-----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, PCO8TeXSHdmhuKe+fEIu3T0m46IsBkDb1UZ6U6v1cj/GkhW7uI3CjiPBHG4CIOFN /1OXSh/ItZXepdiiWgrZEw== 0000950147-01-501050.txt : 20010605 0000950147-01-501050.hdr.sgml : 20010605 ACCESSION NUMBER: 0000950147-01-501050 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010604 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM GNMA INCOME FUND INC CENTRAL INDEX KEY: 0000059140 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 222013958 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02401 FILM NUMBER: 1653802 BUSINESS ADDRESS: STREET 1: LEXINGTON GROUP OF MUTUAL FUNDS STREET 2: PARK 80 WEST PLAZA TWO CITY: SADDLE BROOK STATE: NJ ZIP: 07662 BUSINESS PHONE: 2018457300 MAIL ADDRESS: STREET 1: LEXINGTON GROUP OF MUTUAL FUNDS STREET 2: PARK 80 WEST PLAZA TWO CITY: SADDLE BROOK STATE: NJ ZIP: 07662 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON GNMA INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON INCOME FUND INC DATE OF NAME CHANGE: 19810210 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: 1653803 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: LEXINGTON MONEY MARKET TRUST CENTRAL INDEX KEY: 0000201196 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 136766350 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02701 FILM NUMBER: 1653804 BUSINESS ADDRESS: STREET 1: LEXINGTON GROUP OF MUTUAL FUNDS STREET 2: PARK 80 W PLAZA TWO CITY: SADDLE BROOK STATE: NJ ZIP: 07662 BUSINESS PHONE: 2018457300 MAIL ADDRESS: STREET 1: LEXINGTON GROUP OF MUTUAL FUNDS STREET 2: PARK 80 WEST PLAZA TWO CITY: SADDLE BROOK STATE: NJ ZIP: 07662 FORMER COMPANY: FORMER CONFORMED NAME: BANNER REDI RESOURCES TRUST DATE OF NAME CHANGE: 19790506 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: 1653805 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM VARIABLE PRODUCTS TRUST CENTRAL INDEX KEY: 0000916403 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08220 FILM NUMBER: 1653806 BUSINESS ADDRESS: STREET 1: ING PILGRIM FUNDS STREET 2: 7337 E. DOUBLETREE RANCH ROAD CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 800-992-0180 MAIL ADDRESS: STREET 1: ING PILGRIM FUNDS STREET 2: 7337 E. DOUBLETREE RANCH ROAD CITY: SCOTTSDALE STATE: AZ ZIP: 85258 FORMER COMPANY: FORMER CONFORMED NAME: NORTHSTAR GALAXY TRUST DATE OF NAME CHANGE: 19981209 FORMER COMPANY: FORMER CONFORMED NAME: NORTHSTAR NWNL TRUST DATE OF NAME CHANGE: 19931220 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM FUNDS TRUST CENTRAL INDEX KEY: 0001066602 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08895 FILM NUMBER: 1653807 BUSINESS ADDRESS: STREET 1: ING PILGRIM FUNDS STREET 2: 7337 E. DOUBLETREE RANCH ROAD CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 800-992-0180 MAIL ADDRESS: STREET 1: 7337 E. DOUBLETREE RANCH ROAD CITY: SCOTTSDALE STATE: AZ ZIP: 85258 FORMER COMPANY: FORMER CONFORMED NAME: ING FUNDS TRUST DATE OF NAME CHANGE: 19980721 N-30D 1 e-6940.txt ANNUAL REPORT FOR YEAR ENDED 03/31/2001 [LOGO] ING PILGRIM ANNUAL REPORT MARCH 31, 2001 CLASSES A, B, C, M, T, AND I INCOME FUNDS Pilgrim GNMA Income Pilgrim National Tax-Exempt Bond Pilgrim Intermediate Bond Pilgrim Strategic Income Pilgrim High Yield Pilgrim High Yield II Pilgrim High Yield Bond Pilgrim Money Market ING Pilgrim Money Market Lexington Money Market Trust - ------- Pilgrim Funds - ------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- Letter to Shareholders ............................... 1 Portfolio Managers' Reports .......................... 2 Index Descriptions ................................... 22 Shareholder Meeting Results .......................... 23 Report of Independent Accountants .................... 27 Statements of Assets and Liabilities ................. 28 Statements of Operations ............................. 32 Statements of Changes in Net Assets .................. 37 Financial Highlights ................................. 42 Notes to Financial Statements ........................ 52 Portfolios of Investments ............................ 69 Tax Information ...................................... 91 Primary Institutional Fund ........................... 92 - ------- Pilgrim Funds - ------- LETTER TO SHAREHOLDERS - -------------------------------------------------------------------------------- Dear Shareholders: We are pleased to present the March 31, 2001 Annual Report for the Pilgrim Funds. 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. Subsequently, in February 2001, ING Pilgrim Group, Inc. and ING Pilgrim Investments, Inc. became ING Pilgrim Group, LLC and ING Pilgrim Investments, LLC, respectively. Our fund family now has many funds of varying types which provide core investment choices for the serious investor. There are ten Income Funds included in this 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, LLC May 4, 2001 1 - ------ Income Funds - ------ Portfolio PILGRIM GNMA INCOME FUND Managers' Report - -------------------------------------------------------------------------------- Management Team: Denis P. Jamison C.F.A., Roseann G. McCarthy, Co-Portfolio Managers, ING Pilgrim Investments, LLC. Goal: The Pilgrim GNMA Income Fund (the "Fund") seeks to generate a high level of current income with an investment portfolio that stresses liquidity and a high level of safety of principal. The Fund only purchases securities whose interest and principal payments are guaranteed by the United States Government or its agencies. These securities include mortgage-backed securities issued by the Government National Mortgage Agency (Ginnie Mae), the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and U.S. Treasury bonds, notes, and bills. Normally, at least 80% of the Fund's assets are invested in GNMA mortgages. The principal risks to which shareholders are exposed relate to changes in general market interest rates. When interest rates rise, mortgage and bond prices decline and this tends to reduce the net asset value of the Fund. If interest rates suddenly decline, mortgage prepayments will increase; this tends to limit the upside price performance of mortgages and the Fund. Management seeks to mitigate these risks through correct mortgage selection and adjusting the asset mix between mortgages and U.S. Treasury bonds. Market Overview: Bond investors have been well rewarded over the last twelve months. The economy slowed from a 5%-plus rate of growth in the first half of 2000 to a mere 1% by the final quarter of the year. Many economists think the economy will actually shrink during the first half of this year. Bond and stock investors saw the writing on the wall long before the Federal Reserve governors. Stocks tumbled; domestic and foreign investors sought refuge in fixed income securities. The Lehman Brothers Aggregate Bond Index gained 12.5% during the year ended March 31st, including a 3.0% up tick in the first quarter. By January, the Federal Reserve began to recognize the need to lower interest rates and revive credit expansion. Since January 1st, they have reduced short-term interest rates from 6.5% to 5.0%. Liquidity is beginning to flow again. Money supply growth (M2) has accelerated from about 6.5% to better than 10% in the last two months. The initial phase of the bond market rally (from March 31, 2000 to year-end) raised all ships. The latest gains, however, have all been in the shorter end of the curve. We think this disparity is a harbinger of tougher times ahead for the bond market. Performance: For the three month period ended March 31, 2001, the Fund's Class A shares, excluding sales charges, provided a total return of 4.09% compared to the Lehman Brothers Mortgage-Backed Securities Index ("LBMBS Index") which returned 2.73% for the same period. For the one-year period ending March 31, 2001, the Fund's Class A shares, excluding sales charges returned 12.67%, compared to the LBMBS Index which returned 12.64% for the same period. The Fund's yield on March 31st was 5.47% Portfolio Specifics: During much of last year, we extended the portfolio's average maturity as the bond market rallied. This was accomplished through the addition of lower coupon, prepayment-protected, multifamily mortgages. During January and February, we added a position in long-term U.S. Treasury bonds. However, it became increasingly clear that the bond market's valuation problems were beginning to outweigh the positives of declining short-term interest rates and a weakening economy. We sold much of our U.S. Treasury bond holdings in late March. Short-term U.S. Treasury bills were purchased and now account for 9% of total Fund assets. We are concerned about the increases in both hourly wages and the Consumer Price Index. If these trends persist, we are likely to add to our current 2% holding in U.S. Treasury Inflation Protected Bonds (TIPS). The principal value of these securities is indexed to the rate of inflation while providing a modest semi-annual income return. Market Outlook: Bonds are very expensive. For example, the yield of ten-year U.S. Treasury bonds now is a mere 1.4% higher than the rate of inflation. Investors would have to look back to the period of hyper-inflation in the early Eighties to see such low real rates of return. Three factors have pushed valuations to this extreme: (1) a weak stock market; (2) a strong dollar; and (3) the prospect of slowing economic growth. The bear market in stocks is beginning to look a little long in the tooth. Growth prospects in Euroland appear better than here in the U.S. That should help the Euro versus the U.S. Dollar. Without the tailwind of currency gains, dollar-denominated bonds won't appear as attractive to foreign investors. Finally, slowing U.S. economic growth is yesterday's news. We've been in a slump for six months. The Federal Reserve is pumping liquidity into the system and the Federal government is planning tax cuts. We believe we may turn the corner in a few months. So, we think bond yields are heading higher. 2 Portfolio Managers' Report PILGRIM GNMA INCOME FUND - --------------------------------------------------------------------------------
3/31/91 3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 3/31/97 3/31/98 3/31/99 3/31/00 3/31/01 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Pilgrim GNMA Income Fund Class A With Sales Charge 9,525 10,524 11,662 11,917 12,617 13,915 14,584 16,421 17,501 17,793 20,047 Pilgrim GNMA Income Fund Class A Without Sales Charge 10,000 11,051 12,245 12,513 13,248 14,611 15,313 17,242 18,376 18,683 21,050 Lehman Brothers Mortgage-Backed Securities Index 10,000 11,131 12,365 12,532 13,286 14,680 15,554 17,287 18,372 18,786 21,161 Average Annual Total Returns for the Periods Ended March 31, 2001 ----------------------------------------------------------------------------------- Since Inception Since Inception Since Inception of Class B of Class C of Class M and T 1 Year 5 Year 10 Year 10/6/00 10/13/00 2/26/01 ------ ------ ------- ------- -------- ------- Including Sales Charge: Class A (1) 7.37% 6.54% 7.20% -- -- -- Class B (2) -- -- -- -2.20% -- -- Class C (3) -- -- -- -- 1.31% -- Class M (4) -- -- -- -- -- -1.84% Class T (5) -- -- -- -- -- -2.59% Excluding Sales Charge: Class A 12.67% 7.57% 7.73% -- -- -- Class B -- -- -- 2.80% -- -- Class C -- -- -- -- 2.31% -- Class M -- -- -- -- -- 1.41% Class T -- -- -- -- -- 1.41% Lehman Brothers Mortgage-Backed Securities Index 12.64% 7.59% 7.78% 6.72%(6) 6.72%(6) 0.58%(7)
Based on a $10,000 initial investment, the graph and table above illustrate the total return of Pilgrim GNMA Income Fund against the Lehman Brothers Mortgage-Backed Securities Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Performance data represents past performance and is no assurance of future results. Investment return and principal value of an investment in the Fund will fluctuate. Shares, when sold, may be worth more or less than their original cost. This report contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% for the since inception return. (3) Reflects deduction of the Class C deferred sales charge of 1% for the since inception return. (4) Reflects deduction of the maximum Class M sales charge of 3.25% (5) Reflects deduction of the Class T deferred sales charge of 4% for the since inception return. (6) Since inception performance for index is shown from 10/1/00. (7) Since inception performance for index is shown from 3/1/01. Principal Risk Factor(s): Exposure to financial and interest rate risks and prepayment risk of mortgage related securities. Fluctuations in the value of the Fund's share can be expected in response to changes in interest rates. The value of an investment in the Fund is not guaranteed and will fluctuate. 3 - ------ Income Funds - ------ PILGRIM NATIONAL Portfolio TAX-EXEMPT BOND FUND Managers' Report - -------------------------------------------------------------------------------- Management Team: Robert Schonbrunn, Managing Director and Portfolio Manager; Alan Segars, CFA, Managing Director and Portfolio Manager, Furman Selz Capital Management LLC. Goal: The Pilgrim National Tax-Exempt Fund (the "Fund") seeks to provide investors with a high level of current income that is exempt from Federal income taxes, consistent with preservation of capital. Using a disciplined investment philosophy the Fund invests in a diversified portfolio of tax exempt bonds. In selecting specific issues the following criteria are used under normal market conditions: * Minimum rating of BBB by S&P or Baa by Moody's or if not rated have comparable quality. * Diversified so that not more than 25% of the Fund's total assets will be invested in (1) Municipal Obligations whose issuers are located in the same State and (2) Municipal Obligations, the interest on which is derived from revenues of similar type projects. * At least 80% of its total assets will be invested in debt obligations issued by states, territories and possessions of the United States and District of Columbia or their political subdivisions, agencies and instrumentalities, multi-state agencies or authorities the interest from which is, in the opinion of bond counsel of the issuer, exempt from federal income tax. * At least 80% of its total assets will be invested in securities, the interests on which is not a preference item for purposes of the federal alternative minimum tax. Market Overview: Municipal Bonds ended the first quarter on a positive note. The Lehman Brothers Municipal Bond Index was up 2.22% for the quarter while the Lipper Municipal Bond Index gained 1.93%. Tax-Exempts continued the strong performance of 2000 in the first quarter as the market responded to signs that the economy was decelerating and possibly heading for recession. The Federal Reserve moved in early January to lower the Fed Funds rate by 50 basis points and followed with two more reductions in the quarter bringing the rate down to 5%. Interest rates declined all along the yield curve, but the largest declines were in the shorter end of the curve. This is related to the Federal Reserve's actions, which most directly affect the shorter maturities. Short-term interest rates (1-5 years) declined by 40 to 90 basis points in the first quarter while 30-year rates were virtually unchanged. The supply of new municipal issues increased significantly in the first quarter compared to fourth quarter 2000. Demand remained strong as the wealth effect increased some investors desire to shelter income while stock market volatility caused others to reallocate a portion of their assets from stocks to bonds. Performance: For the five month period ended March 31, 2001, the Fund's Class A shares, excluding sales charges, provided a total return of 5.79% compared to 5.54% for the Lehman Brothers Municipal Bond Index. Portfolio Specifics: We believe that the Fund's longer-term past success can be attributed to the positioning of the portfolio with higher yields that were available in the longer end of the duration range. The yield curve has steepened in the past three months as short-term rates declined while long-term rates held close to year-end levels. The call features of many of the fund's longer maturity issues are restricting their potential appreciation as lower short-term rates are raising the probability of early calls. The fund has maintained a high quality level with the average rating on the fund at AA2 by Moody's and Aa by S&P. In the current weakening economic environment high portfolio quality is very important as weaker credits are devalued by the marketplace. Market Outlook: Slow economic conditions and an increasing probability of a recession point toward lower interest rates which is a positive environment for the bond market. Although interest rates are already down significantly from levels reached in early 2000, we believe that rates can go lower and particularly at the shorter-end of the yield curve. During a weak economic period, quality continues to be extremely important. Avoiding potential credit problems by keeping high quality standards will be a priority. As the interest rate structure remains low, calls and refinancing will become more important. New issuance of municipal securities is likely to increase this year, which should improve general liquidity. We believe this is a favorable environment for municipal bonds and that our investment style will participate in it. 4 Portfolio PILGRIM NATIONAL Managers' Report TAX-EXEMPT BOND FUND - -------------------------------------------------------------------------------- 11/8/99 3/31/00 3/31/01 ------- ------- ------- Pilgrim National Tax-Exempt Bond Fund Class A With Sales Charge 9,524 9,638 10,689 Pilgrim National Tax-Exempt Bond Fund Class A Without Sales Charge 10,000 10,120 11,224 Lehman Brothers Municipal Bond Index 10,000 10,325 11,452 Average Annual Total Returns for the Periods Ended March 31, 2001 ------------------------------------ Since Inception 1 Year 11/8/99 ------ ------- Including Sales Charge: Class A (1) 5.68% 4.87% Class B (2) 4.89% 4.84% Class C (3) 8.94% 7.67% Excluding Sales Charge: Class A 10.90% 8.60% Class B 9.89% 7.62% Class C 9.94% 7.67% Lehman Brothers Municipal Bond Index 10.92% 10.04%(4) Based on a $10,000 initial investment, the graph and table above illustrate the total return of Pilgrim National Tax-Exempt Bond Fund against the Lehman Brothers Municipal Bond Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 4%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1 year return. (4) Since inception performance for index is shown from 11/01/99. Principal Risk Factor(s): Exposure to credit, market and interest rate risk. Fluctuations in the value of the Fund's shares can be expected in response to changes in interest rates. The Fund's investments in mortgage-related securities may entail prepayment risk. Investments in municipal obligations pose special risks. To the extent that the Fund's assets are invested in municipal obligations payable from revenue or similar projects, the Fund will be subject to the peculiar risks presented by such projects. See accompanying index descriptions on page 22. 5 - ------ Income Funds - ------ Portfolio PILGRIM INTERMEDIATE BOND FUND Managers' Report - -------------------------------------------------------------------------------- Portfolio Management: James Kauffmann, Vice-President and Senior Portfolio Manager, ING Investments Management, LLC. Goal: The Pilgrim Intermediate Bond Fund (the "Fund") seeks to provide investors with a high level of current income, consistent with the preservation of capital and liquidity by investing at least 65% of its total assets in investment grade debt securities. Market Overview: With equity markets tumbling worldwide amid rising concerns over global economic conditions, investors flocked to the perceived safety of US Treasuries, in the fourth quarter, driving yields to all time lows. More importantly though, the US government bond yield curve, which had been inverted for most of the year, became positively sloped as investors became convinced that the Federal Reserve would have to begin cutting interest rates. At the same time, fixed income securities with any degree of credit risk became almost totally illiquid, as spreads relative to treasuries reached historically wide levels. This poor price performance relative to risk-free US government bonds became contagious and spread to all other sectors of the fixed income markets. For the year, the investment grade corporate bond market underperformed treasuries by 416 basis points, the worst single year since the recession years of 1981-1982 and 1974. In light of these difficult market conditions, we adopted a defensive approach in both sector and security selection, and focused on government bonds and domestic credits that were not exposed to commodity price risk or recession related volume risk. Toward the beginning of November a few companies tested the market with new issues priced at a considerable concession relative to their creditworthiness. Despite the worst year on record for most spread sectors in 2000, the first quarter of 2001 was marked by very good absolute bond returns of 3.03%, satisfactory relative returns by nearly all spread sectors, record origination in the US credit markets, central bank easing of interest rates and a growing acknowledgement of a worldwide economic slowdown. The double dose of Fed relief in January marked the start of a global interest rate easing cycle and the equity and debt markets responded accordingly. In addition, the classic "first quarter effect" psychology dominated during the first half of January, only to retrace much of the spread tightening toward the end of the quarter. By mid February, the technical rally from the onset of the central bank easing cycle began to succumb to renewed fundamental credit concerns. Equity markets, especially technology sector valuations, were not responding, and corporate earnings expectations were sagging. Despite investment-grade spread widening in the second half of the quarter, the corporate asset class generated a 4.27% total return and a 1.46 % excess return relative to US treasuries for the quarter. Performance: For the five-month period ended March 31, 2001, the Fund's Class A shares, excluding sales charges, provided a total return of 10.01% compared to 6.66% for the Lehman Brothers Aggregate Bond Index for the same period. Portfolio Specifics: The Fund's outperformance can be attributed to several factors. First, an underweight of corporate bonds in the fourth quarter 2000 and an overweight of corporate bonds in the first quarter 2001 took advantage of widening spreads in the fall, followed by significant tightening in January. Second, sector and security selection within the corporate bond market was important as the fund was able to avoid many of the years' numerous credit blow-ups in the retail and technology sectors while participating in the outperformance of the industrial, telecom and utility sectors throughout the year. Third, the managers benefited from a constant mortgage sector underweight as the sector has underperformed for most of the last two quarters. Finally, curve positioning has contributed positive returns as the managers have maintained an intermediate maturity overweight in a dramatic curve-steepening environment. Market Outlook: Looking forward, the strategy for the Fund will be to continue to favor the spread sectors, particularly corporate bonds and asset backed securities as we try to take advantage of a constructive tone to the market. We will also closely monitor the mortgage sector, as valuations have looked more compelling recently. The managers are particularly pleased with the recent performance of corporate, agency and asset-backed securities relative to very poor equity market performance in March. We continue to believe the FED will lower interest rates in late May, but we feel like the probability of an inter-meeting easing has diminished recently. Within the corporate sectors, the managers will look to hold our industrial sector overweight and reduce our overweight position in the utility sector with renewed problems in California. Furthermore, we will continue to hold a quality bank/finance sector position in this FED-easing environment, despite the sector looking fully valued relative to the industrial sector. The managers will continue to hold a small long-duration position versus the index, and a mix of long-dated treasuries and corporate bonds will be used to achieve this position. The managers believe that the corporate new issue market should continue to be active in the second quarter as corporate treasurer's term out commercial paper and take advantage of low yields. New issues should continue to come at a concession to the market to entice investors to participate. 6 Portfolio Managers' Report PILGRIM INTERMEDIATE BOND FUND - -------------------------------------------------------------------------------- 12/15/98 3/31/99 3/31/00 3/31/01 -------- ------- ------- ------- Pilgrim Intermediate Bond Fund Class A With Sales Charge 9,524 9,451 9,538 11,162 Pilgrim Intermediate Bond Fund Class A Without Sales Charge 10,000 9,923 10,015 11,720 Lehman Brothers Government/Corp. Index 10,000 9,905 10,073 11,323 Average Annual Total Returns for the Periods Ended March 31, 2001 ------------------------------------ Since Inception 1 Year 12/15/98 ------ -------- Including Sales Charge: Class A (1) 11.51% 4.92% Class B (2) 11.23% 4.76% Class C (3) 15.36% 6.46% Excluding Sales Charge: Class A 17.02% 7.18% Class B 16.23% 6.39% Class C 16.36% 6.46% Lehman Brothers Government/Corporate Index 12.41% 5.47%(4) Based on a $10,000 initial investment, the graph and table above illustrate the total return of Pilgrim Intermediate Bond Fund against the Lehman Brothers Government/Corporate 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1 year return. (4) Since inception performance for index is shown from 12/01/98. Principal Risk Factor(s): Exposure to credit, market and interest rate risk. Fluctuations in the value of the Fund's share can be expected in response to changes in interest rates. The Fund's investments in mortgage-related securities may entail prepayment risk. The Fund may invest a portion of its assets in high yield debt securities. Higher yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio and in some cases, the lower market price for those instruments. The Fund may also invest a portion of its assets in foreign securities. International investing does pose special risks, including currency fluctuation and political risks not found in investments that are solely domestic. 7 - ------ Income Funds - ------ Portfolio PILGRIM STRATEGIC INCOME FUND Managers' Report - -------------------------------------------------------------------------------- Portfolio Management: Robert K. Kinsey, Vice President, Edwin Schriver, Senior Vice President, ING Pilgrim Investments, LLC. Goals: The Pilgrim Strategic Income Fund (the "Fund") seeks maximum total return by investing at least 60% of its total assets in debt securities issued by U.S. and foreign corporations, U.S. and foreign governments and their agencies that are rated in one of the top four categories by a nationally recognized statistical rating agency. Market Overview: The investment grade bond market posted handsome returns in the first quarter of 2001. Repeated Fed easings triggered a dramatic rally in credit sensitive securities and the front end of the yield curve; however, long-dated Treasuries did not fare as well as the curve steepened. Sell-offs in the equity markets also provided for rallies in shorter maturities. A few more corporate issuers entered the ranks of the credit-impaired. Motorola and Comdisco suffered from the troubles in the technology sector, while California utilities plummeted into a morass of political and financial difficulties. Although new issue volume set multi-year records, the market did face some headwinds in the later part of the quarter and equity market volatility buffeted the bond markets with disturbing frequency. The high yield market exhibited very high volatility during the first quarter as investor sentiment shifted rapidly regarding the future direction of the U.S. economy. For the quarter, the Lehman Brothers High Yield Bond Index returned 6.36% and the Merrill Lynch High Yield Bond Index returned 5.78%. Entering 2001, we believe the high yield market offered very attractive investment opportunities. Yields reflected expectations of a severe recession and very high defaults, and many securities traded well below liquidation values. Following Federal Reserve action in January to cut interest rates twice by 50 basis points each time, the market rallied as portfolio managers scrambled to invest large excess cash positions. February brought a large number of higher quality new issues, absorbing excess cash and limiting further appreciation. In March, equity investors reacted very negatively to revised growth projections in the telecommunications and technology sectors, leading to an unprecedented decline in the NASDAQ market index. With sharply lower equity valuations effectively shutting off access to equity markets, there was a spillover effect in the high yield market. Companies lacking sufficient funding to fully execute their business strategy were severely punished. Many of the other sectors that had underperformed in late 2000, notably steel, automotive and retailing, outperformed in the first quarter as sales data, inventory levels and consumer confidence all pointed to somewhat brighter prospects than had previously been envisioned. Performance: For the nine-month period ended March 31, 2001, the Fund's Class A shares, excluding sales charges, provided a total return of 2.69% compared to the Lehman Brothers Aggregate Bond Index which returned 10.60% for the same period. Portfolio Specifics: We increased the Fund's high yield allocation following the Fed's first cut in rates in January, and the subsequent turnaround in the high yield market propelled the Fund into the top 14% of Morningstar multi-sector funds in the first quarter of 2001. The investment grade component of the Fund also posted positive returns, but the results were not as compelling due in large part to our style of taking credit risk in the front of the curve. Fortunately, we liquidated our position in Motorola early in the quarter, and we avoided the California utility debacle entirely. We added Norfolk Southern, Occidental Petroleum, some FNMA debentures, and a new issue CMBS deal. The merger with the ING International Bond and the Pilgrim Global Income Funds also presented some unique challenges. The non-dollar portion of the Fund is now hedged, and we moved to reduce that exposure by selling Government of Canada and Queensland Treasury paper. Moreover, we unwound a Euro-denominated barbell by selling cash equivalent notes and French OAT zeroes. Market Outlook: U.S. domestic investment bond markets appear to have factored in several more aggressive Fed easings. Overall interest rates have dropped appreciably, and we are now concerned about the potential for a rise in rates especially in the front-end of the curve. We anticipate trimming our duration sometime in the 2nd quarter, and expect that Europe may provide a better duration play as the ECB plays catch-up with the Fed. We plan to maintain our non-dollar hedges, and we intend to keep our overweight to spread product with an eye to adding cyclicals, banks, and autos. 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 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 first and 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 will be 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. 8 Portfolio Managers' Report PILGRIM STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- 7/27/98 3/31/99 3/31/00 3/31/01 ------- ------- ------- ------- Pilgrim Strategic Income Fund Class A With Sales Charge 9,527 9,860 9,918 10,345 Pilgrim Strategic Income Fund Class A Without Sales Charge 10,000 10,350 10,411 10,859 Lehman Brothers Aggregate Index 10,000 10,384 10,578 11,904 Average Annual Total Returns for the Periods Ended March 31, 2001 ------------------------------------ Since Inception 1 Year 7/27/98 ------ ------- Including Sales Charge: Class A (1) -0.62% 1.27% Class B (2) -0.89% 1.82% Class C (3) 3.05% 2.81% Excluding Sales Charge: Class A 4.30% 3.12% Class B 3.97% 2.79% Class C 4.02% 2.81% Lehman Brothers Aggregate Bond Index 12.53% 6.75%(4) Based on a $10,000 initial investment, the graph and table above illustrate the total return of Pilgrim Strategic Income Fund against the Lehman Brothers Aggregate Bond Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1 year return. (4) Since inception performance for index is shown from 08/01/98. Principal Risk Factor(s): High yield bonds have exposure to financial, market and interest rate risks. High yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio, and in some cases, the lower market prices for those instruments. The Fund's investments in mortgage-related securities may entail prepayment risk. The Fund may invest up to 30% of its total assets in securities payable in foreign currencies. International investing does pose special risks, including currency fluctuation and political risks not found in domestic investments. See accompanying index descriptions on page 22. 9 - ------ Income Funds - ------ Portfolio PILGRIM HIGH YIELD FUND Managers' Report - -------------------------------------------------------------------------------- Management Team: Edwin Schriver, Russ Stiver, Andy Mitchell, Co-Portfolio Managers, ING Pilgrim Investments, LLC. Goal: The Pilgrim 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: The high yield market exhibited very high volatility during the 9 months ended March 31, 2001, as investor sentiment shifted rapidly as to the future direction of the U.S. economy. Both the volatility and returns in high yield were between those of equities and investment grade bonds, which is appropriate given the underlying investment characteristics. The last half of 2000 was marked by slowing economic growth. Telecommunications, the largest industry sector within the high yield market, came under increasing pressure due to concerns regarding the ability of companies to fund their business plans in a tight credit market. Other sectors, including automotive suppliers, steel and retailing, struggled with excess inventories and weaker consumer demand. By the end of the year, yield in the high yield market reflected expectations of a 12% default rate for a sustained period of time, and the bonds of many companies traded well below estimates of their underlying asset values. Following a brief January rally triggered by a surprise 50 basis point Federal Reserve rate cut, falling NASDAQ stock prices spilled over to another round of telecommunications default speculation in March. Many of the other sectors that had underperformed in late 2000, notably steel, automotive and retailing, outperformed in the first quarter as sales data, inventory levels and consumer confidence all pointed to somewhat brighter prospects than had previously been envisioned. Performance: For the nine months ended March 31, 2001, the Fund's Class A shares, excluding sales charges, provided a total return of -14.66% compared to the Lehman Brothers High Yield Bond Index which returned 1.35% and the Credit Suisse First Boston High Yield Bond Index which returned 0.31% for the same period. Portfolio Specifics: The Fund's underperformance over the past nine months was primarily due to significant overweighting of telecommunications companies in the third and fourth quarters of 2000. Following a management change in late October of 2000, new management undertook a plan to restore stability to the portfolio. Telecommunications exposure was reduced by selling lower quality credits with significant downside remaining. Maximum position sizes were reduced in order to provide greater diversification and reduce the potential impact of negative event risk. Cash holdings, which were 20% in October, were reduced to 5%. Buying activities were focused on first- and second-tier companies in previously under-represented industries with attractive risk-reward tradeoffs. The telecommunications industry now represents approximately 19% of the portfolio, while the largest single issuer represents just over 2%. We are generally comfortable with these levels, but will continue to increase diversification as attractive opportunities are identified. Cash has recently grown to 7%, which we intend to gradually invest in second-tier non-telecommunications credits and first-tier telecommunications credits. Market Outlook: Despite a brief rally early in 2001, yields and credit spreads remain at historically high levels, reflecting an expectation that default rates will rise from the current rate of around 8% to over 11% annually, and maintain that level for an extended period of time. It is our expectation that default rates will likely peak sometime in 2001 before declining to historical norms of 3-4%. Merrill Lynch recently reduced their default rate projection for 2001 from 9.0% to 7.6%, providing optimism that bond prices will eventually adjust to reflect lower defaults, providing the impetus for substantial return to long-term investors. High defaults are not inconsistent with high returns, as evidenced by the fact that defaults last peaked in 1991, a year in which High Yield returns exceeded 35%. Management believes that the brief rally in January of this year, in which the Fund returned 7.64%, provided an indication of what could happen once it becomes clear that the economy has bottomed and stronger economic growth lies ahead. We believe that this will occur sometime during 2001. In the meantime, many companies will substantially outperform the market thereby distinguishing themselves as survivors. 10 Portfolio Managers' Report PILGRIM HIGH YIELD FUND - --------------------------------------------------------------------------------
