-----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, EyACgoNjJJ5qYneKMTqPglmDrpE7PNljfOOEuMjwKAg19groZyNmoGA6h4fE+qU0 DYzqDgncFxWQEJDrFgLKhw== 0000950147-97-000115.txt : 19970305 0000950147-97-000115.hdr.sgml : 19970305 ACCESSION NUMBER: 0000950147-97-000115 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970304 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM AMERICA MASTERS SERIES INC CENTRAL INDEX KEY: 0000944689 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-09040 FILM NUMBER: 97550278 BUSINESS ADDRESS: STREET 1: 2 RENAISSANCE SQUARE 12TH FLR STREET 2: 40 NORTH CENTRAL CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6024178133 MAIL ADDRESS: STREET 1: 2 RENAISSANCE SQUARE 12TH FLR STREET 2: 40 NORTH CENTRAL CITY: PHOENIX STATE: AZ ZIP: 85004 N-30D 1 NORM N-30D Pilgrim America Funds Masters Series -------------- Pilgrim America Masters Asia-Pacific Equity Fund Pilgrim America Masters MidCap Value Fund Pilgrim America Masters LargeCap Value Fund Semi-Annual Report December 31, 1996 [GRAPHIC OMITTED] MASTERS SERIES PA MONEY MANAGER Pilgrim America Funds Masters Series -------------- Semi-Annual Report December 31, 1996 ----------- Table of Contents Chairman's Message ........................................................ 4 Portfolio Managers' Reports: Pilgrim America Masters Asia-Pacific Equity Fund .................. 5 Pilgrim America Masters MidCap Value Fund ......................... 8 Pilgrim America Masters LargeCap Value Fund ....................... 12 Statements of Assets and Liabilities ...................................... 15 Statements of Operations .................................................. 16 Statements of Changes in Net Assets ....................................... 17 Financial Highlights ...................................................... 18 Notes to Financial Statements ............................................. 21 Portfolio of Investments: Pilgrim America Masters Asia-Pacific Equity Fund .................. 26 Pilgrim America Masters MidCap Value Fund ......................... 33 Pilgrim America Masters LargeCap Value Fund ....................... 37 ----------- [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 3 Pilgrim America Masters Series - -------------------------------------------------------------------------------- Chairman's Message - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to present the Semi-Annual Report for Pilgrim America Masters Series of Funds ("Masters Series") which consists of Pilgrim America Masters Asia-Pacific Equity Fund, Pilgrim America Masters MidCap Value Fund and Pilgrim America Masters LargeCap Value Fund. In the following pages, the portfolio manager for each Fund of the Masters Series discusses the results of operations for the six month period ended December 31, 1996, as well as the markets and factors which have affected each of the Funds during this period. The Masters Series is designed to give investors access to money managers who typically manage similar portfolios only for high net worth individuals and institutional investors. Each money manager has extensive knowledge and proven experience in their specialized market segments. The Masters Series commenced operations on September 1, 1995. Pilgrim America Masters Asia-Pacific Equity Fund invests primarily in the equity securities of companies based in the Asia-Pacific Region. Pilgrim America Masters MidCap Value Fund invests primarily in equity securities of companies that have a market capitalization between $200 million and $5 billion. Pilgrim America Masters LargeCap Value Fund invests primarily in equity securities of companies that have a market capitalization in excess of $5 billion. At Pilgrim America, we are dedicated to providing core investments for the serious investor. We believe that the key to success is matching quality core investments to the individual needs of investors. Core investments are the foundation of every portfolio and the basis of other important investment decisions. Pilgrim America prides itself on providing only high quality core investments to help you reach your financial goals. Our goal is for every investor to have a successful investment experience. Thank you for selecting Pilgrim America Masters Series. We appreciate the confidence you have placed with us in serving your investment needs. Sincerely, /s/ Robert W. Stallings Robert W. Stallings Chairman Pilgrim America Investments, Inc. February 25, 1997 [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 4 Pilgrim America Masters Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- Portfolio Manager's Report - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to report the results of operations for Pilgrim America Masters Asia-Pacific Equity Fund (the "Fund"), for the six months ended December 31, 1996. For the six months, the Fund earned a net return of 4.23%(1). This compares to the 1.60% return on the Morgan Stanley Capital International Combined Far East Free (excluding Japan) Index (the "MSCI")(2) over the same period. During that time, Fund net assets increased from $42 million to $61 million. The Fund's total return for the year ended December 31, 1996 was 9.46%(1), compared to the MSCI return of 11.14% for the same period. General Economic Environment After a cautious first six months of 1996, the economic environment improved for the region over the second half of the year. Evidence of moderate growth with low inflation took the pressure off U.S. interest rates which is a key factor for the region, given its link to the U.S. dollar. Within the region, Hong Kong benefited from a soft landing in China and an improved property market. The Hong Kong equity market led the region as the other countries continued to deal with rising local interest rates, declining profit growth, current account deficits and rising political uncertainty. Specific Equity Market Conditions The table below summarizes the total returns of the respective MSCI Country Indices which comprise the Far East Free (excluding Japan) Index: Total Return Country 6/28/96 - 12/31/96 ------- ------------------ Hong Kong 18.10% Indonesia 9.09 Malaysia 8.22 Taiwan 2.40 Singapore -3.18 Philippines -4.46 South Korea -27.59 Thailand -36.34 [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 5 Pilgrim America Masters Asia-Pacific Equity Fund As previously mentioned, Hong Kong benefited from a subdued inflationary environment and strength in the residential property sector. Indonesia experienced some of the highest earnings growth in the region and is expected to show continued growth through 1997. Additionally, fears of tighter monetary policy were reduced on subdued inflation. These two factors led to increased investor interest in Indonesia. Although Malaysia continued to experience economic slowing, improvements were seen in the trade balance as exports staged a moderate recovery. Confidence in earnings coupled with potential interest rate cuts fueled the advance in Malaysia. Taiwan continued to show signs of an economic slowdown in GDP, domestic investment, M2 growth and unemployment. Against this backdrop was the inclusion by MSCI of Taiwan in the Combined Far East Free (excluding Japan) Index. This resulted in a flow of funds into Taiwan stocks during the second half of 1996. Singapore faired the best of the lagging markets in the region. Economic slowing was more than anticipated as electrical products and components saw a fall in industrial production for the first time since 1992. Further, property prices may continue to depreciate but we believe most of that news has already been priced. The Philippines also suffered from a slowdown in electrical component exports as well as disappointing bank earnings. Earnings in Korea were impacted by inventory build-up in semi-conductors, steel and autos. Sentiment was also impacted by cross border tensions with the North. Finally, Thailand continued to suffer from an excessive current account deficit. This reduced expectations for a needed cut in interest rates to jump start economic growth. Pilgrim America Masters Asia-Pacific Equity Fund Our strategy for most of the second half of 1996 was to overweight Hong Kong and Indonesia. This proved to help the Fund's performance as Hong Kong and Indonesia led the region's markets. The key for 1997 will be when to reallocate away from Hong Kong towards some of the other lagging markets in the region. Most of the improvements in the Hong Kong property market have been priced along with a successful transition of power on July 1, 1997. Although Thailand and Korea look much more attractive on a valuation basis, we need to be more confident of improvements in corporate earnings growth. Once we see that, we will look to take some profits in Hong Kong and put the proceeds to work in the rest of the region. In total, improved valuations, supportive economics and benign inflation make the outlook for Asian equities quite attractive. We thank you for giving us this opportunity to help you work towards your investment needs. Sincerely, HSBC Asset Management Americas, Inc. HSBC Asset Management Hong Kong Limited [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 6 Pilgrim America Masters Asia-Pacific Equity Fund (1) Calculated without deducting the Class A maximum 5.75% sales charge and assuming reinvestment of all dividends and distributions. Total return for the one year period ended December 31, 1996 and the average annualized total return for the period from September 1, 1995 (date of commencement of operations) to December 31, 1996, after the deduction of the maximum sales charges and assuming reinvestment of all dividends and distributions were 3.20% and 1.44%, respectively. Performance figures shown pertain only to Class A shares of the Fund. Total returns for Class B and M shares, calculated without deducting sales charges, for the year ended December 31, 1996 were 8.62% and 8.87%, respectively. Average annualized total returns, excluding the applicable sales charges, for the period from September 1, 1995 (date of commencement of operations) to December 31, 1996 were 5.25% and 5.51%, respectively. Total returns for Class B and M shares, after deducting the maximum contingent deferred sales charge of 5.00% (Class B shares only) or the maximum sales charge of 3.50% (Class M shares only) for the year ended December 31, 1996 were 3.60% and 5.04%, respectively. Average annualized total returns, after the applicable sales charges, for the period from September 1, 1995 (date of commencement of operations) to December 31, 1996 were 2.32% and 2.76%, respectively. Since inception, the Fund's manager has reimbursed a portion of the Fund's expenses. Without such a waiver, SEC yield and total returns would have been lower. (2) The MSCI is a measure of the performance of the Far East Market excluding Japan. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. Past performance is not indicative of future returns. Investment return and principal value of an investment will fluctuate. Shares, when redeemed may be worth more or less than their original cost. [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 7 Pilgrim America Masters Mid Cap Value Fund - -------------------------------------------------------------------------------- Portfolio Manager's Report - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to report the results of operations for Pilgrim America Masters MidCap Value Fund (the "Fund") for the six months ended December 31, 1996. For the six months, the Fund earned 11.40%(1) compared to 9.16% for the Russell MidCap IndexTM (2). For the year ended December 31, 1996, the Fund's total return was 29.56%(1), compared to the Russell MidCap IndexTM return of 19.00%. The Fund's return placed it in the top 4% or fifth out of 154 funds in the Lipper MidCap Funds category for the year(3). General Economic Environment The economic outlook for 1997, according to consensus opinion, appears to be more of what characterized 1996; i.e. slow growth of gross domestic product in a range of 2-3%, low inflation of around 2% and stable interest rates. The consensus differs, however, on the prospects for corporate earnings and the current valuation of the general market. An important impetus to the growth in profits during the past few years has been the downsizing, cost-cutting and restructuring prevalent throughout Corporate America. Pricing power, for the most part, has been notably absent during this period. Many observers feel that companies have exhausted their ability to grow profits in this manner which will result in a dramatic slowdown in earnings growth during 1997. We, however, disagree that there is any decline in restructuring activity; it appears to be continuing at an uninterrupted pace. Furthermore, managements have become more and more incented to rationalize every aspect of their business especially in a slow growth economy. The valuation of the market does not appear excessive to us; based upon conservative estimates of Standard and Poor's 500 operating earnings the market multiple approximates 17 to 18, or very close to its historic average. The implication is obvious: while some stocks may be overvalued, particularly in the large capitalization/growth sectors, many companies are priced at a discount to the market and at reasonable levels. Our suspicion is that investors during 1997 will direct more attention to those industries and companies that appear undervalued and/or have underperformed. Equity Market Environment 1996 was a year of unexpectedly strong performance which was interrupted only briefly during the summer months. Fully invested portfolios with exposure to large capitalization growth companies in the tech- [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 8 Pilgrim America Masters Mid Cap Value Fund nology, consumer products, energy and finance industries were amply rewarded. Underinvested portfolios with less exposure to those industries significantly lagged the general market averages. The S&P 500 Index ended the year up 22.96%. Medium sized companies performed slightly under the broad market with the S&P MidCap 400 Index(2) registering a 19.23% gain. Small cap stocks, as measured by the Russell 2000 Index(2), lagged the larger cap indices, posting a 16.55% gain. Our success can be attributed to what we believe we do best: invest in the stocks of companies that are undergoing dynamic change which is either not recognized or misunderstood in the marketplace and which represent compelling relative value. Corporate restructuring continued to be a powerful trend during 1996 and provided us with numerous opportunities. Another important element of our success in 1996 was the avoidance of mistakes. Company specific risk is always present in portfolios and is the primary reason accounts are prudently diversified among many different stocks. An important component of company risk is what has become known as "expectational" risk, or that risk associated with a stock's price when a company does not meet the expectations of Wall Street analysts; damage to the price can be brutal and irrational. Our intensive due diligence on companies strives hard to measure expectational risk and we experienced few setbacks of this sort during 1996. Pilgrim America Masters MidCap Value Fund The following are examples of stocks in the Fund that are representative of the investment opportunities we see in the market: [] Premark spun off its Tupperware division and we continue to own both entities. [] Manville sold its Riverwood International subsidiary, distributed the proceeds to shareholders by way of a cash dividend and changed its name to Schuller Corporation; we continue to own Schuller. [] Dial Corporation split into two companies, Dial and Viad, both of which we continue to hold. [] Westinghouse will spin off its industrial operations in early 1997; we have made no decision as yet regarding disposition of the separate pieces. [] Owens Illinois is benefiting by consolidation in the glass industry and has recently announced an acquisition in Europe. Our strategy for stock selection during the coming year will not shift from a focus on dynamic change, lack of recognition and compelling value. It is a strategy that has few restrictions as to company type just as long as the above mentioned characteristics are in place. [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 9 Pilgrim America Masters Mid Cap Value Fund We thank you for giving us the opportunity to help you meet your investment needs. Sincerely, CRM Advisors, LLC - -------------------------------------------------------------------------------- (1) Calculated without deducting the Class A maximum 5.75% sales charge and assuming reinvestment of all dividends and distributions. Total return for the one year period ended December 31, 1996 and the average annualized total return for the period from September 1, 1995 (date of commencement of operations) to December 31, 1996, after the deduction of the maximum sales charges and assuming reinvestment of all dividends and distributions were 22.14% and 19.18%, respectively. Performance figures shown pertain only to Class A shares of the Fund. Total return for Class B and M shares, calculated without deducting sales charges, for the year ended December 31, 1996 was 28.66% and 28.85%, respectively. Average annualized total return, excluding the applicable sales charges, for the period from September 1, 1995 (date of commencement of operations) to December 31, 1996 was 23.65% and 23.78%, respectively. Total return for Class B and M shares, after deducting the maximum contingent deferred sales charge of 5.00% (Class B shares only) or the maximum sales charge of 3.50% (Class M shares only) for the year ended December 31, 1996 was 22.70% and 24.40%, respectively. Average annualized total return, after the applicable sales charges, for the period from September 1, 1995 (date of commencement of operations) to December 31, 1996 was 20.97% and 20.56%, respectively. Since inception, the Fund's manager has reimbursed a portion of the Fund's expenses. Without such a waiver, SEC yield and total returns would have been lower. (2) The Russell MidCapTM and the S&P MidCap 400 indices are two broad based measures of the performance of the middle capitalization market. The Russell 2000 index is a broad based measure of the performance of the small capitalization market. (3) Lipper Analytical Services Inc., ranked Class A shares of the Fund for total return, without deducting sales charges and assuming reinvestment of all dividends and distributions, and reflecting a partial waiver of expenses. [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 10 Pilgrim America Masters Mid Cap Value Fund The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. Past performance is not indicative of future returns. Investment return and principal value of an investment will fluctuate. Shares, when redeemed may be worth more or less than their original cost. [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 11 Pilgrim America Masters Large Cap Value Fund - -------------------------------------------------------------------------------- Portfolio Manager's Report - -------------------------------------------------------------------------------- Dear Shareholder: It is our pleasure to share with you the results of operations for the Pilgrim America Masters LargeCap Value Fund (the "Fund") for the six months ended December 31, 1996. For the six months, the Fund earned a net return of 8.75%(1), compared to 11.65% for the Standard and Poor's 500 Index (the "S&P"), a measure of the performance of the broad U.S. stock market. For the year ended December 31, 1996, the Fund's total return was 21.07%(1), compared to the S&P return of 22.96%. Economic Environment and Equity Market Conditions The year just ended has proven to be one of the best years for stock prices over the last twenty, with the S&P rising by +22.96%. When one considers that this has occurred on the heels of an even stronger 1995 (S&P was +37.58%), it is apparent that we have experienced one of the most remarkably positive periods for stock prices in the post-World War II period. The market performed strong in 1996 because: 1. Stocks were attractively valued relative to strong profitability; 2. Interest rates averaged 6.7% and the long and short-rates remained stable, which was very positive for stocks 3. There was modest economic growth of about 2.8% with low inflation; and 4. There were no unexpected international developments that negatively impacted the financial markets. Looking forward, we believe 1997 will be a much more difficult year for stock prices because of higher stock valuations, slower earnings growth and potentially higher interest rates. There is little room for error in 1997 and therefore, we expect a more volatile market. Interest rates will play a key role in determining the direction of stock prices with any sharp increase in rates likely to cause a decline. The steepness of such a decline is difficult to determine but it is instructive to note that the July 1996 decline was about 10% when measured from intra-day high to intra-day low. It should be noted, however, that this decline was short in duration and was quickly followed by a strong market. Pilgrim America Masters LargeCap Value Fund A high percentage of the Fund's performance occurred during the first part of 1996 when the more eco- [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 12 Pilgrim America Masters Large Cap Value Fund nomically sensitive areas of the market along with financial issues did well. For the year as a whole, energy, financial and basic industry issues helped the Fund participate in the rise of stock prices. The Fund's consumer and capital spending issues did well too, but modestly underperformed the S&P average for all of 1996. During the second half of 1996 the market was led by growth stocks as investors became concerned about an economic slowdown. Ark Asset Management believes that 1997 will see continued economic growth of about 2.5% to 2.8%, inflation in