PILGRIM(sm)
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FUNDS FOR SERIOUS INVESTORS
Annual Report
Classes A, B, C, T and I
December 31, 1999
U.S. EQUITY FUNDS
Pilgrim Growth Opportunities
Pilgrim MidCap Opportunities
Pilgrim SmallCap Opportunities
INCOME FUNDS
Pilgrim Government Securities
Pilgrim High Yield III
EQUITY & INCOME FUND
Pilgrim Balance Sheet Opportunities
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Pilgrim
Funds
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TABLE OF CONTENTS
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Chairman's Message......................................................... 1
Portfolio Managers' Reports:
U.S. Equity Funds ....................................................... 2
Income Funds............................................................. 10
Equity & Income Fund .................................................... 12
Index Descriptions......................................................... 15
Report of Independent Accountants.......................................... 16
Statements of Assets and Liabilities....................................... 18
Statements of Operations................................................... 22
Statements of Changes in Net Assets........................................ 24
Financial Highlights ...................................................... 26
Notes to Financial Statements.............................................. 32
Portfolios of Investments.................................................. 41
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Pilgrim
Funds
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CHAIRMAN'S MESSAGE
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Dear Shareholder:
We are pleased to present the Annual Report for the Pilgrim Funds and Pilgrim
Equity Trust. On October 29, 1999, ReliaStar Financial Corp., the indirect
parent company of Northstar Investment Management Corporation ("Northstar"),
acquired Pilgrim Capital Corporation and its subsidiaries. In conjunction with
the acquisition Northstar, the Adviser to the Trust, changed its name to Pilgrim
Advisors, Inc.
Our fund family now has 32 funds of varying types which provide core investment
choices for the serious investor. There are three U.S. Equity Funds, two Income
Funds and one Equity & Income Fund included in this Annual Report. Seasoned
investment professionals at Robert W. Stallings Pilgrim Advisors, Inc. manage
all of the Funds.
At Pilgrim, we are 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 prides itself on providing a family of core investments
designed to help you reach your financial goals. Our goal is for every investor
to have a successful investment experience.SM
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman
Pilgrim Advisors, Inc.
February 17, 2000
1
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U.S. Equity
Funds
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Portfolio
PILGRIM GROWTH OPPORTUNITIES FUND Manager's Report
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Portfolio Management: Mary Lisanti, Executive Vice President and Portfolio
Manager
Goal: The Growth Opportunities Fund seeks long-term growth of capital by
investing primarily in the common stock of U.S. companies that the Portfolio
Manager feels have above average prospects for growth.
Market Overview: In the final quarter of the year, U.S. equities powered ahead
using the same technology-driven formula responsible for some spectacular gains
in 1999. The economy showed continued strength with third quarter GDP being
revised upwards to 5.7%, but inflation remained subdued as the price index rose
a modest 1.7%. The Federal Reserve resisted the temptation to raise rates for
the fourth time this year, although there is an increased likelihood that rates
will be raised again in February. Economic news continued to be encouraging as
non-farm productivity showed its biggest increase since 1992, while consumer
confidence reached its highest point since 1968.
Technology's impact on the overall market continues to strengthen, as the
technology sector now accounts for more than a quarter of the S&P 500. However,
the stock market's performance was broader in December than it has been in
recent months. The exception to that broad strength was the financial sector,
which was dragged down by rising bond yields. Healthcare stocks were mixed as
large pharmaceuticals underperformed, but the biotechnology sector was
exceptionally strong.
Outside of the technology-heavy NASDAQ Composite, small cap stocks were the star
performers in the fourth quarter. For the quarter, the NASDAQ Composite soared
48.18%, while the Russell 2000 Index of small cap stocks gained 18.44%, setting
a new record high. The broader market also performed well, as the S&P 500 rose
14.88% in the final quarter, while the S&P Midcap Index earned 17.19%. The Dow
Jones Industrial Average tacked on an additional 11.22%, achieving another
record high.
Performance: For the one year ended December 31, 1999, the Fund's Class A
shares, excluding sales charges, provided a total return of 93.25% compared to a
21.04% return for the S&P 500 Index for the same period.
Portfolio Specifics: While the Fund has been overweighted in technology, stock
selection and careful attention to valuation drove performance higher in the
fourth quarter. The themes that had the biggest impact on performance in the
final quarter of 1999 were the "Ubiquitous Semiconductor," "Telecommunications
Explosion," and "Managing the Information Age," while increased weightings in
"Life on the Net" and the "Life Sciences Revolution" also enhanced returns.
The themes with the largest weightings in the Growth Opportunities Fund include
"The Telecommunications Explosion," "The Ubiquitous Semiconductor", and "Life on
the Net." Among the best performing stocks in the Fund during the fourth quarter
were JDS Uniphase, Sapient, QUALCOMM, and Oracle.
Market Outlook: Looking out to the year 2000, we continue to see excellent
opportunities for growth stocks. While it is unlikely that the market indices
will repeat the spectacular performance of 1999, there are plenty of companies
with attractive prospects at reasonable valuations. Thus, we believe that active
managers will have the opportunity to outperform their benchmarks significantly
in 2000 as market breadth improves from its recent narrow focus. Technology
stocks should continue to lead the way as companies accelerate spending after
restraining budgets in front of Y2K.
We expect the U.S. economic expansion to continue into 2000, forcing the Federal
Reserve to continue to raise interest rates. Thus, we remain cautious towards
interest rate sensitive stocks, especially financials. However, spending on
communications networks should continue unabated as companies seek to realize
cost reductions from using the Internet and information technology. The
portfolio has focused on companies that provide the network infrastructure or
those that help companies design and implement solutions for their businesses.
We believe the portfolio is well positioned in the current environment. We have
focused on companies with very strong growth prospects and strong balance sheets
that sell at reasonable multiples relative to their growth rates.
2
<PAGE>
Portfolio
Manager's Report PILGRIM GROWTH OPPORTUNITIES FUND
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<TABLE>
<CAPTION>
December 31
-------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pilgrim Growth Opportunities
Fund Class A With Sales
Charge (5) 10,000 8,992 12,477 13,562 15,056 14,000 17,507 21,103 26,082 32,239 $62,303
Pilgrim Growth Opportunities
Fund Class A Without Sales
Charge (5) 10,000 9,541 13,238 14,390 15,974 14,854 18,575 22,391 27,673 34,206 66,104
S&P 500 Index 10,000 9,689 12,635 13,596 14,963 15,160 20,850 25,634 34,183 43,951 53,198
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns for the Periods Ended December 31, 1999
--------------------------------------------------------------------
Since Inception Since Inception
of Class A, B and C of Class I
1 Year 5 Year 10 Year 6/5/95 3/31/97
------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Including Sales Charge:
Class A (1) 82.14% -- -- 33.48% --
Class B (2) 86.84% -- -- 34.17% --
Class C (3) 90.90% -- -- 34.34% --
Class T (4) 87.72% 33.98% 20.05% -- --
Class I 93.87% -- -- -- 48.91%
Excluding Sales Charge:
Class A 93.26% -- -- 35.21% --
Class B 91.84% -- -- 34.33% --
Class C 91.90% -- -- 34.34% --
Class T 91.72% 33.98% 20.05% -- --
Class I 93.87% -- -- -- 48.91%
S&P 500 Index 21.04% 28.54% 18.19% 26.94% 29.16%
</TABLE>
Based on a $10,000 initial investment, the graph above illustrates the total
return of Pilgrim Growth Opportunities Fund against the S&P 500 Index. The Index
has an inherent performance advantage over the Fund since it has no cash in its
portfolio, impose no sales charges and incurs no operating expenses. An investor
cannot invest directly in an index. The Fund's performance is shown both with
and without the imposition of sales charges.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 5.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 2%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1
year return.
(4) Reflects deduction of the deferred Class T sales charge of 4.00% for the 1
year return.
(5) The figures shown for 1996 to 1999 provide performance for Class A shares
of the Fund. The figures shown for the years 1989 to 1995 provide
performance for Class T shares of the Fund revised to reflect expenses of
Class A shares.
Principal Risk Factor(s): Exposure to financial and market risks that accompany
investments in equities. In exchange for higher growth potential, investing in
stocks of smaller companies may entail greater price variability than investing
in stocks of larger companies. This Fund may invest in IPO's which may
significantly impact performance.
See accompanying index descriptions on page 15.
3
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U.S. Equity
Funds
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Portfolio
PILGRIM MIDCAP OPPORTUNITIES FUND Manager's Report
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Portfolio Management Team: Mary Lisanti, Executive Vice President and Portfolio
Manager; Jeffrey Bernstein, Portfolio Manager
Goal: The MidCap Opportunities Fund seeks long-term capital appreciation by
investing primarily in the common stocks of mid-sized U.S. companies that the
Portfolio Manager feels have above average prospects for growth.
Market Overview: In the final quarter of the year, U.S. equities powered ahead
using the same technology-driven formula responsible for some spectacular gains
in 1999. The economy showed continued strength with third quarter GDP being
revised upwards to 5.7%, but inflation remained subdued as the price index rose
a modest 1.7%. The Federal Reserve resisted the temptation to raise rates for
the fourth time this year, although there is an increased likelihood that rates
will be raised again in February. Economic news continued to be encouraging as
non-farm productivity showed its biggest increase since 1992, while consumer
confidence reached its highest point since 1968.
Technology's impact on the overall market continues to strengthen, as the
technology sector now accounts for more than a quarter of the S&P 500. However,
the stock market's performance was broader in December than it has been in
recent months. The exception to that broad strength was the financial sector,
which was dragged down by rising bond yields. Healthcare stocks were mixed as
large pharmaceuticals underperformed, but the biotechnology sector was
exceptionally strong.
Outside of the technology-heavy NASDAQ Composite, small cap stocks were the star
performers in the fourth quarter. For the quarter, the NASDAQ Composite soared
48.18%, while the Russell 2000 Index of small cap stocks gained 18.44%, setting
a new record high. The broader market also performed well, as the S&P 500 rose
14.88% in the final quarter, while the S&P Midcap Index earned 17.19%. The Dow
Jones Industrial Average tacked on an additional 11.22%, achieving another
record high.
Performance: For the one year ended December 31, 1999, the Fund's Class A
shares, excluding sales charges, provided a total return of 103.24% compared to
a 14.70% return for the S&P Midcap 400 Index for the same period.
Portfolio Specifics: While the Fund has been overweight in technology, stock
selection and careful attention to valuation drove performance higher in the
fourth quarter. The themes that had the biggest impact on performance in the
final quarter of 1999 were the "Ubiquitous Semiconductor," "Telecommunications
Explosion," and "Managing the Information Age," while increased weightings in
"Life on the Net" and the "Life Sciences Revolution" also enhanced returns.
Some of the individual stock positions that drove performance in the fourth
quarter were Cephalon, Sapient, Lam Research, and Conexant Systems. The biggest
themes in which the Fund is invested include "Managing the Information Age,"
"The Telecommunications Explosion," and "The Ubiquitous Semiconductor."
Market Outlook: Looking out to the year 2000, we continue to see excellent
opportunities for growth stocks. While it is unlikely that the market indices
will repeat the spectacular performance of 1999, there are plenty of companies
with attractive prospects at reasonable valuations. Thus, we believe that active
managers will have the opportunity to outperform their benchmarks significantly
in 2000 as market breadth improves from its recent narrow focus. Technology
stocks should continue to lead the way as companies accelerate spending after
restraining budgets in front of Y2K.
We expect the U.S. economic expansion to continue into 2000, forcing the Federal
Reserve to continue to raise interest rates. Thus, we remain cautious towards
interest rate sensitive stocks, especially financials. However, spending on
communications networks should continue unabated as companies seek to realize
cost reductions from using the Internet and information technology. The
portfolio has focused on companies that provide the network infrastructure or
those that help companies design and implement solutions for their businesses.
We believe the portfolio is well positioned in the current environment. We have
focused on companies with very strong growth prospects and strong balance sheets
that sell at reasonable multiples relative to their growth rates.
4
<PAGE>
Portfolio
Manager's Report PILGRIM MIDCAP OPPORTUNITIES FUND
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August 20, December 31, December 31,
1998 1998 1999
---- ---- ----
Pilgrim MidCap Opportunities Fund
Class A With Sales Charge 10,000 12,215 24,826
Pilgrim MidCap Opportunities Fund
Class A Without Sales Charge 10,000 12,960 26,340
S&P MidCap 400 Index 10,000 14,042 16,106
Average Annual Total Returns for the
Periods Ended December 31, 1999
-------------------------------------
Since Inception
of Class A, B, C and I
1 Year 8/20/98
------ -------
Including Sales Charge:
Class A (1) 91.56% 94.20%
Class B (2) 96.73% 99.54%
Class C (3) 100.16% 101.26%
Class I 103.19% 103.08%
Excluding Sales Charge:
Class A 103.24% 102.78%
Class B 101.73% 101.79%
Class C 101.16% 101.26%
Class I 103.19% 103.08%
S&P MidCap 400 Index 14.70% 41.61%
Based on a $10,000 initial investment, the graph above illustrates the total
return of Pilgrim MidCap Opportunities Fund against the S&P MidCap 400 Index.
The Index has an inherent performance advantage over the Fund since it has no
cash in its portfolio, imposes no sales charges and incurs no operating
expenses. An investor cannot invest directly in an index. The Fund's performance
is shown both with and without the imposition of sales charges.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Fund. Total returns would have been
lower had there been no waiver to the Fund.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 5.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 4%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1
year return.
Principal Risk Factor(s): Exposure to financial and market risks that accompany
investments in equities. In exchange for higher growth potential, investing in
stocks of smaller companies may entail greater price variability than investing
in stocks of larger companies. This Fund may invest in IPO's which may
significantly impact performance. Securities of mid-size companies may be more
susceptible to price savings than investments in larger companies.
See accompanying index descriptions on page 15.
5
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U.S. Equity
Funds
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Portfolio
PILGRIM SMALLCAP OPPORTUNITIES FUND Manager's Report
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Portfolio Management: Mary Lisanti, Executive Vice President and Portfolio
Manager
Goal: The SmallCap Opportunities Fund seeks capital appreciation by investing at
least 65% of its total assets in the common stocks of smaller lesser-known U.S.
companies that the Portfolio Manager feels have above average prospects for
growth.
Market Overview: In the final quarter of the year, U.S. equities powered ahead
using the same technology-driven formula responsible for some spectacular gains
in 1999. The economy showed continued strength with third quarter GDP being
revised upwards to 5.7%, but inflation remain subdued as the price index rose a
modest 1.7%. The Federal Reserve resisted the temptation to raise rates for the
fourth time this year, although there is an increased likelihood that rates will
be raised again in February. Economic news continued to be encouraging as
non-farm productivity showed its biggest increase since 1992, while consumer
confidence reached its highest point since 1968.
Technology's impact on the overall market continues to strengthen, as the
technology sector now accounts for more than a quarter of the S&P 500. However,
the stock market's performance was broader in December than it has been in
recent months. The exception to that broad strength was the financial sector,
which was dragged down by rising bond yields. Healthcare stocks were mixed as
large pharmaceuticals underperformed, but the biotechnology sector was
exceptionally strong.
Outside of the technology-heavy NASDAQ Composite, small cap stocks were the star
performers in the fourth quarter. For the quarter, the NASDAQ Composite soared
48.18%, while the Russell 2000 Index of small cap stocks gained 18.44%, setting
a new record high. The broader market also performed well, as the S&P 500 rose
14.88% in the final quarter, while the S&P Midcap Index earned 17.18%. The Dow
Jones Industrial Average tacked on an additional 11.22%, achieving another
record high.
Performance: For the one year ended December 31, 1999 the Fund's Class A shares,
excluding sales charges, provided a total return of 146.94% compared to a 21.26%
return for the Russell 2000 Index for the same period.
Portfolio Specifics: While the Fund has been overweight in technology, stock
selection and careful attention to valuation drove performance higher in the
fourth quarter. The themes that had the biggest impact on performance in the
final quarter of 1999 were the "Ubiquitous Semiconductor," "Telecommunications
Explosion," and "Managing the Information Age," while increased weightings in
"Life on the Net" and the "Life Sciences Revolution" also enhanced returns.
Looking at specific positions, Bluestone Software, Liberate Technologies,
Micromuse, and Abgenix were among the individual stocks with the biggest impact
on performance. Our biggest weighted themes as of year end were "Managing the
Information Age," "The Telecommunications Explosion," and "The Ubiquitous
Semiconductor."
Market Outlook: Looking out to the year 2000, we continue to see excellent
opportunities for growth stocks. While it is unlikely that the market indices
will repeat the spectacular performance of 1999, there are plenty of companies
with attractive prospects at reasonable valuations. Thus, we believe that active
managers will have the opportunity to outperform their benchmarks significantly
in 2000 as market breadth improves from its recent narrow focus. Technology
stocks should continue to lead the way as companies accelerate spending after
restraining budgets in front of Y2K.
We expect the U.S. economic expansion to continue into 2000, forcing the Federal
Reserve to continue to raise interest rates. Thus, we remain cautious towards
interest rate sensitive stocks, especially financials. However, spending on
communications networks should continue unabated as companies seek to realize
cost reductions from using the Internet and information technology. The
portfolio has focused on companies that provide the network infrastructure or
those that help companies design and implement solutions for their businesses.
We believe the portfolio is well positioned in the current environment. We have
focused on companies with very strong growth prospects and strong balance sheets
that sell at reasonable multiples relative to their growth rates.
6
<PAGE>
Portfolio
Manager's Report PILGRIM SMALLCAP OPPORTUNITIES FUND *
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<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pilgrim SmallCap Opportunities
Fund Class A With Sales
Charge (5) 10,000 8,654 13,666 15,742 19,018 18,218 20,402 24,107 27,709 29,812 73,617
Pilgrim SmallCap Opportunities
Fund Class A Without Sales
Charge (5) 10,000 9,182 14,500 16,703 20,179 19,329 21,647 25,578 29,399 31,630 78,108
Russell 2000 Index 10,000 8,049 11,756 13,920 16,552 16,251 20,872 24,314 29,751 28,992 35,164
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns for the Periods Ended December 31, 1999
--------------------------------------------------------------------
Since Inception Since Inception
of Class A, B and C of Class I
1 Year 5 Year 10 Year 6/5/95 4/1/99
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Including Sales Charge:
Class A (1) 132.73% -- -- 34.05% --
Class B (2) 140.24% -- -- 34.71% --
Class C (3) 144.12% -- -- 34.83% --
Class T (4) 141.51% 31.45% 22.11% -- --
Class I -- -- -- -- 126.05%
Excluding Sales Charge:
Class A 146.94% -- -- 35.79% --
Class B 145.24% -- -- 34.86% --
Class C 145.12% -- -- 34.83% --
Class T 145.51% 31.45% 22.11% -- --
Class I -- -- -- -- 126.05%
Russell 2000 Index 21.26% 16.69% 13.40% 16.24% 28.21%
</TABLE>
Based on a $10,000 initial investment, the graph above illustrates the total
return of Pilgrim SmallCap Opportunities Fund against the Russell 2000 Index.
The Index has an inherent performance advantage over the Fund since it has no
cash in its portfolio, imposes no sales charges and incurs no operating
expenses. An investor cannot invest directly in an index. The Fund's performance
is shown both with and without the imposition of sales charges.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 5.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 2%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1
year return.
(4) Reflects deduction of the deferred Class T sales charge of 4.00% for the 1
year return.
(5) The figures shown for the years 1996 to 1999 provide performance for Class
A shares of the Fund. The figures shown for the years 1989 to 1995 provide
performance for Class T shares of the Fund revised to reflect expenses of
Class A shares.
Principal Risk Factor(s): Exposure to financial and market risks that accompany
investments in equities. In exchange for higher growth potential, investing in
stocks of smaller companies may entail greater price variability than investing
in stocks of larger companies. This Fund may invest in IPO's which may
significantly impact performance.
* The Fund will close to new investors and new exchanges after February 29,
2000. Pilgrim reserves the right to close the Fund to new investors earlier
than that date if it determines that the Fund Manager's ability to invest is
being adversly affected by inflows.
See accompanying index descriptions on page 15.
7
<PAGE>
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U.S. Equity
Funds
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Portfolio
PILGRIM GOVERNMENT SECURITIES FUND Manager's Report
- --------------------------------------------------------------------------------
Portfolio Management: Robert K. Kinsey, Vice President and Senior Portfolio
Manager
Goals: The Government Securities Fund seeks high current income and
conservation of principal by investing primarily in debt obligations issued or
guaranteed by the U.S. government or its agencies and instrumentalities.
Bond Market Overview: 1999 was a tough year for bonds by any measure: the thirty
year Treasury posted its worst return since 1974 while the Lehman Aggregate
Index experienced returns nearly as bad as 1994. The summer months witnessed a
spread rout nearly as bad as 1998's debacle. Liquidity returned to the
investment grade arena with a vengeance during the fourth quarter. Spreads
tightened across the board as managers re-discovered an appetite for risk, and
mortgages posted healthy relative returns. However, a very robust domestic
economy and Fed tightenings pushed rates higher. By mid December Y2K concern
drained liquidity from the bond market as both the buy-side and the sell-side
shifted into hibernation.
Performance: For the one year ended December 31, 1999, the Fund's Class A
shares, excluding sales charges, declined -1.99% compared to the Lehman Brothers
Intermediate U.S. Government Index which returned 0.49% for the same period.
Portfolio Specifics: The Fund's duration was shorter than many of our
competitors during a period of rising rates. The Fund continues to be
concentrated in mortgage backed securities; however, we have added FNMA bonds
collateralized by multi-family properties and non-callable agencies at
compelling levels. We also increased the diversity of our coupon and the
diversity of year of mortgage origination.
Market Outlook: We are poised to shorten our duration with the onset of the new
year as we anticipate further central bank tightening here and abroad in 2000.
The fund continues to offer a handsome yield advantage over Treasuries.
Following a more conservative tack, our ongoing strategy is to provide the best
dividend possible within the context of the market and with few if any negative
surprises. Given the fact that mortgage backed securities offer only fair value,
we will continue to exploit market inefficiencies in the multi-family sector of
the government market while avoiding large duration bets.
