PILGRIM(R)
---------------------------
FUNDS FOR SERIOUS INVESTORS
Prospectus
Classes: A, B, C, M and T
July 31, 2000
INCOME FUNDS
Pilgrim Government Securities Income
Pilgrim GNMA Income
Pilgrim Strategic Income
Pilgrim High Yield
Pilgrim High Yield II
Pilgrim High Total Return
Pilgrim High Total Return II
Pilgrim Global Income
Pilgrim Money Market
This prospectus contains important
information about investing in the
Pilgrim Funds. You should read it
carefully before you invest, and
keep it for future reference.
Please note that your investment:
is not a bank deposit, is not
insured or guaranteed by the FDIC,
the Federal Reserve Board or any
other government agency and is
affected by market fluctuations.
There is no guarantee that the
Funds will achieve their
objectives. As with all mutual
funds, the Securities and Exchange
Commission (SEC) has not approved
or disapproved these securities nor
has the SEC judged whether the
information in this prospectus is
accurate or adequate. Any
representation to the contrary is a
criminal offense.
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WHAT'S INSIDE
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[GRAPHIC]
OBJECTIVE These pages contain a description of each of our Funds included
in this prospectus, including its objective, investment strategy
and risks.
[GRAPHIC]
INVESTMENT You'll also find:
STRATEGY
HOW THE FUND HAS PERFORMED.
A chart that shows the Fund's financial performance for the past
[GRAPHIC] ten years (or since inception, if shorter).
RISKS
WHAT YOU PAY TO INVEST. A list of the fees and expenses you pay
-- both directly and indirectly -- when you invest in a Fund.
[GRAPHIC]
HOW THE
FUND HAS
PERFORMED
AN INTRODUCTION TO THE PILGRIM FUNDS 1
Funds At A Glance 2
INCOME FUNDS
Pilgrim Government Securities Income 4
Pilgrim GNMA Income 6
Pilgrim Strategic Income 8
Pilgrim High Yield 10
Pilgrim High Yield II 12
Pilgrim High Total Return 14
Pilgrim High Total Return II 16
Pilgrim Global Income 18
Pilgrim Money Market 20
WHAT YOU PAY TO INVEST 22
SHAREHOLDER GUIDE 26
MANAGEMENT OF THE FUNDS 33
DIVIDENDS, DISTRIBUTIONS AND TAXES 35
MORE INFORMATION ABOUT RISKS 36
FINANCIAL HIGHLIGHTS 39
WHERE TO GO FOR MORE INFORMATION Back cover
<PAGE>
INTRODUCTION TO THE
PILGRIM FUNDS
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Risk is the potential that your investment will lose money or not earn as much
as you hope. All mutual funds have varying degrees of risk, depending on the
securities they invest in. Please read this prospectus carefully to be sure you
understand the principal risks and strategies associated with each of our Funds.
You should consult the Statement of Additional Information (SAI) for a complete
list of the risks and strategies.
[GRAPHIC]
If you have any questions about the Pilgrim Funds, please call your financial
consultant or us at 1-800-992-0180.
This prospectus is designed to help you make informed decisions about your
investments.
INCOME FUNDS
Pilgrim offers both aggressive and conservative Income Funds.
They may suit you if you:
* want a regular stream of income.
Income Funds other than the Money Market Fund may suit you if you:
* want greater growth potential than a money market fund
* are willing to accept more risk than a money market fund.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
1
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Funds
At A
Glance
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This table is a summary of the objectives, main investments and risks of each
Pilgrim Fund. It is designed to help you understand the differences between the
Funds, the main risks associated with each, and how risk and investment
objectives relate. This table is only a summary. You should read the complete
descriptions of each Fund's investment objectives, strategies and risks, which
begin on page 4.
FUND INVESTMENT OBJECTIVE
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<TABLE>
<S> <C> <C>
Income Government Securities Income Fund High current income, consistent with liquidity and
Funds Adviser: Pilgrim Investments, Inc. preservation of capital
GNMA Income Fund High current income, consistent with liquidity and
Adviser: Pilgrim Investments, Inc. safety of principal
Strategic Income Fund Maximum total return
Adviser: Pilgrim Investments, Inc.
High Yield Fund High current income, with capital appreciation as a
Adviser: Pilgrim Investments, Inc. secondary objective
High Yield Fund II High level of current income and capital growth
Adviser: Pilgrim Investments, Inc.
High Total Return Fund High income and capital appreciation
Adviser: Pilgrim Investments, Inc.
High Total Return Fund II High income and capital appreciation
Adviser: Pilgrim Investments, Inc.
Global Income Fund High current income, with capital appreciation
Adviser: Pilgrim Investments, Inc. as a secondary objective
Money Market Fund High current income consistent with the preservation
Adviser: Pilgrim Investments, Inc. of capital and liquidity
</TABLE>
2
<PAGE>
MAIN INVESTMENTS MAIN RISKS
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<TABLE>
<S> <C>
Securities issued or guaranteed by Credit, interest rate, prepayment and other risks that
the U.S. Government and certain of accompany an investment in government bonds and
its agencies or instrumentalities mortgage related investments. Generally has less credit
risk than the other income funds.
Mortgage-backed GNMA Certificates Credit, interest rate, prepayment and other risks that
that are guaranteed as to the accompany an investment in government bonds and
timely payment of principal and mortgage related investments. Generally has less credit
interest by the U.S. Government. risk than the other income funds.
Investment grade and high yield Credit, interest rate, prepayment and other risks that
debt securities accompany an investment in debt securities, including
high yield debt securities. May be sensitive to credit
risk during economic downturns.
High yield debt securities Credit, interest rate and other risks that accompany an
investment in lower-quality debt securities. Particularly
sensitive to credit risk during economic downturns.
High yield debt securities, Credit, liquidity, interest rate and other risks that
including those in the lowest accompany an investment in lower-quality debt
ratings, as well as equities and securities. Particularly sensitive to credit risk
foreign securities during economic downturns. May also present price
volatility from equity exposure, and foreign
securities. May be sensitive to currency exchange
rates, international political and economic conditions,
and other risks.
High yield debt securities, Credit, liquidity, interest rate and other risks that
including those in the lowest accompany an investment in lower-quality debt
ratings, and foreign securities securities. Particularly sensitive to credit risk
during economic downturns. Foreign securities may be
sensitive to currency exchange rates, international
political and economic conditions, and other risks.
High yield debt securities, Credit, liquidity, interest rate and other risks that
including those in the lowest accompany an investment in lower-quality debt
ratings, and foreign securities securities. Particularly sensitive to credit risk
during economic downturns. Foreign securities may be
sensitive to currency exchange rates, international,
political and economic conditions, and other risks.
Foreign and domestic high yield, Credit, liquidity, interest rate and other risks that
lower rated or unrated debt accompany an investment in lower-quality debt
securities. securities. Particularly sensitive to credit risk
during economic downturns. May also present price
volatility from foreign securities. May be sensitive to
currency exchange rates, international political and
economic conditions, and other risks.
Shares of another investment Credit, interest rate and other risks that accompany an
company whose main investments investment in government bonds and mortgage related
incudes short-term securities investments. Presents less credit and interest rate
issued or guaranteed by the U.S. risk than the other income funds.
Government and certain of its
agencies and instrumentalities.
</TABLE>
3
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Income
Funds
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ADVISER
PILGRIM GOVERNMENT SECURITIES INCOME FUND Pilgrim Investments, Inc.
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OBJECTIVE [GRAPHIC]
The Fund seeks high current income, consistent with liquidity and preservation
of capital.
INVESTMENT STRATEGY [GRAPHIC]
The Fund normally invests at least 70% of its total assets in securities issued
or guaranteed by the U.S. Government and the following agencies or
instrumentalities of the U.S. Government: the Government National Mortgage
Association (GNMA), the Federal National Mortgage Association (FNMA), and the
Federal Home Loan Mortgage Corporation (FHLMC). Such securities include direct
obligations of the U.S. Treasury and mortgage-backed securities. The Fund may
fall below the 70% threshold due to changes in the value of the Fund's holdings
or the sale of securities to meet redemptions, in which case the Fund will
purchase only U.S. Government securities until the 70% level is restored. The
remainder of the Fund's assets may be invested in securities issued by other
agencies and instrumentalities of the U.S. Government and in instruments
collateralized by securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The foregoing policies are fundamental and may
not be changed without shareholder approval.
The Fund may invest in securities of any maturity; however, the Fund is expected
to have a dollar-weighted average duration within a range of 20% above or below
that of the Lehman Intermediate Treasury Index. As of February 29, 2000, the
dollar-weighted average duration of the Lehman Intermediate Treasury Index was
2.87 years. The adviser determines the composition of the Fund's portfolio on
the basis of its judgment of existing market conditions, such as the general
direction of interest rates, trends in creditworthiness, expected inflation,
supply and demand of fixed income securities, and other factors. The Fund may
enter into reverse repurchase agreements, dollar roll transactions or pairing
off transactions. The Fund does not invest in highly leveraged derivatives, such
as swaps, interest-only or principal-only stripped mortgage-backed securities,
or interest rate futures contracts.
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RISKS [GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. This Fund may be particularly sensitive to interest rates
because it primarily invests in U.S. government securities. Debt securities with
longer durations tend to be more sensitive to changes in interest rates, usually
making them more volatile than debt securities with shorter durations.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund is subject
to less credit risk than the other income funds because it principally invests
in debt securities issued or guaranteed by the U.S. Government, its agencies and
government sponsored enterprises.
Prepayment Risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
4 Pilgrim Government Securities Income Fund
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PILGRIM GOVERNMENT SECURITIES INCOME FUND
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HOW THE FUND HAS PERFORMED [GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
8.03 11.90 7.46 4.71(8) -3.61 14.51 2.56 7.85 5.61 -1.17
----------
(1) These figures are as of December 31 of each year. They do not reflect sales
charges and would be lower if they did.
Best and worst quarterly performance during this period:
3rd quarter 1992: up 4.70%
1st quarter 1994: down 2.66%
The Fund's year-to-date total return as of June 30, 2000 was up 2.99%.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of two broad measures of market
performance -- the Lehman Brothers Government/Mortgage Index and the Lehman
Brothers Intermediate Treasury Index.
Average Annual Total Returns(2)
Lehman Lehman
Gov't/ Intermediate
Class Class Class Mortgage Treasury
A(3) B(4) M(5) Index(6) Index(7)
---- ---- ---- -------- --------
One year, ended
December 31, 1999 % -5.86 -6.56 -4.86 1.93 0.49
Five years, ended
December 31, 1999 % 4.73 N/A N/A 8.08 6.93
Ten years, ended
December 31, 1999(8) % 5.14 N/A N/A 7.87 7.07
Since inception of
Classes B and M(9) % N/A 3.18 3.08 6.63 5.77(10)
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(2) Class C and T shares of the Fund did not have a full year's performance
during the year ended December 31, 1999.
(3) Reflects deduction of sales charge of 4.75%.
(4) Reflects deduction of deferred sales charge of 5% and 2% respectively for 1
year and since inception returns.
(5) Reflects deduction of sales charge of 3.25%.
(6) The Lehman Brothers Government/Mortgage Index is an unmanaged index that
measures the performance of U.S. Government agencies and instrumentalities,
as well as mortgage pass-through instruments issued by FNMA, FHLMC and
GNMA.
(7) The Lehman Brothers Intermediate Treasury Index is an unmanaged index that
measures the performance of U.S. Treasuries with maturities of under 10
years. Information on the Lehman Intermediate Index is presented because
effective May 24, 1999, the Fund seeks an average portfolio duration within
+/-20% of the duration of that Index. Previously, the Fund's average
portfolio maturity was generally longer.
(8) The Fund earned income and realized capital gains as a result of entering
into reverse repurchase agreements during the six-month period from July to
December 1992 that caused the Fund to exceed its 10% investment restriction
on borrowing. Therefore, the Fund's performance was higher than it would
have been had the Fund adhered to its borrowing restriction.
(9) Classes B and M commenced operations on July 17, 1995.
(10) Index return is for period beginning July 31, 1995.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim Government Securities Income Fund 5
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Income
Funds
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ADVISER
PILGRIM GNMA INCOME FUND Pilgrim Investments, Inc.
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OBJECTIVE [GRAPHIC]
The Fund's investment objective is to seek a high level of current income,
consistent with liquidity and safety of principal, through investment primarily
in Government National Mortgage Association ("GNMA") mortgage-backed securities
(also known as "GNMA Certificates") that are guaranteed as to the timely payment
of principal and interest by the United States Government.
INVESTMENT STRATEGY [GRAPHIC]
Under normal conditions, the Fund will invest at least 80% of the value of its
total assets in GNMA ("Ginnie Mae") Certificates. The remaining assets of the
Fund will be invested in other securities issued or guaranteed by the U.S.
Government, including U.S. Treasury securities.
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RISKS [GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Prepayment Risk -- Through investment in GNMA securities, the Fund may expose
you to certain risks which may cause you to lose money. Mortgage prepayments are
affected by the level of interest rates and other factors, including general
economic conditions and the underlying location and age of the mortgage. In
periods of rising interest rates, the prepayment rate tends to decrease,
lengthening the average life of a pool of GNMA securities. In periods of falling
interest rates, the prepayment rate tends to increase, shortening the life of a
pool. Because prepayments of principal generally occur when interest rates are
declining, it is likely that the Fund may have to reinvest the proceeds of
prepayments at lower interest rates than those of their previous investments. If
this occurs, the Fund's yields will decline correspondingly.
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. This Fund may be particularly sensitive to interest rates
because it primarily invests in U.S. government securities. Debt securities with
longer durations tend to be more sensitive to changes in interest rates, usually
making them more volatile than debt securities with shorter durations.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund is subject
to less credit risk than the other income funds because it principally invests
in debt securities issued or guaranteed by the U.S. Government, its agencies and
government sponsored enterprises.
Please refer to the statement of additional information for a complete
description of GNMA Certificates and Modified Pass Through GNMA Certificates.
The Fund intends to use the proceeds from principal payments to purchase
additional GNMA Certificates or other U.S. Government guaranteed securities.
6 Pilgrim GNMA Income Fund
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PILGRIM GNMA INCOME FUND
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HOW THE FUND HAS PERFORMED [GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
9.23 15.75 5.19 8.06 -2.07 15.91 5.71 10.20 7.52 0.58
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(1) These figures are as of December 31 of each year. They do not reflect sales
charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund and the Fund's shares were sold on a no-load basis.
Effective July 31, 2000, the Fund's outstanding shares were classified as
"Class A" shares.
Best and worst quarterly performance during this period:
3rd quarter 1991: up 5.85%
1st quarter 1994: down -2.42%
The Fund's year-to-date total return as of June 30, 2000 was up 3.85%.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- the Lehman Brothers Mortgage-Backed Securities Index.
Average Annual Total Returns
Lehman Brothers
Mortgage-Backed
Class A(3)(4) Securities Index(5)
------------- -------------------
One year, ended
December 31, 1999 % -4.20 1.86
Five years, ended
December 31, 1999 % 6.83 7.98
Ten years, ended
December 31, 1999 % 6.95 7.78
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(3) This table shows the performance of the Class A shares of the Fund. Class B
and Class C shares were not offered during the period ended December 31,
1999.
(4) Reflects deduction of sales charge of 4.75%.
(5) The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index
comprised of 520 mortgage backed securities with an average yield of 7.58%.
The average coupon of the index is 6.85%. This index is typically used as a
benchmark for intermediate-term bond funds.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim GNMA Income Fund 7
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Income
Funds
------
ADVISER
PILGRIM STRATEGIC INCOME FUND Pilgrim Investments, Inc.
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OBJECTIVE [GRAPHIC]
The Fund seeks maximum total return.
INVESTMENT STRATEGY [GRAPHIC]
Under normal conditions, the Fund invests at least 60% of its total assets in
debt securities issued by U.S. and foreign corporations, U.S. and foreign
governments, and their agencies and instrumentalities that are rated in one of
the top four categories by a nationally recognized statistical rating agency, or
of comparable quality if unrated. These securities include bonds, notes,
mortgage-backed and asset-backed securities with rates that are fixed, variable
or floating. The Fund may invest up to 40% of its total assets in high yield
debt securities, commonly known as "junk bonds." There is no minimum credit
rating for high yield debt securities in which the Fund may invest. The "total
return" sought by the Fund consists of income earned on the Fund's investments,
plus capital appreciation, if any, which generally arises from decreases in
interest rates or improving credit fundamentals for a particular sector or
security.