the 3.0% to 3.2% range, long-rates in the 6.3% to 6.90% range and corporate profit growth of about 7%. These are middle-of-the-road assumptions and on this basis we would expect modestly rising stock-prices through 1997 which may be punctuated with occasional sharp declines due to unexpected events (e.g. a sharp increase in rates or a significant slowdown in new money earmarked for equities). This potential increase in stock prices reflects the expected growth in corporate earnings for the S&P without any improvement in valuation. We hope to be able to take advantage of any declines to purchase those issues we find most attractive on a long term basis. To accomplish this objective, we employ different stock valuation techniques. One of the most useful strategies for stock valuation is to study the price/earnings ratio of individual stocks relative to that of the S&P. If we can determine that a stock is selling at a significant discount to the valuation of the overall market and is fundamentally attractive, we will purchase the issue. We seek to construct portfolios that contain more relative value than the stock market as a whole. If the account is attractive on a valuation basis it will work to defend values in a down market. Currently, we have above average exposure to certain basic industry issues such as DuPont, Eastman Chemical and Aluminum Company of America, consumer cyclical issues including Ford Motor, May Department Stores, and Sears, Roebuck, and transport issues including AMR, and CSX. We remain overweighted in communication utilities, hospital management and broadcasting and publishing issues. We thank you for the opportunity to help you meet your investment needs. Sincerely, ARK ASSET MANAGEMENT COMPANY, INC. [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 13 Pilgrim America Masters Large Cap Value Fund - -------------------------------------------------------------------------------- (1) Calculated without deducting the Class A maximum 5.75% sales charge and assuming reinvestment of all dividends and distributions. Total return for the one year period ended December 31, 1996 and the average annualized total return for the period from September 1, 1995 (date of commencement of operations) to December 31, 1996, after the deduction of the maximum sales charges and assuming reinvestment of all dividends and distributions were 14.06% and 16.39%, respectively. Performance figures shown pertain only to Class A shares of the Fund. Total return for Class B and M shares, calculated without deducting sales charges, for the year ended December 31, 1996 was 20.05% and 20.47%, respectively. Average annualized total return, excluding the applicable sales charges, for the period from September 1, 1995 (date of commencement of operations) to December 31, 1996 was 20.72% and 21.03%, respectively. Total return for Class B and M shares, after deducting the maximum contingent deferred sales charge of 5.00% (Class B shares only) or the maximum sales charge of 3.50% (Class M shares only) for the year ended December 31, 1996 was 15.10% and 16.24%, respectively. Average annualized total return, after the applicable sales charges, for the period from September 1, 1995 (date of commencement of operations) to December 31, 1996 was 18.01% and 17.87%, respectively. Since inception, the Fund's manager has reimbursed a portion of the Fund's expenses. Without such a waiver, SEC yield and total returns would have been lower. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. Past performance is not indicative of future returns. Investment return and principal value of an investment will fluctuate. Shares, when redeemed may be worth more or less than their original cost. [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS 14
Pilgrim America Masters Series - ------------------------------------------------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES December 31, 1996 (Unaudited) - ------------------------------------------------------------------------------------------------------------------------- Asia-Pacific MidCap LargeCap Equity Value Value Fund Fund Fund ---------------- ------------------ ---------------- ASSETS: Investments in securities at market value (Cost $56,207,367, $21,400,796 and $16,999,061, respectively) $ 59,500,748 $ 23,436,613 $ 17,958,012 Short-term securities at amortized cost 1,039,812 1,715,000 1,365,000 Cash 89,469 13,067 16,791 Receivables: Foreign currency (Cost $577,395) 577,395 -- -- Fund shares sold 451,968 1,781,925 256,657 Dividends and interest 57,657 27,006 32,891 Due from affiliate 26,339 -- 8,108 Investment securities sold -- 70,750 9,082 Prepaid expenses 26,283 7,729 8,221 Deferred organization expenses 95,444 95,444 95,444 ---------------- ------------------ ---------------- Total Assets 61,865,115 27,147,534 19,750,206 ---------------- ------------------ ---------------- LIABILITIES: Investment securities purchased 455,506 757,851 1,036,312 Payable for fund shares redeemed 60,410 32,629 50,014 Other accrued expenses and liabilities 130,146 14,739 25,775 ---------------- ------------------ ---------------- Total Liabilities 646,062 805,219 1,112,101 ---------------- ------------------ ---------------- NET ASSETS $ 61,219,053 $ 26,342,315 $ 18,638,105 ================ ================== ================ Net Assets consist of: Paid-in capital $ 58,886,689 $ 24,043,248 $ 16,971,412 Undistributed (overdistributed) net investment income (loss) (241,944) (12,387) 8,175 Accumulated net realized gains (losses) on investments and foreign currency transactions (708,333) 275,637 699,567 Net unrealized appreciation of investments and other assets, liabilities and forward contracts denominated in foreign currencies 3,282,641 2,035,817 958,951 ---------------- ------------------ ---------------- Net Assets $ 61,219,053 $ 26,342,315 $ 18,638,105 ================ ================== ================ Class A: Net assets $ 25,602,824 $ 10,162,720 $ 6,379,814 Shares authorized ($0.10, $1.00 and $0.00 par value, (24,000,000 28,000,000 28,000,000 respectively) Shares outstanding 2,377,748 765,198 499,521 Net asset value and redemption price per share $ 10.77 $ 13.28 $ 12.77 Maximum offering price per share(1) $ 11.43 $ 14.09 $ 13.55 Class B: Net assets $ 25,560,700 $ 11,554,902 $ 9,044,312 Shares authorized ($0.10, $1.00 and $0.00 par value, 24,000,000 28,000,000 28,000,000 respectively) Shares outstanding 2,387,953 876,033 713,290 Net asset value, redemption and offering price per share(2) $ 10.70 $ 13.19 $ 12.68 Class M: Net assets $ 10,055,529 $ 4,624,693 $ 3,213,979 Shares authorized ($0.10, $1.00 and $0.00 par value, 12,000,000 14,000,000 14,000,000 respectively) Shares outstanding 937,458 350,847 252,661 Net asset value and redemption price per share $ 10.73 $ 13.18 $ 12.72 Maximum offering price per share(3) $ 11.12 $ 13.66 $ 13.18 - ---------------------------- (1) Maximum offering price is computed at 100/94.25 of net asset value. On purchases of $50,000 or more, the offering price is reduced. (2) Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (3) Maximum offering price is computed at 100/96.50 of net asset value. On purchases of $50,000 or more, the offering price is reduced.
See Accompanying Notes to Financial Statements 15
Pilgrim America Masters Series - ----------------------------------------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS For the Six Months Ended December 31, 1996 (Unaudited) - ----------------------------------------------------------------------------------------------------------------- Asia-Pacific MidCap LargeCap Equity Value Value Fund Fund Fund --------------- --------------- --------------- Investment Income: Interest $ 53,076 $ 28,216 $ 21,265 Dividends (net of foreign withholding taxes of $28,066, $0 and $104, respectively) 386,116 83,454 110,714 --------------- --------------- --------------- Total investment income 439,192 111,670 131,979 --------------- --------------- --------------- Expenses: Investment management fees 327,640 63,506 61,093 Distribution expenses Class A Shares 27,567 5,858 5,907 Class B Shares 110,504 25,231 25,862 Class M Shares 31,005 11,133 8,701 Custodian fees 105,947 5,560 19,968 Transfer agent and registrar fees 88,446 8,355 10,188 Professional fees 19,240 4,187 8,322 Registration and filing fees 14,787 10,130 7,097 Recordkeeping and pricing fees 11,575 1,496 1,571 Miscellaneous expenses 10,848 1,665 3,510 Organization expense 9,196 9,196 9,196 Reports to shareholders 8,884 1,093 1,664 Directors' fees 3,160 705 1,571 Insurance expense 2,195 299 229 --------------- --------------- --------------- Total expenses 770,994 148,414 164,879 --------------- --------------- --------------- Less: Waived and reimbursed fees (140,763) (16,441) (32,705) Earnings credits (1,847) (600) (609) --------------- --------------- --------------- Net expenses 628,384 131,373 131,565 --------------- --------------- --------------- Net investment income (loss) (189,192) (19,703) 414 --------------- --------------- --------------- REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gains (losses) from: Investments (642,348) 210,527 569,482 Foreign currency transactions (18,114) Net change in unrealized appreciation (depreciation) of: Investments 3,499,231 1,637,435 778,308 Other assets, liabilities and forward contracts denominated in foreign currencies (12,789) --------------- --------------- --------------- Net gain from investments 2,825,980 1,847,962 1,347,790 --------------- --------------- --------------- Net increase in net assets resulting from operations $ 2,636,788 $ 1,828,259 $ 1,348,204 =============== =============== ===============
See Accompanying Notes to Financial Statements 16