8
<PAGE>
Portfolio
Manager's Report PILGRIM GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pilgrim Government Securities
Fund Class A Without Sales
Charge (5) 10,000 10,992 12,650 13,930 16,553 14,985 18,469 18,574 19,960 21,012 20,594
Lehman Intermediate Government
Index 10,000 10,956 12,502 13,368 14,460 14,207 16,255 16,915 18,220 19,767 19,864
Average Annual Total Returns for the Periods Ended
December 31, 1999
--------------------------------------------------
Since Inception
of Class A, B and C
1 Year 5 Year 10 Year 6/5/95
------ ------ ------- ------
<S> <C> <C> <C> <C>
Including Sales Charge:
Class A (1) -6.66% -- -- 3.53%
Class B (2) -7.43% -- -- 3.53%
Class C (3) -3.86% -- -- 3.82%
Class T (4) -6.27% 6.21% 7.04% --
Excluding Sales Charge:
Class A -1.99% -- -- 4.63%
Class B -2.87% -- -- 3.88%
Class C -2.95% -- -- 3.82%
Class T -2.62% 6.21% 7.04% --
Lehman Brothers Intermediate
U.S. Government Index 0.49% 6.93% 7.10% 5.72%
</TABLE>
Based on a $10,000 initial investment, the graph above illustrates the total
return of Pilgrim Government Securities Fund against the Lehman Brothers
Intermediate U.S. Government Index. The Index has an inherent performance
advantage over the Fund since it has no cash in its portfolio, imposes no sales
charge and incurs no operating expenses. An investor cannot invest directly in
an index. The Fund's performance is shown both with and without the imposition
of sales charges.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Fund. Total returns would have been
lower had there been no waiver to the Fund.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 4.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 2%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1
year return.
(4) Reflects deduction of the deferred Class T sales charge of 4.00% for the 1
year return.
(5) The figures shown for 1996 to 1999 provide performance for Class A shares
of the Fund. The figures shown for the years 1989 to 1995 provide
performance for Class T shares of the Fund, revised to reflect expenses of
Class A.
Principal Risk Factor(s): Exposure to financial, market, and interest rate risks
and prepayment risk on mortgage-related securities. Fluctuation in the value of
the Fund's shares can be expected in response to changes in interest rates. The
value of an investment in the Fund is not insured or guaranteed and will
fluctuate.
See accompanying index descriptions on page 15.
9
<PAGE>
- ------
Income
Funds
- ------
Portfolio
PILGRIM HIGH YIELD FUND III Manager's Report
- --------------------------------------------------------------------------------
Portfolio Management: Kevin Mathews, Senior Vice President and Senior Portfolio
Manager
Goals: The High Yield Fund III seeks high current income by investing in high
yield debt securities.
Market Overview: It was the best of times, it was the worst of times. For the
12-month period ended December 31, 1999, the economy showed strong growth and
subdued inflation. The fixed income markets, however, experienced upward
trending interest rates throughout the year. The Federal Open Market Committee
(FOMC) stepped in during the second half of the year by raising the Federal
Funds Rate from 4.75% to 5.50%. The FOMC acted on the perception that economic
growth was too strong and that if left unchecked, it would ultimately result in
rising inflation.
At the end of 1999, fixed income managers stepped back to assess the damage. The
thirty year Treasury posted its worst return since 1974 while the Lehman
Aggregate Index experienced returns nearly as bad as 1994. The high yield
market, in contrast, escaped the year in better shape. High yield spreads
tightened reflecting high yield bonds' low interest rate sensitivity.
High yield managers were rewarded for being risk adverse in 1999 as high yield
defaults increased. Defaults were driven by company specific issues and did not
reflect upon the overall health of the high yield market. The Merrill Lynch
Triple-C/Double-C/Single-C Index underperformed the Single-B Index by 7.8% for
the 12 months ended December 31, 1999.
A total of 383 new issues came to the market in 1999, representing $95 billion
dollars. Outflows from mutual funds caused high yield demand and issuance to be
below last year's record setting pace. Even though issuance was down, 1999 was
still the third highest calendar year for new issue volume.
Performance: For the one year ended December 31, 1999, the Fund's Class A
shares, excluding sales charges, declined -4.87% compared to the Lehman Brothers
High Yield Bond Index which returned 2.39% for the same period.
Portfolio Specifics: The Fund held overweighted positions in the Communications
and Cable/Direct Broadcast Satellite sectors which helped performance for the
year. Underperforming issues in the Healthcare sector as well as the Fund's
heavy weighting in Double-B rated issues adversely impacted returns for the
year. As interest rates rose in 1999, spread sensitive Double-B issues
underperformed Single-B credits. Overall, the Fund's management feels the credit
quality of the portfolio is good and positioned for outperformance in 2000.
Portfolio cash levels have been maintained at higher levels than normal to meet
the mutual fund redemption activity that is present in today's high yield
market. The Fund's management expects that this activity will subside in 2000,
as the current value in the high yield market is recognized by investors. Fund
underweighting of emerging market and foreign issues, while helping performance
in past periods, hurt performance in the current period as these markets
rebounded significantly.
Market Outlook: The FOMC has worked diligently to maintain steady,
non-inflationary growth. In another month, the U.S. economy will surpass the 106
month record for the longest economic expansion ever. There is a high
probability that the FOMC will raise the Federal Funds rate further in the first
half of 2000. The purpose of the increase(s) will be to moderate economic growth
and to prevent any rise in inflation. If the FOMC has continued success in
maintaining non-inflationary growth, interest rates should stabilize. An
environment of stable interest rates and moderate inflation should prove
positive for high yield bonds.
10
<PAGE>
Portfolio
Manager's Report PILGRIM HIGH YIELD FUND III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pilgrim High Yield Fund III
Class A With Sales Charge (5) 10,000 8,169 11,995 15,345 18,297 17,963 20,488 23,508 26,134 26,722 25,420
Pilgrim High Yield Fund III
Class A Without Sales Charge (5) 10,000 8,576 12,593 16,110 19,210 18,858 21,510 24,680 27,437 28,054 26,688
Lehman Brothers High Yield
Bond Index 10,000 10,959 16,021 18,544 21,717 21,498 25,619 28,527 32,170 32,771 33,554
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns for the Periods Ended
December 31, 1999
--------------------------------------------------------
Since Inception
of Class A, B and C
1 Year 5 Year 10 Year 6/5/95
------ ------ ------- ------
<S> <C> <C> <C> <C>
Including Sales Charge:
Class A (1) -9.44% -- -- 4.65%
Class B (2) -9.50% -- -- 4.76%
Class C (3) -6.17% -- -- 5.07%
Class T (4) -8.27% 6.94% 10.01% --
Excluding Sales Charge:
Class A -4.87% -- -- 5.76%
Class B -5.18% -- -- 5.07%
Class C -5.31% -- -- 5.07%
Class T -4.82% 6.94% 10.01% --
Lehman Brothers High Yield
Bond Index 2.39% 9.31% 10.72% 7.57%(6)
</TABLE>
Based on a $10,000 initial investment, the graph above illustrates the total
return of Pilgrim High Yield Fund III against the Lehman Brothers High Yield
Bond Index. The Index has an inherent performance advantage over the Fund since
it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The Fund's
performance is shown both with and without the imposition of sales charges.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 4.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 2%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1
year return.
(4) Reflects deduction of the Class T sales charge of 4.00% for the 1 year
return.
(5) The figures shown for the years 1996 to 1999 provide performance for Class
A shares of the Fund. The figures shown for the years 1989 to 1995 provide
performance for Class T shares of the Fund revised to reflect expenses of
Class A.
(6) Since inception index from 5/31/95.
Principal Risk Factor(s): Exposure to financial 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. Up to 35% of total assets may be invested in foreign
securities. International investing does pose special risks, including currency
fluctuation and political risks not found in investments that are solely
domestic. Risks of foreign investing are generally intensified for investments
in emerging markets.
See accompanying index descriptions on page 15.
11
<PAGE>
- ------------
Equity &
Income Funds
- ------------
Portfolio
PILGRIM BALANCE SHEET OPPORTUNITIES FUND Manager's Report
- --------------------------------------------------------------------------------
Portfolio Management Team: Robert K. Kinsey, Vice President and Senior
Portfolio Manager; Kevin Mathews, Senior Vice President and Senior Portfolio
Manager; G. David Underwood, Vice President and Senior Portfolio Manager;
Charles Ullerich, Vice President and Portfolio Manager.
Goals: The Balance Sheet Opportunities Fund seeks income with a secondary
objective of capital appreciation by investing primarily in domestic debt and
equity securities.
Equity Market Overview: For the year ended December 31, 1999, the U.S. equity
market was characterized by:
* A narrow advance of primarily large-capitalization technology and
telecommunications stocks
* Continued outperformance of growth stocks versus value stocks
* Outperformance of large-capitalization stocks versus mid-cap and most
small capitalization stocks
The year just ended marked the fifth year in row of 20% plus returns for the
broad market. This masks a market buffeted by concerns about rising inflation
and higher interest rates, yet supported by accelerating earnings growth. Market
returns at the end of the year suggest that it moved sideways since mid year.
That a global recession did not develop out of the prior year's financial crisis
in Asia, Latin America and Europe buoyed investor sentiment in 1999. U.S.
economic growth remained strong and evidence continued to emerge that the
overseas economies were on the mend. The broad market S&P 500 Index set a new
peak in July before surrendering half of its gains over the balance of the third
quarter. Interest rates began to rise due to inflation worries brought on by the
surprisingly strong U.S. economy and the resuscitating global economies,
dampening some of the equity market optimism. The S&P 500 recovered to new highs
in the fourth quarter, with the Index led by a select group of technology and
telecommunications stocks, registering particularly strong gains in October and
December.
As inflation worries prompted the Federal Reserve to notch interest rates
upward, investors sought the perceived safety of a small group of mostly
technology/growth stocks. Only five of the twelve market sectors had positive
returns in the last six months: Technology, Conglomerates, Communication
Services, Consumer Cyclicals and Basic Industries; only Technology,
Conglomerates and Communication Services outperformed the Index. For the year,
25 stocks accounted for the entire gain of the S&P 500.
Bond Market Overview: 1999 was a tough year for bonds by any measure: The
summer months witnessed a credit spread rout nearly as bad as 1998's debacle.
However, liquidity returned to the investment grade fixed income arena with a
vengeance during the fourth quarter. Spreads tightened across the board as
managers re-discovered an appetite for risk. Yet, a very robust domestic economy
and Fed tightenings pushed rates higher. By mid December Y2K nervosa drained
liquidity from the bond market as both the buy-side and the sell-side shifted
into hibernation.
At the end of 1999, fixed income managers stepped back to assess the damage. The
thirty year Treasury posted its worst return since 1974 while the Lehman
Aggregate Index experienced returns nearly as bad as 1994. The high yield
market, in contrast, escaped the year in better shape. High yield spreads
tightened reflecting high yield's low interest rate sensitivity.
High yield managers were rewarded for being risk adverse in 1999 as high yield
defaults increased. Defaults were driven by company specific issues and did not
reflect upon the overall health of the high yield market. The Merrill Lynch
Triple-C/Double-C/Single-C index underperformed the Single-B index by 7.8% for
the twelve months ended December 31, 1999.
A total of 383 new issues came to the market in 1999, representing $95 billion
dollars. Outflows from mutual funds caused high yield demand and issuance to be
below last year's record setting pace. Even though issuance was down, 1999 was
still the third highest calendar year for new issue volume.
Portfolio Specifics: The Fund's equities enjoyed very strong appreciation for
the entire year and particularly in the fourth quarter. Sizeable holdings in
Media and Telecommunications contributed most of the performance.
The duration of the fixed income component of the fund remained short of the
Lehman Aggregate Index up until
12
<PAGE>
Portfolio
Manager's Report PILGRIM BALANCE SHEET OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
December at which time we adopted a neutral stance. As a rule the last few weeks
of any given year are a perilous time to stray too far away from a benchmark's
duration. We exploited the year-end drought in investment grade liquidity by
adding CMBS, some puttable paper, and other corporate paper at compelling
levels.
In the high yield portion of the Fund we continue to look for smaller positions
to eliminate and consolidate with existing holdings. The focus of the high yield
portfolio has been on the Communications sector, and secondarily on Media and
Energy credits. To make room for an investment grade allocation in the Fund,
high yield issues are being sold. To accomplish this, sell candidates are being
picked from the more problematic which we believe have limited upside. The
average credit rating of the Fund is Single-B, which we are comfortable with
given our belief that the economy will continue to grow without overheating, and
that inflation will remain subdued. In the growth sector of high yield we feel
the Communications industry represents the best value. Our efforts in the coming
months will be focused on those issuers that will benefit from the continuing
demand for increased bandwidth. The high yield portion of the Fund will continue
to be fully invested as the market looks attractively priced.
Performance: For the one year ended December 31, 1999, the Fund's Class A
shares, excluding sales charges, provided a total return of 12.35% compared to
8.98% for the Lipper Balanced Fund Index.
Market Outlook: Though challenged more by interest rates the broadening market
is conducive for equity investment. The global economies are rebounding with
benign inflation, stimulating profitability and revenue growth for a wider
assortment of companies. This should gather momentum now that concerns over the
transition into the new Millennium are history.
With regard to the fixed income component, we are poised to shorten our duration
with the onset of the new year as we anticipate further central bank tightening
here and abroad in 2000. The high grade portion of the fund is heavily
overweighted in spread product and we have added less-liquid, lower quality
names in anticipation of their outperformance in the first quarter of 2000.
Mortgage Backed Securities appear to only offer fair value at this juncture, and
we are close to neutral to the Lehman Aggregate Index vis a vis this sector.
The FOMC has worked diligently to maintain steady, non-inflationary growth. In
another month, the U.S. economy will surpass the 106 month record for the
longest economic expansion ever. There is a high probability that the FOMC will
raise the Federal Funds rate further in the first half of 2000. The purpose of
the increase(s) will be to moderate economic growth and to prevent any rise in
inflation. If the FOMC has continued success in maintaining non-inflationary
growth, interest rates should stabilize. An environment of stable interest rates
and moderate inflation should prove positive for high yield bonds.
13
<PAGE>
- ------------
Equity &
Income Funds
- ------------
Portfolio
PILGRIM BALANCE SHEET OPPORTUNITIES FUND Manager's Report
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pilgrim Balance Sheet
Opportunities Fund Class A
With Sales Charge (5) 10,000 9,541 11,604 12,591 14,421 13,717 17,223 19,038 23,666 24,895 27,967
Pilgrim Balance Sheet
Opportunities Fund Class A
Without Sales Charge (5) 10,000 10,123 12,312 13,359 15,300 14,554 18,274 20,200 25,110 26,414 29,673
Lipper Balanced Fund Index 10,000 10,066 12,665 13,610 15,237 14,925 18,639 21,072 25,349 29,173 31,792
Average Annual Total Returns for the Periods Ended
December 31, 1999
--------------------------------------------------
Since Inception
of Class A, B and C
1 Year 5 Year 10 Year 6/5/95
------ ------ ------- ------
<S> <C> <C> <C> <C>
Including Sales Charge:
Class A (1) 5.91% -- -- 12.52%
Class B (2) 6.64% -- -- 12.86%
Class C (3) 10.21% -- -- 13.09%
Class T (4) 7.27% 14.66% 10.94% --
Excluding Sales Charge:
Class A 12.34% -- -- 13.99%
Class B 11.17% -- -- 13.11%
Class C 11.12% -- -- 13.09%
Class T 10.88% 14.66% 10.94% --
Lipper Balanced Fund Index 8.98% 16.33% 12.26% 15.22%
</TABLE>
Based on a $10,000 initial investment, the graph above illustrates the total
return of Pilgrim Balance Sheet Opportunities Fund against the Lipper Balanced
Fund Index. The Index has an inherent performance advantage over the Fund since
it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The Fund's
performance is shown both with and without the imposition of sales charges.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The managers' views are
subject to change at any time based on market and other conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 5.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 2%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1
year return.
(4) Reflects deduction of the deferred Class T sales charge of 4.00% for the 1
year return.
(5) The figures shown for the years 1996 to 1999 provide performance for Class
A shares of the Fund. The figures shown for the years 1989 to 1995 provide
performance for Class T shares of the Fund revised to reflect expenses of
Class A shares.
Principal Risk Factor(s): Exposure to financial and market risks that accompany
investments in equities. Credit, interest rate and other risks that accompany
debt investments. The Fund may invest up to 20% of its total assets in foreign
issuers. International investing does pose special risks, including currency
fluctuation, economic and political risks not found in investments that are
solely domestic.
See accompanying index descriptions on page 15.
14
<PAGE>
- -------
Pilgrim
Funds
- -------
INDEX DESCRIPTIONS
- --------------------------------------------------------------------------------
The S&P 500 Index is a widely recognized unmanaged index of 500 common stocks.
The Lehman Government/Corporate Bond Index is an unmanaged index of government
bonds and corporate bonds rated Baa3 or better.
The Russell MidCap Growth Index is an unmanaged index consisting of securities
with capitalizations between $450 million and $3.8 billion with greater than
average growth orientation.
The Russell 2000 Index is an unmanaged index that measures the performance of
2000 small companies.
The NASDAQ Composite Index is an unmanaged index that measures all NASDAQ
domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The
index is market-value weighted.
The S&P MidCap Index is an unmanaged index that measures the performance of 800
smaller companies.
The S&P Mid Cap 400 Index is an unmanaged index which measures the performance
of the mid-size company segment of the U.S. market.
The Dow Jones Industrial Average is an unmanaged index comprised of 30 stocks
that are major factors in their industries and widely held by individuals and
institutional investors.
The MSCI EAFE Index is an unmanaged index consisting of more than 1,400
securities in the U.S., Europe, Canada, Australia, New Zealand, and the Far
East. It is a generally accepted index for major overseas markets.
The MSCI Europe Index is an unmanaged index designed to track the broader MSCI
EMU Benchmark containing stocks in ten EMU member countries.
The MSCI Japan Index is an unmanaged index that measures the performance of the
Japanese stock market.
The MSCI Emerging Markets Free (EMF) Index is an unmanaged index comprised of
companies representative of the market structure of 22 emerging countries in
Europe, Latin America and the Pacific Rim Basin.
The Lehman Brothers Aggregate Bond Index is an unmanaged index of fixed income
securities.
The Lehman Brothers High Yield Bond Index is an unmanaged index comprised of
non-investment grade bonds with maturities between seven to ten years.
The Lehman Brothers Intermediate U.S. Government Index is an unmanaged index
comprised of securities granted by the U.S. Government, its agencies and
instrumentalities with maturities less than ten years.
The Lipper Balanced Fund Index is an unmanaged index consisting of the
performance of a group of 421 and 200 balanced funds for the 1 and 5 year
periods as tracked by Lipper Analytical Services, Inc.
The Merrill Lynch Triple-C/Double-C/Single-C Index, a sub-index of the Merrill
Lynch High Yield Index, is an unmanaged index which measures the performance of
non-investment grade U.S. domestic bonds.
The Merrill Lynch Single-B Index, a sub-index of the Merrill Lynch High Yield
Index, is an unmanaged index which measures the performance of non-investment
grade U.S. domestic bonds.
An investor cannot invest directly in an index.
15
<PAGE>
- -------
Pilgrim
Funds
- -------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
of Pilgrim Funds and Pilgrim Equity Trust:
In our opinion the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations, and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Pilgrim Funds (formerly
Northstar Funds), comprising Pilgrim Growth Opportunities Fund (formerly
Northstar Growth Fund), Pilgrim SmallCap Opportunities Fund (formerly Northstar
Special Fund), Pilgrim Government Securities Fund (formerly Northstar Government
Securities Fund), Pilgrim High Yield Fund III (formerly Northstar High Yield
Fund), Pilgrim Balance Sheet Opportunities Fund (formerly Northstar Balance
Sheet Opportunities Fund), and Pilgrim Equity Trust (formerly Northstar Equity
Trust), comprising Pilgrim MidCap Opportunities (formerly Northstar Mid-Cap
Growth Fund) (collectively, the "Funds") at December 31, 1999, the results of
each of their operations for the year then ended, the changes in each of their
net assets for each of the two years in the period then ended, and the financial
highlights for each of the periods presented, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
/s/ PricewaterhouseCoopers, LLP
New York, New York
February 17, 2000
16
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
17
<PAGE>
- -------
Pilgrim
Funds
- -------
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim Pilgrim
Growth MidCap SmallCap
Opportunities Opportunities Opportunities
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at market value
(cost $260,839,113, $47,014,938, and $267,788,513,
respectively) $415,168,726 $79,799,105 $456,615,209
Repurchase agreements 13,092,000 7,230,000 57,142,000
Cash 1,608 901 474
Receivable for investments sold 8,163,411 -- 801,973
Receivable for shares of beneficial interest sold 6,509,729 797,555 9,977,392
Dividends and interest receivable 134,136 8,156 5,577
Prepaid expenses 5,034 8,629 5,301
------------ ----------- ------------
Total Assets 443,074,644 87,844,346 524,547,926
------------ ----------- ------------
LIABILITIES:
Payable for investments purchased 15,076,861 643,446 28,061,906
Investment advisory fee payable 236,893 65,480 267,570
Payable for shares of beneficial interest reacquired 104,898 10,355 1,387,588
Distribution fees payable 153,207 9,477 294,991
Administrative service fees payable 31,586 6,548 35,676
Transfer agent fees payable 50,704 5,508 98,495
Accrued expenses 124,989 46,736 132,720
------------ ----------- ------------
Total Liabilities 15,779,138 787,550 30,278,946
------------ ----------- ------------
NET ASSETS $427,295,506 $87,056,796 $494,268,980
============ =========== ============
NET ASSETS CONSIST OF:
Paid in capital for shares of beneficial interest,
$0.01 par value outstanding (unlimited shares
authorized) $264,923,363 $50,001,167 $210,113,531
Accumulated net realized gain on investments 8,042,530 4,271,462 95,328,753
Net unrealized appreciation of investments 154,329,613 32,784,167 188,826,696
------------ ----------- ------------
Net Assets $427,295,506 $87,056,796 $494,268,980
============ =========== ============
</TABLE>
18
<PAGE>
- -------
Pilgrim
Funds
- -------
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim Pilgrim
Growth MidCap SmallCap
Opportunities Opportunities Opportunities
------------- ------------- -------------
<S> <C> <C> <C>
Class A:
Net Assets $101,259,726 $ 6,290,928 $123,377,174
Shares outstanding 3,052,585 295,553 2,078,674
Net asset value and redemption value per share
(net assets/shares outstanding) $ 33.17 $ 21.29 $ 59.35
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $ 35.19 $ 22.59 $ 62.97
Class B:
Net Assets $ 88,304,648 $ 8,251,594 $264,676,557
Shares outstanding 2,785,685 390,615 4,638,948
Net asset value and offering price per share(1)
(net assets/shares outstanding) $ 31.70 $ 21.12 $ 57.06
Class C:
Net Assets $ 21,006,337 $ 4,560,020 $ 72,580,981
Shares outstanding 661,572 216,879 1,273,871
Net asset value and offering price per share(1)
(net assets/shares outstanding) $ 31.75 $ 21.03 $ 56.98
Class T:
Net Assets $ 83,772,339 N/A $ 33,633,983
Shares outstanding 2,623,661 N/A 586,083
Net asset value and offering price per share(1)
(net assets/shares outstanding) $ 31.93 N/A $ 57.39
Class I:
Net Assets $132,952,456 $67,954,254 $ 285
Shares outstanding 3,937,682 3,184,685 5
Net asset value and offering price per share(1)
(net assets/shares outstanding) $ 33.76 $ 21.34 $ 59.54(2)
</TABLE>
(1) Redemption price per share varies with length of time Class B, C, and T,
shares are held.
