-----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, SkZbpxM7AfCqzUlVFdSlneqsdw2jiqCHZOn7i7VoLqvFHhebF9b45tSlkhlgPNON QjOcQuEg2CpAtwX9dQ9Tvw== 0000950147-98-000708.txt : 19980914 0000950147-98-000708.hdr.sgml : 19980914 ACCESSION NUMBER: 0000950147-98-000708 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980911 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: 98707763 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 N-30D Pilgrim America Funds (R) Pilgrim America (R) Bank and Thrift Fund Pilgrim America MagnaCap Fund Pilgrim America MidCap Value Fund Pilgrim America LargeCap Value Fund Pilgrim America Asia-Pacific Equity Fund Pilgrim America High Yield Fund Pilgrim America Securities Income Fund ANNUAL REPORT JUNE 30, 1998 Pilgrim America Funds ANNUAL REPORT June 30, 1998 TABLE OF CONTENTS Chairman's Message ............................. 1 Portfolio Managers' Reports: Pilgrim America Bank and Thrift Fund ....... 2 Pilgrim America MagnaCap Fund ............ 6 Pilgrim America MidCap Value Fund ......... 11 Pilgrim America LargeCap Value Fund ...... 15 Pilgrim America Asia-Pacific Equity Fund ... 20 Pilgrim America High Yield Fund ............ 25 Pilgrim Government Securities Income Fund ... 29 Report of Independent Auditors ................. 33 Statements of Assets and Liabilities ........... 34 Statements of Operations ....................... 36 Statements of Changes in Net Assets ........... 38 Financial Highlights .......................... 41 Notes to Financial Statements ................. 51 Portfolios of Investments: Pilgrim America Bank and Thrift Fund ...... 61 Pilgrim America MagnaCap Fund ............ 65 Pilgrim America MidCap Value Fund ......... 69 Pilgrim America LargeCap Value Fund ...... 72 Pilgrim America Asia-Pacific Equity Fund ... 76 Pilgrim America High Yield Fund ............ 82 Pilgrim Government Securities Income Fund ... 87 Shareholder Meeting ............................. 89 Tax Information ................................ 90 Pilgrim America Funds - -------------------------------------------------------------------------------- CHAIRMAN'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to present the Annual Reports for the Pilgrim America Funds which consist of Pilgrim America Bank and Thrift Fund ("Bank and Thrift Fund"), Pilgrim America MagnaCap Fund ("MagnaCap Fund"), Pilgrim America MidCap Value Fund ("MidCap Value Fund"), Pilgrim America LargeCap Value Fund ("LargeCap Value Fund"), Pilgrim America Asia-Pacific Equity Fund ("Asia-Pacific Equity Fund"), Pilgrim America High Yield Fund ("High Yield Fund") and Pilgrim Government Securities Income Fund ("Government Securities Income Fund"). In the following pages, the portfolio manager for each fund discusses the results of operations for the fiscal year ended June 30, 1998, as well as the markets and factors which have affected each of the Funds during this period. Bank and Thrift Fund, MagnaCap Fund, LargeCap Value Fund, High Yield Fund and Government Securities Income Fund are designed to give investors access to the seasoned investment managers of Pilgrim America Investments, Inc. ("PAII") who bring a depth of experience and knowledge to their specific investment disciplines. Asia-Pacific Equity Fund and MidCap Value Fund are designed to give investors access to private money managers who typically manage similar portfolios primarily for high net worth individuals and institutional investors. Each money manager has extensive knowledge and proven experience in their specialized market segments. At Pilgrim 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 a family of core investments designed to help you reach your financial goals. Our goal is for every investor to have a successful investment experience.TM/SM Sincerely, /s/ Robert W. Stallings Robert W. Stallings Chairman and Chief Executive Officer Pilgrim America Group, Inc. August 14, 1998 1 Pilgrim America Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholders, After turning in exceptional results last year, results in the first half of this year have eased. Our total return was 6.4%(1) during this period, trailing the Dow Jones Industrial Average which rose 14.1%, the Standard & Poor's 500 Index(2) which rose 17.7% and the S&P Major Regional Banks Index(3) which gained 9.3%. We can point to three factors which have, temporarily we believe, dampened our performance in the first half of 1998: the relative popularity of large cap bank names in the market, our exposure to thrifts, and the diminishment of takeover premiums in selected bank names. We believe that much of the impact of these factors that worked against us in the first half will reverse, although we obviously cannot be sure that this will occur in the second half of this year or anytime thereafter. The first factor relates to the relative outperformance of larger banks to smaller and mid-sized banks so far this year. Big has been beautiful this year and we have about 59% of the Pilgrim America Bank and Thrift Fund (the "Fund") invested in names that are not big. In our opinion this phenomenon has occurred because portfolio managers are uncomfortable with the high level of the overall markets and believe that the large cap names will give them the liquidity to bail out if the strong trend of the market reverses. We believe that the better relative value today is mostly in the smaller and mid cap bank names. Another contributing factor has been the increased representation of thrifts in the Fund. When the yield curve flattened out and prepayments started to pick up, thrift stocks came under pressure. We used this as an opportunity to increase our representation in this area under the premise that historically the curve does not stay flat forever. The yield curve remains flat and there are fears that if rates decline again, there will be another round of mortgage prepayments. Therefore, this bet has not paid off yet, though we believe that it will. Last year our exceptional performance benefited from many of our names acquiring some takeover premium. In many cases some of this relative takeover premium was given back in the first half of this year. While we did not add to our positions when they were trading at these premiums, we generally did not sell them either. Since we opened the Fund in October of last year to new investors we have seen substantial inflows of new money. On a net basis the size of the Fund from inflows alone has more than doubled since then. Our intent was to invest this new inflow of funds in the most attractive opportunities around. Some of these opportunities occurred in names that, while of good quality, became more attractively priced as they lost much of their previous takeover premium. This loss of takeover premium occurred as market perception shifted from viewing these names primarily as takeover targets to viewing them as active acquirers as well as possible targets. We used this as an opportunity to add to our positions in names such as First American Corp. and Union Planters Corp. Instead of recovering their relative value, these names continue to languish and in some cases have continued to slip in relative value. We believe that these names are potential acquisition candidates and we believe that our patience will be rewarded in the future. We believe the fundamentals that effect the banking industry are still good. Earnings for the banking group should continue to look very good when compared to other sectors and it is likely that there will be fewer disappointments in the bank group. Despite their more favorable outlook, bank stocks still look relatively cheap compared to the market as a whole. 2 Pilgrim America Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- In the first half we added to many of our existing positions. In addition, we added the following new names: American Safety Insurance Group, Ltd., Astoria Financial Corp, BancFirst Corp, CFI ProServices, Inc., Comdisco, Inc., Cowlitz Bancorp, Delphi Financial Group, Inc., First Alliance Corp, First American Corp., Freedom Securities Corp., Golden West Financial Corp., H. F. Ahmanson & Co., Hartford Life, Inc., Imperial Bancorp, Liberty Financial Co., Inc., London Pacific Group Limited, NationsBank Corp., North Fork Bancorp, UniCapital Corp., United Security Bancorp and Washington Mutual Inc. We also established a position in One Valley Bancorp, Inc. by acquiring FFVA Financial which was in the process of being acquired by One Valley Bancorp. Also in the first half, we established new positions and subsequently sold the following names for gains ranging from 8%-25%: Heller Financial, Inc., Matrix Capital Corp., Midwest Banc Holdings and Republic Banking Corp. We sold our entire positions in Conning, First Enterprise Financial Group, Long Island Community Bank, Security Shares, Inc. and Sterling Cooke Brown Holdings. We partially reduced our holdings in Cowlitz Bank Corp, First Alliance Corp., Independent Bank Corp, International Aircraft Investors and Popular, Inc. Three of our holdings agreed to be acquired during the first half of 1998, only one of which was a bank or thrift. Security First agreed to be acquired by FirstMerit, Devon Group was acquired by Applied Graphics Technologies, and Summit Holdings Southeast agreed to be acquired by Liberty Mutual. NationsBank, which we established a position in during the first half of 1998, announced a merger of equals with BankAmerica. We believe that investors who wish to remain in equities, should still have a significant portion of this equity investment in financial stocks. As of June 30, 1998, the Fund has changed it's fiscal and tax year-ends from December 31 to June 30. We will begin to combine all of our open-end funds together in one semi and annual report and prospectus. We believe that this will be beneficial for the funds because it will provide a more efficient presentation and will save shareholders money on both printing and mailing costs. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy and cost-effective way to acquire additional shares in the Fund, without incurring a sales charge. Should you decide to switch from cash dividends to automatic reinvestment, please notify your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box 419368, Kansas City, MO 64141-6368, or call (800) 992-0180. We thank you for giving us this opportunity to help you work towards your investment needs. Please do not hesitate to contact us if you have any questions or need additional information. Sincerely, /s/ Carl Dorf Carl Dorf, C.F.A Senior Vice President and Senior Portfolio Manager Pilgrim America Investments, Inc. See Footnotes on Page 5. 3 Pilgrim America Bank and Thrift Fund - -------------------------------------------------------------------------------- COMPARISON OF A $10,000 INVESTMENT through June 30, 1998 - -------------------------------------------------------------------------------- The line graph below shows the growth of an initial investment of $10,000 in Pilgrim America Bank and Thrift Fund compared to the performance of two relevant unmanaged indices, the Standard & Poor's 500 Index and the Standard & Poor's Major Regional Banks Index. Note that the indices have inherent performance advantages over any fund since they have no cash in their portfolios, impose no sales charges and incur no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of the maximum sales load of 5.75% currently associated with Class A shares of the Fund
6/30/88 6/30/89 6/30/90 6/30/91 6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Bank and Thrift Fund 9,425 10,956 10,606 12,175 16,513 19,704 25,548 28,730 37,857 61,821 87,653 (including sales charge) Bank and Thrift Fund (excluding sales charge) 10,000 11,624 11,253 12,917 17,520 20,906 27,107 30,483 40,167 65,593 93,000 S&P 500 Index 10,000 12,048 14,032 15,068 17,085 19,410 19,683 24,808 31,254 42,096 54,788 S&P Major Regional Banks 10,000 11,617 9,938 11,237 16,017 20,158 20,361 22,895 30,709 47,172 63,795
* Carl Dorf, the Fund's Portfolio Manager, began managing the Fund in January 1991. Average Annual Total Returns As of June 30, 1998
Ending Redeemable 1 Year 3 Year 5 Year 10 Year Value -------- -------- -------- --------- ------------ Bank and Thrift Fund Class A (including sales charge) 34.22% 42.41% 28.54% 22.05% $87,653 Bank and Thrift Fund Class A (excluding sales charge) 42.41% 45.25% 30.07% 22.75% $93,000 S&P 500 Index 30.16% 30.19% 23.08% 18.56% $54,788 S&P Major Regional Banks Index 35.24% 40.67% 25.90% 20.36% $63,795
Past performance is no guarantee of future results. All performance information given on these pages for the Fund assumes no participation in the 1992 rights offering and full participation in the 1993 rights offering. The Fund's total returns assume reinvestment of all dividends and distributions. The indices' total returns assume investment of interest income. See Footnotes on Page 5. 4 Pilgrim America Bank and Thrift Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Total return for Class A shares calculated at NAV and assuming reinvestment of all dividends and distributions. Sales charges or commissions are not reflected in these total returns. Average annual total returns based on NAV, assuming reinvestment of all dividends and distributions and including the deduction of the maximum Class A sales charge of 5.75% were 34.22%, 28.54% and 22.05% for the one, five and ten-year periods ended June 30, 1998. Prior to October 20, 1997, the Fund operated as a closed-end investment company. All performance information prior to this date reflects the historical expense levels of the Fund as a closed-end investment company without adjustment for the higher annual expenses of the Fund's Class A shares. Performance would have been lower if adjusted for these charges and expenses. Performance information for periods after October 20, 1997 includes Class A expenses. Five and ten-year returns assume no participation in the 1992 rights offering and full participation in the 1993 rights offering. The Fund also offers Class B shares which are subject to different fees and expenses which will affect their performance. (2) The Standard & Poor's 500 Index is an unmanaged index of 500 common stocks and is a generally accepted measure of stock market performance. (3) The S&P Major Regional Banks Index is a capitalization-weighted index designed to measure the performance of the major regional banks within the Standard & Poor's 500 Index. Performance data represents past performance and is no assurance of future results. Investment return and principal value of an investment in the Fund will fluctuate. Shares, when sold, may be worth more or less than their original cost. Principal risk factors: Because the Fund's portfolio is concentrated in the banking and thrift industry it may be subject to greater risk than a portfolio that is not concentrated in one industry. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. Pilgrim America Bank and Thrift Fund's primary investment objective is long-term capital appreciation, with income as a secondary objective. The Fund seeks to achieve its objectives by investing primarily in the equity securities of banks and thrifts. 5 Pilgrim America MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholder: In our last Semi-Annual Report, we reported that Pilgrim America MagnaCap Fund (the "Fund") had another good year in 1997. Nineteen years ago, the Fund initiated its disciplined investment philosophy and 1997 marked the 18th year in the last 19 that the Fund produced a positive return. We are very pleased to report that the Fund continues to deliver for its shareholders in 1998. For the year ended June 30, 1998, the Fund provided a total return of 20.53%(1) compared to the Standard & Poor's 500 Index ("S&P 500 Index") -- a common proxy for the U.S. stock market -- which gained 30.16% for the same period. For the six months ended June 30, 1998, the Fund was up 9.84%(1), compared to the S&P 500 Index which gained 17.71% for the same period. The Fund's Class A average annual total returns for the five and ten-year periods ended June 30, 1998, were 20.28% and 15.64%, respectively.(1) A $10,000 investment in Class A shares of the Fund on January 1, 1979, the year which the Fund adopted its disciplined investment philosophy, would have grown to $191,626 as of June 30, 1998, after deduction of the maximum 5.75% sales charge and assuming the reinvestment of all dividend and capital gain distributions. The net asset value of Class A shares of the Fund was $17.07 on June 30, 1998, which represents a $1.15 or 7.22% increase from the net asset value of $15.92 on June 30, 1997. General Economic and Equity Market Environment All indications are that the United States economy is remarkably sound. That is why midway through 1998, stock prices are near their all-time highs. The Dow Jones Industrial Average, the best known market barometer, is up approximately 13% for the first six months of 1998. At the beginning of the year, many Wall Street analysts had forecast full year returns of only 8-10%. The United States economy seems to be in the throes of what Federal Reserve Chairman Alan Greenspan has called a "virtuous cycle" of powerful growth, little if any inflation, low unemployment and rising wage gains. That's a positive economic scenario that could be compensating for a gradual slowdown in profit growth. So far in the 1990's, the Dow Jones Industrial Average has increased about 280%, including a record three consecutive years with gains of 20% or more. Pilgrim America MagnaCap Fund As a disciplined investment philosophy fund, MagnaCap invests in a very select group of companies that have been able to sustain growth over a 10-year period. In selecting portfolio securities, companies are assessed with reference to the following criteria as ideal: 1. A company must have paid or had the financial capability from its operations to pay a dividend in 8 out of the last 10 years. 2. A company must have increased its dividend or had the financial capability from its operations to have increased its dividend at least 100% over the past 10 years. 3. Dividend payout must be less than 65% of current earnings. 6 Pilgrim America MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- 4. Long term debt should be no more than 25% of total capitalization or a company's bonds must be rated at least A- or A-3. 5. The current price should be in the lower half of the stock's price/earnings ratio range for the past ten years or the ratio of the price of the company's stock at the time of purchase to its anticipated future earnings must be an attractive value in relation to the average for its industry peer group or that of the S&P 500. We believe that the Fund's past success can be attributed to the very explicit investment criteria which normally determine the kinds of companies that qualify for inclusion in the portfolio. Out of a universe of approximately 4,000 publicly traded companies and based upon both in-house and external research, we aim to select the 40 to 50 equities which we believe will be most likely to exhibit a high degree of performance. Going forward, we will continue to employ a "bottom-up" approach to stock selection, drawing from the pool of companies that come closest to meeting the Fund's strict investment criteria given market conditions, the circumstances of the company and the sector within which it falls. The bull market in U.S. stocks is in its seventh year. It has been firmly based on extraordinary changes in the economy that have given us one of the longest economic expansions in U.S. history. This bull market has been one of the best in U.S. history and we believe it is likely to continue for several reasons. First, the economic expansion that has propelled stock prices higher has been one of the most durable. It has been accompanied by mild inflation, job creation and high-quality profit growth. Second, the current economic and market cycles have benefited from several long-term structural changes. These include an increase in the nation's savings rate and a notable reduction in the government's budget deficit. There has also been a shift to a more sophisticated, technology driven private sector that has spurred wide-spread productivity gains, and this offers new opportunities for growth and jobs. Most bull markets end when stocks are overpriced. However, it has traditionally been extremely difficult to identify the degree of overpricing at which any particular bull-market will end. We believe stock prices can continue to rise selectively in 1998 in concert with improvements in corporate earnings and cash flows. Accordingly, we intend to remain almost fully invested, selecting stocks on the basis described at the beginning of this paragraph. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy and cost-effective way to acquire additional shares in the Fund, without incurring a sales charge. Should you decide to switch from cash dividends to automatic reinvestment, please notify your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box 419368, Kansas City, MO 64141-6368, or call (800) 992-0180. 7 Pilgrim America MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- We thank you for giving us this opportunity to help you work towards your investment needs. Please do not hesitate to contact us if you have any questions or need additional information. Sincerely, /s/ Howard N. Kornblue Howard N. Kornblue Senior Vice President and Senior Portfolio Manager Pilgrim America Investments, Inc. /s/ G. David Underwood G. David Underwood Vice President and Director of Research Pilgrim America Investments, Inc. See Footnotes on Page 10. 8 Pilgrim America MagnaCap Fund - -------------------------------------------------------------------------------- COMPARISON OF A $10,000 INVESTMENT through June 30, 1998 - -------------------------------------------------------------------------------- Comparison of the Change in Value of a $10,000 Investment in Pilgrim America MagnaCap Fund and the Standard & Poor's 500 Index (the "S&P 500 Index"). Based on a $10,000 initial investment, the graph below illustrates the total return of Pilgrim America MagnaCap Fund against the S&P 500 Index. Note that the S&P 500 Index has inherent performance advantages over any fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest in an index. The Fund's performance reflected below assumes the deduction of the Class A maximum sales charge in all cases.
