<PAGE>
Pilgrim America
Funds
Elite Series
------------
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
Annual Report
June 30, 1996
<PAGE>
Pilgrim America
Funds
Elite Series
------------
Annual Report
June 30, 1996
Table of Contents
Chairman's Message.................................... 4
Portfolio Manager's Reports:
Pilgrim America MagnaCap Fund.................... 5
Pilgrim America High Yield Fund.................. 10
Pilgrim Government Securities Income Fund........ 16
Report of Independent Auditors........................ 21
Statements of Assets and Liabilities.................. 22
Statements of Operations.............................. 23
Statements of Changes in Net Assets................... 24
Financials Highlights................................. 25
Notes to Financial Statements......................... 28
Portfolio of Investments:
Pilgrim America MagnaCap Fund.................... 33
Pilgrim America High Yield Fund.................. 36
Pilgrim Government Securities Income Fund........ 39
Tax Information....................................... 40
[LOGO]
Pilgrim America Funds
3
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
CHAIRMAN'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present the Annual Report for Pilgrim America Elite Series of
Funds ("Elite Series") which consists of Pilgrim America MagnaCap Fund, Pilgrim
America High Yield Fund and Pilgrim Government Securities Income Fund. In the
following pages, the portfolio manager for each Fund of the Elite Series
discusses the results of operations for the year ended June 30, 1996, as well as
the markets and factors which have affected each of the Funds during this
period.
The Elite Series is designed to give investors access to seasoned investment
managers who bring a depth of experience and knowledge to their specific
investment discipline. Additionally, in order to increase distribution of the
Elite Series, we created additional classes of shares (B and M shares), with
different sales charges and distribution fees, allowing you to choose the method
of purchasing shares that best suits your investment objectives.
Pilgrim America is dedicated to providing core investments for the serious
investor. We believe that the key to success is matching quality core
investments to the individual needs of investors. Core investments are the
foundation of every portfolio and the basis of other important investment
decisions. Pilgrim America prides itself on providing only high quality core
investments to help you reach your financial goals. Our goal is for every
investor to have a successful investment experience.
Thank you for selecting Pilgrim America Elite Series. We appreciate the
confidence you have placed with us in serving your investment needs.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim America Group, Inc.
August 26, 1996
[LOGO]
Pilgrim America Funds
4
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder:
In our last Semi-Annual Report, we reported that Pilgrim America MagnaCap Fund
(the "Fund") had an extremely good year in 1995. Seventeen years ago the Fund
initiated the "Rising Dividends" investment philosophy and 1995 marked the 16th
year in the last 17 that the Fund produced a positive return. I am very pleased
to report that the Fund continues to deliver for its shareholders in 1996. For
the 12 months ended June 30,1996, the Fund provided a total return of 21.31%*
compared with the Standard & Poor's 500 Index ("S&P 500") - a common proxy for
the US stock market - which gained 26.00% for the same period. Over the last
six months, the Fund was up 5.46%/(1)/(2)/, compared with the S&P 500 which
gained 10.10% for the same period. The Fund's average annual total return for
the one, five, and ten year periods ended June 30,1996 after deduction of the
Class A maximum 5.75% sales charge and assuming the reinvestment of all
dividends and distributions was 14.30%, 12.75%, and 10.52% respectively/1/.
A $10,000 investment in the Fund on January 1, 1979, the year in which the Fund
adopted its "Rising Dividends" investment strategy, would have grown to $121,536
as of June 30, 1996, after deduction of the 5.75% sales charge, and assuming the
reinvestment of all dividends and capital gains distributions. The net asset
value of the Fund was $16.69 on June 30, 1996, which represents a $2.66
increase, or 18.96 % over the net asset value of $14.03 on June 30,1995. Income
dividends of $0.0614 per share and capital gains distributions of $0.2443 per
share were also paid to shareholders during fiscal year 1996.
GENERAL ECONOMIC AND EQUITY MARKET ENVIRONMENT
The economic expansion, which looked to be on shaky ground six months ago, has
since regained its footing. In late 1995, it appeared that the five-year up-
trend had already run its course, with industrial production, factory usage,
retail expenditures, consumer confidence, and employment growth all declining.
Then in early 1996 there were heavy snows, record low temperatures, and a 17-day
work stoppage at General Motors. The specter of a recession appeared and some
forecasters cut back their growth expectations for 1996. Thus far, the
recession expectation has proven groundless. Reports issued as early as
February and March were already showing that the up-trend was back on track with
manufacturing, retailing, housing, export volume, and employment all having
bounced off their late 1995 lows. The nation's gross domestic product (GDP)
rose by 2.2% in the first quarter, easily exceeding the 0.5% expansion rate
recorded during the fourth quarter of 1995.
[LOGO]
Pilgrim America Funds
5
<PAGE>
Pilgrim America MagnaCap Fund
The defining factor in the long lived business advance has been the low level of
wholesale and retail inflation throughout most of this decade. Such long term
stability is extraordinary and owes much to the rise in productivity, the
absence of turmoil on the world energy markets, the lack of large scale military
engagements, and some able fine tuning by the Federal Reserve. Also helping to
sustain the present upcycle has been the low level of long-term interest rates,
especially compared with the 1980s. Recently, the favorable rate structure has
been threatened by a run up in commodity prices. Corporate profits have been
good, with successful cost-cutting, rising productivity, a strong export market,
and sustained economic strength helping to keep the upturn in earnings alive.
The equity market continued to push higher with one all-time record after
another falling by the wayside. There have been some short-lived reversals,
mainly when economic, inflation, or corporate profit reports contained negative
surprises. For the most part, these bumps have lasted only a week or so, with
prices resuming their climb almost immediately thereafter. The Dow Jones
Industrial Average has passed the 4,000 and 5,000 marks in the past year and a
half reaching a high of 5,778 in May 1996.
PILGRIM AMERICA MAGNACAP FUND
As a "Rising Dividends" fund, MagnaCap invests in a very select group of
companies that have been able to sustain growth over a 10-year period. In
selecting portfolio securities, companies must generally meet the following
criteria:
1. Consistent dividend increases in at least eight of the past ten
years, with no year showing a decrease.
2. The dividend rate must have increased by at least 100% over the
past ten years.
3. Dividend payout must be less than 65% of current earnings.
4. Long-term debt should be less than 25% of total capitalization.
5. The current price of the company's stock should be in the lower
half of the stock's price/earnings ratio range for the past ten
years.
We believe that the Funds success has been attributed to the very explicit
"Rising Dividends" investment criteria which determine the kinds of companies
that qualify for inclusion in the portfolio. Out of a universe of approximately
4,000 publicly traded companies and based upon both in-house and external
research, we aim to select the 35 to 45 equities which we believe will be most
likely to exhibit superior performance.
At recent market levels we had holdings we believe were fully valued. In
response, we pared positions and took profits. This will result in realized
capital gains in calendar 1996 that are substantially greater
[LOGO]
Pilgrim America Funds
6
<PAGE>
Pilgrim America MagnaCap Fund
than in prior years. In reallocating these dollars we further diversified our
portfolio in response to current market conditions while adhering to our
investment principles as closely as practicable.
In early 1996, there was a shift in interest by the equity market from large cap
stocks to smaller Nasdaq companies. In general, these type of companies do not
qualify for inclusion in the Fund since they do not meet the "Rising Dividends"
criteria. However, it appears that there is renewed interest again in large cap
stocks and we believe this trend will continue for the rest of the year.
Going forward, we will continue to employ a "bottom-up" approach to stock
selection drawing from the pool of companies that meet the Fund's strict
investment criteria. We continue to favor the paper and chemical industries
because many companies in these sectors have undergone restructurings and as a
result are now very efficient, low-cost producers and are benefiting from
improving economies around the world and many provide an above average dividend
yield. We also like the energy sector because we continue to see an upward
trend in oil prices.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost-effective way to acquire
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic reinvestment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Include., PO. Box
419338, Kansas City, MO 64141-6338, or call (800) 992-0180.
We thank you for giving us this opportunity to help you work towards your
investment needs. Please do not hesitate to contact us if you have any
questions or need additional information.
Sincerely,
/s/ Howard N. Kornblue
Howard N. Kornblue
Senior Vice President and
Senior Portfolio Manager
Pilgrim America Group, Inc.
See Footnotes on page 9
[LOGO]
Pilgrim America Funds
7
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
Comparison of a $10,000 Investment
June 30, 1996
- --------------------------------------------------------------------------------
Comparison of the Change in Value of a $10,000 Investment in Pilgrim America
MagnaCap Fund and the Standard & Poor's 500 Index
Based on a $10,000 initial investment, the graph below illustrates the total
return of Pilgrim America MagnaCap Fund against the Standard & Poor's 500 Index
(the "S&P"). Note that the S&P has inherent performance advantages over any fund
since since it has no cash in its portfolio, imposes no sales charges and incurs
no operating expenses. An investor cannot invest in an index.
The chart at left shows
the performance of
Pilgrim America Magna-
[GRAPH APPEARS APPEAR] Cap Fund Class A shares
only, assuming the deduc-
tion of the maximum sales
charge and reinvestment
of all dividends and
distributions at net
asset value.(2)
<TABLE>
<CAPTION>
Average Annual Total Returns Ending Redeemable Value
as of June 30, 1996 as of June 30, 1996
- ---------------------------------------------------------------- --------------------------------
1 Year 5 Years 10 Years
-------- -------- --------
<S> <C> <C> <C> <C> <C>
MagnaCap Fund A 14.30% 12.75% 10.52% MagnaCap Fund A $ 27,195
S & P 500 Index 26.00% 15.73% 13.79% S & P 500 Index $ 36,321
</TABLE>
See Footnotes on Page 9.
[LOGO]
Pilgrim America Funds
8
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(1) Calculated without deducting the Class A maximum 5.75% sales charge and
assuming reinvestment of all dividends and distributions.
(2) Performance figures shown pertain only to Class A shares of the Fund. Total
returns for Class B and M shares from inception July 17, 1995 to June 30,
1996 after deducting the maximum contingent deferred sales charge of 5.00%
(Class B shares only) or the maximum sales charge of 3.50% (class M shares
only) and assuming reinvestment of all dividends and distributions was
18.98% for the period July 17, 1995 to June 30, 1996.
(3) The S&P is an unmanaged index of 500 common stocks and is a generally
accepted measure of stock market performance.
The views expressed in this report reflects those of the portfolio manager only
through the end of the period of the report as stated on the cover. The
manager's views ar subject to change at any time based on market and other
conditions.
Performance data represents past performance and is not indicative of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when redeemed, may be worth more or less than their original
cost.
[LOGO]
Pilgrim America Funds
9
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder:
It is our pleasure to share with you the results of operations for Pilgrim
America High Yield Fund (the "Fund") for the fiscal year June 30, 1996.
