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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
SEMI-ANNUAL REPORT
DECEMBER 31, 1996
[LOGO]
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Pilgrim America
Funds
Elite Series
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Semi-Annual Report
December 31, 1996
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Table of Contents
Chairman's Message 4
Portfolio Managers Reports:
Pilgrim America MagnaCap Fund 5
Pilgrim America High Yield Fund 9
Pilgrim Government Securities Income Fund 14
Statements of Assets and Liabilities 18
Statements of Operations 19
Statements of Changes in Net Assets 20
Financial Highlights 21
Notes to Financial Statements 24
Portfolio of Investments:
Pilgrim America MagnaCap Fund 29
Pilgrim America High Yield Fund 32
Pilgrim Government Securities Income Fund 36
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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 Semi-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 six months ended December 31, 1996,
as well as the markets and factors which have affected each of the Funds during
this period.
The Elite Series is designed to give investors access to seasoned investment
managers who bring a depth of experience and knowledge to their specific
investment discipline. Additionally, in order to give investors more choices to
fit their investment needs, we offer three classes of shares (A, 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
Pilgrim America Investments, Inc.
February 25, 1997
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Pilgrim America MagnaCap Fund
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Portfolio Manager's Report
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Dear Shareholder,
We are very pleased to report that Pilgrim America MagnaCap Fund (the "Fund")
had another good year in 1996. Eighteen years ago the Fund initiated the
"Rising Dividends" investment philosophy and 1996 marked the 17th year in the
last 18 that the Fund produced a positive return. For the 12 months ended
December 31, 1996, the Fund provided a total return of 18.51%(1) compared to
the Standard & Poor's 500 Index ("S&P 500")--a common proxy for the U.S. stock
market--which gained 22.96% for the same period. Over the last six months, the
Fund was up 12.38%(1), compared to the S&P 500 which gained 11.65% for the
same period. And for the very difficult and volatile third quarter ending
September 30, 1996, the Fund was up 7.98%(1), compared with the S&P 500 which
only gained 3.09%. The Fund's average annual total returns for the five and ten
year periods ended December 31, 1996 were 14.52% and 13.02%, respectively(1).
On December 31, 1996, the Fund declared a dividend of $4.912 per share from
capital gains to shareholders of record as of December 31, 1996.
A $10,000 investment in the Fund on January 1, 1979, the year in which the Fund
adopted its "Rising Dividends" investment strategy, would have grown to
$136,576 as of December 31, 1996, after deduction of the maximum 5.75% sales
charge, and assuming the reinvestment of all dividends and capital gains
distributions. The net asset value of Class A shares of the Fund was $18.65 on
December 31, 1996, which represents a $2.58 increase or 16% over the net asset
value of $16.07 on December 31, 1995.
General Economic and Equity Market Environments
In 1996, the economic environment for equities was defined by an expectation of
declining long-term interest rates (which in fact did not take place), low
inflation, sustained economic growth, and rising corporate profits.
Measured by the Dow Jones Industrial Average (the "Dow"), we just ended the
best two-year period in more than 40 years, with a return of 76.4%. During
those two years, the Dow set new closing highs 113 times, an average of more
than one a week, including 44 times in 1996. Never have so many new highs been
hit in two years. And those two years came at the conclusion of the best
15-year period in market history. Fifteen years ago, the Dow was below 1000,
about where it had been 15 years before that, and there were few who were
proclaiming that stocks were a good long-term investment.(2)
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Pilgrim America MagnaCap Fund
The Dow ended 1996 up 1331.15 points, or 26%--an impressive gain considering
that it came atop a 34% gain in 1995. The market's year unfolded in distinct
chapters. It began with a blue-chip boom, then gave way to a spring mania in
smaller stocks, which then set up the abrupt summer pullback that sliced 10%
off the Dow from its late May peak to its intra-day low on July 15, and clipped
high flying smaller issues more severely. By August, investors were back in a
buying mood, but the July decline left many wary of being caught by another
sudden market slump. So the focus shifted to "safe", easy-to-buy and
easy-to-sell blue chips. That trend was reinforced with the November election,
as investors liked the continuing Washington power split, moving the Dow from
6081 on Election Day to 6547 by November 22. Federal Reserve Board Chairman
Alan Greenspan helped trigger a modest market pullback in early December by
raising the question of possible "irrational exuberance" in financial
markets.(3)
As discussed, the S&P 500 gained 22.96% in 1996, after gaining 37.58% in 1995.
These two years together produced the index's best back-to-back gains since
1954-55. Small stocks lagged noticeably after losing their spring momentum, as
investors worried about the stocks' illiquidity. The Russell 2000 index of
small stocks rose 16.54% in 1996.(3)
Pilgrim America MagnaCap Fund
As a "Rising Dividends" fund, MagnaCap invests in a very select group of
companies that have been able to sustain growth over a 10-year period. In
selecting portfolio securities, companies 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 has been attributed to the very explicit
"Rising Dividends" investment criteria which determine the kinds of companies
that qualify for inclusion in the portfolio. Out of a universe of approximately
4,000 publicly traded companies and based upon both in-house and external
research, we aim to select the 35 to 45 equities which we believe will be most
likely to exhibit superior performance.
During this report period, we had holdings we believe were fully valued. In
response, we pared positions and took profits. This resulted in realized capital
gains in calendar 1996 that are substantially greater than
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Pilgrim America MagnaCap Fund
in prior years. In reallocating these dollars, we further diversified our
portfolio in response to current market conditions while adhering to our
investment principles.
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, circumstances of the
company and of the sector within which it falls. It appears the bull market in
U.S. stocks is starting its seventh year. It has been firmly based on
extraordinary changes in the economy that have given us one of the longest
economic expansions in U.S. history. This bull market has been one of the best
in U.S. history and we believe it is likely to continue for several reasons.
First, the economic expansion that has propelled stock prices higher has been
one of the most durable. It has been accompanied by mild inflation, job
creation and high-quality profit growth. Second, the current economic and
market cycles have benefited from several long-term structural changes. These
include an increase in the nation's savings rate and a notable reduction in the
government's budget deficit. There has also been a shift to a more
sophisticated, technology driven private sector that has spurred wide-spread
productivity gains, and this offers new opportunities for growth and jobs. Most
bull markets end when stocks are overpriced. We believe stocks generally are
now fairly priced, and stock prices can continue to rise selectively in 1997 in
concert with improvements in corporate earnings and cash flows.
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.
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Pilgrim America MagnaCap Fund
(1) Calculated without deducting 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 ending December 31,
1996, after the deduction of the maximum sales charge and assuming
reinvestment of all dividends and distributions were 11.70%, 13.16%,
and 12.35% respectively.
Performance figures shown pertain only to Class A shares of the Fund.
Total returns for Class B and M shares, calculated without deducting
sales charges, for the year ended December 31, 1996 were 17.71% and
18.02%, respectively. Average annualized total returns, excluding the
applicable sales charges, for the period from July 17, 1995 (date of
inception of Class B and M shares) to December 31, 1996 were 21.68%
and 22.01%, respectively.
Total returns for Class B and M shares, after deducting 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
December 31, 1996 were 12.70% and 13.90%, respectively. Average
annualized total returns, after the applicable sales charges, for the
period from July 17, 1995 (date of inception of Class B and M shares)
to December 31, 1996 were 19.18% and 19.05%, respectively.
(2) Source: The New York Times, January 2, 1997
(3) Source: Los Angeles Times, January 1, 1997
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.
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.
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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 the Pilgrim
America High Yield Fund (the "Fund") for the semi-annual period ended December
31, 1996.
Your Fund did very well against its peers in 1996, ranking 24 of 148 funds in
the Lipper High Current Yield category(1). The Fund placed well within the top
quartile of all High Yield funds, with a total return of +15.76% in 1996(2).