6/30/88 6/30/89 6/30/90 6/30/91 6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- MagnaCap Fund A 9,423 11,031 12,557 13,212 14,788 16,003 17,464 21,063 25,551 33,426 40,287 S&P 500 Index 10,000 12,048 14,032 15,068 17,085 19,410 19,683 24,808 31,254 42,096 54,788
SEC Average Annual Total Returns As of June 30, 1998 Ending Redeemable 1 Year 5 Year 10 Year Value -------- -------- --------- ------------ MagnaCap Fund Class A ...... 13.61% 18.85% 14.95% $40,287 S&P 500 Index ............... 30.16% 23.08% 18.56% $54,788 Past performance is no guarantee of future results. See Footnotes on Page 10. 9 Pilgrim America MagnaCap Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Excluding the Class A maximum 5.75% sales charge and assuming reinvestment of all dividends and distributions. Total returns for the one, five and ten-year periods ended June 30, 1998, including the maximum sales charge and assuming reinvestment of all dividends and distributions were 13.61%, 18.85% and 14.95%, respectively. Total returns for Class B and M shares including the applicable contingent deferred sales charge of 5.00% (Class B shares only) or the maximum sales charge of 3.50% (Class M shares only) for the year ended June 30, 1998, were 14.76% and 15.77%, respectively. Performance data represents past performance and is no assurance of future results. Investment return and principal value of an investment in the Fund will fluctuate. Shares, when sold, may be worth more or less than their original cost. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 10 Pilgrim America MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholder, We are pleased to report the results of operations for Pilgrim America MidCap Value Fund (the "Fund") for the year ended June 30, 1998. For the twelve months, the Fund earned a total return of 18.40%(1) compared to 25.00% for the Russell MidCapTM Index(2). During the past three years, largecap stocks have dominated the stock market. This trend continued throughout the second quarter of this year as the Standard & Poor's 500 Index (the "S&P 500")(3), a proxy for the broad U.S. stock market, increased 3.3%, significantly outperforming all small and mid-cap indices. Within the S&P 500, however, the performance of individual stocks has been very narrow with favorite blue chip stocks such as GE, Microsoft, Pfizer, Coke and Wal-Mart driving this largecap index to higher levels. As an example, during the first six months of 1998, the top 14 performers in the S&P 500 added 20% to the performance of that index. With the S&P 500 up 17.7% during that period, the remaining 486 stocks were down a total of 2.3%. Interestingly, the trailing 12-month price/earnings ratio for these 14 performers is currently 40x, quite high by historical valuation measures. The rise in the largecap indices is not surprising given the increased flow of capital into mutual funds, the strong domestic economy and low interest rates. We have seen this unusual time period during previous bull markets. In the early 1970's, the stock market was characterized by the "nifty fifty". Stocks such as Polaroid, Avon and Xerox traded at earnings multiples that approached triple digits. This, of course, ended in the bear market of 1974 when the S&P 500 fell by more than 46% from its peak the prior year. Despite the outperformance of largecap issues, we have not ventured outside of our investment criteria of purchasing high quality mid-cap companies, which over the long term has offered very favorable rates of returns on both an absolute and risk adjusted basis. Of course, past performance is no guarantee of future results. To reiterate what we have described in previous letters to shareholders, our approach to finding good investments for the Fund is no different from the approach we have successfully employed for our private management clients over the past 24 years. We invest in companies undergoing some significant change -- change in revenue/asset mix, change in management, or change in ownership structure. This change often creates a period of neglect in the minds of investors, which results in an attractive entry point for our investment. As value investors, we are looking to acquire stocks that are trading at discounts to the market and comparable company multiples on both earnings and cashflow. As an additional valuation tool, we develop a private market valuation for our investments, i.e., what a strategic buyer might be willing to pay for the whole company. A good example of our investment philosophy and process is our investment in Montana Power Co., a new position in the Fund during this quarter. Montana Power is primarily an electric and gas utility based in Butte, Montana. The company also has a large group of unregulated businesses consisting of coal, oil and gas, independent power and telecommunications. Our interest in Montana Power is two-fold. First, the company is selling their electric generating assets, which should provide proceeds of $750 million to be used to pay down debt, repurchase shares or to grow their unregulated businesses. Second, Montana Power's telecommunications subsidiary, Touch America, is building a fiberoptic telecommunications and data network similar to those of Qwest Communications, Williams Companies and Level Three Communications. While still regional in nature, the network will expand throughout the nation in the next two years. Wall Street believes that Montana Power is a sleepy utility that will not realize the value of their telecommunications business. We think differently. We believe that ultimately, 11 Pilgrim America MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- the company will monetize a portion of the telecommunication business to highlight its value. We have experience with these multi-industry companies that spin-off or outright sell subsidiaries. Cincinnati Bell, Inc., for example, announced this quarter that they would take their fast growing CBIS and Matrix subsidiaries public in order to highlight their value. We believe that Montana Power is approximately 18 to 24 months behind Cincinnati Bell. We may be early, but we have been paid a 4.75% dividend while we wait. During this quarter our performance was led by General Instrument Corp., a cable television equipment supplier which was up 30% and Allergan, Inc., a pharmaceutical and medical products company which was up 22%. Investors have come to the realization that the most efficient, cost effective and quickest access to the Internet will be through cable television infrastructure. The acquisition of TCI by AT&T has confirmed this thesis. General Instrument is the largest manufacturer of cable television set-top boxes and network equipment. As cable television and telecommunications converge, we believe that General Instrument will be a primary beneficiary of a new wave of capital spending to upgrade these companys' architecture. As for Allergan, a company that had been viewed by Wall Street primarily as a contact lens solution company, new CEO David Pyott has announced a series of restructuring efforts to focus the company on its faster growing pharmaceutical businesses. David is no stranger to the drug industry as he spent the past 10 years at Novartis, a large Swiss pharmaceutical company. This quarter was not without its disappointments. Two underperformers during this quarter were Raychem Corp., an electrical components and materials company and Ocean Energy, an independent exploration and production company. Raychem has some exposure to Asia Pacific, and therefore experienced a slowdown in two key growth products. Ocean Energy saw cashflow estimates reduced as a result of weakening commodity prices. Both issues facing these companies, we believe, are short term. We have added to the Ocean Energy position and are monitoring Raychem closely. When we believe the company has recovered from the effects of Asia, we will purchase additional shares. Raychem is a very healthy company with 50% gross margins, strong free cashflow and a very competent management team. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy and cost effective way to acquire additional shares of the Fund without incurring a sales charge. Should you decide to switch from cash dividends to automatic investment, please notify your broker or contact the Transfer Agent, c/o DST Systems, Inc., P.O. Box 419368, Kansas City, MO 64141-6368 or call (800) 992-0180. We thank you for giving us the opportunity to help you work towards your investment needs. Sincerely, CRM ADVISORS, LLC See Footnotes on page 14. 12 Pilgrim America MidCap Value Fund - -------------------------------------------------------------------------------- COMPARISON OF A $10,000 INVESTMENT through June 30, 1998 - -------------------------------------------------------------------------------- Comparison of the Change in Value of a $10,000 Investment in Pilgrim America MidCap Value Fund (the "Fund") and the Russell MidcapTM Index (the "Russell Index"). Based on a $10,000 initial investment, the graph below illustrates the total return of the Fund against the Russell Index. Note that the Russell Index has inherent performance advantages over any fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest in an index. The Fund's performance reflected below assumes the deduction of the Class A maximum sales charge in all cases. 9/1/95 6/30/96 6/30/97 6/30/98 ------ ------- ------- ------- MidCap Value Fund A 9,425 11,355 14,068 16,657 Russell MidCap Index 10,000 11,506 14,148 17,685 SEC Average Annual Total Returns As of June 30, 1998 Ending Redeemable 1 Year Inception* Value ----------- ------------ ------------ MidCap Value Fund Class A 11.62% 19.76% $16,657 Russell MidCapTM Index 25.00% 22.32% $17,685 *September 1, 1995 (Commencement of Operations) Past performance is no guarantee of future results. See Footnotes on Page 14. 13 Pilgrim America MidCap Value Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Excluding the Class A maximum sales charge of 5.75% and assuming reinvestment of all dividends and distributions. Average annual total returns including the Class A maximum sales charge and assuming reinvestment of all dividends and distributions for the year ended June 30, 1998, and from September 1, 1995 (commencement of operations) to June 30, 1998, were 11.62% and 19.76%, 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 MidCapTM Index is a broad based measure of the performance of mid-cap stocks. (3) The S&P 500 is an unmanaged index of common stocks and is a generally accepted measure of stock market performance. Performance data represents past performance and is no assurance of future results. Investment return and principal value of an investment in the Fund will fluctuate. Shares, when sold, may be worth more or less than their original cost. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 14 Pilgrim America LargeCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to report the results of operations for Pilgrim America LargeCap Value Fund (the "Fund") for the year ended June 30, 1998. 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 twelve months, the Fund earned a total return of 17.71%(1) compared to 30.16% for that of the Standard & Poor's 500 Index (the "S&P 500"),(2) a proxy for the broad U.S. stock market, and compared to 24.99% for the Standard & Poor's Barra Value Index (the "Barra Index")(3). The Fund earned a total return of 11.03%(1) for the six months ended June 30, 1998, versus the S&P 500 return of 17.71% and the Barra Index return of 12.01%. Economic Environment and Equity Market Conditions Our year end 1997 expectation that the equity market could again advance in 1998 was more than met through the first half of 1998. We thought that investment returns would be good as measured by long-term historical standards, though perhaps less spectacular than those experienced over 1995-1997. Further, we thought earnings growth, more than expansion of the market's price-to-earnings ratio (P/E), would play a greater role in propelling the stocks. These factors, we thought, would rest upon a favorable setting of good, but slowing economic growth, low interest rates and constructive domestic monetary policy. With a few differences, our thesis played out. Through the first half of 1998, the equity market, as defined by the S&P 500, had one of its best ever performances on both an annualized and historical basis. The domestic economy was more than cooperative, growing 5.4% in the first calendar quarter and very likely to grow at 1.0-1.5% in the second -- the gradual slowing we anticipated. Interest rates and monetary policy also tracked our expectations. We were correct in thinking that growth in earnings would play a greater role than P/E expansion in advancing the equity market. True, the P/E's did expand for the high or sustained growth companies. But throughout the six-month period, and for the vast majority of stocks, the rate and direction of earnings growth was a pacing issue. The specter of broadly weakening economic conditions besetting the Asian nations and its impact on U.S. companies overshadowed stocks the entire period. As companies reported their financial results for 1997 during January and February, the Asian impact appeared less pronounced than feared and the larger stocks rallied. This scenario repeated in the April-May reporting period. Nevertheless, corporate vulnerability to Asia did impact stock returns. Despite the S&P 500's 17.71% return through June, most of it was produced in the first quarter when the market return was 14.0% as compared to 3.3% in the second quarter. Not unsurprisingly, the market's returns mimicked the overall pattern of earnings growth, one that decelerated from better than 3% to about 1.5%. 15 Pilgrim America LargeCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- Varying sentiment about earnings led to some disparate returns among stocks. In general, largecap stocks outperformed their smaller brethren. S.C. Bernstein, a Wall Street brokerage and research firm, has noted that, on an equally weighted basis, the 50 largest stocks of the S&P 500 are up 22.5% in 1998 while the next largest 450 are up merely 12%. They further note that the 20 largest growth stocks represent about a third of the S&P 500. It follows that since cyclical and Asian factors had less worrisome effects on this relatively small pool of growth stocks, investors not bound to a disciplined value strategy gravitated toward them despite extended valuations. This has made the overall S&P 500 a difficult benchmark to surpass with diversified portfolios, let alone with a value strategy. LargeCap Value Fund Your fund generated good performance for the past three and six months. Overall, performance was very consistent with the value style of investing. The Fund returned 0.34% and 11.03% for the last three and six months ended June 30, 1998, respectively as compared to the Barra Index returns of 0.41% and 12.01% for the same periods. Following through on the initiative set forth in November, we continued to gradually restructure the Fund, but stayed consistent with an orientation toward value. We reduced the number of individual holdings further to 54, down from 71 in December and 83 at the outset. The Fund has very good diversification without over-dilution. Keeping with our strategy outlook, we reduced exposure in the portfolio to the more economically sensitive sectors, broad classifications that include various common industry groups, eliminating or reducing positions in the basic industries: Metals, Diversified Chemicals, Paper & Forest Products, Packaging, Rails and Pollution Control. Our mixed sentiment at the beginning of the year toward energy stocks was appropriate, as oil prices continued to retreat until mid year, in turn driving the stocks down further. The Fund has maintained about 8% in the sector, modest and in line with their representation in market, despite attractive valuations. Conversely, we increased the more defensive sectors or portions less exposed to Asia: Pharmaceuticals, Retail, Airlines and Publishing. Looking forward, we are not yet anticipating a recession, but do expect the economy to enter an extended period of slower growth. Asian influences, a high level of employment and somewhat less accommodating monetary policy are apt to throttle the economy. As such, we plan to continue a more defensive posture with the Fund. Within that framework, we plan to keep the Fund oriented toward undervalued companies with strong underlying cash flows and solid fundamental 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 16 Pilgrim America LargeCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- sales charge. Should you decide to switch from cash dividends to automatic investment, please notify your broker or contact the Transfer Agent, c/o DST Systems, Inc., P.O. Box 419368, Kansas City, MO 64141-6368 or call (800) 992-0180. We thank you for giving us the opportunity to help you work towards your investment needs. Sincerely, /s/ G. David Underwood G. David Underwood, CFA Vice President and Senior Portfolio Manager Pilgrim America LargeCap Value Fund See Footnotes on page 19. 17 Pilgrim America LargeCap Value Fund - -------------------------------------------------------------------------------- COMPARISON OF A $10,000 INVESTMENT through June 30, 1998 - -------------------------------------------------------------------------------- Comparison of the Change in Value of a $10,000 Investment in Pilgrim America LargeCap Value Fund (the "Fund"), the Standard & Poor's 500 Index (the "S&P 500") and the Standard & Poor's Barra Value Index (the "Barra Index"). Based on a $10,000 initial investment, the graph below illustrates the total return of the Fund against the S&P 500 and the Barra Indexes. Note that the indexes have inherent performance advantages over any fund since they have no cash in their portfolios, impose no sales charges and incur no operating expenses. An investor cannot invest in an index. The Fund's performance reflected below assumes the deduction of the Class A maximum sales charge in all cases. 9/1/98 6/30/96 6/30/97 6/30/98 ------ ------- ------- ------- LargeCap Value Fund A 9,425 11,269 13,888 16,348 S&P 500 Index 10,000 12,164 16,385 21,327 S&P Barra Value Index 10,000 11,829 15,479 19,347 SEC Average Annual Total Returns As of June 30, 1998 Ending Redeemable 1 Year Inception* Value -------- ------------ ------------ LargeCap Value Fund Class A 10.98% 18.97% $16,348 S&P 500 Index 30.16% 30.68% $21,327 S&P Barra Value Index 24.99% 26.26% $19,347 *September 1, 1995 (Commencement of Operations) Past performance is no guarantee of future results. See Footnotes on Page 19. 18 Pilgrim America 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 Class A maximum sales charge and assuming reinvestment of all dividends and distributions for the year ended June 30, 1998, and from September 1, 1995 (commencement of operations) to June 30, 1998, were 10.98% and 18.97%, 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 S&P 500 is an unmanaged index of common stocks and is a generally accepted measure of stock market performance. (3) The S&P Barra Index is a capitalization-weighted index of all of the stocks in the S&P 500 that have low price-to-book ratios. It is designed so that approximately 50% of the market capitalization is in the Value Index. Performance data represents past performance and is no assurance of future results. Investment return and principal value of an investment in the Fund will fluctuate. Shares, when sold, may be worth more or less than their original cost. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 19 Pilgrim America Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholder: The following are the results of operations for Pilgrim America Asia-Pacific Equity Fund (the "Fund"), for the year ended June 30, 1998. For the twelve months, the Fund earned a net return of -59.29%(1) compared to - -60.49% for the Morgan Stanley Capital International All Countries Far East ex-Japan (Free) Index (the "MSCI"), a measure of the performance of Far East markets excluding Japan. General Economic Environment The Asia Pacific region generally finds itself in the worst economic and financial environment since the first oil crisis. The factors that we described in our last report twelve months ago, in terms of inter-related currency weakness, high interest rates, and sharp decelerations in regional economies have become more evident in the first half of 1998. With the notable exceptions of China, Taiwan, and possibly the Philippines, we expect all regional economies to contract this year. Exacerbating regional difficulties has been the continued poor performance of the Japanese economy to which South East Asia is especially sensitive. The weakness of the Japanese economy has led to a fall in the value of the Yen, which affects Japanese direct investment, Japan's propensity to import from Asia, and Asia's ability to compete with Japan in third markets. In addition, the distress in the Japanese banking system has tended to result in the withdrawal of Japanese credit and lending from Asia, thus exacerbating liquidity problems in the region. Specific Equity Market Conditions The table below summarizes the total returns of the respective MSCI Country Indices, which comprise the Far East ex-Japan (Free) Index: Total Return (%) Country 7/1/97 - 6/30/98 ------- ---------------- Hong Kong ............. -48.39 Malaysia ............. -74.66 Singapore ............. -57.77 Thailand ............. -72.76 Indonesia ............. -89.68 Philippines ............ -59.36 South Korea ............ -68.47 Taiwan ................ -38.35 Source: Frank Russell Company 20 Pilgrim America Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- Much of the last year has been characterized by a sense of crisis and contagion, with problems emanating from South Asia increasingly having an impact on the Greater China bloc and Korea. In the case of Hong Kong a strong run in the economy and asset prices prior to, and surrounding the resumption of Chinese sovereignty gave way to a much more difficult environment in the last twelve months. With a currency board system, Hong Kong's increased "risk premium" has been reflected in much higher interest rate differentials versus the U.S. dollar which has, obviously, had a significant negative impact on real economic activity, as well as asset prices. This adjustment process continues. However Hong Kong has a sound banking system, relatively good corporate governance, and a proximity to, and integration with China which remains a very attractive longer term story. Against this background we believe Hong Kong will continue to have significant regional advantages, although short term we expect the economy to be in recession for at least the balance of 1998. Thailand, Malaysia, and of course Indonesia are facing difficulties of a different magnitude altogether. In Indonesia economic difficulties have been exponentially increased by political uncertainty and subsequent succession. The collapse in the currency and resulting explosion in the scale of dollar debt in the corporate sector suggests a very painful debt workout and recapitalization of the banking sector. In Thailand a collapse in domestic demand has resulted in a sharp turnaround in the trade and current account, and a start has been made on closure of insolvent financial institutions and the recapitalization of the banking sector. Nevertheless the economic contraction is likely to last well into 1999. As with other regional economies, greater access of foreign capital to the ownership of Thai assets is an essential part of a "recovery scenario". This will require greater transparency in bankruptcy and foreclosure procedures, as well as acceptance of foreign ownership. In Malaysia the economy is decelerating later than the rest of the region, but against the background of excessive leverage in the corporate sector, oversupply in the property market, and an embryonic bad debt problem in the banking sector. Whilst this has already been partially discounted in the equity market the key issue for investors is the credibility of domestic policy, and the risk of premature attempts to reflate. Singapore and the Philippines provide a fundamentally more positive environment. In Singapore relatively strong balance sheets and rigorous banking governance means that the fabric of the real and financial economy is intact. However a slowdown in the critical electronics sector, as well as immediate difficulties in the geographically close economies of Malaysia and Indonesia, means that Singapore is not immune to a cyclical slowdown of some magnitude. In the Philippines strong growth characteristics have up until recently been evident. Excesses, in terms of "asset bubbles" and the mispricing of capital via fixed exchange rates are less evident in the Philippines, and we are optimistic regarding longer term prospects. In Taiwan the economy is on a much sounder footing although deceleration is evident. A current account surplus, closed capital account and the absence of capital misallocation are positive, although cyclical risks related to Japan and the region are clear. In Korea the collapse of the currency has finally exposed the massive leverage in the corporate sector, and the culture of the pursuit of market share growth, rather than returns on investment. The involvement of the IMF and collapse in domestic demand is leading to historically high levels of unemployment, and the urgent need to restructure, 21 Pilgrim America Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- attract foreign capital, and to address the relationship between capital and labor, which is close to the Japanese practice. This requires strong political leadership, which appears to be evident. Pilgrim America Asia-Pacific Equity Fund Our strategy for the last twelve months has been to remain focused on Greater China. Although these markets have, obviously, suffered with the region we remain optimistic regarding the longer term prospects for China, and with Hong Kong. Elsewhere we believe that Singapore with its strong regulatory environment, robust corporate balance sheets, and sound banking system suggests a faster recovery potential than other markets in South Asia. We also feel the Philippines, although subject to regional difficulties, has excellent longer term potential given its relative immaturity in terms of development. Elsewhere we have no exposure to Indonesia, and small positions in Thailand and Malaysia. Korea provides stock specific opportunities in export sectors, given its competitive industrial base. In Taiwan we expect to increase exposure when we have greater confidence in the technology sector, in which Taiwanese companies continue to be both competitive and well managed. Overall the financial dislocation of 1997 is now resulting in deep recessions, asset price adjustment and solvency difficulties. There is, after a decade of strong growth, undoubtedly a need for a cleansing process, restructuring, greater transparency, and a more robust regulatory environment. Foreign capital is essential for recovery over a reasonable time frame, which is likely to return with the appropriate policy framework, and the restoration of confidence. This would have a dramatic impact on interest rates and sentiment. This will take time, and the balance of 1998 is likely to remain difficult both for the economies of the region and their capital markets. Nevertheless we believe the most traumatic period is now behind us, and we hope to report a more positive environment when we next write to you. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy and cost effective way to acquire additional shares of the Fund without incurring a sales charge. Should you decide to switch from cash dividends to automatic investment, please notify your broker or contact the Transfer Agent, c/o DST Systems, Inc., P.O. Box 419368, Kansas City, MO 64141-6368 or call (800) 992-0180. We thank you for giving us the opportunity to help you work towards your investment needs. Sincerely, HSBC ASSET MANAGEMENT AMERICAS, INC. HSBC ASSET MANAGEMENT HONG KONG LIMITED See Footnotes on page 24. 22 Pilgrim America Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- COMPARISON OF A $10,000 INVESTMENT through June 30, 1998 - -------------------------------------------------------------------------------- Comparison of the Change in Value of a $10,000 Investment in Pilgrim America Asia-Pacific Equity Fund (the "Fund") and the MSCI Far East ex-Japan (Free) Index (the "MSCI"). Based on a $10,000 initial investment, the graph below illustrates the total return of the Fund against the MSCI. Note that the MSCI has inherent performance advantages over any fund since it has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest in an index. The Fund's performance reflected below assumes the deduction of the Class A maximum sales charge in all cases. 9/1/98 6/30/96 6/30/97 6/30/98 ------ ------- ------- ------- Asia-Pacific Equity Fund A 9,425 9,780 10,345 4,211 MSCI Far East ex Japan 10,000 11,386 11,707 4,780 (Free) Index Average Annual Total Returns As of June 30, 1998 Ending Redeemable 1 Year Inception* Value --------- ------------ ------------ Asia-Pacific Equity Fund Class A -61.55% -26.27% $4,211 MSCI Far East ex Japan (Free) Index -60.49% -22.96% $4,780 *September 1, 1995 (Commencement of Operations) Past performance is no guarantee of future results. See Footnotes on Page 24. 23 Pilgrim America 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 June 30, 1998, and from September 1, 1995 (commencement of operations) to June 30, 1998, were -61.55% and -26.27%, 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. Performance data represents past performance and is no assurance of future results. Investment return and principal value of an investment in the Fund will fluctuate. Shares, when sold, may be worth more or less than their original cost. Principal risk factors: exposure to financial and market risks that accompany investment in equities, and exposure to changes in currency exchange rates and economic and political risks of foreign investing. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 24 Pilgrim America High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholder: It is our pleasure to share with you the results of operations for the Pilgrim America High Yield Fund ("the Fund") for the year ended June 30, 1998. With the economic crisis in Asia and a weakening equity market, some of the optimism in the high yield market has begun to wane. Investors have become increasingly concerned about the spillover effect from collapsing economies overseas. The fear of cheap imports as well as a reduction in demand for the domestic export market has given the market reason to reassess individual credits. Performance results for the year ending June 30, 1998, were above average. The Fund had a total return of 11.71%(1) versus the Lipper High Current Yield average of 11.45%. These results ranked the Fund 81 of 215 comparable funds in the High Current Yield category for the same period.(1)(2)(3) Monetary policy has remained steady in the United States for the last twelve months, as the Federal Funds rate target was unchanged at 5.50%. The Federal Open Market Committee had feared the domestic economy was overheating in the second half of 1997, but did not tighten monetary policy in the US as the initial hits to the Asian currencies began. The situation has worsened overseas in 1998 and has continued to keep the FOMC on hold. They are still very concerned about inflation, particularly wage inflation, but also realize that the dramatically weaker currencies of the Pacific Rim countries could present a slower economic growth scenario for the US. The interest rate environment has been friendly to corporations the last year. Short-term interest rates have remained relatively unchanged with the Prime Rate not moving from 8.50% and three-month LIBOR quoted in a range from 5.60% to 5.90%. Short term interest rates are important for high yield issuers because many of the companies that issue long term bonds also borrow short term at rates that are set at a margin above LIBOR. Low short-term rates have saved money and helped increase cash flows for high yield issuers. Long-term interest rates have improved dramatically for high yield issuers during the last twelve months as ten year Treasuries have fallen from the 6.40% area to the 5.40% area. This has helped lower the long term cost of capital for many of the companies in which the Fund invests, which is credit positive, but also has the negative effect of lowering available yields on assets the Fund purchases. Every effort is made to maintain the Fund's dividend without compromising credit quality. This is an area that we, your Fund's management, have emphasized as we invest in high yield issues. High yield issues have traded in a range of approximately 250 to 340 basis points off ten-year treasuries in the last year, according to the KDP High Yield Index. Spreads, which are a measure of additional yield paid above treasuries for the risk we take owning these securities, have generally widened during the year. This reflects the market's concern about an economic slowdown in the US as a result of the problems in Asia. While spread widening is very much a concern for us, we believe that ultimately international problems will not drive the domestic economy into a recession. New issues set a blistering pace for the calendar year 1997 totaling a record $125.5 billion. The first six months of 1998 have similarly been very active with issuance totaling $97.2 billion versus $55.3 billion for the comparable period in 1997. This places the high yield market on a pace to break the new issuance record again in 1998. However, as the second half of 1998 has begun issuance has slowed as investors have become more concerned about earnings and some high yield mutual funds have experienced 25 Pilgrim America High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- redemptions. We remain cautious about the outlook for the calendar in the second half of 1998, at the same time, we realize there are opportunities in the occasional dips that occur in our market as profit taking occurs. Top industry weightings include Communications, Retail, and Media & Entertainment. Gaming, formerly one of our top industry weightings was reduced, as we have become concerned about overbuilding in the Las Vegas market and new competition creating over saturation in some of the regional markets. Retail has been added to the top holding list. Issues purchased include Tuesday Morning and Advance Stores. In the current strong domestic consumption environment these issues should perform well. Long term we are concerned about aging population demographic effects on this sector, but we believe these factors will take a much longer time frame to develop, changing the cash flow picture for these companies. Assets of the Fund have continued to grow in 1998. This reflects both the good performance of the Fund within the high yield asset class, and the general popularity of high yield bonds. During the early part of 1998 we have been accumulating cash as we have observed valuations in the equity markets reaching historically high levels and spreads on high yield bonds remaining relatively tight. We remain cautious on the market and will not hesitate to increase cash if we feel the market does not recognize value. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy and cost effective way to acquire additional shares in the Fund, without incurring a sales charge. Should you decide to switch from cash dividends to automatic investment, please notify your broker or contact the Transfer Agent, c/o DST Systems Inc., PO Box 419368, Kansas City, Missouri 64141-6368 or call (800) 992-0180. Thank you for the opportunity to serve your high yield investment needs. If you have any questions or comments, please do not hesitate to contact us. Sincerely, /s/ Kevin G. Mathews Kevin G. Mathews Vice President and Senior Portfolio Manager Pilgrim America Group, Inc. See Footnotes on Page 28. 26 Pilgrim America High Yield Fund - -------------------------------------------------------------------------------- COMPARISON OF A $10,000 INVESTMENT through June 30, 1998 - -------------------------------------------------------------------------------- Comparison of the Change in Value of a $10,000 Investment in Pilgrim America High Yield Fund, the Lehman Brothers High Yield Index (the "Lehman Index") and the CS First Boston High Yield Index (the "First Boston Index"). Based on a $10,000 initial investment, the graph below illustrates the total return of Pilgrim America High Yield Fund against the Lehman Index and the First Boston Index. Note that the Lehman Index and the First Boston Index have inherent performance advantages over any fund since they have no cash in their portfolios, impose no sales charges and incur no operating expenses. An investor cannot invest in an index. The Fund's performance reflected below assumes the deduction of the Class A maximum sales charge in all cases.
