-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U3usSeHv2oPrkn4oA4iQQwAfF/xAqUMffEa52aZEYtVFGvIBIW+ggafZ62IVDXId QpSdistTko8ZH2UYPg+y0w== 0000950147-01-500531.txt : 20010313 0000950147-01-500531.hdr.sgml : 20010313 ACCESSION NUMBER: 0000950147-01-500531 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010312 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM ADVISORY FUNDS INC CENTRAL INDEX KEY: 0000944689 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 954532342 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-09040 FILM NUMBER: 1566069 BUSINESS ADDRESS: STREET 1: 2 RENAISSANCE SQUARE 12TH FLR STREET 2: 40 NORTH CENTRAL CITY: PHOENIX STATE: AZ ZIP: 85004-4424 BUSINESS PHONE: 6024178100 MAIL ADDRESS: STREET 1: 2 RENAISSANCE SQUARE 12TH FLR STREET 2: 40 NORTH CENTRAL CITY: PHOENIX STATE: AZ ZIP: 85004 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM INVESTMENT FUNDS INC/MD CENTRAL INDEX KEY: 0000061448 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 136066974 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-01939 FILM NUMBER: 1566070 BUSINESS ADDRESS: STREET 1: TWO RENAISSANCE SQUARE 40 N CENTRAL STREET 2: STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 BUSINESS PHONE: 6024178100 MAIL ADDRESS: STREET 1: TWO RENAISSANCE SQ STREET 2: 40 N CENTRAL STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM INVESTMENT FUNDS INC DATE OF NAME CHANGE: 19950503 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM MAGNACAP FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MAGNACAP FUND INC DATE OF NAME CHANGE: 19850701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM GOVERNMENT SECURITIES INCOME FUND INC CENTRAL INDEX KEY: 0000746575 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 222544280 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-04031 FILM NUMBER: 1566071 BUSINESS ADDRESS: STREET 1: TWO RENAISSANC SQUARE 40 N CENTRAL STREET 2: STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 BUSINESS PHONE: 6024178100 MAIL ADDRESS: STREET 1: TWO RENAISSANCE SQ STREET 2: 40 N CENTRAL STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM GOVERNMENT SECURITIES INC DATE OF NAME CHANGE: 19950530 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM GNMA FUND DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM MUTUAL FUNDS CENTRAL INDEX KEY: 0000895430 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07428 FILM NUMBER: 1566072 BUSINESS ADDRESS: STREET 1: TWO RENAISSANCE SQUARE STREET 2: 40 NORTH CENTRAL AVE #1200 CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6024178100 MAIL ADDRESS: STREET 1: TWO RENAISSANCE SQUARE STREET 2: 40 NORTH CENTRAL AVE #1200 CITY: PHOENIX STATE: AZ ZIP: 85004 FORMER COMPANY: FORMER CONFORMED NAME: NICHOLAS APPLEGATE MUTUAL FUNDS DATE OF NAME CHANGE: 19930328 N-30D 1 e6473.txt SEMI-ANNUAL REPORT DATED 12/31/2000 Semi-Annual [LOGO] Report December 31, 2000 Class Q U.S. EQUITY FUNDS Pilgrim MagnaCap Pilgrim LargeCap Leaders Pilgrim LargeCap Growth Pilgrim MidCap Value Pilgrim MidCap Growth Pilgrim SmallCap Growth INCOME FUNDS Pilgrim Government Securities Income Pilgrim Strategic Income Pilgrim High Yield Pilgrim High Yield II EQUITY & INCOME FUNDS Pilgrim Balanced Pilgrim Convertible - ------- Pilgrim Funds - ------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- Letter to Shareholders .................... 1 Portfolio Managers' Reports: U.S. Equity Funds ....................... 2 Income Funds ............................ 14 Equity & Income Funds ................... 22 Index Descriptions ........................ 26 Statements of Assets and Liabilities ...... 28 Statements of Operations .................. 34 Statements of Changes in Net Assets ....... 37 Financial Highlights ...................... 43 Notes to Financial Statements ............. 55 Portfolios of Investments ................. 73 Shareholder Meetings ...................... 100 - ------- Pilgrim Funds - ------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- Dear Shareholders: We are pleased to present the December 31, 2000 Semi-Annual Report for the Q class of the Pilgrim Funds.(1) On September 1, 2000, ING Groep N.V. (NYSE: ING) acquired ReliaStar Financial Corp., the indirect parent company of Pilgrim Investments, Inc., Adviser to the Funds, Pilgrim Securities, Inc., Distributor to the Funds and Pilgrim Group, Inc., Administrator to the Funds. In conjunction with the acquisition, 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. Our fund family now has many funds of varying types which provide core investment choices for the serious investor. There are twelve 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 investment experience.(SM) Sincerely, ING Pilgrim Group, Inc. February 8, 2001 - ---------- (1) The Semi-Annual Report for other Pilgrim Fund classes has been issued separately. 1 - ----------- U.S. Equity Funds - ----------- Portfolio PILGRIM MAGNACAP FUND Managers' Report - -------------------------------------------------------------------------------- Portfolio Management Team: Howard N. Kornblue, Senior Vice President and Senior Portfolio Manager; G. David Underwood, CFA, Vice President and Director of Research; Robert M. Kloss, Equity Analyst. Goal: The Fund seeks growth of capital, with dividend income as a secondary consideration. As a disciplined investment philosophy fund, MagnaCap invests in a very select group of companies that have been able to sustain growth over a 10-year period. In selecting portfolio securities, companies are generally assessed with reference to the following criteria as ideal: * A company must pay or had the financial capability from its operations to pay a dividend in 8 out of the last 10 years. * A company must have increased its dividend or had the financial capability from its operations to have increased its dividend at least 100% over the past 10 years. * Dividend payout must be less than 65% of current earnings. * Long-term debt should be no more than 25% of the company's total capitalization, or a company's bonds must be rated at least A- or A-3. * The current price should be in the lower half of the stock's price/earnings ratio range for the past ten years, or the ratio of the price of the company's stock at the time of purchase to its anticipated future earnings must be an attractive value in relation to the average for its industry peer group or that of the S&P 500 Composite Stock Price Index. Market Overview: We have just completed one of the most extraordinary years in stock market history. Last year's massacre of technology and Internet stocks marked the end of one of the U.S.'s biggest financial mania's of the last 100 years. Yet it was a massacre that left much of the market relatively unscathed. The Nasdaq Composite Index plunged 39.3% to 2,470.5, the worst year since it was created in 1971, giving back almost all of 1999's record 86% gain. Its peak to trough 54% plunge represented a loss of $3.3 trillion, equivalent to one third of the houses in America disappearing. The Dow Jones Industrial Average fell only 6.2% to 10,786.9 for the year. Though that broke a nine-year winning streak and represented its worst calendar year since 1981, the Dow's peak to trough decline of just 16% was less than that of 1990, failing to meet the 20% bear market rule of thumb. The S&P 500 Index lost 10.1% to 1,320.3 last year, its worst since 1977. The Dow and the S&P 500 have given up less than a sixth of what they made when they tripled between 1995 and 1999. Excess in the market has been liquidated without destroying the entire market. By contrast, the 1973-74 bear market took down everything. The NASDAQ's 60% slide then was the only time it has fallen further than last year. The Dow lost 45% and the S&P 500 48%. Last year tech stocks repeatedly took off in a series of short lived rallies after their big drop in the spring, only to fall back to new lows each time. The top performing stocks year, included some that had been given up for dead in the previous notably utilities and health care stocks, including hospital companies, drug distributors, medical device makers and drug companies. Among utility stocks, the strongest were the natural gas producers, which benefited from soaring natural gas prices and worries about winter shortages. The big losers were almost all technology related, and included the names of beleaguered Internet related companies whose businesses didn't hold up. Performance: For the one year ended December 31, 2000, the Fund's Class Q shares gained 1.33%, compared to the S&P 500 Index, which declined 9.11% for the same period. Portfolio Specifics: We believe that the Fund's past success can be attributed to the very explicit investment criteria, which normally determine the kinds of companies that qualify for inclusion in the portfolio. Out of a universe of approximately 4,000 publicly traded companies, and based upon both in-house and external research, we aim to select the 40 to 60 equities which we believe will be most likely to exhibit a high degree of performance. Among the top performing holdings were Alliance Capital Management (financial services), AFLAC (insurance), Bank of New York (banking), Duke Energy (utilities), Philip Morris (consumer), and Washington Mutual (financial services). At the end of December 2000, the top industry groups were telecommunications, oil and gas producers, insurance, retail and banks. The top stock holdings were Baxter International, Williams Companies, Conoco, McDonalds, and Automatic Data Processing. Market Outlook: Going forward, we will continue to employ a "bottom-up" approach to stock selection, drawing from the pool of companies that come closest to meeting the Fund's strict investment criteria given market conditions, the circumstances of the company and the sector within which it falls. There is a question if last year's Nasdaq decline is the vanguard of a broad based bear market. The answer depends mostly on whether the economy's downshift in recent months is a pause in the longest expansion in a century the first stage of a recession. Just as the Federal Reserve's raising interest rates through last May eventually sank stocks and braked the speeding economy, as the Federal Reserve now reverse course and lowers rates, the economy and stock prices should move forward. Fed easing usually outweighs earnings deceleration in driving stock prices. During the past thirty years, the equity market has risen on both a six-month and one year horizon from the initiation of a Fed easing process, with two key exceptions. Those exceptions were the mid-1970s and early 1980s, when the U.S. economy fell into deep slumps that were still underway a year after the Fed began to ease. Even including those two periods, the S&P 500 was up an average of 12% one year after the Fed began easing policy. Excluding them, the S&P 500 was up an average of 22%. Unless one believes the U.S. economy is about to crumble, Fed easing would mark a buying opportunity for equities. We believe stock prices can continue to rise selectively in 2001 in concert with improvements in corporate earnings and cash flows. Accordingly, we intend to remain almost fully invested, selecting stocks on the basis described at the beginning of this paragraph. 2 Portfolio Managers' Report PILGRIM MAGNACAP FUND - -------------------------------------------------------------------------------- Average Annual Total Returns for the periods ended December 31, 2000 ----------------------------------- Since Inception of Class Q 1 Year 11/22/99 ------ -------- Class Q 1.33% 1.19% S&P 500 Index(1) -9.11% -3.47% Based upon a $10,000 intitial investment, the table above illustrates the total return of Pilgrim MagnaCap Fund against the Standard & Poor's 500 Composite Stock Price 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 the 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 letter 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. Portfolio holdings are subject to change daily. (1) Since inception performance for the index is shown from 12/01/99. Principal Risk Factor(s): Exposure to financial and market risks that accompany investments in equities. See accompanying index descriptions on page 26. 3 - ----------- U.S. Equity Funds - ----------- Portfolio PILGRIM LARGECAP LEADERS FUND Managers' Report - -------------------------------------------------------------------------------- Portfolio Management Team: G. David Underwood, CFA, Senior Vice President and Senior Portfolio Manager; Mariela Clark, Equities Research Analyst. Goal: The LargeCap Leaders Fund seeks long-term capital appreciation by investing in a portfolio of stocks of U.S. companies with market capitalizations over $10 billion and believed to be leaders in their industry. Market Overview: During the 6-month period ending December 31, 2000, the U.S. equity market was characterized by: * An early, modest recovery in the major averages followed by an extended, but gradual decline into the end of 2000. * A shift in investor sentiment from opportunistic, to mounting anxiety and finally to capitulation. * Long overdue reconnection of fundamentals, valuations and stock prices lost under the recent mantle of "New Era" thinking. The second half of the year 2000 proved to be one of the most rugged periods for the equity markets. For example, both the S&P 500 and the NASDAQ Composite indices lost ground in amounts not seen in 20-30 years. Even the venerable Dow Jones Industrial gave up a modest amount. As the period began, the market averages recovered nearly to the highs experienced in early 2000. However, this gave way to declines as it became clear that economic growth and corporate profits were decelerating, the result of prolonged credit restraint by the Federal Reserve. The lofty valuations of technology-related stocks, primarily, could no longer be substantiated. Since these groups comprised the major proportion of the indices, the decline in the market averages was visibly pronounced. This wasn't the case for smaller and less technology-driven stocks, which held up rather well. In fact, "old economy", defensive representatives such as utilities and financials turned in strong performances. Although discomforting to go through, in the long-term, the type of equity markets we've just passed through are constructive. It was apparent entering 2000 the markets needed to redefine valuations on a number of counts. There had been an unprecedented, extremely wide valuation disparity undermining the balance of the markets. Investors deployed capital to the so-called "New Era" companies and withheld it from more mainstream areas. Thus prices in the favored sectors were overly inflated, while the others were unduly depressed. The 2000 markets narrowed this disparity and brought back into favor fundamental approaches to portfolio construction in contrast to the momentum techniques that held sway over the prior two years. Performance: For the period from inception April 4, 2000 through December 31, 2000, the Fund's Class Q shares returned -3.17% compared to a return of -11.14% for the S&P 500 Index and a return of 5.84% for the S&P/BARRA Value Index. Portfolio Specifics: During the period, we positioned the fund to take advantage of favorable fundamentals in natural gas. Thus Energy made the most positive impact in addition to the Healthcare, Financial and Basic Industries sectors. Holdings in Anadarko Petroleum, Merck, Merrill Lynch and Alcoa appreciated significantly. Market Outlook: A better overall balance within the markets and relaxing monetary policy portend a very favorable environment for stocks. The economy is now less prone to decline and with much more reasonable valuations underlying them, we believe stocks should benefit, resuming a more sustainable price advance. 4 Portfolio Managers' Report PILGRIM LARGECAP LEADERS FUND - -------------------------------------------------------------------------------- Average Annual Total Returns for the Period Ended December 31, 2000 ---------------------------------- Since Inception of Class Q 4/4/00 ------ Class Q -3.17% S&P 500 Index -11.14%(1) S&P/BARRA Value Index 5.84%(1) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim LargeCap Leaders Fund against the S&P 500 Index and the S&P/Barra Value 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 Adviser has contractually agreed to waive or defer its management fee and to pay other operating expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no deferral 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 letter 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. Portfolio holdings are subject to change daily. (1) Since inception performance for the index is shown from 04/01/00. Principal Risk Factor(s): Exposure to financial and market risks that accompany investments in equities. See accompanying index descriptions on page 26. 5 - ----------- U.S. Equity Funds - ----------- Portfolio PILGRIM LARGECAP GROWTH FUND Manager's Report - -------------------------------------------------------------------------------- Portfolio Management: Mary Lisanti, Executive Vice-President and Portfolio Manager.* Goal: The LargeCap Growth Fund (the "Fund"or "LargeCap Growth") seeks to maximize long-term capital appreciation by investing primarily in stocks from a universe of U.S. companies with market capitalizations corresponding to the upper 90% of the Russell 1000 Growth Index. Market Overview: The second half of 2000 turned out to be almost a year in itself, as the broad slide in the markets accelerated after the year began with a strong surge through March. The Federal Reserve's policy of restraining the U.S. economy's growth through interest rate hikes totaling 175 basis points was successful, and it may have been too successful as the stock and bond markets were pricing a severe slowdown or even an outright recession as we closed the year 2000. While the U.S. economy grew 8.3% in the final quarter of 1999, the Fed had engineered a slowdown to cut economic growth to 2.2% by the third quarter of 2000. The final six months of the year saw a dramatic reduction in the rate of earnings growth, particularly for technology and telecommunications shares, and companies had difficulty in raising capital in this economic backdrop. Adding to the economic woes plaguing the market was the political uncertainty surrounding the Presidential election. Equity investors were clearly defensive in this environment, as sectors such as utilities, basic materials, and healthcare outperformed the market, while financial stocks got a lift when the Federal Reserve signaled that it had finished raising interest rates. After spectacular gains in 1999 and early 2000, the telecommunications and technology sectors suffered as the demand outlook dimmed, and their access to the capital markets virtually evaporated. Returns were widely dispersed across the major U.S. equity benchmarks on both the positive and negative sides. The Dow Industrials gained 3.24% in the second half of the year, but finished the entire year 2000 down 6.18%. The best performing benchmark, the S&P Midcap Index, continued to show strong returns in the final six months of the year with a gain of 7.83%; in 2000, the benchmark earned 17.50%. On the down side, the NASDAQ Composite plummeted 37.71% in the back half of 2000, and the technology-heavy benchmark finished its worst year in history with a negative 39.29% return. Small cap stocks also struggled, as the Russell 2000 dropped 5.88% in the second half of 2000 and finished down 3.02% for the year. Finally, the S&P 500 dropped 8.72% in the final six months of the year and fell 9.11% for the year 2000. Performance: For the one year ended December 31, 2000, the Fund's Class Q shares returned -19.12% compared to a return of -22.42% for the Russell 1000 Growth Index. The Fund was hurt by its heavy weightings in technology stocks, but it was helped by its positions in healthcare and energy. Portfolio Specifics: Early in the spring, the Fund moved out of technology shares and into more "defensive" names, and we exited the year with significant weightings in the healthcare, telecommunications and financial sectors. The visibility of earnings growth makes the healthcare sector attractive, while valuations in the telecommunications sector have created some buying opportunities. We anticipate the Federal Reserve will be more accommodative with monetary policy, providing an excellent backdrop for financial stocks. In addition, we have been using a slightly higher cash balance to add select telecommunications and semiconductor shares at attractive valuations. The market began to price in a recession at the end of the fourth quarter, and looking ahead, we would seek to get more aggressive in the technology sector as the Federal Reserve lowers rates in response to the sharp economic slowdown. Among the individual stocks that were significant contributors to performance during the second half of 2000 were UnitedHealth Group, Fannie Mae, Bristol-Myers Squibb, and Cablevision Systems. Market Outlook: The political events that took place at the end of 2000 temporarily took the focus off a market that continues to increase in complexity. The reality is that the US economy has slowed dramatically and that the corporate earnings outlook has become increasingly unstable. However, this instability will create opportunities for individual companies and money managers to significantly outperform their peers, as the secular changes in the modern economy will outweigh the cyclical changes. The powerful cyclical trends of the recent past have masked many fundamental transformations that have taken place due to technological innovation and globalization. In an economy that will continue to grow but at a slower rate, company performance will vary widely, and thus stock prices will vary as well. We have referred to this in the past as a "market of stocks," where certain companies can significantly outperform, versus a "stock market," where broad sector bets are profitable. As we start to see dispersions in earnings growth within sectors, active portfolio managers will have the opportunity to significantly outperform their benchmarks. In this environment, the combination of a top-down thematic approach and bottoms-up research with a focus on identifying inflection points will provide a formula for identifying potential stocks within the broader market that will flourish in the changing economy. * Effective October 1, 2000 Pilgrim Investments, Inc. began providing investment advisory services directly for the Fund. Prior to that date the Fund had been sub-advised by Nicholas Applegate Capital Management. 6 Portfolio Manager's Report PILGRIM LARGECAP GROWTH FUND - -------------------------------------------------------------------------------- Average Annual Total Returns for the periods ended December 31, 2000 ----------------------------------- Since Inception 1 Year 7/21/97 ------ ------- Class Q -19.12% 33.90% Russell 1000 Growth Index -22.42% 11.19%(1) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim LargeCap Growth Fund against the Russell 1000 Growth 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 Adviser has contractually agreed to waive or defer its management fees and to pay other operating expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no deferral 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 letter 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. Portfolio holdings are subject to change daily. (1) Since inception performance for the Index is shown from 8/1/97. Principal Risk Factor(s): Exposure to financial and market risks that accompany investments in equities. See accompanying index descriptions on page 26. 7 - ----------- U.S. Equity Funds - ----------- Portfolio PILGRIM MIDCAP VALUE FUND Managers' Report - -------------------------------------------------------------------------------- Portfolio Management Team: G. David Underwood, CFA, Vice President and Senior Portfolio Manager; Mariela Clark, Equities Research Analyst. Goal: The MidCap Value Fund seeks long-term capital appreciation by investing in a portfolio of attractively valued stocks of U.S. companies with market capitalizations between $1.0 billion and $8.0 billion. Market Overview: During the 6-month period ending December 31, 2000, the U.S. equity market was characterized by: * An early, modest recovery in the major averages followed by an extended, but gradual decline into the end of 2000. * A shift in investor sentiment from opportunistic, to mounting anxiety and finally to capitulation. * Long overdue reconnection of fundamentals, valuations and stock prices lost under the recent mantle of "New Era" thinking. The second half of the year 2000 proved to be one of the most rugged periods for the equity markets. For example, both the S&P 500 and the NASDAQ Composite indices lost ground in amounts not seen in 20-30 years. Even the venerable Dow Jones Industrial gave up a modest amount. As the period began, the market averages recovered nearly to the highs experienced in early 2000. However, this gave way to declines as it became clear that economic growth and corporate profits were decelerating, the result of prolonged credit restraint by the Federal Reserve. The lofty valuations of technology-related stocks, primarily, could no longer be substantiated. Since these groups comprised the major proportion of the indices, the decline in the market averages was visibly pronounced. This wasn't the case for smaller and less technology-driven stocks, which held up rather well. In fact, "old economy", defensive representatives such as utilities and financials turned in strong performances. Although discomforting to go through, in the long-term, the type of equity markets we've just passed through are constructive. It was apparent entering 2000 the markets needed to redefine valuations on a number of counts. There had been an unprecedented, extremely wide valuation disparity undermining the balance of the markets. Investors deployed capital to the so-called "New Era" companies and withheld it from more mainstream areas. Thus prices in the favored sectors were overly inflated, while the others were unduly depressed. The 2000 markets narrowed this disparity and brought back into favor fundamental approaches to portfolio construction in contrast to the momentum techniques that held sway over the prior two years. Performance: For the period from inception January 3, 2000 through December 31, 2000, the Fund's Class Q shares returned 9.31% compared to a return of 8.25% for the Russell MidCap Index and a return of 19.18% for the Russell MidCap Value Index. Portfolio Specifics: Though fairly defensive throughout the period, the portfolio produced a positive return. It profited from favorable industry fundamentals in natural gas through very rewarding investments in Apache and Devon Energy. Wellpoint Health Networks was a standout performer as was Willamette Industries, which became takeover target. Market Outlook: A better overall balance within the markets and relaxing monetary policy portend a very favorable environment for stocks. The economy is now less prone to decline and with much more reasonable valuations underlying them, we believe stocks should benefit, resuming a more sustainable price advance. 8 Portfolio Managers' Report PILGRIM MIDCAP VALUE FUND - -------------------------------------------------------------------------------- Average Annual Total Returns for the Period Ended December 31, 2000 ---------------------------- Since Inception of Class Q 1/3/00 ------ Class Q 9.31% Russell MidCap Index 8.25%(1) Russell MidCap Value Index 19.18%(1) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim MidCap Value Fund against the Russell Midcap Index and Russell MidCap Value 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 Adviser has contractually agreed to waive or defer its management fee and to pay other operating expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no deferral 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 letter 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. Portfolio holdings are subject to change daily. (1) Since inception performance for index is shown from 01/01/00. Principal Risk Factor(s): Exposure to financial and market risks that accompany investments in equities. To the extent the Fund invests in medium-sized companies, it may entail greater price variability than investing in larger companies. See accompanying index descriptions on page 26. 9 - ----------- U.S. Equity Funds - ----------- Portfolio PILGRIM MIDCAP GROWTH FUND Manager's Report - -------------------------------------------------------------------------------- Portfolio Management: Mary Lisanti, Executive Vice-President and Portfolio Manger.* Goal: The MidCap Growth Fund (the "Fund" or "MidCap Growth") seeks long-term capital appreciation by investing at least 65% of its total assets in equity securities of medium-sized U.S. companies, and at least 75% of its total assets in common stocks that the portfolio managers feel have been above average prospects for growth. Market Overview: The second half of 2000 turned out to be almost a year in itself, as the broad slide in the markets accelerated after the year began with strong surge through March. The Federal Reserve's policy of restraining the US economy's growth through interest rate hikes totaling 175 basis points was successful, and it may have been too successful as the stock and bond markets were pricing a severe slowdown or even an outright recession as we closed the year 2000. While the US economy grew 8.3% in the final quarter of 1999, the Fed had engineered a slowdown to cut economic growth to 2.2% by the third quarter of 2000. The final six months of the year saw a dramatic reduction in the rate of earnings growth, particularly for technology and telecommunications shares, and companies had difficulty in raising capital in this economic backdrop. Adding to the economic woes plaguing the market was the political uncertainty surrounding the Presidential election. Equity investors were clearly defensive in this environment, as sectors such as utilities, basic materials, and healthcare outperformed the market, while financial stocks got a lift when the Federal Reserve signaled that it had finished raising interest rates. After spectacular gains in 1999 and early 2000, the telecommunications and technology sectors suffered as the demand outlook dimmed, and their access to the capital markets virtually evaporated. Returns were widely dispersed across the major US equity benchmarks on both the positive and negative sides. The Dow Industrials gained 3.24% in the second half of the year, but finished the entire year 2000 down 6.18%. The best performing benchmark, the S&P Midcap Index, continued to show strong returns in the final six months of the year with a gain of 7.83%; in 2000, the benchmark earned 17.50%. On the down side, the NASDAQ Composite plummeted 37.71% in the back half of 2000, and the technology-heavy benchmark finished its worst year in history with a negative 39.29% return. Small cap stocks also struggled, as the Russell 2000 dropped 5.88% in the second half of 2000 and finished down 3.02% for the year. Finally, the S&P 500 dropped 8.72% in the final six months of the year and fell 9.10% for the year 2000. Performance: For the one year ended December 31, 2000, the Fund's Class Q shares returned -4.47% compared to a return of -11.75% for the Russell MidCap Growth Index. Portfolio Specifics: Early in the spring, the Fund moved out of technology shares and into more "defensive" names, and we exited the year with significant weightings in themes such as "Re-Energizing America," the "Life Sciences Revolution," and "Flourishing in the Managed Care Environment." These themes position the Fund to take advantage of the visibility and earnings growth prospects in the energy, utility, and select health care sectors. In addition, we have been using a slightly higher cash balance to add select telecommunications and semiconductor shares at attractive valuations. The market began to price in a recession at the end of the fourth quarter, and looking ahead, we would seek to get more aggressive in the technology sector as the Federal Reserve lowers rates in response to the sharp economic slowdown. Among the individual stocks that were significant contributors to performance during the second half of 2000 were Community Health Systems, EOG Resources, Quest Diagnostics, and PPL Corp. Market Outlook: The political events that took place at the end of 2000 temporarily took the focus off a market that continues to increase in complexity. The reality is that the US economy has slowed dramatically and that the corporate earnings outlook has become increasingly unstable. However, this instability will create opportunities for individual companies and money mangers to significantly outperform their peers, as the secular changes in the modern economy will outweigh the cyclical changes. The powerful cyclical trends of the recent past have masked many fundamental transformations that have taken place due to technological innovation and globalization. In an economy that will continue to grow but at a slower rate, company performance will vary widely, and thus stock prices will vary as well. We have referred to this in the past as a "market of stocks," where certain companies can significantly outperform, versus a "stock market," where broad sector bets are profitable. As we start to see dispersions in earnings growth within sectors, active portfolio managers will have the opportunity to significantly outperform their benchmarks. In this environment, the combination of a top-down thematic approach and bottoms-up research with a focus on identifying inflection points will seek to provide a formula for identifying stocks within the broader market that will flourish in the changing economy. * Effective April 1, 2000 Pilgrim Investments, Inc. began providing investment advisory services directly for the Fund. Prior to that date the Fund had been sub-advised by Nicholas Applegate Capital Management. 10 Portfolio Manager's Report PILGRIM MIDCAP GROWTH FUND - -------------------------------------------------------------------------------- Average Annual Total Returns for the Periods Ended December 31, 2000 ----------------------------------- Since Inception of Class Q 1 Year 5 Year 6/30/94 ------ ------ ------- Class Q -4.47% 23.93% 24.28% Russell MidCap Growth Index -11.75% 17.77% 19.63%(1) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim MidCap Growth Fund against the Russell MidCap Growth 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 Adviser has contractually agreed to waive or defer its management fees and to pay other operating expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no deferral 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 letter 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. Portfolio holdings are subject to change daily. (1) Since inception performance for the index is shown form 07/01/94. Principal Risk Factor(s): Exposure to financial and market risks that accompany investments in equities. To the extent the Fund invests in mid-size companies, stocks of mid-size companies may entail greater price volatility than those of larger companies. See accompanying index descriptions on page 26. 11 - ----------- U.S. Equity Funds - ----------- Portfolio PILGRIM SMALLCAP GROWTH FUND Manager's Report - -------------------------------------------------------------------------------- Portfolio Management: Mary Lisanti, Executive Vice-President and Portfolio Manager.