644 46,349 196,111 66,686 20,448 Class B 18,490 9,877 -- 33,260 30,821 Class C 24,239 23,977 -- 18,426 24,750 Class Q -- -- -- 358 439 Transfer agent fees 32,948 28,245 119,870 49,968 65,689 Shareholder reporting fees 11,608 8,811 22,299 3,477 9,316 Registration and filing fees 26,626 30,395 49,549 72,741 43,807 Recordkeeping and pricing fees -- 3,910 -- 4,941 7,641 Professional fees 10,269 8,718 25,976 2,379 3,562 Custody fees 15,818 10,733 71,544 2,928 4,528 Shareholder servicing fees -- -- 91,401 2,745 -- Directors' fees 2,186 1,854 4,930 549 849 Insurance fees 1,360 882 -- 2,376 428 Miscellaneous fees 992 2,602 8,945 3,294 94 Interest and credit facility fees -- -- -- -- 4,932 Administrative fees 22,742 16,615 -- -- -- Merger fees -- -- -- -- 16,087 ---------- ---------- ----------- ----------- ----------- Total expenses 345,635 276,042 773,454 381,524 293,816 ---------- ---------- ----------- ----------- ----------- Less: Waived and reimbursed fees 55,230 63,068 370,293 107,459 119,001 ---------- ---------- ----------- ----------- ----------- Net expenses 290,405 212,974 403,161 274,065 174,815 ---------- ---------- ----------- ----------- ----------- Net investment income 1,157,954 1,132,938 2,329,136 1,939,435 878,413 ---------- ---------- ----------- ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: Net realized gain (loss) on investments 1,728,195 1,830,366 (143,795) (706,608) (457,477) Net realized loss on foreign currencies -- -- -- (1,384,688) (20,536) Net change in unrealized appreciation (depreciation) of: Investments 243,998 890,496 538,098 440,936 (1,352,115) Foreign currencies -- -- -- (287,745) 281,963 ---------- ---------- ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments and foreign currencies 1,972,193 2,720,862 394,303 (1,938,105) (1,548,165) ---------- ---------- ----------- ----------- ----------- Increase (decrease) in net assets resulting from operations $3,130,147 $3,853,800 $ 2,723,439 $ 1,330 $ (669,752) ========== ========== =========== =========== =========== *Foreign withholding tax -- -- -- $ 466 $ 23,382
See Accompanying Notes to Financial Statements 29 STATEMENTS OF OPERATIONS (Unaudited) --------------------------------------------------------------------------------
Pilgrim High Yield Fund Pilgrim High Yield Fund II --------------------------------- ---------------------------------- Six Nine Six Nine Months Ended Months Ended Months Ended Months Ended September 30, March 31, September 30, March 31, 2001 2001 2001 2001 ------------ ------------ ------------ ------------- INVESTMENT INCOME: Dividends $ -- $ -- $ 615,448 $ 135,152 Interest 10,725,055 21,165,666 16,121,239 15,816,091 ------------ ------------ ------------ ------------- Total investment income 10,725,055 21,165,666 16,736,687 15,951,243 ------------ ------------ ------------ ------------- EXPENSES: Investment management fees 590,969 1,082,525 811,765 755,481 Distribution and service fees: Class A 68,582 122,176 95,341 83,146 Class B 652,248 1,205,884 833,284 677,560 Class C 27,001 39,120 151,648 142,256 Class M 23,528 52,749 -- -- Class Q -- 19 4,136 7,403 Class T -- -- 51,390 118,637 Transfer agent fees 142,398 275,121 236,184 195,423 Shareholder reporting fees 56,730 98,640 50,561 45,446 Registration and filing fees 54,955 64,105 112,588 105,148 Recordkeeping and pricing fees 41,541 62,198 25,620 36,696 Professional fees 29,463 44,114 16,836 26,066 Custody fees 35,136 52,608 36,771 9,176 Shareholder servicing fees 9,150 -- 4,941 -- Directors' fees 11,529 17,262 3,843 5,754 Insurance fees 3,905 4,934 1,920 1,370 Miscellaneous fees 3,111 7,120 2,863 7,174 Merger fees -- -- -- 30,331 ------------ ------------ ------------ ------------- Total expenses 1,750,246 3,128,575 2,439,691 2,247,067 ------------ ------------ ------------ ------------- Less: Waived and reimbursed fees 142,399 170,488 289,337 280,311 ------------ ------------ ------------ ------------- Net expenses 1,607,847 2,958,087 2,150,354 1,966,756 ------------ ------------ ------------ ------------- Net investment income 9,117,208 18,207,579 14,586,333 13,984,487 ------------ ------------ ------------ ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: Net realized loss on investments (21,494,675) (84,180,612) (47,988,950) (30,313,380) Net realized gain (loss) on foreign currencies 3,741 (1,040) -- -- Net change in unrealized appreciation (depreciation) of: Investments (4,689,180) 24,598,891 5,757,175 (171,629,272) Foreign currencies (244) -- -- (94,697) ------------ ------------ ------------ ------------- Net realized and unrealized loss on investments and foreign currencies (26,180,358) (59,582,761) (42,231,775) (202,037,349) ------------ ------------ ------------ ------------- Decrease in net assets resulting from operations $(17,063,150) $(41,375,182) $(27,645,442) $(188,052,862) ============ ============ ============ =============
See Accompanying Notes to Financial Statements 30 STATEMENTS OF OPERATIONS (Unaudited) --------------------------------------------------------------------------------
Pilgrim High Yield Bond Fund Pilgrim Money Market Fund -------------------------------------------- ------------------------------ Six Five Year Six Nine Months Ended Months Ended Ended Months Ended Months Ended September 30, March 31, October 31, September 30, March 31, 2001 2001 2000 2001 2001 ----------- ---------- ----------- ----------- ----------- INVESTMENT INCOME: Dividends $ 275,272 $ 244,064 $ -- $ -- $ 4,049,637 Interest (net of foreign withholding tax)* 1,833,863 1,449,416 3,908,649 2,168,908 -- Other income -- 165,582 -- -- -- ----------- ---------- ----------- ----------- ----------- Total investment income 2,109,135 1,859,062 3,908,649 2,168,908 4,049,637 ----------- ---------- ----------- ----------- ----------- EXPENSES: Investment management fees 129,323 106,709 259,537 130,985 -- Distribution and service fees: Class A 57,743 48,304 213,443 70,725 108,045 Class B 27,410 19,875 -- 148,012 131,260 Class C 6,568 6,387 -- 100,515 101,403 Transfer agent fees 58,563 27,909 128,385 79,595 85,766 Shareholder reporting fees 15,544 8,701 23,455 10,431 17,536 Registration and filing fees 38,795 28,217 49,295 19,816 23,149 Recordkeeping and pricing fees -- 3,041 -- 10,980 16,440 Professional fees 13,687 9,193 27,374 4,941 7,398 Custody fees 19,831 3,986 59,711 3,660 5,480 Shareholder servicing fees -- -- 99,815 -- -- Directors' fees 2,225 1,888 4,949 549 822 Insurance fees 1,315 860 -- 919 847 Miscellaneous fees 3,546 2,917 8,935 366 547 Commitment fees -- -- -- -- 1,390 Organization fees -- -- -- -- 2,466 Administrative fees 19,896 16,417 -- 78,694 166,203 ----------- ---------- ----------- ----------- ----------- Total expenses 394,446 284,404 874,899 660,188 668,752 ----------- ---------- ----------- ----------- ----------- Less: Waived and reimbursed fees/(recoupment) 110,170 85,681 417,377 -- (101,689) ----------- ---------- ----------- ----------- ----------- Net expenses 284,276 198,723 457,522 660,188 770,441 ----------- ---------- ----------- ----------- ----------- Net investment income 1,824,859 1,660,339 3,451,127 1,508,720 3,279,196 ----------- ---------- ----------- ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments (2,425,704) 145,407 (1,738,019) (13) -- Net change in unrealized appreciation (depreciation) of investments (2,163,286) 447,611 (1,140,527) -- -- ----------- ---------- ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments (4,588,990) 593,018 (2,878,546) (13) -- ----------- ---------- ----------- ----------- ----------- Increase (decrease) in net assets resulting from operations $(2,764,131) $2,253,357 $ 572,581 $ 1,508,707 $ 3,279,196 =========== ========== =========== =========== =========== *Foreign withholding tax -- $ 404 -- -- --
See Accompanying Notes to Financial Statements 31 STATEMENTS OF OPERATIONS (Unaudited) --------------------------------------------------------------------------------
ING Pilgrim Money Market Fund Lexington Money Market Trust ------------------------------------------- ---------------------------------------- Six Five Six Three Months Ended Months Ended Year Ended Months Ended Months Ended Year Ended September 30, March 31, October 31, September 30, March 31, December 31, 2001 2001 2000 2001 2001 2000 ----------- ----------- ----------- ---------- -------- ---------- INVESTMENT INCOME: Interest $11,850,302 $13,292,074 $23,674,422 $1,270,216 $890,317 $5,126,280 ----------- ----------- ----------- ---------- -------- ---------- Total investment income 11,850,302 13,292,074 23,674,422 1,270,216 890,317 5,126,280 ----------- ----------- ----------- ---------- -------- ---------- EXPENSES: Investment management fees 666,382 514,331 932,291 155,780 77,318 403,175 Distribution and service fees: Class A 1,940,346 1,513,076 1,795,994 -- -- -- Class B 12,328 12,061 -- -- -- -- Class C 11,318 9,504 -- -- -- -- Transfer agent fees 364,814 337,216 1,008,253 63,549 27,835 116,340 Shareholder reporting fees 78,839 35,542 73,132 25,803 13,140 41,116 Registration and filing fees 201,308 133,338 245,760 26,020 8,974 24,348 Recordkeeping and pricing fees -- 30,885 -- 10,339 5,085 -- Professional fees 68,318 48,473 69,011 5,490 2,700 23,124 Custody fees 65,385 12,764 77,439 7,357 3,618 40,482 Shareholder servicing fees -- -- 892,631 915 -- 52,601 Directors' fees 3,726 13,215 9,270 2,745 1,350 101,465 Insurance fees 19,513 4,608 -- 529 244 -- Miscellaneous fees 6,106 22,068 28,021 2,745 1,350 65,912 ----------- ----------- ----------- ---------- -------- ---------- Total expenses 3,438,383 2,687,081 5,131,802 301,272 141,614 868,563 ----------- ----------- ----------- ---------- -------- ---------- Less: Waived and reimbursed fees 1,417,112 1,089,181 2,411,399 693 -- 91,935 ----------- ----------- ----------- ---------- -------- ---------- Net expenses 2,021,271 1,597,900 2,720,403 300,579 141,614 776,628 ----------- ----------- ----------- ---------- -------- ---------- Net investment income 9,829,031 11,694,174 20,954,019 969,637 748,703 4,349,652 ----------- ----------- ----------- ---------- -------- ---------- REALIZED GAIN ON INVESTMENTS: Net realized gain on investments 27,416 -- -- -- 271 -- ----------- ----------- ----------- ---------- -------- ---------- Increase in net assets resulting from operations $ 9,856,447 $11,694,174 $20,954,019 $ 969,637 $748,974 $4,349,652 =========== =========== =========== ========== ======== ==========
See Accompanying Notes to Financial Statements 32 STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) --------------------------------------------------------------------------------
Pilgrim GNMA Income Fund ------------------------------------------------------------------- Six Three Year Year Months Ended Months Ended Ended Ended September 30, March 31, December 31, December 31, 2001 2001 2000 1999 ------------- ------------- ------------- ------------- Increase in net assets from operations: Net investment income $ 15,113,215 $ 6,099,260 $ 23,520,988 $ 20,453,437 Net realized gain (loss) on investments (139,684) 2,155,030 (3,100,065) (1,512,537) Net change in unrealized appreciation (depreciation) of investments 15,418,404 10,658,686 14,939,928 (17,574,398) ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations 30,391,935 18,912,976 35,360,851 1,366,502 ------------- ------------- ------------- ------------- Distributions to shareholders: Net investment income Class A (13,042,733) (5,337,765) (20,940,972) (20,595,801) Class B (1,266,377) (15,248) -- -- Class C (405,811) (21,052) -- -- Class M (6,763) -- -- -- Class Q (15,695) -- -- -- Class T (420,007) -- -- -- ------------- ------------- ------------- ------------- Total distributions (15,157,386) (5,374,065) (20,940,972) (20,595,801) ------------- ------------- ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 328,446,600 100,862,198 125,118,144 220,636,961 Net proceeds from shares issued in merger -- 121,277,768 -- -- Shares resulting from dividend reinvestments 12,632,368 4,928,490 19,059,996 18,731,683 ------------- ------------- ------------- ------------- 341,078,968 227,068,456 144,178,140 239,368,644 Cost of shares redeemed (275,562,980) (82,941,057) (163,864,918) (117,150,009) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions 65,515,988 144,127,399 (19,686,778) 122,218,635 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets 80,750,537 157,666,310 (5,266,899) 102,989,336 ------------- ------------- ------------- ------------- Net assets, beginning of period 528,979,865 371,313,555 376,580,454 273,591,118 ------------- ------------- ------------- ------------- Net assets, end of period $ 609,730,402 $ 528,979,865 $ 371,313,555 $ 376,580,454 ============= ============= ============= ============= Undistributed net investment income $ 3,067,694 $ 3,111,865 $ 2,580,016 $ 411 ============= ============= ============= ============= Pilgrim National Tax-Exempt Bond Fund ---------------------------------------------- Six Five Period Months Ended Months Ended Ended September 30, March 31, October 31, 2001 2001 2000(1) ------------ ------------ ------------ Increase in net assets from operations: Net investment income $ 455,216 $ 431,472 $ 998,241 Net realized gain (loss) on investments 38,666 44,668 (102,700) Net change in unrealized appreciation (depreciation) of investments 44,406 860,228 365,449 ------------ ------------ ------------ Net increase in net assets resulting from operations 538,288 1,336,368 1,260,990 ------------ ------------ ------------ Distributions to shareholders: Net investment income Class A (437,758) (417,398) (986,356) Class B (11,719) (7,240) (6,239) Class C (5,739) (6,803) (5,646) Class M -- -- -- Class Q -- -- -- Class T -- -- -- ------------ ------------ ------------ Total distributions (455,216) (431,441) (998,241) ------------ ------------ ------------ Capital Share Transactions: Net proceeds from sale of shares 1,530,258 17,443,083 21,152,018 Net proceeds from shares issued in merger -- -- -- Shares resulting from dividend reinvestments 447,332 419,386 991,319 ------------ ------------ ------------ 1,977,590 17,862,469 22,143,337 Cost of shares redeemed (1,273,388) (18,006,608) (69,216) ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions 704,202 (144,139) 22,074,121 ------------ ------------ ------------ Net increase (decrease) in net assets 787,274 760,788 22,336,870 ------------ ------------ ------------ Net assets, beginning of period 23,102,658 22,341,870 5,000 ------------ ------------ ------------ Net assets, end of period $ 23,889,932 $ 23,102,658 $ 22,341,870 ============ ============ ============ Undistributed net investment income $ 260 $ 260 $ 229 ============ ============ ============
---------- (1) The Fund commenced operations on November 8, 1999. See Accompanying Notes to Financial Statements 33 STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) --------------------------------------------------------------------------------
Pilgrim Intermediate Bond Fund --------------------------------------------------------------- Six Five Year Period Months Ended Months Ended Ended Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) ------------ ------------ ------------ ------------ Increase (decrease) in net assets from operations: Net investment income $ 1,157,954 $ 1,132,938 $ 2,329,136 $ 1,499,954 Net realized gain (loss) on investments and foreign currencies 1,728,195 1,830,366 (143,795) (1,238,970) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 243,998 890,496 538,098 (720,632) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations 3,130,147 3,853,800 2,723,439 (459,648) ------------ ------------ ------------ ------------ Distributions to shareholders: Net investment income Class A (965,055) (919,767) (2,041,049) (1,382,288) Class B (82,885) (61,258) (101,798) (54,075) Class C (109,427) (152,036) (163,643) (23,989) Class Q -- -- -- -- Class X -- -- (42,824) (39,602) Retail Classes -- -- -- -- Advisory and Institutional Classes -- -- -- -- ------------ ------------ ------------ ------------ Total distributions (1,157,367) (1,133,061) (2,349,314) (1,499,954) ------------ ------------ ------------ ------------ Capital Share Transactions: Net proceeds from sale of shares 33,390,629 31,247,228 13,626,853 48,819,278 Net proceeds from shares issued in merger -- -- -- -- Shares resulting from dividend reinvestments 1,118,499 1,079,112 2,286,176 1,482,253 ------------ ------------ ------------ ------------ 34,509,128 32,326,340 15,913,029 50,301,531 Cost of shares redeemed (21,114,817) (31,389,778) (15,129,247) (12,289,491) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions 13,394,311 936,562 783,782 38,012,040 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets 15,367,091 3,657,301 1,157,907 36,052,438 ------------ ------------ ------------ ------------ Net assets, beginning of period 40,874,789 37,217,488 36,059,581 7,143 ------------ ------------ ------------ ------------ Net assets, end of period $ 56,241,880 $ 40,874,789 $ 37,217,488 $ 36,059,581 ============ ============ ============ ============ Undistributed (distributions in excess of) net investment income $ 464 $ (123) $ -- $ 20,178 ============ ============ ============ ============ Pilgrim Strategic Income Fund ------------------------------------------------ Six Nine Year Months Ended Months Ended Ended September 30, March 31, June 30, 2001 2001 2000 ------------ ------------ ------------ Increase (decrease) in net assets from operations: Net investment income $ 1,939,435 $ 878,413 $ 970,594 Net realized gain (loss) on investments and foreign currencies (2,091,296) (478,013) (764,277) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 153,191 (1,070,152) 133,421 ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations 1,330 (669,752) 339,738 ------------ ------------ ------------ Distributions to shareholders: Net investment income Class A (1,253,391) (146,883) -- Class B (281,422) (247,615) -- Class C (154,816) (202,833) -- Class Q (8,529) (14,262) -- Class X -- -- -- Retail Classes -- -- (951,573) Advisory and Institutional Classes -- -- (14,213) ------------ ------------ ------------ Total distributions (1,698,158) (611,593) (965,786) ------------ ------------ ------------ Capital Share Transactions: Net proceeds from sale of shares 25,961,732 18,837,830 17,563,244 Net proceeds from shares issued in merger -- 38,298,220 -- Shares resulting from dividend reinvestments 1,371,607 154,206 496,450 ------------ ------------ ------------ 27,333,339 57,290,256 18,059,694 Cost of shares redeemed (25,619,701) (13,958,363) (22,583,786) ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions 1,713,638 43,331,893 (4,524,092) ------------ ------------ ------------ Net increase (decrease) in net assets 16,810 42,050,548 (5,150,140) ------------ ------------ ------------ Net assets, beginning of period 53,430,732 11,380,184 16,530,324 ------------ ------------ ------------ Net assets, end of period $ 53,447,542 $ 53,430,732 $ 11,380,184 ============ ============ ============ Undistributed (distributions in excess of) net investment income $ 904,259 $ 662,982 $ 491,239 ============ ============ ============
---------- (1) Fund commenced operations on December 15, 1998. See Accompanying Notes to Financial Statements 34 STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) --------------------------------------------------------------------------------
Pilgrim High Yield Fund ----------------------------------------------------- Six Nine Year Months Ended Months Ended Ended September 30, March 31, June 30, 2001 2001 2000 ------------- ------------- ------------- Increase (decrease) in net assets from operations: Net investment income $ 9,117,208 $ 18,207,579 $ 36,230,377 Net realized loss on investments and foreign currencies (21,490,934) (84,181,652) (25,618,407) Net change in unrealized appreciation (depreciation) of investments and foreign currencies (4,689,424) 24,598,891 (31,769,051) ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (17,063,150) (41,375,182) (21,157,081) ------------- ------------- ------------- Distributions to shareholders: Net investment income Class A (3,505,216) (5,135,551) -- Class B (8,105,604) (11,970,081) -- Class C (331,445) (384,454) -- Class M (391,829) (715,679) -- Class Q (1) (774) -- Class T -- -- -- Retail Classes -- -- (36,230,374) Advisory and Institutional Classes -- -- (3) Tax return of capital -- (4,442,387) (2,218,003) ------------- ------------- ------------- Total distributions (12,334,095) (22,648,926) (38,448,380) ------------- ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 105,924,726 98,580,483 169,075,396 Net proceeds from shares issued in merger -- -- -- Shares resulting from dividend reinvestments 4,021,172 7,751,412 14,545,896 ------------- ------------- ------------- 109,945,898 106,331,895 183,621,292 Cost of shares redeemed (120,960,019) (137,899,986) (237,672,115) Equalization -- (85,563) -- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions (11,014,121) (31,653,654) (54,050,823) ------------- ------------- ------------- Net increase (decrease) in net assets (40,411,366) (95,677,762) (113,656,284) ------------- ------------- ------------- Net assets, beginning of period 208,469,914 304,147,676 417,803,960 ------------- ------------- ------------- Net assets, end of period $ 168,058,548 $ 208,469,914 $ 304,147,676 ============= ============= ============= Distributions in excess of net investment income $ (3,216,887) $ -- $ -- ============= ============= ============= Pilgrim High Yield Fund II ----------------------------------------------------- Six Nine Year Months Ended Months Ended Ended September 30, March 31, June 30, 2001 2001 2000 ------------- ------------- ------------- Increase (decrease) in net assets from operations: Net investment income $ 14,586,333 $ 13,984,487 $ 10,617,663 Net realized loss on investments and foreign currencies (47,988,950) (30,313,380) (5,014,882) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 5,757,175 (171,723,969) (2,564,989) ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (27,645,442) (188,052,862) 3,037,792 ------------- ------------- ------------- Distributions to shareholders: Net investment income Class A (3,644,264) (2,817,607) -- Class B (10,556,376) (7,662,538) -- Class C (1,929,881) (1,602,144) -- Class M -- -- -- Class Q (220,806) (339,297) -- Class T (1,038,586) (2,078,844) -- Retail Classes -- -- (10,642,507) Advisory and Institutional Classes -- -- (408,689) Tax return of capital -- -- -- ------------- ------------- ------------- Total distributions (17,389,913) (14,500,430) (11,051,196) ------------- ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 51,548,427 225,162,311 52,761,331 Net proceeds from shares issued in merger -- 157,469,063 142,232,354 Shares resulting from dividend reinvestments 6,339,929 5,223,248 4,467,190 ------------- ------------- ------------- 57,888,356 387,854,622 199,460,875 Cost of shares redeemed (69,618,318) (93,091,171) (72,762,619) Equalization -- -- -- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions (11,729,962) 294,763,451 126,698,256 ------------- ------------- ------------- Net increase (decrease) in net assets (56,765,317) 92,210,159 118,684,852 ------------- ------------- ------------- Net assets, beginning of period 291,419,210 199,209,051 80,524,199 ------------- ------------- ------------- Net assets, end of period $ 234,653,893 $ 291,419,210 $ 199,209,051 ============= ============= ============= Distributions in excess of net investment income $ (4,220,293) $ (1,416,713) $ -- ============= ============= =============
See Accompanying Notes to Financial Statements 35 STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) --------------------------------------------------------------------------------
Pilgrim High Yield Bond Fund --------------------------------------------------------------- Six Five Year Period Months Ended Months Ended Ended Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) ------------ ------------ ------------ ------------ Increase (decrease) in net assets from operations: Net investment income $ 1,824,859 $ 1,660,339 $ 3,451,127 $ 1,990,994 Net realized gain (loss) on investments (2,425,704) 145,407 (1,738,019) 42,709 Net change in unrealized appreciation (depreciation) of investments (2,163,286) 447,611 (1,140,527) (273,575) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations (2,764,131) 2,253,357 572,581 1,760,128 ------------ ------------ ------------ ------------ Distributions to shareholders: Net investment income Class A (1,535,725) (1,411,395) (3,026,673) (1,875,514) Class B (231,887) (188,866) (259,285) (65,719) Class C (57,094) (59,588) (104,775) (19,232) Class X -- -- (80,495) (30,529) Retail Classes -- -- -- -- Net realized gain from investments -- -- (213,849) -- ------------ ------------ ------------ ------------ Total distributions (1,824,706) (1,659,849) (3,685,077) (1,990,994) ------------ ------------ ------------ ------------ Capital Share Transactions: Net proceeds from sale of shares 11,536,919 7,041,464 12,069,228 33,693,351 Shares resulting from dividend reinvestments 1,633,702 1,472,143 3,335,598 1,949,178 ------------ ------------ ------------ ------------ 13,170,621 8,513,607 15,404,826 35,642,529 Cost of shares redeemed (9,719,464) (8,856,718) (7,296,899) (866,087) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions 3,451,157 (343,111) 8,107,927 34,776,442 ------------ ------------ ------------ ------------ Net increase (decrease) in net assets (1,137,680) 250,397 4,995,431 34,545,576 ------------ ------------ ------------ ------------ Net assets, beginning of period 39,798,547 39,548,150 34,552,719 7,143 ------------ ------------ ------------ ------------ Net assets, end of period $ 38,660,867 $ 39,798,547 $ 39,548,150 $ 34,552,719 ============ ============ ============ ============ Undistributed net investment income $ 1,090 $ 937 $ 447 $ 20,101 ============ ============ ============ ============ Pilgrim Money Market Fund ------------------------------------------------------- Six Nine Period Months Ended Months Ended Ended September 30, March 31, June 30, 2001 2001 2000(2) --------------- --------------- --------------- Increase (decrease) in net assets from operations: Net investment income $ 1,508,720 $ 3,279,196 $ 1,623,290 Net realized gain (loss) on investments (13) -- -- Net change in unrealized appreciation (depreciation) of investments -- -- -- --------------- --------------- --------------- Net increase (decrease) in net assets resulting from operations 1,508,707 3,279,196 1,623,290 --------------- --------------- --------------- Distributions to shareholders: Net investment income Class A (909,806) (2,280,631) -- Class B (352,070) (570,299) -- Class C (246,843) (446,529) -- Class X -- -- -- Retail Classes -- -- (1,623,290) Net realized gain from investments -- -- -- --------------- --------------- --------------- Total distributions (1,508,719) (3,297,459) (1,623,290) --------------- --------------- --------------- Capital Share Transactions: Net proceeds from sale of shares 563,561,014 1,442,237,027 1,294,364,112 Shares resulting from dividend reinvestments 1,179,270 2,044,632 661,338 --------------- --------------- --------------- 564,740,284 1,444,281,659 1,295,025,450 Cost of shares redeemed (592,502,009) (1,404,348,937) (1,202,129,120) --------------- --------------- --------------- Net increase (decrease) in net assets resulting from capital share transactions (27,761,725) 39,932,722 92,896,330 --------------- --------------- --------------- Net increase (decrease) in net assets (27,761,737) 39,914,459 92,896,330 --------------- --------------- --------------- Net assets, beginning of period 132,810,789 92,896,330 -- --------------- --------------- --------------- Net assets, end of period $ 105,049,052 $ 132,810,789 $ 92,896,330 =============== =============== =============== Undistributed net investment income $ 74,494 $ 74,493 $ -- =============== =============== ===============
