-----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, M7nMj8MtXhRvMqLhNJ6bn+IcoFdi5GK5Gqiu+Mq4Gz+Fk2wdxKRiuQuKMj/7BICa +gico4bRG7klX2haVk8Qkg== 0000950147-98-000168.txt : 19980304 0000950147-98-000168.hdr.sgml : 19980304 ACCESSION NUMBER: 0000950147-98-000168 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980303 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: SEC FILE NUMBER: 811-09040 FILM NUMBER: 98556822 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 FORM 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, 1997 Pilgrim America Funds Masters Series -------------- SEMI-ANNUAL REPORT December 31, 1997 --------------- Table of Contents Chairman's Message ............................................. 4 Portfolio Manager's Reports: Pilgrim America Masters Asia-Pacific Equity Fund ....... 5 Pilgrim America Masters MidCap Value Fund .............. 10 Pilgrim America Masters LargeCap Value Fund ............ 13 Statements of Assets and Liabilities ........................... 17 Statements of Operations ....................................... 18 Statements of Changes in Net Assets ............................ 19 Financial Highlights ........................................... 20 Notes to Financial Statements .................................. 23 Portfolios of Investments: Pilgrim America Masters Asia-Pacific Equity Fund ....... 28 Pilgrim America Masters MidCap Value Fund .............. 33 Pilgrim America Masters LargeCap Value Fund ............ 36 Shareholder Meeting ............................................ 40 --------------- Pilgrim America Funds 3 Pilgrim America Masters Series - -------------------------------------------------------------------------------- Chairman's Message - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to present the Annual Report for Pilgrim America Masters Series, Inc. ("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 months and year ended December 31, 1997, as well as the markets and factors which have affected each of the Funds during these periods. Effective November 1, 1997 Pilgrim America Investments, Inc. began providing investment advisory services to Pilgrim America Masters LargeCap Value Fund. Pilgrim America Masters Asia-Pacific Equity Fund and Pilgrim America Masters MidCap Value Fund give investors access to private money managers who typically manage similar portfolios primarily for high net worth individuals and institutional investors. Each money manager has extensive knowledge and proven experience in their specialized market segments. 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 and Chief Executive Officer Pilgrim America Group, Inc. February 20, 1998 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 the Pilgrim America Masters Asia-Pacific Equity Fund ("the Fund") for the six months ended December 31, 1997. For the six months, the Fund's total return was -44.56%(1). This compares to the return of -44.97% on the Morgan Stanley Capital International Combined Far East Free (excluding Japan) Index (the "MSCI"), a measure of the performance of the Far East equity markets excluding Japan. Net assets in the Fund at December 31, 1997 totalled $35.8 million. Global Economic Overview We expect financial and economic turbulence in Asia to result in a deceleration of 0.5% to 1% in real economic growth in the OECD countries as a whole. However, regional differences in growth rates will persist as various economies move through different stages of the economic cycle. For example, in the US, real GDP growth is expected to slow from the current rate of over 3% to around 2.5% per annum. In the UK, a strong currency and rising interest rates coupled with the Asian crisis are expected to cause a sharp slowdown in economic growth. In Continental Europe, we expect the economic recovery to gather momentum, and real GDP growth to potentially exceed trend levels. In Japan, we anticipate that the economy will continue to struggle with growth averaging below 1% for 1998. Finally, in Asia, the collapse in exchange rates, financial and real asset values is likely to lead to a sharp contraction in domestic demand. On the inflation front, we expect price pressures at the producer and consumer level to remain subdued, as considerable spare capacity still exists around the world. Consequently, we expect the global interest rate environment to remain generally stable. Asia Pacific Region The difficulties of Asia have been well documented in recent months. Stock markets in some cases have fallen by over 70% in U.S. dollar terms. The table below summarizes the returns on various MSCI Indices for the twelve months ended December 31, 1997 : Pilgrim America Funds 5 Pilgrim America Masters Asia-Pacific Equity Fund Index Total Return Hong Kong - 23.29 % Singapore - 30.05 Malaysia - 68.26 Indonesia - 73.92 South Korea - 66.67 Taiwan - 6.29 Thailand - 76.75 Philippines - 62.59 Source : MSCI Index Returns as reported to Bloomberg. The IMF has most recently been called into Korea, and is now "operating" in much of the region. The difficulties from trade deficits, overinvestment, and massive U.S. dollar borrowings with insufficient regard to foreign exchange risks, has led to a collapse in exchange rates across much of the region, with obvious implications for interest rates, and equity valuations, as well as distressed borrowers. The critical issue remains the implementation of IMF agreed terms, and whether the political will exists to take the necessarily tough medicine. Investor skepticism on this front is justifiably high, as is doubt on whether the existing scale of the IMF packages is adequate. While macro economic risks remain prevalent throughout the region from a "bottom up" perspective, Hong Kong, China, Taiwan and Singapore appear sound with an absence of excessive balance sheet leverage. We expect to see a turnaround in trade accounts in 1998 but mostly as a result of sharply contracting domestic demand. This will over time improve domestic liquidity and the interest rate environment. Balance sheet adjustment will be painful but necessary, as is a pragmatic and transparent approach by policymakers. Although we remain cautious regarding prospects for the region over the near term, we believe much of the known negatives have already been priced in. Pilgrim America Funds 6 Pilgrim America Masters Asia-Pacific Equity Fund Regional Outlook In the short term, the Hong Kong market will be vulnerable as the Asian contagion spreads to the SAR. Interest rates are moving up to support the peg with adverse consequences for asset prices. In addition, question marks over growth rates in China could adversely affect sentiment. However, once the economic turbulence has subsided, the strong relative economic and corporate fundamentals in Hong Kong will re-exert themselves. China's economy is still robust and inflation is negligible which should allow further monetary easing. However, concerns over China's competitiveness, given the Asian currency collapse, and adverse impact of the economic restructuring is creating weakness in stock markets. Loan growth in Malaysia is still unacceptably high despite a slowdown in the economy. When lending does decline substantially, the economic contraction will be very painful. Corporate profits will also be vulnerable and bankruptcies will accelerate, particularly in the vastly oversupplied property sector. Turmoil in countries surrounding Singapore are impacting asset prices and increasing non-performing loans in the banking sector. Consequently, the stock market and currency will be under pressure. After a 77% fall in share prices (in USD terms) in Thailand, there are some positive signs emerging. The current account is now in surplus, the IMF program is being successfully implemented and financial restructuring is being instituted. Notwithstanding these factors, economic growth will decline and corporate profits will continue to fall while recapitalizations will further dilute earnings. In Indonesia, the currency is in free fall, creating a vicious cycle of rising corporate currency losses, an increasing demand for US dollars and an erosion of equity values. Until we see some stability in the Rupiah, we are taking a more cautious view towards this market. The Philippines does not have the credit creation excesses of its neighbors. However, loan growth has been high over the last few years. With economic growth forecast to decline and corporate profits being downgraded, a cautious outlook is warranted. Our long term view is more positive given the market's low relative valuation and potential for economic growth to accelerate once the Asian turmoil moderates. South Korea has made some progress in turning around its economy. The current account surplus has widened which will support the currency. As importantly, there seems to be a willingness amongst both politicians and populous to take the pain associated with restructuring the economy. The economic cycle in Taiwan continues to be positive for equity investment with low interest rates and buoyant liquidity. We are seeing a change in emphasis towards a domestic-led recovery. Electronic exports will also be strong given the price competitiveness of Taiwanese component products for American customers. Pilgrim America Funds 7 Pilgrim America Masters Asia-Pacific Equity Fund Over the near term, we will continue to favor the larger, more liquid markets as their economic fundamentals continue to look relatively stronger. Further, we will be looking for good value throughout the region as many of the companies have fallen dramatically in price. Stock selection rather than country allocation is likely to be the driver of performance as we begin 1998. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy and cost effective way to acquire additional shares of the Fund without incurring a sales charge. Should you decide to switch from cash dividends to automatic investment, please notify your broker or contact the Transfer Agent, c/o DST Systems, Inc. P.O. Box 419338, Kansas City, MO 64141-6338 or call (800) 992-0180. We thank you for giving us the opportunity to help you work towards your investment needs. Sincerely, HSBC ASSET MANAGEMENT AMERICAS, INC. HSBC ASSET MANAGEMENT HONG KONG LIMITED See footnotes on page 9. Pilgrim America Funds 8 Pilgrim America Masters Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Excluding the Class A maximum sales charge of 5.75% and assuming reinvestment of all dividends and distributions. Average annual total returns including the Class A maximum sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1997 and from September 1, 1995 (commencement of operations) to December 31, 1997 were -46.52% and -21.15%, respectively. Performance figures shown pertain only to Class A shares of the Fund. Class B and M shares, which are also offered by the Fund, are subject to different fees and expenses which will affect their performance. All returns figures reflect a partial waiver of fees for the periods stated. Without such a waiver, returns would have been lower. 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. Principal risk factors: exposure to financial and market risks that accompany investment in equities, and exposure to changes in currency exchange rates and economic and political risks of foreign investing. This letter contains statements that may be "forward-looking statements." Actual results could differ materially from those projected in the "forward-looking statements." The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. Pilgrim America Funds 9 Pilgrim America Masters MidCap Value Fund - -------------------------------------------------------------------------------- Portfolio Manager's Report - -------------------------------------------------------------------------------- Dear Shareholders, We are pleased to report the results of operations for the Pilgrim America Masters MidCap Value Fund (the "Fund") for the six months ended December 31, 1997. For the six months ended December 31, 1997 the Fund had a total return of 9.58%(1) compared to 14.54% for the Russell MidCap Index(TM) (2). 1997 FOURTH QUARTER REVIEW Once again we enter the new year with many concerns on the minds of investors. The fourth quarter debacle in the Asian currency and security markets has caused reverberations around the globe and are likely to continue well into the current year. For the U.S., many are predicting slower domestic economic growth, smaller than expected earnings gains, limited pricing power and a bigger trade deficit. The word "deflation" has entered many conversations about the global economic outlook, replacing "disinflation", a term that has been warmly embraced for several years. A volatile year for the stocks of multinational corporations is likely if the Asian economies continue to deteriorate and leadership falters. The prospect of slower top-line growth, narrowing margins and weaker profits would inevitably lower the market valuation of these large companies. This sobering backdrop for the U.S. equity market makes us feel even more comfortable with our value approach to investing, particularly in the mid and small capitalization company sectors. Since these sectors are comprised of companies that have, on average, little to no exposure to foreign markets, we believe the quality of earnings should be relatively immune to the "Asian Flu". They are also generally characterized by modest valuations having underperformed the large cap sector for over two years. Also, increased volatility should give us better control over the prices we pay for stocks, as inefficient pricing by the market often occurs with these gyrations. Throughout 1995 and 1996 when the general trend was inexorably up, we often found ourselves challenged by increased multiples. We therefore look forward to 1998 as a year in which U.S. economic fundamentals remain sound, Wall Street continues to "climb a wall of worry", and where astute stock selection and strict attention to valuation provide greater relative returns. The markets again rewarded equity investors with well above average returns for 1997. While the high multiple investment environment continued to test our discipline, it is difficult not to be satisfied Pilgrim America Funds 10 Pilgrim America Masters MidCap Value Fund with absolute returns greater than 20% in any given year. By comparison, the Russell 2500 gained 24.6% for the year. The diversified structure of the Fund served its purpose throughout the year and accentuated the value of good stock selection within each industry group. For example, the consumer staple segment, the largest portfolio sector, substantially contributed to performance. The most significant players in this category were Fred Meyer and Owens-Illinois. The well-strategized and successful acquisition strategies of both of these companies were recognized by the market. These positions will likely be held in the Fund as our conviction in each company's fundamentals and management abilities remains strong. The financial sector of the market outperformed the broad averages and was the leading performer for the year. Approximately 18% of the Standard and Poor's index is comprised of financial services companies. Our limited exposure to this sector affected our competition with the indexers. While representation among various industries is an important portfolio management consideration, specific stock selection ranks as our highest priority. In search of companies that looked inappropriately priced by this market place, Cincinnati Bell, came into an attractive price-range in the last quarter. A thorough review of the three segments of the company and several conversations with management convinced us that the enterprise value of the company was above the current value the market suggested. We believe the company's above-average earnings growth rate compared to it's telecommunications peer group should be recognized over time. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy and cost effective way to acquire additional shares of the Fund without incurring a sales charge. Should you decide to switch from cash dividends to automatic investment, please notify your broker or contact the Transfer Agent, c/o DST Systems, Inc. P.O. Box 419338, Kansas City, MO 64141-6338 or call (800) 992-0180. We thank you for giving us this opportunity to help you work towards your investment needs. Sincerely, CRM Advisors, LLC See Footnotes on page 12 Pilgrim America Funds 11 Pilgrim America Masters MidCap Value Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Excluding the Class A maximum sales charge of 5.75% and assuming reinvestment of all dividends and distributions. Average annual total returns including the maximum sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1997 and from September 1, 1995 (commencement of operations) to December 31, 1997 were 14.86% and 20.32%, respectively. Performance figures shown pertain only to Class A shares of the Fund. Class B and M shares, which are also offered by the Fund, are subject to different fees and expenses which will affect their performance. All return figures reflect a partial waiver of fees for the periods stated. Without such a waiver, returns would have been lower. (2) The Russell MidCap(tm) Index is a broad based measure of the performance of MidCap stocks. 