* Goal: The SmallCap Growth Fund (the "Fund" or "SmallCap Growth") seeks maximum long-term capital appreciation by investing at least 65% of its total assets in equity securities of small U.S. companies, and at least 75% of its total assets in common stocks that the portfolio manager feels have above average prospects for growth. Market Overview: The second half of 2000 turned out to be almost a year in itself, as the broad slide in the markets accelerated after the year began with strong surge through March. The Federal Reserve's policy of restraining the US economy's growth through interest rate hikes totaling 175 basis points was successful, and it may have been too successful as the stock and bond markets were pricing a severe slowdown or even an outright recession as we closed the year 2000. While the US economy grew 8.3% in the final quarter of 1999, the Fed had engineered a slowdown to cut economic growth to 2.2% by the third quarter of 2000. The final six months of the year saw a dramatic reduction in the rate of earnings growth, particularly for technology and telecommunications shares, and companies had difficulty in raising capital in this economic backdrop. Adding to the economic woes plaguing the market was the political uncertainty surrounding the Presidential election. Equity investors were clearly defensive in this environment, as sectors such as utilities, basic materials, and healthcare outperformed the market, while financial stocks got a lift when the Federal Reserve signaled that it had finished raising interest rates. After spectacular gains in 1999 and early 2000, the telecommunications and technology sectors suffered as the demand outlook dimmed, and their access to the capital markets virtually evaporated. Returns were widely dispersed across the major US equity benchmarks on both the positive and negative sides. The Dow Industrials gained 3.24% in the second half of the year, but finished the entire year 2000 down 6.18%. The best performing benchmark, the S&P Midcap Index, continued to show strong returns in the final six months of the year with a gain of 7.83%; in 2000, the benchmark earned 17.50%. On the down side, the NASDAQ Composite plummeted 37.71% in the back half of 2000, and the technology-heavy benchmark finished its worst year in history with a negative 39.29% return. Small cap stocks also struggled, as the Russell 2000 dropped 5.88% in the second half of 2000 and finished down 3.02% for the year. Finally, the S&P 500 dropped 8.72% in the final six months of the year and fell 9.10% for the year 2000. Performance: For the one year ended December 31, 2000, the Fund's Class Q shares returned -5.40% compared to a return of -22.43% for the Russell 2000 Growth Index. Portfolio Specifics: Early in the spring, the Fund moved out of technology shares and into more "defensive" names, and we exited the year with significant weightings in themes such as "Re-Energizing America," the "Life Sciences Revolution," and "Flourishing in the Managed Care Environment." These themes position the Fund to take advantage of the visibility and earnings growth prospects of the energy, utility, and select health care industries. In addition, we have been using a slightly higher cash balance to add select telecommunications and semiconductor shares at attractive valuations. The market began to price in a recession at the end of the fourth quarter, and looking ahead, we would seek to get more aggressive in the technology sector as the Federal Reserve lowers rates in response to the sharp economic slowdown. Among the individual stocks that were significant contributors to performance during the second half of 2000 were Laboratory Corporation of America, American Eagle Outfitters, Lifepoint Hospitals, and Manugistics Group. Market Outlook: The political events that took place at the end of 2000 temporarily took the focus off a market that continues to increase in complexity. The reality is that the US economy has slowed dramatically and that the corporate earnings outlook has become increasingly unstable. However, this instability will create opportunities for individual companies and money mangers to significantly outperform their peers, as the secular changes in the modern economy will outweigh the cyclical changes. The powerful cyclical trends of the recent past have masked many fundamental transformations that have taken place due to technological innovation and globalization. In an economy that will continue to grow but at a slower rate, company performance will vary widely, and thus stock prices will vary as well. We have referred to this in the past as a "market of stocks," where certain companies can significantly outperform, versus a "stock market," where broad sector bets are profitable. As we start to see dispersions in earnings growth within sectors, active portfolio managers will have the opportunity to significantly outperform their benchmarks. In this environment, the combination of a top-down thematic approach and bottoms-up research with a focus on identifying inflection points will seek to provide a formula for identifying stocks within the broader market that will flourish in the changing economy. * Effective April 1, 2000 Pilgrim Investments, Inc. began providing investment advisory services directly for the Fund. Prior to that date the Fund had been sub-advised by Nicholas Applegate Capital Management. 12 Portfolio Manager's Report PILGRIM SMALLCAP GROWTH FUND - -------------------------------------------------------------------------------- Average Annual Total Returns for the Periods Ended December 31, 2000 ----------------------------------- Since Inception of Class Q 1 Year 5 Year 8/31/95 ------ ------ ------- Class Q -5.40% 20.16% 19.77% Russell 2000 Growth Index -22.43% 7.14% 7.39%(1) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim SmallCap Growth Fund against the Russell 2000 Growth 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 Adviser has contractually agreed to waive or defer its management fee and to pay other operating expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no deferral 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 letter 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. Portfolio holdings are subject to change daily. (1) Since inception performance for index is shown from 9/1/95. Principal Risk Factor(s): In exchange for higher growth potential, stocks of smaller companies may entail greater price volatility than those of larger companies. See accompanying index descriptions on page 26. 13 - ------ Income Funds - ------ PILGRIM GOVERNMENT Portfolio SECURITIES INCOME FUND Manager's Report - -------------------------------------------------------------------------------- Portfolio Management: Robert K. Kinsey, Vice-President & Senior Portfolio Manger. Goal: The Fund seeks high current income, consistent with liquidity and preservation of capital, by investing in securities issued or guaranteed by the U.S. Government and certain of its agencies and instrumentalities. Bond Market Overview: The investment grade bond market posted handsome returns in the year 2000 despite early pressure on the front end of the yield curve resulting from Fed tightenings and some major "credit bombs" among corporate issuers. The federal surplus enabled the Treasury Department to buyback outstanding debt, which prompted a dramatic curve flattening through the first half of the year. By the fourth quarter capital markets began to anticipate a slowing economy and the likelihood of Fed easing in the near future. As interest rates dropped dynamic hedgers became forced buyers, and owners of negatively convex instruments (predominantly mortgages and callable agencies) rushed to replenish duration. As the year closed markets were clearly priced for multiple Federal Reserve easings in the face of a surprisingly slack economic environment. Performance: For the period from inception April 5, 2000 through December 31, 2000, the Fund's Class Q shares returned 7.35% compared to a return of 9.65% for the Lehman Brothers Government/Mortgage Index and a return of 8.33% for the Lehman Brothers Intermediate Treasury Index. Portfolio Specifics: Designed to be defensive in nature, the Fund lagged the longer duration benchmark indices, but provided a generous return for the year of 9.61%. The Lehman Intermediate Treasury Index has returned 10.26% YTD. During 4Q 2000 the fund returned 3.43%. Owing to our restrictive guidelines, our ongoing strategy is to provide the best dividend possible within the context of the market and with few if any negative surprises. Market Outlook: The duration of the Fund remains short of the Lehman Mortgage Index, yet longer than the Lehman Intermediate Treasury Index in order to maintain our dividend. The fund continues to be concentrated in high quality mortgage backed securities. Going forward the fund will maintain its low volatility and short duration product design. 14 Portfolio PILGRIM GOVERNMENT Manager's Report SECURITIES INCOME FUND - -------------------------------------------------------------------------------- Average Annual Total Returns for the Period Ended December 31, 2000 ---------------------------- Since Inception of Class Q 4/5/00 ------ Class Q 7.35% Lehman Brothers Government/ Mortgage Index 9.65%(1) Lehman Brothers Intermediate Treasury Index 8.33%(1) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim Government Securities Income Fund against the Lehman Brothers Government/Mortgage Index and the Lehman Brothers Intermediate Treasury 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 Adviser has contractually agreed to waive or defer its management fee and to pay other operating expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no deferral 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 letter 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 manager's views are subject to change at any time based on market and other conditions. Portfolio holdings are subject to change daily. (1) Since inception performance for index is shown from 04/01/00. Principal Risk Factor(s): Exposure to financial, market and interest rate risks and prepayment risk on 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 26. 15 - ------ Income Funds - ------ Portfolio PILGRIM STRATEGIC INCOME FUND Managers' Report - -------------------------------------------------------------------------------- Portfolio Management Team: Robert Kinsey, Vice President and Senior Portfolio Manager; Andy Mitchell, Vice President and Co-Portfolio Manager; Ed Schriver, Senior Vice President and Senior Portfolio Manager; Russ Stiver, Vice President and Co-Portfolio Manager. Goals: Pilgrim Strategic Income Fund seeks maximum total return by investing primarily in debt securities issued by U. S. and foreign entities, as well as U. S. and foreign governments and their agencies and instrumentalities, that are rated investment grade by a nationally recognized statistical rating agency, or of comparable quality if unrated. Up to 40% of the fund's assets may be invested in high yield securities rated below investment grade. Bond Market Overview: The investment grade bond market posted handsome returns in the year 2000 despite early pressure on the front end of the yield curve resulting from Fed tightenings and some major "credit bombs" among corporate issuers. Fatalities -- or at least near-death experiences -- included Xerox, Lucent, Finova, and others. The federal surplus enabled the Treasury Department to buyback outstanding debt which prompted a dramatic curve flattening through the first half of the year. Spreads on corporate bonds reached levels not seen since the last recession. By the fourth quarter capital markets began to anticipate a slowing economy and the likelihood of Fed easing in the near future. While Treasuries rallied and the curve steepened, investment grade debt of issuers not tarnished by credit or earnings events rallied even more. As interest rates dropped dynamic hedgers became forced buyers, and owners of negatively convex instruments (predominantly mortgages and callable agencies) rushed to replenish duration. As the year closed markets were clearly priced for multiple Federal Reserve easings in the face of a surprisingly slack economic environment. High yield bonds had a dismal year. Most of the major indexes ended with a loss of 4-6%. Spreads over treasuries widened considerably throughout the year from about 4% early in the year to approximately 9.5% by the end of the year. The sell off was particularly bad in lower rated credits and in the telecommunications industry. Investors were concerned about a slowing economy and rising default rates. Additionally, banks tightened their credit standards, which contributed to a rising default rate and the public equity markets retracted, which limited access to equity capital for some high yield companies. Default rates escalated to 6% and the default rate is forecast to remain high through 2001. However, we believe that the high yield market has priced in most if not all of the bad news to come by year-end. In December, spreads were wider than at any time since the last recession. Consequently, we positioned the high yield portion of the fund aggressively in the fourth quarter. Performance: For the one year ended December 31, 2000, the Fund's Class Q shares returned 3.21% compared to a gain of 11.63% for the Lehman Brothers Aggregate Index. Portfolio Specifics: Despite some heavy winds in the high yield market, Strategic Income placed in the top 26% of Morningstar multi-sector funds for the year 2000. The investment grade component of the funds also posted strong returns for the year. Fortunately, the fund avoided all of the credit bombs that plagued the high grade corporate market in 2000; however, we did not avoid some of the earnings disappointments that hurt bondholders as well as equity holders. Holdings in Lucent, Albertsons, and News Corp were all a drag on performance in the first half of the year, but we were able to exit the positions well before the most dramatic underperformance occurred. Our early commitment to long-dated Treasuries in the face of the debt buyback was a great boost as was our overweight in agencies. The high yield portion of the fund was not so fortunate. Particularly with respect to the telecommunications holdings where five positions fell approximately 60% on average and almost every telecom holding declined to some extent. During the fourth quarter, we reduced our exposure in telecommunications to a more modest over weighting and diversified the high yield holdings across more industries. We invested in several mid and lower tier companies that offered asset coverage, a high current yield and the potential for significant price appreciation. For example, we purchased Doman Industries, a Canadian forest products company with strong asset coverage; Owens Illinois, a glass container manufacturer that we believe has a manageable exposure to asbestos liabilities, and Neff Corp, a rental equipment manufacturer with strong asset coverage and an attractive franchise. Market Outlook: We anticipate that high yield will be the best performing bond sector in the early months of 2001 and have raised our allocation to that battered market accordingly. The investment grade component of the portfolio remains invested in highly liquid names with maturities of ten years and under. With Fed easings in the offing we look for the short to intermediate maturities of the yield curve to outperform the thirty year area. Calling the high grade corporate market will again be tough as capital markets sift out the winners and losers in a profits recession -- or worse. Despite the rebound in spreads of some tarnished names we will avoid the names prevalent in last years credit debacles for the near term. We are also underweight in mortgages giving the likelihood of upcoming Fed easings. With respect to high yield, we believe that credit specific factors will be the key to returns in 2001 as companies prove or disprove their ability to compete in a slower growth 16 Portfolio Managers' Report PILGRIM STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- economy. Defaults will likely remain an issue in high yield in 2001, although many of the probable bankruptcy candidates are already trading close to or below liquidation values. High defaults are not inconsistent with high returns in the high Yield market, as evidenced by 1991 when the default rate peaked at 13%, yet the Merrill Lynch Cash-Pay High Yield Index returned 34.6%. Most investors remain cautious regarding truly distressed credits, preferring instead to add liquid second-tier securities more likely to survive a significant downturn. While the High Yield market is likely to experience continued volatility until the economic outlook becomes clearer, we believe that now is an excellent time to invest in high yield and that long-term investors are very well compensated for risks taken. The high yield portion of the Fund will remain fully invested in a diversified portfolio of total return investments that should perform well in an improving high yield market. Average Annual Total Returns for the Periods Ended December 31, 2000 ----------------------------------- Since Inception 1 Year 7/27/98 ------ ------- Class Q 3.21% 2.44% Lehman Brothers Aggregate Index 11.63% 6.16%(1) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim Strategic Income Fund against the Lehman Brothers Aggregate 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 Adviser has contractually agreed to waive or defer its management fee and to pay other operating expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no deferral 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 letter 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. Portfolio holdings are subject to change daily. (1) 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 26. 17 - ------ Income Funds - ------ Portfolio PILGRIM HIGH YIELD FUND Managers' Report - -------------------------------------------------------------------------------- Portfolio Management Team: Ed Schriver, Senior Vice President and Senior Portfolio Manager; Andy Mitchell, Vice President and Co-Portfolio Manager; Russ Stiver, Vice President and Co-Portfolio Manager. Goal: The High Yield Fund (the "Fund" or "High Yield") seeks to provide a high level of current income, with capital appreciation as a secondary objective, by investing in high yield debt securities. Market Overview: Clearly the economy slowed much more quickly than economists had expected during the quarter. In early January the federal reserve responded by easing their benchmark rates by 50 basis points. While it will take 6 months or more for the impact to be seen in the economy, the move sent a strong signal as to future monetary policy. Further policy easing is anticipated in coming months as economic slowing continues during the first half of 2001 and inventory corrections play themselves out. The slowing economy translated into widespread earnings warnings in virtually every industry except energy during the quarter, leading to steep price declines in both stocks and bonds. Most of the major High Yield indices returned approximately -5% during the quarter, substantially outperforming the NASDAQ composite index. Higher quality issues substantially outperformed lower quality ones as investors flocked to the relative safety of BB's. Telecommunications, automotive, metals & mining, and technology were the hardest hit sectors. Yields on High Yield securities generally reflect an impending recession. Spreads over Treasuries have widened from 549 basis points at the beginning of the year to 959 basis points at the end of the year, the widest level seen since the last recession in 1990/91. Quality spreads have also widened, illustrating the markets desire for quality. Single-B issues yielded about 426 basis points more than double-B issues at the end of 2000, versus about 170 basis points at the beginning of the year and 288 basis points at the end of September. Since High Yield spreads already reflect those of the last recession, further downside appears limited. While greater clarity on the economy is still some time away, the recent interest rate cuts provide some optimism that such clarity will present itself sooner rather than later. Investors with a longer time horizon may take advantage of the generous spreads to add High Yield exposure in advance of the recovery. The market is likely to remain quite volatile however, and market timing will be difficult at best. Default rates remain well above the long-term market averages, attributed primarily to a lack of discipline within the High Yield market in the 1997/98 timeframe rather than relating to broader economic weakness. While many of the weaker issuers have already filed for bankruptcy, the weaker economy is likely to prevent default rates from declining significantly during 2001. High default rates do not necessarily preclude attractive returns however. In 1991, during the last recession, default rates peaked at 13% while the DLJ High Yield Index returned 43.75%. Peformance: For the one year ended December 31, 2000, the Fund's Class Q shares declined 20.96% compared to a decline of 5.21% for the First Boston High Yield Index and a decline of 5.86% for the Lehman Brothers High Yield Index. Portfolio Specifics: The Fund's underperformance was due to aggressive positions in several lower quality credits, particularly in the telecommunications sector. The bonds of Northpoint, a high-speed DSL network provider, lost approximately 90% of their value after Verizon Communications called off a planned acquisition of the company. Both Rhythms Netconnections and Globix also declined sharply due to concern over the future of web hosting businesses and the ability of dot-com customers to pay their bills. Motorcoach Industries and Hollywood Entertainment bonds also fell sharply on weaker earnings and liquidity concerns. Market Outlook: The initial 20% cash position was reduced to 7% at year-end as the fund took advantage of the weak market conditions to add first- and second-tier credits at low prices. With the spread between bb's and b's at recessionary levels, we intend to reduce cash to 3% over the coming weeks by investing primarily in second-tier credits. The fund is not set up to hold defaulted credits through the bankruptcy process. Thus, we generally try to avoid third-tier credits in which we believe there is material near-term default risk. Telecommunications exposure is now approximately 23% of the fund. Over the past several months we have 18 Portfolio Managers' Report PILGRIM HIGH YIELD FUND - -------------------------------------------------------------------------------- reduced the size and upgraded the quality of our exposure to this sector. The telecom sector is likely to be one of the areas of greatest default experience in 2001, as several companies have insufficient funding to execute their plans through the end of 2001. We are now comfortable with the weighting of telecommunications within the portfolio. We continue to look for opportunities to diversify the fund by adding fundamentally sound companies in unrepresented industries. The aerospace, publishing and advertising media sectors are targets for future investment. We remain underweighted in cyclical basic industries, awaiting material improvements in commodity inventories. Average Annual Total Returns for the Periods Ended December 31, 2000 ----------------------------------- Since Inception of Class Q 1 Year 6/17/99 ------ ------- Class Q -20.96% -14.57% First Boston High Yield Index -5.21% -3.20%(1) Lehman Brothers High Yield Index -5.86% -3.82%(1) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim High Yield Fund against the First Boston High Yield Index and the Lehman Brothers High Yield 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 Adviser has contractually agreed to waive or defer its management fee and to pay other operating expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no deferral 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 letter 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. Portfolio holdings are subject to change daily. (1) Since inception performance for the index is shown from 07/01/99. 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 26. 19 - ------ Income Funds - ------ Portfolio PILGRIM HIGH YIELD FUND II Managers' Report - -------------------------------------------------------------------------------- Portfolio Management Team: Ed Schriver, Senior Vice President and Senior Portfolio Manager; Andy Mitchell, Vice President and Co-Portfolio Manager; Russ Stiver, Vice President and Co-Portfolio Manager. Goal: The High Yield Fund II (the "Fund" or "High Yield II") seeks to provide a high level of current income and capital growth by investing in high yield debt securities. Market Overview: Clearly the economy slowed much more quickly than economists had expected during the quarter. In early January the federal reserve responded by easing their benchmark rates by 50 basis points. While it will take 6 months or more for the impact to be seen in the economy, the move sent a strong signal as to future monetary policy. Further policy easing is anticipated in coming months as economic slowing continues during the first half of 2001 and inventory corrections play themselves out. The slowing economy translated into widespread earnings warnings in virtually every industry except energy during the quarter, leading to steep price declines in both stocks and bonds. Most of the major High Yield indices returned approximately -5% during the quarter, substantially outperforming the NASDAQ composite index. Higher quality issues substantially outperformed lower quality ones as investors flocked to the relative safety of BB's. Telecommunications, automotive, metals & mining, and technology were the hardest hit sectors. Yields on High Yield securities generally reflect an impending recession. Spreads over Treasuries have widened from 549 basis points at the beginning of the year to 959 basis points at the end of the year, the widest level seen since the last recession in 1990/91. Quality spreads have also widened, illustrating the markets desire for quality. Single-B issues yielded about 426 basis points more than double-B issues at the end of 2000, versus about 170 basis points at the beginning of the year and 288 basis points at the end of September. The spread between single-B and CCC has widened from 1,002 on December 31, 1999 to 1,450 in September 2000 and nearly doubling year over year to 1,896 at the end of 2000. Since High Yield spreads already reflect those of the last recession, further downside appears limited. While greater clarity on the economy is still some time away, the recent interest rate cuts provide some optimism that such clarity will present itself sooner rather than later. Investors with a longer time horizon may take advantage of the generous spreads to add High Yield exposure in advance of the recovery. The market is likely to remain quite volatile however, and market timing will be difficult at best. Default rates remain well above the long-term market averages, attributed primarily to a lack of discipline within the High Yield market in the 1997/98 timeframe rather than relating to broader economic weakness. While many of the weaker issuers have already filed for bankruptcy, the weaker economy is likely to prevent default rates from declining significantly during 2001. High default rates do not necessarily preclude attractive returns however. In 1991, during the last recession, default rates peaked at 13% while the DLJ High Yield Index returned 43.75%. Peformance: For the one year ended December 31, 2000, the Fund's Class Q shares declined 14.96% compared to a decline of 5.86% for the Lehman Brothers High Yield Index. Portfolio Specifics: The Fund returned -16.03% in the fourth quarter versus - -5.04% for the DLJ High Yield Index. The Fund's underperformance was due to aggressive positions in several lower quality credits, particularly in the telecommunications sector. The bonds of Northpoint, a high-speed DSL network provider, lost approximately 90% of their value after Verizon Communications called off a planned acquisition of the company. Both Rhythms Netconnections and Globix also declined sharply due to concern over the future of web hosting businesses and the ability of dot-com customers to pay their bills. Hollywood Entertainment bonds also fell sharply on weaker earnings and liquidity concerns. Market Outlook: The initial 22% cash position was reduced to less than 2% at year-end as the fund took advantage of the weak market conditions to add first, second and third-tier credits at low prices. Given the exceptional long-term value that we see in the high yield market, we intend to remain fully invested over the foreseeable future. Telecommunications exposure is now approximately 25% of the fund. Over the past several months we have reduced the size of our exposure to this sector. The telecom sector is likely to be one of the areas of greatest default experience in 2001, as several companies have insufficient funding to execute their plans through the end of 2001. 20 Portfolio Managers' Report PILGRIM HIGH YIELD FUND II - -------------------------------------------------------------------------------- Average Annual Total Returns for the Periods Ended December 31, 2000 ----------------------------------- Since Inception of Class Q 1 Year 3/27/98 ------ ------- Class Q -14.96% -4.07% Lehman Brothers High Yield Index -5.86% -1.85%(1) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim High Yield II Fund against the Lehman Brothers High Yield 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 Adviser has contractually agreed to waive or defer its management fee and to pay other operating expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no deferral 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 letter 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. Portfolio holdings are subject to change daily. (1) Since inception performance for the index is shown from 04/01/98. 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 26. 21 - ------------ Equity & Income Funds - ------------ Portfolio PILGRIM BALANCED FUND Managers' Report - -------------------------------------------------------------------------------- Portfolio Management Team: G. David Underwood, CFA, Senior Vice ice President & Senior Portfolio Manager; Robert K. Kinsey, Vice President & Senior Portfolio Manager; Ed Schriver, Senior Vice President & Senior Portfolio Manager. Goals: The fund seeks a balance of capital appreciation and current income by investing in a blended portfolio of equity and debt securities with an emphasis on overall total return. The Markets Equity: During the 6-month period ending December 31, 2000, the U.S. equity market was characterized by: * An early, modest recovery in the major averages followed by an extended, but gradual decline into the end of 2000. * A shift in investor sentiment from opportunistic, to mounting anxiety and finally to capitulation. * Long overdue reconnection of fundamentals, valuations and stock prices lost under the recent mantle of "New Era" thinking. The second half of the year 2000 proved to be one of the most rugged periods for the equity markets. For example, both the S&P 500 and the NASDAQ Composite indices lost ground in amounts not seen in 20-30 years. Even the venerable Dow Jones Industrial gave up a modest amount. As the period began, the market averages recovered nearly to the highs experienced in early 2000. However, this gave way to declines as it became clear that economic growth and corporate profits were decelerating, the result of prolonged credit restraint by the Federal Reserve. The lofty valuations of technology-related stocks, primarily, could no longer be substantiated. Since these groups comprised the major proportion of the indices, the decline in the market averages was visibly pronounced. This wasn't the case for smaller and less technology-driven stocks, which held up rather well. In fact, "old economy", defensive representatives such as utilities and financials turned in strong performances. Although discomforting to go through, in the long-term, the type of equity markets we've just passed through are constructive. It was apparent entering 2000 the markets needed to redefine valuations on a number of counts. There had been an unprecedented, extremely wide valuation disparity undermining the balance of the markets. Investors deployed capital to the so-called "New Era" companies and withheld it from more mainstream areas. Thus prices in the favored sectors were overly inflated, while the others were unduly depressed. The 2000 markets narrowed this disparity and brought back into favor fundamental approaches to portfolio construction in contrast to the momentum techniques that held sway over the prior two years. Investment Grade: The investment grade bond market posted handsome returns in the year 2000 despite early pressure on the front end of the yield curve resulting from Fed tightenings and some major "credit bombs" among corporate issuers. Fatalities -- or at least near-death experiences -- included Xerox, Lucent, Finova, and others. The federal surplus enabled the Treasury Department to buyback outstanding debt which prompted a dramatic curve flattening through the first half of the year. Spreads on corporate bonds reached levels not seen since the last recession. By the fourth quarter, capital markets began to anticipate a slowing economy and the likelihood of Fed easing in the near future. While Treasuries rallied and the curve steepened, investment grade debt of issuers not tarnished by credit or earnings events rallied even more. As interest rates dropped dynamic hedgers became forced buyers, and owners of negatively convex instruments (predominantly mortgages and callable agencies) rushed to replenish duration. As the year closed markets were clearly priced for multiple Federal Reserve easings in the face of a surprisingly slack economic environment. High Yield: High yield bonds had a dismal year. Most of the major indexes ended with a loss of 4-6%. Spreads over treasuries widened considerably throughout the year from about 4% early in the year to approximately 9.5% by the end of the year. The sell off was particularly bad in lower rated credits and in the telecommunications industry. Investors were concerned about a slowing economy and rising default rates. Additionally, banks tightened their credit standards, which contributed to a rising default rate and the public equity markets retracted, which limited access to equity capital for some high yield companies. Default rates escalated to 6% and the default rate is forecast to remain high through 2001. However, we believe that the high yield market has priced in most if not all of the bad news to come by year-end. In December, spreads were wider than at any time since the last recession. Consequently, we positioned the high yield portion of the fund aggressively in the fourth quarter. The Fund Performance: For the one year ended December 31, 2000, the Fund's Class Q shares returned -3.06%. This compares to a -1.00% return composed of 60% of the S&P 500's return and 40% of the Lehman Aggregate Index's return. Equity: During the period, we positioned the fund to take advantage of favorable fundamentals in natural gas. Thus Energy made the most positive impact in addition to the Healthcare, Financial and Basic Industries sectors. Holdings in Anadarko Petroleum, Merck, Merrill Lynch and Alcoa appreciated significantly. Investment Grade: The investment grade component of the funds also posted strong returns for the year. Fortunately, the fund avoided all of the credit bombs that plagued the high grade corporate market in 2000; however, we did not avoid some of the earnings disappointments that hurt bondholders as well as equity holders. Holdings in Lucent, Albertsons, and News Corp were all a drag on performance in the first half of the year, but we were able to exit the positions well before the most dramatic underperformance occurred. Our early commitment to long-dated Treasuries in the face of the debt buyback was a great boost as was our overweight in agencies. High Yield: The high yield portion of the fund was not so fortunate. Particularly with respect to the telecommunications holdings where five positions fell approximately 60% on average and almost every telecom holding declined to some extent. During the fourth quarter, we reduced our exposure in telecommunications to a more modest over weighting and diversified the high yield holdings across more industries. We invested in several mid and lower tier companies that offered asset coverage, a high current yield and the potential for significant price appreciation. For example, we purchased Doman Industries, a Canadian forest products company with strong asset coverage; Owens Illinois, a glass container manufacturer that we believe has a manageable exposure to asbestos liabilities, and Neff Corp, a rental equipment manufacturer with strong asset coverage and an attractive franchise. Current Strategy Equity: A better overall balance within the markets and relaxing monetary policy portend opportunities for a very favorable environment 22 Portfolio Managers' Report PILGRIM BALANCED FUND - -------------------------------------------------------------------------------- for stocks. The economy is now less prone to decline and with much more reasonable valuations underlying them, stocks should benefit, resuming a more sustainable price advance. Investment Grade: We anticipate that high yield will be the best performing bond sector in the early months of 2001 and have raised our allocation to that battered market accordingly. The investment grade component of the portfolio remains invested in highly liquid names with maturities of ten years and under. With Fed easings in the offing we look for the short to intermediate maturities of the yield curve to outperform the thirty year area. Calling the high grade corporate market will again be tough as capital markets sift out the winners and losers in a profits recession -- or worse. Despite the rebound in spreads of some tarnished names we will avoid the names prevalent in last years credit debacles for the near term. We are also underweight in mortgages giving the likelihood of upcoming Fed easings. High Yield: We believe that credit specific factors will be the key to returns in 2001 as companies prove or disprove their ability to compete in a slower growth economy. Defaults will likely remain an issue in high yield in 2001, although many of the probable bankruptcy candidates are already trading close to or below liquidation values. High defaults are not inconsistent with high returns in the high Yield market, as evidenced by 1991 when the default rate peaked at 13%, yet the Merrill Lynch Cash-Pay High Yield Index returned 34.6%. Most investors remain cautious regarding truly distressed credits, preferring instead to add liquid second-tier securities more likely to survive a significant downturn. While the High Yield market is likely to experience continued volatility until the economic outlook becomes clearer, we believe that now is an excellent time to invest in high yield and that long-term investors are very well compensated for risks taken. The high yield portion of the fund will remain fully invested in a diversified portfolio of total return investments that will perform well in an improving high yield market. Average Annual Total Returns for the Periods Ended December 31, 2000 ----------------------------------- Since Inception of Class Q 1 Year 5 Year 8/31/95 ------ ------ ------- Class Q -3.06% 13.06% 12.10% 60% S&P 500 Index/40% Lehman Aggregate Index -1.00% 13.78% 14.58%(1) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim Balanced Fund against the 60% S&P 500 Index, 40% Lehman Aggregate 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 Adviser has contractually agreed to waive or defer its management fee and to pay other operating expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no deferral 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 letter 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. Portfolio holdings are subject to change daily. (1) Since inception performance for the index is shown from 9/1/95. Principal Risk Factor(s): Price volatility and other risks that accompany an investment in equity securities. Credit, interest rate and other risks that accompany debt investments. The Fund may invest up to 20% of its total assets in foreign securities. International investing does pose special risks, including currency fluctuation, economic and political risks not found in investments that are solely domestic. 