As filed with the Securities and Exchange Commission on November 5, 1999
Registration Nos. 33-848; 811-4423
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form N1-A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ---
Post-Effective Amendment No. 26
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27
PILGRIM GOVERNMENT SECURITIES FUND
(formerly the "NORTHSTAR GOVERNMENT SECURITIES FUND")
---------------------------------------------------------------
(Exact name of Registrant as specified in charter)
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004
-----------------------------------------------------
(Address of Principal Executive Offices)
(203)602-7881
--------------------------------------
(Registrant's telephone number)
Stephanie L. Beckner
c/o Pilgrim Advisors, Inc.
(formerly "Northstar Investment Management Corporation")
300 First Stamford Place, Stamford, CT 06902
-----------------------------------------------------
(Name and address for agent for service)
Copies of all correspondence to:
Jeff Puretz, Esq.
Dechert, Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
on [date] pursuant to paragraph (b)
- - -
60 days after filing pursuant to paragraph (a)(1)
- - -
X on January 1, 2000 pursuant to paragraph (a)(1)
- - -
75 days after filing pursuant to paragraph (a)(2)
- - -
on [date] pursuant to paragraph (a)(2) of Rule 485
- - -
If appropriate, check the following box:
this post-effective amendment designates a new effective
- - - date for a previously filed post-effective amendment.
- --------------------------------------------------------------------------------
<PAGE>
Pilgrim(SM)
- ---------------------------
FUNDS FOR SERIOUS INVESTORS
Prospectus
Classes: A, B, C, M and T
January 1, 2000
U.S EQUITY FUNDS
Pilgrim MagnaCap Fund
Pilgrim LargeCap Leaders Fund
Pilgrim Research Enhanced Index Fund
Pilgrim Growth Opportunities Fund
Pilgrim LargeCap Growth Fund
Pilgrim MidCap Value Fund
Pilgrim MidCap Opportunities Fund
Pilgrim Midcap Growth Fund
Pilgrim Growth + Value Fund
Pilgrim SmallCap Opportunities Fund
Pilgrim SmallCap Growth Fund
Pilgrim Bank and Thrift Fund
INTERNATIONAL EQUITY FUNDS
Pilgrim Worldwide Growth Fund
Pilgrim International Value Fund
Pilgrim International Core Growth Fund
Pilgrim International SmallCap Growth Fund
Pilgrim Emerging Markets Value Fund
Pilgrim Emerging Countries Fund
Pilgrim Asia-Pacific Equity Fund
INCOME FUNDS
Pilgrim Government Securities Income Fund
Pilgrim Government Securities Fund
Pilgrim Strategic Income Fund
Pilgrim High Yield Fund
Pilgrim High Yield Fund II
Pilgrim High Yield Fund III
Pilgrim High Total Return Fund
Pilgrim High Total Return Fund II
Pilgrim Money Market Fund
EQUITY & INCOME FUNDS
Pilgrim Balanced Fund
Pilgrim Income and Growth Fund
Pilgrim Balance Sheet Opportunities Fund
Pilgrim Convertible Fund
- --------------------------------------------------------------------------------
This prospectus contains important information about investing in the Pilgrim
Funds. You should read it carefully before you invest, and keep it for future
reference. Please note that your investment: is not a bank deposit, is not
insured or guaranteed by the FDIC, the Federal Reserve Board or any other
government agency and is affected by market fluctuations. There is no guarantee
that the funds will achieve their objectives. As with all mutual funds, the
Securities and Exchange Commission (SEC) has not approved or disapproved these
securities nor has the SEC judged whether the information in this prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
<PAGE>
WHAT'S
INSIDE
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED] OBJECTIVE These pages contain a description of each of
our funds included in this prospectus,
including its objective, investment strategy,
risks and portfolio manager(s).
[GRAPHIC OMITTED] INVESTMENT
STRATEGY
You'll also find: What you pay to invest. A
list of the fees and expenses you pay - both
directly and indirectly - when you invest in a
fund.
[GRAPHIC OMITTED] RISKS
HOW THE How the fund has performed. A chart that shows
[GRAPHIC OMITTED] FUND HAS the fund's financial performance for the past
PERFORMED ten years (or since inception, if shorter).
An introduction to the
Pilgrim family of funds 1
Funds at a glance 2
U.S. EQUITY FUNDS
Pilgrim MagnaCap Fund 6
Pilgrim LargeCap Leaders Fund 8
Pilgrim Research Enhanced Index Fund 10
Pilgrim Growth Opportunities Fund 12
Pilgrim LargeCap Growth Fund 14
Pilgrim MidCap Value Fund 16
Pilgrim MidCap Opportunities Fund 18
Pilgrim Midcap Growth Fund 20
Pilgrim Growth + Value Fund 22
Pilgrim SmallCap Opportunities Fund 24
Pilgrim SmallCap Growth Fund 26
Pilgrim Bank and Thrift Fund 28
INTERNATIONAL EQUITY FUNDS
Pilgrim Worldwide Growth Fund 30
Pilgrim International Value Fund 32
Pilgrim International Core Growth Fund 34
Pilgrim International SmallCap Growth Fund 36
Pilgrim Emerging Markets Value Fund 38
Pilgrim Emerging Countries Fund 40
Pilgrim Asia-Pacific Equity Fund 42
INCOME FUNDS
Pilgrim Government Securities Income Fund 44
Pilgrim Government Securities Fund 46
Pilgrim Strategic Income Fund 48
Pilgrim High Yield Fund 50
Pilgrim High Yield Fund II 52
Pilgrim High Yield Fund III 54
Pilgrim High Total Return Fund 56
Pilgrim High Total Return Fund II 58
Pilgrim Money Market Fund 60
EQUITY & INCOME FUNDS
Pilgrim Balanced Fund 62
Pilgrim Income and Growth Fund 64
Pilgrim Balance Sheet Opportunities Fund 66
Pilgrim Convertible Fund 68
What you pay to invest
Shareholder guide
Management of the Funds
Dividends, distributions and taxes
More information about risks
Financial highlights
Where to go for more information
<PAGE>
INTRODUCTION TO
THE PILGRIM
FAMILY OF FUNDS
- --------------------------------------------------------------------------------
Risk is the potential that your investment will lose money or not earn as much
as you hope. All mutual funds have varying degrees of risk, depending on the
securities they invest in. Please read this prospectus carefully to be sure you
understand the principal risks and strategies associated with each of our funds.
You should consult the Statement of Additional Information (SAI) for a complete
list of the risks and strategies.
[GRAPHIC OMITTED]
If you have any questions about the Pilgrim family of funds, please call your
financial consultant or us at 1-800-992-0180.
- --------------------------------------------------------------------------------
Year 2000 update: Pilgrim Advisors, Pilgrim Investments, the Sub-Advisers,
Administrator and other service providers are taking steps to address any year
2000-related computer problems. However, as with all companies that rely on
computer systems to process date-related information, there is some risk that
these problems could disrupt the funds' operations and/or the financial markets
generally. There is also the risk that a fund's performance may be adversely
affected if the value of its portfolio holdings decreases due to year
2000-related computer problems.
- --------------------------------------------------------------------------------
This prospectus is designed to help you make informed decisions about your
investments. In order to make it easy for you to find what you're looking for,
we have divided the Pilgrim family of funds into four categories:
U.S. EQUITY FUNDS
Our U.S. Equity Funds focus on long-term growth by investing primarily in
domestic equities.
They may suit you if you:
o are investing for the long-term -- at least several years
o are willing to accept higher risk in exchange for long-term growth.
INTERNATIONAL EQUITY FUNDS
Pilgrim offers International Equity Funds that emphasize a growth approach
to international investing, as well as International Equity Funds that
apply the technique of "value investing". These Funds focus on long-term
growth by investing primarily in foreign equities.
They may suit you if you:
o are investing for the long-term -- at least several years
o are looking for exposure to international markets
o are willing to accept higher risk in exchange for long-term growth.
INCOME FUNDS
Pilgrim offers both aggressive and conservative Income Funds. Both offer
regular income, but some take higher risks to attain higher returns.
They may suit you if you:
o want a regular stream of income.
Income Funds other than the money market fund may suit you if you:
o want greater growth potential than a money market fund
o are willing to accept more risk than a money market fund.
EQUITY AND INCOME FUNDS
Our Equity and Income Funds seeks income and growth of capital.
They may suit you if you:
o want both regular income and capital appreciation
o are looking for greater growth potential than that offered by the
Income Funds, but don't feel comfortable with the level of risk
associated with the Equity Funds.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
1
<PAGE>
FUNDS
AT A
GLANCE
- --------------------------------------------------------------------------------
This table is a summary of the objectives, investments and risks of each Pilgrim
Fund. It is designed to help you understand the differences between the Funds,
the risks associated with each, and how risk and investment objectives relate.
This table is only a summary. You should read the complete descriptions of each
Fund's investment objectives, strategies and risks, which begin on page 6.
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. EQUITY MagnaCap Fund Growth of capital, with dividend income as a
FUNDS Adviser: Pilgrim Investments, Inc. secondary consideration
------------------------------------------------------------------------------------------------------
LargeCap Leaders Fund Long-term capital appreciation
Adviser: Pilgrim Investments, Inc.
------------------------------------------------------------------------------------------------------
Research Enhanced Index Fund Capital appreciation
Adviser: Pilgrim Advisors, Inc.
Sub-Adviser: J.P. Morgan
Investment Management, Inc.
------------------------------------------------------------------------------------------------------
Growth Opportunities Fund Long-term growth of capital
Adviser: Pilgrim Advisors, Inc.
------------------------------------------------------------------------------------------------------
LargeCap Growth Fund Long-term capital appreciation
Adviser: Pilgrim Investments, Inc.
Sub-adviser: Nicholas-Applegate Capital Mgt.
------------------------------------------------------------------------------------------------------
MidCap Value Fund Long-term capital appreciation
Adviser: Pilgrim Investments, Inc.
------------------------------------------------------------------------------------------------------
MidCap Opportunities Fund Long-term capital appreciation
Adviser: Pilgrim Advisors, Inc.
------------------------------------------------------------------------------------------------------
MidCap Growth Fund Long-term capital appreciation
Adviser: Pilgrim Investments, Inc.
Sub-adviser: Nicholas-Applegate Capital Mgt.
------------------------------------------------------------------------------------------------------
Growth + Value Fund Capital appreciation
Adviser: Pilgrim Advisors, Inc.
Sub-Adviser: Navellier Fund
Management, Inc.
------------------------------------------------------------------------------------------------------
SmallCap Opportunities Fund Capital appreciation
Adviser: Pilgrim Advisors, Inc.
------------------------------------------------------------------------------------------------------
SmallCap Growth Fund Long-term capital appreciation
Adviser: Pilgrim Investments, Inc.
Sub-adviser: Nicholas-Applegate Capital Mgt.
------------------------------------------------------------------------------------------------------
Bank and Thrift Fund Long-term capital appreciation, with income as a
Adviser: Pilgrim Investments, Inc. secondary objective
------------------------------------------------------------------------------------------------------
INTERNATIONAL Worldwide Growth Fund Long-term capital appreciation
EQUITY FUNDS Adviser: Pilgrim Investments, Inc.
Sub-adviser: Nicholas-Applegate Capital Mgt.
------------------------------------------------------------------------------------------------------
International Value Fund Long-term capital appreciation
Adviser: Pilgrim Advisors, Inc.
Sub-Adviser: Brandes
Investment Partners L.P.
------------------------------------------------------------------------------------------------------
International Core Growth Fund Long-term capital appreciation
Adviser: Pilgrim Investments, Inc.
Sub-adviser: Nicholas-Applegate Capital Mgt.
------------------------------------------------------------------------------------------------------
International SmallCap Growth Fund Long-term capital appreciation
Adviser: Pilgrim Investments, Inc.
Sub-adviser: Nicholas-Applegate Capital Mgt.
------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
FUNDS
AT A
GLANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAIN INVESTMENTS MAIN RISKS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Equity securities that meet disciplined selection criteria Price volatility and other risks that accompany an investment in
securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of large U.S. companies believed to be Price volatility and other risks that accompany an investment in
leaders in their industry equity securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of large U.S. companies Price volatility and other risks that accompany an investment in
growth-oriented equity securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of large U.S. companies Price volatility and other risks that accompany an investment in
growth-oriented equity securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of large U.S. companies Price volatility and other risks that accompany an investment in
growth-oriented equity securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of medium-sized U.S. companies Price volatility and other risks that accompany an investment in
that meet disciplined selection criteria equity securities of medium-sized companies. Particularly sensitive
to price swings during periods of economic uncertainty.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of medium-sized U.S. companies Price volatility and other risks that accompany an investment
equity in securities of growth-oriented and medium-sized companies.
Particularly sensitive to price swings during periods of economic
uncertainty.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of medium-sized U.S. companies Price volatility and other risks that accompany an investment in
equity securities of medium-sized companies. Particularly sensitive
to price swings during periods of economic uncertainty.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of small-sized U.S. companies Price volatility and other risks that accompany an investment
equity in securities of growth-oriented and small-sized companies.
Particularly sensitive to price swings during periods of economic
uncertainty.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of small-sized U.S. companies Price volatility and other risks that accompany an investment
equity in securities of growth-oriented and small-sized companies.
Particularly sensitive to price swings during periods of economic
uncertainty.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of small-sized U.S. companies Price volatility and other risks that accompany an investment
equity in securities of growth-oriented and small-sized companies.
Particularly sensitive to price swings during periods of economic
uncertainty.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of banks and thrifts or their holding or Price volatility and other risks that accompany an investment in
parent companies, and savings accounts of mutual thrifts equity securities. Susceptible to risks of decline in the price of
securities concentrated in the banking and thrift industries.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of issuers located in countries around Price volatility and other risks that accompany an investment in
the world, which may include the U.S. growth-oriented foreign equities. Sensitive to currency exchange
rates, international political and economic conditions and other
risks that affect foreign securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of issuers located in countries outside Price volatility and other risks that accompany an investment in
the U.S. value-oriented foreign equities. Sensitive to currency exchange
rates, international political and economic conditions and other
risks that affect foreign securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of issuers located in countries outside Price volatility and other risks that accompany an investment in
the U.S. growth-oriented foreign equities. Sensitive to currency exchange
rates, international political and economic conditions and other
risks that affect foreign securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of small-sized companies located Price volatility, liquidity and other risks that accompany an
outside the U.S. investment in equity securities of foreign, small-sized companies.
Sensitive to currency exchange rates, international political and
economic conditions and other risks that affect foreign securities.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
3
<PAGE>
FUNDS
AT A
GLANCE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTERNATIONAL Emerging Markets Value Fund Long-term capital appreciation
EQUITY FUNDS Adviser: Pilgrim Advisors, Inc.
(cont.) Sub-Adviser: Brandes Investment
Partners L.P.
- ----------------------------------------------------------------------------------------------------------------------------
Emerging Countries Fund Long-term capital appreciation
Adviser: Pilgrim Investments, Inc.
Sub-adviser: Nicholas-Applegate Capital Mgt.
- ----------------------------------------------------------------------------------------------------------------------------
Asia-Pacific Equity Fund Long-term capital appreciation
Adviser: Pilgrim Investments, Inc.
Sub-adviser: HSBC Asset Management
- ----------------------------------------------------------------------------------------------------------------------------
INCOME FUNDS Government Securities Income Fund High current income, consistent with liquidity and
Adviser: Pilgrim Investments, Inc. preservation of capital
- ----------------------------------------------------------------------------------------------------------------------------
Government Securities Fund High current income and conservation of principal
Adviser: Pilgrim Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund Maximum total return
Adviser: Pilgrim Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
High Yield Fund High current income, with capital appreciation as a
Adviser: Pilgrim Investments, Inc. secondary objective
- ----------------------------------------------------------------------------------------------------------------------------
High Yield Fund II High level of current income and capital growth
Adviser: Pilgrim Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
High Yield Fund III High current income
Adviser: Pilgrim Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
High Total Return Fund High current income and capital appreciation
Adviser: Pilgrim Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
High Total Return Fund II High current income and capital appreciation
Adviser: Pilgrim Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Money Market Fund High current income
Adviser: Pilgrim Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
EQUITY & Balanced Fund Long-term capital appreciation and current income
INCOME FUNDS Adviser: Pilgrim Investments, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Income and Growth Fund Income balanced with capital appreciation
Adviser: Pilgrim Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Balance Sheet Income and capital appreciation
Opportunities Fund
Adviser: Pilgrim Advisors, Inc.
- ----------------------------------------------------------------------------------------------------------------------------
Convertible Fund Total return, consisting of capital appreciation and
Adviser: Pilgrim Investments, Inc. current income
Sub-adviser: Nicholas-Applegate Capital Mgt.
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
FUNDS
AT A
GLANCE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MAIN INVESTMENTS MAIN RISKS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Equity securities of issuers located in countries with emerging Price volatility, liquidity and other risks that accompany an
securities markets investment in value-oriented equities from emerging countries.
Sensitive to currency exchange rates, international political and
economic conditions and other risks that affect foreign securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of issuers located in countries with Price volatility, liquidity and other risks that accompany an
emerging securities markets investment in equities from emerging countries. Sensitive to
currency exchange rates, international political and economic
conditions and other risks that affect foreign securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Equity securities of companies based in the Asia-Pacific Price volatility and other risks that accompany an investment in
region, excluding Australia and Japan foreign equities and in securities of issuers in a single region.
Sensitive to currency exchange rates, international political and
economic conditions and other risks that affect foreign securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Securities issued or guaranteed by the U.S. Government Credit, interest rate, prepayment and other risks that accompany an
and certain of its agencies or instrumentalities investment in government bonds and mortgage related investments.
Generally has less credit risk than the other income funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Securities issued or guaranteed by the U.S. Government Credit, interest rate, prepayment and other risks that accompany an
and certain of its agencies or instrumentalities investment in government bonds and mortgage related investments.
Generally has less credit risk than the other income funds.
- ------------------------------------------------------------------------------------------------------------------------------------
Investment grade and high yield debt securities Credit, interest rate, prepayment and other risks that accompany an
investment in debt securities, including high yield debt
securities. May be sensitive to credit risk during economic
downturns.
- ------------------------------------------------------------------------------------------------------------------------------------
High yield debt securities Credit, interest rate and other risks that accompany an investment
in lower-quality debt securities. Particularly sensitive to credit
risk during economic downturns.
- ------------------------------------------------------------------------------------------------------------------------------------
High yield debt securities Credit, interest rate and other risks that accompany an investment
in lower-quality debt securities. Particularly sensitive to credit
risk during economic downturns.
- ------------------------------------------------------------------------------------------------------------------------------------
High yield debt securities Credit, interest rate and other risks that accompany an investment
in lower-quality debt securities. Particularly sensitive to credit
risk during economic downturns.
- ------------------------------------------------------------------------------------------------------------------------------------
High yield debt securities Credit, interest rate and other risks that accompany an investment
in lower-quality debt securities. Particularly sensitive to credit
risk during economic downturns.
- ------------------------------------------------------------------------------------------------------------------------------------
High yield debt securities Credit, interest rate and other risks that accompany an investment
in lower-quality debt securities. Particularly sensitive to credit
risk during economic downturns.
- ------------------------------------------------------------------------------------------------------------------------------------
Shares of another investment company whose main Credit, interest rate and other risks that accompany an investment
investments include securities issued or guaranteed by the U.S. in government bonds and mortgage related investments. Generally has
Government and certain of its agencies and instrumentalities. less credit risk than the other income funds.
- ------------------------------------------------------------------------------------------------------------------------------------
A mix of equity and debt securities Price volatility and other risks that accompany an investment in
equity securities. Credit, interest rate and other risks that
accompany an investment in debt securities.
- ------------------------------------------------------------------------------------------------------------------------------------
A mix of equity and debt securities Price volatility and other risks that accompany an investment in
equity securities. Credit, interest rate and other risks that
accompany an investment in debt securities.
- ------------------------------------------------------------------------------------------------------------------------------------
A mix of equity and debt securities Price volatility and other risks that accompany an investment in
equity securities. Credit, interest rate and other risks that
accompany an investment in debt securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Convertible securities of companies of various sizes Price volatility and other risks that accompany an investment in
equity securities. Credit, interest rate, liquidity and other risks
that accompany an investment in debt securities.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
5
<PAGE>
Adviser
Pilgrim Investments, Inc.
PILGRIM Portfolio managers
MAGNACAP Robert Kloss
FUND Howard Kornblue
Amuradha Sahai
G. David Underwood
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks growth of capital, with dividend income as a secondary
consideration.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The Fund is managed with the philosophy that companies that can best meet the
Fund's objectives have paid increasing dividends or have had the capability to
pay rising dividends from their operations. The Fund normally invests at least
65% of its assets in equity securities of companies that meet the following
disciplined criteria:
Consistent Dividends -- A company must have paid or had the financial capability
from its operations to pay a dividend in 8 out of the last 10 years.
Substantial Dividend Increases -- A company must have increased its dividend or
had the financial capability from its operations to have increased its dividend
at least 100% over the past 10 years.
Reinvested Earnings -- Dividend payout must be less than 65% of current
earnings.
Strong Balance Sheet -- Long term debt should be no more than 25% of the
company's total capitalization or a company's bonds must be rated at least A- or
A-3.
Attractive Price -- A company's current share price should be in the lower half
of the stock's price/earnings ratio range for the past ten years, or the ratio
of the share price to its anticipated future earnings must be an attractive
value in relation to the average for its industry peer group or that of the
Standard & Poor's 500 Composite Stock Price Index.
The equity securities in which the Fund may invest include common stocks,
convertible securities, and rights or warrants. The remainder of the Fund's
assets may be invested in equity securities that the adviser believes have
growth potential because they represent an attractive value. In selecting
securities for the Fund, preservation of capital is also an important
consideration. Although the Fund normally will be invested as fully as
practicable in equity securities, assets that are not invested in equity
securities may be invested in high quality debt securities. The Fund may invest
up to 5% of its assets, measured at the time of investment, in foreign
securities.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests primarily in equity
securities of larger companies, which sometimes have more stable prices than
smaller companies.
Market Trends -- from time to time, the stock market may not favor the value
securities that meet the Fund's disciplined investment criteria. Rather, the
market could favor growth-oriented stocks or small company stocks, or may not
favor equities at all.
6 Pilgrim MagnaCap Fund
<PAGE>
PILGRIM
MAGNACAP
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1989 22.46
1990 -3.11
1991 25.28
1992 8.02
1993 9.25
1994 4.15
1995 35.22
1996 18.51
1997 27.73
1998 16.09
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
4th quarter 1998: up 18.93%
3rd quarter 1990: down -15.99%
The Fund's year-to-date total return as of September 30, 1999 was ____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the Standard & Poor's 500 Composite Stock Price 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.
Average annual total returns(2)
S&P
500
Class A(3) Class B(4) Class M(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 9.40 10.26 1.56 28.58
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % 18.46 -- -- 23.81
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 % 15.13 -- -- 18.95
- --------------------------------------------------------------------------------
Since inception(7) % -- 20.73 20.31 27.75
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Class C shares of the Fund were not offered during the period ended
December 31, 1998.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(5) Reflects deduction of sales charge of 3.5%.
(6) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies.
(7) Classes B and M commenced operations on July 17, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim MagnaCap Fund 7
<PAGE>
Adviser
Pilgrim Investments, Inc.
PILGRIM Portfolio manager
LARGECAP G. David Underwood
LEADERS FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The Fund normally invests at least 65% of its assets in equity securities of
large companies that the adviser believes are leaders in their industries. The
adviser considers whether these companies have a sustainable competitive edge.
The adviser emphasizes a value approach, and seeks securities whose prices in
relation to projected earnings are believed to be reasonable in comparison to
the market. A company with a market capitalization (outstanding shares
multiplied by price per share) of over $5 billion is considered to be a large
company, although the Fund may also invest to a limited degree in companies that
have a market capitalization between $1 billion and $5 billion.
The equity securities in which the Fund may invest include common stock,
convertible securities, preferred stock, American Depositary Receipts, and
warrants. The Fund normally invests as fully as practicable (at least 80%) in
equity securities.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests primarily in equity
securities of larger companies, which sometimes have more stable prices than
smaller companies.
Market Trends -- from time to time, the stock market may not favor the large
company value securities in which the Fund invests. Rather, the market could
favor growth-oriented stocks or small company stocks, or may not favor equities
at all.
8 Pilgrim LargeCap Leaders Fund
<PAGE>
PILGRIM
LARGECAP
LEADERS FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994
1995
1996 21.07
1997 20.15
1998 20.08
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Prior to November 1, 1998, the Fund's investment policies were different
in that they emphasized large company value stocks without necessarily
emphasizing industry leaders. Pilgrim Investments has been the Fund's
investment adviser since the Fund commenced operations; however, prior to
November 1, 1997, the Fund was managed by a sub-adviser.
Best and worst quarterly performance during this period:
4th quarter 1998: up 24.58%
3rd quarter 1998: down -12.86%
The Fund's year-to-date total return as of September 30, 1999 was _____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the Standard & Poor's 500 Composite Stock Price 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.
Average annual total returns(3)
S&P
500
Class A(4) Class B(5) Class M(6) Index(7)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 13.16 14.33 15.43 28.58
- --------------------------------------------------------------------------------
Since inception(8) % 18.67 19.28 18.93 28.73
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Class C shares of the Fund were not offered during the period ended
December 31, 1998.
(4) Reflects deduction of sales charge of 5.75%.
(5) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(6) Reflects deduction of sales charge of 3.5%.
(7) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies.
(8) The Fund commenced operations on September 1, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim LargeCap Leaders Fund 9
<PAGE>
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
J.P. Morgan Investment Management
PILGRIM Portfolio managers
RESEARCH ENHANCED Timothy Devlin
INDEX FUND James Wiess
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The fund invests primarily in companies that make up the S&P 500 Index. Based on
extensive research regarding projected company earnings and dividends, a
valuation model ranks companies in each industry group according to their
relative value. Using this valuation model, the portfolio managers select stocks
for the fund. Within each industry, the fund modestly overweights stocks that
are ranked as undervalued or fairly valued while modestly underweighting or not
holding stocks that appear overvalued. Industry by industry, the fund's assets
are invested so that the fund's industry sector allocations and market cap
weightings closely parallel those of the S&P 500.
By owning a large number of stocks within the S&P 500, with an emphasis on those
that appear undervalued or fairly valued, and by tracking the industry
weightings and other characteristics of that index, the fund seeks returns that
modestly exceed those of the S&P 500 over the long term with virtually the same
level of volatility.
Under normal market conditions, the fund invests at least 80% of its total
assets in common stocks included in the S&P 500. It may also invest in other
common stocks not included in the S&P 500. The fund may also invest in certain
higher-risk investments, including derivatives (generally these investments will
be limited to S&P 500 options).
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests primarily in equity
securities of larger companies, which sometimes have more stable prices than
smaller companies. The portfolio managers try to remain fully invested in
companies included in the S&P 500, and generally do not change this strategy
even temporarily, which could make the Fund more susceptible to poor market
conditions.
Market Trends -- from time to time, the stock market may not favor the large
company securities that are ranked as undervalued or fairly valued in which the
Fund invests. Rather, the market could favor small company stocks,
growth-oriented stocks, or may not favor equities at all.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivative instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
10 Pilgrim Research Enhanced Index Fund
<PAGE>
PILGRIM
RESEARCH ENHANCED
INDEX FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
This fund does not have a performance history because it was formed on December
30, 1998.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Research Enhanced Index Fund 11
<PAGE>
Adviser
Pilgrim Advisors, Inc.
PILGRIM Portfolio managers
GROWTH Jeffery Bernstein
OPPORTUNITIES Mary Lisanti
FUND
- --------------------------------------------------------------------------------
OBJECTIVE
This fund seeks long-term growth of capital by investing primarily in domestic
common stocks.
INVESTMENT
STRATEGY
The fund invests primarily in U.S. companies that the portfolio manager feels
have above average prospects for growth.
Under normal market conditions, the fund invests at least 65% of its total
assets in securities purchased on the basis of the potential for capital
appreciation. These securities may be from large-cap, mid-cap or small-cap
companies.
The portfolio managers use a disciplined investment process, which includes
extensive database screening, frequent fundamental research, identification and
implementation of a thematic approach in structuring the portfolio and a sell
discipline. The portfolio managers use themes to help find the major social,
economic and technological trends that are likely to shape the future of
business and commerce over the next three to five years, and to provide a
framework for identifying the industries and companies expected to benefit most.
This top down approach is combined with rigorous fundamental research (a bottoms
up approach) to guide stock selection and portfolio structure.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
portfolio manager feels have the potential for rapid growth, which may give the
Fund a higher risk of price volatility than a fund that emphasizes other styles,
such as a value-oriented style. The Fund may invest in small and medium-sized
companies, which may be more susceptible to price swings than larger companies
because they have fewer financial resources, limited product and market
diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Fund invests. Rather, the market could favor
value-oriented stocks, or may not favor equities at all.
Inability to Sell Securities - securities of smaller companies trade in lower
volume and may be less liquid than securities of larger, more established
companies. The Fund could lose money if it cannot sell a security at the time
and price that would be most beneficial to the Fund.
12 Pilgrim Growth Opportunities Fund
<PAGE>
PILGRIM
GROWTH
OPPORTUNITIES
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1989 24.25
1990 -5.24
1991 38.10
1992 8.05
1993 10.36
1994 -7.66
1995 24.40
1996 19.90
1997 22.94
1998 22.78
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
4th quarter 1998: up 31.14%
4th quarter 1987: down 21.57%
The Fund's year-to-date total return as of September 30, 1999 was _____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the Standard & Poor's 500 Composite Stock Price 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.
Average annual total returns
<TABLE>
<CAPTION>
S&P
500
Class A(2) Class B(3) Class C(4) Class T(5) Index(6)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 1998 % 16.49 17.69 21.90 18.79 28.57
- ----------------------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % N/A N/A N/A 15.76 24.05
- ----------------------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 % N/A N/A N/A 14.96 19.19
- ----------------------------------------------------------------------------------------------
Since inception(7) % 20.27 21.16 21.50 13.50 17.90
- ----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) Reflects deduction of a deferred sales charge of 4% for the 1 year return.
(6) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies. The
since inception return for the Index is for the Class T time period.
(7) Classes A, B and C commenced operations on June 5, 1995. Class T commenced
operations on February 3, 1986.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Growth Opportunities Fund 13
<PAGE>
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
Nicholas-Applegate Capital Management
PILGRIM Portfolio manager
LARGECAP
GROWTH FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The Fund normally invests at least 65% of its total assets in equity securities
of large U.S. companies. The equity securities in which the Fund may invest
include common and preferred stocks, warrants, and convertible securities. The
Fund may invest the remainder of its assets in: corporate debt securities of any
maturity which, at the time of investment, are rated investment grade by a
nationally recognized statistical rating agency, or of comparable quality if
unrated; U.S. Government securities; and equity securities of foreign issuers.
The Fund may also use options and futures contracts involving securities,
securities indices, interest rates and foreign currencies as hedging techniques.
The sub-adviser emphasizes a growth approach by searching for successful,
growing companies that are managing change advantageously and poised to exceed
growth expectations. It focuses on a "bottom-up" analysis that evaluates the
financial condition and competitiveness of individual companies. It uses a blend
of traditional fundamental research of individual securities and a computer
intensive ranking system that analyzes and ranks securities. The sub-adviser
seeks to uncover signs of "change at the margin" -- positive business
developments which are not yet fully reflected in a company's stock price.
The Fund considers a company to be large if its market capitalization
corresponds at the time of purchase to the upper 90% of the Russell 1000 Growth
Index. As of June 30, 1998, the bottom 10% of the Index included companies with
capitalizations less than $3.9 billion. Capitalization of companies in the Index
will change with market conditions.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
sub-adviser believes have the potential for rapid growth, which may give the
Fund a higher risk of price volatility than a fund that emphasizes other styles,
such as a value-oriented style. The Fund invests primarily in equity securities
of larger companies, which sometimes have more stable prices than smaller
companies.
Market Trends -- from time to time, the stock market may not favor the large
company, growth-oriented securities in which the Fund invests. Rather, the
market could favor value stocks or small company stocks, or may not favor
equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks, securities depositories, or exchanges than those in the U.S., and
foreign controls on investment.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivative instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
14 Pilgrim LargeCap Growth Fund
<PAGE>
PILGRIM
LARGECAP
GROWTH FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998 59.45
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the
adviser, rather than sub-adviser, to the Fund.
Best and worst quarterly performance during this period:
4th quarter 1998: up 37.87%
3rd quarter 1998: down -8.50%
The Fund's year-to-date total return as of September 30, 1999 was _____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the Russell 1000 Growth 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.
Average annual total returns
Russell
1000
Growth
Class A(3) Class B(4) Class C(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 50.26 53.68 57.34 38.71
- --------------------------------------------------------------------------------
Since inception(7) % 39.24 40.46 44.12 44.57
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 4%, respectively,
for 1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The Russell 1000 Growth Index is an unmanaged index that measures the
performance of those companies among the Russell 1000 Growth Index with
higher than average price-to-book ratios and forecasted growth.
(7) The Fund commenced operations on July 21, 1997.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim LargeCap Growth Fund 15
<PAGE>
Adviser
Pilgrim Investments, Inc.
PILGRIM Portfolio manager
MIDCAP G. David Underwood
VALUE FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The Fund normally invests as fully as practicable (at least 80% of its assets)
in equity securities of medium-sized U.S. companies. The Fund will normally
invest at least 65% of its assets in equity securities of companies that meet
the following disciplined criteria:
Consistent Dividends -- The company must have paid or had the financial
capability from its operations to pay a dividend in its last five fiscal years.
Strong Balance Sheet -- If the company has debt that is rated, that debt is
rated investment grade by a nationally recognized rating agency. If the company
does not have debt that is rated, the company's long term debt to capitalization
ratio is below 25%.
Reinvested Earnings -- The company currently pays out in dividends less than 65%
of current earnings, or less than the dividend payout as a percentage of current
earnings of at least half of the medium-sized companies in similar industries.
Attractive Price -- The ratio of the stock's price to the next fiscal year's
anticipated earnings is less that the corresponding ratio for at least half of
the medium sized companies in similar industries.
The Fund considers a company to be medium-sized if it has a market
capitalization between $1 billion and $8 billion. The equity securities in which
the Fund may invest include common stock, convertible securities, preferred
stock and warrants.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests in medium-sized
companies, which may be more susceptible to price swings than larger companies,
but usually tend to have less volatile price swings than smaller companies. To
the extent the Fund invests in small-cap companies, such securities may be more
susceptible to price swings than larger companies because they have fewer
financial resources, limited product and market diversification and many are
dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the mid-cap
value securities that meet the Fund's disciplined investment criteria. Rather,
the market could favor growth-oriented stocks or large company stocks, or may
not favor equities at all.
16 Pilgrim MidCap Value Fund
<PAGE>
PILGRIM
MIDCAP
VALUE FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994
1995
1996 29.56
1997 21.87
1998 4.89
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
1st quarter 1998: up 13.87%
3rd quarter 1998: down -13.94%
The Fund's year-to-date total return as of September 30, 1999 was _____%.
The table below compares the Fund's performance to that of two broad measures of
market performance -- the Russell Midcap Index and the Russell Midcap Value
Index. The Indices have an inherent performance advantage over the Fund since it
has no cash in their portfolios, impose no sales charges and incur no operating
expenses. An investor cannot invest directly in an index.
Average annual total returns(2)
Russell
Russell MidCap
MidCap Value
Class A(3) Class B(4) Class M(5) Index(6) Index(7)
- --------------------------------------------------------------------------------
One year,
ended
December 31,
1998 % -1.15 -0.75 0.63 10.10 5.08
- --------------------------------------------------------------------------------
Since
inception(8) % 15.53 16.07 15.70 18.85 19.43
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Class C shares of the Fund were not offered during the period ended
December 31, 1998.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(5) Reflects deduction of a sales charge of 3.5%.
(6) The Russell Midcap Index is an unmanaged index that measures the
performance of the 800 smallest companies in the Russell 1000 Index.
(7) The Russell MidCap Value Index measures the performance of companies in
the Russell Midcap Index with lower book-to-price ratios and lower
forecasted growth values.
(8) Classes A, B and M commenced operations on September 1, 1995. Class C
commenced operations on May 24, 1999.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim MidCap Value Fund 17
<PAGE>
Adviser
Pilgrim Advisors, Inc.
PILGRIM Portfolio managers
MIDCAP Jeffrey Bernstein
OPPORTUNITIES Mary Lisanti
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
This fund seeks long-term capital appreciation by investing in a diversified
portfolio of equity securities.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The fund invests primarily in the common stocks of mid-sized U.S. companies that
the portfolio managers feel have above average prospects for growth. For this
Fund, mid-sized companies are companies with market capitalizations that fall
within the range of companies in the S&P MidCap 400 Index. The market
capitalization range will change as the range of the companies included in the
S&P MidCap 400 changes.
The portfolio managers use a disciplined investment process, which includes
extensive database screening, frequent fundamental research, identification and
implementation of a thematic approach in structuring the portfolio and a sell
discipline. The portfolio managers use themes attempt to articulate the major
social, economic and technological trends that are likely to shape the future of
business and commerce over the next three to five years, and to provide a
framework for identifying the industries and companies expected to benefit most.
This top down approach is combined with rigorous fundamental research (a bottoms
up approach) to guide stock selection and portfolio structure.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
portfolio manager feels have the potential for growth, which may give the Fund a
higher risk of price volatility than a fund that emphasizes other styles, such
as a value-oriented style. The Fund invests in small and medium-sized companies,
which may be more susceptible to price swings than larger companies because they
have fewer financial resources, limited product and market diversification, and
may be dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the small and
mid-cap growth securities in which the Fund invests. Rather, the market could
favor value-oriented stocks or large company stocks, or may not favor equities
at all.
Inability to Sell Securities -- securities of smaller companies usually trade in
lower volume and may be less liquid than securities of larger, more established
companies. The Fund could lose money if it cannot sell a security at the time
and price that would be most beneficial to the Fund.
18 Pilgrim MidCap Opportunities Fund
<PAGE>
PILGRIM
MIDCAP
OPPORTUNITIES
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
This fund does not have a performance history because it was formed on August
20, 1998.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim MidCap Opportunities Fund 19
<PAGE>
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
Nicholas-Applegate Capital Management
PILGRIM Portfolio manager
MIDCAP
GROWTH FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks maximum long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
Under normal conditions, the Fund invests at least 65% of its total assets in
equity securities of medium-sized U.S. companies, and at least 75% of its total
assets in common stocks. It may invest the remainder of its assets in preferred
and convertible securities, debt securities of any maturity which are rated
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated, and securities issued by the U.S. Government and
its agencies and instrumentalities. The Fund may invest up to 20% of its total
assets in foreign securities. The Fund may also use options and futures
contracts involving securities, securities indices, interest rates and foreign
currencies as hedging techniques.
The sub-adviser emphasizes a growth approach by searching for successful,
growing companies that are managing change advantageously and poised to exceed
growth expectations. It focuses on a "bottom-up" analysis that evaluates the
financial condition and competitiveness of individual companies. It uses a blend
of traditional fundamental research of individual securities and a computer
intensive ranking system that analyzes and ranks securities. The sub-adviser
seeks to uncover what it calls "change at the margin" -- positive business
developments which are not yet fully reflected in the company's stock price.
The Fund considers a company to be medium-sized if it has a market
capitalization corresponding at the time of purchase to the middle 90% of the
Russell Midcap Growth Index. As of September 30, 1999, the middle 90% included
companies with capitalizations between $__ billion and $__ billion.
Capitalization of companies in the Index will change with market conditions.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
sub-adviser believes have the potential for rapid growth, which may give the
Fund a higher risk of price volatility than a fund that emphasizes other styles,
such as a value-oriented style. The Fund invests in medium-sized companies,
which may be more susceptible to price swings than larger companies because they
have fewer financial resources and more limited product and market
diversification, but usually tend to have less volatile price swings than
smaller companies.
Market Trends -- from time to time, the stock market may not favor the mid-cap
growth securities in which the Fund invests. Rather, the market could favor
value-oriented stocks or large company stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivative instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
20 Pilgrim MidCap Growth Fund
<PAGE>
PILGRIM
MIDCAP
GROWTH FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994 -11.00
1995 37.64
1996 15.84
1997 15.88
1998 14.14
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the
adviser, rather than sub-adviser, to the Fund.
Best and worst quarterly performance during this period:
4th quarter 1998: up 25.23%
3rd quarter 1998: down -17.73%
The Fund's year-to-date total return as of September 30, 1999 was _____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the Russell Midcap 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.
Average annual total returns
Russell
Midcap
Growth
Class A(3) Class B(4) Class C(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 7.60 8.29 12.44 17.86
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % 12.09 -- 12.75 17.34
- --------------------------------------------------------------------------------
Since inception(7) % 13.18 18.26 13.66 17.99
- --------------------------------------------------------------------------------
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(5) Reflects deduction of a sales charge of 1% for the 1 year return.
(6) The Russell Midcap Index is an unmanaged index that measures the
performance of the 800 smallest companies in the Russell 1000 Index. Since
inception performance for index is shown for the Class A and C time
period.
(7) Classes A and C commenced operations on April 30, 1993. Class B commenced
operations on May 31, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim MidCap Growth Fund 21
<PAGE>
Adviser
Pilgrim Advisors, Inc.
Sub-Adviser
Navellier Fund Management, Inc.
PILGRIM Portfolio manager
GROWTH + Louis Navellier
VALUE FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
This fund seeks capital appreciation by investing in a diversified portfolio of
equity securities.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The fund invests primarily in companies the portfolio manager identifies as
either growth or value companies through quantitative analysis. Growth companies
have above average earnings or sales growth and higher price to earnings ratios.
Value companies are temporarily undervalued or out of favor, and tend to have
lower price to book ratios relative to price and higher returns on equity. The
percentage of fund assets allocated to the two different kinds of companies
varies depending on the portfolio manager's assessment of economic conditions
and investment opportunities.
Under normal market conditions, the fund invests at least 65% of its total
assets in securities purchased on the basis of the potential for capital
appreciation. The fund also holds preferred stocks and convertible securities.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund's performance will be affected
if the portfolio manager makes an inaccurate assessment of economic conditions
and investment opportunities, and chooses growth companies that do not grow as
quickly as hoped, or value companies that continue to be undervalued by the
market. Although the Adviser invests in value companies to decrease volatility,
these investments may also lower the Fund's performance. The Fund's investments
in smaller companies may be more susceptible to price swings than investments in
larger companies because they have fewer financial resources, limited product
and market diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the mix of
growth and value securities in which the Fund invests. Rather, the market could
favor growth stocks to the exclusion of value stocks, or favor value stocks to
the exclusion of growth stocks, or may not favor equities at all.
Inability to Sell Securities -- securities of smaller companies usually trade in
lower volume and may be less liquid than securities of larger, more established
companies. The Fund could lose money if it cannot sell a security at the time
and price that would be most beneficial to the Fund.
Changes in Interest Rates -- the value of the Fund's convertible securities may
fall when interest rates rise. Convertibles with longer durations tend to be
more sensitive to changes in interest rates, usually making them more volatile
than debt securities with shorter durations.
Credit Risk -- the Fund could lose money if the issuer of a convertible security
is unable to meet its financial obligations or goes bankrupt.
22 Pilgrim Growth + Value Fund
<PAGE>
PILGRIM
GROWTH +
VALUE FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1997 18.10
1998 17.72
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
4th quarter 1998: up 29.15%
3rd quarter 1998: down 16.34%
The Fund's year-to-date total return as of September 30, 1999 was _____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the Standard & Poor's 500 Composite Stock Price 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.
Average annual total returns
Russell
2000
Class A(2) Class B(3) Class C(4) Index(5)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 10.93 11.77 15.68 -2.54
- --------------------------------------------------------------------------------
Since inception(6) % 12.09 13.22 14.41 9.99
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The Russell 2000 Index is an unmanaged index that measures the performance
of securities of smaller U.S. companies with greater-than-average growth
orientation.
(6) The fund commenced operations on November 18, 1996.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Growth + Value Fund 23
<PAGE>
Adviser
Pilgrim Advisors, Inc.
PILGRIM Portfolio manager
SMALLCAP Mary Lisanti
OPPORTUNITIES
FUND
- --------------------------------------------------------------------------------
OBJECTIVE
This fund seeks capital appreciation by investing primarily in a diversified
portfolio of domestic equity securities on the basis of their potential for
growth.
INVESTMENT
STRATEGY
The fund invests primarily in the common stock of smaller, lesser-known U.S.
companies that the portfolio manager feels have above average prospects for
growth. For this fund, smaller companies are companies with market
capitalizations that fall within the range of companies in the Russell 2000
Index. The market capitalization range will change as the range of the companies
included in the Russell 2000 changes.
The portfolio manager uses a disciplined investment process, which includes
extensive database screening, frequent fundamental research, identification and
implementation of a thematic approach in structuring the portfolio and a sell
discipline. Themes attempt to articulate the major social, economic and
technological trends that are likely to shape the future of business and
commerce over the next three to five years, and provide a framework for
identifying the industries and companies expected to benefit most. This top down
approach is combined with rigorous fundamental research (a bottoms up approach)
to guide stock selection and portfolio structure.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
portfolio manager feels have above average prospects for growth, which may give
the Fund a higher risk of price volatility than a fund that emphasizes other
styles, such as a value-oriented style. The Fund invests in smaller companies,
which may be more susceptible to price swings than larger companies because they
have fewer financial resources, limited product and market diversification and
many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the small and
medium sized growth securities in which the Fund invests. Rather, the market
could favor value-oriented stocks or large company stocks, or may not favor
equities at all.
Inability to Sell Securities -- securities of smaller companies usually trade in
lower volume and may be less liquid than securities of larger, more established
companies. The Fund could lose money if it cannot sell a security at the time
and price that would be most beneficial to the Fund.
24 Pilgrim SmallCap Opportunities Fund
<PAGE>
PILGRIM
SMALLCAP
OPPORTUNITIES
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1989 22.20
1990 -8.83
1991 57.27
1992 14.54
1993 20.16
1994 -4.86
1995 11.34
1996 17.47
1997 14.29
1998 6.94
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
4th quarter 1998: up 28.63%
3rd quarter 1998: down 24.18%
The Fund's year-to-date total return as of September 30, 1999 was _____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- 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.
Average annual total returns
Russell
2000
Class A(2) Class B(3) Class C(4) Class T(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 1.42 1.84 5.81 2.94 -2.54
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % N/A N/A N/A 8.75 11.87
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 % N/A N/A N/A 13.88 12.92
- --------------------------------------------------------------------------------
Since inception(7) % 12.93 13.62 14.00 10.20 11.33
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) Reflects deduction of a deferred sales charge of 4% for the 1 year return.
(6) The Russell 2000 Index is an unmanaged index that measures the performance
of securities of small companies. The since inception return for the Index
is for the Class T time period.
(7) Classes A, B and C commenced operations on June 5, 1995. Class T commenced
operations on February 3, 1986.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim SmallCap Opportunities Fund 25
<PAGE>
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
Nicholas-Applegate Capital Management
PILGRIM Portfolio manager
SMALLCAP
GROWTH FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks maximum long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
Under normal conditions, the Fund invests at least 65% of its total assets in
equity securities of small U.S. companies, and at least 75% of its total assets
in common stocks. It may invest the remainder in preferred and convertible
securities, debt securities of any maturity which are rated investment grade by
a nationally recognized statistical rating agency, or of comparable quality if
unrated, and securities issued by the U.S. Government and its agencies and
instrumentalities. The Fund may invest up to 20% of its total assets in foreign
equity or debt securities. The Fund may also use options and futures contracts
involving securities, securities indices, interest rates and foreign currencies
as hedging techniques.
The Fund's sub-adviser emphasizes a growth approach by searching for successful,
growing companies that are managing change advantageously and poised to exceed
growth expectations. It focuses on a "bottom-up" analysis that evaluates the
financial condition and competitiveness of individual companies. It uses a blend
of traditional fundamental research of individual securities and a computer
intensive ranking system that analyzes and ranks securities. The sub-adviser
seeks to uncover what it calls "change at the margin" -- positive business
developments which are not yet fully reflected in the company's stock price.
The Fund considers a company to be small if it has a market capitalization
corresponding at the time of purchase to the middle 90% of the Russell 2000
Growth Index. As of June 30, 1998, the middle 90% included companies with
capitalizations between $255 million and $1.4 billion. Capitalization of
companies in the Index will change with market conditions.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
sub-adviser believes have the potential for rapid growth, which may give the
Fund a higher risk of price volatility than a fund that emphasizes other styles,
such as a value-oriented style. The Fund invests in small-cap companies, which
may be more susceptible to price swings than larger companies because they have
fewer financial resources, limited product and market diversification and many
are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the small-cap
growth securities in which the Fund invests. Rather, the market could favor
value-oriented stocks or large company stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivatives instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
26 Pilgrim SmallCap Growth Fund
<PAGE>
PILGRIM
SMALLCAP
GROWTH FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994 -4.03
1995 34.87
1996 18.27
1997 11.24
1998 3.68
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the
adviser, rather than sub-adviser, to the Fund.
Best and worst quarterly performance during this period:
4th quarter 1998: up 26.90%
3rd quarter 1998: down -23.64%
The Fund's year-to-date total return as of September 30, 1999 was _____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the Russell 2000 Growth 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.
Average annual total returns
Russell
2000
Growth
Class A(3) Class B(4) Class C(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -2.26 -1.96 2.12 1.23
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % 10.71 -- 11.37 10.22
- --------------------------------------------------------------------------------
Since inception(7) % 11.38 14.46 12.03 10.87
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The Russell 2000 Growth Index is an unmanaged index that measures the
performance of securities of smaller U.S. companies with
greater-than-average growth orientation. The since inception return for
the Index is for the Class A and C time period.
(7) Classes A and C commenced operations on December 27, 1993. Class B
commenced operations on May 31, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim SmallCap Growth Fund 27
<PAGE>
Adviser
Pilgrim Investments, Inc.
PILGRIM Portfolio manager
BANK AND Carl Dorf
THRIFT FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund primarily seeks long-term capital appreciation; a secondary objective
is income.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The Fund invests, under normal market conditions, at least 65% of its total
assets in equity securities of national and state-chartered banks (other than
money center banks), thrifts, and the holding or parent companies of such
depository institutions, and in savings accounts of mutual thrifts that may
allow the Fund to participate in stock conversions of the mutual thrift. This
policy may only be changed with approval of the shareholders of the Fund. The
equity securities described above include common stocks, convertible securities
(including convertible preferred stock) and warrants, but do not include
non-convertible preferred stocks or adjustable rate preferred stocks.
The Fund may invest up to 35% of its total assets in equity securities,
including preferred stocks or adjustable rate preferred stocks, of other types
of issuers, including money center banks, other financial services companies,
and companies that are not in financial services industries, and in
nonconvertible debt securities (including certificates of deposit, commercial
paper, notes, bonds or debentures) that are either issued or guaranteed by the
United States Government or an agency thereof or issued by a corporation or
other issuer and rated investment grade or comparable quality by at least one
nationally recognized rating organization. The Fund may invest up to 10% of its
assets in securities of other investment companies.
The adviser emphasizes a value approach, and selects securities that are
undervalued relative to the market and have potential for future growth,
including securities of institutions that the adviser believes are well
positioned to take advantage of investment opportunities in the banking and
thrift industries.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- The value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests primarily in small- to
medium-sized companies, which may be more susceptible to price swings than
larger companies.
Market Trends -- from time to time, the stock market may not favor the value
securities in which the Fund invests. Rather, the market could favor
growth-oriented stocks or large company stocks, or may not favor equities at
all.
Risks of Concentration -- because the Fund's investments are concentrated in the
banking and thrift industries, the value of the Fund may be subject to greater
volatility than a Fund with a portfolio that is less concentrated. If securities
of banks and thrifts as a group falls out of favor, the Fund could underperform
funds that focus on other types of companies.
28 Pilgrim Bank and Thrift Fund
<PAGE>
PILGRIM
BANK AND
THRIFT FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989 20.79
1990 -18.14
1991 49.49
1992 32.36
1993 7.79
1994 -1.89
1995 49.69
1996 41.10
1997 64.86
1998 -1.83
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Prior to October 17, 1997, the Fund operated as a closed-end investment
company.
Best and worst quarterly performance during this period:
4th quarter 1998: up %
3rd quarter 1998: down %
The Fund's year-to-date total return as of September 30, 1999 was _____%.
The table below compares the Fund's performance to that of three broad measures
of market performance -- the S&P 500 Index, the S&P Major Regional Banks Index
and the NASDAQ 100 Financial Index. The Indices have an inherent performance
advantage over the Fund since they have no cash in their portfolios, impose no
sales charges and incur no operating expenses. An investor cannot invest
directly in an index.
Average annual total returns(3)
S&P
Major NASDAQ
S&P Regional 100
500 Banks Financial
Class A(4) Class B(5) Index(6) Index(7) Index(8)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -7.48 -7.27 28.58 10.42 -1.09
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % 25.89 -- 23.81 23.77 21.98
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 % 20.90 -- 18.95 21.41 N/A
- --------------------------------------------------------------------------------
Since inception
of Class B(9) % -- 4.29 26.13 15.84 7.92
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Prior to October 17, 1997, the Fund operated as a closed-end investment
company.
(4) Reflects deduction of sales charge of 5.75%.
(5) Reflects deduction of deferred sales charge of 5% and 4%, respectively,
for 1 year and since inception returns.
(6) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies.
(7) The S&P Major Regional Banks Index is an unmanaged index that measures the
performance of securities of major regional banks in the S&P 500 Index.
(8) The NASDAQ 100 Financial Index is an unmanaged index that measures the
performance of securities of the 100 largest financial companies traded on
NASDAQ.
(9) Class B shares commenced operations on October 17, 1997.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Bank and Thrift Fund 29
<PAGE>
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
Nicholas-Applegate Capital Management
PILGRIM Portfolio manager
WORLDWIDE
GROWTH
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks maximum long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of issuers located in at least three different countries, one of
which may be the U.S.
The Fund normally invests at least 75% of its total assets in common and
preferred stocks, warrants and convertible securities. It may invest the
remainder in debt securities of any maturity issued by foreign companies and
foreign governments and their agencies and instrumentalities, which are rated
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated. The Fund may also use options and futures
contracts involving securities, securities indices, interest rates and foreign
currencies as hedging techniques. The Fund may invest in companies located in
countries with emerging securities markets when the sub-adviser believes they
present attractive investment opportunities.
The Fund's sub-adviser emphasizes a growth approach by searching for successful,
growing companies that are managing change advantageously and poised to exceed
growth expectations. It focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of traditional fundamental research of individual securities,
calling on the expertise of many external analysts in different countries
throughout the world, and a computer intensive ranking system that analyzes and
ranks securities. The sub-adviser seeks to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
sub-adviser believes have the potential for rapid growth, which may give the
Fund a higher risk of price volatility than a fund that emphasizes other styles,
such as a value-oriented style. The Fund may also invest in small and
medium-sized companies, which may be more susceptible to greater price swings
than larger companies because they may have fewer financial resources, limited
product and market diversification and many may be dependent on a few key
managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Fund invests. Rather, the market could favor
value-oriented stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivatives instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
30 Pilgrim Worldwide Growth Fund
<PAGE>
PILGRIM
WORLDWIDE
GROWTH
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994 2.45
1995 14.74
1996 17.92
1997 17.28
1998 37.34
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the
adviser, rather than sub-adviser, to the Fund.
Best and worst quarterly performance during this period:
4th quarter 1998: up 26.87%
3rd quarter 1998: down -13.43%
The Fund's year-to-date total return as of September 30, 1999 was %
The table below compares the Fund's performance to that of a broad measure of
market performance -- the MSCI World 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.
Average annual total returns
MSCI
World
Class A(3) Class B(4) Class C(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 29.43 31.68 35.39 22.78
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % 16.04 -- 16.70 13.94
- --------------------------------------------------------------------------------
Since inception(7) % 16.61 21.12 17.09 13.62
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The Morgan Stanley Capital International World (MSCI World) Index is an
unmanaged index that measures the performance of over 1,400 securities
listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand
and the Far East. The since inception return for the index is for the
Class A and C time period.
(7) Classes A and C commenced operations on April 19, 1993. Class B commenced
operations on May 31, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Worldwide Growth Fund 31
<PAGE>
Adviser
Pilgrim Investments, Inc.
Sub-Advisers
Brandes Investments Partners L.P.
PILGRIM Portfolio managers
INTERNATIONAL Charles Brandes
VALUE FUND Jeff Busby
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
This fund seeks long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The fund invests primarily in foreign companies with market capitalizations
greater than $1 billion, but it may hold up to 25% of its assets in companies
with smaller market capitalizations.
The portfolio managers apply the technique of "value investing" by seeking
stocks that their research indicates are priced below their long-term value.
The fund holds common stocks, preferred stocks, American, European and Global
depository receipts, as well as convertible securities.
Under normal circumstances, the fund will invest at least 65% of its total
assets in securities of companies located in at least three countries other than
the U.S., which may be located in Western Europe, North and South America,
Australia, Asia and other regions. The fund may invest up to the greater of:
o 20% of its assets in any one country or industry, or,
o 150% of the weighting of the country or industry in the MSCI EAFE Index,
as long as the fund meets any industry concentration or diversification
requirements under the Investment Company Act.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund's investments may be
affected by the following additional risks:
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests primarily in equity
securities of larger companies, which sometimes have more stable prices than
smaller companies. However, the Fund may also invest in small and medium-sized
companies, which may be more susceptible to price swings than larger companies
because they have fewer financial resources, limited product and market
diversification and many are dependent on a few key managers. Furthermore, the
Fundis investments in smaller companies may be subject to more abrupt or erratic
movements in price because smaller companies are more likely to experience
changes in earnings and growth prospects than the securities of larger, more
established companies, and the value of the investment depends on the success of
products or technologies that are in a relatively early stage of development and
that may not have been tested.
Market Trends -- from time to time, the stock market may not favor the
value-oriented stocks that the Fund invests in. Rather, the market could favor
growth-oriented stocks, or may not favor equities at all.
Inability to Sell Securities -- securities of smaller companies trade in lower
volume and may be less liquid than securities of larger, more established
companies. The Fund could lose money if it cannot sell a security at the time
and price that would be most beneficial to the Fund.
32 Pilgrim International Value Fund
<PAGE>
PILGRIM
INTERNATIONAL
VALUE FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes int he performance of the Fund's Class A shares from
year to year.
Year by year total return (%)(1)
1996 15.23
1997 17.86
1998 13.46
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
4th quarter 1998: up 18.81%
3rd quarter 1998: down 14.73%
The Fund's year-to-date total return as of September 30, 1999 was ___%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the MSCI EAFE 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.
