<PAGE>
PILGRIM AMERICA
FUNDS
ELITE SERIES
------------
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
SEMI-ANNUAL REPORT
DECEMBER 31, 1997
[LOGO]
<PAGE>
PILGRIM AMERICA
FUNDS
ELITE SERIES
------------
Semi-Annual Report
December 31, 1997
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... 13
Statements of Assets and Liabilities ............ 16
Statements of Operations ........................ 17
Statements of Changes in Net Assets ............. 18
Financial Highlights ............................ 19
Notes to Financial Statements ................... 22
Portfolios of Investments:
Pilgrim America MagnaCap Fund .............. 28
Pilgrim America High Yield Fund ............ 31
Pilgrim Government Securities Income Fund... 34
Pilgrim America Funds
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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 and year ended
December 31, 1997, as well as the markets and factors which have affected each
of the Funds during these periods.
The Elite Series is designed to give investors access to seasoned investment
managers who bring a depth of experience and knowledge to their specific
investment discipline. Additionally, in order to increase distribution of the
Elite Series, we offer additional classes of shares (B and M shares), with
different sales charges and distribution fees, allowing you to choose the
method of purchasing shares that best suits your investment objectives.
Pilgrim America is dedicated to providing core investments for the serious
investor. We believe that the key to success is matching quality core
investments to the individual needs of investors. Core investments are the
foundation of every portfolio and the basis of other important investment
decisions. Pilgrim America prides itself on providing only high quality core
investments to provide the opportunities to help you reach your financial
goals. Our goal is for every investor to have a successful investment
experience.
Thank you for selecting Pilgrim America Elite Series. We appreciate the
confidence you have placed with us in serving your investment needs.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim America Group, Inc.
February 20, 1998
Pilgrim America Funds
4
<PAGE>
Pilgrim America MagnaCap Fund
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PORTFOLIO MANAGER'S REPORT
- -------------------------------------------------------------------------------
Dear Shareholder,
We are very pleased to report that Pilgrim America MagnaCap Fund (the "Fund")
had another good year in 1997. Nineteen years ago the Fund initiated its
disciplined investment philosophy and 1997 marked the 18th year in the last 19
that the Fund produced a positive return. For the 12 months ended December 31,
1997, the Fund provided a total return of 27.7%(1) compared to the Standard &
Poor's 500 Index ("S&P 500") - a common proxy for the U.S. stock market - which
gained 33.4% for the same period. Over the last six months, the Fund was up
9.7%(1) , compared to the S&P 500 which gained 10.6% for the same period. The
Fund's average annual total returns for the five and ten year periods ended
December 31, 1997 were 18.4% and 15.7%, respectively(1). On December 15, 1997,
the Fund declared a dividend of $1.85 per share from capital gains to
shareholders of record as of December 15, 1997.
A $10,000 investment in the Fund on January 1, 1979, the year in which the
Fund adopted its disciplined investment philosophy, would have grown to
$174,450 as of December 31, 1997, after deduction of the maximum Class A 5.75%
sales charge, and assuming the reinvestment of all dividends and capital gains
distributions.
GENERAL ECONOMIC AND EQUITY MARKET ENVIRONMENTS
1997 was defined by economic chaos in Asia and volatility in U.S. financial
markets. The economic environment for equities was defined by low inflation,
declining long-term interest rates, sustained economic growth and rising
corporate profits. On the inflation front, the Producer Price Index decreased
1.2% during 1997 while the Consumer Price Index increased only 1.7%. The Dow
Jones Industrial Average rose 24.9% and the Standard and Poor's 500 stock
index rose 33.4%, the first time either index has risen more than 20% for
three straight years.
The Federal Reserve raised interest rates in March, and there was a
possibility that the vibrant economy would cause an interest-rate induced
correction. However, the economic crisis in Asia in the second half of 1997
helped stem inflationary pressure.
In August, some well known companies reported earnings disappointments. At the
end of the third quarter of 1997, problems in Asia started to impact many
companies. Thai currency unraveled first. Then, Malaysia, Indonesia, the
Philippines, South Korea, and finally Japan encountered difficulties. Stock
markets in the region, most notably Hong Kong's, tumbled. A correction rolled
around the world and into the
Pilgrim America Funds
5
<PAGE>
Pilgrim America MagnaCap Fund
U.S. On October 27, 1997, the Dow Jones Industrial Average dropped 554 points
or 7.2%, its biggest point drop ever, and biggest in percentage terms since
Black Monday 1987. The Dow Jones Industrial Average declined 13.3% from its
August high, marking the first time since the bull market began in 1990 that
the Average was off its closing high by at least 10%, the amount that is
considered a correction. Stocks did improve significantly on October 28,
increasing 4.7%(2).
By the end of 1997, the Dow Jones Industrial Average had gone five months
without a new high, the longest since the 121/2 month time period ended
February 1995. Volatility increased. On approximately one third of 1997's
trading days, the Dow Jones Industrial Average changed by more than 1%. This
was only the fourth time it has been so volatile in the last 20 years.(2) The
Dow Jones Industrial Average ended 1997 5.2% below its high.(3)
PILGRIM AMERICA MAGNACAP FUND
As a disciplined investment philosophy fund, MagnaCap invests in a very select
group of companies that have been able to sustain growth over a 10-year
period. In selecting portfolio securities, generally companies are assessed
with reference to the following criteria as ideal:
1. Consistent dividend increases in at least eight of the past 10 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 no more than 25% of total capitalization.
5. The current price of the company's stock should be in lower half of the
stock's price/earnings ratio range for the past ten years.(4)
We believe that the Fund's success can be attributed to the very explicit
investment criteria which normally determine the kinds of companies that
qualify for inclusion in the portfolio. Out of a universe of approximately
4,000 publicly traded companies and based upon both in-house and external
research, we aim to select the 40 to 50 equities which we believe will be most
likely to exhibit a high degree of performance.
Going forward, we will continue to employ a "bottom-up" approach to stock
selection, drawing from the pool of companies that come closest to meeting the
Fund's strict investment criteria given market conditions, and circumstances
of the company and of the sector within which it falls. We believe the bull
market in U.S. stocks is starting its eighth 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
Pilgrim America Funds
6
<PAGE>
Pilgrim America MagnaCap Fund
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. However, it has
traditionally been extremely difficult to identify the degree of overpricing
at which any particular bull-market will end. We believe stock prices can
continue to rise selectively in 1998 in concert with improvements in corporate
earnings and cash flows. Accordingly, we intend to remain almost fully
invested, selecting stocks on the basis described at the beginning of this
paragraph.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost-effective way to acquire
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic reinvestment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box
419338, Kansas City, MO 64141-6338, or call (800) 992-0180.
We thank you for giving us this opportunity to help you work towards your
investment needs. Please do not hesitate to contact us if you have any
questions or need additional information.
Sincerely,
<TABLE>
<S> <C>
/s/ Howard N. Kornblue /s/ G. David Underwood
Howard N. Kornblue G. David Underwood
Senior Vice President and Senior Portfolio Manager Vice President and Director of Research
Pilgrim America Investments, Inc. Pilgrim America Investments, Inc.
</TABLE>
/s/ Carl Dorf
Carl Dorf, C. F. A.
Senior Vice President and Senior Portfolio Manager
Pilgrim America Investments, Inc.(5)
See Footnotes on page 8.
Pilgrim America Funds
7
<PAGE>
Pilgrim America MagnaCap Fund
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FOOTNOTES
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(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, 1997, after the
deduction of the maximum sales charge and assuming reinvestment of all
dividends and distributions were 20.4%, 17.0%, and 15.1%, respectively.
Performance figures shown pertain only to Class A shares of the Fund. Class
B and M shares, which are also offered by the Fund, are subject to
different fees and expenses which will affect their performance.
(2) Source: Wall Street Journal, January 2, 1998.
(3) Source: Investors Business Daily, January 2, 1998.
(4) Effective February 2, 1998, the Board of Directors of Pilgrim America
Investment Funds, Inc. approved changes to certain investment policies.
The changed policies require at least 65% of the Fund's assets to be
invested in companies that meet the following criteria:
-- A company must have paid or had the financial capability from its
operations to pay a dividend in 8 out of the last 10 years.
-- A company must have increased its dividend or had the financial
capability from its operations to have increased its dividend at
least 100% over the past 10 years.
-- Dividend payout must be less than 65% of current earnings.
-- Long-term debt should be no more than 25% of the company's total
capitalization or a company's bonds must be rated at least A- or A-3.
-- A company's current share price should be in the lower half of the
stock's price/earnings ratio range for the past ten years, or the
ratio of the share price to its anticipated future earnings must be
an attractive value in relation to the average for its industry peer
group or that of the Standard & Poor's 500 Composite Stock Price
Index.
(5) Effective February 23, 1998, Carl Dorf resigned as Senior Portfolio
Manager of the Fund to focus entirely on managing the Pilgrim America
Bank and Thrift Fund ("PABT"). Jeff Cross, who previously served as an
equity analyst for PABT will replace Mr. Dorf as Portfolio Manager for
the Fund. Mr. Cross has 11 years of investment experience.
