-----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, QmkrBdjoeI6MXvNTcJQehcu/aDsVYgWBLHRbtUpzC9wYCv8w4llrsb2/Pie1bg3k 6UQKC5mAWtrgcpHqI7NSFg== 0000950147-00-000669.txt : 20000505 0000950147-00-000669.hdr.sgml : 20000505 ACCESSION NUMBER: 0000950147-00-000669 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20000504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM ADVISORY FUNDS INC CENTRAL INDEX KEY: 0000944689 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 954532342 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 033-91706 FILM NUMBER: 619558 BUSINESS ADDRESS: STREET 1: 2 RENAISSANCE SQUARE 12TH FLR STREET 2: 40 NORTH CENTRAL CITY: PHOENIX STATE: AZ ZIP: 85004-4424 BUSINESS PHONE: 6024178100 MAIL ADDRESS: STREET 1: 2 RENAISSANCE SQUARE 12TH FLR STREET 2: 40 NORTH CENTRAL CITY: PHOENIX STATE: AZ ZIP: 85004 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM INVESTMENT FUNDS INC/MD CENTRAL INDEX KEY: 0000061448 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 136066974 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 002-34552 FILM NUMBER: 619559 BUSINESS ADDRESS: STREET 1: TWO RENAISSANCE SQUARE 40 N CENTRAL STREET 2: STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 BUSINESS PHONE: 6024178100 MAIL ADDRESS: STREET 1: TWO RENAISSANCE SQ STREET 2: 40 N CENTRAL STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM INVESTMENT FUNDS INC DATE OF NAME CHANGE: 19950503 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM MAGNACAP FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MAGNACAP FUND INC DATE OF NAME CHANGE: 19850701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM GOVERNMENT SECURITIES INCOME FUND INC CENTRAL INDEX KEY: 0000746575 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 222544280 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 002-91302 FILM NUMBER: 619560 BUSINESS ADDRESS: STREET 1: TWO RENAISSANC SQUARE 40 N CENTRAL STREET 2: STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 BUSINESS PHONE: 6024178100 MAIL ADDRESS: STREET 1: TWO RENAISSANCE SQ STREET 2: 40 N CENTRAL STE 1200 CITY: PHOENIX STATE: AZ ZIP: 85004-4424 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM GOVERNMENT SECURITIES INC DATE OF NAME CHANGE: 19950530 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM GNMA FUND DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM BANK & THRIFT FUND INC CENTRAL INDEX KEY: 0000784055 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 954020286 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: SEC FILE NUMBER: 333-33445 FILM NUMBER: 619561 BUSINESS ADDRESS: STREET 1: 40 NORTH CENTRAL AVE STE 1200 STREET 2: TWO RENAISSANCE SQUARE 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 497 1 497(E) OF PILGRIM FUNDS Pilgrim (SM) - --------------------------- FUNDS FOR SERIOUS INVESTORS Prospectus Classes: A, B, C, M and T May 1, 2000 U.S. EQUITY FUNDS Pilgrim MagnaCap Pilgrim LargeCap Leaders Pilgrim Research Enhanced Index Pilgrim Growth Opportunities Pilgrim LargeCap Growth Pilgrim MidCap Value Pilgrim MidCap Opportunities Pilgrim MidCap Growth Pilgrim Growth + Value Pilgrim SmallCap Opportunities Pilgrim SmallCap Growth Pilgrim Bank and Thrift INTERNATIONAL EQUITY FUNDS Pilgrim Worldwide Growth Pilgrim International Value Pilgrim International Core Growth This prospectus contains important Pilgrim International SmallCap Growth information about investing in the Pilgrim Emerging Markets Value Pilgrim Funds. You should read it Pilgrim Emerging Countries carefully before you invest, and Pilgrim Asia-Pacific Equity keep it for future reference. Please note that your investment: INCOME FUNDS is not a bank deposit, is not Pilgrim Government Securities Income insured or guaranteed by the FDIC, Pilgrim Strategic Income the Federal Reserve Board or any Pilgrim High Yield other government agency and is Pilgrim High Yield II affected by market fluctuations. Pilgrim High Total Return There is no guarantee that the Pilgrim High Total Return II Funds will achieve their Pilgrim Money Market objectives. As with all mutual funds, the Securities and Exchange EQUITY & INCOME FUNDS Commission (SEC) has not approved Pilgrim Balanced or disapproved these securities nor Pilgrim Convertible has the SEC judged whether the information in this prospectus is accurate or adequate. Any representation to the contrary is a criminal offense. [GRAPHIC] These pages contain a description of each of our Funds included in this prospectus, including its objective, investment strategy OBJECTIVE and risks. [GRAPHIC] You'll also find: INVESTMENT HOW THE FUND HAS PERFORMED. A chart that shows the Fund's STRATEGY financial performance for the past ten years (or since inception, if shorter). [GRAPHIC] WHAT YOU PAY TO INVEST. A list of the fees and expenses you pay -- both directly and indirectly -- when you invest in a Fund. RISKS [GRAPHIC] HOW THE FUND HAS PERFORMED WHAT'S INSIDE - -------------------------------------------------------------------------------- AN INTRODUCTION TO THE PILGRIM FUNDS 1 Funds At A Glance 2 U.S. EQUITY FUNDS Pilgrim MagnaCap 6 Pilgrim LargeCap Leaders 8 Pilgrim Research Enhanced Index 10 Pilgrim Growth Opportunities 12 Pilgrim LargeCap Growth 14 Pilgrim MidCap Value 16 Pilgrim MidCap Opportunities 18 Pilgrim MidCap Growth 20 Pilgrim Growth + Value 22 Pilgrim SmallCap Opportunities 24 Pilgrim SmallCap Growth 26 Pilgrim Bank and Thrift 28 INTERNATIONAL EQUITY FUNDS Pilgrim Worldwide Growth 30 Pilgrim International Value 32 Pilgrim International Core Growth 34 Pilgrim International SmallCap Growth 36 Pilgrim Emerging Markets Value 38 Pilgrim Emerging Countries 40 Pilgrim Asia-Pacific Equity 42 INCOME FUNDS Pilgrim Government Securities Income 44 Pilgrim Strategic Income 46 Pilgrim High Yield 48 Pilgrim High Yield II 50 Pilgrim High Total Return 52 Pilgrim High Total Return II 54 Pilgrim Money Market 56 EQUITY & INCOME FUNDS Pilgrim Balanced 58 Pilgrim Convertible 60 WHAT YOU PAY TO INVEST 62 SHAREHOLDER GUIDE 69 MANAGEMENT OF THE FUNDS 76 DIVIDENDS, DISTRIBUTIONS AND TAXES 81 MORE INFORMATION ABOUT RISKS 82 FINANCIAL HIGHLIGHTS 85 WHERE TO GO FOR MORE INFORMATION Back cover INTRODUCTION TO THE PILGRIM FUNDS - -------------------------------------------------------------------------------- Risk is the potential that your investment will lose money or not earn as much as you hope. All mutual funds have varying degrees of risk, depending on the securities they invest in. Please read this prospectus carefully to be sure you understand the principal risks and strategies associated with each of our Funds. You should consult the Statement of Additional Information (SAI) for a complete list of the risks and strategies. [GRAPHIC] If you have any questions about the Pilgrim Funds, please call your financial consultant or us at 1-800-992-0180. This prospectus is designed to help you make informed decisions about your investments. In order to make it easy for you to find what you're looking for, we have divided the Pilgrim Funds into four categories. U.S. EQUITY FUNDS Our U.S. Equity Funds focus on long-term growth by investing primarily in domestic equities. They may suit you if you: * are investing for the long-term -- at least several years * are willing to accept higher risk in exchange for long-term growth. INTERNATIONAL EQUITY FUNDS Pilgrim offers International Equity Funds that emphasize a growth approach to international investing, as well as International Equity Funds that apply the technique of "value investing". These Funds focus on long-term growth by investing primarily in foreign equities. They may suit you if you: * are investing for the long-term -- at least several years * are looking for exposure to international markets * are willing to accept higher risk in exchange for long-term growth. INCOME FUNDS Pilgrim offers both aggressive and conservative Income Funds. They may suit you if you: * want a regular stream of income. Income Funds other than the Money Market Fund may suit you if you: * want greater growth potential than a money market fund * are willing to accept more risk than a money market fund. EQUITY AND INCOME FUNDS Pilgrim's Equity and Income Funds seek income and growth of capital. They may suit you if you: * want both regular income and capital appreciation * are looking for growth potential, but don't feel comfortable with the level of risk associated with the Equity Funds. [GRAPHIC] If you have any questions, please call 1-800-992-0180. 1 - ------ Funds At A Glance - ------ This table is a summary of the objectives, main investments and risks of each Pilgrim Fund. It is designed to help you understand the differences between the Funds, the main risks associated with each, and how risk and investment objectives relate. This table is only a summary. You should read the complete descriptions of each Fund's investment objectives, strategies and risks, which begin on page 6. FUND INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------- U.S. Equity MagnaCap Fund Growth of capital, with dividend Funds Adviser: Pilgrim Investments, Inc. income as a secondary consideration LargeCap Leaders Fund Long-term capital appreciation Adviser: Pilgrim Investments, Inc. Research Enhanced Index Fund Capital appreciation Adviser: Pilgrim Investments, Inc. Sub-Adviser: J.P. Morgan Investment Management Inc. Long-term growth of capital Growth Opportunities Fund Adviser: Pilgrim Investments, Inc. LargeCap Growth Fund Long-term capital appreciation Adviser: Pilgrim Investments, Inc. Sub-Adviser: Nicholas-Applegate Capital Mgt. MidCap Value Fund Long-term capital appreciation Adviser: Pilgrim Investments, Inc. MidCap Opportunities Fund Long-term capital appreciation Adviser: Pilgrim Investments, Inc. MidCap Growth Fund Long-term capital appreciation Adviser: Pilgrim Investments, Inc. Growth + Value Fund Capital appreciation Adviser: Pilgrim Investments, Inc. Sub-Adviser: Navellier Fund Management, Inc. SmallCap Opportunities Fund Capital appreciation Adviser: Pilgrim Investments, Inc. SmallCap Growth Fund Long-term capital appreciation Adviser: Pilgrim Investments, Inc. Bank and Thrift Fund Long-term capital appreciation, with Adviser: Pilgrim Investments, Inc. income as asecondary objective International Worldwide Growth Fund Long-term capital appreciation Equity Funds Adviser: Pilgrim Investments, Inc. Sub-Adviser: Nicholas-Applegate Capital Mgt. International Value Fund Long-term capital appreciation Adviser: Pilgrim Investments, Inc. Sub-Adviser: Brandes Investment Partners, L.P. International Core Growth Fund Long-term capital appreciation Adviser: Pilgrim Investments, Inc. Sub-Adviser: Nicholas-Applegate Capital Mgt. International SmallCap Growth Fund Long-term capital appreciation Adviser: Pilgrim Investments, Inc. Sub-Adviser: Nicholas-Applegate Capital Mgt.
2 MAIN INVESTMENTS MAIN RISKS - -------------------------------------------------------------------------------- Equity securities that meet Price volatility and other risks that accompany disciplined selection criteria an investment in equity securities. designed to identify companies capable of paying rising dividends Equity securities of large Price volatility and other risks that accompany an U.S. companies believed to be investment in equity securities. leaders in their industries Equity securities of large Price volatility and other risks that accompany an U.S. companies that make up investment in equity securities. the S&P 500 Index Equity securities of large, Price volatility and other risks that accompany an medium, and small U.S. investment in growth-oriented equity securities. companies believed to have growth potential Equity securities of large Price volatility and other risks that accompany an U.S. companies believed to investment in growth-oriented equity securities. have growth potential Equity securities of Price volatility and other risks that accompany an medium-sized U.S. companies investment in equity securities of medium-sized companies. that meet disciplined Particularly sensitive to price swings during periods of selection criteria designed economic uncertainty. to identify companies with prices below their long-term value Equity securities of Price volatility and other risks that accompany an medium-sized U.S. companies investment in equity securities of growth-oriented and believed to have growth medium-sized companies. Particularly sensitive to price potential swings during periods of economic uncertainty. Equity securities of Price volatility and other risks that accompany an medium-sized U.S. companies investment in equity securities of medium-sized companies. believed to have growth Particularly sensitive to price swings during periods of potential economic uncertainty. Equity securities of Price volatility and other risks that accompany an small-sized U.S. companies investment in equity securities of growth-oriented and small-sized companies. Particularly sensitive to price swings during periods of economic uncertainty. Equity securities of Price volatility and other risks that accompany an small-sized U.S. companies investment in equity securities of growth-oriented and believed to have growth small-sized companies. Particularly sensitive to price potential swings during periods of economic uncertainty. Equity securities of Price volatility and other risks that accompany an small-sized U.S. companies investment in equity securities of growth-oriented and believed to have growth small-sized companies. Particularly sensitive to price potential swings during periods of economic uncertainty. Equity securities of banks and Price volatility and other risks that accompany an thrifts or their holding or investment in equity securities. Susceptible to risks of parent companies, and savings decline in the price of securities concentrated in the accounts of mutual thrifts banking and thrift industries. Equity securities of companies Price volatility and other risks that accompany an located in countries around investment in growth-oriented foreign equities. Sensitive the world, which may include to currency exchange rates, international political and the U.S., believed to have economic conditions and other risks that affect foreign growth potential securities. Equity securities of issuers Price volatility and other risks that accompany an located in countries outside investment in foreign equities. Sensitive to currency the U.S., believed to have exchange rates, international political and economic prices below their long-term conditions and other risks that affect foreign securities. value Equity securities of larger Price volatility and other risks that accompany an companies in countries around investment in growth-oriented foreign equities. Sensitive the world, which may include to currency exchange rates, international political and the U.S., believed to have economic conditions and other risks that affect foreign growth potential securities. Equity securities of Price volatility, liquidity and other risks that accompany small-sized companies in an investment in equity securities of foreign, small-sized countries around the world, companies. Sensitive to currency exchange rates, which may include the U.S., international political and economic conditions and other believed to have growth risks that affect foreign securities. potential
3 - ---------- Funds At A Glance - ----------
FUND INVESTMENT OBJECTIVE - -------------------------------------------------------------------------------------------------- INTERNATIONAL Emerging Markets Value Fund Long-term capital appreciation EQUITY FUNDS Adviser: Pilgrim Investments, Inc. (cont.) Sub-Adviser: Brandes Investment Partners L.P. Emerging Countries Fund Long-term capital appreciation Adviser: Pilgrim Investments, Inc. Sub-Adviser: Nicholas-Applegate Capital Mgt. Asia-Pacific Equity Fund Long-term capital appreciation Adviser: Pilgrim Investments, Inc. Sub-Adviser: HSBC Asset Management INCOME FUNDS Government Securities Income Fund High current income, consistent with Adviser: Pilgrim Investments, Inc. liquidity and preservation of capital Strategic Income Fund Maximum total return Adviser: Pilgrim Investments, Inc. High Yield Fund High current income, with capital Adviser: Pilgrim Investments, Inc. appreciation as a secondary objective High Yield Fund II High level of current income and Adviser: Pilgrim Investments, Inc. capital growth High Total Return Fund High income and capital appreciation Adviser: Pilgrim Investments, Inc. High Total Return Fund II High income and capital appreciation Adviser: Pilgrim Investments, Inc. Money Market Fund High current income consistent with Adviser: Pilgrim Investments, Inc. the preservation of capital and liquidity EQUITY & Balanced Fund Long-term capital appreciation and INCOME FUNDS Adviser: Pilgrim Investments, Inc. current income of capital Convertible Fund Total return, consisting of capital Adviser: Pilgrim Investments, Inc. appreciation and current income
4 MAIN INVESTMENTS MAIN RISKS - --------------------------------------------------------------------------------
Equity securities of issuers Price volatility, liquidity and other risks that accompany located in countries with an investment in equities from emerging countries. emerging securities markets Sensitive to currency exchange rates, international believed to have prices below political and economic conditions and other risks that their long-term value affect foreign securities. Equity securities of issuers Price volatility, liquidity and other risks that accompany located in countries with an investment in equities from emerging countries. emerging securities markets Sensitive to currency exchange rates, international believed to have growth political and economic conditions and other risks that potential. affect foreign securities. Equity securities of companies Price volatility and other risks that accompany an based in the Asia-Pacific investment in foreign equities and in securities of region, excluding Australia issuers in a single region. Sensitive to currency exchange and Japan rates, international political and economic conditions and other risks that affect foreign securities. Securities issued or Credit, interest rate, prepayment and other risks that guaranteed by the U.S. accompany an investment in government bonds and mortgage Government and certain of its related investments. Generally has less credit risk than agencies or instrumentalities the other income funds. Investment grade and high Credit, interest rate, prepayment and other risks that yield debt securities accompany an investment in debt securities, including high yield debt securities. May be sensitive to credit risk during economic downturns. High yield debt securities Credit, interest rate and other risks that accompany an investment in lower-quality debt securities. Particularly sensitive to credit risk during economic downturns. High yield debt securities, Credit, liquidity, interest rate and other risks that including those in the lowest accompany an investment in lower-quality debt securities. ratings, as well as equities Particularly sensitive to credit risk during economic and foreign securities downturns. May also present price volatility from equity exposure. Foreign securities, may be sensitive to currency exchange rates, international political and economic conditions, and other risks. High yield debt securities, Credit, liquidity, interest rate and other risks that including those in the lowest accompany an investment in lower-quality debt securities. ratings, and foreign securities Particularly sensitive to credit risk during economic downturns. Foreign securities may be sensitive to currency exchange rates, international political and economic conditions, and other risks. High yield debt securities, Credit, liquidity, interest rate and other risks that including those in the lowest accompany an investment in lower-quality debt securities. ratings, and foreign securities Particularly sensitive to credit risk during economic downturns. Foreign securities may be sensitive to currency exchange rates, international, political and economic conditions, and other risks. Shares of another investment Credit, interest rate and other risks that accompany an company whose main investments investment in government bonds and mortgage related incudes short-term securities investments. Presents less credit and interest rate risk issued or guaranteed by the than the other income funds. U.S. Government and certain of its agencies and instrumentalities. A mix of equity and debt Price volatility and other risks that accompany an securities investment in equity securities. Credit, interest rate and other risks that accompany an investment in debt securities. Convertible securities of Price volatility and other risks that accompany an companies of various sizes, as investment in equity securities. Credit, interest rate, well as equities, and liquidity and other risks that accompany an investment in high-yield debt debt securities,and lower quality debt securities.
5 - ----------- U.S. Equity Funds - ----------- ADVISER PILGRIM MAGNACAP FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks growth of capital, with dividend income as a secondary consideration. INVESTMENT STRATEGY [GRAPHIC] The Fund is managed with the philosophy that companies that can best meet the Fund's objectives have paid increasing dividends or have had the capability to pay rising dividends from their operations. The Fund normally invests at least 65% of its assets in equity securities of companies that meet the following disciplined criteria: CONSISTENT DIVIDENDS -- A company must have paid or had the financial capability from its operations to pay a dividend in eight out of the last 10 years. Substantial Dividend Increases -- A company must have increased its dividends or had the financial capability from its operations to have increased its dividends at least 100% over the past 10 years. REINVESTED EARNINGS -- Dividend payout must be less than 65% of current earnings. STRONG BALANCE SHEET -- Long term debt should be no more than 25% of the company's total capitalization or a company's bonds must be rated at least A- or A-3. ATTRACTIVE PRICE -- A company's current share price should be in the lower half of the stock's price/earnings ratio range for the past ten years, or the ratio of the share price to its anticipated future earnings must be an attractive value in relation to the average for its industry peer group or that of the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index). The equity securities in which the Fund may invest include common stocks, convertible securities, and rights or warrants. Normally, the Fund's investments are primarily in larger companies that are included in the largest 500 U.S. companies. The remainder of the Fund's assets may be invested in equity securities that the adviser believes have growth potential because they represent an attractive value. In selecting securities for the Fund, preservation of capital is also an important consideration. Although the Fund normally will be invested as fully as practicable in equity securities, assets that are not invested in equity securities may be invested in high quality debt securities. The Fund may invest up to 5% of its assets, measured at the time of investment, in foreign securities. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. MARKET TRENDS -- from time to time, the stock market may not favor the value securities that meet the Fund's disciplined investment criteria. Rather, the market could favor growth-oriented stocks or small company stocks, or may not favor equities at all. DEBT SECURITIES -- the value of debt securities may fall when interest rates rise. Debt securities with longer maturities tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter maturities. CREDIT RISK -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This is especially true during periods of economic uncertainty or economic downturns. RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. 6 Pilgrim MagnaCap Fund PILGRIM MAGNACAP FUND - ------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -3.11 25.28 8.02 9.25 4.15 35.22 18.51 27.73 16.09 12.20 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 4th quarter 1998: up 18.93% 3rd quarter 1990: down 15.99% The Fund's year-to-date total return as of March 31, 2000 was down 1.48%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Standard & Poor's 500 Composite Stock Price Index. AVERAGE ANNUAL TOTAL RETURNS(2) S&P 500 Class A(3) Class B(4) Class M(5) Index(6) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 5.77 6.46 7.74 21.04 Five years, ended December 31, 1999 % 20.24 N/A N/A 28.54 Ten years, ended December 31, 1999 % 14.13 N/A N/A 18.19 Since inception(7) % N/A 18.74 18.32 26.23 - ---------- (2) Class C shares of the Fund did not have a full year's performance during the year ended December 31, 1999. (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for 1 year and since inception returns. (5) Reflects deduction of sales charge of 3.5%. (6) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization U.S. companies. (7) Classes B and M commenced operations on July 17, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MagnaCap Fund 7 - ----------- U.S. Equity Funds - ----------- ADVISER PILGRIM LARGECAP LEADERS FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund normally invests at least 65% of its total assets in equity securities of large U.S. companies that the adviser believes are leaders in their industries. The portfolio managers consider whether these companies have a sustainable competitive edge. The portfolio managers emphasize a value approach, and seek securities whose prices in relation to projected earnings are believed to be reasonable in comparison to the market. For this Fund, a company with a market capitalization (outstanding shares multiplied by price per share) of over $5 billion is considered to be a large company, although the Fund may also invest to a limited degree in companies that have a market capitalization between $1 billion and $5 billion. The equity securities in which the Fund may invest include common stock, convertible securities, preferred stock, American Depositary Receipts, and warrants. The Fund normally invests as fully as practicable (at least 80%) in equity securities. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund invests primarily in equity securities of larger companies, which sometimes have more stable prices than smaller companies. The Fund also may invest in small and medium-sized companies, which may be more susceptible to price swings because they have fewer financial resources, more limited product and market diversification, and many are dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the large company value securities in which the Fund invests. Rather, the market could favor growth-oriented stocks or small company stocks, or may not favor equities at all. INABILITY TO SELL SECURITIES -- securities of smaller companies trade in lower volume and may be less liquid than securities of larger, more established companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 8 Pilgrim LargeCap Leaders Fund PILGRIM LARGECAP LEADERS FUND - ------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 21.07 20.15 20.08 18.94 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to November 1, 1998, the Fund's investment policies were different in that they emphasized large company value stocks without necessarily emphasizing industry leaders. Pilgrim Investments has been the Fund's investment adviser since the Fund commenced operations; however, prior to November 1, 1997, the Fund was managed by a sub-adviser. Best and worst quarterly performance during this period: 4th quarter 1998: up 24.11% 3rd quarter 1998: down 12.86% The Fund's year-to-date total return as of March 31, 2000 was up 0.37%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Standard & Poor's 500 Composite Stock Price Index. AVERAGE ANNUAL TOTAL RETURNS(3) S&P 500 Class A(4) Class B(5) Class M(6) Index(7) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 12.12 13.19 14.10 21.04 Since inception(8) % 18.68 19.18 18.73 26.99 - ---------- (3) Class C shares of the Fund did not have a full year's performance during the year ended December 31, 1999. (4) Reflects deduction of sales charge of 5.75%. (5) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for 1 year and since inception returns. (6) Reflects deduction of sales charge of 3.5%. (7) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization U.S. companies. (8) The Fund commenced operations on September 1, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim LargeCap Leaders Fund 9 - ----------- U.S. Equity Funds - ----------- ADVISER Pilgrim Investments, Inc. Sub-ADVISER PILGRIM RESEARCH ENHANCED INDEX FUND J.P. Morgan Investment Management Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in large companies that make up the S&P 500 Index. Based on extensive research regarding projected company earnings and dividends, a valuation model ranks companies in each industry group according to their relative value. Using this valuation model, the portfolio managers select stocks for the Fund. Within each industry, the Fund modestly overweights stocks that are ranked as undervalued or fairly valued while modestly underweighting or not holding stocks that appear overvalued. Industry by industry, the Fund's assets are invested so that the Fund's industry sector allocations and market cap weightings closely parallel those of the S&P 500 Index. By owning a large number of stocks within the S&P 500 Index, with an emphasis on those that appear undervalued or fairly valued, and by tracking the industry weightings and other characteristics of that index, the Fund seeks returns that modestly exceed those of the S&P 500 Index over the long term with virtually the same level of volatility. Under normal market conditions, the Fund invests at least 80% of its total assets in common stocks included in the S&P 500 Index. It may also invest in other common stocks not included in the S&P 500 Index. The Fund may also invest in certain higher-risk investments, including derivatives (generally these investments will be limited to S&P 500 Index options). - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund invests primarily in equity securities of larger companies, which sometimes have more stable prices than smaller companies. The portfolio managers try to remain fully invested in companies included in the S&P 500 Index, and generally do not change this strategy even temporarily, which could make the Fund more susceptible to poor market conditions. MARKET TRENDS -- from time to time, the stock market may not favor the large company securities that are ranked as undervalued or fairly valued in which the Fund invests. Rather, the market could favor small company stocks, growth-oriented HERE IT ISFund invests. Rather, the market could favor small company stocks, growth-oriented stocks, or may not favor equities at all. RISKS OF USING DERIVATIVES -- derivatives are subject to the risk of changes in the market price of the security and the risk of loss due to changes in interest rates. The use of certain derivatives may also have a leveraging effect, which may increase the volatility of the Fund. The use of derivatives may reduce returns for the Fund. 10 Pilgrim Research Enhanced Index Fund PILGRIM RESEARCH ENHANCED INDEX FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURN (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 18.59 - ---------- (1) These figures are as of December 31, 1999. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 4th quarter 1999: up 12.41% 3rd quarter 1999: down 6.39% The Fund's year-to-date total return as of March 31, 2000 was up 1.71%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Standard and Poor's 500 Composite Stock Price Index. AVERAGE ANNUAL TOTAL RETURN S&P 500 Class A(2) Class B(3) Class C(4) Index(5) ---------- ---------- ---------- -------- One year, ended December 31, 1999(6) % 11.78 12.89 16.99 21.04 - ---------- (2) Reflects deduction of sales charge of 5.75% (3) Reflects deduction of deferred sales charge of 5% for the 1 year return. (4) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (5) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization U.S. companies. (6) The Fund commenced operations on December 30, 1998. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Research Enhanced Index Fund 11 - ----------- U.S. Equity Funds - ----------- ADVISER PILGRIM GROWTH OPPORTUNITIES FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] This Fund seeks long-term growth of capital. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in common stock of U.S. companies that the portfolio manager feels have above average prospects for growth. Under normal market conditions, the Fund invests at least 65% of its total assets in securities purchased on the basis of the potential for capital appreciation. These securities may be from large-cap, mid-cap or small-cap companies. The portfolio managers use a "top down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a trend-oriented approach in structuring the portfolio and a sell discipline. The portfolio managers seek to invest in companies expected to benefit most from major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and attempt to provide a framework for identifying the industries and companies expected to benefit most. This top down approach is combined with rigorous fundamental research (a bottom-up approach) to guide stock selection and portfolio structure. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the portfolio manager feels have the potential for rapid growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund may invest in small and medium-sized companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks, or may not favor equities at all. INABILITY TO SELL SECURITIES -- securities of smaller companies trade in lower volume and may be less liquid than securities of larger, more established companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 12 Pilgrim Growth Opportunities Fund PILGRIM GROWTH OPPORTUNITIES FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 - ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- - -5.24 38.10 8.05 10.36 -7.66 24.40 20.54 23.59 23.61 93.26 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. The figures shown for 1996 to 1999 provide performance for Class A shares of the Fund. The figures shown for the years 1990 to 1995 provide performance for Class T shares of the Fund. Class T shares would have substantially similar annual returns as the Class A shares because the classes are invested in the same portfolio of securities. Annual returns would differ only to the extent Class A shares and Class T shares have different expenses. Best and worst quarterly performance during this period: 4th quarter 1999: up 39.10% 3rd quarter 1998: down 15.25% The Fund's year-to-date total return as of March 31, 2000 was up 9.80%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Standard & Poor's 500 Composite Stock Price Index. AVERAGE ANNUAL TOTAL RETURNS
S&P 500 Class A(2) Class B(3) Class C(4) Class T(5) Index(6) ---------- ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 82.14 86.84 90.90 87.72 21.04 Five years, ended December 31, 1999 % N/A N/A N/A 33.98 28.54 Ten years, ended December 31, 1999 % N/A N/A N/A 20.05 18.19 Since inception of Classes A, B, and C(7) % 33.48 34.17 34.34 N/A 26.94 Since inception of Class T(7) % N/A N/A N/A 17.86 18.13 (8)
- ---------- (2) Reflects deduction of sales charge of 5.75% (3) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for 1 year and since inception returns. (4) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (5) Reflects deduction of a deferred sales charge of 4% for the 1 year return. (6) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization U.S. companies. (7) Classes A, B and C commenced operations on June 5, 1995. Class T commenced operations on February 3, 1986. (8) Index return is for the period beginning February 1, 1986. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Growth Opportunities Fund 13 - ----------- U.S. Equity Funds - ----------- ADVISER Pilgrim Investments, Inc. Sub-ADVISER Nicholas-Applegate PILGRIM LARGECAP GROWTH FUND Capital Management - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund normally invests at least 65% of its total assets in equity securities of large U.S. companies. The equity securities in which the Fund may invest include common and preferred stocks, warrants, and convertible securities. The Sub-Adviser emphasizes a growth approach by searching for successful, growing companies that are managing change advantageously and poised to exceed growth expectations. It focuses on a "bottom-up" analysis that evaluates the financial condition and competitiveness of individual companies. It uses a blend of traditional fundamental research of individual securities and a computer intensive ranking system that analyzes and ranks securities. The Sub-Adviser seeks to uncover signs of "change at the margin" -- positive business developments which are not yet fully reflected in a company's stock price. In analyzing specific companies for possible investment, the Sub-Adviser ordinarily looks for several of the following characteristics: above-average per share earnings growth; high return on invested capital; a healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research and product development and marketing; development of new technologies; efficient service; pricing flexibility; strong management; and general operating characteristics that will enable the companies to compete successfully in their respective markets. The Sub-Adviser usually considers whether to sell a particular security when any of those factors materially changes. The Fund considers a company to be large if its market capitalization corresponds at the time of purchase to the upper 90% of the Russell 1000 Growth Index. The market capitalization of companies held by the Fund as of March 31, 2000 ranged from $2.7 billion to $507.3 billion. Capitalization of companies in the Index will change with market conditions. The Fund may also lend portfolio securities on a short-term or long-term basis, up to 30% of its total assets. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the Sub-Adviser believes have the potential for rapid growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund invests primarily in equity securities of larger companies, which sometimes have more stable prices than smaller companies. MARKET TRENDS -- from time to time, the stock market may not favor the large company, growth-oriented securities in which the Fund invests. Rather, the market could favor value stocks or small company stocks, or may not favor equities at all. SECURITIES LENDING -- There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. 14 Pilgrim LargeCap Growth Fund PILGRIM LARGECAP GROWTH FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 - ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 59.45 96.41 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the adviser, rather than sub-adviser, to the Fund. Best and worst quarterly performance during this period: 4th quarter 1999: up 45.04% 3rd quarter 1998: down 8.50% The Fund's year-to-date total return as of March 31, 2000 was up 12.44%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Russell 1000 Growth Index. AVERAGE ANNUAL TOTAL RETURNS Russell 1000 Growth Class A(3) Class B(4) Class C(5) Index(6) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 85.11 90.23 94.18 33.16 Since inception(7) % 60.23 62.51 63.11 29.05 - ---------- (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for 1 year and since inception returns. (5) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (6) The Russell 1000 Growth Index is an unmanaged index that measures the performance of those companies among the Russell 1000 Index with higher than average price-to-book ratios and forecasted growth. (7) The Fund commenced operations on July 21, 1997. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim LargeCap Growth Fund 15 - ----------- U.S. Equity Funds - ----------- ADVISER PILGRIM MIDCAP VALUE FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund normally invests as fully as practicable (at least 80% of its assets) in equity securities of medium-sized U.S. companies. The Fund will normally invest at least 65% of its assets in equity securities of companies that meet the following disciplined criteria, which are intended to identify companies that are attractive values: CONSISTENT DIVIDENDS -- The company must have paid or had the financial capability from its operations to pay a dividend in its last five fiscal years. STRONG BALANCE SHEET -- If the company has debt that is rated, that debt is rated investment grade by a nationally recognized rating agency. If the company does not have debt that is rated, the company's long-term debt to capitalization ratio is below 25%. REINVESTED EARNINGS -- The company currently pays out in dividends less than 65% of current earnings, or less than the dividend payout as a percentage of current earnings of at least half of the medium-sized companies in similar industries. ATTRACTIVE PRICE -- The ratio of the stock's price to the next fiscal year's anticipated earnings is less than the corresponding ratio for at least half of the medium-sized companies in similar industries. The Fund considers a company to be medium-sized if it has a market capitalization between $1 billion and $8 billion. The equity securities in which the Fund may invest include common stock, convertible securities, preferred stock and warrants. PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors has approved the reorganization of the Fund into Pilgrim MagnaCap Fund. You could therefore ultimately hold shares of that fund. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund invests in medium-sized companies, which may be more susceptible to price swings than larger companies, but usually tend to have less volatile price swings than smaller companies. Securities of medium-size companies may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the mid-cap value securities that meet the Fund's disciplined investment criteria. Rather, the market could favor growth-oriented stocks or large or small company stocks, or may not favor equities at all. INABILITY TO SELL SECURITIES -- securities of mid-size companies trade in lower volume and may be less liquid than securities of larger, more established companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 16 Pilgrim MidCap Value Fund PILGRIM MIDCAP VALUE FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 29.56 21.87 4.89 -7.32 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to October 1, 1999, the Fund's investment policies were different in that they emphasized midcap value stocks without employing the current disciplined selection criteria. Pilgrim Investments has been the Fund's investment adviser since the Fund commenced operations; however, prior to October 1, 1999, the Fund was managed by a sub-adviser. Best and worst quarterly performance during this period: 1st quarter 1998: up 13.45% 3rd quarter 1999: down 18.53% The Fund's year-to-date total return as of March 31, 2000 was up 3.32%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of two broad measures of market performance -- the Russell Midcap Index and the Russell Midcap Value Index. AVERAGE ANNUAL TOTAL RETURNS(3) Russell Russell Midcap Midcap Value Class A(4) Class B(5) Class M(6) Index(7) Index(8) ---------- ---------- ---------- -------- -------- One year, ended December 31, 1999 % -12.66 -12.56 -10.94 18.23 -0.11 Since inception(9) % 9.77 10.11 9.78 18.80 14.73 - ---------- (3) Class C shares of the Fund did not have a full year's performance during the year ended December 31, 1999. (4) Reflects deduction of sales charge of 5.75%. (5) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for 1 year and since inception returns. (6) Reflects deduction of a sales charge of 3.5%. (7) The Russell Midcap Index is an unmanaged index that measures the performance of the 800 smallest companies in the Russell 1000 Index. (8) The Russell MidCap Value Index measures the performance of companies in the Russell Midcap Index with lower book-to-price ratios and lower forecasted growth values. (9) Classes A, B and M commenced operations on September 1, 1995. Class C commenced operations on May 24, 1999. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MidCap Value Fund 17 - ----------- U.S. Equity Funds - ----------- ADVISER PILGRIM MIDCAP OPPORTUNITIES FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] This Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund normally invests at least 65% of its total assets in the common stocks of mid-sized U.S. companies that the portfolio managers feel have above average prospects for growth. For this Fund, mid-sized companies are companies with market capitalizations that fall within the range of companies in the S&P MidCap 400 Index. As of February 29, 2000, the market capitalization of companies in the S&P MidCap 400 Index ranged from $106.3 million to $27.2 billion. The market capitalization range will change as the range of the companies included in the S&P MidCap 400 Index changes. The portfolio managers use a "top-down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a trend-oriented approach in structuring the portfolio and a sell discipline. The portfolio managers seek to invest in companies expected to benefit most from the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and attempt to provide a framework for identifying the industries and companies expected to benefit most. This top-down approach is combined with rigorous fundamental research (a bottom-up approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the portfolio managers feel have the potential for growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund invests in medium-sized companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification, and may be dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the mid-cap growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or large or small company stocks, or may not favor equities at all. The Fund's investment in technology sectors of the stock market and in initial public offerings has had a significant impact on performance in 1999 and other periods. There can be no assurance that these factors will continue to have a positive effect on the Fund. INABILITY TO SELL SECURITIES -- securities of mid-size companies usually trade in lower volume and may be less liquid than securities of larger, more established companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 18 Pilgrim MidCap Opportunities Fund PILGRIM MIDCAP OPPORTUNITIES FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURN (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 103.24 - ---------- (1) These figures are as of December 31, 1999. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 4th quarter 1999: up 44.90% 3rd quarter 1999: up 5.63% The Fund's year-to-date total return as of March 31, 2000 was up 16.67%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Standard and Poor's MidCap 400 Index. AVERAGE ANNUAL TOTAL RETURN S&P MidCap 400 Class A(2) Class B(3) Class C(4) Index(5) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 91.56 96.73 100.16 14.70 Since Inception(6) % 94.20 99.54 101.26 41.61 - ---------- (2) Reflects deduction of sales charge of 5.75% (3) Reflects deduction of deferred sales charge of 5% for the 1 year return. (4) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (5) The S&P MidCap 400 Index is an unmanaged index that measures the performance of the mid-size company segment of the U.S. market. (6) The Fund commenced operations on August 20, 1998. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MidCap Opportunities Fund 19 - ----------- U.S. Equity Funds - ----------- ADVISER PILGRIM MIDCAP GROWTH FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its total assets in equity securities of medium-sized U.S. companies, and at least 75% of its total assets in common stocks that the portfolio managers feel have above average prospects for growth. Medium-sized companies are companies with market capitalizations between $1.6 billion and $10.7 billion. The market capitalization range will change as the range of the companies included in the S&P MidCap 400 Index changes and with market conditions. The portfolio managers emphasize a growth approach by searching for successful, growing companies that are managing change advantageously and may be poised to exceed growth expectations. It focuses on both a "bottom-up" analysis that evaluates the financial condition and competitiveness of individual companies and a thematic approach in structuring the portfolio and a sell discipline. Themes attempt to articulate the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and provide a framework for identifying the industries and companies expected to benefit most. This top down approach is combined with rigorous fundamental research (a "bottom up" approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. In periods of unusual market conditions, the Fund may temporarily invest part or all of its assets in cash or high quality money market securities. In these circumstances, the Fund may not achieve its objective. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the portfolio manager feels have the potential for growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund invests in medium-sized companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources and more limited product and market diversification, and may be dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the mid-cap growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or large or small company stocks, or may not favor equities at all. The Fund's investment in technology sectors of the stock market and in initial public offerings has had a significant impact on performance in 1999 and other periods. There can be no assurance that these factors will continue to have a positive effect on the Fund. INABILITY TO SELL SECURITIES -- securities of mid-size companies usually trade in lower volume and may be less liquid than securities of larger, more established companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 20 Pilgrim MidCap Growth Fund PILGRIM MIDCAP GROWTH FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -11.00 37.64 15.84 15.88 14.14 97.56 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Pilgrim Investments has been the Fund's investment adviser since May 24, 1999; however, prior to April 1, 2000, the Fund was managed by a sub-adviser. Best and worst quarterly performance during this period: 4th quarter 1999: up 62.66% 3rd quarter 1998: down 17.73% The Fund's year-to-date total return as of March 31, 2000 was up 23.99%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of two broad measures of market performance -- the Standard & Poor's MidCap 400 Index and the Russell Midcap Growth Index.
