<PAGE>
Semi-Annual
Report
[GRAPHIC]
June 30, 2000
(unaudited)
================================================================================
Pilgrim Mutual Funds
================================================================================
PILGRIM
TROIKA DIALOG
RUSSIA FUND, INC.
--------------------------------------------------
Investment Objective: Long-term Capital
Appreciation
<PAGE>
Chairman's Message
-------------------------------------------------------------------------------
Dear Shareholders:
Welcome to the Pilgrim Mutual Funds family. We are pleased to present the
Semi-Annual Report for Pilgrim Troika Dialog Russia Fund, Inc. (formerly
Lexington Troika Dialog Russia Fund, Inc.).
On July 26, 2000, ReliaStar Financial Corp. ("ReliaStar") acquired Lexington
Management Corporation and all of its subsidiaries. In conjunction with the
acquisition, Pilgrim Investments, Inc., a subsidiary of ReliaStar, was
appointed to the role of Investment Adviser to the Fund. As a shareholder in
the Pilgrim family of funds, you now have access to more funds with varying
investment objectives. As a Lexington Fund shareholder as of July 26th, you
can now exchange into any Pilgrim Fund A shares without paying a sales load.
Our fund family has 41 varying types of mutual funds which provide more core
investment choices for the serious investor. We believe that the key to
success is matching quality core investments to the individual needs of
investors. Core investments are the foundation of every portfolio and the
basis of other important investment decisions. Pilgrim prides itself on
providing a family of core investments designed to help you reach your
financial goals. Our goal is for every investor to have a successful
investment experienceSM.
If you have any questions regarding your account, or any other Pilgrim Fund
you can access, please call us at 800-992-0180 or visit our website at
www.pilgrimfunds.com.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim Group, Inc.
August, 2000
<PAGE>
Dear Shareholders:
-------------------------------------------------------------------------------
The Pilgrim Troika Dialog Russia Fund, Inc. (formerly Lexington Troika
Dialog Russia Fund, Inc.) (the "Fund") increased by 2.67%* during the first
six months of 2000. According to Lipper, Inc., the average emerging markets
fund declined by 8.69% over the same time period. The unmanaged Russian
Trading System Index (the "Index") declined by 2.21% during the first half of
2000. For the quarter ended June 30, 2000, the Fund declined by 24.95%* while
the average emerging markets fund according to Lipper declined by 12.07% and
the Index declined by 26.08%.
Portfolio Review
Two broad trends contributed to the Fund's performance: 1) growing political
stability in Russia; and, 2) economic stabilization and recovery due in part
to higher global commodity prices.
On the last day of the old millenium (and just two weeks after very
successful parliamentary elections), Boris Yeltsin voluntarily resigned the
office of the Presidency and turned the reins of power over to his newest
young protege, Vladimir Putin. Combined, the changes in the parliament and in
the presidency were the most peaceful transfers of such power in Russia's
history. On March 26, 2000, Putin was formally elected to the presidency.
With Vladimir Putin has come a period of relative political stability.
Committed to a "Dictatorship of the Law", he has brought a very high level of
energy, focus, and determination to the office of the Presidency. He supports
a continuation and acceleration of economic reforms. Recently, Putin unveiled
a new economic blueprint for Russia which calls for reducing inflation,
stabilizing the ruble, privatizing most state-owned companies, eliminating the
budget deficit, tax reform, strengthening property rights, and attracting
domestic and foreign investment by reducing the state's role in the economy
and opening up the economy. Major components of the tax reform proposals have
already been passed by the DUMA. On the political front, he is determined to
strengthen the power and control of the central government over the country in
general and over the regional administrations in particular. Claiming to be a
democrat, he is at the same time a strong nationalist who intends to maintain
Russia's territorial integrity and who intends to restore Russia's position as
a world power. To do this, he is seeking to increase the powers of the federal
government in general, and of his office in particular. He also understands
that becoming a world power requires economic strength, which will only be
achieved through a market-based economy, which is based on a rule of law. To
this end, he has vowed to address the corruption, which has been so prevalent
in the Russian economy. At this writing, he has already taken several
significant steps to reduce corruption.
Thus far, the formula is working. Putin's economic team and proposals enjoy
support from both the markets and from international financial institutions
such as the IMF. And the economy has made Putin's job easier. Last year's
economic recovery has continued into 2000. (In fact, most economic observers,
including the IMF and the EBRD, feel that Russia is just entering a period of
long-term growth.) GDP grew by 3.2% in 1999 and is expected to grow by 6% or
more this year. Industrial production grew 8.1% in 1999; an equal number is
expected in 2000. In 1999, inflation fell to 36.5% and could fall to 18% in
2000. The ruble has stabilized at around 28 to the dollar. Central Bank
Reserves of over $20 billion are now at record levels and are expected to
increase further by year-end. The government's fiscal situation continues to
improve with growing revenues, although tax reform in the form of lower tax
rates could lead to short-term downward pressure on revenues. (Expenditure
cuts may be necessary as a result.) Finally, the country's external debt load
is becoming much more manageable. On February 11, 2000, the London Club agreed
to write off 36.5 percent of Russia's $32 billion Soviet-era debt. The Paris
Club negotiations this summer are expected to extend the maturity of that
component of the country's external debt. Russia's economic difficulties are
by no means over. However, the country's economy is now in better shape than
at any other time since the collapse
1
<PAGE>
of the Soviet Union and could well be entering a period of sustained growth,
especially if economic reforms happen as planned.