Performance data represents past performance and is not indicative of future
results. Investment return and principal value of an investment in the Fund
will fluctuate. Shares, when redeemed, may be worth more or less than their
original cost.
This letter contains "forward-looking statements." Actual results could differ
materially from those projected in the "forward-looking statements."
The views expressed in this report reflect those of the portfolio managers
only through the end of the period of the report as stated on the cover. The
managers' views are subject to change at any time based on market and other
conditions.
Pilgrim America Funds
8
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Pilgrim America High Yield Fund
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PORTFOLIO MANAGER'S REPORT
- -------------------------------------------------------------------------------
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, 1997.
As the United States economic juggernaut continues to roll ahead, there has
been little for shareholders to worry about as the Fund's domestic focus has
insulated results from overseas economic earthquakes. Performance results for
the year ending December 31, 1997 were excellent. The Fund had a total return
of 14.98%(1) versus the Lipper High Current Yield average of 12.96%. These
results ranked the Fund 30 of 181 comparable funds in the high current yield
category, placing the Fund in the top quartile for the one year period ended
December 31, 1997.(2)(3)
GENERAL ECONOMIC AND MARKET ENVIRONMENT
During the last twelve months ending December 31, 1997, monetary policy in the
United States continued to be relatively stable. The Federal Reserve Open
Market Committee raised the Federal Funds rate target once, from 5.25% to
5.50%, on March 25, 1997. For the remainder of 1997 the target was unchanged,
although the FOMC maintained a bias towards tightening monetary policy. This
was mitigated somewhat by the economic problems in Southeast Asia late in
1997. The FOMC became concerned that the economic slowdown would pour over to
the United States, slowing our growth. At the end of the year the stance of
the committee had become more neutral, lessening the risk that there would be
interest rate increases near term.
Although short term interest rates were up slightly for the year, due to the
FOMC tightening early in the year, long term interest rates fell. At the
beginning of 1997 the 30-year treasury bond yielded 6.64%. After reaching a
high of 7.17% on April 14th, treasuries essentially rallied for the remainder
of 1997 ending the year 72 basis points lower at 5.92%. As of this writing,
interest rates have fallen to as low as 5.69% into 1998, as market
participants have remained comfortable with an economic outlook that
anticipates continued slow positive economic growth and benign inflationary
prospects.
Pilgrim America Funds
9
<PAGE>
Pilgrim America High Yield Fund
HIGH YIELD MARKET
The high yield market continued the trend of heavy demand and issuance in
1997. New issues helped grow the total market size to $495 billion, a net
increase of $108 billion from 1996 year end. New issues set a record as $140
billion priced in 1997. Spreads widened in 1997, according to the CSFB High
Yield Index, by 31 basis points, from 355 to 386 basis points over treasuries.
On a historical basis, spreads are slightly on the tight side of average, but
have room to tighten further in the current positive economic environment.
A further indication of both the healthy economy and high yield market is the
low trailing twelve month default rates, as reported by Moody's. As a
percentage of issuers, the rate remained remarkably steady throughout 1997.
The January rate was 1.80% while, at year end, the rate hardly moved at 1.81%
for December. This rate has been falling since early 1996 when the January
rate was 3.28%. These favorable rates also reflect the degree to which senior
bank lenders have been willing to work with issuers in trouble. With most of
their portfolios performing well as of late, commercial bankers have found it
in their best interest to keep troubled clients current on their loans by
granting them covenant waivers or extending amortization schedules. This type
of activity would likely be substantially reduced in a weaker economic
environment.
PILGRIM AMERICA HIGH YIELD FUND
The Fund's industry weightings have remained essentially unchanged for the
last twelve months. Holdings in Communications, Media and Entertainment, and
Gaming industries have been very rewarding for shareholders. Opportunities for
new entrants in telecommunications have bolstered our confidence for high
yield issuers in this sector. High yield issuance continues to be a strong
financing vehicle for these companies. Media and Entertainment companies have
continued to be good solid non-cyclical issuers with predictable cash flows.
Gaming issues have benefited from both steady cash flow characteristics and
the recent trend towards real estate investment trust conversions.
Net assets of the Fund have grown dramatically in the last year. This reflects
both the good performance of the Fund within the high yield asset class, and
the general popularity of high yield bonds. As assets have grown it has been a
priority of the Fund's management to remain fully invested given our positive
view of the domestic economy. Cash levels were at 1% at year end 1997.
Typically, cash will remain in a 0-3% range, which is what we consider a fully
invested position. In keeping with our positive economic scenario, credit
quality has been maintained primarily in the Single-B category. Should we
change our economic outlook our weighting in Single-B issues would likely fall
while the Double-B, or higher quality, rated issues would rise.
Pilgrim America Funds
10
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Pilgrim America High Yield Fund
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way to acquire
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic investment, please notify your
broker or contact the Transfer Agent, c/o DST Systems Inc., PO Box 419338,
Kansas City, Missouri 64141-6338 or call (800) 992-0180.
Thank you for the opportunity to serve your high yield investment needs. If
you have any questions or comments, please do not hesitate to contact us.
Sincerely,
/s/Kevin G. Mathews
Kevin G. Mathews
Vice President and Senior Portfolio Manager
Pilgrim America Group, Inc.
See Footnotes on page 12.
Pilgrim America Funds
11
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(1) Total return figures reflect a partial waiver of expenses for the period
stated. Performance figures shown pertain only to Class A shares of the
Fund without deducting the maximum sales charge. The average annual total
returns for the one, five and ten year periods ended December 31, 1997
after deduction of the Class A maximum sales charge of 4.75% were 9.55%,
12.82% and 11.03%, respectively.
(2) Lipper Analytical Services, Inc. ranked Class A shares of the Fund for
total return, without deducting sales charges and assuming reinvestments
of all dividends and distributions, and reflecting a partial waiver of
expenses. For the five and ten year periods ended December 31, 1997 the
Fund ranked 10 and 20 out of 67 and 50 funds, respectively.
Performance figures shown pertain only to Class A shares of the Fund.
Class B and Class M shares, which are also offered by the Fund, are
subject to different fees and expenses which will affect their
performance.
(3) The Lipper High Current Yield average is an average of one year returns
for 181 funds in that Lipper category as of December 31, 1997. For the
five and ten year periods ended December 31, 1997, the Lipper High
Current Yield Fund average returns were 11.36% and 10.66% for 67 and 50
funds, respectively.
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.
Principal risk factors: exposure to financial, market and interest rate risks.
High yields reflect the higher credit risks associated with certain lower
rated securities in the Fund's portfolio and in some cases, the lower market
prices for those instruments.
This letter contains "forward-looking statements." Actual results could differ
materially from those projected in the "forward-looking statements."
The views expressed in this report reflect those of the portfolio managers
only through the end of the period of the report as stated on the cover. The
managers' views are subject to change at any time based on market and other
conditions.
Pilgrim America Funds
12
<PAGE>
Pilgrim Government Securities Income Fund
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PORTFOLIO MANAGER'S REPORT
- -------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to report the results of operations for the Pilgrim Government
Securities Income Fund ("the Fund") for the semi-annual period ended December
31, 1997. As of December 31, 1997, the Fund's standardized 30 day SEC yield
was 5.32%(1). The average annual total returns for the one, five, and ten year
periods ended December 31, 1997 assuming the reinvestment of all dividends and
distributions, were 7.85%, 5.04%, and 7.24%, respectively.(1)
GENERAL ECONOMIC AND MARKET ENVIRONMENT
We are closing another year with very positive economic fundamentals. The
economy is strong, inflation is subdued, the dollar is robust, interest rates
are low and everyone you know is gainfully employed. The only obvious cause
for concern is the Asian economic crisis but the impact to the U.S. economy is
open for debate. Exports only make up a small portion of the United States'
economy of which an insignificant amount of that goes to Asia. On the other
hand, Asian companies need dollars badly in order to repay debts; they are
therefore inclined to import an increasing number of goods to our shores in
order to keep the bankers at a distance. Asia most likely will have a minimal
effect on our economy and might even provide a counter balance to the wage
inflation, which is starting to become evident.
MORTGAGE SECURITIES MARKET IN PARTICULAR
In the last twelve months, mortgage returns have tracked intermediate
treasuries. Prepayments have remained relatively well behaved given the low
interest rate environment. Looking forward, the mortgage picture does not look
as bright. In the first few weeks of the new year, the mortgage refinance
index has soared to record levels. The mortgage refinance index measures the
number of mortgage applications and is a good proxy for future mortgage
prepayments. Management continues to emphasize seasoned mortgages, most of
which have high coupons. The borrowers underlying these mortgages have had
several opportunities to refinance; that being said the rise in prepayments on
these mortgages should be significantly less than newly originated mortgages.