3/31/91 3/31/92 3/31/93 3/31/94 3/31/95 3/31/96 3/31/97 3/31/98 3/31/99 3/31/00 3/31/01 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Pilgrim High Yield Fund Class A With Sales Charge 9,519 11,526 13,392 14,619 15,242 17,679 20,180 23,684 22,371 21,293 18,067 Pilgrim High Yield Fund Class A Without Sales Charge 10,000 12,108 14,069 15,358 16,013 18,572 21,200 24,881 23,501 22,370 18,980 First Boston High Yield Index 10,000 13,113 15,126 16,635 17,433 19,960 22,288 25,480 25,291 25,367 25,561 Lehman Brothers High Yield Index 10,000 13,006 14,870 16,098 17,221 19,710 21,806 25,135 25,231 24,773 25,397 Average Annual Total Returns for the Periods Ended March 31, 2001 ------------------------------------------------------------------- Since Inception Since Inception of Class B and M of Class C 1 Year 5 Year 10 Year 7/17/95 5/27/99 ------ ------ ------- ------- ------- Including Sales Charge: Class A (1) -19.18% -0.55% 6.09% -- -- Class B (2) -19.55% -0.56% -- 0.97% -- Class C (3) -16.56% -- -- -- -11.26% Class M (4) -18.39% -0.68% -- 0.77% -- Excluding Sales Charge: Class A -15.15% 0.44% 6.62% -- -- Class B -15.82% -0.31% -- 1.07% -- Class C -15.81% -- -- -- -11.26% Class M -15.57% -0.03% -- 1.36% -- Credit Suisse First Boston High Yield Bond Index 0.77% 5.07% 9.84% 5.64%(5) -0.02%(6) Lehman Brothers High Yield Bond Index 2.52% 5.20% 9.77% 5.75%(5) 0.06%(6)
Based on a $10,000 initial investment, the graph and table above illustrate the total return of Pilgrim High Yield Fund against the Credit Suisse First Boston High Yield Bond Index and the Lehman Brothers High Yield Bond Index. The Indices have an inherent performance advantage over the Fund since they have no cash in their portfolio, impose no sales charges and incur no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 2% and 1%, respectively, for the 1 year, 5 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1 year return. (4) Reflects deduction of the maximum Class M sales charge of 3.25%. (5) Since inception performance for index is shown from 8/1/95. (6) Since inception performance for the index is shown from 6/1/99. Principal Risk Factor(s): Exposure to financial, market and interest rate risks. Higher yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio, and in some cases, the lower market prices for those instruments. See accompanying index descriptions on page 22. 11 - ------ Income Funds - ------ Portfolio PILGRIM HIGH YIELD FUND II Managers' Report - -------------------------------------------------------------------------------- Management Team: Edwin Schriver, Russ Stiver, Andy Mitchell, Co-Portfolio Managers, ING Pilgrim Investments, LLC. Goal: The Pilgrim High Yield Fund II (the "Fund" or "High Yield II") seeks to provide total returns in the form of both dividends and capital appreciation, by investing in high yield debt securities. Market Overview: The high yield market exhibited very high volatility during the nine months ended March 31, 2001, as investor sentiment shifted rapidly as to the future direction of the U.S. economy. Both the volatility and returns in high yield were between those of equities and investment grade bonds, which is appropriate given the underlying investment characteristics. The last half of 2000 was marked by the fallout from the dot-com meltdown and slowing economic growth. Telecommunications, the largest industry sector within the high yield market, came under increasing pressure due to concerns regarding the ability of companies to fund their business plans in a tight credit market. Other sectors, including automotive suppliers, steel and retailing, struggled with excess inventories and weaker consumer demand. By the end of the year, yield in the high yield market reflected expectations of a 12% default rate for a sustained period of time, and the bonds of many companies traded well below estimates of their underlying asset values. Following a brief January rally triggered by a surprise 50 basis point Federal Reserve rate cut, falling NASDAQ stock prices spilled over to another round of telecommunications default speculation in March. Many of the other sectors that had underperformed in late 2000, notably steel, automotive and retailing, outperformed in the first quarter as sales data, inventory levels and consumer confidence all pointed to somewhat brighter prospects than had previously been envisioned. Performance: For the nine months ended March 31, 2001, the Fund's Class A shares, excluding sales charges, provided a total return of -12.31% compared to the Lehman Brothers High Yield Bond Index which returned 1.35% and the Merrill Lynch High Yield Bond Index which returned 1.38% for the same period. For the three months ended March 31, 2001, the Fund's Class A shares, excluding sales charges, earned a total return of 5.61% compared to the Lehman Brothers High Yield Bond Index which returned 6.36% and the Merrill Lynch High Yield Bond Index which returned 5.78% for the same period. This places the Fund in the top 10% of its peer group for the quarter, based on Lipper surveys. Portfolio Specifics: The Fund's underperformance over the past nine months was primarily due to a significant overweighting of telecommunications companies in the third and fourth quarters of 2000. Following a management change in October of 2000, new management undertook a plan to restore stability to the portfolio. Telecommunications exposure was reduced by selling lower quality credits with significant downside remaining. Maximum position sizes were reduced in order to provide greater diversification and reduce the potential impact of negative event risk. Cash holdings, which exceeded 20% in October, were reduced to less than 2%. Buying activities were focused on first, second, and third-tier companies in previously under-represented industries with attractive risk-reward tradeoffs. The telecommunications industry still represents a substantial portion of the portfolio and is in line with competing mutual funds. Currently, the largest single issuer in any industry represents just over 2% of the portfolio. We are generally comfortable with these levels, but will continue to increase diversification as attractive opportunities are identified. Cash has recently grown to 6%, which we intend to invest in non-telecommunications credits. Market Outlook: Despite a brief rally early in 2001, yields and credit spreads remain at historically high levels, reflecting an expectation that default rates will rise from the current rate of around 8% to over 11% annually, and maintain that level for an extended period of time. It is our expectation that default rates will likely peak sometime in 2001 before declining to historical norms of 3-4%. Merrill Lynch recently reduced their default rate projection for 2001 from 9.0% to 7.6%, providing optimism that bond prices will eventually adjust to reflect lower defaults, providing the impetus for substantial return to long-term investors. High defaults are not inconsistent with high returns, as evidenced by the fact that defaults last peaked in 1991, a year in which High Yield returns exceeded 35%. Management believes that the brief rally in January of this year, in which the Fund returned 11.93%, provided an indication of what could happen once it becomes clear that the economy has bottomed and stronger economic growth lies ahead. We believe that this will occur sometime during 2001. In the meantime, many companies will substantially outperform the market thereby distinguishing themselves as survivors. 12 Portfolio Managers' Report PILGRIM HIGH YIELD FUND II - -------------------------------------------------------------------------------- 3/27/98 3/31/98 3/31/99 3/31/00 3/31/01 ------- ------- ------- ------- ------- Pilgrim High Yield Fund II Class A With Sales Charge 9,527 9,542 9,650 10,154 8,938 Pilgrim High Yield Fund II Class A Without Sales Charge 10,000 10,016 10,129 10,658 9,382 Lehman Brothers High Yield Index 10,000 10,000 10,038 9,856 10,104
Average Annual Total Returns for the Periods Ended March 31, 2001 ----------------------------------------------------------------- Since Inception Since Inception of Class A, B and C of Class T 1 Year 3/27/98 3/31/00 ------ ------- ------- Including Sales Charge: Class A (1) -15.72% -3.50% -- Class B (2) -15.89% -3.22% -- Class C (3) -12.74% -2.49% -- Class T (4) -15.64% -- -15.64% Excluding Sales Charge: Class A -11.54% -1.94% -- Class B -11.96% -2.49% -- Class C -11.95% -2.49% -- Class T -12.50% -- -12.50% Lehman Brothers High Yield Bond Index 2.52% 0.35%(5) 2.52%
Based on a $10,000 initial investment, the graph and table above illustrate the total return of Pilgrim High Yield II Fund against the Lehman Brothers High Yield Bond Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1-year return. (4) Reflects deduction of the Class T deferred sales charge of 4.00%. (5) Since inception performance for 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. 13 - ------ Income Funds - ------ Portfolio PILGRIM HIGH YIELD BOND FUND Managers' Report - -------------------------------------------------------------------------------- Management Team: Bob Bowman, Greg Jacobs and Kurt Kringelis, ING Investment Management, LLC. Goal: The Pilgrim High Yield Bond Fund (the "Fund") seeks to provide investors with a high levels of current income and total return by investing at least 65% of it's total assets in high yield bonds. Market Overview: The high yield market has been extremely volatile in recent months. In the fourth quarter of 2000, the broad high yield market had a total return of roughly -5.0%. In January 2001, the market had a return of about 7.5%, posting the largest monthly gain in the last decade. In March, high yield began another decline, led by a selloff in Telecommunications. BB's have significantly outperformed B's and CCC's over the last twelve months. However, over the last three months, distressed securities have significantly outperformed all other rating categories. The Telecommunications sector has been the most significant underperformer, with a -19.6% return over the last twelve months. The trailing twelve month default rate continues to be much higher than the long-term average. A slowing economy combined with tighter lending practices by banks will likely cause the default rate to continue to be higher than average. However, the market reflects these risks. Spreads for BB and B rated securities remain near the ten-year highs. The volatility of the market has made short-term high yield investing difficult at best. Market timers have had limited success due to wide short term price fluctuations. The high yield market is likely to rebound in anticipation of an economic recovery rather than in reaction to improving economic data. This makes timing a market trough difficult. However, we believe the current relative attractiveness of spreads will reward investors with a long-term time horizon. Performance: For the five months ended March 31, 2001 the Funds Class A shares, excluding sales charges, provided a total return of 5.61% compared to the Lehman Brothers High Yield Bond Index which returned 4.12% for the same period. Portfolio Specifics: The Fund's outperformance can be attributed to overweight positions in Gaming and Energy, as both sectors significantly outperformed the Index. Additionally, the Fund was overweighted in higher-quality BB issues, which significantly outperformed lower-tier credits. Also positively impacting performance was a conservative positioning in Telecommunications. Market Outlook: We are currently cautious on the market in the near term. The fear of economic recession and volatile equity market has created significant uncertainty in the High Yield market. However, while we are cautious in the near term, we think there are parts of the market that offer attractive value. We remain concerned about the Telecommunications sector. We believe that many of the lower-tier credits in the sector have insufficient funding to execute plans over the next twelve months and carry substantial risk of default. However, we see potential value in the higher quality Telecommunications sector, as upper-tier names have traded down in sympathy with the market. We are focusing on companies with no near-term funding needs, positive operating cash flow and modest growth capital spending plans. We do feel that investors are getting paid for the risk in the core non-telecommunications sectors of the high yield universe. Spreads for non-distressed industrials, cyclicals, and consumer products issuers are at wide levels relative to history. Despite the risk of recession, we believe that there is attractive value investing in well-managed high yield operating companies that have little risk of near-term liquidity problems. 14 Portfolio Managers' Report PILGRIM HIGH YIELD BOND FUND - -------------------------------------------------------------------------------- 12/15/98 3/31/99 3/31/00 3/31/01 -------- ------- ------- ------- Pilgrim High Yield Bond Fund Class A With Sales Charge 9,524 9,906 10,200 10,841 Pilgrim High Yield Bond Fund Class A Without Sales Charge 10,000 10,401 10,710 11,384 Lehman Brothers High Yield Index 10,000 10,196 10,011 10,263 Average Annual Total Returns for the Periods Ended March 31, 2001 ------------------------------------ Since Inception 1 Year 12/15/98 ------ -------- Including Sales Charge: Class A (1) 1.27% 3.59% Class B (2) 0.71% 3.45% Class C (3) 4.64% 5.07% Excluding Sales Charge: Class A 6.30% 5.82% Class B 5.54% 5.00% Class C 5.61% 5.07% Lehman Brothers High Yield Bond Index 2.52% 1.12%(4) Based on a $10,000 initial investment, the graph and table above illustrate the total return of Pilgrim High Yield Bond Fund against the Lehman Brothers High Yield Bond Index. The Index has an inherent performance advantage over the Fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment 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) Reflects deduction of the maximum Class A sales charge of 4.75%. (2) Reflects deduction of the Class B deferred sales charge of 5% and 3%, respectively, for the 1 year and since inception returns. (3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1 year return. (4) Since inception performance for index is shown from 12/01/98. Principal Risk Factor(s): High yield bonds have exposure to financial, market and interest rate risks. High yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio, and in some cases, the lower market prices for those instruments. See accompanying index descriptions on page 22. 15 - ------ Income Funds - ------ Portfolio PILGRIM MONEY MARKET FUND Managers' Report - -------------------------------------------------------------------------------- Management Team: ING Pilgrim Investments, LLC. Goal: The Pilgrim Money Market Fund seeks to provide as high a level of current income as is consistent with the preservation of capital and liquidity by investing all of its assets in the Class A shares of Primary Institutional Fund, a series of Reserve Institutional Trust, a registered open-end management company. Market Overview: Short-term interest rates ended the quarter considerably lower than where they started. The Fed slashed the overnight Federal Funds rate by 150 basis points to 5.00% in three separate moves. These cuts were prompted by an economy that seemed to stall suddenly. Most economic data indicated a dramatically slowing economy during the quarter. The National Association of Purchasing Managers Index (NAPM) fell to levels normally associated with a recession. Industrial production and capacity utilization figures declined significantly. The downward trends in the manufacturing and production indices clearly show that the back end of the economy has contracted considerably. Moreover, the March employment report revealed that there was a loss of 86,000 jobs in the economy for the month. This was the largest job loss since November 1991. Driven by the weak labor report, Federal Funds futures now forecast a fifty percent chance (up from about thirty percent before the report) that the central bank committee will lower short-terms rates by 25 basis points between scheduled meetings. These factors combined, coupled with the extremely high volatility in the equities markets, have led the typical American consumer to become somewhat cautious. While there recently has been an up tick in consumer confidence, this could be reversed quite easily as the equities markets continue to struggle. The one sector of the economy that has held up relatively well is the housing market. However, this could change if the weakness in the equities markets trickles down to the real estate sector. Performance: For the nine months ended March 31, 2001, the Fund's Class A shares, excluding sales charges, provided a return of 3.86% Porfolio Specifics: The Reserve Institutional Trust Primary Institutional Fund's Class A shares had a 30-day current yield of 5.09% as of March 31, 2001. Market Outlook: Indications are clear that the U.S. economy has slowed to sub-1.0% growth in the first quarter. We expect the Federal Reserve will lower short-term interest rates to 4.00% by the middle of the year. It remains to be seen whether the U.S. economy is experiencing a temporary hiccup or sustained slow down. If the economy is simply experiencing a manufacturing inventory adjustment, as thought by many economists and members of the Fed, growth should pick up during the second half of the year. We think this may be the case. We have been receiving several months of poor economic news. The liquidity the Fed is pumping into the system coupled with the planned tax cuts by the Federal Government should help the U.S. economy pick up steam in the second half of the year. Principal Risk Factor(s): An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. 16 (THIS PAGE INTENTIONALLY LEFT BLANK) 17 - ------ Income Funds - ------ Portfolio ING PILGRIM MONEY MARKET FUND Manager's Report - -------------------------------------------------------------------------------- Portfolio Management: Jennifer J. Thompson, CFA, Vice President, ING Investment Management, LLC. Goal: The ING Pilgrim Money Market Fund (the "Fund") seeks to provide investors with a high level of current income as is consistent with the preservation of capital and liquidity and the maintenance of a stable $1.00 net asset value per share. Market Overview: The period under review, from November 1, 2000 to March 31, 2001, was quite eventful for money market participants. The period began with a Federal Funds target rate (Fed Funds) of 6.5% and with risks to the economy characterized as inflationary by the Federal Reserve Board's Federal Open Market Committee (the "FOMC" or the "Fed"). At its December 19th meeting, the FOMC changed its outlook and indicated that the risks to the economy were weighted towards weakness. We began 2001 with skittish financial markets and general agreement that the Fed would begin to lower interest rates in 2001. In a surprise inter-meeting move, the FOMC lowered its Fed Funds target rate by 50 basis points to 6.0%. The ease was attributed to a weakening in sales and production, high energy prices, lower consumer confidence and tight conditions in some segments of financial markets. While unexpected in terms of the timing and magnitude, the rate reduction was applauded by financial markets. The equity and bond markets rallied significantly in January reflecting the markets' confidence in the Fed's ability to engineer price stability and sustainable economic growth. The money markets were volatile as participants attempted to predict the speed and extent of Fed easing going forward. On January 31st, at the regularly scheduled FOMC meeting, the Fed again lowered its Fed Funds target by 50 basis points to 5.5% this time citing further erosion in business and consumer confidence, lower capital spending and retail sales, and resulting reductions in manufacturing production. This weakness continued throughout the first quarter of 2001 as corporate profit warnings abounded and the financial markets reversed their January exuberance. Dramatic equity market declines in February and March and the associated negative wealth effect on consumers drove consumer confidence down. On March 20th, the FOMC once again lowered its Fed Funds target by 50 basis points to 5% citing pressures on profit margins which are restraining investment spending and consumption, increased inventories and excess productive capacity, and weakened global economic conditions which could keep demand and production soft. The Fed indicated that risks remain weighted toward economic weakness in the future. Performance: For the five-month period ended March 31, 2001, the Fund's Class A shares, excluding sales charges, provided a total return of 2.36%. Portfolio Specifics: Throughout the period, the Fund's average maturity remained longer than competitors. As the Fed lowered its Fed Funds target, the longer-maturity securities purchased by the Fund at higher rates helped performance. Market Outlook: Market participants obviously vary in their assessment of the economy with many forecasting a significant probability of a recession going forward. Wall Street economists are calling for continued Fed easing and some aggressively predict a Fed Funds rate of 3.5% to 4.0% by the fall. However, these levels are not currently priced into market rates. The Fund continues to purchase longer-maturity securities as a hedge toward lower rates while also buying one-month paper to keep the yield high. The Fund will use this barbell strategy as long as rates are reasonable given expectations of future Fed easings. Principal Risk Factor(s): An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. 18 (THIS PAGE INTENTIONALLY LEFT BLANK) 19 - ------ Income Funds - ------ Portfolio LEXINGTON MONEY MARKET TRUST Managers' Report - -------------------------------------------------------------------------------- Management Team: Denis P. Jamison, C.F.A., Roseann G. McCarthy, Co-Portfolio Managers, ING Pilgrim Investment, LLC. Goal: The Lexington Money Market Trust (the "Trust") seeks to provide high current income while preserving capital and liquidity. This objective is achieved by investing in short-term money market instruments. The Trust primarily invests in the commercial paper of "First Tier" credits. First Tier obligations are those that are rated within the top two credit rating categories of all nationally recognized statistical rating organizations (NRSRO). These securities are determined to present minimal credit risk. Market Overview: Short-term interest rates ended the quarter considerably lower than where they started. The Fed slashed the overnight Federal Funds rate by 150 basis points to 5.00% in three separate moves. These cuts were prompted by an economy that seemed to stall suddenly. Most economic data indicated a dramatically slowing economy during the quarter. The National Association of Purchasing Managers index (NAPM) fell to levels normally associated with a recession. Industrial production and capacity utilization figures declined significantly. The downward trends in the manufacturing and production indices clearly show that the back end of the economy has contracted considerably. Moreover, the March employment report revealed that there was a loss of 86,000 jobs in the economy for the month. This was the largest job loss since November 1991. Driven by the weak labor report, Federal Funds futures now forecast a fifty percent chance (up from about thirty percent before the report) that the central bank committee will lower short-term rates by 25 basis points between scheduled meetings. These factors combined, coupled with the extremely high volatility in the equities markets, have led the typical American consumer to become somewhat cautious. While there recently has been an up tick in consumer confidence, this could be reversed quite easily as the equities markets continue to struggle. The one sector of the economy that has held up relatively well is the housing market. However, this could change if the weakness in the equities markets trickles down to the real estate sector. Performance: For the three-month period ended March 31, 2001, the Trust's Class A shares, excluding sales charges, returned 1.22%. The Trust returned 5.50% for the one-year period ending March 31, 2001, under performing the typical money market fund by 18 basis points. With the year-over-year inflation rate around 3.5% for the same period, shareholders enjoyed roughly a 2.0% real rate of return. The relative performance of the Trust continues to improve. We are on track to narrow the spread between the Trust and the money market fund average to about fifteen basis points by year-end. Portfolio Specifics: The average maturity of the Trust was less than 30 days at the end of the quarter. In a declining interest rate environment it would seem obvious to extend the average maturity of the Trust to lock in excess yield. However, extending the maturity will provide little, if any, value. Interest rates fall sharply as you move beyond a thirty-day maturity. Moreover, the credit risk in the portfolio will increase dramatically by extending the average maturity. Many companies may find themselves financially stressed by the challenges of a slowing economy. Therefore, we will continue to invest only in those companies that are financially solid and keep the Trust's average maturity relatively short. Market Outlook: Indications are clear that the U.S. economy has slowed to sub-1.0% growth in the first quarter. We expect the Federal Reserve will lower short-term interest rates to 4.00% by the middle of the year. It remains to be seen whether the U.S. economy is experiencing a temporary hiccup or a sustained slow down. If the economy is simply experiencing a manufacturing inventory adjustment, as thought by many economists and members of the Fed, growth should pick up during the second half of the year. We think this may be the case. We have been receiving several months of poor economic news. The liquidity the Fed is pumping into the system coupled with the planned tax cuts by the Federal Government should help the U.S. economy pick up steam in the second half of the year. Principal Risk Factor(s): An investment in the Trust is not insured by the Federal Deposit Insurance Corporation or any other government agency. Although the Trust seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Trust. 20 (THIS PAGE INTENTIONALLY LEFT BLANK) 21 - ------- Pilgrim Funds - ------- INDEX DESCRIPTIONS - -------------------------------------------------------------------------------- The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index comprised of 520 mortgage-backed securities with an average yield of 7.58%. The average coupon of the index is 6.85%. The Lehman Brothers Aggregate Bond Index is widely recognized, unmanaged index of publicly issued fixed rate U.S. government, investment grade mortgage-backed and corporate debt securities. The Lehman Brothers Municipal Bond Index is comprised of 8,000 bonds. These bonds are all investment grade fixed-rate, long term maturities (greater than two years) and are selected from issues larger than 50 million. The Lipper Municipal Bond Index is comprised of the top 30 largest municipal debt funds which are defined by having at least 65% of their assets invested in municipal debt issues in the top four credit ratings. The Lehman Brothers Government/Corporate 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 High Yield Bond Index is comprised of non-investment grade bonds with maturities between seven and ten years. The Merrill Lynch High Yield Bond Index is comprised of over 1,300 high yield bonds, intended to be representative of the high yield market as a whole. The NASDAQ Composite Index is a broad-based capitalization-weighted index of all NASDAQ National Market & SmallCap stocks. The Merrill Lynch Cash-Pay High Yield Index is comprised of over 1,200 high yield bonds currently paying cash coupons therefore excluding deferred income securities. The Credit Suisse First Boston High Yield Bond Index is an index of high yield bonds rated BB or below. The National Association of Purchasing Managers Index (NAPM) is an indicator of economic activity based on a survey of over 250 companies within 21 industries covering all 50 states. All indices are unmanaged. An investor cannot invest directly in an index. 22 SHAREHOLDER MEETING (Unaudited) - -------------------------------------------------------------------------------- A special meeting of shareholders of the Lexington GNMA Income Fund, Inc. and Lexington Money Market Fund was held in Saddle Brook, New Jersey on July 21, 2000. A brief description of each matter voted upon as well as the results are outline below:
Shares voted Shares against or Shares Broker Total voted for withheld abstained non-vote shares voted --------- -------- --------- -------- ------------ 1. To elect eleven (11) Directors or Trustees, as the case may be, to hold office until the election and qualification of their successors. Lexington GNMA Income Fund, Inc. Al Burton 23,821,867 1,537,835 -- -- 25,359,702 Paul Doherty 23,860,354 1,499,348 -- -- 25,359,702 Robert Goode 23,842,553 1,517,149 -- -- 25,359,702 Alan Gosule 23,867,533 1,492,169 -- -- 25,359,702 Walter May 23,866,042 1,493,660 -- -- 25,359,702 Jock Patton 23,871,717 1,487,985 -- -- 25,359,702 David Putnam 23,857,383 1,502,319 -- -- 25,359,702 John Smith 23,825,330 1,534,372 -- -- 25,359,702 Robert Stallings 23,826,289 1,533,413 -- -- 25,359,702 John Turner 23,829,873 1,529,829 -- -- 25,359,702 David Wallace 23,827,715 1,531,987 -- -- 25,359,702 Lexington Money Market Trust Al Burton 43,034,616 4,949,702 -- -- 47,984,318 Paul Doherty 43,294,183 4,690,135 -- -- 47,984,318 Robert Goode 43,198,654 4,785,664 -- -- 47,984,318 Alan Gosule 43,312,182 4,672,136 -- -- 47,984,318 Walter May 43,300,899 4,683,419 -- -- 47,984,318 Jock Patton 43,312,182 4,672,136 -- -- 47,984,318 David Putnam 43,297,485 4,686,833 -- -- 47,984,318 John Smith 43,023,556 4,960,762 -- -- 47,984,318 Robert Stallings 43,312,182 4,672,136 -- -- 47,984,318 John Turner 43,300,899 4,683,419 -- -- 47,984,318 David Wallace 43,028,467 4,955,851 -- -- 47,984,318 2. Approve a new Investment Management Agreement between each Fund and Pilgrim Investments, Inc. ("Pilgrim"), an indirect, wholly-owned subsidiary of ReliaStar Financial Corp. ("ReliaStar"), to take effect upon the completion of the proposed acquisition of Lexington Global Asset Managers, Inc. by ReliaStar. Lexington GNMA Income Fund, Inc. 21,958,684 1,875,250 1,525,768 -- 25,359,702 Lexington Money Market Trust 41,654,842 3,839,821 2,489,655 -- 47,984,318 3. Approve a new Investment Management Agreement between each Fund and Pilgrim to take effect upon the completion of the proposed acquisition of ReliaStar by ING Groep N.V. ("ING"). Lexington GNMA Income Fund, Inc. 21,934,897 1,867,135 1,557,670 -- 25,359,702 Lexington Money Market Trust 41,512,680 3,858,312 2,613,326 -- 47,984,318 8. Ratify the selection of KPMG LLP as each Fund's independent public accounts for the fiscal year ending December 31, 2000. Lexington GNMA Income Fund, Inc. 23,489,561 519,374 1,350,767 -- 25,359,702 Lexington Money Market Trust 43,365,054 2,856,801 1,762,463 -- 47,984,318 9. Approve a new Service and Distribution Plan for Lexington GNMA Income Fund, Inc. which would impose on each Fund a fee on an annualized basis of 0.25% of the average daily net assets. Lexington GNMA Income Fund, Inc. 18,354,691 1,968,168 1,635,603 3,401,240 25,359,702 10. Approve Amended and Restated Articles of Incorporation for Lexington GNMA Income Fund, Inc., a Maryland corporation.(a) Lexington GNMA Income Fund, Inc. 28,125,266 1,964,466 2,349,641 1,581,310 34,020,683 11. Approve Amended and Restated Declaration of Trust for Lexington Money Market Trust, a Massachusetts business trust.(b) Lexington Money Market Trust 44,295,104 5,697,149 2,882,359 -- 52,874,612
- ---------- (a) The Special Meeting of Shareholder for Lexington GNMA Income Fund, Inc. was adjourned until September 20, 2000 to permit the further solicitation of shareholders for their proxies relating to this proposal. (b) The Special Meeting of Shareholder for Lexington Money Market Trust was adjourned until July 31, 2000 to permit the further solicitation of shareholders for their proxies relating to this proposal. See Accompanying Notes to Financial Statements 23 SHAREHOLDER MEETING (Unaudited) - -------------------------------------------------------------------------------- A special meeting of shareholders of the Pilgrim Funds was held in Phoenix, Arizona on August 18, 2000. A brief description of each matter voted upon as well as the results are outline below:
Shares voted Shares against or Shares Broker Total voted for withheld abstained non-vote shares voted --------- -------- --------- -------- ------------ 1. For shareholders of the Pilgrim High Total Return Fund and Pilgrim High Total Return Fund II (series of Pilgrim Mayflower Trust), to elect eleven Trustees to serve until their successors are elected and qualified Pilgrim High Total Return Fund Al Burton 66,019,186 1,328,683 -- -- 67,347,870 Paul Doherty 66,079,591 1,268,278 -- -- 67,347,870 Robert Goode 66,070,313 1,277,556 -- -- 67,347,870 Alan Gosule 66,081,252 1,266,617 -- -- 67,347,870 Walter May 66,089,163 1,258,706 -- -- 67,347,870 Jock Patton 66,075,525 1,272,344 -- -- 67,347,870 David Putnam 66,073,507 1,274,362 -- -- 67,347,870 John Smith 66,000,826 1,347,043 -- -- 67,347,870 Robert Stallings 66,093,043 1,254,826 -- -- 67,347,870 John Turner 66,073,507 1,274,362 -- -- 67,347,870 David Wallace 66,028,933 1,318,936 -- -- 67,347,870 Pilgrim High Total Return Fund II Al Burton 21,890,679 334,844 -- -- 22,225,523 Paul Doherty 21,892,442 333,081 -- -- 22,225,523 Robert Goode 21,892,442 333,081 -- -- 22,225,523 Alan Gosule 21,919,264 306,259 -- -- 22,225,523 Walter May 21,918,083 307,440 -- -- 22,225,523 Jock Patton 21,919,264 306,259 -- -- 22,225,523 David Putnam 21,915,875 309,648 -- -- 22,225,523 John Smith 21,917,501 308,022 -- -- 22,225,523 Robert Stallings 21,919,264 306,259 -- -- 22,225,523 John Turner 21,919,264 306,259 -- -- 22,225,523 David Wallace 21,901,260 324,263 -- -- 22,225,523 2. Approve new Investment Management Agreements between the Funds and Pilgrim Investments, Inc. ("Pilgrim Investments") to reflect the acquisition of Pilgrim Investments by ING Groep N.V. ("ING"), with no change in the advisory fees payable to Pilgrim Investments Pilgrim High Yield Fund 48,696,511 499,651 1,457,730 -- 50,653,892 Pilgrim High Yield Fund II 15,875,341 164,824 291,208 -- 16,331,373 Pilgrim Strategic Income Fund 701,286 3,170 13,607 -- 718,063 Pilgrim Money Market Fund 58,049,711 126,983 128,437 -- 58,305,131 Pilgrim Government Securities Income Fund 7,930,229 253,044 297,122 -- 8,480,395 Pilgrim High Total Return Fund 64,431,458 1,213,070 1,703,342 -- 67,347,870 Pilgrim High Total Return Fund II 21,446,390 302,061 477,072 -- 22,225,523 4. For shareholders of the Pilgrim High Total Return and Pilgrim High Total Return II (series of Pilgrim Mayflower Trust), to ratify the appointment of PricewaterhouseCoopers LLP as independent auditors for the Funds for the fiscal year ending October 31, 2000 Pilgrim High Total Return Fund 65,868,942 396,074 1,082,854 -- 67,347,870 Pilgrim High Total Return Fund II 21,742,068 144,118 339,337 -- 22,225,523
A special meeting of shareholders of the Pilgrim Government Securities Income Fund, Inc. was held in Scottsdale, Arizona on February 23, 2001. A brief description of each matter voted upon as well as the results are outline below:
Shares voted Shares against or Shares Broker Total voted for withheld abstained non-vote shares voted --------- -------- --------- -------- ------------ 1. Approve an Agreement and Plan of Reorganization providing for the acquisition of all of the assets and liabilities of Pilgrim Government Securities Income Fund, Inc. by the Pilgrim GNMA Income Fund. Pilgrim Government Securities Income Fund 4,598,115 303,578 403,659 -- 5,305,352