High yield issues outperformed most sectors of the fixed income market, as
economic activity in the US remained strong and inflation was well behaved. The
Fund's five and ten year returns were, respectively, 13.06% and 9.68%(2).
General Economic and Market Environment
In the last six months of 1996, Federal Reserve policy stood still with a
constant Federal Funds target rate of 5.25% for the period. The Fed last moved
short term interest rates in late January 1996, lowering the target from 5.50%
to the current 5.25%. No movement has taken place since that time as the
members of the Federal Reserve Open Market Committee have collectively not seen
signs of economic growth straying from a low positive growth rate, nor have
they seen any hint of increased inflationary pressure.
Short term borrowing costs for corporations have remained relatively steady for
both the semi-annual period and the year. The prime rate was lowered in late
January from 8.50% to 8.25% by major US banks shortly after the Fed lowered the
Federal Funds target rate. The rate remained there for the rest of the year.
Another short term interest rate benchmark for corporations is the London
Interbank Offered Rate, ("LIBOR"). The three month LIBOR rate began the year at
5.625%, closed mid-year at 5.582%, and ended 1996 at 5.5625%. Many high yield
issuers borrow in the short term market at rates that are pegged to one of the
above benchmarks. Stability in these rates throughout the year provided
companies that utilized their short term borrowing capacity with a more
attractive alternative than the longer term, fixed rate market.
Long term interest rates rose for most of the first half of 1996, and then fell
during the second half of the year. The thirty year Treasury bond yield began
the year on its lows at 5.95%. As the expectation that the Fed
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Pilgrim America High Yield Fund
would raise short term interest rates became reality, long term rates rose as
high as 7.19% on July 5th. Then a general cooling of fears of increased
inflationary pressure and faster economic growth led to falling rates into
early December, when rates bottomed at 6.35%. Since then rates rose again to
close the year at 6.64%.
High Yield Market
The high yield market performed remarkably well during 1996. The First Boston
High Yield Index (the "FBHYI")(3) returned 12.42% for the year, 1153 basis
points better than ten year Treasuries which had a total return of 0.89% for
the same time period. The Lehman Brothers High Yield Index (LBHYI)(3) posted a
11.35% gain during the year. Equities generally performed better than fixed
income, with the S&P 500 returning 22.96%. High yield market participants
tended to ignore higher interest rates as they continued to see revenue and
cash flow improvements in their issues. Spreads, according to the FBHYI,
narrowed 129 basis points to Treasuries during 1996. The index spread was 484
basis points at the end of 1995, narrowed 67 basis points to 417 at mid-year
1996, and narrowed 62 basis points further to 355 at year end.
The high yield market grew in size to $385 billion during 1996, a record high.
New issuance in 1996 was a record $77.5 billion, $2.2 billion greater than the
previous record year total of $75.3 billion in 1993. More impressive was the
fact that new issuance in 1993 was driven by refinancings of higher coupon
issues as a result of dramatically lower interest rates. In 1996 no such
underlying Treasury market strength was present to drive high yield issuance or
refinancings.
Pilgrim America High Yield Fund
Pilgrim America High Yield Fund's management has taken a disciplined approach
to investing which is special in the high yield market. Purchases are made only
after a complete credit review and screening process is completed. As part of
this process the Fund's management holds only those securities which meet the
following requirements:
1. Must be cash pay. The Fund does not hold zero coupon,
payment in kind, or deferred interest issues.
2. Have an issue size of at least $100 million. Smaller issues
tend to be less liquid and are not as well researched by
buyers and sellers.
3. Rated primarily Single-B and Double-B by the major credit
rating agencies. The Fund does not purchase defaulted or
distressed issues.
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Pilgrim America High Yield Fund
Additionally, the Fund does not hold emerging market or foreign issues, nor
does it participate in the derivatives, futures, or options markets.
Using this strategy and enhancing it with good credit and industry selection,
the Fund has outperformed the Lipper High Current Yield Fund (the "Lipper")
average(1). Total return for the Fund was 15.76% in 1996, versus 13.67% for the
Lipper average, a 209 basis point better performance. This return placed the
Fund in the top quartile of all high yield funds ranked by Lipper for the year.
The Fund's management underweighted cyclical industries through the early part
of 1996. As spreads tightened and confidence in the domestic economy improved,
exposure to cyclical industries was increased. In the second half of 1996 a
more cautious approach was taken to cyclical and more interest rate sensitive
lower coupon issues. A heavier weighting was placed on the Media and
Entertainment industry, as well as Communications and Oil and Gas issues. All
helped to enhance performance in the second half of the year.
The Fund's management continued to keep the Fund's assets fully invested,
believing the market would continue to rally. Cash balances at year end were a
very low 0.6% of Fund assets, as the new year begins the commitment to
remaining fully invested in cash pay issues continues. Should weakness present
itself in the form of still higher interest rates or a change to a weaker
economic outlook, the Fund's management will seek to utilize more defensive
high yield instruments. These include shorter maturity issues and very short
yield-to-call situations.
Quality spreads, or the spread between higher quality Double-B issues and lower
quality Single-B issues, have tightened during 1996. The First Boston High
Yield Index quality spread moved from 224 basis points to 164 basis points,
tightening 60 basis points during the year. While this was a positive for the
Fund, as it held a heavy position in Single-B issues in 1996, this raises some
concern over the extent to which the market is differentiating credit quality.
If the economy continues on a slow positive growth path with relatively benign
inflationary concerns, further tightening is possible. However, at this point
the Fund's management is cautious, and may consider upgrading the portfolio
weighting in Double-B issues should it become prudent.
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
bro-
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Pilgrim America High Yield Fund
ker 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
Kevin G. Mathews
Vice President and Senior Portfolio Manager
Pilgrim America Investments, Inc.
(1) Lipper Analytical Services Inc., ranked Class A shares of the Fund for
total return, without deducting sales charges and assuming
reinvestment of all dividends and distributions, and reflecting a
partial waiver of expenses. For the five and ten year periods ending
December 31, 1996 the Fund ranked 15 and 20 out of 63 and 43 funds,
respectively. For the one, five and ten year periods ended December
31, 1996, the Lipper High Current Yield Fund average returns were
13.67%, 12.10% and 9.38% for the 148, 63 and 43 funds, respectively.
(2) Calculated without deducting the Class A maximum 4.75% sales charge
and assuming reinvestment of all dividends and distributions. Total
returns for the one, five, and ten year periods ending December 31,
1996, after the deduction of the maximum sales charge and assuming
reinvestment of all dividends and distributions were 10.38%, 11.98%,
and 9.15%, respectively.
Performance figures shown pertain only to Class A shares of the Fund.
Total returns for Class B and M shares, calculated without deducting
sales charges, for the year ended December 31, 1996 were 15.05% and
15.32%, respectively. Average annualized total returns, excluding the
applicable sales charges, for the period from July 17, 1995 (date of
inception of Class B and M shares) to December 31, 1996 were
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Pilgrim America High Yield Fund
13.63% and 13.94%, respectively.
Total returns for Class B and M shares, after deducting the applicable
contingent deferred sales charge of 5.00 % (Class B shares only) or
the maximum sales charge of 3.25% (Class M shares only) for the year
ended December 31, 1996 were 10.10% and 11.66%, respectively. Average
annualized total returns, after the applicable sales charges, for the
period from July 17, 1995 (date of inception of Class B and M shares)
to December 31, 1996 were 11.02% and 11.37%, respectively.
Total returns reflect partial waiver of expenses for the periods
stated.
(3) The FBHYI and LBHYI are broad measures of high yield market
performance. The average annual total returns for the FBHYI for the
one, five, and ten year periods ended December 31, 1996 were 12.42%,
12.63%, and 11.48%, respectively. The average annual total returns for
the LBHYI for the one, five, and ten year periods ended December 31,
1996 were 11.35%, 12.23% and 10.86%, respectively.