ANALYSIS OF THE PILGRIM GOVERNMENT SECURITIES INCOME FUND
The effective duration (a measure of price sensitivity) of the portfolio as of
December 31, 1997 was approximately 4.1, in-line with the Lehman
Government/Mortgage Index. The Fund strives to provide competitive returns
while having less volatility and more downside protection than most other
government securities funds. That being said, the strong bullish environment
that has prevailed over the last twelve months is not
Pilgrim America Funds
13
<PAGE>
Pilgrim Government Securities Income Fund
one in which this Fund excels. It is our belief that the strategy and
philosophy to which we adhere will provide you an attractive long-term
risk/reward profile. The Fund continues its ongoing commitment to shareholders
of avoiding the risks associated with exotic derivatives, leverage as well as
futures and options.
For the first half of 1998, we believe that economic growth will moderate. The
economic troubles occurring in Asia could actually be advantageous to the
United States' economy. First, the reduction in exports to Asia could moderate
economic growth down to the 2.0% to 2.5% range. As stated early, the impact to
Asian exports should be minor; therefore, I do not see recessionary conditions
at this time. Second, the need for Asia to import goods to the United States
should reduce inflationary pressures. Given this scenario, the Federal Reserve
should not ease during the first half of the year. As we go to press, the
ten-year treasury is trading around the 5.50% federal funds rate while
intermediate and short-term rates are below 5.50%. The market, in effect, is
pricing in an easing by the Federal Reserve during the first half of the year.
That being said, a good case can be made for defensive government securities
funds (such as the Pilgrim Government Securities Income Fund) being attractive
at current interest rates.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way of acquiring
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic reinvestment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box
419338, Kansas City, Missouri 64141-6338 or call (800) 992-0180.
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 Ullerich
Portfolio Manager
Pilgrim America Investments, Inc.
See Footnotes on page 12.
Pilgrim America Funds
14
<PAGE>
Pilgrim Government Securities Income Fund
- -------------------------------------------------------------------------------
FOOTNOTES
- -------------------------------------------------------------------------------
(1) Total return figures reflect a partial waiver of expenses for certain
periods stated. Performance figures shown pertain only to Class A shares
of the Fund. The average annual total returns for the one, five, and ten
year periods ended December 31, 1997 including the Class A maximum sales
charge were 2.70%, 4.02% and 6.72%, respectively. The SEC yields for
Class B and M as of December 31, 1997 were 4.93% and 5.04%, respectively.
Class B and M shares, which are also offered by the Fund, are subject to
different fees and expenses which will affect their performance.
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. Return figures reflect a partial waiver of fees for certain
periods stated. Without such a waiver, returns would have been lower.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed, may be
worth more or less than their original cost.
This letter contains "forward-looking statements." Actual results could differ
materially from those results projected in the "forward-looking statements."
The views expressed in this report reflect those of the portfolio manager,
only through the end of the period of the report as stated on the cover. The
manager's views are subject to change at any time based on market and other
conditions.
Pilgrim America Funds
15
<PAGE>
Pilgrim America Elite Series
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
Government
MagnaCap High Yield Securities
Fund Fund Income Fund
----------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in securities at market value (Cost $263,739,846,
$139,367,896 and $28,530,840, respectively) $ 389,030,193 $ 142,605,625 $ 29,093,241
Cash 13,652 1,203,433 11,235
Receivables:
Investment securities sold -- 493,545 --
Dividends and interest 561,852 3,542,946 335,236
Fund shares sold 780,539 1,496,760 191,539
Due from affiliate -- 126,141 --
Other -- -- 39,919
Prepaid expenses 68,254 38,781 14,792
--------------- --------------- ---------------
Total Assets 390,454,490 149,507,231 29,685,962
--------------- --------------- ---------------
LIABILITIES:
Payable for fund shares redeemed 157,634 236,967 22,251
Payable to affiliate 15,682 4,090 5,867
Investment securities purchased 924,125 2,563,337 651,113
Other accrued expenses and liabilities 244,596 80,946 57,386
--------------- --------------- ---------------
Total Liabilities 1,342,037 2,885,340 736,617
--------------- --------------- ---------------
NET ASSETS $ 389,112,453 $ 146,621,891 $ 28,949,345
=============== =============== ===============
Net Assets consist of:
Paid-in capital $ 263,363,107 $ 151,988,060 $ 36,603,383
Undistributed (overdistributed) net investment income 329,867 397,662 (180,538)
Accumulated net realized gains (losses) on investments 129,132 (9,001,560) (8,035,901)
Net unrealized appreciation of investments 125,290,347 3,237,729 562,401
=============== =============== ===============
Net Assets $ 389,112,453 $ 146,621,891 $ 28,949,345
=============== =============== ===============
Class A:
Net assets $ 320,825,529 $ 54,721,707 $ 26,234,932
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 80,000,000 80,000,000 1,000,000,000
Shares outstanding 20,645,145 7,842,201 2,029,139
Net asset value and redemption price per share $ 15.54 $ 6.98 $ 12.93
Maximum offering price per share(1) $ 16.49 $ 7.33 $ 13.57
Class B:
Net assets $ 56,979,283 $ 78,274,497 $ 2,541,996
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 80,000,000 80,000,000 1,000,000,000
Shares outstanding 3,700,647 11,242,119 197,068
Net asset value, redemption and offering price per share(2) $ 15.40 $ 6.96 $ 12.90
Class M:
Net assets $ 11,307,641 $ 13,625,687 $ 172,417
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 40,000,000 40,000,000 1,000,000,000
Shares outstanding 731,361 1,956,084 13,323
Net asset value and redemption price per share $ 15.46 $ 6.97 $ 12.94
Maximum offering price per share(3) $ 16.02 $ 7.20 $ 13.37
</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
16
<PAGE>
Pilgrim America Elite Series
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Six Months Ended December 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------------------------------
Government
MagnaCap High Yield Securities
Fund Fund Income Fund
----------- ----------- -----------
<S> <C> <C> <C>
Investment Income:
Interest $ 547,020 $ 5,741,676 $ 1,062,175
Dividends (net of foreign withholding taxes
of $42,060, $0 and $0, respectively) 2,556,617 -- --
----------- ----------- -----------
Total investment income 3,103,637 5,741,676 1,062,175
----------- ----------- -----------
Expenses:
Investment management fees 1,360,899 366,368 75,668
Distribution expenses
Class A Shares 469,637 57,227 37,837
Class B Shares 251,477 287,831 6,483
Class M Shares 35,967 43,847 295
Transfer agent and registrar fees 297,046 88,052 61,374
Reports to shareholders 75,261 14,673 5,849
Professional fees 50,343 16,907 7,283
Recordkeeping and pricing fees 45,445 17,662 3,974
Shareholder servicing fees 45,015 13,112 4,586
Custodian fees 43,963 23,059 19,597
Registration and filing fees 41,364 24,490 11,505
Directors' fees 25,000 3,277 2,500
Insurance expense 13,921 3,228 1,412
Miscellaneous expenses 11,688 26,457 20,440
----------- ----------- -----------
Total expenses 2,767,026 986,190 258,803
----------- ----------- -----------
Less:
Waived and reimbursed fees -- (157,652) --
Earnings credits (439) (9,164) --
----------- ----------- -----------
Net expenses 2,766,587 819,374 258,803
----------- ----------- -----------
Net investment income 337,050 4,922,302 803,372
----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
FROM INVESTMENTS:
Net realized gains from investments 18,558,071 1,326,138 236,762
Net change in unrealized appreciation
of investments 14,629,018 1,445,940 378,571
----------- ----------- -----------
Net gain from investments 33,187,089 2,772,078 615,333
----------- ----------- -----------
Net increase in net assets
resulting from operations $33,524,139 $ 7,694,380 $ 1,418,705
=========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
17
<PAGE>
Pilgrim America Elite Series
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
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
1997 (Unaudited) June 30, 1997 1997(Unaudited) June 30, 1997 1997 (Unaudited) June 30,1997
---------------- -------------- --------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets
from operations:
Net investment income $ 337,050 $ 1,667,703 $ 4,922,302 $ 4,415,066 $ 803,372 $ 1,965,969
Net realized gain (loss)
from investments 18,558,071 74,330,966 1,326,138 1,037,959 236,762 (65,952)
Net change in unrealized
appreciation of
investments 14,629,018 1,078,094 1,445,940 1,455,802 378,571 510,175
------------- ------------- ------------ ----------- ------------- -----------
Net increase in net assets
resulting from operations 33,524,139 77,076,763 7,694,380 6,908,827 1,418,705 2,410,192
------------- ------------- ------------ ----------- ------------- -----------
Distributions
to shareholders:
Net investment income:
Class A shares (445,476) (1,648,742) (2,058,741) (2,371,451) (760,771) (1,929,871)
Class B shares -- -- (2,367,048) (1,291,124) (39,736) (34,226)
Class M shares -- (3,788) (496,513) (353,811) (2,865) (1,872)
