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Pilgrim America
Funds
Elite Series
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Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
Annual Report
June 30, 1997
[LOGO]
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Pilgrim America
Funds
Elite Series
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ANNUAL REPORT
June 30, 1997
Table of Contents
Chairman's Message ........................................................ 4
Portfolio Managers' Reports:
Pilgrim America MagnaCap Fund ........................................ 5
Pilgrim America High Yield Fund ...................................... 10
Pilgrim Government Securities Income Fund ............................ 15
Report of Independent Auditors ............................................ 20
Statements of Assets and Liabilities ...................................... 21
Statements of Operations .................................................. 22
Statements of Changes in Net Assets ....................................... 23
Financial Highlights ...................................................... 24
Notes to Financial Statements ............................................. 27
Portfolios of Investments:
Pilgrim America MagnaCap Fund ........................................ 32
Pilgrim America High Yield Fund ...................................... 35
Pilgrim Government Securities Income Fund ............................ 39
Tax Information ........................................................... 41
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Pilgrim America Elite Series
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CHAIRMAN'S MESSAGE
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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 fiscal year ended June 30, 1997, 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 20, 1997
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Pilgrim America MagnaCap Fund
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PORTFOLIO MANAGER'S REPORT
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Dear Shareholder:
In our last Semi-Annual Report, we reported that Pilgrim America MagnaCap Fund
(the "Fund") had another good year in 1996. Eighteen years ago, the Fund
initiated its disciplined investment philosophy and 1996 marked the 17th year in
the last 18 that the Fund produced a positive return. We are very pleased to
report that the Fund continues to deliver for its shareholders in 1997. For the
year ended June 30, 1997, the Fund provided a total return of 30.8%(1) compared
to the Standard & Poor's 500 Index ("S&P 500 Index") - - a common proxy for the
U.S. stock market - - which gained 34.7% for the same period. For the six months
ended June 30, 1997, the Fund was up 16.4%(1), compared to the S&P 500 Index
which gained 20.6% for the same period. The Fund has had a positive year to date
return every market day since the dividend ex-date on January 2, 1997(1). This
is in contrast to the Dow Jones Industrial Average ("Dow") which briefly had a
negative year to date return during the March - April market decline. The Fund's
Class A average annual total returns for the five and ten year periods ended
June 30, 1997 were 17.7% and 12.8%, respectively.(1)
A $10,000 investment in Class A shares of the Fund on January 1, 1979, the year
in which the Fund adopted its disciplined investment philosophy, would have
grown to $158,990 as of June 30, 1997, after deduction of the maximum 5.75%
sales charge and assuming the reinvestment of all dividend and capital gain
distributions. The net asset value of Class A shares of the Fund was $15.92 on
June 30, 1997, which represents a $0.77 or 4.6% decrease from the net asset
value of $16.69 on June 30, 1996. This decrease is due in part to the $4.912 per
share capital gain distribution paid to shareholders in January, 1997.
GENERAL ECONOMIC AND EQUITY MARKET ENVIRONMENT
At the beginning of the second quarter of this year investors were worried about
a major market correction. The equity market was declining rapidly, possibly
heading toward its worst setback since 1990. Then the market stormed back and in
the second quarter the Dow gained 16.5 percent, its largest second quarter gain
since 1938, and the fifth largest gain for any quarter since the end of World
War II. At the end of the second quarter, the Dow was at 7672.8, about 1,200
points ahead of where it began the year. It has now risen 10 consecutive
quarters for the first time since the early 1950's. At the beginning of the year
many people were apprehensive because we had two consecutive good years.(2)
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Pilgrim America MagnaCap Fund
All the major stock indexes have set records this year. And the Dow has already
set 28 new closing highs. In all of last year, it reached a new high 44 times.
But this year's gains have been accompanied by volatility and steep downturns.
The Dow has had 18 closings with moves of more than 100 points and the sharpest
decline in more than six years - a four week drop of 9.8 percent for the period
ended on April 11.(2)
The economic environment has been characterized by stronger than expected
growth, lower than expected inflationary pressure and high profit margins.
Interest rates are stable, and the price of gold - traditionally seen as a key
indicator of coming inflation - has hit a four year low.(2)
PILGRIM AMERICA MAGNACAP FUND
As a disciplined investment philosophy fund, MagnaCap invests in a very select
group of companies that have been able to sustain growth over a 10-year period.
In selecting portfolio securities, companies are assessed with reference to the
following criteria as ideal:
1. Consistent dividend increases in at least eight of the past ten years, with
no year showing a decrease.
2. A dividend rate increase of at least 100% over the past ten years.
3. Dividend payout less than 65% of current earnings.
4. Long-term debt less than 25% of total capitalization.
5. The current price of the company's stock in the lower half of the stock's
price/earnings ratio range for the past ten years.
We believe that the Fund's success can be attributed to the very explicit
investment criteria which normally determine the kinds of companies that qualify
for inclusion in the portfolio. Out of a universe of approximately 4,000
publicly traded companies and based upon both in-house and external research, we
aim to select the 40 to 50 equities which we believe will be most likely to
exhibit a high degree of performance.
Going forward, we will continue to employ a "bottom-up" approach to stock
selection, drawing from the pool of companies that come closest to meeting the
Fund's strict investment criteria given market conditions, and circumstances of
the company and of the sector within which it falls. The bull market in U.S.
stocks is in its seventh year. It has been firmly based on extraordinary changes
in the economy that have given us one of the longest economic expansions in U.S.
history. This bull market has been one of the best in U.S. history and we
believe it is likely to continue for several reasons. First, the economic
expansion that has propelled stock prices higher has been one of the most
durable. It has been accompanied by mild inflation, job creation and
high-quality profit growth. Second, the current economic and market cycles have
Pilgrim America Funds
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Pilgrim America MagnaCap Fund
benefited from several long-term structural changes. These include an increase
in the nation's savings rate and a notable reduction in the government's budget
deficit. There has also been a shift to a more sophisticated, technology driven
private sector that has spurred wide-spread productivity gains, and this offers
new opportunities for growth and jobs. Most bull markets end when stocks are
overpriced. However, it has traditionally been extremely difficult to identify
the degree of overpricing at which any particular bull-market will end. We
believe stock prices can continue to rise selectively in 1997 in concert with
improvements in corporate earnings and cash flows. Accordingly, we intend to
remain almost fully invested, selecting stocks on the basis described at the
beginning of this paragraph.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost-effective way to acquire
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic reinvestment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box
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 Investments, Inc.
/s/ Carl Dorf, C.F.A.
- -------------------------
Carl Dorf, C.F.A.
Senior Vice President and Senior Portfolio Manager
Pilgrim America Investments, Inc.
/s/ G. David Underwood
- -------------------------------
G. David Underwood
Vice President and Director of Research
Pilgrim America Investments, Inc.
See Footnotes on page 9.
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Pilgrim America MagnaCap Fund
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COMPARISON OF A $10,000 INVESTMENT
JUNE 30, 1997
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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 500 Index"). Note that the S&P 500 Index has inherent performance
advantages over any fund since it has no cash in its portfolio, imposes no sales
charges and incurs no operating expenses. An investor cannot invest in an index.
The Fund's performance reflected below assumes the deduction of the Class A
maximum sales charge in all cases.
[CHART]
Growth of a $10,000 Investment
All returns assume reinvestment of all dividends and distributions.
PLOT POINTS
MagnaCap Fund A S&P 500 Index
--------------- -------------
6/30/87 9,421 10,000
6/30/88 8,815 9,309
6/30/89 10,320 11,216
6/30/90 11,748 13,062
6/30/91 12,360 14,027
6/30/92 13,835 15,905
6/30/93 14,972 18,069
6/30/94 16,338 18,323
6/30/95 19,705 23,094
6/30/96 23,904 29,095
6/30/97 31,271 39,188
SEC Average Annual Total Returns
as of June 30, 1997
- -----------------------------------------------
1 Year 5 Years 10 Years
------ ------- --------
MagnaCap Fund A 23.28% 16.33% 12.08%
S&P 500 Index 34.70% 19.78% 14.64%
Ending Redeemable Value
as of June 30, 1997
- ------------------------------
MagnaCap Fund A $31,271
S&P 500 Index $39,188
See Footnotes on page 9.
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Pilgrim America MagnaCap Fund
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FOOTNOTES
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(1) Excluding the Class A maximum 5.75% sales charge and assuming reinvestment
of all dividends and distributions. Total returns for the one, five and ten
year periods ended June 30, 1997 including the maximum sales charge and
assuming reinvestment of all dividends and distributions were 23.28%,
16.33%, and 12.08%, respectively.
Performance figures shown pertain only to Class A shares of the Fund. Total
returns for Class B and M shares, excluding sales charges for the year
ended June 30, 1997 were 29.92%, and 30.26%, respectively.
Total returns for Class B and M shares, including the applicable contingent
deferred sales charge of 5.00% (Class B shares only) or the maximum sales
charge of 3.50% (Class M shares only) for the year ended June 30, 1997 were
24.90% and 25.72%, respectively.
(2) Source: The New York Times, July 1, 1997.
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.
This letter contains statements that may be "forward-looking statements". Actual
results could differ materially from those projected in the "forward-looking
statements".
The views expressed in this report reflect those of the portfolio managers 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.
Pilgrim America Funds
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Pilgrim America High Yield Fund
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PORTFOLIO MANAGER'S REPORT
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Dear Shareholder:
It is our pleasure to share with you the results of operations for Pilgrim
America High Yield Fund ("the Fund") for the year ended June 30, 1997.