High yield issues have performed particularly well during this time period,
demonstrating the cushion higher coupon bonds often provide against interest
rate changes and their lack of correlation with other markets as high yield
bonds possess characteristics of both fixed income and equity securities. The
Fund performed exceptionally well versus its competition, ranking 33 of 141 in
the Lipper Analytical Services High Current Yield category for the one year
period ended June 30, 1996/1/. This places the Fund in the top quartile with a
total return of +12.72%/(2)/(3)/ on Class A shares.
GENERAL ECONOMIC AND MARKET ENVIRONMENT
In the last year, fixed income markets have witnessed an easing of monetary
policy by the Federal Reserve ("the Fed"). Easing started in July 1995, shortly
after the beginning of the Fund's fiscal year, and was followed by two
additional rate cuts in December 1995 and January 1996. The cumulative effects
of these cuts lowered the Fed's target for the Federal Funds rate 75 basis
points from 6.00% to 5.25%. Since that time there has been no rate movements,
although at this writing there is a considerable amount of consensus among
economists that the next move by the Fed will be a tightening, or a rise in
short term interest rates. Economists reason that job growth has picked up as
evidenced by the lower unemployment rates and higher non-farm payroll numbers,
inflationary wage pressures seem to be increasing with the recent increases in
average hourly earnings, and income growth is strong. An increase in short term
rates by the Fed would show their resolve to fight inflation.
The fund's fiscal year began with 30 year Treasury yields at 6.62%. Yields then
fell as the market sensed more Fed easing was to come, and rates bottomed at
5.95% on December 29th. As the final Fed easing came on January 31st, yields
began rising steadily to a high of 7.19% on June 12th and finished the Fund's
fiscal year at 6.87%. Investors sensed that stronger economic growth might
result from these rate cuts and began to compensate for the possibility of
higher inflation.
[LOGO]
Pilgrim America Funds
10
<PAGE>
Pilgrim America High Yield Fund
HIGH YIELD MARKET
High yield issues have performed very well for the 12 months ended June 30,
1996, with the First Boston High Yield Index/4/ returning +9.97% and the Lehman
Brothers High Yield Index/4/ posting a 9.68% gain. This compares favorably with
the 10 year treasury which returned +2.60% over the same time period, but
underperforms the strong stock market which, based on the S&P 500, returned
+26.00%. As a result of the dramatic outperformance versus treasuries, high
yield issue spreads have moved from 461 basis points off treasuries to 417
basis points, tightening 44 basis points for the period, according to the First
Boston High Yield Index. Spreads widened through late 1995 as investors became
increasingly concerned about a slowing domestic economy, and tightened through
the rest of the fiscal year as confidence increased that inflation would remain
subdued and domestic growth would continue at a steady pace.
The size of the high yield market grew $39.4 billion to a total of $365.9
billion in the first six months of 1996, which is a new record high. Issuance
totaled $22.3 billion on the public side, while 144a issues totaled 422.1
billion. This brings the new issue total to $44.4 billion for the six months of
1996. At this rate of growth, there is a strong possibility that new issuance
will break the previous annual record set in 1993 of $75.3 billion.
PILGRIM AMERICA HIGH YIELD FUND
Pilgrim America High Yield Fund's management has taken a disciplined approach to
investing in the high yield market. Purchases are made only after a complete
credit review and screening process is completed. As part of this process, the
Fund's management selects only those securities which meet the following
requirements:
1. Must be cash pay. The Fund does not purchase zero coupon, payment in kind,
or deferred interest issues.
2. Have an issue size of at least $100 million. Smaller issues tend to be less
liquid and are not as well researched by buyers and sellers.
3. Rated primarily Single-B and Double-B by the major credit rating agencies.
The Fund does not purchase defaulted or distressed issues.
Additionally, the Fund does not purchase emerging market or foreign issues, nor
does it participate in the derivatives, futures, or options markets.
[LOGO]
Pilgrim America Funds
11
<PAGE>
Pilgrim America High Yield Fund
Using this strategy and enhancing it with good credit and industry selection,
the Fund has outperformed the Lipper High Current Yield Fund average./5/ The
Fund had a total return of +12.72% for the fiscal year ended June 30, 1996
versus +11.21% for Lipper with 141 funds in the category, an outperformance of
151 basis points. The Fund's management underweighted cyclical industries
through the early part of 1996. As spreads have tightened and confidence in the
domestic economy has improved, exposure to cyclical industries has increased.
Additionally, exposure to the Casino industry, one of the best performing
industries in the First Boston High Yield Index, has been increased in early
1996 helping the Fund's relative performance.
Assets of the Fund were usually fully developed in the high yield market
resulting in a relatively low cash levels throughout the fiscal year. The Fund
ended the fiscal year with cash at 0.6% of net assets. Interest rates have been
trending upwards since the beginning of 1996. As this has occurred, the Fund's
management has focused on investments in shorter duration and yield-to-call
issues when available and practical. This has been management's preference
versus simply holding cash earning the associated lower yield.
Quality spreads, after widening through the end of 1995, have tightened with the
average Single-B issue yielding 221 basis points more than the average Double-B
issue, at the beginning of the Fund's fiscal year, to 185 basis points at the
end of the fiscal year, according to the First Boston High Yield Index. As
spreads have tightened, the Fund's management has stayed committed to an
overweighting in Single-B issues on the belief that stringer economic
conditions would allow spreads to tighten even further. As the assumption by the
majority of market participants becomes stronger that the Fed will now begin to
tighten, quality spreads may begin to widen again. The Fund's management will
monitor this activity and seek to adjust portfolio composition as appropriate.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way to acquire
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic investment, please notify your
broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box 419338,
Kansas City, Missouri 64141-6338 or call (800) 992-0180.
[LOGO]
Pilgrim America Funds
12
<PAGE>
Pilgrim America High Yield Fund
Thank you for the opportunity to serve your high yield investment needs. If you
have any questions or comments, please do not hesitate to contact us.
Sincerely,
/s/ Kevin G. Mathews
Kevin G. Mathews
Vice President and Senior Portfolio Manager
Pilgrim America Group, Inc.
See Footnotes on page 15
[LOGO]
Pilgrim America Funds
13
<PAGE>
Pilgrim High Yield Fund
- --------------------------------------------------------------------------------
Comparison of a $10,000 Investment
June 30, 1996
- --------------------------------------------------------------------------------
Comparison of the Changes in Value of a $10,000 Investment in Pilgrim America
High Yield Fund, the Lehman Brothers High Yield Index and the CS First Boston
High Yield Index.
Based on a $10,000 initial investment, the graph below illustrates the total
return of Pilgrim America High Yield Fund against the Lehman Brothers High Yield
Index, and the CS First Boston High Yield Index. Note that the Lehman Brothers
High Yield Index and the CS First Boston High Yield Index have inherent
performance advantages over any fund since they have no cash in their
portfolios, impose no sales charges and incur no operating expenses. An investor
cannot invest in an index.
The chart at left shows
the performance of
Pilgrim America High
Yield Fund Class A
[GRAPH APPEARS HERE] shares only, assuming
the deduction of the
maximum sales charge
and reinvestment of all
dividends and distributions
at net asset value.(3)
<TABLE>
<CAPTION>
Average Annual Total Returns Ending Redeemable Value
as of June 30, 1996 as of June 30, 1996
- ------------------------------------------------------------------------- -------------------------------------------
1 Year 5 Years 10 Years
---------- -------- --------
<S> <C> <C> <C> <C> <C>
High Yield Fund A 7.31% 11.99% 8.46% High Yield Fund A $ 22,516
Lehman High Yield Index 9.68% 13.29% 10.43% Lehman High Yield Index $ 26,962
CS First Boston High Yield Index 9.97% 13.57% 10.85% CS First Boston High Yield Index $ 28,015
</TABLE>
See Footnotes on page 15.
[LOGO]
Pilgrim America Funds
14
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(1) Lipper Analytical Services, Inc. ranked Class A shares of the Fund for total
return, without deducting sales charges and assuming reinvestments of all
dividends and distributions, and reflecting a partial waiver of expenses For
the five and ten year periods ended June 30, 1996 the Fund ranked 30 and 21
out of 63 and 36 funds, respectively.
(2) Total return figures reflect a partial waiver of expenses for the period
stated. Performance figures shown pertain only to Class A shares of the Fund
without deducting the maximum sales charge. The average annual total return
for the one, five and ten year periods ended June 30, 1996 after deduction
of the Class A maximum sales charge of 4.75% was 7.31%, 11.99% and 8.46%,
respectively.
(3) Performance figures shown pertain only to Class A shares of the Fund. Total
returns for Class B and M shares from inception July 17, 1995 to June 30,
1996 after deducting the maximum contingent deferred sales charge of 5.00%
(Class B shares only) or the maximum sales charge of 3.25% (Class M shares
only) and assuming reinvestment of all dividends and distributions were
5.40% and 7.06%, respectively. Total return for Class B shares without
deducting the contingent deferred sales charge and assuming reinvestments of
all dividends and distributions was 10.37% for the period July 17, 1995 to
June 30, 1996.
(4) The First Boston High Yield Index and Lehman Brothers High Yield Index are
broad measures of high yield market performance.
(5) The Lipper High Current Yield Fund is an average of one year returns for 141
funds in that Lipper category as of June 30, 1996. For the five and ten year
periods ended June 30, 1996, the Lipper High Current Yield Fund average
returns were 12.83% and 8.89% for 63 and 36 funds, respectively.
The views expressed in this report reflects those of the portfolio manager, only
through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed, may be
worth more or less than their original cost.
[LOGO]
Pilgrim America Funds
15
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to report the results of operations for Pilgrim Government
Securities Income Fund (the "Fund") for the fiscal year ended June 30, 1996. The
Fund performed well given the economic and market conditions discussed below. As
of June 30, 1996, the Fund's standardized 30 day SEC yield was 5.72%/1/. The
average annual total returns for the one, five and ten year periods ended June
30, 1996 after deduction of the Class A maximum sales charge of 4.75% and
assuming the reinvestment of all dividends and distributions, were -1.60%,
4.60%, and 6.18%, respectively/1/.
GENERAL ECONOMIC AND MARKET ENVIRONMENT
During the last 12 months, the fixed income market has been whipsawed as
expectations regarding the economic growth rapidly changed. The period stated
with an economy which was experiencing moderate growth and low inflation; the
period ended with a robust economy which was starting to show limited signs of
inflationary pressure.
An unexpectedly strong housing report in late February was the first sign of a
strengthening economy. In early March, the market received the now famous
February job report which showed that the economy had added 705,000 jobs. This
report caused many economist to revise their economic forecasts. The job report
released in the subsequent month confirmed the trend of strong growth. The
percentage of unemployed Americans currently stand at 5.3% which the lowest
level in six years. The need for more employees has become apparent over the
last six months as consumer demand and manufacturing production continued at a
strong pace. What has been especially surprising, is that new and existing home
sales continue to be strong despite the rise in home mortgage interest rates.