Average annual total returns
MSCI
EAFE
Class A(2) Class B(3) Class C(4) Index(5)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 6.90 7.73 11.76 20.00
- --------------------------------------------------------------------------------
Since inception(6) % 13.63 12.04 14.70 11.24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The Morgan Stanley Capital International European Australasian Far East
(MSCI EAFE) Index is an unmanaged index that measures the performance of
securities listed on exchanges in markets in Europe, Australia and the Far
East. The since inception return for the Index is for the Class A time
period.
(6) Classes A and C commenced operations on March 6, 1995. Class B commenced
operations on April 18, 1997.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim International Value Fund 33
<PAGE>
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
Nicholas-Applegate Capital Management
PILGRIM Portfolio manager
INTERNATIONAL
CORE GROWTH
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks maximum long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of issuers located in countries outside the U.S. The Fund may invest
up to 35% of its total assets in U.S. issuers. The Fund invests in the larger
companies in each country. Generally, this means issuers in each country whose
stock market capitalizations are in the top 75% of publicly traded companies in
that country.
Under normal conditions, the Fund invests at least 75% of its total assets in
common and preferred stocks, warrants and convertible securities. It may invest
the remainder primarily in debt securities of any maturity of foreign companies
and foreign governments and their agencies and instrumentalities which are rated
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated. The Fund may also use options and futures
contracts involving securities, securities indices, interest rates and foreign
currencies as hedging techniques. The Fund may invest in companies located in
countries with emerging securities markets when the sub-adviser believes they
present attractive investment opportunities.
The Fund's sub-adviser emphasizes a growth approach by searching for successful,
growing companies that are managing change advantageously and poised to exceed
growth expectations. It focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of traditional fundamental research of individual securities,
calling on the expertise of many external analysts in different countries
throughout the world, and a computer intensive ranking system that analyzes and
ranks securities. The sub-adviser seeks to uncover signs of "change at the
margin" -- positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
sub-adviser believes have the potential for rapid growth, which may give the
Fund a higher risk of price volatility than a fund that emphasizes other styles,
such as a value-oriented style. The Fund invests in large companies, which
sometimes have more stable prices than smaller companies.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Fund invests. Rather, the market could favor
value-oriented stocks or smaller company stocks, or may not favor equities at
all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivatives instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
34 Pilgrim International Core Growth Fund
<PAGE>
PILGRIM
INTERNATIONAL
CORE GROWTH
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998 20.92
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the
adviser, rather than sub-adviser, to the Fund.
Best and worst quarterly performance during this period:
1st quarter 1998: up 17.16%
3rd quarter 1998: down -14.91%
The Fund's year-to-date total return as of September 30, 1999 was %.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the MSCI EAFE 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.
Average annual total returns
MSCI
EAFE
Class A(3) Class B(4) Class C(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 13.93 15.31 19.20 20.33
- --------------------------------------------------------------------------------
Since inception(7) % 16.44 18.85 20.47 12.97
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 4% respectively for
1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The Morgan Stanley Capital International European Australasian Far East
(MSCI EAFE) Index is an unmanaged index that measures the performance of
securities listed on exchanges in markets in Europe, Australia and the Far
East.
(7) The fund commenced operations on February 28, 1997.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim International Core Growth Fund 35
<PAGE>
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
Nicholas-Applegate Capital Management
PILGRIM Portfolio manager
INTERNATIONAL
SMALLCAP
GROWTH FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks maximum long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of small companies located outside the U.S. The Fund may invest up to
35% of its total assets in U.S. issuers. The Fund considers a company to be
small if it has a market capitalization below $1.5 billion. The Fund emphasizes
companies in the bottom 75% of publicly traded companies as measured by stock
market capitalizations in each country.
The Fund normally invests at least 75% of its total assets in common and
preferred stock, warrants and convertible securities. It may invest the
remainder in debt securities of any maturity issued by foreign companies and
foreign governments and their agencies and instrumentalities which are rated
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated. The Fund may also use options and futures
contracts involving securities, securities indices, interest rates and foreign
currencies as hedging techniques. The Fund may invest in companies located in
countries with emerging securities markets when the sub-adviser believes they
present attractive investment opportunities.
The Fund's sub-adviser emphasizes a growth approach by searching for successful,
growing companies that are managing change advantageously and poised to exceed
growth expectations. It focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of traditional fundamental research of individual securities,
calling on the expertise of many external analysts in different countries
throughout the world, and a computer intensive ranking system that analyzes and
ranks securities. The sub-adviser seeks to uncover signs of "change at the
margin" -- positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
sub-adviser believes have the potential for rapid growth, which may give the
Fund a higher risk of price volatility than a fund that emphasizes other styles,
such as a value-oriented style. The Fund invests in small companies, which may
be more susceptible to greater price swings than larger companies because they
may have fewer financial resources, limited product and market diversification
and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the small-cap
growth securities in which the Fund invests. Rather, the market could favor
value-oriented stocks or large company stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivatives instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
36 Pilgrim International SmallCap Growth Fund
<PAGE>
PILGRIM
INTERNATIONAL
SMALLCAP
GROWTH FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994
1995 5.51
1996 17.58
1997 13.46
1998 35.57
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the
adviser, rather than sub-adviser, to the Fund.
Best and worst quarterly performance during this period:
1st quarter 1998: up 24.53%
3rd quarter 1998: down -15.35%
The Fund's year-to-date total return as of September 30, 1999 was %.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the Salomon EPAC EM 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.
Average annual total returns
Salomon
EPAC
EM
Class A(3) Class B(4) Class C(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 27.79 29.83 33.89 14.14
- --------------------------------------------------------------------------------
Since inception(7) % 13.00 18.31 13.71 3.71
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 4%, respectively,
for 1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The Salomon EPAC Extended Market (Salomon EPAC EM) Index is an unmanaged
index that measures the performance of securities of
smaller-capitalization companies in 22 countries excluding the U.S. and
Canada. The inception return for the Index is for the Class A and C time
period.
(7) Classes A and C commenced operations on August 31, 1994. Class B commenced
operations on May 31, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim International SmallCap Growth Fund 37
<PAGE>
Adviser
Pilgrim Advisors, Inc.
Sub-Adviser
Brandes Investment Partners, L.P.
PILGRIM Portfolio managers
EMERGING Charles Brandes
MARKETS Ian Sunder
VALUE FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
This fund seeks long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The fund invests primarily in companies located in countries with emerging
markets, including companies that may be smaller and lesser-known.
The portfolio managers apply the technique of "value investing" by seeking
stocks that their research indicates are priced below their long-term value.
The fund holds primarily common stocks, preferred stocks, American, European and
Global depositary receipts, shares of closed-end investment companies, as well
as convertible securities.
Under normal market conditions, the fund will invest at least 65% of its total
assets in securities of companies located in countries with emerging markets.
Countries with emerging markets include those countries that are generally
considered to be emerging market countries by the international financial
community. The fund may invest up to the greater of:
o 20% of its assets in any one country or industry, or,
o 150% of the weighting of the country or industry in the MSCI EMF Index, as
long as the fund meets any industry concentration or diversification
requirements under the Investment Company Act.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund's investments may be
affected by the following additional risks:
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund may invest in smaller companies,
which may be more susceptible to price swings than larger companies because they
have fewer financial resources, limited product and market diversification and
many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the
value-oriented stocks that the Fund invests in. Rather, the market could favor
growth-oriented stocks, or may not favor equities at all.
Inability to Sell Securities -- securities of smaller companies trade in lower
volume and may be less liquid than securities of larger, more established
companies. The Fund could lose money if it cannot sell a security at the time
and price that would be most beneficial to the Fund.
.
38 Pilgrim Emerging Markets Value Fund
<PAGE>
PILGRIM
EMERGING
MARKETS
VALUE FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total return (%)(1)
1998 -22.58
- --------------------------------------------------------------------------------
(1) These figures are as of December 31, 1998. They do not reflect sales
charges and would be lower if they did.
Best and worst quarterly performance during this period:
4th quarter 1998: up 16.95%
2nd quarter 1998: down 24.79%
The Fund's year-to-date total return as of September 30, 1999 was ___%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the MSCI EMF 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.
Average annual total return
MSCI
EMF
Class A(2) Class B(3) Class C(4) Index(5)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998(6) % -27.03 -26.88 -24.02 -25.34
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of dererred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The Morgan Stanley Capital International Emerging Markets Free (MSCI EMF)
Index is an unmanaged index that measures the performance of securities
listed on exchanges in developing nations throughout the world.
(6) The fund commenced operations on January 1, 1998.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Emerging Markets Value Fund 39
<PAGE>
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
Nicholas-Applegate Capital Management
PILGRIM Portfolio manager
EMERGING
COUNTRIES
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks maximum long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The Fund invests at least 65% of its total assets in equity securities of
issuers located in countries with emerging securities markets -- that is,
countries with securities markets which are, in the opinion of the sub-adviser,
emerging as investment markets but have yet to reach a level of maturity
associated with developed foreign stock markets. These countries include but are
not limited to: Argentina, Brazil, Chile, China, Colombia, the Czech Republic,
Greece, Hungary, India, Indonesia, Israel, Jordan, Malaysia, South Africa, South
Korea, Taiwan, Thailand, Italy and Venezuela.
Under normal market conditions, the Fund invests at least 75% of its total
assets in common and preferred stock, warrants and convertible securities. It
invests the remainder primarily in debt securities of any maturity issued by
foreign companies and foreign governments and their agencies and
instrumentalities which are rated investment grade by a nationally recognized
statistical rating agency, or of comparable quality if unrated. The Fund may
also use options and futures contracts involving securities, securities indices,
interest rates and foreign currencies as hedging techniques.
The Fund's sub-adviser emphasizes a growth approach, and seeks issuers in the
early stages of development, growth companies, cyclical companies, or companies
believed to be undergoing a basic change in operations. It uses a blend of
traditional fundamental research of individual securities, calling on the
expertise of many external analysts in different countries throughout the world,
and a computer intensive ranking system that analyzes and ranks securities. The
Investment Adviser currently selects portfolio securities from an investment
universe of approximately 6,000 foreign issuers in over 20 emerging markets.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
sub-adviser believes have the potential for rapid growth, which may give the
Fund a higher risk of price volatility than a fund that emphasizes other styles,
such as a value-oriented style. The Fund may invest in small and medium-sized
companies, which may be more susceptible to greater price swings than larger
companies because they may have fewer financial resources, limited product and
market diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in company stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. Investments in emerging markets countries are generally
riskier than other kinds of foreign investments, partly because emerging market
countries may be less politically and economically stable than other countries.
It may also be more difficult to buy and sell securities in emerging market
countries.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivatives instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
40 Pilgrim Emerging Countries Fund
<PAGE>
PILGRIM
EMERGING
COUNTRIES
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994
1995 6.34
1996 27.50
1997 9.44
1998 -22.19
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the
adviser, rather than sub-adviser, to the Fund.
Best and worst quarterly performance during this period:
2nd quarter 1995: up 15.01%
3rd quarter 1998: down -26.06%
The Fund's year-to-date total return as of September 30, 1999 was %.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the MSCI EMF 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.
Average annual total returns
MSCI
EMF
Class A(3) Class B(4) Class C(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -26.67 -26.05 -22.98 -27.52
- --------------------------------------------------------------------------------
Since inception(7) % 0.96 1.48 1.45 -13.31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The Morgan Stanley Capital International Emerging Markets Free (MSCI EMF)
Index is an unmanaged index that measures the performance of securities
listed on exchanges in developing nations throughout the world. The since
inception return for the Index is for the Class A and C time period.
(7) Classes A and C commenced operations on November 25, 1994. Class B
commenced operations on May 31, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Emerging Countries Fund 41
<PAGE>
Adviser
Pilgrim Investments, Inc.
Portfolio managers
PILGRIM Ian Burden
ASIA-PACIFIC Man Wing Chung
EQUITY FUND Frederic Lutcher III
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks long-term capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The Fund normally invests at least 65% of its total assets in equity securities
listed on stock exchanges in countries in the Asia-Pacific region or issued by
companies based in this region. Asia-Pacific countries in which the Fund invests
include, but are not limited to, China, Hong Kong, Indonesia, Korea, Malaysia,
Philippines, Singapore, Taiwan and Thailand, but do not include Japan and
Australia. The equity securities in which the Fund may invest include common
stock, convertible securities, preferred stock, warrants, American Depositary
Receipts, European Depositary Receipts and other depositary receipts.
The Fund is managed using the investment philosophy that the sub-adviser, HSBC
Asset Management Americas, Inc. and HSBC Asset Management Hong Kong Limited
(HSBC), uses in managing private Asia-Pacific portfolios. HSBC bases investment
decisions on a disciplined approach that takes into consideration the following
factors: a macroeconomic overview of the region, specific country analysis,
setting target country weightings, evaluation of industry sectors within each
country, and selection of specific stocks. In selecting specific securities, the
sub-adviser emphasize a value approach that seeks growth at a reasonable price.
This approach involves include analysis of such fundamental factors as absolute
rates of change of earnings growth, earnings growth relative to the market and
industry, quality of earnings and stability of earnings growth, quality of
management and product line, interest rate sensitivity and liquidity of the
stock.
The criteria used by the Fund to determine whether an issuer is based in the
Asia-Pacific region are: the country in which the issuer was organized; the
country in which the principal securities market for that issuer is located; the
country in which the issuer derives at least 50% of its revenues or profits from
goods produced or sold, investments made, or services performed; or the country
in which at least 50% of the issuer's assets are located.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
Market Trends -- from time to time, the stock market may not favor the value
securities in which the Fund invests. Rather, the market could favor
growth-oriented stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Risks of the Asia-Pacific Region -- the Asia-Pacific region includes countries
in various stages of economic development, including emerging market countries.
In 1997 and 1998, securities markets in Asian countries suffered significant
downturns and volatility, and currencies lost value in relation to the U.S.
dollar. Currency devaluation in any one country may have a significant effect on
the entire region. Increased political or social unrest in some or all Asian
countries could cause further economic and market uncertainty.
Risks of Concentration -- because the Fund concentrates on a single region of
the world, the Fund's performance may be more volatile than that of a Fund that
invests globally. If Asia-Pacific securities fall out of favor, it may cause the
Fund to underperform funds that focus on other types of stocks.
42 Pilgrim Asia-Pacific Equity Fund
<PAGE>
PILGRIM
ASIA-PACIFIC
EQUITY FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994
1995
1996 9.46
1997 -43.73
1998 -15.51
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
4th quarter 1998: up 23.32%
4th quarter 1997: down -33.22%
The Fund's year-to-date total return as of September 30, 1999 was %.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the MSCI Far East ex-Japan 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.
Average annual total returns
MSCI
Far East
ex-Japan
Class A(2) Class B(3) Class M(4) Index(5)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -20.37 -20.57 -19.26 -4.82
- --------------------------------------------------------------------------------
Since inception(6) % -19.55 -19.51 -19.47 7.80
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of sales charge of 3.5% for the 1 year return.
(5) The Morgan Stanley Capital International Far East Free ex-Japan (MSCI Far
East Free ex-Japan) Index is an unmanaged index that measures the
performance of securities listed on exchanges in the Far East markets
excluding Japan.
(6) The Fund commenced operations on September 1, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Asia-Pacific Equity Fund 43
<PAGE>
Adviser
Pilgrim Investments, Inc.
PILGRIM Portfolio managers
GOVERNMENT Robert Kinsey
SECURITIES Charles Ullerich
INCOME FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks high current income, consistent with liquidity and preservation
of capital.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The Fund normally invests at least 70% of its total assets in securities issued
or guaranteed by the U.S. Government and the following agencies or
instrumentalities of the U.S. Government: the Government National Mortgage
Association (GNMA), the Federal National Mortgage Association (FNMA), and the
Federal Home Loan Mortgage Corporation (FHLMC). Such securities include direct
obligations of the U.S. Treasury and mortgage-backed securities. The Fund may
fall below the 70% threshold due to changes in the value of the Fund's holdings
or the sale of securities to meet redemptions, in which case the Fund will
purchase only U.S. Government securities until the 70% level is restored. The
remainder of the Fund's assets may be invested in securities issued by other
agencies and instrumentalities of the U.S. Government and in instruments
collateralized by securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The foregoing policies are fundamental and may
not be changed without shareholder approval.
The Fund may invest in securities of any maturity; however, the Fund is expected
to have a dollar-weighted average duration within a range of 20% above or below
that of the Lehman Intermediate Treasury Index. As of September 1999, the
dollar-weighted average duration of the Lehman Intermediate Treasury Index was
3.08 years. The adviser determines the composition of the Fund's portfolio on
the basis of its judgment of existing market conditions, such as the general
direction of interest rates, trends in creditworthiness, expected inflation,
supply and demand of fixed income securities, and other factors. The Fund may
enter into reverse repurchase agreements, dollar roll transactions or pairing
off transactions. The Fund does not invest in highly leveraged derivatives, such
as swaps, interest-only or principal-only stripped mortgage-backed securities,
or interest rate futures contracts.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. This Fund may be particularly sensitive to interest rates
because it primarily invests in U.S. government securities. Debt securities with
longer durations tend to be more sensitive to changes in interest rates, usually
making them more volatile than debt securities with shorter durations.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund is subject
to less credit risk than the other income funds because it principally invests
in debt securities issued or guaranteed by the U.S. government, its agencies and
government sponsored enterprises.
Prepayment Risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
An investment in the Fund is not a deposit of a bank and is not insured by the
Federal Deposit Insurance Corporation or any other government agency.
44 Pilgrim Government Securities Income Fund
<PAGE>
PILGRIM
GOVERNMENT
SECURITIES
INCOME FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1989 12.92
1990 8.03
1991 11.90
1992 7.46(1)
1993 4.71
1994 -3.61
1995 14.51
1996 2.56
1997 7.85
1998 5.61
- -------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
2nd quarter 1989: up 7.76%
1st quarter 1994: down -2.66%
The Fund's year-to-date total return as of September 30, 1999 was %.
The table below compares the Fund's performance to that of two broad measures of
market performance -- the Lehman Brothers/Mortgage Government Index and the
Lehman Brothers Intermediate Treasury Index. The Indices have an inherent
performance advantage over the Fund since they have no cash in their portfolios,
impose no sales charges and incur no operating expenses. An investor cannot
invest directly in an index.
Average annual total returns(2)
Lehman
Gov't/ Lehman
Mortgage Interm
Class A(3) Class B(4) Class M(5) Index(6) Index(7)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -0.63 -0.15 1.66 8.62 6.98
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % 4.20 -- -- 6.45 5.98
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998(8) % 6.56 -- -- 8.34 7.38
- --------------------------------------------------------------------------------
Since inception(9) % -- 4.42 4.50 7.20 7.24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Class C and T shares of the Fund were not offered during the period ended
December 31, 1998.
(3) Reflects deduction of sales charge of 4.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3% respectively for
1 year and since inception returns.
(5) Reflects deduction of a sales charge of 3.25%.
(6) The Lehman Brothers Government/Mortgage Index is an unmanaged index that
measures the performance of U.S. __________.
(7) The Lehman Brothers Intermediate U.S. Government Index is an unmanaged
index that measures the performance of U.S. Treasury bonds and U.S.
government agency bonds. Information on the Lehman Intermediate U.S.
Government Index is presented because effective May 24, 1999, the Fund
seeks an average portfolio duration within +/-20% of the duration of that
Index. Previously, the Fund's average portfolio maturity was generally
longer.
(8) The Fund earned income and realized capital gains as a result of entering
into reverse repurchase agreements during the six-month period from July
to December 1992 that caused the Fund to exceed its 10% investment
restriction on borrowing. Therefore, the Fund's performance was higher
than it would have been had the Fund adhered to its borrowing restriction.
(9) Classes B and M commenced operations on July 17, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Government Securities Income Fund 45
<PAGE>
Adviser
Pilgrim Advisors, Inc.
PILGRIM Portfolio managers
GOVERNMENT Robert Kinsey
SECURITIES Charles Ullerich
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
This 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.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
Depending on interest rates and market opportunities, the portfolio manager
selects U.S. government securities that generally have short and intermediate
terms to maturity. The average duration of the fund will generally be three to
four years.
Under normal conditions, the fund holds at least 65% of its total assets in
securities supported by the full faith and credit of the U.S. government. No
more than 20% of its assets may be in securities issued by a single
instrumentality or agency not supported by the full faith and credit of the U.S.
government. It may also invest in mortgage-backed, zero coupon and other
securities, including derivatives.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an invesment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- the Fund's performance is significantly affected by
changes in interest rates. The value of the Fund's investments -- particularly
those with longer duration -- may fall when interest rates rise. This Fund may
be particularly sensitive to interest rates because it primarily invests in U.S.
government securities. Debt securities with longer durations tend to be more
sensitive to changes in interest rates, usually making them more volatile than
debt securities with shorter durations. The Fund's performance will also be
affected if the portfolio manager makes an inaccurate assessment of economic
conditions and projected changes in interest rates.
Credit risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This is especially
true during periods of economic uncertainty or economic downturns. This Fund is
subject to less credit risk than other income funds because it principally
invests in debt securities issued or guaranteed by the U.S. government or its
agencies or instrumentalities. However, the Fund may also invest in
mortgage-backed and zero coupon securities, which involve greater credit risk
and potential volatility. Zero coupon securities are particularly sensitive to
changes in interest rates.
Prepayment risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields, which would reduce performance.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivative instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
46 Pilgrim Government Securities Fund
<PAGE>
PILGRIM
GOVERNMENT
SECURITIES
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total return (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1989 11.93
1990 8.57
1991 14.73
1992 9.77
1993 18.48
1994 -9.82
1995 22.90
1996 0.32
1997 7.38
1998 4.84
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
4th quarter 1995: up 8.54%
1st quarter 1994: down 8.47%
The Fund's year-to-date total return as of September 30, 1999 was ____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the Lehman Intermediate U.S. Government Index. The Index
has an inherent performance advantage over the Fund since they have no cash in
its portfolio, imposes no sales charges and incurs no operating expenses. An
investor cannot invest directly in an index.
Average annual total return
Lehman
Intermediate
U.S.
Government
Class A(2) Class B(3) Class C(4) Class T(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 0.22 -0.44 3.37 0.90 8.49
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % N/A N/A N/A 4.59 6.45
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 % N/A N/A N/A 8.52 8.34
- --------------------------------------------------------------------------------
Since inception(7) % 5.11 5.36 5.78 7.06 8.17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) Reflects deduction of a deferred sales charge of 4% for the 1 year return.
(6) The Lehman Brothers Intermediate U.S. Government Index is an unmanaged
index that measures the performance of U.S. Treasury bonds and U.S.
government agency bonds. The since inception return for the Index is for
the Class T time period.
(7) Classes A, B and C commenced operations on June 5, 1995. Class T commenced
operations on February 3, 1986.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Government Securities Fund 47
<PAGE>
Adviser
Pilgrim Investments, Inc.
PILGRIM Portfolio managers
STRATEGIC Robert Kinsey
INCOME FUND Kevin Mathews
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks maximum total return.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
Under normal conditions, the Fund invests at least 60% of its total assets in
debt securities issued by U.S. and foreign corporations, U.S. and foreign
governments, and their agencies and instrumentalities that are rated investment
grade by a nationally recognized statistical rating agency, or of comparable
quality if unrated. These securities include bonds, notes, mortgage-backed and
asset-backed securities with rates that are fixed, variable or floating. The
Fund may invest up to 40% of its total assets in high yield debt securities
rated below investment grade. There is no minimum credit rating for high yield
debt securities in which the Fund may invest.
The Fund may invest in debt securities of any maturity; however, the average
portfolio duration of the Fund will generally range from two to eight years. The
Fund may invest up to 30% of its total assets in securities payable in foreign
currencies. The Fund may invest up to 10% of its assets in other investment
companies that invest in secured floating rate loans, including up to 5% of its
assets in Pilgrim Prime Rate Trust, a closed-end investment company. The Fund
may also use options, futures contracts and interest rate and currency swaps as
hedging techniques. The Fund does not invest in interest-only or principal-only
stripped mortgage-backed securities.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with intermediate and long terms to
maturity. Debt securities with longer durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This is especially
true during periods of economic uncertainty or economic downturns. This Fund may
be subject to more credit risk than the other income funds, because it may
invest in high yield (or "junk bond") debt securities, which are considered
predominantly speculative with respect to the issuer's continuing ability to
meet interest and principal payments.
Prepayment Risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. A security whose credit rating has been lowered may
be particularly difficult to sell. Foreign securities and mortgage-related and
asset-backed debt securities may be less liquid than other debt securities. The
Fund could lose money if it cannot sell a security at the time and price that
would be most beneficial to the Fund.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivatives instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
48 Pilgrim Strategic Income Fund
<PAGE>
PILGRIM
STRATEGIC
INCOME FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994
1995
1996 1.77
1997 9.04
1998 7.94
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Because Class A, Class B and Class C shares were first offered in 1998,
the returns in the bar chart are based upon the performance of
Institutional Class shares of the Fund, which is no longer offered, for
prior periods, restated to reflect Class A operating expenses, Class A,
Class B and Class C shares after adjustment for class expenses, would have
had substantially similar returns because Institutional Class shares were
invested in the same portfolio of securities. Also, prior to May 24, 1999
a different adviser managed the Fund.
Best and worst quarterly performance during this period:
4th quarter 1996: up 3.84%
1st quarter 1996: down -0.72%
The Fund's year-to-date total return as of September 30, 1999 was %.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the Lehman Aggregate 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.
Average annual total returns
Lehman
Aggregate
Bond
Class A(3) Index(4)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 2.78 8.67
- --------------------------------------------------------------------------------
Since inception(5) % 6.61 8.20
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) This table shows performance of the Institutional Class shares of the
Fund, which is no longer offered, restated to reflect Class A expenses,
including deduction of a sales charge of 4.75%, because Classes A, B and C
of the Fund did not have a full year's performance as of December 31,
1998. Please see footnote (2) to the bar chart above.
(4) The Lehman Aggregate Bond Index is an unmanaged index that measures the
performance of fixed income securities that are similar, but not
identical, to those in the Fund's portfolio.
(5) The Fund commenced operations on August 31, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Strategic Income Fund 49
<PAGE>
Adviser
Pilgrim Investments, Inc.
PILGRIM Portfolio manager
HIGH YIELD Kevin Mathews
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks a high level of current income, with capital appreciation as a
secondary objective.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The Fund normally invests at least 65% of its assets in high yield debt
securities, including preferred stock and convertible securities, that do not in
the opinion of the adviser involve undue risk relative to their expected return.
High yield securities, which are commonly known as 'junk bonds,' are securities
that are rated below investment grade, i.e., rated lower than Baa by Moody's
Investors Service, Inc. or BBB by Standard and Poor's, or of comparable quality
if not rated. Generally, the Fund will invest in securities rated lower than B
by Moody's or S&P only when the adviser believes the financial condition of the
issuer or other available protections reduce the risk to the Fund or that there
is greater value in the securities than is reflected in their prevailing market
price. There is no minimum credit rating for high yield securities in which the
Fund may invest. The Fund may invest in debt securities of any maturity. In
selecting securities for the Fund, preservation of capital is a consideration.
The remainder of the Fund's assets may be invested in common stocks, investment
grade preferred stocks, investment grade debt obligations of all types, U.S.
Government securities, warrants, money market instruments (including repurchase
agreements on U.S. Government securities), mortgage-related securities and
participation interests and assignments in floating rate loans and notes. The
Fund may also invest up to 10% of its assets in foreign debt securities of any
rating. The Fund reserves the right to also invest in financial futures and
related options to attempt to hedge risk, although the Fund has not invested in
such instruments since Pilgrim Investments, Inc. became the adviser in 1995
through the date of this prospectus.
While both Funds invest primarily in high yield securities, the High Yield Fund
normally emphasizes bonds with stronger credit ratings in the high yield bond
universe. Thus, of the two Funds, High Yield Fund II normally presents the
potential for higher income, but with potentially higher credit risk and
volatility.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
The Fund is subject to risks associated with investing in lower rated debt
securities. You could lose money on an investment in the Fund. The Fund may be
affected by the following risks, among others:
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund may be
subject to more credit risk than other income funds because it invests in high
yield (or "junk bond") debt securities, which are considered predominantly
speculative with respect to the issuer's continuing ability to meet interest and
principal payments. This is especially true during periods of economic
uncertainty or economic downturns.
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with intermediate and long terms to
maturity. Debt securities with longer durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Prepayment Risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. The Fund could lose money if it cannot sell a
security at the time and price that would be most beneficial to the Fund. A
security whose credit rating has been lowered may be particularly difficult to
sell.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivatives instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
50 Pilgrim High Yield Fund
<PAGE>
PILGRIM
HIGH YIELD
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1989 1.87
1990 -9.49
1991 29.44
1992 16.19
1993 18.52
1994 -1.55
1995 17.71
1996 15.76
1997 14.98
1998 -2.96
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
1st quarter 1991: up 14.83%
3rd quarter 1998: down -7.91%
The Fund's year-to-date total return as of September 30, 1999 was %.
The table below compares the Fund's performance to that of a broad measure of
market performance -- 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.
Average annual total returns(2)
Lehman
High Yield
Bond
Class A(3) Class B(4) Class M(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -7.60 -8.02 -6.58 1.87
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % 7.36 -- -- 8.57
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 % 8.88 -- -- 10.55
- --------------------------------------------------------------------------------
Since inception(7) % -- 7.75 7.69 8.91(4)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Class C shares of the Fund were not offered during the period ended
December 31, 1998.
(3) Reflects deduction of sales charge of 4.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3% respectively for
1 year and since inception returns.
(5) Reflects deduction of a sales charge of 3.25%.
(6) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the fund's portfolio. Since inception returns
for the Index is shown for the Class B and M time period.
(7) Classes B and M commenced operations on July 17, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim High Yield Fund 51
<PAGE>
Adviser
Pilgrim Investments, Inc.
PILGRIM Portfolio manager
HIGH YIELD Kevin Mathews
FUND II
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks a high level of current income and capital growth.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
Under normal conditions, the Fund invests at least 65% of its total assets in
high yield, lower rated debt securities, which are commonly referred to as "junk
bonds," and convertible securities rated below investment grade by a nationally
recognized statistical rating agency, or of comparable quality if unrated. There
is no limit on either the portfolio maturity or the acceptable rating of
securities bought by the Fund. Securities may bear rates that are fixed,
variable or floating. The Fund may invest up to 35% of its total assets in
equity securities of U.S. and foreign companies.
The Fund is not restricted to investments in companies of any particular size,
but currently intends to invest principally in companies with market
capitalization above $100 million at the time of purchase. The Fund may also use
options, futures contracts and interest rate and currency swaps as hedging
techniques.
While both Funds invest primarily in high yield securities, the High Yield Fund
normally emphasizes bonds with stronger credit ratings in the high yield bond
universe. Thus, of the two Funds, High Yield Fund II normally presents the
potential for higher income, but with potentially higher credit risk and
volatility.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund may be
subject to more credit risk than other income funds because it invests in high
yield debt securities, which are considered predominantly speculative with
respect to the issuer's continuing ability to meet interest and principal
payments. This is especially true during periods of economic uncertainty or
economic downturns.
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with intermediate and long term
maturities. Debt securities with longer durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Prepayment Risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the owners of the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. The Fund could lose money if it cannot sell a
security at the time and price that would be most beneficial to the Fund. A
security whose credit rating has been lowered may be particularly difficult to
sell.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate information,
differences in the way securities markets operate, less secure foreign banks or
securities depositories than those in the U.S., and foreign controls on
investment.
Risk of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivative instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
52 Pilgrim High Yield Fund II
<PAGE>
PILGRIM
HIGH YIELD
FUND II
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994
1995
1996
1997 21.05
1998 4.69
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Because Class A, Class B and Class C shares were first offered in 1998,
the returns in the bar chart are based upon the performance of
Institutional Class shares of the Fund, which is no longer offered, for
prior periods, restated to reflect Class A operating expenses, Class A,
Class B and Class C shares after adjustment for class expenses, would have
had substantially similar returns because Institutional Class shares were
invested in the same portfolio of securities. Also, prior to May 24, 1999
a different adviser managed the Fund.
Best and worst quarterly performance during this period:
3rd quarter 1997: up 8.30%
3rd quarter 1998: down -7.14%
The Fund's year-to-date total return as of September 30, 1999 was %.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the First Boston High Yield 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.
Average annual total returns(3)
First
Boston
High
Yield
Class A(4) Index(5)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -0.32 .58
- --------------------------------------------------------------------------------
Since inception(6) % 12.92 8.43
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Class C and T shares of the Fund were not offered during the period ended
December 31, 1998.
(4) This table shows performance of the Institutional Class shares of the
Fund, which is no longer offered, restated to reflect Class A expenses,
including deduction of a sales charge of 4.75%, because Classes A, B and C
of the Fund did not have a full year's performance as of December 31,
1998. See the footnote (2) to the bar chart above.
(5) The First Boston High Yield Index is an unmanaged index that measures the
performance of fixed income securities similar, but not identical, to
those in the Fund's portfolio.
(6) The Fund commenced operations on July 31, 1996.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim High Yield Fund II 53
<PAGE>
Adviser
Pilgrim Advisors, Inc.
PILGRIM Portfolio manager
HIGH YIELD Kevin Mathews
FUND III
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
This fund seeks high current income by investing primarily in long-term and
intermediate-term fixed income securities, with emphasis on high-yield,
lower-rated corporate debt instruments of domestic and foreign issuers.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The fund invests mostly in high-yield bonds (junk bonds) to achieve high current
income.
Under normal market conditions, the fund invests at least 65% of its total
assets in high-yield bonds rated below investment grade. It can hold up to 100%
of its assets in debt securities rated as low as Ca by Moody's or CC by S&P or
in securities that aren't rated but that Northstar considers to be of equivalent
quality, and up to 1% of its assets in bonds in the lowest rating categories. It
may invest up to 35% of its net assets in foreign issuers, but only 10% can be
in securities that are not listed on a U.S. securities exchange. The fund may
also hold up to 25% of its assets in equity or equity-related instruments, such
as preferred stocks, convertible securities and rights and warrants associated
with debt instruments.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- the Fund's performance is significantly affected by
changes in interest rates. The value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with intermediate and long terms to
maturity. Debt securities with longer durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund may be
subject to more credit risk than other income funds, because it normally invests
primarily in high yield debt securities, which are considered predominantly
speculative with respect to the issuer's continuing ability to meet interest and
principal payments. This is especially true during periods of economic
uncertainty or economic downturns.
Inability to Sell Securities -- high-yield securities may be less liquid than
higher quality investments. A security whose credit rating has been lowered may
be particularly difficult to sell. Foreign securities and mortgage-related and
asset-backed debt securities may be less liquid than other debt securities. The
Fund could lose money if it cannot sell a security at the time and price that
would be most beneficial to the Fund.
Risk of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
54 Pilgrim High Yield Fund III
<PAGE>
PILGRIM
HIGH YIELD
FUND III
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1990 -14.59
1991 46.49
1992 27.58
1993 18.89
1994 -2.18
1995 13.71
1996 14.49
1997 10.87
1998 1.79
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
1st quarter 1991: up 16.09%
3rd quarter 1990: down 11.71%
The Fund's year-to-date total return as of September 30, 1999 was ____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- 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.
Average annual total returns
Lehman
High Yield
Bond
Class A(2) Class B(3) Class C(4) Class T(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -2.65 -3.37 0.46 -1.93 1.87
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % N/A N/A N/A 7.52 8.57
- --------------------------------------------------------------------------------
Since inception(7) % 7.47 7.67 8.15 9.97 10.62
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) Reflects deduction of a deferred sales charge of 4% for the 1 year return.
(6) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the Fund's portfolio. The since inception
return for the Index is for the Class T time period.
(7) Classes A, B and C commenced operations on June 5, 1995. Class T commenced
operations on May 30, 1989.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim High Yield Fund III 55
<PAGE>
Adviser
Pilgrim Advisors, Inc.
PILGRIM Portfolio manager
HIGH TOTAL Kevin Mathews
RETURN FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
This fund seeks high income and capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The fund invests primarily in higher-yielding, lower-rated bonds (junk bonds) to
achieve high current income with potential for capital growth.
Under normal market conditions, the fund invests at least 65% of its total
assets in high-yielding, lower-rated U.S. dollar-denominated debt securities of
U.S. and foreign issuers. It may also invest up to 35% of its total assets in
securities denominated in foreign currencies. No more than 50% of its assets can
be in securities of foreign issuers, including 35% in emerging market debt. Most
of the debt securities the fund invests in are lower-rated and considered
speculative, including bonds in the lowest rating categories and unrated bonds.
It can invest up to 10%, and can hold up to 25% of its assets in securities
rated below Caa by Moody's or CCC by S&P. It also holds debt securities that pay
fixed, floating or adjustable interest rates and may hold pay-in-kind securities
and discount obligations, including zero coupon securities.
The fund may also invest in equity or equity-related securities, such as common
stock, preferred stock, convertible securities and rights and warrants attached
to debt instruments.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- The Fund's performance is significantly affected by
changes in interest rates. The value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with longer durations. Debt securities
with longer durations tend to be more sensitive to changes in interest rates,
usually making them more volatile than debt securities with shorter durations.
The value of the Fund's high-yield and zero coupon securities are particularly
sensitive to changes in interest rates.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund may be
subject to more credit risk than other income funds, because it invests in
high-yield debt securities, which are considered predominantly speculative with
respect to the issuer's continuing ability to meet interest and principal
payments. This is especially true during periods of economic uncertainty or
economic downturns.
Inability to Sell Securities -- high-yield securities may be less liquid than
higher quality investments. A security whose credit rating has been lowered may
be particularly difficult to sell. Foreign securities and mortgage-related and
asset-backed debt securities may be less liquid than other debt securities. The
Fund could lose money if it cannot sell a security at the time and price that
would be most beneficial to the Fund.
Risk of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
56 Pilgrim High Total Return Fund
<PAGE>
PILGRIM
HIGH TOTAL
RETURN FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1994 -8.57
1995 21.17
1996 15.70
1997 11.44
1998 -7.96
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
3rd quarter 1997: up 7.40%
3rd quarter 1998: down 13.76%
The Fund's year-to-date total return as of September 30, 1999 was ____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- 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.
Average annual total returns
Lehman
High Yield
Bond
Class A(2) Class B(3) Class C(4) Index(5)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -12.26 -12.77 -9.38 1.87
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % 4.62 N/A N/A 8.57
- --------------------------------------------------------------------------------
Since inception(6) % 5.03 4.05 4.90 8.65
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the fund's portfolio. The since inception
return for the Index is for the Class A time period.
(6) Class A commenced operations on November 8, 1993. Classes B and C
commenced operations on February 9, 1994 and March 21, 1994, respectively.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim High Total Return Fund 57
<PAGE>
Adviser
Pilgrim Advisors, Inc.
PILGRIM Portfolio manager
HIGH TOTAL Kevin Mathews
RETURN FUND II
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
This fund seeks high income and capital appreciation.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The fund invests primarily in higher-yielding, lower-rated bonds (junk bonds) to
achieve high current income with potential for capital growth.
Under normal market conditions, the fund invests at least 65% of its total
assets in high-yielding, lower-rated U.S. dollar-denominated debt securities of
U.S. and foreign issuers. It may also invest up to 35% of its total assets in
securities denominated in foreign currencies. No more than 50% of its assets can
be in securities of foreign issuers, including 35% in emerging market debt. Most
of the debt securities the fund invests in are lower-rated and considered
speculative, including bonds in the lowest rating categories and unrated bonds.
It can invest up to 10%, and can hold up to 25%, of its assets in securities
rated below Caa by Moody's or CCC by S&P. It also holds debt securities that pay
fixed, floating or adjustable interest rates and may hold pay-in-kind securities
and discount obligations, including zero coupon securities.
The fund may also invest in equity or equity-related securities, such as common
stock, preferred stock, convertible securities and rights and warrants attached
to debt instruments.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- The Fund's performance is significantly affected by
changes in interest rates. The value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with longer durations. Debt securities
with longer durations tend to be more sensitive to changes in interest rates,
usually making them more volatile than debt securities with shorter durations.
The value of the Fund's high yield and zero coupon securities are particularly
sensitive to changes in interest rates.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund may be
subject to more credit risk than other income funds, because it invests in
high-yield debt securities, which are considered predominantly speculative with
respect to the issuer's continuing ability to meet interest and principal
payments. This is especially true during periods of economic uncertainty or
economic downturns.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. A security whose credit rating has been lowered may
be particularly difficult to sell. Foreign securities and mortgage-related and
asset-backed debt securities may be less liquid than other debt securities. The
Fund could lose money if it cannot sell a security at the time and price that
would be most beneficial to the Fund.
Risk of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
58 Pilgrim High Total Return Fund II
<PAGE>
PILGRIM
HIGH TOTAL
RETURN FUND II
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1998 -2.93
- --------------------------------------------------------------------------------
(1) These figures are as of December 31, 1998. They do not reflect sales
charges and would be lower if they did.
Best and worst quarterly performance during this period:
2nd quarter 1997: up 8.89%
3rd quarter 1998: down 8.44%
The Fund's year-to-date total return as of September 30, 1999 was ____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- 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.
Average annual total returns
Lehman
High Yield
Bond
Class A(2) Class B(3) Class C(4) Index(5)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -7.61 -8.04 -4.49 1.87
- --------------------------------------------------------------------------------
Since inception(6) % 5.18 5.20 7.24 6.96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the Fund's portfolio.
(6) The Fund commenced operations on January 31, 1997.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim High Total Return Fund II 59
<PAGE>
Adviser
Pilgrim Investments, Inc.
PILGRIM Portfolio manager
MONEY MARKET
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The Fund seeks to provide as high a level of current income as is consistent
with the preservation of capital and liquidity.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
Since the Fund invests substantially all of its assets in another investment
company, the Fund could be considered a feeder fund in an arrangement resembling
a master/feeder structure.
The Fund invests all of its assets in Class A shares of the Primary
Institutional Fund, a series of Reserve Institutional Trust, a registered
open-end management investment company, rather than directly in a portfolio of
securities. In turn, the Primary Institutional Fund seeks to provide as high a
level of current income as is consistent with the preservation of capital and
liquidity. This structure is different from that of other Pilgrim Funds and many
other investment companies, which directly acquire and manage their own
portfolio of securities.
The Primary Institutional Fund seeks to achieve its investment objective by
investing in instruments issued by the U.S. Government, its agencies and
instrumentalities ("U.S. Government Securities"); deposit-type obligations, such
as negotiable certificates of deposit and time deposits, bankers' acceptances
and letters of credit of domestic, foreign banks and foreign branches of foreign
banks, savings and loan associations and savings banks; other short-term
instruments of similar quality; and instruments fully collateralized by such
obligations.
The Primary Institutional Fund may invest in obligations of U.S. banking
institutions that are insured by the Federal Deposit Insurance Corporation. The
Primary Institutional Fund may also invest in obligations of foreign branches of
both U.S. banks and foreign banks (Eurodollars). Investment in foreign banks
will be limited to those located in Australia, Canada, Western Europe and Japan
and which, at the time of investment, have more than $25 billion (or the
equivalent in other currencies) in total assets and which, in the opinion of the
Primary Institutional Fund's investment adviser, are of comparable quality to
the obligations of U.S. banks which may be purchased by the Primary
Institutional Fund. The Primary Institutional Fund may also invest in municipal
obligations, the interest on which is not exempt from federal income taxation.
The Primary Institutional Fund may also engage in repurchase agreements and
periodically lend securities on a short-term basis to banks, brokers and dealers
(but not individuals) and receive as collateral cash or securities issued by the
U.S. Government or its agencies or instrumentalities (or any combination
thereof). The value of the securities loaned cannot exceed 25% of the Primary
Institutional Fund's total assets.
The Primary Institutional Fund may invest, without limitation, in U.S.
Government Securities and in instruments secured or collateralized by U.S.
Government Securities. The Primary Institutional Fund will not invest more than
10% of its net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven (7) days after notice and will not
concentrate more than 25% of its total assets in securities of issuers in a
single industry, except that it may invest more than 25% of its assets in bank
obligations. In addition, the Primary Institutional Fund will not invest more
than 5% of its assets in the securities of any single issuer (except U.S.
Government Securities or repurchase agreements). The Primary Institutional Fund
may borrow money for extraordinary or emergency purposes but not in an amount
exceeding 5% of its total assets.
The Primary Institutional Fund uses the amortized cost method of valuation to
help the Fund maintain a stable $1.00 share price. Of course, there is no
guarantee that the Fund will be able to maintain a $1.00 share price.
Investment of the Fund's assets in the Class A shares of the Primary
Institutional Fund is not a fundamental policy of the Fund and a shareholder
vote is not required for the Fund to withdraw its investment in the Primary
Institutional Fund.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
The Fund is subject to the risks associated with investing in debt securities.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
The Fund may be affected by these other risks by virtue of its investment in the
Primary Institutional Fund:
Changes in Interest Rates -- money market funds like the Fund are subject to
less interest rate risk than other income funds because they invest in debt
securities with a remaining maturity not greater than 397 days. The dollar
weighted average portfolio maturity of the Fund will not exceed 90 days. Still,
the value of the Fund's investment may fall when interest rates rise.
Credit Risk -- money market funds like the Fund are subject to less credit risk
than other income funds because they invest in short-term debt securities of the
highest quality. Still, the Fund could lose money if the issuer of a debt
security is unable to meet its financial obligations or goes bankrupt.
U.S. Government Securities -- some U.S. Government agency securities may be
subject to varying degrees of credit risk, and all U.S. Government Securities
may be subject to price declines in the securities due to changing interest
rates. If an obligation, such as obligations issued by the Federal National
60 Pilgrim Money Market Fund
<PAGE>
PILGRIM
MONEY MARKET
FUND
- --------------------------------------------------------------------------------
Mortgage Association, the Student Loan Marketing Association, the Federal Home
Loan Bank and the Federal Home Loan Mortgage Corporation is supported only by
the credit of the agency or instrumentality issuing the obligation, the investor
must look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment. Securities directly supported by the full faith and credit
of the United States have less credit risk.
BECAUSE THE FUND INVESTS ALL OF ITS ASSETS IN ANOTHER REGISTERED MANAGEMENT
INVESTMENT COMPANY, THE FUND AND ITS SHAREHOLDERS WILL BEAR THE INVESTMENT
ADVISORY FEES AND EXPENSES OF THE FUND AND THE OTHER REGISTERED MANAGEMENT
INVESTMENT COMPANY IN WHICH IT INVESTS WITH THE RESULT THAT THE FUND'S EXPENSES
MAY BE HIGHER THAN THOSE OF OTHER MONEY MARKET FUNDS WHICH INVEST DIRECTLY IN
MONEY MARKET INSTRUMENTS. THE FUND IS ALSO DESIGNED FOR INVESTORS WHO DESIRE A
SHORT-TERM INVESTMENT AND MAY NOT BE APPROPRIATE FOR THOSE INVESTORS DESIRING A
LONG-TERM INVESTMENT.
Risks of Foreign Investing -- to the extent the Primary Institutional Fund
invests in letters of credit and other deposit-type obligations of foreign banks
and foreign branches of foreign banks, foreign investments may be riskier than
U.S. investments for many reasons, including unstable political and economic
conditions, a lack of adequate information, differences in the way securities
markets operate, less secure banks and foreign controls on investment.
Repurchase Agreements -- the Fund may enter into repurchase agreements, which
involve the purchase by a Fund of a security that the seller has agreed to buy
back. If the seller defaults and the collateral value declines, the Fund might
incur a loss. If the seller declares bankruptcy, the Fund may not be able to
sell the collateral at the desired time.
Securities Lending -- loans of securities involve risks of delay in receiving
additional collateral or in recovering the securities lent or even loss of
rights to the collateral in the event of insolvency of the borrower of the
securities.
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
This fund does not have a performance history because it was formed on July 1,
1999.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Money Market Fund 61
<PAGE>
Adviser
Pilgrim Investments, Inc.
PILGRIM Portfolio managers
BALANCED Robert Kinsey
FUND Kevin Mathews
G. David Underwood
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks a balance of long-term capital appreciation and current income.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The Fund's adviser actively manages a blended portfolio of equity and debt
securities with an emphasis on overall total return. The Fund normally maintains
40% to 60% of its assets in debt securities of any maturity issued by
corporations or other business entities and the U.S. Government and its agencies
and instrumentalities, and government sponsored enterprises, and will seek a
target allocation of 50%, although this may vary with market conditions.
The remainder of the Fund's assets will be invested in equity securities of
large companies that the adviser believes are leaders in their industries. The
adviser considers whether these companies have a sustainable competitive edge.
The adviser emphasizes a value approach in equity selection, and seeks
securities whose prices in relation to projected earnings are believed to be
reasonable in comparison to the market. For this fund, a company with a market
capitalization of over $5 billion is considered to be a large company, although
the Fund may also invest to a limited degree in companies that have a market
capitalization between $1 billion and $5 billion.
A portion of the Fund's net assets (up to 35%) may be invested in high yield
debt securities rated below investment grade by a nationally recognized
statistical rating agency, or of comparable quality if unrated. There is no
minimum credit quality for the high yield debt securities in which the Fund may
invest. The Fund may invest up to 10% of its assets in other investment
companies that invest in secured floating rate loans, including up to 5% of its
assets in Pilgrim Prime Rate Trust, a closed-end investment company. The Fund
may invest up to 20% of its total assets in foreign securities. The Fund may use
options on securities, securities indices, interest rates and foreign currencies
as a hedging technique. The Fund may invest up to 35% of its net assets in zero
coupon securities.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
Market Trends -- from time to time, the stock market may not favor the large
company value securities in which the Fund invests. Rather, the market could
favor growth-oriented stocks or small company stocks, or may not favor equities
at all.
Changes in Interest Rates -- the value of debt and equity securities can change
in response to changes in interest rates. The value of the debt securities held
by the Fund may fall when interest rates rise. The Fund may be sensitive to
changes in interest rates because it may invest in debt securities with
intermediate and long terms to maturity. Debt securities with longer durations
tend to be more sensitive to changes in interest rates, usually making them more
volatile than debt securities with shorter durations. Zero coupon securities are
particularly sensitive to changes in interest rates.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. This Fund may be
subject to more credit risk than the other income funds, because it may invest
in high yield debt securities, which are considered predominantly speculative
with respect to the issuer's continuing ability to meet interest and principal
payments. This is especially true during periods of economic uncertainty or
economic downturns.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. The Fund could lose money if it cannot sell a
security at the time and price that would be most beneficial to the Fund.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivatives instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
62 Pilgrim Balanced Fund
<PAGE>
PILGRIM
BALANCED
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994 6.29
1995 23.44
1996 16.39
1997 20.50
1998 23.34
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Prior to May 24, 1999, a different adviser managed the Fund.
Best and worst quarterly performance during this period:
4th quarter 1998: up %
3rd quarter 1990: down - %
The Fund's year-to-date total return as of September 30, 1999 was %.
The table below compares the Fund's performance to that of a broad measure of
market performance -- a composite index consisting of 60% S&P 500 Composite
Stock Price Index and 40% Lehman Brothers Government/Corporate 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.
Average annual total returns(3)
Composite
Class A(4) Class B(5) Class C(6) Index(7)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 16.26 17.80 21.52 20.93
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % 13.52 -- 14.14 17.34
- --------------------------------------------------------------------------------
Since inception(8) % 14.25 26.42 14.75 15.27
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Class T shares of the Fund were not offered during the period ended
December 31, 1998.
(4) Reflects deduction of sales charge of 5.75%.
(5) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(6) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(7) The since inception return for the Index is for the Class A and C time
period.
(8) Classes A and C commenced operations on April 19, 1993. Class B commenced
operations on May 31, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Balanced Fund 63
<PAGE>
Adviser
Pilgrim Advisors, Inc.
PILGRIM Portfolio managers
INCOME AND This fund is managed by a
GROWTH FUND team of portfolio managers
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
This fund seeks current income balanced with capital appreciation primarily by
investing in dividend paying equity securities, convertible securities, and
investment grade debt securities.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The fund invests in a mix of equity and investment grade debt securities
designed to provide both current income and long-term growth of capital.
Under normal market conditions, the fund invests at least 65% of its total
assets in income-producing securities. It generally holds no more than 30% of
its assets in convertible securities.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
Market Trends -- from time to time, the stock market may not favor the dividend
paying and convertible equity securities in which the Fund may invest. Rather,
the market could favor other types of equity securities, or may not favor
equities at all.
Changes in Interest Rates -- the value of debt and equity securities can change
in response to changes in interest rates. The Fund's performance is
significantly affected by changes in interest rates. The value of the debt and
convertible securities held by the Fund may fall when interest rates rise. The
Fund may be sensitive to changes in interest rates because it may invest in debt
securities with longer durations. Debt securities with longer durations tend to
be more sensitive to changes in interest rates, usually making them more
volatile than debt securities with shorter durations.
Credit risk -- the Fund could lose money if the issuer of a debt or convertible
security is unable to meet its financial obligations or goes bankrupt. This is
especially true during periods of economic uncertainty or economic downturns.
The Fund may be subject to additional credit risk because the convertible
securities in which it invests may reduce performance and increase volatility if
the issuers stop making interest and principal payments.
64 Pilgrim Income and Growth Fund
<PAGE>
PILGRIM
INCOME AND
GROWTH FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1994 -3.56
1995 21.33
1996 15.23
1997 15.56
1998 5.76
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
4th quarter 1998: up 12.28%
3rd quarter 1998: down 9.21%
The Fund's year-to-date total return as of September 30, 1999 was ____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- 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.
Average annual total returns
Lipper
Balanced
Fund
Class A(2) Class B(3) Class C(4) Index(5)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -0.32 0.28 4.06 15.09
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % 9.20 N/A N/A 13.87
- --------------------------------------------------------------------------------
Since inception(6) % 9.54 8.93 10.05 13.45
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The Lipper Balanced Fund Index is an unmanaged index that measures the
performance of balanced funds (funds that seek current income balanced
with capital appreciation). The since inception return for the Index is
for the Class A time period.
(6) Class A commenced operations on November 8, 1993. Class B commenced
operations on February 9, 1994. Class C commenced operations on March 31,
1994.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Income and Growth Fund 65
<PAGE>
Adviser
Pilgrim Advisors, Inc.
PILGRIM Portfolio managers
BALANCE SHEET Robert Kinsey
OPPORTUNITIES Kevin Mathews
FUND G. David Underwood
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
This fund seeks income, with a secondary objective of capital appreciation,
primarily by investing in domestic debt and equity securities.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
The portfolio manager reviews various factors relating to an issuer, especially
its financial statements, to determine which type of security -- debt or equity
- -- offers the best potential for high current income combined with the potential
for capital growth.
Under normal market conditions, the fund invests at least 51% of its total
assets in income-producing securities. It may hold up to 50% of its assets in
debt securities rated as low as B by Moody's or S&P (junk bonds). Equity
securities include common stocks, preferred stocks, convertible securities and
warrants and other stock purchase rights. Income-producing securities have
varying maturities and pay fixed, floating or adjustable interest rates. The
fund may also hold pay-in-kind securities and discount obligations, including
zero coupon securities. The fund may invest up to 20% of its net assets in
foreign issuers, but only 10% of its net assets can be in securities that are
not listed on a U.S. securities exchange.
In periods of unusual market conditions, the fund may temporarily invest part or
all of its assets in cash or high quality money market securities. In these
circumstances, the fund may not achieve its objective.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund's investments may be
affected by the following additional risks:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
Changes in Interest Rates -- the Fund's performance is significantly affected by
changes in interest rates. The value of the debt and convertible securities held
by the Fund may fall when interest rates rise. The Fund may be sensitive to
changes in interest rates because it may invest in debt securities with
intermediate and long terms to maturity. Debt securities with longer durations
tend to be more sensitive to changes in interest rates, usually making them more
volatile than debt securities with shorter durations. Zero coupon securities are
particularly sensitive to changes in interest rates.
Credit Risk -- the Fund could lose money if the issuer of a debt or convertible
security is unable to meet its financial obligations or goes bankrupt. This Fund
may be subject to more credit risk than other income funds, because the debt and
convertible securities in which it invests may be lower-rated securities, and it
may invest in high-yield debt securities, which are considered predominantly
speculative with respect to the issuer's continuing ability to meet interest and
principal payments. This is especially true during periods of economic
uncertainty or economic downturns.
The Fund's performance will also be affected if the portfolio manager makes an
inaccurate assessment of economic conditions and investment opportunities, and
chooses a company that, for example, declares bankruptcy and is no longer able
to make interest or principal payments.
Inability to Sell Securities -- high-yield securities may be less liquid than
higher quality investments. A security whose credit rating has been lowered may
be particularly difficult to sell. Foreign securities and mortgage-related and
asset-backed debt securities may be less liquid than other securities. The Fund
could lose money if it cannot sell a security at the time and price that would
be most beneficial to the Fund.
Risk of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political, social and economic conditions, a lack of adequate and
accurate company information, a lack of liquidity in securities, differences in
the way securities markets operate, accounting, auditing, and/or financial
standards that are different than those in the U.S., less secure foreign banks,
securities depositories, or exchanges than those in the U.S., and foreign
controls on investment.
66 Pilgrim Balance Sheet Opportunities Fund
<PAGE>
PILGRIM
BALANCE SHEET
OPPORTUNITIES
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)
[The following table was depicted as a bar chart in the printed material.]
1989 17.70
1990 0.78
1991 21.17
1992 8.06
1993 14.08
1994 -5.33
1995 25.11
1996 10.18
1997 23.91
1998 4.64
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
Best and worst quarterly performance during this period:
4th quarter 1998: up 12.71%
3rd quarter 1998: down 13.38%
The Fund's year-to-date total return as of September 30, 1999 was ____%.
The table below compares the Fund's performance to that of a broad measure of
market performance -- 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.
Average annual total returns
Lipper
Balanced
Fund
Class A(2) Class B(3) Class C(4) Class T(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % -0.89 -0.36 3.58 0.83 15.09
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % N/A N/A N/A 11.09 13.87
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 % N/A N/A N/A 11.61 13.32
- --------------------------------------------------------------------------------
Since inception(7) % 12.53 13.23 13.61 10.34 12.75
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively,
for 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) Reflects deduction of a deferred sales charge of 4% for the 1 year return.
(6) The Lipper Balanced Fund Index is an unmanaged index that measures the
performance of balanced funds (funds that seek current income balanced
with capital appreciation). The since inception return for the Index is
for the Class T time period.