Continued strong economic growth and a relatively low rate of inflation have
helped high yield assets perform well during the last twelve months. Your Fund
performed admirably for the fiscal year ending June 30, 1997, with a total
return of 17.14%.(1) This compares favorably to the Lipper High Current Yield
average of 14.77% for the same time period. Your Fund ranked 22 of 163
comparable funds in the high current yield category, ranking your Fund in the
top quartile for the one year period ended June 30, 1997.(2)(3)(4)
GENERAL ECONOMIC AND MARKET ENVIRONMENT
During the twelve month period ended June 30, 1997, Federal Reserve ("Fed")
policy has remained relatively stable. During this time the Fed raised the
Federal Funds target rate once, from 5.25% to 5.50%, on March 25, 1997. This was
done as the committee feared a pickup in inflationary forces, primarily relating
to employment costs. The Fed was also not happy with the soaring stock market
which, they believed, was leading to too much speculation in the domestic
financial markets. As it turned out, by the end of the Funds fiscal year, the
stock market continued to trend even higher after a temporary pullback, and the
Fed became more complacent about inflationary threats to the economy, leaving
monetary policy unchanged.
Most high yield issuers borrow in both the fixed and variable rate debt markets.
While the Fund invests in the fixed rate debt of issuers, it is important to
monitor changes in short-term, or variable rates, for potential changes in
creditworthiness. The two rates most commonly used are LIBOR, or the London
Interbank Offered Rate, and the Prime Rate. Both rates ended up slightly higher
for the last fiscal year. Three month LIBOR began the period at 5.58%, averaged
5.63%, and ended the period at 5.78%. The Prime Rate began the period at 8.25%,
and as a direct response to the Fed tightening in March, ended up 25 basis
points at 8.50%.
Long term interest rates, as measured by the yield on the 30 year treasury bond,
gyrated up and down for the last twelve months. The yield was 6.87% at the
beginning of the fiscal year, reached as high as 7.19% in July of 1996, and as
low as 6.35% in November of 1996, and ended the fiscal year at 6.79%. The
average yield for the period was 6.83%. Interestingly, as the fixed income
markets have become more comfortable with a low inflation and a steady economic
growth outlook, bond yields have continued to fall into the new fiscal year. As
of this writing, the low for the new fiscal year is approximately 6.30%.
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Pilgrim America High Yield Fund
HIGH YIELD MARKET
The high yield market has been very healthy for the last twelve months. Spreads
have continued to tighten as the economy performs well and inflation stays under
control. New issue volume continues at a record pace. Finally, default rates
have fallen and remain extremely low.
High yield new issuance has risen dramatically in the first six months of 1997.
Issuance in the first half of 1997 was $69.6 billion totaling 318 issues. By
comparison, 1996 issuance was a record $78.9 billion and totaled 410 issues for
the full calendar year. Clearly, the pace that has been set by the market in the
first six months of the year puts 1997 on track for record new issuance.
Spreads have narrowed 78 basis points in the last twelve months from 417 basis
points off Treasuries to 339 basis points. The yield on the Credit Suisse First
Boston High Yield Index has fallen 91 basis points from 10.67% to 9.76% in the
same time period. This has occurred as market participants have become
increasingly comfortable with cash flow and profitability projections from the
issuers and analysts on Wall Street.
As might be expected with a growing economy, the default rates on high yield
debt have fallen to low levels. The trailing twelve month default rate based on
principal and calculated by Moody's, was at 1.69% at the end of the Fund's
fiscal year. The rate was 2.40% at the beginning of the fiscal year. Default
rates have been trending down both because the healthy economy has helped
companies and banks have worked with issuers when there are credit problems.
PILGRIM AMERICA HIGH YIELD FUND
Industry weightings in the Fund have remained relatively unchanged recently as
the Fund's management is comfortable with the total return prospects for the
current holdings. The three largest industry holdings are Communications, Media
& Entertainment, and Gaming. Each of these sectors represents an opportunity to
outperform based on prospects for above market average growth in revenues and
cash flow. Communications, in particular, has represented a disproportionally
high amount of new issuance in the high yield market in 1997 as a result of
telecommunications deregulation. Opportunities have arisen for new competitors
to enter the local and long distance telephone markets as well as newer forms of
wireless communications. One of the primary vehicles for financing this
expansion and growth is the high yield market. The Fund's management will
continue to participate in the financing of this sector as it continues to
demonstrate prospects for above average growth.
Low cash positions in the Fund have enhanced performance for the last twelve
months. It has been, and continues to be, the goal of the Fund's management to
maintain an essentially fully invested position. This usually means 0-3% cash,
depending on fund flows and the settlement of purchases and sales. It has been
Pilgrim America Funds
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Pilgrim America High Yield Fund
particularly challenging to keep the Fund invested the last twelve months as its
net assets have grown from $22.3 million at June 30, 1996 to $85.0 million at
June 30, 1997. The strong new issue market and the pricing of that market at
relatively cheaper levels than the secondary market have helped the Fund's
Management both outperform and stay on top of the cash inflows.
The Fund has benefited from the strong economy as it has been primarily invested
in Single-B issues for the last twelve months. These issues have generally
outperformed both better quality Double-B issues as well as the more risky
Triple-C and lower issues. Going forward, the Fund's management is cautious as
both high yield spreads and general equity market valuations have moved to the
rich ends of their respective trading ranges. Increased surveillance of the
credit landscape is a prudent strategy as the market moves forward. In
particular, the amount of leverage and the cash flow coverage of interest are
key credit measurements the Fund's management seeks to track. Any weakening of
these measurements would be cause for concern and motivate a change in the
quality breakdown of the Fund away from Single-B issues, toward the Double-B
sector.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way to acquire
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic investment, please notify your
broker or contact the Transfer Agent, c/o DST Systems Inc., PO Box 419338,
Kansas City, Missouri 64141-6338 or call (800) 992-0180.
Thank you for the opportunity to serve your high yield investment needs. If you
have any questions or comments, please do not hesitate to contact us.
Sincerely,
/s/ Kevin G. Mathews
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Kevin G. Mathews
Vice President and Senior Portfolio Manager
Pilgrim America Investments, Inc.
See Footnotes on page 14.
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Pilgrim America High Yield Fund
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COMPARISON OF A $10,000 INVESTMENT
JUNE 30, 1997
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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 Fund's performance reflected below assumes the
deduction of the Class A maximum sales charge in all cases.
[CHART]
Growth of a $10,000 Investment
The Fund's total returns assume reinvestment of all dividends and distributions.
The Indices' total returns assume reinvestment of interest income.
PLOT POINTS
CS First
High Yield Lehman Boston
Fund A High Yield High Yield
($) ($) ($)
6/30/87 9,521 10,000 10,000
6/30/88 9,965 10,765 11,131
6/30/89 10,732 11,752 12,207
6/30/90 10,338 11,582 11,975
6/30/91 11,219 13,241 13,854
6/30/92 13,816 16,482 17,342
6/30/93 16,080 19,110 20,283
6/30/94 16,773 19,789 21,163
6/30/95 18,388 22,526 23,808
6/30/96 20,727 24,706 26,182
6/30/97 24,281 28,138 30,023
SEC Average Annual Total Returns
as of June 30, 1997
- ------------------------------------------------------------
1 Year 5 Years 10 Years
------ ------- --------
High Yield Fund A 11.53% 10.86% 9.28%
Lehman High Yield Index 13.89% 11.29% 10.90%
CS First Boston H. Y. index 14.67% 11.60% 11.62%
Ending Redeemable Value
as of June 30, 1997
- -------------------------------------
High Yield Fund A $24,281
Lehman High Yield Index $28,138
CS First Boston H. Y. index $30,023
See Footnotes on page 14.
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Pilgrim America High Yield Fund
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FOOTNOTES
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(1) Performance figures shown pertain only to Class A shares of the Fund
excluding the maximum sales charge. The average annual total returns for
the one, five and ten year periods ended June 30, 1997 including the Class
A maximum sales charge of 4.75% were 11.53%, 10.86% and 9.28%,
respectively.
Total returns for Class B and M shares for the year ended June 30, 1997
including the maximum contingent deferred sales charge of 5.00% (Class B
shares only) or the maximum sales charge of 3.25% (Class M shares only) and
assuming reinvestment of all dividends and distributions were 11.00% and
12.57%, respectively. Total returns for Class B and M shares for the year
ended June 30, 1997 excluding sales charges and assuming reinvestment of
all dividends and distributions were 16.04% and 16.29%, respectively.
(2) Lipper Analytical Services, Inc. ranked Class A shares of the Fund for
total return, excluding sales charges and assuming reinvestments of all
dividends and distributions. For the five and ten year periods ended June
30, 1997 the Fund ranked 10 and 23 out of 62 and 45 funds, respectively.
(3) All returns and ratings reflect a partial waiver of fees for the periods
stated. Without such a waiver, returns and ratings would have been lower.
(4) The Lipper High Current Yield average is an average of one year returns for
141 funds in that Lipper category as of June 30, 1997. For the five and ten
year periods ended June 30, 1997, the Lipper High Current Yield Fund
average returns were 11.01% and 9.64% for 62 and 45 funds, respectively.
(5) The CS First Boston High Yield Index and Lehman Brothers High Yield Index
are broad measures of high yield market performance.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed, may be
worth more or less than their original cost. An investment in high yield
securities entails special risks and considerations that are different from or
more pronounced than those involved in higher rated securities, including
greater credit risk.
This letter contains statements that may be "forward-looking statements". Actual
results could differ materially from those projected in the "forward-looking
statements".
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period 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.