The views expressed in this report reflect those of the portfolio manage 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.
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.
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Pilgrim Government Securities Income Fund
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Portfolio Managers 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 six months ended December 31, 1996.
The Fund performed well given the general rise in interest rates. For the six
month period ended December 31, 1996, the Fund earned a net return of 4.34%(1).
The Fund's one, five, and ten year returns were 2.56%, 4.96% and 6.52%,
respectively(1). As of December 31, 1996, the Fund's standardized 30 day SEC
yield was 5.89%.
General Economic and Market Environment
During the last twelve months, the government/mortgage market has experienced an
environment of rising rates attributable to concerns over a growing economy and
increased inflationary pressure. In the first six months of 1996, the long bond
rose from 5.95% at the beginning of the year to 6.87% at the end of June. In the
second half of 1996, despite considerable volatility, the long bond ended the
year at 6.64%, not far from the rate posted at the end of June.
Looking at economic numbers, we can witness several trends starting to form.
First, the cost of goods and services, as measured by the core producer and
consumer price index, remains benign and shows no trend of acceleration. The
core consumer price index increased 2.60% in 1996 versus 3.0% in 1995; the core
producer price index increased 0.6% in 1996 versus 2.6% in 1995. For goods and
services, the energy sector was the only area of significant inflationary
pressure in 1996. In the labor market, wage costs have gradually increased over
the last couple of years. Hourly earnings rose 3.8% in 1996 versus 3.2% in 1995.
This earnings increase was the largest since 1990. I believe this will be an
area of intense focus for market participants ( and the Federal Reserve) in
1997. Economic growth for 1996 was 2.5%. However, the year did end on a strong
note. Fourth quarter gross domestic product will likely be strong due largely to
increasing exports. Export growth will be concentrated predominantly in aircraft
purchases, which are known for rising sharply in one quarter and then falling
off dramatically the next. For this reason, we need to be careful in drawing
conclusions on how fourth quarter growth will impact economic growth in 1997.
Mortgage Securities Market in Particular
The rise in interest rates in 1996 allowed mortgages to outperform treasuries.
The best performing mortgage securities were those with an interest rate in the
8.0% to 9.0% range because investors were willing
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Pilgrim Government Securities Income Fund
to pay more for these mortgages which had a lower risk of being refinanced.
Analysis of the Pilgrim Government Securities Income Fund
The effective duration ( a measure of price sensitivity) of the portfolio as of
December 31, 1996 was approximately 4.0, slightly below the Lehman
Government/Mortgage Index and significantly below most other government
securities funds. During the first three quarters of 1996, management maintained
a portfolio duration below the benchmark. During the fourth quarter, management
gradually increased the portfolio's duration above the benchmark as interest
rates declined. 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. The two year treasury had declined to approximately
5.60% in November, which was only thirty five basis points above the Federal
Funds Rate. Management's belief was that this risk premium was inadequate. By
the end of November, the portfolio's effective duration was 3.6. These defensive
measures have allowed the Fund to finish 1996 near the top quartile or 47 of 170
funds in the Lipper General U.S. Government Funds category for the one year
period ended December 31, 1996(2). The Fund continues its ongoing commitment to
shareholders of avoiding the risks associated with exotic derivatives, leverage,
futures and options.
For 1997, we believe that economic growth will remain moderate. If hourly wage
earnings continue to increase, we anticipate that the Federal Reserve will
tighten monetary policy to bring it under control. As we go to press, the thirty
year treasury is currently trading just below 7.00% and the two year treasury
just above 6.00%. Forecasting interest rates is not an exact science but more a
matter 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. Treasury rates are a reflection of
the market's view of future inflation. The Federal Reserve has a large role in
controlling inflation through monetary policy. If the Federal Reserve starts
tightening monetary policy by increasing the Federal Funds rate, short and
intermediate treasury rates will be affected the most; however, the two year
treasury is already three-quarters of a percent above the Federal Funds rate.
Longer term interest rates, such as the thirty year treasury, should remain
around the current level or even decline slightly if the Federal Reserve
tightens monetary policy. The reason behind this possible decline would be based
on the perception that the Federal Reserve has brought inflation under control.
In conclusion, the probabilities look good for treasury rates, particularly
intermediate and longer term issues, to remain around current levels. Based upon
this reasoning, 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
Pilgrim America Funds
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Pilgrim Government Securities Income Fund
charge. Should you decide to switch from cash dividends to automatic
reinvestment, please notify your broker or contact the Transfer Agent, c/o DST
Systems Inc., P.O. Box 419338, Kansas City, Missouri 64141-6338 or call (800)
992-0180.
Thank you for your continued support, and do not hesitate to contact us with any
comments or questions regarding the fund.
Sincerely,
/s/ Charles Ullerich
Charles G. Ullerich
Portfolio Manager
Pilgrim America Investments, Inc.
(1) Calculated without deducting the Class A maximum 4.75% sales charge and
assuming reinvestment of all dividends and distributions. Total returns
for the one, five, and ten year periods ending December 31, 1996, after
the deduction of the maximum sales charge and assuming reinvestment of
all dividends and distributions were -2.32, 3.94%, and 6.01%
respectively.
Performance figures shown pertain only to Class A shares of the Fund.
Total returns for Class B and M shares, calculated without deducting
sales charges, for the year ended December 31, 1996 were 1.80% and
2.16%, respectively. Average annualized total returns, excluding the
applicable sales charges, for the period from July 17, 1995 (date of
inception of Class B and M shares) to December 31, 1996 were 4.24% and
4.60%, respectively.
Total returns for Class B and M shares, after deducting the applicable
contingent deferred sales charge of 5.00% (Class B shares only) or the
maximum sales charge of 3.25% (Class M shares only) for the year ended
December 31, 1996 were -3.20% and -1.14%, respectively. Average
annualized total returns, after the applicable sales charges, for the
period from July 17, 1995 (date of inception of Class B and M shares)
to December 31, 1996 were 1.50% and 2.32%, respectively.
Total returns reflect partial waiver of expenses for some of the
periods stated.
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Pilgrim Government Securities Income Fund
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) Lipper Analytical Services, Inc., ranked Class A shares of the Fund for
total return, without deducting sales charges and assuming reinvestment
of all dividends and distributions, and reflecting a partial waiver of
expenses. For the five and ten year periods, the Fund ranked 57 and 27
out of 71 and 40 funds, respectively.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
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.