6/30/88 6/30/89 6/30/90 6/30/91 6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- High Yield Fund A 9,522 10,255 9,879 10,720 13,202 15,366 16,027 17,571 19,806 23,202 25,918 Lehman High Yield A 10,000 10,917 10,759 12,300 15,310 17,752 18,383 20,925 22,950 26,138 29,107 CS First Boston High Yield 10,000 10,967 10,759 12,447 15,579 18,222 19,013 21,389 23,522 26,972 29,934
Average Annual Total Returns As of June 30, 1998
Ending Redeemable 1 Year 5 Year 10 Year Value -------- -------- --------- ------------ High Yield Fund Class A ............... 6.39% 9.95% 9.99% $25,918 Lehman High Yield Index ............... 11.36% 11.02% 11.28% $29,107 CS First Boston High Yield Index ...... 10.98% 10.44% 11.59% $29,934
Past performance is no guarantee of future results. See Footnotes on Page 28. 27 Pilgrim America High Yield Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Total return figures and rankings reflect a partial waiver of expenses for the period stated. Performance figures shown pertain only to Class A shares of the Fund without deducting the 4.75% maximum sales charge. The average annual total returns for the one, five and ten-year periods ended June 30, 1998, after deduction of the Class A maximum sales charge of 4.75% were 6.39%, 9.95% and 9.99%, respectively. Total returns for Class B and M shares including the applicable contingent deferred sales charge of 5.00% (Class B shares only) or the maximum sales charge of 3.25% for the year ended June 30, 1998 were 5.90% and 7.52%, respectively. (2) Lipper Analytical Services, Inc. ranked Class A shares of the Fund for total return, without deducting sales charges and assuming reinvestments of all dividends and distributions, and reflecting a partial waiver of expenses. For the five and ten-year periods ended June 30, 1998, the Fund ranked 12 and 23 out of 76 and 52 funds, respectively. Performance figures shown pertain only to Class A shares of the Fund. Class B and Class M shares, which are also offered by the Fund, are subject to different fees and expenses which will affect their performance. (3) The Lipper High Current Yield average is an average of one-year returns for 215 funds in that Lipper category as of June 30, 1998. For the five and ten-year periods ended June 30, 1998, the Lipper High Current Yield average returns were 9.90% and 10.23% for 76 and 52 funds, respectively. Performance data represents past performance and is no assurance of future results. Investment return and principal value of an investment in the Fund will fluctuate. Shares, when sold, may be worth more or less than their original cost. Principal risk factors: exposure to financial, market and interest rate risks. High yields reflect the higher credit risks associated with certain lower rated securities in the Fund's portfolio and in some cases, the lower market prices for those instruments. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 28 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to report the results of operations for the Pilgrim Government Securities Income Fund ("the Fund") for the year ended June 30, 1998. As of June 30, 1998, the Fund's 30-day standardized SEC yield was 3.84%(1). The average annual total returns for the one, five, and ten year periods ended June 30, 1998, the reinvestment of all dividends and distributions were 7.63%, 4.87%, and 6.88%, respectively(1). General Economic and Market Environment In reviewing last year's shareholder letter, I find that not much has changed in the economic environment. The Asian economies have been weaker than expected but their impact on the United States economy has so far been minimal. I would argue that the Asian crisis has been Goldilocks' best friend. I say this because it has moderated growth in the United States while containing price inflation. On the employment front, the unemployment rate has declined from 5.0% (as of June 97) to 4.5% today; however, the employment cost index (a measure of wage inflation) has not risen. This relation-ship between employment and inflation does not follow traditional economic theory. The Federal Reserve, which is responsible for maintaining price stability, must be nervous about the historically low unemployment rate and its impact on future inflation. Mortgage Securities Market in Particular The last twelve months have not been kind to mortgage securities. The low interest rate environ-ment has caused the mortgage refinance index to rise to historic levels. This has been exasperated by the increased sophistication of the average homeowner who receives numerous solicitations to refinance his mortgage. Management has reduced its impact from prepayments by reallocating the portfolio's mortgage concentration into the agency market where prepayment risk does not exist. Although allowed by the prospectus, management continues its pledge to avoid mortgage derivatives while emphasizing more stable, seasoned mortgage pass-throughs. Analysis of the Pilgrim Government Securities Income Fund The effective duration (a measure of price sensitivity) of the portfolio as of June 30, 1998, was approximately 4.0, slightly below the Lehman Government/Mortgage Index and significantly below most other government securities funds. During most of the second half of 1998, management maintained a portfolio duration either at or slightly below the benchmark. The Fund strives to provide competitive returns while having less volatility and more downside protection than most other government securities funds. That being said, the strong bullish environment that has prevailed over the last twelve months is not one in which this Fund excels. It is our belief that the strategy and philosophy that we adhere to is one that will provide the potential for an attractive long-term risk/reward profile. The 29 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- PORTFOLIO MANAGER'S REPORT (Continued) - -------------------------------------------------------------------------------- Fund continues its ongoing commitment to shareholders of avoiding the risks associated with exotic derivatives, leverage, as well as futures and options. For the second half of 1998, we believe that economic growth will remain slow, however, we do not see recessionary conditions. Consumer demand remains strong and manufacturing should improve towards the end of 1998 as inventories return to normalized levels. The one risk to the economy is not Asia but rather the stock market. A significant correction in the stock market could stifle consumer demand as discretionary incomes decline and consumer confidence is negatively impacted. Looking forward, the Federal Reserve will most likely take no action on monetary policy for the foreseeable future. The strong labor market will keep the Federal Reserve fearful of inflation and therefore, hesitant to ease rates. The weak Asian economies and their impact on the United States (both direct and indirect) will keep them from raising rates. As we go to press, the thirty-year treasury is currently trading just above 5.50% and the two-year treasury just below 5.375%. The yield curve is very flat with not much difference in yield between the two and thirty-year treasury. Historically, the yield curve does not stay flat for long. The probability is high that the yield curve will revert back to a normal upward sloping curve within the next six months. We wish to remind shareholders that the Fund offers an automatic dividend reinvestment plan, which provides an easy and cost effective way of acquiring additional shares in the Fund, without incurring a sales charge. Should you decide to switch from cash dividends to automatic reinvestment, please notify your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box 419338, Kansas City, Missouri 64141-6338 or call (800) 992-0180. Thank you for your continued support, and do not hesitate to contact us with any comments or questions regarding the Fund. Sincerely, /s/ Charles G. Ullerich Charles G. Ullerich, C.F.A. Portfolio Manager Pilgrim America Investments, Inc. See Footnotes on Page 32. 30 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- COMPARISON OF A $10,000 INVESTMENT through June 30, 1998 - -------------------------------------------------------------------------------- Comparison of the Change in Value of a $10,000 Investment in Pilgrim Government Securities Income Fund, the Lehman Brothers GNMA Index, the Lehman Brothers Intermediate Government Securities Index and the Lehman Brothers Treasuries Index. Based on a $10,000 initial investment, the graph below illustrates the total return of Pilgrim Government Securities Income Fund against the Lehman Brothers GNMA Index, the Lehman Brothers Intermediate Government Securities Index and the Lehman Brothers Treasuries Index. Note that the Lehman Brothers Indices have inherent performance advantages over any fund since they have no cash in the portfolios, impose no sales charges and incur no operating expenses. An investor cannot invest in an index. The Fund's performance reflected below assumes the deduction of the Class A maximum sales charge in all cases.
6/30/88 6/30/89 6/30/90 6/30/91 6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Gov't Securities Income A 9,525 10,494 11,177 12,204 13,309 14,616 14,251 15,528 16,046 17,222 18,536 Lehman GNMA Index 10,000 11,224 12,309 13,785 15,701 17,130 16,911 19,025 20,170 22,058 23,999 Lehman Intermediate Gov't Index 10,000 11,009 11,859 13,109 14,795 16,280 16,249 17,833 18,713 20,013 21,690 Lehman Treasuries Index 10,000 11,222 11,986 13,187 14,999 16,949 16,719 18,735 19,572 21,001 23,380
Average Annual Total Returns As of June 30, 1998
Ending Redeemable 1 Year 5 Year 10 Year Value -------- -------- --------- ------------ Government Securities Income Fund A ...... 7.63% 4.87% 6.88% $18,536 Lehman GNMA Index ........................ 8.80% 6.98% 9.15% $23,999 Lehman Intermediate Government Index ...... 8.38% 5.91% 8.05% $21,690 Lehman Treasuries Index .................. 11.33% 6.65% 8.86% $23,380
Past performance is no guarantee of future results. See Footnotes on Page 32. 31 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- FOOTNOTES - -------------------------------------------------------------------------------- (1) Total return and yield figures reflect a partial waiver of expenses for some of the periods stated. Performance figures shown pertain only to Class A shares of the Fund excluding the 4.75% maximum sales charge. The average annual total returns for the one, five and ten-year periods ended June 30, 1998, including the Class A maximum sales charge were 2.55%, 3.85% and 6.37%, respectively. The 30-day standardized SEC yields for Class B and M shares as of June 30, 1998, were 3.36% and 3.44%, respectively. Total returns for Class B and M shares for the year ended June 30, 1998, including the maximum contingent deferred sales charge of 5.00% (Class B shares only) or the maximum sales charge of 3.25% (Class M shares only) and assuming reinvestment of all dividends and distributions were 1.78% and 3.52%, respectively. Total returns for Class B and M shares excluding sales charges and assuming reinvestment of all dividends and distributions were 6.78% and 7.02%, respectively for the year ended June 30, 1998. The Fund earned income and realized capital gains as a result of entering into reverse repurchase agreements during the six month period from July to December, 1992. Therefore the Fund's performance was higher than it would have been had the Fund adhered to its 10% borrowing investment restriction. (2) The Lehman Brothers GNMA, Intermediate Government and Treasuries Indices are unmanaged market indices representative of different types of holdings in the Fund's portfolio. Performance data represents past performance and is no assurance of future results. Investment return and principal value of an investment in the Fund will fluctuate. Shares, when sold, may be worth more or less than their original cost. This letter contains statements that may be "forward-looking" statements. Actual results may differ materially from those projected in the "forward-looking" statements. The views expressed in this report reflect those of the portfolio manager, only through the end of the period as stated on the cover. The manager's views are subject to change at any time based on market and other conditions. 32 Pilgrim America Funds - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS - -------------------------------------------------------------------------------- To the Shareholders and Board of Directors Pilgrim America Funds: We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Pilgrim America Bank and Thrift Fund, Pilgrim America MagnaCap Fund, Pilgrim America MidCap Value Fund, Pilgrim America LargeCap Value Fund, Pilgrim America Asia-Pacific Equity Fund, Pilgrim America High Yield Fund, and Pilgrim Government Securities Income Fund as of June 30, 1998, and the related statements of operations for the year then ended, except for the Pilgrim America Bank and Thrift Fund which are for the six-month period ended June 30, 1998, and the year ended December 31, 1997, and the statements of changes in net assets for each of the years in the two-year period ended June 30, 1998 except for the Pilgrim America Bank and Thrift Fund which are for the six-month period ended June 30, 1998, and each of the years in the two-year period ended December 31, 1997, and financial highlights for the six months ended June 30, 1998 and each of the years in the three-year period ended December 31, 1997 for the Pilgrim America Bank and Thrift Fund, for each of the years in the four-year period ended June 30, 1998 for the Pilgrim America MagnaCap Fund and Pilgrim Government Securities Income Fund, for each of the years in the two-year period ended June 30, 1998, and the period from September 1, 1995 (commencement of operations) to June 30, 1996, for the Pilgrim America MidCap Value Fund, Pilgrim America LargeCap Value Fund, and Pilgrim America Asia-Pacific Equity Fund, and for each of the years in the three-year period ended June 30, 1998, and the eight-month period ended June 30, 1995, for the Pilgrim America High Yield Fund. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. For all periods ending prior to January 1, 1995 for Pilgrim America Bank and Thrift Fund, and all periods ended prior to July 1, 1994, for Pilgrim America MagnaCap Fund and Pilgrim Government Securities Income Fund, for all periods ending prior to November 1, 1994 for Pilgrim America High Yield Fund, the financial highlights were audited by other auditors whose reports thereon dated January 19, 1995, July 22, 1994 and November 17, 1995, respectively, expressed unqualified opinions on those financial highlights. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 1998, by correspondence with custodians and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the aforementioned funds as of June 30, 1998, the results of their operations, the changes in their net assets, and financial highlights for each of the 1995 through 1998 years or periods indicated above in conformity with generally accepted accounting principals. KPMG PEAT MARWICK LLP Los Angeles, California July 31, 1998 33 Pilgrim America Funds - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES As of June 30, 1998 - --------------------------------------------------------------------------------
Bank and MidCap Thrift MagnaCap Value Fund Fund Fund -------------- -------------- -------------- ASSETS: Investments in securities at market value (Cost $547,761,252 $307,227,777 and $61,674,394, respectively) $826,899,911 $425,441,014 $ 72,573,349 Affiliated Issuers (Cost $4,064,062) 3,995,000 -- -- Short-term investments at amortized cost 79,817,000 17,084,000 9,965,000 Cash 22,958 13,244 19,713 Receivables: Fund shares sold 9,488,821 657,096 364,774 Dividends and interest 857,359 568,511 51,469 Due from affiliate -- -- 5,638 Investment securities sold -- -- 1,247,380 Prepaid expenses 124,677 53,504 22,700 Deferred organization expenses -- -- 56,525 ------------- ------------- ------------- Total Assets 921,205,726 443,817,369 84,306,548 ------------- ------------- ------------- LIABILITIES: Payable for investment securities purchased 11,066,397 895,900 2,875,166 Payable for fund shares redeemed 766,373 1,429,008 86,091 Payable to affiliate 13,000 4,000 1,000 Other accrued expenses and liabilities 251,537 267,303 52,777 ------------- ------------- ------------- Total Liabilities 12,097,307 2,596,211 3,015,034 ------------- ------------- ------------- NET ASSETS $909,108,419 $441,221,158 $ 81,291,514 ============= ============= ============= NET ASSETS CONSIST OF: Paid-in capital $623,029,322 $276,915,083 $ 66,624,460 Undistributed net investment income 2,306,539 -- -- Accumulated net realized gain on investments 4,702,961 46,092,838 3,768,099 Net unrealized appreciation of investments 279,069,597 118,213,237 10,898,955 ------------- ------------- ------------- Net Assets $909,108,419 $441,221,158 $ 81,291,514 ============= ============= ============= Class A: Net assets $549,281,761 $348,758,838 $ 27,484,859 Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 100,000,000 80,000,000 28,000,000 Shares outstanding 19,959,143 20,428,975 1,636,942 Net asset value and redemption price per share $ 27.52 $ 17.07 $ 16.79 Maximum offering price per share(1) $ 29.20 $ 18.11 $ 17.81 Class B: Net assets $359,826,658 $ 77,786,761 $ 40,574,456 Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 100,000,000 80,000,000 28,000,000 Shares outstanding 13,131,548 4,614,763 2,463,511 Net asset value, redemption and offering price per share(2) $ 27.40 $ 16.86 $ 16.47 Maximum offering price per share(2) $ 27.40 $ 16.86 $ 16.47 Class M: Net assets $ -- $ 14,675,559 $ 13,232,199 Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) -- 40,000,000 14,000,000 Shares outstanding -- 865,956 800,889 Net asset value and redemption price per share $ -- $ 16.95 $ 16.52 Maximum offering price per share(3) $ -- $ 17.56 $ 17.12
- ------------ (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 34 Pilgrim America Funds - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES As of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
LargeCap Asia-Pacific Government Value Equity High Yield Securities Fund Fund Fund Income Fund -------------- --------------- --------------- ---------------- ASSETS: Investments in securities at market value (Cost $22,994,397, $33,736,612, $235,368,035 and $24,915,749, respectively) $ 27,679,748 $ 21,649,056 $235,033,203 $ 25,199,957 Short-term investments at amortized cost 1,072,000 3,881,000 36,615,000 1,586,000 Cash 39,438 79,337 41,995 10,493 Receivables: Fund shares sold 36,454 37,352 5,073,459 81,946 Dividends and interest 33,851 94,707 4,569,744 278,379 Due from affiliate 20,824 13,910 19,932 -- Investment securities sold -- 3,916 5,127,854 -- Other -- -- -- 5,344 Prepaid expenses 17,046 18,654 46,174 16,123 Deferred organization expenses 56,525 56,525 -- -- ------------- ------------- ------------ -------------- Total Assets 28,955,886 25,834,457 286,527,361 27,178,242 ------------- ------------- ------------ -------------- LIABILITIES: Payable for investment securities purchased 134,085 -- 9,503,750 -- Payable for fund shares redeemed 22,339 553,309 444,739 8,385 Payable to affiliate 850 2,500 2,000 200 Other accrued expenses and liabilities 54,210 133,352 65,184 43,919 ------------- ------------- ------------ -------------- Total Liabilities 211,484 689,161 10,015,673 52,504 ------------- ------------- ------------ -------------- NET ASSETS $ 28,744,402 $ 25,145,296 $276,511,688 $ 27,125,738 ============= ============= ============ ============== NET ASSETS CONSIST OF: Paid-in capital $ 23,361,324 $ 62,095,868 $284,645,744 $ 32,617,081 Undistributed (overdistributed) net investment income -- (182,809) 1,300,067 -- Accumulated net realized gain (loss) on investments and foreign currency transactions 697,727 (24,680,224) (9,099,291) (5,775,551) Net unrealized appreciation (depreciation) of investments and other assets, liabilities and forward contracts denominated in foreign currencies 4,685,351 (12,087,539) (334,832) 284,208 ------------- ------------- ------------ -------------- Net Assets $ 28,744,402 $ 25,145,296 $276,511,688 $ 27,125,738 ============= ============= ============ ============== Class A: Net assets $ 7,606,252 $ 11,796,384 $102,424,365 $ 23,682,312 Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 28,000,000 24,000,000 80,000,000 1,000,000,000 Shares outstanding 517,272 2,647,775 14,769,012 1,839,287 Net asset value and redemption price per share $ 14.70 $ 4.46 $ 6.94 $ 12.88 Maximum offering price per share(1) $ 15.60 $ 4.73 $ 7.29 $ 13.52 Class B: Net assets $ 15,605,341 $ 9,083,593 $154,302,700 $ 3,219,939 Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 28,000,000 24,000,000 80,000,000 1,000,000,000 Shares outstanding 1,081,073 2,078,785 22,304,824 250,823 Net asset value, redemption and offering price per share(2) $ 14.44 $ 4.37 $ 6.92 $ 12.84 Maximum offering price per share(2) $ 14.44 $ 4.37 $ 6.92 $ 12.84 Class M: Net assets $ 5,532,809 $ 4,265,319 $ 19,784,623 $ 223,487 Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 14,000,000 12,000,000 40,000,000 1,000,000,000 Shares outstanding 380,211 968,740 2,858,403 17,356 Net asset value and redemption price per share $ 14.55 $ 4.40 $ 6.92 $ 12.88 Maximum offering price per share(3) $ 15.08 $ 4.56 $ 7.15 $ 13.31
- ------------ (1) Maximum offering price is computed at 100/94.25 of net asset value for LargeCap Value and Asia-Pacific Equity Fund and 100/95.25 of net asset value for High Yield Fund and Government Securities Income Fund. On purchases of $50,000 or more, the offering price is reduced. (2) Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales charge. (3) Maximum offering price is computed at 100/96.50 of net asset value for LargeCap Value Fund and Asia-Pacific Equity Fund and 100/96.75 of net asset value for High Yield Fund and Government Securities Income Fund. On purchases of $50,000 or more, the offering price is reduced. See Accompanying Notes to Financial Statements 35 Pilgrim America Funds - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
MidCap MagnaCap Value Bank and Thrift Fund Fund Fund --------------------------------- ------------- -------------- Six Months Year Ended Year Ended Year Ended Ended June 30, December 31, June 30, June 30, 1998 1997 1998 1998 ---------------- -------------- ------------- -------------- INVESTMENT INCOME: Interest $ 1,035,958 $ 627,412 $ 890,523 $ 219,590 Redemption Fee Income 408,264 630,157 -- -- Dividends (net of foreign withholding taxes of $8,030, $10,962, $42,060 and $6,156, respectively) 5,812,718 6,710,470 5,569,658 604,393 ----------- ------------ ----------- ------------ Total investment income 7,256,940 7,968,039 6,460,181 823,983 ----------- ------------ ----------- ------------ EXPENSES: Investment management fees 2,446,063 2,361,103 2,846,061 678,816 Distribution expenses Class A Shares 579,328 182,388 968,928 56,593 Class B Shares 1,079,655 76,709 590,009 338,344 Class M Shares -- -- 85,446 85,576 Conversion expenses -- 399,900 -- -- Transfer agent and registrar fees 515,992 65,986 664,400 164,172 Custodian fees 65,165 72,373 84,160 20,183 Professional fees 41,547 47,889 85,883 29,093 Registration and filing fees 14,849 -- 94,636 45,628 Organization expense -- -- -- 26,017 Shareholder servicing fee 56,435 18,586 65,313 13,417 Reports to shareholders 61,206 129,937 168,305 30,383 Miscellaneous expenses 1,299 96,884 32,248 8,764 Recordkeeping and pricing fees 62,965 79,151 82,803 14,449 Insurance expense 16,824 13,766 37,611 5,050 Directors' fees 11,112 22,408 30,294 4,728 ----------- ------------ ----------- ------------ Total expenses 4,952,440 3,567,080 5,836,097 1,521,213 ----------- ------------ ----------- ------------ Less: Waived and reimbursed fees -- -- -- (21,934) Earnings credits (2,039) (7,361) (2,036) (1,574) ----------- ------------ ----------- ------------ Net expenses 4,950,401 3,559,719 5,834,061 1,497,705 ----------- ------------ ----------- ------------ Net investment income (loss) 2,306,539 4,408,320 626,120 (673,722) ----------- ------------ ----------- ------------ REALIZED AND UNREALIZED GAIN FROM INVESTMENTS: Net realized gain from investments 4,702,961 40,749,713 63,902,750 5,591,383 Net change in unrealized appreciation of investments 25,621,214 117,597,499 7,551,908 5,351,298 ----------- ------------ ----------- ------------ Net gain from investments 30,324,175 158,347,212 71,454,658 10,942,681 ----------- ------------ ----------- ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $32,630,714 $162,755,532 $72,080,778 $ 10,268,959 =========== ============ =========== ============
See Accompanying Notes to Financial Statements 36 Pilgrim America Funds - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