AVERAGE ANNUAL TOTAL RETURNS S&P Russell MidCap Midcap 400 Growth Class A(3) Class B(4) Class C(5) Index(6) Index(7) ---------- ---------- ---------- -------- -------- One year, ended December 31, 1999 % 86.22 91.31 95.29 14.70 51.29 Five years, ended December 31, 1999 % 31.47 N/A 32.23 23.00 28.02 Since inception of Classes A and C(8) % 22.99 N/A 23.31 17.73 22.49 (9) Since inception of Class B(8) % N/A 32.47 N/A 22.09 27.12
- ---------- (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for 1 year and since inception returns. (5) Reflects deduction of a sales charge of 1% for the 1 year return. (6) The S&P MidCap 400 Index is an unmanaged index that measures the performance of the mid-size company segment of the U.S. market. (7) The Russell Midcap Growth Index is an unmanaged index that measures the performance of the 800 smallest companies in the Russell 1000 Index. (8) Classes A and C commenced operations on April 19, 1993. Class B commenced operations on May 31, 1995. (9) Index return is for period beginning April 30, 1993. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MidCap Growth Fund 21 - ----------- U.S. Equity Funds - ----------- ADVISER Pilgrim Investments, Inc. SUB-ADVISER PILGRIM GROWTH + VALUE FUND Navellier Fund Management, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in a diversified portfolio of equity securities, including common and preferred stock, warrants and convertible securities. The Fund invests in common stock of companies the portfolio manager believes are poised to rise in price. The Sub-Adviser uses a "bottom-up" quantitative screening process designed to identify and select inefficiently priced stocks that achieved superior returns compared to their risk characteristics. The Sub-Adviser first uses a proprietary computer model to calculate and analyze a "reward/risk" ratio. The reward/risk ratio is designed to identify stocks with above average market returns and risk levels which are reasonable for higher return rates. The Sub-Adviser then applies a quantitative analysis which focuses on growth and value fundamental characteristics, such as earnings growth, earnings momentum, price to earnings (P/E) ratios, and internal reinvestment rates. The Sub-Adviser then allocates stocks according to how they complement other portfolio holdings. Under normal market conditions, the Fund invests at least 65% of its total assets in securities purchased on the basis of the potential for capital appreciation. These securities may be from large-cap, mid-cap, or small-cap companies. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund's performance will be affected if the Sub-Adviser makes an inaccurate assessment of economic conditions and investment opportunities, and chooses growth companies that do not grow as quickly as hoped, or value companies that continue to be undervalued by the market. Although the sub-adviser invests in value companies to decrease volatility, these investments may also lower the Fund's performance. The Fund's investments in smaller and mid-sized companies may be more susceptible to price swings than investments in larger companies because they have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the mix of growth and value securities in which the Fund invests. Rather, the market could favor growth stocks to the exclusion of value stocks, or favor value stocks to the exclusion of growth stocks, or may not favor equities at all. INABILITY TO SELL SECURITIES -- securities of smaller and mid-sized companies usually trade in lower volume and may be less liquid than securities of larger, more established companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. CHANGES IN INTEREST RATES -- the value of the Fund's convertible securities may fall when interest rates rise. Convertible securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. CREDIT RISK -- the Fund could lose money if the issuer of a convertible security is unable to meet its financial obligations or goes bankrupt. 22 Pilgrim Growth + Value Fund PILGRIM GROWTH + VALUE FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 18.10 17.72 88.10 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 4th quarter 1999: up 43.50% 3rd quarter 1998: down 16.34% The Fund's year-to-date total return as of March 31, 2000 was up 24.42%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of two broad measures of market performance -- the Russell 2000 Index and the Russell 3000 Index.
AVERAGE ANNUAL TOTAL RETURNS Russell Russell 2000 3000 Class A(2) Class B(3) Class C(4) Index(5) Index(6) ---------- ---------- ---------- -------- -------- One year, ended December 31, 1999 % 77.29 81.77 85.75 21.26 20.90 Since inception(7) % 32.32 33.38 33.86 13.65 (8) 24.27 (8)
- ---------- (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for 1 year and since inception returns. (4) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (5) The Russell 2000 Index is an unmanaged index that measures the performance of securities of smaller U.S. companies. (6) The Russell 3000 Index is an unmanaged index that measures the performance of the 3,000 largest U.S. companies based on total market capitalization. (7) The Fund commenced operations on November 18, 1996. (8) Index return is for period beginning December 1, 1996. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Growth + Value Fund 23 - ----------- U.S. Equity Funds - ----------- ADVISER PILGRIM SMALLCAP OPPORTUNITIES FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests at least 65% of its total assets in the common stock of smaller, lesser-known U.S. companies that the portfolio manager believes have above average prospects for growth. For this Fund, smaller companies are those with market capitalizations that fall within the range of companies in the Russell 2000 Index, which is an index that measures the performance of small companies. The market capitalization range will change as the range of the companies included in the Russell 2000 changes. The market capitalization of companies held by the Fund as of March 31, 2000 ranged from $0.9 billion to $22.2 billion. The portfolio manager uses a "top-down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a brand-oriented approach in structuring the portfolio and a sell discipline. The portfolio manager seeks to invest in companies expected to benefit most from the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and attempts to provide a framework for identifying the industries and companies expected to benefit most. This top-down approach is combined with rigorous fundamental research (a bottom-up approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. The Fund was closed to new investors effective February 29, 2000. Investors who were shareholders of the Fund on that day may continue to buy shares after that date into accounts existing on that day. The Fund may reopen in the future subject to the discretion of the Board of Trustees. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the portfolio manager feels have above average prospects for growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund invests in smaller companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the small sized growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or large company stocks, or may not favor equities at all. The Fund's investment in technology sectors of the stock market and in initial public offerings has had a significant impact on performance in 1999 and other periods. There can be no assurance that these factors will continue to have a positive effect on the Fund. INABILITY TO SELL SECURITIES -- securities of smaller companies usually trade in lower volume and may be less liquid than securities of larger, more established companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 24 Pilgrim SmallCap Opportunities Fund PILGRIM SMALLCAP OPPORTUNITIES FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- - -8.83 57.27 14.54 20.16 -4.86 11.34 18.16 14.92 7.59 146.94 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. The figures shown for the years 1996 to 1999 provide performance for Class A shares of the Fund. The figures shown for the years 1990 to 1995 provide performance for Class T shares of the Fund. Class T shares would have substantially similar annual returns as the Class A shares because the classes are invested in the same portfolio of securities. Annual returns would differ only to the extent Class A shares and Class T shares have different expenses. Best and worst quarterly performance during this period: 4th quarter 1999: up 68.12% 3rd quarter 1998: down 24.07% The Fund's year-to-date total return as of March 31, 2000 was up 15.33%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Russell 2000 Index. AVERAGE ANNUAL TOTAL RETURNS Class A(2) Class B(3) ---------- ---------- One year, ended December 31, 1999 % 132.73 140.24 Five years, ended December 31, 1999 % N/A N/A Ten years, ended December 31, 1999 % N/A N/A Since inception of Classes A, B, and C(7) % 34.05 34.71 Since inception for Class T(7) % N/A N/A AVERAGE ANNUAL TOTAL RETURNS Russell 2000 Class C(4) Class T(5) Index(6) ---------- ---------- -------- One year, ended December 31, 1999 144.12 141.51 21.26 Five years, ended December 31, 1999 N/A 31.45 16.69 Ten years, ended December 31, 1999 N/A 22.11 13.40 Since inception of Classes A, B, and C(7) 34.83 N/A 16.24 Since inception for Class T(7) N/A 16.73 12.01 (8) - ---------- (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for 1 year and since inception returns. (4) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (5) Reflects deduction of a deferred sales charge of 4% for the 1 year return. (6) The Russell 2000 Index is an unmanaged index that measures the performance of securities of small companies. (7) Classes A, B and C commenced operations on June 5, 1995. Class T commenced operations on February 3, 1986. (8) Index return is for period beginning February 1, 1986. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim SmallCap Opportunities Fund 25 - ----------- U.S. Equity Funds - ----------- ADVISER PILGRIM SMALLCAP GROWTH FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its total assets in equity securities of small U.S. companies, and at least 75% of its total assets in common stocks that the portfolio manager feels have above average prospects for growth. Smaller companies are companies with market capitalizations that fall within the range of companies in the Russell 2000 Index. As of March 31, 2000, the market capitalization of companies held by the Fund ranged from $0.5 billion to $75.8 billion. The market capitalization range will change as the range of the companies included in the Russell 2000 changes. The Fund emphasizes a growth approach by searching for successful, growing companies that are managing change advantageously and may be poised to exceed growth expectations. It focuses on both a "bottom-up" analysis that evaluates the financial condition and competitiveness of individual companies and a thematic approach in structuring the portfolio and a sell discipline. Themes attempt to articulate the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and provide a framework for identifying the industries and companies expected to benefit most. This top down approach is combined with rigorous fundamental research (a "bottom up" approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. In periods of unusual market conditions, the Fund may temporarily invest part or all of its assets in cash or high quality money market securities. In these circumstances, the Fund may not achieve its objective. The Fund considers a company to be small if it has a market capitalization corresponding at the time of purchase to the middle 90% of the Russell 2000 Growth Index. In the adviser's opinion, the middle 90% includes companies with capitalizations between $255 million and $1.4 billion. Capitalization of companies in the Index will change with market conditions. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the portfolio manager feels have above average prospects for growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund invests in small-cap companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the small-cap growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or large company stocks, or may not favor equities at all. The Fund's investment in technology sectors of the stock market and in initial public offerings has had a significant impact on performance in 1999 and other periods. There can be no assurance that these factors will continue to have a positive effect on the Fund. 26 Pilgrim SmallCap Growth Fund PILGRIM SMALLCAP GROWTH FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -4.03 34.87 18.27 11.24 3.68 89.97 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Pilgrim Investments has been the Fund's investment adviser since May 24, 1999; however, prior to April 1, 2000, the Fund was managed by a sub-adviser. Best and worst quarterly performance during this period: 4th quarter 1999: up 50.47% 3rd quarter 1998: down 23.64% The Fund's year-to-date total return as of March 31, 2000 was up 15.87%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Russell 2000 Growth Index. AVERAGE ANNUAL TOTAL RETURNS Russell 2000 Growth Class A(3) Class B(4) Class C(5) Index(6) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 79.04 83.85 87.89 43.09 Five years, ended December 31, 1999 % 26.94 N/A 27.70 18.99 Since inception of Classes A and C(7) % 21.74 N/A 22.20 15.13 (8) Since inception for Class B(7) % N/A 28.04 N/A 18.76 - ---------- (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for 1 year and since inception returns. (5) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (6) The Russell 2000 Growth Index is an unmanaged index that measures the performance of securities of smaller U.S. companies with greater-than-average growth orientation. (7) Classes A and C commenced operations on December 27, 1993. Class B commenced operations on May 31, 1995. (8) Index returns is for period beginning December 31, 1993. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim SmallCap Growth Fund 27 - ----------- U.S. Equity Funds - ----------- ADVISER PILGRIM BANK AND THRIFT FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund primarily seeks long-term capital appreciation; a secondary objective is income. INVESTMENT STRATEGY [GRAPHIC] The Fund invests, under normal market conditions, at least 65% of its total assets in equity securities of national and state-chartered banks (other than money center banks), thrifts, and the holding or parent companies of such depository institutions, and in savings accounts of mutual thrifts that may allow the Fund to participate in stock conversions of the mutual thrift. This policy may only be changed with approval of the shareholders of the Fund. The equity securities described above include common stocks, convertible securities (including convertible preferred stock) and warrants, but do not include non-convertible preferred stocks or adjustable rate preferred stocks. The Fund may invest up to 35% of its total assets in equity securities, including preferred stocks or adjustable rate preferred stocks, of other types of issuers, including money center banks, other financial services companies, and companies that are not in financial services industries, and in nonconvertible debt securities (including certificates of deposit, commercial paper, notes, bonds or debentures) of any maturity that are either issued or guaranteed by the United States Government or an agency thereof or issued by a corporation or other issuer and rated in one of the top four categories by Moody's (Baa and better) or S&P (BBB and better) or similarly rated by another nationally recognized rating organization. The Fund may invest up to 10% of its assets in securities of other investment companies. The portfolio manager emphasizes a value approach, and selects securities that are undervalued relative to the market and have potential for future growth, including securities of institutions that the portfolio manager believes are well positioned to take advantage of investment opportunities in the banking and thrift industries. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- The value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund invests primarily in small- to medium-sized companies, which may be more susceptible to price swings than larger companies. MARKET TRENDS -- from time to time, the stock market may not favor the value securities in which the Fund invests. Rather, the market could favor growth-oriented stocks or large company stocks, or may not favor equities at all. RISKS OF CONCENTRATION -- because the Fund's investments are concentrated in the banking and thrift industries, the value of the Fund may be subject to greater volatility than a fund with a portfolio that is less concentrated. If securities of banks and thrifts as a group falls out of favor, the Fund could underperform funds that focus on other types of companies. 28 Pilgrim Bank and Thrift Fund PILGRIM BANK AND THRIFT FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- - -18.14 49.49 32.36 7.79 -1.89 49.69 41.10 64.86 -1.83 -18.84 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to October 17, 1997, the Fund operated as a closed-end investment company. Best and worst quarterly performance during this period: 3rd quarter 1997: up 16.43% 3rd quarter 1990: down 20.36% The Fund's year-to-date total return as of March 31, 2000 was down 4.67%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of three broad measures of market performance -- the S&P 500 Index, the S&P Major Regional Banks Index and the NASDAQ 100 Financial Index. AVERAGE ANNUAL TOTAL RETURNS(2) S&P Major NASDAQ S&P Regional 100 Class Class 500 Banks Financial A(3) B(4) Index(5) Index(6) Index(7) ---- ---- -------- -------- -------- One year, ended December 31, 1999 % -23.50 -23.00 21.04 -14.26 -7.27 Five years, ended December 31, 1999 % 21.20 N/A 28.54 25.08 20.80 Ten years, ended December 31, 1999 % 15.70 N/A 18.19 17.42 N/A Since inception of Class B(8) % N/A -6.74 23.94 1.22 0.78 - ---------- (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for 1 year and since inception returns. (5) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization U.S. companies. (6) The S&P Major Regional Banks Index is an unmanaged index that measures the performance of securities of major regional banks in the S&P 500 Index. (7) The NASDAQ 100 Financial Index is an unmanaged index that measures the performance of securities of the 100 largest financial companies traded on NASDAQ. (8) Class B shares commenced operations on October 17, 1997. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Bank and Thrift Fund 29 - ------------- International Equity Funds - ------------ ADVISER Pilgrim Investments, Inc. SUB-ADVISER Nicholas-Applegate PILGRIM WORLDWIDE GROWTH FUND Capital Management - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its total assets in securities of issuers located in at least three different countries, one of which may be the U.S. The Fund normally invests at least 75% of its total assets in common and preferred stocks, warrants and convertible securities. The Fund may invest in companies located in countries with emerging securities markets when the Sub-Adviser believes they present attractive investment opportunities. The Fund's Sub-Adviser emphasizes a growth approach by searching for successful, growing companies that are managing change advantageously and poised to exceed growth expectations. It focuses on a "bottom-up" analysis that evaluates the financial conditions and competitiveness of individual companies worldwide. It uses a blend of traditional fundamental research of individual securities, calling on the expertise of many external analysts in different countries throughout the world, and a computer intensive ranking system that analyzes and ranks securities. The Sub-Adviser seeks to uncover signs of "change at the margin" -- positive business developments which are not yet fully reflected in a company's stock price. It gathers financial data on 20,000 companies in over 50 countries. In analyzing specific companies for possible investment, the Sub-Adviser ordinarily looks for several of the following characteristics: above-average per share earnings growth; high return on invested capital; a healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research and product development and marketing; development of new technologies; efficient service; pricing flexibility; strong management; and general operating characteristics that will enable the companies to compete successfully in their respective markets. The Sub-Adviser usually considers whether to sell a particular security when any of those factors materially changes. In allocating the Fund's assets, the Sub-Adviser attempts to identify securities of countries that are expected to provide the best opportunities for meeting the Fund's investment objective. The Fund may also lend portfolio securities on a short-term or long-term basis, up to 30% of its total assets. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the Sub-Adviser believes have the potential for rapid growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund may also invest in small and medium-sized companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many may be dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks, or may not favor equities at all. RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging markets countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. INABILITY TO SELL SECURITIES -- securities of foreign companies may trade in lower volume and may be less liquid than securities of U.S. companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. SECURITIES LENDING -- There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. 30 Pilgrim Worldwide Growth Fund PILGRIM WORLDWIDE GROWTH FUND - ------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 2.45 14.74 17.92 17.28 37.34 83.52 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the adviser, rather than sub-adviser, to the Fund. Best and worst quarterly performance during this period: 4th quarter 1999: up 44.54% 3rd quarter 1998: down 13.43% The Fund's year-to-date total return as of March 31, 2000 was up 3.63%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the MSCI World Index. AVERAGE ANNUAL TOTAL RETURNS MSCI World Class A(3) Class B(4) Class C(5) Index(6) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 72.95 77.26 81.35 23.26 Five years, ended December 31, 1999 % 30.39 N/A 31.11 18.09 Since inception of Classes A and C(7) % 24.78 N/A 25.09 14.87 Since inception of Class B(7) % N/A 32.79 N/A 17.77 - ---------- (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for 1 year and since inception returns. (5) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (6) The Morgan Stanley Capital International World (MSCI World) Index is an unmanaged index that measures the performance of over 1,400 securities listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand and the Far East. (7) Classes A and C commenced operations on April 19, 1993. Class B commenced operations on May 31, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Worldwide Growth Fund 31 - ------------- International Equity Funds - ------------- ADVISER Pilgrim Investments, Inc. Sub-ADVISER Brandes Investment PILGRIM INTERNATIONAL VALUE FUND Partners, L.P. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in foreign companies with market capitalizations greater than $1 billion, but it may hold up to 25% of its assets in companies with smaller market capitalizations. The portfolio managers apply the technique of "value investing" by seeking stocks that their research indicates are priced below their long-term value. The Fund holds common stocks, preferred stocks, American, European and Global depository receipts, as well as convertible securities. Under normal circumstances, the Fund will invest at least 65% of its total assets in securities of companies located in at least three countries other than the U.S. The Fund may invest up to the greater of: * 20% of its assets in any one country or industry, or, * 150% of the weighting of the country or industry in the Morgan Stanley Capital International European Australasian Far East (MSCI EAFE) Index, as long as the Fund meets any industry concentration or diversification requirements under the Investment Company Act. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund's investments may be affected by the following additional risks: RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund invests primarily in equity securities of larger companies, which sometimes have more stable prices than smaller companies. However, the Fund may also invest in small and medium-sized companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the value-oriented stocks in which the Fund invests. Rather, the market could favor growth-oriented stocks, or may not favor equities at all. INABILITY TO SELL SECURITIES -- securities of smaller companies and some foreign companies may trade in lower volume and may be less liquid than securities of larger, more established companies or U.S. companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 32 Pilgrim International Value Fund PILGRIM INTERNATIONAL VALUE FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURN (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 15.23 17.86 13.46 51.49 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 4th quarter 1999: up 24.50% 3rd quarter 1998: down 14.73% The Fund's year-to-date total return as of March 31, 2000 was down 4.76%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the MSCI EAFE Index. AVERAGE ANNUAL TOTAL RETURNS MSCI EAFE Class A(2) Class B(3) Class C(4) Index(5) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 42.78 45.30 49.32 25.27 Since inception of Classes A and C(6) % 20.61 N/A 21.32 14.62 (7) Since inception of Class B(6) % N/A 25.73 N/A 18.66 (8) - ---------- (2) Reflects deduction of sales charge of 5.75% (3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for 1 year and since inception returns. (4) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (5) The Morgan Stanley Capital International Europe Australasia Far East (MSCI EAFE) Index is an unmanaged index that measures the performance of securities listed on exchanges in markets in Europe, Australia and the Far East. (6) Classes A and C commenced operations on March 6, 1995. Class B commenced operations on April 18, 1997. (7) Index return is for period beginning March 1, 1995. (8) Index return is for period beginning May 1, 1997. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim International Value Fund 33 - ------------- International Equity Funds - ------------- ADVISER Pilgrim Investments, Inc. SUB-ADVISER Nicholas-Applegate PILGRIM INTERNATIONAL CORE GROWTH FUND Capital Management - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its total assets in securities of issuers located in countries outside the U.S. The Fund may invest up to 35% of its total assets in U.S. issuers. The Fund invests primarily in large capitalized companies ("large cap stocks") located worldwide. In the opinion of the Sub-Adviser large cap stocks are those whose stock market capitalizations are predominantly in the top 75% of publicly traded companies as measured by stock market capitalizations in over 50 countries. The market capitalization ranges of the various countries' large cap stocks may vary greatly due to fluctuating currency values, differences in the size of the respective economies, and movements in the local stock markets. Under normal conditions, the Fund invests at least 75% of its total assets in common and preferred stocks, warrants and convertible securities. The Fund may invest in companies located in countries with emerging securities markets when the Sub-Adviser believes they present attractive investment opportunities. The Fund's Sub-Adviser emphasizes a growth approach by searching for successful, growing companies that are managing change advantageously and poised to exceed growth expectations. It focuses on a "bottom-up" analysis that evaluates the financial conditions and competitiveness of individual companies worldwide. It uses a blend of traditional fundamental research of individual securities, calling on the expertise of many external analysts in different countries throughout the world, and a computer intensive ranking system that analyzes and ranks securities. The Sub-Adviser seeks to uncover signs of "change at the margin" -- positive business developments which are not yet fully reflected in a company's stock price. It gathers financial data on 20,000 companies in over 50 countries. In analyzing specific companies for possible investment, the Sub-Adviser ordinarily looks for several of the following characteristics: above-average per share earnings growth; high return on invested capital; a healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research and product development and marketing; development of new technologies; efficient service; pricing flexibility; strong management; and general operating characteristics that will enable the companies to compete successfully in their respective markets. The Sub-Adviser usually considers whether to sell a particular security when any of those factors materially changes. In allocating the Fund's assets, the Sub-Adviser attempts to identify securities of countries that are expected to provide the best opportunities for meeting the Fund's investment objective. The Fund may also lend portfolio securities on a short-term or long-term basis, up to 30% of its total assets. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the Sub-Adviser believes have the potential for rapid growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund invests in large companies, which sometimes have more stable prices than smaller companies. MARKET TRENDS -- from time to time, the stock market may not favor the growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or smaller company stocks, or may not favor equities at all. RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. SECURITIES LENDING -- There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. 34 Pilgrim International Core Growth Fund PILGRIM INTERNATIONAL CORE GROWTH FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 20.92 66.69 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the adviser, rather than sub-adviser, to the Fund. Best and worst quarterly performance during this period: 4th quarter 1999: up 44.07% 1st quarter 1998: up 2.61% The Fund's year-to-date total return as of March 31, 2000 was down 3.40%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the MSCI EAFE Index. AVERAGE ANNUAL TOTAL RETURNS MSCI EAFE Class A(3) Class B(4) Class C(5) Index(6) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 57.13 60.45 64.56 25.27 Since inception(7) % 32.97 34.36 34.74 17.87 - ---------- (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5% and 3% respectively for 1 year and since inception returns. (5) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (6) The Morgan Stanley Capital International Europe Australasia Far East (MSCI EAFE) Index is an unmanaged index that measures the performance of securities listed on exchanges in markets in Europe, Australia and the Far East. (7) The Fund commenced operations on February 28, 1997. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim International Core Growth Fund 35 - ------------- International Equity Funds - ------------- ADVISER Pilgrim Investments, Inc. SUB-ADVISER Nicholas-Applegate PILGRIM INTERNATIONAL SMALLCAP GROWTH FUND Capital Management - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its total assets in securities of small companies located outside the U.S. The Fund may invest up to 35% of its total assets in U.S. issuers. The Fund invests primarily in smaller-capitalized companies ("small cap stocks") located worldwide. In the opinion of the Fund's Sub-Adviser, small cap stocks are those whose stock market capitalizations are predominantly in the bottom 25% of publicly traded companies as measured by stock market capitalizations in over 50 countries. The market capitalization ranges of the various countries' small cap stocks may vary greatly due to fluctuating currency values, differences in the size of the respective economies, and movements in the local stock markets. The Fund normally invests at least 75% of its total assets in common and preferred stock, warrants and convertible securities. The Fund may invest in companies located in countries with emerging securities markets when the Sub-Adviser believes they present attractive investment opportunities. The Fund's Sub-Adviser emphasizes a growth approach by searching for successful, growing companies that are managing change advantageously and poised to exceed growth expectations. It focuses on a "bottom-up" analysis that evaluates the financial conditions and competitiveness of individual companies worldwide. It uses a blend of traditional fundamental research of individual securities, calling on the expertise of many external analysts in different countries throughout the world, and a computer intensive ranking system that analyzes and ranks securities. The Sub-Adviser seeks to uncover signs of "change at the margin" -- positive business developments which are not yet fully reflected in a company's stock price. In analyzing specific companies for possible investment, the Sub-Adviser ordinarily looks for several of the following characteristics: above-average per share earnings growth; high return on invested capital; a healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research and product development and marketing; development of new technologies; efficient service; pricing flexibility; strong management; and general operating characteristics that will enable the companies to compete successfully in their respective markets. The Sub-Adviser usually considers whether to sell a particular security when any of those factors materially changes. The Fund may also lend portfolio securities on a short-term or long-term basis, up to 30% of its total assets. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the Sub-Adviser believes have the potential for rapid growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund invests in small companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the small-cap growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or large company stocks, or may not favor equities at all. RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. INABILITY TO SELL SECURITIES -- securities of smaller and foreign companies trade in lower volume and may be less liquid than securities of larger U.S. companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. SECURITIES LENDING -- There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. 36 Pilgrim International SmallCap Growth Fund PILGRIM INTERNATIONAL SMALLCAP GROWTH FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 5.51 17.58 13.46 35.57 121.93 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the adviser, rather than sub-adviser, to the Fund. Best and worst quarterly performance during this period: 4th quarter 1999: up 53.34% 3rd quarter 1998: down 15.35% The Fund's year-to-date total return as of March 31, 2000 was up 12.68%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Salomon EPAC EM Index. AVERAGE ANNUAL TOTAL RETURNS Salomon EPAC EM Class A(3) Class B(4) Class C(5) Index(6) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 109.14 115.22 119.11 23.19 Five years, ended December 31, 1999 % 31.89 N/A 32.30 7.08 Since inception of Classes A and C(7) % 28.22 N/A 28.68 5.36 Since inception of Class B(7) % N/A 35.89 N/A 7.64 - ---------- (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for 1 year and since inception returns. (5) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (6) The Salomon EPAC Extended Market (Salomon EPAC EM) Index is an unmanaged index that measures the performance of securities of smaller-capitalization companies in 22 countries excluding the U.S. and Canada. (7) Classes A and C commenced operations on August 31, 1994. Class B commenced operations on May 31, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim International SmallCap Growth Fund 37 - ------------- International Equity Funds - ------------- ADVISER Pilgrim Investments, Inc. SUB-ADVISER Brandes Investment PILGRIM EMERGING MARKETS VALUE FUND Partners, L.P. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in companies located in countries with emerging markets, including companies that may be smaller and lesser-known. The portfolio managers apply the technique of "value investing" by seeking stocks that their research indicates are priced below their long-term value. The Fund may invest in common stocks, preferred stocks, American, European and Global depositary receipts, shares of closed-end investment companies, as well as convertible securities. Under normal market conditions, the Fund will invest at least 65% of its total assets in securities of companies located in countries with emerging markets. Countries with emerging markets include those countries that are generally considered to be emerging market countries by the international financial community. The Fund may invest up to the greater of: * 20% of its assets in any one country or industry, or, * 150% of the weighting of the country or industry in the Morgan Stanley Capital International Emerging Markets Free (MSCI EMF) Index, as long as the Fund meets any industry concentration or diversification requirements under the Investment Company Act. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund's investments may be affected by the following additional risks: RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. For emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund may invest in smaller companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the value-oriented stocks in which the Fund invests. Rather, the market could favor growth-oriented stocks, or may not favor equities at all. INABILITY TO SELL SECURITIES -- securities of smaller and emerging market companies trade in lower volume and may be less liquid than securities of companies in larger, more established markets. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 38 Pilgrim Emerging Markets Value Fund PILGRIM EMERGING MARKETS VALUE FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURN (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -22.58 67.11 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 2nd quarter 1999: up 26.74% 2nd quarter 1998: down 24.79% The Fund's year-to-date total return as of March 31, 2000 was down 3.05%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the MSCI EMF Index. AVERAGE ANNUAL TOTAL RETURN MSCI EMF Class A(2) Class B(3) Class C(4) Index(5) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 57.57 60.94 65.01 63.70 Since Inception(6) % 10.43 11.19 12.87 11.46 - ---------- (2) Reflects deduction of sales charge of 5.75% (3) Reflects deduction of deferred sales charge of 5% and 4%, respectively, for 1 year and since inception returns. (4) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (5) The Morgan Stanley Capital International Emerging Markets Free (MSCI EMF) Index is an unmanaged index that measures the performance of securities listed on exchanges in developing nations throughout the world. (6) The Fund commenced operations on January 1, 1998. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Emerging Markets Value Fund 39 - ------------- International Equity Funds - ------------- ADVISER Pilgrim Investments, Inc. SUB-ADVISER Nicholas-Applegate PILGRIM EMERGING COUNTRIES FUND Capital Management - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests at least 65% of its total assets in equity securities of issuers located in at least three countries with emerging securities markets -- that is, countries with securities markets which are, in the opinion of the Sub-Adviser, emerging as investment markets but have yet to reach a level of maturity associated with developed foreign stock markets. The Sub-Adviser currently selects portfolio securities from an investment universe of approximately 6,000 foreign issuers in over 35 emerging markets. Under normal market conditions, the Fund invests at least 75% of its total assets in common and preferred stock, warrants and convertible securities. The Fund may invest at least 35% of its assets in U.S. companies. The Fund's Sub-Adviser emphasizes a growth approach, and seeks issuers in the early stages of development believed to be undergoing a basic change in operations. In analyzing specific companies for possible investment, the Sub-Adviser ordinarily looks for several of the following characteristics: above-average per share earnings growth; high return on invested capital; a healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research and product development and marketing; development of new technologies; efficient service; pricing flexibility; strong management; and general operating characteristics that will enable the companies to compete successfully in their respective markets. The Sub-Adviser usually considers whether to sell a particular security when any of those factors materially changes. The Fund may also lend portfolio securities on a short-term or long-term basis, up to 30% of its total assets. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the Sub-Adviser believes have the potential for rapid growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund may invest in small and medium-sized companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. MARKET TRENDS -- from time to time, the stock market may not favor the growth securities in which the Fund invests, or may not favor equities at all. RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. Investments in emerging market countries are generally riskier than other kinds of foreign investments, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. INABILITY TO SELL SECURITIES -- securities of emerging market companies trade in lower volume and may be less liquid than securities of companies in larger, more established markets. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. SECURITIES LENDING -- There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. 40 Pilgrim Emerging Countries Fund PILGRIM EMERGING COUNTRIES FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 6.34 27.50 9.44 -22.19 75.80 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the adviser, rather than sub-adviser, to the Fund. Best and worst quarterly performance during this period: 4th quarter 1999: up 36.28% 3rd quarter 1998: down 26.06% The Fund's year-to-date total return as of March 31, 2000 was up 5.00%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the MSCI EMF Index. AVERAGE ANNUAL TOTAL RETURNS MSCI EMF Class A(3) Class B(4) Class C(5) Index(6) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 65.74 69.71 73.71 63.70 Five years, ended December 31, 1999 % 13.85 N/A 14.38 2.00 Since inception of Classes A and C(7) % 12.58 N/A 12.89 -1.77 Since inception of Class B(7) % N/A 14.66 N/A 0.84 - ---------- (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5% and 1%, respectively, for 1 year and since inception returns. (5) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (6) The Morgan Stanley Capital International Emerging Markets Free (MSCI EMF) Index is an unmanaged index that measures the performance of securities listed on exchanges in developing nations throughout the world. (7) Classes A and C commenced operations on November 28, 1994. Class B commenced operations on May 31, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Emerging Countries Fund 41 - ------------- International Equity Funds - ------------- ADVISER Pilgrim Investments, Inc. SUB-ADVISER HSBC Asset Management (Americas), Inc. and HSBC Asset Management (Hong Kong) PILGRIM ASIA-PACIFIC EQUITY FUND Limited - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund normally invests at least 65% of its total assets in equity securities listed on stock exchanges in countries in the Asia-Pacific region or issued by companies based in this region. Asia-Pacific countries in which the Fund invests include, but are not limited to, China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, but do not include Japan and Australia. The equity securities in which the Fund may invest include common stock, convertible securities, preferred stock, warrants, American Depositary Receipts, European Depositary Receipts and other depositary receipts. The Fund is managed using the investment philosophy that the Sub-Adviser, HSBC Asset Management Americas, Inc. and HSBC Asset Management Hong Kong Limited (HSBC), uses in managing private Asia-Pacific portfolios. HSBC bases investment decisions on a disciplined approach that takes into consideration the following factors: a macroeconomic overview of the region, specific country analysis, setting target country weightings, evaluation of industry sectors within each country, and selection of specific stocks. In selecting specific securities, the Sub-Adviser emphasizes a value approach that seeks growth at a reasonable price. This approach involves analysis of such fundamental factors as absolute rates of change of earnings growth, earnings growth relative to the market and industry, quality of earnings and stability of earnings growth, quality of management and product line, interest rate sensitivity and liquidity of the stock. The criteria used by the Fund to determine whether an issuer is based in the Asia-Pacific region are: the country in which the issuer was organized; the country in which the principal securities market for that issuer is located; the country in which the issuer derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed; or the country in which at least 50% of the issuer's assets are located. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. MARKET TRENDS -- from time to time, the stock market may not favor the value securities in which the Fund invests. Rather, the market could favor growth-oriented stocks, or may not favor equities at all. RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. RISKS OF THE ASIA-PACIFIC REGION -- the Asia-Pacific region includes countries in various stages of economic development, including emerging market countries. In 1997 and 1998, securities markets in Asian countries suffered significant downturns and volatility, and currencies lost value in relation to the U.S. dollar. Currency devaluation in any one country may have a significant effect on the entire region. Increased political or social unrest in some or all Asian countries could cause further economic and market uncertainty. RISKS OF CONCENTRATION -- because the Fund concentrates on a single region of the world, the Fund's performance may be more volatile than that of a Fund that invests globally. If Asia-Pacific securities fall out of favor, it may cause the Fund to underperform funds that focus on other types of stocks. INABILITY TO SELL SECURITIES -- securities of emerging market companies trade in lower volume and may be less liquid than securities of companies in larger, more established markets. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 42 Pilgrim Asia-Pacific Equity Fund PILGRIM ASIA-PACIFIC EQUITY FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 9.46 -43.73 -15.51 74.41 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 2nd quarter 1999: up 39.92% 4th quarter 1997: down 33.11% The Fund's year-to-date total return as of March 31, 2000 was down 3.14%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the MSCI Far East ex-Japan Index. AVERAGE ANNUAL TOTAL RETURNS MSCI Far East Free ex-Japan Class A (2) Class B (3) Class M (4) Index (5) ----------- ----------- ----------- --------- One year, ended December 31, 1999 % 64.46 68.00 67.37 59.40 Since inception (6) % -3.80 -3.72 -3.87 -2.14 - ---------- (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for 1 year and since inception returns. (4) Reflects deduction of sales charge of 3.5% for the 1 year return. (5) The Morgan Stanley Capital International Far East Free ex-Japan (MSCI Far East Free ex-Japan) Index is an unmanaged index that measures the performance of securities listed on exchanges in the Far East markets excluding Japan. (6) The Fund commenced operations on September 1, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Asia-Pacific Equity Fund 43 - ------ Income Funds - ------ ADVISER PILGRIM GOVERNMENT SECURITIES INCOME FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks high current income, consistent with liquidity and preservation of capital. INVESTMENT STRATEGY [GRAPHIC] The Fund normally invests at least 70% of its total assets in securities issued or guaranteed by the U.S. Government and the following agencies or instrumentalities of the U.S. Government: the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corporation (FHLMC). Such securities include direct obligations of the U.S. Treasury and mortgage-backed securities. The Fund may fall below the 70% threshold due to changes in the value of the Fund's holdings or the sale of securities to meet redemptions, in which case the Fund will purchase only U.S. Government securities until the 70% level is restored. The remainder of the Fund's assets may be invested in securities issued by other agencies and instrumentalities of the U.S. Government and in instruments collateralized by securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities. The foregoing policies are fundamental and may not be changed without shareholder approval. The Fund may invest in securities of any maturity; however, the Fund is expected to have a dollar-weighted average duration within a range of 20% above or below that of the Lehman Intermediate Treasury Index. As of February 29, 2000, the dollar-weighted average duration of the Lehman Intermediate Treasury Index was 2.87 years. The adviser determines the composition of the Fund's portfolio on the basis of its judgment of existing market conditions, such as the general direction of interest rates, trends in creditworthiness, expected inflation, supply and demand of fixed income securities, and other factors. The Fund may enter into reverse repurchase agreements, dollar roll transactions or pairing off transactions. The Fund does not invest in highly leveraged derivatives, such as swaps, interest-only or principal-only stripped mortgage-backed securities, or interest rate futures contracts. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: CHANGES IN INTEREST RATES -- the value of the Fund's investments may fall when interest rates rise. This Fund may be particularly sensitive to interest rates because it primarily invests in U.S. government securities. Debt securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. CREDIT RISK -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This Fund is subject to less credit risk than the other income funds because it principally invests in debt securities issued or guaranteed by the U.S. Government, its agencies and government sponsored enterprises. PREPAYMENT RISK -- the Fund may invest in mortgage related securities, which can be paid off early if the borrowers on the underlying mortgages pay off their mortgages sooner than scheduled. If interest rates are falling, the Fund will be forced to reinvest this money at lower yields. 44 Pilgrim Government Securities Income Fund PILGRIM GOVERNMENT SECURITIES INCOME FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 8.03 11.90 7.46 4.71(8) -3.61 14.51 2.56 7.85 5.61 -1.17 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 3rd quarter 1992: up 4.70% 1st quarter 1994: down 2.66% The Fund's year-to-date total return as of March 31, 2000 was up 1.07%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of two broad measures of market performance -- the Lehman Brothers Government/Mortgage Index and the Lehman Brothers Intermediate Treasury Index. AVERAGE ANNUAL TOTAL RETURNS(2) Lehman Lehman Gov't/ Intermediate Class Class Class Mortgage Treasury A(3) B(4) M(5) Index(6) Index(7) ---- ---- ---- -------- -------- One year, ended December 31, 1999 % -5.86 -6.56 -4.86 1.93 0.49 Five years, ended December 31, 1999 % 4.73 N/A N/A 8.08 6.93 Ten years, ended December 31, 1999(8) % 5.14 N/A N/A 7.87 7.07 Since inception of Classes B and M(9) % N/A 3.18 3.08 6.63 5.77 (10) - ---------- (2) Class C and T shares of the Fund did not have a full year's performance during the year ended December 31, 1999. (3) Reflects deduction of sales charge of 4.75%. (4) Reflects deduction of deferred sales charge of 5% and 2% respectively for 1 year and since inception returns. (5) Reflects deduction of a sales charge of 3.25%. (6) The Lehman Brothers Government/Mortgage Index is an unmanaged index that measures the performance of U.S. Government agencies and instrumentalities, as well as mortgage pass-through instruments issued by FNMA, FHLMC and GNMA. (7) The Lehman Brothers Intermediate Treasury Index is an unmanaged index that measures the performance of U.S. Treasuries with maturities of under 10 years. Information on the Lehman Intermediate Index is presented because effective May 24, 1999, the Fund seeks an average portfolio duration within +/-20% of the duration of that Index. Previously, the Fund's average portfolio maturity was generally longer. (8) 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 that caused the Fund to exceed its 10% investment restriction on borrowing. Therefore, the Fund's performance was higher than it would have been had the Fund adhered to its borrowing restriction. (9) Classes B and M commenced operations on July 17.1995. (10) Index return is for period beginning July 31, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Government Securities Income Fund 45 - ------ Income Funds - ------ ADVISER PILGRIM STRATEGIC INCOME FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum total return. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 60% of its total assets in debt securities issued by U.S. and foreign corporations, U.S. and foreign governments, and their agencies and instrumentalities that are rated in one of the top four categories by a nationally recognized statistical rating agency, or of comparable quality if unrated. These securities include bonds, notes, mortgage-backed and asset-backed securities with rates that are fixed, variable or floating. The Fund may invest up to 40% of its total assets in high yield debt securities, commonly known as "junk bonds." There is no minimum credit rating for high yield debt securities in which the Fund may invest. The "total return" sought by the Fund consists of income earned on the Fund's investments, plus capital appreciation, if any, which generally arises from decreases in interest rates or improving credit fundamentals for a particular sector or security. The Fund may invest in debt securities of any maturity; however, the average portfolio duration of the Fund will generally range from two to eight years. The Fund may invest up to 30% of its total assets in securities payable in foreign currencies. The Fund may invest up to 10% of its assets in other investment companies that invest in secured floating rate loans, including up to 5% of its assets in Pilgrim Prime Rate Trust, a closed-end investment company. The Fund may also use options, futures contracts and interest rate and currency swaps as hedging techniques. The Fund does not invest in interest-only or principal-only stripped mortgage-backed securities. PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Trustees has approved the reorganization of the Fund into Pilgrim High Yield Fund. You could therefore ultimately hold shares of that fund. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: CHANGES IN INTEREST RATES -- the value of the Fund's investments may fall when interest rates rise. The Fund may be sensitive to changes in interest rates because it may invest in debt securities with intermediate and long terms to maturity. Debt securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. CREDIT RISK -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This is especially true during periods of economic uncertainty or economic downturns. This Fund may be subject to more credit risk than the other income funds, because it may invest in high yield debt securities, which are considered predominantly speculative with respect to the issuer's continuing ability to meet interest and principal payments. PREPAYMENT RISK -- the Fund may invest in mortgage-related securities, which can be paid off early if the borrowers on the underlying mortgages pay off their mortgages sooner than scheduled. If interest rates are falling, the Fund will be forced to reinvest this money at lower yields. INABILITY TO SELL SECURITIES -- high yield securities may be less liquid than higher quality investments. A security in the lowest rating categories, that is unrated, or whose credit rating has been lowered may be particularly difficult to sell. Foreign securities and mortgage-related and asset-backed debt securities may be less liquid than other debt securities. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. RISKS OF USING DERIVATIVES -- derivatives are subject to the risk of changes in the market price of the security, credit risk with respect to the counterparty to the derivatives instrument, and the risk of loss due to changes in interest rates. The use of certain derivatives may also have a leveraging effect, which may increase the volatility of the Fund. The use of derivatives may reduce returns for the Fund. 46 Pilgrim Strategic Income Fund PILGRIM STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -1.16 - ---------- (1) These figures are as of December 31, 1999. They do not reflect sales charges and would be lower if they did. (2) Prior to May 24, 1999 a different adviser managed the Fund. Best and worst quarterly performance during this period: 4th quarter 1999: up 0.81% 2nd quarter 1999: down 1.23% The Fund's year-to-date total return as of March 31, 2000 was up 1.70%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Lehman Aggregate Bond Index. AVERAGE ANNUAL TOTAL RETURNS Lehman Aggregate Class A(3) Class B (4) Class C (5) Bond Index(6) ---------- ----------- ----------- ------------- One year, ended December 31, 1999 % -5.83 -6.15 -2.46 -0.82 Since inception of Classes A, B, and C (7) % -1.74 -1.29 1.31 2.37 - ---------- (3) Reflect deduction of sales charge of 4.75%. (4) Reflects deduction of a deferred sales charge of 5% and 4%, respectively, for the 1 year and since inception returns. (5) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (6) The Lehman Aggregate Bond Index is an unmanaged index that measures the performance of fixed income securities that are similar, but not identical, to those in the Fund's portfolio. (7) Classes A, B and C commenced operations on July 27, 1998. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Strategic Income Fund 47 - ------ Income Funds - ------ ADVISER PILGRIM HIGH YIELD FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks a high level of current income, with capital appreciation as a secondary objective. INVESTMENT STRATEGY [GRAPHIC] The Fund normally invests at least 65% of its assets in high yield debt securities, including preferred stock and convertible securities, that do not in the opinion of the adviser involve undue risk relative to their expected return. High yield securities, which are commonly known as "junk bonds," are securities that are rated below investment grade, i.e., rated lower than Baa by Moody's Investors Service, Inc. or BBB by Standard and Poor's, or of comparable quality if not rated. Generally, the Fund will invest in securities rated lower than B by Moody's or S&P only when the adviser believes the financial condition of the issuer or other available protections reduce the risk to the Fund or that there is greater value in the securities than is reflected in their prevailing market price. There is no minimum credit rating for high yield securities in which the Fund may invest. The Fund may invest in debt securities of any maturity. In selecting securities for the Fund, preservation of capital is a consideration. The remainder of the Fund's assets may be invested in common stocks, investment grade preferred stocks, investment grade debt obligations of all types, U.S. Government securities, warrants, money market instruments (including repurchase agreements on U.S. Government securities), mortgage-related securities and participation interests and assignments in floating rate loans and notes. The Fund may also invest up to 10% of its assets in foreign debt securities of any rating. The Fund may invest in financial futures and related options to attempt to hedge risk, although the Fund has not invested in such instruments since Pilgrim Investments, Inc. became the adviser in 1995 through the date of this prospectus. In selecting equity securities, the portfolio managers use a "bottom-up" analysis that focuses on individual companies and assesses the company's valuation, financial condition, management, competitiveness, and other factors. Differences Between the Fund and High Yield Fund II -- While both Funds invest primarily in high yield securities, the High Yield Fund normally emphasizes bonds with stronger credit ratings in the high yield bond universe. Thus, of the two Funds, High Yield Fund II normally presents the potential for higher income, but with potentially higher credit risk and volatility. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] The Fund is subject to risks associated with investing in lower rated debt securities. You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: CREDIT RISK -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This Fund may be subject to more credit risk than other income mutual funds because it invests in high yield (or "junk bond") debt securities, which are considered predominantly speculative with respect to the issuer's continuing ability to meet interest and principal payments. This is especially true during periods of economic uncertainty or economic downturns. The Fund is also subject to credit risk through its investment in floating rate loans. CHANGES IN INTEREST RATES -- the value of the Fund's investments may fall when interest rates rise. The Fund may be sensitive to changes in interest rates because it may invest in debt securities with intermediate and long terms to maturity. Debt securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. PREPAYMENT RISK -- the Fund may invest in mortgage-related securities, which can be paid off early if the borrowers on the underlying mortgages pay off their mortgages sooner than scheduled. If interest rates are falling, the Fund will be forced to reinvest this money at lower yields. INABILITY TO SELL SECURITIES -- high yield securities may be less liquid than higher quality investments. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial. A security whose credit rating has been lowered may be particularly difficult to sell. RISKS OF USING DERIVATIVES -- derivatives are subject to the risk of changes in the market price of the security, and the risk of loss due to changes in interest rates. The use of certain derivatives may also have a leveraging effect, which may increase the volatility of the Fund. The use of derivatives may reduce returns for the Fund. PRICE VOLATILITY -- Equity securities face market, issuer and other risks, and their values may go up and down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer. RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks, securities depositories or exchanges than those in the U.S., and foreign controls on investment. 48 Pilgrim High Yield Fund PILGRIM HIGH YIELD FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- - -9.49 29.44 16.19 18.52 -1.55 17.71 15.76 14.98 -2.96 -1.14 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 1st quarter 1991: up 14.83% 3rd quarter 1998: down 7.91% The Fund's year-to-date total return as of March 31, 2000 was down 2.62%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Lehman Brothers High Yield Bond Index. AVERAGE ANNUAL TOTAL RETURNS(2) Lehman High Yield Bond Class A(3) Class B(4) Class M(5) Index(6) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % -5.86 -6.35 -4.92 2.39 Five years, ended December 31, 1999 % 7.44 N/A N/A 9.31 Ten years, ended December 31, 1999 % 8.56 N/A N/A 10.72 Since inception(7) % N/A 5.72 5.51 7.41 - ---------- (2) Class C shares of the Fund did not have a full year's performance during the year ended December 31, 1999. (3) Reflects deduction of sales charge of 4.75%. (4) Reflects deduction of deferred sales charge of 5% and 2% respectively for 1 year and since inception returns. (5) Reflects deduction of a sales charge of 3.25%. (6) The Lehman Brothers High Yield Bond Index is an unmanaged index that measures the performance of fixed-income securities that are similar, but not identical, to those in the Fund's portfolio. (7) Classes B and M commenced operations on July 17, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim High Yield Fund 49 - ------ Income Funds - ------ ADVISER PILGRIM HIGH YIELD FUND II Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks a high level of current income and capital growth. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its total assets in high yield, lower rated debt securities, which are commonly referred to as "junk bonds," and convertible securities rated below investment grade (i.e., lower than the four highest rating categories) by a nationally recognized statistical rating agency, or of comparable quality if unrated. There is no limit on either the portfolio maturity or the acceptable rating of securities bought by the Fund. Securities may bear rates that are fixed, variable or floating. The Fund may invest up to 35% of its total assets in equity securities of U.S. and foreign companies, including securities of companies in emerging markets. In selecting equity securities, the portfolio managers use a "bottom-up" analysis that focuses on individual companies and assesses the company's valuation, financial condition, management, competitiveness, and other factors. The Fund is not restricted to investments in companies of any particular size, but currently intends to invest principally in companies with market capitalization above $100 million at the time of purchase. The Fund may also use options, futures contracts and interest rate and currency swaps as hedging techniques or to help seek the Fund's investment objectives. Differences Between the Fund and High Yield Fund While both Funds invest primarily in high yield securities, the High Yield Fund normally emphasizes bonds with stronger credit ratings in the high yield bond universe. Thus, of the two Funds, High Yield Fund II normally presents the potential for higher income, but with potentially higher credit risk and volatility. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: CREDIT RISK -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This Fund may be subject to more credit risk than other income mutual funds because it invests in high yield debt securities, which are considered predominantly speculative with respect to the issuer's continuing ability to meet interest and principal payments. This is especially true during periods of economic uncertainty or economic downturns. CHANGES IN INTEREST RATES -- the value of the Fund's investments may fall when interest rates rise. The Fund may be sensitive to changes in interest rates because it may invest in debt securities with intermediate and long term maturities. Debt securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. PREPAYMENT RISK -- the Fund may invest in mortgage-related securities, which can be paid off early if the owners of the underlying mortgages pay off their mortgages sooner than scheduled. If interest rates are falling, the Fund will be forced to reinvest this money at lower yields. INABILITY TO SELL SECURITIES -- high yield securities may be less liquid than higher quality investments. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. A security in the lowest rating categories, that is unrated, or whose credit rating has been lowered may be particularly difficult to sell. Valuing less liquid securities involves greater exercise of judgment and may be more subjective than valuing securities using market quotes. RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. Investments in emerging markets countries are generally riskier than other kinds of foreign investments, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. RISK OF USING DERIVATIVES -- derivatives are subject to the risk of changes in the market price of the security, credit risk with respect to the counterparty to the derivative instrument, and the risk of loss due to changes in interest rates. The use of certain derivatives may also have a leveraging effect, which may increase the volatility of the Fund. The use of derivatives may reduce returns for the Fund. PRICE VOLATILITY -- equity securities face market, issuer and other risks, and their values may go up and down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer. 50 Pilgrim High Yield Fund II PILGRIM HIGH YIELD FUND II - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 21.05 4.17 6.12 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to May 24, 1999 a different adviser managed the Fund. The figure shown for the year 1999 provides performance for the Class A shares of the Fund. The figures shown for the years 1997 and 1998 provide performance for Institutional Class shares of the Fund, revised to reflect the higher expenses of Class A shares. Best and worst quarterly performance during this period: 3rd quarter 1997: up 8.30% 3rd quarter 1998: down 7.14% The Fund's year-to-date total return as of March 31, 2000 was up 1.87%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the First Boston High Yield Index. AVERAGE ANNUAL TOTAL RETURNS(3) First Boston Class Class Class Institutional High A(4) B(5) C(6) Class(7) Index(8) ---- ---- ---- -------- -------- One year, ended December 31, 1999 % 1.07 0.53 4.38 9.55 3.28 Since inception of Classes A, B and C(9) % -0.18 -0.06 1.97 N/A 0.48 (10) Since inception of Institutional Class(11) % N/A N/A N/A 13.63 6.90 - ---------- (3) Class T shares did not have a full year's performance as of December 31, 1999. (4) Reflects deduction of a sales charge of 4.75%. (5) Reflects deduction of a deferred sales charge of 5% and 4%, respectively, for the 1 year and since inception returns. (6) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (7) Institutional Class shares of the Fund are no longer offered. (8) The First Boston High Yield Index is an unmanaged index that measures the performance of fixed income securities similar, but not identical, to those in the Fund's portfolio. (9) Classes A, B and C commenced operations on March 27, 1998. Class T commenced operations on January 4, 2000. (10) Index return is for period beginning March 31, 1998. (11) Institutional Class shares of the Fund commenced operations on July 31, 1996. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim High Yield Fund II 51 - ------ Income Funds - ------ ADVISER PILGRIM HIGH TOTAL RETURN FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks high income and capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in higher-yielding, lower-rated bonds (junk bonds) to achieve high current income with potential for capital growth. Under normal market conditions, the Fund invests at least 65% of its total assets in high-yielding, lower-rated U.S. dollar-denominated debt securities of any maturity of U.S. and foreign issuers. It may also invest up to 35% of its total assets in securities denominated in foreign currencies. It may invest up to 50% of its assets in securities of foreign issuers, including 35% in emerging market debt. Most of the debt securities the Fund invests in are lower-rated and considered speculative, including bonds in the lowest rating categories and unrated bonds. It can invest up to 10%, and can hold up to 25%, of its assets in securities rated below Caa by Moody's or CCC by S&P. It also holds debt securities that pay fixed, floating or adjustable interest rates and may hold pay-in-kind securities and discount obligations, including zero coupon securities, and mortgage-related or asset-backed debt securities. The Fund may also invest in equity or equity-related securities, such as common stock, preferred stock, convertible securities and rights and warrants attached to debt instruments. In selecting equity securities, the portfolio managers use a "bottom-up" analysis that focuses on individual companies and assesses the company's valuation, financial condition, management, competitiveness, and other factors. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: CHANGES IN INTEREST RATES -- The Fund's performance is significantly affected by changes in interest rates. The value of the Fund's investments may fall when interest rates rise. The Fund may be sensitive to changes in interest rates because it may invest in debt securities with longer durations. Debt securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. The value of the Fund's high-yield and zero coupon securities are particularly sensitive to changes in interest rates. CREDIT RISK -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This Fund is subject to more credit risk than many other income mutual funds, because it invests in high-yield debt securities, which are considered predominantly speculative with respect to the issuer's continuing ability to meet interest and principal payments. This is especially true for bonds in the lowest rating category and unrated bonds, and during periods of economic uncertainty or economic downturns. PREPAYMENT RISK -- the Fund may invest in mortgage-related securities, which can be paid off early if the borrowers on the underlying mortgages pay off their mortgages sooner than scheduled. If interest rates are falling, the Fund will be forced to reinvest this money at lower yields. INABILITY TO SELL SECURITIES -- high-yield securities may be less liquid than higher quality investments. Foreign securities and mortgage-related and asset-backed debt securities may be less liquid than other debt securities. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. A security in the lowest rating categories, that is unrated, or whose credit rating has been lowered may be particularly difficult to sell. Valuing less liquid securities involves greater exercise of judgement and may be more subjective than valuing securities using market quotes. RISK OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund may invest in midcap and smallcap companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification, and many are dependent on a few key managers. 52 Pilgrim High Total Return Fund PILGRIM HIGH TOTAL RETURN FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -8.57 21.17 15.70 11.44 -7.96 -13.23 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 3rd quarter 1997: up 7.40% 3rd quarter 1998: down 13.76% The Fund's year-to-date total return as of March 31, 2000 was up 1.86%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Lehman Brothers High Yield Bond Index. AVERAGE ANNUAL TOTAL RETURNS Lehman High Yield Bond Class A(2) Class B(3) Class C(4) Index(5) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % -17.28 -17.97 -14.80 2.39 Five years, ended December 31, 1999 % 3.51 3.47 3.83 9.31 Since inception of Class A(6) % 1.82 N/A N/A 7.61 (7) Since inception of Class B(6) % N/A 0.83 N/A 7.24 (8) Since inception of Class C(6) % N/A N/A 1.35 8.23 (9) - ---------- (2) Reflects deduction of sales charge of 4.75%. (3) Reflects deduction of deferred sales charge of 5%, 2%, and 1%, respectively, for 1 year, 5 year, and since inception returns. (4) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (5) The Lehman Brothers High Yield Bond Index is an unmanaged index that measures the performance of fixed-income securities that are similar, but not identical, to those in the Fund's portfolio. (6) Class A commenced operations on November 8, 1993. Classes B and C commenced operations on February 9, 1994 and March 21, 1994, respectively. (7) Index return is for period beginning November 1, 1993. (8) Index return is for period beginning February 1, 1994. (9) Index return is for period beginning April 1, 1994. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim High Total Return Fund 53 - ------ Income Funds - ------ ADVISER PILGRIM HIGH TOTAL RETURN FUND II Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks high income and capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in higher-yielding, lower-rated bonds (junk bonds) to achieve high current income with potential for capital growth. Under normal market conditions, the Fund invests at least 65% of its total assets in high-yielding, lower-rated U.S. dollar-denominated debt securities of U.S. and foreign issuers. It may also invest up to 35% of its total assets in securities denominated in foreign currencies. It may invest up to 50% of its assets in securities of foreign issuers, including 35% in emerging market debt. Most of the debt securities the Fund invests in are lower-rated and considered speculative, including bonds in the lowest rating categories and unrated bonds. It can invest up to 10%, and can hold up to 25%, of its assets in securities rated below Caa by Moody's or CCC by S&P. It also holds debt securities that pay fixed, floating or adjustable interest rates and may hold pay-in-kind securities and discount obligations, including zero coupon securities, and mortgage-related or asset-backed debt securities. The Fund may also invest in equity or equity-related securities, such as common stock, preferred stock, convertible securities and rights and warrants attached to debt instruments. In selecting equity securities, the portfolio managers use a "bottom-up" analysis that focuses on individual companies and assesses the company's valuation, financial condition, management, competitiveness, and other factors. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: CHANGES IN INTEREST RATES -- The Fund's performance is significantly affected by changes in interest rates. The value of the Fund's investments may fall when interest rates rise. The Fund may be sensitive to changes in interest rates because it may invest in debt securities with longer maturities. Debt securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. The value of the Fund's high yield and zero coupon securities are particularly sensitive to changes in interest rates. CREDIT RISK -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This Fund is subject to more credit risk than many other income mutual funds, because it invests in high-yield debt securities, which are considered predominantly speculative with respect to the issuer's continuing ability to meet interest and principal payments. This is especially true for bonds in the lowest rating catergories and unrated bonds, and during periods of economic uncertainty or economic downturns. INABILITY TO SELL SECURITIES -- high yield securities may be less liquid than higher quality investments. An unrated bond, a bond in the lowest rating catorgories, or a security whose credit rating has been lowered may be particularly difficult to sell. Foreign securities and mortgage-related and asset-backed debt securities may be less liquid than other debt securities. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. PREPAYMENT RISK -- the Fund may invest in mortgage-related securities, which can be paid off early if the borrowers on the underlying mortgages pay off their mortgages sooner than scheduled. If interest rates are falling, the Fund will be forced to reinvest this money at lower yields. RISK OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. 54 Pilgrim High Total Return Fund II PILGRIM HIGH TOTAL RETURN FUND II - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -2.93 -13.86 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 2nd quarter 1997: up 8.89% 4th quarter 1999: down 10.31% The Fund's year-to-date total return as of March 31, 2000 was down 2.93%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the Lehman Brothers High Yield Bond Index. AVERAGE ANNUAL TOTAL RETURNS Lehman High Yield Bond Class A(2) Class B(3) Class C(4) Index(5) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % -17.90 -18.37 -15.24 2.39 Since inception(6) % -1.77 -1.63 -0.75 5.37 - ---------- (2) Reflects deduction of sales charge of 4.75%. (3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for 1 year and since inception returns. (4) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (5) The Lehman Brothers High Yield Bond Index is an unmanaged index that measures the performance of fixed-income securities that are similar, but not identical, to those in the Fund's portfolio. (6) The Fund commenced operations on January 31, 1997. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim High Total Return Fund II 55 - ------ Income Funds - ------ ADVISER PILGRIM MONEY MARKET FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks to provide as high a level of current income as is consistent with the preservation of capital and liquidity. INVESTMENT STRATEGY [GRAPHIC] The Fund invests all of its assets in Class A shares of the Primary Institutional Fund, a series of Reserve Institutional Trust, a registered open-end management investment company, rather than directly in a portfolio of securities. In turn, the Primary Institutional Fund seeks to provide as high a level of current income as is consistent with the preservation of capital and liquidity. This structure is different from that of other Pilgrim Funds and many other investment companies, which directly acquire and manage their own portfolio of securities. The Primary Institutional Fund seeks to achieve its investment objective by investing in instruments issued by the U.S. Government, its agencies and instrumentalities ("U.S. Government Securities"); high quality deposit-type obligations, such as negotiable certificates of deposit and time deposits, bankers' acceptances and letters of credit of domestic, foreign banks and foreign branches of foreign banks, savings and loan associations and savings banks; other short-term instruments of similar quality; and instruments fully collateralized by such obligations. The dollar weighted average portfolio maturity of the Fund will not exceed 90 days. The Primary Institutional Fund may invest in obligations of U.S. banking institutions that are insured by the Federal Deposit Insurance Corporation. The Primary Institutional Fund may also invest in obligations of foreign branches of both U.S. banks and foreign banks (Eurodollars). Investment in foreign banks will be limited to those located in Australia, Canada, Western Europe and Japan and which, at the time of investment, have more than $25 billion (or the equivalent in other currencies) in total assets and which, in the opinion of the Primary Institutional Fund's investment adviser, are of comparable quality to the obligations of U.S. banks which may be purchased by the Primary Institutional Fund. The Primary Institutional Fund may also invest in municipal obligations, the interest on which is not exempt from federal income taxation. The Primary Institutional Fund may also engage in repurchase agreements and periodically lend securities on a short-term basis to banks, brokers and dealers (but not individuals) and receive as collateral cash or securities issued by the U.S. Government or its agencies or instrumentalities (or any combination thereof). The value of the securities loaned cannot exceed 25% of the Primary Institutional Fund's total assets. The Primary Institutional Fund may invest, without limitation, in U.S. Government Securities and in instruments secured or collateralized by U.S. Government Securities. The Primary Institutional Fund will not invest more than 10% of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven (7) days after notice and will not concentrate more than 25% of its total assets in securities of issuers in a single industry, except that it may invest more than 25% of its assets in bank obligations. In addition, the Primary Institutional Fund will not invest more than 5% of its assets in the securities of any single issuer (except U.S. Government Securities or repurchase agreements). The Primary Institutional Fund may borrow money for extraordinary or emergency purposes but not in an amount exceeding 5% of its total assets. The Primary Institutional Fund uses the amortized cost method of valuation to help the Fund maintain a stable $1.00 share price. Of course, there is no guarantee that the Fund will be able to maintain a $1.00 share price. Since the Fund invests substantially all of its assets in another investment company, the fund could be considered a feeder fund in an arrangement resembling a master/feeder structure. Investment of the Fund's assets in the Class A shares of the Primary Institutional Fund is not a fundamental policy of the Fund and a shareholder vote is not required for the Fund to withdraw its investment in the Primary Institutional Fund. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] The Fund is subject to the risks associated with investing in debt securities. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. The Fund may be affected by these other risks by virtue of its investment in the Primary Institutional Fund: CHANGES IN INTEREST RATES -- money market funds like the Fund are subject to less interest rate risk than other income funds because they invest in debt securities with a remaining maturity not greater than 397 days. Still, the value of the Fund's investment may fall when interest rates rise. CREDIT RISK -- money market funds like the Fund are subject to less credit risk than other income funds because they invest in short-term debt securities of the highest quality. Still, the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. U.S. GOVERNMENT SECURITIES -- some U.S. Government agency securities may be subject to varying degrees of credit risk, and all U.S. Government Securities may be subject to price declines in the securities due to changing interest rates. If an obligation, such as obligations issued by the Federal National Mortgage Association, the Student Loan Marketing Association, the Federal Home 56 Pilgrim Money Market Fund PILGRIM MONEY MARKET FUND - -------------------------------------------------------------------------------- Loan Bank and the Federal Home Loan Mortgage Corporation is supported only by the credit of the agency or instrumentality issuing the obligation, the investor must look principally to the agency issuing or guaranteeing the obligation for ultimate repayment. Securities directly supported by the full faith and credit of the United States have less credit risk. RISK OF CONCENTRATION IN BANKING OBLIGATIONS -- the risks of concentrating in investments in the banking industry include credit risk, interest rate risks, and regulatory risk (the impact of state or federal legislation and regulations). Because the Fund invests all of its assets in another registered management investment, company, the Fund and its shareholders will bear the investment advisory fees and expenses of the Fund and the other registered management investment company in which it invests with the result that the Fund's expenses may be higher than those of other money market funds which invest directly in money market instruments. The Fund is also designed for investors who desire a short-term investment and may not be appropriate for those investors desiring a long-term investment. - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] This Fund does not have a performance history because it was formed on July 1, 1999. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Money Market Fund 57 - ------------ Equity & Income Funds - ------------ ADVISER PILGRIM BALANCED FUND Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks a balance of long-term capital appreciation and current income. INVESTMENT STRATEGY [GRAPHIC] The Fund's adviser actively manages a blended portfolio of equity and debt securities with an emphasis on overall total return. The Fund normally maintains 40% to 60% of its assets in debt securities of any maturity issued by corporations or other business entities and the U.S. Government and its agencies and instrumentalities, and government sponsored enterprises, and normally seeks a target allocation of 50%, although this may vary with market conditions. The remainder of the Fund's assets are normally invested in equity securities of large companies that the adviser believes are leaders in their industries. The adviser considers whether these companies have a sustainable competitive edge. The portfolio managers emphasize a value approach in equity selection, and seek securities whose prices in relation to projected earnings are believed to be reasonable in comparison to the market. For this Fund, a company with a market capitalization of over $5 billion is considered to be a large company, although the Fund may also invest to a limited degree in companies that have a market capitalization between $1 billion and $5 billion. A portion of the Fund's net assets (up to 35%) may be invested in high yield debt securities (commonly known as "junk bonds") rated below investment grade (i.e., lower than the four-highest rating categories) by a nationally recognized statistical rating agency, or of comparable quality if unrated. There is no minimum credit quality for the high yield debt securities in which the Fund may invest. The Fund may invest up to 10% of its assets in other investment companies that invest in secured floating rate loans, including up to 5% of its assets in Pilgrim Prime Rate Trust, a closed-end investment company. The Fund may invest up to 20% of its total assets in foreign securities. The Fund may use options on securities, securities indices, interest rates and foreign currencies as a hedging technique or in furtherance of its investment objective. The Fund may invest up to 35% of its net assets in zero coupon securities. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund also may invest in smaller companies, which may be more susceptible to price swings than larger companies. MARKET TRENDS -- from time to time, the stock market may not favor the large company value securities in which the Fund invests. Rather, the market could favor growth-oriented stocks or small company stocks, or may not favor equities at all. CHANGES IN INTEREST RATES -- the value of debt and equity securities can change in response to changes in interest rates. The value of the debt securities held by the Fund may fall when interest rates rise. The Fund may be sensitive to changes in interest rates because it may invest in debt securities with intermediate and long terms to maturity. Debt securities with longer maturities tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter maturities. Zero coupon securities are particularly sensitive to changes in interest rates. CREDIT RISK -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This Fund may be subject to more credit risk than the other income funds, because it may invest in high yield debt securities, which are considered predominantly speculative with respect to the issuer's continuing ability to meet interest and principal payments. This is especially true during periods of economic uncertainty or economic downturns. INABILITY TO SELL SECURITIES -- high yield securities and securities of smaller companies may be less liquid than other investments. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. RISKS OF FOREIGN INVESTING -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. RISKS OF USING DERIVATIVES -- derivatives are subject to the risk of changes in the market price of the security, credit risk with respect to the counterparty to the derivatives instrument, and the risk of loss due to changes in interest rates. The use of certain derivatives may also have a leveraging effect, which may increase the volatility of the Fund. The use of derivatives may reduce returns for the Fund. 58 Pilgrim Balanced Fund PILGRIM BALANCED FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -6.29 23.43 16.39 20.50 23.35 8.48 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to May 24, 1999, a different adviser managed the Fund. Best and worst quarterly performance during this period: 3rd quarter 1997: up 14.44%. 2nd quarter 1994: down 5.93% The Fund's year-to-date total return as of March 31, 2000 was up 0.71%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of broad measures of market performance -- the Standard & Poor's Barra Value Index, the Lehman Aggregate Bond Index, the Lipper Balanced Fund Index and a composite index consisting of 60% S&P 500 Composite Stock Price Index and 40% Lehman Brothers Government/Corporate Bond Index. AVERAGE ANNUAL TOTAL RETURNS(3)
S&P Lehman Lipper Barra Aggregate Balanced Class Class Class Value Bond Fund Composite A(4) B(5) C(6) Index(7) Index(8) Index(9) Index ---- ---- ---- -------- -------- -------- ----- One year, ended December 31, 1999 % 2.25 3.51 6.89 12.72 -0.82 8.98 11.77 Five years, ended December 31, 1999 % 16.91 N/A 17.53 20.57 7.73 16.33 20.15 Since inception of Class A and C(10) % 13.37 N/A 13.67 8.66 6.00 (11) 12.85 15.48 (12) Since inception of Class B(10) % N/A 16.42 N/A 20.64 6.10 15.15 18.52
- ---------- (3) Class T did not have a full year's performance as of December 31, 1999. (4) Reflects deduction of sales charge of 5.75%. (5) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for 1 year and since inception returns. (6) Reflects deduction of a deferred sales charge of 1% for the 1 year return. (7) The Standard and Poor's Barra Value Index is a capitalization-weighted index of all stocks in the Standard and Poor's 500 Composite Stock Price Index ("S&P 500 Index") that have low price-to-book ratios. It is designed so that approximately 50% of the market capitalization of the S&P 500 Index is in the Standard & Poor's Barra Value Index. (8) The Lehman Aggregate Bond Index is an unmanaged index that measures the performance of the U.S. investment grade fixed rate bond market, including government and corporate securities, mortgage pass-through securities, and asset-backed securities. (9) The Lipper Balanced Fund Index is an unmanaged index that measures the performance of balanced funds (funds that seek current income balanced with capital appreciation). (10) Classes A and C commenced operations on April 19, 1993. Class B commenced operations on May 31, 1995. Class T commenced operations on January 4, 2000. (11) Index return is for period beginning May 1, 1993. (12) Index return is for period beginning April 30, 1993. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Balanced Fund 59 - ------------ Equity & Income Funds - ------------ ADVISER Pilgrim Investments, Inc. SUB-ADVISER Nicholas-Applegate PILGRIM CONVERTIBLE FUND Capital Management - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum total return, consisting of capital appreciation and current income. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its total assets in convertible securities. Convertible securities are generally preferred stock or other securities, including debt securities, that are convertible into common stock. The Fund emphasizes companies with market capitalizations above $500 million. Through investments in convertible securities, the Fund seeks to capture the upside potential of the underlying equities with less downside exposure. The Fund normally invests a minimum of 25% of its total assets in common and preferred stocks, and 25% in other income producing convertible and debt securities. The Fund may also invest up to 35% of its net assets in high yield debt or convertible securities (commonly known as "junk bonds") rated below investment grade by a nationally recognized statistical rating agency, or of comparable quality if unrated. There is no minimum credit rating for high yield securities in which the Fund may invest. The Fund may also invest in securities issued by the U.S. government and its agencies and instrumentalities. In evaluating convertibles, the Fund's Sub-Adviser evaluates each security's investment characteristics as a fixed income instrument as well as its potential for capital appreciation. In analyzing specific companies for possible investment, the Sub-Adviser ordinarily looks for several of the following characteristics: above-average per share earnings growth; high return on invested capital; a healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research and product development and marketing; development of new technologies; efficient service; pricing flexibility; strong management; and general operating characteristics that will enable the companies to compete successfully in their respective markets. The Sub-Adviser usually considers whether to sell a particular security when any of those factors materially changes. The Fund may also lend portfolio securities on a short-term or long-term basis, up to 30% of its total assets. - -------------------------------------------------------------------------------- RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: PRICE VOLATILITY -- the value of the Fund changes as the prices of its investments go up or down. Convertible securities have investment characteristics of both equity and debt securities. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund may invest in small and medium-sized companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. CHANGES IN INTEREST RATES -- the value of the convertible and debt securities held by the Fund may fall when interest rates rise. The Fund may be sensitive to changes in interest rates because it may invest in securities with intermediate and long terms to maturity. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Zero coupon securities are particularly sensitive to changes in interest rates. CREDIT RISK -- the Fund could lose money if the issuer of a security is unable to meet its financial obligations or goes bankrupt. This is especially true during periods of economic uncertainty or economic downturns. This Fund may be subject to more credit risk than many bond funds, because the convertible securities and debt securities in which it invests may be lower-rated securities. INABILITY TO SELL SECURITIES -- convertible securities and lower rated debt and covertible securities may be less liquid than other investments. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. SECURITIES LENDING -- There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. 60 Pilgrim Convertible Fund PILGRIM CONVERTIBLE FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. YEAR BY YEAR TOTAL RETURNS (%)(1)(2) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -8.23 21.67 20.29 22.58 20.86 50.20 - ---------- (1) These figures are as of December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the adviser, rather than sub-adviser, to the Fund. Best and worst quarterly performance during this period: 4th quarter 1999: up 34.59% 3rd quarter 1998: down 9.08% The Fund's year-to-date total return as of March 31, 2000 was up 11.62%. The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- the First Boston Convertible Index. AVERAGE ANNUAL TOTAL RETURNS
First Boston Convertible Class A(3) Class B(4) Class C(5) Index(6) ---------- ---------- ---------- -------- One year, ended December 31, 1999 % 41.54 44.19 48.20 42.28 Five years, ended December 31, 1999 % 25.14 N/A 25.81 20.08 Since inception of Classes A and C(7) % 20.33 N/A 20.60 15.60 (8) Since inception of Class B(7) % N/A 26.67 N/A 19.24
- ---------- (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5% and 2% respectively for 1 year and since inception returns. (5) Reflects deduction of sales charge of 1% for the 1 year return. (6) The First Boston Convertible Index is an unmanaged index that measures the performance of a universe of convertible securities that are similar, but not identical, to those in the Fund's portfolio. (7) Classes A and C commenced operations on April 19, 1993. Class B commenced operations on May 31, 1995. (8) Index returns for period beginning April 30, 1993. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Convertible Fund 61 WHAT YOU PAY TO INVEST - -------------------------------------------------------------------------------- There are two types of fees and expenses when you invest in mutual funds: fees, including sales charges, you pay directly when you buy or sell shares, and operating expenses paid each year by the Fund. The tables that follow show the fees and expenses for each of the Pilgrim Funds. (1) Not all Funds offer Classes C and M. Please see page 69. (2) Class T shares are available only for certain exchanges or reinvestment of dividends. Please see page 69. (3) Reduced for purchases Z of $50,000 and over. Please see page 70.