Pilgrim America Funds
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<CAPTION>
Pilgrim America Elite Series
- ----------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Government
MagnaCap High Yield Securities
Fund Fund Income Fund
--------------- --------------- -----------------
<S> <C> <C> <C>
ASSETS:
Investments in securities at market value (Cost $196,518,755,
$42,780,872 and $33,051,426, respectively) $ 276,347,771 $ 43,939,290 $ 33,307,238
Cash 8,711 293,659 --
Receivables:
Investment securities sold 1,073,464 -- --
Dividends and interest 664,477 1,105,346 312,476
Fund shares sold 570,515 1,163,002 --
Due from affiliate -- 15,137 --
Other -- -- 23,203
Prepaid Expenses 36,807 12,607 11,945
------------- ------------- ---------------
Total Assets 278,701,745 46,529,041 33,654,862
------------- ------------- ---------------
LIABILITIES:
Payable for fund shares redeemed 308,052 143,742 92,109
Payable to custodian -- -- 370,497
Investment securities purchased -- 250,000 --
Other accrued expenses and liabilities 299,281 37,772 75,569
-------------- -------------- ----------------
Total Liabilities 607,333 431,514 538,175
-------------- -------------- ----------------
NET ASSETS $ 278,094,412 $ 46,097,527 $ 33,116,687
============== ============== ================
Net Assets consist of:
Paid-in capital $ 116,267,519 $ 55,427,897 $ 41,249,626
Undistributed (overdistributed) net investment income 879,408 332,532 (62,558)
Accumulated net realized gains (losses) on investments 81,118,469 (10,821,320) (8,326,193)
Net unrealized appreciation of investments 79,829,016 1,158,418 255,812
-------------- -------------- ----------------
Net Assets $ 278,094,412 $ 46,097,527 $ 33,116,687
============== ============== ================
Class A:
Net assets $ 257,200,809 $ 26,465,703 $ 32,418,501
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 80,000,000 80,000,000 1,000,000,000
Shares outstanding 13,793,169 3,972,187 2,544,430
Net asset value and redemption price per share $ 18.65 $ 6.66 $ 12.74
Maximum offering price per share(1) $ 19.79 $ 6.99 $ 13.38
Class B:
Net assets $ 17,854,684 $ 14,864,532 $ 673,360
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 80,000,000 80,000,000 1,000,000,000
Shares outstanding 961,355 2,234,564 52,907
Net asset value, redemption and offering price per share(2) $ 18.57 $ 6.65 $ 12.73
Class M:
Net assets $ 3,038,919 $ 4,767,292 $ 24,826
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 40,000,000 40,000,000 1,000,000,000
Shares outstanding 163,280 716,507 1,947
Net asset value and redemption price per share $ 18.61 $ 6.65 $ 12.75
Maximum offering price per share(3) $ 19.28 $ 6.87 $ 13.18
</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
18
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Elite Series
- ---------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Months Ended December 31, 1996 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Government
MagnaCap High Yield Securities
Fund Fund Income Fund
----------------- --------------- --------------
<S> <C> <C> <C>
Investment Income:
Interest $ 335,740 $ 1,732,726 $ 1,295,660
Dividends 2,636,219 -- --
---------------- --------------- --------------
Total investment income 2,971,959 1,732,726 1,295,660
---------------- --------------- --------------
Expenses:
Investment management fees 1,035,397 115,952 91,041
Distribution expenses
Class A Shares 377,494 27,280 45,035
Class B Shares 74,194 39,194 1,791
Class M Shares 9,535 9,216 113
Transfer agent and registrar fees 294,400 26,617 32,599
Recordkeeping and pricing fees 68,871 7,722 8,081
Professional fees 52,298 10,862 20,893
Custodian fees 38,687 11,402 14,603
Reports to shareholders 25,069 4,444 6,418
Registration and filing fees 23,453 14,715 15,271
Directors' fees 15,984 816 4,244
Insurance expense 13,916 1,138 2,174
Miscellaneous expenses 11,130 3,210 4,607
---------------- --------------- --------------
Total expenses 2,040,428 272,568 246,870
---------------- --------------- --------------
Less:
Waived and reimbursed fees - (76,429) (12,016)
Earnings credits (725) (4,686) --
---------------- --------------- --------------
Net expenses 2,039,703 191,453 234,854
---------------- --------------- --------------
Net investment income 932,256 1,541,273 1,060,806
---------------- --------------- --------------
REALIZED AND UNREALIZED GAINS
(LOSSES) FROM INVESTMENTS:
Net realized gains (losses) from investments 59,740,369 544,337 (119,482)
Net change in unrealized appreciation
(depreciation) of investments (29,754,219) 822,431 582,157
---------------- --------------- --------------
Net gain from investments 29,986,150 1,366,768 462,675
---------------- --------------- --------------
Net increase in net assets
resulting from operations $ 30,918,406 $ 2,908,041 $ 1,523,481
================ =============== ==============
</TABLE>
See Accompanying Notes to Fianncial Statements
19
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Elite Series
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
Government Securities
MagnaCap Fund High Yield Fund Income Fund
------------------------------- ------------------------------- --------------------------------
Six Months Six Months Six Months
Ended Ended Ended
December 31, Year Ended December 31, Year Ended December 31, Year Ended
1996 (Unaudited) June 30, 1996 1996 (Unaudited) June 30, 1996 1996 (Unaudited) June 30, 1996
--------------- ------------- ---------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets
from operations:
Net investment income $ 932,256 $ 1,259,836 $ 1,541,273 $ 1,610,614 $ 1,060,806 $ 2,426,793
Net realized gain (loss)
from investments 59,740,369 25,045,352 544,337 733,725 (119,482) 341,589
Net change in unrealized
appreciation (depreciation)
of investments (29,754,219) 17,314,574 822,431 (338,649) 582,157 (1,342,713)
------------ ------------ ----------- ----------- ----------- -----------
Net increase in net assets
resulting from operations 30,918,406 43,619,762 2,908,041 2,005,690 1,523,481 1,425,669
------------ ------------ ----------- ----------- ----------- -----------
Distributions
to shareholders:
Net investment income:
Class A shares (1,324,598) (913,179) (975,361) (1,398,592) (1,114,035) (2,425,905)
Class B shares (76) (293,362) (44,230) (8,512) (766)
Class M shares (3,788) (11) (94,898) (13,477) (817) (122)
Net realized gains:
Class A shares -- (3,522,486) -- -- -- --
Class B shares -- (24,792) -- -- -- --
Class M shares -- (3,493) -- -- -- --
Tax return of capital:
Class A shares -- -- -- -- -- (183,721)
Class B shares -- -- -- --
Class M shares -- -- -- --
------------ ------------ ----------- ----------- ----------- -----------
Total distributions (1,328,386) (4,464,037) (1,363,621) (1,456,299) (1,123,364) (2,610,514)
------------ ------------ ----------- ----------- ----------- -----------
Capital share transactions:
Net proceeds from sale of shares 45,714,016 71,233,884 24,219,193 7,992,192 1,040,148 4,809,688
Shares resulting from dividend
reinvestment 1,030,286 3,475,640 615,772 617,676 471,023 985,701
Cost of shares redeemed (46,103,094) (77,332,069) (2,589,726) (2,801,277) (7,644,710) (9,391,713)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from capital
share transactions 641,208 (2,622,545) 22,245,239 5,808,591 (6,133,539) (3,596,324)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets 30,231,228 36,533,180 23,789,659 6,357,982 (5,733,422) (4,781,169)
------------ ------------ ----------- ----------- ----------- -----------
Net assets, beginning of period 247,863,184 211,330,004 22,307,868 15,949,886 38,850,109 43,631,278
------------ ------------ ----------- ----------- ----------- -----------
Net assets, end of period * $278,094,412 $247,863,184 $46,097,527 $22,307,868 $33,116,687 $38,850,109
============ ============ =========== =========== =========== ===========
* Including undistributed
(overdistributed) net
investment income of: $ 879,408 $ 1,275,538 $ 332,532 $ 154,880 $ (62,558) $ 0
============ ============ =========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
20
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------------------------------
Six Months
Ended
December 31, Year Ended June 30,
1996 -----------------------------------------------------------------------------
(Unaudited) 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 0.06 0.09 0.12 0.15 0.14 0.13
Net realized and
unrealized gain
on investments 1.99 2.87 2.29 0.89 0.82 1.16
------------- ------------- ------------- ------------- ------------- ------------
Total from investment
operations 2.05 2.96 2.41 1.04 0.96 1.29
------------- ------------- ------------- ------------- ------------- ------------
Less distributions from:
Net investment income 0.09 0.06 0.14 0.14 0.12 0.24
Realized gains on investment -- 0.24 0.60 0.59 0.77 --
------------- ------------- ------------- ------------- ------------- ------------
Total distributions 0.09 0.30 0.74 0.73 0.89 0.24
------------- ------------- ------------- ------------- ------------- ------------
Net asset value, end of period $ 18.65 $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98
============= ============= ============= ============= ============= ============
Total Return (c) 12.38% 21.31% 20.61% 9.13% 8.21% 11.93%
Ratios/Supplemental Data
Net assets, end
of period (000's) $ 257,201 $ 235,393 $ 211,330 $ 190,435 $ 197,250 $ 196,861
Ratios to average net assets:
Expenses 1.47%(d) 1.68% 1.59% 1.53% 1.53% 1.60%
Net investment income 0.73%(d) 0.54% 0.98% 1.16% 1.09% 1.20%
Portfolio turnover rate 58% 15% 6% 7% 36% 49%
<CAPTION>
CLASS B CLASS M
---------------------------- --------------------------
Six Months Six Months
Ended July 17, Ended July 17,
December 31, 1995(b) to December 31, 1995(b) to
1996 June 30, 1996 June 30,
(Unaudited) 1996 (Unaudited) 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 0.01 0.06 0.03 0.08
Net realized and
unrealized gain
on investments 1.97 2.61 1.98 2.63
------------ ------------ ----------- ----------
Total from investment
operations 1.98 2.67 2.01 2.71
------------ ------------ ----------- ----------
Less distributions from:
Net investment income -- 0.06 0.03 0.06
Realized gains on investment -- 0.24 -- 0.24
------------ ------------ ----------- ----------
Total distributions -- 0.30 0.03 0.30
------------ ------------ ----------- ----------
Net asset value, end of period $ 18.57 $ 16.59 $ 18.61 $ 16.63
============ ============ =========== ==========
Total Return (c) 11.93% 18.98% 12.11% 19.26%
Ratios/Supplemental Data
Net assets, end
of period (000's) $ 17,855 $ 10,509 $ 3,039 $ 1,961
Ratios to average net assets:
Expenses 2.16%(d) 2.38%(d) 1.91%(d) 2.13%(d)
Net investment income 0.08%(d) 0.07%(d) 0.33%(d) 0.32%(d)
Portfolio turnover rate 58% 15% 58% 15%
</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
21
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America High Yield Fund
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS A
------------------------------------------------------------------------------------------
Six Months Eight
Ended Year Months
December 31, Ended Ended Year Ended October 31,
1996 June 30, June 30, -----------------------------------------
(Unaudited) 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 0.31 0.59 0.35 0.54 0.53 0.63
Net realized and unrealized
gain (loss) on investments 0.29 0.16 0.21 (0.51) 0.70 0.07
------------- ------------ ------------ ------------- ------------ -----------
Total from investment operations 0.60 0.75 0.56 0.03 1.23 0.70
------------- ------------ ------------ ------------- ------------ -----------
Less distributions from:
Net investment income 0.30 0.54 0.36 0.55 0.53 0.63
Realized gains on investments -- -- -- -- -- --
------------- ------------ ------------ ------------- ------------ -----------
Total distributions 0.30 0.54 0.36 0.55 0.53 0.63
------------- ------------ ------------ ------------- ------------ -----------
Net asset value, end of period $ 6.66 $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77
============= ============ ============ ============= ============ ===========
Total Return (d) 9.69% 12.72% 9.77% 0.47% 22.12% 12.65%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 26,466 $ 18,691 $ 15,950 $ 16,046 $ 18,797 $ 17,034
Ratios to average net assets:
Expenses (e)(f)(g) 1.00%(h) 1.00% 2.25%(h) 2.00% 2.02% 2.03%
Net investment income (e)(f)(g) 9.85%(h) 9.46% 8.84%(h) 8.73% 8.36% 10.93%
Portfolio turnover rate 228% 399% 166% 192% 116% 193%
<CAPTION>
CLASS B CLASS M
----------------------------- ---------------------------
Six Months Six Months
Ended July 17, Ended July 17,
December 31, 1995(c) to December 31, 1995(c) to
1996 June 30, 1996 June 30,
(Unaudited) 1996 (Unaudited) 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 0.29 0.48 0.30 0.50
Net realized and unrealized
gain (loss) on investments 0.28 0.14 0.28 0.14
------------- ----------- ----------- -----------
Total from investment operations 0.57 0.62 0.58 0.64
------------- ----------- ----------- -----------
Less distributions from:
Net investment income 0.28 0.46 0.29 0.48
Realized gains on investments -- -- -- --
------------- ----------- ----------- -----------
Total distributions 0.28 0.46 0.29 0.48
------------- ----------- ----------- -----------
Net asset value, end of period $ 6.65 $ 6.36 $ 6.65 $ 6.36
============= =========== =========== ===========
Total Return (d) 9.18% 10.37% 9.30% 10.69%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 14,865 $ 2,374 $ 4,767 $ 1,243
Ratios to average net assets:
Expenses (e)(f)(g) 1.75%(h) 1.75%(h) 1.50(h) 1.50%(h)
Net investment income (e)(f)(g) 9.00%(h) 9.02%(h) 9.26(h) 9.41%(h)
Portfolio turnover rate 228% 339% 228% 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, and for the
period ended December 31, 1996, the annualized ratios of expenses
to average net assets were 1.38%, 2.34% and 2.10% and the
annualized ratios of net investment income to average net assets
were 9.44%, 8.38% and 8.62% for Class A, B and M shares,
respectively.
(f) Prior to the waiver and reimbursement of expenses, and for the
period ended June 30, 1996, the ratios of expenses to average net
assets were 2.19%, 2.94%(h) and 2.96%(h) and the ratios of net
investment income to average net assets were 8.27%, 8.05%(h) and
8.51%(h), 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%(h) 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
22
<PAGE>
<TABLE>
<CAPTION>
Pilgrim Government Securities Income Fund
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
----------------------------------------------------------------------------------------
Six Months
Ended
December 31, Year Ended June 30,
1996 ----------------------------------------------------------------------
(Unaudited) 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 0.35 0.75 0.84 0.84 1.13 1.19
Net realized and unrealized
gain (loss) on investments 0.19 (0.32) 0.24 (1.17) 0.18 --
--------- --------- --------- --------- --------- -------
Total from investment operations 0.54 0.43 1.08 (0.33) 1.31 1.19
--------- --------- --------- --------- --------- -------
Less distributions from:
Net investment income 0.39 0.75 0.84 0.90 1.11 1.19
Tax return of capital -- 0.06 -- -- -- --
--------- --------- --------- --------- --------- -------
Total distributions 0.39 0.81 0.84 0.90 1.11 1.19
--------- --------- --------- --------- --------- --------
Net asset value, end of period $ 12.74 $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76
========= ========= ========= ========= ========= ========
Total Return (d) 4.34% 3.34% 8.96% (2.50)% 9.82% 8.98%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 32,419 $ 38,753 $ 43,631 $ 61,100 $ 87,301 $ 96,390
Ratios to average net assets:
Expenses (e)(f)(g) 1.28%(h) 1.51% 1.40% 1.21% 1.12% 1.10%
Net investment income (e)(f)(g) 5.84%(h) 5.84% 6.37% 6.44% 8.06% 8.59%
Portfolio turnover rate 95% 170% 299% 402% 466% 823%
<CAPTION>
CLASS B CLASS M
------------------------- -------------------------
Six Months Six Months
Ended July 17, Ended July 17,
December 31, 1995(b) to December 31, 1995(b) to
1996 June 30, 1996 June 30,
(Unaudited) 1996 (Unaudited) 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 0.28 0.66 0.36 0.68
Net realized and unrealized
gain (loss) on investments 0.15 (0.37) 0.16 (0.36)
--------- -------- ------- -------
Total from investment operations 0.43 0.29 0.52 0.32
--------- -------- ------- -------
Less distributions from:
Net investment income 0.29 0.65 0.36 0.68
Tax return of capital -- -- -- --
--------- -------- ------- -------
Total distributions 0.29 0.65 0.36 0.68
--------- -------- -------- -------
Net asset value, end of period $ 12.73 $ 12.59 $ 12.75 $ 12.59
========= ======== ======== =======
Total Return (d) 3.91% 2.25% 4.16% 2.52%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 6.73 $ 73 $ 25 $ 24
Ratios to average net assets:
Expenses (e)(f)(g) 1.94%(h) 2.26%(h) 1.80%(h) 2.01%(h)
Net investment income (e)(f)(g) 4.96%(h) 4.98%(h) 5.36%(h) 5.73%(h)
Portfolio turnover rate 95% 170% 95% 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 changes 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, and for the period
ended December 31, 1996, the annualized ratios of expenses to average
net assets were 1.35%, 2.07 and 1.86% and the annualized ratios of net
investment income to average net assets were 5.77%, 4.83% and 5.30% for
Class A, B and M shares, respectively.