---------- (1) The Fund commenced operations on December 15, 1998. (2) The Fund commenced operations on July 12, 1999. See Accompanying Notes to Financial Statements 36 STATEMENTS OF CHANGES IN NET ASSETS (Unaudited) --------------------------------------------------------------------------------
ING Pilgrim Money Market Fund ------------------------------------------------------------------- Six Five Year Period Months Ended Months Ended Ended Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) ------------- ------------- ------------- ------------- Increase in net assets from operations: Net investment income $ 9,829,031 $ 11,694,174 $ 20,954,019 $ 3,093,838 Net realized gain on investments 27,416 -- -- -- ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations 9,856,447 11,694,174 20,954,019 3,093,838 ------------- ------------- ------------- ------------- Distributions to shareholders: Net investment income Class A (9,553,947) (11,319,230) (19,815,480) (3,055,168) Class B (38,522) (61,692) (135,706) (7,890) Class C (35,719) (47,516) (53,814) (5,583) Class I (235,561) (258,718) (946,158) (5,232) Class X -- -- (22,875) (19,965) ------------- ------------- ------------- ------------- Total distributions (9,863,749) (11,687,156) (20,974,033) (3,093,838) ------------- ------------- ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 441,973,081 434,532,850 937,201,052 332,232,395 Shares resulting from dividend reinvestments 9,686,897 11,459,544 20,538,703 3,048,253 ------------- ------------- ------------- ------------- 451,659,978 445,992,394 957,739,755 335,280,648 Cost of shares redeemed (403,201,102) (372,069,868) (733,044,049) (102,129,030) ------------- ------------- ------------- ------------- Net increase in net assets resulting from capital share transactions 48,458,876 73,922,526 224,695,706 233,151,618 ------------- ------------- ------------- ------------- Net increase in net assets 48,451,574 73,929,544 224,675,692 233,151,618 ------------- ------------- ------------- ------------- Net assets, beginning of period 531,763,997 457,834,453 233,158,761 7,143 ------------- ------------- ------------- ------------- Net assets, end of period $ 580,215,571 $ 531,763,997 $ 457,834,453 $ 233,158,761 ============= ============= ============= ============= Undistributed (distributions in excess of) net investment income $ (27,700) $ 7,018 $ -- $ 20,014 ============= ============= ============= ============= Lexington Money Market Trust ----------------------------------------------------------------- Six Three Year Year Months Ended Months Ended Ended Ended September 30, March 31, December 31, December 31, 2001 2001 2000 1999 ------------ ------------ ------------- ------------- Increase in net assets from operations: Net investment income $ 969,637 $ 748,703 $ 4,349,652 $ 3,601,867 Net realized gain on investments -- 271 -- -- ------------ ------------ ------------- ------------- Net increase in net assets resulting from operations 969,637 748,974 4,349,652 3,601,867 ------------ ------------ ------------- ------------- Distributions to shareholders: Net investment income Class A (969,637) (757,321) (4,341,034) (3,601,867) ------------ ------------ ------------- ------------- Total distributions (969,637) (757,321) (4,341,034) (3,601,867) ------------ ------------ ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 15,323,026 16,156,660 85,250,442 100,237,881 Shares resulting from dividend reinvestments 933,206 724,771 4,121,169 3,418,339 ------------ ------------ ------------- ------------- 16,256,232 16,881,431 89,371,611 103,656,220 Cost of shares redeemed (21,671,945) (16,555,408) (124,370,412) (93,294,926) ------------ ------------ ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions (5,415,713) 326,023 (34,998,801) 10,361,294 ------------ ------------ ------------- ------------- Net increase (decrease) in net assets (5,415,713) 317,676 (34,990,183) 10,361,294 ------------ ------------ ------------- ------------- Net assets, beginning of period 63,177,156 62,859,480 97,849,663 87,488,369 ------------ ------------ ------------- ------------- Net assets, end of period $ 57,761,443 $ 63,177,156 $ 62,859,480 $ 97,849,663 ============ ============ ============= ============= Undistributed net investment income $ -- $ -- $ 8,618 $ -- ============ ============ ============= =============
---------- (1) The Fund commenced operations on December 15, 1998. See Accompanying Notes to Financial Statements 37 FINANCIAL HIGHLIGHTS PILGRIM GNMA INCOME FUND (UNAUDITED) -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A -------------------------------------------------------------------------------- Six Months Three Months Ended Ended September 30, March 31, Year Ended December 31, 2001 2001(5) 2000(4) 1999 1998 1997 1996 ---- ------- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 8.63 8.41 8.08 8.53 8.40 8.12 8.19 Income from investment operations: Net investment income $ 0.24 0.12 0.54 0.50 0.48 0.51 0.53 Net realized and unrealized gain (loss) on investments $ 0.22 0.22 0.27 (0.45) 0.13 0.29 (0.08) Total from investment operations $ 0.46 0.34 0.81 0.05 0.61 0.80 0.45 Less distributions from: Net investment income $ 0.24 0.12 0.48 0.50 0.48 0.52 0.52 Total distributions $ 0.24 0.12 0.48 0.50 0.48 0.52 0.52 Net asset value, end of period $ 8.85 8.63 8.41 8.08 8.53 8.40 8.12 Total Return(1) % 5.36 4.09 10.36 0.58 7.52 10.20 5.71 Ratios/Supplemental Data: Net assets, end of period (000's) $ 501,887 449,460 368,615 376,580 273,591 158,071 133,777 Ratios to average net assets: Expenses(2) % 1.25 1.16 1.06 0.99 1.01 1.01 1.05 Net investment income(2) % 5.52 5.75 6.54 6.04 5.85 6.28 6.56 Portfolio turnover rate % 45 33 65 25 54 134 129 Class B Class C ----------------------------------------- ------------------------------------------ Six Months Three Months October 6, Six Months Three Months October 13, Ended Ended 2000(3) to Ended Ended 2000(3) to September 30, March 31, December 31, September 30, March 31, December 31, 2001 2001(5) 2000 2001 2001(5) 2000 ---- ------- ---- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 8.61 8.40 8.20 8.61 8.40 8.24 Income from investment operations: Net investment income $ 0.20 0.13 0.09 0.21 0.11 0.09 Net realized and unrealized gain on investments $ 0.23 0.19 0.18 0.22 0.21 0.14 Total from investment operations $ 0.43 0.32 0.27 0.43 0.32 0.23 Less distributions from: Net investment income $ 0.21 0.11 0.07 0.21 0.11 0.07 Total distributions $ 0.21 0.11 0.07 0.21 0.11 0.07 Net asset value, end of period $ 8.83 8.61 8.40 8.83 8.61 8.40 Total Return(1) % 4.99 3.70 3.32 4.99 3.69 2.82 Ratios/Supplemental Data: Net assets, end of period (000's) $ 66,102 47,406 866 25,752 13,744 1,833 Ratios to average net assets: Expenses(2) % 2.00 1.90 1.81 2.00 1.93 1.81 Net investment income(2) % 4.75 4.88 5.79 4.71 4.87 5.79 Portfolio turnover rate % 45 33 65 45 33 65 Class M Class T -------------------------- ------------------------- Six Months Feb. 26, Six Months Feb. 26, Ended 2001(3) to Ended 2001(3)to September 30, March 31, September 30, March 31, 2001 2001 2001 2001 ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 8.63 8.51 8.63 8.51 Income from investment operations: Net investment income $ 0.21 0.04 0.23 0.04 Net realized and unrealized gain on investments $ 0.24 0.08 0.22 0.08 Total from investment operations $ 0.45 0.12 0.45 0.12 Less distributions from: Net investment income $ 0.22 -- 0.23 -- Total distributions $ 0.22 -- 0.23 -- Net asset value, end of period $ 8.86 8.63 8.85 8.63 Total Return(1) % 5.22 1.41 5.15 1.41 Ratios/Supplemental Data: Net assets, end of period (000's) $ 348 247 14,837 17,647 Ratios to average net assets: Expenses(2) % 1.75 1.61 1.65 1.54 Net investment income(2) % 5.02 4.88 5.14 5.02 Portfolio turnover rate % 45 33 45 33
---------- (1) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (2) Annualized for periods less than one year. (3) Commencement of offering of shares. (4) Effective July 26, 2000, ING Pilgrim Investments, LLC became the Investment Manager of the Fund. (5) The Fund changed it's fiscal year end to March 31. See Accompanying Notes to Financial Statements 38 PILGRIM NATIONAL TAX-EXEMPT BOND FUND (UNAUDITED) FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A Class B ----------------------------------------- --------------------------------------- Six Months Five Months Period Six Months Five Months Period Ended Ended Ended Ended Ended Ended September 30, March 31, October 31, September 30, March 31, October 31, 2001 2001(4) 2000(1) 2001 2001(4) 2000(1) ---- ------- ------- ---- ------- ------- Per Share Operating Performance: Net asset value, beginning of period $ 10.50 10.11 10.00 10.48 10.09 10.00 Income from investment operations: Net investment income $ 0.21 0.19 0.48 0.17 0.17 0.38 Net realized and unrealized gains on investments $ 0.03 0.39 0.11 0.04 0.39 0.11 Total from investment operations $ 0.24 0.58 0.59 0.21 0.56 0.49 Less distributions from: Net investment income $ 0.21 0.19 0.48 0.17 0.17 0.40 Total distributions $ 0.21 0.19 0.48 0.17 0.17 0.40 Net asset value, end of period $ 10.53 10.50 10.11 10.52 10.48 10.09 Total Return(2): % 2.27 5.79 6.09 2.00 5.54 5.02 Ratios/Supplemental Data: Net assets, end of period (000's) $ 22,654 22,074 21,592 927 588 311 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.15 1.06 0.95 1.90 1.83 1.67 Gross expenses prior to expense reimbursement(3) % 1.57 1.50 2.12 2.22 2.17 2.32 Net investment income after expense reimbursement(3)(5) % 3.92 4.45 4.92 3.18 3.69 3.93 Portfolio turnover rate % 12 7 50 12 7 50 Class C ----------------------------------------- Six Months Five Months Period Ended Ended Ended September 30, March 31, October 31, 2001 2001(4) 2000(1) ---- ------- ------- Per Share Operating Performance: Net asset value, beginning of period $ 10.49 10.11 10.00 Income from investment operations: Net investment income $ 0.17 0.16 0.39 Net realized and unrealized gains on investments $ 0.04 0.38 0.12 Total from investment operations $ 0.21 0.54 0.51 Less distributions from: Net investment income $ 0.17 0.16 0.40 Total distributions $ 0.17 0.16 0.40 Net asset value, end of period $ 10.53 10.49 10.11 Total Return(2): % 2.00 5.34 5.29 Ratios/Supplemental Data: Net assets, end of period (000's) $ 309 440 439 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.90 1.81 1.68 Gross expenses prior to expense reimbursement(3) % 2.22 2.16 2.33 Net investment income after expense reimbursement(3)(5) % 3.16 3.70 4.00 Portfolio turnover rate % 12 7 50
---------- (1) Fund commenced operations on November 8, 1999. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Fund changed it's fiscal year end to March 31. (5) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. See Accompanying Notes to Financial Statements 39 FINANCIAL HIGHLIGHTS PILGRIM INTERMEDIATE BOND FUND (UNAUDITED) -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A Class B ------------------------------------------- -------------------------------------------- Six Months Five Months Year Period Six Months Five Months Year Period Ended Ended Ended Ended Ended Ended Ended Ended Sept. 30, March 31, Oct. 31, Oct. 31, Sept. 30, March 31, Oct. 31, Oct. 31, 2001 2001(4) 2000 1999(1) 2001 2001(4) 2000 1999(1) ---- ------- ---- ------- ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 10.18 9.52 9.40 10.00 10.18 9.52 9.40 10.00 Income from investment operations: Net investment income $ 0.28 0.28 0.61 0.45 0.24 0.26 0.53 0.40 Net realized and unrealized gain (loss) on investments $ 0.45 0.66 0.12 (0.60) 0.44 0.66 0.13 (0.61) Total from investment operations $ 0.73 0.94 0.73 (0.15) 0.68 0.92 0.66 (0.21) Less distributions from: Net investment income $ 0.28 0.28 0.61 0.45 0.24 0.26 0.54 0.39 Total distributions $ 0.28 0.28 0.61 0.45 0.24 0.26 0.54 0.39 Net asset value, end of period $ 10.63 10.18 9.52 9.40 10.62 10.18 9.52 9.40 Total Return(2): % 7.22 10.01 8.11 (1.46) 6.72 9.74 7.30 (2.13) Ratios/Supplemental Data: Net assets, end of period (000's) $ 41,618 33,597 29,893 32,013 7,657 2,807 1,523 1,958 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.15 1.13 1.00 0.96 1.90 1.88 1.74 1.70 Gross expenses prior to expense reimbursement(3) % 1.40 1.53 2.08 2.12 2.05 2.18 2.33 2.39 Net investment income after expense reimbursement(3)(5) % 5.23 6.94 6.48 5.38 4.47 6.20 5.71 4.83 Portfolio turnover rate % 717 838 733 432 717 838 733 432 Class C ------------------------------------------------ Six Months Five Months Year Period Ended Ended Ended Ended Sept. 30, March 31, Oct. 31, Oct. 31, 2001 2001(4) 2000 1999(1) ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 10.19 9.52 9.40 10.00 Income from investment operations: Net investment income $ 0.23 0.26 0.54 0.42 Net realized and unrealized gain (loss) on investments $ 0.43 0.67 0.12 (0.63) Total from investment operations $ 0.66 0.93 0.66 (0.21) Less distributions from: Net investment income $ 0.23 0.26 0.54 0.39 Total distributions $ 0.23 0.26 0.54 0.39 Net asset value, end of period $ 10.62 10.19 9.52 9.40 Total Return(2): % 6.57 9.86 7.32 (2.10) Ratios/Supplemental Data: Net assets, end of period (000's) $ 6,966 4,470 5,248 1,082 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.90 1.85 1.73 1.71 Gross expenses prior to expense reimbursement(3) % 2.05 2.18 2.32 2.44 Net investment income after expense reimbursement(3)(5) % 4.49 6.37 5.74 4.94 Portfolio turnover rate % 717 838 733 432
---------- (1) Fund commenced operations on December 15, 1998. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Fund changed it's fiscal year end to March 31. (5) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. See Accompanying Notes to Financial Statements 40 PILGRIM STRATEGIC INCOME FUND (UNAUDITED) FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A ------------------------------------------------------------ Six Nine Three Months Months Year Months July 27, Ended Ended Ended Ended 1998(1) to September 30, March 31, June 30, June 30, March 31, 2001 2001(6) 2000 1999(2) 1999 ---- ------- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 11.79 12.07 12.59 12.89 13.08 Income from investment operations: Net investment income $ 0.44 0.23 0.92 0.26 0.53 Net realized and unrealized gain (loss) on investments $ (0.43) 0.08 (0.52) (0.42) (0.08) Total from investment operations $ 0.01 0.31 0.40 (0.16) 0.45 Less distributions from: Net investment income $ 0.38 0.59 0.92 0.14 0.53 Net realized gains on investments $ -- -- -- -- 0.11 Total distributions $ 0.38 0.59 0.92 0.14 0.64 Net asset value, end of period $ 11.42 11.79 12.07 12.59 12.89 Total Return(3): % 0.15 2.69 3.42 (1.23) 5.60 Ratios/Supplemental Data: Net assets, end of period (000's) $ 37,329 39,105 2,726 2,736 5,751 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 0.95 1.03 0.96 0.90 0.96 Gross expenses prior to expense reimbursement(4) % 1.36 1.73 2.64 1.56 1.98 Net investment income after expense reimbursement(4)(5) % 7.54 6.30 7.69 5.88 5.81 Portfolio turnover rate % 73 132 168 69 274 Class B ------------------------------------------------------------ Six Nine Three Months Months Year Months July 27, Ended Ended Ended Ended 1998(1) to September 30, March 31, June 30, June 30, March 31, 2001 2001(6) 2000 1999(2) 1999 ---- ------- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 11.53 11.80 12.33 12.61 12.78 Income from investment operations: Net investment income $ 0.36 0.36 0.88 0.18 0.45 Net realized and unrealized gain (loss) on investments $ (0.37) (0.08) (0.53) (0.33) (0.05) Total from investment operations $ (0.01) 0.28 0.35 (0.15) 0.40 Less distributions from: Net investment income $ 0.36 0.55 0.88 0.13 0.46 Net realized gains on investments $ -- -- -- -- 0.11 Total distributions $ 0.36 0.55 0.88 0.13 0.57 Net asset value, end of period $ 11.16 11.53 11.80 12.33 12.61 Total Return(3): % (0.03) 2.52 3.00 (1.20) 5.17 Ratios/Supplemental Data: Net assets, end of period (000's) $ 10,569 8,894 4,460 5,658 6,637 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.35 1.53 1.36 1.29 1.37 Gross expenses prior to expense reimbursement(4) % 1.76 2.55 3.04 1.95 2.42 Net investment income after expense reimbursement(4)(5) % 7.14 6.71 7.29 5.49 5.35 Portfolio turnover rate % 73 132 168 69 274 Class C ------------------------------------------------------------ Six Nine Three Months Months Year Months July 27, Ended Ended Ended Ended 1998(1) to September 30, March 31, June 30, June 30, March 31, 2001 2001(6) 2000 1999(2) 1999 ---- ------- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 12.05 12.30 12.81 13.10 13.27 Income from investment operations: Net investment income $ 0.39 0.43 0.87 0.19 0.48 Net realized and unrealized gain (loss) on investments $ (0.40) (0.13) (0.51) (0.35) (0.06) Total from investment operations $ (0.01) 0.30 0.36 (0.16) 0.42 Less distributions from: Net investment income $ 0.36 0.55 0.87 0.13 0.48 Net realized gains on investments $ -- -- -- -- 0.11 Total distributions $ 0.36 0.55 0.87 0.13 0.59 Net asset value, end of period $ 11.68 12.05 12.30 12.81 13.10 Total Return(3): % (0.03) 2.55 3.02 (1.21) 5.19 Ratios/Supplemental Data: Net assets, end of period (000's) $ 5,248 5,196 3,966 7,965 8,128 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.35 1.51 1.36 1.29 1.36 Gross expenses prior to expense reimbursement(4) % 1.76 2.55 3.04 1.95 2.41 Net investment income after expense reimbursement(4)(5) % 7.16 6.71 7.29 5.49 5.36 Portfolio turnover rate % 73 132 168 69 274
---------- (1) Commencement of offering of shares. (2) Effective May 24, 1999, ING Pilgrim Investments, LLC, became the Investment Manager of the Fund and the Fund changed its fiscal year end to June 30. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized (4) Annualized for periods less than one year. (5) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. (6) The Fund changed its fiscal year end to March 31. See Accompanying Notes to Financial Statements 41 FINANCIAL HIGHLIGHTS PILGRIM HIGH YIELD FUND (UNAUDITED) -------------------------------------------------------------------------------- Selected data for a share beneficial interest outstanding throughout each period.
Class A ------------------------------------------------------------------------- Six Months Nine Months Ended Ended Sept. 30, March 31, Year Ended June 30, 2001 2001(5) 2000 1999 1998 1997 ---- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 3.90 5.04 5.93 6.94 6.80 6.36 Income from investment operations: Net investment income $ 0.18 0.34 0.56 0.58 0.61 0.61 Net realized and unrealized gain (loss) on investments $ (0.48) (1.05) (0.85) (0.96) 0.16 0.43 Total from investment operations $ (0.30) (0.71) (0.29) (0.38) 0.77 1.04 Less distributions from: Net investment income $ 0.24 0.35 0.57 0.62 0.63 0.60 Tax return of capital $ -- 0.08 0.03 0.01 -- -- Total distributions $ 0.24 0.43 0.60 0.63 0.63 0.60 Net asset value, end of period $ 3.36 3.90 5.04 5.93 6.94 6.80 Total Return(2): % (8.13) (14.66) (5.20) (5.57) 11.71 17.14 Ratios/Supplemental Data: Net assets, end of period (000's) $ 44,714 55,704 85,870 131,535 102,424 35,940 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.10 1.10 1.05 1.00 1.00 1.00 Gross expenses prior to expense reimbursement(3) % 1.24 1.20 1.17 1.12 1.17 1.42 Net investment income after expense reimbursement(3)(4) % 9.78 10.65 10.41 9.32 9.05 9.54 Portfolio turnover rate % 55 100 89 184 209 394 Class B --------------------------------------------------------------------------- Six Months Nine Months Ended Ended Sept. 30, March 31, Year Ended June 30, 2001 2001(5) 2000 1999 1998 1997 ---- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 3.89 5.03 5.92 6.92 6.78 6.36 Income from investment operations: Net investment income $ 0.16 0.32 0.53 0.53 0.58 0.57 Net realized and unrealized gain (loss) on investments $ (0.48) (1.06) (0.86) (0.96) 0.14 0.41 Total from investment operations $ (0.32) (0.74) (0.33) (0.43) 0.72 0.98 Less distributions from: Net investment income $ 0.23 0.32 0.53 0.56 0.58 0.56 Tax return of capital $ -- 0.08 0.03 0.01 -- -- Total distributions $ 0.23 0.40 0.56 0.57 0.58 0.56 Net asset value, end of period $ 3.34 3.89 5.03 5.92 6.92 6.78 Total Return(2): % (8.71) (15.18) (5.91) (6.23) 10.90 16.04 Ratios/Supplemental Data: Net assets, end of period (000's) $ 113,736 140,183 199,618 261,589 154,303 40,225 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.85 1.85 1.80 1.75 1.75 1.75 Gross expenses prior to expense reimbursement(3) % 1.99 1.95 1.92 1.87 1.92 2.17 Net investment income after expense reimbursement(3)(4) % 9.04 9.89 9.66 8.57 8.30 8.64 Portfolio turnover rate % 55 100 89 184 209 394 Class C ---------------------------------------------- Six Months Nine Months Year May 27, Ended Ended Ended 1999(1) to Sept. 30, March 31, June 30, June 30, 2001 2001(5) 2000 1999 ---- ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 3.89 5.02 5.92 5.91 Income from investment operations: Net investment income $ 0.17 0.33 0.57 0.05 Net realized and unrealized gain (loss) on investments $ (0.49) (1.06) (0.90) 0.01 Total from investment operations $ (0.32) (0.73) (0.33) 0.06 Less distributions from: Net investment income $ 0.23 0.32 0.57 0.05 Tax return of capital $ -- 0.08 -- -- Total distributions $ 0.23 0.40 0.57 0.05 Net asset value, end of period $ 3.34 3.89 5.02 5.92 Total Return(2): % (8.71) (15.00) (5.99) 0.34 Ratios/Supplemental Data: Net assets, end of period (000's) $ 4,303 5,505 5,930 551 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.85 1.85 1.80 1.75 Gross expenses prior to expense reimbursement(3) % 1.99 1.95 1.92 1.87 Net investment income after expense reimbursement(3)(4) % 9.04 9.88 9.66 8.57 Portfolio turnover rate % 55 100 89 184 Class M ---------------------------------------------------------------------- Six Months Nine Months Ended Ended Sept. 30, March 31, Year Ended June 30, 2001 2001(5) 2000 1999 1998 1997 ---- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 3.90 5.03 5.93 6.92 6.78 6.36 Income from investment operations: Net investment income $ 0.16 0.31 0.52 0.55 0.59 0.58 Net realized and unrealized gain (loss) on investments $ (0.48) (1.03) (0.85) (0.95) 0.14 0.41 Total from investment operations $ (0.32) (0.72) (0.33) (0.40) 0.73 0.99 Less distributions from: Net investment income $ 0.23 0.33 0.54 0.58 0.59 0.57 Tax return of capital $ -- 0.08 0.03 0.01 -- -- Total distributions $ 0.23 0.41 0.57 0.59 0.59 0.57 Net asset value, end of period $ 3.35 3.90 5.03 5.93 6.92 6.78 Total Return(2): % (8.69) (14.82) (5.86) (5.85) 11.16 16.29 Ratios/Supplemental Data: Net assets, end of period (000's) $ 5,304 7,077 12,730 24,129 19,785 8,848 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.60 1.60 1.55 1.50 1.50 1.50 Gross expenses prior to expense reimbursement(3) % 1.74 1.70 1.67 1.62 1.67 1.92 Net investment income after expense reimbursement(3)(4) % 9.29 10.16 9.91 8.82 8.55 8.93 Portfolio turnover rate % 55 100 89 184 209 394