Pilgrim America Funds
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Pilgrim Government Securities Income Fund
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PORTFOLIO MANAGER'S REPORT
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Dear Shareholder:
We are pleased to report the results of operations for the Pilgrim Government
Securities Income Fund ("the Fund") for the year ended June 30, 1997. The Fund
performed well given a volatile interest rate environment. As of June 30, 1997,
the Fund's standardized 30-day SEC yield was 4.87%(1). The average annual total
returns for the one, five and ten year periods ended June 30, 1997 assuming the
reinvestment of all dividends and distributions were 7.33%, 5.29%, and 6.91%,
respectively. (1)
GENERAL ECONOMIC AND MARKET ENVIRONMENT
During the last twelve months we have been witness to an unprecedented period of
moderate economic growth and well controlled inflation. This has been the golden
age for investments; what many economist refer to as the "goldilocks economy".
The road we have traveled, however, has been challenging. The thirty year
treasury has traded in a wide range with highs close to 7.20% in July, September
and April; and a low of 6.35% at the end of November. Current economic
conditions have defied classic economic theory; therefore, creating many
skeptics. Economies do not usually move in a straight line; they usually flow
intermediately between recession and recovery. The current recovery, however, is
now going into its seventh year and the previous recession in 1991 lasted only a
year. Even more troubling for the skeptics is the Phillips Curve. The Phillips
Curve simply states that there is a direct relationship between the unemployment
rate and inflation. A decline in the unemployment rate will ultimately cause a
rise in inflation. As of June 1997, the unemployment rate was at 5.0%, only
slightly above May's 4.8%, which was the lowest rate in 23 years. The employment
cost index (a measure of wage inflation) has kept within a moderate range since
early 1995. The employment cost index had risen 2.8% for the twelve-month period
ended June 30, 1997.
MORTGAGE SECURITIES MARKET IN PARTICULAR
In the last twelve months, mortgage returns and prepayment have moved in tandem
with treasury rates. The volatility in interest rates has left a cloud of
uncertainty over future mortgage prepayment rates. This uncertainty makes it a
challenge to forecast future total returns for newly originated mortgages. One
sector of the mortgage market which has seen good, reliable performance over the
last year has been high coupon, well seasoned mortgages. Mortgages originated in
the early 1980's with interest rates of 10% or greater have caught the attention
of many mortgage investors. This increased demand has allowed these
Pilgrim America Funds
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Pilgrim Government Securities Income Fund
securities to outperform treasuries and most other mortgage securities. The Fund
continues to emphasize seasoned mortgages, most of which have high coupons.
ANALYSIS OF THE PILGRIM GOVERNMENT SECURITIES INCOME FUND
The effective duration (a measure of price sensitivity) of the portfolio as of
June 30, 1997 was approximately 4.1, slightly below the Lehman
Government/Mortgage Index and significantly below most other government
securities funds. During most of the second half of 1996, management maintained
a portfolio duration either at or slightly above the benchmark. The effective
duration of the Fund peaked at 4.8 at the end of October. In November, the
decision was made to reduce the portfolio's effective duration based on the
belief that interest rates no longer properly reflected economic and inflation
data. These defensive measures have allowed the Fund to outperform the Lipper
Government Average for the one year period among 177 funds(2). The Fund
continues its ongoing commitment to shareholders by avoiding the risks
associated with exotic derivatives, leverage, as well as futures and options.
For the second half of 1997, we remain skeptical; believing that economic growth
will remain moderate and questioning the tight labor market and its ultimate
impact on inflation. Good economic conditions do not last forever and changes
usually happen when you least expect them. Credit for the current economic
prosperity must be given to the Federal Reserve for a monetary policy which has
maintained a good balance between economic growth and price stability. Looking
forward, the Federal Reserve will take no action on monetary policy as long as
inflation remains under control. As we go to press, the thirty year treasury is
currently trading at approximately 6.65% and the two year treasury just below
5.95%. As stated in our previous letters, forecasting interest rates is not an
exact science but more a measure of assigning probabilities. That being said, we
need to ask ourselves what will cause interest rates to rise significantly above
current levels and what is the probability of that occurring. The current
economic environment of moderate growth and subdued inflation is ideal for
investment grade bonds. Several investment houses in the first half of 1997 have
raised their bond allocation. Given these reasons, a good case can be made for
fixed income securities (and the Pilgrim Government Securities Income Fund)
being attractive at current interest rates.
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.
Pilgrim America Funds
16
<PAGE>
Pilgrim Government Securities Income Fund
Thank you for your continued support, and do not hesitate to contact us with any
comments or questions regarding the Fund.
Sincerely,
/s/ Charles G. Ullerich
- ---------------------------------------
Charles G. Ullerich, C.F.A.
Portfolio Manager
Pilgrim America Investments, Inc.
See Footnotes on page 19.
Pilgrim America Funds
17
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
COMPARISON OF A $10,000 INVESTMENT
JUNE 30, 1997
- --------------------------------------------------------------------------------
Comparison of the Change in Value of a $10,000 Investment in Pilgrim America
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 their
portfolios, impose no sales charges and incur no operating expenses. An investor
cannot invest in an index. The Fund's performance reflected below assumes the
deduction of the Class A maximum sales charge in all cases.
[CHART]
Growth of a $10,000 Investment
PLOT POINTS
Gov't Lehman Lehman Lehman
Securities GNMA Intermediate Treasuries
Income A Index Gov't Index Index
($) ($) ($) ($)
6/30/87 9,528 10,000 10,000 10,000
6/30/88 10,276 10,968 10,752 10,703
6/30/89 11,322 12,310 11,837 12,011
6/30/90 12,059 13,501 12,751 12,829
6/30/91 13,167 15,120 14,095 14,114
6/30/92 14,359 17,221 15,907 16,053
6/30/93 15,769 18,788 17,504 18,140
6/30/94 15,375 18,548 17,471 17,893
6/30/95 16,753 20,866 19,174 20,051
6/30/96 17,312 22,123 20,120 20,947
6/30/97 18,580 24,193 21,518 22,476
The Fund's returns assume reinvestment of all dividends and distributions. The
Indices' returns assume reinvestment of interest income.
SEC Average Annual Total Returns
as of June 30, 1997
- ---------------------------------------------------------------
1 Year 5 Years 10 Years
------ ------- --------
Gov't Sec. Income Fund A 2.22% 4.26% 6.39%
Lehman GNMA Index 9.36% 7.03% 9.24%
Lehman Int. Gov't Index 6.95% 6.23% 7.96%
Lehman Treasuries Index 7.30% 6.96% 8.44%
Ending Redeemable Value
as of June 30, 1997
- ------------------------------------------
Gov't Sec. Income Fund A $18,580
Lehman GNMA Index $24,193
Lehman Int. Gov't Index $21,518
Lehman Treasuries Index $22,476
See Footnotes on Page 19.
Pilgrim America Funds
18
<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 excluding the maximum sales charge. The average annual total returns
for the one, five and ten year periods ended June 30, 1997 including the
Class A maximum sales charge were 2.22%, 4.26% and 6.39%, respectively. The
SEC yields for Class B and M as of June 30, 1997 were 4.30% and 4.42%,
respectively.
Total returns for Class B and M shares for the year ended June 30, 1997
including the maximum contingent deferred sales charge of 5.00% (Class B
shares only) or the maximum sales charge of 3.25% (Class M shares only) and
assuming reinvestment of all dividends and distributions were 1.40% and
3.44%, respectively. Total returns for Class B and M shares excluding sales
charges and assuming reinvestment of all dividends and distributions were
6.38% and 6.88%, respectively, for the year ended June 30, 1997.
The Fund earned income and realized capital gains as a result of entering
into reverse repurchase agreements during the six month period from July to
December, 1992. Therefore, the Fund's performance was higher than it would
have been had the Fund adhered to its 10% borrowing investment restriction.
(2) The 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
different types of holdings in the Fund's portfolio.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed, may be
worth more or less than their original cost.
This letter contains statements that may be "forward-looking statements". Actual
results could differ materially from those results projected in the
"forward-looking statements".
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period 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.