The Federal Reserve spent the last half of 1995, as well as the beginning of
1996, dropping the Federal Funds rate from 6.00% as of June 30, 1996. The
Federal Reserve cited a reduced potential for inflationary pressures, due to a
moderating economy, as the reason for the move.
MORTGAGE SECURITIES MARKET IN PARTICULAR
The mortgage market spent the last six months of 1995 underperforming the
treasury market. The rise in interest rates in the first six month of 1996
allowed mortgages to outperform treasuries and shorter
[LOGO]
Pilgrim America Funds
16
<PAGE>
Pilgrim Government Securities Fund
maturities to outperform longer ones. The best performing mortgage securities
were premium mortgage backed securities. Investors are now willing to pay more
for these mortgages since homeowners have little or no incentive to refinance
their mortgages.
ANALYSIS OF PILGRIM GOVERNMENT SECURITIES INCOME FUND
Management adopted a neutral outlook on interest rates in the fourth quarter of
1995. The price sensitivity of the portfolio as of December 31, 1995 was
greater than the Lehman Mortgage and Intermediate Government Bond Indices but
significantly below the Lehman Treasury Index/2/. Management, in a defensive
move, lowered the treasury position during the first half of 1996 to
approximately 27% of the portfolio as of June 30. The treasuries which remain
are primarily higher coupon securities which perform better in a rising rate
environment. As it happened, interest rates rose across the yield curve in the
first half of 1996. Consequently, the measures taken this year have allowed the
Fund to outperform long term bonds, match the performance of general Government
Bonds but underperform intermediate Government and pure mortgage funds. The Fund
continues its ongoing commitment to shareholders of avoiding the risks
associated with exotic derivatives, leverage as well as futures and options.
For 1996, we believe that economic growth will be strong in the second quarter
and then moderate during the second half of the year. We believe that the
Federal Reserve will tighten monetary policy given the strong growth in
employment. In forecasting interest rates, management recognizes that it is not
a science but more a measure of assigning probabilities. Given current market
data, management has a slightly bearish view on short and intermediate term
interests rates. This view is probably already "in the market", however. The
greatest risk to this scenario is that the economy continues to grow strongly in
the second half and the policy response by the Federal Reserve is perceived by
the market to be inadequate. We place a lower probability on this scenario for
two reasons. First, the current level of interest rates should slow economic
growth. Second, the Federal Reserve in the 80's and 90's has been proactive in
maintaining a monetary policy which encourages price stability and moderate
economic growth. Given these reasons, a good case can be made for fixed income
securities being attractive at current interest rates subject to the above risk.
Management therefore has a neutral stance on bonds. However, management has been
selling mortgage securities which prepay faster in a low rate environment and
replacing them with mortgage securities which have less of propensity to prepay.
The objective is to maintain the portfolio's income in a low rate environment
when mortgages typically prepay.
[LOGO]
Pilgrim America Funds
17
<PAGE>
Pilgrim Government Securities Income Fund
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way of acquiring
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic reinvestment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box
419338, Kansas City, Missouri 64141-6338 or call (800) 992-0180.
Thank you for your continued support, and do not hesitate to contact us with any
comments or questions regarding the Fund.
Sincerely,
/s/ Kevin G. Mathews
Kevin G. Mathews
Vice President and Senior Portfolio Manager
Pilgrim America Group, Inc.
See Footnotes on page 20
[LOGO]
Pilgrim America Funds
18
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
Comparison of a $10,000 Investment
June 30, 1996
- --------------------------------------------------------------------------------
Comparison of the Change in Value of a $10,000 Investment in Pilgrim Government
Securities Income Fund, the Lehman Brothers GNMA Index, the Lehman Brothers
Intermediate Government Securities Index and the Lehman Brothers Treasuries
Index.
Based on a $10,000 initial investment, the graph below illustrates the total
return of Pilgrim Government Securities Income Fund against the Lehman Brothers
GNMA Index, the Lehman Brothers Intermediate Government Securities Index and the
Lehman Brothers Treasuries Index. Note that the Lehman Brothers indices have
inherent performance advantages over any fund since they have no cash in the
portfolios, impose no sales charges and incur no operating expenses. An investor
cannot invest in an index.
The chart at left shows
the performance of
Pilgrim Government
Securities Income Fund
[GRAPH APPEARS HERE] Class A shares only,
assuming the deduction
of the maximum sales
charge and reinvestment
of all dividends and
distributions at net asset
value(1).
<TABLE>
<CAPTION>
Average Annual Total Returns Ending Redeemable Value
as of June 30, 1996 as of June 30, 1996
- -------------------------------------------------------------------------- --------------------------------------
1 Year 5 Years 10 Years
-------- -------- --------
<S> <C> <C> <C> <C> <C>
Gov't Securities Income Fund A -1.60% 4.60% 6.18% Gov't Securities Income Fund A $18,221
Lehman GNMA Index 6.02% 7.91% 9.14% Lehman GNMA Index $23,985
Lehman Intermediate Gov't Index 4.93% 7.38% 7.81% Lehman Intermediate Gov't Index $21,206
Lehman Treasuries Index 4.47% 8.22% 8.09% Lehman Treasuries Index $21,767
</TABLE>
See Footnotes on page 20.
[LOGO]
Pilgrim America Funds
19
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(1) Total return figures reflect a partial waiver of expenses for the period
stated. Performance figures shown pertain only to Class A shares of the
Fund. The SEC yields for Class B and M as of June 30, 1996 were 5.31% and
5.29%, respectively.
Total returns for Class B and M shares from inception July 17, 1995 to June
30, 1996 after deducting the maximum contingent deferred sales charge of
5.00% (Class B shares only) or the maximum sales charge of 3.25% (Class M
shares only) and assuming reinvestment of all dividends and distributions
were -2.80% and -0.85%, respectively. Total return for Class B shares
without deducting the contingent deferred sales charge and assuming
reinvestment of all dividends and distributions was 2.25% for the period
July 17, 1995 to June 30, 1996. Returns reflect a partial waiver of fees
for periods stated.
The Fund earned income and realized capital gains as a result of entering
into reverse repurchase agreements during the six month period from July to
December, 1992. Therefore, the Fund's performance was higher than it would
have been had the Fund adhered to its 10% borrowing investment restriction.
(2) Pilgrim Government Securities Income Fund is ranked in the Lipper
Analytical Services, Inc. universe of General U.S. Government Funds which
includes GNMA, intermediate and long term government bonds. The Lehman
Brothers GNMA, Intermediate Government and Treasuries Indices are unmanaged
market indices representative of each of the different types of holdings in
the Fund's portfolio.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period of the report as stated on the cover. The Managers
views are subject to change at any time based on market and other conditions.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed, may be
worth more or less than their original cost.
[LOGO]
Pilgrim America Funds
20
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Pilgrim America Investment Funds, Inc.
Pilgrim Government Securities Income Fund, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Pilgrim America MagnaCap Fund and Pilgrim
America High Yield Fund (the two funds comprising Pilgrim America Investment
Funds, Inc.), and Pilgrim Government Securities Income Fund (the single series
of Pilgrim Government Securities Income Fund, Inc.), as of June 30, 1996, and
the related statements of operations for the year then ended, and changes in net
assets and financial highlights for each of the years, in the two-year period
then ended, except for Pilgrim America High Yield Fund which is for the year
ended June 30, 1996 and the eight-month period ended June 30, 1995. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. For all
periods ending prior to July 1, 1994 for Pilgrim America MagnaCap Fund and
Pilgrim Government Securities Income Fund, and for all periods ending prior to
November 1, 1994 for Pilgrim America High Yield Fund, the financial highlights
were audited by other auditors whose reports thereon dated July 22, 1994 and
November 17, 1994, respectively, expressed an unqualified opinion on those
financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatements. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the 1996 and 1995 financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of each of the aforementioned funds of Pilgrim America Investment
Funds, Inc. and Pilgrim Government Securities Income Fund, Inc. as of June 30,
1996, the results of their operations for the year then ended, and the changes
in their net assets and financial highlights for each of the years or periods in
the two-year period then ended in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Los Angeles, CA
August 16, 1996
21
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government
MagnaCap High Yield Securities
Fund Fund Income Fund
--------------------------- ---------------
<S> <C> <C> <C>
ASSETS:
Investments in securities at value
(Cost $133,943,582, $20,755,576 and $38,430,605, respectively).... $243,526,817 $21,091,563 $ 38,104,260
Short-term securities at amortized cost.............................. 14,032,000 3,609,000 --
Cash................................................................. 33,663 12,061 --
Receivables:
Investment securities sold........................................ 765,874 755,000 1,249,609
Dividends and interest............................................ 535,905 528,965 380,447
Fund shares sold.................................................. 339,103 690,759 --
Due from affiliate................................................ -- -- 4,083
------------ ------------- ---------------
Total Assets..................................................... 259,233,362 26,687,348 39,738,399
------------ ------------- ---------------
LIABILITIES:
Investment securities purchased...................................... 10,513,660 4,251,245 691,712
Payable for fund shares redeemed..................................... 329,378 53,829 22,166
Payable to affiliates................................................ 226,288 33,971 23,824
Payable to custodian................................................. -- -- 87,022
Other accrued expenses and liabilities............................... 300,852 40,435 63,566
------------ ------------- ---------------
Total Liabilities................................................ 11,370,178 4,379,480 888,290
------------ ------------- ---------------
NET ASSETS........................................................... $247,863,184 $22,307,868 $ 38,850,109
============ ============= ===============
Net Assets consist of:
Paid-in capital................................................... $115,626,311 $33,182,658 $ 47,383,165
Undistributed net investment income............................... 1,275,538 154,880 0
Accumulated net realized gains (losses) on investments............ 21,378,100 (11,365,657) (8,206,711)
Net unrealized appreciation (depreciation) of investments......... 109,583,235 335,987 (326,345)
------------ ------------- ---------------
Net Assets....................................................... $247,863,184 $22,307,868 $ 38,850,109
============ ============= ===============
Class A:
Net assets........................................................ $235,392,649 $18,691,175 $ 38,753,558
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively. 80,000,000 80,000,000 1,000,000,000
Shares outstanding................................................ 14,107,168 2,937,712 3,077,998
Net asset value and redemption price per share.................... $ 16.69 $ 6.36 $ 12.59
Maximum offering price per share(1)............................... $ 17.71 $ 6.68 $ 13.22
Class B:
Net assets........................................................ $ 10,509,299 $ 2,373,891 $ 72,988
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively. 80,000,000 80,000,000 1,000,000,000
Shares outstanding................................................ 633,557 373,525 5,799
Net asset value, redemption and offering price per share(2)....... $ 16.59 $ 6.36 $ 12.59
Class M:
Net assets........................................................ $ 1,961,236 $ 1,242,802 $ 23,563
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively. 40,000,000 40,000,000 1,000,000,000
Shares outstanding................................................ 117,933 195,507 1,872
Net asset value and redemption price per share.................... $ 16.63 $ 6.36 $ 12.59
Maximum offering price per share(3)............................... $ 17.23 $ 6.57 $ 13.01
</TABLE>
- ----------
(1) Maximum offering price is computed at 100/94.25 of net asset value for
MagnaCap Fund and 100/95.25 of net asset value for High Yield Fund and
Government Securities Income Fund. On purchases of $50,000 or more the
offering price is reduced.