---------- (1) Commencement of offering of shares. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return information for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Investment Manager has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. (5) The Fund changed it's fiscal year end to March 31. See Accompanying Notes to Financial Statements 42 PILGRIM HIGH YIELD FUND II (UNAUDITED) FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A -------------------------------------------------------------------------- Six Nine Three Months Months Year Months Year March 27, Ended Ended Ended Ended Ended 1998 to Sept. 30, March 31, June 30, June 30, March 31, March 31, 2001 2001(7) 2000 1999(2) 1999 1998(1) ---- ------- ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 8.69 10.80 11.57 11.66 12.72 12.70 Income from investment operations: Net investment income $ 0.46 0.84 1.18 0.28 1.12 0.01 Net realized and unrealized gain (loss) on investments $ (1.28) (2.09) (0.75) (0.09) (1.00) 0.01 Total from investment operations $ (0.82) (1.25) 0.43 0.19 0.12 0.02 Less distributions from: Net investment income $ 0.55 0.86 1.20 0.28 1.18 -- Total distributions $ 0.55 0.86 1.20 0.28 1.18 -- Net asset value, end of period $ 7.32 8.69 10.80 11.57 11.66 12.72 Total Return(3): % (9.77) (11.87) 3.96 1.60 1.13 0.16 Ratios/Supplemental Data: Net assets, end of period (000's) $ 46,593 55,230 34,416 16,795 17,327 4,690 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.10 1.10 1.18 1.10 1.12 1.06 Gross expenses prior to expense reimbursement(4) % 1.32 1.32 1.37 1.37 1.53 1.06 Net investment income after expense reimbursement(4)(5) % 11.28 11.43 10.63 9.68 9.44 7.22 Portfolio turnover rate % 50 113 113 44 242 484 Class B ---------------------------------------------------------------------------- Six Nine Three Months Months Year Months Year March 27, Ended Ended Ended Ended Ended 1998 to Sept. 30, March 31, June 30, June 30, March 31, March 31, 2001 2001(7) 2000 1999(2) 1999 1998(1) ---- ------- ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 8.71 10.81 11.58 11.66 12.71 12.69 Income from investment operations: Net investment income $ 0.44 0.81 1.11 0.27 1.04 0.01 Net realized and unrealized gain (loss) on investments $ (1.29) (2.10) (0.75) (0.09) (0.99) 0.01 Total from investment operations $ (0.85) (1.29) 0.36 0.18 0.05 0.02 Less distributions from: Net investment income $ 0.52 0.81 1.13 0.26 1.10 -- Total distributions $ 0.52 0.81 1.13 0.26 1.10 -- Net asset value, end of period $ 7.34 8.71 10.81 11.58 11.66 12.71 Total Return(3): % (10.10) (12.22) 3.28 1.53 0.55 0.16 Ratios/Supplemental Data: Net assets, end of period (000's) $ 147,754 181,175 103,246 41,882 42,960 8,892 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.75 1.75 1.83 1.75 1.77 1.69 Gross expenses prior to expense reimbursement(4) % 1.97 1.97 2.02 2.02 2.18 1.69 Net investment income after expense reimbursement(4)(5) % 10.65 10.97 9.98 9.03 8.84 6.61 Portfolio turnover rate % 50 113 113 44 242 484 Class C ----------------------------------------------------------------------- Six Nine Three Months Months Year Months Year March 27, Ended Ended Ended Ended Ended 1998 to September 30, March 31, June 30, June 30, March 31, March 31, 2001 2001(7) 2000 1999(2) 1999 1998(1) ---- ------- ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 8.71 10.81 11.58 11.66 12.71 12.69 Income from investment operations: Net investment income $ 0.42 0.81 1.10 0.27 1.04 0.01 Net realized and unrealized gain (loss) on investments $ (1.27) (2.10) (0.74) (0.09) (0.99) 0.01 Total from investment operations $ (0.85) (1.29) 0.36 0.18 0.05 0.02 Less distributions from: Net investment income $ 0.52 0.81 1.13 0.26 1.10 -- Total distributions $ 0.52 0.81 1.13 0.26 1.10 -- Net asset value, end of period $ 7.34 8.71 10.81 11.58 11.66 12.71 Total Return(3): % (10.08) (12.22) 3.28 1.53 0.55 0.16 Ratios/Supplemental Data: Net assets, end of period (000's) $ 25,138 33,463 23,324 18,618 21,290 4,815 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.75 1.75 1.83 1.75 1.77 1.66 Gross expenses prior to expense reimbursement(4) % 1.97 1.97 2.02 2.02 2.18 1.66 Net investment income after expense reimbursement(4)(5) % 10.65 10.93 9.98 9.03 8.79 6.91 Portfolio turnover rate % 50 113 113 44 242 484 Class T ------------------------------------- Six Nine Months Months March 31, Ended Ended 2000(6) to September 30, March 31, June 30, 2001 2001(7) 2000 ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of period 8.70 10.81 11.07 Income from investment operations: Net investment income 0.43 0.81 0.29 Net realized and unrealized gain (loss) on investments (1.26) (2.08) (0.25) Total from investment operations (0.83) (1.27) 0.04 Less distributions from: Net investment income 0.54 0.84 0.30 Total distributions 0.54 0.84 0.30 Net asset value, end of period 7.33 8.70 10.81 Total Return(3): (9.92) (12.07) (0.49) Ratios/Supplemental Data: Net assets, end of period (000's) 12,743 18,510 31,342 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) 1.40 1.40 1.48 Gross expenses prior to expense reimbursement(4) 1.62 1.63 1.67 Net investment income after expense reimbursement(4)(5) 10.98 11.24 10.33 Portfolio turnover rate 50 113 113
---------- (1) The Fund commenced operations on March 27, 1998. (2) Effective May 24, 1999, ING Pilgrim Investments, LLC, became the Investment Manager of the Fund and the Fund changed its year end to June 30. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized for periods less than one year. (5) The Investment Manager has voluntarily agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. (6) Commencement of offering of shares. (7) The Fund changed its fiscal year end to March 31. See Accompanying Notes to Financial Statements 43 FINANCIAL HIGHLIGHTS PILGRIM HIGH YIELD BOND FUND (UNAUDITED) -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A ----------------------------------------------- Six Months Five Months Year Period Ended Ended Ended Ended Sept. 30, March 31, Oct. 31, Oct. 31, 2001 2001(4) 2000 1999(1) ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 9.36 9.24 9.96 10.00 Income from investment operations: Net investment income $ 0.43 0.39 0.85 0.67 Net realized and unrealized gain (loss) on investments $ (1.02) 0.12 (0.65) (0.04) Total from investment operations $ (0.59) 0.51 0.20 0.63 Less distributions from: Net investment income $ 0.43 0.39 0.86 0.67 Net realized gains on investments $ -- -- 0.06 -- Total distributions $ 0.43 0.39 0.92 0.67 Net asset value, end of period $ 8.34 9.36 9.24 9.96 Total Return(2): % (6.52) 5.61 1.89 6.37 Ratios/Supplemental Data: Net assets, end of period (000's) $ 31,747 33,459 33,220 30,537 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.30 1.09 1.04 1.00 Gross expenses prior to expense reimbursement(3) % 1.87 1.63 2.16 2.32 Net investment income after expense reimbursement(3)(5) % 9.31 10.24 8.75 7.53 Portfolio turnover rate % 202 253 481 756 Class B ----------------------------------------------- Six Months Five Months Year Period Ended Ended Ended Ended Sept. 30, March 31, Oct. 31, Oct. 31, 2001 2001(4) 2000 1999(1) ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 9.36 9.23 9.96 10.00 Income from investment operations: Net investment income $ 0.40 0.36 0.78 0.60 Net realized and unrealized gain (loss) on investments $ (1.03) 0.14 (0.66) (0.05) Total from investment operations $ (0.63) 0.50 0.12 0.55 Less distributions from: Net investment income $ 0.40 0.37 0.79 0.59 Net realized gains on investments $ -- -- 0.06 -- Total distributions $ 0.40 0.37 0.85 0.59 Net asset value, end of period $ 8.33 9.36 9.23 9.96 Total Return(2): % (6.93) 5.43 1.02 5.57 Ratios/Supplemental Data: Net assets, end of period (000's) $ 5,692 5,025 3,702 2,374 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 2.05 1.84 1.79 1.72 Gross expenses prior to expense reimbursement(3) % 2.52 2.28 2.41 2.64 Net investment income after expense reimbursement(3)(5) % 8.47 9.49 7.99 6.90 Portfolio turnover rate % 202 253 481 756 Class C ---------------------------------------------------- Six Months Five Months Year Period Ended Ended Ended Ended Sept. 30, March 31, Oct. 31, Oct. 31, 2001 2001(4) 2000 1999(1) Per Share Operating Performance: Net asset value, beginning of period $ 9.36 9.23 9.96 10.00 Income from investment operations: Net investment income $ 0.39 0.37 0.78 0.62 Net realized and unrealized gain (loss) on investments $ (1.02) 0.12 (0.66) (0.06) Total from investment operations $ (0.63) 0.49 0.12 0.56 Less distributions from: Net investment income $ 0.40 0.36 0.79 0.60 Net realized gains on investments $ -- -- 0.06 -- Total distributions $ 0.40 0.36 0.85 0.60 Net asset value, end of period $ 8.33 9.36 9.23 9.96 Total Return(2): % (6.99) 5.39 1.02 5.67 Ratios/Supplemental Data: Net assets, end of period (000's) $ 1,222 1,314 1,578 776 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 2.05 1.84 1.79 1.73 Gross expenses prior to expense reimbursement(3) % 2.52 2.29 2.40 2.66 Net investment income after expense reimbursement(3)(5) % 8.60 9.42 7.98 7.01 Portfolio turnover rate % 202 253 481 756
---------- (1) Fund commenced operations on December 15, 1998. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Fund changed it's fiscal year end to March 31. (5) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. See Accompanying Notes to Financial Statements 44 PILGRIM MONEY MARKET FUND (UNAUDITED) FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
Class A Class B ------------------------------------- -------------------------------------- Six Months Nine Months Period Six Months Nine Months Period Ended Ended Ended Ended Ended Ended September 30, March 31, June 30, September 30, March 31, June 30, 2001(7) 2001(6) 2000(1) 2001 2001(6) 2000(2) ------- ------- ------- ---- ------- ------- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.02 0.04* 0.02* 0.01 0.03* 0.03* Total from investment operations $ 0.02 0.04 0.02 0.01 0.03 0.03 Less distributions from: Net investment income $ 0.02 0.04 0.02 0.01 0.03 0.03 Total distributions $ 0.02 0.04 0.02 0.01 0.03 0.03 Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Total Return(3): % 1.55 3.86 3.58 1.23 3.34 3.60 Ratios/Supplemental Data: Net assets, end of period (000's) $ 49,723 73,290 75,430 38,079 32,117 12,035 Ratios to average net assets: Net expenses after expense reimbursement/recoupment(4)(5) % 0.89 0.91** 0.85** 1.64 1.64** 1.60** Gross expenses prior to expense reimbursement/recoupment(4) % 0.89 0.74 2.28 1.64 1.50 3.03 Net investment income after expense reimbursement/recoupment(4)(5) % 3.21 5.23 5.18 2.38 4.31 3.96 Class C --------------------------------------- Six Months Nine Months Period Ended Ended Ended September 30, March 31, June 30, 2001 2001(6) 2000(2) ---- ------- ------- Per Share Operating Performance: Net asset value, beginning of period 1.00 1.00 1.00 Income from investment operations: Net investment income 0.01 0.03* 0.02* Total from investment operations 0.01 0.03 0.02 Less distributions from: Net investment income 0.01 0.03 0.02 Total distributions 0.01 0.03 0.02 Net asset value, end of period 1.00 1.00 1.00 Total Return(3): 1.18 3.34 3.58 Ratios/Supplemental Data: Net assets, end of period (000's) 17,247 27,404 5,431 Ratios to average net assets: Net expenses after expense reimbursement/recoupment(4)(5) 1.64 1.59** 1.60** Gross expenses prior to expense reimbursement/recoupment(4) 1.64 1.49 3.03 Net investment income after expense reimbursement/recoupment(4)(5) 2.45 4.36 3.96
---------- (1) Commenced operations on November 24, 1999. (2) Commenced operations on July 12, 1999. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized for periods less than one year. (5) The Investment Manager has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. (6) The Fund changed its fiscal year end to March 31. (7) Effective May 21, 2001 ING Pilgrim Investments, LLC took over direct management of the Fund. * Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the underlying investment company in which the Fund invests. ** Does not include expenses of the investment company in which the Fund invests. See Accompanying Notes to Financial Statements 45 FINANCIAL HIGHLIGHTS ING PILGRIM MONEY MARKET FUND (UNAUDITED) -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A ---------------------------------------------------- Six Months Five Months Year Period Ended Ended Ended Ended September 30, March 31, October 31, October 31, 2001 2001(4) 2000 1999(1) ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.02 0.02 0.06 0.04 Total from investment operations $ 0.02 0.02 0.06 0.04 Less distributions from: Net investment income $ 0.02 0.02 0.06 0.04 Total distributions $ 0.02 0.02 0.06 0.04 Net asset value, end of period $ 1.00 1.00 1.00 1.00 Total Return(2): % 1.87 2.36 5.70 3.98 Ratios/Supplemental Data: Net assets, end of period (000's) $ 565,100 515,651 440,651 228,124 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 0.77 0.77 0.74 0.73 Gross expenses prior to expense reimbursement(3) % 1.31 1.30 1.42 1.67 Net investment income after expense reimbursement(3)(5) % 3.69 5.61 5.59 4.59 Class B ---------------------------------------------------- Six Months Five Months Year Period Ended Ended Ended Ended September 30, March 31, October 31, October 31, 2001 2001(4) 2000 1999(1) ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.02 0.02 0.05 0.03 Total from investment operations $ 0.02 0.02 0.05 0.03 Less distributions from: Net investment income $ 0.02 0.02 0.05 0.03 Total distributions $ 0.02 0.02 0.05 0.03 Net asset value, end of period $ 1.00 1.00 1.00 1.00 Total Return(2): % 1.56 2.11 5.03 3.31 Ratios/Supplemental Data: Net assets, end of period (000's) $ 2,289 2,714 2,706 1,173 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.41 1.41 1.38 1.41 Gross expenses prior to expense reimbursement(3) % 1.56 1.55 1.67 1.79 Net investment income after expense reimbursement(3)(5) % 3.11 5.10 4.93 3.85 Class C -------------------------------------------------------------- Six Months Five Months Year Period Ended Ended Ended Ended September 30, March 31, October 31, October 31, 2001 2001(4) 2000 1999(1) ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.02 0.02 0.05 0.03 Total from investment operations $ 0.02 0.02 0.05 0.03 Less distributions from: Net investment income $ 0.02 0.02 0.05 0.03 Total distributions $ 0.02 0.02 0.05 0.03 Net asset value, end of period $ 1.00 1.00 1.00 1.00 Total Return(2): % 1.56 2.08 5.03 3.30 Ratios/Supplemental Data: Net assets, end of period (000's) $ 1,773 2,583 2,035 444 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.41 1.40 1.39 1.41 Gross expenses prior to expense reimbursement(3) % 1.56 1.55 1.67 1.78 Net investment income after expense reimbursement(3)(5) % 3.14 5.00 5.03 3.89
---------- (1) Commenced operations on December 15, 1998. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Fund changed its fiscal year end to March 31. (5) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. See Accompanying Notes to Financial Statements 46 FINANCIAL HIGHLIGHTS LEXINGTON MONEY MARKET TRUST (UNAUDITED) -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months Three Months Ended Ended September 30, March 31, Year Ended December 31, 2001 2001(5) 2000(2) 1999 1998 1997 1996 ---- ------- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.02 0.01 0.05 0.0425 0.0455 0.0458 0.0441 Total from investment operations $ 0.02 0.01 0.05 0.0425 0.0455 0.0458 0.0441 Less distributions from: Net investment income $ 0.02 0.01 0.05 0.0425 0.0455 0.0458 0.0441 Total distributions $ 0.02 0.01 0.05 0.0425 0.0455 0.0458 0.0441 Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 1.00 Total Return(1) % 1.56 1.22 5.57 4.34 4.64 4.68 4.50 Ratios/Supplemental Data: Net assets, end of period (000's) $ 57,761 63,177 62,859 97,850 87,488 95,149 97,526 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 0.96 0.92 1.00 1.00 1.00 1.00 1.00 Gross expenses prior to expense reimbursement(4) % 0.96 0.92 1.08 1.01 1.05 1.04 1.04 Net investment income after expense reimbursement(3)(4) % 3.11 4.85 5.53 4.26 4.56 4.58 4.41
---------- (1) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (2) Effective July 26, 2000, ING Pilgrim Investments, LLC became the Investment Manager of the Fund. (3) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. (4) Annualized for periods less than one year. (5) The Trust changed its fiscal year end to March 31. See Accompanying Notes to Financial Statements 47 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) -------------------------------------------------------------------------------- NOTE 1 -- ORGANIZATION Organization. Pilgrim GNMA Income Fund, Inc., Pilgrim Funds Trust ("PFT"), Pilgrim Mutual Funds ("PMF"), Pilgrim Investment Funds, Inc. ("PIF") and Lexington Money Market Trust are each open-end investment management companies registered under the Investment Company Act of 1940, as amended. Pilgrim GNMA Income Fund ("GNMA Fund") is the single series of Pilgrim GNMA Income Fund, Inc., a Maryland Corporation organized on August 15, 1973. PFT is a Delaware business trust established July 30, 1998 and consists of twelve separately managed portfolios. Four of the Portfolios in this report are Pilgrim National Tax-Exempt Bond Fund ("National Tax-Exempt Bond Fund"), Pilgrim Intermediate Bond Fund ("Intermediate Bond Fund"), Pilgrim High Yield Bond Fund ("High Yield Bond Fund") and ING Pilgrim Money Market Fund. PMF is a Delaware business trust organized in 1992 and consists of twelve separately managed portfolios. Three of the Portfolios in this report are Pilgrim Strategic Income Fund ("Strategic Income Fund"), Pilgrim High Yield Fund II ("High Yield Fund II") and Pilgrim Money Market Fund. PIF is a Maryland Corporation organized in July 1969 and consists of two separately managed portfolios. One of the Portfolios in this report is the Pilgrim High Yield Fund ("High Yield Fund"). Lexington Money Market Trust ("Money Market Trust") is the single series of Lexington Money Market Trust, a Massachusetts business trust organized on June 30, 1977. The investment objective of each Fund is described in each Fund's prospectus. Prior to May 21, 2001, the date that ING Pilgrim Investments, LLC took over direct management of the Pilgrim Money Market Fund, the Fund sought to achieve its investment objective by investing all its assets in Class A shares of the Primary Reserve Institutional Fund, a series of Reserve Institutional Trust, a registered open-end investment company. The Primary Reserve Institutional Fund declared dividends of its net investment income daily, which the Pilgrim Money Market Fund recorded as dividend income. In addition, the Pilgrim Money Market Fund incurred its own expenses. Each Fund offers at least three of the following classes of shares: Class A, Class B, Class C, Class I, Class M, Class Q and Class T except for Money Market Trust which only offers Class A Shares. The separate classes of shares differ principally in the applicable sales charges (if any), transfer agent fees, distribution fees and shareholder servicing fees. Shareholders of each class also bear certain expenses that pertain to that particular class. All shareholders bear the common expenses of the Fund and earn income from the portfolio pro rata based on the average daily net assets of each class, without distinction between share classes. Dividends are determined separately for each class based on income and expenses allocable to each class. Realized gains are allocated to each class pro rata based on the net assets of each class on the date of distribution. No class has preferential dividend rights. Differences in per share dividend rates generally result from the relative weighting of pro rata income and realized gain allocations and from differences in separate class expenses, including distribution, and shareholder servicing fees. Class B shares, along with their pro rata reinvested dividend shares, automatically convert to Class A shares approximately eight years after purchase. On September 1, 2000, ING Group N.V. (NYSE:ING) acquired ReliaStar Financial Corp., the indirect parent company of Pilgrim Investments, Inc., Adviser to some of the Funds, Pilgrim Securities, Inc., Distributor to the Funds and Pilgrim Group, Inc., Administrator to the Funds. In conjunction with the acquistions, the Adviser, Distributor and Administrator changed their names to ING Pilgrim Investments, Inc., ING Pilgrim Securities, Inc. and ING Pilgrim Group, Inc., respectively, effective September 8, 2000. Effective February 26, 2001, ING Pilgrim Investments, Inc. was merged into the newly formed ING Pilgrim Investments, LLC. Effective February 27, 2001, ING Pilgrim Group, Inc. was merged into the newly formed ING Pilgrim Group, LLC ("IPG"). NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies are consistently followed by the Funds in the preparation of their financial statements, and such policies are in conformity with generally accepted accounting principles for investment companies. A. Security Valuation. Investments in equity 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 48 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) -------------------------------------------------------------------------------- reported bid and ask prices. All investments quoted in foreign currencies will be valued daily in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the time such valuation is determined by each Fund's custodian. Debt securities are valued at bid prices (High Yield Fund, including securities sold short, is valued at the mean between the bid and ask prices) obtained from independent services or from one or more dealers making markets in the securities and may be adjusted based on the Fund's valuation procedures. U.S. Government obligations are valued by using market quotations or independent pricing services that use prices provided by market-makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. 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 set by the Board of Directors. Investment in the Primary Reserve Institutional Fund is valued at the net asset value as reported by the underlying Fund. Investments in securities maturing in less than 60 days are valued at cost, which, when combined with accrued interest, approximates market value. At September 30, 2001, the Intermediate Bond Fund, Strategic Income Fund, High Yield Fund and High Yield Fund II contained two, four, three and ten securities, respectively, for which bid prices obtained from one or more dealers making markets in the securities were adjusted based on the Funds' valuation procedures. These securities had a total value of $1,007,050 (represents 1.79% of net assets), $942,659 (represents 1.76% of net assets), $5,672,750 (represents 3.38% of net assets) and $2,658,856 (represents 1.13% of net assets), for the Intermediate Bond Fund, Strategic Income Fund, High Yield Fund and High Yield Fund II, respectively. In addition, at September 30, 2001, the High Yield Fund II contained eleven securities for which market quotations were not readily available and which were valued at their fair value as determined in good faith and in accordance with policies set by the Board of Directors. These securities had a total value of $3,606,460 (represents 1.54% of net assets) for the High Yield Fund II. B. Security Transactions and Revenue Recognition. Securities transactions are accounted for on the trade date. Realized gains and losses are reported on the basis of identified cost of securities delivered. Interest income is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date, or for certain foreign securities, when the information becomes available to the funds. Premium amortization and discount accretion are determined by the effective yield method. C. Foreign Currency Translation. The books and records of the funds are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis: (1) Market value of investment securities, other assets and liabilities -- at the exchange rates prevailing at the end of the day. (2) Purchases and sales of investment securities, income and expenses -- at the rates of exchange prevailing on the respective dates of such transactions. Although the net assets and the market values are presented at the foreign exchange rates at the end of the day, the Funds do not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses from investments. For securities which are subject to foreign withholding tax upon disposition, liabilities are recorded on the statement of assets and liabilities for the estimated tax withholding based on the securities' current market values. Upon disposition, realized gains or losses on such securities are recorded net of foreign withholding tax. Reported net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. Foreign security and currency transactions may involve certain considerations and risks not typically associated with investing in U.S. companies and the U.S. Government. These risks include but are not limited to re-evaluation of currencies and future adverse political and economic 49 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) -------------------------------------------------------------------------------- developments which could cause securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies and the U.S. Government. D. Foreign Currency Transactions. Certain funds may enter into foreign currency exchange transactions to convert to and from different foreign currencies and to and from the U.S. dollar in connection with the planned purchases or sales of securities. The Funds either enter into these transactions on a spot basis at the spot rate prevailing in the foreign currency exchange market or use forward foreign currency contracts to purchase or sell foreign currencies. When the contract is fulfilled or closed, gains or losses are realized. Until then, the gain or loss is included in unrealized appreciation or depreciation. Risks may arise upon entering into forward contracts from the potential inability of counterparties to meet the terms of their forward contracts and from the potential inability of counterparties to meet the terms of their forward contracts and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar. Each Fund may enter into futures contracts involving foreign currency, interest rates, securities and securities indices, for hedging purposes only. A futures contract obligates the seller of the contract to deliver and the purchaser of the contract to take delivery of the type of foreign currency, financial instrument or security called for in the contract at a specified future time for a specified price. Upon entering into such a contract, a Fund is required to deposit and maintain as collateral such initial margin as required by the exchange on which the contract is traded. Pursuant to the contract, a Fund agrees to receive from or pay to the broker an amount equal to the daily fluctuations in the value of the contract. Such receipts or payments are known as variation margins and are recorded as unrealized gains or losses by the Fund. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. E. Distributions to Shareholders. The Funds record distributions to their shareholders on ex-date. National Tax-Exempt Bond Fund, Intermediate Bond Fund, High Yield Fund II, High Yield Bond, Pilgrim Money Market Fund, ING Pilgrim Money Market Fund and Money Market Trust declare and become ex-dividend daily and pay dividends monthly. GNMA Fund, Strategic Income Fund and High Yield Fund declare and become ex-dividend monthly and pay dividends monthly. Each Fund distributes capital gains, to the extent available, annually. 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, foreign currency transactions, 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 net realized capital gains. To the extent distributions exceed net investment income and/or net realized capital gains for tax purposes, they are reported as distributions of paid-in capital. F. Federal Income Taxes. It is the policy of the Funds to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute substantially all of their net investment income and any net realized capital gains to their shareholders. Therefore, a federal income tax or excise tax provision is not required. In addition, by distributing during each calendar year substantially all of its net investment income and net realized capital gains, each Fund intends not to be subject to any federal excise tax. The Board of Directors/Trustees intends to offset any net capital gains with any available capital loss carryforward until each carryforward has been fully utilized or expires. In addition, no capital gain distribution shall be made until the capital loss carryforward has been fully utilized or expires. G. Use of Estimates. Management of the Funds has made certain estimates and assumptions relating to the reporting of assets, liabilities, income, and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. 