LargeCap Asia-Pacific Government Value Equity High Yield Securities Fund Fund Fund Income Fund ------------- ----------------- -------------- ------------- Year Ended Year Ended Year Ended Year Ended June 30, June 30, June 30, June 30, 1998 1998 1998 1998 ------------- ----------------- -------------- ------------- INVESTMENT INCOME: Interest $ 71,447 $ 200,395 $16,145,138 $1,913,517 Dividends (net of foreign withholding taxes of $0, $62,261, $0 and $0, respectively) 440,218 841,086 -- -- ----------- ------------- ------------ ---------- Total investment income 511,665 1,041,481 16,145,138 1,913,517 ----------- ------------- ------------ ---------- EXPENSES: Investment management fees 286,830 553,589 977,868 144,487 Distribution expenses Class A Shares 21,208 50,935 151,235 66,414 Class B Shares 149,117 172,593 854,684 21,853 Class M Shares 39,659 49,902 110,681 1,100 Transfer agent and registrar fees 124,754 235,176 218,550 127,763 Custodian fees 20,063 127,220 59,179 32,516 Professional fees 20,115 32,524 40,195 10,805 Registration and filing fees 35,800 55,936 60,856 26,095 Organization expense 26,017 26,017 -- -- Shareholder servicing fee 7,202 19,695 27,366 6,301 Reports to shareholders 13,322 27,694 58,035 11,563 Miscellaneous expenses 37,162 18,439 6,832 10,808 Recordkeeping and pricing fees 6,224 10,052 41,767 6,913 Insurance expense 2,880 8,181 9,039 3,713 Directors' fees 2,155 4,944 9,345 1,870 ----------- ------------- ------------ ---------- Total expenses 792,508 1,392,897 2,625,632 472,201 ----------- ------------- ------------ ---------- Less: Waived and reimbursed fees (151,645) (355,259) (269,351) (20,563) Earnings credits (677) (3,052) (40,599) -- ----------- ------------- ------------ ---------- Net expenses 640,186 1,034,586 2,315,682 451,638 ----------- ------------- ------------ ---------- Net investment income (loss) (128,521) 6,895 13,829,456 1,461,879 ----------- ------------- ------------ ---------- REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain (loss) from: Investments 2,762,882 (22,507,777) 1,228,407 561,221 Foreign currency transactions -- (262,006) -- -- Net change in unrealized appreciation (depreciation) of: Investments 1,905,453 (17,738,326) (2,126,621) 100,378 Other assets, liabilities and forward contracts denominated in foreign currencies -- 10,172 -- -- ----------- ------------- ------------ ---------- Net gain (loss) from investments 4,668,335 (40,497,937) (898,214) 661,599 ----------- ------------- ------------ ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 4,539,814 $ (40,491,042) $12,931,242 $2,123,478 =========== ============= ============ ==========
See Accompanying Notes to Financial Statements 37 Pilgrim America Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
Bank and Thrift Fund MagnaCap Fund ----------------------------------------------------- ----------------------------------- Six Months Year Year Year Year Ended Ended Ended Ended Ended June 30, December 31, December 31, June 30, June 30, 1998 1997 1996 1998 1997 ---------------- --------------- ---------------- ---------------- ---------------- Increase in net assets from operations Net investment income $ 2,306,539 $ 4,408,320 $ 4,482,008 $ 626,120 $ 1,667,703 Net realized gain from investments 4,702,961 40,749,713 29,471,619 63,902,750 74,330,966 Net change in unrealized appreciation of investments 25,621,214 117,597,499 43,705,991 7,551,908 1,078,094 ------------- ------------- ------------- -------------- -------------- Net increase in net assets resulting from operations 32,630,714 162,755,532 77,659,618 72,080,778 77,076,763 ------------- ------------- ------------- -------------- -------------- Distributions to shareholders: Net investment income: Class A shares -- (4,332,270) (4,482,008) (626,120) (1,648,742) Class B shares -- (76,050) -- -- -- Class M shares -- -- -- -- (3,788) Excess of net investment income: Class A shares -- (55,332) (395,707) (563,340) -- Class B shares -- (4,451) -- (85,798) -- Class M shares -- -- -- (22,509) -- Net realized gains: Class A shares -- (36,807,832) (30,200,965) (33,690,960) (67,754,162) Class B shares -- (3,941,881) -- (6,012,889) (4,722,175) Class M shares -- -- -- (1,155,826) (802,030) Excess of net realized gains: Class A shares -- (119,078) -- -- -- Class B shares -- -- -- -- -- Class M shares -- -- -- -- -- Tax return of capital Class A shares -- (2,537,766) -- -- -- Class B shares -- (549,279) -- -- -- Class M shares -- -- -- -- -- ------------- ------------- ------------- -------------- -------------- Total distributions -- (48,423,939) (35,078,680) (42,157,442) (74,930,897) ------------- ------------- ------------- -------------- -------------- Capital share transactions: Net proceeds from sale of shares 465,635,786 115,009,912 -- 231,988,722 140,156,531 Shares resulting from dividend reinvestments -- 20,808,444 8,065 33,942,271 59,470,837 Cost of shares redeemed (48,502,831) (43,147,277) -- (189,163,043) (115,106,546) ------------- ------------- ------------- -------------- -------------- Net increase in net assets resulting from capital share transactions 417,132,955 92,671,079 8,065 76,767,950 84,520,822 ------------- ------------- ------------- -------------- -------------- Net increase in net assets 449,763,669 207,002,672 42,589,003 106,691,286 86,666,688 ------------- ------------- ------------- -------------- -------------- Net assets, beginning of period 459,344,750 252,342,078 209,753,075 334,529,872 247,863,184 ------------- ------------- ------------- -------------- -------------- Net assets, end of period** $ 909,108,419 $459,344,750 $ 252,342,078 $ 441,221,158 $ 334,529,872 ============= ============= ============= ============== ============== ** Including undistributed (overdistributed) net investment income (loss) of: $ 2,306,539 $ -- $ (431,916) $ -- $ 1,290,711 ============= ============= ============= ============== ==============
See Accompanying Notes to Financial Statements 38 Pilgrim America Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (Continued) - --------------------------------------------------------------------------------
MidCap Value Fund LargeCap Value Fund Asia-Pacific Equity Fund -------------------------------- -------------------------------- ------------------------------- Year Year Year Year Year Year Ended Ended Ended Ended Ended Ended June 30, June 30, June 30, June 30, June 30, June 30, 1998 1997 1998 1997 1998 1997 ---------------- --------------- ---------------- --------------- ---------------- -------------- Increase (decrease) in net assets from operations Net investment income (loss) $ (673,722) $ (141,391) $ (128,521) $ (6,512) $ 6,895 $ (245,742) Net realized gain (loss) from investments 5,591,383 1,180,396 2,762,882 1,682,366 (22,507,777) (2,050,338) Net realized loss from foreign currency transaction -- -- -- -- (262,006) (62,302) Net change in unrealized appreciation (depreciation) of investments 5,351,298 5,149,275 1,905,453 2,599,255 (17,738,326) 5,856,620 Net change in unrealized appreciation (depreciation) of other investments denominated in foreign currency -- -- -- -- 10,172 (12,204) -------------- ------------- -------------- ------------- -------------- -------------- Net increase (decrease) in net assets resulting from operations 10,268,959 6,188,280 4,539,814 4,275,109 (40,491,042) 3,486,034 -------------- ------------- -------------- ------------- -------------- -------------- 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 (678,728) (87,623) (832,744) (118,836) -- -- Class B shares (1,045,324) (100,153) (1,416,831) (169,692) -- -- Class M shares (353,906) (40,101) (513,305) (60,108) -- -- Excess of net realized gains: Class A shares -- -- (200,668) -- -- -- Class B shares -- -- (341,418) -- -- -- Class M shares -- -- (123,694) -- -- -- Tax return of capital Class A shares -- -- -- -- -- (30,685) Class B shares -- -- -- -- -- -- Class M shares -- -- -- -- (1,611) -------------- -------------- ------------- -------------- -------------- Total distributions (2,077,958) (266,071) (3,428,660) (374,385) -- (32,296) -------------- ------------- -------------- ------------- -------------- -------------- Capital share transactions: Net proceeds from sale of shares 48,268,290 43,491,828 12,124,908 20,775,389 82,247,275 85,779,972 Shares resulting from dividend reinvestments 1,780,738 229,750 3,054,663 321,069 -- 30,383 Cost of shares redeemed (25,569,526) (7,265,617) (14,837,322) (2,900,008) (90,420,188) (58,091,003) -------------- ------------- -------------- ------------- -------------- -------------- Net increase (decrease) in net assets resulting from capital share transactions 24,479,502 36,455,961 342,249 18,196,450 (8,172,913) 27,719,352 -------------- ------------- -------------- ------------- -------------- -------------- Net increase (decrease) in net assets 32,670,503 42,378,170 1,453,403 22,097,174 (48,663,955) 31,173,090 -------------- ------------- -------------- ------------- -------------- -------------- Net assets, beginning of period 48,621,011 6,242,841 27,290,999 5,193,825 73,809,251 42,636,161 -------------- ------------- -------------- ------------- -------------- -------------- Net assets, end of period** $ 81,291,514 $ 48,621,011 $ 28,744,402 $ 27,290,999 $ 25,145,296 $ 73,809,251 ============== ============= ============== ============= ============== ============== ** Including undistributed (overdistributed) net investment income (loss) of: $ -- $ (120,796) $ -- $ 3,755 $ (182,809) $ (49,943) ============== ============= ============== ============= ============== ==============
See Accompanying Notes to Financial Statements 39 Pilgrim America Funds - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (Continued) - --------------------------------------------------------------------------------
Government Securities High Yield Fund Income Fund --------------------------------- ------------------------------------ Year Year Year Year Ended Ended Ended Ended June 30, June 30, June 30, June 30, 1998 1997 1998 1997 ---------------- ---------------- ---------------- ------------------- Increase (decrease) in net assets from operations Net investment income $ 13,829,456 $ 4,415,066 $ 1,461,879 $ 1,965,969 Net realized gain (loss) from investments 1,228,407 1,037,959 561,221 (65,952) Net change in unrealized appreciation (depreciation) of investments (2,126,621) 1,455,802 100,378 510,175 -------------- -------------- -------------- --------------- Net increase in net assets resulting from operations 12,931,242 6,908,827 2,123,478 2,410,192 -------------- -------------- -------------- --------------- Distributions to shareholders: Net investment income: Class A shares (5,189,232) (2,371,451) (1,362,962) (1,929,871) Class B shares (6,676,547) (1,291,124) (92,626) (34,226) Class M shares (1,217,170) (353,811) (6,291) (1,872) Excess of net investment income: Class A shares -- -- (249,557) (74,945) Class B shares -- -- (21,100) (632) Class M shares -- -- (1,314) -- Net realized gains: Class A shares -- -- -- -- Class B shares -- -- -- -- Class M shares -- -- -- -- Excess of net realized gains: Class A shares -- -- -- -- Class B shares -- -- -- -- Class M shares -- -- -- -- Tax return of capital Class A shares -- -- -- (63,350) Class B shares -- -- -- -- Class M shares -- -- -- (5) -------------- -------------- -------------- --------------- Total distributions (13,082,949) (4,016,386) (1,733,850) (2,104,901) -------------- -------------- -------------- --------------- Capital share transactions: Net proceeds from sale of shares 266,689,070 78,745,209 6,954,416 3,683,618 Shares resulting from dividend reinvestments 6,023,875 1,870,419 740,194 898,604 Cost of shares redeemed (81,063,350) (20,802,137) (12,453,169) (12,242,953) -------------- -------------- -------------- --------------- Net increase (decrease) in net assets resulting from capital share transactions 191,649,595 59,813,491 (4,758,559) (7,660,731) -------------- -------------- -------------- --------------- Net increase (decrease) in net assets 191,497,888 62,705,932 (4,368,931) (7,355,440) -------------- -------------- -------------- --------------- Net assets, beginning of period 85,013,800 22,307,868 31,494,669 38,850,109 -------------- -------------- -------------- --------------- Net assets, end of period** $ 276,511,688 $ 85,013,800 $ 27,125,738 $ 31,494,669 ============== ============== ============== =============== ** Including undistributed (overdistributed) net investment income (loss) of: $ 1,300,067 $ 553,560 $ -- $ (76,374) ============== ============== ============== ===============
See Accompanying Notes to Financial Statements 40 Pilgrim America Bank and Thrift Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
Year Ended December 31, Six Months Ended -------------------------------- June 30, 1998* 1997 1996 ------------------------------------- -------------------------------- ------------ Class A Class B(a) Class A Class B(a) ------------------ ------------------ ------------- ------------------ Per Share Operating Performance Net Asset Value, beginning of year $ 25.87 $ 25.85 $ 17.84 $ 25.25 $ 14.83 ------------- ------------- ----------- ------------- ---------- Income (loss) from investment operations: Net investment income 0.11 0.01 0.34 0.04 0.32 Net realized and unrealized gain (loss) on investments 1.54 1.54 10.83 2.92 5.18 ------------- ------------- ----------- ------------- ---------- Total from investment operations 1.65 1.55 11.17 2.96 5.50 ------------- ------------- ----------- ------------- ---------- Less distributions: Net investment income -- -- 0.31 0.04 0.32 Excess of net investment income -- -- -- -- 0.03 Realized capital gains -- -- 2.65 2.04 2.14 Tax return of capital -- -- 0.18 0.28 -- ------------- ------------- ----------- ------------- ---------- Total distributions 0.00 0.00 3.14 2.36 2.49 ------------- ------------- ----------- ------------- ---------- Other: Reduction in net asset value from rights offering -- -- -- -- -- ------------- ------------- ----------- ------------- ---------- Net asset value, end of year $ 27.52 $ 27.40 $ 25.87 $ 25.85 $ 17.84 ============= ============= =========== ============= ========== Closing market price, end of year -- -- -- -- $ 15.75 Total investment return at Market Value(c) -- -- -- -- 43.48% Total investment return at Net Asset Value(e) 6.38 % 6.00 % 64.86 % 11.88 % 41.10% Ratios/Supplemental Data Net assets, end of year ($millions) $ 549 $ 360 $ 383 $ 76 $ 252 Ratios to average net assets: Expenses 1.20 (h)) 1.95 (h)) 1.10 % 1.89 (h)) 1.01% Net investment income 0.94 (h)) 0.19 (h)) 1.39 % 0.99 (h)) 1.94% Portfolio turnover rate 2% 2% 22% 22% 21% Average commission rate paid(i) $ 0.023 $ 0.023 $ 0.013 $ 0.013 -- 1995(b) 1994 1993 1992 1991 ------------ ------------ -------------- ----------------- ----------- - Per Share Operating Performance Net Asset Value, beginning of year $ 10.73 $ 11.87 $ 12.46 $ 10.12 $ 7.49 ---------- ------------ ------------ ------------ ---------- Income (loss) from investment operations: Net investment income 0.31 0.26 0.26 0.22 0.24 Net realized and unrealized gain (loss) on investments 4.78 (0.53) 0.75 2.93 3.33 ---------- ------------ ------------ ------------ ---------- Total from investment operations 5.09 (0.27) 1.01 3.15 3.57 ---------- ------------ ------------ ------------ ---------- Less distributions: Net investment income 0.31 0.22 0.26 0.22 0.24 Excess of net investment income 0.03 -- -- -- -- Realized capital gains 0.65 0.65 0.73 0.47 -- Tax return of capital -- -- -- 0.12 0.70 ---------- ------------ ------------ ------------ ---------- Total distributions 0.99 0.87 0.99 0.81 0.94 ---------- ------------ ------------ ------------ ---------- Other: Reduction in net asset value from rights offering -- -- (0.61) -- -- ---------- ------------ ------------ ------------ ---------- Net asset value, end of year $ 14.83 $ 10.73 $ 11.87 $ 12.46 $ 10.12 ========== ============ ============ ============ ========== Closing market price, end of year $ 12.88 $ 9.13 $ 10.88 $ 11.63 $ 9.50 Total investment return at Market Value(c) 52.81% (8.85)% 1.95%(d) 31.53% 47.52% Total investment return at Net Asset Value(e) 49.69% (1.89)% 7.79%(f) 32.36%(g) 49.49% Ratios/Supplemental Data Net assets, end of year ($millions) $ 210 $ 152 $ 168 $ 141 $ 101 Ratios to average net assets: Expenses 1.05% 1.28% 0.91% 1.24% 1.31% Net investment income 2.37% 2.13% 2.08% 2.00% 2.68% Portfolio turnover rate 13% 14% 17% 20% 31% Average commission rate paid(i) -- -- -- -- -- 1990 1989 1988 ------------ ------------ ------------ Per Share Operating Performance Net Asset Value, beginning of year $ 10.26 $ 9.54 $ 8.17 ------------ ---------- ---------- Income (loss) from investment operations: Net investment income 0.31 0.30 0.31 Net realized and unrealized gain (loss) on investments (2.20) 1.50 1.43 ------------ ---------- ---------- Total from investment operations (1.89) 1.80 1.74 ------------ ---------- ---------- Less distributions: Net investment income 0.31 0.31 0.37 Excess of net investment income -- -- -- Realized capital gains -- 0.44 -- Tax return of capital 0.57 0.33 -- ------------ ---------- ---------- Total distributions 0.88 1.08 0.37 ------------ ---------- ---------- Other: Reduction in net asset value from rights offering -- -- -- ------------ ---------- ---------- Net asset value, end of year $ 7.49 $ 10.26 $ 9.54 ============ ========== ========== Closing market price, end of year $ 7.13 $ 9.13 $ 7.75 Total investment return at Market Value(c) (12.45)% 32.25% 30.17% Total investment return at Net Asset Value(e) (18.14)% 20.79% 22.58% Ratios/Supplemental Data Net assets, end of year ($millions) $ 75 $ 103 $ 96 Ratios to average net assets: Expenses 1.29% 1.26% 1.18% Net investment income 3.59% 4.15% 3.28% Portfolio turnover rate 46% 63% 43% Average commission rate paid(i) -- -- --
Footnotes on next page 41 Pilgrim America Bank and Thrift Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period (Continued) - -------------------------------------------------------------------------------- - ------------ * Effective June 30, 1998, Bank and Thrift Fund changed its year end to June 30. (a) From the period October 20, 1997 (initial offering of Class B shares) through December 31, 1997. (b) On April 7, 1995, the Investment Manager acquired the rights to manage the Fund and certain other mutual funds previously managed by Pilgrim Management Corporation. (c) Total return was calculated at market value without deduction of sales commissions and assuming reinvestment of all dividends and distributions during the period. (d) Calculation of total return excludes the effect of the per share dilution resulting from the Rights Offering as the total account value of a fully subscribed shareholder was minimally impacted. (e) Total return is calculated at net asset value without deduction of sales commissions and assumes reinvestment of all dividends and distributions during the period. Total investment returns based on net asset value, which can be higher or lower than market value, may result in substantially different returns than total return based on market value. For all periods prior to January 1, 1997, the total returns presented are unaudited. (f) Total return is calculated assuming full participation in the 1993 rights offering. (g) Total return is calculated assuming no particpation in the 1992 rights offering. (h) Annualized. (i) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. See Accompanying Notes to Financial Statements 42 Pilgrim America MagnaCap Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
CLASS A ------------------------------------------------------------------------------------------------- Year Ended June 30, ------------------------------------------------------------------------------------------------- 1998 1997 1996 1995(a) 1994 1993 1992 ------------- ------------- ------------- ------------- ------------- ------------- ------------- Per Share Operating Performance Net asset value, beginning of period $ 15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98 $ 10.93 --------- --------- ----------- ----------- ----------- ----------- ----------- Income from investment operations: Net investment income (loss) 0.04 0.10 0.09 0.12 0.15 0.14 0.13 Net realized and unrealized gain on investments 3.02 4.16 2.87 2.29 0.89 0.82 1.16 --------- --------- ----------- ----------- ----------- ----------- ----------- Total from investment operations 3.06 4.26 2.96 2.41 1.04 0.96 1.29 --------- --------- ----------- ----------- ----------- ----------- ----------- Less distributions from: Net investment income 0.04 0.10 0.06 0.14 0.14 0.12 0.24 Distributions in excess of net investment income 0.02 0.02 -- -- -- -- -- Realized gains on investment 1.85 4.91 0.24 0.60 0.59 0.77 -- --------- --------- ----------- ----------- ----------- ----------- ----------- Total distributions 1.91 5.03 0.30 0.74 0.73 0.89 0.24 --------- --------- ----------- ----------- ----------- ----------- ----------- Net asset value, end of period $ 17.07 $ 15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98 ========= ========= =========== =========== =========== =========== =========== Total Return(c) 20.53% 30.82% 21.31% 20.61% 9.13% 8.21% 11.93% Ratios/Supplemental Data Net assets, end of period (000's) $ 348,759 $ 290,355 $ 235,393 $ 211,330 $ 190,435 $ 197,250 $ 196,861 Ratios to average net assets: Expenses 1.37% 1.46% 1.68% 1.59% 1.53% 1.53% 1.60% Net investment income 0.29% 0.64% 0.54% 0.98% 1.16% 1.09% 1.20% Portfolio turnover rate 53% 77% 15% 6% 7% 36% 49% Average commission rate paid(e) $ 0.0422 $ 0.0686 -- -- -- -- -- CLASS B CLASS M ---------------------------------------------- ----------------------------------------------- Year Year July 17, Year Year July 17, Ended Ended 1995(b)to Ended Ended 1995(b) to June 30, June 30, June 30, June 30, June 30, June 30, 1998 1997 1996 1998 1997 1996 ------------- ------------- ------------------ ------------- ------------- ------------------- Per Share Operating Performance Net asset value, beginning of period $ 15.81 $ 16.59 $ 14.22 $ 15.87 $ 16.63 $ 14.22 ------------- ------------- ------------- ------------- --------- ------------- Income from investment operations: Net investment income (loss) (0.04) -- 0.06 -- 0.02 0.08 Net realized and unrealized gain on investments 2.97 4.13 2.61 2.98 4.16 2.63 ------------- ------------- ------------- ------------- --------- ------------- Total from investment operations 2.93 4.13 2.67 2.98 4.18 2.71 ------------- ------------- ------------- ------------- --------- ------------- Less distributions from: Net investment income -- -- 0.06 -- 0.02 0.06 Distributions in excess of net investment income 0.03 -- -- 0.05 0.01 -- Realized gains on investment 1.85 4.91 0.24 1.85 4.91 0.24 ------------- ------------- ------------- ------------- --------- ------------- Total distributions 1.88 4.91 0.30 1.90 4.94 0.30 ------------- ------------- ------------- ------------- --------- ------------- Net asset value, end of period $ 16.86 $ 15.81 $ 16.59 $ 16.95 $ 15.87 $ 16.63 ============= ============= ============= ============= ========= ============= Total Return(c) 19.76% 29.92% 18.98% 20.00% 30.26% 19.26% Ratios/Supplemental Data Net assets, end of period (000's) $ 77,787 $ 37,427 $ 10,509 $ 14,675 $ 6,748 $ 1,961 Ratios to average net assets: Expenses 2.07% 2.16% 2.38%(d) 1.82% 1.91% 2.13%(d) Net investment income (0.41)% (0.04)% 0.07%(d) (0.16)% 0.22% 0.32%(d) Portfolio turnover rate 53% 77% 15% 53% 77% 15% Average commission rate paid(e) $ 0.0422 $ 0.0686 -- $ 0.0422 $ 0.0686 --
- ------------ (a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired assets of Pilgrim Management Corporation, the Fund's former Investment Manager, in a transaction that closed on April 7, 1995. (b) Commencement of offering of shares. (c) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (d) Annualized. (e) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. See Accompanying Notes to Financial Statements 43 Pilgrim America MidCap Value Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