(7) Classes A, B and C commenced operations on June 5, 1995. Class T commenced
operations on February 3, 1986.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Balance Sheet Opportunities Fund 67
<PAGE>
Adviser
Pilgrim Investments, Inc.
Sub-Adviser
Nicholas-Applegate Capital Management
PILGRIM Portfolio manager
CONVERTIBLE
FUND
- --------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC OMITTED]
The fund seeks maximum total return, consisting of capital appreciation and
current income.
INVESTMENT
STRATEGY [GRAPHIC OMITTED]
Under normal conditions, the Fund invests at least 65% of its total assets in
convertible securities. Convertible securities are generally preferred stock or
other securities, including debt securities, that are convertible into common
stock. The Fund emphasizes companies with market capitalizations above $500
million. Through investments in convertible securities, the Fund seeks to
capture the upside potential of the underlying equities with less downside
exposure. The Fund may invest the remainder of its assets in common and
preferred stocks, debt securities of any maturity, and securities issued by the
U.S. Government and its agencies and instrumentalities. The Fund may also use
options and futures contracts involving securities, securities indices, interest
rates and foreign currencies as hedging techniques.
The Fund normally invests a minimum of 25% of its total assets in common and
preferred stocks, and 25% in other income producing convertible and debt
securities. The Fund may also invest up to 35% of its net assets in high yield
debt securities rated below investment grade by a nationally recognized
statistical rating agency, or of comparable quality if unrated. There is no
minimum credit rating for high yield securities in which the Fund may invest.
The Fund also may invest up to 35% of its net assets in zero coupon securities.
In evaluating convertibles,the Fund's sub-adviser evaluates each security's
investment characteristics as a fixed income instrument as well as its potential
for capital appreciation. The sub-adviser searches for what it calls "change at
the margin" -- positive business developments which are not yet fully reflected
in the company's stock price. It searches for successful growing companies that
are managing change advantageously and poised to exceed growth expectations.
- --------------------------------------------------------------------------------
RISKS [GRAPHIC OMITTED]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Convertible securities have investment
characteristics of both equity and debt securities. Equity securities face
market, issuer and other risks, and their values may go up or down, sometimes
rapidly and unpredictably. Market risk is the risk that securities may decline
in value due to factors affecting securities markets generally or particular
industries. Issuer risk is the risk that the value of a security may decline for
reasons relating to the issuer, such as changes in the financial condition of
the issuer. While equities may offer the potential for greater long-term growth
than most debt securities, they generally have higher volatility. The Fund may
invest in small and medium-sized companies, which may be more susceptible to
greater price swings than larger companies because they may have fewer financial
resources, limited product and market diversification and many are dependent on
a few key managers.
Changes in Interest Rates -- the value of the convertible and debt securities
held by the Fund may fall when interest rates rise. The Fund may be sensitive to
changes in interest rates because it may invest in securities with intermediate
and long terms to maturity. Securities with longer durations tend to be more
sensitive to changes in interest rates, usually making them more volatile than
securities with shorter durations. Zero coupon securities are particularly
sensitive to changes in interest rates.
Credit Risk -- the Fund could lose money if the issuer of a convertible or debt
security is unable to meet its financial obligations or goes bankrupt. This is
especially true during periods of economic uncertainty or economic downturns.
This Fund may be subject to more credit risk than the other bond funds, because
the convertible securities and debt securities in which it invests may be
lower-rated securities.
Inability to Sell Securities -- lower rated securities may be less liquid than
higher quality investments. The Fund could lose money if it cannot sell a
security at the time and price that would be most beneficial to the Fund.
Risks of Using Derivatives -- derivatives are subject to the risk of changes in
the market price of the security, credit risk with respect to the counterparty
to the derivatives instrument, and the risk of loss due to changes in interest
rates. The use of certain derivatives may also have a leveraging effect, which
may increase the volatility of the Fund. The use of derivatives may reduce
returns for the Fund.
68 Pilgrim Convertible Fund
<PAGE>
PILGRIM
CONVERTIBLE
FUND
- --------------------------------------------------------------------------------
HOW THE
FUND HAS [GRAPHIC OMITTED]
PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by year total returns (%)(1)(2)
[The following table was depicted as a bar chart in the printed material.]
1989
1990
1991
1992
1993
1994 -8.23
1995 21.67
1996 20.29
1997 22.58
1998 20.86
- --------------------------------------------------------------------------------
(1) These figures are as of December 31 of each year. They do not reflect
sales charges and would be lower if they did.
(2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the
adviser, rather than sub-adviser, to the Fund.
Best and worst quarterly performance during this period:
4th quarter 1998: up 19.73%
3rd quarter 1998: down -9.08%
The Fund's year-to-date total return as of September 30, 1999 was %.
The table below compares the Fund's performance to that of a broad measure of
market performance -- the First Boston Convertible 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.
Average annual total returns
First
Boston
Convertible
Class A(3) Class B(4) Class C(5) Index(6)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 % 13.93 15.31 19.12 6.55
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 % 13.41 -- 14.03 10.80
- --------------------------------------------------------------------------------
Since inception(7) % 15.74 20.61 16.19 11.42
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3% respectively for
1 year and since inception returns.
(5) Reflects deduction of sales charge of 1% for the 1 year return.
(6) The First Boston Convertible Index is an unmanaged index that measures the
performance of a universe of convertible securities that are similar, but
not identical, to those in the Fund's portfolio. Since inception return
for the Index is shown from April 30, 1993.
(7) Classes A and C commenced operations on April 19, 1993. Class B commenced
operations on May 31, 1995.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
Pilgrim Convertible Fund 69
<PAGE>
WHAT YOU
PAY TO INVEST
- --------------------------------------------------------------------------------
There are two types of fees and expenses when you invest in mutual funds: fees,
including sales charges, you pay directly when you buy or sell shares, and
operating expenses paid each year by the fund. The tables that follow show the
fees and expenses for each of the Pilgrim funds.
Fees you pay directly
<TABLE>
<CAPTION>
Class A Class B Class C(1) Class M(2) Class T
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your investment
(as a % of offering price) %
- -------------------------------------------------------------------------------------------------------------
Equity Funds and Equity & Income Funds 5.75(3) none none 3.50(3) none
- -------------------------------------------------------------------------------------------------------------
Income Funds 4.75(3) none none 3.25(3) none
- -------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (as a % of
purchase or sales price, whichever is less)
- -------------------------------------------------------------------------------------------------------------
Equity Funds and Equity & Income Funds none(4) 5.00(5) 1.00(6) none 4.00(7)
- -------------------------------------------------------------------------------------------------------------
Income Funds none(4) 5.00(5) 1.00(6) none 4.00(7)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Bank and Thrift Fund and Asia-Pacific Equity Fund do not offer Class C
shares.
(2) Class M shares are offered only by MagnaCap Fund, LargeCap Leaders Fund,
MidCap Value Fund, Asia-Pacific Equity Fund, Government Securities Income
Fund and High Yield Fund.
(3) Reduced for purchases of $50,000 and over. Please see page ___.
(4) A contingent deferred sales charge of no more than 1% may be assessed on
redemptions of Class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. Please see page
___.
(5) Imposed upon redemption within 6 years from purchase. The fee has
scheduled reductions after the first year. Please see page ___.
(6) Imposed upon redemption within 1 year from purchase.
(7) Imposed upon redemption within 4 years from purchase. The fee has
scheduled reductions after the first year. Please see page __.
Operating expenses paid each year by the fund
(as a % of average net assets)
<TABLE>
<CAPTION>
Class A Distribution Total
and service fund Fee waiver
Management (12b-1) Other operating by Net
Fund fee fees expenses(4) expenses adviser(2) expenses
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MagnaCap % 0.72 0.30 0.35 1.37 -- 1.37
- ------------------------------------------------------------------------------------------------------------------------------
LargeCap Leaders % 1.00 0.25 1.03 2.28 (0.53) 1.75
- ------------------------------------------------------------------------------------------------------------------------------
Research Enhanced Index %
- ------------------------------------------------------------------------------------------------------------------------------
Growth Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
LargeCap Growth % 0.75 0.35 0.88 1.98 (0.38) 1.60
- ------------------------------------------------------------------------------------------------------------------------------
MidCap Value % 1.00 0.25 0.53 1.78 (0.03) 1.75
- ------------------------------------------------------------------------------------------------------------------------------
MidCap Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
MidCap Growth % 0.75 0.35 0.42 1.52 -- 1.52
- ------------------------------------------------------------------------------------------------------------------------------
Growth + Value %
- ------------------------------------------------------------------------------------------------------------------------------
SmallCap Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
SmallCap Growth % 1.00 0.35 0.49 1.84 -- 1.84
- ------------------------------------------------------------------------------------------------------------------------------
Bank and Thrift % 0.72 0.25 0.23 1.20 -- 1.20
- ------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth % 1.00 0.35 0.54 1.89 (0.04) 1.85
- ------------------------------------------------------------------------------------------------------------------------------
International Value %
- ------------------------------------------------------------------------------------------------------------------------------
International Core Growth % 1.00 0.35 0.64 1.99 (0.04) 1.95
- ------------------------------------------------------------------------------------------------------------------------------
International SmallCap Growth % 1.00 0.35 0.59 1.94 -- 1.94
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Value %
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Countries % 1.25 0.35 0.84 2.44 (0.19) 2.25
- ------------------------------------------------------------------------------------------------------------------------------
Asia-Pacific Equity % 1.25 0.25 1.30 2.80 (0.80) 2.00
- ------------------------------------------------------------------------------------------------------------------------------
Government Securities Income % 0.50 0.25 0.83 1.58 (0.08) 1.50
- ------------------------------------------------------------------------------------------------------------------------------
Government Securities %
- ------------------------------------------------------------------------------------------------------------------------------
Strategic Income % 0.45 0.35 0.98 1.78 (0.83) 0.95
- ------------------------------------------------------------------------------------------------------------------------------
High Yield % 0.60 0.25 0.32 1.17 (0.17) 1.00
- ------------------------------------------------------------------------------------------------------------------------------
High Yield II % 0.60 0.25 0.54 1.39 (0.39) 1.00
- ------------------------------------------------------------------------------------------------------------------------------
High Yield III %
- ------------------------------------------------------------------------------------------------------------------------------
High Total Return %
- ------------------------------------------------------------------------------------------------------------------------------
High Total Return II %
- ------------------------------------------------------------------------------------------------------------------------------
Money Market %
- ------------------------------------------------------------------------------------------------------------------------------
Balanced % 0.75 0.35 0.65 1.75 (0.15) 1.60
- ------------------------------------------------------------------------------------------------------------------------------
Income and Growth %
- ------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
Convertible % 0.75 0.35 0.42 1.52 -- 1.52
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
70
<PAGE>
WHAT YOU
PAY TO INVEST
- --------------------------------------------------------------------------------
Operating expenses paid each year by the fund
(as a % of average net assets)
<TABLE>
<CAPTION>
Class B Distribution Total
and service fund Fee waiver
Management (12b-1) Other operating by Net
Fund fee fees expenses(4) expenses adviser(2) expenses
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MagnaCap % 0.72 1.00 0.35 2.07 -- 2.07
- ------------------------------------------------------------------------------------------------------------------------------
LargeCap Leaders % 1.00 1.00 1.03 3.03 (0.53) 2.50
- ------------------------------------------------------------------------------------------------------------------------------
Research Enhanced Index %
- ------------------------------------------------------------------------------------------------------------------------------
Growth Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
LargeCap Growth % 0.75 1.00 0.88 2.63 (0.38) 2.25
- ------------------------------------------------------------------------------------------------------------------------------
MidCap Value % 1.00 1.00 0.53 2.53 (0.03) 2.50
- ------------------------------------------------------------------------------------------------------------------------------
MidCap Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
MidCap Growth % 0.75 1.00 0.42 2.17 -- 2.17
- ------------------------------------------------------------------------------------------------------------------------------
Growth + Value %
- ------------------------------------------------------------------------------------------------------------------------------
SmallCap Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
SmallCap Growth % 1.00 1.00 0.55 2.55 -- 2.55
- ------------------------------------------------------------------------------------------------------------------------------
Bank and Thrift % 0.72 1.00 0.23 1.95 -- 1.95
- ------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth % 1.00 1.00 0.54 2.54 (0.04) 2.50
- ------------------------------------------------------------------------------------------------------------------------------
International Value %
- ------------------------------------------------------------------------------------------------------------------------------
International Core Growth % 1.00 1.00 0.63 2.63 (0.03) 2.60
- ------------------------------------------------------------------------------------------------------------------------------
International SmallCap Growth % 1.00 1.00 0.59 2.59 -- 2.59
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Value %
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Countries % 1.25 1.00 0.83 3.08 (0.18) 2.90
- ------------------------------------------------------------------------------------------------------------------------------
Asia-Pacific Equity % 1.25 1.00 1.30 3.55 (0.80) 2.75
- ------------------------------------------------------------------------------------------------------------------------------
Government Securities Income % 0.50 1.00 0.83 2.33 (0.08) 2.25
- ------------------------------------------------------------------------------------------------------------------------------
Government Securities %
- ------------------------------------------------------------------------------------------------------------------------------
Strategic Income % 0.45 0.75 1.02 2.22 (0.87) 1.35
- ------------------------------------------------------------------------------------------------------------------------------
High Yield % 0.60 1.00 0.32 1.92 (0.17) 1.75
- ------------------------------------------------------------------------------------------------------------------------------
High Yield II % 0.60 1.00 0.44 2.04 (0.29) 1.75
- ------------------------------------------------------------------------------------------------------------------------------
High Yield III %
- ------------------------------------------------------------------------------------------------------------------------------
High Total Return %
- ------------------------------------------------------------------------------------------------------------------------------
High Total Return II %
- ------------------------------------------------------------------------------------------------------------------------------
Money Market %
- ------------------------------------------------------------------------------------------------------------------------------
Balanced % 0.75 1.00 0.65 2.40 (0.15) 2.25
- ------------------------------------------------------------------------------------------------------------------------------
Income and Growth %
- ------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
Convertible % 0.75 1.00 0.42 2.17 -- 2.17
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
71
<PAGE>
WHAT YOU
PAY TO INVEST
- --------------------------------------------------------------------------------
Operating expenses paid each year by the fund
(as a % of average net assets)
<TABLE>
<CAPTION>
Class C Distribution Total
and service fund Fee waiver
Management (12b-1) Other operating by Net
Fund fee fees expenses(4) expenses adviser(2) expenses
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MagnaCap % 0.72 1.00 0.35 2.07 -- 2.07
- ------------------------------------------------------------------------------------------------------------------------------
LargeCap Leaders % 1.00 1.00 1.03 3.03 (0.53) 2.50
- ------------------------------------------------------------------------------------------------------------------------------
Research Enhanced Index %
- ------------------------------------------------------------------------------------------------------------------------------
Growth Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
LargeCap Growth % 0.75 1.00 0.89 2.64 (0.39) 2.25
- ------------------------------------------------------------------------------------------------------------------------------
MidCap Value % 1.00 1.00 0.53 2.53 (0.03) 2.50
- ------------------------------------------------------------------------------------------------------------------------------
MidCap Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
MidCap Growth % 0.75 1.00 0.43 2.18 -- 2.18
- ------------------------------------------------------------------------------------------------------------------------------
Growth + Value %
- ------------------------------------------------------------------------------------------------------------------------------
SmallCap Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
SmallCap Growth % 1.00 1.00 0.49 2.49 -- 2.49
- ------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth % 1.00 1.00 0.54 2.54 (0.04) 2.50
- ------------------------------------------------------------------------------------------------------------------------------
International Value %
- ------------------------------------------------------------------------------------------------------------------------------
International Core Growth % 1.00 1.00 0.65 2.65 (0.05) 2.60
- ------------------------------------------------------------------------------------------------------------------------------
International SmallCap Growth % 1.00 1.00 0.59 2.59 -- 2.59
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Value %
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Countries % 1.25 1.00 0.82 3.07 (0.17) 2.90
- ------------------------------------------------------------------------------------------------------------------------------
Government Securities Income % 0.50 1.00 0.83 2.33 (0.08) 2.25
- ------------------------------------------------------------------------------------------------------------------------------
Government Securities %
- ------------------------------------------------------------------------------------------------------------------------------
Strategic Income % 0.45 0.75 1.01 2.21 (0.86) 1.35
- ------------------------------------------------------------------------------------------------------------------------------
High Yield % 0.60 1.00 0.32 1.92 (0.17) 1.75
- ------------------------------------------------------------------------------------------------------------------------------
High Yield II % 0.60 1.00 0.44 2.04 (0.29) 1.75
- ------------------------------------------------------------------------------------------------------------------------------
High Yield III %
- ------------------------------------------------------------------------------------------------------------------------------
High Total Return %
- ------------------------------------------------------------------------------------------------------------------------------
High Total Return II %
- ------------------------------------------------------------------------------------------------------------------------------
Money Market %
- ------------------------------------------------------------------------------------------------------------------------------
Balanced % 0.75 1.00 0.64 2.39 (0.14) 2.25
- ------------------------------------------------------------------------------------------------------------------------------
Income and Growth %
- ------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Opportunities %
- ------------------------------------------------------------------------------------------------------------------------------
Convertible % 0.75 1.00 0.42 2.17 -- 2.17
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class M Distribution Total
and service fund Fee waiver
Management (12b-1) Other operating by Net
Fund fee fees expenses(4) expenses adviser(2) expenses
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MagnaCap % 0.72 0.75 0.35 1.82 -- 1.82
- ------------------------------------------------------------------------------------------------------------------------------
LargeCap Leaders % 1.00 0.75 1.03 2.78 (0.53) 2.25
- ------------------------------------------------------------------------------------------------------------------------------
MidCap Value % 1.00 0.75 0.53 2.28 (0.03) 2.25
- ------------------------------------------------------------------------------------------------------------------------------
Asia-Pacific Equity % 1.25 0.75 1.30 3.30 (0.80) 2.50
- ------------------------------------------------------------------------------------------------------------------------------
Government Securities Income % 0.50 0.75 0.83 2.08 (0.08) 2.00
- ------------------------------------------------------------------------------------------------------------------------------
High Yield % 0.60 0.75 0.32 1.67 (0.17) 1.50
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
72
<PAGE>
WHAT YOU
PAY TO INVEST
- --------------------------------------------------------------------------------
Operating expenses paid each year by the fund
(as a % of average net assets)
<TABLE>
<CAPTION>
Class T(5) Distribution Total
and service fund Fee waiver
Management (12b-1) Other operating by Net
Fund fee fees expenses(4) expenses adviser(2) expenses
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Growth Opportunities % 0.72 0.75 0.35 1.82 -- 1.82
- ------------------------------------------------------------------------------------------------------------------------------
SmallCap Opportunities % 1.00 0.75 1.03 2.78 (0.53) 2.25
- ------------------------------------------------------------------------------------------------------------------------------
Government Securities Income % 0.50 (0.95) 0.83 ( ) ( )
- ------------------------------------------------------------------------------------------------------------------------------
Government Securities % 1.00 0.75 0.53 2.28 (0.03) 2.25
- ------------------------------------------------------------------------------------------------------------------------------
High Yield II % 0.60 (0.95) 0.44 ( ) ( )
- ------------------------------------------------------------------------------------------------------------------------------
High Yield III % 1.25 0.75 1.30 3.30 (0.80) 2.50
- ------------------------------------------------------------------------------------------------------------------------------
Balanced % 0.75 0.50 0.65 ( ) ( )
- ------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Opportunities % 0.50 0.75 0.83 2.08 (0.08) 2.00
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These tables show the estimated operating expenses for each Fund by a
class as a ratio of expenses to average daily net assets. These estimates
are based on each Fund's actual operating expenses for its most recent
complete fiscal year and fee waivers to which the Adviser has agreed.
(2) Pilgrim Investments has entered into expense limitation agreements with
each Fund except MagnaCap Fund, Bank and Thrift Fund and Government
Securities Income Fund, under which it will limit expenses of the Fund,
excluding interest, taxes, brokerage and extraordinary expenses, subject
to possible reimbursement to Pilgrim Investments within three years. The
expense limit for each such Fund is shown as "Net Expenses." For the
LargeCap Leaders, MidCap Value and Asia-Pacific Equity Funds, the expense
limits will continue until at least June 30, 2000. For High Yield Fund
Fund, the current limits will continue through December 31, 1999, at which
time they will change to 1.10% for Class A, 1.85% for classes B and C and
1.60% for Class M through at least June 30, 2001. For each remaining Fund
except Government Securities Income Fund, the expense limit will continue
through at least October 31, 2001. Nicholas-Applegate Capital Management
bears 50% of the cost of maintaining the expense limit for Funds which it
serves as sub-adviser. Pilgrim Investments has separately agreed to
reimburse Government Securities Income Fund to the extent that total Fund
operating expenses, excluding interest, taxes, brokerage commissions,
extraordinary expenses, and distribution fees in excess of 0.25%, exceed
1.50% of the Fund's average daily net asset on the first $40 million in
net assets and 1% of average daily net assets in excess of $40 million.
The expense limit for Government Securities Income Fund will terminate
only with termination of the advisory contract with Pilgrim Investments.
(3) Because Class C shares are new for the MagnaCap, LargeCap Leaders, MidCap
Value, Government Securities Income and High Yield Funds, their expenses
are based on Class B expenses.
(4) Except for the MagnaCap, LargeCap Leaders, MidCap Value, Bank and Thrift,
Asia-Pacific Equity, Government Securities Income and High Yield Funds,
other expenses have been restated to reflect the elimination of certain
administrative fees effective May 24, 1999.
(5) Because Class T shares are new for Government Securities Income, High
Yield II, and Balanced, their expenses are based on Class (A) expenses.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
73
<PAGE>
WHAT YOU
PAY TO INVEST
- --------------------------------------------------------------------------------
Examples
The examples that follow are intended to help you compare the cost of investing
in the funds with the cost of investing in other mutual funds. Each example
assumes that you invested $10,000, reinvested all your dividends, the fund
earned an average annual return of 5%, and annual operating expenses remained at
the current level. Keep in mind that this is only an estimate -- actual expenses
and performance may vary.
Class A
<TABLE>
<CAPTION>
if you sell your shares if you don't sell your shares
--------------------------------------- ---------------------------------------
Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MagnaCap $ 706 984 1,282 2,127 706 984 1,282 2,127
- ------------------------------------------------------------------------------------------------------------------------------------
LargeCap Leaders $ 743 1,199 1,680 3,001 743 1,199 1,680 3,001
- ------------------------------------------------------------------------------------------------------------------------------------
Research Enhanced Index $
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
LargeCap Growth $ 728 1,089 1,513 2,689 728 1,089 1,513 2,689
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Value $ 743 1,100 1,481 2,547 743 1,100 1,481 2,547
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Growth $ 721 1,028 1,356 2,283 721 1,028 1,356 2,283
- ------------------------------------------------------------------------------------------------------------------------------------
Growth + Value $
- ------------------------------------------------------------------------------------------------------------------------------------
SmallCap Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
SmallCap Growth $ 751 1,120 1,513 2,609 751 1,120 1,513 2,609
- ------------------------------------------------------------------------------------------------------------------------------------
Bank and Thrift $ 690 934 1,197 1,946 690 934 1,197 1,946
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth $ 752 1,127 1,530 2,653 752 1,127 1,530 2,653
- ------------------------------------------------------------------------------------------------------------------------------------
International Value $
- ------------------------------------------------------------------------------------------------------------------------------------
International Core Growth $ 762 1,156 1,579 2,752 762 1,156 1,579 2,752
- ------------------------------------------------------------------------------------------------------------------------------------
International SmallCap Growth $ 761 1,149 1,562 2,709 761 1,149 1,562 2,709
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Value $
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Countries $ 790 1,257 1,768 3,164 790 1,257 1,768 3,164
- ------------------------------------------------------------------------------------------------------------------------------------
Asia-Pacific Equity $ 766 1,322 1,902 3,469 766 1,322 1,902 3,469
- ------------------------------------------------------------------------------------------------------------------------------------
Government Securities Income $ 620 927 1,255 2,180 620 927 1,255 2,180
- ------------------------------------------------------------------------------------------------------------------------------------
Government Securities $
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income $ 567 850 1,241 2,335 567 850 1,241 2,335
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield $ 582 815 1,075 1,815 582 815 1,075 1,815
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield II $ 572 819 1,127 1,998 572 819 1,127 1,998
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield III $
- ------------------------------------------------------------------------------------------------------------------------------------
High Total Return $
- ------------------------------------------------------------------------------------------------------------------------------------
High Total Return II $
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market $
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced $ 728 1,066 1,442 2,495 728 1,066 1,442 2,495
- ------------------------------------------------------------------------------------------------------------------------------------
Income and Growth $
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
Convertible $ 721 1,028 1,356 2,283 721 1,028 1,356 2,283
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE>
WHAT YOU
PAY TO INVEST
- --------------------------------------------------------------------------------
Examples
Class B
<TABLE>
<CAPTION>
if you sell your shares if you don't sell your shares
--------------------------------------- ---------------------------------------
Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MagnaCap $ 710 984 1,314 2,221 210 649 1,114 2,221
- ------------------------------------------------------------------------------------------------------------------------------------
LargeCap Leaders $ 753 1,187 1,745 3,133 253 887 1,545 3,133
- ------------------------------------------------------------------------------------------------------------------------------------
Research Enhanced Index $
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
LargeCap Growth $ 728 1,043 1,525 2,747 228 743 1,325 2,747
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Value $ 753 1,085 1,543 2,680 253 785 1,343 2,680
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Growth $ 720 979 1,364 2,339 220 679 1,164 2,339
- ------------------------------------------------------------------------------------------------------------------------------------
Growth + Value $
- ------------------------------------------------------------------------------------------------------------------------------------
SmallCap Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
SmallCap Growth $ 758 1,094 1,555 2,712 258 794 1,355 2,712
- ------------------------------------------------------------------------------------------------------------------------------------
Bank and Thrift $ 698 912 1,252 2,080 198 612 1,052 2,080
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth $ 753 1,083 1,543 2,710 253 783 1,343 2,710
- ------------------------------------------------------------------------------------------------------------------------------------
International Value $
- ------------------------------------------------------------------------------------------------------------------------------------
International Core Growth $ 763 1,112 1,590 2,804 263 812 1,390 2,804
- ------------------------------------------------------------------------------------------------------------------------------------
International SmallCap Growth $ 762 1,105 1,575 2,767 262 805 1,375 2,767
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Value $
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Countries $ 793 1,216 1,784 3,218 293 916 1,584 3,218
- ------------------------------------------------------------------------------------------------------------------------------------
Asia-Pacific Equity $ 778 1,315 1,973 3,599 278 1,015 1,773 3,599
- ------------------------------------------------------------------------------------------------------------------------------------
Government Securities Income $ 728 1,003 1,405 2,396 228 703 1,205 2,396
- ------------------------------------------------------------------------------------------------------------------------------------
Government Securities $
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income $ 637 822 1,226 2,301 137 522 1,026 2,301
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield $ 688 889 1,223 2,035 188 589 1,023 2,035
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield II $ 678 882 1,243 2,153 178 582 1,043 2,153
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield III $
- ------------------------------------------------------------------------------------------------------------------------------------
High Total Return $
- ------------------------------------------------------------------------------------------------------------------------------------
High Total Return II $
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market $
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced $ 728 1,019 1,453 2,551 228 719 1,253 2,551
- ------------------------------------------------------------------------------------------------------------------------------------
Income and Growth $
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
Convertible $ 720 979 1,364 2,339 220 679 1,164 2,339
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
75
<PAGE>
WHAT YOU
PAY TO INVEST
- --------------------------------------------------------------------------------
Examples
Class C
<TABLE>
<CAPTION>
if you sell your shares if you don't sell your shares
--------------------------------------- ---------------------------------------
Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MagnaCap $ 310 649 1,114 2,400 210 649 1,114 2,400
- ------------------------------------------------------------------------------------------------------------------------------------
LargeCap Leaders $ 353 887 1,545 3,309 253 887 1,545 3,309
- ------------------------------------------------------------------------------------------------------------------------------------
Research Enhanced Index $
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
LargeCap Growth $ 328 744 1,329 2,914 228 744 1,329 2,914
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Value $ 353 785 1,343 2,863 253 785 1,343 2,863
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Growth $ 321 682 1,169 2,513 221 682 1,169 2,513
- ------------------------------------------------------------------------------------------------------------------------------------
Growth + Value $
- ------------------------------------------------------------------------------------------------------------------------------------
SmallCap Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
SmallCap Growth $ 352 776 1,326 2,826 252 776 1,326 2,826
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Growth $ 353 783 1,343 2,869 253 783 1,343 2,869
- ------------------------------------------------------------------------------------------------------------------------------------
International Value $
- ------------------------------------------------------------------------------------------------------------------------------------
International Core Growth $ 363 814 1,396 2,976 263 814 1,396 2,976
- ------------------------------------------------------------------------------------------------------------------------------------
International SmallCap Growth $ 362 805 1,375 2,925 262 805 1,375 2,925
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Value $
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Countries $ 393 915 1,580 3,359 293 915 1,580 3,359
- ------------------------------------------------------------------------------------------------------------------------------------
Government Securities Income $ 328 703 1,205 2,585 228 703 1,205 2,585
- ------------------------------------------------------------------------------------------------------------------------------------
Government Securities $
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income $ 237 521 1,023 2,405 137 521 1,023 2,405
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield $ 288 589 1,023 2,230 188 589 1,023 2,230
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield II $ 278 582 1,043 2,321 178 582 1,043 2,321
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield III $
- ------------------------------------------------------------------------------------------------------------------------------------
High Total Return $
- ------------------------------------------------------------------------------------------------------------------------------------
High Total Return II $
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market $
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced $ 328 718 1,250 2,704 228 718 1,250 2,704
- ------------------------------------------------------------------------------------------------------------------------------------
Income and Growth $
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
Convertible $ 320 679 1,164 2,503 220 679 1,164 2,503
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Class M
<TABLE>
<CAPTION>
if you sell your shares if you don't sell your shares
--------------------------------------- ---------------------------------------
Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MagnaCap $ 528 902 1,301 2,412 528 902 1,301 2,412
- ------------------------------------------------------------------------------------------------------------------------------------
LargeCap Leaders $ 570 1,134 1,723 3,313 570 1,134 1,723 3,313
- ------------------------------------------------------------------------------------------------------------------------------------
MidCap Value $ 570 1,035 1,525 2,872 570 1,035 1,525 2,872
- ------------------------------------------------------------------------------------------------------------------------------------
Asia-Pacific Equity $ 594 1,258 1,945 3,767 594 1,258 1,945 3,767
- ------------------------------------------------------------------------------------------------------------------------------------
Government Securities Income $ 521 932 1,368 2,577 521 932 1,368 2,577
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield $ 482 821 1,189 2,224 482 821 1,189 2,224
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Class T
<TABLE>
<CAPTION>
if you sell your shares if you don't sell your shares
--------------------------------------- ---------------------------------------
Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
SmallCap Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
Government Securities Income $
- ------------------------------------------------------------------------------------------------------------------------------------
Government Securities $
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield II $
- ------------------------------------------------------------------------------------------------------------------------------------
High Yield III $
- ------------------------------------------------------------------------------------------------------------------------------------
Balanced $
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Opportunities $
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
76
<PAGE>
SHAREHOLDER
GUIDE
- --------------------------------------------------------------------------------
CHOOSING A
SHARE CLASS
PILGRIM PURCHASE OPTIONS(TM)
Depending upon the Fund, you may select from up to four separate classes of
shares: Class A, Class B, Class C and Class M.
Class A
o Front-end sales charge, as described on the next page (except for Money
Market Fund).
o Distribution and service (12b-1) fees of 0.25% to 0.35%.
Class B
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1% (0.75% for Strategic Income
Fund)
o A contingent deferred sales charge, as described on the next page.
o Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses. Class B shares acquired initially through Funds
that were part of the Nicholas-Applegate Mutual Funds at the time of
purchase will convert after seven years from the date of original
purchase.
Class C
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1% (0.75% for Strategic Income
Fund)
o A 1% contingent deferred sales charge on shares sold within one year of
purchase.
o No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of your investment.
o Not offered by Bank and Thrift Fund and Asia-Pacific Equity Fund.
Class M
o Lower front-end sales charge than Class A, as described on the next page.
o Distribution and service (12b-1) fees of 0.75%.
o No automatic conversion to Class A shares, so annual expenses continue at
the Class M level throughout the life of your investment.
o Offered only by MagnaCap Fund, LargeCap Leaders Fund, MidCap Value Fund,
Asia-Pacific Equity Fund, Government Securities Income Fund and High Yield
Fund.
Class T
o No longer available for purchase, unless you are receiving income earned
on Class T shares or exchanging Class T shares you already own
o Distribution and service (12b-1) fees of 0.65 to 1% (varies by fund)
o A contingent deferred sales charge, as described in this section.
o Automatic conversion to Class A shares after 8 years, thus reducing future
annual expenses.
When choosing between classes, you should carefully consider the ongoing annual
expenses along with the initial sales charge or the contingent deferred sales
charge. The relative impact of the initial sales charges and ongoing annual
expenses will depend on the length of time a share is held. Higher distribution
fees mean a higher expense ratio, so Class B and Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A or Class M shares.
Orders for Class B shares and Class M shares in excess of $250,000 and
$1,000,000, respectively, will be accepted as orders for Class A shares or
declined. You should discuss which Class of shares is right for you with your
investment professional.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
77
<PAGE>
SHAREHOLDER
GUIDE
- --------------------------------------------------------------------------------
CHOOSING A
SHARE CLASS
SALES CHARGE CALCULATION
Class A
Class A shares of the funds are sold subject to the following sales charge:
<TABLE>
<CAPTION>
Equity Funds,
Balanced Fund and
Convertible Fund Income Funds
-------------------------------------- ---------------------------------
As a % As a %
of the As a % of of the As a % of
offering net offering net
Your investment price asset value price asset value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.75 6.10 4.75 4.99
- ---------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.50 4.71 4.50 4.71
- ---------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 3.50 3.63 3.50 3.63
- ---------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.50 2.56 2.50 2.56
- ---------------------------------------------------------------------------------------------------------------
$500,000 - $1,000,000 2.00 2.04 2.00 2.04
- ---------------------------------------------------------------------------------------------------------------
$1,000,000 and over See below See below
</TABLE>
Money Market Fund
There is no sales charge if you purchase Class A shares of Money Market Fund.
However, if the Class A shares are exchanged for shares of another Pilgrim fund,
you will be charged the applicable sales load for that fund upon the exchange.
Investments of $1 Million or More. There is no front-end sales charge if you
purchase Class A shares in an amount of $1 million or more. However, the shares
will be subject to a contingent deferred sales charge if they are redeemed
within one or two years of purchase, depending on the amount of the purchase, as
follows:
Period during which
Your investment CDSC CDSC applies
- --------------------------------------------------------------------------------
$1,000,000 to $2,499,999 1.00% 2 years
- --------------------------------------------------------------------------------
$2,500,000 to $4,999,999 0.50% 1 year
- --------------------------------------------------------------------------------
$5,000,000 and over 0.25% 1 year
- --------------------------------------------------------------------------------
However, Class A shares that were purchased in an amount of $1 million or more
through Funds that were part of the Nicholas-Applegate Mutual Funds at the time
of purchase will be subject to a contingent deferred sales charge of 1% within
one year from the date of purchase.
Class A shares that were purchased in an amount of $1 million or more through
funds that were part of the Northstar family of funds at the time of purchase
are subject to a different contingent deferred sales charge period of 18 months
from the date of purchase. See the SAI for further information.
78
<PAGE>
SHAREHOLDER
GUIDE
- --------------------------------------------------------------------------------
CHOOSING A
SHARE CLASS
Class B and Class C
Class B and Class C shares are offered at their net asset value per share
without any initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) on shares that you sell within a certain period of
time after you bought them. The amount of the CDSC is based on the lesser of the
net asset value of the shares at the time of purchase or redemption. There is no
CDSC on shares acquired through the reinvestment of dividends and capital gains
distributions. The CDSCs are as follows:
Class B Deferred Sales Charge(1)
CDSC on shares
Years after purchase being sold
- --------------------------------------------------------------------------------
1st year 5%
- --------------------------------------------------------------------------------
2nd year 4%
- --------------------------------------------------------------------------------
3rd year 3%
- --------------------------------------------------------------------------------
4th year 3%
- --------------------------------------------------------------------------------
5th year 2%
- --------------------------------------------------------------------------------
6th year 1%
- --------------------------------------------------------------------------------
After 6th year none
- --------------------------------------------------------------------------------
(1) Class B shares that were purchased through funds that were part of the
Northstar family of funds at the time of purchase are subject to a
different contingent deferred sales charge. Please see the SAI for further
information.
Class C Deferred Sales Charge
CDSC on shares
Years after purchase being sold
- --------------------------------------------------------------------------------
1st year % 1
- --------------------------------------------------------------------------------
After 1st year none
To keep your CDSC as low as possible, each time you place a request to redeem
shares the Funds will first redeem shares in your account that are not subject
to a CDSC, and then will sell shares that have the lowest CDSC.
Class M
Class M shares of the funds are sold subject to the following sales charge.
<TABLE>
<CAPTION>
MagnaCap,
LargeCap Leaders, Government
MidCap Value, Securities
and Income and
Asia-Pacific High Yield
Equity Funds Funds
------------------------------- -------------------------------
As a % As a % As a % As a %
of the of net of the of net
offering asset offering asset
Your investment price value price value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Less than $50,000 3.50% 3.63% 3.25% 3.36%
- ----------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 2.50% 2.56% 2.25% 2.30%
- ----------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 1.50% 1.52% 1.50% 1.52%
- ----------------------------------------------------------------------------------------------------------------
$250,000 - $499,999\ 1.00% 1.01% 1.00% 1.01%
- ----------------------------------------------------------------------------------------------------------------
$500,000 and over none none none none
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
79
<PAGE>
SHAREHOLDER
GUIDE
- --------------------------------------------------------------------------------
SALES CHARGE
REDUCTIONS AND
WAIVERS
Reduced Sales Charges. You may reduce the initial sales charge on a purchase of
Class A or Class M shares of the funds by combining multiple purchases to take
advantage of the breakpoints in the sales charge schedules. You may do this by:
Letter of Intent -- lets you purchase shares over a 13 month period and pay the
same sales charge as if the shares had all been purchased at once.
Rights of Accumulation -- lets you add the value of shares of any open-end
Pilgrim Fund (excluding the Money Market Fund) you already own to the amount of
your next purchase for purposes of calculating the sales charge.
Combination Privilege -- shares held by investors in the Pilgrim Funds which
impose a CDSC may be combined with Class A or Class M shares for a reduced sales
charge.
See the Account Application or the Statement of Additional Information for
details, or contact your financial representative or the Shareholder Servicing
Agent for more information.
CDSC Waivers. If you notify the Transfer Agent at the time of redemption, the
CDSC for each Class will be waived in the following cases:
o redemptions following the death or permanent disability of a shareholder
if made within one year of death or the initial determination of permanent
disability. The waiver is available only for shares held at the time of
death or initial determination of permanent disability.
o for Class B Shares, redemptions pursuant to a Systematic Withdrawal Plan,
up to a maximum of 12% per year of a shareholder's account value based on
the value of the account at the time the plan is established and annually
thereafter, provided all dividends and distributions are reinvested and
the total redemptions do not exceed 12% annually.
o mandatory distributions from a tax-deferred retirement plan or an IRA.
However, if you purchased shares that were part of the Nicholas-Applegate
Mutual Funds, you may be eligible for a CDSC waiver prior to the mandatory
distribution age.
o If you think you may be eligible for a CDSC waiver, contact your financial
representative or the Shareholder Servicing Agent.
Reinstatement Privilege. If you sell Class B or Class C shares of a Pilgrim
Fund, you may reinvest some or all of the proceeds in the same share class
within 90 days without a sales charge. Reinstated Class B and Class C shares
will retain their original cost and purchase date for purposes of the CDSC. This
privilege can be used only once per calendar year. If you want to use the
Reinstatement Privilege, contact your financial representative or the
Shareholder Servicing Agent. Consult the SAI for more information.
Sales Charge Waivers. Class A or Class M shares may be purchased without a sales
charge by certain individuals and institutions. For additional information,
contact the Shareholder Servicing Agent, or see the Statement of Additional
Information.
80
<PAGE>
SHAREHOLDER
GUIDE
- --------------------------------------------------------------------------------
HOW TO PURCHASE
SHARES
- --------------------------------------------------------------------------------
The minimum initial investment amounts for the Pilgrim Funds are as follows:
o Non-retirement accounts: $1,000
o Retirement accounts: $250
o Pre-Authorized Investment Plan: $100 to open; you must invest at least
$100 a month.
The minimum additional investment is $100.
Make your investment using the table on the right.
- --------------------------------------------------------------------------------
The Funds and the Distributor reserve the right to reject any purchase order.
Please note that cash, travelers checks, third party checks, money orders and
checks drawn on non-US banks (even if payment may be effected through a US bank)
will not be accepted. Pilgrim reserves the right to waive minimum investment
amounts. The Funds reserve the right to liquidate sufficient shares to recover
annual transfer agent fees or to close your account and redeem your shares
should you fail to maintain your account value at a minimum of $1,000.00
($250.00 for IRA's).
Retirement Plans
The Funds have available prototype qualified retirement plans
for both corporations and for self-employed individuals. They also have
available prototype IRA, Roth IRA and Simple IRA plans (for both individuals and
employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans
and Tax Sheltered Retirement Plans for employees of public educational
institutions and certain non-profit, tax-exempt organizations. Investors
Fiduciary Trust Company (IFTC) acts as the custodian under these plans. For
further information, contact the Shareholder Servicing Agent at (800) 992-0180.
IFTC currently receives a $12 custodial fee annually for the maintenance of such
accounts.
<TABLE>
<CAPTION>
Initial Additional
Method Investment Investment
- ------- ---------- ----------
<S> <C> <C>
By Contacting An investment professional with an
Your Investment authorized firm can help you establish
Professional and maintain your account.
By Mail Visit or consult an investment Visit or consult an investment professional.
professional. Make your check Fill out the Account Additions form
payable to the Pilgrim Funds and included on the bottom of your account
mail it, along with a completed statement along with your check payable to
Application. Please indicate your the Fund and mail them to the address on
investment professional on the the account statement. Remember to write
New Account Application your account number on the check.
By Wire Call the Pilgrim Operations Wire the funds in the same manner
Department at (800) 336-3436 described under "Initial Investment."
to obtain an account number and
indicate your investment
professional on the account.
</TABLE>
Instruct your bank to wire funds to the Fund in the care of:
Investors Fiduciary Trust Co. ABA #101003621 Kansas City, MO
credit to:
__________________________________ (the Fund) A/C #751-8315;
for further credit to:
Shareholder A/C # ___________________ (A/C # you received over the
telephone)
Shareholder Name:
__________________________________
(Your Name Here)
After wiring funds you must complete the Account Application and send
it to:
Pilgrim Funds
P.O. Box 419368
Kansas City, MO 64141-6368
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
81
<PAGE>
SHAREHOLDER
GUIDE
- --------------------------------------------------------------------------------
HOW TO REDEEM
SHARES
- --------------------------------------------------------------------------------
You may redeem shares using the table on the right:
Under unusual circumstances, a Fund may suspend the right of redemption as
allowed by federal securities laws.
- --------------------------------------------------------------------------------
Systematic Withdrawal Plan
You may elect to make periodic withdrawals from your account on a regular basis.
o Your account must have a current value of at least $10,000.
o Minimum withdrawal amount is $100.
o You may choose from monthly, quarterly, semi-annual or annual payments.
For additional information, contact the Shareholder Servicing Agent, see the
Account Application or the Statement of Additional Information.
Payments
Normally, payment for shares redeemed will be made within three days after
receipt by the Transfer Agent of a written request in good order. When you place
a request to redeem shares for which the purchase money has not yet been
collected, the request will be executed at the next determined net asset value,
but the Fund will not release the proceeds until your purchase payment clears.
This may take up to 15 days or more. To reduce such delay, purchases should be
made by bank wire or federal funds.
Each Fund normally intends to pay in cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, a Fund may make payment
wholly or partly in securities at their then current market value equal to the
redemption price. In such case, a Fund could elect to make payment in securities
for redemptions in excess of $250,000 or 1% of its net assets during any 90-day
period for any one shareholder. An investor may incur brokerage costs in
converting such securities to cash.
METHOD PROCEDURES
- ------ ----------
By Contacting You may redeem by contacting your investment
Your Investment professional. Investment professionals may charge for
Professional their services in connection with your redemption
request, but neither the Fund nor the Distributor
imposes any such charge.
By Mail Send a written request specifying the Fund name and
share class, your account number, the name(s) in which
the account is registered, and the dollar value or
number of shares you wish to redeem to: Pilgrim Funds
P.O. Box 419368 Kansas City, MO 64141-6368 If
certificated shares have been issued, the certificate
must accompany the written request. Corporate investors
and other associations must have an appropriate
certification on file authorizing redemptions. A
suggested form of such certification is provided on the
Account Application. A signature guarantee may be
required.
By Telephone -- You may redeem shares by telephone on all accounts other
Expedited than retirement accounts, unless you check the box on
Redemption the Account Application which signifies that you do not
wish to use telephone redemptions. To redeem by
telephone, call the Shareholder Servicing Agent at (800)
992-0180.
Receiving Proceeds By Check:
You may have redemption proceeds (up to a maximum of
$100,000) mailed to an address which has been on record
with Pilgrim Funds for at least 30 days.
Receiving Proceeds By Wire:
You may have redemption proceeds (subject to a minimum
of $5,000) wired to your pre-designated bank account.
You will not be able to receive redemption proceeds by
wire unless you check the box on the Account Application
which signifies that you wish to receive redemption
proceeds by wire and attach a voided check. Under normal
circumstances, proceeds will be transmitted to your bank
on the business day following receipt of your
instructions, provided redemptions may be made. In the
event that share certificates have been issued, you may
not request a wire redemption by telephone.
82
<PAGE>
SHAREHOLDER
GUIDE
- --------------------------------------------------------------------------------
TRANSACTION
POLICIES
Net Asset Value
The net asset value (NAV) per share for each Fund and class is determined each
business day as of the close of regular trading on the New York Stock Exchange
(usually at 4:00 p.m. New York City time). The NAV per share of each class of
each Fund is calculated by taking the value of the Fund's assets attributable to
that class, subtracting the Fund's liabilities attributable to that class, and
dividing by the number of shares of that class that are outstanding. Because
foreign securities may trade on days when the Funds do not price shares, the net
asset value of a Fund that invests in foreign securities may change on days when
shareholders will not be able to purchase or redeem the Fund's shares.
In general, assets are valued based on actual or estimated market value, with
special provisions for assets not having readily available market quotations,
and short-term debt securities, and for situations where market quotations are
deemed unreliable. Short-term debt securities having a maturity of 60 days or
less are valued at amortized cost, unless the amortized cost does not
approximate market value. Securities prices may be obtained from automated
pricing services. When market quotations are not readily available or are deemed
unreliable, securities are valued at their fair value as determined in good
faith by the Board of Directors or Trustees, although the actual calculations
will be made by persons acting under the supervision of the Board. Valuing
securities at fair value involves greater reliance on judgment than securities
that have readily available market quotations.
Price of Shares
When you buy shares, you pay the NAV plus any applicable sales charge. When you
sell shares, you receive the NAV minus any applicable deferred sales charge.
Exchange orders are effected at NAV.
Execution of Requests
Purchase and sale requests are executed at the next NAV determined after the
order is received in proper form by the Transfer Agent or Distributor. A
purchase order will be deemed to be in proper form when all of the required
steps set forth above under "Purchase of Shares" have been completed. If you
purchase by wire, however, the order will be deemed to be in proper form after
the telephone notification and the federal funds wire have been received. If you
purchase by wire, you must submit an application form in a timely fashion. If an
order or payment by wire is received after the close of regular trading on the
New York Stock Exchange (normally 4:00 p.m. Eastern Time), the shares will not
be credited until the next business day.
You will receive a confirmation of each new transaction in your account, which
also will show you the number of Fund shares you own including the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Funds will not be issued
unless you request them in writing.
Telephone Orders
The Funds and their transfer agent will not be responsible for the authenticity
of phone instructions or losses, if any, resulting from unauthorized shareholder
transactions if they reasonably believe that such instructions were genuine. The
Funds and their transfer agent have established reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures
include recording telephone instructions for exchanges and expedited
redemptions, requiring the caller to give certain specific identifying
information, and providing written confirmation to shareholders of record not
later than five days following any such telephone transactions. If the Funds and
their transfer agent do not employ these procedures, they may be liable for any
losses due to unauthorized or fraudulent telephone instructions.
Exchanges
You may exchange shares of a Fund for shares of a Fund for shares of the same
class of any other Pilgrim Fund, without paying any additional sales charge,
except that Class A shares of the Money Market Fund for which no sales charge
was paid must pay the applicable sales load on an exchange into Class A shares
of another fund. In addition, Class T shares of any fund may be exchanged for
Class B shares of the Money Market Fund. Shares subject to a CDSC will continue
to age from the date that the original shares were purchased. If you exchange
shares of a Fund that at the time you acquired the shares was a
Nicholas-Applegate Mutual Fund, the shares you receive on the exchange will be
subject to the current CDSC structure and conversion rights of the Fund being
acquired, although the shares will continue to age for CDSC and conversion
purposes from the date the original shares were acquired.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
83
<PAGE>
SHAREHOLDER
GUIDE
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
The total value of shares being exchanged must at least equal the minimum
investment requirement of the Fund into which they are being exchanged.
Exchanges of shares are sales and may result in a gain or loss for federal and
state income tax purposes. There is no specific limit on exchange frequency;
however, the Funds are intended for long term investment and not as a short-term
trading vehicle. The adviser may prohibit excessive exchanges (more than four
per year). The adviser also may, on 60 days' prior notice, restrict the
frequency of, otherwise modify, or impose charges of up to $5.00 upon exchanges.
You will automatically have the ability to request an exchange by calling the
Shareholder Service Agent unless you mark the box on the Account Application
that indicates that you do not wish to have the telephone exchange privilege. A
Fund may change or cancel its exchange policies at any time, upon 60 days
written notice to shareholders.
Systematic Exchange Privilege
With an initial account balance of at least $5,000 and subject to the
information and limitations outlined above, you may elect to have a specified
dollar amount of shares systematically exchanged, monthly, quarterly,
semi-annually or annually (on or about the 10th of the applicable month), from
your account to an identically registered account in the same class of any other
open-end Pilgrim Fund. This exchange privilege may be modified at any time or
terminated upon 60 days written notice to shareholders.
Small Accounts
Due to the relatively high cost of handling small investments, the Funds reserve
the right upon 30 days written notice to redeem, at NAV, the shares of any
shareholder whose account (except for IRAs) has a value of less than $1,000,
other than as a result of a decline in the NAV per share.
DISTRIBUTION AND
SHAREHOLDER SERVICE
FEES
To pay for the cost of promoting the Funds and servicing your shareholder
account, each class of each Fund has adopted a Rule 12b-1 plan which requires
fees to be paid out of the assets of each class. Over time the fees will
increase your cost of investing and may exceed the cost of paying other types of
sales charges. The following table shows the distribution and service fees
associated with investing in each class of shares.
Distribution Fee Service Fee
---------------- -----------
Class A
MagnaCap, Research Enhanced Index,
Growth Opportunities, MidCap
Opportunities, Growth + Value,
Small Cap Opportunities,
International Value, Emerging
Markets Value, Government Securities,
High Yield III, High Total Return,
High Total Return II, Income and
Growth and Balance Sheet
Opportunities Funds ................. 0.05% 0.25%
LargeCap Leaders, MidCap Value, Bank
and Thrift, Asia-Pacific Equity,
Government Securities Income and
High Yield Funds .................... none 0.25%
LargeCap Growth, MidCap Growth,
SmallCap Growth, Convertible,
International Core Growth, Worldwide
Growth, International SmallCap
Growth, Emerging Countries,
Strategic Income, High Yield II
and Balanced Funds .................. 0.10% 0.25%
Money Market Fund ..................... none 0.25%
Class B ................................. 0.75%(1) 0.25%
Class C ................................. 0.75%(1) 0.25%
Class M ................................. 0.50% 0.25%
Class T ................................. 0.40% to 0.75% 0.25%
(varies by fund)
(1) The Class B and Class C distribution fee for Strategic Income Fund is
0.50%.
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ADVISERS
Pilgrim Advisors, Inc. (formerly "Northstar Investment Management Corporation")
(Pilgrim Advisors) is a registered investment adviser that currently manages
over $4 billion in mutual funds and institutional accounts. Pilgrim's principal
address is 40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004.
Pilgrim Investments, Inc. has overall responsibility for the management of the
Funds. Pilgrim Investments provides or oversees all investment advisory and
portfolio management services for each Fund, and assists in managing and
supervising all aspects of the general day-to-day business activities and
operations of the Funds, including custodial, transfer agency, dividend
disbursing, accounting, auditing, compliance and related services.
Organized in December 1994, Pilgrim Investments is registered as an investment
adviser with the Securities and Exchange Commission. As of September 30, 1999,
Pilgrim Investments managed over $ billion in assets. Pilgrim Investments
acquired certain assets of previous advisers to certain of the Funds in separate
transactions that closed on April 7, 1995 and May 21, 1999. Pilgrim Investments
is an indirect, wholly owned subsidiary of ReliaStar Financial Corp. (NYSE:
RLR). On October 29, 1999, ReliaStar acquired Pilgrim Investments. Pilgrim and
Pilgrim Investments share certain resources and investment personnel.
Pilgrim advisor or Pilgrim Investments as the case may be receive a monthly fee
for its services based on the average daily net assets of each of the funds it
manages. The fee is paid by each of the funds at the management fee rate noted
for each fund beginning on page 6.
The following table shows the aggregate annual advisory fee paid by each Fund
for the most recent fiscal year as a percentage of that Fund's average daily net
assets:
Fund Advisory Fee
- --------------------------------------------------------------------------------
MagnaCap 0.72%
- --------------------------------------------------------------------------------
LargeCap Leaders 1.00
- --------------------------------------------------------------------------------
Research Enhanced Index 1.00
- --------------------------------------------------------------------------------
Growth Opportunities 0.75
- --------------------------------------------------------------------------------
LargeCap Growth 0.75
- --------------------------------------------------------------------------------
MidCap Value 1.00
- --------------------------------------------------------------------------------
MidCap Opportunities 1.00
- --------------------------------------------------------------------------------
MidCap Growth 0.75
- --------------------------------------------------------------------------------
Growth + Value 1.00
- --------------------------------------------------------------------------------
SmallCap Opportunities 0.75
- --------------------------------------------------------------------------------
SmallCap Growth 1.00
- --------------------------------------------------------------------------------
Bank and Thrift 0.72
- --------------------------------------------------------------------------------
Worldwide Growth 1.00
- --------------------------------------------------------------------------------
International Value 1.00
- --------------------------------------------------------------------------------
International Core Growth 1.00
- --------------------------------------------------------------------------------
International SmallCap Growth 1.00
- --------------------------------------------------------------------------------
Emerging Markets Value 1.00
- --------------------------------------------------------------------------------
Emerging Countries 1.25
- --------------------------------------------------------------------------------
Asia-Pacific Equity 1.25
- --------------------------------------------------------------------------------
Government Securities Income 0.50
- --------------------------------------------------------------------------------
Government Securities 0.65
- --------------------------------------------------------------------------------
Strategic Income 0.45
- --------------------------------------------------------------------------------
High Yield 0.60
- --------------------------------------------------------------------------------
High Yield II 0.60
- --------------------------------------------------------------------------------
High Yield III 0.60
- --------------------------------------------------------------------------------
High Total Return 0.69
- --------------------------------------------------------------------------------
High Total Return II 0.75
- --------------------------------------------------------------------------------
Money Market 0.25
- --------------------------------------------------------------------------------
Balanced 0.75
- --------------------------------------------------------------------------------
Income and Growth 0.75
- --------------------------------------------------------------------------------
Balance Sheet Opportunities
- --------------------------------------------------------------------------------
Convertible 0.75
- --------------------------------------------------------------------------------
Pilgrim Advisors Directly Manages the Portfolios of the Following Funds:
Growth Opportunities Fund and MidCap Opportunities Fund.
The following individuals share responsibility for the day-to-day management of
the Growth Opportunities Fund and MidCap Opportunities Fund:
Mary Lisanti has managed the Pilgrim SmallCap Opportunities Fund since July
1998, has co-managed the Pilgrim MidCap Opportunities Fund since the fund was
formed in August 1998 and has co-managed the Pilgrim Growth Opportunities
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
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ADVISERS
Fund since November 1999. She joined Pilgrim in May 1998.
Ms. Lisanti has over 20 years of experience in small and mid-cap investments.
Before joining Pilgrim, Ms. Lisanti was a Portfolio Manager at Strong Capital
Management where she managed the Strong Small Cap Fund and co-managed the Strong
Mid Cap Fund. From 1993 to 1996, Ms. Lisanti was a Managing Director and Head of
Small and Mid-Capitalization Equity Strategies at Bankers Trust Corp. where she
managed the BT Small Cap Fund and the BT Capital Appreciation Fund. Prior to
Bankers Trust, Ms. Lisanti was a Portfolio Manager with the Evergreen Funds. She
began her career as an Analyst specializing in emerging growth stocks with
Donaldson, Lufkin & Jenrette and Shearson Lehman Hutton, and was ranked the
number one Institutional Investor Emerging Growth Stock Analyst in 1989. She is
a Chartered Financial Analyst, and a member of the New York Society of Security
Analysts and the Financial Analyst Federation.
Jeffrey Bernstein has co-managed the Pilgrim MidCap Opportunities Fund since the
fund was formed in August 1998 and has co-managed the Pilgrim Growth
Opportunities Fund since November 1999. He joined Pilgrim in May 1998.
Mr. Bernstein has over 10 years of experience in small and mid-cap investments.
Before joining Pilgrim, Mr. Bernstein was a Portfolio Manager at Strong Capital
Management where he co-managed the Strong MidCap Fund. From November 1995 to
February 1997, Mr. Bernstein was a Portfolio Manager with Berkeley Capital. From
September 1993 to November 1995, Mr. Bernstein was an Assistant Portfolio
Manager at Bankers Trust Corp. Prior to Bankers Trust, Mr. Bernstein was an
Analyst for Cowen & Co.
SmallCap Opportunities Fund
Mary Lisanti, whose background is described above, has served as a manager of
the SmallCap Opportunities Fund since July 1998.
Government Securities Fund
The following individuals share responsibility for the day-to-day management of
the Government Securities Fund:
Robert Kinsey has co-managed the Pilgrim Government Securities Fund since
November 1999.