Market Outlook
The Russian equity market initially responded well to the improving
political and economic environment, but declined during the second quarter
with the increased volatility in the U.S. equity markets and with a perception
of renewed political uncertainty as Putin sought to restructure the Federation
Council. As we enter the third quarter, the Russian equity market has begun to
move upward again. We expect this trend to continue over the long-term.
Our long-term positive outlook for Russia is based on several factors.
Russia's new president is very determined to carry out the types of reforms
(property rights, corporate governance, tax reform, market-based economic
policies, reining in the oligarchs) that investors have been demanding for
years. The Russian economy is in the best shape it's been in since the breakup
of the Soviet Union and could be entering a sustained period of growth. This
growth should be enhanced by increased investment in the Russian economy;
independent estimates forecast a doubling in foreign direct investment over
the next five years. Finally, portfolio investment in Russia in 2000 has been
largely confined to domestic investors. We expect that foreign portfolio
investors will return to Russia as developments in the economic and political
spheres continue to be positive and as foreign investors better recognize the
very attractive valuations in Russia. In fact, we continue to believe that
most Russian companies are valued at significant discounts to their global
counterparts and that, therefore, Russia represents one of the best long-term
values in emerging markets.
Given our overall long-term positive outlook Russia, but recognizing that
significant risks still exist in the market, we continue to maintain a higher
level of equity exposure. Within our equity exposure, we continue to emphasize
liquidity. We are well positioned to benefit from continued higher commodity
prices, but have also deployed more assets to those sectors such as
telecommunications, utilities, and consumer products, which provide
exceptional value and should benefit from continuing economic improvement.
As you are aware, Lexington Global Asset Managers, Inc., the parent company
of Lexington Management Corporation was acquired by ReliaStar Financial Corp.
(NYSE:RLR) the parent company of Pilgrim Investments, Inc., an investment
management and mutual fund company with $17 billion of assets under
management.
On May 1, ReliaStar announced that it agreed to be acquired by ING Groep
N.V. ("ING Group") in a transaction that, subject to certain approvals, is
expected to close in the third quarter of this year. ING Group is a global
financial institution that is active in the field of insurance, banking, and
asset management in more than 60 countries.
2
<PAGE>
We wish to thank you for your continued support.
Sincerely,
/s/ Timothy McCarthy
Timothy D. McCarthy Richard M. Hisey, C.F.A.
Portfolio Manager /s/ RIchard M. Hisey
Portfolio Manager
August, 2000 August, 2000
*32.60% and (7.73)% are the one year and since commencement (07/03/96) average
annual standard total returns, respectively, for the period ended June 30,
2000. Investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than at
their original cost. The Fund involves speculative investments, special risks,
such as political, economic, and legal uncertainties, currency fluctuations,
portfolio settlement, and custody risks, and risks of loss arising out of
Russia's system of share registration. Share prices are subject to a
redemption fee of 2% of the redemption proceeds. Total return represents past
performance and is not predictive of future results. There is no guarantee
that the Fund can achieve its objective.