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 26. 23 - ------------ Equity & Income Funds - ------------ Portfolio PILGRIM CONVERTIBLE FUND Manager's Report - -------------------------------------------------------------------------------- Portfolio Management: Andrew Chow, Vice-President and Portfolio Manager.* Goal: The Fund seeks to maximize long-term total return by investing primarily in convertible securities, while maintaining aggregate risk measures similar to that of the overall convertible universe. Market Overview: The domestic equity markets had a rude awakening in the year 2000 and posted their worst results in nearly 25 years. The S&P 500 returned - -9.10% on the year, the lowest return since 1977. The technology heavy NASDAQ Composite was down 39.18% for the year. The convertible universe as represented by the Merrill Lynch Convertible Index (excluding mandatories) was down 12.86%, reflecting the heavier influence of technology issuers in the convertible market. Performance: For the year ended December 31, 2000 the Fund's Class Q shares provided a total return of -8.74% compared to a return of -7.83% for the First Boston Convertible Index. Portfolio Specifics: The strategy of your Pilgrim Convertible Fund is to remain fully invested in the marketplace at all times. And by fully invested, we do not mean only that we will have low levels of cash. In fact we mean that we will have an overall sensitivity to the underlying stocks in your portfolio that is similar to the sensitivity the overall convertible market has to the names in its composition. It is not our intention to attempt to time the market or to guess when to shift into "defensive" or "offensive" mode. Instead our objective is to offer to investors a vehicle in which they can participate in an asset class (convertible securities) that over the course of many business cycles offers attractive risk adjusted returns compared to other asset classes. Our investment strategy is then to pick individual issuers who we think will outperform their peers, and by doing so to hopefully craft a portfolio that provides value relative to our benchmark index. Over the course of the year we shifted out of several Internet and software related names and added to our holdings in the energy and healthcare sectors. In particular we purchased positions in Wellpoint Health Networks and Kerr-McGee Corp. Market Outlook: Despite the radical (and more realistic) revaluation of the market in the year 2000, I believe some segments of the market remain overvalued. This is somewhat sobering when one recognizes that many of these sectors were down 70+% during the past year. Even with the lower valuations it's still difficult to rationalize many of the stock prices seen in the Internet and software sectors. Those segments of the market could continue to drag down overall market returns in 2001. In fact by traditional valuation measures the broad US equity indicies are not cheap. They are rather fairly priced versus historical averages. Some sectors might appear cheap and others rich. In such an environment (and in my opinion in any environment), it is useful for investors to think about long run returns and their personal tolerance for risk when seeking those long run returns. It is in such a framework that I think investors will find convertible securities to be an attractive proposition. * Effective October 1, 2000, Pilgrim Investments, Inc. began providing investment advisory services directly for the Fund. Prior to that date the Fund had been sub-advised by Nicholas Applegate Capital Management. 24 Portfolio Manager's Report PILGRIM CONVERTIBLE FUND - -------------------------------------------------------------------------------- Average Annual Total Returns for the Periods Ended December 31, 2000 ----------------------------------- Since Inception of Class Q 1 Year 5 Year 8/31/95 ------ ------ ------- Class Q -8.74% 19.88% 19.29% First Boston Convertible Index -7.83% 13.21% 12.83%(1) Based on a $10,000 initial investment, the table above illustrates the total return of Pilgrim Convertible Fund against the First Boston Convertible 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 Adviser has contractually agreed to waive or defer its management fees and to pay other operating expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no deferral 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 letter 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. Portfolio holdings are subject to change daily. (1) Since inception performance for index is shown from 09/01/95. Principal Risk Factor(s): The credit standing of the issuer and other factors may affect the investment value of a convertible security. The market value of convertible debt securities tends to vary inversely with the level of interest rates. Lower rated securities may be less liquid than higher quality investments. This fund also has 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. The Fund may also invest in small and medium sized companies, which may be more susceptible to greater price swings than larger companies. See accompanying index descriptions on page 26. 25 - ------- Pilgrim Funds - ------- INDEX DESCRIPTIONS - -------------------------------------------------------------------------------- The S&P 500 Index is a widely recognized index of 500 common stocks. The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. The S&P Barra Value Index ia a capitalization-weighted index of all the stocks in the S&P 500 Index that have low price-to-book ratios The Russell 1000 Growth Index is an index that measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. The NASDAQ Composite Index is a broad-based capitalization-weighted index of all NASDAQ National Market & SmallCap stocks. The Russell MidCap Index is generally representative of the smallest 800 stocks in the Russell 1000 Index as ranked by total market capitalization. The Russell MidCap Value Index measures the performance of the 800 smallest companies in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. The Russell MidCap Growth Index consists of securities with capitalizations between $450 million and $3.8 billion with greater than average growth orientation. The Russell 2000 Growth Index measures the performance of those Russell 2000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Index consists of the smallest 2000 companies in the Russell 3000 Index. The Lehman Brothers Aggregate Bond Index is an index of fixed income securities. The Lehman Brothers Government/Mortgage Index measures the performance of U.S. Government agencies and instrumentalities, as well as mortgage pass-through instruments issued by FNMA, FHLMC and GNMA. The Lehman Brothers Intermediate Treasury Index is an index that measures the performance of U.S. Treasuries with maturities of less than ten years. The Lehman Brothers High Yield Bond Index is comprised of non-investment grade bonds with maturities between seven to ten years. The Credit Suisse First Boston High Yield Index is an index of high yield bonds rated BB or below. The Credit Suisse First Boston Convertible Index is an index representing the universe of convertible securities. All Indices are unmanaged See Accompanying Notes to Financial Statements 26 (THIS PAGE INTENTIONALLY LEFT BLANK) 27 - ----------- U.S. Equity Funds - ----------- STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 2000 (unaudited) - --------------------------------------------------------------------------------
LargeCap LargeCap MidCap MagnaCap Leaders Growth Value Fund Fund Fund Fund ------------- ------------- ------------- ------------- ASSETS: Investments in securities at market value* $ 387,728,472 $ 35,199,255 $ 523,511,141 $ 34,266,536 Short-term investments at amortized cost 15,197,509 2,988,000 109,209,000 7,638,679 Cash 20,377 10,934 10,169 1,957,039 Receivables: Fund shares sold -- 156,023 7,383,686 481,278 Dividends and interest 542,573 30,878 394,089 22,603 Investment securities sold 214,849 -- -- -- Other 49,705 23,124 -- -- Prepaid expenses 68,760 23,098 89,647 22,801 ------------- ------------- ------------- ------------- Total Assets 403,822,245 38,431,312 640,597,732 44,388,936 ------------- ------------- ------------- ------------- LIABILITIES: Payable for investment securities purchased -- 100,929 14,161,056 7,644,612 Payable for fund shares redeemed 1,544,395 -- 2,755,631 162,910 Payable to affiliate 243,756 26,516 390,852 24,890 Other accrued expenses and liabilities 493,362 59,209 363,780 79,352 ------------- ------------- ------------- ------------- Total Liabilities 2,281,513 186,654 17,671,319 7,911,764 ------------- ------------- ------------- ------------- NET ASSETS 401,540,732 38,244,658 622,926,413 36,477,172 ============= ============= ============= ============= NET ASSETS CONSIST OF: Paid-in capital 303,222,522 32,914,812 653,233,692 34,826,237 Undistributed (overdistributed) net investment income (232,943) 86,683 (3,826,480) (52,063) Accumulated net realized gain (loss) on investments 4,974,221 (928,816) (54,305,263) (540,814) Net unrealized appreciation of investments 93,576,932 5,169,979 27,824,464 2,243,812 ------------- ------------- ------------- ------------- Net Assets $ 401,540,732 $ 38,244,658 $ 622,926,413 $ 36,477,172 ============= ============= ============= ============= * Cost of securities $ 294,151,540 $ 30,029,276 $ 495,686,677 $ 32,022,724 MidCap SmallCap Growth Growth Fund Fund ------------- ------------- ASSETS: Investments in securities at market value* $ 452,509,443 $ 423,706,905 Short-term investments at amortized cost 34,558,000 23,493,000 Cash 24,271 1,628,514 Receivables: Fund shares sold 3,276,836 1,143,576 Dividends and interest 163,932 59,082 Investment securities sold -- 4,475,309 Other 69,571 205 Prepaid expenses 963 66,671 ------------- ------------- Total Assets 490,603,016 454,573,262 ------------- ------------- LIABILITIES: Payable for investment securities purchased 3,597,950 1,618,901 Payable for fund shares redeemed 4,121,712 6,381,373 Payable to affiliate 295,998 361,601 Other accrued expenses and liabilities 491,901 375,913 ------------- ------------- Total Liabilities 8,507,561 8,737,788 ------------- ------------- NET ASSETS 482,095,455 445,835,474 ============= ============= NET ASSETS CONSIST OF: Paid-in capital 397,501,791 340,696,816 Undistributed (overdistributed) net investment income (3,238,590) (3,538,019) Accumulated net realized gain (loss) on investments 5,223,777 (7,951,490) Net unrealized appreciation of investments 82,608,477 116,628,167 ------------- ------------- Net Assets $ 482,095,455 $ 445,835,474 ============= ============= * Cost of securities $ 369,900,966 $ 307,078,738
See Accompanying Notes to Financial Statements 28
LargeCap LargeCap MidCap MagnaCap Leaders Growth Value Fund Fund Fund Fund ------------ ------------ ------------ ------------ Class A: Net Assets $292,799,697 $ 9,884,771 $170,040,946 $ 16,227,467 Shares authorized 80,000,000 28,000,000 unlimited 28,000,000 Par Value 1.00 0.10 0.00 0.00 Shares outstanding 20,229,499 658,920 5,280,629 1,187,012 Net asset value and redemption price per share $ 14.47 $ 15.00 $ 32.20 $ 13.67 Maximum offering price per share(1) $ 15.35 $ 15.92 $ 34.17 $ 14.50 Class B: Net Assets $ 80,844,732 $ 21,309,750 $287,655,517 $ 15,028,291 Shares authorized 80,000,000 28,000,000 unlimited 28,000,000 Par Value 1.00 0.10 0.00 0.00 Shares outstanding 5,737,252 1,485,111 9,005,734 1,148,938 Net asset value and redemption price per share(2) $ 14.09 $ 14.35 $ 31.94 $ 13.08 Maximum offering price per share $ 14.09 $ 14.35 $ 31.94 $ 13.08 Class C: Net Assets $ 4,944,416 $ 2,066,541 $147,541,621 $ 1,837,187 Shares authorized 80,000,000 28,000,000 unlimited 28,000,000 Par Value 1.00 0.10 0.00 0.00 Shares outstanding 350,785 143,817 4,631,627 140,390 Net asset value and redemption price per share(2) $ 14.10 $ 14.37 $ 31.86 $ 13.09 Maximum offering price per share $ 14.10 $ 14.37 $ 31.86 $ 13.09 Class M: Net Assets $ 11,918,731 $ 4,317,678 n/a $ 3,349,373 Shares authorized 40,000,000 14,000,000 n/a 14,000,000 Par Value 1.00 0.10 n/a 0.00 Shares outstanding 832,622 295,833 n/a 253,160 Net asset value and redemption price per share $ 14.31 $ 14.59 n/a $ 13.23 Maximum offering price per share(3) $ 14.83 $ 15.12 n/a $ 13.71 Class Q: Net Assets $ 11,033,156 $ 665,918 $ 17,688,329 $ 34,854 Shares authorized 40,000,000 28,000,000 unlimited 28,000,000 Par Value 1.00 0.10 0.00 0.00 Shares outstanding 762,736 44,393 541,866 2,551 Net asset value and redemption price per share $ 14.47 $ 15.00 $ 32.64 $ 13.66 Maximum offering price per share $ 14.47 $ 15.00 $ 32.64 $ 13.66 MidCap SmallCap Growth Growth Fund Fund ------------ ------------ Class A: Net Assets $130,723,191 $146,707,641 Shares authorized unlimited unlimited Par Value 0.00 0.00 Shares outstanding 6,487,193 10,039,351 Net asset value and redemption price per share $ 20.15 $ 14.61 Maximum offering price per share(1) $ 21.38 $ 15.50 Class B: Net Assets $114,287,546 $ 91,084,621 Shares authorized unlimited unlimited Par Value 0.00 0.00 Shares outstanding 4,851,111 4,993,424 Net asset value and redemption price per share(2) $ 23.56 $ 18.24 Maximum offering price per share $ 23.56 $ 18.24 Class C: Net Assets $217,463,218 $196,043,951 Shares authorized unlimited unlimited Par Value 0.00 0.00 Shares outstanding 11,758,575 13,737,437 Net asset value and redemption price per share(2) $ 18.49 $ 14.27 Maximum offering price per share $ 18.49 $ 14.27 Class M: Net Assets n/a n/a Shares authorized n/a n/a Par Value n/a n/a Shares outstanding n/a n/a Net asset value and redemption price per share n/a n/a Maximum offering price per share(3) n/a n/a Class Q: Net Assets $ 19,621,500 $ 11,999,261 Shares authorized unlimited unlimited Par Value 0.00 0.00 Shares outstanding 768,537 736,986 Net asset value and redemption price per share $ 25.53 $ 16.28 Maximum offering price per share $ 25.53 $ 16.28
(1) Maximum offering price is computed at 100/94.25 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 100/96.50 of net asset value. On purchases of $50,000 or more, the offering price is reduced. 29 - ------ Income Funds - ------ STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 2000 (unaudited) - --------------------------------------------------------------------------------
Government Strategic Securities Income High Yield High Yield Income Fund Fund Fund Fund II ------------- ------------- ------------- ------------- ASSETS: Investments in securities at market value* $ 109,422,989 $ 11,999,336 $ 181,971,598 $ 125,412,138 Short-term investments at amortized cost 5,647,000 836,000 13,058,834 1,576,000 Cash 62 108,723 23,503 865 Receivables: Fund shares sold 15,851,993 90,221 1,108,575 381,004 Dividends and Interest 711,091 189,797 5,393,460 4,048,147 Investment securities sold -- -- 657,387 -- Other -- 1,327 -- -- Prepaid expenses 88,197 18,284 69,082 66,293 Reimbursement due from Manager -- 195 -- -- ------------- ------------- ------------- ------------- Total Assets 131,721,332 13,243,883 202,282,439 131,484,447 ------------- ------------- ------------- ------------- LIABILITIES: Payable for investment securities purchased -- 518,786 1,206,547 -- Payable for fund shares redeemed -- 1,354 1,323,276 661,664 Payable to custodian -- -- -- -- Payable to affiliate 48,208 -- 211,267 173,337 Other accrued expenses and liabilities 108,549 55,985 259,345 855,373 ------------- ------------- ------------- ------------- Total Liabilities 156,757 576,125 3,000,435 1,690,374 ------------- ------------- ------------- ------------- NET ASSETS $ 131,564,575 $ 12,667,758 $ 199,282,004 $ 129,794,073 ============= ============= ============= ============= NET ASSETS CONSIST OF: Paid-in capital $ 137,144,828 $ 14,194,922 $ 370,776,051 $ 205,834,414 Undistributed (overdistributed) net investment income (98,125) 507,044 (2,774,623) (226,043) Accumulated net realized loss on investments and foreign currency transactions (7,446,251) (1,994,671) (136,203,498) (32,841,222) Net unrealized appreciation (depreciation) of investments 1,964,123 (39,537) (32,515,926) (42,973,076) ------------- ------------- ------------- ------------- Net Assets $ 131,564,575 $ 12,667,758 $ 199,282,004 $ 129,794,073 ============= ============= ============= ============= * Cost of securities $ 107,458,866 $ 12,038,873 $ 214,487,524 $ 168,385,214
See Accompanying Notes to Financial Statements 30
Government Strategic Securities Income High Yield High Yield Income Fund Fund Fund Fund II -------------- -------------- -------------- -------------- Class A: Net Assets $ 65,307,700 $ 2,983,856 $ 53,054,079 $ 23,248,188 Shares authorized 1,000,000,000 unlimited 90,000,000 unlimited Par Value $ 0.00 $ 0.00 $ 0.00 $ 0.00 Shares outstanding 5,302,984 256,154 13,600,631 2,752,631 Net asset value and redemption price per share $ 12.32 $ 11.65 $ 3.90 $ 8.45 Maximum offering price per share(1) $ 13.07 $ 12.36 $ 4.14 $ 8.96 Class B: Net Assets $ 40,069,078 $ 5,765,241 $ 134,691,750 $ 71,241,832 Shares authorized 1,000,000,000 unlimited 80,000,000 unlimited Par Value $ 0.00 $ 0.00 $ 0.00 $ 0.00 Shares outstanding 3,266,437 506,671 34,617,288 8,428,124 Net asset value and redemption price per share(2) $ 12.27 $ 11.38 $ 3.89 $ 8.45 Maximum offering price per share $ 12.27 $ 11.38 $ 3.89 $ 8.45 Class C: Net Assets $ 6,770,342 $ 3,691,230 $ 4,203,085 $ 14,123,962 Shares authorized 1,000,000,000 unlimited 80,000,000 unlimited Par Value $ 0.00 $ 0.00 $ 0.00 $ 0.00 Shares outstanding 546,992 310,740 1,081,600 1,670,911 Net asset value and redemption price per share(2) $ 12.38 $ 11.88 $ 3.89 $ 8.45 Maximum offering price per share $ 12.38 $ 11.88 $ 3.89 $ 8.45 Class M: Net Assets $ 503,622 n/a $ 7,333,063 n/a Shares authorized 1,000,000,000 n/a 40,000,000 n/a Par Value 0.00 n/a n/a n/a Shares outstanding 40,928 n/a 1,882,693 n/a Net asset value and redemption price per share $ 12.31 n/a $ 3.89 n/a Maximum offering price per share(3) $ 12.72 n/a $ 4.03 n/a Class Q: Net Assets $ 332,088 $ 227,431 $ 27 $ 1,441,715 Shares authorized 1,000,000,000 unlimited 80,000,000 unlimited Par Value $ 0.00 $ 0.00 $ 0.00 $ 0.00 Shares outstanding 26,965 20,618 6 170,491 Net asset value and redemption price per share $ 12.32 $ 11.03 $ 4.50 $ 8.46 Maximum offering price per share $ 12.32 $ 11.03 $ 4.50 $ 8.46 Class T: Net Assets $ 18,581,745 n/a n/a $ 19,738,136 Shares authorized 1,000,000,000 n/a n/a unlimited Par Value 0.00 n/a n/a 0.00 Shares outstanding 1,513,341 n/a n/a 2,336,188 Net asset value and redemption price per share(2) $ 12.28 n/a n/a $ 8.45 Maximum offering price per share $ 12.28 n/a n/a $ 8.45
(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 (with the exception of the Money Market Fund). (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. 31 - ------------ Equity & Income Funds - ------------ STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 2000 (unaudited) - --------------------------------------------------------------------------------
Balanced Convertible Fund Fund ------------- ------------- ASSETS: Investments in securities at market value* $ 124,613,545 $ 405,269,656 Short-term investments at amortized cost 4,090,000 11,999,000 Cash 1,568 -- Receivables: Fund shares sold 313,745 1,580,740 Investment securities sold 17,156 4,326,264 Dividends and interest 997,900 2,272,823 Prepaid expenses 46,292 73,903 ------------- ------------- Total Assets 130,080,206 425,522,386 ------------- ------------- LIABILITIES: Payable for investment securities purchased -- 1,764,000 Payable for fund shares redeemed 266,389 3,541,514 Payable to custodian -- 11,244 Payable to affiliate 113,502 562,881 Other accrued expenses and liabilities 368,181 151,216 ------------- ------------- Total Liabilities 748,072 6,030,855 ------------- ------------- NET ASSETS $ 129,332,134 $ 419,491,531 ============= ============= NET ASSETS CONSIST OF: Paid-in capital $ 126,900,209 $ 444,321,017 Undistributed (overdistributed) net investment income (151,922) 262,132 Accumulated net realized gain (loss) on investments and foreign currency (891,931) 5,144,545 Net unrealized appreciation (depreciation) of investments 3,475,778 (30,236,163) ------------- ------------- Net Assets $ 129,332,134 $ 419,491,531 ============= ============= * Cost of securities $ 121,137,767 $ 435,495,772
See Accompanying Notes to Financial Statements 32
Balanced Convertible Fund Fund ------------ ------------ Class A: Net Assets $ 59,930,594 $113,796,177 Shares authorized unlimited unlimited Par Value 0.00 0.00 Shares outstanding 4,423,776 6,063,162 Net asset value and redemption price per share $ 13.55 $ 18.77 Maximum offering price per share $ 14.37 $ 19.91 Class B: Net Assets $ 36,688,078 $132,201,152 Shares authorized unlimited unlimited Par Value 0.00 0.00 Shares outstanding 2,520,568 6,443,195 Net asset value and redemption price per share $ 14.56 $ 20.52 Maximum offering price per share $ 14.56 $ 20.52 Class C: Net Assets $ 23,300,074 $131,870,193 Shares authorized unlimited unlimited Par Value 0.00 0.00 Shares outstanding 1,786,898 6,855,734 Net asset value and redemption price per share $ 13.04 $ 19.24 Maximum offering price per share $ 13.04 $ 19.24 Class Q: Net Assets $ 358,176 $ 41,624,009 Shares authorized unlimited unlimited Par Value 0.00 0.00 Shares outstanding 26,602 2,289,819 Net asset value and redemption price per share $ 13.46 $ 18.18 Maximum offering price per share $ 13.46 $ 18.18 Class T: Net Assets $ 9,055,212 n/a Shares authorized unlimited n/a Par Value 0.00 n/a Shares outstanding 623,714 n/a Net asset value and redemption price per share $ 14.52 n/a Maximum offering price per share $ 14.52 n/a
(1) Maximum offering price is computed at 100/94.25 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. 33 - ----------- U.S. Equity Funds - ----------- STATEMENTS OF OPERATIONS for the six months ended December 31, 2000 (unaudited) - --------------------------------------------------------------------------------
LargeCap LargeCap MidCap MagnaCap Leaders Growth Value Fund Fund Fund Fund ------------- ------------- ------------- ------------- INVESTMENT INCOME: Dividends (net of withholding tax of $38,299, $927, $1,085, $0, $0, $0 and $0, respectively) $ 3,114,497 $ 436,740 $ 772,491 $ 164,475 Interest 510,716 46,045 1,465,626 101,585 ------------- ------------- ------------- ------------- Total Investment Income 3,625,213 482,785 2,238,117 266,060 ------------- ------------- ------------- ------------- EXPENSES: Investment management fees 1,492,520 159,909 2,647,427 124,648 Distribution fees: Class A 453,210 12,482 340,757 11,850 Class B 427,228 105,507 1,649,923 74,516 Class C 20,538 7,832 787,941 6,615 Class M 48,049 17,097 -- 13,167 Class Q 13,239 516 29,610 141 Transfer agent fees 268,161 30,085 349,950 27,174 Shareholder reporting fees 134,093 11,795 137,201 25,061 Registration and filing fees 39,310 26,365 35,606 21,621 Recordkeeping and pricing fees 13,998 3,450 17,400 996 Professional fees 29,606 2,454 18,818 2,392 Custody fees 25,800 3,660 18,098 2,707 Shareholder servicing fees 5,675 1,027 10,218 6,934 Directors' fees 15,123 1,764 5,820 1,819 Insurance fees 976 33 605 53 Miscellaneous fees 4,111 9,870 697 622 Interest and credit facility fees 3,885 256 4,364 253 Organization fees -- -- -- 2,905 ------------- ------------- ------------- ------------- Total expenses 2,995,522 394,102 6,054,435 323,474 ------------- ------------- ------------- ------------- Less waived and reimbursed fees/(recoupment) -- -- (10,162) 5,351 ------------- ------------- ------------- ------------- Net expenses 2,995,522 394,102 6,064,597 318,123 ------------- ------------- ------------- ------------- Net investment income (loss) 629,691 88,683 (3,826,480) (52,063) ------------- ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 22,096,881 3,736 (53,416,827) (452,799) Net change in unrealized appreciation (depreciation) of investments (6,793,132) 507,564 (135,256,988) 1,602,614 Net realized and unrealized gain (loss) on investments 15,303,749 511,300 (188,673,815) 1,149,815 ------------- ------------- ------------- ------------- Increase (decrease) in net assets resulting from operations $ 15,933,440 $ 599,983 $(192,500,295) $ 1,097,752 ============= ============= ============= ============= MidCap SmallCap Growth Growth Fund Fund ------------- ------------- INVESTMENT INCOME: Dividends (net of withholding tax of $38,299, $927, $1,085, $0, $0, $0 and $0, respectively) $ 787,622 $ 314,169 Interest 822,540 1,161,020 ------------- ------------ Total Investment Income 1,610,162 1,475,189 ------------- ------------ EXPENSES: Investment management fees 2,056,552 2,488,223 Distribution fees: Class A 274,848 204,832 Class B 606,339 370,534 Class C 1,246,265 833,646 Class M -- -- Class Q 26,047 -- Transfer agent fees 317,678 347,447 Shareholder reporting fees 143,810 77,096 Registration and filing fees 43,839 41,323 Recordkeeping and pricing fees 26,989 499,058 Professional fees 27,589 25,576 Custody fees 33,494 48,392 Shareholder servicing fees 8,595 -- Directors' fees 7,805 11,040 Insurance fees 471 439 Miscellaneous fees 989 59,800 Interest and credit facility fees 3,395 3,179 Organization fees -- -- ------------- ------------ Total expenses 4,824,705 5,010,585 ------------- ------------ Less waived and reimbursed fees/(recoupment) (24,047) (2,623) ------------- ------------ Net expenses 4,848,752 5,013,208 ------------- ------------ Net investment income (loss) (3,238,590) (3,538,019) ------------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 33,716,117 21,731,434 Net change in unrealized appreciation (depreciation) of investments (102,286,709) (69,712,967) Net realized and unrealized gain (loss) on investments (68,570,592) (47,981,533) ------------- ------------ Increase (decrease) in net assets resulting from operations $ (71,809,182) $(51,519,552) ============= ============
See Accompanying Notes to Financial Statements 34 - ------ Income Funds - ------ STATEMENTS OF OPERATIONS for the six months ended December 31, 2000 (unaudited) - --------------------------------------------------------------------------------
Government Strategic Securities Income High Yield High Yield Income Fund Fund Fund Fund II ------------ ------------ ------------ ------------ INVESTMENT INCOME: Dividends $ -- $ 32,121 $ -- $ 57,600 Interest 3,798,948 463,176 15,201,392 10,562,405 ------------ ------------ ------------ ------------ Total Investment Income 3,798,948 495,297 15,201,392 10,620,005 ------------ ------------ ------------ ------------ EXPENSES: Investment management fees 278,070 28,255 765,315 502,190 Distribution fees: Class A 65,207 5,192 86,196 50,180 Class B 170,873 18,386 852,536 457,981 Class C 19,796 16,674 26,439 97,502 Class M 1,910 -- 38,770 -- Class Q 187 302 19 4,567 Class T 65,876 -- -- 85,110 Transfer agent fees 72,447 12,825 176,775 138,118 Shareholder reporting fees 52,725 4,721 55,703 33,261 Registration and filing fees 25,216 21,695 41,013 88,409 Recordkeeping and pricing fees 6,000 2,470 9,000 1,800 Professional fees 11,924 1,621 40,434 19,906 Custody fees 14,076 5,221 39,078 30,568 Shareholder servicing fees 905 2,463 5,835 1,617 Directors' fees 1,194 504 11,595 3,694 Insurance fees -- 19 502 920 Miscellaneous fees 1,457 30,408 49,098 936 Interest and credit facility fees -- 93 2,462 -- Organization fees -- -- -- -- Administrative fees -- -- -- -- ------------ ------------ ------------ ------------ Total expenses 787,863 150,849 2,200,770 1,516,759 ------------ ------------ ------------ ------------ Less waived and reimbursed fees/(recoupment) -- 72,643 109,813 184,765 ------------ ------------ ------------ ------------ Net expenses 787,863 78,206 2,090,957 1,331,994 ------------ ------------ ------------ ------------ Net investment income 3,011,085 417,091 13,110,435 9,288,011 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized loss on investments (70,957) (651,700) (69,393,557) (23,284,108) Net realized loss on foreign currency -- -- (1,040) -- Net change in unrealized appreciation (depreciation) of investments 3,731,901 169,709 8,596,753 (16,105,086) Net realized and unrealized gain (loss) on investments 3,660,944 (481,991) (60,797,844) (39,389,194) ------------ ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations $ 6,672,029 $ (64,900) $(47,687,409) $(30,101,183) ============ ============ ============ ============
See Accompanying Notes to Financial Statements 35 - ------------ Equity & Income Funds - ------------ STATEMENTS OF OPERATIONS for the six months ended December 31, 2000 (unaudited) - --------------------------------------------------------------------------------
Balanced Convertible Fund Fund ------------- ------------- INVESTMENT INCOME: Dividends (net of withholding tax of $6,329 and $0, respectively) $ 610,174 $ 2,605,817 Interest 2,536,242 5,558,394 ------------- ------------- Total Investment Income 3,146,416 8,164,211 ------------- ------------- EXPENSES: Investment management fees 505,702 1,835,770 Distribution fees: Class A 108,197 234,552 Class B 196,792 730,689 Class C 107,872 773,072 Class Q 367 207,447 Class T 43,931 -- Transfer agent fees 99,955 219,723 Shareholder reporting fees 73,399 71,086 Registration and filing fees 35,373 33,623 Recordkeeping and pricing fees -- 30,689 Professional fees 24,455 19,517 Custody fees 3,720 9,605 Shareholder servicing fees 5,107 7,830 Directors' fees 10,082 6,181 Insurance fees -- 427 Miscellaneous fees 15,653 2,713 Interest and credit facility fees -- 4,904 ------------- ------------- Total expenses 1,230,605 4,187,828 ------------- ------------- Less waived and reimbursed fees/(recoupment) 77,654 (27,934) ------------- ------------- Net expenses 1,152,951 4,215,762 ------------- ------------- Net investment income 1,993,465 3,948,449 ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: Net realized gain (loss) on investments (502,718) 31,464,133 Net realized loss on foreign currency (120) -- Net change in unrealized depreciation of investments (1,118,161) (109,799,491) ------------- ------------- Net realized and unrealized loss on investments (1,620,999) (78,335,358) ------------- ------------- Increase (decrease) in net assets resulting from operations $ 372,466 $ (74,386,909) ============= =============
See Accompanying Notes to Financial Statements 36 - ----------- U.S. Equity Funds - ----------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
MagnaCap Fund LargeCap Leaders Fund ------------------------------ ------------------------------ Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------- ------------- ------------- ------------- (unaudited) (unaudited) Increase (decrease) in net assets from operations: Net investment income (loss) $ 629,691 $ 1,079,687 $ 88,683 $ (315,614) Net realized gain (loss) on investments 22,096,881 29,968,024 3,736 2,990,062 Net change in unrealized appreciation (depreciation) of investments (6,793,132) (35,597,984) 507,564 (1,997,225) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 15,933,440 (4,550,273) 599,983 677,223 Distributions to shareholders: Net investment income Class A (1,640,900) -- -- -- Class B (22,115) -- -- -- Class C (945) -- -- -- Class M (4,557) -- -- -- Class Q (66,993) -- -- -- Retail Classes -- (1,051,329) -- -- Net realized gain from investments (47,090,684) (48,878,271) (2,678,979) (4,377,644) ------------- ------------- ------------- ------------- Total distributions (48,826,194) (49,929,600) (2,678,979) (4,377,644) ------------- ------------- ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 20,727,618 169,844,202 6,406,421 18,374,425 Shares resulting from dividend reinvestments 40,311,960 45,853,052 2,114,804 4,014,953 ------------- ------------- ------------- ------------- 61,039,578 215,697,254 8,521,225 22,389,378 Cost of shares redeemed (44,274,076) (245,236,862) (6,005,557) (19,261,366) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions 16,765,502 (29,539,608) 2,515,668 3,128,012 Net increase (decrease) in net assets (16,127,252) (84,019,481) 436,672 (572,409) Net assets, beginning of period 417,667,984 501,687,465 37,807,986 38,380,395 ------------- ------------- ------------- ------------- Net assets, end of period $ 401,540,732 $ 417,667,984 $ 38,244,658 $ 37,807,986 ============= ============= ============= ============= Undistributed net investment income (loss) $ (232,943) $ 872,876 $ 88,683 $ -- ============= ============= ============= =============
See Accompanying Notes to Financial Statements 37 - ----------- U.S. Equity Funds - ----------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