The Fund may invest in debt securities of any maturity; however, the average
portfolio duration of the Fund will generally range from two to eight years. The
Fund may invest up to 30% of its total assets in securities payable in foreign
currencies. The Fund may invest up to 10% of its assets in other investment
companies that invest in secured floating rate loans, including up to 5% of its
assets in Pilgrim Prime Rate Trust, a closed-end investment company. The Fund
may also use options, futures contracts and interest rate and currency swaps as
hedging techniques. The Fund does not invest in interest-only or principal-only
stripped mortgage-backed securities.
PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Trustees
has approved the reorganization of the Fund into Pilgrim High Yield Fund. You
could therefore ultimately hold shares of that fund.
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RISKS [GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with intermediate and long terms to
maturity. Debt securities with longer durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This is especially
true during periods of economic uncertainty or economic downturns. This Fund may
be subject to more credit risk than the other income funds, because it may
invest in high yield debt securities, which are considered predominantly
speculative with respect to the issuer's continuing ability to meet interest and
principal payments.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. A security in the lowest rating categories, that is
unrated, or whose credit rating has been lowered may be particularly difficult
to sell. Foreign securities and mortgage-related and asset-backed debt
securities may be less liquid than other debt securities. The Fund could lose
money if it cannot sell a security at the time and price that would be most
beneficial to the Fund.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivatives instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
8 Pilgrim Strategic Income Fund
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PILGRIM STRATEGIC INCOME FUND
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HOW THE FUND HAS PERFORMED [GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-1.16
----------
(1) These figures are as of December 31, 1999. They do not reflect sales
charges and would be lower if they did.
(2) Prior to May 24, 1999 a different adviser managed the Fund.
Best and worst quarterly performance during this period:
4th quarter 1999: up 0.81%
2nd quarter 1999: down 1.23%
The Fund's year-to-date total return as of June 30, 2000 was up 3.29%.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- the Lehman Aggregate Bond Index.
Average Annual Total Returns
Lehman
Aggregate
Class Class Class Bond
A(3) B(4) C(5) Index(6)
---- ---- ---- --------
One year, ended
December 31, 1999 % -5.83 -6.15 -2.46 -0.82
Since inception of
Classes A, B, and C (7) % -1.74 -1.29 1.31 2.37
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(3) Reflects deduction of sales charge of 4.75%.
(4) Reflects deduction of a deferred sales charge of 5% and 4%, respectively,
for the 1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The Lehman Aggregate Bond Index is an unmanaged index that measures the
performance of fixed income securities that are similar, but not identical,
to those in the Fund's portfolio.
(7) Classes A, B and C commenced operations on July 27, 1998.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim Strategic Income Fund 9
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Income
Funds
------
ADVISER
PILGRIM HIGH YIELD FUND Pilgrim Investments, Inc.
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OBJECTIVE [GRAPHIC]
The Fund seeks a high level of current income, with capital appreciation as a
secondary objective.
INVESTMENT STRATEGY [GRAPHIC]
The Fund normally invests at least 65% of its assets in high yield debt
securities, including preferred stock and convertible securities, that do not in
the opinion of the adviser involve undue risk relative to their expected return.
High yield securities, which are commonly known as "junk bonds," are securities
that are rated below investment grade, i.e., rated lower than Baa by Moody's
Investors Service, Inc. or BBB by Standard and Poor's, or of comparable quality
if not rated. Generally, the Fund will invest in securities rated lower than B
by Moody's or S&P only when the adviser believes the financial condition of the
issuer or other available protections reduce the risk to the Fund or that there
is greater value in the securities than is reflected in their prevailing market
price. There is no minimum credit rating for high yield securities in which the
Fund may invest. The Fund may invest in debt securities of any maturity. In
selecting securities for the Fund, preservation of capital is a consideration.
The remainder of the Fund's assets may be invested in common stocks, investment
grade preferred stocks, investment grade debt obligations of all types, U.S.
Government securities, warrants, money market instruments (including repurchase
agreements on U.S. Government securities), mortgage-related securities and
participation interests and assignments in floating rate loans and notes. The
Fund may also invest up to 10% of its assets in foreign debt securities of any
rating. The Fund may invest in financial futures and related options to attempt
to hedge risk, although the Fund has not invested in such instruments since
Pilgrim Investments, Inc. became the adviser in 1995 through the date of this
prospectus.
In selecting equity securities, the portfolio managers use a "bottom-up"
analysis that focuses on individual companies and assesses the company's
valuation, financial condition, management, competitiveness, and other factors.
Differences Between the Fund and High Yield Fund II -- While both Funds invest
primarily in high yield securities, the High Yield Fund normally emphasizes
bonds with stronger credit ratings in the high yield bond universe. Thus, of the
two Funds, High Yield Fund II normally presents the potential for higher income,
but with potentially higher credit risk and volatility.
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RISKS [GRAPHIC]
The Fund is subject to risks associated with investing in lower rated debt
securities. You could lose money on an investment in the Fund. The Fund may be
affected by the following risks, among others:
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund may be
subject to more credit risk than other income mutual funds because it invests in
high yield (or "junk bond") debt securities, which are considered predominantly
speculative with respect to the issuer's continuing ability to meet interest and
principal payments. This is especially true during periods of economic
uncertainty or economic downturns. The Fund is also subject to credit risk
through its investment in floating rate loans.
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with intermediate and long terms to
maturity. Debt securities with longer durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. The Fund could lose money if it cannot sell a
security at the time and price that would be most beneficial. A security whose
credit rating has been lowered may be particularly difficult to sell.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, and the risk of loss due to changes in
interest rates. The use of certain derivatives may also have a leveraging
effect, which may increase the volatility of the Fund. The use of derivatives
may reduce returns for the Fund.
Price Volatility -- Equity securities face market, issuer and other risks, and
their values may go up and down, sometimes rapidly and unpredictably. Market
risk is the risk that securities may decline in value due to factors affecting
securities markets generally or particular industries. Issuer risk is the risk
that the value of a security may decline for reasons relating to the issuer.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks, securities depositories or exchanges than those in the U.S., and
foreign controls on investment.
10 Pilgrim High Yield Fund
<PAGE>
PILGRIM HIGH YIELD FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED [GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-9.49 29.44 16.19 18.52 -1.55 17.71 15.76 14.98 -2.96 -1.14
----------
(1) These figures are as of December 31 of each year. They do not reflect sales
charges and would be lower if they did.
Best and worst quarterly performance during this period:
1st quarter 1991: up 14.83%
3rd quarter 1998: down 7.91%
The Fund's year-to-date total return as of June 30, 2000 was down 3.18%.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- the Lehman Brothers High Yield Bond Index.
Average Annual Total Returns(2)
Lehman
High Yield
Bond
Class A(3) Class B(4) Class M(5) Index(6)
---------- ---------- ---------- --------
One year, ended
December 31, 1999 % -5.86 -6.35 -4.92 2.39
Five years, ended
December 31, 1999 % 7.44 N/A N/A 9.31
Ten years, ended
December 31, 1999 % 8.56 N/A N/A 10.72
Since inception(7) % N/A 5.72 5.51 7.41
----------
(2) Class C shares of the Fund did not have a full year's performance during
the year ended December 31, 1999.
(3) Reflects deduction of sales charge of 4.75%.
(4) Reflects deduction of deferred sales charge of 5% and 2% respectively for 1
year and since inception returns.
(5) Reflects deduction of a sales charge of 3.25%.
(6) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the Fund's portfolio.
(7) Classes B and M commenced operations on July 17, 1995.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim High Yield Fund 11
<PAGE>
------
Income
Funds
------
ADVISER
PILGRIM HIGH YIELD FUND II Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC]
The Fund seeks a high level of current income and capital growth.
INVESTMENT STRATEGY [GRAPHIC]
Under normal conditions, the Fund invests at least 65% of its total assets in
high yield, lower rated debt securities, which are commonly referred to as "junk
bonds," and convertible securities rated below investment grade (i.e., lower
than the four highest rating categories) by a nationally recognized statistical
rating agency, or of comparable quality if unrated. There is no limit on either
the portfolio maturity or the acceptable rating of securities bought by the
Fund. Securities may bear rates that are fixed, variable or floating. The Fund
may invest up to 35% of its total assets in equity securities of U.S. and
foreign companies, including securities of companies in emerging markets. In
selecting equity securities, the portfolio managers use a "bottom-up" analysis
that focuses on individual companies and assesses the company's valuation,
financial condition, management, competitiveness, and other factors.
The Fund is not restricted to investments in companies of any particular size,
but currently intends to invest principally in companies with market
capitalization above $100 million at the time of purchase. The Fund may also use
options, futures contracts and interest rate and currency swaps as hedging
techniques or to help seek the Fund's investment objectives.
Differences Between the Fund and High Yield Fund
While both Funds invest primarily in high yield securities, the High Yield Fund
normally emphasizes bonds with stronger credit ratings in the high yield bond
universe. Thus, of the two Funds, High Yield Fund II normally presents the
potential for higher income, but with potentially higher credit risk and
volatility.
--------------------------------------------------------------------------------
RISKS [GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund may be
subject to more credit risk than other income mutual funds because it invests in
high yield debt securities, which are considered predominantly speculative with
respect to the issuer's continuing ability to meet interest and principal
payments. This is especially true during periods of economic uncertainty or
economic downturns.
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with intermediate and long term
maturities. Debt securities with longer durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the owners of the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. The Fund could lose money if it cannot sell a
security at the time and price that would be most beneficial to the Fund. A
security in the lowest rating categories, that is unrated, or whose credit
rating has been lowered may be particularly difficult to sell. Valuing less
liquid securities involves greater exercise of judgment and may be more
subjective than valuing securities using market quotes.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate information,
differences in the way securities markets operate, less secure foreign banks or
securities depositories than those in the U.S., and foreign controls on
investment. Investments in emerging markets countries are generally riskier than
other kinds of foreign investments, partly because emerging market countries may
be less politically and economically stable than other countries. It may also be
more difficult to buy and sell securities in emerging market countries.
Risk of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivative instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
Price Volatility -- equity securities face market, issuer and other risks, and
their values may go up and down, sometimes rapidly and unpredictably. Market
risk is the risk that securities may decline in value due to factors affecting
securities markets generally or particular industries. Issuer risk is the risk
that the value of a security may decline for reasons relating to the issuer.
12 Pilgrim High Yield Fund II
<PAGE>
PILGRIM HIGH YIELD FUND II
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED [GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's shares from year to
year.
Year by Year Total Returns (%)(1)(2)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
21.05 4.17 6.12
----------
(1) These figures are as of December 31 of each year. They do not reflect sales
charges and would be lower if they did.
(2) Prior to May 24, 1999 a different adviser managed the Fund. The figure
shown for the year 1999 provides performance for the Class A shares of the
Fund. The figures shown for the years 1997 and 1998 provide performance for
Institutional Class shares of the Fund, revised to reflect the higher
expenses of Class A shares.
Best and worst quarterly performance during this period:
3rd quarter 1997: up 8.30%
3rd quarter 1998: down 7.14%
The Fund's year-to-date total return as of June 30, 2000 was up 2.26%.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- the First Boston High Yield Index.
Average Annual Total Returns(3)
First
Boston
High
Class Class Class Institutional Yield
A(4) B(5) C(6) Class(7) Index(8)
---- ---- ---- -------- --------
One year, ended
December 31, 1999 % 1.07 0.53 4.38 9.55 3.28
Since inception of
Classes A, B and C(9) % -0.18 -0.06 1.97 N/A 0.48(10)
Since inception of
Institutional Class(11) % N/A N/A N/A 13.63 6.90
----------
(3) Class T shares did not have a full year's performance as of December 31,
1999.
(4) Reflects deduction of a sales charge of 4.75%.
(5) Reflects deduction of a deferred sales charge of 5% and 4%, respectively,
for the 1 year and since inception returns.
(6) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(7) Institutional Class shares of the Fund are no longer offered.
(8) The First Boston High Yield Index is an unmanaged index that measures the
performance of fixed income securities similar, but not identical, to those
in the Fund's portfolio.
(9) Classes A, B and C commenced operations on March 27, 1998. Class T
commenced operations on January 4, 2000.
(10) Index return is for period beginning March 31, 1998.
(11) Institutional Class shares of the Fund commenced operations on July 31,
1996.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim High Yield Fund II 13
<PAGE>
------
Income
Funds
------
ADVISER
PILGRIM HIGH TOTAL RETURN FUND Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC]
The Fund seeks high income and capital appreciation.
INVESTMENT STRATEGY [GRAPHIC]
The Fund invests primarily in higher-yielding, lower-rated bonds (junk bonds) to
achieve high current income with potential for capital growth.
Under normal market conditions, the Fund invests at least 65% of its total
assets in high-yielding, lower-rated U.S. dollar-denominated debt securities of
any maturity of U.S. and foreign issuers. It may also invest up to 35% of its
total assets in securities denominated in foreign currencies. It may invest up
to 50% of its assets in securities of foreign issuers, including 35% in emerging
market debt. Most of the debt securities the Fund invests in are lower-rated and
considered speculative, including bonds in the lowest rating categories and
unrated bonds. It can invest up to 10%, and can hold up to 25%, of its assets in
securities rated below Caa by Moody's or CCC by S&P. It also holds debt
securities that pay fixed, floating or adjustable interest rates and may hold
pay-in-kind securities and discount obligations, including zero coupon
securities, and mortgage-related or asset-backed debt securities.
The Fund may also invest in equity or equity-related securities, such as common
stock, preferred stock, convertible securities and rights and warrants attached
to debt instruments.
In selecting equity securities, the portfolio managers use a "bottom-up"
analysis that focuses on individual companies and assesses the company's
valuation, financial condition, management, competitiveness, and other factors.
--------------------------------------------------------------------------------
RISKS [GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- The Fund's performance is significantly affected by
changes in interest rates. The value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with longer durations. Debt securities
with longer durations tend to be more sensitive to changes in interest rates,
usually making them more volatile than debt securities with shorter durations.
The value of the Fund's high-yield and zero coupon securities are particularly
sensitive to changes in interest rates.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund is subject
to more credit risk than many other income mutual funds, because it invests in
high-yield debt securities, which are considered predominantly speculative with
respect to the issuer's continuing ability to meet interest and principal
payments. This is especially true for bonds in the lowest rating category and
unrated bonds, and during periods of economic uncertainty or economic downturns.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high-yield securities may be less liquid than
higher quality investments. Foreign securities and mortgage-related and
asset-backed debt securities may be less liquid than other debt securities. The
Fund could lose money if it cannot sell a security at the time and price that
would be most beneficial to the Fund. A security in the lowest rating
categories, that is unrated, or whose credit rating has been lowered may be
particularly difficult to sell. Valuing less liquid securities involves greater
exercise of judgement and may be more subjective than valuing securities using
market quotes.
Risk of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
The Fund may invest in midcap and smallcap companies, which may be more
susceptible to price swings than larger companies because they have fewer
financial resources, more limited product and market diversification, and many
are dependent on a few key managers.
14 Pilgrim High Total Return Fund
<PAGE>
PILGRIM HIGH TOTAL RETURN FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED [GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-8.57 21.17 15.70 11.44 -7.96 -13.23
----------
(1) These figures are as of December 31 of each year. They do not reflect sales
charges and would be lower if they did.
Best and worst quarterly performance during this period:
3rd quarter 1997: up 7.40%
3rd quarter 1998: down 13.76%
The Fund's year-to-date total return as of June 30, 2000 was down 1.96%.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- the Lehman Brothers High Yield Bond Index.
Average Annual Total Returns
Lehman
High Yield
Bond
Class A(2) Class B(3) Class C(4) Index(5)
---------- ---------- ---------- --------
One year, ended
December 31, 1999 % -17.28 -17.97 -14.80 2.39
Five years, ended
December 31, 1999 % 3.51 3.47 3.83 9.31
Since inception of Class A(6) % 1.82 N/A N/A 7.61(7)
Since inception of Class B(6) % N/A 0.83 N/A 7.24(8)
Since inception of Class C(6) % N/A N/A 1.35 8.23(9)
----------
(2) Reflects deduction of sales charge of 4.75%.