See Accompanying Notes to Financial Statements 24 SHAREHOLDER MEETING (Unaudited) - -------------------------------------------------------------------------------- A special meeting of shareholders of the Pilgrim High Total Return Fund and Pilgrim High Total Return Fund II was held in Scottsdale, Arizona on February 23, 2001, and adjourned until March 15, 2001 to permit the further solicitation of shareholders. A brief description of each matter voted upon as well as the results are outline below:
Shares voted Shares against or Shares Broker Total voted for withheld abstained non-vote shares voted --------- -------- --------- -------- ------------ 1. To approve an Agreement and Plan of Reorganization providing for the acquisition of all of the assets and liabilities of the Pilgrim High Total Return Fund by the Pilgrim High Yield Fund II. Pilgrim High Total Return Fund 30,454,570 634,458 1,399,701 -- 32,488,729 2. To approve an Agreement and Plan of Reorganization providing for the acquisition of all of the assets and liabilities of the Pilgrim High Total Return Fund II by the Pilgrim High Yield Fund II. Pilgrim High Total Return Fund II 10,536,584 196,896 440,224 -- 11,173,704
See Accompanying Notes to Financial Statements 25 (THIS PAGE INTENTIONALLY LEFT BLANK) 26 - ------- Pilgrim Funds - ------- REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Shareholders and Trustees of the Pilgrim Funds Trust, Lexington Money Market Trust, and the Shareholders and Board of Directors of Pilgrim Mutual Funds, Pilgrim Investment Funds, Inc., and Pilgrim GNMA Income Fund, Inc.: In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Pilgrim National Tax-Exempt Bond Fund (formerly ING National Tax-Exempt Bond Fund), Pilgrim Intermediate Bond Fund (formerly ING Intermediate Bond Fund), Pilgrim High Yield Bond Fund (formerly ING High Yield Bond Fund) and ING Pilgrim Money Market Fund (formerly ING Money Market Fund), four of the twelve funds comprising Pilgrim Funds Trust (formerly the ING Funds Trust, collectively, "PFT"), Pilgrim Strategic Income Fund, Pilgrim High Yield Fund II and Pilgrim Money Market Fund, three of the twelve funds comprising Pilgrim Mutual Funds (collectively, "PMF"), Pilgrim High Yield Fund, one of the two funds comprising Pilgrim Investment Funds, Inc. ("PIF"), Pilgrim GNMA Income Fund, Inc. and Lexington Money Market Trust , at March 31, 2001, and the results of each of their operations for the periods then ended, the changes in each of their net assets and financial highlights for each of the periods presented except as described below, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of PFT, PMF, PIF, Pilgrim GNMA Income Fund, Inc. and Lexington Money Market Trust; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2001 by correspondence with the custodians and brokers, provide a reasonable basis for our opinion. For all periods ending prior to and including December 31, 2000 for Pilgrim GNMA Income Fund, Inc. and Lexington Money Market Trust, the statements of operations, changes in net assets and financial highlights were audited by other auditors whose reports dated February 26, 2001 expressed unqualified opinions on those financial statements and financial highlights. For all periods ending prior to and including October 31, 2000 for Pilgrim National Tax-Exempt Bond Fund, Pilgrim Intermediate Bond Fund, Pilgrim High Yield Bond Fund and ING Pilgrim Money Market Fund, the statements of operations, changes in net assets and financial highlights were audited by other auditors whose report dated December 5, 2000 expressed unqualified opinions on those financial statements and financial highlights. For all periods ending prior to and including June 30, 2000 for Pilgrim Strategic Income Fund, Pilgrim High Yield Fund II, Pilgrim Money Market Fund and Pilgrim High Yield Fund, the statements of operations, changes in net assets and financial highlights were audited by other auditors whose report dated August 4, 2000 expressed unqualified opinions on those financial statements and financial highlights. /s/ PricewaterhouseCoopers LLP Denver, CO May 25, 2001 27 - ------ Income Funds - ------ STATEMENTS OF ASSETS AND LIABILITIES as of March 31, 2001 - --------------------------------------------------------------------------------
Pilgrim Pilgrim National Pilgrim Pilgrim Pilgrim GNMA Income Tax-Exempt Intermediate Strategic High Yield Fund Bond Fund Bond Fund Income Fund Fund ------------- ------------- ------------- ------------- ------------- ASSETS: Investments in securities at value* $ 506,804,362 $ 22,179,398 $ 37,545,628 $ 51,068,331 $ 192,507,101 Short-term investments at amortized cost 50,371,855 631,000 2,213,000 3,638,000 14,585,000 Cash 86,116 594 1,002,025 84,428 15,091 Receivables: Investment securities sold -- -- 5,863,095 -- 530,842 Fund shares sold 3,040,553 -- 248,134 49,575 657,642 Dividends and interest 3,083,712 326,946 663,156 1,121,044 6,744,803 Other 30,960 -- 720 36,575 -- Unrealized appreciation on forward foreign currency contracts -- -- -- 400,454 -- Prepaid expenses 150,285 14,394 23,719 44,247 36,861 Reimbursement due from manager -- -- -- 21,276 22,283 ------------- ------------- ------------- ------------- ------------- Total assets 563,567,843 23,152,332 47,559,477 56,463,930 215,099,623 ------------- ------------- ------------- ------------- ------------- LIABILITIES: Payable for investment securities purchased 31,999,307 -- 6,497,788 2,611,253 3,358,006 Unrealized depreciation on forward foreign currency contracts -- -- -- 75,438 -- Payable for fund shares redeemed 1,912,534 -- 7,085 15,609 2,749,668 Payable to affiliates 399,736 15,057 33,896 36,019 222,385 Other accrued expenses and liabilities 276,401 34,617 145,919 294,879 299,650 ------------- ------------- ------------- ------------- ------------- Total liabilities 34,587,978 49,674 6,684,688 3,033,198 6,629,709 ------------- ------------- ------------- ------------- ------------- NET ASSETS $ 528,979,865 $ 23,102,658 $ 40,874,789 $ 53,430,732 $ 208,469,914 ============= ============= ============= ============= ============= NET ASSETS WERE COMPRISED OF: Paid-in capital $ 525,738,281 $ 21,934,753 $ 39,719,349 $ 61,603,410 $ 375,973,215 Undistributed (distributions in excess of) net investment income 3,111,865 260 (123) 662,982 -- Accumulated net realized gain (loss) on investments and foreign currencies (15,969,429) (58,032) 447,601 (7,556,262) (150,989,513) Net unrealized appreciation (depreciation) of investments and foreign currencies 16,099,148 1,225,677 707,962 (1,279,398) (16,513,788) ------------- ------------- ------------- ------------- ------------- NET ASSETS $ 528,979,865 $ 23,102,658 $ 40,874,789 $ 53,430,732 $ 208,469,914 ============= ============= ============= ============= ============= * Cost of securities $ 490,705,214 $ 20,953,721 $ 36,837,666 $ 52,629,692 $ 209,020,889
See Accompanying Notes to Financial Statements 28 - ------ Income Funds - ------ STATEMENTS OF ASSETS AND LIABILITIES as of March 31, 2001 - --------------------------------------------------------------------------------
Pilgrim Pilgrim National Pilgrim Pilgrim Pilgrim GNMA Income Tax-Exempt Intermediate Strategic High Yield Fund Bond Fund Bond Fund Income Fund Fund ------------ ------------- ------------ ------------ ------------ Class A: Net Assets $449,460,471 $ 22,073,814 $ 33,597,363 $ 39,104,552 $ 55,704,125 Shares authorized 780,000,000 unlimited unlimited unlimited 80,000,000 Par Value $ 0.01 $ 0.001 $ 0.001 $ 0.00 $ 0.00 Shares outstanding 52,073,029 2,102,814 3,298,998 3,316,091 14,274,861 Net asset value and redemption price per share $ 8.63 $ 10.50 $ 10.18 $ 11.79 $ 3.90 Maximum offering price per share (4.75%)(1) $ 9.06 $ 11.02 $ 10.69 $ 12.38 $ 4.10 Class B: Net Assets $ 47,406,006 $ 588,407 $ 2,807,456 $ 8,894,196 $140,183,327 Shares authorized 100,000,000 unlimited unlimited unlimited 80,000,000 Par Value $ 0.01 $ 0.001 $ 0.001 $ 0.00 $ 0.00 Shares outstanding 5,506,973 56,127 275,830 771,220 36,017,637 Net asset value and redemption price per share(2) $ 8.61 $ 10.48 $ 10.18 $ 11.53 $ 3.89 Maximum offering price per share $ 8.61 $ 10.48 $ 10.18 $ 11.53 $ 3.89 Class C: Net Assets $ 13,743,672 $ 440,437 $ 4,469,970 $ 5,195,903 $ 5,504,965 Shares authorized 50,000,000 unlimited unlimited unlimited 20,000,000 Par Value $ 0.01 $ 0.001 $ 0.001 $ 0.00 $ 0.00 Shares outstanding 1,596,171 41,968 438,843 431,180 1,416,261 Net asset value and redemption price per share(2) $ 8.61 $ 10.49 $ 10.19 $ 12.05 $ 3.89 Maximum offering price per share $ 8.61 $ 10.49 $ 10.19 $ 12.05 $ 3.89 Class M: Net Assets $ 247,128 n/a n/a n/a $ 7,077,475 Shares authorized 10,000,000 n/a n/a n/a 5,000,000 Par Value $ 0.01 n/a n/a n/a $ 0.00 Shares outstanding 28,630 n/a n/a n/a 1,816,220 Net asset value and redemption price per share $ 8.63 n/a n/a n/a $ 3.90 Maximum offering price per share (3.25%)(3) $ 8.92 n/a n/a n/a $ 4.03 Class Q: Net Assets $ 475,605 n/a n/a $ 236,081 $ 22 Shares authorized 50,000,000 n/a n/a unlimited 20,000,000 Par Value $ 0.01 n/a n/a $ 0.00 $ 0.00 Shares outstanding 55,100 n/a n/a 21,123 6 Net asset value and redemption price per share $ 8.63 n/a n/a $ 11.18 $ 3.89 Maximum offering price per share $ 8.63 n/a n/a $ 11.18 $ 3.89 Class T: Net Assets $ 17,646,983 n/a n/a n/a n/a Shares authorized 10,000,000 n/a n/a n/a n/a Par Value $ 0.01 n/a n/a n/a n/a Shares outstanding 2,045,391 n/a n/a n/a n/a Net asset value and redemption price per share(2) $ 8.63 n/a n/a n/a n/a Maximum offering price per share $ 8.63 n/a n/a n/a n/a
- ---------- (1) Maximum offering price is computed at 100/95.25 of net asset value. On purchases of $50,000 or more, the offering price is reduced. (2) Redemption price per share may be reduced for any applicable contingent deferred sales charge. (3) Maximum offering price is computed at 100/96.75 of net asset value. On purchases of $50,000 or more, the offering price is reduced. See Accompanying Notes to Financial Statements 29 - ------ Income Funds - ------ STATEMENTS OF ASSETS AND LIABILITIES as of March 31, 2001 - --------------------------------------------------------------------------------
Pilgrim Pilgrim Pilgrim ING Pilgrim Lexington High Yield II High Yield Money Market Money Market Money Market Fund Bond Fund Fund Fund Trust ------------- ------------- ------------- ------------- ------------- ASSETS: Investments in securities at value* $ 268,817,768 $ 36,822,718 $ -- $ -- $ -- Investment in Primary Reserve Institutional Fund -- -- 139,455,512(1) -- -- Short-term investments at amortized cost 10,291,000 211,000 -- 528,103,811 63,245,319 Cash 2,611,239 3,082,428 157 30,023 58,633 Receivables: Investment securities sold 4,916,125 2,025,000 -- -- -- Fund shares sold 454,904 169,362 1,071,454 520,614 126,462 Dividends and interest 9,971,969 789,325 19,638 5,570,268 -- Other -- 217 16,389 919 -- Prepaid expenses 14,562 18,242 9,436 129,683 18,141 Reimbursement due from manager 32,949 9,582 -- 249,241 11,206 ------------- ------------- ------------- ------------- ------------- Total assets 297,110,516 43,127,874 140,572,586 534,604,559 63,459,761 ------------- ------------- ------------- ------------- ------------- LIABILITIES: Payable for investment securities purchased 1,470,673 3,057,349 -- -- -- Payable for fund shares redeemed 2,583,602 140,598 7,608,612 2,161,062 43,405 Payable to affiliates 241,996 30,317 15,291 218,901 26,788 Other accrued expenses and liabilities 1,395,035 101,063 137,894 460,599 212,412 ------------- ------------- ------------- ------------- ------------- Total liabilities 5,691,306 3,329,327 7,761,797 2,840,562 282,605 ------------- ------------- ------------- ------------- ------------- NET ASSETS $ 291,419,210 $ 39,798,547 $ 132,810,789 $ 531,763,997 $ 63,177,156 ============= ============= ============= ============= ============= NET ASSETS WERE COMPRISED OF: Paid-in capital $ 851,745,982 $ 42,536,894 $ 132,736,296 $ 531,756,979 $ 63,176,885 Undistributed (distributions in excess of) net investment income (1,416,713) 937 74,493 7,018 -- Accumulated net realized gain (loss) on investments (360,318,100) (1,772,793) -- -- 271 Net unrealized depreciation of investments (198,591,959) (966,491) -- -- -- ------------- ------------- ------------- ------------- ------------- NET ASSETS $ 291,419,210 $ 39,798,547 $ 132,810,789 $ 531,763,997 $ 63,177,156 ============= ============= ============= ============= ============= * Cost of securities $ 467,315,030 $ 37,789,209 -- -- --
- ---------- (1) Represents an investment of 139,455,512 shares. See Accompanying Notes to Financial Statements 30 - ------ Income Funds - ------ STATEMENTS OF ASSETS AND LIABILITIES as of March 31, 2001 - --------------------------------------------------------------------------------
Pilgrim Pilgrim Pilgrim ING Pilgrim Lexington High Yield II High Yield Money Market Money Market Money Market Fund Bond Fund Fund Fund Trust ------------ ------------ ------------ ------------ ------------ Class A: Net Assets $ 55,229,639 $ 33,458,967 $ 73,289,762 $515,650,565 $ 63,177,156 Shares authorized unlimited unlimited unlimited unlimited unlimited Par Value $ 0.00 $ 0.001 $ 0.00 $ 0.001 $ 0.01 Shares outstanding 6,355,696 3,573,856 73,296,192 515,660,297 63,176,885 Net asset value and redemption price per share $ 8.69 $ 9.36 $ 1.00 $ 1.00 $ 1.00 Maximum offering price per share (4.75%)(1) $ 9.12(1) $ 9.83(1) $ 1.00 $ 1.00 $ 1.00 Class B: Net Assets $181,175,049 $ 5,025,182 $ 32,116,695 $ 2,713,828 n/a Shares authorized unlimited unlimited unlimited unlimited n/a Par Value $ 0.00 $ 0.001 $ 0.00 $ 0.001 n/a Shares outstanding 20,789,782 536,867 32,121,103 2,714,457 n/a Net asset value and redemption price per share(2) $ 8.71 $ 9.36 $ 1.00 $ 1.00 n/a Maximum offering price per share $ 8.71 $ 9.36 $ 1.00 $ 1.00 n/a Class C: Net Assets $ 33,462,696 $ 1,314,398 $ 27,404,332 $ 2,583,134 n/a Shares authorized unlimited unlimited unlimited unlimited n/a Par Value $ 0.00 $ 0.001 $ 0.00 $ 0.001 n/a Shares outstanding 3,841,255 140,357 27,408,096 2,583,300 n/a Net asset value and redemption price per share(2) $ 8.71 $ 9.36 $ 1.00 $ 1.00 n/a Maximum offering price per share $ 8.71 $ 9.36 $ 1.00 $ 1.00 n/a Class I: Net Assets n/a n/a n/a $ 10,816,470 n/a Shares authorized n/a n/a n/a unlimited n/a Par Value n/a n/a n/a $ 0.001 n/a Shares outstanding n/a n/a n/a 10,818,811 n/a Net asset value and redemption price per share n/a n/a n/a $ 1.00 n/a Maximum offering price per share n/a n/a n/a $ 1.00 n/a Class Q: Net Assets $ 3,041,372 n/a n/a n/a n/a Shares authorized unlimited n/a n/a n/a n/a Par Value $ 0.00 n/a n/a n/a n/a Shares outstanding 349,105 n/a n/a n/a n/a Net asset value and redemption price per share $ 8.71 n/a n/a n/a n/a Maximum offering price per share $ 8.71 n/a n/a n/a n/a Class T: Net Assets $ 18,510,454 n/a n/a n/a n/a Shares authorized unlimited n/a n/a n/a n/a Par Value $ 0.00 n/a n/a n/a n/a Shares outstanding 2,127,555 n/a n/a n/a n/a Net asset value and redemption price per share(2) $ 8.70 n/a n/a n/a n/a Maximum offering price per share $ 8.70 n/a n/a n/a n/a
- ---------- (1) Maximum offering price is computed at 100/95.25 of net asset value. On purchases of $50,000 or more, the offering price is reduced. (2) Redemption price per share may be reduced for any applicable contingent deferred sales charge. See Accompanying Notes to Financial Statements 31 - ------ Income Funds - ------ STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
Pilgrim GNMA Income Fund Pilgrim National Tax-Exempt Bond Fund ------------------------------- ------------------------------------- Three Five Months Ended Year Ended Months Ended Period Ended March 31, December 31, March 31, October 31, 2001 2000 2001 2000(1) ------------ ------------ ------------ ------------ INVESTMENT INCOME: Interest $ 7,393,546 $ 27,343,268 $ 537,870 $ 1,194,627 ------------ ------------ ------------ ------------ Total investment income 7,393,546 27,343,268 537,870 1,194,627 ------------ ------------ ------------ ------------ EXPENSES: Investment management fees 565,984 1,949,162 48,847 101,496 Distribution and service fees: Class A 248,850 377,532 32,912 104,444 Class B 44,553 819 1,960 -- Class C 11,343 2,634 1,838 -- Class M 195 -- -- -- Class Q 109 -- -- -- Class T 11,318 -- -- -- Transfer agent fees 142,267 631,637 16,608 55,554 Shareholder reporting fees 27,533 229,673 4,912 8,415 Registration and filing fees 27,111 82,813 4,822 30,803 Recordkeeping and pricing fees 5,489 -- 8,429 -- Professional fees 20,500 32,946 9,043 14,999 Custody fees 13,590 77,000 5,999 58,861 Shareholder servicing fees -- 1,151 -- 50,893 Directors' fees 7,800 104,275 1,539 4,190 Insurance fees 991 -- 369 -- Miscellaneous fees 11,800 181,173 1,481 1,681 Administrative fees 106,940 151,465 9,769 -- Merger fees 47,913 -- -- -- ------------ ------------ ------------ ------------ Total expenses 1,294,286 3,822,280 148,528 431,336 ------------ ------------ ------------ ------------ Less: Waived and reimbursed fees -- -- 42,130 234,950 ------------ ------------ ------------ ------------ Net expenses 1,294,286 3,822,280 106,398 196,386 ------------ ------------ ------------ ------------ Net investment income 6,099,260 23,520,988 431,472 998,241 ------------ ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 2,155,030 (3,100,065) 44,668 (102,700) Net change in unrealized appreciation of investments 10,658,686 14,939,928 860,228 365,449 ------------ ------------ ------------ ------------ Net realized and unrealized gain on investments 12,813,716 11,839,863 904,896 262,749 ------------ ------------ ------------ ------------ Increase in net assets resulting from operations $ 18,912,976 $ 35,360,851 $ 1,336,368 $ 1,260,990 ============ ============ ============ ============
- ---------- (1) The Fund commenced operations on November 8, 1999. See Accompanying Notes to Financial Statements 32 - ------ Income Funds - ------ STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
Pilgrim Intermediate Bond Fund Pilgrim Strategic Income Fund ------------------------------ ----------------------------- Five Nine Months Ended Year Ended Months Ended Year Ended March 31, October 31, March 31, June 30, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- INVESTMENT INCOME: Dividends $ 57,288 $ -- $ 45,732 $ 65,811 Interest (net of foreign withholding tax)* 1,288,624 2,732,297 1,007,496 1,073,053 ----------- ----------- ----------- ----------- Total investment income 1,345,912 2,732,297 1,053,228 1,138,864 ----------- ----------- ----------- ----------- EXPENSES: Investment management fees 83,074 182,829 60,425 59,874 Distribution and service fees: Class A 46,349 196,111 20,448 10,355 Class B 9,877 -- 30,821 37,680 Class C 23,977 -- 24,750 38,579 Class Q -- -- 439 444 Transfer agent fees 28,245 119,870 65,689 110,300 Shareholder reporting fees 8,811 22,299 9,316 6,894 Registration and filing fees 30,395 49,549 43,807 76,124 Recordkeeping and pricing fees 3,910 -- 7,641 10,474 Professional fees 8,718 25,976 3,562 4,341 Custody fees 10,733 71,544 4,528 6,768 Shareholder servicing fees -- 91,401 -- 4,683 Directors' fees 1,854 4,930 849 961 Insurance fees 882 -- 428 247 Miscellaneous fees 2,602 8,945 94 7,570 Interest and credit facility fees -- -- 4,932 1,218 Administrative fees 16,615 -- -- -- Merger fees -- -- 16,087 -- ----------- ----------- ----------- ----------- Total expenses 276,042 773,454 293,816 376,512 ----------- ----------- ----------- ----------- Less: Waived and reimbursed fees 63,068 370,293 119,001 208,068 Earnings credits -- -- -- 174 ----------- ----------- ----------- ----------- Net expenses 212,974 403,161 174,815 168,270 ----------- ----------- ----------- ----------- Net investment income 1,132,938 2,329,136 878,413 970,594 ----------- ----------- ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: Net realized gain (loss) on investments 1,830,366 (143,795) (457,477) (763,126) Net realized loss on foreign currencies -- -- (20,536) (1,151) Net change in unrealized appreciation (depreciation) of: Investments 890,496 538,098 (1,352,115) 133,421 Foreign currencies -- -- 281,963 -- ----------- ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments and foreign currencies 2,720,862 394,303 (1,548,165) (630,856) ----------- ----------- ----------- ----------- Increase (decrease) in net assets resulting from operations $ 3,853,800 $ 2,723,439 $ (669,752) $ 339,738 =========== =========== =========== =========== *Foreign withholding tax -- -- $ 23,382 --
See Accompanying Notes to Financial Statements 33 - ------ Income Funds - ------ STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
Pilgrim High Yield Fund Pilgrim High Yield Fund II ------------------------------ ------------------------------ Nine Nine Months Ended Year Ended Months Ended Year Ended March 31, June 30, March 31, June 30, 2001 2000 2001 2000 ------------- ------------- ------------- ------------- INVESTMENT INCOME: Dividends $ -- $ 4,556 $ 135,152 $ 110,519 Interest 21,165,666 41,985,263 15,816,091 12,270,565 ------------- ------------- ------------- ------------- Total investment income 21,165,666 41,989,819 15,951,243 12,381,084 ------------- ------------- ------------- ------------- EXPENSES: Investment management fees 1,082,525 2,204,503 755,481 634,448 Distribution and service fees: Class A 122,176 272,149 83,146 60,360 Class B 1,205,884 2,354,893 677,560 570,886 Class C 39,120 42,730 142,256 193,491 Class M 52,749 140,963 -- -- Class Q 19 -- 7,403 9,563 Class T -- -- 118,637 53,509 Transfer agent fees 275,121 512,832 195,423 168,720 Shareholder reporting fees 98,640 132,754 45,446 48,679 Registration and filing fees 64,105 141,878 105,148 65,175 Recordkeeping and pricing fees 62,198 82,633 36,696 23,058 Professional fees 44,114 58,764 26,066 27,764 Custody fees 52,608 65,868 9,176 20,371 Shareholder servicing fees -- 17,387 -- 5,385 Directors' fees 17,262 23,000 5,754 5,957 Insurance fees 4,934 17,921 1,370 1,844 Miscellaneous fees 7,120 95,047 7,174 9,369 Interest and credit facility fees -- 19,712 -- 6,241 Merger fees -- -- 30,331 77,210 ------------- ------------- ------------- ------------- Total expenses 3,128,575 6,183,034 2,247,067 1,982,030 ------------- ------------- ------------- ------------- Less: Waived and reimbursed fees 170,488 423,592 280,311 218,609 ------------- ------------- ------------- ------------- Net expenses 2,958,087 5,759,442 1,966,756 1,763,421 ------------- ------------- ------------- ------------- Net investment income 18,207,579 36,230,377 13,984,487 10,617,663 ------------- ------------- ------------- ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES: Net realized loss on investments (84,180,612) (25,618,407) (30,313,380) (5,014,882) Net realized loss on foreign currencies (1,040) -- -- -- Net change in unrealized appreciation (depreciation) of: Investments 24,598,891 (31,769,051) (171,629,272) (2,564,989) Foreign currencies -- -- (94,697) -- ------------- ------------- ------------- ------------- Net realized and unrealized loss on investments and foreign currencies (59,582,761) (57,387,458) (202,037,349) (7,579,871) ------------- ------------- ------------- ------------- Increase (decrease) in net assets resulting from operations $ (41,375,182) $ (21,157,081) $(188,052,862) $ 3,037,792 ============= ============= ============= =============
See Accompanying Notes to Financial Statements 34 - ------ Income Funds - ------ STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
Pilgrim High Yield Bond Fund Pilgrim Money Market Fund ---------------------------- --------------------------- Five Nine Months Ended Year Ended Months Ended Period Ended March 31, October 31, March 31, June 30, 2001 2000 2001 2000(1) ----------- ----------- ----------- ----------- INVESTMENT INCOME: Dividends $ 244,064 $ -- 4,049,637 2,010,152 Interest (net of foreign withholding tax)* 1,449,416 3,908,649 -- -- Other income 165,582 -- -- -- ----------- ----------- ----------- ----------- Total investment income 1,859,062 3,908,649 4,049,637 2,010,152 ----------- ----------- ----------- ----------- EXPENSES: Investment management fees 106,709 259,537 -- -- Distribution and service fees: Class A 48,304 213,443 108,045 57,425 Class B 19,875 -- 131,260 78,467 Class C 6,387 -- 101,403 28,963 Transfer agent fees 27,909 128,385 85,766 39,317 Shareholder reporting fees 8,701 23,455 17,536 19,525 Registration and filing fees 28,217 49,295 23,149 32,932 Recordkeeping and pricing fees 3,041 -- 16,440 10,937 Professional fees 9,193 27,374 7,398 13,063 Custody fees 3,986 59,711 5,480 7,898 Shareholder servicing fees -- 99,815 -- 1,739 Directors' fees 1,888 4,949 822 890 Insurance fees 860 -- 847 710 Miscellaneous fees 2,917 8,935 547 551 Interest and credit facility fees -- -- -- 59 Commitment fees -- -- 1,390 -- Organization fees -- -- 2,466 115,945 Administrative fees 16,417 -- 166,203 80,974 ----------- ----------- ----------- ----------- Total expenses 284,404 874,899 668,752 489,395 ----------- ----------- ----------- ----------- Less: Waived and reimbursed fees/(recoupment) 85,681 417,377 (101,689) 101,689 Earnings credits -- -- -- 844 ----------- ----------- ----------- ----------- Net expenses 198,723 457,522 770,441 386,862 ----------- ----------- ----------- ----------- Net investment income 1,660,339 3,451,127 3,279,196 1,623,290 ----------- ----------- ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments 145,407 (1,738,019) -- -- Net change in unrealized appreciation (depreciation) of investments 447,611 (1,140,527) -- -- ----------- ----------- ----------- ----------- Net realized and unrealized gain (loss) on investments 593,108 (2,878,546) -- -- ----------- ----------- ----------- ----------- Increase in net assets resulting from operations $ 2,253,357 $ 572,581 $ 3,279,196 $ 1,623,290 =========== =========== =========== =========== *Foreign withholding tax $ 404 -- -- --
- ---------- (1) The Fund commenced operations on July 12, 1999. See Accompanying Notes to Financial Statements 35 - ------ Income Funds - ------ STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
ING Pilgrim Money Market Fund Lexington Money Market Trust ---------------------------- ---------------------------- Five Three Months Ended Year Ended Months Ended Year Ended March 31, October 31, March 31, December 31, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- INVESTMENT INCOME: Interest $13,292,074 $23,674,422 $ 890,317 $ 5,126,280 ----------- ----------- ----------- ----------- Total investment income 13,292,074 23,674,422 890,317 5,126,280 ----------- ----------- ----------- ----------- EXPENSES: Investment management fees 514,331 932,291 77,318 403,175 Distribution and service fees: Class A 1,513,076 1,795,994 -- -- Class B 12,061 -- -- -- Class C 9,504 -- -- -- Transfer agent fees 337,216 1,008,253 27,835 116,340 Shareholder reporting fees 35,542 73,132 13,140 41,116 Registration and filing fees 133,338 245,760 8,974 24,348 Recordkeeping and pricing fees 30,885 -- 5,085 -- Professional fees 48,473 69,011 2,700 23,124 Custody fees 12,764 77,439 3,618 40,482 Shareholder servicing fees -- 892,631 -- 52,601 Directors' fees 13,215 9,270 1,350 101,465 Insurance fees 4,608 -- 244 -- Miscellaneous fees 22,068 28,021 1,350 65,912 ----------- ----------- ----------- ----------- Total expenses 2,687,081 5,131,802 141,614 868,563 ----------- ----------- ----------- ----------- Less: Waived and reimbursed fees 1,089,181 2,411,399 -- 91,935 ----------- ----------- ----------- ----------- Net expenses 1,597,900 2,720,403 141,614 776,628 ----------- ----------- ----------- ----------- Net investment income 11,694,174 20,954,019 748,703 4,349,652 ----------- ----------- ----------- ----------- REALIZED GAIN ON INVESTMENTS: Net realized gain on investments -- -- 271 -- ----------- ----------- ----------- ----------- Increase in net assets resulting from operations $11,694,174 $20,954,019 $ 748,974 $ 4,349,652 =========== =========== =========== ===========
See Accompanying Notes to Financial Statements 36 - ------ Income Funds - ------ STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Pilgrim National Pilgrim GNMA Income Fund Tax-Exempt Bond Fund ----------------------------------------------- ------------------------------ Three Year Year Five Period Months Ended Ended Ended Months Ended Ended March 31, December 31, December 31, March 31, October 31, 2001 2000 1999 2001 2000(1) ------------- ------------- ------------- ------------- ------------- Increase in net assets from operations: Net investment income $ 6,099,260 $ 23,520,988 $ 20,453,437 $ 431,472 $ 998,241 Net realized gain (loss) on investments 2,155,030 (3,100,065) (1,512,537) 44,668 (102,700) Net change in unrealized appreciation (depreciation) of investments 10,658,686 14,939,928 (17,574,398) 860,228 365,449 ------------- ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations 18,912,976 35,360,851 1,366,502 1,336,368 1,260,990 ------------- ------------- ------------- ------------- ------------- Distributions to shareholders: Net investment income Class A (5,337,765) (20,940,972) (20,595,801) (417,398) (986,356) Class B (15,248) -- -- (7,240) (6,239) Class C (21,052) -- -- (6,803) (5,646) ------------- ------------- ------------- ------------- ------------- Total distributions (5,374,065) (20,940,972) (20,595,801) (431,441) (998,241) ------------- ------------- ------------- ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 100,862,198 125,118,144 220,636,961 17,443,083 21,152,018 Net proceeds from shares issued in merger 121,277,768 -- -- -- -- Shares resulting from dividend reinvestments 4,928,490 19,059,996 18,731,683 419,386 991,319 ------------- ------------- ------------- ------------- ------------- 227,068,456 144,178,140 239,368,644 17,862,469 22,143,337 Cost of shares redeemed (82,941,057) (163,864,918) (117,150,009) (18,006,608) (69,216) ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions 144,127,399 (19,686,778) 122,218,635 (144,139) 22,074,121 ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets 157,666,310 (5,266,899) 102,989,336 760,788 22,336,870 ------------- ------------- ------------- ------------- ------------- Net assets, beginning of period 371,313,555 376,580,454 273,591,118 22,341,870 5,000 ------------- ------------- ------------- ------------- ------------- Net assets, end of period $ 528,979,865 $ 371,313,555 $ 376,580,454 $ 23,102,658 $ 22,341,870 ============= ============= ============= ============= ============= Undistributed net investment income $ 3,111,865 $ 2,580,016 $ 411 $ 260 $ 229 ============= ============= ============= ============= =============
- ---------- (1) The Fund commenced operations on November 8, 1999. See Accompanying Notes to Financial Statements 37 - ------ Income Funds - ------ STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Pilgrim Intermediate Bond Fund Pilgrim Strategic Income Fund ------------------------------------------ ------------------------------------------ Five Year Period Nine Year Three Months Months Ended Ended Ended Months Ended Ended Ended March 31, October 31, October 31, March 31, June 30, June 30, 2001 2000 1999(1) 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ Increase (decrease) in net assets from operations: Net investment income $ 1,132,938 $ 2,329,136 $ 1,499,954 $ 878,413 $ 970,594 $ 388,563 Net realized gain (loss) on investments and foreign currencies 1,830,366 (143,795) (1,238,970) (478,013) (764,277) (459,604) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 890,496 538,098 (720,632) (1,070,152) 133,421 (72,404) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations 3,853,800 2,723,439 (459,648) (669,752) 339,738 (143,445) ------------ ------------ ------------ ------------ ------------ ------------ Distributions to shareholders: Net investment income Class A (919,767) (2,041,049) (1,382,288) (146,883) -- -- Class B (61,258) (101,798) (54,075) (247,615) -- -- Class C (152,036) (163,643) (23,989) (202,833) -- -- Class Q -- -- -- (14,262) -- -- Class X -- (42,824) (39,602) -- -- -- Retail Classes -- -- -- -- (951,573) (187,766) Advisory and Institutional Classes -- -- -- -- (14,213) (121,982) ------------ ------------ ------------ ------------ ------------ ------------ Total distributions (1,133,061) (2,349,314) (1,499,954) (611,593) (965,786) (309,748) ------------ ------------ ------------ ------------ ------------ ------------ Capital Share Transactions: Net proceeds from sale of shares 31,247,228 13,626,853 48,819,278 18,837,830 17,563,244 24,148,535 Net proceeds from shares issued in merger -- -- -- 38,298,220 -- -- Shares resulting from dividend reinvestments 1,079,112 2,286,176 1,482,253 154,206 496,450 108,053 ------------ ------------ ------------ ------------ ------------ ------------ 32,326,340 15,913,029 50,301,531 57,290,256 18,059,694 24,256,588 Cost of shares redeemed (31,389,778) (15,129,247) (12,289,491) (13,958,363) (22,583,786) (43,838,394)(2) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions 936,562 783,782 38,012,040 43,331,893 (4,524,092) (19,581,806) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in net assets 3,657,301 1,157,907 36,052,438 42,050,548 (5,150,140) (20,034,999) ------------ ------------ ------------ ------------ ------------ ------------ Net assets, beginning of period 37,217,488 36,059,581 7,143 11,380,184 16,530,324 36,565,323 ------------ ------------ ------------ ------------ ------------ ------------ Net assets, end of period $ 40,874,789 $ 37,217,488 $ 36,059,581 $ 53,430,732 $ 11,380,184 $ 16,530,324 ============ ============ ============ ============ ============ ============ Undistributed (distributions in excess of) net investment income $ (123) $ -- $ 20,178 $ 662,982 $ 491,239 $ 138,021 ============ ============ ============ ============ ============ ============
- ---------- (1) Fund commenced operations on December 15, 1998. (2) Includes the redemption of 1,436,000 shares of Class I with a cost of $17,917,765. See Accompanying Notes to Financial Statements 38 - ------ Income Funds - ------ STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Pilgrim High Yield Fund Pilgrim High Yield Fund II --------------------------------------------- -------------------------------------------- Nine Year Year Nine Year Three Months Months Ended Ended Ended Months Ended Ended Ended March 31, June 30, June 30, March 31, June 30, June 30, 2001 2000 1999 2001 2000 1999 ------------- ------------- ------------- ------------- ------------- ------------ Increase (decrease) in net assets from operations: Net investment income $ 18,207,579 $ 36,230,377 $ 32,082,228 $ 13,984,487 $ 10,617,663 $ 2,117,917 Net realized loss on investments and foreign currencies (84,181,652) (25,618,407) (39,880,708) (30,313,380) (5,014,882) (1,651,059) Net change in unrealized appreciation (depreciation) of investments and foreign currencies 24,598,891 (31,769,051) (9,008,796) (171,723,969) (2,564,989) 1,222,666 ------------- ------------- ------------- ------------- ------------- ------------ Net increase (decrease) in net assets resulting from operations (41,375,182) (21,157,081) (16,807,276) (188,052,862) 3,037,792 1,689,524 ------------- ------------- ------------- ------------- ------------- ------------ Distributions to shareholders: Net investment income Class A (5,135,551) -- -- (2,817,607) -- -- Class B (11,970,081) -- -- (7,662,538) -- -- Class C (384,454) -- -- (1,602,144) -- -- Class M (715,679) -- -- -- -- -- Class Q (774) -- -- (339,297) -- -- Class T -- -- -- (2,078,844) -- -- Retail Classes -- (36,230,374) (33,382,295) -- (10,642,507) (1,816,752) Advisory and Institutional Classes -- (3) -- -- (408,689) (243,368) Tax return of capital (4,442,387) (2,218,003) (604,370) -- -- -- ------------- ------------- ------------- ------------- ------------- ------------ Total distributions (22,648,926) (38,448,380) (33,986,665) (14,500,430) (11,051,196) (2,060,120) ------------- ------------- ------------- ------------- ------------- ------------ Capital Share Transactions: Net proceeds from sale of shares 98,580,483 169,075,396 338,787,788 225,162,311 52,761,331 5,060,774 Net proceeds from shares issued in merger -- -- -- 157,469,063 142,232,354 -- Shares resulting from dividend reinvestments 7,751,412 14,545,896 15,394,375 5,223,248 4,467,190 636,667 ------------- ------------- ------------- ------------- ------------- ------------ 106,331,895 183,621,292 354,182,163 387,854,622 199,460,875 5,697,441 Cost of shares redeemed (137,899,986) (237,672,115) (162,095,950) (93,091,171) (72,762,619) (24,199,756)(1) Equalization (85,563) -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------ Net increase (decrease) in net assets resulting from capital share transactions (31,653,654) (54,050,823) 192,086,213 294,763,451 126,698,256 (18,502,315) ------------- ------------- ------------- ------------- ------------- ------------ Net increase (decrease) in net assets (95,677,762) (113,656,284) 141,292,272 92,210,159 118,684,852 (18,872,911) ------------- ------------- ------------- ------------- ------------- ------------ Net assets, beginning of period 304,147,676 417,803,960 276,511,688 199,209,051 80,524,199 99,397,110 ------------- ------------- ------------- ------------- ------------- ------------ Net assets, end of period $ 208,469,914 $ 304,147,676 $ 417,803,960 $ 291,419,210 $ 199,209,051 $ 80,524,199 ============= ============= ============= ============= ============= ============ Distributions in excess of net investment income $ -- $ -- $ -- $ (1,416,713) $ -- $ (193,920) ============= ============= ============= ============= ============= ============