Pilgrim America Masters Series - --------------------------------------------------------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------------------------------------------------------- Asia-Pacific Equity Fund MidCap Value Fund LargeCap Value Fund -------------------------------- -------------------------------- ------------------------------ Six Months Ten Months Six Months Ten Months Six Months Ten Months Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, June 30, December 31, June 30, 1996 (Unaudited) 1996 1996 (Unaudited) 1996 1996 (Unaudited) 1996 ---------------- --------------- ----------------- -------------- ---------------- ------------- Increase in net assets from operations: Net investment income (loss) $ (189,192) $ (3,977) $ (19,703) $ 32,309 $ 414 $ 8,132 Net realized gain (loss) from investments (642,348) (46,713) 210,527 65,110 569,482 146,051 Net realized loss from foreign currency transactions (18,114) (27,170) -- -- -- -- Net change in unrealized appreciation (depreciation) of investments 3,499,231 (204,282) 1,637,435 398,382 778,308 180,643 Net change in unrealized appreciation (depreciation) of other investments denominated in foreign currency (12,789) 481 -- -- -- -- --------------- ---------------- ---------------- --------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations 2,636,788 (281,661) 1,828,259 495,801 1,348,204 334,826 --------------- ---------------- ---------------- --------------- -------------- -------------- Distributions to shareholders: Net investment income: Class A shares -- -- -- (4,590) (274) (6,203) Class B shares -- -- -- (1,500) -- (801) Class M shares -- -- -- (711) (140) (1,128) Excess of net investment income: Class A shares (30,685) (8,287) (16,602) -- (7,025) (3,494) Class B shares -- (897) (9,771) -- -- (451) Class M shares (1,611) (768) (11,821) -- (222) (635) Net realized gains: Class A shares -- -- -- -- -- (11,797) Class B shares -- -- -- -- -- (1,745) Class M shares (2,424) Excess of realized gains: Class A shares -- (1,570) -- -- -- -- Class B shares -- (783) -- -- -- -- Class M shares -- (399) -- -- -- -- --------------- ---------------- ---------------- --------------- -------------- -------------- Total distributions (32,296) (12,704) (38,194) (6,801) (7,661) (28,678) --------------- ---------------- ---------------- --------------- -------------- -------------- Capital share transactions: Net proceeds from sale of shares 29,378,058 44,111,419 18,786,807 5,793,907 13,340,243 5,027,606 Shares resulting from dividend reinvestment 30,383 11,795 36,907 6,614 7,384 26,938 Cost of shares redeemed (13,430,041) (1,226,688) (514,305) (79,680) (1,243,890) (199,867) --------------- ---------------- ---------------- --------------- -------------- -------------- Net increase in net assets resulting from capital share transactions 15,978,400 42,896,526 18,309,409 5,720,841 12,103,737 4,854,677 --------------- ---------------- ---------------- --------------- -------------- -------------- Net increase in net assets 18,582,892 42,602,161 20,099,474 6,209,841 13,444,280 5,160,825 --------------- ---------------- ---------------- --------------- -------------- -------------- Net assets, beginning of period 42,636,161 34,000 6,242,841 33,000 5,193,825 33,000 --------------- ---------------- ---------------- --------------- -------------- -------------- Net assets, end of period * $ 61,219,053 $ 42,636,161 $ 26,342,315 $ 6,242,841 $ 18,638,105 $ 5,193,825 =============== ================ ================ =============== ============== ============== * Including undistributed (overdistributed) net investment income (loss) of:$ (241,944) $ (20,456) $ (12,387) $ 45,510 $ 8,175 $ 15,422 =============== ================ ================ =============== ============== ==============
See Accompanying Notes to Financial Statements 17
Pilgrim America Masters Asia-Pacific Equity Fund - --------------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------------------------------------------------- Class A Class B Class M -------------- ----------- ------------- ------------ ------------ ---------- Six Months Ten Six Months Ten Six Months Ten Ended Months Ended Months Ended Months December 31, Ended December 31, Ended December 31, Ended 1996 June 30, 1996 June 30, 1996 June 30, (Unaudited) 1996 (a) (Unaudited) 1996 (a) (Unaudited) 1996 (a) -------------- ----------- ------------- ------------ ------------ ---------- Per Share Operating Performance Net asset value, beginning of period $ 10.35 $ 10.00 $ 10.31 $ 10.00 $ 10.32 $ 10.00 Income from investment operations: Net investment income (loss) (0.01) 0.03 (0.06) (0.01) (0.03) -- Net realized and unrealized gain on investments and foreign currency transactions 0.45 0.34 0.45 0.32 0.44 0.33 ------------- ---------- ------------ ------------ ------------ ---------- Total from investment operations 0.44 0.37 0.39 0.31 0.41 0.33 ------------- ---------- ------------ ------------ ------------ ---------- Less distributions: Net investment income 0.02 -- -- -- -- -- In excess of net investment income -- 0.02 -- -- -- 0.01 Realized gains on investments -- -- -- -- -- -- ------------- ---------- ------------ ------------ ------------ ---------- Total distributions 0.02 0.02 -- -- -- 0.01 ------------- ---------- ------------ ------------ ------------ ---------- Net asset value, end of period $ 10.77 $ 10.35 $ 10.70 $ 10.31 $ 10.73 $ 10.32 ============= ========== ============ ============ ============ ========== Total Return (b) 4.23% 3.76% 3.78% 3.19% 4.00% 3.32% Ratios/Supplemental Data Net assets, end of period (000's) $ 25,603 $ 18,371 $ 25,561 $ 17,789 $ 10,056 $ 6,476 Ratios to average net assets: Expenses (c)(d)(e) 2.11% 2.00% 2.86% 2.75% 2.61% 2.50% Net investment income (loss) (c)(d)(e) (0.33)% 0.33% (1.07)% (0.38)% (0.83)% (0.16)% Portfolio turnover rate 12% 15% 12% 15% 12% 15% - ----------------------- (a) The Fund commenced operations on September 1, 1995. (b) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return information for less than one year is not annualized. (c) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 3.47%, 4.10% and 3.88% and the annualized ratios of net investment income (loss) to average net assets were (1.14)%, (1.73)% and (1.53)% for Class A, B and M shares, respectively. (d) Prior to the waiver and reimbursement of expenses for the period ended December 31, 1996, the annualized ratios of expenses to average net assets were 2.65%, 3.39% and 3.17% and the annualized ratios of net investment income (loss) to average net assets were (0.86)%, (1.61)% and (1.39)% for Class A, B and M shares, respectively. (e) Annualized.
See Accompanying Notes to Financial Statements 18
Pilgrim America Masters MidCap Value Fund - -------------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - -------------------------------------------------------------------------------------------------------------------------- Class A Class B Class M --------------------------- -------------------------- ----------------------- Six Months Ten Six Months Ten Six Months Ten Ended Months Ended Months Ended Months December 31, Ended December 31, Ended December 31, Ended 1996 June 30, 1996 June 30, 1996 June 30, (Unaudited) 1996 (a) (Unaudited) 1996 (a) (Unaudited) 1996 (a) ------------- ------------ -------------- ---------- ----------- ---------- Per Share Operating Performance Net asset value, beginning of period $ 11.99 $ 10.00 $ 11.94 $ 10.00 $ 11.93 $ 10.00 Income from investment operations: Net investment income (loss) (0.01) 0.13 (0.01) 0.07 -- 0.06 Net realized and unrealized gains on investments 1.37 1.91 1.31 1.90 1.31 1.91 ------------- ------------ -------------- ---------- ----------- ---------- Total from investment operations 1.36 2.04 1.30 1.97 1.31 1.97 ------------- ------------ -------------- ---------- ----------- ---------- Less distributions: Net investment income -- 0.05 -- 0.03 -- 0.04 In excess of net investment income 0.07 -- 0.05 -- 0.06 -- Realized gains on investments -- -- -- -- -- -- ------------- ------------ -------------- ---------- ----------- ---------- Total distributions 0.07 0.05 0.05 0.03 0.06 0.04 ------------- ------------ -------------- ---------- ----------- ---------- Net asset value, end of period $ 13.28 $ 11.99 $ 13.19 $ 11.94 $ 13.18 $ 11.93 ============= ============ ============== ========== =========== ========== Total Return (b) 11.40% 20.48% 10.94% 19.80% 11.09% 19.82% Ratios/Supplemental Data Net assets, end of period (000's) $ 10,163 $ 2,389 $ 11,555 $ 2,123 $ 4,625 $ 1,731 Ratios to average net assets: Expenses (c)(d)(e) 1.75% 1.75% 2.50% 2.50% 2.25% 2.25% Net investment income (loss) (c)(d)(e) 0.10% 2.00% (0.62)% 1.27% (0.43)% 1.16% Portfolio turnover rate 35% 60% 35% 60% 35% 60% - ----------------------- (a) The Fund commenced operations on September 1, 1995. (b) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return information for less than one year is not annualized. (c) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 4.91%, 5.32% and 4.72% and the annualized ratios of net investment income (loss) to average net assets were (1.17)%, (1.56)% and (1.32)% for Class A, B and M shares, respectively. (d) Prior to the waiver and reimbursement of expenses for the period ended December 31, 1996, the annualized ratios of expenses to average net assets were 1.93%, 2.69% and 2.35% and the annualized ratios of net investment income (loss) to average net assets were (0.17)%, (0.91)% and (0.62)% for Class A, B and M shares, respectively. (e) Annualized.
See Accompanying Notes to Financial Statements 19
Pilgrim America Masters LargeCap Value Fund - ----------------------------------------------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - ----------------------------------------------------------------------------------------------------------------------- Class A Class B Class M ------------------------ ------------------------ ------------------------ Six Months Ten Six Months Ten Six Months Ten Ended Months Ended Months Ended Months December 31, Ended December 31, Ended December 31, Ended 1996 June 30, 1996 June 30, 1996 June 30, (Unaudited) 1996 (a) (Unaudited) 1996 (a) (Unaudited) 1996 (a) ----------- ----------- ------------ ---------- ------------ ---------- Per Share Operating Performance Net asset value, beginning of period $ 11.77 $ 10.00 $ 11.71 $ 10.00 $ 11.73 $ 10.00 Income from investment operations: Net investment income 0.04 0.07 0.06 -- 0.06 Net realized and unrealized gains on investments 0.99 1.87 0.97 1.81 0.99 1.83 ----------- ----------- ----------- ---------- ---------- ---------- Total from investment operations 1.03 1.94 0.97 1.87 0.99 1.89 ----------- ----------- ----------- ---------- ---------- ---------- Less distributions: Net investment income 0.03 0.07 -- 0.06 -- 0.06 In excess of net investment income -- 0.01 -- 0.01 -- 0.01 Realized gains on investments -- 0.09 -- 0.09 -- 0.09 ----------- ----------- ----------- ---------- ---------- ---------- Total distributions 0.03 0.17 -- 0.16 -- 0.16 ----------- ----------- ----------- ---------- ---------- ---------- Net asset value, end of period $ 12.77 $ 11.77 $ 12.68 $ 11.71 $ 12.72 $ 11.73 =========== =========== =========== ========== ========== ========== Total Return (b) 8.75% 19.56% 8.28% 18.85% 8.46% 19.06% Ratios/Supplemental Data Net assets, end of period (000's) $ 6,380 $0 2,530 $ 9,044 $ 1,424 $ 3,214 $ 1,240 Ratios to average net assets: Expenses (c)(d)(e) 1.75% 1.75% 2.50% 2.50% 2.25% 2.25% Net investment income (loss) (c)(d)(e) 0.43% 0.65% (0.34)% (0.25)% (0.08)% 0.06% Portfolio turnover rate 40% 59% 40% 59% 40% 59% - ----------------------- (a) The Fund commenced operations on September 1, 1995. (b) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return information for less than one year is not annualized. (c) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 5.44%, 5.79% and 5.90% and the annualized ratios of net investment income (loss) to average net assets were (3.04)%, (3.53)% and (3.59)% for Class A, B and M shares, respectively. (d) Prior to the waiver and reimbursement of expenses for the period ended December 31, 1996, the annualized ratios of expenses to average net assets were 2.21%, 3.11% and 2.73% and the annualized ratios of net investment income (loss) to average net assets were (0.05)%, (0.95)% and (0.57)% for Class A, B and M shares, respectively. (e) Annualized.