(3) Reflects deduction of deferred sales charge of 5%, 2%, and 1%,
respectively, for 1 year, 5 year, and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the Fund's portfolio.
(6) Class A commenced operations on November 8, 1993. Classes B and C commenced
operations on February 9, 1994 and March 21, 1994, respectively.
(7) Index return is for period beginning November 1, 1993.
(8) Index return is for period beginning February 1, 1994.
(9) Index return is for period beginning April 1, 1994.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim High Total Return Fund 15
<PAGE>
------
Income
Funds
------
ADVISER
PILGRIM HIGH TOTAL RETURN FUND II Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC]
The Fund seeks high income and capital appreciation.
INVESTMENT STRATEGY [GRAPHIC]
The Fund invests primarily in higher-yielding, lower-rated bonds (junk bonds) to
achieve high current income with potential for capital growth.
Under normal market conditions, the Fund invests at least 65% of its total
assets in high-yielding, lower-rated U.S. dollar-denominated debt securities of
U.S. and foreign issuers. It may also invest up to 35% of its total assets in
securities denominated in foreign currencies. It may invest up to 50% of its
assets in securities of foreign issuers, including 35% in emerging market debt.
Most of the debt securities the Fund invests in are lower-rated and considered
speculative, including bonds in the lowest rating categories and unrated bonds.
It can invest up to 10%, and can hold up to 25%, of its assets in securities
rated below Caa by Moody's or CCC by S&P. It also holds debt securities that pay
fixed, floating or adjustable interest rates and may hold pay-in-kind securities
and discount obligations, including zero coupon securities, and mortgage-related
or asset-backed debt securities.
The Fund may also invest in equity or equity-related securities, such as common
stock, preferred stock, convertible securities and rights and warrants attached
to debt instruments. In selecting equity securities, the portfolio managers use
a "bottom-up" analysis that focuses on individual companies and assesses the
company's valuation, financial condition, management, competitiveness, and other
factors.
--------------------------------------------------------------------------------
RISKS [GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- The Fund's performance is significantly affected by
changes in interest rates. The value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with longer maturities. Debt securities
with longer durations tend to be more sensitive to changes in interest rates,
usually making them more volatile than debt securities with shorter durations.
The value of the Fund's high yield and zero coupon securities are particularly
sensitive to changes in interest rates.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund is subject
to more credit risk than many other income mutual funds, because it invests in
high-yield debt securities, which are considered predominantly speculative with
respect to the issuer's continuing ability to meet interest and principal
payments. This is especially true for bonds in the lowest rating catergories and
unrated bonds, and during periods of economic uncertainty or economic downturns.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. An unrated bond, a bond in the lowest rating
catorgories, or a security whose credit rating has been lowered may be
particularly difficult to sell. Foreign securities and mortgage-related and
asset-backed debt securities may be less liquid than other debt securities. The
Fund could lose money if it cannot sell a security at the time and price that
would be most beneficial to the Fund.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Risk of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
16 Pilgrim High Total Return Fund II
<PAGE>
PILGRIM HIGH TOTAL RETURN FUND II
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED [GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-2.93 -13.86
----------
(1) These figures are as of December 31 of each year. They do not reflect sales
charges and would be lower if they did.
Best and worst quarterly performance during this period:
2nd quarter 1997: up 8.89%
4th quarter 1999: down 10.31%
The Fund's year-to-date total return as of June 30, 2000 was down 4.48%.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- the Lehman Brothers High Yield Bond Index.
Average Annual Total Returns
Lehman
High Yield
Bond
Class A(2) Class B(3) Class C(4) Index(5)
---------- ---------- ---------- --------
One year, ended
December 31, 1999 % -17.90 -18.37 -15.24 2.39
Since inception(6) % -1.77 -1.63 -0.75 5.37
----------
(2) Reflects deduction of sales charge of 4.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the Fund's portfolio.
(6) The Fund commenced operations on January 31, 1997.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim High Total Return Fund II 17
<PAGE>
------
Income
Funds
------
ADVISER
PILGRIM GLOBAL INCOME FUND Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC]
The Fund's investment objective is to seek high current income. Capital
appreciation is a secondary objective. The Fund invests in a combination of
foreign and domestic high-yield, lower rated or unrated debt securities.
INVESTMENT STRATEGY [GRAPHIC]
The Fund invests in a variety of foreign and domestic high yield, lower rated or
unrated debt securities.
The Fund, under normal conditions, invests substantially all of its assets in
lower rated or unrated debt securities of domestic companies, companies in
developed foreign countries, and companies in emerging markets. The credit
quality of the foreign debt securities which the Fund intends to buy is
generally equal to U.S. corporate debt securities known as "junk bonds". The
debt securities in which the Fund invests consist of bonds, notes, debentures
and other similar instruments. The Fund may invest in debt securities issued by
foreign governments, their agencies and instrumentalities, central banks,
commercial banks and other corporate entities. The Fund may invest up to 100% of
its total assets in domestic and foreign debt securities that are rated below
investment grade or are of comparable quality. The Fund may also invest in
securities that are in default as to payment of principal and/or interest, and
bank loan participations and assignments.
The Fund's investment strategy stresses diversification to help reduce the
Fund's price volatility. Global fixed income securities are divided into four
categories. The categories reflect whether the securities are U.S. dollar
denominated or not and whether borrowers are in developed markets or emerging
markets. The Fund then seeks to select the best values in each of these four
segments. The balance the Fund maintains between these sectors attempts to limit
the price volatility.
--------------------------------------------------------------------------------
RISKS [GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund may be
subject to more credit risk than other income funds because it invests in high
yield debt securities, which are considered predominantly speculative with
respect to the issuer's continuing ability to meet interest and principal
payments. This is especially true during periods of economic uncertainty or
economic downturns.
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with intermediate and long term
maturities. Debt securities with longer durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. The Fund could lose money if it cannot sell a
security at the time and price that would be most beneficial to the Fund. A
security in the lowest rating categories, that is unrated, or whose credit
rating has been lowered may be particularly difficult to sell. Valuing less
liquid securities involves greater exercise of judgment and may be more
subjective than valuing securities using market quotes.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate information,
differences in the way securities markets operate, less secure foreign banks or
securities depositories than those in the U.S., and foreign controls on
investment. Investments in emerging markets countries are generally riskier than
other kinds of foreign investments, partly because emerging market countries may
be less politically and economically stable than other countries. It may also be
more difficult to buy and sell securities in emerging market countries.
Non-Diversification Risk -- The Fund is a non-diversified investment company.
There is additional risk associated with being non-diversified, since a greater
proportion of the Fund's total assets may be invested in a single company.
18 Pilgrim Global Income Fund
<PAGE>
PILGRIM GLOBAL INCOME FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED [GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)(2)(3)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
6.62 10.03 6.51 10.90 -6.52 20.10 13.33 5.00 8.21 -0.31
----------
(1) These figures are as of December 31 of each year. They do not reflect sales
charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund and the Fund's shares were sold on a no-load basis.
Effective July 31, 2000, the Fund's outstanding shares were classified as
"Class A" shares.
(3) Prior to December 31, 1994, the Fund operated under a different investment
objective.
Best and worst quarterly performance during this period:
2nd quarter 1995: up 8.76%
1st quarter 1994: down -6.61%
The Fund's year-to-date total return as of June 30, 2000 was down 0.54%.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- the Lehman Brothers Global Bond Index.
Average Annual Total Returns
Lehman Brothers
Global Bond
Class A(4)(5) Index(6)
------------- --------
One year, ended
December 31, 1999 % -5.05 -0.99
Five years, ended
December 31, 1999 % 7.98 7.88
Ten years, ended
December 31, 1999 % 6.64 8.51
----------
(4) This table shows the performance of the Class A shares of the Fund. Class B
and Class C shares were not offered during the period ended December 31,
1999.
(5) Reflects deduction of sales charge of 4.75%.
(6) The Lehman Brothers Global Treasury Index is an unmanaged index that is
comprised of 19 countries with an average maturity of 7.46%. The index is
overweighted in the U.S. and Japan, 27% and 25%, respectively. The average
coupon is 5.37%. The index returns are calculated in three ways: U.S.
Dollar, hedged U.S. Dollar, and local returns (local currencies). The
modified adjusted duration of the index is 5.5 years.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim Global Income Fund 19
<PAGE>
------
Income
Funds
------
ADVISER
PILGRIM MONEY MARKET FUND Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC]
The Fund seeks to provide as high a level of current income as is consistent
with the preservation of capital and liquidity.
INVESTMENT STRATEGY [GRAPHIC]
The Fund invests all of its assets in Class A shares of the Primary
Institutional Fund, a series of Reserve Institutional Trust, a registered
open-end management investment company, rather than directly in a portfolio of
securities. In turn, the Primary Institutional Fund seeks to provide as high a
level of current income as is consistent with the preservation of capital and
liquidity. This structure is different from that of other Pilgrim Funds and many
other investment companies, which directly acquire and manage their own
portfolio of securities.
The Primary Institutional Fund seeks to achieve its investment objective by
investing in instruments issued by the U.S. Government, its agencies and
instrumentalities ("U.S. Government Securities"); high quality deposit-type
obligations, such as negotiable certificates of deposit and time deposits,
bankers' acceptances and letters of credit of domestic, foreign banks and
foreign branches of foreign banks, savings and loan associations and savings
banks; other short-term instruments of similar quality; and instruments fully
collateralized by such obligations. The dollar weighted average portfolio
maturity of the Fund will not exceed 90 days.
The Primary Institutional Fund may invest in obligations of U.S. banking
institutions that are insured by the Federal Deposit Insurance Corporation. The
Primary Institutional Fund may also invest in obligations of foreign branches of
both U.S. banks and foreign banks (Eurodollars). Investment in foreign banks
will be limited to those located in Australia, Canada, Western Europe and Japan
and which, at the time of investment, have more than $25 billion (or the
equivalent in other currencies) in total assets and which, in the opinion of the
Primary Institutional Fund's investment adviser, are of comparable quality to
the obligations of U.S. banks which may be purchased by the Primary
Institutional Fund. The Primary Institutional Fund may also invest in municipal
obligations, the interest on which is not exempt from federal income taxation.
The Primary Institutional Fund may also engage in repurchase agreements and
periodically lend securities on a short-term basis to banks, brokers and dealers
(but not individuals) and receive as collateral cash or securities issued by the
U.S. Government or its agencies or instrumentalities (or any combination
thereof). The value of the securities loaned cannot exceed 25% of the Primary
Institutional Fund's total assets.
The Primary Institutional Fund may invest, without limitation, in U.S.
Government Securities and in instruments secured or collateralized by U.S.
Government Securities. The Primary Institutional Fund will not invest more than
10% of its net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven (7) days after notice and will not
concentrate more than 25% of its total assets in securities of issuers in a
single industry, except that it may invest more than 25% of its assets in bank
obligations. In addition, the Primary Institutional Fund will not invest more
than 5% of its assets in the securities of any single issuer (except U.S.
Government Securities or repurchase agreements). The Primary Institutional Fund
may borrow money for extraordinary or emergency purposes but not in an amount
exceeding 5% of its total assets.
The Primary Institutional Fund uses the amortized cost method of valuation to
help the Fund maintain a stable $1.00 share price. Of course, there is no
guarantee that the Fund will be able to maintain a $1.00 share price.
Since the Fund invests substantially all of its assets in another investment
company, the fund could be considered a feeder fund in an arrangement resembling
a master/feeder structure.
Investment of the Fund's assets in the Class A shares of the Primary
Institutional Fund is not a fundamental policy of the Fund and a shareholder
vote is not required for the Fund to withdraw its investment in the Primary
Institutional Fund.
--------------------------------------------------------------------------------
RISKS [GRAPHIC]
The Fund is subject to the risks associated with investing in debt securities.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
The Fund may be affected by these other risks by virtue of its investment in the
Primary Institutional Fund:
Changes in Interest Rates -- money market funds like the Fund are subject to
less interest rate risk than other income funds because they invest in debt
securities with a remaining maturity not greater than 397 days. Still, the value
of the Fund's investment may fall when interest rates rise.
Credit Risk -- money market funds like the Fund are subject to less credit risk
than other income funds because they invest in short-term debt securities of the
highest quality. Still, the Fund could lose money if the issuer of a debt
security is unable to meet its financial obligations or goes bankrupt.
U.S. Government Securities -- some U.S. Government agency securities may be
subject to varying degrees of credit risk, and all U.S. Government Securities
may be subject to price declines in the securities due to changing interest
rates. If an obligation, such as obligations issued by the Federal National
Mortgage
20 Pilgrim Money Market Fund
<PAGE>
PILGRIM MONEY MARKET FUND
--------------------------------------------------------------------------------
Association, the Student Loan Marketing Association, the Federal Home Loan Bank
and the Federal Home Loan Mortgage Corporation is supported only by the credit
of the agency or instrumentality issuing the obligation, the investor must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment. Securities directly supported by the full faith and credit of the
United States have less credit risk.
Risk of Concentration in Banking Obligations -- the risks of concentrating in
investments in the banking industry include credit risk, interest rate risks,
and regulatory risk (the impact of state or federal legislation and
regulations).
Because the Fund invests all of its assets in another registered management
investment, company, the Fund and its shareholders will bear the investment
advisory fees and expenses of the Fund and the other registered management
investment company in which it invests with the result that the Fund's expenses
may be higher than those of other money market funds which invest directly in
money market instruments. The Fund is also designed for investors who desire a
short-term investment and may not be appropriate for those investors desiring a
long-term investment.
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED [GRAPHIC]
This Fund does not have a performance history because it was formed on July 1,
1999.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim Money Market Fund 21
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the Fund. The tables that follow show the
fees and expenses for each of the Pilgrim Funds.
Fees You Pay Directly
<TABLE>
<CAPTION>
Class A Class B Class C(1) Class M(1) Class T(2)
------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your investment
(as a % of offering price) %
Income Funds (except Money Market) 4.75(3) none none 3.25(3) none
Money Market Fund none none none N/A N/A
Maximum deferred sales charge (as a
% of purchase or sales price,
whichever is less)
Income Funds (including Money Market) none(4) 5.00(5) 1.00(6) none 4.00(7)
</TABLE>
----------
(1) Not all Funds offer Classes C and M. Please see page 27.
(2) Class T shares are available only for certain exchanges or reinvestment of
dividends. Please see page 26.
(3) Reduced for purchases of $50,000 and over. Please see page 27.
(4) A contingent deferred sales charge of no more than 1% may be assessed on
redemptions of Class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. Please see page 27.
(5) Imposed upon redemption within 6 years from purchase. The fee has scheduled
reductions after the first year. Please see page 27.
(6) Imposed upon redemption within 1 year from purchase.
(7) Imposed upon redemption within 4 years from purchase. The fee has scheduled
reductions after the first year. Please see page 27.