LargeCap Growth Fund MidCap Value Fund ------------------------------ ------------------------------ Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------- ------------- ------------- ------------- (unaudited) (unaudited) Increase (decrease) in net assets from operations: Net investment income (loss) $ (3,826,480) $ (5,317,970) $ (52,063) $ (387,792) Net realized gain (loss) on investments (53,416,827) 13,498,698 (452,799) 2,719,300 Net change in unrealized appreciation (depreciation) of investments (135,256,988) 147,558,169 1,602,614 (9,096,135) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (192,500,295) 155,738,897 1,097,752 (6,764,627) Distributions to shareholders: Net investment income Class A -- -- -- -- Class B -- -- -- -- Class C -- -- -- -- Class M -- -- -- -- Class Q -- -- -- -- Retail Classes -- -- -- (275,268) Net realized gain from investments (8,506,742) (3,085,512) (2,008,796) -- ------------- ------------- ------------- ------------- Total distributions (8,506,742) (3,085,512) (2,008,796) (275,268) ------------- ------------- ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 219,260,397 532,535,020 11,995,297 8,647,560 Shares resulting from dividend reinvestments 5,063,112 2,521,879 1,654,564 249,416 ------------- ------------- ------------- ------------- 224,323,509 535,056,899 13,649,861 8,896,976 Cost of shares redeemed (97,427,811) (93,636,480) (7,677,115) (30,837,351) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions 126,895,698 441,420,419 5,972,746 (21,940,375) Net increase (decrease) in net assets (74,111,339) 594,073,804 5,061,702 (28,980,270) Net assets, beginning of period 697,037,752 102,963,948 31,415,470 60,395,740 ------------- ------------- ------------- ------------- Net assets, end of period $ 622,926,413 $ 697,037,752 $ 36,477,172 $ 31,415,470 ============= ============= ============= ============= Undistributed net investment income (loss) $ (3,826,480) $ -- $ (52,063) $ -- ============= ============= ============= =============
See Accompanying Notes to Financial Statements 38 - ----------- U.S. Equity Funds - ----------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
MidCap Growth Fund SmallCap Growth Fund ------------------------------ ------------------------------ Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------- ------------- ------------- ------------- (unaudited) (unaudited) Increase (decrease) in net assets from operations: Net investment income (loss) $ (3,238,590) $ (6,452,374) $ (3,538,019) $ (7,259,094) Net realized gain (loss) on investments 33,716,117 85,093,448 21,731,434 85,003,902 Net change in unrealized appreciation (depreciation) of investments (102,286,709) 119,946,995 (69,712,967) 102,235,975 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (71,809,182) 198,588,069 (51,519,552) 179,980,783 ------------- ------------- ------------- ------------- Distributions to shareholders: Net investment income Class A -- -- -- -- Class B -- -- -- -- Class C -- -- -- -- Class M -- -- -- -- Class Q -- -- -- -- Retail Classes -- -- -- -- Net realized gain from investments (93,905,974) (88,397,148) (55,575,913) (158,396,508) ------------- ------------- ------------- ------------- Total distributions (93,905,974) (88,397,148) (55,575,913) (158,396,508) ------------- ------------- ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 167,826,518 353,806,052 154,451,419 364,010,289 Shares resulting from dividend reinvestments 44,621,199 78,987,177 23,223,919 136,805,877 ------------- ------------- ------------- ------------- 212,447,717 432,793,229 177,675,338 500,816,166 Cost of shares redeemed (105,993,699) (281,762,942) (132,263,654) (331,453,908) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions 106,454,018 151,030,287 45,411,684 169,362,258 Net increase (decrease) in net assets (59,261,138) 261,221,208 (61,683,781) 190,946,533 Net assets, beginning of period 541,356,593 280,135,385 507,519,255 316,572,722 ------------- ------------- ------------- ------------- Net assets, end of period $ 482,095,455 $ 541,356,593 $ 445,835,474 $ 507,519,255 ============= ============= ============= ============= Undistributed net investment income (loss) $ (3,238,590) $ -- $ (3,538,019) $ -- ============= ============= ============= =============
See Accompanying Notes to Financial Statements 39 - ------ Income Funds - ------ STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Government Securities Income Fund Strategic Income Fund --------------------------------- ------------------------------ Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------- ------------- ------------- ------------- (unaudited) (unaudited) Increase (decrease) in net assets from operations: Net investment income $ 3,011,085 $ 2,938,280 $ 417,091 $ 970,594 Net realized loss on investments (70,957) (942,655) (651,700) (764,277) Net change in unrealized appreciation (depreciation) of investments 3,731,901 192,297 169,709 133,421 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 6,672,029 2,187,922 (64,900) 339,738 ------------- ------------- ------------- ------------- Distributions to shareholders: Net investment income Class A (1,523,390) -- (96,316) -- Class B (889,840) -- (153,744) -- Class C (97,169) -- (140,829) -- Class M (13,932) -- (10,397) -- Class Q (3,715) -- -- -- Class T (581,164) -- -- -- Retail Classes -- (2,747,609) -- (951,573) Advisory and Institutional Classes -- (51) -- (14,213) ------------- ------------- ------------- ------------- Total distributions (3,109,210) (2,747,660) (401,286) (965,786) ------------- ------------- ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 135,920,772 92,583,796 10,941,579 17,563,244 Net proceeds from shares issued in merger -- -- -- -- Shares resulting from dividend reinvestments 1,874,264 82,467,112 30,251 496,450 ------------- ------------- ------------- ------------- 137,795,036 175,050,908 10,971,830 18,059,694 Cost of shares redeemed (123,158,412) (95,368,858) (9,218,070) (22,583,786) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions 14,636,624 79,682,050 1,753,760 (4,524,092) Net increase (decrease) in net assets 18,199,443 79,122,312 1,287,574 (5,150,140) Net assets, beginning of period 113,365,132 34,242,820 11,380,184 16,530,324 ------------- ------------- ------------- ------------- Net assets, end of period $ 131,564,575 $ 113,365,132 $ 12,667,758 $ 11,380,184 ============= ============= ============= ============= Undistributed (overdistributed) net investment income $ (98,125) $ -- $ 507,044 $ 491,239 ============= ============= ============= =============
See Accompanying Notes to Financial Statements 40 - ------ Income Funds - ------ STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
High Yield Fund High Yield Fund II ------------------------------ ------------------------------ Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------- ------------- ------------- ------------- (unaudited) (unaudited) Increase (decrease) in net assets from operations: Net investment income $ 13,110,435 $ 36,230,377 $ 9,288,011 $ 10,617,663 Net realized loss on investments and foreign currency (69,394,597) (25,618,407) (23,284,108) (5,014,882) Net change in unrealized appreciation (depreciation) of investments 8,596,753 (31,769,051) (16,105,086) (2,564,989) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (47,687,409) (21,157,081) (30,101,183) 3,037,792 ------------- ------------- ------------- ------------- Distributions to shareholders: Net investment income Class A (4,477,242) -- (1,633,761) -- Class B (10,433,433) -- (4,920,527) -- Class C (324,051) -- (1,046,113) -- Class M (649,371) -- -- -- Class Q (961) -- (205,395) -- Class T -- -- (1,451,305) -- Retail Classes -- (36,230,374) -- (10,642,507) Advisory and Institutional Classes -- (3) -- (408,689) Tax return of capital Retail Classes -- (2,218,003) -- -- ------------- ------------- ------------- ------------- Total distributions (15,885,058) (38,448,380) (9,257,101) (11,051,196) ------------- ------------- ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 45,058,663 169,075,396 13,704,007 52,761,331 Net proceeds from shares issued in merger -- -- -- 142,232,354 Shares resulting from dividend reinvestments 5,362,371 14,545,896 3,554,757 4,467,190 ------------- ------------- ------------- ------------- 50,421,034 183,621,292 17,258,764 199,460,875 Cost of shares redeemed (91,714,239) (237,672,115) (47,315,458) (72,762,619) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions (41,293,205) (54,050,823) (30,056,694) 126,698,256 Net increase (decrease) in net assets (104,865,672) (113,656,284) (69,414,978) 118,684,852 Net assets, beginning of period 304,147,676 417,803,960 199,209,051 80,524,199 ------------- ------------- ------------- ------------- Net assets, end of period $ 199,282,004 $ 304,147,676 $ 129,794,073 $ 199,209,051 ============= ============= ============= ============= Undistributed (overdistributed) net investment income $ (2,774,623) $ -- $ (226,043) $ -- ============= ============= ============= =============
* Fund commenced operations on July 12, 1999 See Accompanying Notes to Financial Statements 41 - ------------ Equity & Income Funds - ------------ STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Balanced Fund Convertible Fund ------------------------------ ------------------------------ Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------- ------------- ------------- ------------- (unaudited) (unaudited) Increase (decrease) in net assets from operations: Net investment income $ 1,993,465 $ 1,744,544 $ 3,948,449 $ 4,826,371 Net realized gain (loss) on investments (502,718) 10,481,616 31,464,133 70,655,086 Net realized loss on foreign currency (120) -- -- -- Net change in unrealized appreciation (depreciation) of investments (1,118,161) (17,791,175) (109,799,491) 29,680,606 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations 372,466 (5,565,015) (74,386,909) 105,162,063 ------------- ------------- ------------- ------------- Distributions to shareholders: Net investment income Class A (1,650,212) -- (2,216,541) -- Class B (752,555) -- (1,521,323) -- Class C (514,309) -- (1,752,931) -- Class Q (7,624) -- (957,920) -- Class T (230,603) -- -- -- Retail Classes -- (788,708) -- (2,701,792) Advisory and Institutional Classes -- (4,652) -- (450,509) Net realized gain from investments (10,205,280) (7,355,531) (91,080,549) (42,129,281) ------------- ------------- ------------- ------------- Total distributions (13,360,583) (8,148,891) (97,529,264) (45,281,582) ------------- ------------- ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 12,027,261 14,115,466 121,273,131 220,047,461 Net proceeds from shares issued in merger -- 6,982,714 -- -- Shares resulting from dividend reinvestments 10,310,587 120,445,073 61,319,614 38,566,753 ------------- ------------- ------------- ------------- 22,337,848 141,543,253 182,592,745 258,614,214 Cost of shares redeemed (21,656,891) (24,486,297) (74,865,246) (93,851,800) ------------- ------------- ------------- ------------- Net increase in net assets resulting from capital share transactions 680,957 117,056,956 107,727,499 164,762,414 Net increase (decrease) in net assets (12,307,160) 103,343,050 (64,188,674) 224,642,895 Net assets, beginning of period 141,639,294 38,296,244 483,680,205 259,037,310 ------------- ------------- ------------- ------------- Net assets, end of period $ 129,332,134 $ 141,639,294 $ 419,491,531 $ 483,680,205 ============= ============= ============= ============= Undistributed (overdistributed) net investment income $ (151,922) $ 1,009,916 $ 262,132 $ 2,762,398 ============= ============= ============= =============
See Accompanying Notes to Financial Statements 42 FINANCIAL HIGHLIGHTS PILGRIM MAGNACAP FUND (UNAUDITED) - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months Ended Nov. 22, 1999(1) December 31, to 2000 June 30, 2000 ---- ------------- Per Share Operating Performance: Net asset value, beginning of period $ 15.84 16.26 Income from investment operations: Net investment income $ 0.06 0.05 Net realized and unrealized gain (loss) on investments $ 0.55 (0.47) Total from investment operations $ 0.61 (0.42) Less distributions from: Net investment income $ 0.10 -- Net realized gains on investments $ 1.88 -- Net asset value, end of period $ 14.47 15.84 Total Return(2): % 4.02 (2.58) Ratios/Supplemental Data: Net assets, end of period (000's) $ 11,033 9,928 Ratios to average net assets: Expenses(3) % 1.23 1.24 Net investment income(3) % 0.53 0.46 Portfolio turnover % 28 26
- ---------- (1) Commencement of offering 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 for less than one year is not annualized. (3) Annualized for periods less than one year. See Accompanying Notes to Financial Statements 43 FINANCIAL PILGRIM LARGECAP LEADERS FUND (UNAUDITED) HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months April 4, Ended 2000(1) to December 31, June 30, 2000 2000 ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 15.88 16.67 Income from investment operations: Net investment income $ 0.02 -- Net realized and unrealized gain (loss) on investments $ 0.23 (0.79) Total from investment operations $ 0.25 (0.79) Less distributions from: Net realized gains on investments $ 1.13 -- Net asset value, end of period $ 15.00 15.88 Total Return(2): % 1.65 (4.74) Ratios/Supplemental Data: Net assets, end of period ($000's) $ 666 199 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.58 1.75 Gross expenses prior to expense reimbursement(3) % 1.58 1.84 Net investment income (loss) after expense reimbursement(3)(4) % 0.54 (0.27) Portfolio turnover % 16 39
- ---------- (1) Commencement of offering 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 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. See Accompanying Notes to Financial Statements 44 FINANCIAL HIGHLIGHTS PILGRIM LARGECAP GROWTH FUND (UNAUDITED) - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months Year Three months Year July 21, Ended Ended Ended Ended 1997(1) to December 31, June 30, June 30, March 31, March 31, 2000 2000 1999(2) 1999 1998 ---- ---- ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 43.71 28.43 25.24 15.66 12.50 Income from investment operations: Net investment loss $ (0.13) (0.20) (0.03) (0.02) (0.01) Net realized and unrealized gain (loss) on investments $ (10.48) 15.86 3.22 9.87 3.26 Total from investment operations $ (10.61) 15.66 3.19 9.85 3.25 Less distributions from: Net investment income $ -- -- -- -- 0.01 Net realized gains on investments $ 0.46 0.38 -- 0.27 0.08 Net asset value, end of period $ 32.64 43.71 28.43 25.24 15.66 Total Return(3): % (24.33) 55.57 12.64 63.76 62.47 Ratios/Supplemental Data: Net assets, end of period ($000's) $ 17,688 24,838 6,044 4,908 799 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.18 1.26 1.23 1.26 1.25 Gross expenses prior to expense reimbursement(4) % 1.18 1.26 1.25 1.91 10.45 Net investment loss after expense reimbursement(4)(5) % (0.57) (0.77) (0.36) (0.28) (0.62) Portfolio turnover % 121 139 27 253 306
- ---------- (1) The Fund commenced operations on July 21, 1997. (2) Effective May 24, 1999, Pilgrim Investments Inc., became the Investment Manager of the Fund; concurrently, Nicholas-Applegate Capital Management was appointed as sub-advisor 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 agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. See Accompanying Notes to Financial Statements 45 FINANCIAL PILGRIM MIDCAP VALUE FUND (UNAUDITED) HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months January 3, Ended 2000(1) to December 31, June 30, 2000 2000 ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 14.29 13.53 Income from investment operations: Net investment loss $ (0.02) (0.02) Net realized and unrealized gains on investments $ 0.47 0.78 Total from investment operations $ 0.45 0.76 Less distributions from: Net realized gains on investments $ 1.08 -- Net asset value, end of period $ 13.66 14.29 Total Return(2): % 3.50 5.62 Ratios/Supplemental Data: Net assets, end of period ($000's) $ 35 139 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.69 1.75 Gross expenses prior to expense reimbursement(3) % 1.69 1.88 Net investment loss after expense reimbursement(3)(4) % (0.08) (0.49) Portfolio turnover % 29 122
- ---------- (1) Commencement of offering 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 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. See Accompanying Notes to Financial Statements 46 FINANCIAL HIGHLIGHTS PILGRIM MIDCAP GROWTH FUND (UNAUDITED) - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months Year Three months Ended Ended Ended Year Ended March 31, December 31, June 30, June 30, -------------------------------- 2000 2000 1999(1) 1999 1998 1997 1996 ---- ---- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 35.67 26.94 25.14 23.30 18.01 17.99 13.66 Income from investment operations: Net investment loss $ (0.08) (0.29) (0.06) (0.12) (0.21) (0.04) (0.07) Net realized and unrealized gain (loss) on investments $ (4.10) 17.92 1.86 3.56 7.48 0.32 4.86 Total from investment operations $ (4.18) 17.63 1.80 3.44 7.27 0.28 4.79 Less distributions from: Net realized gains on investments $ 5.96 8.90 -- 1.60 1.98 0.26 0.46 Net asset value, end of period $ 25.53 35.67 26.94 25.14 23.30 18.01 17.99 Total Return(2): % (12.43) 77.87 7.16 15.77 42.00 1.39 35.37 Ratios/Supplemental Data: Net assets, end of period (000's) $ 19,622 19,792 19,383 14,350 12,204 13,115 4,274 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.24 1.26 1.24 1.23 1.22 1.25 1.23 Gross expenses prior to expense reimbursement(3) % 1.24 1.26 1.25 1.31 1.95 1.84 2.84 Net investment loss after expense reimbursement(3)(4) % (0.65) (1.00) (0.95) (0.71) (0.97) (0.69) (0.57) Portfolio turnover % 29 148 55 154 200 153 114
- ---------- (1) Effective May 24, 1999, Pilgrim Investments, Inc. became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor and the Fund changed its year end to June 30. (2) Total return is calculated assuming reinvestment of 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 Investment Manager has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. See Accompanying Notes to Financial Statements 47 FINANCIAL PILGRIM SMALLCAP GROWTH FUND (UNAUDITED) HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months Year Three months August 31, Ended Ended Ended Year Ended March 31, 1995(2) to December 31, June 30, June 30, ---------------------- March 31, 2000 2000 1999(1) 1999 1998 1997 1996 ---- ---- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 20.47 21.19 18.56 19.27 13.19 14.16 12.50 Income from investment operations: Net investment income (loss) $ (0.09) (0.21) (0.06) (0.15) 0.03 (0.07) (0.03) Net realized and unrealized gain (loss) on investments $ (1.86) 10.30 2.69 0.22 6.16 (0.77) 1.69 Total from investment operations $ (1.95) 10.09 2.63 0.07 6.19 (0.84) 1.66 Less distributions from: Net realized gains on investments $ 2.24 10.81 -- 0.78 0.11 0.13 -- Net asset value, end of period $ 16.28 20.47 21.19 18.56 19.27 13.19 14.16 Total Return(3): % (9.84) 61.08 14.17 0.96 47.01 (6.03) 13.28 Ratios/Supplemental Data: Net assets, end of period (000's) $ 11,999 12,569 11,013 9,107 12,508 1,013 314 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.50 1.52 1.45 1.53 1.52 1.51 1.49 Gross expenses prior to expense reimbursement(4) % 1.50 1.57 1.49 1.63 2.39 10.79 37.86 Net investment loss after expense reimbursement(4)(5) % (0.91) (1.21) (1.21) (0.97) (1.52) (1.02) (1.05) Portfolio turnover % 63 127 32 90 92 113 130
- ---------- (1) Effective May 24, 1999, Pilgrim Investments, Inc., became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor and the Fund changed its year end to June 30. (2) Commencement of offering shares. (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. See Accompanying Notes to Financial Statements 48 FINANCIAL PILGRIM GOVERNMENT SECURITIES INCOME FUND (UNAUDITED) HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months April 5, Ended 2000(1) to December 31, June 30, 2000 2000 ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 11.94 11.88 Income from investment operations: Net investment income $ 0.66 0.15 Net realized and unrealized gain on investments $ 0.08 0.03 Total from investment operations $ 0.74 0.18 Less distributions from: Net investment income $ 0.36 0.12 Net asset value, end of period $ 12.32 11.94 Total Return(2): % 6.35 0.94 Ratios/Supplemental Data: Net assets, end of period (000's) $ 332 22 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.08 1.35 Gross expenses prior to expense reimbursement(3) % 1.08 1.35 Net investment income after expense reimbursement(3)(4) % 5.70 5.87 Portfolio turnover % 31 44
- ---------- (1) Commencement of offering 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 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. See Accompanying Notes to Financial Statements 49 FINANCIAL HIGHLIGHTS PILGRIM STRATEGIC INCOME FUND (UNAUDITED) - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months Year Three months July 27 Ended Ended Ended 1998(1) to December 31, June 30, June 30, March 31, 2000 2000 1999(2) 1999 ---- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 11.45 11.99 12.26 12.43 Income from investment operations: Net investment income $ 0.31 0.94 0.25 0.48 Net realized and unrealized loss on investments $ (0.33) (0.54) (0.38) (0.04) Total from investment operations $ (0.02) 0.40 (0.13) 0.44 Less distributions from: Net investment income $ 0.40 0.94 0.14 0.50 Net realized gains on investments $ -- -- -- 0.11 Net asset value, end of period $ 11.03 11.45 11.99 12.26 Total Return(3): % (0.15) 3.55 1.16 5.78 Ratios/Supplemental Data: Net assets, end of period (000's) $ 227 228 171 314 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 0.85 0.86 0.71 0.69 Gross expenses prior to expense reimbursement(4) % 2.01 2.54 1.37 1.74 Net investment income after expense reimbursement(4)(5) % 7.10 7.79 6.07 6.03 Portfolio turnover % 77 168 69 274
- ---------- (1) The Fund commenced operations on July 27, 1998. (2) Effective May 24, 1999, Pilgrim Investments, Inc., 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 agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. See Accompanying Notes to Financial Statements 50 FINANCIAL PILGRIM HIGH YIELD FUND (UNAUDITED) HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months Year From June 17 Ended Ended thru December 31, June 30, June 30, 2000 2000 1999(1) ---- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 5.60 5.93 5.91 Income (loss) from investment operations: Net investment income $ 0.23 0.60 0.02 Net realized and unrealized loss on investments $ (1.03) (0.33) -- Total from investment operation $ (0.80) (0.27) 0.02 Less distributions from: Net investment income $ 0.30 0.60 -- Total distributions $ 0.30 0.60 -- Net asset value, end of period $ 4.50 5.60 5.93 Total Return(2): % (19.20) (5.29) 0.34 Ratios/Supplemental Data: Net assets, end of period (000's) $ -- -- -- Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.02 1.05 -- Gross expenses prior to expense reimbursement(3) % 1.10 1.17 -- Net investment income after expense reimbursement(3)(4) % 10.92 10.41 -- Portfolio turnover rate % 71 89 184
- ---------- (1) Commencement of offering 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. See Accompanying Notes to Financial Statements 51 FINANCIAL HIGHLIGHTS PILGRIM HIGH YIELD FUND II (UNAUDITED) - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months Year Three months Year March 27, Ended Ended Ended Ended 1998(1) to December 31, June 30, June 30, March 31, March 31, 2000 2000 1999(2) 1999 1998 ---- ---- ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 10.82 11.59 11.68 12.72 12.70 Income from investment operations: Net investment income $ 0.57 1.20 0.30 1.16 0.01 Net realized and unrealized gain (loss) on investments $ (2.36) (0.76) (0.11) (1.01) 0.01 Total from investment operations $ (1.79) 0.44 0.19 0.15 0.02 Less distributions from: Net investment income $ 0.57 1.21 0.28 1.19 -- Net asset value, end of period $ 8.46 10.82 11.59 11.68 12.72 Total Return(3): % (17.01) 4.04 1.63 1.40 0.16 Ratios/Supplemental Data: Net assets, end of period (000's) $ 1,442 6,882 3,229 6,502 567 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.00 1.08 0.90 0.87 0.97 Gross expenses prior to expense reimbursement(4) % 1.22 1.27 1.17 1.28 0.97 Net investment income after expense reimbursement(4)(5) % 11.54 10.73 9.88 10.01 7.53 Portfolio turnover % 70 113 44 242 484
- ---------- (1) The Fund commenced operations on March 27, 1998. (2) Effective May 24, 1999, Pilgrim Investments, Inc., 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 agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses See Accompanying Notes to Financial Statements 52 FINANCIAL HIGHLIGHTS PILGRIM BALANCED FUND (UNAUDITED) - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months Year Three Months August 31, Ended Ended Ended Year Ended March 31, 1995(1) to December 31, June 30, June 30, ---------------------- March 31, 2000 2000 1999(2) 1999 1998 1997 1996 ---- ---- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 14.94 19.04 18.85 18.48 13.42 12.69 12.50 Income from investment operations: Net investment income $ 0.27 0.54 0.11 0.44 0.30 0.24 0.15 Net realized and unrealized gain (loss) on investments $ (0.24) (0.57) 0.16 2.50 5.07 0.73 0.19 Total from investment operations $ 0.03 (0.03) 0.27 2.94 5.37 0.97 0.34 Less distributions from: Net investment income $ 0.36 0.40 0.08 0.50 0.31 0.24 0.15 Net realized gains on investments $ 1.15 3.67 -- 2.07 -- -- -- Net asset value, end of period $ 13.46 14.94 19.04 18.85 18.48 13.42 12.69 Total Return(3): % (0.18) (0.60) 1.44 17.49 40.21 7.60 2.77 Ratio/Supplemental Data: Net assets, end of period (in thousands) $ 358 230 190 176 166 73 1 Ratio to average net assets: Net expenses after expense reimbursement(4)(5) % 1.13 1.30 1.25 1.25 1.26 1.26 1.25 Gross expenses prior to expense reimbursement(4) % 1.25 1.51 1.51 1.63 11.28 126.75 3,094.48 Net investment income after expense reimbursement(4)(5) % 3.48 3.36 2.30 2.41 4.09 2.15 2.16 Portfolio turnover % 27 173 63 165 260 213 197
- ---------- (1) Commencement of offering of shares. (2) Effective May 24, 1999, Pilgrim Investments, Inc., 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 agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses See Accompanying Notes to Financial Statements 53 FINANCIAL PILGRIM CONVERTIBLE FUND (UNAUDITED) HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Six Months Year Three Months August 31, Ended Ended Ended Year Ended March 31, 1995(2) to December 31, June 30, June 30, -------------------- March 31, 2000 2000 1999(1) 1999 1998 1997 1996 ---- ---- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 26.85 22.51 21.22 18.47 15.19 13.72 12.50 Income from investment operations: Net investment income $ 0.26 0.44 0.09 0.43 0.48 0.42 0.17 Net realized and unrealized gain (loss) on investments $ (3.80) 7.82 1.31 3.09 4.19 1.50 1.22 Total from investment operations $ (3.54) 8.26 1.40 3.52 4.67 1.92 1.39 Less distributions from: Net investment income $ 0.43 0.35 0.11 0.46 0.48 0.42 0.17 Net realized gains on investments $ 4.70 3.57 -- 0.31 0.91 0.03 -- Net asset value, end of period $ 18.18 26.85 22.51 21.22 18.47 15.19 13.72 Total Return(3): % (14.17) 40.36 6.62 19.66 31.54 14.13 11.13 Ratios/Supplemental Data: Net assets, end of period (in thousands) $ 41,624 56,165 17,537 8,741 7,080 4,599 1,085 Ratio to average net assets: Net expenses after expense reimbursement (recoupment)(4)(5) % 1.25 1.25 1.23 1.23 1.22 1.25 1.25 Gross expenses prior to expense reimbursement (recoupment)(4) % 1.23 1.25 1.23 1.35 2.35 2.90 9.21 Net investment income after expense reimbursement (recoupment)(4)(5) % 2.10 1.88 2.04 2.37 5.99 3.29 3.59 Portfolio turnover % 109 129 28 138 160 167 145
- ---------- (1) Effective May 24, 1999, Pilgrim Investments, Inc., became the Investment Manager of the Fund and the Fund changed its year end to June 30. (2) Commencement of offering shares. (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. See Accompanying Notes to Financial Statements 54 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 -- ORGANIZATION Organization. The Pilgrim Funds are comprised of Pilgrim Mutual Funds ("PMF"), Pilgrim Investment Funds, Inc. ("PIF"), Pilgrim Advisory Funds, Inc. ("PAF") and Pilgrim Government Securities Income Fund ("Government Securities Income Fund") which are each open-end investment management companies registered under the Investment Company Act of 1940, as amended. PMF is a Delaware business trust organized in 1992 with twelve separate series (Portfolios). Seven of the "Funds" in this report are: Pilgrim LargeCap Growth Fund, Pilgrim MidCap Growth Fund, Pilgrim SmallCap Growth Fund, Pilgrim Strategic Income Fund (formerly High Quality Bond Fund), Pilgrim High Yield Fund II, Pilgrim Balanced Fund and Pilgrim Convertible Fund. PIF, a Maryland Corporation organized in 1969, consists of Pilgrim MagnaCap Fund and Pilgrim High Yield Fund. PAF, a Maryland Corporation organized in 1995, consists of three series (Portfolios). Two of the "Funds" in this report are: Pilgrim MidCap Value Fund and Pilgrim LargeCap Leaders Fund. Government Securities Income Fund, a California Corporation organized in 1984, is the single series of Government Securities Income Fund. The investment objective of each Fund is described in each Fund's prospectus. Each Fund offers at least two of the following classes of shares: Class A, Class B, Class C, Class M, Class Q and Class T. The separate classes of shares differ principally in the applicable sales charges (if any), distribution fees, shareholder servicing fees and transfer agency 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 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. effective September 8, 2000. Reorganizations. Before a shareholder approved reorganization effective July 24, 1998, the funds comprising PMF invested all of their assets in corresponding portfolios of Nicholas-Applegate Investment Trust, an arrangement known as a "master/feeder" structure. Upon the reorganization, the Institutional Portfolio series of the Trust were renamed Funds and were authorized to issue multiple classes of shares, and their outstanding shares were classified as Class I shares. At the same time, the A, B, C and Advisory Portfolios of the Trust transferred their assets to the corresponding Funds, and their shareholders received Class A, B, C and Q shares of the Funds on a tax-free basis. Effective May 7, 1999 and concurrent with the change in investment adviser, from Nicholas Applegate Capital Management to Pilgrim Investments, Inc. the Institutional Classes of PMF were transferred in a tax free reorganization to new funds being managed by Nicholas-Applegate Capital Management. On November 16, 1999 the Boards of Trustees and Directors of the following funds approved a plan of reorganization for the transfer of assets and liabilities of the following: * Pilgrim Government Securities Fund into the Pilgrim Government Securities Income Fund * Pilgrim High Yield III Fund into the Pilgrim High Yield II Fund, and * Pilgrim Income & Growth Fund and Pilgrim Balance Sheet Opportunities Fund into the Pilgrim Balanced Fund 55 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- This plan of reorganization was subsequently approved by shareholders on March 20, 2000 and effective on March 31, 2000 the transfer of all assets and liabilites between the respective Funds was accomplished through a tax free exchange of shares. 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 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 in Pilgrim Strategic Income Fund, Pilgrim Balanced Fund and Pilgrim High Yield Fund II are valued at bid prices, (Pilgrim 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. U.S. Government obligations are valued by using market quotations or independent pricing services which uses 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. Investments in securities maturing in less than 60 days are valued at cost, which, when combined with accrued interest, approximates market value. B. Security Transactions and Revenue Recognition. Securities transactions are accounted for on the trade date. Realized gains 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 value. 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 56 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- 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 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. There were no open futures contracts at December 31, 2000. E. Distributions to Shareholders. The Funds record distributions to their shareholders on ex-date. Each Fund pays dividends, if any, as follows: Annually Semi-Annually Quarterly Monthly -------- ------------- --------- ------- LargeCap MagnaCap Balanced Strategic Leaders Convertible Income LargeCap Government Growth Securities MidCap Income Value High Yield MidCap High Growth Yield II SmallCap Growth Pilgrim High Yield II declares and goes ex-dividend daily and pays 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 they exceed net investment income and/or net realized 57 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- 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 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. 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 acceptable to it whose market value is equal to at least 100% of the amount being invested by the Fund. If the seller defaults, a Fund might incur a loss or delay in the realization of proceeds if the value of the collateral securing the repurchase agreement declines, and it might incur disposition costs in liquidating the collateral. I. Deferred Organization Expenses. Expenses incurred in connection with the organization and registration of the MidCap Value Fund under the Investment Company Act of 1940 and the Securities Act of 1933 were amortized a period of five years from the date of commencement of its operations. J. Securities Lending. Each Fund had the option to temporarily loan 331|M/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. 58 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- NOTE 3 -- INVESTMENT TRANSACTIONS For the six months ended December 31, 2000, the cost of purchases and proceeds from the sales of securities, excluding short-term securities, were as follows: Purchases Sales ------------ ------------ MagnaCap Fund $110,309,655 $144,488,715 LargeCap Leaders Fund 5,585,639 7,625,618 LargeCap Growth Fund 793,013,788 772,454,906 MidCap Value Fund 11,435,615 7,725,366 MidCap Growth 476,465,378 495,757,948 SmallCap Growth Fund 286,484,714 315,600,216 Government Securities Income Fund 38,800,560 34,187,425 Strategic Income Fund 10,562,547 8,972,231 High Yield Fund 155,771,369 193,640,778 High Yield Fund II 104,451,199 115,869,117 Balanced Fund 35,634,549 42,947,179 Convertible Fund 520,570,740 500,852,602 NOTE 4 -- INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES Each of the Funds has entered into an Investment Management Agreement with ING Pilgrim Investments, Inc. ("the Manager"), a wholly-owned subsidiary of ING Groep N.V. 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 SmallCap Growth -- 1.00%; for LargeCap Leaders and MidCap Value -- 0.85%; for LargeCap Growth, MidCap Growth, Balanced and Convertible -- 0.75% for the first $500 million, 0.675% of the next $500 million and 0.65% in excess of $1.0 billion; for High Yield and High Yield II -- 0.60%; for Strategic Income -- 0.45% for the first $500 million, 0.40% of the next $250 million and 0.35% in excess of $750 million; for MagnaCap -- 1.00% for the first $30 million, 0.75% of the next $220 million, 0.625% of the next $250 million and 0.50% in excess of $500 million; for Government Securities Income -- 0.50% for the first $500 million, 0.45% of the next $500 million and 0.40% in excess of $1.0 billion. NOTE 5 -- DISTRIBUTION FEES Each share class of the Funds 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. 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 the printing of prospectuses and reports used for sales purposes, expenses of preparation and printing of sales literature and other such distribution related expenses, including any distribution or 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 the following annual fees: Class A Class B Class C Class M Class Q Class T ------- ------- ------- ------- ------- ------- MagnaCap 0.30% 1.00% 1.00% 0.75% 0.25% N/A LargeCap Leaders 0.25 1.00 1.00 0.75 0.25 N/A LargeCap Growth 0.35 1.00 1.00 N/A 0.25 N/A MidCap Value 0.25 1.00 1.00 0.75 0.25 N/A MidCap Growth 0.35 1.00 1.00 N/A 0.25 N/A SmallCap Growth 0.35 1.00 1.00 N/A 0.25 N/A Government Securities Income 0.25 1.00 1.00 0.75 0.25 0.65% Strategic Income 0.35 0.75 0.75 N/A 0.25 N/A High Yield 0.25 1.00 1.00 0.75 0.25 N/A High Yield II 0.35 1.00 1.00 N/A 0.25 0.65 Balanced 0.35 1.00 1.00 N/A 0.25 0.75 Convertible 0.35 1.00 1.00 N/A 0.25 N/A For the six months ended December 31, 2000 the Funds paid the following distribution fees by class to the Distributor.