See Accompanying Notes to Financial Statements 20 Pilgrim America Masters Series - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- (1) Significant Accounting Policies Organization. Pilgrim America Masters Series ("Masters Series") is an open-end management investment company that was organized as a Maryland Corporation in 1995 and is registered under the Investment Company Act of 1940 as amended. This Masters Series consists of three separate diversified open-end investment companies: Pilgrim America Masters Asia-Pacific Equity Fund ("Asia-Pacific Equity Fund"), Pilgrim America Masters MidCap Value Fund ("MidCap Value Fund") and Pilgrim America Masters LargeCap Value Fund ("LargeCap Value Fund"), each with its own investment objective and policies. Each Fund offers three classes of shares, Class A, Class B and Class M. Each class represents interests in the same assets of the applicable Fund and the classes are identical except for differences in their sales charge structure and ongoing distribution fees. In addition, Class B shares, along with their prorata reinvested dividend shares, automatically convert to Class A shares approximately eight years after purchase. The following significant accounting policies are consistently followed by the Funds in the preparation of their financial statements, and such policies are in conformity with generally accepted accounting principles for investment companies. A. Security Valuation. Securities which are listed on the U.S. and foreign stock exchanges are valued at the last sales price on the day the securities are being valued. Debt and equity securities traded in the over-the-counter market and listed securities for which no sales were reported on that date are valued at the mean between the last reported bid and ask prices. Short-term debt securities maturing in 60 days or less are valued at amortized cost. Securities for which market quotations are not readily available are valued at fair value as determined by policies set by the Board of Directors. All investments quoted in foreign currencies will be valued daily in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the time such valuation is determined by each Fund's custodian. B. Security Transactions and Revenue Recognition. Securities transactions are accounted for on the trade date. Realized gains or losses are reported on the basis of identified cost of securities delivered. Interest income is recorded on an accrual basis and dividend income is recorded on the ex-dividend date (except in the case of Asia-Pacific Equity Fund, for certain securities which are recorded as soon after the ex-date as the Fund becomes aware of such dividend). C. Foreign Currency Translation. The books and records of Asia-Pacific Equity Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (1) Market value of investment securities, other assets and liabilities - at the exchange rates prevailing at the end of the day. (2) Purchases and sales of investment securities, income and expenses - at the rates of exchange prevailing on the respective dates of such transactions. Although the net assets and the market value of Asia-Pacific Equity Fund are presented at the foreign exchange rates at the end of the day, Asia-Pacific Equity Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses from investments. Reported net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. 21 Pilgrim America Masters Series - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. Foreign security and currency transactions may involve certain considerations and risks not typically associated with investing in U.S. companies and the U.S. Government. These risks include but are not limited to re-evaluation of currencies and future adverse political and economic developments which could cause securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies and the U.S. Government.. D. Foreign Currency Exchange Transactions. Asia-Pacific Equity Fund may enter into foreign currency exchange transactions to convert to and from different foreign currencies and to and from the U.S. dollar in connection with planned purchases or sales of securities. The Fund either enters into these transactions on a spot basis at the spot rate prevailing in the foreign currency exchange market or uses forward foreign currency contracts to purchase or sell foreign currencies. Asia-Pacific Equity Fund may not invest more than 5% of its assets (at market value at the time of the investment) in forward foreign currency contracts. Risks may arise upon entering into forward contracts from the potential inability of counterparties to meet the terms of their forward contracts and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar. E. Distributions to Shareholders. The Funds record distributions to their shareholders on the ex-date. The Funds intend to make distributions on net investment income and capital gains, if any, at least annually. The amount of distributions from net investment income, and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. Key differences are the treatment of short-term capital gains, foreign currency transactions, organization costs and other temporary differences. To the extent that these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassifications. Distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as distributions in excess of net investment income and/or net realized capital gains. To the extent they exceed net investment income and net realized capital gains for tax purposes, they are reported as distributions of paid-in capital. F. Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code that are applicable to regulated investments companies and to distribute substantially all of its net investment income and any net realized capital gains to its shareholders. Therefore, a federal income tax provision is not required. In addition, by distributing during each calendar year substantially all of its net investment income and net capital gains, each Fund intends not to be subject to any federal excise tax. G. Use of Estimates. Management of the Funds has made certain estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principals. Actual results could differ from these estimates. H. Repurchase Agreements. Each Fund may invest any portion of its assets otherwise invested in money market instruments in U.S. Government securities and concurrently enter into repurchase agreements with respect to such securities. Such repurchase agreements will be made only with government securities dealers recognized by the Board of Governors of the Federal Reserve System or with member banks of the Federal Reserve System. Under such agreements, the seller of the security agrees to repurchase it at a mutually agreed upon time and price. The resale price is in excess of the purchase price and reflects an agreed upon interest rate for the period of time the agreement is outstanding. The period of these repurchase agreements 22 Pilgrim America Masters Series - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- is usually short, from overnight to one week, while the underlying securities generally have longer maturities. Each Fund will always receive as collateral securities acceptable to it whose market value is equal to at least 100% of the amount invested by the Fund, and the Fund will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of its custodian. If the seller defaults, a Fund might incur a loss or delay in the realization of proceeds if the value of the collateral securing the repurchase agreement declines and it might incur disposition costs in liquidating the collateral. I. Deferred Organization Expenses. All expenses incurred in connection with the organization and registration of the Funds under the Investment Company Act of 1940 and the Securities Act of 1933 are being paid for by the Funds. The total organization expenses are being amortized by each Fund equally over a period of five years from the date of commencement of its operations. (2) Investment Management Fee and Other Transactions with Affiliates Each of the Funds has entered into an Investment Management Agreement with Pilgrim America Investments, Inc. ("the Manager"), a wholly owned subsidiary of Pilgrim America Group, Inc. The investment management agreements compensate the Manager with a fee, computed daily and payable monthly, at the following annual rates: Asia-Pacific Equity Fund pays the Manager a fee at an annual rate of 1.25% of the Fund's average daily net assets; MidCap Value Fund and LargeCap Value Fund pay the Manager a fee at an annual rate of 1.00% of each Fund's average daily net assets. The manager has carefully selected Portfolio Managers for each of the Funds on the basis of their successful application of a well-defined, long-term investment approach over a period of several market cycles. HSBC Asset Management Americas Inc. and HSBC Asset Management Hong Kong Limited ("HSBC") serve jointly as the Portfolio Managers to Asia-Pacific Equity Fund. CRM Advisors, LLC ("CRM") serves as Portfolio Manager to MidCap Value Fund. Ark Asset Management Co., Inc. ("ARK") serves as Portfolio Manager to LargeCap Value Fund. As compensation for their services to the Funds, the Manager (and not the Fund) pays HSBC, CRM and ARK fees at annual rates of 0.50% of the average daily net assets of Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value Fund, respectively. The Manager is responsible for managing the day to day operations of the Masters Series. On September 1, 1995, the Funds adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plans"), whereby Pilgrim America Securities, Inc. (the "Distributor") is compensated by the Funds for expenses incurred in the distribution of each Funds' shares. Pursuant to the 12b-1 Plans, the Distributor is entitled to compensation each month for actual expenses incurred in the distribution and promotion of each Fund's shares, including the printing of prospectuses and reports used for sales purposes, expenses of preparing and printing of sales literature and other such distribution related expenses, including any distribution or service fees paid to securities dealers who have executed a distribution agreement with the Distributor. Under the 12b-1 Plans, each class of shares of the Funds pay the Distributor at the annual rate of 0.25% of the average daily net assets of Class A, 1.00% of the average daily net assets of Class B and 0.75% of the average daily net assets of Class M. The manager has voluntarily agreed to limit other expenses, excluding distribution fees, interest, taxes, brokerage and extraordinary expenses to 1.75%, 1.50% and 1.50% of all classes of shares of the Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value Fund, respectively. This expense limitation will 23 Pilgrim America Masters Series - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited) - -------------------------------------------------------------------------------- apply to each fund individually until June 30, 1997. At December 31, 1996, Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value Fund accrued $26,399, $0 and $8,108, respectively as a reimbursement due from the manager. (3) Investment Transactions For the six months ended December 31, 1996, the cost of purchases and proceeds from the sales of securities were as follows:
Asia-Pacific MidCap LargeCap Equity Fund Value Fund Value Fund ----------- ---------- ---------- Purchases $ 21,413,391 $ 20,252,217 $ 16,518,561 Sales 5,911,906 4,207,630 4,452,101 (4) Capital Shares
Transactions in capital shares and dollars were as follows:
Class A Shares Class B Shares Class M Shares ------------------------------ --------------------------- -------------------------- Six Months Ten Months Six Months Ten Months Six Months Ten Months Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, June 30, December 31, June 30, 1996 1996 1996 1996 1996 1996 -------------- --------------- ------------ ------------- ------------- ------------ Asia-Pacific Equity Fund (Shares) Shares sold 1,719,730 1,839,719 780,269 1,749,194 360,804 653,491 Shares issued as reinvestment of dividends 2,937 944 0 151 157 96 Shares redeemed (1,120,065) (68,717) (118,061) (23,700) (51,078) (26,112) -------------- --------------- ------------ ------------- ------------- ------------ Net increase in shares outstanding 602,602 1,771,946 662,208 1,725,645 309,883 627,475 ============== =============== ============ ============= ============= ============ Asia-Pacific Equity Fund ($) Shares sold $17,765,849 $ 19,083,997 $7,913,205 $18,231,217 $3,699,004 $6,796,205 Shares issued as reinvestment of dividends 28,842 9,350 0 1,497 1,541 948 Shares redeemed (11,697,465) (711,977) (1,208,141) (244,539) (524,435) (270,172) -------------- --------------- ------------ ------------- ------------- ------------ Net increase in shares outstanding $ 6,097,226 $ 18,381,370 $6,705,064 $17,988,175 $3,176,110 $6,526,981 ============== =============== ============ ============= ============= ============ MidCap Value Fund (Shares) Shares sold 590,235 201,649 706,554 178,110 212,161 145,744 Shares issued as reinvestment of dividends 1,388 443 835 137 1,014 56 Shares redeemed (25,639) (5,978) (9,246) (457) (7,390) (838) -------------- --------------- ------------ ------------- ------------- ------------ Net increase in shares outstanding 565,984 196,114 698,143 177,790 205,785 144,962 ============== =============== ============ ============= ============= ============
24
Pilgrim America Masters Series - ---------------------------------------------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited) - ---------------------------------------------------------------------------------------------------------------------- Class A Shares Class B Shares Class M Shares ------------------------------ --------------------------- -------------------------- Six Months Ten Months Six Months Ten Months Six Months Ten Months Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, June 30, December 31, June 30, 1996 1996 1996 1996 1996 1996 -------------- --------------- ------------ ------------- ------------- ------------ MidCap Value Fund ($) Shares sold $ 7,407,460 $ 2,157,665 $ 8,786,440 $ 1,976,175 $2,592,907 $1,660,067 Shares issued as reinvestment of dividends 15,865 4,608 9,515 1,428 11,527 578 Shares redeemed (311,437) (65,602) (113,641) (4,699) (89,227) (9,379) -------------- --------------- -------------- ------------- ------------ ------------ Net increase in shares outstanding $ 7,111,888 $ 2,096,671 $ 8,682,314 $ 1,972,904 $ 2,515,207 $1,651,266 ============== =============== ============== ============= ============ ============ LargeCap Value Fund (Shares) Shares Sold 359,683 217,003 596,101 130,422 160,248 106,606 Shares issued as reinvestment of dividends 622 1,977 0 279 30 270 Shares redeemed (75,757) (7,107) (4,482) (9,130) (13,313) (1,280) -------------- --------------- -------------- ------------- ------------ ------------ Net increase in shares outstanding 284,548 211,873 591,619 121,571 146,965 105,596 ============== =============== ============== ============= ============ ============ LargeCap Value Fund ($) Shares sold $ 4,289,980 $ 2,326,399 $ 7,156,461 $ 1,501,267 $ 1,893,802 $1,199,940 Shares issued as reinvestment of dividends 7,041 21,090 0 2,970 343 2,878 Shares redeemed (947,506) (81,933) (130,920) (103,183) (165,464) (14,751) -------------- --------------- -------------- ------------- ------------ ------------ Net increase in shares outstanding $ 3,349,515 $ 2,265,556 $ 7,025,541 $ 1,401,054 $ 1,728,681 $1,188,067 ============== =============== ============== ============= ============ ============
(5) Custodial Agreement Investors Fiduciary Trust Company (IFTC) serves as the Funds' custodian and recordkeeper. Custody fees paid to IFTC are reduced by an earnings credit based on the cash balances held by IFTC for each of the Funds. For the six months ended December 31, 1996, Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value Fund received earnings credits of $1,847, $600 and $609, respectively. 25
Pilgrim America Masters Asia-Pacific Equity Fund - --------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS As of December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------------------------------------------- COMMON STOCKS: 94.5% Market Shares Value ------ ----- HONG KONG: 37.9% Banks: 0.6% 780,000 FPB Bank Holding Company, Ltd. $ 350,443 ---------------- Commercial & Industrial: 8.5% 165,000 Citic Pacific, Ltd. 957,851 353,000 Hutchison Whampoa, Ltd. 2,772,610 1,100,000 (a) KPI Company, Ltd. 155,019 139,000 Swire Pacific, Ltd. 1,325,393 ---------------- 5,210,873 ---------------- Diversified Holding Company: 0.8% 400,000 Cosco Pacific 465,447 ---------------- Financial: 5.5% 208,080 Bank of East Asia 925,458 220,000 Dao Heng Bank Group, Ltd. 1,055,272 120,000 Liu Chong Hing Bank 200,142 250,000 Union Bank of Hong Kong 315,146 200,000 Wing Hang Bank, Ltd. 907,622 ---------------- 3,403,640 ---------------- Food Distributor: 0.9% 600,000 Ng Fung Hong Ltd. 539,143 ---------------- Manufacturing: 1.0% 175,000 (a) Shanghai Industrial Holding 638,050 ---------------- Properties: 15.8% 273,000 Cheung Kong Holdings, Ltd. 2,426,628 170,000 China Resources Enterprises 382,442 70,000 Great Eagle Holdings, Ltd. 288,706 230,000 Henderson Investment, Ltd. 275,066 170,000 Hysan Development Co., Ltd. 676,967 240,000 New World Development Co., Ltd. 1,621,307 220,000 Sun Hung Kai Properties, Ltd. 2,695,068 260,000 Wharf Holdings, Ltd. 1,297,563 ---------------- 9,663,747 ---------------- Real Estate & Financial Services: 0.7% 300,000 Lai Sun Development Co., Ltd. 453,811 ---------------- Retail Clothing: 0.6% 1,150,000 First Sign International Holding 367,994 ---------------- See Accompanying Notes to Financial Statements 26
Pilgrim America Masters Asia-Pacific Equity Fund - --------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------------------------------------------- Market Shares Value ------ ----- Utilities: 3.5% 83,000 China Light & Power Co., Ltd. $ 369,151 165,000 Hong Kong Electric Holdings, Ltd. 548,258 750,000 Hong Kong Telecommunications, Ltd. 1,207,253 ---------------- 2,124,662 ---------------- Total Hong Kong Common Stocks 23,217,810 ---------------- INDONESIA: 7.7% Banks: 1.3% 784,000 PT Lippo Bank 763,421 ---------------- Building Products: 0.1% 20,000 PT Semen Cibinong 56,308 ---------------- Manufacturing: 3.5% 317,000 PT Indofood Sukses Makmur 630,779 880,000 PT Telekommunikasi Indonesia - Class B 1,518,205 ---------------- 2,148,984 ---------------- Real Estate: 0.4% 232,000 PT Kawasan Industries 270,110 ---------------- Tobacco Products: 1.4% 125,000 PT Gudang Garam 539,797 56,000 (a) PT Hanjaya Mandala Sampoerna 298,730 ---------------- 838,527 ---------------- Transportation: 1.0% 197,000 PT Semem Gresik 633,870 ---------------- Total Indonesia Common Stocks 4,711,220 ---------------- MALAYSIA: 21.0% Commercial & Industrial: 12.5% 134,000 Genting Berhad 923,223 313,000 Leader Universal Holding 656,860 380,000 Magnum Corporation Berhad 737,280 85,000 Petronas Gas Berhad 353,395 673,000 Renong Berhad 1,193,839 290,000 Sime Darby Berhad 1,142,546 216,000 Telekom Malaysia Berhad 1,924,371 150,000 Tenaga Nasional Berhad 718,670 ---------------- 7,650,184 ---------------- See Accompanying Notes to Financial Statements 27
Pilgrim America Masters Asia-Pacific Equity Fund - --------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------------------------------------------- Market Shares Value ------ ----- Financial: 5.9% 90,000 Affin Holdings Berhad $ 247,674 250,000 DCB Holdings Berhad 856,266 195,000 MBF Capital Berhad 316,571 195,000 Malayan Banking Berhad 2,161,948 ---------------- 3,582,459 ---------------- Properties: 2.6% 129,000 Land & General Holdings Berhad 309,028 144,000 (a) United Engineers Malaysia 1,300,020 ---------------- 1,609,048 ---------------- Total Malaysia Common Stocks 12,841,691 ---------------- PHILIPPINES: 3.9% Building Products: 0.5% 2,714,000 (a) Southeast Asia Cement HL 314,742 ---------------- Communications: 0.8% 10,000 Philippine Long Distance Telephone Co., ADR 510,000 ---------------- Home Building: 0.5% 575,000 C & P Homes, Inc. 295,152 ---------------- Miscellaneous: 0.5% 38,000 (a) Benpres Holdings GDR 285,000 ---------------- Real Estate: 1.1% 2,472,000 SM Prime Holdings, Inc. 639,148 ---------------- Utilities: 0.5% 40,000 Manila Electric Co. - Class B 326,996 ---------------- Total Philippines Common Stocks 2,371,038 ---------------- SINGAPORE: 11.5% Commercial & Industrial: 2.3% 148,000 Keppel Corp., Ltd. 1,152,697 61,000 Van Der Horst. 254,984 ---------------- 1,407,681 ---------------- Financial: 3.8% 95,000 Overseas-Chinese Bank 1,181,136 34,000 Overseas Union Bank 262,380 80,000 United Overseas Bank 891,747 ---------------- 2,335,263 ---------------- See Accompanying Notes to Financial Statements 28
