-----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, ShF1jhVRJMVZPm/8tfFqyCOFl74mAxJu0vh1proBU1GxCjlKoe7CdrP4eGXO6+jJ nExZ/a3rBx8pmH0J0lIifA== 0000950147-99-000216.txt : 19990311 0000950147-99-000216.hdr.sgml : 19990311 ACCESSION NUMBER: 0000950147-99-000216 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990310 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: 99562270 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 N-30D 1 SEMI-ANNUAL REPORT Pilgrim - ------- THE VALUE OF INVESTING Semi-Annual Report December 31, 1998 ------ MagnaCap Fund LargeCap Leaders Fund MidCap Value Fund Bank and Thrift Fund Asia-Pacific Equity Fund High Yield Fund Government Securities Income Fund Pilgrim Funds SEMI-ANNUAL REPORT December 31, 1998 TABLE OF CONTENTS Chairman's Message................................ 1 Portfolio Managers' Reports: Pilgrim MagnaCap Fund............................. 2 Pilgrim LargeCap Leaders Fund..................... 6 Pilgrim MidCap Value Fund......................... 10 Pilgrim Bank and Thrift Fund...................... 14 Pilgrim Asia-Pacific Equity Fund.................. 17 Pilgrim High Yield Fund........................... 21 Pilgrim Government Securities Income Fund......... 24 Statements of Assets and Liabilities.............. 27 Statements of Operations.......................... 29 Statements of Changes in Net Assets............... 31 Financial Highlights.............................. 34 Notes to Financial Statements..................... 44 Portfolios of Investments: Pilgrim MagnaCap Fund............................. 53 Pilgrim LargeCap Leaders Fund..................... 57 Pilgrim MidCap Value Fund......................... 61 Pilgrim Bank and Thrift Fund...................... 65 Pilgrim Asia-Pacific Equity Fund.................. 69 Pilgrim High Yield Fund........................... 75 Pilgrim Government Securities Income Fund......... 80 Pilgrim Funds - -------------------------------------------------------------------------------- CHAIRMAN'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to present the Semi-Annual Reports for the Pilgrim Funds which consist of Pilgrim MagnaCap Fund ("MagnaCap Fund"), Pilgrim LargeCap Leaders Fund ("LargeCap Leaders Fund"), Pilgrim MidCap Value Fund ("MidCap Value Fund"), Pilgrim Bank and Thrift Fund ("Bank and Thrift Fund"), Pilgrim Asia-Pacific Equity Fund ("Asia-Pacific Equity Fund"), Pilgrim High Yield Fund ("High Yield Fund") and Pilgrim Government Securities Income Fund ("Government Securities Income Fund"). In the following pages, the portfolio manager for each fund discusses the results of operations for the year ended December 31, 1998, as well as the markets and factors which have affected each of the Funds during this period. MagnaCap Fund, LargeCap Leaders Fund, Bank and Thrift Fund, High Yield Fund and Government Securities Income Fund are designed to give investors access to the seasoned investment managers of Pilgrim Investments, Inc. ("PII") who bring a depth of experience and knowledge to their specific investment disciplines. MidCap Value Fund and Asia-Pacific Equity Fund are designed to give investors access to private money managers who typically manage similar portfolios primarily for high net worth individuals and institutional investors. Each money manager has extensive knowledge and proven experience in their specialized market segments. At 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.TM/SM Sincerely, /s/ Robert W. Stallings Robert W. Stallings Chairman and Chief Executive Officer Pilgrim Group, Inc. February 4, 1999 1 Pilgrim MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholder, We are very pleased to report that Pilgrim MagnaCap Fund (the "Fund") had another good year in 1998. Twenty years ago the Fund initiated its disciplined investment philosophy and 1998 marked the 19th year in the last 20 that the Fund produced a positive return. For the 12 months ended December 31, 1998, the Fund provided a total return of 16.09%(1) compared to the Standard & Poor's 500 Index ("S&P 500") which gained 28.58% for the same period. Over the last six months, the Fund was up 5.68% compared to the S&P 500 which gained 9.23% for the same period. The Fund's average annual total returns for the five and ten year periods ended December 31, 1998 were 19.87% and 15.81%, respectively. A $10,000 investment in the Fund on January 1, 1979, the year in which the Fund adopted its disciplined investment philosophy, would have grown to $202,517 as of December 31, 1998, after deduction of the maximum Class A 5.75% sales charge, and assuming the reinvestment of all dividends and capital gains distributions. GENERAL ECONOMIC AND EQUITY MARKET ENVIRONMENTS The current economic expansion is the longest peacetime expansion in U.S. history. The cycle is not only unique for its longevity but unprecedented along many dimensions. Inflation is negligible and has never been so low so far into a cycle. Inflation adjusted corporate profits rose more rapidly than in any prior cycle. The combination of the strongest profit cycle and weakest pricing cycle led the equity market to stage the biggest bull run in history. 1998 will be remembered most for the sharp break in confidence that sent the stock market plunging late in the summer and for the complete reversal in psychology that led it back to new highs in the fall. A number of significant market trends became clear as the year progressed. Among the major themes were the outperformance of a small group of large-cap stocks, the vulnerability of Wall Street and U.S. corporate profits to foreign economic events, and a heightened degree of volatility coming from the boom in day trading and online investing. During the year, many companies cited global financial turmoil and, in particular, weakness in Asia for their failure to meet profit expectations. And Wall Street debated whether weakness abroad was enough to derail the economic expansion at home. The devaluation of Russia's ruble and its rescheduling of debt hastened a flight to quality and away from emerging markets. Wall Street was hit with a liquidity crisis. New debt issues and public offerings dried up, and panic set in. The resulting bear market was relatively short lived, lasting from July through October. The sudden return of the bull market was tied to the Federal Reserve. The Federal Reserve disappointed Wall Street with just a quarter point interest rate cut in September. But the Federal Reserve surprised Wall Street when it cut interest rates on October 15, when no meeting of the Federal Open Market Committee was 2 Pilgrim MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- scheduled. A third interest rate cut on November 10, paved the way for the stock market to surpass its July high. The S&P 500 finished the year with a 28.6% gain, its fourth straight year of gaining more than 20%. The Dow Jones Industrial Average gained 16.1%, and the Nasdaq gained 39.6%. But the healthy gains by the Indexes concealed a mixed performance of the broad base of stocks. It was the year of the big and mega-cap stock. PILGRIM MAGNACAP FUND As a disciplined investment philosophy fund, MagnaCap invests in a very select group of companies that have been able to sustain growth over a 10-year period. In selecting portfolio securities, generally companies are assessed with reference to the following criteria: 1. A company must have paid or had the financial capability from its operations to pay a dividend in 8 out of the last 10 years. 2. A company must have increased its dividend or had the financial capability from its operations to have increased its dividend at least 100% over the past 10 years. 3. Dividend pay out must be less than 65% of current earnings. 4. Long term debt should be no more than 25% of total capitalization or a company's bonds must be rated at least A- or A-3. 5. The current price should be in the lower half of the stock's price/earnings ratio range for the past 10 years or the ratio of the price of the company's stock at the time of purchase to its anticipated future earnings must be an attractive value in relation to the average for its industry peer group or that of the S&P 500. We believe that the Fund's past success can be attributed to the very explicit investment criteria which normally determine the kinds of companies that qualify for inclusion in the portfolio. Out of a universe of approximately 4,000 publicly traded companies and based upon both in-house and external research, we continue to aim to select the 50 to 70 equities which we believe will offer the greatest potential to exhibit a high degree of performance. Going forward, we will continue to employ a "bottom-up" approach to stock selection, drawing from the pool of companies that come closest to meeting the Fund's strict investment criteria given market conditions, and circumstances of the company and of the sector within which it falls. We believe the bull market in U.S. stocks is starting its ninth year. It has been firmly based on extraordinary changes in the economy that have given us one of the longest economic expansions in U.S. history. This bull market has been one of the best in U.S. history and we believe it is likely to continue for several reasons. First, the economic expansion that has propelled stock prices higher has been one of the most durable. It has been accompanied by mild inflation, job creation and high-quality profit growth. Second, the current economic and market cycles have benefited from several long-term structural changes. These include an increase in the nation's ownership of stocks and a notable reduction in the government's budget deficit. There has also been a shift to a more sophisticated, technology driven private sector that has spurred 3 Pilgrim MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- widespread productivity gains, and this offers new opportunities for growth and jobs. Most bull markets end when stocks are overpriced. However, it has traditionally been extremely difficult to identify the degree of overpricing at which any particular bull market will end. We believe stock prices can continue to rise selectively in 1999 in concert with improvements in corporate earnings and cash flows. Accordingly, we intend to remain almost fully invested, selecting stocks on the basis described at the beginning of this paragraph. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy and cost-effective way to acquire additional shares in the Fund, without incurring a sales charge. Should you decide to switch from cash dividends to automatic reinvestment, please notify your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box 419368, Kansas City, MO 64141, or call (800) 992-0180. We thank you for giving us this opportunity to help you work towards your investment needs. Sincerely, /s/ Howard N. Kornblue /s/ G. David Underwood Howard N. Kornblue G. David Underwood Senior Vice President Vice President and Director of Research Senior Portfolio Manager Senior Portfolio Manager Pilgrim Investments, Inc. Pilgrim Investments, Inc. See Footnotes on page 5. 4 Pilgrim MagnaCap Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Excluding the Class A maximum 5.75% sales charge and assuming reinvestment of all dividends and distributions. Total returns for the one, five and ten-year periods ended December 31, 1998, including the maximum sales charge and assuming reinvestment of all dividends and distributions were 9.40%, 18.46% and 15.13%, respectively. Average annual total returns for Class B shares including the applicable contingent deferred sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from July 17, 1995 (commencement of offering of shares) to December 31, 1998 were 10.26% and 20.73%, respectively. Average annual total returns for Class M shares including the maximum sales charge of 3.50% and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from July 17, 1995 (commencement of offering of shares) to December 31, 1998 were 11.56% and 20.31%, respectively. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 5 Pilgrim LargeCap Leaders Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholders: We are pleased to report the results of operations for the Pilgrim LargeCap Leaders Fund (the "Fund") for the six months ended December 31, 1998. As you may know, during the period the Fund changed its name from Pilgrim America LargeCap Value Fund to Pilgrim LargeCap Leaders Fund. For the six months, the Fund earned a total return of 8.15%(1) compared to 9.23% for the Standard & Poor's 500 Index (the "S&P 500"). The Fund earned a total return of 20.08%(1) in the twelve months ending December 31, 1998, versus the S&P 500 return of 28.58%. An index of the value-oriented stocks of the S&P 500, the S&P/Barra Index(2) which compares better to the investment discipline of the Fund, underperformed the Fund with returns of 2.26% and 14.66% for the respective six month and twelve month periods ended December 31, 1998. ECONOMIC ENVIRONMENT AND EQUITY MARKET CONDITIONS The stock market produced above-average gains for another year. This was the fourth consecutive year in which the market advanced more than 20%. Somewhat reminiscent of 1997, the market rose, sold off, then recovered to new highs. But this past year's market was unlike the prior year's market pattern of an early advance that culminated in a correction in the spring, a six-month recovery and then a trading range until year end. The 1998 market advanced smartly until summer, sold off to where returns were negative for the year, recovered slightly during August and September and then went on to significant advances in each of the three final months of the year. Fueling the market recovery in large measure were the Federal Reserve's three interest rate cuts in a period of seven weeks. Real concern about what impact the economic wind-down in the Asian Pacific Basin would have on the U.S. economy and corporate earnings drove much of the market early in the year. Carried over from 1997's fourth quarter, investors preferred stocks of companies that were less cyclical and that derived a high measure of profits from the solid domestic U.S. economy. Companies linked strongly to the consumer, such as retailers and healthcare, were particularly desired early on. Some of this market sentiment did change, once companies had had an opportunity to report financial results for the March quarter and investors got an idea of earnings vulnerability. But throughout the year, investors maintained a bias in favor of companies thought to have visible earnings. This led to a market dominated, and thus driven, by a select handful of stocks, despite the implied breadth that the overall market indices conveyed as they recovered and rose. Entering 1998, we believed that the market held the potential to advance further. We did however, think returns would be good by historical standards, though perhaps less spectacular than those of the prior three years and much less than the 28.58% experienced. As 1999 begins, we believe the outlook is much the same despite stocks starting the year from higher valuations. Once again, we think that earnings growth will propel stocks more than expansion of the market P/E. Still unchanged are domestic economic growth, a low interest rate environment and constructive monetary policy to provide a favorable setting. 6 Pilgrim LargeCap Leaders Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- LARGECAP LEADERS FUND Your fund produced good returns throughout the year, but especially during the last three months of 1998. Although trailing the S&P 500 for the year as a whole, it outperformed the market by 2.83% during a time when the market was rising briskly. Overall, performance was very consistent with the value-style of investing, seeking meaningful returns with lower risk. Some insight arises when the S&P 500's performance in 1998 is analyzed. As was noted, investors narrowed their preferences to stocks thought capable of weathering the impact of economic events in the Asia-Pacific basin. This resulted in a market led by high-growth, high-P/E stocks. Since the S&P 500 is an index calculated on a market capitalization basis ( i.e., company shares times market price), stocks with high market prices can make a large impact on the index. According to investment house Morgan Stanley Dean Witter, a mere 15 stocks in the index accounted for half the S&P 500's increase. Moreover, the largest 100 stocks, measured by market capitalization, accounted for 85% of its performance although they only make up 66% of the index(3). The Fund was positioned to take advantage of much of the economic and market setting. Representations in Consumer Duarables and Entertainment/Leisure directly addressed these fundamentals. The Retailing and Healthcare sectors contributed to performance during much of the year. Retailing benefited both from strong fundamentals in the homecenter and mass market retailers as well as the market's preference for domestic companies. The Healthcare sector profited from a greater focus on pharmaceutical companies. Technology exerted a very strong influence on the portfolio in the second half of the year after acting as somewhat of a retardant earlier. Although the Fund had a sizable representation in the Financial sector, the strategy was shifted to emphasize insurance companies in preference to banks, a helpful move. The strategy of modest representation in the Industrial and Basic Industry sectors also worked well. Energy was moved to an under-weight during the year despite continually attractive stock valuations. Oil and natural gas prices remained on a steep descent throughout 1998, eroding the intermediate-term fundamental case for the sector. Starting 1999, the Fund has the most emphasis on the Technology sector. The secular trend for productivity enhancement through technological innovation remains strong and intact. New and broader telecommunications services are demanding increasing amounts of sophisticated components. Additionally, fundamentals are improving as a major portion of the sector is already rebounding from a recent cyclical low. Consumer Cyclicals are the second largest representation. Full employment and low interest rates keep fortifying consumer resources that, apart from retirement savings, are being channeled into quality of life services and devices. The Fund has the least emphasis on the Basic Industries, Industrial and Energy sectors. Most of these sectors continue to suffer from overcapacity and low commodity prices. 7 Pilgrim LargeCap Leaders Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy cost effective way to acquire additional shares of the Fund without incurring a sales charge. Should you decide to switch from cash dividends to automatic investment, please notify your broker or contact the Transfer agent, c/o DST Systems, Inc. P.O. Box 419338, Kansas City, MO 64141-6338 or call (800) 992-0180. We thank you for giving us the opportunity to help you work towards your investment needs. Sincerely, /s/ G. David Underwood G. David Underwood, CFA Vice President and Senior Portfolio Manager Pilgrim LargeCap Leaders Fund See Footnotes on page 9. 8 Pilgrim LargeCap Leaders Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Excluding the Class A maximum sales charge of 5.75% and assuming reinvestment of all dividends and distributions. Average annual total returns including the Class A maximum sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998, and from September 1, 1995 (commencement of operations) to December 31, 1998, were 13.16% and 18.67%, respectively. Average annual total returns for Class B shares including the applicable contingent deferred sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from September 1, 1995 (commencement of operations) to December 31, 1998 were 14.33% and 19.28%, respectively. Average annual total returns for Class M shares including the maximum sales charge of 3.50% and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from September 1, 1995 (commencement of operations) to December 31, 1998 were 15.43% and 18.93%, respectively. All return figures reflect a partial waiver of fees for the periods stated. Without such a waiver, returns would have been lower. (2) The S&P/Barra Index is a capitalization-weighted index of all of the stocks in the S&P 500 that have low price-to-book ratios. It is designed so that approximately 50% of the market capitalization is in the Value Index. (3) Source: Morgan Stanley Dean Witter, January 7, 1999. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 9 Pilgrim MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholders: We are pleased to report the results of operations for Pilgrim MidCap Value Fund (the "Fund") for the period ended December 31, 1998. For the twelve months ended December 31, 1998, the Fund earned a total return of 4.89%(1) compared to 10.01% for the Russell MidcapTM Index(2) and 5.08% for the Russell MidcapTM Value Index(3). For the six months ended December 31, 1998, the Fund earned -2.92 %(1) compared to 0.88% for the Russell Midcap Index and -1.94% for the Russell Midcap Value Index. After three years of extraordinary results from the US stock market, many expected a downturn in 1998, but all wondered just what kind of market we would have. In actuality, we experienced three distinctly different markets during the year, and nowhere was this more pronounced than in the small cap arena. Small stocks struggled to keep up with the broad market rally during the early part of the year, gaining 12.8% before peaking in late April and shrugging off - -36.5% of their value from April to early October. The latest rate cut by the Federal Reserve helped fuel a fourth quarter small cap rebound, pushing them to gains of over 36% between October and the end of the year. Looking back, the most defining characteristics of the 1998 stock market were volatility and narrowness. Falling commodity prices, continued global woes culminating in the summer meltdown in Russia, the near term collapse of hedge fund Long Term Capital Management and, to a lesser degree, political unrest surrounding both Clinton's presidency and renewed conflict with Iraq all sent shock waves through the marketplace. Prior to 1998, the Dow had fewer than five swings of 5% in each calendar year since 1946; in 1998 we experienced ten such events. The speculative frenzy in Internet related stocks not only topped historic sector booms, but also translated into similar results for any stock which seemed to have even a cursory relationship with this "new brave world," whether it existed within the technology or a service related sector. The Dow Jones US technology index finished the year up 62% versus the overall gain in the broad based index of 26.8%, which, incidentally, is the first time in history that the Dow has experienced four years of double digit gains in a row(4). Markets favor certain types of stocks during one cycle to the next, vacillating between large cap and small cap, value and growth, etc., and while 1998 was not an exception to the rule, it was clearly an exception as to the extent that this rule applies. A continued "flight to quality" sent investors scurrying to US stocks, and a "flight to liquidity" sent them to large cap growth names, further widening the already unprecedented disparity between performance and valuations of large cap stocks versus small cap stocks as shown in the graph on page 11. Not only was the market narrow in terms of stock size and sector, but also in terms of style and individual issues. Growth dramatically out-performed value, with growth stocks gaining 42.2% versus a gain of 14.7% in value stocks. With regard to individual issues, ten stocks were responsible for almost half of the Standard & Poor's 500 Index ("S & P 500") gain, and over 70% of stocks within the S&P 500 group lagged the market(5). All in all, it was an exceptionally difficult year for anyone who was not investing in the largest, growth-oriented names and, even then, only if they were exposed to the right sectors and a few select names. 