Class A ------------------------------------------------- Year Year Ten Months Ended Ended Ended June 30, June 30, June 30, 1998 1997 1996 (a) ------------- ------------- --------------------- Per Share Operating Performance Net asset value, beginning of period $ 14.64 $ 11.99 $ 10.00 Income from investment Operations Net investment income (loss) (0.07) (0.02) 0.13 Net realized and unrealized gain on investments 2.71 2.85 1.91 ------------- ------------- ------------- Total from investment operations 2.64 2.83 2.04 ------------- ------------- ------------- Less distributions: Net investment income -- -- 0.05 In excess of net investment income -- 0.07 -- Realized gains on investments 0.49 0.11 -- ------------- ------------- ------------- Total distributions 0.49 0.18 0.05 ------------- ------------- ------------- Net asset value, end of period $ 16.79 $ 14.64 $ 11.99 ============= ============= ============= Total Return (b) 18.40% 23.89% 20.48% Ratios/Supplemental Data Net assets, end of period (000's) $ 27,485 $ 16,985 $ 2,389 Ratios to average net assets: Expenses (c)(d)(e) 1.75% 1.75% 1.75%(f) Net investment income (loss) (c)(d)(e) (0.53)% (0.13)% 2.00%(f) Portfolio turnover rate 85% 86% 60%(f) Average commission rate paid (g) $ 0.0421 $ 0.0592 -- Class B Class M ------------------------------------------------- ---------------------------- Year Year Ten Months Year Year Ended Ended Ended Ended Ended June 30, June 30, June 30, June 30, June 30, 1998 1997 1996 (a) 1998 1997 ------------- ------------- --------------------- ------------- -------------- Per Share Operating Performance Net asset value, beginning of period $ 14.49 $ 11.94 $ 10.00 $ 14.49 $ 11.93 Income from investment Operations Net investment income (loss) (0.18) (0.05) 0.07 (0.15) (0.03) Net realized and unrealized gain on investments 2.65 2.76 1.90 2.67 2.76 ------------- ------------- ------------- ------------- ------------- Total from investment operations 2.47 2.71 1.97 2.52 2.73 ------------- ------------- ------------- ------------- ------------- Less distributions: Net investment income -- -- 0.03 -- -- In excess of net investment income -- 0.05 -- -- 0.06 Realized gains on investments 0.49 0.11 -- 0.49 0.11 ------------- ------------- ------------- ------------- ------------- Total distributions 0.49 0.16 0.03 0.49 0.17 ------------- ------------- ------------- ------------- ------------- Net asset value, end of period $ 16.47 $ 14.49 $ 11.94 $ 16.52 $ 14.49 ============= ============= ============= ============= ============= Total Return (b) 17.40% 22.95% 19.80% 17.76% 23.21% Ratios/Supplemental Data Net assets, end of period (000's) $ 40,575 $ 23,258 $ 2,123 $ 13,232 $ 8,378 Ratios to average net assets: Expenses (c)(d)(e) 2.50% 2.50% 2.50%(f) 2.25% 2.25% Net investment income (loss) (c)(d)(e) (1.28)% (0.90)% 1.27%(f) (1.03)% (0.63)% Portfolio turnover rate 85% 86% 60%(f) 85% 86% Average commission rate paid (g) $ 0.0421 $ 0.0592 -- $ 0.0421 $ 0.0592 Ten Months Ended June 30, 1996 (a) --------------------- Per Share Operating Performance Net asset value, beginning of period $ 10.00 Income from investment Operations Net investment income (loss) 0.06 Net realized and unrealized gain on investments 1.91 ------------- Total from investment operations 1.97 ------------- Less distributions: Net investment income 0.04 In excess of net investment income -- Realized gains on investments -- ------------- Total distributions 0.04 ------------- Net asset value, end of period $ 11.93 ============= Total Return (b) 19.82% Ratios/Supplemental Data Net assets, end of period (000's) $ 1,731 Ratios to average net assets: Expenses (c)(d)(e) 2.25%(f) Net investment income (loss) (c)(d)(e) 1.16%(f) Portfolio turnover rate 60%(f) Average commission rate paid (g) --
- ------------ (a) The Fund commenced operations on September 1, 1995. (b) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return information for less than one year is not annualized. (c) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1998, the ratios of expenses to average net assets were 1.78%, 2.53% and 2.28% and the ratios of net investment income (loss) to average net assets were (0.57)%, (1.32)% and (1.07)% 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. (g) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. See Accompanying Notes to Financial Statements 44 Pilgrim America LargeCap Value Fund* - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
Class A ---------------------------------------------- Year Year Ten Months Ended Ended Ended June 30, June 30, June 30, 1998 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 2.30 2.63 1.87 --------- --------- ------------- Total from investment operations 2.31 2.69 1.94 --------- --------- ------------- Less distributions: Net investment income -- -- 0.07 In excess of net investment income -- 0.05 0.01 Realized gains on investments 1.59 0.24 0.09 In excess of realized gains 0.19 -- -- --------- --------- ------------- Total distributions 1.78 0.29 0.17 --------- --------- ------------- Net asset value, end of period $ 14.70 $ 14.17 $ 11.77 ========= ========= ============= Total Return (b) 17.71% 23.24% 19.56% Ratios/Supplemental Data Net assets, end of period (000's) $ 7,606 $ 8,961 $ 2,530 Ratios to average net assets: Expenses (c)(d)(e) 1.75% 1.75% 1.75%(f) Net investment income (loss) (c)(d)(e) 0.03% 0.41% 0.65%(f) Portfolio turnover rate 78% 86% 59%(f) Average commission rate paid (g) $ 0.0518 $ 0.0586 -- Class B Class M ---------------------------------------------- ---------------------------- Year Year Ten Months Year Year Ended Ended Ended Ended Ended June 30, June 30, June 30, June 30, June 30, 1998 1997 1996 (a) 1998 1997 ------------- ------------- ------------------ -------------- ------------- Per Share Operating Performance Net asset value, beginning of period $ 14.04 $ 11.71 $ 10.00 $ 14.10 $ 11.73 Income from investment operations Net investment income (loss) (0.10) (0.02) 0.06 (0.07) -- Net realized and unrealized gain on investments 2.28 2.59 1.81 2.30 2.62 ------------- ------------- ------------- ------------- ------------- Total from investment operations 2.18 2.57 1.87 2.23 2.62 ------------- ------------- ------------- ------------- ------------- Less distributions: Net investment income -- -- 0.06 -- -- In excess of net investment income -- -- 0.01 -- 0.01 Realized gains on investments 1.59 0.24 0.09 1.59 0.24 In excess of realized gains 0.19 -- -- 0.19 -- ------------- ------------- ------------- ------------- ------------- Total distributions 1.78 0.24 0.16 1.78 0.25 ------------- ------------- ------------- ------------- ------------- Net asset value, end of period $ 14.44 $ 14.04 $ 11.71 $ 14.55 $ 14.10 ============= ============= ============= ============= ============= Total Return (b) 16.91% 22.23% 18.85% 17.20% 22.58% Ratios/Supplemental Data Net assets, end of period (000's) $ 15,605 $ 13,611 $ 1,424 $ 5,533 $ 4,719 Ratios to average net assets: Expenses (c)(d)(e) 2.50% 2.50% 2.50%(f) 2.25% 2.25% Net investment income (loss) (c)(d)(e) (0.72)% (0.35)% (0.25)%(f) (0.47)% (0.10)% Portfolio turnover rate 78% 86% 59%(f) 78% 86% Average commission rate paid (g) $ 0.0518 $ 0.0586 -- $ 0.0518 $ 0.0586 Ten Months Ended June 30, 1996 (a) --------------------- Per Share Operating Performance Net asset value, beginning of period $ 10.00 Income from investment operations Net investment income (loss) 0.06 Net realized and unrealized gain on investments 1.83 ------------- Total from investment operations 1.89 ------------- Less distributions: Net investment income 0.06 In excess of net investment income 0.01 Realized gains on investments 0.09 In excess of realized gains -- ------------- Total distributions 0.16 ------------- Net asset value, end of period $ 11.73 ============= Total Return (b) 19.06% Ratios/Supplemental Data Net assets, end of period (000's) $ 1,240 Ratios to average net assets: Expenses (c)(d)(e) 2.25%(f) Net investment income (loss) (c)(d)(e) 0.06%(f) Portfolio turnover rate 59%(f) Average commission rate paid (g) --
- ------------ (a) The Fund commenced operations on September 1, 1995. (b) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return information for less than one year is not annualized. (c) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1998, the ratios of expenses to average net assets were 2.28%, 3.03% and 2.78% and the ratios of net investment income (loss) to average net assets were (0.50)%, (1.25)% and (1.00)% for Class A, B and M shares, respectively. (d) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1997, the ratios of expenses to average net assets were 2.33%, 3.08% and 2.83% and the ratios of net investment income (loss) to average net assets were (0.18)%, (0.91)% and (0.68)% for Class A, B and M shares, respectively. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 5.44%, 5.79% and 5.90% and the annualized ratios of net investment income (loss) to average net assets were (3.04)%, (3.53)% and (3.59)% for Class A, B and M shares, respectively. (f) Annualized. (g) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. * Effective November 1, 1997, Pilgrim America Investments, Inc. assumed the portfolio investment responsibilities of the Fund from ARK Asset Management Company, Inc. See Accompanying Notes to Financial Statements 45 Pilgrim America Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
Class A ---------------------------------------------- Year Year Ten Months Ended Ended Ended June 30, June 30, June 30, 1998 1997 1996 (a) ------------- ------------- ------------------ Per Share Operating Performance Net asset value, beginning of period $ 10.93 $ 10.35 $ 10.00 Income from investment operations: Net investment income (loss) 0.03 0.02 0.03 Net realized and unrealized gain (loss) on investments and foreign currency transactions (6.50) 0.58 0.34 ------------ --------- ------------- Total from investment operations (6.47) 0.60 0.37 ------------ --------- ------------- Less distributions: Net investment income -- -- -- In excess of net investment income -- -- 0.02 Realized gains on investments -- -- -- Tax return of capital -- 0.02 -- ------------ --------- ------------- Total distributions -- 0.02 0.02 ------------ --------- ------------- Net asset value, end of period $ 4.46 $ 10.93 $ 10.35 ============ ========= ============= Total Return (b) (59.29)% 5.78% 3.76% Ratios/Supplemental Data Net assets, end of period (000's) $ 11,796 $ 32,485 $ 18,371 Ratios to average net assets: Expenses (c)(d)(e) 2.00% 2.00% 2.00%(f) Net investment income (loss) (c)(d)(e) 0.38% 0.00% 0.33%(f) Portfolio turnover rate 81% 38% 15% Average commission rate paid (g) $ 0.0081 $ 0.0096 -- Class B Class M ----------------------------------------------- ---------------------------- Year Year Ten Months Year Year Ended Ended Ended Ended Ended June 30, June 30, June 30, June 30, June 30, 1998 1997 1996 (a) 1998 1997 -------------- ------------- ------------------ -------------- ------------- Per Share Operating Performance Net asset value, beginning of period $ 10.83 $ 10.31 $ 10.00 $ 10.86 $ 10.32 Income from investment operations: Net investment income (loss) (0.03) (0.07) (0.01) -- (0.05) Net realized and unrealized gain (loss) on investments and foreign currency transactions (6.43) 0.59 0.32 (6.46) 0.59 ------------- ------------- ------------- ------------- ------------- Total from investment operations (6.46) 0.52 0.31 (6.46) 0.54 ------------- ------------- ------------- ------------- ------------- Less distributions: Net investment income -- -- -- -- -- In excess of net investment income -- -- -- -- -- Realized gains on investments -- -- -- -- -- Tax return of capital -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- Total distributions -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- Net asset value, end of period $ 4.37 $ 10.83 $ 10.31 $ 4.40 $ 10.86 ============= ============= ============= ============= ============= Total Return (b) (59.65)% 5.04% 3.19% (59.48)% 5.26% Ratios/Supplemental Data Net assets, end of period (000's) $ 9,084 $ 30,169 $ 17,789 $ 4,265 $ 11,155 Ratios to average net assets: Expenses (c)(d)(e) 2.75% 2.75% 2.75%(f) 2.50% 2.50% Net investment income (loss) (c)(d)(e) (0.39)% (0.79)% (0.38)%(f) (0.07)% (0.55)% Portfolio turnover rate 81% 38% 15% 81% 38% Average commission rate paid (g) $ 0.0081 $ 0.0096 -- $ 0.0081 $ 0.0096 Ten Months Ended June 30, 1996 (a) ------------------- Per Share Operating Performance Net asset value, beginning of period $ 10.00 Income from investment operations: Net investment income (loss) -- Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.33 ------------- Total from investment operations 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 $ 10.32 ============= Total Return (b) 3.32% Ratios/Supplemental Data Net assets, end of period (000's) $ 6,476 Ratios to average net assets: Expenses (c)(d)(e) 2.50%(f) Net investment income (loss) (c)(d)(e) (0.16)%(f) Portfolio turnover rate 15% Average commission rate paid (g) --
- ------------ (a) The Fund commenced operations on September 1, 1995. (b) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return information for less than one year is not annualized. (c) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1998, the ratios of expenses to average net assets were 2.80%, 3.55% and 3.30% and the ratios of net investment income (loss) to average net assets were (0.42)%, (1.19)% and (0.88)% for Class A, B and M shares, respectively. (d) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1997, the ratios of expenses to average net assets were 2.54%, 3.29% and 3.04% and the ratios of net investment income (loss) to average net assets were (0.53)%, (1.33)% and (1.09)% for Class A, B and M shares, respectively. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of expenses to average net assets were 3.47%, 4.10% and 3.88% and the annualized ratios of net investment income (loss) to average net assets were (1.14)%, (1.73)% and (1.53)% for Class A, B and M shares, respectively. (f) Annualized. (g) For fiscal years beginning on or after September 1, 1995, a fund is required to disclose its average commission rate per share for trades on which commissions are charged. See Accompanying Notes to Financial Statements 46 Pilgrim America High Yield Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
CLASS A ------------------------------------------------------------------------------------------- Eight Months Year Ended June 30, Ended Year Ended October 31, ------------------------------------ June 30, ------------------------------------- 1998 1997 1996 1995(a)(b) 1994 1993 1992 ------------ ----------- ----------- ---------------- ----------- ------------ ------------ Per Share Operating Performance Net asset value, beginning of period $ 6.80 $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77 $ 5.70 Income (loss) from investment operations: Net investment income 0.61 0.61 0.59 0.35 0.54 0.53 0.63 Net realized and unrealized gain (loss) on investments 0.16 0.43 0.16 0.21 (0.51) 0.70 0.07 -------- ------- ------- ----------- ------- -------- -------- Total from investment operation 0.77 1.04 0.75 0.56 0.03 1.23 0.70 -------- ------- ------- ----------- ------- -------- -------- Less distributions from: Net investment income 0.63 0.60 0.54 0.36 0.55 0.53 0.63 Distributions in excess of net investment income -- -- -- -- -- -- -- -------- ------- ------- ----------- ------- -------- -------- Total distributions 0.63 0.60 0.54 0.36 0.55 0.53 0.63 -------- ------- ------- ----------- ------- -------- -------- Net asset value, end of period $ 6.94 $ 6.80 $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77 ======== ======= ======= =========== ======= ======== ======== Total Return(d) 11.71% 17.14% 12.72% 9.77% 0.47% 22.12% 12.65% Ratios/Supplemental Data Net assets, end of period (000's) $102,424 $35,940 $18,691 $ 15,950 $16,046 $ 18,797 $ 17,034 Ratios to average net assets: Expenses(e)(f)(g) 1.00% 1.00% 1.00% 2.25%(i) 2.00% 2.02% 2.03% Net investment income(e)(f)(g)(h) 9.05% 9.54% 9.46% 8.84%(i) 8.73% 8.36% 10.93% Portfolio turnover rate 209% 394% 399% 166% 192% 116% 193% CLASS B CLASS M ------------------------------------------- ------------------------------------------ July 17, July 17, Year Ended June 30, 1995(c) to Year Ended June 30, 1995(c) -------------------------- June 30, ------------------------ June 30, 1998 1997 1996 1998 1997 1996 ------------- ------------ ---------------- ------------ ----------- ----------------- Per Share Operating Performance Net asset value, beginning of period $ 6.78 $ 6.36 $ 6.20 $ 6.78 $ 6.36 $ 6.20 Income (loss) from investment operations: Net investment income 0.58 0.57 0.48 0.59 0.58 0.50 Net realized and unrealized gain (loss) on investments 0.14 0.41 0.14 0.14 0.41 0.14 --------- -------- ----------- -------- --------- ----------- Total from investment operation 0.72 0.98 0.62 0.73 0.99 0.64 --------- -------- ----------- -------- --------- ----------- Less distributions from: Net investment income 0.58 0.56 0.46 0.59 0.57 0.48 Distributions in excess of net investment income -- -- -- -- -- -- --------- -------- ----------- -------- --------- ----------- Total distributions 0.58 0.56 0.46 0.59 0.57 0.48 --------- -------- ----------- -------- --------- ----------- Net asset value, end of period $ 6.92 $ 6.78 $ 6.36 $ 6.92 $ 6.78 $ 6.36 ========= ======== =========== ======== ========= =========== Total Return(d) 10.90% 16.04% 10.37% 11.16% 16.29% 10.69% Ratios/Supplemental Data Net assets, end of period (000's) $ 154,303 $ 40,225 $ 2,374 $ 19,785 $ 8,848 $ 1,243 Ratios to average net assets: Expenses(e)(f)(g) 1.75% 1.75% 1.75%(i) 1.50% 1.50% 1.50%(i) Net investment income(e)(f)(g)(h) 8.30% 8.64% 9.02%(i) 8.55% 8.93% 9.41%(i) Portfolio turnover rate 209% 394% 339% 209% 394% 339%
Footnotes on next page 47 Pilgrim America High Yield Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period (Continued) - -------------------------------------------------------------------------------- - ------------ (a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired assets of Pilgrim Management Corporation, the Fund's former Investment Manager, in a transaction that closed on April 7, 1995. (b) Effective November 1, 1994, High Yield Fund changed its year end to June 30. (c) Commencement of offering of shares. (d) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return information for less than one year is not annualized. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1998, the ratios of expenses to average net assets were 1.17%, 1.92% and 1.67% and the ratios of net investment income to average net assets were 8.88%, 8.13% and 8.38% for Class A, B and M shares, respectively. (f) Prior to the waiver and reimbursement of expenses for the year ended June 30, 1997, the ratios of expenses to average net assets were 1.42%, 2.17% and 1.92% and the ratios of net investment income to average net assets were 9.09%, 8.18% and 8.47% for Class A, B and M shares, respectively. (g) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the ratios of expenses to average net assets were 2.19%, 2.94% (i) and 2.69% (i), and the ratios of net investment income to average net assets were 8.27%, 8.05% (i) and 8.51% (i), for Class A, B and M shares, respectively. (h) Prior to the waiver of expenses, the ratio of expenses to average net assets was 2.35% (i) in 1995 and 2.07% in 1994 for Class A shares. Prior to the waiver of expenses, the ratio of net investment income to average net assets was 8.74% (i) in 1995 and 8.66% in 1994 for Class A shares. (i) Annualized. See Accompanying Notes to Financial Statements 48 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period - --------------------------------------------------------------------------------
CLASS A ----------------------------------------------------------------------------------------------- Year Ended June 30, ----------------------------------------------------------------------------------------------- 1998 1997 1996 1995(a) 1994 1993(c) 1992 ------------- ------------- ----------- ------------- ------------- ------------- ------------- Per Share Operating Performance Net asset value, beginning of period $ 12.71 $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76 $ 13.76 Income (loss) from investment operations: Net investment income 0.64 0.69 0.75 0.84 0.84 1.13 1.19 Net realized and unrealized gain (loss) on investments 0.30 0.20 (0.32) 0.24 (1.17) 0.18 -- ----------- ----------- --------- ----------- ------------- ----------- ----------- Total from investment operations 0.94 0.89 0.43 1.08 (0.33) 1.31 1.19 ----------- ----------- --------- ----------- ------------- ----------- ----------- Less distributions from: Net investment income 0.64 0.69 0.75 0.84 0.90 1.11 1.19 Distributions in excess of net investment income 0.13 0.04 -- -- -- -- -- Tax return of capital -- 0.04 0.06 -- -- -- -- ----------- ----------- --------- ----------- ------------- ----------- ----------- Total distributions 0.77 0.77 0.81 0.84 0.90 1.11 1.19 ----------- ----------- --------- ----------- ------------- ----------- ----------- Net asset value, end of period $ 12.88 $ 12.71 $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76 =========== =========== ========= =========== ============= =========== =========== Total Return(d) 7.63% 7.33% 3.34% 8.96% (2.50)% 9.82% 8.98% Ratios/Supplemental Data Net assets, end of period (000's) $ 23,682 $ 29,900 $ 38,753 $ 43,631 $ 61,100 $ 87,301 $ 96,390 Ratios to average net assets: Expenses(e)(f)(g) 1.50% 1.42% 1.51% 1.40% 1.21% 1.12% 1.10% Net investment income(e)(f)(g) 5.13% 5.78% 5.64% 6.37% 6.44% 8.06% 8.59% Portfolio turnover rate 134% 172% 170% 299% 402% 466% 823% CLASS B CLASS M ---------------------------------------------- --------------------------------------------- Year Year July 17, Year Year July 17, Ended Ended 1995(b) to Ended Ended 1995(b) to June 30, June 30, June 30, June 30, June 30, June 30, 1998 1997 1996 1998 1997 1996 ------------- ------------- ------------------ ------------- ------------ ------------------ Per Share Operating Performance Net asset value, beginning of period $ 12.68 $ 12.59 $ 12.95 $ 12.72 $ 12.59 $ 12.95 Income (loss) from investment operations: Net investment income 0.60 0.67 0.66 0.64 0.70 0.68 Net realized and unrealized gain (loss) on investments 0.24 0.11 (0.37) 0.23 0.14 (0.36) ----------- ----------- ------------- ----------- ---------- ------------ Total from investment operations 0.84 0.78 0.29 0.87 0.84 0.32 ----------- ----------- ------------- ----------- ---------- ------------ Less distributions from: Net investment income 0.60 0.67 0.65 0.63 0.70 0.68 Distributions in excess of net investment income 0.08 0.02 -- 0.08 -- -- Tax return of capital -- -- -- -- 0.01 -- ----------- ----------- ------------- ----------- ---------- ------------ Total distributions 0.68 0.69 0.65 0.71 0.71 0.68 ----------- ----------- ------------- ----------- ---------- ------------ Net asset value, end of period $ 12.84 $ 12.68 $ 12.59 $ 12.88 $ 12.72 $ 12.59 =========== =========== ============= =========== ========== ============ Total Return(d) 6.78% 6.38% 2.25% 7.02% 6.88% 2.52% Ratios/Supplemental Data Net assets, end of period (000's) $ 3,220 $ 1,534 $ 73 $ 224 $ 61 $ 24 Ratios to average net assets: Expenses(e)(f)(g) 2.25% 2.17% 2.26%(h) 2.00% 1.92% 2.01%(h) Net investment income(e)(f)(g) 4.24% 4.92% 4.98%(h) 4.29% 5.25% 5.73%(h) Portfolio turnover rate 134% 172% 170% 134% 172% 170%