Pilgrim America Funds
19
<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, 1997, and
the related statements of operations for the year then ended, and statements of
changes in net assets for each of the years in the two-year period then ended,
and financial highlights for each of the years in the three-year period then
ended except for Pilgrim America High Yield Fund which is for each of the years
in the two-year period ended June 30, 1997 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, 1997 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 1997, 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, 1997, the results of their operations for the year then ended, the
changes in their net assets for each of the years in the two-year period then
ended and financial highlights for each of the years or periods in the
three-year period then ended in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Los Angeles, CA
August 1, 1997
Pilgrim America Funds
20
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government
MagnaCap High Yield Securities
Fund Fund Income Fund
--------------- --------------- ------------------
<S> <C> <C> <C>
ASSETS:
Investments in securities at market value (Cost $221,755,471
$83,582,586 and $33,485,169, respectively) $ 332,416,800 $ 85,374,375 $ 33,668,999
Cash 9,765 776,010 22,931
Receivables:
Investment securities sold 1,167,049 1,729,062
Dividends and interest 640,285 1,886,946 270,369
Fund shares sold 1,077,379 1,908,585 56,499
Due from affiliate 50,205
Other 59,211
Prepaid expenses 34,533 14,149 8,725
--------------- --------------- ---------------
Total Assets 335,345,811 91,739,332 34,086,734
--------------- --------------- ---------------
LIABILITIES:
Payable for fund shares redeemed 180,445 36,582 14,867
Payable to affiliate 8,800 2,000 14,109
Investment securities purchased 404,101 6,649,400 2,518,083
Other accrued expenses and liabilities 222,593 37,550 45,006
--------------- --------------- ---------------
Total Liabilities 815,939 6,725,532 2,592,065
--------------- --------------- ---------------
NET ASSETS $ 334,529,872 $ 85,013,800 $ 31,494,669
=============== =============== ===============
Net Assets consist of:
Paid-in capital $ 200,147,133 $ 92,996,149 $ 39,659,876
Undistributed (overdistributed) net investment income 1,290,711 553,560 (76,374)
Accumulated net realized gains (losses) on investments 22,430,699 (10,327,698) (8,272,663)
Net unrealized appreciation of investments 110,661,329 1,791,789 183,830
--------------- --------------- ---------------
Net Assets $ 334,529,872 $ 85,013,800 $ 31,494,669
=============== =============== ===============
Class A:
Net assets $ 290,355,244 $ 35,940,124 $ 29,900,102
Shares authorized ($0.10, $0.10 and $0.00 par value, respectively) 80,000,000 80,000,000 1,000,000,000
Shares outstanding 18,238,866 5,287,586 2,352,641
Net asset value and redemption price per share $ 15.92 $ 6.80 $ 12.71
Maximum offering price per share(1) $ 16.89 $ 7.14 $ 13.34
Class B:
Net assets $ 37,426,881 $ 40,225,347 $ 1,534,282
Shares authorized ($0.10, $0.10 and $0.00 par value, respectively) 80,000,000 80,000,000 1,000,000,000
Shares outstanding 2,367,170 5,931,289 120,999
Net asset value, redemption and offering price per share(2) $ 15.81 $ 6.78 $ 12.68
Class M:
Net assets $ 6,747,747 $ 8,848,329 $ 60,285
Shares authorized ($0.10, $0.10 and $0.00 par value, respectively) 40,000,000 40,000,000 1,000,000,000
Shares outstanding 425,282 1,304,123 4,740
Net asset value and redemption price per share $ 15.87 $ 6.78 $ 12.72
Maximum offering price per share(3) $ 16.45 $ 7.01 $ 13.15
</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
21
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government
MagnaCap High Yield Securities
Fund Fund Income Fund
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 686,003 $ 5,026,522 $ 2,455,809
Dividends 5,281,334
------------ ------------ ------------
Total investment income 5,967,337 5,026,522 2,455,809
------------ ------------ ------------
EXPENSES:
Investment management fees 2,157,744 332,032 170,619
Distribution expenses
Class A Shares 778,277 67,333 83,482
Class B Shares 203,011 167,712 6,950
Class M Shares 26,343 33,155 267
Transfer agent and registrar fees 633,837 96,497 95,847
Reports to shareholders 103,765 20,752 10,719
Recordkeeping and pricing fees 89,364 19,282 14,785
Professional fees 78,548 23,190 34,886
Custodian fees 65,470 22,825 27,049
Registration and filing fees 63,482 43,578 32,569
Shareholder servicing fees 47,021 8,644 4,181
Insurance expense 32,655 2,844 5,050
Directors' fees 17,449 2,584 2,371
Miscellaneous expenses 4,786 2,701 1,065
------------ ------------ ------------
Total expenses 4,301,752 843,129 489,840
------------ ------------ ------------
Less:
Waived and reimbursed fees (219,739)
Earnings credits (2,118) (11,934)
------------ ------------ ------------
Net expenses 4,299,634 611,456 489,840
------------ ------------ ------------
Net investment income 1,667,703 4,415,066 1,965,969
------------ ------------ ------------
REALIZED AND UNREALIZED GAINS
(LOSSES) FROM INVESTMENTS:
Net realized gains (losses) from investments 74,330,966 1,037,959 (65,952)
Net change in unrealized appreciation
(depreciation) of investments 1,078,094 1,455,802 510,175
------------ ------------ ------------
Net gain from investments 75,409,060 2,493,761 444,223
------------ ------------ ------------
Net increase in net assets
resulting from operations $ 77,076,763 $ 6,908,827 $ 2,410,192
============ ============ ============
</TABLE>
See Accompanying Notes to Financial Statements
22
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MagnaCap Fund High Yield Fund
---------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Increase in net assets
from operations:
Net investment income $ 1,667,703 $ 1,259,836 $ 4,415,066 $ 1,610,614
Net realized gain (loss)
from investments 74,330,966 25,045,352 1,037,959 733,725
Net change in unrealized
appreciation (depreciation)
of investments 1,078,094 17,314,574 1,455,802 (338,649)
------------- ------------- -------------- -------------
Net increase in net assets
resulting from operations 77,076,763 43,619,762 6,908,827 2,005,690
------------- ------------- -------------- -------------
Distributions
to shareholders:
Net investment income:
Class A shares (1,648,742) (913,179) (2,371,451) (1,398,592)
Class B shares -- (76) (1,291,124) (44,230)
Class M shares (3,788) (11) (353,811) (13,477)
Distributions in excess
of net investment income:
Class A shares -- -- -- --
Class B shares -- -- -- --
Class M shares -- -- -- --
Net realized gains:
Class A shares (67,754,162) (3,522,486) -- --
Class B shares (4,722,175) (24,792) -- --
Class M Shares (802,030) (3,493) -- --
Tax return of capital:
Class A shares -- -- -- --
Class B shares -- -- -- --
Class M shares -- -- -- --
------------- ------------- ------------- -------------
Total distributions (74,930,897) (4,464,037) (4,016,386) (1,456,299)
------------- ------------- ------------- -------------
Capital share transactions:
Net proceeds from sale of shares 140,156,531 71,233,884 78,745,209 7,992,192
Shares resulting from dividend
reinvestment 59,470,837 3,475,640 1,870,419 617,676
Cost of shares redeemed (115,106,546) (77,332,069) (20,802,137) (2,801,277)
------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from capital
share transactions 84,520,822 (2,622,545) 59,813,491 5,808,591
------------- ------------- ------------- -------------
Net increase (decrease) in
net assets 86,666,688 36,533,180 62,705,932 6,357,982
------------- ------------- ------------- -------------
Net assets, beginning of period 247,863,184 211,330,004 22,307,868 15,949,886
------------- ------------- ------------- -------------
Net assets, end of period * $ 334,529,872 $ 247,863,184 $ 85,013,800 $ 22,307,868
============= ============= ============= =============
* Including undistributed
(overdistributed) net
investment income of: $ 1,290,711 $ 1,275,538 $ 553,560 $ 154,880
============= ============= ============= =============
<CAPTION>
Government Securities
Income Fund
-----------------------------
Year Ended Year Ended
June 30, 1997 June 30, 1996
-------------- ------------
<S> <C> <C>
Increase in net assets
from operations:
Net investment income $ 1,965,969 $ 2,426,793
Net realized gain (loss)
from investments (65,952) 341,589
Net change in unrealized
appreciation (depreciation)
of investments 510,175 (1,342,713)
------------ ------------
Net increase in net assets
resulting from operations 2,410,192 1,425,669
------------ ------------
Distributions
to shareholders:
Net investment income:
Class A shares (1,929,871) (2,425,905)
Class B shares (34,226) (766)
Class M shares (1,872) (122)
Distributions in excess
of net investment income:
Class A shares (74,945) --
Class B shares (632) --
Class M shares -- --
Net realized gains:
Class A shares -- --
Class B shares -- --
Class M Shares -- --
Tax return of capital:
Class A shares (63,350) (183,721)
Class B shares -- --
Class M shares (5) --
------------ ------------
Total distributions (2,104,901) (2,610,514)
------------ ------------
Capital share transactions:
Net proceeds from sale of shares 3,683,618 4,809,688
Shares resulting from dividend
reinvestment 898,604 985,701
Cost of shares redeemed (12,242,953) (9,391,713)
------------ ------------
Net increase (decrease) in net
assets resulting from capital
share transactions (7,660,731) (3,596,324)
------------ ------------
Net increase (decrease) in
net assets (7,355,440) (4,781,169)
------------ ------------
Net assets, beginning of period 38,850,109 43,631,278
------------ ------------
Net assets, end of period * $ 31,494,669 $ 38,850,109
============ ============
* Including undistributed
(overdistributed) net
investment income of: ($ 76,374) --
============ ============
</TABLE>
See Accompanying Notes to Financial Statements
23
<PAGE>
Pilgrim America MagnaCap Fund
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------------
Year Ended June 30,
----------------------------------------------------------------------------------------
1997 1996 1995(a) 1994 1993 1992
------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98 10.93
------------- ----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment income 0.10 0.09 0.12 0.15 0.14 0.13
Net realized and unrealized
gain on investments 4.16 2.87 2.29 0.89 0.82 1.16
------------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations 4.26 2.96 2.41 1.04 0.96 1.29
------------- ----------- ----------- ----------- ----------- -----------
Less distributions from:
Net investment income 0.10 0.06 0.14 0.14 0.12 0.24
Distributions in excess of
net investment income 0.02 -- -- -- -- --
Realized gains on investment 4.16 0.24 0.60 0.59 0.77 --
Distributions in excess of
net realized gains 0.75 -- -- -- -- --
------------- ----------- ----------- ----------- ----------- -----------
Total distributions 5.03 0.30 0.74 0.73 0.89 0.24
------------- ----------- ----------- ----------- ----------- -----------
Net asset value, end of period $ 15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98
============= =========== =========== =========== =========== ===========
Total Return (c) 30.82% 21.31% 20.61% 9.13% 8.21% 11.93%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 290,355 $ 235,393 $ 211,330 $ 190,435 $ 197,250 $ 196,861
Ratios to average net assets:
Expenses 1.46% 1.68% 1.59% 1.53% 1.53% 1.60%
Net investment income 0.64% 0.54% 0.98% 1.16% 1.09% 1.20%
Portfolio turnover rate 77% 15% 6% 7% 36% 49%
Average commission rate paid $ 0.0686 -- -- -- -- --
<CAPTION>
CLASS B CLASS M
--------------------------- ---------------------------
Year July 17, Year July 17,
Ended 1995(b) to Ended 1995(b) to
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period $ 16.59 $ 14.22 $ 16.63 $ 14.22
------------ ---------- ----------- ------------
Income from investment
operations:
Net investment income -- 0.06 0.02 0.08
Net realized and unrealized
gain on investments 4.13 2.61 4.16 2.63
------------ ---------- ----------- ------------
Total from investment
operations 4.13 2.67 4.18 2.71
------------ ---------- ----------- ------------
Less distributions from:
Net investment income -- 0.06 0.02 0.06
Distributions in excess of
net investment income -- -- 0.01 --
Realized gains on investment 4.13 0.24 4.16 0.24
Distributions in excess of
net realized gains 0.78 -- 0.75 --
------------ ---------- ----------- ------------
Total distributions 4.91 0.30 4.94 0.30
------------ ---------- ----------- ------------
Net asset value, end of period $ 15.81 $ 16.59 $ 15.87 $ 16.63
============ ========== =========== ============
Total Return (c) 29.92% 18.98% 30.26% 19.26%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 37,427 $ 10,509 $ 6,748 $ 1,961
Ratios to average net assets:
Expenses 2.16% 2.38%(d) 1.91% 2.13%(d)
Net investment income (0.04%) 0.07%(d) 0.22% 0.32%(d)
Portfolio turnover rate 77% 15% 77% 15%
Average commission rate paid $ 0.0686 -- $ 0.0686 --
</TABLE>
- ----------------------------
(a) Pilgrim America Investments, Inc., the Fund's Investment Manager,
acquired assets of Pilgrim Management Corporation, the Fund's former
Investment Manager, in a transaction that closed on April 7, 1995.