3
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
--------------------------------------------------------------------------------
<C> <S> <C>
COMMON & PREFERRED STOCKS: 89.5%
Aerospace & Defense: 0.0%
32,500,000 Aviastar/1/,/2/ ...................................... $ 29,965
-----------
Airlines: 0.6%
2,446,350 Aeroflot/2/ .......................................... 371,845
-----------
Auto Trucks & Parts: 2.0%
48,550 Gorkovsky Auto Plant.................................. 1,170,055
-----------
Brewers: 4.0%
1,060,350 Sun Interbrew, Ltd. "A"/1/ ........................... 2,159,352
47,800 Sun Interbrew, Ltd. "B"/1/ ........................... 136,279
-----------
2,295,631
-----------
Building Materials: 0.0%
38,000 Alfa Cement/1/,/2/ ................................... 883
-----------
Food Wholesalers: 0.0%
23,800 Samson/1/,/2/ ........................................ 9,532
-----------
Machinery: 0.1%
850,000 Krasny Kotelschik/1/,/2/ ............................. 70,125
11,200,000 Zvezda/2/ ............................................ 14,347
-----------
84,472
-----------
Medical Equipment: 0.0%
21,900 Medpolimer/2/ ........................................ 670
-----------
Merchandising: 0.7%
7,000 Gostiny Dvor/1/,/2/ .................................. 483
235,000 Trade House GUM/1/ ................................... 366,600
10,000 Trade House GUM (ADR)................................. 31,200
-----------
398,283
-----------
Metals And Mining: 7.3%
Common Stock
190,000 Norilsk Nickel/1/ .................................... 1,358,500
-----------
Preferred Stock
433,000 Norilsk Nickel/1/ .................................... 2,857,800
-----------
Total Metals & Mining................................. 4,216,300
-----------
</TABLE>
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
--------------------------------------------------------------------------------
<C> <S> <C>
Natural Gas: 0.4%
Common Stock
35,000 Gazprom (ADR)......................................... $ 245,000
-----------
Preferred Stock
1,800 Transneft/1/,/2/ ..................................... 283
-----------
Total Natural Gas..................................... 245,283
-----------
Oil & Gas Holding Companies: 43.9%
Common Stock
1,876,000 AO Tatneft/1/ ........................................ 917,364
278,700 AO Tatneft (ADR)...................................... 2,717,325
132,987 Lukoil Holdings of Russia/1/ ......................... 1,682,285
119,000 Lukoil Holdings of Russia (ADR)....................... 6,069,000
8,734,000 Surgutneftegaz/1/ .................................... 2,305,776
333,000 Surgutneftegaz (ADR).................................. 4,329,000
-----------
18,020,750
-----------
Preferred Stock
229,750 Lukoil Holdings of Russia/1/ ......................... 2,297,500
40,000 Lukoil Holdings of Russia (ADR)....................... 800,000
28,070,000 Surgutneftegaz/1/ .................................... 3,214,015
95,000 Surgutneftegaz (ADR).................................. 1,083,000
-----------
7,394,515
-----------
Total Oil & Gas Holding Companies..................... 25,415,265
-----------
Oil & Gas Producing Companies: 0.5%
Common Stock
100,000 JSC Rosneftegazstroy/1/ .............................. 179,260
10,000 Megionneftegaz/1/ .................................... 16,000
-----------
195,260
-----------
Preferred Stock
4,000 Udmurtneftegaz/1/,/2/ ................................ 81,000
-----------
Total Oil & Gas Producing Companies................... 276,260
-----------
Oil Drilling & Services: 0.0%
21 Komitek Oil Company/1/,/2/ ........................... 2
-----------
</TABLE>
4
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
--------------------------------------------------------------------------------
<C> <S> <C>
COMMON & PREFERRED STOCKS (continued):
Steel & Iron: 0.1%
1,002,000 Chelyabinsky Trubny Zavod/1/,/2/ ..................... $ 9,599
4,450,000 Taganrogaky Metallurgical Plant/1/,/2/ ............... 40,878
-----------
50,477
-----------
Telecommunications: 21.6%
Common Stock
6,831,400 Bashinformsvyaz/1/,/2/ ............................... 422,030
24,610 Chelyabinskvyazinform/1/,/2/ ......................... 406,065
99,400 Golden Telecom, Inc./1/ .............................. 2,957,150
270,000 Irkutskelectrosvyaz/2/ ............................... 89,100
46,000 Krasnoyarskelectrosvyaz/1/,/2/ ....................... 105,800
85,300 Kubanelectrosvyaz/1/ ................................. 716,520
9,500 Lensvyaz/1/,/2/ ...................................... 74,526
34,400 Moscow Intercity International Telephone/1/,/2/ ...... 143,364
1,100 Moscow Region Electrosvyaz/1/,/2/ .................... 165,000
656,000 Nizhnovsvyazinform/2/ ................................ 643,274
20,383 Novosbirskaya Telephone/1/,/2/ ....................... 305,745
20,000 Novosibirskelectrosvyaz............................... 32,000
766,000 Rostelecom/1/ ........................................ 1,685,200
20,000 Rostelecom (ADR)...................................... 271,250
238,125 Rostov Region Electrosvyaz/1/ ........................ 219,075