Fees You Pay Directly Class A Class B Class C(1) Class M(1) Class T(2) ------- ------- ---------- ---------- ---------- Maximum sales charge on your investment (as a % of offering price) % Equity Funds and Equity & Income Funds 5.75(3) none none 3.50(3) none Income Funds (except Money Market) 4.75(3) none none 3.25(3) none Money Market Fund none none none N/A N/A Maximum deferred sales charge (as a % of purchase or sales price, whichever is less) Equity Funds and Equity & Income Funds none(4) 5.00(5) 1.00(6) none 4.00(7) Income Funds (including Money Market) none(4) 5.00(5) 1.00(6) none 4.00(7)
OPERATING EXPENSES PAID EACH YEAR BY THE FUNDS(1) (as a % of average net assets) CLASS A
Distribution Total and Service Fund Fee Waiver Management (12b-1) Other Operating by Net Fund Fee Fees Expenses(2) Expenses Adviser(3) Expenses ---- --- ---- ----------- -------- ---------- -------- MagnaCap % 0.71 0.30 0.34 1.35 -- 1.35 LargeCap Leaders % 1.00 0.25 0.73 1.98 -0.23 1.75 Research Enhanced Index % 0.70 0.30 0.56 1.56 -- 1.56 Growth Opportunities % 0.75 0.30 0.34 1.39 -- 1.39 LargeCap Growth % 0.75 0.35 0.25 1.35 -- 1.35 MidCap Value % 1.00 0.25 0.54 1.79 -0.04 1.75 MidCap Opportunities % 1.00 0.30 0.44 1.74 -- 1.74 MidCap Growth % 0.75 0.35 0.25 1.35 -- 1.35 Growth + Value % 1.00 0.30 0.39 1.69 -- 1.69 SmallCap Opportunities % 0.75 0.30 0.38 1.43 -- 1.43 SmallCap Growth % 1.00 0.35 0.24 1.59 -- 1.59 Bank and Thrift % 0.72 0.25 0.42 1.39 -- 1.39 Worldwide Growth % 1.00 0.35 0.30 1.65 -- 1.65 International Value % 1.00 0.30 0.38 1.68 -- 1.68 International Core Growth % 1.00 0.35 0.38 1.73 -- 1.73 International SmallCap Growth % 1.00 0.35 0.42 1.77 -- 1.77 Emerging Markets Value % 1.00 0.30 0.91 2.21 -- 2.21 Emerging Countries % 1.25 0.35 0.93 2.53 -0.53 2.00 Asia-Pacific Equity % 1.25 0.25 1.48 2.98 -0.98 2.00 Government Securities Income(6) % 0.50 0.25 0.65 1.40 -- 1.40 Strategic Income % 0.45 0.35 0.67 1.47 -0.52 0.95 High Yield % 0.60 0.25 0.27 1.12 -0.02 1.10 High Yield II(6) % 0.60 0.35 0.32 1.27 -0.17 1.10 High Total Return % 0.71 0.30 0.33 1.34 -- 1.34 High Total Return II % 0.75 0.30 0.35 1.40 -- 1.40 Money Market % 0.25 0.25 0.75 1.25 -- 1.25 Balanced(6) % 0.75 0.35 0.51 1.61 -0.26 1.35 Convertible % 0.75 0.35 0.23 1.33 -- 1.33
62 What You Pay to Invest WHAT YOU PAY TO INVEST - -------------------------------------------------------------------------------- OPERATING EXPENSES PAID EACH YEAR BY THE FUNDS(1) (as a % of average net assets) CLASS B
Distribution Total and Service Fund Fee Waiver Management (12b-1) Other Operating by Net Fund Fee Fees Expenses(2) Expenses Adviser(3) Expenses ---- --- ---- ----------- -------- ---------- -------- MagnaCap % 0.71 1.00 0.34 2.05 -- 2.05 LargeCap Leaders % 1.00 1.00 0.73 2.73 -0.23 2.50 Research Enhanced Index % 0.70 1.00 0.59 2.29 -- 2.29 Growth Opportunities % 0.75 1.00 0.35 2.10 -- 2.10 LargeCap Growth % 0.75 1.00 0.25 2.00 -- 2.00 MidCap Value % 1.00 1.00 0.54 2.54 -0.04 2.50 MidCap Opportunities % 1.00 1.00 0.40 2.40 -- 2.40 MidCap Growth % 0.75 1.00 0.25 2.00 -- 2.00 Growth + Value % 1.00 1.00 0.39 2.39 -- 2.39 SmallCap Opportunities % 0.75 1.00 0.40 2.15 -- 2.15 SmallCap Growth % 1.00 1.00 0.24 2.24 -- 2.24 Bank and Thrift % 0.72 1.00 0.42 2.14 -- 2.14 Worldwide Growth % 1.00 1.00 0.30 2.30 -- 2.30 International Value % 1.00 1.00 0.41 2.41 -- 2.41 International Core Growth % 1.00 1.00 0.38 2.38 -- 2.38 International SmallCap Growth % 1.00 1.00 0.42 2.42 -- 2.42 Emerging Markets Value % 1.00 1.00 0.93 2.93 -- 2.93 Emerging Countries % 1.25 1.00 0.93 3.18 -0.53 2.65 Asia-Pacific Equity % 1.25 1.00 1.48 3.73 -0.98 2.75 Government Securities Income(6) % 0.50 1.00 0.65 2.15 -- 2.15 Strategic Income % 0.45 0.75 0.67 1.87 -0.52 1.35 High Yield % 0.60 1.00 0.27 1.87 -0.02 1.85 High Yield II(6) % 0.60 1.00 0.32 1.92 -0.17 1.75 High Total Return % 0.71 1.00 0.35 2.06 -- 2.06 High Total Return II % 0.75 1.00 0.36 2.11 -- 2.11 Money Market % 0.25 1.00 0.75 2.00 -- 2.00 Balanced(6) % 0.75 1.00 0.51 2.26 -0.26 2.00 Convertible % 0.75 1.00 0.23 1.98 -- 1.98
[GRAPHIC] If you have any questions, please call 1-800-992-0180. What You Pay to Invest 63 WHAT YOU PAY TO INVEST - -------------------------------------------------------------------------------- OPERATING EXPENSES PAID EACH YEAR BY THE FUNDS(1) (as a % of average net assets) CLASS C(4)
Distribution Total and Service Fund Fee Waiver Management (12b-1) Other Operating by Net Fund Fee Fees Expenses(2) Expenses Adviser(3) Expenses - ---- --- ---- ----------- -------- ---------- -------- MagnaCap % 0.71 1.00 0.34 2.05 -- 2.05 LargeCap Leaders % 1.00 1.00 0.73 2.73 -0.23 2.50 Research Enhanced Index % 0.70 1.00 0.57 2.27 -- 2.27 Growth Opportunities % 0.75 1.00 0.35 2.10 -- 2.10 LargeCap Growth % 0.75 1.00 0.25 2.00 -- 2.00 MidCap Value % 1.00 1.00 0.54 2.54 -0.04 2.50 MidCap Opportunities % 1.00 1.00 0.36 2.36 -- 2.36 MidCap Growth % 0.75 1.00 0.25 2.00 -- 2.00 Growth + Value % 1.00 1.00 0.40 2.40 -- 2.40 SmallCap Opportunities % 0.75 1.00 0.43 2.18 -- 2.18 SmallCap Growth % 1.00 1.00 0.24 2.24 -- 2.24 Worldwide Growth % 1.00 1.00 0.30 2.30 -- 2.30 International Value % 1.00 1.00 0.41 2.41 -- 2.41 International Core Growth % 1.00 1.00 0.38 2.38 -- 2.38 International SmallCap Growth % 1.00 1.00 0.42 2.42 -- 2.42 Emerging Markets Value % 1.00 1.00 0.91 2.91 -- 2.91 Emerging Countries % 1.25 1.00 0.93 3.18 -0.53 2.65 Government Securities Income(6) % 0.50 1.00 0.65 2.15 -- 2.15 Strategic Income % 0.45 0.75 0.67 1.87 -0.52 1.35 High Yield % 0.60 1.00 0.27 1.87 -0.02 1.85 High Yield II(6) % 0.60 1.00 0.32 1.92 -0.17 1.75 High Total Return % 0.71 1.00 0.36 2.07 -- 2.07 High Total Return II % 0.75 1.00 0.37 2.12 -- 2.12 Money Market % 0.25 1.00 0.75 2.00 -- 2.00 Balanced(6) % 0.75 1.00 0.51 2.26 -0.26 2.00 Convertible % 0.75 1.00 0.23 1.98 -- 1.98 CLASS M Distribution Total and Service Fund Fee Waiver Management (12b-1) Other Operating by Net Fund Fee Fees Expenses(2) Expenses Adviser(3) Expenses ---- --- ---- ----------- -------- ---------- -------- MagnaCap % 0.71 0.75 0.34 1.80 -- 1.80 LargeCap Leaders % 1.00 0.75 0.73 2.48 -0.23 2.25 MidCap Value % 1.00 0.75 0.54 2.29 -0.04 2.25 Asia-Pacific Equity % 1.25 0.75 1.48 3.48 -0.98 2.50 Government Securities Income(6) % 0.50 0.75 0.65 1.90 -- 1.90 High Yield % 0.60 0.75 0.27 1.62 -0.02 1.60
64 What You Pay to Invest WHAT YOU PAY TO INVEST - -------------------------------------------------------------------------------- OPERATING EXPENSES PAID EACH YEAR BY THE FUNDS(1) (as a % of average net assets) CLASS T(5)
Distribution Total and Service Fund Fee Waiver Management (12b-1) Other Operating by Net Fund Fee Fees Expenses(2) Expenses Adviser(3) Expenses ---- --- ---- ----------- -------- ---------- -------- Growth Opportunities % 0.75 0.95 0.33 2.03 -- 2.03 SmallCap Opportunities % 0.75 0.95 0.36 2.06 -- 2.06 Government Securities Income(6) % 0.50 0.65 0.65 1.80 -- 1.80 High Yield II(6) % 0.60 0.65 0.32 1.57 -0.17 1.40 Balanced(6) % 0.75 0.75 0.51 2.01 -0.26 1.75
(1) These tables show the estimated operating expenses for each Fund by class as a ratio of expenses to average daily net assets. These estimates are based on each Fund's actual operating expenses for its most recent complete fiscal year and fee waivers to which the Adviser has agreed. (2) For the LargeCap Growth, MidCap Growth, SmallCap Growth, Worldwide Growth, International Core Growth, International SmallCap Growth, Emerging Countries, Strategic Income, High Yield II, Balanced and Convertible Funds, other expenses have been restated to reflect the elimination of certain administrative fees effective May 24, 1999. (3) Pilgrim Investments has entered into expense limitation agreements with each Fund except MagnaCap, Bank and Thrift, Government Securities Income, Research Enhanced Index, Growth Opportunities, MidCap Opportunities, Growth + Value, SmallCap Opportunities, International Value, Emerging Markets Value, High Total Return, and High Total Return II under which it will limit expenses of the Fund, excluding interest, taxes, brokerage and extraordinary expenses, subject to possible reimbursement to Pilgrim Investments within three years. The amount of each Fund's expenses waived or reimbursed during the last fiscal year by Pilgrim Investments is shown under the heading "Fee Waiver by Adviser". For each Fund except Government Securities Income Fund, the expense limit will continue through at least October 31, 2001. Nicholas-Applegate Capital Management bears 50% of the cost of maintaining the expense limit for Funds which it serves as sub-adviser. Pilgrim Investments has separately agreed to reimburse Government Securities Income Fund to the extent that total Fund operating expenses, excluding interest, taxes, brokerage commissions, extraordinary expenses, and distribution fees in excess of 0.25%, exceed 1.50% of the Fund's average daily net asset on the first $40 million in net assets and 1% of average daily net assets in excess of $40 million. The expense limit for Government Securities Income Fund will terminate only with termination of the advisory contract with Pilgrim Investments. (4) Because Class C shares are new for the MagnaCap, LargeCap Leaders, MidCap Value, Government Securities Income and High Yield Funds, their expenses are estimated based on Class B expenses. (5) Because Class T shares are new for Government Securities Income, High Yield II, and Balanced Funds, their expenses are estimated based on Class A expenses. (6) Effective April 1, 2000, certain Pilgrim Funds merged with High Yield II, Balanced and Government Securities Income Funds. It is expected that as a result of the mergers, operating expenses for High Yield II, Balanced and Government Securities Income Funds will be lower than the operating expenses prior to the mergers. [GRAPHIC] If you have any questions, please call 1-800-992-0180. What You Pay to Invest 65 WHAT YOU PAY TO INVEST - -------------------------------------------------------------------------------- Examples The examples that follow are intended to help you compare the cost of investing in the Pilgrim Funds with the cost of investing in other mutual funds. Each example assumes that you invested $10,000, reinvested all your dividends, the Fund earned an average annual return of 5%, and annual operating expenses remained at the current level. Keep in mind that this is only an estimate -- actual expenses and performance may vary. CLASS A
Fund 1 year 3 years 5 years 10 years - ---- ------ ------- ------- -------- MagnaCap $ 705 978 1,272 2,105 LargeCap Leaders $ 743 1,118 1,540 2,713 Research Enhanced Index $ 725 1,039 1,376 2,325 Growth Opportunities $ 709 990 1,292 2,148 LargeCap Growth $ 705 978 1,272 2,105 MidCap Value $ 743 1,098 1,482 2,553 MidCap Opportunities $ 742 1,091 1,464 2,509 MidCap Growth $ 705 978 1,272 2,105 Growth + Value $ 737 1,077 1,440 2,458 SmallCap Opportunities $ 712 1,001 1,312 2,190 SmallCap Growth $ 727 1,048 1,391 2,356 Bank and Thrift $ 708 990 1,292 2,148 Worldwide Growth $ 733 1,065 1,420 2,417 International Value $ 736 1,074 1,435 2,448 International Core Growth $ 741 1,089 1,460 2,499 International SmallCap Growth $ 745 1,100 1,479 2,539 Emerging Markets Value $ 786 1,226 1,692 2,973 Emerging Countries $ 766 1,219 1,751 3,198 Asia-Pacific Equity $ 766 1,264 1,885 3,549 Government Securities Income $ 611 897 1,204 2,075 Strategic Income $ 567 818 1,143 2,061 High Yield $ 582 810 1,059 1,770 High Yield II $ 582 826 1,107 1,907 High Total Return $ 605 879 1,174 2,011 High Total Return II $ 611 897 1,204 2,075 Money Market $ 127 397 686 1,511 Balanced $ 705 1,005 1,353 2,334 Convertible $ 703 972 1,262 2,084
66 What You Pay to Invest WHAT YOU PAY TO INVEST - -------------------------------------------------------------------------------- Examples CLASS B
If you sell your shares If you don't sell your shares ------------------------------------- ------------------------------------- Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years - ---- ------ ------- ------- -------- ------ ------- ------- -------- MagnaCap $ 708 943 1,303 2,200 208 643 1,103 2,200 LargeCap Leaders $ 753 1,103 1,603 2,845 253 803 1,403 2,845 Research Enhanced Index $ 732 1,015 1,425 2,443 232 715 1,225 2,443 Growth Opportunities $ 713 958 1,329 2,250 213 658 1,129 2,250 LargeCap Growth $ 703 927 1,278 2,160 203 627 1,078 2,160 MidCap Value $ 753 1,083 1,543 2,686 253 783 1,343 2,686 MidCap Opportunities $ 743 1,048 1,480 2,573 243 748 1,280 2,573 MidCap Growth $ 703 927 1,278 2,160 203 627 1,078 2,160 Growth + Value $ 742 1,045 1,475 2,553 242 745 1,275 2,553 SmallCap Opportunities $ 718 973 1,354 2,300 218 673 1,154 2,300 SmallCap Growth $ 727 1,000 1,400 2,411 227 700 1,200 2,411 Bank and Thrift $ 717 970 1,349 2,282 217 670 1,149 2,282 Worldwide Growth $ 733 1,018 1,430 2,473 233 718 1,230 2,473 International Value $ 744 1,051 1,485 2,566 244 751 1,285 2,566 International Core Growth $ 741 1,042 1,470 2,555 241 742 1,270 2,555 International SmallCap Growth $ 745 1,055 1,491 2,596 245 755 1,291 2,596 Emerging Markets Value $ 796 1,207 1,743 3,082 296 907 1,543 3,082 Emerging Countries $ 768 1,179 1,769 3,259 268 879 1,569 3,259 Asia-Pacific Equity $ 778 1,255 1,955 3,679 278 955 1,755 3,679 Government Securities Income $ 718 973 1,354 2,292 218 673 1,154 2,292 Strategic Income $ 637 784 1,111 1,998 137 484 911 1,998 High Yield $ 688 884 1,207 1,991 188 584 1,007 1,991 High Yield II $ 678 869 1,204 2,046 178 569 1,004 2,046 High Total Return $ 709 946 1,308 2,205 209 646 1,108 2,205 High Total Return II $ 714 961 1,334 2,260 214 661 1,134 2,260 Money Market $ 703 927 1,278 2,134 203 627 1,078 2,134 Balanced $ 703 955 1,361 2,389 203 655 1,161 2,389 Convertible $ 701 921 1,268 2,139 201 621 1,068 2,139
[GRAPHIC] If you have any questions, please call 1-800-992-0180. What You Pay to Invest 67 WHAT YOU PAY TO INVEST - -------------------------------------------------------------------------------- Examples CLASS C
If you sell your shares If you don't sell your shares ------------------------------------- ------------------------------------- Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years - ---- ------ ------- ------- -------- ------ ------- ------- -------- MagnaCap $ 308 643 1,103 2,379 208 643 1,103 2,379 LargeCap Leaders $ 353 803 1,403 3,026 253 803 1,403 3,026 Research Enhanced Index $ 330 709 1,215 2,605 230 709 1,215 2,605 Growth Opportunities $ 313 658 1,129 2,431 213 658 1,129 2,431 LargeCap Growth $ 303 627 1,078 2,327 203 627 1,078 2,327 MidCap Value $ 353 783 1,343 2,869 253 783 1,343 2,869 MidCap Opportunities $ 339 736 1,260 2,696 239 736 1,260 2,696 MidCap Growth $ 303 627 1,078 2,327 203 627 1,078 2,327 Growth + Value $ 343 748 1,280 2,736 243 748 1,280 2,736 SmallCap Opportunities $ 321 682 1,169 2,513 221 682 1,169 2,513 SmallCap Growth $ 327 700 1,200 2,575 227 700 1,200 2,575 Worldwide Growth $ 333 718 1,230 2,636 233 718 1,230 2,636 International Value $ 344 751 1,285 2,746 244 751 1,285 2,746 International Core Growth $ 341 742 1,270 2,716 241 742 1,270 2,716 International SmallCap Growth $ 345 755 1,291 2,756 245 755 1,291 2,756 Emerging Markets Value $ 394 901 1,533 3,233 294 901 1,533 3,233 Emerging Countries $ 368 879 1,569 3,409 268 879 1,569 3,409 Government Securities Income $ 318 673 1,154 2,483 218 673 1,154 2,483 Strategic Income $ 237 484 911 2,103 137 484 911 2,103 High Yield $ 288 584 1,007 2,187 188 584 1,007 2,187 High Yield II $ 278 569 1,004 2,215 178 569 1,004 2,215 High Total Return $ 310 649 1,114 2,400 210 649 1,114 2,400 High Total Return II $ 315 664 1,139 2,452 215 664 1,139 2,452 Money Market $ 303 627 1,078 2,327 203 627 1,078 2,327 Balanced $ 303 655 1,161 2,554 203 655 1,161 2,554 Convertible $ 301 621 1,068 2,306 201 621 1,068 2,306 CLASS M Fund 1 year 3 years 5 years 10 years - ---- ------ ------- ------- -------- MagnaCap $ 526 897 1,291 2,392 LargeCap Leaders $ 570 1,052 1,583 3,033 MidCap Value $ 570 1,033 1,525 2,878 Asia-Pacific Equity $ 594 1,200 1,927 3,845 Government Securities Income $ 512 903 1,318 2,475 High Yield $ 482 816 1,174 2,181 CLASS T If you sell your shares If you don't sell your shares ------------------------------------- ------------------------------------- Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years - ---- ------ ------- ------- -------- ------ ------- ------- -------- Growth Opportunities $ 606 837 1,093 2,194 206 637 1,093 2,194 SmallCap Opportunities $ 609 846 1,108 2,228 209 646 1,108 2,228 Government Securities Income $ 583 766 975 2,011 183 566 975 2,011 High Yield II $ 543 662 822 1,757 143 462 822 1,757 Balanced $ 578 779 1,034 2,192 178 579 1,034 2,192
68 What You Pay to Invest SHAREHOLDER CHOOSING A SHARE CLASS GUIDE - -------------------------------------------------------------------------------- PILGRIM PURCHASE OPTIONSTM Depending upon the Fund, you may select from up to four separate classes of shares: Class A, Class B, Class C and Class M. CLASS A * Front-end sales charge, as described on the next page (except for Money Market Fund). * Distribution and service (12b-1) fees of 0.25% to 0.35%. CLASS B * No front-end sales charge; all your money goes to work for you right away. * Distribution and service (12b-1) fees of 1% (0.75% for Strategic Income Fund). * A contingent deferred sales charge, as described on the next page. * Automatic conversion to Class A shares after eight years, thus reducing future annual expenses. Class B shares acquired initially through Funds that were part of the Nicholas-Applegate Mutual Funds at the time of purchase will convert after seven years from the date of original purchase. CLASS C * No front-end sales charge; all your money goes to work for you right away. * Distribution and service (12b-1) fees of 1% (0.75% for Strategic Income Fund). * A 1% contingent deferred sales charge on shares sold within one year of purchase. * No automatic conversion to Class A shares, so annual expenses continue at the Class C level throughout the life of your investment. * Not offered by Bank and Thrift Fund and Asia-Pacific Equity Fund. CLASS M * Lower front-end sales charge than Class A, as described on the next page. * Distribution and service (12b-1) fees of 0.75%. * No automatic conversion to Class A shares, so annual expenses continue at the Class M level throughout the life of your investment. * Offered only by MagnaCap Fund, LargeCap Leaders Fund, MidCap Value Fund, Asia-Pacific Equity Fund, Government Securities Income Fund and High Yield Fund. CLASS T * No longer available for purchase, unless you are investing income earned on Class T shares or exchanging Class T Shares of another Fund. * Distribution and service (12b-1) fees of 0.65 to 1% (varies by fund). * A contingent deferred sales charge, as described in this section. * Automatic conversion to Class A shares after 8 years, thus reducing future annual expenses. * Offered only by Growth Opportunities, SmallCap Opportunities, Government Securities Income, High Yield II, and Balanced. When choosing between classes, you should carefully consider the ongoing annual expenses along with the initial sales charge or the contingent deferred sales charge. The relative impact of the initial sales charges and ongoing annual expenses will depend on the length of time a share is held. Higher distribution fees mean a higher expense ratio, so Class B and Class C shares pay correspondingly lower dividends and may have a lower net asset value than Class A or Class M shares. Orders for Class B shares and Class M shares in excess of $250,000 and $1,000,000, respectively, will be accepted as orders for Class A shares or declined. You should discuss which Class of shares is right for you with your investment professional. DISTRIBUTION AND SHAREHOLDER SERVICE FEES To pay for the cost of promoting the Funds and servicing your shareholder account, each class of each Fund has adopted a Rule 12b-1 plan which requires fees to be paid out of the assets of each class. Over time the fees will increase your cost of investing and may exceed the cost of paying other types of sales charges. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 69 SHAREHOLDER GUIDE CHOOSING A SHARE CLASS - -------------------------------------------------------------------------------- SALES CHARGE CALCULATION CLASS A Class A shares of the Funds are sold subject to the following sales charge: Equity Funds and Equity & Income Funds Income Funds ------------------------- ------------------------ As a % As a % of the As a % of of the As a % of offering net offering net Your Investment price asset value price asset value - --------------- ----- ----------- ----- ----------- Less than $50,000 5.75 6.10 4.75 4.99 $50,000 - $99,999 4.50 4.71 4.50 4.71 $100,000 - $249,999 3.50 3.63 3.50 3.63 $250,000 - $499,999 2.50 2.56 2.50 2.56 $500,000 - $1,000,000 2.00 2.04 2.00 2.04 $1,000,000 and over See below See below MONEY MARKET FUND. There is no sales charge if you purchase Class A shares of Money Market Fund. However, if the Class A shares are exchanged for shares of another Pilgrim Fund, you will be charged the applicable sales load for that fund upon the exchange. INVESTMENTS OF $1 MILLION OR MORE. There is no front-end sales charge if you purchase Class A shares in an amount of $1 million or more. However, the shares will be subject to a contingent deferred sales charge if they are redeemed within one or two years of purchase, depending on the amount of the purchase, as follows: Period during which Your investment CDSC CDSC applies --------------- ---- ------------ $1,000,000 to $2,499,999 1.00% 2 years $2,500,000 to $4,999,999 0.50% 1 year $5,000,000 and over 0.25% 1 year However, Class A shares that were purchased in an amount of $1 million or more through Funds that were part of the Nicholas-Applegate Mutual Funds at the time of purchase will be subject to a contingent deferred sales charge of 1% within one year from the date of purchase. Class A shares that were purchased in an amount of $1 million or more through funds that were part of the Northstar family of funds at the time of purchase are subject to a different contingent deferred sales charge period of 18 months from the date of purchase. See the SAI for further information. CLASS B, CLASS C AND CLASS T Class B and Class C shares are offered at their net asset value per share without any initial sales charge. However, you may be charged a contingent deferred sales charge (CDSC) on shares that you sell within a certain period of time after you bought them. The amount of the CDSC is based on the lesser of the net asset value of the shares at the time of purchase or redemption. There is no CDSC on shares acquired through the reinvestment of dividends and capital gains distributions. The CDSCs are as follows: CLASS B DEFERRED SALES CHARGE (1) CDSC on shares Years after purchase being sold - -------------------- ---------- 1st year 5% 2nd year 4% 3rd year 3% 4th year 3% 5th year 2% 6th year 1% After 6th year none (1) Class B shares that were purchased through funds that were part of the Northstar family of funds at the time of purchase are subject to a different contingent deferred sales charge. Please see the SAI for further information. CLASS C DEFERRED SALES CHARGE CDSC on shares Years after purchase being sold - -------------------- ---------- 1st year 1% After 1st year none CLASS T DEFERRED SALES CHARGE CDSC on shares Years after purchase being sold - -------------------- ---------- 1st year 4% 2nd year 3% 3rd year 2% 4th year 1% After 4th year none To keep your CDSC as low as possible, each time you place a request to redeem shares the Funds will first redeem shares in your account that are not subject to a CDSC, and then will sell shares that have the lowest CDSC. CLASS M Class M shares of the Funds are sold subject to the following sales charge. MagnaCap, LargeCap Leaders, Government MidCap Value, Securities and Income and Asia-Pacific High Yield Equity Funds Funds -------------------- ------------------- As a % As a % As a % As a % of the of net of the of net offering asset offering asset Your investment price value price value - --------------- ----- ----- ----- ----- Less than $50,000 3.50% 3.63% 3.25% 3.36% $50,000 - $99,999 2.50% 2.56% 2.25% 2.30% $100,000 - $249,999 1.50% 1.52% 1.50% 1.52% $250,000 - $499,999 1.00% 1.01% 1.00% 1.01% $500,000 and over none none none none 70 Shareholder Guide SHAREHOLDER CHOOSING A SHARE CLASS GUIDE - -------------------------------------------------------------------------------- SALES CHARGE REDUCTIONS AND WAIVERS REDUCED SALES CHARGES. You may reduce the initial sales charge on a purchase of Class A or Class M shares of the funds by combining multiple purchases to take advantage of the breakpoints in the sales charge schedules. You may do this by: LETTER OF INTENT -- lets you purchase shares over a 13 month period and pay the same sales charge as if the shares had all been purchased at once. RIGHTS OF ACCUMULATION -- lets you add the value of shares of any open-end Pilgrim Fund (excluding the Money Market Fund) you already own to the amount of your next purchase for purposes of calculating the sales charge. COMBINATION PRIVILEGE -- shares held by investors in the Pilgrim Funds which impose a CDSC may be combined with Class A or Class M shares for a reduced sales charge. See the Account Application or the Statement of Additional Information for details, or contact your financial representative or the Shareholder Servicing Agent for more information. CDSC WAIVERS. If you notify the Transfer Agent at the time of redemption, the CDSC for each Class will be waived in the following cases: * redemptions following the death or permanent disability of a shareholder if made within one year of death or the initial determination of permanent disability. The waiver is available only for shares held at the time of death or initial determination of permanent disability. * for Class B Shares, redemptions pursuant to a Systematic Withdrawal Plan, up to a maximum of 12% per year of a shareholder's account value based on the value of the account at the time the plan is established and annually thereafter, provided all dividends and distributions are reinvested and the total redemptions do not exceed 12% annually. * mandatory distributions from a tax-deferred retirement plan or an IRA. However, if you purchased shares that were part of the Nicholas-Applegate Mutual Funds, you may be eligible for a CDSC waiver prior to the mandatory distribution age. * If you think you may be eligible for a CDSC waiver, contact your financial representative or the Shareholder Servicing Agent. REINSTATEMENT PRIVILEGE. If you sell Class B, Class C or Class T shares of a Pilgrim Fund, you may reinvest some or all of the proceeds in the same share class within 90 days without a sales charge. Reinstated Class B, Class C and Class T shares will retain their original cost and purchase date for purposes of the CDSC. This privilege can be used only once per calendar year. If you want to use the Reinstatement Privilege, contact your financial representative or the Shareholder Servicing Agent. Consult the SAI for more information. SALES CHARGE WAIVERS. Class A or Class M shares may be purchased without a sales charge by certain individuals and institutions. For additional information, contact the Shareholder Servicing Agent, or see the Statement of Additional Information. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 71 SHAREHOLDER GUIDE HOW TO PURCHASE SHARES - -------------------------------------------------------------------------------- The minimum initial investment amounts for the Pilgrim Funds are as follows: * Non-retirement accounts: $1,000 * Retirement accounts: $250 * Pre-Authorized Investment Plan: $100 to open; you must invest at least $100 a month. The minimum additional investment is $100. Make your investment using the table on the right. The Funds and the Distributor reserve the right to reject any purchase order. Please note that cash, travelers checks, third party checks, money orders and checks drawn on non-US banks (even if payment may be effected through a US bank) will not be accepted. The Pilgrim Funds reserve the right to waive minimum investment amounts. The Funds reserve the right to liquidate sufficient shares to recover annual transfer agent fees or to close your account and redeem your shares should you fail to maintain your account value at a minimum of $1,000.00 ($250.00 for IRA's). RETIREMENT PLANS The Funds have available prototype qualified retirement plans for both corporations and for self-employed individuals. They also have available prototype IRA, Roth IRA and Simple IRA plans (for both individuals and employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans and Tax Sheltered Retirement Plans for employees of public educational institutions and certain non-profit, tax-exempt organizations. Investors Fiduciary Trust Company (IFTC) acts as the custodian under these plans. For further information, contact the Shareholder Servicing Agent at (800) 992-0180. IFTC currently receives a $12 custodial fee annually for the maintenance of such accounts. Initial Additional Method Investment Investment ------ ---------- ---------- By Contacting An investment Your professional with an Investment authorized firm Professional can help you establish and maintain your account. By Mail Visit or consult an Visit or consult an investment investment professional. Fill professional. Make out the Account Additions your check payable to form included on the bottom of the Pilgrim Funds and your account statement along mail it, along with a with your check payable to the completed Application. Fund and mail them to the Please indicate your address on the account investment professional statement. Remember to write on the New Account your account number on the Application check. By Wire Call the Pilgrim Wire the funds in the Operations Department same manner described at (800) 336-3436 to under "Initial obtain an account Investment." number and indicate your investment professional on the account. Instruct your bank to wire funds to the Fund in the care of: State Street Bank and Trust -- Kansas City ABA #101003621 Kansas City, MO credit to: ____________ (the Fund) A/C #751-8315; for further credit to: _______________ Shareholder A/C # _____________ (A/C # ____________ you received over the telephone) Shareholder Name: --------------------- (Your Name Here) After wiring funds you must complete the Account Application and send it to: Pilgrim Funds P.O. Box 219368 Kansas City, MO 64121-6368 72 Shareholder Guide SHAREHOLDER HOW TO REDEEM SHARES GUIDE - -------------------------------------------------------------------------------- You may redeem shares using the table on the right. Under unusual circumstances, a Fund may suspend the right of redemption as allowed by federal securities laws. SYSTEMATIC WITHDRAWAL PLAN You may elect to make periodic withdrawals from your account on a regular basis. * Your account must have a current value of at least $10,000. * Minimum withdrawal amount is $100. * You may choose from monthly, quarterly, semi-annual or annual payments. For additional information, contact the Shareholder Servicing Agent, see the Account Application or the Statement of Additional Information. PAYMENTS Normally, payment for shares redeemed will be made within three days after receipt by the Transfer Agent of a written request in good order. When you place a request to redeem shares for which the purchase money has not yet been collected, the request will be executed at the next determined net asset value, but the Fund will not release the proceeds until your purchase payment clears. This may take up to 15 days or more. To reduce such delay, purchases should be made by bank wire or federal funds. Each Fund normally intends to pay in cash for all shares redeemed, but under abnormal conditions that make payment in cash unwise, a Fund may make payment wholly or partly in securities at their then current market value equal to the redemption price. In such case, a Fund could elect to make payment in securities for redemptions in excess of $250,000 or 1% of its net assets during any 90-day period for any one shareholder. An investor may incur brokerage costs in converting such securities to cash. Method Procedures ------ ---------- By Contacting Your You may redeem by contacting your investment Investment Professional professional. Investment professionals may charge for their services in connection with your redemption request, but neither the Fund nor the Distributor imposes any such charge. By Mail Send a written request specifying the Fund name and share class, your account number, the name(s) in which the account is registered, and the dollar value or number of shares you wish to redeem to: Pilgrim Funds P.O. Box 219368 Kansas City, MO 64121-6368 If certificated shares have been issued, the certificate must accompany the written request. Corporate investors and other associations must have an appropriate certification on file authorizing redemptions. A suggested form of such certification is provided on the Account Application. A signature guarantee may be required. By Telephone -- You may redeem shares by telephone on all accounts Expedited Redemption other than retirement accounts, unless you check the box on the Account Application which signifies that you do not wish to use telephone redemptions. To redeem by telephone, call the Shareholder Servicing Agent at (800) 992-0180. RECEIVING PROCEEDS BY CHECK: You may have redemption proceeds (up to a maximum of $100,000) mailed to an address which has been on record with Pilgrim Funds for at least 30 days. RECEIVING PROCEEDS BY WIRE: You may have redemption proceeds (subject to a minimum of $5,000) wired to your pre-designated bank account. You will not be able to receive redemption proceeds by wire unless you check the box on the Account Application which signifies that you wish to receive redemption proceeds by wire and attach a voided check. Under normal circumstances, proceeds will be transmitted to your bank on the business day following receipt of your instructions, provided redemptions may be made. In the event that share certificates have been issued, you may not request a wire redemption by telephone. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 73 SHAREHOLDER GUIDE TRANSACTION POLICIES - -------------------------------------------------------------------------------- NET ASSET VALUE The net asset value (NAV) per share for each Fund and class is determined each business day as of the close of regular trading on the New York Stock Exchange (usually at 4:00 p.m. Eastern Time). The NAV per share of each class of each Fund is calculated by taking the value of the Fund's assets attributable to that class, subtracting the Fund's liabilities attributable to that class, and dividing by the number of shares of that class that are outstanding. Because foreign securities may trade on days when the Funds do not price shares, the net asset value of a Fund that invests in foreign securities may change on days when shareholders will not be able to purchase or redeem the Fund's shares. In general, assets are valued based on actual or estimated market value, with special provisions for assets not having readily available market quotations, and short-term debt securities, and for situations where market quotations are deemed unreliable. Short-term debt securities having a maturity of 60 days or less are valued at amortized cost, unless the amortized cost does not approximate market value. Securities prices may be obtained from automated pricing services. When market quotations are not readily available or are deemed unreliable, securities are valued at their fair value as determined in good faith under the supervision of the Board of Directors or Trustees. Valuing securities at fair value involves greater reliance on judgment than securities that have readily available market quotations. Money Market Fund. The Money Market Fund tries to maintain a stable NAV of $1.00 per share. Because the Primary Institutional Fund uses the amortized cost method of valuing the securities held by it and rounds its per share net asset value to the nearest whole cent, it is anticipated that the net asset value of the Primary Institutional Fund will remain constant at $1.00 per share. However, the Money Market Fund makes no assurance that either it or the Primary Institutional Fund can maintain a $1.00 net asset value per share. PRICE OF SHARES When you buy shares, you pay the NAV plus any applicable sales charge. When you sell shares, you receive the NAV minus any applicable deferred sales charge. Exchange orders are effected at NAV. EXECUTION OF REQUESTS Purchase and sale requests are executed at the next NAV determined after the order is received in proper form by the Transfer Agent or Distributor. A purchase order will be deemed to be in proper form when all of the required steps set forth above under "How to Purchase Shares" have been completed. If you purchase by wire, however, the order will be deemed to be in proper form after the telephone notification and the federal funds wire have been received. If you purchase by wire, you must submit an application form in a timely fashion. If an order or payment by wire is received after the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time), the shares will not be credited until the next business day. You will receive a confirmation of each new transaction in your account, which also will show you the number of Fund shares you own including the number of shares being held in safekeeping by the Transfer Agent for your account. You may rely on these confirmations in lieu of certificates as evidence of your ownership. Certificates representing shares of the Funds will not be issued unless you request them in writing. TELEPHONE ORDERS The Funds and their transfer agent will not be responsible for the authenticity of phone instructions or losses, if any, resulting from unauthorized shareholder transactions if they reasonably believe that such instructions were genuine. The Funds and their transfer agent have established reasonable procedures to confirm that instructions communicated by telephone are genuine. These procedures include recording telephone instructions for exchanges and expedited redemptions, requiring the caller to give certain specific identifying information, and providing written confirmation to shareholders of record not later than five days following any such telephone transactions. If the Funds and their transfer agent do not employ these procedures, they may be liable for any losses due to unauthorized or fraudulent telephone instructions. EXCHANGES You may exchange shares of a Fund for shares of the same class of any other Pilgrim Fund, without paying any additional sales charge, except that Class A shares of the Money Market Fund for which no sales charge was paid must pay the applicable sales load on an exchange into Class A shares of another Fund. In addition, Class T shares of any Fund may be exchanged for Class B shares of the Money Market Fund. Shares subject to a CDSC will continue to age from the date that the original shares were purchased. If you exchange shares of a Fund that at the time you acquired the shares was a Nicholas-Applegate Mutual Fund, the shares you receive on the exchange will be subject to the current CDSC structure and conversion rights of the Fund being acquired, although the shares will continue to age for CDSC and conversion purposes from the date the original shares were acquired. The total value of shares being exchanged must at least equal the minimum investment requirement of the Fund into which they are being exchanged. Exchanges of shares are sales and may result in a gain or loss for federal and state income tax purposes. There is no specific limit on exchange frequency; however, the Funds are intended for long-term investment and not as a short-term trading vehicle. The adviser may prohibit excessive exchanges (more than four per year). The adviser also may, on 60 days' prior notice, restrict the frequency of, otherwise modify, or impose charges of up to $5.00 upon exchanges. 