Pilgrim America Masters Asia-Pacific Equity Fund - --------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------------------------------------------- Market Shares Value ------ ----- Food and Beverage: 0.4% 26,400 Fraser & Neave, Ltd. $ 271,640 ---------------- Properties: 2.2% 70,000 (a) City Developments, Ltd. 630,225 80,000 Singapore Land, Ltd. 443,015 100,000 Wing Tai Holdings 285,816 ---------------- 1,359,056 ---------------- Publishing: 1.3% 40,000 Singapore Press Holdings, Ltd. 788,853 ---------------- Transportation: 1.5% 99,000 Singapore Airlines, Ltd. 898,392 ---------------- Total Singapore Common Stocks 7,060,885 ---------------- SOUTH KOREA: 3.4% Banks: 0.7% 19,660 (a) Cho Hung Bank 153,557 18,000 Kook Min Bank 286,615 ---------------- 440,172 ---------------- Construction: 0.1% 1,632 (a) Dong Ah Construction 34,764 2,230 (a) Dong Ah Construction, EDR 23,861 ---------------- 58,625 ---------------- Electrical Equipment: 0.5% 4,550 LG Information & Communication 290,769 ---------------- Manufacturing/Electronic: 0.5% 1,600 Samsung Display Devices 91,456 323 (a) Samsung Elect N-1 16,590 1,072 Samsung Electronics Co. 57,723 1,000 Sungmi Telecom Electronics 149,112 ---------------- 314,881 ---------------- Metals and Minerals: 0.5% 2,550 Pohang Iron & Steel Col, Ltd., ADR 51,638 3,320 Samchully Co. 231,811 ---------------- 283,449 ---------------- Oil & Gas: 0.2% 2,200 Daehan City Gas Co. 158,817 ---------------- See Accompanying Notes to Financial Statements 29
Pilgrim America Masters Asia-Pacific Equity Fund - --------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------------------------------------------- Market Shares Value ------ ----- Utilities-Electric: 0.9% 15,000 Korea Electric Power $ 436,686 5,805 Korea Electric Power Corp., ADR 119,003 ---------------- 555,689 ---------------- Total South Korea Common Stocks 2,102,402 ---------------- TAIWAN: 2.8% Building Products: 0.5% 15,000 (a) Asia Cement Corp. 267,938 ---------------- Computer Systems/Software: 0.3% 14,047 (a) Macronix International Co., Ltd, ADR 187,885 ---------------- Electrical Equipment: 0.2% 13,500 (a) Yageo Corp. 131,625 ---------------- Marine: 0.4% 13,000 (a) Evergreen Marine Corp. 258,375 ---------------- Steel: 1.1% 33,640 (a) China Steel Corp., GDR 670,277 ---------------- Technology: 0.3% 10,320 (a) Lite-On Technology Corp. 176,162 ---------------- Total Taiwan Common Stocks 1,692,262 ---------------- THAILAND: 6.3% Banks: 3.7% 110,000 Bangkok Bank Public Co., Ltd. 1,063,382 28,500 Siam Commercial Bank Public Co., Ltd. 206,634 155,000 Thai Farmers Bank Public Co., Ltd. 966,711 ---------------- 2,236,727 ---------------- Communications: 0.4% 28,000 Advanced Information Services PCL 237,936 ---------------- Construction: 0.3% 6,700 Siam Cement Public Co., Ltd. 209,979 ---------------- Insurance: 0.2% 40,000 Phatra Thanakit Public Co., Ltd. 113,822 ---------------- See Accompanying Notes to Financial Statements 30
Pilgrim America Masters Asia-Pacific Equity Fund - --------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------------------------------------------- Market Shares Value ------ ----- Mining: 0.8% 25,000 Banpu Public Co., Ltd. $ 463,865 ---------------- Oil & Gas: 0.9% 40,000 PTT Exploration & Production 576,908 ---------------- Total Thailand Common Stocks 3,839,237 ---------------- Total Common Stocks (Cost $54,629,037) 57,836,545 ---------------- WARRANTS: 0.0% HONG KONG: 0.0% 4,500 (a) Hysan Development Co., Ltd. 4,073 220,000 (a) KPI Company, Ltd 10,240 ---------------- 14,313 ---------------- THAILAND: 0.0% 13,375 (a) Thai Farmers Bank Public Co., Ltd. 12,643 ---------------- Total Warrants (Cost $13,211) 26,956 ---------------- CONVERTIBLE BONDS: 2.7% Principal Amount TAIWAN: 2.7% Marine: 2.0% 500,000 (a) Far East Department Stores, 3.00% due July 2001 527,500 250,000 (a) President Enterprises Co., 0.00% due July 2001 376,875 300,000 Yangming Marine, 2.00% due October 2001 342,000 ---------------- 1,246,375 ---------------- Industrial: 0.7% 240,000 Nan Ya Plastic Corp., 1.75% due July 2001 273,600 105,000 Yageo Corp., 1.25% due July 2003 117,272 ---------------- 390,872 ---------------- Total Convertible Bonds (Cost $1,565,119) 1,637,247 ---------------- Total Long-Term Investments (Cost $56,207,367) 59,500,748 ---------------- SHORT-TERM INVESTMENTS: 1.7% Commercial Paper: 1.7% 1,040,000 Merrill Lynch Commercial Paper, 6.50% due 01/02/97 1,039,812 ---------------- Total Short-Term Investments (Cost $1,039,812) 1,039,812 ---------------- Total Investments (Cost $57,247,179)* 98.9% 60,540,560 Cash and Other Assets in Excess of Liabilities-Net 1.1% 678,493 ---------- ---------------- Total Net Assets 100.0% $ 61,219,053 ========== ================ See Accompanying Notes to Financial Statements 31
Pilgrim America Masters Asia-Pacific Equity Fund - --------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - --------------------------------------------------------------------------------------------------------------------- (a) Non-income producing security ADR - American Depository Receipt EDR - European Depository Receipt GDR - Global Depository Receipt * Cost for federal income tax purposes is the same as for financial statements. Net unrealized appreciation appreciation consists of: Gross Unrealized Appreciation $ 7,478,238 Gross Unrealized Depreciation (4,193,857) ---------------- Net Unrealized Appreciation $ 3,284,381 ================
The Asia-Pacific Equity Fund had the following outstanding forward foreign currency exchange contracts as of December 31, 1996: Settlement Currency Currency Date to Receive to Deliver ---- ---------- ---------- 1/6/97 204,824 $146,670 Singapore dollars U.S. dollars 1/9/97 397,200 $157,307 Malaysian ringgits U.S. dollars Net unrealized depreciation of $345 on these contracts at December 31, 1996, is included in the accompanying financial statements. See Accompanying Notes to Financial Statements 32
Pilgrim America Masters MidCap Value Fund - ---------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS As of December 31, 1996 (Unaudited) - ---------------------------------------------------------------------------------------------------------------------- COMMON STOCKS: 88.8% Market Shares Value ------ ----- Automotive: 4.9% 15,000 Lucasvarity PLC, ADR $ 570,000 44,000 (a) Mascotech, Inc. 720,500 ------------------ 1,290,500 ------------------ Banks: 2.1% 18,000 John Hancock Bank & Thrift Opportunity Fund 553,500 ------------------ Broadcasting: 4.0% 45,000 Comcast Corp., Class A 801,563 9,000 (a) Young Broadcasting Corp. Class A 263,250 ------------------ 1,064,813 ------------------ Building Products: 4.1% 12,000 Masco Corp. 432,000 60,000 Schuller Corp. 637,500 ------------------ 1,069,500 ------------------ Capital Goods: 3.0% 40,000 Westinghouse Electric Corp. 795,000 ------------------ Chemicals: 6.0% 13,000 (a) Great Lakes Chemical 607,750 22,000 Mallinckrodt, Inc. 970,750 ------------------ 1,578,500 ------------------ Chemicals-Diversified: 1.1% 7,000 (a) Millipore Corp. 289,625 ------------------ Commercial & Industrial: 3.0% 36,000 Dial Corp. 531,000 15,000 Viad Corp. 247,500 ------------------ 778,500 ------------------ Computer Software & Services: 1.8% 8,000 Reynolds & Reynolds 208,000 8,500 (a) Sterling Software, Inc. 268,812 ------------------ 476,812 ------------------ Computer Systems: 2.8% 30,000 (a) Gulfstream Aerospace Corp. 727,500 ------------------ Defense: 0.8% 10,000 Tracor, Inc. 212,500 ------------------ See Accompanying Notes to Financial Statements 33
Pilgrim America Masters MidCap Value Fund - ---------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - ---------------------------------------------------------------------------------------------------------------------- Market Shares Value ------ ----- Diversified Holding Company: 1.8% 14,000 (a) U.S. Industries, Inc. $ 481,250 ------------------ Electrical Equipment: 7.9% 10,000 National Service Industries, Inc. 373,750 12,000 Raychem Corp. 961,500 20,000 (a) Ucar International, Inc. 752,500 ------------------ 2,087,750 ------------------ Financial: 1.1% 12,000 Glendale Federal Bank 279,000 ------------------ Food Stores: 3.2% 24,100 (a) Meyer (Fred), Inc. 855,550 ------------------ Home Building: 1.0% 18,000 (a) Walter Industries, Inc. 254,250 ------------------ Home Products: 0.7% 13,000 Furniture Brands International, Inc. 182,000 ------------------ Housewares: 4.3% 15,000 Premark International, Inc. 333,750 15,100 Tupperware Corp. 809,738 ------------------ 1,143,488 ------------------ Industrial: 1.5% 15,000 (a) Stanley Works 405,000 ------------------ Manufacturing/Electronic: 4.1% 14,000 (a) Corning, Inc. 647,500 22,500 Elsag Bailey Process Auto 421,875 ------------------ 1,069,375 ------------------ Medical: 2.1% 13,000 (a) Allergan, Inc. 463,125 4,400 Choice Hotels Corp. 77,550 900 Manor Care, Inc. 24,300 ------------------ 564,975 ------------------ Metals & Minerals: 1.2% 12,000 Schnitzer Steel Industries 307,500 ------------------ See Accompanying Notes to Financial Statements 34