(2) Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
(3) Maximum offering price is computed at 100/96.50 of net asset value for
MagnaCap Fund and 100/96.75 of net asset value for High Yield Fund and
Government Securities Income Fund. On purchases of $50,000 or more the
offering price is reduced.
See Accompanying Notes to Financial Statements
22
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government
MagnaCap High Yield Securities
Fund Fund Income Fund
------------ ------------ ------------
<S> <C> <C> <C>
Investment Income:
Interest................................................................ $ 131,833 $1,786,049 $3,041,693
Dividends (net of foreign withholding taxes of $83,061,
$0 and $0, respectively)........................................ 5,010,698 -- --
------------ ------------ ------------
Total investment income......................................... 5,142,531 1,786,049 3,041,693
------------ ------------ ------------
Expenses:
Investment management fees.............................................. 1,805,280 127,903 208,689
Distribution expenses
Class A Shares.................................................. 680,749 40,721 104,310
Class B Shares.................................................. 31,608 5,719 171
Class M Shares.................................................. 4,327 1,427 21
Transfer agent and registrar fees....................................... 766,986 71,608 105,623
Professional fees....................................................... 237,596 81,151 84,816
Recordkeeping and pricing fees.......................................... 100,604 6,972 14,409
Reports to shareholders................................................. 80,292 12,082 22,168
Registration and filing fees............................................ 73,923 14,113 62,833
Custodian fees.......................................................... 50,688 8,784 38,078
Miscellaneous expenses.................................................. 25,958 4,977 10,785
Directors' fees......................................................... 19,858 1,477 3,063
Insurance expense....................................................... 6,987 520 1,417
------------ ------------ ------------
Total expenses.................................................. 3,884,856 377,454 656,383
------------ ------------ ------------
Less:
Waived and reimbursed fees...................................... -- (201,026) (39,951)
Earnings credits................................................ (2,161) (993) (1,532)
------------ ------------ ------------
Net expenses.................................................... 3,882,695 175,435 614,900
------------ ------------ ------------
Net investment income........................................... 1,259,836 1,610,614 2,426,793
------------ ------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS:
Net realized gains from investments..................................... 25,045,352 733,725 341,589
Net change in unrealized appreciation (depreciation) of investments..... 17,314,574 (338,649) (1,342,713)
------------ ------------ ------------
Net gain (loss) from investments........................................ 42,359,926 395,076 (1,001,124)
------------ ------------ ------------
Net increase in net assets resulting from operations............ $43,619,762 $2,005,690 $1,425,669
=========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
23
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MagnaCap Fund High Yield Fund
---------------------------------- -----------------------------
Eight
Year Ended Year Ended Year Ended Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase in net assets from
operations:
Net investment income........................... $ 1,259,836 $ 1,934,978 $ 1,610,614 $ 928,406
Net realized gain (loss)
from investments........................ 25,045,352 (100,779) 733,725 (674,487)
Net change in unrealized
appreciation (depreciation)
of investments.......................... 17,314,574 35,762,715 (338,649) 1,241,388
------------ ------------ ----------- -----------
Net increase in net assets
resulting from operations............... 43,619,762 37,596,914 2,005,690 1,495,307
------------ ------------ ----------- -----------
Distributions to shareholders:
Net investment income:
Class A shares.......................... (913,179) (2,215,639) (1,398,592) (948,887)
Class B shares.......................... (76) -- (44,230) --
Class M shares.......................... (11) -- (13,477) --
Net realized gains:
Class A shares.......................... (3,522,486) (9,247,167) -- --
Class B shares.......................... (24,792) -- -- --
Class M shares.......................... (3,493) -- -- --
Tax return of capital:
Class A shares.......................... -- -- -- --
Class B shares.......................... -- -- -- --
Class M shares.......................... -- -- -- --
------------ ------------ ----------- -----------
Total distributions to shareholders............. (4,464,037) (11,462,806) (1,456,299) (948,887)
------------ ------------ ----------- -----------
Capital share transactions:
Net proceeds from sale of shares................ 71,233,884 59,504,866 7,992,192 1,369,139
Shares resulting from dividend
reinvestment............................ 3,475,640 8,917,296 617,676 412,294
Cost of shares redeemed......................... (77,332,069) (73,661,566) (2,801,277) (2,423,498)
------------ ------------ ----------- -----------
Net increase (decrease) in net
assets resulting from capital
share transactions...................... (2,622,545) (5,239,404) 5,808,591 (642,065)
------------ ------------ ----------- -----------
Net increase (decrease) in
net assets.............................. 36,533,180 20,894,704 6,357,982 (95,645)
------------ ------------ ----------- -----------
Net assets, beginning of period................. 211,330,004 190,435,300 15,949,886 16,045,531
------------ ------------ ----------- -----------
Net assets, end of period *..................... $247,863,184 $211,330,004 $22,307,868 $15,949,886
============ ============ =========== ===========
* Including undistributed net
investment income of:................... $ 1,275,538 $ 919,705 $ 154,880 $ 565
============ ============ =========== ===========
<CAPTION>
Government Securities
Income Fund
-----------------------------------
Year Ended Year Ended
June 30, 1996 June 30,1 995
------------- -------------
<S> <C> <C>
Increase in net assets from
operations:
Net investment income.......................... $ 2,426,793 $ 3,346,676
Net realized gain (loss)
from investments...................... 341,589 (1,413,077)
Net change in unrealized
appreciation (depreciation)
of investments........................ (1,342,713) 2,008,085
------------- --------------
Net increase in net assets
resulting from operations............. 1,425,669 3,941,684
------------- --------------
Distributions to shareholders:
Net investment income:
Class A shares........................ (2,425,905) (3,346,727)
Class B shares........................ (766) --
Class M shares........................ (122) --
Net realized gains:
Class A shares........................ -- --
Class B shares........................ -- --
Class M shares........................ -- --
Tax return of capital:
Class A shares........................ (183,721) --
Class B shares........................ -- --
Class M shares........................ -- --
------------- --------------
Total distributions to shareholders............ (2,610,514) (3,346,727)
------------- --------------
Capital share transactions:
Net proceeds from sale of shares............... 4,809,688 1,046,472
Shares resulting from dividend
reinvestment.......................... 985,701 1,097,278
Cost of shares redeemed........................ (9,391,713) (20,207,240)
------------- --------------
Net increase (decrease) in net
assets resulting from capital
share transactions.................... (3,596,324) (18,063,490)
------------- --------------
Net increase (decrease) in
net assets............................ (4,781,169) (17,468,533)
------------- --------------
Net assets, beginning of period................ 43,631,278 61,099,811
------------- --------------
Net assets, end of period *.................... $38,850,109 $43,631,278
============= ==============
* Including undistributed net
investment income of:................. $ 0 $ 0
============= ==============
</TABLE>
See Accompany Notes to Financial Statements
24
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the Period
Year Ended July 17, 1995(a) to
June 30, 1996 June 30, 1996
-------------------------
Class A Class B Class M
---------- -------- --------
<S> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 14.03 $ 14.22 $ 14.22
Income from investment
operations:
Net investment income 0.09 0.06 0.08
Net realized and
unrealized gain (loss)
on investments 2.87 2.61 2.63
---------- -------- --------
Total from investment
operations 2.96 2.67 2.71
---------- -------- --------
Less distributions from:
Net investment income 0.06 0.06 0.06
Realized gains on
investments 0.24 0.24 0.24
---------- -------- --------
Total distributions 0.30 0.30 0.30
---------- -------- --------
Net asset value,
end of period $ 16.69 $ 16.59 $ 16.63
========== ======== ========
Total Return(c) 0.21 0.19 0.19
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $ 235,393 $ 10,509 $ 1,961
Ratios to average net assets:
Expenses 1.68 2.38%(d) 2.13%(d)
Net investment
income 0.54% 0.07%(d) 0.32%(d)
Portfolio turnover rate 15% 15% 15%
<CAPTION>
Year Ended June 30,
------------------------------------------
1995(b) 1994 1993
--------- ------- ----------
<S> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 12.36 $ 12.05 $ 11.98
Income from investment
operations:
Net investment income 0.12 0.15 0.14
Net realized and
unrealized gain (loss)
on investments 2.29 0.89 0.82
--------- --------- ----------
Total from investment
operations 2.41 1.04 0.96
--------- --------- ----------
Less distributions from:
Net investment income 0.14 0.14 0.12
Realized gains on
investments 0.60 0.59 0.77
--------- --------- ----------
Total distributions 0.74 0.73 0.89
--------- --------- ----------
Net asset value,
end of period $ 14.03 $ 12.36 $ 12.05
========= ========= ==========
Total Return(c) 20.61% 9.13% 8.21%
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $211,330 $190,435 $197,250
Ratios to average net assets:
Expenses 1.59% 1.53% 1.53%
Net investment income 0.98% 1.16% 1.09%
Portfolio turnover rate 6% 7% 36%
<CAPTION>
Year Ended June 30,
-------------------------------------------
1992 1991 1990
-------- -------- --------
<S> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 10.93 $ 10.74 $ 10.52
Income from investment
operations:
Net investment income 0.13 0.20 0.15
Net realized and
unrealized gain (loss)
on investments 1.16 0.33 1.24
-------- -------- --------
Total from investment
operations 1.29 0.53 1.39
-------- -------- --------
Less distributions from:
Net investment income 0.24 0.16 0.17
Realized gains on
investments -- 0.18 1.00
-------- -------- --------
Total distributions 0.24 0.34 1.17
-------- -------- --------
Net asset value,
end of period $ 11.98 $ 10.93 $ 10.74
======== ======== ========
Total Return(c) 11.93% 5.21% 13.84%
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $196,861 $199,892 $224,059
Ratios to average net assets:
Expenses 1.60% 1.50% 1.50%
Net investment
income 1.20% 2.00% 1.40%
Portfolio turnover rate 49% 182% 12%
<CAPTION>
Year Ended June 30,
--------------------------------------------------
1989 1988 1987
--------- -------- --------
<S> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 9.12 $ 11.56 $ 10.66
Income from investment
operations:
Net investment income 0.17 0.15 0.18
Net realized and
unrealized gain (loss)
on investments 1.39 (0.74) 1.21
--------- -------- --------
Total from investment
operations 1.56 (0.59) 1.39
--------- -------- --------
Less distributions from:
Net investment income 0.16 0.12 0.26
Realized gains on
investments -- 1.73 0.23
--------- -------- --------
Total distributions 0.16 1.85 0.49
--------- -------- --------
Net asset value,
end of period $ 10.52 $ 9.12 $ 11.56
========= ========= ========
Total Return(c) 17.32% (6.64%) 13.72%
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $ 204,552 $211,064 $243,729
Ratios to average net assets:
Expenses 1.60% 1.50% 1.40%
Net investment
income 1.80% 1.60% 1.70%
Portfolio turnover rate 129% 206% 127%
</TABLE>
- ---------------------------------------
(a) Commencement of offering of shares.