Footnotes on next page 49 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period (Continued) - -------------------------------------------------------------------------------- - ------------ (a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired assets of Pilgrim Management Corporation, the Fund's former Investment Manager, in a transaction that closed on April 7, 1995. (b) Commencement of offering of shares. (c) During this period, average daily borrowing were $11,038,044, average monthly shares outstanding were 6,429,755 and average daily borrowings per share were $1.72. The Fund earned income and realized capital gains as a result of entering into reverse repurchase agreements during the six months from July to December 1992. Such transactions constituted borrowing transactions and, as a result, the Fund exceeded its 10% borrowing limitations during that period. Therefore, the Fund's performance was higher than it would have been had the Fund adhered to its investment restrictions. This borrowing technique was discontinued subsequent to December 1992, until April 4, 1995, when shareholders approved a change in the Fund's investment policies. (d) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value and excluding the deduction of sales charges. Total return information for less than one year is not annualized. (e) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1998, the ratios of expenses to average net assets were 1.58%, 2.29% and 2.05% (g), and the ratios of net investment income to average net assets were 5.06%, 4.20% and 4.24% for Class A, B and M shares, respectively. (f) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the ratios of expenses to average net assets were 1.57%, 2.41%(g) and 2.16%(g), and the ratios of net investment income to average net assets were 5.74%, 4.83%(g) and 5.58%(g) for Class A, B and M shares, respectively. (g) Prior to the waiver expenses for the period ended June 30, 1995, the ratio of expenses to average net assets was 1.54%, and the ratio of net investment income to average net assets was 6.23% for Class A shares. (h) Annualized. See Accompanying Notes to Financial Statements 50 Pilgrim America Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 - -------------------------------------------------------------------------------- NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES Organization. Pilgrim America Bank and Thrift Fund, Inc. ("Bank and Thrift Fund"), Pilgrim America Investment Funds, Inc. ("PAIF"), Pilgrim America Masters Series, Inc. ("PAMS") and Pilgrim Government Securities Income Fund ("Government Securities Income Fund") are open-end investment management companies registered under the Investment Company Act of 1940, as amended. Bank and Thrift Fund, the single series of Bank and Thrift Fund, was organized as a Maryland Corporation in 1986. The investment objective of Bank and Thrift Fund is to invest at least 65% of total assets in equity securities of national and state-chartered banks (other than money center banks), thrifts, holding or parent companies of such depository institutions, and in savings accounts of mutual thrifts. The remaining 35% of total assets may be invested in equity securities of money center banks, other financial services companies, other issuers, debt securities, and securities of other investment companies. On October 20, 1997, Bank and Thrift Fund converted from a closed-end fund to an open-end fund. During the current period the Fund changed its year-end from December 31 to June 30. PAIF, a Maryland Corporation organized in 1969, consists of Pilgrim America MagnaCap Fund ("MagnaCap Fund") and Pilgrim America High Yield Fund ("High Yield Fund") each with its own investment objectives and policies. The investment objectives are as follows: MagnaCap Fund -- generally invests in companies that meet the "Rising Dividends" criteria: consistent dividend increases, substantial dividend increases, reinvested substantial earnings, strong balance sheets and attractive prices. High Yield Fund -- invests in high-yielding fixed income securities that do not involve undue risk, relative to the securities' return characteristics. PAMS, a Maryland Corporation organized in 1995, consists of Pilgrim America MidCap Value Fund ("MidCap Value Fund"). Pilgrim America LargeCap Value Fund ("LargeCap Value Fund") and Pilgrim America Asia-Pacific Equity Fund ("Asia-Pacific Equity Fund") each with its own investment objectives and policies. The investment objectives are as follows: MidCap Value Fund -- invests in equity securities of companies believed to be undervalued and that have a market capitalization of between $200 million and $5 billion. LargeCap Value Fund -- invests in equity securities of companies believed to be undervalued that generally have a market capitalization of at least $5 billion. Asia-Pacific Equity Fund -- invests in equity securities of companies based in the Asia-Pacific region which includes China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, but does not include Japan or Australia. Government Securities Income Fund, a California Corporation organized in 1984, is the single series of Government Securities Income Fund. The investment objective of Government Securities Income Fund is to normally invest at least 70% of its assets in securities issued or guaranteed by the U.S. Government, or certain of its agencies and instrumentalities. It does not invest in highly leveraging derivatives. Each Fund, except Bank and Thrift Fund, offers three classes of shares, Class A, Class B and Class M. Bank and Thrift Fund only offers Class A and Class B shares. Each class represents interests in the same assets of the applicable Fund and the classes are identical except for differences in their sales charge structure and ongoing distribution fees. In addition, Class B shares, along with their pro rata reinvested dividend shares, automatically convert to Class A shares approximately eight years after purchase. The following significant accounting policies are consistently followed by the Funds in the preparation of their financial statements, and such policies are in conformity with generally accepted accounting principles for investment companies. A. Security Valuation. Investments in securities traded on a national securities exchange or included on the NASDAQ National Market System are valued at the last reported sale price. Securities traded on an exchange of NASDAQ for which there has been no sale and securities traded in the over- 51 Pilgrim America Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- the-counter-market are valued at the mean between the last reported bid and ask prices. Securities for which market quotations are not readily available are valued at their respective fair values as determined in good faith and in accordance with policies set by the Board of Directors. Investments in securities maturing in less than 60 days are valued at cost, which when combined with accrued interest approximates market value. All investments quoted in foreign currencies will be valued daily in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the time such valuation is determined by each Fund's custodian. U.S. Government obligations are valued by using market quotations or independent pricing services which uses prices provided by market-makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. B. Security Transactions and Revenue Recognition. Securities transactions are accounted for on the trade date. Realized gains and losses are reported on the basis of identified cost of securities delivered. Interest income is recorded on an accrual basis and dividend income is recorded on the ex-dividend date (except in the case of Asia-Pacific Equity Fund, for certain securities which are recorded as soon after the ex-date as the Fund becomes aware of such dividend). All premium amortization and discount accretion are determined by the effective yield method. C. Foreign Currency Translation. The books and records of Asia-Pacific Equity Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (1) Market value of investment securities, other assets and liabilities -- at the exchange rates prevailing at the end of the day. (2) Purchases and sales of investment securities, income and expenses -- at the rates of exchange prevailing on the respective dates of such transactions. Although the net assets and the market value of Asia-Pacific Equity Fund are presented at the foreign exchange rates at the end of the day, Asia-Pacific Equity Fund does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses from investments. Reported net realized foreign exchange gains or losses arise from sales and maturities of short-term securities, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate. Foreign security and currency transactions may involve certain considerations and risks not typically associated with investing in U.S. companies and the U.S. Government. These risks include but are not limited to re-evaluation of currencies and future adverse political and economic developments which could cause securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies and the U.S. Government. D. Foreign Currency Exchange Transactions. Asia-Pacific Equity Fund may enter into foreign currency exchange transactions to convert to and from different foreign currencies and to and from the U.S. dollar in connection with the planned purchases or sales of securities. The Fund either enters into these transactions on a spot basis at the spot rate prevailing in the foreign currency exchange market or uses forward foreign currency contracts to purchase or sell foreign currencies. Asia-Pacific Equity Fund may not invest more than 5% of its assets (at market value at the time of investment) in forward foreign currency contracts. Risks may arise upon entering into forward contracts from the potential inability of counterparties to meet the terms of their forward contracts and from the potential inability of counterparties to meet the terms of their forward contracts and from unanticipated movements in the value of foreign currencies relative to the U.S. dollar. 52 Pilgrim America Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- E. Distributions to Shareholders. The Funds record distributions to their shareholders on ex-date. Distributions from income are declared by MagnaCap Fund on a semi-annual basis. Distributions from income are declared on a monthly basis for High Yield Fund and Government Securities Income Fund. Distributions from income are declared on an annual basis for Bank and Thrift Fund, MidCap Value Fund, LargeCap Value Fund and Asia-Pacific Equity Fund. Distributions from capital gains, if any, are declared on at least an annual basis for all Funds. The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. Key differences are the treatment of short-term capital gains, foreign currency transactions, organization costs and other temporary differences. To the extent that these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassifications. Distributions which exceed net investment income and net realized capital gains for financial reporting purposes but not for tax purposes are reported as distributions in excess of net investment income and/or net realized capital gains. To the extent they exceed net investment income and/or net realized capital gains for tax purposes, they are reported as distributions of paid-in capital. Accordingly, amounts as of June 30, 1998 have been reclassified as follows:
Accumulated net Undistributed realized gains (losses) on Paid-in (overdistributed) investments and foreign capital net investment income currency transactions ------------ ----------------------- ---------------------------- MagnaCap Fund $ -- $ 619,064 $ (619,064) MidCap Value Fund 24,248 (794,518) 770,270 LargeCap Value Fund 24,456 (124,766) 100,310 Asia-Pacific Equity Fund 122,245 139,761 (262,006) Government Securities Income Fund 2,284,236 (348,345) (1,935,891)
F. Federal Income Taxes. The Funds' policies are to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute substantially all of their net investment income and any net realized capital gains to their shareholders. Therefore, a federal income tax provision is not required. In addition, by distributing during each calendar year substantially all of its net investment income and net realized capital gains, each Fund intends not to be subject to any federal excise tax. Capital loss carryforwards were as follows at June 30, 1998:
Amount Expiration Dates ------------ ------------------ Asia-Pacific Equity Fund $5,411,661 2005 to 2006 High Yield Fund 8,803,066 1999 to 2002 Government Securities Income Fund 5,775,551 1999 to 2004
The Board of Directors intends to offset net capital gains with each capital loss carryforward until each carryforward has been fully utilized of expires. In addition, no capital gain distribution shall be made until the capital loss carryforward has been fully utilized or expires. G. Use of Estimates. Management of the Funds has made certain estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. H. Repurchase Agreements. Each Fund may invest any portion of its assets otherwise invested in money market instruments in U.S. Government securities and concurrently enter into repurchase agreements with respect to such securities. Such repurchase agreements will be made only with government securities dealers recognized by the Board of Governors of the Federal Reserve System or with member banks of the Federal Reserve System. Under such agreements, the seller of the security agrees to repurchase it at a mutually agreed upon time and price. The resale price is in excess of the purchase price and reflects an agreed upon interest rate for the period of time the agreement is outstanding. The period of the repurchase agreements is usually short, from overnight to one week, while the underlying securities generally have longer maturities. Each Fund will always receive as collateral securities acceptable to it whose market value is equal to at least 100% 53 Pilgrim America Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- of the amount being invested by the Fund, and the Fund will make payment for such securities only upon physical delivery or evidence of book entry transfer to the account of its custodian. If the seller defaults, a Fund might incur a loss or delay in the realization of proceeds if the value of the collateral securing the repurchase agreement declines and it might incur disposition costs in liquidating the collateral. I. Deferred Organization Expenses. All expenses incurred in connection with the organization and registration of the Funds under the Investment Company Act of 1940 and the Securities Act of 1933 are being amortized by each Fund equally over a period of five years from the date of commencement of its operations. NOTE 2 -- INVESTMENTS For the year ended June 30, 1998, except for The Bank and Thrift Fund which is for the six-month period ended June 30, 1998, the cost of purchases and proceeds from the sales of securities, excluding short-term securities, were as follows: Purchases Sales -------------- -------------- Bank and Thrift Fund $382,295,331 $ 10,392,798 MagnaCap Fund 234,303,110 200,193,554 MidCap Value Fund 65,074,879 51,336,018 LargeCap Value Fund 21,332,996 24,463,884 Asia-Pacific Equity Fund 33,491,548 41,296,173 High Yield Fund 469,752,526 312,276,108 Government Securities Income Fund 37,271,887 37,163,581 NOTE 3 -- INVESTMENT IN AFFILIATE Affiliated companies, as defined in Section 2(a)(3) of the Investment Company Act of 1940, are companies 5% or more of whose outstanding voting shares are held by a fund. At June 30, 1998, Bank and Thrift Fund has the following holding in affiliated companies:
Acquisition Shares Market % of Date Held Cost Value Net Assets ------------------ --------- ------------ ------------ ------------ American Safety Insurance February 13, 1998 Group, Ltd. to June 15, 1998 340,000 $4,064,062 $3,995,000 0.44%
There was no dividend income from affiliates during the year ended June 30, 1998. NOTE 4 -- 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: Bank and Thrift Fund pays the Manager a monthly fee at an annual rate of 1.00% on the first $30 million of average daily net assets of the Fund, 0.75% of the next $95 million of average daily net assets and 0.70% on average daily net assets in excess of $125 million; MagnaCap Fund pays the Manager a monthly fee at an annual rate of 1.00% on the first $30 million of average daily net assets of the Fund, 0.75% of the average daily net assets above $30 million to $250 million, 0.625% of the average daily net assets above $250 million to $500 million, and 0.50% of the average daily net assets in excess of $500 million; MidCap Value Fund and LargeCap Value Fund pay the Manager a monthly fee at an annual rate of 1.00% of each Fund's average daily net assets; Asia-Pacific Equity Fund pays the Manager at an annual rate of 1.25% of the Fund's average daily net assets; for the period from July 1, 1997 to April 17, 1998 High Yield Fund paid the Manager a monthly fee at an annual rate of 0.75% on the first $25 million of average daily net assets of the Fund, 0.625% of 54 Pilgrim America Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- the average daily net assets over $25 million to $100 million, 0.50% of the average daily net assets over $100 million to $500 million, and 0.40% of the average daily net assets in excess of $500 million; for the period from April 18, 1998 to June 30, 1998 the High Yield Fund paid the Manager a monthly fee at an annual rate of 0.60% of daily average net assets; Government Securities Income Fund pays the Manager a monthly fee at an annual rate of 0.50% on the first $500 million of average daily net assets of the Fund, 0.45% of the average daily net assets above $500 million to $1 billion, and 0.40% of the average daily net assets in excess of $1 billion. Each share class of the Funds has adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plans"), whereby Pilgrim America Securities, Inc. (the "Distributor") is reimbursed or compensated (depending on the class of shares) by the Funds for expenses incurred in the distribution of each Funds' shares. Pursuant to the 12b-1 Plans, the Distributor is entitled to payment each month for actual expenses incurred in the distribution and promotion of each Fund's shares, including the printing of prospectuses and reports used for sales purposes, expenses of preparation and printing of sales literature and other such distribution related expenses, including any distribution or service fees paid to securities dealers who have executed a distribution agreement with the Distributor. Under the 12b-1 Plans, each class of shares of the Fund pays the Distributor the following annual fees: Class A Class B Class M --------- --------- --------- Bank and Thrift Fund 0.25% 1.00% N/A MagnaCap Fund 0.30 1.00 0.75% MidCap Value Fund 0.25 1.00 0.75 LargeCap Value Fund 0.25 1.00 0.75 Asia-Pacific Equity Fund 0.25 1.00 0.75 High Yield Fund 0.25 1.00 0.75 Government Securities Income Fund 0.25 1.00 0.75 Each of the Funds has entered into a Service Agreement with PAG whereby PAG will act as 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 June 30, 1998, the Funds owed the following in service fees: Bank and Thrift Fund $13,000 Asia-Pacific Equity Fund $ 2,500 MagnaCap Fund 4,000 High Yield Fund 2,000 MidCap Value Fund 1,000 Government Securities LargeCap Value Fund 850 Income Fund 200 Bank and Thrift Fund's current prospectus allows that until October 17, 1998 a 2% redemption fee will be imposed on redemptions or exchanges of Class A shares acquired prior to October 17, 1997. Such redemption fee is payable to the Fund and is reflected as redemption fee income in the accompanying financial statements. The Manager has voluntarily agreed to limit other expenses, excluding distribution fees, interest, taxes, brokerage and extraordinary expenses to 1.50%, 1.50% and 1.75% of all classes of shares of MidCap Value Fund, LargeCap Value Fund and Asia-Pacific Equity Fund, respectively. This expense limitation will apply to each Fund individually until December 31, 1998. At June 30, 1998 MidCap Value Fund, LargeCap Value Fund and Asia-Pacific Equity Fund accrued $5,638, $20,824, and $13,910, respectively as reimbursement due from the Manager. Effective July 1, 1995, the Manager has voluntarily agreed to waive all or a portion of its fees and reimburse operating expenses of the High Yield Fund, excluding distribution fees, interest, taxes, brokerage and extraordinary expenses, so that total operating expenses do not exceed 0.75% for all classes of shares of the Fund. This expense limitation will apply until December 31, 1998. At June 30, 1998, High Yield Fund accrued $19,932 as a reimbursement due from the 55 Pilgrim America Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- Manager for such excess expenses. The Manager has agreed to reimburse the Government Securities Income Fund for all gross operating costs and expenses of the Fund, excluding any interest, taxes, brokerage commissions, amortization of organizational expenses, extraordinary expenses, and certain distribution fees which exceed 1.50% of the Fund's daily average net assets on the first $40 million of net assets and 1.00% of average daily net assets in excess of $40 million for any one fiscal year. This expense limitation cannot be changed without shareholder approval. At June 30, 1998 no amounts were due from the Manager to the Government Securities Income Fund. During the year ended June 30, 1998, MagnaCap Fund sold an equity security to Bank and Thrift Fund at the closing market price on the trade date. The proceeds and cost of such securities were $6,798,625 and $6,541,097, respectively. NOTE 5 -- CAPITAL SHARES Transactions in capital shares and dollars were as follows:
Class A Shares Class B Shares ---------------------------------- ---------------------------------- Six months Year Six months Year Ended Ended Ended Ended June 30, December 31, June 30, December 31, 1998 1997 1998 1997 ---------------- --------------- ---------------- --------------- Bank and Thrift Fund (Number of Shares) Shares sold 6,598,183 1,562,472 10,545,101 2,911,186 Shares issued as reinvestment of dividends -- 705,087 -- 111,936 Shares redeemed (1,439,132) (1,608,708) (370,014) (66,661) ------------- ------------- ------------ ------------ Net increase in shares outstanding 5,159,051 658,851 10,175,087 2,956,461 ============= ============= ============ ============ Bank and Thrift Fund ($) Shares sold $ 179,351,328 $ 40,159,509 $286,284,458 $ 74,850,403 Shares issued as reinvestment of dividends -- 17,958,557 -- 2,849,887 Shares redeemed (38,524,439) (41,390,698) (9,978,392) (1,756,579) ------------- ------------- ------------ ------------ Net increase in shares outstanding $ 140,826,889 $ 16,727,368 $276,306,066 $ 75,943,711 ============= ============= ============ ============
56 Pilgrim America Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares Class M Shares --------------------------------- ------------------------------- ----------------------------- Year Year Year Year Year Year Ended Ended Ended Ended Ended Ended June 30, June 30, June 30, June 30, June 30, June 30, 1998 1997 1998 1997 1998 1997 ---------------- ---------------- --------------- --------------- -------------- -------------- MagnaCap Fund (Number of Shares) Shares sold 11,183,759 7,162,084 2,388,906 1,625,552 472,559 308,520 Shares issued as reinvestments of dividends 1,790,521 3,978,472 336,705 332,790 74,569 58,378 Shares redeemed (10,784,171) (7,008,858) (478,018) (224,729) (106,454) (59,549) -------------- -------------- ------------ ------------ ------------ ---------- Net increase in shares outstanding 2,190,109 4,131,698 2,247,593 1,733,613 440,674 307,349 ============== ============== ============ ============ ============ ========== MagnaCap Fund ($) Shares sold $ 185,038,585 $ 110,144,369 $ 39,179,921 $ 25,252,042 $ 7,770,216 $4,760,120 Shares issued as reinvestments of dividends 27,653,374 54,179,774 5,144,613 4,499,323 1,144,284 791,740 Shares redeemed (179,526,800) (110,376,550) (7,887,759) (3,781,590) (1,748,484) (948,406) -------------- -------------- ------------ ------------ ------------ ---------- Net increase in shares outstanding $ 33,165,159 $ 53,947,593 $ 36,436,775 $ 25,969,775 $ 7,166,016 $4,603,454 ============== ============== ============ ============ ============ ========== MidCap Value Fund (Number of Shares) Shares sold 1,472,596 1,232,243 1,202,294 1,639,838 317,196 472,644 Shares issued as reinvestment of dividends 36,205 6,530 60,175 7,579 22,792 3,974 Shares redeemed (1,031,906) (277,940) (404,459) (219,806) (117,161) (43,618) -------------- -------------- ------------ ------------ ------------ ---------- Net increase in shares outstanding 476,895 960,833 858,010 1,427,611 222,827 433,000 ============== ============== ============ ============ ============ ========== MidCap Value Fund ($) Shares sold $ 24,410,597 $ 16,074,019 $ 18,867,187 $ 21,333,357 $ 4,990,506 $6,084,452 Shares issued as reinvestment of dividends 546,336 82,971 894,798 96,914 339,604 49,865 Shares redeemed (17,333,221) (3,689,711) (6,378,858) (2,999,461) (1,857,447) (576,445) -------------- -------------- ------------ ------------ ------------ ---------- Net increase in shares outstanding $ 7,623,712 $ 12,467,279 $ 13,383,127 $ 18,430,810 $ 3,472,663 $5,557,872 ============== ============== ============ ============ ============ ========== LargeCap Value Fund (Number of Shares) Shares sold 570,993 538,935 202,935 896,451 65,704 258,463 Shares issued as reinvestment of dividends 70,791 10,222 115,112 10,999 46,941 4,609 Shares redeemed (756,854) (131,788) (206,334) (59,761) (66,998) (34,204) -------------- -------------- ------------ ------------ ------------ ---------- Net increase (decrease) in shares outstanding (115,070) 417,369 111,713 847,689 45,647 228,868 ============== ============== ============ ============ ============ ========== LargeCap Value Fund ($) Shares sold $ 8,310,728 $ 6,622,780 $ 2,865,690 $ 10,967,866 $ 948,490 $3,184,743 Shares issued as reinvestment of dividends 937,280 126,842 1,501,054 136,496 616,329 57,731 Shares redeemed (10,980,774) (1,694,967) (2,915,958) (768,404) (940,590) (436,637) -------------- -------------- ------------ ------------ ------------ ---------- Net increase (decrease) in shares outstanding $ (1,732,766) $ 5,054,655 $ 1,450,786 $ 10,335,958 $ 624,229 $2,805,837 ============== ============== ============ ============ ============ ==========