Pilgrim America Masters MidCap Value Fund - ---------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - ---------------------------------------------------------------------------------------------------------------------- Market Shares Value ------ ----- Miscellaneous: 2.3% 27,500 Trizec Hahn Corp. $ 605,000 ------------------ Oil & Gas: 9.1% 14,000 (a) Amerada Hess Corp. 810,250 14,000 (a) Coastal Corp. 684,250 18,000 Forest Oil corp. 317,250 20,000 Valero Energy Corp. 572,500 ------------------ 2,384,250 ------------------ Packaging Products: 4.8% 17,900 Ball Corp. 465,400 35,000 Owens-Illinois, Inc. 796,250 ------------------ 1,261,650 ------------------ Paper and Forest Products: 2.1% 20,000 Fort Howard Corp. 553,750 ------------------ Real Estate & Financial Services: 2.8% 20,000 Insignia Financial Group, Inc. 450,000 15,000 RFS Hotel Investors, Inc. 296,250 ------------------ 746,250 ------------------ Retail: 1.8% 45,000 (a) Kmart Corp. 466,875 ------------------ Technology: 1.9% 6,000 (a) Johnson Controls, Inc. 497,250 ------------------ Utilities-Gas Transmission: 1.5% 12,000 (a) Peoples Energy Corp. 406,500 ------------------ Total Common Stocks (Cost $21,382,796) 23,388,413 ------------------ WARRANTS: 0.2% Machinery & Equipment: 0.2% 2,000 (a) Terex Warrants 48,200 ------------------ Total Warrants (Cost $18,000) 48,200 ------------------ Total Long-Term Investments (Cost $21,400,795) 23,436,613 ------------------ See Accompanying Notes to Financial Statements 35
Pilgrim America Masters MidCap Value Fund - ---------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - ---------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 6.5% Principal Amount Value ------ ----- Repurchase Agreements: 6.5% $1,715,000 Merrill Lynch Repurchase Agreement, 5.75% due 01/02/97 (Collateralized by $1,755,955 U.S. Treasury Bonds, 6.625% due 07/31/01) $ 1,715,000 ------------------ Total Short-Term Investments (Cost $1,715,000) 1,715,000 ------------------ Total Investments (Cost $23,115,796)* 95.5% 25,151,613 Cash and Other Assets in Excess of Liabilities-Net 4.5% 1,190,702 ----------- ------------------ Total Net Assets 100.0% $ 26,342,315 =========== ================== - -------------------------------- (a) Non-income producing security * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 2,357,276 Gross Unrealized Depreciation (321,459) ------------------ Net Unrealized Appreciation $ 2,035,817 ================== See Accompanying Notes to Financial Statements 36
Pilgrim America Masters LargeCap Value Fund - ------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS As of December 31, 1996 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- COMMON STOCKS: 96.4% Market Shares Value ------ ----- Automotive: 3.6% 13,400 Ford Motor Co. $ 427,125 4,000 General Motors Corp. 223,000 ---------------- 650,125 ---------------- Banks: 1.9% 1,500 Chase Manhattan Corp. 133,875 4,100 First Chicago NBD 220,375 ---------------- 354,250 ---------------- Broadcasting: 2.7% 25,400 Tele-Communications, Inc. 331,788 8,900 U.S. West Media Group 164,650 ---------------- 496,438 ---------------- Building Products: 3.4% 9,200 GTE Corp. 418,600 5,800 Masco Corp. 208,800 ---------------- 627,400 ---------------- Chemicals: 3.2% 3,600 DuPont, (E.I.) DeNemours & Co. 339,750 3,800 Hercules, Inc. 164,350 2,400 Union Carbide Corp. Holding Co. 98,100 ---------------- 602,200 ---------------- Chemicals-Diversified: 2.2% 4,600 Eastman Chemical Co. 254,150 2,900 PPG Industries, Inc. 162,762 ---------------- 416,912 ---------------- Communications: 5.5% 20,200 AT&T Corp. 878,700 3,600 Sprint Corp. 143,550 ---------------- 1,022,250 ---------------- Computer Systems: 1.5% 7,900 Digital Equipment 287,362 ---------------- Construction: 1.0% 2,900 Fluor Corp. 181,975 ---------------- Consumer Products: 1.7% 3,900 Anheuser Busch Co. 156,000 1,900 Eastman Kodak Co. 152,475 ---------------- 308,475 ---------------- Defense: 1.0% 3,700 Raytheon Co. 178,063 ---------------- See Accompanying Notes to Financial Statements 37
Pilgrim America Masters LargeCap Value Fund - ------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Market Shares Value ------ ----- Drugs: 4.1% 2,700 Bristol Myers Squibb Co. $ 293,625 1,600 Georgia Pacific Corp. 115,200 9,000 Pharmacia & Upjohn, Inc. 356,625 ---------------- 765,450 ---------------- Electrical Equipment: 1.6% 7,600 Amp, Inc. 291,650 ---------------- Entertainment: 1.5% 7,700 Time Warner, Inc. 288,750 ---------------- Financial: 2.2% 6,200 Dean Witter Discover & Co. 410,750 ---------------- Foods: 1.7% 9,925 Archer-Daniels-Midland 218,350 1,200 CPC International, Inc. 93,000 ---------------- 311,350 ---------------- Healthcare: 2.3% 10,600 Humana, Inc. 202,725 5,100 United Healthcare Corp. 229,500 ---------------- 432,225 ---------------- Hospitals: 2.7% 12,450 Columbia/HCA Healthcare Corp. 507,337 ---------------- Hotels: 1.4% 6,000 ITT Corp. 260,250 ---------------- Insurance: 9.9% 6,200 Aetna Life & Casualty Co. 496,000 7,200 Allstate Corp. 416,700 1,100 American International Group, Inc. 119,075 8,400 Chubb Corp. 451,500 2,300 General Re Corp. 362,825 ---------------- 1,846,100 ---------------- Insurance Life: 0.9% 2,200 Unum Corp. 158,950 ---------------- Manufacturing: 0.8% 2,300 AlliedSignal, Inc. 154,100 ---------------- Medical Equipment: 0.4% 1,600 Becton Dickinson & Co. 69,400 ---------------- See Accompanying Notes to Financial Statements 38
Pilgrim America Masters LargeCap Value Fund - ------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Market Shares Value ------ ----- Metals & Minerals: 1.3% 2,900 Aluminum Company of America $ 184,875 4,900 LTV Corp. 58,188 ---------------- 243,063 ---------------- Mines & Minerals: 1.7% 7,100 Newmont Mining Corp. 317,725 ---------------- Miscellaneous: 1.5% 3,000 Loews Corp. 282,750 ---------------- Office Equipment, Products & Services: 4.5% 2,800 International Business Machines Corp. 422,800 8,000 Xerox Corp. 421,000 ---------------- 843,800 ---------------- Oil & Gas: 7.1% 4,600 Amerada Hess Corp. 266,225 2,100 Amoco Oil Co. 169,050 2,400 Mobil Corp. 293,400 15,100 Occidental Petroleum Corp. 352,963 600 Texaco, Inc. 58,875 6,200 Union Pacific Resources Group, Inc. 181,350 ---------------- 1,321,863 ---------------- Paper and Forest Products: 2.4% 6,400 Champion International Corp. 276,800 2,300 International Paper Co. 92,862 900 Kimberly-Clark Corp. 85,725 ---------------- 455,387 ---------------- Pollution Control: 1.2% 6,800 WMX Technologies, Inc. 221,850 ---------------- Publishing: 0.5% 3,100 Cognizant Corp. 102,300 ---------------- Railways: 2.0% 700 Burlington Northern S.F. 60,462 7,100 CSX Corp. 312,650 ---------------- 373,112 ---------------- Retail: 6.6% 10,100 Dillard Department Stores, Inc. 311,838 10,900 Federated Department Stores, Inc. 371,962 See Accompanying Notes to Financial Statements 39
Pilgrim America Masters LargeCap Value Fund - ------------------------------------------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1996 (Unaudited) - ------------------------------------------------------------------------------------------------------------------- Market Shares Value ------ ----- Retail (continued) 5,400 May Department Stores Co. $ 252,450 6,400 Sears, Roebuck and Co. 295,200 ---------------- 1,231,450 ---------------- Supermarket: 0.8% 4,200 Albertson's, Inc. 149,625 ---------------- Technology: 1.7% 3,500 Rockwell 213,063 1,700 Texas Instruments, Inc. 108,375 ---------------- 321,438 ---------------- Transporation: 2.0% 2,100 AMR Corp. 185,062 2,600 Delta Airlines, Inc. 184,275 ---------------- 369,337 ---------------- Utilities: 5.9% 6,700 Frontier Corp. 151,587 10,100 Nynex Corp. 486,063 6,700 SBC Communications 346,725 2,900 Texas Utilities 118,175 ---------------- 1,102,550 ---------------- Total Common Stocks (Cost $16,999,061) 17,958,012 ----------------
SHORT-TERM INVESTMENTS: 8.2% Principal Amount Value ------ ----- Commerical Paper: 8.2% $1,365,000 Merrill Lynch Repurchase Agreement, 5.75% due 01/02/97 (Collateralized by $1,395,674 U.S. Treasury Bonds, 6.625% due 07/31/01) 1,365,000 ---------------- Total Short-Term Investments (Cost $1,365,000) 1,365,000 ---------------- Total Investments in Securities (Cost $18,364,061)* 103.7% 19,323,012 Liabilities in Excess of Cash and Other Assets-Net (3.7) (684,907) -------- ---------------- Total Net Assets 100.0% $ 18,638,105 - ------------------------------ ======== ================ (a) Non-income producing security ADR - American Depository Receipt * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 1,262,820 Gross Unrealized Depreciation (303,869) ---------------- Net Unrealized Appreciation $ 958,951 ================ See Accompanying Notes to Financial Statements 40
Pilgrim America Funds Investment Manager Custodian Pilgrim America Investments, Inc. Investors Fiduciary Trust Company Two Renaissance Square 127 West 10th Street 40 North Central Avenue, Suite 1200 14th Floor Phoenix, Arizona 85004 Kansas City, Missouri 64105 Distributor Legal Counsel Pilgrim America Securities, Inc. Dechert Price & Rhoads Two Renaissance Square 1500 K Street, N. W. 40 North Central Avenue, Suite 1200 Washington, D.C. 20005 Phoenix, Arizona 85004 1-800-334-3444 Shareholder Servicing Agent Independent Auditors Pilgrim America Group, Inc. KPMG Peat Marwick LLP Two Renaissance Square 725 South Figueroa Street 40 North Central Avenue, Suite 1200 Los Angeles, California 90017 Phoenix, Arizona 85004 1-800-331-1080 Transfer Agent This report and the financial Investors Fiduciary Trust Company statements contained herein are c/o DST Systems, Inc. submitted for the general information P.O. Box 419541 of the shareholders of the Funds. This Kansas City, Missouri 64141 report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004 1-800-331-1080 [GRAPHIC OMITTED] PILGRIM AMERICA FUNDS Pilgrim America Funds Masters Series -------------- Pilgrim America Masters Asia-Pacific Equity Fund Pilgrim America Masters MidCap Value Fund Pilgrim America Masters LargeCap Value Fund Elite Series ------------ Pilgrim America MagnaCap Fund Pilgrim America High Yield Fund Pilgrim Government Securities Income Fund Pilgrim America Funds "Our goal is for every investor to have a successful investment experience" Prospectuses containing more complete information regarding the Funds, including charges and expenses, may be obtained by calling Pilgrim America Securities, Inc. Distributor at 1-800-334-3444. Please read the prospectuses carefully before you invest or send money. 21-SS-073096 022897 -----END PRIVACY-ENHANCED MESSAGE-----