Mr. Kinsey has over 13 years of experience in the management of fixed-income
investments. At Pilgrim Investments, Inc. (Pilgrim Investments), an affiliate of
Pilgrim Advisors, he serves as Vice President and a Senior Portfolio Manager.
Prior to joining Pilgrim Investments, Mr. Kinsey was a Vice President and fixed
income Portfolio Manager of Federated Investors from January 1995 to March 1999.
From July 1992 to January 1995, Mr. Kinsey was a Principal and Portfolio Manager
for Harris Investment Management.
Charles Ullerich has co-managed the Pilgrim Government Securities Fund since
November 1999. Mr. Ullerich has approximately nine years of experience in the
management of fixed-income investments. At Pilgrim Investments, an affiliate of
Pilgrim Advisors, he serves as a Vice President and Portfolio Manager. Prior to
joining Pilgrim Investments, Mr. Ullerich was Vice President of Treasury
Services for First Liberty Bank of Macon, Georgia since 1991, where he was
Portfolio Manager for a mortgage and treasury securities portfolio.
High Yield Fund III, High Total Return Fund and High Total Return Fund II
Kevin Mathews has managed the Pilgrim High Yield III, High Total Return II and
High Total Return funds since November 1999.
Mr. Mathews has over 16 years of experience in the management of high-yield
fixed income investments. At Pilgrim Investments, an affiliate of Pilgrim
Advisors, he serves as a Senior Vice
86
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MANAGEMENT
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ADVISERS
President and Senior Portfolio Manager. Prior to joining Pilgrim Investments,
Mr. Mathews was a Vice President and Senior Portfolio Manager of Van Kampen
American Capital.
Income and Growth Fund and Balance Sheet Opportunities Fund
The following individuals share responsibility for the day-to-day management of
the Income and Growth Fund and Balance Sheet Opportunities Fund:
Robert Kinsey has co-managed the Income and Growth and Balance Sheet
Opportunities Funds since November 1999.
Mr. Kinsey has over 13 years of investment management experience. At Pilgrim
Investments, Inc. (Pilgrim Investments), an affiliate of Pilgrim Advisors, he
serves as a Vice President and a Senior Portfolio Manager. Prior to joining
Pilgrim Investments, Mr. Kinsey was a Vice President and Fixed Income Portfolio
Manager for Federated Investors from January 1995 to March 1999. From July 1992
to January 1995 Mr. Kinsey was a Principal and Portfolio Manager for Harris
Investment Management.
Kevin Mathews has co-managed the Income and Growth and Balance Sheet
Opportunities Funds since November 1999.
Mr. Mathews has over 16 years of experience in the management of high-yield
fixed income investments. At Pilgrim Investments, an affiliate of Pilgrim
Advisors, he serves as a Senior Vice President and Senior Portfolio Manager.
Prior to joining Pilgrim Investments, Mr. Mathews was a Vice President and
Senior Portfolio Manager for Van Kampen American Capital.
G. David Underwood has co-managed the Income and Growth and Balance Sheet
Opportunities Funds since November 1999.
Mr. Underwood has over 21 years of investment management experience. At Pilgrim
Investments, an affiliate of Pilgrim, he serves as a Vice President and Senior
Portfolio Manager. Prior to joining Pilgrim Investments in December 1996, Mr.
Underwood was a Director of Funds Management for First Interstate Capital
Management.
Pilgrim Investments Directly Manages the Portfolios of the Following Funds:
MagnaCap Fund
This Fund is managed by a team led by Howard N. Kornblue, Senior Vice President
and Senior Portfolio Manager for Pilgrim Investments. Mr. Kornblue has served as
a Portfolio Manager of MagnaCap Fund since 1989. The other individuals on the
team are G. David Underwood, Anuradha Sahai and Robert M. Kloss.
LargeCap Leaders and MidCap Value Fund
The LargeCap Leaders and MidCap Value Funds are managed by a team led by G.
David Underwood, Vice President and Senior Portfolio Manager for Pilgrim
Investments. Mr. Underwood is the Lead Portfolio Manager of LargeCap Leaders
Fund. Prior to joining Pilgrim Investments in December, 1996, Mr. Underwood
served as Director of Funds Management for First Interstate Capital Management.
Mr. Underwood's prior experience includes a 10 year association with Integra
Trust Company of Pittsburgh where he served as Director of Research and Senior
Portfolio Manager. The other individual on the team is Robert M. Kloss.
Bank and Thrift Fund
Carl Dorf, Senior Vice President and Senior Portfolio Manager of Bank and Thrift
Fund has been managing the Fund's portfolio since January 1991, when he joined
Pilgrim Investments' predecessor. Mr. Dorf is also a Senior Vice President of
Pilgrim Investments.
Strategic Income Fund
The following individuals share responsibility for the day-to-day management of
the Strategic Income Fund:
Robert K. Kinsey, Vice President of Pilgrim Investments, has served as a
Portfolio Manager of Strategic Income Fund since May 24, 1999. Mr. Kinsey
manages Strategic Income Fund's assets that are invested in assets other than
high yield debt securities. Prior to joining Pilgrim Investments, Mr. Kinsey was
a Vice President and Fixed Income Portfolio Manager for Federated Investors from
January 1995 to March 1999. From July 1992 to
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
87
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MANAGEMENT
OF THE
FUNDS
- --------------------------------------------------------------------------------
ADVISERS
January 1995, Mr. Kinsey was a Principal and Portfolio Manager for Harris
Investment Management.
Kevin G. Mathews, Senior Vice President and Senior Portfolio Manager of Pilgrim
Investments, has served as a Portfolio Manager of Strategic Income Fund since
May 24, 1999. Mr. Mathews manages Strategic Income Fund's assets that are
invested in high yield debt securities. Mr. Mathews has served as Portfolio
Manager of High Yield Fund since June 1995, and also served as Portfolio Manager
of Government Securities Income Fund from June 1995 through September 1996.
Prior to joining Pilgrim Investments, Mr. Mathews was a Vice President and
Senior Portfolio Manager with Van Kampen American Capital.
Government Securities Income Fund
Robert K. Kinsey, whose background is described above, has primary
responsibility for the day-to-day management of Government Securities Income
Fund, and has served as Senior Portfolio Manager of Government Securities Income
Fund since May 24, 1999.
Charles Ullerich, Vice President of Pilgrim Investments, has served as a
Portfolio Manager of Government Securities Income Fund since September 1996 and
served as Assistant Portfolio Manager of that Fund from August 1995 to September
1996. Prior to joining Pilgrim Investments, Mr. Ullerich was Vice President of
Treasury Services for First Liberty Bank of Macon, GA since 1991, where he was
Portfolio Manager for a mortgage and treasury securities portfolio.
High Yield Fund and High Yield Fund II
Kevin G. Mathews, whose background is described above, has served as Portfolio
Manager of High Yield Fund and High Yield Fund II since June 1995 and May, 1999,
respectively.
Balanced Fund
The following individuals share responsibility for the day-to-day management of
the Balanced Fund:
G. David Underwood, Vice President and Senior Portfolio Manager for Pilgrim
Investments, has served as Senior Portfolio Manager of the equity portion of the
Balanced Fund's assets since May 24, 1999. Mr. Underwood is the Lead Portfolio
Manager of Pilgrim LargeCap Leaders Fund. Prior to joining Pilgrim Investments
in December, 1996, Mr. Underwood served as Director of Funds Management for
First Interstate Capital Management. Mr. Underwood's prior experience includes a
10 year association with Integra Trust Company of Pittsburgh where he served as
Director of Research and Senior Portfolio Manager.
Kevin G. Mathews, whose background is described above, has served as Senior
Portfolio Manager of the fixed income portion of Balanced Fund's assets since
May 24, 1999.
Robert K. Kinsey, whose background is described above, has also served as a
Portfolio Manager of the fixed income portion of Balanced Fund's assets since
May 24, 1999.
- --------------------------------------------------------------------------------
SUB-ADVISERS
For the following Funds, Pilgrim Advisors or Pilgrim Investments has engaged a
Sub-Adviser to provide the day-to-day management of the Fund's portfolio. The
Sub-Advisers are among the most respected institutional investment advisers in
the world, and have been selected primarily on the basis of their successful
application of a consistent, well-defined, long-term investment approach over a
period of several market cycles.
Research Enhanced Index Fund
J.P. Morgan Investment Management Inc.
A registered investment adviser, J.P. Morgan Investment Management Inc. (J.P.
Morgan) serves as Sub-Adviser to the Pilgrim Research Enhanced Index Fund. The
firm was formed in 1984. The firm evolved from the Trust and Investment Division
of Morgan Guaranty Trust Company which acquired its first tax-exempt client in
1913 and its first pension account in 1940. J.P. Morgan currently manages
approximately $323 billion for institutions and pension funds. The company is a
wholly owned subsidiary of J.P. Morgan & Co. J.P. Morgan's principal address is
522 Fifth Avenue, New York, New York 10036.
J.P. Morgan receives a monthly fee for its services based on the average daily
net assets of the Pilgrim Research Enhanced Index Fund. The fee for the fund is
paid by Pilgrim, and not by the fund, at a rate of 0.20%.
Growth + Value Fund
Navellier Fund Management, Inc.
A registered investment adviser, Navellier Fund Management Inc. (Navellier)
serves as Sub-Adviser to the Pilgrim Growth + Value Fund. Navellier and its
affiliate, Navellier & Associates, Inc., manage over $2 billion for
institutions, pension funds and high net worth individuals.
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MANAGEMENT
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- --------------------------------------------------------------------------------
Navellier is wholly owned by Louis Navellier. Navellier's principal address is 1
East Liberty, Third Floor, Reno, Nevada 89501.
Navellier receives a monthly fee for its services based on the average daily net
assets of the Pilgrim Growth + Value Fund. The fee for the fund is paid by
Pilgrim Advisors, and not by the fund, at a rate of 0.50%.
International Value Fund and Emerging Markets Value Fund
Brandes Investment Partners, L.P.
A registered investment adviser, Brandes Investment Partners, L.P. (Brandes)
serves as Sub-Adviser to the Pilgrim International Value Fund and the Pilgrim
Emerging Markets Value Fund. The company was formed in May 1996 as the successor
to its general partner, Brandes Investment Partners, Inc. which has been
providing investment advisory services (through various predecessor entities)
since 1974. Brandes currently manages over $33 billion in international
portfolios. Brandes' principal address is 12750 High Bluff Drive, San Diego,
California 92130.
Brandes receives a monthly fee for its services based on the average daily net
assets of each of the funds it manages. The fee for each fund is paid by Pilgrim
Advisors and not by either of the funds, at a rate of 50% of the management fee
that each of the funds pays Pilgrim Advisors.
Asia-Pacific Equity Fund
HSBC Asset Management Americas Inc. and HSBC Asset Management Hong Kong Limited
(collectively, HSBC) serve jointly as Sub-Adviser to Asia-Pacific Equity Fund.
The firms are part of HSBC Asset Management, the global investment advisory and
fund management business unit of HSBC Holdings plc (founded as the Hong Kong and
Sbanghai Banking Corporation in 1865) which, with headquarters in London, is one
of the world's largest banking and financial organizations. HSBC Asset
Management manages over approximately $49 billion [update #s] of assets
worldwide for a wide variety of institutional, retail and private clients. HSBC
Asset Management has advisory operations in Hong Kong and Singapore, among other
locations. Its Parent company has over a century of operations in local
economies throughout the Asia-Pacific region.
Fredric Lutcher III, Managing Director, Chief Financial Officer, HSBC Americas,
Ian Burden, Chief Investment Officer, HSBC Hong Kong, and Man Wing Chung,
Director, HSBC Hong Kong, are primarily responsible for portfolio management of
Asia-Pacific Equity Fund. Mr. Lutcher joined HSBC in 1997, and has over 20 years
of investment experience. Prior to joining HSBC, Mr. Lutcher was with Merrill
Lynch Asset Management. Mr. Burden has been with HSBC for 17 years, and has 24
years investment experience. Mr. Chung has been with HSBC for 5 years, and has
10 years investment experience.
LargeCap Growth Fund, MidCap Growth Fund, SmallCap Growth Fund, International
Core Growth Fund, Worldwide Growth Fund, International SmallCap Growth Fund,
Emerging Countries Fund and Convertible Fund
Nicholas-Applegate Capital Management (NACM).
Founded in 1984, NACM manages over $22 billion of discretionary assets for
numerous clients, including employee benefit plans of corporations, public
retirement systems and unions, university endowments, foundations, and other
institutional investors and individuals. Each of the Funds listed above is
managed by a team of portfolio managers and analysts employed by NACM.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
89
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PERFORMANCE
PROFILE:
Brandes Investment Partners
The charts below show the average annual total returns for the Pilgrim
International Value Fund. The fund commenced operations on March 6, 1995 as the
Brandes International Fund. It was reorganized on April 21, 1997 as the Pilgrim
International Value Fund.
These figures reflect changes in the share prices and reinvestment of dividends
and distributions, and are net of all fees and expenses. Included for comparison
are performance figures of the MSCI EAFE Index, an unmanaged index of securities
listed on exchanges in Europe, Australia and the Far East. It has been adjusted
to reflect reinvestment of dividends. The results shown below may not be the
same as the rate of return you receive on an investment in the fund, because
returns depend on when you make your investment and on how your investment is
taxed.
Pilgrim
International MSCI
Value EAFE
Fund (%) Index (%)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 13.46 20.00
- --------------------------------------------------------------------------------
Three years, ended
December 31, 1998 15.50 9.00
- --------------------------------------------------------------------------------
Total return since
March 6, 1995 15.39 11.24
- --------------------------------------------------------------------------------
[The following table was depicated as a line chart in the printed material.]
[PLOT POINTS TO COME]
[GRAPHIC OMITTED]
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PERFORMANCE
PROFILE:
Brandes Investment Partners
These figures demonstrate the historical track record of Brandes Investment
Partners. The figures have been provided by Brandes Investment Partners and have
not been verified or audited by Pilgrim Advisors. They do not indicate how the
Pilgrim International Value Fund or Brandes Investment Partners will perform in
the future.
The charts below show the past performance of Brandes Investment Partners in
managing all accounts with investment objectives, strategies and restrictions
substantially similar, but not necessarily identical, to those of the Pilgrim
International Value Fund. The charts show average annual total returns for a
composite of the actual performance of all international equity accounts managed
by Brandes Investment Partners from July 1990 until the present.
The accounts were not subject to the same types of expenses as the fund or the
requirements of the Investment Company Act of 1940 or the Internal Revenue Code,
the limitations of which might have adversely affected performance results.
Included for comparison purposes are performance figures of the MSCI EAFE Index.
The results shown below may not be the same as the rate of return of any
particular account, because returns depend on when you make your investment and
how your investment is taxed.
MSCI
Brandes International EAFE
Equity Composite (%)(a) Index( %)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 14.76 20.00
- --------------------------------------------------------------------------------
Three years, ended
December 31, 1998 17.03 9.00
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 12.08 9.19
- --------------------------------------------------------------------------------
Total return since
July 1, 1990 16.48 6.90
(a) The annual returns presented (right) were calculated on a time-weighted and
asset-weighted, total return basis, including reinvestments of all dividends,
interest and income, realized and unrealized gain or losses and are net of
applicable investment advisory fees, brokerage commissions and execution costs,
custodial fees and any applicable foreign withholding taxes, without provision
for federal and state income taxes, if any. This total return method differs
from the SEC method of calculating total return. The Brandes composite results
include all actual, fee-paying, fully discretionary international equity
accounts under management for at least one month beginning July 1, 1990 having
substantially similar investment objectives, strategies and restrictions to
those of the Pilgrim International Value Fund. The weighted-average management
fee during the period from July 1, 1990 through December 31, 1997 was 0.91% per
year. If the fund's expenses had been deducted, they would have reduced
performance. Securities transactions are accounted for on the trade date and
cash accounting is utilized. Cash and cash equivalents are included in
performance results. Net annual returns for the composite for calendar year 1991
have been attested by an independent accounting firm. Starting with calendar
year 1992 through calendar year 1997, the composite has been examined by a Big
Five accounting firm in accordance with AIMR Level II verification standards.
The examination for calendar year 1998 has not been completed as of the date of
this prospectus. Copies of the reports of independent accountants and a complete
list and description of Brandes' composites are available on request. Brandes
has prepared the performance data in compliance with the Performance
Presentation Standards of the Association for Investment Management and Research
(AIMR-PPS(TM)). AIMR did not prepare or review this data. The fund agrees to
conform the performance presentation to any changes in the SEC staff position
relating to prior performance presentations.
[The following table was depicated as a line chart in the printed material.]
[PLOT POINTS TO COME]
[GRAPHIC OMITTED]
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
91
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PERFORMANCE
PROFILE:
J.P. Morgan Investment Management
These figures demonstrate the historical track record of J.P. Morgan Investment
Management. The figures have been provided by J.P. Morgan Investment Management
and have not been verified or audited by Pilgrim Advisors. They do not indicate
how the Pilgrim Research Enhanced Index Fund or J.P. Morgan Investment
Management will perform in the future.
The charts presented here show J.P. Morgan Investment Management's past
performance in managing accounts with investment objectives, strategies and
restrictions substantially similar but not necessarily identical, to those of
the Pilgrim Research Enhanced Index Fund.
The charts show average annual total returns for a composite of the actual
performance of all accounts managed by J.P. Morgan following its research
enhanced equity strategy from December 1988 until the present.
The accounts were not subject to the same types of expenses as the fund or the
requirements of the Investment Company Act of 1940 or the Internal Revenue Code,
the limitations of which might have adversely affected performance results.
Included for comparison purposes are performance figures of the S&P 500 Index.
The results shown here may not be the same as the rate of return of any
particular account, because returns depend on when you make your investment and
on how your investment is taxed.
J.P. Morgan
Investment
Management S&P 500
Composite (%)(a) Index (%)
- --------------------------------------------------------------------------------
1989 30.43 31.64
- --------------------------------------------------------------------------------
1990 -2.28 -3.10
- --------------------------------------------------------------------------------
1991 29.95 30.41
- --------------------------------------------------------------------------------
1992 10.10 7.61
- --------------------------------------------------------------------------------
1993 10.60 10.06
- --------------------------------------------------------------------------------
1994 2.42 1.32
- --------------------------------------------------------------------------------
1995 38.58 37.54
- --------------------------------------------------------------------------------
1996 23.90 22.95
- --------------------------------------------------------------------------------
1997 34.17 33.35
- --------------------------------------------------------------------------------
1998 31.83 28.58
- --------------------------------------------------------------------------------
Three years, ended
December 31, 1998 29.89 28.23
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 25.48 24.06
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 20.16 19.21
- --------------------------------------------------------------------------------
(a) Results are net of fees and include reinvestment of earnings. This total
return method differs from the SEC method of calculating total return. If the
fund's expenses had been deducted, they would have reduced performance. J.P.
Morgan has prepared the performance data in compliance with the Performance
Presentation Standards of the Association for Investment Management and Research
(AIMR-PPS(TM)). AIMR did not prepare or review this data. The fund agrees to
conform the performance presentation to any changes in the SEC staff position
relating to prior performance presentations.
[The following table was depicated as a line chart in the printed material.]
[PLOT POINTS TO COME]
[GRAPHIC OMITTED]
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PERFORMANCE
PROFILE:
Louis Navellier
The charts presented here show average annual total returns for the Pilgrim
Growth + Value Fund.
Pilgrim Russell
Growth + Value 2000
Fund (%) Index (%)
- --------------------------------------------------------------------------------
One year, ended
December 31, 1998 17.72 -2.54
- --------------------------------------------------------------------------------
Total return since
November 18, 1996 15.26 9.99
[The following table was depicated as a line chart in the printed material.]
[PLOT POINTS TO COME]
[GRAPHIC OMITTED]
In addition to owning Navellier Fund Management, Inc., Louis Navellier is the
sole owner of Navellier & Associates, Inc., a registered investment adviser that
has been managing large pools of private assets since 1985.
Mr. Navellier and his staff use a computer-based system he developed to analyze
over 9,000 stocks as a basis for making buying and selling decisions.
The charts on page 33 show his past performance in managing accounts with
investment objectives, strategies and restrictions substantially similar, but
not necessarily identical, to those of the Pilgrim Growth + Value Fund.
The charts show average annual total returns for a composite of the actual
performance of all equity accounts managed by Navellier & Associates from 1985
to present, calculated according to AIMR standards. This total return method
differs from the SEC method of calculating total return. Navellier has prepared
the performance data in compliance with the Performance Presentation Standards
of the Association for Investment Management and Research (AIMR-PPS(TM)). AIMR
did not prepare or review this data. The fund agrees to conform the performance
presentation to any changes in the SEC staff position relating to prior
performance presentations.
The accounts were not subject to the requirements of the Investment Company Act
of 1940 or the Internal Revenue Code, the limitations of which might have
adversely affected performance results.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
93
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FUNDS
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PERFORMANCE
PROFILE:
Louis Navellier
These figures demonstrate the historical track record of Navellier & Associates.
The figures have been provided by Navellier & Associates and have not been
verified or audited by Pilgrim. They do not indicate how the Pilgrim Growth +
Value Fund or Navellier & Associates will perform in the future.
Navellier & Russell
Associates 2000
Composite (%)(a) Index (%)
- --------------------------------------------------------------------------------
1985 49.95 31.04
- --------------------------------------------------------------------------------
1986 31.20 5.68
- --------------------------------------------------------------------------------
1987 8.05 -8.80
- --------------------------------------------------------------------------------
1988 11.40 25.02
- --------------------------------------------------------------------------------
1989 22.20 16.26
- --------------------------------------------------------------------------------
1990 12.51 -19.48
- --------------------------------------------------------------------------------
1991 66.41 46.04
- --------------------------------------------------------------------------------
1992 3.12 18.41
- --------------------------------------------------------------------------------
1993 16.83 18.88
- --------------------------------------------------------------------------------
1994 1.53 -1.82
Navellier & Russell
Associates 2000
Composite (%)(a) Index (%)
- --------------------------------------------------------------------------------
1995 43.80 28.44
- --------------------------------------------------------------------------------
1996 10.68 16.49
- --------------------------------------------------------------------------------
1997 13.05 22.36
- --------------------------------------------------------------------------------
1998 15.14 -2.54
- --------------------------------------------------------------------------------
Three years, ended
December 31, 1998 12.94 11.58
- --------------------------------------------------------------------------------
Five years, ended
December 31, 1998 16.03 11.86
- --------------------------------------------------------------------------------
Ten years, ended
December 31, 1998 19.21 12.92
- --------------------------------------------------------------------------------
Total return since
January 1, 1985 20.58 12.69
(a) Results are net of fees and expenses. Prior to January 1, 1993, any account
expenses not deducted from the accounts, such as management fees paid outside
the accounts, are not reflected in the performance results. If these fees had
been deducted from the accounts, they would have reduced performance. Fees were
not materially different from the Pilgrim Growth + Value Fund's expense ratio,
but were generally higher than the expense ratio for Class A shares and lower
than the expense ratios for Class B and Class C shares.
[The following table was depicated as a line chart in the printed material.]
[PLOT POINTS TO COME]
[GRAPHIC OMITTED]
94
<PAGE>
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS
The Funds generally distribute most or all of their net earnings in the form of
dividends. Each Fund pays dividends, if any, as follows:
<TABLE>
<CAPTION>
Annually Semi-Annually Quarterly Monthly
- -------- ------------- --------- -------
<S> <C> <C> <C>
LargeCap Leaders(1) MagnaCap(1) Balanced(2) Strategic Income Fund(3)
Research Enhanced Index(1) Income and Growth(2) Government Securities
Growth Opportunities(1) Balance Sheet Income(3)
LargeCap Growth(1) Opportunities(2) Government Securities
MidCap Value(1) Convertible(2) High Yield(3)
MidCap Opportunites(1) High Yield II(3)
MidCap Growth(1) High Yield III(3)
Growth + Value(1) High Total Return(3)
SmallCap Opportunities(1) High Total Return II(3)
SmallCap Growth(1)
Bank and Thrift(1)
Worldwide Growth(1)
International Value(1)
International Core Growth(3)
International SmallCap Growth(1)
Emerging Markets Value(1)
Emerging Countries(1)
Asia-Pacific Equity(1)
</TABLE>
(1) Distributions normally expected to consist primarily of capital gains.
(2) Distributions normally expected to consist on an annual basis of a
variable combination of capital gains and ordinary income.
(3) Distributions normally expected to consist primarily of ordinary income.
Each Fund distributes capital gains, if any, annually.
Dividend Reinvestment
Unless you instruct a Fund to pay you dividends in cash, dividends and
distributions paid by a Fund will be reinvested in additional shares of the
Fund. You may, upon written request or by completing the appropriate section of
the Account Application, elect to have all dividends and other distributions
paid on Class A, B, C, M or T shares of a Fund invested in another Pilgrim Fund
which offers the same class shares. If you are a shareholder of Pilgrim Prime
Rate Trust, whose shares are not held in a broker or nominee account, you may,
upon written request, elect to have all dividends invested into a pre-existing
Class A account of any open-end Pilgrim Fund.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
95
<PAGE>
DIVIDENDS,
DISTRIBUTIONS
AND TAXES
- --------------------------------------------------------------------------------
TAXES
The following information is meant as a general summary for U.S. shareholders.
Please see the Statement of Additional Information for additional information.
You should rely your own tax adviser for advice about the particular federal,
state and local tax consequences to you of investing in a Fund.
Each Fund will distribute most of its net investment income and net capital
gains to its shareholders each year. Although the Funds will not be taxed on
amounts they distribute, most shareholders will be taxed on amounts they
receive. A particular distribution generally will be taxable as either ordinary
income or long-term capital gains. It does not matter how long you have held
your Fund shares or whether you elect to receive your distributions in cash or
reinvest them in additional Fund shares. For example, if a Fund designates a
particular distribution as a long-term capital gains distribution, it will be
taxable to you at your long-term capital gains rate.
Dividends declared by a Fund in October, November or December and paid during
the following January may be treated as having been received by shareholders in
the year the distributions were declared.
You will receive an annual statement summarizing your dividend and capital gains
distributions.
If you invest through a tax-deferred account, such as a retirement plan, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
consult your tax adviser about investment through a tax-deferred account.
There may be tax consequences to you if you sell or redeem Fund shares. You will
generally have a capital gain or loss, which will be long-term or short-term,
generally depending on how long you hold those shares. If you exchange shares,
you may be treated as if you sold them. You are responsible for any tax
liabilities generated by your transactions.
As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax;
rather, it is a way in which the IRS ensures it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
96
<PAGE>
MORE
INFORMATION
ABOUT RISKS
- --------------------------------------------------------------------------------
All mutual funds involve risk -- some more than others -- and there is always
the chance that you could lose money or not earn as much as you hope. A Fund's
risk profile is largely a factor of the principal securities in which it invests
and investment techniques that it uses. The following pages discuss the risks
associated with certain of the types of securities in which the Funds may invest
and certain of the investment practices that the Funds may use. For more
information about these and other types of securities and investment techniques
that may be used by the Funds, see the SAI.
Many of the investment techniques and strategies discussed in this prospectus
and in the Statement of Additional Information are discretionary, which means
that the adviser or sub-adviser can decide whether to use them or not. The
adviser or sub-adviser of a Fund may also use investment techniques or make
investments in securities that are not a part of the Fund's principal investment
strategy.
Investments in Foreign Securities. There are certain risks in owning foreign
securities, including those resulting from: fluctuations in currency exchange
rates; devaluation of currencies; political or economic developments and the
possible imposition of currency exchange blockages or other foreign governmental
laws or restrictions; reduced availability of public information concerning
issuers; accounting, auditing and financial reporting standards or other
regulatory practices and requirements that are not uniform when compared to
those applicable to domestic companies; settlement and clearance procedures in
some countries that may not be reliable and can result in delays in settlement;
higher transaction and custody expenses than for domestic securities; and
limitations on foreign ownership of equity securities. Also, securities of many
foreign companies may be less liquid and the prices more volatile than those of
domestic companies. With certain foreign countries, there is the possibility of
expropriation, nationalization, confiscatory taxation and limitations on the use
or removal of funds or other assets of the Funds, including the withholding of
dividends.
Each Fund that invests in foreign securities may enter into foreign currency
transactions either on a spot or cash basis at prevailing rates or through
forward foreign currency exchange contract to have the necessary currencies to
settle transactions, or to help protect Fund assets against adverse changes in
foreign currency exchange rates, or to provide exposure to a foreign currency
commensurate with the exposure to securities from that country. Such efforts
could limit potential gains that might result from a relative increase in the
value of such currencies, and might, in certain cases, result in losses to the
Fund.
Emerging Markets Investments. Because of less developed markets and economies
and, in some countries, less mature governments and governmental institutions,
the risks of investing in foreign securities can be intensified in the case of
investments in issuers domiciled or doing substantial business in emerging
market countries. These risks include: high concentration of market
capitalization and trading volume in a small number of issuers representing a
limited number of industries, as well as a high concentration of investors and
financial intermediaries; political and social uncertainties; over-dependence on
exports, especially with respect to primary commodities, making these economies
vulnerable to changes in commodity prices; overburdened infrastructure and
obsolete or unseasonal financial systems; environmental problems; less well
developed legal systems; and less reliable custodial services and settlement
practices.
High Yield Securities. Investments in high yield securities generally provide
greater income and increased opportunity for capital appreciation than
investments in higher quality debt securities, but they also typically entail
greater potential price volatility and principal and income risk. High yield
securities are not considered investment grade, and are regarded as
predominantly speculative with respect to the issuing company's continuing
ability to meet principal and interest payments. The prices of high yield
securities have been found to be less sensitive to interest rate changes than
higher-rated investments, but more sensitive to adverse economic downturns or
individual corporate developments. High yield securities structured as zero-
coupon or pay-in-kind securities tend to be more volatile. The secondary market
in which high yield securities are traded is generally less liquid
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
97
<PAGE>
MORE
INFORMATION
ABOUT RISKS
- --------------------------------------------------------------------------------
than the market for higher grade bonds. At times of less liquidity, it may be
more difficult to value high yield securities.
Corporate Debt Securities. Corporate debt securities are subject to the risk of
the issuer's inability to meet principal and interest payments on the obligation
and may also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the credit-worthiness of the issuer and
general market liquidity. When interest rates decline, the value of the Funds'
debt securities can be expected to rise, and when interest rates rise, the value
of those securities can be expected to decline. Debt securities with longer
maturities tend to be more sensitive to interest rate movements than those with
shorter maturities.
U.S. Government Securities. Some U.S. Government agency securities may be
subject to varying degrees of credit risk particularly those not backed by the
full faith and credit of the United States Government. All U.S. Government
securities may be subject to price declines in the securities due to changing
interest rates.
Convertible Securities. The price of a convertible security will normally
fluctuate in some proportion to changes in the price of the underlying equity
security, and as such is subject to risks relating to the activities of the
issuer and general market and economic conditions. The income component of
convertible securities causes fluctuations based upon changes in interest rates
and the credit quality of the issuer. Convertible securities are often lower
rated securities. A Fund may be required to redeem or convert a convertible
security before the holder would otherwise choose.
Other Investment Companies. Each Fund (except the MagnaCap, High Yield and
Government Securities Income Funds) may invest up to 10% of its assets in other
investment companies. When a Fund invests in other investment companies, you
indirectly pay a proportionate share of the expenses of that other investment
company (including management fees, administration fees, and custodial fees) in
addition to the expenses of the Fund.
Restricted and Illiquid Securities. Each Fund may invest in restricted and
illiquid securities (except MagnaCap Fund may not invest in restricted
securities). If a security is illiquid, the Fund might be unable to sell the
security at a time when the adviser might wish to sell, and the security could
have the effect of decreasing the overall level of the Fund's liquidity.
Further, the lack of an established secondary market may make it more difficult
to value illiquid securities, which could vary from the amount the Fund could
realize upon disposition. Restricted securities, i.e., securities subject to
legal or contractual restrictions on resale, may be illiquid. However, some
restricted securities may be treated as liquid, although they may be less liquid
than registered securities traded on established secondary markets.
Mortgage-Related Securities. Although mortgage loans underlying a
mortgage-backed security may have maturities of up to 30 years, the actual
average life of a mortgage-backed security typically will be substantially less
because the mortgages will be subject to normal principal amortization, and may
be prepaid prior to maturity. Like other fixed income securities, when interest
rates rise, the value of a mortgage-backed security generally will decline;
however, when interest rates are declining, the value of mortgage-backed
securities with prepayment features may not increase as much as other fixed
income securities. The rate of prepayments on underlying mortgages will affect
the price and volatility of a mortgage-related security, and may have the effect
of shortening or extending the effective maturity of the security beyond what
was anticipated at the time of the purchase. Unanticipated rates of prepayment
on underlying mortgages can be expected to increase the volatility of such
securities. In addition, the value of these securities may fluctuate in response
to the market's perception of the creditworthiness of the issuers of
mortgage-related securities owned by a Fund. Additionally, although mortgages
and mortgage-related securities are generally supported by some form of
government or private guarantee and/or insurance, there is no assurance that
private guarantors or insurers will be able to meet their obligations.
98
<PAGE>
MORE
INFORMATION
ABOUT RISKS
- --------------------------------------------------------------------------------
Interests in Loans. Certain Funds may invest in participation interests or
assignments in secured variable or floating rate loans, which include
participation interests in lease financings. Loans are subject to the credit
risk of nonpayment of principal or interest. Substantial increases in interest
rates may cause an increase in loan defaults. Although the loans will generally
be fully collateralized at the time of acquisition, the collateral may decline
in value, be relatively illiquid, or lose all or substantially all of its value
subsequent to the Fund's investment. Many loans are relatively illiquid, and may
be difficult to value.
Derivatives. Generally, derivatives can be characterized as financial
instruments whose performance is derived, at least in part, from the performance
of an underlying asset or assets. Some derivatives are sophisticated instruments
that typically involve a small investment of cash relative to the magnitude of
risks assumed. These may include swap agreements, options, forwards and futures.
Derivative securities are subject to market risk, which could be significant for
those that have a leveraging effect. Many of the Funds do not invest in these
types of derivatives, and some do, so please check the description of the Fund's
policies. Derivatives are also subject to credit risks related to the
counterparty's ability to perform, and any deterioration in the counterparty's
creditworthiness could adversely affect the instrument. A risk of using
derivatives is that the adviser might imperfectly judge the market's direction.
For instance, if a derivative is used as a hedge to offset investment risk in
another security, the hedge might not correlate to the market's movements and
may have unexpected or undesired results, such as a loss or a reduction in
gains.
Repurchase Agreements. Each Fund may enter into repurchase agreements, which
involve the purchase by a Fund of a security that the seller has agreed to buy
back. If the seller defaults and the collateral value declines, the Fund might
incur a loss. If the seller declares bankruptcy, the Fund may not be able to
sell the collateral at the desired time.
Lending Portfolio Securities. In order to generate additional income, each Fund
(except Bank and Thrift Fund) may lend portfolio securities in an amount up to
331|M/3% of total Fund assets to broker-dealers, major banks, or other
recognized domestic institutional borrowers of securities. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower default or fail financially.
Borrowing. Each Fund may borrow for certain types of temporary or emergency
purposes subject to certain limits. Borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the net asset value
of a Fund, and money borrowed will be subject to interest costs. Interest costs
on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
Reverse Repurchase Agreements and Dollar Rolls. A reverse repurchase agreement
or dollar roll involves the sale of a security, with an agreement to repurchase
the same or substantially similar securities at an agreed upon price and date.
Whether such a transaction produces a gain for a Fund depends upon the costs of
the agreements and the income and gains of the securities purchased with the
proceeds received from the sale of the security. If the income and gains on the
securities purchased fail to exceed the costs, net asset value will decline
faster than otherwise would be the case. Reverse repurchase agreements and
dollar rolls, as leveraging techniques, may increase a Fund's yield; however,
such transactions also increase a Fund's risk to capital and may result in a
shareholder's loss of principal.
Short Sales. Each Fund (except the MagnaCap, LargeCap Leaders, Bank and Thrift,
Asia-Pacific Equity, Government Securities Income and High
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
99
<PAGE>
MORE
INFORMATION
ABOUT RISKS
- --------------------------------------------------------------------------------
Yield Funds) may make short sales. A "short sale" is the sale by a Fund of a
security which has been borrowed from a third party on the expectation that the
market price will drop. If the price of the security rises, the Fund may have to
cover its short position at a higher price than the short sale price, resulting
in a loss.
Pairing Off Transactions. A pairing-off transaction occurs when a Fund commits
to purchase a security at a future date, and then the Fund `pairs-off' the
purchase with a sale of the same security prior to or on the original settlement
date. Whether a pairing-off transaction on a debt security produces a gain
depends on the movement of interest rates. If interest rates increase, then the
money received upon the sale of the same security will be less than the
anticipated amount needed at the time the commitment to purchase the security at
the future date was entered and the Fund will experience a loss.
Percentage and Rating. _______________.
Temporary Defensive Strategies. When the adviser or sub-adviser to a Fund
anticipates unusual market or other conditions, the Fund may temporarily depart
from its principal investment strategies as a defensive measure. When a Fund
takes a temporary defensive strategy, it may limit the Fund's ability to achieve
its investment objective.
Portfolio Turnover. Each Fund (except the MagnaCap, LargeCap Leaders, MidCap
Value, Bank and Thrift and Asia-Pacific Equity Funds) is generally expected to
engage in frequent and active trading of portfolio securities to achieve its
investment objective. A high portfolio turnover rate involves greater expenses
to a Fund, including brokerage commissions and other transaction costs, and is
likely to generate more taxable short-term gains for shareholders, which may
have an adverse effect on the performance of the Fund.
Year 2000 Compliance
Like other financial organizations, the Funds could be adversely affected if the
computer systems used by the Investment Manager and the Funds' other service
providers do not properly process and calculate date-related information after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Year
2000 Problem could have a negative impact on handling securities trades, payment
of interest and dividends, pricing, and account services. Pilgrim Investments is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to computer systems that it uses and to obtain reasonable
assurances that comparable steps are being taken by the Funds' other major
service providers. It is not anticipated that the Funds will directly bear any
material costs associated with Pilgrim Investments' and the Funds' other service
providers efforts to become Year 2000 compliant. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact to the Funds nor can there be any assurance that the Year 2000 Problem
will not have an adverse effect on the companies whose securities are held by
the Funds or on global markets or economies, generally. Foreign issuers may be
more susceptible to risks associated with the Year 2000 Problem than domestic
issuers.
100
<PAGE>
FINANCIAL
HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights tables on the following pages are intended to help you
understand each Fund's financial performance for the past five years or, if
shorter, the period of the Fund's operations. Certain information reflects
financial results for a single share. The total returns in the tables represent
the rate that an investor would have earned or lost on an investment in the Fund
(assuming reinvestment of all dividends and distributions). A report of each
Fund's independent auditor, along with the Fund's financial statements, are
included in the Fund's annual report, which is available upon request.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
101
<PAGE>
PILGRIM
MAGNACAP
FUND
The information in the table below has been audited by KPMG LLP, independent
auditors.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
July 17,
1995(2) to
Year ended June 30, June 30,
1999 1998 1997 1996 1995(1) 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 0 15.92 16.69 14.03 12.36 0 15.81 16.59 14.22
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 0.04 0.10 0.09 0.12 (0.04) -- 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 3.02 4.16 2.87 2.29 2.97 4.13 2.61
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 3.06 4.26 2.96 2.41 2.93 4.13 2.67
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ 0.06 0.12 0.06 0.14 0.03 -- 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 1.85 4.91 0.24 0.60 1.85 4.91 0.24
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.07 15.92 16.69 14.03 16.86 15.81 16.59
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 20.53 30.82 21.31 20.61 19.76 29.92 18.98
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 348,759 290,355 235,393 211,330 77,787 37,427 10,509
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses (4) % 1.37 1.46 1.68 1.59 2.07 2.16 2.38
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income(4) % 0.29 0.64 0.54 0.98 (0.41) (0.04) 0.07
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 53 77 15 6 53 77 15
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class C Class M
June 1, July 17,
1999(2) to 1995(2) to
June 30, Year ended June 30, June 30,
1999 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 0 0 15.87 16.63 14.22
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income $ -- 0.02 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 2.98 4.16 2.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 2.98 4.18 2.71
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ 0.05 0.03 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 1.85 4.91 0.24
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.95 15.87 16.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 20.00 30.26 19.26
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 14,675 6,748 1,961
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses (4) % 1.82 1.91 2.13
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income(4) % (0.16) (0.22) 0.32
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 53 77 15
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired certain
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(2) Commencement of offering shares.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized.
102
<PAGE>
PILGRIM
LARGECAP
LEADERS FUND
The information in the table below has been audited by KPMG LLP, independent
auditors.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Class A
Ten months
ended
Year ended June 30, June 30,
1999 1998(2) 1997 1996(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.17 11.77 10.00
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 0.01 0.06 0.07
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 2.30 2.63 1.87
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations $ 2.31 2.69 1.94
- -----------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ -- 0.05 0.08
- -----------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 1.78 0.24 0.09
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.70 14.17 11.77
- -----------------------------------------------------------------------------------------------------------------
Total Return(4): % 17.71 23.24 19.56
- -----------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 7,606 8,961 2,530
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(5) % 1.75 1.75 1.75
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(5) % 2.28 2.33 5.44
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(5) % 0.03 0.41 0.65
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 78 86 59
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Class B
Ten months
ended
Year ended June 30, June 30,
1999 1998(2) 1997 1996(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- -------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period 14.04 11.71 10.00
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.10) (0.02) 0.06
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 2.28 2.59 1.81
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 2.18 2.57 1.87
- -------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income -- -- 0.07
- -------------------------------------------------------------------------------------------------------------
Net realized gains on investments 1.78 0.24 0.09
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period 14.44 14.04 11.71
- -------------------------------------------------------------------------------------------------------------
Total Return(4): 16.91 22.23 18.85
- -------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) 15,605 13,611 1,424
- -------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(5) 2.50 2.50 2.50
- -------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(5) 3.03 3.08 5.79
- -------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(5) (0.72) (0.35) (0.25)
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 78 86 59
</TABLE>
<TABLE>
<CAPTION>
Class C Class M
June 17, Ten months
1999(3) to ended
June 30, Year ended June 30, June 30,
1999 1999 1998(2) 1997 1996(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.10 11.73 10.00
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.07) -- 0.06
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 2.30 2.62 1.83
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 2.23 2.62 1.89
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ -- 0.01 0.07
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 1.78 0.24 0.09
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.55 14.10 11.73
- ----------------------------------------------------------------------------------------------------------------------------
Total Return(4): % 17.20 22.58 19.06
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 5,533 4,719 1,240
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(5) % 2.25 2.25 2.25
- ----------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(5) % 2.78 2.83 5.90
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(5) % (0.47) (0.10) 0.06
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 78 86 59
</TABLE>
- --------------------------------------------------------------------------------
(1) The Fund commenced operations on September 1, 1995.
(2) Effective November 1, 1997, Pilgrim Investments, Inc. assumed the
portfolio investment responsibilities of the Fund from ARK Asset
Management Company, Inc.
(3) Commencement of offering shares.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return information for less than one year is not
annualized.
(5) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
103
<PAGE>
FINANCIAL
HIGHLIGHTS
The following chart shows the fund's financial performance by share class.
These figures have been audited by PricewaterhouseCoopers LLP, whose report,
along with the fund's financial statements, are included in the annual report,
which is available upon request.
PILGRIM
RESEARCH ENHANCED
INDEX FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Class A(1) Class B(1) Class C(1)
Year ended October 31, 1999 1999 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance
- ------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 10.00 10.00 10.00
- ------------------------------------------------------------------------------------------------------------
Net investment gain $ 0.12 0.09 0.09
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments $ (2.43) (2.44) (2.46)
- ------------------------------------------------------------------------------------------------------------
Total from investment operations $ (2.31) (2.35) (2.37)
- ------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 7.69 7.65 7.63
- ------------------------------------------------------------------------------------------------------------
Total investment return(2) % (23.10) (23.50) (23.70)
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 3,815 3,583 2,304
- ------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets(3) % 1.80 2.50 2.50
- ------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets(3) % 2.08 2.24 2.37
- ------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets(3) % 3.38 2.55 2.60
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % -- -- --
- ------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Class A, B and C commenced operations on December 30, 1998.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
104
<PAGE>
PILGRIM
GROWTH
OPPORTUNITIES
FUND
The following chart shows the fund's financial performance
by share class. The 1998, 1997, 1996 and 1995 figures have been audited by
PricewaterhouseCoopers LLP, whose report, along with the fund's financial
statements, are included in the annual report, which is available upon
request.
The figures prior to 1995 were audited by other independent accountants.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Class A
Year ended December 31, 1998 1997 1996 1995(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance
- --------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 21.26 17.92 15.53 17.59
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.08) 0.03 0.02 0.08
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 5.09 4.16 3.18 1.95
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 5.01 4.19 3.20 2.03
- --------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ -- -- -- (0.10)
- --------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain on investments sold $ (0.21) (0.85) (0.81) (3.99)
- --------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.21) (0.85) (0.81) (4.09)
- --------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 26.06 21.26 17.92 15.53
- --------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 23.61 23.59 20.54 11.55
- --------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 29,358 9,334 4,750 1,355
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 1.37 1.37 150 1.42(3)
- --------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets % -- 0.03 0.06 --
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets % (0.47) 0.04 0.11 0.63(3)
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 98 32 62 134
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Class B
Year ended December 31, 1998 1997 1996 1995(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance
- ---------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period 20.93 17.76 15.50 17.59
- ---------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.23) (0.15) (0.06) 0.06
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 4.97 4.17 3.13 1.92
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations 4.74 4.02 3.07 1.98
- ---------------------------------------------------------------------------------------------------------------
Dividends from net investment income -- -- -- (0.08)
- ---------------------------------------------------------------------------------------------------------------
Dividends from net realized gain on investments sold (0.21) (0.85) (0.81) (3.99)
- ---------------------------------------------------------------------------------------------------------------
Total distributions (0.21) (0.85) (0.81) (4.07)
- ---------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period 25.46 20.93 17.76 15.50
- ---------------------------------------------------------------------------------------------------------------
Total investment return(2) 22.69 22.84 19.74 11.27
- ---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) 15,480 8,815 4,444 1,987
- ---------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.13 2.14 2.20 2.07(3)
- ---------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets -- -- 0.04 --
- ---------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.26) (0.95) (0.55) 0.06(3)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 98 32 62 134
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Class C
Year ended December 31, 1998 1997 1996 1995(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance
- -------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period 20.91 17.76 15.50 17.59
- -------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.27) (0.13) (0.05) 0.04
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 5.05 4.13 3.12 1.92
- -------------------------------------------------------------------------------------------------------------
Total from investment operations 4.78 4.00 3.07 1.96
- -------------------------------------------------------------------------------------------------------------
Dividends from net investment income -- -- -- (0.06)
- -------------------------------------------------------------------------------------------------------------
Dividends from net realized gain on investments sold (0.21) (0.85) (0.81) (3.99)
- -------------------------------------------------------------------------------------------------------------
Total distributions (0.21) (0.85) (0.81) (4.05)
- -------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period 25.48 20.91 17.76 15.50
- -------------------------------------------------------------------------------------------------------------
Total investment return(2) 22.90 22.73 19.74 11.17
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) 1,625 1,152 365 69
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.13 2.17 2.20 2.11(3)
- -------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets -- -- 0.15 --
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (1.24) (1.00) (0.57) 0.02(3)
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 98 32 62 134
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class T
Year ended December 31, 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating performance
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 21.01 17.82 15.53 15.75 17.33
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.36) (0.17) (0.06) 0.07 0.08
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ 5.14 4.22 3.16 3.77 (1.41)
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 4.78 4.05 3.10 3.84 (1.33)
- -------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ -- -- -- (0.07) (0.08)
- -------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain on investments sold $ (0.21) (0.85) (0.81) (3.99) (0.15)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from capital -- -- -- -- (0.02)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.21) (0.85) (0.81) (4.06) (0.25)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 25.59 21.02 17.82 15.53 15.75
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 22.79 22.94 19.90 24.40 (7.66)
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 52,023 73,674 70,406 76,343 76,391
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 2.05 2.03 2.00 2.00 2.00
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets % -- -- 0.04 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets % (1.19) (0.81) (3.05) 0.37 0.49
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 98 32 62 134 54
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Class A, B and C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
105
<PAGE>
FINANCIAL
HIGHLIGHTS
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
June 30, 1999, the financial information was audited by another independent
auditor.
PILGRIM
LARGECAP
GROWTH FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Class B
Year Year July 21, Year Year July 21,
ended ended 1997(1) to ended ended 1997(1) to
June 30, March 31, March 31, June 30, March 31, March 31,
1999(2) 1999 1998 1999(2) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.73 12.50 15.64 12.50
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.08) (0.03) (0.08) (0.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 9.77 3.29 9.71 3.24
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 9.69 3.26 9.63 3.17
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income $ -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 0.48 0.03 0.23 0.03
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.94 15.73 25.04 15.64
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 63.06 62.35 62.28 61.08
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($000's) $ 12,445 4,742 20,039 3,187
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 1.59 1.60 2.24 2.25
- ------------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 2.24 4.70 2.89 4.78
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % (0.65) (0.87) (1.28) (1.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 253 306 253 306
</TABLE>
<TABLE>
<CAPTION>
Class C
Year Year July 21,
ended ended 1997(1) to
June 30, March 31, March 31,
1999(2) 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Performance:
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.63 12.50
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.07) (0.05)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 9.65 3.24
- ---------------------------------------------------------------------------------------------------
Total from investment operations $ 9.58 3.19
- ---------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------
Net investment income $ -- --
- ---------------------------------------------------------------------------------------------------
Net realized gains on investments $ 0.24 0.06
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $ 24.97 15.63
- ---------------------------------------------------------------------------------------------------
Total Return(3): % 61.97 61.38
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------
Net assets, end of period ($000's) $ 8,004 960
- ---------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ---------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 2.25 2.25
- ---------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 2.90 7.79
- ---------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % (1.26) (1.49)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover % 253 306
</TABLE>
- --------------------------------------------------------------------------------
(1) The Fund commenced operations on July 21, 1997.
(2) Effective May 24, 1999, Pilgrim Investment Inc., became the Investment
Manager of the Fund, concurrently Nicholas-Applegate Capital Management
was appointed as sub-advisor.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized.
106
<PAGE>
PILGRIM
MIDCAP
VALUE FUND
The information in the table below has been audited by KMPG LLP, independent
auditors.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Class A
Three months
ended
Year ended June 30, June 30,
1999 1998 1997 1996(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.64 11.99 10.00
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.07) (0.02) (0.13)
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 2.71 2.85 1.91
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations $ 2.64 2.83 2.04
- -----------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------
Net investment income $ -- 0.07 0.05
- -----------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 0.49 0.11 --
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.79 14.64 11.99
- -----------------------------------------------------------------------------------------------------------------
Total Return(3): % 18.40 23.89 20.48
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period ($000's) $ 27,485 16,985 2,389
- -----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 1.75 1.75 1.75
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 1.78 1.94 4.91
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % (0.53) (0.13) 2.00
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 85 86 60
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Class B
Ten months
ended
June 30,
1999 1998 1997 1996(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period 14.49 11.94 10.00
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.18) (0.05) 0.07
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 2.65 2.76 1.90
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 2.47 2.71 1.97
- ----------------------------------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------------------------------
Net investment income -- 0.05 0.03
- ----------------------------------------------------------------------------------------------------------------
Net realized gains on investments 0.49 0.11 --
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period 16.47 14.49 11.94
- ----------------------------------------------------------------------------------------------------------------
Total Return(3): 17.40 22.95 19.80
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period ($000's) 40,575 23,258 2,123
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) 2.50 2.50 2.50
- ----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) 2.53 2.69 5.32
- ----------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) (1.28) (0.90) 1.27
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 85 86 60
<CAPTION>
Class C Class M
June 2, Ten months
1999 to ended
June 30, June 30,
1999(2) 1999 1998 1997 1996(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.49 11.93 10.00
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.15) (0.03) 0.06
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 2.67 2.76 1.91
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 2.52 2.73 1.97
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income $ -- 0.06 0.04
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 0.49 0.11 --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.52 14.49 11.93
- ------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 17.76 23.21 19.82
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($000's) $ 13,232 8,378 1,731
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 2.25 2.25 2.25
- ------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 2.28 2.44 4.72
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % (1.03) (0.63) 1.16
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 85 86 60
</TABLE>
- --------------------------------------------------------------------------------
(1) The Fund commenced operations on September 1, 1995.
(2) Commencement of offering shares.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
107
<PAGE>
FINANCIAL
HIGHLIGHTS
The following chart shows the fund's financial performance by share class. These
figures have been audited by PricewaterhouseCoopers LLP, whose report, along
with the fund's financial statements, are included in the annual report, which
is available upon request.
PILGRIM
MIDCAP
OPPORTUNITIES
FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Class A(1) Class B(1) Class C(1)
Year ended December 31, 1998 1998 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance
- --------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 10.00 10.00 10.00
- --------------------------------------------------------------------------------------------------------
Net investment loss $ (0.03) (0.03) (0.04)
- --------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 2.99 3.00 3.00
- --------------------------------------------------------------------------------------------------------
Total from investment operations $ 2.96 2.97 2.96
- --------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 12.96 12.97 12.96
- --------------------------------------------------------------------------------------------------------
Total investment return(2) % 29.60 29.70 29.60
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 610 140 87
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets(3) % 1.80 2.50 2.50
- --------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets(3) % 0.62 0.77 0.72
- --------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets(3) % (1.10) (2.05) (2.04)
- --------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 61 61 61
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Class A, B and C commenced operations on August 20, 1998.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
108
<PAGE>
PILGRIM
MIDCAP
GROWTH FUND
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors.
For all periods ending prior to June 30, 1999, the financial information was
audited by other independent auditors.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year
ended
June 30, Year ended March 31,
1999(1) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.63 16.80 18.37 13.61 13.25
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 1 $ (0.50) (0.14) (0.17) (0.18) (0.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 3.17 6.50 0.57 4.94 0.46
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 2.67 6.36 0.40 4.76 0.36
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income $ -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 1.37 4.53 1.97 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.93 18.63 16.80 18.37 13.61
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 15.36 41.81 1.09 35.07 2.72
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 67,550 90,619 76,108 77,275 65,292
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 1.56 1.57 1.60 1.58 1.59
- ------------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 1.64 1.66 1.56 1.56 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % (1.04) (1.33) (1.05) (0.91) (0.66)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 154 200 153 114 98
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Class A Class B
Three
months May 31,
ended 1995(2) to
June 30, Year ended March 31, March 31,
1999(1) 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period 21.55 16.33 16.25 12.50
- ----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(1) (0.42) (0.25) (0.17) (0.09)
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 3.42 6.74 0.25 3.84
- ----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.00 6.49 0.08 3.75
- ----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments 1.01 1.27 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 23.54 21.55 16.33 16.25
- ----------------------------------------------------------------------------------------------------------------------------
Total Return(3): 14.59 40.84 (0.49) 30.00
- ----------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) 45,876 46,806 29,002 11,186
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) 2.22 2.22 2.25 2.22
- ----------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) 2.29 2.21 2.66 3.39
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) (1.69) (1.99) (1.69) (1.61)
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 154 200 153 114
</TABLE>
<TABLE>
<CAPTION>
Class C
Three months
ended
June 30, Year ended March 31,
1999(1) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.15 16.48 18.06 13.45 13.18
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.61) (0.28) (0.32) (0.27) (0.17)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 2.97 6.26 0.62 4.88 0.44
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 2.36 5.98 0.30 4.61 0.27
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 1.02 5.31 1.88 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.49 17.15 16.48 18.06 13.45
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 14.60 40.95 0.56 34.28 2.05
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 141,685 166,849 157,501 177,461 143,390
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 2.23 2.27 2.14 2.14 2.24
- ------------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 2.30 2.33 2.17 2.14 2.24
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % (1.70) (2.01) (1.59) (1.47) (1.30)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 154 200 153 114 98
</TABLE>
- --------------------------------------------------------------------------------
(1) Effective May 24, 1999, Pilgrim Investment Inc. became the Investment
Manager of the Fund, concurrently Nicholas-Applegate Capital Management
was appointed as sub-advisor.
(2) Commencement of offering shares.
(3) Total return is calculated assuming reinvestment of dividends and capital
gain distributions at net asset value and excluding the deduction of sales
charges. Total return for less than one year is not annualized.
(4) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
109
<PAGE>
FINANCIAL
HIGHLIGHTS
The following chart shows the fund's financial performance by share class. These
figures have been audited by PricewaterhouseCoopers LLP, whose report, along
with the fund's financial statements, are included in the annual report, which
is available upon request.
PILGRIM
GROWTH + VALUE
FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A(1) Class B(1) Class C(1)
Year ended October 31, 1998 1997 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 12.15 10.00 12.08 10.00 12.08 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss $ (0.11) (0.05) (0.16) (0.08) (0.16) (0.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ (1.42) 2.20 (1.45) 2.16 (1.45) 2.16
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ (1.53) 2.15 (1.61) 2.08 (1.61) 2.08
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain (loss) on investments sold $ (0.18) -- (0.18) -- (0.18) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions $
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 10.44 12.15 10.29 12.08 10.29 12.08
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % (12.63) 21.50 (13.38) 20.80 (13.38) 20.80
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 33,425 34,346 105,991 76,608 37,456 26,962
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets(3) % 1.72 1.84 2.45 2.55 2.46 2.56
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets(3) % -- 0.02 -- 0.02 -- 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets(3) % (0.92) (0.94) (1.67) (1.68) (1.69) (1.70)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 162 144 162 144 162 144
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Class A, B and C commenced operations on November 18, 1996.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
110
<PAGE>
FINANCIAL
HIGHLIGHTS
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors.
For all periods ending prior to June 30, 1999, the financial information was
audited by other independent auditors.