50 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) -------------------------------------------------------------------------------- H. Repurchase Agreements. Each Fund may invest in repurchase agreements only with government securities dealers recognized by the Board of Governors of the Federal Reserve System or with member banks of the Federal Reserve System. Under such agreements, the seller of the security agrees to repurchase it at a mutually agreed upon time and price. The resale price is in excess of the purchase price and reflects an agreed upon interest rate for the period of time the agreement is outstanding. The period of the repurchase agreements is usually short, from overnight to one week, while the underlying securities generally have longer maturities. Each Fund will always receive as collateral securities with market values equal to at least 100% of the amount being invested by the Fund. If the seller defaults, a Fund may incur a delay in the realization of proceeds, it may incur a loss if the value of the collateral securing the repurchase agreement declines, and it may incur disposition costs in liquidating the collateral. I. Securities Lending. Each Fund had the option to temporarily loan 33 1/3% of its total assets to brokers, dealers or other financial institutions in exchange for a negotiated lender's fee. The borrower is required to fully collateralize the loans with cash, letters of credit or U.S. Government securities. J. Equalization. High Yield Fund follows the accounting practice known as equalization, by which a portion of the proceeds from sales and costs of purchases of Fund shares, equivalent on a per share basis to the amount of distributable investment income on the date of the transaction, is credited or charged to undistributed income. As a result, undistributed investment income per share is unaffected by sales or redemptions of Fund shares. K. Principles of Presentation. Certain reclassifications have been made to the prior period financial statements to conform to the current year presentation. L. Recently Issued Accounting Standards. In November 2000, a revised AICPA Audit and Accounting Guide (the "Guide"), Audits of Investment Companies, was issued, and is effective for fiscal years beginning after December 15, 2000. The revised Guide requires Funds to classify gains and losses realized on principal paydowns received on mortgaged-backed securities previously included in realized gains/loss, as part of interest income. Adopting this principle does not affect the Funds' net asset value but does change the classification between interest income and realized gain/loss in the statements of operations. The adoption of this princple is not material to the financial statements. NOTE 3 -- INVESTMENT TRANSACTIONS For the six-month period ended September 30, 2001, the cost of purchases and proceeds from the sales of securities, excluding short-term securities, were as follows: Purchases Sales --------- ----- GNMA Fund $ -- $ -- National Tax-Exempt Bond Fund 4,249,862 4,177,820 Intermediate Bond Fund 175,496,239 176,971,879 Strategic Income Fund 13,510,349 10,539,104 High Yield Fund 99,058,112 116,586,095 High Yield Fund II 126,056,485 148,191,583 High Yield Bond Fund 77,955,684 74,731,214 U.S. Government Securities not included above were as follows: Purchases Sales --------- ----- GNMA Fund $371,092,640 $248,887,267 National Tax-Exempt Bond Fund -- -- Intermediate Bond Fund 150,435,976 133,196,436 Strategic Income Fund 26,037,731 26,034,102 High Yield Fund -- -- High Yield Fund II -- -- High Yield Bond Fund 2,545,289 2,544,340 51 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) -------------------------------------------------------------------------------- NOTE 4 -- INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES GNMA Income Fund, Strategic Income Fund, High Yield Fund, High Yield Fund II, Pilgrim Money Market Fund and Money Market Trust have entered into an Investment Management Agreement with ING Pilgrim Investments, LLC (the "Manager", the "Investment Manager" or the "Adviser"), a wholly-owned subsidiary of ING Groep N.V. ING Mutual Funds Management, LLC served as the manager of the National Tax-Exempt Bond Fund, Intermediate Bond Fund, High Yield Bond Fund and ING Pilgrim Money Market Fund pursuant to an Investment Management Agreement. On April 30, 2001 ING Mutual Funds Management, LLC merged into ING Pilgrim Investments, LLC. All contracts, obligations and assets of ING Mutual Funds Management, LLC were assumed by ING Pilgrim Investments, LLC pursuant to the merger. The investment management agreements compensate the Manager with a fee, computed daily and payable monthly, based on the average daily net assets of each Fund, at the following annual rates: For GNMA Income Fund -- 0.60% for the first $150 million, 0.50% of the next $250 million, 0.45% of the next $400 million and 0.40% in excess of $800 million; for National Tax-Exempt Bond and Intermediate Bond -- 0.50%; for Strategic Income Fund -- 0.45% for the first $500 million, 0.40% of the next $250 million and 0.35% in excess of $750 million; for High Yield Fund and High Yield II Fund -- 0.60%; for High Yield Bond Fund -- 0.65%; for Pilgrim Money Market Fund -- 0.35%; for ING Pilgrim Money Market Fund -- 0.25%; for Money Market Trust -- 0.50% for the first $500 million and 0.45% in excess of $500 million. The fees payable to the Manager were discounted for the National Tax-Exempt Bond Fund, the Intermediate Bond Fund, the High Yield Bond Fund and the ING Pilgrim Money Market Fund by 75% in each Fund's first year of operations, and by 50% in each Fund's second year of operations. Prior to May 21, 2001, the Manager did not charge a management fee for Pilgrim Money Market Fund since the Fund invested solely in another open-end regulated investment company. However, the Fund compensated the Manager with an administrative fee, computed daily and payable monthly, at an annual rate of 0.25% of average daily net assets. IPG (the "Administrator"), serves as administrator to each Fund. The GNMA Income Fund, National Tax-Exempt Bond Fund, Intermediate Bond Fund, High Yield Bond Fund, Pilgrim Money Market Fund and Money Market Trust pay the Administrator a fee calculated at an annual rate of 0.10% of each Fund's average daily net assets. During the six-month period ended September 30, 2001, the Administrator waived the 0.10% fee for Money Market Trust. NOTE 5 -- DISTRIBUTION AND SERVICE FEES Each share class of the Funds (except as noted below) has adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plans"), whereby ING Pilgrim Securities, Inc. (the "Distributor") is reimbursed or compensated (depending on the class of shares) by the Funds for expenses incurred in the distribution of each Funds' shares ("Distribution Fees"). Pursuant to the 12b-1 Plans, the Distributor is entitled to payment each month for actual expenses incurred in the distribution and promotion of each Fund's shares, including expenses incurred in printing prospectuses and reports used for sales purposes, expenses incurred in preparing and printing sales literature and other such distribution related expenses, including any distribution or shareholder servicing fees ("Service Fees") paid to securities dealers who have executed a distribution agreement with the Distributor. Under the 12b-1 Plans, each class of shares of the Fund pays the Distributor a combined Distribution and Service Fee based on average daily net assets at the following annual rates:
Class A Class B Class C Class I Class M Class Q Class T ------- ------- ------- ------- ------- ------- ------- GNMA Fund 0.25% 1.00% 1.00% N/A 0.75% 0.25% 0.65% National Tax-Exempt Bond Fund 0.35% 1.00% 1.00% N/A N/A N/A N/A Intermediate Bond Fund 0.35% 1.00% 1.00% N/A N/A N/A N/A Strategic Income Fund 0.35% 0.75% 0.75% N/A N/A 0.25% N/A High Yield Fund 0.25% 1.00% 1.00% N/A 0.75% 0.25% N/A High Yield Fund II 0.35% 1.00% 1.00% N/A N/A 0.25% 0.65% High Yield Bond Fund 0.35% 1.00% 1.00% N/A N/A N/A N/A Pilgrim Money Market Fund 0.25% 1.00% 1.00% N/A N/A N/A N/A ING Pilgrim Money Market Fund 0.75% 1.00% 1.00% N/A N/A N/A N/A Money Market Trust N/A N/A N/A N/A N/A N/A N/A
During the six-month period ended September 30, 2001, the Distributor waived 0.10% of the Distribution fee for National Tax-Exempt Bond Fund, Intermediate Bond Fund and High Yield Bond Fund for Class A only and waived 0.40% of the Distribution Fee for ING Pilgrim Money Market Fund for Class A only. 52 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) -------------------------------------------------------------------------------- In addition, each of the Funds has entered into a Service Agreement with IPG whereby IPG will act as Shareholder Service Agent for each Fund. The agreement provides that IPG will be compensated for incoming and outgoing shareholder telephone calls and letters, and all reasonable out-of-pocket expenses incurred in connection with the performance of such services. For the six-month period ended September 30, 2001, the Distributor has retained $62,249 as sales charges from the proceeds of Class A Shares sold, $112,871 from the proceeds of Class C Shares redeemed, and $38 from the proceeds of Class M Shares sold. NOTE 6 -- OTHER TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES At September 30, 2001, the Funds had the following amounts recorded in payable to affiliates on the accompanying Statements of Assets and Liabilities (see Notes 4 and 5):
Accrued Accrued Shareholder Investment Accrued Services and Management Administrative Distribution Fees Fees Fees Total ------------ ---------------- ------------- ----------- GNMA Fund $252,501 $49,813 $182,459 $484,773 National Tax-Exempt Bond Fund 5,011 2,011 7,636 14,658 Intermediate Bond Fund 21,374 5,300 17,933 44,607 Strategic Income Fund 19,556 -- 28,933 48,489 High Yield Fund 91,638 -- 175,964 267,602 High Yield Fund II 127,177 -- 176,672 303,849 High Yield Bond Fund 21,761 3,558 15,637 40,956 Pilgrim Money Market Fund 29,604 8,442 51,265 89,311 ING Pilgrim Money Market Fund 114,582 1,011 180,441 296,034 Money Market Trust 23,710 -- -- 23,710
At September 30, 2001, Lion Connecticut Holdings, Inc., a wholly-owned indirect subsidiary of ING Groep N.V., held 91.9%, 49.6% and 62.2% of the shares outstanding of National Tax-Exempt Bond Fund, Intermediate Bond Fund and High Yield Bond Fund, respectively. At September 30, 2001, ING America Insurance Holdings, Inc., a wholly-owned indirect subsidiary of ING Groep N.V., held 36.5% of the shares outstanding of Strategic Income Fund. At September 30, 2001, one shareholder held 6.0% of the shares outstanding of Intermediate Bond Fund and another shareholder held 5.0% of the shares outstanding of Lexington Money Market Trust. Investment activities of these shareholders could have a material impact on the Funds. NOTE 7 -- TRANSFER AGENT FEES Expenses associated with transfer agent services are allocated to each class of shares of the Funds based on actual charges incurred. For the six-month period ended September 30, 2001, transfer agent fees and expenses were:
Class A Class B Class C Class I Class M Class Q Class T Total ------- ------- ------- ------- ------- ------- ------- ----- GNMA Fund $318,390 $ 35,760 $11,958 $ -- $ 183 $ 172 $11,067 $377,530 National Tax-Exempt Bond Fund 18,105 575 308 -- -- -- -- 18,988 Intermediate Bond Fund 26,888 2,551 3,509 -- -- -- -- 32,948 Strategic Income Fund 36,593 8,565 4,696 -- -- 114 -- 49,968 High Yield Fund 39,820 94,077 3,886 -- 4,615 -- -- 142,398 High Yield Fund II 47,616 146,226 26,658 -- -- 1,754 13,930 236,184 High Yield Bond Fund 48,605 8,030 1,928 -- -- -- -- 58,563 Pilgrim Money Market Fund 42,480 22,301 14,814 -- -- -- -- 79,595 ING Pilgrim Money Market Fund 360,657 1,782 1,603 772 -- -- -- 364,814 Money Market Trust 63,549 -- -- -- -- -- -- 63,549
53 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) -------------------------------------------------------------------------------- NOTE 8 -- EXPENSE LIMITATIONS For the following Funds, the Investment Manager has voluntarily agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses to the following annual expenses to average daily net assets ratios:
Class A Class B Class C Class I Class M Class Q Class T ------- ------- ------- ------- ------- ------- ------- GNMA Fund 1.29% 2.04% 2.04% N/A N/A 1.29% N/A National Tax-Exempt Bond Fund(1) 1.15% 1.90% 1.90% N/A N/A N/A N/A Intermediate Bond Fund(2) 1.15% 1.90% 1.90% N/A N/A N/A N/A Strategic Income Fund 0.95% 1.35% 1.35% N/A N/A 0.85% N/A High Yield Fund 1.10% 1.85% 1.85% N/A 1.60% 1.10% N/A High Yield Fund II 1.10% 1.75% 1.75% N/A N/A 1.00% 1.40% High Yield Bond Fund(3) 1.30% 2.05% 2.05% N/A N/A N/A N/A Pilgrim Money Market Fund 1.50% 2.25% 2.25% N/A N/A N/A N/A ING Pilgrim Money Market Fund 0.77% 1.41% 1.41% 0.31% N/A N/A N/A Money Market Trust 1.00% N/A N/A N/A N/A N/A N/A
Each Fund will at a later date reimburse the Investment Manager for management fees waived and other expenses assumed by the Investment Manager during the previous 36 months, but only if, after such reimbursement, the Fund's expense ratio does not exceed the percentage described above. Waived and reimbursed fees and any recoupment by the Investment Manager of such waived and reimbursed fees are reflected on the accompanying Statements of Operations for each Fund. (1) Prior to March 1, 2001, the expense limitation rates for Class A, Class B and Class C were 0.96%, 1.71% and 1.71%, respectively. (2) Prior to March 1, 2001, the expense limitation rates for Class A, Class B and Class C were 0.99%, 1.74% and 1.74%, respectively. (3) Prior to March 1, 2001, the expense limitation rates for Class A, Class B and Class C were 1.04%, 1.79% and 1.79%, respectively. NOTE 9 -- LINE OF CREDIT National Tax-Exempt Bond Fund, Intermediate Bond Fund, Strategic Income Fund, High Yield Fund, High Yield Fund II, High Yield Bond Fund, Pilgrim Money Market Fund, ING Pilgrim Money Market Fund and Money Market Trust, in addition to certain other funds managed by the Adviser, have entered into an unsecured committed revolving line of credit agreement (the "Credit Agreement") with State Street Bank and Trust Company for an aggregate amount of $125,000,000. The proceeds may be used only to: (1) temporarily finance the purchase and sale of securities; (2) finance the redemption of shares of an investor in the Funds; and (3) enable the Funds to meet other emergency expenses as defined in the Credit Agreement. The Funds to which the line of credit is available pay a commitment fee equal to 0.08% per annum on the daily unused portion of the committed line amount payable quarterly in arrears. During the six-month period ended September 30, 2001, the Funds did not have any loans outstanding. NOTE 10 -- WHEN ISSUED SECURITIES (GNMA FUND) The GNMA Fund, at times, may purchase GNMA certificates on a delayed delivery, forward or when-issued basis with payment and delivery often taking place a month or more after the initiation of the transaction. It is the Fund's policy to record when-issued GNMA certificates (and the corresponding obligation to pay for the securities) at the time the purchase commitment becomes fixed -- generally on the trade date. It is also the Fund's policy to segregate assets to cover its commitments for when-issued securities on trade date. NOTE 11 -- CONSTRUCTION LOAN SECURITIES (GNMA FUND) The GNMA Fund may purchase construction loan securities, which are issued to finance building costs. The funds are disbursed as needed or in accordance with a prearranged plan. The securities provide for the timely payment to the registered holder of interest at the specified rate plus scheduled installments of principal. Upon completion of the construction phase, the construction loan securities are terminated and project loan securities are issued. It is the Fund's policy to record these GNMA certificates on trade date, and to segregate assets to cover its commitments on trade date as well. 54 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) -------------------------------------------------------------------------------- NOTE 12 -- CAPITAL SHARES Transactions in capital shares and dollars were as follows:
Class A Shares --------------------------------------------------------------- Six Three Months Ended Months Ended Year Ended Year Ended September 30, March 31, December 31, December 31, 2001 2001 2000 1999 ------------- ------------ ------------- ------------- GNMA Fund (Number of Shares) Shares sold 32,808,854 9,936,676 15,011,381 26,323,658 Shares issued in merger -- 6,943,491 -- -- Shares issued as reinvestment of dividends 1,326,175 578,344 2,343,091 2,253,632 Shares redeemed (29,499,187) (9,201,160) (20,138,470) (14,047,603) ------------- ------------ ------------- ------------- Net increase (decrease) in shares outstanding 4,635,842 8,257,351 (2,783,998) 14,529,687 ============= ============ ============= ============= GNMA Fund ($) Shares sold $ 282,798,234 $ 84,029,800 $ 122,250,526 $ 220,636,961 Shares issued in merger -- 59,085,277 -- -- Shares issued as reinvestment of dividends 11,367,116 4,895,626 19,042,463 18,731,683 Shares redeemed (254,484,462) (78,707,194) (163,634,919) (117,150,009) ------------- ------------ ------------- ------------- Net increase (decrease) $ 39,680,888 $ 69,303,509 $ (22,341,930) $ 122,218,635 ============= ============ ============= ============= Class B Shares Class C Shares ------------------------------------------- ------------------------------------------- Six Three Six Three Months Ended Months Ended Period Ended Months Ended Months Ended Period Ended September 30, March 31, December 31, September 30, March 31, December 31, 2001 2001 2000(1) 2001 2001 2000(2) ------------ ------------ --------- ------------ ------------ ----------- GNMA Fund (Number of Shares) Shares sold 2,953,662 1,097,963 103,659 2,278,229 923,217 243,137 Shares issued in merger -- 4,553,567 -- -- 673,255 -- Shares issued as reinvestment of dividends 78,078 1,539 455 26,769 2,350 1,667 Shares redeemed (1,049,254) (249,233) (977) (984,523) (220,849) (26,606) ------------ ------------ --------- ------------ ------------ ----------- Net increase (decrease) in shares outstanding 1,982,486 5,403,836 103,137 1,320,475 1,377,973 218,198 ============ ============ ========= ============ ============ =========== GNMA Fund ($) Shares sold $ 25,499,957 $ 8,930,188 $ 858,288 $ 19,645,649 $ 7,833,790 $ 2,009,330 Shares issued in merger -- 38,677,635 -- -- 5,719,720 -- Shares issued as reinvestment of dividends 667,748 13,021 3,763 229,166 19,843 13,770 Shares redeemed (8,996,131) (2,134,765) (8,207) (8,449,793) (1,879,617) (221,792) ------------ ------------ --------- ------------ ------------ ----------- Net increase (decrease) $ 17,171,574 $ 45,486,079 $ 853,844 $ 11,425,022 $ 11,693,736 $ 1,801,308 ============ ============ ========= ============ ============ =========== Class M Shares Class Q Shares Class T Shares ------------------------------ ------------------------------- ------------------------------ Six Months Ended Period Ended Six Months Ended Period Ended Six Months Ended Period Ended September 30, March 31, September 30, March 31, September 30, March 31, 2001 2001(3) 2001 2001(3) 2001 2001(3) --------- --------- --------- --------- ----------- ------------ GNMA Fund (Number of Shares) Shares sold 14,546 -- 43,191 7,106 172 1,580 Shares issued in merger -- 34,197 -- 50,391 -- 2,061,429 Shares issued as reinvestment of dividends 626 -- 1,680 -- 40,677 -- Shares redeemed (4,516) (5,567) (9,148) (2,397) (409,703) (17,618) --------- --------- --------- --------- ----------- ------------ Net increase (decrease) in shares outstanding 10,656 28,630 35,723 55,100 (368,854) 2,045,391 ========= ========= ========= ========= =========== ============ GNMA Fund ($) Shares sold $ 126,920 $ -- $ 374,339 $ 54,840 $ 1,501 $ 13,580 Shares issued in merger -- 311,809 -- 428,802 -- 17,054,525 Shares issued as reinvestment of dividends 5,367 -- 14,407 -- 348,564 -- Shares redeemed (38,760) (47,654) (78,308) (20,517) (3,515,526) (151,310) --------- --------- --------- --------- ----------- ------------ Net increase (decrease) $ 93,527 $ 264,155 $ 310,438 $ 463,125 $(3,165,461) $ 16,916,795 ========= ========= ========= ========= =========== ============
---------- (1) Class B commenced operations on October 6, 2000. (2) Class C commenced operations of October 13, 2000. (3) Class M, Q and T commenced operations on February 26, 2001.
Class A Shares Class B Shares ------------------------------------------------ ------------------------------------------- Six Five Six Five Months Ended Months Ended Period Ended Months Ended Months Ended Period Ended September 30, March 31, October 31, September 30, March 31, October 31, 2001 2001 2000(1) 2001 2001 2000(1) ----------- ------------ ------------ --------- --------- --------- National Tax-Exempt Bond Fund (Number of Shares) Shares sold 110,987 1,636,567 2,048,913 32,512 34,375 32,812 Shares issued as reinvestment of dividends 41,569 39,507 91,486 634 316 240 Shares redeemed (104,783) (1,709,158) (4,501) (1,135) (9,407) (2,459) ----------- ------------ ------------ --------- --------- --------- Net increase (decrease) in shares outstanding 47,773 (33,084) 2,135,898 32,011 25,284 30,593 =========== ============ ============ ========= ========= ========= National Tax-Exempt Bond Fund ($) Shares sold $ 1,168,331 $ 17,088,810 $ 20,400,991 $ 341,727 $ 354,273 $ 322,416 Shares issued as reinvestment of dividends 435,291 410,013 984,828 6,631 3,289 2,650 Shares redeemed (1,103,673) (17,888,862) (45,034) (11,875) (96,246) (24,143) ----------- ------------ ------------ --------- --------- --------- Net increase (decrease) $ 499,949 $ (390,039) $ 21,340,785 $ 336,483 $ 261,316 $ 300,923 =========== ============ ============ ========= ========= ========= Class C Shares --------------------------------------------- Six Five Months Ended Months Ended Period Ended September 30, March 31, October 31, 2001 2001 2000(1) --------- -------- --------- National Tax-Exempt Bond Fund (Number of Shares) Shares sold 1,905 -- 42,818 Shares issued as reinvestment of dividends 517 586 380 Shares redeemed (15,101) (2,062) (4) --------- -------- --------- Net increase (decrease) in shares outstanding (12,679) (1,476) 43,194 ========= ======== ========= National Tax-Exempt Bond Fund ($) Shares sold $ 20,200 $ -- $ 428,611 Shares issued as reinvestment of dividends 5,410 6,084 3,841 Shares redeemed (157,840) (21,500) (39) --------- -------- --------- Net increase (decrease) $(132,230) $(15,416) $ 432,413 ========= ======== =========
---------- (1) The fund commenced operations on November 8, 1999. 55 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) --------------------------------------------------------------------------------
Class A Shares ---------------------------------------------------------------- Six Months Five Ended Months Ended Year Ended Period Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) ------------ ------------ ------------ ------------ Intermediate Bond Fund (Number of Shares) Shares sold 2,436,837 2,799,804 742,508 4,290,518 Shares issued as reinvestment of dividends 90,958 87,297 210,814 142,631 Shares redeemed (1,909,846) (2,728,504) (1,217,143) (1,029,165) ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding 617,949 158,597 (263,821) 3,403,984 ============ ============ ============ ============ Intermediate Bond Fund ($) Shares sold $ 25,446,560 $ 27,656,049 $ 6,951,913 $ 42,274,629 Shares issued as reinvestment of dividends 945,646 867,710 1,990,945 1,366,772 Shares redeemed (19,963,274) (26,982,543) (11,378,033) (9,831,107) ------------ ------------ ------------ ------------ Net increase (decrease) $ 6,428,932 $ 1,541,216 $ (2,435,175) $ 33,810,294 ============ ============ ============ ============ Class B Shares ------------------------------------------------------------------- Six Months Five Ended Months Ended Year Ended Period Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) ---------- ------------ ------------ ------------ Intermediate Bond Fund (Number of Shares) Shares sold 491,066 126,479 (3) 197,117 328,463 Shares issued as reinvestment of dividends 6,832 6,008 9,518 5,663 Shares redeemed (52,363) (16,667) (254,916) (126,073) ---------- ------------ ------------ ------------ Net increase (decrease) in shares outstanding 445,535 115,820 (48,281) 208,053 ========== ============ ============ ============ Intermediate Bond Fund ($) Shares sold $5,147,907 $ 1,282,225 (3) $ 1,832,353 $ 3,175,052 Shares issued as reinvestment of dividends 71,139 59,681 95,747 53,854 Shares redeemed (540,657) (165,234) (2,372,024) (1,197,919) ---------- ------------ ------------ ------------ Net increase (decrease) $4,678,389 $ 1,176,672 $ (443,924) $ 2,030,987 ========== ============ ============ ============ Class C Shares ------------------------------------------------------------------ Six Months Ended Five Months Ended Year Ended Period Ended Sept. 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) ---------- ------------ ---------- ---------- Intermediate Bond Fund (Number of Shares) Shares sold 267,138 235,675 479,308 113,633 Shares issued as reinvestment of dividends 9,781 15,272 15,231 2,468 Shares redeemed (59,599) (363,308) (58,433) (1,241) ---------- ------------ ---------- ---------- Net increase (decrease) in shares outstanding 217,320 (112,361) 436,106 114,860 ========== ============ ========== ========== Intermediate Bond Fund ($) Shares sold $2,796,162 $ 2,308,946 $4,500,995 $1,097,966 Shares issued as reinvestment of dividends 101,714 151,721 157,438 23,450 Shares redeemed (610,886) (3,634,603) (542,480) (11,653) ---------- ------------ ---------- ---------- Net increase (decrease) $2,286,990 $ (1,173,936) $4,115,953 $1,109,763 ========== ============ ========== ========== Class X Shares(4) ------------------------------------------------- Five Months Ended Year Ended Period Ended March 31, October 31, October 31, 2001 2000 1999(2) ---------- ---------- ------------ Intermediate Bond Fund (Number of Shares) Shares sold 1 35,831 233,086 Shares issued as reinvestment of dividends -- 4,185 4,011 Shares redeemed (58,228)(3) (88,834) (130,052) ---------- ---------- ------------ Net increase (decrease) in shares outstanding (58,227) (48,818) 107,045 ========== ========== ============ Intermediate Bond Fund ($) Shares sold $ 8 $ 341,592 $ 2,271,631 Shares issued as reinvestment of dividends -- 42,046 38,177 Shares redeemed (607,398)(3) (836,710) (1,248,812) ---------- ---------- ------------ Net increase (decrease) $ (607,390) $ (453,072) $ 1,060,996 ========== ========== ============