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. This letter contains statements that may be "forward-looking statements." Actual results could differ materially from those projected in the "forward-looking statements." The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. Pilgrim America Funds 12 Pilgrim America Masters LargeCap Value Fund - -------------------------------------------------------------------------------- Portfolio Manager's Report - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to report the results of operations for Pilgrim America Masters LargeCap Value Fund (the "Fund") for the six months ended December 31, 1997. As you may know, on November 1, 1997, Pilgrim America Investments, Inc. assumed the portfolio management responsibilities of the Fund from Ark Asset Management Company, Inc. For the six months, the Fund earned a total return of 6.02%(1) compared to 10.57% for the Standard & Poor's 500 Index (the "S&P 500")(2), a proxy for the broad U.S. stock market. The Fund earned a total return of 20.15%(1) in the twelve months ending December 31, 1997 versus the S&P 500 return of 33.36%. ECONOMIC ENVIRONMENT AND EQUITY MARKET CONDITIONS This was the third consecutive year in which the stock market produced above-average investment returns. Most of the market's performance occurred between April and October, following an initial three months when first the market soared, then sold off an equal amount. Since August, the S&P 500 and the major equity market indices have traded within a choppy, narrow range. Beneath the surface of the market, quite a lot went on. Over the summer, the high price/earnings ratio ("P/E") growth stocks, of which many derive a large portion of their earnings from outside the U.S., handed off their market leadership to more cyclically-oriented stocks. Incessant strength in U.S. currency foreign exchange rates was the catalyst. But this shift proved to be short-lived. Deteriorating economic conditions in the Asian Pacific Basin prompted another shift, this time toward companies with purely domestic operations focused on the consumer. As it did earlier in the year, the U.S. equity market rebounded after selling off sharply in October, testament to its resilience. Despite the market's unprecedented "hat trick" of 25-35% annual returns over the past three years, we believe the market can advance again in 1998. Returns are likely to be good by long-term historical standards, though perhaps less spectacular than those experienced over 1995-1997. We don't expect the market P/E to expand as much, leaving it to earnings growth alone to propel stocks. Good, albeit slower domestic economic growth, a low interest rate environment and constructive monetary policy should provide a favorable setting. Pilgrim America Funds 13 Pilgrim America Masters LargeCap Value Fund Your fund generated solid returns for the past six and twelve months even though it trailed those of the S&P 500. Overall, performance was very consistent with the value-style of investing in which the Fund seeks to minimize loss during market declines and participate meaningfully in strong advances. A large measure of the variance between returns of the Fund and that of the S&P 500 related to the influence high P/E growth factors had on the overall market. For example, the Goldman Sachs brokerage firm has determined that the S&P 500 Index increased 2.4% in the last four months of 1997, but the average S&P 500 stock actually fell 0.2%, thus underperforming the Index by 2.6%! Moreover, they note that only 25 stocks supplied almost one-half of S&P 500's 1997 return. This suggests that the remaining 475 stocks would have underperformed the Index by more than 6%. During 1997, the underweight in Consumer Staple and Healthcare issues, typically high P/E growth as opposed to value stocks, was a decided factor in constraining the Fund's performance. These sectors, particularly Healthcare's pharmaceutical stocks, principally drove the market in late 1997. Prior Fund management had placed more emphasis on hospital and HMO companies, Healthcare stocks that did not advance as much. Additionally, one hospital management company, Columbia/HCA, suffered a sharp decline in early October which affected Fund performance. Throughout the past six and twelve months, the Fund had significant representation in Financials and Energy, two sectors that performed very well throughout these periods. Since assuming management at the beginning of November, we have been gradually restructuring the Fund. Continuing to adhere to the value discipline, we have been taking advantage of market opportunities to selectively reduce the number of securities in the portfolio while updating it. The portfolio currently has 64 holdings, down from 83; we hope to hold an optimum 30 to 40 positions. During November, we sold May Department Stores and added the proceeds to existing positions in Dillards Department Stores, Federated Department Stores and Sears Roebuck and Co. Texas Utilities and the Southern Company were sold to consolidate the Electric Utilities sector. In December, we initiated positions in Carnival Cruise Lines and Harley Davidson. Here in early 1998, we continue to favor the Financial sector, with a preference for Banking issues and some insurance companies. We have mixed sentiments toward the Energy sector; many stocks have overcorrected in step with the sharp decline in crude oil and natural gas prices and are selling at very attractive prices. However, the earnings picture is less ebullient for many of the major integrated oil companies, Pilgrim America Funds 14 Pilgrim America Masters LargeCap Value Fund leading us to prefer the oil service companies. Finally, with the domestic economy set to grow at a rate that is one-half percent slower this year, we have less enthusiasm for cyclical companies. Our strategy is to position the Fund toward undervalued companies with strong underlying cash flows and solid earnings prospects. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy and cost effective way to acquire additional shares of the Fund without incurring a sales charge. Should you decide to switch from cash dividends to automatic investment, please notify your broker or contact the Transfer Agent, c/o DST Systems, Inc. P.O. Box 419338, Kansas City, MO 64141-6338 or call (800) 992-0180. We thank you for giving us the opportunity to help you work towards your investment needs. Sincerely, /s/ G. David Underwood G. David Underwood, CFA Vice President and Senior Portfolio Manager Pilgrim America Masters LargeCap Value Fund See Footnotes on page 16 Pilgrim America Funds 15 Pilgrim America Masters LargeCap Value Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Excluding the Class A maximum sales charge of 5.75% and assuming reinvestment of all dividends and distributions. Average annual total returns including the maximum sales charge and assuming reinvestment of all dividends and distributions for the year ended December 31, 1997 and from September 1, 1995 (commencement of operations) to December 31, 1997 were 13.23% and 17.98%, respectively. Performance figures shown pertain only to Class A shares of the Fund. Class B and M shares, which are also offered by the Fund, are subject to different fees and expenses which will affect their performance. All return figures reflect a partial waiver of fees for the period stated. Without such a waiver, returns would have been lower. (2) The S&P is an unmanaged index of 500 common stocks and is a generally accepted measure of stock market performance. 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. This letter contains statements that may be "forward-looking statements". Actual results could differ materially from those projected in the "forward-looking statements." The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. Pilgrim America Funds 16 Pilgrim America Masters Series - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Asia-Pacific MidCap LargeCap Equity Value Value Fund Fund Fund ---------------- -------------- -------------- ASSETS: Investments in securities at market value (Cost $38,196,428, $54,952,079 and $24,416,335, respectively) $ 30,288,545 $63,899,019 $26,813,940 Short-term securities at amortized cost 3,509,567 3,194,428 1,219,781 Foreign currency (Cost $242,434) 240,728 -- -- Cash 10,875 14,521 13,438 Receivables: Fund shares sold 180,886 229,837 29,174 Dividends and interest 218,753 85,890 42,838 Due from affiliate 167,041 321 60,924 Investment securities sold 3,322,570 1,632,258 957,206 Other receivables 184,274 -- -- Prepaid expenses 30,791 25,932 17,428 Deferred organization expenses 69,427 69,427 69,427 ------------- ----------- ----------- Total Assets 38,223,457 69,151,633 29,224,156 ------------- ----------- ----------- LIABILITIES: Investment securities purchased 1,475,886 1,230,195 915,121 Payable for fund shares redeemed 812,519 203,488 65,473 Payable to affiliate 3,330 2,140 2,339 Other accrued expenses and liabilities 159,528 30,176 30,223 ------------- ----------- ----------- Total Liabilities 2,451,263 1,465,999 1,013,156 ------------- ----------- ----------- NET ASSETS $ 35,772,194 $67,685,634 $28,211,000 ============= =========== =========== Net Assets consist of: Paid-in capital 63,577,430 58,200,249 $25,843,676 Overdistributed net investment income (125,635) (350,485) (41,221) Accumulated net realized gains (losses) on investments and foreign currency transactions (19,770,437) 888,930 10,940 Net unrealized appreciation (depreciation) of investments and other assets, liabilities and forward contracts denominated in foreign currencies (7,909,164) 8,946,940 2,397,605 ------------- ----------- ----------- Net Assets $ 35,772,194 $67,685,634 $28,211,000 ============= =========== =========== Class A: Net assets $ 16,374,560 $22,167,494 $ 8,579,913 Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 24,000,000 28,000,000 28,000,000 Shares outstanding 2,686,640 1,426,465 648,226 Net asset value and redemption price per share $ 6.09 $ 15.54 $ 13.24 Maximum offering price per share(1) $ 6.46 $ 16.49 $ 14.05 Class B: Net assets $ 13,847,073 $33,954,123 $14,382,686 Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 24,000,000 28,000,000 28,000,000 Shares outstanding 2,304,734 2,217,398 1,103,611 Net asset value, redemption and offering price per share(2) $ 6.01 $ 15.31 $ 13.03 Class M: Net assets $ 5,550,561 $11,564,017 $ 5,248,401 Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 12,000,000 14,000,000 14,000,000 Shares outstanding 918,761 753,777 399,905 Net asset value and redemption price per share $ 6.04 $ 15.34 $ 13.12 Maximum offering price per share(3) $ 6.26 $ 15.90 $ 13.60