Distributions in excess
of net investment income
Class A shares (744,104) -- (60,997) -- (98,535) (74,945)
Class B shares (85,805) -- (78,316) -- (5,472) (632)
Class M shares (22,509) -- (16,585) -- (157) --
Net realized gains:
Class A shares (15,609,482) (67,754,162) -- -- -- --
Class B shares (2,476,846) (4,722,175) -- -- -- --
Class M shares (471,643) (802,030) -- -- -- --
Distributions in excess
of net realized gains
Class A shares (18,081,348) -- -- -- -- --
Class B shares (3,536,036) -- -- -- -- --
Class M shares (684,283) -- -- -- -- --
Tax return of capital:
Class A shares -- -- -- -- -- (63,350)
Class B shares -- -- -- -- -- --
Class M shares -- -- -- -- -- (5)
------------- ------------- ------------ ------------- ------------- -----------
Total distributions (42,157,532) (74,930,897) (5,078,200) (4,016,386) (907,536) (2,104,901)
------------- ------------- ------------ ------------- ------------- -----------
Capital share transactions:
Net proceeds from sale of
shares 98,607,862 140,156,531 78,560,055 78,745,209 2,369,283 3,683,618
Shares resulting from
dividend reinvestment 34,231,037 59,470,837 2,395,264 1,870,419 384,804 898,604
Cost of shares redeemed (69,622,925) (115,106,546) (21,963,408) (20,802,137) (5,810,580) (12,242,953)
------------- ------------- ------------ ------------- ------------- -----------
Net increase (decrease) in net
assets resulting from
capital share transactions 63,215,974 84,520,822 58,991,911 59,813,491 (3,056,493) (7,660,731)
------------- ------------- ------------ ------------- ------------- -----------
Net increase (decrease) in
net assets 54,582,581 86,666,688 61,608,091 62,705,932 (2,545,324) (7,355,440)
------------- ------------- ------------ ------------- ------------- -----------
Net assets, beginning of period 334,529,872 247,863,184 85,013,800 22,307,868 31,494,669 38,850,109
------------- ------------- ------------ ------------- ------------- -----------
Net assets, end of period * $ 389,112,453 $ 334,529,872 $146,621,891 $ 85,013,800 $ 28,949,345 $31,494,669
============= ============= ============ ============= ============= ===========
* Including undistributed
(overdistributed) net
investment income of: $ 329,867 $ 1,290,711 $ 397,662 $ 553,560 $ (180,538) $ (76,374)
============= ============= ============ ============= ============= ===========
</TABLE>
See Accompanying Notes to Financial Statements
18
<PAGE>
Pilgrim America MagnaCap Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- ----------------------------------------------------------------------------------------------------------------------
CLASS A
------------------------------------------------------------------------------
Six Months
Ended
December 31, Year Ended June 30,
1997 ---------------------------------------------------------------
(Unaudited) 1997 1996 1995(a) 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98 $ 10.93
Income from investment operations:
Net investment income (loss) 0.02 0.10 0.09 0.12 0.15 0.14 0.13
Net realized and unrealized
gain on investments 1.51 4.16 2.87 2.29 0.89 0.82 1.16
--------- --------- --------- --------- --------- --------- ---------
Total from investment operations 1.53 4.26 2.96 2.41 1.04 0.96 1.29
--------- --------- --------- --------- --------- --------- ---------
Less distributions from:
Net investment income 0.02 0.10 0.06 0.14 0.14 0.12 0.24
Distributions in excess of net
investment income 0.04 0.02 -- -- -- -- --
Realized gains on investment 1.51 4.16 0.24 0.60 0.59 0.77 --
Distributions in excess of net
realized gains 0.34 0.75 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total distributions 1.91 5.03 0.30 0.74 0.73 0.89 0.24
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 15.54 $ 15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98
========= ========= ========= ========= ========= ========= =========
Total Return (c) 9.73% 30.82% 21.31% 20.61% 9.13% 8.21% 11.93%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 320,826 $ 290,355 $ 235,393 $ 211,330 $ 190,435 $ 197,250 $ 196,861
Ratios to average net assets:
Expenses 1.38%(d) 1.46% 1.68% 1.59% 1.53% 1.53% 1.60%
Net investment income 0.28%(d) 0.64% 0.54% 0.98% 1.16% 1.09% 1.20%
Portfolio turnover rate 17% 77% 15% 6% 7% 36% 49%
Average commission rate paid $ 0.0435 $ 0.0686 -- -- -- -- --
<CAPTION>
CLASS B CLASS M
----------------------------------- --------------------------------------
Six Months Six Months
Ended Year July 17, Ended Year July 17,
December 31, Ended 1995(b) to December 31, Ended 1995(b)to
1997 June 30, June 30, 1997 June 30, June 30,
(Unaudited) 1997 1996 (Unaudited) 1997 1996
--------- --------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 15.81 $ 16.59 $ 14.22 $ 15.87 $ 16.63 $ 14.22
Income from investment operations:
Net investment income (loss) (0.02) -- 0.06 -- 0.02 0.08
Net realized and unrealized
gain on investments 1.48 4.13 2.61 1.49 4.16 2.63
--------- --------- --------- --------- --------- ---------
Total from investment operations 1.46 4.13 2.67 1.49 4.18 2.71
--------- --------- --------- --------- --------- ---------
Less distributions from:
Net investment income -- -- 0.06 -- 0.02 0.06
Distributions in excess of net
investment income 0.03 -- -- 0.05 0.01 --
Realized gains on investment 1.48 4.13 0.24 1.49 4.16 0.24
Distributions in excess of net
realized gains 0.36 0.78 -- 0.36 0.75 --
--------- --------- --------- --------- --------- ---------
Total distributions 1.87 4.91 0.30 1.90 4.94 0.30
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 15.40 $ 15.81 $ 16.59 $ 15.46 $ 15.87 $ 16.63
========= ========= ========= ========= ========= =========
Total Return (c) 9.39% 29.92% 18.98% 9.45% 30.26% 19.26%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 56,979 $ 37,427 $ 10,509 $ 11,308 $ 6,748 $ 1,961
Ratios to average net assets:
Expenses 2.08%(d) 2.16% 2.38%(d) 1.83%(d) 1.91% 2.13%(d)
Net investment income (0.40)%(d) (0.04)% 0.07%(d) (0.15)%(d) 0.22% 0.32%(d)
Portfolio turnover rate 17% 77% 15% 17% 77% 15%
Average commission rate paid $ 0.0435 $ 0.0686 -- $ 0.0435 $ 0.0686 --
</TABLE>
- -----------------------
(a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(b) Commencement of offering of shares.
(c) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(d) Annualized.
See Accompanying Notes to Financial Statements
19
<PAGE>
Pilgrim America High Yield Fund
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- ------------------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------
Six Months Eight
Ended Months
December 31, Year Ended June 30, Ended Year Ended October 31,
1997 ------------------- June 30, -------------------------------
(Unaudited) 1997 1996 1995(a)(b) 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 6.80 $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77 $ 5.70
Income (loss) from investment
operations:
Net investment income 0.31 0.61 0.59 0.35 0.54 0.53 0.63
Net realized and unrealized
gain (loss) on investments 0.20 0.43 0.16 0.21 (0.51) 0.70 0.07
--------- --------- --------- --------- --------- --------- ---------
Total from investment operations 0.51 1.04 0.75 0.56 0.03 1.23 0.70
--------- --------- --------- --------- --------- --------- ---------
Less distributions from:
Net investment income 0.31 0.60 0.54 0.36 0.55 0.53 0.63
Distributions in excess of net
investment income 0.02 -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total distributions 0.33 0.60 0.54 0.36 0.55 0.53 0.63
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 6.98 $ 6.80 $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77
========= ========= ========= ========= ========= ========= =========
Total Return (d) 7.66% 17.14% 12.72% 9.77% 0.47% 22.12% 12.65%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 54,722 $ 35,940 $ 18,691 $ 15,950 $ 16,046 $ 18,797 $ 17,034
Ratios to average net assets:
Expenses (e)(f)(g)(h) 1.00%(i) 1.00% 1.00% 2.25%(i) 2.00% 2.02% 2.03%
Net investment income (e)(f)(g)(h) 8.99%(i) 9.54% 9.46% 8.84%(i) 8.73% 8.36% 10.93%
Portfolio turnover rate 118% 394% 399% 166% 192% 116% 193%
<CAPTION>
CLASS B CLASS M
------------------------------------- --------------------------------------
Six Months Six Months
Ended Year July 17, Ended Year July 17,
December 31, Ended 1995(c) to December 31, Ended 1995(c) to
1997 June 30, June 30, 1997 June 30, June 30,
(Unaudited) 1997 1996 (Unaudited) 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 6.78 $ 6.36 $ 6.20 $ 6.78 $ 6.36 $ 6.20
Income (loss) from investment
operations:
Net investment income 0.28 0.57 0.48 0.29 0.58 0.50
Net realized and unrealized
gain (loss) on investments 0.20 0.41 0.14 0.21 0.41 0.14
--------- --------- --------- --------- --------- ---------
Total from investment operations 0.48 0.98 0.62 0.50 0.99 0.64
--------- --------- --------- --------- --------- ---------
Less distributions from:
Net investment income 0.28 0.56 0.46 0.29 0.57 0.48
Distributions in excess of net
investment income 0.02 -- -- 0.02 -- --
--------- --------- --------- --------- --------- ---------
Total distributions 0.30 0.56 0.46 0.31 0.57 0.48
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 6.96 $ 6.78 $ 6.36 $ 6.97 $ 6.78 $ 6.36
========= ========= ========= ========= ========= =========
Total Return (d) 7.26% 16.04% 10.37% 7.55% 16.29% 10.69%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 78,274 $ 40,225 $ 2,374 $ 13,626 $ 8,848 $ 1,243
Ratios to average net assets:
Expenses (e)(f)(g)(h) 1.75%(i) 1.75% 1.75%(i) 1.50%(i) 1.50% 1.50%(i)
Net investment income (e)(f)(g)(h) 8.22%(i) 8.64% 9.02%(i) 8.49%(i) 8.93% 9.41%(i)
Portfolio turnover rate 118% 394% 339% 118% 394% 339%
</TABLE>
- -----------------------
(a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(b) Effective November 1, 1994, High Yield Fund changed its year end to June 30.