---------- (1) Classes A, B and C Shares commenced operations on December 15, 1998. (2) Class X Shares commenced operations on January 11, 1999. (3) Amounts reflect 57,507 of Class X shares, valued at $550,587, that were converted into Class B shares on November 17, 2000. (4) Effective November 17, 2000, Class X Shares are no longer being offered for sale.
Class A Shares Class B Shares ------------------------------------------- ----------------------------------------- Six Nine Six Nine Months Ended Months Ended Year Ended Months Ended Months Ended Year Ended September 30, March 31, June 30, September 30, March 31, June 30, 2001 2001 2000 2001 2001 2000 ------------ ------------ ----------- ----------- ----------- ----------- Strategic Income Fund (Number of Shares) Shares sold 1,398,724 518,725 604,669 341,482 408,264 235,490 Shares issued in merger -- 3,150,703 -- -- 92,272 -- Shares issued as reinvestment of dividends 100,219 4,630 11,483 13,450 4,913 16,764 Shares redeemed (1,545,486) (583,744) (607,655) (178,780) (112,217) (333,238) ------------ ------------ ----------- ----------- ----------- ----------- Net increase (decrease) in shares outstanding (46,543) 3,090,314 8,497 176,152 393,232 (80,984) ============ ============ =========== =========== =========== =========== Strategic Income Fund ($) Shares sold $ 16,012,509 $ 7,106,388 $ 7,329,922 $ 3,813,214 $ 4,695,326 $ 2,807,321 Shares issued in merger -- 37,188,186 -- -- 1,064,000 -- Shares issued as reinvestment of dividends 1,146,094 54,593 139,358 150,343 56,288 199,456 Shares redeemed (17,692,223) (6,920,354) (7,363,256) (1,999,537) (1,297,614) (3,971,439) ------------ ------------ ----------- ----------- ----------- ----------- Net increase (decrease) $ (533,620) $ 37,428,813 $ 106,024 $ 1,964,020 $ 4,518,000 $ (964,662) ============ ============ =========== =========== =========== ===========
56 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) --------------------------------------------------------------------------------
Class C Shares Class Q Shares ------------------------------------------------ ----------------------------------------- Six Nine Six Nine Months Ended Months Ended Year Ended Months Ended Months Ended Year Ended September 30, March 31, June 30, September 30, March 31, June 30, 2001 2001 2000 2001 2001 2000 ----------- ----------- ------------ ----------- --------- -------- Strategic Income Fund (Number of Shares) Shares sold 385,995 546,942 594,925 152,221 38,536 5,652 Shares issued in merger -- 3,821 -- -- -- -- Shares issued as reinvestment of dividends 5,706 3,185 11,584 779 462 1,233 Shares redeemed (373,355) (445,234) (905,931) (146,206) (37,766) (1,293) ----------- ----------- ------------ ----------- --------- -------- Net increase (decrease) in shares outstanding 18,346 108,714 (299,422) 6,794 1,232 5,592 =========== =========== ============ =========== ========= ======== Strategic Income Fund ($) Shares sold $ 4,499,605 $ 6,606,970 $ 7,361,851 $ 1,636,404 $ 429,146 $ 64,150 Shares issued in merger -- 46,034 -- -- -- -- Shares issued as reinvestment of dividends 66,742 38,209 143,424 8,428 5,116 14,212 Shares redeemed (4,351,034) (5,322,378) (11,234,101) (1,576,907) (418,017) (14,990) ----------- ----------- ------------ ----------- --------- -------- Net increase (decrease) $ 215,313 $ 1,368,835 $ (3,728,826) $ 67,925 $ 16,245 $ 63,372 =========== =========== ============ =========== ========= ======== Class A Shares Class B Shares --------------------------------------------- -------------------------------------------- Six Nine Six Nine Months Ended Months Ended Year Ended Months Ended Months Ended Year Ended September 30, March 31, June 30, September 30, March 31, June 30, 2001 2001 2000 2001 2001 2000 ------------ ------------ ------------- ------------ ------------ ------------ High Yield Fund (Number of Shares) Shares sold 25,218,760 15,745,272 18,403,831 3,062,450 5,309,475 10,007,643 Shares issued as reinvestment of dividends 380,666 646,613 992,628 625,056 995,556 1,441,815 Shares redeemed (26,550,084) (19,153,331) (24,529,807) (5,682,762) (9,975,735) (15,933,643) ------------ ------------ ------------- ------------ ------------ ------------ Net increase (decrease) in shares outstanding (950,658) (2,761,446) (5,133,348) (1,995,256) (3,670,704) (4,484,185) ============ ============ ============= ============ ============ ============ High Yield Fund ($) Shares sold $ 93,586,499 $ 66,608,855 $ 97,912,317 $ 11,323,869 $ 22,503,028 $ 55,282,605 Shares issued as reinvestment of dividends 1,414,247 2,819,377 5,460,638 2,315,741 4,335,584 7,894,426 Shares redeemed (97,679,969) (82,304,218) (131,398,105) (20,712,372) (43,506,185) (86,943,865) ------------ ------------ ------------- ------------ ------------ ------------ Net increase (decrease) $ (2,679,223) $(12,875,986) $ (28,025,150) $ (7,072,762) $(16,667,573) $(23,766,834) ============ ============ ============= ============ ============ ============ Class C Shares ------------------------------------------- Six Nine Months Ended Months Ended Year Ended September 30, March 31, June 30, 2001 2001 2000 ----------- ----------- ------------ High Yield Fund (Number of Shares) Shares sold 255,022 2,026,872 2,837,111 Shares issued as reinvestment of dividends 28,298 34,886 28,522 Shares redeemed (410,558) (1,825,857) (1,778,397) ----------- ----------- ------------ Net increase (decrease) in shares outstanding (127,238) 235,901 1,087,236 =========== =========== ============ High Yield Fund ($) Shares sold $ 953,588 $ 9,115,727 $ 15,174,843 Shares issued as reinvestment of dividends 104,688 151,350 153,864 Shares redeemed (1,470,835) (8,303,880) (9,243,746) ----------- ----------- ------------ Net increase (decrease) $ (412,559) $ 963,197 $ 6,084,961 =========== =========== ============ Class M Shares Class Q Shares ----------------------------------------------- -------------------------------------- Six Nine Six Nine Months Ended Months Ended Year Ended Months Ended Months Ended Year Ended September 30, March 31, June 30, September 30, March 31, June 30, 2001 2001 2000 2001 2001 2000 ----------- ----------- ------------ ------ -------- ---- High Yield Fund (Number of Shares) Shares sold 15,815 95,583 127,747 816 3,863 -- Shares issued as reinvestment of dividends 50,181 101,388 188,400 -- 218 -- Shares redeemed (299,912) (909,049) (1,858,983) -- (4,080) -- ----------- ----------- ------------ ------ -------- --- Net increase (decrease) in shares outstanding (233,916) (712,078) (1,542,836) 816 1 -- =========== =========== ============ ====== ======== === High Yield Fund ($) Shares sold $ 57,897 $ 395,381 $ 705,631 $2,873 $ 19,119 $-- Shares issued as reinvestment of dividends 186,495 444,144 1,036,966 1 957 2 Shares redeemed (1,096,843) (3,916,982) (10,086,399) -- (15,911) -- ----------- ----------- ------------ ------ -------- --- Net increase (decrease) $ (852,451) $(3,077,457) $ (8,343,802) $2,874 $ 4,165 $ 2 =========== =========== ============ ====== ======== ===
57 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) --------------------------------------------------------------------------------
Class A Shares ----------------------------------------------- Six Nine Months Ended Months Ended Year Ended September 30, March 31, June 30, 2001 2001 2000 ------------ ------------ ------------ High Yield Fund II (Number of Shares) Shares sold 4,114,384 3,446,818 2,024,176 Shares issued in merger -- 3,571,051 1,920,197 Shares issued as reinvestment of dividends 219,405 147,603 85,848 Shares redeemed (4,323,218) (3,995,119) (2,296,078) ------------ ------------ ------------ Net increase (decrease) in shares outstanding 10,571 3,170,353 1,734,143 ============ ============ ============ High Yield Fund II ($) Shares sold $ 33,651,807 $ 68,146,350 $ 22,289,353 Shares issued in merger -- 31,382,187 21,258,924 Shares issued as reinvestment of dividends 1,759,272 1,393,773 948,687 Shares redeemed (35,019,172) (37,459,282) (25,459,352) ------------ ------------ ------------ Net increase (decrease) $ 391,907 $ 63,463,028 $ 19,037,612 ============ ============ ============ Class B Shares Class C Shares --------------------------------------------- -------------------------------------------- Six Nine Six Nine Months Ended Months Ended Year Ended Months Ended Months Ended Year Ended September 30, March 31, June 30, September 30, March 31, June 30, 2001 2001 2000 2001 2001 2000 ------------ ------------- ------------ ----------- ------------ ------------ High Yield Fund II (Number of Shares) Shares sold 1,280,144 1,020,908 696,890 559,930 1,019,125 835,807 Shares issued in merger -- 12,288,479 6,815,662 -- 2,033,709 876,081 Shares issued as reinvestment of dividends 393,820 217,419 173,796 75,756 38,546 60,087 Shares redeemed (2,344,262) (2,284,363) (1,757,346) (1,052,151) (1,406,811) (1,223,652) ------------ ------------- ------------ ----------- ------------ ------------ Net increase (decrease) in shares outstanding (670,298) 11,242,443 5,929,002 (416,465) 1,684,569 548,323 ============ ============= ============ =========== ============ ============ High Yield Fund II ($) Shares sold $ 10,479,392 $ 118,247,344 $ 7,778,149 $ 4,652,720 $ 29,857,628 $ 9,284,852 Shares issued in merger -- 108,181,979 75,437,662 -- 17,904,896 9,698,640 Shares issued as reinvestment of dividends 3,166,599 2,064,653 1,923,761 609,073 365,478 667,948 Shares redeemed (19,136,585) (21,596,811) (19,459,549) (8,584,106) (13,234,360) (13,540,976) ------------ ------------- ------------ ----------- ------------ ------------ Net increase (decrease) $ (5,490,594) $ 206,897,165 $ 65,680,023 $(3,322,313) $ 34,893,642 $ 6,110,464 ============ ============= ============ =========== ============ ============ Class Q Shares Class T Shares -------------------------------------------- ------------------------------------------- Six Nine Six Nine Months Ended Months Ended Year Ended Months Ended Months Ended Period Ended September 30, March 31, June 30, September 30, March 31, June 30, 2001 2001 2000 2001 2001 2000(1) ----------- ------------ ------------ ----------- ----------- ------------ High Yield Fund II (Number of Shares) Shares sold 334,406 953,432 1,176,601 5,001 3,731 42,193 Shares issued in merger -- -- -- -- -- 3,237,823 Shares issued as reinvestment of dividends 17,322 30,998 38,331 82,830 115,386 45,794 Shares redeemed (370,340) (1,271,213) (857,666) (477,927) (890,992) (426,380) ----------- ------------ ------------ ----------- ----------- ------------ Net increase (decrease) in shares outstanding (18,612) (286,783) 357,266 (390,096) (771,875) 2,899,430 =========== ============ ============ =========== =========== ============ High Yield Fund II ($) Shares sold $ 2,724,533 $ 8,874,061 $ 12,941,570 $ 39,975 $ 36,929 $ 467,407 Shares issued in merger -- -- -- -- -- 35,837,128 Shares issued as reinvestment of dividends 138,706 300,645 431,200 666,279 1,098,699 495,594 Shares redeemed (2,953,918) (12,170,488) (9,622,674) (3,924,537) (8,630,230) (4,680,068) ----------- ------------ ------------ ----------- ----------- ------------ Net increase (decrease) $ (90,679) $ (2,995,782) $ 3,750,096 $(3,218,283) $(7,494,602) $ 32,120,061 =========== ============ ============ =========== =========== ============
---------- (1) Class T Shares commenced operations on March 31, 2000. 58 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) --------------------------------------------------------------------------------
Class A Shares ---------------------------------------------------------- Six Five Months Ended Months Ended Year Ended Period Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) ----------- ----------- ----------- ------------ High Yield Bond Fund (Number of Shares) Shares sold 998,177 539,752 795,930 2,950,126 Shares issued as reinvestment of dividends 162,845 139,603 308,536 184,187 Shares redeemed (926,589) (702,638) (572,787) (69,091) ----------- ----------- ----------- ------------ Net increase (decrease) in shares outstanding 234,433 (23,283) 531,679 3,065,222 =========== =========== =========== ============ High Yield Bond Fund ($) Shares sold $ 8,844,711 $ 5,066,037 $ 7,879,297 $ 29,549,612 Shares issued as reinvestment of dividends 1,461,229 1,305,475 3,000,374 1,855,772 Shares redeemed (8,225,334) (6,625,140) (5,535,027) (693,436) ----------- ----------- ----------- ------------ Net increase (decrease) $ 2,080,606 $ (253,628) $ 5,344,644 $ 30,711,948 =========== =========== =========== ============ Class B Shares ------------------------------------------------------------ Six Five Months Ended Months Ended Year Ended Period Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) ----------- ----------- ----------- ----------- High Yield Bond Fund (Number of Shares) Shares sold 276,547 177,908(3) 263,509 245,269 Shares issued as reinvestment of dividends 14,868 12,429 17,410 4,506 Shares redeemed (145,381) (54,389) (118,328) (11,685) ----------- ----------- ----------- ----------- Net increase (decrease) in shares outstanding 146,034 135,948 162,591 238,090 =========== =========== =========== =========== High Yield Bond Fund ($) Shares sold $ 2,478,143 $ 1,730,356(3) $ 2,578,002 $ 2,474,568 Shares issued as reinvestment of dividends 133,549 123,744 169,541 45,149 Shares redeemed (1,301,966) (513,327) (1,156,802) (116,958) ----------- ----------- ----------- ----------- Net increase (decrease) $ 1,309,726 $ 1,340,773 $ 1,590,741 $ 2,402,759 =========== =========== =========== =========== Class C Shares -------------------------------------------------------------------- Six Months Ended Five Months Ended Year Ended Period Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) --------- --------- ----------- --------- High Yield Bond Fund (Number of Shares) Shares sold 23,844 23,538 117,601 77,919 Shares issued as reinvestment of dividends 4,334 4,599 9,355 1,787 Shares redeemed (21,899) (58,698) (33,988) (1,994) --------- --------- ----------- --------- Net increase (decrease) in shares outstanding 6,279 (30,561) 92,968 77,712 ========= ========= =========== ========= High Yield Bond Fund ($) Shares sold $ 214,065 $ 220,015 $ 1,149,721 $ 784,122 Shares issued as reinvestment of dividends 38,924 42,924 90,648 17,932 Shares redeemed (192,164) (553,239) (328,499) (19,911) --------- --------- ----------- --------- Net increase (decrease) $ 60,825 $(290,300) $ 911,870 $ 782,143 ========= ========= =========== ========= Class X Shares(4) -------------------------------------------------- Five Months Ended Year Ended Period Ended March 31, October 31, October 31, 2001 2000 1999(2) ----------- --------- --------- High Yield Bond Fund (Number of Shares) Shares sold 2,714 47,258 87,496 Shares issued as reinvestment of dividends -- 8,397 3,023 Shares redeemed (116,250)(3) (29,041) (3,597) ----------- --------- --------- Net increase (decrease) in shares outstanding (113,536) 26,614 86,922 =========== ========= ========= High Yield Bond Fund ($) Shares sold $ 25,056 $ 462,208 $ 885,049 Shares issued as reinvestment of dividends -- 75,035 30,325 Shares redeemed (1,165,012)(3) (276,571) (35,782) ----------- --------- --------- Net increase (decrease) $(1,139,956) $ 260,672 $ 879,592 =========== ========= ========= Class A Shares --------------------------------------------------- Six Nine Months Ended Months Ended Period Ended September 30, March 31, June 30, 2001 2001 2000(5) ------------- --------------- --------------- Pilgrim Money Market Fund (Number of Shares) Shares sold 412,299,118 1,150,554,753 1,169,128,592 Shares issued as reinvestment of dividends 717,841 1,351,356 401,613 Shares redeemed (436,584,121) (1,154,040,303) (1,094,099,819) ------------- --------------- --------------- Net increase (decrease) in shares outstanding (23,567,162) (2,134,194) 75,430,386 ============= =============== =============== Pilgrim Money Market Fund ($) Shares sold $ 412,299,118 $ 1,150,554,753 $ 1,169,128,592 Shares issued as reinvestment of dividends 717,841 1,351,356 401,613 Shares redeemed (436,584,121) (1,154,036,641) (1,094,099,819) ------------- --------------- --------------- Net increase (decrease) $ (23,567,162) $ (2,130,532) $ 75,430,386 ============= =============== =============== Class B Shares Class C Shares -------------------------------------------- ---------------------------------------------- Six Nine Six Nine Months Ended Months Ended Period Ended Months Ended Months Ended Period Ended September 30, March 31, June 30, September 30, March 31, June 30, 2001 2001 2000(6) 2001 2001 2000(6) ------------ ------------ ------------ ------------- ------------- ------------ Pilgrim Money Market Fund (Number of Shares) Shares sold 31,354,273 68,493,003 61,428,458 119,907,623 223,189,271 63,807,062 Shares issued as reinvestment of dividends 298,313 431,723 197,336 163,116 261,553 62,389 Shares redeemed (25,689,989) (48,838,827) (49,590,590) (130,227,899) (201,473,468) (58,438,711) ------------ ------------ ------------ ------------- ------------- ------------ Net increase (decrease) in shares outstanding 5,962,597 20,085,899 12,035,204 (10,157,160) 21,977,356 5,430,740 ============ ============ ============ ============= ============= ============ Pilgrim Money Market Fund ($) Shares sold $ 31,354,273 $ 68,493,003 $ 61,428,458 $ 119,907,623 $ 223,189,271 $ 63,807,062 Shares issued as reinvestment of dividends 298,313 431,723 197,336 163,116 261,553 62,389 Shares redeemed (25,689,989) (48,838,828) (49,590,590) (130,227,899) (201,473,468) (58,438,711) ------------ ------------ ------------ ------------- ------------- ------------ Net increase (decrease) $ 5,962,597 $ 20,085,898 $ 12,035,204 $ (10,157,160) $ 21,977,356 $ 5,430,740 ============ ============ ============ ============= ============= ============
---------- (1) Class A, B and C Shares commenced operations on December 15, 1998. (2) Class X Shares commenced operations on January 11, 1999. (3) Amounts reflect 115,804 of Class X shares, valued at $1,069,603, that were converted into Class B shares on November 17, 2000. (4) Effective November 17, 2000, Class X Shares are no longer being offered for sale. (5) Class A Shares commenced operations on July 12, 1999. (6) Class B and C Shares commenced operations on November 24, 1999. 59 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) --------------------------------------------------------------------------------
Class A Shares ---------------------------------------------------------------- Six Five Months Ended Months Ended Year Ended Period Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) ------------- ------------- ------------- ------------- ING Pilgrim Money Market Fund (Number of Shares) Shares sold 441,769,605 431,641,207 880,095,214 325,378,899 Shares issued as reinvestment of dividends 9,378,217 11,100,736 19,495,251 3,010,550 Shares redeemed (401,688,065) (367,751,613) (687,044,099) (100,268,229) ------------- ------------- ------------- ------------- Net increase (decrease) in shares outstanding 49,459,757 74,990,330 212,546,366 228,121,220 ============= ============= ============= ============= ING Pilgrim Money Market Fund ($) Shares sold $ 441,769,362 $ 431,641,207 $ 880,095,214 $ 325,378,899 Shares issued as reinvestment of dividends 9,378,217 11,100,736 19,495,251 3,010,550 Shares redeemed (401,688,065) (367,751,613) (687,044,099) (100,268,229) ------------- ------------- ------------- ------------- Net increase (decrease) $ 49,459,514 $ 74,990,330 $ 212,546,366 $ 228,121,220 ============= ============= ============= ============= Class B Shares -------------------------------------------------------------- Six Five Months Ended Months Ended Year Ended Period Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) --------- ----------- ------------ ----------- ING Pilgrim Money Market Fund (Number of Shares) Shares sold 185,505 1,038,248(4) 11,939,590 1,897,590 Shares issued as reinvestment of dividends 37,571 62,429 120,224 7,368 Shares redeemed (648,653) (1,091,847) (10,526,771) (734,755) --------- ----------- ------------ ----------- Net increase (decrease) in shares outstanding (425,577) 8,830 1,533,043 1,170,203 ========= =========== ============ =========== ING Pilgrim Money Market Fund ($) Shares sold $ 185,470 $ 1,038,248(4) $ 11,939,590 $ 1,897,590 Shares issued as reinvestment of dividends 37,571 62,429 120,224 7,368 Shares redeemed (648,653) (1,091,847) (10,526,772) (734,755) --------- ----------- ------------ ----------- Net increase (decrease) $(425,612) $ 8,830 $ 1,533,042 $ 1,170,203 ========= =========== ============ =========== Class C Shares ----------------------------------------------------------- Six Five Months Ended Months Ended Year Ended Period Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(1) --------- ----------- ----------- --------- ING Pilgrim Money Market Fund (Number of Shares) Shares sold 18,268 1,847,196 4,458,551 675,705 Shares issued as reinvestment of dividends 35,437 45,292 38,998 5,450 Shares redeemed (864,384) (1,344,060) (2,907,001) (239,212) --------- ----------- ----------- --------- Net increase (decrease) in shares outstanding (810,679) 548,428 1,590,548 441,943 ========= =========== =========== ========= ING Pilgrim Money Market Fund ($) Shares sold $ 18,249 $ 1,847,196 $ 4,458,551 $ 675,705 Shares issued as reinvestment of dividends 35,437 45,292 38,998 5,450 Shares redeemed (864,384) (1,344,060) (2,907,002) (239,212) --------- ----------- ----------- --------- Net increase (decrease) $(810,698) $ 548,428 $ 1,590,547 $ 441,943 ========= =========== =========== ========= Class I Shares ------------------------------------------------------------- Six Five Months Ended Months Ended Year Ended Period Ended September 30, March 31, October 31, October 31, 2001 2001 2000 1999(2) -------- ----------- ------------ ---------- ING Pilgrim Money Market Fund (Number of Shares) Shares sold -- -- 39,600,100 1,901,244 Shares issued as reinvestment of dividends 235,672 251,087 863,004 5,232 Shares redeemed -- (1,494,250) (30,307,606) -- -------- ----------- ------------ ---------- Net increase (decrease) in shares outstanding 235,672 (1,243,163) 10,155,498 1,906,476 ======== =========== ============ ========== ING Pilgrim Money Market Fund ($) Shares sold $ -- $ -- $ 39,600,100 $1,901,244 Shares issued as reinvestment of dividends 235,672 251,087 863,004 5,232 Shares redeemed -- (1,494,250) (30,307,606) -- -------- ----------- ------------ ---------- Net increase (decrease) $235,672 $(1,243,163) $ 10,155,498 $1,906,476 ======== =========== ============ ========== Class X Shares(5) ------------------------------------------------ Five Months Ended Year Ended Period Ended March 31, October 31, October 31, 2001 2000 1999(3) --------- ----------- ----------- ING Pilgrim Money Market Fund (Number of Shares) Shares sold 6,199 1,107,597 2,378,957 Shares issued as reinvestment of dividends -- 21,226 19,653 Shares redeemed (388,098)(4) (2,258,571) (886,834) --------- ----------- ----------- Net increase (decrease) in shares outstanding (381,899) (1,129,748) 1,511,776 ========= =========== =========== ING Pilgrim Money Market Fund ($) Shares sold $ 6,199 $ 1,107,597 $ 2,378,957 Shares issued as reinvestment of dividends -- 21,226 19,653 Shares redeemed (388,098)(4) (2,258,570) (886,834) --------- ----------- ----------- Net increase (decrease) $(381,899) $(1,129,747) $ 1,511,776 ========= =========== ===========
---------- (1) Class A, B, and C Shares commenced operations on December 15, 1998. (2) Class I Shares commenced operations on October 13, 1999. (3) Class X Shares commenced operations on January 20, 1999. (4) Amounts reflect 381,646 of Class X shares, valued at $381,646, that were converted into Class B shares on November 17, 2000. (5) Effective November 17, 2000, Class X Shares are no longer being offered for sale. 60 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) --------------------------------------------------------------------------------
Six Three Months Ended Months Ended Year Ended Year Ended September 30, March 31, December 31, December 31, 2001 2001 2000 1999 ------------ ------------ ------------- ------------- Money Market Trust (Number of Shares) Shares sold 15,323,026 16,156,660 85,250,442 100,237,881 Shares issued as reinvestment of dividends 933,206 724,771 4,121,169 3,418,339 Shares redeemed (21,671,945) (16,555,408) (124,370,412) (93,294,926) ------------ ------------ ------------- ------------- Net increase (decrease) in shares outstanding (5,415,713) 326,023 (34,998,801) 10,361,294 ============ ============ ============= ============= Money Market Trust ($) Shares sold $ 15,323,026 $ 16,156,660 $ 85,250,442 $ 100,237,881 Shares issued as reinvestment of dividends 933,206 724,771 4,121,169 3,418,339 Shares redeemed (21,671,945) (16,555,408) (124,370,412) (93,294,926) ------------ ------------ ------------- ------------- Net increase (decrease) $ (5,415,713) $ 326,023 $ (34,998,801) $ 10,361,294 ============ ============ ============= =============