(b) Pilgrim America Investments, Inc., the Fund's Investment Manager,
acquired assets of Pilgrim Management Corporation, the Fund's former
Investment Manager, in a transaction that closed on April 7, 1995.
(c) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the
deduction of sales charges.
Total return information for less than one year is not annualized.
(d) Annualized.
See Accompanying Notes to Financial Statements
25
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the Period Eight Months
Year Ended July 17, 1995(a) to Ended
June 30, 1996 June 30, 1996 June 30,
----------------------------
Class A Class B Class M 1995(b)(c)
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of period....... $ 6.15 $6.20 $ 6.20 $ 5.95
Income (loss) from investment
operations:
Net investment income.................... 0.59 0.48 0.50 0.35
Net realized and unrealized
gain (loss) on investment.............. 0.16 0.14 0.14 0.21
------- ------- ------- -------
Total from investment
operations........................... 0.75 0.62 0.64 0.56
------- ------- ------- -------
Less distributions from:
Net investment income.................... 0.54 0.46 0.48 0.36
Realized gains on investments............ -- -- -- --
------- ------- ------- -------
Total distributions.................... 0.54 0.46 0.48 0.36
------- ------- ------- -------
Net asset value, end of period............. $ 6.36 $ 6.36 $ 6.36 $ 6.15
======= ======== ======= =======
Total Return(d)............................ 12.72% 10.37% 10.69% 9.77%
Ratios/Supplemental Data
Net assets, end of period
(in thousands)........................... $18,691 $ 2,374 $ 1,243 $15,950
Ratios to average net assets:
Expenses................................. 1.00%(e) 1.75%(e)(f) 1.50%(e)(f) 2.25%(f)(g)
Net investment
income................................. 9.46%(e) 9.02%(e)(f) 9.41%(e)(f) 8.84%(f)(g)
Portfolio turnover rate.................... 339% 339% 339% 166%
<CAPTION>
Year Ended October 31,
-----------------------------------------------
1994 1993 1992 1991
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of period....... $ 6.47 $ 5.77 $ 5.70 $ 5.03
Income (loss) from investment
operations:
Net investment income.................... 0.54 0.53 0.63 0.66
Net realized and unrealized
gain (loss) on investment.............. (0.51) 0.70 0.07 0.74
------- ------- ------- -------
Total from investment
operations........................... 0.03 1.23 0.70 1.40
------- ------- ------- -------
Less distributions from:
Net investment income.................... 0.55 0.53 0.63 0.68
Realized gains on investments............ -- -- -- 0.05
------- ------- ------- -------
Total distributions.................... 0.55 0.53 0.63 0.73
------- ------- ------- -------
Net asset value, end of period............. $ 5.95 $ 6.47 $ 5.77 $ 5.70
======= ======= ======= =======
Total Return(d)............................ 0.47% 22.12% 12.65% 30.00%
Ratios/Supplemental Data
Net assets, end of period
(in thousands)........................... $16,046 $18,797 $17,034 $23,820
Ratios to average net assets:
Expenses................................. 2.00%(g) 2.02% 2.03% 1.89%
Net investment
income................................. 8.73%(g) 8.36% 10..93% 12.40%
Portfolio turnover rate.................... 192% 116% 193% 173%
<CAPTION>
Year Ended October 31,
-----------------------------------------------
1990 1989 1988 1987
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of period....... $ 6.46 $ 7.29 $ 7.25 $ 8.15
Income (loss) from investment
operations:
Net investment income.................... 0.82 0.88 0.89 0.95
Net realized and unrealized
gain (loss) on investment.............. (1.40) (0.80) 0.03 (0.89)
------- ------- ------- -------
Total from investment
operations........................... (0.58) 0.08 0.92 0.06
------- ------- ------- -------
Less distributions from:
Net investment income.................... 0.85 0.91 0.88 0.96
Realized gains on investments............ -- -- -- --
------- ------- ------- -------
Total distributions.................... 0.85 0.91 0.88 0.96
------- ------- ------- -------
Net asset value, end of period............. $ 5.03 $ 6.46 $ 7.2 $ 7.25
======= ======= ======= =======
Total Return(d)............................ (10.08)% 0.94% 13.54% 0.36%
Ratios/Supplemental Data
Net assets, end of period
(in thousands)........................... $21,598 $31,356 $41,910 $56,523
Ratios to average net assets:
Expenses................................. 1.75% 1.79% 1.46% 1.34%
Net investment
income................................. 14.11% 12.61% 12.20% 11.68%
Portfolio turnover rate.................... 183% 210% 80% 114%
</TABLE>
- --------------------------------
(a) Commencement of offering of shares.
(b) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(c) Effective November 1, 1994, High Yield Fund changed its year end to June 30.
(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(e) Prior to the waiver and reimbursement of expenses, and for the period ended
June 30, 1996, the annualized ratio of expenses to average net assets was
2.19%, 2.94% and 2.69% for Class A, B and M shares, respectively. Prior to
the waiver and reimbursement of expenses, and for the period ended June 30,
1996, the annualized ratio of net investment income to average net assets
was 8.27%, 8.05% and 8.51% for Class A, B and M shares, respectively.
(f) Annualized.
(g) Prior to the waiver of expenses, the annualized ratio of expenses to average
net assets was 2.35% in 1995 and 2.07% in 1994. Prior to the waiver of
expenses, the annualized ratio of net investment income to average net
assets was 8.74% in 1995 and 8.66% in 1994.
See Accompanying Notes to Financial Statements
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the Period
Year Ended July 17, 1995(a) to
June 30, 1996 June 30, 1996
---------------------------
Class A Class B Class M
-------- -------- --------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 12.97 $ 12.95 $ 12.95
Income (loss) from investment
operations:
Net investment income 0.75 0.66 0.68
Net realized and unrealized
gain (loss) on investment (0.32) (0.37) (0.36)
-------- -------- --------
Total from investment
operations 0.43 0.29 0.32
-------- -------- --------
Less distributions from:
Net investment income 0.75 0.65 0.68
Tax return of capital 0.06
-------- -------- --------
Total distributions 0.81 0.65 0.68
-------- -------- --------
Net asset value, end of period $ 12.59 $ 12.59 $ 12.59
======== ========= ========
Total Return(d) 3.34% 2.25% 2.52%
Ratios/Supplemental Data
Net assets, end of period (thousands) $38,753 $ 73 $ 24
Ratios to average net assets:
Expenses 1.51%(e) 2.26%(e)(f) 2.01%(e)(f)
Net investment income 5.84%(e) 4.98%(e)(f) 5.73%(e)(f)
Portfolio turnover rate 170% 170% 170%
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------
1995(b) 1994 1993(c) 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 12.73 $ 13.96 $ 13.76 $ 13.79 $ 13.79
Income (loss) from investment
operations:
Net investment income 0.84 0.84 1.13 1.19 1.25
Net realized and unrealized
gain (loss) on investments 0.24 (1.17) 0.18 (0.03)
--------- --------- --------- --------- ---------
Total from investment
operations 1.08 (0.33) 1.31 1.19 1.22
--------- --------- --------- --------- ---------
Less distributions from:
Net investment income 0.84 0.90 1.11 1.19 1.25
Tax return of capital
--------- --------- --------- --------- ---------
Total distributions 0.84 0.90 1.11 1.19 1.25
--------- --------- --------- --------- ---------
Net asset value, end of period $ 12.97 $ 12.73 $ 13.96 $ 13.76 $ 13.76
========= ========= ========= ========= =========
Total Return(d) 0.09 (0.03) 0.10 0.09 0.09
Ratios/Supplemental Data
Net assets, end of period (thousands) $ 43,631 $ 61,100 $ 87,301 $ 96,390 $110,674
Ratios to average net assets:
Expenses 1.40%(g) 0.01 0.01 0.01 0.01
Net investment income 6.37%(g) 0.06 0.08 0.09 0.09
Portfolio turnover rate 299% 402% 466% 823% 429%
<CAPTION>
Year Ended June 30,
------------------------------------------------------------
1990 1989 1988 1987
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 14.23 $ 14.23 $ 14.51 $15.15
Income (loss) from investment
operations:
Net investment income 1.25 1.31 1.34 1.40
Net realized and unrealized
gain (loss) on investment (0.38) 0.02 (0.25) (0.62)
-------- -------- -------- --------
Total from investment
operations 0.87 1.33 1.09 0.78
-------- -------- -------- --------
Less distributions from:
Net investment income 1.31 1.33 1.37 1.42
Tax return of capital -- -- -- --
-------- -------- -------- --------
Total distributions 1.31 1.33 1.37 1.42
-------- -------- -------- --------
Net asset value, end of period $ 13.79 $ 14.2 $ 14.23 $ 14.51
========= ======== ======== ========
Total Return(d) 6.51% 10.10% 8.00% 5.24%
Ratios/Supplemental Data
Net assets, end of period (thousands) $122,212 $144,769 $183,979 $288,024
Ratios to average net assets:
Expenses 1.14% 1.06% 0.98% 0.93%
Net investment income 9.02% 9.45 9.50% 9.16%
Portfolio turnover rate 448% 537% 360% 433%
</TABLE>
- ----------------------------------------
(a) Commencement of offering of shares.
(b) Pilgrim America Investments, Inc., the Fund's Investment Manager,
acquired assets of Pilgrim Management Corporation, the Fund's former
Investment Manager, in a transaction that closed on April 7, 1995.
(c) During this period, average daily borrowing were $11,038,044, average
monthly shares outstanding were 6,429,755 and average daily borrowings
per share were $1.72. The Fund earned income and realized capital gains
as a result of entering into reverse repurchase agreements during the
six months from July to December 1992. Such transactions constituted
borrowing transactions and, as a result, the Fund exceeded its 10%
borrowing limitations during that period. Therefore, the Fund's
performance was higher than it would have been had the Fund adhered to
its investment restrictions. This borrowing technique was discontinued
subsequent to December 1992 until April 4, 1995, when shareholders
approved a change in the Fund's investment policies.
(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the
deduction of sales charges. Total return information for less than one
year is not annualized.