(2) Actual net asset value differs from calculated net asset value due to
rounding.
See Accompanying Notes to Financial Statements
19
<PAGE>
- -------
Pilgrim
Funds
- -------
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim Pilgrim
Government High Yield Balance Sheet
Securities III Opportunities
---------- ------------ -------------
<S> <C> <C> <C>
ASSETS:
Investments in securities, at value (cost $90,077,891
and $178,383,543, $35,089,937, respectively) $ 87,496,887 $159,932,206 $36,839,652
Repurchase agreements 863,000 12,777,000 950,000
Cash 611 18 340
Receivable for shares of beneficial interest sold 85,198 393,949 134,522
Dividends and interest receivable 499,099 4,223,469 276,296
Prepaid expenses 7,340 6,606 5,553
------------ ------------ -----------
Total Assets 88,952,135 177,333,248 38,206,363
------------ ------------ -----------
LIABILITIES:
Payable for investments purchased -- 153,312 385,908
Investment advisory fee payable 38,517 94,051 21,175
Payable for shares of beneficial interest reacquired 147,444 516,022 210,138
Distribution fees payable 49,154 128,021 18,692
Administrative service fees payable 7,703 15,675 3,258
Transfer agent fee payable 21,341 50,109 9,382
Accrued expenses 61,950 74,839 38,651
------------ ------------ -----------
Total Liabilities 326,109 1,032,029 687,204
------------ ------------ -----------
NET ASSETS $ 88,626,026 $176,301,219 $37,519,159
============ ============ ===========
NET ASSETS CONSIST OF:
Paid in capital for shares of beneficial interest, $0.01
par value outstanding (unlimited shares authorized) $116,261,131 $229,522,788 $32,888,258
Overdistributed net investment income -- -- (125,605)
Accumulated net realized gain (loss) on investments and
options (25,054,101) (34,770,232) 3,006,791
Net unrealized appreciation (depreciation) of investments (2,581,004) (18,451,337) 1,749,715
------------ ------------ -----------
Net Assets $ 88,626,026 $176,301,219 $37,519,159
============ ============ ===========
</TABLE>
20
<PAGE>
- -------
Pilgrim
Funds
- -------
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim Pilgrim
Government High Yield Balance Sheet
Securities III Opportunities
---------- ---------- -------------
<S> <C> <C> <C>
Class A:
Net Assets $25,000,193 $19,267,309 $15,741,067
Shares outstanding 2,915,116 2,628,345 1,399,191
Net asset value and redemption value per share
(net assets/shares outstanding) $ 8.58 $ 7.33 $ 11.25
Maximum offering price per share (net asset value
plus sales charge of 4.75% of offering price) $ 9.01 $ 7.70 $ 11.81
Class B:
Net Assets $26,296,776 $94,776,441 $ 4,939,099
Shares outstanding 3,066,581 12,899,467 443,938
Net asset value and offering price per share(1)
(net assets/shares outstanding) $ 8.58 $ 7.35 $ 11.13
Class C:
Net Assets $ 2,036,981 $12,240,354 $ 510,909
Shares outstanding 237,896 1,664,852 45,776
Net asset value and offering price per share(1)
(net assets/shares outstanding) $ 8.56 $ 7.35 $ 11.16
Class T:
Net Assets $35,292,076 $50,017,115 $16,328,084
Shares outstanding 4,118,257 6,801,711 1,460,162
Net asset value and offering price per share(1)
(net assets/shares outstanding) $ 8.57 $ 7.35 $ 11.18
</TABLE>
(1) Redemption price per share varies with length of time Class B, C, and T,
shares are held.
See Accompanying Notes to Financial Statements
21
<PAGE>
- -------
Pilgrim
Funds
- -------
STATEMENTS OF OPERATIONS for the year ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim Pilgrim
Growth MidCap SmallCap
Opportunities Opportunities Opportunities
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends, (net of withholding tax of
$1,095, $565, and $2,144, respectively) $ 717,188 $ 86,701 $ 121,767
Interest 264,269 97,057 276,791
Other -- -- 150,488
------------ ----------- ------------
Total investment income 981,457 183,758 549,046
------------ ----------- ------------
EXPENSES:
Investment advisory fees 1,865,457 483,746 1,915,854
Distribution fees:
Class A 136,201 6,005 165,386
Class B 304,982 13,229 1,451,513
Class C 40,985 7,276 345,392
Class T 584,136 N/A 195,964
Transfer agent fees and expenses
Class A 50,716 3,323 78,935
Class B 38,149 1,555 225,244
Class C 5,017 933 65,193
Class T 70,387 N/A 24,486
Class I 33,063 27,839 --
Administrative service fees 248,728 48,903 255,447
Accounting and custodian fees 91,462 37,992 96,519
Printing and postage 49,337 26,460 80,535
Registration fees 66,099 26,504 35,339
Professional fees 25,931 18,372 26,572
Trustee fees 11,469 8,743 12,406
Miscellaneous 56,072 6,762 108,031
------------ ----------- ------------
Total expenses 3,678,191 717,642 5,082,816
------------ ----------- ------------
Net investment loss (2,696,734) (533,884) (4,533,770)
------------ ----------- ------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments 99,757,033 15,933,086 148,711,313
Net change in unrealized appreciation of investments 83,704,065 23,414,702 125,857,120
------------ ----------- ------------
Net realized and unrealized gain from investments 183,461,098 39,347,788 274,568,433
------------ ----------- ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $180,764,364 $38,813,904 $270,034,663
============ =========== ============
</TABLE>
See Accompanying Notes to Financial Statements
22
<PAGE>
- -------
Pilgrim
Funds
- -------
STATEMENTS OF OPERATIONS for the year ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim Pilgrim
Government High Yield Balance Sheet
Securities III Opportunities
---------- ---------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of
$0, $0, and $1,772 respectively) $ 0 $ 369,026 $ 333,302
Interest 7,008,772 21,821,598 1,334,819
Other 1,042 361,118 21,875
------------ ------------- -----------
Total investment income 7,009,814 22,551,742 1,689,996
------------ ------------- -----------
EXPENSES:
Investment advisory fees 650,693 1,449,081 277,337
Distribution fees:
Class A 87,689 79,426 52,608
Class B 271,897 1,234,999 50,665
Class C 22,904 207,291 6,332
Class T 268,910 460,260 145,736
Transfer agent fees and expenses:
Class A 38,336 34,347 21,810
Class B 38,291 185,203 6,452
Class C 4,494 32,244 742
Class T 48,351 84,488 21,720
Administrative service fees 100,081 241,514 42,667
Accounting and custodian fees 42,737 78,366 27,084
Printing and postage 26,285 54,637 27,529
Registration fees 35,105 46,925 38,499
Professional fees 23,217 30,649 20,106
Trustee fees 9,875 13,131 10,874
Miscellaneous 44,269 134,273 21,899
------------ ------------- -----------
1,713,134 4,366,834 772,060
Less expenses waived by investment advisor (150,290) -- --
------------ ------------- -----------
Total expenses 1,562,844 4,366,834 772,060
------------ ------------- -----------
Net investment income 5,446,970 18,184,908 917,936
------------ ------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments and options (5,735,085) (24,263,040) 7,892,365
Net change in unrealized depreciation of investments (2,391,265) (4,479,868) (4,161,813)
------------ ------------- -----------
Net realized and unrealized gain (loss) on
investments and options (8,126,350) (28,742,908) 3,730,552
------------ ------------- -----------
Net increase (decrease) in net assets resulting
from operations $ (2,679,380) $ (10,558,000) $ 4,648,488
============ ============= ===========
</TABLE>
See Accompanying Notes to Financial Statements
23
<PAGE>
- -------
Pilgrim
Funds
- -------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Pilgrim Growth Opportunities
-------------------------------
Year Ended
December 31,
-------------------------------
1999 1998
------------- -------------
FROM OPERATIONS:
Net investment loss $ (2,696,734) $ (1,120,133)
Net realized gain (loss) on investments 99,757,033 18,594,642
Net change in unrealized appreciation of
investments 83,704,065 21,162,015
------------- -------------
Net increase in net assets resulting from
operations 180,764,364 38,636,524
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain from investments (103,343,720) (1,668,413)
------------- -------------
Total distributions (103,343,720) (1,668,413)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 138,399,126 31,785,017
Net asset value of shares resulting from
dividend reinvestment 94,714,507 1,580,911
------------- -------------
233,113,633 33,365,928
Cost of shares redeemed (64,957,986) (95,119,227)
------------- -------------
Net increase (decrease) in net assets
resulting from capital share transactions 168,155,647 (61,753,299)
------------- -------------
Net increase (decrease) in net assets 245,576,291 (24,785,188)
NET ASSETS:
Beginning of year 181,719,215 206,504,403
------------- -------------
End of year $ 427,295,506 $ 181,719,215
============= =============
<TABLE>
<CAPTION>
Pilgrim MidCap Opportunities Pilgrim SmallCap Opportunities
----------------------------- ------------------------------
Year Ended Year Ended
December 31, December 31,
----------------------------- ------------------------------
1999 1998 1999 1998
------------ ------------- ------------- -------------
FROM OPERATIONS:
<S> <C> <C> <C> <C>
Net investment loss $ (533,884) $ (53,072) $ (4,533,770) $ (3,424,661)
Net realized gain (loss) on investments 15,933,086 (699,683) 148,711,313 188,400
Net change in unrealized appreciation of
investments 23,414,702 9,369,465 125,857,120 15,766,212
------------ ------------- ------------- -------------
Net increase in net assets resulting from
operations 38,813,904 8,616,710 270,034,663 12,529,951
------------ ------------- ------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain from investments (10,428,057) -- (49,037,189) (5,802,323)
------------ ------------- ------------- -------------
Total distributions (10,428,057) -- (49,037,189) (5,802,323)
------------ ------------- ------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 15,834,997 25,619,790 120,520,056 33,890,066
Net asset value of shares resulting from
dividend reinvestment 10,198,746 -- 33,630,861 3,873,664
------------ ------------- ------------- -------------
26,033,743 25,619,790 154,150,917 37,763,730
Cost of shares redeemed (1,640,736) (58,558) (98,356,454) (158,949,921)
------------ ------------- ------------- -------------
Net increase (decrease) in net assets resulting
from capital share transactions 24,393,007 25,561,232 55,794,463 (121,186,191)
------------ ------------- ------------- -------------
Net increase (decrease) in net assets 52,778,854 34,177,942 276,791,937 (114,458,563)
NET ASSETS:
Beginning of year 34,277,942 100,000 217,477,043 331,935,606
------------ ------------- ------------- -------------
End of year $ 87,056,796 $ 34,277,942 $ 494,268,980 $ 217,477,043
============ ============= ============= =============
</TABLE>
See Accompanying Notes to Financial Statements
24
<PAGE>
- -------
Pilgrim
Funds
- -------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Government Securities
-------------------------------
Year Ended
December 31,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
FROM OPERATIONS:
Net investment income $ 5,446,970 $ 6,353,051
Net realized gain (loss) on investments and
options (5,735,085) 1,148,452
Net change in unrealized depreciation of
investments (2,391,265) (2,577,076)
------------- -------------
Net increase (decrease) in net assets
resulting from operations (2,679,380) 4,924,427
------------- -------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A (1,663,323) (1,282,796)
Class B (1,352,890) (1,167,904)
Class C (113,529) (120,375)
Class T (2,265,067) (4,184,993)
Return of Capital
Class A (324,254) --
Class B (338,204) --
Class C (24,837) --
Class T (455,551) --
Net realized gain from investments -- --
------------- -------------
Total distributions (6,537,655) (6,756,068)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 36,190,492 68,439,668
Net asset value of shares resulting from
dividend reinvestment 4,099,857 4,385,212
------------- -------------
40,290,349 72,824,880
Cost of shares redeemed (53,245,442) (65,922,911)
------------- -------------
Net increase (decrease) in net assets
derived from capital share transactions (12,955,093) 6,901,969
------------- -------------
Net increase (decrease) in net assets (22,172,128) 5,070,328
NET ASSETS:
Beginning of year 110,798,154 105,727,826
------------- -------------
End of year $ 88,626,026 $ 110,798,154
============= =============
Overdistributed net investment income $ -- $ --
============= =============
Pilgrim Balance Sheet
Pilgrim High Yield III Opportunities
------------------------------ ----------------------------
Year Ended Year Ended
December 31, December 31,
------------------------------ ----------------------------
1999 1998 1999 1998
------------- ------------- ------------ ------------
FROM OPERATIONS:
Net investment income $ 18,184,908 $ 19,687,443 $ 917,936 $ 2,053,904
Net realized gain (loss) on investments
and options (24,263,040) 7,778,253 7,892,365 2,843,547
Net change in unrealized depreciation of
investments (4,479,868) (24,573,436) (4,161,813) (2,694,660)
------------- ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations (10,558,000) 2,892,260 4,648,488 2,202,791
------------- ------------- ------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A (2,099,687) (1,748,299) (482,323) (674,731)
Class B (9,047,787) (9,088,608) (109,870) (183,411)
Class C (1,537,977) (1,685,745) (14,169) (27,464)
Class T (5,506,573) (7,606,019) (437,179) (1,171,109)
Return of Capital
Class A (131,774) -- -- --
Class B (646,870) -- -- --
Class C (85,279) -- -- --
Class T (340,844) -- -- --
Net realized gain from investments (2,694,560) (1,942,329) (6,239,656) (2,745,313)
------------- ------------- ------------ ------------
Total distributions (22,091,351) (22,071,000) (7,283,197) (4,802,028)
------------- ------------- ------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares 36,471,447 99,001,856 1,913,668 22,406,109
Net asset value of shares resulting from
dividend reinvestment 9,233,412 8,899,172 6,213,325 4,039,411
------------- ------------- ------------ ------------
45,704,859 107,901,028 8,126,993 26,445,520
Cost of shares redeemed (120,275,357) (60,595,779) (16,437,254) (35,588,954)
------------- ------------- ------------ ------------
Net increase (decrease) in net assets
derived from capital share transactions (74,570,498) 47,305,249 (8,310,261) (9,143,434)
------------- ------------- ------------ ------------
Net increase (decrease) in net assets (107,219,849) 28,126,509 (10,944,970) (11,742,671)
NET ASSETS:
Beginning of year 283,521,068 255,394,559 48,464,129 60,206,800
------------- ------------- ------------ ------------
End of year $ 176,301,219 $ 283,521,068 $ 37,519,159 $ 48,464,129
============= ============= ============ ============
Overdistributed net investment income $ -- $ -- $ (125,606) $ --
============= ============= ============ ============
</TABLE>
See Accompanying Notes to Financial Statements
25
<PAGE>
Financial
PILGRIM GROWTH OPPORTUNITIES FUND Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
Class A
Year ended December 31,
----------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 26.06 21.26 17.92 15.53 17.59
Net investment income (loss) $ (0.15) (0.08) 0.03 0.02 0.08
Net realized and unrealized gain on
investments $ 20.10 5.09 4.16 3.18 1.95
Total from investment operations $ 19.95 5.01 4.19 3.20 2.03
Dividends from net investment income $ -- -- -- -- (0.10)
Distributions from net realized gain $ (12.84) (0.21) (0.85) (0.81) (3.99)
Total distributions $ (12.84) (0.21) (0.85) (0.81) (4.09)
Net asset value, end of the period $ 33.17 26.06 21.26 17.92 15.53
Total return(2) % 93.26 23.61 23.59 20.54 11.55
Ratios and supplemental data:
Net assets at the end of the period
(000s) $ 101,260 29,358 9,334 4,750 1,355
Ratio of expenses to average net assets
after reimbursement % 1.39 1.37 1.37 150 1.42 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 1.39 1.37 1.40 1.56 1.42 (3)
Ratio of net investment income (loss) to
average net assets % (0.98) (0.47) 0.04 0.11 0.63 (3)
Portfolio turnover % 286 98 32 62 134
Class B
Year ended December 31,
-------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Operating performance:
Net asset value, beginning of the period 25.46 20.93 17.76 15.50 17.59
Net investment income (loss) (0.18) (0.23) (0.15) (0.06) 0.06
Net realized and unrealized gain on
investments 19.26 4.97 4.17 3.13 1.92
Total from investment operations 19.08 4.74 4.02 3.07 1.98
Dividends from net investment income -- -- -- -- (0.08)
Distributions from net realized gain (12.84) (0.21) (0.85) (0.81) (3.99)
Total distributions (12.84) (0.21) (0.85) (0.81) (4.07)
Net asset value, end of the period 31.70 25.46 20.93 17.76 15.50
Total return(2) 91.84 22.69 22.84 19.74 11.27
Ratios and supplemental data:
Net assets at the end of the period
(000s) 88,305 15,480 8,815 4,444 1,987
Ratio of expenses to average net assets
after reimbursement 2.10 2.13 2.14 2.20 2.07(3)
Ratio of expenses to average net assets
prior to expense reimbursement 2.10 2.13 2.14 2.24 2.07(3)
Ratio of net investment income (loss) to
average net assets (1.69) (1.26) (0.95) (0.55) 0.06(3)
Portfolio turnover 286 98 32 62 134
Class C
Year ended December 31,
----------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Operating performance:
Net asset value, beginning of the period $ 25.48 20.91 17.76 15.50 17.59
Net investment income (loss) $ (0.10) (0.27) (0.13) (0.05) 0.04
Net realized and unrealized gain on
investments $ 19.21 5.05 4.13 3.12 1.92
Total from investment operations $ 19.11 4.78 4.00 3.07 1.96
Dividends from net investment income $ -- -- -- -- (0.06)
Distributions from net realized gain $ (12.84) (0.21) (0.85) (0.81) (3.99)
Total distributions $ (12.84) (0.21) (0.85) (0.81) (4.05)
Net asset value, end of the period $ 31.75 25.48 20.91 17.76 15.50
Total return(2) % 91.90 22.90 22.73 19.74 11.17
Ratios and supplemental data:
Net assets at the end of the period
(000s) $ 21,006 1,625 1,152 365 69
Ratio of expenses to average net assets
after reimbursement % 2.10 2.13 2.17 2.20 2.11(3)
Ratio of expenses to average net assets
prior to expense reimbursement % 2.10 2.13 2.17 2.35 2.11(3)
Ratio of net investment income (loss) to
average net assets % (1.69) (1.24) (1.00) (0.57) 0.02(3)
Portfolio turnover % 286 98 32 62 134
Class T Class I
Year ended December 31, Year ended December 31,
----------------------------------------- -----------------------------
1999 1998 1997 1996 1995 1999 1998 1997(1)
---- ---- ---- ---- ---- ---- ---- -------
Operating performance:
Net asset value, beginning of the period 25.59 21.02 17.82 15.53 15.75 26.28 21.36 17.90
Net investment income (loss) (0.39) (0.36) (0.17) (0.06) 0.07 (0.17) (0.05) 0.01
Net realized and unrealized gain on
investments 19.57 5.14 4.22 3.16 3.77 20.49 5.18 4.30
Total from investment operations 19.18 4.78 4.05 3.10 3.84 20.32 5.13 4.31
Dividends from net investment income -- -- -- -- (0.07) -- -- --
Distributions from net realized gain (12.84) (0.21) (0.85) (0.81) (3.99) (12.84) (0.21) (0.85)
Total distributions (12.84) (0.21) (0.85) (0.81) (4.06) (12.84) (0.21) (0.85)
Net asset value, end of the period 31.93 25.59 21.02 17.82 15.53 33.76 26.28 21.36
Total return(2) 91.72 22.79 22.94 19.90 24.40 93.86 24.06 24.29
Ratios and supplemental data:
Net assets at the end of the period
(000s) 83,772 52,023 73,674 70,406 76,343 132,953 83,233 113,529
Ratio of expenses to average net assets
after reimbursement 2.03 2.05 2.03 2.00 2.00 1.00 1.00 1.02(3)
Ratio of expenses to average net assets
prior to expense reimbursement 2.03 2.05 2.03 2.04 2.00 1.00 1.00 1.02(3)
Ratio of net investment income (loss) to
average net assets (1.62) (1.19) (0.81) (3.05) 0.37 (0.61) (0.13) 0.08(3)
Portfolio turnover 286 98 32 62 134 286 98 32
</TABLE>
- ----------
(1) Class A, B and C commenced operations on June 5, 1995 and Class I commenced
operations on March 31, 1997.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
See Accompanying Notes to Financial Statements
26
<PAGE>
Financial
Highlights PILGRIM MIDCAP OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
Class A Class B
Year ended Year ended
December 31, December 31,
------------------- --------------------
1999 1998(1) 1999 1998(1)
---- ------- ---- -------
<S> <C> <C> <C> <C> <C>
Operating performance
Net asset value, beginning of the period $ 12.96 10.00 12.97 10.00
Net investment loss $ (0.09) (0.03) (0.07) (0.03)
Net realized and unrealized gain on
investments $ 12.01 2.99 11.81 3.00
Total from investment operations $ 11.92 2.96 11.74 2.97
Distributions from net realized gain $ (3.59) -- (3.59) --
Total distributions $ (3.59) -- (3.59) --