PILGRIM
SMALLCAP
GROWTH FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A
Three
months
ended
June 30, Year ended March 31,
1999(1) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.75 15.15 17.93 13.06 12.10
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.85) (0.08) (0.22) (0.20) (0.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss) on investments $ 0.69 6.91 (0.66) 5.09 1.12
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ (0.16) 6.83 (0.88) 4.89 0.96
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 2.87 2.23 1.90 0.02 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.72 19.75 15.15 17.93 13.06
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 0.37 46.32 (6.26) 37.48 7.93
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 94,428 201,943 121,742 138,155 106,725
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 1.85 1.89 1.72 1.74 1.86
- ------------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 1.95 1.90 1.72 1.74 1.84
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % (1.32) (1.85) (1.26) (1.20) (1.27)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 90 92 113 130 100
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Class B
Three
months May 31,
ended 1995(2) to
June 30, Year ended March 31, March 31,
1999(1) 1999 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period 22.53 15.51 16.69 12.50
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.53) (0.27) (0.21) (0.14)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss) on investments 0.33 7.29 (0.97) 4.33
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.20) 7.02 (1.18) 4.19
- -------------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments 1.21 -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 21.12 22.53 15.51 16.69
- -------------------------------------------------------------------------------------------------------------------------
Total Return(3): (0.29) 45.26 (7.07) 33.52
- -------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) 45,140 55,215 28,030 13,626
- -------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) 2.57 2.62 2.61 2.58
- -------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) 2.66 2.63 2.73 3.26
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) (2.03) (2.59) (2.13) (2.091)
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 90 92 113 130
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class C
Three months
ended
June 30, Year ended March 31,
1999(1) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.62 14.69 17.62 12.96 12.07
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.84) (0.38) (0.31) (0.29) (0.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 0.61 6.84 (0.63) 5.03 1.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ (0.23) 6.46 (0.94) 4.74 0.89
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 1.88 2.53 1.99 0.08 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.51 18.62 14.69 17.62 12.96
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % (0.24) 45.40 (6.81) 37.18 7.37
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 144,597 225,025 182,907 207,332 157,292
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 2.51 2.57 2.35 2.35 2.44
- ------------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 2.60 2.59 2.35 2.35 2.44
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % (1.97) (2.53) (1.89) (1.81) (1.85)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 90 92 113 130 100
</TABLE>
- --------------------------------------------------------------------------------
(1) Total returns are not annualized for periods of less than one year and do
not reflect the impact of sales charges.
(2) Ratios are annualized for periods less than one year. Expense
reimburesements reflect voluntary reductions to total expenses, as
discussed in the notes to the financial statements. Such amounts would
decrease net investment (income (loss) ratios had such reductions not
incurred.
(3) Total return is calculated assuming reinvestment of dividends and capital
gain distributions at net asset value and excluding the deduction of sales
charges. Total return for less than one year is not annualized.
(4) Annualized.
111
<PAGE>
PILGRIM
SMALLCAP
OPPORTUNITIES
FUND
The following chart shows the fund's financial performance by share class. The
1998, 1997, 1996 and 1995 figures have been audited by PricewaterhouseCoopers
LLP, whose report, along with the fund's financial statements, are included in
the annual report, which is available upon request.
The figures prior to 1995 were audited by other independent accountants.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Class A Class B
Year ended December 31, 1998 1997 1996 1995(1) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 27.77 24.72 20.92 19.56 27.27 24.46 20.84
- ------------------------------------------------------------------------------------------------------------------------------
Net investment loss $ (0.27) (0.02) (0.04) (0.09) (0.48) (0.19) (0.12)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 2.23 3.68 3.84 2.48 2.20 3.61 3.74
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 1.96 3.66 3.80 2.39 1.72 3.42 3.62
- ------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain on investments sold $ (0.73) (0.61) -- (1.03) (0.73) (0.61) --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.73) (0.61) -- (1.03) (0.73) (0.61) --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 29.00 27.77 24.72 20.92 28.26 27.27 24.46
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 7.59 14.92 18.16 12.20 6.84 14.10 17.37
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 45,461 78,160 65,660 2,335 124,065 169,516 126,859
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 1.47 1.43 1.46 1.50(3) 2.18 2.15 2.17
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets % -- -- 0.01 -- -- -- 0.01
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets % (0.70) (0.07) (0.30) (0.91)(3) (1.43) (0.78) (1.01)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 257 175 140 71 257 175 140
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class B
Year ended December 31, 1995(1)
- -----------------------------------------------------------------------
<S> <C>
Operating performance
- -----------------------------------------------------------------------
Net asset value at the beginning of the period 19.56
- -----------------------------------------------------------------------
Net investment loss (0.12)
- -----------------------------------------------------------------------
Net realized and unrealized gain on investments 2.43
- -----------------------------------------------------------------------
Total from investment operations 2.31
- -----------------------------------------------------------------------
Dividends from net realized gain on investments sold (1.03)
- -----------------------------------------------------------------------
Total distributions (1.03)
- -----------------------------------------------------------------------
Net asset value at the end of the period 20.84
- -----------------------------------------------------------------------
Total investment return(2) 11.79
Ratios and supplemental data
- -----------------------------------------------------------------------
Net assets at the end of the period ($000s) 1,491
- -----------------------------------------------------------------------
Ratio of expenses to average net assets 2.20(3)
- -----------------------------------------------------------------------
Ratio of expense reimbursement to average net assets 0.01
- -----------------------------------------------------------------------
Ratio of net investment loss to average net assets (1.64)(3)
- -----------------------------------------------------------------------
Portfolio turnover rate 71
- -----------------------------------------------------------------------
<CAPTION>
Class C Class T
Year ended December 31, 1998 1997 1996 1995(1) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 27.26 24.46 20.84 19.56 27.34 24.48
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment loss $ (0.55) (0.20) (0.13) (0.15) (0.51) (0.18)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ 2.26 3.61 3.75 2.46 2.26 3.65
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 1.71 3.41 3.62 2.31 1.75 3.47
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain on investments sold $ (0.73) (0.61) -- (1.03) (0.73) (0.61)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.73) (0.61) -- (1.03) (0.73) (0.61)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 28.24 27.26 24.46 20.84 28.36 27.34
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 6.81 14.06 17.37 11.79 6.94 14.29
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 29,746 51,460 37,342 62 18,203 32,800
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 2.22 2.18 2.20 2.20(3) 2.10 1.99
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets % -- -- 0.01 0.03 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets % (1.45) (0.82) (1.03) (1.60)(3) (1.33) (0.62)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 257 175 140 71 257 175
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class T
Year ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating performance
- ----------------------------------------------------------------------------------------------
Net asset value at the beginning of the period 20.84 19.64 20.79
- ----------------------------------------------------------------------------------------------
Net investment loss (0.21) (0.34) (0.25)
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.85 2.57 (0.76)
- ----------------------------------------------------------------------------------------------
Total from investment operations 3.64 2.23 (1.01)
- ----------------------------------------------------------------------------------------------
Dividends from net realized gain on investments sold -- (1.03) (0.14)
- ----------------------------------------------------------------------------------------------
Total distributions -- (1.03) (0.14)
- ----------------------------------------------------------------------------------------------
Net asset value at the end of the period 24.48 20.84 19.64
- ----------------------------------------------------------------------------------------------
Total investment return(2) 17.47 11.34 (4.86)
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) 35,670 33,557 38,848
- ----------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.07 2.16 2.16
- ----------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets 0.04 -- --
- ----------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets (0.89) (1.50) (1.25)
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate 140 71 39
- ----------------------------------------------------------------------------------------------
</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.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
112
<PAGE>
PILGRIM
BANK AND
THRIFT FUND
For the year ended June 30, 1999, the six-month period ended June 30, 1998 and
the years ended December 31, 1997, 1996, and 1995, the information in the table
below, with the exception of the information in the row labeled "Total
Investment Return at Net Asset Value" for periods prior to January 1, 1997, have
been audited by KPMG LLP, independent auditors. For all periods ending prior to
December 31, 1995, the financial information, with the exception of the
information in the row labeled "Total Investment Return at Net Asset Value", was
audited by another independent auditor. The information in the row labeled
"Total Investment Return at Net Asset Value" has not been audited for periods
prior to January 1, 1997. Prior to October 17, 1997, the Class A shares were
designated as Common Stock and the Fund operated as a closed-end investment
company.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
Six
Year months
ended ended
June 30, June 30, Year ended December 31,
1999 1998(3) 1997 1996 1995(1) 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 25.87 17.84 14.83 10.73 11.87
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.11 0.34 0.32 0.31 0.26
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss) on investments $ 1.54 10.83 5.18 4.78 (0.53)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 1.65 11.17 5.50 5.09 (0.27)
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ -- 0.31 0.35 0.34 0.22
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ -- 2.65 2.14 0.65 0.65
- -----------------------------------------------------------------------------------------------------------------------------------
Tax return of capital $ -- 0.18 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 27.52 25.87 17.84 14.83 10.73
- -----------------------------------------------------------------------------------------------------------------------------------
Closing market price, end of year -- -- 15.75 12.88 9.13
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investment Return At Market Value(4) % -- -- 43.48 52.81 (8.85)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Investment Return At Net Asset Value(5) % 6.38 64.86 41.10 49.69 (1.89)
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($millions) $ 549 383 252 210 152
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses(6) % 1.20 1.10 1.01 1.05 1.28
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income(6) % 0.94 1.39 1.94 2.37 2.13
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 2 22 21 13 14
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class B
Six
Year months October 20,
ended ended 1997(2) to
June 30, June 30, December 31,
1999 1998(3) 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Performance:
- -------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 25.85 25.25
- -------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $ 0.01 0.04
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss) on investments $ 1.54 2.92
- -------------------------------------------------------------------------------------------------------
Total from investment operations $ 1.55 2.96
- -------------------------------------------------------------------------------------------------------
Less distributions from:
- -------------------------------------------------------------------------------------------------------
Net investment income $ -- 0.04
- -------------------------------------------------------------------------------------------------------
Net realized gains on investments $ -- 2.04
- -------------------------------------------------------------------------------------------------------
Tax return of capital $ -- 0.28
- -------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 27.40 25.85
- -------------------------------------------------------------------------------------------------------
Closing market price, end of year -- -- --
- -------------------------------------------------------------------------------------------------------
Total Investment Return At Market Value(4) % -- --
- -------------------------------------------------------------------------------------------------------
Total Investment Return At Net Asset Value(5) % 6.00 11.88
Ratios/Supplemental Data:
- -------------------------------------------------------------------------------------------------------
Net assets, end of year ($millions) $ 360 76
- -------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -------------------------------------------------------------------------------------------------------
Expenses(6) % 1.95 1.89
- -------------------------------------------------------------------------------------------------------
Net investment income(6) % 0.19 0.99
- -------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 2 22
- -------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired certain
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(2) Commencement of offering shares.
(3) Effective June 30, 1998, Bank and Thrift Fund changed its year end to June
30.
(4) Total return was calculated at market value without deduction of sales
commissions and assuming reinvestment of all dividends and distributions
during the period.
(5) Total return is calculated at net asset value without deduction of sales
commissions and assumes reinvestment of all dividends and distributions
during the period. Total investment returns based on net asset value,
which can be higher or lower than market value, may result in
substantially different returns than total return based on market value.
For all periods prior to January 1, 1997, the total returns presented are
unaudited.
(6) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
113
<PAGE>
FINANCIAL
HIGHLIGHT
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
June 30, 1999, the financial information was audited by other independent
auditors.
PILGRIM
WORLDWIDE
GROWTH FUND
<TABLE>
<CAPTION>
Class A
Three Three
months months
ended ended
June 30, Year ended March 31, June 30,
1999(1) 1999 1998 1997 1996 1995 1999(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.33 16.88 16.57 14.29 14.94
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.02) 0.04 (0.16) (0.07) (0.05)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains
(loss) on investments $ 5.78 5.33 2.20 2.86 (0.09)
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 5.76 5.37 2.04 2.79 (0.14)
- -----------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.06 -- -- 0.12 0.02
- -----------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 3.64 2.92 1.73 0.39 0.49
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 21.39 19.33 16.88 16.57 14.29
- -----------------------------------------------------------------------------------------------------------------------
Total Return(3): % 33.56 34.55 12.51 19.79 (0.90)
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 49,134 38,647 24,022 23,481 22,208
- -----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -----------------------------------------------------------------------------------------------------------------------
Net expenses after expense
reimbursement(4) % 1.86 1.86 1.85 1.85 1.85
- -----------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
reimbursement(4) % 2.02 2.21 2.17 2.17 2.18
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after
expense reimbursement(4) % (0.62) (0.69) (0.93) (0.35) (0.42)
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 247 202 182 132 99
<CAPTION>
Class B
May 31,
1995(2) to
Year ended March 31, March 31,
1999 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.10 16.02 14.34 12.50
- ----------------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------------
Net investment income (loss) $ (0.08) (0.17) (0.14) (0.05)
- ----------------------------------------------------------------------------------------
Net realized and unrealized gains
(loss) on investments $ 6.25 5.44 1.82 1.89
- ----------------------------------------------------------------------------------------
Total from investment operations $ 6.17 5.27 1.68 1.84
- ----------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------
Net investment income $ 0.01 -- -- --
- ----------------------------------------------------------------------------------------
Net realized gains on investments $ 2.05 1.19 -- --
- ----------------------------------------------------------------------------------------
Net asset value, end of period $ 24.21 20.10 16.02 14.34
- ----------------------------------------------------------------------------------------
Total Return(3): % 32.74 34.03 11.72 14.72
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 18,556 10,083 5,942 1,972
- ----------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------
Net expenses after expense
reimbursement(4) % 2.51 2.51 2.50 2.50
- ----------------------------------------------------------------------------------------
Gross expenses prior to expense
reimbursement(4) % 2.67 2.70 4.81 9.50
- ----------------------------------------------------------------------------------------
Net investment income (loss) after
expense reimbursement(4) % (1.31) (1.37) (1.62) (1.28)
- ----------------------------------------------------------------------------------------
Portfolio turnover % 247 202 182 132
<CAPTION>
Class C
Three months
ended
June 30, Year ended March 31,
1999(1) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.05 16.92 16.76 14.44 14.86
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.20) (0.19) (0.28) (0.21) (0.15)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss) on investments $ 5.83 5.41 2.23 2.92 (0.08)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 5.63 5.22 1.95 2.71 (0.23)
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.01 -- -- 0.01 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 3.15 3.09 1.79 0.38 0.19
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 21.52 19.05 16.92 16.76 14.44
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 32.73 33.72 11.81 18.95 (1.49)
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 98,470 84,292 70,345 71,155 71,201
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 2.51 2.51 2.50 2.50 2.50
- -----------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 2.67 2.77 2.61 2.57 2.57
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % (1.28) (1.34) (1.57) (0.99) (1.06)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 247 202 182 132 99
</TABLE>
- --------------------------------------------------------------------------------
(1) Effective May 24, 1999, Pilgrim Investment Inc., became the Investment
Manager of the Fund, concurrently Nicholas-Applegate Capital Management
was appointed as sub-advisor.
(2) Commencement of offering shares.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized.
114
<PAGE>
PILGRIM
INTERNATIONAL
VALUE FUND
The following chart shows the fund's financial performance by share class.(1)
The 1998 and 1997 figures have been audited by PricewaterhouseCoopers LLP, whose
report, along with the fund's financial statements, are included in the annual
report, which is available upon request.
The figures prior to 1997 were audited by other independent accountants.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Class A Class B
Year ended October 31, 1998 1997 1996 1995(1) 1998 1997(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 10.90 9.05 8.10 7.64 10.87 10.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 0.11 (0.09) 0.14 0.09 0.07 (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 0.96 2.30 0.85 0.37 0.91 0.89
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 1.07 2.21 0.99 0.46 0.98 0.87
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ -- (0.14) (0.04) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain on
investments sold $ (0.09) (0.22) -- -- (0.09) --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.09) (0.36) (0.04) -- (0.09) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 11.88 10.90 9.05 8.10 11.76 10.87
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return(3) % 9.86 27.59 12.15 9.39(4) 9.16 8.70
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 211,018 60,539 16,777 5,188 145,976 59,185
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 1.74 1.80(4) 1.85 1.85(4) 2.47 2.50(4)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average
net assets % -- 0.27(4) 0.97 6.08(4) -- 0.08(4)
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets % 1.62 0.46(4) 1.52 1.67(4) 0.69 (0.71)(4)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 32 26 74 -- 32 26
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class C
Year ended October 31, 1998 1997 1996 1995(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance
- -----------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period 10.86 8.93 8.05 7.61
- -----------------------------------------------------------------------------------------------------
Net investment income (loss) 0.06 (0.06) 0.05 0.06
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 0.92 2.20 0.86 0.38
- -----------------------------------------------------------------------------------------------------
Total from investment operations 0.98 2.14 0.91 0.44
- -----------------------------------------------------------------------------------------------------
Dividends from net investment income -- (0.04) (0.03) --
- -----------------------------------------------------------------------------------------------------
Dividends from net realized gain on
investments sold (0.09) (0.17) -- --
- -----------------------------------------------------------------------------------------------------
Total distributions (0.09) (0.21) (0.03) --
- -----------------------------------------------------------------------------------------------------
Net asset value at the end of the period 11.75 10.86 8.93 8.05
- -----------------------------------------------------------------------------------------------------
Total investment return(3) 9.07 25.92 11.39 8.89(4)
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) 137,651 62,103 14,530 5,749
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 2.47 2.50(4) 2.50 2.50(4)
- -----------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average
net assets -- 0.24(4) 1.21 6.08(4)
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets 0.68 (0.23)(4) 0.62 1.13(4)
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 32 26 74 --
- -----------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) The mutual fund commenced operations on March 6, 1995 as the Brandes
International Fund, a series of the Brandes Investment Trust. At the close
of business on April 18, 1997 (the "Closing"), the Pilgrim International
Value Fund (formerly the "Northstar International Value Fund") acquired
the net assets of the Brandes International Fund, pursuant to an Agreement
of Reorganization dated February 4, 1997. On April 21, 1997, the Brandes
International Fund was reorganized as the Northstar International Value
Fund.
(2) Class B commenced operations on April 18, 1997.
(3) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(4) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
115
<PAGE>
FINANCIAL
HIGHLIGHTS
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
June 30, 1999, the financial information was audited by another independent
auditor.
PILGRIM
INTERNATIONAL CORE
GROWTH FUND
<TABLE>
<CAPTION>
Class A
Year February 28,
ended 1997(1) to
June 30, Year ended March 31, March 31,
1999(2) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.01 12.73 12.50
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.01) (0.02) --
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 1.02 4.56 0.23
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 1.01 4.54 0.23
- --------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ 0.18 -- --
- --------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 0.13 0.26 --
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.71 17.01 12.73
- --------------------------------------------------------------------------------------------------------------------
Total Return(1): % 5.90 36.10 1.76
Ratios/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 21,627 12,664 2
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- --------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(2) % 1.89 1.96 1.95
- --------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(2) % 2.13 3.02 4,579.78
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(2) % (0.51) (0.45) 0.00
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 214 274 76
<CAPTION>
Class B
Year February 28,
ended 1997(1) to
June 30, Year ended March 31, March 31,
1999(2) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Performance:
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period 17.10 12.68 12.50
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.16) (0.11) --
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 1.05 4.66 0.18
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.89 4.55 0.18
- -------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income 0.03 -- --
- -------------------------------------------------------------------------------------------------------------------
Net realized gains on investments 0.07 0.13 --
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 17.89 17.10 12.68
- -------------------------------------------------------------------------------------------------------------------
Total Return(1): 5.24 35.31 1.44
Ratios/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) 11,033 7,942 1
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(2) 2.53 2.61 2.59
- -------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(2) 2.77 3.04 16,000.25
- -------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(2) (1.13) (1.32) 0.00
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover 214 274 76
<CAPTION>
Class C
Year February 28,
ended 1997(1) to
June 30, Year ended March 31, March 31,
1999(2) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.16 12.68 12.50
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.05) (0.07) --
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 0.94 4.55 0.18
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.89 4.48 0.18
- ------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ 0.11 -- --
- ------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.94 17.16 12.68
- ------------------------------------------------------------------------------------------------------------------
Total Return(1): % 5.22 35.25 1.44
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 10,400 3,517 43
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(2) % 2.55 2.61 2.41
- ------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(2) % 2.79 5.10 25.55
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(2) % (1.19) (1.27) (0.07)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 214 274 76
</TABLE>
- --------------------------------------------------------------------------------
(1) Total returns are not annualized for periods of less than one year and do
not reflect the impact of sales charges.
(2) Ratios are annualized for periods less than one year. Expense
reimbursements reflect voluntarily reductions to total expenses, as
discussed in the notes to the financial statements. Such amounts would
decrease net investment income (loss) ratios had such reductions not
incurred.
(3) Annualized.
116
<PAGE>
PILGRIM
INTERNATIONAL
SMALLCAP
GROWTH FUND
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
June 30, 1999, the financial information was audited by other independent
auditors.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
Year August 31,
ended 1994(a) to
June 30, Year ended March 31, March 31,
1999(c) 1999 1998 1997 1996 1995 1999(c)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.29 14.92 13.15 11.51 12.50 20.16
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 0.02 (0.15) 0.04 (0.02) -- (0.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on
investments $ 3.21 5.36 1.88 1.79 (0.98) 3.46
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 3.23 5.21 1.92 1.77 (0.98) 3.26
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment
income $ -- -- 0.01 0.13 0.01 --
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 1.49 0.84 0.14 -- -- 0.99
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 21.03 19.29 14.92 13.15 11.51 22.43
Total Return(1): % 17.26 36.31 14.67 15.46 (7.85) 16.55
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 25,336 11,183 5,569 1,056 610 16,158
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ---------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
reimbursement(2) % 1.94 1.96 1.95 1.95 1.95 2.59
- ---------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense
reimbursement(2) % 2.08 2.75 3.76 10.06 9.77 2.73
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after
expense reimbursement(2) % (0.82) (1.56) (1.05) (0.27) (0.07) (1.45)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 146 198 206 141 75 146
<CAPTION>
Class B
Year May 31,
ended Year ended 1995(b) to
June 30, March 31, March 31,
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------
Net asset value, beginning of period 15.89 13.96 12.50
- ------------------------------------------------------------------------------------------------
Income from investment operations:
- ------------------------------------------------------------------------------------------------
Net investment income (loss) (0.15) (0.15) (0.02)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gains on
investments 5.56 2.09 1.48
- ------------------------------------------------------------------------------------------------
Total from investment operations 5.41 1.94 1.46
- ------------------------------------------------------------------------------------------------
Less distributions from: Net investment
income -- 0.01 --
- ------------------------------------------------------------------------------------------------
Net realized gains on investments 1.14 -- --
- ------------------------------------------------------------------------------------------------
Net asset value, end of period 20.16 15.89 13.96
Total Return(1): 35.73 13.96 11.68
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------
Net assets, end of period (000's) 12,033 5,080 1,487
- ------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------
Net expenses after expense
reimbursement(2) 2.61 2.60 2.60
- ------------------------------------------------------------------------------------------------
Gross expenses prior to expense
reimbursement(2) 2.98 4.89 16.15
- ------------------------------------------------------------------------------------------------
Net investment income (loss) after
expense reimbursement(2) (2.20) (1.66) (0.64)
- ------------------------------------------------------------------------------------------------
Portfolio turnover 198 206 141
<CAPTION>
Class C
Year August 31,
ended 1994(1) to
June 30, Year ended March 31, March 31,
1999(c) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.53 14.87 13.05 11.32 12.50
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.10) (0.11) (0.16) 0.01 (0.04)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 3.09 5.09 1.98 1.72 (1.12)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 2.99 4.98 1.82 1.73 (1.16)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ -- -- -- -- 0.02
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 0.92 1.32 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 20.60 18.53 14.87 13.05 11.32
- -----------------------------------------------------------------------------------------------------------------------------
Total Return(1): % 16.55 35.63 13.98 15.30 (9.25)
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 13,226 8,014 3,592 933 24
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(2) % 2.59 2.61 2.60 2.60 2.61
- -----------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(2) % 2.73 3.38 3.95 16.15 75.37
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(2) % (1.45) (2.18) (1.67) (1.02) (0.76)
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 146 198 206 141
</TABLE>
- --------------------------------------------------------------------------------
(1) The Fund commenced operations on August 31, 1994.
(2) Commencement of share offerings.
(3) Effective May 24, 1999, Pilgrim Investment Inc., became the Investment
Manager of the Fund, concurrently Nicholas-Applegate Capital Management
was appointed as sub-advisor.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(5) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-334-3444.
117
<PAGE>
FINANCIAL
HIGHLIGHTS
The following chart shows the fund's financial performance by share class. These
figures have been audited by PricewaterhouseCoopers LLP, whose report, along
with the fund's financial statements, are included in the annual report, which
is available upon request.
PILGRIM
EMERGING MARKETS
VALUE FUND
<TABLE>
<CAPTION>
Class A(1) Class B(1) Class C(1)
Year ended October 31, 1998 1998 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance
- -----------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 10.00 10.00 10.00
- -----------------------------------------------------------------------------------------------------------
Net investment gain $ 0.12 0.09 0.09
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments $ (2.43) (2.44) (2.46)
- -----------------------------------------------------------------------------------------------------------
Total from investment operations $ (2.31) (2.35) (2.37)
- -----------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 7.69 7.65 7.63
- -----------------------------------------------------------------------------------------------------------
Total investment return(2) % (23.10) (23.50) (23.70)
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 3,815 3,583 2,304
- -----------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets(3) % 1.80 2.50 2.50
- -----------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets(3) % 2.08 2.24 2.37
- -----------------------------------------------------------------------------------------------------------
Ratio of net investment loss to average net assets(3) % 3.38 2.55 2.60
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate % -- -- --
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Class A, B and C commenced operations on January 1, 1998.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
118
<PAGE>
PILGRIM
EMERGING
COUNTRIES FUND
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
June 30, 1999, the financial information was audited by other independent
auditors.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
Year November 28
Ended 1994(1) to
June 30, Year Ended March 31, March 31,
1999(3) 1999 1998 1997 1996 1995 1999(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.39 17.20 14.03 11.00 12.50
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.06) 0.03 (0.06) (0.04) 0.04
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains
(loss) on investments $ (3.81) 1.22 3.51 3.15 (1.54)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ (3.87) 1.25 3.45 3.11 (1.50)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.02 -- -- 0.02 --
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 0.07 0.28 0.06 -- 0.08
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of $ 13.43 17.39 17.20 14.03 11.00
- ---------------------------------------------------------------------------------------------------------------------------
Total Return(4): % (22.23) 28.43 (11.98) (22.23) 7.47
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 47,180 71,014 38,688 4,718 1,197
- ---------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense
reimbursement(5) % 2.27 2.26 2.25 2.25 2.25
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense % 2.56 2.48 3.08 6.72 6.15
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after
expense reimbursement(5) % (0.25) 0.55 (1.14) (0.35) 1.09
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 213 243 176 118 61
<CAPTION>
Class B
Year May 31,
Ended Year Ended 1995(2) to
June 30, March 31, March 31,
1999 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period 17.64 17.29 14.02 12.50
- ----------------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------------
Net investment income (loss) (0.22) (0.07) (0.11) (0.04)
- ----------------------------------------------------------------------------------------
Net realized and unrealized gains
(loss) on investments (3.70) 1.26 3.47 1.56
- ----------------------------------------------------------------------------------------
Total from investment operations (3.92) 1.19 3.36 1.52
- ----------------------------------------------------------------------------------------
Less distributions from:
- ----------------------------------------------------------------------------------------
Net investment income -- -- -- --
- ----------------------------------------------------------------------------------------
Net realized gains on investments 0.84 -- 0.08 0.97
- ----------------------------------------------------------------------------------------
Net asset value, end of 13.64 17.64 17.29 14.02
- ----------------------------------------------------------------------------------------
Total Return(4): 24.00 12.16 (22.21) 7.47
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------
Net assets, end of period (000's) 22,338 38,796 24,558 3,557
- ----------------------------------------------------------------------------------------
Ratio to average net assets:
- ----------------------------------------------------------------------------------------
Net expenses after expense
reimbursement(5) 2.91 2.91 2.90 2.90
- ----------------------------------------------------------------------------------------
Gross expenses prior to expense 3.20 3.06 3.66 7.58
- ----------------------------------------------------------------------------------------
Net investment income (loss) after
expense reimbursement(5) (0.80) (0.20) (1.77) (1.05)
- ----------------------------------------------------------------------------------------
Portfolio turnover 213 243 176 118
<CAPTION>
Class C
Three Months
ended November 28,
June 30, Year Ended March 31, 1994(1) to
1999(3) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.98 16.81 13.71 10.79 12.50
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ (0.27) (0.12) (0.10) (0.05) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss) on investments $ (3.49) 1.26 3.37 2.97 (1.70)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ (3.76) 1.14 3.27 2.92 (1.70)
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ -- -- -- -- 0.01
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 0.08 0.97 0.17 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of $ 13.14 16.98 16.81 13.71 10.79
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return(4): % (22.21) 7.47 23.94 27.30 (13.64)
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 19,246 36,986 29,376 4,345 59
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(5) % 2.90 2.91 2.90 2.90 2.90
- -----------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense % 3.19 3.09 3.12 6.23 242.59
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(5) % (0.77) (0.26) (1.75) (1.06) (0.04)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 213 243 176 118% 61
</TABLE>
- --------------------------------------------------------------------------------
(1) The Fund commenced operations on November 28, 1994.
(2) Commencement of offering shares.
(3) Effective May 24, 1999, Pilgrim Investment Inc., became the Investment
Manager of the Fund, concurrently Nicholas-Applegate Capital Management
was appointed as sub-advisor.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(5) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-334-3444.
119
<PAGE>
FINANCIAL
HIGHLIGHTS
The information in the table below has been audited by KPMG LLP, independent
auditors.
PILGRIM
ASIA-PACIFIC
EQUITY FUND
<TABLE>
<CAPTION>
Class A
Year February 28,
ended 1997(1) to
June 30, Year ended March 31, March 31,
1999(2) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.93 10.35 10.00
- ----------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ----------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 0.03 0.02 0.03
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ (6.50) 0.58 0.34
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations $ (6.47) 0.60 0.37
- ----------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ -- -- --
- ----------------------------------------------------------------------------------------------------------------
In excess of net investment income $ -- -- 0.02
- ----------------------------------------------------------------------------------------------------------------
Tax return of capital $ -- 0.02 --
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.46 10.93 10.35
- ----------------------------------------------------------------------------------------------------------------
Total Return(2): % (59.29) 5.78 3.76
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 11,796 32,485 18,371
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(3) % 2.00 2.00 2.00
- ----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(3) % 2.80 2.54 3.47
- ----------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(3) % 0.38 0.00 0.33
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 81 38 15
<CAPTION>
Class B
Year February 28,
ended Year ended 1997(1) to
June 30, March 31, March 31,
1999(2) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period 10.83 10.31 10.00
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.03) (0.07) (0.01)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (6.43) 0.59 0.32
- ---------------------------------------------------------------------------------------------------------
Total from investment operations (6.46) 0.52 0.31
- ---------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ---------------------------------------------------------------------------------------------------------
Tax return of capital -- -- --
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period 4.37 10.83 10.31
- ---------------------------------------------------------------------------------------------------------
Total Return(2): (59.65) 5.04 3.19
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) 9,084 30,169 17,789
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ---------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(3) 2.75 2.75 2.75
- ---------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(3) 3.55 3.29 4.10
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(3) (0.39) (0.79) (0.38)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate 81 38 15
<CAPTION>
Class M
Ten months
ended
Year ended June 30, June 30,
1999 1998 1997 1996(1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.86 10.32 10.00
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ -- (0.05) --
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ (6.46) 0.59 0.33
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $ (6.46) 0.54 0.33
- --------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ -- -- --
- --------------------------------------------------------------------------------------------------------------------
In excess of net investment income $ -- -- 0.01
- --------------------------------------------------------------------------------------------------------------------
Tax return of capital $ -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.40 10.86 10.32
- --------------------------------------------------------------------------------------------------------------------
Total Return (2): % (59.48) 5.26 3.32
Ratios/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 4,265 11,155 6,476
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- --------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(3) % 2.50 2.50 2.50
- --------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(3) % 3.30 3.04 3.88
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(3) % (0.07) (0.55) (0.16)
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 81 38 15
</TABLE>
- --------------------------------------------------------------------------------
(1) The Fund commenced operations on September 1, 1995.
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return information for less than one year is not
annualized.
(3) Annualized.
120
<PAGE>
PILGRIM
GOVERNMENT
SECURITIES
INCOME FUND
The information in the table below has been audited by KPMG LLP, independent
auditors.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
Year Ended June 30,
1999 1998 1997 1996 1995(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.71 12.59 12.97 12.73
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.64 0.69 0.75 0.84
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments $ 0.30 0.20 (0.32) 0.24
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.94 0.89 0.43 1.08
- -------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.77 0.73 0.75 0.84
- -------------------------------------------------------------------------------------------------------------------
Tax return of capital $ -- 0.04 0.06 --
- -------------------------------------------------------------------------------------------------------------------
Total distributions $ 0.77 0.77 0.81 0.84
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.88 12.71 12.59 12.97
- -------------------------------------------------------------------------------------------------------------------
Total Return(3): % 7.63 7.33 3.34 8.96
Ratios/Supplemental Data:
- -------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 23,682 29,900 38,753 43,631
- -------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement (4) % 1.50 1.42 1.51 1.40
- -------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 1.58 1.42 1.57 1.54
- -------------------------------------------------------------------------------------------------------------------
Net investment income after expense
reimbursement(4) % 5.13 5.78 5.64 6.37
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 134 172 170 299
<CAPTION>
Class B
July 17,
1995(2) to
Year Ended June 30, June 30,
1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Performance:
- --------------------------------------------------------------------------------------------------
Net asset value, beginning of period 12.68 12.59 12.95
- --------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- --------------------------------------------------------------------------------------------------
Net investment income 0.60 0.67 0.66
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 0.24 0.11 (0.37)
- --------------------------------------------------------------------------------------------------
Total from investment operations 0.84 0.78 0.29
- --------------------------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------------------------
Net investment income 0.68 0.69 0.65
- --------------------------------------------------------------------------------------------------
Tax return of capital -- -- --
- --------------------------------------------------------------------------------------------------
Total distributions
- --------------------------------------------------------------------------------------------------
Net asset value, end of period 12.84 12.68 12.59
- --------------------------------------------------------------------------------------------------
Total Return(3): 6.78 6.38 2.25
Ratios/Supplemental Data:
- --------------------------------------------------------------------------------------------------
Net assets, end of period (000's) 3,220 1,534 73
- --------------------------------------------------------------------------------------------------
Ratios to average net assets:
- --------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement (4) 2.25 2.17 2.26
- --------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) 2.29 -- 2.41
- --------------------------------------------------------------------------------------------------
Net investment income after expense
reimbursement(4) 4.24 4.92 4.98
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate 134 172 170
<CAPTION>
Class C Class M
June 11, July 17,
1999(2) to 1995(2) to
June 30, Year Ended June 30, June 30,
1999 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.72 12.59 12.95
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- --------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.64 0.70 0.68
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ 0.23 0.14 (0.36)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.87 0.84 0.32
- --------------------------------------------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.70 0.70 0.68
- --------------------------------------------------------------------------------------------------------------------
Tax return of capital $ -- 0.01 --
- --------------------------------------------------------------------------------------------------------------------
Total distributions
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.88 12.72 12.59
- --------------------------------------------------------------------------------------------------------------------
Total Return(3): % 7.02 6.88 2.52
- --------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 224 61 24
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- --------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement (4) % 2.00 1.92 2.01
- --------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 2.05 -- 2.16
- --------------------------------------------------------------------------------------------------------------------
Net investment income after expense reimbursement(4) % 4.29 5.25 5.73
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 134 172 170
</TABLE>
- --------------------------------------------------------------------------------
(1) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired certain
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(2) Commencement of offering shares.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized.
(5) Commencement of offering shares.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
121
<PAGE>
FINANCIAL
HIGHLIGHTS
The following chart shows the fund's financial performance by share class. The
1998, 1997, 1996 and 1995 figures have been audited by PricewaterhouseCoopers
LLP, whose report, along with the fund's financial statements, are included in
the annual report, which is available upon request.
The figures prior to 1995 were audited by other independent accountants.
PILGRIM
GOVERNMENT SECURITIES
FUND
<TABLE>
<CAPTION>
Class A
Year ended December 31, 1998 1997 1996 1995(1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance
- -------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 9.53 9.48 10.07 9.51
- -------------------------------------------------------------------------------------------------------------
Net investment income $ 0.49 0.68 0.63 0.34
- -------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ -- -- (0.60) 0.59
- -------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.49 0.68 0.03 0.93
- -------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ (0.64) (0.63) (0.62) (0.37)
- -------------------------------------------------------------------------------------------------------------
Total distributions $ (0.64) (0.63) (0.62) (0.37)
- -------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 9.38 9.53 9.48 10.07
- -------------------------------------------------------------------------------------------------------------
Total investment return(2) % 5.27 7.46 0.57 10.04
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 31,181 1,744 14,185 3,235
- -------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 1.17 1.15 1.09 1.20(3)
- -------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets % 0.15 0.17 0.20 0.20(3)
- -------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets % 6.18 6.44 6.85 6.01(3)
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 304 129 101 295
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
Class B
Year ended December 31, 1998 1997 1996 1995(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating performance
- -----------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period 9.55 9.48 10.07 9.51
- -----------------------------------------------------------------------------------------------------
Net investment income 0.51 0.52 0.57 0.30
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.09) 0.11 (0.60) 0.59
- -----------------------------------------------------------------------------------------------------
Total from investment operations 0.42 0.63 (0.03) 0.89
- -----------------------------------------------------------------------------------------------------
Dividends from net investment income (0.57) (0.56) (0.56) (0.33)
- -----------------------------------------------------------------------------------------------------
Total distributions (0.57) (0.56) (0.56) (0.33)
- -----------------------------------------------------------------------------------------------------
Net asset value at the end of the period 9.40 9.55 9.48 10.07
- -----------------------------------------------------------------------------------------------------
Total investment return(2) 4.49 6.93 (0.15) 9.61
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) 27,250 13,503 9,135 2,790
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.90 1.89 1.80 1.70(3)
- -----------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets 0.15 0.17 0.20 0.20(3)
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 5.55 5.50 6.05 5.20(3)
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 304 129 101 295
- -----------------------------------------------------------------------------------------------------
<CAPTION>
Class C
Year ended December 31, 1998 1997 1996 1995(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance
- -------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 9.54 9.47 10.07 9.51
- -------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.45 0.59 0.58 0.30
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ (0.05) 0.04 (0.62) 0.59
- -------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.40 0.63 (0.04) 0.89
- -------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ (0.56) (0.56) (0.56) (0.33)
- -------------------------------------------------------------------------------------------------------------------
Distributions from capital $ -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.56) (0.56) (0.56) (0.33)
- -------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 9.38 9.54 9.47 10.07
- -------------------------------------------------------------------------------------------------------------------
Total investment return(2) $ 4.35 6.93 (0.21) 9.61
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 2,652 542 1,147 84
- -------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 1.90 1.85 1.80 1.68(3)
- -------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement and waiver toaverage net assets % 0.15 0.17 0.21 0.20(3)
- -------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets % 5.44 5.67 6.22 5.28(3)
- -------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 304 129 101 295
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class T
Year ended December 31, 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance
- --------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period 9.55 9.48 10.07 8.74 10.32
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 0.58 0.57 0.60 0.58 0.56
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.14) 0.10 (0.59) 1.35 (1.56)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.44 0.67 0.01 1.93 (1.00)
- --------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.60) (0.60) (0.60) (0.60) (0.57)
- --------------------------------------------------------------------------------------------------------------------------
Distributions from capital -- -- -- -- (0.01)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions (0.60) (0.60) (0.60) (0.60) (0.58)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period 9.39 9.55 9.48 10.07 8.74
- --------------------------------------------------------------------------------------------------------------------------
Total investment return(2) 4.84 7.38 0.32 22.90 (9.82)
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) 9,713 89,939 112,126 150,951 152,608
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.55 1.45 1.30 1.30 1.29
- --------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement and waiver toaverage net assets 0.15 0.20 0.21 0.20 0.20
- --------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets 5.97 5.99 6.37 6.23 6.00
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 304 129 101 295 315
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized. operations on June 5, 1995.
122
<PAGE>
PILGRIM
STRATEGIC
INCOME FUND
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors.
For all periods ending prior to June 30, 1999, the financial information was
audited by another independent auditor.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Class A Class B Class C
Three Three Three
months July 27, months July 27, months July 27,
ended 1998(1) to ended 1998(1) to ended 1998(1) to
June 30, March 31, June 30, March 31, June 30, March 31,
1999(2) 1999 1999(2) 1999 1999(2) 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.08 12.78 13.27
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.53 0.45 0.48
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss) on investments $ (0.08) (0.05) (0.06)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.45 0.40 0.42
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.53 0.46 0.48
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 0.11 0.11 0.11
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.89 12.61 13.10
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 5.60 5.17 5.19
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 5,751 6,637 8,128
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 0.96 1.37 1.36
- -----------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 1.98 2.42 2.41
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % 5.81 5.35 5.36
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 274 274 274
</TABLE>
- --------------------------------------------------------------------------------
(1) The Fund commenced operations on July 27, 1998.
(2) Effective May 24, 1999, Pilgrim Investment, Inc., became the Investment
Manager of the Fund.
(3) Total returns are not annualized for periods of less than one year and do
not reflect the impact of sales charges.
(4) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
123
<PAGE>
FINANCIAL
HIGHLIGHTS
The information in the table below has been audited by KPMG LLP, independent
auditors.
PILGRIM
HIGH YIELD
FUND
<TABLE>
<CAPTION>
Class A
Eight
months Year
ended ended
Year ended June 30, June 30, October 31,
1999 1998 1997 1996 1995(1)(3) 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.80 6.36 6.15 5.95 6.47
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.61 0.61 0.59 0.35 0.54
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ 0.16 0.43 0.16 0.21 (0.51)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operation $ 0.77 1.04 0.75 0.56 0.03
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ 0.63 0.60 0.54 0.36 0.55
- -----------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income $ -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions $ 0.63 0.60 0.54 0.36 0.55
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.94 6.80 6.36 6.15 5.95
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return(4): % 11.71 17.14 12.72 9.77 0.47
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 102,424 35,940 18,691 15,950 16,046
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement (5) % 1.17 1.42 2.19 2.35 2.07
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement (5) % 1.00 1.00 1.00 2.25 2.00
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income after expense reimbursement (5) % 9.05 9.54 9.46 8.84 8.73
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 209 394 399 166 192
<CAPTION>
Class B Class C
July 17, May 27,
1995(2) to 1999(2) to
Year ended June 30, June 30, June 30,
1999 1998 1997 1996 1999
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.78 6.36 6.20
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.58 0.57 0.48
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ 0.14 0.41 0.14
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operation $ 0.72 0.98 0.62
- ----------------------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income $ 0.58 0.56 0.46
- ----------------------------------------------------------------------------------------------------------------------
In excess of net investment income $ -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.92 6.78 6.36
- ----------------------------------------------------------------------------------------------------------------------
Total Return(4): % 10.90 16.04 10.37
Ratios/Supplemental Data:
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 154,303 40,225 2,374
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(5) % 1.75 1.75 1.75
- ----------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(5) % 1.92 2.17 2.94
- ----------------------------------------------------------------------------------------------------------------------
Net investment income after expense reimbursement(5) % 8.30 8.64 9.02
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 209 394 339
<CAPTION>
Class M
July 17,
1995(2)
Year ended June 30, June 30,
1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Performance:
- ------------------------------------------------------------------------------------------------------
Net asset value, beginning of period 6.78 6.36 6.20
- ------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- ------------------------------------------------------------------------------------------------------
Net investment income 0.59 0.58 0.50
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.14 0.41 0.14
- ------------------------------------------------------------------------------------------------------
Total from investment operation 0.73 0.99 0.64
- ------------------------------------------------------------------------------------------------------
Less distributions from: Net investment income 0.59 0.57 0.48
- ------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- --
- ------------------------------------------------------------------------------------------------------
Total distributions
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period 6.92 6.78 6.36
- ------------------------------------------------------------------------------------------------------
Total Return(4): 11.16 16.29 10.69
Ratios/Supplemental Data:
- ------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) 19,785 8,848 1,243
- ------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(5) 1.50 1.50 1.50
- ------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(5) 1.67 1.92 2.69
- ------------------------------------------------------------------------------------------------------
Net investment income after expense reimbursement(5) 8.55 8.93 9.41
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 209 394 339
</TABLE>
- --------------------------------------------------------------------------------
(1) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired certain
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(2) Commencement of offering shares.
(3) Effective November 1, 1994, High Yield Fund changed its year end to June
30.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return information for less than one year is not
annualized.
(5) Annualized.
124
<PAGE>
PILGRIM
HIGH YIELD
FUND II
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
June 30, 1999, the financial information was audited by another independent
auditor.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Class A Class B
Three Three
months Year March 27, months Year March 27,
ended ended 1998 to ended ended 1998 to
June 30, March 31, March 31, June 30, March 31, March 31,
1999(2) 1999 1998(1) 1999(2) 1999 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.72 12.70 12.71 12.69
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 1.12 0.01 1.04 0.01
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss)
on investments $ (1.00) 0.01 (0.99) 0.01
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.12 0.02 0.05 0.02
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 1.18 -- 1.10 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.66 12.72 11.66 12.71
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 1.13 0.16 0.55 0.16
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's) $ 17,327 4,690 42,960 8,892
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 1.12 1.06 1.77 1.69
- -----------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 1.53 1.06 2.18 1.69
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense
reimbursement(4) % 9.44 7.22 8.84 6.61
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 242 484 242 484
<CAPTION>
Class C
Three
months Year March 27,
ended ended 1998 to
June 30, March 31, March 31,
1999(2) 1999 1998(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------
Net asset value, beginning of period 12.71 12.69
- -----------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------
Net investment income (loss) 1.04 0.01
- -----------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss)
on investments (0.99) 0.01
- -----------------------------------------------------------------------------------------------
Total from investment operations 0.05 0.02
- -----------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------
Net investment income 1.10 --
- -----------------------------------------------------------------------------------------------
Net asset value, end of period 11.66 12.71
- -----------------------------------------------------------------------------------------------
Total Return(3): 0.55 0.16
Ratios/Supplemental Data:
- -----------------------------------------------------------------------------------------------
Net assets, end of period (000's) 21,290 4,815
- -----------------------------------------------------------------------------------------------
Ratios to average net assets:
- -----------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) 1.77 1.66
- -----------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) 2.18 1.66
- -----------------------------------------------------------------------------------------------
Net investment income (loss) after expense
reimbursement(4) 8.79 6.91
- -----------------------------------------------------------------------------------------------
Portfolio turnover 242 484
</TABLE>
- --------------------------------------------------------------------------------
(1) The Fund commenced operations on March 27, 1998.
(2) Effective May 24, 1999, Pilgrim Investment Inc., became the Investment
Manager of the Fund.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
125
<PAGE>
FINANCIAL
HIGHLIGHTS
The following chart shows the fund's financial performance by share class. The
1998, 1997, 1996 and 1995 figures have been audited by PricewaterhouseCoopers
LLP, whose report, along with the fund's financial statements, are included in
the annual report, which is available upon request.
The figures prior to 1995 were audited by other independent accountants.
PILGRIM
HIGH YIELD
FUND III
<TABLE>
<CAPTION>
Class A Class B
Year ended December 31, 1998 1997 1996 1995(1) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 9.14 8.94 8.56 8.68 9.15 8.95
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.75 0.73 0.76 0.48 0.68 0.67
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ (0.55) 0.23 0.44 (0.10) (0.56) 0.23
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.20 0.96 1.20 0.38 0.12 0.90
- ------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ (0.75) (0.76) (0.75) (0.50) (0.69) (0.70)
- ------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain $ (0.06) -- -- -- (0.06) --
- ------------------------------------------------------------------------------------------------------------------------------
Dividends from capital $ -- -- (0.07) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.81) (0.76) (0.82) (0.50) (0.75) (0.70)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 8.53 9.14 8.94 8.56 8.52 9.15
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 2.25 11.18 14.74 4.48 1.28 10.38
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 31,134 16,213 13,146 7,466 139,711 108,469
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 1.26 1.20 1.11 1.02(3) 1.97 1.91
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets % 8.27 8.06 8.60 9.83(3) 7.50 7.35
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 135 134 128 103 135 134
<CAPTION>
Class B Class C
Year ended December 31, 1996 1995(1) 1998 1997 1996 1995(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period 8.57 8.68 9.15 8.95 8.57 8.68
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.71 0.44 0.67 0.67 0.72 0.44
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.43 (0.09) (0.54) 0.23 0.42 (0.09)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.14 0.35 0.13 0.90 1.14 0.35
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.69) (0.46) (0.69) (0.70) (0.69) (0.46)
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain -- -- (0.06) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from capital (0.07) -- -- -- (0.07) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.76) (0.46) (0.75) (0.70) (0.76) (0.46)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period 8.95 8.57 8.53 9.15 8.95 8.57
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) 13.94 4.17 1.39 10.37 13.93 4.17
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) 79,199 29,063 23,559 21,393 14,275 3,410
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.81 1.71(3) 1.98 1.92 1.82 1.72(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 7.88 9.18(3) 7.48 7.35 7.85 9.29(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 128 103 135 134 128 103
<CAPTION>
Class T
Year ended December 31, 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating performance
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 9.14 8.94 8.56 8.29 9.31
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.71 0.71 0.73 0.84 0.81
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ (0.54) 0.23 0.45 0.26 (0.99)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.17 0.94 1.18 1.10 (0.18)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ (0.73) (0.74) (0.73) (0.83) (0.83)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain $ -- -- -- -- (0.01)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from capital $ (0.06) -- (0.07) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.79) (0.74) (0.80) (0.83) (0.84)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 8.52 9.14 8.94 8.56 8.29
- -----------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 1.79 10.86 14.49 13.71 (2.18)
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 89,116 109,320 124,431 139,711 136,426
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 1.60 1.47 1.31 1.33 1.34
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets % -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets % 7.83 7.77 8.43 9.69 9.08
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 135 134 128 103 86
</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.
126
<PAGE>
PILGRIM
HIGH TOTAL
RETURN FUND
The following chart shows the fund's financial performance by share class. These
figures have been audited by PricewaterhouseCoopers LLP, whose report, along
with the fund's financial statements, are included in the annual report, which
is available upon request.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Class A Class B
Year ended October 31, 1998 1997 1996 1995 1994(1) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning
of the period $ 5.00 4.78 4.48 4.41 5.00 5.00 4.77 4.47
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.46 0.48 0.46 0.48 0.41 0.43 0.44 0.43
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments $ (1.07) 0.20 0.32 0.07 (0.60) (1.07) 0.22 0.32
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ (0.61) 0.68 0.78 0.55 (0.19) (0.64) 0.66 0.75
- -------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment
income $ (0.47) (0.46) (0.48) (0.48) (0.40) (0.44) (0.43) (0.45)
- -------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment
gain on investments sold $ (0.15) -- -- -- -- (0.15) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.62) (0.46) (0.48) (0.48) (0.40) (0.59) (0.43) (0.45)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the
period $ 3.77 5.00 4.78 4.48 4.41 3.77 5.00 4.77
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % (13.65) 15.03 18.14 13.02 (4.11) (14.28) 14.46 17.08
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the
period ($000s) $ 148,650 215,361 167,698 88,552 50,797 428,903 577,351 346,919
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets % 1.30 1.42 1.52 1.55 1.50(3) 2.02 2.12 2.23
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement
to average net assets % -- -- -- -- 0.99(3) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets(3) % 9.93 9.88 9.86 10.90 10.09(3) 9.20 9.18 9.14
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 123 183 158 145 163 123 183 158
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class B Class C
Year ended October 31, 1995 1994(1) 1998 1997 1996 1995 1994(1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- ------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning
of the period 4.41 5.20 5.02 4.79 4.49 4.41 5.06
- ------------------------------------------------------------------------------------------------------------------
Net investment income 0.45 0.33 0.43 0.44 0.43 0.44 0.26
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
on investments 0.06 (0.80) (1.08) 0.22 0.32 0.09 (0.65)
- ------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.51 (0.47) (0.65) 0.66 0.75 0.53 (0.39)
- ------------------------------------------------------------------------------------------------------------------
Dividends from net investment
income (0.45) (0.32) (0.44) (0.43) (0.45) (0.45) (0.26)
- ------------------------------------------------------------------------------------------------------------------
Dividends from net investment
gain on investments sold -- -- (0.15) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions (0.45) (0.32) (0.59) (0.43) (0.45) (0.45) (0.26)
- ------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the
period 4.47 4.41 3.78 5.02 4.79 4.49 4.41
- ------------------------------------------------------------------------------------------------------------------
Total investment return(2) 11.97 (9.30) (14.41) 14.42 17.28 12.44 (7.21)
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets at the end of the
period ($000s) 96,362 25,880 64,141 97,457 54,382 11,011 2,330
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 2.25 2.20(3) 2.03 2.13 2.23 2.27 2.20(3)
- ------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement
to average net assets -- 0.20(3) -- -- -- -- 0.11(3)
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets(3) 10.20 9.72(3) 9.19 9.18 9.14 10.18 9.46(3)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 145 163 123 183 158 145 163
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Class A commenced operations on November 8,1993. Class B commenced
operations on February 9, 1994. Class C commenced operations on March 31,
1994.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
127
<PAGE>
FINANCIAL
HIGHLIGHTS
The following chart shows the fund's financial performance by share class. These
figures have been audited by PricewaterhouseCoopers LLP, whose report, along
with the fund's financial statements, are included in the annual report, which
is available upon request.
PILGRIM
HIGH TOTAL
RETURN FUND II
<TABLE>
<CAPTION>
Class A(1) Class B(1) Class C(1)
Year ended October 31, 1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 5.49 5.00 5.49 5.00 5.50 5.00
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.50 0.28 0.47 0.25 0.47 0.25
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on investments $ (0.70) 0.53 (0.70) 0.53 (0.71) 0.54
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ (0.20) 0.81 (0.23) 0.78 (0.24) 0.79
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ (0.48) (0.28) (0.44) (0.25) (0.44) (0.25)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions declared from capital $ (0.03) (0.04) (0.03) (0.04) (0.03) (0.04)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.51) (0.32) (0.47) (0.29) (0.47) (0.29)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 4.78 5.49 4.79 5.49 4.79 5.50
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % (4.23) 16.53 (4.90) 15.91 (4.90) 16.12
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 40,924 8,548 168,859 38,076 53,703 12,334
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets(3) % 1.44 1.26 2.17 1.95 2.17 1.95
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets(3) % 0.01 3.36 0.02 0.75 0.01 0.78
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets(3) % 8.90 5.89 8.17 5.20 8.16 5.17
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 150 164 150 164 150 164
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Classes A, B & C commenced operations on January 31, 1997.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
128
<PAGE>
FINANCIAL
HIGHLIGHTS
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
June 30, 1999, the financial information was audited by other independent
auditors.
PILGRIM
BALANCED
FUND
<TABLE>
<CAPTION>
Class A
Three
months
ended
June 30, Year ended March 31,
1999(2) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.53 15.54 16.16 13.74 13.52
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.36 0.26 0.32 0.34 0.21
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 2.58 5.70 0.84 2.42 0.22
- ---------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 2.94 5.96 1.16 2.76 0.43
- ---------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.43 0.27 0.32 0.34 0.21
- ---------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 3.01 1.70 1.46 -- --
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.03 19.53 15.54 16.16 13.74
- ---------------------------------------------------------------------------------------------------------------------
Total Return(3): % 17.10 39.34 6.74 20.16 3.22
Ratio/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 9,519 6,675 4,898 5,902 4,980
- ---------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 1.59 1.61 1.60 1.60 1.60
- ---------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 1.97 2.56 3.00 3.30 2.78
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense
reimbursement(4) % 2.08 3.58 1.87 2.16 1.44
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 165 260 213 197 110
<CAPTION>
Class B
Three
months May 31,
ended Year ended 1995(1) to
June 30, March 31, March 31,
1999(2) 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period 20.07 14.88 14.18 12.50
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------
Net investment income 0.28 0.15 0.17 0.12
- -----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments 2.74 5.58 0.70 1.68
- -----------------------------------------------------------------------------------------------------------------
Total from investment operations 3.02 5.73 0.87 1.80
- -----------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------
Net investment income 0.31 0.15 0.17 0.12
- -----------------------------------------------------------------------------------------------------------------
Net realized gains on investments 2.40 0.39 -- --
- -----------------------------------------------------------------------------------------------------------------
Net asset value, end of period 20.38 20.07 14.88 14.18
- -----------------------------------------------------------------------------------------------------------------
Total Return(3): 16.49 38.79 6.10 14.45
Ratio/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) 6,048 4,254 2,133 673
- -----------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -----------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) 2.24 2.26 2.25 2.25
- -----------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) 2.62 2.71 6.44 13.05
- -----------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense
reimbursement(4) 1.43 2.99 1.25 1.38
- -----------------------------------------------------------------------------------------------------------------
Portfolio turnover 165 260 213 197
<CAPTION>
Class C
Three months
ended
June 30, Year ended March 31,
1999(2) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.90 15.59 16.20 13.76 13.54
- -----------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.26 0.15 0.21 0.24 0.11
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains on investments $ 2.52 5.71 0.85 2.44 0.22
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 2.78 5.86 1.06 2.68 0.33
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.28 0.15 0.21 0.24 0.11
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments $ 4.05 1.40 1.46 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.35 19.90 15.59 16.20 13.76
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 16.34 38.35 6.05 19.58 2.47
Ratio/Supplemental Data:
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 21,655 20,784 16,990 16,586 16,470
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 2.23 2.26 2.25 2.25 2.25
- -----------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 2.61 2.68 2.83 3.01 2.60
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % 1.43 2.93 1.23 1.53 0.83
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 165 260 213 197 110
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of offering of shares.
(2) Effective May 24, 1999, Pilgrim Investment Inc., became the Investment
Manager of the Fund.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized.