Operating Expenses Paid Each Year by the Funds(1)
(as a % of average net assets)
Class A
<TABLE>
<CAPTION>
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses(2) Expenses Adviser(3) Expenses
---- --- ---- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Government Securities Income(4) % 0.50 0.25 0.65 1.40 -- 1.40
GNMA Income % 0.54 0.25 0.38 1.17 -- 1.17
Strategic Income % 0.45 0.35 0.67 1.47 -0.52 0.95
High Yield % 0.60 0.25 0.27 1.12 -0.02 1.10
High Yield II(4) % 0.60 0.35 0.32 1.27 -0.17 1.10
High Total Return(5) % 0.60 0.30 0.33 1.23 -- 1.23
High Total Return II(5) % 0.60 0.30 0.35 1.25 -- 1.25
Global Income % 1.00 0.25 0.51 1.76 -- 1.76
Money Market % 0.25 0.25 0.75 1.25 -- 1.25
Class B(6)
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses(2) Expenses Adviser(3) Expenses
---- --- ---- ----------- -------- ---------- --------
Government Securities Income(4) % 0.50 1.00 0.65 2.15 -- 2.15
GNMA Income % 0.54 1.00 0.38 1.92 -- 1.92
Strategic Income % 0.45 0.75 0.67 1.87 -0.52 1.35
High Yield % 0.60 1.00 0.27 1.87 -0.02 1.85
High Yield II(4) % 0.60 1.00 0.32 1.92 -0.17 1.75
High Total Return(5) % 0.60 1.00 0.35 1.95 -- 1.95
High Total Return II(5) % 0.60 1.00 0.36 1.96 -- 1.96
Global Income % 1.00 1.00 0.51 2.51 -- 2.51
Money Market % 0.25 1.00 0.75 2.00 -- 2.00
</TABLE>
22 What You Pay to Invest
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
Operating Expenses Paid Each Year by the Funds(1)
(as a % of average net assets)
Class C(7)
<TABLE>
<CAPTION>
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses(2) Expenses Adviser(3) Expenses
---- --- ---- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Government Securities Income(4) % 0.50 1.00 0.65 2.15 -- 2.15
GNMA Income % 0.54 1.00 0.38 1.92 -- 1.92
Strategic Income % 0.45 0.75 0.67 1.87 -0.52 1.35
High Yield % 0.60 1.00 0.27 1.87 -0.02 1.85
High Yield II(4) % 0.60 1.00 0.32 1.92 -0.17 1.75
High Total Return(5) % 0.60 1.00 0.36 1.96 -- 1.96
High Total Return II(5) % 0.60 1.00 0.37 1.97 -- 1.97
Global Income % 1.00 1.00 0.51 2.51 -- 2.51
Money Market % 0.25 1.00 0.75 2.00 -- 2.00
Class M
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses(2) Expenses Adviser(3) Expenses
---- --- ---- ----------- -------- ---------- --------
Government Securities Income(4) % 0.50 0.75 0.65 1.90 -- 1.90
High Yield % 0.60 0.75 0.27 1.62 -0.02 1.60
Class T(8)
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses(2) Expenses Adviser(3) Expenses
---- --- ---- ----------- -------- ---------- --------
Government Securities Income(4) % 0.50 0.65 0.65 1.80 -- 1.80
High Yield II(4) % 0.60 0.65 0.32 1.57 -0.17 1.40
</TABLE>
----------
(1) These tables show the estimated operating expenses for each Fund by class
as a ratio of expenses to average daily net assets. These estimates are
based on each Fund's actual operating expenses for its most recent complete
fiscal year and fee waivers to which the Adviser has agreed for each Fund
except for GNMA Income Fund and Global Income Fund. For those Funds,
estimated operating expenses are based on estimated contractual operating
expenses commencing with Pilgrim Investments' management of these Funds.
(2) For the Strategic Income and High Yield II Funds, other expenses have been
restated to reflect the elimination of certain administrative fees
effective May 24, 1999.
(3) Pilgrim Investments has entered into expense limitation agreements with
each Fund except Government Securities Income, High Total Return, and High
Total Return II under which it will limit expenses of the Fund, excluding
interest, taxes, brokerage and extraordinary expenses, subject to possible
reimbursement to Pilgrim Investments within three years. The amount of each
Fund's expenses waived or reimbursed during the last fiscal year by Pilgrim
Investments is shown under the heading "Fee Waiver by Adviser". For each
Fund except Government Securities Income Fund, the expense limit will
continue through at least October 31, 2001. Pilgrim Investments has
separately agreed to reimburse Government Securities Income Fund to the
extent that total Fund operating expenses, excluding interest, taxes,
brokerage commissions, extraordinary expenses, and distribution fees in
excess of 0.25%, exceed 1.50% of the Fund's average daily net assets on the
first $40 million in net assets and 1% of average daily net assets in
excess of $40 million. The expense limit for Government Securities Income
Fund will terminate only with termination of the advisory contract with
Pilgrim Investments.
(4) Effective April 1, 2000, certain Pilgrim Funds merged with High Yield II
and Government Securities Income Funds. It is expected that as a result of
the mergers, operating expenses for High Yield II and Government Securities
Income Funds will be lower than the operating expenses prior to the
mergers.
(5) For the High Total Return Fund and High Total Return Fund II, the
management fee shown reflects a fee waiver effective July 26, 2000. Absent
the waiver, the management fees for the High Total Return Fund and High
Total Return Fund II would be 0.71% and 0.75%, respectively.
(6) Because Class B shares are new for GNMA Income and Global Income Funds,
their expenses are estimated based on Class A expenses.
(7) Because Class C shares are new for Government Securities Income, GNMA
Income, High Yield and Global Income Funds, their expenses are estimated
based on Class B expenses.
(8) Because Class T shares are new for High Yield II and Government Securities
Income Funds, their expenses are estimated based on Class A expenses.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
What You Pay to Invest 23
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
Examples
The examples that follow are intended to help you compare the cost of investing
in the Pilgrim Funds with the cost of investing in other mutual funds. Each
example assumes that you invested $10,000, reinvested all your dividends, the
Fund earned an average annual return of 5%, and annual operating expenses
remained at the current level. Keep in mind that this is only an estimate --
actual expenses and performance may vary.
Class A
Fund 1 year 3 years 5 years 10 years
---- ------ ------- ------- --------
Government Securities Income $ 611 897 1,204 2,075
GNMA Income $ 589 829 1,088 1,828
Strategic Income $ 567 818 1,143 2,061
High Yield $ 582 810 1,059 1,770
High Yield II $ 582 826 1,107 1,907
High Total Return $ 594 847 1,119 1,893
High Total Return II $ 596 853 1,129 1,915
Global Income $ 645 1,003 1,384 2,450
Money Market $ 127 397 686 1,511
Class B
<TABLE>
<CAPTION>
If you sell your shares If you don't sell your shares
------------------------------------- -------------------------------------
Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
---- ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government Securities Income $ 718 973 1,354 2,292 218 673 1,154 2,292
GNMA Income $ 695 903 1,237 2,048 195 603 1,037 2,048
Strategic Income $ 637 784 1,111 1,998 137 484 911 1,998
High Yield $ 688 884 1,207 1,991 188 584 1,007 1,991
High Yield II $ 678 869 1,204 2,046 178 569 1,004 2,046
High Total Return $ 698 969 1,252 2,088 198 612 1,052 2,088
High Total Return II $ 699 915 1,257 2,102 199 615 1,057 2,102
Global Income $ 754 1,082 1,535 2,662 254 782 1,335 2,662
Money Market $ 703 927 1,278 2,134 203 627 1,078 2,134
</TABLE>
24 What You Pay to Invest
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
Examples
Class C
<TABLE>
<CAPTION>
If you sell your shares If you don't sell your shares
------------------------------------- -------------------------------------
Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
---- ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government Securities Income $ 318 673 1,154 2,483 218 673 1,154 2,483
GNMA Income $ 295 603 1,037 2,243 195 603 1,037 2,243
Strategic Income $ 237 484 911 2,103 137 484 911 2,103
High Yield $ 288 584 1,007 2,187 188 584 1,007 2,187
High Yield II $ 278 569 1,004 2,215 178 569 1,004 2,215
High Total Return $ 299 615 1,057 2,285 199 615 1,057 2,285
High Total Return II $ 300 618 1,062 2,296 200 618 1,062 2,296
Global Income $ 354 782 1,335 2,846 254 782 1,335 2,846
Money Market $ 303 627 1,078 2,327 203 627 1,078 2,327
</TABLE>
Class M
Fund 1 year 3 years 5 years 10 years
---- ------ ------- ------- --------
Government Securities Income $ 512 903 1,318 2,475
High Yield $ 482 816 1,174 2,181
Class T
<TABLE>
<CAPTION>
If you sell your shares If you don't sell your shares
--------------------------------------- --------------------------------------
Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
---- ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Government Securities Income $ 583 766 975 2,011 183 566 975 2,011
High Yield II $ 543 662 822 1,757 143 462 822 1,757
</TABLE>
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
What You Pay to Invest 25
<PAGE>
SHAREHOLDER
GUIDE CHOOSING A SHARE CLASS
--------------------------------------------------------------------------------
PILGRIM PURCHASE OPTIONSTM
Depending upon the Fund, you may select from up to four separate classes of
shares: Class A, Class B, Class C and Class M.
Class A
* Front-end sales charge, as described on the next page (except for Money
Market Fund).
* Distribution and service (12b-1) fees of 0.25% to 0.35%.
Class B
* No front-end sales charge; all your money goes to work for you right away.
* Distribution and service (12b-1) fees of 1% (0.75% for Strategic Income
Fund).
* A contingent deferred sales charge, as described on the next page.
* Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses. Class B shares acquired initially through Funds
that were part of the Nicholas-Applegate Mutual Funds at the time of
purchase will convert after seven years from the date of original purchase.
* Not offered by Global Corporate Leaders Fund, Worldwide Emerging Markets
Fund, Troika Dialog Russia Fund, Gold Fund and Silver Fund.
Class C
* No front-end sales charge; all your money goes to work for you right away.
* Distribution and service (12b-1) fees of 1% (0.75% for Strategic Income
Fund).
* A 1% contingent deferred sales charge on shares sold within one year of
purchase.
* No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of your investment.
* Not offered by Bank and Thrift Fund, Asia-Pacific Equity Fund, Global
Corporate Leaders Fund, Worldwide Emerging Markets Fund, SmallCap Asia
Growth Fund, Troika Dialog Russia Fund, Gold Fund and Silver Fund.
Class M
* Lower front-end sales charge than Class A, as described on the next page.
* Distribution and service (12b-1) fees of 0.75%.
* No automatic conversion to Class A shares, so annual expenses continue at
the Class M level throughout the life of your investment.
* Offered only by MagnaCap Fund, LargeCap Leaders Fund, MidCap Value Fund,
Asia-Pacific Equity Fund, Government Securities Income Fund and High Yield
Fund.
Class T
* No longer available for purchase, unless you are investing income earned on
Class T shares or exchanging Class T Shares of another Fund.
* Distribution and service (12b-1) fees of 0.65 to 1% (varies by fund).
* A contingent deferred sales charge, as described in this section.
* Automatic conversion to Class A shares after 8 years, thus reducing future
annual expenses.
* Offered only by Growth Opportunities, SmallCap Opportunities, Government
Securities Income, High Yield II, and Balanced.
When choosing between classes, you should carefully consider the ongoing annual
expenses along with the initial sales charge or the contingent deferred sales
charge. The relative impact of the initial sales charges and ongoing annual
expenses will depend on the length of time a share is held. Higher distribution
fees mean a higher expense ratio, so Class B and Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A or Class M shares. Orders for Class B shares and Class M shares in excess of
$250,000 and $1,000,000, respectively, will be accepted as orders for Class A
shares or declined. You should discuss which Class of shares is right for you
with your investment professional.
Distribution and Shareholder Service Fees
To pay for the cost of promoting the Funds and servicing your shareholder
account, each class of each Fund has adopted a Rule 12b-1 plan which requires
fees to be paid out of the assets of each class. Over time the fees will
increase your cost of investing and may exceed the cost of paying other types of
sales charges.
26 Shareholder Guide
<PAGE>
CHOOSING A SHARE CLASS SHAREHOLDER GUIDE
--------------------------------------------------------------------------------
SALES CHARGE CALCULATION
Class A(1)
Class A shares of the Funds are sold subject to the following sales charge:
U.S. and International
Equity Funds,
Equity & Income Funds
and Precious Metals Funds Income Funds
-------------------------- -------------------------
As a % As a %
of the As a % of of the As a % of
offering net offering net
Your Investment price asset value price asset value
--------------- ----- ----------- ----- -----------
Less than $50,000 5.75 6.10 4.75 4.99
$50,000 - $99,999 4.50 4.71 4.50 4.71
$100,000 - $249,999 3.50 3.63 3.50 3.63
$250,000 - $499,999 2.50 2.56 2.50 2.56
$500,000 - $1,000,000 2.00 2.04 2.00 2.04
$1,000,000 and over See below See below
----------
(1) Shareholders that purchased funds that were a part of the Lexington family
of funds at the time of purchase are not subject to sales charges for the
life of their account.
Money Market Fund. There is no sales charge if you purchase Class A shares of
Money Market Fund. However, if the Class A shares are exchanged for shares of
another Pilgrim Fund, you will be charged the applicable sales load for that
fund upon the exchange.
Investments of $1 Million or More. There is no front-end sales charge if you
purchase Class A shares in an amount of $1 million or more. However, the shares
will be subject to a contingent deferred sales charge if they are redeemed
within one or two years of purchase, depending on the amount of the purchase, as
follows:
Period during which
Your investment CDSC CDSC applies
--------------- ---- ------------
$1,000,000 to $2,499,999 1.00% 2 years
$2,500,000 to $4,999,999 0.50% 1 year
$5,000,000 and over 0.25% 1 year
However, Class A shares that were purchased in an amount of $1 million or more
through Funds that were part of the Nicholas-Applegate Mutual Funds at the time
of purchase will be subject to a contingent deferred sales charge of 1% within
one year from the date of purchase.
Class A shares that were purchased in an amount of $1 million or more through
funds that were part of the Northstar family of funds at the time of purchase
are subject to a different contingent deferred sales charge period of 18 months
from the date of purchase. See the SAI for further information.
Class B, Class C and Class T
Class B and Class C shares are offered at their net asset value per share
without any initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) on shares that you sell within a certain period of
time after you bought them. The amount of the CDSC is based on the lesser of the
net asset value of the shares at the time of purchase or redemption. There is no
CDSC on shares acquired through the reinvestment of dividends and capital gains
distributions. The CDSCs are as follows:
Class B Deferred Sales Charge(1)
CDSC on shares
Years after purchase being sold
-------------------- ----------
1st year 5%
2nd year 4%
3rd year 3%
4th year 3%
5th year 2%
6th year 1%
After 6th year none
----------
(1) Class B shares that were purchased through funds that were part of the
Northstar family of funds at the time of purchase are subject to a
different contingent deferred sales charge. Please see the SAI for further
information.
Class C Deferred Sales Charge
CDSC on shares
Years after purchase being sold
-------------------- ----------
1st year 1%
After 1st year none
Class T Deferred Sales Charge
CDSC on shares
Years after purchase being sold
-------------------- ----------
1st year 4%
2nd year 3%
3rd year 2%
4th year 1%
After 4th year none
To keep your CDSC as low as possible, each time you place a request to redeem
shares the Funds will first redeem shares in your account that are not subject
to a CDSC, and then will sell shares that have the lowest CDSC.
Class M
Class M shares of the Funds are sold subject to the following sales charge:
MagnaCap
LargeCap Leaders, Government
MidCap Value, Securities
and Income and
Asia-Pacific High Yield
Equity Funds Funds
----------------------- ----------------------
As a % As a % of As a % As a % of
of the net of the net
offering asset offering asset
Your Investment price value price value
--------------- ----- ----- ----- -----
Less than $50,000 3.50% 3.63% 3.25% 3.36%
$50,000 - $99,999 2.50% 2.56% 2.25% 2.30%
$100,000 - $249,999 1.50% 1.52% 1.50% 1.52%
$250,000 - $499,999 1.00% 1.01% 1.00% 1.01%
$500,000 and over none none none none
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Shareholder Guide 27
<PAGE>
SHAREHOLDER GUIDE
CHOOSING A SHARE CLASS
--------------------------------------------------------------------------------
Sales Charge Reductions and Waivers
Reduced Sales Charges. You may reduce the initial sales charge on a purchase of
Class A or Class M shares of the funds by combining multiple purchases to take
advantage of the breakpoints in the sales charge schedules. You may do this by:
Letter of Intent -- lets you purchase shares over a 13 month period and pay the
same sales charge as if the shares had all been purchased at once.
Rights of Accumulation -- lets you add the value of shares of any open-end
Pilgrim Fund (excluding the Money Market Fund) you already own to the amount of
your next purchase for purposes of calculating the sales charge.
Combination Privilege -- shares held by investors in the Pilgrim Funds which
impose a CDSC may be combined with Class A or Class M shares for a reduced sales
charge.
See the Account Application or the Statement of Additional Information for
details, or contact your financial representative or the Shareholder Servicing
Agent for more information.
CDSC Waivers. If you notify the Transfer Agent at the time of redemption, the
CDSC for each Class will be waived in the following cases:
* redemptions following the death or permanent disability of a shareholder if
made within one year of death or the initial determination of permanent
disability. The waiver is available only for shares held at the time of
death or initial determination of permanent disability.
* for Class B Shares, redemptions pursuant to a Systematic Withdrawal Plan,
up to a maximum of 12% per year of a shareholder's account value based on
the value of the account at the time the plan is established and annually
thereafter, provided all dividends and distributions are reinvested and the
total redemptions do not exceed 12% annually.