- ------------ (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 17 Pilgrim America Masters Series - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS For the Six Months Ended December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Asia-Pacific MidCap LargeCap Equity Value Value Fund Fund Fund ---------------- ------------- -------------- INVESTMENT INCOME: Interest $ 79,653 $ 108,656 $ 32,832 Dividends (net of foreign withholding taxes of $42,232, $3,669 and $0, respectively) 497,303 319,035 243,236 ------------ ---------- ---------- Total investment income 576,956 427,691 276,068 ------------ ---------- ---------- EXPENSES: Investment management fees 351,129 304,844 144,647 Distribution expenses Class A Shares 31,775 25,966 11,342 Class B Shares 112,737 150,075 73,301 Class M Shares 30,800 38,180 19,483 Transfer agent and registrar fees 113,391 61,253 57,213 Custodian fees 85,889 10,976 18,825 Miscellaneous expenses 26,727 1,765 2,320 Reports to shareholders 21,529 10,937 5,123 Registration and filing fees 21,271 20,290 16,271 Professional fees 18,307 24,560 17,660 Organization expense 13,116 13,116 13,116 Recordkeeping and pricing fees 7,573 7,245 3,522 Shareholder Servicing fee 5,850 4,980 3,968 Directors' fees 5,000 3,470 2,500 Insurance expense 3,321 1,835 1,101 ------------ ---------- ---------- Total expenses 848,415 679,492 390,392 ------------ ---------- ---------- Less: Waived and reimbursed fees (193,766) (20,972) (68,901) Earnings credits (2,001) (1,140) (447) ------------ ---------- ---------- Net expenses 652,648 657,380 321,044 ------------ ---------- ---------- Net investment loss (75,692) (229,689) (44,976) ------------ ---------- ---------- REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gains (losses) from: Investments (17,392,818) 1,942,679 1,974,060 Foreign currency transactions (205,172) - - Net change in unrealized appreciation (depreciation) of: Investments (13,558,653) 3,399,283 (382,293) Other assets, liabilities and forward contracts denominated in foreign currencies 8,874 - - ------------- ---------- ---------- Net gain (loss) from investments (31,147,769) 5,341,962 1,591,767 ------------- ---------- ---------- Net increase (decrease) in net assets resulting from operations $(31,223,461) $5,112,273 $1,546,791 ============= ========== ==========
See Accompanying Notes to Financial Statements 18 Pilgrim America Masters Series - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS For the Six Months Ended December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Asia-Pacific Equity Fund MidCap Value Fund LargeCap Value Fund --------------------------------- ------------------------------- ------------------------------ Six Months Six Months Six Months Ended Year Ended Year Ended Year December 31, Ended December 31, Ended December 31, Ended 1997 June 30, 1997 June 30, 1997 June 30, (Unaudited) 1997 (Unaudited) 1997 (Unaudited) 1997 ---------------- ---------------- --------------- --------------- --------------- -------------- Increase (decrease) in net assets from operations: Net investment loss $ (75,692) $ (245,742) $ (229,689) $ (141,391) $ (44,976) $ (6,512) Net realized gain (loss) from investments (17,392,818) (2,050,338) 1,942,679 1,180,396 1,974,060 1,682,366 Net realized loss from foreign currency transaction (205,172) (62,302) - - - - Net change in unrealized appreciation (depreciation) of investments (13,558,653) 5,856,620 3,399,283 5,149,275 (382,293) 2,599,255 Net change in unrealized appreciation (depreciation) of other investments denominated in foreign currency 8,874 (12,204) - - - - ------------- ------------- ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations (31,223,461) 3,486,034 5,112,273 6,188,280 1,546,791 4,275,109 ------------- ------------- ------------ ------------ ------------ ------------ Distributions to shareholders: Net investment income: Class A shares - - - - - - Class B shares - - - - - - Class M shares - - - - - - Excess of net investment income: Class A shares - - - (16,602) - (21,236) Class B shares - - - (9,771) - (2,711) Class M shares - - - (11,821) - (1,802) Net realized gains: Class A shares - - (678,714) (87,623) (1,033,331) (118,836) Class B shares - - (1,046,073) (100,153) (1,758,269) (169,692) Class M shares - - (353,906) (40,101) (635,335) (60,108) Excess of net realized gains: Class A shares - - - - - - Class B shares - - - - - - Class M shares - - - - - - Tax return of capital Class A shares - (30,685) - - - - Class B shares - - - - - - Class M shares - (1,611) - - - - ------------- ------------- ------------ ------------ ------------ ------------ Total distributions - (32,296) (2,078,693) (266,071) (3,426,935) (374,385) ============= ============= ============ ============ ============ ============ Capital share transactions: Net proceeds from sale of shares 23,696,815 85,779,972 21,591,950 43,491,828 3,349,820 20,775,389 Shares resulting from dividend reinvestments - 30,383 1,780,691 229,750 3,052,934 321,069 Cost of shares redeemed (30,510,411) (58,091,003) (7,341,598) (7,265,617) (3,602,609) (2,900,008) ------------- ------------- ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions (6,813,596) 27,719,352 16,031,043 36,455,961 2,800,145 18,196,450 ------------- ------------- ------------ ------------ ------------ ------------ Net increase (decrease) in net assets (38,037,057) 31,173,090 19,064,623 42,378,170 920,001 22,097,174 ------------- ------------- ------------ ------------ ------------ ------------ Net assets, beginning of period 73,809,251 42,636,161 48,621,011 6,242,841 27,290,999 5,193,825 ------------- ------------- ------------ ------------ ------------ ------------ Net assets, end of period** $ 35,772,194 $ 73,809,251 $ 67,685,634 $ 48,621,011 $ 28,211,000 $ 27,290,999 ============= ============= ============ ============ ============ ============ ** Including undistributed (overdistributed) net invest- ment income (loss) of: $ (125,635) $ (49,943) $ (350,485) $ (120,796) $ (41,221) $ 3,755 ============= ============= ============ ============ ============ ============
See Accompanying Notes to Financial Statements 19 Pilgrim America Masters Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
Class A Class B ------------------------------------------------ --------------------------------------------------- Six Months Ten Six Months Ten Ended Year Months Ended Year Months December 31, Ended Ended December 31, Ended Ended 1997 June 30, June 30, 1997 June 30, June 30, (Unaudited) 1997 1996(a) (Unaudited) 1997 1996(a) ------------------- ----------- ---------------- ------------------- ------------ ------------------ Per Share Operating Performance Net asset value, beginning of period $ 10.93 $ 10.35 $ 10.00 $ 10.83 $ 10.31 $ 10.00 Income from investment operations: Net investment income (loss) ( 0.01) 0.02 0.03 ( 0.05) ( 0.07) ( 0.01) Net realized and unrealized gain (loss) on investments and foreign currency transactions ( 4.83) 0.58 0.34 ( 4.77) 0.59 0.32 ----------- -------- --------- ------------ -------- ---------- Total from investment operations ( 4.84) 0.60 0.37 ( 4.82) 0.52 0.31 ----------- -------- --------- ------------ -------- ---------- Less distributions: Net investment income -- -- -- -- -- -- In excess of net investment income -- -- 0.02 -- -- -- Realized gains on investments -- -- -- -- -- -- Tax return of capital -- 0.02 -- -- -- -- ----------- --------- --------- ------------ -------- ---------- Total distributions -- 0.02 0.02 -- -- -- ----------- --------- --------- ------------ -------- ---------- Net asset value, end of period $ 6.09 $ 10.93 $ 10.35 $ 6.01 $ 10.83 $ 10.31 =========== ========= ========= ============ ======== ========== Total Return(b) (44.56)% 5.78% 3.76% (44.78)% 5.04% 3.19% Ratios/Supplemental Data Net assets, end of period (000's) $ 16,375 $ 32,485 $ 18,371 $ 13,847 $ 30,169 $ 17,789 Ratios to average net assets: Expenses(c)(d)(e) 2.00 %(f) 2.00% 2.00%(f) 2.75%(f) 2.75% 2.75%(f) Net investment income (loss) (c)(d)(e) ( 0.10)%(f) 0.00% 0.33%(f) (0.65)%(f) ( 0.79)% ( 0.38)%(f) Portfolio turnover rate 42 % 38% 15% 42 % 38 % 15% Average commission rate paid $ 0.0101 $ 0.0096 -- $ 0.0101 $ 0.0096 -- Class M ------------------------------------------------------ Six Months Ten Ended Year Months December 31, Ended Ended 1997 June 30, June 30, (Unaudited) 1997 1996(a) ------------------------------------------------------ Per Share Operating Performance Net asset value, beginning of period $ 10.86 $ 10.32 $ 10.00 Income from investment operations: Net investment income (loss) ( 0.02) ( 0.05) -- Net realized and unrealized gain (loss) on investments and foreign currency transactions ( 4.80) 0.59 0.33 ----------- -------- ------- Total from investment operations ( 4.82) 0.54 0.33 ----------- -------- ------- Less distributions: Net investment income -- -- -- In excess of net investment income -- -- 0.01 Realized gains on investments -- -- -- Tax return of capital -- -- -- ----------- -------- ------- Total distributions -- -- 0.01 ----------- -------- ------- Net asset value, end of period $ 6.04 $ 10.86 $ 10.32 =========== ======== ======= Total Return(b) (44.66)% 5.26% 3.32% Ratios/Supplemental Data Net assets, end of period (000's) $ 5,551 $ 11,155 $ 6,476 Ratios to average net assets: Expenses(c)(d)(e) 2.50%(f) 2.50% 2.50%(f) Net investment income (loss) (c)(d)(e) ( 0.38)%(f) (0.55)% ( 0.16)%(f) Portfolio turnover rate 42 % 38% 15% Average commission rate paid $ 0.0101 $ 0.0096 --