10 Pilgrim MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- Cramer Rosenthal McGlynn LLC Large Capitalization Stocks vs. Small Capitalization Stocks [GRAPHIC OMITTED] The top five contributors to performance during the year were as follows: Wellpoint Health Networks 101.5%, Fred Meyer 44.0%, General Instrument 73.4%, Montana Power 43.0% and Cincinnati Bell 25.1%. On the other hand, the five stocks which detracted from performance the most were Ocean Energy -60.4%, Golden State Bancorp -20.3%, EEX Corp -62.7%, Danka -35.8% and Raychem -26.2%. Again, from a sector standpoint, technology was the top contributor across the board. As you would expect from true value investors, our weighting in technology was roughly one quarter that of the Russell MidcapTM Index and half that of the Russell MidcapTM Value Index. With a 36.1% gain in the fourth quarter and a 36.3% gain for the year, the technology sector contributed more to performance of the Russell MidcapTM Index than any other sector. Our over-weighting in energy stocks, one of the sectors that suffered the most in 1998, did not help portfolio performance despite the fact that several of our companies, including Amerada Hess, Columbia Gas and Coastal Corp., out-performed the energy sector as a whole. Regardless, performance for the year of +4.89% slightly trailed the Russell MidcapTM Value Index result of +5.08%, aided in part by our over-weighting in utility stocks -- an allocation which worked very well during the October market sell-off. Again, this is consistent with our desire to capture the majority of market performance in bull markets and protect capital during bearish environments. Montana Power announced the completion of their utility restructuring and Wall Street began realizing the power behind the fiber optic telecommunications and data network of Montana's subsidiary Touch America, thus driving the price of the stock from our cost basis of approximately $32 per share to a year-end market value of $56.56 per share. Other success stories and changes to the portfolio include Allergan and Fort James Corporation. Allergan reached its target price and was sold after the company rolled out two new drugs that surpassed our expectations and announced the appointment of a new CEO who implemented a successful corporate-wide restructuring. Similarly, the cost savings of the combined Fort Howard and James River companies came in ahead of plan, prompting Fort James Corp. to reach our target price well in advance of expectations. 11 Pilgrim MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- With 1998 behind us, the only pertinent topics at hand revolve around what 1999 may bring. At this moment, we are witnessing the third consecutive year of an early revival of interest in economically sensitive stocks and potentially strong first quarter GDP growth. That being said, the continued impact of the Asian crisis, slower world growth and the accompanying contraction in the US manufacturing sector are at the forefront of continued concerns of potential deflation later in the year, all signaling slower growth in 1999. Huge question marks loom around foreign markets and their potential to either continue to weaken and send shock waves through the global economy, or strengthen and stabilize, thus helping the US level out and springboard onto another growth pattern. With the weakening of global economies, we have added companies to the portfolio whose sales are more domestically focused, thus reducing our exposure to uncertainty in foreign markets. The new additions to the portfolio are generally less cyclical in nature as well, in an effort to buffer ourselves against a slower US economy. We have made several new purchases in the health care sector, including Healthsouth Corp., whose stock we believe has been over-sold by the market given their strong unit growth and sound fundamentals as we see them. Increasing share prices for large companies has provided powerful currency for them to continue merger mania. Next year we will see whether or not these mega-mergers such as Deutsche Bank/Bankers Trust, America Online/Netscape, Exxon/Mobil, Travelers/Citicorp and Daimler-Benz/Chrysler will be able to digest their consolidation pills. Even stronger, we think that factors such as lofty prices to forward earnings and a historically increased reliance on international trade will spell trouble for large stocks relative to small stocks. 1998 was a year in which we saw a squeeze on corporate earnings, yet a dramatic rise in share prices. It was also a year in which operating profits for smaller cap stocks topped large cap stocks, yet large stocks out-performed small cap stocks ten times over. Of course, no one can predict future markets, but we expect 1999 will be a year in which reality sets in again, and only those companies with realistic valuations and discernable earnings growth relative to those prices will prevail. Simply stated, we believe a reversal of fortune is in order. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy and cost effective way to acquire additional shares of the Fund without incurring a sales charge. Should you decide to switch from cash dividends to automatic investment, please notify your broker or contact the Transfer Agent, c/o DST Systems, Inc. , P.O. Box 419368, Kansas City, MO 64141-6368 or call (800) 992-0180. We thank you for giving us the opportunity to help you work towards your investment needs. Sincerely, CRAMER ROSENTHAL MCGLYNN, L.L.C. See Footnotes on page 13. 12 Pilgrim MidCap Value Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Excluding the Class A maximum sales charge of 5.75% and assuming reinvestment of all dividends and distributions. Average annual total returns including the Class A maximum sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998, and from September 1, 1995 (commencement of operations) to December 31, 1998, were -1.15% and 15.53%, respectively. Average annual total returns for Class B shares including the applicable contingent deferred sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from September 1, 1995 (commencement of offering of shares) to December 31, 1998 were -0.75% and 16.07%, respectively. Average annual total returns for Class M shares including the maximum sales charge of 3.50% and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from September 1, 1995 (commencement of offering of shares) to December 31, 1998 were 0.63% and 15.70%, respectively. All return figures reflect a partial waiver of fees for the periods stated. Without such a waiver, returns would have been lower. (2) The Russell MidCapTM Index measures the performance of the 800 smallest companies in the Russell 1000TM Index which represents approximately 35% of the market capitalization of the Russell 1000TM Index. (3) The Russell MidCapTM Value Index measures the performance of those Russell MidCap companies with lower price-to-book ratios and lower forecasted growth values. The stocks are also members of the Russell 1000TM Value Index. (4) Source: Wall Street Journal, January 4, 1999. (5) Source: Salomon Smith Barney, December 23, 1998. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 13 Pilgrim Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholders, Financial stocks performed poorly last year. This follows five years of good performance and we believe that the profit taking that took place has created exceptional relative value in this group as well as some exceptional absolute value in the smaller cap sector of this group. Pilgrim Bank and Thrift Fund's ( the "Fund") net asset value declined 1.8%(1) during this period trailing the Dow Jones Industrial Average which rose 18.2%, the Standard & Poor's 500 Index, which rose 28.6%, and the S&P Major Regional Banks Index(2) which gained 10.4%. Since the Fund now contains numerous financial stocks other than banks and thrifts, we have also started comparing ourselves to the NASDAQ 100 Financial Index(3). This index declined 1.1% last year and was much closer to our performance. Most of the factors that we mentioned in our last report as contributing to our poor performance have not reversed yet. We still believe that this reversal will take place and are hopeful that it will occur this year. The increased size of the Fund resulted in considerable trading activity last year. The changes are too numerous to list as I have in the past. An abbreviated version of this is that fifteen new names were added and are still retained and nine of our holdings were completely sold. Fundamentals affecting the bank and thrift industry are still basically good. Credit quality is very little changed and still looks good. The yield curve still remains relatively flat and this as well as lower interest rates is putting some pressure on most bank and thrift margins. As a result of this, I believe that earnings growth in 1999 will be lower than is generally anticipated-- about the plus 7-9% range but this is still better than the anticipated growth rate of 4-6% for the S&P 500 index. While there are no signs of it yet, I still believe that the next major credit problem for the banking industry will be credit cards. We continue to limit our exposure to this segment. Loan demand actually picked up in the fourth quarter as many competing non-bank companies had trouble raising funds in the securitization market thus resulting in additional loan demand for the banks. Consolidation in the industry has slowed as companies concentrate on making their operating systems year 2000 compliant and then testing these systems. They do not want to be burdened during this period with the risk of integrating a different operating system with theirs until they are sure that their own system will be year 2000 compliant. We believe that this will be basically proven out by the end of the third quarter of this year and that consolidation activity will pick up with a vengeance after this. Too, bank earnings should benefit in the year 2000 from the elimination of year 2000 expenditures as well as from some of the new equipment that was added in the process of making the bank year 2000 compliant. If I could sum up the current scenario in the banking sector with one word, it would be "Value!" 14 Pilgrim Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- When you have been around as long as I have, you develop an ability to ignore the hype when stocks are running unquestioned to stratospheric multiples and, conversely, to see through the exaggerated pessimism when value presents itself. I believe there is considerable opportunity in today's marketplace. I continue to stick to my old way of doing things -- that is, selling our more expensive names and buying the better quality names that look relatively and absolutely cheap. I believe that the Fund is in good shape for this year. There have been some scattered redemptions so far in 1999. I strongly believe that this is not the time to take money out of this fund. The underperformance of the sector last year and its continued underperformance so far this year have created exceptional relative value in this Fund. The average multiples on the banks and thrifts in the Fund is about 12.8 times 1999 estimated earnings vs. over 25 times for the S&P 500. Also, more importantly, for the first time in about 12 months, I am seeing stocks that are attractive on an absolute basis. These are small cap banks and financial services companies, with the banks trading at between 10.5 and 12 times 1999 earnings with good growth prospects. I believe that they will go back to premium multiples when consolidation picks up again later in the year or in early 2000. Some financial services companies are selling at multiples that are even cheaper than those for banks and thrifts, and if our holdings in this area were included in our multiple calculation, it would bring the Fund's average multiple to below 12.8 times estimated 1999 earnings. Overall, the Fund is primed for a relatively strong 1999. Of course, there can be no guarantees but I believe that when values are this good, it's time to invest, wait out the volatility, and wait for the opportunities for your investments to pay off. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides and easy and cost-effective way to acquire additional shares in the Fund , without incurring a sales charge. Should you decide to switch from cash dividends to automatic reinvestment, please notify your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box 419368, Kansas City, MO 64141-6368, or call (800) 992-0180. We thank you for giving us the opportunity to help you work towards your investment needs. Please do not hesitate to contact us if you have any questions or need additional information. Sincerely, /s/ Carl Dorf Carl Dorf, C.F.A. Senior Vice President and Senior Portfolio Manager Pilgrim Investments, Inc. See Footnotes on page 16. 15 Pilgrim Bank and Thrift Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Total return for Class A shares calculated at NAV and assuming reinvestment of all dividends and distributions. Sales charges or commissions are not reflected in these total returns. Average annual total returns based on NAV, assuming reinvestment of all dividends and distributions and including the deduction of the maximum Class A sales charge of 5.75% were -7.48%, 25.89% and 20.90% for the one, five and ten-year periods ended December 31, 1998. Prior to October 20, 1997, the Fund operated as a closed-end investment company. All performance information prior to this date reflects the historical expense levels of the Fund as a closed-end investment company without adjustment for the higher annual expenses of the Fund's Class A shares. Performance would have been lower if adjusted for these charges and expenses. Performance information for periods after October 20, 1997 includes Class A expenses. Ten-year returns assume no participation in the 1992 rights offering and full participation in the 1993 rights offering. Average annual total returns for Class B shares including the applicable contingent deferred sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from October 20, 1997 (commencement of offering of shares) to December 31, 1998 were -7.27% and 4.29%, respectively. (2) The S&P Major Regional Banks Index is a capitalization-weighted index designed to measure the performance of the major regional banks within the Standard & Poor's 500 Index. (3) The NASDAQ 100 Financial Index is a capitalization-weighted index of the 100 largest financial companies, as well as foreign issues, including American Depository Receipts, traded on the NASDAQ National Market System and Small Cap Market. 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. PRINCIPAL RISK FACTORS: BECAUSE THE FUND'S PORTFOLIO IS CONCENTRATED IN THE BANKING AND THRIFT INDUSTRY IT MAY BE SUBJECT TO GREATER RISK THAN A PORTFOLIO THAT IS NOT CONCENTRATED IN ONE INDUSTRY. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. Pilgrim Bank and Thrift Fund's primary investment objective is long-term capital appreciation, with income as a secondary objective. The Fund seeks to achieve its objectives by investing primarily in the equity securities of banks and thrifts. 16 Pilgrim Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholder: The following are the results of operations for Pilgrim Asia-Pacific Equity Fund (the "Fund"), for the year ended December 31, 1998. For the twelve months, the Fund earned a net return of -15.51%(1) compared to - -4.82% for the Morgan Stanley Capital International All Countries Far East Free ex-Japan Index (the "MSCI"), a measure of the performance of Far East markets excluding Japan. GENERAL ECONOMIC ENVIRONMENT A combination of a strong yen and weaker US dollar was the major factor behind the recent recovery which took place in most of the regional currencies. This in turn has enabled interest rates to be reduced, a process which was helped by a cut in the Federal Funds rate. However, the economic picture is still very gloomy with only China, Singapore and Taiwan showing growth in 1998, and in the case of the latter two, at much reduced levels. China only managed to keep growth close to that of 1997 by embarking on huge infrastructure spending as export growth fell dramatically. Elsewhere, 3Q GDP contracted in Hong Kong, Malaysia and South Korea. Coupled with this contraction was a rise in unemployment and in some cases, inflation turning negative. The countries which the IMF is helping, namely Indonesia, the Philippines and South Korea, all made progress which has enabled the IMF to allow some relaxation of its conditions for the former two, and for the South Korean government to begin to repay some of its loans. Social unrest is still very much to the fore in both Indonesia, where rioting in Jakarta is still prevalent, and in Malaysia. SPECIFIC EQUITY MARKET CONDITIONS The table below summarizes the total returns on the respective MSCI Country Indices which comprise the Far East Free (excluding Japan) Index: Total Return Country 1/1/98 - 12/31/98 ------- ----------------- Hong Kong -2.92% Malaysia -30.81% Singapore -3.59% Thailand 11.56% Indonesia -31.52% Philippines 13.45% South Korea 141.15% Taiwan -20.64% China -42.36% Much of 1998 has been characterised by a sense of crisis and contagion. Declining economies remain crippled by banking problems, but the combination of a strong yen and weak dollar in the fourth quarter contributed to the recovery of most regional currencies while lower US interest rates reduced pressure on regional rates. The economic picture remained gloomy around the region with unemployment rising and in some cases, some countries moving into a deflationary environment. 17 Pilgrim Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- HONG KONG had a volatile year as the economy adjusted to regional instabilities and rigidities of Hong Kong's currency board system, high interest rates, tight liquidity, increasing unemployment and falling asset prices. These factors are still persisting, and while asset prices have stabilized, significant upside momentum is still elusive. In the long run, the important issue for Hong Kong remains its role in China's economic development and its status as a competitive international financial center. While Hong Kong remains the best gateway to China, the prevailing domestic credit crunch and a lethargic primary market may undermine its fund-raising capability for Chinese enterprises. Furthermore, the long-held policy of "active non-intervention" may render Hong Kong not as flexible in cost-cutting or restructuring as other economies. With investors beginning to emphasize "reform" at both a macro and micro level, the general perception is that Hong Kong is less ready than some of its regional peers in introducing competition and dismantling cartels. While the absolute downside may not be huge, the Hong Kong market may under-perform in a regional context before this perception is changed. The MALAYSIA market has staged a remarkable recovery over the past few months. While fiscal and monetary policies are expected to be aggressively expansionary in 1999, the economy remains fragile while growth is likely to remain weak because of implementation delays, cautious consumer and weak investor sentiment. Driven by local funds, the market is likely to remain strong in the short term, although a complete turnaround is unwarranted as it is unclear whether the controversial corrective measures adopted by the government is properly setting the country back on the path of recovery. Investing in INDONESIA continues to demand a considerable risk appetite. Politically, the country remains trapped in the transition from Suharto's 32-year rule, with the current administration unable to secure sustainable political and social stability. The June legislative elections and December presidential polls could bring either stability or intensify unrest. Tough decisions must be made regarding banking sector recapitalisation, private debt restructuring and privatization, which in turn will be the driving forces for the economy and the stock market. In THAILAND, the debate between participating in liquidity-driven rallies and the need to evaluate the market on a fundamental valuation basis is expected to continue into 1999. While the worst for the economy has passed, the government must take the lead in accelerating recapitalization and debt restructuring. More importantly, the passage of amended bankruptcy and foreclosure laws in full will be key in re-establishing investor confidence and accelerating bank loan restructuring. Singapore and the Philippines provide a fundamentally more positive environment. SINGAPORE has won widespread approval for its handling of the Asian financial crisis. On the corporate front, restructuring momentum, earnings improvement from cost reduction initiatives and cash-rich companies bargain hunting in the region should help retain investor interest. In terms of the economy, domestic government policies to reform and hone competitiveness should provide a cushion against the challenging external environment in the event of a slowdown in the US and Europe. Despite headline GDP numbers showing a milder recession for the PHILIPPINES compared to some of its neighbors in the Association of South East Asian Nations, the country is likely to face another year of consolidation in 1999. Optimism will be tempered with reality, with buoyant export growth one of the saving graces. Slowing growth, deteriorating exports, concerns surrounding financial leverage and stock market activity by corporates has left TAIWAN at the back of the performance "pack". 1999 will be a challenging 18 Pilgrim Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- year as Taiwan attempts to maintain economic growth momentum. Growth will continue to be driven by investment and private consumption rather than by exports as banks adopt more conservative lending policies following rising corporate failures and non-performing loans. KOREA has been a phenomenal performer over the past few months, which together with the currency move and its changed market capitalization weighting has transformed its importance in regional benchmarks. Macro-economic numbers indicate that the economy has seen the bottom, while Korean chaebols are forced to restructure, with banks asked to facilitate the process by withdrawing new credit from those chaebols which refuse to cooperate. Korea is clearly attempting to re-engineer its corporate and financial sectors to become more competitive. The market may experience a long-term rally if corporate sector reforms are implemented successfully. PILGRIM AMERICA MASTERS ASIA PACIFIC EQUITY FUND Our strategy for the last twelve months has been to adopt a relatively defensive position for the portfolio, emphasizing good quality blue chip companies with strong franchises and balance sheets, who are able to withstand the significant domestic recessionary conditions that all Asian economies are experiencing. Against this background, country allocation has been of slightly less importance than in circumstances where economies are functioning normally. Nevertheless we have taken a strategic overweight position in Singapore where we believe, at both a macro and micro level, fundamentally positive developments are occurring. In particular, at the micro level, it is our view that corporate emphasis is shifting from asset accumulation and growth towards a focus in investment returns. This is likely to be rewarding for shareholders, particularly in view of government policy geared towards making Singapore a lower cost and more business-friendly economy. Elsewhere we have rebuilt positions in Thailand and Korea which are economies and markets that have made significant progress in reform and restructuring, against the background of a massive improvement in their trade accounts and commensurate reduction in interest rates. While more remains to be done in both countries we would be inclined to add to both markets in a correction. In contrast we have remained cautious on Indonesia, whilst a reassessment of prospects in Malaysia requires a reversal of the capital controls imposed in September. We have remained relatively cautious on immediate prospects in Hong Kong and China, and as a result, our Hong Kong weighting has been relatively neutral with emphasis on blue chip leaders in Utilities, Telecoms and Banks. We have viewed Hong Kong's fixed exchange rate as preventing policy makers from having as much monetary flexibility as elsewhere in Asia, with the economy essentially adjusting around the currency. This suggests to us that the adjustment process will be painful and although we probably under-estimated the scale of the rally in Hong Kong in the fourth quarter of 1998, our focus is likely to remain on the rest of the region in the short term. Cash levels were run down in the fourth quarter, and we remain fully invested. We thank you for giving us this opportunity to help you work towards your investment needs. Sincerely, HSBC ASSET MANAGEMENT AMERICA, INC. HSBC ASSET MANAGEMENT HONG KONG LIMITED See Footnotes on page 20. 19 Pilgrim Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Excluding the Class A maximum sales charge of 5.75% and assuming reinvestment of all dividends and distributions. Average annual total returns including the Class A maximum sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998, and from September 1, 1995 (commencement of operations) to December 31, 1998, were -20.37% and -19.55%, respectively. Average annual total returns for Class B shares including the applicable contingent deferred sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from September 1, 1995 (commencement of operations) to December 31, 1998 were -20.57% and -19.51%, respectively. Average annual total returns for Class M shares including the maximum sales charge of 3.50% and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from September 1, 1995 (commencement of operations) to December 31, 1998 were -19.26% and -19.47%, respectively. All return figures reflect a partial waiver of fees for the periods stated. Without such a waiver, returns would have been lower. 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. PRINCIPAL RISK FACTORS: EXPOSURE TO FINANCIAL AND MARKET RISKS THAT ACCOMPANY INVESTMENT IN EQUITIES, AND EXPOSURE TO CHANGES IN CURRENCY EXCHANGE RATES AND THE ECONOMIC AND POLITICAL RISKS OF FOREIGN INVESTING. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 20 Pilgrim High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholder: It is our pleasure to share with you the results of operations for the Pilgrim High Yield Fund ("the Fund") for the semi-annual period ended December 31, 1998. For the year ended December 31, 1998 the Fund earned a total return of - -2.96(1) compared to the Lehman High Yield Index which returned 1.60% for the same period. For 1998, results fell short of expectations as the energy, mining and communication sectors under-performed. While short-term performance fell short of our goals, longer-term five-year performance remains in the top quartile of the Lipper High Current Yield category. It is management's top priority to maintain this long-term ranking. GENERAL ECONOMIC AND MARKET ENVIRONMENT Early 1998 brought the continuation of economic trends witnessed the previous year. While domestic trends were benign, a storm was brewing on the international front. Later in the year rumblings of concern about international economic instability could be heard from Alan Greenspan, among others. It became evident that U.S. capital markets would not escape the economic and political instability in Russia, Asia, and Brazil unscathed. Globalization, for better or worse, had arrived. As a result, the Federal Reserve Open Market Committee, in an effort to maintain liquidity and restore investor confidence, lowered the Federal Funds rate target three times during the second half of 1998, from 5.50% to 4.75%. By year-end, the committee's stance had become neutral; lessening the near-term risk there would be a further decline in interest rates. 1998 also brought a significant decline in interest rates. At the beginning of the year, the 30-year Treasury bond yielded 5.92%. After reaching a low of 4.72% on October 5, 1998, treasuries pulled back for the remainder of 1998, ending the year 83 basis points lower at 5.09%. At year-end, the yield curve reflected the Federal Reserve's neutral stance as well a low, but steady, rate of inflation. As of this writing (February 1999), interest rates have risen to 5.43%, as market participants exhibit concern over the strong economic growth witnessed in the fourth quarter of 1998. HIGH YIELD MARKET For the second year in a row, the high yield market set a record for new issues, with $142 billion new bonds priced. This record was even more impressive given the tumultuous two-month period between September and October, when new issuance virtually came to a standstill. Including new issues, the total market for high yield grew to $599 billion, a net increase of $104 billion from year-end 1997. Even with a bumper crop of new issues the high yield market saw its share of market erosion. Towards the latter half of 1998, spreads widened a dramatic 271 basis points (from 386 to 657 basis points over comparable treasuries) according to the CSFB High Yield Index. Currently, spreads of high yield securities are on the wider side of average giving them room to tighten in a positive economic environment 21 Pilgrim High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- High yield default rates in 1998 mirrored historical averages. Moody's reported a trailing twelve month default rate of 3.31% nearly matching the annual mean (1971-1998) of 3.35%. (The default rate is reported as a percentage of issuers.) Dr. Edward Altman of New York University tracks an additional measure of high yield defaults, exclusive of international emerging markets corporates. Dr. Altman reported a final default rate for 1998 of 1.60% compared to a 1.50% median default rate for the previous 27 years. PILGRIM HIGH YIELD FUND Over the past twelve months, the Fund's industry weightings have been reallocated. Top industry weightings include Communications, Retail, Leisure, Automotive and Gaming. Communications, while under-performing in the second half of 1998, has rebounded strongly in the opening months of 1999. Market participants recognized the relative value of the sector and the opportunities afforded by the deregulation of the industry and growth of the Internet. Media and entertainment companies continue to provide stable and predictable cash flow. In the retailing sector, the focus is on issuers who exhibit competent management and strong comparable sales growth. In the automotive sector, the portfolio's holdings were concentrated in wholesale and retail distributors of automotive parts. Consolidation within this sector has allowed the remaining companies to improve profit margins through back office integration. Margins have been further improved by the consolidating company's ability to negotiate more favorable terms from suppliers. Net assets of the Fund have grown dramatically in the last year. Management spent the fourth quarter reinvesting cash, as investment opportunities became attractive. Cash declined from a high of 13% in September to approximately 8% at year-end 1998. Typically, in a fully invested portfolio, cash will remain in a 0-3% range. We wish to remind shareholders that the fund offers an automatic dividend reinvestment plan, which provides an easy and cost effective way to acquire additional shares in the Fund, without incurring a sales charge. Should you decide to switch from cash dividends to automatic investment, please notify your broker or contact the Transfer Agent, c/o DST Systems Inc., PO Box 419338, Kansas City, Missouri 64141-6338 or call (800) 992-0180. We thank you for giving us the opportunity to work towards your investment needs. Sincerely, /s/ Kevin G. Mathews Kevin G. Mathews Senior Vice President and Senior Portfolio Manager Pilgrim Group, Inc. See Footnotes on page 23. 22 Pilgrim High Yield Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Performance figures shown pertain only to Class A shares of the Fund without deducting the 4.75% maximum sales charge. The average annual total returns for the one, five and ten-year periods ended December 31, 1998, after deduction of the Class A maximum sales charge of 4.75% were -7.60%, 7.36% and 8.88%, respectively. Average annual total returns for Class B shares including the applicable contingent deferred sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from July 17, 1995 (commencement of offering of shares) to December 31, 1998 were -8.02% and 7.75%, respectively. Average annual total returns for Class M shares including the maximum sales charge of 3.25% and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from July 17, 1995 (commencement of offering of shares) to December 31, 1998 were -6.58% and 7.69%, respectively. All return figures reflect a partial waiver of fees for the periods stated. Without such a waiver, returns would have been lower. 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. PRINCIPAL RISK FACTORS: 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. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 23 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to report the results of operations for the Pilgrim Government Securities Income Fund ("the Fund") for the year ended December 31, 1998. As of December 31, 1998, the Fund's standardized 30 day SEC yield was 4.44%(1). The average annual total returns for the one, five, and ten year periods ended December 31, 1998 assuming reinvestment of all dividends and distributions, were 5.61%, 5.22%, and 7.07%, respectively.(1) GENERAL ECONOMIC AND MARKET ENVIRONMENT We can thank Alan Greenspan for another year of positive economic and investment fundamentals. The Federal Reserve in a series of moves, starting late in the third quarter, lowered the Federal Funds rate from 5.50% to 4.75%. These monetary easings provided liquidity in a time of perceived crisis. More importantly, they instilled confidence in investors and allowed the year to close on a positive note for both equity and bond investors. Interest rates spent most of the first half of 1998 trading in a very tight range. Then in the later half of May, Mr. Greenspan gave testimony to the House Agricultural Committee. In his prepared statement, Greenspan said that while the world economy has so far "avoided the continuing downward spiral some feared" from Asia's economic crisis, there is still a chance a second round of instability could have "unexpected large negative effects." It is almost eerie on how well these comments foreshadowed the events that transpired soon after. First Asia, then Russia and then finally Brazil would send the US and global financial markets on a roller coaster ride over the next eight months. The thirty-year bond reached it low of 4.72% on October 5, less than a week after the Federal Reserve eased monetary policy for the first time in three years. In the final quarter of 1998, the Federal Reserve eased monetary policy two more times and interest rates moved into a slightly higher range as assets were reallocated back to the equity market. This reallocation of assets propelled the equity market to new highs. MORTGAGE SECURITIES MARKET IN PARTICULAR The mortgage market, over the last twelve months, has been challenged by low rates and corresponding high prepayments. The increased sophistication of the average homeowner, who receives numerous solicitations to refinance their mortgage, has exacerbated this situation. Management has reduced its impact to prepayments by reallocating the portfolio's mortgage concentration into agencies and lower coupon mortgages, which have little or no prepayment risk. On December 31, 1997 the Fund had no exposure to mortgages with a coupon less than 7% and 47% of the mortgage securities had a coupon greater than or equal to 10%. On December 31, 1998 the Fund's allocation had been shifted to where 40% of the mortgage securities had a coupon less than or equal to 7% and 25% of the mortgage securities had a coupon greater than or equal to 10%. 24 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- ANALYSIS OF THE PILGRIM GOVERNMENT SECURITIES INCOME FUND The effective duration (a measure of price sensitivity) of the portfolio as of December 31, 1998 was approximately 4.0, slightly above the Lehman Government/Mortgage Index. Our goal is to provide competitive returns while having less volatility and more downside protection than most other government securities funds. That being said, the strong bullish environment that has continued to prevail over the last twelve months is not one in which this fund excels. It is our belief that the strategy and philosophy, which we adhere to, is one that will provide you with an attractive long-term risk/reward profile. The Fund continues its ongoing commitment to shareholders of avoiding the risks associated with exotic derivatives, leverage as well as futures and options. For the first half of 1999, we believe that economic growth will moderate from the strong pace witnessed in the fourth quarter of 1998. The stock market will be a factor to watch in 1999 as it relates to both the economy and the bond market. We believe interest rates will stay confined within a range and that the focus in 1999 will be on income. That being said, the Pilgrim Government Securities Income Fund with it high concentration of mortgage pass-throughs seeks to provide investors with a good source of income. We wish to remind shareholders that the fund offers an automatic dividend reinvestment plan, which provides an easy and cost effective way of acquiring additional shares in the fund, without incurring a sales charge. Should you decide to switch from cash dividends to automatic reinvestment, please notify your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box 419338, Kansas City, Missouri 64141-6338 or call (800) 992-0180. We thank you for giving us this opportunity to help you work towards your investment needs. Sincerely, /s/ Charles G. Ullerich Charles G. Ullerich, C.F.A. Portfolio Manager Pilgrim Investments, Inc. See Footnotes on Page 26. 25 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Total return and yield figures reflect a partial waiver of expenses for some of the periods stated. Performance figures shown pertain only to Class A Shares of the Fund excluding the 4.75% maximum sales charge. Average annual total returns for the one, five and ten-year periods ended December 31, 1998, including the maximum sales charge and assuming reinvestment of all dividends and distributions were 0.63%, 4.20% and 6.56%, respectively. Average annual total returns for Class B shares including the applicable contingent deferred sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from July 17, 1995 (commencement of offering of shares) to December 31, 1998 were -0.15% and 4.42%, respectively. Average annual total returns for Class M shares including the maximum sales charge of 3.25% and assuming reinvestment of all dividends and distributions for the year ended December 31, 1998 and from July 17, 1995 (commencement of offering of shares) to December 31, 1998 were 1.66% and 4.50%, respectively. The 30-day standardized SEC yields for Class B and M as of December 31, 1998 were 3.86% and 4.04%, respectively. The Fund earned income and realized capital gains as a result of entering into reverse repurchase agreements during the six month period from July to December, 1992. Therefore, the Fund's performance was higher than it would have been had the Fund adhered to it's 10% borrowing investment restriction. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 26 Pilgrim Funds - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
LargeCap MidCap MagnaCap Leaders Value Fund Fund Fund ------------ ----------- ------------ ASSETS: Investments in securities at market value (Cost $303,275,265, $21,031,720 and $62,144,590, respectively) $424,334,243 $25,485,602 $ 69,212,481 Short-term securities at amortized cost 30,259,000 2,495,000 3,524,000 Cash 14,433 8,870 8,608 Receivables: Fund shares sold 1,370,629 3,075 108,366 Dividends and interest 441,086 14,883 36,935 Due from affiliate -- 10,256 3,196 Investment securities sold 6,284,216 136,854 231,934 Prepaid expenses 71,873 17,594 27,187 Deferred organization expenses -- 43,410 43,410 ------------ ----------- ------------ Total Assets 462,775,480 28,215,544 73,196,117 ------------ ----------- ------------ LIABILITIES: Payable for investment securities purchased 970,275 -- 640,663 Payable for fund shares redeemed 634,972 17,962 194,192 Payable to affiliate 6,552 649 1,828 Other accrued expenses and liabilities 245,413 73,478 95,734 ------------ ----------- ------------ Total Liabilities 1,857,212 92,089 932,417 ------------ ----------- ------------ NET ASSETS $460,918,268 $28,123,455 $ 72,263,700 ============ =========== ============ NET ASSETS CONSIST OF: Paid-in capital $314,748,813 $21,179,968 $ 65,936,367 Overdistributed net investment income (loss) (253,559) (109,458) (266,232) Accumulated net realized gain (loss) on investments and foreign currency transactions 25,364,036 2,599,063 (474,326) Net unrealized appreciation of investments 121,058,978 4,453,882 7,067,891 ------------ ----------- ------------ Net Assets $460,918,268 $28,123,455 $ 72,263,700 ============ =========== ============ Class A: Net assets $350,702,866 $ 7,004,739 $ 22,898,522 Shares authorized ($1.00, $0.10 and $0.00 par value, respectively) 80,000,000 28,000,000 28,000,000 Shares outstanding 21,541,256 443,519 1,521,846 Net asset value and redemption price per share $ 16.28 $ 15.79 $ 15.05 Maximum offering price per share(1) $ 17.27 $ 16.75 $ 15.97 Class B: Net assets $ 94,968,442 $15,659,749 $ 37,167,666 Shares authorized ($1.00, $0.10 and $0.00 par value, respectively) 80,000,000 28,000,000 28,000,000 Shares outstanding 5,924,990 1,013,916 2,532,099 Net asset value, redemption and offering price per share(2) $ 16.03 $ 15.44 $ 14.68 Maximum offering price per share(2) $ -- $ -- $ -- Class M: Net assets $ 15,246,960 $ 5,458,967 $ 12,197,512 Shares authorized ($1.00, $0.10 and $0.00 par value, respectively) 40,000,000 14,000,000 14,000,000 Shares outstanding 944,053 350,165 827,217 Net asset value and redemption price per share $ 16.15 $ 15.59 $ 14.75 Maximum offering price per share(3) $ 16.74 $ 16.16 $ 15.28
- ------------ (1) Maximum offering price is computed at 100/94.25 of net asset value. On purchases of $50,000 or more, the offering price is reduced. (2) Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (3) Maximum offering price is computed at 100/96.50 of net asset value. On purchases of $50,000 or more, the offering price is reduced. See Accompanying Notes to Financial Statements 27 Pilgrim Funds - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Bank and Asia-Pacific Government Thrift Equity High Yield Securities Fund Fund Fund Income Fund ------------- ------------- ------------- -------------- ASSETS: Investments in securities at market value (Cost $671,959,872, $23,841,769, $364,245,066 and $40,165,070, respectively) $851,834,045 $ 23,536,222 $345,500,785 $ 40,400,113 Affiliated issuers (Cost $11,022,381) 8,138,601 -- -- -- Short-term investments at amortized cost 25,045,000 -- 26,814,000 2,762,000 Foreign currency (Cost $0, $722,308, $0 and r$0, espectively) -- 505,503 -- -- Cash 652,272 -- 2,486,950 8,610 Receivables: Fund shares sold 5,111,517 13,406 6,716,269 1,045,399 Dividends and interest 1,166,505 39,432 7,914,697 409,375 Due from affiliate -- 11,964 36,164 -- Investment securities sold 7,217,118 -- -- -- Other -- -- -- 29,531 Prepaid expenses 191,688 17,989 98,219 15,286 Deferred organization expenses -- 43,410 -- -- ------------- ------------- ------------- -------------- Total Assets 899,356,746 24,167,926 389,567,084 44,670,314 ------------- ------------- ------------- -------------- LIABILITIES: Payable for investment securities purchased 5,523,461 -- 2,468,000 -- Payable for fund shares redeemed 4,445,589 531,138 1,574,513 70,392 Payable to custodian -- 704,560 -- -- Payable to affiliate 13,109 1,566 2,961 439 Other accrued expenses and liabilities 315,683 171,788 73,740 49,369 ------------- ------------- ------------- -------------- Total Liabilities 10,297,842 1,409,052 4,119,214 120,200 ------------- ------------- ------------- -------------- NET ASSETS $889,058,904 $ 22,758,874 $385,447,870 $ 44,550,114 ============= ============= ============= ============== NET ASSETS CONSIST OF: Paid-in capital $700,793,892 $ 55,774,610 $428,102,143 $ 50,143,234 Undistributed (overdistributed) net investment income (loss) 1,785,023 (209,441) 409,195 23,956 Accumulated net realized gain (loss) on investments and foreign currency transactions 9,489,596 (32,283,124) (24,319,187) (5,852,119) Net unrealized appreciation (depreciation) of investments and other assets, liabilities and forward contracts denominated in foreign currencies 176,990,393 (523,171) (18,744,281) 235,043 ------------- ------------- ------------- -------------- Net Assets $889,058,904 $ 22,758,874 $385,447,870 $ 44,550,114 ============= ============= ============= ============== Class A: Net assets $492,638,959 $ 9,691,887 $127,391,677 $ 26,943,609 Shares authorized ($0.00, $0.01, $0.10 and $0.00 par value, respectively) 100,000,000 24,000,000 80,000,000 1,000,000,000 Shares outstanding 20,007,801 1,893,735 20,640,994 2,094,500 Net asset value and redemption price per share $ 24.62 $ 5.12 $ 6.17 $ 12.86 Maximum offering price per share(1) $ 26.12 $ 5.43 $ 6.48 $ 13.50 Class B: Net assets $396,419,945 $ 9,172,817 $233,916,497 $ 16,119,933 Shares authorized ($0.00, $0.01, $0.10 and $0.00 par value, respectively) 100,000,000 24,000,000 80,000,000 1,000,000,000 Shares outstanding 16,150,750 1,833,136 37,978,541 1,257,575 Net asset value, redemption and offering price per share(2) $ 24.54 $ 5.00 $ 6.16 $ 12.82 Maximum offering price per share(2) $ 24.54 $ -- $ -- $ -- Class M: Net assets $ -- $ 3,894,170 $ 24,139,696 $ 1,486,572 Shares authorized ($0.00, $0.01, $0.10 and $0.00 par value, respectively) -- 12,000,000 40,000,000 1,000,000,000 Shares outstanding -- 774,247 3,917,206 115,607 Net asset value and redemption price per share $ -- $ 5.03 $ 6.16 $ 12.86 Maximum offering price per share(3) $ -- $ 5.21 $ 6.37 $ 13.29
- ------------ (1) Maximum offering price is computed at 100/94.25 of net asset value for Bank and Thrift Fund and Asia-Pacific Equity Fund and 100/95.25 of net asset value for High Yield Fund and Government Securities Income Fund. On purchases of $50,000 or more, the offering price is reduced. (2) Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (3) Maximum offering price is computed at 100/96.50 of net asset value for Asia-Pacific Equity Fund and 100/96.75 of net asset value for High Yield Fund and Government Securities Income Fund. See Accompanying Notes to Financial Statements 28 Pilgrim Funds - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS for the Six Months Ended December 31, 1998 (Unaudited) - --------------------------------------------------------------------------------
LargeCap MagnaCap Leaders MidCap Value Fund Fund Fund ----------- ---------- ------------ INVESTMENT INCOME: Interest $ 776,890 $ 34,865 $ 175,095 Dividends (net of foreign withholding taxes of $20,633, and $3,586, respectively) 2,860,443 147,243 352,340 ----------- ---------- ------------ Total investment income 3,637,333 182,108 527,435 ----------- ---------- ------------ EXPENSES: Investment management fees 1,524,356 127,831 357,397 Distribution expenses Class A Shares 493,426 8,353 28,698 Class B Shares 411,387 69,486 183,105 Class M Shares 52,766 18,701 44,624 Transfer agent and registrar fees 357,722 66,200 87,153 Reports to shareholders 85,029 5,394 13,314 Professional fees 50,143 5,152 11,346 Custodian fees 48,981 3,241 8,378 Miscellaneous expenses 42,393 15,346 44,614 Registration and filing fees 40,749 17,142 23,074 Recordkeeping and pricing fees 35,500 2,179 6,027 Shareholder servicing fee 27,740 2,997 6,882 Directors' fees 15,271 756 2,773 Organization expense -- 13,116 13,116 Insurance expense -- 1,047 2,899 ----------- ---------- ------------ Total expenses 3,185,463 356,941 833,400 ----------- ---------- ------------ Less: Waived and reimbursed fees -- (64,633) (37,665) Earnings credits (8,670) (742) (2,068) ----------- ---------- ------------ Net expenses 3,176,793 291,566 793,667 ----------- ---------- ------------ Net investment income (loss) 460,540 (109,458) (266,232) ----------- ---------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS: Net realized gain from investments 20,678,833 2,080,191 1,098,256 Net change in unrealized appreciation (depreciation) of investments 2,845,741 (231,469) (3,831,064) ----------- ---------- ------------ Net gain (loss) from investments 23,524,574 1,848,722 (2,732,808) ----------- ---------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $23,985,114 $1,739,264 $ (2,999,040) =========== ========== ============
See Accompanying Notes to Financial Statements 29 Pilgrim Funds - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS for the Six Months Ended December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Bank and Asia-Pacific Government Thrift Equity High Yield Securities Fund Fund Fund Income Fund -------------- ------------ ------------- ----------- INVESTMENT INCOME: Interest $ 1,763,349 $ 74,847 $ 16,289,444 $1,355,839 Redemption fee income 408,140 -- -- -- Dividends (net of foreign withholding taxes of $6,050, $21,977, $0 and $0, respectively) 8,822,204 180,969 -- -- -------------- ------------ ------------- ---------- Total investment income 10,993,693 255,816 16,289,444 1,355,839 -------------- ------------ ------------- ---------- EXPENSES: Investment management fees 3,065,197 149,471 949,447 91,400 Distribution expenses Class A Shares 614,603 14,125 394,722 32,872 Class B Shares 1,821,357 43,879 705,259 48,163 Class M Shares -- 14,398 52,388 2,400 Transfer agent and registrar fees 984,000 97,388 205,089 65,493 Reports to shareholders 120,146 9,922 49,829 6,515 Miscellaneous expenses 115,238 33,372 6,888 5,389 Registration and filing fees 99,336 31,369 55,455 19,154 Custodian fees 77,346 33,134 49,894 11,813 Recordkeeping and pricing fees 71,606 2,113 31,532 3,610 Professional fees 66,836 4,420 24,129 5,925 Shareholder servicing fee 58,365 9,244 13,641 1,707 Insurance expense 30,107 1,129 8,514 978 Directors' fees 20,164 1,260 7,562 1,870 Organization expense -- 13,116 -- -- -------------- ------------ ------------- ---------- Total expenses 7,144,301 458,340 2,554,349 297,289 -------------- ------------ ------------- ---------- Less: Waived and reimbursed fees -- (175,350) (194,013) -- Earnings credits (6,926) (542) (24,762) (248) -------------- ------------ ------------- ---------- Net expenses 7,137,375 282,448 2,335,574 297,041 -------------- ------------ ------------- ---------- Net investment income (loss) 3,856,318 (26,632) 13,953,870 1,058,798 -------------- ------------ ------------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments 24,568,646 (7,591,532) (15,219,896) (76,568) Foreign currency transactions -- (11,368) -- -- Net change in unrealized appreciation (depreciation) of: Investments (102,079,204) 11,782,008 (18,409,449) (49,165) Other assets, liabilities and forward contracts denominated in foreign currencies -- (217,640) -- -- -------------- ------------ ------------- ---------- Net gain (loss) from investments (77,510,558) 3,961,468 (33,629,345) (125,733) -------------- ------------ ------------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (73,654,240) $ 3,934,836 $ (19,675,475) $ 933,065 ============== ============ ============= ==========