Class A Class B Class C Class M Class Q Class T -------- ---------- ---------- ------- ---------- ------- MagnaCap $453,210 $ 427,228 $ 20,538 $48,049 $ 13,239 N/A LargeCap Leaders 12,482 105,507 7,832 17,097 516 N/A LargeCap Growth 340,757 1,649,923 787,941 N/A 29,610 N/A MidCap Value 11,850 74,516 6,615 13,167 141 N/A MidCap Growth 274,848 606,339 1,246,265 N/A 26,047 N/A SmallCap Growth 204,832 370,534 833,646 N/A N/A N/A Government Securities Income 65,207 170,873 19,796 1,910 187 $65,876 Strategic Income 5,192 18,386 16,674 N/A 302 N/A High Yield 86,196 852,536 26,439 38,770 19 N/A High Yield II 50,180 457,981 97,502 N/A 4,567 85,110 Balanced 78,313 149,073 91,745 N/A N/A 37,875 Convertible 167,476 547,944 579,472 N/A N/A N/A
59 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- NOTE 6 -- SHAREHOLDER SERVICING FEES Each of the Funds has entered into a Service Agreement with ING Pilgrim Group, Inc. ("IPGI") whereby IPGI will act as Shareholder Service Agent for each Fund. The agreement provides that IPGI 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. Fees accrued during the six months ended December 31, 2000 are shown in the accompanying Statements of Operations. NOTE 7 -- EXPENSE WAIVERS For the following Funds, the Investment Manager has voluntarily agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses to the levels listed below: Class A Class B Class C Class M Class Q Class T ------- ------- ------- ------- ------- ------- LargeCap Leaders 1.75% 2.50% 2.50% 2.25% 1.75% N/A LargeCap Growth 1.60 2.25 2.25 N/A 1.25 N/A MidCap Value 1.75 2.50 2.50 2.25 1.75 N/A MidCap Growth 1.60 2.25 2.25 N/A 1.25 N/A SmallCap Growth 1.95 2.60 2.60 N/A 1.50 N/A Government Securities Income (1) (1) (1) (1) (1) (1) Strategic Income 0.95 1.35 1.35 N/A 0.85 N/A High Yield 1.10 1.85 1.85 1.60 1.10 N/A Class A Class B Class C Class M Class Q Class T ------- ------- ------- ------- ------- ------- High Yield II 1.10 1.75 1.75 N/A 1.00 1.40% Balanced 1.60 2.25 2.25 N/A 1.25 1.75 Convertible 1.60 2.25 2.25 N/A 1.25 N/A - ---------- (1) The Investment Manager has agreed to reimburse the Government Securities Income Fund for all gross operating expenses and costs of the Fund, excluding any interest, taxes, brokerage commissions, amortization of organizational expenses, extraordinary expenses, and distribution fees in excess of 0.25% which exceed 1.50% of the Fund's daily average net assets on the first $40 million of net assets and 1.00% of average daily net assets in excess of $40 million for any one fiscal year. The expense limitations cannot be changed without shareholder approval. NOTE 8 -- LINE OF CREDIT The Funds, in addition to certain other funds managed by the Advisor, 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 $125,000,000. The proceeds may be used only to: (1) temporarily finance the purchase and sale of securities; (2) finance the redemption of shares of an investor in the Funds; and (3) enable the Funds to meet other emergency expenses as defined in the Credit Agreement. The Funds to which the line of credit is available pay a commitment fee equal to 0.08% per annum on the daily unused portion of the committed line amount payable quarterly in arrears. During the year ended December 31, 2000, the Funds did not have any loans outstanding. 60 NOTE 9 -- CAPITAL SHARES Transactions in capital shares and dollars were as follows:
Class A Shares Class B Shares ------------------------------ ----------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------ ------------- ------------ ------------ MagnaCap Fund (Number of Shares) Shares sold 788,987 8,302,663 363,356 1,126,639 Shares issued as reinvestments of dividends 2,066,846 2,042,086 547,903 670,172 Shares redeemed (1,811,315) (11,985,501) (819,184) (2,847,837) ------------ ------------- ------------ ------------ Net increase (decrease) in shares outstanding 1,044,518 (1,640,752) 92,075 (1,051,026) ============ ============= ============ ============ MagnaCap Fund ($) Shares sold $ 11,946,238 $ 134,588,976 $ 5,351,285 $ 18,234,831 Shares issued as reinvestments of dividends 29,598,142 33,390,241 7,628,566 10,716,050 Shares redeemed (28,674,109) (193,866,999) $(12,525,418) (44,525,122) ------------ ------------- ------------ ------------ Net increase (decrease) in shares outstanding $ 12,870,271 $ (25,887,782) $ 454,433 $(15,574,241) ============ ============= ============ ============ Class C Shares Class M Shares Class Q Shares --------------------------- --------------------------- ----------------------------- Six Months Year Six Months Year Six Months Ended Ended Ended Ended Ended Nov. 22, 1999 December 31, June 30, December 31, June 30, December 31, to 2000 2000 2000 2000 2000 June 30, 2000 ----------- ----------- ----------- ----------- ----------- ------------- MagnaCap Fund (Number of Shares) Shares sold 128,844 355,043 13,778 71,735 82,316 627,893 Shares issued as reinvestments of dividends 29,256 13,431 95,725 94,820 92,505 -- Shares redeemed (44,326) (166,071) (111,360) (265,773) (38,829) (1,149) ----------- ----------- ----------- ----------- ----------- ------------ Net increase (decrease) in shares outstanding 113,774 202,403 (1,857) (99,218) 135,992 626,744 =========== =========== =========== =========== =========== ============ MagnaCap Fund ($) Shares sold $ 1,909,403 $ 5,649,398 $ 212,336 $ 1,164,803 $ 1,308,356 $ 10,206,194 Shares issued as reinvestments of dividends 407,606 214,760 1,353,961 1,532,001 1,323,685 -- Shares redeemed (668,475) (2,597,664) (1,756,645) (4,228,665) (649,429) (18,412) ----------- ----------- ----------- ----------- ----------- ------------ Net increase (decrease) in shares outstanding $ 1,648,534 $ 3,266,494 $ (190,348) $(1,531,861) $ 1,982,612 $ 10,187,782 =========== =========== =========== =========== =========== ============
61 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares --------------------------- ---------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ----------- ----------- ----------- ------------ LargeCap Leaders Fund (Number of Shares) Shares sold 98,957 301,942 205,661 559,630 Shares issued as reinvestment of dividends 38,731 58,405 77,765 160,941 Shares redeemed (109,836) (219,637) (206,229) (745,133) ----------- ----------- ----------- ------------ Net increase (decrease) in shares outstanding 27,852 140,710 77,197 (24,562) =========== =========== =========== ============ LargeCap Leaders Fund ($) Shares sold $ 1,593,089 $ 4,943,290 $ 3,009,571 $ 8,870,343 Shares issued as reinvestment of dividends 577,497 929,814 1,110,520 2,481,716 Shares redeemed (1,751,486) (3,554,645) (3,202,473) (11,733,890) ----------- ----------- ----------- ------------ Net increase (decrease) in shares outstanding $ 419,100 $ 2,318,459 $ 917,618 $ (381,831) =========== =========== =========== ============ Class C Shares Class M Shares Class Q Shares -------------------------- ------------------------- ----------------------- Six Months Year Six Months Year Six Months Year Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, June 30, December 31, June 30, 2000 2000 2000 2000 2000 2000 --------- ----------- --------- ----------- --------- --------- LargeCap Leaders Fund (Number of Shares) Shares sold 64,927 226,352 5,000 47,521 47,877 13,049 Shares issued as reinvestment of dividends 5,847 664 20,536 38,024 3,017 -- Shares redeemed (15,963) (138,012) (31,023) (115,601) (19,035) (515) --------- ----------- --------- ----------- --------- --------- Net increase (decrease) in shares outstanding 54,811 89,004 (5,487) (30,056) 31,859 12,534 ========= =========== ========= =========== ========= ========= LargeCap Leaders Fund ($) Shares sold $ 965,308 $ 3,583,768 $ 77,567 $ 764,132 $ 760,886 $ 212,892 Shares issued as reinvestment of dividends 83,608 10,256 298,196 593,167 44,983 -- Shares redeemed (245,266) (2,131,218) (489,598) (1,833,459) (316,734) (8,154) --------- ----------- --------- ----------- --------- --------- Net increase (decrease) in shares outstanding $ 803,650 $ 1,462,806 $(113,835) $ (476,160) $ 489,135 $ 204,738 ========= =========== ========= =========== ========= ========= Class A Shares Class B Shares ------------------------------ ------------------------------ Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------ ------------- ------------ ------------- LargeCap Growth Fund (Number of Shares) Shares sold 2,092,343 4,427,459 1,989,330 6,775,370 Shares issued as reinvestments of dividends 47,168 21,754 61,219 38,999 Shares redeemed (1,178,461) (1,201,487) (804,972) (796,940) ------------ ------------- ------------ ------------- Net increase in shares outstanding 961,050 3,247,726 1,245,577 6,017,429 ============ ============= ============ ============= LargeCap Growth Fund ($) Shares sold $ 81,911,233 $ 159,716,404 $ 76,887,747 $ 236,388,229 Shares issued as reinvestments of dividends 1,672,129 708,311 2,155,565 1,276,968 Shares redeemed (44,671,867) (45,373,374) (30,913,181) (30,088,529) ------------ ------------- ------------ ------------- Net increase in shares outstanding $ 38,911,495 $ 115,051,341 $ 48,130,131 $ 207,576,668 ============ ============= ============ =============
62 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class C Shares Class Q Shares ------------------------------ ---------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------ ------------- ----------- ------------ LargeCap Growth Fund (Number of Shares) Shares sold 1,497,965 3,308,222 86,441 424,166 Shares issued as reinvestments of dividends 28,132 13,490 6,871 2,730 Shares redeemed (459,874) (388,728) (119,686) (71,210) ------------ ------------- ----------- ------------ Net increase (decrease) in shares outstanding 1,066,223 2,932,984 (26,374) 355,686 ============ ============= =========== ============ LargeCap Growth Fund ($) Shares sold $ 56,897,070 $ 120,907,907 $ 3,564,346 $ 15,522,480 Shares issued as reinvestments of dividends 988,414 443,449 247,005 93,151 Shares redeemed (17,422,833) (15,356,494) (4,419,930) (2,818,083) ------------ ------------- ----------- ------------ Net increase (decrease) in shares outstanding $ 40,462,651 $ 105,994,862 $ (608,579) $ 12,797,548 ============ ============= =========== ============ Class A Shares Class B Shares Class C Shares --------------------------- ---------------------------- ---------------------------- Six Months Year Six Months Year Six Months Year Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, June 30, December 31, June 30, 2000 2000 2000 2000 2000 2000 ----------- ----------- ----------- ------------ ----------- ----------- MidCap Value Fund (Number of Shares) Shares sold 725,096 162,042 105,622 196,849 73,143 197,031 Shares issued as reinvestment of dividends 34,671 5,045 70,336 10,124 5,839 50 Shares redeemed (193,542) (736,267) (176,598) (1,110,013) (133,620) (5,154) ----------- ----------- ----------- ------------ ----------- ----------- Net increase (decrease) in shares outstanding 566,225 (569,180) (640) 903,040 (54,638) 191,927 =========== =========== =========== ============ =========== =========== MidCap Value Fund ($) Shares sold $ 9,553,437 $ 2,287,701 $ 1,374,672 $ 2,617,803 $ 941,521 $ 2,726,555 Shares issued as reinvestment of dividends 456,631 69,464 887,644 135,051 73,695 671 Shares redeemed (2,699,364) (9,944,036) (2,387,574) (14,482,052) (1,769,121) (67,227) ----------- ----------- ----------- ------------ ----------- ----------- Net increase (decrease) in shares outstanding $ 7,310,704 $(7,586,871) $ (125,258) $(11,729,198) $ (753,905) $ 2,659,999 =========== =========== =========== ============ =========== =========== Class M Shares Class Q Shares -------------------------------- -------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 -------------- --------------- -------------- --------- MidCap Value Fund (Number of Shares) Shares sold 9,090 65,235 0 9,749 Shares issued as reinvestment of dividends 18,358 3,293 193 -- Shares redeemed (52,761) (476,778) (7,391) -- ------- -------- ------ ----- Net increase (decrease) in shares outstanding (25,313) (408,250) (7,198) 9,749 ======= ======== ====== ===== MidCap Value Fund ($) Shares sold $ 125,667 $ 881,691 $ -- 133,810 Shares issued as reinvestment of dividends 234,242 44,230 2,352 -- Shares redeemed (725,343) (6,344,036) (95,713) -- ---------- ------------ --------- ------- Net increase (decrease) in shares outstanding $ (365,434) $ (5,418,115) $ (93,361) 133,810 ========== ============ ========= =======
63 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares ------------------------------ ----------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------ ------------- ------------ ------------ MidCap Growth Fund (Number of Shares) Shares sold 3,711,827 9,111,415 1,314,258 1,509,894 Shares issued as reinvestments of dividends 730,596 974,160 562,821 643,222 Shares redeemed (3,488,208) (7,669,485) (490,761) (591,401) ------------ ------------- ------------ ------------ Net increase in shares outstanding 954,215 2,416,090 1,386,318 1,561,715 ============ ============= ============ ============ MidCap Growth Fund ($) Shares sold $ 81,793,409 $ 250,678,628 $ 32,903,629 $ 49,598,444 Shares issued as reinvestments of dividends 15,356,798 19,950,802 13,845,392 15,501,828 Shares redeemed (75,319,805) (210,070,998) (11,073,911) (18,149,395) ------------ ------------- ------------ ------------ Net increase in shares outstanding $ 21,830,402 $ 60,558,432 $ 35,675,110 $ 46,950,877 ============ ============= ============ ============ Class C Shares Class Q Shares ------------------------------ ----------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------ ------------- ------------ ------------ MidCap Growth Fund (Number of Shares) Shares sold 2,392,132 1,413,615 242,799 428,283 Shares issued as reinvestments of dividends 612,243 2,159,370 135,012 102,573 Shares redeemed (973,515) (1,287,410) (122,419) (695,575) ------------ ------------ ----------- ------------ Net increase (decrease) in shares outstanding 2,030,860 2,285,575 255,392 (164,719) ============ ============ =========== ============ MidCap Growth Fund ($) Shares sold $ 47,239,580 $ 37,423,320 $ 5,889,900 $ 16,105,660 Shares issued as reinvestments of dividends 11,822,295 40,876,879 3,596,714 2,657,668 Shares redeemed (16,420,502) (31,578,669) (3,179,481) (21,963,880) ------------ ------------ ----------- ------------ Net increase (decrease) in shares outstanding $ 42,641,373 $ 46,721,530 $ 6,307,133 $ (3,200,552) ============ ============ =========== ============
64 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares ------------------------------ ----------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------- ------------- ------------ ------------ SmallCap Growth Fund (Number of Shares) Shares sold $ 5,842,720 15,288,354 894,480 1,419,656 Shares issued as reinvestments of dividends 552,081 3,070,550 350,679 1,314,209 Shares redeemed (5,506,185) (14,588,761) (474,604) (566,759) ------------- ------------- ------------ ------------ Net increase in shares outstanding 888,616 3,770,143 770,555 2,167,106 ============= ============= ============ ============ SmallCap Growth Fund ($) Shares sold $ 101,914,249 $ 278,913,445 $ 18,725,404 $ 34,348,864 Shares issued as reinvestments of dividends 8,314,343 44,737,909 6,596,272 23,529,097 Shares redeemed (97,227,250) (268,674,614) (9,667,834) (13,214,538) ------------- ------------- ------------ ------------ Net increase in shares outstanding $ 13,001,342 $ 54,976,740 $ 15,653,842 $ 44,663,423 ============= ============= ============ ============ Class C Shares Class Q Shares ------------------------------ ---------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------ ------------ ----------- ------------ SmallCap Growth Fund (Number of Shares) Shares sold 1,858,749 1,763,791 267,292 752,728 Shares issued as reinvestments of dividends 471,155 4,523,712 82,164 226,472 Shares redeemed (1,331,049) (1,707,156) (226,611) (884,884) ------------ ------------ ----------- ------------ Net increase in shares outstanding 998,855 4,580,347 122,845 94,316 ============ ============ =========== ============ SmallCap Growth Fund ($) Shares sold $ 28,760,990 $ 33,117,558 $ 5,050,776 $ 17,630,422 Shares issued as reinvestments of dividends 6,935,409 64,870,028 1,377,895 3,668,843 Shares redeemed (21,172,914) (30,746,993) (4,195,656) (18,817,763) ------------ ------------ ----------- ------------ Net increase in shares outstanding $ 14,523,485 $ 67,240,594 $ 2,233,015 2,481,502 ============ ============ =========== ============
65 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares ------------------------------ ------------------------------ Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------- ------------- ------------ ------------- Government Securities Income Fund (Number of Shares) Shares sold 9,390,771 6,308,160 1,100,920 776,377 Shares issued in merger -- 2,562,644 -- 1,997,672 Shares issued as reinvestment of dividends 71,043 64,916 41,562 33,839 Shares redeemed (8,704,132) (6,095,948) (710,676) (983,135) ------------- ------------- ------------ ------------- Net increase in shares outstanding 757,682 2,839,772 431,806 1,824,753 ============= ============= ============ ============= Government Securities Income Fund ($) Shares sold $ 113,539,206 $ 74,777,810 $ 13,323,414 $ 9,254,431 Shares issued in merger -- 30,325,611 -- 23,574,822 Shares issued as reinvestment of dividends 852,840 773,501 496,955 401,442 Shares redeemed (104,971,738) (72,308,346) (8,543,847) (11,700,469) ------------- ------------- ------------ ------------- Net increase in shares outstanding $ 9,420,308 $ 33,568,576 $ 5,276,522 $ 21,530,226 ============= ============= ============ ============= Class C Class M ----------------------------- ----------------------------- Six Months ended Year Ended Six Months ended Year Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ----------- ----------- ----------- ------------ Government Securities Income Fund (Number of Shares) Shares sold 706,074 674,348 2,059 28,709 Shares issued in merger -- 135,166 -- -- Shares issued as reinvestment of dividends 4,878 2,322 534 1,916 Shares redeemed (334,415) (641,939) (4,455) (48,662) ----------- ----------- ----------- ------------ Net increase (decrease) in shares outstanding 376,537 169,897 (1,862) (18,037) =========== =========== =========== ============ Government Securities Income Fund ($) Shares sold $ 8,577,586 $ 8,182,795 $ 24,838 $ 345,778 Shares issued in merger -- 1,611,381 -- -- Shares issued as reinvestment of dividends 58,875 27,745 6,392 22,982 Shares redeemed (4,057,830) (7,762,416) (53,785) (581,080) ----------- ----------- ----------- ------------ Net increase (decrease) in shares outstanding $ 4,578,631 $ 2,059,505 $ (22,555) $ (212,320) =========== =========== =========== ============ Class Q Shares Class T Shares ----------------------------- ----------------------------- Six Months ended Year Ended Six Months ended Year Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ----------- ----------- ----------- ------------ Government Securities Income Fund (Number of Shares) Shares sold 34,351 1,851 3,383 116 Shares issued in merger -- -- -- 2,165,118 Shares issued as reinvestment of dividends 313 4 38,083 15,202 Shares redeemed (9,518) (36) (452,564) (255,997) ----------- ----------- ----------- ------------ Net increase (decrease) in shares outstanding 25,146 1,819 (411,098) 1,924,439 =========== =========== =========== ============ Government Securities Income Fund ($) Shares sold $ 415,030 $ 21,936 $ 40,698 $ 1,046 Shares issued in merger -- -- -- 25,550,874 Shares issued as reinvestment of dividends 3,715 50 455,487 178,704 Shares redeemed (114,939) (418) (5,416,273) (3,016,129) ----------- ----------- ----------- ------------ Net increase (decrease) in shares outstanding $ 303,806 $ 21,568 $(4,920,088) $ 22,714,495 =========== =========== =========== ============
66 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares -------------------------- ------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ---------- ----------- --------- ----------- Strategic Income Fund (Number of Shares) Shares sold 22,607 604,669 54,612 235,490 Shares issued in merger -- -- -- -- Shares issued as reinvestment of dividends 799 11,483 1,135 16,764 Shares redeemed (2,224) (607,655) (7,162) (333,238) --------- ------------ --------- ----------- Net increase (decrease) in shares outstanding 21,182 8,497 48,585 (80,984) ========= ============ ========= =========== Strategic Income Fund ($) Shares sold $ 262,611 $ 7,329,922 $ 617,930 $ 2,807,321 Shares issued in merger -- -- -- -- Shares issued as reinvestment of dividends 9,091 139,358 12,627 199,456 Shares redeemed (25,834) (7,363,256) (81,221) (3,971,439) --------- ------------ --------- ----------- Net increase (decrease) in shares outstanding $ 245,868 $ 106,024 $ 549,336 $ (964,662) ========= ============ ========= =========== Class C Shares Class Q Shares -------------------------- ------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ---------- ----------- --------- ----------- Strategic Income Fund (Number of Shares) Shares sold 33,228 594,925 -- 5,652 Shares issued in merger -- -- -- -- Shares issued as reinvestment of dividends 627 11,584 116 1,233 Shares redeemed (28,164) (905,931) -- (1,293) --------- ------------ --------- ----------- Net increase (decrease) in shares outstanding 5,691 (299,422) 116 5,592 ========= ============ ========= =========== Strategic Income Fund ($) Shares sold $ 394,097 $ 7,361,851 -- $ 64,150 Shares issued in merger -- -- -- -- Shares issued as reinvestment of dividends 7,282 143,424 $ 1,251 14,212 Shares redeemed (331,778) (11,234,101) -- (14,990) --------- ------------ --------- ----------- Net increase (decrease) in shares outstanding $ 69,601 $ (3,728,826) $ 1,251 $ 63,372 ========= ============ ========= ===========
(1) Classes commenced operations on 7/27/98. 67 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares ------------------------------ ----------------------------- Six Months Year Six Months Year Ended Ended Ended Ended Dec. 31, June 30, Dec. 31, June 30, 2000 2000 2000 2000 ------------ ------------- ------------ ------------ High Yield Fund (Number of Shares) Shares sold 5,656,616 18,403,831 2,572,847 10,007,643 Shares issued as reinvestment of dividends 413,075 992,628 674,880 1,441,815 Shares redeemed (9,505,367) (24,529,807) (8,318,780) (15,933,643) ------------ ------------- ------------ ------------ Net increase (decrease) in shares outstanding (3,435,676) (5,133,348) (5,071,053) (4,484,185) ============ ============= ============ ============ High Yield Fund ($) Shares sold $ 25,777,299 $ 97,912,317 $ 11,428,764 $ 55,282,605 Shares issued as reinvestment of dividends 1,878,729 5,460,638 3,051,208 7,894,426 Shares redeemed (43,410,499) (131,398,105) (36,830,386) (86,943,865) ------------ ------------- ------------ ------------ Net increase (decrease) in shares outstanding $(15,754,471) $ (28,025,150) $(22,350,414) $(23,766,834) ============ ============= ============ ============ Class C Shares Class M Shares ------------------------------ ----------------------------- Six Months Year Six Months Year Ended Ended Ended Ended Dec. 31, June 30, Dec. 31, June 30, 2000 2000 2000 2000 ------------ ------------- ------------ ------------ High Yield Fund (Number of Shares) Shares sold 1,692,720 2,837,111 14,313 127,747 Shares issued as reinvestment of dividends 23,380 28,522 71,976 188,400 Shares redeemed (1,814,860) (1,778,397) (731,895) (1,858,983) ----------- ------------ ----------- ------------ Net increase (decrease) in shares outstanding (98,760) 1,087,236 (645,606) (1,542,836) =========== ============ =========== ============ High Yield Fund ($) Shares sold $ 7,770,423 $ 15,174,843 $ 63,057 $ 705,631 Shares issued as reinvestment of dividends 105,189 153,864 326,284 1,036,966 Shares redeemed (8,259,290) (9,243,746) (3,198,152) (10,086,399) ----------- ------------ ----------- ------------ Net increase (decrease) in shares outstanding $ (383,678) $ 6,084,961 $(2,808,811) $ (8,343,802) =========== ============ =========== ============ Class Q Shares -------------------------------- Six Months Ended Year Ended December 31, June 30, 2000 2000 --------- ------ High Yield Fund (Number of Shares) Shares sold 3,863 -- Shares issued as reinvestment of dividends 218 -- Shares redeemed (4,080) -- --------- ------ Net increase in shares outstanding 1 -- ========= ====== High Yield Fund ($) Shares sold $ 19,120 $ -- Shares issued as reinvestment of dividends 961 2 Shares redeemed (15,912) -- --------- ------ Net increase in shares outstanding $ 4,169 $ 2 ========= ======
68 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares ----------------------------- ----------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------ ------------ ------------ ------------ High Yield Fund II (Number of Shares) Shares sold 628,435 2,024,176 435,876 696,890 Shares issued in merger -- 1,920,197 -- 6,815,662 Shares issued as reinvestments of dividends 87,053 85,848 152,654 173,796 Shares redeemed (1,148,200) (2,296,078) (1,707,745) (1,757,346) ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding (432,712) 1,734,143 (1,119,215) 5,929,002 ============ ============ ============ ============ High Yield Fund II ($) Shares sold $ 6,195,720 $ 22,289,353 $ 4,292,728 $ 7,778,149 Shares issued in merger -- 21,258,924 -- 75,437,662 Shares issued as reinvestments of dividends 835,205 948,687 1,467,419 1,923,761 Shares redeemed (11,459,266) (25,459,352) (16,358,526) (19,459,549) ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding $ (4,428,341) $ 19,037,612 $(10,598,379) $ 65,680,023 ============ ============ ============ ============ Class C Shares Class Q Shares Class T Shares ---------------------------- ---------------------------- ----------------------------- Six Months Year Six Months Year Six Months Period Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, June 30, December 31, June 30, 2000 2000 2000 2000 2000 2000 ----------- ------------ ----------- ------------ ----------- ------------ High Yield Fund II (Number of Shares) Shares sold 229,940 835,807 96,390 1,176,601 2,514 42,193 Shares issued in merger -- 876,081 -- -- -- 3,237,823 Shares issued as reinvestments of dividends 26,148 60,087 20,683 38,331 82,474 45,794 Shares redeemed (741,863) (1,223,652) (582,470) (857,666) (648,230) (426,380) ----------- ------------ ----------- ------------ ----------- ------------ Net increase (decrease) in shares outstanding (485,775) 548,323 (465,397) 357,266 (563,242) 2,899,430 =========== ============ =========== ============ =========== ============ High Yield Fund II ($) Shares sold $ 2,241,364 $ 9,284,852 $ 948,525 $ 12,941,570 $ 25,670 $ 467,407 Shares issued in merger -- 9,698,640 -- -- -- 35,837,128 Shares issued as reinvestments of dividends 251,201 667,948 205,518 431,200 795,414 495,594 Shares redeemed (7,230,757) (13,540,976) (5,865,040) (9,622,674) (6,401,869) (4,680,068) ----------- ------------ ----------- ------------ ----------- ------------ Net increase (decrease) in shares outstanding $(4,738,192) $ 6,110,464 $(4,710,997) $ 3,750,096 $(5,580,785) $ 32,120,061 =========== ============ =========== ============ =========== ============
69 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares ---------------------------- ---------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ----------- ------------ ----------- ------------ Balanced Fund (Number of Shares) Shares sold 401,013 462,023 220,298 236,780 Shares issued in merger -- 3,669,160 -- 2,263,054 Shares issued as reinvestments of dividends 396,658 120,353 168,287 87,982 Shares redeemed (601,902) (523,820) (417,087) (386,298) ----------- ------------ ----------- ------------ Net increase (decrease) in shares outstanding 195,769 3,727,716 (28,502) 2,201,518 =========== ============ =========== ============ Balanced Fund ($) Shares sold $ 5,821,498 $ 7,288,215 $ 3,399,362 $ 4,171,242 Shares issued in merger -- 57,648,201 -- 38,096,820 Shares issued as reinvestments of dividends 5,483,573 1,895,528 2,485,948 1,483,448 Shares redeemed (8,939,640) (8,162,726) (6,542,007) (6,483,178) ----------- ------------ ----------- ------------ Net increase (decrease) in shares outstanding $ 2,365,431 $ 58,669,218 $ (656,697) $ 37,268,332 =========== ============ =========== ============ Class C Shares Class Q Shares ---------------------------- ---------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ----------- ------------ ----------- ------------ Balanced Fund (Number of Shares) Shares sold 183,853 168,630 19,710 4,284 Shares issued in merger -- 813,022 -- -- Shares issued as reinvestments of dividends 105,392 235,394 2,557 2,693 Shares redeemed (290,926) (579,424) (11,044) (1,565) ----------- ------------ --------- -------- Net increase (decrease) in shares outstanding (1,681) 637,622 11,223 5,412 =========== ============ ========= ======== Balanced Fund ($) Shares sold $ 2,471,348 $ 2,578,680 $ 289,967 $ 66,184 Shares issued in merger -- 12,280,463 -- -- Shares issued as reinvestments of dividends 1,397,111 3,561,673 34,958 42,058 Shares redeemed (4,109,734) (8,869,902) (155,107) (24,419) ----------- ------------ --------- -------- Net increase (decrease) in shares outstanding $ (241,275) $ 9,550,914 $ 169,818 $ 83,823 =========== ============ ========= ========