129
<PAGE>
PILGRIM
INCOME AND
GROWTH FUND
The following chart shows the fund's financial performance by share class. These
figures have been audited by PricewaterhouseCoopers LLP, whose report, along
with the fund's financial statements, are included in the annual report, which
is available upon request.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Class A Class B
Year ended October 31, 1998 1997 1996 1995 1994(1) 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning
of the period $ 12.47 12.16 10.86 10.00 10.00 12.44 12.13 10.84 9.99
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.37 0.38 0.32 0.35 0.30 0.29 0.27 0.24 0.27
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments $ (0.22) 1.53 1.29 0.84 (0.05) (0.22) 1.55 1.28 0.85
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.15 1.91 1.61 1.19 0.25 0.07 1.82 1.52 1.12
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ (0.39) (0.34) (0.31) (0.33) (0.25) (0.30) (0.25) (0.23) (0.27)
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain
on investments sold $ (0.53) (1.26) -- -- -- (0.53) (1.26) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (0.92) (1.60) (0.31) (0.33) (0.25) (0.83) (1.51) (0.23) (0.27)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of
the period $ 11.70 12.47 12.16 10.86 10.00 11.68 12.44 12.13 10.84
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 1.12 17.02 14.48 13.19 2.48 0.44 15.06 13.60 12.31
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the
period ($000s) $ 47,378 53,805 85,250 76,031 72,223 55,873 73,829 71,123 60,347
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets % 1.40 1.47 1.52 1.51 1.50(3) 2.12 2.18 2.26 2.23
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement
to average net assets % -- -- -- -- 0.47(3) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets % 2.99 2.90 2.78 3.39 3.73(3) 2.28 2.18 2.04 2.66
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 102 56 147 91 26 102 56 147 91
<CAPTION>
Class B Class C
Year ended October 31, 1994(1) 1998 1997 1996 1995 1994(1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating performance
- -----------------------------------------------------------------------------------------------------
Net asset value at the beginning
of the period $ 10.64 12.42 12.12 10.83 9.99 10.37
- -----------------------------------------------------------------------------------------------------
Net investment income $ 0.20 0.31 0.28 0.24 0.27 0.20
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments $ (0.65) (0.24) 1.54 1.28 0.85 (0.38)
- -----------------------------------------------------------------------------------------------------
Total from investment operations $ (0.45) 0.07 1.82 1.52 1.12 (0.18)
- -----------------------------------------------------------------------------------------------------
Dividends from net investment income $ (0.20) (0.30) (0.26) (0.23) (0.28) (0.20)
- -----------------------------------------------------------------------------------------------------
Dividends from net realized gain
on investments sold $ -- (0.53) (1.26) -- -- --
- -----------------------------------------------------------------------------------------------------
Total distributions $ (0.20) (0.83) (1.52) (0.23) (0.28) (0.20)
- -----------------------------------------------------------------------------------------------------
Net asset value at the end of
the period $ 9.99 11.66 12.42 12.12 10.83 9.99
- -----------------------------------------------------------------------------------------------------
Total investment return(2) % (4.20) 0.51 15.04 13.68 12.33 (1.75)
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets at the end of the
period ($000s) $ 37,767 41,186 69,494 60,458 53,661 4,823
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets % 2.20(3) 2.09 2.15 2.20 2.22 2.20(3)
- -----------------------------------------------------------------------------------------------------
Ratio of expense reimbursement
to average net assets % 0.16(3) -- -- -- -- 0.06(3)
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income to
average net assets % 3.00(3) 2.32 2.21 2.10 2.67 2.87(3)
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate % 26 102 56 147 91 26
</TABLE>
- --------------------------------------------------------------------------------
(1) Class A commenced operations on November 8, 1993. Class B commenced
operations on February 9, 1994. Class C commenced operations on March 31,
1994.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
130
<PAGE>
FINANCIAL
HIGHLIGHTS
The following chart shows the fund's financial performance by share class. The
1998, 1997, 1996 and 1995 figures have been audited by PricewaterhouseCoopers
LLP, whose report, along with the fund's financial statements, are included in
the annual report, which is available upon request.
The figures prior to 1995 were audited by other independent accountants.
PILGRIM
BALANCE SHEET
OPPORTUNITIES
FUND
<TABLE>
<CAPTION>
Class A Class B
Year ended December 31, 1998 1997 1996 1995(1) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating performance
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 13.00 11.78 12.53 12.77 12.94 11.74 12.51
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.50 0.52 0.56 0.43 0.44 0.44 0.50
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $ 0.14 2.27 0.74 1.06 0.10 2.25 0.71
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.64 2.79 1.30 1.49 0.54 2.69 1.21
- ------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ (0.56) (0.54) (0.57) (0.48) (0.46) (0.46) (0.50)
- ------------------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain on investments sold $ (0.74) (1.03) (1.48) (1.25) (0.74) (1.03) (1.48)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions $ (1.30) (1.57) (2.05) (1.73) (1.20) (1.49) (1.98)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 12.34 13.00 11.78 12.53 12.28 12.94 11.74
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 5.19 24.31 10.54 11.95 4.38 23.48 9.76
- ------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 18537 1,281 1,100 797 5,107 4,969 3,765
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 1.47 1.50 1.40 1.27(3) 2.17 2.15 2.10
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets % -- 0.02 0.09 -- -- 0.02 0.07
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets % 4.02 4.01 4.30 4.99(3) 3.33 3.37 3.64
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 38 130 107 131 38 130 107
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Class B Class C
Year ended December 31, 1995(1) 1998 1997 1996 1995(1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance
- ------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period 12.77 12.95 11.75 12.52 12.77
- ------------------------------------------------------------------------------------------------------
Net investment income 0.35 0.45 0.43 0.49 0.38
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1.09 0.11 2.25 0.70 1.07
- ------------------------------------------------------------------------------------------------------
Total from investment operations 1.44 0.56 2.68 1.19 1.45
- ------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.45) (0.46) (0.45) (0.48) (0.45)
- ------------------------------------------------------------------------------------------------------
Dividends from net realized gain on investments sold (1.25) (0.74) (1.03) (1.48) (1.25)
- ------------------------------------------------------------------------------------------------------
Total distributions (1.70) (1.20) (1.48) (1.96) 1.70
- ------------------------------------------------------------------------------------------------------
Net asset value at the end of the period 12.51 12.31 12.95 11.75 12.52
- ------------------------------------------------------------------------------------------------------
Total investment return(2) 11.56 4.53 23.41 9.72 11.49
- ------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) 1,759 753 756 372 231
- ------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.95(3) 2.15 2.25 2.10 1.91(3)
- ------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets -- -- -- 0.10
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 4.38(3) 3.34 3.30 3.61 4.49(3)
- ------------------------------------------------------------------------------------------------------
Portfolio turnover rate 131 38 130 107 131
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Class T
Year ended December 31, 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance
- --------------------------------------------------------------------------------------------------------------------
Net asset value at the beginning of the period $ 13.01 11.79 12.54 11.54 12.94
- --------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.59 0.50 0.53 0.57 0.57
- --------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments $ (0.01) 2.24 0.73 2.27 (1.25)
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 0.58 2.74 1.26 2.84 (0.68)
- --------------------------------------------------------------------------------------------------------------------
Dividends from net investment income $ (0.47) (0.49) (0.53) (0.59) (0.54)
- --------------------------------------------------------------------------------------------------------------------
Dividends from net realized gain on investments sold $ (0.74) (1.03) (1.48) (1.25) (0.16)
- --------------------------------------------------------------------------------------------------------------------
Distributions from capital $ -- -- -- -- (0.02)
- --------------------------------------------------------------------------------------------------------------------
Total distributions $ (1.21) (1.52) (2.01) (1.84) (0.72)
- --------------------------------------------------------------------------------------------------------------------
Net asset value at the end of the period $ 12.38 13.01 11.79 12.54 11.54
- --------------------------------------------------------------------------------------------------------------------
Total investment return(2) % 4.64 23.91 10.18 25.11 (5.33)
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------
Net assets at the end of the period ($000s) $ 24,065 53,201 59,490 72,472 73,764
- --------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets % 1.89 1.83 1.69 1.68 1.69
- --------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to average net assets % -- 0.04 0.06 -- --
- --------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets % 3.59 3.70 3.99 4.44 4.36
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate % 38 130 107 131 59
- --------------------------------------------------------------------------------------------------------------------
</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.
131
<PAGE>
PILGRIM
CONVERTIBLE
FUND
For the three months ended June 30, 1999, the information in the table below has
been audited by KPMG LLP, independent auditors.
For all periods ending prior to June 30, 1999, the financial information was
audited by other independent auditors.
FINANCIAL
HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
Three
months
ended
June 30, Year ended March 31,
1999(1) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 19.12 16.59 15.68 12.86 14.16
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 0.40 0.44 0.47 0.48 0.49
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss) on investments $ 3.17 4.49 1.64 2.82 (0.89)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 3.57 4.93 2.11 3.30 (0.40)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.41 0.44 0.48 0.48 0.49
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments gains $ 0.36 1.96 0.72 -- 0.41
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 21.92 19.12 16.59 15.68 12.86
- ---------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 19.17 31.04 13.73 26.00 (2.64)
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 65,742 47,290 32,082 31,712 31,150
- ---------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 1.53 1.57 1.60 1.60 1.60
- ---------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 1.65 1.74 1.75 1.76 1.76
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense
reimbursement(4) % 2.08 5.64 2.83 3.29 3.71
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 138 160 167 145 126
<CAPTION>
Class B
Three
months May 31,
ended Year Ended 1995(2) to
June 30, March 31, March 31,
1999(1) 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period 20.56 16.60 14.96 12.50
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.29 0.32 0.31 0.24
- --------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss) on investments 3.47 4.65 1.64 2.46
- --------------------------------------------------------------------------------------------------------------
Total from investment operations 3.76 4.97 1.95 2.70
- --------------------------------------------------------------------------------------------------------------
Less distributions from:
- --------------------------------------------------------------------------------------------------------------
Net investment income 0.27 0.32 0.31 0.24
- --------------------------------------------------------------------------------------------------------------
Net realized gains on investments gains 0.19 0.69 -- --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period 23.86 20.56 16.60 14.96
- --------------------------------------------------------------------------------------------------------------
Total Return(3): 18.52 30.51 13.01 21.72
Ratios/Supplemental Data:
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) 58,736 36,725 12,740 2,125
- --------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- --------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) 2.18 2.22 2.25 2.25
- --------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) 2.30 2.33 3.19 7.08
- --------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense
reimbursement(4) 1.44 5.04 2.29 2.59
- --------------------------------------------------------------------------------------------------------------
Portfolio turnover 138 160 167 145
</TABLE>
<TABLE>
<CAPTION>
Class C
Three months
ended
June 30, Year ended March 31,
1999(2) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.40 19.55 17.05 15.89 13.03 14.28
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) $ 0.07 0.28 0.34 0.37 0.40 0.41
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gains (loss) on investments $ 1.37 3.25 4.60 1.66 2.86 (0.89)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations $ 1.44 3.53 4.94 2.03 3.26 (0.48)
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions from:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income $ 0.06 0.25 0.34 0.37 0.40 0.41
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gains on investments gains $ -- 0.43 2.10 0.50 -- 0.36
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 23.78 22.40 19.55 17.05 15.89 13.03
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return(3): % 6.45 18.45 30.22 12.91 25.24 (3.26)
Ratios/Supplemental Data:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 100,276 95,998 81,561 62,143 58,997 61,792
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------------------------
Net expenses after expense reimbursement(4) % 2.10 2.18 2.22 2.25 2.25 2.25
- ---------------------------------------------------------------------------------------------------------------------------------
Gross expenses prior to expense reimbursement(4) % 2.10 2.30 2.31 2.29 2.28 2.29
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) after expense reimbursement(4) % 1.17 1.44 4.99 2.18 2.64 3.05
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover % 28 138 160 167 145 126
</TABLE>
- --------------------------------------------------------------------------------
(1) Effective May 24, 1999, Pilgrim Investment Inc., became the Investment
Manager of the Fund, concurrently Nicholas-Applegate Capital Management
was appointed as sub-advisor.
(2) Commencement of offering shares.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized.
[GRAPHIC OMITTED] If you have any questions, please call 1-800-992-0180.
132
<PAGE>
WHERE TO GO
FOR MORE
INFORMATION
- --------------------------------------------------------------------------------
You'll find more information about the Pilgrim family of funds in our:
ANNUAL/SEMIANNUAL REPORTS
Include a discussion of recent market conditions and investment strategies that
significantly affected performance, the financial statements and the auditor's
reports (in annual report only).
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains more detailed information about the Pilgrim funds. The SAI is
legally part of this prospectus (it is incorporated by reference). A copy has
been filed with the Securities and Exchange Commission (SEC).
Please write or call for a free copy of the current Annual/semiannual reports,
the SAI or other fund information, or to make shareholder inquiries:
The Pilgrim Funds
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
1-800-992-0180
This information may also be reviewed or obtained from the SEC. In order to
review the information in person, you will need to visit the SEC's Public
Reference Room in Washington, D.C. Otherwise, you may obtain the information for
a fee by contacting the SEC:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-6009
1-800-SEC-0330
Or obtain the information at no cost by visiting the SEC's Internet website at
http://www.sec.gov.
When contacting the SEC, you will want to refer to the fund's SEC file number.
The file numbers are as follows:
Pilgrim Research Enhanced Index Fund 811-7978
Pilgrim Growth Opportunities Fund 811-4431
Pilgrim MidCap Opportunities Fund 811-8817
Pilgrim Growth + Value Fund 811-7978
Pilgrim SmallCap Opportunities Fund 811-4434
Pilgrim Bank and Thrift Fund, Inc. 811-4504
Pilgrim International Value Fund 811-7978
Pilgrim Emerging Markets Value Fund 811-7978
Pilgrim Government Securities Income Fund, Inc. 811-4031
Pilgrim Government Securities Fund 811-4423
Pilgrim High Yield Fund 811-5496
Pilgrim High Total Return Fund 811-7978
Pilgrim High Total Return Fund II 811-7978
Pilgrim Income and Growth Fund 811-7978
Pilgrim Balance Sheet Opportunities Fund 811-2239
Pilgrim Advisory Funds, Inc. 811-9040
Pilgrim Investment Funds, Inc. 811-1939
Pilgrim Mutual Funds 811-7428
Prospectus
<PAGE>
PILGRIM ADVISORY FUNDS, INC.
Pilgrim Asia-Pacific Equity Fund
Pilgrim MidCap Value Fund
Pilgrim LargeCap Leaders Fund
PILGRIM INVESTMENT FUNDS, INC.
Pilgrim MagnaCap Fund
Pilgrim High Yield Fund
PILGRIM BANK AND THRIFT FUND, INC.
Pilgrim Bank and Thrift Fund
PILGRIM GOVERNMENT SECURITIES INCOME FUND, INC.
Pilgrim Government Securities Income Fund
PILGRIM MUTUAL FUNDS
Pilgrim International Core Growth Fund
Pilgrim Worldwide Growth Fund
Pilgrim International SmallCap Growth Fund
Pilgrim Emerging Countries Fund
Pilgrim LargeCap Growth Fund
Pilgrim MidCap Growth Fund
Pilgrim SmallCap Growth Fund
Pilgrim Convertible Fund
Pilgrim Balanced Fund
Pilgrim High Yield Fund II
Pilgrim Strategic Income Fund
Pilgrim Money Market Fund
PILGRIM SMALLCAP OPPORTUNITIES FUND
Pilgrim SmallCap Opportunities Fund
PILGRIM GROWTH OPPORTUNITIES FUND
Pilgrim Growth Opportunities Fund
PILGRIM EQUITY TRUST
Pilgrim MidCap Opportunities Fund
PILGRIM MAYFLOWER TRUST
Pilgrim Emerging Markets Value Fund
Pilgrim Growth + Value Fund
Pilgrim High Total Return Fund
Pilgrim High Total Return Fund II
Pilgrim Income & Growth Fund
Pilgrim International Value Fund
Pilgrim Research Enhanced Index Fund
<PAGE>
PILGRIM BALANCE SHEET OPPORTUNITIES FUND
Pilgrim Balance Sheet Opportunities Fund
PILGRIM GOVERNMENT SECURITIES FUND
Pilgrim Government Securities Fund
PILGRIM HIGH YIELD FUND
Pilgrim High Yield Fund III
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(800) 992-0180
2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
January 1, 2000
This Statement of Additional Information relates to each series (each a "Fund")
of each entity (each a "Company") listed above. A Prospectus for the Funds,
dated January 1, 2000, which provides the basic information you should know
before investing in the Funds, may be obtained without charge from the Funds or
the Funds' Principal Underwriter, Pilgrim Securities, Inc. ("Pilgrim Securities"
or the "Distributor"), at the address listed above. This Statement of Additional
Information is not a prospectus and it should be read in conjunction with the
Prospectus, dated January 1, 2000, which has been filed with the Securities and
Exchange Commission ("SEC"). In addition, the financial statements from the
Funds' Annual Report dated December 31, 1998 and the Semi-Annual Report dated
June 30, 1999 (Equity Trust, SmallCap Opportunities Fund, Growth Opportunities
Fund, Balance Sheet Opportunities Fund, Government Securities Fund, and High
Yield Fund III), the Annual Report dated October 31, 1999 (Mayflower Trust) and
the Annual Report dated June 30, 1999 (Bank and Thrift Fund, Inc., Advisory
Funds, Inc., Investment Funds, Inc., Pilgrim Mutual Funds, and Government
Securities Income Fund, Inc.) are incorporated herein by reference (excluding
the Money Market Fund which is newly organized). Copies of the Funds' Prospectus
and Annual or Semi-Annual Report may be obtained without charge by contacting
Pilgrim Funds at the address and phone number written above.
3
<PAGE>
TABLE OF CONTENTS
ORGANIZATION OF THE REGISTRANTS.................................................
MANAGEMENT OF THE FUNDS.........................................................
INVESTMENT MANAGER FEES.........................................................
EXPENSE LIMITATION AGREEMENTS...................................................
RULE 12B-1 PLANS................................................................
SUPPLEMENTAL DESCRIPTION OF INVESTMENTS.........................................
INVESTMENT RESTRICTIONS ........................................................
PORTFOLIO TRANSACTIONS..........................................................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION..................................
DETERMINATION OF SHARE PRICE....................................................
SHAREHOLDER INFORMATION.........................................................
SHAREHOLDER SERVICES AND PRIVILEGES.............................................
DISTRIBUTIONS...................................................................
TAX CONSIDERATIONS..............................................................
CALCULATION OF PERFORMANCE DATA.................................................
GENERAL INFORMATION.............................................................
FINANCIAL STATEMENTS............................................................
4
<PAGE>
ORGANIZATION OF THE REGISTRANTS
Pilgrim Advisory Funds
Pilgrim Advisory Funds, Inc. ("Advisory Funds") is a Maryland corporation
registered as an open-end, management investment company. The Company currently
consists of three separate diversified investment funds, Pilgrim Asia-Pacific
Equity Fund ("Asia-Pacific Equity Fund"), Pilgrim MidCap Value Fund ("MidCap
Value Fund") and Pilgrim LargeCap Leaders Fund ("LargeCap Leaders Fund"), each
with its own investment objective and policies.
On November 16, 1998, the name of Pilgrim Advisory Funds, Inc. was changed from
"Pilgrim America Masters Series, Inc.," and the names of the Funds were changed
from "Pilgrim America Masters Asia-Pacific Equity Fund," "Pilgrim America
Masters MidCap Value Fund," and "Pilgrim America Masters LargeCap Value Fund."
Pilgrim Investment Funds
Pilgrim Investment Funds, Inc. ("Pilgrim Investment Funds") is a Maryland
corporation registered as an open-end, management investment company. The
Company currently consists of two separate diversified investment funds: Pilgrim
MagnaCap Fund ("MagnaCap Fund") and Pilgrim High Yield Fund ("High Yield
Fund").
On August 18, 1989, shareholders of the High Yield Fund approved a proposal to
reorganize the High Yield Fund from a New York common law trust to a series of
Pilgrim High Yield Trust, a Massachusetts business trust. Effective January 18,
1990, Pilgrim High Yield Trust changed its name to Pilgrim Strategic Investment
Series ("PSIS") and the High Yield Fund became a series of PSIS. Subsequently,
on April 4, 1995, shareholders approved a proposal to reorganize High Yield Fund
from a series of PSIS to a series of the Company, a Maryland corporation, in
connection with the sale by the former Pilgrim Management Corporation of its
name and its books and records related to the Fund to a subsidiary of Pilgrim
America Capital Corporation (formerly Express America Holdings Corporation).
This reorganization, while having no ramifications with respect to the
investment objectives, policies, or restrictions of the High Yield Fund, did
result in a change of manager and distributor.
On July 14, 1995, Pilgrim Investments name was changed from "Pilgrim Investment
Funds, Inc." to "Pilgrim America Investment Funds, Inc.," MagnaCap Fund's name
was changed from "Pilgrim MagnaCap Fund" to "Pilgrim America MagnaCap Fund," and
High Yield Fund's name was changed from "Pilgrim High Yield Fund" to "Pilgrim
America High Yield Fund." On November 16, 1998, the name of the Pilgrim
Investments became "Pilgrim Investment Funds, Inc.," the name of MagnaCap Fund
became "Pilgrim MagnaCap Fund," and the name of the High Yield Fund became
"Pilgrim High Yield Fund."
Pilgrim Mutual Funds
Pilgrim Mutual Funds was organized in December 1992 as a business trust
under the laws of Delaware. Information regarding each Fund of the Trust is
included in this Statement of Additional Information. Prior to a reorganization,
of the Trust which became effective on July 24, 1998 (the "Reorganization"), the
Trust offered shares in a number of separate diversified portfolios, each of
which invested all of its assets in a corresponding master fund of
Nicholas-Applegate Investment Trust (the "Master Trust"). The Reorganization
eliminated this two-tiered "master-feeder" structure.
5
<PAGE>
On March 15, 1999, the name of the Trust was changed from "Nicholas-Applegate
Mutual Funds," and the name of each Fund (except the Money Market Fund, which is
a new fund) was changed as follows:
Old Name New Name
- -------- --------
Nicholas-Applegate International Core Growth Fund Pilgrim International Core
Growth Fund
Nicholas-Applegate Worldwide Growth Fund Pilgrim Worldwide Growth
Fund
Nicholas-Applegate International Small Cap Growth Pilgrim International Small
Fund Cap Growth Fund
Nicholas-Applegate Emerging Countries Fund Pilgrim Emerging Countries
Fund
Nicholas-Applegate Large Cap Growth Fund Pilgrim Large Cap Growth
Fund
Nicholas-Applegate Mid Cap Growth Fund Pilgrim Mid Cap Growth Fund
Nicholas-Applegate Small Cap Growth Fund Pilgrim Small Cap Growth
Fund
Nicholas-Applegate Convertible Fund Pilgrim Convertible Fund
Nicholas-Applegate Balanced Growth Fund Pilgrim Balanced Fund
Nicholas-Applegate High Yield Bond Fund Pilgrim High Yield Fund II
Nicholas-Applegate High Quality Bond Fund Pilgrim High Quality Bond
Fund
On May 24, 1999, the names of the following Funds were changed as follows:
Old Name New Name
- -------- --------
Pilgrim International Small Cap Growth Fund Pilgrim International
SmallCap Growth Fund
Pilgrim Large Cap Growth Fund Pilgrim LargeCap Growth Fund
Pilgrim Mid Cap Growth Fund Pilgrim MidCap Growth Fund
Pilgrim Small Cap Growth Fund Pilgrim SmallCap Growth Fund
Pilgrim High Quality Bond Fund Pilgrim Strategic Income
Fund
The Trustees have approved an Agreement and Plan of Reorganization for High
Yield Fund III that, if approved by shareholders of High Yield Fund III, will
result in the reorganization of High Yield Fund III into the Pilgrim High Yield
Fund II series of Pilgrim Mutual Funds. If the Agreement and Plan of
Reorganization is approved by shareholders, the Reorganization is expected to
occur in the spring of 2000.
Pilgrim Bank and Thrift Fund
Pilgrim Bank and Thrift Fund, Inc. ("Bank and Thrift Fund") is a Maryland
corporation registered as an open-end, diversified management investment
company. The Bank and Thrift Fund changed its name from "Pilgrim Regional
BankShares, Inc." to "Pilgrim America Bank and Thrift Fund, Inc." in April,
1996. The Fund operated as a closed-end fund prior to October 17, 1997. On
October 16, 1997, shareholders approved open-ending the Fund, and since October
17, 1997, the Fund has operated as an open-end fund. On November 16, 1998, the
name of the Fund became "Pilgrim Bank and Thrift Fund."
Pilgrim Government Securities Income Fund
Pilgrim Government Securities Income Fund, Inc. (the "Government Securities
Income Fund") is a California corporation registered as an open-end, diversified
management company, which seeks high current income, consistent with liquidity
and preservation of capital.
Pilgrim SmallCap Opportunities Fund
Pilgrim SmallCap Opportunities Fund (the "SmallCap Opportunities Fund") is a
Massachusetts Business Trust registered as an open-end diversified management
investment company. The SmallCap Opportunities Fund was organized in 1986. On
November 1, 1999, the name of the SmallCap Opportunities Fund was changed from
"the Northstar Special Fund" (formerly Advantage Special Fund).
6
<PAGE>
Pilgrim Growth Opportunities Fund
Pilgrim Growth Opportunities Fund (the "Growth Opportunities Fund") is a
Massachusetts Business Trust registered as an open-end diversified management
company. The Growth Opportunities Fund was organized in 1986. On November 1,
1999, the name of the Growth Opportunities Fund was changed from "the Northstar
Growth Fund" (formerly Advantage Growth Fund).
Pilgrim Equity Trust
Pilgrim Equity Trust (the "Equity Trust") is a Massachusetts Business Trust
registered as an open-end management company. The Equity Trust was organized in
1998. The Trust currently consists of one separate diversified investment fund,
the Pilgrim MidCap Opportunities Fund (the "MidCap Opportunities Fund"). On
November 1, 1999, the name of the Equity Trust was changed from the "Northstar
Equity Trust", and the MidCap Opportunities Fund was changed from the "Northstar
Mid-Cap Growth Fund."
The Pilgrim Mayflower Trust
Pilgrim Mayflower Trust (the "Mayflower Trust") is a Massachusetts Business
Trust registered as an open-end management Investment company. The Trust
currently consists of seven separate diversified investment funds: Pilgrim
Emerging Markets Value Fund (the "Emerging Markets Value Fund"), Pilgrim Growth
+ Value Fund (the "Growth + Value Fund"), the Pilgrim High Total Return Fund
(the "High Total Return Fund"), the Pilgrim High Total Return Fund II (the "High
Total Return Fund II"), the Pilgrim Income & Growth Fund (the "Income & Growth
Fund"), the Pilgrim International Value Fund (the "International Value Fund"),
and the Pilgrim Research Enhanced Index Fund (the "Research Enhanced Index
Fund"), each with its own investment objectives and policies.
On November 1, 1999, the name of the Mayflower Trust was changed from "Northstar
Trust" (formerly Northstar Advantage Trust). On the same date, the following
funds changed their names as follows:
Old Name New Name
- -------- --------
Northstar Emerging Markets Value Fund Pilgrim Emerging Markets Value
Fund
Northstar Growth + Value Fund Pilgrim Growth + Value Fund
Northstar High Total Return Fund (formerly Pilgrim High Total Return Fund
Northstar Advantage High Total Return Fund)
Northstar High Total Return Fund II Pilgrim High Total Return Fund II
Northstar Income & Growth Fund (formerly Pilgrim Income & Growth Fund
Northstar Advantage Income and Growth Fund)
Northstar International Value Fund Pilgrim International Value Fund
Northstar Research Enhanced Index Fund Pilgrim Research Enhanced Index
Fund
The Income and Growth Fund and the High Total Return Fund were organized in
1993. The Growth + Value Fund and the High Total Return Fund II were organized
in 1996. The International Value Fund commenced operations on March 6, 1995 as
the Brandes International Fund, a series of the Brandes Investment Trust. It was
reorganized on April 21, 1997 as the Northstar International Value Fund. The
Emerging Markets Value Fund was organized in 1998. The Research Enhanced Fund
was organized in 1998.
The Trustees have approved an Agreement and Plan of Reorganization for the
Pilgrim Income & Growth Fund that, if approved by shareholders of the Income &
Growth Fund in the spring of 2000, will result in the reorganization of Income &
Growth Fund into the Pilgrim Balanced Fund series of the Pilgrim Mutual Funds.
7
<PAGE>
Pilgrim Balance Sheet Opportunities Fund
The Pilgrim Balance Sheet Opportunities Fund (the "Balance Sheet Opportunities
Fund") is a Massachusetts Business Trust registered as an open-end diversified
management investment company. The Balance Sheet Opportunities Fund was
organized in 1986. On November 1, 1999, Pilgrim Balance Sheet Opportunities
Fund's name was changed from "Northstar Balance Sheet Opportunities Fund"
(formerly Advantage Income Fund).
The Trustees have approved an Agreement and Plan of Reorganization for the
Balance Sheet Opportunities Fund that, if approved by shareholders of the
Balance Sheet Opportunities Fund in the spring of 2000, will result in the
reorganization of the Balance Sheet Opportunities Fund into the Pilgrim Balanced
Fund series of the Pilgrim Mutual Funds.
Pilgrim Government Securities Fund
Pilgrim Government Securities Fund (the "Government Securities Fund") is a
Massachusetts Business Trust registered as an open-end diversified management
investment company. The Government Securities Fund was organized in 1986. On
November 1, 1999, Government Securities Fund's name was changed from "Northstar
Government Securities Fund" (formerly Advantage Government Securities Fund).
The Trustees have approved an Agreement and Plan of Reorganization for the
Government Securities Fund that, if approved by shareholders of the Government
Securities Fund in the spring of 2000, will result in the reorganization of
Government Securities Fund into the Government Securities Income Fund.
Pilgrim High Yield Fund III
Pilgrim High Yield Fund III (the "High Yield Fund III") is a Massachusetts
Business Trust registered as an open-end diversified management investment
company. The High Yield Fund III was organized in 1989. On November 1, 1999,
High Yield Fund III's name was changed from "Northstar High Yield Fund"
(formerly Advantage High Yield Fund).
The Trustees have approved an Agreement and Plan of Reorganization for the High
Yield Fund III that, if approved by shareholders of the High Yield Fund III in
the spring of 2000, will result in the reorganization of the High Yield Fund III
into the High Yield Fund II series of the Pilgrim Mutual Funds.
Investment Advisory Agreement
Pursuant to an Investment Advisory Agreement with Pilgrim, Pilgrim Advisers,
Inc. ("Pilgrim Advisers"), acts as the Investment Adviser to the Equity Trust,
Mayflower Trust, SmallCap Opportunities Fund, Growth Opportunities Fund, Balance
Sheet Opportunities Trust, Government Securities Fund, and High Yield Fund III.
Pilgrim Advisers, Inc. was formerly known as Northstar Investment Management
Corporation until its name change following the acquisition on October 29, 1999.
In this capacity, Pilgrim Advisers, subject to the authority of the Directors of
the Funds, and subject to delegation of certain responsibilities to Navellier
Fund Management, Inc. as the Sub-Adviser for the Growth + Value Fund, Brandes
Investment Partners, L.P. as the Sub-Adviser for the International Value Fund
and the Emerging Markets Value Fund and J.P. Morgan Investment Management Inc.
as the Sub-Adviser for the Research Enhanced Index Fund, is responsible for
furnishing continuous investment supervision to the Funds and is responsible for
the management of each Fund's portfolio. Pilgrim Advisers oversees the
investment management of the Sub-Advisers for the Funds which are managed by a
Sub-Adviser.
8
<PAGE>
MANAGEMENT OF THE FUNDS
Board of Directors. Each Company is managed by its Directors/Trustees ("Board of
Directors" and "Board of Trustees" are used interchangeably in this Statement of
Additional Information). The Directors and Officers of the Companies are listed
below. An asterisk (*) has been placed next to the name of each Director who is
an "interested person," as that term is defined in the 1940 Act, by virtue of
that person's affiliation with the Companies or Pilgrim Investments, Inc., the
Companies' investment manager ("Pilgrim Investments" or the "Investment
Manager").
Set forth below is information regarding the Directors/Trustees of the Funds.
(Ms. Baldwin is not a director of the Mayflower Trust, SmallCap Opportunities,
Growth Opportunities, Balance Sheet Opportunities, Government Securities, and
the High Yield Fund III Funds, but rather she serves as a member of their
Advisory Boards.)
Mary A. Baldwin, Ph.D, 2525 E. Camelback Road, Suite 200, Phoenix, Arizona
85016. (Age 59) Director. Realtor, Coldwell Banker Success Realty
(formerly, The Prudential Arizona Realty) for more than the last five
years. Ms. Baldwin is also Vice President, United States Olympic Committee
(November 1996 - Present), and formerly Treasurer, United States Olympic
Committee (November 1992 - November 1996). Ms. Baldwin is also a director
and/or trustee of each of the funds managed by the Investment Manager.
Al Burton, 2300 Coldwater Canyon, Beverly Hills, California 90210. (Age
71) Director. President of Al Burton Productions for more than the last
five years; formerly Vice President, First Run Syndication, Castle Rock
Entertainment (July 1992 - November 1994). Mr. Burton is also a director
and/or trustee of each of the funds managed by the Investment Manager.
Jock Patton, 40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age
53) Director. Private Investor. Director of Hypercom Corporation (since
January 1999); Stuart Entertainment, Inc. (since January 1999); and JDA
Software Group, Inc. (since January 1999). Mr. Patton was formerly
Director of Artisoft, Inc. (August 1994 - July 1998); President and
Co-owner, StockVal, Inc. (April 1993 - June 1997) and a partner and
director of the law firm of Streich, Lang, P.A. (1972 - 1993). Mr. Patton
is also a director and/or trustee of each of the funds managed by the
Investment Manager.
*Robert W. Stallings, 40 North Central Avenue, Suite 1200, Phoenix, AZ
85004. (Age 50) Chairman, Chief Executive Officer, and President.
Chairman, Chief Executive Officer and President of Pilgrim Group, Inc.
("Pilgrim Group") (since December 1994); Chairman, Pilgrim Investments,
Inc. (since December 1994); Director, Pilgrim Securities, Inc. ("Pilgrim
Securities") (since December 1994); Chairman, Chief Executive Officer and
President of Pilgrim Bank and Thrift Fund, Inc., Pilgrim Government
Securities Income Fund, Inc. and Pilgrim Investment Funds, Inc. (since
April 1995). Chairman and Chief Executive Officer of Pilgrim Prime Rate
Trust (since April 1995). Chairman and Chief Executive Officer of Pilgrim
America Capital Corporation (formerly, Express America Holdings
Corporation) ("Pilgrim Capital") (since August 1990).
*John G. Turner, ____________________. (Age 59) Chairman and Chief
Executive Officer of Relia Star Financial Corp. and Relia Star Life
Insurance Co. (since 1993); Chairman of ReliaStar United Services Life
Insurance Company and ReliaStar Life Insurance Company of New York (since
1995); Chairman of Northern Life Insurance Company (since 1992); Director
of Northstar Investment
9
<PAGE>
Management Corporation and affiliates (since October 1993); Chairman and
Director/Trustee of the Northstar affiliated investment companies (since
October 1993). Mr. Turner was formerly President of ReliaStar Financial
Corp. and ReliaStar Life Insurance Co. (1989-1991) and President and Chief
Operating Officer of ReliaStar Life Insurance Company (1986-1991).
David W. Wallace, ____________________. (Age 75) Director, Chairman of
Putnam Trust Company, Lone Star Industries and FECO Engineered Systems,
Inc. Mr. Wallace is President and Director/Trustee of the Robert R. Young
Foundation, Governor of the New York Hospital and Director of UMC
Electronics and Zurn Industries, Inc. Mr. Wallace was formerly Chairman
and Chief Executive Officer of Todd Shipyards and Bangor Punta Corporation
and National Securities & Research Corporation. Mr. Wallace is also a
director and/or trustee of each of the funds managed by the Investment
Manager.
Paul S. Doherty, ____________________. (Age 65) Director, President, of
Doherty, Wallace, Pillsbury and Murphy, P.C., Attorneys. Mr. Doherty is a
Director of Tambrands, Inc. Mr. Doherty is also a director and/or trustee
of each of the funds managed by the Investment Manager.
Robert B. Goode, ____________________. (Age 69) Director. Currently
retired. Mr. Goode was formerly Chairman of The First Reinsurance Company
of Hartford (1990-1991) and President and Director of American Skandis
Life Assurance Company (1987-1989). Mr. Goode is also a director and/or
trustee of each of the funds managed by the Investment Manager.
Alan L. Gosule, ____________________. (Age 58) Director. Partner, Rogers &
Wells. Mr. Gosule is a Director of F.L. Putnam Investment Management Co.,
Inc. Mr. Gosule is also a director and/or trustee of each of the funds
managed by the Investment Manager.
*Mark Lipson, ____________________. (Age 59) Director. Chairman and Chief
Executive Officer of Northstar Investment Management Corporation,
Northstar Holding, Inc. and Northstar Distributors, Inc. Mr. Lipson is
Director of Northstar Administrators Corporation, Director and President
of Northstar Funding, Inc. and Trustee and President of Northstar
affiliated investment companies. Mr. Lipson was formerly the Director,
President and Chief Executive Officer of National Securities & Research
Corporation and Director/Trustee and President of the National Affiliated
Investment Companies and certain of National's subsidiaries (prior to
August 1993).
Walter H. May, ____________________. (Age 62) Director. Retired. Mr. May
was formerly a Senior Executive for Piper Jaffray, Inc. Mr. May is also a
director and/or trustee of each of the funds managed by the Investment
Manager.
David W.C. Putnam, ____________________. (Age 59) Director. President,
Clerk and Director of F.L. Putnam Securities Company, Inc., F.L. Putnam
Investment Management Company, Inc., Trust Realty Corp. and Bow Ridge
Mining Co. Mr. Putnam is Director of Anchor Investment Management
Corporation and President and Director/Trustee of Anchor Capital
Accumulation Trust, Anchor International Bond Trust, Anchor Gold and
Currency Trust,
10
<PAGE>
Anchor Resources and Commodities Trust and Anchor Strategic Assets Trust.
Mr. Putnam is also a director and/or trustee of each of the funds managed
by the Investment Manager.
John R. Smith, ____________________. (Age 76) Director. President of New
England Fiduciary Company (financial planning) (since 1991). Mr. Smith is
Chairman of Massachusetts Educational Financing Authority (since 1987),
Vice Chairman of Massachusetts Health and Education Authority and formerly
Financial Vice President of Boston College (1970-1991). Mr. Smith is also
a director and/or trustee of each of the funds managed by the Investment
Manager.
Each Fund pays each Director who is not an interested person a pro rata share,
as described below, of (i) an annual retainer of $25,000; (ii) $2,500 per
quarterly and special Board meeting; (iii) $500 per committee meeting; (iv) $500
per special telephonic meeting; and (v) out-of-pocket expenses. The pro rata
share paid by each Fund is based on the Funds' average net assets as a
percentage of the average net assets of all the funds managed by the Investment
Manager for which the Directors serve in common as Directors (and, in the case
of Walter E. Auch and Mary A. Baldwin, Funds for which they serve as Advisory
Officers).
Compensation of Directors. The following tables set forth information regarding
compensation of Directors by each Company and other funds managed by the
Investment Manager for the year ended June 30, 1998. Officers of the Companies
and Directors who are interested persons of the Companies do not receive any
compensation from the Fund or any other funds managed by the Investment Manager.
In the column headed "Total Compensation From Registrant and Fund Complex Paid
to Directors," the number in parentheses indicates the total number of boards in
the fund complex on which the Director served during that fiscal year.
11
<PAGE>
Compensation Table+
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Aggregate
Aggregate Compensation Aggregate
Aggregate Compensation Aggregate Aggregate Aggregate From Compensation
Compensation From Compensation Compensation Aggregate Compensation Balances From
From Pilgrim SmallCap From Growth From High Compensation From Sheet Government
Name of Mutual Opportunities Opportunities Yield Fund From Equity Mayflower Opportunities Securities
Person, Position Funds+ Fund Fund III Trust Trust(7) Fund Fund
- ---------------- ------ ---- ---- --- ----- -------- ---- ----
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dann V.
Angeloff(5) $25,000
- -----------------------------------------------------------------------------------------------------------------------------------
Fred C.
Applegate(5) $22,000
- -----------------------------------------------------------------------------------------------------------------------------------
Walter E. Auch(3)
Director/Advisory
Officer $19,000
- -----------------------------------------------------------------------------------------------------------------------------------
Mary A.
Baldwin(1)(2)
Director
- -----------------------------------------------------------------------------------------------------------------------------------
John P. Burke
Director
- -----------------------------------------------------------------------------------------------------------------------------------
Al Burton(1)(2)
Director
- -----------------------------------------------------------------------------------------------------------------------------------
Theodore J.
Coburn(5) $24,000
- -----------------------------------------------------------------------------------------------------------------------------------
Darlene
Deremer(5) $21,000
- -----------------------------------------------------------------------------------------------------------------------------------
Paul S. Doherty $2,369 $1,369 $1,369 $308 $7,819 $1,369 $1,369
- -----------------------------------------------------------------------------------------------------------------------------------
Bruce S.
Foerster*
Former Director
- -----------------------------------------------------------------------------------------------------------------------------------
Robert B. Goode,
Jr $2,338 $1,338 $1,338 $308 $7,664 $1,338 $1,338
- -----------------------------------------------------------------------------------------------------------------------------------
Alan S. Gosule $2,369 $1,369 $1,369 $308 $7,819 $1,369 $1,369
- -----------------------------------------------------------------------------------------------------------------------------------
George F.
Keane(5) $23,000
- -----------------------------------------------------------------------------------------------------------------------------------
Arthur B.
Laffer(5) $18,000
- -----------------------------------------------------------------------------------------------------------------------------------
Mark L. Lipson $0 $0 $0 $0 $0 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
Walter H. May $2,369 $1,369 $1,369 $308 $7,819 $1,369 $1,369
- -----------------------------------------------------------------------------------------------------------------------------------
Jock Patton(1)(2)
Director
- -----------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Total
Compensation
Pension or From
Aggregate Retirement Registrant
Aggregate Aggregate Aggregate Compensation Benefits Estimated and Fund
Compensation Compensation Compensation from Accrued Annual Complex
From From From Bank Government As Part of Benefits Paid
Name of Advisory Investment and Thrift Securities Fund Upon to
Person, Position Funds Funds Fund Income Fund Expenses Retirement Directors(6)
- ---------------- ----- ----- ---- ----------- -------- ---------- ------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$25,000
Dann V.
Angeloff(5) None N/A (1 board)
- ---------------------------------------------------------------------------------------------------------------
$22,000
Fred C.
Applegate(5) None N/A (1 board)
- ---------------------------------------------------------------------------------------------------------------
Walter E. Auch(3) $3,000
Director/Advisory
Officer $89 $643 $553 $26 N/A N/A (3 boards)
- ---------------------------------------------------------------------------------------------------------------
Mary A. $34,750
Baldwin(1)(2)
Director $1,248 $8,028 $8,422 $388 N/A N/A (6 boards)
- ---------------------------------------------------------------------------------------------------------------
$34,750
John P. Burke
Director $1,248 $8,028 $8,422 $388 N/A N/A (6 boards)
- ---------------------------------------------------------------------------------------------------------------
$34,750
Al Burton(1)(2)
Director $1,248 $8,028 $8,422 $388 N/A N/A (6 boards)
- ---------------------------------------------------------------------------------------------------------------
$24,000
Theodore J.
Coburn(5) None N/A (1 board)
- ---------------------------------------------------------------------------------------------------------------
$21,000
Darlene
Deremer(5) None N/A (1 board)
- ---------------------------------------------------------------------------------------------------------------
Paul S. Doherty N/A N/A $20,000
- ---------------------------------------------------------------------------------------------------------------
Bruce S. $______
Foerster*
Former Director $_____ $_____ $_____ $___ N/A N/A (5 boards)
- ---------------------------------------------------------------------------------------------------------------
Robert B. Goode,
Jr N/A N/A $18,500
- ---------------------------------------------------------------------------------------------------------------
Alan S. Gosule N/A N/A $20,000
- ---------------------------------------------------------------------------------------------------------------
$23,000
George F.
Keane(5) None N/A (1 board)
- ---------------------------------------------------------------------------------------------------------------
$18,000
Arthur B.
Laffer(5) None N/A (1 board)
- ---------------------------------------------------------------------------------------------------------------
Mark L. Lipson N/A N/A $0
- ---------------------------------------------------------------------------------------------------------------
Walter H. May N/A N/A $20,000
- ---------------------------------------------------------------------------------------------------------------
$34,250
Jock Patton(1)(2)
Director $1,229 $7,883 $8,291 $381 N/A N/A (6 boards)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Aggregate
Aggregate Compensation Aggregate
Aggregate Compensation Aggregate Aggregate Aggregate From Compensation
Compensation From Compensation Compensation Aggregate Compensation Balances From
From Pilgrim SmallCap From Growth From High Compensation From Sheet Government
Name of Mutual Opportunities Opportunities Yield Fund From Equity Mayflower Opportunities Securities
Person, Position Funds+ Fund Fund III Trust Trust(7) Fund Fund
- ---------------- ------ ---- ---- --- ----- -------- ---- ----
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David W.C. Putnam $2,338 $1,338 $1,338 $308 $7,664 $1,338 $1,338
- ------------------------------------------------------------------------------------------------------------------------------------
John R. Smith $2,369 $1,369 $1,369 $308 $7,819 $1,369 $1,369
- ------------------------------------------------------------------------------------------------------------------------------------
Robert W.
Stallings(2)(4)
Director $0
- ------------------------------------------------------------------------------------------------------------------------------------
John G. Turner $0 $0 $0 $0 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
David W. Wallace $2,369 $1,369 $1,369 $308 $7,819 $1,369 $1,369
- ------------------------------------------------------------------------------------------------------------------------------------
Charles E.
Young(5) $23,000
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Total
Compensation
Pension or From
Aggregate Retirement Registrant
Aggregate Aggregate Aggregate Compensation Benefits Estimated and Fund
Compensation Compensation Compensation from Accrued Annual Complex
From From From Bank Government As Part of Benefits Paid
Name of Advisory Investment and Thrift Securities Fund Upon to
Person, Position Funds Fund Fund Income Fund Expenses Retirement Directors(6)
- ---------------- ----- ---- ---- ----------- -------- ---------- ------------
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
David W.C. Putnam N/A N/A $19,500
- ---------------------------------------------------------------------------------------------------------------
John R. Smith N/A N/A $20,000
- ---------------------------------------------------------------------------------------------------------------
Robert W. $0
Stallings(2)(4)
Director $0 $0 $0 $0 N/A N/A (6 boards)
- ---------------------------------------------------------------------------------------------------------------
John G. Turner N/A N/A $0
- ---------------------------------------------------------------------------------------------------------------
David W. Wallace N/A N/A $20,000
- ---------------------------------------------------------------------------------------------------------------
$23,000
Charles E.
Young(5) None N/A (1 board)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Resigned as Director effective September 30, 1998.
(1) Member of the Audit Committee.
(2) Also serves as a member of the Board of Trustees of the Pilgrim Prime Rate
Trust.
(3) Mr. Auch was elected as a Director of Pilgrim Bank and Thrift Fund, Inc.
and Pilgrim Prime Rate Trust on May 24, 1999. While he was a trustee of
Pilgrim Mutual Funds (formerly Nicholas-Applegate Mutual Funds) prior to
that date, Pilgrim Mutual Funds was not part of the Pilgrim Fund complex
until May 24, 1999. Resigned as Trustee effective October __, 1999.
(4) "Interested person," as defined in the Investment Company Act of 1940, of
the Company because of the affiliation with the Investment Manager.
(5) Resigned as Trustee effective May 21, 1999.
(6) Prior to May 24, 1999, the Trust was part of a different Fund complex.
Effective May 24, 1999, when Pilgrim Investments, Inc. became the
investment adviser to the Funds, the Trust joined the Pilgrim family of
funds.
(7) This total does not include the Research Enhanced Index Fund which
commenced operations on December 20, 1998.
+ Pilgrim Mutual Funds has recently changed its fiscal year end to June 30.
The following table sets forth information regarding compensation of
Trustees and other funds managed by the investment adviser for the fiscal
period from April 1, 1999 through June 30, 1999. Officers and Trustees who
are interested persons do not receive any compensation from the Funds.
13
<PAGE>
Officers
The following individuals serve as officers for each Fund:
James R. Reis, Executive Vice President and Assistant Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 41)
Director, Vice Chairman (since December 1994), Executive Vice President
(since April 1995), and Director of Structured Finance (since April 1998),
Pilgrim Group, Inc. and Pilgrim Investments; Director (since December
1994) and Vice Chairman (since November 1995) of Pilgrim Securities;
Executive Vice President, Assistant Secretary and Chief Credit Officer of
Pilgrim Prime Rate Trust; Executive Vice President and Assistant Secretary
of each of the other Pilgrim Funds. Chief Financial Officer (since
December 1993), Vice Chairman and Assistant Secretary (since April 1993)
and former President (May 1991 - December 1993), Pilgrim Capital (formerly
Express America Holdings Corporation). Presently serves or has served as
an officer or director of other affiliates of Pilgrim Capital.
Stanley D. Vyner, Executive Vice President
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 49)
President and Chief Executive Officer (since August 1996), Pilgrim
Investments; Executive Vice President of most of the other Pilgrim Funds
(since July 1996). Formerly Chief Executive Officer (November 1993 -
December 1995) HSBC Asset Management Americas, Inc., and Chief Executive
Officer, and Actuary (May 1986 - October 1993) HSBC Life Assurance Co.
James M. Hennessy, Executive Vice President and Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 50)
Executive Vice President and Secretary (since April 1998), Pilgrim Capital
(formerly Express America Holdings Corporation), Pilgrim Group, Pilgrim
Securities and Pilgrim Investments; Executive Vice President and Secretary
of each of the other Pilgrim Funds. Formerly Senior Vice President,
Pilgrim Capital (April 1995 - April 1998); Senior Vice President, Express
America Mortgage Corporation (June 1992 - August 1994) and President,
Beverly Hills Securities Corp. (January 1990 - June 1992).
Michael J. Roland, Senior Vice President and Principal Financial Officer
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 41)
Senior Vice President and Chief Financial Officer, Pilgrim Group, Pilgrim
Investments and Pilgrim Securities (since June 1998); Senior Vice
President and Principal Financial Officer of each of the other Pilgrim
Funds. He served in same capacity from January, 1995 - April, 1997.
Formerly, Chief Financial Officer of Endeaver Group (April, 1997 to June,
1998).
Robert S. Naka, Vice President and Assistant Secretary
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 36) Vice
President, Pilgrim Investments (since April 1997) and Pilgrim Group, Inc.
(since February 1997). Vice President and Assistant Secretary of each of
the other Pilgrim Funds. Formerly Assistant Vice President, Pilgrim Group,
Inc. (August 1995 - February 1997). Formerly Operations Manager, Pilgrim
Group, Inc. (April 1992 - April 1995).
Robyn L. Ichilov, Vice President and Treasurer
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 31) Vice
President, Pilgrim Investments (since August 1997), Accounting Manager
(since November 1995). Vice President and Treasurer of most of the other
Pilgrim Funds. Formerly Assistant Vice President and Accounting Supervisor
for PaineWebber (June 1993 - April 1995).
14
<PAGE>
In addition to the above listed officers, the following individuals also serve
as officers for the indicated Fund:
Advisory Funds, Investment Funds and the Government Securities Income Fund
Walter E. Auch, Advisory Officer
6001 North 62nd Place, Paradise Valley, Arizona. (Age 78) Trustee, Pilgrim
Prime Rate Trust and Pilgrim Mutual Funds (formerly Nicholas-Applegate
Mutual Funds); Director, Pilgrim Bank and Thrift Fund, Inc. Director of
Legend Properties, Inc. (since 1984); Arizona Heart Institute (since
1983); Banyan Strategic Realty Trust (since 1987); Fort Dearborn Fund
(since 1987); Semele Group (since 1987); Brinson Funds (since 1994),
registered investment companies; Pimco Advisors L.P., an investment
manager (since 1994); and Advisors Series Trust (since 1997). Trustee of
Salomon Smith Barney Trak Funds (since 1994); Salomon Smith Barney Concert
Series (since 1994); and Hillsdale College (since 1996). Formerly Chairman
and Chief Executive Officer, Chicago Board Options Exchange (1979 to
1986); Senior Executive Vice President, Director and Member of the
Executive Committee, PaineWebber, Inc. (until 1979); Trustee,
Nicholas-Applegate Institutional Fund (1992 - 1999) and Nicholas-Applegate
Mutual Funds (1992 - 1999).
Pilgrim Advisory Funds.
G. David Underwood, Vice President and Senior Portfolio Manager.
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age 50) Vice
President, Pilgrim Investments (since December 1996). Formerly Director of
Funds Management, First Interstate Capital Management (January 1995 -
November 1996); Vice President, Director of Research and Manager of
Investment Products, Integra Trust Company (1993 - January 1995).
Pilgrim Investment Funds.
Howard N. Kornblue, Senior Vice President and Senior Portfolio Manager
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age 57) Senior
Vice President, Pilgrim Investments (since August 1995). Formerly Senior
Vice President, Pilgrim Group, Inc. (November 1986 - April 1995).
Kevin G. Mathews, Senior Vice President and Senior Portfolio Manager
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age 40) Senior
Vice President, Pilgrim Investments (since July 1998). Formerly Vice
President, Pilgrim Investments (August 1995 - July 1998); Vice President,
Van Kampen America Capital (May 1987 - April 1995).
Pilgrim Mutual Funds.
Kevin G. Mathews, Senior Vice President and Senior Portfolio Manager
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age 40) Senior
Vice President, Pilgrim Investments (since July 1998). Formerly Vice
President, Pilgrim Investments (August 1995 - July 1998); Vice President,
Van Kampen America Capital (May 1987 - April 1995).
G. David Underwood, Vice President and Senior Portfolio Manager.
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age 48) Vice
President, Pilgrim Investments (since December 1996). Formerly Director of
Funds Management, First Interstate Capital Management (January 1995 -
November 1996); Vice President, Director of Research and Manager of
Investment Products, Integra Trust Company (1993 - January 1995).
15
<PAGE>
Robert K. Kinsey, Vice President and Portfolio Manager.
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age 41) Vice
President, Pilgrim Investments (since March 1999). Formerly Vice President
and Fixed Income Portfolio Manager, Federated Investors (January 1995 -
March 1999); Principal and Portfolio Manager, Harris Investment Management
(July 1992 - January 1995).
Bank and Thrift Fund.
Carl Dorf, Senior Vice President and Senior Portfolio Manager.
40 North Central Avenue, Suite 1200, Phoenix, Arizona 85004. (Age 58)
Senior Vice President (since February 1997), Pilgrim Investments, Inc.
Formerly Vice President, Pilgrim Investments, Inc. (August 1995 - February
1997). Formerly Vice President, Pilgrim Bank and Thrift Fund, Inc.
(January 1996 - May 1997). Formerly Vice President, Pilgrim Management
Corporation (January 1991 - April 1995).
Government Securities Income Fund.
Charles G. Ullerich, Vice President and Portfolio Manager
40 North Central Avenue, Suite 1200, Phoenix, AZ 85004. (Age 34) Vice
President, Pilgrim Investments (since February 1998). Formerly Assistant
Portfolio Manager of Pilgrim Government Securities Income Fund, Inc.
(August 1995 - September 1996) and Vice President, First Liberty Bank
(April 1991 - August 1995).
The following individuals serve as officers to the following funds: Mayflower
Trust, Equity Trust, SmallCap Opportunities Fund, Growth Opportunities Fund,
Balance Sheet Opportunities Trust, Government Securities Fund, and High Yield
Fund III.
[Insert the biographical information of the new officers]
16
<PAGE>
Principal Shareholders
As of December 15, 1999 the Directors and Officers as a group owned less than 1%
of any class of each Fund's outstanding shares. As of that date, to the
knowledge of management, no person owned beneficially or of record more than 5%
of the outstanding shares of any class of the Funds, except as follows:
[Insert the financial information]
Investment Managers
The Investment Manager for the Equity Trust, SmallCap Opportunities Fund, Growth
Opportunities Fund, Mayflower Trust, Balance Sheet Opportunities Fund, the
Government Securities Fund, and the High Yield Fund III is Pilgrim Advisers,
Inc. The Investment Manager for the Bank and Thrift Fund, Advisory Funds,
Investment Funds, Pilgrim Mutual Funds, and Government Securities Income Fund is
Pilgrim Investments, Inc. (Pilgrim Advisers, Inc. and Pilgrim Investments, Inc.
are collectively referred to as the "Investment Manager").
The Investment Manager serves as investment manager to the Funds and has overall
responsibility for the management of the Funds. The Investment Manager serves
pursuant to separate Investment Management Agreements between the Investment
Manager and each Company on behalf of the Funds. The Investment Management
Agreements require the Investment Manager to oversee the provision of all
investment advisory and portfolio management services for the Funds.
Pilgrim Advisers, Inc. and Pilgrim Investments, Inc. are both registered as
investment advisers with the SEC and serve as investment adviser to registered
investment companies (or series thereof), as well as privately managed accounts.
As of December 15, 1999, the Investment Manager had assets under management of
approximately [$__________ billion]. Pilgrim Advisers, Inc. and Pilgrim
Investments, Inc. are wholly-owned subsidiaries of ReliaStar Financial
Corporation (NYSE:RLR). Through its subsidiaries, ReliaStar Financial
Corporation offers individuals and institutions life insurance and annuities,
employee benefits products and services, life and health reinsurance, retirement
plans, mutual funds, bank products and personal finance education.
Each Investment Management Agreement requires the Investment Manager to provide,
subject to the supervision of the Board of Directors/Trustees, investment advice
and investment services to the Fund and to furnish advise and recommendations
with respect to investment of the Fund's assets and the purchase or sale of its
portfolio securities. The Investment Manager also provides investment research
and analysis. Each Investment Management Agreement provides that the Investment
Manager is not subject to liability to the Fund for any act or omission in the
course of, or connected with, rendering services under the Agreement, except by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties under the Agreement.
After an initial two year term, each Investment Management Agreement continues
in effect from year to year so long as such continuance is specifically approved
at least annually by (a) the Board of Directors or (b) the vote of a "majority"
(as defined in the 1940 Act) of the Fund's outstanding shares voting as a single
class; provided, that in either event the continuance is also approved by at
least a majority of the Board of Directors who are not "interested persons" (as
defined in the 1940 Act) of the Investment Manager by vote cast in person at a
meeting called for the purpose of voting on such approval.
Each Investment Management Agreement is terminable without penalty with not less
than 60 days' notice by the Board of Directors or by a vote of the holders of a
majority of the Fund's outstanding shares voting as a single class, or upon not
less than 60 days' notice by the Investment Manager. The Investment
17
<PAGE>
Management Agreement will terminate automatically in the event of its
"assignment" (as defined in the 1940 Act).
The Investment Management Agreement for the Income and Growth Fund and High
Total Return Fund was originally approved by the Trustees of the Northstar
Trust, now the Pilgrim Mayflower Trust, on October 23, 1993, and by the sole
Shareholder of each Fund on November 8, 1993. The Investment Management
Agreement was last renewed by the Trustees on April 30, 1999.
The Investment Management Agreement for the Growth + Value Fund, High Total
Return Fund II, International Value Fund and the Research Enhanced Index Fund
was approved by the Trustees of the Northstar Trust, currently the Pilgrim
Mayflower Trust, on July 31, 1996, October 29, 1996, January 23, 1997, and
December 16, 1998, respectively. The Agreement was approved by the sole
shareholder of each Fund on __________. The Agreement was last renewed on April
30, 1999.