- ----------- (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 December 31, 1997, the annualized ratios of expenses to average net assets were 2.66%, 3.41% and 3.16% and the annualized ratios of net investment income (loss) to average net assets were (0.59)%, (1.34)% and (1.07)% for Class A, B an M shares, respectively. (d) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1997, the ratios of expenses to average net assets were 2.54%, 3.29% and 3.04% and the ratios of net investment income (loss) to average net assets were (0.53)%, (1.33)% and (1.09)% for Class A, B and M shares, respectively. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 3.47%, 4.10% and 3.88% and the annualized ratios of net investment income (loss) to average net assets were (1.14)%, (1.73)% and (1.53)% for Class A, B and M shares, respectively. (f) Annualized. See Accompanying Notes to Financial Statements 20 Pilgrim America Masters MidCap Value Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
Class A Class B ------------------------------------------------- ------------------------------------------------- Six Months Ten Six Months Ten Ended Year Months Ended Year Months December 31, Ended Ended December 31, Ended Ended 1997 June 30, June 30, 1997 June 30, June 30, (Unaudited) 1997 1996(a) (Unaudited) 1997 1996(a) ------------------ ------------- ---------------- ------------------ ------------- ---------------- Per Share Operating Performance Net asset value, beginning of period $ 14.64 $ 11.99 $ 10.00 $ 14.49 $ 11.94 $ 10.00 Income from investment operations: Net investment income (loss) ( 0.02) ( 0.02) 0.13 ( 0.06) ( 0.05) 0.07 Net realized and unrealized gain on investments 1.41 2.85 1.91 1.37 2.76 1.90 ---------- -------- --------- ---------- -------- --------- Total from investment operations 1.39 2.83 2.04 1.31 2.71 1.97 ---------- -------- --------- ---------- -------- --------- Less distributions: Net investment income -- -- 0.05 -- -- 0.03 In excess of net investment income -- 0.07 -- -- 0.05 -- Realized gains on investments 0.49 0.11 -- 0.49 0.11 -- ---------- -------- --------- ---------- -------- --------- Total distributions 0.49 0.18 0.05 0.49 0.16 0.03 ---------- -------- --------- ---------- -------- --------- Net asset value, end of period $ 15.54 $ 14.64 $ 11.99 $ 15.31 $ 14.49 $ 11.94 ========== ======== ========= ========== ======== ========= Total Return (b) 9.58% 23.89% 20.48% 9.13% 22.95% 19.80% Ratios/Supplemental Data Net assets, end of period (000's) $ 22,167 $ 16,985 $ 2,389 $ 33,954 $ 23,258 $ 2,123 Ratios to average net assets: Expenses(c)(d)(e) 1.75%(f) 1.75% 1.75%(f) 2.50%(f) 2.50% 2.50%(f) Net investment income (loss)(c)(d)(e) ( 0.31)%(f) ( 0.13)% 2.00%(f) ( 1.04)%(f) ( 0.90)% 1.27%(f) Portfolio turnover rate 31% 86% 60% 31% 86% 60% Average commission rate paid $ 0.0383 $ 0.0592 -- $ 0.0383 $ 0.0592 -- Class M ---------------------------------------------------- Six Months Ten Ended Year Months December 31, Ended Ended 1997 June 30, June 30, (Unaudited) 1997 1996(a) ------------------ --------------------------------- Per Share Operating Performance Net asset value, beginning of period $ 14.49 $ 11.93 $ 10.00 Income from investment operations: Net investment income (loss) ( 0.03) ( 0.03) 0.06 Net realized and unrealized gain on investments 1.37 2.76 1.91 ---------- -------- ---------- Total from investment operations 1.34 2.73 1.97 ---------- -------- ---------- Less distributions: Net investment income -- -- 0.04 In excess of net investment income -- 0.06 -- Realized gains on investments 0.49 0.11 -- ---------- -------- ---------- Total distributions 0.49 0.17 0.04 ---------- -------- ---------- Net asset value, end of period $ 15.34 $ 14.49 $ 11.93 ========== ======== ========== Total Return (b) 9.34% 23.21% 19.82% Ratios/Supplemental Data Net assets, end of period (000's) $ 11,564 $ 8,378 $ 1,731 Ratios to average net assets: Expenses(c)(d)(e) 2.25%(f) 2.25% 2.25%(f) Net investment income (loss)(c)(d)(e) ( 0.80)%(f) ( 0.63) ( 1.16)%(f) Portfolio turnover rate 31% 86% 60% Average commission rate paid $ 0.0383 $ 0.0592 --
- ----------- (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 December 31, 1997, the annualized ratios of expenses to average net assets were 1.77%, 2.52% and 2.27% and the annualized ratios of net investment income (loss) to average net assets were (0.38)%, (1.11)% and (0.87)% for Class A, B and M shares, respectively. (d) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1997, the ratios of expenses to average net assets were 1.94%, 2.69% and 2.44% and the ratios of net investment income (loss) to average net assets were (0.32)%, (1.11)% and (0.81)% for Class A, B and M shares, respectively. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 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. (f) Annualized. See Accompanying Notes to Financial Statements 21 Pilgrim America Masters LargeCap Value Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - -------------------------------------------------------------------------------- Class A ---------------------------------------------- Six Months Ten Ended Year Months December 31, Ended Ended 1997 June 30, June 30, (Unaudited) 1997 1996(a) ---------------- ------------ ---------------- Per Share Operating Performance Net asset value, beginning of period $ 14.17 $ 11.77 $ 10.00 Income from investment operations: Net investment income (loss) 0.01 0.06 0.07 Net realized and unrealized gain on investments 0.84 2.63 1.87 --------- --------- --------- Total from investment operations 0.85 2.69 1.94 --------- --------- --------- Less distributions: Net investment income -- -- 0.07 In excess of net investment income -- 0.05 0.01 Realized gains on investments 1.78 0.24 0.09 --------- --------- --------- Total distributions 1.78 0.29 0.17 --------- --------- --------- Net asset value, end of period $ 13.24 $ 14.17 $ 11.77 ========= ========= ========= Total Return(b) 6.02% 23.24% 19.56% Ratios/Supplemental Data Net assets, end of period (000's) $ 8,580 $ 8,961 $ 2,530 Ratios to average net assets: Expenses(c)(d)(e) 1.75%(f) 1.75% 1.75%(f) Net investment income (loss)(c)(d)(e) 0.16%(f) 0.41% 0.65%(f) Portfolio turnover rate 54% 86% 59% Average commission rate paid $ 0.0547 $ 0.0586 -- Class B ------------------------------------------------- Six Months Ten Ended Year Months December 31, Ended Ended 1997 June 30, June 30, (Unaudited) 1997 1996(a) ---------------- ------------- ------------------ Per Share Operating Performance Net asset value, beginning of period $ 14.04 $ 11.71 $ 10.00 Income from investment operations: Net investment income (loss) ( 0.04) ( 0.02) 0.06 Net realized and unrealized gain on investments 0.81 2.59 1.81 ---------- -------- ---------- Total from investment operations 0.77 2.57 1.87 ---------- -------- ---------- Less distributions: Net investment income -- -- 0.06 In excess of net investment income -- -- 0.01 Realized gains on investments 1.78 0.24 0.09 ---------- -------- ---------- Total distributions 1.78 0.24 0.16 ---------- -------- ---------- Net asset value, end of period $ 13.03 $ 14.04 $ 11.71 ========== ======== ========== Total Return(b) 5.50% 22.23% 18.85% Ratios/Supplemental Data Net assets, end of period (000's) $ 14,383 $ 13,611 $ 1,424 Ratios to average net assets: Expenses(c)(d)(e) 2.50%(f) 2.50% 2.50%(f) Net investment income (loss)(c)(d)(e) ( 0.59)%(f) ( 0.35)% ( 0.25)%(f) Portfolio turnover rate 54% 86% 59% Average commission rate paid $ 0.0547 $ 0.0586 -- Class M ------------------------------------------------- Six Months Ten Ended Year Months December 31, Ended Ended 1997 June 30, June 30, (Unaudited) 1997 1996(a) ------------------ ------------ --------------- Per Share Operating Performance Net asset value, beginning of period $ 14.10 $ 11.73 $ 10.00 Income from investment operations: Net investment income (loss) ( 0.02) -- 0.06 Net realized and unrealized gain on investments 0.82 2.62 1.83 ---------- -------- --------- Total from investment operations 0.80 2.62 1.89 ---------- -------- --------- Less distributions: Net investment income -- -- 0.06 In excess of net investment income -- 0.01 0.01 Realized gains on investments 1.78 0.24 0.09 ---------- -------- --------- Total distributions 1.78 0.25 0.16 ---------- -------- --------- Net asset value, end of period $ 13.12 $ 14.10 $ 11.73 ========== ======== ========= Total Return(b) 5.68% 22.58% 19.06% Ratios/Supplemental Data Net assets, end of period (000's) $ 5,248 $ 4,719 $ 1,240 Ratios to average net assets: Expenses(c)(d)(e) 2.25%(f) 2.25% 2.25%(f) Net investment income (loss)(c)(d)(e) ( 0.34)%(f) ( 0.10)% 0.06%(f) Portfolio turnover rate 54% 86% 59% Average commission rate paid $ 0.0547 $ 0.0586 -- - ----------- (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 December 31, 1997, the annualized ratios of expenses to average net assets were 2.22%, 2.97% and 2.72% and the annualized ratios of net investment income (loss) to average net assets were (0.32)%, (1.07)% and (0.82)% for Class A, B and M shares, respectively. (d) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1997, the ratios of expenses to average net assets were 2.33%, 3.08% and 2.83% and the ratios of net investment income (loss) to average net assets were (0.18)%, (0.91)% and (0.68)% for Class A, B and M shares, respectively. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 5.44%, 5.79% and 5.90% and the annualized ratios of net investment income (loss) to average net assets were (3.04)%, (3.53)% and (3.59)% for Class A, B and M shares, respectively. (f) Annualized. See Accompanying Notes to Financial Statements 22 Pilgrim America Masters Series - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES Organization. Pilgrim America Masters Series, Inc. ("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 pro rata reinvested dividend shares, automatically convert to Class A shares approximately eight years after purchase. The following significant accounting policies are consistently followed by the Funds in the preparation of their financial statements, and such policies are in conformity with generally accepted accounting principles for investment companies. A. Security Valuation. 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. 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 23 Pilgrim America Masters Series - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- 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 of 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. Capital loss carryforwards were as follows at June 30, 1997: Amounts Expiration Dates ----------- ----------------- Asia - Pacific Equity Fund $651,710 2004 MidCap Value Fund -- N/A LargeCap Value Fund -- N/A The Board of Directors intends to offset net capital gains with each capital loss carryforward until each carryforward has been fully utilized or expires. In addition, no capital gain distribution shall be made until the capital loss carryforward has been fully utilized or expires. G. Use of Estimates. Management of the Funds has made certain estimates and assumptions relating to the reporting of assets 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 24 Pilgrim America Masters Series - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- excess of the purchase price and reflects an agreed upon interest rate for the period of time the agreement is outstanding. The period of the repurchase agreements is usually short, from overnight to one week, while the underlying securities generally have longer maturities. Each Fund will always receive as collateral securities acceptable to it whose market value is equal to at least 100% of the amount 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. NOTE 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. ("PAG"). 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. Effective November 1, 1997 the Manager provides investment advisory services for LargeCap Value Fund. The Manager has carefully selected Portfolio Managers for the other 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. As compensation for their services to the Funds, the Manager (and not the Fund) pays HSBC and CRM fees at annual rates of 0.50% of the average daily net assets of Asia-Pacific Equity Fund and MidCap Value Fund . 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. Each of the Funds has entered into a Service Agreement with PAG whereby PAG will act as the shareholder service agent for each Fund. The agreement provides that PAG will be compensated for incoming and outgoing shareholder telephone calls and letters and all reasonable out-of-pocket expenses incurred in connection with the performance of such services. At December 31, 1997, Asia-Pacific Equity Fund, MidCap Value Fund, and LargeCap Value Fund owed PAG $3,330, $2,140, and $2,339, respectively in service fees. 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 25 Pilgrim America Masters Series - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value Fund, respectively. This expense limitation will apply to each Fund individually until June 30, 1998. At December 31, 1997, Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value Fund accrued $167,041, $321, and $60,924, respectively as a reimbursement due from the manager. NOTE 3 -- INVESTMENT TRANSACTIONS For the six months ended December 31, 1997, the cost of purchases and proceeds from the sales of securities, excluding short-term securities, were as follows: Asia-Pacific MidCap LargeCap Equity Fund Value Fund Value Fund -------------- --------------- --------------- Purchases $ 21,580,368 $ 27,869,095 $ 14,695,644 Sales 30,039,915 17,203,846 15,811,436 NOTE 4 -- CAPITAL SHARES Transactions in capital shares and dollars were as follows:
Class A Shares --------------------------------- Six Months Year Ended Ended December 31, June 30, 1997 1997 ---------------- ---------------- Asia-Pacific Equity Fund (Number of Shares) Shares sold 2,338,771 6,022,829 Shares issued as reinvestment of dividends -- 2,937 Shares redeemed (2,624,227) (4,828,816) ---------- ---------- Net increase (decrease) in shares outstanding (285,456) 1,196,950 ========== ========== Asia-Pacific Equity Fund ($) Shares sold $ 17,218,087 $ 63,317,753 Shares issued as reinvestment of dividends -- 28,842 Shares redeemed (19,283,469) (50,678,714) ------------- -------------- Net increase (decrease) in shares outstanding $ (2,065,382) $ 12,667,881 ============= ============== MidCap Value Fund (Number of Shares) Shares sold 472,802 1,232,243 Shares issued as reinvestment of dividends 36,204 6,530 Shares redeemed (242,588) (277,940) ------------- -------------- Net increase in shares outstanding 266,418 960,833 ============= ============== MidCap Value Fund ($) Shares sold $ 7,263,045 $ 16,074,019 Shares issued as reinvestment of dividends 546,322 82,971 Shares redeemed (3,719,232) (3,689,711) ------------- -------------- Net increase in shares outstanding $ 4,090,135 $ 12,467,279 ============= ============== Class B Shares Class M Shares -------------------------------- -------------------------------- Six Months Year Six Months Year Ended Ended Ended Ended December 31, June 30, December 31, June 30, 1997 1997 1997 1997 ---------------- --------------- ---------------- --------------- Asia-Pacific Equity Fund (Number of Shares) Shares sold 540,135 1,612,143 340,587 566,273 Shares issued as reinvestment of dividends -- -- -- 157 Shares redeemed (1,021,362) (551,927) (448,575) (167,256) ---------- --------- -------- -------- Net increase (decrease) in shares outstanding (481,227) 1,060,216 (107,988) 399,174 ========== ========= ======== ======== Asia-Pacific Equity Fund ($) Shares sold $ 4,251,186 $ 16,573,290 $ 2,227,542 $ 5,888,929 Shares issued as reinvestment of dividends -- -- -- 1,541 Shares redeemed (7,912,383) (5,661,337) (3,314,559) (1,750,952) ------------ ------------ ------------ ------------- Net increase (decrease) in shares outstanding $ (3,661,197) $ 10,911,953 $ (1,087,017) $ 4,139,518 ============ ============ ============ ============= MidCap Value Fund (Number of Shares) Shares sold 770,526 1,639,838 199,282 472,644 Shares issued as reinvestment of dividends 60,173 7,579 22,792 3,974 Shares redeemed (218,802) (219,806) (46,359) (43,618) ------------ ------------ ------------ ------------- Net increase in shares outstanding 611,897 1,427,611 175,715 433,000 ============ ============ ============ ============= MidCap Value Fund ($) Shares sold $ 11,311,744 $ 21,333,357 $ 3,017,161 $ 6,084,452 Shares issued as reinvestment of dividends 894,765 96,914 339,604 49,865 Shares redeemed (2,935,347) (2,999,461) (687,019) (576,445) ------------ ------------ ------------ ------------- Net increase in shares outstanding $ 9,271,162 $ 18,430,810 $ 2,669,746 $ 5,557,872 ============ ============ ============ =============
26 Pilgrim America Masters Series - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Class A Shares Class B Shares Class M Shares ------------------------------ ------------------------------ ----------------------------- Six Months Year Six Months Year Six Months Year Ended Ended Ended Ended Ended Ended December 31, June 30, December 31, June 30, December 31, June 30, 1997 1997 1997 1997 1997 1997 -------------- --------------- -------------- --------------- -------------- -------------- LargeCap Value Fund (Number of Shares) Shares Sold 57,376 538,935 119,441 896,451 55,556 258,463 Shares issued as reinvestment of dividends 70,785 10,222 115,113 10,999 46,814 4,609 Shares redeemed (112,277) (131,788) (100,303) (59,761) (37,029) (34,204) -------- -------- -------- ------- ------- ------- Net increase in shares outstanding 15,884 417,369 134,251 847,689 65,341 228,868 ======== ======== ======== ======= ======= ======= LargeCap Value Fund ($) Shares sold $ 853,107 $ 6,622,780 $ 1,712,415 $10,967,866 $ 784,298 $3,184,743 Shares issued as reinvestment of dividends 937,200 126,842 1,501,068 136,496 614,666 57,731 Shares redeemed (1,661,091) (1,694,967) (1,435,036) (768,404) (506,482) (436,637) ------------ ------------ ------------ ----------- ---------- ---------- Net increase in shares outstanding $ 129,216 $ 5,054,655 $ 1,778,447 $10,335,958 $ 892,482 $2,805,837 ============ ============ ============ =========== ========== ==========