NOTE 13 -- FORWARD FOREIGN CURRENCY CONTRACTS At September 30, 2001, the Strategic Income Fund had the following forward foreign currency contracts: Currency In Net to Settlement Exchange Unrealized Appreciation Sell Date For Value$ (Depreciation) ---- ---- --- ------ -------------- EURO USD EUR 871,000 11/21/01 $ 791,405 $ 802,278 $ 10,873 British Pound USD GBP 2,027,000 11/21/01 2,971,674 2,952,731 (18,943) --------- $ (8,070) ========= NOTE 14 -- CREDIT RISK AND DEFAULTED SECURITIES Although each Fund has a diversified portfolio, Strategic Income Fund, High Yield Fund and High Yield Fund II had 8.92%, 12.11% and 39.70%, respectively, of their portfolios invested in lower rated and comparable quality unrated high yield securities. Investments in high yield securities are accompanied by a greater degree of credit risk and such lower rated securities tend to be more sensitive to economic conditions than higher rated securities. The risk of loss due to default by the issuer may be significantly greater for the holders of high yielding securities, because such securities are generally unsecured and are often subordinated to other creditors of the issuer. At September 30, 2001, the Strategic Income Fund held the following defaulted securities: Classic Cable, Inc., Sterling Chemicals, Inc., WinStar Communications, Inc. and Viatel, Inc. The aggregate value for these securities was $640,750. The High Yield Fund held Zilog, Inc., a security in default with a value of $818,125. The High Yield Fund II held the following defaulted securities: Classic Cable, Inc., Exodus Communications, Inc., ICG Services, Inc., Poland Telecommunications Finance BV, Richmont Marketing Specialists, Inc., Russell-Stanley Holdings, Inc., SA Telecommunications, Inc., Source Media, Inc., Sterling Chemicals, Inc., US Interactive, Viatel, Inc., WinStar Communications, Inc. and Zilog, Inc. The aggregate value for these securities was $15,234,325. For financial reporting purposes, it is each Fund's accounting practice to discontinue the accrual of income and to provide an estimate for probable losses due to unpaid interest income on defaulted bonds for the current reporting period. 61 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) -------------------------------------------------------------------------------- NOTE 15 -- FEDERAL INCOME TAX -- CAPITAL LOSS CARRYFORWARD At March 31, 2001, capital loss carryforwards were as follows:
Expiration Amount Dates -------------- ------------- GNMA Fund $ 15,944,450 2003 to 2008 National-Tax Exempt Bond Fund 58,032 2008 Strategic Income Fund 7,375,189 2006 to 2009 High Yield Fund 106,986,801 2002 to 2009 High Yield Fund II 348,293,074 2004 to 2009 High Yield Bond Fund 904,574 2008
During the period ended March 31, 2001, $1,301,325 of capital loss carryforwards of High Yield Fund II expired. Under the current tax law, capital and currency losses realized after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. For the period ended March 31, 2001, the Funds elected to defer losses occurring between November 1, 2000 and March 31, 2001 as follows: Post October capital/currency Fund losses deferred ---- --------------- Intermediate Bond Fund $ 108,808 Strategic Income Fund 166,952 High Yield Fund 43,400,212 High Yield Fund II 11,203,875 High Yield Bond Fund 577,558 NOTE 16 -- CHANGES IN THE FUND'S YEAR-END Effective March 31, 2001 the Funds changed their fiscal year-end to March 31 from: June 30 for Strategic Income Fund, High Yield Fund, High Yield Fund II and Pilgrim Money Market Fund; October 31 for National Tax-Exempt Bond Fund, Intermediate Bond Fund, High Yield Bond Fund and ING Pilgrim Money Market Fund; December 31 for GNMA Income Fund and Lexington Money Market Trust. This change was done to facilitate the administration of the Funds. NOTE 17 -- REORGANIZATIONS On February 23, 2001 and March 23, 2001, certain Funds, as listed below (each an: "Acquiring Fund"), acquired the assets and certain liabilities of other Funds, also listed below (each an "Acquired Fund"), in a tax-free reorganization in exchange for shares of the Acquiring Fund, pursuant to a plan of reorganization approved by the Acquired Fund's shareholders. The number and value of shares issued by the Acquiring Fund are presented in Note 12 -- Capital Shares. Net assets and unrealized appreciation/(depreciation) as of the reorganization date were as follows:
Acquired Fund Unrealized Acquiring Acquired Total net assets of Total net assets of appreciation Fund Fund Acquired Fund (000) Acquiring Fund (000) (depreciation)(000) ---- ---- ------------------- -------------------- ------------------- GNMA Pilgrim Government Securities Income Fund Income Fund $121,742 $391,489 $ 2,145 Strategic Pilgrim Global Income Fund 14,716 13,785 (104) Income Fund Pilgrim International Bond Fund 23,582 13,785 (799) High Yield Pilgrim High Total Return Fund I 106,620 140,145 (135,704) Fund II Pilgrim High Total Return Fund II 50,849 140,145 (28,974)
The net assets of GNMA Income Fund, Strategic Income Fund and High Yield Fund II after the acquisition were approximately $513,231,000, $52,083,000 and $297,614,000, respectively. On March 31, 2000, the High Yield Fund II ("Acquiring Fund"), acquired the assets and certain liabilities of Pilgrim High Yield III Fund ("Acquired Fund") in a tax-free reorganization in exchange for shares of the Acquiring Fund, pursuant to a plan of reorganization approved by the Acquired Fund's shareholders. The number and value of shares issued by the Acquiring Fund is presented in Note 12 -- Capital Shares. The net assets and unrealized depreciation of the Acquired Fund was $142,232,353 and $(755,931), respectively. The Acquiring Funds net assets prior to and immediately after the acquisition was $67,494,309 and $209,726,662, respectively. 62 NOTES TO FINANCIAL STATEMENTS as of September 30, 2001 (Unaudited) (Continued) -------------------------------------------------------------------------------- NOTE 18 -- SUBSEQUENT EVENTS Dividends. Subsequent to September 30, 2001 the following Funds declared dividends from net investment income of: Per Share Amount Payable Date Record Date ------ ------------ ----------- GNMA Income Fund Class A $ 0.0400 October 03, 2001 September 28, 2001 Class B $ 0.0350 October 03, 2001 September 28, 2001 Class C $ 0.0350 October 03, 2001 September 28, 2001 Class M $ 0.0370 October 03, 2001 September 28, 2001 Class Q $ 0.0400 October 03, 2001 September 28, 2001 Class T $ 0.0370 October 03, 2001 September 28, 2001 Class A $ 0.0400 November 05, 2001 October 31, 2001 Class B $ 0.0350 November 05, 2001 October 31, 2001 Class C $ 0.0350 November 05, 2001 October 31, 2001 Class M $ 0.0370 November 05, 2001 October 31, 2001 Class Q $ 0.0400 November 05, 2001 October 31, 2001 Class T $ 0.0370 November 05, 2001 October 31, 2001 Pilgrim National Tax-Exempt Bond Fund Class A $ 0.0355 November 01, 2001 Daily Class B $ 0.0290 November 01, 2001 Daily Class C $ 0.0293 November 01, 2001 Daily Pilgrim Intermediate Bond Fund Class A $ 0.0430 November 01, 2001 Daily Class B $ 0.0363 November 01, 2001 Daily Class C $ 0.0362 November 01, 2001 Daily Pilgrim Strategic Income Fund Class A $ 0.0600 October 03, 2001 September 28, 2001 Class B $ 0.0570 October 03, 2001 September 28, 2001 Class C $ 0.0570 October 03, 2001 September 28, 2001 Class Q $ 0.0620 October 03, 2001 September 28, 2001 Class A $ 0.0600 November 05, 2001 October 31, 2001 Class B $ 0.0570 November 05, 2001 October 31, 2001 Class C $ 0.0570 November 05, 2001 October 31, 2001 Class Q $ 0.0620 November 05, 2001 October 31, 2001 Pilgrim High Yield Fund Class A $ 0.0350 October 03, 2001 September 28, 2001 Class B $ 0.0330 October 03, 2001 September 28, 2001 Class C $ 0.0330 October 03, 2001 September 28, 2001 Class M $ 0.0330 October 03, 2001 September 28, 2001 Class Q $ 0.0360 October 03, 2001 September 28, 2001 Class A $ 0.0350 November 05, 2001 October 31, 2001 Class B $ 0.0330 November 05, 2001 October 31, 2001 Class C $ 0.0330 November 05, 2001 October 31, 2001 Class M $ 0.0330 November 05, 2001 October 31, 2001 Class Q $ 0.0360 November 05, 2001 October 31, 2001 Pilgrim High Yield Fund II Class A $ 0.0800 November 01, 2001 Daily Class B $ 0.0750 November 01, 2001 Daily Class C $ 0.0750 November 01, 2001 Daily Class Q $ 0.0810 November 01, 2001 Daily Class T $ 0.0780 November 01, 2001 Daily Pilgrim High Yield Bond Fund Class A $ 0.0568 November 01, 2001 Daily Class B $ 0.0513 November 01, 2001 Daily Class C $ 0.0513 November 01, 2001 Daily Pilgrim Money Market Fund Class A $ 0.0014 November 01, 2001 Daily Class B $ 0.0008 November 01, 2001 Daily Class C $ 0.0008 November 01, 2001 Daily ING Pilgrim Money Market Fund Class A $ 0.0023 November 01, 2001 Daily Class B $ 0.0017 November 01, 2001 Daily Class C $ 0.0017 November 01, 2001 Daily Class I $ 0.0027 November 01, 2001 Daily Lexington Money Market Trust Class A $ 0.0014 November 01, 2001 Daily 63 Pilgrim GNMA Income Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- U.S. GOVERNMENT AGENCY OBLIGATIONS: 92.94% Federal Home Loan Mortgage Corporation: 3.40% $ 8,033,133 6.500% due 06/01/16 $ 8,310,396 2,889,168 7.000% due 11/01/14 3,012,046 7,459,481 7.500% due 12/01/14-01/01/30 7,796,311 1,515,620 8.000% due 01/01/30 1,589,506 ------------- 20,708,259 ------------- Federal National Mortgage Association: 2.46% 6,241,148 6.500% due 06/01/14-12/01/99 6,460,687 1,385,875 7.000% due 03/01/15 1,448,025 1,578,324 7.500% due 05/01/28 1,641,946 5,101,693 8.500% due 08/01/11-09/01/15 5,422,365 ------------- 14,973,023 ------------- Government National Mortgage Association: 87.08% 221,213 5.500% due 04/20/29 214,140 570,659 5.650% due 07/15/29 585,430 77,055,944 6.000% due 07/15/28-08/20/31 77,056,806 3,945,281 6.250% due 04/15/26-04/15/28 3,981,645 139,204 6.340% due 02/15/29 145,017 585,544 6.350% due 09/15/33 609,850 5,909,055 6.400% due 10/15/33-08/15/38 6,171,852 1,192,974 6.470% due 09/15/33 1,250,139 65,663,796 6.500% due 02/15/22-02/15/40 67,562,720 15,623,299 6.625% due 07/15/33-01/15/40 16,410,361 8,348,502 6.650% due 12/15/13-11/15/39 8,762,011 3,563,995 6.670% due 01/15/40 3,744,914 6,278,408 6.688% due 07/15/40 6,563,439 389,272 6.700% due 08/15/14-12/15/14 410,505 4,368,773 6.745% due 10/15/39 4,623,610 16,821,935 6.750% due 06/15/13-05/15/40 17,620,529 2,887,189 6.810% due 07/15/39 3,062,157 4,171,186 6.820% due 05/15/31-04/15/34 4,438,338 20,000,000 6.840% due 12/15/31 21,302,874 1,826,688 6.870% due 03/15/39 1,942,154 6,030,278 6.875% due 01/15/29-02/15/40 6,426,376 2,974,328 6.950% due 12/15/29 3,117,912 24,152,639 7.000% due 09/15/23-06/15/34 25,195,188 979,316 7.050% due 07/15/29 1,008,611 $ 5,627,634 7.100% due 11/15/39 $ 6,044,244 9,060,495 7.125% due 09/15/39 9,795,893 3,396,560 7.150% due 06/15/31 3,654,748 2,271,775 7.200% due 04/15/34 2,474,934 6,194,513 7.250% due 05/15/22-06/15/30 6,540,797 2,999,040 7.300% due 08/15/36 3,257,951 18,572,103 7.450% due 03/15/29 19,356,487 41,332,676 7.500% due 04/15/13-05/15/31 43,232,147 7,128,663 7.600% due 08/15/31-06/15/40 7,711,197 12,590,590 7.625% due 08/15/14-07/15/38 13,734,852 28,447,584 (1) 7.650% due 09/15/02-05/15/26 30,909,798 659,201 7.700% due 08/15/13 699,337 6,598,433 7.750% due 06/15/14-01/15/36 7,162,931 1,177,374 (1) 7.800% due 05/15/19-11/15/30 1,271,142 10,225,775 7.875% due 09/15/29-04/15/38 11,259,769 23,438,351 8.000% due 08/15/12-06/15/40 25,337,587 560,631 8.050% due 07/15/19-04/15/21 597,150 1,554,576 8.100% due 07/15/12 1,647,349 5,036,412 8.125% due 05/15/38 5,529,989 7,088,769 8.150% due 12/15/11-09/15/15 7,525,253 7,292,619 8.200% due 10/15/11-05/15/13 7,744,074 7,617,932 (1) 8.250% due 10/15/01-12/15/37 8,238,207 12,174,801 8.500% due 04/15/12-04/15/32 12,899,884 6,718,262 8.750% due 11/15/17-06/15/27 7,197,757 2,247,082 9.000% due 05/15/20-12/15/34 2,443,902 1,398,429 9.250% due 06/15/30 1,448,005 993,182 10.250% due 08/15/29 1,053,139 ------------- 530,975,101 ------------- Total U.S. Government Agency Obligations (Cost $536,205,195) 566,656,383 ------------- U.S. TREASURY OBLIGATIONS: 7.22% U.S. Treasury Bonds: 3.50% $20,000,000 6.295% due 02/15/26 $21,335,940 ------------- 21,335,940 ------------- U.S. Treasury Notes: 3.72% 11,500,000 4.625% due 05/15/06 11,906,088 6,000,000 5.750% due 11/15/05 6,456,096 4,000,000 5.750% due 08/15/10 4,333,752 ------------- 22,695,936 ------------- Total U.S. Treasury Obligations (Cost $ 42,965,512) 44,031,876 ------------- Total Long-Term Investments (Cost $579,170,707) 610,688,259 ------------- SHORT TERM INVESTMENTS: 2.28% Commercial Paper: 0.65% 4,000,000 FHLMC Discount Note, 3.150% due 10/01/01 4,000,000 ------------- U.S. Treasury Obligations: 1.63% 10,000,000 U.S. Treasury Bill, 2.300% due 01/03/02 9,939,944 ------------- Total Short-Term Investments (Cost $13,939,944) 13,939,944 ------------- Total Investments in Securities (Cost $ 593,110,651)* 102.44% $624,628,203 Other Assets and Liabilities-Net -2.44% (14,897,801) ------ ------------ Net Assets 100.00% $609,730,402 ====== ============ * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 31,521,654 Gross Unrealized Depreciation (4,102) ------------- Net Unrealized Appreciation $ 31,517,552 ============= (1) Some or all of this security are construction loan securities issued on a when-issued basis (see note 11) See Accompanying Notes to Financial Statements 64 Pilgrim National Tax-Exempt Bond PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited) -------------------------------------------------------------------------------- Principal Amount Security Ratings(1) Value ------ -------- ---------- ----- MUNICIPAL SECURITIES: 93.39% Colorado: 4.39% $1,000,000 Interlocken Metropolitan District Colorado Reference, Series A, 5.750%, due 12/15/19 NR/AA $ 1,049,700 ----------- Connecticut: 4.43% 1,000,000 Connecticut State General Obligation, 5.500%, due 11/01/18 Aa2/AA 1,059,460 ----------- Illinois: 14.50% 1,000,000 Chicago Illinois Board of Education, Chicago School Reform, AMBAC Insured 5.750%, due 12/01/27 Aaa/AAA 1,052,140 1,000,000 Chicago Illinois Skyway Toll Bridge, 5.500%, due 01/01/31 Aaa/AAA 1,027,530 1,250,000 De Kalb Ogle Etc. Counties, Illinois Community College District No. 523, FSA Insured, 5.750%, due 02/01/11 Aaa/NR 1,384,150 ----------- 3,463,820 ----------- Indiana: 4.21% 1,000,000 Indianapolis Industrial Local Public Improvement Board, 5.750%, due 02/01/29 NR/AA 1,006,190 ----------- Massachusetts: 4.28% 1,000,000 Massachusetts State Port Authority Revenue, Series C, 5.750%, due 07/01/29 Aa3/AA- 1,022,950 ----------- Nevada: 4.81% 1,100,000 Washoe County Nevada Gas & Water Facilities, 6.300%, due 12/01/14 Aaa/AAA 1,148,741 ----------- New York: 8.49% 1,000,000 New York, New York General Obligation, Series H, 5.000%, due 03/15/29 A2/A 947,150 1,000,000 New York State Dormitory Authority Revenue, Series A, FSA Insured, 5.500%, due 07/01/15 Aaa/AAA 1,080,920 ----------- 2,028,070 ----------- Oklahoma: 8.79% 1,000,000 Oklahoma State Industrial Authority Revenue Reference, Health System Obligation Group, Series A, 6.000%, due 08/15/19 Aaa/AAA 1,074,570 1,000,000 Payne County Oklahoma Economic Development Authority, Student Housing Revenue, Collegiate Housing Foundation, Series A, 6.375%, due 06/01/30 Baa3/NR0 1,026,380 ----------- 2,100,950 ----------- Pennsylvania: 13.37% $1,000,000 Allegheny County Pennsylvania Port Authority Special Revenue, MBIA Insured, 6.000%, due 03/01/24 Aaa/AAA $ 1,143,810 1,000,000 Pennsylvania State Finance Authority, 6.600%, due 11/01/09 NR/A 1,085,020 1,000,000 Philadelphia Pennsylvania Hospitals & Higher Education Facilities Authority Revenue, Jefferson Health System, 5.000%, due 05/15/18 A1/AA- 964,910 ----------- 3,193,740 ----------- Rhode Island: 8.64% 1,000,000 Rhode Island Clean Water Finance Agency Revenue, 5.000%, due 10/01/14 Aaa/AAA 1,034,450 1,000,000 Rhode Island State & Providence Plantations, 5.000%, due 06/01/15 Aaa/AAA 1,028,530 ----------- 2,062,980 ----------- Texas: 8.87% 1,000,000 Laredo Texas Independent School District, General Obligation, PSF Guaranteed, 5.500%, due 08/01/20 Aaa/AAA 1,034,000 1,050,000 San Felipe Del Rio Texas Independent School District, General Obligation, PSF Guaranteed, 5.500%, due 08/15/19 Aaa/AAA 1,084,934 ----------- 2,118,934 ----------- Washington: 4.05% 1,000,000 Seattle Washington Municipal Light & Power Revenue, Series B, MBIA Insured, 5.000%, due 06/01/24 Aaa/AAA 968,300 ----------- West Virginia: 4.56% 1,000,000 West Virginia State Hospital Finance Authority, Hospital Revenue, Oak Hill Hospital, Series B, 6.750%, due 09/01/30 A2/NR 1,088,910 ----------- Total Municipal Securities (Cost $21,042,662) 22,312,745 ----------- Principal Amount Security Value ------ -------- ----- SHORT-TERM INVESTMENT: 6.35% Repurchase Agreement: 6.35% $1,516,000 State Street Repurchase Agreement dated 09/28/01, 3.200% due 10/01/01, $1,516,404 to be received upon repurchase (Collateralized by $1,505,000 FFCB 6.000%, Due 10/01/01, Market Value $1,548,269) $ 1,516,000 ----------- Total Short-Term Investment (Cost $1,516,000) 1,516,000 ----------- Total Investments in Securities (Cost $ 22,558,662)* 99.74% $23,828,745 Other Assets and Liabilities-Net 0.26% 61,187 ------ ----------- Net Assets 100.00% $23,889,932 ====== =========== * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 1,270,083 Gross Unrealized Depreciation -- ----------- Net Unrealized Appreciation $ 1,270,083 =========== (1) Credit ratings are provided by Moody's Investor Service, Inc. and Standard & Poor's Rating Group See Accompanying Notes to Financial Statements 65 Pilgrim Intermediate Bond PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- CORPORATE BONDS: 37.67% Aerospace/Defense: 0.93% $ 500,000 Raytheon Co., 7.900%, due 03/01/03 $ 521,301 ---------- Agriculture: 1.84% 1,000,000 RJ Reynolds Tobacco Holdings, Inc., 7.375%, due 05/15/03 1,033,960 ---------- Airlines: 0.81% 500,000 Continental Airlines, Inc., 7.568%, due 12/01/06 457,264 ---------- Banks: 1.38% 750,000 US Bank National Association Minneapolis, 6.300%, due 07/15/08 776,533 ---------- Computers: 0.94% 500,000 Sun Microsystems, Inc., 7.500%, due 08/15/06 530,050 ---------- Diversified Financial Services: 1.82% 500,000 Citigroup, Inc., 6.500%, due 01/18/11 521,748 500,000 Countrywide Home Loans, Inc., 5.500%, due 08/01/06 504,450 ---------- 1,026,198 ---------- Electric: 3.17% 500,000 Calpine Corp., 8.250%, due 08/15/05 503,580 250,000 Florida Power & Light Co., 6.875%, due 12/01/05 268,915 500,000 Niagra Mohawk Power Corp., 5.375%, due 10/01/04 501,339 500,000 PPL Electric Utilities Corp., 5.875%, due 08/15/07 509,067 ---------- 1,782,901 ---------- Food: 3.70% 500,000 # Delhaize America, Inc., 7.375%, due 04/15/06 537,145 500,000 Fred Meyer, Inc., 7.450%, due 03/01/08 538,511 500,000 #XX Tyson Foods, Inc., 7.250% due 10/01/06 503,525 500,000 #XX Tyson Foods, Inc., 8.250% due 10/01/11 503,525 ---------- 2,082,706 ---------- Forest Products and Paper: 0.36% $ 200,000 Union Camp Corp., 6.500%, due 11/15/07 $ 203,985 ---------- Gas: 1.37% 500,000 Sempra Energy, 6.800%, due 07/01/04 519,402 250,000 Southern California Gas Co., 6.380%, due 10/29/01 250,473 ---------- 769,875 ---------- Lodging: 0.43% 250,000 Harrah's Operating Company, Inc., 8.000%, due 02/01/11 243,414 ---------- Media: 4.25% 500,000 AMFM, Inc., 8.000%, due 11/01/08 520,000 1,000,000 Century Communications, 0.000%, due 03/15/03 805,000 1,000,000 @@ Rogers Cablesystems Ltd., 10.000%, due 03/15/05 1,065,000 ---------- 2,390,000 ---------- Miscellaneous Manufacturing: 1.81% 1,000,000 @@ Tyco International Group SA, 4.950%, due 08/01/03 1,015,604 ---------- Oil & Gas: 1.85% 500,000 Louis Dreyfus Natural Gas, 9.250%, due 06/15/04 543,550 500,000 @@# Petroleus Mexicanos, 6.500%, due 02/01/05 495,000 ---------- 1,038,550 ---------- Pharmaceuticals: 1.81% 1,000,000 Bristol-Myers Squibb Co., 5.750%, due 10/01/11 1,017,610 ---------- Pipelines: 1.41% 500,000 Duke Energy Field Services LLC, 7.500%, due 08/16/05 536,634 250,000 Dynegy Holdings, Inc., 6.875%, due 04/01/11 253,674 ---------- 790,308 ---------- REITS: 1.82% 1,000,000 HRPT Properties Trust, 6.750% due 12/18/02 1,023,860 ---------- Retail: 2.25% $ 250,000 Penney (J.C.) Co., 6.125%, due 11/15/03 $ 238,383 500,000 # Toys-R-US, Inc., 7.625%, due 08/01/11 508,863 500,000 Wal-Mart Stores, Inc., 5.450%, due 08/01/06 516,659 ---------- 1,263,905 ---------- Telecommunications: 3.21% 495,000 # Citizens Communication Co., 7.625%, due 08/15/08 505,445 750,000 @@# France Telecom, 7.750%, due 03/01/11 796,350 500,000 WorldCom, Inc.-WorldCom Group, 8.250%, due 05/15/31 501,353 ---------- 1,803,148 ---------- Transportation: 2.51% 500,000 @@ Canadian National Railway Co., 6.375%, due 10/15/11 502,484 951,243 FedEx Corp., 6.720%, due 01/15/22 912,014 ---------- 1,414,498 ---------- Total Corporate Bonds (Cost $20,909,390) 21,185,670 ---------- U.S. GOVERNMENT AGENCY OBLIGATIONS: 34.92% Federal Home Loan Mortgage Corporation: 28.60% 1,000,000 6.000%, due 05/15/08 1,065,466 1,000,000 6.000%, due 05/15/11 1,053,384 965,329 6.000%, due 05/01/16 981,948 604,844 6.000%, due 05/01/29 604,840 1,879,126 6.000%, due 04/01/31 1,874,152 302,955 6.000%, due 08/01/31 302,153 2,000,000 6.000%, due 10/01/99 TBA 1,992,500 1,129,871 6.500%, due 09/01/14 1,169,095 1,012,988 6.500%, due 04/01/29 1,035,237 655,142 6.500%, due 05/01/29 669,532 1,032,169 7.000%, due 11/01/14 1,075,350 460,858 7.000%, due 10/01/29 477,706 592,214 7.500%, due 04/01/30 615,788 2,700,000 7.500%, due 05/01/31 2,807,231 346,566 8.000%, due 05/01/30 363,582 ---------- 16,087,964 ---------- See Accompanying Notes to Financial Statements 66 Pilgrim Intermediate Bond PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- Government National Mortgage Association: 5.40% $ 657,820 7.000%, due 09/15/29 $ 681,802 1,605,154 8.000%, due 01/20/31 1,679,895 112,547 10.000%, due 03/15/19 125,682 489,873 10.000%, due 01/15/21 547,722 ---------- 3,035,101 ---------- Other U.S. Government Agencies: 0.92% 500,000 Tennessee Valley Authority, 6.000%, due 03/15/13 517,609 ---------- Total U.S. Government Agency Obligations (Cost $19,072,255) 19,640,674 ---------- U.S. TREASURY OBLIGATIONS: 15.52% U.S. Treasury Bonds: 8.50% 4,010,000 6.250%, due 05/15/30 4,462,693 225,000 9.125%, due 05/15/18 318,639 ---------- 4,781,332 ---------- U.S. Treasury Notes: 7.02% 35,000 3.625%, due 08/31/03 35,517 2,415,000 4.625%, due 05/15/06 2,500,278 1,364,500 5.000%, due 08/15/11 1,409,912 ---------- 3,945,707 ---------- Total U.S. Treasury Obligations (Cost $8,604,326) 8,727,039 ---------- COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET-BACKED SECURITIES: 6.31% Airlines: 0.79% $ 500,000 United Airlines Trust, 6.602%, due 09/01/13 $ 443,630 ---------- Automobile: 1.83% 1,000,000 Ford Credit Auto Owner Trust, 6.650%, due 10/15/03 1,027,666 ---------- Commercial Mortgage Backed Securities: 1.56% 400,000 Morgan Stanley Capital, Inc., 7.020%, due 11/15/09 432,494 400,000 Salomon Brothers Mortgage Securities, Inc., 7.520%, due 12/18/09 442,939 ---------- 875,433 ---------- Other Asset Backed Securities: 1.25% 697,478 # Garanti Trade Payment Rights Master Trust, 10.810%, due 06/15/04 704,881 ---------- Whole Loan Collateralized Mortgage Obligation: 0.88% 475,266 Residential Accredit Loans, Inc., 7.750%, due 05/25/27 495,783 ---------- Total CMO's and Asset Backed Securities (Cost $3,458,345) 3,547,393 ---------- Shares ------ PREFERRED STOCK: 0.95% Media: 0.95% 523,200 & CSC Holdings, Inc. 534,972 ---------- Total Preferred Stock (Cost $639,472) 534,972 ---------- Total Long-Term Investments (Cost $52,683,788) 53,635,748 ---------- Principal Amount Security Value ------ -------- ----- SHORT-TERM INVESTMENTS: 10.41% Repurchase Agreement: 10.41% $5,856,000 State Street Repurchase Agreement dated 9/28/01, 3.200% due 10/01/01, $5,857,562 to be received upon repurchase (Collateralized by $5,865,000 FNMA 4.150% Market Value $5,974,969 due 08/28/03) $ 5,856,000 ----------- Total Short-Term Investments (Cost $5,856,000) 5,856,000 ----------- Total Investments in Securities (Cost $58,539,788)* 105.78% $59,491,748 Other Assets and Liabilities-Net -5.78% (3,249,868) ------ ----------- Net Assets 100.00% $56,241,880 ====== =========== # Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. @@ Foreign Issuer & Payment-in-kind XX Value of securities obtained from one or more dealers making markets in the securities which have been adjusted based on the Fund's valuation procedures. * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 1,279,565 Gross Unrealized Depreciation (327,605) ----------- Net Unrealized Appreciation $ 951,960 =========== See Accompanying Notes to Financial Statements 67 Pilgrim Strategic Income Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- CORPORATE BONDS: 37.44% Aerospace/Defense: 0.76% $ 625,000 xx Simula, Inc., 8.000%, due 05/01/04 $ 407,813 --------- Auto Manufacturer: 0.78% 400,000 Daimler Chrysler Holdings, 7.750%, due 01/18/11 417,879 --------- Banks: 6.43% 155,000 @@ Banco Santander-Chile, 6.500%, due 11/01/05 159,786 450,000 (1)@@ Bank Nederlandse Gemeenten, 7.750%, due 08/13/03 693,885 700,000 (1)@@ European Investment Bank, 7.000%, due 12/08/03 1,073,665 730,000 (1)@@ KFW International Finance, 6.000%, due 10/27/03 1,095,800 400,000 Wells Fargo Bank, 6.450%, due 02/01/11 413,973 --------- 3,437,109 --------- Beverages: 0.76% 400,000 Coca Cola Enterprises, Inc., 6.125%, due 08/15/11 405,500 --------- Building Materials: 0.50% 300,000 Nortek, Inc., 8.875%, due 08/01/08 268,500 --------- Chemicals: 0.20% 725,000 ** Sterling Chemicals, Inc., 11.750%, due 08/15/06 108,750 --------- Commercial Services: 1.49% 475,000 Mail-Well, Inc., 8.750%, due 12/15/08 346,750 815,000 Neff Corp., 10.250%, due 06/01/08 448,250 --------- 795,000 --------- Diversified Financial Services: 4.08% $500,000 Citigroup, Inc., 5.700%, due 02/06/04 $ 517,930 400,000 Ford Motor Credit Co., 7.875%, due 06/15/10 421,986 400,000 General Motors Acceptance Corp., 6.125%, due 09/15/06 399,756 500,000 Household Finance Corp., 8.000%, due 05/09/05 546,408 480,000 Madison River Capital LLC/Madison River Finance Corp, 13.250%, due 03/01/10 292,800 988 (2)@@ Unikredit Realkredit, 6.000%, due 07/01/29 119 --------- 2,178,999 --------- Electric: 2.93% 405,000 Calpine Corp., 8.625%, due 08/15/10 395,968 350,000 CMS Energy Corp., 9.875%, due 10/15/07 361,844 100,000 East Coast Power LLC, 7.536%, due 06/30/17 104,808 20,000 Enersis S.A. (Chile), 6.600%, due 12/01/26 20,339 400,000 Exelon Corp., 6.750%, due 05/01/11 411,916 250,000 TNP Enterprises, Inc., 10.250%, due 04/01/10 270,000 --------- 1,564,875 --------- Electronics: 0.55% 300,000 Flextronics International Ltd., 9.875%, due 07/01/10 295,500 --------- Environmental Control: 0.24% 125,000 # Allied Waste North America, 8.875%, due 04/01/08 127,500 --------- Food: 2.36% 400,000 XX Campbell Soup Co., 5.875%, due 10/01/08 409,374 400,000 # Delhaize America, Inc., 8.125%, due 04/15/11 440,268 400,000 Kroger Co., 7.500%, due 04/01/31 411,210 --------- 1,260,852 --------- Forest Products & Paper: 0.65% $200,000 Buckeye Technologies, Inc., 9.250%, due 09/15/08 $ 192,000 --------- 500,000 @@ Doman Industries Ltd., 8.750%, due 03/15/04 155,000 --------- 347,000 --------- Holding