57 Pilgrim America Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares Class M Shares -------------------------------- -------------------------------- ------------------------------ Year Year Year Year Year Year Ended Ended Ended Ended Ended Ended June 30, June 30, June 30, June 30, June 30, June 30, 1998 1997 1998 1997 1998 1997 ---------------- --------------- ---------------- --------------- --------------- -------------- Asia-Pacific Equity Fund (Number of Shares) Shares sold 11,941,838 6,022,829 760,416 1,612,143 1,111,797 566,273 Shares issued as reinvestment of dividends -- 2,937 -- -- -- 157 Shares redeemed (12,266,159) (4,828,816) (1,467,592) (551,927) (1,169,806) (167,256) ------------- ------------- ------------- ------------ ------------ ------------ Net increase (decrease) in shares outstanding (324,321) 1,196,950 (707,176) 1,060,216 (58,009) 399,174 ============= ============= ============= ============ ============ ============ Asia-Pacific Equity Fund ($) Shares sold $ 70,165,316 $ 63,317,753 $ 5,448,555 $ 16,573,290 $ 6,633,404 $ 5,888,929 Shares issued as reinvestment of dividends -- 28,842 -- -- -- 1,541 Shares redeemed (72,683,235) (50,678,714) (10,287,190) (5,661,337) (7,449,763) (1,750,952) ------------- ------------- ------------- ------------ ------------ ------------ Net increase (decrease) in shares outstanding $ (2,517,919) $ 12,667,881 $ (4,838,635) $ 10,911,953 $ (816,359) $ 4,139,518 ============= ============= ============= ============ ============ ============ High Yield Fund (Number of Shares) Shares sold 17,205,462 4,403,729 18,361,132 6,227,264 2,577,308 1,214,198 Shares issued as reinvestment of dividends 401,106 178,853 368,962 76,353 95,635 29,000 Shares redeemed (8,125,142) (2,232,708) (2,356,559) (745,853) (1,118,663) (134,582) ------------- ------------- ------------- ------------ ------------ ------------ Net increase in shares outstanding 9,481,426 2,349,874 16,373,535 5,557,764 1,554,280 1,108,616 ============= ============= ============= ============ ============ ============ High Yield Fund ($) Shares sold $ 120,395,431 $ 29,353,593 $ 128,294,665 $ 41,339,576 $ 17,998,974 $ 8,052,040 Shares issued as reinvestment of dividends 2,792,483 1,175,204 2,566,895 503,880 664,497 191,335 Shares redeemed (56,782,132) (14,956,120) (16,455,583) (4,952,839) (7,825,635) (893,178) ------------- ------------- ------------- ------------ ------------ ------------ Net increase in shares outstanding $ 66,405,782 $ 15,572,677 $ 114,405,977 $ 36,890,617 $ 10,837,836 $ 7,350,197 ============= ============= ============= ============ ============ ============
58 Pilgrim America Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Class A Shares Class B Shares Class M Shares ---------------------------------- ------------------------------ --------------------------- Year Year Year Year Year Year Ended Ended Ended Ended Ended Ended June 30, June 30, June 30, June 30, June 30, June 30, 1998 1997 1998 1997 1998 1997 ---------------- ---------------- -------------- -------------- ------------ ------------- Government Securities Income Fund (Number of Shares) Shares sold 247,597 87,019 250,027 200,561 42,995 4,833 Shares issued as reinvestment of dividends 54,444 70,258 3,560 890 592 146 Shares redeemed (815,395) (882,634) (123,763) (86,251) (30,971) (2,111) ------------- ------------- ------------ ------------ ---------- --------- Net increase (decrease) in shares outstanding (513,354) (725,357) 129,824 115,200 12,616 2,868 ============= ============= ============ ============ ========== ========= Government Securities Income Fund ($) Shares sold $ 3,180,560 $ 1,099,502 $ 3,221,905 $ 2,523,084 $ 551,951 $ 61,032 Shares issued as reinvestment of dividends 697,317 885,529 35,275 11,224 7,602 1,851 Shares redeemed (10,465,540) (11,132,819) (1,590,074) (1,083,379) (397,555) (26,755) ------------- ------------- ------------ ------------ ---------- --------- Net increase (decrease) in shares outstanding $ (6,587,663) $ (9,147,788) $ 1,667,106 $ 1,450,929 $ 161,998 $ 36,128 ============= ============= ============ ============ ========== =========
NOTE 6 -- CUSTODIAL AGREEMENT Investors Fiduciary Trust Company ("IFTC") serves as the Funds' custodian and recordkeeper. Custody fees paid to IFTC are reduced by an earnings credit based on the cash balances held by IFTC for each of the Funds. For the year ended June 30, 1998, (six months ended June 30, 1998 with respect to the Bank and Thrift Fund) the Funds received the following earnings credits: Bank and Thrift Fund $ 2,039 LargeCap Value Fund $ 677 MagnaCap Fund 2,036 Asia-Pacific Equity Fund 3,052 MidCap Value Fund 1,574 High Yield Fund 40,599 59 Pilgrim America Funds - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- NOTE 7 -- SUBSEQUENT EVENTS Subsequent to June 30, 1998, the following funds declared dividends from net investment income of: Per Share Amount Payable Date Record Date ------------------ ----------------- --------------- MagnaCap Fund Class A $0.0311 August 10, 1998 July 31, 1998 High Yield Fund Class A $0.0500 July 15, 1998 June 30, 1998 Class B $0.0459 July 15, 1998 June 30, 1998 Class M $0.0470 July 15, 1998 June 30, 1998 Class A $0.0500 August 17, 1998 July 31, 1998 Class B $0.0459 August 17, 1998 July 31, 1998 Class M $0.0471 August 17, 1998 July 31, 1998 Government Securities Income Fund Class A $0.0645 July 15, 1998 June 30, 1998 Class B $0.0568 July 15, 1998 June 30, 1998 Class M $0.0596 July 15, 1998 June 30, 1998 Class A $0.0645 August 17, 1998 July 31, 1998 Class B $0.0573 August 17, 1998 July 31, 1998 Class M $0.0593 August 17, 1998 July 31, 1998 60 Pilgrim America Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 - -------------------------------------------------------------------------------- COMMON STOCKS: 89.4% Market Shares Industry/Issuer Value - ---------- ----------------------------------------- ------------- Automotive: 0.6% 220,000 (a) Keystone Automotive Industries, Inc. $ 5,087,500 ------------ Banks: 61.3% 171,000 Alabama National Bancorp (AL) 6,433,875 276,057 Associated Banc-Corp (WI) 10,386,645 14,500 BancFirst Corp. (OK) 674,250 151,155 BB&T Corp. (NC) 10,221,857 114,000 (a) BNCCorp, Inc. (ND) 2,023,500 77,250 (a) BOK Financial Corp. (OK) 3,650,063 218,175 BSB Bancorp, Inc. (NY) 6,599,794 270,000 The Bank of New York Company, Inc. (NY) 16,385,625 123,200 Bank of the Ozarks, Inc. (AR) 3,819,200 545,000 BankBoston Corp. (MA) 30,315,625 176,000 Banknorth Group, Inc. (VT) 6,512,000 91,500 Bay Bancshares, Inc. (TX) 1,784,250 44,500 CCB Financial Corp. (NC) 4,728,125 105,600 CNBT Bankshares, Inc. (TX) 1,597,200 201,000 Columbia Bancorp (MD) 3,618,000 558,500 Comerica Inc. (MI) 37,000,625 154,218 Commerce Bancshares, Inc. (MO) 7,527,766 211,500 Community Bank System, Inc. (NY) 6,622,593 337,474 Community First Bankshares, Inc. (ND) 8,837,600 195,000 Compass Bancshares, Inc. (AL) 8,799,375 57,500 Cowlitz Bancorp. (WA) 693,594 335,000 First American Corp. (TN) 16,121,875 16,000 First Merchants Corp. (IN) 732,000 2,236 First National Bank Anchorage (AK) 2,940,340 417,655 First Security Corp. (UT) 8,940,427 500,187 First Union Corp. (NC) 29,135,892 211,704 Fleet Financial Group, Inc. (MA) 17,677,284 184,320 Greater Bay Bancorp (CA) 6,393,600 40,000 (a) Hamilton Bancorp Inc. (FL) 1,441,250 36,900 (a) Imperial Bancorp. (CA) 1,107,000 114,047 Independent Bank Corp. (MI) 5,018,068 448,800 KeyCorp (OH) 15,988,500 20,000 MainStreet Financial Corp. (VA) 590,000 415,800 Mercantile Bankshares Corp. (MD) 14,475,038 See Accompanying Notes to Financial Statements 61 Pilgrim America Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- Market Shares Industry/Issuer Value - ---------- --------------------------------------------- ------------- Banks (continued) 60,775 (a) National City Bancorporation (MN) $ 2,020,769 469,600 National City Corp. (OH) 33,341,600 491,000 NationsBank Corp. (NC) 37,561,500 42,817 North Dallas Bank & Trust Co. (TX) 2,665,358 164,600 North Fork Bancorp (NY) 4,022,413 52,925 North Valley Bancorp (CA) 1,627,444 147,400 One Valley Bancorp., Inc. (WV) 5,361,675 933,000 Pacific Century Financial Corp. (HI) 22,392,000 609,000 Peoples Heritage Financial Group, Inc. (ME) 14,387,625 119,000 Popular, Inc. (PR) 7,913,500 103,000 Prime Bancshares, Inc. (TX) 2,613,625 190,400 Regions Financial Corp. (AL) 7,818,300 68,500 (a) Six Rivers National Bank (CA) 1,130,250 82,500 Southtrust Corp. (AL) 3,588,750 484,687 Sterling Bancshares, Inc. (TX) 7,633,820 375,900 Summit Bancorp (NJ) 17,855,250 248,400 Summit Bancshares, Inc. (TX) 5,278,500 216,200 (a) Surety Capital Corp. (TX) 918,850 181,900 TCF Financial Corp. (MN) 5,366,050 464,900 Union Planters Corp. (TN) 27,341,931 305,600 UnionBanCal Corp. (CA) 29,490,400 52,000 (a) United Security Bancorp. (WA) 1,118,000 69,800 USBANCORP, Inc. (PA) 5,396,412 53,500 West Coast Bancorp (OR) 1,317,437 55,353 Westamerica Bancorp (CA) 1,778,215 572,000 Westernbank Puerto Rico (PR) 9,652,500 ------------- 558,385,010 ------------- Construction: 0.5% 342,500 (a) Schuff Steel Co. 5,051,875 ------------- Business Services: 0.1% 46,000 (a) CFI ProServices, Inc. 782,000 ------------- Finance: 1.2% 120,000 Comdisco, Inc. 2,280,000 107,500 (a) First Alliance Corp. 752,500 220,000 (a) International Aircraft Investors 1,897,500 327,000 (a) UniCapital Corp. 6,253,875 ------------- 11,183,875 ------------- Construction: 0.9% 376,375 D.R. Horton, Inc. 7,856,828 ------------- See Accompanying Notes to Financial Statements 62 Pilgrim America Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Market Shares Industry/Issuer Value - ----------- ------------------------------------------------------ -------------- Insurance: 4.9% 340,000 (a)(b) American Safety Insurance Group, Ltd. $ 3,995,000 951,000 ARM Financial Group, Inc. Class A 21,040,875 12,852 (a) Delphi Financial Group, Inc. 723,728 80,000 Hartford Life, Inc. 4,555,000 130,000 Liberty Financial Co., Inc. 4,485,000 30,000 London Pacific Group Limited 476,250 341,000 Reliance Group Holdings, Inc. 5,967,500 98,000 (a) Summit Holding Southeast, Inc. 3,123,750 ------------- 44,367,103 ------------- Printing: 0.4% 77,160 (a) Applied Graphics Technologies, Inc. 3,530,070 ------------- Real Estate and Financial Services: 0.3% 175,000 Imperial Credit Commercial Mortgage Investment Corp. 2,285,938 ------------- Retail: 1.9% 389,106 (a) Consolidated Stores Corp. 14,105,093 80,000 (a) Michaels Stores, Inc. 2,822,500 ------------- 16,927,593 ------------- Securities Related Business: 1.1% 560,100 Freedom Securities Corp. 10,151,812 ------------- Thrifts: 16.2% 104,400 Astoria Financial Corp. (NY) 5,585,400 1,525,800 Charter One Financial, Inc. (OH) 51,400,388 710,250 Commercial Federal Corp. (NE) 22,461,656 218,300 Golden West Financial Corp. (CA) 23,208,019 185,000 H.F. Ahmanson & Co. (CA) 13,135,000 20,250 Home Federal Bancorp (IN) 612,563 99,600 InterWest Bancorp, Inc. (WA) 4,320,150 63,655 Laurel Capital Group, Inc. (PA) 1,273,100 200,000 Security First Corp. (OH) 5,150,000 469,000 Washington Mutual Inc. (WA) 20,372,187 ------------- 147,518,463 ------------- Total Common Stocks (Cost $536,979,025) 813,128,067 ------------- LIMITED PARTNERSHIP: 2.0% 701,900 Alliance Capital Management 17,766,844 ------------- Total Limited Partnership Stock (Cost $14,846,289) 17,766,844 ------------- Total Long-Term Investments (Cost $551,825,314) 830,894,911 -------------
See Accompanying Notes to Financial Statements 63 Pilgrim America Bank and Thrift Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 8.8%
Principal Amount Value - ------------- ----------------- Repurchase Agreements: 8.8% $79,817,000 State Street Bank & Trust Repurchase Agreement, 5.70% due 07/01/98 $ 79,817,000 ------------- (Collateralized by $60,280,000 U.S. Treasury Bonds, 8.75% Due 05/15/2017, Market Value $81,428,313) Total Short-Term Investments (Cost $79,817,000) 79,817,000 ------------- Total Investments in Securities (Cost $631,642,314) 100.2% 910,711,911 Liabilities in Excess of Other Assets (0.2)% (1,603,492) ---------- ------------- Net Assets 100.0% $ 909,108,419 ========== ============= - ------------------------- Cost for federal income tax purposes is $631,732,896. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 286,147,085 Gross Unrealized Depreciation (7,168,070) ------------- Net Unrealized Appreciation $ 278,979,015 =============
(a) Non-income producing security (b) Company in which there is any direct or indirect ownership of 5% or more of the outstanding voting securities. See Accompanying Notes to Financial Statements 64 Pilgrim America MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 - -------------------------------------------------------------------------------- COMMON STOCK: 94.6% Market Shares Value - ---------- ------------- Banks: 3.3% 80,000 Chase Manhattan Corp. $ 6,040,000 88,900 UnionBanCal Corp. 8,578,850 ------------ 14,618,850 ------------ Capital Goods: 1.8% 215,000 Parker Hannifin Corp. 8,196,875 ------------ Chemicals: 2.0% 120,000 Du Pont, (E.I.) DeNemours & Co. 8,955,000 ------------ Communications Equipment: 1.3% 112,500 Motorola, Inc. 5,913,281 ------------ Computers/Hardware: 3.7% 100,000 Hewlett Packard 5,987,500 240,000 (a) Sun Microsystems, Inc. 10,425,000 ------------ 16,412,500 ------------ Computer Software & Service: 2.7% 165,000 Automatic Data Processing, Inc. 12,024,375 ------------ Electrical Equipment: 3.1% 150,000 General Electric Co. 13,650,000 ------------ Energy: 2.6% 165,700 Elf Aquitane-Sponsored ADR 11,764,700 ------------ Energy Services: 1.4% 60,000 Halliburton Co. 2,673,750 150,000 Helmerich & Payne, Inc. 3,337,500 ------------ 6,011,250 ------------ See Accompanying Notes to Financial Statements 65 Pilgrim America MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Market Shares Value - ---------- ------------- Beverages (Non-Alcoholic): 1.9% 200,000 Pepsico, Inc. $ 8,237,500 ------------ Foods: 1.6% 125,000 Sara Lee Corp. 6,992,187 ------------ Healthcare: 4.7% 270,000 Abbott Laboratories 11,036,250 160,000 Hillenbrand Industries 9,600,000 ------------ 20,636,250 ------------ Hotels: 2.0% 368,100 Patriot American Hospitality, Inc. 8,811,394 ------------ Industrial: 4.1% 170,000 Nucor Corp. 7,820,000 217,500 Praxair, Inc. 10,181,719 ------------ 18,001,719 ------------ Insurance: 1.8% 185,000 Traveler's Property Casualty Corp. -- Class A 7,931,875 ------------ Insurance Life: 2.7% 400,000 AFLAC, Inc. 12,125,000 ------------ Integrated Oil-International: 1.3% 70,000 Chevron Corp. 5,814,375 ------------ Leisure: 1.6% 278,800 Brunswick Corp. 6,900,300 ------------ Machinery & Equipment: 0.9% 120,000 Dover Corp. 4,110,000 ------------ Diversified Manufacturing: 1.6% 187,500 Lancaster Colony Corp. 7,101,562 ------------ Manufacturing / Electronic: 2.0% 105,000 Honeywell, Inc. 8,774,063 ------------
See Accompanying Notes to Financial Statements 66 Pilgrim America MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- -------------- Medical Products: 4.9% 200,000 Baxter International $ 10,762,500 137,400 Becton Dickinson & Co. 10,665,675 ------------- 21,428,175 ------------- Industrial Equipment: 0.8% 50,000 Illinois Tool Works, Inc. 3,334,375 ------------- Office Equipment & Services: 1.7% 75,000 Xerox Corp. 7,621,875 ------------- Office Products & Services: 1.7% 136,500 Avery-Dennison Corp. 7,336,875 ------------- Integrated Oil -- Domestic: 1.1% 60,000 Atlantic Richfield 4,687,500 ------------- Oil Well Equipment & Services: 2.6% 104,000 Schlumberger Ltd. 7,104,500 130,000 Tidewater, Inc. 4,290,000 ------------- 11,394,500 ------------- Pharmaceuticals: 5.4% 110,000 Bristol-Myers Squibb, Co. 12,643,125 121,000 Schering-Plough Corp. 11,086,625 ------------- 23,729,750 ------------- Regional Banks: 5.3% 169,200 Comerica, Inc. 11,209,500 208,760 First Union Corp. 12,160,270 ------------- 23,369,770 ------------- Restaurant: 5.6% 210,000 McDonalds Corp. 14,490,000 325,000 (a) Tricon Global Restaurants, Inc. 10,298,438 ------------- 24,788,438 ------------- Retail: 8.0% 150,000 Home Depot, Inc. 12,459,375 170,000 Lowe's Companies, Inc. 6,895,625 264,000 Wal-Mart Stores, Inc. 16,038,000 ------------- 35,393,000 ------------- Savings & Loans: 5.6% 546,000 Charter One Financial, Inc. 18,393,375 60,000 Golden West Financial Corp. 6,378,750 ------------- 24,772,125 ------------- See Accompanying Notes to Financial Statements 67 Pilgrim America MagnaCap Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Market Shares Value - ---------- -------------- Electronics -- Semiconductors: 3.0% 125,000 Intel Corp. $ 9,265,625 80,000 Rockwell 3,845,000 ------------- 13,110,625 ------------- Thrifts: 0.6% 60,000 Washington Mutual Inc. 2,606,250 ------------- Transportation: 0.2% 53,200 Arnold Industries, Inc. 784,700 ------------- Total Common Stocks (Cost $301,233,117) 417,341,014 ------------- LIMITED PARTNERSHIP: 1.8% 320,000 Alliance Capital Management 8,100,000 ------------- Total Limited Partnership Stock (Cost $5,994,660) 8,100,000 ------------- Total Long-Term Investments (Cost $307,227,777) 425,441,014 -------------
SHORT-TERM INVESTMENTS: 3.9%
Principal Amount Value - ------------- ---------------- Commercial Paper: 3.9% $17,084,000 Merrill Lynch Commercial Paper, 6.12% due 07/01/98 17,084,000 ------------- Total Short-Term Investments (Cost $17,084,000) 17,084,000 ------------- Total Investments in Securities (Cost $324,311,777)* 100.3% 442,525,014 Liabilities in Excess of Other Assets (0.3)% (1,303,856) ---------- ------------- Net Assets 100.0% $ 441,221,158 ========== =============
- ------------------------- * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 130,663,356 Gross Unrealized Depreciation (12,450,119) ------------- Net Unrealized Appreciation $ 118,213,237 =============
See Accompanying Notes to Financial Statments 68 Pilgrim America MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 - -------------------------------------------------------------------------------- COMMON STOCK: 88.9%
Market Shares Value - ---------- ------------- Automotive: 2.1% 70,000 Mascotech, Inc. $ 1,680,000 ------------ Banks: 3.3% 160,000 John Hancock Bank & Thrift Opportunity Fund 1,910,000 30,000 UST Corp. 795,000 ------------ 2,705,000 ------------ Business Services: 1.5% 101,100 Danka Business Systems 1,194,244 ------------ Building Products: 4.8% 61,400 (a) Dal-Tile International Inc. 602,487 60,000 Johns Manville Corp 903,750 40,000 Masco Corp. 2,420,000 ------------ 3,926,237 ------------ Communications: 4.8% 93,900 Cincinnati Bell Inc. 2,687,887 43,000 General Cable Corp. 1,241,625 ------------ 3,929,512 ------------ Computer Software and Service: 0.1% 7,600 (a) Vanstar Corp. 110,675 ------------ Consumer Products: 2.3% 52,700 Snap-on Inc. 1,910,375 ------------ Diversified Holding Company: 1.1% 46,900 Hussman International, Inc. 870,581 ------------ Electrical Equipment: 7.0% 41,000 Applied Power Inc. -- CL A 1,409,375 14,000 Columbia Energy Group 778,750 63,000 Raychem Corp. 1,862,437 34,000 Thomas & Betts Corp. 1,674,500 ------------ 5,725,062 ------------ Financial: 1.5% 42,000 (a) Golden State Bancorp. 1,249,500 ------------ Food Stores: 3.6% 68,500 (a) Meyer (Fred), Inc. 2,911,250 ------------
See Accompanying Notes to Financial Statements 69 Pilgrim America MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- ------------- Gaming: 3.2% 77,700 (a) Gtech Holdings $ 2,617,519 ------------ Health Care: 5.3% 20,400 Integrated Health Services, Inc. 765,000 9,000 (a) Pacificare Health Systems 795,375 37,100 Wellpoint Health Network 2,745,400 ------------ 4,305,775 ------------ Industrial: 1.4% 301,300 (a) Laidlaw Environmental Services 1,092,212 ------------ Insurance: 2.4% 30,400 Allamerica Financial Corp. 1,976,000 ------------ Life Insurance: 2.1% 37,000 Torchmark Corp. 1,692,750 ------------ Machinary & Equipment: 2.6% 64,500 United Dominion Industry Ltd. 2,152,687 ------------ Medical: 1.7% 30,000 Allergan, Inc. 1,391,250 ------------ Real Estate and Financial Services: 1.8% 67,700 Trizec Hahn Corp. 1,451,319 ------------ Office Products & Services: 5.2% 38,700 (a) Choicepoint Inc. 1,959,187 34,400 (a) United Stationers Inc. 2,227,400 ------------ 4,186,587 ------------ Oil & Gas: 8.6% 38,600 Coastal Corp. 2,694,762 268,000 (a) EEX Corp. 2,512,500 91,580 (a) Ocean Energy New 1,791,534 ------------ 6,998,796 ------------ Packaging Products: 3.2% 57,500 (a) Owens-Illinois, Inc. 2,573,125 ------------ Pharmaceuticals: 1.5% 19,800 Perkin-Elmer Corp. 1,231,313 ------------ See Accompanying Notes to Financial Statements 70 Pilgrim America MidCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Market Shares Value - ---------- ------------- Railways: 1.3% 35,112 Marketspan Corp. $ 1,051,166 ------------ Restaurants: 0.9% 42,200 Luby's Cafeterias Inc. 741,138 ------------ Retail: 1.9% 2,800 Harcourt General Inc. 166,600 126,200 (a) Sunglass Hut International 1,396,088 ------------ 1,562,688 ------------ Technology: 7.0% 70,000 Comsat Corp 1,981,875 79,400 (a) General Instrument Corp. 2,158,688 72,000 (a) Unova, Inc. 1,548,000 ------------ 5,688,563 ------------ Textile: 1.2% 28,600 Unifi Inc. 979,550 ------------ Utilities: 5.5% 50,600 Interstate Energy Corp. 1,644,500 80,600 Montana Power Co. 2,800,850 ------------ 4,445,350 ------------ Total Common Stocks (Cost $61,512,458) 72,350,224 ------------ WARRANTS: 0.3% Financial: 0.3% 42,000 (a) Golden State Bancorp 223,125 ------------ Total Warrants (Cost $161,936) 223,125 ------------ Total Long-Term Investments (Cost $61,674,394) 72,573,349 ------------
SHORT-TERM INVESTMENTS: 12.3%
Principal Amount Value - ------------ ---------------- Repurchase Agreement: 12.3% $9,965,000 State Street Bank & Trust Repurchase Agreement, 5.70% 9,965,000 ------------ due 07/01/98 (Collaterized by $7,530,000 U.S. Treasury Bonds, 8.75% Due 05/15/2017, Market Value $10,171,784) Total Short-Term Investments (Cost $9,965,000) 9,965,000 ------------ Total Investments (Cost $71,639,394)* 101.5% 82,538,349 Liabilities in Excess of Other Assets (1.5)% (1,246,835) ---------- ------------ Net Assets 100.0% $ 81,291,514 ========== ============ (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 $ 12,975,135 Gross Unrealized Depreciation (2,076,180) ------------ Net Unrealized Appreciation $ 10,898,955 ============
See Accompanying Notes to Financial Statements 71 Pilgrim America LargeCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 - -------------------------------------------------------------------------------- COMMON STOCK: 96.3% Market Shares Value - -------- ------------ Airlines: 4.5% 8,100 (a) AMR Corp. $ 674,325 8,100 (a) UAL Corp. 631,800 ----------- 1,306,125 ----------- Automotive: 3.4% 4,500 Goodyear Tire & Rubber Corp. 289,969 17,500 Harley Davidson, Inc. 678,125 ----------- 968,094 ----------- Banks: 5.6% 10,600 Chase Manhattan Corp. 800,300 13,770 First Union Corp. 802,102 ----------- 1,602,402 ----------- Broadcasting: 1.4% 10,435 (a) Tele-Communications-TCI Group -- A 401,095 ----------- Building Products: 1.6% 7,400 Masco Corp. 447,700 ----------- Capital Goods: 1.3% 10,000 Parker Hannifin Corp. 381,250 ----------- Chemicals: 2.5% 9,700 DuPont, (E.I.) DeNemours & Co. 723,862 ----------- Computer Services: 1.8% 9,000 (a) Ceridian Corp. 528,750 ----------- Computer Systems: 2.6% 8,300 (a) Seagate Technology 197,644 12,600 (a) Sun Microsystems 547,313 ----------- 744,957 ----------- Defense: 1.8% 4,900 Lockheed Martin Corp. 518,788 ----------- Foods: 1.2% 18,531 Archer-Daniels-Midland 359,038 ----------- See Accompanying Notes to Financial Statements 72 Pilgrim America LargeCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- Market Shares Value - -------- ------------ Healthcare: 4.4% 23,000 Abbot Laboratories $ 940,125 10,300 (a) Humana, Inc. 321,231 ----------- 1,261,356 ----------- Industrial: 2.2% 13,500 Praxair Inc. 631,969 ----------- Insurance: 8.2% 7,000 Allstate Corp. 640,938 10,200 Cigna Corp. 703,800 8,100 Chubb Corp. 651,037 1,400 General Re Corp. 354,900 ----------- 2,350,675 ----------- Insurance Life: 1.3% 5,300 American General Corp. 377,294 ----------- Integrated Oil -- International: 1.0% 3,500 Chevron 290,719 ----------- Manufacturing: 2.5% 16,000 AlliedSignal, Inc. 710,000 ----------- Leisure: 1.6% 12,000 Carnival Corp. -- CLA 475,500 ----------- Natural Gas Pipeline: 2.0% 10,000 Enron 540,625 800 Williams Cos Inc. 27,000 ----------- 567,625 ----------- Office Equipment, Products & Services: 5.6% 6,500 Hewlett Packard 389,187 4,300 International Business Machines 493,694 7,100 Xerox Corp. 721,537 ----------- 1,604,418 ----------- Oil & Gas: 3.8% 6,900 Amerada Hess Corp. 374,756 3,800 Burlington Resources 163,638 20,100 Occidental Petroleum Corp. 542,700 ----------- 1,081,094 ----------- Oil Well Equipment & Services: 2.0% 8,500 Baker Hughes 293,781 9,000 Tidewater Inc. 297,000 ----------- 590,781 ----------- See Accompanying Notes to Financial Statements 73 Pilgrim America LargeCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- Market Shares Value - -------- ------------- Paper and Forest Products: 1.4% 8,700 Kimberly-Clark Corp. $ 399,113 ------------ Pharmaceuticals: 7.2% 7,000 Bristol-Myers Squibb Co. 804,562 5,300 Johnson & Johnson 390,875 9,500 Schering-Plough Corp. 870,438 ------------ 2,065,875 ------------ Publishing: 2.5% 10,000 Gannett Co. 710,625 ------------ Regional Banks: 1.3% 1,000 Wells Fargo & Co. 369,000 ------------ Restaurant: 1.3% 5,600 McDonald Corp. 386,400 ------------ Retail: 9.5% 10,100 (a) Federated Department Stores, Inc. 543,506 26,800 Lowe's Companies 1,087,075 17,800 Sears, Roebuck and Co. 1,086,913 ------------ 2,717,494 ------------ Technology: 3.5% 8,000 Intel Corp. 593,000 5,900 (a) National Semiconductor 77,806 7,000 Rockwell 336,438 ------------ 1,007,244 ------------ Utilities: 7.3% 2,300 American Electric Power 104,362 15,220 Bell Atlantic Corp. 694,412 4,100 Consolidated Edison of NY 188,856 12,600 GTE Corp. 700,875 10,300 SBC Communications 412,000 ------------ 2,100,505 ------------ Total Common Stocks (Cost $22,994,397) 27,679,748 ------------ See Accompanying Notes to Financial Statments 74 Pilgrim America LargeCap Value Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 3.7%