(e) Prior to the waiver and reimbursement of expenses for the period ended
June 30, 1996, the annualized ratio of expenses to average net assets
was 1.57%, 2.41% and 2.16% for Class A, B and M shares, respectively.
Prior to the waiver and reimbursement of expenses for the period ended
June 30, 1996, the annualized ratio of net investment income to average
net assets was 5.74%, 4.83% and 5.58% for Class A, B and M shares,
respectively.
(f) Annualized.
(g) Prior to the waiver of expenses the ratio of expenses to average net
assets was 1.54% and the ratio of net investment income to average net
assets was 6.23%.
See Accompanying Notes to Financial Statements
27
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies
Organization - Pilgrim America Elite Series ("Elite Series") is an open-end
management investment company registered under the Investment Company Act of
1940, as amended. Elite Series consists of three separate diversified open-end
investment company funds, Pilgrim America MagnaCap Fund ("MagnaCap Fund"),
Pilgrim America High Yield Fund ("High Yield Fund") and Pilgrim Government
Securities Income Fund ("Government Securities Income Fund"), which are
collectively referred to as the "Funds", each with its own investment objective
and policies. MagnaCap Fund and High Yield Fund are a series of Pilgrim America
Investment Funds, Inc., which is a registered investment company that was
organized as a Maryland corporation in July 1969. Government Securities Income
Fund is a single series of Pilgrim Government Securities Income Fund, Inc.,
which is a registered investment company that was organized as a California
corporation in May 1984.
Prior to July 17, 1995, each Fund issued only Class A shares. Subsequent to
that date each Fund offers three classes of shares, Class A, Class B and Class
M. Each class represents interests in the same assets of the applicable Fund and
the classes are identical except for differences in their sales charge structure
and ongoing distribution fees. In addition, Class B shares, along with their pro
rata reinvested dividend shares, automatically convert to Class A shares
approximately eight years after purchase.
The following significant accounting policies are consistently followed by
the Funds in the preparation of their financial statements, and such policies
are in conformity with generally accepted accounting principles for investment
companies.
(a) Security Valuation
Investments in securities traded on a national securities exchange or
included on the NASDAQ National Market System are valued at the last reported
sale price. Securities traded on an exchange or NASDAQ for which there has been
no sale and securities traded in the over-the-counter market are valued at the
mean between the last reported bid and asked prices. U.S. government
obligations are valued by using market quotations or independent pricing
services which use prices provided by market-makers or estimates of market
values obtained from yield data relating to Investments or securities with
characteristics. Securities for which market quotations are not readily
available are valued at fair value as determined by policies set by the Board of
Directors. Short-term investments are valued at amortized cost which when
combined with accrued interest, approximates market value.
(b) Security Transactions and Revenue Recognition
Securities transactions are accounted for on the trade date. Realized gain
or losses are reported on the basis of identified cost of securities delivered.
Interest income is recorded on an accrual basis and dividend income is recorded
on the ex-dividend date.
(c) Distributions to Shareholders
The Funds record distributions to their shareholders on the ex-date.
Distributions from income are declared by MagnaCap Fund on a semi-annual basis
and on a monthly basis for High Yield Fund and Government Securities Income
Fund. Distributions from capital gains, if any, are declared on an annual basis.
The amount of distributions from net investment income, and net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. Key
differences are the treatment of short-term capital gains and other timing
differences. To the extent that these differences are permanent in nature, such
amounts are reclassified within the capital accounts based on their federal tax-
basis treatment, temporary differences do not require reclassifications.
Distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but
28
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30,1996
- --------------------------------------------------------------------------------
not for tax purposes are reported as distributions in excess of net investment
income or net realized capital gains. To the extent they exceed net investment
income and net realized capital gains for tax purposes, they are reported as
distributions of paid-in capital. Accordingly, amounts as of June 30, 1996 have
been reclassified as follows:
<TABLE>
<CAPTION>
Government Securities
MagnaCap Fund High Yield Fund Income Fund
------------- --------------- -----------
<S> <C> <C> <C>
Paid-in capital 5,533 --- (28,871,464)
Undistributed net
investment income 9,663 --- 183,772
Accumulated net realized
gains (losses) on
investments (15,196) --- 28,687,692
</TABLE>
d) Federal Income Taxes
The Company's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute substantially all of its net investment income and any net realized
capital gains to its shareholders. Therefore, a federal income tax provision is
not required. In addition, by distributing during each calendar year
substantially all of its net investment income and net capital gains, each Fund
intends not to be subject to any federal excise tax.
Capital loss carryforwards were as follows at June 30, 1996:
Amount Expiration Date
------ ---------------
MagnaCap Fund $ --- ---
High Yield Fund 9,493,815 1997-2003
Government Securities Income Fund 8,206,711 1997-2003
The Board of Directors intends to offset net capital gains with each capital
loss carryforward until each carryforward has been fully utilized or expires.
In addition, no capital gain distributions shall be made until the capital
loss carryforward has been fully utilized or expires.
(e) Use of Estimates
Management of the Funds has made certain estimates and assumptions relating
to the reporting of assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principals. Actual results
could differ from these estimates.
(f) Repurchase Agreements
Each Fund may invest any portion of its assets otherwise invested in money
market instruments in U.S. Government securities and concurrently enter into
repurchase agreements with respect to such securities. Such repurchase
agreements will be made only with government securities dealers recognized by
the Board of Governors of the Federal Reserve System or with member banks of the
Federal Reserve System. Under such agreements, the seller of the security
agrees to repurchase it at a mutually agreed upon time and price. The resale
price is in excess of the purchase price and reflects an agreed upon interest
rate for the period of time the agreement is outstanding. The period of these
repurchase agreements is usually short, from overnight to one week, while the
underlying securities generally have longer maturities. Each Fund will always
receive as collateral securities acceptable to it whose market value is equal to
at least 100% of the amount invested by the Fund, and the Fund will make payment
for such securities only upon physical delivery or evidence of book entry
transfer to the account of its custodian. If the seller defaults, a Fund might
incur a loss or delay in the realization of proceeds if the value of the
collateral securing the repurchase agreement declines and it might incur
disposition costs in liquidating the collateral.
29
<PAGE>
Pilgrim America Elite Series
NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 1996
(g) Reclassifications
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
(2) INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Each of the Funds has entered into an Investment Management Agreement
with Pilgrim America Investments, Inc. ("the Manager"), a wholly owned
subsidiary of Pilgrim America Group, Inc. The investment management agreements
compensate the Manager with a fee, computed daily and payable monthly, at the
following annual rates: MagnaCap Fund pays the Manager a fee at an annual rate
of 1.00% of the Fund's average daily net assets up to $30 million; 0.75% of the
average daily net assets above $30 million to $250 million; 0.625% of the
average daily net assets above $250 million to $500 million; and 0.50% of the
average daily net assets in excess of $500 million. At June 30, 1996 MagnaCap
Fund owed the Manager $158,881 in investment management fees. High Yield Fund
pays the Manager a fee at an annual rate of 0.75% of the Fund's average daily
net assets on the first $25 million of net assets; 0.625% of the average daily
net assets over $25 million to $100 million; 0.50% of the average daily net
assets over $100 million to $500 million; and 0.40% of the average daily net
assets in excess of $500 million. At June 30, 1996, High Yield Fund owed the
Manager $12,803 in investment management fees. Effective July 1, 1995, the
Investment Manager has voluntarily agreed to waive all or a portion of its fees
and reimburse operating expenses of the High Yield Fund, excluding distribution
fees, interest, taxes, brokerage and extraordinary expenses, so that total
operating expenses do not exceed 1.00% for Class A, 1.75% for Class B and 1.50%
for Class M. This expense limitation will apply until the earlier of December
31, 1996 or until High Yield Fund reaches $50 million in net assets. Government
Securities Income Fund pays the Manager a fee at an annual rate of 0.50% of the
Fund's average daily net assets up to $500 million; 0.45% of the average daily
net assets above $500 million to $1 billion; and 0.40% of the average daily net
assets in excess $1 billion. At June 30, 1996, Government Securities Income Fund
owed the Manager $15,855 in investment management fees. The Manager has agreed
to reimburse the Government Securities Income Fund for all gross operating costs
and expenses of the Fund, excluding any interest, taxes, brokerage commissions,
amortization of organizational expenses, extraordinary expenses, and
distribution fees on Class B and M shares in excess of an annual rate of 0.25%
of the average daily net assets of these classes, exceed 1.50% of the Fund's
average daily net assets on the first $40 million of net assets and 1.00% of
average daily net assets in excess of $40 million for any one fiscal year. At
June 30, 1996, the Government Securities Income Fund accrued $4,083, as a
reimbursement due from the Manager for such excess expenses.
Each of the Funds adopted a Plan pursuant to Rule 12b-1 under the 1940
Act (the "12b-1 Plans"), whereby Pilgrim America Securities, Inc. (the
"Distributor") is reimbursed by the Funds for expenses incurred in the
distribution of each Funds' shares. Pursuant to the 12b-1 Plans, the Distributor
is entitled to reimbursement each month for actual expenses incurred in the
distribution and promotion of each Fund's shares, including the printing of
prospectuses and reports used for sales purposes, expenses of preparation and
printing of sales literature and other such distribution related expenses,
including any distribution or service fees paid to securities dealers who have
executed a distribution agreement with the Distributor.
Under separate plans of distribution pertaining to the Class A, Class
B and Class M shares, each class of shares of the Fund pays the Distributor at
an annual rate of 0.30% of the average daily net assets of Class A for MagnaCap
Fund and 0.25% of the average daily net assets of Class A for High Yield Fund,
and Government Securities Income Fund. MagnaCap Fund, High Yield Fund and
Government Securities Income Fund pay an annual rate of 1.00% and 0.75% of the
average daily net assets of Class B and Class M shares, respectively. At June
30, 1996 MagnaCap Fund, High Yield Fund and Government Securities Income Fund
owed the Distributor $67,407, $5,813 and $7,969, respectively in 12b-1
distribution fees.