(f) Prior to the waiver and reimbursement of expenses, and for the period
ended June 30, 1996, the ratios of expenses to average net assets were
1.57%, 2.41%(h) and 2.16%(h), and the ratios of net investment income to
average net assets were 5.74%, 4.83%(h) and 5.58%(h) for Class A, B and
M shares, respectively.
(g) Prior to the waiver expenses, and for the period ended June 30, 1995,
the ratio of expenses to average net assets was 1.54%, and the ratio of
net investment income to average net assets was 6.23% for Class A shares.
(h) Annualized.
See Accompanying Notes to Financial Statements
23
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
(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 and other temporary differences. To the extent that
these differences are permanent in nature, such amounts are reclassifid
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.
24
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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, 1996:
<TABLE>
<CAPTION>
Amount Expiration Date
------ ---------------
<S> <C> <C>
MagnaCap Fund $ N/A
High Yield Fund 9,493,815 1997-2003
Government Securities Income Fund 8,206,711 1997-2003
</TABLE>
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, Express America Holdings Corporation ("Express America")
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 Express America.
25
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
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
distribution fees, interest, taxes, brokerage and extraordinary expenses, so
that total operating expenses do not exceed 1.00% for Class A, 1.75% for Class B
and 1.50% for Class M. This expense limitation will apply until June 30, 1997.
At December 31, 1996, High Yield Fund accrued $15,137 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 $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
December 31, 1996 there was no reimbursement due from the Manager for such
excess expenses.
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.
26
Pilgrim America Elite Series
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
(3) Investment Transactions
For the six months ended December 31, 1996, the cost of purchases and proceeds
from the sales of securities were as follows:
<TABLE>
<CAPTION>
Government Securities
MagnaCap Fund High Yield Fund Income Fund
------------- --------------- -----------
<S> <C> <C> <C>
U.S. Government Obligations:
Purchases $ -- $ -- $ 33,580,880
Sales -- -- 36,202,187
Other Securities:
Purchases 146,897,450 88,657,494 --
Sales 150,639,040 67,574,981 --
</TABLE>
(4) Capital Shares
Transactions in capital shares and dollars were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
------------------------------ --------------------------- --------------------------
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
December 31, June 30, December 31, June 30, December 31, June 30,
1996 1996 1996 1996 1996 1996
-------------- --------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
MagnaCap Fund (Shares)
Shares sold 2,066,307 3,769,994 455,790 641,789 65,053 130,015
Shares issued as reinvestments
of dividends 61,506 222,032 0 1,560 224 221
Shares redeemed (2,441,812) (4,943,794) (127,992) (9,792) (19,930) (12,303)
-------------- --------------- ------------ ------------- ------------- ------------
Net increase (decrease) in
shares outstanding (313,999) (951,768) 327,798 633,557 45,347 117,933
============== =============== ============ ============= ============= ============
MagnaCap Fund ($)
Shares sold $36,430,330 $ 58,716,766 $8,118,789 $10,409,316 $1,166,897 $2,107,802
Shares issued as reinvestments
of dividends 1,026,548 3,447,447 0 24,690 3,738 3,503
Shares redeemed (43,364,630) (76,979,255) (2,369,374) (160,454) (369,089) (192,360)
-------------- --------------- ------------ ------------- ------------- ------------
Net increase (decrease) in
shares outstanding $ (5,907,752) $(14,815,042) $5,749,415 $10,273,552 $ 801,546 $1,918,945
============== =============== ============ ============= ============= ============
High Yield Fund (Shares)
Shares sold 1,265,154 667,265 1,923,430 391,688 529,723 198,769
Shares issued as reinvestments
of dividends 70,040 94,111 17,978 3,272 7,367 1,190
Shares redeemed (300,719) (416,380) (80,369) (21,435) (16,090) (4,452)
-------------- --------------- ------------ ------------- ------------- ------------
Net increase in
shares outstanding 1,034,475 344,996 1,861,039 373,525 521,000 195,507
============== =============== ============ ============= ============= ============
</TABLE>
27
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
------------------------------ ---------------------------- --------------------------
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
December 31, June 30, December 31, June 30, December 31, June 30,
1996 1996 1996 1996 1996 1996
-------------- --------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
High Yield Fund ($)
Shares sold $ 8,255,848 $ 4,248,850 $12,504,194 $ 2,485,160 $2,459,151 $1,258,182
Shares issued as reinvestments
of dividends 451,711 589,405 116,348 20,744 47,714 7,527
Shares redeemed (1,960,128) (2,637,070) (524,227) (135,908) (105,371) (28,299)
-------------- --------------- -------------- ------------- ------------ ------------
Net increase in shares
outstanding $ 6,747,431 $ 2,201,185 $12,096,315 $ 2,369,996 $2,401,494 $1,237,410
============== =============== ============== ============= ============ ============
Government Securities
Income Fund (Shares)
Shares sold 32,911 368,928 48,581 5,776 802 1,862
Shares issued as reinvestments
of dividends 37,094 76,541 255 23 65 10
Shares redeemed (603,573) (731,172) (1,728) 0 (792) 0
-------------- --------------- -------------- ------------- ------------ ------------
Net increase (decrease) in
shares outstanding (533,568) (285,703) 47,108 5,799 75 1,872
============== =============== ============== ============= ============ ============
Government Securities
Income Fund ($)
Shares sold $ 416,759 $ 4,712,654 $ 613,353 $ 73,517 $ 10,035 $ 23,517
Shares issued as reinvestments
of dividends 466,992 985,290 3,215 292 816 119
Shares redeemed (7,613,274) (9,391,713) (21,437) 0 (10,000) 0
-------------- --------------- -------------- ------------- ------------ ------------
Net increase (decrease) in
shares outstanding $ (6,729,523) $ (3,693,769) $ 595,131 73,809 $ 851 $ 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 six months
ended December 31, 1996, MagnaCap Fund, High Yield and Government Securities
Income Fund received earnings credits of $725, $4,686 and $0, respectively.