The Investment Management Agreement for the Emerging Markets Value Fund was
approved by the Trustees of the Northstar Trust, currently the Pilgrim Mayflower
Trust, on behalf of the Fund on October 29, 1997, and by the sole shareholder of
the Fund on November 8, 1997. The Agreement will continue in effect until
November 8, 2000.
The Investment Management Agreement for the former Northstar MidCap Growth Fund,
now the Pilgrim MidCap Opportunities Fund, was approved by the Trustees of the
Northstar Equity Trust, now the Pilgrim Equity Trust, on July 29, 1998, and by
the sole Shareholder of the Fund on July 31, 1998. The Agreement will continue
in effect until July 31, 2000.
The Investment Management Agreements for the SmallCap Opportunities, Growth
Opportunities, Balance Sheet Opportunities, Government Securities, and the High
Yield Fund III Funds were approved by the Trustees of the affected Funds on
March 1, 1995 and by the shareholders of such Funds on June 2, 1995. The
Agreements were last renewed on April 30, 1999.
The Investment Advisory Agreement for the Advisory Funds, Bank and Thrift Fund,
Investment Funds, Pilgrim Mutual Funds, and the Government Securities Income
Fund was approved on by the Directors on August 2, 1999 and by shareholders of
such Funds on October 26, 1999. The Agreements will continue in effect until
[Insert Information].
INVESTMENT MANAGER FEES
The Investment Manager bears the expense of providing its services, and pays the
fees of the Portfolio Manager. For its services, each Fund pays the Investment
Manager a monthly fee in arrears equal to the following as a percentage of the
Fund's average daily net assets during the month:
Series Annual Investment Management Fee*
- ------ ---------------------------------
SmallCap Growth Fund 1.00% of the Fund's average net assets
MidCap Growth Fund 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the
next $500 million of average net assets,
and 0.65% of the average net assets in
excess of $1 billion
LargeCap Growth Fund 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the
next $500 million of average net assets,
and 0.65% of the average net assets in
excess of $1 billion
High Yield Fund II 0.60% of the Fund's average net assets
Convertible Fund 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the
next $500 million of average net assets,
and 0.65% of the average net assets in
excess of $1 billion
18
<PAGE>
Series Annual Investment Management Fee*
- ------ ---------------------------------
Balanced Fund 0.75% of the first $500 million of the
Fund's average net assets, 0.675% of the
next $500 million of average net assets,
and 0.65% of the average net assets in
excess of $1 billion
Strategic Income Fund 0.45% of the first $500 million of the
Fund's average net assets, 0.40% of the
next $250 million of average net assets,
and 0.35% of the average net assets in
excess of $750 million
Emerging Countries Fund 1.25% of the Fund's average net assets
Worldwide Growth Fund 1.00% of the first $500 million of the
Fund's average net assets, 0.90% of the
next $500 million of average net assets,
and 0.85% of the average net assets in
excess of $1 billion
International SmallCap Growth Fund 1.00% of the first $500 million of the
Fund's average net assets, 0.90% of the
next $500 million of average net assets,
and 0.85% of the average net assets in
excess of $1 billion
International Core Growth Fund 1.00% of the first $500 million of the
Fund's average net assets, 0.90% of the
next $500 million of average net assets,
and 0.85% of the average net assets in
excess of $1 billion
Money Market 0.50% of average net assets if the Fund has
Fund* not invested substantially all of its
assets in another investment company, 0.00%
if substantially all of its assets are
invested in another investment company
MidCap Value Fund 1/12 of 1.00% of the Fund's average daily
net assets during the month (approximately
1.00% on an annual basis)
LargeCap Leaders Fund 1/12 of 1.00% of the Fund's average daily
net assets during the month (approximately
1.00% on an annual basis)
Asia-Pacific Equity Fund 1/12 of 1.25% of the Fund's average daily
net assets during the month (approximately
1.25% on an annual basis)
MagnaCap Fund 1.00% per annum of the average daily net
assets of the MagnaCap Fund on the first
$30 million of net assets. The annual rate
is reduced to 0.75% on net assets from $30
million to $250 million; to 0.625% on net
assets from $250 million to $500 million;
and to 0.50% on net assets over $500
million High Yield Fund 0.60% of the
average daily net asset value of the High
Yield Fund. Prior to April 17, 1998, the
Investment Management fee was an annual fee
at a rate of 0.75% on the first $25 million
in net assets, 0.625% on net assets over
$25 million up to $100 million, 0.50% on
net assets over $100 million up to $500
million, and 0.40% for net assets over $500
million
Bank and Thrift Fund 1.00% of the first $30,000,000 of average
daily net assets, 0.75% of the next
$95,000,000 of average daily net assets and
0.70% of average daily net assets in excess
of $125,000,000. The fees are computed and
accrued daily and paid monthly
- ----------
* The Money Market Fund will also pay advisory fees to Reserve Management
Company, Inc., the investment adviser of Primary Institutional Fund, a series
of Reserve Institutional Trust, the investment company in which the Money
Market Fund invests substantially all of its assets.
19
<PAGE>
Series Annual Investment Management Fee*
- ------ ---------------------------------
Government Securities Income Fund 0.50% per annum of the average daily net
assets of the Government Securities Income
Fund on the first $500 million of net
assets. The annual rate is reduced to 0.45%
on net assets from $500 million to $1
billion and to 0.40% on net assets in
excess of $1 billion
SmallCap Opportunities Fund 0.75% of the Fund's average daily net
assets
Mid-Cap Opportunities Fund 1.00% of the Fund's average daily net
assets
Growth Opportunities Fund 0.75% of the Fund's average daily net
assets
Growth + Value Fund 1.00% of the Fund's average daily net
assets
International Value Fund 1.00% of the Fund's average daily net
assets
Emerging Markets Value Fund 1.00% of the Fund's average daily net
assets
Research Enhanced Index Fund 0.70% of the Fund's average daily net
assets
Income & Growth Fund 0.75% on the first $250,000,000 of
aggregate average daily net assets of each
Fund, 0.70% on the next $250,000,00 of such
assets, 0.65% on the next $250,000,000 of
such assets; 0.60% on the next $250,000,000
of such assets, and 0.55% on the remaining
aggregate daily net assets of each Fund in
excess of $1 billion
Government Securities Fund 0.65% of the Fund's average daily net
assets
High Yield Fund III 0.60% of the Fund's average daily net
assets
High Total Return Fund II 0.75% of the Fund's average daily net
assets
High Total Return Fund 0.75% on the first $250,000,000 of
aggregate average daily net assets of each
Fund, 0.70% on the next $250,000,00 of such
assets, 0.65% on the next $250,000,000 of
such assets; 0.60% on the next $250,000,000
of such assets, and 0.55% on the remaining
aggregate daily net assets of each Fund in
excess of $1 billion
Balance Sheet Opportunities Fund 0.65% of the Fund's average daily net
assets. This fee is accrued daily and
payable monthly
Sub-Advisory Agreements
The Investment Management Agreement for certain Funds provides that the
Investment Manager, with the approval of the Company's Board of Directors, may
select and employ investment advisers to serve as portfolio manager for any Fund
("Portfolio Manager"), and shall monitor the Portfolio Managers' investment
programs and results, and coordinate the investment activities of the Portfolio
Managers to
20
<PAGE>
ensure compliance with regulatory restrictions. The Investment Manager pays all
of its expenses arising from the performance of its obligations under the
Investment Management Agreement, including all fees payable to the Portfolio
Managers, executive salaries and expenses of the Directors and Officers of the
Company who are employees of the Investment Manager or its affiliates and office
rent of the Company. The Portfolio Managers of the Advisory Funds pay all of
their expenses arising from the performance of their obligations under the
sub-advisory agreements (the "Sub-Advisory Agreements" or the "Portfolio
Management Agreements").
Subject to the expense reimbursement provisions described in this Statement of
Additional Information, other expenses incurred in the operation of the Company
are borne by the Funds, including, without limitation, investment advisory fees;
brokerage commissions; interest; legal fees and expenses of attorneys; fees of
independent auditors, transfer agents and dividend disbursing agents, accounting
agents, and custodians; the expense of obtaining quotations for calculating each
Fund's net asset value; taxes, if any, and the preparation of each Fund's tax
returns; cost of stock certificates and any other expenses (including clerical
expenses) of issue, sale, repurchase or redemption of shares; fees and expenses
of registering and maintaining the registration of shares of the Funds under
federal and state laws and regulations; expenses of printing and distributing
reports, notices and proxy materials to existing shareholders; expenses of
printing and filing reports and other documents filed with governmental
agencies; expenses of annual and special shareholder meetings; expenses of
printing and distributing prospectuses and statements of additional information
to existing shareholders; fees and expenses of Directors of the Company who are
not employees of the Investment Manager or any Portfolio Manager, or their
affiliates; membership dues in trade associations; insurance premiums; and
extraordinary expenses such as litigation expenses.
The Portfolio Management Agreements may be terminated without payment of any
penalties by the Investment Manager, the Trustees of the Trust, on behalf of a
Fund, or the shareholders of such Fund upon 60 days prior written notice.
Otherwise, the Portfolio Management Agreements will remain in effect for two
years and will, thereafter, continue in effect from year to year, subject to the
annual approval of the appropriate Board of Trustees, on behalf of a Fund, or
the vote of a majority of the outstanding voting securities, and the vote, cast
in person at a meeting duly called and held, of a majority of the Trustees, on
behalf of a Fund who are not parties to the Portfolio Management Agreement or
"interested persons" (as defined in the 1940 Act) of any such Party.
Pursuant to a Sub-Advisory Agreement between Pilgrim Advisers and Navellier Fund
Management, Inc. ("Navellier"), dated July 31, 1996 and amended and restated on
July 1, 1998, Navellier acts as sub-adviser to the Growth + Value Fund. In this
capacity, Navellier, subject to the supervision and control of Pilgrim Advisers
and the Trustees of such Fund, will manage the Fund's portfolio investments,
consistently with its investment objective, and will execute any of the Fund's
investment policies that it deems appropriate to utilize from time to time. Fees
payable under the Sub-Advisory Agreement will accrue daily and be paid monthly
by Pilgrim Advisers. Navellier is wholly owned and controlled by its sole
stockholder, Louis G. Navellier. Novella's address is: 1 East Liberty, Third
Floor, Reno, Nevada, 89501. The Sub-Advisory Agreement for Growth + Value Fund
was initially approved by the Trustees of the Trust, on behalf of the Fund, on
July 31, 1996. The Amended and Restated Sub-Advisory Agreement dated July 1,
1998 was approved by the Trustees of the Trust, on behalf of the Fund, on May
28, 1998.
Pursuant to a Sub-Advisory Agreement between Pilgrim Advisers and Brandes
Investment Partners, L.P. ("Brandes"), dated February 28, 1997 and a
Sub-Advisory Agreement between Pilgrim Advisers and Brandes dated November 8,
1997, Brandes acts as Sub-Adviser to the International Value Fund and the
Emerging Markets Value Fund, respectively. In this capacity, Brandes, subject to
the supervision and control of Pilgrim Advisers and the Trustees of the Funds,
will manage each Fund's portfolio investments, consistently with each Fund's
investment objective, and will execute any of the Fund's investment policies
that it deems appropriate to utilize from time to time. Fees payable under the
Sub-Advisory Agreements will accrue daily and be paid monthly by Pilgrim
Advisers. Brandes' address is 12750 High Bluff Drive, San Diego, California
92130. Charles Brandes, who controls the general partner of Brandes, serves as
one of the Managing Directors of Brandes. The Sub-Advisory Agreement for the
International Value Fund was approved by the Trustees of the Fund on January 23,
1997. The Sub-Advisory Agreement for the
21
<PAGE>
Emerging Markets Value Fund was approved by the Trustees of the Trust, on behalf
of the Fund, on October 29, 1997. They were renewed on _______________.
Pursuant to a Sub-Advisory Agreement between Pilgrim Advisers and J.P. Morgan
Investment Management Inc., ("J.P. Morgan"), dated December 21, 1998, J.P.
Morgan acts as sub-adviser to the Research Enhanced Index Fund. In this
capacity, J.P. Morgan, subject to the supervision and control of Pilgrim
Advisers and the Trustees of the Trust, on behalf of the Fund, will manage the
Fund's portfolio investments, consistently with the Fund's investment objective,
and will execute any of the Fund's investment policies that it deems appropriate
to utilize from time to time. Fees payable under the Sub-Advisory Agreement will
accrue daily and be paid monthly by Pilgrim Advisers. J.P. Moorage's address is
522 Fifth Avenue, New York, New York 10036. The Sub-Advisory Agreement for the
Fund was approved by the Trustees of Trust, on behalf of the Fund on December
16, 1998.
Pursuant to a Sub-Advisory Agreement between Pilgrim Investments and
Nicholas-Applegate Capital Management ("NACM"), dated [ , 1999],
NACM acts as sub-adviser to the International Core Growth Fund, Worldwide Growth
Fund, International SmallCap Growth Fund, Emerging Countries Fund, LargeCap
Growth Fund, MidCap Growth Fund, SmallCap Growth Fund, and Convertible Fund. In
this capacity, NACM, subject to the supervision and control of Pilgrim
Investments and the Trustees of the Funds, will manage each Fund's portfolio
investments, consistently with each Fund's investment objective, and will
execute any of the Fund's investment policies that it deems appropriate to
utilize from time to time. NACM's address is 600 West Broadway, 30th Floor, San
Diego, California 92101. Its general partner is Nicholas-Applegate Capital
Management Holdings, L.P., a California limited partnership the general partner
of which is Nicholas-Applegate Capital Management Holdings, Inc., a California
corporation owned by Arthur Nicholas. The Sub-Advisory Agreements for the Funds
were approved by the Trustees, on behalf of the Funds on August 2, 1999 and by
the shareholders of each Fund on October 26, 1999.
Pursuant to a Sub-Advisory Agreement between Pilgrim Investments and HSBC Asset
Management Americas Inc. and HSBC Asset Management Hong Kong Limited
(collectively HSBC), HSBC acts as sub-adviser to the Asia-Pacific Equity Fund.
HSBC is part of HSBC Asset Management, the global investment advisory and fund
management business of the HSBC Group. The Sub-Advisory Agreements for the Funds
were approved by the Trustees on behalf of the Funds on [ ] and by
shareholders of each Fund on [ ].
As compensation to a sub-adviser for its services, the Investment Manager pays
the sub-adviser a monthly fee in arrears equal to the following as a percentage
of a Fund's average daily net assets managed during the month:
Series Annual Portfolio Management Fee
- ------ -------------------------------
SmallCap Growth Fund 0.50% of the Fund's average net assets
MidCap Growth Fund 0.375% of the first $500 million of the
Fund's average net assets, 0.3375% of the
next $500 million of average net assets,
and 0.325% of the average net assets in
excess of $1 billion
LargeCap Growth Fund 0.375% of the first $500 million of the
Fund's average net assets, 0.3375% of the
next $500 million of average net assets,
and 0.325% of the average net assets in
excess of $1 billion
Convertible Fund 0.375% of the first $500 million of the
Fund's average net assets, 0.3375% of the
next $500 million of average net assets,
and 0.325% of the average net assets in
excess of $1 billion
Emerging Countries Fund 0.625% of the Fund's average net assets
Worldwide Growth Fund 0.50% of the first $500 million of the
Fund's average net assets, 0.45% of the
22
<PAGE>
Series Annual Portfolio Management Fee
- ------ -------------------------------
next $500 million of average net assets,
and 0.425% of the average net assets in
excess of $1 billion
International SmallCap Growth Fund 0.50% of the first $500 million of the
Fund's average net assets, 0.45% of the
next $500 million of average net assets,
and 0.425% of the average net assets in
excess of $1 billion
International Core Growth Fund 0.50% of the first $500 million of the
Fund's average net assets, 0.45% of the
next $500 million of average net assets,
and 0.425% of the average net assets in
excess of $1 billion
Growth + Value Fund .50% of the Fund's average daily net assets
International Value Fund .50% of the Fund's average daily net assets
Emerging Markets Fund .50% of the Fund's average daily net assets
Research Enhanced Index Fund .20% of the Fund's average daily net assets
Asia-Pacific Equity Fund 1/12 of .50% of the Fund's average daily
net assets
Former Portfolio Manager for LargeCap Leaders Fund -- Ark Asset Management Co.,
Inc. (Ark) served as Portfolio Manager to the LargeCap Leaders Fund from
September 1, 1995 through October 31, 1997. For the fiscal year ended June 30,
1997, the Investment Manager paid portfolio management fees to Ark of $60,843.
For the period from July 1, 1997 through October 31, 1997, the Portfolio Manager
paid portfolio management fees to Ark of $48,365.
Former Portfolio Manager for MidCap Value Fund -- Cramer Rosenthal McGlynn, LLC.
(CRM) or its predecessor served as Portfolio Manager to the MidCap Value Fund
through September 30, 1999. For the fiscal years ended June 30, 1999, 1998 and
1997, the Investment Manager paid portfolio management fees to CRM of
$__________, $339,347, and $193,080, respectively. Accounts managed by CRM own
in the aggregate approximately 14% of the outstanding voting securities of
Pilgrim Capital.
Investment Adviser of the Primary Fund. The Money Market Fund invests
substantially all of its assets in the Primary Fund. The Primary Fund is managed
by Reserve Management Company, Inc. Reserve Management Company, Inc. currently
manages assets in excess of $5 billion and has over 27 years of investment
experience. The Investment Management Agreement for the Primary Fund provides
that Reserve Investment Management Company, Inc. shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a fund in
connection with the matters to which the Agreement relates, except a loss
resulting from the willful misfeasance, bad faith or gross negligence on the
part of Reserve Management Company, Inc. or from reckless disregard by it of its
duties and obligations thereunder. Reserve Management Company, Inc. may make
such advertising and promotional expenditures, using its own resources, as it
from time to time deems appropriate.
Administration
Prior to May 24, 1999, the Pilgrim Mutual Funds had an Administration Agreement
with Investment Company Administration ("ICA"), 4455 East Camelback Road, Suite
261-E, Phoenix, Arizona 85018. Pursuant to an Administration Agreement with the
Pilgrim Mutual Funds, ICA was responsible for performing all administrative
services required for the daily business operations of the Pilgrim Mutual Funds,
subject to the supervision of the Board of Trustees of the Pilgrim Mutual Funds.
For the fiscal years ended March 31, 1999 and 1998, ICA received aggregate
compensation of $1,059,155 and
23
<PAGE>
$848,799, respectively, for all of the series of the Pilgrim Mutual Funds.
Also, prior to May 24, 1999, the Pilgrim Mutual Funds had an Administrative
Services Agreement with NACM under which NACM was responsible for providing all
administrative services which are not provided by ICA or by the Pilgrim Mutual
Funds Distributor, transfer agents, accounting agents, independent accountants
and legal counsel. For the fiscal years ended March 31, 1999 and 1998, NACM
received aggregate compensation of $1,603,130 and $1,972,037, respectively, for
all of the series of the Pilgrim Mutual Funds pursuant to the Administrative
Services Agreement.
Pilgrim Group, Inc. serves as Administrator for the Funds, pursuant to an
Administrative Services Agreement with each Fund. Subject to the supervision of
the Board of Trustees, the Administrator provides the overall business
management and administrative services necessary to the proper conduct of the
Funds' business, except for those services performed by Pilgrim Investment
Manager under the Investment Advisory Agreements, the custodian for the Funds
under the Custodian Agreements, the transfer agent for the Funds under the
Transfer Agency Agreements, and such other service providers as may be retained
by the Funds from time to time. The Administrator acts as liaison among these
service providers to the Funds. The Administrator is also responsible for
ensuring that the Funds operate in compliance with applicable legal requirements
and for monitoring Pilgrim Investment Manager for compliance with requirements
under applicable law and with the investment policies and restrictions of the
Funds. The Administrator is an affiliate of the Investment Manager.
Prior to the Reorganization, the Pilgrim Mutual Funds had not engaged the
services of an investment adviser for the Trust's A, B, C and Institutional
Portfolios because these portfolios invested all their assets in master funds of
the Master Trust. Consequently, the amounts of the advisory fees reported below
for the Pilgrim Mutual Funds were for services provided to the master funds of
the Master Trust. The amounts of the advisory fees paid by each Fund for the
fiscal years ended June 30, 1999, 1998, and 1997 were:
Total Advisory and Administrative Fees Paid to the Funds Which Comprise
the Bank and Thrift Fund, the Advisory Funds, Investment Funds,
Pilgrim Mutual Funds, and the Government Securities Income Fund
During the Fiscal Year Ended June 30, 1999
<TABLE>
<CAPTION>
1999 1999 1998 1998 1997 1997
---- ---- ---- ---- ---- ----
Advisory Fees Admin. Fees Advisory Fees Admin. Fees Advisory Fees Admin. Fees
<S> <C> <C> <C> <C> <C> <C>
International Core Growth Fund ... $1,061,288 $ 308,562 $ 5,726
Worldwide Growth Fund ............ $1,472,492 $1,251,181 $1,028,250
International SmallCap Growth Fund $1,149,529 $ 658,893 $ 477,212
Emerging Countries Fund .......... $3,476,180 $2,790,216 $ 915,615
LargeCap Growth Fund ............. $ 178,627 $ 32,530 $ 2,359
MidCap Growth Fund ............... $3,049,230 $3,422,148 $3,594,196
Small Cap Growth Fund ............ $5,334,833 $6,613,874 $5,836,182
Convertible Fund ................. $1,997,038 $1,427,198 $ 902,615
Balanced Fund .................... $ 261,803 $ 220,025 $ 109,321
Strategic Income Fund(1) ......... $ 124,514 $ 94,359 $ 43,319
High Yield Fund II ............... $ 466,926 $ 36,505 $ 17,627
Asia Pacific Equity Fund ......... $ 303,833 $ 553,589 $ 773,252
MidCap Value Fund ................ $ 670,848 $ 678,816 $ 250,512
LargeCap Leaders Fund ............ $ 300,476 $ 286,830 $ 174,325
MagnaCap Fund .................... $3,201,210 $2,846,061 $2,157,744
High Yield Fund .................. $2,176,297 $ 977,868 $ 332,032
Bank and Thrift Fund(2) .......... $5,892,331 $2,446,063 $2,361,103
Government Securities Income Fund $ 190,385 $ 144,487 $ 170,619
Money Market Fund ................ N/A N/A N/A
</TABLE>
(1) Includes the advisory fees, fee reductions and expense reimbursements of
the Government Income Fund, the assets and liabilities of which were
assigned to and assumed by the Strategic Income Fund pursuant to the
Reorganization.
(2) Prior to October 17, 1997, the investor manager was paid management fees
based on average weekly net assets. 1998 includes management fees for a
six-month period ended June 30, 1998.
24
<PAGE>
Total Advisory and Administrative Fees Paid to the Funds Which Comprise
The Mayflower Trust
During the Fiscal Year Ended October 31, 1999
<TABLE>
<CAPTION>
1999 1999 1998 1998 1997 1997
Advisory Admin. Advisory Admin. Advisory Admin.
Fees Fees Fees(1) Fees(1) Fees(2) Fees(2)
<S> <C> <C> <C> <C> <C> <C>
Growth + Value Fund $1,696,786 169,679 538,291
International Value Fund (3) $3,501,309 486,422 789,163
Emerging Markets Value Fund $ 45,079 4,508 N/A N/A
Research Enhanced Index Fund(4) -- -- N/A N/A
Income and Growth Fund $1,399,807 186,641 1,513,778 233,759
High Total Return Fund II $1,470,229 196,031 68,888 14,025
High Total Return Fund $5,691,286 995,897 5,442,788 989,855
</TABLE>
- ----------
(1) Does not reflect expense reimbursement of $99,612 for Emerging Markets
Value Fund and $27,865 for High Total Return Fund II.
(2) Does not reflect expense reimbursement of $11,165 for Growth + Value Fund,
$173,911 for International Value Fund or $105,669 for High Total Return
Fund II.
(3) Prior to April 21, 1997, the International Value Fund was managed by
Brandes Investment Partners L.P. The administrator for the Fund was the
Investment Company Administration Corporation.
(4) The Research Enhanced Index Fund commenced operations on December 30,
1998.
<TABLE>
<CAPTION>
Total Advisory and Administrative Fees paid to the Funds which comprise the
Equity Trust, SmallCap Opportunities Fund, Growth Opportunities Fund, Balance
Sheet Opportunities, Government Securities Fund, and High Yield Fund III
During Fiscal Year Ended December 31, 1998
1998 1998 1997 1997 1996 1996
Advisory Admin. Advisory Admin. Advisory Admin.
Fees Fees Fees Fees Fees Fees
<S> <C> <C> <C> <C> <C> <C>
SmallCap Opportunities Fund(1) .... $2,033,840 392,303 2,341,067 266,145 1,146,789
Mid-Cap Opportunities Fund(3) ..... $ 73,797 7,380 N/A N/A N/A
Growth Opportunities Fund(1) ...... $1,541,921 239,970 1,412,949 136,648 575,383
Government Securities Fund(1)(2) .. $ 697,032 133,321 762,504 180,250 941,594
High Yield Fund III .................... $1,537,716 322,406 1,289,419 78,343 923,929
Balance Sheet Opportunities Fund(4) $ 365,125 75,818 398,127 46,191 464,088
</TABLE>
- ----------
(1) Does not reflect expense reimbursement of $37,687 for the Mid-Cap
Opportunities Fund and a fee waiver of $160,854 for the Government
Securities Fund for the year ended December 31, 1998; expense
reimbursement of $10,635 for the Growth Opportunities Fund and $227,803
for the Government Securities Fund for the year ended December 31, 1997;
and expense reimbursement of $20,615 for the SmallCap Opportunities Fund
and $34,126 for the Growth Opportunities Fund for the year ended December
31, 1996.
(2) Net of waiver of investment advisory fees of $160,854, $201,863 and
$284,286 for the years ended December 31, 1998, 1997 and 1996,
respectively.
(3) The Mid-Cap Opportunities Fund commenced operations on August 20, 1998.
(4) Does not reflect expense reimbursement of $20,690 for the year end
December 31, 1997 or expense reimbursement of $41,925 for the year ended
December 31, 1996.
25
<PAGE>
During the fiscal years ended October 31, 1998, 1997 and 1996, the Funds listed
below paid the following subadvisory fees:
Total Subadvisory Fees Paid During Fiscal Year October 31, 1999
1999 1998 1997 1996
---- ---- ---- ----
Growth + Value Fund ....... $ 998,812 $ 275,490 N/A
International Value Fund .. 1,750,654 288,604 N/A
Emerging Markets Value Fund 26,985 N/A N/A
Income and Growth Fund .... 178,919 245,657 21,173
During the fiscal years ended December 31, 1998, 1997 and 1996, the SmallCap
Opportunities Fund paid the following subadvisory fees:
Total Subadvisory Fees Paid During Fiscal Year Ended December 31, 1998
1998 1997 1996
--------- --------- -------
SmallCap Opportunities Fund ....... $ 789,408 1,498,283 763,034
During the fiscal years ended June 30, 1999, 1998, and 1997, the Investment
Manager paid sub-advisory fees to the following:
Total Subadvisory Fees Paid During Fiscal Year Ended June 30, 1999
1999 1998 1997
-------- ------- -------
Asia-Pacific Equity Fund $121,638 307,103 221,487
International Core Growth Fund
Worldwide Growth Fund
International SmallCap Growth Fund
Emerging Countries Fund
LargeCap Growth Fund
MidCap Growth Fund
SmallCap Growth Fund
Convertible Fund
EXPENSE LIMITATION AGREEMENTS
The Investment Manager entered into expense limitation agreements with the
following Funds, pursuant to which the Investment Manager has agreed to waive or
limit its fees and to assume other expenses so that the total annual ordinary
operating expenses of the Funds (which excludes interest, taxes, brokerage
commissions, extraordinary expenses such as litigation, other expenses not
incurred in the ordinary course of each Fund's business, and expenses of any
counsel or other persons or services retained by the Company's directors who are
not "interested persons" (as defined in the 1940 Act) of the Investment Manager)
do not exceed:
Fund Class A Class B Class C Class M Class Q
- ---- ------- ------- ------- ------- -------
Asia-Pacific Equity Fund 2.00% 2.75% 2.75% 2.50% 2.50%
SmallCap Growth Fund 1.95% 2.60% 2.60% 1.50%
MidCap Growth Fund 1.60% 2.25% 2.25% 1.25%
MidCap Value Funds 1.75% 2.50% 2.50% 2.25% 2.25%
LargeCap Growth Fund 1.60% 2.25% 2.25% 1.25%
LargeCap Leaders Funds 1.75% 2.50% 2.50% 2.25% 2.25%
Convertible Fund 1.60% 2.25% 2.25% 1.25%
Balanced Fund 1.60% 2.25% 2.25% 1.25%
Strategic Income Fund 0.95% 1.35% 1.35% 0.85%
26
<PAGE>
Fund Class A Class B Class C Class M Class Q
- ---- ------- ------- ------- ------- -------
High Yield Fund II 1.10% 1.75% 1.75% 1.00%
Emerging Countries Fund 2.25% 2.90% 2.90% 1.90%
Worldwide Growth Fund 1.85% 2.50% 2.50% 1.60%
International SmallCap Growth Fund 1.95% 2.60% 2.60% 1.65%
International Core Growth Fund 1.95% 2.60% 2.60% 1.65%
Money Market Fund* N/A 3.00% 3.00% N/A
Each Fund will at a later date reimburse the Investment Manager for management
fees waived and other expenses assumed by the Investment Manager during the
previous 36 months, but only if, after such reimbursement, the Fund's expense
ratio does not exceed the percentage described above. The Investment Manager
will only be reimbursed for fees waived or expenses assumed after the effective
date of the expense limitation agreements. Nicholas-Applegate Capital Management
will bear 50% of any fees waived and other expenses assumed pursuant to the
expense limitation agreement with respect to any Fund for which it serves as
sub-adviser, and will receive 50% of any recoupment amount with respect to such
Funds.
The expense limitation agreement provides that these expense limitations shall
continue until October 30, 2000. For the Advisory Funds and until the Year 2001
for the Pilgrim Mutual Funds and for the Advisory Funds and until June 30, 2001
for the Pilgrim Funds. Thereafter, the agreement will automatically renew for
one-year terms unless the Investment Manager provides written notice of the
termination of the agreement to the Trust at least 30 days prior to the end of
the then-current term. In addition, the agreement will terminate upon
termination of the Investment Management Agreement, or it may be terminated by
the Trust, without payment of any penalty, upon ninety (90) days' prior written
notice to the Investment Manager at its principal place of business.
For the Advisory, Investment, Bank and Thrift, and Government Securities Income
Funds, prior to the expense limitation agreement described above, the Funds
(other than the Money Market Fund which is a new fund) had an expense limitation
agreement with the predecessor adviser which provided for expense limits at the
same levels as the current agreement.
For the Pilgrim Mutual Fund, prior to the expense limitation agreement described
above, the Investment Manager voluntarily agreed to waive all or a portion of
its fee and to reimburse operating expenses of the Advisory Funds, excluding
distribution fees, interest, taxes, brokerage and extraordinary expenses, to
0.75%.
The voluntary fee reductions are as follows:
Fund 1999 1998 1997
- ---- ---- ---- ----
SmallCap Growth Fund $ 518,164 $ 675,970 $ 487,625
MidCap Growth Fund 301,613 591,684 652,932
LargeCap Growth Fund 154,098 132,912 5,199
Convertible Fund 318,025 339,803 757,713
Balanced Fund 132,033 182,871 1,122,862
Strategic Income Fund 232,922 419,604 1.148.587
High Yield Fund II 318,323 111,479 15,731
Emerging Countries Fund 816,718 628,044 811,357
Worldwide Growth Fund 242,660 381,568 980,833
International SmallCap Growth Fund 168,199 389,240 851,489
International Core Growth Fund 283,811 204,723 37,345
27
<PAGE>
LargeCap Leaders Fund -- 151,645 100,148
MidCap Value Fund -- 21,293 49,495
Asia-Pacific Equity Fund -- 2,846,061 2,157,744
High Yield Fund -- 269,351 219,739
The Investment Manager has entered into an expense limitation agreement with the
High Yield Fund, pursuant to which the Investment Manager has agreed to waive or
limit its fees and to assume other expenses so that the total annual ordinary
operating expenses of the Fund (which excludes interest, taxes, brokerage
commissions, extraordinary expenses such as litigation, other expenses not
incurred in the ordinary course of such Fund's business, and expenses of any
counsel or other persons or services retained by the Company's directors who are
not "interested persons" (as defined in the 1940 Act) of the Investment Manager)
do not exceed the following ratios for the periods indicated:
Period Limit Applies Class A Class B Class C Class M Class Q
- -------------------- ------- ------- ------- ------- -------
Through 12/31/1999 1.00% 1.75% 1.75% 1.50% 1.00%
From 1/1/2000 through
termination of Agreement 1.10% 1.85% 1.85% 1.60% 1.10%
The High Yield Fund will at a later date reimburse the Investment Manager for
management fees waived and other expenses assumed by the Investment Manager
during the previous 36 months, but only if, after such reimbursement, the Fund's
expense ratio does not exceed the percentage described above. The Investment
Manager will only be reimbursed for fees waived or expenses assumed after the
effective date of the expense limitation agreement.
The agreement has an initial term through the second anniversary of the
effective date of a reorganization of the High Yield Fund II series of the
Pilgrim Mutual Fund into the High Yield Fund (the "Reorganization"). Unless the
Investment Manager provides written notice of the termination of the agreement
to PIF at least 30 days prior to the second anniversary of the effective date of
the Reorganization, the agreement will automatically renew for a term through
the end of the then-current fiscal year. Thereafter, the agreement will
automatically renew for one-year terms unless the Investment Manager provides
written notice of the termination of the agreement to the Trust at least 30 days
prior to the end of the then-current term. The expense limitation agreement will
terminate automatically upon termination of the respective investment management
agreement with the Investment Manager, and may be terminated by the Investment
Manager or the High Yield Fund upon 90 days written notice.
Prior to the expense limitation agreement described above, the Investment
Manager voluntarily agreed to waive all or a portion of its fee and to reimburse
operating expenses of the High Yield Fund, excluding distribution fees,
interest, taxes, brokerage and extraordinary expenses, to 0.75%.
Government Securities Income Fund. Pursuant to the terms of the Investment
Management Agreement of the Government Securities Income Fund, the Investment
Manager will reimburse the Fund to the extent that the gross operating costs and
expenses, excluding any interest, taxes, brokerage commissions, amortization of
organizational expenses, extraordinary expenses, and distribution (Rule 12b-1)
fees on Class B and Class M shares in excess of an annual rate of .25% of the
average daily net assets of these classes, exceed 1.50% of its average daily net
asset value for the first $40 million of net assets and 1.00% of average daily
net assets in excess of $40 million for any one fiscal year. This reimbursement
policy cannot be changed unless the agreement is amended, which would require
shareholder approval.
[Insert Equity Trust, SmallCap Opportunities Fund, Growth Opportunities Fund,
Mayflower Trust, Balance Sheet Opportunities Fund, Government Securities Fund,
High Yield Fund III expense limits.]
28
<PAGE>
Distributor Shares of each Fund are distributed by Pilgrim Securities, Inc.
("Pilgrim Securities" or the "Distributor") pursuant to a Distribution Agreement
between each Company and the Distributor. Each Distribution Agreement requires
the Distributor to use its best efforts on a continuing basis to solicit
purchases of shares of the Funds. Each Company and the Distributor have agreed
to indemnify each other against certain liabilities. At the discretion of the
Distributor, all sales charges may at times be reallowed to an authorized dealer
("Authorized Dealer"). If 90% or more of the sales commission is reallowed, such
Authorized Dealer may be deemed to be an "underwriter" as that term is defined
under the Securities Act of 1933, as amended. Each Distribution Agreement will
remain in effect for two years and from year to year thereafter only if its
continuance is approved annually by a majority of the Board of Directors who are
not parties to such agreement or "interested persons" of any such party and must
be approved either by votes of a majority of the Directors or a majority of the
outstanding voting securities of the Company. See the Prospectus for information
on how to purchase and sell shares of the Funds, and the charges and expenses
associated with an investment. The sales charge retained by the Distributor and
the commissions reallowed to selling dealers are not an expense of the Funds and
have no effect on the net asset value of the Funds. The Distributor, like the
Investment Manager, is a wholly-owned subsidiary of Pilgrim Group, Inc., which
is a wholly-owned subsidiary of Pilgrim America Capital Corporation.
For the following Fund's fiscal year ended June 30, 1999, the Distributor
received the following amounts in sales charges, after reallowance to Dealers:
Underwriting Fees
----------------------------------------------
Class A Class B Class C Class Q Class T
------- ------- ------- ------- -------
Bank and Thrift Fund...............
LargeCap Leaders Fund..............
MidCap Value Fund..................
Asia-Pacific Equity Fund...........
MagnaCap Fund......................
High Yield Fund....................
International Core Growth Fund.....
Worldwide Growth Fund..............
International SmallCap Growth
Fund ..............................
Emerging Countries Fund............
LargeCap Growth Fund...............
MidCap Growth Fund.................
SmallCap Growth Fund...............
Convertible Fund...................
Balanced Fund......................
High Yield Fund II.................
Strategic Income Fund..............
Money Market Fund..................
Government Securities Income Fund..
For the following Fund's fiscal year ended October 31, 1999, the Distributor
received the following amounts in sales charges, after reallowance to Dealers:
Underwriting Fees
-------------------------------------------
Class A Class B Class C
------- ------- -------
Growth + Value Fund ............
International Value Fund .......
Emerging Markets Value Fund ....
Research Enhanced Index Fund ...
Income and Growth Fund .........
High Total Return Fund II ......
High Total Return Fund .........
29
<PAGE>
For the following Funds' fiscal year ended December 31, 1998, the
Distributor (or Advest) received the following amounts in sales charges, after
reallowance to Dealers:
Class A Class B Class C Class T
------- ---------- ------- -------
SmallCap Opportunities Fund ........... $39,102 $1,122,269 $26,180 $12,940
Mid-Cap Opportunities Fund ............ $ 0 $ 0 $ 0 N/A
Growth Opportunities Fund ............. $ 5,852 $ 37,253 $ 1,393 $ 5,820
Government Securities Fund ............ $ 3,079 $ 81,950 $ 2,792 $ 4,393
High Yield Fund III ................... $16,445 $ 374,700 $14,884 $24,592
Balance Sheet Opportunities Fund ...... $ 1,041 $ 25,068 $ 51 $ 4,574
RULE 12b-1 PLANS
Each Company has a distribution plan pursuant to Rule 12b-1 under the 1940 Act
applicable to each class of shares offered by each Fund ("Rule 12b-1 Plans").
The Funds intend to operate the Rule 12b-1 Plans in accordance with their terms
and the National Association of Securities Dealers, Inc. rules concerning sales
charges. Under the Rule 12b-1 Plans, the Distributor may be entitled to payment
each month in connection with the offering, sale, and shareholder servicing of
Class A, Class B, Class C, Class M, Class Q shares and Class T in amounts as set
forth in the following table:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Fees Based on Average Daily Net Assets
- ----------------------------------------------------------------------------------------------
Name of Fund Class A Class B Class C Class M Class Q Class T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific Equity Fund
- ----------------------------------------------------------------------------------------------
MidCap Value Fund
- ----------------------------------------------------------------------------------------------
LargeCap Leaders Fund
- ----------------------------------------------------------------------------------------------
MagnaCap Fund
- ----------------------------------------------------------------------------------------------
High Yield Fund
- ----------------------------------------------------------------------------------------------
Bank and Thrift Fund
- ----------------------------------------------------------------------------------------------
Government Securities Income Fund
- ----------------------------------------------------------------------------------------------
International Core Growth Fund
- ----------------------------------------------------------------------------------------------
Worldwide Growth Fund
- ----------------------------------------------------------------------------------------------
International SmallCap Growth Fund
- ----------------------------------------------------------------------------------------------
Emerging Countries Fund
- ----------------------------------------------------------------------------------------------
LargeCap Growth Fund
- ----------------------------------------------------------------------------------------------
MidCap Growth Fund
- ----------------------------------------------------------------------------------------------
SmallCap Growth Fund
- ----------------------------------------------------------------------------------------------
Convertible Fund
- ----------------------------------------------------------------------------------------------
Balanced Fund
- ----------------------------------------------------------------------------------------------
High Yield Fund II
- ----------------------------------------------------------------------------------------------
Strategic Income Fund
- ----------------------------------------------------------------------------------------------
Money Market Fund
- ----------------------------------------------------------------------------------------------
SmallCap Opportunities Fund
- ----------------------------------------------------------------------------------------------
Growth Opportunities Fund
- ----------------------------------------------------------------------------------------------
MidCap Opportunities Fund
- ----------------------------------------------------------------------------------------------
Emerging Markets Value Fund
- ----------------------------------------------------------------------------------------------
Growth + Value Fund
- ----------------------------------------------------------------------------------------------
High Total Return Fund
- ----------------------------------------------------------------------------------------------
High Total Return Fund II
- ----------------------------------------------------------------------------------------------
Income & Growth Fund
- ----------------------------------------------------------------------------------------------
International Value Fund
- ----------------------------------------------------------------------------------------------
Research Enhanced Index Fund
- ----------------------------------------------------------------------------------------------
Balance Sheet Opportunities Fund
- ----------------------------------------------------------------------------------------------
Government Securities Fund
- ----------------------------------------------------------------------------------------------
High Yield Fund III
- ----------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
The Board of Directors has approved under the Rule 12b-1 Plans payments of the
following amounts to the Distributor each month in connection with the offering,
sale, and shareholder servicing of each Class of shares as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Fees Based on Average Daily Net Assets
- ----------------------------------------------------------------------------------------------
Name of Fund Class A Class B Class C Class M Class Q Class T
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific Equity Fund
- ----------------------------------------------------------------------------------------------
MidCap Value Fund
- ----------------------------------------------------------------------------------------------
LargeCap Leaders Fund
- ----------------------------------------------------------------------------------------------
MagnaCap Fund
- ----------------------------------------------------------------------------------------------
High Yield Fund
- ----------------------------------------------------------------------------------------------
Bank and Thrift Fund
- ----------------------------------------------------------------------------------------------
Government Securities Income Fund
- ----------------------------------------------------------------------------------------------
International Core Growth Fund
- ----------------------------------------------------------------------------------------------
Worldwide Growth Fund
- ----------------------------------------------------------------------------------------------
International SmallCap Growth Fund
- ----------------------------------------------------------------------------------------------
Emerging Countries Fund
- ----------------------------------------------------------------------------------------------
LargeCap Growth Fund
- ----------------------------------------------------------------------------------------------
MidCap Growth Fund
- ----------------------------------------------------------------------------------------------
SmallCap Growth Fund
- ----------------------------------------------------------------------------------------------
Convertible Fund
- ----------------------------------------------------------------------------------------------
Balanced Fund
- ----------------------------------------------------------------------------------------------
High Yield Fund II
- ----------------------------------------------------------------------------------------------
Strategic Income Fund
- ----------------------------------------------------------------------------------------------
Money Market Fund
- ----------------------------------------------------------------------------------------------
SmallCap Opportunities Fund
- ----------------------------------------------------------------------------------------------
Growth Opportunities Fund
- ----------------------------------------------------------------------------------------------
MidCap Opportunities Fund
- ----------------------------------------------------------------------------------------------
Emerging Markets Value Fund
- ----------------------------------------------------------------------------------------------
Growth + Value Fund
- ----------------------------------------------------------------------------------------------
High Total Return Fund
- ----------------------------------------------------------------------------------------------
High Total Return Fund II
- ----------------------------------------------------------------------------------------------
Income & Growth Fund
- ----------------------------------------------------------------------------------------------
International Value Fund
- ----------------------------------------------------------------------------------------------
Research Enhanced Index Fund
- ----------------------------------------------------------------------------------------------
Balance Sheet Opportunities Fund
- ----------------------------------------------------------------------------------------------
Government Securities Fund
- ----------------------------------------------------------------------------------------------
High Yield Fund III
- ----------------------------------------------------------------------------------------------
</TABLE>
The Rule 12b-1 Plan for the Money Market Fund provides that the distribution fee
is reduced by that amount, if any, paid to the Distributor or any affiliate of
Distributor from the investment adviser or distributor of any investment company
in which the Money Market Fund invests.
These fees may be used to cover the expenses of the Distributor primarily
intended to result in the sale of Class A, Class B, Class C, Class M, Class Q,
and Class T shares of the Funds, including payments to dealers for selling
shares of the Funds and for servicing shareholders of these classes of the
Funds. Activities for which these fees may be used include: promotional
activities; preparation and distribution of advertising materials and sales
literature; expenses of organizing and conducting sales seminars; personnel
costs and overhead of the Distributor; printing of prospectuses and statements
of additional information (and supplements thereto) and reports for other than
existing shareholders; payments to dealers and others that provide shareholder
services; interest on accrued distribution expenses; and costs of administering
the Rule 12b-1 Plans. No more than 0.75% per annum of a Fund's average net
assets may be used to finance distribution expenses, exclusive of shareholder
servicing payments, and no Authorized Dealer may receive shareholder servicing
payments in excess of 0.25% per annum of a Fund's average net assets held by the
Authorized Dealer's clients or customers.
Under the Rule 12b-1 Plans, ongoing payments will be made on a quarterly basis
to Authorized Dealers for both distribution and shareholder servicing at rates
that are based on the average daily net assets of shares
31
<PAGE>
that are registered in the name of that Authorized Dealer as nominee or held in
a shareholder account that designates that Authorized Dealer as the dealer of
record. The rates, on an annual basis, are as follows: 0.25% for Class A, 0.25%
for Class B, 1.00% (.75% for Strategic Income Fund) for Class C, 0.65% (0.40%
for Government Securities Income Fund and High Yield Fund) for Class M, 0.25%
for Class Q, and ___% for Class T. Rights to these ongoing payments begin to
accrue in the 13th month following a purchase of Class A, B or C shares and in
the 1st month following a purchase of Class M and Class Q shares.
The Distributor will be reimbursed for its actual expenses incurred under a Rule
12b-1 Plan with respect to Class A shares of MagnaCap Fund, High Yield Fund and
Government Securities Income Fund. The Distributor has incurred costs and
expenses with respect to Class A shares that may be reimbursable in future
months or years in the amounts of $__________ for MagnaCap Fund (____% of its
net assets), $__________ for High Yield Fund (____% of its net assets), and
$__________ for Government Securities Income Fund (____% of its net assets) as
of June 30, 1999. With respect to Class A shares of each other Fund and Class B,
Class C, Class M, Class Q, and Class T shares of each Fund that offers the
class, the Distributor will receive payment without regard to actual
distribution expenses it incurs. In the event a Rule 12b-1 Plan is terminated in
accordance with its terms, the obligations of a Fund to make payments to the
Distributor pursuant to the Rule 12b-1 Plan will cease and the Fund will not be
required to make any payments for expenses incurred after the date the Plan
terminates.
In addition to providing for the expenses discussed above, the Rule 12b-1 Plans
also recognize that the Investment Manager and/or the Distributor may use their
resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Funds' shares and other funds
managed by the Investment Manager. In some instances, additional compensation or
promotional incentives may be offered to dealers. Such compensation and
incentives may include, but are not limited to, cash, merchandise, trips and
financial assistance to dealers in connection with pre-approved conferences or
seminars, sales or training programs for invited sales personnel, payment for
travel expenses (including meals and lodging) incurred by sales personnel and
members of their families, or other invited guests, to various locations for
such seminars or training programs, seminars for the public, advertising and
sales campaigns regarding one or more of the Funds or other funds managed by the
Investment Manager and/or other events sponsored by dealers. In addition, the
Distributor may, at its own expense, pay concessions in addition to those
described above to dealers that satisfy certain criteria established from time
to time by the Distributor. These conditions relate to increasing sales of
shares of the Funds over specified periods and to certain other factors. These
payments may, depending on the dealer's satisfaction of the required conditions,
be periodic and may be up to (1) 0.30% of the value of the Funds' shares sold by
the dealer during a particular period, and (2) 0.10% of the value of the Funds'
shares held by the dealer's customers for more than one year, calculated on an
annual basis.
The Rule 12b-1 Plans have been approved by the Board of Directors of each Fund,
including all of the Directors who are not interested persons of the Company as
defined in the 1940 Act. Each Rule 12b-1 Plan must be renewed annually by the
Board of Directors, including a majority of the Directors who are not interested
persons of the Company and who have no direct or indirect financial interest in
the operation of the Rule 12b-1 Plan, cast in person at a meeting called for
that purpose. It is also required that the selection and nomination of such
Directors be committed to the Directors who are not interested persons. Each
Rule 12b-1 Plan and any distribution or service agreement may be terminated as
to a Fund at any time, without any penalty, by such Directors or by a vote of a
majority of the Fund's outstanding shares on 60 days written notice. The
Distributor or any dealer or other firm may also terminate their respective
distribution or service agreement at any time upon written notice.
In approving each Rule 12b-1 Plan, the Board of Directors has determined that
differing distribution arrangements in connection with the sale of new shares of
a Fund is necessary and appropriate in order to meet the needs of different
potential investors. Therefore, the Board of Directors, including those
Directors who are not interested persons of the Company, concluded that, in the
exercise of their reasonable business judgment and in light of their fiduciary
duties, there is a reasonable likelihood that the Rule 12b-1 Plans as tailored
to each class of each Fund, will benefit such Funds and their respective
shareholders.
32
<PAGE>
Each Rule 12b-1 Plan and any distribution or service agreement may not be
amended to increase materially the amount spent for distribution expenses as to
a Fund without approval by a majority of the Fund's outstanding shares, and all
material amendments to a Plan or any distribution or service agreement shall be
approved by the Directors who are not interested persons of the Company, cast in
person at a meeting called for the purpose of voting on any such amendment.
The Distributor is required to report in writing to the Board of Directors at
least quarterly on the monies reimbursed to it under each Rule 12b-1 Plan, as
well as to furnish the Board with such other information as may be reasonably be
requested in connection with the payments made under the Rule 12b-1 Plan in
order to enable the Board to make an informed determination of whether the Rule
12b-1 Plan should be continued.
During their fiscal year ended December 31, 1998, each class of shares of the
Funds listed below paid the following 12b-1 distribution and service fees
pursuant to the Plan for each class:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------
Class A Class B Class C Class M Class Q Class T
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
MidCap Opportunities Fund........
SmallCap Opportunities Fund......
Growth Opportunities Fund........
Balance Sheet Opportunities Fund.
Government Securities Fund.......
High Yield Fund III..............
</TABLE>
During their fiscal year ended June 30, 1999, each class of shares of the Funds
listed below paid the following 12b-1 distribution and service fees pursuant to
the Plan for each class:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
Class A Class B Class C Class M Class Q Class T
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Bank and Thrift Fund..............
LargeCap Leaders Fund.............
MidCap Value Fund.................
Asia-Pacific Equity Fund..........
MagnaCap Fund.....................
High Yield Fund...................
International Core Growth Fund....
Worldwide Growth Fund.............
International SmallCap Growth Fund
Emerging Countries Fund...........
LargeCap Growth Fund..............
MidCap Growth Fund................
SmallCap Growth Fund..............
Convertible Fund..................
Balanced Fund.....................
High Yield Fund II................
Strategic Income Fund.............
Money Market Fund.................
Government Securities Income Fund.
</TABLE>
33
<PAGE>
During their fiscal year ended October 31, 1999, each class of shares of the
Funds listed below paid the following 12b-1 distribution and service fees
pursuant to the Plan for each class:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
Class A Class B Class C Class M Class Q Class T
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets Value Fund....
Growth + Value Fund............
High Total Return Fund.........
High Total Return Fund II .....
Income & Growth Fund...........
International Value Fund.......
Research Enhanced Index Fund...
</TABLE>
During their fiscal year ended December 31, 1998, expenses incurred by the
Distributor for distribution-related activities with respect to each class of
shares of each Fund listed below were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Distribution Expenses Class A Class B Class C Class M Class Q Class T
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
MidCap Opportunities Fund
- -------------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
SmallCap Opportunities Fund
- ---------------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Growth Opportunities Fund
- -------------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Balance Sheet Opportunities Fund
- --------------------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Government Securities Fund
- --------------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Distribution Expenses Class A Class B Class C Class M Class Q Class T
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
High Yield Fund III
- -------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
</TABLE>
During their fiscal year ended June 30, 1999, expenses incurred by the
Distributor for distribution-related activities with respect to each class of
shares of each Fund listed below were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Distribution Expenses Class A Class B Class C Class M Class Q Class T
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Bank and Thrift Fund
- --------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
LargeCap Leaders Fund
- ---------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
MidCap Value Fund
- -----------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Asia-Pacific Equity Fund
- ------------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
MagnaCap Fund
- -------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Distribution Expenses Class A Class B Class C Class M Class Q Class T
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
High Yield Fund
- ---------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
International Core Growth Fund
- ------------------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
International SmallCap Growth Fund
- ----------------------------------
Advertising.......................
Printing..........................
Salaries and Commissions..........
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Worldwide Growth Fund
- ----------------------
Advertising.......................
Printing..........................
Salaries and Commissions..........
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Emerging Countries Fund
- -----------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
LargeCap Growth Fund
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
MidCap Growth Fund
- ------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
SmallCap Growth Fund
- --------------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Convertible Fund
- ----------------
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Distribution Expenses Class A Class B Class C Class M Class Q Class T
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
High Yield Fund II
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Strategic Income Fund
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Money Market Fund
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Government Securities Income Fund
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
</TABLE>
During their fiscal year ended October 31, 1999, expenses incurred by the
Distributor for distribution-related activities with respect to each class of
shares of each Fund listed below were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Distribution Expenses Class A Class B Class C Class M Class Q Class T
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Emerging Markets Value Fund
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Distribution Expenses Class A Class B Class C Class M Class Q Class T
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Growth + Value Fund
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
High Total Return Fund
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
High Total Return Fund II
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Income & Growth Fund
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
International Value Fund
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
Research Enhanced Index Fund
Advertising.......................
Printing..........................
Salaries & Commissions............
Broker Servicing..................
Miscellaneous.....................
Total.............................
- -------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
Total distribution expenses incurred by the Distributor for the costs of
promotion and distribution of each Fund's Class A, B, C, M, and Q shares for the
fiscal year ended June 30, 1999 were as follows (the Funds did not offer Class C
or Class Q shares until May 24, 1999):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Distribution Expenses Class A Class B Class C Class M Class Q
------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Asia-Pacific Equity Fund
Advertising ........................... $ 6,014 $ 4,607 $ 2,175
Printing .............................. 16,261 12,455 5,881
Salaries & Commissions ................ 279,677 214,221 101,160
Broker Servicing ...................... 35,497 27,189 12,839
Miscellaneous ......................... 8,977 6,876 3,247
Total ................................. 346,426 265,348 125,302
- ------------------------------------------------------------------------------------------------------
MidCap Value Fund
Advertising ........................... $ 7,766 $ 11,421 $ 3,655
Printing .............................. 20,998 30,879 9,881
Salaries & Commissions ................ 230,972 339,665 108,693
Broker Servicing ...................... 46,000 67,647 21,647
Miscellaneous ......................... 11,951 17,575 5,624
Total ................................. 317,687 467,187 149,500
- ------------------------------------------------------------------------------------------------------
LargeCap Leaders Fund
Advertising ........................... $ 2,316 $ 4,811 $ 1,782
Printing .............................. 6,263 13,008 4,818
Salaries & Commissions ................ 73,852 153,386 56,801
Broker Servicing ...................... 13,703 28,461 10,541
Miscellaneous ......................... 3,526 7,323 2,712
Total ................................. 99,660 206,989 76,655
- ------------------------------------------------------------------------------------------------------
MagnaCap Fund
Advertising ........................... $ 55,294 $ 12,599 $ 2,100
Printing .............................. 149,499 34,063 5,677
Salaries & Commissions ................ 1,632,478 371,957 61,993
Broker Servicing ...................... 328,369 74,818 12,470
Miscellaneous ......................... 87,012 19,826 3,304
Total ................................. 2,252,652 513,263 85,544
- ------------------------------------------------------------------------------------------------------
High Yield Fund
Advertising ........................... $ 14,027 $ 21,230 $ 2,654
Printing .............................. 37,925 57,400 7,175
Salaries & Commissions ................ 462,836 700,508 87,563
Broker Servicing ...................... 83,230 125,969 15,746
Miscellaneous ......................... 21,913 33,165 4,146
Total ................................. 619,931 938,272 117,284
- ------------------------------------------------------------------------------------------------------
Bank and Thrift Fund
Advertising ........................... $ 29,701 $ 29,363 N/A
Printing .............................. 6,425 109,808
Salaries & Commissions ................ 238,896 1,050,227
Broker Servicing ...................... 14,053 241,620
Miscellaneous ......................... 4,352 64,980
Total ................................. 293,427 1,495,998
- ------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Distribution Expenses Class A Class B Class C Class M Class Q
------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Government Securities Income $ 70
Fund 188
Advertising ........................... $ 6,061 $ 836 1,955
Printing .............................. 16,386 2,260 413
Salaries & Commissions ................ 170,071 23,458 108
Broker Servicing ...................... 35,924 4,955 2,734
Miscellaneous ......................... 9,393 1,296
Total ................................. 237,835 32,805
- ------------------------------------------------------------------------------------------------------
</TABLE>
Prior to May 24, 1999, the Trust had a Distribution Plan with respect to each
Class of each Pilgrim Mutual Funds (other than the Money Market Fund) and a
separate Shareholder Service Plan with respect to each Class of each Fund (other
than the Money Market Fund). Under the Distribution Plan, NAS (the Distributor's
predecessor) was entitled to payment each month in the following amounts: with
respect to Class A shares at an annual rate of up to 0.10% of the average daily
net assets of the Class A shares of a Fund; with respect to Class B shares at an
annual rate of up to 0.75% of the average daily net assets of the Class B shares
of a Fund; and with respect to Class C shares at an annual rate of up to 0.75%
of the average daily net assets of the Class C shares of a Fund. The
Distribution Plan did not apply to Class Q shares. Under the Distribution Plan,
NAS was paid without regard to actual distribution expenses it incurred. The
aggregate amounts earned by NAS pursuant to that Distribution Plan for the
fiscal year ended June 30, 1999, were as follows:
Fund Name 12b-1 Payments
- --------- --------------
International Core Growth Fund $ 174,064
Worldwide Growth Fund 822,399
International SmallCap Growth Fund 208,084
Emerging Countries Fund 549,129
LargeCap Growth Fund 102,429
MidCap Growth Fund 1,526,263
SmallCap Growth Fund 1,874,462
Convertible Fund 1,108,863
Balanced Fund 210,891
Strategic Income Fund 52,773
High Yield Fund II 411,227
Under the Shareholder Service Plan for the Pilgrim Mutual Funds, NAS was
entitled to payment each month in the following amounts: with respect to Class A
shares at an annual rate of up to 0.25% of the average daily net assets of the
Class A shares of a Fund; with respect to Class B shares at an annual rate of up
to 0.25% of the average daily net assets of the Class B shares of a Fund; with
respect to Class C shares at an annual rate of up to 0.25% of the average daily
net assets of the Class C shares of a Fund; and with respect to Class Q shares
at an annual rate of up to 0.25% of the average daily net assets of the Class Q
shares of a Fund. Under the Shareholder Service Plan, NAS was paid only with
respect to expenses actually incurred. If expenses incurred by NAS exceeded the
amount of the shareholder service fee in a particular month, the excess amount
would be carried forward and recovered in a future period if NAS's actual
expenses were less than the shareholder service fee. However, effective May 24,
1999, the Funds were no longer responsible for those excess amounts.