(b) Commencement of offering of shares.
(c) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the
deduction of sales charges. Total return for less than one year is not
annualized.
(d) Annualized.
See Accompanying Notes to Financial Statements
24
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
Eight
Months
Year Ended June 30, Ended Year Ended October 31,
-------------------- June 30, ----------------------------------
1997 1996 1995(a)(b) 1994 1993 1992
------- ------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77 $ 5.70
------- ------- ------- ------- ------- -------
Income (loss) from investment
operations:
Net investment income 0.61 0.59 0.35 0.54 0.53 0.63
Net realized and unrealized
gain (loss) on investments 0.43 0.16 0.21 (0.51) 0.70 0.07
------- ------- ------- ------- ------- -------
Total from investment operations 1.04 0.75 0.56 0.03 1.23 0.70
------- ------- ------- ------- ------- -------
Less distributions from:
Net investment income 0.60 0.54 0.36 0.55 0.53 0.63
Realized gains on investments -- -- -- -- -- --
Total distributions 0.60 0.54 0.36 0.55 0.53 0.63
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 6.80 $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77
======= ======= ======= ======= ======= =======
Total Return (d) 17.14% 12.72% 9.77% 0.47% 22.12% 12.65%
Ratios/Supplemental Data
Net assets, end of period (000's) $35,940 $18,691 $15,950 $16,046 $18,797 $17,034
------- ------- ------- ------- ------- -------
Ratios to average net assets:
Expenses (e)(f)(g) 1.00% 1.00% 2.25%(h) 2.00% 2.02% 2.03%
Net investment income (e)(f)(g) 9.54% 9.46% 8.84%(h) 8.73% 8.36% 10.93%
Portfolio turnover rate 394% 399% 166% 192% 116% 193%
<CAPTION>
CLASS B CLASS M
---------------------- -----------------------
July 17, July 17,
Year Ended 1995(c) to Year Ended 1995(c) to
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 6.36 $ 6.20 $ 6.36 $ 6.20
------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income 0.57 0.48 0.58 0.50
Net realized and unrealized
gain (loss) on investments 0.41 0.14 0.41 0.14
Total from investment operations 0.98 0.62 0.99 0.64
------ ------ ------ ------
Less distributions from:
Net investment income 0.56 0.46 0.57 0.48
Realized gains on investments -- -- -- --
------ ------ ------ ------
Total distributions 0.56 0.46 0.57 0.48
------ ------ ------ ------
Net asset value, end of period $6.78 $6.36 $6.78 $6.36
====== ====== ====== ======
Total Return (d) 16.04% 10.37% 16.29% 10.69%
Ratios/Supplemental Data
Net assets, end of period (000's) $40,225 $2,374 $8,848 $1,243
Ratios to average net assets:
Expenses (e)(f)(g) 1.75% 1.75%(h) 1.50% 1.50%(h)
Net investment income (e)(f)(g) 8.64% 9.02%(h) 8.93% 9.41%(h)
Portfolio turnover rate 394% 339% 394% 339%
</TABLE>
- ------------------------------
(a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(b) Effective November 1, 1994, High Yield Fund changed its year end to June
30.
(c) Commencement of offering of shares.
(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return information for less than one year is not
annualized.
(e) Prior to the waiver and reimbursement of expenses for the year ended June
30, 1997, the ratios of expenses to average net assets were 1.42%, 2.17%
and 1.92% and the ratios of net investment income to average net assets
were 9.09%, 8.18% and 8.47% for Class A, B and M shares, respectively.
(f) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the ratios of expenses to average net assets were 2.19%,
2.94%(annualized) and 2.69%(annualized), and the ratios of net investment
income to average net assets were 8.27%, 8.05%(annualized) and
8.51%(annualized), for Class A, B and M shares, respectively.
(g) Prior to the waiver of expenses, the ratio of expenses to average net
assets was 2.35%(annualized) in 1995 and 2.07% in 1994 for Class A shares.
Prior to the waiver of expenses, the ratio of net investment income to
average net assets was 8.74%(h) in 1995 and 8.66% in 1994 for Class A
shares.
(h) Annualized.
See Accompanying Notes to Financial Statements
25
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------
Year Ended June 30,
------------------------------------------------------------------------
1997 1996 1995(a) 1994 1993(c) 1992
----------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76 $ 13.76
----------- ----------- ----------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.69 0.75 0.84 0.84 1.13 1.19
Net realized and unrealized
gain (loss) on investments 0.20 (0.32) 0.24 (1.17) 0.18
----------- ----------- ----------- ---------- ---------- ----------
Total from investment operations 0.89 0.43 1.08 (0.33) 1.31 1.19
----------- ----------- ----------- ---------- ---------- ----------
Less distributions from:
Net investment income 0.69 0.75 0.84 0.90 1.11 1.19
Distributions in excess
of net investment income 0.04 -- -- -- -- --
Tax return of capital 0.04 0.06 -- -- -- --
----------- ----------- ----------- ---------- ---------- ----------
Total distributions 0.77 0.81 0.84 0.90 1.11 1.19
----------- ----------- ----------- ---------- ---------- ----------
Net asset value, end of period (000's) $ 12.71 $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76
=========== =========== =========== ========== ========== ==========
Total Return (d) 7.33% 3.34% 8.96% (2.50)% 9.82% 8.98%
Ratios/Supplemental Data
Net assets, end of period (000's) $29,900 $38,753 $43,631 $61,100 $87,301 $96,390
Ratios to average net assets:
Expenses (e)(f) 1.42% 1.51% 1.40% 1.21% 1.12% 1.10%
Net investment income (e)(f) 5.78% 5.64% 6.37% 6.44% 8.06% 8.59%
Portfolio turnover rate 172% 170% 299% 402% 466% 823%
<CAPTION>
CLASS B CLASS M
---------------------------- -----------------------------
Year July 17, Year July 17,
Ended 1995(b) to Ended 1995(b) to
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $12.59 $12.95 $12.59 $12.95
------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment income 0.67 0.66 0.70 0.68
Net realized and unrealized
gain (loss) on investments 0.11 (0.37) 0.14 (0.36)
------------ ------------ ------------ ------------
Total from investment operations 0.78 0.29 0.84 0.32
------------ ------------ ------------ ------------
Less distributions from:
Net investment income 0.67 0.65 0.70 0.68
Distributions in excess
of net investment income 0.02 -- -- --
Tax return of capital -- -- 0.01 --
------------ ------------ ------------ ------------
Total distributions 0.69 0.65 0.71 0.68
------------ ------------ ------------ ------------
Net asset value, end of period $12.68 $12.59 $12.72 $12.59
============ ============ ============ ============
Total Return (d) 6.38% 2.25% 6.88% 2.52%
Ratios/Supplemental Data
Net assets, end of period (000's) $1,534 $ 73 $ 61 $ 24
Ratios to average net assets:
Expenses (e)(f) 2.17% 2.26%(g) 1.92%(g) 2.01%(g)
Net investment income (e)(f) 4.92% 4.98%(g) 5.25% 5.73%(g)
Portfolio turnover rate 172% 170% 172% 170%
</TABLE>
- ------------------------------
(a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(b) Commencement of offering of shares.
(c) During this period, average daily borrowing were $11,038,044, average
monthly shares outstanding were 6,429,755 and average daily borrowings per
share were $1.72. The Fund earned income and realized capital gains as a
result of entering into reverse repurchase agreements during the six months
from July to December 1992. Such transactions constituted borrowing
transactions and, as a result, the Fund exceeded its 10% borrowing
limitations during that period. Therefore, the Fund's performance was
higher than it would have been had the Fund adhered to its investment
restrictions. This borrowing technique was discontinued subsequent to
December 1992, until April 4, 1995, when shareholders approved a change in
the Fund's investment policies.
(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return information for less than one year is not
annualized.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the ratios of expenses to average net assets were 1.57%,
2.41%(annualized) and 2.16%(annualized), and the ratios of net investment
income to average net assets were 5.74%, 4.83%(annualized) and
5.58%(annualized) for Class A, B and M shares, respectively.