Net asset value, end of the period $ 21.29 12.96 21.12 12.97
Total return(2): % 103.24 29.60 101.73 29.70
Ratios and supplemental data
Net assets, end of the period (000s) $ 6,291 610 8,252 140
Ratio of expenses to average net assets
after reimbursement % 1.74 1.80 (3) 2.40 2.50 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 1.74 2.42 (3) 2.40 3.27 (3)
Ratio of net investment loss to
average net assets % (1.34) (1.10)(3) (2.00) (2.05)(3)
Portfolio turnover % 201 61 201 61
Class A Class B
Year ended Year ended
December 31, December 31,
------------------- --------------------
1999 1998(1) 1999 1998(1)
---- ------- ---- -------
Operating performance
Net asset value, beginning of the period 12.96 10.00 12.99 10.00
Net investment loss (0.07) (0.04) (0.15) (0.02)
Net realized and unrealized gain on
investments 11.73 3.00 12.09 3.01
Total from investment operations 11.66 2.96 11.94 2.99
Distributions from net realized gain (3.59) -- (3.59) --
Total distributions (3.59) -- (3.59) --
Net asset value, end of the period 21.03 12.96 21.34 12.99
Total return(2): 101.16 29.60 103.19 29.90
Ratios and supplemental data
Net assets, end of the period (000s) 4,560 87 67,954 33,441
Ratio of expenses to average net assets
after reimbursement 2.36 2.50 (3) 1.41 1.50 (3)
Ratio of expenses to average net assets
prior to expense reimbursement 2.36 3.22 (3) 1.41 2.01 (3)
Ratio of net investment loss to
average net assets (1.98) (2.04)(3) (1.04) (0.70)(3)
Portfolio turnover 201 61 201 61
</TABLE>
- ----------
(1) Class A, B, C and I commenced operations on August 20, 1998.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
See Accompanying Notes to Financial Statements
27
<PAGE>
Financial
PILGRIM SMALLCAP OPPORTUNITIES FUND Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
Class A
Year ended December 31,
-----------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the
period $ 29.00 27.77 24.72 20.92 19.56
Net investment loss $ (0.32) (0.27) (0.02) (0.04) (0.09)
Net realized and unrealized gain on
investments $ 38.23 2.23 3.68 3.84 2.48
Total from investment operations $ 37.91 1.96 3.66 3.80 2.39
Distributions from net realized gain $ (7.56) (0.73) (0.61) -- (1.03)
Total distributions $ (7.56) (0.73) (0.61) -- (1.03)
Net asset value, end of the period $ 59.35 29.00 27.77 24.72 20.92
Total return(2) % 146.94 7.59 14.92 18.16 12.20
Ratios and supplemental data:
Net assets at the end of the period
(000s) $ 123,377 45,461 78,160 65,660 2,335
Ratio of expenses to average net
assets after reimbursement % 1.43 1.47 1.43 1.46 1.50 (3)
Ratio of expenses to average net
assets prior to expense
reimbursement % 1.43 1.47 1.43 1.47 1.50 (3)
Ratio of net investment loss to
average net assets % (1.21) (0.70) (0.07) (0.30) (0.91)(3)
Portfolio turnover % 223 257 175 140 71
Class B
Year ended December 31,
---------------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Operating performance:
Net asset value, beginning of the
period 28.26 27.27 24.46 20.84 19.56
Net investment loss (0.60) (0.48) (0.19) (0.12) (0.12)
Net realized and unrealized gain on
investments 36.96 2.20 3.61 3.74 2.43
Total from investment operations 36.36 1.72 3.42 3.62 2.31
Distributions from net realized gain (7.56) (0.73) (0.61) -- (1.03)
Total distributions (7.56) (0.73) (0.61) -- (1.03)
Net asset value, end of the period 57.06 28.26 27.27 24.46 20.84
Total return(2) 145.24 6.84 14.10 17.37 11.79
Ratios and supplemental data:
Net assets at the end of the period
(000s) 264,677 124,065 169,516 126,859 1,491
Ratio of expenses to average net
assets after reimbursement 2.15 2.18 2.15 2.17 2.20 (3)
Ratio of expenses to average net
assets prior to expense
reimbursement 2.15 2.18 2.15 2.18 2.21 (3)
Ratio of net investment loss to
average net assets (1.93) (1.43) (0.78) (1.01) (1.64)(3)
Portfolio turnover 223 257 175 140 71
Class C
Year ended December 31,
-----------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Operating performance:
Net asset value, beginning of the
period $ 28.24 27.26 24.46 20.84 19.56
Net investment loss $ (0.53) (0.55) (0.20) (0.13) (0.15)
Net realized and unrealized gain
(loss) on investments $ 36.83 2.26 3.61 3.75 2.46
Total from investment operations $ 36.30 1.71 3.41 3.62 2.31
Distributions from net realized gain $ (7.56) (0.73) (0.61) -- (1.03)
Total distributions $ (7.56) (0.73) (0.61) -- (1.03)
Net asset value, end of the period $ 56.98 28.24 27.26 24.46 20.84
Total return(2) % 145.12 6.81 14.06 17.37 11.79
Ratios and supplemental data:
Net assets at the end of the period
(000s) $ 72,581 29,746 51,460 37,342 62
Ratio of expenses to average net
assets after reimbursement % 2.18 2.22 2.18 2.20 2.20 (3)
Ratio of expenses to average net
assets prior to expense
reimbursement % 2.18 2.22 2.18 2.21 2.23 (3)
Ratio of net investment loss to
average net assets % (1.96) (1.45) (0.82) (1.03) (1.60)(3)
Portfolio turnover % 223 257 175 140 71
Class T Class I
Year ended December 31, Year ended
------------------------------------------ December 31,
1999 1998 1997 1996 1995 1999(1)
---- ---- ---- ---- ---- -------
Operating performance:
Net asset value, beginning of the
period 28.36 27.34 24.48 20.84 19.64 31.78
Net investment loss (0.65) (0.51) (0.18) (0.21) (0.34) (0.08)
Net realized and unrealized gain
(loss) on investments 37.24 2.26 3.65 3.85 2.57 35.40
Total from investment operations 36.59 1.75 3.47 3.64 2.23 35.32
Distributions from net realized gain (7.56) (0.73) (0.61) -- (1.03) (7.56)
Total distributions (7.56) (0.73) (0.61) -- (1.03) (7.56)
Net asset value, end of the period 57.39 28.36 27.34 24.48 20.84 59.54
Total return(2) 145.51 6.94 14.29 17.47 11.34 126.05
Ratios and supplemental data:
Net assets at the end of the period
(000s) 33,634 18,203 32,800 35,670 33,557 --
Ratio of expenses to average net
assets after reimbursement 2.06 2.10 1.99 2.07 2.16 0.47 (3)
Ratio of expenses to average net
assets prior to expense
reimbursement 2.06 2.10 1.99 2.11 2.16 0.47 (3)
Ratio of net investment loss to
average net assets (1.85) (1.33) (0.62) (0.89) (1.50) (0.35)(3)
Portfolio turnover 223 257 175 140 71 223
</TABLE>
- ----------
(1) Classes A, B & C commenced operations on June 5, 1995, and Class I
commenced operations on April 1, 1999.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
See Accompanying Notes to Financial Statements
28
<PAGE>
Financial
Highlights PILGRIM GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
Class A
Year ended December 31,
------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 9.38 9.53 9.48 10.07 9.51
Net investment income $ 0.52 0.49 0.68 0.63 0.34
Net realized and unrealized gain (loss)
on investments $ (0.70) -- -- (0.60) 0.59
Total from investment operations $ (0.18) 0.49 0.68 0.03 0.93
Dividends from net investment income $ (0.51) (0.64) (0.63) (0.62) (0.37)
Distributions from capital $ (0.11) -- -- -- --
Total distributions $ (0.62) (0.64) (0.63) (0.62) (0.37)
Net asset value, end of the period $ 8.58 9.38 9.53 9.48 10.07
Total return(2) % (1.99) 5.27 7.46 0.57 10.04
Ratios and supplemental data:
Net assets, end of the period (000s) $ 25,000 31,181 1,744 14,185 3,235
Ratio of expenses to average net assets
after reimbursement % 1.21 1.17 1.15 1.09 1.20 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 1.21 1.32 1.32 1.29 1.40 (3)
Ratio of net investment income to
average net assets % 5.80 6.18 6.44 6.85 6.01 (3)
Portfolio turnover % 101 304 129 101 295
Class B
Year ended December 31,
------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Operating performance:
Net asset value, beginning of the period 9.40 9.55 9.48 10.07 9.51
Net investment income 0.46 0.51 0.52 0.57 0.30
Net realized and unrealized gain (loss)
on investments (0.72) (0.09) 0.11 (0.60) 0.59
Total from investment operations (0.26) 0.42 0.63 (0.03) 0.89
Dividends from net investment income (0.46) (0.57) (0.56) (0.56) (0.33)
Distributions from capital (0.10) -- -- -- --
Total distributions (0.56) (0.57) (0.56) (0.56) (0.33)
Net asset value, end of the period 8.58 9.40 9.55 9.48 10.07
Total return(2) (2.87) 4.49 6.93 (0.15) 9.61
Ratios and supplemental data:
Net assets, end of the period (000s) 26,297 27,250 13,503 9,135 2,790
Ratio of expenses to average net assets
after reimbursement 1.92 1.90 1.89 1.80 1.70 (3)
Ratio of expenses to average net assets
prior to expense reimbursement 1.92 2.05 2.06 2.00 1.90 (3)
Ratio of net investment income to
average net assets 5.07 5.55 5.50 6.05 5.20 (3)
Portfolio turnover 101 304 129 101 295
Class C
Year ended December 31,
---------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Operating performance:
Net asset value, beginning of the period $ 9.38 9.54 9.47 10.07 9.51
Net investment income $ 0.45 0.45 0.59 0.58 0.30
Net realized and unrealized gain (loss)
on investments $ (0.72) (0.05) 0.04 (0.62) 0.59
Total from investment operations $ (0.27) 0.40 0.63 (0.04) 0.89
Dividends from net investment income $ (0.45) (0.56) (0.56) (0.56) (0.33)
Distributions from capital $ (0.10) -- -- -- --
Total distributions (0.55) (0.56) (0.56) (0.56) (0.33)
Net asset value, end of the period $ 8.56 9.38 9.54 9.47 10.07
Total return(2) $ (2.95) 4.35 6.93 (0.21) 9.61
Ratios and supplemental data:
Net assets, end of the period (000s) $ 2,037 2,652 542 1,147 8
Ratio of expenses to average net assets
after reimbursement $ 1.98 1.90 1.85 1.80 1.68 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 1.98 2.05 2.02 2.01 1.88 (3)
Ratio of net investment income to
average net assets % 5.02 5.44 5.67 6.22 5.28 (3)
Portfolio turnover % 101 304 129 101 295
Class T
Year ended December 31,
-----------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Operating performance:
Net asset value, beginning of the period 9.39 9.55 9.48 10.07 8.74
Net investment income 0.48 0.58 0.57 0.60 0.58
Net realized and unrealized gain (loss)
on investments (0.71) (0.14) 0.10 (0.59) 1.35
Total from investment operations (0.23) 0.44 0.67 0.01 1.93
Dividends from net investment income (0.49) (0.60) (0.60) (0.60) (0.60)
Distributions from capital (0.10) -- -- -- --
Total distributions (0.59) (0.60) (0.60) (0.60) (0.60)
Net asset value, end of the period 8.57 9.39 9.55 9.48 10.07
Total return(2) (2.63) 4.84 7.38 0.32 22.90
Ratios and supplemental data:
Net assets, end of the period (000s) 35,292 49,713 89,939 112,126 150,951
Ratio of expenses to average net assets
after reimbursement 1.55 1.55 1.45 1.30 1.30
Ratio of expenses to average net assets
prior to expense reimbursement 1.55 1.70 1.65 1.51 1.50
Ratio of net investment income to
average net assets 5.46 5.97 5.99 6.37 6.23
Portfolio turnover 101 304 129 101 295
</TABLE>
- ----------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
See Accompanying Notes to Financial Statements
29
<PAGE>
Financial
PILGRIM HIGH YIELD FUND III Highlights
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
Class A
Year ended December 31,
------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Operating performance
Net asset value, beginning of the period $ 8.53 9.14 8.94 8.56 8.68
Net investment income $ 0.66 0.75 0.73 0.76 0.48
Net realized and unrealized gain (loss)
on investments $ (1.05) (0.55) 0.23 0.44 (0.10)
Total from investment operations $ (0.39) 0.20 0.96 1.20 0.38
Dividends from net investment income $ (0.66) (0.75) (0.76) (0.75) (0.50)
Distributions from net realized gain $ (0.11) (0.06) -- -- --
Distributions from capital $ (0.04) -- -- (0.07) --
Total distributions $ (0.81) (0.81) (0.76) (0.82) (0.50)
Net asset value, end of the period $ 7.33 8.53 9.14 8.94 8.56
Total return(2) % (4.87) 2.25 11.18 14.74 4.48
Ratios and supplemental data
Net assets, end of the period (000s) $ 19,267 31,134 16,213 13,146 7,466
Ratio of expenses to average net assets % 1.28 1.26 1.20 1.11 1.02 (3)
Ratio of net investment income to
average net assets % 8.08 8.27 8.06 8.60 9.83 (3)
Portfolio turnover % 70 135 134 128 103
Class B
Year ended December 31,
---------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Operating performance
Net asset value, beginning of the period 8.52 9.15 8.95 8.57 8.68
Net investment income 0.59 0.68 0.67 0.71 0.44
Net realized and unrealized gain (loss)
on investments (1.00) (0.56) 0.23 0.43 (0.09)
Total from investment operations (0.41) 0.12 0.90 1.14 0.35
Dividends from net investment income (0.61) (0.69) (0.70) (0.69) (0.46)
Distributions from net realized gain (0.11) (0.06) -- -- --
Distributions from capital (0.04) -- (0.07) --
Total distributions (0.76) (0.75) (0.70) (0.76) (0.46)
Net asset value, end of the period 7.35 8.52 9.15 8.95 8.57
Total return(2) (5.19) 1.28 10.38 13.94 4.17
Ratios and supplemental data
Net assets, end of the period (000s) 94,776 139,711 108,469 79,199 29,063
Ratio of expenses to average net assets 2.00 1.97 1.91 1.81 1.71 (3)
Ratio of net investment income to
average net assets 7.34 7.50 7.35 7.88 9.18 (3)
Portfolio turnover 70 135 134 128 103
Class C
Year ended December 31,
---------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Operating performance
Net asset value, beginning of the period $ 8.53 9.15 8.95 8.57 8.68
Net investment income $ 0.58 0.67 0.67 0.72 0.44
Net realized and unrealized gain (loss)
on investments $ (1.00) (0.54) 0.23 0.42 (0.09)
Total from investment operations $ (0.42) 0.13 0.90 1.14 0.35
Dividends from net investment income $ (0.61) (0.69) (0.70) (0.69) (0.46)
Distributions from net realized gain $ (0.11) (0.06) -- -- --
Distributions from capital $ (0.04) -- -- (0.07) --
Total distributions $ (0.76) (0.75) (0.70) (0.76) (0.46)
Net asset value, end of the period $ 7.35 8.53 9.15 8.95 8.57
Total return(2) % (5.31) 1.39 10.37 13.93 4.17
Ratios and supplemental data
Net assets, end of the period (000s) $ 12,240 23,559 21,393 14,275 3,410
Ratio of expenses to average net assets % 2.00 1.98 1.92 1.82 1.72 (3)
Ratio of net investment income to
average net assets % 7.34 7.48 7.35 7.85 9.29 (3)
Portfolio turnover % 70 135 134 128 103
Class T
Year ended December 31,
----------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Operating performance
Net asset value, beginning of the period 8.52 9.14 8.94 8.56 8.29
Net investment income 0.61 0.71 0.71 0.73 0.84
Net realized and unrealized gain (loss)
on investments (0.99) (0.54) 0.23 0.45 0.26
Total from investment operations (0.38) 0.17 0.94 1.18 1.10
Dividends from net investment income (0.64) (0.73) (0.74) (0.73) (0.83)
Distributions from net realized gain (0.11) (0.06) -- -- --
Distributions from capital (0.04) -- -- (0.07) --
Total distributions (0.79) (0.79) (0.74) (0.80) (0.83)
Net asset value, end of the period 7.35 8.52 9.14 8.94 8.56
Total return(2) (4.82) 1.79 10.86 14.49 13.71
Ratios and supplemental data
Net assets, end of the period (000s) 50,017 89,116 109,320 124,431 139,711
Ratio of expenses to average net assets 1.62 1.60 1.47 1.31 1.33
Ratio of net investment income to
average net assets 7.71 7.83 7.77 8.43 9.69
Portfolio turnover 70 135 134 128 103
</TABLE>
- ----------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
See Accompanying Notes to Financial Statements
30
<PAGE>
Financial
Highlights PILGRIM BALANCE SHEET OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
Class A
Year ended December 31,
------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Operating performance
Net asset value, beginning of the period $ 12.34 13.00 11.78 12.53 12.77
Net investment income $ 0.33 0.50 0.52 0.56 0.43
Net realized and unrealized gain on
investments $ 1.15 0.14 2.27 0.74 1.06
Total from investment operations $ 1.48 0.64 2.79 1.30 1.49
Dividends from net investment income $ (0.37) (0.56) (0.54) (0.57) (0.48)
Distributions from net realized gain $ (2.20) (0.74) (1.03) (1.48) (1.25)
Total distributions $ (2.57) (1.30) (1.57) (2.05) (1.73)
Net asset value, end of the period $ 11.25 12.34 13.00 11.78 12.53
Total return(2) % 12.34 5.19 24.31 10.54 11.95
Ratios and supplemental data
Net assets, end of the period (000s) $ 15,741 18,537 1,281 1,100 797
Ratio of expenses to average net assets
after reimbursement % 1.52 1.47 1.50 1.40 1.27 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 1.52 1.47 1.52 1.49 1.27 (3)
Ratio of net investment income to
average net assets % 2.42 4.02 4.01 4.30 4.99 (3)
Portfolio turnover % 41 38 130 107 131
Class B
Year ended December 31,
-------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Operating performance
Net asset value, beginning of the period 12.28 12.94 11.74 12.51 12.77
Net investment income 0.23 0.44 0.44 0.50 0.35
Net realized and unrealized gain on
investments 1.10 0.10 2.25 0.71 1.09
Total from investment operations 1.33 0.54 2.69 1.21 1.44
Dividends from net investment income (0.28) (0.46) (0.46) (0.50) (0.45)
Distributions from net realized gain (2.20) (0.74) (1.03) (1.48) (1.25)
Total distributions (2.48) (1.20) (1.49) (1.98) (1.70)
Net asset value, end of the period 11.13 12.28 12.94 11.74 12.51
Total return(2) 11.17 4.38 23.48 9.76 11.56
Ratios and supplemental data
Net assets, end of the period (000s) 4,939 5,107 4,969 3,765 1,759
Ratio of expenses to average net assets
after reimbursement 2.23 2.17 2.15 2.10 1.95 (3)
Ratio of expenses to average net assets
prior to expense reimbursement 2.23 2.17 2.17 2.17 1.95 (3)
Ratio of net investment income to
average net assets 1.71 3.33 3.37 3.64 4.38 (3)
Portfolio turnover 41 38 130 107 131
Class C
Year ended December 31,
-------------------------------------------
1999 1998 1997 1996 1995(1)
---- ---- ---- ---- -------
Operating performance
Net asset value, beginning of the period $ 12.31 12.95 11.75 12.52 12.77
Net investment income $ 0.22 0.45 0.43 0.49 0.38
Net realized and unrealized gain (loss)
on investments $ 1.11 0.11 2.25 0.70 1.07
Total from investment operations $ 1.33 0.56 2.68 1.19 1.45
Dividends from net investment income $ (0.28) (0.46) (0.45) (0.48) (0.45)
Distributions from net realized gain $ (2.20) (0.74) (1.03) (1.48) (1.25)
Total distributions $ (2.48) (1.20) (1.48) (1.96) (1.70)
Net asset value, end of the period $ 11.16 12.31 12.95 11.75 12.52
Total return(2) % 11.12 4.53 23.41 9.72 11.49
Ratios and supplemental data
Net assets, end of the period (000s) $ 511 753 756 372 231
Ratio of expenses to average net assets
after reimbursement % 2.22 2.15 2.25 2.10 1.91 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 2.22 2.15 2.25 2.20 1.91 (3)
Ratio of net investment income to
average net assets % 1.84 3.34 3.30 3.61 4.49 (3)
Portfolio turnover % 41 38 130 107 131
Class T
Year ended December 31,
-----------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Operating performance
Net asset value, beginning of the period 12.38 13.01 11.79 12.54 11.54
Net investment income 0.28 0.59 0.50 0.53 0.57
Net realized and unrealized gain (loss)
on investments 1.03 (0.01) 2.24 0.73 2.27
Total from investment operations 1.31 0.58 2.74 1.26 2.84
Dividends from net investment income (0.31) (0.47) (0.49) (0.53) (0.59)
Distributions from net realized gain (2.20) (0.74) (1.03) (1.48) (1.25)
Total distributions (2.51) (1.21) (1.52) (2.01) (1.84)
Net asset value, end of the period 11.18 12.38 13.01 11.79 12.54
Total return(2) 10.89 4.64 23.91 10.18 25.11
Ratios and supplemental data
Net assets, end of the period (000s) 16,328 24,065 53,201 59,490 72,472
Ratio of expenses to average net assets
after reimbursement 1.96 1.89 1.83 1.69 1.68
Ratio of expenses to average net assets
prior to expense reimbursement 1.96 1.89 1.87 1.75 1.68 (3)
Ratio of net investment income to
average net assets 2.04 3.59 3.70 3.99 4.44
Portfolio turnover 41 38 130 107 131
</TABLE>
- ----------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
See Accompanying Notes to Financial Statements
31
<PAGE>
- -------
Pilgrim
Funds
- -------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1999
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization. Pilgrim Funds (formerly Northstar Funds), comprising Pilgrim
Growth Opportunities Fund (formerly Northstar Growth Fund), Pilgrim SmallCap
Opportunities Fund (formerly Northstar Special Fund), Pilgrim Government
Securities Fund (formerly Northstar Government Securities Fund), Pilgrim High
Yield Fund III (formerly Northstar High Yield Fund), Pilgrim Balance Sheet
Opportunities Fund (formerly Northstar Balance Sheet Opportunities Fund), and
Pilgrim Equity Trust (formerly Northstar Equity Trust), comprising Pilgrim
MidCap Opportunities Fund (formerly Northstar Mid-Cap Growth Fund)
(collectively, the "Funds") were organized under the laws of the Commonwealth of
Massachusetts and registered under the Investment Company Act of 1940 as
diversified open-end management investment companies.