28,000 Samarasvyazinform/1/,/2/ ............................. 851,161
20,000 St. Petersburg MMT/1/ ................................ 19,612
350,000 St. Petersburg Telecommunications/1/ ................. 131,250
214,000 Tyumentelecom/1/,/2/ ................................. 199,356
10,000,000 Uralsvyazinform/1/,/2/ ............................... 152,000
42,500 Uralsvyazinform (ADR)/1/ ............................. 142,592
5,000 Uraltelecom/1/,/2/ ................................... 15,750
2 Vimpel-Communications/1/,/2/ ......................... 59
101,964 Vimpel-Communications (ADR)/1/ ....................... 2,249,581
-----------
11,997,460
-----------
</TABLE>
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
-------------------------------------------------------------------------------
<C> <S> <C>
Preferred Stock
189,500 Moscow Telephone Systems/1/,/2/ ..................... $ 213,697
427,000 Nizhnovsvyazinform/1/,/2/ ........................... 98,210
50,000 Rostelecom/1/ ....................................... 34,500
9,300 Samarasvyazinform/1/,/2/ ............................ 68,820
100,000 Smolensksvyazinform/1/,/2/ .......................... 3,342
110,000 St. Petersburg Telecommunications/1/ ................ 18,700
279,099 Tyumentelecom/1/,/2/ ................................ 90,372
-----------
527,641
-----------
Total Telecommunications............................. 12,525,101
-----------
Utilities: 8.3%
Common Stock
5,500,000 Komienergo/1/,/2/ ................................... 34
41,050,000 Mosenergo............................................ 1,559,900
100,000 Mosenergo (ADR)...................................... 375,000
1,335,000 Sverdlovskenergo/1/,/2/ ............................. 40,050
11,400,000 Unified Energy Systems............................... 1,311,000
-----------
3,285,984
-----------
Preferred Stock
450,000 Chelyabenergo/1/,/2/ ................................ 3,884
24,600 Permenergo/1/,/2/ ................................... 3,759
32,861,738 Unified Energy Systems/1/ ........................... 1,511,640
-----------
1,519,283
-----------
Total Utilities...................................... 4,805,267
-----------
TOTAL COMMON & PREFERRED STOCKS (cost $69,761,804)... 51,895,291
-----------
</TABLE>
5
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Principal Value
Amount Security (Note 1)
-------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENT: 10.4%
$6,000,000 U.S. Government Obligation: 10.4%
Federal Home Loan Bank, 6.48%, due 07/03/00
(cost $5,997,840)................................... $ 5,997,840
-----------
TOTAL INVESTMENTS: 99.9% (cost $75,759,644+) (Note
1).................................................. 57,893,131
Other assets in excess of liabilities: 0.1%.......... 63,588
-----------
TOTAL NET ASSETS: 100.0% (equivalent to $6.92 per
share on 8,375,076 shares outstanding).............. $57,956,719
===========
</TABLE>
--------
/1/Non-income producing security.
/2/Illiquid security. (Note 8)
ADR-American Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $80,662,135.
The Notes to Financial Statements are an integral part of this statement.
6
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Statement of Assets and Liabilities
June 30, 2000 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost $75,759,644)
(Note 1)....................................................... $ 57,893,131
Cash............................................................ 661,459
Receivable for fund shares sold................................. 127,110
Dividends and interest receivable............................... 126,381
Deferred organization expenses, net (Note 1).................... 19,198
Other receivables............................................... 6,851
------------
Total Assets................................................. 58,834,130
------------
Liabilities
Due to Lexington Management Corporation (Note 2)................ 149,821
Payable for investment securities purchased..................... 389,875
Payable for fund shares redeemed................................ 119,473
Accrued expenses................................................ 218,242
------------
Total Liabilities............................................ 877,411
------------
Net Assets (equivalent to $6.92 per share on 8,375,076 shares
outstanding) (Note 5).......................................... $ 57,956,719
============
Net Assets consist of:
Capital stock -- authorized 1,000,000,000 shares, $.001 par
value per share................................................ $ 8,375
Additional paid-in-capital...................................... 146,764,159
Accumulated net investment loss................................. (396,446)
Accumulated net realized loss on investments and foreign
currency transactions.......................................... (70,552,856)
Unrealized depreciation of investments and foreign currency
translation of other assets and liabilities.................... (17,866,513)
------------
Total Net Assets............................................. $ 57,956,719
============
</TABLE>
Pilgrim Troika Dialog Russia Fund, Inc.