- ---------- (1) Includes the redemption of 907,000 shares of Class I with a cost of $11,636,641. See Accompanying Notes to Financial Statements 39 - ------ Income Funds - ------ STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Pilgrim High Yield Bond Fund Pilgrim Money Market Fund --------------------------------------------- --------------------------------- Five Year Period Nine Period(1) Months Ended Ended Ended Months Ended Ended March 31, October 31, October 31, March 31, June 30, 2001 2000 1999(2) 2001 2000 ------------ ------------ --------------- --------------- --------------- Increase (decrease) in net assets from operations: Net investment income $ 1,660,339 $ 3,451,127 $ 1,990,994 $ 3,279,196 $ 1,623,290 Net realized gain (loss) on investments 145,407 (1,738,019) 42,709 -- -- Net change in unrealized appreciation (depreciation) of investments 447,611 (1,140,527) (273,575) -- -- ------------ ------------ --------------- --------------- --------------- Net increase in net assets resulting from operations 2,253,357 572,581 1,760,128 3,279,196 1,623,290 ------------ ------------ --------------- --------------- --------------- Distributions to shareholders: Net investment income Class A (1,411,395) (3,026,673) (1,875,514) (2,280,631) -- Class B (188,866) (259,285) (65,719) (570,299) -- Class C (59,588) (104,775) (19,232) (446,529) -- Class X -- (80,495) (30,529) -- -- Retail Classes -- -- -- -- (1,623,290) Net realized gain from investments -- (213,849) -- -- -- ------------ ------------ --------------- --------------- --------------- Total distributions (1,659,849) (3,685,077) (1,990,994) (3,297,459) (1,623,290) ------------ ------------ --------------- --------------- --------------- Capital Share Transactions: Net proceeds from sale of shares 7,041,464 12,069,228 33,693,351 1,442,237,027 1,294,364,112 Shares resulting from dividend reinvestments 1,472,143 3,335,598 1,949,178 2,044,632 661,338 ------------ ------------ --------------- --------------- --------------- 8,513,607 15,404,826 35,642,529 1,444,281,659 1,295,025,450 Cost of shares redeemed (8,856,718) (7,296,899) (866,087) (1,404,348,937) (1,202,129,120) ------------ ------------ --------------- --------------- --------------- Net increase (decrease) in net assets resulting from capital share transactions (343,111) 8,107,927 34,776,442 39,932,722 92,896,330 ------------ ------------ --------------- --------------- --------------- Net increase in net assets 250,397 4,995,431 34,545,576 39,914,459 92,896,330 ------------ ------------ --------------- --------------- --------------- Net assets, beginning of period 39,548,150 34,552,719 7,143 92,896,330 -- ------------ ------------ --------------- --------------- --------------- Net assets, end of period $ 39,798,547 $ 39,548,150 $ 34,552,719 $ 132,810,789 $ 92,896,330 ============ ============ =============== =============== =============== Undistributed net investment income $ 937 $ 447 $ 20,101 $ 74,493 $ -- ============ ============ =============== =============== ===============
- ---------- (1) The Fund commenced operations on July 12, 1999. (2) The Fund commenced operations on December 15, 1998. See Accompanying Notes to Financial Statements 40 - ------ Income Funds - ------ STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
ING Pilgrim Money Market Fund Lexington Money Market Trust --------------------------------------------- -------------------------------------------- Five Year Period Three Year Year Months Ended Ended Ended Months Ended Ended Ended March 31, October 31, October 31, March 31, December 31, December 31, 2001 2000 1999(1) 2001 2000 1999 ------------- ------------- ------------- ------------ ------------- ------------- Increase in net assets from operations: Net investment income $ 11,694,174 $ 20,954,019 $ 3,093,838 $ 748,703 $ 4,349,652 $ 3,601,867 Net realized gain on investments -- -- -- 271 -- -- ------------- ------------- ------------- ------------ ------------- ------------- Net increase in net assets resulting from operations 11,694,174 20,954,019 3,093,838 748,974 4,349,652 3,601,867 ------------- ------------- ------------- ------------ ------------- ------------- Distributions to shareholders: Net investment income Class A (11,319,230) (19,815,480) (3,055,168) (757,321) (4,341,034) (3,601,867) Class B (61,692) (135,706) (7,890) -- -- -- Class C (47,516) (53,814) (5,583) -- -- -- Class I (258,718) (946,158) (5,232) -- -- -- Class X -- (22,875) (19,965) -- -- -- ------------- ------------- ------------- ------------ ------------- ------------- Total distributions (11,687,156) (20,974,033) (3,093,838) (757,321) (4,341,034) (3,601,867) ------------- ------------- ------------- ------------ ------------- ------------- Capital Share Transactions: Net proceeds from sale of shares 434,532,850 937,201,052 332,232,395 16,156,660 85,250,442 100,237,881 Shares resulting from dividend reinvestments 11,459,544 20,538,703 3,048,253 724,771 4,121,169 3,418,339 ------------- ------------- ------------- ------------ ------------- ------------- 445,992,394 957,739,755 335,280,648 16,881,431 89,371,611 103,656,220 Cost of shares redeemed (372,069,868) (733,044,049) (102,129,030) (16,555,408) (124,370,412) (93,294,926) ------------- ------------- ------------- ------------ ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions 73,922,526 224,695,706 233,151,618 326,023 (34,998,801) 10,361,294 ------------- ------------- ------------- ------------ ------------- ------------- Net increase (decrease) in net assets 73,929,544 224,675,692 233,151,618 317,676 (34,990,183) 10,361,294 ------------- ------------- ------------- ------------ ------------- ------------- Net assets, beginning of period 457,834,453 233,158,761 7,143 62,859,480 97,849,663 87,488,369 ------------- ------------- ------------- ------------ ------------- ------------- Net assets, end of period $ 531,763,997 $ 457,834,453 $ 233,158,761 $ 63,177,156 $ 62,859,480 $ 97,849,663 ============= ============= ============= ============ ============= ============= Undistributed net investment income $ 7,018 $ -- $ 20,014 $ -- $ 8,618 $ -- ============= ============= ============= ============ ============= =============
- ---------- (1) The Fund commenced operations on December 15, 1998. See Accompanying Notes to Financial Statements 41 Financial Highlights PILGRIM GNMA INCOME FUND - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A ------------------------------------------------------------------------ Three Months Ended Year Ended December 31, March 31, ------------------------------------------------------ 2001(5) 2000(4) 1999 1998 1997 1996 ------- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 8.41 8.08 8.53 8.40 8.12 8.19 Income from investment operations: Net investment income $ 0.12 0.54 0.50 0.48 0.51 0.53 Net realized and unrealized gain (loss) on investments $ 0.22 0.27 (0.45) 0.13 0.29 (0.08) Total from investment operations $ 0.34 0.81 0.05 0.61 0.80 0.45 Less distributions from: Net investment income $ 0.12 0.48 0.50 0.48 0.52 0.52 Total distributions $ 0.12 0.48 0.50 0.48 0.52 0.52 Net asset value, end of period $ 8.63 8.41 8.08 8.53 8.40 8.12 Total Return(1) % 4.09 10.36 0.58 7.52 10.20 5.71 Ratios/Supplemental Data: Net assets, end of period (000's) $ 449,460 368,615 376,580 273,591 158,071 133,777 Ratios to average net assets: Expenses(2) % 1.16 1.06 0.99 1.01 1.01 1.05 Net investment income(2) % 5.75 6.54 6.04 5.85 6.28 6.56 Portfolio turnover rate % 33 65 25 54 134 129 Class B Class C Class M Class T -------------------------- -------------------------- ---------- ---------- Three Months October 6, Three Months October 13, Feb. 26, Feb. 26, Ended 2000(3) to Ended 2000(3) to 2001(3) to 2001(3) to March 31, December 31, March 31, December 31, March 31, March 31, 2001(5) 2000 2001(5) 2000 2001 2001 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 8.40 8.20 8.40 8.24 8.51 8.51 Income from investment operations: Net investment income $ 0.13 0.09 0.11 0.09 0.04 0.04 Net realized and unrealized gain on investments $ 0.19 0.18 0.21 0.14 0.08 0.08 Total from investment operations $ 0.32 0.27 0.32 0.23 0.12 0.12 Less distributions from: Net investment income $ 0.11 0.07 0.11 0.07 -- -- Total distributions $ 0.11 0.07 0.11 0.07 -- -- Net asset value, end of period $ 8.61 8.40 8.61 8.40 8.63 8.63 Total Return(1) % 3.70 3.32 3.69 2.82 1.41 1.41 Ratios/Supplemental Data: Net assets, end of period (000's) $ 47,406 866 13,744 1,833 247 17,647 Ratios to average net assets: Expenses(2) % 1.90 1.81 1.93 1.81 1.61 1.54 Net investment income(2) % 4.88 5.79 4.87 5.79 4.88 5.02 Portfolio turnover rate % 33 65 33 65 33 33
- ---------- (1) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (2) Annualized for periods less than one year. (3) Commencement of offering of shares. (4) Effective July 26, 2000, ING Pilgrim Investments, LLC became the Investment Manager of the Fund. (5) The Fund changed it's fiscal year end to March 31. See Accompanying Notes to Financial Statements 42 Financial PILGRIM NATIONAL TAX-EXEMPT BOND FUND Highlights - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A Class B Class C ------------------------ ------------------------ ------------------------ Five Months Period Five Months Period Five Months Period Ended Ended Ended Ended Ended Ended March 31, October 31, March 31, October 31, March 31, October 31, 2001(4) 2000(1) 2001(4) 2000(1) 2001(4) 2000(1) ------- ------- ------- ------- ------- ------- Per Share Operating Performance: Net asset value, beginning of period $ 10.11 10.00 10.09 10.00 10.11 10.00 Income from investment operations: Net investment income $ 0.19 0.48 0.17 0.38 0.16 0.39 Net realized and unrealized gains on investments $ 0.39 0.11 0.39 0.11 0.38 0.12 Total from investment operations $ 0.58 0.59 0.56 0.49 0.54 0.51 Less distributions from: Net investment income $ 0.19 0.48 0.17 0.40 0.16 0.40 Total distributions $ 0.19 0.48 0.17 0.40 0.16 0.40 Net asset value, end of period $ 10.50 10.11 10.48 10.09 10.49 10.11 Total Return(2): % 5.79 6.09 5.54 5.02 5.34 5.29 Ratios/Supplemental Data: Net assets, end of period (000's) $ 22,074 21,592 588 311 440 439 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.06 0.95 1.83 1.67 1.81 1.68 Gross expenses prior to expense reimbursement(3) % 1.50 2.12 2.17 2.32 2.16 2.33 Net investment income after expense reimbursement(3)(5) % 4.45 4.92 3.69 3.93 3.70 4.00 Portfolio turnover rate % 7 50 7 50 7 50
- ---------- (1) Fund commenced operations on November 8, 1999. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Fund changed it's fiscal year end to March 31. (5) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. See Accompanying Notes to Financial Statements 43 Financial Highlights PILGRIM INTERMEDIATE BOND FUND - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A Class B --------------------------------------- --------------------------------------- Five Months Year Period Five Months Year Period Ended Ended Ended Ended Ended Ended March 31, October 31, October 31, March 31, October 31, October 31, 2001(4) 2000 1999(1) 2001(4) 2000 1999(1) ------- ---- ------- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 9.52 9.40 10.00 9.52 9.40 10.00 Income from investment operations: Net investment income $ 0.28 0.61 0.45 0.26 0.53 0.40 Net realized and unrealized gain (loss) on investments $ 0.66 0.12 (0.60) 0.66 0.13 (0.61) Total from investment operations $ 0.94 0.73 (0.15) 0.92 0.66 (0.21) Less distributions from: Net investment income $ 0.28 0.61 0.45 0.26 0.54 0.39 Total distributions $ 0.28 0.61 0.45 0.26 0.54 0.39 Net asset value, end of period $ 10.18 9.52 9.40 10.18 9.52 9.40 Total Return(2): % 10.01 8.11 (1.46) 9.74 7.30 (2.13) Ratios/Supplemental Data: Net assets, end of period (000's) $ 33,597 29,893 32,013 2,807 1,523 1,958 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.13 1.00 0.96 1.88 1.74 1.70 Gross expenses prior to expense reimbursement(3) % 1.53 2.08 2.12 2.18 2.33 2.39 Net investment income after expense reimbursement(3)(5) % 6.94 6.48 5.38 6.20 5.71 4.83 Portfolio turnover rate % 838 733 432 838 733 432 Class C --------------------------------------- Five Months Year Period Ended Ended Ended March 31, October 31, October 31, 2001(4) 2000 1999(1) ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period 9.52 9.40 10.00 Income from investment operations: Net investment income 0.26 0.54 0.42 Net realized and unrealized gain (loss) on investments 0.67 0.12 (0.63) Total from investment operations 0.93 0.66 (0.21) Less distributions from: Net investment income 0.26 0.54 0.39 Total distributions 0.26 0.54 0.39 Net asset value, end of period 10.19 9.52 9.40 Total Return(2): 9.86 7.32 (2.10) Ratios/Supplemental Data: Net assets, end of period (000's) 4,470 5,248 1,082 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) 1.85 1.73 1.71 Gross expenses prior to expense reimbursement(3) 2.18 2.32 2.44 Net investment income after expense reimbursement(3)(5) 6.37 5.74 4.94 Portfolio turnover rate 838 733 432
- ---------- (1) Fund commenced operations on December 15, 1998. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Fund changed it's fiscal year end to March 31. (5) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. See Accompanying Notes to Financial Statements 44 Financial PILGRIM STRATEGIC INCOME FUND Highlights - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A -------------------------------------------- Nine Three Months Year Months July 27, Ended Ended Ended 1998(1) to March 31, June 30, June 30, March 31, 2001(6) 2000 1999(2) 1999 ------- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 12.07 12.59 12.89 13.08 Income from investment operations: Net investment income $ 0.23 0.92 0.26 0.53 Net realized and unrealized gain (loss) on investments $ 0.08 (0.52) (0.42) (0.08) Total from investment operations $ 0.31 0.40 (0.16) 0.45 Less distributions from: Net investment income $ 0.59 0.92 0.14 0.53 Net realized gains on investments $ -- -- -- 0.11 Total distributions 0.59 0.92 0.14 0.64 Net asset value, end of period $ 11.79 12.07 12.59 12.89 Total Return(3): % 2.69 3.42 (1.23) 5.60 Ratios/Supplemental Data: Net assets, end of period (000's) $ 39,105 2,726 2,736 5,751 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.03 0.96 0.90 0.96 Gross expenses prior to expense reimbursement(4) % 1.73 2.64 1.56 1.98 Net investment income after expense reimbursement(4)(5) % 6.30 7.69 5.88 5.81 Portfolio turnover rate % 132 168 69 274 Class B -------------------------------------------- Nine Three Months Year Months July 27, Ended Ended Ended 1998(1) to March 31, June 30, June 30, March 31, 2001(6) 2000 1999(2) 1999 ------- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 11.80 12.33 12.61 12.78 Income from investment operations: Net investment income $ 0.36 0.88 0.18 0.45 Net realized and unrealized gain (loss) on investments $ (0.08) (0.53) (0.33) (0.05) Total from investment operations $ 0.28 0.35 (0.15) 0.40 Less distributions from: Net investment income $ 0.55 0.88 0.13 0.46 Net realized gains on investments $ -- -- -- 0.11 Total distributions 0.55 0.88 0.13 0.57 Net asset value, end of period $ 11.53 11.80 12.33 12.61 Total Return(3): % 2.52 3.00 (1.20) 5.17 Ratios/Supplemental Data: Net assets, end of period (000's) $ 8,894 4,460 5,658 6,637 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.53 1.36 1.29 1.37 Gross expenses prior to expense reimbursement(4) % 2.55 3.04 1.95 2.42 Net investment income after expense reimbursement(4)(5) % 6.71 7.29 5.49 5.35 Portfolio turnover rate % 132 168 69 274 Class C -------------------------------------------- Nine Three Months Year Months July 27, Ended Ended Ended 1998(1) to March 31, Juned 30, June 30, March 31, 2001(6) 2000 1999(2) 1999 ------- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 12.30 12.81 13.10 13.27 Income from investment operations: Net investment income $ 0.43 0.87 0.19 0.48 Net realized and unrealized gain (loss) on investments $ (0.13) (0.51) (0.35) (0.06) Total from investment operations $ 0.30 0.36 (0.16) 0.42 Less distributions from: Net investment income $ 0.55 0.87 0.13 0.48 Net realized gains on investments $ -- -- -- 0.11 Total distributions 0.55 0.87 0.13 0.59 Net asset value, end of period $ 12.05 12.30 12.81 13.10 Total Return(3): % 2.55 3.02 (1.21) 5.19 Ratios/Supplemental Data: Net assets, end of period (000's) $ 5,196 3,966 7,965 8,128 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.51 1.36 1.29 1.36 Gross expenses prior to expense reimbursement(4) % 2.55 3.04 1.95 2.41 Net investment income after expense reimbursement(4)(5) % 6.71 7.29 5.49 5.36 Portfolio turnover rate % 132 168 69 274
- ---------- (1) Commencement of offering of shares. (2) Effective May 24, 1999, Pilgrim Investment, LLC, became the Investment Manager of the Fund and the Fund changed its fiscal year end to June 30. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized (4) Annualized for periods less than one year. (5) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. (6) The Fund changed its fiscal year end to March 31. See Accompanying Notes to Financial Statements 45 Financial Highlights PILGRIM HIGH YIELD FUND - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A -------------------------------------------------------------------------- Nine Months Ended Year Ended June 30, March 31, --------------------------------------------------------- 2001(5) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 5.04 5.93 6.94 6.80 6.36 6.15 Income from investment operations: Net investment income $ 0.34 0.56 0.58 0.61 0.61 0.59 Net realized and unrealized gain (loss) on investments $ (1.05) (0.85) (0.96) 0.16 0.43 0.16 Total from investment operations $ (0.71) (0.29) (0.38) 0.77 1.04 0.75 Less distributions from: Net investment income $ 0.35 0.57 0.62 0.63 0.60 0.54 Tax return of capital $ 0.08 0.03 0.01 -- -- -- Total distributions $ 0.43 0.60 0.63 0.63 0.60 0.54 Net asset value, end of period $ 3.90 5.04 5.93 6.94 6.80 6.36 Total Return(2): % (14.66) (5.20) (5.57) 11.71 17.14 12.72 Ratios/Supplemental Data: Net assets, end of period (000's) $ 55,704 85,870 131,535 102,424 35,940 18,691 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.10 1.05 1.00 1.00 1.00 1.00 Gross expenses prior to expense reimbursement(3) % 1.20 1.17 1.12 1.17 1.42 2.19 Net investment income after expense reimbursement(3)(4) % 10.65 10.41 9.32 9.05 9.54 9.46 Portfolio turnover rate % 100 89 184 209 394 399 Class B ----------------------------------------------------------------------------- Nine Months July 17, Ended Year Ended June 30, 1995(1) to March 31, --------------------------------------------- June 30, 2001(5) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 5.03 5.92 6.92 6.78 6.36 6.20 Income from investment operations: Net investment income $ 0.32 0.53 0.53 0.58 0.57 0.48 Net realized and unrealized gain (loss) on investments $ (1.06) (0.86) (0.96) 0.14 0.41 0.14 Total from investment operations $ (0.74) (0.33) (0.43) 0.72 0.98 0.62 Less distributions from: Net investment income $ 0.32 0.53 0.56 0.58 0.56 0.46 Tax return of capital $ 0.08 0.03 0.01 -- -- -- Total distributions $ 0.40 0.56 0.57 0.58 0.56 0.46 Net asset value, end of period $ 3.89 5.03 5.92 6.92 6.78 6.36 Total Return(2): % (15.18) (5.91) (6.23) 10.90 16.04 10.37 Ratios/Supplemental Data: Net assets, end of period (000's) $ 140,183 199,618 261,589 154,303 40,225 2,374 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.85 1.80 1.75 1.75 1.75 1.75 Gross expenses prior to expense reimbursement(3) % 1.95 1.92 1.87 1.92 2.17 2.94 Net investment income after expense reimbursement(3)(4) % 9.89 9.66 8.57 8.30 8.64 9.02 Portfolio turnover rate % 100 89 184 209 394 339 Class C ------------------------------------- Nine Months Year May 27, Ended Ended 1999(1) to March 31, June 30, June 30, 2001(5) 2000 1999 ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 5.02 5.92 5.91 Income from investment operations: Net investment income $ 0.33 0.57 0.05 Net realized and unrealized gain (loss) on investments $ (1.06) (0.90) 0.01 Total from investment operations $ (0.73) (0.33) 0.06 Less distributions from: Net investment income $ 0.32 0.57 0.05 Tax return of capital $ 0.08 -- -- Total distributions 0.40 0.57 0.05 Net asset value, end of period $ 3.89 5.02 5.92 Total Return(2): % (15.00) (5.99) 0.34 Ratios/Supplemental Data: Net assets, end of period (000's) $ 5,505 5,930 551 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.85 1.80 1.75 Gross expenses prior to expense reimbursement(3) % 1.95 1.92 1.87 Net investment income after expense reimbursement(3)(4) % 9.88 9.66 8.57 Portfolio turnover rate % 100 89 184 Class M ----------------------------------------------------------------------------- Nine Months Year July 17, Ended Ended Year Ended June 30, 1995(1) to March 31, June 30, -------------------------------- June 30, 2001(5) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 5.03 5.93 6.92 6.78 6.36 6.20 Income from investment operations: Net investment income $ 0.31 0.52 0.55 0.59 0.58 0.50 Net realized and unrealized gain (loss) on investments $ (1.03) (0.85) (0.95) 0.14 0.41 0.14 Total from investment operations $ (0.72) (0.33) (0.40) 0.73 0.99 0.64 Less distributions from: Net investment income $ 0.33 0.54 0.58 0.59 0.57 0.48 Tax return of capital $ 0.08 0.03 0.01 -- -- -- Total distributions 0.41 0.57 0.59 0.59 0.57 0.48 Net asset value, end of period $ 3.90 5.03 5.93 6.92 6.78 6.36 Total Return(2): % (14.82) (5.86) (5.85) 11.16 16.29 10.69 Ratios/Supplemental Data: Net assets, end of period (000's) $ 7,077 12,730 24,129 19,785 8,848 1,243 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.60 1.55 1.50 1.50 1.50 1.50 Gross expenses prior to expense reimbursement(3) % 1.70 1.67 1.62 1.67 1.92 2.69 Net investment income after expense reimbursement(3)(4) % 10.16 9.91 8.82 8.55 8.93 9.41 Portfolio turnover rate % 100 89 184 209 394 339
- ---------- (1) Commencement of offering of shares. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return information for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Investment Manager has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. (5) The Fund changed it's fiscal year end to March 31. See Accompanying Notes to Financial Statements 46 Financial PILGRIM HIGH YIELD FUND II Highlights - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A ----------------------------------------------------------- Nine Three Months Year Months Year March 27, Ended Ended Ended Ended 1998 to March 31, June 30, June 30, March 31, March 31, 2001(7) 2000 1999(2) 1999 1998(1) ------- ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 10.80 11.57 11.66 12.72 12.70 Income from investment operations: Net investment income $ 0.84 1.18 0.28 1.12 0.01 Net realized and unrealized gain (loss) on investments $ (2.09) (0.75) (0.09) (1.00) 0.01 Total from investment operations $ (1.25) 0.43 0.19 0.12 0.02 Less distributions from: Net investment income $ 0.86 1.20 0.28 1.18 -- Total distributions 0.86 1.20 0.28 1.18 -- Net asset value, end of period $ 8.69 10.80 11.57 11.66 12.72 Total Return(3): % (11.87) 3.96 1.60 1.13 0.16 Ratios/Supplemental Data: Net assets, end of period (000's) $ 55,230 34,416 16,795 17,327 4,690 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.10 1.18 1.10 1.12 1.06 Gross expenses prior to expense reimbursement(4) % 1.32 1.37 1.37 1.53 1.06 Net investment income after expense reimbursement(4)(5) % 11.43 10.63 9.68 9.44 7.22 Portfolio turnover rate % 113 113 44 242 484 Class B ----------------------------------------------------------- Nine Three Months Year Months Year March 27, Ended Ended Ended Ended 1998 to March 31, June 30, June 30, March 31, March 31, 2001(7) 2000 1999(2) 1999 1998(1) ------- ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 10.81 11.58 11.66 12.71 12.69 Income from investment operations: Net investment income $ 0.81 1.11 0.27 1.04 0.01 Net realized and unrealized gain (loss) on investments $ (2.10) (0.75) (0.09) (0.99) 0.01 Total from investment operations $ (1.29) 0.36 0.18 0.05 0.02 Less distributions from: Net investment income $ 0.81 1.13 0.26 1.10 -- Total distributions 0.81 1.13 0.26 1.10 -- Net asset value, end of period $ 8.71 10.81 11.58 11.66 12.71 Total Return(3): % (12.22) 3.28 1.53 0.55 0.16 Ratios/Supplemental Data: Net assets, end of period (000's) $ 181,175 103,246 41,882 42,960 8,892 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.75 1.83 1.75 1.77 1.69 Gross expenses prior to expense reimbursement(4) % 1.97 2.02 2.02 2.18 1.69 Net investment income after expense reimbursement(4)(5) % 10.97 9.98 9.03 8.84 6.61 Portfolio turnover rate % 113 113 44 242 484 Class C Class T --------------------------------------------------------- ---------------------- Nine Three Nine Months Year Months Year March 27, Months March 31, Ended Ended Ended Ended 1998 to Ended 2000(6) to March 31, June 30, June 30, March 31, March 31, March 31, June 30, 2001(7) 2000 1999(2) 1999 1998(1) 2001(7) 2000 ------- ---- ------- ---- ------- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 10.81 11.58 11.66 12.71 12.69 10.81 11.07 Income from investment operations: Net investment income $ 0.81 1.10 0.27 1.04 0.01 0.81 0.29 Net realized and unrealized gains (loss) on investments $ (2.10) (0.74) (0.09) (0.99) 0.01 (2.08) (0.25) Total from investment operations $ (1.29) 0.36 0.18 0.05 0.02 (1.27) 0.04 Less distributions from: Net investment income $ 0.81 1.13 0.26 1.10 -- 0.84 0.30 Total distributions 0.81 1.13 0.26 1.10 -- 0.84 0.30 Net asset value, end of period $ 8.71 10.81 11.58 11.66 12.71 8.70 10.81 Total Return(3): % (12.22) 3.28 1.53 0.55 0.16 (12.07) (0.49) Ratios/Supplemental Data: Net assets, end of period (000's) $ 33,463 23,324 18,618 21,290 4,815 18,510 31,342 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.75 1.83 1.75 1.77 1.66 1.40 1.48 Gross expenses prior to expense reimbursement(4) % 1.97 2.02 2.02 2.18 1.66 1.63 1.67 Net investment income after expense reimbursement(4)(5) % 10.93 9.98 9.03 8.79 6.91 11.24 10.33 Portfolio turnover rate % 113 113 44 242 484 113 113
- ---------- (1) The Fund commenced operations on March 27, 1998. (2) Effective May 24, 1999, Pilgrim Investments, LLC, became the Investment Manager of the Fund and the Fund changed its year end to June 30. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized for periods less than one year. (5) The Investment Manager has voluntarily agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. (6) Commencement of offering of shares. (7) The Fund changed its fiscal year end to March 31. See Accompanying Notes to Financial Statements 47 Financial Highlights PILGRIM HIGH YIELD BOND FUND - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A Class B ------------------------------------- ------------------------------------- Five Months Year Period Five Months Year Period Ended Ended Ended Ended Ended Ended March 31, October 31, October 31, March 31, October 31, October 31, 2001(4) 2000 1999(1) 2001(4) 2O00 1999(1) ------- ---- ------- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 9.24 9.96 10.00 9.23 9.96 10.00 Income from investment operations: Net investment income $ 0.39 0.85 0.67 0.36 0.78 0.60 Net realized and unrealized gain (loss) on investments $ 0.12 (0.65) (0.04) 0.14 (0.66) (0.05) Total from investment operations $ 0.51 0.20 0.63 0.50 0.12 0.55 Less distributions from: Net investment income $ 0.39 0.86 0.67 0.37 0.79 0.59 Net realized gains on investments $ -- 0.06 -- -- 0.06 -- Total distributions $ 0.39 0.92 0.67 0.37 0.85 0.59 Net asset value, end of period $ 9.36 9.24 9.96 9.36 9.23 9.96 Total Return(2): % 5.61 1.89 6.37 5.43 1.02 5.57 Ratios/Supplemental Data: Net assets, end of period (000's) $ 33,459 33,220 30,537 5,025 3,702 2,374 Ratios to average net assets: Net expenses after expense reimbursement(3) % 1.09 1.04 1.00 1.84 1.79 1.72 Gross expenses prior to expense reimbursement(3)(5) % 1.63 2.16 2.32 2.28 2.41 2.64 Net investment income after expense reimbursement(3)(5) % 10.24 8.75 7.53 9.49 7.99 6.90 Portfolio turnover rate % 253 481 756 253 481 756 Class C -------------------------------------- Five Months Year Period Ended Ended Ended March 31, October 31, October 31, 2001(4) 2000 1999(1) ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 9.23 9.96 10.00 Income from investment operations: Net investment income $ 0.37 0.78 0.62 Net realized and unrealized gain (loss) on investments $ 0.12 (0.66) (0.06) Total from investment operations $ 0.49 0.12 0.56 Less distributions from: Net investment income $ 0.36 0.79 0.60 Net realized gains on investments $ -- 0.06 -- Total distributions $ 0.36 0.85 0.60 Net asset value, end of period $ 9.36 9.23 9.96 Total Return(2): % 5.39 1.02 5.67 Ratios/Supplemental Data: Net assets, end of period (000's) $ 1,314 1,578 776 Ratios to average net assets: Net expenses after expense reimbursement(3) % 1.84 1.79 1.73 Gross expenses prior to expense reimbursement(3)(5) % 2.29 2.40 2.66 Net investment income after expense reimbursement(3)(5) % 9.42 7.98 7.01 Portfolio turnover rate % 253 481 756
- ---------- (1) Fund commenced operations on December 15, 1998. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Fund changed it's fiscal year end to March 31. (5) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. See Accompanying Notes to Financial Statements 48 Financial PILGRIM MONEY MARKET FUND Highlights - --------------------------------------------------------------------------------
Class A Class B Class C ---------------------- ---------------------- ---------------------- Nine Months Period Nine Months Period Nine Months Period Ended Ended Ended Ended Ended Ended March 31, June 30, March 31, June 30, March 31, June 30, 2001(6) 2000(1) 2001(6) 2000(2) 2001(6) 2000(2) ------- ------- ------- ------- ------- ------- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income* $ 0.04 0.02 0.03 0.03 0.03 0.02 Total from investment operations $ 0.04 0.02 0.03 0.03 0.03 0.02 Less distributions from: Net investment income $ 0.04 0.02 0.03 0.03 0.03 0.02 Total distributions 0.04 0.02 0.03 0.03 0.03 0.02 Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Total Return(3): % 3.86 3.58 3.34 3.60 3.34 3.58 Ratios/Supplemental Data: Net assets, end of period (000's) $ 73,290 75,430 32,117 12,035 27,404 5,431 Ratios to average net assets: Net expenses after expense reimbursement/recoupment(4)(5)** % 0.91 0.85 1.64 1.60 1.59 1.60 Gross expenses prior to expense reimbursement/recoupment(4) % 0.74 2.28 1.50 3.03 1.49 3.03 Net investment income after expense reimbursement/recoupment(4)(5) % 5.23 5.18 4.31 3.96 4.36 3.96
- ---------- (1) Commenced operations on November 24, 1999. (2) Commenced operations on July 12, 1999. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized for periods less than one year. (5) The Investment Manager has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. (6) The Fund changed its fiscal year end to March 31. * Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the underlying investment company in which the Fund invests. ** Does not include expenses of the investment company in which the Fund invests. See Accompanying Notes to Financial Statements 49 Financial Highlights ING PILGRIM MONEY MARKET FUND - -------------------------------------------------------------------------------- Selected data for a share of beneficial interest outstanding throughout each period.
Class A Class B ------------------------------------- ------------------------------------ Five Months Year Period Five Months Year Period Ended Ended Ended Ended Ended Ended March 31, October 31, October 31, March 31, October 31, October 31, 2001(5) 2000 1999(1) 2001(5) 2000 1999(1) ------- ---- ------- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.02 0.06 0.04 0.02 0.05 0.03 Total from investment operations $ 0.02 0.06 0.04 0.02 0.05 0.03 Less distributions from: Net investment income $ 0.02 0.06 0.04 0.02 0.05 0.03 Total distributions $ 0.02 0.06 0.04 0.02 0.05 0.03 Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Total Return(3): % 2.36 5.70 3.98 2.11 5.03 3.31 Ratios/Supplemental Data: Net assets, end of period (000's) $ 515,651 440,651 228,124 2,714 2,706 1,173 Ratios to average net assets: Net expenses after expense reimbursement(4) % 0.77 0.74 0.73 1.41 1.38 1.41 Gross expenses prior to expense reimbursement(4)(6) % 1.30 1.42 1.67 1.55 1.67 1.79 Net investment income after expense reimbursement(4)(6) % 5.61 5.59 4.59 5.10 4.93 3.85 Class C Class I ------------------------------------- ------------------------------------- Five Months Year Period Five Months Year Period Ended Ended Ended Ended Ended Ended March 31, October 31, October 31, March 31, October 31, October 31, 2001(5) 2000 1999(1) 2001(6) 2000 1999(2) ------- ---- ------- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.02 0.05 0.03 0.02 0.06 -- Total from investment operations $ 0.02 0.05 0.03 0.02 0.06 -- Less distributions from: Net investment income $ 0.02 0.05 0.03 0.02 0.06 -- Total distributions $ 0.02 0.05 0.03 0.02 0.06 -- Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Total Return(3): % 2.08 5.03 3.30 2.46 6.19 0.28 Ratios/Supplemental Data: Net assets, end of period (000's) $ 2,583 2,035 444 10,816 12,061 1,906 Ratios to average net assets: Net expenses after expense reimbursement(4)(6) % 1.40 1.39 1.41 0.31 0.28 0.31 Gross expenses prior to expense reimbursement(4) % 1.55 1.67 1.78 0.55 0.41 0.59 Net investment income after expense reimbursement(4)(6) % 5.00 5.03 3.89 6.08 5.96 5.29
- ---------- (1) Commenced operations on December 15, 1998. (2) Commenced operations on October 13, 1999. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized for periods less than one year. (5) The Fund changed its fiscal year end to March 31. (6) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. See Accompanying Notes to Financial Statements 50 Financial LEXINGTON MONEY MARKET TRUST Highlights - -------------------------------------------------------------------------------- Selected data for a share of of benificial interest outstanding throughout each period.
Three Months Ended Year Ended December 31, March 31, ------------------------------------------------- 2001(5) 2000(2) 1999 1998 1997 1996 ------- ------- ---- ---- ---- ---- Per Share Operating Performance Net asset value, beginning of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Income from investment operations: Net investment income $ 0.01 0.05 0.0425 0.0455 0.0458 0.0441 Total from investment operations 0.01 0.05 0.0425 0.0455 0.0458 0.0441 Less distributions from: Net investment income $ 0.01 0.05 0.0425 0.0455 0.0458 0.0441 Total distributions 0.01 0.05 0.0425 0.0455 0.0458 0.0441 Net asset value, end of period $ 1.00 1.00 1.00 1.00 1.00 1.00 Total Return(1) % 1.22 5.57 4.34 4.64 4.68 4.50 Ratios/Supplemental Data Net assets, end of period (000's) $ 63,177 62,859 97,850 87,488 95,149 97,526 Ratios to average net assets: Net expenses after expense reimbursement(4) % 0.92 1.00 1.00 1.00 1.00 1.00 Gross expenses prior to expense reimbursement(4) % 0.92 1.08 1.01 1.05 1.04 1.04 Net investment income after expense reimbursement % 4.85 5.53 4.26 4.56 4.58 4.41