* mandatory distributions from a tax-deferred retirement plan or an IRA.
However, if you purchased shares that were part of the Nicholas-Applegate
Mutual Funds, you may be eligible for a CDSC waiver prior to the mandatory
distribution age.
* If you think you may be eligible for a CDSC waiver, contact your financial
representative or the Shareholder Servicing Agent.
Reinstatement Privilege. If you sell Class B, Class C or Class T shares of a
Pilgrim Fund, you may reinvest some or all of the proceeds in the same share
class within 90 days without a sales charge. Reinstated Class B, Class C and
Class T shares will retain their original cost and purchase date for purposes of
the CDSC. This privilege can be used only once per calendar year. If you want to
use the Reinstatement Privilege, contact your financial representative or the
Shareholder Servicing Agent. Consult the SAI for more information.
Sales Charge Waivers. Class A or Class M shares may be purchased without a sales
charge by certain individuals and institutions. For additional information,
contact the Shareholder Servicing Agent, or see the Statement of Additional
Information.
28 Shareholder Guide
<PAGE>
SHAREHOLDER
GUIDE HOW TO PURCHASE SHARES
--------------------------------------------------------------------------------
The minimum initial investment amounts for the Pilgrim Funds are as follows:
* Non-retirement accounts: $1,000
* Retirement accounts: $250
* Pre-Authorized Investment Plan: $100 to open; you must invest at least $100
a month.
The minimum additional investment is $100.
Make your investment using the table on the right.
The Funds and the Distributor reserve the right to reject any purchase order.
Please note that cash, travelers checks, third party checks, money orders and
checks drawn on non-US banks (even if payment may be effected through a US bank)
will not be accepted. The Pilgrim Funds reserve the right to waive minimum
investment amounts. The Funds reserve the right to liquidate sufficient shares
to recover annual transfer agent fees or to close your account and redeem your
shares should you fail to maintain your account value at a minimum of $1,000.00
($250.00 for IRAs).
Retirement Plans
The Funds have available prototype qualified retirement plans for both
corporations and for self-employed individuals. They also have available
prototype IRA, Roth IRA and Simple IRA plans (for both individuals and
employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans
and Tax Sheltered Retirement Plans for employees of public educational
institutions and certain non-profit, tax-exempt organizations. State Street Bank
and Trust -- Kansas City (SSB) acts as the custodian under these plans. For
further information, contact the Shareholder Servicing Agent at (800) 992-0180.
SSB currently receives a $12 custodial fee annually for the maintenance of such
accounts.
Initial Additional
Method Investment Investment
------ ---------- ----------
By Contacting An investment
Your professional with an
Investment authorized firm
Professional can help you establish
and maintain your
account.
By Mail Visit or consult an Visit or consult an
investment investment
professional. Make professional. Fill out
your check payable to the Account Additions
the Pilgrim Funds and form included on the
mail it, along with a bottom of your account
completed Application. statement along with
Please indicate your your check payable to
investment professional the Fund and mail
on the New Account them to the address on
Application the account statement.
Remember to write
your account number
on the check.
By Wire Call the Pilgrim Wire the funds in the
Operations Department same manner described
at (800) 336-3436 to under "Initial
obtain an account Investment."
number and indicate
your investment
professional on the
account.
Instruct your bank to
wire funds to the Fund
in the care of:
State Street Bank and
Trust -- Kansas City
ABA #101003621
Kansas City, MO
credit to: _____________
(the Fund) A/C #751-8315;
for further credit
to: ______________________
Shareholder
A/C #_____________________
(A/C # you received over
the telephone)
Shareholder Name:
--------------------------
(Your Name Here)
After wiring funds you
must complete the
Account Application
and send it to:
Pilgrim Funds
P.O. Box 219368
Kansas City, MO
64121-6368
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Shareholder Guide 29
<PAGE>
SHAREHOLDER
GUIDE HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
You may redeem shares using the table on the right.
Under unusual circumstances, a Fund may suspend the right of redemption as
allowed by federal securities laws.
Systematic Withdrawal Plan
You may elect to make periodic withdrawals from your account on a regular basis.
* Your account must have a current value of at least $10,000.
* Minimum withdrawal amount is $100.
* You may choose from monthly, quarterly, semi-annual or annual payments.
For additional information, contact the Shareholder Servicing Agent, see the
Account Application or the Statement of Additional Information.
Payments
Normally, payment for shares redeemed will be made within three days after
receipt by the Transfer Agent of a written request in good order. When you place
a request to redeem shares for which the purchase money has not yet been
collected, the request will be executed at the next determined net asset value,
but the Fund will not release the proceeds until your purchase payment clears.
This may take up to 15 days or more. To reduce such delay, purchases should be
made by bank wire or federal funds.
Each Fund normally intends to pay in cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, a Fund may make payment
wholly or partly in securities at their then current market value equal to the
redemption price. In such case, a Fund could elect to make payment in securities
for redemptions in excess of $250,000 or 1% of its net assets during any 90-day
period for any one shareholder. An investor may incur brokerage costs in
converting such securities to cash.
Method Procedures
------ ----------
By Contacting Your You may redeem by contacting your
Investment Professional investment professional. Investment
professionals may charge for their services in
connection with your redemption request, but
neither the Fund nor the Distributor imposes
any such charge.
By Mail Send a written request specifying the Fund
name and share class, your account number,
the name(s) in which the account is
registered, and the dollar value or number of
shares you wish to redeem to:
Pilgrim Funds
P.O. Box 219368
Kansas City, MO 64121-6368
If certificated shares have been issued, the
certificate must accompany the written request.
Corporate investors and other associations must have
an appropriate certification on file authorizing
redemptions. A suggested form of such certification
is provided on the Account Application. A
signature guarantee may be required.
By Telephone -- You may redeem shares by telephone on all
Expedited Redemption accounts other than retirement accounts,
unless you check the box on the Account Application
which signifies that you do not wish to use telephone
redemptions. To redeem by telephone, call the
Shareholder Servicing Agent at (800) 992-0180.
Receiving Proceeds By Check:
You may have redemption proceeds (up to a maximum of
$100,000) mailed to an address which has been on
record with Pilgrim Funds for at least 30 days.
Receiving Proceeds By Wire:
You may have redemption proceeds (subject to a minimum
of $5,000) wired to your pre-designated bank account.
You will not be able to receive redemption proceeds
by wire unless you check the box on the Account
Application which signifies that you wish to receive
redemption proceeds by wire and attach a voided
check. Under normal circumstances, proceeds will be
transmitted to your bank on the business day
following receipt of your instructions, provided
redemptions may be made. In the event that share
certificates have been issued, you may not request a
wire redemption by telephone.
30 Shareholder Guide
<PAGE>
SHAREHOLDER
TRANSACTION POLICIES GUIDE
--------------------------------------------------------------------------------
Net Asset Value
The net asset value (NAV) per share for each Fund and class is determined each
business day as of the close of regular trading on the New York Stock Exchange
(usually at 4:00 p.m. Eastern Time). The NAV per share of each class of each
Fund is calculated by taking the value of the Fund's assets attributable to that
class, subtracting the Fund's liabilities attributable to that class, and
dividing by the number of shares of that class that are outstanding. Because
foreign securities may trade on days when the Funds do not price shares, the net
asset value of a Fund that invests in foreign securities may change on days when
shareholders will not be able to purchase or redeem the Fund's shares.
In general, assets are valued based on actual or estimated market value, with
special provisions for assets not having readily available market quotations,
and short-term debt securities, and for situations where market quotations are
deemed unreliable. Short-term debt securities having a maturity of 60 days or
less are valued at amortized cost, unless the amortized cost does not
approximate market value. Securities prices may be obtained from automated
pricing services. When market quotations are not readily available or are deemed
unreliable, securities are valued at their fair value as determined in good
faith under the supervision of the Board of Directors or Trustees. Valuing
securities at fair value involves greater reliance on judgment than securities
that have readily available market quotations.
Money Market Fund. The Money Market Fund tries to maintain a stable NAV of $1.00
per share. Because the Primary Institutional Fund uses the amortized cost method
of valuing the securities held by it and rounds its per share net asset value to
the nearest whole cent, it is anticipated that the net asset value of the
Primary Institutional Fund will remain constant at $1.00 per share. However, the
Money Market Fund makes no assurance that either it or the Primary Institutional
Fund can maintain a $1.00 net asset value per share.
Price of Shares
When you buy shares, you pay the NAV plus any applicable sales charge. When you
sell shares, you receive the NAV minus any applicable deferred sales charge.
Exchange orders are effected at NAV.
Execution of Requests
Purchase and sale requests are executed at the next NAV determined after the
order is received in proper form by the Transfer Agent or Distributor. A
purchase order will be deemed to be in proper form when all of the required
steps set forth above under "How to Purchase Shares" have been completed. If you
purchase by wire, however, the order will be deemed to be in proper form after
the telephone notification and the federal funds wire have been received. If you
purchase by wire, you must submit an application form in a timely fashion. If an
order or payment by wire is received after the close of regular trading on the
New York Stock Exchange (normally 4:00 p.m. Eastern Time), the shares will not
be credited until the next business day.
You will receive a confirmation of each new transaction in your account, which
also will show you the number of Fund shares you own including the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Funds will not be issued
unless you request them in writing.
Telephone Orders
The Funds and their transfer agent will not be responsible for the authenticity
of phone instructions or losses, if any, resulting from unauthorized shareholder
transactions if they reasonably believe that such instructions were genuine. The
Funds and their transfer agent have established reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures
include recording telephone instructions for exchanges and expedited
redemptions, requiring the caller to give certain specific identifying
information, and providing written confirmation to shareholders of record not
later than five days following any such telephone transactions. If the Funds and
their transfer agent do not employ these procedures, they may be liable for any
losses due to unauthorized or fraudulent telephone instructions.
Exchanges
You may exchange shares of a Fund for shares of the same class of any other
Pilgrim Fund, except for Lexington Money Market Trust and Pilgrim Corporate
Leaders Trust Fund, without paying any additional sales charge, except that
Class A shares of the Pilgrim Money Market Fund for which no sales charge was
paid must pay the applicable sales load on an exchange into Class A shares of
another Fund. In addition, Class T shares of any Fund may be exchanged for Class
B shares of the Pilgrim Money Market Fund. Shares subject to a CDSC will
continue to age from the date that the original shares were purchased. If you
exchange shares of a Fund that at the time you acquired the shares was a
Nicholas-Applegate Mutual Fund, the shares you receive on the exchange will be
subject to the current CDSC structure and conversion rights of the Fund being
acquired, although the shares will continue to age for CDSC and conversion
purposes from the date the original shares were acquired.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the Fund into which they are being exchanged.
Exchanges of shares are sales and may result in a
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Shareholder Guide 31
<PAGE>
SHAREHOLDER
GUIDE TRANSACTION POLICIES
--------------------------------------------------------------------------------
gain or loss for federal and state income tax purposes. There is no specific
limit on exchange frequency; however, the Funds are intended for long-term
investment and not as a short-term trading vehicle. The adviser may prohibit
excessive exchanges (more than four per year). The adviser also may, on 60 days'
prior notice, restrict the frequency of, otherwise modify, or impose charges of
up to $5.00 upon exchanges.
You will automatically have the ability to request an exchange by calling the
Shareholder Service Agent unless you mark the box on the Account Application
that indicates that you do not wish to have the telephone exchange privilege. A
Fund may change or cancel its exchange policies at any time, upon 60 days'
written notice to shareholders.
Systematic Exchange Privilege
With an initial account balance of at least $5,000 and subject to the
information and limitations outlined above, you may elect to have a specified
dollar amount of shares systematically exchanged, monthly, quarterly,
semi-annually or annually (on or about the 10th of the applicable month), from
your account to an identically registered account in the same class of any other
open-end Pilgrim Fund. This exchange privilege may be modified at any time or
terminated upon 60 days' written notice to shareholders.
Small Accounts
Due to the relatively high cost of handling small investments, the Funds reserve
the right upon 30 days' written notice to redeem, at NAV, the shares of any
shareholder whose account (except for IRAs) has a value of less than $1,000,
other than as a result of a decline in the NAV per share.
32 Shareholder Guide
<PAGE>
MANAGEMENT
ADVISER OF THE FUNDS
--------------------------------------------------------------------------------
Pilgrim Investments, Inc. ("Pilgrim" or "Pilgrim Investments") serves as the
investment adviser to each of the Funds. Pilgrim has overall responsibility for
the management of the Funds. Pilgrim provides or oversees all investment
advisory and portfolio management services for each Fund, and assists in
managing and supervising all aspects of the general day-to-day business
activities and operations of the Funds, including custodial, transfer agency,
dividend disbursing, accounting, auditing, compliance and related services.
Organized in December 1994, Pilgrim is registered as an investment adviser.
Pilgrim is an indirect wholly-owned subsidiary of ReliaStar Financial Corp.
("ReliaStar") (NYSE: RLR). Through its subsidiaries, ReliaStar offers
individuals and institutions life insurance and annuities, employee benefits
products and services, life and health reinsurance, retirement plans, mutual
funds, bank products, and personal finance education.
Prior to April 30, 2000, Pilgrim Advisors, Inc. ("Pilgrim Advisors") served as
investment adviser to certain of the Funds. On April 30, 2000, Pilgrim Advisors,
an indirect wholly-owned subsidiary of ReliaStar, merged with Pilgrim
Investments. Pilgrim Advisors and Pilgrim Investments were sister companies and
shared certain resources and investment personnel.
Prior to July 26, 2000, Lexington Management Corporation ("Lexington") served as
investment adviser to certain of the Funds. On July 26, 2000, ReliaStar acquired
Lexington Global Asset Managers, Inc., the parent company of Lexington, and
Pilgrim Investments was approved as Adviser to the Funds formerly advised by
Lexington.
As of June 30, 2000, Pilgrim managed over $16.8 billion in assets.
Pilgrim's principal address is 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004.
Pilgrim receives a monthly fee for its services based on the average daily net
assets of each of the Funds.
The following table shows the aggregate annual advisory fee paid by each Fund
for the most recent fiscal year as a percentage of that Fund's average daily net
assets:
Advisory
Fund Fee
---- ---
Government Securities Income 0.50%
GNMA Income 0.54
Strategic Income 0.45
High Yield 0.60
High Yield II 0.60
High Total Return 0.71
High Total Return II 0.75
Global Income 1.00
Money Market 0.25
Pilgrim Directly Manages the Portfolios of the Following Funds:
GNMA Income Fund and Global Income Fund
Denis P. Jamison has served as Senior Portfolio Manager of GNMA Income Fund
since July 1981 and Global Income Fund since July 1986.
Mr. Jamison serves as Senior Vice President and Senior Portfolio Manager of
Pilgrim. He is a Chartered Financial Analyst and a member of the New York
Society of Security Analysts. Prior to joining Pilgrim in 1981, Mr. Jamison
spent nine years at Arnold Bernhard & Company, an investment counseling and
financial services organization. At Bernhard, he was a Vice President
supervising the security analyst staff and managing investment portfolios. He is
a specialist in government, corporate and municipal bonds. Mr. Jamison graduated
from the City College of New York with a B.A. in Economics.
Roseann G. McCarthy has served as co-manager of GNMA Income Fund since May 1999.
Ms. McCarthy is an Assistant Vice President of Pilgrim. Prior to joining the
Fixed Income Department in 1997, she was Mutual Fund Marketing and Research
Coordinator. Prior to 1995, Ms. McCarthy was Fund Statistician and a Shareholder
Service Representative for the Lexington Funds. Ms. McCarthy is a graduate of
Hofstra University with a B.B.A. in Marketing and has an M.B.A. in Finance from
Seton Hall University.
High Total Return Fund and High Total Return Fund II
Kevin Mathews has served as Senior Portfolio Manager of High Total Return II and
High Total Return since November 1999.
Mr. Mathews has over 16 years of experience in the management of high-yield
fixed income investments. Mr. Mathews serves as a Senior Vice President and
Senior Portfolio Manager of Pilgrim. Prior to joining Pilgrim, Mr. Mathews was a
Vice President and Senior Portfolio Manager of Van Kampen American Capital.
Charles Ullerich has served as co-manager of High Total Return II and High Total
Return since December 1999.