28
<PAGE>
Pilgrim America MagnaCap Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 97.0%
Market
Shares Value
------ -----
<S> <C> <C>
Banks: 1.8%
98,000 CoreStates Financial Corp. $ 5,083,750
--------------
Chemicals: 4.3%
60,000 DuPont, (E.I.) DeNemours & Co. 5,662,500
100,000 Sigma Aldrich Corp. 6,243,750
--------------
11,906,250
--------------
Chemicals-Diversified: 4.6%
70,000 Millipore Corp. 2,896,250
131,600 PPG Industries, Inc. 7,386,050
100,000 Pall Corp. 2,550,000
--------------
12,832,300
--------------
Communications: 1.6%
175,000 Federal Signal Corp. 4,528,125
--------------
Computer Software & Services: 3.7%
240,000 Automatic Data Processing, Inc. 10,290,000
--------------
Computer Systems: 3.4%
140,000 Electronic Data Systems Corp. 6,055,000
100,000 Wallace Computer Services 3,450,000
--------------
9,505,000
--------------
Cosmetics: 1.3%
80,400 International Flavors & Fragrances, Inc. 3,618,000
--------------
Drugs: 3.9%
100,000 Bristol-Myers Squibb Co. 10,875,000
--------------
Drugstores: 3.5%
235,000 Rite Aid Corp. 9,341,250
--------------
Electrical Equipment: 3.6%
228,200 Hubbell, Inc. 9,869,650
--------------
Energy: 2.0%
13,000 Amoco Oil Co. 1,046,500
100,700 Elf Aquitane-ADR 4,556,675
--------------
5,603,175
--------------
</TABLE>
See Accompanying Notes to Financial Statements
29
<PAGE>
Pilgrim America MagnaCap Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C>
Energy Services: 1.9%
100,000 Helmerich & Payne, Inc. $ 5,212,500
--------------
Food & Beverages: 6.3%
270,000 Heinz (H.J.) Co. 9,652,500
80,000 Hershey Foods Corp. 3,500,000
150,000 Pepsico, Inc. 4,387,500
--------------
17,540,000
--------------
Foods: 3.5%
260,000 Sara Lee Corp. 9,685,000
--------------
Healthcare: 4.9%
170,000 Abbott Laboratories 8,627,500
140,000 Hillenbrand Industries 5,075,000
--------------
13,702,500
--------------
Insurance: 9.1%
275,000 AFLAC, Inc. 11,756,250
120,000 Chubb Corp. 6,450,000
100,000 UNUM Corp. 7,225,000
--------------
25,431,250
--------------
Leisure: 1.7%
198,600 Brunswick Corp. 4,766,400
--------------
Machinery & Equipment: 2.2%
120,000 Dover Corp. 6,030,000
--------------
Medical Equipment: 3.0%
200,000 Baxter International 8,200,000
--------------
Office Products & Services: 3.9%
94,000 Avery Dennison Corp. 3,325,250
150,000 Hewlett Packard 7,537,500
--------------
10,862,750
--------------
Oil-International Integrated: 2.9%
125,000 Chevron Corp. 8,125,000
--------------
Oil Well Equipment & Services: 2.7%
74,500 Schlumberger Ltd. 7,440,688
--------------
</TABLE>
See Accompanying Notes to Financial Statements
30
<PAGE>
Pilgrim America MagnaCap Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C>
Paper & Forest Products: 5.3%
100,024 Kimberly-Clark Corp. $ 9,527,286
50,900 Mead Corp. 2,958,562
54,500 Potlatch Corp. 2,343,500
--------------
14,829,348
--------------
Regional Banks: 2.1%
112,800 Comerica, Inc. 5,907,900
--------------
Restaurants: 3.4%
210,000 McDonalds Corp. 9,502,500
--------------
Retail: 5.5%
200,000 Heilig-Meyers Co. 3,250,000
100,000 Nordstrom, Inc. 3,537,500
370,000 Wal-Mart Stores, Inc. 8,463,750
--------------
15,251,250
--------------
Savings & Loans: 1.6%
105,000 Charter One Financial, Inc. 4,410,000
--------------
Supermarkets: 2.2%
175,000 Albertson's, Inc. 6,234,375
--------------
Transportation: 1.1%
200,000 Arnold Industries, Inc. 3,175,000
--------------
Total Common Stocks (Cost $189,929,945) 269,758,961
--------------
<CAPTION>
SHORT-TERM INVESTMENTS: 2.4%
Principal
Amount Value
------ -----
<S> <C> <C> <C>
Commercial Paper: 2.4%
$6,590,000 Merrill Lynch Commercial Paper, 6.50% due 01/02/97 6,588,810
--------------
Total Short-Term Investments (Cost $6,588,810) 6,588,810
--------------
Total Investments in Securities (Cost $196,518,755)* 99.4% 276,347,771
Cash and Other Assets in Excess of Liabilities-Net 0.6% 1,746,641
------------- --------------
Total Net Assets 100.0% $ 278,094,412
============= ==============
</TABLE>
- ------------------------------------
* Cost for federal income tax purposes is $196,518,755. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation $ 80,648,134
Gross Unrealized Depreciation (819,118)
--------------
Net Unrealized Appreciation $ 79,829,016
==============
See Accompanying Notes to Financial Statements
31
<PAGE>
Pilgrim America High Yield Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS: 94.5%
Principal Market
Amount Value
------ -----
<S> <C> <C>
Advertising: 2.8%
$750,000 (a) Katz Media Corp., 10.500% due 01/15/07 $ 772,500
500,000 Lamar Advertising, 9.625% due 12/01/06 517,500
-------------
1,290,000
-------------
Automotive: 4.6%
250,000 (a) Blue Bird Body, 10.750% due 11/15/06 262,500
750,000 Collins & Aikman, 11.500% due 04/15/06 819,375
1,000,000 (a) Euramax International, 11.250% due 10/01/06 1,035,000
-------------
2,116,875
-------------
Broadcasting: 1.7%
750,000 (a) SFX Broadcasting, 10.750% due 05/15/06 792,188
-------------
Business Services: 1.8%
750,000 Unisys Corp., 12.000% due 04/15/03 806,250
-------------
Chemicals: 5.1%
500,000 Astor Corp., 10.500% due 10/15/06 512,500
1,000,000 NL Industries, 11.750% due 10/15/03 1,063,750
750,000 Trans-Resources, 11.875% due 07/01/02 757,500
-------------
2,333,750
-------------
Communications: 8.9%
500,000 (a) IXC Communications, 12.500% due 10/01/05 550,000
1,000,000 Mobile Telecomm, 13.500% due 12/15/02 1,005,000
1,000,000 Paging Network, 10.125% due 08/01/07 1,022,500
500,000 Phonetel Tech, 12.000% due 12/15/06 516,250
500,000 Pricellular Wire, 10.750% due 11/01/04 521,250
500,000 Pronet, Inc., 11.875% due 06/15/05 477,500
-------------
4,092,500
-------------
Consumer Products: 2.2%
1,000,000 (a) Scholastic Brand, 11.000% due 01/15/07 1,017,500
-------------
Diversified Conglomerate: 2.0%
1,000,000 Venture Holdings, 9.750% due 04/01/04 915,000
-------------
Entertainment: 1.7%
750,000 (a) All American Commercial, Inc., 10.875% due 10/15/01 762,172
-------------
Financial: 1.1%
500,000 (a) Dollar Financial Group, 10.875% due 11/15/06 516,250
-------------
</TABLE>
See Accompanying Notes to Financial Statements
32
<PAGE>
Pilgrim America High Yield Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount Value
------ -----
<S> <C> <C>
Food Distributors: 1.7%
$750,000 Chiquita Brands, 10.250% due 11/01/06 $ 796,875
-------------
Foods: 2.1%
1,000,000 Specialty Foods, 10.250% due 08/15/01 950,000
-------------
Gaming: 7.0%
1,000,000 Casino America, 12.500% due 08/01/03 950,000
500,000 Hollywood Casino Corp., 12.750% due 11/01/03 481,250
500,000 (a) Players International, 10.875% due 04/15/05 497,500
500,000 (a) Showboat Marina Casino, 13.500% due 03/15/03 550,000
750,000 Trump Atlantic City, 11.250% due 05/01/06 742,500
-------------
3,221,250
-------------
Home Building: 1.5%
750,000 Presley Companies, 12.500% due 07/01/01 716,250
-------------
Machinery & Equipment: 2.3%
1,000,000 (a) Tokheim Corp., 11.500% due 08/01/06 1,061,250
-------------
Manufacturing: 2.2%
500,000 (a) Clark Material, 10.750% due 11/15/06 518,750
500,000 Jordan Industries, 10.375% due 08/01/03 495,000
-------------
1,013,750
-------------
Manufacturing/Electronic: 2.9%
750,000 Advanced Micro Devices, 11.000% due 08/01/03 815,625
500,000 Motors and Gears, Inc., 10.750% due 11/15/06 518,750