See Accompanying Notes to Financial Statements 30 Pilgrim Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
MagnaCap Fund --------------------------------- Six Months Year Ended Ended December 31, June 30, 1998 (Unaudited) 1998 --------------- --------------- Increase (decrease) in net assets from operations Net investment income $ 460,540 $ 626,120 Net realized gain from investments 20,678,833 63,902,750 Net change in unrealized appreciation (depreciation) of investments 2,845,741 7,551,908 --------------- --------------- Net increase (decrease) in net assets resulting from operations 23,985,114 72,080,778 --------------- --------------- Distributions to shareholders: Net investment income: Class A shares (599,512) (626,120) Class B shares -- -- Class M shares -- -- In excess of net investment income: Class A shares (114,160) (563,340) Class B shares (427) (85,798) Class M shares -- (22,509) Net realized gains: Class A shares (15,998,556) (33,690,960) Class B shares (3,994,804) (6,012,889) Class M shares (685,474) (1,155,826) In excess of net realized gains: Class A shares (15,526,755) -- Class B shares (4,522,438) -- Class M shares (679,607) -- Tax return of capital Class A shares -- -- Class B shares -- -- Class M shares -- -- --------------- --------------- Total distributions (42,121,733) (42,157,442) --------------- --------------- Capital share transactions: Net proceeds from sale of shares 147,442,175 226,880,255 Shares resulting from dividend reinvestments 38,693,896 39,050,738 Cost of shares redeemed (148,302,342) (189,163,043) --------------- --------------- Net increase (decrease) in net assets resulting from capital share transactions 37,833,729 76,767,950 --------------- --------------- Net increase (decrease) in net assets 19,697,110 106,691,286 --------------- --------------- Net assets, beginning of period 441,221,158 334,529,872 --------------- --------------- Net assets, end of period** $ 460,918,268 $ 441,221,158 =============== =============== ** Including overdistributed net investment income (loss) of: $ (253,559) $ -- =============== =============== LargeCap Leaders Fund MidCap Value Fund -------------------------------- -------------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 1998 (Unaudited) 1998 1998 (Unaudited) 1998 --------------- -------------- --------------- -------------- Increase (decrease) in net assets from operations Net investment income $ (109,458) $ (128,521) $ (266,232) $ (673,722) Net realized gain from investments 2,080,191 2,762,882 1,098,256 5,591,383 Net change in unrealized appreciation (depreciation) of investments (231,469) 1,905,453 (3,831,064) 5,351,298 ------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations 1,739,264 4,539,814 (2,999,040) 10,268,959 ------------- -------------- -------------- -------------- Distributions to shareholders: Net investment income: Class A shares -- -- -- -- Class B shares -- -- -- -- Class M shares -- -- -- -- In excess of net investment income: Class A shares -- -- -- -- Class B shares -- -- -- -- Class M shares -- -- -- -- Net realized gains: Class A shares (44,367) (832,744) (1,682,103) (678,728) Class B shares (99,803) (1,416,831) (2,759,814) (1,045,324) Class M shares (34,685) (513,305) (898,764) (353,906) In excess of net realized gains: Class A shares -- (200,668) -- -- Class B shares -- (341,418) -- -- Class M shares -- (123,694) -- -- Tax return of capital Class A shares -- -- -- -- Class B shares -- -- -- -- Class M shares -- -- -- -- ------------- -------------- -------------- -------------- Total distributions (178,855) (3,428,660) (5,340,681) (2,077,958) ------------- -------------- -------------- -------------- Capital share transactions: Net proceeds from sale of shares 3,603,938 11,925,184 8,643,394 48,130,133 Shares resulting from dividend reinvestments 167,251 3,254,387 4,927,025 1,918,895 Cost of shares redeemed (5,952,545) (14,837,322) (14,258,512) (25,569,526) ------------- -------------- -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions (2,181,356) 342,249 (688,093) 24,479,502 ------------- -------------- -------------- -------------- Net increase (decrease) in net assets (620,947) 1,453,403 (9,027,814) 32,670,503 ------------- -------------- -------------- -------------- Net assets, beginning of period 28,744,402 27,290,999 81,291,514 48,621,011 ------------- -------------- -------------- -------------- Net assets, end of period** $ 28,123,455 $ 28,744,402 $ 72,263,700 $ 81,291,514 ============= ============== ============== ============== ** Including overdistributed net investment income (loss) of: $ (109,458) $ -- $ (266,232) $ -- ============= ============== ============== ==============
See Accompanying Notes to Financial Statements 31 Pilgrim Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (Continued) - --------------------------------------------------------------------------------
Bank and Thrift Fund Asia-Pacific Equity Fund ------------------------------------------------ -------------------------------- Six Months Six Months Year Six Months Year Ended Ended Ended Ended Ended December 31, June 30, December 31, December 31, June 30, 1998 (Unaudited) 1998 1997 1998 (Unaudited) 1998 --------------- ------------- ------------- --------------- ------------- Increase (decrease) in net assets from operations Net investment income (loss) $ 3,856,318 $ 2,306,539 $ 4,408,320 $ (26,632) $ 6,895 Net realized gain (loss) from investments 24,568,646 4,702,961 40,749,713 (7,591,532) (22,507,777) Net realized loss from foreign currency transaction -- -- -- (11,368) (262,006) Net change in unrealized appreciation (depreciation) of investments (102,079,204) 25,621,214 117,597,499 11,782,008 (17,738,326) Net change in unrealized appreciation (depreciation) of other investments denominated in foreign currency -- -- -- (217,640) 10,172 -------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from operations (73,654,240) 32,630,714 162,755,532 3,934,836 (40,491,042) -------------- ------------- ------------- ------------- ------------- Distributions to shareholders: Net investment income: Class A shares (3,007,002) -- (4,332,270) -- -- Class B shares (849,316) -- (76,050) -- -- Class M shares -- -- -- -- -- In excess of net investment income: Class A shares (508,642) -- (55,332) -- -- Class B shares (12,874) -- (4,451) -- -- Class M shares -- -- -- -- -- Net realized gains: Class A shares (11,015,988) -- (36,807,832) -- -- Class B shares (8,766,023) -- (3,941,881) -- -- Class M shares -- -- -- -- -- In excess of net realized gains: Class A shares -- -- (119,078) -- -- Class B shares -- -- -- -- -- Class M shares -- -- -- -- -- Tax return of capital Class A shares -- -- (2,537,766) -- -- Class B shares -- -- (549,279) -- -- Class M shares -- -- -- -- -- -------------- ------------- ------------- ------------- ------------- Total distributions (24,159,845) -- (48,423,939) -- -- -------------- ------------- ------------- ------------- ------------- Capital share transactions: Net proceeds from sale of shares 206,846,358 465,635,786 113,608,987 69,892,739 82,247,275 Shares resulting from dividend reinvestments 18,755,835 -- 22,209,369 -- -- Cost of shares redeemed (147,837,623) (48,502,831) (43,147,277) (76,213,997) (90,420,188) -------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets resulting from capital share transactions 77,764,570 417,132,955 92,671,079 (6,321,258) (8,172,913) -------------- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets (20,049,515) 449,763,669 207,002,672 (2,386,422) (48,663,955) -------------- ------------- ------------- ------------- ------------- Net assets, beginning of period 909,108,419 459,344,750 252,342,078 25,145,296 73,809,251 -------------- ------------- ------------- ------------- ------------- Net assets, end of period** $ 889,058,904 $ 909,108,419 $459,344,750 $ 22,758,874 $ 25,145,296 ============== ============= ============= ============= ============= ** Including undistributed (overdistributed) net investment income (loss) of: $ 1,785,023 $ 2,306,539 $ -- $ (209,441) $ (182,809) ============== ============= ============= ============= =============
See Accompanying Notes to Financial Statements 32 Pilgrim Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (Continued) - --------------------------------------------------------------------------------
High Yield Fund -------------------------------- Six Months Year Ended Ended December 31, June 30, 1998 (Unaudited) 1998 --------------- -------------- Increase (decrease) in net assets from operations Net investment income $ 13,953,870 $ 13,829,456 Net realized gain (loss) from investments (15,219,896) 1,228,407 Net change in unrealized appreciation (depreciation) of investments (18,409,449) (2,126,621) -------------- -------------- Net increase (decrease) in net assets resulting from operations (19,675,475) 12,931,242 -------------- -------------- Distributions to shareholders: Net investment income: Class A shares (4,998,399) (5,189,232) Class B shares (8,034,617) (6,676,547) Class M shares (920,854) (1,217,170) In excess of net investment income: Class A shares (365,035) -- Class B shares (471,142) -- Class M shares (54,695) -- -------------- -------------- Total distributions (14,844,742) (13,082,949) -------------- -------------- Capital share transactions: Net proceeds from sale of shares 233,645,903 265,753,457 Shares resulting from dividend reinvestments 7,630,588 6,959,488 Cost of shares redeemed (97,820,092) (81,063,350) -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions 143,456,399 191,649,595 -------------- -------------- Net increase (decrease) in net assets 108,936,182 191,497,888 -------------- -------------- Net assets, beginning of period 276,511,688 85,013,800 -------------- -------------- Net assets, end of period** $ 385,447,870 $ 276,511,688 ============== ============== ** Including undistributed net investment income (loss) of: $ 409,195 $ 1,300,067 ============== ============== Government Securities Income Fund -------------------------------- Six Months Year Ended Ended December 31, June 30, 1998 (Unaudited) 1998 --------------- -------------- Increase (decrease) in net assets from operations Net investment income $ 1,058,798 $ 1,461,879 Net realized gain (loss) from investments (76,568) 561,221 Net change in unrealized appreciation (depreciation) of investments (49,165) 100,378 -------------- -------------- Net increase (decrease) in net assets resulting from operations 933,065 2,123,478 -------------- -------------- Distributions to shareholders: Net investment income: Class A shares (788,160) (1,362,962) Class B shares (229,879) (92,626) Class M shares (16,803) (6,291) In excess of net investment income: Class A shares -- (249,557) Class B shares -- (21,100) Class M shares -- (1,314) -------------- -------------- Total distributions (1,034,842) (1,733,850) -------------- -------------- Capital share transactions: Net proceeds from sale of shares 42,642,640 6,791,580 Shares resulting from dividend reinvestments 618,138 903,030 Cost of shares redeemed (25,734,625) (12,453,169) -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions 17,526,153 (4,758,559) -------------- -------------- Net increase (decrease) in net assets 17,424,376 (4,368,931) -------------- -------------- Net assets, beginning of period 27,125,738 31,494,669 -------------- -------------- Net assets, end of period** $ 44,550,114 $ 27,125,738 ============== ============== ** Including undistributed net investment income (loss) of: $ 23,956 $ -- ============== ==============
See Accompanying Notes to Financial Statements 33 Pilgrim MagnaCap Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
CLASS A --------------------------------------------------------------------- Six Months Ended Year Ended June 30, December 31, --------------------------------------------------------------------- 1998 1998 1997 1996 1995(a) 1994 (Unaudited) ------------- ------------- ------------- ------------- ------------- ----------------- Per Share Operating Performance Net asset value, beginning of period $ 17.07 $ 15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05 ------------ ----------- ----------- ----------- ----------- ----------- Income from investment operations: Net investment income (loss) 0.03 0.04 0.10 0.09 0.12 0.15 Net realized and unrealized gain on investments 0.84 3.02 4.16 2.87 2.29 0.89 ------------ ----------- ----------- ----------- ----------- ----------- Total from investment operations 0.87 3.06 4.26 2.96 2.41 1.04 ------------ ----------- ----------- ----------- ----------- ----------- Less distributions from: Net investment income 0.03 0.04 0.10 0.06 0.14 0.14 In excess of net investment income 0.01 0.02 0.02 -- -- -- Realized gains on investment 0.84 1.85 4.91 0.24 0.60 0.59 In excess of realized gains on investments 0.78 -- -- -- -- -- ------------ ----------- ----------- ----------- ----------- ----------- Total distributions 1.66 1.91 5.03 0.30 0.74 0.73 ------------ ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 16.28 $ 17.07 $ 15.92 $ 16.69 $ 14.03 $ 12.36 ============ =========== =========== =========== =========== =========== Total Return(c) 5.68% 20.53% 30.82% 21.31% 20.61% 9.13% Ratios/Supplemental Data Net assets, end of period (000's) $ 350,703 $ 348,759 $ 290,355 $ 235,393 $ 211,330 $ 190,435 Ratios to average net assets: Expenses 1.34%(d) 1.37% 1.46% 1.68% 1.59% 1.53% Net investment income 0.36%(d) 0.29% 0.64% 0.54% 0.98% 1.16% Portfolio turnover rate 31% 53% 77% 15% 6% 7% CLASS B CLASS M ---------------------------------------------------------------- ------------------------------- Six Months Year Year July 17, Six Months Year Ended Ended Ended 1995(b) to Ended Ended December 31, June 30, June 30, June 30, December 31, June 30, 1998 1998 1997 1996 1998 1998 (Unaudited) ------------ ------------ --------------- (Unaudited) ------------- ---------------- ---------------- Per Share Operating Performance Net asset value, beginning of period $ 16.86 $ 15.81 $ 16.59 $ 14.22 $ 16.95 $ 15.87 ------------ ------------- ------------- ------------- ------------ ------------- Income from investment operations: Net investment income (loss) (0.01) (0.04) -- 0.06 -- -- Net realized and unrealized gain on investments 0.80 2.97 4.13 2.61 0.82 2.98 ------------ ------------- ------------- ------------- ------------ ------------- Total from investment operations 0.79 2.93 4.13 2.67 0.82 2.98 ------------ ------------- ------------- ------------- ------------ ------------- Less distributions from: Net investment income -- -- -- 0.06 -- -- In excess of net investment income -- 0.03 -- -- -- 0.05 Realized gains on investment 0.80 1.85 4.91 0.24 0.82 1.85 In excess of realized gains on investments 0.82 -- -- -- 0.80 -- ------------ ------------- ------------- ------------- ------------ ------------- Total distributions 1.62 1.88 4.91 0.30 1.62 1.90 ------------ ------------- ------------- ------------- ------------ ------------- Net asset value, end of period $ 16.03 $ 16.86 $ 15.81 $ 16.59 $ 16.15 $ 16.95 ============ ============= ============= ============= ============ ============= Total Return(c) 5.28% 19.76% 29.92% 18.98% 5.43% 20.00% Ratios/Supplemental Data Net assets, end of period (000's) $ 94,968 $ 77,787 $ 37,427 $ 10,509 $ 15,247 $ 14,675 Ratios to average net assets: Expenses 2.04%(d) 2.07% 2.16% 2.38%(d) 1.79%(d) 1.82% Net investment income (0.34)%(d) (0.41)% (0.04)% 0.07%(d) (0.09)%(d) (0.16)% Portfolio turnover rate 31% 53% 77% 15% 31% 53% Year July 17, Ended 1995(b) to June 30, June 30, 1997 1996 ----------- ------------- Per Share Operating Performance Net asset value, beginning of period $ 16.63 $ 14.22 ----------- ------------- Income from investment operations: Net investment income (loss) 0.02 0.08 Net realized and unrealized gain on investments 4.16 2.63 ----------- ------------- Total from investment operations 4.18 2.71 ----------- ------------- Less distributions from: Net investment income 0.02 0.06 In excess of net investment income 0.01 -- Realized gains on investment 4.91 0.24 In excess of realized gains on investments -- -- ----------- ------------- Total distributions 4.94 0.30 ----------- ------------- Net asset value, end of period $ 15.87 $ 16.63 =========== ============= Total Return(c) 30.26% 19.26% Ratios/Supplemental Data Net assets, end of period (000's) $ 6,748 $ 1,961 Ratios to average net assets: Expenses 1.91% 2.13%(d) Net investment income 0.22% 0.32%(d) Portfolio turnover rate 77% 15%
(a) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired assets of Pilgrim Management Corporation, the Fund's former Investment Manager, in a transaction that closed on April 7, 1995. (b) Commencement of offering of shares. (c) 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. (d) Annualized. See Accompanying Notes to Financial Statements 34 Pilgrim LargeCap Leaders Fund* - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
Class A --------------------------------------------------------------- Six Months Ten Months Ended Year Ended June 30, Ended December 31, --------------------------- June 30, 1998 (Unaudited) 1998 1997 1996 (a) ---------------- ------------ ------------- --------------- Per Share Operating Performance Net asset value, beginning of period $ 14.70 $ 14.17 $ 11.77 $ 10.00 Income from investment operations Net investment income (loss) (0.12) 0.01 0.06 0.07 Net realized and unrealized gain on investments 1.31 2.30 2.63 1.87 ------------ ----------- ----------- ------------- Total from investment operations 1.19 2.31 2.69 1.94 ------------ ----------- ----------- ------------- Less distributions: Net investment income -- -- -- 0.07 In excess of net investment income -- -- 0.05 0.01 Realized gains on investments 0.10 1.59 0.24 0.09 In excess of realized gains -- 0.19 -- -- ------------ ----------- ----------- ------------- Total distributions 0.10 1.78 0.29 0.17 ------------ ----------- ----------- ------------- Net asset value, end of period $ 15.79 $ 14.70 $ 14.17 $ 11.77 ============ =========== =========== ============= Total Return (b) 8.15% 17.71% 23.24% 19.56% Ratios/Supplemental Data Net assets, end of period (000's) 7,005 $ 7,606 $ 8,961 $ 2,530 Ratios to average net assets: Expenses (c)(d)(e)(f) 1.75%(g) 1.75% 1.75% 1.75%(g) Net investment income (loss) (c)(d)(e)(f) (0.34)%(g) 0.03% 0.41% 0.65%(g) Portfolio turnover rate 70% 78% 86% 59% Class B Class M ----------------------------------------------------------------- ------------------ Six Months Ten Months Six Months Ended Year Ended June 30, Ended Ended December 31, --------------------------- June 30, December 31, 1998 (Unaudited) 1998 1997 1996 (a) 1998 (Unaudited) ------------------ ------------- ------------- ------------------ ------------------ Per Share Operating Performance Net asset value, beginning of period $ 14.44 $ 14.04 $ 11.71 $ 10.00 $ 14.55 Income from investment operations Net investment income (loss) (0.18) (0.10) (0.02) 0.06 (0.17) Net realized and unrealized gain on investments 1.28 2.28 2.59 1.81 1.31 ------------ ------------- ------------- ------------- ------------ Total from investment operations 1.10 2.18 2.57 1.87 1.14 ------------ ------------- ------------- ------------- ------------ Less distributions: Net investment income -- -- -- 0.06 -- In excess of net investment income -- -- -- 0.01 -- Realized gains on investments 0.10 1.59 0.24 0.09 0.10 In excess of realized gains -- 0.19 -- -- -- ------------ ------------- ------------- ------------- ------------ Total distributions 0.10 1.78 0.24 0.16 0.10 ------------ ------------- ------------- ------------- ------------ Net asset value, end of period $ 15.44 $ 14.44 $ 14.04 $ 11.71 $ 15.59 ============ ============= ============= ============= ============ Total Return (b) 7.68% 16.91% 22.23% 18.85% 7.90% Ratios/Supplemental Data Net assets, end of period (000's) $ 15,660 $ 15,605 $ 13,611 $ 1,424 $ 5,459 Ratios to average net assets: Expenses (c)(d)(e)(f) 2.50%(g) 2.50% 2.50% 2.50%(g) 2.25%(g) Net investment income (loss) (c)(d)(e)(f) (1.09)%(g) (0.72)% (0.35)% (0.25)%(g) (0.84)%(g) Portfolio turnover rate 70% 78% 86% 59% 70% Ten Months Year Ended June 30, Ended --------------------------- June 30, 1998 1997 1996 (a) ------------- ------------- ------------------- Per Share Operating Performance Net asset value, beginning of period $ 14.10 $ 11.73 $ 10.00 Income from investment operations Net investment income (loss) (0.07) -- 0.06 Net realized and unrealized gain on investments 2.30 2.62 1.83 ------------- ------------- ------------- Total from investment operations 2.23 2.62 1.89 ------------- ------------- ------------- Less distributions: Net investment income -- -- 0.06 In excess of net investment income -- 0.01 0.01 Realized gains on investments 1.59 0.24 0.09 In excess of realized gains 0.19 -- -- ------------- ------------- ------------- Total distributions 1.78 0.25 0.16 ------------- ------------- ------------- Net asset value, end of period $ 14.55 $ 14.10 $ 11.73 ============= ============= ============= Total Return (b) 17.20% 22.58% 19.06% Ratios/Supplemental Data Net assets, end of period (000's) $ 5,533 $ 4,719 $ 1,240 Ratios to average net assets: Expenses (c)(d)(e)(f) 2.25% 2.25% 2.25%(g) Net investment income (loss) (c)(d)(e)(f) (0.47)% (0.10)% 0.06%(g) Portfolio turnover rate 78% 86% 59%
- ------------ (a) The Fund commenced operations on September 1, 1995. (b) 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. (c) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1998, the ratios of expenses to average net assets were 2.28%, 3.03% and 2.78% and the ratios of net investment income (loss) to average net assets were (0.50)%, (1.25)% and (1.00)% for Class A, B and M shares, respectively. (d) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1997, the ratios of expenses to average net assets were 2.33%, 3.08% and 2.83% and the ratios of net investment income (loss) to average net assets were (0.18)%, (0.91)% and (0.68)% for Class A, B and M shares, respectively. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 5.44%, 5.79% and 5.90% and the annualized ratios of net investment income (loss) to average net assets were (3.04)%, (3.53)% and (3.59)% for Class A, B and M shares, respectively. (f) Prior to the waiver and reimbursement of expenses for the period ended December 31, 1998, the annualized ratios of expenses to average net assets were 2.26%, 3.01% and 2.76% and the annualized ratios of net loss to average net assets were (0.82)%, (1.57)% and (1.32)%, for Class A, B and M, respectively. (g) Annualized. * Effective November 1, 1997, Pilgrim Investments, Inc. assumed the portfolio investment responsibilities of the Fund from ARK Asset Management Company, Inc. See Accompanying Notes to Financial Statements 35 Pilgrim MidCap Value Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
CLASS A ----------------------------------------------------------------- Six Months Ten Months Ended Year Ended June 30, Ended December 31, --------------------------- June 30, 1998 (Unaudited) 1998 1997 1996(a) ------------------ ------------- ------------- ------------------ Per Share Operating Performance Net asset value, beginning of period $ 16.79 $ 14.64 $ 11.99 $ 10.00 Income from investment operations: Net investment income (loss) (0.03) (0.07) (0.02) 0.13 Net realized and unrealized gain (loss) on investments (0.54) 2.71 2.85 1.91 ------------- ------------- ------------- ------------- Total from investment operations (0.57) 2.64 2.83 2.04 ------------- ------------- ------------- ------------- Less distributions: Net investment income -- -- -- 0.05 In excess of net investment income -- -- 0.07 -- Realized gains on investments -- 0.49 0.11 -- In excess of realized gains on investments 1.17 -- -- -- ------------- ------------- ------------- ------------- Total distributions 1.17 0.49 0.18 0.05 ------------- ------------- ------------- ------------- Net asset value, end of period $ 15.05 $ 16.79 $ 14.64 $ 11.99 ============= ============= ============= ============= Total Return(b) (2.92)% 18.40% 23.89% 20.48% Ratios/Supplemental Data Net assets, end of period (000's) $ 22,899 $ 27,485 $ 16,985 $ 2,389 Ratios to average net assets: Expenses (c)(d)(e)(f) 1.75%(g) 1.75% 1.75% 1.75%(g) Net investment income (loss) (c)(d)(e)(f) (0.27)%(g) (0.53)% (0.13)% 2.00%(g) Portfolio turnover rate 50% 85% 86% 60% CLASS B CLASS M ----------------------------------------------------------------- -------------------------------- Six Months Ten Months Six Months Year Ended Ended Year Ended June 30, Ended Ended June 30, December 31, --------------------------- June 30, December 31, ------------- 1998 (Unaudited) 1998 1997 1996(a) 1998 (Unaudited) 1998 ------------------ ------------- ------------- ------------------ ------------------ ------------- Per Share Operating Performance Net asset value, beginning of period $ 16.47 $ 14.49 $ 11.94 $ 10.00 $ 16.52 $ 14.49 Income from investment operations: Net investment income (loss) (0.07) (0.18) (0.05) 0.07 (0.05) (0.15) Net realized and unrealized gain (loss) on investments (0.55) 2.65 2.76 1.90 (0.55) 2.67 ------------- ------------- ------------- ------------- ------------- ------------- Total from investment operations (0.62) 2.47 2.71 1.97 (0.60) 2.52 ------------- ------------- ------------- ------------- ------------- ------------- Less distributions: Net investment income -- -- -- 0.03 -- -- In excess of net investment income -- -- 0.05 -- -- -- Realized gains on investments -- 0.49 0.11 -- -- 0.49 In excess of realized gains on investments 1.17 -- -- -- 1.17 -- ------------- ------------- ------------- ------------- ------------- ------------- Total distributions 1.17 0.49 0.16 0.03 1.17 0.49 ------------- ------------- ------------- ------------- ------------- ------------- Net asset value, end of period $ 14.68 $ 16.47 $ 14.49 $ 11.94 $ 14.75 $ 16.52 ============= ============= ============= ============= ============= ============= Total Return(b) (3.28)% 17.40% 22.95% 19.80% (3.15)% 17.76% Ratios/Supplemental Data Net assets, end of period (000's) $ 37,168 $ 40,575 $ 23,258 $ 2,123 $ 12,198 $ 13,232 Ratios to average net assets: Expenses (c)(d)(e)(f) 2.50%(g) 2.50% 2.50% 2.50%(g) 2.25%(g) 2.25% Net investment income (loss) (c)(d)(e)(f) (1.02)%(g) (1.28)% (0.90)% 1.27%(g) (0.77)%(g) (1.03)% Portfolio turnover rate 50% 85% 86% 60% 50% 85% Year Ended Ten Months June 30, Ended ------------ June 30, 1997 1996(a) ------------ ----------------- Per Share Operating Performance Net asset value, beginning of period $ 11.93 $ 10.00 Income from investment operations: Net investment income (loss) (0.03) 0.06 Net realized and unrealized gain (loss) on investments 2.76 1.91 ------------ ------------ Total from investment operations 2.73 1.97 ------------ ------------ Less distributions: Net investment income -- 0.04 In excess of net investment income 0.06 -- Realized gains on investments 0.11 -- In excess of realized gains on investments -- -- ------------ ------------ Total distributions 0.17 0.04 ------------ ------------ Net asset value, end of period 14.49 11.93 ============ ============ Total Return(b) 23.21% 19.82% Ratios/Supplemental Data Net assets, end of period (000's) $ 8,378 $ 1,731 Ratios to average net assets: Expenses (c)(d)(e)(f) 2.25% 2.25%(g) Net investment income (loss) (c)(d)(e)(f) (0.63)% (1.16)%(g) Portfolio turnover rate 86% 60%