(f) Prior to the waiver expenses for the period ended June 30, 1995, the ratio
of expenses to average net assets was 1.54%, and the ratio of net
investment income to average net assets was 6.23% for Class A shares.
(g) Annualized.
See Accompanying Notes to Financial Statements
26
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies
Organization. Pilgrim America Elite Series ("Elite Series" or the "Company") is
an open-end management investment company registered under the Investment
Company Act of 1940, as amended. The Elite Series consists of three separate
diversified open-end investment company funds. The Pilgrim America MagnaCap Fund
("MagnaCap Fund"), Pilgrim America High Yield Fund ("High Yield Fund") and
Pilgrim Government Securities Income Fund ("Government Securities Income Fund"),
are collectively referred to as the "Funds", each with its own investment
objective and policies. MagnaCap Fund and High Yield Fund are 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 the 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. Subsequently, 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 prorata
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 instruments or securities with similar 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
recorded 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 at least 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, the treatment of
wash sales, and other temporary differences. To the extent that these
differences are permanent in nature, such amounts are reclassified within
the capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassifications. Distributions which exceed
net investment income and net realized capital gains for financial
reporting purposes but not for tax purposes are reported as distributions
in excess of net investment income 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. For
the year ended June 30, 1997, $62,558 was reclassified from paid-in capital
to undistributed net investment income for Government Securities Income
Fund. There were no reclassifications made for tax purposes for MagnaCap
Fund or High Yield Fund.
27
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997 (Continued)
- --------------------------------------------------------------------------------
D. Federal Income Taxes. The Company's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to regulated
investments companies and to distribute substantially all of its net
investment income and any net realized capital gains to its shareholders.
Therefore, a federal income tax provision is not required. In addition, by
distributing during each calendar year substantially all of its net
investment income and net capital gains, each Fund intends not to be
subject to any federal excise tax.
Capital loss carryforwards were as follows at June 30, 1997:
Amount Expiration Dates
------ ----------------
MagnaCap Fund $ N/A
High Yield Fund 10,317,698 1998-2003
Government Securities Income Fund 8,247,038 1998-2004
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.
(2) Investment Management Fee and Other Transactions with Affiliates
As of April 7, 1995, Pilgrim America Capital Corporation ("PACC") (formerly
Express America Holdings Corporation) acquired the rights to manage and
distribute the Funds, and the rights to manage two closed-end funds
(collectively the "Acquired Funds"). In connection with the acquisition, Pilgrim
America Group, Inc. ("PAG") was formed as a wholly owned subsidiary of PACC.
28
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997 (Continued)
- --------------------------------------------------------------------------------
Each of the Funds has entered into an Investment Management Agreement with
Pilgrim America Investments, Inc. ("the Manager"), a wholly owned subsidiary of
PAG. 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. 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. 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
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 December 31, 1997. At June 30, 1997,
High Yield Fund accrued $50,205 as a reimbursement due from the Manager for such
excess expenses. 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 of $1 billion. 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 which 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, 1997 excess
expense reimbursements refundable to the Manager totalled $12,016.
Each share class of the Funds has adopted a Plan pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plans"), whereby Pilgrim America Securities, Inc. (the
"Distributor") is reimbursed or compensated (depending on the class of shares)
by the Funds for expenses incurred in the distribution of each Funds' share.
Pursuant to the 12b-1 Plans, the Distributor is entitled to payment each month
for actual expenses incurred in the distribution and promotion of each Fund's
shares, including the printing of prospectuses and reports used for sales
purposes, expenses of preparation and printing of sales literature and other
such distribution related expenses, including any distribution or service fees
paid to securities dealers who have executed a distribution agreement with the
Distributor.
Under the 12b-1 Plans, each class of shares of the Fund pays the Distributor at
the 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.
Each of the Funds has entered into a Service Agreement with PAG whereby PAG will
act as the Shareholder Service Agent for each Fund. The agreement provides that
PAG will be compensated for incoming and outgoing shareholder telephone calls
and letters and letter, and all reasonable out-of-pocket expenses incurred in
connection with the performance of such services. At June 30, 1997, MagnaCap
Fund, High Yield Fund and Government Securities Income Fund owed PAG $8,800,
$2,000 and $2,093, respectively in service fees.
29
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997 (Continued)
- --------------------------------------------------------------------------------
(3) Investment Transactions
For the year ended June 30, 1997, the cost of purchases and proceeds from the
sales of securities, excluding short-term securities, were as follows:
Government
Securities
MagnaCap Fund High Yield Fund Income Fund
U.S. Government Obligations:
Purchases $ -- $ -- $ 57,627,815
Sales -- -- 60,259,788
Other Securities:
Purchases 208,330,686 230,803,955 --
Sales 207,377,346 176,029,006 --
(4) Capital Shares
Transactions in capital shares and dollars were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
------------------------------ ----------------------------- ------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
MagnaCap Fund (Number of
shares)
Shares sold 7,162,084 3,769,994 1,625,552 641,789 308,520 130,015
Shares issued as
reinvestments 3,978,472 222,032 332,790 1,560 58,378 221
of dividends
Shares redeemed (7,008,858) (4,943,794) (224,729) (9,792) (59,549) (12,303)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
shares outstanding 4,131,698 (951,768) 1,733,613 633,557 307,349 117,933
============= ============= ============= ============= ============= =============
MagnaCap Fund ($)
Shares sold $110,144,369 $58,716,766 $25,252,042 $10,409,316 $4,760,120 $2,107,802
Shares issued as
reinvestments 54,179,774 3,447,447 4,499,323 24,690 791,740 3,503
of dividends
Shares redeemed (110,376,550) (76,979,255) (3,781,590) (160,454) (948,406) (192,360)
------------- ------------- ------------- ------------- ------------- -------------
Net increase (decrease) in
shares outstanding $53,947,593 $(14,815,042) $25,969,775 $10,273,552 $4,603,454 $1,918,945
============= ============= ============= ============= ============= =============
High Yield Fund (Number of
shares)
Shares sold 4,403,729 667,265 6,227,264 391,688 1,214,198 198,769
Shares issued as
reinvestments 178,853 94,111 76,353 3,272 29,000 1,190
of dividends
Shares redeemed (2,232,708) (416,380) (745,853) (21,435) (134,582) (4,452)
------------- ------------- ------------- ------------- ------------- -------------
Net increase in shares 2,349,874 344,996 5,557,764 373,525 1,108,616 195,507
outstanding
============= ============= ============= ============= ============= =============
</TABLE>
30
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
------------------------------ ---------------------------- --------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
High Yield Fund ($)
Shares sold $29,353,593 $4,248,850 $41,339,576 $2,485,160 $8,052,040 $1,258,182
Shares issued as reinvestments
of dividends 1,175,204 589,405 503,880 20,744 191,335 7,527
Shares redeemed (14,956,120) (2,637,070) (4,952,839) (135,908) (893,178) (28,299)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in shares
outstanding $15,572,677 $2,201,185 $36,890,617 $2,369,996 $7,350,197 $1,237,410
============ ============ ============ ============ ============ ============
Government Securities
Income Fund (Number of
Shares)
Shares sold 87,019 368,928 200,561 5,776 4,833 1,862
Shares issued as reinvestments
of dividends 70,258 76,541 890 23 146 10
Shares redeemed (882,634) (731,172) (86,251) -- (2,111) --
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
shares outstanding (725,357) (285,703) 115,200 5,799 2,868 1,872
============ ============ ============ ============ ============ ============
Government Securities
Income Fund ($)
Shares sold $1,099,502 $4,712,654 $2,523,084 $73,517 $61,032 $23,517
Shares issued as reinvestments
of dividends 885,529 985,290 11,224 292 1,851 119
Shares redeemed (11,132,819) (9,391,713) (1,083,379) -- (26,755) --
------------ ------------ ------------ ------------ ------------ ------------
Net increase (decrease) in
shares outstanding $(9,147,788) $(3,693,769) $1,450,929 $73,809 $36,128 $23,636
============ ============ ============ ============ ============ ============
</TABLE>
(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, 1997, MagnaCap Fund, High Yield Fund and Government Securities Income Fund
received earnings credits of $2,118, $11,934 and $0, respectively.
(6) Subsequent Events
Subsequent to June 30, 1997 MagnaCap Fund declared a dividend from net
investment income of $0.0640, $0.0315 and $0.0464 for Classes A, B and M,
respectively payable on August 8, 1997 to shareholders of record on July 31,
1997. High Yield Fund declared a dividend from net investment income of $0.0500,
$0.0462 and $0.0475 for Classes A, B and M, respectively payable on July 15,
1997 to shareholders of record on June 30, 1997. Government Securities Income
Fund declared a dividend from net investment income of $0.0645, $0.0572 and
$0.0590 for Classes A, B and M, respectively payable on July 15, 1997 to
shareholders of record on June 30, 1997.