(c) Commencement of offering of shares.
(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(e) Prior to the waiver and reimbursement of expenses for the six months ended
December 31, 1997, the annualized ratios of expenses to average net assets
were 1.27%, 2.02% and 1.77% and the ratios of net investment income to
average net assets were 8.72%, 7.95% and 8.22% for Class A, B and M shares,
respectively.
f) Prior to the waiver and reimbursement of expenses for the year ended June
30, 1997, the ratios of expenses to average net assets were 1.42%, 2.17% and
1.92% and the ratios of net investment income to average net assets were
9.09%, 8.18% and 8.47% for Class A, B and M shares, respectively.
(g) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the ratios of expenses to average net assets were 2.19%, 2.94%(i)
and 2.69%(i), and the ratios of net investment income to average net assets
were 8.27%, 8.05%(i) and 8.51%(i), for Class A, B and M shares,
respectively.
(h) Prior to the waiver of expenses, the ratio of expenses to average net assets
was 2.35%(i) 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%(i) in 1995 and 8.66% in 1994 for Class A shares.
(i) Annualized.
See Accompanying Notes to Financial Statements
20
<PAGE>
Pilgrim Government Securities Income Fund
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- ---------------------------------------------------------------------------------------------------------------------
CLASS A
----------------------------------------------------------------------------
Six Months
Ended
December 31, Year Ended June 30,
1997 ---------------------------------------------------------------
(Unaudited) 1997 1996 1995(a) 1994 1993(c) 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 12.71 $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76 $ 13.76
Income (loss) from investment
operations:
Net investment income 0.32 0.69 0.75 0.84 0.84 1.13 1.19
Net realized and unrealized
gain (loss) on investments 0.29 0.20 (0.32) 0.24 (1.17) 0.18 --
--------- --------- --------- --------- --------- --------- ---------
Total from investment operations 0.61 0.89 0.43 1.08 (0.33) 1.31 1.19
--------- --------- --------- --------- --------- --------- ---------
Less distributions from:
Net investment income 0.32 0.69 0.75 0.84 0.90 1.11 1.19
Distributions in excess of net
investment income 0.07 0.04 -- -- -- -- --
Tax return of capital -- 0.04 0.06 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total distributions 0.39 0.77 0.81 0.84 0.90 1.11 1.19
--------- --------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 12.93 $ 12.71 $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76
========= ========= ========= ========= ========= ========= =========
Total Return (d) 4.85% 7.33% 3.34% 8.96% (2.50)% 9.82% 8.98%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 26,235 $ 29,900 $ 38,753 $ 43,631 $ 61,100 $ 87,301 $ 96,390
Ratios to average net assets:
Expenses (e)(f) 1.41%(g) 1.42% 1.51% 1.40% 1.21% 1.12% 1.10%
Net investment income (e)(f) 5.35%(g) 5.78% 5.64% 6.37% 6.44% 8.06% 8.59%
Portfolio turnover rate 87% 172% 170% 299% 402% 466% 823%
<CAPTION>
CLASS B CLASS M
----------------------------------- ------------------------------------
Six Months Six Months
Ended Year July 17, Ended Year July 17,
December 31, Ended 1995(b) to December 31, Ended 1995(b) to
1997 June 30, June 30, 1997 June 30, June 30,
(Unaudited) 1997 1996 (Unaudited) 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 12.68 $ 12.59 $ 12.95 $ 12.72 $ 12.59 $ 12.95
Income (loss) from investment
operations:
Net investment income 0.31 0.67 0.66 0.34 0.70 0.68
Net realized and unrealized
gain (loss) on investments 0.25 0.11 (0.37) 0.24 0.14 (0.36)
--------- --------- --------- --------- --------- ---------
Total from investment operations 0.56 0.78 0.29 0.58 0.84 0.32
--------- --------- --------- --------- --------- ---------
Less distributions from:
Net investment income 0.31 0.67 0.65 0.34 0.70 0.68
Distributions in excess of net
investment income 0.03 0.02 -- 0.02 -- --
Tax return of capital -- -- -- -- 0.01 --
--------- --------- --------- --------- --------- ---------
Total distributions 0.34 0.69 0.65 0.36 0.71 0.68
--------- --------- --------- --------- --------- ---------
Net asset value, end of period $ 12.90 $ 12.68 $ 12.59 $ 12.94 $ 12.72 $ 12.59
========= ========= ========= ========= ========= =========
Total Return (d) 4.48% 6.38% 2.25% 4.61% 6.88% 2.52%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 2,542 $ 1,534 $ 73 $ 172 $ 61 $ 24
Ratios to average net assets:
Expenses (e)(f) 2.16%(g) 2.17% 2.26%(g) 1.91%(g) 1.92% 2.01%(g)
Net investment income (e)(f) 4.59%(g) 4.92% 4.98%(g) 4.85%(g) 5.25% 5.73%(g)
Portfolio turnover rate 87% 172% 170% 87% 172% 170%
</TABLE>
- -----------------------
(a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(b) Commencement of offering of shares.
(c) During this period, average daily borrowing were $11,038,044, average
monthly shares outstanding were 6,429,755 and average daily borrowings per
share were $1.72. The Fund earned income and realized capital gains as a
result of entering into reverse repurchase agreements during the six months
from July to December 1992. Such transactions constituted borrowing
transactions and, as a result, the Fund exceeded its 10% borrowing
limitations during that period. Therefore, the Fund's performance was higher
than it would have been had the Fund adhered to its investment restrictions.
This borrowing technique was discontinued subsequent to December 1992, until
April 4, 1995, when shareholders approved a change in the Fund's investment
policies.
(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the ratios of expenses to average net assets were 1.57%, 2.41%(g)
and 2.16%(g), and the ratios of net investment income to average net assets
were 5.74%, 4.83%(g) and 5.58%(g) for Class A, B and M shares, respectively.
(f) Prior to the waiver of expenses for the period ended June 30, 1995, the
ratio of expenses to average net assets was 1.54%, and the ratio of net
investment income to average net assets was 6.23% for Class A shares.
(g) Annualized. See Accompanying Notes to Financial Statements
See Accompanying Notes to Financial Statements
21
<PAGE>
Pilgrim America Elite Series
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (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.
Pilgrim America Funds
22
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
C. Distributions to Shareholders. The Funds record distributions to their
shareholders on the ex-date. Distributions from income are declared by
MagnaCap Fund on a semi-annual basis and on a monthly basis for High Yield
Fund and Government Securities Income Fund. Distributions from capital
gains, if any, are declared on at least an annual basis. The amount of
distributions from net investment income, and net realized capital gains are
determined in accordance with federal income tax regulations, which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. Key
differences are the treatment of short-term capital gains, the treatment of
wash sales and other temporary differences. To the extent that these
differences are permanent in nature, such amounts are reclassified within
the capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassifications. Distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as distributions in excess of
net investment income or net realized capital gains. To the extent they
exceed net investment income and net realized capital gains for tax
purposes, they are reported as distributions of paid-in capital.
D. Federal Income Taxes. The Company's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to regulated
investments companies and to distribute substantially all of its net
investment income and any net realized capital gains to its shareholders.
Therefore, a federal income tax provision is not required. In addition, by
distributing during each calendar year substantially all of its net
investment income and net capital gains, each Fund intends not to be
subject to any federal excise tax.
Capital loss carryforwards were as follows at June 30, 1997:
<TABLE>
<CAPTION>
Amount Expiration Date
------ ---------------
<S> <C> <C>
MagnaCap Fund $ -- N/A
High Yield Fund 10,317,698 1998-2003
Government Securities Income Fund 8,247,038 1998-2004
</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
Pilgrim America Funds
23
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
dealers recognized by the Board of Governors of the Federal Reserve System
or with member banks of the Federal Reserve System. Under such agreements,
the seller of the security agrees to repurchase it at a mutually agreed
upon time and price. The resale price is in excess of the purchase price
and reflects an agreed upon interest rate for the period of time the
agreement is outstanding. The period of these repurchase agreements is
usually short, from overnight to one week, while the underlying securities
generally have longer maturities. Each Fund will always receive as
collateral securities acceptable to it whose market value is equal to at
least 100% of the amount invested by the Fund, and the Fund will make
payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of its custodian. If the seller
defaults, a Fund might incur a loss or delay in the realization of
proceeds if the value of the collateral securing the repurchase agreement
declines and it might incur disposition costs in liquidating the
collateral.