The Growth Opportunities Fund seeks long-term capital appreciation by investing
primarily in the common stocks of U.S. companies that the Portfolio Manager
believes have above average prospects for growth.
The MidCap Opportunities Fund seeks long-term capital appreciation by investing
primarily in the common stocks of mid-sized U.S. companies that the Portfolio
Manager believes have above average prospects for growth.
The SmallCap Opportunities Fund seeks capital appreciation by investing at least
65% of its total assets in the common stocks of smaller lesser-known U.S.
companies that the Portfolio Manager believes have above average prospects for
growth.
The Government Securities Fund seeks high current income and conservation of
principal by investing primarily in debt obligations issued or guaranteed by the
U.S. government or its agencies and instrumentalities.
The High Yield Fund III seeks high current income by investing in high yield
debt securities.
The Balance Sheet Opportunities Fund seeks income with a secondary objective of
capital appreciation by investing primarily in domestic debt and equity
securities.
On October 29, 1999 ReliaStar Financial Corp., the indirect parent company of
Northstar Investment Management Corporation ("Northstar") the investment adviser
to the Funds, acquired Pilgrim Capital Corporation and its subsidiaries. In
conjunction with the acquisition, Northstar changed its name to Pilgrim
Advisors, Inc.
Security Valuation. Equity securities are valued daily at the closing sale
prices reported on recognized securities exchanges or lacking any sales, at the
last available bid price. Prices of long-term debt securities are valued on the
basis of last reported sales price, or if no sales are reported, the value is
determined based upon the mean of representative quoted bid and asked prices for
such securities, or, if such prices are not available, at prices provided by
market makers, or at prices for securities of comparable maturity, quality and
type. Short-term debt instruments with remaining maturities of less than 60 days
are valued at amortized cost, unless the Trustees determine that amortized cost
does not reflect the fair value of such obligations. Securities for which market
quotations are not readily available are valued at fair value determined in good
faith by or under direction of the Trustees of the Funds. At December 31, 1999,
the High Yield Fund III and the Balance Sheet Opportunities Fund contained seven
and two securities, respectively, for which market quotations were not readily
available and which were fair valued pursuant to the Funds' procedures. The
securities in the High Yield Fund III had a total value of $1,711,957
representing 1% of the Fund's net assets. The securities in the Balance Sheet
Opportunties Fund had a total value of $943,275 representing 0.5% of the Fund's
net assets. The books and records of the Funds are maintained in U.S. dollars.
Securities quoted in foreign currencies are translated into U.S. dollars based
on the prevailing exchange rates on that day. The Adviser uses independent
pricing services to price the Funds' securities.
Security Transactions, Investment Income, Expenses. Security transactions are
recorded on the trade date. Realized gains or losses on sales of investments
are calculated on the identified cost basis. Interest income is recorded on the
accrual basis except when collection is not expected; discounts are accreted,
and premiums
32
<PAGE>
- -------
Pilgrim
Funds
- -------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
amortized to par at maturity; dividend income is recorded on the ex-dividend
dates. Income, expenses (except class specific expenses), and
realized/unrealized gains/losses, are allocated proportionately to each Fund or
class of shares based upon the relative daily net asset value.
Distributions to Shareholders. Dividends from net investment income are declared
and paid monthly by the Government Securities Fund and High Yield Fund III, and
declared and paid quarterly by the Balance Sheet Opportunities Fund and declared
and paid annually by the Growth Opportunities Fund, MidCap Opportunities Fund
and SmallCap Opportunities Fund. Distributions of net realized capital gains, if
any, are declared annually;however, to the extent that a net realized capital
gain can be reduced by a capital loss carryover, such gain will not be
distributed.
The Fund may periodically make reclassifications among certain of their capital
accounts as a result of the timing and characterization of certain income and
capital gains distributions determined annually in accordance with Federal tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of net operating
losses and foreign currency transactions. As of December 31, 1999, the following
amounts have been reclassified between undistributed net investment income,
accumulated net realized gain on investments and paid-in-capital:
Undistributed Accumulated Net
Net Investment Realized Gain Paid-In-
Income on Investments Capital
---------------- ---------------- ----------
Growth Opportunities
Fund $2,696,734 $ (2,696,734) --
MidCap Opportunities
Fund 533,884 (533,884) --
SmallCap
Opportunities Fund 4,533,770 (4,535,572) $ 1,802
Government
Securities Fund (52,161) 52,161 --
High Yield Fund III 7,116 (114,610) 107,494
Balance Sheet
Opportunities Fund -- -- --
These restatements did not affect net investment income, net realized gain on
investments, or net assets for the year ended December 31, 1999.
Foreign Currency. The Funds, with the exception of Government Securities Fund,
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from changes
in market prices of securities held.
Net realized gain (loss) on foreign currency transactions represents the foreign
exchange: (1) gains and losses from the sale of holdings of foreign currencies,
(2) gains and losses between trade date and settlement date on investment
securities transactions and forward exchange contracts, and (3) gains and losses
from the difference between amounts of interest and dividends recorded and the
amounts actually received. Net change in unrealized appreciation (depreciation)
of investment and foreign currency arise from changes in the value of assets and
liabilities including investment in securities at fiscal year end, resulting
from changes in the exchange rate.
Foreign Currency Forward Contracts. The Funds, with the exception of Government
Securities Fund, may enter into foreign currency forward contracts primarily to
hedge against foreign currency exchange rate risks on their non-U.S. dollar
denominated investment securities. When entering into a currency forward
contract, the Funds agree to receive or deliver a fixed quantity of foreign
currency for an agreed-upon price on an agreed future date. These contracts are
valued daily and the funds' net equity therein, representing unrealized gain or
loss on the contracts as measured by the difference between the forward foreign
exchange rates at the dates of entry into the contracts and the forward rates at
the reporting date, is included in the statement of assets and liabilities.
Realized and unrealized gains and losses are included in the statement of
operations. These instruments involve market and/or credit risk in excess of the
amount recognized in the statement of assets and liabilities. Risks arise from
the possible inability of counterparties to meet the terms of their contracts
and from movement in currency and securities values and interest rates.
Options. The Funds may write (sell) and purchase put and call options. The
premium collected or paid by a Fund for the sale or purchase of a call or put
option is recorded as an investment and subsequently "marked to market" to
reflect the current market value of the option.
33
<PAGE>
- -------
Pilgrim
Funds
- -------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
If an option which a Fund has sold or purchased expires on the stipulated
expiration date, the Fund realizes a gain or loss in the amount of the premium
received or paid for the option.
For written options, the Fund's obligation may be discharged in three ways: (1)
the option expires on the stipulated expiration date; (2) the option holder
exercises the right to call (buy) or put (sell) the securitiy; or (3) the Fund
enters into a closing transaction. If the option is held until expiration, the
Fund recognizes a gain equal to the amount of premium received. If the written
call option is exercised by the counterparty, the premium is added to the
proceeds from the sale of the underlying security or currency in determining
whether the Fund has realized a gain or loss. If the written put option is
exercised by the counterparty, the premium reduces the cost basis of the
securities purchased by the Fund. If the Fund enters into a closing transaction,
a gain or loss is recognized equal to the difference between the premium
received by the Fund from the counterparty and the amount paid by the Fund on
effecting a closing purchase transaction, incluing brokerage commissions. As the
writer of options, the Fund bears the market risk of an unfavorable change in
the price of the security underlying the written option.
Futures Contracts. The Funds may invest in futures contracts solely for the
purpose of hedging its existing portfolio securities, or securities that the
Funds intend to purchase, against fluctuations in fair value caused by changes
in prevailing market or interest rates.
Initial margin deposits made upon entering into futures contracts are recognized
as assets due from the broker (the Funds' agent in acquiring the futures
position). During the period the futures contract is open, changes in the value
of the contract are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the daily market value of the contract.
Variation margin payments are received or made by the Funds each day, depending
upon the daily fluctuations in the fair value of the underlying instrument. The
Funds recognize a gain or loss equal to the daily variation margin. When the
contract is closed, the Funds record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Funds' basis in the contract.
Should market conditions move unexpectedly, the Funds may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involve the risk of imperfect correlation in
movements in the price of futures contracts, interest rates, and the underlying
hedged assets.
Repurchase Agreements. The Funds' Custodian takes possession of collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to assure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Funds have the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. If the
seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Funds may be delayed or limited.
Federal Income Taxes. The Funds intend to comply with the special provisions of
the Internal Revenue Code available to investment companies and to distribute
all of the taxable net income to their respective shareholders. Therefore, no
Federal income tax provision or excise tax provision is required.
Management's Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 2. INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
Pilgrim Advisors, Inc. (the "Adviser"), (formerly Northstar Investment
Management Corporation) serves as each
34
<PAGE>
- -------
Pilgrim
Funds
- -------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Fund's investment adviser. Each Fund pays the Adviser an investment advisory fee
calculated at an annual rate of 0.75% of average daily net assets for Growth
Opportunities Fund and SmallCap Opportunities Fund, 1.00% of average daily net
assets of MidCap Opportunities Fund, 0.60% of average daily net assets for High
Yield Fund III, and 0.65% of average daily net assets for Balance Sheet
Opportunities Fund. The Government Securities Fund pays the adviser an
investment advisory fee calculated at an annual rate of 0.65% of average daily
net assets, however, the adviser has agreed to waive 0.15% of their fees. The
Funds paid advisory fees to Pilgrim Advisors, Inc. of $6,491,878.
Pilgrim Group, Inc. (the "Administrator") serves as administator to each Fund.
Northstar Administrators Corp., the former Administrator, merged into the
Administrator on October 29, 1999. The Funds paid the Administrator a fee
calculated at an annual rate of 0.10% of each Fund's average daily net assets,
and an annual shareholder account servicing fee of $5.00, payable
semi-annually, for each account of beneficial owners of shares. The
Administrator earned $937,340 in administrative and account servicing fees.
Pilgrim Securities, Inc. (the "Distributor") is the distributor of each Fund's
shares. The former distributor, Northstar Distributors, Inc. merged into the
Distributor on November 16, 1999. Under separate Plans of Distribution
pertaining to Class A, Class B, Class C, and Class T shares, the Funds pay the
Distributor monthly service fees at an annual rate of 0.25% of the average daily
net assets in the case of Class A, Class B, Class C and Class T shares, and
monthly distribution fees at the annual rate of 0.05% of the average daily net
assets of Class A shares and 0.75% of the average daily net assets of Class B
and Class C shares for all Funds. Class T shares pay monthly distribution fees
at an annual rate of 0.40% of average daily net assets for the Government
Securities and High Yield III Funds, 0.50% of average daily net assets for the
Balance Sheet Opportunities Fund and 0.70% of average daily net assets for the
Growth Opportunities and SmallCap Opportunities Funds. Class I does not pay
distribution or service fees. At December 31, 1999, the Funds owed the
Distributor $653,542 in service and distribution fees.
The Distributor also receives the proceeds of the initial sales charges paid by
shareholders upon the purchase of Class A shares, and the contingent deferred
sales charge paid by shareholders upon certain redemptions of Class A, Class B,
Class C, and Class T shares. For the year ended December 31, 1999. The
Distributor earned the following amounts in sales charges:
Class A Class B Class C Class T
Shares Shares Shares Shares
------ ------ ------ ------
Initial sales charges 147,089 N/A N/A N/A
Contingent deferred
sales charges 952 1,999,232 28,267 4,453
NOTE 3. TRANSACTIONS IN WRITTEN, CALL AND PUT OPTIONS
Transactions in options written for the Government Securities Fund during the
year ended December 31, 1999 were as follows:
Contracts Premiums
--------- --------
Options written 6,638 5,411,693
Options terminated in
closing purchase
transactions (5,838) (4,816,973)
Options expired (800) (594,720)
------ -----------
Options outstanding
at December 31, 1999 0 $ 0
------ -----------
During the year ended December 31, 1999, the Government Securities Fund had
($1,688,185) in realized losses from closing option transactions.
35
<PAGE>
- -------
Pilgrim
Funds
- -------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
NOTE 4 -- PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments
(excluding short-term investments) for the year ended December 31, 1999, were as
follows:
<TABLE>
<CAPTION>
Growth MidCap SmallCap Government High Yield Balance Sheet
Opportunities Opportunities Opportunities Securities III Opportunities
------------- ------------- ------------- ---------- --- -------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate purchases $751,726,556 $102,074,190 $570,188,075 $-- $157,744,226 $22,937,231
Aggregate sales $700,631,871 $ 94,995,299 $603,994,252 $-- $232,292,436 $39,895,126
</TABLE>
U.S. Government Securities not included above were as follows:
<TABLE>
<CAPTION>
Growth MidCap SmallCap Government High Yield Balance Sheet
Opportunities Opportunities Opportunities Securities III Opportunities
------------- ------------- ------------- ---------- --- -------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate purchases $ -- $ -- $ -- $108,501,677 $ -- $4,024,747
Aggregate sales $ -- $ -- $ -- $100,798,502 $1,072,280 $2,087,981
</TABLE>
NOTE 5. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares of each Fund for the year ended December 31,
1999, were as follows:
<TABLE>
<CAPTION>
Growth Opportunities Fund
--------------------------------------------------------------------------
Class A Class B Class C
--------------------- -------------------- --------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,872,541 $ 58,142,156 2,027,675 $ 60,130,033 608,874 $ 18,046,757
Shares issued as
reinvestment
of dividends 666,579 17,817,292 419,874 10,812,398 57,478 1,505,195
Shares redeemed (613,071) (19,006,293) (269,785) (8,084,430) (68,548) (2,043,259)
--------- ------------- --------- ------------ ------- ------------
Net increase in
shares
outstanding 1,926,049 $ 56,953,155 2,177,764 $ 62,858,001 597,804 $ 17,508,693
--------- ------------- --------- ------------ ------- ------------
Class T Class I
--------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 67,360 $ 2,034,349 1,435 $ 45,831
Shares issued as
reinvestment
of dividends 887,743 22,790,921 1,554,695 41,788,702
Shares redeemed (364,750) (10,823,333) (786,186) (25,000,672)
------- ------------ ------- ------------
Net increase in
shares
outstanding 590,353 $ 14,001,937 769,944 $ 16,833,861
------- ------------ ------- ------------
MidCap Opportunities Fund
----------------------------------------------------------------------------------------------
Class A Class B Class C Class I
-------------------- ------------------ ------------------- ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
Shares sold 283,890 $ 4,973,246 374,335 $ 6,815,739 222,578 $ 4,045,982 2 $ 30
Shares issued as
reinvestment
of dividends 24,465 383,131 14,896 234,378 8,538 134,709 609,885 9,446,529
Shares redeemed (59,847) (1,090,275) (9,457) (158,643) (20,948) (391,819) -- --
------- ----------- ------- ----------- ------- ----------- ------- ----------
Net increase in
shares
outstanding 248,508 $ 4,266,102 379,774 $ 6,891,474 210,168 $ 3,788,872 609,887 $9,446,559
------- ----------- ------- ----------- ------- ----------- ------- ----------
SmallCap Opportunities Fund
----------------------------------------------------
Class A Class B
--------------------- -----------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 1,243,016 $ 55,402,036 989,671 $ 41,747,885
Shares issued as
reinvestment
of dividends 215,723 8,110,268 520,483 18,773,628
Shares redeemed (947,712) (36,030,267) (1,261,882) (43,273,188)
------- ------------- ------- -------------
Net increase
(decrease) in
shares
outstanding 511,027 $ 27,482,037 248,272 $ 17,248,325
------- ------------- ------- -------------
Class C Class T Class I
------------------- ------------------- ---------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Shares sold 540,114 $ 22,951,710 10,438 $ 418,294 4 $130
Shares issued as
reinvestment
of dividends 83,500 3,031,530 102,739 3,715,408 1 27
Shares redeemed (403,119) (13,179,237) (168,928) (5,873,761) - --
------- ------------ ------- ----------- - ----
Net increase
(decrease) in
shares
outstanding 220,495 $ 12,804,003 (55,751) $(1,740,059) 5 $157
------- ------------ ------- ----------- - ----
</TABLE>
36
<PAGE>
- -------
Pilgrim
Funds
- -------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Government Securities Fund
----------------------------------------------------
Class A Class B
----------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 2,532,361 $ 22,868,889 1,268,770 $ 11,327,647
Shares issued as
reinvestment
of dividends 118,492 1,054,272 123,195 1,096,857
Shares redeemed (3,060,280) (27,454,247) (1,224,177) (10,915,032)
---------- ----------- ---------- -----------
Net increase
(decrease) in
shares
outstanding (409,427) $ (3,531,086) 167,788 $ 1,509,472
----------- -------------- ----------- --------------
Government Securities Fund
---------------------------------------------------
Class C Class T
--------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 200,005 $ 1,785,247 22,566 $ 208,710
Shares issued as
reinvestment
of dividends 4,121 36,495 214,399 1,912,232
Shares redeemed (248,960) (2,225,660) (1,410,330) (12,650,503)
--------- ------------- ----------- -------------
Net increase
(decrease) in
shares
outstanding (44,834) $ (403,918) (1,173,365) $ (10,529,561)
--------- ------------- ----------- -------------
High Yield Fund III
-----------------------------------------------------
Class A Class B
---------------------- ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 1,384,109 $ 11,362,841 2,014,153 $ 16,436,822
Shares issued as
reinvestment
of dividends 191,525 1,527,724 443,718 3,529,882
Shares redeemed (2,598,755) (21,160,684) (5,948,943) (47,900,708)
---------- ------------- ---------- -------------
Net decrease in
shares
outstanding (1,023,121) $ (8,270,119) (3,491,072) $ (27,934,004)
---------- ------------- ---------- -------------
High Yield Fund III
----------------------------------------------------
Class C Class T
---------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 996,108 $ 8,381,102 34,819 $ 290,682
Shares issued as
reinvestment
of dividends 75,146 607,670 446,054 3,568,136
Shares redeemed (2,169,776) (17,665,845) (4,138,463) (33,548,120)
---------- ------------- ---------- -------------
Net decrease in
shares
outstanding (1,098,522) $ (8,677,073) (3,657,590) $ (29,689,302)
---------- ------------- ---------- -------------
Balance Sheet Opportunities Fund
---------------------------------------------------
Class A Class B
--------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 61,066 $ 772,388 74,383 $ 960,813
Shares issued as
reinvestment
of dividends 228,279 2,557,818 68,399 758,675
Shares redeemed (392,786) (5,064,579) (114,739) (1,483,119)
--------- ------------ --------- -------------
Net increase
(decrease) in
shares
outstanding (103,441) $ (1,734,373) 28,043 $ 236,369
--------- ------------ --------- -------------
Class C Class T
------------------- ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 1,434 $ 18,125 12,738 $ 162,342
Shares issued as
reinvestment
of dividends 8,097 90,504 251,329 2,806,328
Shares redeemed (24,981) (329,686) (747,406) (9,559,870)
------- ---------- -------- ------------
Net increase
(decrease) in
shares
outstanding (15,450) $ (221,057) (483,339) $ (6,591,200)
------- ---------- -------- ------------
Transactions in capital shares of each Fund for the year ended December 31,
1998, (for the period from August 20, 1998 (commencement of operations) to
December 31, 1998 in the case of Pilgrim MidCap Opportunities Fund) were as
follows:
<TABLE>
<CAPTION>
Growth Opportunities Fund
--------------------------------------------------------------------
Class A Class B Class C
------------------ ------------------ ------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,006,647 $ 22,997,231 273,349 $ 5,996,702 79,910 $ 1,823,822
Shares issued as
reinvestment of
dividends 8,571 215,136 3,913 95,879 424 10,410
Shares redeemed (327,683) (7,307,908) (90,460) (1,938,294) (71,640) (1,591,116)
------- ------------ ------- ------------ ----- ------------
Net increase
(decrease) in shares
outstanding 687,535 $ 15,904,459 186,802 $ 4,154,287 8,694 $ 243,116
------- ------------ ------- ------------ ----- ------------
</TABLE>
Class T Class I
--------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 46,535 $ 630,574 -- $ --
Shares issued as
reinvestment of
dividends 15,938 392,841 34,255 866,645
Shares redeemed (1,533,469) (34,281,909) (2,181,662) (49,663,312)
---------- ------------- ---------- -------------
Net increase
(decrease) in shares
outstanding (1,470,996) $ (33,258,494) (2,147,407) $ (48,796,667)
---------- ------------- ---------- -------------
37
<PAGE>
- -------
Pilgrim
Funds
- -------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MidCap Opportunities Fund
--------------------------------------------------------------------------------
Class A Class B Class C Class I
------------------ ---------------- ---------------- -------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold 43,111 $ 429,944 10,841 $119,263 6,711 $70,583 2,574,798 $25,000,000
Shares redeemed (6,066) (58,558) -- -- -- -- -- --
------ --------- ------ -------- ----- ------- --------- -----------
Net increase in
shares
outstanding 37,045 $ 371,386 10,841 $119,263 6,711 $70,583 2,574,798 $25,000,000
------ --------- ------ -------- ----- ------- --------- -----------
</TABLE>
SmallCap Opportunities Fund
--------------------------------------------------
Class A Class B
------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 382,273 $ 10,956,276 545,403 $ 15,056,320
Shares issued as
reinvestment of
dividends 37,919 920,290 90,696 2,145,768
Shares redeemed (1,667,328) (46,516,064) (2,460,940) (65,745,031)
---------- ------------ ---------- ------------
Net decrease
in shares
outstanding (1,247,136) $(34,639,498) (1,824,841) $(48,542,943)
---------- ------------ ---------- ------------
Class C Class T
-------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 282,590 $ 7,713,920 5,412 $ 163,550
Shares issued as
reinvestment of
dividends 14,731 348,396 19,335 459,210
Shares redeemed (1,131,357) (30,735,989) (582,436) (15,952,837)
-------- ------------ -------- ------------
Net decrease
in shares
outstanding (834,036) $(22,673,673) (557,689) $(15,330,077)
-------- ------------ -------- ------------
Government Securities Fund
---------------------------------------------------
Class A Class B
----------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 4,260,830 $ 40,351,078 2,068,718 $ 19,733,721
Shares issued as
reinvestment of
dividends 69,676 659,133 90,647 859,973
Shares redeemed (1,188,942) (11,249,259) (674,093) (6,406,150)
--------- ------------ --------- ------------
Net increase
(decrease) in
shares
outstanding 3,141,564 $ 29,760,952 1,485,272 $ 14,187,544
--------- ------------ --------- ------------
Class C Class T
------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 842,471 $ 8,018,617 35,329 $ 336,252
Shares issued as
reinvestment of
dividends 6,162 58,582 295,996 2,807,524
Shares redeemed (622,700) (5,907,953) (4,458,543) (42,359,549)
------- ----------- ---------- ------------
Net increase
(decrease) in
shares
outstanding 225,933 $ 2,169,246 (4,127,218) $(39,215,773)
------- ----------- ---------- ------------
High Yield Fund III
---------------------------------------------------
Class A Class B
--------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 1,333,841 $ 12,457,996 3,919,058 $ 35,441,155
Issued in merger
(Note 11) 1,101,804 9,430,284 2,327,545 19,939,792
Shares issued as
reinvestment of
dividends 119,266 1,050,377 336,103 2,973,114
Shares redeemed (677,072) (6,031,135) (2,048,986) (17,616,654)
--------- ------------ --------- ------------
Net increase
(decrease) in
shares
outstanding 1,877,839 $ 16,907,522 4,533,720 $ 40,737,407
--------- ------------ --------- ------------
Class C Class T
-------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 950,767 $ 8,562,136 164,080 $ 1,235,978
Issued in merger
(Note 11) 208,474 1,787,395 1,185,636 10,147,120
Shares issued as
reinvestment of
dividends 58,769 519,682 455,225 4,355,999
Shares redeemed (793,765) (7,042,221) (3,304,234) (29,905,769)
------- ----------- ---------- ------------
Net increase
(decrease) in
shares
outstanding 424,245 $ 3,826,992 (1,499,293) $(14,166,672)
------- ----------- ---------- ------------
38
<PAGE>
- -------
Pilgrim
Funds
- -------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Balance Sheet Opportunities Fund
-------------------------------------------------
Class A Class B
-------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 1,534,971 $ 20,636,138 102,560 $ 1,348,124
Shares issued as
reinvestment of
dividends 111,595 1,358,125 31,791 388,308
Shares redeemed (242,430) (3,001,196) (102,461) (1,330,402)
---------- ------------ -------- -----------
Net increase
(decrease) in
shares
outstanding 1,404,136 $ 18,993,067 31,890 $ 406,030
--------- ------------ ------ -----------
Class C Class T
------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 9,419 $ 124,617 22,306 $ 279,230
Shares issued as
reinvestment of
dividends 5,343 65,485 178,879 2,227,493
Shares redeemed (11,961) (148,181) (2,345,539) (31,109,175)
------- -------- ---------- -----------
Net increase
(decrease) in
shares
outstanding 2,801 $ 41,921 (2,144,354) $(28,584,452)
------- -------- ---------- -----------
NOTE 6. CREDIT RISK AND DEFAULTED SECURITIES
Although the Funds have a diversifed portfolio, the High Yield Fund III and
Balance Sheet Opportunities Fund had 85.69% and 3.20%, respectively, of their
portfolios invested in lower rated and comparable quality unrated high yield
securities. Investments in high yield securities are accompanied by a greater
degree of credit risk and such lower rated securities tend to be more sensitive
to economic conditions than higher rated securities. The risk of loss due to
default by the issuer may be significantly greater for the holders of high
yielding securities, because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. At December 31, 1999, the
Balance Sheet Opportunities Fund and High Yield Fund III held Hurricane
Hydrocarbons and Unifi Communications, Inc., respectively, securities in
default.