Class T Shares ----------------------------- Six Months Period Ended Ended December 31, June 30, 2000 2000 ----------- ------------ Balanced Fund (Number of Shares) Shares sold 2,984 1,889 Shares issued in merger -- 737,757 Shares issued as reinvestments of dividends 61,460 -- Shares redeemed (121,120) (59,256) ----------- ------------ Net increase (decrease) in shares outstanding (56,676) 680,390 =========== ============ Balanced Fund ($) Shares sold$ $ 45,086 $ 11,145 Shares issued in merger 908,997 12,419,589 Shares issued as reinvestment of dividends -- 7 Shares redeemed (1,910,403) (946,072) ----------- ------------ Net increase (decrease) in shares outstanding $ (956,320) $ 11,484,669 =========== ============ 70 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares ----------------------------- ----------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------ ------------ ------------ ------------ Convertible Fund (Number of Shares) Shares sold 1,539,024 2,765,285 1,518,121 2,212,800 Shares issued as reinvestments of dividends 966,619 432,032 908,961 446,940 Shares redeemed (1,179,353) (1,602,580) (610,023) (721,161) ------------ ------------ ------------ ------------ Net increase in shares outstanding 1,326,290 1,594,737 1,817,059 1,938,579 ============ ============ ============ ============ Convertible Fund ($) Shares sold $ 36,948,292 $ 74,411,486 $ 40,429,911 $ 62,613,451 Shares issued as reinvestments of dividends 19,441,732 10,028,609 19,845,575 11,247,841 Shares redeemed (26,644,982) (41,141,454) (15,848,270) (20,328,894) ------------ ------------ ------------ ------------ Net increase in shares outstanding $ 29,745,042 $ 43,298,641 $ 44,427,216 $ 53,532,398 ============ ============ ============ ============ Class C Shares Class Q Shares ----------------------------- ----------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 2000 2000 2000 2000 ------------ ------------ ------------ ------------ Convertible Fund (Number of Shares) Shares sold 1,346,446 1,543,879 534,344 1,566,620 Shares issued as reinvestments of dividends 652,805 594,205 442,122 144,983 Shares redeemed (671,647) (827,109) (778,398) (398,796) ------------ ------------ ------------ ------------ Net increase in shares outstanding 1,327,604 1,310,975 198,068 1,312,807 ============ ============ ============ ============ Convertible Fund ($) Shares sold $ 31,372,577 $ 41,908,144 $ 12,522,351 $ 41,114,380 Shares issued as reinvestments of dividends 13,378,593 14,012,886 8,653,714 3,277,417 Shares redeemed (15,616,793) (22,139,549) (16,755,201) (10,241,903) ------------ ------------ ------------ ------------ Net increase in shares outstanding $ 29,134,377 $ 33,781,481 $ 4,420,864 $ 34,149,894 ============ ============ ============ ============
71 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- NOTE 10 -- CUSTODIAL AGREEMENT State Street Kansas City ("SSKC") (formerly Investors Fiduciary Trust Company) and State Street Boston ("SSB") serve as the Funds' custodian and recordkeeper. Custody fees paid to SSKC or SSB are reduced by an earnings credit based on the cash balances held by SSKC or SSB for each of the Funds. NOTE 11 -- SUBSEQUENT EVENTS On November 2, 2000, the Boards of Directors and Trustees approved the following reorganizations: * ING Focus Fund and ING LargeCap Growth merging into Pilgrim LargeCap Growth Fund. * ING International Bond Fund and Pilgrim Global Income Fund merging into Pilgrim Strategic Income Fund. * Pilgrim MidCap Value Fund merging into Pilgrim MagnaCap Fund. * Pilgrim Government Securities Income Fund merging into Pilgrim GNMA Income Fund. Proxy statements dated January 19 and 22, 2001 for these reorganizations were mailed to the shareholders. Special Meetings of shareholders were held on February 22, 2001 to approve such reorganizations and the reorganizations occured after the close of business on February 23, 2001. On November 2, 2000 the Boards of Directors and Trustees also approved the following reorganizations: * Pilgrim High Total Return I and II Funds merging into Pilgrim High Yield II Fund. * Pilgrim LargeCap Leaders Fund merging into Pilgrim MagnaCap Fund. Proxy statements dated January 19 and 25, 2001 for these reorganizations were mailed to shareholders. Special meetings of shareholders were to be held on February 22, 2000 but were adjourned to reconvene on March 22, 2001. Subsequent to December 31, 2000 the following funds declared dividends from net investment income of: Per Share Amount Payable Date Record Date ------ ------------ ----------- Goverment Securities Income Class A $ 0.0600 February 5, 2001 January 31, 2001 Class B 0.0520 February 5, 2001 January 31, 2001 Class C 0.0520 February 5, 2001 January 31, 2001 Class M 0.0540 February 5, 2001 January 31, 2001 Class Q 0.0600 February 5, 2001 January 31, 2001 Class T 0.0560 February 5, 2001 January 31, 2001 Class A 0.0600 February 22, 2001 February 20, 2001 Class B 0.0542 February 22, 2001 February 20, 2001 Class C 0.0542 February 22, 2001 February 20, 2001 Class M 0.0558 February 22, 2001 February 20, 2001 Class Q 0.0601 February 22, 2001 February 20, 2001 Class T 0.0568 February 22, 2001 February 20, 2001 Strategic Income Class A 0.0650 February 5, 2001 January 31, 2001 Class B 0.0600 February 5, 2001 January 31, 2001 Class C 0.0600 February 5, 2001 January 31, 2001 Class Q 0.0650 February 5, 2001 January 31, 2001 Class A 0.0658 February 22, 2001 February 20, 2001 Class B 0.0629 February 22, 2001 February 20, 2001 Class C 0.0626 February 22, 2001 February 20, 2001 Class Q 0.0667 February 22, 2001 February 20, 2001 High Yield Class A 0.0450 February 5, 2001 January 31, 2001 Class B 0.0420 February 5, 2001 January 31, 2001 Class C 0.0420 February 5, 2001 January 31, 2001 Class M 0.0430 February 5, 2001 January 31, 2001 Class Q 0.0450 February 5, 2001 January 31, 2001 High Yield II Class A 0.0980 February 5, 2001 January 31, 2001 Class B 0.0930 February 5, 2001 January 31, 2001 Class C 0.0930 February 5, 2001 January 31, 2001 Class Q 0.0980 February 5, 2001 January 31, 2001 Class T 0.0960 February 5, 2001 January 31, 2001 Class A 0.0900 March 01, 2001 February 28, 2001 Class B 0.0840 March 01, 2001 February 28, 2001 Class C 0.0840 March 01, 2001 February 28, 2001 Class Q 0.0910 March 01, 2001 February 28, 2001 Class T 0.0870 March 01, 2001 February 28, 2001 72 - -------- Pilgrim MagnaCap Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Value - -------------------------------------------------------------------------------- COMMON STOCKS: 96.56% Banks: 6.39% 35,000 Bank of New York Co, Inc. $ 1,931,563 210,000 FleetBoston Financial Corp. 7,888,125 165,000 J.P. Morgan Chase & Co. 7,497,187 150,000 Wells Fargo & Co. 8,353,125 ----------- 25,670,000 ----------- Beverages: 3.51% 190,000 Anheuser-Busch Cos., Inc. 8,645,000 110,000 Pepsico, Inc. 5,451,875 ----------- 14,096,875 ----------- Chemicals: 0.00% 200 Praxair, Inc. 8,875 ----------- Computers: 4.27% 255,000 Compaq Computer Corp. 3,837,750 97,000 @ Computer Sciences Corp. 5,832,125 99,000 Hewlett-Packard Co. 3,124,688 156,000 @ Sun Microsystems, Inc. 4,348,500 ----------- 17,143,063 ----------- Diversified Financial Services: 5.91% 120,000 Alliance Capital Management Holdings 6,075,000 156,666 Citigroup, Inc. 7,999,758 140,000 Freddie Mac 9,642,500 ----------- 23,717,258 ----------- Electric: 2.34% 110,000 Duke Energy Corp. 9,377,500 ----------- Electrical Components & Equipment: 1.96% 100,000 Emerson Electric Co. 7,881,250 ----------- Electronics: 2.15% 255,000 @ Solectron Corp. 8,644,500 ----------- Food: 1.38% 225,000 Sara Lee Corp. 5,526,563 ----------- Healthcare -- Products: 4.68% 157,000 Baxter Int'l, Inc. 13,865,062 47,000 Johnson & Johnson 4,937,938 ----------- 18,803,000 ----------- Household Products/Wares: 1.35% 98,500 Avery-Dennison Corp. 5,405,187 ----------- Insurance: 5.46% 140,000 Aflac, Inc. 10,106,250 84,530 American Int'l Group 8,331,488 29,800 Marsh & McLennan Cos. 3,486,600 ----------- 21,924,338 ----------- Leisure Time: 1.92% 250,000 Carnival Corp. 7,703,125 ----------- Machinery -- Diversified: 1.96% 165,000 Rockwell Int'l Corp. 7,858,125 ----------- Media: 1.30% 180,000 Walt Disney Co. 5,208,750 ----------- Mining: 1.54% 185,000 Alcoa, Inc. 6,197,500 ----------- Miscellaneous Manufacturing: 5.10% 105,700 General Electric Co. 5,066,994 60,000 Minnesota Mining & Manufacturing Co. 7,230,000 147,500 @@ Tyco Int'l, Ltd. 8,186,250 ----------- 20,483,244 ----------- Oil & Gas Producers: 6.99% 145,000 @@ BP Amoco PLC ADR 6,941,875 119,000 Chevron Corp. 10,048,063 382,413 Conoco, Inc. 11,066,076 ----------- 28,056,014 ----------- Oil & Gas Services: 3.51% 159,700 Halliburton Co. 5,789,125 104,000 Schlumberger, Ltd. 8,313,500 ----------- 14,102,625 ----------- Pharmaceuticals: 5.26% 167,000 Abbott Laboratories 8,089,062 72,600 Merck & Co., Inc. 6,797,175 110,000 Schering-Plough Corp. 6,242,500 ----------- 21,128,737 ----------- Pipelines: 2.98% 300,000 Williams Cos., Inc. 11,981,250 ----------- Retail: 6.05% 65,500 Home Depot, Inc. 2,992,531 310,000 McDonald's Corp. 10,540,000 240,000 TJX Cos., Inc. 6,660,000 77,500 Wal-Mart Stores, Inc. 4,117,187 ----------- 24,309,718 ----------- Savings & Loans: 1.59% 120,000 Washington Mutual, Inc. 6,367,500 ----------- Semiconductors: 0.89% 118,100 Intel Corp. 3,572,525 ----------- Software: 3.10% 166,000 Automatic Data Processing 10,509,875 45,000 @ Microsoft Corp. 1,951,875 ----------- 12,461,750 ----------- Telecommunications: 12.89% 130,000 Alltel Corp. 8,116,875 108,500 @ Cisco Systems, Inc. 4,150,125 160,000 @@ Nokia OYJ ADR 6,960,000 185,500 SBC Communications, Inc. 8,857,625 182,500 @ Tellabs, Inc. 10,311,250 186,600 Verizon Communications, Inc. 9,353,325 285,000 @ Worldcom, Inc. 3,990,000 ----------- 51,739,200 ----------- Tobacco: 2.08% 190,000 Philip Morris Cos., Inc. 8,360,000 ----------- Total Common Stock (Cost $294,151,540) 387,728,472 ----------- Total Long-Term Investments (Cost $294,151,540) 387,728,472 ----------- See Accompanying Notes to Financial Statements 73 - -------- Pilgrim MagnaCap Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 3.78% Commercial Paper: 3.78% $15,200,000 General Electric Capital Corp., 5.900%, due 01/02/01 $ 15,197,509 ------------- Total Short-Term Investments (Cost $15,197,509) 15,197,509 ------------- Total Investments in Securities (Cost $309,349,049)* 100.34% $ 402,925,981 Other Assets and Liabilities - Net -0.34% (1,385,249) ------ ------------- Net Assets 100.00% $ 401,540,732 ====== ============= @ Non-income producing security @@ Foreign Issuer ADR American Depository Receipt * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciaition $ 107,155,826 Gross Unrealized Depreciaition (13,578,894) ------------- Net Unrealized Appreciation $ 93,576,932 ============= See Accompanying Notes to Financial Statements 74 Pilgrim LargeCap Leaders Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Value - -------------------------------------------------------------------------------- COMMON STOCKS: 92.04% Banks: 1.42% 11,950 J.P. Morgan Chase & Co. $ 542,978 ---------- Beverages: 4.80% 14,600 Anheuser-Busch Cos., Inc. 664,300 9,100 Coca-Cola Co. 554,531 12,400 Pepsico, Inc. 614,575 ---------- 1,833,406 ---------- Chemicals: 0.06% 2,122 @@@ Syngenta AG ADR 23,209 ---------- Computers: 4.15% 22,600 Compaq Computer Corp. 340,130 6,100 @ Dell Computer Corp. 106,369 7,500 @ EMC Corp. 498,750 8,000 Hewlett-Packard Co. 252,500 14,000 @ Sun Microsystems, Inc. 390,250 ---------- 1,587,999 ---------- Cosmetics/Personal Care: 1.77% 10,500 Colgate-Palmolive Co. 677,775 ---------- Diversified Financial Services: 8.29% 9,200 American Express Co. 505,425 10,866 Citigroup, Inc. 554,845 9,000 Fannie Mae 780,750 10,900 Freddie Mac 750,737 8,500 Merrill Lynch & Co., Inc. 579,594 ---------- 3,171,351 ---------- Electric: 3.87% 9,200 Duke Energy Corp. 784,300 20,900 Southern Co. 694,925 ---------- 1,479,225 ---------- Electrical Component & Equipment: 1.65% 8,000 Emerson Electric Co. 630,500 ---------- Electronics: 3.12% 25,500 @@@ Flextronics Int'l, Ltd. 726,750 13,800 @ Solectron Corp. 467,820 ---------- 1,194,570 ---------- Food: 1.77% 10,800 @ Safeway, Inc. 675,000 ---------- Forest Products & Paper: 2.36% 22,100 Int'l Paper Co. 901,956 ---------- Home Furnishings: 0.89% 4,900 @@ Sony Corp. ADR 341,775 ---------- Insurance: 3.32% 7,537 American Int'l Group 742,865 4,500 Marsh & McLennan Cos. 526,500 ---------- 1,269,365 ---------- Internet: 0.81% 8,900 @ America Online, Inc. 309,720 ---------- Leisure Time: 1.87% 23,200 Carnival Corp. 714,850 ---------- Machinery-Diversified: 1.62% 13,500 Deere & Co. 618,469 ---------- Media: 3.52% 12,100 @ Comcast Corp. 505,175 7,700 Gannett Co., Inc. 485,581 6,800 Time Warner, Inc. 355,232 ---------- 1,345,988 ---------- Mining: 1.67% 19,100 Alcoa, Inc. 639,850 ---------- Miscellaneous Manufacturing: 4.08% 10,000 General Electric Co. 479,375 3,500 Minnesota Mining & Manufacturing Co. 421,750 11,900 @@ Tyco Int'l, Ltd. 660,450 ---------- 1,561,575 ---------- Oil & Gas Producers: 8.14% 10,900 Anadarko Petroleum Corp. 774,772 16,100 Burlington Resources, Inc. 813,050 5,175 Chevron Corp. 436,964 6,600 Exxon Mobil Corp. 573,788 8,500 @@ Royal Dutch Petroleum Co. ADR 514,781 ---------- 3,113,355 ---------- Oil & Gas Services: 1.46% 7,000 Schlumberger, Ltd. 559,563 ---------- Pharmaceuticals: 8.51% 14,900 Abbott Laboratories 721,719 8,100 Merck & Co., Inc. 758,362 19,600 @@ Novartis ADR 877,100 19,500 Pfizer, Inc. 897,000 ---------- 3,254,181 ---------- Pipelines: 2.26% 10,400 Enron Corp. 864,500 ---------- Retail: 6.77% 9,500 Home Depot, Inc. 434,031 14,400 McDonald's Corp. 489,600 17,100 Sears, Roebuck And Co. 594,225 15,100 Walgreen Co. 631,369 8,300 Wal-Mart Stores, Inc. 440,938 ---------- 2,590,163 ---------- Savings & Loans: 2.43% 17,500 Washington Mutual, Inc. 928,594 ---------- Semiconductors: 2.12% 15,000 @ Advanced Micro Devices 207,188 8,100 Intel Corp. 245,025 7,600 Texas Instruments, Inc. 360,050 ---------- 812,263 ---------- Software: 0.75% 6,600 @ Microsoft Corp. 286,275 ---------- Telecommunications: 5.11% 10,000 @ Cisco Systems, Inc. 382,500 9,900 @@ Nokia OYJ ADR 430,650 11,600 SBC Communications, Inc. 553,900 8,720 Verizon Communications, Inc. 437,090 10,600 @ WorldCom, Inc. 148,400 ---------- 1,952,540 ---------- Tobacco: 2.04% 17,700 Philip Morris Cos., Inc. 778,800 ---------- Transportation: 1.41% 13,500 @ FedEx Corp. 539,460 ---------- Total Common Stock (Cost $30,029,276) 35,199,255 ---------- Total Long-Term Investments (Cost $30,029,276) 35,199,255 ---------- See Accompanying Notes to Financial Statements 75 Pilgrim LargeCap Leaders Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 7.81% Repurchase Agreement: 7.81% $2,988,000 State Street Bank & Trust Repurchase Agreement, 5.75% due 01/02/01 (Collateralized by $2,330,000 U.S. Treasury Bonds, 8.000% Due 11/15/21, Market Value $3,049,471) $ 2,988,000 ----------- Total Short-Term Investments (Cost $2,988,000) 2,988,000 ----------- Total Investments in Securities (Cost $33,017,276)* 99.85% $38,187,255 Other Assets and Liabilities-Net 0.15% 57,403 ------ ----------- Net Assets 100.00% $38,244,658 ====== =========== @ Non-income producing security @@ Foreign Issuer ADR American Depository Receipt * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 7,319,688 Gross Unrealized Depreciation (2,149,709) ----------- Net Unrealized Appreciation $ 5,169,979 =========== See Accompanying Notes to Financial Statements 76 Pilgrim LargeCap Growth Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Value - -------------------------------------------------------------------------------- COMMON STOCKS: 84.04% Banks: 2.73% 378,500 J.P. Morgan Chase & Co. $ 17,014,521 ------------ Beverages: 0.88% 89,700 Coca-Cola Co. 5,466,094 ------------ Biotechnology: 3.54% 270,800 @ Genentech, Inc. 22,070,200 ------------ Computers: 5.06% 186,400 @ Brocade Communications System 17,113,850 164,625 @ Veritas Software Corp. 14,404,688 ------------ 31,518,538 ------------ Cosmetics/Personal Care: 1.73% 83,500 Kimberly-Clark Corp. 5,902,615 62,100 Procter & Gamble Co. 4,870,969 ------------ 10,773,584 ------------ Diversified Financial Services: 7.08% 538,633 Citigroup, Inc. 27,503,947 191,700 Fannie Mae 16,629,975 ------------ 44,133,922 ------------ Food: 2.83% 281,500 @ Safeway, Inc. 17,593,750 ------------ Healthcare-Products: 1.73% 122,100 Baxter Int'l, Inc. 10,782,956 ------------ Healthcare-Services: 6.33% 426,000 HCA - The Healthcare Co. 18,748,260 337,226 UnitedHealth Group, Inc. 20,697,246 ------------ 39,445,506 ------------ Internet: 1.94% 346,400 America Online, Inc. 12,054,720 ------------ Media: 6.35% 224,961 @ Cablevision Systems Corp. 19,107,625 349,300 Comcast Corp. 14,583,275 121,300 Clear Channel Communications 5,875,469 ------------ 39,566,369 ------------ Miscellaneous Manufacturing: 3.32% 298,400 General Electric Co. $ 14,304,550 53,100 Minnesota Mining & Manufacturing Co. 6,398,550 ------------ 20,703,100 ------------ Oil & Gas Services: 5.17% 380,400 Baker Hughes, Inc. 15,810,375 205,200 Schlumberger, Ltd. 16,403,175 ------------ 32,213,550 ------------ Pharmaceuticals: 11.00% 271,400 Bristol-Myers Squibb Co. 20,066,637 231,505 Merck & Co., Inc. 21,674,656 151,328 Pfizer, Inc. 6,961,088 349,400 Schering-Plough Corp. 19,828,450 ------------ 68,530,831 ------------ Pipelines: 3.13% 234,300 Enron Corp. 19,476,188 ------------ Retail: 2.66% 465,400 Gap, Inc. 11,867,700 103,200 Home Depot, Inc. 4,714,950 ------------ 16,582,650 ------------ Semiconductors: 2.00% 73,500 @ Applied Materials, Inc. 2,806,781 88,900 @ Applied Micro Circuits Corp. 6,671,667 62,200 Texas Instruments, Inc. 2,946,725 ------------ 12,425,173 ------------ Software: 2.49% 230,808 @ BEA Systems, Inc. 15,536,264 ------------ Telecommunications: 14.07% 129,600 @ CIENA Corp. 10,546,200 128,900 @ Comverse Technology, Inc. 14,001,763 169,900 Corning, Inc. 8,972,844 100,800 @ Juniper Networks, Inc. 12,707,100 502,200 Motorola, Inc. 10,169,550 277,800 @@ Nokia OYJ ADR 12,084,300 232,900 @ Qualcomm, Inc. 19,141,468 ------------ 87,623,225 ------------ Total Long-Term Investments (Cost $495,686,677) 523,511,141 ------------ Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 17.53% Repurchase Agreements: 17.53% $109,209,000 State Street Repurchase Agreement, 5.75% due 1/02/01 (Collateralized by $85,115,000 U.S. Treasury Bonds, 8.000% Due 11/15/21, Market Value $111,397,320) $109,209,000 ------------ Total Short-Term Investments (Cost $109,209,000) 109,209,000 ------------ Total Investments in Securities (Cost $ 604,895,677)* 101.57% $632,720,141 Other Assets and Liabilities-Net -1.57% (9,793,728) ------ ------------ Net Assets 100.00% $622,926,413 ====== ============ @ Non-income producing security @@ Foreign Issuer ADR American Depository Receipt * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 45,485,505 Gross Unrealized Depreciation (17,661,041) ------------ Net Unrealized Appreciation $ 27,824,464 ============ See Accompanying Notes to Financial Statements 77 Pilgrim MidCap Value Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Value - -------------------------------------------------------------------------------- COMMON STOCKS: 93.94% Banks: 2.72% 23,332 Commerce Bancshares, Inc. $ 991,610 ------------ Beverages: 2.42% 11,000 Coors (Adolph) 883,438 ------------ Chemicals: 3.88% 16,000 Rohm & Haas Co. 581,000 21,200 Sigma-Aldrich Corp. 833,425 ------------ 1,414,425 ------------ Commercial Services: 4.92% 10,500 @ Convergys Corp. 475,781 20,000 Equifax, Inc. 573,750 18,000 H & R Block, Inc. 744,750 ------------ 1,794,281 ------------ Distribution/Wholesale: 4.90% 13,300 Fastenal Co. 729,838 29,000 Grainger (W.W.), Inc. 1,058,500 ------------ 1,788,338 ------------ Electric: 2.55% 26,500 Cinergy Corp. 930,813 ------------ Electrical Components & Equipment: 1.35% 39,700 @ American Power Conversion 491,288 ------------ Electronics: 1.48% 16,000 @ APW, Ltd. 540,000 ------------ Environmental Control: 2.48% 52,700 @ Republic Services, Inc. 905,781 ------------ Forest Products & Paper: 3.43% 15,900 Mead Corp. 498,863 16,000 Willamette Industries 751,000 ------------ 1,249,863 ------------ Healthcare-Products: 1.52% 9,000 St. Jude Medical, Inc. 552,938 ------------ Healthcare-Services: 1.93% 6,100 @ Wellpoint Health Networks, Inc. 703,025 ------------ Household Products/Wares: 2.87% 38,000 Dial Corp. 418,000 21,000 Fortune Brands, Inc. 630,000 ------------ 1,048,000 ------------ Insurance: 2.28% 17,500 Nationwide Financial Services, Inc. $ 831,250 ------------ Leisure Time: 2.54% 35,000 Royal Caribbean Cruises, Ltd. 925,750 ------------ Lodging: 2.33% 24,100 Starwood Hotels & Resorts Worldwide 849,525 ------------ Media: 2.75% 20,500 @ Hispanic Broadcasting Corp. 522,750 12,000 New York Times Co. 480,750 ------------ 1,003,500 ------------ Miscellaneous Manufacturing: 3.32% 23,000 Donaldson, Inc. 639,688 10,322 Tyco Int'l, Ltd. 572,893 ------------ 1,212,581 ------------ Oil & Gas Producers: 12.45% 12,200 Amerada Hess Corp. 891,363 13,800 Apache Corp. 966,862 16,000 Devon Energy Corp. 975,520 22,100 Helmerich & Payne, Inc. 969,637 23,000 Santa Fe Int'l Corp. 737,437 ------------ 4,540,819 ------------ Oil & Gas Services: 2.19% 36,500 @ Grant Pride, Inc. 800,718 ------------ Pharmaceuticals: 2.92% 49,300 Omnicare, Inc. 1,066,112 ------------ Pipelines: 2.24% 11,400 El Paso Energy Corp. 816,525 ------------ Retail: 7.93% 23,600 @ B.J.'s Wholesale Club, Inc. 905,650 52,400 Blockbuster, Inc. 438,850 33,000 Ross Stores 556,875 72,700 @ Shopko Stores, Inc. 363,500 19,000 @ Tricon Global Restaurants 627,000 ------------ 2,891,875 ------------ Savings & Loans: 4.39% 35,500 Charter One Financial, Inc. $ 1,025,062 71,000 Sovereign Bancorp, Inc. 576,875 ------------ 1,601,937 ------------ Semiconductors: 1.66% 33,000 @ Lattice Semiconductor Corp. 606,375 ------------ Telecommunications: 10.49% 30,000 @ ADC Telecommunications, Inc. 543,750 21,500 @ Andrew Corp. 467,625 26,500 @ Broadwing, Inc. 604,531 22,000 Centurytel, Inc. 786,500 21,500 @ Crown Castle Int'l Corp. 581,844 20,000 @@ Gilat Satellite Networks, Ltd. 510,000 10,000 @ McleodUSA , Inc. 141,250 9,396 Motorola, Inc. 190,269 ------------ 3,825,769 ------------ Total Common Stocks (Cost $32,022,724) 34,266,536 ------------ Total Long-Term Investments (Cost $32,022,724) 34,266,536 ------------ See Accompanying Notes to Financial Statements 78 Pilgrim MidCap Value Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 20.94% Repurchase Agreements: 10.47% $3,819,342 State Street Bank & Trust Short Term Investment Fund, 6.200% due 01/02/01 $ 3,819,342 ------------ Commercial Paper: 10.47% 1,909,687 General Electric, 5.90% due 01/02/01 1,909,687 1,909,650 Long Lane Master, 6.600% due 01/02/01 1,909,650 ------------ Total Commercial Paper 3,819,337 ------------ Total Short-Term Investments (Cost $7,638,679) 7,638,679 ------------ Total Investments in Securities (Cost $ 39,661,403)* 114.88% $ 41,905,215 Other Assets and Liabilities-Net -14.88% (5,428,043) ------ ------------ Net Assets 100.00% $ 36,477,172 ====== ============ @ Non-income producing security @@ Foreign Issuer * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 4,596,957 Gross Unrealized Depreciation (2,353,145) ------------ Net Unrealized Appreciation $ 2,243,812 ============ See Accompanying Notes to Financial Statements 79 Pilgrim MidCap Growth Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Value - -------------------------------------------------------------------------------- COMMON STOCKS: 93.86% Advertising: 0.64% 96,500 @ Getty Images, Inc. $ 3,088,000 ------------ Apparel: 0.91% 136,800 @ Jones Apparel Group, Inc. 4,403,250 ------------ Banks: 1.03% 111,800 TCF Financial Corp. 4,982,087 ------------ Biotechnology: 6.35% 23,302 @ Diacrin, Inc. 116,510 102,600 @ Enzon, Inc. 6,367,613 92,200 @ Genentech, Inc. 7,514,300 66,000 @ Genzyme Corp. -- General Division 5,935,875 68,100 @ Invitrogen Corp. 5,882,137 11,100 @ Millennium Pharmaceuticals 686,813 47,300 @ Protein Design Labs, Inc. 4,109,187 ------------ 30,612,435 ------------ Commercial Services: 2.10% 127,100 @ Concord EFS, Inc. 5,584,456 171,600 @ Robert Half Int'l, Inc. 4,547,400 ------------ 10,131,856 ------------ Computers: 2.86% 81,400 @ Brocade Communication Systems 7,473,537 72,275 @ Veritas Software Corp. 6,324,063 ------------ 13,797,600 ------------ Electric: 4.09% 66,700 @ AES Corp. 3,693,512 63,900 Cinergy Corp. 2,244,488 163,200 Nisource, Inc. 5,018,400 193,700 PPL Corp. 8,752,819 ------------ 19,709,219 ------------ Electronics: 6.19% 103,500 Applera Corp. 9,735,468 47,400 PerkinElmer, Inc. 4,977,000 134,900 @ Sawtek, Inc. 6,230,694 299,300 @ Thermo Electron Corp. 8,904,175 ------------ 29,847,337 ------------ Gas: 0.66% 75,100 Keyspan Corp. 3,182,363 ------------ Healthcare -- Services: 6.91% 335,300 @ Community Health Systems, Inc. $ 11,735,500 140,900 @ Health Management Associates, Inc. 2,923,675 233,200 @ Oxford Health Plans 9,211,400 66,500 @ Quest Diagnostics, Inc. 9,443,000 ------------ 33,313,575 ------------ Insurance: 7.28% 213,200 ACE, Ltd. 9,047,675 43,800 Fidelity National Financial, Inc. 1,617,862 82,700 PMI Group, Inc. 5,597,756 68,800 Progressive Corp. -- Ohio 7,129,400 91,800 Radian Group, Inc. 6,890,738 54,800 XL Capital, Ltd. 4,788,150 ------------ 35,071,581 ------------ Internet: 1.08% 70,200 @ VeriSign, Inc. 5,207,963 ------------ Leisure Time: 0.66% 120,100 Royal Caribbean Cruises, Ltd. 3,176,645 ------------ Machinery -- Diversified: 0.84% 88,900 Deere & Co. 4,072,731 ------------ Media: 3.12% 394,200 @ Charter Communications, Inc. 8,943,412 238,200 @ Hispanic Broadcasting Corp. 6,074,100 ------------ 15,017,512 ------------ Oil & Gas Producers: 5.97% 104,300 Ensco Int'l, Inc. 3,552,719 183,400 EOG Resources, Inc. 10,029,687 134,500 @ Global Marine, Inc. 3,816,437 122,100 @ Nabors Industries, Inc. 7,222,215 90,100 Noble Affiliates, Inc. 4,144,600 ------------ 28,765,658 ------------ Oil & Gas Services: 7.55% 140,000 Baker Hughes, Inc. 5,818,750 115,700 @ BJ Services Co. 7,968,837 94,400 @ Cooper Cameron Corp. 6,236,300 251,400 @ National-Oilwell, Inc. 9,726,038 141,000 @ Weatherford Int'l, Inc. 6,662,250 ------------ 36,412,175 ------------ Pharmaceuticals: 7.68% 20,500 @ Abgenix, Inc. $ 1,210,781 154,800 @ COR Therapeutics, Inc. 5,447,025 86,200 @ Express Scripts, Inc. 8,813,950 32,800 @ Forest Laboratories, Inc. 4,358,300 104,100 @ Gilead Sciences, Inc. 8,633,795 47,900 @ OSI Pharmaceuticals, Inc. 3,837,987 66,300 @ Vertex Pharmaceuticals, Inc. 4,740,450 ------------ 37,042,288 ------------ Pipelines: 4.49% 123,100 EL Paso Energy Corp. 8,817,037 68,200 Equitable Resources, Inc. 4,552,350 158,700 Kinder Morgan, Inc. 8,282,156 ------------ 21,651,543 ------------ Retail: 4.00% 267,300 Family Dollar Stores 5,730,244 81,600 @ Kohls Corp. 4,977,600 130,300 @ Starbucks Corp. 5,765,775 100,400 TJX Cos., Inc. 2,786,100 ------------ 19,259,719 ------------ Semiconductors: 3.71% 16,400 @ Cirrus Logic, Inc. 307,500 98,300 @ Novellus Systems, Inc. 3,532,656 41,500 @ Qlogic Corp. 3,195,500 43,300 @ Teradyne, Inc. 1,612,925 107,900 @ Triquint Semiconductor, Inc. 4,713,882 81,800 @ Vitesse Semiconductor Corp. 4,524,563 ------------ 17,887,026 ------------ Software: 6.21% 139,500 @ Acxiom Corp. 5,431,781 176,600 @ Cadence Design Systems, Inc. 4,856,500 144,700 @ Cerner Corp. 6,692,375 238,600 @ Citrix Systems, Inc. 5,368,500 74,400 @ Manugistics Group, Inc. 4,240,800 136,700 @ Peregrine Systems, Inc. 2,699,825 45,300 @ Progress Software Corp. 654,019 ------------ 29,943,800 ------------ See Accompanying Notes to Financial Statements 80 Pilgrim MidCap Growth Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - -------------------------------------------------------------------------------- Telecommunications: 9.53% 290,000 @ Aeroflex, Inc. $ 8,360,156 69,500 @ Comverse Technology, Inc. 7,549,438 114,200 @ Crown Castle Int'l Corp. 3,090,538 64,500 @ Emulex Corp. 5,155,969 30,900 Newport Corp. 2,429,030 159,200 @ Powerwave Technologies, Inc. 9,313,200 129,200 @ RF Micro Devices, Inc. 3,544,925 83,400 @ Time Warner Telecom, Inc. 5,290,687 102,600 @ WinStar Communications, Inc. 1,199,137 ------------ 45,933,080 ------------ Total Common Stock (Cost $ 369,900,966) 452,509,443 ------------ Total Long-Term Investments (Cost $ 369,900,966) 452,509,443 ------------ Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 7.17% Repurchase Agreement: 7.17% $34,558,000 State Street Bank & Trust Repurchase Agreement, 5.750%, Due 01/02/01 (Collateralized by $26,935,000 U.S. Treasury Bonds, 8.000%, Due 11/15/21, Market Value $35,252,151) $ 34,558,000 ------------ Total Short-Term Investments (Cost $34,558,000) 34,558,000 ------------ Total Investments in Securities (Cost $ 404,458,966)* 101.03% $487,067,443 Other Assets and Liabilities-Net -1.03% (4,971,988) ------ ------------ Net Assets 100.00% $482,095,455 ====== ============ @ Non-income producing security * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $102,976,668 Gross Unrealized Depreciaition (20,368,191) ------------ Net Unrealized Appreciation $ 82,608,477 ============ See Accompanying Notes to Financial Statements 81 Pilgrim SmallCap Growth Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Value - -------------------------------------------------------------------------------- COMMON STOCKS: 95.04% Advertising: 0.73% 100,700 @ Getty Images, Inc. $ 3,222,400 ------------ Apparel: 2.08% 170,002 @ Coach, Inc. 4,887,558 65,600 @ Timberland Co. 4,387,000 ------------ 9,274,558 ------------ Banks: 2.29% 61,000 Commerce Bancorp, Inc. 4,170,875 135,500 TCF Financial Corp. 6,038,219 ------------ 10,209,094 ------------ Biotechnology: 8.18% 89,000 @ Arena Pharmaceuticals, Inc. 1,379,500 166,200 @ Arqule, Inc. 5,318,400 191,600 @ Curis, Inc. 1,700,450 20,767 @ Diacrin, Inc. 103,835 131,000 @ Eden Bioscience Corp. 3,921,814 42,500 @ Enzon, Inc. 2,637,656 67,100 @ Genaissance Pharmaceuticals 1,207,800 94,900 @ Invitrogen Corp. 8,196,987 91,400 @ Millenium Pharmaceuticals 5,655,375 41,900 @ Myriad Genetics, Inc. 3,467,225 33,300 @ Protein Design Labs, Inc. 2,892,938 ------------ 36,481,980 ------------ Chemicals: 0.03% 3,600 Symyx Technologies, Inc. 129,600 ------------ Commercial Services: 2.36% 429,300 @ Caremark Rx 5,822,382 36,600 @ On Assignment, Inc. 1,043,100 73,900 @ Pharmaceutical Product Development, Inc. 3,671,906 ------------ 10,537,388 ------------ Computers: 2.87% 35,200 @ Affiliated Computer Services, Inc. 2,136,200 162,700 @ Carreker Corp. 5,653,825 117,800 @ Manhattan Associates, Inc. 5,021,225 ------------ 12,811,250 ------------ Diversified Financial Services: 1.21% 176,000 Heller Financial, Inc. $ 5,401,000 ------------ Electric: 0.82% 132,700 Kansas City Power & Light 3,640,956 ------------ Electrical Components & Equipment: 0.10% 15,200 @ Wilson Great Batch Technology 429,400 ------------ Electronics: 1.67% 32,900 @ Molecular Devices Corp. 2,251,594 81,300 @ Sawtek, Inc. 3,755,044 42,900 @ Varian, Inc. 1,453,238 ------------ 7,459,876 ------------ Energy-Alternate Sources: 0.15% 86,800 @ H PWR Corp. 667,275 ------------ Engineering & Construction: 0.28% 35,025 @ Dycom Industries, Inc. 1,258,711 ------------ Entertainment: 1.44% 86,600 @ Macrovision Corp. 6,409,753 ------------ Environmental Control: 1.48% 198,900 @ Waste Connections, Inc. 6,576,131 ------------ Healthcare-Products: 3.42% 191,500 @ Curon Medical, Inc. 768,991 64,600 @ Henry Schein, Inc. 2,236,775 103,300 @ Inverness Medical Technology, Inc. 4,022,244 81,500 @ Kensey Nash Corp. 825,187 63,900 @ Resmed, Inc. 2,548,013 299,800 @ Steris Corp. 4,834,275 ------------ 15,235,485 ------------ Healthcare Services: 17.57% 3,300 @ Apria Healthcare Group, Inc. $ 98,175 194,600 @ Community Health Systems, Inc. 6,811,000 65,300 @ Coventry Health Care, Inc. 1,742,694 83,200 @ Impath, Inc. 5,532,800 63,000 @ Laboratory Corp. of America Holdings 11,088,000 185,800 @ Lifepoint Hospitals, Inc. 9,313,225 185,300 @ Manor Care, Inc. 3,821,813 151,900 @ Oxford Health Plans, Inc. 6,000,050 191,850 @ Province Healthcare Co. 7,554,094 69,800 @ Quest Diagnostics, Inc. 9,911,600 47,600 @ Specialty Laboratories, Inc. 1,576,750 237,300 @ Triad Hospitals, Inc. 7,727,081 92,100 @ Trigon Healthcare, Inc. 7,166,531 ------------ 78,343,813 ------------ Insurance: 1.24% 73,400 Radian Group, Inc. 5,509,588 ------------ Internet: 1.69% 31,600 @ Globix Corp. 86,900 27,400 @ Indymac Bancorp, Inc. 808,300 64,800 @ Internet Security Systems, Inc. 5,082,750 28,425 @ Openwave Systems, Inc. 1,362,639 7,300 @ Retek, Inc. 177,938 ------------ 7,518,527 ------------ Machinery-Diversified: 1.53% 32,900 @ Brooks Automation, Inc. 923,256 259,400 Stewart & Stevenson Services 5,889,191 ------------ 6,812,447 ------------ Media: 1.32% 222,100 @ Entravision Communications Corp. 4,081,088 69,200 @ Pegasus Communications Corp. 1,781,900 ------------ 5,862,988 ------------ See Accompanying Notes to Financial Statements 82 Pilgrim SmallCap Growth Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - -------------------------------------------------------------------------------- Metal Fabricate/Hardware: 1.29% 115,200 @ Shaw Group, Inc. $ 5,760,000 ------------ Oil & Gas Producers: 8.76% 329,400 Cross Timbers Oil Co. 9,140,850 91,700 @ HS Resources, Inc. 3,885,787 125,600 @ Marine Drilling Cos., Inc. 3,359,800 36,647 @ Nabors Industries, Inc. 2,167,670 144,100 @ Precision Drilling Corp. 5,412,756 216,750 @ Pride Int'l, Inc. 5,337,468 149,400 @ Spinnaker Exploration Co. 6,349,500 155,000 @ Westport Resources Corp. 3,400,313 ------------ 39,054,144 ------------ Oil & Gas Services: 2.40% 329,400 BJ Services Co. 2,865,200 91,700 @ Grant Pride, Inc. 2,053,350 125,600 @ National Oilwell, Inc. 2,688,781 36,647 @ Universal Compression Holdings 3,090,375 ------------ 10,697,706 ------------ Pharmaceuticals: 9.39% 18,100 @ Abgenix, Inc. 1,069,031 99,700 @ Aerogen, Inc. 1,059,312 232,900 @ Alliance Pharmaceutical Corp. 2,008,762 99,200 @ Cor Therapeutics, Inc. 3,490,600 108,500 @ Esperion Therapeutics 1,179,937 161,100 @ Inspire Phamaceutical, Inc. 4,198,669 41,600 @ Intrabiotics Pharmaceuticals 400,400 151,678 @ King Pharmaceuticals, Inc. 7,839,857 126,800 @ Neopharm, Inc. 4,802,550 39,700 @ OSI Pharmaceuticals, Inc. 3,180,962 148,800 @ Syncor Int'l Corp. 5,412,600 66,926 @ Trimeris, Inc. 3,672,564 50,000 @ Vertex Pharmaceuticals, Inc. 3,575,000 ------------ 41,890,244 ------------ Pipelines: 0.65% 96,500 Questar Corp. $ 2,901,031 ------------ Retail: 8.44% 290,100 @ Abercrombie & Fitch Co. 5,802,000 113,400 @ American Eagle Outfitters, Inc. 4,791,150 146,000 @ California Pizza Kitchen, Inc. 4,124,500 55,300 @ Coldwater Creek, Inc. 1,717,756 191,200 @ Hot Topic, Inc. 3,142,850 13,400 @ Krispy Kreme Doughnuts, Inc. 1,112,200 77,000 @ Linens 'N Things, Inc. 2,127,125 214,400 @ Mens Wearhouse, Inc. 5,842,401 114,400 @ PF Chang's China Bistro, Inc. 3,596,451 81,900 TJX Cos., Inc. 2,272,725 151,600 @ Wet Seal, Inc. 3,117,275 ------------ 37,646,433 ------------ Semiconductors: 3.28% 84,100 @ Alpha Industries, Inc. 3,111,700 88,500 @ Celeritek, Inc. 3,374,062 80,500 @ Photronics, Inc. 1,886,719 60,500 @ Qlogic Corp. 4,658,500 53,200 @ Rudolph Technologies, Inc. 1,605,975 ------------ 14,636,956 ------------ Software: 5.12% 75,300 @ Cerner Corp. 3,482,625 38,000 @ Documentum, Inc. 1,888,125 175,400 @ Manugistics Group, Inc. 9,997,800 50,100 @ Numerical Technologies, Inc. 904,932 143,100 @ OTG Software, Inc. 2,309,723 4,400 @ Quest Software, Inc. 123,475 121,000 @ Serena Software, Inc. 4,142,359 ------------ 22,849,039 ------------ Telecommunication: 3.06% 46,526 @ ADC Telecommunications, Inc. $ 843,284 37,400 @ Advanced Fibre Communications 675,537 157,400 @ Aeroflex, Inc. 4,537,547 96,500 @ Ixia 2,207,437 40,400 @ Proxim, Inc. 1,737,200 63,400 @ Stanford Microdevices, Inc. 2,282,400 78,500 @ Stratos Lightwave, Inc. 1,339,406 ------------ 13,622,811 ------------ Transportation: 0.19% 22,950 @ Forward Air Corp. 856,321 ------------ Total Common Stocks (Cost $307,078,738) 423,706,905 ------------ Total Long-Term Investments (Cost $307,078,738) 423,706,905 ------------ See Accompanying Notes to Financial Statements 83 Pilgrim SmallCap Growth Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 5.27% Repurchase Agreement: 5.27% $23,493,000 State Street Bank & Trust Repurchase Agreement 5.750% due 01/02/01 (Collateraized by $18,310,000 U.S. Treasury Bonds, 8.000% Due 11/15/21, Market Value $23,963,872) $ 23,493,000 ------------ Total Short-Term Investments (Cost $23,493,000) 23,493,000 ------------ Total Investments in Securities (Cost $ 330,571,738)* 100.31% $447,199,905 Other Assets and Liabilities-Net -0.31% (1,364,431) ------ ------------ Net Assets 100.00% $445,835,474 ====== ============ @ Non-income producing security * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $135,666,162 Gross Unrealized Depreciation (19,037,995) ------------ Net Unrealized Appreciation $116,628,167 ============ See Accompanying Notes to Financial Statements 84 Pilgrim Government Securities Income Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Principal Market Amount Rate Maturity Value - -------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY OBLIGATIONS: 76.84% Federal Home Loan Mortgage Corportation: 29.33% $ 9,877,625 6.500% due 06/01/16 $ 9,923,951 9,109,596 6.500% due 06/01/19 9,096,752 1,896,455 7.000% due 06/01/29 1,900,590 3,667,399 7.000% due 11/01/14 3,706,347 3,809,974 7.500% due 01/01/30 3,868,305 6,091,150 7.500% due 12/01/14 6,218,699 3,017,591 8.000% due 01/01/30 3,093,966 96,022 8.500% due 06/01/17 98,752 75,599 9.000% due 05/01/21 77,819 82,878 9.000% due 10/01/06 86,011 78,075 9.500% due 06/01/14 80,486 3,661 9.500% due 10/01/05 3,864 362,671 9.500% due 12/01/05 382,730 59,243 9.905% due 07/01/20 62,903 ------------ Total Federal Home Loan Mortgage Corporation 38,601,175 ------------ Federal National Mortgage Corportation: 30.42% 4,068,740 6.000% due 05/01/19 3,981,303 3,925,280 6.160% due 03/01/06 3,876,214 2,751,789 6.350% due 01/01/04 2,768,129 10,396,655 6.500% due 01/01/26 10,295,912 927,626 6.500% due 06/01/14 927,329 589,854 6.500% due 08/01/15 589,866 2,704,473 6.500% due 10/01/28 2,668,991 2,525,386 6.500% due 12/01/18 2,508,163 1,704,648 7.000% due 03/01/15 1,725,172 1,935,381 7.500% due 05/01/28 1,965,012 231,600 8.000% due 05/01/23 239,222 2,207,620 8.500% due 05/01/15 2,275,901 57,739 8.500% due 07/01/21 58,352 1,632,394 8.500% due 08/01/11 1,682,884 776,624 8.500% due 08/01/15 801,981 1,938,125 8.500% due 09/01/15 2,001,405 267,115 8.500% due 11/01/17 274,287 62,344 9.000% due 08/01/17 64,581 74,648 9.250% due 01/01/09 77,095 24,426 9.250% due 08/01/16 25,754 61,862 9.250% due 10/01/16 64,983 52,957 9.250% due 11/01/16 55,837 57,523 9.250% due 12/01/15 59,616 90,269 9.750% due 12/01/08 95,125 33,869 10.000% due 08/01/07 34,477 44,829 10.000% due 09/01/12 47,967 122,986 11.000% due 04/01/17 128,578 13,778 11.000% due 07/01/17 13,853 73,881 11.000% due 09/01/17 77,610 311,581 11.500% due 06/01/19 350,818 33,466 12.000% due 05/01/07 33,858 52,549 12.500% due 08/01/07 54,413 4,644 13.500% due 08/01/07 4,681 44,204 13.500% due 08/01/07 45,550 $ 11,808 13.500% due 08/01/12 $ 13,790 111,375 13.500% due 09/01/17 130,412 ------------ Total Federal National Mortgage Association 40,019,121 ------------ Government National Mortgage Association: 17.09% 3,927,210 6.500% due 02/15/26 3,894,064 6,681,024 6.500% due 07/20/29 6,582,946 446,850 7.000% due 02/20/16 451,153 384,587 7.000% due 03/20/17 388,310 2,716,120 7.000% due 09/15/23 2,736,491 405,825 7.500% due 08/15/23 414,067 6,347,036 7.500% due 12/15/28 6,458,109 249,482 8.000% due 03/15/23 256,964 344,444 8.000% due 10/15/24 354,237 12,486 9.000% due 01/15/17 13,173 12,421 9.000% due 01/15/17 13,104 11,154 9.000% due 02/15/17 11,767 91,360 9.000% due 03/15/22 96,042 40,221 9.000% due 05/15/16 42,433 25,517 9.000% due 07/15/16 26,846 11,700 9.000% due 08/15/16 12,344 133,827 9.000% due 09/15/13 140,607 15,214 9.000% due 09/15/16 16,050 2,001 9.000% due 09/15/16 2,112 30,588 9.000% due 09/15/16 32,270 58,638 9.000% due 10/15/16 61,863 50,755 9.000% due 10/15/16 53,546 33,298 9.000% due 12/15/16 35,129 90,268 9.250% due 04/15/17 96,247 88,849 9.250% due 05/15/21 94,513 133,904 9.250% due 12/15/16 142,774 44,794 13.000% due 10/20/14 50,684 ------------ Total Government National Mortgage Association 22,477,845 ------------ Total U.S. Government Agency Obligations 101,098,141 ------------ U.S. TREASURY NOTES: 6.33% 4,000,000 5.750% due 11/15/05 4,131,408 4,000,000 5.750% due 08/15/10 4,193,440 ------------ Total U.S. Treasury Notes 8,324,848 ------------ Total Long-Term Investments (Cost $107,458,866) 109,422,989 ------------ Principal Amount Value - -------------------------------------------------------------------------------- SHORT TERM INVESTMENTS: 4.29% Repurchase Agreement: 4.29% $ 5,647,000 State Street Bank & Trust Repurchase Agreement, 5.750% due 01/02/01 (Collateralized by $4,675,000 U.S. Treasury Notes, 7.25% Due 08/15/22, Market Value $5,764,860) $ 5,647,000 ------------ Total Short-Term Investments (Cost $5,647,000) 5,647,000 ------------ Total Investments in Securities (Cost $ 113,105,866)* 87.46% $115,069,989 Other Assets and Liabilities-Net 12.54% 16,494,586 ------ ------------ Net Assets 100.00% $131,564,575 ====== ============ * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 2,241,264 Gross Unrealized Depreciation (277,141) ------------ Net Unrealized Appreciation $ 1,964,123 ============ See Accompanying Notes to Financial Statements 85 Pilgrim Strategic Income Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 23.66% Airlines: 0.47% 60,000 Atlas Air, Inc., 9.375%, due 11/15/06 $ 59,100 ----------- Banks: 2.77% 155,000 @@ Banco Santander-Chile, 6.500%, due 11/01/05 150,396 200,000 Wachovia Corp., 6.605%, due 10/01/25 200,924 ----------- 351,320 ----------- Commercial Services: 1.15% 160,000 Neff Corp., 10.250%, due 06/01/08 71,200 25,000 United Rentals, Inc., 8.800%, due 08/15/08 18,750 75,000 United Rentals, Inc., 9.000%, due 04/01/09 56,250 ----------- 146,200 ----------- Diversified Financial Services: 2.61% 60,000 # @@ Cerro Negro Finance, Ltd., 7.330%, due 12/01/09 55,093 200,000 Household Finance Corp., 8.000%, due 05/09/05 209,913 100,000 Madison River Capital, LLC/Madison River Finance Corp., 13.250%, due 03/01/10 65,500 ----------- 330,506 ----------- Electric: 1.75% 50,000 AES Corp., 9.375%, due 09/15/10 51,125 55,000 Calpine Corp., 8.625%, due 08/15/10 53,267 100,000 East Coast Power, LLC, 7.536%, due 06/30/17 97,453 20,000 @@ Enersis SA (Chile), 6.600%, due 12/01/26 19,712 ----------- 221,557 ----------- Electronics: 1.27% 95,000 @@ Celestica Int'l, Inc., 10.500%, due 12/31/06 $ 98,800 65,000 @@ Flextronics Int'l, Ltd., 8.750%, []due 10/15/07 61,750 ----------- 160,550 ----------- Forest Products and Paper: 0.33% 100,000 Doman Industries, Ltd., 8.750%, due 03/15/04 42,500 ----------- Healthcare-Services: 0.38% 50,000 HCA-The Healthcare Co., 7.250%, due 05/20/08 47,705 ----------- Holding Companies-Diversified: 0.40% 50,000 # Kansas City Southern Railway, 9.500%, due 10/01/08 51,250 ----------- Home Builders: 0.59% 25,000 Lennar Corp., 7.625%, due 03/01/09 23,128 50,000 Lennar Corp., 9.950%, due 05/01/10 51,000 ----------- 74,128 ----------- Iron/Steel: 0.85% 25,000 AK Steel Corp., 7.875%, due 02/15/09 22,187 65,000 AK Steel Corp., 9.125%, due 12/15/06 61,913 25,000 Armco, Inc., 9.000%, due 09/15/07 23,000 ----------- 107,100 ----------- Lodging: 0.40% 25,000 Prime Hospitality Corp., 9.750%, due 04/1/07 25,125 25,000 Station Casinos, Inc., 9.875%, due 07/1/10 25,656 ----------- 50,781 ----------- Machinery-Construction and Mining: 0.10% 15,000 Terex Corp., 8.875%, due 04/01/08 12,919 ----------- Media: 4.99% 85,000 Adelphia Communications, 10.875%, due 10/01/10 $ 82,450 600,000 Charter Communications Holdings, LLC/Charter Holdings Cap. Corp., 11.750%, due 01/15/10 348,000 75,000 Echostar DBS Corp., 9.250%, due 02/01/06 72,937 450,000 @@ UPC, 13.750%, due 02/01/10 128,250 ----------- 631,637 ----------- Oil and Gas Producers: 1.01% 200,000 United Refining Co., 10.750%, due 06/15/07 128,000 ----------- Packaging and Containers: 0.64% 135,000 Owens-Illinois, Inc., 7.850%, due 05/15/04 81,000 ----------- Retail - Discount: 0.56% 175,000 Hollywood Entertainment Corp., 10.625%, due 08/15/04 70,875 ----------- Telecommunications: 3.21% 200,000 @@ Call-Net Enterprises, Inc., 8.000%, due 08/15/08 78,000 25,000 Fairchild Semiconductor Int'l, Inc., 10.125%, due 03/15/07 23,250 60,000 Global Crossing Holding Ltd., 9.500%, due 11/15/09 57,000 100,000 MGC Communications, Inc./Mpower Communications, 13.000%, due 04/01/10 45,000 200,000 Motorola, Inc., 6.500%, due 09/01/25 203,286 ----------- 406,536 ----------- See Accompanying Notes to Financial Statements 86 Pilgrim Strategic Income Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Transportation: 0.18% 25,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 $ 23,313 ------------ Total Corporate Bonds (Cost $3,161,519) 2,996,977 ------------ U.S. TREASURY OBLIGATIONS: 31.10% Governments: 31.10% 1,000,000 U.S. Treasury Note, 6.000%, due 08/15/04 1,028,280 1,150,000 U.S. Treasury Note, 6.500%, due 02/15/10 1,258,169 600,000 U.S. Treasury Bond, 7.250%, due 05/15/16 705,750 200,000 U.S. Treasury Note, 6.750%, due 05/15/05 213,031 675,000 U.S. Treasury Bond, 6.125%, due 08/15/29 734,171 ------------ 3,939,401 ------------ Total U.S. Treasury Obligations (Cost $ 3,734,228) 3,939,401 ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS: 28.76% Federal Home Loan Mortgage Corporation: 6.04% 89,983 5.500%, due 02/01/14 87,565 10,750 9.000%, due 06/01/06 11,287 174,612 5.500%, due 01/01/14 169,919 450,741 7.000%, due 06/01/29 451,727 12,087 10.000%, due 10/01/03 12,725 30,555 9.500%, due 11/01/05 32,093 ------------ 765,316 ------------ Federal National Mortgage Association: 16.11% 200,000 6.625%, due 11/15/30 211,594 500,000 7.250%, due 01/15/10 542,970 316,143 7.000%, due 03/01/15 319,602 393,236 6.500%, due 08/01/15 393,110 15,938 9.500%, due 05/01/07 16,820 79,910 6.500%, due 02/01/09 79,935 14,178 10.000%, due 10/01/04 $ 15,051 13,008 9.500%, due 06/01/05 13,728 12,958 9.500%, due 07/01/06 13,675 143,973 8.000%, due 08/01/30 147,526 275,179 6.350%, due 01/01/04 286,186 ------------ 2,040,197 ------------ Government National Mortgage Association: 6.61% 296,268 7.500%, due 11/15/29 301,358 141,954 8.000%, due 07/15/30 145,568 390,584 6.500%, due 06/15/29 386,189 647 11.500%, due 07/15/13 711 3,510 8.500%, due 02/15/21 3,640 350 11.500%, due 02/15/13 390 ------------ 837,856 ------------ Total U.S. Government Agency Obligations (Cost $3,514,471) 3,643,369 ------------ Collateralized Mortgage Obligations and Asset-Backed Securities: 6.34% Mortgage -- Commercial: 3.93% 210,000 # Allied Capital Commercial Mortgage Trust, 6.710%, due 12/25/04 210,695 279,599 GMAC Commercial Mortgage Securities, Inc., 6.974%, due 05/15/05 287,670 ------------ 498,365 ------------ Mortgage -- Residential: 2.41% 300,000 Emergent Home Equity Loan Trust, 7.080%, due 12/15/28 305,516 ------------ Total CMO's and Asset Backed Securities (Cost $ 777,159) 803,881 ------------ PREFERRED STOCK: 1.04% Telecommunications: 1.04% 2,853 XO Communications, Inc. $ 131,958 ------------ Total Preferred Stock (Cost $240,842) 131,958 ------------ MUTUAL FUNDS: 3.82% Investment Companies: 3.82% 64,500 ++ Pilgrim Prime Rate Trust 483,750 ------------ Total Mutual Funds (Cost $610,654) 483,750 ------------ Total Long-Term Investments: (Cost $ 12,038,873) 11,999,336 ------------ Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 6.60% Repurchase Agreements: 6.60% $ 836,000 State Street Repurchase Agreement, 5.750% Due 01/02/01 (Collateralized by $857,255 U.S. Treasury Bond, 8.000% Market Value $655,000 Due 11/15/21) $ 836,000 ------------ Total Short-Term Investments (Cost $836,000) 836,000 ------------ Total Investments in Securities (Cost $ 12,874,872)* 101.32% $ 12,835,336 Other Assets and Liabilities-Net -1.32% (167,578) ------ ------------ Net Assets 100.00% $ 12,667,758 ====== ============ ++ Related party. # 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. * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 399,500 Gross Unrealized Depreciation (439,037) ------------ Net Unrealized Depreciation $ (39,537) ============ See Accompanying Notes to Financial Statements 87 Pilgrim High Yield Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 91.31% Airlines: 3.76% 2,500,000 Amtran, Inc., 10.500%, due 08/01/04 $ 2,150,000 4,000,000 Atlas Air, Inc., 9.375%, due 11/15/06 3,940,000 2,000,000 Worldwide Flight Services, Inc., 12.250%, due 08/15/07 1,410,000 ------------ 7,500,000 ------------ Automotive: 1.85% 4,050,000 Lear Corp., 8.110%, due 05/15/09 3,686,359 ------------ Building Materials: 0.89% 2,000,000 Dayton Superior Corp., 13.000%, due 06/15/09 1,780,000 ------------ Broadcasting: 3.00% 3,000,000 Sinclair Broadcast Group, Inc., 10.000%, due 09/30/05 2,925,000 3,025,000 Young Broadcasting, Inc., 11.750%, due 11/15/04 3,062,813 ------------ 5,987,813 ------------ Cable: 8.42% 4,000,000 Charter Communications, 8.625%, due 04/01/09 3,650,000 2,000,000 Echostar DBS Corp., 9.375%, due 02/01/09 1,950,000 2,000,000 Echostar DBS Corp., 9.250%, due 02/01/06 1,945,000 3,500,000 Intermedia Communications, Inc., 9.500%, due 03/01/09 2,467,500 3,000,000 Pegasus Communications Corp., 9.750%, due 12/01/06 2,805,000 3,750,000 @@ Star Choice Communications, 13.000%, due 12/15/05 3,960,938 ------------ 16,778,438 ------------ Capital Goods: 1.82% 2,440,000 Terex Corp., 8.875%, due 04/01/08 $ 2,113,650 595,000 Terex Corp. series D, 8.875%, due 04/01/08 515,419 4,000,000 Transportation Mfg. Operations, 11.250%, due 05/01/09 1,000,000 ------------ 3,629,069 ------------ Chemicals: 1.46% 3,000,000 Lyondell Chemical Co., 9.875%, due 05/01/07 2,910,000 ------------ Consumer Products: 1.40% 3,000,000 Simmons Co., 10.250%, due 03/15/09 2,790,000 ------------ Containers: 1.11% 2,160,000 Owens Ill, Inc., 7.850%, due 05/15/04 1,306,800 900,000 Stone Container Corp., 10.750%, due 04/01/02 898,875 ------------ 2,205,675 ------------ Electrical Utilities: 3.42% 900,000 AES Corp., 9.500%, due 06/01/09 936,000 2,675,000 AES Corp., 9.375%, due 09/15/10 2,748,563 3,225,000 Calpine Corp., 8.625%, due 08/15/10 3,128,395 ------------ 6,812,958 ------------ Energy: 7.01% 1,360,000 Clark Refining & Marketing, Inc., 8.375%, due 11/15/07 1,026,800 1,325,000 @@# Compagnie Generale De Geophysi, 10.625%, due 11/15/07 1,364,750 5,575,000 Energy Corp. America, 9.500%, due 05/15/07 4,446,063 3,425,000 Parker Drilling Co., 9.750%, due 11/15/06 3,459,250 1,500,000 RBF Finance Co., 11.000%, due 03/15/06 1,743,750 3,100,000 United Refining Co., 10.750%, due 06/15/07 1,922,000 ------------ 13,962,613 ------------ Environmental: 2.33% 4,900,000 Allied Waste North America, Inc., 10.000%, due 08/01/09 $ 4,642,750 ------------ Entertainment: 0.41% 2,000,000 Hollywood Entertainment Corp., 10.625%, due 08/15/04 810,000 ------------ Finance: 3.45% 3,000,000 Neff Corp., 10.250%, due 06/01/08 1,335,000 3,000,000 Penhall Int'l Corp., 12.000%, due 08/01/06 2,700,000 325,000 United Rentals, Inc., 8.800%, due 08/15/08 245,375 1,400,000 United Rentals, Inc., 9.250%, due 01/15/09 1,071,000 2,025,000 United Rentals, Inc., 9.000%, due 04/01/09 1,528,875 ------------ 6,880,250 ------------ Food/Beverage: 1.55% 3,875,000 Packaged Ice, Inc., 9.750%, due 02/01/05 3,080,625 ------------ Gaming: 7.01% 1,750,000 # Anchor Gaming, 9.875%, due 10/15/08 1,806,875 2,125,000 # Autotote Corp., 12.500%, due 08/15/10 2,008,125 1,000,000 Hollywood Casino Shreveport, 13.000%, due 08/01/06 1,070,000 2,000,000 Int'l Game Technology, 8.375%, due 05/15/09 2,005,000 3,250,000 Park Place Enertainment Corp., 8.875%, due 09/15/08 3,298,750 2,675,000 Station Casinos, Inc., 9.875%, due 07/01/10 2,758,594 1,000,000 Station Casinos, Inc., 9.750%, due 04/15/07 1,017,500 ------------ 13,964,844 ------------ See Accompanying Notes to Financial Statements 88 Pilgrim High Yield Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited)(Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Health Care: 2.03% 2,100,000 Columbia/HCA Healthcare Corp., 7.250%, due 05/20/08 $ 2,006,390 2,000,000 Tenet Healthcare Corp., 8.125%, due 12/01/08 2,030,000 ------------ 4,036,390 ------------ Homebuilders: 2.75% 3,000,000 D R Horton, Inc., 8.375%, due 06/15/04 2,895,000 1,500,000 Lennar Corp., 9.950%, due 05/01/10 1,537,500 1,125,000 Lennar Corp., 7.625%, due 03/01/09 1,042,289 ------------ 5,474,789 ------------ Hotels: 1.50% 1,800,000 HMH Properties, Inc., 7.875%, due 08/01/08 1,737,000 1,250,000 Prime Hospitality Corp., 9.750%, due 04/01/07 1,262,500 ------------ 2,999,500 ------------ Internet - DSL: 0.67% 5,250,000 Rhythms Netconnections, Inc., 12.750%, due 04/15/09 1,338,750 ------------ Internet - ISP: 2.48% 3,000,000 # Colo.Com, 13.875%, due 03/15/10 1,350,000 3,000,000 Exodus Communications, Inc., 11.250%, due 07/01/08 2,685,000 1,425,000 Globix Corp., 12.500%, due 02/01/10 534,375 5,000,000 North Point Communications, 12.875%, due 02/15/10 375,000 ------------ 4,944,375 ------------ Paper: 0.46% 2,175,000 @@ Doman Industries, Ltd., 8.750%, due 03/15/04 924,375 ------------ Rail Transportation: 1.03% 2,000,000 # Kansas City Southern Railway Co., 9.500%, due 10/01/08 2,060,000 ------------ Specialty Retail: 3.17% 2,000,000 Big 5 Corp., 10.875%, due 11/15/07 $ 1,765,000 1,875,000 JoAnn Stores, Inc., 10.375%, due 05/01/07 1,115,625 1,000,000 Musicland Group, Inc., 9.875%, due 03/15/08 1,005,000 3,088,000 Tuesday Morning Corp., 11.000%, due 12/15/07 2,424,080 ------------ 6,309,705 ------------ Steel: 2.22% 1,705,000 AK Steel Corp., 9.125%, due 12/15/06 1,632,537 1,875,000 AK Steel Corp., 7.875%, due 02/15/09 1,673,438 325,000 Armco, Inc., 9.000%, due 09/15/07 300,625 1,400,000 Metals USA, Inc., 8.625%, due 02/15/08 819,000 ------------ 4,425,600 ------------ Technology: 5.45% 500,000 Amkor Technology, Inc., 9.250%, due 05/01/06 473,750 1,975,000 Fairchild Semiconductor Corp., 10.125%, due 03/15/07 1,846,625 2,795,000 @@ Flextronics Int'l, Ltd., 8.750%, due 10/15/07 2,669,225 2,500,000 @@# Seagate Technology, 12.500%, due 11/15/07 2,375,000 5,825,000 Zilog, Inc., 9.500%, due 03/01/05 3,495,000 ------------ 10,859,600 ------------ Transportation: 1.92% 3,055,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 2,864,063 1,000,000 # Travelcenters America, Inc., 12.750%, due 05/01/09 970,000 ------------ 3,834,063 ------------ Wireless - Cellular: 3.21% 2,350,000 Crown Castle Int'l Corp., 9.500%, due 08/01/11 $ 2,320,624 4,350,000 Nextel Communications, 9.375%, 11/15/09 4,067,250 ------------ 6,387,874 ------------ Wireless - Sat/Fixed: 1.09% 5,000,000 @@ Call Net Enterprises, Inc., 9.375%, due 05/15/09 2,175,000 ------------ Wireline - CLEC: 5.20% 2,500,000 Adelphia Communications Corp., 10.875%, due 10/01/10 2,425,000 2,000,000 Hyperion Telecommunication, Inc., 12.000%, due 11/01/07 800,000 4,000,000 Madison River Capital Finance Corp., 13.250%, due 03/01/10 2,500,000 2,000,000 MGC Communications, Inc., 13.000%, due 04/01/10 900,000 4,500,000 Nextlink Communications, 10.750%, due 11/15/08 3,735,000 ------------ 10,360,000 ------------ Wireline - Long Distance: 7.34% 4,000,000 @@ Flag Telecom Holdings, Ltd., 11.625%, due 03/30/10 3,140,000 3,000,000 ITC Deltacom, Inc., 9.750%, due 11/15/08 2,160,000 4,350,000 Level 3 Communications, Inc., 9.125%, due 05/01/08 3,534,373 4,000,000 Metromedia Fiber Network, Inc., 10.000%, due 11/15/08 3,340,000 5,790,000 Northeast Optic, 12.750%, due 08/15/08 2,460,750 ------------ 14,635,123 ------------ See Accompanying Notes to Financial Statements 89 Pilgrim High Yield Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited)(Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Wireline - Submarine: 1.90% 1,000,000 @@ Global Crossings Holdings, Ltd., 9.500%, due 11/15/09 $ 950,000 3,000,000 @@ Global Crossings Holdings, Ltd., 9.625%, due 05/15/08 2,835,000 ------------ 3,785,000 ------------ Total Corporate Bonds (Cost $214,487,524) 181,971,538 ------------ WARRANTS: 0.00% Airlines: 0.00% 2,000 @# Worldwide Flight Services, Inc., expires 08/15/07 20 ------------ Building Materials: 0.00% 4,000 @# Dayton Superior Corp., expires 06/15/09 40 ------------ Total Warrants (Cost $0) 60 ------------ Total Long - Term Investments (Cost $214,487,524) 181,971,598 ------------ Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 6.56% Commercial Paper: 6.56% $10,005,000 General Electric, 5.900%, due 01/02/01 $ 10,003,360 3,056,000 State Street Boston, 6.200%, due 01/02/01 3,055,474 ------------ Total Short-Term Investments (Cost $13,402,935) 13,058,834 ------------ Total Investments in Securities (Cost $ 227,546,358)* 97.87% $195,030,432 Other Assets and Liabilities-Net 2.13% 4,251,572 ------ ------------ Net Assets 100.00% $199,282,004 ====== ============ @ 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. @@ Foreign Issuer * Cost for federal Income tax purposes is the same as for financial statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 2,353,711 Gross Unrealized Depreciation (34,869,637) ------------ Net Unrealized Depreciation $(32,515,926) ============ See Accompanying Notes to Financial Statements 90 Pilgrim High Yield Fund II PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 94.06% Airlines: 2.15% 1,500,000 Amtran, Inc., 10.500%, due 08/01/04 $ 1,290,000 1,525,000 Atlas Air, Inc., 9.375%, due 11/15/06 1,502,125 ------------ 2,792,125 ------------ Building Materials: 1.39% 2,000,000 Dayton Superior Corp., 13.000%, due 06/15/09 1,810,000 ------------ Broadcasting: 4.14% 3,250,000 Sinclair Broadcast Group, Inc., 10.000%, due 09/30/05 3,168,750 2,175,000 Young Broadcasting, Inc., 11.750%, due 11/15/04 2,202,188 ------------ 5,370,938 ------------ Cable: 6.23% 4,000,000 @ Century Communications Corp., 0.000%, due 01/15/08 1,560,000 1,500,000 Charter Communications Holdings, 0/9.920%, due 04/01/11 873,750 3,000,000 Echostar DBS Corp., 9.250%, due 02/01/06 2,917,500 2,375,000 Intermedia Communications, Inc., 9.500%, due 03/01/09 1,674,375 1,000,000 @@ Star Choice Communications, 13.000%, due 12/15/05 1,056,250 ------------ 8,081,875 ------------ Capital Goods: 1.13% 1,640,000 Terex Corp., 8.875%, due 04/01/08 1,420,650 55,000 Terex Corp. series D, 8.875%, due 04/01/08 47,644 ------------ 1,468,294 ------------ Consumer Products: 2.26% 3,150,000 Simmons Co., 10.250%, due 03/15/09 2,929,500 ------------ Containers: 1.27% 1,605,000 Owens Ill, Inc., 7.850%, due 05/15/04 $ 971,025 5,000,000 Russell Stanley Holdings, Inc., 10.875%, due 02/15/09 675,000 ------------ 1,646,025 ------------ Electrical Utilities: 3.95% 1,865,000 AES Corp., 9.375%, due 09/15/10 1,916,288 750,000 AES Corp., 9.500%, due 06/01/09 780,000 2,500,000 Calpine Corp., 8.625%, due 08/15/10 2,425,112 ------------ 5,121,400 ------------ Energy: 10.05% 1,000,000 Clark Refining & Marketing, Inc., 8.375%, due 11/15/07 755,000 875,000 # @@ Compagnie Generale De Geophysique, 10.625%, due 11/15/07 901,250 3,755,000 Energy Corp. of America, 9.500%, due 05/15/07 2,994,613 4,500,000 @@ Northern Offshore Asa, 10.000%, due 05/15/05 3,037,500 2,350,000 Parker Drilling Co., 9.750%, due 11/15/06 2,373,500 1,500,000 RBF Finance Co., 11.000%, due 03/15/06 1,743,750 2,000,000 United Refining Co., 10.750%, due 06/15/07 1,240,000 ------------ 13,045,613 ------------ Entertainment: 4.13% 4,100,000 Ascent Entertainment Group, Inc., 0/11.875%, due 12/15/04 3,336,375 5,000,000 Hollywood Entertainment Corp., 10.625%, due 08/15/04 2,025,000 ------------ 5,361,375 ------------ Environmental: 1.82% 2,500,000 Allied Waste North America, Inc., 10.000%, due 08/01/09 2,368,750 ------------ Finance: 4.51% 2,850,000 Neff Corp., 10.250%, due 06/01/08 $ 1,268,250 2,000,000 Penhall Int'l Corp., 12.000%, due 08/01/06 1,800,000 1,000,000 United Rentals, Inc., 9.250%, due 01/15/09 765,000 1,475,000 United Rentals, Inc., 9.000%, due 04/01/09 1,113,625 225,000 United Rentals, Inc., 8.800%, due 08/15/08 169,875 750,000 United Rentals, Inc., 9.500%, due 06/01/08 588,750 500,000 # @@ Westways Funding II, Ltd., 22.125%, due 01/29/03 150,000 ------------ 5,855,500 ------------ Food/Beverage: 2.10% 3,500,000 Standard Commercial Corp., 8.875%, due 08/01/05 2,730,000 ------------ Gaming: 5.65% 1,250,000 # Anchor Gaming, 9.875%, due 10/15/08 1,290,625 1,500,000 # Autotote Corp., 12.500%, due 08/15/10 1,417,500 2,250,000 Park Pacel Entertainment Corp., 8.875%, due 09/15/08 2,283,750 475,000 Station Casinos, Inc., 9.750%, due 04/15/07 483,313 1,800,000 Station Casinos, Inc., 9.875%, due 07/01/10 1,856,250 ------------ 7,331,438 ------------ Health Care: 1.20% 1,475,000 Columbia/HCA Healthcare Corp., 7.250%, due 05/20/08 1,409,250 184,074 @ Intracel, 11.500%, due 03/25/10 55,222 5,941,463 @ Intracel, 1.000%, due 03/20/10 -- 300,000 @ Intracel, 1.000%, due 03/20/10 90,000 ------------ 1,554,472 ------------ See Accompanying Notes to Financial Statements 91 Pilgrim High Yield Fund II PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited)(Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Homebuilders: 0.64% 150,000 Lennar Corp., 9.950%, due 05/01/10 $ 153,750 725,000 Lennar Corp., 7.625%, due 03/01/09 671,697 ------------ 825,447 ------------ Hotels: 2.34% 2,000,000 Courtyard Marriott II, Ltd. Partnership, 10.750%, due 02/01/08 2,030,000 1,000,000 Prime Hospitality Corp., 9.750%, due 04/01/07 1,010,000 ------------ 3,040,000 ------------ Internet - DSL: 0.92% 3,500,000 Rhythms Netconnections, Inc., 12.750%, due 04/15/09 892,500 1,300,000 Rhythms Netconnections, Inc., 14.000%, due 02/15/10 305,500 ------------ 1,198,000 ------------ Internet - ISP: 2.06% 3,000,000 # Colo.com, 13.875%, due 03/15/10 1,350,000 2,125,000 Globix Corp., 12.500%, due 02/01/10 796,875 7,000,000 North Point Communications, 12.875%, due 02/15/10 525,000 ------------ 2,671,875 ------------ Paper: 0.92% 2,825,000 @@ Doman Industries, Ltd., 8.750%, due 03/15/04 1,200,625 ------------ Rail Transportation: 1.09% 1,375,000 # Kansas City Southern Railway Co., 9.500%, due 10/01/08 1,416,250 ------------ Supermarkets: 3.25% 5,000,000 Fleming Companies, Inc., 10.500%, due 12/01/04 $ 3,900,000 4,250,000 Richmont Marketing Specialists, 10.125%, due 12/15/07 318,750 ------------ 4,218,750 ------------ Specialty Retail: 1.67% 1,000,000 Big 5 Corp., 10.875%, due 11/15/07 882,500 1,000,000 JoAnn Stores, Inc., 10.375%, due 05/01/07 605,000 675,000 Musicland Group, Inc., 9.875%, due 03/15/08 678,375 ------------ 2,165,875 ------------ Steel: 2.38% 1,350,000 AK Steel Corp., 7.875%, due 02/15/09 1,204,875 1,175,000 AK Steel Corp., 9.125%, due 12/15/06 1,125,063 225,000 Armco, Inc., 9.000%, due 09/15/07 208,125 950,000 Metals USA, Inc., 8.625%, due 02/15/08 555,750 ------------ 3,093,813 ------------ Technology: 4.71% 1,350,000 Fairchild Semiconductor Corp., 10.125%, due 03/15/07 1,262,250 1,610,000 @@ Flextronics Int'l, Ltd., 8.750%, due 10/15/07 1,537,550 1,250,000 # @@ Seagate Technology, 12.500%, due 11/15/07 1,187,500 3,550,000 Zilog, Inc., 9.500%, due 03/01/05 2,130,000 ------------ 6,117,300 ------------ Telephone: 2.91% 3,150,000 NTL, Inc., 0/9.750%, due 04/01/08 $ 1,740,375 1,340,000 United Int'l Holdings, Inc., 10.750%, due 02/15/08 556,100 5,100,000 @@ United Pan Europe NV, 13.750%, due 02/01/10 1,479,000 ------------ 3,775,475 ------------ Transport: 2.99% 2,065,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 1,935,938 2,000,000 # Travelcenters America, Inc., 12.750%, due 05/01/09 1,940,000 ------------ 3,875,938 ------------ Wireless - Cellular: 4.96% 3,300,000 Nextel Communications, Inc., 0/9.950%, due 02/15/08 2,417,250 3,775,000 US Unwired, Inc., 1.000%, due 11/01/09 1,736,500 7,998,000 Winstar Communications, Inc., 0/14.750%, due 04/15/10 2,279,430 ------------ 6,433,180 ------------ Wireline - CLEC: 6.49% 3,600,000 ICG Services, Inc., 10.000%, due 02/15/08 306,000 1,500,000 Madison River Capital Finance Corp., LLC., 13.250%, due 03/01/10 937,500 6,000,000 MGC Communications, Inc., 13.000%, due 04/01/10 2,700,000 3,000,000 Nextlink Communications, Inc., 0/12.250%, due 06/01/09 1,455,000 5,000,000 @@ Versatel Telecom Int'l NV, 11.875%, due 07/15/09 3,025,000 ------------ 8,423,500 ------------ See Accompanying Notes to Financial Statements 92 Pilgrim High Yield Fund II PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited)(Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Wireline - Long Distance: 3.18% 5,500,000 @@ Call Net Enterprises, Inc., 0/12.975%, due 08/15/08 $ 1,072,500 1,000,000 @@ Call Net Enterprises, Inc., 8.000%, due 08/15/08 390,000 1,000,000 @@ Flag Telecom Holdings, Ltd., 11.625%, due 03/30/10 785,000 1,600,000 Level 3 Communications, Inc., 12.875%, due 03/15/10 752,000 7,250,000 Viatel, Inc., 0/12.500%, due 04/15/08 1,123,750 ------------ 4,123,250 ------------ Wireline - Submarine: 1.57% 2,150,000 @@ Global Crossing Holdings, Ltd., 9.500%, due 11/15/09 2,042,500 ------------ Total Corporate Bonds (Cost $160,400,521) 122,089,083 ------------ Market Shares Value - -------------------------------------------------------------------------------- COMMON STOCK: 0.20% Health Care: 0.00% 16,926 @ Intracel Corp. $ -- ------------ Wireline - CLEC: 0.20% 89,000 @@ @ Complete L Europe NV 245,640 ------------ Total Common Stock (Cost $809,227) 245,640 ------------ PREFERRED STOCK: 2.37% Wireline - CLEC: 1.69% 43,970 Adelphia Business Solutions 1,033,295 24,930 XO Communications, Inc. 1,153,012 ------------ 2,186,307 ------------ Wireline - Submarine: 0.68% 6,000 @@ Global Crossing, Ltd. 888,000 ------------ Total Preferred Stock (Cost $7,175,466) 3,074,307 ------------ WARRANTS: 0.00% Convenience Stores: 0.00% 4,999 @ Dairy Mart Convience Stores 2,998 ------------ Energy: 0.00% 1,500,000 @ Mexico (UTD Mex ST) -- ------------ Internet - ISP: 0.00% 1,000 @ Unifi Communications, Inc. 10 ------------ Specialty Retail: 0.00% 100 @ Electronic Retailing Systems Int'l 100 ------------ Total Warrants (Cost $0) 3,108 ------------ Total Long-Term Investments (Cost $168,385,214) 125,412,138 ------------ Principal Amount Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 1.21% Repurchase Agreement: 1.21% $1,576,000 State Street Repurchase Agreement, 5.750% due 01/02/01 (Collateralized by $1,455,000 U.S. Treasury Bills, 6.250% Market Value $1,607,775, Due 08/15/23) $ 1,576,000 Total Short-Term Investments (Cost $1,576,000) 1,576,000 ------------ Total Investments in Securities (Cost $ 169,961,214)* 97.84% $126,988,138 Other Assets and Liabilities-Net 2.16% 2,805,935 ------ ------------ Net Assets 100.00% $129,794,073 ====== ============ @ 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. @@ Foreign Issuer * Cost for federal, Income tax purposes is the same as for financial statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 1,296,720 Gross Unrealized Depreciation (44,269,796) ------------ Net Unrealized Depreciation $(42,973,076) ============ See Accompanying Notes to Financial Statements 93 Pilgrim Balanced Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Value - -------------------------------------------------------------------------------- COMMON STOCKS: 48.90% Auto Parts & Equipment: 0.00% 1 @ Visteon Corp. $ 10 ------------ Banks: 0.98% 27,900 J.P Morgan Chase & Co. 1,267,705 ------------ Beverages: 2.20% 20,400 Anheuser-Busch Cos., Inc. 928,200 16,000 Coca-Cola Co. 975,000 18,900 PepsiCo, Inc. 936,731 ------------ 2,839,931 ------------ Chemicals: 0.01% 920 @ Syngenta AG 10,063 ------------ Computers: 2.25% 42,700 Compaq Computer Corp. 642,635 7,700 @ Dell Computer Corp. 134,269 14,900 @ EMC Corp.-Mass 990,850 13,200 Hewlett-Packard Co. 416,625 25,800 @ Sun Microsystems, Inc. 719,175 ------------ 2,903,554 ------------ Cosmetics/Personal Care: 0.86% 15,755 Kimberly-Clark Corp. 1,113,721 ------------ Diversified Financial Services: 4.85% 15,000 American Express Co. 824,063 18,266 Citigroup, Inc. 932,708 19,600 Freddie Mac 1,349,950 14,500 Fannie Mae 1,257,875 6,000 J.P. Morgan & Co. 993,000 13,500 Merrill Lynch & Co., Inc. 920,531 ------------ 6,278,127 ------------ Electric: 2.46% 19,400 @ Calpine Corp. 874,213 14,300 Duke Energy Corp. 1,219,075 32,700 Southern Co. 1,087,275 ------------ 3,180,563 ------------ Electrical Compo & Equipment: 0.88% 14,500 @ Emerson Electric Co. 1,142,781 ------------ Electronics: 0.85% 19,900 @ Solectron Corp. 674,610 15,000 @ Flextronics 427,500 ------------ 1,102,110 ------------ Principal Market Amount Value - -------------------------------------------------------------------------------- Food: 0.88% 18,200 @ Safeway, Inc. $ 1,137,500 ------------ Forest Products & Paper: 1.23% 39,100 Int'l Paper Co. 1,595,769 ------------ Home Furnishings: 0.57% 10,600 Sony Corp. 739,350 ------------ Insurance: 1.44% 10,600 American Int'l Group 991,539 7,400 Marsh & McLennan Cos. 865,800 ------------ 1,857,339 ------------ Internet: 0.41% 15,400 @ America Online, Inc. 535,920 ------------ Leisure Time: 0.98% 41,000 Carnival Corp. 1,263,313 ------------ Machinery-Diversified: 0.96% 27,100 Deere & Co. 1,241,519 ------------ Media: 2.19% 11,346 @ Clear Channel Communications 549,572 20,000 @ Comcast Corp. 835,000 13,300 Gannett Co., Inc. 838,731 11,600 Time Warner, Inc. 605,984 ------------ 2,829,287 ------------ Mining: 0.87% 33,700 Alcoa, Inc 1,128,950 ------------ Miscellaneous Manufacturing: 2.08% 20,500 General Electric Co. 982,719 6,300 Minnesota Mining & Manufacturing Co. 759,150 17,100 Tyco Int'l, Ltd. 949,050 ------------ 2,690,919 ------------ Oil & Gas Producers: 3.95% 20,200 Anadarko Petroleum Corp. 1,435,816 29,000 Burlington Resources, Inc. 1,464,500 7,425 Chevron Corp. 626,948 9,162 Exxon Mobil Corp. 796,521 13,000 Royal Dutch Petroleum Co. 787,312 ------------ 5,111,097 ------------ Oil & Gas Services: 0.67% 10,900 Schlumberger, Ltd. 871,319 ------------ Pharmaceuticals: 3.10% 27,200 Abbott Laboratories $ 1,317,500 11,100 Merck & Co., Inc. 1,039,237 27,675 Pfizer, Inc. 1,273,050 8,500 Novartis 380,375 ------------ 4,010,162 ------------ Pipelines: 2.07% 17,000 EL Paso Energy Corp. 1,217,625 17,500 Enron Corp. 1,454,687 ------------ 2,672,312 ------------ Retail: 2.97% 16,700 Home Depot, Inc. 762,981 111 @X International Fast Food Corp. 432 10,900 McDonald's Corp. 370,600 23,300 Sears, Roebuck And Co. 809,675 14,500 Wal-Mart Stores, Inc. 770,312 27,100 Walgreen Co. 1,133,119 ------------ 3,847,119 ------------ Savings & Loans: 1.09% 26,500 Washington Mutual, Inc. 1,406,156 ------------ Semiconductors: 1.39% 30,000 Advanced Micro Devices 414,375 18,600 Intel Corp. 559,163 16,600 LSI Logic Corp. 283,694 11,400 Texas Instruments, Inc. 540,075 ------------ 1,797,307 ------------ Software: 0.94% 14,600 First Data Corp. 769,238 10,300 @ Microsoft Corp. 446,763 ------------ 1,216,001 ------------ Telecommunications: 4.09% 20,100 BellSouth Corp. 822,844 15,900 Cisco Systems, Inc. 608,175 31,525 @ Global Crossing, Ltd. 451,202 16,600 Nokia OYJ 722,100 17,772 SBC Communications, Inc. 848,613 31,448 @ Verizon Communications, Inc. 1,576,331 26,500 @ WorldCom, Inc. 257,344 ------------ 5,286,609 ------------ See Accompanying Notes to Financial Statements 94 Pilgrim Balanced Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Tobacco: 1.03% 30,400 Philip Morris Cos., Inc. $ 1,337,600 ------------ Transportation: 0.65% 20,900 @ FedEx Corp. 835,164 ------------ Total Common Stock (Cost $57,265,085) 63,249,279 ------------ CORPORATE BONDS: 16.45% Airlines: 1.03% 9,729 Continental Airlines, Inc.,6.545% due 2/2/19 944,476 3,900 Atlas Air, Inc., 9.375% due 11/15/06 384,150 ------------ 1,328,626 ------------ Banks: 1.44% 8,000 Wachovia Corp.,6.605% due 10/1/25 804,666 10,950 @@ Banco Santander-Chile 6.500% due 11/1/05 1,063,772 ------------ 1,868,438 ------------ Building Materials: 0.54% 7,500 Dayton Superior Corp.,13.000% due 6/15/09 697,500 ------------ Commercial Services: 0.38% 1,000 United Rentals, Inc., 9.000% due 4/01/09 75,500 500 United Rentals, Inc., 8.800% due 8/15/08 37,750 8,400 Neff Corp., 10.250% due 6/1/2008 373,800 ------------ 487,050 ------------ Computers: 0.14% 5,000 Globix Corp., 12.500% due 2/1/10 187,500 ------------ Diversified Financial Services: 3.87% 8,000 Household Finance Corp., 8.000% due 5/9/05 $ 840,420 10,000 Ford Credit Co., 7.875% due 6/15/10 1,028,670 5,000 Madison River Finance Corp., 13.250% due 3/1/10 312,500 1,600 @@ Amvescap PLC, 6.375% due 5/15/03 157,730 1,000 #@@ Cerro Negro Finance, Ltd.,7.330% due 12/01/09 91,995 26,000 FleetBoston Financial Corp., 7.190% due 10/2/12 2,566,049 ------------ 4,997,364 ------------ Electric: 0.56% 1,000 AES Corp., 9.375% due 9/15/10 102,750 3,000 AES Corp., 9.500% due 6/1/09 312,000 3,200 Calpine Corp., 8.625% due 8/15/10 310,414 ------------ 725,164 ------------ Electronics: 0.17% 1,000 Celestica Int'l, Inc., 10.500% due 12/31/06 104,500 1,150 Flextronics Int'l, Ltd., 8.750% due 10/15/07 109,825 ------------ 214,325 ------------ Entertainment: 0.32% 1,250 # Anchor Gaming, 9.875% due 10/15/08 129,063 3,500 Ascent Entertainment Group, 1.000% due 12/15/04 284,813 ------------ 413,876 ------------ Environmental Control: 0.37% 5,000 Allied Waste North America, 10.000% due 8/1/09 473,750 ------------ Forrest Products & Paper: 0.26% 8,000 Doman Inds., Ltd., 8.750% due 3/15/04 $ 340,000 ------------ Healthcare-Services: 0.11% 1,500 HCA - The Healthcare Company, 7.250% due 5/20/08 143,314 ------------ Holding Cos.- Diverse: 0.38% 1,000 # Kansas City Southern Railway, 9.500% due 10/1/08 103,000 4,300 Penhall Int'l, Inc., 12.000% due 8/1/06 387,000 ------------ 490,000 ------------ Home Builders: 0.15% 1,250 Lennar Corp., 9.950% due 5/1/10 128,125 750 Lennar Corp., 7.625% due 3/1/09 69,486 ------------ 197,611 ------------ Internet: 0.04% 2,000 Rhythms Netconnections, Inc., 14.000% due 2/15/10 47,000 ------------ Iron/Steel: 0.23% 1,000 AK Steel Corp., 7.875% due 2/15/09 89,250 1,650 AK Steel Corp., 9.125% due 12/15/06 157,987 500 Armco, Inc., 9.000% due 9/15/07 46,250 ------------ 293,487 ------------ Lodging: 0.10% 750 Prime Hospitality Corp., 9.750% due 4/1/07 75,750 500 Station Casinos, Inc., 9.875% due 7/1/10 51,562 ------------ 127,312 ------------ See Accompanying Notes to Financial Statements 95 Pilgrim Balanced Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Machinery-Construction & Mining: 0.05% 700 Terex Corp., 8.875% due 4/1/08 $ 60,637 ------------ Media: 1.15% 2,100 Adelphia Communications, 10.875% due 10/1/10 203,700 5,000 Charter Communications Holdings Corp., 8.625% due 4/1/09 456,250 Echostar DBS Corp., 9.25% due 2/1/06 413,312 14,500 UPC, 13.750% due 2/1/10 420,500 ------------ 1,493,762 ------------ Oil & Gas Producers: 1.08% 10,000 Occidental Petroleum Corp., 7.650% due 2/15/06 1,044,413 2,000 United Refining Co., 10.750% due 6/15/07 124,000 2,287 #@@ Hurricane Hydrocarbons,11.750% due 12/31/01 226,964 ------------ 1,395,377 ------------ Packaging & Containers: 0.31% 6,650 Owens-Illinois, Inc., 7.850% due 5/15/04 402,325 ------------ Pharmaceuticals: 1.39% 17,000 American Home Products Corp., 7.900% due 2/15/05 1,802,673 ------------ Retail: 0.22% 7,080 Hollywood Entertainment Corp., 10.625% due 8/15/04 286,740 ------------ Telecommunications: 2.11% 6,000 @@ Call-Net Enterprises, Inc.,8.000% due 8/15/08 $ 234,000 10,000 Call-Net Enterprises, Inc., 1.000% due 8/15/08 195,000 7,500 # Colo.com, Inc., 13.875% due 3/15/10 337,500 500 Fairchild Semiconductor Int'l, Inc., 10.125% due 3/15/07 46,750 3,400 @@ Global Crossing Holding, Ltd., 9.500% due 11/15/09 323,000 8,000 MGC Communications, Inc., 13.000% due 4/1/10 360,000 8,400 Motorola, Inc., 6.500% due 9/1/25 854,821 2,000 Star Choice Communications, 13.000% due 12/15/05 211,250 3,750 US Unwired, Inc., 1.000% due 11/1/09 172,500 ------------ 2,734,821 ------------ Transportation: 0.05% 750 Gulfmark Offshore, Inc., 8.750% due 6/1/08 70,313 ------------ Total Corporate Bonds (Cost: $ 25,601,997) 21,278,965 ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS: 17.47% Federal Home Loan Mortgage Association: 1.48% 4,507 7.000%, due 06/01/29 451,724 4,981 6.000%, due 04/01/14 492,470 9,978 5.500%, due 01/01/14 971,902 ------------ 1,916,096 ------------ Federal National Mortgage Association: 11.35 8,158 8.000%, due 08/01/30 $ 835,982 16,688 6.500%, due 06/01/14 1,668,244 27,550 7.000%, due 03/01/15 2,788,131 31,049 6.350%, due 01/01/04 3,123,373 30,000 7.125%, due 06/15/10 3,254,223 8,000 6.625%, due 11/15/30 843,998 20,000 7.250%, due 1/15/10 2,174,620 ------------ 14,688,571 ------------ Government National Mortgage Association: 4.64% 11,851 7.500%, due 11/15/29 1,205,785 12,776 8.000%, due 7/15/30 1,310,111 35,152 6.500%, due 6/15/29 3,480,096 ------------ 5,995,992 ------------ Total U.S. Government Agency Obligations (Cost $ 20,915,038) 22,600,659 ------------ See Accompanying Notes to Financial Statements 96 Pilgrim Balanced Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS: 9.06% U.S. Treasury Bonds: 7.05% 35,250 6.125%, due 8/15/29 $ 3,834,001 45,000 7.25%, due 5/15/16 5,293,125 ------------ 9,127,126 ------------ U.S. Treasury Notes: 2.01% 19,000 6.5%, due 2/15/10 2,080,054 5,000 5.85%, due 11/15/04 513,194 ------------ 2,593,248 ------------ Total U.S. Treasury Obligations (Cost $10,938,666) 11,720,374 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS: 1.80% Commercial MBS: 1.25% 4,672 # Criimi Mae CMBS Corp., 5.697% due 10/20/01 460,783 11,184 GMAC Commercial Mortgage Securities, Inc. 6.974%, due 5/15/08 1,151,380 ------------ 1,612,163 ------------ Home Equity ABS: 0.55% 7,000 Emergent Home Equity Loan Trust, 7.08% due 12/15/28 712,870 ------------ Total Collateralized Mortgage Obligations (Cost $2,243,293) 2,325,033 ------------ Total Fixed Income (Cost $59,698,994) 57,925,031 ------------ PREFERRED STOCK: 0.16% Media: 0.05% 660 Paxson Communications Corp. 63,585 ------------ Telecommunications: 0.11% 3,030 XO Communications, Inc. 140,137 ------------ Total Preferred Stock 203,722 (Cost $298,394) Market Shares Value - -------------------------------------------------------------------------------- MUTUAL FUNDS: 2.48% Investment Cost: 2.48% 428,000 Pilgrim Prime Rate Trust $ 3,210,000 ------------ Total Mutual Funds (Cost $3,810,826) 3,210,000 ------------ WARRANTS: 0.02% 750 # Dayton Superior Corp. 15,000 ------------ Miscellaneous Manufacturing: 0.01% 500 # Packaged Ice, Inc. 10,500 ------------ Telecommunications: 0.00% 500 # Iridium World Communications 5 1,000 # Unifi Communications, Inc. 10 ------------ 15 ------------ Total Warrants (Cost $64,468) 25,515 ------------ Total Long-term Investments (Cost $121,137,767) 124,613,545 ------------ Principal Market Amount Value - -------------------------------------------------------------------------------- SHORT TERM INVESTMENTS: 3.17% Repurchase Agreement: 3.17% $4,090,000 State Street Bank & Trust Repurchase Agreement, 5.750% due 01/02/01 (Collateralized by $3,970,000 U.S. Treasury Notes, 7.875% Due 5/15/06, Market Value $4,173,462) $ 4,090,000 ------------ Total Short-Term Investments (Cost $4,090,000) 4,090,000 ------------ Total Investments in Securities (Cost $ 125,227,767)* 99.51% $128,703,545 Other Assets and Liabilities-Net 0.49% 628,589 ------ ------------ Net Assets 100.00% $129,332,134 ====== ============ @ Non-income producing security # Securities with purchases, pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to the rule except to qualified institutional buyers. + Step-up basis bonds. Interest rates shown reflect current ++ Related Party & Payment in-kind security @@ Foreign Issuer X Market Value determined by Pilgrim Valuation Committee appointed by the Funds Board of Directors. * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 15,027,778 Gross Unrealized Depreciation (11,552,000) ------------ Net Unrealized Appreciation $ 3,475,778 ============ See Accompanying Notes to Financial Statements 97 Pilgrim Convertible Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Value - -------------------------------------------------------------------------------- COMMON STOCKS: 24.17% Diversified Financial Services: 3.00% 134,781 @ Calpine Capital Trust II $ 12,602,024 ------------ Electric: 1.03% 95,991 @ Coastal Corp. 4,319,595 ------------ HealthCare Products: 2.65% 207,668 @ AES Trust VII 11,136,197 ------------ Insurance: 2.02% 77,410 @ Metlife Capital Trust I 8,476,395 ------------ Media: 0.67% 171,769 United Global Com, Inc. 2,812,717 ------------ Oil & Gas Producers: 0.90% 50,000 Transocean Sedco Forex, Inc. 2,300,000 31,800 Crown Castle Int'l Corp. 1,474,725 ------------ 3,774,725 ------------ Oil & Gas Services: 0.99% 28,411 @ Global Crossing, Ltd. 4,133,801 ------------ Packaging & Containers: 0.75% 96,845 Sealed Air Corp. 3,129,352 ------------ Savings & Loans: 3.78% 268,700 Sovereign Bancorp, Inc. 15,853,300 ------------ Telecommunications: 7.81% 1 WinStar Communications, Inc. 8 122,005 Weatherford Int'l, Inc. 6,176,503 8,139 McLeodUSA, Inc. 3,147,254 227,100 MediaOne Group, Inc. 22,199,025 51,931 WinStar Communications, Inc. 1,246,344 ------------ 32,769,134 ------------ Transportation: 0.57% 40,500 United Parcel Service, Inc. 2,381,906 ------------ Total Common Stock (Cost $96,134,735) 101,389,146 ------------ Principal Market Amount Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 72.44% Biotechnology: 2.58% 6,511,000 Millennium Pharmaceuticals, 5.500%, due 01/15/07 $ 10,828,639 ------------ Computers: 7.77% 12,574,000 #@@ ASM Lithography Holding NV, 4.250%, due 11/30/04 11,945,300 18,126,000 Hewlett-Packard Co., 0.010%, due 10/14/17 9,703,074 450,000 Veritas Software Corp., 5.250%, due 11/01/04 4,126,500 2,729,000 Veritas Software Corp., 1.856%, due 08/13/06 6,805,444 ------------ 32,580,318 ------------ Distribution/Wholesale: 1.13% 5,000,000 Costco Wholesale Corp., 0.000%, due 08/19/17 4,759,375 ------------ Electronics: 10.51% 4,034,000 OAK Industries, Inc., 4.875%, due 03/01/08 14,340,870 5,000,000 # Sanmina Corp., 0.000%, due 09/12/20 1,900,000 2,771,000 Sanmina Corp., 4.250%, due 05/01/04 5,077,857 5,000,000 Solectron Corp., 0.000%, due 01/27/19 2,946,875 35,128,000 Solectron Corp., 0.010%, due 05/08/20 19,803,410 ------------ 44,069,012 ------------ Healthcare-Services: 4.49% 6,946,000 Universal Health Services, 0.426%, due 06/23/20 4,862,200 16,000,000 @ Wellpoint Health Networks, 0.000%, due 07/02/19 13,960,000 ------------ 18,822,200 ------------ Media: 7.21% 20,594,000 Clear Channel Communications, 1.500%, due 12/01/02 $ 18,560,343 12,997,000 AT&T - Liberty Media Corp., 4.000%, due 11/15/29 8,756,729 4,379,000 News America Holdings, 0.010%, due 03/11/13 2,922,983 ------------ 30,240,055 ------------ Oil & Gas Producers: 10.27% 7,556,000 @ Anadarko Petroleum Corp., 0.000%, due 03/07/20 6,691,820 2,518,000 PennzEnergy Co., 4.900%, due 08/15/08 2,410,985 4,287,000 Diamond Offshore Drilling, 3.750%, due 02/15/07 4,715,700 13,235,000 Kerr-McGee Corp., 5.250%, due 02/15/10 16,692,644 21,703,000 @ Transocean Sedco Forex, Inc., 0.000%, due 05/24/20 12,560,611 ------------ 43,071,760 ------------ Pharmaceuticals: 8.64% 2,883,000 Alpharma, Inc., 3.000%, due 06/01/06 4,191,161 6,200,000 Alza Corp., 0.000%, due 07/28/20 4,324,500 10,269,000 Alza Corp., 0.000%, due 07/14/14 11,398,590 2,500,000 COR Therapeutics, Inc., 5.000%, due 03/01/07 2,995,325 5,426,000 Elan Finance Corp. Ltd., 0.000%, due 12/14/18 3,981,328 6,148,000 # Roche Holdings, Inc., 0.010%, due 01/19/15 5,494,775 3,500,000 # Teva Pharmaceutical Finance LLC, 1.500%, due 10/15/05 3,867,500 ------------ 36,253,179 ------------ See Accompanying Notes to Financial Statements 98 Pilgrim Convertible Fund PORTFOLIO OF INVESTMENTS as of December 31, 2000 (Unaudited)(Continued) - -------------------------------------------------------------------------------- Principal Market Amount Value - -------------------------------------------------------------------------------- Semiconductors: 7.34% 12,500,000 Advanced Micro Devices, 6.000%, due 05/15/05 $ 11,632,875 8,466,000 Cypress Semiconductor Corp., 4.000%, due 02/01/05 6,561,150 8,058,000 @@ STMicroelectronics N.V., 0.010%, due 09/22/09 9,931,485 4,000,000 #@@ STMicroelectronics N.V., 0.000%, due 11/16/10 2,665,000 ------------ 30,790,510 ------------ Software: 0.68% 4,500,000 Nvidia Corp., 4.750%, due 10/15/07 2,851,875 ------------ Telecommunications: 11.83% 13,000,000 Corning, Inc., 0.000%, due 11/08/15 9,238,190 3,712,000 Echostar Communications Corp., 4.875%, due 01/01/07 2,860,578 8,471,000 Juniper Networks, Inc., 4.750%, due 03/15/07 8,624,579 7,000,000 Level 3 Communications, Inc., 6.000%, due 09/15/09 4,961,250 20,241,000 Nextel Communications, Inc., 5.250%, due 01/15/10 14,750,629 4,055,000 American Tower Corp., 5.000%, due 02/15/10 3,748,361 8,000,000 Oni Systems Corp., 5.000%, due 10/15/05 5,430,000 ------------ 49,613,587 ------------ Total Corporate Bonds (Cost $ 339,361,037) 303,880,510 ------------ Total Long-Term Investments (Cost $ 435,495,772) 405,269,656 ------------ Principal Amount Value - -------------------------------------------------------------------------------- SHORT TERM INVESTMENTS: 2.86% Repurchase Agreement: 2.86% $11,999,000 State Street Bank & Trust Repurchase Agreement, 5.75% due 01/02/01 (Collateralized by $12,000,000 U.S. Treasury Notes, 8.00% Due 11/15/21, Market Value $12,243,693) $ 11,999,000 ------------ Total Short-Term Investments (Cost $11,999,000) 11,999,000 ------------ Total Investments in Securities (Cost $ 447,494,772)* 99.47% $417,268,656 Other Assets and Liabilities-Net 0.53% 2,222,875 ------ ------------ Net Assets 100.00% $419,491,531 ====== ============ @ 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. * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 36,657,071 Gross Unrealized Depreciation (66,883,187) ------------ Net Unrealized Depreciation $(30,226,116) ============ See Accompanying Notes to Financial Statements 99 SHAREHOLDER MEETING - -------------------------------------------------------------------------------- A special meeting of shareholders of the Pilgrim Funds (listed below) was held in Phoenix, Arizona on August 18,2000. A brief description of each matter voted upon as well as the results are outlined below:
Shares Shares voted against Shares Broker voted for or withheld abstained non-vote Total --------- ----------- --------- -------- ----- 1. To approve new Investment Management Agreements between the Funds and Pilgrim Investments, Inc. ("Pilgrim"), to reflect the acquisition of Pilgrim by ING Groep N.V. ("ING"), with no change in the advisory fees payable to Pilgrim; Pilgrim Balanced Fund 5,852,446 244,621 -- -- 6,097,067 Pilgrim Bank and Thrift Fund 17,395,838 722,384 -- -- 18,118,222 Pilgrim Convertible Fund 14,114,046 320,397 -- -- 14,434,443 Pilgrim Government Securities Income Fund 7,930,229 550,166 -- -- 8,480,395 Pilgrim High Yield Fund 48,691,093 1,967,797 -- -- 50,658,890 Pilgrim High Yield Fund II 15,876,094 456,032 -- -- 16,332,126 Pilgrim LargeCap Growth Fund 13,427,843 254,416 -- -- 13,682,259 Pilgrim LargeCap Leaders Fund 1,934,352 45,755 -- -- 1,980,107 Pilgrim MagnaCap Fund 16,148,978 792,273 -- -- 16,941,251 Pilgrim MidCap Growth Fund 16,788,788 344,196 -- -- 17,132,984 Pilgrim MidCap Value Fund 1,626,116 37,455 -- -- 1,663,571 Pilgrim Money Market Fund 58,049,711 255,420 -- -- 58,305,131 Pilgrim SmallCap Growth Fund 23,486,117 435,892 -- -- 23,922,009 Pilgrim Strategic Income Fund 701,286 16,777 -- -- 718,063 2. For shareholders of Pilgrim Convertible Fund and Pilgrim LargeCap Growth Fund to approve a new Sub-Advisory Agreement between Pilgrim and Nicholas-Applegate Capital Management ("NACM") to reflect the acquisition of Pilgrim by ING, with no change in the sub-advisory fees payable to NACM. Pilgrim Convertible Fund 14,115,264 319,179 -- -- 14,434,443 Pilgrim LargeCap Growth Fund 13,429,517 252,742 -- -- 13,682,259
See Accompanying Notes to Financial Statements 100 INVESTMENT MANAGER ING Pilgrim Investments, Inc. 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258 ADMINISTRATOR ING Pilgrim Group, Inc. 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258 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 AUDITORS KPMG LLP 355 South Grand Avenue Los Angeles, California 90071 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. QSEMI123100-030101 -----END PRIVACY-ENHANCED MESSAGE-----