- ------------ (a) The Fund commenced operations on September 1, 1995. (b) 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. (c) Prior to the waiver and reimbursment of expenses for the period ended December 31, 1998, the annualized ratios of expenses to average net assets were 1.86%, 2.61% and 2.36% and the annualized ratios of net investment income (loss) to average net assets were (0.38)%, (1.13)% and (0.88)% for Class A, B and M shares, respectively. (d) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1998, the ratios of expenses to average net assets were 1.78%, 2.53% and 2.28% and the ratios of net investment income (loss) to average net assets were (0.57)%, (1.31)% and (1.07)% for Class A, B and M shares, respectively. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1997, the ratios of expenses to average net assets were 1.94%, 2.69% and 2.44% and the ratios of net investment income (loss) to average net assets were (0.32)%, (1.11)% and (0.84)% for Class A, B and M shares, respectively. (f) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 4.91%, 5.32% and 4.72% and the annualized ratios of net investment income (loss) to average net assets were (1.17)%, (1.56)% and (1.32)% for Class A, B and M shares, respectively. (g) Annualized. See Accompanying Notes to Financial Statements 36 Pilgrim Bank and Thrift Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
Six Months Ended December 31, Six Months Ended 1998 (Unaudited) June 30, 1998* ----------------------------------- ------------------------------------- Class A Class B(a) Class A Class B(a) ----------------- ----------------- ------------------ ------------------ Per Share Operating Performance Net Asset Value, beginning of year $ 27.52 $ 27.40 $ 25.87 $ 25.85 ------------ ------------ ------------- ------------- Income (loss) from investment operations: Net investment income 0.15 0.06 0.11 0.01 Net realized and unrealized gain (loss) on investments (2.31) (2.31) 1.54 1.54 ------------ ------------ ------------- ------------- Total from investment operations (2.16) (2.25) 1.65 1.55 ------------ ------------ ------------- ------------- Less distributions: Net investment income 0.15 0.05 -- -- Excess of net investment income 0.03 -- -- -- Realized capital gains -- -- -- -- Excess of net realized gain 0.56 0.56 Tax return of capital -- -- -- -- ------------ ------------ ------------- ------------- Total distributions 0.74 0.61 0.00 0.00 ------------ ------------ ------------- ------------- Other: Reduction in net asset value from rights offering -- -- -- -- ------------ ------------ ------------- ------------- Net asset value, end of year $ 24.62 $ 24.54 $ 27.52 $ 27.40 ============ ============ ============= ============= Closing market price, end of year -- -- -- -- Total investment return at Market Value(c) -- -- -- -- Total investment return at Net Asset Value(e) (7.71)% (8.04)% 6.38% 6.00% Ratios/Supplemental Data Net assets, end of year ($millions) $ 493 $ 396 $ 549 $ 360 Ratios to average net assets: Expenses 1.34%(h) 2.09%(h) 1.20%(h) 1.95%(h) Net investment income 1.22%(h) 0.47%(h) 0.94%(h) 0.19%(h) Portfolio turnover rate 8% 8% 2% 2% Year Ended December 31, -------------------------------------------------------------------------------------- 1997 1996 1995(b) 1994 1993 -------------------------------- ------------ ------------ ------------ -------------- Class A Class B(a) ------------- ------------------ Per Share Operating Performance Net Asset Value, beginning of year $ 17.84 $ 25.25 $ 14.83 $ 10.73 $ 11.87 $ 12.46 ----------- ------------- ---------- ---------- ------------ ------------ Income (loss) from investment operations: Net investment income 0.34 0.04 0.32 0.31 0.26 0.26 Net realized and unrealized gain (loss) on investments 10.83 2.92 5.18 4.78 (0.53) 0.75 ----------- ------------- ---------- ---------- ------------ ------------ Total from investment operations 11.17 2.96 5.50 5.09 (0.27) 1.01 ----------- ------------- ---------- ---------- ------------ ------------ Less distributions: Net investment income 0.31 0.04 0.32 0.31 0.22 0.26 Excess of net investment income -- -- 0.03 0.03 -- -- Realized capital gains 2.65 2.04 2.14 0.65 0.65 0.73 Excess of net realized gain Tax return of capital 0.18 0.28 -- -- -- -- ----------- ------------- ---------- ---------- ------------ ------------ Total distributions 3.14 2.36 2.49 0.99 0.87 0.99 ----------- ------------- ---------- ---------- ------------ ------------ Other: Reduction in net asset value from rights offering -- -- -- -- -- (0.61) ----------- ------------- ---------- ---------- ------------ ------------ Net asset value, end of year $ 25.87 $ 25.85 $ 17.84 $ 14.83 $ 10.73 $ 11.87 =========== ============= ========== ========== ============ ============ Closing market price, end of year -- -- $ 15.75 $ 12.88 $ 9.13 $ 10.88 Total investment return at Market Value(c) -- -- 43.48% 52.81% (8.85)% 1.95%(d) Total investment return at Net Asset Value(e) 64.86% 11.88% 41.10% 49.69% (1.89)% 7.79%(f) Ratios/Supplemental Data Net assets, end of year ($millions) $ 383 $ 76 $ 252 $ 210 $ 152 $ 168 Ratios to average net assets: Expenses 1.10% 1.89%(h) 1.01% 1.05% 1.28% 0.91% Net investment income 1.39% 0.99%(h) 1.94% 2.37% 2.13% 2.08% Portfolio turnover rate 22% 22% 21% 13% 14% 17% 1992 1991 ----------------- ------------ Per Share Operating Performance Net Asset Value, beginning of year $ 10.12 $ 7.49 ------------ ---------- Income (loss) from investment operations: Net investment income 0.22 0.24 Net realized and unrealized gain (loss) on investments 2.93 3.33 ------------ ---------- Total from investment operations 3.15 3.57 ------------ ---------- Less distributions: Net investment income 0.22 0.24 Excess of net investment income -- -- Realized capital gains 0.47 -- Excess of net realized gain Tax return of capital 0.12 0.70 ------------ ---------- Total distributions 0.81 0.94 ------------ ---------- Other: Reduction in net asset value from rights offering -- -- ------------ ---------- Net asset value, end of year $ 12.46 $ 10.12 ============ ========== Closing market price, end of year $ 11.63 $ 9.50 Total investment return at Market Value(c) 31.53% 47.52% Total investment return at Net Asset Value(e) 32.36%(g) 49.49% Ratios/Supplemental Data Net assets, end of year ($millions) $ 141 $ 101 Ratios to average net assets: Expenses 1.24% 1.31% Net investment income 2.00% 2.68% Portfolio turnover rate 20% 31%
Footnotes on next page 37 Pilgrim Bank and Thrift Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period (Continued) - -------------------------------------------------------------------------------- - ------------ * Effective June 30, 1998, Bank and Thrift Fund changed its year end to June 30. (a) From the period October 20, 1997 (initial offering of Class B shares) through December 31, 1997. (b) On April 7, 1995, the Investment Manager acquired the rights to manage the Fund and certain other mutual funds previously managed by Pilgrim Management Corporation. (c) Total return was calculated at market value without deduction of sales commissions and assuming reinvestment of all dividends and distributions during the period. (d) Calculation of total return excludes the effect of the per share dilution resulting from the Rights Offering as the total account value of a fully subscribed shareholder was minimally impacted. (e) Total return is calculated at net asset value without deduction of sales commissions and assumes reinvestment of all dividends and distributions during the period. Total investment returns based on net asset value, which can be higher or lower than market value, may result in substantially different returns than total return based on market value. For all periods prior to January 1, 1997, the total returns presented are unaudited. (f) Total return is calculated assuming full participation in the 1993 rights offering. (g) Total return is calculated assuming no particpation in the 1992 rights offering. (h) Annualized. See Accompanying Notes to Financial Statements 38 Pilgrim Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
Class A ---------------------------------------------------------------- Six Months Ten Months Ended Year Ended June 30, Ended December 31, -------------------------- June 30, 1998 (Unaudited) 1998 1997 1996 (a) ------------------ ------------ ------------- ------------------ Per Share Operating Performance Net asset value, beginning of period $ 4.46 $ 10.93 $ 10.35 $ 10.00 Income from investment operations: Net investment income (loss) 0.01 0.03 0.02 0.03 Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.65 (6.50) 0.58 0.34 ----------- ------------ ----------- ------------- Total from investment operations 0.66 (6.47) 0.60 0.37 ----------- ------------ ----------- ------------- Less distributions: Net investment income -- -- -- -- In excess of net investment income -- -- 0.02 -- Realized gains on investments -- -- -- -- Tax return of capital -- 0.02 -- -- ----------- ------------ ----------- ------------- Total distributions -- 0.02 0.02 -- ----------- ------------ ----------- ------------- Net asset value, end of period $ 5.12 $ 4.46 $ 10.93 $ 10.35 =========== ============ =========== ============= Total Return (b) 14.80% (59.29)% 5.78% 3.76% Ratios/Supplemental Data Net assets, end of period (000's) $ 9,692 $ 11,796 $ 32,485 $ 18,371 Ratios to average net assets: Expenses (c)(d)(e)(f) 2.00%(g) 2.00% 2.00% 2.00%(g) Net investment income (loss) (c)(d)(e)(f) 0.11%(g) 0.38% 0.00% 0.33%(g) Portfolio turnover rate 51% 81% 38% 15% Class B Class M ----------------------------------------------------------------- ------------------ Six Months Ten Months Six Months Ended Year Ended June 30, Ended Ended December 31, --------------------------- June 30, December 31, 1998 (Unaudited) 1998 1997 1996 (a) 1998 (Unaudited) ------------------ ------------- ------------- ------------------ ------------------ Per Share Operating Performance Net asset value, beginning of period $ 4.37 $ 10.83 $ 10.31 $ 10.00 $ 4.40 Income from investment operations: Net investment income (loss) (0.03) (0.03) (0.07) (0.01) (0.03) Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.66 (6.43) 0.59 0.32 0.66 ----------- ------------- ------------- ------------- ----------- Total from investment operations 0.63 (6.46) 0.52 0.31 0.63 ----------- ------------- ------------- ------------- ----------- Less distributions: Net investment income -- -- -- -- -- In excess of net investment income -- -- -- -- -- Realized gains on investments -- -- -- -- -- Tax return of capital -- -- -- -- -- ----------- ------------- ------------- ------------- ----------- Total distributions -- -- -- -- -- ----------- ------------- ------------- ------------- ----------- Net asset value, end of period $ 5.00 $ 4.37 $ 10.83 $ 10.31 $ 5.03 =========== ============= ============= ============= =========== Total Return (b) 14.42% (59.65)% 5.04% 3.19% 14.32% Ratios/Supplemental Data Net assets, end of period (000's) $ 9,173 $ 9,084 $ 30,169 $ 17,789 $ 3,894 Ratios to average net assets: Expenses (c)(d)(e)(f) 2.75%(g) 2.75% 2.75% 2.75%(g) 2.50%(g) Net investment income (loss) (c)(d)(e)(f) (0.64)%(g) (0.39)% (0.79)% (0.38)%(g) (0.39)%(g) Portfolio turnover rate 51% 81% 38% 15% 51% Ten Months Year Ended June 30, Ended --------------------------- June 30, 1998 1997 1996 (a) ------------- ------------- ------------------- Per Share Operating Performance Net asset value, beginning of period $ 10.86 $ 10.32 $ 10.00 Income from investment operations: Net investment income (loss) -- (0.05) -- Net realized and unrealized gain (loss) on investments and foreign currency transactions (6.46) 0.59 0.33 ------------- ------------- ------------- Total from investment operations (6.46) 0.54 0.33 ------------- ------------- ------------- Less distributions: Net investment income -- -- -- In excess of net investment income -- -- 0.01 Realized gains on investments -- -- -- Tax return of capital -- -- -- ------------- ------------- ------------- Total distributions -- -- 0.01 ------------- ------------- ------------- Net asset value, end of period $ 4.40 $ 10.86 $ 10.32 ============= ============= ============= Total Return (b) (59.48)% 5.26% 3.32% Ratios/Supplemental Data Net assets, end of period (000's) $ 4,265 $ 11,155 $ 6,476 Ratios to average net assets: Expenses (c)(d)(e)(f) 2.50% 2.50% 2.50%(g) Net investment income (loss) (c)(d)(e)(f) (0.07)% (0.55)% (0.16)%(g) Portfolio turnover rate 81% 38% 15%
- ------------ (a) The Fund commenced operations on September 1, 1995. (b) 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. (c) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1998, the ratios of expenses to average net assets were 2.80%, 3.55% and 3.30% and the ratios of net investment income (loss) to average net assets were (0.42)%, (1.19)% and (0.88)% for Class A, B and M shares, respectively. (d) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1997, the ratios of expenses to average net assets were 2.54%, 3.29% and 3.04% and the ratios of net investment income (loss) to average net assets were (0.53)%, (1.33)% and (1.09)% for Class A, B and M shares, respectively. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 3.47%, 4.10% and 3.88% and the annualized ratios of net investment income (loss) to average net assets were (1.14)%, (1.73)% and (1.53)% for Class A, B and M shares, respectively. (f) Prior to the waiver and reimbursent of expenses for the period ended December 31, 1998, the annualized ratios of expenses to the average net assets were 3.47%, 4.22% and 3.97% and the annualized ratios of net investment income (loss) to average net assets were (1.36)%, (2.11)% and (1.86)%, for Class A, B and M, respectively. (g) Annualized. See Accompanying Notes to Financial Statements 39 Pilgrim High Yield Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
CLASS A --------------------------------------------------------------------------- Six Eight Months Months Ended Year Ended June 30, Ended December 31, --------------------------------------- June 30, 1998 (Unaudited) 1998 1997 1996 1995(a)(b) ------------------ ------------- ------------ ------------ ---------------- Per Share Operating Performance Net asset value, beginning of period $ 6.94 $ 6.80 $ 6.36 $ 6.15 $ 5.95 Income (loss) from investment operations: Net investment income 0.29 0.61 0.61 0.59 0.35 Net realized and unrealized gain (loss) on investments (0.74) 0.16 0.43 0.16 0.21 ----------- --------- -------- -------- ----------- Total from investment operation (0.45) 0.77 1.04 0.75 0.56 ----------- --------- -------- -------- ----------- Less distributions from: Net investment income 0.29 0.63 0.60 0.54 0.36 Distributions in excess of net investment income 0.03 -- -- -- -- ----------- --------- -------- -------- ----------- Total distributions 0.32 0.63 0.60 0.54 0.36 ----------- --------- -------- -------- ----------- Net asset value, end of period $ 6.17 $ 6.94 $ 6.80 $ 6.36 $ 6.15 =========== ========= ======== ======== =========== Total Return(d) (6.48)% 11.71% 17.14% 12.72% 9.77% Ratios/Supplemental Data Net assets, end of period (000's) $ 127,392 $ 102,424 $ 35,940 $ 18,691 $ 15,950 Ratios to average net assets: Expenses(e)(f)(g)(h)(i) 1.00%(j) 1.00% 1.00% 1.00% 2.25%(j) Net investment income(e)(f)(g)(h)(i) 9.28%(j) 9.05% 9.54% 9.46% 8.84%(j) Portfolio turnover rate 70% 209% 394% 399% 166% CLASS B --------------------------------------------- Six Months Year Ended October 31, Ended Year Ended June 30, ------------------------------------- December 31, -------------------------- 1994 1993 1992 1998 (Unaudited) 1998 1997 ----------- ------------ ------------ ------------------ ------------- ------------ Per Share Operating Performance Net asset value, beginning of period $ 6.47 $ 5.77 $ 5.70 $ 6.92 $ 6.78 $ 6.36 Income (loss) from investment operations: Net investment income 0.54 0.53 0.63 0.23 0.58 0.57 Net realized and unrealized gain (loss) on investments (0.51) 0.70 0.07 (0.74) 0.14 0.41 ------- -------- -------- ----------- --------- -------- Total from investment operation 0.03 1.23 0.70 (0.51) 0.72 0.98 ------- -------- -------- ----------- --------- -------- Less distributions from: Net investment income 0.55 0.53 0.63 0.23 0.58 0.56 Distributions in excess of net investment income -- -- -- 0.02 -- -- ------- -------- -------- ----------- --------- -------- Total distributions 0.55 0.53 0.63 0.25 0.58 0.56 ------- -------- -------- ----------- --------- -------- Net asset value, end of period $ 5.95 $ 6.47 $ 5.77 $ 6.16 $ 6.92 $ 6.78 ======= ======== ======== =========== ========= ======== Total Return(d) 0.47% 22.12% 12.65% (6.76)% 10.90% 16.04% Ratios/Supplemental Data Net assets, end of period (000's) $16,046 $ 18,797 $ 17,034 $ 233,916 $ 154,303 $ 40,225 Ratios to average net assets: Expenses(e)(f)(g)(h)(i) 2.00% 2.02% 2.03% 1.75%(j) 1.75% 1.75% Net investment income(e)(f)(g)(h)(i) 8.73% 8.36% 10.93% 8.53%(j) 8.30% 8.64% Portfolio turnover rate 192% 116% 193% 70% 209% 394% CLASS M ------------------------------------------------------------- Six July 17, Months July 17, 1955(c) to Ended Year Ended June 30, 1995(c) June 30, December 31, ------------------------ June 30, 1996 1998 (Unaudited) 1998 1997 1996 ---------------- ------------------ ------------ ----------- ----------------- Per Share Operating Performance Net asset value, beginning of period $ 6.20 $ 6.92 $ 6.78 $ 6.36 $ 6.20 Income (loss) from investment operations: Net investment income 0.48 0.28 0.59 0.58 0.50 Net realized and unrealized gain (loss) on investments 0.14 (0.74) 0.14 0.41 0.14 ----------- ----------- -------- --------- ----------- Total from investment operation 0.62 (0.46) 0.73 0.99 0.64 ----------- ----------- -------- --------- ----------- Less distributions from: Net investment income 0.46 0.28 0.59 0.57 0.48 Distributions in excess of net investment income -- 0.02 -- -- -- ----------- ----------- -------- --------- ----------- Total distributions 0.46 0.30 0.59 0.57 0.48 ----------- ----------- -------- --------- ----------- Net asset value, end of period $ 6.36 $ 6.16 $ 6.92 $ 6.78 $ 6.36 =========== =========== ======== ========= =========== Total Return(d) 10.37% (6.64)% 11.16% 16.29% 10.69% Ratios/Supplemental Data Net assets, end of period (000's) $ 2,374 $ 24,140 $ 19,785 $ 8,848 $ 1,243 Ratios to average net assets: Expenses(e)(f)(g)(h)(i) 1.75%(j) 1.50%(j) 1.50% 1.50% 1.50%(j) Net investment income(e)(f)(g)(h)(i) 9.02%(j) 8.78%(j) 8.55% 8.93% 9.41%(j) Portfolio turnover rate 339% 70% 209% 394% 339%
Footnotes on next page 40 Pilgrim High Yield Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period (Continued) - -------------------------------------------------------------------------------- - ------------ (a) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired assets of Pilgrim Management Corporation, the Fund's former Investment Manager, in a transaction that closed on April 7, 1995. (b) Effective November 1, 1994, High Yield Fund changed its year end to June 30. (c) Commencement of offering of shares. (d) 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. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1998, the ratios of expenses to average net assets were 1.17%, 1.92% and 1.67% and the ratios of net investment income to average net assets were 8.88%, 8.13% and 8.38% for Class A, B and M shares, respectively. (f) Prior to the waiver and reimbursement of expenses for the year ended June 30, 1997, the ratios of expenses to average net assets were 1.42%, 2.17% and 1.92% and the ratios of net investment income to average net assets were 9.09%, 8.18% and 8.47% for Class A, B and M shares, respectively. (g) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the ratios of expenses to average net assets were 2.19%, 2.94% (j) and 2.69% (j), and the ratios of net investment income to average net assets were 8.27%, 8.05% (j) and 8.51% (j), for Class A, B and M shares, respectively. (h) Prior to the waiver of expenses, the ratio of expenses to average net assets was 2.35% (j) in 1995 and 2.07% in 1994 for Class A shares. Prior to the waiver of expenses, the ratio of net investment income to average net assets was 8.74% (j) in 1995 and 8.66% in 1994 for Class A shares. (i) Prior to the waiver and reimbursement of expenses for the period ended December 31, 1998, the annualized ratios of expenses to average net assets were 1.12%, 1.87% and 1.62% and the annualized ratios of net investment income to average net assets were 9.16%, 8.41% and 8.66%, for Class A, B and M, respectively. (j) Annualized. See Accompanying Notes to Financial Statements 41 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
CLASS A -------------------------------------------------------------------------------------- Six Months Ended Year Ended June 30, December 31, ------------------------------------------------------------------- 1998 (Unaudited) 1998 1997 1996 1995(a) 1994 ------------------ ------------- ------------- ----------- ------------- ------------- Per Share Operating Performance Net asset value, beginning of period $ 12.88 $ 12.71 $ 12.59 $ 12.97 $ 12.73 $ 13.96 Income (loss) from investment operations: Net investment income 0.43 0.64 0.69 0.75 0.84 0.84 Net realized and unrealized gain (loss) on investments (0.06) 0.30 0.20 (0.32) 0.24 (1.17) ------------ ----------- ----------- --------- ----------- ------------- Total from investment operations 0.37 0.94 0.89 0.43 1.08 (0.33) ------------ ----------- ----------- --------- ----------- ------------- Less distributions from: Net investment income 0.39 0.64 0.69 0.75 0.84 0.90 Distributions in excess of net investment income -- 0.13 0.04 -- -- -- Tax return of capital -- -- 0.04 0.06 -- -- ------------ ----------- ----------- --------- ----------- ------------- Total distributions 0.39 0.77 0.77 0.81 0.84 0.90 ------------ ----------- ----------- --------- ----------- ------------- Net asset value, end of period $ 12.86 $ 12.88 $ 12.71 $ 12.59 $ 12.97 $ 12.73 ============ =========== =========== ========= =========== ============= Total Return(c) 2.89% 7.63% 7.33% 3.34% 8.96% (2.50)% Ratios/Supplemental Data Net assets, end of period (000's) $ 26,944 $ 23,682 $ 29,900 $ 38,753 $ 43,631 $ 61,100 Ratios to average net assets: Expenses(d)(e)(f) 1.43%(g) 1.50% 1.42% 1.51% 1.40% 1.21% Net investment income(d)(e)(f) 6.02%(g) 5.13% 5.78% 5.64% 6.37% 6.44% Portfolio turnover rate 29% 134% 172% 170% 299% 402% CLASS B CLASS M ----------------------------------------------------------------- -------------------------------- Six Months Year Year July 17, Six Months Year Ended Ended Ended 1995(b) to Ended Ended December 31, June 30, June 30, June 30, December 31, June 30, 1998 (Unaudited) 1998 1997 1996 1998 (Unaudited) 1998 ------------------ ------------- ------------- ------------------ ------------------ ------------- Per Share Operating Performance Net asset value, beginning of period $ 12.84 $ 12.68 $ 12.59 $ 12.95 $ 12.88 $ 12.72 Income (loss) from investment operations: Net investment income 0.43 0.60 0.67 0.66 0.43 0.64 Net realized and unrealized gain (loss) on investments (0.11) 0.24 0.11 (0.37) (0.09) 0.23 ------------ ----------- ----------- ------------- ------------ ----------- Total from investment operations 0.32 0.84 0.78 0.29 0.34 0.87 ------------ ----------- ----------- ------------- ------------ ----------- Less distributions from: Net investment income 0.34 0.60 0.67 0.65 0.36 0.63 Distributions in excess of net investment income -- 0.08 0.02 -- -- 0.08 Tax return of capital -- -- -- -- -- -- ------------ ----------- ----------- ------------- ------------ ----------- Total distributions 0.34 0.68 0.69 0.65 0.36 0.71 ------------ ----------- ----------- ------------- ------------ ----------- Net asset value, end of period $ 12.82 $ 12.84 $ 12.68 $ 12.59 $ 12.86 $ 12.88 ============ =========== =========== ============= ============ =========== Total Return(c) 2.55% 6.78% 6.38% 2.25% 2.67% 7.02% Ratios/Supplemental Data Net assets, end of period (000's) $ 16,120 $ 3,220 $ 1,534 $ 73 $ 1,487 $ 224 Ratios to average net assets: Expenses(d)(e)(f) 2.18%(g) 2.25% 2.17% 2.26%(g) 1.93%(g) 2.00% Net investment income(d)(e)(f) 5.27%(g) 4.24% 4.92% 4.98%(g) 5.52%(g) 4.29% Portfolio turnover rate 29% 134% 172% 170% 29% 134% Year July 17, Ended 1995(b) to June 30, June 30, 1997 1996 ------------ ------------------ Per Share Operating Performance Net asset value, beginning of period $ 12.59 $ 12.95 Income (loss) from investment operations: Net investment income 0.70 0.68 Net realized and unrealized gain (loss) on investments 0.14 (0.36) ---------- ------------ Total from investment operations 0.84 0.32 ---------- ------------ Less distributions from: Net investment income 0.70 0.68 Distributions in excess of net investment income -- -- Tax return of capital 0.01 -- ---------- ------------ Total distributions 0.71 0.68 ---------- ------------ Net asset value, end of period $ 12.72 $ 12.59 ========== ============ Total Return(c) 6.88% 2.52% Ratios/Supplemental Data Net assets, end of period (000's) $ 61 $ 24 Ratios to average net assets: Expenses(d)(e)(f) 1.92% 2.01%(g) Net investment income(d)(e)(f) 5.25% 5.73%(g) Portfolio turnover rate 172% 170%