(2) Investment Management Fee and Other Transactions with Affiliates
As of April 7, 1995, Pilgrim America Capital Corporation ("PACC") (formerly
Express America Holdings Corporation) acquired the rights to manage and
distribute the Funds, and the rights to manage two closed-end funds
(collectively the "Acquired Funds"). In connection with the acquisition,
Pilgrim America Group, Inc. ("PAG") was formed as a wholly owned subsidiary of
PACC.
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 December 31, 1997. At December 31, 1997, High Yield Fund
accrued $126,141 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,
1997 there was no reimbursement due from the Manager for such excess expenses.
Pilgrim America Funds
24
<PAGE>
Pilgrim America Elite Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Each share class of the Funds has adopted a Plan pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plans"), whereby Pilgrim America Securities, Inc.
(the "Distributor") is reimbursed or compensated (depending on the class of
shares) by the Funds for expenses incurred in the distribution of each Funds'
share. Pursuant to the 12b-1 Plans, the Distributor is entitled to payment
each month for actual expenses incurred in the distribution and promotion of
each Fund's shares, including the printing of prospectuses and reports used
for sales purposes, expenses of preparation and printing of sales literature
and other such distribution related expenses, including any distribution or
service fees paid to securities dealers who have executed a distribution
agreement with the Distributor.
Under the 12b-1 Plans, each class of shares of the Fund pays the Distributor
at the annual rate of 0.30% of the average daily net assets of Class A for
MagnaCap Fund and 0.25% of the average daily net assets of Class A for High
Yield Fund and Government Securities Income Fund. MagnaCap Fund, High Yield
Fund and Government Securities Income Fund pay an annual rate of 1.00% and
0.75% of the average daily net assets of Class B and Class M shares,
respectively.
Each of the Funds has entered into a Service Agreement with PAG whereby PAG
will act as the Shareholder Service Agent for each Fund. The agreement
provides that PAG will be compensated for incoming and outgoing shareholder
telephone calls and letters and letter, and all reasonable out-of-pocket
expenses incurred in connection with the performance of such services. At
December 31, 1997, MagnaCap Fund, High Yield Fund and Government Securities
Income Fund owed PAG $15,682, $4,090 and $5,867, respectively in service fees.
Pilgrim America Funds
25
<PAGE>
Pilgrim America Elite Series
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
(3) Investment Transactions
For the six months ended December 31, 1997, the cost of purchases and proceeds
from the sales of securities, excluding short-term securities, were as follows:
Government
Securities
MagnaCap Fund High Yield Fund Income Fund
------------- --------------- ------------
U.S. Government Obligations:
Purchases $ -- $ -- $25,615,365
Sales -- -- 25,964,796
Other Securities:
Purchases 87,427,508 186,794,957 --
Sales 60,909,511 125,394,954 --
(4) Capital Shares
Transactions in capital shares and dollars were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
-------------------------- ------------------------- -------------------------
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended
December 31, June 30, December 31, June 30, December 31, June 30,
1997 1997 1997 1997 1997 1997
------------ ---------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
MagnaCap Fund
(Number of Shares)
Shares sold 4,513,813 7,162,084 1,216,818 1,625,552 272,433 308,520
Shares issued as
reinvestments
of dividends 1,809,273 3,978,472 336,704 332,790 74,569 58,378
Shares redeemed (3,916,807) (7,008,858) (220,045) (224,729) (40,923) (59,549)
------------ ------------- ------------ ----------- ---------- ----------
Net increase in
shares outstanding 2,406,279 4,131,698 1,333,477 1,733,613 306,079 307,349
============ ============= ============ =========== ========== ==========
MagnaCap Fund ($)
Shares sold $ 74,165,985 $ 110,144,369 $ 19,976,171 $25,252,042 $4,465,706 $4,760,120
Shares issued as
reinvestments
of dividends 27,942,140 54,179,774 5,144,613 4,499,323 1,144,284 791,740
Shares redeemed (65,429,325) (110,376,550) (3,566,631) (3,781,590) (626,969) (948,406)
------------ ------------- ------------ ----------- ---------- ----------
Net increase in
shares outstanding $ 36,678,800 $ 53,947,593 $ 21,554,153 $25,969,775 $4,983,021 $4,603,454
============ ============= ============ =========== ========== ==========
High Yield Fund
(Number of Shares)
Shares sold 4,414,675 4,403,729 6,111,213 6,227,264 897,733 1,214,198
Shares issued as
reinvestments
of dividends 167,594 178,853 136,376 76,353 43,670 29,000
Shares redeemed (2,027,654) (2,232,708) (936,759) (745,853) (289,442) (134,582)
------------ ------------- ------------ ----------- ---------- ----------
Net increase in
shares outstanding 2,554,615 2,349,874 5,310,830 5,557,764 651,961 1,108,616
============ ============= ============ =========== ========== ==========
</TABLE>
26
<PAGE>
Pilgrim America Elite Series
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
-------------------------- ------------------------- -------------------------
Six Months Six Months Six Months
Ended Year Ended Ended Year Ended Ended Year Ended
December 31, June 30, December 31, June 30, December 31, June 30,
1997 1997 1997 1997 1997 1997
------------ ---------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
High Yield Fund ($)
Shares sold $ 30,598,174 $ 29,353,593 $ 41,762,536 $41,339,576 $ 6,199,345 $8,052,040
Shares issued as
reinvestments
of dividends 1,155,529 1,175,204 939,096 503,880 300,639 191,335
Shares redeemed (14,058,200) (14,956,120) (5,899,739) (4,952,839) (2,005,469) (893,178)
------------ ------------- ------------ ----------- ----------- ----------
Net increase in shares
outstanding $ 17,695,503 $ 15,572,677 $ 36,801,893 $36,890,617 $ 4,494,515 $7,350,197
============ ============= ============ =========== =========== ==========
Government Securities
Income Fund
(Number of Shares)
Shares sold 49,668 87,019 126,643 200,561 8,685 4,833
Shares issued as
reinvestments
of dividends 29,222 70,258 1,494 890 236 146
Shares redeemed (402,392) (882,634) (52,068) (86,251) (338) (2,111)
------------ ------------- ------------ ----------- ----------- ----------
Net increase (decrease)
in shares outstanding (323,502) (725,357) 76,069 115,200 8,583 2,868
============ ============= ============ =========== =========== ==========
Government Securities
Income Fund ($)
Shares sold $ 638,701 $ 1,099,502 $ 1,619,097 $ 2,523,084 $ 111,485 $ 61,032
Shares issued as
reinvestments
of dividends 373,001 885,529 8,783 11,224 3,020 1,851
Shares redeemed (5,156,928) (11,132,819) (649,317) (1,083,379) (4,335) (26,755)
------------ ------------- ------------ ----------- ----------- ----------
Net increase (decrease)
in shares outstanding $ (4,145,226) $ (9,147,788) $ 978,563 $ 1,450,929 $ 110,170 $ 36,128
============ ============= ============ =========== =========== ==========
</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, 1997, MagnaCap Fund, High Yield and Government Securities
Income Fund received earnings credits of $439, $9,164 and $0, respectively.