- ---------- (1) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (2) Effective July 26, 2000, ING Pilgrim Investments, LLC became the Investment Manager of the Fund. (3) The Investment Manager has agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses. (4) Annualized for periods less than one year. (5) The Trust changed its fiscal year end to March 31. See Accompanying Notes to Financial Statements 51 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 - -------------------------------------------------------------------------------- NOTE 1 -- ORGANIZATION Organization. Pilgrim GNMA Income Fund, Inc., Pilgrim Funds Trust ("PFT", formerly "ING Funds Trust"), Pilgrim Mutual Funds ("PMF"), Pilgrim Investment Funds, Inc. ("PIF") and Lexington Money Market Trust are each open-end investment management companies registered under the Investment Company Act of 1940, as amended. Pilgrim GNMA Income Fund ("GNMA Fund") is the single series of Pilgrim GNMA Income Fund, Inc., a Maryland Corporation organized on August 15, 1973. PFT is a Delaware business trust established July 30, 1998 and consists of twelve separately managed portfolios. Four of the Portfolios in this report are Pilgrim National Tax-Exempt Bond Fund ("National Tax-Exempt Bond Fund", formerly ING National Tax-Exempt Bond Fund), Pilgrim Intermediate Bond Fund ("Intermediate Bond Fund", formerly ING Intermediate Bond Fund) Pilgrim High Yield Bond Fund ("High Yield Bond Fund", formerly ING High Yield Bond Fund) and ING Pilgrim Money Market Fund ( formerly ING Money Market Fund). PMF is a Delaware business trust organized in 1992 and consists of twelve separately managed portfolios. Three of the Portfolios in this report are Pilgrim Strategic Income Fund ("Strategic Income Fund"), Pilgrim High Yield Fund II ("High Yield Fund II") and Pilgrim Money Market Fund. PIF is a Maryland Corporation organized in July 1969 and consists of two separately managed portfolios. One of the Portfolios in this report is the Pilgrim High Yield Fund ("High Yield Fund"). Lexington Money Market Trust ("Money Market Trust") is the single series of Lexington Money Market Trust, a Massachusetts business trust organized on June 30, 1977. The investment objective of each Fund is described in each Fund's prospectus. The Pilgrim Money Market Fund seeks to achieve its investment objective by investing all its assets in Class A shares of the Primary Reserve Institutional Fund, a series of Reserve Institutional Trust, a registered open-end investment company. The Primary Reserve Institutional Fund declares dividends of its net investment income daily, which the Pilgrim Money Market Fund records as dividend income. In addition, the Pilgrim Money Market Fund incurs its own expenses. The financial statements of the Primary Reserve Institutional Fund are included in this report and should be read in conjunction with the financial statements of the Pilgrim Money Market Fund. Each Fund offers at least two of the following classes of shares: Class A, Class B, Class C, Class I, Class M, Class Q and Class T except for Money Market Trust which only offers Class A Shares. The separate classes of shares differ principally in the applicable sales charges (if any), distribution fees and shareholder servicing fees. Shareholders of each class also bear certain expenses that pertain to that particular class. All shareholders bear the common expenses of the Fund and earn income from the portfolio pro rata based on the average daily net assets of each class, without distinction between share classes. Dividends are determined separately for each class based on income and expenses allocable to each class. Realized gains are allocated to each class pro rata based on the net assets of each class on the date of distribution. No class has preferential dividend rights. Differences in per share dividend rates generally result from the relative weighting of pro rata income and realized gain allocations and from differences in separate class expenses, including distribution, and shareholder servicing fees. Class B shares, along with their pro rata reinvested dividend shares, automatically convert to Class A shares approximately eight years after purchase. On September 1, 2000, ING Group N.V. (NYSE:ING) acquired ReliaStar Financial Corp., the indirect parent company of Pilgrim Investments, Inc., Adviser to some of the Funds, Pilgrim Securities, Inc., Distributor to the Funds and Pilgrim Group, Inc., Administrator to the Funds. In conjunction with the acquistions, the Adviser, Distributor and Administrator changed their names to ING Pilgrim Investments, Inc., ING Pilgrim Securities, Inc. and ING Pilgrim Group, Inc. effective September 8, 2000. Effective February 26, 2001, ING Pilgrim Investments, Inc. was merged into the newly formed ING Pilgrim Investments, LLC. Effective February 27, 2001, 52 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- ING Pilgrim Group, Inc. was merged into the newly formed ING Pilgrim Group, LLC ("IPG"). 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. 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 are valued at bid prices (High Yield Fund, including securities sold short, is valued at the mean between the bid and ask prices) obtained from independent services or from one or more dealers making markets in the securities and may be adjusted based on the Fund's valuation procedures. U.S. Government obligations are valued by using market quotations or independent pricing services that use prices provided by market-makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. Securities for which market quotations are not readily available are valued at their respective fair values as determined in good faith and in accordance with policies set by the Board of Directors. Investment in the Primary Reserve Institutional Fund is valued at the net asset value as reported by the underlying Fund. Investments in securities maturing in less than 60 days are valued at cost, which, when combined with accrued interest, approximates market value. At March 31, 2001, the Strategic Income Fund, High Yield Fund and High Yield Fund II contained one, four, and 19 securities, respectively, for which bid prices obtained from one or more dealers making markets in the securities were adjusted based on the Funds' valuation procedures. These securities had a total value of $87,500 (represents 0.16% of net assets), $4,895,121 (represents 2.35% of net assets) and $22,384,963 (represents 7.68% of net assets), for the Strategic Income Fund, High Yield Fund and High Yield Fund II, respectively. In addition, at March 31, 2001, the High Yield Fund II contained three securities for which market quotations were not readily available and which were valued at their fair value as determined in good faith and in accordance with policies set by the Board of Directors. These securities had a total value of $2,922,964 (represents 1.00% of net assets) for the High Yield Fund II. B. Security Transactions and Revenue Recognition. Securities transactions are accounted for on the trade date. Realized gains and losses are reported on the basis of identified cost of securities delivered. Interest income is recorded on an accrual basis. Dividend income is recorded on the ex-dividend date, or for certain foreign securities, when the information becomes available to the funds. Premium 53 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- amortization and discount accretion are determined by the effective yield method. C. Foreign Currency Translation. The books and records of the funds are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis: (1) Market value of investment securities, other assets and liabilities -- at the exchange rates prevailing at the end of the day. (2) Purchases and sales of investment securities, income and expenses -- at the rates of exchange prevailing on the respective dates of such transactions. Although the net assets and the market values are presented at the foreign exchange rates at the end of the day, the Funds do not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses from investments. For securities which are subject to foreign withholding tax upon disposition, liabilities are recorded on the statement of assets and liabilities for the estimated tax withholding based on the securities' current market values. Upon disposition, realized gains or losses on such securities are recorded net of foreign withholding tax. Reported net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. Foreign security and currency transactions may involve certain considerations and risks not typically associated with investing in U.S. companies and the U.S. Government. These risks include but are not limited to re-evaluation of currencies and future adverse political and economic 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 54 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- time it was opened and the value at the time it was closed. None of the Funds had open futures contracts at March 31, 2001. E. Distributions to Shareholders. The Funds record distributions to their shareholders on ex-date. National Tax-Exempt Bond Fund, Intermediate Bond Fund, High Yield Fund II, High Yield Bond, Pilgrim Money Market Fund, ING Pilgrim Money Market Fund and Money Market Trust declare and go ex-dividend daily and pay dividends monthly. GNMA Fund, Strategic Income Fund and High Yield Fund declare and go ex-dividend monthly and pay dividends monthly. Each Fund distributes capital gains, to the extent available, annually. The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. Key differences are the treatment of short-term capital gains, foreign currency transactions, organization costs and other temporary differences. To the extent that these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassifications. Distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes, are reported as distributions in excess of net investment income and/or net realized capital gains. To the extent distributions exceed net investment income and/or net realized capital gains for tax purposes, they are reported as distributions of paid-in capital. Accordingly, the following amounts have been increased (decreased) through reclassification as of March 31, 2001:
Accumulated Undistributed net realized Paid-in (distributions in excess of) gains (losses) capital net investment income on investments ------------- ------------- ------------- GNMA Fund $ 12,279,338 $ (193,346) $ (12,085,992) Strategic Income Fund 5,830,355 (95,077) (5,735,278) High Yield Fund (4,442,387) 4,441,347 1,040 High Yield Fund II 321,091,423 (643,817) (320,447,606) High Yield Bond Fund 8,594 -- (8,594) Pilgrim Money Market (92,756) 92,756 --
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 Director/Trustees intends to offset any net capital gains with any available capital loss carryforward until each carryforward has been fully utilized or expires. In addition, no capital gain distribution shall be made until the capital loss carryforward has been fully utilized or expires. G. Use of Estimates. Management of the Funds has made certain estimates and assumptions relating to the reporting of assets, liabilities, income, and expenses to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. 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 55 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- such agreements, the seller of the security agrees to repurchase it at a mutually agreed upon time and price. The resale price is in excess of the purchase price and reflects an agreed upon interest rate for the period of time the agreement is outstanding. The period of the repurchase agreements is usually short, from overnight to one week, while the underlying securities generally have longer maturities. Each Fund will always receive as collateral securities with market values equal to at least 100% of the amount being invested by the Fund. If the seller defaults, a Fund may incur a delay in the realization of proceeds, it may incur a loss if the value of the collateral securing the repurchase agreement declines, and it may incur disposition costs in liquidating the collateral. I. Securities Lending. Each Fund had the option to temporarily loan 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. J. Equalization. High Yield Fund follows the accounting practice known as equalization, by which a portion of the proceeds from sales and costs of purchases of Fund shares, equivalent on a per share basis to the amount of distributable investment income on the date of the transaction, is credited or charged to undistributed income. As a result, undistributed investment income per share is unaffected by sales or redemptions of Fund shares. K. Principles of Presentation. Certain reclassifications have been made to the prior period financial statements to conform to the current year presentation. L. Recently Issued Accounting Standards. In November 2000, a revised AICPA Audit and Accounting Guide (the "Guide"), Audits of Investment Companies, was issued, and is effective for fiscal years beginning after December 15, 2000. The revised Guide requires Funds to classify gains and losses realized on principal paydowns received on mortgaged-backed securities previously included in realized gains/loss, as part of interest income. Adopting this principle does not affect the Funds' net asset value but does change the classification between interest income and realized gain/loss in the statements of operations. The adoption of this princple is not material to the financial statements. NOTE 3 -- INVESTMENT TRANSACTIONS For the period ended March 31, 2001, the cost of purchases and proceeds from the sales of securities, excluding short-term securities, were as follows: Purchases Sales ------------ ------------ GNMA Fund $293,409,850 $145,785,084 National Tax-Exempt Bond Fund 2,035,530 1,511,850 Intermediate Bond Fund 328,924,888 325,103,385 Strategic Income Fund 67,517,033 25,383,690 High Yield Fund 212,815,144 243,397,271 High Yield Fund II 481,583,452 193,070,894 High Yield Bond Fund 96,775,916 95,973,815 NOTE 4 -- INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES GNMA Income Fund, Strategic Income Fund, High Yield Fund, High Yield Fund II, Pilgrim Money Market Fund and Money Market Trust have entered into an Investment Management Agreement with ING Pilgrim Investments, LLC (the "Manager", the "Investment Manager" or the "Adviser"), a wholly-owned subsidiary of ING Groep N.V. ING Mutual Funds Management, LLC serves as the manager of the National Tax-Exempt Bond Fund, Intermediate Bond Fund, High Yield Bond Fund and ING Pilgrim Money Market Fund pursuant to an Investment Management Agreement. The investment management agreements compensate the Managers with a fee, computed daily and payable monthly, based on the average daily net assets of each Fund, at the following annual rates: For GNMA Income Fund -- 0.60% for the first $150 million, 0.50% of the next $250 million, 0.45% of the next $400 million and 0.40% in excess of $800 million; for National Tax-Exempt Bond and Intermediate Bond -- 0.50%; for Strategic Income Fund -- 0.45% for the first $500 million, 0.40% of the next $250 million and 0.35% in excess of $750 million; for High Yield Fund and High 56 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Yield II Fund -- 0.60%; for High Yield Bond Fund -- 0.65%; for ING Pilgrim Money Market Fund -- 0.25%; for Money Market Trust -- 0.50% for the first $500 million and 0.45% in excess of $500 million. The fees payable to the Manager were discounted for the National Tax-Exempt Bond Fund, the Intermediate Bond Fund, the High Yield Bond Fund and the ING Pilgrim Money Market Fund by 75% in each Fund's first year of operations, and by 50% in each Fund's second year of operations. The Manager does not charge a management fee for Pilgrim Money Market Fund since the Fund invests solely in another open-end regulated investment company. However, the Fund compensates the Manager with an administrative fee, computed daily and payable monthly, at an annual rate of 0.25% of average daily net assets. IPG (the "Administrator"), serves as administrator to each Fund. The GNMA Income Fund, National Tax-Exempt Bond Fund, Intermediate Bond Fund, High Yield Bond Fund and Money Market Trust pay the Administrator a fee calculated at an annual rate of 0.10% of each Fund's average daily net assets. During the period ended March 31, 2001, the Administrator waived the 0.10% fee for Money Market Trust. NOTE 5 -- DISTRIBUTION AND SERVICE FEES Each share class of the Funds (except as noted below) has adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plans"), whereby ING Pilgrim Securities, Inc. (the "Distributor") is reimbursed or compensated (depending on the class of shares) by the Funds for expenses incurred in the distribution of each Funds' shares ("Distribution Fees"). Pursuant to the 12b-1 Plans, the Distributor is entitled to payment each month for actual expenses incurred in the distribution and promotion of each Fund's shares, including expenses incurred in printing prospectuses and reports used for sales purposes, expenses incurred in preparing and printing sales literature and other such distribution related expenses, including any distribution or shareholder servicing fees ("Service Fees") paid to securities dealers who have executed a distribution agreement with the Distributor. Under the 12b-1 Plans, each class of shares of the Fund pays the Distributor a combined Distribution and Service Fee based on average daily net assets at the following annual rates:
Class A Class B Class C Class I Class M Class Q Class T ------- ------- ------- ------- ------- ------- ------- GNMA Fund 0.25% 1.00% 1.00% N/A 0.75% 0.25% 0.65% National Tax-Exempt Bond Fund 0.35% 1.00% 1.00% N/A N/A N/A N/A Intermediate Bond Fund 0.35% 1.00% 1.00% N/A N/A N/A N/A Strategic Income Fund 0.35% 0.75% 0.75% N/A N/A 0.25% N/A High Yield Fund 0.25% 1.00% 1.00% N/A 0.75% 0.25% N/A High Yield Fund II 0.35% 1.00% 1.00% N/A N/A 0.25% 0.65% High Yield Bond Fund 0.35% 1.00% 1.00% N/A N/A N/A N/A Pilgrim Money Market Fund 0.25% 1.00% 1.00% N/A N/A N/A N/A ING Pilgrim Money Market Fund 0.75% 1.00% 1.00% N/A N/A N/A N/A Money Market Trust N/A N/A N/A N/A N/A N/A N/A
During the period ended March 31, 2001, the Distributor waived 0.10% of the Distribution fee for National Tax-Exempt Bond Fund, Intermediate Bond Fund and High Yield Bond Fund for Class A only and waived 0.40% of the Distribution fee for ING Pilgrim Money Market Fund for Class A only. In addition, each of the Funds has entered into a Service Agreement with IPG whereby IPG will act as Shareholder Service Agent for each Fund. The agreement provides that IPG will be compensated for incoming and outgoing shareholder telephone calls and letters, and all reasonable out-of-pocket expenses incurred in connection with the performance of such services. For the period ended March 31, 2001, the Distributor has retained $48,899 as sales charges from the proceeds of Class A Shares sold, $46,547 from the proceeds of Class C Shares redeemed, and $557 from the proceeds of Class M Shares sold. 57 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- NOTE 6 -- OTHER TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES At March 31, 2001, the Funds had the following amounts recorded in payable to affiliates on the accompanying Statements of Assets and Liabilities (see Notes 4 and 5):
Accrued Accrued Shareholder Investment Accrued Services and Management Administrative Distribution Fees Fees Fees Total ---- ---- ---- ----- GNMA Fund $227,040 $ 14,892 $157,804 $399,736 National Tax-Exempt Bond Fund 12,323 2,091 643 15,057 Intermediate Bond Fund 24,244 5,275 4,377 33,896 Strategic Income Fund 20,112 -- 15,907 36,019 High Yield Fund 109,385 -- 113,000 222,385 High Yield Fund II 102,349 -- 139,647 241,996 High Yield Bond Fund 21,475 4,717 4,125 30,317 Pilgrim Money Market Fund -- 5,291 10,000 15,291 ING Pilgrim Money Market Fund 156,115 -- 62,786 218,901 Money Market Trust 26,788 -- -- 26,788
At March 31, 2001, one investor owned 16.8% of the outstanding shares of Intermediate Bond Fund. In addition, at March 31, 2001, ING America Insurance Holdings, Inc., a wholly-owned indirect subsidiary of ING Groep N.V., held more than 5% of the shares outstanding of the following Funds: National Tax Exempt Bond Fund -- 92.9%; Intermediate Bond Fund -- 63.6%; Strategic Income Fund -- 38.2%; and High Yield Bond Fund -- 64.5%. Investment activities of these shareholders could have a material impact on the respective Funds. NOTE 7 -- EXPENSE LIMITATIONS For the following Funds, the Investment Manager has voluntarily agreed to limit expenses, excluding interest, taxes, brokerage and extraordinary expenses to the following annual expenses to average daily net assets ratios:
Class A Class B Class C Class I Class M Class Q Class T ------- ------- ------- ------- ------- ------- ------- GNMA Fund 1.29% 2.04% 2.04% N/A N/A 1.29% N/A National Tax-Exempt Bond Fund(1) 1.15% 1.90% 1.90% N/A N/A N/A N/A Intermediate Bond Fund(2) 1.15% 1.90% 1.90% N/A N/A N/A N/A Strategic Income Fund 0.95% 1.35% 1.35% N/A N/A 0.85% N/A High Yield Fund 1.10% 1.85% 1.85% N/A 1.60% 1.10% N/A High Yield Fund II 1.10% 1.75% 1.75% N/A N/A 1.00% 1.40% High Yield Bond Fund(3) 1.30% 2.05% 2.05% N/A N/A N/A N/A Pilgrim Money Market Fund 1.50% 2.25% 2.25% N/A N/A N/A N/A ING Pilgrim Money Market Fund 0.77% 1.41% 1.41% 0.31% N/A N/A N/A Money Market Trust 1.00% N/A N/A N/A N/A N/A N/A
Each Fund will at a later date reimburse the Investment Manager for management fees waived and other expenses assumed by the Investment Manager during the previous 36 months, but only if, after such reimbursement, the Fund's expense ratio does not exceed the percentage described above. Waived and reimbursed fees and any recoupment by the Investment Manager of such waived and reimbursed fees are reflected on the accompanying Statements of Operations for each Fund. - ---------- (1) Prior to March 1, 2001, the expense limitation rates for Class A, Class B and Class C were 0.96%, 1.71% and 1.71%, respectively. (2) Prior to March 1, 2001, the expense limitation rates for Class A, Class B and Class C were 0.99%, 1.74% and 1.74%, respectively. (3) Prior to March 1, 2001, the expense limitation rates for Class A, Class B and Class C were 1.04%, 1.79% and 1.79%, respectively. NOTE 8 -- LINE OF CREDIT Strategic Income Fund, High Yield Fund, High Yield Fund II and Money Market Trust, in addition to certain other funds managed by the Adviser, have entered into an unsecured committed revolving line of credit agreement (the "Credit Agreement") with State Street Bank and Trust Company for an aggregate amount of $125,000,000. The proceeds may be used only to: (1) temporarily finance the purchase and sale of securities; (2) finance the redemption of shares of an investor in the Funds; and (3) 58 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- 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 period ended March 31, 2001, the Funds did not have any loans outstanding. NOTE 9 -- WHEN ISSUED SECURITIES (GNMA FUND) The GNMA Fund, at times, may purchase GNMA certificates on a delayed delivery, forward or when-issued basis with payment and delivery often taking place a month or more after the initiation of the transaction. It is the Fund's policy to record when-issued GNMA certificates (and the corresponding obligation to pay for the securities) at the time the purchase commitment becomes fixed -- generally on the trade date. It is also the Fund's policy to segregate assets to cover its commitments for when-issued securities on trade date. NOTE 10 -- CONSTRUCTION LOAN SECURITIES (GNMA FUND) The GNMA Fund may purchase contruction loan securities, which are issued to finance building costs. The funds are disbursed as needed or in accordance with a prearranged plan. The securities provide for the timely payment to the registered holder of interest at the specified rate plus scheduled installments of principal. Upon completion of the construction phase, the construction loan securities are terminated and project loan securities are issued. It is the Fund's policy to record these GNMA certificates on trade date, and to segregate assets to cover its commitments on trade date as well. NOTE 11 -- CAPITAL SHARES Transactions in capital shares and dollars were as follows:
Class A Shares Class B Shares Class C Shares -------------------------------------------- --------------------------- --------------------------- Three Three Three Months Ended Year Ended Year Ended Months Ended Period Ended Months Ended Period Ended March 31, December 31, December 31, March 31, December 31, March 31, December 31, 2001 2000 1999 2001 2000(1) 2001 2000(2) ------------ ------------- ------------- ------------ --------- ------------ ----------- GNMA Fund (Number of Shares) Shares sold 9,936,676 15,011,381 26,323,658 1,097,963 103,659 923,217 243,137 Shares issued in merger 6,943,491 -- -- 4,553,567 -- 673,255 -- Shares issued as reinvestment of dividends 578,344 2,343,091 2,253,632 1,539 455 2,350 1,667 Shares redeemed (9,201,160) (20,138,470) (14,047,603) (249,233) (977) (220,849) (26,606) ------------ ------------- ------------- ------------ --------- ------------ ----------- Net increase (decrease) in shares outstanding 8,257,351 (2,783,998) 14,529,687 5,403,836 103,137 1,377,973 218,198 ============ ============= ============= ============ ========= ============ =========== GNMA Fund ($) Shares sold $ 84,029,800 $ 122,250,526 $ 220,636,961 $ 8,930,188 $ 858,288 $ 7,833,790 $ 2,009,330 Shares issued in merger 59,085,277 -- -- 38,677,635 -- 5,719,720 -- Shares issued as reinvestment of dividends 4,895,626 19,042,463 18,731,683 13,021 3,763 19,843 13,770 Shares redeemed (78,707,194) (163,634,919) (117,150,009) (2,134,765) (8,207) (1,879,617) (221,792) ------------ ------------- ------------- ------------ --------- ------------ ----------- Net increase (decrease) $ 69,303,509 $ (22,341,930) $ 122,218,635 $ 45,486,079 $ 853,844 $ 11,693,736 $ 1,801,308 ============ ============= ============= ============ ========= ============ =========== Class M Shares Class Q Shares Class T Shares -------------- -------------- -------------- Period Ended Period Ended Period Ended March 31, March 31, March 31, 2001(3) 2001(3) 2001(3) --------- --------- ------------ GNMA Fund (Number of Shares) Shares sold -- 7,106 1,580 Shares issued in merger 34,197 50,391 2,061,429 Shares redeemed (5,567) (2,397) (17,618) --------- --------- ------------ Net increase in shares outstanding 28,630 55,100 2,045,391 ========= ========= ============ GNMA Fund ($) Shares sold $ -- $ 54,840 $ 13,580 Shares issued in merger 311,809 428,802 17,054,525 Shares redeemed (47,654) (20,517) (151,310) --------- --------- ------------ Net increase $ 264,155 $ 463,125 $ 16,916,795 ========= ========= ============
- ---------- (1) Class B commenced operations on October 6, 2000. (2) Class C commenced operations of October 13, 2000. (3) Class M, Q and T commenced operations on February 26, 2001. 59 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares ---------------------------- ---------------------------- ---------------------------- Five Five Five Months Ended Period Ended Months Ended Period Ended Months Ended Period Ended March 31, October 31, March 31, October 31, March 31, October 31, 2001 2000(1) 2001 2000(1) 2001 2000(1) ------------ ------------ ------------ ------------ ------------ ------------ National Tax-Exempt Bond Fund (Number of Shares) Shares sold 1,636,567 2,048,913 34,375 32,812 -- 42,818 Shares issued as reinvestment of dividends 39,507 91,486 316 240 586 380 Shares redeemed (1,709,158) (4,501) (9,407) (2,459) (2,062) (4) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding (33,084) 2,135,898 25,284 30,593 (1,476) 43,194 ============ ============ ============ ============ ============ ============ National Tax-Exempt Bond Fund ($) Shares sold $ 17,088,810 $ 20,400,991 $ 354,273 $ 322,416 $ -- $ 428,611 Shares issued as reinvestment of dividends 410,013 984,828 3,289 2,650 6,084 3,841 Shares redeemed (17,888,862) (45,034) (96,246) (24,143) (21,500) (39) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) $ (390,039) $ 21,340,785 $ 261,316 $ 300,923 $ (15,416) $ 432,413 ============ ============ ============ ============ ============ ============ Class A Shares Class B Shares -------------------------------------------- ----------------------------------------------- Five Five Months Ended Year Ended Period Ended Months Ended Year Ended Period Ended March 31, October 31, October 31, March 31, October 31, October 31, 2001 2000 1999(2) 2001 2000 1999(2) ------------ ------------ ------------ ------------ ------------ ------------ Intermediate Bond Fund (Number of Shares) Shares sold 2,799,804 742,508 4,290,518 126,479 (4) 197,117 328,463 Shares issued as reinvestment of dividends 87,297 210,814 142,631 6,008 9,518 5,663 Shares redeemed (2,728,504) (1,217,143) (1,029,165) (16,667) (254,916) (126,073) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding 158,597 (263,821) 3,403,984 115,820 (48,281) 208,053 ============ ============ ============ ============ ============ ============ Intermediate Bond Fund ($) Shares sold $ 27,656,049 $ 6,951,913 $ 42,274,629 $ 1,282,225 (4) $ 1,832,353 $ 3,175,052 Shares issued as reinvestment of dividends 867,710 1,990,945 1,366,772 59,681 95,747 53,854 Shares redeemed (26,982,543) (11,378,033) (9,831,107) (165,234) (2,372,024) (1,197,919) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) $ 1,541,216 $ (2,435,175) $ 33,810,294 $ 1,176,672 $ (443,924) $ 2,030,987 ============ ============ ============ ============ ============ ============ Class C Shares Class X Shares(5) ------------------------------------------ --------------------------------------------- Five Five Months Ended Year Ended Period Ended Months Ended Year Ended Period Ended March 31, October 31, October 31, March 31, October 31, October 31, 2001 2000 1999(2) 2001 2000 1999(3) ----------- ----------- ----------- ----------- ----------- ----------- Intermediate Bond Fund (Number of Shares) Shares sold 235,675 479,308 113,633 1 35,831 233,086 Shares issued as reinvestment of dividends 15,272 15,231 2,468 -- 4,185 4,011 Shares redeemed (363,308) (58,433) (1,241) (58,228)(4) (88,834) (130,052) ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in shares outstanding (112,361) 436,106 114,860 (58,227) (48,818) 107,045 =========== =========== =========== =========== =========== =========== Intermediate Bond Fund ($) Shares sold $ 2,308,946 $ 4,500,995 $ 1,097,966 $ 8 $ 341,592 $ 2,271,631 Shares issued as reinvestment of dividends 151,721 157,438 23,450 -- 42,046 38,177 Shares redeemed (3,634,603) (542,480) (11,653) (607,398)(4) (836,710) (1,248,812) ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) $(1,173,936) $ 4,115,953 $ 1,109,763 $ (607,390) $ (453,072) $ 1,060,996 =========== =========== =========== =========== =========== ===========
- ---------- (1) The Fund commenced operations on November 8, 1999. (2) Classes A, B and C Shares commenced operations on December 15, 1998. (3) Class X Shares commenced operations on January 11, 1999. (4) Amounts reflect 57,507 of Class X shares, valued at $550,587, that were converted into Class B shares on November 17, 2000. (5) Effective November 17, 2000, Class X Shares are no longer being offered for sale. 60 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares -------------------------------------------- -------------------------------------------- Nine Three Nine Three Months Ended Year Ended Months Ended Months Ended Year Ended Months Ended March 31, June 30, June 30, March 31, June 30, June 30, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ Strategic Income Fund (Number of Shares) Shares sold 518,725 604,669 1,744,498 408,264 235,490 65,960 Shares issued in merger 3,150,703 -- -- 92,272 -- -- Shares issued as reinvestment of dividends 4,630 11,483 1,712 4,913 16,764 3,737 Shares redeemed (583,744) (607,655) (1,797,320) (112,217) (333,238) (137,015) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding 3,090,314 8,497 (51,110) 393,232 (80,984) (67,318) ============ ============ ============ ============ ============ ============ Strategic Income Fund ($) Shares sold $ 7,106,388 $ 7,329,922 $ 22,358,564 $ 4,695,326 $ 2,807,321 $ 827,887 Shares issued in merger 37,188,186 -- -- 1,064,000 -- -- Shares issued as reinvestment of dividends 54,593 139,358 21,991 56,288 199,456 47,004 Shares redeemed (6,920,354) (7,363,256) (23,052,137) (1,297,614) (3,971,439) (1,710,716) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) $ 37,428,813 $ 106,024 $ (671,582) $ 4,518,000 $ (964,662) $ (835,825) ============ ============ ============ ============ ============ ============ Class C Shares Class Q Shares -------------------------------------------- -------------------------------------------- Nine Three Nine Three Months Ended Year Ended Months Ended Months Ended Year Ended Months Ended March 31, June 30, June 30, March 31, June 30, June 30, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ Strategic Income Fund (Number of Shares) Shares sold 546,942 594,925 72,888 38,536 5,652 816 Shares issued in merger 3,821 -- -- -- -- -- Shares issued as reinvestment of dividends 3,185 11,584 2,829 462 1,233 168 Shares redeemed (445,234) (905,931) (77,064) (37,766) (1,293) (12,262) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding 108,714 (299,422) (1,347) 1,232 5,592 (11,278) ============ ============ ============ ============ ============ ============ Strategic Income Fund ($) Shares sold $ 6,606,970 $ 7,361,851 $ 952,054 $ 429,146 $ 64,150 $ 10,030 Shares issued in merger 46,034 -- -- -- -- -- Shares issued as reinvestment of dividends 38,209 143,424 37,021 5,116 14,212 2,037 Shares redeemed (5,322,378) (11,234,101) (1,006,028) (418,017) (14,990) (151,748) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) $ 1,368,835 $ (3,728,826) $ (16,953) $ 16,245 $ 63,372 $ (139,681) ============ ============ ============ ============ ============ ============
61 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares ----------------------------------------------- ----------------------------------------------- Nine Nine Months Ended Year Ended Year Ended Months Ended Year Ended Year Ended March 31, June 30, June 30, March 31, June 30, June 30, 2001 2000 1999 2001 2000 1999 ------------- ------------- ------------- ------------- ------------- ------------- High Yield Fund (Number of Shares) Shares sold 15,745,272 18,403,831 23,077,399 5,309,475 10,007,643 28,533,861 Shares issued as reinvestment of dividends 646,613 992,628 1,012,788 995,556 1,441,815 1,285,173 Shares redeemed (19,153,331) (24,529,807) (16,689,544) (9,975,735) (15,933,643) (7,951,333) ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in shares outstanding (2,761,446) (5,133,348) 7,400,643 (3,670,704) (4,484,185) 21,867,701 ============= ============= ============= ============= ============= ============= High Yield Fund ($) Shares sold $ 66,608,855 $ 97,912,317 $ 146,786,361 $ 22,503,028 $ 55,282,605 $ 177,876,596 Shares issued as reinvestment of dividends 2,819,377 5,460,638 6,265,752 4,335,584 7,894,426 7,911,056 Shares redeemed (82,304,218) (131,398,105) (106,793,532) (43,506,185) (86,943,865) (48,182,705) ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) $ (12,875,986) $ (28,025,150) $ 46,258,581 $ (16,667,573) $ (23,766,834) $ 137,604,947 ============= ============= ============= ============= ============= ============= Class C Shares Class M Shares -------------------------------------------- -------------------------------------------- Nine Nine Months Ended Year Ended Period Ended Months Ended Year Ended Year Ended March 31, June 30, June 30, March 31, June 30, June 30, 2001 2000 1999(1) 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ High Yield Fund (Number of Shares) Shares sold 2,026,872 2,837,111 93,124 95,583 127,747 2,189,902 Shares issued as reinvestment of dividends 34,886 28,522 -- 101,388 188,400 196,691 Shares redeemed (1,825,857) (1,778,397) -- (909,049) (1,858,983) (1,173,862) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding 235,901 1,087,236 93,124 (712,078) (1,542,836) 1,212,731 ============ ============ ============ ============ ============ ============ High Yield Fund ($) Shares sold $ 9,115,727 $ 15,174,843 $ 549,513 $ 395,381 $ 705,631 $ 13,575,288 Shares issued as reinvestment of dividends 151,350 153,864 58 444,144 1,036,966 1,217,509 Shares redeemed (8,303,880) (9,243,746) -- (3,916,982) (10,086,399) (7,119,713) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) $ 963,197 $ 6,084,961 $ 549,571 $ (3,077,457) $ (8,343,802) $ 7,673,084 ============ ============ ============ ============ ============ ============ Class Q Shares ------------------------------------------- Nine Months Ended Year Ended Period Ended March 31, June 30, June 30, 2001 2000 1999(2) -------- -------- -------- High Yield Fund (Number of Shares) Shares sold 3,863 -- 30 Shares issued as reinvestment of dividends 218 -- -- Shares redeemed (4,080) -- -- -------- -------- -------- Net increase (decrease) in shares outstanding 1 -- 30 ======== ======== ======== High Yield Fund ($) Shares sold $ 19,119 $ -- $ 5 Shares issued as reinvestment of dividends 957 2 -- Shares redeemed (15,911) -- -- -------- -------- -------- Net increase (decrease) $ 4,165 $ 2 $ 5 ======== ======== ========