For financial reporting purposes, it is each Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds for the current reporting period.
NOTE 7. SECURITY LOANS
Each Fund may lend its securities to brokers, dealers and other financial
institutions in amounts up to one third of the value of its total assets. The
loans are fully collateralized at all times by cash or liquid high grade
securities. As with other extensions of credit, each Fund may bear risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Funds receive compensation for lending their
securities in the form of fees or all or a portion of the income from
investments of the collateral. The Funds also continue to earn income on the
securities loaned. At December 31, 1999, the Funds did not have any securities
on loan.
NOTE 8. FEDERAL INCOME TAX -- CAPITAL LOSS CARRYFORWARD
At December 31, 1999, the High Yield III Fund had capital loss carryforwards
acquired from Northstar Strategic Income Fund expiring December 31, 2002, 2003,
2006 and 2007 of $407,161, $1,301,325, $8,798,705 and $21,434,136, respectively.
The Government Securities Fund had capital loss carryforwards expiring December
31, 2002, 2005 and 2007 of $16,131,129, $2,339,660, and $5,210,021,
respectively. During 1999, the MidCap Opportunities Fund utilized the prior
year's capital loss carryforward amount of $699,683.
NOTE 9. COMPENSATING BALANCE ARRANGEMENT
The Funds have an informal compensating balance with the Custodian whereby the
Funds may have overdrafts in their respective accounts and have no interest
assessed on the overdrafts. In return, the Funds are required to maintain
positive balances to offset negative balances. The required deposits are
calculated by dividing the overdrawn amounts by 0.90. At December 31, 1999, the
Funds did not have any compensating balances.
NOTE 10. LETTER OF CREDIT
The Pilgrim Funds, Pilgrim Equity Trust, Northstar Galaxy Trust and Pilgrim
Mayflower Trust (collectively, the "Funds") have entered into an unsecured
committed
39
<PAGE>
- -------
Pilgrim
Funds
- -------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
revolving line of credit agreement (the "Credit Agreement") with State Street
Bank and Trust Company for an aggregate amount of $50,000,000. The proceeds may
be used only to (1) temporarily finance the purchase and sale of securities; (2)
finance the redemption of shares of an investor in the Funds; and (3) enable the
Funds to meet other emergency expenses as defined in the Credit Agreement. The
Funds pay a commitment fee equal to 0.08% per annum on the daily unused portion
of the committed line amount payable quarterly in arrears. During the year ended
December 31, 1999, the Funds did not have any loans outstanding.
NOTE 11. TRANSFER OF NET ASSETS
At the close of business November 20, 1998 (the "Closing"), the Pilgrim High
Yield Fund III ("High Yield Fund III") acquired the net assets of the Northstar
Strategic Income Fund, ("Strategic Income Fund") pursuant to an Agreement and
Plan of Reorganization (the "Agreement") dated September 1, 1998. In accordance
with the Agreement, the High Yield Fund III, at the Closing issued 4,822,341
shares having an aggregate value of $41,304,591, which included unrealized
depreciation on investments of $1,662,193 and accumulated net realized loss of
($10,632,610). As a result the High Yield Fund III issued 1.184579439 shares for
each Strategic Fund Class A; 1.183197200 shares for each Strategic Fund Class B;
1.180863477 shares for each Strategic Fund Class C; and 1.184579439 shares for
each Strategic Fund Class T. The transaction was structured for tax purposes to
qualify as a tax-free reorganization under the Internal Revenue Code. Directly
after the merger the combined net assets in the High Yield Fund III were
$283,575,377 with a net asset value of $8.56 for Class A, $8.57 for Class B and
C, and $8.56 for Class T shares.
NOTE 12. SUBSEQUENT EVENTS
On November 16, 1999 the Board of Trustees approved the following
reorganizations:
* Pilgrim High Yield III Fund merging into
Pilgrim High Yield II Fund
* Pilgrim Government Securities Fund merging
into Pilgrim Government Securities Income Fund
* Pilgrim Income & Growth Fund and Pilgrim Balance Sheet Opportunities Fund
merging into Pilgrim Balanced Fund.
Proxy statements dated February 8, 2000 for these reorganizations have been
mailed to the shareholders. Special meetings of shareholders are to be held on
March 24, 2000 to approve such reorganizations. Upon approval, the
reorganizations will occur after the close of business on March 31, 2000.
TAX INFORMATION (UNAUDITED)
The amount of the long-term capital gain paid for the year ended December 31,
1999 was $5,745,207, $47,560,972, $227,114, $1,992,542, and $1,097,429 for the
Balance Sheet Opportunities Fund, Growth Opportunities Fund, MidCap
Opportunities Fund, SmallCap Opportunities Fund, and High Yield Fund III,
respectively.
Of the ordinary distribution made during the year ended December 31, 1999, the
following percentages qualify for the dividend received deduction available to
corporate shareholders; 22%, 1%, 0.75%, 0.09%, and 2% for the Balance Sheet
Opportunities Fund, Growth Opportunities Fund, MidCap Opportunities Fund,
SmallCap Opportunities Fund, and High Yield Fund III, respectively.
The above figures may differ from those cited elsewhere in this report due to
the difference in the calculation of income and gains for Securities and
Exchange Commission (book) purpose and Internal Revenue Service (tax) purposes.
40
<PAGE>
Pilgrim
Growth Opportunities
Fund
PORTFOLIO OF INVESTMENTS as of December 31, 1999
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------
COMMON STOCKS: 97.16%
Capital Goods: 2.69%
21,000 @ Brocade
Communications
Systems, Inc. $ 3,717,000
38,700 General Electric Co. 5,988,825
18,100 @ Sanmina Corp. 1,807,738
------------
11,513,563
------------
Communication Services: 5.11%
72,800 AT&T Corp. 3,694,600
27,100 @ Allegiance Telecom,
Inc. 2,499,975
8,250 @ MCI WorldCom, Inc. 437,766
37,700 @ Nextel
Communications,
Inc. 3,887,813
59,900 @ Tritel, Inc. 1,898,081
42,600 @ VoiceStream Wireless
Corp. 6,062,513
50,400 @ Western Wireless Corp. 3,364,200
------------
21,844,948
------------
Computer Communications: 6.43%
61,100 @ Adaptec, Inc. 3,047,363
38,100 @ Applied Micro Circuits
Corp. 4,848,225
63,900 @ Cabletron Systems, Inc. 1,661,400
55,200 @ Cisco Systems, Inc. 5,913,300
17,500 @ Finistar Corp. 1,572,813
14,100 @ Foundry Networks, Inc. 4,253,794
6,500 @ Juniper Networks, Inc. 2,210,000
22,300 @ Redback Networks,
Inc. 3,958,250
------------
27,465,145
------------
Computer Software: 6.36%
31,400 @ Microsoft Corp. 3,665,950
70,300 @ Oracle Corp. 7,877,994
17,400 @ Phone.com, Inc. 2,017,313
54,800 @ Sapient Corp. 7,723,375
60,700 @ Siebel Systems, Inc. 5,098,800
5,100 @ TIBCO Software, Inc. 780,300
------------
27,163,732
------------
Consumer Cyclicals: 10.14%
73,100 @ Abercrombie & Fitch
Co. 1,950,856
58,700 @ Bed Bath & Beyond,
Inc. 2,039,825
116,700 @ Cendant Corp. 3,099,844
19,200 @ Chemdex Corp. 2,131,200
29,600 @ Costco Wholesale
Corp. 2,701,000
12,200 @ DoubleClick, Inc. 3,087,363
26,300 Dow Jones +
Company, Inc. 1,788,400
1,000 @ Freemarkets, Inc. 341,313
64,700 Gap, Inc. 2,976,200
52,800 Home Depot, Inc. $ 3,620,100
72,700 Lowe's Companies,
Inc. 4,343,825
34,700 Nike, Inc. 1,719,819
119,400 @ Office Depot, Inc. 1,305,938
42,800 @ Pacific Sunwear of
California, Inc. 1,364,250
38,200 @ Staples, Inc. 792,650
13,800 @ TMP Worldwide, Inc. 1,959,600
29,800 Tribune Co. 1,640,863
49,500 Wal-Mart Stores, Inc. 3,421,688
42,800 @ Gemstar International
Group Ltd. 3,049,500
------------
43,334,234
------------
Consumer Staples: 8.37%
62,800 @ Adelphia
Communications
Corp. 4,121,250
68,900 Avon Products, Inc. 2,273,700
64,000 @ Charter
Communications,
Inc. 1,400,000
33,000 @ Clear Channel
Communications,
Inc. 2,945,250
29,800 Coca-Cola Co. 1,735,850
63,500 Walt Disney Co. 1,857,375
37,400 @ Emmis
Communications
Corp. 4,661,559
84,000 Gillette Co. 3,459,750
148,325 @ Infinity Broadcasting
Corp. 5,367,511
55,600 Kimberly-Clark Corp. 3,627,900
19,300 Procter & Gamble Co. 2,114,556
17,200 @ United Pan-Europe
@@ Communications
N.V. ADR 2,193,000
------------
35,757,701
------------
Diversified Electronic Products: 1.69%
44,800 @ JDS Uniphase Corp. 7,226,800
------------
EDP Peripherals: 2.15%
46,900 @ Lexmark International
Group, Inc. 4,244,450
31,000 @ QLogic Corp. 4,956,125
------------
9,200,575
------------
EDP Services: 2.56%
40,400 @ BEA Systems, Inc. 2,825,475
41,500 @ Computer Sciences
Corp. 3,926,938
55,400 Electronic Data
Systems Corp. 3,708,338
17,800 @ Infonet Services Corp. 467,250
------------
10,928,001
------------
Electronic Data Processing: 0.99%
23,100 @ Apple Computer, Inc. $ 2,374,969
23,800 @ Sun Microsystems, Inc. 1,843,013
------------
4,217,982
------------
Electronic Production Equipment: 5.64%
18,400 @ Applied Materials, Inc. 2,331,050
25,800 @ KLA-Tencor Corp. 2,873,475
52,300 @ Lam Research Corp. 5,834,719
39,300 @ Novellus Systems, Inc. 4,815,478
89,724 @ Taiwan Semiconductor
@@ Manufacturing Co.
Ltd. ADR 4,037,580
63,500 @ Teradyne, Inc. 4,191,000
------------
24,083,302
------------
Energy: 0.82%
43,558 Exxon Mobil Corp. 3,509,141
------------
Financials: 8.57%
38,200 American International
Group, Inc. 4,130,375
63,000 Aon Corp. 2,520,000
71,200 Bank of New York Co.,
Inc. 2,848,000
30,000 Capital One Financial
Corp. 1,445,625
16,900 Chase Manhattan Corp. 1,312,919
95,700 Citigroup, Inc. 5,317,331
26,000 Fannie Mae 1,623,375
67,500 First Tennessee
National Corp. 1,923,750
24,000 Firstar Corp. 507,000
43,200 Marsh & McLennan
Cos., Inc. 4,133,700
34,500 Merrill Lynch & Co.,
Inc. 2,880,750
13,100 Morgan Stanley Dean
Witter & Co. 1,870,025
50,800 The PMI Group, Inc. 2,479,675
32,400 Paine Webber Group,
Inc. 1,257,525
22,400 Zions Bancorp. 1,325,800
20,300 @@ XL Capital Ltd. 1,053,063
------------
36,628,913
------------
Healthcare: 9.37
49,500 Becton, Dickinson & Co. 1,324,125
10,700 @ Biogen, Inc. 904,150
114,900 @ Boston Scientific Corp. 2,513,438
28,500 @ Genetech, Inc. 3,833,250
18,000 @ IDEC Pharmaceuticals
Corp. 1,768,500
48,000 @ Immunex Corp. 5,256,000
48,150 @ King Pharmaceuticals,
Inc. 2,699,409
27,200 @ MedImmune, Inc. 4,511,800
37,800 Medtronic, Inc. 1,377,326
See Accompanying Notes to Financial Statements
41
<PAGE>
Pilgrim
Growth Opportunities
Fund
PORTFOLIO OF INVESTMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------
Health Care: 9.37% (con't)
61,800 Merck & Co., Inc. $ 4,144,463
31,800 @ Sepracor, Inc. 3,154,163
45,000 Stryker Corp. 3,133,125
74,900 @ Tenet Healthcare Corp. 1,760,150
30,600 United HealthCare
Corp. 1,625,625
24,900 Warner-Lambert Co. 2,040,244
------------
40,045,768
------------
Internet Services: 7.68%
1,800 @ Akamai Technologies,
Inc. 589,725
38,600 @ America Online, Inc. 2,911,888
71,700 @ AppNet Systems, Inc. 3,136,875
50,600 @ Exodus
Communications,
Inc. 4,493,913
20,400 @ Inktomi Corp. 1,810,500
13,900 @ RealNetworks, Inc. 1,672,344
32,400 @ VeriSign, Inc. 6,186,375
34,800 @ Vignette Corp. 5,672,400
14,700 @ Yahoo!, Inc. 6,360,506
------------
32,834,526
------------
Precision Instruments: 1.28%
70,600 @ Agilent Technologies,
Inc. 5,458,263
------------
Semiconductors: 8.06%
35,200 @ Analog Devices, Inc. $ 3,273,600
191,200 @ Atmel Corp. 5,652,350
81,400 @ Lattice Semiconductor
Corp. 3,835,975
37,200 @ Maxim Integrated
Products, Inc. 1,755,375
42,500 @ Micron Technology,
Inc. 3,304,375
25,900 @ PMC-Sierra, Inc. 4,152,094
22,600 @ SDL, Inc. 4,926,800
69,200 @ Vitesse Semiconductor
Corp. 3,628,675
85,800 @ Xilinx, Inc. 3,901,219
------------
34,430,463
------------
Telecommunications Equipment: 6.97%
39,000 @ CIENA, Corp. 2,242,500
21,800 @ Ditech
Communications
Corp. 2,038,300
37,900 @@ Ericsson (LM) Tel-SP
ADR 2,489,556
20,400 Lucent Technologies,
Inc. 1,526,175
22,000 Motorola, Inc. 3,239,500
49,200 @ Next Level
Communications Inc. 3,683,850
43,600 @@ Nortel Networks Corp. 4,403,600
41,200 @ QUALCOMM, Inc. 7,256,350
9,400 @ Sycamore Networks,
Inc. 2,895,200
------------
29,775,031
------------
Transportation: 2.28%
32,400 @ AMR Corp. $ 2,170,800
33,200 @ Continental Airlines,
Inc. 1,473,250
26,300 Delta Air Lines, Inc. 1,310,069
25,100 @ UAL Corp. 1,946,819
41,300 United Parcel Service
Inc. 2,849,700
------------
9,750,638
------------
Total Commom Stocks
(Cost $260,839,113) 415,168,726
------------
(Cost $260,839,113) 415,168,726
------------
Principal
Amount Value
- ----------------------------------------------------------
SHORT TERM INVESTMENTS: 3.06%
Repurchase Agreement: 3.06%
$13,092,000 State Street Bank & Trust
3.00% due 01/03/00
(Collateralized by
$13,225,000 U.S.
Treasury Notes, 6.250%
due 10/31/01, Market
Value $13,357,250) $ 13,092,000
------------
Total Short-Term
Investments (Cost
$13,092,000) 13,092,000
------------
Total Investments
(Cost
$273,931,113)* 100.23% 428,260,726
Other Liabilities
and Assets,
Net (0.23%) (965,220)
------ ------------
Net Assets 100.00% $427,295,506
====== ============
@ -- Non-income producing security.
@@ -- Foreign Issuer
ADR -- American Depository Receipt
* Cost for federal income tax purposes is $275,457,915.