Companies -- Diversified: 0.10% 50,000 Kansas City Southern Railway, 9.500%, due 10/01/08 51,000 --------- Home Builders: 0.04% 25,000 Lennar Corp., 7.625%, due 03/01/09 23,500 --------- Iron/Steel: 0.09% 25,000 AK Steel Corp., 7.875%, due 02/15/09 23,375 25,000 Armco, Inc., 9.000%, due 09/15/07 24,500 --------- 47,875 --------- Leisure Time: 0.47% 400,000 Trump Atlantic City Associates, 11.250%, due 05/01/06 250,000 --------- Lodging: 0.05% 25,000 Prime Hospitality Corp., 9.750%, due 04/01/07 24,750 --------- Media: 3.74% 350,000 + Charter Communications Holdings LLC, 0/11.750%, due 01/15/10 222,250 1,175,000 ** Classic Cable, Inc., 10.500%, due 03/01/10 517,000 400,000 Disney Walt Co., 4.500%, due 09/15/04 401,440 325,000 Echostar DBS Corp., 9.250%, due 02/01/06 319,312 600,000 Northland Cable Television, Inc., 10.250%, due 11/15/07 407,250 400,000 +@@ Telewest Communications PLC, 0/11.375%, due 02/01/10 134,000 --------- 2,001,252 --------- See Accompanying Notes to Financial Statements 68 Pilgrim Strategic Income Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- Oil & Gas: 1.48% $ 300,000 Clark Refining and Marketing, Inc., 8.375%, due 11/15/07 $ 244,500 400,000 Energy Corp. Of America, 9.500%, due 05/15/07 308,000 350,000 @@ Northern Oil ASA, 10.000%, due 05/15/05 239,750 ---------- 792,250 ---------- Pharmaceuticals: 0.86% 450,000 Bristol Myers Squibb Co., 5.750%, due 10/01/11 457,925 ---------- Retail: 1.79% 550,000 Hollywood Entertainment Corp., 10.625%, due 08/15/04 470,250 450,000 Wal Mart Stores, Inc., 6.875%, due 08/10/09 487,263 ---------- 957,513 ---------- Sovereign: 2.61% 200,000 @@ Dominican Republic International Bond, 7.5625%, due 08/30/24 157,826 860,000 (3)@@ German Federal Republic Bond, 4.125%, due 08/27/04 793,365 400,000 @@ Quebec Province 7.500%, due 09/15/29 444,263 ---------- 1,395,454 ---------- Telecommunications: 3.93% $ 450,000 @@ British Telecommunications PLC, 8.125%, due 12/15/10 $ 498,561 500,000 @@ Call-Net Enterprises, Inc., 9.375%, due 05/15/09 120,000 260,000 Global Crossing Holding Ltd, 9.500%, due 11/15/09 109,200 350,000 Hyperion Telecommunication, Inc., 12.000%, due 11/01/07 84,000 300,000 ITC Deltacom, Inc., 8.875%, due 03/01/08 90,000 275,000 XX Natural Microsystems Corp., 5.000%, due 10/15/05 125,469 100,000 + Nextlink Communications, Inc. 0/9.450%, due 04/15/08 9,000 400,000 Qwest Capital Funding, Inc., 7.250%, due 02/15/11 403,804 250,000 @@ Tricom SA, 11.375%, due 09/01/04 235,000 2,000,000 +** Viatel, Inc., 0/12.500%, due 04/15/08 5,000 1,000,000 ** WinStar Communications, Inc., 12.750%, due 04/15/10 10,000 400,000 WorldCom, Inc., 7.500%, due 05/15/11 407,975 ---------- 2,098,009 ---------- Transportation: 0.55% 325,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 295,750 ---------- Total Corporate Bonds (Cost $21,808,690) 20,010,555 ---------- U.S. TREASURY OBLIGATIONS: 21.36% $3,900,000 U.S. Treasury Bond, 5.250%, due 02/15/09 $3,763,317 2,237,600 U.S. Treasury Note, 3.875%, due 01/15/09 2,353,675 400,000 U.S. Treasury Note, 4.625%, due 05/15/06 414,125 850,000 U.S. Treasury Note, 5.000%, due 02/15/11 873,939 2,000,000 U.S. Treasury Note, 5.750%, due 10/31/02 2,068,030 800,000 U.S. Treasury Note, 5.750%, due 11/15/05 860,813 1,000,000 U.S. Treasury Note, 5.750%, due 08/15/10 1,083,438 ---------- Total U.S. Treasury Obligations (Cost $11,104,196) 11,417,337 ---------- U.S. GOVERNMENT AGENCY OBLIGATIONS: 34.59% Federal Home Loan Mortgage Corporation: 3.10% 156,762 5.500%, due 01/01/14 158,221 80,070 5.500%, due 02/01/14 80,815 400,000 6.750%, due 03/15/31 432,503 937,808 7.000%, due 06/01/29 973,603 5,434 9.000%, due 06/01/06 5,560 7,288 10.000%, due 10/01/03 7,637 ---------- 1,658,339 ---------- See Accompanying Notes to Financial Statements 69 Pilgrim Strategic Income Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- Federal National Mortgage Association: 26.70% $450,000 5.500%, due 05/02/06 $ 472,833 497,030 6.420%, due 06/01/11 528,482 64,012 6.500%, due 02/01/09 66,741 532,076 6.500%, due 08/01/15 548,914 2,839,708 6.500%, due 06/01/28 2,909,808 2,300,000 6.625%, due 10/15/07 2,540,610 450,000 6.625%, due 11/15/30 479,335 1,796,958 7.000%, due 11/01/13 1,876,982 257,024 7.000%, due 03/01/15 268,470 1,992,506 7.500%, due 07/01/21 2,077,557 426,866 7.500%, due 11/01/29 444,830 1,861,359 7.500%, due 02/01/31 1,948,187 79,350 8.000%, due 08/01/30 83,246 7,103 9.500%, due 06/01/05 7,296 7,829 9.500%, due 07/01/06 8,196 9,703 9.500%, due 05/01/07 10,039 ---------- 14,271,526 ---------- Government National Mortgage Association: 4.79% 347,881 6.500%, due 06/15/29 356,025 989,989 6.500%, due 05/15/31 1,011,846 236,648 7.500%, due 11/15/29 246,912 819,821 8.000%, due 06/20/30 858,586 76,759 8.000%, due 07/15/30 80,651 1,505 8.500%, due 02/15/21 1,624 232 11.500%, due 02/15/13 266 597 11.500%, due 07/15/13 683 ---------- 2,556,593 ---------- Total U.S. Government Agency Obligations (Cost $17,892,482) 18,486,458 ---------- COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET-BACKED SECURITIES: 1.72% Mortgage -- Commercial: 1.13% $ 310,000 # Allied Capital Commercial Mortgage Trust, 6.710%, due 12/25/04 $ 319,422 265,392 GMAC Commercial Mortgage Securities, Inc., 6.974%, due 05/15/08 284,288 ---------- 603,710 ---------- Mortgage -- Residential: 0.59% 300,000 Emergent Home Equity Loan Trust, 7.080%, due 12/15/28 317,947 ---------- Total CMO's and Asset Backed Securities (Cost $864,569) 921,657 ---------- Shares ------ PREFERRED STOCK: 1.33% Telecommunications: 0.28% 8,250 Adelphia Business Solutions, Inc. 109,312 3,339 XO Communications, Inc. 40,903 ---------- 150,215 ---------- Tobacco: 1.05% 45,677 & North Atlantic Trading, Inc. 559,543 ---------- Total Preferred Stock (Cost $996,256) 709,758 ---------- Number of Warrants -------- WARRANTS: 0.00% Tobacco: 0.00% 250 @#xx North Atlantic Trading, Inc., Exp. 06/15/07 3 ---------- Total Warrants (Cost $0.00) 3 ---------- Total Long-Term Investments (Cost $52,666,193) 51,545,768 ---------- Principal Amount Security Value ------ -------- ----- SHORT TERM INVESTMENTS: 3.64% Repurchase Agreement: 3.64% $1,943,000 State Street Repurchase Agreement dated 09/28/01, 3.15% due 10/01/01, $1,943,510 to be received upon repurchase (Collateralized by $1,725,000 U.S. Treasury Note, 6.625% Market Value $1,987,440, due 05/15/07) $ 1,943,000 ------------ Total Short-Term Investments (Cost $1,943,000) 1,943,000 ------------ Total Investments in Securities (Cost $54,609,193)* 100.08% $ 53,488,768 Other Assets and Liabilities-Net -0.08% (41,226) ------ ------------ Net Assets 100.00% $ 53,447,542 ====== ============ @ Non-Income producing security # Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. + Step-up basis bonds. Interest rates shown reflect current and future coupon rates. @@ Foreign Issuer & Payment-in-kind ** Defaulted security XX Value of securities obtained from one or more dealers making markets in the securities which have been adjusted based on the Fund's valuation procedures. (1) Principal Amount presented in British Pounds. (2) Principal Amount presented in Danish Kroner. (3) Principal Amount presented in EURO. * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 1,716,419 Gross Unrealized Depreciation (2,836,844) ------------ Net Unrealized Depreciation $ (1,120,425) ============ See Accompanying Notes to Financial Statements 70 Pilgrim High Yield Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- CORPORATE BONDS: 90.57% Aerospace/Defense: 0.97% $ 900,000 # Hexcel Corp., 9.750%, due 01/15/09 $ 454,500 1,400,000 Sequa Corp., 8.875%, due 04/01/08 1,169,000 ---------- 1,623,500 ---------- Airlines: 1.12% 3,150,000 Atlas Air, Inc., 9.375%, due 11/15/06 1,874,250 ---------- Auto Parts and Equipment: 3.59% 2,400,000 American Axle and Manufacturing, Inc., 9.750%, due 03/01/09 2,268,000 1,900,000 Collins and Aikman Products Co., 11.500%, due 04/15/06 1,700,500 2,100,000 Lear Corp., 8.110%, due 05/15/09 2,059,541 ---------- 6,028,041 ---------- Building and Construction: 4.26% 1,125,000 Lennar Corp., 7.625%, due 03/01/09 1,063,125 1,500,000 Lennar Corp., 9.950%, due 05/01/10 1,560,000 1,900,000 Ryland Group, Inc., 9.125%, due 06/15/11 1,757,500 3,000,000 Toll Corp., 8.125%, due 02/01/09 2,775,000 ---------- 7,155,625 ---------- Building Materials: 1.51% 750,000 Dayton Superior Corp., 13.000%, due 06/15/09 746,250 2,000,000 Nortek, Inc., 8.875%, due 08/01/08 1,800,000 ---------- 2,546,250 ---------- Chemicals: 1.64% 2,000,000 Buckeye Cellulose Corp., 9.250%, due 09/15/08 1,930,000 900,000 # Macdermid, Inc., 9.125%, due 07/15/11 828,000 ---------- 2,758,000 ---------- Consumer/Commercial Lease Financing: 5.20% $3,000,000 NEFF Corp., 10.250%, due 06/01/08 $1,665,000 3,000,000 Penhall International Corp., 12.000%, due 08/01/06 2,895,000 1,000,000 United Rentals, Inc., 9.500%, due 06/01/08 875,000 325,000 United Rentals, Inc., 8.800%, due 08/15/08 286,000 1,400,000 United Rentals, Inc., 9.250%, due 01/15/09 1,239,000 2,025,000 United Rentals, Inc., 9.000%, due 04/01/09 1,771,875 ---------- 8,731,875 ---------- Consumer Products: 2.06% 900,000 # American Greetings 11.750%, due 07/15/08 814,500 1,000,000 Elizabeth Arden, Inc., 11.750%, due 02/01/11 945,000 1,900,000 French Fragrances, Inc., 10.375%, due 05/15/07 1,700,500 ---------- 3,460,000 ---------- Diversified Capital Goods: 1.87% 1,900,000 Blount, Inc., 7.000%, due 06/15/05 1,292,000 1,900,000 # Briggs and Stratton Corp., due 8.875%, due 03/15/11 1,852,500 ---------- 3,144,500 ---------- Electric - Generation: 0.49% 950,000 AES Corp., 9.375%, due 09/15/10 821,750 ---------- Electric - Integrated: 2.21% 1,500,000 CMS Energy Corp., 9.875%, due 10/15/07 1,552,511 2,000,000 TNP Enterprises, Inc., 10.250%, due 04/01/10 2,170,000 ---------- 3,722,511 ---------- Electronics: 6.04% $2,500,000 # Amkor Technology, Inc., 9.250%, due 02/15/08 $2,000,000 1,975,000 Fairchild Semiconductor Corp., 10.125%, due 03/15/07 1,866,375 700,000 Fairchild Semiconductor Corp., 10.500%, due 02/01/09 679,000 1,550,000 @@ Filtronic PLC, 10.000%, due 12/01/05 1,139,250 2,795,000 @@ Flextronics International Ltd., 8.750%, due 10/15/07 2,669,225 1,000,000 @@ Flextronics International Ltd., 9.875%, due 07/01/10 990,000 4,675,000 ** Zilog, Inc., 9.500%, due 03/01/05 818,125 ---------- 10,161,975 ---------- Environmental: 2.33% 3,900,000 Allied Waste of North America, 10.000%, due 08/01/09 3,919,500 ---------- Exploration and Production: 2.13% 4,625,000 Energy Corp. of America, 9.500%, due 05/15/07 3,584,375 ---------- Food: 0.79% 1,500,000 Agrilink Foods, Inc., 11.875%, due 11/01/08 1,335,000 ---------- Food and Drug Retail: 0.97% 900,000 Fleming Companies, Inc., 10.625%, due 07/31/07 895,500 720,000 # Fleming Companies, Inc., 10.125%, due 04/01/08 738,000 ---------- 1,633,500 ---------- Forestry/Paper: 3.46% 900,000 # Fibermark, Inc., 10.750%, due 04/15/11 810,000 1,325,000 @@ Norampac, Inc., 9.375%, due 02/01/08 841,130 900,000 @@ Norampac, Inc., 9.500%, due 02/01/08 920,250 500,000 @@ # Norske Ltd., 8.625%, due 06/15/11 501,250 900,000 Paperboard Industries International, Inc., 8.375%, due 09/15/07 814,500 1,900,000 Stone Container Corp., 9.750%, due 02/01/11 1,928,500 ---------- 5,815,630 ---------- See Accompanying Notes to Financial Statements 71 Pilgrim High Yield Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- Gaming: 4.00% $1,125,000 Coast Hotels and Casinos, Inc., 9.500%, due 04/01/09 $1,085,625 3,250,000 Park Place Entertainment Corp., 8.875%, due 09/15/08 3,095,625 500,000 Station Casinos, Inc., 9.750%, due 04/15/07 462,500 775,000 Station Casinos, Inc., 9.875%, due 07/01/10 705,250 1,600,000 Venetian Casino Resort LLC, 14.250%, due 11/15/05 1,368,000 ---------- 6,717,000 ---------- Health Services: 1.00% 1,900,000 # XX Meditrust 7.114%, due 08/15/04 1,691,000 ---------- Hotels: 2.11% 2,900,000 # Meristar Hospitality Corp., 9.125%, due 01/15/11 2,305,500 1,250,000 Prime Hospitality Corp., 9.750%, due 04/01/07 1,243,750 ---------- 3,549,250 ---------- Machinery: 2.53% 550,000 Columbus McKinnon Corp., 8.500%, due 04/01/08 503,250 3,035,000 Terex Corp., 8.875%, due 04/01/08 2,777,025 1,000,000 # Terex Corp., 10.375%, due 04/01/11 965,000 ---------- 4,245,275 ---------- Media - Broadcast: 1.09% 1,900,000 Sinclair Broadcast Group, Inc., 10.000%, due 09/30/05 1,824,000 ---------- Media - Cable: 6.11% $1,050,000 Adelphia Communications Corp., 10.875%, due 10/01/10 $ 939,750 1,500,000 Charter Communications Holdings, 8.625%, due 04/01/09 1,346,250 2,000,000 Charter Communications Holdings, 11.125%, due 01/15/11 2,035,000 1,500,000 Coaxial Communications, Inc., 10.000%, due 08/15/06 1,462,500 2,000,000 Echostar DBS Corp., 9.250%, due 02/01/06 1,975,000 900,000 # Mediacom Broadband, LLC, 11.000%, due 07/15/13 922,500 1,400,000 Northland Cable Television, Inc., 10.250%, due 11/15/07 957,250 1,000,000 @@ Telewest Communications, 9.875%, due 02/01/10 625,000 ---------- 10,263,250 ---------- Media - Diversified: 1.71% 2,900,000 @@ # Canwest Media, Inc., 10.625%, due 05/15/11 2,871,000 ---------- Non-Electric Utilities: 1.88% 3,225,000 Calpine Corp., 8.625%, due 08/15/10 3,157,868 ---------- Non Food and Drug - Retail: 2.75% 2,000,000 Big 5 Corp., 10.875%, due 11/15/07 1,850,000 900,000 Fedders North American, Inc., 9.375%, due 08/15/07 778,500 2,088,000 Tuesday Morning Corp., 11.000%, due 12/15/07 1,994,040 ---------- 4,622,540 ---------- Oil Field Equipment and Service: 4.32% 1,325,000 @@ Compagnie Generale de Geophysique, 10.625%, due 11/15/07 1,318,375 3,055,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 2,795,325 3,425,000 Parker Drilling Co., 9.750%, due 11/15/06 3,151,000 ---------- 7,264,700 ---------- Oil Refining and Market: 1.15% $1,360,000 Clark Refining and Marketing, Inc., 8.375%, due 11/15/07 $1,115,200 1,000,000 Clark Refining and Marketing, Inc., 8.625%, due 08/15/08 822,500 ---------- 1,937,700 ---------- Packaging: 3.05% 1,400,000 # Applied Extrusion Technology, Inc., 10.750%, due 07/01/11 1,400,000 2,160,000 Owens, Inc., 7.850%, due 05/15/04 1,825,200 1,900,000 # Plastipak Holdings 10.750%, due 09/01/11 1,909,500 ---------- 5,134,700 ---------- Printing and Publishing: 2.26% 2,000,000 Mail-Well Corp., 8.750%, due 12/15/08 1,470,000 1,900,000 # Primedia, Inc., 8.875%, due 05/15/11 1,434,500 900,000 @@ # Quebecor Media, Inc., 11.125%, due 07/15/11 895,500 ---------- 3,800,000 ---------- Railroads: 1.22% 2,000,000 Kansas City Southern Railway Co., 9.500%, due 10/01/08 2,050,000 ---------- Steel Producers/Production: 4.03% 3,205,000 AK Steel Corp., 9.125%, due 12/15/06 3,140,900 325,000 Armco, Inc., 9.000%, due 09/15/07 320,125 2,950,000 Metals USA, Inc., 8.625%, due 02/15/08 2,020,750 1,400,000 Oregon Steel Mills, Inc., 11.000%, due 06/15/03 1,295,000 ---------- 6,776,775 ---------- See Accompanying Notes to Financial Statements 72 Pilgrim High Yield Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- Telecommunications - Fixed Line: 5.80% $5,000,000 @@ Call Net Enterprises, Inc., 9.375%, due 05/15/09 $ 1,225,000 3,000,000 @@ Global Crossing Holdings Ltd., 9.625%, due 05/15/08 1,305,000 1,000,000 @@ Global Crossing Holdings Ltd., 9.500%, due 11/15/09 425,000 4,000,000 Hyperion Telecommunication, Inc., 12.000%, due 11/01/07 980,000 2,000,000 ITC Delta Communications, Inc., 9.750%, due 11/15/08 610,000 3,000,000 Madison River Capital LLC, 13.250%, due 03/01/10 1,845,000 2,400,000 McLeodUSA, Inc., 12.000%, due 07/15/08 732,000 2,000,000 Nextlink Communications, 12.500%, due 04/15/06 430,000 2,000,000 XX Time Warner Telecommunications, 9.750%, due 07/15/08 1,350,000 2,000,000 Williams Communications Group, 11.700%, due 08/01/08 840,000 ----------- 9,742,000 ----------- Telecommunications - Wireless: 3.87% 2,900,000 XX Alamosa Delaware, Inc., 12.500%, due 02/01/11 2,631,750 2,000,000 # American Cellular Corp., 9.500%, due 10/15/09 1,870,000 1,000,000 Crown Castle International Corp., 9.375%, due 08/01/11 850,000 1,850,000 Nextel Communications, 9.375%, due 11/15/09 1,151,625 ----------- 6,503,375 ----------- Theaters and Entertainment: 0.44% 850,000 Hollywood Entertainment Corp., 10.625%, due 08/15/04 731,000 ----------- Transportation: 0.61% 1,000,000 Travelcenters America, Inc., 12.750%, due 05/01/09 1,025,000 ----------- Total Corporate Bonds (Cost $173,464,477) 152,222,715 ----------- Shares Security Value ------ -------- ----- COMMON STOCK: 0.00% Telecommunications - Fixed Line:0.00% 900 @ Mpower Holding Corp. $ 180 ----------- Total Common Stock (Cost $3,897) 180 ----------- Number of Warrants --------- WARRANTS: 0.05% Building Materials: 0.03% 3,100 @ # Dayton Superior Corp., Exp. 06/15/09 46,500 ----------- Transportation: 0.02% 3,000 @ # Travelcenters America, Inc., Exp. 11/14/01 30,750 ----------- Total Warrants (Cost $34,739) 77,250 ----------- Total Long-Term Investments (Cost $173,503,113) 152,300,145 ----------- Principal Amount Security Value ------ -------- ----- SHORT-TERM INVESTMENTS: 6.58% Repurchase Agreement: 6.58% $11,052,000 State Street Repurchase Agreement dated 09/28/01, 3.150% due 10/01/01, $11,054,901 to be received upon repurchase (Collateralized by $9,785,000 U.S. Treasury Note, 6.625% Market Value $11,273,680, due 5/15/07) $11,052,000 ----------- Total Short-Term Investments (Cost $11,052,000) 11,052,000 ----------- Total Investments in Securities (Cost $ 184,555,113)* 97.20% $163,352,145 ------ ------------ Other Assets and Liabilities-Net 2.80% 4,706,403 ------ ------------ Net Assets 100.00% $168,058,548 ====== ============ @ Non-income producing security # Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. XX Value of securities obtained from one or more dealers making markets in the securities which have been adjusted based on the Fund's valuation procedures. @@ Foreign Issuer ** Defaulted security * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 1,270,155 Gross Unrealized Depreciation (22,473,123) ------------- Net Unrealized Depreciation $ (21,202,968) ============= See Accompanying Notes to Financial Statements 73 Pilgrim High Yield Fund II PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- CORPORATE BONDS: 82.38% Aerospace/Defense: 0.83% $3,000,000 XX Simula, Inc., 8.000%, due 05/01/04 $ 1,957,500 ----------- Building & Construction: 0.69% 1,725,000 Lennar Corp., 7.625%, due 03/01/09 1,630,125 ----------- Building Materials: 2.17% 1,400,000 Dayton Superior Corp., 13.000%, due 06/15/09 1,393,000 4,100,000 Nortek, Inc., 8.875%, due 08/01/08 3,690,000 ----------- 5,083,000 ----------- Chemicals: 2.10% 3,215,000 Buckeye Technologies, Inc., 8.500%, due 12/15/05 3,038,175 1,150,000 Buckeye Technologies, Inc., 9.250%, due 09/15/08 1,109,750 4,975,000 ** Sterling Chemicals, Inc., 11.750%, due 08/15/06 771,125 ----------- 4,919,050 ----------- Consumer/Commercial Lease Financing: 3.57% 8,130,000 Neff Corp., 10.250%, due 06/01/08 4,512,150 4,000,000 Penhall Intl., Inc., 12.000%, due 08/01/06 3,860,000 ----------- 8,372,150 ----------- Diversified Capital Goods: 1.30% 4,500,000 Blount, Inc., 7.000%, due 06/15/05 3,060,000 ----------- Electric-Generation: 2.41% 4,400,000 Orion Power Holdings, Inc., 12.000%, due 05/01/10 5,654,000 ----------- Electric-Integrated: 4.39% 4,800,000 CMS Energy Corp., 9.875%, due 10/15/07 4,968,034 4,925,000 TNP Enterprises, Inc., 10.250%, due 04/01/10 5,343,625 ----------- 10,311,659 ----------- Electronics: 3.41% 4,300,000 @@ Flextronics Intl. Ltd., 9.875%, due 07/01/10 4,257,000 5,160,000 NMS Communications Corp., 5.000%, due 10/15/05 2,380,050 7,750,000 ** ZiLog, Inc., 9.500%, due 03/01/05 1,356,250 ----------- 7,993,300 ----------- Environmental: 1.31% $3,000,000 # Allied Waste North America, 8.875%, due 04/01/08 $ 3,075,000 ----------- Exploration & Production: 2.68% 8,110,000 Energy Corp. of America, 9.500%, due 05/15/07 6,285,250 ----------- Food-Wholesale: 0.01% 4,250,000 XX,** Richmont Marketing Specialists, Inc., 10.125%, due 12/15/07 16,150 ----------- Forestry/Paper: 1.73% 8,575,000 @@ Doman Industries Ltd., 8.750%, due 03/15/04 2,701,125 1,500,000 @@ Paperboard Industries Intl., 8.375%, due 09/15/07 1,357,500 ----------- 4,058,625 ----------- Gaming: 4.46% 3,000,000 Hollywood Casino Shreveport, 13.000%, due 08/01/06 2,580,000 4,500,000 Park Place Entertainment Corp., 8.875%, due 09/15/08 4,286,250 5,700,000 Trump Atlantic City Associates, 11.250%, due 05/01/06 3,591,000 ----------- 10,457,250 ----------- Hotels: 0.85% 2,000,000 Prime Hospitality Corp., 9.750%, due 04/01/07 1,990,000 ----------- Machinery: 1.57% 4,015,000 Terex Corp., 8.750%, due 04/01/08 3,673,725 ----------- Media-Broadcast: 0.32% 1,000,000 Jones Intl. Networks Ltd., 11.750%, due 07/01/05 752,500 ----------- Media-Cable: 11.21% $1,500,000 Adelphia Communications, 10.250%, due 06/15/11 $ 1,312,500 4,750,000 Charter Communications Holdings, 11.125%, due 01/15/11 4,833,125 7,500,000 ** Classic Cable, Inc., 9.375%, due 08/01/09 3,300,000 10,015,000 ** Classic Cable, Inc., 10.500%, due 03/01/10 4,406,600 4,000,000 CSC Holdings, Inc., 9.875%, due 05/15/06 4,145,000 2,800,000 Echostar DBS Corp., 9.250%, due 02/01/06 2,765,000 5,625,000 Northland Cable Television, Inc., 10.250%, due 11/15/07 3,846,094 5,000,000 +,@@ Telewest Communications PLC, 0/11.375%, due 02/01/10 1,700,000 ----------- 26,308,319 ----------- Media-Diversified: 4.15% 1,950,000 + Ascent Entertainment Group, 0/11.875%, due 12/15/04 1,764,750 1,500,000 #,@@ CanWest Media, Inc., 10.625%, due 05/15/11 1,485,000 8,700,000 + Diva Systems Corp., 0/12.625%, due 03/01/08 1,174,500 10,195,500 Metromedia Intl. Group, Inc., 10.500%, due 09/30/07 3,619,403 1,500,000 # Nextmedia Operating, Inc., 10.750%, due 07/01/11 1,440,000 4,750,000 ** Source Media, Inc., 12.000%, due 11/01/04 261,250 ----------- 9,744,903 ----------- Metals/Mining: 0.17% 1,456,000 @@ Intl. Utility Structures, Inc., 13.000%, due 02/01/08 396,760 ----------- Non-Electric Utilities: 1.95% 4,670,000 Calpine Corp., 8.625%, due 08/15/10 4,572,789 ----------- Non-Food & Drug Retail: 0.39% 1,000,000 Big 5 Corp., 10.875%, due 11/15/07 925,000 ----------- See Accompanying Notes to Financial Statements 74 Pilgrim High Yield Fund II PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- Oil Field Equipment & Service: 6.40% $2,100,000 @@ Compagnie Generale de Geophysique, 10.625%, due 11/15/07 $ 2,089,500 4,315,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 3,948,225 7,300,000 @@ Northern Oil ASA, 10.000%, due 05/15/05 5,037,000 4,275,000 Parker Drilling Co., 9.750%, due 11/15/06 3,933,000 ------------ 15,007,725 ------------ Oil Refining & Market: 1.54% 3,200,000 Premcor Refining Group, Inc., 8.375%, due 11/15/07 2,624,000 1,200,000 Premcor Refining Group, Inc., 8.625%, due 08/15/08 987,000 ------------ 3,611,000 ------------ Packaging: 3.49% 4,000,000 # Applied Extrusion Technologies, Inc., 10.750%, due 07/01/11 4,000,000 4,290,000 Owens-Illinois, Inc., 7.850%, due 05/15/04 3,625,050 5,000,000 ** Russell-Stanley Holdings, Inc., 10.875%, due 02/15/09 575,000 ------------ 8,200,050 ------------ Printing & Publishing: 2.68% 3,925,000 Mail-Well, Inc., 8.750%, due 12/15/03 2,884,875 4,500,000 Primedia, Inc., 7.625%, due 04/01/08 3,397,500 ------------ 6,282,375 ------------ Railroads: 1.20% 2,750,000 Kansas City Southern Railway, 9.500%, due 10/01/08 2,818,750 ------------ Steel Producers/Production: 1.30% 715,000 AK Steel Corp., 9.125%, due 12/15/06 700,700 1,925,000 AK Steel Corp., 7.875%, due 02/15/09 1,809,500 550,000 Armco, Inc., 9.000%, due 09/15/07 541,750 ------------ 3,051,950 ------------ Telecommunications-Fixed Line: 5.39% $ 555,000 Adelphia Business Solutions, Inc., 13.000%, due 04/15/03 $ 246,975 3,950,000 Adelphia Business Solutions, Inc., 12.000%, due 11/01/07 967,750 700,000 @@ Call-Net Enterprises, Inc., 8.000%, due 08/15/08 164,500 7,500,000 +,@@ Call-Net Enterprises, Inc., 0/8.940%, due 08/15/08 1,387,500 6,000,000 @@ Call-Net Enterprises, Inc., 9.375%, due 05/15/09 1,470,000 3,400,000 Concentric Network Corp., 12.750%, due 12/15/07 697,000 1,740,000 @@ Global Crossing Holding Ltd., 9.500%, due 11/15/09 739,500 3,600,000 ** ICG Services, Inc., 10.000%, due 12/15/08 306,000 900,000 ITC Deltacom, Inc., 8.875%, due 03/01/08 274,500 1,000,000 ITC Deltacom, Inc., 9.750%, due 11/15/08 305,000 9,050,000 Madison River Capital LLC, 13.250%, due 03/01/10 5,565,750 9,000,000 **,@@,X Poland Telecommunications Finance BV, 14.000%, due 12/01/07 -- 3,800,000 #,** SA Telecommunications, Inc., 10.000%, due 08/15/06 -- 5,000,000 #,** SA Telecommunications, Inc., 10.000%, due 08/15/06 -- 8,500,000 #,** SA Telecommunications, Inc., 10.000%, due 08/15/06 -- 17,500,000 +,** Viatel, Inc., 0/12.500%, due 4/15/08 131,250 4,100,000 + XO Communications, Inc., 0/9.450%, due 04/15/08 389,500 ------------ 12,645,225 ------------ Telecommunications-Integrated Service: 0.84% $3,750,000 ** Exodus Communications, Inc., 11.250%, due 07/01/08 $ 426,563 7,000,000 ** Exodus Communications, Inc., 11.625%, due 07/15/10 805,000 4,000,000 Globix Corp., 12.500%, due 02/01/10 740,000 ------------ 1,971,563 ------------ Telecommunications-Wireless: 5.75% 2,000,000 Alamosa Delaware, Inc., 12.500%, due 02/01/11 1,815,000 3,000,000 American Cellular Corp., 9.500%, due 10/15/09 2,805,000 4,500,000 @@ Rogers Cantel, Inc., 9.375%, due 06/01/08 4,410,000 8,267,451 X,** US Interactive, 12.000%, due 04/17/05 2,801,012 3,000,000 + US Unwired, Inc., 0/13.375%, due 11/01/09 1,575,000 6,250,000 ** WinStar Communications, Inc., 12.750%, due 04/15/10 78,125 ------------ 13,484,137 ------------ Theaters & Entertainment: 1.25% 3,425,000 Hollywood Entertainment Corp., 10.625%, due 08/15/04 2,945,500 ------------ Transportation: 0.87% 2,000,000 Travelcenters of America, Inc., 12.750%, due 05/01/09 2,050,000 ------------ Total Corporate Bonds (Cost $285,607,263) 193,305,330 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS (CMO's): 0.06% Investments & Financial Services: 0.06% 500,000 #,X Westways Funding II Ltd., 20.840%, due 01/29/03 150,000 ------------ Total CMO's (Cost $ 500,000) 150,000 ------------ See Accompanying Notes to Financial Statements 75 Pilgrim High Yield Fund II PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Shares Security Value ------ -------- ----- COMMON STOCK: 0.45% Health Services: 0.21% 250,000 @,@@,X Trinity Biotech PLC, ADR $ 494,928 ------------ Oil Refining & Market: 0.13% 866,408 @,XX Orion Refining Corp. 303,243 ------------ Restaurant: 0.00% 1,219 @ International Fast Food Corp. 475 ------------ Telecommunications-Fixed Line: 0.04% 61,806 @ Adelphia Business Solutions 65,514 89,000 @@,X Completel