Statement of Operations
Six months ended June 30, 2000 (unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends........................................... $ 127,533
Interest............................................ 370,338
----------
497,871
Less: foreign tax expense........................... 4,753
----------
Total investment income............................. $ 493,118
Expenses
Investment advisory fee (Note 2).................... 476,949
Custodian expenses.................................. 212,075
Directors' fees and expenses........................ 120,593
Distribution expenses (Note 3)...................... 106,155
Transfer agent and shareholder servicing expenses
(Note 2)........................................... 60,619
Accounting expenses (Note 2)........................ 24,753
Audit fees.......................................... 20,566
Printing and mailing expenses....................... 16,123
Amortization of deferred organization costs (Note
1)................................................. 10,751
Professional fees................................... 8,686
Registration fees................................... 7,942
Computer processing fees............................ 7,569
Other expenses...................................... 18,634
----------
Total expenses...................................... 1,091,415
Less: Redemption fee
proceeds (Note 4).................................. 272,694 818,721
---------- -----------
Net investment loss................................. (325,603)
Realized and Unrealized Gain (Loss) on Investments
(Note 6)
Net realized gain (loss) on:
Investments......................................... 6,545,882
Foreign currency transactions....................... (118,397)
----------
Net realized gain.................................. 6,427,485
Net change in unrealized depreciation of:
Investments......................................... (5,529,342)
Foreign currency translation of other assets and
liabilities........................................ 13
----------
Net change in unrealized depreciation.............. (5,529,329)
-----------
Net realized and unrealized gain..................... 898,156
-----------
Increase in Net Assets Resulting from Operations..... $ 572,553
===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
7
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six months ended
June 30, 2000 Year ended
(unaudited) December 31, 1999
---------------- -----------------
<S> <C> <C>
Operations:
Net investment income (loss)................. $ (325,603) $ 1,563,372
Net realized gain (loss) from investments and
foreign currency transactions............... 6,427,485 (35,464,744)
Net change in unrealized depreciation of
investments and foreign currency
translation................................. (5,529,329) 66,709,158
------------ ------------
Net increase in net assets resulting from
operations................................ 572,553 32,807,786
------------ ------------
Distributions to Shareholders: (Note 1)
Distributions to shareholders from net
investment income........................... -- (586,463)
------------ ------------
Capital Share Transactions: (Note 5)
Proceeds from sale of shares................. 50,508,733 43,183,175
Reinvested dividends......................... -- 554,553
Redemption fee proceeds...................... 466,261 167,637
Cost of shares redeemed...................... (52,601,827) (36,262,949)
------------ ------------
Net increase (decrease) in net assets from
capital share transactions................ (1,626,833) 7,642,416
------------ ------------
Net increase (decrease) in net assets........ (1,054,280) 39,863,739
Net Assets:
Beginning of period.......................... 59,010,999 19,147,260
------------ ------------
End of period (including accumulated net
investment loss of $396,446 and $70,843 in
2000 and 1999, respectively)................ $ 57,956,719 $ 59,010,999
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
8
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999
1.Significant Accounting Policies
Pilgrim Troika Dialog Russia Fund, Inc. (formerly Lexington Troika Dialog
Russia Fund, Inc.) (the "Fund") is an open-end non-diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek long-term capital
appreciation through investments primarily in the equity securities of Russian
companies. The Fund commenced operations on June 3, 1996. The following is a
summary of significant accounting policies followed by the Fund in the
preparation of its financial statements:
Investments Securities transactions are accounted for on a trade date
basis. Realized gains and losses from investment transactions are reported on
the identified cost basis. Securities traded on a recognized stock exchange
are valued at the last sales price reported by the exchange on which the
securities are traded. If no sales price is recorded, the mean between the
last bid and asked prices is used. However, when Fund management deems it
appropriate, prices obtained for the day of valuation from a third party
pricing service will be used. Securities traded on the over-the-counter market
are valued at the mean between the last current bid and asked prices. Short-
term securities having a maturity of 60 days or less are stated at amortized
cost, which approximates market value. Securities for which market quotations
are not readily available and other assets are valued by Fund management in
good faith under the direction of the Fund's Board of Directors. All
investments quoted in foreign currencies are valued in U.S. dollars on the
basis of the foreign currency exchange rates prevailing at the close of
business. Dividend income is recorded on the ex-dividend date. Occasionally
dividend information on foreign securities is received after the ex-dividend
date and the income is recorded as soon as the information is available to the
Fund. Interest income, adjusted for amortization of premiums and accretion of
discounts, is accrued on a straight-line basis as earned.
Foreign Currency Transactions Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order
to hedge against foreign currency risk in the purchase or sale of securities
denominated in a foreign currency. The Fund may also enter into such contracts
to hedge against changes in foreign currency exchange rates on portfolio
positions. These contracts are marked to market daily, by recognizing the
difference between the contract exchange rate and the current market rate as
unrealized gains or losses. Realized gains or losses are recognized when
contracts are closed and are reported in the statement of operations.
The Fund authorizes its custodian to place and maintain equity securities in a
segregated account of the Fund having a value equal to the aggregate amount of
the Fund's commitments under forward foreign currency contracts entered into
with respect to position hedges. There were no forward foreign currency
contracts outstanding at June 30, 2000.
Financial Futures The Fund may invest in financial futures contracts in
order to gain exposure to, or protect against market fluctuation. The Fund is
exposed to market risk as a result of changes in the value of the underlying
financial instruments. Investments in financial futures require the Fund to
"mark to market" on a daily basis, which reflects the change in market value
of the contract at the close of each day's trading. Typically, variation
margin payments are received or made to reflect daily unrealized gains or
losses.
9
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999 (continued)
1. Significant Accounting Policies (continued)
Realized gains or losses are recognized when contracts are closed and are
reported in the statement of operations. These investments require initial
margin deposits with a broker, which consist of cash or cash equivalents. The
amount of these deposits is determined by the exchange or Board of Trade on
which the contract is traded and is subject to change. At June 30, 2000, there
were no financial futures contracts outstanding.
Federal Income Taxes It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies"
and to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income taxes is required.