-------------
1,334,375
-------------
Media & Entertainment: 16.0%
1,000,000 Adelphia Communications, 12.500% due 05/15/02 1,027,500
1,000,000 FrontierVision, 11.000% due 10/15/06 1,000,000
1,000,000 Galaxy Telecom, 12.375% due 10/01/05 1,067,500
500,000 (a) Heartland Wireless, 14.000% due 10/15/04 517,500
1,000,000 (a) Lodgenet Entertainment, 10.250% due 12/15/06 1,000,000
750,000 Rifkin Acquisition, 11.125% due 01/15/06 780,000
1,000,000 Rogers Communication, Inc., 9.125% due 01/15/06 986,250
1,000,000 Wireless One, Inc., 13.000% due 10/15/03 980,000
-------------
7,358,750
-------------
Metals & Minerals: 4.6%
500,000 Haynes International, Inc., 11.625% due 09/01/04 530,000
500,000 (a) Kaiser Aluminum & Chemical Co., 10.875% due 10/15/06 527,500
1,000,000 Kaiser Aluminum & Chemical Co., 10.875% due 10/15/06 1,065,000
-------------
2,122,500
-------------
</TABLE>
See Accompanying Notes to Financial Statements
33
<PAGE>
Pilgrim America High Yield Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount Value
------ -----
<S> <C> <C>
Oil & Gas: 5.7%
$1,000,000 (a) Abraxas Petro, 11.500% due 11/01/04 $ 1,075,000
1,000,000 Petro PSC, 12.500% due 06/01/02 1,015,000
500,000 (a) Plains Resources, Inc., 10.250% due 03/15/06 536,250
-------------
2,626,250
-------------
Packaging Products: 1.6%
750,000 (a) Spinnaker Industies, Inc., 10.750% due 10/15/06 759,375
-------------
Paper & Forest Products: 1.0%
500,000 Riverwood International, 10.875% due 04/01/08 462,500
-------------
Printing: 2.2%
500,000 Goss Graphic Systems, Inc., 12.000% due 10/15/06 511,250
500,000 MDC Communications, 10.500% due 12/01/06 510,000
-------------
1,021,250
-------------
Restaurants: 1.1%
500,000 Ameriking, Inc., 10.750% due 12/01/06 520,000
-------------
Retail: 4.1%
1,000,000 CMI Industries, Inc., 9.500% due 10/01/03 940,000
500,000 Hines Horticulture Series B, 11.750% due 10/15/05 532,500
500,000 Kmart Corp., 7.950% due 02/01/23 411,250
-------------
1,883,750
-------------
Supermarkets: 4.5%
500,000 DiGiorgio Corp., 12.000% due 02/15/03 510,000
750,000 Grand Union Co., 12.000% due 09/01/04 791,250
750,000 Jitney-Jungle Stores, 12.000% due 03/01/06 795,000
-------------
2,096,250
-------------
Textile: 2.1%
1,000,000 Reeves Industries, 11.000% due 07/15/02 967,500
-------------
Total Corporate Bonds (Cost $42,395,942) 43,554,360
-------------
</TABLE>
See Accompanying Notes to Financial Statements
34
<PAGE>
Pilgrim America High Yield Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 0.8%
Principal
Amount Value
------ -----
<S> <C> <C>
Commercial Paper: 0.8%
$385,000 Merrill Lynch Commerical Paper, 6.50%, due 01/02/97 $ 384,930
------------
Total Short-Term Investments (Cost $384,930) 384,930
------------
Total Investments in Securities (Cost $42,780,872)* 95.3% 43,939,290
Cash and Other Assets in Excess of Liabilities-Net 4.7% 2,158,237
-------------- ------------
Total Net Assets 100.0% $ 46,097,527
============== ============
</TABLE>
- ------------------------------------
(a) Issues designated 144A.
* Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 1,193,676
Gross Unrealized Depreciation (35,258)
------------
Net Unrealized Appreciation $ 1,158,418
============
See Accompanying Notes to Financial Statements
35
<PAGE>
Pilgrim Government Securities Income Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES: 100.6%
Principal Market
Amount Rate Maturity Value
------ ---- -------- -----
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation: 19.7%
$3,416,433 Federal Home Loan Mortgage Corporation 7.000% 2025 to 2026 $ 3,351,999
263,345 Federal Home Loan Mortgage Corporation 8.500% 2017 275,683
306,090 Federal Home Loan Mortgage Corporation 8.750% 2009 313,360
505,389 Federal Home Loan Mortgage Corporation 9.000% 2006 520,272
576,081 Federal Home Loan Mortgage Corporation 9.500% 2005 to 2014 609,797
94,164 Federal Home Loan Mortgage Corporation 9.905% 2020 101,319
233,007 Federal Home Loan Mortgage Corporation-Gold 9.000% 2021 246,216
1,035,124 Federal Home Loan Mortgage Corporation-Gold 9.500% 2025 1,116,371
--------------
6,535,017
--------------
Federal National Mortgage Association: 36.6%
4,690,647 Federal National Mortgage Association 6.500% 2016 2,347,486
2,720,983 Federal National Mortgage Association 8.500% 2016 to 2021 2,836,384
592,248 Federal National Mortgage Association 9.000% 2025 624,709
1,151,927 Federal National Mortgage Association 9.250% 2009 to 2016 1,217,944
169,110 Federal National Mortgage Association 9.750% 2008 182,608
617,017 Federal National Mortgage Association 10.000% 2006 656,402
1,200,105 Federal National Mortgage Association 10.500% 2001 to 2019 1,287,376
381,408 Federal National Mortgage Association 11.500% 2015 434,290
147,582 Federal National Mortgage Association 12.500% 2010 169,811
1,714,949 Federal National Mortgage Association 13.000% 2014 2,000,507
291,923 Federal National Mortgage Association 14.500% 2011 348,484
--------------
12,106,001
--------------
Government National Mortgage Association: 30.5%
905,519 Government National Mortgage Association 7.500% 2023 906,542
4,051,201 Government National Mortgage Association 8.000% 2022 to 2024 4,160,077
1,468,940 Government National Mortgage Association 8.250% 2016 1,531,370
1,500,216 Government National Mortgage Association 9.000% 2013 to 2022 1,603,851
297,166 Government National Mortgage Association 9.250% 2021 316,761
479,433 Government National Mortgage Association 9.500% 2016 517,488
228,060 Government National Mortgage Association 11.000% 2016 256,283
229,289 Government National Mortgage Association 11.750% 2015 262,894
177,483 Government National Mortgage Association 14.500% 2013 to 2014 219,413
286,852 Government National Mortgage Association-
Mobile Home D 10.500% 2009 319,661
--------------
10,094,340
--------------
</TABLE>
See Accompanying Notes to Financial Statements
36
<PAGE>
Pilgrim Government Securities Income Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Principal Market
Amount Rate Maturity Value
------ ---- -------- -----
<S> <C> <C> <C> <C>
U.S. Treasury Securities: 13.8%
$2,000,000 U.S. Treasury Bonds 6.500% 2006 $ 2,010,940
1,500,000 U.S. Treasury Bonds 6.750% 2026 1,511,250
1,000,000 U.S. Treasury Bonds 7.625% 2007 1,049,690
--------------
4,571,880
--------------
Total U.S. Government Securities (Cost $33,051,426) 33,307,238
--------------
Total Investments in Securities (Cost $33,051,426)* 100.6% 33,307,238
Liabilities in Excess of Cash and Other Assets-Net (0.6)% (190,551)
-------------- --------------
Total Net Assets 100.0% $33,116,687
============== ==============
</TABLE>
- --------------------------
*Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 349,427
Gross Unrealized Depreciation (93,615)
--------------
Net Unrealized Appreciation $ 255,812
==============
See Accompanying Notes to Financial Statements
37
<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
MASTERS SERIES
- --------------
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
ELITE SERIES
- ------------
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
Pilgrim America
Funds
"Our goal is for every investor to have a successful investment experience"
Prospectus 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-012197 022897