Footnotes on next page 42 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period (Continued) - -------------------------------------------------------------------------------- - ------------ (a) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired assets of Pilgrim Management Corporation, the Fund's former Investment Manager, in a transaction that closed on April 7, 1995. (b) Commencement of offering of shares. (c) 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. (d) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1998, the ratios of expenses to average net assets were 1.58%, 2.29% and 2.05%, and the ratios of net investment income to average net assets were 5.06%, 4.20% and 4.24% for Class A, B and M shares, respectively. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 1.57%, 2.41% and 2.16%, and the annualized ratios of net investment income to average net assets were 5.74%, 4.83% and 5.58% for Class A, B and M shares, respectively. (f) Prior to the waiver expenses for the period ended June 30, 1995, the ratio of expenses to average net assets was 1.54%, and the ratio of net investment income to average net assets was 6.23% for Class A shares. (g) Annualized. See Accompanying Notes to Financial Statements 43 Pilgrim Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES Organization. Pilgrim Bank and Thrift Fund, Inc. ("Bank and Thrift Fund"), Pilgrim Investment Funds, Inc. ("PIF"), Pilgrim Advisory Funds, Inc. ("PAFI") and Pilgrim Government Securities Income Fund ("Government Securities Income Fund") are open-end investment management companies registered under the Investment Company Act of 1940, as amended. Bank and Thrift Fund, the single series of Bank and Thrift Fund, was organized as a Maryland Corporation in 1986. The investment objective of Bank and Thrift Fund is to invest at least 65% of total assets in equity securities of national and state-chartered banks (other than money center banks), thrifts, holding or parent companies of such depository institutions, and in savings accounts of mutual thrifts. The remaining 35% of total assets may be invested in equity securities of money center banks, other financial services companies, other issuers, debt securities, and securities of other investment companies. On October 20, 1997, Bank and Thrift Fund converted from a closed-end fund to an open-end fund. During the current period the Fund changed its year-end from December 31 to June 30. PIF, a Maryland Corporation organized in 1969, consists of Pilgrim MagnaCap Fund ("MagnaCap Fund") and Pilgrim High Yield Fund ("High Yield Fund") each with its own investment objectives and policies. The investment objectives are as follows: MagnaCap Fund -- generally invests in companies that meet the "Rising Dividends" criteria: consistent dividend increases, substantial dividend increases, reinvested substantial earnings, strong balance sheets and attractive prices. High Yield Fund -- invests in high-yielding fixed income securities that do not involve undue risk, relative to the securities' return characteristics. PAFI, a Maryland Corporation organized in 1995, consists of Pilgrim MidCap Value Fund ("MidCap Value Fund"). Pilgrim LargeCap Leaders Fund ("LargeCap Leaders Fund") and Pilgrim Asia-Pacific Equity Fund ("Asia-Pacific Equity Fund") each with its own investment objectives and policies. The investment objectives are as follows: MidCap Value Fund -- invests in equity securities of companies believed to be undervalued and that have a market capitalization of between $200 million and $5 billion. LargeCap Leaders Fund -- invests in equity securities of companies believed to be undervalued that generally have a market capitalization of at least $5 billion. Asia-Pacific Equity Fund -- invests in equity securities of companies based in the Asia-Pacific region which includes China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, but does not include Japan or Australia. Government Securities Income Fund, a California Corporation organized in 1984, is the single series of Government Securities Income Fund. The investment objective of Government Securities Income Fund is to normally invest at least 70% of its assets in securities issued or guaranteed by the U.S. Government, or certain of its agencies and instrumentalities. It does not invest in highly leveraging derivatives. Each Fund, except Bank and Thrift Fund, offers three classes of shares, Class A, Class B and Class M. Bank and Thrift Fund only offers Class A and Class B shares. Each class represents interests in the same assets of the applicable Fund and the classes are identical except for differences in their sales charge structure and ongoing distribution fees. In addition, Class B shares, along with their pro rata reinvested dividend shares, automatically convert to Class A shares approximately eight years after purchase. 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 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 of NASDAQ for which there has been no sale and securities traded in the over- 44 Pilgrim Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- the-counter-market are valued at the mean between the last reported bid and ask prices. Securities for which market quotations are not readily available are valued at their respective fair values as determined in good faith and in accordance with policies set by the Board of Directors. Investments in securities maturing in less than 60 days are valued at cost, which when combined with accrued interest approximates market value. 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. U.S. Government obligations are valued by using market quotations or independent pricing services which uses prices provided by market-makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. 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 and dividend income is recorded on the ex-dividend date (except in the case of Asia-Pacific Equity Fund, for certain securities which are recorded as soon after the ex-date as the Fund becomes aware of such dividend). All premium amortization and discount accretion are determined by the effective yield method. C. Foreign Currency Translation. The books and records of Asia-Pacific Equity Fund are maintained in U.S. dollars. 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 value of Asia-Pacific Equity Fund are presented at the foreign exchange rates at the end of the day, Asia-Pacific Equity Fund does 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. 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 Exchange Transactions. Asia-Pacific Equity Fund 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 Fund either enters into these transactions on a spot basis at the spot rate prevailing in the foreign currency exchange market or uses forward foreign currency contracts to purchase or sell foreign currencies. Asia-Pacific Equity Fund may not invest more than 5% of its assets (at market value at the time of investment) in forward foreign currency contracts. 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. 45 Pilgrim Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- E. Distributions to Shareholders. The Funds record distributions to their shareholders on ex-date. Distributions from income are declared by MagnaCap Fund on a semi-annual basis. Distributions from income are declared on a monthly basis for High Yield Fund and Government Securities Income Fund. Distributions from income are declared on an annual basis for Bank and Thrift Fund, MidCap Value Fund, LargeCap Leaders Fund and Asia-Pacific Equity Fund. Distributions from capital gains, if any, are declared on at least an annual basis for all Funds. The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. Key differences are the treatment of short-term capital gains, foreign currency transactions, organization costs and other temporary differences. To the extent that these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassifications. Distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as distributions in excess of net investment income and/or net realized capital gains. To the extent they exceed net investment income and/or net realized capital gains for tax purposes, they are reported as distributions of paid-in capital. Accordingly, amounts as of June 30, 1998 have been reclassified as follows:
Accumulated net Undistributed realized gains (losses) on Paid-in (overdistributed) investments and foreign capital net investment income currency transactions ------------ ----------------------- ---------------------------- MagnaCap Fund $ -- $ 619,064 $ (619,064) LargeCap Leaders Fund 24,456 (124,766) 100,310 MidCap Value Fund 24,248 (794,518) 770,270 Asia-Pacific Equity Fund 122,245 139,761 (262,006) Government Securities Income Fund 2,284,236 (348,345) (1,935,891)
F. Federal Income Taxes. The Funds' policies are 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 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. Capital loss carryforwards were as follows at June 30, 1998: Amount Expiration Dates ---------- ---------------- Asia-Pacific Equity Fund $5,411,661 2005 to 2006 High Yield Fund 8,803,066 1999 to 2002 Government Securities Income Fund 5,775,551 1999 to 2004 The Board of Directors intends to offset net capital gains with each capital loss carryforward until each carryforward has been fully utilized of 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 and liabilities 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 any portion of its assets otherwise invested in money market instruments in U.S. Government securities and concurrently enter into repurchase agreements with respect to such securities. Such repurchase agreements will be made only with government securities dealers recognized by the Board of Governors of the Federal Reserve System or with member banks of the Federal Reserve System. Under such agreements, the seller of the security agrees to repurchase it at a mutually agreed upon time and price. The resale price is in excess of the purchase price and reflects an agreed upon interest rate for the period of time the agreement is outstanding. The period of the repurchase agreements is usually short, from overnight to one week, while the underlying securities generally have longer maturities. Each Fund will 46 Pilgrim Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- always receive as collateral securities acceptable to it whose market value is equal to at least 100% of the amount being invested by the Fund, and the Fund will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of its custodian. If the seller defaults, a Fund might incur a loss or delay in the realization of proceeds if the value of the collateral securing the repurchase agreement declines and it might incur disposition costs in liquidating the collateral. I. Deferred Organization Expenses. All expenses incurred in connection with the organization and registration of the Funds under the Investment Company Act of 1940 and the Securities Act of 1933 are being amortized by each Fund equally over a period of five years from the date of commencement of its operations. J. Reclassification. Certain prior period amounts in the accompanying financial statements have been reclassified to conform with current period presentation. NOTE 2 -- INVESTMENTS For the six months ended December 31, 1998, the cost of purchases and proceeds from the sales of securities, excluding short-term securities, were as follows: Purchases Sales ------------ ------------ MagnaCap Fund $122,006,061 $146,637,407 LargeCap Leaders Fund 16,735,332 20,778,201 MidCap Value Fund 32,580,633 33,021,639 Bank and Thrift Fund 165,893,559 59,305,266 Asia-Pacific Equity Fund 10,727,163 13,030,474 High Yield Fund 338,599,831 194,511,310 Government Securities Income Fund 28,122,396 9,453,621 NOTE 3 -- INVESTMENT IN AFFILIATE Affiliated companies, as defined in Section 2(a)(3) of the Investment Company Act of 1940, are companies 5% or more of whose outstanding voting shares are held by a fund. At December 31, 1998, Bank and Thrift Fund has the following holding in affiliated companies:
Acquisition Shares Market % of Date Held Cost Value Net Assets -------------------- ------- ---------- ---------- ---------- American Safety Insurance February 13, 1998 to Group, Ltd. November 6, 1998 430,000 $4,914,375 $4,138,750 0.47% 21st Century Holding Company November 5, 1998 177,000 $1,330,875 $1,239,000 0.14% International Aircraft November 5, 1997 to Investors November 24, 1998 267,500 $2,514,277 $1,638,438 0.18% October 6, 1997 to Surety Capital Corp. November 27, 1998 544,200 $2,262,854 $1,122,413 0.13%
There was no dividend income from affiliates during the six months ended December 31, 1998. NOTE 4 -- INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES Each of the Funds has entered into an Investment Management Agreement with Pilgrim Investments, Inc. ("the Manager"), a wholly owned subsidiary of Pilgrim Group, Inc. ("PGI"). The investment management agreements compensate the Manager with a fee, computed daily and payable monthly, at the following annual rates: Bank and Thrift Fund pays the Manager a monthly fee at an annual rate of 1.00% on the first $30 million of average daily net assets of the Fund, 0.75% of the next $95 million of average daily net assets and 0.70% on average daily net assets in excess of $125 million; MagnaCap Fund pays the Manager a monthly fee at an annual rate of 1.00% on the first $30 million of average daily 47 Pilgrim Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- net assets of the Fund, 0.75% of the average daily net assets above $30 million to $250 million, 0.625% of the average daily net assets above $250 million to $500 million, and 0.50% of the average daily net assets in excess of $500 million; MidCap Value Fund and LargeCap Leaders Fund pay the Manager a monthly fee at an annual rate of 1.00% of each Fund's average daily net assets; Asia-Pacific Equity Fund pays the Manager at an annual rate of 1.25% of the Fund's average daily net assets; High Yield Fund pays the Manager a monthly fee at an annual rate of 0.60% of daily average net assets; Government Securities Income Fund pays the Manager a monthly fee at an annual rate of 0.50% on the first $500 million of average daily net assets of the Fund, 0.45% of the average daily net assets above $500 million to $1 billion, and 0.40% of the average daily net assets in excess of $1 billion. Each share class of the Funds has adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plans"), whereby Pilgrim Securities, Inc. (the "Distributor") is reimbursed or compensated (depending on the class of shares) by the Funds for expenses incurred in the distribution of each Funds' shares. Pursuant to the 12b-1 Plans, the Distributor is entitled to payment each month for actual expenses incurred in the distribution and promotion of each Fund's shares, including the printing of prospectuses and reports used for sales purposes, expenses of preparation and printing of sales literature and other such distribution related expenses, including any distribution or service fees paid to securities dealers who have executed a distribution agreement with the Distributor. Under the 12b-1 Plans, each class of shares of the Fund pays the Distributor the following annual fees: Class A Class B Class M ------- ------- ------- MagnaCap Fund 0.30% 1.00% 0.75% LargeCap Leaders Fund 0.25 1.00 0.75 MidCap Value Fund 0.25 1.00 0.75 Bank and Thrift Fund 0.25 1.00 N/A Asia-Pacific Equity Fund 0.25 1.00 0.75 High Yield Fund 0.25 1.00 0.75 Government Securities Income Fund 0.25 1.00 0.75 Each of the Funds has entered into a Service Agreement with PGI whereby PGI will act as Shareholder Service Agent for each Fund. The agreement provides that PGI 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. At December 31, 1998, the Funds owed the following in service fees: MagnaCap Fund $ 6,552 Asia-Pacific Equity Fund $ 1,566 LargeCap Leaders Fund 649 High Yield Fund 2,961 MidCap Value Fund 1,828 Government Securities Bank and Thrift Fund 13,109 Income Fund 439 Bank and Thrift Fund's current prospectus allows that until October 17, 1998 a 2% redemption fee will be imposed on redemptions or exchanges of Class A shares acquired prior to October 17, 1997. Such redemption fee is payable to the Fund and is reflected as redemption fee income in the accompanying financial statements. The Manager has voluntarily agreed to limit other expenses, excluding distribution fees, interest, taxes, brokerage and extraordinary expenses to 1.50%, 1.50% and 1.75% of all classes of shares of MidCap Value Fund, LargeCap Leaders Fund and Asia-Pacific Equity Fund, respectively. This expense limitation will apply to each Fund individually until June 30, 1999. At December 31, 1998 MidCap Value Fund, LargeCap Leaders Fund and Asia-Pacific Equity Fund accrued $3,196, $10,256, and $11,964, respectively as reimbursement due from the Manager. Effective July 1, 1995, the Manager has voluntarily agreed to waive all or a portion of its fees and reimburse operating expenses of the High Yield Fund, excluding distribution fees, interest, taxes, brokerage and extraordinary expenses, so that total operating expenses do not exceed 0.75% for all classes of shares of the Fund. This expense limitation will apply until June 48 Pilgrim Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- 30, 1999. At December 31, 1998, High Yield Fund accrued $36,164 as a reimbursement due from the Manager for such excess expenses. The Manager has agreed to reimburse the Government Securities Income Fund for all gross operating costs and expenses of the Fund, excluding any interest, taxes, brokerage commissions, amortization of organizational expenses, extraordinary expenses, and certain distribution fees which exceed 1.50% of the Fund's daily average net assets on the first $40 million of net assets and 1.00% of average daily net assets in excess of $40 million for any one fiscal year. This expense limitation cannot be changed without shareholder approval. At December 31, 1998 no amounts were due from the Manager to the Government Securities Income Fund. NOTE 5 -- CAPITAL SHARES Transactions in capital shares and dollars were as follows:
Class A Shares Class B Shares Class M Shares ----------------------------------- --------------------------------- ------------------------------- Six Months Year Six Months Year Six Months Year Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, June 30, December 31, June 30, 1998 1998 1998 1998 1998 1998 ---------------- ---------------- --------------- --------------- -------------- -------------- MagnaCap Fund (Number of Shares) Shares sold 7,665,883 10,897,364 1,275,904 2,344,628 106,410 471,961 Shares issued as reinvestments of dividends 1,907,040 2,076,916 530,273 380,983 87,515 75,167 Shares redeemed (8,460,642) (10,784,171) (495,950) (478,018) (115,828) (106,454) -------------- -------------- ------------ ------------ ------------ ------------ Net increase in shares outstanding 1,112,281 2,190,109 1,310,227 2,247,593 78,097 440,674 ============== ============== ============ ============ ============ ============ MagnaCap Fund ($) Shares sold $ 125,176,837 $ 180,615,597 $ 20,537,786 $ 38,503,625 $ 1,727,552 $ 7,761,033 Shares issued as reinvestments of dividends 29,337,146 32,076,362 8,023,021 5,820,909 1,333,729 1,153,467 Shares redeemed (138,554,336) (179,526,800) (7,909,297) (7,887,759) (1,838,709) (1,748,484) -------------- -------------- ------------ ------------ ------------ ------------ Net increase in shares outstanding $ 15,959,647 $ 33,165,159 $ 20,651,510 $ 36,436,775 $ 1,222,572 $ 7,166,016 ============== ============== ============ ============ ============ ============
Class A Shares Class B Shares Class M Shares -------------------------------- ------------------------------ ----------------------------- Six Months Year Six Months Year Six Months Year Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, June 30, December 31, June 30, 1998 1998 1998 1998 1998 1998 -------------- ---------------- -------------- -------------- -------------- ------------- LargeCap Leaders Fund (Number of Shares) Shares sold 114,779 568,398 122,597 190,371 12,567 65,587 Shares issued as reinvestment of dividends 2,791 73,386 6,976 127,676 2,254 47,058 Shares redeemed (191,323) (756,854) (196,730) (206,334) (44,867) (66,998) ------------ ------------- ------------ ------------ ---------- ---------- Net increase (decrease) in shares outstanding (73,753) (115,070) (67,157) 111,713 (30,046) 45,647 ============ ============= ============ ============ ========== ========== LargeCap Leaders Fund ($) Shares sold $ 1,715,971 $ 8,276,374 $ 1,702,337 $ 2,701,856 $ 185,630 $ 946,954 Shares issued as reinvestment of dividends 41,280 971,634 93,056 1,664,888 32,915 617,865 Shares redeemed (2,738,850) (10,980,774) (2,621,780) (2,915,958) (591,915) (940,590) ------------ ------------- ------------ ------------ ---------- ---------- Net increase (decrease) in shares outstanding $ (981,599) $ (1,732,766) $ (826,387) $ 1,450,786 $ (373,370) $ 624,229 ============ ============= ============ ============ ========== ==========
49 Pilgrim Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares Class M Shares ------------------------------- ------------------------------- ------------------------------ Six Months Year Six Months Year Six Months Year Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, June 30, December 31, June 30, 1998 1998 1998 1998 1998 1998 -------------- --------------- -------------- --------------- -------------- -------------- MidCap Value Fund (Number of Shares) Shares sold 178,700 1,470,177 284,417 1,195,501 99,376 317,153 Shares issued as reinvestment of dividends 105,360 38,624 187,926 66,968 61,139 22,835 Shares redeemed (399,156) (1,031,906) (403,755) (404,459) (134,187) (117,161) ------------ ------------- ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding (115,096) 476,895 68,588 858,010 26,328 222,827 ============ ============= ============ ============ ============ ============ MidCap Value Fund ($) Shares sold $ 2,794,627 $ 24,374,092 $ 4,326,837 $ 18,766,179 $ 1,521,930 $ 4,989,862 Shares issued as reinvestment of dividends 1,488,742 582,841 2,591,514 995,806 846,769 340,248 Shares redeemed (6,268,487) (17,333,221) (5,975,503) (6,378,858) (2,014,522) (1,857,447) ------------ ------------- ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding $(1,985,118) $ 7,623,712 $ 942,848 $ 13,383,127 $ 354,177 $ 3,472,663 ============ ============= ============ ============ ============ ============