Distributions Dividends from net investment income and net realized capital
gains are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. The character of income and gains
to be distributed are determined in accordance with income tax regulations
which may differ from generally accepted accounting principals. At December
31, 1999, reclassifications were made the Fund's capital accounts to reflect
permanent book/tax differences and income and gains available for distribution
under income tax regulations. Net investment income, net realized gains and
net assets were not affected by this change.
Deferred Organization Expenses Organization expenses aggregating $107,018
have been deferred and are being amortized on a straight-line basis over five
years. At June 30, 2000, the amount remaining to be amortized was $19,198.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
2.Investment Advisory Fee and Other Transactions with Affiliate
The Fund paid an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1.25% of the Fund's average daily net assets. In
connection with providing investment advisory services, LMC has entered into a
sub-advisory contract with Troika Dialog Asset Management, ZAO ("TDAM") under
which TDAM provides the Fund with investment management services. Pursuant to
the terms of the sub-advisory contract between LMC and TDAM, LMC pays TDAM a
monthly sub-advisory fee at the annual rate of 0.625% of the Fund's average
daily net assets. For 2000, the adviser has agreed to voluntarily limit the
total expenses of the Fund (excluding interest, taxes, brokerage commissions
and extraordinary expenses but including management fee, 12B-1 fees and
operating expenses) to an annual rate of 3.35% of the Fund's average net
assets. No reimbursement was required for the six months ended June 30, 2000.
10
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999 (continued)
2. Investment Advisory Fee and Other Transactions with Affiliate (continued)
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $48,670 which were incurred by the Fund, but
paid by LMC.
3. Distribution Plan
The Fund had a Distribution Plan (the "Plan") which allowed payments to
finance activities associated with the distribution of the Fund's shares. The
Plan provided that the Fund may pay distribution fees on a reimbursement
basis, including payments to Lexington Funds Distributor, Inc. ("LFD"), the
Fund's distributor, in amounts not exceeding 0.25% per annum of the Fund's
average daily net assets. Total distribution expenses for the six months ended
June 30, 2000 were $106,155 and are set forth in the statement of operations.
4. Redemption Fee
A fee is charged on the redemption of shares equal to 2% of the redemption
price of shares of the Fund held less than 365 days that are being redeemed.
Redemption fee proceeds will be applied to the Fund's aggregate expenses
allocable to providing custody and redemption services, including transfer
agent fees, postage, printing, telephone costs and employment costs relating
to the handling and processing of redemptions. Any excess fee proceeds will be
added to the Fund's capital. Total redemption fee proceeds for the six months
ended June 30, 2000 were $738,955. The amount available for offset against
Fund expenses was $272,694 and is set forth in the statement of operations.
Excess fee proceeds of $466,261 were added to the Fund's capital.
5. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six months ended
June 30, 2000 Year ended
(unaudited) December 31, 1999
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold............... 6,437,063 $ 50,508,733 9,870,288 $ 43,183,175
Shares issued on
reinvestment of
dividends................ -- -- 146,380 554,553
Redemption fee proceeds... -- 466,261 -- 167,637
---------- ------------ ---------- ------------
6,437,063 50,974,994 10,016,668 43,905,365
Shares redeemed........... (6,816,887) (52,601,827) (8,524,306) (36,262,949)
---------- ------------ ---------- ------------
Net increase (decrease)... (379,824) $ (1,626,833) 1,492,362 $ 7,642,416
========== ============ ========== ============
</TABLE>
11
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999 (continued)
6. Investment Transactions
The cost of purchases and proceeds from sales of securities for the six months
ended June 30, 2000, excluding short-term securities, were $25,761,249 and
$18,756,254, respectively.
At June 30, 2000, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$10,452,222 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $33,221,226.
7. Investment and Concentration Risks
The Fund's investments are concentrated in Russian securities and are
therefore exposed to the risks associated with that country. These risks which
may not be present in domestic investments or in other developed countries,
include:
Market, Concentration, and Liquidity Risks The Russian securities markets
are substantially smaller, less liquid, and significantly more volatile than
the securities markets in the United States. A limited number of issuers
represent a disproportionately large percentage of market capitalization and
trading volume. Due to these factors, obtaining prices on portfolio securities
from independent sources may be more difficult than in other markets. In
addition, despite the Fund's policies and procedures addressing liquidity, it
may be difficult for the Fund to obtain or dispose of some investment
securities because of poor liquidity.
Settlement and Custody Risks Because of the recent formation of the
securities markets as well as the underdeveloped state of the banking and
telecommunications systems, settlement, clearing, and registration are subject
to significant risks not normally associated with investments in the United
States and more developed markets. Ownership of shares is defined according to
entries in the company's share register (maintained by third party registrars)
and normally evidenced by extracts from the register. These registrars are not
necessarily subject to effective state supervision, and it is possible for the
fund to lose its registration through fraud, negligence, or even mere
oversight. In addition, the extracts have no legal enforceability, and it is
possible that subsequent illegal amendment or other fraudulent acts may
deprive the fund of its ownership rights. Uncertainty in settlement results
from the time necessary for buyers and sellers to physically deliver documents
to the registrars which may be located in remote areas. In the case of
purchases, payment is not made until the custodian has physically received the
extract. For sales, the client may be forced to remit securities before
payment is received.