NOTE 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, 1997, Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value Fund received earnings credits of $2,001, $1,140 and $447, respectively. 27 Pilgrim America Masters Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS As of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS: 80.4% Market Shares Industry/Issuer Value - --------------------- --------------------------------- ------------ CHINA: 1.0% Automotive: 0.8% 594,000 Qingling Motor Co. $ 291,353 --------- Diversified Holdings: 0.2% 268,000 Zhejiang Expressway CL H 54,311 --------- Total China Common Stocks 345,664 --------- HONG KONG: 46.4% Commercial & Industrial: 9.8% 251,000 Citic Pacific, Ltd. 997,870 270,000 Hutchison Whampoa, Ltd. 1,693,751 150,000 Swire Pacific, Ltd. 822,867 --------- 3,514,488 --------- Communication: 2.8% 588,000 China Telecom 1,009,436 --------- Construction: 1.6% 200,000 Cheung Kong Infrastructure 565,358 --------- Financial: 2.6% 96 Bank of East Asia 225 255,000 Dao Heng Bank Group, Ltd. 636,899 98,000 Wing Hang Bank, Ltd. 277,026 --------- 914,150 --------- Manufacturing: 1.0% 100,000 (a) Shanghai Industrial Holding 371,742 --------- Properties: 15.4% 250,000 Cheung Kong Holdings, Ltd. 1,637,667 200,000 China Resources Enterprises 446,607 101,000 Hysan Development Co., Ltd. 201,418 251,000 New World Development Co., Ltd. 868,277 225,000 Sun Hung Kai Properties, Ltd. 1,568,288 251,000 Wharf Holdings, Ltd. 550,773 293,000 Henderson Investment, Ltd. 230,700 --------- 5,503,730 --------- See Accompanying Notes to Financial Statements 28 Pilgrim America Masters Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Market Shares Industry/Issuer Value - --------------------- --------------------------------------------- ------------- Utilities: 13.2% 948,000 Beijing Data Power $ 434,397 229,500 China Light & Power Co., Ltd. 1,273,798 343,000 Hong Kong Electric Holdings, Ltd. 1,303,855 830,000 Hong Kong Telecommunications, Ltd. 1,708,789 ---------- 4,720,839 ---------- Total Hong Kong Common Stocks 16,599,743 ---------- INDONESIA: 0.3% Manufacturing / Electronic: 0.3% 380,400 PT Indofood Sukses Makmur 124,495 ---------- Total Indonesia Common Stocks 124,495 ---------- PHILIPPINES: 3.8% Communications: 1.6% 25,000 Philippine Long Distance Telephone Co., ADR 562,500 ---------- Miscellaneous: 0.5% 60,200 (a) Benpres Holdings GDR 180,600 ---------- Real Estate & Financial Services: 1.1% 2,602,000 SM Prime Holdings, Inc. 385,481 ---------- Utilities: 0.6% 65,000 Manila Electric Co. -- Class B 215,062 ---------- Total Philippines Common Stocks 1,343,643 ---------- SINGAPORE: 18.1% Aerospace: 1.4% 656,477 Singapore Technologies Engineering, Ltd. 495,528 ---------- Commercial & Industrial: 1.4% 144,250 Keppel Corp. 414,959 65,000 Keppel Land Ltd. 89,629 ---------- 504,588 ----------
See Accompanying Notes to Financial Statements 29 Pilgrim America Masters Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Industry/Issuer Value - --------------------- -------------------------------------- ------------ Computer Systems/Software: 0.8% 9,000 Creative Technology Ltd. $ 182,942 22,600 Elec & Eltek International Co., Ltd. 103,508 --------- 286,450 --------- Financial: 6.0% 157,400 Overseas -- Chinese Bank 916,802 150,200 Overseas Union Bank 575,804 119,000 United Overseas Bank 661,308 --------- 2,153,914 --------- Food and Beverage: 0.5% 40,400 Fraser & Neave, Ltd. 175,287 --------- Hotels: 0.7% 156,000 Marco Polo Developments 235,507 --------- Manufacturing: 0.5% 58,000 Venture Manufacturing 162,021 --------- Metals & Minerals: 0.2% 54,000 Natsteel Broadway 80,460 --------- Properties: 1.3% 101,000 (a) City Developments, Ltd. 468,232 --------- Publishing: 0.9% 25,000 Singapore Press Holdings, Ltd. 313,521 --------- Steel: 0.4% 100,000 Natsteel Ltd. 135,513 --------- Transportation: 1.1% 63,000 Singapore Airlines, Ltd. 411,887 --------- Utilities: 2.9% 564,000 Singapore Telecommunications, Ltd. 1,052,576 --------- Total Singapore Common Stocks 6,475,484 --------- See Accompanying Notes to Financial Statements 30 Pilgrim America Masters Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Industry/Issuer Value - --------------------- ---------------------------------------- ------------- TAIWAN: 10.8% Building Products: 0.4% 13,136 (a) Asia Cement Corp. $ 148,765 ---------- Computer Services: 0.4% 8,000 Syntex Technology 148,000 ---------- Computer Systems/Software: 3.3% 47,800 Asustek Computer Inc -- GDR 763,605 22,545 Taiwan Semiconductor 410,037 ---------- 1,173,642 ---------- Electrical Equipment: 0.6% 18,900 (a) Yageo Corp. 207,900 ---------- Electronics -- Defense: 0.7% 36,250 Acer Inc. GDR 277,313 ---------- Food & Beverages: 0.5% 15,000 President Enterprises 180,000 ---------- Investment Company Services: 1.4% 63,000 ROC Taiwan Fund Common 511,875 ---------- Machinery & Equipment: 0.5% 13,693 Teco Electric & Machinery -- GDR 175,750 ---------- Marine: 0.9% 28,470 (a) Evergreen Marine Corp. 315,305 ---------- Steel: 1.7% 40,681 (a) China Steel Corp., GDR 600,045 ---------- Technology: 0.4% 8,316 (a) Lite-On Technology Corp. 143,451 ---------- Total Taiwan Common Stocks 3,882,046 ---------- Total Common Stocks (Cost $36,789,500) 28,771,075 ---------- See Accompanying Notes to Financial Statements 31 Pilgrim America Masters Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- CONVERTIBLE BONDS: 4.3%
Principal Amount - -------------- TAIWAN: 4.3% Industrial: 3.2% $ 260,000 Nan Ya Plastic Corp., 1.75% due July 2001 $ 297,700 550,000 United Microelectronics, 0.25% due May 2004 657,250 109,000 Yageo Corp., 1.25% due July 2003 190,205 ---------- 1,145,155 ---------- Marine: 1.1% 112,000 Far East Department Store, 3.00% due July 2001 103,600 241,000 Yangming Marine, 2.00% due October 2001 268,715 ---------- 372,315 ---------- Total Convertible Bonds (Cost $1,406,928) 1,517,470 ---------- Total Long-Term Investments (Cost $38,196,428) 30,288,545 ---------- SHORT-TERM INVESTMENTS: 9.8% Commercial Paper: 6.7% 1,200,000 General Mills Commercial Paper, 6.55% due 01/02/98 1,199,782 1,200,000 International Leasing Commercial Paper, 6.45% due 01/02/98 1,199,785 ---------- Total Commercial Paper 2,399,567 ---------- Repurchase Agreement: 3.1% 1,100,000 Merrill Lynch Repurchase Agreement, 5.50% due 01/02/98 (Collateralized by $1,055,000 U.S. Treasury Bonds, 8.00% Due 05/15/01) 1,110,000 ---------- Total Repurchase Agreement 1,110,000 ---------- Total Short -- Term Investments (Cost $3,509,567) 3,509,567 ---------- Total Investments (Cost $41,705,995)* 94.5% 33,798,112 Cash and Other Assets in Excess of Liabilities-Net 5.5% 1,974,082 ----- ---------- Total Net Assets 100.0% $35,772,194 ===== ===========
- --------------------- (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 statement purposes. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 1,014,596 Gross Unrealized Depreciation (8,922,479) ----------- Net Unrealized Depreciation ($ 7,907,883) =========== See Accompanying Notes to Financial Statements 32 Pilgrim America Masters MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS As of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS: 94.4%
Market Shares Industry/Issuer Value - --------------------- --------------------------------------------- ------------- Aerospace: 1.8% 30,000 (a) Goodrich, (B.F.) Co. $1,243,125 ---------- Automotive: 1.9% 70,000 (a) Mascotech, Inc. 1,286,250 ---------- Banks: 3.5% 160,000 John Hancock Bank & Thrift Opportunity Fund 2,340,000 ---------- Broadcasting: 1.8% 38,000 Comcast Corp., Class A 1,199,375 ---------- Building Products: 5.2% 70,000 Dal-Tile International Inc. 857,500 60,000 Johns Manville Corp 603,750 40,000 Masco Corp. 2,035,000 ---------- 3,496,250 ---------- Business Services: 3.0% 126,100 Danka Business Systems -- Sponsored ADR 2,009,719 ---------- Capital Goods: 2.7% 62,500 CBS Corp. 1,839,844 ---------- Chemicals: 1.7% 30,000 Mallinckrodt, Inc. 1,140,000 ---------- Communications: 4.3% 93,900 Cincinnati Bell Inc. 2,910,900 ---------- Computer Systems: 2.4% 92,000 Data General Corp. 1,604,250 ---------- Defense: 2.0% 23,000 Litton Industries 1,322,500 ---------- Diversified Holding Company: 2.1% 55,000 Whitman Corp. 1,433,437 ---------- Electrical Equipment: 8.4% 63,000 Raychem Corp. 2,712,938 28,800 Thomas & Betts Corp. 1,360,800 40,000 (a) Ucar International, Inc. 1,597,500 ---------- 5,671,238 ----------
See Accompanying Notes to Financial Statements 33 Pilgrim America Masters MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Industry/Issuer Value - --------------------- --------------------------------- ------------- Financial: 2.3% 42,000 Golden State Bancorp. $1,569,750 ---------- Food Stores: 4.6% 85,000 (a) Meyer (Fred), Inc. 3,091,875 ---------- Healthcare: 2.0% 32,100 (a) Wellpoint Health Network 1,356,225 ---------- Home Products: 0.7% 11,500 Harmon International Industries 488,031 ---------- Housewares: 1.6% 40,000 Tupperware Corp. 1,115,000 ---------- Medical: 1.5% 30,000 (a) Allergan, Inc. 1,006,875 ---------- Medical Equipment: 2.1% 50,000 Depuy Inc. 1,437,500 ---------- Miscellaneous: 1.8% 51,700 Trizec Hahn Corp. 1,198,794 ---------- Office Products & Services: 2.4% 33,700 (a) Choicepoint Inc. 1,609,175 ---------- Oil & Gas: 12.9% 26,000 (a) Amerada Hess Corp. 1,426,750 38,600 (a) Coastal Corp. 2,390,787 213,500 Enserch Exploration 1,934,844 37,000 Mapco, Inc. 1,711,250 26,000 Ocean Energy Inc. 1,282,125 ---------- 8,745,756 ---------- Packaging Products: 4.5% 80,000 Owens-Illinois, Inc. 3,035,000 ---------- Paper and Forest Products: 2.1% 38,000 Fort James Corp. 1,453,500 ---------- Paper Products: 1.8% 117,000 Macmillan Bloedel Ltd. 1,243,125 ---------- See Accompanying Notes to Financial Statements 34 Pilgrim America Masters MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1997 (Unaudited) - --------------------------------------------------------------------------------