Europe NV 38,270 ------------ 103,784 ------------ Telecommunications-Wireless: 0.06% 483,445 @ International Wireless Communications Holdings, Inc. 4,834 2,350 @,X Jordan Telecommunications 122,200 ------------ 127,034 ------------ Transportation: 0.01% 2,000 @@ CHC Helicopter Corp. 17,200 ------------ Total Common Stock (Cost $57,021,117) 1,046,664 ------------ PREFERRED STOCK: 5.84% Consumer-Products: 0.00% 100,000 @,XX Commemorative Brands, Inc. 1,000 ------------ Food: 0.00% 144,883 @,X International Fast Food Corp. -- ------------ Telecommunications-Fixed Line: 1.13% 100,480 @ Adelphia Business Solutions, Inc. 1,331,360 16,000 @@ Global Crossing LTD 676,000 27,520 @ XO Communications, Inc. 337,120 41,689 @ XO Communications, Inc. 302,245 ------------ 2,646,725 ------------ Tobacco: 4.71% 903,187 @ North Atlantic Trading Co. 11,064,039 ------------ Total Preferred Stock (Cost $57,310,907) 13,711,764 ------------ WARRANTS: 0.19% Beverage: 0.11% 14,355 @,XX Packaged Ice, Inc., Exp. 04/15/04 $ 251,213 ------------ Exploration & Production: 0.00% 1,500,000 @,@@ Mexico (UTD MEX ST), Exp. 06/30/03 -- ------------ Food: 0.05% 7,350 @,XX Packaged Ice, Inc. 128,625 ------------ Food & Drug Retail: 0.00% 28,631 @,X Dairy Mart Convenience Stores, Exp. 12/04/01 -- ------------ Investments & Financial Services: 0.00% 5,000 @,X Arcadia Financial Ltd., Exp. 03/15/07 50 ------------ Media-Diversified: 0.00% 26,100 @ Diva Systems Corp., Exp. 03/01/08 261 ------------ Metals/Mining: 0.00% 10,000 @ International Utility Structures, Inc., Exp. 02/01/03 -- ------------ Non-Food & Drug Retail: 0.00% 100 @ Electronic Retailing Systems, Exp. 02/01/04 1 ------------ Steel Producers/Production: 0.00% 12,500 @ Sheffield Steel Corp., Exp. 11/01/01 -- ------------ Support-Services: 0.00% 92,950 @,XX Comforce Corp., Exp. 12/01/09 930 ------------ Telecommunications-Fixed Line: 0.00% 6,600 @,@@ ICG Communications, Inc., Exp. 09/15/05 66 9,000 @,X,** Poland Telecom Finance BV, Exp. 12/01/07 -- 7,000 @,XX Poland Telekom, Inc., Exp. 03/31/03 70 7,000 @,XX Poland Telekom, Inc., Exp. 06/01/06 70 ------------ 206 ------------ Telecommunications-Integrated Services: 0.00% 9,300 @,X UNIFI Communications, Exp. 12/31/03 -- ------------ Telecommunications-Wireless: 0.00% 10,000 @ Cellnet Data Systems, Inc., Exp. 09/15/07 100 9,500 @ Nextel Intl., Inc., Exp. 04/15/07 1,282 3,833 @ US Interactive, Exp. 03/31/05 -- ------------ 1,382 ------------ Tobacco: 0.00% 5,480 @,XX North Atlantic Trading Co., Exp. 06/15/07 55 ------------ Transportation: 0.03% 6,000 @ Travelcenters of America, Inc., Exp. 11/14/10 61,500 ------------ Total Warrants (Cost $978,825) 444,223 ------------ Total Long-Term Investments (Cost $401,418,112) 208,657,981 ------------ See Accompanying Notes to Financial Statements 76 Pilgrim High Yield Fund II PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- SHORT-TERM INVESTMENTS: 8.80% Repurchase Agreement: 8.80% $ 20,641,000 State Street Repurchase Agreement dated 09/28/01, 3.150% due 10/01/01, $20,646,418 to be received upon repurchase (Collateralized by $21,240,000 U.S. Treasury Bond, 0.000% Market Value $21,054,150 due 01/10/02) $ 20,641,000 ------------ Total Short-Term Investments (Cost $20,641,000) 20,641,000 ------------ Total Investments in Securities (Cost $ 422,059,112)* 97.72% $229,298,981 Other Assets and Liabilities-Net 2.28% 5,354,912 ------ ------------ Net Assets 100.00% $234,653,893 ====== ============ @ Non-income producing security @@ Foreign Issuer + Step-up basis bonds. Interest rates shown reflect current and future coupon rates. # Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. ** Defaulted Security X Market value determined by Pilgrim Valuation Committee appointed by the Funds Board of Directors. XX Value of Securities obtained from one or more dealers making markets in the securities which have been adjusted based on the Fund's valuation procedures ADR American Depository Receipt * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 4,883,138 Gross Unrealized Depreciation (197,643,269) ------------- Net Unrealized Depreciation $(192,760,131) ============= See Accompanying Notes to Financial Statements 77 Pilgrim High Yield Bond Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- CORPORATE BONDS: 86.77% Chemicals: 6.70% $ 750,000 # Equistar Chemicals LP/Equistar Funding Corp., 10.125%, due 09/01/08 $ 691,875 1,000,000 # IMC Global, Inc., 10.875%, due 06/01/08 980,000 1,000,000 Lyondell Chemical Co., 9.625%, due 05/01/07 920,000 ------------ 2,591,875 ------------ Commercial Services: 3.84% 500,000 @@,# Quebecor Media, Inc., 11.125%, due 07/15/11 495,000 1,000,000 # United Rentals, Inc., 10.750%, due 04/15/08 990,000 ------------ 1,485,000 ------------ Cosmetics/Personal Care: 2.62% 1,000,000 # Armkel LLC, 9.500%, due 08/15/09 1,012,500 ------------ Diversified Financial Services: 3.49% 1,000,000 Alamosa Delaware, Inc., 12.500%, due 02/01/11 890,000 500,000 Nexstar Finance LLC, 12.000%, due 04/01/08 460,000 ------------ 1,350,000 ------------ Electric: 3.78% 1,000,000 @@ Calpine Canada Energy Finance, 8.500%, due 05/01/08 976,440 500,000 Calpine Corp., 8.500%, due 02/15/11 484,800 ------------ 1,461,240 ------------ Entertainment: 2.89% 700,000 Argosy Gaming Co., 9.000%, due 09/01/11 696,500 500,000 Pinnacle Entertainment, Inc., 9.250%, due 02/15/07 420,000 ------------ 1,116,500 ------------ Environmental Control: 3.76% 1,500,000 Allied Waste North America, 7.875%, due 01/01/09 1,455,000 ------------ Food: 5.66% $ 250,000 Domino's, Inc.,10.375%, due 01/15/09 $ 255,000 500,000 Fleming Cos., Inc., 10.125%, due 04/01/08 510,000 1,000,000 Michael Foods, Inc., 11.750%, due 04/01/11 1,040,000 400,000 Winn-Dixie Stores, Inc., 8.875%, due 04/01/08 382,000 ------------ 2,187,000 ------------ Forest Products & Paper: 2.11% 1,000,000 @@ Doman Industries Ltd., 8.750%, due 03/15/04 310,000 500,000 @@ Tembec Industries, Inc., 8.625%, due 06/30/09 505,000 ------------ 815,000 ------------ Healthcare-Services: 3.35% 1,000,000 HCA, Inc., 8.750%, due 09/01/10 1,076,250 750,000 Rural/Metro Corp., 7.875%, due 03/15/08 217,500 ------------ 1,293,750 ------------ Holding Companies- sDiversified: 1.30% 500,000 # Yell Finance BV, 10.750%, due 08/01/11 502,500 ------------ Home Builders: 1.20% 500,000 WCI Communities, Inc., 10.625%, due 02/15/11 465,000 ------------ Iron/Steel: 3.15% 195,000 AK Steel Corp., 9.125%, due 12/15/06 190,125 1,100,000 AK Steel Corp., 7.875%, due 02/15/09 1,028,500 ------------ 1,218,625 ------------ Lodging: 2.59% 250,000 Ameristar Casinos, Inc., 10.750%, due 02/15/09 253,750 300,000 Harrah's Operating Co., Inc., 7.875%, due 12/15/05 298,500 500,000 MGM Mirage, 8.375%, due 02/01/11 450,000 ------------ 1,002,250 ------------ Media: 21.88% $1,000,000 @@,# CanWest Media, Inc., 10.625%, due 05/15/11 $ 985,000 3,000,000 Century Communications, 0.000%, due 03/15/03 2,415,000 500,000 Charter Communications Holdings LLC, 8.250%, due 04/01/07 447,500 1,000,000 Charter Communications Holdings LLC, 10.750%, due 10/01/09 995,000 1,000,000 Cumulus Media, Inc., 10.375%, due 07/01/08 945,000 500,000 Echostar DBS Corp., 9.250%, due 02/01/06 491,250 500,000 Echostar DBS Corp., 9.375%, due 02/01/09 488,750 250,000 LIN Television Corp., 8.375%, due 03/01/08 222,500 500,000 # Mediacom Broadband LLC, 11.000%, due 07/15/13 510,000 500,000 Mediacom LLC, 8.500%, due 04/15/08 482,500 500,000 Sinclair Broadcast Group, Inc., 10.000%, due 09/30/05 477,500 ------------ 8,460,000 ------------ Oil & Gas: 5.40% 1,000,000 Nuevo Energy Co., 9.375%, due 10/01/10 925,000 700,000 Parker Drilling Co., 9.750%, due 11/15/06 640,500 500,000 Vintage Petroleum, Inc., 9.750%, due 06/30/09 523,750 ------------ 2,089,250 ------------ Oil & Gas Services: 4.29% 700,000 Grant Prideco, Inc., 9.625%, due 12/01/07 654,500 1,000,000 # Hanover Equipment, 8.500%, due 09/01/08 1,002,500 ------------ 1,657,000 ------------ Pharmaceuticals: 1.34% 500,000 # AmerisourceBergen Corp., 8.125%, due 09/01/08 516,250 ------------ See Accompanying Notes to Financial Statements 78 Pilgrim High Yield Bond Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- Retail: 2.26% $500,000 # K Mart Corp., 9.875%, due 06/15/08 $ 454,360 500,000 Saks, Inc., 7.250%, due 12/01/04 420,000 ------------ 874,360 ------------ Telecommunications: 5.16% 500,000 + Crown Castle Intl. Corp., 0/10.625%, due 11/15/07 387,500 500,000 Crown Castle Intl. Corp., 10.750%, due 08/01/11 458,750 500,000 @@,+ GT Group Telecommunications, Inc., 0/13.250%, due 02/01/10 100,000 375,000 McLeodUSA, Inc., 11.375%, due 01/01/09 108,750 375,000 McLeodUSA, Inc., 8.125%, due 02/15/09 93,750 500,000 Spectrasite Holdings, Inc., 12.500%, due 11/15/10 355,000 500,000 Triton PCS, Inc., 9.375%, due 02/01/11 488,750 ------------ 1,992,500 ------------ Total Corporate Bonds (Cost $35,987,794) 33,545,600 ------------ Shares ------ PREFERRED STOCK: 5.53% Media: 5.27% 1,993,700 & CSC Holdings, Inc. 2,038,557 ------------ Telecommunications: 0.26% 500,000 @ Global Crossing Holding LTD 101,250 373 &,@ O'Sullivan Industries, Inc. 4 ------------ 101,254 ------------ Total Preferred Stock (Cost $2,835,174) 2,139,811 ------------ Number of Warrants Security Value -------- -------- ----- WARRANTS: 0.02% Telecommunications: 0.02% 500 @,@@ GT Group Telecom, Inc., Exp. 02/01/10 $ 7,750 1,000 @ O Sullivan Industries, Inc., Exp. 10/15/09 30 ------------ 7,780 ------------ Total Warrants (Cost $0) 7,780 ------------ Total Long-Term Investments (Cost $38,822,968) 35,693,191 ------------ Principal Amount Security Value ------ -------- ----- SHORT-TERM INVESTMENTS: 4.44% Repurchase Agreement: 4.44% $1,716,000 State Street Repurchase Agreement dated 09/28/01, 3.200% due 10/01/01, $1,716,458 to be received upon repurchase (Collateralized by $1,690,000 FHLMC, 4.500% Market Value $1,753,902 due 06/15/03) $ 1,716,000 ------------ Total Short-Term Investments (Cost $1,716,000) Total Investments in Securities (Cost $40,538,968)* 96.76% $ 37,409,191 Other Assets and Liabilities-Net 3.24% 1,251,676 ------ ------------ Net Assets 100.00% $ 38,660,867 ====== ============ @ Non-income producing security @@ Foreign Issuer & Payment-in-kind + Step-up basis bonds. Interest rates shown reflect current and future coupon rates. # Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 114,184 Gross Unrealized Depreciation (3,243,961) ------------ Net Unrealized Depreciation $ (3,129,777) ============ See Accompanying Notes to Financial Statements 79 Pilgrim Money Market Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- COMMERCIAL PAPER: 86.58% $3,000,000 AIG Funding, Inc., 3.380%, due 11/02/01 $ 2,990,987 3,500,000 Alcoa, Inc., 3.100%, due 10/04/01 3,499,096 3,500,000 Alfa Corp., 3.050%, due 10/10/01 3,497,331 3,550,000 American General Corp., 3.490%, due 10/02/01 3,549,656 3,500,000 American Honda Finance, 2.600%, due 11/05/01 3,491,153 3,000,000 Archer Daniels Midland Co., 2.400%, due 10/05/01 2,999,200 3,000,000 Becton Dickinson & Co., 3.620%, due 10/09/01 2,997,587 3,500,000 Coca Cola Co., 2.500%, due 12/10/01 3,482,986 3,500,000 Dow Chemical Co., 3.100%, due 10/04/01 3,499,096 3,000,000 Dupont E I De Nemours & Co., 3.020%, due 10/05/01 2,998,993 2,300,000 Gannett, Inc., 2.900%, due 10/12/01 2,297,962 3,500,000 General Electric Capital Services, Inc., 3.510%, due 10/10/01 3,496,929 3,500,000 Goldman Sachs Group, 3.050%, due 10/23/01 3,493,476 2,800,000 Great West Life & Annuity Insurance, 3.520%, due 11/05/01 2,790,418 3,000,000 International Business Machines, 3.410%, due 10/12/01 2,996,874 $3,500,000 Kraft Foods, Inc., 2.600%, due 10/04/01 $ 3,499,242 600,000 May Department Stores Co., 3.400%, due 10/11/01 599,433 3,500,000 McGraw Hill, Inc., 3.000%, due 10/26/01 3,492,708 3,500,000 Merck & Co., Inc., 3.100%, due 10/05/01 3,498,794 1,900,000 Nike, Inc., 2.950%, due 10/19/01 1,897,198 3,300,000 Paccar Financial Corp., 3.520%, due 10/03/01 3,299,355 3,500,000 Pitney Bowes Credit Corp., 3.100%, due 10/03/01 3,499,397 3,500,000 Salomon Smith Barney Holdings, Inc., 3.480%, due 10/02/01 3,499,662 3,500,000 Schering Corp., 2.400%, due 10/30/01 3,493,233 $3,500,000 Systems United Corp., 3.050%, due 10/11/01 $3,497,035 3,300,000 Volkswagon of America, Inc., 3.400%, due 10/01/01 3,300,000 3,500,000 Wal Mart Stores, Inc., 2.650%, due 10/09/01 3,497,939 2,300,000 Walgreen Co., 3.480%, due 10/03/01 2,299,555 3,500,000 Wisconsin Corp. Central Credit Union, 3.270%, due 10/03/01 3,499,364 ------------ Total Commercial Paper (Cost $90,954,659) 90,954,659 ------------ U.S. TREASURY OBLIGATIONS: 14.20% 5,000,000 U.S. Treasury Bill, 2.570%, due 12/20/01 4,974,222 5,000,000 U.S. Treasury Bill, 3.455%, due 10/25/01 4,991,700 5,000,000 U.S. Treasury Bill, 2.470%, due 03/21/02 4,944,900 ------------ Total U.S. Treasury Obligations (Cost $14,910,822) 14,910,822 ------------ Total Investments in Securities (Cost $105,865,481) 100.78% $ 105,865,481 Other Assets and Liabilities-Net -0.78% (816,429) ------ ------------- Net Assets 100.00% $ 105,049,052 ====== ============= See Accompanying Notes to Financial Statements 80 Pilgrim Money Market Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Percentage of Industry Net Assets -------- ---------- Athletic Footwear 1.81% Auto-Cars/Light Trucks 3.14% Beverages -- Non Alcohol 3.32% Chemicals -- Diversified 6.18% Computers 2.85% Diversified Financial Services 3.33% Finance -- Auto Loans 6.46% Finance -- Investment Banker/Banker 6.66% Finance -- Leasing Company 3.33% Food -- Flour & Grain 2.85% Food -- Miscellaneous/Diversified 3.33% Government 14.20% Insurance 2.85% Life/Health Insurance 6.04% Medical -- Wholesale Drug Distributor 3.33% Medical Drugs 3.33% Medical Products 2.85% Metal -- Aluminum 3.33% Multi-Line Insurance 3.33% Multimedia 5.51% Retail -- Discount 3.33% Retail -- Drug Stores 2.19% Retail -- Major Department Store 0.57% S&L/Thrifts -- Central US 3.33% S&L/Thrifts -- Western US 3.33% Other Assets and Liabilities, Net -0.78% ------ Net Assets 100.00% ====== See Accompanying Notes to Financial Statements 81 ING Pilgrim Money Market Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- ASSET-BACKED COMMERCIAL PAPER: 27.01% $10,000,000 Ciesco LP, 3.500%, due 10/02/01 $ 9,999,028 7,000,000 Ciesco LP, 3.500%, due 10/03/01 6,998,638 7,000,000 Ciesco LP, 3.410%, due 11/05/01 6,976,793 7,000,000 Corporate Asset Funding Corp., 3.470%, due 10/15/01 6,990,553 5,000,000 Corporate Asset Funding Corp., 3.470%, due 10/18/01 4,991,783 7,000,000 Corporate Asset Funding Corp., 3.430%, due 11/20/01 6,966,652 5,000,000 Delaware Funding Corp., 3.520%, due 10/10/01 4,995,600 10,000,000 Delaware Funding Corp., 2.730%, due 10/22/01 9,984,075 6,000,000 Delaware Funding Corp., 2.500%, due 11/15/01 5,981,250 5,000,000 Edison Asset Securitization 3.500%, due 10/04/01 4,998,542 5,000,000 Edison Asset Securitization 2.520%, due 11/26/01 4,980,400 7,000,000 Edison Asset Securitization 2.560%, due 11/27/01 6,971,627 10,000,000 Enterprise Funding Corp., 3.360%, due 12/07/01 9,937,467 5,000,000 Park Avenue Receivable, 3.520%, due 10/05/01 4,998,044 6,000,000 Park Avenue Receivable, 2.650%, due 10/26/01 5,988,958 5,000,000 Park Avenue Receivable, 2.550%, due 10/29/01 4,990,083 7,000,000 Preferred Receivable Funding, 3.500%, 10/01/01 7,000,000 10,000,000 Preferred Receivable Funding, 3.480%, 10/02/01 9,999,033 5,000,000 Preferred Receivable Funding, 3.500%, 10/11/01 4,995,139 5,000,000 Preferred Receivable Funding, 3.500%, 10/15/01 4,993,194 6,000,000 Windmill Funding Corp., 2.800%, due 10/16/01 5,993,000 5,000,000 Windmill Funding Corp., 3.480%, due 10/16/01 4,992,750 $ 7,000,000 Windmill Funding Corp., 3.520%, due 10/19/01 $ 6,987,680 5,000,000 Windmill Funding Corp., 3.520%, due 11/02/01 4,984,356 ------------ Total Asset-Backed Commercial Paper (Cost $156,694,645) 156,694,645 ------------ COMMERCIAL PAPER: 17.83% Bank Holding Companies: 1.20% 7,000,000 Wells Fargo and Co., 2.650%, due 11/01/01 6,984,026 ------------ Finance-Commercial: 1.20% 7,000,000 Transamerica Financial Corp., 3.540%, due 10/23/01 6,984,857 ------------ Life/Health Insurance: 1.03% 6,000,000 American General Corp., 3.540%, due 10/30/01 5,982,890 ------------ Miscellaneous Business Credit Institutions: 0.86% 5,000,000 Eksportfinans ASA, 3.390%, due 11/19/01 4,976,929 ------------ Multi-line Insurance: 0.86% 5,000,000 Aegon Funding Corp., 3.520%, due 11/07/01 4,981,911 ------------ Perfumes, Cosmetics, and other Toilet Preparations: 1.19% 7,000,000 Gillette Co., 3.240%, due 03/04/02 6,902,980 ------------ Personal Credit Institutions: 5.50% 6,000,000 American General Finance Corp., 3.530%, due 11/01/01 5,981,761 6,000,000 American General Finance Corp., 2.850%, due 12/14/01 5,964,850 10,000,000 Ford Motor Credit Company, 3.500%, due 10/11/01 9,990,278 10,000,000 Ford Motor Credit Company, 3.500%, due 11/06/01 9,965,000 ------------ 31,901,889 ------------ Pharmaceutical Preparations: 1.89% 5,000,000 Bristol Myers Squibb Co., 2.750%, due 10/17/01 4,993,889 6,000,000 Bristol Myers Squibb Co., 2.650%, due 10/29/01 5,987,633 ------------ 10,981,522 ------------ Savings Institutions, Federally Chartered: 0.86% $ 5,000,000 General Electric Capital Corp., 3.530%, due 10/31/01 $ 4,985,292 ------------ Security Brokers, Dealers, and Flotation Companies: 3.24% 10,000,000 Credit Suisse First Boston, Inc., 2.950%, due 03/18/02 9,862,333 4,000,000 General Electric Capital Corp., 3.600%, due 03/29/02 3,928,400 5,000,000 Goldman Sachs Group, Inc., 3.620%, due 10/10/01 4,995,475 ------------ 18,786,208 ------------ Total Commercial Paper (Cost $103,468,504) 103,468,504 ------------ CORPORATE NOTES: 29.51% Bank Holding Companies: 10.94% 9,570,000 Bank of America Corp., 7.350%, due 04/03/02 9,683,706 4,000,000 Bank of America NA, 3.621%, due 05/20/02 4,003,316 5,000,000 Chase Manhattan Corp., 3.820%, due 12/10/01 5,003,737 7,000,000 Chase Manhattan Corp., 3.916%, due 01/03/02 7,003,130 10,000,000 Chase Manhattan Corp., 3.609%, due 02/22/02 10,005,457 7,000,000 Fleet Boston Financial Corp., 3.819%, due 05/01/02 7,008,559 6,000,000 Nationsbank Corp., 3.280%, due 06/25/02 6,010,249 7,500,000 Wells Fargo and Co., 6.500%, due 09/03/02 7,690,681 7,000,000 Wells Fargo and Co., 3.720%, due 10/30/02 7,014,210 ------------ 63,423,045 ------------ See Accompanying Notes to Financial Statements 82 ING Pilgrim Money Market Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- Management Services: 1.72% $10,000,000 Verizon Global Funding, 3.180%, due 07/15/02 $ 10,000,338 ------------ National Commercial Banks: 5.33% 5,000,000 Bank One NA Illinois, 6.600%, due 10/24/01 5,000,000 5,000,000 Bank One NA Illinois, 3.756%, due 02/07/02 5,002,785 5,000,000 Bank One NA Illinois, 5.150%, due 02/08/02 5,000,000 7,725,000 CitiCorp, 9.500%, due 02/01/02 7,839,080 3,000,000 CitiCorp, 2.683%, due 06/24/02 3,002,582 5,000,000 Fleet Boston Financial Corp., 9.000%, due 12/01/01 5,043,386 ------------ 30,887,833 ------------ Personal Credit Institutions: 2.07% 5,000,000 Associates Corp., 3.629%, due 02/22/02 5,003,496 7,000,000 Associates Corp., 3.779%, due 05/01/02 7,007,288 ------------ 12,010,784 ------------ Savings Institutions, Federally Chartered: 0.90% 5,318,000 Federal National Mortgage Association, 3.200%, due 02/28/02 5,247,093 ------------ Security Brokers, Dealers, and Flotation Companies: 3.90% 5,000,000 Merrill Lynch and Co., 6.690%, due 11/13/01 5,000,000 5,000,000 Merrill Lynch and Co., 3.750%, due 01/28/02 5,002,362 5,000,000 Merrill Lynch and Co., 4.300%, due 04/24/02 5,000,000 2,500,000 Merrill Lynch and Co., 2.834%, due 05/31/02 2,502,900 5,000,000 Merrill Lynch and Co., 7.250%, due 07/26/02 5,132,659 ------------ 22,637,921 ------------ Telephone Communications: 4.65% $10,000,000 BellSouth Corp., 4.287%, due 04/26/02 $ 9,999,261 5,000,000 BellSouth Telecommunications, Inc., 3.443%, due 01/04/02 5,000,000 7,000,000 SBC Communications, Inc., 3.131%, due 03/14/02 7,000,000 5,000,000 SBC Communications, Inc., 4.250%, due 06/01/02 5,000,000 ------------ 26,999,261 ------------ Total Corporate Notes (Cost $171,206,275) 171,206,275 ------------ CERTIFICATES OF DEPOSIT: 22.23% Foreign Bank and Branches: 17.92% 4,000,000 Abbey National Treasury Services PLC, 5.210%, due 02/20/02 3,999,851 5,000,000 Abbey National Treasury Services PLC, 4.520%, due 04/17/02 4,997,883 5,000,000 Barclays Bank PLC, 5.320%, due 10/09/01 5,000,080 10,000,000 Barclays Bank PLC, 5.290%, due 12/10/01 10,001,084 4,000,000 Barclays Bank PLC, 4.290%, due 04/25/02 3,998,165 11,000,000 Canadian Imperial Bank NY Yankee, 5.190%, due 02/20/02 11,000,000 6,000,000 Deutsche Bank AG, 3.610%, due 10/12/01 5,999,980 7,000,000 Lloyds Bank PLC, 3.555%, due 11/05/01 7,000,152 5,000,000 Lloyds Bank PLC, 5.200%, due 01/25/02 5,001,376 10,000,000 Rabobank Nederland, 3.600%, due 10/23/01 10,000,058 10,000,000 Royal Bank Scotland, 3.510%, due 10/05/01 10,000,011 10,000,000 Toronto Dominion Bank Ltd., 2.690%, due 10/31/01 10,000,166 5,000,000 Toronto Dominion Bank Ltd., 3.655%, due 10/04/02 5,000,246 6,000,000 UBS AG Stamford CT Yankee, 6.350%, due 12/07/01 6,000,000 6,000,000 UBS AG Stamford CT Yankee, 3.638%, due 09/27/02 5,999,706 ------------ 103,998,758 ------------ National Commercial Banks: 2.59% $ 5,000,000 Bank One NA Illinois, 4.100%, due 05/06/02 $ 5,000,000 10,000,000 State Street Boston Corp., 3.470%, due 11/14/01 10,000,000 ------------ 15,000,000 ------------ Savings Institutions, Federally Chartered: 1.72% 5,000,000 Household Finance Corp., 3.540%, due 11/05/01 5,000,000 5,000,000 Household Finance Corp., 3.450%, due 11/21/01 5,000,000 ------------ 10,000,000 ------------ Total Certificates of Deposit (Cost $128,998,758) 128,998,758 ------------ REPURCHASE AGREEMENT: 4.07% 23,635,000 State Street Repurchase Agreement dated 09/28/01, 3.200% due 10/01/01, $23,641,303 to be received upon repurchase (Collateralized by $23,495,000 FNMA, 4.450% Market Value $24,112,754, due 06/25/03) 23,635,000 ------------ Total Investments in Securities (Cost $584,003,182) 100.65% $584,003,182 Other Assets and Liabilities-Net -0.65% (3,787,611) ------ ------------ Net Assets 100.00% $580,215,571 ====== ============ See Accompanying Notes to Financial Statements 83 Lexington Money Market Trust Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited) -------------------------------------------------------------------------------- Principal Amount Security Value ------ -------- ----- Commercial Paper 95.91% $2,500,000 AIG Funding, Inc., 3.380%, due 11/02/01 $ 2,492,489 1,600,000 Alcoa, Inc., 3.400%, due 10/26/01 1,596,222 2,600,000 Alfa Corp., 2.650% due 10/24/01 2,595,598 1,450,000 American General Corp., 3.490%, due 10/02/01 1,449,859 2,500,000 American Honda Finance, 3.540%, due 10/09/01 2,498,033 2,000,000 Archer Daniels Midland Co., 2.400%, due 10/05/01 1,999,467 2,100,000 Cooperative Association Tractor Dealers, 3.410%, due 10/01/01 2,100,000 400,000 Countrywide Home Loans, Inc., 3.050%, due 10/03/01 399,932 2,500,000 Dow Chemical Co., 3.630% due 10/12/01 2,497,227 2,500,000 Dupont E I De Nemours @ Co., 3.020%, due 10/05/01 2,499,161 1,800,000 First Data Corp., 3.500%, due 10/04/01 1,799,475 1,000,000 General Electric Capital Corp., 3.640%, due 10/02/01 999,899 1,500,000 General Electric Capital Services, Inc., 3.510%, due 10/10/01 1,498,684 $2,500,000 Goldman Sachs Group LP, 3.050%, due 10/23/01 $ 2,495,340 2,000,000 Great West Life and Annuity Insurance, 3.650%, due 10/15/01 1,997,161 2,500,000 International Business Machines Corp., 3.410%, due 10/12/01 2,497,395 2,000,000 May Department Stores Co., 3.410%, due 10/11/01 1,998,111 2,400,000 McGraw Hill, Inc., 3.000%, due 10/26/01 2,395,000 2,500,000 Nike, Inc., 2.600%, due 10/09/01 2,498,556 2,200,000 Paccar Financial Corp., 2.500%, due 10/05/01 2,199,389 2,500,000 Salomon Smith Barney Holdings, Inc., 3.480%, due 10/02/01 2,499,758 2,500,000 Systems United Corp., 3.050%, due 10/11/01 2,497,882 2,500,000 Verizon Communications, Inc., 3.000%, due 10/05/01 2,499,167 2,500,000 Volkswagon Of America, Inc., 3.500%, due 10/09/01 2,498,056 2,500,000 Walgreen Co., 3.480%, due 10/03/01 2,499,517 2,400,000 Wisconsin Corp. Central Credit Union, 3.150%, due 10/03/01 2,399,580 ------------ Total Commercial Paper (Cost $55,400,958) 55,400,958 ------------ U.S. TREASURY OBLIGATIONS: 4.32% $2,500,000 U.S. Treasury Bill, 2.490%, due 10/25/01 $ 2,495,850 ------------ Total U.S. Treasrury Obligations (Cost $2,495,850) 2,495,850 ------------ Total Investments in Securities (Cost $57,896,808) 100.23% $ 57,896,808 ------ ------------ Other Assets and Liabilities-Net -0.23% (135,365) ------ ------------ Net Assets 100.00% $ 57,761,443 ====== ============ See Accompanying Notes to Financial Statements 84 Lexington Money Market Trust Fund PORTFOLIO OF INVESTMENTS as of September 30, 2001 (Unaudited)(Continued) -------------------------------------------------------------------------------- Percentage of Industry Net Assets -------- ---------- Athletic Footwear 4.33% Auto - Cars/ Light Trucks 4.32% Chemicals - Diversified 8.65% Computer 4.32% Credit Union 4.15% Data Processing/Management 3.12% Diversified Financial Services 8.66% Finance - Auto Loans 8.13% Finance - Investment Banker/Broker 8.65% Finance - Mortgage Banker 0.69% Food - Flour and Grain 3.46% Government 4.32% Insurance 4.32% Life/Health Insurance 5.97% Metal - Aluminum 2.76% Multi-line Insurance 4.49% Multimedia 4.15% Retail - Drug Store 4.33% Retail - Major Department Store 3.46% S&L/Thrifts - Western U.S. 4.32% Special Purpose Entity 3.63% Other Assets and Liabilities, Net -0.23% ------ 100.00% ====== See Accompanying Notes to Financial Statements 85 INVESTMENT MANAGER ING Pilgrim Investments, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258 ADMINISTRATOR ING Pilgrim Group, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258 DISTRIBUTOR ING Pilgrim Securities, Inc. 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258-2034 1-800-334-3444 TRANSFER AGENT DST Systems, Inc. P.O. Box 419368 Kansas City, Missouri 64141-6368 CUSTODIAN State Street Bank & Trust 801 Pennsylvania Avenue Kansas City, Missouri 64105 LEGAL COUNSEL Dechert 1775 Eye Street, N.W. Washington, D.C. 20006 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 1670 Broadway, Suite 1000 Denver, Colorado 80202 Prospectus containing more complete information regarding the Funds, including charges and expenses, may be obtained by calling ING Pilgrim Securities, Inc., Distributor, at 1-800-334-3444. Please read the prospectus carefully before you invest or send money. INCABCSEMIAN093001-112601