Foreign Currency and Exchange Risk The Fund's assets are invested in
securities denominated in rubles, which are not yet freely convertible into
other currencies outside Russia. The value of the assets of the Fund and its
income, as measured in U.S. dollars, may suffer significant declines due to
disruptions in the ruble market, or be otherwise adversely affected by
exchange control regulations.
Political and Economic Risk Since the breakup of the Soviet Union at the
end of 1991, Russia has experienced dramatic political and social change. The
political system in Russia is emerging from a long history of extensive state
involvement in economic affairs. The country is undergoing a rapid transition
from a centrally controlled command system to a market-oriented, democratic
model. The Fund may be affected
12
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999 (continued)
7. Investment and Concentration Risks (continued)
unfavorably by political or diplomatic developments, social instability,
changes in government policies, taxation and interest rates, currency
repatriation restrictions and other political and economic developments in the
law or regulations in Russia and, in particular, the risk of expropriation,
nationalization and confiscation of assets and changes in legislation relating
to foreign ownership.
In addition to the risks described above, risks may arise from forward foreign
currency contracts as a result of the potential inability of counterparties to
meet the terms of their contracts.
8. Illiquid Securities
Pursuant to guidelines adopted by the Fund's Board of Directors, the following
securities have been deemed to be illiquid. The Fund currently limits
investment in illiquid securities to 15% of the Fund's net assets, at market
value, at the time of purchase.
<TABLE>
<CAPTION>
Initial Percent
Acquisition Market of Net
Security Shares Date Value Assets
-------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Alfa Cement......................... 38,000 3/25/97 $ 883 0.00%
Aviastar............................ 32,500,000 6/25/97 29,965 0.05
Bashinformsvyaz..................... 6,231,400 6/9/97 422,030 0.73
Chelyabenergo (Preferred Stock)..... 450,000 2/26/97 3,884 0.01
Chelyabinskvyazinform............... 24,610 12/9/96 406,065 0.70
Chelyabinsky Trubny Zavod........... 1,002,000 8/25/97 9,599 0.02
Gostiny Dvor........................ 7,000 10/6/97 483 0.00
Irkutskelectrosvyaz................. 270,000 2/17/97 89,100 0.15
Komienergo.......................... 5,500,000 8/5/97 34 0.00
Komitek............................. 21 7/9/97 2 0.00
Krasnoyarskelectrosvyaz............. 46,000 7/2/97 105,800 0.18
Krasny Kotelschik................... 850,000 9/23/97 70,125 0.12
Lensvyaz............................ 9,500 2/14/97 74,526 0.13
Medpolimer.......................... 21,900 8/6/97 670 0.00
Moscow Intercity International
Telephone.......................... 34,400 5/27/97 143,364 0.25
Moscow Telephone Systems (Preferred
Stock)............................. 189,500 8/16/97 213,697 0.37
Nizhnovsvyazinform.................. 656,000 8/1/96 643,274 1.11
Nizhnovsvyazinform (Preferred
Stock)............................. 427,000 11/20/96 98,210 0.17
Novosbirskaya Telephone............. 20,383 7/17/97 305,745 0.53
Novosbirskelectrosvyaz.............. 20,000 4/29/97 32,000 0.06
Permenergo (Preferred Stock)........ 24,600 8/15/97 3,759 0.01
Samarasvyazinform................... 28,000 11/20/96 851,161 1.47
Samarasvyazinform (Preferred
Stock)............................. 9,300 1/9/97 68,820 0.12
Samson.............................. 23,800 7/9/97 9,532 0.02
Smolensksvyazinform (Preferred
Stock)............................. 100,000 8/6/97 3,342 0.00
Sverdloskenergo..................... 1,335,000 6/18/96 40,050 0.07
Taganrogaky Metallurgical Plant..... 4,450,000 4/24/97 40,878 0.07
</TABLE>
13
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999 (continued)
8. Illiquid Securities (continued)
<TABLE>
<CAPTION>
Initial Percent
Acquisition Market of Net
Security Shares Date Value Assets
-------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Transneft (Preferred Stock).......... 1,800 7/27/97 $ 283 0.00%
Tyumentelecom........................ 214,000 3/5/97 199,356 0.34
Tyumentelecom (Preferred Stock)...... 279,099 2/6/97 90,372 0.15
Udmurtneftegaz (Preferred Stock)..... 4,000 1/20/97 81,000 0.14
Uraltelecom.......................... 5,000 6/17/97 15,750 0.03
Uralsvyazinform...................... 10,000,000 8/8/97 152,000 0.26
Vimpel-Communications................ 2 4/27/99 59 0.00
Zvezda............................... 11,200,000 8/21/97 14,347 0.02
---------- ----
$4,220,165 7.28%
========== ====
</TABLE>
9.Subsequent Events
Effective on July 26, 2000, Lexington Global Asset Managers, Inc. was acquired
by ReliaStar Financial Corp. ("ReliaStar"). In conjunction with the
acquisition and following approval by the Fund's Board of Directors and
shareholders, Pilgrim Investments, Inc., an indirect, wholly owned subsidiary
of ReliaStar, was appointed to the role of investment adviser to the Fund
effective July 26, 2000. Pilgrim Securities, Inc., also an indirect, wholly
owned subsidiary of ReliaStar, was appointed distributor to the Fund on that
date as well.