Market Shares Industry/Issuer Value - --------------------- ------------------------------------------ ------------- Regional Banks: 1.2% 30,000 UST Corp. $ 832,500 ---------- Retail: 1.6% 20,000 Harcourt General Inc. 1,095,000 ---------- Technology: 7.4% 70,000 Comsat Corp. 1,697,500 119,400 (a) Next Level Systems Inc. 2,134,275 72,000 (a) Unova Inc. 1,183,500 ---------- 5,015,275 ---------- Utilities: 3.1% 70,000 Long Island Lighting Co. 2,108,750 ---------- Total Common Stocks (Cost $54,952,079) 63,899,019 ----------
SHORT-TERM INVESTMENTS: 4.7%
Principal Amount Value - --------------- ------------- Commercial Paper: 4.7% $ 3,195,000 International Lease Commercial Paper, 6.45% due 01/02/98 $ 3,194,428 ----------- Total Short-Term Investments (Cost $3,194,428) 3,194,428 ----------- Total Investments (Cost $58,146,507)* 99.1% 67,093,447 Cash and Other Assts in Excess of Liabilities-Net 0.9% 592,187 ----- ----------- Total Net Assets 100.0% $67,685,634 ===== =========== (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 $11,627,190 Gross Unrealized Depreciation (2,680,250) ------------ Net Unrealized Appreciation $ 8,946,940 ============
See Accompanying Notes to Financial Statements 35 Pilgrim America Masters LargeCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS As of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCKS: 95.1% Market Shares Industry/Issuer Value - ------------ --------------------------------------- ------------ Aerospace: 1.6% 9,400 Boeing Co. $ 460,013 --------- Airlines: 1.5% 4,700 UAL Corp. 434,750 --------- Automotive: 2.0% 4,500 Goodyear Tire & Rubber Corp. 286,312 10,000 Harley Davidson, Inc. 273,750 --------- 560,062 --------- Banks: 4.5% 5,300 Chase Manhattan Corp. 580,350 8,500 CoreStates Financial Corp. 680,531 --------- 1,260,881 --------- Broadcasting: 1.5% 10,345 Tele-Communications -- TCI Group Inc. 291,528 111 Tele-Comm -- TCI Venture Group -A 3,143 4,100 U.S. West Media Group 118,387 --------- 413,058 --------- Building Products: 5.9% 12,600 GTE Corp. 658,350 13,400 Lowe's Companies 639,012 7,400 Masco Corp. 376,475 --------- 1,673,837 --------- Chemicals: 2.1% 9,700 DuPont, (E.I.) DeNemours & Co. 582,606 --------- Chemicals -- Diversified: 1.6% 8,100 PPG Industries, Inc. 462,713 --------- Computer Software & Service: 0.8% 5,700 Sun Microsystems 227,288 --------- Computer Systems: 0.6% 8,300 Seagate Technology 159,775 --------- Consumer Products: 2.2% 6,700 Anheuser Busch Co. 294,800 3,500 Crown Cork & Seal Co. 175,438 3,700 Tenneco Inc. 146,150 --------- 616,388 --------- See Accompanying Notes to Financial Statements 36 Pilgrim America Masters LargeCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Industry/Issuer Value - ------------ ------------------------------- ------------ Defense: 2.9% 4,900 Lockheed Martin Corp. $ 482,650 6,500 Raytheon Co., Class B 328,250 --------- 810,900 --------- Drugs: 1.2% 5,300 Johnson & Johnson 349,138 --------- Electrical Equipment: 0.8% 5,300 Amp, Inc. 222,600 --------- Electronics -- Defense: 1.5% 7,500 Emerson Electric Co. 423,281 --------- Foods: 1.9% 25,031 Archer-Daniels-Midland 542,860 --------- Healthcare: 5.8% 11,500 Abbott Laboratories 753,969 8,700 American Home Products 665,550 10,300 Humana, Inc. 213,725 --------- 1,633,244 --------- Hospitals: 1.8% 17,050 Columbia/HCA Healthcare Corp. 505,106 --------- Industrial: 2.1% 13,500 Praxair Inc. 607,500 --------- Insurance: 10.1% 4,200 Aetna Life & Casualty Co. 296,362 7,000 Allstate Corp. 636,125 3,400 Cigna Corp. 588,412 8,100 Chubb Corp. 612,563 3,400 General Re Corp. 720,800 --------- 2,854,262 --------- Insurance-Life: 1.5% 5,300 American General Corp. 286,531 2,400 Unum Corp. 130,500 --------- 417,031 --------- Machinery & Equipment: 1.0% 5,000 Baker Hughes Inc. 218,125 900 Deere & Co. 52,481 --------- 270,606 --------- Manufacturing: 2.2% 16,000 AlliedSignal, Inc. 623,000 --------- See Accompanying Notes to Financial Statements 37 Pilgrim America Masters LargeCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Industry/Issuer Value - ------------ ------------------------------------- ------------ Marine: 1.2% 6,000 Carnival Corp. -- Class A $ 332,250 --------- Metals & Minerals: 0.2% 800 Aluminum Company of America 56,300 --------- Miscellaneous: 1.3% 3,400 Loews Corp. 360,825 --------- Natural Gas Pipeline: 2.0% 13,100 Enron 544,469 800 Williams Companies Inc. 22,700 --------- 567,169 --------- Office Equipment & Services: 1.1% 4,100 Xerox Corp. 302,631 --------- Office Products & Services: 4.6% 6,500 Hewlett Packard 406,250 8,600 International Business Machines 899,238 --------- 1,305,488 --------- Oil & Gas: 5.0% 6,900 Amerada Hess Corp. 378,637 3,800 Burlington Resources 170,288 20,100 Occidental Petroleum Corp. 589,181 11,500 Union Pacific Resources Group, Inc. 278,875 --------- 1,416,981 --------- Oil Well Equipment & Services: 1.8% 9,000 Tidewater Inc. 496,125 --------- Paper and Forest Products: 2.6% 7,700 Fort James Corp. 294,525 8,700 Kimberly-Clark Corp. 429,019 --------- 723,544 --------- Pollution Control: 0.6% 6,200 Waste Management Inc. 170,500 --------- Publishing: 0.5% 2,400 Gannett Co. 148,350 --------- Railways: 2.6% 2,400 Burlington Northern S.F. 223,050 9,600 CSX Corp. 518,400 --------- 741,450 --------- See Accompanying Notes to Financial Statements 38 Pilgrim America Masters LargeCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS (Continued) As of December 31, 1997 (Unaudited) - -------------------------------------------------------------------------------- Market Shares Industry/Issuer Value - ------------ ---------------------------------------- ------------- Regional Banks: 0.8% 700 Wells Fargo & Co. $ 237,606 ---------- Restaurant: 1.0% 5,600 McDonalds Corp. 267,400 ---------- Retail: 6.6% 15,800 Dillard Department Stores, Inc. 556,950 10,100 Federated Department Stores, Inc. 434,931 19,500 Sears, Roebuck and Co. 882,375 ---------- 1,874,256 ---------- Technology: 1.3% 5,900 National Semiconductor 153,031 4,000 Rockwell 209,000 ---------- 362,031 ---------- Utilities: 4.8% 2,300 American Electric Power 118,738 5,110 Bell Atlantic Corp. 465,010 4,100 Consolidated Edison of NY 168,100 1,400 FPL Group Inc. 82,862 6,900 SBC Communications 505,425 ---------- 1,340,135 ---------- Total Common Stocks (Cost $24,416,335) 26,813,940 ---------- SHORT-TERM INVESTMENTS: 4.3%
Principal Amount Value - --------------- ------------- Commerical Paper: 4.3% $ 1,220,000 International Lease Commercial Paper, 6.45% due 01/02/98 $ 1,219,781 ----------- Total Short -- Term Investments (Cost $1,219,781) 1,219,781 ----------- Total Investments in Securities (Cost $25,636,116)* 99.4% 28,033,721 Cash and Other Assets in Excess of Liabilities -- Net 0.6% 177,279 ----- ----------- Total Net Assets 100.0% $28,211,000 ===== ===========
- ---------------- (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 $3,157,745 Gross Unrealized Depreciation (760,140) ---------- Net Unrealized Appreciation $2,397,605 ========== See Accompanying Notes to Financial Statements 39 Pilgrim America Masters Series - -------------------------------------------------------------------------------- SHAREHOLDER MEETING - -------------------------------------------------------------------------------- SPECIAL MEETING A special meeting of shareholders of Pilgrim America Masters MidCap Value Fund was held at the offices of the Fund on December 18, 1997. A brief description of each matter voted upon as well as the voting results are outlined below: Shares Shares voted against Shares Broker voted for or withheld abstained non-vote Total --------- ----------- --------- -------- ----- I. To approve a new Portfolio Management Agreement between Pilgrim America Investments, Inc. and Cramer Rosenthal McGlynn, LLC, the successor to the current Portfolio Manager: 2,292,634 23,910 71,069 497,391 2,885,004 II. To transact such other business as may properly come before the Special Meeting of Shareholders or any adjournments thereof: 2,775,591 25,570 83,842 -- 2,885,003 Pilgrim America Masters Series 40 Pilgrim America Funds Investment Manager Pilgrim America Investments, Inc. Two Renaissance Square 40 North Central Avenue, Suite 1200 Phoenix, Arizona 85004 Distributor Pilgrim America Securities, Inc. Two Renaissance Square 40 North Central Avenue, Suite 1200 Phoenix, Arizona 85004 1-800-334-3444 Shareholder Servicing Agent Pilgrim America Group, Inc. Two Renaissance Square 40 North Central Avenue, Suite 1200 Phoenix, Arizona 85004 1-800-331-1080 Transfer Agent DST Systems, Inc. P.O. Box 419541 Kansas City, Missouri 64141 Custodian Investors Fiduciary Trust Company 127 West 10th Street 14th Floor Kansas City, Missouri 64105 Legal Counsel Dechert Price & Rhoads 1775 Eye Street, N. W. Washington, D.C. 20006 Independent Auditors KPMG Peat Marwick LLP 725 South Figueroa Street Los Angeles, California 90017 This report and the financial statements contained herein are submitted for the general information of the shareholders of the Funds. This 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 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-020598 022898 -----END PRIVACY-ENHANCED MESSAGE-----