- ---------- (1) Class C Shares commenced operations on May 27, 1999. (2) Class Q Shares commenced operations June 17, 1999. 62 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares ----------------------------------------------- ----------------------------------------------- Nine Three Nine Three Months Ended Year Ended Months Ended Months Ended Year Ended Months Ended March 31, June 30, June 30, March 31, June 30, June 30, 2001 2000 1999 2001 2000 1999 ------------- ------------- ------------- ------------- ------------- ------------- High Yield Fund II (Number of Shares) Shares sold 3,446,818 2,024,176 126,155 1,020,908 696,890 191,304 Shares issued in merger 3,571,051 1,920,197 -- 12,288,479 6,815,662 -- Shares issued as reinvestment of dividends 147,603 85,848 13,470 217,419 173,796 20,903 Shares redeemed (3,995,119) (2,296,078) (175,029) (2,284,363) (1,757,346) (279,006) ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) in shares outstanding 3,170,353 1,734,143 (35,404) 11,242,443 5,929,002 (66,799) ============= ============= ============= ============= ============= ============= High Yield Fund II ($) Shares sold $ 68,146,350 $ 22,289,353 $ 1,487,541 $ 118,247,344 $ 7,778,149 $ 2,244,780 Shares issued in merger 31,382,187 21,258,924 -- 108,181,979 75,437,662 -- Shares issued as reinvestment of dividends 1,393,773 948,687 158,555 2,064,653 1,923,761 246,357 Shares redeemed (37,459,282) (25,459,352) (2,045,836) (21,596,811) (19,459,549) (3,269,300) ------------- ------------- ------------- ------------- ------------- ------------- Net increase (decrease) $ 63,463,028 $ 19,037,612 $ (399,740) $ 206,897,165 $ 65,680,023 $ (778,163) ============= ============= ============= ============= ============= ============= Class C Shares Class Q Shares -------------------------------------------- -------------------------------------------- Nine Three Nine Three Months Ended Year Ended Months Ended Months Ended Year Ended Months Ended March 31, June 30, June 30, March 31, June 30, June 30, 2001 2000 1999 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ ------------ High Yield Fund II (Number of Shares) Shares sold 1,019,125 835,807 91,597 953,432 1,176,601 21,272 Shares issued in merger 2,033,709 876,081 -- -- -- -- Shares issued as reinvestment of dividends 38,546 60,087 11,731 30,998 38,331 7,915 Shares redeemed (1,406,811) (1,223,652) (310,405) (1,271,213) (857,666) (307,466) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding 1,684,569 548,323 (207,077) (286,783) 357,266 (278,279) ============ ============ ============ ============ ============ ============ High Yield Fund II ($) Shares sold $ 29,857,628 $ 9,284,852 $ 1,078,810 $ 8,874,061 $ 12,941,570 $ 249,643 Shares issued in merger 17,904,896 9,698,640 -- -- -- -- Shares issued as reinvestment of dividends 365,478 667,948 138,399 300,645 431,200 93,356 Shares redeemed (13,234,360) (13,540,976) (3,633,914) (12,170,488) (9,622,674) (3,614,065) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) $ 34,893,642 $ 6,110,464 $ (2,416,705) $ (2,995,782) $ 3,750,096 $ (3,271,066) ============ ============ ============ ============ ============ ============ Class T Shares ---------------------------- Nine Months Ended Period Ended March 31, June 30, 2001 2000(1) ------------ ------------ High Yield Fund II (Number of Shares) Shares sold 3,731 42,193 Shares issued in merger -- 3,237,823 Shares issued as reinvestment of dividends 115,386 45,794 Shares redeemed (890,992) (426,380) ------------ ------------ Net increase (decrease) in shares outstanding (771,875) 2,899,430 ============ ============ High Yield Fund II ($) Shares sold $ 36,929 $ 467,407 Shares issued in merger -- 35,837,128 Shares issued as reinvestment of dividends 1,098,699 495,594 Shares redeemed (8,630,230) (4,680,068) ------------ ------------ Net increase (decrease) $ (7,494,602) $ 32,120,061 ============ ============
- ---------- (1) Class T Shares commenced operations on March 31, 2000. 63 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares -------------------------------------------- --------------------------------------------- Five Five Months Ended Year Ended Period Ended Months Ended Year Ended Period Ended March 31, October 31, October 31, March 31, October 31, October 31, 2001 2000 1999(1) 2001 2000 1999(1) ------------ ------------ ------------ ------------ ------------ ------------ High Yield Bond Fund (Number of Shares) Shares sold 539,752 795,930 2,950,126 177,908(3) 263,509 245,269 Shares issued as reinvestment of dividends 139,603 308,536 184,187 12,429 17,410 4,506 Shares redeemed (702,638) (572,787) (69,091) (54,389) (118,328) (11,685) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding (23,283) 531,679 3,065,222 135,948 162,591 238,090 ============ ============ ============ ============ ============ ============ High Yield Bond Fund ($) Shares sold $ 5,066,037 $ 7,879,297 $ 29,549,612 $ 1,730,356(3) $ 2,578,002 $ 2,474,568 Shares issued as reinvestment of dividends 1,305,475 3,000,374 1,855,772 123,744 169,541 45,149 Shares redeemed (6,625,140) (5,535,027) (693,436) (513,327) (1,156,802) (116,958) ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) $ (253,628) $ 5,344,644 $ 30,711,948 $ 1,340,773 $ 1,590,741 $ 2,402,759 ============ ============ ============ ============ ============ ============ Class C Shares Class X Shares(6) ----------------------------------------- --------------------------------------------- Five Five Months Ended Year Ended Period Ended Months Ended Year Ended Period Ended March 31, October 31, October 31, March 31, October 31, October 31, 2001 2000 1999(1) 2001 2000 1999(2) ----------- ----------- ----------- ----------- ----------- ----------- High Yield Bond Fund (Number of Shares) Shares sold 23,538 117,601 77,919 2,714 47,258 87,496 Shares issued as reinvestment of dividends 4,599 9,355 1,787 -- 8,397 3,023 Shares redeemed (58,698) (33,988) (1,994) (116,250)(3) (29,041) (3,597) ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in shares outstanding (30,561) 92,968 77,712 (113,536) 26,614 86,922 =========== =========== =========== =========== =========== =========== High Yield Bond Fund ($) Shares sold $ 220,015 $ 1,149,721 $ 784,122 $ 25,056 $ 462,208 $ 885,049 Shares issued as reinvestment of dividends 42,924 90,648 17,932 -- 75,035 30,325 Shares redeemed (553,239) (328,499) (19,911) (1,165,012)(3) (276,571) (35,782) ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in shares outstanding $ (290,300) $ 911,870 $ 782,143 $(1,139,956) $ 260,672 $ 879,592 =========== =========== =========== =========== =========== =========== Class A Shares Class B Shares ---------------------------------- ---------------------------------- Nine Nine Months Ended Period Ended Months Ended Period Ended March 31, June 30, March 31, June 30, 2001 2000(4) 2001 2000(5) --------------- --------------- --------------- --------------- Money Market Fund (Number of Shares) Shares sold 1,150,554,753 1,169,128,592 68,493,003 61,428,458 Shares issued as reinvestment of dividends 1,351,356 401,613 431,723 197,336 Shares redeemed (1,154,040,303) (1,094,099,819) (48,838,827) (49,590,590) --------------- --------------- --------------- --------------- Net increase (decrease) in shares outstanding (2,134,194) 75,430,386 20,085,899 12,035,204 =============== =============== =============== =============== Pilgrim Money Market Fund ($) Shares sold $ 1,150,554,753 $ 1,169,128,592 $ 68,493,003 $ 61,428,458 Shares issued as reinvestment of dividends 1,351,356 401,613 431,723 197,336 Shares redeemed (1,154,036,641) (1,094,099,819) (48,838,828) (49,590,590) --------------- --------------- --------------- --------------- Net increase (decrease) $ (2,130,532) $ 75,430,386 $ 20,085,898 $ 12,035,204 =============== =============== =============== =============== Class C Shares ---------------------------------- Nine Months Ended Period Ended March 31, June 30, 2001 2000(5) --------------- --------------- Money Market Fund (Number of Shares) Shares sold 223,189,271 63,807,062 Shares issued as reinvestment of dividends 261,553 62,389 Shares redeemed (201,473,468) (58,438,711) --------------- --------------- Net increase (decrease) in shares outstanding 21,977,356 5,430,740 =============== =============== Pilgrim Money Market Fund ($) Shares sold $ 223,189,271 $ 63,807,062 Shares issued as reinvestment of dividends 261,553 62,389 Shares redeemed (201,473,468) (58,438,711) --------------- --------------- Net increase (decrease) $ 21,977,356 $ 5,430,740 =============== ===============
- ---------- (1) Class A, B and C Shares commenced operations on December 15, 1998. (2) Class X Shares commenced operations on January 11, 1999. (3) Amounts reflect 115,804 of Class X shares, valued at $1,069,603, that were converted into Class B shares on November 17, 2000. (4) Class A Shares commenced operations on July 12, 1999. (5) Class B and C Shares commenced operations on November 24, 1999. (6) Effective November 17, 2000, Class X Shares are no longer being offered for sale. 64 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares --------------------------------------------- ------------------------------------------------ Five Five Months Ended Year Ended Period Ended Months Ended Year Ended Period Ended March 31, October 31, October 31, March 31, October 31, October 31, 2001 2000 1999(1) 2001 2000 1999(1) ------------- ------------- ------------- ------------- ------------- ------------- ING Pilgrim Money Market Fund (Number of Shares) Shares sold 431,641,207 880,095,214 325,378,899 1,038,248(4) 11,939,590 1,897,590 Shares issued as reinvestment of dividends 11,100,736 19,495,251 3,010,550 62,429 120,224 7,368 Shares redeemed (367,751,613) (687,044,099) (100,268,229) (1,091,847) (10,526,771) (734,755) ------------- ------------- ------------- ------------- ------------- ------------- Net increase in shares outstanding 74,990,330 212,546,366 228,121,220 8,830 1,533,043 1,170,203 ============= ============= ============= ============= ============= ============= ING Pilgrim Money Market Fund ($) Shares sold $ 431,641,207 $ 880,095,214 $ 325,378,899 $ 1,038,248(4) $ 11,939,590 $ 1,897,590 Shares issued as reinvestment of dividends 11,100,736 19,495,251 3,010,550 62,429 120,224 7,368 Shares redeemed (367,751,613) (687,044,099) (100,268,229) (1,091,847) (10,526,772) (734,755) ------------- ------------- ------------- ------------- ------------- ------------- Net increase $ 74,990,330 $ 212,546,366 $ 228,121,220 $ 8,830 $ 1,533,042 $ 1,170,203 ============= ============= ============= ============= ============= ============= Class C Shares Class I Shares -------------------------------------------- -------------------------------------------- Five Five Months Ended Year Ended Period Ended Months Ended Year Ended Period Ended March 31, October 31, October 31, March 31, October 31, October 31, 2001 2000 1999(1) 2001 2000 1999(2) ------------ ------------ ------------ ------------ ------------ ------------ ING Pilgrim Money Market Fund (Number of Shares) Shares sold 1,847,196 4,458,551 675,705 -- 39,600,100 1,901,244 Shares issued as reinvestment of dividends 45,292 38,998 5,450 251,087 863,004 5,232 Shares redeemed (1,344,060) (2,907,001) (239,212) (1,494,250) (30,307,606) -- ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding 548,428 1,590,548 441,943 (1,243,163) 10,155,498 1,906,476 ============ ============ ============ ============ ============ ============ ING Pilgrim Money Market Fund ($) Shares sold $ 1,847,196 $ 4,458,551 $ 675,705 $ -- $ 39,600,100 $ 1,901,244 Shares issued as reinvestment of dividends 45,292 38,998 5,450 251,087 863,004 5,232 Shares redeemed (1,344,060) (2,907,002) (239,212) (1,494,250) (30,307,606) -- ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) $ 548,428 $ 1,590,547 $ 441,943 $ (1,243,163) $ 10,155,498 $ 1,906,476 ============ ============ ============ ============ ============ ============ Class X Shares(5) -------------------------------------------------- Five Months Ended Year Ended Period Ended March 31, October 31, October 31, 2001 2000 1999(2) ----------- ----------- ----------- ING Pilgrim Money Market Fund (Number of Shares) Shares sold 6,199 1,107,597 2,378,957 Shares issued as reinvestment of dividends -- 21,226 19,653 Shares redeemed (388,098)(4) (2,258,571) (886,834) ----------- ----------- ----------- Net increase (decrease) in shares outstanding (381,899) (1,129,748) 1,511,776 =========== =========== =========== ING Pilgrim Money Market Fund ($) Shares sold $ 6,199 $ 1,107,597 $ 2,378,957 Shares issued as reinvestment of dividends -- 21,226 19,653 Shares redeemed (388,098)(4) (2,258,570) (886,834) ----------- ----------- ----------- Net increase (decrease) in shares outstanding $ (381,899) $(1,129,747) $ 1,511,776 =========== =========== ===========
- ---------- (1) Class A, B, and C Shares commenced operations on December 15, 1998. (2) Class I Shares commenced operations on October 13, 1999. (3) Class X Shares commenced operations on January 20, 1999. (4) Amounts reflect 381,646 of Class X shares, valued at $381,646, that were converted into Class B shares on November 17, 2000. (5) Effective November 17, 2000, Class X Shares are no longer being offered for sale. 65 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - --------------------------------------------------------------------------------
Three Months Ended Year Ended Year Ended March 31, December 31, December 31, 2001 2000 1999 ------------- ------------- ------------- Money Market Trust (Number of Shares) Shares sold 16,156,660 85,250,442 100,237,881 Shares issued as reinvestment of dividends 724,771 4,121,169 3,418,339 Shares redeemed (16,555,408) (124,370,412) (93,294,926) ------------- ------------- ------------- Net increase (decrease) in shares outstanding 326,023 (34,998,801) 10,361,294 ============= ============= ============= Money Market Trust ($) Shares sold $ 16,156,660 $ 85,250,442 $ 100,237,881 Shares issued as reinvestment of dividends 724,771 4,121,169 3,418,339 Shares redeemed (16,555,408) (124,370,412) (93,294,926) ------------- ------------- ------------- Net increase (decrease) $ 326,023 $ (34,998,801) $ 10,361,294 ============= ============= =============
NOTE 12 -- FORWARD FOREIGN CURRENCY CONTRACTS At March 31, 2001, the Strategic Income Fund had the following forward foreign currency contracts:
Currency In Net to Settlement Exchange Unrealized Appreciation Sell Date For Value$ (Depreciation) ---- ---- --- ------ -------------- Danish Krone USD DKK 15,441,000 05/18/01 1,879,839 $1,819,621 $ 60,218 Euro USD EUR 3,888,000 05/18/01 3,527,194 3,421,429 105,765 EUR 490,000 05/18/01 463,172 431,198 31,974 EUR 1,755,000 05/18/01 1,657,597 1,544,395 113,202 British Pound USD GBP 2,730,000 05/18/01 3,935,022 3,871,533 63,489 Swedish Kona USD SEK 9,271,000 05/18/01 920,290 894,484 25,806 United States Dollar EUR USD 2,051,032 05/18/01 2,245,000 1,975,594 (75,438) --------- $ 325,016 =========
NOTE 13 -- CREDIT RISK AND DEFAULTED SECURITIES Although each Fund has a diversified portfolio, High Yield Fund II had 28% of its portfolio invested in lower rated and comparable quality unrated high yield securities. Investments in high yield securities are accompanied by a greater degree of credit risk and such lower rated securities tend to be more sensitive to economic conditions than higher rated securities. The risk of loss due to default by the issuer may be significantly greater for the holders of high yielding securities, because such securities are generally unsecured and are often subordinated to other creditors of the issuer. At March 31, 2001, the High Yield Fund II held SA Telecommunications, Inc., US Interactive, Poland Telecom, ICG Services, Inc. and Russell Stanley defaulted securities. The aggregate value for these securities was $3,976,764 at March 31, 2001. For financial reporting purposes, it is each Fund's accounting practice to discontinue the accrual of income and to provide an estimate for probable losses due to unpaid interest income on defaulted bonds for the current reporting period. 66 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- NOTE 14 -- FEDERAL INCOME TAX -- CAPITAL LOSS CARRYFORWARD At March 31, 2001, capital loss carryforwards were as follows: Expiration Amount Dates ------ ----- GNMA Fund $ 15,944,450 2003 to 2008 National-Tax Exempt Bond Fund 58,032 2008 Strategic Income Fund 7,375,189 2006 to 2009 High Yield Fund 106,986,801 2002 to 2009 High Yield Fund II 348,293,074 2004 to 2009 High Yield Bond Fund 904,574 2008 During the period ended March 31, 2001, $1,301,325 of capital loss carryforwards of High Yield Fund II expired. Under the current tax law, capital and currency losses realized after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. For the period ended March 31, 2001, the Funds elected to defer losses occurring between November 1, 2000 and March 31, 2001 as follows: Post October capital/currency Fund losses deferred ---- --------------- Intermediate Bond Fund $ 108,808 Strategic Income Fund 166,952 High Yield Fund 43,400,212 High Yield Fund II 11,203,875 High Yield Bond Fund 577,558 NOTE 15 -- CHANGES IN THE FUND'S YEAR-END Effective March 31, 2001 the Funds changed their fiscal year-end to March 31 from: June 30 for Strategic Income Fund, High Yield Fund, High Yield Fund II and Pilgrim Money Market Fund; October 31 for National Tax-Exempt Bond Fund, Intermediate Bond Fund, High Yield Bond Fund and ING Pilgrim Money Market Fund; December 31 for GNMA Income Fund and Lexington Money Market Trust. This change was done to facilitate the administration of the Funds. NOTE 16 -- REORGANIZATIONS On February 23, 2001 and March 23, 2001, certain Funds, as listed below (each an: "Acquiring Fund"), acquired the assets and certain liabilities of other Funds, also listed below (each an "Acquired Fund"), in a tax-free reorganization in exchange for shares of the Acquiring Fund, pursuant to a plan of reorganization approved by the Acquired Fund's shareholders. The number and value of shares issued by the Acquiring Fund are presented in Note 11 -- Capital Shares. Net assets and unrealized appreciation/(depreciation) as of the reorganization date were as follows:
Acquired Fund Unrealized Acquiring Acquired Total net assets of Total net assets of appreciation Fund Fund Acquired Fund (000) Acquiring Fund (000) (depreciation)(000) ---- ---- ------------------- -------------------- ------------------- GNMA Pilgrim Government Securities Income Fund Income Fund $121,742 $391,489 $ 2,145 Strategic Pilgrim Global Income Fund 14,716 13,785 (104) Income Fund Pilgrim International Bond Fund 23,582 13,785 (799) High Yield Pilgrim High Total Return Fund I 106,620 140,145 (135,704) Fund II Pilgrim High Total Return Fund II 50,849 140,145 (28,974)
The net assets of GNMA Income Fund, Strategic Income Fund and High Yield Fund II after the acquisition were approximately $513,231,000, $52,083,000 and $297,614,000, respectively. On March 31, 2000, the High Yield Fund II ("Acquiring Fund"), acquired the assets and certain liabilities of Pilgrim High Yield III Fund ("Acquired Fund") in a tax-free reorganization in exchange for shares of the Acquiring Fund, pursuant to a plan of reorganization approved by the Acquired Fund's shareholders. The number and value of shares issued by the Acquiring Fund is presented in Note 11 -- Capital Shares. The net assets and unrealized depreciation of the Acquired Fund was $142,232,353 and $(755,931), respectively. The Acquiring Funds net assets prior to and immediately after the acquisition was $67,494,309 and $209,726,662, respectively. 67 - ------- Pilgrim Funds - ------- NOTES TO FINANCIAL STATEMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- NOTE 17 -- SUBSEQUENT EVENTS (Unaudited) Merger involving Managers. On April 30, 2001, ING Mutual Funds Management, LLC merged into ING Pilgrim Investments, LLC. All contracts, obligations and assets of ING Mutual Funds Management, LLC were assumed by ING Pilgrim Investments, LLC pursuant to the merger. Dividends. Subsequent to March 31, 2001 the following Funds declared dividends from net investment income of: Per Share Amount Payable Date Record Date ------ ------------ ----------- GNMA Income Fund Class A $0.0390 April 04, 2001 March 30, 2001 Class B $0.0350 April 04, 2001 March 30, 2001 Class C $0.0350 April 04, 2001 March 30, 2001 Class M $0.0360 April 04, 2001 March 30, 2001 Class Q $0.0390 April 04, 2001 March 30, 2001 Class T $0.0360 April 04, 2001 March 30, 2001 Class A $0.0400 May 03, 2001 April 30, 2001 Class B $0.0360 May 03, 2001 April 30, 2001 Class C $0.0360 May 03, 2001 April 30, 2001 Class M $0.0370 May 03, 2001 April 30, 2001 Class Q $0.0400 May 03, 2001 April 30, 2001 Class T $0.0370 May 03, 2001 April 30, 2001 Pilgrim National Tax-Exempt Bond Fund Class A $0.0323 May 01, 2001 Daily Class B $0.0259 May 01, 2001 Daily Class C $0.0258 May 01, 2001 Daily Pilgrim Intermediate Bond Fund Class A $0.0524 May 01, 2001 Daily Class B $0.0469 May 01, 2001 Daily Class C $0.0472 May 01, 2001 Daily Pilgrim Strategic Income Fund Class A $0.0540 April 04, 2001 March 30, 2001 Class B $0.0500 April 04, 2001 March 30, 2001 Class C $0.0500 April 04, 2001 March 30, 2001 Class Q $0.0550 April 04, 2001 March 30, 2001 Class A $0.0540 May 03, 2001 April 30, 2001 Class B $0.0500 May 03, 2001 April 30, 2001 Class C $0.0500 May 03, 2001 April 30, 2001 Class Q $0.0540 May 03, 2001 April 30, 2001 Pilgrim High Yield Fund Class A $0.0450 April 04, 2001 March 30, 2001 Class B $0.0430 April 04, 2001 March 30, 2001 Class C $0.0430 April 04, 2001 March 30, 2001 Class M $0.0430 April 04, 2001 March 31, 2001 Class Q $0.0460 April 04, 2001 March 30, 2001 Class A $0.0450 May 03, 2001 April 30, 2001 Class B $0.0430 May 03, 2001 April 30, 2001 Class C $0.0430 May 03, 2001 April 30, 2001 Class M $0.0430 May 03, 2001 April 30, 2001 Class Q $0.0460 May 03, 2001 April 30, 2001 Pilgrim High Yield Fund II Class A $0.1600 May 01, 2001 Daily Class B $0.1520 May 01, 2001 Daily Class C $0.1540 May 01, 2001 Daily Class Q $0.1610 May 01, 2001 Daily Class T $0.1550 May 01, 2001 Daily Pilgrim High Yield Bond Fund Class A $0.0686 May 01, 2001 Daily Class B $0.0630 May 01, 2001 Daily Class C $0.0642 May 01, 2001 Daily Pilgrim Money Market Fund Class A $0.0034 May 01, 2001 Daily Class B $0.0033 May 01, 2001 Daily Class C $0.0028 May 01, 2001 Daily ING Pilgrim Money Market Fund Class A $0.0038 May 01, 2001 Daily Class B $0.0032 May 01, 2001 Daily Class C $0.0032 May 01, 2001 Daily Class I $0.0039 May 01, 2001 Daily Lexington Money Market Trust Class A $0.0034 May 01, 2001 Daily 68 Pilgrim GNMA Income Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY OBLIGATIONS: 91.29% Federal Home Loan Mortgage Corportation: 4.80% $ 9,573,938 6.500% due 06/01/16 $ 9,666,712 3,595,284 7.000% due 11/01/14 3,676,177 9,465,722 7.500% due 12/01/14 - 01/01/30 9,725,155 2,228,771 8.000% due 01/01/30 2,300,492 ------------ 25,368,536 ------------ Federal National Mortgage Corportation: 2.50% 3,348,948 6.500% due 06/01/14 - 12/01/18 3,369,816 1,636,015 7.000% due 03/01/15 1,675,683 1,814,982 7.500% due 05/01/28 1,855,819 6,075,039 8.500% due 08/01/11 - 09/01/15 6,316,164 ------------ 13,217,482 ------------ Government National Mortgage Association: 83.99% 233,983 5.500% due 04/20/29 222,508 574,650 5.650% due 07/15/29 570,755 54,919,358 6.000% due 07/15/28 - 02/15/31 53,923,296 4,747,797 6.250% due 04/15/26 - 04/15/28 4,683,165 140,093 6.340% due 02/15/29 141,623 588,157 6.350% due 09/15/33 588,028 5,929,429 6.400% due 10/15/33 - 08/15/38 5,944,292 1,198,189 6.470% due 09/15/33 1,205,808 39,560,999 6.500% due 02/15/22 - 02/15/40 39,663,845 15,669,852 6.625% due 07/15/33 - 01/15/40 15,892,326 6,973,052 6.650% due 12/15/13 - 11/15/39 7,048,913 3,572,840 6.670% due 01/15/40 3,628,436 6,294,014 6.688% due 07/15/40 6,435,932 $ 398,178 6.700% due 08/15/14 - 12/15/14 396,104 16,967,537(1) 6.750% due 12/15/01 - 05/15/40 17,038,289 2,894,673 6.810% due 07/15/39 2,967,481 3,187,483 6.820% due 04/15/34 3,278,946 1,831,307 6.870% due 03/15/39 1,821,006 9,174,120 6.875% due 01/15/29 - 02/15/40 9,456,035 2,990,221 6.950% due 12/15/29 3,066,552 20,425,651 7.000% due 09/15/23 - 06/15/34 20,811,530 984,393 7.050% due 07/15/29 997,313 5,674,000 (1) 7.100% due 08/15/01 5,840,674 9,081,808 7.125% due 09/15/39 9,488,280 2,279,793 7.200% due 04/15/34 2,399,687 5,791,725 7.250% due 05/15/22 - 06/15/29 5,862,795 18,668,492 7.450% due 03/15/29 19,333,557 51,582,564 7.500% due 04/15/13 - 05/15/31 52,967,528 1,996,431 7.600% due 06/15/40 2,052,029 12,633,763 7.625% due 08/15/14 - 07/15/38 13,542,702 27,500,642(1) 7.650% due 09/15/02 - 05/15/26 28,972,481 687,902 7.700% due 08/15/13 712,646 6,138,526 7.750% due 06/15/14 - 01/15/36 6,553,702 1,238,069(1) 7.800% due 10/15/02 - 07/15/19 1,312,649 10,256,689 7.875% due 09/15/29 - 04/15/38 11,102,786 25,701,640(1) 8.000% due 08/15/01 - 06/15/40 27,270,400 611,648 8.050% due 07/15/19 - 04/15/21 633,478 1,597,875 8.100% due 06/15/12 - 07/15/12 1,626,994 $ 5,046,076 8.125% due 05/15/38 5,458,355 9,138,674 8.150% due 12/15/11 - 09/15/15 9,317,112 7,534,488 8.200% due 10/15/11 - 05/15/13 7,707,574 7,676,801(1) 8.250% due 07/15/01 - 12/15/37 7,948,798 12,121,782 8.500% due 04/15/12 - 04/15/32 12,280,881 6,749,308 8.750% due 11/15/17 - 06/15/27 7,098,890 2,255,196 9.000% due 05/15/20 - 12/15/34 2,439,318 1,402,983 9.250% due 06/15/30 1,472,256 996,071 10.250% due 08/15/29 1,138,177 ------------ 444,315,932 ------------ Total U.S. Government Agency Obligations (Cost $467,077,778) 482,901,950 ------------ U.S. TREASURY NOTES: 4.52% 10,000,000 3.500% due 01/15/11 10,228,380 13,000,000 5.750% due 11/15/05 - 08/15/10 13,674,032 ------------ Total U.S. Treasury Notes (Cost $ 23,627,436) 23,902,412 ------------ Total Long-Term Investments (Cost $490,705,214) 506,804,362 ------------ See Accompanying Notes to Financial Statements 69 Pilgrim GNMA Income Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- SHORT TERM INVESTMENTS: 9.52% U.S. Treasury Obligations: 9.52% $ 300,000 U.S. Treasury Bill, 4.900% due 04/12/01 $ 299,551 17,100,000 U.S. Treasury Bill, 4.800% due 04/19/01 17,058,960 25,000,000 U.S. Treasury Bill, 4.870% due 04/19/01 24,939,125 7,500,000 U.S. Treasury Bill, 5.020% due 04/19/01 7,481,175 600,000 U.S. Treasury Bill, 5.640% due 06/14/01 593,044 ------------ Total Short-Term Investments (Cost $ 50,371,855) 50,371,855 ------------ Total Investments in Securities (Cost $541,077,069)* 105.33% 557,176,217 Other Assets and Liabilities-Net -5.33% (28,196,352) ------- ------------ Net Assets 100.00% $528,979,865 ======= ============ * Cost for federal income tax purposes is $541,102,046. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 16,812,666 Gross Unrealized Depreciation (738,495) ------------ Net Unrealized Appreciation $ 16,074,171 ============ (1) Some or all of this security are construction loan securities issued on a when-issued basis (see Note 10). See Accompanying Notes to Financial Statements 70 Pilgrim National Tax-Exempt Bond Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 - -------------------------------------------------------------------------------- Principal Amount Security Ratings(1) Value - -------------------------------------------------------------------------------- MUNICIPAL SECURITIES: 96.00% Arizona: 4.81% $1,100,000 Salt River Project Agricultural Improvement & Power District Electrical Systems Revenue, 5.750%, due 01/01/19 Aa2/AA $ 1,112,133 ------------ Colorado: 4.53% 1,000,000 Interlocken Metropolitan District, Colorado Reference, Series A, 5.750%, due 12/15/19 NR/AA 1,046,220 ------------ Connecticut: 4.59% 1,000,000 Connecticut State General Obligation, 5.500%, due 11/01/18 Aa2/AA 1,059,380 ------------ Illinois: 10.51% 1,000,000 Chicago Illinois Board Of Education, Chicago School Reform, AMBAC Insured, 5.750%, due 12/01/27 Aaa/AAA 1,050,800 1,250,000 De Kalb Ogle Etc Counties, Illinois Community College District No. 523, FSA Insured, 5.750%, due 02/01/11 Aaa/NR 1,377,650 ------------ 2,428,450 ------------ Indianapolis: 4.36% 1,000,000 Indianapolis Industrial Local Public Improvement Board, Series E, 5.750%, due 02/01/29 NR/AA 1,006,220 ------------ Massachussettes: 4.58% 1,000,000 Massachusetts State Port Authority Revenue, Series C, 5.750%, due 07/01/29 Aa3/AA- 1,059,230 ------------ Nevada: 4.45% 1,000,000 Clark County, Nevada School District Building & Renovation, Series B, FGIC Insured, 5.750%, due 06/15/02 Aaa/AAA 1,028,950 ------------ New Hampshire: 4.57% 1,000,000 Manchester New Hampshire Housing & Redevelopment Authority Revenue, Series A, 5.750%, due 01/01/08 Baa3/A 1,055,340 ------------ New York: 13.20% 1,000,000 New York, New York General Obligation, Series H, 5.000%, due 03/15/29 A2/A 962,830 1,000,000 New York State Dormitory Authority Revenue, Series A, FSA Insured, 5.500%, due 07/01/15 Aaa/AAA 1,071,480 1,000,000 New York State Power Authority Revenue, 4.900%, due 11/15/13 Aa2/AA- 1,015,340 ------------ 3,049,650 ------------ Oklahoma: 9.07% 1,000,000 Oklahoma State Industrial Authority Revenue Reference, Health System Obligation Group, Series A, 6.000%, due 08/15/19 Aaa/AAA 1,073,230 1,000,000 Payne County Oklahoma Economic Development Authority, Student Housing Revenue, Collegiate Housing Foundation, Series A, 6.375%, due 01/01/30 Baa3/NR 1,023,170 ------------ 2,096,400 ------------ Pennsylvania: 8.95% $1,000,000 Allegheny County Pennsylvania Port Authority Special Revenue, MBIA Insured, 6.000%, due 01/03/24 Aaa/AAA 1,133,500 1,000,000 Philadelphia Pennsylvania Hospitals & Higher Education Facilities Authority Revenue, Jefferson Health System, Series A, 5.000%, due 05/15/18 A1/AA- 933,880 ------------ 2,067,380 ------------ Rhode Island: 4.44% 1,000,000 Rhode Island Clean Water Finance Agency Revenue, 5.000%, due 10/01/14 Aaa/AAA 1,024,710 ------------ Texas: 9.17% 1,000,000 Laredo Texas Independent School District, General Obligation, PSF Guaranteed, 5.500%, due 08/01/20 Aaa/AAA 1,032,640 1,050,000 San Felipe Del Rio Texas Independent School District, General Obligation, PSF Guaranteed, 5.500%, due 08/15/19 Aaa/AAA 1,086,855 ------------ 2,119,495 ------------ Washington: 4.14% 1,000,000 Seattle Washington Municipal Light & Power Revenue, Series B, MBIA Insured, 5.000%, due 06/01/24 Aaa/AAA 956,830 ------------ West Virgina: 4.63% 1,000,000 West Virginia State Hospial Finance Authority, Hospital Revenue, Oak Hill Hospital, Series B, 6.750%, due 09/01/30 A2/NR 1,069,010 ------------ Total Municipal Securities (Cost $20,953,721) 22,179,398 ------------ REPURCHASE AGREEMENT: 2.73% 631,000 State Street Repurchase Agreement dated 03/30/01, 5.320%, due 04/02/01, $631,280 to be received upon repurchase (Collateralized by 630,000 FNMA, 5.500% due 10/16/03, Market Value 645,902) 631,000 ------------ Total Investments in Securities (Cost $21,584,721)* 98.73% $ 22,810,398 Other Assets and Liabilities-Net 1.27% 292,260 ------ ------------ Net Assets 100.00% $ 23,102,658 ====== ============ * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 1,234,377 Gross Unrealized Depreciation (8,700) ------------ Net Unrealized Appreciation $ 1,225,677 ============ (1) Credit ratings are provided by Moody's Investor Service, Inc. and Standard & Poor's Rating Group (Unaudited). See Accompanying Notes to Financial Statements 71 Pilgrim Intermediate Bond PORTFOLIO OF INVESTMENTS as of March 31, 2001 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 55.25% Aerospace/Defense: 0.74% $ 300,000 # Northrop Grumman Corp, 7.750%, due 02/15/31 $ 303,096 ------------ Agriculture: 2.45% 1,000,000 RJ Reynolds Tobacco Holdings, Inc., 7.375%, due 05/15/03 999,042 ------------ Airlines: 3.89% 1,000,000 Delta Air Lines, Inc., 7.779%, due 11/18/05 1,051,300 500,000 Delta Air Lines, Inc., 7.570%, due 11/18/10 538,405 ------------ 1,589,705 ------------ Auto Parts & Equipment: 2.19% 1,000,000 Copper Rubber & Tire Co., 7.625%, due 03/15/27 895,150 ------------ Diversified Financial Services: 6.13% 1,000,000 Capital One Bank, 6.875%, due 02/01/06 973,399 500,000 Ford Credit Co., 7.375%, due 02/01/11 518,123 500,000 Goldman Sachs Group, Inc., 6.875%, due 01/15/11 507,463 500,000 # Pemex Project Funding Master Trust, 9.125%, due 10/13/10 507,500 ------------ 2,506,485 ------------ Electric: 6.95% 500,000 Calpine Corp., 8.500%, due 02/15/11 514,387 500,000 Calpine Corp., 8.250%, due 08/15/05 513,695 1,000,000 Dominion Resources Capital Trust III, 8.400%, due 01/15/31 1,018,128 250,000 Florida Power & Light Co., 6.875%, due 12/01/05 261,933 500,000 NSTAR, 8.000%, due 02/15/10 533,094 ------------ 2,841,237 ------------ Gas: 0.62% $ 250,000 Southern California Gas Co., 6.380%, due 10/29/01 251,898 ------------ Healthcare -- Services: 1.24% 500,000 HCA -- The Healthcare Company, 7.875%, due 02/01/11 505,888 ------------ Insurance: 0.66% 250,000 Axa, 8.600%, due 12/15/30 270,370 ------------ Lodging: 1.90% 250,000 # Harrah's Operating Company, Inc., 8.000%, due 02/01/11 256,355 500,000 Park Place Entertainment Corp., 9.375%, due 02/15/07 521,250 ------------ 777,605 ------------ Media: 8.50% 1,000,000 Century Communications, 0.000%, due 03/15/03 810,000 500,000 Chancellor Media, Inc., 8.000%, due 11/01/08 521,250 300,000 News America Inc., 7.625%, due 11/30/28 276,738 1,000,000 @@ Rogers Cablesystems Ltd., 10.000%, due 03/15/05 1,087,500 700,000 Time Warner Inc., 8.050%, due 01/15/16 779,409 ------------ 3,474,897 ------------ Miscellaneous Manufacturing: 2.48% 1,000,000 @@ Tyco International Group SA, 6.875%, due 09/05/02 1,015,488 ------------ Oil & Gas: 5.85% $ 500,000 @@ Gulf Canada Resources Limited, 8.375%, due 11/15/05 542,500 500,000 Louis Dreyfus Natural Gas, 9.250%, due 06/15/04 537,302 300,000 Occidental Petroleum Corp., 7.375%, due 11/15/08 314,020 1,000,000 # Transocean Sedco Forex, Inc., 7.500%, due 04/15/31 995,350 ------------ 2,389,172 ------------ Pharmaceuticals: 1.23% 500,000 # American Home Products Corp., 6.700%, due 03/15/11 501,959 ------------ Pipelines: 1.90% 500,000 Duke Energy Field Services LLC, 7.500%, due 08/16/05 526,342 250,000 Dynegy Holdings, Inc., 6.875%, due 04/01/11 248,665 ------------ 775,007 ------------ Real Estate: 1.24% 500,000 # Simon DeBartolo Property Group LP, 7.375%, due 01/20/06 506,218 ------------ REITS: 2.46% 1,000,000 HRPT Properties Trust, 6.750% due 12/18/02 1,004,793 ------------ Telecommunications: 2.47% 500,000 @@# France Telecom, 7.750%, due 03/01/11 505,136 500,000 @@# France Telecom, 8.500%, due 03/01/31 506,260 ------------ 1,011,396 ------------ Transportation: 2.35% 956,654 FedEx Corp., 6.720%, due 01/15/22 961,776 ------------ Total Corporate Bonds (Cost $ 22,173,009) 22,581,182 ------------ See Accompanying Notes to Financial Statements 72 Pilgrim Intermediate Bond PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY OBLIGATIONS: 21.76% Federal Home Loan Mortgage Association: 16.90% $ 652,634 6.000%, due 05/01/29 $ 637,326 1,228,834 6.500%, due 09/01/14 1,245,628 1,103,041 6.500%, due 04/01/29 1,100,564 677,064 6.500%, due 05/01/29 675,544 1,211,893 7.000%, due 11/01/14 1,240,331 554,138 7.000%, due 10/01/29 561,296 928,574 7.500%, due 04/01/30 949,880 479,153 8.000%, due 05/01/30 494,685 ------------ 6,905,254 ------------ Government National Mortgage Association: 3.62% 689,274 7.000%, due 09/15/29 700,510 113,672 10.000%, due 03/15/19 125,203 82,904 10.000%, due 01/15/21 90,826 260,643 10.000%, due 01/15/21 285,547 255,139 10.000%, due 01/15/21 279,517 ------------ 1,481,603 ------------ Other U.S. Government Agencies: 1.24% 500,000 Tennessee Valley Authority, 6.000%, due 03/15/13 505,455 ------------ Total U.S. Government Agency Obligations (Cost $8,616,892) 8,892,312 ------------ U.S. TREASURY OBLIGATIONS: 7.70% U.S. Treasury Bonds: 0.94% $ 64,000 6.250%, due 05/15/30 70,310 225,000 9.125%, due 05/15/18 313,418 ------------ 383,728 ------------ U.S. Treasury Notes: 6.76% 793,000 5.000%, due 02/15/11 797,586 1,006,000 5.625%, due 11/30/02 1,028,141 896,000 5.750%, due 11/15/05 939,821 ------------ 2,765,548 ------------ Total U.S. Treasury Obligations (Cost $3,144,702) 3,149,276 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET-BACKED SECURITIES: 5.66% Automobile: 2.50% 1,000,000 Ford Credit Auto Owner Trust, 6.650%, due 10/15/03 1,021,556 ------------ Investment Companies: 1.95% 803,742 # Garanti Trade Payment Rights Master Trust, 10.810%, due 06/15/04 797,954 ------------ Mortgage -- Residential: 1.21% 480,800 Residential Accredit Loans, Inc., 7.750% due, 05/25/27 495,154 ------------ Total CMO's and Asset Backed Securities (Cost $2,262,500) 2,314,664 ------------ Shares Security Value - -------------------------------------------------------------------------------- PREFERRED STOCK: 1.49% Media: 1.49% 557,980 & CSC Holdings, Inc. $ 608,194 ------------ Total Preferred Stock (Cost $664,957) 608,194 ------------ Total Long-Term Investments (Cost $36,837,666) 37,545,628 ------------ Principal Amount Security Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 5.41% Repurchase Agreement: 5.41% $2,213,000 State Street Repurchase Agreement dated 03/30/01, 5.32% due 04/02/01, $2,213,981 to be received upon repurchase (Collateralized by $2,205,000 FNMA 5.500% Market Value $2,260,656, due 10/16/03) 2,213,000 ------------ Total Investments in Securities (Cost $ 39,050,666)* 97.27% $ 39,758,628 Other Assets and Liabilities-Net 2.73% 1,116,161 ------ ------------ Net Assets 100.00% $ 40,874,789 ====== ============ # Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. @@ Foreign Issuer & Payment-in-kind * Cost for federal income tax purposes is $39,677,997. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 270,915 Gross Unrealized Depreciation (190,284) ------------ Net Unrealized Appreciation $ 80,631 ============ See Accompanying Notes to Financial Statements 73 Pilgrim Strategic Income Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 45.24% Aerospace/Defense: 0.16% $ 175,000 XX Simula, Inc., 8.000%, due 05/01/04 $ 87,500 ------------ Airlines: 0.11% 60,000 Atlas Air Worldwide Holdings, Inc., 9.375%, due 11/15/06 60,600 ------------ Banks: 6.82% 155,000 @@ Banco Santander-Chile, 6.500%, due 11/01/05 157,618 450,000(1) @@ Bank Nederlandse Gemeenten, 7.750%, due 08/13/03 673,028 700,000(1) @@ European Investment Bank, 7.000%, due 12/08/03 1,035,886 730,000(1) @@ KFW International Finance, 6.000%, due 10/27/03 1,052,622 4,557,000(2) @@ Realkredit Danmark A/S, 6.000%, due 10/01/29 522,049 200,000 Wachovia Corp., 6.605%, due 10/01/25 204,150 ------------ 3,645,353 ------------ Chemicals: 0.20% 225,000 Sterling Chemicals, Inc., 11.750%, due 08/15/06 105,188 ------------ Commercial Banks -- Non U.S.: 0.72% 3,352,000(2) @@ Danske Kredit, 6.000%, due 10/01/29 384,202 ------------ Commercial Services: 1.57% 475,000 Mail-Well, Inc., 8.750%, due 12/15/08 406,125 815,000 Neff Corp., 10.250%, due 06/01/08 346,375 25,000 United Rentals, Inc., 8.800%, due 08/15/08 22,000 75,000 United Rentals, Inc., 9.000%, due 04/01/09 66,750 ------------ 841,250 ------------ Computers: 0.06% 100,000 Globix Corp., 12.500%, due 02/01/10 29,500 ------------ Diversified Financial Services: 1.48% 60,000 @@# Cerro Negro Finance Ltd, 7.330%, due 12/01/09 54,854 200,000 Citigroup, Inc., 5.700%, due 02/06/04 202,021 200,000 Household Finance Corp., 8.000%, due 05/09/05 214,350 440,000 Madison River Capital LLC/Madison River Finance Corp, 13.250%, due 03/01/10 319,000 1,000(2) @@ Unikredit Realkredit, 6.000%, due 07/01/29 115 ------------ 790,340 ------------ Electric: 2.80% 300,000 AES Corp., 9.375%, due 09/15/10 315,000 405,000 Calpine Corp., 8.625%, due 08/15/10 418,964 350,000 CMS Energy Corp., 9.875%, due 10/15/07 374,900 100,000 East Coast Power LLC, 7.536%, due 06/30/17 98,342 20,000 Enersis S.A. (Chile), 6.600%, due 12/01/26 19,848 250,000 TNP Enterprises, Inc., 10.250%, due 04/01/10 271,250 ------------ 1,498,304 ------------ Electronics: 0.18% 95,000 @@ Celestica International, Inc., 10.500%, due 12/31/06 98,325 ------------ Environmental Control: 0.24% 125,000 # Allied Waste North America, 8.875%, due 04/01/08 128,750 ------------ Food: 0.76% 390,000 # Fleming Companies, Inc., 10.125%, due 04/01/08 403,650 ------------ Forest Products & Paper: 0.90% 500,000 @@ Doman Industries Ltd., 8.750%, due 03/15/04 282,500 200,000 Buckeye Technologies, Inc., 9.250%, due 09/15/08 199,000 ------------ 481,500 ------------ Healthcare-Services: 0.09% 50,000 HCA -- The Healthcare Company, 7.250%, due 05/20/08 48,965 ------------ Holding Companies -- Diversified: 0.10% 50,000 # Kansas City Southern Railway, 9.500%, due 10/01/08 51,500 ------------ Home Builders: 0.15% 25,000 Lennar Corp., 7.625%, due 03/01/09 24,094 50,000 Lennar Corp., 9.950%, due 05/01/10 53,750 ------------ 77,844 ------------ Internet: 0.11% 100,000 + Amazon.Com, Inc., 0/10.000%, due 05/01/08 58,500 ------------ Iron/Steel: 0.09% 25,000 AK Steel Corp., 7.875%, due 02/15/09 23,250 25,000 Armco, Inc., 9.000%, due 09/15/07 23,250 ------------ 46,500 ------------ Leisure Time: 0.75% 600,000 Trump Atlantic City Associates, 11.250%, due 05/01/06 399,000 ------------ Lodging: 0.78% 25,000 Prime Hospitality Corp., 9.750%, due 04/01/07 25,250 375,000 Station Casinos, Inc., 9.875%, due 07/01/10 390,000 ------------ 415,250 ------------ See Accompanying Notes to Financial Statements 74 Pilgrim Strategic Income Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- Machinery -- Construction & Mining: 0.03% $ 15,000 Terex Corp., 8.875%, due 04/01/08 $ 14,100 ------------ Media: 3.56% 85,000 Adelphia Communications, 10.875%, due 10/01/10 90,525 350,000 + Charter Communications Holdings LLC, 0/11.750%, due 01/15/10 238,000 675,000 Classic Cable, Inc., 10.500%, due 03/01/10 408,375 425,000 Echostar DBS Corp., 9.250%, due 02/01/06 426,594 600,000 Northland Cable Television, Inc., 10.250%, due 11/15/07 423,000 400,000 +@@ Telewest Communications PLC, 0/11.375%, due 02/01/10 234,000 250,000 +@@ United Pan-Europe Communications, N.V., 0/13.750%, due 02/01/10 82,500 ------------ 1,902,994 ------------ Oil & Gas: 2.33% 300,000 Clark Refining and Marketing, Inc., 8.375%, due 11/15/07 232,500 400,000 Energy Corp. Of America, 9.500%, due 05/15/07 329,000 350,000 @@ Northern Oil ASA, 10.000%, due 05/15/05 248,500 285,000 Occidental Petroleum Corp., 7.650%, due 02/15/06 303,300 200,000 United Refining Co., 10.750%, due 06/15/07 132,250 ------------ 1,245,550 ------------ Packaging & Containers: 0.21% 135,000 Owens-Illinois, Inc., 7.850%, due 05/15/04 112,050 ------------ Retail: 0.75% 625,000 Hollywood Entertainment Corp., 10.625%, due 08/15/04 403,125 ------------ Sovereign: 9.72% 860,000(3) @@ Bundesobligation, 4.125%, due 08/27/04 753,554 7,270,000(2) @@ Denmark Government Bond, 6.000%, due 11/15/02 873,721 990,000(3) @@ Deutsche Bundesrepublik, 5.625%, due 01/04/28 900,688 894,000(3) @@ Deutsche Bundesrepublik, 6.000%, due 07/04/07 850,469 200,000 @@ Dominican Republic International Bond, 7.5625%, due 08/30/24 132,000 916,000(3) @@ Netherlands Government Bond, 5.250%, due 07/15/08 831,994 8,700,000(4) @@ Sweden Government Bond, 5.500%, due 04/12/02 851,097 ------------ 5,193,523 ------------ Telecommunications: 9.40% 500,000 @@ Call-Net Enterprises, Inc., 8.000%, due 08/15/08 154,375 500,000 @@ Call-Net Enterprises, Inc., 9.375%, due 05/15/09 137,500 400,000 Crown Castle International Corp., 9.500%, due 08/01/11 399,000 250,000 FLAG Telecom Holdings Ltd., 11.625%, due 03/30/10 191,250 260,000 Global Crossing Holding Ltd, 9.500%, due 11/15/09 245,050 350,000 Hyperion Telecom, Inc., 12.000%, due 11/01/07 222,250 250,000 + Intermedia Communications, 0/12.250%, due 03/01/09 178,750 300,000 ITC Deltacom, Inc., 8.875%, due 03/01/08 235,500 250,000 + Level 3 Communications, Inc., 0/12.875%, due 03/15/10 96,250 250,000 McLeodUSA, Inc., 11.375%, due 01/01/09 245,000 275,000 Metromedia Fiber Network, Inc., 10.000%, due 12/15/09 229,625 495,000 MGC Communications Inc./MPower Communications, 13.000%, due 04/01/10 195,525 275,000 Natural Microsystems Corp., 5.000%, due 10/15/05 152,625 300,000 + Nextel Communications, Inc., 0/9.950%, due 02/15/08 204,750 900,000 Northeast Optic Communications, Inc., 12.750%, due 08/15/08 409,500 500,000 + NTL, Inc. 0/9.750%, due 04/01/08 288,750 250,000 @@ Tricom SA, 11.375%, due 09/01/04 235,625 400,000 + US Unwired, Inc., 0/13.375%, due 11/01/09 204,000 500,000 @@ VersaTel Telecom International N.V., 11.875%, due 07/15/09 297,500 2,000,000 + Viatel, Inc., 0/12.500%, due 04/15/08 285,000 200,000 Williams Communications Group, 10.875%, due 10/01/09 147,000 1,000,000 && WinStar Communications, Inc., 12.750%, due 04/15/10 265,000 ------------ 5,019,825 ------------ Textiles: 0.75% 400,000 Simmons Co., 10.250%, due 03/15/09 400,000 ------------ Transportation: 0.42% 25,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 25,063 200,000 Norfolk Southern Corp., 6.750%, due 02/15/11 201,258 ------------ 226,321 ------------ Total Corporate Bonds (Cost $27,421,920) 24,169,509 ------------ See Accompanying Notes to Financial Statements 75 Pilgrim Strategic Income Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- U.S. TREASURY OBLIGATIONS: 33.52% $2,075,000 U.S. Treasury Bond, 6.125%, due 08/15/29 $ 2,228,363 1,240,000 U.S. Treasury Inflation Index Bond, 3.500%, due 01/15/11 1,268,319 2,062,000 U.S. Treasury Inflation Index Bond, 3.875%, due 01/15/09 2,283,152 4,400,000 U.S. Treasury Note, 4.750%, due 01/31/03 4,439,455 2,000,000 U.S. Treasury Note, 5.750%, due 10/31/02 2,047,076 1,800,000 U.S. Treasury Note, 5.750%, due 11/15/05 1,887,467 1,000,000 U.S. Treasury Note, 5.750%, due 08/15/10 1,054,370 1,250,000 U.S. Treasury Note, 6.500%, due 02/15/10 1,380,862 6,000,000 U.S. Treasury Strip (Principal Only), 0.000%, due 11/15/27 1,323,354 ------------ Total U.S. Treasury Obligations (Cost $17,456,241) 17,912,418 ------------ U.S. GOVERNMENT AGENCY OBLIGATIONS: 13.53% Federal Home Loan Mortgage Corporation: 2.56% 170,030 5.500%, due 01/01/14 166,948 87,364 5.500%, due 02/01/14 85,780 1,056,698 7.000%, due 06/01/29 1,070,237 8,721 9.000%, due 06/01/06 9,209 26,857 9.500%, due 11/01/05 27,914 9,740 10.000%, due 10/01/03 10,197 ------------ 1,370,285 ------------ Federal National Mortgage Association: 9.46% 274,026 6.350%, due 01/01/04 286,699 75,519 6.500%, due 02/01/09 76,440 583,268 6.500%, due 08/01/15 590,192 1,900,000 6.625%, due 10/15/07 2,021,429 715,000(1) 6.875%, due 06/07/02 1,033,529 303,415 7.000%, due 03/01/15 310,241 500,000 7.250%, due 01/15/10 552,655 127,472 8.000%, due 08/01/30 131,456 10,602 9.500%, due 06/01/05 11,235 10,941 9.500%, due 07/01/06 11,594 13,789 9.500%, due 05/01/07 14,612 13,031 10.000%, due 10/01/05 14,001 ------------ 5,054,083 ------------ Government National Mortgage Association: 1.51% 378,166 6.500%, due 06/15/29 378,045 284,465 7.500%, due 11/15/29 291,576 128,874 8.000%, due 07/15/30 133,226 3,468 8.500%, due 02/15/21 3,628 312 11.500%, due 02/15/13 341 630 11.500%, due 07/15/13 704 ------------ 807,520 ------------ Total U.S. Government Agency Obligations (Cost $ 5,897,180) 7,231,888 ------------ COLLATERALIZED MORTGAGE OBLIGATIONS AND ASSET-BACKED SECURITIES: 2.36% Mortgage - Commercial: 1.78% 210,000 # Allied Capital Commercial Mortgage Trust, 6.710%, due 12/25/04 213,938 450,000 First Union National Bank-Bank of America Commercial Mortgage Trust, 6.136%, due 12/15/10 452,250 274,438 GMAC Commercial Mortgage Securities, Inc., 6.974%, due 05/15/08 285,967 ------------ 952,155 ------------ Mortgage -- Residential: 0.58% 300,000 Emergent Home Equity Loan Trust, 7.080%, due 12/15/28 307,673 ------------ Total CMO's and Asset Backed Securities (Cost $1,224,380) 1,259,828 ------------ Shares Security Value - -------------------------------------------------------------------------------- PREFERRED STOCK: 0.93% Telecommunications: 0.93% 8,000 & Adelphia Business Solutions, Inc. $ 400,000 3,030 & XO Communications, Inc. 94,688 ------------ 494,688 ------------ Total Preferred Stock (Cost $630,471) 494,688 ------------ Total Long-Term Investments (Cost $52,629,692) 51,068,331 ------------ Principal Amount Security Value - -------------------------------------------------------------------------------- SHORT TERM INVESTMENTS: 6.81% Repurchase Agreement: 6.81% $3,638,000 State Street Repurchase Agreement dated 03/30/01, 5.18% due 04/02/01, $3,639,570 to be received upon repurchase (Collateralized by $3,750,000 U.S. Treasury Note, 5.375% Market Value $3,712,500, due 02/15/31) 3,638,000 ------------ Total Short-Term Investments (Cost $3,638,000) 3,638,000 ------------ Total Investments in Securities (Cost $ 56,267,692)* 102.39% $ 54,706,331 ------ ------------ Other Assets and Liabilities-Net -2.39% (1,275,599) ------ ------------ Net Assets 100.00% $ 53,430,732 ------ ------------ # Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. + Step-up basis bonds. Interest rates shown reflect current and future coupon rates. @@ Foreign Issuer & Payment-in-kind && Became a defaulted security subsequent to March 31, 2001. XX Value of securities obtained from one or more dealers making markets in the securities have been adjusted based on the Fund's valuation procedures. (1) Principal Amount presented in British Pounds. (2) Principal Amount presented in Danish Kroner. (3) Principal Amount presented in EURO. (4) Principal Amount presented in Swedish Kronor. * Cost for federal income tax purposes is $56,281,813. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 968,070 Gross Unrealized Depreciation (2,543,552) ------------ Net Unrealized Depreciation $ (1,575,482) ============ See Accompanying Notes to Financial Statements 76 Pilgrim High Yield Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 92.34% Aerospace: 0.73% $1,500,000 # Sequa Corp., 8.875%, due 04/01/08 $ 1,513,125 ------------ Airlines: 2.41% 1,125,000 Amtran, Inc., 10.500%, due 08/01/04 978,750 4,000,000 Atlas Air, Inc., 9.375%, due 11/15/06 4,040,000 ------------ 5,018,750 ------------ Automotive: 1.94% 4,050,000 Lear Corp., 8.110%, due 05/15/09 4,051,782 ------------ Building Materials: 1.31% 1,700,000 Dayton Superior Corp., 13.000%, due 06/15/09 1,759,500 1,000,000 Nortek, Inc., 8.875%, due 08/01/08 967,500 ------------ 2,727,000 ------------ Cable: 8.87% 2,500,000 Adelphia Communications Corp., 10.875%, due 10/01/10 2,662,500 2,500,000 Charter Communications Holdings, 8.625%, due 04/01/09 2,418,750 2,000,000 Charter Communications Holdings, 11.125%, due 01/15/11 2,145,000 2,000,000 Echostar DBS Corp., 9.250%, due 02/01/06 2,007,500 2,000,000 Echostar DBS Corp., 9.375%, due 02/01/09 2,015,000 2,000,000 XX Hyperion Telecommunications, Inc., 12.000%, due 11/01/07 1,230,000 1,400,000 Northland Cable Television, Inc., 10.250%, due 11/15/07 987,000 3,750,000 @@ Star Choice Communications, 13.000%, due 12/15/05 4,087,500 1,000,000 @@ Telewest Communications, 9.875%, due 02/01/10 945,000 ------------ 18,498,250 ------------ Capital Goods: 1.86% 595,000 Terex Corp., 8.875%, due 04/01/08 562,275 2,440,000 Terex Corp., 8.875%, due 04/01/08 2,305,800 1,000,000 # Terex Corp., 10.375%, due 04/01/11 1,015,000 ------------ 3,883,075 ------------ Chemicals: 3.33% 2,000,000 Buckeye Cellulose Corp., 9.250%, due 09/15/08 1,990,000 3,000,000 Lyondell Chemical Co., 9.875%, due 05/01/07 3,082,500 2,000,000 Sterling Chemicals, Inc., 12.375%, due 07/15/06 1,870,000 ------------ 6,942,500 ------------ Conglomerates: 1.08% 2,900,000 Blount, Inc., 7.000%, due 06/15/05 2,262,000 ------------ Consumer Products: 1.87% 1,900,000 French Fragrances, Inc., 10.375%, due 05/15/07 1,895,250 2,000,000 Simmons Co., 10.250%, due 03/15/09 2,000,000 ------------ 3,895,250 ------------ Containers: 0.46% 1,160,000 Owens-Illinois, Inc., 7.850%, due 05/15/04 968,600 ------------ Electrical Utilities: 4.70% 900,000 AES Corp., 9.500%, due 06/01/09 954,000 2,675,000 AES Corp., 9.375%, due 09/15/10 2,822,125 3,225,000 Calpine Corp., 8.625%, due 08/15/10 3,341,545 1,500,000 CMS Energy Corp., 9.875%, due 10/15/07 1,606,715 1,000,000 TNP Enterprises, Inc., 10.250%, due 04/01/10 1,085,000 ------------ 9,809,385 ------------ Energy: 9.09% 1,360,000 Clark Refining and Marketing, Inc., 8.375%, due 11/15/07 1,054,000 378,000 Cliffs Drilling Co., 10.250%, due 05/15/03 390,758 1,325,000 #@@ Compagnie Generale de Geophysique, 10.625%, due 11/15/07 1,414,437 5,575,000 Energy Corp of America, 9.500%, due 05/15/07 4,613,312 3,055,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 3,077,912 3,425,000 Parker Drilling Co., 9.750%, due 11/15/06 3,544,875 1,500,000 RBF Finance Co., 11.000%, due 03/15/06 1,865,625 1,000,000 United Rentals, Inc., 9.500%, due 06/01/08 915,000 3,100,000 United Roofing Co., 10.750%, due 06/15/07 2,065,375 ------------ 18,941,294 ------------ Entertainment: 0.62% 2,000,000 Hollywood Entertainment Corp., 10.625%, due 08/15/04 1,290,000 ------------ Environmental: 1.43% 2,900,000 Allied Waste of North America, 10.000%, due 08/01/09 2,972,500 ------------ Finance: 3.65% 3,000,000 NEFF Corp., 10.250%, due 06/01/08 1,275,000 3,000,000 Penhall International Corp., 12.000%, due 08/01/06 2,970,000 325,000 United Rentals, Inc., 8.800%, due 08/15/08 287,625 1,400,000 United Rentals, Inc., 9.250%, due 01/15/09 1,267,000 2,025,000 United Rentals, Inc., 9.000%, due 04/01/09 1,812,375 ------------ 7,612,000 ------------ See Accompanying Notes to Financial Statements 77 Pilgrim High Yield Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- Food/Beverage: 0.74% $1,775,000 Packaged Ice, Inc., 9.750%, due 02/01/05 $ 1,544,250 ------------ Gaming: 6.10% 1,750,000 Anchor Gaming, 9.875%, due 10/15/08 1,868,125 1,000,000 Hollywood Casino Shreveport, 13.000%, due 08/01/06 1,075,000 1,000,000 International Game Technology, 8.375%, due 05/15/09 1,030,000 3,250,000 Park Place Entertainment Corp., 8.875%, due 09/15/08 3,323,125 1,000,000 Stations Casinos, Inc., 9.750%, due 04/15/07 1,030,000 1,675,000 Stations Casinos, Inc., 9.875%, due 07/01/10 1,750,375 1,500,000 Trump Atlantic City Associates, Inc., 11.250%, due 05/01/06 997,500 1,600,000 Venetian Casino Resort LLC, 14.250%, due 11/15/05 1,648,000 ------------ 12,722,125 ------------ Health Care: 1.98% 2,100,000 Columbia/HCA Healthcare Corp. 7.250%, due 05/20/08 2,059,359 2,000,000 Tenet Healthcare Corp., 8.125%, due 12/01/08 2,065,000 ------------ 4,124,359 ------------ Homebuilders/Real Estate: 2.74% 3,000,000 DR Horton, Inc., 8.375%, due 06/15/04 3,015,000 1,125,000 Lennar Corp., 7.625%, due 03/01/09 1,085,785 1,500,000 Lennar Corp., 9.950%, due 05/01/10 1,620,000 ------------ 5,720,785 ------------ Hotels: 2.45% 900,000 HMH Properties, Inc., 7.875%, due 08/01/08 859,500 2,900,000 # Meristar Hospitality Corp., 9.125%, due 01/15/11 2,972,500 1,250,000 Prime Hospitality Corp., 9.750%, due 04/01/07 1,268,750 ------------ 5,100,750 ------------ Paper: 1.48% 2,175,000 @@ Doman Industries Ltd., 8.750%, due 03/15/04 1,228,875 900,000 # Stone Container Corp., 9.750%, due 02/01/11 922,500 900,000 #@@ Tembec Industries, Inc., 8.500%, due 02/01/11 927,000 ------------ 3,078,375 ------------ Publishing: 0.92% 2,250,000 Mail-Well Corp., 8.750%, due 12/15/08 1,923,750 ------------ Rail Transport: 0.99% 2,000,000 # Kansas City Southern Railway Co., 9.500%, due 10/01/08 2,070,000 ------------ Specialty Retail: 3.20% 2,000,000 Big 5 Corp., 10.875%, due 11/15/07 1,850,000 1,875,000 JoAnn Stores, Inc., 10.375%, due 05/01/07 1,209,375 1,000,000 Musicland Group, Inc., 9.875%, due 03/15/08 1,050,000 3,088,000 XX Tuesday Morning Corp., 11.000%, due 12/15/07 2,563,040 ------------ 6,672,415 ------------ Steel: 3.09% 3,205,000 AK Steel Corp., 9.125%, due 12/15/06 3,205,000 875,000 AK Steel Corp., 7.875%, due 02/15/09 818,125 325,000 Armco, Inc., 9.000%, due 09/15/07 303,875 2,950,000 Metals USA, Inc., 8.625%, due 02/15/08 2,109,250 ------------ 6,436,250 ------------ Supermarkets: 0.36% 720,000 # Fleming Companies, Inc., 10.125%, due 04/01/08 745,200 ------------ Technology: 4.99% 2,500,000 # Amkor Technology, Inc., 9.250%, due 02/15/08 2,387,500 500,000 Amkor Technology, Inc., 10.500%, due 05/01/09 482,500 1,975,000 Fairchild Semiconductor Corp., 10.125%, due 03/15/07 1,866,375 700,000 # Fairchild Semiconductor Corp., 10.500%, due 02/01/09 675,500 1,050,000 @@ Filtronic PLC, 10.000%, due 12/01/05 813,750 2,795,000 @@ Flextronics International Ltd., 8.750%, due 10/15/07 2,655,250 4,675,000 Zilog, Inc., 9.500%, due 03/01/05 1,519,375 ------------ 10,400,250 ------------ See Accompanying Notes to Financial Statements 78 Pilgrim High Yield Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- Telecommunications: 19.05% $5,000,000 @@ Call Net Enterprises, Inc., 9.375%, due 05/15/09 $ 1,375,000 2,350,000 Crown Castle International Corp., 9.500%, due 08/01/11 2,344,125 2,000,000 Exodus Communications, Inc., 11.250%, due 07/01/08 1,610,000 4,000,000 Flag Telecommunication Holdings LTD, 11.625%, due 03/30/10 3,060,000 3,000,000 Global Crossing Holdings Ltd., 9.625%, due 05/15/08 2,842,500 1,000,000 Global Crossing Holdings Ltd., 9.500%, due 11/15/09 942,500 1,925,000 Globix Corp., 12.500%, due 02/01/10 567,875 4,100,000 Intermedia Communications, Inc., 9.500%, due 03/01/09 4,079,500 2,000,000 ITC Delta Communications, Inc., 9.750%, due 11/15/08 1,610,000 4,350,000 Level 3 Communications, Inc., 9.125%, due 05/01/08 3,110,250 4,000,000 Madison River Capital LLC, 13.250%, due 03/01/10 2,900,000 2,100,000 McLeodUSA, Inc., 11.375%, due 01/01/09 2,068,500 4,000,000 Metromedia Fiber Network, Inc., 10.000%, due 11/15/08 3,340,000 2,000,000 MGC Communications, Inc., 13.000%, due 04/01/10 790,000 2,850,000 Nextel Communications, 9.375%, due 11/15/09 2,429,625 4,500,000 Nextlink Communications, 10.750%, due 11/15/08 2,677,500 2,790,000 XX Northeast Optic, 12.750%, due 08/15/08 1,102,050 5,250,000 Rhythms Netconnections, Inc., 12.750%, due 04/15/09 682,500 2,275,000 Williams Communications Group, 10.875%, due 10/01/09 1,672,125 1,900,000 Winstar Communication, Inc., 12.500%, due 04/15/08 503,500 ------------ 39,707,550 ------------ Textiles: 0.42% 900,000 Norton McNaughton, Inc., 12.500%, due 06/01/05 877,500 ------------ Transportation excluding Air/Rail: 0.48% 1,000,000 # Travelcenters America, Inc., 12.750%, due 05/01/09 995,000 ------------ Total Corporate Bonds (Cost $208,986,150) $192,504,070 ------------ Number of Market Warrants Security Value - -------------------------------------------------------------------------------- WARRANTS: 0.00% Building Materials: 0.00% 3,100 @# Dayton Superior XX Corp., Exp. 06/15/09 31 ------------ Transportation excluding Air/Rail: 0.00% 3,000 @# Travelcenters America, Inc., Exp. 11/14/01 3,000 ------------ Total Warrants (Cost $34,739) 3,031 ------------ Total Long-Term Investments (Cost $209,020,889) 192,507,101 ------------ Principal Amount Security Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 7.00% Repurchase Agreement: 7.00% $14,585,000 State Street Repurchase Agreement dated 03/30/01, 5.180% due 04/02/01, $14,591,296 to be received upon repurchase (Collateralized by $14,375,000 U.S. Treasury Note, 5.625% Market Value $14,878,125, due 09/30/01) $ 14,585,000 ------------ Total Investments in Securities (Cost $ 223,605,889)* 99.34% $207,092,101 Other Assets and Liabilities-Net 0.66% 1,377,813 ------ ------------ Net Assets 100.00% $208,469,914 ====== ============ @ Non-income producing security # Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. XX Value of securities obtained from one or more dealers making markets in the securities have been adjusted based on the Fund's valuation procedures. @@ Foreign Issuer * Cost for federal income tax purposes is $224,208,389. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 4,892,831 Gross Unrealized Depreciation (22,009,119) ------------ Net Unrealized Depreciation $(17,116,288) ============ See Accompanying Notes to Financial Statements 79 Pilgrim High Yield Fund II PORTFOLIO OF INVESTMENTS as of March 31, 2001 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 86.81% Aerospace: 0.51% $3,000,000 XX Simula, Inc., 8.000%, due 05/01/04 $ 1,500,000 ------------ Airlines: 1.80% 1,375,000 Amtran, Inc., 10.500%, due 08/01/04 1,196,250 4,000,000 Atlas Air, Inc., 9.375%, due 11/15/06 4,040,000 ------------ 5,236,250 ------------ Broadcasting: 0.77% 5,300,000 XX Brill Media Co., LLC, 12.000%, due 12/15/07 2,252,500 ------------ Building Materials: 0.50% 1,400,000 Dayton Superior Corp., 13.000%, due 06/15/09 1,449,000 Cable: 12.96% 1,005,000 Adelphia Communications Corp., 10.875%, due 10/01/10 1,070,325 4,000,000 Century Communications Corp., 0.000%, due 01/15/08 1,920,000 4,750,000 Charter Communications Holdings, 11.125%, due 01/15/11 5,094,375 4,500,000 Classic Cable, Inc., 9.375%, due 08/01/09 2,700,000 3,075,000 Classic Cable, Inc., 10.500%, due 03/01/10 1,860,375 4,450,000 Echostar Communications Corp., 9.250%, due 02/01/06 4,466,688 3,200,000 Intermedia Communications, Inc., 9.500%, due 03/01/09 3,184,000 5,625,000 Northland Cable Television, Inc., 10.250%, due 11/15/07 3,965,625 5,825,000 + NTL, Inc., 0/9.750%, due 04/01/08 3,363,938 2,775,000 @@ Star Choice Communications, 13.000%, due 12/15/05 3,024,750 5,000,000 +@@ Telewest PLC, 0/11.375%, due 02/01/10 2,925,000 2,340,000 United International Holdings, 10.750%, due 02/15/08 1,134,900 9,100,000 +@@ United Pan-Europe Communications NV, 0/13.750%, due 02/01/10 3,048,500 ------------ 37,758,476 ------------ Capital Goods: 1.37% 4,075,000 Terex Corp., 8.875%, due 04/01/08 3,850,875 155,000 Terex Corp., 8.875%, due 04/01/08 146,475 ------------ 3,997,350 ------------ Chemicals: 1.19% 1,150,000 Buckeye Cullulose Corp., 9.250%, due 09/15/08 1,144,250 4,975,000 Sterling Chemicals, Inc., 11.750%, due 08/15/06 2,325,813 ------------ 3,470,063 ------------ Conglomerates: 1.21% 4,500,000 Blount, Inc., 7.000%, due 06/15/05 3,510,000 ------------ Consumer Products: 1.48% 1,050,000 French Fragrances, Inc., 10.375%, due 05/15/07 1,047,375 3,250,000 Simmons Co., 10.250%, due 03/15/09 3,250,000 ------------ 4,297,375 ------------ Containers: 1.51% 4,290,000 Owens Illinois, Inc., 7.850%, due 05/15/04 3,582,150 5,000,000 ** Russel Stanley XX Holdings, Inc., 10.875%, due 02/15/09 825,000 ------------ 4,407,150 ------------ Diversified Media: 0.73% 8,700,000 +XX DIVA Systems Corp., 0/12.625%, due 03/01/08 1,899,210 4,750,000 XX Source Media, Inc., 12.000%, due 11/01/04 225,625 ------------ 2,124,835 ------------ Electrical Utilities: 5.43% 1,050,000 AES Corp., 9.500%, due 06/01/09 1,113,000 4,530,000 AES Corp., 9.375%, due 09/15/10 4,779,150 5,670,000 Calpine Corp., 8.625%, due 08/15/10 5,874,902 3,800,000 CMS Energy Corp., 9.875%, due 10/15/07 4,070,343 ------------ 15,837,395 ------------ See Accompanying Notes to Financial Statements 80 Pilgrim High Yield Fund II PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- Energy: 10.11% $3,200,000 Clark Refining & Marketing , Inc., 8.375%, due 11/15/07 $ 2,480,000 2,100,000 #@@ Compagnie Generale de Geophysique, 10.625%, due 11/15/07 2,241,750 8,110,000 Energy Corp of America, 9.500%, due 05/15/07 6,711,025 2,815,000 Gulfmark Offshore, Inc., 8.750%, due 06/01/08 2,836,113 1,848,367 #@@ Hurricane Hydrocarbons, 16.000%, due 12/31/01 1,799,847 7,300,000 @@ Northerm Offshore ASA, 10.000%, due 05/15/05 5,219,500 3,275,000 Parker Drilling Co., 9.750%, due 11/15/06 3,389,625 1,500,000 RBF Finance Co.,11.000%, due 03/15/06 1,866,253 4,400,000 United Refining Co., 10.750%, due 06/15/07 2,931,500 ------------ 29,475,613 ------------ Entertainment: 1.73% 5,000,000 Hollywood Entertainment Corp., 10.625%, due 08/15/04 3,225,000 2,100,000 + Ascent Entertainment Group, Inc., 0/11.875%, due 12/15/04 1,827,000 ------------ 5,052,000 ------------ Environmental: 1.11% 3,150,000 Allied Waste of North America, 10.000%, due 08/01/09 3,228,750 ------------ Finance: 3.64% 5,130,000 NEFF Corp., 10.250%, due 06/01/08 2,180,250 3,000,000 NEFF Corp., 10.250%, due 06/01/08 1,275,000 2,000,000 Penhall International Corp., 12.000%, due 08/01/06 1,980,000 550,000 United Rentals, Inc., 8.800%, due 08/15/08 486,750 1,450,000 United Rentals, Inc., 9.250%, due 01/15/09 1,312,250 3,600,000 United Rentals, Inc., 9.000%, due 04/01/09 3,222,000 500,000 #XX Westways Funding II LTD, 22.125%, due 01/29/03 150,000 ------------ 10,606,250 ------------ Food/Beverage: 1.78% 1,925,000 Packaged Ice, Inc., 9.750%, due 02/01/05 1,674,750 3,850,000 Standard Commercial Corp., 8.875%, due 08/01/05 3,522,750 ------------ 5,197,500 ------------ Gaming: 7.24% 750,000 Anchor Gaming, 9.875%, due 10/15/08 800,625 4,000,000 Hollywood Casino Shreveport, 13.000%, due 08/01/06 4,300,000 5,500,000 Park Place Entertainment Corp., 8.875%, due 09/15/08 5,623,750 975,000 Station Casinos, Inc., 9.750%, due 04/15/07 1,004,250 4,450,000 Station Casinos, Inc., 9.875%, due 07/01/10 4,650,250 4,000,000 Trump Atlantic City Associates, Inc., 11.250%, due 05/01/06 2,660,000 2,000,000 Venetian Casino Resort LLC, 14.250%, due 11/15/05 2,060,000 ------------ 21,098,875 ------------ Health Care: 0.87% 2,575,000 Columbia/HCA Healthcare Corp., 7.250%, due 05/20/08 2,525,166 ------------ Homebuilders/Real Estate: 1.04% 1,725,000 Lennar Corp., 7.625%, due 03/01/09 1,664,870 1,275,000 Lennar Corp., 9.950%, due 05/01/10 1,377,000 ------------ 3,041,870 ------------ Hotels: 0.70% 2,000,000 Prime Hospitality Corp., 9.750%, due 04/01/07 2,030,000 ------------ Paper: 1.28% 6,575,000 @@ Doman Industries Ltd., 8.750%, due 03/15/04 3,714,875 ------------ Publishing: 1.45% 4,925,000 Mail-Well Corp., 8.750%, due 12/15/08 4,210,875 ------------ Rail Transportation: 0.98% 2,750,000 # Kansas City Southern Railway Co., 9.500%, due 10/01/08 2,846,250 ------------ Specialty Retail: 1.51% 1,600,000 Amazon.Com, Inc., 10.000%, due 05/01/08 936,000 1,000,000 Big 5 Corp., 10.875%, due 11/15/07 925,000 2,400,000 JoAnn Stores, Inc., 10.375%, due 05/01/07 1,548,000 950,000 Musicland Group, Inc., 9.875%, due 03/15/08 997,500 ------------ 4,406,500 ------------ See Accompanying Notes to Financial Statements 81 Pilgrim High Yield Fund II PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- Steel: 1.62% $ 715,000 AK Steel Corp., 9.125%, due 12/15/06 $ 715,000 1,925,000 AK Steel Corp., 7.875%, due 02/15/09 1,799,875 550,000 Armco, Inc., 9.000%, due 09/15/07 514,250 2,350,000 Metals USA, Inc., 8.625%, due 02/15/08 1,680,250 ------------ 4,709,375 ------------ Supermarkets: 0.44% 890,000 # Fleming Companies, Inc., 10.125%, due 04/01/08 921,150 4,250,000 XX Richmont Marketing Specialists, 10.125%, due 12/15/07 361,250 ------------ 1,282,400 ------------ Technology: 1.51% 3,400,000 Natural Microsystems Corp., 5.000%, due 10/15/05 1,887,000 7,750,000 Zilog, Inc., 9.500%, due 03/01/05 2,518,750 ------------ 4,405,750 ------------ Telecommunications: 19.66% 700,000 @@ Call Net Enterprises, Inc., 8.000%, due 08/15/08 216,125 14,500,000 +@@ Call Net Enterprises, Inc., 0/8.940%, due 08/15/08 2,537,500 7,500,000 # Colo Com, 13.875%, due 03/15/10 1,312,500 1,750,000 Flag Telecommunications Holdings LTD, 11.625%, due 03/30/10 1,338,750 3,350,000 Global Crossing Holdings LTD, 9.500%, due 11/15/09 3,157,375 5,780,000 Globix Corp, 12.500%, due 02/01/10 1,705,100 3,600,000 +** ICG Services, Inc., 0/10.000%, due 02/15/08 216,000 900,000 ITC DeltaCom Inc., 8.875%, due 03/01/08 706,500 1,000,000 ITC DeltaCom Inc., 9.750%, due 11/15/08 805,000 8,000,000 + Level 3 Communications, Inc., 0/12.875%, due 03/15/10 3,080,000 6,200,000 Madison River Capital LLC, 13.250%, due 03/01/10 4,495,000 1,675,000 Mcleodusa, Inc., 11.375%, due 01/01/09 1,649,875 3,000,000 Metromedia Fiber Network, Inc., 10.000%, due 11/15/08 2,505,000 1,900,000 Metromedia Fiber Network, Inc., 10.000%, due 12/15/09 1,586,500 10,195,500 XX Metromedia International Group, Inc., 10.500%, due 09/30/07 2,293,987 10,100,000 MGC Communications, Inc., 13.000%, due 04/01/10 3,989,500 5,500,000 + Nextel Communications, Inc., 0/9.950%, due 02/15/08 3,753,750 8,000,000 + Nextlink Communications, Inc., 0/12.250% due 06/01/09 2,840,000 7,900,000 XX Northeast Optic, 12.750%, due 08/15/08 3,120,500 9,000,000 @@ Poland ** Telecommunications Finance BV, 14.000%, due 12/01/07 135,000 10,500,000 Rhythms Netconnections, Inc., 12.750%, due 04/15/09 1,365,000 1,300,000 Rhythms Netconnections, Inc., 14.000%, due 02/15/10 136,500 8,500,000 #** SA Telecommunications, Inc., 10.000%, due 08/15/06 -- 3,800,000 #** SA Telecommunications, Inc., 10.000%, due 08/15/06 -- 5,000,000 #** SA Telecommunications, nc.,10.000%, due 08/15/06 -- 8,267,451 **X US Interactive, 12.000%, due 04/17/05 2,800,764 5,225,000 + US Unwired, Inc., 0/13.375%, due 11/01/09 2,664,750 5,500,000 @@ Versatel Telecommunications International, 11.875%, due 07/15/09 3,272,500 17,500,000 +&& Viatel, Inc., 0/12.500%, due 04/15/08 2,493,750 2,000,000 Williams Communications Group, 10.875%, due 10/01/09 1,470,000 6,250,000 && Winstar Communications, Inc., 12.750%, due 04/15/10 1,656,250 ------------ 57,303,476 ------------ Transportation excluding Air/Rail: 0.68% 2,000,000 Travelcenters America, Inc., 12.750%, due 05/01/09 1,990,000 ------------ Total Corporate Bonds (Cost $348,965,181) 252,965,919 ------------ Shares Security Value - -------------------------------------------------------------------------------- COMMON STOCK: 0.57% Conglomerates: 0.04% 2,350 @X Jordan Telecommunications 122,200 ------------ Energy: 0.15% 866,408 @ Orion Refining Corp. 451,840 ------------ Healthcare: 0.19% 250,000 @ Trinity Biotech PLC ADR 562,500 ------------ Restaraunts: 0.00% 1,219 @ International Fast Food Corp. 5,179 ------------ Telecommunications: 0.18% 61,806 @ Adelphia Business Solutions 293,579 89,000 @XX Completel Europe NV 208,260 483,445 @ International Wireless Communications 4,834 ------------ 506,673 ------------ Transportation excluding Air/Rail: 0.01% 2,000 @ CHC Helicopter Corp. 17,750 ------------ Total Common Stock (Cost $ 57,021,117) 1,666,142 ------------ See Accompanying Notes to Financial Statements 82 Pilgrim High Yield Fund II PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Shares Security Value - -------------------------------------------------------------------------------- PREFERRED STOCK: 4.57% Consumer Products: 0.02% 100,000 XX Commemorative Brands, Inc. $ 50,000 ------------ Food/Beverage: 1.64% 953,239 XX North Atlantic Trading, Inc. 4,766,194 ------------ Restaraunts: 0.00% 144,883 @X International Fastfood Corp. -- ------------ Steel: 0.14% 10,000 @@ International Utility Structures, Inc. 402,500 456 @@# International Utility Structures, Inc. 18,353 ------------ 420,853 ------------ Telecommunications: 2.77% 94,526 XX Adelphia Business Solutions 4,679,056 16,500 @@ Global Crossing Ltd. 2,598,750 25,770 XO Communications, Inc. 805,312 ------------ 8,083,118 ------------ Total Preferred Stock (Cost $59,848,741) 13,320,165 ------------ Number of Warrants Security Value - -------------------------------------------------------------------------------- WARRANTS: 0.30% Convenience Stores: 0.01% 28,631 @ Dairy Mart Convenience Stores, Exp. 12/01/01 $ 17,179 ------------ Diversified Media: 0.02% 26,100 @XX Diva Sysytems Corp., Exp. 03/01/08 52,200 ------------ Energy: 0.00% 1,500,000 @ Mexico (UTD MEX ST), Exp. 06/30/03 -- ------------ Finance: 0.00% 5,000 @XX Olympic Financial LTD, Exp. 03/15/07 50 ------------ Food/Beverage: 0.16% 6,100 @XX North Atlantic Trading, Inc., Exp. 06/15/07 61 21,705 @ Packaged Ice, Inc., Exp. 04/15/04 455,805 ------------ 455,866 ------------ Services: 0.00% 92,950 @XX Comforce Corp., Exp. 12/01/09 930 ------------ Specialty Retail: 0.00% 100 @ Electronic Retailing Systems International, Exp. 02/01/04 100 ------------ Steel: 0.00% 12,500 @ Sheffield Steel Corp., Exp. 11/01/01 -- ------------ Telecommunications: 0.09% 10,000 @ CellNet Data Systems, Inc. Exp. 09/15/07 5,000 7,500 @ Colo Com, Exp. 03/15/10 75 177,000 @ Geotek Communications, Inc., Exp. 06/20/01 1,770 6,600 @ ICG Communications, Inc. Exp. 09/15/05 827 9,500 @ McCaw International LTD Exp. 04/15/07 267,187 7,000 @XX Poland Telekom, Exp. 06/01/06 70 7,000 @XX Poland Telekom, Exp. 03/31/03 70 9,000 @ Poland Telecommunications Finance BV, Exp. 12/01/07 1,125 9,300 @ UNIFI Commmunications Exp. 12/31/03 93 3,833 @** US Interactive, Exp. 03/31/05 -- ------------ 276,217 ------------ Transportation excluding Air/Rail: 0.02% 6,000 @ Travelcenters America, Inc., Exp. 03/14/10 63,000 ------------ Total Warrants (Cost $1,479,991) 865,542 ------------ Total Long-Term Investments (Cost $467,315,030) 268,817,768 ------------ Principal Amount Security Value - -------------------------------------------------------------------------------- SHORT TERM INVESTMENTS: 3.53% Repurchase Agreement: 3.53% $10,291,000 State Street Repurchase Agreement dated 03/30/01, 5.180% due 04/02/01, $10,295,442 to be received upon repurchase (Collateralized by $10,370,000 U.S. Treasury Notes, 4.750% due 02/15/04, Market Value $10,499,625) $ 10,291,000 ------------ Total Investments in Securities (Cost $ 477,606,030)* 95.78% $279,108,768 Other Assets and Liabilities-Net 4.22% 12,310,442 ------ ------------ Net Assets 100.00% $291,419,210 ====== ============ @ Non-income producing security # Securities with purchases pursuant to Rule 144A, under the Securties Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. + Step-up basis bonds. Interest rates shown reflect current and future coupon rates. @@ Foreign issuer ** Defaulted security && Became a defaulted security subsequent to March 31, 2001. X Fair value determined by Pilgrim Valuation Committee appointed by the Fund's Board of Directors. XX Value of securities obtained from one or more dealers making markets in the securities have been adjusted based on the Fund's valuation procedures. * Cost for federal income tax purposes is $478,427,181. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 7,530,803 Gross Unrealized Depreciation (206,849,216) ------------- Net Unrealized Depreciation $(199,318,413) ============= See Accompanying Notes to Financial Statements 83 Pilgrim High Yield Bond Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- CORPORATE BONDS: 77.97% Airlines: 0.52% $ 250,000 Amtran, Inc., 9.625%, due 12/15/05 $ 206,250 ------------ Chemicals: 2.59% 1,000,000 Lyondell Chemical Co., 9.625%, due 05/01/07 1,030,000 ------------ Diversified Finanancial Services: 6.57% 1,500,000 Alamosa Delaware, Inc., 12.500%, due 02/01/11 1,496,250 500,000 # Nexstar Finance LLC, 12.000%, due 04/01/08 497,500 500,000 RBF Finance Co., 11.000%, due 03/15/06 622,085 ------------ 2,615,835 ------------ Entertainment: 1.26% 500,000 # Penn National Gaming, Inc., 11.125%, due 03/01/08 501,250 ------------ Environmental Control: 2.59% 1,000,000 # Allied Waste North America, 8.875%, due 04/01/08 1,030,000 ------------ Food: 6.46% 1,000,000 # Fleming Companies, Inc., 10.125%, due 04/01/08 1,035,000 1,500,000 # Michael Foods, Inc., 11.750%, due 04/01/11 1,537,500 ------------ 2,572,500 ------------ Forest Products & Paper: 1.42% 1,000,000 @@ Doman Industries Ltd., 8.750%, due 03/15/04 565,000 ------------ Healthcare-Services: 0.93% 1,250,000 Rural/Metro Corp., 7.875%, due 03/15/08 368,750 ------------ Home Builders: 1.30% 500,000 # WCI Communities, Inc., 10.625%, due 02/15/11 518,750 ------------ Home Furnishings: 1.17% 500,000 Sleepmaster LLC, 11.000%, due 05/15/09 465,000 ------------ Internet: 1.02% 500,000 Exodus Communications, Inc., 11.625%, due 07/15/10 405,000 ------------ Iron/Steel: 2.84% 195,000 AK Steel Corp., 9.125%, due 12/15/06 195,000 1,000,000 AK Steel Corp., 7.875%, due 02/15/09 935,000 ------------ 1,130,000 ------------ Lodging: 2.58% 1,000,000 # Ameristar Casinos, Inc., 10.750%, due 02/15/09 1,027,500 ------------ Media: 15.05% 500,000 Adelphia Communications, 10.875%, due 10/01/10 532,500 3,000,000 Century Communications, 0.000%, due 03/15/03 2,430,000 500,000 Charter Communications Holdings LLC, 8.250%, due 04/01/07 480,625 1,000,000 Charter Communications Holdings LLC, 10.750%, due 10/01/09 1,070,000 500,000 Echostar DBS Corp., 9.250%, due 02/01/06 501,875 500,000 Echostar DBS Corp., 9.375%, due 02/01/09 503,750 500,000 Mediacom LLC, 8.500%, due 04/15/08 472,500 ------------ 5,991,250 ------------ Oil & Gas: 8.95% 1,000,000 # Grant Prideco, Inc., 9.625%, due 12/01/07 1,055,000 1,500,000 # Nuevo Energy Co., 9.375%, due 10/01/10 1,473,750 1,000,000 Parker Drilling Co., 9.750%, due 11/15/06 1,035,000 ------------ 3,563,750 ------------ Packaging&Containers: 2.58% 1,000,000 Stone Container Corp., 9.750%, due 02/01/11 1,025,000 ------------ Paint&Related Products: 1.34% 500,000 # Resolution Performance Products 13.500%, due 11/15/10 532,500 ------------ REITS: 1.29% 500,000 Meristar Hospitality Corp., 9.125%, due 01/15/11 512,500 ------------ Telecommunications: 15.84% 500,000 # American Cellular Corp., 9.500%, due 10/15/09 485,000 500,000 + Crown Castle International Corp., 0/10.625%, due 11/15/07 415,000 500,000 +@@ GT Group Telecom, Inc., 0/13.250%, due 02/01/10 192,500 500,000 ITC DeltaCom, Inc., 11.000%, due 06/01/07 427,500 500,000 + McLeodUSA, Inc., 0/10.500%, due 03/01/07 411,250 1,000,000 McLeodUSA, Inc., 11.375%, due 01/01/09 985,000 500,000 # SBA Communications Corp., 10.250%, due 02/01/09 470,000 1,000,000 # Spectrasite Holdings, Inc., 12.500%, due 11/15/10 880,000 1,250,000 # Time Warner Telecom, Inc., 10.125%, due 02/01/11 1,256,250 1,000,000 Williams Communications Corp., 10.700%, due 10/01/07 780,000 ------------ 6,302,500 ------------ Transportation: 1.67% 750,000 # North American Van Lines, Inc., 13.375%, due 12/01/09 663,750 ------------ Total Corporate Bonds (Cost $31,654,338) 31,027,085 ------------ See Accompanying Notes to Financial Statements 84 Pilgrim High Yield Bond Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Shares Security Value - -------------------------------------------------------------------------------- PREFERRED STOCK: 14.52% Media: 6.11% 2,231,944 & CSC Holdings, Inc. $ 2,432,819 ------------ Telecommunications: 8.41% 1,547 & Crown Castle International Corp. 1,473,517 373 O Sullivan Industries, Inc. 4 2,000,000 & Global Crossings Holdings LTD 1,875,000 ------------ 3,348,521 ------------ Total Preferred Stock (Cost $6,134,871) 5,781,340 ------------ Number of Warrants Security Value - -------------------------------------------------------------------------------- WARRANTS: 0.03% Telecommunications: 0.03% 1,000 @ O Sullivan Industries, Inc., Exp. 10/15/09 $ 30 500 @ GT Group Telecom, Inc., Exo. 02/01/10 14,263 ------------ 14,293 ------------ Total Warrants (Cost $0) 14,293 ------------ Total Long-Term Investments (Cost $37,789,209) 36,822,718 ------------ Principal Amount Security Value - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 0.53% Repurchase Agreement: 0.53% $ 211,000 State Street Repurchase Agreement dated 03/30/01, 5.320% due 04/02/01, $211,094 to be received upon repurchase (Collateralized by $210,000 FNMA, 5.500% Market Value $215,301, due 10/16/03) $ 211,000 ------------ Total Investments in Securities (Cost $38,000,209)* 93.05% $ 37,033,718 Other Assets and Liabilities-Net 6.95% 2,764,829 ------ ------------ Net Assets 100.00% $ 39,798,547 ====== ============ @ Non-income producing security @@ Foreign Issuer & Payment-in-kind + Step-up basis bonds. Interest rates shown reflect current and future coupon rates. # Securities with purchases pursuant to Rule 144A, under the Securities Act of 1933 and may not be resold subject to that rule except to qualified institutional buyers. * Cost for federal income tax purposes is $38,290,870. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 289,009 Gross Unrealized Depreciation (1,546,161) ------------ Net Unrealized Depreciation $ (1,257,152) ============ See Accompanying Notes to Financial Statements 85 ING Pilgrim Money Market Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- ASSET-BACKED COMMERCIAL PAPER: 15.39% $10,000,000 Ciesco LP, 5.33%, due 04/09/01 $ 9,988,156 7,000,000 Corporate Asset Funding Corp., 5.59%, due 04/02/01 6,998,913 10,000,000 Delaware Funding Corp., 4.94%, due 04/19/01 9,975,300 10,000,000 Enterprise Funding Corp., 4.95%, due 05/11/01 9,945,000 10,000,000 Park Avenue Receivable, 5.10%, due 04/04/01 9,995,750 5,000,000 Park Avenue Receivable, 4.96%, due 04/19/01 4,987,600 10,000,000 Preferred Receivable Funding, 5.18%, due 04/10/01 9,987,050 10,000,000 Preferred Receivable Funding, 4.94%, due 04/25/01 9,967,067 10,000,000 Windmill Funding Corp., 5.00%, due 04/12/01 9,984,722 ------------ Total Asset-Backed Commercial Paper (Cost $81,829,558) 81,829,558 ------------ COMMERCIAL PAPER: 27.46% Construction Machinery: 1.87% 10,000,000 Caterpillar Financial Services, 5.26%, due 04/23/01 9,967,856 ------------ Finance -- Consumer Loans: 1.88% 10,000,000 American General Finance Corp., 5.45%, due 04/02/01 9,998,486 ------------ Food Preparation: 0.93% 5,000,000 Archer Daniels Midland Co., 6.39%, due 05/09/01 4,966,275 ------------ Foreign Bank, Branches & Agencies: 2.23% 7,000,000 Abbey National North America, 5.73%, due 07/03/01 6,896,382 5,000,000 UBS Finance 4.77%, due 06/06/01 4,956,275 ------------ 11,852,657 ------------ Life Insurance: 1.30% 7,000,000 American General Corp., 5.92%, due 06/08/01 6,921,724 ------------ Management Services: 2.25% 7,000,000 Verizon Global Funding, 5.32%, due 04/17/01 6,983,449 5,000,000 Verizon Global Funding, 6.69%, due 04/12/02 4,998,954 ------------ 11,982,403 ------------ National Commercial Banks: 1.69% 4,000,000 Bank One Australia LTD, 5.35%, due 04/30/01 3,982,761 5,000,000 State Street Boston Corp., 5.53%, due 04/05/01 4,996,928 ------------ 8,979,689 ------------ Newspapers: 0.94% 5,000,000 Gannett, Inc., 4.95%, due 04/12/01 4,992,438 ------------ Personal Credit Institutions: 3.19% 10,000,000 Ford Motor Credit Company, 5.00%, due 04/11/01 9,986,111 7,000,000 General Electric Capital Corp., 6.28%, due 05/07/01 6,956,040 ------------ 16,942,151 ------------ Security Brokers & Dealers: 9.58% 5,000,000 Credit Suisse First Boston, Inc., 6.42%, due 04/04/01 4,997,325 7,000,000 Credit Suisse First Boston, Inc., 6.62%, due 04/16/01 6,981,217 10,000,000 Goldman Sachs Group, Inc., 5.00%, due 04/05/01 9,994,444 7,000,000 Goldman Sachs Group, Inc., 5.10%, due 04/06/01 6,995,042 7,000,000 Morgan Stanley Dean Witter & Co., 5.34%, due 04/18/01 6,982,348 5,000,000 Morgan Stanley Dean Witter & Co., 4.95%, due 04/24/01 4,984,187 10,000,000 Salomon Smith Barney Holdings, Inc., 5.33%, due 04/06/01 9,992,597 ------------ 50,927,160 ------------ Telephone Communications: 1.60% 8,500,000 SBC Communications, Inc., 5.30%, due 04/03/01 8,497,497 ------------ Total Commercial Paper (Cost $146,028,336) 146,028,336 ------------ CORPORATE NOTES: 23.65% Bank Holding Companies: 5.60% 5,000,000 Bank of America Corp., 7.12%, due 06/21/01 5,000,000 9,570,000 Bank of America Corp., 7.35%, due 04/03/02 9,796,795 5,000,000 Bank of America NA, 5.90%, due 07/05/01 5,000,000 10,000,000 Wachovia Bank, 6.22%, due 04/03/01 10,000,000 ------------ 29,796,795 ------------ Chemical Products: 0.94% 5,000,000 Bayer Corp., 4.75%, due 03/19/02 4,998,550 ------------ Construction Machinery: 1.31% 7,000,000 Caterpillar Financial Services, 5.44%, due 05/22/01 7,000,777 ------------ See Accompanying Notes to Financial Statements 86 ING Pilgrim Money Market Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- Consumer Products: 0.94% $ 5,000,000 Unilever Capital Corp., 6.68%, due 09/07/01 $ 5,000,000 ------------ Department Stores: 1.13% 6,000,000 Wal-Mart Stores, Inc., 5.96% due 06/01/01 5,986,142 ------------ Management Services: 0.94% 5,000,000 Verizon Global Funding, 5.06%, due 04/12/02 5,001,632 ------------ National Commercial Banks: 6.21% 6,000,000 Bank One NA Illinois, 7.16%, due 06/26/01 5,999,866 4,000,000 Bank One NA Illinois, 5.13%, due 09/24/01 3,999,630 5,000,000 Bank One NA Illinois, 6.60%, due 10/24/01 5,000,000 5,000,000 Bank One NA Illinois, 5.15%, due 02/08/02 5,000,000 5,000,000 Citigroup, Inc., 5.25%, due 04/04/01 5,000,000 7,725,000 CitiCorp, 9.50%, due 02/01/02 8,008,808 ------------ 33,008,304 ------------ Personal Credit Institutions: 0.94% 5,000,000 Household Finance Corp., 5.60, due 07/20/01 4,998,976 ------------ Security Brokers & Dealers: 0.94% 5,000,000 Merrill Lynch & Co., 6.69%, due 11/13/01 5,000,000 ------------ Telephone Communications: 4.70% 6,000,000 AT & T Corp., 6.65%, due 07/19/01 6,000,000 5,000,000 BellSouth Telecommunications, Inc., 5.07%, due 01/04/02 5,000,000 7,000,000 SBC Communications, Inc., 5.34%, due 05/15/01 7,000,000 7,000,000 SBC Communications, Inc., 5.03%, due 03/14/02 7,000,000 ------------ 25,000,000 ------------ Total Corporate Notes (Cost $125,791,176) 125,791,176 ------------ CERTIFICATES OF DEPOSIT: 27.09% Foreign Bank, Branches & Agencies: 18.81% 7,000,000 Abbey National Treasury Services PLC, 5.28%, due 05/08/01 6,999,637 4,000,000 Abbey National Treasury Services PLC, 5.21%, due 02/20/02 3,999,657 10,000,000 ABN AMRO Bank NV, 4.88%, due 09/07/01 9,999,471 5,000,000 Barclays Bank PLC, 5.32%, due 10/09/01 5,001,766 10,000,000 Barclays Bank PLC, 5.29%, due 12/10/01 10,003,919 11,000,000 Canadian Imperial Bank NY Yankee, 5.19%, due 02/20/02 11,000,000 2,000,000 Deutsche Bank AG, 7.05%, due 05/03/01 2,000,335 14,000,000 Deutsche Bank AG, 6.89%, due 08/20/01 14,033,156 5,000,000 Lloyds Bank PLC, 5.52%, due 04/26/01 5,000,069 5,000,000 Lloyds Bank PLC, 5.20%, due 01/25/02 5,003,548 7,000,000 Toronto Dominion Bank Ltd., 7.20%, due 05/09/01 7,000,000 7,000,000 Toronto Dominion Bank Ltd., 5.98%, due 06/05/01 7,007,758 7,000,000 UBS AG Stamford CT Yankee, 7.06%, due 05/03/01 7,001,284 6,000,000 UBS AG Stamford CT Yankee, 6.35%, due 12/07/01 6,000,000 ------------ 100,050,600 ------------ See Accompanying Notes to Financial Statements 87 ING Pilgrim Money Market Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- National Commercial Banks: 6.40% $ 5,000,000 First Union National Bank, 7.00%, due 04/30/01 $ 5,000,577 5,000,000 First Union National Bank, 7.35%, due 05/15/01 5,002,769 7,000,000 Southtrust Bank NA, 6.63%, due 04/30/01 7,000,592 7,000,000 Southtrust Bank NA, 6.62%, due 05/16/01 7,000,238 10,000,000 Southtrust Bank NA, 4.77%, due 07/16/01 10,001,922 ------------ 34,006,098 ------------ Security Brokers & Dealers: 1.88% $10,000,000 Credit Suisse First Boston, Inc., 4.97%, due 04/27/01 10,000,043 ------------ Total Certificates of Deposit (Cost $144,056,741) 144,056,741 ------------ REPURCHASE AGREEMENT: 5.72% $30,398,000 State Street Repurchase Agreement dated 03/30/01, 5.32% due 04/02/01, $30,411,476 to be received upon repurchase (Collateralized by $30,225,000 U.S. Treasury Note, 5.40% Market Value $31,008,825, due 10/08/03) $ 30,398,000 ------------ Total Investments in Securities (Cost $528,103,811) 99.31% $528,103,811 Other Assets and Liabilities-Net 0.69% 3,660,186 ------ ------------ Net Assets 100.00% $531,763,997 ====== ============ See Accompanying Notes to Financial Statements 88 Lexington Money Market Trust Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- COMMERCIAL PAPER: 100.11% 1,000,000 Alfa Corp., 5.02%, due 04/09/01 $ 998,884 1,000,000 Alfa Corp., 5.23%, due 04/09/01 998,838 2,000,000 Allmerica Financial Corp., 5.25%, due 04/05/01 1,998,833 2,000,000 Ameren Corp., 4.95%, due 04/24/01 1,993,675 2,500,000 American Express Credit Corp., 5.10%, due 04/06/01 2,498,229 1,500,000 American Honda Finance, 5.33%, due 04/20/01 1,495,780 2,000,000 Becton Dickinson & Co., 4.90%, due 04/04/01 1,999,183 680,000 Becton Dickinson & Co., 5.15%, due 04/09/01 679,222 550,000 Coca Cola Co., 5.05%, due 04/05/01 549,691 2,000,000 Countrywide Funding Corp., 4.98%, due 04/20/01 1,994,743 2,500,000 Deere & Co., 4.97%, due 04/09/01 2,497,239 2,000,000 Dow Chemical Co., 4.91%, due 05/04/01 1,990,998 1,500,000 Dupont E I De Nemours & Co., 4.95%, due 04/12/01 1,497,731 1,025,000 Dupont E I De Nemours & Co., 4.91%, due 04/18/01 1,022,623 2,000,000 Ford Motor Credit Co., 5.20%, due 04/02/01 1,999,711 1,300,000 Gannett, Inc., 5.40%, due 04/02/01 1,299,805 2,000,000 General Electric Capital Corp., 4.90%, due 04/23/01 1,994,011 2,000,000 General Motors Corp., 4.95%, due 04/05/01 1,998,900 2,500,000 General Reinsurance Corp., 4.98%, due 05/04/01 2,488,588 2,000,000 Goldman Sachs Group LP, 5.18%, due 04/03/01 1,999,424 1,492,000 Heinz H J Co., 5.10%, due 04/18/01 1,488,407 1,015,000 Knight Ridder, Inc., 5.10%, due 04/05/01 1,014,425 1,000,000 Knight Ridder, Inc., 4.98%, due 04/05/01 999,447 2,500,000 Merck & Co., Inc., 4.93% due 04/25/01 2,491,783 500,000 Merrill Lynch & Co., 5.33%, due 04/04/01 499,778 1,600,000 Metlife Funding, Inc., 5.14%, due 04/06/01 1,598,858 2,500,000 Mid States Corp. Federal Credit Union, 4.98%, due 04/17/01 2,494,467 2,000,000 National Rural Utilities Cooperation Finance Corp., 5.05%, due 04/10/01 1,997,475 2,200,000 Nike, Inc., 5.00%, due 04/16/01 2,195,417 404,000 Paccarr Financial Corp., 4.85%, due 04/19/01 403,020 1,500,000 Philip Morris Cos., Inc., 4.95%, due 04/03/01 1,499,588 1,930,000 Pitney Bowes Credit Corp., 5.15%, due 04/03/01 1,929,448 500,000 Pitney Bowes Credit Corp., 5.00%, due 04/04/01 499,792 2,000,000 Systems United Corp., 5.10%, due 04/12/01 1,996,883 2,000,000 Target Corp., 5.30%, due 04/02/01 1,999,706 2,000,000 USAA Capital Corp., 4.90%, due 04/24/01 1,993,739 250,000 Verizon Global Funding, 5.40%, due 04/11/01 249,625 1,400,000 Verizon Network Funding, 5.31%, due 04/12/01 1,397,729 2,500,000 The Walt Disney Co., 5.41%, due 04/02/01 2,499,624 ------------ Total Investments in Securities (Cost $63,245,319) 100.11% $ 63,245,319 Other Assets and Liabilities-Net -0.11% (68,163) ------ ------------ Net Assets 100.00% $ 63,177,156 ====== ============ See Accompanying Notes to Financial Statements 89 Lexington Money Market Trust Fund PORTFOLIO OF INVESTMENTS as of March 31, 2001 (Continued) - -------------------------------------------------------------------------------- Percentage of Industry Net Assets - -------- ---------- Athletic Footwear 3.47% Auto -- Cars/ Light Trucks 3.16% Beverages -- Non-alcoholic 0.87% Chemicals -- Diversified 7.14% Diversified Financial Services 8.53% Diversified Operations 3.16% Electric -- Integrated 3.16% Finance -- Auto Loans 5.53% Finance -- Credit Cards 3.95% Finance -- Investment Banker/Broker 3.96% Finance -- Leasing Company 3.84% Finance -- Mortgage Loan/Broker 3.16% Finance -- Special Purpose 2.53% Finance -- Truck Loans 0.64% Food -- Miscellaneous/Diversified 2.36% Machinery -- Farm 3.95% Medical -- Drugs 3.94% Medical Products 4.24% Multi-line Insurance 10.26% Multimedia 3.96% Publishing -- Newspapers 5.25% Retail -- Major Department Store 3.17% S&L/Thrifts -- Central U.S. 3.95% S&L/Thrifts -- Western U.S. 3.16% Special Purpose Entity 0.40% Tobacco 2.37% Other Assets and Liabilities, Net -0.11% ------- 100.00% ======= See Accompanying Notes to Financial Statements 90 - ------- Pilgrim Funds - ------- TAX INFORMATION (Unaudited) - -------------------------------------------------------------------------------- Dividends paid during the period ended March 31, 2001 were as follows: Fund Name Type Per Share Amount - --------- ---- ---------------- GNMA Fund Class A NII $0.1207 Class B NII $0.1094 Class C NII $0.1090 National Tax-Exempt Bond Fund Class A NII $0.1916 Class B NII $0.1659 Class C NII $0.1565 Intermediate Bond Fund Class A NII $0.2832 Class B NII $0.2581 Class C NII $0.2593 Strategic Income Fund Class A NII $0.5917 Class B NII $0.5547 Class C NII $0.5513 Class Q NII $0.5983 High Yield Fund Class A NII $0.4275 Class B NII $0.4022 Class C NII $0.4024 Class M NII $0.4102 Class Q NII $0.4305 High Yield Fund II Class A NII $0.8602 Class B NII $0.8109 Class C NII $0.8111 Class T NII $0.8372 Class Q NII $0.8653 High Yield Bond Class A NII $0.3913 Class B NII $0.3652 Class C NII $0.3616 Pilgrim Money Market Class A NII $0.0386 Class B NII $0.0329 Class C NII $0.0330 ING Pilgrim Money Market Class A NII $0.0234 Class B NII $0.0209 Class C NII $0.0207 Class I NII $0.0243 Money Market Trust Class A NII $0.0121 - ---------- NII -- Net investment income The above figure may differ from those cited elsewhere in this report due to differences in the calculation of income and gains for Securities and Exchange Commissions (book) purposes and Internal Revenue Service (tax) purposes. Shareholders are strongly advised to consult their own tax advisers with respect to the tax consequences of their Investments in the Funds. In January 2001, shareholders, excluding corporate shareholders, received an IRS Form 1099 DIV regarding the federal tax status of the dividends and distributions received by them in calendar 2000. 91 RESERVE INSTITUTIONAL TRUST PRIMARY INSTITUTIONAL FUND STATEMENT OF NET ASSETS -- March 31, 2001 (Unaudited) - -------------------------------------------------------------------------------- Principal Amount Security Value - -------------------------------------------------------------------------------- NEGOTIABLE BANK CERTIFICATES OF DEPOSIT: 63.61% Domestic: 8.83% $20,000,000 Comerica Bank, 5.02%, 06/19/01 $ 20,000,000 25,000,000 First Union National Bank, 5.29%, 12/05/01 25,000,000 15,000,000 Southtrust Bank, NA, 4.90%, 06/18/01 15,000,000 15,000,000 State Street Bank & Trust Co., Boston, 5.04%, 05/14/01 15,000,000 ------------ 75,000,000 ------------ Yankee: 54.78% 30,000,000 Banque National De Paris, 5.09%, 08/06/01 30,000,000 20,000,000 Barclays Bank PLC London, 4.99%, 09/19/02 20,000,000 30,000,000 Bayerische Hypo-und Vereinbank, AG, 5.15%, 08/08/01 30,000,000 30,000,000 Credit Agricole Indosuez, 5.54%, 04/09/01 30,000,000 15,000,000 Canadian Imperial Bank of Commerce, 4.99%, 06/11/01 15,000,000 30,000,000 Commerzbank, AG, Frankfurt, 5.14%, 08/13/01 30,000,000 30,000,000 Dexia Bank, 5.52%, 04/25/01 30,000,000 15,000,000 Credit Suisse First Boston, 5.01%, 06/07/01 15,000,000 15,000,000 Credit Suisse First Boston, 4.79%, 06/21/01 15,000,000 15,000,000 Deutsche Bank, AG, 4.79%, 06/29/01 15,000,000 15,000,000 Deutsche Bank, AG, 4.71%, 07/23/01 15,000,000 40,000,000 KBC Bank NV, Brussels, 5.41%, 07/16/01 40,000,000 30,000,000 National Westminister Bank PLC, 5.10%, 02/07/02 30,000,000 30,000,000 Norddeutsche Landes Bank, 5.36%, 06/11/01 30,000,000 15,000,000 Rabobank Nederland NV, 4.79%, 06/29/01 15,000,000 30,000,000 Societe Generale, Paris, 5.25%, 05/07/01 30,000,000 30,000,000 Toronto Dominion Bank, 5.35%, 06/11/01 30,000,000 30,000,000 UBS, AG, 5.51%, 07/18/01 30,000,000 15,000,000 Westdeutsche Landes Bank. 4.78%, 06/28/01 15,000,000 ------------ 465,000,000 ------------ Total Negotiable Bank Certificates of Deposit (Cost $540,000,000) 540,000,000 ------------ REPURCHASE AGREEMENTS: 35.93% $205,000,000 Bear Stearns & Co., Inc., 5.35%, 04/02/01 $205,000,000 50,000,000 Chase Manhatten Bank, 5.38%, 04/02/01 50,000,000 50,000,000 State Street Bank, 5.30%, 04/02/01 50,000,000 ------------ 305,000,000 ------------ Total Repurchase Agreements (Cost $305,000,000) 305,000,000 ------------ Total Investments (Cost $845,000,000) 99.54% $845,000,000 Assets, Less Other Liabilities 0.46% 3,863,706 ------ ------------ Net Assets 100.00% $848,863,706 ====== ============ Net asset value, offering and redemption price per share of each Class based on shares of beneficial interest, $.001 par value outstanding and equivalent to the Net Assets of each Class: 664,919,605 shares Class A $ 1.00 ============ 8,167,895 shares Class B $ 1.00 ============ 130,230,363 shares Treasurer's Trust $ 1.00 ============ 44,745,843 shares Class C $ 1.00 ============ See Accompanying Notes to Financial Statements 92 RESERVE INSTITUTIONAL TRUST PRIMARY INSTITUTIONAL FUND STATEMENT OF NET ASSETS -- November 30, 2000 (Unaudited) - -------------------------------------------------------------------------------- Principal Amount Value - -------------------------------------------------------------------------------- NEGOTIABLE BANK CERTIFICATES OF DEPOSIT: 54.3% Domestic: 14.0% $ 20,000,000 Bank One, 6.65%, 3/26/01 $ 20,000,000 20,000,000 Comerica Bank, 6.62%, 6/19/01 19,997,858 30,000,000 First Tennessee Bank, 6.63%, 2/27/01 30,000,000 25,000,000 Southtrust Bank, 6.63%, 2/01/01 25,000,000 20,000,000 Wilmington Trust Co., 6.69%, 1/10/01, 1/17/01 20,000,000 ------------ 114,997,858 ------------ Yankee: 40.3% 25,000,000 Bank Austria, 6.65%, 1/17/01 25,000,000 20,000,000 Banque National de Paris, 6.64%, 1/18/01 20,000,000 25,000,000 Bayerische Hypo-und Vereinsbank, AG, 6.64%, 2/08/01 25,000,000 30,000,000 Canadian Imperial Bank of Commerce, 6.70%, 2/12/01 29,997,153 25,000,000 Commerzbank, AG, 6.63%, 2/06/01 25,000,000 20,000,000 Credit Agricole Indosuez, 6.55%, 12/20/00 20,000,000 30,000,000 Danske Bank, 6.64%, 2/02/01 30,000,000 20,000,000 Deutsche Bank, AG, 6.72%, 2/20/01 20,000,000 15,000,000 Dexia Bank, 6.58%, 12/05/00 15,000,000 25,000,000 Dresdner Bank, 6.63%, 2/07/01 25,000,000 20,000,000 Lloyds TSB Bank, PLC, 6.57%, 12/21/00 20,000,000 30,000,000 National Westminster Bank, PLC, 6.64%, 1/31/01 30,000,000 25,000,000 Rabobank Nederland NV, 6.56%, 1/24/01 24,998,594 20,000,000 Societe Generale, 6.54%, 12/20/00 20,000,000 ------------ 329,995,747 ------------ Total Negotiable Bank Certificates of Deposit (Cost $444,993,605) 444,993,605 ------------ Repurchase Agreements: 45.4% $172,000,000 Bear, Stearns & Co. Inc., 6.56%, 12/1/00 (collateralized by FNMA 8.499% due 6/18/27 valued at $11,661,822, FGRA 0% due 12/15/10 to 5/15/29 valued at $10,679,982, FGRM 5.75% to 7.50% due 4/15/21 to 12/15/29 valued at $56,958,914, FNRM 0% due 3/25/18 to 3/25/23 valued at $45,783,013, FNRA 0% due 4/25/27 to 6/25/40 valued at $35,053,997, GNMA 7.02% due 9/20/30 valued at $18,942,742) $172,000,000 150,000,000 Chase Manhattan Bank, 6.55%, 12/01/00 (collateralized by FGSP 0% due 9/01/30 to 11/01/30 valued at $87,624,100, FNST 0% due 2/01/23 to 7/01/26 valued at $66,876,892 150,000,000 50,000,000 State Street Bank, 6.53%, 12/1/00 (collateralized by GNMA 7.375% due 5/20/27 valued at $56,050,000 50,000,000 ------------ Total Repurchase Agreements (Cost $372,000,000) $372,000,000 ------------ Total Investments (Cost $816,993,605) 99.7% $816,993,605 Other Assets, Less liabilities 0.3% 2,212,868 ------ ------------ Net Assets 100.0% $819,206,473 ====== ============ Net asset value, offering and redemption price per share of each Class based on shares of beneficial interest, $.001 par value outstanding and equivalent to the Net Assets of each Class: 669,774,344 shares Class A $ 1.00 ============ 10,661,129 shares Class B $ 1.00 ============ 85,089,449 shares Treasurer's Trust $ 1.00 ============ 53,681,551 shares Class C $ 1.00 ============ See Accompanying Notes to Financial Statements 93 RESERVE INSTITUTIONAL TRUST PRIMARY INSTITUTIONAL FUND STATEMENT OF OPERATIONS (Unaudited) - -------------------------------------------------------------------------------- Six Months Ended November 30, 2000 ------------ Interest Income (Note 1) $ 17,387,008 ------------ Expenses (Note 2) Comprehensive Management fees 914,092 ------------ Total Expenses before waivers 914,092 Less: expenses waived -- ------------ Net Expenses 914,092 ------------ Net Investment Income, representing Net Increase in Net Assets from Investment Operations $ 16,472,916 ============ See Accompanying Notes to Financial Statements 94 RESERVE INSTITUTIONAL TRUST PRIMARY INSTITUTIONAL FUND STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Six Months Ended Year Ended November 30, 2000(A) May 31, 2000 -------------------- --------------- Increase (decrease) in Net Assets From Investment Operations: Net investment income $ 16,472,916 $ 22,607,043 --------------- --------------- Distributions to Shareholders From Net Investment Income (Note 1): Class A (12,515,447) (9,444,752) Class B (316,747) (599,849) Treasurer's Trust (2,369,051) (9,577,370) Class C (1,271,671) (2,985,072) --------------- --------------- Total Dividends to Shareholders (16,472,916) (22,607,043) --------------- --------------- From Capital Share Transactions (at net asset value of $1.00 per share): Net proceeds from sale of shares 2,195,417,092 3,866,941,138 Dividends reinvested 16,472,916 22,607,043 Cost of shares redeemed (1,833,904,371) (3,740,872,518) --------------- --------------- Net increase (decrease) derived from capital share transactions and from investment operations 377,985,637 148,675,663 Net Assets: Beginning of period 441,220,836 292,545,173 --------------- --------------- End of period $ 819,206,473 $ 441,220,836 =============== ===============
- ---------- (A) Unaudited. See Accompanying Notes to Financial Statements 95 RESERVE INSTITUTIONAL TRUST PRIMARY INSTITUTIONAL FUND NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (1) Significant Accounting Policies: The Primary Institutional Fund (the "Fund") which is part of the Reserve Institutional Trust (the "Trust") is registered under the Investment Company Act of 1940 as a non-diversified, open-end investment company. The policies summarized below are consistently followed in the preparation of its financial statements in conformity with generally accepted accounting principles. A. The Trust's authorized shares of beneficial interest are unlimited, which is included in this report, and currently are divided into four series (funds): Primary Institutional, U.S. Government Institutional, U.S. Treasury Institutional and Interstate Tax-Exempt Institutional Funds (collectively the "Funds"). Additionally, each Fund is divided into five classes of shares (Class A, B, Treasurer's Trust, C and D) with the same investment objectives, but with different expense ratios. B. Securities are valued at amortized cost, which approximates market value. The amortized cost method values a security at cost at the time of purchase, and thereafter assumes a constant amortization to maturity of any discount or premium, irrespective of intervening changes in interest rates or market values. The maturity of floating or variable rate instruments in which the Fund may invest will be deemed to be, for floating rate instruments: (1) the notice period required before the Fund is entitled to receive payment of the principal amount of the instrument; and for variable rate instruments the longer of (1) above or (2) the period remaining until the instrument's next interest rate adjustment, for purposes of Rule 2a-7 and for computing the portfolio's weighted average life to maturity. C. It is the Trust's policy to comply with Subchapter M of the Internal Revenue Code and to distribute all of its taxable income to its shareholders. Accordingly, no Federal income tax provision is required. D. Security transactions are recorded on a trade date basis; interest income is accrued daily and security premium or discount is amortized or accreted daily. Net investment income is distributed to shareholders daily and automatically reinvested in additional Fund shares. E. The Trust may enter into repurchase agreements with financial institutions and securities dealers who are deemed credit-worthy pursuant to guidelines established by the Funds' Board of Trustees. The Funds' Investment Adviser will follow procedures intended to provide that all repurchase agreements are at least 100% collateralized as to principal and interest. The Trust's custodian holds the underlying securities subject to repurchase agreements. (2) Management Fee and Other Transactions With Affiliates: Pursuant to an Investment Management Agreement (the "Agreement") between Reserve Management Company, Inc. ("RMCI") and the Funds, RMCI serves as the Funds' Investment Adviser subject to the policies adopted by the Board of Trustees. Under the Agreement, RMCI will furnish continuous investment advisory and management services to the Funds. RMCI receives a comprehensive management fee of 0.25% per year of the average daily net assets of the Fund. RMCI pays all employee and customary operating expenses of the Fund. Excluded from the definition of customary operating expenses are interest, taxes, brokerage fees, extraordinary legal and accounting fees and expenses, and the fees of the disinterested Trustees, for which each Fund pays its direct or allocated share. Each Fund's operating expenses are accrued to an annual rate of .25% for average daily net assets, respectively. During the period ended November 30, 2000, RMCI voluntarily waived $59,940 of U.S. Treasury Institutional Fund's total expenses. Distribution Assistance and Shareholder Services: Pursuant to a Plan of Distribution, each Fund makes payments to firms for distribution assistance and administrative services provided to shareholders of Class C and D at an annual rate of .25% and .50%, respectively. To date, no payments have been made by Class D since it has yet to begin operations. In addition, under the Plan, shareholders of Class B, C, D and Treasurer's Trust may make payments to firms (including RMCI) providing shareholder services, including 96 RESERVE INSTITUTIONAL TRUST PRIMARY INSTITUTIONAL FUND NOTES TO FINANCIAL STATEMENTS (Continued) - -------------------------------------------------------------------------------- maintaining shareholder accounts, responding to shareholder inquiries and providing certain other services, at an annual rate of .20%, .25%, .25% and .25%, respectively. (3) Management's Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results could differ from those estimates. (4) Composition of Net Assets: At November 30, 2000, the composition of the Fund's net assets was as follows: Par Value $ 819,207 Paid-in-Capital 818,387,266 ------------ Net Assets $819,206,473 ============ (5) Capital Share Transactions: For the six months ended November 30, 2000 and the year ended May 31, 2000, the capital share transactions of each Fund was as follows:
Six Months Ended November 30, 2000: -------------------------------------------------------------------- Treasurer's Class A Class B Trust Class C -------------- -------------- -------------- -------------- Sold 1,615,218,480 11,818,689 447,929,098 120,450,825 Reinvested 12,515,447 316,747 2,369,051 1,271,671 Redeemed (1,263,546,464) (10,683,642) (427,608,898) (132,065,367) -------------- -------------- -------------- -------------- Net Increase (Decrease) 364,187,463 1,451,794 22,689,251 (10,342,871) ============== ============== ============== ============== Year Ended May 31, 2000: -------------------------------------------------------------------- Treasurer's Class A Class B Trust Class C -------------- -------------- -------------- -------------- Sold 1,943,164,268 27,677,033 1,566,404,142 329,695,695 Reinvested 9,444,752 599,849 9,577,371 2,985,072 Redeemed (1,722,819,032) (23,287,360) (1,667,671,186) (327,094,940) -------------- -------------- -------------- -------------- Net Increase (Decrease) 229,789,988 4,989,522 (91,689,673) 5,585,827 ============== ============== ============== ==============
97 RESERVE INSTITUTIONAL TRUST PRIMARY INSTITUTIONAL FUND NOTES TO FINANCIAL STATEMENTS (Continued) - -------------------------------------------------------------------------------- (6) Financial Highlights: Contained below is per share operating performance data for a share of beneficial interest outstanding for the periods as indicated.
Class A ------------------------------------------------------ Fiscal Year For the Six Ended Months Ended May 31, November 30, ------------------------------------- 2000(a) 2000 1999 1998(b) -------- -------- -------- -------- Net asset value at beginning of period $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 -------- -------- -------- -------- Net investment income from investment operations 0.0319 .0572 .0509 .0332 Less dividends from net investment income (0.0319) (.0572) (.0509) (.0332) -------- -------- -------- -------- Net asset value at end of period $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ======== ======== ======== ======== Total Return 6.36%(e) 5.72% 5.09% 5.49%(e) RATIOS/SUPPLEMENTAL DATA Net assets end of period (millions) $ 669.8 $ 305.6 $ 75.8 $ 4.4 Ratio of expenses to average net assets .25%(e) .25% .25% .25%(e) Ratio of net investment income to average net assets 6.36%(e) 5.69% 4.79% 5.35%(e) Class B --------------------------------------------------------------- Fiscal Year For the Six Ended Months Ended May 31, November 30, ----------------------------------------------- 2000(a) 2000 1999 1998 1997(c) -------- -------- -------- -------- -------- Net asset value at beginning of period $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 -------- -------- -------- -------- -------- Net investment income from investment operations 0.0309 .0549 .0488 .0529 .0179 Less dividends from net investment income (0.0309) (.0549) (.0488) (.0529) (.0179) -------- -------- -------- -------- -------- Net asset value at end of period $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ======== ======== ======== ======== ======== Total Return 6.16%(e) 5.49% 4.88% 5.29% 4.95%(e) RATIOS/SUPPLEMENTAL DATA Net assets end of period (millions) $ 10.7 $ 9.2 $ 4.2 $ 10.4 $ 2.0 Ratio of expenses to average net assets .45%(e) .48% .45% .45% .50%(e)(f) Ratio of net investment income to average net assets 6.16%(e) 5.29% 4.79% 5.16% 4.81%(e)(f) Treasurer's Trust ------------------------------------------------------ Fiscal Year For the Six Ended Months Ended May 31, November 30 ------------------------------------- 2000(a) 2000 1999 1998(d) -------- -------- -------- -------- Net asset value at beginning of period $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 Net investment income from investment operations 0.0301 .0532 .0470 .0322 Less dividends from net investment income (0.0301) (.0532) (.0470) (.0322) -------- -------- -------- -------- Net asset value at end of period $ 1.0000 $ 1.0000 $ 1.0000 $ 1.0000 ======== ======== ======== ======== Total Return 6.00%(e) 5.32% 4.70% 5.13%(e) RATIOS/SUPPLEMENTAL DATA Net assets end of period (millions) $ 85.1 $ 62.4 $ 154.1 $ 171.7 Ratio of expenses to average net assets .60%(e) .60% .60% .60%(e) Ratio of net investment income to average net assets 6.03%(e) 4.99% 4.59% 5.00%(e) Class C ---------------------------------------- Fiscal Year For the Six Ended Months Ended May 31, November 30, ----------------------- 2000(a) 2000 1999(g) -------- -------- -------- Net asset value at beginning of period $ 1.0000 $ 1.0000 $ 1.0000 Net investment income from investment operations 0.0294 .0516 .0036 Less dividends from net investment income (0.0294 (.0516) (.0036) -------- -------- -------- Net asset value at end of period $ 1.0000 $ 1.0000 $ 1.0000 ======== ======== ======== Total Return 5.86%(e) 5.16% 4.11%(e) RATIOS/SUPPLEMENTAL DATA Net assets end of period (millions) $ 53.7 $ 64.0 $ 58.4 Ratio of expenses to average net assets .75%(e) .75% .75%(e) Ratio of net investment income to average net assets 5.85%(e) 4.91% 4.12%(e)
(a) Unaudited (b) From October 23, 1997 (Commencement of Operations) to May 31, 1998. (c) From January 21, 1997 (Commencement of Operations) to May 31, 1997. (d) From October 15, 1997 (Commencement of Operations) to May 31, 1998. (e) Annualized. (f) Due to the voluntary waiver of certain expenses by RMCI, the net expense ratio and net investment income amounted to .48% and 4.83%, respectively, for the period ended May 31, 1997. (g) From April 30, 1999 (Commencement of Operations) to May 31, 1999. 98 INVESTMENT MANAGER ING Pilgrim Investments, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258 ADMINISTRATOR ING Pilgrim Group, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258 DISTRIBUTOR ING Pilgrim Securities, Inc. 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258-2034 1-800-334-3444 TRANSFER AGENT DST Systems, Inc. P.O. Box 419368 Kansas City, Missouri 64141-6368 CUSTODIANS State Street Bank & Trust 801 Pennsylvania Avenue Kansas City, Missouri 64105 State Street Bank & Trust One Heritage Drive North Quincy, Massachusetts 02171 LEGAL COUNSEL Dechert 1775 Eye Street, N.W. Washington, D.C. 20006 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 1670 Broadway, Suite 1000 Denver, Colorado 80202 Prospectus containing more complete information regarding the Funds, including charges and expenses, may be obtained by calling ING Pilgrim Securities, Inc. Distributor at 1-800-334-3444. Please read the prospectus carefully before you invest or send money. INCABCANN033101-052901 -----END PRIVACY-ENHANCED MESSAGE-----