31
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of June 30, 1997
- --------------------------------------------------------------------------------
COMMON STOCKS: 95.6%
<TABLE>
<CAPTION>
Market
Shares Value
------ -----
<S> <C> <C>
Banks: 4.7%
160,000 Bankamerica Corp. $10,330,000
2,500 Collective Bancorp 112,187
98,000 CoreStates Financial Corp. 5,267,500
-----------
15,709,687
-----------
Capital Goods: 0.7%
37,100 Parker Hannifin Corp. 2,251,506
-----------
Chemicals: 4.9%
30,000 Betzdearborn, Inc. 1,980,000
120,000 DuPont, (E.I.) DeNemours & Co. 7,545,000
200,000 Sigma Aldrich Corp. 7,012,500
-----------
16,537,500
-----------
Chemicals-Diversified: 3.3%
30,000 Millipore Corp. 1,320,000
131,600 PPG Industries, Inc. 7,649,250
90,000 Pall Corp. 2,092,500
-----------
11,061,750
-----------
Communications: 0.3%
15,000 Motorola, Inc. 1,140,000
-----------
Computer Software & Services: 3.4%
240,000 Automatic Data Processing, Inc. 11,280,000
-----------
Computer Systems: 2.3%
115,000 Electronic Data Systems Corp. 4,715,000
100,000 Wallace Computer Services 3,006,250
-----------
7,721,250
-----------
Consumer Products: 3.0%
200,048 Kimberly-Clark Corp. 9,952,388
-----------
Drugs: 3.3%
135,000 Bristol-Myers Squibb Co. 10,935,000
-----------
Drugstores: 2.6%
175,000 Rite Aid Corp. 8,728,125
-----------
Electrical Equipment: 2.7%
203,200 Hubbell, Inc. 8,940,800
-----------
Energy Services: 1.7%
100,000 Helmerich & Payne, Inc. 5,762,500
-----------
</TABLE>
See Accompanying Notes to Financial Statements
32
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
------ -----
<S> <C> <C>
Food & Beverages: 5.6%
200,000 Heinz (H.J.) Co. $ 9,225,000
250,000 Pepsico, Inc. 9,390,625
-----------
18,615,625
-----------
Foods: 2.5%
200,000 Sara Lee Corp. 8,325,000
-----------
Healthcare: 3.0%
150,000 Abbott Laboratories 10,012,500
-----------
Insurance: 6.8%
250,000 AFLAC, Inc. 11,812,500
40,000 Chubb Corp. 2,675,000
200,000 UNUM Corp. 8,400,000
-----------
22,887,500
-----------
Leisure: 1.9%
198,600 Brunswick Corp. 6,206,250
-----------
Machinery & Equipment: 3.2%
120,000 Dover Corp. 7,380,000
135,000 Federal Signal Corp. 3,391,875
-----------
10,771,875
-----------
Medical Equipment: 6.1%
200,000 Baxter International 10,450,000
66,800 Becton Dickinson & Co. 3,381,750
140,000 Hillenbrand Industries 6,650,000
-----------
20,481,750
-----------
Office Products & Services: 3.2%
124,000 Avery Dennison Corp. 4,975,500
100,000 Hewlett Packard 5,600,000
-----------
10,575,500
-----------
Oil & Gas: 4.0%
80,000 Atlantic Richfield 5,640,000
140,700 Elf Aquitane-ADR 7,659,356
-----------
13,299,356
-----------
Oil Well Equipment & Services: 4.9%
74,500 Schlumberger Ltd. 9,312,500
165,000 Tidewater, Inc. 7,260,000
-----------
16,572,500
-----------
</TABLE>
See Accompanying Notes to Financial Statements
33
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value
------ -----
<S> <C> <C>
Paper & Forest Products: 0.9%
50,900 Mead Corp. $ 3,168,525
-----------
Regional Banks: 2.3%
112,800 Comerica, Inc. 7,670,400
-----------
Restaurants: 3.0%
210,000 McDonalds Corp. 10,145,625
-----------
Retail: 9.4%
313,800 Heilig-Meyers Co. 6,158,325
100,000 Home Depot, Inc. 6,893,750
70,000 Nordstrom, Inc. 3,430,000
175,000 Pep Boys 5,960,938
264,000 Wal-Mart Stores, Inc. 8,926,500
-----------
31,369,513
-----------
Savings & Loans: 3.3%
205,000 Charter One Financial, Inc. 11,044,375
-----------
Technology: 1.6%
90,000 Rockwell 5,310,000
-----------
Transportation: 1.0%
200,000 Arnold Industries, Inc. 3,400,000
-----------
Total Common Stocks (Cost $209,215,471) 319,876,800
-----------
SHORT-TERM INVESTMENTS: 3.8%
Principal
Amount
------
Commercial Paper: 3.8%
$12,540,000 Merrill Lynch Commercial Paper, 5.42%
due 07/01/97 12,540,000
-----------
Total Short-Term Investments
(Cost $12,540,000) 12,540,000
-----------
Total Investments in Securities
(Cost $221,755,471)* 99.4% 332,416,800
Cash and Other Assets in Excess
of Liabilities-Net 0.6% 2,113,072
----- -----------
Total Net Assets 100.0% $334,529,872
===== ============
</TABLE>
- ----------------------
* Cost for federal income tax purposes is $221,762,725.
Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 111,678,545
Gross Unrealized Depreciation (1,024,470)
--------------
Net Unrealized Appreciation $ 110,654,075
==============
See Accompanying Notes to Financial Statements
34
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CORPORATE BONDS: 92.2%
Principal Market
Amount Value
------ -----
<S> <C> <C>
Automotive: 7.0%
$1,500,000 Chief Auto Parts, Inc., 10.500% due 05/15/05 $ 1,515,000
750,000 Collins & Aikman, 11.500% due 04/15/06 849,375
1,000,000 (a) Euramax International PLC, 11.250% due 10/01/06 1,077,500
1,000,000 Speedy Muffler King, Inc., 10.875% due 10/01/06 1,020,000
1,500,000 Venture Holdings, 9.750% due 04/01/04 1,440,000
------------------
5,901,875
------------------
Broadcasting: 1.0%
750,000 (a) SFX Broadcasting, 10.750% due 05/15/06 821,250
------------------
Business Services: 2.6%
2,000,000 Unisys Corp., 11.750% due 10/15/04 2,195,000
------------------
Chemicals: 3.1%
1,500,000 Harris Chemical North America, 10.750% due 10/15/03 1,541,250
1,000,000 (a) Sterling Chemical, 11.250% due 04/01/07 1,070,000
------------------
2,611,250
------------------
Communications: 18.4%
1,000,000 (a) Brooks Fiber Properties, 10.000% due 06/01/07 1,017,500
1,500,000 (a) Dobson Communication Corp., 11.750% due 04/15/07 1,470,000
1,500,000 (a) Globalstar, L.P., 11.250% due 06/15/04 1,410,000
500,000 (a) IXC Communications, 12.500% due 10/01/05 570,000
1,500,000 Nextlink Communications, 12.500% due 04/15/06 1,597,500
1,500,000 Paging Network, 10.125% due 08/01/07 1,462,500
1,500,000 Phonetel Tech, 12.000% due 12/15/06 1,545,000
1,500,000 Pronet, Inc., 11.875% due 06/15/05 1,485,000
1,500,000 Sprint Spectrum, 11.000% due 08/15/06 1,668,750
1,500,000 (a) Verio, Inc., 13.500% due 06/15/04 1,507,500
2,000,000 (a) Winstar Equipment, 12.500% due 03/15/04 1,957,500
------------------
15,691,250
------------------
Consumer Products: 2.4%
1,500,000 (a) Renaissance Cosmetics, 11.750% due 02/15/04 1,571,250
500,000 (a) Riddell Sports, Inc., 10.500% due 07/15/07 512,500
------------------
2,083,750
------------------
Entertainment: 1.8%
1,500,000 All American Communications, Inc., 10.875% due 10/15/01 1,578,750
</TABLE>
See Accompanying Notes to Financial Statements
35
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
------ -----
<S> <C> <C>
Financial: 4.9%
$1,000,000 Chevy Chase State Bank, 9.250% due 12/01/05 $ 1,005,000
1,500,000 (a) Dollar Financial Group, 10.875% due 11/15/06 1,608,750
1,500,000 Olympic Financial, 11.500% due 03/15/07 1,533,750
------------------
4,147,500
------------------
Food Distributors: 0.9%
750,000 Chiquita Brands, 10.250% due 11/01/06 800,625
------------------
Foods: 1.6%
1,500,000 Specialty Foods, 11.250% due 08/15/03 1,320,000
------------------
Gaming: 7.8%
2,000,000 Casino America, 12.500% due 08/01/03 2,080,000
500,000 Hollywood Casino Corp., 12.750% due 11/01/03 533,750
1,500,000 (a) Players International, 10.875% due 04/15/05 1,548,750
1,500,000 Station Casinos, 9.625% due 06/01/03 1,496,250
1,000,000 Trump Atlantic City, 11.250% due 05/01/06 980,000
------------------
6,638,750
------------------
Home Building: 1.8%
1,500,000 Presley Companies, 12.500% due 07/01/01 1,511,250
------------------
Manufacturing: 2.5%
500,000 (a) Clark Material, 10.750% due 11/15/06 526,250
1,500,000 Jordan Industries, 10.375% due 08/01/03 1,575,000
------------------
2,101,250
------------------
Manufacturing/Electronic: 1.8%
1,500,000 Motors and Gears, Inc., 10.750% due 11/15/06 1,554,375
------------------
Media & Entertainment: 8.6%
2,000,000 (a) Echostar DBS Corp., 12.500% due 07/01/02 1,995,000
1,500,000 FrontierVision, 11.000% due 10/15/06 1,575,000
2,000,000 Galaxy Telecom, 12.375% due 10/01/05 2,135,000
1,500,000 Rifkin Acquisition, 11.125% due 01/15/06 1,593,750
------------------
7,298,750
------------------
Metals & Minerals: 3.2%
1,000,000 Haynes International, Inc., 11.625% due 09/01/04 1,081,250
500,000 (a) Kaiser Aluminum & Chemical Co., 10.875% due 10/15/06 541,250
1,000,000 Kaiser Aluminum & Chemical Co., 10.875% due 10/15/06 1,082,500
------------------
2,705,000
------------------
Mining Equipment: 1.2%
1,000,000 (a) Continental Global Group, 11.000% due 04/01/07 1,051,250
------------------
</TABLE>
See Accompanying Notes to Financial Statements
36
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
------ -----
<S> <C> <C>
Oil & Gas: 6.5%
500,000 Bellwether Exploration, 10.875% due 04/01/07 $ 536,250
1,500,000 (a) Magnum Hunter Re, 10.000% due 06/01/07 1,485,000
1,500,000 Petroleum Heat & Power, 12.250% due 02/01/05 1,565,625