On May 1, 2000, ReliaStar Financial Corp. (NYSE:RLR), the indirect parent
company of Pilgrim Investments, Inc., Adviser to the Funds, and Pilgrim
Securities, Inc., Distributor to the Funds, entered into an agreement under
which it will be acquired by ING Groep N.V. (NYSE:ING). ING Groep N.V. is a
global financial institution active in the field of insurance, banking, and
asset management in more than 60 countries, with almost 90,000 employees.
Completion of the acquisition is contingent upon, among other things, approval
by the Directors/Trustees of the Pilgrim Funds and certain shareholder and
regulatory approvals. The closing of the acquisition is expected to occur
during the third quarter of 2000.
14
<PAGE>
Pilgrim Troika Dialog Russia Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
July 3, 1996
Six months ended Year ended December 31, (effective SEC
June 30, 2000 --------------------------- registration date) to
(unaudited) 1999 1998 1997 December 31, 1996**
---------------- ------- -------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $ 6.74 $ 2.64 $ 17.50 $11.24 $12.12
------ ------ ------- ------ ------
Income (loss) from
investment operations:
Net investment income
(loss)................ (0.04) 0.18 0.15 (0.01) (0.05)
Net realized and
unrealized gain
(loss) on investments
and foreign
currencies............ 0.22 3.99 (14.70) 7.57 (0.51)
------ ------ ------- ------ -------
Total income (loss) from
investment operations.. 0.18 4.17 (14.55) 7.56 (0.56)
------ ------ ------- ------ -------
Less distributions:
Dividends from net
investment income..... -- (0.07) (0.07) -- --
Distributions from net
realized gains........ -- -- (0.24) (1.30) (0.32)
------ ------ -------- ------- -------
Total distributions..... -- (0.07) (0.31) (1.30) (0.32)
------ ------ -------- ------- -------
Net asset value, end of
period................. $ 6.92 $ 6.74 $ 2.64 $17.50 $11.24
====== ====== ======= ====== ======
Total return............ 5.43%* 159.76% (82.99)% 67.50% (9.01)%*
Ratio to average net
assets:
Expenses, before
redemption fee
proceeds.............. 2.86%* 3.32% 2.64% 2.89% 5.07%*
Expenses, net of
redemption fee
proceeds.............. 2.15%* 2.23% 1.84% 1.85% 2.65%*
Net investment income
(loss), before
redemption fee
proceeds.............. (1.57)%* 3.30% 0.57% (1.14)% (3.69)%*
Net investment income
(loss)................ (0.85)%* 4.39% 1.36% (0.11)% (1.27)%*
Portfolio turnover
rate................... 61.59%* 91.14% 65.76% 66.84% 115.55%*
Net assets, end of
period (000's
omitted)............... $57,957 $59,011 $19,147 $137,873 $13,846
</TABLE>
-------
* Annualized
**The Fund's commencement of operations was June 3, 1996 with the investment
of its initial capital. The Fund's registration statement with the Securities
and Exchange Commission became effective on July 3, 1996. Financial results
prior to the effective date of the Fund's registration statement are not
presented in this Financial Highlights Table.
15
<PAGE>
PILGRIM TROIKA DIALOG RUSSIA
FUND, INC.
Investment Adviser All Shareholder requests for
Pilgrim Investments, Inc. services of any kind should be sent
40 North Central Avenue to:
Suite 1200
Phoenix, Arizona 85004-4408
Sub-Adviser Transfer Agent
Troika Dialog Asset Management Lexington Funds
4 Romanov Pereulok c/o DST Systems, Inc.
Moscow, 103009 Russia P.O. Box 219368
Kansas City, Missouri 64121-6368
Distributor
Pilgrim Securities, Inc. Or call toll free
40 North Central Avenue Service and Sales: 1-800-526-0056
Suite 1200
Phoenix, Arizona 85004-4408 www.lexingtonfunds.com
This report has been prepared for the information of the shareholders of Pilgrim
Troika Dialog Russia Fund, Inc. and is authorized for distribution to the public
only if it is accompanied or preceded by a currently effective prospectus which
sets forth expenses and other material information. LEX288-SAR6/00