Mr. Ullerich has approximately nine years of experience in the management of
fixed-income investments. Mr. Ullerich serves as a Vice President and Portfolio
Manager of Pilgrim. Prior to joining Pilgrim, Mr. Ullerich was Vice President of
Treasury Services for First Liberty Bank of Macon, Georgia since 1991, where he
was Portfolio Manager for a mortgage and treasury securities portfolio.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Management of the Funds 33
<PAGE>
MANAGEMENT
OF THE FUNDS ADVISER
--------------------------------------------------------------------------------
Strategic Income Fund
The following individuals share responsibility for the day-to-day management of
the Strategic Income Fund:
Robert K. Kinsey, Vice President of Pilgrim, has served as a Portfolio Manager
of Strategic Income Fund since May 24, 1999. Mr. Kinsey manages Strategic Income
Fund's assets that are invested in assets other than high yield debt securities.
Prior to joining Pilgrim, Mr. Kinsey was a Vice President and Fixed Income
Portfolio Manager for Federated Investors from January 1995 to March 1999. From
July 1992 to January 1995, Mr. Kinsey was a Principal and Portfolio Manager for
Harris Investment Management.
Kevin G. Mathews, whose background is described above, has served as a Senior
Portfolio Manager of Strategic Income Fund since May 24, 1999. Mr. Mathews
manages Strategic Income Fund's assets that are invested in high yield debt
securities.
Charles Ullerich, whose background is described above, has served as a
Co-Portfolio Manager of Strategic Income Fund since December 1999.
Government Securities Income Fund
Robert K. Kinsey, whose background is described above, has primary
responsibility for the day-to-day management of Government Securities Income
Fund, and has served as Senior Portfolio Manager of Government Securities Income
Fund since May 24, 1999.
High Yield Fund and High Yield Fund II
Kevin G. Mathews, whose background is described above, has served as Senior
Portfolio Manager of High Yield Fund and High Yield Fund II since June 1995 and
May 1999, respectively.
Charles Ullerich, whose background is described above, has served as a
co-manager of High Yield Fund and High Yield Fund II since December 1999.
34 Management of the Funds
<PAGE>
DIVIDENDS,
DISTRIBUTIONS
DIVIDENDS/TAXES AND TAXES
--------------------------------------------------------------------------------
Dividends
The Funds generally distribute most or all of their net earnings in the form of
dividends. Each Fund pays dividends, if any, as follows:
Quarterly(1) Monthly(2)
------------ ----------
Global Income GNMA Income
Government Securities Income
Strategic Income
High Yield
High Yield II
High Total Return
High Total Return II
Money Market
----------
(1) Distributions normally expected to consist on an annual basis of a variable
combination of capital gains and ordinary income.
(2) Distributions normally expected to consist primarily of ordinary income.
Each Fund distributes capital gains, if any, annually.
Dividend Reinvestment
Unless you instruct a Fund to pay you dividends in cash, dividends and
distributions paid by a Fund will be reinvested in additional shares of the
Fund. You may, upon written request or by completing the appropriate section of
the Account Application, elect to have all dividends and other distributions
paid on Class A, B, C, M or T shares of a Fund invested in another Pilgrim Fund
which offers the same class shares. If you are a shareholder of Pilgrim Prime
Rate Trust, whose shares are not held in a broker or nominee account, you may,
upon written request, elect to have all dividends invested into a pre-existing
Class A account of any open-end Pilgrim Fund.
Taxes
The following information is meant as a general summary for U.S. shareholders.
Please see the Statement of Additional Information for additional information.
You should rely your own tax adviser for advice about the particular federal,
state and local tax consequences to you of investing in a Fund.
Each Fund will distribute most of its net investment income and net capital
gains to its shareholders each year. Although the Funds will not be taxed on
amounts they distribute, most shareholders will be taxed on amounts they
receive. A particular distribution generally will be taxable as either ordinary
income or long-term capital gains. It does not matter how long you have held
your Fund shares or whether you elect to receive your distributions in cash or
reinvest them in additional Fund shares. For example, if a Fund designates a
particular distribution as a long-term capital gains distribution, it will be
taxable to you at your long-term capital gains rate.
Dividends declared by a Fund in October, November or December and paid during
the following January may be treated as having been received by shareholders in
the year the distributions were declared.
You will receive an annual statement summarizing your dividend and capital gains
distributions.
If you invest through a tax-deferred account, such as a retirement plan, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
consult your tax adviser about investment through a tax-deferred account.
There may be tax consequences to you if you sell or redeem Fund shares. You will
generally have a capital gain or loss, which will be long-term or short-term,
generally depending on how long you hold those shares. If you exchange shares,
you may be treated as if you sold them. You are responsible for any tax
liabilities generated by your transactions.
As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax;
rather, it is a way in which the IRS ensures it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Dividends, Distributions and Taxes 35
<PAGE>
MORE INFORMATION
ABOUT RISKS
--------------------------------------------------------------------------------
All mutual funds involve risk -- some more than others -- and there is always
the chance that you could lose money or not earn as much as you hope. A Fund's
risk profile is largely a factor of the principal securities in which it invests
and investment techniques that it uses. The following pages discuss the risks
associated with certain of the types of securities in which the Funds may invest
and certain of the investment practices that the Funds may use. For more
information about these and other types of securities and investment techniques
that may be used by the Funds, see the Statement of Additional Information (the
"SAI").
Many of the investment techniques and strategies discussed in this prospectus
and in the SAI are discretionary, which means that the adviser can decide
whether to use them or not. The adviser of a Fund may also use investment
techniques or make investments in securities that are not a part of the Fund's
principal investment strategy.
PRINCIPAL RISKS
Investments in Foreign Securities. There are certain risks in owning foreign
securities, including those resulting from: fluctuations in currency exchange
rates; devaluation of currencies; political or economic developments and the
possible imposition of currency exchange blockages or other foreign governmental
laws or restrictions; reduced availability of public information concerning
issuers; accounting, auditing and financial reporting standards or other
regulatory practices and requirements that are not uniform when compared to
those applicable to domestic companies; settlement and clearance procedures in
some countries that may not be reliable and can result in delays in settlement;
higher transaction and custody expenses than for domestic securities; and
limitations on foreign ownership of equity securities. Also, securities of many
foreign companies may be less liquid and the prices more volatile than those of
domestic companies. With certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation and limitations on the use
or removal of funds or other assets of the Funds, including the withholding of
dividends.
Each Fund that invests in foreign securities may enter into foreign currency
transactions either on a spot or cash basis at prevailing rates or through
forward foreign currency exchange contracts to have the necessary currencies to
settle transactions, or to help protect Fund assets against adverse changes in
foreign currency exchange rates, or to provide exposure to a foreign currency
commensurate with the exposure to securities from that country. Such efforts
could limit potential gains that might result from a relative increase in the
value of such currencies, and might, in certain cases, result in losses to the
Fund.
Emerging Markets Investments. Because of less developed markets and economies
and, in some countries, less mature governments and governmental institutions,
the risks of investing in foreign securities can be intensified in the case of
investments in issuers domiciled or doing substantial business in emerging
market countries. These risks include: high concentration of market
capitalization and trading volume in a small number of issuers representing a
limited number of industries, as well as a high concentration of investors and
financial intermediaries; political and social uncertainties; over-dependence on
exports, especially with respect to primary commodities, making these economies
vulnerable to changes in commodity prices; overburdened infrastructure and
obsolete or unseasonal financial systems; environmental problems; less well
developed legal systems; and less reliable custodial services and settlement
practices.
Inability to Sell Securities. Some securities usually trade in lower volume and
may be less liquid than securities of large established companies. These less
liquid securities could include securities of small and mid-size U.S. companies,
high-yield securities, convertible securities, unrated debt and convertible
securities, securities that originate from small offerings, and foreign
securities, particularly those from companies in emerging markets. The Fund
could lose money if it cannot sell a security at the time and price that would
be most beneficial to the Fund.
High Yield Securities. Investments in high yield securities generally provide
greater income and increased opportunity for capital appreciation than
investments in higher quality debt securities, but they also typically entail
greater potential price volatility and principal and income risk. High yield
securities are not considered investment grade, and are regarded as
predominantly speculative with respect to the issuing company's continuing
ability to meet principal and interest payments. The prices of high yield
securities have been found to be less sensitive to interest rate changes than
higher-rated investments, but more sensitive to adverse economic downturns or
individual corporate developments. High yield securities structured as zero
coupon or pay-in-kind securities tend to be more volatile. The secondary market
in which high yield securities are traded is generally less liquid than the
market for higher grade bonds. At times of less liquidity, it may be more
difficult to value high yield securities.
Corporate Debt Securities. Corporate debt securities are subject to the risk of
the issuer's inability to meet principal and interest payments on the obligation
and may also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the credit-worthiness of the issuer and
general market liquidity. When interest rates decline, the value of the Fund's
debt securities can be expected to rise, and when interest rates rise, the value
of those securities can be expected to decline. Debt securities with longer
maturities tend to be more sensitive to interest rate movements than those with
shorter maturities.
One measure of risk for fixed income securities is duration. Duration is one of
the tools used by a portfolio manager in selection of fixed income securities.
Historically, the maturity of abond was used as a proxy for the sensitivity of a
bond's price to changes in interest rates, otherwise known as a bond's "interest
rate risk" or "volatility." According to this measure, the longer the maturity
of a bond, the more its price will change for a given
36 More Information About Risks
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MORE INFORMATION
ABOUT RISKS
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change in market interest rates. However, this method ignores the amount and
timing of all cash flows from the bond prior to final maturity. Duration is a
measure of average life of a bond on a present value basis, which was developed
to incorporate a bond's yield, coupons, final maturity and call features into
one measure. For point of reference, the duration of a noncallable 7% coupon
bond with a remaining maturity of 5 years is approximately 4.5 years, and the
duration of a noncallable 7% coupon bond with a remaining maturity of 10 years
is approximately 8 years. Material changes in interest rates may impact the
duration calculation.
U.S. Government Securities. Some U.S. Government agency securities may be
subject to varying degrees of credit risk particularly those not backed by the
full faith and credit of the United States Government. All U.S. Government
securities may be subject to price declines in the securities due to changing
interest rates.
Convertible Securities. The price of a convertible security will normally
fluctuate in some proportion to changes in the price of the underlying equity
security, and as such is subject to risks relating to the activities of the
issuer and general market and economic conditions. The income component of
convertible securities causes fluctuations based upon changes in interest rates
and the credit quality of the issuer. Convertible securities are often lower
rated securities. A Fund may be required to redeem or convert a convertible
security before the holder would otherwise choose.
Other Investment Companies. Each Fund (except the High Yield and Government
Securities Income Funds) may invest up to 10% of its assets in other investment
companies. When a Fund invests in other investment companies, you indirectly pay
a proportionate share of the expenses of that other investment company
(including management fees, administration fees, and custodial fees) in addition
to the expenses of the Fund.
Restricted and Illiquid Securities. Each Fund may invest in restricted and
illiquid securities. If a security is illiquid, the Fund might be unable to sell
the security at a time when the adviser might wish to sell, and the security
could have the effect of decreasing the overall level of the Fund's liquidity.
Further, the lack of an established secondary market may make it more difficult
to value illiquid securities, which could vary from the amount the Fund could
realize upon disposition. Restricted securities, i.e., securities subject to
legal or contractual restrictions on resale, may be illiquid. However, some
restricted securities may be treated as liquid, although they may be less liquid
than registered securities traded on established secondary markets.
Mortgage-Related Securities. Although mortgage loans underlying a
mortgage-backed security may have maturities of up to 30 years, the actual
average life of a mortgage-backed security typically will be substantially less
because the mortgages will be subject to normal principal amortization, and may
be prepaid prior to maturity. Like other fixed income securities, when interest
rates rise, the value of a mortgage-backed security generally will decline;
however, when interest rates are declining, the value of mortgage-backed
securities with prepayment features may not increase as much as other fixed
income securities. The rate of prepayments on underlying mortgages will affect
the price and volatility of a mortgage-related security, and may have the effect
of shortening or extending the effective maturity of the security beyond what
was anticipated at the time of the purchase. Unanticipated rates of prepayment
on underlying mortgages can be expected to increase the volatility of such
securities. In addition, the value of these securities may fluctuate in response
to the market's perception of the creditworthiness of the issuers of
mortgage-related securities owned by a Fund. Additionally, although mortgages
and mortgage-related securities are generally supported by some form of
government or private guarantee and/or insurance, there is no assurance that
private guarantors or insurers will be able to meet their obligations.
Interests in Loans. Certain Funds may invest in participation interests or
assignments in secured variable or floating rate loans, which include
participation interests in lease financings. Loans are subject to the credit
risk of nonpayment of principal or interest. Substantial increases in interest
rates may cause an increase in loan defaults. Although the loans will generally
be fully collateralized at the time of acquisition, the collateral may decline
in value, be relatively illiquid, or lose all or substantially all of its value
subsequent to the Fund's investment. Many loans are relatively illiquid, and may
be difficult to value.
Derivatives. Generally, derivatives can be characterized as financial
instruments whose performance is derived, at least in part, from the performance
of an underlying asset or assets. Some derivatives are sophisticated instruments
that typically involve a small investment of cash relative to the magnitude of
risks assumed. These may include swap agreements, options, forwards and futures.
Derivative securities are subject to market risk, which could be significant for
those that have a leveraging effect. Many of the Funds do not invest in these
types of derivatives, and some do, so please check the description of the Fund's
policies. Derivatives are also subject to credit risks related to the
counterparty's ability to perform, and any deterioration in the counterparty's
creditworthiness could adversely affect the instrument. A risk of using
derivatives is that the adviser might imperfectly judge the market's direction.
For instance, if a derivative is used as a hedge to offset investment risk in
another security, the hedge might not correlate to the market's movements and
may have unexpected or undesired results, such as a loss or a reduction in
gains.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
More Information About Risks 37
<PAGE>
MORE INFORMATION
ABOUT RISKS
--------------------------------------------------------------------------------
Temporary Defensive Strategies. When the adviser to a Fund anticipates unusual
market or other conditions, the Fund may temporarily depart from its principal
investment strategies as a defensive measure. To the extent that a Fund invests
defensively, it likely will not achieve capital appreciation.
Portfolio Turnover. Each Fund is generally expected to engage in frequent and
active trading of portfolio securities to achieve its investment objective. A
high portfolio turnover rate involves greater expenses to a Fund, including
brokerage commissions and other transaction costs, and is likely to generate
more taxable short-term gains for shareholders, which may have an adverse effect
on the performance of the Fund.
OTHER RISKS
Repurchase Agreements. Each Fund may enter into repurchase agreements, which
involve the purchase by a Fund of a security that the seller has agreed to buy
back. If the seller defaults and the collateral value declines, the Fund might
incur a loss. If the seller declares bankruptcy, the Fund may not be able to
sell the collateral at the desired time.
Lending Portfolio Securities. In order to generate additional income, certain
Funds may lend portfolio securities in an amount up to 331|M/3% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in the collateral should
the borrower default or fail financially.
Borrowing. Certain Funds may borrow for certain types of temporary or emergency
purposes subject to certain limits. Borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the net asset value
of a Fund, and money borrowed will be subject to interest costs. Interest costs
on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
Reverse Repurchase Agreements and Dollar Rolls. A reverse repurchase agreement
or dollar roll involves the sale of a security, with an agreement to repurchase
the same or substantially similar securities at an agreed upon price and date.
Whether such a transaction produces a gain for a Fund depends upon the costs of
the agreements and the income and gains of the securities purchased with the
proceeds received from the sale of the security. If the income and gains on the
securities purchased fail to exceed the costs, net asset value will decline
faster than otherwise would be the case. Reverse repurchase agreements and
dollar rolls, as leveraging techniques, may increase a Fund's yield; however,
such transactions also increase a Fund's risk to capital and may result in a
shareholder's loss of principal.
Short Sales. Each Fund (except Government Securities Income, GNMA Income, and
High Yield Funds) may make short sales. A "short sale" is the sale by a Fund of
a security which has been borrowed from a third party on the expectation that
the market price will drop. If the price of the security rises, the Fund may
have to cover its short position at a higher price than the short sale price,
resulting in a loss.