74 Shareholder Guide SHAREHOLDER TRANSACTION POLICIES GUIDE - -------------------------------------------------------------------------------- You will automatically have the ability to request an exchange by calling the Shareholder Service Agent unless you mark the box on the Account Application that indicates that you do not wish to have the telephone exchange privilege. A Fund may change or cancel its exchange policies at any time, upon 60 days' written notice to shareholders. SYSTEMATIC EXCHANGE PRIVILEGE With an initial account balance of at least $5,000 and subject to the information and limitations outlined above, you may elect to have a specified dollar amount of shares systematically exchanged, monthly, quarterly, semi-annually or annually (on or about the 10th of the applicable month), from your account to an identically registered account in the same class of any other open-end Pilgrim Fund. This exchange privilege may be modified at any time or terminated upon 60 days' written notice to shareholders. SMALL ACCOUNTS Due to the relatively high cost of handling small investments, the Funds reserve the right upon 30 days' written notice to redeem, at NAV, the shares of any shareholder whose account (except for IRAs) has a value of less than $1,000, other than as a result of a decline in the NAV per share. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 75 MANAGEMENT OF THE FUNDS ADVISER - -------------------------------------------------------------------------------- Pilgrim Investments, Inc. ("Pilgrim" or "Pilgrim Investments") serves as the investment adviser to each of the Funds. Pilgrim has overall responsibility for the management of the Funds. Pilgrim provides or oversees all investment advisory and portfolio management services for each Fund, and assists in managing and supervising all aspects of the general day-to-day business activities and operations of the Funds, including custodial, transfer agency, dividend disbursing, accounting, auditing, compliance and related services. Organized in December 1994, Pilgrim is registered as an investment adviser. Pilgrim is an indirect wholly-owned subsidiary of ReliaStar Financial Corp. ("ReliaStar") (NYSE: RLR). Through its subsidiaries, ReliaStar offers individuals and institutions life insurance and annuities, employee benefits products and services, life and health reinsurance, retirement plans, mutual funds, bank products, and personal finance education. Prior to April 30, 2000, Pilgrim Advisors, Inc. ("Pilgrim Advisors") served as investment adviser to certain of the Funds. On April 30, 2000, Pilgrim Advisors, an indirect wholly-owned subsidiary of ReliaStar, merged with Pilgrim Investments. Pilgrim Advisors and Pilgrim Investments were sister companies and shared certain resources and investment personnel. As of February 29, 2000, Pilgrim and Pilgrim Advisors together managed over $16.6 billion in assets. Pilgrim's principal address is 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. Pilgrim receives a monthly fee for its services based on the average daily net assets of each of the Funds. The following table shows the aggregate annual advisory fee paid by each Fund for the most recent fiscal year as a percentage of that Fund's average daily net assets: Advisory Fund Fee - ---- --- MagnaCap 0.71% LargeCap Leaders 1.00 Research Enhanced Index 0.70 Growth Opportunities 0.75 LargeCap Growth 0.75 MidCap Value 1.00 MidCap Opportunities 1.00 MidCap Growth 0.75 Growth + Value 1.00 SmallCap Opportunities 0.75 SmallCap Growth 1.00 Bank and Thrift 0.72 Worldwide Growth 1.00 International Value 1.00 International Core Growth 1.00 International SmallCap Growth 1.00 Emerging Markets Value 1.00 Emerging Countries 1.25 Asia-Pacific Equity 1.25 Government Securities Income 0.50 Strategic Income 0.45 High Yield 0.60 High Yield II 0.60 High Total Return 0.71 High Total Return II 0.75 Money Market 0.25 Balanced 0.75 Convertible 0.75 PILGRIM DIRECTLY MANAGES THE PORTFOLIOS OF THE FOLLOWING FUNDS: GROWTH OPPORTUNITIES FUND, MIDCAP OPPORTUNITIES FUND AND MIDCAP GROWTH FUND. The following individuals share responsibility for the day-to-day management of the Growth Opportunities Fund, MidCap Opportunities Fund and MidCap Growth Fund. Mary Lisanti has co-managed the Pilgrim MidCap Opportunities Fund since the Fund was formed in August 1998, managed or co-managed the Pilgrim Growth Opportunities Fund since August 1998 and co-managed the Pilgrim MidCap Growth Fund since April, 2000. She joined Pilgrim in May 1998. Ms. Lisanti has over 20 years of experience in small and mid-cap investments. Before joining Pilgrim, Ms. Lisanti was a Portfolio Manager at Strong Capital Management where she managed the Strong Small Cap Fund and co-managed the Strong Mid Cap Fund. From 1993 to 1996, Ms. Lisanti was a Managing Director and Head of Small and Mid-Capitalization Equity Strategies at Bankers Trust Corp. where she managed the BT Small Cap Fund and the BT Capital Appreciation Fund. Prior to Bankers Trust, Ms. Lisanti was a Portfolio Manager with the Evergreen Funds. She began her career as an Analyst specializing in emerging growth stocks with Donaldson, Lufkin & Jenrette and Shearson Lehman Hutton, and was ranked the number one Institutional Investor Emerging Growth Stock Analyst in 1989. She is a Chartered Financial Analyst, and a Member of the New York Society of Security Analysts and the Financial Analyst Federation. 76 Management of the Funds ADVISER MANAGEMENT OF THE FUNDS - -------------------------------------------------------------------------------- Jeffrey Bernstein has co-managed the Pilgrim MidCap Opportunities Fund since the Fund was formed in August 1998 and has co-managed the Pilgrim Growth Opportunities Fund since January 2000. He joined Pilgrim in May 1998. Mr. Bernstein has over 10 years of experience in small and mid-cap investments. Before joining Pilgrim, Mr. Bernstein was a Portfolio Manager at Strong Capital Management where he co-managed the Strong Mid Cap Fund. From November 1995 to February 1997, Mr. Bernstein was a Portfolio Manager with Berkeley Capital. From September 1993 to November 1995, Mr. Bernstein was an Assistant Portfolio Manager at Bankers Trust Corp. Prior to Bankers Trust, Mr. Bernstein was an Analyst for Cowen & Co. SMALLCAP OPPORTUNITIES FUND AND SMALLCAP GROWTH FUND Mary Lisanti, whose background is described above, has served as a manager of the SmallCap Opportunities Fund since July 1998 and SmallCap Growth Fund since April 2000. HIGH TOTAL RETURN FUND AND HIGH TOTAL RETURN FUND II Kevin Mathews has served as Senior Portfolio Manager of High Total Return II and High Total Return since November 1999. Mr. Mathews has over 16 years of experience in the management of high-yield fixed income investments. Mr. Mathews serves as a Senior Vice President and Senior Portfolio Manager of Pilgrim. Prior to joining Pilgrim, Mr. Mathews was a Vice President and Senior Portfolio Manager of Van Kampen American Capital. Charles Ullerich has served as co-manager of High Total Return II and High Total Return since December 1999. Mr. Ullerich has approximately nine years of experience in the management of fixed-income investments. Mr. Ullerich serves as a Vice President and Portfolio Manager of Pilgrim. Prior to joining Pilgrim, Mr. Ullerich was Vice President of Treasury Services for First Liberty Bank of Macon, Georgia since 1991, where he was Portfolio Manager for a mortgage and treasury securities portfolio. MAGNACAP FUND This Fund is managed by a team led by Howard N. Kornblue, Senior Vice President and Senior Portfolio Manager for Pilgrim. Mr. Kornblue has served as a Portfolio Manager of MagnaCap Fund since 1989. The other individuals on the team are G. David Underwood and Robert M. Kloss. LARGECAP LEADERS AND MIDCAP VALUE FUND The LargeCap Leaders and MidCap Value Funds are managed by a team led by G. David Underwood, Senior Vice President and Senior Portfolio Manager for Pilgrim. Mr. Underwood is the Lead Portfolio Manager of LargeCap Leaders Fund. Prior to joining Pilgrim in December, 1996, Mr. Underwood served as Director of Funds Management for First Interstate Capital Management. Mr. Underwood's prior experience includes a 10 year association with Integra Trust Company of Pittsburgh where he served as Director of Research and Senior Portfolio Manager. The other individual on the team is Robert M. Kloss. BANK AND THRIFT FUND Carl Dorf, Senior Vice President and Senior Portfolio Manager of Bank and Thrift Fund has been managing the Fund's portfolio since January 1991, when he joined Pilgrim's predecessor. Mr. Dorf is also a Senior Vice President of Pilgrim. STRATEGIC INCOME FUND The following individuals share responsibility for the day-to-day management of the Strategic Income Fund: Robert K. Kinsey, Vice President of Pilgrim, has served as a Portfolio Manager of Strategic Income Fund since May 24, 1999. Mr. Kinsey manages Strategic Income Fund's assets that are invested in assets other than high yield debt securities. Prior to joining Pilgrim, Mr. Kinsey was a Vice President and Fixed Income Portfolio Manager for Federated Investors from January 1995 to March 1999. From July 1992 to January 1995, Mr. Kinsey was a Principal and Portfolio Manager for Harris Investment Management. Kevin G. Mathews, Senior Vice President and Senior Portfolio Manager of Pilgrim, has served as a Senior Portfolio Manager of Strategic Income Fund since May 24, 1999. Mr. Mathews manages Strategic Income Fund's assets that are invested in high yield debt securities. Mr. Mathews has served as Portfolio Manager of High Yield Fund since June 1995, and also served as Portfolio Manager of Government Securities Income Fund from June 1995 through September 1996. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Management of the Funds 77 MANAGEMENT OF THE FUNDS ADVISER - -------------------------------------------------------------------------------- Charles Ullerich, whose background is described above, has served as a Co-Portfolio Manager of Strategic Income Fund since December 1999. GOVERNMENT SECURITIES INCOME FUND Robert K. Kinsey, whose background is described above, has primary responsibility for the day-to-day management of Government Securities Income Fund, and has served as Senior Portfolio Manager of Government Securities Income Fund since May 24, 1999. HIGH YIELD FUND AND HIGH YIELD FUND II Kevin G. Mathews, whose background is described above, has served as Senior Portfolio Manager of High Yield Fund and High Yield Fund II since June 1995 and May 1999, respectively. Charles Ullerich, whose background is described above, has served as a co-manager of High Yield Fund and High Yield Fund II since December 1999. BALANCED FUND The following individuals share responsibility for the day-to-day management of the Balanced Fund: G. David Underwood, whose background is described above, has served as Senior Portfolio Manager of the equity portion of the Balanced Fund's assets since May 24, 1999. Kevin G. Mathews, whose background is described above, has served as Senior Portfolio Manager of the fixed income portion of Balanced Fund's assets since May 24, 1999. Robert K. Kinsey, whose background is described above, has served as a Portfolio Manager of the fixed income portion of Balanced Fund's assets since May 24, 1999. Charles Ullerich, whose background is described above, has served as a co-manager of the fixed income portion of Balanced Fund's assets since December 1999. 78 Management of the Funds SUB-ADVISERS MANAGEMENT OF THE FUNDS - -------------------------------------------------------------------------------- For the following Funds, Pilgrim has engaged a Sub-Adviser to provide the day-to-day management of the Fund's portfolio. The Sub-Advisers are among the most respected institutional investment advisers in the world, and have been selected primarily on the basis of their successful application of a consistent, well-defined, long-term investment approach over a period of several market cycles. RESEARCH ENHANCED INDEX FUND J.P. MORGAN INVESTMENT MANAGEMENT INC. A registered investment adviser, J.P. Morgan Investment Management Inc. (J.P. Morgan) serves as Sub-Adviser to the Pilgrim Research Enhanced Index Fund. The firm was formed in 1984. The firm evolved from the Trust and Investment Division of Morgan Guaranty Trust Company which acquired its first tax-exempt client in 1913 and its first pension account in 1940. J.P. Morgan currently manages approximately $349 billion for institutions and pension funds. The company is a wholly owned subsidiary of J.P. Morgan & Co. J.P. Morgan's principal address is 522 Fifth Avenue, New York, New York 10036. Nanette Buziak, Timothy Devlin and Bernard Kroll share the responsibility for the day-to-day management of the Pilgrim Research Enhanced Index Fund. Ms. Buziak has co-managed the Pilgrim Research Enhanced Index Fund since April 1999. At J.P. Morgan, she serves as a Portfolio Manager and Member of the Structured Equity Group. Ms. Buziak has over 8 years of investment management experience. Before joining J.P. Morgan in 1997, Ms. Buziak was an index arbitrage trader and convertible bond portfolio manager at First Marathon America, Inc. Mr. Devlin has co-managed the Pilgrim Research Enhanced Index Fund since the Fund was formed in December 1998. At J.P. Morgan, he serves as a Portfolio Manager and Member of the Structured Equity Group. Mr. Devlin has over 12 years of investment management experience. Before joining J.P. Morgan in 1996, Mr. Devlin was a Portfolio Manager for nine years at Mitchell Hutchins Asset Management, Inc. where he managed quantitatively-driven portfolios for institutional and retail investors. Mr. Kroll has co-managed the Pilgrim Research Enhanced Index Fund since March 2000. At J.P. Morgan he serves as a Portfolio Manager and Member of the Structured Equity Group. Mr. Kroll has over 20 years of investment experience. Before joining J.P. Morgan in 1996, Mr. Kroll was an equity derivatives specialist at Goldman Sachs & Co. Earlier, he managed his own software development firm and options broker-dealer, and managed several derivatives businesses at Kidder, Peabody & Co. GROWTH + VALUE FUND NAVELLIER FUND MANAGEMENT, INC. A registered investment adviser, Navellier Fund Management Inc. (Navellier) serves as Sub-Adviser to the Pilgrim Growth + Value Fund. Navellier and its affiliate, Navellier & Associates, Inc., manage over $5 billion for institutions, pension funds and high net worth individuals. Navellier's principal address is 1 East Liberty, Third Floor, Reno, Nevada 89501. Louis Navellier has managed the Pilgrim Growth + Value Fund since the Fund was formed in November 1996. Mr. Navellier has over 19 years of investment management experience and is the principal owner of Navellier & Associates, Inc., a registered investment adviser that manages investments for institutions, pension funds and high net worth individuals. Mr. Navellier's investment newsletter, MPT Review, has been published for over 19 years and is widely renowned throughout the investment community. INTERNATIONAL VALUE FUND AND EMERGING MARKETS VALUE FUND BRANDES INVESTMENT PARTNERS, L.P. A registered investment adviser, Brandes Investment Partners, L.P. (Brandes) serves as Sub-Adviser to the Pilgrim International Value Fund and the Pilgrim Emerging Markets Value Fund. The company was formed in May 1996 as the successor to its general partner, Brandes Investment Partners, Inc. which has been providing investment advisory services (through various predecessor entities) since 1974. Brandes currently manages over $33 billion in international portfolios. Brandes' principal address is 12750 High Bluff Drive, San Diego, California 92130. Charles Brandes has co-managed the Pilgrim International Value Fund and the Pilgrim Emerging Markets Value Fund since the Funds were formed in March 1995 and January 1998, respectively. Mr. Brandes has over 31 years of investment management experience. He founded the general partner of Brandes in 1974 and owns a controlling interest in it. At Brandes, he serves as a Managing Partner. He is a Chartered Financial Analyst and a Member of the Association for Investment Management and Research. Ian Sunder has co-managed the Pilgrim Emerging Markets Value Fund since the Fund was formed in January 1998. Mr. Sunder has over nine years of investment management experience. At Brandes, he serves as a Portfolio Manager. He is a Chartered Financial Analyst, and a Member of the Association for Investment Management and Research and the Financial Analysts Society. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Management of the Funds 79 MANAGEMENT OF THE FUNDS SUB-ADVISERS - -------------------------------------------------------------------------------- Jeff Busby has co-managed the Pilgrim International Value Fund since the fund was formed in March 1995. Mr. Busby has over 13 years of investment management experience. At Brandes, he serves as a Managing Partner. He is also responsible for overseeing all trading activities for the firm. He is a Chartered Financial Analyst, and a Member of the Association for Investment Management and Research and the Financial Analysts Society. ASIA-PACIFIC EQUITY FUND HSBC Asset Management (Americas) Inc. and HSBC Asset Management (Hong Kong) Limited (collectively, HSBC) serve jointly as Sub-Adviser to Asia-Pacific Equity Fund. The firms are part of HSBC Asset Management, the global investment advisory and fund management business unit of HSBC Holdings plc (founded as the Hong Kong and Shanghai Banking Corporation in 1865) which, with headquarters in London, is one of the world's largest banking and financial organizations. HSBC Asset Management manages over approximately $75 billion of assets worldwide for a wide variety of institutional, retail and private clients. HSBC Asset Management has advisory operations in Hong Kong and Singapore, among other locations. Its parent company has over a century of operations in local economies throughout the Asia-Pacific region. HSBC Asset Management's principal business address is 140 Broadway, 6th Floor, New York, New York 10005. Fredric Lutcher III, Managing Director, Chief Financial Officer, HSBC Americas, and Man Wing Chung, Chief Investment Officer Asia (ex Japan), HSBC Hong Kong, are primarily responsible for portfolio management of Asia-Pacific Equity Fund. Mr. Lutcher joined HSBC in 1997, and has over 20 years of investment experience. Prior to joining HSBC, Mr. Lutcher was with Merrill Lynch Asset Management. Mr. Chung has been with HSBC since 1993 and has over 12 years investment experience. LARGECAP GROWTH FUND, INTERNATIONAL CORE GROWTH FUND, WORLDWIDE GROWTH FUND, INTERNATIONAL SMALLCAP GROWTH FUND, EMERGING COUNTRIES FUND AND CONVERTIBLE FUND NICHOLAS-APPLEGATE CAPITAL MANAGEMENT (NACM) NACM serves as Sub-Adviser to the Funds listed above. Founded in 1984, NACM manages over $40 billion of discretionary assets for numerous clients, including employee benefit plans of corporations, public retirement systems and unions, university endowments, foundations, and other institutional investors and individuals. Each of the Funds listed above is managed by a team of portfolio managers and analysts employed by NACM. NACM has offices in San Diego, New York, Chicago and San Francisco. It's principal business address is 600 West Broadway, San Diego, California 92101. 80 Management of the Funds DIVIDENDS/TAXES DIVIDENDS, DISTRIBUTIONS AND TAXES - -------------------------------------------------------------------------------- DIVIDENDS The Funds generally distribute most or all of their net earnings in the form of dividends. Each Fund pays dividends, if any, as follows: Annually(1) Semi-Annually{1} Quarterly(2) Monthly(3) - ----------- ---------------- ------------ ---------- LargeCap Leaders MagnaCap Balanced Strategic Research Enhanced Convertible Income Index Government Growth Securities Opportunities Income LargeCap Growth High Yield MidCap Value High Yield II MidCap High Total Opportunities Return MidCap Growth High Total Growth + Value Return II SmallCap Money Market Opportunities SmallCap Growth Bank and Thrift Worldwide Growth International Value International Core Growth International SmallCap Growth Emerging Markets Value Emerging Countries Asia-Pacific Equity (1) Distributions normally expected to consist primarily of capital gains. (2) Distributions normally expected to consist on an annual basis of a variable combination of capital gains and ordinary income. (3) Distributions normally expected to consist primarily of ordinary income. Each Fund distributes capital gains, if any, annually. DIVIDEND REINVESTMENT Unless you instruct a Fund to pay you dividends in cash, dividends and distributions paid by a Fund will be reinvested in additional shares of the Fund. You may, upon written request or by completing the appropriate section of the Account Application, elect to have all dividends and other distributions paid on Class A, B, C, M or T shares of a Fund invested in another Pilgrim Fund which offers the same class shares. If you are a shareholder of Pilgrim Prime Rate Trust, whose shares are not held in a broker or nominee account, you may, upon written request, elect to have all dividends invested into a pre-existing Class A account of any open-end Pilgrim Fund. TAXES The following information is meant as a general summary for U.S. shareholders. Please see the Statement of Additional Information for additional information. You should rely your own tax adviser for advice about the particular federal, state and local tax consequences to you of investing in a Fund. Each Fund will distribute most of its net investment income and net capital gains to its shareholders each year. Although the Funds will not be taxed on amounts they distribute, most shareholders will be taxed on amounts they receive. A particular distribution generally will be taxable as either ordinary income or long-term capital gains. It does not matter how long you have held your Fund shares or whether you elect to receive your distributions in cash or reinvest them in additional Fund shares. For example, if a Fund designates a particular distribution as a long-term capital gains distribution, it will be taxable to you at your long-term capital gains rate. Dividends declared by a Fund in October, November or December and paid during the following January may be treated as having been received by shareholders in the year the distributions were declared. You will receive an annual statement summarizing your dividend and capital gains distributions. If you invest through a tax-deferred account, such as a retirement plan, you generally will not have to pay tax on dividends until they are distributed from the account. These accounts are subject to complex tax rules, and you should consult your tax adviser about investment through a tax-deferred account. There may be tax consequences to you if you sell or redeem Fund shares. You will generally have a capital gain or loss, which will be long-term or short-term, generally depending on how long you hold those shares. If you exchange shares, you may be treated as if you sold them. You are responsible for any tax liabilities generated by your transactions. As with all mutual funds, a Fund may be required to withhold U.S. federal income tax at the rate of 31% of all taxable distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the IRS that you are subject to backup withholding. Backup withholding is not an additional tax; rather, it is a way in which the IRS ensures it will collect taxes otherwise due. Any amounts withheld may be credited against your U.S. federal income tax liability. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Dividends, Distributions and Taxes 81 MORE INFORMATION ABOUT RISKS - -------------------------------------------------------------------------------- All mutual funds involve risk -- some more than others -- and there is always the chance that you could lose money or not earn as much as you hope. A Fund's risk profile is largely a factor of the principal securities in which it invests and investment techniques that it uses. The following pages discuss the risks associated with certain of the types of securities in which the Funds may invest and certain of the investment practices that the Funds may use. For more information about these and other types of securities and investment techniques that may be used by the Funds, see the Statement of Additional Information (the "SAI"). Many of the investment techniques and strategies discussed in this prospectus and in the SAI are discretionary, which means that the adviser or sub-adviser can decide whether to use them or not. The adviser or sub-adviser of a Fund may also use investment techniques or make investments in securities that are not a part of the Fund's principal investment strategy. PRINCIPAL RISKS INVESTMENTS IN FOREIGN SECURITIES. There are certain risks in owning foreign securities, including those resulting from: fluctuations in currency exchange rates; devaluation of currencies; political or economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions; reduced availability of public information concerning issuers; accounting, auditing and financial reporting standards or other regulatory practices and requirements that are not uniform when compared to those applicable to domestic companies; settlement and clearance procedures in some countries that may not be reliable and can result in delays in settlement; higher transaction and custody expenses than for domestic securities; and limitations on foreign ownership of equity securities. Also, securities of many foreign companies may be less liquid and the prices more volatile than those of domestic companies. With certain foreign countries, there is the possibility of expropriation, nationalization, confiscatory taxation and limitations on the use or removal of funds or other assets of the Funds, including the withholding of dividends. Each Fund that invests in foreign securities may enter into foreign currency transactions either on a spot or cash basis at prevailing rates or through forward foreign currency exchange contracts to have the necessary currencies to settle transactions, or to help protect Fund assets against adverse changes in foreign currency exchange rates, or to provide exposure to a foreign currency commensurate with the exposure to securities from that country. Such efforts could limit potential gains that might result from a relative increase in the value of such currencies, and might, in certain cases, result in losses to the Fund. EMERGING MARKETS INVESTMENTS. Because of less developed markets and economies and, in some countries, less mature governments and governmental institutions, the risks of investing in foreign securities can be intensified in the case of investments in issuers domiciled or doing substantial business in emerging market countries. These risks include: high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries; political and social uncertainties; over-dependence on exports, especially with respect to primary commodities, making these economies vulnerable to changes in commodity prices; overburdened infrastructure and obsolete or unseasonal financial systems; environmental problems; less well developed legal systems; and less reliable custodial services and settlement practices. INABILITY TO SELL SECURITIES. Some securities usually trade in lower volume and may be less liquid than securities of large established companies. These less liquid securities could include securities of small and mid-size U.S. companies, high-yield securities, convertible securities, unrated debt and convertible securities, securities that originate from small offerings, and foreign securities, particularly those from companies in emerging markets. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. HIGH YIELD SECURITIES. Investments in high yield securities generally provide greater income and increased opportunity for capital appreciation than investments in higher quality debt securities, but they also typically entail greater potential price volatility and principal and income risk. High yield securities are not considered investment grade, and are regarded as predominantly speculative with respect to the issuing company's continuing ability to meet principal and interest payments. The prices of high yield securities have been found to be less sensitive to interest rate changes than higher-rated investments, but more sensitive to adverse economic downturns or individual corporate developments. High yield securities structured as zero coupon or pay-in-kind securities tend to be more volatile. The secondary market in which high yield securities are traded is generally less liquid than the market for higher grade bonds. At times of less liquidity, it may be more difficult to value high yield securities. CORPORATE DEBT SECURITIES. Corporate debt securities are subject to the risk of the issuer's inability to meet principal and interest payments on the obligation and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the credit-worthiness of the issuer and general market liquidity. When interest rates decline, the value of the Fund's debt securities can be expected to rise, and when interest rates rise, the value of those securities can be expected to decline. Debt securities with longer maturities tend to be more sensitive to interest rate movements than those with shorter maturities. One measure of risk for fixed income securities is duration. Duration is one of the tools used by a portfolio manager in selection of fixed income securities. Historically, the maturity of a bond was used as a proxy for the sensitivity of 82 More Information About Risks MORE INFORMATION ABOUT RISKS - -------------------------------------------------------------------------------- a bond's price to changes in interest rates, otherwise known as a bond's "interest rate risk" or "volatility." According to this measure, the longer the maturity of a bond, the more its price will change for a given change in market interest rates. However, this method ignores the amount and timing of all cash flows from the bond prior to final maturity. Duration is a measure of average life of a bond on a present value basis, which was developed to incorporate a bond's yield, coupons, final maturity and call features into one measure. For point of reference, the duration of a noncallable 7% coupon bond with a remaining maturity of 5 years is approximately 4.5 years, and the duration of a noncallable 7% coupon bond with a remaining maturity of 10 years is approximately 8 years. Material changes in interest rates may impact the duration calculation. U.S. GOVERNMENT SECURITIES. Some U.S. Government agency securities may be subject to varying degrees of credit risk particularly those not backed by the full faith and credit of the United States Government. All U.S. Government securities may be subject to price declines in the securities due to changing interest rates. CONVERTIBLE SECURITIES. The price of a convertible security will normally fluctuate in some proportion to changes in the price of the underlying equity security, and as such is subject to risks relating to the activities of the issuer and general market and economic conditions. The income component of convertible securities causes fluctuations based upon changes in interest rates and the credit quality of the issuer. Convertible securities are often lower rated securities. A Fund may be required to redeem or convert a convertible security before the holder would otherwise choose. OTHER INVESTMENT COMPANIES. Each Fund (except the MagnaCap, High Yield and Government Securities Income Funds) may invest up to 10% of its assets in other investment companies. When a Fund invests in other investment companies, you indirectly pay a proportionate share of the expenses of that other investment company (including management fees, administration fees, and custodial fees) in addition to the expenses of the Fund. RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest in restricted and illiquid securities (except MagnaCap Fund may not invest in restricted securities). If a security is illiquid, the Fund might be unable to sell the security at a time when the adviser might wish to sell, and the security could have the effect of decreasing the overall level of the Fund's liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, which could vary from the amount the Fund could realize upon disposition. Restricted securities, i.e., securities subject to legal or contractual restrictions on resale, may be illiquid. However, some restricted securities may be treated as liquid, although they may be less liquid than registered securities traded on established secondary markets. MORTGAGE-RELATED SECURITIES. Although mortgage loans underlying a mortgage-backed security may have maturities of up to 30 years, the actual average life of a mortgage-backed security typically will be substantially less because the mortgages will be subject to normal principal amortization, and may be prepaid prior to maturity. Like other fixed income securities, when interest rates rise, the value of a mortgage-backed security generally will decline; however, when interest rates are declining, the value of mortgage-backed securities with prepayment features may not increase as much as other fixed income securities. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may have the effect of shortening or extending the effective maturity of the security beyond what was anticipated at the time of the purchase. Unanticipated rates of prepayment on underlying mortgages can be expected to increase the volatility of such securities. In addition, the value of these securities may fluctuate in response to the market's perception of the creditworthiness of the issuers of mortgage-related securities owned by a Fund. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will be able to meet their obligations. INTERESTS IN LOANS. Certain Funds may invest in participation interests or assignments in secured variable or floating rate loans, which include participation interests in lease financings. Loans are subject to the credit risk of nonpayment of principal or interest. Substantial increases in interest rates may cause an increase in loan defaults. Although the loans will generally be fully collateralized at the time of acquisition, the collateral may decline in value, be relatively illiquid, or lose all or substantially all of its value subsequent to the Fund's investment. Many loans are relatively illiquid, and may be difficult to value. DERIVATIVES. Generally, derivatives can be characterized as financial instruments whose performance is derived, at least in part, from the performance of an underlying asset or assets. Some derivatives are sophisticated instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. These may include swap agreements, options, forwards and futures. Derivative securities are subject to market risk, which could be significant for those that have a leveraging effect. Many of the Funds do not invest in these types of derivatives, and some do, so please check the description of the Fund's policies. Derivatives are also subject to credit risks related to the counterparty's ability to perform, and any deterioration in the counterparty's creditworthiness could adversely affect the instrument. A risk of using derivatives is that the adviser or sub-adviser might imperfectly judge the market's direction. For instance, if a derivative is used as a hedge to offset investment risk in another security, the hedge might not correlate to the market's movements and may have unexpected or undesired results, such as a loss or a reduction in gains. [GRAPHIC] If you have any questions, please call 1-800-992-0180. More Information About Risks 83 MORE INFORMATION ABOUT RISKS - -------------------------------------------------------------------------------- TEMPORARY DEFENSIVE STRATEGIES. When the adviser or sub-adviser to a Fund anticipates unusual market or other conditions, the Fund may temporarily depart from its principal investment strategies as a defensive measure. To the extent that a Fund invests defensively, it likely will not achieve capital appreciation. PORTFOLIO TURNOVER. Each Fund (except the MagnaCap, LargeCap Leaders, MidCap Value, Bank and Thrift and Asia-Pacific Equity Funds) is generally expected to engage in frequent and active trading of portfolio securities to achieve its investment objective. A high portfolio turnover rate involves greater expenses to a Fund, including brokerage commissions and other transaction costs, and is likely to generate more taxable short-term gains for shareholders, which may have an adverse effect on the performance of the Fund. OTHER RISKS REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements, which involve the purchase by a Fund of a security that the seller has agreed to buy back. If the seller defaults and the collateral value declines, the Fund might incur a loss. If the seller declares bankruptcy, the Fund may not be able to sell the collateral at the desired time. LENDING PORTFOLIO SECURITIES. In order to generate additional income, each Fund (except Bank and Thrift Fund) may lend portfolio securities in an amount up to 331|M/3% of total Fund assets to broker-dealers, major banks, or other recognized domestic institutional borrowers of securities. As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the collateral should the borrower default or fail financially. BORROWING. Each Fund may borrow for certain types of temporary or emergency purposes subject to certain limits. Borrowing may exaggerate the effect of any increase or decrease in the value of portfolio securities or the net asset value of a Fund, and money borrowed will be subject to interest costs. Interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the return earned on borrowed funds. Under adverse market conditions, a Fund might have to sell portfolio securities to meet interest or principal payments at a time when fundamental investment considerations would not favor such sales. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. A reverse repurchase agreement or dollar roll involves the sale of a security, with an agreement to repurchase the same or substantially similar securities at an agreed upon price and date. Whether such a transaction produces a gain for a Fund depends upon the costs of the agreements and the income and gains of the securities purchased with the proceeds received from the sale of the security. If the income and gains on the securities purchased fail to exceed the costs, net asset value will decline faster than otherwise would be the case. Reverse repurchase agreements and dollar rolls, as leveraging techniques, may increase a Fund's yield; however, such transactions also increase a Fund's risk to capital and may result in a shareholder's loss of principal. SHORT SALES. Each Fund (except the MagnaCap, LargeCap Leaders, Bank and Thrift, Asia-Pacific Equity, Government Securities Income and High Yield Funds) may make short sales. A "short sale" is the sale by a Fund of a security which has been borrowed from a third party on the expectation that the market price will drop. If the price of the security rises, the Fund may have to cover its short position at a higher price than the short sale price, resulting in a loss. Pairing Off Transactions. A pairing-off transaction occurs when a Fund commits to purchase a security at a future date, and then the Fund "pairs-off" the purchase with a sale of the same security prior to or on the original settlement date. Whether a pairing-off transaction on a debt security produces a gain depends on the movement of interest rates. If interest rates increase, then the money received upon the sale of the same security will be less than the anticipated amount needed at the time the commitment to purchase the security at the future date was entered and the Fund will experience a loss. Percentage and Rating Limitations Unless otherwise stated, the percentage limitations in this prospectus apply at the time of investment. 84 More Information About Risks Financial Highlights - -------------------------------------------------------------------------------- The financial highlights tables on the following pages are intended to help you understand each Fund's financial performance for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). A report of each Fund's independent accountant, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request. [GRAPHIC] If you have any questions, please call 1-800-992-0180. 85 Financial PILGRIM MAGNACAP FUND Highlights - -------------------------------------------------------------------------------- The information in the table below, except for the six months ended December 31, 1999 has been audited by KPMG LLP, independent auditors.