27
<PAGE>
Pilgrim America MagnaCap Fund
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
COMMON STOCKS: 97.6%
<TABLE>
<CAPTION>
Market
Shares Value
------ -----
<S> <C> <C>
Automotive: 1.1%
175,000 Pep Boys $ 4,178,125
--------------
Banks: 6.1%
80,000 Bankamerica Corp. 5,840,000
98,000 CoreStates Financial Corp. 7,846,125
37,500 Pacific Century Financial Corp. 928,125
83,900 UnionBanCal Corp. 9,019,250
--------------
23,633,500
--------------
Capital Goods: 2.5%
215,000 Parker Hannifin Corp. 9,863,125
--------------
Chemicals: 3.7%
118,000 Betzdearborn, Inc. 7,205,375
120,000 DuPont, (E.I.) DeNemours & Co. 7,207,500
--------------
14,412,875
--------------
Chemicals-Diversified: 0.7%
46,600 PPG Industries, Inc. 2,662,025
--------------
Communications: 1.7%
112,500 Motorola, Inc. 6,419,531
--------------
Computer Software & Services: 3.8%
240,000 Automatic Data Processing, Inc. 14,730,000
--------------
Computer Systems: 1.0%
100,000 Wallace Computer Services 3,887,500
--------------
Drugs: 2.7%
110,000 Bristol-Myers Squibb Co. 10,408,750
--------------
Drugstores: 2.6%
175,000 Rite Aid Corp. 10,270,312
--------------
Energy: 2.5%
165,700 Elf Aquitane-Sponsored ADR 9,714,163
--------------
Energy Services: 1.7%
100,000 Helmerich & Payne, Inc. 6,787,500
--------------
Financial: 2.6%
110,000 Alliance Capital Management L.P. 4,379,375
60,000 Golden West Financial Corp. 5,868,750
--------------
10,248,125
--------------
Food & Beverages: 5.0%
200,000 Heinz (H.J.) Co. 10,162,500
250,000 Pepsico, Inc. 9,109,375
--------------
19,271,875
--------------
</TABLE>
See Accompanying Notes to Financial Statements
28
<PAGE>
Pilgrim America MagnaCap Fund
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
------ -----
<S> <C> <C>
Foods: 1.8%
125,000 Sara Lee Corp. $ 7,039,062
--------------
Healthcare: 5.4%
190,000 Abbott Laboratories 12,456,875
170,000 Hillenbrand Industries 8,701,875
--------------
21,158,750
--------------
Industrial: 1.7%
135,000 Nucor Corp. 6,522,188
--------------
Insurance: 3.6%
40,000 Chubb Corp. 3,025,000
200,000 UNUM Corp. 10,875,000
---------------
13,900,000
---------------
Insurance Life: 3.6%
275,000 AFLAC, Inc. 14,059,375
---------------
Leisure: 2.0%
250,600 Brunswick Corp. 7,596,312
---------------
Machinery & Equipment: 3.0%
320,000 Dover Corp. 11,560,000
---------------
Manufacturing: 2.1%
52,500 Federal Signal Corp. 1,135,313
125,000 Lancaster Colony Corp. 7,046,875
--------------
8,182,188
--------------
Manufacturing / Electronic: 1.8%
105,000 Honeywell, Inc. 7,192,500
--------------
Medical Equipment: 4.4%
200,000 Baxter International 10,087,500
137,400 Becton Dickinson & Co. 6,870,000
--------------
16,957,500
--------------
Office Products & Services: 3.2%
136,500 Avery-Dennison Corp. 6,108,375
100,000 Hewlett Packard 6,250,000
--------------
12,358,375
--------------
Oil & Gas: 0.6%
30,000 Atlantic Richfield 2,403,750
--------------
Oil Well Equipment & Services: 5.4%
139,000 Schlumberger Ltd. 11,189,500
175,000 Tidewater, Inc. 9,646,875
--------------
20,836,375
--------------
Paper & Forest Products: 2.5%
200,048 Kimberly-Clark Corp. 9,864,867
--------------
</TABLE>
See Accompanying Notes to Financial Statements
29
<PAGE>
Pilgrim America MagnaCap Fund
- -------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
------ -----
<S> <C> <C>
Regional Banks: 2.6%
112,800 Comerica, Inc. $ 10,180,200
------------
Restaurant: 2.8%
210,000 McDonalds Corp. 10,027,500
25,000 Tricon Global Restaurants, Inc. 726,563
------------
10,754,063
------------
Retail: 6.6%
373,800 Heilig-Meyers Co. 4,485,600
150,000 Home Depot, Inc. 8,831,250
35,000 Nordstrom, Inc. 2,113,125
264,000 Wal-Mart Stores, Inc. 10,411,500
------------
25,841,475
------------
Savings & Loans: 4.4%
273,000 Charter One Financial, Inc. 17,233,125
------------
Technology: 1.6%
70,000 Meritor Automotive, Inc. 1,474,375
90,000 Rockwell 4,702,500
------------
6,176,875
------------
Transportation: 0.8%
190,000 Arnold Industries, Inc. 3,277,500
------------
Total Common Stocks (Cost $254,291,539) 379,581,886
------------
SHORT-TERM INVESTMENTS: 2.4%
<CAPTION>
Principal Market
Amount Value
------ -----
<S> <C> <C> <C>
Commercial Paper: 2.4%
$9,450,000 International Lease Commercial Paper, 6.45% due 01/02/98 9,448,307
------------
Total Short-Term Investments (Cost $9,448,307) 9,448,307
------------
Total Investments in Securities (Cost $263,739,846)* 100.0% 389,030,193
Cash and Other Assets in Excess of Liabilities-Net 0.0% 82,260
----- ------------
Total Net Assets 100.0% $389,112,453
===== ============
<FN>
- -----------------------------
* Cost for federal income tax purposes is $263,739,846. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $133,609,865
Gross Unrealized Depreciation (8,319,518)
------------
Net Unrealized Appreciation $125,290,347
============
</FN>
</TABLE>
See Accompanying Notes to Financial Statements
30
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
CORPORATE BONDS: 97.3%
<TABLE>
<CAPTION>
Principal Market
Amount Value
------ -----
<S> <C> <C>
Airlines: 0.7%
$1,000,000 (a) Amtran Inc., 10.500% due 08/01/04 $ 1,012,500
--------------
Automotive: 3.6%
2,000,000 CSK Auto, Inc., 11.000% due 11/01/06 2,180,000
2,000,000 Chief Auto Parts, Inc., 10.500% due 05/15/05 2,005,000
1,000,000 (a) Euramax International PLC, 11.250% due 10/01/06 1,090,000
--------------
5,275,000
--------------
Broadcasting: 2.1%
3,000,000 (a) Salem Communications, 9.500% due 10/01/07 3,067,500
--------------
Business Services: 4.3%
1,000,000 (a) International Logistics LTD, 9.750% due 10/15/07 995,000
3,000,000 (a) T/SF Communications, 10.375% due 11/01/07 2,992,500
2,000,000 Unisys Corp., 11.750% due 10/15/04 2,280,000
--------------
6,267,500
--------------
Chemicals: 2.5%
1,500,000 Harris Chemical North America, 10.750% due 10/15/03 1,605,000
2,000,000 (a) Sterling Chemical, 11.250% due 04/01/07 2,115,000
--------------
3,720,000
--------------
Communications: 8.0%
2,000,000 (a) CCPR Services, Inc., 10.000% due 02/01/07 2,000,000
2,000,000 Nextlink Communications, 12.500% due 04/15/06 2,287,500
2,000,000 (a) Paging Network, 10.000% due 10/15/08 2,080,000
2,000,000 Phonetel Tech, 12.000% due 12/15/06 2,085,000
1,500,000 (a) Price Comm. Wireless Inc., 11.750% due 07/15/07 1,627,500
1,500,000 Sprint Spectrum, 11.000% due 08/15/06 1,687,500
--------------
11,767,500
--------------
Consumer Products: 1.0%
1,500,000 (a) Renaissance Cosmetics, 11.750% due 02/15/04 1,475,625
--------------
Financial: 3.5%
1,500,000 CRIIMI Mae, Inc., 9.125% due 12/01/02 1,509,375
1,500,000 (a) Dollar Financial Group, 10.875% due 11/15/06 1,606,875
2,000,000 (a) Emergent Group, 10.750% due 09/15/04 2,005,000
--------------
5,121,250
--------------
Food Distributors: 3.4%
3,000,000 (a) Di Giorgio Corp., 10.000% due 06/15/07 2,947,500
2,000,000 (a) Richmont Marketing Specialist, 10.125% due 12/15/07 2,035,000
--------------
4,982,500
--------------
Foods: 2.1%
1,000,000 (a) Cuddy International Corp., 10.750% due 12/01/07 1,010,000
2,000,000 (a) Imperial Holly Corp., 9.75% due 12/15/07 2,012,500
--------------
3,022,500
--------------
</TABLE>
See Accompanying Notes to Financial Statements
31
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
------ -----
<S> <C> <C>
Gaming: 15.6%
$2,000,000 (a) Alliance Gaming Corp., 10.000% due 08/01/07 $ 2,015,000
2,000,000 Casino America, 12.500% due 08/01/03 2,170,000
3,000,000 (a) Fitzgeralds Gaming Corp., 12.250% due 12/15/04 3,030,000
3,000,000 (a) Isle of Capri/Cap Corp., 13.000% due 08/31/04 3,041,250
1,500,000 (a) Players International, 10.875% due 04/15/05 1,620,000
2,000,000 (a) Riviera Holdings Corp., 10.000% due 08/15/04 1,990,000
3,000,000 Station Casinos, 10.125% due 03/15/06 3,165,000
1,000,000 Trump Atlantic City, 11.250% due 05/01/06 982,500
3,000,000 (a) Trump Atlantic II, 11.250% due 05/01/06 2,910,000
2,000,000 (a) Venetian Casino, 12.250% due 11/15/04 2,010,000
--------------
22,933,750
--------------
Health Care: 1.0%
1,500,000 Alliance Imaging, 9.625% due 12/15/05 1,526,250
--------------
Leisure: 2.4%
2,000,000 (a) Bally Total Fitness Holding, 9.875% due 10/15/07 2,020,000
1,500,000 (a) Town Sports International, 9.750% due 10/15/04 1,515,000
--------------
3,535,000
--------------
Machinery & Equipment: 1.1%
1,500,000 (a) GSI Group Inc., 10.250% due 11/01/07 1,528,125
--------------
Manufacturing: 3.5%