Pairing Off Transactions. A pairing-off transaction occurs when a Fund commits
to purchase a security at a future date, and then the Fund "pairs-off" the
purchase with a sale of the same security prior to or on the original settlement
date. Whether a pairing-off transaction on a debt security produces a gain
depends on the movement of interest rates. If interest rates increase, then the
money received upon the sale of the same security will be less than the
anticipated amount needed at the time the commitment to purchase the security at
the future date was entered and the Fund will experience a loss. Percentage and
Rating Limitations Unless otherwise stated, the percentage limitations in this
prospectus apply at the time of investment.
38 More Information About Risks
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights tables on the following pages are intended to help you
understand each Fund's financial performance for the past five years or, if
shorter, the period of the Fund's operations. Certain information reflects
financial results for a single share. The total returns in the tables represent
the rate that an investor would have earned (or lost) on an investment in the
Fund (assuming reinvestment of all dividends and distributions). A report of
each Fund's independent accountant, along with the Fund's financial statements,
is included in the Fund's annual report, which is available upon request.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Financial Highlights 39
<PAGE>
FINANCIAL
PILGRIM GOVERNMENT SECURITIES INCOME FUND HIGHLIGHTS
--------------------------------------------------------------------------------
The information in the table below, except for the six months ended December 31,
1999, has been audited by KPMG LLP, independent auditors.
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------
Six months
ended
Dec. 31,
1999 Year ended June 30,
(unaudited) 1999 1998 1997 1996 1995(1)
----------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 12.35 12.88 12.71 12.59 12.97 12.73
Income (loss) from investment operations:
Net investment income $ 0.35 0.76 0.64 0.69 0.75 0.84
Net realized and unrealized gain (loss) on
investments $ (0.37) (0.52) 0.30 0.20 (0.32) 0.24
Total from investment operations $ (0.02) 0.24 0.94 0.89 0.43 1.08
Less distributions from:
Net investment income $ 0.38 0.77 0.77 0.73 0.75 0.84
Tax return of capital $ -- -- -- 0.04 0.06 --
Total distributions $ 0.38 0.77 0.77 0.77 0.81 0.84
Net asset value, end of period $ 11.95 12.35 12.88 12.71 12.59 12.97
Total Return(3): % (0.20) 1.89 7.63 7.33 3.34 8.96
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 19,304 21,060 23,682 29,900 38,753 43,631
Ratios to average net assets:
Net expenses after expense reimbursement(4) % 1.52 1.40 1.50 1.42 1.51 1.40
Gross expenses prior to expense
reimbursement(4) % 1.52 1.40 1.58 1.42 1.57 1.54
Net investment income after expense
reimbursement(4) % 5.69 6.05 5.13 5.78 5.64 6.37
Portfolio turnover rate % 41 58 134 172 170 299
Class B
----------------------------------------------------
Six months
ended July 17,
Dec. 31, 1995(2) to
1999 Year ended June 30, June 30,
(unaudited) 1999 1998 1997 1996
----------- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 12.30 12.84 12.68 12.59 12.95
Income (loss) from investment operations:
Net investment income $ 0.30 0.69 0.60 0.67 0.66
Net realized and unrealized gain (loss) on
investments $ (0.36) (0.54) 0.24 0.11 (0.37)
Total from investment operations $ (0.06) 0.15 0.84 0.78 0.29
Less distributions from:
Net investment income $ 0.33 0.69 0.68 0.69 0.65
Tax return of capital $ -- -- -- -- --
Total distributions $ 0.33 0.69 0.68 0.69 0.65
Net asset value, end of period $ 11.91 12.30 12.84 12.68 12.59
Total Return(3): % (0.50) 1.09 6.78 6.38 2.25
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 12,333 12,426 3,220 1,534 73
Ratios to average net assets:
Net expenses after expense reimbursement(4) % 2.27 2.15 2.25 2.17 2.26
Gross expenses prior to expense
reimbursement(4) % 2.27 2.15 2.29 2.17 2.41
Net investment income after expense
reimbursement(4) % 4.93 5.30 4.24 4.92 4.98
Portfolio turnover rate % 41 58 134 172 170
Class C
-----------------------
Six months
ended June 11,
Dec. 31, 1999(2) to
1999 June 30,
(unaudited) 1999
----------- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 12.43 12.24
Income (loss) from investment operations:
Net investment income $ (1.62) 2.05
Net realized and unrealized gain (loss) on investments $ 1.56 (1.86)
Total from investment operations $ (0.06) 0.19
Less distributions from:
Net investment income $ 0.34 --
Tax return of capital $ -- --
Total distributions 0.34 --
Net asset value, end of period $ 12.03 12.43
Total Return(3) % (0.52) 1.55
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 263 7
Ratios to average net assets:
Net expenses after expense reimbursement(4) % 2.27 2.15
Gross expenses prior to expense reimbursement(4) % 2.27 2.15
Net investment income after expense reimbursement(4) % 4.87 5.30
Portfolio turnover rate % 41 58
Class M
--------------------------------------------------------
Six months
ended July 17,
Dec. 31, 1995(2) to
1999 Year Ended June 30, June 30,
(unaudited) 1999 1998 1997 1996
----------- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 12.34 12.88 12.72 12.59 12.95
Income (loss) from investment operations:
Net investment income $ 0.36 0.69 0.64 0.70 0.68
Net realized and unrealized gain (loss) on investments $ (0.40) (0.52) 0.23 0.14 (0.36)
Total from investment operations $ (0.04) 0.17 0.87 0.84 0.32
Less distributions from:
Net investment income $ 0.35 0.71 0.71 0.70 0.68
Tax return of capital $ -- -- -- 0.01 --
Total distributions 0.35 0.71 0.71 0.71 0.68
Net asset value, end of period $ 11.95 12.34 12.88 12.72 12.59
Total Return(3) % (0.36) 1.31 7.02 6.88 2.52
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 662 751 224 61 24
Ratios to average net assets:
Net expenses after expense reimbursement(4) % 2.02 1.90 2.00 1.92 2.01
Gross expenses prior to expense reimbursement(4) % 2.02 1.90 2.05 1.92 2.16
Net investment income after expense reimbursement(4) % 5.19 5.57 4.29 5.25 5.73
Portfolio turnover rate % 41 58 134 172 170
</TABLE>
----------
(1) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired certain
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(2) Commencement of offering shares.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized.
40 Pilgrim Government Securities Income Fund
<PAGE>
FINANCIAL
HIGHLIGHTS PILGRIM GNMA INCOME FUND
--------------------------------------------------------------------------------
The information in the table below has been audited by KPMG LLP, independent
auditors.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 8.53 8.40 8.12 8.19 7.60
Net investment income (loss) $ 0.50 0.48 0.51 0.53 0.58
Net realized and unrealized gain (loss) from
investment operations $ (0.45) 0.13 0.29 ( 0.08) 0.59
Total income (loss) from investment operations $ 0.05 0.61 0.80 0.45 1.17
Less distributions:
Distributions from net investment income $ (0.50) (0.48) ( 0.52) ( 0.52) (0.58)
Distributions in excess of net investment income $ -- -- -- -- --
Distributions from net realized gains $ -- -- -- -- --
Distributions in excess of net realized gains $ -- -- -- -- --
Total distributions $ (0.50) (0.48) ( 0.52) ( 0.52) (0.58)
Net asset value, end of period $ 8.08 8.53 8.40 8.12 8.19
Total Return % 0.58 7.52 10.20 5.71 15.91
Ratios/Supplemental Data:
Net assets, end of period (thousands) $ 376,580 273,591 158,071 133,777 130,681
Ratio of expenses to average net assets, before
reimbursement or waiver % 0.99 1.01 1.01 1.05 1.01
Ratio of expenses to average net assets, net of
reimbursement or waiver % 0.99 1.01 1.01 1.05 1.01
Ratio of net investment income (loss) to average net
assets, before reimbursement or waiver % 6.04 5.85 6.28 6.56 7.10
Ratio of net investment income (loss) to average net
assets, net of reimbursement or waiver % 6.04 5.85 6.28 6.56 7.10
Portfolio turnover rate % 25.10 54.47 134.28 128.76 30.69
</TABLE>
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim GNMA Income Fund 41
<PAGE>
FINANCIAL
PILGRIM STRATEGIC INCOME FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
June 30, 1999, the financial information was audited by another independent
auditor.
<TABLE>
<CAPTION>
Class A Class B
------------------------------------- --------------------------------
Six months Three Six months Three
ended months July 27, ended months July 27,
Dec. 31, ended 1998(1) to Dec. 31, ended 1998(1) to
1999 June 30, March 31, 1999 June 30, March 31,
(unaudited) 1999(2) 1999 (unaudited) 1999(2) 1999
----------- ------- ---- ----------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 12.59 12.89 13.08 12.33 12.61 12.78
Income from investment
operations:
Net investment income $ 0.45 0.26 0.53 0.42 0.18 0.45
Net realized and unrealized
gains (loss) on investments $ (0.44) (0.42) (0.08) (0.43) (0.33) (0.05)
Total from investment operations $ 0.01 (0.16) 0.45 (0.01) (0.15) 0.40
Less distributions from:
Net investment income $ 0.44 0.14 0.53 0.42 0.13 0.46
Net realized gains on
investments $ -- -- 0.11 -- -- 0.11
Net asset value, end of period $ 12.16 12.59 12.89 11.90 12.33 12.61
Total Return(3): % 0.14 (1.23) 5.60 (0.08) (1.20) 5.17
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,453 2,736 5,751 5,407 5,658 6,637
Ratios to average net assets:
Net expenses after expense
reimbursement(4) % 0.95 0.90 0.96 1.35 1.29 1.37
Gross expenses prior to expense
reimbursement(4) % 1.81 1.56 1.98 2.21 1.95 2.42
Net investment income (loss)
after expense reimbursement(4) % 7.42 5.88 5.81 7.00 5.49 5.35
Portfolio turnover % 76 69 274 76 69 274
Class C
---------------------------------
Six months Three
ended months July 27,
Dec. 31, ended 1998(1) to
1999 June 30, March 31,
(unaudited) 1999(2) 1999
----------- ------- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 12.81 13.10 13.27
Income from investment
operations:
Net investment income $ 0.44 0.19 0.48
Net realized and unrealized
gains (loss) on investments $ (0.45) (0.35) (0.06)
Total from investment operations $ (0.01) (0.16) 0.42
Less distributions from:
Net investment income $ 0.42 0.13 0.48
Net realized gains on
investments $ -- -- 0.11
Net asset value, end of period $ 12.38 12.81 13.10
Total Return(3): % (0.08) (1.21) 5.19
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 4,380 7,965 8,128
Ratios to average net assets:
Net expenses after expense
reimbursement(4) % 1.35 1.29 1.36
Gross expenses prior to expense
reimbursement(4) % 2.21 1.95 2.41
Net investment income (loss)
after expense reimbursement(4) % 7.00 5.49 5.36
Portfolio turnover % 76 69 274
</TABLE>
----------
(1) The Fund commenced operations on July 27, 1998.
(2) Effective May 24, 1999, Pilgrim Investments, Inc., became the Investment
Manager of the Fund.
(3) Total returns are not annualized for periods of less than one year and do
not reflect the impact of sales charges.
(4) Annualized.
42 Pilgrim Strategic Income Fund
<PAGE>
FINANCIAL
HIGHLIGHTS PILGRIM HIGH YIELD FUND
--------------------------------------------------------------------------------
The information in the table below, except for the six months ended December 31,
1999, has been audited by KPMG LLP, independent auditors.
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------------
Six
months Eight
ended months Year
Dec. 31, ended ended
1999 Year ended June 30, June 30, October 31,
(unaudited) 1999 1998 1997 1996 1995(1)(3) 1994
----------- ---- ---- ---- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 5.93 6.94 6.80 6.36 6.15 5.95 6.47
Income (loss) from investment
operations:
Net investment income $ 0.28 0.58 0.61 0.61 0.59 0.35 0.54
Net realized and unrealized gain (loss)
on investments $ (0.40) (0.96) 0.16 0.43 0.16 0.21 (0.51)
Total from investment operations $ (0.12) (0.38) 0.77 1.04 0.75 0.56 0.03
Less distributions from:
Net investment income $ 0.30 0.62 0.63 0.60 0.54 0.36 0.55
In excess of net investment income $ -- 0.01 -- -- -- -- --
Total distributions $ 0.30 0.63 0.63 0.60 0.54 0.36 0.55
Net asset value, end of period $ 5.51 5.93 6.94 6.80 6.36 6.15 5.95
Total Return(4): % (2.09) (5.57) 11.71 17.14 12.72 9.77 0.47
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 108,041 131,535 102,424 35,940 18,691 15,950 16,046
Ratios to average net assets:
Net expenses after expense
reimbursement(5) % 1.00 1.00 1.00 1.00 1.00 2.25 2.00
Gross expenses prior to expense
reimbursement(5) % 1.15 1.12 1.17 1.42 2.19 2.35 2.07
Net investment income after expense
reimbursement(5) % 10.03 9.32 9.05 9.54 9.46 8.84 8.73
Portfolio turnover rate % 47 184 209 394 399 166 192
Class B
----------------------------------------------------------
Six
months
ended July 17,
Dec. 31, 1995(2) to
1999 Year ended June 30, June 30,
(unaudited) 1999 1998 1997 1996
----------- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 5.92 6.92 6.78 6.36 6.20
Income (loss) from investment
operations:
Net investment income $ 0.27 0.53 0.58 0.57 0.48
Net realized and unrealized gain (loss)
on investments $ (0.41) (0.96) 0.14 0.41 0.14
Total from investment operations $ (0.14) (0.43) 0.72 0.98 0.62
Less distributions from:
Net investment income $ 0.28 0.56 0.58 0.56 0.46
In excess of net investment income $ -- 0.01 -- -- --
Total distributions $ 0.28
Net asset value, end of period $ 5.50 5.92 6.92 6.78 6.36
Total Return(4): % (2.45) (6.23) 10.90 16.04 10.37
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 243,075 261,589 154,303 40,225 2,374
Ratios to average net assets:
Net expenses after expense
reimbursement(5) % 1.75 1.75 1.75 1.75 1.75
Gross expenses prior to expense
reimbursement(5) % 1.90 1.87 1.92 2.17 2.94
Net investment income after expense
reimbursement(5) % 9.27 8.57 8.30 8.64 9.02
Portfolio turnover rate % 47 184 209 394 339
Class C Class M
--------------------- -----------------------------------------------
Six months Six months
ended May 27, ended July 17,
Dec. 31, 1999(2) to Dec. 31, 1995(2) to
1999 June 30, 1999 Year ended June 30, June 30,
(unaudited) 1999 (unaudited) 1999 1998 1997 1996
----------- ---- ----------- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 5.92 5.91 5.93 6.92 6.78 6.36 6.20
Income (loss) from investment
operations:
Net investment income $ 0.28 0.05 0.27 0.55 0.59 0.58 0.50
Net realized and unrealized gain (loss)
on investments $ (0.43) 0.01 (0.41) (0.95) 0.14 0.41 0.14
Total from investment operations $ (0.15) 0.06 (0.14) (0.40) 0.73 0.99 0.64
Less distributions from:
Net investment income $ 0.28 0.05 0.29 0.58 0.59 0.57 0.48
In excess of net investment income $ -- -- -- 0.01 -- -- --
Total distributions 0.28 0.29
Net asset value, end of period $ 5.49 5.92 5.50 5.93 6.92 6.78 6.36
Total Return(4): % (2.54) 0.34 (2.50) (5.85) 11.16 16.29 10.69
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 5,614 551 18,768 24,129 19,785 8,848 1,243
Ratios to average net assets:
Net expenses after expense
reimbursement(5) % 1.75 1.75 1.50 1.50 1.50 1.50 1.50
Gross expenses prior to expense
reimbursement(5) % 1.90 1.87 1.65 1.62 1.67 1.92 2.69
Net investment income after expense
reimbursement(5) % 9.33 8.57 9.53 8.82 8.55 8.93 9.41
Portfolio turnover rate % 47 184 47 184 209 394 339
</TABLE>
----------
(1) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired certain
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(2) Commencement of offering shares.
(3) Effective November 1, 1994, High Yield Fund changed its year end to June
30.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return information for less than one year is not
annualized.
(5) Annualized.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim High Yield Fund 43
<PAGE>
FINANCIAL
PILGRIM HIGH YIELD FUND II HIGHLIGHTS
--------------------------------------------------------------------------------
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
June 30, 1999, the financial information was audited by another independent
auditor.