2,000,000 (a) Transamerican Energy, 11.500% due 06/15/02 1,950,000
------------------
5,536,875
------------------
Paper & Forest Products: 2.8%
1,000,000 Crown Paper Co., 11.000% due 09/01/05 1,007,500
1,500,000 Repap New Brunswick, 10.625% due 04/15/05 1,413,750
------------------
2,421,250
------------------
Printing: 1.3%
500,000 Goss Graphic Systems, Inc., 12.000% due 10/15/06 551,250
500,000 MDC Communications, 10.500% due 12/01/06 535,000
------------------
1,086,250
------------------
Restaurants: 2.4%
1,000,000 (a) AFC Enterprises, 10.250% due 05/15/07 1,017,500
1,000,000 Flagstar Corp., 10.750% due 09/15/01 1,010,000
------------------
2,027,500
------------------
Retail: 4.1%
500,000 (a) Archibald Candy Corp. 507,500
500,000 Hines Horticulture Series B, 11.750% due 10/15/05 536,250
1,000,000 Kmart Corp., 7.950% due 02/01/23 910,000
1,500,000 Loehmann's, Inc., 11.875% due 05/15/03 1,545,000
------------------
3,498,750
------------------
Supermarkets: 2.7%
1,500,000 (a) DiGiorgio Corp., 10.000% due 06/15/07 1,475,625
750,000 Jitney-Jungle Stores, 12.000% due 03/01/06 836,250
------------------
2,311,875
------------------
Textile: 1.8%
1,500,000 (a) Anvil Knitwear, 10.875% due 03/15/07 1,515,000
------------------
Total Corporate Bonds (Cost $76,617,586) 78,409,375
------------------
SHORT-TERM INVESTMENTS: 8.2%
</TABLE>
See Accompanying Notes to Financial Statements
37
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
------ -----
<S> <C> <C>
Commercial Paper: 4.9%
$4,165,000 Merrill Lynch Commerical Paper, 6.22%, due 07/01/97 $ 4,165,000
Repurchase Agreements: 3.3%
2,800,000 Merrill Lynch Repurchase Agreement, 5.40% due 07/01/97
(Collateralized by $2,760,000 U.S. Treasury Bonds, 6.625%
due 07/31/01) 2,800,000
------------------
Total Short-Term Investments (Cost $6,965,000) 6,965,000
------------------
Total Investments in Securities (Cost $83,582,586)* 100.4% 85,374,375
Liabilities in Excess of Cash and Other Assets-Net (0.4)% (360,575)
-------- -------------------
Total Net Assets 100.0% $ 85,013,800
======== ===================
</TABLE>
- ----------------------------------------
<TABLE>
<S> <C>
(a) Issues designated 144A.
* Cost for federal income tax purposes is $83,592,586.
Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 2,137,008
Gross Unrealized Depreciation (355,219)
--------------------
Net Unrealized Appreciation $ 1,781,789
====================
</TABLE>
See Accompanying Notes to Financial Statements
38
<PAGE>
Pilgrim Goverment Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of June 30, 1997
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES: 97.2%
<TABLE>
<CAPTION>
Principal Market
Amount Rate Maturity Value
------ ---- -------- -----
<S> <C> <C> <C>
Federal Home Loan Mortgage Corporation: 18.5%
$3,288,568 Federal Home Loan Mortgage Corporation 7.000% 2025 to 2026 $3,228,651
257,652 Federal Home Loan Mortgage Corporation 8.500% 2017 270,001
245,586 Federal Home Loan Mortgage Corporation 8.750% 2009 252,018
448,170 Federal Home Loan Mortgage Corporation 9.000% 2006 461,472
404,177 Federal Home Loan Mortgage Corporation 9.500% 2005 to 2014 428,201
93,400 Federal Home Loan Mortgage Corporation 9.905% 2020 100,075
848,383 Federal Home Loan Mortgage Corporation 12.250% 2015 971,399
126,004 Federal Home Loan Mortgage Corporation-Gold 9.000% 2021 133,172
---------------
5,844,989
---------------
Federal National Mortgage Association: 36.6%
2,346,548 Federal National Mortgage Association 6.500% 2016 2,268,080
1,500,000 Federal National Mortgage Association 7.840% 2006 1,515,000
1,141,937 Federal National Mortgage Association 7.900% 2022 1,196,179
759,804 Federal National Mortgage Association 8.000% 2023 777,226
1,127,472 Federal National Mortgage Association 8.500% 2017 to 2021 1,175,574
559,581 Federal National Mortgage Association 9.000% 2025 589,670
1,112,307 Federal National Mortgage Association 9.250% 2009 to 2016 1,174,896
145,076 Federal National Mortgage Association 9.750% 2008 154,526
490,922 Federal National Mortgage Association 11.000% 2017 546,458
114,505 Federal National Mortgage Association 12.000% 2007 125,382
143,161 Federal National Mortgage Association 12.500% 2010 163,915
1,578,479 Federal National Mortgage Association 13.000% 2014 1,831,491
---------------
11,518,397
---------------
Government National Mortgage Association: 34.3%
875,908 Government National Mortgage Association 7.500% 2023 879,289
1,885,224 Government National Mortgage Association 8.000% 2023 to 2024 1,938,821
1,378,872 Government National Mortgage Association 8.250% 2016 1,431,697
1,439,300 Government National Mortgage Association 9.000% 2013 to 2022 1,537,964
564,198 Government National Mortgage Association 9.250% 2017 to 2021 600,348
1,549,337 Government National Mortgage Association 9.500% 2016 1,673,150
506,886 Government National Mortgage Association 10.500% 2013 to 2019 561,870
148,697 Government National Mortgage Association 11.000% 2016 166,236
133,064 Government National Mortgage Association 11.750% 2015 151,390
1,362,522 Government National Mortgage Association 12.000% 2014 to 2015 1,577,002
255,407 Government National Mortgage Association-
Mobile Home D 10.500% 2009 281,746
---------------
10,799,513
---------------
</TABLE>
See Accompanying Notes to Financial Statements
39
<PAGE>
Pilgrim Goverment Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Rate Maturity Value
------ ---- -------- -----
<S> <C> <C> <C>
U.S. Treasury Securities: 7.8%
$2,500,000 U.S. Treasury Bonds 6.625% 2027 $2,446,100
---------------
Total U.S. Government Securities (Cost $30,425,169) 30,608,999
---------------
SHORT-TERM INVESTMENTS: 9.7%
Repurchase Agreements: 9.7%
3,060,000 Merrill Lynch Repurchase Agreement, 5.40% due 07/01/97
(Collateralized by $3,015,000 U.S. Treasury Bonds, 6.625%
due 07/31/01) 3,060,000
---------------
Total Short-Term Investments (Cost $3,060,000) 3,060,000
---------------
Total Investments in Securities (Cost $33,485,169)* 106.9% 33,668,999
Liabilities in Excess of Cash and Other Assets-Net (6.9)% (2,174,330)
--------------- ---------------
Total Net Assets 100.0% $31,494,669
=============== ===============
- -------------------------------
* Cost for federal income tax purposes is $33,510,794.
Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 278,251
Gross Unrealized Depreciation (120,046)
---------------
Net Unrealized Appreciation $ 158,205
===============
</TABLE>
See Accompanying Notes to Financial Statements
40
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
TAX INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
Dividends declared during the tax year ended June 30, 1997 were as follows:
Pilgrim America Pilgrim America
Per Share Data: MagnaCap Fund High Yield Fund
--------------- ------------- ---------------
Ordinary Income
Class A $0.1182 $0.6000
Class B $0.0000 $0.5563
Class M $0.0303 $0.5706
Long-term capital gains* $4.9120
------------------------
*Amounts apply to all classes
Corporate shareholders 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 Fund's fiscal year 1997 net investment
income dividends that qualify for the corporate dividend received deductions is
99.08%, 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 1998,
shareholders (excluding corporate shareholders) will received an IRS Form 1099
DIV regarding the federal tax status of the dividends and distributions received
by you in calendar year 1997.
41
<PAGE>
Pilgrim America
Funds
INVESTMENT MANAGER
Pilgrim America Investments, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
DISTRIBUTOR
Pilgrim America Securities, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
1-800-334-3444
SHAREHOLDER SERVICING AGENT
Pilgrim America Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
1-800-331-1080
TRANSFER AGENT
Investors Fiduciary Trust Company
c/o DST Systems, Inc.
P.O. Box 419541
Kansas City, Missouri 64141
CUSTODIAN
Investors Fiduciary Trust Company
127 West 10th Street
14th Floor
Kansas City, Missouri 64105
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N. W.
Washington, D.C. 20005
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Funds. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004
1-800-331-1080
Pilgrim America Funds
<PAGE>
Pilgrim America Funds
MASTER SERIES
-------------
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
ELITE SERIES
------------
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
Pilgrim America
Funds
"Our goal is for every investor to have a successful investment experience."
Prospectuses containing more complete information regarding the Funds, including
charges and expenses, may be obtained by calling Pilgrim America Securities,
Inc. Distributor at 1-800-334-3444. Please read the prospectuses carefully
before you invest or send money.
22-SS-070897 082997