Net unrealized appreciation consists of:
Gross Unrealized
Appreciation $155,066,799
Gross Unrealized
Depreciation (2,263,988)
------------
Net Unrealized
Appreciation $152,802,811
============
See Accompanying Notes to Financial Statements
42
<PAGE>
Pilgrim
MidCap Opportunities
Fund
PORTFOLIO OF INVESTMENTS as of December 31, 1999
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------
COMMON STOCKS: 91.66%
Capital Goods: 3.04%
6,500 @ Brocade
Communications
Systems, Inc. $ 1,150,500
20,400 @ KEMET Corp. 919,275
12,600 @ Flextronics
International Ltd. 579,600
------------
2,649,375
------------
Communication Services: 6.08%
6,300 @ Allegiance Telecom,
Inc. 581,175
20,000 @ Focal Communications
Corp. 482,500
15,800 @ Intermedia
Communications,
Inc. 613,238
900 @ Time Warner Telecom,
Inc. 44,944
12,500 @ Tritel, Inc. 396,094
15,700 @ VoiceStream Wireless
Corp. 2,234,304
11,900 @ Western Wireless Corp. 794,324
4,900 @ Williams
Communications
Group, Inc. 141,794
------------
5,288,373
------------
Computer Communications: 3.74%
5,000 @ Cobalt Networks, Inc. 541,875
3,700 @ Finistar Corp. 332,538
2,600 @ Foundry Networks, Inc. 784,388
1,200 @ Juniper Networks, Inc. 408,000
6,700 @ Redback Networks,
Inc. 1,189,250
------------
3,256,051
------------
Computer Software: 12.30%
12,200 @ Aspect
Communications,
Inc. 477,325
9,900 @ BMC Software, Inc. 791,381
6,000 @ Business Objects SA
ADR 801,750
16,200 @ J.D. Edwards & Co. 483,975
11,200 @ Inet Technologies, Inc. 782,600
8,000 @ Legato Systems, Inc. 550,500
6,700 @ Macromedia, Inc. 489,938
10,000 @ Mercury Interactive
Corp. 1,079,375
15,800 @ Network Associates,
Inc. 421,663
6,400 @ New Era of Networks,
Inc. $ 304,800
12,100 @ Parametric Technology
Corp. 327,456
2,400 @ Phone.com, Inc. 278,250
12,400 @ Rational Software
Corp. 609,150
11,400 @ Sapient Corp. 1,606,688
8,800 @ Siebel Systems, Inc. 739,200
12,000 @ Opentv Corp. 963,000
------------
10,707,051
------------
Consumer Cyclicals: 8.02%
15,100 @ Abercrombie & Fitch
Co. 402,981
16,200 @ American Eagle
Outfitters, Inc. 729,000
4,100 @ Chemdex Corp. 455,100
15,600 @ Cost Plus, Inc. 555,750
9,600 @ Dollar Tree Stores, Inc. 465,000
31,700 @ Gentex Corp. 879,675
5,000 @ MIPS Technologies,
Inc. 260,000
24,800 @ Office Depot, Inc. 271,250
2,900 @ TMP Worldwide, Inc. 411,800
3,200 Talbots, Inc. 142,800
9,600 Tiffany & Co. 856,800
8,600 @ Williams-Sonoma, Inc. 395,600
16,200 @ Gemstar International
Group Ltd. 1,154,250
------------
6,980,006
------------
Consumer Staples: 4.48%
13,400 @ Charter
Communications,
Inc. 293,125
8,100 @ Emmis
Communications
Corp. 1,009,589
12,400 @ Entercom
Communications
Corp. 818,400
6,000 @ RCN Corp. 291,000
7,800 @ Radio One, Inc. 717,600
7,500 @ Univision
Communications,
Inc. 766,406
------------
3,896,120
------------
Diversified Electronic Products: 2.11%
11,400 @ JDS Uniphase Corp. 1,838,963
------------
7,900 @ Network Appliance,
Inc. $ 656,194
------------
11,700 @ CSG Systems
International, Inc. 466,538
36,600 @ Cadence Design
Systems, Inc. 878,400
3,500 @ Mcafee.com Corp. 157,500
21,900 @ Tenfold Corp. 874,631
------------
2,377,069
------------
Electronic Components: 0.74%
4,800 @ E-Tek Dynamics, Inc. 646,200
------------
Electronic Data Processing: 0.68%
5,800 @ Apple Computer, Inc. 596,313
------------
Electronic Production Equipment: 4.59%
4,400 @ KLA-Tencor Corp. 490,050
15,400 @ Lam Research Corp. 1,718,063
7,500 @ Novellus Systems, Inc. 918,984
7,600 @@ ASM Lithography
@ Holding N.V. 864,500
------------
3,991,597
------------
Energy: 5.32%
11,900 Apache Corp. 439,556
17,300 @ BJ Services Co. 723,356
34,200 ENSCO International,
Inc. 782,325
9,400 Murphy Oil Corp. 539,325
33,500 @ Nabors Industries, Inc. 1,036,406
24,900 @@ Precision Drilling
@ Corp. 639,619
8,000 Vastar Resources, Inc. 472,000
------------
4,632,587
------------
Financials: 4.70%
20,800 @@ Ace, Ltd. 347,100
4,900 Dain Rauscher Corp. 227,850
16,400 First Tennessee
National Corp. 467,400
21,000 Metris Cos., Inc. 749,432
12,500 PMI Group, Inc. 610,156
8,700 S1 Corp. 679,688
13,400 Zions Bancorp. 793,113
4,200 @@ XL Capital Ltd. 217,875
------------
4,092,614
------------
See Accompanying Notes to Financial Statements
43
<PAGE>
Pilgrim
MidCap Opportunities
Fund
PORTFOLIO OF INVESTMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------
Health Care: 6.08%
4,600 @ Affymetrix, Inc. $ 780,563
36,000 @ Cephalon, Inc. 1,244,250
10,500 @ COR Therapeutics, Inc. 282,188
18,600 @ Ivax Corp. 478,950
6,200 @ MedImmune, Inc. 1,028,425
34,800 @ Oxford Health Plans,
Inc. 441,525
10,500 @ Sepracor, Inc. 1,041,469
------------
5,297,370
------------
Internet Services: 10.51%
17,600 @ AppNet Systems, Inc. 770,000
6,000 @ Broadbase Software,
Inc. 675,000
10,100 @ CyberSource Corp. 522,675
4,100 @ F5 Networks, Inc. 467,400
3,700 @ Network Solutions, Inc. 804,981
3,000 @ Portal Software, Inc. 308,625
9,300 @ Proxicom, Inc. 1,156,106
4,800 @ Quest Software, Inc. 489,600
10,600 @ Software.com, Inc. 1,017,600
7,300 @ VeriSign, Inc. 1,393,844
9,700 @ Viant Corp. 960,300
3,600 @ Vignette Corp. 586,800
------------
9,152,931
------------
Metal Fabrications: 1.05%
22,600 @ CommScope, Inc. 911,063
------------
Precision Instruments: 0.54%
3,900 PE Corp. - PE
Biosystems Group 469,219
------------
Semiconductors: 9.61%
9,900 @ Analog Devices, Inc. $ 920,700
38,000 @ Atmel Corp. 1,123,375
11,200 @ Conexant Systems, Inc. 743,400
30,900 @ Cypress Semiconductor
Corp. 1,000,388
20,700 @ Fairchild
Semiconductor Corp. 615,825
10,000 @ Micrel, Inc. 569,375
11,000 @ Microchip Technology,
Inc. 752,813
23,500 @ National
Semiconductor Corp. 1,006,094
8,200 @ TriQuint
Semiconductor, Inc. 912,250
13,800 @ Vitesse Semiconductor
Corp. 723,638
------------
8,367,858
------------
Telecommunications Equipment: 2.41%
8,600 @ Comverse Technology,
Inc. 1,244,850
9,100 @ Ditech
Communications
Corp. 850,850
------------
2,095,700
------------
Transportation: 0.99%
7,100 @ Continental Airlines,
Inc. 315,063
11,000 Delta Air Lines, Inc. 547,938
------------
863,001
------------
Utilities: 1.19%
8,800 @ Calpine Corp. $ 563,200
17,100 Washington Gas Light
Co. 470,250
------------
1,033,450
------------
Total Common Stocks
(Cost $47,014,938) 79,799,105
------------
Total Long Term
Investments
(Cost $47,014,938) 79,799,105
------------
Principal
Amount Value
- ----------------------------------------------------------
SHORT TERM INVESTMENTS: 8.31%
Repurchase Agreement: 8.31%
$7,230,000 State Street Bank & Trust
3.00% due 01/03/00
(Collateralized by
$7,515,000 U.S. Treasury
Notes, 0.000% due
05/04/00, Market Value
$7,375,973) $ 7,230,000
------------
Total Short-Term
Investments (Cost
$7,230,000) 7,230,000
------------
Total Investments
(Cost
$54,244,938)* 99.97% 87,029,105
Other Liabilities
and Assets,
Net 0.03% 27,691
------- ------------
Net Assets 100.00% $ 87,056,796
======= ============
@ -- Non-income producing security
@@ -- Foreign issuer
ADR -- American Depository Receipt
* Cost for federal income tax purposes is $54,288,857.
Net unrealized appreciation consists of:
Gross Unrealized
Appreciation $ 33,197,515
Gross Unrealized
Depreciation (457,267)
------------
Net Unrealized
Appreciation $ 32,740,248
============
See Accompanying Notes to Financial Statements
44
<PAGE>
Pilgrim
SmallCap Opportunities
Fund
PORTFOLIO OF INVESTMENTS as of December 31, 1999
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------
COMMON STOCKS: 92.38%
Capital Goods: 1.92%
98,300 @ Advanced Energy
Industries, Inc. $ 4,841,275
18,200 @ Brocade
Communications
Systems, Inc. 3,221,400
29,400 @ Dupont Photomasks,
Inc. 1,418,550
------------
9,481,225
------------
Communication Services: 3.36%
84,300 @ AirGate PCS, Inc. 4,446,825
46,800 @ Ibasis, Inc. 1,345,500
40,500 @ Illuminet Holdings, Inc. 2,227,500
56,500 @ IXnet, Inc. 1,702,063
75,400 @ Powerwave
Technologies, Inc. 4,401,475
76,400 @ US LEC Corp. 2,463,900
------------
16,587,263
------------
Computer Communications: 3.59%
38,500 @ Applied Micro Circuits
Corp. 4,899,125
23,200 @ Emulex Corp. 2,610,000
26,600 @ JNI Corp. 1,755,600
20,000 @ Redback Networks,
Inc. 3,550,000
67,950 @ TranSwitch Corp. 4,930,622
------------
17,745,347
------------
Computer Software: 11.89%
73,900 @ Aspect Development,
Inc. 5,062,150
125,500 @ Bottomline
Technologies, Inc. 4,518,000
32,600 @ Digimarc Corp. 1,630,000
13,900 @ E. piphany, Inc. 3,101,438
58,900 @ Inet Technologies, Inc. 4,115,638
30,100 @ Micromuse, Inc. 5,117,000
41,900 @ Mission Critical
Software, Inc. 2,933,000
76,400 @ Netiq Corp. 3,977,575
72,000 @ NetScout Systems, Inc. 2,232,000
34,200 @ New Era of Networks,
Inc. 1,628,775
30,000 @ Packeteer, Inc. 2,130,000
77,600 @ Primus Knowledge
Solutions, Inc 3,516,250
34,400 @ Sapient Corp. 4,848,250
146,800 @ Serena Software, Inc. 4,541,625
21,000 @ Siebel Systems, Inc. 1,764,000
1,500 @ Virginia Linux Systems,
Inc. 309,938
84,800 @ Verity, Inc. 3,609,300
89,100 @ BackWeb Technologies
Ltd. 3,753,338
------------
58,788,277
------------
Consumer Cyclicals: 5.86%
11,000 @ Aether Systems, Inc. $ 787,875
52,800 @ American Eagle
Outfitters, Inc. 2,376,000
98,400 @ AnnTaylor Stores Corp. 3,388,650
85,300 @ Braun Consulting, Inc. 6,098,950
38,900 @ Corporate Executive
Board Co. 2,173,538
71,200 @ Management Network
Group, Inc. 2,322,900
57,500 @ Mediaplex, Inc. 3,608,125
77,700 @ Men's Wearhouse, Inc. 2,282,438
117,550 @ Pacific Sunwear of
California, Inc. 3,746,906
15,500 @ TMP Worldwide, Inc. 2,201,000
------------
28,986,382
------------
Consumer Staples: 7.79%
108,000 @ Acme
Communications,
Inc. 3,591,000
330,300 Blockbuster, Inc. 4,417,763
137,200 @ Classic Commune, Inc. 5,016,375
111,900 @ Cumulus Media, Inc. 5,678,925
42,700 @ Emmis
Communications
Corp. 5,322,155
183,100 @ Korn/Ferry International 6,660,263
11,100 @ Official Payments
Corp. 577,200
52,700 @ Radio One, Inc. 4,848,400
82,200 @ Radio Unica Corp. 2,373,525
------------
38,485,606
------------
Diversified Commercial Services: 2.79%
144,300 @ Dendrite International,
Inc. 4,888,163
77,200 @ Exchange Applications,
Inc. 4,313,550
111,900 @ SalesLogix Corp. 4,594,894
------------
13,796,607
------------
EDP Peripherals: 1.04%
28,400 @ Immersion Corp. 1,089,850
25,400 @ QLogic Corp. 4,060,825
------------
5,150,675
------------
EDP Services: 2.64%
37,300 @ Concord
Communications,
Inc. 1,655,188
136,100 @ Lightbridge, Inc. 3,776,775
54,900 @ QRS Corp. 5,764,500
45,800 @ Tenfold Corp. 1,829,138
------------
13,025,601
------------
Electronic Components: 0.39%
68,000 @ Spectrian Corp. $ 1,921,000
------------
Electronic Production Equipment: 6.99%
79,600 @ Asyst Technologies,
Inc. 5,218,775
51,500 @ Credence Systems
Corp. 4,454,750
87,500 @ Cymer, Inc. 4,025,000
133,100 @ Kulicke & Soffa
Industies, Inc. 5,665,069
42,000 @ Lam Research Corp. 4,685,625
74,600 @ PRI Automation, Inc. 5,007,525
105,900 @ Rudolph Technologies,
Inc. 3,547,650
56,500 @ Varian Semiconductor
Equipment
Associates, Inc. 1,921,000
------------
34,525,394
------------
Energy: 2.03%
125,000 @ Atwood Oceanics, Inc. 4,828,125
49,300 @ Louis Dreyfus Natural
Gas Corp. 893,563
158,700 @ National-Oilwell, Inc. 2,489,606
130,600 @ Spinnaker Exploration
Co. 1,844,725
------------
10,056,019
------------
Financials: 1.47%
127,100 @ CompuCredit Corp. 4,893,350
27,200 Dain Rauscher Corp. 1,264,800
96,600 @ Quotesmith.com, Inc. 1,098,825
------------
7,256,975
------------
See Accompanying Notes to Financial Statements
45
<PAGE>
Pilgrim
SmallCap Opportunities
Fund
PORTFOLIO OF INVESTMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------
Health Care: 12.74%
37,700 @ Abgenix, Inc. $ 4,995,250
91,100 @ Alkermes, Inc. 4,475,288
145,600 @ Aurora Bioscience
Corp. 3,858,400
53,400 @ Celgene Corp. 3,738,000
141,300 @ Cephalon, Inc. 4,883,681
184,400 @ COR Therapeutics, Inc. 4,955,750
84,300 @ Cytyc Corp. 5,147,569
170,500 @ Ilex Oncology, Inc. 4,113,313
20,800 @ Invitrogen Corporation 1,248,000
65,850 @ King Pharmaceuticals,
Inc. 3,691,716
183,600 @ Oxford Health Plans,
Inc. 2,329,425
14,000 @ Pe Corp. 2,086,000
105,100 @ PathoGenesis Corp. 2,253,081
58,200 @ Pharmacopeia, Inc. 1,316,775
68,700 @ Progenics
Pharmaceuticals, Inc. 3,357,713
83,500 @ Protein Design Labs,
Inc. 5,845,000
58,600 @ Sciquest Common, Inc. 4,658,700
------------
62,953,661
------------
Internet Services: 15.75%
119,400 @ Accrue Software, Inc. 6,462,525
15,900 @ Agile Software Corp. 3,454,027
92,900 @ AppNet Systems, Inc. 4,064,375
37,900 @ Art Technology Group,
Inc. 4,855,938
44,400 @ Bluestone Software,
Inc. 5,106,000
50,700 @ C Bridge Internet
Solutions, Inc. 2,465,288
21,900 @ Commerce One, Inc. 4,303,350
65,900 @ CyberSource Corp. 3,410,325
71,100 @ Cysive, Inc. 5,123,636
109,800 @ Digital Insight Corp. 3,993,975
15,700 @ F5 Networks, Inc. 1,789,800
11,400 @ Liberate Technologies,
Inc. 2,929,800
63,600 @ Luminant Worldwide
Corp. 2,893,800
86,200 @ National Information
Consortium, Inc. 2,758,400
63,300 @ Netegrity, Inc. 3,604,144
7,300 @ Ondisplay, Inc. 663,388
115,800 @ Open Market, Inc. 5,225,475
31,000 @ Pfsweb, Inc. 1,162,500
12,500 @ Preview Systems, Inc. 810,938
51,300 @ Proxicom, Inc. 6,377,231
55,200 @ Quintus Corp. 2,532,300
40,400 @ Software.com, Inc. 3,878,400
------------
77,865,615
------------
Recreational Products/Toys: 0.67%
143,650 @ THQ, Inc. $ 3,330,884
------------
37,100 @ Alpha Industries, Inc. 2,126,294
39,800 @ Anadigics, Inc. 1,878,056
81,200 @ Atmel Corp. 2,400,475
84,500 @ Fairchild
Semiconductor Corp. 2,513,875
17,700 @ GlobeSpan, Inc. 1,152,713
69,400 @ Micrel, Inc. 3,951,463
25,000 @ PMC-Sierra, Inc. 4,007,813
207,300 @ QuickLogic Corp. 3,420,450
90,600 @ Semtech Corp. 4,722,525
31,800 @ Silicon Image, Inc. 2,227,988
103,350 @ TriQuint
Semiconductor, Inc. 11,497,688
------------
39,899,340
------------
Telecommunications Equipment: 3.39%
103,600 @ Airnet Commerce
Corp. 3,768,450
43,400 @ Ditech
Communications
Corp. 4,057,900
33,100 @ MCK Communications,
Inc. 744,750
14,700 @ Paradyne Networks,
Inc. 400,575
18,000 @ Terayon
Communication
Systems, Inc. 1,130,625
89,900 @ Virata Corp. 2,685,763
206,300 @ World Access, Inc. 3,971,275
------------
16,759,338
------------
Total Common Stocks
(Cost $267,788,513) 456,615,209
------------
Total Long Term
Investments (Cost
$267,788,513) 456,615,209
------------
Principal
Amount Value
- ----------------------------------------------------------
SHORT TERM INVESTMENTS: 11.56%
Repurchase Agreement: 11.56%
$57,142,000 State Street Bank & Trust
3.00% due 01/03/00
(Collateralized by
$32,465,000 U.S.
Treasury Notes, 6.250%
due 10/31/01, Market
Value $32,789,650, and
$24,850,000 U.S.
Treasury Notes, 6.375%
due 08/15/02, Market
Value $25,502,313) $ 57,142,000
------------
Total Short-Term
Investments (Cost
$57,142,000) 57,142,000
------------
Total Investments
(Cost
$324,930,513)* 103.94% 513,757,209
Other Liabilities
and Assets,
Net (3.94%) (19,488,229)
------ ------------
Net Assets 100.00% $494,268,980
====== ============
@ -- Non-income producing security
* Cost for federal income tax purposes is $326,870,766.
Net unrealized appreciation consists of:
Gross Unrealized
Appreciation $191,651,942
Gross Unrealized
Depreciation (4,765,499)
------------
Net Unrealized
Appreciation $186,886,443
============
See Accompanying Notes to Financial Statements
46
<PAGE>
Pilgrim
Government Securities
Fund
PORTFOLIO OF INVESTMENTS as of December 31, 1999
- --------------------------------------------------------------------------------
Principal
Amount Rate Maturity Value
- ----------------------------------------------------------------
U.S. GOVERNMENT SECURITIES: 98.73%
U.S. Government: 5.93%
U.S.Treasury
$ 6,100,000 Notes 0.00% 2005 $ 4,374,432
U.S.Treasury
1,000,000 Notes 4.75% 2008 882,140
------------
5,256,572
------------
Federal Home
Loan Mortgage Corporation: 11.94%
11,101,457 FHLMC 6.50% 2016 10,577,579
------------
Federal National Mortgage
Association: 44.47%
2,444,975 FNMA 6.16% 2006 2,327,693
28,918,385 FNMA 6.50% 2013-2026 27,823,199
5,481,011 FNMA 8.50% 2009-2011 5,618,280
3,544,155 FNMA 9.00% 2007 3,644,950
------------
39,414,122
------------
Government
National Mortgage
Association: 36.39%
19,314,300 GNMA 7.00% 2023-2028 18,710,041
13,679,610 GNMA 7.50% 2028 13,538,573
------------
32,248,614
------------
Total U.S. Government
Securities
(Cost $90,077,891) 87,496,887
------------
Total Long-Term Investments
(Cost $90,077,891) 87,496,887
------------
Principal
Amount Value
- ----------------------------------------------------------------
SHORT-TERM INVESTMENTS: 0.97%
Repurchase Agreement: 0.98%
$863,000 State Street Bank & Trust
3.00% due 01/03/00
(Collateralized by
$900,000 U.S. Treasury
Notes, 0.00% due
05/04/00 Market Value
$883,350) $ 863,000
------------
Total Short-Term
Investments (Cost
$863,000) 863,000
------------
Total Investments
(Cost
$90,940,891)* 99.70% 88,359,887
Other Liabilities
and Assets,
Net 0.30% 266,139
------ ------------
Net Assets 100.00% $ 88,626,026
====== ============
* Cost for federal income tax purposes is $90,948,960.