Class A Shares Class B Shares -------------------------------------------------- ------------------------------------------------- Six Months Six Months Year Six Months Six Months Year Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, December 31, June 30, December 31, 1998 1998 1997 1998 1998 1997 ----------------- ---------------- --------------- ---------------- ---------------- --------------- Bank and Thrift Fund (Number of Shares) Shares sold 3,876,305 6,598,183 1,551,663 4,398,454 10,545,101 2,866,975 Shares issued as reinvestment of dividends 423,497 -- 715,896 384,546 -- 156,147 Shares redeemed (4,251,144) (1,439,132) (1,608,708) (1,763,798) (370,014) (66,661) -------------- ------------- ------------- ------------- ------------ ------------ Net increase in shares outstanding 48,658 5,159,051 658,851 3,019,202 10,175,087 2,956,461 ============== ============= ============= ============= ============ ============ Bank and Thrift Fund ($) Shares sold $ 99,498,079 $ 179,351,328 $ 39,884,193 $ 107,348,279 $286,284,458 $ 73,724,794 Shares issued as reinvestment of dividends 9,842,075 -- 18,233,873 8,913,760 -- 3,975,496 Shares redeemed (107,045,852) (38,524,439) (41,390,698) (40,791,771) (9,978,392) (1,756,579) -------------- ------------- ------------- ------------- ------------ ------------ Net increase in shares outstanding $ 2,294,302 $ 140,826,889 $ 16,727,368 $ 75,470,268 $276,306,066 $ 75,943,711 ============== ============= ============= ============= ============ ============
50 Pilgrim Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares Class M Shares --------------------------------- --------------------------------- ------------------------------- Six Months Year Six Months Year Six Months Year Ended Ended Ended Ended Ended Ended December 31 June 30, December 31, June 30, December 31, June 30, 1998 1998 1998 1998 1998 1998 ---------------- ---------------- ---------------- ---------------- -------------- ---------------- Asia-Pacific Equity Fund (Number of Shares) Shares sold 14,219,098 11,941,838 903,329 760,416 253,449 1,111,797 Shares issued as reinvestment of dividends -- -- -- -- -- -- Shares redeemed (14,973,138) (12,266,159) (1,148,978) (1,467,592) (447,942) (1,169,806) ------------- ------------- ------------- ------------- ------------ ------------ Net decrease in shares outstanding (754,040) (324,321) (245,649) (707,176) (194,493) (58,009) ============= ============= ============= ============= ============ ============ Asia-Pacific Equity Fund ($) Shares sold $ 64,705,536 $ 70,165,316 $ 4,064,386 $ 5,448,555 $ 1,122,817 $ 6,633,404 Shares issued as reinvestment of dividends -- -- -- -- -- -- Shares redeemed (68,977,622) (72,683,235) (5,203,435) (10,287,190) (2,032,940) (7,449,763) ------------- ------------- ------------- ------------- ------------ ------------ Net decrease in shares outstanding $ (4,272,086) $ (2,517,919) $ (1,139,049) $ (4,838,635) $ (910,123) $ (816,359) ============= ============= ============= ============= ============ ============ High Yield Fund (Number of Shares) Shares sold 16,760,207 17,174,055 18,003,848 18,262,275 1,413,611 2,573,150 Shares issued as reinvestment of dividends 466,190 432,513 643,864 467,819 92,630 99,793 Shares redeemed (11,354,415) (8,125,142) (2,973,995) (2,356,559) (447,438) (1,118,663) ------------- ------------- ------------- ------------- ------------ ------------ Net increase in shares outstanding 5,871,982 9,481,426 15,673,717 16,373,535 1,058,803 1,554,280 ============= ============= ============= ============= ============ ============ High Yield Fund ($) Shares sold $ 109,592,166 $ 120,176,870 $ 114,570,634 $ 127,606,617 $ 9,483,103 $ 17,969,970 Shares issued as reinvestment of dividends 2,965,069 3,011,044 4,076,277 3,254,943 589,242 693,501 Shares redeemed (75,676,363) (56,782,132) (18,775,139) (16,455,583) (3,368,590) (7,825,635) ------------- ------------- ------------- ------------- ------------ ------------ Net increase in shares outstanding $ 36,880,872 $ 66,405,782 $ 99,871,772 $ 114,405,977 $ 6,703,755 $ 10,837,836 ============= ============= ============= ============= ============ ============
51 Pilgrim Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares Class M Shares --------------------------------- ------------------------------- ----------------------------- Six Months Year Six Months Year Six Months Year Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, June 30, December 31, June 30, 1998 1998 1998 1998 1998 1998 --------------- ---------------- --------------- -------------- -------------- ------------- Government Securities Income Fund (Number of Shares) Shares sold 1,360,878 236,845 1,795,640 251,983 81,130 42,995 Shares issued as reinvestment of dividends 35,826 65,196 11,305 1,604 960 592 Shares redeemed (1,141,491) (815,395) (800,193) (123,763) 16,161 (30,971) ------------- ------------- ------------- ------------ ---------- ---------- Net increase (decrease) in shares outstanding 255,213 (513,354) 1,006,752 129,824 98,251 12,616 ============= ============= ============= ============ ========== ========== Government Securities Income Fund ($) Shares sold $ 17,553,754 $ 3,042,775 $ 23,541,255 $ 3,196,854 $1,547,631 $ 551,951 Shares issued as reinvestment of dividends 460,715 835,102 145,085 60,326 12,338 7,602 Shares redeemed (14,709,956) (10,465,540) (10,731,632) (1,590,074) (293,037) (397,555) ------------- ------------- ------------- ------------ ---------- ---------- Net increase (decrease) in shares outstanding $ 3,304,513 $ (6,587,663) $ 12,954,708 $ 1,667,106 $1,266,932 $ 161,998 ============= ============= ============= ============ ========== ==========
NOTE 6 -- CUSTODIAL AGREEMENT Investors Fiduciary Trust Company ("IFTC") serves as the Funds' custodian and recordkeeper. Custody fees paid to IFTC are reduced by an earnings credit based on the cash balances held by IFTC for each of the Funds. For the six months ended December 31, 1998, the Funds received the following earnings credits: MagnaCap Fund $ 8,670 Asia-Pacific Equity Fund $ 542 LargeCap Leaders Fund 742 High Yield Fund 24,762 MidCap Value Fund 2,068 Government Securites Bank and Thrift Fund 6,926 Income Fund 248 NOTE 7 -- SUBSEQUENT EVENTS Subsequent to December 31, 1998, the following funds declared dividends from net investment income of: Per Share Amount Payable Date Record Date ------------------ ------------------- ------------------ High Yield Fund Class A $0.0500 February 16, 1999 January 29, 1999 Class B $0.0460 February 16, 1999 January 29, 1999 Class M $0.0470 February 16, 1999 January 29, 1999 Class A $0.0500 January 15, 1999 January 2, 1999 Class B $0.0460 January 15, 1999 Janaury 2, 1999 Class M $0.0470 January 15, 1999 January 2, 1999 Government Securities Income Fund Class A $0.0645 February 16, 1999 January 29, 1999 Class B $0.0560 February 16, 1999 Janaury 29, 1999 Class M $0.0590 February 16, 1999 January 29, 1999 Class A $0.0645 January 15, 1999 January 2, 1999 Class B $0.0580 January 15, 1999 January 2, 1999 Class M $0.0590 January 15, 1999 January 2, 1999 52 Pilgrim MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS: 90.6% Market Shares Value - ---------- ------------- Automotive: 1.0% 100,000 Harley Davidson, Inc. $ 4,737,500 ------------ Banks: 7.2% 20,000 BankAmerica Corp. 1,202,500 80,000 Chase Manhattan Corp. 5,445,000 119,200 Comerica Inc. 8,127,950 143,760 First Union Corp. 8,742,405 130,000 USBANCORP, Inc. 4,615,000 150,000 UnionBanCal Corp. 5,109,375 ------------ 33,242,230 ------------ Beverages -- Non Alcholic: 1.8% 200,000 Pepsico, Inc. 8,187,500 ------------ Capital Goods: 1.1% 160,000 Parker Hannifan Corp. 5,240,000 ------------ Chemicals: 1.4% 120,000 E.I. Dupont de Nemours 6,367,500 ------------ Communications: 4.2% 80,000 ALLTEL Corp. 4,785,000 80,000 AT & T Corp. 6,020,000 50,000 (a) MCI Worldcom, Inc. 3,587,500 70,000 (a) Tellabs, Inc. 4,799,375 ------------ 19,191,875 ------------ Computer Hardware: 3.6% 25,000 (a) Cisco Systems 2,320,313 150,000 Compaq Computer 6,290,625 115,000 Hewlett Packard 7,855,937 ------------ 16,466,875 ------------ Computer Software & Services: 5.0% 112,000 Automatic Data Processing 8,981,000 25,000 Computer Sciences 1,610,938 146,500 (a) Sun Microsystems 12,544,062 ------------ 23,136,000 ------------ Electrical Equipment: 1.3% 60,000 General Electric 6,123,750 ------------ Electronics -- Semiconductors: 1.7% 65,000 Intel Corp. 7,706,563 ------------ See Accompanying Notes to Financial Statements 53 Pilgrim MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- ------------- Energy: 2.0% 165,700 Elf Aquitane -- Sponsored (ADR) $ 9,382,763 ------------ Energy Services: 0.5% 69,700 Halliburton Co. 2,064,863 ------------ Financial: 2.6% 60,000 Fannie Mae 4,440,000 50,000 Freddie Mac 3,221,875 50,000 Sunamerica, Inc. 4,056,250 ------------ 11,718,125 ------------ Food & Beverages: 0.2% 30,000 Kellogg Co. 1,023,750 ------------ Foods: 1.5% 250,000 Sara Lee 7,046,875 ------------ Healthcare: 4.7% 255,000 Abbott Laboratories 12,495,000 160,000 Hillenbrand Industries 9,100,000 ------------ 21,595,000 ------------ Home Products: 1.3% 150,000 Newell Company 6,187,500 ------------ Industrial: 2.4% 120,000 Nucor Corp. 5,190,000 170,000 Praxair, Inc. 5,992,500 ------------ 11,182,500 ------------ Industrial Equipment: 0.6% 50,000 Illinois Tool Works 2,900,000 ------------ Insurance: 0.9% 73,800 Marsh & Mclennan 4,312,688 ------------ Insurance Life: 3.5% 250,000 AFLAC, Inc. 11,000,000 65,000 American General Corp. 5,070,000 ------------ 16,070,000 ------------ Integrated Oil -- Domestic: 0.8% 60,000 Atlantic Ritchfield 3,915,000 ------------ Integrated Oil -- International: 1.2% 70,000 Chevron Corp. 5,805,625 70,000 Chevron Corp -- Rights -- ------------ 5,805,625 ------------ See Accompanying Notes to Financial Statements 54 Pilgrim MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- ------------- Machinery & Equipment: 1.0% 120,000 Dover Corp. $ 4,395,000 ------------ Manufacturing: 0.8% 80,000 AlliedSignal, Inc. 3,545,000 ------------ Manufacturing -- Electronic: 1.9% 116,000 Honeywell, Inc 8,736,250 ------------ Marine: 0.5% 50,000 Carnival Corp. 2,400,000 ------------ Medical Products: 4.2% 187,000 Baxter International 12,026,437 172,000 Becton Dickenson & Co. 7,342,250 ------------ 19,368,687 ------------ Office Equipment & Services: 2.6% 100,000 Xerox Corp. 11,800,000 ------------ Office Products & Services: 1.4% 146,500 Avery-Dennison Corp. 6,601,656 ------------ Oil Well Equipment & Services: 1.0% 104,000 Schlumberger Limited 4,797,000 ------------ Pharmaceuticals: 6.0% 93,500 Bristol-Myers Squibb Co. 12,511,468 107,000 Johnson & Johnson 8,974,625 110,000 Schering-Plough Corp. 6,077,500 ------------ 27,563,593 ------------ Publishing: 0.2% 20,000 New York Times -- Class A 693,750 ------------ Restaurant: 4.2% 165,000 McDonald's Corp. 12,643,125 130,000 (a) Tricon Global Restaurants 6,516,250 ------------ 19,159,375 ------------ Retail: 6.6% 15,000 (a) Dayton-Hudson 813,750 154,000 Home Depot, Inc. 9,422,875 150,000 Lowe's Companies 7,678,125 152,000 Wal-Mart Stores, Inc. 12,378,500 ------------ 30,293,250 ------------ See Accompanying Notes to Financial Statements 55 Pilgrim MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- -------------- Supermarket: 1.4% 102,000 Albertson's $ 6,496,125 ------------- Thrifts: 3.6% 271,300 Charter One Financial, Inc. 7,528,575 50,000 Golden West Financial Corp. 4,584,375 120,000 Washington Mutual Inc. 4,582,500 ------------- 16,695,450 ------------- Tobacco Products: 0.9% 75,000 Philip Morris Companies, Inc. 4,012,500 ------------- Utilities: 3.8% 100,000 Duke Power Co. 6,406,250 55,000 FPL Group, Inc. 3,389,375 75,500 SBC Communications 4,048,687 125,000 Southern Co. 3,632,813 ------------- 17,477,125 ------------- Total Common Stocks (Cost $298,179,823) 417,639,243 ------------- LIMITED PARTNERSHIP: 1.4% Securities Related Business: 1.4% 260,000 Alliance Capital Management 6,695,000 ------------ Total Limited Partnership Stock (Cost $5,095,442) 6,695,000 ------------ Total Long-Term Investments (Cost $303,275,265) 424,334,243 ------------
SHORT-TERM INVESTMENTS: 6.6%
Principal Amount Value - ------------ --------------- Commercial Paper: 6.6% 22,845,000 GE Capital Corp Commercial Paper, 5.00% due 01/04/99 22,845,000 7,414,000 Merrill Lynch Commercial Paper, 5.05% due 01/04/99 7,414,000 -------------- Total Short-Term Investments (Cost $ 30,246,361) 30,259,000 -------------- Total Investments in Securities (Cost $333,521,625)* 98.6% 454,593,243 Cash and Other Assets in Excess of Liabilities -- Net 1.4% 6,325,025 ------ -------------- Total Net Assets 100.0% $ 460,918,268 ====== ==============
- ------------------------- (a) Non-income producing security * Cost for federal income tax purposes is $333,521,625, which is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 131,010,864 Gross Unrealized Depreciation (9,951,886) -------------- Net Unrealized Appreciation $ 121,058,978 ============== See Accompanying Notes to Financial Statements 56 Pilgrim LargeCap Leaders Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS: 90.6% Market Shares Value - --------- ------------ Automotive: 3.1% 4,723 Daimlerchrysler $ 453,703 7,000 Ford Motor Co. 410,813 ----------- 864,516 ----------- Banks: 1.6% 6,800 Chase Manhattan Corp. New 462,825 ----------- Broadcasting: 1.7% 8,500 (a) Tele Communication-TCI Group-A 470,156 ----------- Chemicals: 1.2% 6,300 DuPont 334,294 ----------- Communications: 3.2% 5,600 AT&T Corp. 421,400 6,600 (a) MCI Worldcom, Inc. 473,550 ----------- 894,950 ----------- Computer Software & Service: 4.5% 2,400 (a) America Online, Inc. 347,400 3,400 (a) Microsoft Corp. 471,537 5,300 (a) Sun Microsystems 453,813 ----------- 1,272,750 ----------- Computer Systems: 1.4% 5,500 Dell Computer Corporation 402,531 ----------- Computer Hardware: 3.0% 4,700 (a) Cisco Systems 436,218 10,000 Compaq Computer 419,375 ----------- 855,593 ----------- Consumer Durables: 1.3% 5,200 Sony Corp -- ADR 373,100 ----------- Consumer Products: 6.9% 6,200 Anheuser Busch Company 406,875 5,300 Coca-Cola 354,437 4,200 Colgate-Palmolive Company 390,075 4,200 Procter & Gamble 383,512 8,900 Unilever PLC -- ADR 400,500 ----------- 1,935,399 ----------- See Accompanying Notes to Financial Statements 57 Pilgrim LargeCap Leaders Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - --------- ------------ Cosmetics: 1.4% 8,200 Gillette $ 396,163 ----------- Defense: 1.2% 3,900 Lockheed Martin Corp. 330,525 ----------- Diversified Conglomerate: 1.6% 5,800 Tyco International Ltd. 437,538 ----------- Drugstores: 1.6% 7,800 Walgreens Co. 456,788 ----------- Energy: 1.3% 5,600 Duke Power Co. 358,750 ----------- Financial: 5.9% 4,100 American Express 419,225 8,700 Citigroup Inc 430,650 5,300 Fannie Mae 392,200 6,600 Freddie Mac 425,287 ----------- 1,667,362 ----------- Food Stores: 1.7% 7,800 (a) Safeway Inc. 475,313 ----------- Foods: 1.2% 12,000 Sara Lee 338,250 ----------- Insurance: 2.6% 8,700 Allstate Corp. 336,038 4,000 American Int'l Group 386,500 ----------- 722,538 ----------- Integrated Oil Intl: 1.3% 4,400 Chevron Corp. 364,925 ----------- Marine: 2.0% 12,000 Carnival Corp. Common 576,000 ----------- Medical Products: 1.4% 7,800 Abbott Laboratories 382,200 ----------- Metals & Minerals: 1.3% 4,800 Aluminum Co. of America 357,900 ----------- See Accompanying Notes to Financial Statements 58 Pilgrim LargeCap Leaders Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - --------- ------------ Natural Gas Pipeline: 1.4% 6,900 Enron $ 393,731 ----------- Office Products & Services: 3.1% 6,200 Hewlett Packard 423,538 2,400 International Business Machines 443,400 ----------- 866,938 ----------- Oil & Gas: 2.6% 5,100 Exxon Corp. 372,937 7,500 Royal Dutch Petroleum Company 359,063 ----------- 732,000 ----------- Oil Well Equipment & Service: 1.3% 7,900 Schlumberger Ltd. 364,388 ----------- Pharmaceuticals: 7.3% 3,300 Bristol-Myers Squibb Co. 441,581 4,400 Johnson & Johnson 369,050 2,700 Merck & Co. 398,756 3,400 Pfizer 426,487 5,400 Warner Lambert Co. 406,013 ----------- 2,041,887 ----------- Publishing: 1.4% 5,900 Gannett Co. 390,506 ----------- Restaurant: 1.5% 5,600 McDonalds Corp. 429,100 ----------- Retail: 7.3% 6,400 Costco Companies, Inc. 462,000 7,200 The Gap Inc. 405,000 7,000 Home Depot Inc. 428,313 7,100 Sears, Roebuck and Company 301,750 5,500 Wal-Mart Stores, Inc. 447,906 ----------- 2,044,969 ----------- Technology: 4.8% 3,200 Intel Corp. 379,400 4,500 Lucent Technologies 495,000 4,000 Nokia Corp -- ADR A 481,750 ----------- 1,356,150 ----------- See Accompanying Notes to Financial Statements 59 Pilgrim LargeCap Leaders Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Market Shares Value - ------------ -------------- Tobacco Products: 1.3% 7,000 Philip Morris Companies Inc. $ 374,500 ------------ Transportation: 1.4% 4,500 (a) FDX Corporation 400,500 ------------ Utilities: 4.8% 8,520 Bell Atlantic Corp. 484,042 9,300 SBC Communications 498,712 13,000 Southern Co. 377,813 ------------ 1,360,567 ------------ Total Common Stocks (Cost $21,031,720) 25,485,602 ------------ SHORT-TERM INVESTMENTS: 8.9% Principal Amount Value ---------- ----- Repurchase Agreement: 8.9% $2,495,000 State Street Bank, 4.50% due 01/04/99 2,495,000 ------------ (Collateralized by $1,565,000 U.S. Treasury Bonds, 10.625%, due 08/15/2015, Market Value $2,551,684) Total Short-Term Investments (Cost $2,495,000) 2,495,000 ------------
Total Investments in Securities (Cost $23,526,720)* 99.5% 27,980,602 Other Assets in Excess of Liabilities 0.5% 142,853 ------ ------------ Net Assets 100.0% $28,123,455 ====== ============
- ------------ (a) Non-income producing security ADR -- American Depository Receipt * Cost for federal income tax purposes is, $23,526,720, which is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $4,712,524 Gross Unrealized Depreciation (258,642) ---------- Net Unrealized Appreciation $4,453,882 ========== See Accompanying Notes to Financial Statements 60 Pilgrim MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS: 94.4% Market Shares Value - ---------- ----------- Automotive: 1.7% 70,000 (a) Mascotech, Inc. $1,198,750 ----------- Banks: 4.6% 160,000 (a) John Hancock Bank & Thrift Opportunity Fund 1,710,000 65,000 Sovereign Bancorp Inc. 926,250 30,000 UST Corp. 706,875 ----------- 3,343,125 ----------- Building Products: 3.6% 60,000 Johns Manville Corp. 986,250 57,000 Masco Corp. 1,638,750 ----------- 2,625,000 ----------- Business Services: 1.7% 82,500 (a) Modis Professional Services 1,196,250 ----------- Chemicals: 1.9% 45,300 Mallinckrodt Inc. 1,395,805 ----------- Communications: 6.5% 124,400 Cincinnati Bell Inc. 4,703,875 ----------- Consumer Products: 1.5% 31,200 Snap-On Inc. 1,086,150 ----------- Electrical Equipment: 10.5% 47,600 Applied Power Inc -- CL A 1,796,900 31,800 Columbia Energy Group 1,836,450 50,000 Edison International 1,393,750 33,400 Raychem Corp. 1,079,238 34,000 Thomas & Betts Corp. 1,472,625 ----------- 7,578,963 ----------- See Accompanying Notes to Financial Statements 61 Pilgrim MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- ------------ Entertainment: 2.0% 140,000 Loews Cineplex Entertainment $1,417,500 ----------- Financial: 3.8% 66,000 CIT Group Inc. 2,099,625 45,300 Golden State Bancorp. 626,763 ----------- 2,726,388 ----------- Food & Beverages: 4.5% 113,200 Chiquita Brands International 1,082,475 72,100 Dole Food Company 2,163,000 ----------- 3,245,475 ----------- Food Stores: 2.2% 26,000 (a) Meyer (Fred), Inc. 1,566,500 ----------- Health Care: 4.4% 29,600 Humana Inc. 527,250 37,100 Wellpoint Health Network 2,618,700 ----------- 3,145,950 ----------- Industrial: 2.3% 119,875 Safety-Kleen Corp. 1,693,234 ----------- Insurance: 3.1% 38,400 Allamerica Financial Corp. 2,222,400 ----------- Life Insurance: 2.3% 41,000 Torchmark Corp. 1,447,813 10,040 Waddell & Reed Financial -- Class B 233,430 ----------- 1,681,243 ----------- Media & Entertainment: 2.6% 65,600 (a) King World Productions Inc. 1,931,100 ----------- Medical Services: 2.8% 47,500 (a) HCR Manor Care 1,395,313 41,100 (a) Healthsouth Corp. 634,481 ----------- 2,029,794 ----------- See Accompanying Notes to Financial Statements 62 Pilgrim MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- ------------ Office Products & Services: 6.9% 41,700 Choicepoint Inc. $2,689,650 88,300 United Stationers Inc. 2,295,800 ----------- 4,985,450 ----------- Oil & Gas: 3.7% 34,000 Coastal Corp. 1,187,875 127,433 EEX Corp. 892,033 93,280 Ocean Energy New 588,830 ----------- 2,668,738 ----------- Packaging Products: 2.4% 57,500 Owens-Illinois, Inc. 1,760,938 ----------- Railways: 1.0% 23,612 Keyspan Energy Corp. 731,972 ----------- Real Estate & Financial Services: 1.9% 67,700 Trizec Hahn Corp. 1,387,850 ----------- Retail: 2.1% 99,000 Kmart 1,515,937 ----------- Retail Clothing: 2.2% 83,200 Polo Ralph Lauren Corp. 1,596,400 ----------- Technology: 6.4% 75,000 Comsat Corp. 2,700,000 56,400 General Instrument Corp. 1,914,075 ----------- 4,614,075 ----------- Trucking & Leasing: 1.5% 40,900 Ryder 1,063,400 ----------- See Accompanying Notes to Financial Statements 63 Pilgrim MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- ------------- Utilities: 4.3% 54,500 Montana Power Co. $ 3,082,656 ------------ Total Common Stocks (Cost $61,096,831) 68,194,918 ------------ CONVERTIBLE CORPORATE BONDS: 0.4%
Amount - ---------- Industrial: 0.4% 500,000 Inacom Corp., 4.50% due 11/01/2004 301,250 ----------- Total Convertible Bonds (Cost $348,000) 301,250 ----------- WARRANTS: 1.0% Financials: 1.0% 157,000 Golden State Bancorp 716,313 ----------- Total Warrants (Cost $699,759) 716,313 ----------- Total Long-Term Investments (Cost $62,144,590) 69,212,481 -----------
SHORT-TERM INVESTMENTS: 4.9%
Principal Amount Value - ------------ ---------------- Repurchase Agreement: 4.9% $3,524,000 State Street Bank, 4.50% due 01/04/99 $ 3,524,000 ----------- (Collateralized by $2,205,000 U.S. Treasury Bonds, 10.625%, due 08/15/2015 Market Value $3,595,184.) Total Short-Term Investments (Cost $3,524,000) 3,524,000 ----------- Total Investments (Cost $65,668,590)* 100.7% 72,736,481 Liabilities in Excess of Other Assets (0.7)% (472,781) ---------- ----------- Total Net Assets 100.0% $72,263,700 ========== ===========
- ------------ (a) Non-income producing security * Cost for federal income tax purposes is $65,668,590, which is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 11,427,134 Gross Unrealized Depreciation (4,359,243) ------------ Net Unrealized Appreciation $ 7,067,891 ============ See Accompanying Notes to Financial Statements 64 Pilgrim Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS: 96.7% Market Shares Industry/Issuer Value - ---------- ----------------------------------------- ------------- Automotive: 0.6% 275,000 (a) Keystone Automotive Industries, Inc. $ 5,757,813 ------------ Banks: 61.0% 171,000 Alabama National Bancorporation (AL) 4,563,563 276,057 Associated Banc-Corp. (WI) 9,437,699 14,500 BancFirst Corp. (OK) 520,187 220,000 BancWest Corp. (HI) 10,560,000 114,000 (a) BNCCorp., Inc. (ND) 1,225,500 79,567 (a) BOK Financial Corp. (OK) 3,749,595 241,675 BSB Bancorp, Inc. (NY) 7,945,065 268,400 The Bank of New York Company, Inc. (NY) 10,803,100 149,700 Bank of the Ozarks, Inc. (AR) 3,424,388 386,000 BankAmerica Corp. (NC) 23,208,250 721,000 BankBoston Corp. (MA) 28,073,938 176,000 Banknorth Group, Inc. (VT) 6,622,000 98,500 Bay Bancshares, Inc. (TX) 1,428,250 89,000 CCB Financial Corp. (NC) 5,073,000 110,000 Chittenden Corp. (VT) 3,520,000 108,600 CNBT Bankshares, Inc. (TX) 1,072,425 220,000 Colonial BancGroup, Inc. (AL) 2,640,000 191,500 Columbia Bancorp (MD) 3,255,500 558,500 Comerica Inc. (MI) 38,082,719 140,928 Commerce Bancshares, Inc. (MO) 5,989,440 211,500 Community Bank System, Inc. (NY) 6,199,594 337,474 Community First Bankshares, Inc. (ND) 7,108,046 195,000 Compass Bancshares, Inc. (AL) 7,422,187 64,500 Cowlitz Bancorp. (WA) 507,937 345,200 First American Corp. (TN) 15,318,250 24,000 First Merchants Corp. (IN) 627,000 217,100 FirstMerit Corp. (OH) 5,834,562 2,236 First National Bank of Anchorage (AK) 2,325,440 417,655 First Security Corp. (UT) 9,762,686 500,187 First Union Corp. (NC) 30,417,622 125,000 First United Bancshares, Inc. (AK) 2,218,750 423,408 Fleet Financial Group, Inc. (MA) 18,921,045 184,320 Greater Bay Bancorp (CA) 6,220,800 313,250 HUBCO Inc. (NJ) 9,436,656 38,500 (a) Hamilton Bancorp Inc. (FL) 1,027,469 179,623 Independent Bank Corp. (MI) 3,637,366 See Accompanying Notes to Financial Statements 65 Pilgrim Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Market Shares Industry/Issuer Value - ---------- --------------------------------------------- -------------- Banks (continued) 513,800 KeyCorp (OH) $ 16,441,600 200,000 Lamar Capital Corp. (MS) 2,000,000 20,000 MainStreet Financial Corp. (VA) 928,750 415,800 Mercantile Bankshares Corp. (MD) 16,008,300 485,700 National City Corp. (OH) 35,213,250 42,817 North Dallas Bank & Trust Co. (TX) 2,825,922 164,600 North Fork Bancorp. (NY) 3,940,113 55,300 North Valley Bancorp (CA) 677,425 202,400 One Valley Bancorp., Inc. (WV) 6,653,900 953,000 Pacific Century Financial Corp. (HI) 23,229,375 829,000 Peoples Heritage Financial Group, Inc. (ME) 16,580,000 213,000 Prime Bancshares, Inc. (TX) 3,674,250 240,000 Prosperity Bancshares, Inc. (TX) 2,970,000 190,400 Regions Financial Corp. (AL) 7,675,500 68,500 (a) Six Rivers National Bank (CA) 796,313 82,500 SouthTrust Corp. (AL) 3,047,343 484,687 Sterling Bancshares, Inc. (TX) 7,209,719 375,900 Summit Bancorp (NJ) 16,422,131 248,400 Summit Bancshares, Inc. (TX) 4,595,400 544,200 (a)(b) Surety Capital Corp. (TX) 1,122,412 181,900 TCF Financial Corp. (MN) 4,399,706 499,900 Union Planters Corp. (TN) 22,651,719 916,800 UnionBanCal Corp. (CA) 31,228,500 130,100 (a)(b) United Security Bancorp. (WA) 1,967,762 209,400 USBANCORP, Inc. (PA) 4,161,825 86,350 West Coast Bancorp (OR) 1,813,350 55,353 Westamerica Bancorp (CA) 2,034,223 229,500 Westernbank Puerto Rico (PR) 3,643,313 ------------- 542,092,130 ------------- Construction: 1.5% 501,375 D.R. Horton, Inc. 11,531,625 342,500 (a) Schuff Steel Co. 1,883,750 ------------- 13,415,375 -------------