<TABLE>
<CAPTION>
Class A
---------------------------------------------
Six months Three
ended months Year March 27,
Dec. 31, ended ended 1998 to
1999 June 30, March 31, March 31,
(unaudited) 1999(2) 1999 1998(1)
----------- ------- ---- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 11.57 11.66 12.72 12.70
Income from investment operations:
Net investment income $ 0.58 0.28 1.12 0.01
Net realized and unrealized gains (loss)
on investments $ (0.40) (0.09) (1.00) 0.01
Total from investment operations $ 0.18 0.19 0.12 0.02
Less distributions from:
Net investment income $ 0.58 0.28 1.18 --
Net asset value, end of period $ 11.17 11.57 11.66 12.72
Total Return(3): % 1.91 1.60 1.13 0.16
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 10,415 16,795 17,327 4,690
Ratios to average net assets:
Net expenses after expense
reimbursement(4) % 1.10 1.10 1.12 1.06
Gross expenses prior to expense
reimbursement(4) % 1.25 1.37 1.53 1.06
Net investment income (loss) after
expense reimbursement(4) % 10.28 9.68 9.44 7.22
Portfolio turnover % 55 44 242 484
Class B
---------------------------------------------
Six months Three
ended months Year March 27,
Dec. 31, ended ended 1998 to
1999 June 30, March 31, March 31,
(unaudited) 1999(2) 1999 1998(1)
----------- ------- ---- -------
Per Share Operating Performance:
Net asset value, beginning of period $ 11.58 11.66 12.71 12.69
Income from investment operations:
Net investment income $ 0.54 0.27 1.04 0.01
Net realized and unrealized gains (loss)
on investments $ (0.42) (0.09) (0.99) 0.01
Total from investment operations $ 0.12 0.18 0.05 0.02
Less distributions from:
Net investment income $ 0.54 0.26 1.10 --
Net asset value, end of period $ 11.16 11.58 11.66 12.71
Total Return(3): % 1.41 1.53 0.55 0.16
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 40,553 41,882 42,960 8,892
Ratios to average net assets:
Net expenses after expense
reimbursement(4) % 1.75 1.75 1.77 1.69
Gross expenses prior to expense
reimbursement(4) % 1.90 2.02 2.18 1.69
Net investment income (loss) after
expense reimbursement(4) % 9.57 9.03 8.84 6.61
Portfolio turnover % 55 44 242 484
Class C
---------------------------------------------
Six months Three
ended months Year March 27,
Dec. 31, ended ended 1998 to
1999 June 30, March 31, March 31,
(unaudited) 1999(2) 1999 1998(1)
----------- ------- ---- -------
Per Share Operating Performance:
Net asset value, beginning of period $ 11.58 11.66 12.71 12.69
Income from investment operations:
Net investment income $ 0.53 0.27 1.04 0.01
Net realized and unrealized gains (loss)
on investments $ (0.40) (0.09) (0.99) 0.01
Total from investment operations $ 0.13 0.18 0.05 0.02
Less distributions from:
Net investment income $ 0.54 0.26 1.10 --
Net asset value, end of period $ 11.17 11.58 11.66 12.71
Total Return(3): % 1.49 1.53 0.55 0.16
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 16,860 18,618 21,290 4,815
Ratios to average net assets:
Net expenses after expense
reimbursement(4) % 1.75 1.75 1.77 1.66
Gross expenses prior to expense
reimbursement(4) % 1.90 2.02 2.18 1.66
Net investment income (loss) after
expense reimbursement(4) % 9.57 9.03 8.79 6.91
Portfolio turnover % 55 44 242 484
</TABLE>
----------
(1) The Fund commenced operations on March 27, 1998.
(2) Effective May 24, 1999, Pilgrim Investments Inc., became the Investment
Manager of the Fund.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized.
44 Pilgrim High Yield Fund II
<PAGE>
FINANCIAL
HIGHLIGHTS PILGRIM HIGH TOTAL RETURN FUND
--------------------------------------------------------------------------------
The information in the table below has been audited by PricewaterhouseCoopers
LLP, independent auditors.
<TABLE>
<CAPTION>
Class A
----------------------------------------------------
Year ended October 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating performance
Net asset value at the beginning
of the period $ 3.77 5.00 4.78 4.48 4.41
Net investment income $ 0.37 0.46 0.48 0.46 0.48
Net realized and unrealized gain
(loss) on investments $ (0.41) (1.07) 0.20 0.32 0.07
Total from investment operations $ (0.04) (0.61) 0.68 0.78 0.55
Dividends from net investment
income $ (0.39) (0.47) (0.46) (0.48) (0.48)
Dividends from net investment
gain on investments sold $ -- (0.15) -- -- --
Distributions declared from
capital $ (0.05) -- -- -- --
Total distributions $ (0.44) (0.62) (0.46) (0.48) (0.48)
Net asset value at the end of the
period $ 3.29 3.77 5.00 4.78 4.48
Total investment return(1) % (1.86) (13.65) 15.03 18.14 13.02
Ratios and supplemental data
Net assets at the end of the
period ($000s) $ 91,991 148,650 215,361 167,698 88,552
Ratio of expenses to average net
assets % 1.34 1.30 1.42 1.52 1.55
Ratio of expense reimbursement
to average net assets % -- -- -- -- --
Ratio of net investment income
to average net assets(3) % 10.16 9.93 9.88 9.86 10.90
Portfolio turnover rate % 59 123 183 158 145
Class B
---------------------------------------------------
Year ended October 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Operating performance
Net asset value at the beginning
of the period $ 3.77 5.00 4.77 4.47 4.41
Net investment income $ 0.34 0.43 0.44 0.43 0.45
Net realized and unrealized gain
(loss) on investments $ (0.41) (1.07) 0.22 0.32 0.06
Total from investment operations $ (0.07) (0.64) 0.66 0.75 0.51
Dividends from net investment
income $ (0.37) (0.44) (0.43) (0.45) (0.45)
Dividends from net investment
gain on investments sold $ -- (0.15) -- -- --
Distributions declared from
capital $ (0.04) -- -- -- --
Total distributions $ (0.41) (0.59) (0.43) (0.45) (0.45)
Net asset value at the end of the
period $ 3.29 3.77 5.00 4.77 4.47
Total investment return(1) % (2.56) (14.28) 14.46 17.08 11.97
Ratios and supplemental data
Net assets at the end of the
period ($000s) $ 280,413 428,903 577,351 346,919 96,362
Ratio of expenses to average net
assets % 2.06 2.02 2.12 2.23 2.25
Ratio of expense reimbursement
to average net assets % -- -- -- -- --
Ratio of net investment income
to average net assets(3) % 9.42 9.20 9.18 9.14 10.20
Portfolio turnover rate % 59 123 183 158 145
Class C
----------------------------------------------------
Year ended October 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Operating performance
Net asset value at the beginning
of the period $ 3.78 5.02 4.79 4.49 4.41
Net investment income $ 0.34 0.43 0.44 0.43 0.44
Net realized and unrealized gain
(loss) on investments $ (0.40) (1.08) 0.22 0.32 0.09
Total from investment operations $ (0.06) (0.65) 0.66 0.75 0.53
Dividends from net investment
income $ (0.37) (0.44) (0.43) (0.45) (0.45)
Dividends from net investment
gain on investments sold $ -- (0.15) -- -- --
Distributions declared from
capital $ (0.04) -- -- -- --
Total distributions $ (0.41) (0.59) (0.43) (0.45) (0.45)
Net asset value at the end of the
period $ 3.31 3.78 5.02 4.79 4.49
Total investment return(1) % (2.24) (14.41) 14.42 17.28 12.44
Ratios and supplemental data
Net assets at the end of the
period ($000s) $ 40,503 64,141 97,457 54,382 11,011
Ratio of expenses to average net
assets % 2.07 2.03 2.13 2.23 2.27
Ratio of expense reimbursement
to average net assets % -- -- -- -- --
Ratio of net investment income
to average net assets(3) % 9.42 9.19 9.18 9.14 10.18
Portfolio turnover rate % 59 123 183 158 145
</TABLE>
----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim High Total Return Fund 45
<PAGE>
FINANCIAL
PILGRIM HIGH TOTAL RETURN FUND II HIGHLIGHTS
--------------------------------------------------------------------------------
The information in the table below has been audited by PricewaterhouseCoopers
LLP, independent auditors.
<TABLE>
<CAPTION>
Class A(1)
----------------------
Year ended October 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating performance
Net asset value at the beginning of the period $ 4.78 5.49 5.00
Net investment income $ 0.43 0.50 0.28
Net realized and unrealized (loss) on investments $ (0.55) (0.70) 0.53
Total from investment operations $ (0.12) (0.20) 0.81
Dividends from net investment income $ (0.43) (0.48) (0.28)
Distributions declared from capital $ (0.05) (0.03) (0.04)
Total distributions $ (0.48) (0.51) (0.32)
Net asset value at the end of the period $ 4.18 4.78 5.49
Total investment return(2) % (3.10) (4.23) 16.53
Ratios and supplemental data
Net assets at the end of the period ($000s) $ 20,003 40,924 8,548
Ratio of expenses to average net assets(3) % 1.40 1.44 1.26
Ratio of expense reimbursement to average net assets(3) % -- 0.01 3.36
Ratio of net investment income to average net assets(3) % 9.46 8.90 5.89
Portfolio turnover rate % 110 150 164
Class B(1) Class C(1)
------------------------ ------------------------
Year ended October 31, Year ended October 31,
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Operating performance
Net asset value at the beginning of the period $ 4.79 5.49 5.00 4.79 5.50 5.00
Net investment income $ 0.41 0.47 0.25 0.40 0.47 0.25
Net realized and unrealized (loss) on investments $ (0.57) (0.70) 0.53 (0.55) (0.71) 0.54
Total from investment operations $ (0.16) (0.23) 0.78 (0.15) (0.24) 0.79
Dividends from net investment income $ (0.42) (0.44) (0.25) (0.41) (0.44) (0.25)
Distributions declared from capital $ (0.03) (0.03) (0.04) (0.04) (0.03) (0.04)
Total distributions $ (0.45) (0.47) (0.29) (0.45) (0.47) (0.29)
Net asset value at the end of the period $ 4.18 4.79 5.49 4.19 4.79 5.50
Total investment return(2) % (4.00) (4.90) 15.91 (3.77) (4.90) 16.12
Ratios and supplemental data
Net assets at the end of the period ($000s) $ 125,796 168,859 38,076 31,014 53,703 12,334
Ratio of expenses to average net assets(3) % 2.11 2.17 1.95 2.12 2.17 1.95
Ratio of expense reimbursement to average net assets(3) % -- 0.02 0.75 -- 0.01 0.78
Ratio of net investment income to average net assets(3) % 8.66 8.17 5.20 8.70 8.16 5.17
Portfolio turnover rate % 110 150 164 110 150 164
</TABLE>
----------
(1) Classes A, B & C commenced operations on January 31, 1997.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
46 Pilgrim High Total Return Fund II
<PAGE>
FINANCIAL
HIGHLIGHTS PILGRIM GLOBAL INCOME FUND
--------------------------------------------------------------------------------
The information in the table below has been audited by KPMG LLP, independent
auditors.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.36 10.58 11.22 10.75 9.80
Net investment income (loss) $ 1.16 0.90 1.04 1.01 0.96
Net realized and unrealized gain (loss) from
investment operations $ (1.20) (0.07) (0.50) 0.36 0.95
Total income (loss) from investment operations $ 0.04 0.83 0.54 1.37 1.91
Less distributions:
Distributions from net investment income $ (0.82) (0.87) (0.91) (0.86) (0.96)
Distributions in excess of net investment income $ -- -- -- -- --
Distributions from net realized gains $ (0.05) (0.18) (0.27) (0.04) --
Distributions in excess of net realized gains $ -- -- -- -- --
Total distributions $ (0.87) (1.05) (1.18) (0.90) (0.96)
Net asset value, end of period $ 9.45 10.36 10.58 11.22 10.75
Total Return % (0.31) 8.21 5.00 13.33 20.10
Ratios/Supplemental Data:
Net assets, end of period (thousands) $ 31,696 36,407 23,668 29,110 12,255
Ratio of expenses to average net assets, before
reimbursement or waiver % 1.86 1.89 2.17 2.33 3.07
Ratio of expenses to average net assets, net of
reimbursement or waiver % 1.86 1.50 1.50 1.50 2.75
Ratio of net investment income (loss) to average net
assets, before reimbursement or waiver % 11.52 10.99 8.99 9.49 9.48
Ratio of net investment income (loss) to average net
assets, net of reimbursement or waiver % 11.52 11.38 9.66 10.32 9.80
Portfolio turnover rate % 24.56 45.25 117.94 71.83 164.72
</TABLE>
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim Global Income Fund 47
<PAGE>
FINANCIAL
PILGRIM MONEY MARKET FUND HIGHLIGHTS
--------------------------------------------------------------------------------
Class A Class B Class C
----------- ----------- -----------
Period Period Period
ended ended ended
Dec. 31, Dec. 31, Dec. 31,
1999(1) 1999(2) 1999(2)
(unaudited) (unaudited) (unaudited)
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 1.00 1.00
Income from investment
operations:
Net investment income $ 0.01 0.01 0.01
Net realized and unrealized
gains (loss) on investments $ -- -- --
Total from investment operations $ 0.01 0.01 0.01
Less distributions from:
Net investment income $ 0.01 0.01 0.01
Net realized gains on
investments $ -- -- --
Net asset value, end of period $ 1.00 1.00 1.00
Total Return(3): % 0.36 1.41 1.41
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 5,732 11,414 2,670
Ratios to average net assets:
Net expenses after expense
reimbursement(4) % 1.50 2.25 2.25
Gross expenses prior to expense
reimbursement(4) % 4.67 5.42 5.42
Net investment income (loss)
after expense reimbursement(4) % 3.58 3.19 3.19
Portfolio turnover % -- -- --
----------
(1) Commenced operations on November 24, 1999.
(2) Commenced operations on July 12, 1999.
(3) Total returns are not annualized for periods of less than one year and do
not reflect the impact of sales charges.
(4) Annualized.
48 Pilgrim Money Market Fund
<PAGE>
WHERE TO GO FOR MORE INFORMATION
You'll find more information about the Pilgrim Funds in our:
ANNUAL/SEMI-ANNUAL REPORTS
Includes a discussion of recent market conditions and investment strategies that
significantly affected performance, the financial statements and the auditor's
reports (in annual report only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information about the Pilgrim Funds. The SAI is
legally part of this prospectus (it is incorporated by reference). A copy has
been filed with the Securities and Exchange Commission (SEC).
Please write or call for a free copy of the current Annual/Semi-Annual reports,
the SAI or other Fund information, or to make shareholder inquiries:
The Pilgrim Funds
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
1-800-992-0180
Or visit our website at www.pilgrimfunds.com.
This information may also be reviewed or obtained from the SEC. In order to
review the information in person, you will need to visit the SEC's Public
Reference Room in Washington, D.C. or call 202-942-8090. Otherwise, you may
obtain the information for a fee by contacting the SEC at:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-0102
or at the e-mail address: [email protected]
Or obtain the information at no cost by visiting the SEC's Internet website at
http://www.sec.gov.
When contacting the SEC, you will want to refer to the Fund's SEC file number.
The file numbers are as follows:
Pilgrim GNMA Income Fund, Inc. 811-2401
Pilgrim Mayflower Trust 811-7978
Pilgrim Government Securities Income Fund, Inc. 811-4031
Pilgrim Investment Funds, Inc. 811-1939
Pilgrim Mutual Funds 811-7428
Pilgrim Global Income Fund, Inc. 811-4675
INCPROS073100-073100
<PAGE>
GRAPHICS DESCRIPTION APPENDIX
There are four icon sized graphics used throughout the prospectus as follows:
1. In the sections describing the Objective of the Funds, the graphic icon is
that of a dart in the bullseye of a target.
2. In the sections describing the Investment Strategy of the Funds, the
graphic icon is that of a compass pointing due north.
3. In the sections describing the Risks of the Funds, the graphic icon is that
of an old fashioned scale tilting heavy on the left side.
4. In the sections describing the Performance history of the Funds, the
graphic icon is that of a stack of US currency bills.
5. On the bottom footer of every odd numbered page (right hand page), the
graphic icon is that of a telephone by the 800 number of the fund to call
for information.