30
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1996
- --------------------------------------------------------------------------------
(3) INVESTMENT TRANSACTIONS
For the year ended June 30, 1996, the cost of purchases and proceeds from
the sales of securities, excluding short-term securities, were as follows:
MagnaCap High Yield Government Securities
Fund Fund Income Fund
-------------------------------------------------------
U.S. Government
Obligations:
Purchases...... $ --- $ --- $68,523,034
Sales.......... --- --- $68,131,552
Other Securities:
Purchases...... $34,411,512 $58,467,428 $ ---
Sales.......... $42,181,684 $53,113,186 $ ---
(4) CAPITAL SHARES
Transactions in capital shares and dollars were as follows:
<TABLE>
<CAPTION>
Class A Class B Class M
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, 1996 June 30, 1995* June 30, 1996 June 30, 1995* June 30, 1996 June 30, 1995*
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
MagnaCap Fund (Shares)
Shares sold 3,769,994 4,719,181 641,789 130,015
------ ------
Shares issued as
reinvestments of
dividends 222,032 742,767 1,560 221
------ ------
Shares redeemed (4,943,794) (5,807,413) (9,792) (12,303)
----------- ----------- ------- ------ -------- ------
Net increase (decrease) in
shares outstanding (951,768) (345,465) 633,557 117,933
========= ========= ======= ------ ======= ------
MagnaCap Fund (Dollars)
Shares sold $58,716,766 $59,504,866 $10,409,316 $2,107,802
------ ------
Shares issued as
reinvestments of
dividends 3,447,447 8,917,296 24,690 3,503
------ ------
Shares redeemed (76,979,255) (73,653,833) (160,454) (192,360)
------------ ------------ --------- ------ --------- ------
Net increase (decrease) in
shares outstanding ($14,815,042) $(5,231,671) $10,273,552 $1,918,945
============= ============ =========== ------ ========== ------
High Yield Fund (Shares)
Shares sold 667,265 232,390 391,688 198,769
------ ------
Shares issued as
reinvestments of
dividends 94,111 69,912 3,272 1,190
------ ------
Shares redeemed (416,380) (407,085) (21,435) (4,452)
--------- --------- -------- ------ ------- ------
Net increase (decrease) in
shares outstanding 344,996 (104,783) 373,525 195,507
======= ========= ======= ------ ======= ------
High Yield Fund (Dollars)
Shares sold $4,248,850 $1,369,139 $2,485,160 $1,258,182
------ ------
Shares issued as
reinvestments of
dividends 589,405 412,294 20,744 7,527
------ ------
Shares redeemed (2,637,070) (2,423,514) (135,908) (28,299)
----------- ----------- --------- ------ -------- ------
Net increase (decrease) in
shares outstanding $2,201,185 $(642,081) $2,369,996 $1,237,410
========== ========== ========== ------ ========== ------
</TABLE>
31
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class M
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, 1996 June 30, 1995* June 30, 1996 June 30, 1995* June 30, 1996 June 30, 1995*
------------- -------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Government Securities
Income Fund (Shares)
Shares sold 368,928 83,488 5,776 1,862
------ ------
Shares issued as
reinvestments of
dividends 76,541 87,642 23 10
------ ------
Shares redeemed (731,172) (1,608,644)
----------- ----------- ------- ------ -------- ------
Net increase (decrease) in
shares outstanding (285,703) (1,437,514) 5,799 1,872
--------- --------- ------- ------ ------- ------
Government Securities
Income Fund (Dollars)
Shares sold $4,712,654 $1,046,472 $73,517 $23,517
------ ------
Shares issued as
reinvestments of
dividends 985,290 1,097,278 292 119
------ ------
Shares redeemed (9,391,713) (20,207,240)
------------ ------------ --------- ------ --------- ------
Net increase (decrease) in
shares outstanding $(3,693,769) (18,063,490) $73,809 $23,636
------------- ------------ ----------- ------ ---------- ------
</TABLE>
*For High Yield Fund for the eight months ended June 30, 1995
(5) CUSTODIAL AGREEMENT
Investors Fiduciary Trust Company (IFTC) serves as the Funds' custodian and
recordkeeper. Custody fees paid to IFTC are reduced by an earnings credit
based on the cash balances held by IFTC for each of the Funds. For the year
ended June 30, 1996, MagnaCap Fund, High Yield Fund and Government Securities
Income Fund received earnings credits of $2,161, $993 and $1,532, respectively.
(6) SUBSEQUENT EVENTS
Subsequent to June 30, 1996 MagnaCap Fund declared a dividend from net
investment income of $0.0943, $0, and $0.0303 for Classes A, B and M,
respectively payable on August 20, 1996 to shareholders of record on July 31,
1996. High Yield Fund declared a dividend from net investment income of
$0.0500, $0.0466 for Classes A, B and M, respectively payable on July 15, 1996.
Government Securities Income Fund declared a dividend from net investment income
of $0.0645, $0.0588 and $0.0592 for Classes A, B and M, respectively payable on
July 15, 1996 to shareholders of record on June 28, 1996.
32
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
as of June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS: 98.3%
Market
Shares Value
------ ------
<C> <S> <C>
Banks: 1.1%
73,000 CoreStates Financial Corp............................. $2,810,500
-----------
Chemicals: 4.5%
140,000 DuPont, (E.I.) DeNemours & Co......................... 11,077,500
-----------
Chemicals-Diversified: 5.0%
10,000 Millipore Corp........................................ 418,750
226,600 PPG Industries, Inc................................... 11,046,750
40,000 Pall Corp............................................. 965,000
-----------
12,430,500
-----------
Computer Software & Services: 9.3%
428,000 Automatic Data Processing, Inc........................ 16,531,500
132,900 Diebold, Inc.......................................... 6,412,425
-----------
22,943,925
-----------
Computer Systems: 3.9%
180,000 Electronic Data Systems Corp.......................... 9,675,000
-----------
Cosmetics: 4.0%
205,400 International Flavors & Fragrances, Inc............... 9,782,175
-----------
Defense: 0.6%
110,000 Loral Space & Communications.......................... 1,498,750
-----------
Drugs: 0.1%
2,200 Bristol-Myers Squibb Co............................... 198,000
-----------
Drugstores: 3.4%
285,000 Rite Aid Corp......................................... 8,478,750
-----------
Electrical Equipment: 10.5%
80,000 AMP, Inc.............................................. 3,210,000
150,000 General Electric Co................................... 12,975,000
149,100 Hubbell, Inc.......................................... 9,877,875
-----------
26,062,875
-----------
</TABLE>
See Accompanying Notes to Financial Statements
33
<PAGE>
Pilgrim America MagnaCap Fund
PORTFOLIO OF INVESTMENTS (Continued)
as of June 30, 1996
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
Food & Beverages: 1.8%
30,000 Heinz (H.J.) Co........................ $ 911,250
10,000 Hershey Foods Corp..................... 733,750
40,000 Kellogg Co............................. 2,930,000
------------
4,575,000
------------
Foods: 2.0%
150,000 Sara Lee Corp.......................... 4,856,250
------------
Healthcare: 1.0%
50,000 Abbott Laboratories.................... 2,175,000
10,000 Hillenbrand Industries................. 372,500
------------
2,547,500
------------
Housewares: 0.7%
60,000 Rubbermaid, Inc........................ 1,635,000
------------
Insurance: 8.1%
587,500 AFLAC, Inc............................. 17,551,563
41,200 UNUM Corp.............................. 2,564,700
------------
20,116,263
------------
Leisure: 1.9%
238,600 Brunswick Corp......................... 4,772,000
------------
Machinery & Equipment: 1.9%
100,000 Dover Corp............................. 4,612,500
------------
Metals & Minerals: 0.6%
20,000 Illinois Tool Works.................... 1,352,500
------------
Office Products & Services: 0.3%
15,000 Avery Dennison Corp.................... 823,125
------------
Oil-International Integrated: 9.9%
260,000 Chevron Corp........................... 15,340,000
60,000 Royal Dutch Petroleum Co............... 9,225,000
------------
24,565,000
------------
Oil Well Equipment & Services: 5.9%
174,500 Schlumberger Ltd....................... 14,701,625
------------
</TABLE>
See Accompanying Notes to Financial Statements
34
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
as of June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
------ ------
<C> <S> <C>
Paper & Forest Products: 11.7%
213,024 Kimberly-Clark Corp............................................. $ 16,456,104
50,000 Louisiana-Pacific Corp.......................................... 1,106,250
75,900 Mead Corp....................................................... 3,937,312
172,400 Potlatch Corp................................................... 6,745,150
40,750 Wausau Paper Mills Co........................................... 804,813
--------------
29,049,629
--------------
Regional Banks: 4.3%
237,800 Comerica, Inc................................................... 10,611,825
--------------
Restaurants: 5.1%
270,000 McDonalds Corp.................................................. 12,622,500
--------------
Retail: 0.2%
20,000 Wal-Mart Stores, Inc............................................ 507,500
--------------
Savings & Loans: 0.5%
35,000 Charter One Financial, Inc...................................... 1,220,625
--------------
Total Common Stocks (Cost $133,943,582)................. 243,526,817
--------------
</TABLE>
SHORT-TERM INVESTMENTS: 5.6%
<TABLE>
<CAPTION>
Principal
Amount Value
------ -----
<C> <S> <C> <C>
Commercial Paper: 5.6%
$14,032,000 Raytheon Commercial Paper, 5.53% due 07/01/96................... $ 14,032,000
--------------
Total Short-Term Investments (Cost $14,032,000)......... 14,032,000
--------------
Total Investments (Cost $147,975,582)* ............. 103.9% 257,558,817
Liabilities in Excess of Cash and Other Assets-Net.. (3.9) (9,695,633)
-------- --------------
Total Net Assets............................ 100.0% $247,863,184
======= ==============
</TABLE>
- ----------------------------------
* Cost for federal income tax purposes is $147,982,836. Net unrealized
appreciation consists of:
<TABLE>
<S> <C>
Gross Unrealized Appreciation................................................ $110,360,988
Gross Unrealized Depreciation................................................ (785,007)
--------------
Net Unrealized Appreciation.......................................... $109,575,981
==============
</TABLE>
See Accompanying Notes to Financial Statements
35
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
as of June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE BONDS: 94.5%
Principal Market
Amount Value
------ ------
<C> <S> <C>
Automotive: 3.2%
$760,000 Harvard Industries, 11.125% due August 2005............... $ 722,000
----------
Broadcasting: 6.7%
750,000(a) Park Broadcasting, Inc., 11.750% due May 2004............. 750,000
750,000(a) SFX Broadcasting, 10.750% due May 2006.................... 745,313
----------
1,495,313
----------
Business Services: 3.5%
750,000(a) Unisys Corp., 12.000% due April 2003...................... 768,750
----------
Chemicals: 1.1%
250,000(a) Texas Petrochemical Corp., 11.125% due July 2006.......... 253,750
----------
Communications: 4.6%
500,000(a) IXC Communications, 13.000% due October 2005.............. 523,750
500,000 Teleport Communications, 9.875% due July 2006............. 500,000
----------
1,023,750
----------
Consumer Products: 2.3%
500,000 Revlon Consumer Products Corp., 10.500% due February 2003. 503,750
----------