See Accompanying Notes to Financial Statements 66 Pilgrim Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Market Shares Industry/Issuer Value - ----------- ------------------------------------------------------ ------------- Finance: 4.1% 244,500 (a) CFI ProServices, Inc. $ 2,842,313 325,000 CIT Group Inc. 10,339,063 380,000 Comdisco, Inc. 6,412,500 267,500 (a)(b) International Aircraft Investors 1,638,438 13,500 Matrix Bancorp Inc. 182,250 54,800 Sea Containers Ltd. 1,640,575 800,000 (a) Sirrom Capital Corp. 3,950,000 1,292,000 (a) UniCapital Corp. 9,528,500 ------------ 36,533,639 ------------ Insurance: 5.5% 430,000 (a)(b) American Safety Insurance Group, Ltd. 4,138,750 1,151,000 ARM Financial Group, Inc. -- Class A 25,537,812 215,000 Liberty Financial Co., Inc. 5,805,000 356,500 Reliance Group Holdings, Inc. 4,589,937 240,000 Travelers Property Casualty -- Class A 7,440,000 177,000 (a)(b) 21st Century Holding Company 1,239,000 ------------ 48,750,499 ------------ Printing: 1.8% 955,160 (a) Applied Graphics Technologies, Inc. 15,760,140 ------------ Real Estate and Financial Services: 0.4% 375,000 Imperial Credit Commercial Mortgage Investment Corp. 3,515,625 ------------ Retail: 1.7% 464,106 (a) Consolidated Stores Corp. 9,369,140 335,000 (a) Michaels Stores, Inc. 6,061,406 ------------ 15,430,546 ------------ Securities Related Business: 1.0% 573,400 Freedom Securities Corp. 8,672,675 ------------
See Accompanying Notes to Financial Statements 67 Pilgrim Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Market Shares Industry/Issuer Value - ----------- ------------------------------------------------------ -------------- Thrifts: 17.0% 245,000 Astoria Financial Corp. (NY) $ 11,208,750 1,746,340 Charter One Financial, Inc. (OH) 48,460,935 1,261,238 Commercial Federal Corp. (NE) 29,244,945 34,900 First Mutual Savings Bank (WA) 462,425 253,300 Golden West Financial Corp. (CA) 23,224,443 20,250 Home Federal Bancorp (IN) 450,563 149,400 InterWest Bancorp, Inc. (WA) 3,305,475 63,655 Laurel Capital Group, Inc. (PA) 1,106,005 100,000 Seacoast Financial Services Corp. (MA) 1,025,000 849,800 Washington Mutual Inc. (WA) 32,451,738 ------------- 150,940,279 ------------- Total Common Stocks (Cost $667,113,251) 840,868,721 ------------- LIMITED PARTNERSHIP: 2.1% 741,900 Alliance Capital Management 19,103,925 ------------- Total Limited Partnership Stock (Cost $15,869,002) 19,103,925 ------------- Total Long-Term Investments (Cost $682,982,253) 859,972,646 -------------
SHORT-TERM INVESTMENTS: 2.8%
Principal Amount Value - ------------- --------------- Repurchase Agreement: 2.8% $25,045,000 State Street Bank, 4.50% due 01/04/99 25,045,000 -------------- (Collateralized by $17,415,000 U.S. Treasury Bonds, 12.750%, due 11/15/10 Market Value $25,306,172.) Total Short-Term Investments (Cost $25,045,000) 25,045,000 -------------- Total Investments in Securities (Cost $708,027,253) 99.5% 885,017,646 Other Assets in Excess of Liabilities 0.5% 4,041,258 ------ -------------- Net Assets 100.0% $ 889,058,904 ====== ==============
- ------------ * Cost for federal income tax purposes is $708,027,253, which is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 242,406,708 Gross Unrealized Depreciation (65,416,315) ------------- Net Unrealized Appreciation $ 176,990,393 ============= - ------------ (a) Non-income producing security (b) Company in which there is any direct or indirect ownership of 5% or more of the outstanding voting securities. See Accompanying Notes to Financial Statements 68 Pilgrim Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS: 101.3% Market Shares Value - ----------- ------------ CHINA: 2.1% Construction: 1.1% 644,000 Zhejiang Expressway CL H $ 130,504 500,000 Shenzhen Expressway Co. 116,167 ----------- 246,671 ----------- Mines & Minerals: 0.5% 650,000 Yanzhou Coal Mining Co. 109,067 ----------- Properties: 0.5% 1,000,000 Anhui Expressway 117,457 ----------- Total China Common Stocks 473,195 ----------- HONG KONG: 41.3% Banks: 0.8% 160,000 Kwong On Bank Limited 188,964 ----------- Commercial & Industrial: 9.3% 120,000 Citic Pacific, Ltd. 258,664 200,000 Hutchison Whampoa, Ltd. 1,413,359 100,000 Swire Pacific, Ltd. 447,886 ----------- 2,119,909 ----------- Communication: 1.9% 250,000 (a) China Telcom (HK) 432,398 ----------- Construction: 2.8% 150,000 Cheung Kong Infrastructure 334,947 200,000 New World Infrastructure 292,998 ----------- 627,945 ----------- Diversified Holdings : 2.5% 100,000 Dah Sing Financial 245,240 1,000,000 JCG Holdings Limited 322,685 ----------- 567,925 ----------- See Accompanying Notes to Financial Statements 69 Pilgrim Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Market Shares Value - ----------- ------------ Financial: 1.4% 100,000 Dao Heng Bank Group, Ltd. $ 309,132 ----------- Properties: 12.6% 210,000 Cheung Kong Holdings, Ltd. 1,511,133 150,000 Sun Hung Kai Properties, Ltd. 1,093,901 180,000 Wharf Holdings 262,536 ----------- 2,867,570 ----------- Oil & Gas: 1.7% 300,000 Hong Kong & China Gas 381,413 ----------- Utilities: 8.3% 140,000 CLP Holdings, Ltd. 697,515 80,000 Hong Kong Electric Holdings, Ltd. 242,659 550,000 Hong Kong Telecommunications, Ltd. 961,923 ----------- 1,902,097 ----------- Total Hong Kong Common Stocks 9,397,353 ----------- PHILIPPINES: 6.2% Communications: 1.9% 580,000 Benpres Holdings -- GDR 93,933 13,000 Philippine Long Distance Telephone Co. -- ADR 337,188 ----------- 431,121 ----------- Foods: 0.8% 90,000 San Miguel Corp. -- Class B 173,522 ----------- Real Estate & Financial Services: 2.6% 500,000 Ayala Land Inc. 141,388 21,500 Metropolitan Bank & Trust 154,756 1,650,000 SM Prime Holdings, Inc. 313,882 ----------- 610,026 -----------
See Accompanying Notes to Financial Statements 70 Pilgrim Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- ------------ Utilities: 0.9% 65,000 Manila Electric Co. -- Class B $ 208,869 ----------- Total Philippines Common Stocks 1,423,538 ----------- SINGAPORE: 21.9% Aerospace: 2.8% 691,000 Singapore Technologies Engineering, Ltd. 644,543 ----------- Commercial & Industrial: 1.4% 120,000 Keppel Corp. 321,260 ----------- Computer Systems/Software: 0.3% 12,600 Elec & Eltek International Co. Ltd. 68,040 ----------- Financial: 6.6% 80,000 Development Bank Singapore 721,987 120,000 United Overseas Bank 770,442 ----------- 1,492,429 ----------- Hotels: 0.5% 117,000 Marco Polo Developments 123,307 ----------- Manufacturing: 0.6% 34,000 Venture Manufacturing 129,740 ----------- Properties: 1.4% 71,000 (a) City Developments, Ltd. 307,480 ----------- Publishing: 1.7% 36,000 Singapore Press Holdings, Ltd. 390,309 ----------- Transportation: 2.9% 90,000 Singapore Airlines, Ltd. 659,600 ----------- Utilities: 3.7% 550,000 Singapore Telecommunication 839,491 ----------- Total Singapore Common Stocks 4,976,199 ----------- See Accompanying Notes to Financial Statements 71 Pilgrim Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- ------------ South Korea: 14.5% Banks: 1.8% 32,000 Housing & Commercial Bank $ 396,343 ----------- Manufacturing: 4.3% 11,400 Samsung Electronics Co. 764,738 4,350 Samsung Display Devices 214,426 ----------- 979,164 ----------- Securities Related Business: 0.9% 14,000 Dongwon Securities 214,131 ----------- Steel: 3.7% 13,000 Pohang Iron & Steel 837,479 ----------- Utilities: 3.8% 35,000 Korea Electric Power 866,999 ----------- Total South Korea Common Stocks 3,294,116 ----------- TAIWAN: 10.6% Computer Services: 1.2% 15,300 Synnex Technology 272,799 ----------- Computer Systems/Software: 4.3% 30,000 Asustek Computer Inc -- GDR 263,250 50,000 Taiwan Semiconductor -- SP (ADR) 709,375 ----------- 972,625 ----------- Electrical Equipment: 0.7% 26,460 (a) Yageo Corp. 171,990 ----------- See Accompanying Notes to Financial Statements 72 Pilgrim Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Market Shares Value - ---------- -------------- Electronics -- Defense: 0.6% 25,000 Acer Inc. -- GDR $ 143,125 ------------- Food & Beverages: 0.8% 20,730 President Enterprises 183,979 ------------- Insurance: 1.2% 24,507 Fubon Insurance Co. LD-GDR 270,190 ------------- Steel: 1.8% 33,700 (a) China Steel Corp. -- GDR 411,141 ------------- Total Taiwan Common Stocks 2,425,849 ------------- Thailand: 4.7% Communications: 1.1% 41,000 Advanced IFO Services 243,632 ------------- Financial: 1.6% 206,200 Thai Farmers Bank 363,048 ------------- Utilities: 2.0% 42,000 Electricity Generating Public Co. 113,810 50,000 PTT Exploration & Production 352,132 ------------- 465,942 ------------- Total Thailand Common Stocks 1,072,622 ------------- Total Common Stocks (Cost $23,371,644) $ 23,062,872 -------------
See Accompanying Notes to Financial Statements 73 Pilgrim Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- CONVERTIBLE BONDS: 2.1%
Principal Amount Value - ------------ --------------- TAIWAN: 2.1% Industrial: 2.1% $260,000 Nan Ya Plastic Corp., 1.75% due July 2001 $ 295,750 160,000 United Microelectronics, 0.25% due May 2004 177,600 ------------ Total Convertible Bonds (Cost $470,125) 473,350 ------------ Total Long-Term Investments (Cost $23,841,769) 23,536,222 ------------ Total Investments (Cost $23,841,769)* 103.4% 23,536,222 Liabilities in Excess of Other Assets (3.4)% (777,348) ---------- ------------ Total Net Assets 100.0% $ 22,758,874 ========== ============
(a) Non-income producing security ADR -- American Depository Receipt GDR -- Global Depository Receipt * Cost for federal income tax purposes is, $23,841,769, which is the same as for financial statements. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 2,535,168 Gross Unrealized Depreciation (2,840,715) ------------ Net Unrealized Depreciation $ (305,547) ============ See Accompanying Notes to Financial Statements 74 Pilgrim High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- CORPORATE BONDS: 89.6%
Principal Market Amount Value - ------------ ------------- Aerospace: 1.1% $4,000,000 (a) BE Aerospace, 9.500%, due 11/01/2008 $ 4,240,000 ------------ Automotive: 4.7% 4,000,000 (a) Breed Technology, 9.250%, due 04/15/2008 3,530,000 5,000,000 Hayes Lemmerz International, Inc., 8.250%, due 12/15/2008 5,000,000 3,000,000 (a) JH Heafner Co., 10.000%, due 05/15/2008 3,037,500 6,500,000 JH Heafner Co., 10.000%, due 05/15/2008 6,581,250 ------------ 18,148,750 ------------ Broadcasting: 4.4% 7,000,000 Fox Family Worldwide, Inc., 9.250%, 11/01/2007 6,930,000 7,000,000 (a) Pegasus Communications, 9.750%, due 12/01/2006 7,026,250 3,000,000 (a) Salem Communications, 9.500%, due 10/01/2007 3,056,250 ------------ 17,012,500 ------------ Building Materials: 0.8% 3,000,000 Republic Group, 9.500%, due 07/15/2008 2,932,500 ------------ Business Services: 0.3% 1,500,000 (a) American Business Information, 9.500%, due 06/15/2008 1,132,500 ------------ Communications: 17.3% 2,000,000 (a) CCPR Services, Inc., 10.000%, due 02/01/2007 1,930,000 1,000,000 Convergent Communications, 13.000%, due 04/01/2008 500,000 3,000,000 (a) Dobson Wireline, 12.500%, due 06/15/2008 2,767,500 8,000,000 Globix Corp., 13.000%, due 05/01/2005 6,700,000 4,000,000 Iridium LLC, 10.875%, due 07/15/2005 3,315,000 6,000,000 (a) MGC Communications, Inc., 13.000%, due 10/01/2004 3,990,000 6,000,000 (a) Metromedia Fiber, 10.000%, due 11/15/2008 6,217,500 7,000,000 (a) Nextlink Communications, 10.750%, due 11/15/2008 7,192,500 7,000,000 Northeast Optic Network, 12.750%, due 08/15/2008 6,903,750 4,000,000 (a) Paging Network, 10.000%, due 10/15/2008 3,900,000 2,000,000 Pathnet, Inc., 12.250%, due 04/15/2008 1,400,000 3,000,000 Phonetel Technologies, 12.000%, due 12/15/2006 1,230,000 6,000,000 (a) RSL Communications, 10.500%, due 11/15/2008 3,890,000 4,000,000 (a) Rogers Cantel, Inc., 8.300%, due 10/01/2007 6,000,000 6,000,000 Teligent, Inc., 11.500%, due 12/01/2007 5,640,000 6,000,000 Winstar Communications, Inc., 10.000%, due 03/15/2008 5,160,000 ------------ 66,736,250 ------------
See Accompanying Notes to Financial Statements 75 Pilgrim High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Principal Market Amount Value - ------------ ------------- Consumer Durables: 2.9% $7,000,000 (a) Carson, Inc., 10.375%, due 11/01/2007 $ 5,250,000 7,000,000 Samsonite Corp., 10.750%, due 06/15/2008 5,950,000 ------------ 11,200,000 ------------ Education: 0.5% 2,000,000 La Petite Acadamy, 10.000%, due 05/15/2008 1,980,000 ------------ Entertainment: 3.6% 7,000,000 (a) Regal Cinemas, Inc., 9.500%, due 06/01/2008 7,297,500 9,000,000 (a) Silver Cinemas, Inc., 10.500%, due 04/15/2005 6,390,000 ------------ 13,687,500 ------------ Financial: 1.6% 2,500,000 (a) Emergent Group, 10.750%, due 09/15/2004 1,112,500 5,000,000 (a) GS Escrow Corp., 7.125%, due 08/01/2005 4,993,750 ------------ 6,106,250 ------------ Foods: 2.0% 8,000,000 (a) Imperial Holly Corp., 9.750%, due 12/15/2007 7,900,000 ------------ Gaming: 4.9% 3,000,000 (a) Alliance Gaming Corp., 10.000%, due 08/01/2007 2,707,500 8,000,000 Caesars World, 8.875%, due 05/15/2002 8,040,000 3,000,000 Isle of Capri Capital Corp., 13.000%, due 08/31/2004 3,187,500 5,000,000 (a) Stations Casinos, 8.875%, due 12/01/2008 5,037,500 ------------ 18,972,500 ------------ Health Care: 0.5% 2,000,000 (a) Genesis Health, 9.875%, due 01/15/2009 1,920,000 ------------ Hotels: 1.5% 6,000,000 HMH Properties, 7.875%, due 08/01/2008 5,857,500 ------------ Housewares: 1.6% 6,000,000 (a) Albecca, Inc., 10.750%, due 08/15/2008 6,105,000 ------------ Industrial: 1.0% 4,000,000 (a) Aqua Chem, Inc., 11.250%, due 07/01/2008 3,800,000 ------------ Leisure: 4.5% 9,000,000 (a) Bally Total Fitness Holdings, 9.875%, 10/15/2007 8,802,500 4,000,000 (a) Bell Sports, Inc., 11.000%, due 08/15/2008 4,110,000 3,000,000 Epic Resorts, LLC, 13.000%, 06/15/2005 2,906,250 2,000,000 Silverleaf Resorts, Inc., 10.500%, due 04/01/2008 1,725,000 ------------ 17,543,750 ------------
See Accompanying Notes to Financial Statements 76 Pilgrim High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Principal Market Amount Value - ------------ ------------- Machinery & Equipment: 2.0% $4,000,000 (a) United Rentals, Inc., 9.250%, due 01/15/2009 $ 4,040,000 4,000,000 (a) United Rentals, Inc., 8.800%, due 08/15/2008 3,920,000 ------------ 7,960,000 ------------ Manufacturing: 2.0% 9,000,000 Paragon Holdings, 9.625%, due 04/01/2008 7,560,000 ------------ Media & Entertainment: 4.8% 3,000,000 (a) Avalon Cable, 9.375%, due 12/01/2008 3,060,000 4,000,000 (a) Classic Cable Inc., 9.875%, due 08/01/2008 4,170,000 6,000,000 (a) Coaxial Communications, 10.000%, due 08/15/2006 6,180,000 5,000,000 Star Choice Communications, 13.000%, due 12/15/2005 4,975,000 ------------ 18,385,000 ------------ Metals & Minerals: 0.8% 5,000,000 Metal Management, 10.000%, due 05/15/2008 3,000,000 ------------ Mines & Minerals: 1.6% 3,000,000 (a) Anker Coal Group, 9.750%, due 10/01/2007 1,650,000 6,000,000 (a) Lodestar Holdings, Inc., 11.500%, due 05/15/2005 4,650,000 ------------ 6,300,000 ------------ Oil Well Equipment & Services: 1.1% 5,000,000 Eagle Geophysical, Inc., 10.750%, due 07/15/2008 4,200,000 ------------ Paper & Forest Products: 1.3% 5,000,000 Stone Container Corp., 12.250%, due 04/01/2002 5,012,500 ------------ Pharmaceuticals: 2.4% 6,000,000 (a) Biovail Corporation International, 10.875%, due 11/15/2005 6,105,000 3,000,000 (a) ICN Pharmaceutical, 8.750%, due 11/15/2008 3,030,000 ------------ 9,135,000 ------------ Plastic Products: 1.3% 1,000,000 Indesco International, 9.750%, due 04/15/2008 935,000 4,000,000 (a) Moll Industries, 10.500%, due 07/01/2008 3,960,000 ------------ 4,895,000 ------------ Pollution Control: 0.9% 3,500,000 Marsulex, Inc., 9.625%, due 07/01/2008 3,591,875 ------------ Printing: 1.8% 7,000,000 (a) Premier Graphics, 11.500%, due 12/01/2005 7,008,750 ------------ Publishing: 1.6% 6,000,000 (a) Primark Corp., 9.250%, due 12/15/2008 6,015,000 ------------
See Accompanying Notes to Financial Statements 77 Pilgrim High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Principal Market Amount Value - ------------- -------------- Retail: 10.7% $6,000,000 Advance Stores Co., 10.250%, due 04/15/2008 $ 6,090,000 5,000,000 (a) Big 5 Corp., 10.875%, due 11/15/2007 5,125,000 8,000,000 CSK Auto, Inc., 11.000%, due 11/01/2006 8,440,000 6,000,000 Cluett American Corp., 10.125%, due 05/15/2008 5,700,000 4,000,000 Sonic Automotive, Inc., 11.000%, due 08/01/2008 3,885,000 7,000,000 Tuesday Morning, 11.000%, due 12/15/2007 6,842,500 6,000,000 (a) United Auto Group, 11.000%, due 07/15/2007 5,280,000 ------------- 41,362,500 ------------- Shipping: 0.2% 2,999,700 Ermis Maritime Holdings Limited, 12.500%, due 03/15/2006 899,910 ------------- Steel: 0.7% 3,000,000 Schuff Steel Co., 10.500%, due 06/01/2008 2,670,000 ------------- Textile: 1.1% 4,000,000 Westpoint Steven, 7.875%, due 06/15/2008 4,110,000 ------------- Transportation: 2.1% 5,000,000 Amtran, Inc., 9.625%, due 12/15/2005 5,000,000 3,000,000 (a) Atlas Air, Inc., 9.375%, due 11/15/2006 3,056,250 ------------- 8,056,250 ------------- Total Corporate Bonds (Cost $364,175,066) 345,436,785 ------------- STOCKS PURCHASE WARRANTS AND OTHER SECURITIES: 0.0% Shares or Par Amount Value Communications: 0.0% 8,000 (a) Bell Technology Group, Warrant representing 8,000 common shares, expires 05/01/2005 -- 4,000 (a) Convergent Communications, Warrant representing 4,000 common shares, expires 04/01/2008 -- 2,000 (a) MGC Communication, Warrant representing 2,000 common shares, expires 10/01/2004 64,000 2,000 (a) Pathnet, Inc., Warrant representing 2,000 common shares, expires 04 /15/2008 -- ------------- 64,000 ------------- Leisure: 0.0% 3,000 (a) Epic Resorts, LLC, Warrant representing 3,000 common shares, expires 06/15/2005 -- ------------- Media & Entertainment: 0.0% 115,800 (a) Star Choice Communications, Warrant representing 115,800 common shares, expires 12/15/2005 -- ------------- Shipping: 0.0% 2,727 Ermis Maritime Holdings Limited, Warrant representing 2,727 common shares, expires 01/01/2001 -- ------------- Total Stocks Purchase Warrants and Other Securities (Cost $70,000) 64,000 -------------
See Accompanying Notes to Financial Statements 78 Pilgrim High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 7.0%
Principal Amount Value - ------------- ------------- Commercial Paper: 7.0% $19,100,000 General Electric Capital Corp., 5.000%, due 01/04/1999 $19,100,000 7,714,000 Merrill Lynch, 5.050%, due 01/04/1999 7,714,000 ------------ Total Short-Term Investments (Cost $26,802,795) 26,814,000 ------------
Total Investments in Securities (Cost $391,047,861)* 96.6% 372,314,785 Cash and Other Assets in Excess of Liabilities-Net 3.4% 13,133,085 ------ ------------- Total Net Assets 100.0% $385,447,870 ====== =============
- ------------------ (a) Issues designated 144A. * Cost for federal income tax purposes is $391,047,861, which is the same as for financial statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 4,139,570 Gross Unrealized Depreciation (22,883,851) ------------- Net Unrealized Depreciation $ (18,744,281) ============= See Accompanying Notes to Financial Statements 79 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES: 90.7%
Principal Market Amount Rate Maturity Value - ------------- --------- -------------- ------------- Federal Home Loan Mortgage Corporation: 4.5% $622,787 Federal Home Loan Mortgage Corporation 9.500% 2005 $ 656,262 486,182 Federal Home Loan Mortgage Corporation 12.250% 2015 552,575 226,966 Federal Home Loan Mortgage Corporation 9.500% 2014 239,708 21,147 Federal Home Loan Mortgage Corporation 8.500% 2017 223,238 132,393 Federal Home Loan Mortgage Corporation 9.000% 2006 137,192 90,524 Federal Home Loan Mortgage Corporation 9.905% 2020 96,634 79,943 Federal Home Loan Mortgage Corporation 9.000% 2021 84,514 10,565 Federal Home Loan Mortgage Corporation 9.500% 2005 11,133 ------------ 2,001,256 ------------ Federal National Mortgage Association: 37.2% 3,005,846 Federal National Mortgage Association 6.500% 2018 3,056,555 2,990,994 Federal National Mortgage Association 6.500% 2028 3,015,322 2,435,191 Federal National Mortgage Association 10.500% 2014 to 2021 2,763,710 2,162,024 Federal National Mortgage Association 9.000% 2007 to 2017 2,440,336 1,111,741 Federal National Mortgage Association 13.000% 2012 1,287,116 998,554 Federal National Mortgage Association 10.000% 2020 1,077,050 787,062 Federal National Mortgage Association 11.500% 2019 875,945 492,284 Federal National Mortgage Association 8.500% 2017 518,420 356,239 Federal National Mortgage Association 11.000% 2007 to 2017 400,736 307,714 Federal National Mortgage Association 8.000% 2023 318,674 154,553 Federal National Mortgage Association 9.250% 2016 163,874 154,183 Federal National Mortgage Association 8.500% 2021 162,180 131,268 Federal National Mortgage Association 9.250% 2016 139,185 104,803 Federal National Mortgage Association 9.750% 2005 112,191 89,267 Federal National Mortgage Association 9.250% 2009 94,650 82,320 Federal National Mortgage Association 9.250% 2015 87,285 68,889 Federal National Mortgage Association 9.250% 2016 73,044 ------------ 16,586,273 ------------ Government National Mortgage Association: 25.0% 4,800,765 Government National Mortgage Association 6.500% 2026 4,853,925 754,851 Government National Mortgage Association 8.000% 2024 787,401 625,775 Government National Mortgage Association 9.500% 2016 669,754 649,018 Government National Mortgage Association 7.500% 2023 669,183 543,140 Government National Mortgage Association 7.000% 2016 557,495 528,393 Government National Mortgage Association 8.000% 2023 552,662 410,667 Government National Mortgage Association 9.000% 2016 to 2017 440,419 410,701 Government National Mortgage Association 7.000% 2017 421,737 315,646 Government National Mortgage Association 11.250% 2011 353,325 308,718 Government National Mortgage Association 9.250% 2016 to 2017 330,783 249,951 Government National Mortgage Association 9.500% 2016 266,091 220,555 Government National Mortgage Association 9.000% 2022 236,534 192,958 Government National Mortgage Association 9.250% 2021 207,750 178,327 Government National Mortgage Association 9.000% 2013 191,247
See Accompanying Notes to Financial Statements 80 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued) - --------------------------------------------------------------------------------
Principal Market Amount Rate Maturity Value - ------------- --------- -------------- ------------- $171,209 Government National Mortgage Association 9.500% 2019 $ 183,813 82,553 Government National Mortgage Association 13.000% 2014 94,729 75,012 Government National Mortgage Association 9.000% 2016 to 2017 80,714 63,423 Government National Mortgage Association 11.000% 2016 70,114 53,908 Government National Mortgage Association 9.000% 2016 57,814 47,179 Government National Mortgage Association 11.750% 2015 53,264 44,543 Government National Mortgage Association 9.000% 2016 47,770 30,283 Government National Mortgage Association 9.000% 2016 32,476 ------------ 11,159,000 ------------ U.S. Government Agency Securities: 7.6% 3,205,000 Federal Home Loan Mortgage Corporation 7.010% 2007 3,363,744 ------------ U.S. Treasury Securities: 16.4% 3,000,000 U.S. Treasury Bond 5.500% 2028 3,140,160 2,000,000 U.S. Treasury Bond 4.750% 2008 2,015,620 2,000,000 U.S. Treasury Bond 5.625% 2008 2,134,060 ------------ 7,289,840 ------------ Total U.S. Government Securities (Cost $40,165,070) 40,400,113 ------------
SHORT-TERM INVESTMENTS: 6.2%
Principal Amount Value - ----------- -------------- Repurchase Agreements: 6.2% 2,762,000 State Street Bank, 4.50% due 01/04/99 2,762,000 ------------- (Collateralized by $1,730,000 U.S. Treasury Bonds, 10.625% due 08/15/2015, Market Value $2,820,711) Total Short-Term Investments (Cost $2,762,000 ) 2,762,000 ------------- Total Investments in Securities (Cost $42,927,070)* 96.9% 43,162,113 Other Assets in Excess of Liabilities 3.1% 1,388,001 ------ ------------- Total Net Assets 100.0% $ 44,550,114 ====== =============
- ------------------ * Cost for federal income tax purposes is, $42,927,070, which is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 386,095 Gross Unrealized Depreciation (151,052) ---------- Net Unrealized Appreciation $ 235,043 ========== See Accompanying Notes to Financial Statements 81 Investment Manager PILGRIM INVESTMENTS, INC. 40 North Central Avenue, Suite 1200 Phoenix, Arizona 85004-4408 Distributor PILGRIM SECURITIES, INC. 40 North Central Avenue, Suite 1200 Phoenix, Arizona 85004-4408 Shareholder Servicing Agent PILGRIM GROUP, INC. 40 North Central Avenue, Suite 1200 Phoenix, Arizona 85004-4408 Transfer Agent DST SYSTEMS, INC. P.O. Box 419368 Kansas City, Missouri 64141-6368 Custodian INVESTORS FIDUCIARY TRUST COMPANY 801 Pennsylvania Kansas City, Missouri 64105 Legal Counsel DECHERT PRICE & RHOADS 1775 Eye Street, N.W. Washington, D.C. 20006 Independent Auditors KPMG LLP 725 South Figueroa Street Los Angeles, California 90017 Prospectuses containing more complete information regarding the Funds, including charges and expenses, may be obtained by calling PILGRIM SECURITIES, INC. DISTRIBUTOR AT 1-800-334-3444. Please read the prospectuses carefully before you invest or send money. -----END PRIVACY-ENHANCED MESSAGE-----