Class A ----------------------------------------------------------------- Six months ended Year ended June 30, Dec. 31, 1999 ------------------------------------------------- (unaudited) 1999 1998 1997 1996 1995(1) ----------- ---- ---- ---- ---- ------- Per Share Operating Performance: $ 17.69 17.07 15.92 16.69 14.03 12.36 Net asset value, beginning of period Income from investment operations: $ 0.02 0.07 0.04 0.10 0.09 0.12 Net investment income (loss) Net realized and unrealized gains $ 0.39 2.37 3.02 4.16 2.87 2.29 on investments $ 0.41 2.44 3.06 4.26 2.96 2.41 Total from investment operations Less distributions from: $ 0.05 0.04 0.06 0.12 0.06 0.14 Net investment income $ 1.79 1.78 1.85 4.91 0.24 0.60 Net realized gains on investments $ 16.26 17.69 17.07 15.92 16.69 14.03 Net asset value, end of period % 2.28 15.93 20.53 30.82 21.31 20.61 Total Return(3): Ratios/Supplemental Data: $ 343,628 368,508 348,759 290,355 235,393 211,330 Net assets, end of period (000's) Ratios to average net assets: % 1.44 1.35 1.37 1.46 1.68 1.59 Expenses(4) % 0.27 0.41 0.29 0.64 0.54 0.98 Net investment income (loss)(4) % 15 48 53 77 15 6 Portfolio turnover rate Class B -------------------------------------------------------- Six months July 17, ended Year ended June 30, 1995(2) to Dec. 31, 1999 -------------------------- June 30, (unaudited) 1999 1998 1997 1996 ----------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 17.36 16.86 15.81 16.59 14.22 Income from investment operations: Net investment income (loss) $ (0.03) (0.04) (0.04) -- 0.06 Net realized and unrealized gains on investments $ 0.37 2.32 2.97 4.13 2.61 Total from investment operations $ 0.34 2.28 2.93 4.13 2.67 Less distributions from: Net investment income $ -- -- 0.03 -- 0.06 Net realized gains on investments $ 1.79 1.78 1.85 4.91 0.24 Net asset value, end of period $ 15.91 17.36 16.86 15.81 16.59 Total Return(3): % 1.90 15.12 19.76 29.92 18.98 Ratios/Supplemental Data: Net assets, end of period (000's) $ 109,428 116,227 77,787 37,427 10,509 Ratios to average net assets: Expenses(4) % 2.14 2.05 2.07 2.16 2.38 Net investment income (loss)(4) % (0.42) (0.29) (0.41) (0.04) 0.07 Portfolio turnover rate % 15 48 53 77 15 Class C ---------------------------- Six months June 1, ended 1999(2) to Dec. 31, 1999 June 30, (unaudited) 1999 ----------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 17.37 16.69 Income from investment operations: Net investment income (loss) $ (0.08) -- Net realized and unrealized gains on investments $ 0.41 0.68 Total from investment operations $ 0.33 0.68 Less distributions from: Net investment income $ -- -- Net realized gains on investments $ 1.79 -- Net asset value, end of period $ 15.91 17.37 Total Return(3): % 1.84 4.07 Ratios/Supplemental Data: Net assets, end of period (000's) $ 2,684 601 Ratios to average net assets: Expenses(4) % 2.14 1.12 Net investment income (loss)(4) % (0.42) 0.42 Portfolio turnover rate % 15 48 Class M ------------------------------------------------------ Six months July 17, ended Year ended June 30, 1995(2) to Dec. 31, 1999 -------------------------- June 30, (unaudited) 1999 1998 1997 1996 ----------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 17.51 16.95 15.87 16.63 14.22 Income from investment operations: Net investment income (loss) $ (0.01) (0.01) -- 0.02 0.08 Net realized and unrealized gains on investments $ 0.37 2.35 2.98 4.16 2.63 Total from investment operations $ 0.36 2.34 2.98 4.18 2.71 Less distributions from: Net investment income $ 0.01 -- 0.05 0.03 0.06 Net realized gains on investments $ 1.79 1.78 1.85 4.91 0.24 Net asset value, end of period $ 16.07 17.51 16.95 15.87 16.63 Total Return(3): % 2.02 15.41 20.00 30.26 19.26 Ratios/Supplemental Data: Net assets, end of period (000's) $ 15,146 16,351 14,675 6,748 1,961 Ratios to average net assets: Expenses(4) % 1.89 1.80 1.82 1.91 2.13 Net investment income (loss)(4) % (0.18) (0.04) (0.16) 0.22 0.32 Portfolio turnover rate % 15 48 53 77 15
- ---------- (1) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired certain assets of Pilgrim Management Corporation, the Fund's former Investment Manager, in a transaction that closed on April 7, 1995. (2) Commencement of offering shares. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized. 86 Pilgrim MagnaCap Fund Financial Highlights PILGRIM LARGECAP LEADERS FUND - -------------------------------------------------------------------------------- The information in the table below except for the six months ended December 31, 1999 has been audited by KPMG LLP, independent auditors.
Class A ---------------------------------------------------------- Six months ended Ten months Dec. 31, Year ended June 30, ended 1999 ---------------------------- June 30, (unaudited) 1999 1998(2) 1997 1996(1) ----------- ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 17.35 14.70 14.17 11.77 10.00 Income from investment operations: Net investment income (loss) $ (0.04) -- 0.01 0.06 0.07 Net realized and unrealized gains on investments $ 1.12 3.00 2.30 2.63 1.87 Total from investment operations $ 1.08 3.00 2.31 2.69 1.94 Less distributions from: Net investment income $ -- -- -- 0.05 0.08 Net realized gains on investments $ 2.00 0.35 1.78 0.24 0.09 Net asset value, end of period $ 16.43 17.35 14.70 14.17 11.77 Total Return(4): % 6.62 20.66 17.71 23.24 19.56 Ratios/Supplemental Data: Net assets, end of period (000's) $ 9,305 8,506 7,606 8,961 2,530 Ratios to average net assets: Net expenses after expense reimbursement(5) % 1.75 1.75 1.75 1.75 1.75 Gross expenses prior to expense reimbursement(5) % 1.80 1.98 2.28 2.33 5.44 Net investment income (loss) after expense reimbursement(5) % (0.42) (0.04) 0.03 0.41 0.65 Portfolio turnover rate % 10 87 78 86 59 Class B --------------------------------------------------- Six months ended Ten months Dec. 31, Year ended June 30, ended 1999 ------------------------ June 30, (unaudited) 1999 1998(2) 1997 1996(1) ----------- ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 16.90 14.44 14.04 11.71 10.00 Income from investment operations: Net investment income (loss) $ (0.07) (0.09) (0.10) (0.02) 0.06 Net realized and unrealized gains on investments $ 1.07 2.90 2.28 2.59 1.81 Total from investment operations $ 1.00 2.81 2.18 2.57 1.87 Less distributions from: Net investment income $ -- -- -- -- 0.07 Net realized gains on investments $ 2.00 0.35 1.78 0.24 0.09 Net asset value, end of period $ 15.90 16.90 14.44 14.04 11.71 Total Return(4): % 6.31 19.71 16.91 22.23 18.85 Ratios/Supplemental Data: Net assets, end of period (000's) $ 24,748 24,213 15,605 13,611 1,424 Ratios to average net assets: Net expenses after expense reimbursement(5) % 2.50 2.50 2.50 2.50 2.50 Gross expenses prior to expense reimbursement(5) % 2.55 2.73 3.03 3.08 5.79 Net investment income (loss) after expense reimbursement(5) % (1.17) (0.79) (0.72) (0.35) (0.25) Portfolio turnover rate % 10 87 78 86 59 Class C Class M ----------------------- -------------------------------------------------- Six months Six months ended June 17, ended Ten months Dec. 31, 1999(3) to Dec. 31, Year ended June 30, ended 1999 June 30, 1999 ----------------------- June 30, (unaudited) 1999 (unaudited) 1999 1998(2) 1997 1996(1) ----------- ---- ----------- ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 16.92 16.54 17.08 14.55 14.10 11.73 10.00 Income from investment operations: Net investment income (loss) $ (0.03) -- (0.07) (0.09) (0.07) -- 0.06 Net realized and unrealized gains on investments $ 1.02 0.38 1.08 2.97 2.30 2.62 1.83 Total from investment operations $ 0.99 0.38 1.01 2.88 2.23 2.62 1.89 Less distributions from: Net investment income $ -- -- -- -- -- 0.01 0.07 Net realized gains on investments $ 2.00 -- 2.00 0.35 1.78 0.24 0.09 Net asset value, end of period $ 15.91 16.92 16.09 17.08 14.55 14.10 11.73 Total Return(4): % 6.24 2.30 6.30 20.04 17.20 22.58 19.06 Ratios/Supplemental Data: Net assets, end of period (000's) $ 353 -- 5,594 5,661 5,533 4,719 1,240 Ratios to average net assets: Net expenses after expense reimbursement(5) % 2.50 -- 2.25 2.25 2.25 2.25 2.25 Gross expenses prior to expense reimbursement(5) % 2.55 -- 2.30 2.48 2.78 2.83 5.90 Net investment income (loss) after expense reimbursement(5) % (1.17) -- (0.92) (0.54) (0.47) (0.10) 0.06 Portfolio turnover rate % 10 87 10 87 78 86 59
- ---------- (1) The Fund commenced options on September 1, 1995. (2) Effective November 1997, Pilgrim Investments, Inc. assumed the portfolio investmen responsibilities of the Fund from ARK Asset Management Company, Inc. (3) Commencement of offering shares. (4) 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. (5) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim LargeCap Leaders Fund 87 Financial PILGRIM RESEARCH ENHANCED INDEX FUND Highlights - -------------------------------------------------------------------------------- The information in the table below has been audited by PricewaterhouseCoopers LLP, independent auditors.
Class A(1) Class B(1) Class C(1) Year ended October 31, 1999 1999 1999 ---- ---- ---- Operating performance: Net asset value at the beginning of the period $ 10.00 10.00 10.00 Net investment gain $ 0.01 (0.02) (0.02) Net realized and unrealized loss on investments $ 1.13 1.11 1.11 Total from investment operations $ 1.14 1.09 1.09 Net asset value at the end of the period $ 11.14 11.09 11.09 Total investment return(2) % 11.40 10.90 10.90 Ratios and supplemental data: Net assets at the end of the period ($000s) $ 27,091 99,249 75,941 Ratio of expenses to average net assets(3) % 1.29 1.99 1.99 Ratio of expense reimbursement to average net assets(3) % 0.27 0.30 0.28 Ratio of net investment loss to average net assets(3) % 0.23 (0.49) (0.49) Portfolio turnover rate % 26 26 26
- ---------- (1) Class A, B and C commenced operations on December 30, 1998. (2) Assumes dividends have been reinvested and does not reflect the effect of sales charges. (3) Annualized. 88 Pilgrim Research Enhanced Index Fund Financial PILGRIM GROWTH OPPORTUNITIES FUND Highlights - -------------------------------------------------------------------------------- The information in the table below has been audited by PricewaterhouseCoopers LLP, independent auditors.
Class A Year ended December 31, ------------------------------------------- 1999 1998 1997 1996 1995(1) ---- ---- ---- ---- ------- Operating performance: Net asset value, beginning of the period $ 26.06 21.26 17.92 15.53 17.59 Net investment income (loss) $ (0.15) (0.08) 0.03 0.02 0.08 Net realized and unrealized gain on investments $ 20.10 5.09 4.16 3.18 1.95 Total from investment operations $ 19.95 5.01 4.19 3.20 2.03 Dividends from net investment income $ -- -- -- -- (0.10) Distributions from net realized gain $ (12.84) (0.21) (0.85) (0.81) (3.99) Total distributions $ (12.84) (0.21) (0.85) (0.81) (4.09) Net asset value, end of the period $ 33.17 26.06 21.26 17.92 15.53 Total return(2) % 93.26 23.61 23.59 20.54 11.55 Ratios and supplemental data: Net assets at the end of the period (000s) $ 101,260 29,358 9,334 4,750 1,355 Ratio of expenses to average net assets after reimbursement % 1.39 1.37 1.37 150 1.42 (3) Ratio of expenses to average net assets prior to expense reimbursement % 1.39 1.37 1.40 1.56 1.42 (3) Ratio of net investment income (loss) to average net assets % (0.98) (0.47) 0.04 0.11 0.63 (3) Portfolio turnover % 286 98 32 62 134 Class B Year ended December 31, ------------------------------------------ 1999 1998 1997 1996 1995(1) ---- ---- ---- ---- ------- Operating performance: Net asset value, beginning of the period $ 25.46 20.93 17.76 15.50 17.59 Net investment income (loss) $ (0.18) (0.23) (0.15) (0.06) 0.06 Net realized and unrealized gain on investments $ 19.26 4.97 4.17 3.13 1.92 Total from investment operations $ 19.08 4.74 4.02 3.07 1.98 Dividends from net investment income $ -- -- -- -- (0.08) Distributions from net realized gain $ (12.84) (0.21) (0.85) (0.81) (3.99) Total distributions $ (12.84) (0.21) (0.85) (0.81) (4.07) Net asset value, end of the period $ 31.70 25.46 20.93 17.76 15.50 Total return(2) % 91.84 22.69 22.84 19.74 11.27 Ratios and supplemental data: Net assets at the end of the period (000s) $ 88,305 15,480 8,815 4,444 1,987 Ratio of expenses to average net assets after reimbursement % 2.10 2.13 2.14 2.20 2.07(3) Ratio of expenses to average net assets prior to expense reimbursement % 2.10 2.13 2.14 2.24 2.07(3) Ratio of net investment income (loss) to average net assets % (1.69) (1.26) (0.95) (0.55) 0.06(3) Portfolio turnover % 286 98 32 62 134 Class C Year ended December 31, ------------------------------------------- 1999 1998 1997 1996 1995(1) ---- ---- ---- ---- ------- Operating performance: Net asset value, beginning of the period $ 25.48 20.91 17.76 15.50 17.59 Net investment income (loss) $ (0.10) (0.27) (0.13) (0.05) 0.04 Net realized and unrealized gain on investments $ 19.21 5.05 4.13 3.12 1.92 Total from investment operations $ 19.11 4.78 4.00 3.07 1.96 Dividends from net investment income $ -- -- -- -- (0.06) Distributions from net realized gain $ (12.84) (0.21) (0.85) (0.81) (3.99) Total distributions $ (12.84) (0.21) (0.85) (0.81) (4.05) Net asset value, end of the period $ 31.75 25.48 20.91 17.76 15.50 Total return(2) % 91.90 22.90 22.73 19.74 11.17 Ratios and supplemental data: Net assets at the end of the period (000s) $ 21,006 1,625 1,152 365 69 Ratio of expenses to average net assets after reimbursement % 2.10 2.13 2.17 2.20 2.11(3) Ratio of expenses to average net assets prior to expense reimbursement % 2.10 2.13 2.17 2.35 2.11(3) Ratio of net investment income (loss) to average net assets % (1.69) (1.24) (1.00) (0.57) 0.02(3) Portfolio turnover % 286 98 32 62 134 Class T Year ended December 31, ----------------------------------------- 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Operating performance: Net asset value, beginning of the period $ 25.59 21.02 17.82 15.53 15.75 Net investment income (loss) $ (0.39) (0.36) (0.17) (0.06) 0.07 Net realized and unrealized gain on investments $ 19.57 5.14 4.22 3.16 3.77 Total from investment operations $ 19.18 4.78 4.05 3.10 3.84 Dividends from net investment income $ -- -- -- -- (0.07) Distributions from net realized gain $ (12.84) (0.21) (0.85) (0.81) (3.99) Total distributions $ (12.84) (0.21) (0.85) (0.81) (4.06) Net asset value, end of the period $ 31.93 25.59 21.02 17.82 15.53 Total return(2) % 91.72 22.79 22.94 19.90 24.40 Ratios and supplemental data: Net assets at the end of the period (000s) $ 83,772 52,023 73,674 70,406 76,343 Ratio of expenses to average net assets after reimbursement % 2.03 2.05 2.03 2.00 2.00 Ratio of expenses to average net assets prior to expense reimbursement % 2.03 2.05 2.03 2.04 2.00 Ratio of net investment income (loss) to average net assets % (1.62) (1.19) (0.81) (3.05) 0.37 Portfolio turnover % 286 98 32 62 134
- ---------- (1) Class A, B and C commenced operations on June 5, 1995. (2) Assumes dividends have been reinvested and does not reflect the effect of sales charges. (3) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrm Growth Opportunities Fund 89 Financial PILGRIM LARGECAP GROWTH FUND Highlights - -------------------------------------------------------------------------------- For the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ending prior to June 30, 1999, the financial information was audited by another independent auditor.
Class A --------------------------------------------- Six months Three ended months Year July 21, Dec. 31, ended ended 1997(1) to 1999 June 30, March 31, March 31, (unaudited) 1999(2) 1999 1998 ----------- ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 28.09 24.94 15.73 12.50 Income from investment operations: Net investment income (loss) $ (0.07) (0.02) (0.08) (0.03) Net realized and unrealized gains on investments $ 12.71 3.17 9.77 3.29 Total from investment operations $ 12.64 3.15 9.69 3.26 Less distributions from: Net investment income $ -- -- -- -- Net realized gains on investments $ 0.38 -- 0.48 0.03 Net asset value, end of period $ 40.35 28.09 24.94 15.73 Total Return(3): % 45.32 12.63 63.06 62.35 Ratios/Supplemental Data: Net assets, end of period (000's) $ 118,232 30,108 12,445 4,742 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.25 1.43 1.59 1.60 Gross expenses prior to expense reimbursement(4) % 1.25 1.45 2.24 4.70 Net investment income (loss) after expense reimbursement(4) % (0.69) (0.56) (0.65) (0.87) Portfolio turnover % 84 27 253 306 Class B ----------------------------------------------- Six months Three ended months Year July 21, Dec. 31, ended ended 1997(1) to 1999 June 30, March 31, March 31, (unaudited) 1999(2) 1999 1998 ----------- ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 28.15 25.04 15.64 12.50 Income from investment operations: Net investment income (loss) $ (0.13) (0.05) (0.08) (0.07) Net realized and unrealized gains on investments $ 12.68 3.16 9.71 3.24 Total from investment operations $ 12.55 3.11 9.63 3.17 Less distributions from: Net investment income $ -- -- -- -- Net realized gains on investments $ 0.38 -- 0.23 0.03 Net asset value, end of period $ 40.32 28.15 25.04 15.64 Total Return(3): % 44.90 12.42 62.28 61.08 Ratios/Supplemental Data: Net assets, end of period (000's) $ 227,042 49,057 20,039 3,187 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.90 2.08 2.24 2.25 Gross expenses prior to expense reimbursement(4) % 1.90 2.10 2.89 4.78 Net investment income (loss) after expense reimbursement(4) % (1.33) (1.21) (1.28) (1.36) Portfolio turnover % 84 27 253 306 Class C --------------------------------------------- Six months Three ended months Year July 21, Dec. 31, ended ended 1997(1) to 1999 June 30, March 31, March 31, (unaudited) 1999(2) 1999 1998 ---------- ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 28.07 24.97 15.63 12.50 Income from investment operations: Net investment income (loss) $ (0.13) (0.06) (0.07) (0.05) Net realized and unrealized gains on investments $ 12.65 3.16 9.65 3.24 Total from investment operations $ 12.52 3.10 9.58 3.19 Less distributions from: Net investment income $ -- -- -- -- Net realized gains on investments $ 0.38 -- 0.24 0.06 Net asset value, end of period $ 40.21 28.07 24.97 15.63 Total Return(3): % 44.92 12.41 61.97 61.38 Ratios/Supplemental Data: Net assets, end of period (000's) $ 87,229 17,755 8,004 960 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.90 2.08 2.25 2.25 Gross expenses prior to expense reimbursement(4) % 1.90 2.10 2.90 7.79 Net investment income (loss) after expense reimbursement(4) % (1.33) (1.21) (1.26) (1.49) Portfolio turnover % 84 27 253 306
- ---------- (1) The Fund commenced operations on July 21, 1997. (2) Effective May 24, 1999, Pilgrim Investments Inc., became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized. 90 Pilgrim LargeCap Growth Fund Financial Highlights PILGRIM MIDCAP VALUE FUND - -------------------------------------------------------------------------------- The information in the table below except for the six months ended December 31, 1999, has been audited by KMPG LLP, independent auditors.
Class A ------------------------------------------------- Six months Three ended months Dec. 31, Year ended June 30, ended 1999 ------------------------ June 30, (unaudited) 1999 1998 1997 1996(1) ----------- ---- ---- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 15.65 16.79 14.64 11.99 10.00 Income from investment operations: Net investment income (loss) $ (0.09) (0.09) (0.07) (0.02) 0.13 Net realized and unrealized gains on investments $ (1.61) 0.12 2.71 2.85 1.91 Total from investment operations $ (1.70) 0.03 2.64 2.83 2.04 Less distributions from: Net investment income $ -- -- -- 0.07 0.05 Net realized gains on investments $ 0.09 1.17 0.49 0.11 -- Net asset value, end of period $ 13.86 15.65 16.79 14.64 11.99 Total Return(3): % (10.88) 0.95 18.40 23.89 20.48 Ratios/Supplemental Data: Net assets, end of period (000's) $ 11,221 18,621 27,485 16,985 2,389 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.75 1.75 1.75 1.75 1.75 Gross expenses prior to expense reimbursement(4) % 1.96 1.79 1.78 1.94 4.91 Net investment income (loss) after expense reimbursement(4) % (0.60) (0.48) (0.53) (0.13) 2.00 Portfolio turnover % 95 109 85 86 60 Class B --------------------------------------------------- Six months ended Ten months Dec. 31, ended 1999 June 30, (unaudited) 1999 1998 1997 1996(1) ----------- ---- ---- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 15.21 16.47 14.49 11.94 10.00 Income from investment operations: Net investment income (loss) $ (0.18) (0.21) (0.18) (0.05) 0.07 Net realized and unrealized gains on investments $ (1.52) 0.12 2.65 2.76 1.90 Total from investment operations $ (1.70) (0.09) 2.47 2.71 1.97 Less distributions from: Net investment income $ -- -- -- 0.05 0.03 Net realized gains on investments $ 0.09 1.17 0.49 0.11 -- Net asset value, end of period $ 13.42 15.21 16.47 14.49 11.94 Total Return(3): % (11.19) 0.21 17.40 22.95 19.80 Ratios/Supplemental Data: Net assets, end of period (000's) $ 20,593 31,223 40,575 23,258 2,123 Ratios to average net assets: Net expenses after expense reimbursement(4) % 2.50 2.50 2.50 2.50 2.50 Gross expenses prior to expense reimbursement(4) % 2.71 2.54 2.53 2.69 5.32 Net investment income (loss) after expense reimbursement(4) % (1.35) (1.23) (1.28) (0.90) 1.27 Portfolio turnover % 95 109 85 86 60 Class C Class M ----------------------- ------------------------------------------------ Six months Six months ended June 2, ended Ten months Dec. 31, 1999 to Dec. 31, ended 1999 June 30, 1999 June 30, (unaudited) 1999(2) (unaudited) 1999 1998 1997 1996(1) ----------- ------- ----------- ---- ---- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 15.20 14.84 15.30 16.52 14.49 11.93 10.00 Income from investment operations: Net investment income (loss) $ (0.02) (0.02) (0.16) (0.17) (0.15) (0.03) 0.06 Net realized and unrealized gains on investments $ (1.68) 0.38 (1.53) 0.12 2.67 2.76 1.91 Total from investment operations $ (1.70) 0.36 (1.69) (0.05) 2.52 2.73 1.97 Less distributions from: Net investment income $ -- -- -- -- -- 0.06 0.04 Net realized gains on investments $ 0.09 -- 0.09 1.17 0.49 0.11 -- Net asset value, end of period $ 13.41 15.20 13.52 15.30 16.52 14.49 11.93 Total Return(3): % (11.20) 2.43 (11.06) 0.46 17.76 23.21 19.82 Ratios/Supplemental Data: Net assets, end of period (000's) $ 179 47 6,556 10,504 13,232 8,378 1,731 Ratios to average net assets: Net expenses after expense reimbursement(4) % 2.50 2.50 2.25 2.25 2.25 2.25 2.25 Gross expenses prior to expense reimbursement(4) % 2.71 2.54 2.46 2.29 2.28 2.44 4.72 Net investment income (loss) after expense reimbursement(4) % (1.35) (1.23) (1.10) (0.98) (1.03) (0.63) 1.16 Portfolio turnover % 95 109 95 109 85 86 60
- ---------- (1) The Fund commenced operations on September 1, 1995. (2) Commencement of offering shares. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MidCap Value Fund 91 Financial Highlights PILGRIM MIDCAP OPPORTUNITIES FUND - -------------------------------------------------------------------------------- The information in the table below has been audited by PricewaterhouseCoopers LLP, independent auditors.
Class A Class B Class C ----------------- ---------------- ---------------- Year ended Year ended Year ended December 31, December 31, December 31, ----------------- ---------------- ---------------- 1999 1998(1) 1999 1998(1) 1999 1998(1) ---- ------- ---- ------- ---- ------- Operating Performance: Net asset value, beginning of the period $ 12.96 10.00 12.97 10.00 12.96 10.00 Net investment loss $ (0.09) (0.03) (0.07) (0.03) (0.07) (0.04) Net realized and unrealized gain on investments $ 12.01 2.99 11.81 3.00 11.73 3.00 Total from investment operations $ 11.92 2.96 11.74 2.97 11.66 2.96 Distributions from net realized gain $ (3.59) -- (3.59) -- (3.59) -- Total distributions $ (3.59) -- (3.59) -- (3.59) -- Net asset value, end of the period $ 21.29 12.96 21.12 12.97 21.03 12.96 Total return(2): % 103.24 29.60 101.73 29.70 101.16 29.60 Ratios and Supplemental Data: Net assets, end of the period (000s) $ 6,291 610 8,252 140 4,560 87 Ratio of expenses to average net assets after reimbursement % 1.74 1.80 (3) 2.40 2.50 (3) 2.36 2.50 (3) Ratio of expenses to average net assets prior to expense reimbursement % 1.74 2.42 (3) 2.40 3.27 (3) 2.36 3.22 (3) Ratio of net investment loss to average net assets % (1.34) (1.10)(3) (2.00) (2.05)(3) (1.98) (2.04)(3) Portfolio turnover % 201 61 201 61 201 61
- ---------- (1) Class A, B, and C commenced operations on August 20, 1998. (2) Assumes dividends have been reinvested and does not reflect the effect of sales charges. (3) Annualized. 92 Pilgrim MidCap Opportunities Fund Financial PILGRIM MIDCAP GROWTH FUND Highlights - -------------------------------------------------------------------------------- For the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ending prior to June 30, 1999, the financial information was audited by other independent auditors.
Class A ------------------------------------------------------------------- Six months Three ended months Dec. 31, ended Year ended March 31, 1999 June 30, ------------------------------------------- (unaudited) 1999(1) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 21.34 19.93 18.63 16.80 18.37 13.61 13.25 Income from investment operations: Net investment income (loss) $ (0.11) (0.06) (0.50) (0.14) (0.17) (0.18) (0.10) Net realized and unrealized gains on investments $ 11.64 1.47 3.17 6.50 0.57 4.94 0.46 Total from investment operations $ 11.53 1.41 2.67 6.36 0.40 4.76 0.36 Less distributions from: $ -- -- -- -- -- -- -- Net investment income $ 7.03 -- 1.37 4.53 1.97 -- -- Net realized gains on investments Net asset value, end of period $ 25.84 21.34 19.93 18.63 16.80 18.37 13.61 Total Return(3): % 62.66 7.07 15.36 41.81 1.09 35.07 2.72 Ratios/Supplemental Data: Net assets, end of period (000's) $ 111,000 66,586 67,550 90,619 76,108 77,275 65,292 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.35 1.49 1.56 1.57 1.60 1.58 1.59 Gross expenses prior to expense reimbursement(4) % 1.37 1.50 1.64 1.66 1.56 1.56 1.63 Net investment income (loss) after expense reimbursement(4) % (1.21) (1.20) (1.04) (1.33) (1.05) (0.91) (0.66) Portfolio turnover % 154 55 154 200 153 114 98 Class B ----------------------------------------------------------------- Six months Three ended months May 31, Dec. 31, ended Year ended March 31, 1995(2) to 1999 June 30, -------------------------- March 31, (unaudited) 1999(1) 1999 1998 1997 1996 ----------- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 25.18 23.54 21.55 16.33 16.25 12.50 Income from investment operations: Net investment income (loss) $ (0.19) (0.11) (0.42) (0.25) (0.17) (0.09) Net realized and unrealized gains on investments $ 13.67 1.75 3.42 6.74 0.25 3.84 Total from investment operations $ 13.48 1.64 3.00 6.49 0.08 3.75 Less distributions from: Net investment income $ -- -- -- -- -- -- Net realized gains on investments $ 8.28 -- 1.01 1.27 -- -- Net asset value, end of period $ 30.38 25.18 23.54 21.55 16.33 16.25 Total Return(3): % 62.09 6.97 14.59 40.84 (0.49) 30.00 Ratios/Supplemental Data: Net assets, end of period (000's) $ 85,201 49,335 45,876 46,806 29,002 11,186 Ratios to average net assets: Net expenses after expense reimbursement(4) % 2.00 2.14 2.22 2.22 2.25 2.22 Gross expenses prior to expense reimbursement(4) % 2.02 2.14 2.29 2.21 2.66 3.39 Net investment income (loss) after expense reimbursement(4) % (1.84) (1.85) (1.69) (1.99) (1.69) (1.61) Portfolio turnover % 154 55 154 200 153 114 Class C ----------------------------------------------------------------- Six months Three ended months Dec. 31, ended Year ended March 31, 1999 June 30, ----------------------------------------- (unaudited) 1999(1) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 19.78 18.49 17.15 16.48 18.06 13.45 13.18 Income from investment operations: Net investment income (loss) $ (0.16) (0.09) (0.61) (0.28) (0.32) (0.27) (0.17) Net realized and unrealized gains on investments $ 10.74 1.38 2.97 6.26 0.62 4.88 0.44 Total from investment operations $ 10.58 1.29 2.36 5.98 0.30 4.61 0.27 Less distributions from: Net investment income $ -- -- -- -- -- -- -- Net realized gains on investments $ 6.50 -- 1.02 5.31 1.88 -- -- Net asset value, end of period $ 23.86 19.78 18.49 17.15 16.48 18.06 13.45 Total Return(3): % 62.05 6.98 14.60 40.95 0.56 34.28 2.05 Ratios/Supplemental Data: Net assets, end of period (000's) $ 220,867 144,832 141,685 166,849 157,501 177,461 143,390 Ratios to average net assets: Net expenses after expense reimbursement(4) % 2.00 2.14 2.23 2.27 2.14 2.14 2.24 Gross expenses prior to expense reimbursement(4) % 2.02 2.14 2.30 2.33 2.17 2.14 2.24 Net investment income (loss) after expense reimbursement(4) % (1.84) (1.85) (1.70) (2.01) (1.59) (1.47) (1.30) Portfolio turnover % 154 55 154 200 153 114 98
- ---------- (1) Effective May 24, 1999, Pilgrim Investments Inc. became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor. (2) Commencement of offering shares. (3) Total return is calculated assuming reinvestment of dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MidCap Growth Fund 93 Financial PILGRIM GROWTH + VALUE FUND Highlights - -------------------------------------------------------------------------------- The information in the table below has been audited by PricewaterhouseCoopers LLP, independent auditors.
Class A(1) Class B(1) -------------------------- --------------------------- Year ended October 31, Year ended October 31, 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- Operating performance: Net asset value at the beginning of the period $ 10.44 12.15 10.00 10.29 12.08 10.00 Net investment loss $ (0.17) (0.11) (0.05) (0.27) (0.16) (0.08) Net realized and unrealized gain on investments $ 9.49 (1.42) 2.20 9.32 (1.45) 2.16 Total from investment operations $ 9.32 (1.53) 2.15 9.05 (1.61) 2.08 Dividends from net realized gain (loss) on investments sold $ -- (0.18) -- -- (0.18) -- Total distributions $ Net asset value at the end of the period $ 19.76 10.44 12.15 19.34 10.29 12.08 Total investment return(2) % 89.27 (12.63) 21.50 87.95 (13.38) 20.80 Ratios and supplemental data: Net assets at the end of the period ($000s) $ 81,225 33,425 34,346 227,227 105,991 76,608 Ratio of expenses to average net assets(3) % 1.69 1.72 1.84 2.39 2.45 2.55 Ratio of expense reimbursement to average net assets(3) % -- -- 0.02 -- -- 0.02 Ratio of net investment loss to average net assets(3) % (1.30) (0.92) (0.94) (2.00) (1.67) (1.68) Portfolio turnover rate % 197 162 144 197 162 144 Class C(1) -------------------------- Year ended October 31, 1999 1998 1997 ---- ---- ---- Operating performance: Net asset value at the beginning of the period $ 10.29 12.08 10.00 Net investment loss $ (0.26) (0.16) (0.08) Net realized and unrealized gain on investments $ 9.30 (1.45) 2.16 Total from investment operations $ 9.04 (1.61) 2.08 Dividends from net realized gain (loss) on investments sold $ -- (0.18) -- Total distributions $ Net asset value at the end of the period $ 19.33 10.29 12.08 Total investment return(2) % 87.85 (13.38) 20.80 Ratios and supplemental data: Net assets at the end of the period ($000s) $ 84,391 37,456 26,962 Ratio of expenses to average net assets(3) % 2.40 2.46 2.56 Ratio of expense reimbursement to average net assets(3) % -- -- 0.02 Ratio of net investment loss to average net assets(3) % (2.01) (1.69) (1.70) Portfolio turnover rate % 197 162 144
- ---------- (1) Assumes dividends have been reinvested and does not reflect the effect of sales charges. 94 Pilgrim Growth + Value Fund Financial Highlights PILGRIM SMALLCAP OPPORTUNITIES FUND - -------------------------------------------------------------------------------- The information in the table below has been audited by PricewaterhouseCoopers LLP, independent auditors.
Class A Year ended December 31, -------------------------------------------------- 1999 1998 1997 1996 1995(1) ---- ---- ---- ---- ------- Operating performance: Net asset value, beginning of the period $ 29.00 27.77 24.72 20.92 19.56 Net investment loss $ (0.32) (0.27) (0.02) (0.04) (0.09) Net realized and unrealized gain on investments $ 38.23 2.23 3.68 3.84 2.48 Total from investment operations $ 37.91 1.96 3.66 3.80 2.39 Distributions from net realized gain $ (7.56) (0.73) (0.61) -- (1.03) Total distributions $ (7.56) (0.73) (0.61) -- (1.03) Net asset value, end of the period $ 59.35 29.00 27.77 24.72 20.92 Total return(2) % 146.94 7.59 14.92 18.16 12.20 Ratios and supplemental data: Net assets at the end of the period (000s) $ 123,377 45,461 78,160 65,660 2,335 Ratio of expenses to average net assets after reimbursement % 1.43 1.47 1.43 1.46 1.50 (3) Ratio of expenses to average net assets prior to expense reimbursement % 1.43 1.47 1.43 1.47 1.50 (3) Ratio of net investment loss to average net assets % (1.21) (0.70) (0.07) (0.30) (0.91)(3) Portfolio turnover % 223 257 175 140 71 Class B Year ended December 31, ----------------------------------------------- 1999 1998 1997 1996 1995(1) ---- ---- ---- ---- ------- Operating performance: Net asset value, beginning of the period $ 28.26 27.27 24.46 20.84 19.56 Net investment loss $ (0.60) (0.48) (0.19) (0.12) (0.12) Net realized and unrealized gain on investments $ 36.96 2.20 3.61 3.74 2.43 Total from investment operations $ 36.36 1.72 3.42 3.62 2.31 Distributions from net realized gain $ (7.56) (0.73) (0.61) -- (1.03) Total distributions $ (7.56) (0.73) (0.61) -- (1.03) Net asset value, end of the period $ 57.06 28.26 27.27 24.46 20.84 Total return(2) % 145.24 6.84 14.10 17.37 11.79 Ratios and supplemental data: Net assets at the end of the period (000s) $ 264,677 124,065 169,516 126,859 1,491 Ratio of expenses to average net assets after reimbursement % 2.15 2.18 2.15 2.17 2.20 (3) Ratio of expenses to average net assets prior to expense reimbursement % 2.15 2.18 2.15 2.18 2.21 (3) Ratio of net investment loss to average net assets % (1.93) (1.43) (0.78) (1.01) (1.64)(3) Portfolio turnover % 223 257 175 140 71 Class C Year ended December 31, ------------------------------------------ 1999 1998 1997 1996 1995(1) ---- ---- ---- ---- ------- Operating performance: Net asset value, beginning of the period $ 28.24 27.26 24.46 20.84 19.56 Net investment loss $ (0.53) (0.55) (0.20) (0.13) (0.15) Net realized and unrealized gain on investments $ 36.83 2.26 3.61 3.75 2.46 Total from investment operations $ 36.30 1.71 3.41 3.62 2.31 Distributions from net realized gain $ (7.56) (0.73) (0.61) -- (1.03) Total distributions $ (7.56) (0.73) (0.61) -- (1.03) Net asset value, end of the period $ 56.98 28.24 27.26 24.46 20.84 Total return(2) % 145.12 6.81 14.06 17.37 11.79 Ratios and supplemental data: Net assets at the end of the period (000s) $ 72,581 29,746 51,460 37,342 62 Ratio of expenses to average net assets after reimbursement % 2.18 2.22 2.18 2.20 2.20 (3) Ratio of expenses to average net assets prior to expense reimbursement % 2.18 2.22 2.18 2.21 2.23 (3) Ratio of net investment loss to average net assets % (1.96) (1.45) (0.82) (1.03) (1.60)(3) Portfolio turnover % 223 257 175 140 71 Class T Year ended December 31, ------------------------------------------ 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Operating performance: Net asset value, beginning of the period $ 28.36 27.34 24.48 20.84 19.64 Net investment loss $ (0.65) (0.51) (0.18) (0.21) (0.34) Net realized and unrealized gain on investments $ 37.24 2.26 3.65 3.85 2.57 Total from investment operations $ 36.59 1.75 3.47 3.64 2.23 Distributions from net realized gain $ (7.56) (0.73) (0.61) -- (1.03) Total distributions $ (7.56) (0.73) (0.61) -- (1.03) Net asset value, end of the period $ 57.39 28.36 27.34 24.48 20.84 Total return(2) % 145.51 6.94 14.29 17.47 11.34 Ratios and supplemental data: Net assets at the end of the period (000s) $ 33,634 18,203 32,800 35,670 33,557 Ratio of expenses to average net assets after reimbursement % 2.06 2.10 1.99 2.07 2.16 Ratio of expenses to average net assets prior to expense reimbursement % 2.06 2.10 1.99 2.11 2.16 Ratio of net investment loss to average net assets % (1.85) (1.33) (0.62) (0.89) (1.50) Portfolio turnover % 223 257 175 140 71
- ---------- (1) Classes A, B & C commenced operations on June 5, 1995. (2) Assumes dividends have been reinvested and does not reflect the effect of sales charges. (3) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim SmallCap Opportunities Fund 95 Financial PILGRIM SMALLCAP GROWTH FUND Highlights - -------------------------------------------------------------------------------- For the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ending prior to June 30, 1999, the financial information was audited by other independent auditors.