2,000,000 (a) Jordan Industries Inc., 10.375% due 08/01/07 2,040,000
3,000,000 (a) RBX Corp., 12.000% due 01/15/03 3,075,000
--------------
5,115,000
--------------
Manufacturing/Electronic: 2.9%
2,000,000 (a) Jordan Telecom Products, 9.875% due 08/01/07 2,050,000
1,500,000 Motors and Gears, Inc., 10.750% due 11/15/06 1,597,500
500,000 (a) Motors and Gears, Inc., 10.750% due 11/15/06 532,500
--------------
4,180,000
--------------
Media & Entertainment: 14.1%
3,000,000 (a) Adelphia Communications, 9.250% due 10/01/02 3,067,500
3,000,000 (a) Echostar DBS Corp., 12.500% due 07/01/02 3,277,500
2,000,000 (a) Fox Kids Worldwide Inc., 9.250% due 11/01/07 1,940,000
2,000,000 FrontierVision, 11.000% due 10/15/06 2,230,000
2,000,000 Galaxy Telecom, 12.375% due 10/01/05 2,205,000
2,000,000 (a) James Cable Partners-LP, 10.750% due 08/15/04 2,115,000
1,000,000 (a) Northland Cable, 10.250% due 11/15/07 1,056,250
1,500,000 Rifkin Acquisition, 11.125% due 01/15/06 1,648,125
3,000,000 Star Choice Communications, 13.000% due 12/15/05 3,097,500
--------------
20,636,875
--------------
Metals & Minerals: 1.9%
1,000,000 Haynes International, Inc., 11.625% due 09/01/04 1,153,750
1,500,000 (a) Kaiser Aluminum & Chemical Co., 10.875% due 10/15/06 1,635,000
--------------
2,788,750
--------------
</TABLE>
See Accompanying Notes to Financial Statements
32
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
------ -----
<S> <C> <C> <C>
Mining Equipment: 0.7%
$1,000,000 (a) Continental Global Group, 11.000% due 04/01/07 $ 1,070,000
------------
Oil & Gas: 5.4%
2,000,000 (a) Magnum Hunter Re, 10.000% due 06/01/07 2,045,000
3,000,000 Petroleum Heat & Power, 12.250% due 02/01/05 2,985,000
3,000,000 (a) Transamerican Energy, 11.500% due 06/15/02 2,947,500
------------
7,977,500
------------
Paper & Forest Products: 0.7%
1,000,000 Ainsworth Lumber, 12.500% due 07/15/07 1,012,500
------------
Publishing: 1.4%
2,000,000 (a) American Lawyer Media, 9.750% due 12/15/07 2,035,000
------------
Restaurants: 0.7%
1,000,000 (a) AFC Enterprises, 10.250% due 05/15/07 1,057,500
------------
Retail: 6.8%
2,000,000 Commemorative Brands, 11.000% due 01/15/07 2,005,000
3,000,000 (a) Mrs. Field's Original, 10.125% due 12/01/04 3,022,500
2,000,000 (a) Tuesday Morning, 11.000% due 12/15/07 2,000,000
3,000,000 (a) United Auto Group, 11.000% due 07/15/07 2,940,000
------------
9,967,500
------------
Shipping: 3.4%
3,000,000 (a) Equimar Shipholdings LTD., 9.875% due 07/01/07 2,842,500
2,000,000 (a) Navigator Gas Transport, 10.500% due 06/30/07 2,135,000
------------
4,977,500
------------
Supermarkets: 1.4%
2,000,000 (a) Jitney-Jungle Stores, 10.375% due 09/15/07 2,075,000
------------
Textile: 2.1%
3,000,000 (a) Anvil Knitwear, 10.875% due 03/15/07 3,082,500
------------
Utilities: 1.0%
1,500,000 Panda Global Energy, 12.500% due 04/15/04 1,395,000
------------
Total Corporate Bonds (Cost $139,367,896) 142,605,625
------------
Total Investments in Securities (Cost $139,367,896)* 97.3% 142,605,625
Cash and Other Assets in Excess of Liabilities-Net 2.7% 4,016,266
------ ------------
Total Net Assets 100.0% $146,621,891
====== ============
<FN>
- -----------------------------
(a) Issues designated 144A.
* Cost for federal income tax purposes is $139,367,896. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 3,488,644
Gross Unrealized Depreciation (250,915)
------------
Net Unrealized Appreciation $ 3,237,729
============
</FN>
</TABLE>
See Accompanying Notes to Financial Statements
33
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES: 97.8%
<TABLE>
<CAPTION>
Principal Market
Amount Rate Maturity Value
------ ---- -------- -----
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation: 18.2%
$3,205,000 Federal Home Loan Mortgage Corporation 7.010% 2007 $ 3,288,618
250,869 Federal Home Loan Mortgage Corporation 8.500% 2017 264,504
167,319 Federal Home Loan Mortgage Corporation 9.000% 2006 172,966
369,409 Federal Home Loan Mortgage Corporation 9.500% 2005 to 2014 389,960
92,502 Federal Home Loan Mortgage Corporation 9.905% 2020 99,156
148,360 Federal Home Loan Mortgage Corporation 10.500% 2013 163,146
701,446 Federal Home Loan Mortgage Corporation 12.250% 2015 809,068
82,425 Federal Home Loan Mortgage Corporation-Gold 9.000% 2021 87,793
------------
5,275,211
------------
Federal National Mortgage Association: 38.8%
1,135,396 Federal National Mortgage Association 7.900% 2022 1,248,936
674,812 Federal National Mortgage Association 8.000% 2023 698,788
991,372 Federal National Mortgage Association 8.500% 2017 to 2021 1,039,283
279,072 Federal National Mortgage Association 9.000% 2017 296,687
907,648 Federal National Mortgage Association 9.250% 2009 to 2016 967,888
116,623 Federal National Mortgage Association 9.750% 2008 124,750
281,570 Federal National Mortgage Association 10.000% 2007 to 2012 302,174
810,611 Federal National Mortgage Association 11.000% 2017 916,850
1,275,982 Federal National Mortgage Association 11.250% 2016 1,467,379
340,989 Federal National Mortgage Association 11.500% 2014 389,873
111,774 Federal National Mortgage Association 12.000% 2007 125,302
586,532 Federal National Mortgage Association 12.500% 2007 to 2013 675,541
1,399,324 Federal National Mortgage Association 13.000% 2014 1,644,495
1,125,770 Federal National Mortgage Association 13.500% 2007 to 2017 1,341,784
------------
11,239,730
------------
Government National Mortgage Association: 33.5%
789,828 Government National Mortgage Association 7.500% 2015 809,518
2,975,170 Government National Mortgage Association 8.000% 2014 to 2024 3,160,122
1,289,615 Government National Mortgage Association 9.000% 2013 to 2017 1,392,900
670,513 Government National Mortgage Association 9.250% 2016 to 2021 721,502
632,697 Government National Mortgage Association 9.500% 2015 683,070
454,553 Government National Mortgage Association 10.500% 2013 to 2021 508,342
64,573 Government National Mortgage Association 11.000% 2016 73,306
132,043 Government National Mortgage Association 11.750% 2015 150,415
1,662,201 Government National Mortgage Association 12.000% 2013 to 2015 1,945,362
207,419 Government National Mortgage Association-
Mobile Home D 11.250% 2011 234,383
------------
9,678,920
------------
U.S. Treasury Securities: 7.3%
2,000,000 U.S. Treasury Bonds 6.375% 2027 2,109,380
------------
Total U.S. Government Securities (Cost $27,740,840) 28,303,241
------------
</TABLE>
See Accompanying Notes to Financial Statements
34
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 2.7%
<TABLE>
<CAPTION>
Principal
Amount Value
------ -----
<S> <C> <C> <C>
Repurchase Agreements: 2.7%
$790,000 Merrill Lynch Repurchase Agreement, 5.50% due 01/02/98
(Collateralized by $750,000 U.S. Treasury Bonds, 8.000%
due 05/15/01) $ 790,000
-----------
Total Short-Term Investments (Cost $790,000) 790,000
-----------
Total Investments in Securities (Cost $28,530,840)* 100.5% 29,093,241
Liabilities in Excess of Cash and Other Assets--Net (0.5)% (143,896)
------ -----------
Total Net Assets 100.0% $28,949,345
====== ===========
<FN>
- -----------------------------
* Cost for federal income tax purposes is $28,530,840. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation $ 566,570
Gross Unrealized Depreciation (4,169)
-----------
Net Unrealized Appreciation $ 562,401
-----------
</FN>
</TABLE>
See Accompanying Notes to Financial Statements
35
<PAGE>
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<PAGE>
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<PAGE>
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<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 OST Systems, Inc.
P0. Box 419541
Kansas City, Missouri 64141
CUSTODIAN
Investors Fiduciary Trust Company
127 West 10th Street
l4th Floor
Kansas City, Missouri 64105
LEGAL COUNSEL
Decheit Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
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
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America
Bank and Thrift Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
Pilgrim America
Prime Rate Trust
Pilgrim America
Funds
'Our goal is for every investor to have a successful investment experience.'
Prospectuses containing more complete information regarding the Funds,
including charges and expenses, may be obtained by calling Pilgrim America
Securities, Inc. Distributor at 1-800-334-3444. Please read the prospectuses
carefully before you invest or send money.
22-SS-020198 022898