Principal Amount Value - ------------ ---------------- Repurchase Agreement: 3.7% $1,072,000 State Street Bank & Trust Repurchase Agreement, 5.70% due 07/01/98 $ 1,072,000 ------------ (Collaterized by $810,000 U.S. Treasury Bonds, 8.75% Due 05/15/2017, Market Value $1,094,176) Total Short-Term Investments (Cost $1,072,000) 1,072,000 ------------ Total Investments in Securities (Cost $24,066,397)* 100.0% 28,751,748 Liabilities in Excess of Other Assets (0.0)% (7,346) ---------- ------------ Net Assets 100.0% $ 28,744,402 ========== ============
- ------------------------- (a) Non-income producing security ADR -- American Depository Receipt * Cost for federal income tax purposes is $24,074,744. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 5,596,562 Gross Unrealized Depreciation (919,557) ----------- Net Unrealized Appreciation $ 4,677,005 ===========
See Accompanying Notes to Financial Statments 75 Pilgrim America Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 - -------------------------------------------------------------------------------- COMMON STOCK: 83.2% Market Shares Value - ---------- ------------ CHINA: 1.6% Automotive: 0.8% 732,000 Qingling Motor Co. $ 203,150 ----------- Mines & Minerals: 0.4% 550,000 (a) Yanzhou Coal Mining Co. 105,072 ----------- Construction: 0.4% 644,000 Zhejiang Expressway CL H 108,068 ----------- Total China 416,290 ----------- HONG KONG: 42.5% Commercial & Industrial: 8.7% 140,000 Citic Pacific, Ltd. 247,580 270,000 Hutchison Whampoa, Ltd. 1,425,455 135,000 Swire Pacific, Ltd. 509,713 ----------- 2,182,748 ----------- Communication: 4.2% 600,000 (a) China Telcom (HK) 1,041,694 ----------- Construction: 2.1% 275,000 Cheung Kong Infrastructure 520,040 ----------- Diversified Holdings : 1.5% 600,000 Ocean-Land Group Ltd. 116,174 300,000 (a) Tianjin Development Holdings 255,583 ----------- 371,757 ----------- Financial: 2.3% 280,000 Dao Heng Bank Group, Ltd. 397,573 140,000 Wing Hang Bank, Ltd. 187,040 ----------- 584,613 ----------- Properties: 10.1% 240,000 Cheung Kong Holdings, Ltd. 1,180,328 300,000 China Resources Enterprises 309,797 150,000 New World Development Co., Ltd. 290,435 180,000 Sun Hung Kai Properties, Ltd. 764,425 ----------- 2,544,985 ----------- See Accompanying Notes to Financial Statements 76 Pilgrim America Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Market Shares Value - ----------- ------------- Utilities: 13.6% 260,000 CLP Holdings, Ltd. $ 1,184,717 330,000 Hong Kong Electric Holdings, Ltd. 1,022,331 650,000 Hong Kong Telecommunications, Ltd. 1,220,795 ------------ 3,427,843 ------------ Total Hong Kong 10,673,680 ------------ MALAYSIA: 4.0% Commercial & Industrial: 3.8% 110,000 Genting Berhad 199,468 266,000 Magnum Corporation Berhad 99,043 281,000 Sime Darby Berhad 194,309 196,000 Telekom Malaysia 331,721 113,000 Tenaga Nasional Berhad 136,605 ------------ 961,146 ------------ Diversified Holdings : 0.2% 50,000 Jaya Tiasa Holdinds BHD 62,258 ------------ Total Malaysia 1,023,404 ------------ PHILIPPINES: 5.8% Communications: 1.8% 580,000 (a) Benpres Holdings GDR 87,626 16,000 Philippine Long Distance Telephone Co., ADR 362,000 ------------ 449,626 ------------ Real Estate & Financial Services: 2.8% 2,450,000 SM Prime Holdings, Inc. 387,770 633,800 Ayala Land Inc. 182,388 22,000 Metropolitan Bank & Trust 129,257 ------------ 699,415 ------------ Technology: 0.4% 4,000 Phillipine Long Distance 91,127 ------------ Utilities: 0.8% 80,000 Manila Electric Co. -- Class B 211,031 ------------ Total Philippines 1,451,199 ------------ SINGAPORE: 12.8% Commercial & Industrial: 0.8% 108,000 Keppel Corp. 162,647 46,000 Keppel Land Ltd. 42,274 ------------ 204,921 ------------
See Accompanying Notes to Financial Statements 77 Pilgrim America Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- ------------ Computer Systems/Software: 0.4% 4,500 (a) Creative Tech Ltd. $ 54,696 12,600 Elec & Eltek International Co. Ltd. 42,588 ----------- 97,284 ----------- Aerospace: 1.7% 591,000 ST Engineering 416,987 ----------- Financial: 3.7% 53,000 Development Bank Singapore 293,816 130,000 Overseas-Chinese Bank 443,199 66,000 United Overseas Bank 205,443 ----------- 942,458 ----------- Food and Beverage: 0.3% 30,400 Fraser & Neave, Ltd. 81,831 ----------- Hotels: 0.4% 117,000 Marco Polo Developments 88,100 ----------- Manufacturing: 0.3% 34,000 Venture Manufacturing 64,508 ----------- Properties: 0.8% 71,000 (a) City Developments, Ltd. 198,696 ----------- Publishing: 1.1% 40,000 Singapore Press Holdings, Ltd. 267,995 ----------- Steel: 0.3% 90,000 Natsteel Ltd. 87,513 ----------- Transportation: 0.9% 46,000 Singapore Airlines, Ltd. 215,463 ----------- Utilities: 2.1% 384,000 Singapore Telecommunication 546,425 ----------- Total Singapore 3,212,181 ----------- See Accompanying Notes to Financial Statements 78 Pilgrim America Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- Market Shares Value - ---------- ------------ South Korea: 4.0% Manufacturing: 1.5% 4,563 Samsung Display Devices $ 124,627 7,909 Samsung Electronics Co. 244,816 1,463 Yageo (Rights) -- ----------- 369,443 ----------- Steel: 2.0% 15,000 Pohang Iron & Steel 500,189 ----------- Utilities: 0.5% 12,500 Korea Electric Power 133,376 ----------- Total South Korea 1,003,008 ----------- TAIWAN: 9.6% Building Products: 0.5% 14,223 Asia Cement Corp. 122,676 ----------- Computer Services: 0.4% 6,000 (a) Syntex Technology 102,750 ----------- Computer Systems/Software: 5.0% 92,500 (a) Asustek Computer Inc. -- GDR 694,888 34,000 (a) Taiwan Semiconductor -- Sponsored ADR 573,750 ----------- 1,268,638 ----------- Electrical Equipment: 0.7% 18,900 (a) Yageo Corp. 165,375 ----------- Electronics -- Defense: 0.7% 30,000 (a) Acer Inc. GDR 177,000 ----------- Food & Beverages: 0.4% 10,000 (a) President Enterprises 90,000 ----------- Insurance: 0.9% 13,500 (a) Fubon Insurance Co. LD-GDR 234,563 ----------- Steel: 1.0% 21,268 (a) China Steel Corp., GDR 259,471 ----------- Total Taiwan 2,420,473 ----------- See Accompanying Notes to Financial Statements 79 Pilgrim America Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Market Shares Value - ----------- ------------- Thailand: 2.9% Communications: 0.7% 41,000 Advanced IFO Services $ 175,297 ------------ Financial: 1.1% 66,500 Bangkok Bank 82,138 206,200 Thai Farmers Bank 182,445 ------------ 264,583 ------------ Utilities: 1.1% 37,500 PTT Exploration & Production 285,036 ------------ Total Thailand 724,916 ------------ Total Common Stocks (Cost $32,950,530) 20,925,151 ------------
CONVERTIBLE BONDS: 2.9%
Principal Amount - ----------- TAIWAN: 2.9% Industrial: 2.6% $260,000 Nan Ya Plastic Corp., 1.75% due July 2001 278,200 240,000 Orient Semiconductor Electric, 1.50% due February 2003 214,800 160,000 United Microelectronics, 0.25% due May 2004 168,400 ----------- 661,400 ----------- Marine: 0.3% 54,000 Yangming Marine, 2.00% due October 2001 62,505 ----------- Total Convertible Bonds (Cost $786,082) 723,905 ----------- Total Long-Term Investments (Cost $33,736,612) 21,649,056 -----------
SHORT-TERM INVESTMENTS: 15.4% Repurchase Agreement: 15.4% 3,881,000 State Street Bank & Trust Repurchase Agreement, 5.70% due 07/01/98 3,881,000 --------- (Collaterized by $2,935,000 U.S. Treasury Bonds, 8.75% Due 05/15/2017, Market Value $3,964,698) Total Short-Term Investments (Cost $3,881,000) 3,881,000 ---------
Total Investments (Cost $37,617,612)* 101.5% 25,530,056 Liabilities in Excess of Other Assets (1.5)% (384,760) ---------- ------------ Net Assets 100.0% $ 25,145,296 ========== ============
See Accompanying Notes to Financial Statements 80 Pilgrim America Asia-Pacific Equity Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- (a) Non-income producing security ADR -- American Depository Receipt EDR -- European Depository Receipt GDR -- Global Depository Receipt * Cost for federal income tax purposes is $38,591,300. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 365,323 Gross Unrealized Depreciation (13,426,567) ------------- Net Unrealized Depreciation ($ 13,061,244) ============= The Asia-Pacific Equity Fund had the following outstanding forward foreign currency exchange contracts as of June 30, 1998: Settlement Currency Currency Date to Receive to Deliver ------------ --------------------- ---------------- 7/3/98 30,349 3,915 (Hong Kong dollars) (U.S. dollars) Net unrealized depreciation of $1 on these contracts at June 30, 1998 is included in the accompanying financial statements. See Accompanying Notes to Financial Statements 81 Pilgrim America High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 - -------------------------------------------------------------------------------- COORPORATE BONDS: 84.7%
Principal Market Amount Value - ------------ ------------- Airlines: 0.4% $1,000,000 Amtran Inc., 10.500% due 08/01/04 $ 1,021,250 ------------ Automotive: 1.8% 5,000,000 (a) JH Heafner Co., 10.000% due 05/15/08 5,100,000 ------------ Broadcasting: 1.9% 3,000,000 Salem Communications, 9.500% due 10/01/07 3,127,500 2,000,000 Shop At Home, Inc., 11.000% due 04/01/05 2,077,500 ------------ 5,205,000 ------------ Business Services: 2.9% 2,000,000 (a) MSX International, Inc., 11.375% due 01/15/08 2,070,000 3,000,000 T/SF Communications, 10.375% due 11/01/07 3,075,000 3,000,000 (a) Young America Corp., 11.625% due 02/15/06 2,977,500 ------------ 8,122,500 ------------ Communications: 17.7% 3,000,000 (a) American Cellular Corp., 10.500% due 05/15/08 2,992,500 6,000,000 (a) Bell Technology Group, 13.000% due 05/01/05 6,120,000 2,000,000 (a) CCPR Services, Inc., 10.000% due 02/01/07 2,022,500 3,000,000 (a) Dobson Wireline Co., 12.250% due 06/15/08 2,925,000 5,000,000 (a) Exodus Communications, Inc.,11.250% due 07/01/08 5,018,750 6,000,000 MGC Communications, Inc., 13.000% due 10/01/04 6,000,000 2,000,000 Paging Network, 10.000% due 10/15/08 2,080,000 2,000,000 (a) Pathnet, Inc., 12.250% due 04/15/08 2,170,000 3,000,000 Phonetel Tech, 12.000% due 12/15/06 3,007,500 1,500,000 RCN Corp., 10.000% due 10/15/07 1,545,000 5,000,000 Rogers Cantel, Inc., 8.30% due 10/01/07 4,875,000 5,000,000 Teligent, Inc., 11.500% due 12/01/07 5,087,500 5,000,000 (a) Winstar Communications, Inc., 10.000% due 03/15/08 4,975,000 ------------ 48,818,750 ------------ Consumer Durables: 1.4% 4,000,000 (a) Samsonite Corp., 10.750% due 06/15/08 3,980,000 ------------ Education: 0.7% 2,000,000 (a) La Petite Acad./LPA Hldgs, 10.000% due 05/15/08 2,025,000 ------------ Electronics-Defense: 0.4% 1,500,000 (a) Phase Metrics, Inc., 10.750% due 02/01/05 1,095,000 ------------ Energy: 0.5% 1,500,000 (a) JTM Industries, Inc., 10.000% due 04/15/08 1,522,500 ------------
See Accompanying Notes to Financial Statements 82 Pilgrim America High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Principal Market Amount Value - ------------ ------------- Entertainment: 1.8% $5,000,000 (a) Silver Cinemas, Inc., 10.500% due 04/15/05 $ 5,118,750 ------------ Financial: 1.3% 5,000,000 Emergent Group, 10.750% due 09/15/04 3,675,000 ------------ Food Distributors: 2.5% 5,000,000 Di Giorgio Corp., 10.000% due 06/15/07 4,975,000 2,000,000 (a) Richmont Marketing Specialist, 10.125% due 12/15/07 2,042,500 ------------ 7,017,500 ------------ Foods: 3.9% 2,000,000 CFP Holdings, Inc., 11.625% due 01/15/04 1,880,000 1,000,000 (a) Cuddy International Corp., 10.750% due 12/01/07 967,500 4,000,000 (a) Favorite Brands Intl., Inc., 10.750% due 05/15/06 4,045,000 4,000,000 Imperial Holly Corp., 9.750% due 12/15/07 4,040,000 ------------ 10,932,500 ------------ Gaming: 4.4% 3,000,000 Alliance Gaming Corp., 10.000% due 08/01/07 3,060,000 4,000,000 (a) Fitzgeralds Gaming Corp., 12.250% due 12/15/04 3,890,000 3,000,000 Isle of Capri/Cap Corp., 13.000% due 08/31/04 3,172,500 2,000,000 Venetian Casino, 12.250% due 11/15/04 2,070,000 ------------ 12,192,500 ------------ Industrial: 3.1% 2,500,000 (a) American Business Info., 9.500% due 06/15/08 2,512,500 4,000,000 (a) Aqua Chem, Inc., 11.250% due 07/01/08 4,060,000 2,000,000 (a) Morris Materials Handling, 9.500% due 04/01/08 1,865,000 ------------ 8,437,500 ------------ Leisure: 3.6% 5,000,000 Bally Total Fitness Holding, 9.875% due 10/15/07 5,162,500 3,000,000 Epic Resorts LLC/CAP, 13.000% due 06/15/05 3,000,000 2,000,000 Silverleaf Resorts, Inc., 10.500% due 04/01/08 1,910,000 ------------ 10,072,500 ------------ Manufacturing: 2.4% 2,000,000 Jordan Industries Inc., 10.375% due 08/01/07 2,055,000 5,000,000 (a) Paragon Corp. Holdings, 9.625% due 04/01/08 4,600,000 ------------ 6,655,000 ------------
See Accompanying Notes to Financial Statements 83 Pilgrim America High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Principal Market Amount Value - ------------ ------------- Manufacturing/Electronic: 1.5% $2,000,000 (a) MCMS, Inc., 9.750% due 03/01/08 $ 1,885,000 2,000,000 Motors and Gears, Inc., 10.750% due 11/15/06 2,155,000 ------------ 4,040,000 ------------ Media & Entertainment: 3.8% 3,000,000 Echostar DBS Corp., 12.500% due 07/01/02 3,367,500 2,000,000 James Cable Partners-LP, 10.750% due 08/15/04 2,140,000 5,000,000 Star Choice Communications, 13.000% due 12/15/05 5,118,750 ------------ 10,626,250 ------------ Metals & Minerals: 1.8% 5,000,000 (a) Metal Management, Inc., 10.000% due 05/15/08 4,950,000 ------------ Mines & Minerals: 4.3% 3,000,000 (a) Anker Coal Group, 9.750% due 10/01/07 2,760,000 5,000,000 (a) Lodestar Holdings, Inc., 11.500% due 05/15/05 5,056,250 4,000,000 (a) P&L Coal Holdings Corp., 9.625% due 05/15/08 4,120,000 ------------ 11,936,250 ------------ Oil & Gas: 3.6% 5,000,000 Abraxas Petro, 11.500% due 11/01/04 5,150,000 5,000,000 Transamerican Energy, 11.500% due 06/15/02 4,750,000 ------------ 9,900,000 ------------ Packaging Products: 0.6% 1,500,000 (a) IMPAC Group, Inc., 10.125% due 03/15/08 1,522,500 ------------ Paper & Forest Products: 1.9% 5,000,000 Stone Container Corp., 12.250% due 04/01/02 5,150,000 ------------ Plastic Products: 1.1% 1,000,000 (a) Indesco International, Inc., 9.750% due 04/15/08 987,500 2,000,000 (a) Moll Industries, 10.500% due 07/01/08 2,035,000 ------------ 3,022,500 ------------ Pollution Control: 1.3% 3,500,000 (a) Marsulex, Inc., 9.625% due 07/01/08 3,570,000 ------------ Publishing: 0.8% 2,000,000 (a) American Lawyer Media, 9.750% due 12/15/07 2,080,000 ------------
See Accompanying Notes to Financial Statements 84 Pilgrim America High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - --------------------------------------------------------------------------------
Principal Market Amount Value - ------------ -------------- Retail: 7.0% $6,000,000 (a) Advance Stores Co., Inc., 10.250% due 04/15/08 $ 6,232,500 4,000,000 (a) Cluett American Corp., 10.125% due 05/15/08 3,960,000 2,000,000 Commemorative Brands, 11.000% due 01/15/07 2,032,500 4,000,000 Tuesday Morning, 11.000% due 12/15/07 4,180,000 3,000,000 United Auto Group, 11.000% due 07/15/07 2,940,000 ------------- 19,345,000 ------------- Shipping: 1.1% 2,999,700 (a) Ermis Maritime Holdings, 12.500% due 06/15/06 2,969,703 ------------- Steel: 2.6% 3,000,000 (a) Schuff Steel Co., 10.500% due 06/01/08 3,015,000 4,000,000 WHX Corp., 10.500% due 04/15/05 4,080,000 ------------- 7,095,000 ------------- Textile: 2.6% 3,000,000 Anvil Knitwear, 10.875% due 03/15/07 3,108,750 4,000,000 (a) Westpoint Stevens, 7.875% due 06/15/08 4,000,000 ------------- 7,108,750 ------------- Total Corporate Bonds (Cost $234,698,035) 234,307,203 -------------
WARRANTS: 0.1% Shares - ---------- Communications: 0.1% 2,000 (a) MGC Communication 126,000 115,800 Star Choice Communications -- ------------ Total Warrants (Cost $70,000) 126,000 ------------ OTHER: 0.2% Financial: 0.2% 60,000 Pilgrim America Prime Rate Trust (b) 600,000 ------------- Total Other (Cost $600,000) 600,000 ------------- Total Long-Term Investments (Cost $235,368,035) 235,033,203 -------------
See Accompanying Notes to Financial Statements 85 Pilgrim America High Yield Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 13.2%
Principal Amount Value - -------------- -------------- Commercial Paper: 5.0% $13,970,000 Merrill Lynch Commercial Paper, 6.12% due 07/01/98 $ 13,970,000 ------------- Repurchase Agreements: 8.2% 22,645,000 Merrill Lynch Repurchase Agreement, 5.45% due 07/01/98 22,645,000 ------------- (Collaterized by $22,620,000 U.S. Treasury Note, 5.875% due 02/28/99, Market Value $22,648,428) Total Short-Term Investments (Cost $36,615,000) 36,615,000 -------------
Total Investments in Securities (Cost $271,983,035)* 98.2% 271,648,203 Other Assets in Excess of Liabilities 1.8% 4,863,485 ------ ------------- Net Assets 100.0% $276,511,688 ====== =============
------------------ (a) Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may not be resold subject to that rule, except to qualified institutional buyers. (b) Pilgrim America Prime Rate Trust is a closed-end fund managed by PAII. * Cost for federal income tax purposes is $272,068,325. Net unrealized depreciation consists of: Gross Unrealized Appreciation $ 3,121,315 Gross Unrealized Depreciation (3,541,437) ------------ Net Unrealized Depreciation ($ 420,122) ============
See Accompanying Notes to Financial Statements 86 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 - -------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES: 92.9%
Principal Market Amount Rate Maturity Value - ------------- --------- -------------- ------------- Federal Home Loan Mortgage Corporation: 20.6% $3,205,000 Federal Home Loan Mortgage Corporation 7.010% 2007 $ 3,318,681 244,200 Federal Home Loan Mortgage Corporation 8.500% 2017 257,397 138,151 Federal Home Loan Mortgage Corporation 9.000% 2006 142,770 1,026,451 Federal Home Loan Mortgage Corporation 9.500% 2005 to 2014 1,083,266 91,452 Federal Home Loan Mortgage Corporation 9.905% 2020 97,981 515,216 Federal Home Loan Mortgage Corporation 12.250% 2015 592,978 80,901 Federal Home Loan Mortgage Corporation -- Gold 9.000% 2021 85,464 ------------ 5,578,537 ------------ Federal National Mortgage Association: 33.1% 506,756 Federal National Mortgage Association 8.000% 2023 524,564 850,603 Federal National Mortgage Association 8.500% 2017 to 2021 891,707 276,349 Federal National Mortgage Association 9.000% 2017 292,240 557,646 Federal National Mortgage Association 9.250% 2009 to 2016 591,183 110,152 Federal National Mortgage Association 9.750% 2008 117,622 245,740 Federal National Mortgage Association 10.000% 2007 to 2012 263,599 1,378,262 Federal National Mortgage Association 10.500% 2021 1,544,300 655,546 Federal National Mortgage Association 11.000% 2017 734,560 1,022,189 Federal National Mortgage Association 11.250% 2016 1,155,554 89,921 Federal National Mortgage Association 12.000% 2007 100,474 206,138 Federal National Mortgage Association 12.500% 2007 232,396 1,334,442 Federal National Mortgage Association 13.000% 2012 to 2014 1,550,248 838,942 Federal National Mortgage Association 13.500% 2007 to 2017 996,428 ------------ 8,994,875 ------------ Government National Mortgage Association: 31.3% 1,031,126 Government National Mortgage Association 7.000% 2016 to 2017 1,052,651 699,080 Government National Mortgage Association 7.500% 2023 718,816 1,533,903 Government National Mortgage Association 8.000% 2023 to 2024 1,598,764 1,150,553 Government National Mortgage Association 9.000% 2013 to 2022 1,234,105 536,032 Government National Mortgage Association 9.250% 2016 to 2021 576,847 1,347,321 Government National Mortgage Association 9.500% 2016 to 2019 1,453,917 64,005 Government National Mortgage Association 11.000% 2016 71,578 194,354 Government National Mortgage Association 11.250% 2013 218,995 47,595 Government National Mortgage Association 11.750% 2015 54,308 805,140 Government National Mortgage Association 12.000% 2013 to 2015 919,407 109,565 Government National Mortgage Association 13.000% 2014 128,533 405,090 Government National Mortgage Association -- Mobile Home D 11.250% 2011 455,504 ------------ 8,483,425 ------------ U.S. Treasury Securities: 7.9% 2,000,000 U.S. Treasury Bonds 6.125% 2027 2,143,120 ------------ Total U.S. Government Securities (Cost $24,915,749) 25,199,957 ------------
See Accompanying Notes to Financial Statements 87 Pilgrim Government Securities Income Fund - -------------------------------------------------------------------------------- PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS: 5.8%
Principal Amount Value - ------------ -------------- Repurchase Agreements: 5.8% $1,586,000 State Street Bank & Trust Repurchase Agreement, 5.70% due 07/01/98 $ 1,586,000 ------------- (Collateralized by $1,200,000 U.S. Treasury Bonds, 8.750% due 05/15/2017, Market Value $1,621,000) Total Short-Term Investments (Cost $1,586,000) 1,586,000 ------------- Total Investments in Securities (Cost $26,501,749)* 98.7% 26,785,957 Other Assets in Excess of Liabilities 1.3% 339,781 ------ ------------- Net Assets 100.0% $ 27,125,738 ====== =============
- ------------------ * Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized appreciation consists of: Gross Unrealized Appreciation $ 319,561 Gross Unrealized Depreciation (35,353) ----------- Net Unrealized Appreciation $ 284,208 =========== See Accompanying Notes to Financial Statements 88 Pilgrim America Funds - -------------------------------------------------------------------------------- SHAREHOLDER MEETING - -------------------------------------------------------------------------------- SPECIAL MEETING A special meeting of shareholders of Pilgrim America High Yield Fund was held at the offices of the Fund on April 16, 1998. 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 an Amendment to the Investment Management Agreement between the Fund and Pilgrim America Investments, Inc. that changes the investment management fee paid by the Fund. 11,065,450 1,624,190 861,237 -- 13,550,877 II. To transact such other business as may properly come before the Special Meeting of Shareholders or any adjournments thereof: 12,049,644 613,076 888,156 -- 13,550,876 See Accompanying Notes to Financial Statements 89 Pilgrim America Funds - -------------------------------------------------------------------------------- TAX INFORMATION (Unaudited) - -------------------------------------------------------------------------------- Dividends declared during the tax year ended June 30, 1998 were as follows: Type Per Share Amount ------ ------------------ MagnaCap Fund Class A NII $0.0640 Class B NII $0.0315 Class M NII $0.0464 All Classes STCG $0.3380 All Classes LTCG $1.5071 MidCap Value Fund All Classes STCG $0.3876 All Classes LTCG $0.1011 LargeCap Value Fund All Classes STCG $1.5104 All Classes LTCG $0.2724 Asia-Pacific Equity Fund None High Yield Fund Class A NII $0.6296 Class B NII $0.5774 Class M NII $0.5939 Government Securities Income Fund Class A NII $0.7740 Class B NII $0.6810 Class M NII $0.7115 NII -- Net investment income STCG -- Short-term capital gain taxable as ordinary income LTCG -- Long-term capital gain Corporate shareholders are generally entitled to take the dividend received deduction on the portion of a Funds' dividend distribution that qualifies under tax law. The percentage of fiscal year 1998 net investment income dividends that qualify for the corporate dividend received deduction is 0%, 100%, 62.65%, 22.94%, and 0%, respectively for Bank and Thrift Fund, MagnaCap Fund, MidCap Value Fund, LargeCap Value Fund and Asia-Pacific Equity Fund. Shareholders are strongly advised to consult their own tax advisers with respect to the tax consequences of their investments in the Funds. In January 1999, shareholders, excluding corporate shareholders, will receive an IRS Form 1099 DIV regarding the federal tax status of the dividends and distributions received by you in calendar 1998. 90 Pilgrim America Funds INVESTMENT MANAGER CUSTODIAN Pilgrim America Investments, Inc. Investors Fiduciary Trust Company Two Renaissance Square 127 West 10th Street 40 North Central Avenue, Suite 1200 14th Floor Phoenix, Arizona 85004 Kansas City, Missouri 64105 DISTRIBUTOR LEGAL COUNSEL Pilgrim America Securities, Inc. Dechert Price & Rhoads Two Renaissance Square 1775 Eye Street, N. W. 40 North Central Avenue, Suite 1200 Washington, D.C. 20006 Phoenix, Arizona 85004 1-800-334-3444 SHAREHOLDER SERVICING AGENT INDEPENDENT AUDITORS Pilgrim America Group, Inc. KPMG Peat Marwick LLP Two Renaissance Square 725 South Figueroa Street 40 North Central Avenue, Suite 1200 Los Angeles, California 90017 Phoenix, Arizona 85004 1-800-331-1080 TRANSFER AGENT This report and the financial statements contained herein are DST Systems, Inc. submitted for the general P.O. Box 419368 information of the shareholders of Kansas City, Missouri 64141 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 -----END PRIVACY-ENHANCED MESSAGE-----