Class A ------------------------------------------------------------------------- Six months Three ended months Dec. 31, ended Year ended March 31, 1999 June 30, ------------------------------------------------ (unaudited) 1999(1) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 19.08 16.72 19.75 15.15 17.93 13.06 12.10 Income from investment operations: Net investment income (loss) $ (0.09) (0.06) (0.85) (0.08) (0.22) (0.20) (0.16) Net realized and unrealized gains on investments $ 8.27 2.42 0.69 6.91 (0.66) 5.09 1.12 Total from investment operations $ 8.18 2.36 (0.16) 6.83 (0.88) 4.89 0.96 Less distributions from: Net investment income $ -- -- -- -- -- -- -- Net realized gains on investments $ 9.73 -- 2.87 2.23 1.90 0.02 -- Net asset value, end of period $ 17.53 19.08 16.72 19.75 15.15 17.93 13.06 Total Return(3): % 53.23 14.11 0.37 46.32 (6.26) 37.48 7.93 Ratios/Supplemental Data: Net assets, end of period (000's) $ 148,392 102,641 94,428 201,943 121,742 138,155 106,725 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.59 1.70 1.85 1.89 1.72 1.74 1.86 Gross expenses prior to expense reimbursement(4) % 1.63 1.74 1.95 1.90 1.72 1.74 1.84 Net investment income (loss) after expense reimbursement(4) % (1.31) (1.46) (1.32) (1.85) (1.26) (1.20) (1.27) Portfolio turnover % 48 32 90 92 113 130 100 Class B ---------------------------------------------------------------- Six months Three ended months May 31, Dec. 31, ended Year ended March 31, 1995(2) to 1999 June 30, -------------------------- March 31, (unaudited) 1999(1) 1999 1998 1997 1996 ----------- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 24.05 21.12 22.53 15.51 16.69 12.50 Income from investment operations: Net investment income (loss) $ (0.16) (0.12) (0.53) (0.27) (0.21) (0.14) Net realized and unrealized gains on investments $ 10.40 3.05 0.33 7.29 (0.97) 4.33 Total from investment operations $ 10.24 2.93 (0.20) 7.02 (1.18) 4.19 Less distributions from: Net investment income $ -- -- -- -- -- -- Net realized gains on investments $ 12.24 -- 1.21 -- -- -- Net asset value, end of period $ 22.05 24.05 21.12 22.53 15.51 16.69 Total Return(3): % 52.82 13.87 (0.29) 45.26 (7.07) 33.52 Ratios/Supplemental Data: Net assets, end of period (000's) $ Ratios to average net assets: 76,897 49,448 45,140 55,215 28,030 13,626 Net expenses after expense reimbursement(4) % 2.24 2.35 2.57 2.62 2.61 2.58 Gross expenses prior to expense reimbursement(4) % 2.28 2.39 2.66 2.63 2.73 3.26 Net investment income (loss) after expense reimbursement(4) % (1.96) (2.11) (2.03) (2.59) (2.13) (2.09) Portfolio turnover % 48 32 90 92 113 130 Class C ----------------------------------------------------------------------- Six months Three ended months Dec. 31, ended Year ended March 31, 1999 June 30, ---------------------------------------------- (unaudited) 1999(1) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 18.81 16.51 18.62 14.69 17.62 12.96 12.07 Income from investment operations: Net investment income (loss) $ (0.13) (0.09) (0.84) (0.38) (0.31) (0.29) (0.22) Net realized and unrealized gains on investments $ 8.14 2.39 0.61 6.84 (0.63) 5.03 1.11 Total from investment operations $ 8.11 2.30 (0.23) 6.46 (0.94) 4.74 0.89 Less distributions from: Net investment income $ -- -- -- -- -- -- -- Net realized gains on investments $ 9.57 -- 1.88 2.53 1.99 0.08 -- Net asset value, end of period $ 17.25 18.81 16.51 18.62 14.69 17.62 12.96 Total Return(3): % 52.94 13.93 (0.24) 45.40 (6.81) 37.18 7.37 Ratios/Supplemental Data: Net assets, end of period (000's) $ 213,994 153,471 144,597 225,025 182,907 207,332 157,292 Ratios to average net assets: Net expenses after expense reimbursement(4) % 2.24 2.35 2.51 2.57 2.35 2.35 2.44 Gross expenses prior to expense reimbursement(4) % 2.28 2.39 2.60 2.59 2.35 2.35 2.44 Net investment income (loss) after expense reimbursement(4) % (1.96) (2.11) (1.97) (2.53) (1.89) (1.81) (1.85) Portfolio turnover % 48 32 90 92 113 130 100
- ---------- (1) Effective May 24, 1999, Pilgrim Investments Inc., became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor. (2) Commencement of offering shares. (3) Total return is calculated assuming reinvestment of dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized. 96 Pilgrim SmallCap Growth Fund Financial Highlights PILGRIM BANK AND THRIFT FUND - -------------------------------------------------------------------------------- For the year ended June 30, 1999, the six-month period ended June 30, 1998 and the years ended December 31, 1997, 1996, and 1995, the information in the table below, with the exception of the six months ended December 31, 1999 and the information in the row labeled "Total Investment Return at Net Asset Value" for periods prior to January 1, 1997, have been audited by KPMG LLP, independent auditors. For all periods ending prior to December 31, 1995, the financial information, with the exception of the information in the row labeled "Total Investment Return at Net Asset Value" has not been audited for periods prior to January 1, 1997. Prior to October 17, 1997, the Class A shares were designated as Common Stock and the Fund operated as a closed-end investment company.
Class A ---------------------------------------------------------------- Six months Six ended Year months Dec. 31, ended ended Year ended December 31, 1999 June 30, June 30, ------------------------------ (unaudited) 1999 1998(3) 1997 1996 1995(1) 1994 ----------- ---- ------- ---- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of year $ 24.38 27.52 25.87 17.84 14.83 10.73 11.87 Income (loss) from investment operations: Net investment income $ 0.15 0.29 0.11 0.34 0.32 0.31 0.26 Net realized and unrealized gains (loss) on investments $ (4.21) (2.70) 1.54 10.83 5.18 4.78 (0.53) Total from investment operations $ (4.06) (2.41) 1.65 11.17 5.50 5.09 (0.27) Less distributions from: Net investment income $ 0.25 0.18 -- 0.31 0.35 0.34 0.22 Net realized gains on investments $ 2.73 0.55 -- 2.65 2.14 0.65 0.65 Tax return of capital $ -- -- -- 0.18 -- -- -- Net asset value, end of year $ 17.34 24.38 27.52 25.87 17.84 14.83 10.73 Closing market price, end of year -- -- -- -- 15.75 12.88 9.13 Total Investment Return at Market Value(4) % -- -- -- -- 43.48 52.81 (8.85) Total Investment Return at Net Asset Value(5) % (18.04) (8.61) 6.38 64.86 41.10 49.69 (1.89) Ratios/Supplemental Data: Net assets, end of year ($millions) $ 258 403 549 383 252 210 152 Ratio to average net assets: Expenses(6) % 1.43 1.39 1.20 1.10 1.01 1.05 1.28 Net investment income(6) % 1.15 1.09 0.94 1.39 1.94 2.37 2.13 Portfolio turnover rate % 5 29 2 22 21 13 14 Class B ------------------------------------------------ Six months Six ended Year months Oct. 20, Dec. 31, ended ended 1997(2) to 1999 June 30, June 30, Dec. 31, (unaudited) 1999 1998(3) 1997 ----------- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of year $ 24.21 27.40 25.85 25.25 Income (loss) from investment operations: Net investment income $ 0.05 0.08 0.01 0.04 Net realized and unrealized gains (loss) on investments $ (4.17) (2.66) 1.54 2.92 Total from investment operations $ (4.12) (2.58) 1.55 2.96 Less distributions from: Net investment income $ 0.03 0.06 -- 0.04 Net realized gains on investments $ 2.73 0.55 -- 2.04 Tax return of capital $ -- -- -- 0.28 Net asset value, end of year $ 17.33 24.21 27.40 25.85 Closing market price, end of year -- -- -- -- Total Investment Return at Market Value(4) % -- -- -- -- Total Investment Return at Net Asset Value(5) % (18.34) (9.31) 6.00 11.88 Ratios/Supplemental Data: Net assets, end of year ($millions) $ 207 343 360 76 Ratio to average net assets: Expenses(6) % 2.18 2.14 1.95 1.89 Net investment income(6) % 0.40 0.34 0.19 0.99 Portfolio turnover rate % 5 29 2 22
- ---------- (1) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired certain assets of Pilgrim Management Corporation, the Fund's former Investment Manager, in a transaction that closed on April 7, 1995. (2) Commencement of offering shares. (3) Effective June 30, 1998, Bank and Thrift Fund changed its year end to June 30. (4) Total return was calculated at market value without deduction of sales commissions and assuming reinvestment of all dividends and distributions during the period. (5) 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. (6) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Bank and Thrift Fund 97 Financial PILGRIM WORLDWIDE GROWTH FUND Highlights - -------------------------------------------------------------------------------- For the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ending prior to June 30, 1999, the financial information was audited by other independent auditors.
Class A --------------------------------------------------------------- Six months Three ended months Dec. 31, ended Year ended March 31, 1999 June 30, ---------------------------------------- (unaudited) 1999(1) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 23.58 21.39 19.33 16.88 16.57 14.29 14.94 Income from investment operations: Net investment income (loss) $ (0.11) -- (0.02) 0.04 (0.16) (0.07) (0.05) Net realized and unrealized gains on investments $ 10.71 2.19 5.78 5.33 2.20 2.86 (0.09) Total from investment operations $ 10.60 2.19 5.76 5.37 2.04 2.79 (0.14) Less distributions from: Net investment income $ -- -- 0.06 -- -- 0.12 0.02 Net realized gains on investments $ 3.07 -- 3.64 2.92 1.73 0.39 0.49 Net asset value, end of period $ 31.11 23.58 21.39 19.33 16.88 16.57 14.29 Total Return(3): % 47.79 10.24 33.56 34.55 12.51 19.79 (0.90) Ratios/Supplemental Data: Net assets, end of period (000's) $ 150,384 66,245 49,134 38,647 24,022 23,481 22,208 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.61 1.75 1.86 1.86 1.85 1.85 1.85 Gross expenses prior to expense reimbursement(4) % 1.61 1.75 2.02 2.21 2.17 2.17 2.18 Net investment income (loss) after expense reimbursement(4) % (1.13) (0.03) (0.62) (0.69) (0.93) (0.35) (0.42) Portfolio turnover % 92 57 247 202 182 132 99 Class B -------------------------------------------------------------- Six months Three ended months May 31, Dec. 31, ended Year ended March 31, 1995(2) to 1999 June 30, ------------------------ March 31, (unaudited) 1999(1) 1999 1998 1997 1996 ----------- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 26.64 24.21 20.10 16.02 14.34 12.50 Income from investment operations: Net investment income (loss) $ (0.17) (0.03) (0.08) (0.17) (0.14) (0.05) Net realized and unrealized gains on investments $ 12.02 2.46 6.25 5.44 1.82 1.89 Total from investment operations $ 11.85 2.43 6.17 5.27 1.68 1.84 Less distributions from: Net investment income $ -- -- 0.01 -- -- -- Net realized gains on investments $ 3.46 -- 2.05 1.19 -- -- Net asset value, end of period $ 35.03 26.64 24.21 20.10 16.02 14.34 Total Return(3): % 47.25 10.04 32.74 34.03 11.72 14.72 Ratios/Supplemental Data: Net assets, end of period (000's) $ 82,286 27,938 18,556 10,083 5,942 1,972 Ratios to average net assets: Net expenses after expense reimbursement(4) % 2.26 2.40 2.51 2.51 2.50 2.50 Gross expenses prior to expense reimbursement(4) % 2.26 2.40 2.67 2.70 4.81 9.50 Net investment income (loss) after expense reimbursement(4) % (1.78) (0.68) (1.31) (1.37) (1.62) (1.28) Portfolio turnover % 92 57 247 202 182 132 Class C ---------------------------------------------------------------- Six months Three ended months Dec. 31, ended Year ended March 31, 1999 June 30, ---------------------------------------- (unaudited) 1999(1) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 23.69 21.52 19.05 16.92 16.76 14.44 14.86 Income from investment operations: Net investment income (loss) $ (0.19) (0.04) (0.20) (0.19) (0.28) (0.21) (0.15) Net realized and unrealized gains on investments $ 10.72 2.21 5.83 5.41 2.23 2.92 (0.08) Total from investment operations $ 10.53 2.17 5.63 5.22 1.95 2.71 (0.23) Less distributions from: Net investment income $ -- -- 0.01 -- -- 0.01 -- Net realized gains on investments $ 3.08 -- 3.15 3.09 1.79 0.38 0.19 Net asset value, end of period $ 31.14 23.69 21.52 19.05 16.92 16.76 14.44 Total Return(3): % 47.25 10.08 32.73 33.72 11.81 18.95 (1.49) Ratios/Supplemental Data: Net assets, end of period (000's) $ 190,853 111,250 98,470 84,292 70,345 71,155 71,201 Ratios to average net assets: Net expenses after expense reimbursement(4) % 2.26 2.40 2.51 2.51 2.50 2.50 2.50 Gross expenses prior to expense reimbursement(4) % 2.26 2.40 2.67 2.77 2.61 2.57 2.57 Net investment income (loss) after expense reimbursement(4) % (1.78) (0.68) (1.28) (1.34) (1.57) (0.99) (1.06) Portfolio turnover % 92 57 247 202 182 132 99
- ---------- (1) Effective May 24, 1999, Pilgrim Investments Inc., became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor. (2) Commencement of offering shares. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized. 98 Pilgrim Worldwide Growth Fund Financial Highlights PILGRIM INTERNATIONAL VALUE FUND - -------------------------------------------------------------------------------- For the years ended 1999, 1998 and 1997, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent auditors. For all periods ending prior to October 31, 1997, the financial information was audited by other independent auditors.
Class A Year ended October 31, --------------------------------------------- 1999 1998 1997 1996 1995(1) ---- ---- ---- ---- ------- Operating performance Net asset value at the beginning of the period $ 11.88 10.90 9.05 8.10 7.64 Net investment income (loss) $ .08 0.11 (0.09) 0.14 0.09 Net realized and unrealized gain on investments $ 3.58 0.96 2.30 0.85 0.37 Total from investment operations $ 3.66 1.07 2.21 0.99 0.46 Dividends from net investment income $ (.12) -- (0.14) (0.04) -- Dividends from net realized gain on investments sold $ (.67) (0.09) (0.22) -- -- Total distributions $ (.79) (0.09) (0.36) (0.04) -- Net asset value at the end of the period $ 14.75 11.88 10.90 9.05 8.10 Total investment return(3) % 32.55 9.86 27.59 12.15 9.39(4) Ratios and supplemental data Net assets at the end of the period ($000s) $ 451,815 211,018 60,539 16,777 5,188 Ratio of expenses to average net assets % 1.68 1.74 1.80 1.85 1.85(4) Ratio of expense reimbursement to average net assets % -- -- 0.27 0.97 6.08(4) Ratio of net investment income to average net assets % .92 1.62 0.46 1.52 1.67(4) Portfolio turnover rate % 29 32 26 74 -- Class B Class C Year ended October 31, Year ended October 31, ----------------------- ------------------------------------------ 1999 1998 1997 1999 1998 1997 1996 1995(1) ---- ---- ---- ---- ---- ---- ---- ------- Operating performance Net asset value at the beginning of the period 11.76 10.87 10.00 11.75 10.86 8.93 8.05 7.61 Net investment income (loss) .01 0.07 (0.02) 0.00 0.06 (0.06) 0.05 0.06 Net realized and unrealized gain on investments 3.51 0.91 0.89 3.51 0.92 2.20 0.86 0.38 Total from investment operations 3.52 0.98 0.87 3.51 0.98 2.14 0.91 0.44 Dividends from net investment income (.04) -- -- (.04) -- (0.04) (0.03) -- Dividends from net realized gain on investments sold (.67) (0.09) -- (.67) (0.09) (0.17) -- -- Total distributions (.71) (0.09) -- (.71) (0.09) (0.21) (0.03) -- Net asset value at the end of the period 14.57 11.76 10.87 14.55 11.75 10.86 8.93 8.05 Total investment return(3) 31.55 9.16 8.70 31.50 9.07 25.92 11.39 8.89(4) Ratios and supplemental data Net assets at the end of the period ($000s) 278,871 145,976 59,185 310,227 137,651 62,103 14,530 5,749 Ratio of expenses to average net assets 2.41 2.47 2.50 (4) 2.41 2.47 2.50 2.50 2.50(4) Ratio of expense reimbursement to average net assets -- -- 0.08 (4) -- -- 0.24 1.21 6.08(4) Ratio of net investment income to average net assets .18 0.69 (0.71)(4) .19 0.68 (0.23) 0.62 1.13(4) Portfolio turnover rate 29 32 26 29 32 26 74 --
- ---------- (1) The mutual fund commenced operations on March 6, 1995 as the Brandes International Fund, a series of the Brandes Investment Trust. At the close of business on April 18, 1997 (the "Closing"), the Pilgrim International Value Fund (formerly the "Northstar International Value Fund") acquired the net assets of the Brandes International Fund, pursuant to an Agreement of Reorganization dated February 4, 1997. On April 21, 1997, the Brandes International Fund was reorganized as the Northstar International Value Fund. (2) Class B commenced operations on April 18, 1997. (3) Assumes dividends have been reinvested and does not reflect the effect of sales charges. (4) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim International Value Fund 99 Financial PILGRIM INTERNATIONAL CORE GROWTH FUND Highlights - -------------------------------------------------------------------------------- For the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ending prior to June 30, 1999, the financial information was audited by other independent auditors.
Class A ----------------------------------------------------------- Six months Three ended months February 28, Dec. 31, ended Year ended March 31, 1997(1) to 1999 June 30, -------------------- March 31, (unaudited) 1999(2) 1999 1998 1997 ----------- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 18.92 17.71 17.01 12.73 12.50 Income from investment operations: Net investment income (loss) $ (0.15) 0.04 (0.01) (0.02) -- Net realized and unrealized gains on investments $ 9.74 1.17 1.02 4.56 0.23 Total from investment operations $ 9.59 1.21 1.01 4.54 0.23 Less distributions from: Net investment income $ -- -- 0.18 -- -- Net realized gains on investments $ 1.16 -- 0.13 0.26 -- Net asset value, end of period $ 27.35 18.92 17.71 17.01 12.73 Total Return(3): % 52.07 6.83 5.90 36.10 1.76 Ratios/Supplemental Data: Net assets, end of period (000's) $ 19,460 12,409 21,627 12,664 2 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.75 1.77 1.89 1.96 1.95 Gross expenses prior to expense reimbursement(4) % 2.11 1.86 2.13 3.02 4,579.78 Net investment income (loss) after expense reimbursement(4) % (1.47) 0.50 (0.51) (0.45) 0.00 Portfolio turnover % 103 67 214 274 76 Class B ---------------------------------------------------------- Six months Three ended months February 28, Dec. 31, ended Year ended March 31, 1997(1) to 1999 June 30, -------------------- March 31, (unaudited) 1999(2) 1999 1998 1997 ----------- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 19.08 17.89 17.10 12.68 12.50 Income from investment operations: Net investment income (loss) $ (0.20) -- (0.16) (0.11) -- Net realized and unrealized gains on investments $ 9.76 1.19 1.05 4.66 0.18 Total from investment operations $ 9.56 1.19 0.89 4.55 0.18 Less distributions from: Net investment income $ -- -- 0.03 -- -- Net realized gains on investments $ 1.16 -- 0.07 0.13 -- Net asset value, end of period $ 27.48 19.08 17.89 17.10 12.68 Total Return(3): % 51.40 6.65 5.24 35.31 1.44 Ratios/Supplemental Data: Net assets, end of period (000's) $ 19,465 12,034 11,033 7,942 1 Ratios to average net assets: Net expenses after expense reimbursement(4) % 2.40 2.36 2.53 2.61 2.59 Gross expenses prior to expense reimbursement(4) % 2.76 2.45 2.77 3.04 16,000.25 Net investment income (loss) after expense reimbursement(4) % (2.12) (0.09) (1.13) (1.32) 0.00 Portfolio turnover % 103 67 214 274 76 Class C ------------------------------------------------------- Six Months Three ended months February 28, Dec. 31, ended Year ended March 31, 1997(1) to 1999 June 30, ------------------- March 31, (unaudited) 1999(2) 1999 1998 1997 ----------- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 19.14 17.94 17.16 12.68 12.50 Income from investment operations: Net investment income (loss) $ (0.21) -- (0.05) (0.07) -- Net realized and unrealized gains on investments $ 9.80 1.20 0.94 4.55 0.18 Total from investment operations $ 9.59 1.20 0.89 4.48 0.18 Less distributions from: Net investment income $ -- -- 0.11 -- -- Net realized gains on investments $ 1.16 -- -- -- -- Net asset value, end of period $ 27.57 19.14 17.94 17.16 12.68 Total Return(3): % 51.46 6.69 5.22 35.25 1.44 Ratios/Supplemental Data: Net assets, end of period (000's) $ 21,104 11,936 10,400 3,517 43 Ratios to average net assets: Net expenses after expense reimbursement(4) % 2.40 2.36 2.55 2.61 2.41 Gross expenses prior to expense reimbursement(4) % 2.76 2.45 2.79 5.10 25.55 Net investment income (loss) after expense reimbursement(4) % (2.12) (0.09) (1.19) (1.27) (0.07) Portfolio turnover % 103 67 214 274 76
- ---------- (1) The Fund commenced operations on February 28, 1997. (2) Effective May 24, 1999, Pilgrim Investments Inc., became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized. 100 Pilgrim International Core Growth Fund Financial Highlights PILGRIM INTERNATIONAL SMALLCAP GROWTH FUND - -------------------------------------------------------------------------------- For the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ending prior to June 30, 1999, the financial information was audited by other independent auditors.
Class A ------------------------------------------------------------------- Six months Three ended months August 31, Dec. 31, ended Year ended March 31, 1994(1) to 1999 June 30, ------------------------------ March 31, (unaudited) 1999(3) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 23.80 21.03 19.29 14.92 13.15 11.51 12.50 Income from investment operations: Net investment income (loss) $ (0.14) (0.03) 0.02 (0.15) 0.04 (0.02) -- Net realized and unrealized gains on investments $ 19.00 2.80 3.21 5.36 1.88 1.79 (0.98) Total from investment operations $ 18.86 2.77 3.23 5.21 1.92 1.77 (0.98) Less distributions from: Net investment income $ -- -- -- -- 0.01 0.13 0.01 Net realized gains on investments $ 2.06 -- 1.49 0.84 0.14 -- -- Net asset value, end of period $ 40.60 23.80 21.03 19.29 14.92 13.15 11.51 Total Return(4): % 81.29 13.17 17.26 36.31 14.67 15.46 (7.85) Ratios/Supplemental Data: Net assets, end of period (000's) $ 146,057 37,490 25,336 11,183 5,569 1,056 610 Ratios to average net assets: Net expenses after expense reimbursement(5) % 1.65 1.84 1.94 1.96 1.95 1.95 1.95 Gross expenses prior to expense reimbursement(5) % 1.66 1.86 2.08 2.75 3.76 10.06 9.77 Net investment income (loss) after expense reimbursement(5) % (1.40) (0.69) (0.82) (1.56) (1.05) (0.27) (0.07) Portfolio turnover % 71 44 146 198 206 141 75 Class B ----------------------------------------------------------- Six months Three ended months May 31, Dec. 31, ended Year ended March 31, 1995(2) to 1999 June 30, ----------------------- March 31, (unaudited) 1999(3) 1999 1998 1997 1996 ----------- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 25.33 22.43 20.16 15.89 13.96 12.50 Income from investment operations: Net investment income (loss) $ (0.24) (0.07) (0.20) (0.15) (0.15) (0.02) Net realized and unrealized gains on investments $ 20.12 2.97 3.46 5.56 2.09 1.48 Total from investment operations $ 19.88 2.90 3.26 5.41 1.94 1.46 Less distributions from: Net investment income $ -- -- -- -- 0.01 -- Net realized gains on investments $ 2.19 -- 0.99 1.14 -- -- Net asset value, end of period $ 43.02 25.33 22.43 20.16 15.89 13.96 Total Return(4): % 80.57 12.93 16.55 35.73 13.96 11.68 Ratios/Supplemental Data: Net assets, end of period (000's) $ 77,785 19,331 16,158 12,033 5,080 1,487 Ratios to average net assets: Net expenses after expense reimbursement(5) % 2.30 2.49 2.59 2.61 2.60 2.60 Gross expenses prior to expense reimbursement(5) % 2.31 2.51 2.73 2.98 4.89 16.15 Net investment income (loss) after expense reimbursement(5) % (2.02) (1.34) (1.45) (2.20) (1.66) (0.64) Portfolio turnover % 71 44 146 198 206 141 Class C --------------------------------------------------------------------- Six months Three ended months August 31, Dec. 31, ended Year ended March 31, 1994(1) to 1999 June 30, ------------------------------- March 31, (unaudited) 1999(3) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 23.34 20.60 18.53 14.87 13.05 11.32 12.50 Income from investment operations: Net investment income (loss) $ (0.19) (0.06) (0.10) (0.11) (0.16) 0.01 (0.04) Net realized and unrealized gains on investments $ 18.36 2.80 3.09 5.09 1.98 1.72 (1.12) Total from investment operations $ 18.17 2.74 2.99 4.98 1.82 1.73 (1.16) Less distributions from: Net investment income $ -- -- -- -- -- -- 0.02 Net realized gains on investments $ 2.01 -- 0.92 1.32 -- -- -- Net asset value, end of period $ 39.50 23.34 20.60 18.53 14.87 13.05 11.32 Total Return(4): % 80.48 13.31 16.55 35.63 13.98 15.30 (9.25) Ratios/Supplemental Data: Net assets, end of period (000's) $ 72,787 18,354 13,226 8,014 3,592 933 24 Ratios to average net assets: Net expenses after expense reimbursement(5) % 2.30 2.49 2.59 2.61 2.60 2.60 2.61 Gross expenses prior to expense reimbursement(5) % 2.31 2.51 2.73 3.38 3.95 16.15 75.37 Net investment income (loss) after expense reimbursement(5) % (2.02) (1.34) (1.45) (2.18) (1.67) (1.02) (0.76) Portfolio turnover % 71 44 146 198 206 141 75
- ---------- (1) The Fund commenced operations on August 31, 1994. (2) Commencement of share offerings. (3) Effective May 24, 1999, Pilgrim Investments Inc., became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor. (4) 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. (5) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim International SmallCap Growth Fund 101 Financial PILGRIM EMERGING MARKETS VALUE FUND Highlights - -------------------------------------------------------------------------------- The information in the table below has been audited by PricewaterhouseCoopers LLP, independent auditors.
Class A(1) Class B(1) Class C(1) ---------------------- ---------------------- ---------------------- Year ended October 31, Year ended October 31, Year ended October 31, 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- Operating performance Net asset value at the beginning of the period $ 7.69 10.00 7.65 10.00 7.63 10.00 Net investment income $ .12 0.12 .08 0.09 .04 0.09 Net realized and unrealized loss on investments $ 3.01 (2.43) 2.97 (2.44) 3.00 (2.46) Total from investment operations $ 3.13 (2.31) 3.05 (2.35) 3.04 (2.37) Dividends from net investment income $ (.14) (.10) (.11) Net asset value at the end of the period $ 10.68 7.69 10.60 7.65 10.56 7.63 Total investment return(2) % 41.48 (23.10) 40.41 (23.50) 40.49 (23.70) Ratios and supplemental data Net assets at the end of the period ($000s) $ 9,281 3,815 3,823 3,583 6,674 2,304 Ratio of expenses to average net assets(3) % 2.06 1.80 2.70 2.50 2.75 2.50 Ratio of expense reimbursement to average net assets(3) % .15 2.08 .23 2.24 .16 2.37 Ratio of net investment income to average net assets(3) % 1.36 3.38 .67 2.55 .61 2.60 Portfolio turnover rate % 38 7 38 7 38 7
- ---------- (1) Class A, B and C commenced operations on January 1, 1998. (2) Assumes dividends have been reinvested and does not reflect the effect of sales charges. (3) Annualized. 102 Pilgrim Emerging Markets Value Fund Financial Highlights PILGRIM EMERGING COUNTRIES FUND - -------------------------------------------------------------------------------- For the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ending prior to June 30, 1999, the financial information was audited by other independent auditors.
Class A ----------------------------------------------------------------- Six months Three ended months Nov. 28, Dec. 31, ended Year Ended March 31, 1994(1) to 1999 June 30, -------------------------------- Mar. 31, (unaudited) 1999(3) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 16.74 13.43 17.39 17.20 14.03 11.00 12.50 Income from investment operations: Net investment income (loss) $ (0.12) (0.05) (0.06) 0.03 (0.06) (0.04) 0.04 Net realized and unrealized gains on investments $ 5.39 3.36 (3.81) 1.22 3.51 3.15 (1.54) Total from investment operations $ 5.27 3.31 (3.87) 1.25 3.45 3.11 (1.50) Less distributions from: Net investment income $ -- -- 0.02 -- -- 0.02 -- Net realized gains on investments $ -- -- 0.07 1.06 0.28 0.06 -- Net asset value, end of period $ 22.01 16.74 13.43 17.39 17.20 14.03 11.00 Total Return(4): % 31.64 24.65 (22.23) 8.06 24.79 28.43 (11.98) Ratios/Supplemental Data: Net assets, end of period (000's) $ 68,449 53,483 47,180 71,014 38,688 4,718 1,197 Ratios to average net assets: Net expenses after expense reimbursement(5) % 2.07 2.13 2.27 2.26 2.25 2.25 2.25 Gross expenses prior to expense reimbursement(5) % 2.29 2.66 2.56 2.48 3.08 6.72 6.15 Net investment income (loss) after expense reimbursement(5) % (1.40) (1.30) (0.25) 0.55 (1.14) (0.35) 1.09 Portfolio turnover % 110 67 213 243 176 118 61 Class B ------------------------------------------------------------- Six months Three ended months May 31, Dec. 31, ended Year Ended March 31, 1995(2) to 1999 June 30, ------------------------ March 31, (unaudited) 1999(3) 1999 1998 1997 1996 ----------- ------- ---- ---- ---- ---- Per Share Operating Performance: 16.98 13.64 17.64 17.29 14.02 12.50 Net asset value, beginning of period $ Income from investment operations: (0.18) (0.07) (0.22) (0.07) (0.11) (0.04) Net investment income (loss) $ Net realized and unrealized gains on 5.44 3.41 (3.70) 1.26 3.47 1.56 investments $ 5.26 3.34 (3.92) 1.19 3.36 1.52 Total from investment operations $ Less distributions from: -- -- -- -- -- -- Net investment income $ -- -- 0.08 0.84 0.09 -- Net realized gains on investments $ 22.24 16.98 13.64 17.64 17.29 14.02 Net asset value, end of period $ 31.21 24.49 (22.23) 7.47 24.00 12.16 Total Return(4): % Ratios/Supplemental Data: Net assets, end of period (000's) $ 33,019 26,342 22,338 38,796 24,558 3,557 Ratios to average net assets: Net expenses after expense reimbursement(5) % 2.72 2.75 2.91 2.91 2.90 2.90 Gross expenses prior to expense reimbursement(5) % 2.94 3.28 3.20 3.06 3.66 7.58 Net investment income (loss) after expense reimbursement(5) % (2.07) (1.92) (0.80) (0.20) (1.77) (1.05) Portfolio turnover % 110 67 213 243 176 118 Class C ------------------------------------------------------------------ Six months Three ended months Nov. 28, Dec. 31, ended Year Ended March 31, 1994(1) to 1999 June 30, ------------------------------- Mar. 31, (unaudited) 1999(3) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 16.35 13.14 16.98 16.81 13.71 10.79 12.50 Income from investment operations: Net investment income (loss) $ (0.17) (0.07) (0.27) (0.12) (0.10) (0.05) -- Net realized and unrealized gains on investments $ 5.24 3.28 (3.49) 1.26 3.37 2.97 (1.70) Total from investment operations $ 5.07 3.21 (3.76) 1.14 3.27 2.92 (1.70) Less distributions from: Net investment income $ -- -- -- -- -- -- 0.01 Net realized gains on investments $ -- -- 0.08 0.97 0.17 -- -- Net asset value, end of period $ 21.42 16.35 13.14 16.98 16.81 13.71 10.79 Total Return(4): % 31.25 24.43 (22.21) 7.47 23.94 27.30 (13.64) Ratios/Supplemental Data: Net assets, end of period (000's) $ 30,442 24,230 19,246 36,986 29,376 4,345 59 Ratios to average net assets: Net expenses after expense reimbursement(5) % 2.72 2.75 2.90 2.91 2.90 2.90 2.90 Gross expenses prior to expense reimbursement(5) % 2.94 3.28 3.19 3.09 3.12 6.23 242.59 Net investment income (loss) after expense reimbursement(5) % (2.07) (1.92) (0.77) (0.26) (1.75) (1.06) (0.04) Portfolio turnover % 110 67 213 243 176 118 61
- ---------- (1) The Fund commenced operations on November 28, 1994. (2) Commencement of offering shares. (3) Effective May 24, 1999, Pilgrim Investments Inc., became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor. (4) 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. (5) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Emerging Countries Fund 103 Financial PILGRIM ASIA-PACIFIC EQUITY FUND Highlights - -------------------------------------------------------------------------------- The information in the table below, except for the six months ended December 31, 1999, has been audited by KPMG LLP, independent auditors.
Class A --------------------------------------------------- Six months ended Ten months Dec. 31, Year ended June 30, ended 1999 ----------------------- June 30, (unaudited) 1999 1998 1997 1996(1) ----------- ---- ---- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 7.22 4.46 10.93 10.35 10.00 Income from investment operations: Net investment income (loss) $ (0.02) -- 0.03 0.02 0.03 Net realized and unrealized gain (loss) on investments $ 1.73 2.76 (6.50) 0.58 0.34 Total from investment operations $ 1.71 2.76 (6.47) 0.60 0.37 Less distributions from: Net investment income $ -- -- -- -- -- In excess of net investment income $ -- -- -- -- 0.02 Tax return of capital $ -- -- -- 0.02 -- Net asset value, end of period $ 8.93 7.22 4.46 10.93 10.35 Total Return(2): % 23.68 61.88 (59.29) 5.78 3.76 Ratios/Supplemental Data: Net assets, end of period (000's) $ 17,309 14,417 11,796 32,485 18,371 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.00 2.00 2.00 2.00 2.00 Gross expenses prior to expense reimbursement(3) % 2.88 2.98 2.80 2.54 3.47 Net investment income (loss) after expense reimbursement(3) % (0.65) 0.01 0.38 0.00 0.33 Portfolio turnover rate % 66 111 81 38 15 Class B ------------------------------------------------ Six months ended Ten months Dec. 31, Year ended June 30, ended 1999 ---------------------- June 30, (unaudited) 1999 1998 1997 1996(1) ----------- ---- ---- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 7.02 4.37 10.83 10.31 10.00 Income from investment operations: Net investment income (loss) $ (0.05) (0.04) (0.03) (0.07) (0.01) Net realized and unrealized gain (loss) on investments $ 1.68 2.69 (6.43) 0.59 0.32 Total from investment operations $ 1.63 2.65 (6.46) 0.52 0.31 Less distributions from: Net investment income $ -- -- -- -- -- In excess of net investment income $ -- -- -- -- -- Tax return of capital $ -- -- -- -- -- Net asset value, end of period $ 8.65 7.02 4.37 10.83 10.31 Total Return(2): % 23.22 60.64 (59.65) 5.04 3.19 Ratios/Supplemental Data: Net assets, end of period (000's) $ 16,393 12,959 9,084 30,169 17,789 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.75 2.75 2.75 2.75 2.75 Gross expenses prior to expense reimbursement(3) % 3.63 3.73 3.55 3.29 4.10 Net investment income (loss) after expense reimbursement(3) % (1.40) (0.74) (0.39) (0.79) (0.38) Portfolio turnover rate % 66 111 81 38 15 Class M ------------------------------------------------ Six months ended Ten months Dec. 31, Year ended June 30, ended 1999 ---------------------- June 30, (unaudited) 1999 1998 1997 1996(1) ----------- ---- ---- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 7.07 4.40 10.86 10.32 10.00 Income from investment operations: Net investment income (loss) $ (0.04) (0.02) -- (0.05) -- Net realized and unrealized gain (loss) on investments $ 1.69 2.69 (6.46) 0.59 0.33 Total from investment operations $ 1.65 2.67 (6.46) 0.54 0.33 Less distributions from: Net investment income $ -- -- -- -- -- In excess of net investment income $ -- -- -- -- 0.01 Tax return of capital $ -- -- -- -- -- Net asset value, end of period $ 8.72 7.07 4.40 10.86 10.32 Total Return(2): % 23.34 60.68 (59.48) 5.26 3.32 Ratios/Supplemental Data: Net assets, end of period (000's) $ 7,954 5,184 4,265 11,155 6,476 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.50 2.50 2.50 2.50 2.50 Gross expenses prior to expense reimbursement(3) % 3.38 3.48 3.30 3.04 3.88 Net investment income (loss) after expense reimbursement(3) % (1.15) (0.49) (0.07) (0.55) (0.16) Portfolio turnover rate % 66 111 81 38 15
- ---------- (1) The Fund commenced operations on September 1, 1995. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return information for less than one year is not annualized. (3) Annualized. 104 Pilgrim Asia-Pacific Equity Fund Financial Highlights PILGRIM GOVERNMENT SECURITIES INCOME FUND - -------------------------------------------------------------------------------- The information in the table below, except for the six months ended December 31, 1999, has been audited by KPMG LLP, independent auditors.