Net unrealized depreciation consists of:
Gross Unrealized
Appreciation $ 114,521
Gross Unrealized
Depreciation (2,703,594)
------------
Net Unrealized
Depreciation $ (2,589,073)
============
See Accompanying Notes to Financial Statements
47
<PAGE>
Pilgrim
High Yield
Fund III
PORTFOLIO OF INVESTMENTS as of December 31, 1999
- --------------------------------------------------------------------------------
Principal
Amount Value
- ----------------------------------------------------------
CORPORATE BONDS: 88.89%
Aerospace & Defense: 0.97%
$2,000,000 Aviation Sales Co.,
8.125%, due
2/15/08 $ 1,710,000
------------
Automotive: 1.57%
3,400,000 Titan Wheel Int'l,
Inc., 8.750%, due
04/01/07 2,771,000
------------
Broadcasting, Radio &
Television: 6.04%
3,000,000 @@ Antenna Tv SA,
9.000%, due
08/01/07 2,775,000
2,900,000 Capstar Broadcasting
Partners, 9.250%,
due 07/01/07 3,001,500
1,000,000 Chancellor Media
Corp., 8.125%, due
12/15/07 1,006,250
1,250,000 Sinclair Broadcast
Group, Inc.,
10.000%, due
09/30/05 1,250,000
2,800,000 Sinclair Broadcast
Group, Inc.,
8.750%, due
12/15/07 2,618,000
------------
10,650,750
------------
Business Services: 2.82%
3,500,000 # Allied Waste North
America, Inc.,
10.000%, due
08/01/09 3,132,500
2,000,000 Iron Mountain, Inc.,
8.250%, due
07/01/11 1,840,000
------------
4,972,500
------------
Cable & DBS: 10.06%
4,000,000 Century
Communications
Corp., 0.000%, due
01/15/08 1,760,000
4,500,000 Charter
Communication
Holdings LLC,
8.625%, due
04/01/09 4,185,000
4,500,000 Echostar Dbs Corp.,
9.250%, due
02/01/06 4,556,250
3,000,000 @@ Rogers Cablesystems
Ltd., 9.625%, due
08/01/02 3,101,250
4,400,000 @@ Telewest PLC,
0/11.000%, due
10/01/07 4,136,000
------------
17,738,500
------------
Communications -- Wireless: 11.47%
$500,000 @@ Colt Telecom Group
PLC, 0/12.000%,
due 12/15/06 $ 438,750
4,000,000 # Global Crossing
Holdings Ltd.,
9.500%, due
11/15/09 3,975,000
3,000,000 IXC Communications,
Inc., 9.000%, due
04/15/08 3,045,000
3,500,000 Level 3
Communications,
Inc., 9.125%, due
05/01/08 3,329,375
1,000,000 Metromedia Fiber
Network, Inc.,
10.000%, due
12/15/09 1,025,000
2,000,000 Metromedia Fiber
Network, Inc.,
10.000%, due
11/15/08 2,060,000
3,500,000 NEXTLINK
Communications,
Inc., 0/9.450%, due
04/15/08 2,222,500
1,500,000 NEXTLINK
Communications,
Inc., 9.000%, due
03/15/08 1,436,250
3,500,000 Qwest
Communications
Int'l, Inc.,
0/8.290%, due
02/01/08 2,695,000
------------
20,226,875
------------
Communications -- Wireless: 2.60%
3,750,000 # Nextel
Communications,
Inc., 9.375%, due
11/15/09 3,703,125
2,100,000 @@ Occidente Y Caribe
# Celular SA,
0/14.000%, due
03/15/04 871,500
------------
4,574,625
------------
Consumer Products: 1.67%
3,000,000 # Scotts Co., 8.625%,
due 01/15/09 2,940,000
------------
Finance, Insurance, Banking: 2.43%
4,000,000 Americo Life, Inc.,
9.250%, due
06/01/05 4,020,000
500,000 @@ # Westways Funding II
Ltd., 22.175%, due
01/29/03 266,250
------------
4,286,250
------------
Food, Beverages & Tobacco: 7.58%
$5,550,000 @@ Fage Dairy Industries
SA, 9.000%, due
02/01/07 $ 4,967,250
3,000,000 North Atlantic
Trading, Inc.,
11.000%, due
06/15/04 2,745,000
2,200,000 Packaged Ice, Inc.,
9.750%, due
02/01/05 2,024,000
4,500,000 Standard Commercial
Tobacco Corp.,
8.875%, due
08/01/05 3,622,500
------------
13,358,750
------------
Gaming & Lottery: 10.95%
2,000,000 Horseshoe Gaming
LLC, 8.625%, due
05/15/09 1,935,000
3,500,000 Int'l Game
Technology,
8.375%, due
05/15/09 3,403,750
2,500,000 Isle Capri Casinos,
Inc. 8.750%, due
04/15/09 2,331,250
4,500,000 @@ Jupiters Ltd., 8.500%,
due 03/01/06 4,342,500
3,000,000 Mohegan Tribal
Gaming, 8.125%,
due 01/01/06 2,932,500
4,398,000 # Waterford Gaming
LLC Finance Corp.,
9.500%, due
03/15/10 4,354,020
------------
19,299,020
------------
Health Care: 3.41%
2,400,000 Fisher Scientific Int'l,
Inc., 9.000%, due
02/01/08 2,310,000
2,300,000 Health Insurance Plan
Greater NY,
11.250%, due
07/01/10 2,024,000
878,049 (1) Intracel, Secured
Note, 12.000%,
due 08/25/03 219,512
5,121,951 (1) Intracel, Secured
Note, 12.000%,
due 08/25/03 1,280,488
184,074 (1) Intracel, Senior
Promissory Note,
13.000%, due
05/27/00 184,074
------------
6,018,074
------------
Homebuilding, Building Materials: 0.77%
1,500,000 Engle Homes, Inc.
9.250%, due
02/01/08 1,357,500
------------
See Accompanying Notes to Financial Statements
48
<PAGE>
Pilgrim
High Yield
Fund III
PORTFOLIO OF INVESTMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- ----------------------------------------------------------
Hotels, Motels & Inns: 2.40%
$2,000,000 Courtyard Marriott Ltd.,
10.750%, due
02/01/08 $ 1,975,000
2,500,000 HMH Properties, Inc.,
7.875%, due
08/01/08 2,262,500
------------
4,237,500
------------
Manufacturing: 2.28%
1,000,000 Westinghouse Air
Brake Co., 9.375%,
due 06/15/05 1,005,000
3,000,000 Westinghouse Air
Brake Co., 9.375%,
due 06/15/05 3,015,000
------------
4,020,000
------------
Oil & Gas: 2.16%
2,900,000 Benton Oil + Gas Co.,
11.625%, due
05/01/03 1,957,500
3,000,000 @@ Northern Offshore
ASA, 10.000%, due
05/15/05 1,845,000
------------
3,802,500
------------
Oil & Gas -- Refining &
Marketing: 0.99%
1,748,000 @@ Derlan Manufacturing,
Inc., 10.000%, due
01/15/07 1,734,890
------------
Paper & Forest Products: 1.49%
2,500,000 SD Warren Co.,
12.000%, due
12/15/04 2,628,125
------------
Printing & Publishing: 3.36%
3,000,000 Garden State
Newspapers, Inc.,
8.625%, due
07/01/11 2,760,000
3,250,000 Mail Well I Corp.,
8.750%, due
12/15/08 3,168,750
------------
5,928,750
------------
Restaurants: 1.31%
2,500,000 Romacorp, Inc.,
12.000%, due
07/01/06 2,312,500
------------
Retail: 1.44%
2,750,000 Tuesday Morning
Corp., 11.000%, due
12/15/07 2,543,750
------------
Shipping: 3.24%
$3,750,000 @@ Equimar Shipholdings
Ltd., 9.875%, due
07/01/07 $ 2,268,750
4,500,000 # Windsor Petroleum
Transportation Corp.,
7.840%, due
01/15/21 3,442,500
------------
5,711,250
------------
Supermarket: 1.46%
4,250,000 Richmont Marketing
Specialists, 10.125%,
due 12/15/07 2,571,250
------------
Transportation (Air,
Bus, Rail): 2.90%
2,000,000 # Amtran, Inc., 10.500%,
due 08/01/04 1,972,500
278,363 # Atlantic Coast Airlines,
7.970%, due
01/01/00 279,755
3,094,000 # Atlantic Coast Airlines,
8.750%, due
01/01/07 2,860,867
------------
5,113,122
------------
Utilities: 3.52%
4,000,000 AES Corp., 10.250%,
due 7/15/06 4,080,000
2,000,000 Calpine Corp.,
10.500%, due
5/15/06 2,130,000
------------
6,210,000
------------
Total Corporate Bonds
(Cost $172,962,987) 156,717,481
------------
Shares Value
- ----------------------------------------------------------
PREFERRED STOCK: 0.71%
Finance, Insurance,
Banking: 0.71%
27,500 (c) Superior National
Capital Trust 1,251,250
------------
Total Preferred Stock
(Cost $2,750,000) 1,251,250
------------
MUTUAL FUNDS: 1.03%
Finance, Insurance,
Banking: 1.03%
19,380 ++ Pilgrim Prime Rate
Trust 155,040
204,500 Van Kampen Senior
Income Trust 1,661,563
------------
1,816,603
------------
Total Mutual Funds
(Cost $1,861,236) 1,816,603
------------
Number of
Contracts Value
- ----------------------------------------------------------
@ WARRANTS/RIGHTS: 0.08%
Communications -- Internet: 0.00%
1,000 # Unifi Communications,
Inc. $ 0
------------
Communications -- Wireless: 0.00%
9,400 @@ Occidente Y Caribe
# Celular SA 0
------------
Health Care: 0.02%
32,711 (1) Intracel 4,089
158,536 (1) Intracel 19,817
31,815 (1) Intracel 3,977
32,728 (1) Intracel 0
------------
27,883
------------
Manufacturing: 0.07%
8,000 # Terex Corp. 116,000
------------
Oil & Gas: 0.00%
1,500,000 Mexico (UTD MEX ST) 0
------------
Retail: 0.00%
4,999 Dairy Mart Convience
Stores 2,989
------------
Total Warrants/Rights
(Cost $809,320) 146,872
------------
Total Long-Term
Investments (Cost
$178,383,543) 159,932,206
------------
See Accompanying Notes to Financial Statements
49
<PAGE>
Pilgrim
High Yield
Fund III
PORTFOLIO OF INVESTMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- ----------------------------------------------------------
SHORT-TERM INVESTMENTS: 7.25%
Repurchase Agreement: 7.25%
$12,777,000 State Street Bank and
Trust,
3.00% due 01/03/00
(Collateralized by
$12,985,000 U.S.
Treasury Notes, 6.625%
due 06/30/01, Market
Value $13,033,694) $ 12,777,000
Total Short-Term
Investments (Cost
$12,777,000) 12,777,000
------------
Total
Investments
(Cost
$191,160,543)* 97.96% 172,709,206
Other
Liabilities
and Assets, Net 2.04% 3,592,013
------ ------------
Net Assets 100.00% $176,301,219
====== ============
@ -- Non-income producing security
@@ -- Foreign Issuer
# Securities with purchases pursuant to Rule 144A, under the Securities Act of
1933 and may not be resold subject to that rule, except to qualified
institutional buyers.
(c) Convertible
++ Related Party
(1) Priced at fair value as determined by the Adviser
and approved by the Board of Trustees.
* Cost for federal income tax purposes is the same as for financial
statement purposes. Net unrealized depreciation consists of:
Gross Unrealized
Appreciation $ 1,336,546
Gross Unrealized
Depreciation (19,787,883)
------------
Net Unrealized
Depreciation $(18,451,337)
============
See Accompanying Notes to Financial Statements
50
<PAGE>
Pilgrim
Balance Sheet Opportunities
Fund
PORTFOLIO OF INVESTMENTS as of December 31, 1999
- --------------------------------------------------------------------------------
Shares Value
- ----------------------------------------------------------
COMMON STOCKS: 49.58%
Automobiles: 2.05%
6,000 Daimler Chrysler AG
Stuttgart $ 469,500
5,600 Ford Motor Co. 299,250
------------
768,750
------------
Banks: 1.50%
5,200 Citigroup, Inc. 288,925
3,500 Chase Manhattan Corp. 271,906
------------
560,831
------------
Beverages: 1.57%
4,200 Anheuser-Busch Cos.,
Inc. 297,675
5,000 Coca-Cola Co. 291,250
------------
588,925
------------
Broadcasting, Radio &
Television: 9.23%
10,146 @ Clear Channel
Communications,
Inc. 905,530
21,632 Comcast Corp. 1,093,768
15,000 @ EchoStar
Communications
Corp. 1,462,500
------------
3,461,798
------------
Capital Goods Manufacturing: 1.42%
30,000 Westinghouse Air
Brake Co. 532,500
------------
Communication
Services: 6.65%
12,207 AT&T Corp. 619,505
22,700 @ AT&T Corp. - Liberty
Media Group 1,288,225
4,800 Bell Atlantic Corp. 295,500
6,000 SBC Communications,
Inc. 292,500
------------
2,495,730
------------
Computer Software: 0.93%
3,000 @ Microsoft Corp. 350,250
------------
Consumer Products: 1.47%
60,000 @ Packaged Ice, Inc. 195,000
8,700 Gillette Co. 358,331
------------
553,331
------------
Consumer Staples: 0.65%
11,000 Sara Lee Corp. 242,688
------------
Diversified Manufacturing: 1.04%
10,000 Tyco Int'l Ltd. $ 388,750
------------
Energy: 0.89%
20,000 @ Global Marine, Inc. 332,500
------------
Entertainment/Film: 8.82%
4,200 Gannett Co., Inc. 342,563
27,000 News Corp. Ltd. 1,032,750
10,000 Time Warner, Inc. 724,375
20,000 @ Viacom, Inc. 1,208,750
------------
3,308,438
------------
Entertainment/Leisure: 0.83%
6,500 Carnival Corp. 310,781
------------
Financial: 3.05%
1,900 American Express Co. 315,875
2,800 American Int'l Group,
Inc. 302,750
4,300 Fannie Mae 268,481
5,500 Freddie Mac 258,844
------------
1,145,950
------------
Food/Beverage/Tobacco: 0.75%
11,150 @ International Fast Food
Corp. 7,805
11,800 Philip Morris Cos., Inc. 273,612
------------
281,417
------------
Healthcare: 0.50%
30,000 @ HEALTHSOUTH Corp. 161,250
111,111 @(1) Intracel Corp. 27,778
------------
189,028
------------
Insurance: 0.67%
10,500 Allstate Corp. 252,000
------------
Internet Services: 0.76%
3,800 @ America Online, Inc. 286,663
------------
Retail: 0.47%
5,000 Safeway, Inc. 177,813
------------
Semiconductors: 1.68%
4,000 Intel Corp. 329,250
3,100 Texas Instruments, Inc. 300,312
------------
629,562
------------
Telecommunications: 1.92%
23,530 @ American Tower Corp. $ 719,136
5,000 @@ Telecomunicacoes
Brasileiras SA 78
------------
719,214
------------
Utilities: 2.73%
16,000 @ Calpine Corp. 1,024,000
------------
Total Common Stocks
(Cost $12,815,750) 18,600,919
------------
PREFERRED STOCKS: 9.50%
Broadcasting, Radio &
Television: 3.50%
12,800 & Paxson
Communications
Corp., 12.50% 1,312,000
------------
Communications -- Wireless: 2.44%
21,964 &#(1)Unisite, Inc., 8.50% 915,497
------------
Communications -- Wireline: 1.44%
6,320 & 21st Century Telecom
Group, Inc., 13.75% 538,780
------------
Oil & Gas: 0.05%
5,500 # TCR Holding Corp.,
Class C Pfd. 55
14,500 # TCR Holding Corp.,
Class D Pfd. 145
30,000 # TCR Holding Corp.,
Class E Pfd. 300
10,000 # TCR Holding Corp.,
Class B Pfd. 100
20,000 # TransContinental
Refining Corp. 18,660
------------
19,260
------------
Restaurants: 0.36%
13,251 International Fastfood
Corp., 3.00% 135,823
------------
Telecommunications: 1.71%
5,000 @@ Telecomunicacoes
Brasileiras SA 642,500
------------
Total Preferred Stocks
(Cost $4,208,963) 3,563,860
------------
MUTUAL FUNDS: 2.52%
Finance, Insurance & Banking: 2.52%
118,000 ++ Pilgrim Prime Rate
Trust 944,000
------------
Total Mutual Funds
(Cost $1,002,705) 944,000
------------
See Accompanying Notes to Financial Statements
51
<PAGE>
Pilgrim
Balance Sheet Opportunities
Fund
PORTFOLIO OF INVESTMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Principal
Amount Value
- ----------------------------------------------------------
CORPORATE BONDS: 28.46%
Broadcasting, Radio &
Television: 1.24%
$500,000 Charter
Communication
Holdings LLC,
8.625%, due 4/01/09 $ 465,000
------------
Cable Television: 4.06%
1,500,000 @@ Star Choice
Communications,
Inc., 13.000%, due
12/15/05 1,522,500
------------
Collateralized
Mortgage Obligations: 1.06%
400,000 First Union National
Bank Commercial
Mortgage Trust,
7.390%, 1999 C4
Class A2
Commercial
Mortgage
Pass-Through, due
11/15/09 397,867
------------
Communications -- Internet: 1.33%
500,000 PSINET, Inc., 10.000%,
due 2/15/05 497,500
------------
Communications -- Wireless: 2.66%
500,000 # Nextel
Communications
Inc., 9.375%, due
11/15/09 493,750
500,000 Crown Castle Int'l
Corp., 9.500%, due
8/01/11 502,500
------------
996,250
------------
Communications -- Wireline: 2.64%
500,000 Level 3
Communications,
Inc., 9.125%, due
5/01/08 475,625
500,000 Metromedia Fiber
Network, Inc.,
10.000%, due
11/15/08 515,000
2,000,000 (c)@ SA
@@ Telecommunications,
# Inc., 10.000%, due
8/15/06 0
------------
990,625
------------
Finance & Banking: 4.17%
$500,000 MBNA Master Credit
Card Trust 6.350%,
Series 1999 G Class
A, due 12/15/06 $ 486,790
400,000 Emergent Home Equity
Loan Trust 7.080%,
1997 Asset Backed
Note Class A 5, due
12/15/28 394,469
690,811 GMAC Commercial
Mortgage Security
Inc. 6.974%,
Mortgage Certificate
Series 99 C3 Class A
1 A, due 5/15/08 681,905
------------
1,563,164
------------
Food/Beverage/Tobacco: 1.19%
500,000 @@ Fage Dairy Industries
SA, 9.000%, due
2/01/07 447,500
------------
Industrial and Commercial
Services: 4.16%
400,000 Albertsons, Inc.,
7.450%, due 8/01/29 382,488
499,785 Continental Airlines
Pass-Through Trust,
6.545%, 1999 Class
A due 2/2/19 442,969
200,000 Deeptech Int'l,
12.000%, due
12/15/00 204,370
500,000 News America
Holdings Inc.,
8.875%, due 4/26/23 532,590
------------
1,562,417
------------
Oil & Gas: 1.90%
750,000 @@ Hurricane
Hydrocarbons,
11.750%, due
11/01/04 393,750
571,781 # Orion Refining Corp.,
10.000%, due
11/15/04 317,339
------------
711,089
------------
Services: 1.19%
500,000 @# Allied Waste North
America, Inc.,
10.000%, due
8/01/09 447,500
------------
Shipping: 1.61%
$1,000,000 @@ Equimar Shipholdings
Ltd., 9.875%, due
7/01/07 $ 605,000
------------
Telecommunications: 1.25%
490,000 Motorola, Inc., 6.50%,
due 9/01/25 471,419
------------
Total Corporate Bonds
(Cost $14,151,898) 10,677,831
------------
U.S. GOVERNMENT AND AGENCIES: 7.49%
Financial: 7.49%
300,000 United States Treasury
Bonds, 5.250%, due
2/15/29 248,166
600,000 United States Treasury
Notes, 5.750%, due
8/15/03 587,898
1,200,000 United States Treasury
Notes, 4.750%, due
11/15/08 1,058,568
------------
1,646,466
------------
1,000,000 Federal Home Loan
Bank, 5.863%, due
4/22/09 917,030
------------
Total U.S. Government
and Agencies (Cost
$2,860,114) 2,811,662
------------
52
<PAGE>
Pilgrim
Balance Sheet Opportunities
Fund
PORTFOLIO OF INVESTMENTS as of December 31, 1999 (Continued)
- --------------------------------------------------------------------------------
Number of
Contracts Value
- ----------------------------------------------------------
WARRANTS: 0.56%
Cable Television: 0.24%
34,740 @ Star Choice
Communications,
Inc. $ 121,590
------------
Communications --
Wireless: 0.00%
500 @# Iridium LLC Capital
Corp. 5
------------
Communications --
Wireline: 0.27%
5,000 @# 21st Century Telecom
Group, Inc. 101,250
1,000 @# UNIFI
Communications,
Inc. 0
------------
101,250
------------
Consumer Products: 0.05%
500 @# Packaged Ice, Inc. 18,500
------------
Services: 0.00%
3,500 @
@@ ICF Kaiser Int'l, Inc. 35
------------
Total Warrants
(Cost $50,507) 241,380
------------
Total Long-Term
Investments
(Cost $35,089,937) 36,839,652
------------
Principal
Amount Value
- ----------------------------------------------------------
SHORT-TERM INVESTMENTS: 2.53%
Repurchase Agreement: 2.53%
$ 950,000 State Street Bank & Trust
3.000% due 01/03/00
(Collateralized by $910,000
U.S. Treasury Notes,
8.750% due 11/15/08,
Market Value $973,700) $ 950,000
------------
Total Short-Term
Investments (Cost
$950,000) 950,000
------------
Total Investments
(Cost
$36,039,937): 100.63% 37,789,652
Other Liabilities
and Assets, Net -0.63% (270,493)
------ ------------
Net Assets 100.00% $ 37,519,159
====== ============
@ -- Non-income producing security
@@ -- Foreign Issuer
# Securities with purchases pursuant to Rule 144A, under the Securities Act of
1933 and may not be resold subject to that rule except to qualified
institutional buyers.
(c) Convertible
++ Related party
& Payment in-kind security
(1) Priced at fair value as determined by the Adviser
and approved by the Board of Trustees.
* Cost for federal income tax purposes is $36,048,162. Net unrealized
appreciation consists of:
Gross Unrealized
Appreciation $ 8,454,760
Gross Unrealized (6,713,270)
Depreciation ------------
Net Unrealized Appreciation $ 1,741,490
============
See Accompanying Notes to Financial Statements
53
<PAGE>
Investment Manager
Pilgrim Advisors, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4408
Distributor
Pilgrim Securities, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4408
Administrator
Pilgrim Group, Inc.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4408
Transfer Agent
DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368
Custodian
State Street Bank and Trust
1 Heritage Place
North Quincy, MA 02171
Legal Counsel
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006
Independent Auditors
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Prospectus containing more complete information regarding the Funds, including
charges and expenses, may be obtained by calling Pilgrim Securities, Inc.
Distributor at 1-800-334-3444. Please read the prospectus carefully before you
invest or send money.
NORANN1299-022900