Gaming: 15.5%
750,000 Alliance Gaming, 12.875% due June 2003.................... 747,188
500,000(a) Coast Hotels and Casinos, Inc., 13.000% due December 2003. 545,000
500,000 Harvey Casinos Resorts, 10.625% due June 2006............. 505,000
750,000 President Casinos, 13.000% due September 2001............. 622,500
500,000(a) Showboat Marina Casino, 13.500% due March 2003............ 544,375
500,000 Trump Atlantic City, 11.250% due May 2006................. 503,750
----------
3,467,813
----------
Manufacturing: 2.1%
500,000 Jordan Industries, 10.375% due August 2003................ 477,500
----------
Media & Entertainment: 15.1%
500,000 Adelphia Communications, 12.500% due May 2002............. 498,750
750,000 CAI Wireless Systems, Inc., 12.250% due September 2002.... 785,625
500,000 CF Cable TV, Inc., 11.625% due February 2005.............. 548,750
</TABLE>
See Accompanying Notes to Financial Statements
36
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
as of June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
------ ------
<C> <S> <C>
Media & Entertainment (continued)
$500,000 Galaxy Telecom, 12.375% due October 2005..................... $520,000
500,000 Rifkin Acquisition, 11.125% due January 2006................. 490,000
500,000 Wireless One, Inc., 13.000% due October 2003................. 520,000
------------
3,363,125
------------
Metals & Minerals: 4.5%
500,000 Haynes International, Inc., 13.500% due August 1999.......... 507,500
500,000 Renco Metals, Inc., 11.500% due July 2003.................... 503,750
------------
1,011,250
------------
Office Products & Services: 5.9%
750,000(a) National Fiberstock Corp., 11.625% due June 2002............. 750,000
500,000(a) Williamhouse Regency, 13.000% due November 2005.............. 568,750
------------
1,318,750
------------
Oil & Gas: 4.4%
500,000 Petroleum Heat & Power, 9.375% due February 2006............. 475,000
500,000(a) Plains Resources, Inc., 10.250% due March 2006............... 495,625
------------
970,625
------------
Paper & Forest Products: 2.2%
500,000 Pacific Lumber, 10.500% due March 2003....................... 487,500
------------
Pollution Control: 3.5%
750,000(a) Norcal Waste Systems, 12.750% due November 2005.............. 783,750
------------
Retail: 4.6%
500,000(a) Guitar Center Management, 11.000% due July 2006.............. 507,500
500,000 Hines Horticulture Series B, 11.750% due October 2005........ 520,000
------------
1,027,500
------------
Steel: 4.5%
500,000 Ryerson Tull, Inc., 8.500% due July 2001..................... 499,375
500,000(a) Weirton Steel Corp., 11.375% due July 2004................... 496,250
------------
995,625
------------
Supermarkets: 10.8%
500,000 Brunos, Inc., 10.500% due August 2005........................ 494,375
500,000 DiGiorgio Corp., 12.000% due February 2003................... 475,000
750,000 Eagle Food Center, 8.625% due April 2000..................... 675,000
750,000 Jitney-Jungle Stores, 12.000% due March 2006................. 765,937
------------
2,410,312
------------
Total Corporate Bonds (Cost $20,749,205)............. 21,081,063
------------
</TABLE>
See Accompanying Notes to Financial Statements
37
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
as of June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WARRANTS: 0.0%
Market
Shares Value
------ ------
<C> <S> <C>
Media & Entertainment: 0.0%
1,500(b) Wireless One Inc.,-Warrants............................................ $ 10,500
------------
Total Warrants (Cost $6,371)................................... 10,500
------------
Total Corporate Bonds and Warrants (Cost $20,755,576).......... 21,091,563
------------
</TABLE>
SHORT-TERM INVESTMENTS: 16.2%
<TABLE>
<CAPTION>
Principal
Amount Value
------ -----
<C> <S> <C> <C>
Commercial Paper: 16.2%
$3,609,000 Raytheon Commerical Paper, 5.530% due 07/01/96......................... 3,609,000
------------
Total Short-Term Investments (Cost $3,609,000)................. 3,609,000
------------
Total Investments (Cost $24,364,576)* .................. 110.7% 24,700,563
Liabilities in Excess of Cash and Other Assets-Net...... (10.7) (2,392,695)
-------- ------------
Total Net Assets................................ 100.0% 22,307,868
======== ============
</TABLE>
- ----------------------------------
(a) Issues designated 144A.
(b) Non-income producing security.
* Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized appreciation consists of:
<TABLE>
<S> <C>
Gross Unrealized Appreciation.................................................. $ 446,787
Gross Unrealized Depreciation.................................................. (110,800)
------------
Net Unrealized Appreciation............................................ $ 335,987
============
</TABLE>
See Accompanying Notes to Financial Statements
38
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
as of June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES: 98.1%
Principal Market
Amount Rate Maturity Value
------ ---- -------- -----
<C> <S> <C> <C> <C>
Federal Home Loan Mortgage Corporation: 15.4%
$1,929,970 Federal Home Loan Mortgage Corporation............... 6.500% 2025 $ 1,808,209
3,455,362 Federal Home Loan Mortgage Corporation............... 7.000% 2025 to 2026 3,328,481
375,121 Federal Home Loan Mortgage Corporation............... 8.750% 2009 389,012
456,492 Federal Home Loan Mortgage Corporation............... 9.000% 2011 473,611
-----------
5,999,313
-----------
Federal Housing Authority Project Loan: 4.2%
1,695,205 Federal Housing Authority Project Loan............... 7.625% 2028 1,629,516
-----------
Federal National Mortgage Association: 25.7%
4,690,647 Federal National Mortgage Association................ 8.500% 2017 to 2021 4,858,229
705,159 Federal National Mortgage Association................ 9.000% 2025 736,200
731,010 Federal National Mortgage Association................ 10.000% 2006 773,496
2,581,551 Federal National Mortgage Association................ 11.500% 2019 2,909,872
586,197(a) Federal National Mortgage Association................ 13.000% 2020 691,712
-----------
9,969,509
-----------
Government National Mortgage Association: 27.3%
958,503 Government National Mortgage Association............. 7.500% 2023 945,582
4,199,184 Government National Mortgage Association............. 8.000% 2022 to 2024 4,254,298
1,484,674 Government National Mortgage Association............. 8.250% 2016 1,523,647
2,590,603 Government National Mortgage Association............. 9.000% 2013 to 2022 2,749,251
483,410 Government National Mortgage Association............. 9.500% 2016 516,192
315,536 Government National Mortgage Association............. 11.000% 2016 352,905
230,831 Government National Mortgage Association............. 11.750% 2015 267,402
-----------
10,609,277
-----------
U.S. Treasury Securities: 25.5%
1,000,000 U.S. Treasury Notes.................................. 5.875% 2005 942,030
1,000,000 U.S. Treasury Bonds.................................. 6.000% 2026 886,720
3,000,000 U.S. Treasury Bonds.................................. 10.375% 2009 3,668,910
3,500,000 U.S. Treasury Bonds.................................. 10.750% 2003 to 2005 4,398,985
-----------
9,896,645
-----------
Total U.S. Government Securities (Cost $38,430,605)............................... 38,104,260
-----------
Total Investments (Cost $38,430,605)* 98.1% 38,104,260
Cash and Other Assets in Excess of Liabilities-Net 190.0% 745,849
-------- -----------
Total Net Assets 100.0% $38,850,109
======== ===========
</TABLE>
- --------------------
(a) Represents a security purchased on a when-issued basis, the cost of which is
$691,712.
* Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized depreciation consists of:
<TABLE>
<S> <C>
Gross Unrealized Appreciation................................................................ $ 243,375
Gross Unrealized Depreciation................................................................ (569,720)
------------
Net Unrealized Depreciation $ (326,345)
============
</TABLE>
See Notes to Accompanying Financial Statements
39
<PAGE>
Pilgrim America Elite Series
TAX INFORMATION (Unaudited)
The Funds are required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise you within 60 days of the Funds' fiscal year end (June 30,
1996) as to the federal tax status of distributions received by the Funds'
shareholders. Accordingly, the Funds are hereby advising you that the following
dividends were declared during the year ended June 30, 1996.
<TABLE>
<CAPTION>
PILGRIM AMERICA PILGRIM AMERICA PILGRIM GOVERNMENT
Per Share Data: MAGNACAP FUND High Yield Fund Securities Income Fund
- --------------- ------------- --------------- ----------------------
<S> <C> <C> <C>
Ordinary income:
Class A $0.0614 $0.5415 $0.8070
Class B $0.0614 $0.4609 $0.6499
Class M $0.0614 $0.4790 $0.6847
Long-term capital gains * $0.2443 -
</TABLE>
* Amounts apply to all classes
Corporate shareholders, if certain requirements are met, are generally entitled
to take the dividend received deduction on the portion of the Funds' dividend
distribution that qualifies under tax law. The percentage of the Funds' fiscal
year 1996 net investment income dividends that qualify for the corporate
dividend received deductions is 99.33%, 0% and 0% for MagnaCap Fund, High Yield
Fund and Government Securities Income Fund, respectively.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investments in the Funds. In January 1997,
shareholders (excluding corporate shareholders) will receive an IRS Form 1099
DIV regarding the federal tax status of the dividends and distributions received
by you in calendar year 1996.
40
<PAGE>
Pilgrim America
Funds
<TABLE>
<S> <C>
INVESTMENT MANAGER CUSTODIAN
Pilgrim America Investments, Inc. Investors Fiduciary Trust Company
Two Renaissance Square 127 West 10th Street
40 North Central Avenue, Suite 1200 14th Floor
Phoenix, Arizona 85004 Kansas City, Missouri 64105
DISTRIBUTOR LEGAL COUNSEL
Pilgrim America Securities, Inc. Dechert Price & Rhoads
Two Renaissance Square 1500 K Street, N.W.
40 North Central Avenue, Suite 1200 Washington, D.C. 20005
Phoenix, Arizona 85004
1-800-334-3444
SHAREHOLDER SERVICING AGENT INDEPENDENT AUDITORS
Pilgrim America Group, Inc. KPMG Peat Marwick LLP
Two Renaissance Square 725 South Figueroa Street
40 North Central Avenue, Suite 1200 Los Angeles, California 90017
Phoenix, Arizona 85004
1-800-331-1080
TRANSFER AGENT This report and the financial statements
contained herein are submitted for the
Investors Fiduciary Trust Company general information of the shareholders of
c/o DST Systems, Inc. the Funds. This report is not authorized
P.O. Box 419541 for distribution to prospective investors
Kansas City, Missouri 64141 in the Fund unless preceded or accompa-
nied by an effective prospectus.
</TABLE>
Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004 1-800-331-1080
<PAGE>
=================================
Pilgrim America Funds
MASTERS SERIES
--------------
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
ELITE SERIES
------------
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
=================================
Pilgrim America
Funds
"Our goal is for every investor to have a successful investment experience."
Prospectuses containing more complete information regarding the Funds, including
charges and expenses, may be obtained by calling Pilgrim America Securities,
Inc. Distributor at 1-800-334-3444. Please read the prospectuses carefully
before you invest or send your money.
22-SS-073096 082996