Class A -------------------------------------------------------- Six months ended Dec. 31, Year ended June 30, 1999 ------------------------------------------- (unaudited) 1999 1998 1997 1996 1995(1) ----------- ---- ---- ---- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 12.35 12.88 12.71 12.59 12.97 12.73 Income from investment operations: Net investment income (loss) $ 0.35 0.76 0.64 0.69 0.75 0.84 Net realized and unrealized gain (loss) on investments $ (0.37) (0.52) 0.30 0.20 (0.32) 0.24 Total from investment operations $ (0.02) 0.24 0.94 0.89 0.43 1.08 Less distributions from: Net investment income $ 0.38 0.77 0.77 0.73 0.75 0.84 In excess of net investment income $ -- -- -- 0.04 0.06 -- Tax return of capital $ 0.38 0.77 0.77 0.77 0.81 0.84 Net asset value, end of period $ 11.95 12.35 12.88 12.71 12.59 12.97 Total Return(3) % (0.20) 1.89 7.63 7.33 3.34 8.96 Ratios/Supplemental Data: Net assets, end of period (000's) $ 19,304 21,060 23,682 29,900 38,753 43,631 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.52 1.40 1.50 1.42 1.51 1.40 Gross expenses prior to expense reimbursement(4) Net investment income (loss) after expense % 1.52 1.40 1.58 1.42 1.57 1.54 reimbursement(4) Portfolio turnover rate % 5.69 6.05 5.13 5.78 5.64 6.37 % 41 58 134 172 170 299 Class B Class C ------------------------------------------------ ------------------------ Six months Six months ended July 17, ended June 11, Dec. 31, Year ended June 30, 1995(2) to Dec. 31, 1999(2) to 1999 ----------------------- June 30, 1999 June 30, (unaudited) 1999 1998 1997 1995(1) (unaudited) 1999 ----------- ---- ---- ---- ------- ----------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 12.30 12.84 12.68 12.59 12.95 12.43 12.24 Income from investment operations: Net investment income (loss) $ 0.30 0.69 0.60 0.67 0.66 (1.62) 2.05 Net realized and unrealized gain (loss) on investments $ (0.36) (0.54) 0.24 0.11 (0.37) 1.56 (1.86) Total from investment operations $ (0.06) 0.15 0.84 0.78 0.29 (0.06) 0.19 Less distributions from: Net investment income $ 0.33 0.69 0.68 0.69 0.65 0.34 -- In excess of net investment income $ -- -- -- -- -- -- -- Tax return of capital $ 0.33 0.69 0.68 0.69 0.65 0.34 -- Net asset value, end of period $ 11.91 12.30 12.84 12.68 12.59 12.03 12.43 Total Return(3) % (0.50) 1.09 6.78 6.38 2.25 (0.52) 1.55 Ratios/Supplemental Data: Net assets, end of period (000's) $ 12,333 12,426 3,220 1,534 73 263 7 Ratios to average net assets: Net expenses after expense reimbursement(4) % 2.27 2.15 2.25 2.17 2.26 2.27 2.15 Gross expenses prior to expense reimbursement(4) Net investment income (loss) after expense % 2.27 2.15 2.29 2.17 2.41 2.27 2.15 reimbursement(4) Portfolio turnover rate % 4.93 5.30 4.24 4.92 4.98 4.87 5.30 % 41 58 134 172 170 41 58 Class M ------------------------------------------------- Six months ended July 17, Dec. 31, Year Ended June 30, 1995(2) to 1999 ---------------------- June 30, (unaudited) 1999 1998 1997 1996 ----------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 12.34 12.88 12.72 12.59 12.95 Income from investment operations: Net investment income (loss) $ 0.36 0.69 0.64 0.70 0.68 Net realized and unrealized gain (loss) on investments $ (0.40) (0.52) 0.23 0.14 (0.36) Total from investment operations $ (0.04) 0.17 0.87 0.84 0.32 Less distributions from: Net investment income $ 0.35 0.71 0.71 0.70 0.68 In excess of net investment income $ -- -- -- 0.01 -- Tax return of capital $ 0.35 0.71 0.71 0.71 0.68 Net asset value, end of period $ 11.95 12.34 12.88 12.72 12.59 Total Return(3) % (0.36) 1.31 7.02 6.88 2.52 Ratios/Supplemental Data: Net assets, end of period (000's) $ 662 751 224 61 24 Ratios to average net assets: Net expenses after expense reimbursement(4) % 2.02 1.90 2.00 1.92 2.01 Gross expenses prior to expense reimbursement(4) % 2.02 1.90 2.05 1.92 2.16 Net investment income (loss) after expense reimbursement(4) % 5.19 5.57 4.29 5.25 5.73 Portfolio turnover rate % 41 58 134 172 170
- ---------- (1) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired certain assets of Pilgrim Management Corporation, the Fund's former Investment Manager, in a transaction that closed on April 7, 1995. (2) Commencement of offering shares. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Government Securities Income Fund 105 Financial PILGRIM STRATEGIC INCOME FUND Highlights - -------------------------------------------------------------------------------- For the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ending prior to June 30, 1999, the financial information was audited by another independent auditor.
Class A Class B ----------------------------------- ---------------------------------- Six months Three Six months Three ended months July 27, ended months July 27, Dec. 31, ended 1998(1) to Dec. 31, ended 1998(1) to 1999 June 30, March 31, 1999 June 30, March 31, (unaudited) 1999(2) 1999 (unaudited) 1999(2) 1999 ----------- ------- ---- ----------- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 12.59 12.89 13.08 12.33 12.61 12.78 Income from investment operations: Net investment income $ 0.45 0.26 0.53 0.42 0.18 0.45 Net realized and unrealized gains (loss) on investments $ (0.44) (0.42) (0.08) (0.43) (0.33) (0.05) Total from investment operations $ 0.01 (0.16) 0.45 (0.01) (0.15) 0.40 Less distributions from: Net investment income $ 0.44 0.14 0.53 0.42 0.13 0.46 Net realized gains on investments $ -- -- 0.11 -- -- 0.11 Net asset value, end of period $ 12.16 12.59 12.89 11.90 12.33 12.61 Total Return(3) % 0.14 (1.23) 5.60 (0.08) (1.20) 5.17 Ratios/Supplemental Data: Net assets, end of period (000's) $ 2,453 2,736 5,751 5,407 5,658 6,637 Ratios to average net assets: Net expenses after expense reimbursement(4) % 0.95 0.90 0.96 1.35 1.29 1.37 Gross expenses prior to expense reimbursement(4) % 1.81 1.56 1.98 2.21 1.95 2.42 Net investment income (loss) after expense reimbursement(4) % 7.42 5.88 5.81 7.00 5.49 5.35 Portfolio turnover % 76 69 274 76 69 274 Class C ---------------------------------- Six months Three ended months July 27, Dec. 31, ended 1998(1) to 1999 June 30, March 31, (unaudited) 1999(2) 1999 ----------- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 12.81 13.10 13.27 Income from investment operations: Net investment income $ 0.44 0.19 0.48 Net realized and unrealized gains (loss) on investments $ (0.45) (0.35) (0.06) Total from investment operations $ (0.01) (0.16) 0.42 Less distributions from: Net investment income $ 0.42 0.13 0.48 Net realized gains on investments $ -- -- 0.11 Net asset value, end of period $ 12.38 12.81 13.10 Total Return(3) % (0.08) (1.21) 5.19 Ratios/Supplemental Data: Net assets, end of period (000's) $ 4,380 7,965 8,128 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.35 1.29 1.36 Gross expenses prior to expense reimbursement(4) % 2.21 1.95 2.41 Net investment income (loss) after expense reimbursement(4) % 7.00 5.49 5.36 Portfolio turnover % 76 69 274
- ---------- (1) The Fund commenced operations on July 27, 1998. (2) Effective May 24, 1999, Pilgrim Investments, Inc., became the Investment Manager of the Fund. (3) Total returns are not annualized for periods of less than one year and do not reflect the impact of sales charges. (4) Annualized. 106 Pilgrim Strategic Income Fund Financial Highlights PILGRIM HIGH YIELD FUND - -------------------------------------------------------------------------------- The information in the table below, except for the six months ended December 31, 1999, has been audited by KPMG LLP, independent auditors.
Class A ----------------------------------------------------------------- Six months Eight ended months Year Dec. 31, Year ended June 30, ended ended 1999 ----------------------------- June 30, October 31, (unaudited) 1999 1998 1997 1996 1995(1)(3) 1994 ----------- ---- ---- ---- ---- ---------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 5.93 6.94 6.80 6.36 6.15 5.95 6.47 Income from investment operations: Net investment income (loss) $ 0.28 0.58 0.61 0.61 0.59 0.35 0.54 Net realized and unrealized gain (loss) on investments $ (0.40) (0.96) 0.16 0.43 0.16 0.21 (0.51) Total from investment operations $ (0.12) (0.38) 0.77 1.04 0.75 0.56 0.03 Less distributions from: Net investment income $ 0.30 0.62 0.63 0.60 0.54 0.36 0.55 In excess of net investment income $ -- 0.01 -- -- -- -- -- Tax return of capital $ 0.30 0.63 0.63 0.60 0.54 0.36 0.55 Net asset value, end of period $ 5.51 5.93 6.94 6.80 6.36 6.15 5.95 Total Return(3) % (2.09) (5.57) 11.71 17.14 12.72 9.77 0.47 Ratios/Supplemental Data: Net assets, end of period (000's) $ 108,041 131,535 102,424 35,940 18,691 15,950 16,046 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.00 1.00 1.00 1.00 1.00 2.25 2.00 Gross expenses prior to expense reimbursement(4) % 1.15 1.12 1.17 1.42 2.19 2.35 2.07 Net investment income (loss) after expense reimbursement(4) % 10.03 9.32 9.05 9.54 9.46 8.84 8.73 Portfolio turnover rate % 47 184 209 394 399 166 192 Class B Class C ------------------------------------------------ ----------------------- Six months Six months ended July 17, ended May 27, Dec. 31, Year ended June 30, 1995(2) to Dec. 31, 1999(2) to 1999 ---------------------- June 30, 1999 June 30, (unaudited) 1999 1998 1997 1996 (unaudited) 1999 ----------- ---- ---- ---- ---- ----------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 5.92 6.92 6.78 6.36 6.20 5.92 5.91 Income from investment operations: Net investment income (loss) $ 0.27 0.53 0.58 0.57 0.48 0.28 0.05 Net realized and unrealized gain (loss) on investments $ (0.41) (0.96) 0.14 0.41 0.14 (0.43) 0.01 Total from investment operations $ (0.14) (0.43) 0.72 0.98 0.62 (0.15) 0.06 Less distributions from: Net investment income $ 0.28 0.56 0.58 0.56 0.46 0.28 0.05 In excess of net investment income $ -- 0.01 -- -- -- -- -- Tax return of capital $ 0.28 0.28 Net asset value, end of period $ 5.50 5.92 6.92 6.78 6.36 5.49 5.92 Total Return(3) % (2.45) (6.23) 10.90 16.04 10.37 (2.54) 0.34 Ratios/Supplemental Data: Net assets, end of period (000's) $ 243,075 261,589 154,303 40,225 2,374 5,614 551 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.75 1.75 1.75 1.75 1.75 1.75 1.75 Gross expenses prior to expense reimbursement(4) % 1.90 1.87 Net investment income (loss) after expense 1.90 1.87 1.92 2.17 2.94 reimbursement(4) % 9.27 8.57 8.30 8.64 9.02 9.33 8.57 Portfolio turnover rate % 47 184 209 394 339 47 184 Class M ----------------------------------------------- Six months ended July 17, Dec. 31, Year ended June 30, 1995(2) to 1999 ----------------------- June 30, (unaudited) 1999 1998 1997 1996 ----------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 5.93 6.92 6.78 6.36 6.20 Income from investment operations: Net investment income (loss) $ 0.27 0.55 0.59 0.58 0.50 Net realized and unrealized gain (loss) on investments $ (0.41) (0.95) 0.14 0.41 0.14 Total from investment operations $ (0.14) (0.40) 0.73 0.99 0.64 Less distributions from: Net investment income $ 0.29 0.58 0.59 0.57 0.48 In excess of net investment income $ -- 0.01 -- -- -- Tax return of capital $ 0.29 Net asset value, end of period $ 5.50 5.93 6.92 6.78 6.36 Total Return(3) % (2.50) (5.85) 11.16 16.29 10.69 Ratios/Supplemental Data: Net assets, end of period (000's) $ 18,768 24,129 19,785 8,848 1,243 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.50 1.50 1.50 1.50 1.50 Gross expenses prior to expense reimbursement(4) % Net investment income (loss) after expense 1.65 1.62 1.67 1.92 2.69 reimbursement(4) % 9.53 8.82 8.55 8.93 9.41 Portfolio turnover rate % 47 184 209 394 339
- ---------- (1) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired certain assets of Pilgrim Management Corporation, the Fund's former Investment Manager, in a transaction that closed on April 7, 1995. (2) Commencement of offering shares. (3) Effective November 1, 1994, High Yield Fund changed its year end to June 30. (4) 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. (5) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim High Yield Fund 107 Financial PILGRIM HIGH YIELD FUND II Highlights - -------------------------------------------------------------------------------- For the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ending prior to June 30, 1999, the financial information was audited by another independent auditor. Class A ----------------------------------------------- Six months Three ended months Year March 27, Dec. 31, ended ended 1998 to 1999 June 30, March 31, March 31, (unaudited) 1999(2) 1999 1998(1) Per Share Operating Performance: Net asset value, beginning of period $ 11.57 11.66 12.72 12.70 Income from investment operations: Net investment income $ 0.58 0.28 1.12 0.01 Net realized and unrealized gains (loss) on investments $ (0.40) (0.09) (1.00) 0.01 Total from investment operations $ 0.18 0.19 0.12 0.02 Less distributions from: Net investment income $ 0.58 0.28 1.18 -- Net asset value, end of period $ 11.17 11.57 11.66 12.72 Total Return(3): % 1.91 1.60 1.13 0.16 Ratios/Supplemental Data: Net assets, end of period (000's) $ 10,415 16,795 17,327 4,690 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.10 1.10 1.12 1.06 Gross expenses prior to expense reimbursement(4) % 1.25 1.37 1.53 1.06 Net investment income (loss) after expense reimbursement(4) % 10.28 9.68 9.44 7.22 Portfolio turnover % 55 44 242 484 Class B ------------------------------------------------ Six months Three ended months Year March 27, Dec. 31, ended ended 1998 to 1999 June 30, March 31, March 31, (unaudited) 1999(2) 1999 1998(1) ----------- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 11.58 11.66 12.71 12.69 Income from investment operations: Net investment income $ 0.54 0.27 1.04 0.01 Net realized and unrealized gains (loss) on investments $ (0.42) (0.09) (0.99) 0.01 Total from investment operations $ 0.12 0.18 0.05 0.02 Less distributions from: Net investment income $ 0.54 0.26 1.10 -- Net asset value, end of period $ 11.16 11.58 11.66 12.71 Total Return(3): % 1.41 1.53 0.55 0.16 Ratios/Supplemental Data: Net assets, end of period (000's) $ 40,553 41,882 42,960 8,892 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.75 1.75 1.77 1.69 Gross expenses prior to expense reimbursement(4) % 1.90 2.02 2.18 1.69 Net investment income (loss) after expense reimbursement(4) % 9.57 9.03 8.84 6.61 Portfolio turnover % 55 44 242 484 Class C ----------------------------------------------- Six months Three ended months Year March 27, Dec. 31, ended ended 1998 to 1999 June 30, March 31, March 31, (unaudited) 1999(2) 1999 1998(1) ----------- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 11.58 11.66 12.71 12.69 Income from investment operations: Net investment income (loss) $ 0.53 0.27 1.04 0.01 Net realized and unrealized gains (loss) on investments $ (0.40) (0.09) (0.99) 0.01 Total from investment operations $ 0.13 0.18 0.05 0.02 Less distributions from: Net investment income $ 0.54 0.26 1.10 -- Net asset value, end of period $ 11.17 11.58 11.66 12.71 Total Return(3): % 1.49 1.53 0.55 0.16 Ratios/Supplemental Data: Net assets, end of period (000's) $ 16,860 18,618 21,290 4,815 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.75 1.75 1.77 1.66 Gross expenses prior to expense reimbursement(4) % 1.90 2.02 2.18 1.66 Net investment income (loss) after expense reimbursement(4) % 9.57 9.03 8.79 6.91 Portfolio turnover % 55 44 242 484 - ---------- (1) The Fund commenced operations on March 27, 1998. (2) Effective May 24, 1999, Pilgrim Investments Inc., became the Investment Manager of the Fund. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized. 108 Pilgrim High Yield Fund II Financial Highlights PILGRIM HIGH TOTAL RETURN FUND - -------------------------------------------------------------------------------- The information in the table below has been audited by PricewaterhouseCoopers LLP, independent auditors.
Class A --------------------------------------------- Year ended October 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Operating performance Net asset value at the beginning of the period $ 3.77 5.00 4.78 4.48 4.41 Net investment income $ 0.37 0.46 0.48 0.46 0.48 Net realized and unrealized gain (loss) on investments $ (0.41) (1.07) 0.20 0.32 0.07 Total from investment operations $ (0.04) (0.61) 0.68 0.78 0.55 Dividends from net investment income $ (0.39) (0.47) (0.46) (0.48) (0.48) Dividends from net investment gain on investments sold $ -- (0.15) -- -- -- Distributions declared from capital $ (0.05) -- -- -- -- Total distributions $ (0.44) (0.62) (0.46) (0.48) (0.48) Net asset value at the end of the period $ 3.29 3.77 5.00 4.78 4.48 Total investment return(1) % (1.86) (13.65) 15.03 18.14 13.02 Ratios and supplemental data Net assets at the end of the period ($000s) $ 91,991 148,650 215,361 167,698 88,552 Ratio of expenses to average net assets % 1.34 1.30 1.42 1.52 1.55 Ratio of expense reimbursement to average net assets % -- -- -- -- -- Ratio of net investment income to average net assets(3) % 10.16 9.93 9.88 9.86 10.90 Portfolio turnover rate % 59 123 183 158 145 Class B ------------------------------------------------ Year ended October 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Operating performance Net asset value at the beginning of the period 3.77 5.00 4.77 4.47 4.41 Net investment income 0.34 0.43 0.44 0.43 0.45 Net realized and unrealized gain (loss) on investments (0.41) (1.07) 0.22 0.32 0.06 Total from investment operations (0.07) (0.64) 0.66 0.75 0.51 Dividends from net investment income (0.37) (0.44) (0.43) (0.45) (0.45) Dividends from net investment gain on investments sold -- (0.15) -- -- -- Distributions declared from capital (0.04) -- -- -- -- Total distributions (0.41) (0.59) (0.43) (0.45) (0.45) Net asset value at the end of the period 3.29 3.77 5.00 4.77 4.47 Total investment return(1) (2.56) (14.28) 14.46 17.08 11.97 Ratios and supplemental data Net assets at the end of the period ($000s) 280,413 428,903 577,351 346,919 96,362 Ratio of expenses to average net assets 2.06 2.02 2.12 2.23 2.25 Ratio of expense reimbursement to average net assets -- -- -- -- -- Ratio of net investment income to average net assets(3) 9.42 9.20 9.18 9.14 10.20 Portfolio turnover rate 59 123 183 158 145 Class C ----------------------------------------------- Year ended October 31, 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Operating performance: Net asset value at the beginning of the period $ 3.78 5.02 4.79 4.49 4.41 Net investment income $ 0.34 0.43 0.44 0.43 0.44 Net realized and unrealized gain (loss) on investments $ (0.40) (1.08) 0.22 0.32 0.09 Total from investment operations $ (0.06) (0.65) 0.66 0.75 0.53 Dividends from net investment income $ (0.37) (0.44) (0.43) (0.45) (0.45) Dividends from net investment gain on investments sold $ -- (0.15) -- -- -- Distributions declared from capital $ (0.04) -- -- -- -- Total distributions $ (0.41) (0.59) (0.43) (0.45) (0.45) Net asset value at the end of the period $ 3.31 3.78 5.02 4.79 4.49 Total investment return(1) % (2.24) (14.41) 14.42 17.28 12.44 Ratios and supplemental data: Net assets at the end of the period ($000s) $ 40,503 64,141 97,457 54,382 11,011 Ratio of expenses to average net assets % 2.07 2.03 2.13 2.23 2.27 Ratio of expense reimbursement to average net assets % -- -- -- -- -- Ratio of net investment income to average net assets(3) % 9.42 9.19 9.18 9.14 10.18 Portfolio turnover rate % 59 123 183 158 145
- ---------- (1) Assumes dividends have been reinvested and does not reflect the effect of sales charges. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim High Total Return Fund 109 Financial PILGRIM HIGH TOTAL RETURN FUND II Highlights - -------------------------------------------------------------------------------- The information in the table below has been audited by PricewaterhouseCoopers LLP, independent auditors.
Class A(1) -------------------------- Year ended October 31, 1999 1998 1997 ---- ---- ---- Operating performance Net asset value at the beginning of the period $ 4.78 5.49 5.00 Net investment income $ 0.43 0.50 0.28 Net realized and unrealized (loss) on investments $ (0.55) (0.70) 0.53 Total from investment operations $ (0.12) (0.20) 0.81 Dividends from net investment income $ (0.43) (0.48) (0.28) Distributions declared from capital $ (0.05) (0.03) (0.04) Total distributions $ (0.48) (0.51) (0.32) Net asset value at the end of the period $ 4.18 4.78 5.49 Total investment return(2) % (3.10) (4.23) 16.53 Ratios and supplemental data Net assets at the end of the period ($000s) $ 20,003 40,924 8,548 Ratio of expenses to average net assets(3) % 1.40 1.44 1.26 Ratio of expense reimbursement to average net assets(3) % -- 0.01 3.36 Ratio of net investment income to average net assets(3) % 9.46 8.90 5.89 Portfolio turnover rate % 110 150 164 Class B(1) Class C(1) ------------------------ -------------------------- Year ended October 31, Year ended October 31, 1999 1998 1997 1999 1998 1997 ---- ---- ---- ---- ---- ---- Operating performance Net asset value at the beginning of the period 4.79 5.49 5.00 4.79 5.50 5.00 Net investment income 0.41 0.47 0.25 0.40 0.47 0.25 Net realized and unrealized (loss) on investments (0.57) (0.70) 0.53 (0.55) (0.71) 0.54 Total from investment operations (0.16) (0.23) 0.78 (0.15) (0.24) 0.79 Dividends from net investment income (0.42) (0.44) (0.25) (0.41) (0.44) (0.25) Distributions declared from capital (0.03) (0.03) (0.04) (0.04) (0.03) (0.04) Total distributions (0.45) (0.47) (0.29) (0.45) (0.47) (0.29) Net asset value at the end of the period 4.18 4.79 5.49 4.19 4.79 5.50 Total investment return(2) (4.00) (4.90) 15.91 (3.77) (4.90) 16.12 Ratios and supplemental data Net assets at the end of the period ($000s) 125,796 168,859 38,076 31,014 53,703 12,334 Ratio of expenses to average net assets(3) 2.11 2.17 1.95 2.12 2.17 1.95 Ratio of expense reimbursement to average net assets(3) -- 0.02 0.75 -- 0.01 0.78 Ratio of net investment income to average net assets(3) 8.66 8.17 5.20 8.70 8.16 5.17 Portfolio turnover rate 110 150 164 110 150 164
- ---------- (1) Classes A, B & C commenced operations on January 31, 1997. (2) Assumes dividends have been reinvested and does not reflect the effect of sales charges. (3) Annualized. 110 Pilgrim High Total Return Fund II Financial Highlights PILGRIM MONEY MARKET FUND - --------------------------------------------------------------------------------
Period Period Period ended ended ended Dec. 31, Dec. 31, Dec. 31, 1999(1) 1999(2) 1999(1) (unaudited) (unaudited) (unaudited) ----------- ----------- ----------- Per Share Operating Performance: Net asset value, beginning of period $ 1.00 1.00 1.00 Income from investment operations: Net investment income (loss) $ 0.01 0.01 0.01 Net realized and unrealized gain (loss) on investments $ -- -- -- Total from investment operations $ 0.01 0.01 0.01 Less distributions from: Net investment income $ 0.01 0.01 0.01 Net realized gains on investments $ -- -- -- Net asset value, end of period $ 1.00 1.00 1.00 Total Return(3) % 0.36 1.41 1.41 Ratios/Supplemental Data: Net assets, end of period (000's) $ 5,732 11,414 2,670 Ratios to average net assets: Net expenses after expense reimbursement(4) % 1.50 2.25 2.25 Gross expenses prior to expense reimbursement(4) % 4.67 5.42 5.42 Net investment income (loss) after expense reimbursement(4) % 3.58 3.19 3.19 Portfolio turnover rate % -- -- --
- ---------- (1) Commenced operations on November 24, 1999. (2) Commenced operations on July 12, 1999. (3) Total returns are not annualized for periods of less than one year and do not reflect the impact of sales charges. (4) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Money Market Fund 111 Financial Highlights PILGRIM BALANCED FUND - -------------------------------------------------------------------------------- For the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ending prior to June 30, 1999, the financial information was audited by another independent auditor.
Class A ----------------------------------------------------------- Six months Three ended months Dec 31, ended Year ended March 31, 1999 June 30, ------------------------------------ (unaudited) 1999(2) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 19.23 19.03 19.53 15.54 16.16 13.74 13.52 Income from investment operations: Net investment income $ 0.30 0.10 0.36 0.26 0.32 0.34 0.21 Net realized and unrealized gains on investments $ 0.17 0.17 2.58 5.70 0.84 2.42 0.22 Total from investment operations $ 0.47 0.27 2.94 5.96 1.16 2.76 0.43 Less distributions from: Net investment income $ 0.39 0.07 0.43 0.27 0.32 0.34 0.21 Net realized gains on investments $ 3.71 -- 3.01 1.70 1.46 -- -- Net asset value, end of period $ 15.60 19.23 19.03 19.53 15.54 16.16 13.74 Total Return(3): % 2.68 1.42 17.10 39.34 6.74 20.16 3.22 Ratio/Supplemental Data: Net assets, end of period (in thousands) $ 10,141 9,619 9,519 6,675 4,898 5,902 4,980 Ratio to average net assets: Net expenses after expense reimbursement(4) % 1.35 1.49 1.59 1.61 1.60 1.60 1.60 Gross expenses prior to expense reimbursement(4) % 1.59 1.75 1.97 2.56 3.00 3.30 2.78 Net investment income (loss) after expense reimbursement(4) % 3.44 2.06 2.08 3.58 1.87 2.16 1.44 Portfolio turnover % 46 63 165 260 213 197 110 Class B --------------------------------------------------------------- Six months Three ended months May 31, Dec 31, ended Year ended March 31, 1995(1) to 1999 June 30, -------------------------- March 31, (unaudited) 1999(2) 1999 1998 1997 1996 ----------- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 20.59 20.38 20.07 14.88 14.18 12.50 Income from investment operations: Net investment income $ 0.25 0.07 0.28 0.15 0.17 0.12 Net realized and unrealized gains on investments $ 0.20 0.18 2.74 5.58 0.70 1.68 Total from investment operations $ 0.45 0.25 3.02 5.73 0.87 1.80 Less distributions from: Net investment income $ 0.33 0.04 0.31 0.15 0.17 0.12 Net realized gains on investments $ 3.97 -- 2.40 0.39 -- -- Net asset value, end of period $ 16.74 20.59 20.38 20.07 14.88 14.18 Total Return(3): % 2.39 1.24 16.49 38.79 6.10 14.45 Ratio/Supplemental Data: Net assets, end of period (in thousands) $ 7,716 7,157 6,048 4,254 2,133 673 Ratio to average net assets: Net expenses after expense reimbursement(4) % 2.00 2.14 2.24 2.26 2.25 2.25 Gross expenses prior to expense reimbursement(4) % 2.24 2.40 2.62 2.71 6.44 13.05 Net investment income (loss) after expense reimbursement(4) % 2.80 1.41 1.43 2.99 1.25 1.38 Portfolio turnover % 46 63 165 260 213 197 Class C ------------------------------------------------------------------------------- Six months Three ended months Dec 31, ended Year ended March 31, 1999 June 30, ---------------------------------------------------- (unaudited) 1999(2) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 18.53 18.35 19.90 15.59 16.20 13.76 13.54 Income from investment operations: Net investment income $ 0.24 0.06 0.26 0.15 0.21 0.24 0.11 Net realized and unrealized gains on investments $ 0.16 0.16 2.52 5.71 0.85 2.44 0.22 Total from investment operations $ 0.40 0.22 2.78 5.86 1.06 2.68 0.33 Less distributions from: Net investment income $ 0.34 0.04 0.28 0.15 0.21 0.24 0.11 Net realized gains on investments $ 3.57 -- 4.05 1.40 1.46 -- -- Net asset value, end of period $ 15.02 18.53 18.35 19.90 15.59 16.20 13.76 Total Return(3): % 2.35 1.21 16.34 38.35 6.05 19.58 2.47 Ratio/Supplemental Data: Net assets, end of period (in thousands) $ 19,494 21,331 21,655 20,784 16,990 16,586 16,470 Ratio to average net assets: Net expenses after expense reimbursement(4) % 2.00 2.14 2.23 2.26 2.25 2.25 2.25 Gross expenses prior to expense reimbursement(4) % 2.24 2.40 2.61 2.68 2.83 3.01 2.60 Net investment income (loss) after expense reimbursement(4) % 2.80 1.41 1.43 2.93 1.23 1.53 0.83 Portfolio turnover % 46 63 165 260 213 197 110
- ---------- (1) Commencement of offering of shares. (2) Effective May 24, 1999, Pilgrim Investments Inc., became the Investment Manager of the Fund. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized. 112 Pilgrim Balanced Fund Financial PILGRIM CONVERTIBLE FUND Highlights - -------------------------------------------------------------------------------- For the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ending prior to June 30, 1999, the financial information was audited by another independent auditor.
Class A -------------------------------------------------------------------------------- Six months Three ended months Dec 31, ended Year ended March 31, 1999 June 30, ---------------------------------------------------- (unaudited) 1999(1) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 23.27 21.92 19.12 16.59 15.68 12.86 14.16 Income from investment operations: Net investment income (loss) $ 0.20 0.10 0.40 0.44 0.47 0.48 0.49 Net realized and unrealized gains (loss) on investments $ 6.66 1.35 3.17 4.49 1.64 2.82 (0.89) Total from investment operations $ 6.86 1.45 3.57 4.93 2.11 3.30 (0.40) Less distributions from: Net investment income $ 0.20 0.10 0.41 0.44 0.48 0.48 0.49 Net realized gains on investments $ 3.69 -- 0.36 1.96 0.72 -- 0.41 Net asset value, end of period $ 26.24 23.27 21.92 19.12 16.59 15.68 12.86 Total Return(3): % 31.97 6.62 19.17 31.04 13.73 26.00 (2.64) Ratios/Supplemental Data: Net assets, end of period (in thousands) $ 88,816 73,133 65,742 47,290 32,082 31,712 31,150 Ratio to average net assets: Net expenses after expense reimbursement(4) % 1.33 1.45 1.53 1.57 1.60 1.60 1.60 Gross expenses prior to expense reimbursement(4) % 1.34 2.10 1.65 1.74 1.75 1.76 1.76 Net investment income (loss) after expense reimbursement(4) % 1.75 1.82 2.08 5.64 2.83 3.29 3.71 Portfolio turnover % 68 28 138 160 167 145 126 Class B -------------------------------------------------------------- Six months Three ended months May 31, Dec 31, ended Year ended March 31, 1995(2) to 1999 June 30, ---------------------- March 31, (unaudited) 1999(2) 1999 1998 1997 1996 ----------- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 25.34 23.86 20.56 16.60 14.96 12.50 Income from investment operations: Net investment income (loss) $ 0.12 0.07 0.29 0.32 0.31 0.24 Net realized and unrealized gains (loss) on investments $ 7.25 1.47 3.47 4.65 1.64 2.46 Total from investment operations $ 7.37 1.54 3.76 4.97 1.95 2.70 Less distributions from: Net investment income $ 0.12 0.06 0.27 0.32 0.31 0.24 Net realized gains on investments $ 4.01 -- 0.19 0.69 -- -- Net asset value, end of period $ 28.58 25.34 23.86 20.56 16.60 14.96 Total Return(3): % 31.56 6.47 18.52 30.51 13.01 21.72 Ratios/Supplemental Data: Net assets, end of period (in thousands) $ 108,527 68,091 58,736 36,725 12,740 2,125 Ratio to average net assets: Net expenses after expense reimbursement(4) % 1.98 2.10 2.18 2.22 2.25 2.25 Gross expenses prior to expense reimbursement(4) % 1.99 2.10 2.30 2.33 3.19 7.08 Net investment income (loss) after expense reimbursement(4) % 1.10 1.17 1.44 5.04 2.29 2.59 Portfolio turnover % 168 28 138 160 167 145 Class C ----------------------------------------------------------------------- Six months Three ended months Dec 31, ended Year ended March 31, 1999 June 30, --------------------------------------------- (unaudited) 1999(1) 1999 1998 1997 1996 1995 ----------- ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 23.78 22.40 19.55 17.05 15.89 13.03 14.28 Income from investment operations: Net investment income (loss) $ 0.13 0.07 0.28 0.34 0.37 0.40 0.41 Net realized and unrealized gains (loss) on investments $ 6.78 1.37 3.25 4.60 1.66 2.86 (0.89) Total from investment operations $ 6.91 1.44 3.53 4.94 2.03 3.26 (0.48) Less distributions from: Net investment income $ 0.12 0.06 0.25 0.34 0.37 0.40 0.41 Net realized gains on investments $ 3.76 -- 0.43 2.10 0.50 -- 0.36 Net asset value, end of period $ 26.81 23.78 22.40 19.55 17.05 15.89 13.03 Total Return(3): % 31.56 6.45 18.45 30.22 12.91 25.24 (3.26) Ratios/Supplemental Data: Net assets, end of period (in thousands) $ 132,756 100,276 95,998 81,561 62,143 58,997 61,792 Ratio to average net assets: Net expenses after expense reimbursement(4) % 1.98 2.10 2.18 2.22 2.25 2.25 2.25 Gross expenses prior to expense reimbursement(4) % 1.99 2.10 2.30 2.31 2.29 2.28 2.29 Net investment income (loss) after expense reimbursement(4) % 1.10 1.17 1.44 4.99 2.18 2.64 3.05 Portfolio turnover % 68 28 138 160 167 145 126
- ---------- (1) Effective May 24, 1999, Pilgrim Investments Inc., became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor. (2) Commencement of offering shares. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (4) Annualized. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Convertible Fund 113 WHERE TO GO FOR MORE INFORMATION You'll find more information about the Pilgrim Funds in our: ANNUAL/SEMIANNUAL REPORTS Include a discussion of recent market conditions and investment strategies that significantly affected performance, the financial statements and the auditor's reports (in annual report only). STATEMENT OF ADDITIONAL INFORMATION The SAI contains more detailed information about the Pilgrim Funds. The SAI is legally part of this prospectus (it is incorporated by reference). A copy has been filed with the Securities and Exchange Commission (SEC). Please write or call for a free copy of the current Annual/semiannual reports, the SAI or other Fund information, or to make shareholder inquiries: The Pilgrim Funds 40 North Central Avenue, Suite 1200 Phoenix, AZ 85004 1-800-992-0180 Or visit our website at www.pilgrimfunds.com. This information may also be reviewed or obtained from the SEC. In order to review the information in person, you will need to visit the SEC's Public Reference Room in Washington, D.C. or call 202-942-8090. Otherwise, you may obtain the information for a fee by contacting the SEC at: Securities and Exchange Commission Public Reference Section Washington, D.C. 20549-0102 or at the e-mail address: publicinfo@sec.gov Or obtain the information at no cost by visiting the SEC's Internet website at http://www.sec.gov. When contacting the SEC, you will want to refer to the Fund's SEC file number. The file numbers are as follows: Pilgrim Growth Opportunities Fund 811-4431 Pilgrim Equity Trust 811-8817 Pilgrim Mayflower Trust 811-7978 Pilgrim SmallCap Opportunities Fund 811-4434 Pilgrim Advisory Funds, Inc. 811-9040 Pilgrim Government Securities Income Fund, Inc. 811-4031 Pilgrim Investment Funds, Inc. 811-1939 Pilgrim Mutual Funds 811-7428 Pilgrim Bank and Thrift Fund, Inc. 811-4504 PROSO50100-050100 -----END PRIVACY-ENHANCED MESSAGE-----