Under the Glass-Steagall Act and other applicable laws, certain banking
institutions are prohibited from distributing investment company shares.
Accordingly, such banks may only provide certain agency or administrative
services to their customers for which they may receive a fee from the
Distributor under a Rule 12b-1 Plan. If a bank were prohibited from providing
such services, shareholders would be permitted to remain as Fund shareholders
and alternate means for continuing the servicing of such shareholders would be
sought. In such event, changes in services provided might occur and such
shareholders might no longer
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be able to avail themselves of any automatic investment or other service then
being provided by the bank. It is not expected that shareholders would suffer
any adverse financial consequences as a result of any of these occurrences.
Shareholder Servicing Agent. Pilgrim Group, Inc. serves as Shareholder Servicing
Agent for the Funds. The Shareholder Servicing Agent is responsible for
responding to written and telephonic inquiries from shareholders. Each Fund pays
the Shareholder Servicing Agent a monthly fee on a per-contact basis, based upon
incoming and outgoing telephonic and written correspondence.
Other Expenses. In addition to the management fee and other fees described
previously, each Fund pays other expenses, such as legal, audit, transfer agency
and custodian out-of-pocket fees, proxy solicitation costs, and the compensation
of Directors who are not affiliated with the Investment Manager. Most Fund
expenses are allocated proportionately among all of the outstanding shares of
that Fund. However, the Rule 12b-1 Plan fees for each class of shares are
charged proportionately only to the outstanding shares of that class.
SUPPLEMENTAL DESCRIPTION OF INVESTMENTS
Some of the different types of securities in which the Funds may invest, subject
to their respective investment objectives, policies and restrictions, are
described in the Prospectus under "The Funds," "Investment Objectives and
Policies," and "Investment Practices and Risk Considerations." Additional
information concerning the characteristics and risks of certain of the Funds'
investments are set forth below. There can be no assurance that any of the Funds
will achieve their investment objectives. References to the Money Market Fund
include investments by the Primary Fund in which it invests.
Temporary Defensive and Other Short-Term Positions. Each Fund's assets (other
than the Money Market Fund whose investments are typically short-term) may be
invested in certain short-term, high-quality debt instruments (and, in the case
of Bank and Thrift Fund, investment grade debt instruments) and in U.S.
Government securities for the following purposes: (i) to meet anticipated
day-to-day operating expenses; (ii) pending the Investment Manager's or
Portfolio Manager's ability to invest cash inflows; (iii) to permit the Fund to
meet redemption requests; and (iv) for temporary defensive purposes. A Fund for
which the investment objective is capital appreciation may also invest in such
securities if the Fund's assets are insufficient for effective investment in
equities.
Although it is expected that each Fund will normally be invested consistent with
its investment objectives and policies, the short-term instruments in which a
Fund (except Government Securities Income Fund) may invest include: (i)
short-term obligations of the U.S. Government and its agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities; (iii) commercial paper, including master notes; (iv) bank
obligations, including certificates of deposit, time deposits and bankers'
acceptances; and (v) repurchase agreements. LargeCap Leaders Fund, MidCap Value
Fund and Asia-Pacific Equity Fund may also invest in long-term U.S. Government
securities and money market funds, while Asia-Pacific Equity Fund may invest in
short-term obligations of foreign governments and their agencies,
instrumentalities, authorities, or political subdivisions. The short-term
instruments in which Government Securities Income Fund may invest include
short-term U.S. Government securities and repurchase agreements on U.S.
Government securities. The Funds will normally invest in short-term instruments
that do not have a maturity of greater than one year.
Common Stock, Convertible Securities and Other Equity Securities. Each Fund
(other than Government Securities Income Fund and the Money Market Fund) may
invest in common stocks, which represent an equity (ownership) interest in a
company. This ownership interest generally gives a Fund the right to vote on
issues affecting the company's organization and operations. Such investments
will be diversified over a cross-section of industries and individual companies.
For Funds other than the LargeCap Growth Fund, some of these companies will be
organizations with market capitalizations of $500 million or less or companies
that have limited product lines, markets and financial resources and are
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dependent upon a limited management group. Examples of possible investments
include emerging growth companies employing new technology, cyclical companies,
initial public offerings of companies offering high growth potential, or other
corporations offering good potential for high growth in market value. The
securities of such companies may be subject to more abrupt or erratic market
movements than larger, more established companies both because the securities
typically are traded in lower volume and because the issuers typically are
subject to a greater degree to changes in earnings and prospects.
Each Fund (other than the Money Market Fund) may also buy other types of equity
securities such as convertible securities, preferred stock, and warrants or
other securities that are exchangeable for shares of common stock. A convertible
security is a security that may be converted either at a stated price or rate
within a specified period of time into a specified number of shares of common
stock. By investing in convertible securities, a Fund seeks the opportunity,
through the conversion feature, to participate in the capital appreciation of
the common stock into which the securities are convertible, while investing at a
better price than may be available on the common stock or obtaining a higher
fixed rate of return than is available on common stocks. The value of a
convertible security is a function of its "investment value" (determined by its
yield in comparison with the yields of other securities of comparable maturity
and quality that do not have a conversion privilege) and its "conversion value"
(the security's worth, at market value, if converted into the underlying common
stock). The credit standing of the issuer and other factors may also affect the
investment value of a convertible security. The conversion value of a
convertible security is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value, the
price of the convertible security is governed principally by its investment
value. To the extent the market price of the underlying common stock approaches
or exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value.
The market value of convertible debt securities tends to vary inversely with the
level of interest rates. The value of the security declines as interest rates
increase and increases as interest rates decline. Although under normal market
conditions longer term debt securities have greater yields than do shorter term
debt securities of similar quality, they are subject to greater price
fluctuations. A convertible security may be subject to redemption at the option
of the issuer at a price established in the instrument governing the convertible
security. If a convertible security held by a Fund is called for redemption, the
Fund must permit the issuer to redeem the security, convert it into the
underlying common stock or sell it to a third party. Rating requirements do not
apply to convertible debt securities purchased by the Funds because the Funds
purchase such securities for their equity characteristics.
As a matter of operating policy, each fund which comprises the Pilgrim Mutual
Funds will invest more than 5% of its net assets in warrants. A warrant gives
the holder a right to purchase at any time during a specified period a
predetermined number of shares of common stock at a fixed price. Unlike
convertible debt securities or preferred stock, warrants do not pay a fixed
dividend. Investments in warrants involve certain risks, including the possible
lack of a liquid market for resale of the warrants, potential price fluctuations
as a result of speculation or other factors, and failure of the price of the
underlying security to reach or have reasonable prospects of reaching a level at
which the warrant can be prudently exercised (in which event the warrant may
expire without being exercised, resulting in a loss of the Fund's entire
investment therein).
Each fund which comprises the Pilgrim Mutual Funds (other than the Money Market
Fund) may invest in "synthetic" convertible securities, which are derivative
positions composed of two or more different securities whose investment
characteristics, taken together, resemble those of convertible securities. For
example, a fund may purchase a non-convertible debt security and a warrant or
option, which enables the fund to have a convertible-like position with respect
to a company, group of companies or stock index. Synthetic convertible
securities are typically offered by financial institutions and investment banks
in private placement transactions. Upon conversion, the fund generally receives
an amount in cash equal to the difference between the conversion price and the
then current value of the underlying security. Unlike a true convertible
security, a synthetic convertible comprises two or more separate securities,
each with its own market value. Therefore, the market value of a synthetic
convertible is the sum of the values of its
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fixed-income component and its convertible component. For this reason, the
values of a synthetic convertible and a true convertible security may respond
differently to market fluctuations. A Fund only invests in synthetic
convertibles with respect to companies whose corporate debt securities are rated
"A" or higher by Moody's or "A" or higher by S&P and will not invest more than
15% of its net assets in such synthetic securities and other illiquid
securities.
The MidCap Value Fund will invest substantially all of its assets, and LargeCap
Leaders Fund, Asia-Pacific Equity Fund, and Bank and Thrift Fund may invest, in
the equity securities of certain midcap companies. Midcap companies will tend to
be smaller, more emerging companies and investment in these companies may
involve greater risk than is customarily associated with securities of larger,
more established companies. Midcap companies may experience relatively higher
growth rates and higher failure rates than do larger companies. The trading
volume of securities of midcap companies is normally less than that of larger
companies and, therefore, may disproportionately affect their market price,
tending to make them rise more in response to buying demand and fall more in
response to selling pressure than is the case with larger companies.
Preferred Stock
Each Fund (other than the Money Market Fund) may invest in preferred stock.
Preferred stock, unlike common stock, offers a stated dividend rate payable from
a corporation's earnings. Such preferred stock dividends may be cumulative or
non-cumulative, participating, or auction rate. If interest rates rise, the
fixed dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a negative
feature when interest rates decline. Dividends on some preferred stock may be
"cumulative," requiring all or a portion of prior unpaid dividends to be paid
before dividends are paid on the issuer's common stock. Preferred stock also
generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. The rights of preferred stocks on the
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
Eurodollar Convertible Securities
Each fund which comprises the Pilgrim Mutual Funds (other than the Money Market
Fund) may invest in Eurodollar convertible securities, which are fixed-income
securities of a U.S. issuer or a foreign issuer that are issued outside the
United States and are convertible into equity securities of the same or a
different issuer. Interest and dividends on Eurodollar securities are payable in
U.S. dollars outside of the United States. The Funds may invest without
limitation in Eurodollar convertible securities that are convertible into
foreign equity securities listed, or represented by ADRs listed, on the New York
Stock Exchange or the American Stock Exchange or convertible into publicly
traded common stock of U.S. companies. The Funds may also invest up to 15% of
its total assets invested in convertible securities, taken at market value, in
Eurodollar convertible securities that are convertible into foreign equity
securities which are not listed, or represented by ADRs listed, on such
exchanges.
Eurodollar and Yankee Dollar Instruments
Each fund which comprises the Pilgrim Mutual Funds may invest in Eurodollar and
Yankee Dollar instruments. Eurodollar instruments are bonds that pay interest
and principal in U.S. dollars held in banks outside the United States, primarily
in Europe. Eurodollar instruments are usually issued on behalf of multinational
companies and foreign governments by large underwriting groups composed of banks
and issuing houses from many countries. Yankee Dollar instruments are U.S.
dollar denominated bonds issued in the U.S. by foreign banks and corporations.
These investments involve risks that are different from investments in
securities issued by U.S. issuers. See "Foreign Investment Considerations."
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Securities of Banks and Thrifts
The Bank and Thrift Fund invests primarily in equity securities of banks and
thrifts. A `money center bank' is a bank or bank holding company that is
typically located in an international financial center and has a strong
international business with a significant percentage of its assets outside the
United States. `Regional banks' are banks and bank holding companies which
provide full service banking, often operating in two or more states in the same
geographic area, and whose assets are primarily related to domestic business.
Regional banks are smaller than money center banks and also may include banks
conducting business in a single state or city and banks operating in a limited
number of states in one or more geographic regions. The third category which
constitutes the majority in number of banking organizations are typically
smaller institutions that are more geographically restricted and less well-known
than money center banks or regional banks and are commonly described as
`community banks.'
The Bank and Thrift Fund may invest in the securities of banks or thrifts that
are relatively smaller, engaged in business mostly within their geographic
region, and are less well-known to the general investment community than money
center and larger regional banks. The shares of depository institutions in which
the Fund may invest may not be listed or traded on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System (`NASDAQ'); as a result there may be limitations on the Fund's
ability to dispose of them at times and at prices that are most advantageous to
the Fund.
The profitability of banks and thrifts is largely dependent upon interest rates
and the resulting availability and cost of capital funds over which these
concerns have limited control, and, in the past, such profitability has shown
significant fluctuation as a result of volatile interest rate levels. In
addition, general economic conditions are important to the operations of these
concerns, with exposure to credit losses resulting from financial difficulties
of borrowers.
Changes in state and Federal law are producing significant changes in the
banking and financial services industries. Deregulation has resulted in the
diversification of certain financial products and services offered by banks and
financial services companies, creating increased competition between them. In
addition, state and federal legislation authorizing interstate acquisitions as
well as interstate branching has facilitated the increasing consolidation of the
banking and thrift industries. Although regional banks involved in intrastate
and interstate mergers and acquisitions may benefit from such regulatory
changes, those which do not participate in such consolidation may find that it
is increasingly difficult to compete effectively against larger banking
combinations. Proposals to change the laws and regulations governing banks and
companies that control banks are frequently introduced at the federal and state
levels and before various bank regulatory agencies. The likelihood of any
changes and the impact such changes might have are impossible to determine.
The last few years have seen a significant amount of regulatory and legislative
activity focused on the expansion of bank powers and diversification of services
that banks may offer. These expanded powers have exposed banks to
well-established competitors and have eroded the distinctions between regional
banks, community banks, thrifts and other financial institutions.
The thrifts in which the Bank and Thrift Fund invests generally are subject to
the same risks as banks discussed above. Such risks include interest rate
changes, credit risks, and regulatory risks. Because thrifts differ in certain
respects from banks, however, thrifts may be affected by such risks in a
different manner than banks. Traditionally, thrifts have different and less
diversified products than banks, have a greater concentration of real estate in
their lending portfolio, and are more concentrated geographically than banks.
Thrifts and their holding companies are subject to extensive government
regulation and supervision including regular examinations of thrift holding
companies by the Office of Thrift Supervision (the `OTS'). Such regulations have
undergone substantial change since the 1980's and will probably change in the
next few years.
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Short-Term Investments
The Funds may invest in the following securities and instruments:
Bank Certificates of Deposit, Bankers' Acceptances and Time Deposits. The Funds
may acquire certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Funds will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
principal amount of such bank obligations are fully insured by the U.S.
Government. The Primary Institutional Fund in which the Money Market Fund
invests substantially all of its assets, requires that the foreign banks whose
obligations it acquires have capital, surplus and undivided profits of $25
billion.
A Fund holding instruments of foreign banks or financial institutions may be
subject to additional investment risks that are different in some respects from
those incurred by a fund which invests only in debt obligations of U.S. domestic
issuers. See "Foreign Investments" below. Domestic banks and foreign banks are
subject to different governmental regulations with respect to the amount and
types of loans which may be made and interest rates which may be charged. In
addition, the profitability of the banking industry depends largely upon the
availability and cost of funds for the purpose of financing lending operations
under prevailing money market conditions. General economic conditions as well as
exposure to credit losses arising from possible financial difficulties of
borrowers play an important part in the operations of the banking industry.
Federal and state laws and regulations require domestic banks to maintain
specified levels of reserves, limited in the amount which they can loan to a
single borrower, and subject to other regulations designed to promote financial
soundness. However, such laws and regulations do not necessarily apply to
foreign bank obligations that a Fund may acquire.
In addition to purchasing certificates of deposit and bankers' acceptances, to
the extent permitted under their respective investment objectives and policies
stated above and in their Prospectuses, the Funds may make interest-bearing time
or other interest-bearing deposits in commercial or savings banks. Time deposits
are non-negotiable deposits maintained at a banking institution for a specified
period of time at a specified interest rate.
Savings Association Obligations. The Funds that comprise the Pilgrim Mutual
Funds may invest in certificates of deposit (interest-bearing time deposits)
issued by savings banks or savings and loan associations that have capital,
surplus and undivided profits in excess of $100 million, based on latest
published reports, or less than $100 million if the principal amount of such
obligations is fully insured by the U.S. Government.
Commercial Paper, Short-Term Notes and Other Corporate Obligations. The Funds
may invest a portion of their assets in commercial paper and short-term notes.
Commercial paper consists of unsecured promissory notes issued by corporations.
Issues of commercial paper and short-term notes will normally have maturities of
less than nine months and fixed rates of return, although such instruments may
have maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at the time
of purchase "A-2" or higher (A-1 for the Primary Institutional Fund in which the
Money Market Fund invests substantially all of its assets) by S&P, "Prime-1" or
"Prime-2" by Moody's (Prime-1 for the Primary Institutional Fund in which the
Money Market Fund invests substantially all of its assets), or similarly rated
by another nationally recognized statistical rating organization or, if unrated,
will be determined by the Investment Manager or Portfolio Manager to be of
comparable quality. These rating symbols are described in
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Appendix A.
Corporate obligations include bonds and notes issued by corporations to finance
longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, the Funds (other
than Money Market Fund) may purchase corporate obligations which have remaining
maturities of one year or less from the date of purchase and which are rated
"AA" or higher by S&P or "Aa" or higher by Moody's.
U.S. Government Securities. The Funds may invest in U.S. Government securities
which include instruments issued by the U.S. Treasury, such as bills, notes and
bonds. These instruments are direct obligations of the U.S. Government and, as
such, are backed by the full faith and credit of the United States. They differ
primarily in their interest rates, the lengths of their maturities and the dates
of their issuances. In addition, U.S. Government securities include securities
issued by instrumentalities of the U.S. Government, such as the Government
National Mortgage Association, which are also backed by the full faith and
credit of the United States. Also included in the category of U.S. Government
securities are instruments issued by instrumentalities established or sponsored
by the U.S. Government, such as the Student Loan Marketing Association, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation. While these securities are issued, in general, under the authority
of an Act of Congress, the U.S. Government is not obligated to provide financial
support to the issuing instrumentalities, although under certain conditions
certain of these authorities may borrow from the U.S. Treasury. In the case of
securities not backed by the full faith and credit of the U.S., the investor
must look principally to the agency or instrumentality issuing or guaranteeing
the obligation for ultimate repayment, and may not be able to assert a claim
against the U.S. itself in the event the agency or instrumentality does not meet
its commitment. Each Fund will invest in securities of such agencies or
instrumentalities only when the Portfolio Manager is satisfied that the credit
risk with respect to any instrumentality is comparable to the credit risk of
U.S. government securities backed by the full faith and credit of the United
States.
Municipal Securities
The Funds that comprise the Pilgrim Mutual Funds (other than the Money Market
Fund) may invest in debt obligations issued by state and local governments,
territories and possessions of the U.S., regional government authorities, and
their agencies and instrumentalities ("municipal securities"). Municipal
securities include both notes (which have maturities of less than one year) and
bonds (which have maturities of one year or more) that bear fixed or variable
rates of interest.
In general, "municipal securities" debt obligations are issued to obtain funds
for a variety of public purposes, such as the construction, repair, or
improvement of public facilities including airports, bridges, housing,
hospitals, mass transportation, schools, streets, water and sewer works.
Municipal securities may be issued to refinance outstanding obligations as well
as to raise funds for general operating expenses and lending to other public
institutions and facilities.
The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Characteristics and methods of
enforcement of general obligation bonds vary according to the law applicable to
a particular issuer, and the taxes that can be levied for the payment of debt
service may be limited or unlimited as to rates or amounts of special
assessments. Revenue securities are payable only from the revenues derived from
a particular facility, a class of facilities or, in some cases, from the
proceeds of a special excise tax. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service reserve
fund the assets of which may be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent subsidized and
collateralized mortgages, and the net revenues from housing or other public
projects. Some authorities are provided further security in the form of a
state's assistance
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(although without obligation) to make up deficiencies in the debt service
reserve fund.
The Funds may purchase insured municipal debt in which scheduled payments of
interest and principal are guaranteed by a private, non-governmental or
governmental insurance company. The insurance does not guarantee the market
value of the municipal debt or the value of the shares of the Fund.
Securities of issuers of municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Bankruptcy Reform Act of 1978. In addition, the
obligations of such issuers may become subject to laws enacted in the future by
Congress, state legislatures or referenda extending the time for payment of
principal or interest, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. Furthermore, as
a result of legislation or other conditions, the power or ability of any issuer
to pay, when due, the principal of and interest on its municipal obligations may
be materially affected.
Moral Obligation Securities
Municipal securities may include "moral obligation" securities which are usually
issued by special purpose public authorities. If the issuer of moral obligation
bonds cannot fulfill its financial responsibilities from current revenues, it
may draw upon a reserve fund, the restoration of which is moral commitment but
not a legal obligation of the state or municipality which created the issuer.
Industrial Development and Pollution Control Bonds
The Funds that comprise the Pilgrim Mutual Funds (other than the Money Market
Fund) may invest in tax-exempt industrial development bonds and pollution
control bonds which, in most cases, are revenue bonds and generally are not
payable from the unrestricted revenues of an issuer. They are issued by or on
behalf of public authorities to raise money to finance privately operated
facilities for business, manufacturing, housing, sport complexes, and pollution
control. Consequently, the credit quality of these securities is dependent upon
the ability of the user of the facilities financed by the bonds and any
guarantor to meet its financial obligations.
Municipal Lease Obligations
The Funds that comprise the Pilgrim Mutual Funds (other than the Money Market
Fund) may invest in lease obligations or installment purchase contract
obligations of municipal authorities or entities ("municipal lease
obligations"). Although lease obligations do not constitute general obligations
of the municipality for which its taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate and
make the payment due under the lease obligation. A Fund may also purchase
"certificates of participation," which are securities issued by a particular
municipality or municipal authority to evidence a proportionate interest in base
rental or lease payments relating to a specific project to be made by the
municipality, agency or authority. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in any year unless
money is appropriated for such purpose for such year. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of default and foreclosure might prove
difficult. In addition, these securities represent a relatively new type of
financing, and certain lease obligations may therefore be considered to be
illiquid securities.
The Funds will attempt to minimize the special risks inherent in municipal lease
obligations and certificates of participation by purchasing only lease
obligations which meet the following criteria: (1) rated A or better by at least
one nationally recognized securities rating organization; (2) secured by
payments from a governmental lessee which has actively traded debt obligations;
(3) determined by the Investment Manager or Portfolio Manager to be critical to
the lessee's ability to deliver essential services; and (4) contain legal
features which the Investment Manager or Portfolio Manager deems appropriate,
such as covenants to make lease payments without the right of offset or
counterclaim, requirements for insurance policies, and adequate debt service
reserve funds.
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Short-Term Municipal Obligations
The Funds that comprise the Pilgrim Mutual Funds (other than the Money Market
Fund) may invest in short-term municipal obligations. These securities include
the following:
Tax Anticipation Notes are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
to be payable from these specific future taxes. They are usually general
obligations of the issuer, secured by the taxing power of the municipality for
the payment of principal and interest when due.
Revenue Anticipation Notes are issued in expectation of receipt of other kinds
of revenue, such as federal revenues available under the Federal Revenue Sharing
Program. They also are usually general obligations of the issuer.
Bond Anticipation Notes normally are issued to provide interim financing until
long-term financing can be arranged. The long-term bonds then provide the money
for the repayment of the notes.
Construction Loan Notes are sold to provide construction financing for specific
projects. After successful completion and acceptance, many projects receive
permanent financing through the Federal National Mortgage Association or the
Government National Mortgage Association.
Short-Term Discount Notes (tax-exempt commercial paper) are short-term (365 days
or less) promissory notes issued by municipalities to supplement their cash
flow.
Variable and Floating Rate Instruments
The Funds that comprise the Pilgrim Mutual Funds (other than the Money Market
Fund) may acquire variable and floating rate instruments. Credit rating agencies
frequently do not rate such instruments; however, the Investment Manager or
Portfolio Manager will determine what unrated and variable and floating rate
instruments are of comparable quality at the time of the purchase to rated
instruments eligible for purchase by the Fund. An active secondary market may
not exist with respect to particular variable or floating rate instruments
purchased by a Fund. The absence of such an active secondary market could make
it difficult for the Fund to dispose of the variable or floating rate instrument
involved in the event of the issuer of the instrument defaulting on its payment
obligation or during periods in which the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss to
the extent of the default. Variable and floating rate instruments may be secured
by bank letters of credit.
Index and Currency-Linked Securities
The Funds that comprise the Pilgrim Mutual Funds (other than the Money Market
Fund) may invest in "index-linked" or "commodity-linked" notes, which are debt
securities of companies that call for interest payments and/or payment at
maturity in different terms than the typical note where the borrower agrees to
make fixed interest payments and to pay a fixed sum at maturity. Principal
and/or interest payments on an index-linked note depend on the performance of
one or more market indices, such as the S&P 500 Index or a weighted index of
commodity futures such as crude oil, gasoline and natural gas. The Funds may
also invest in "equity linked" and "currency-linked" debt securities. At
maturity, the principal amount of an equity-linked debt security is exchanged
for common stock of the issuer or is payable in an amount based on the issuer's
common stock price at the time of maturity. Currency-linked debt securities are
short-term or intermediate term instruments having a value at maturity, and/or
an interest rate, determined by reference to one or more foreign currencies.
Payment of principal or periodic interest may be calculated as a multiple of the
movement of one currency against another currency, or against an index.
Index and currency-linked securities are derivative instruments which may entail
substantial risks. Such instruments may be subject to significant price
volatility. The company issuing the instrument may fail to pay the amount due on
maturity. The underlying investment or security may not perform as expected by
the Investment Manager or Portfolio Manager. Markets, underlying securities and
indexes may move in a
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direction that was not anticipated by the Investment Manager or Portfolio
Manager. Performance of the derivatives may be influenced by interest rate and
other market changes in the U.S. and abroad. Certain derivative instruments may
be illiquid. See "Illiquid Securities" below.
Corporate Debt Securities
Each Fund may invest in corporate debt securities. Corporate debt securities
include corporate bonds, debentures, notes and other similar corporate debt
instruments, including convertible securities. The investment return on a
corporate debt security reflects interest earnings and changes in the market
value of the security. The market value of a corporate debt security will
generally increase when interest rates decline, and decrease when interest rates
rise. There is also the risk that the issuer of a debt security will be unable
to pay interest or principal at the time called for by the instrument.
Investments in corporate debt securities that are rated below investment grade
are described in "High Yield Securities" below.
Debt obligations that are deemed investment grade carry a rating of at least Baa
from Moody's or BBB from Standard and Poor's, or a comparable rating from
another rating agency or, if not rated by an agency, are determined by the
Investment Adviser to be of comparable quality. Bonds rated Baa or BBB have
speculative characteristics and changes in economic circumstances are more
likely to lead to a weakened capacity to make interest and principal payments
than higher rated bonds. The Primary Fund in which the Money Market Fund invests
will invest only in corporate debt securities rated A-1 or above.
Risks of Investing in Debt Securities
There are a number of risks generally associated with an investment in debt
securities (including convertible securities). Yields on short, intermediate,
and long-term securities depend on a variety of factors, including the general
condition of the money and bond markets, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. Debt securities with
longer maturities tend to produce higher yields and are generally subject to
potentially greater capital appreciation and depreciation than obligations with
short maturities and lower yields.
Securities with ratings below "Baa" and/or "BBB" are commonly referred to as
"junk bonds." These bonds are subject to greater market fluctuations and risk of
loss of income and principal than higher rated bonds for a variety of reasons,
including the following:
Sensitivity to Interest Rate and Economic Changes. The economy and interest
rates affect high yield securities differently from other securities. For
example, the prices of high yield bonds have been found to be less sensitive to
interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and interest obligations, to meet
projected business goals, and to obtain additional financing. If the issuer of a
bond defaults, a Fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high yield bonds and the Funds'
asset values.
Payment Expectations. High yield bonds present certain risks based on payment
expectations. For example, high yield bonds may contain redemption and call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a high
yield bond's value will decrease in a rising interest rate market, as will the
value of the Fund's assets. If a Fund experiences unexpected net redemptions, it
may be forced to sell its high yield bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return.
Liquidity and Valuation. To the extent that there is no established retail
secondary market, there may be thin trading of high yield bonds, and this may
impact the Investment Manager's or Portfolio Manager's ability to accurately
value high yield bonds and the Funds' assets and hinder the Funds' ability to
dispose
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of the bonds. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of high yield
bonds, especially in a thinly traded market.
Credit Ratings. Credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield bonds. The rating of an issuer
is also heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. Also, since credit rating agencies may
fail to timely change the credit ratings to reflect subsequent events, the
Investment Manager or Portfolio Manager must monitor the issuers of high yield
bonds in the Funds' portfolios to determine if the issuers will have sufficient
cash flow and profits to meet required principal and interest payments, and to
assure the bonds' liquidity so the Funds can meet redemption requests.
Banking Industry Obligations
Each Fund may invest in banking industry obligations, including certificates of
deposit, bankers' acceptances, and fixed time deposits. The Funds will not
invest in obligations issued by a bank unless (i) the bank is a U.S. bank and a
member of the FDIC and (ii) the bank has total assets of at least $1 billion
(U.S.) or, if not, the Fund's investment is limited to the FDIC-insured amount
of $100,000.
When-Issued Securities and Delayed-Delivery Transactions
In order to secure prices or yields deemed advantageous at the time, the Funds
may purchase or sell securities on a when-issued or a delayed-delivery basis
generally 15 to 45 days after the commitment is made. The Funds will enter into
a when-issued transaction for the purpose of acquiring portfolio securities and
not for the purpose of leverage. In such transactions, delivery of the
securities occurs beyond the normal settlement periods, but no payment or
delivery is made by, and no interest accrues to, the Fund prior to the actual
delivery or payment by the other party to the transaction. Due to fluctuations
in the value of securities purchased on a when-issued or a delayed-delivery
basis, the yields obtained on such securities may be higher or lower than the
yields available in the market on the dates when the investments are actually
delivered to the buyers. Similarly, the sale of securities for delayed-delivery
can involve the risk that the prices available in the market when delivery is
made may actually be higher than those obtained in the transaction itself. Each
Fund will establish a segregated account with the Custodian consisting of cash
and/or liquid assets in an amount equal to the amount of its when-issued and
delayed-delivery commitments which will be "marked to market" daily. Each Fund
will only make commitments to purchase such securities with the intention of
actually acquiring the securities, but the Fund may sell these securities before
the settlement date if it is deemed advisable as a matter of investment
strategy. A Fund may not purchase when issued securities or enter into firm
commitments, if as a result, more than 15% of the Fund's net assets would be
segregated to cover such securities.
When the time comes to pay for the securities acquired on a delayed delivery
basis, a Fund will meet its obligations from the available cash flow, sale of
the securities held in the segregated account, sale of other securities or,
although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a market value greater or less than the
Fund's payment obligation). Depending on market conditions, the Funds could
experience fluctuations in share price as a result of delayed delivery or
when-issued purchases.
High Yield Securities
The High Yield Fund, High Yield Fund III, High Total Return Fund II, the Balance
Sheet Opportunities Fund, and High Total Return Fund each may invest in high
yield securities, which are debt securities that are rated lower than Baa by
Moody's Investors Service or BBB by Standard & Poor's Corporation, or of
comparable quality if unrated.
High yield securities often are referred to as `junk bonds' and include certain
corporate debt obligations, higher yielding preferred stock and mortgage-related
securities, and securities convertible into the foregoing. Investments in high
yield securities generally provide greater income and increased
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opportunity for capital appreciation than investments in higher quality debt
securities, but they also typically entail greater potential price volatility
and principal and income risk.
High yield securities are not considered to be investment grade. They are
regarded as predominantly speculative with respect to the issuing company's
continuing ability to meet principal and interest payments. Also, their yields
and market values tend to fluctuate more than higher-rated securities.
Fluctuations in value do not affect the cash income from the securities, but are
reflected in a Fund's net asset value. The greater risks and fluctuations in
yield and value occur, in part, because investors generally perceive issuers of
lower-rated and unrated securities to be less creditworthy.
The yields earned on high yield securities generally are related to the quality
ratings assigned by recognized rating agencies. The following are excerpts from
Moody's description of its bond ratings: Ba -- judged to have speculative
elements; their future cannot be considered as well assured. B -- generally lack
characteristics of a desirable investment. Caa -- are of poor standing; such
issues may be in default or there may be present elements of danger with respect
to principal or interest. Ca -- speculative in a high degree; often in default.
C -- lowest rate class of bonds; regarded as having extremely poor prospects.
Moody's also applies numerical indicators 1, 2 and 3 to rating categories. The
modifier 1 indicates that the security is in the higher end of its rating
category; 2 indicates a mid-range ranking; and 3 indicates a ranking towards the
lower end of the category. The following are excerpts from S&P's description of
its bond ratings: BB, B, CCC, CC, C -- predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with terms of the
obligation; BB indicates the lowest degree of speculation and C the highest. D
- -- in payment default. S&P applies indicators `+,' no character, and `+' to its
rating categories. The indicators show relative standing within the major rating
categories.
Certain securities held by a Fund may permit the issuer at its option to call,
or redeem, its securities. If an issuer were to redeem securities held by a Fund
during a time of declining interest rates, the Fund may not be able to reinvest
the proceeds in securities providing the same investment return as the
securities redeemed.
The medium- to lower-rated and unrated securities in which the Fund invests tend
to offer higher yields than those of other securities with the same maturities
because of the additional risks associated with them. These risks include:
High Yield Bond Market. A severe economic downturn or increase in interest rates
might increase defaults in high yield securities issued by highly leveraged
companies. An increase in the number of defaults could adversely affect the
value of all outstanding high yield securities, thus disrupting the market for
such securities.
Sensitivity to interest rate and economic changes. High yield securities are
more sensitive to adverse economic changes or individual corporate developments
but less sensitive to interest rate changes than are Treasury or investment
grade bonds. As a result, when interest rates rise, causing bond prices to fall,
the value of high yield debt bonds tend not to fall as much as Treasury or
investment grade corporate bonds. Conversely when interest rates fall, high
yield bonds tend to underperform Treasury and investment grade corporate bonds
because high yield bond prices tend not to rise as much as the prices of these
bonds.
The financial stress resulting from an economic downturn or adverse corporate
developments could have a greater negative effect on the ability of issuers of
high yield securities to service their principal and interest payments, to meet
projected business goals and to obtain additional financing than on more
creditworthy issuers. Holders of high yield securities could also be at greater
risk because high yield securities are generally unsecured and subordinate to
senior debt holders and secured creditors. If the issuer of a High Yield
Security owned by the Funds defaults, the Funds may incur additional expenses to
seek recovery. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of high yield
securities and the Funds' net asset value. Furthermore, in the case of high
yield securities structured as zero coupon or pay-in-kind securities, their
market prices are affected to a greater
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extent by interest rate changes and thereby tend to be more speculative and
volatile than securities which pay in cash.
Payment Expectations. High yield securities present risks based on payment
expectations. For example, high yield securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Funds may have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Also, the value of high
yield securities may decrease in a rising interest rate market. In addition,
there is a higher risk of non-payment of interest and/or principal by issuers of
high yield securities than in the case of investment grade bonds.
Liquidity and Valuation Risks. Lower-rated bonds are typically traded among a
smaller number of broker-dealers rather than in a broad secondary market.
Purchasers of high yield securities tend to be institutions, rather than
individuals, a factor that further limits the secondary market. To the extent
that no established retail secondary market exists, many high yield securities
may not be as liquid as Treasury and investment grade bonds. The ability of a
Fund's Board of Directors to value or sell high yield securities will be
adversely affected to the extent that such securities are thinly traded or
illiquid. Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of high yield
securities more than other securities, especially in a thinly-traded market. To
the extent the Funds owns illiquid or restricted high yield securities, these
securities may involve special registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties. At times of less liquidity, it
may be more difficult to value high yield securities because this valuation may
require more research, and elements of judgment may play a greater role in the
valuation since there is less reliable, objective data available.
Taxation. Special tax considerations are associated with investing in high yield
securities structured as zero coupon or pay-in-kind securities. The Funds report
the interest on these securities as income even though it receives no cash
interest until the security's maturity or payment date.
Limitations of Credit Ratings. The credit ratings assigned to high yield
securities may not accurately reflect the true risks of an investment. Credit
ratings typically evaluate the safety of principal and interest payments, rather
than the market value risk of high yield securities. In addition, credit
agencies may fail to adjust credit ratings to reflect rapid changes in economic
or company conditions that affect a security's market value. Although the
ratings of recognized rating services such as Moody's and S&P are considered,
the Investment Manager primarily relies on its own credit analysis, which
includes a study of existing debt, capital structure, ability to service debts
and to pay dividends, the issuer's sensitivity to economic conditions, its
operating history and the current trend of earnings. Thus, the achievement of
the Funds' investment objective may be more dependent on the Investment
Manager's own credit analysis than might be the case for a fund which invests in
higher quality bonds. The Investment Manager continually monitors the
investments in the Funds' portfolio and carefully evaluates whether to dispose
of or retain high yield securities whose credit ratings have changed. The Funds
may retain a security whose rating has been changed.
Congressional Proposals. New laws and proposed new laws may have a negative
impact on the market for high yield securities. As examples, recent legislation
requires federally-insured savings and loan associations to divest themselves of
their investments in high yield securities and pending proposals are designed to
limit the use of, or tax and eliminate other advantages of, high yield
securities. Any such proposals, if enacted, could have a negative effect on the
Funds' net asset values.
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Derivatives
The Funds may invest in derivative instruments. Generally, derivatives can be
characterized as financial instruments whose performance is derived, at least in
part, from the performance of an underlying asset or assets. Types of
derivatives include options, futures contracts, options on futures and forward
contracts. Derivative Instruments may be used for a variety of reasons,
including to enhance return, hedge certain market risks, or provide a substitute
for purchasing or selling particular securities. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest than
"traditional" securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (i.e., margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result, unless
the clearing agency defaults, there is relatively little counterparty credit
risk associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each party
to an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, the Funds will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as they would
review the credit quality of a security to be purchased by a Fund.
Over-the-counter Derivatives are less liquid than exchange-traded Derivatives
since the other party to the transaction may be the only investor with
sufficient understanding of the Derivative to be interested in bidding for it.
In the case of the MidCap Value Fund, LargeCap Leaders Fund and Asia-Pacific
Equity Fund, it is expected that derivatives will not ordinarily be used for any
of the Funds, but a Fund may make occasional use of certain derivatives for
hedging. For example, MidCap Value Fund, LargeCap Leaders Fund and Asia-Pacific
Equity Fund may purchase put options to attempt to preserve the value of
securities that it holds, which it could do by exercising the option if the
price of the security falls below the `strike price' for the option. The
Advisory Funds will not engage in any other type of options transactions.
Mortgage-Related Securities
The Government Securities Income Fund may invest up to 100% of its assets and
High Yield Fund may invest up to 35% of its assets in certain types of
mortgage-related securities. The Pilgrim Mutual Funds and the funds which
comprise the Mayflower Trust, Equity Trust, SmallCap Opportunities Fund, Growth
Opportunities Fund, Balance Sheet Opportunities Trust, Government Securities
Fund, and the High Yield Fund III may also invest in Mortgage-Related
Securities. One type of mortgage-related security includes certificates that
represent pools of mortgage loans assembled for sale to investors by various
governmental and private organizations. These securities provide a monthly
payment, which consists of both an interest and a principal payment that is in
effect a "pass-through" of the monthly payment made by each individual borrower
on his or her residential mortgage loan, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying residential property,
refinancing, or foreclosure, net of fees or costs that may be incurred. Some
certificates (such as those issued by the Government National Mortgage
Association) are described as "modified pass-through." These securities entitle
the holder to receive all interest and principal payments owed on the mortgage
pool, net of certain fees, regardless of whether the mortgagor actually makes
the payment.
The Funds indicated above may invest in U.S. Government agency mortgage-backed
securities issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities, including GNMA, FNMA,
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and FHLMC. These instruments might be considered derivatives. The primary risks
associated with these instruments is the risk that their value will change with
changes in interest rates and prepayment risk.
A major governmental guarantor of pass-through certificates is the Government
National Mortgage Association ("GNMA"). GNMA guarantees, with the full faith and
credit of the United States government, the timely payments of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) are backed by
pools of FHA-insured or VA-guaranteed mortgages. Other governmental guarantors
(but not backed by the full faith and credit of the United States Government)
include the Federal National Mortgage Association ("FNMA") and the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA purchases residential mortgages from a
list of approved seller/services that include state and federally chartered
savings and loan associations, mutual saving banks, commercial banks, credit
unions and mortgage bankers.
The Government Securities Income Fund will purchase only U.S. Government Agency
Mortgage-Backed Securities. These securities are obligations issued or
guaranteed by the U.S. Government or by one of its agencies or
instrumentalities, including but not limited to GNMA, FNMA or FHLMC. Although
their close relationship with the U.S. Government is believed to make them
high-quality securities with minimal credit risks, the U.S. Government is not
obligated by law to support either FNMA or FHLMC. However, historically there
have not been any defaults of FNMA or FHLMC issues. Mortgage-backed securities
consist of interests in underlying mortgages with maturities of up to thirty
years. However, due to early unscheduled payments of principal on the underlying
mortgages, the securities have a shorter average life and, therefore, less
volatility than a comparable thirty-year bond.
The prices of high coupon U.S. Government Agency Mortgage-Backed Securities do
not tend to rise as rapidly as those of traditional fixed-rate securities at
times when interest rates are decreasing, and tend to decline more slowly at
times when interest rates are increasing. The Government Securities Income Fund
may purchase such securities at a premium, which means that a faster principal
prepayment rate than expected will reduce the market value of and income from
such securities, while a slower prepayment rate will tend to increase the market
value of and income from such securities.
The Funds indicated above, except the Government Securities Income Fund, may
also purchase mortgage-backed securities issued by commercial banks, savings and
loan institutions, private mortgage insurance companies, mortgage bankers and
other secondary market issuers that also create pass-through pools of
conventional residential mortgage loans. Such issuers may in addition be the
originators of the underlying mortgage loans as well as the guarantors of the
pass-through certificates. Pools created by such non-governmental issuers
generally offer a higher rate of return than governmental pools because there
are no direct or indirect governmental guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance. The insurance and guarantees are issued
by government entities, private insurers and the mortgage poolers.
It is expected that governmental or private entities may create mortgage loan
pools offering pass-through investments in addition to those described above. As
new types of pass-through securities are developed and offered to investors, the
Investment Manager may, consistent with the Funds' investment objectives,
policies and restrictions, consider making investments in such new types of
securities.
Other types of mortgage-related securities in which the Funds may invest include
debt securities that are secured, directly or indirectly, by mortgages on
commercial real estate or residential rental properties, or by first liens on
residential manufactured homes (as defined in section 603(6) of the National
Manufactured Housing Construction and Safety Standards Act of 1974), whether
such manufactured homes are considered real or personal property under the laws
of the states in which they are located.
Securities in this investment category include, among others, standard
mortgage-backed bonds and newer collateralized mortgage obligations ("CMOs").
Mortgage-backed bonds are secured by pools of mortgages, but unlike pass-through
securities, payments to bondholders are not determined by payments on the
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mortgages. The bonds consist of a single class, with interest payable
periodically and principal payable on the stated date of maturity. CMOs have
characteristics of both pass-through securities and mortgage-backed bonds. CMOs
are secured by pools of mortgages, typically in the form of "guaranteed"
pass-through certificates such as GNMA, FNMA, or FHLMC securities. The payments
on the collateral securities determine the payments to bondholders, but there is
not a direct "pass-through" of payments. CMOs are structured into multiple
classes, each bearing a different date of maturity. Monthly payments of
principal received from the pool of underlying mortgages, including prepayments,
is first returned to investors holding the shortest maturity class. Investors
holding the longest maturity class receive principal only after the shorter
maturity classes have been retired.
CMOs are issued by entities that operate under order from the SEC exempting such
issuers from the provisions of the 1940 Act. Until recently, the staff of the
SEC had taken the position that such issuers were investment companies and that,
accordingly, an investment by an investment company (such as the Funds) in the
securities of such issuers was subject to the limitations imposed by Section 12
of the 1940 Act. However, in reliance on SEC staff interpretations, the Funds
may invest in securities issued by certain "exempted issuers" without regard to
the limitations of Section 12 of the 1940 Act. In its interpretation, the SEC
staff defined "exempted issuers" as unmanaged, fixed asset issuers that: (a)
invest primarily in mortgage-backed securities; (b) do not issue redeemable
securities as defined in Section 2(a)(32) of the 1940 Act; (c) operate under the
general exemptive orders exempting them from all provisions of the 1940 Act; and
(d) are not registered or regulated under the 1940 Act as investment companies.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage
securities. SMBS may be issued by agencies or instrumentalities of the U.S.
government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.
SMBS are structured with two or more classes of securities that receive
different proportions of the interest and principal distributions on a pool of
Mortgage Assets. A common type of SMBS will have at least one class receiving
only a small portion of the interest and a larger portion of the principal from
the Mortgage Assets, while the other classes will receive primarily interest and
only a small portion of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). The
yield to maturity on an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets, and
a rapid rate of principal payments may have a material adverse effect on such
security's yield to maturity. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, a Fund may fail to recoup
fully its initial investment in these securities. The determination of whether a
particular government-issued IO or PO backed by fixed-rate mortgages is liquid
is made by Pilgrim or a Sub-Adviser under guidelines and standards established
by the Board of Trustees. Such a security may be deemed liquid if it can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of net asset value per share.
Investments in mortgage-related securities involve certain risks. In periods of
declining interest rates, prices of fixed income securities tend to rise.
However, during such periods, the rate of prepayment of mortgages underlying
mortgage-related securities tends to increase, with the result that such
prepayments must be reinvested by the issuer at lower rates. The rate of
prepayments on underlying mortgages will affect the price and volatility of a
mortgage-related security, and may have the effect of shortening or extending
the effective maturity of the security beyond what was anticipated at the time
of the purchase. Unanticipated rates of prepayment on underlying mortgages can
be expected to increase the volatility of such securities. In addition, the
value of these securities may fluctuate in response to the market's perception
of the creditworthiness of the issuers of mortgage-related securities owned by a
Fund. Because investments in mortgage-related securities are interest sensitive,
the ability of the issuer to reinvest favorably in underlying mortgages may be
limited by government regulation or tax policy. For example, action by the Board
of Governors of the Federal Reserve System to limit the growth of the nation's
money supply may cause interest rates to rise and thereby reduce the volume of
new residential mortgages. Additionally, although mortgages and mortgage-related
securities are generally supported by some form of government or private
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guarantees and/or insurance, there is no assurance that private guarantors or
insurers will be able to meet their obligations. Further, stripped
mortgage-backed securities are likely to experience greater price volatility
than other types of mortgage securities. The yield to maturity on the interest
only class is extremely sensitive, both to changes in prevailing interest rates
and to the rate of principal payments (including prepayments) on the underlying
mortgage assets. Similarly, the yield to maturity on CMO residuals is extremely
sensitive to prepayments on the related underlying mortgage assets. In addition,
if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are made. A Fund could fail to fully recover its initial investment
in a CMO residual or a stripped mortgage-backed security.
Each of the Mid-Cap Opportunities Fund, Growth + Value Fund, International Value
Fund, Emerging Markets Value Fund, Research Enhanced Index Fund, Income and
Growth Fund, High Total Return Fund II and High Total Return Fund III may invest
up to 5% of its net assets in Privately Issued Collateralized Mortgage-Backed
Obligations ("CMOs"), Interest Obligations ("IOs") and Principal Obligations
("POs") when Pilgrim believes that such investments are consistent with the
Fund's investment objective.
The Pilgrim Mutual Funds, Mayflower Trust, Equity Trust, SmallCap Opportunities
Fund, Growth Opportunities Fund, Balance Sheet Opportunities Trust, Government
Securities Fund, and the High Yield Fund III may invest in foreign
mortgage-related securities. Foreign mortgage-related securities are interests
in pools of mortgage loans made to residential home buyers domiciled in a
foreign country. These include mortgage loans made by trust and mortgage loan
companies, credit unions, chartered banks, and others. Pools of mortgage loans
are assembled as securities for sale to investors by various governmental,
government-related and private organizations (e.g., Canada Mortgage and Housing
Corporation and First Australian National Mortgage Acceptance Corporation
Limited). The mechanics of these mortgage-related securities are generally the
same as those issued in the United States. However, foreign mortgage markets may
differ materially from the U.S. mortgage market with respect to matters such as
the sizes of loan pools, pre-payment experience, and maturities of loans. The
Primary Fund in which the Money Market Fund invests substantially all of its
assets will not invest in foreign mortgage-related securities.
Asset Backed Securities
The non-mortgage-related asset-backed securities in which certain Funds invest
include, but are not limited to, interests in pools of receivables, such as
credit card and accounts receivables and motor vehicle and other installment
purchase obligations and leases. Interests in these pools are not backed by the
U.S. Government and may or may not be secured.
The credit characteristics of asset-backed securities differs in a number of
respects from those of traditional debt securities. Asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to other debt obligations, and there is a possibility that recoveries
on repossessed collateral may not be available to support payment on these
securities. The Primary Fund in which the Money Market Fund invests
substantially all of its assets will not invest in asset-backed securities.
GNMA Certificates. Certificates of the GNMA ("GNMA Certificates") evidence an
undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds, in that principal is paid back monthly as payments of principal,
including prepayments, on the mortgages in the underlying pool are passed
through to holders of GNMA Certificates representing interests in the pool,
rather than returned in a lump sum at maturity. The GNMA Certificates that the
Funds may purchase are the "modified pass-through" type.
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or the Farmers' Home
Administration ("FMHA") or guaranteed by the Veterans
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Administration ("VA"). GNMA is also empowered to borrow without limitation from
the U.S. Treasury, if necessary, to make payments required under its guarantee.
Life of GNMA Certificates. The average life of a GNMA Certificate is likely to
be substantially less than the stated maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal investment
long before the maturity of the mortgages in the pool. Foreclosures impose no
risk of loss of the principal balance of a Certificate, because of the GNMA
guarantee, but foreclosure may impact the yield to shareholders because of the
need to reinvest proceeds of foreclosure. As prepayment rates of individual
mortgage pools vary widely, it is not possible to predict accurately the average
life of a particular issue of GNMA Certificates. However, statistics published
by the FHA indicate that the average life of single family dwelling mortgages
with 25 to 30-year maturities, the type of mortgages backing the vast majority
of GNMA Certificates, is approximately 12 years. Prepayments are likely to
increase in periods of falling interest rates. It is customary to treat GNMA
Certificates as 30-year mortgage-backed securities that prepay fully in the
twelfth year.
Yield Characteristics of GNMA Certificates. The coupon rate of interest of GNMA
Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the certificates, by the amount of the fees
paid to GNMA and the issuer. The coupon rate by itself, however, does not
indicate the yield that will be earned on GNMA Certificates. First, GNMA
Certificates may be issued at a premium or discount rather than at par, and,
after issuance, GNMA Certificates may trade in the secondary market at a premium
or discount. Second, interest is earned monthly, rather than semi-annually as
with traditional bonds; monthly compounding raises the effective yield earned.
Finally, the actual yield of a GNMA Certificate is influenced by the prepayment
experience of the mortgage pool underlying it. For example, if interest rates
decline, prepayments may occur faster than had been originally projected and the
yield to maturity and the investment income of the Fund would be reduced.
Subordinated Mortgage Securities
Subordinated mortgage securities have certain characteristics and certain
associated risks. In general, the subordinated mortgage securities in which the
Funds may invest consist of a series of certificates issued in multiple classes
with a stated maturity or final distribution date. One or more classes of each
series may be entitled to receive distributions allocable only to principal,
principal prepayments, interest or any combination thereof prior to one or more
other classes, or only after the occurrence of certain events, and may be
subordinated in the right to receive such distributions on such certificates to
one or more senior classes of certificates. The rights associated with each
class of certificates are set forth in the applicable pooling and servicing
agreement, form of certificate and offering documents for the certificates.
The subordination terms are usually designed to decrease the likelihood that the
holders of senior certificates will experience losses or delays in the receipt
of their distributions and to increase the likelihood that the senior
certificate holders will receive aggregate distributions of principal and
interest in the amounts anticipated. Generally, pursuant to such subordination
terms, distributions arising out of scheduled principal, principal prepayments,
interest or any combination thereof that otherwise would be payable to one or
more other classes of certificates of such series (i.e., the subordinated
certificates) are paid instead to holders of the senior certificates. Delays in
receipt of scheduled payments on mortgage loans and losses on defaulted mortgage
loans are typically borne first by the various classes of subordinated
certificates and then by the holders of senior certificates.
In some cases, the aggregate losses in respect of defaulted mortgage loans that
must be borne by the subordinated certificates and the amount of the
distributions otherwise distributable on the subordinated certificates that
would, under certain circumstances, be distributable to senior certificate
holders may be limited to a specified amount. All or any portion of
distributions otherwise payable to holders of subordinated certificates may, in
certain circumstances, be deposited into one or more reserve accounts for the
benefit of the senior certificate holders. Since a greater risk of loss is borne
by the subordinated certificate holders, such certificates generally have a
higher stated yield than the senior certificates.
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Interest on the certificates generally accrues on the aggregate principal
balance of each class of certificates entitled to interest at an applicable
rate. The certificate interest rate may be a fixed rate, a variable rate based
on current values of an objective interest index or a variable rate based on a
weighted average of the interest rate on the mortgage loans underlying or
constituting the mortgage assets. In addition, the underlying mortgage loans may
have variable interest rates.
Generally, to the extent funds are available, interest accrued during each
interest accrual period on each class of certificates entitled to interest is
distributable on certain distribution dates until the aggregate principal
balance of the certificates of such class has been distributed in full.
The amount of interest that accrues during any interest accrual period and over
the life of the certificates depends primarily on the aggregate principal
balance of the class of certificates, which, unless otherwise specified, depends
primarily on the principal balance of the mortgage assets for each such period
and the rate of payment (including prepayments) of principal of the underlying
mortgage loans over the life of the trust.
A series of certificates may consist of one or more classes as to which
distributions allocable to principal will be allocated. The method by which the
amount of principal to be distributed on the certificates on each distribution
date is calculated and the manner in which such amount could be allocated among
classes varies and could be effected pursuant to a fixed schedule, in relation
to the occurrence of certain events or otherwise. Special distributions are also
possible if distributions are received with respect to the mortgage assets, such
as is the case when underlying mortgage loans are prepaid.
A mortgage-related security that is senior to a subordinated residential
mortgage security will not bear a loss resulting from the occurrence of a
default on an underlying mortgage until all credit enhancement protecting such
senior holder is exhausted. For example, the senior holder will only suffer a
credit loss after all subordinated interests have been exhausted pursuant to the
terms of the subordinated residential mortgage security. The primary credit risk
to the Funds by investing in subordinated residential mortgage securities is
potential losses resulting from defaults by the borrowers under the underlying
mortgages. The Funds would generally realize such a loss in connection with a
subordinated residential mortgage security only if the subsequent foreclosure
sale of the property securing a mortgage loan does not produce an amount at
least equal to the sum of the unpaid principal balance of the loan as of the
date the borrower went into default, the interest that was not paid during the
foreclosure period and all foreclosure expenses.
The Investment Manager will seek to limit the risks presented by subordinated
residential mortgage securities by reviewing and analyzing the characteristics
of the mortgage loans that underlie the pool of mortgages securing both the
senior and subordinated residential mortgage securities. The Investment Manager
has developed a set of guidelines to assist in the analysis of the mortgage
loans underlying subordinated residential mortgage securities. Each pool
purchase is reviewed against the guidelines. The Funds seek opportunities to
acquire subordinated residential mortgage securities where, in the view of the
Investment Manager, the potential for a higher yield on such instruments
outweighs any additional risk presented by the instruments. The Investment
Manager will seek to increase yield to shareholders by taking advantage of
perceived inefficiencies in the market for subordinated residential mortgage
securities.
Credit Enhancement. Credit enhancement for the senior certificates comprising a
series is provided by the holders of the subordinated certificates to the extent
of the specific terms of the subordination and, in some cases, by the
establishment of reserve funds. Depending on the terms of a particular pooling
and servicing agreement, additional or alternative credit enhancement may be
provided by a pool insurance policy and/or other insurance policies, third party
limited guaranties, letters of credit, or similar arrangements. Letters of
credit may be available to be drawn upon with respect to losses due to mortgagor
bankruptcy and with respect to losses due to the failure of a master service to
comply with its obligations, under a pooling and servicing agreement, if any, to
repurchase a mortgage loan as to which there was fraud or negligence on the part
of the mortgagor or originator and subsequent denial of coverage under a pool
insurance policy, if any. A master service may also be required to obtain a pool
insurance policy to cover losses in an amount up to a
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certain percentage of the aggregate principal balance of the mortgage loans in
the pool to the extent not covered by a primary mortgage insurance policy by
reason of default in payments on mortgage loans.
Optional Termination of a Trust. A pooling and servicing agreement may provide
that the depositor and master service could effect early termination of a trust,
after a certain specified date or the date on which the aggregate outstanding
principal balance of the underlying mortgage loans is less than a specific
percentage of the original aggregate principal balance of the underlying
mortgage loans by purchasing all of such mortgage loans at a price, unless
otherwise specified, equal to the greater of a specified percentage of the
unpaid principal balance of such mortgage loans, plus accrued interest thereon
at the applicable certificate interest rate, or the fair market value of such
mortgage assets. Generally, the proceeds of such repurchase would be applied to
the distribution of the specified percentage of the principal balance of each
outstanding certificate of such series, plus accrued interest, thereby retiring
such certificates. Notice of such optional termination would be given by the
trustee prior to such distribution date.
Underlying Mortgage Loans. The underlying trust assets are a mortgage pool
generally consisting of mortgage loans on single, multi-family and mobile home
park residential properties. The mortgage loans are originated by savings and
loan associations, savings banks, commercial banks or similar institutions and
mortgage banking companies.
Various services provide certain customary servicing functions with respect to
the mortgage loans pursuant to servicing agreements entered into between each
service and the master service. A service duties generally include collection
and remittance of principal and interest payments, administration of mortgage
escrow accounts, collection of insurance claims, foreclosure procedures and, if
necessary, the advance of funds to the extent certain payments are not made by
the mortgagors and are recoverable under applicable insurance policies or from
proceeds of liquidation of the mortgage loans.
The mortgage pool is administered by a master service who (a) establishes
requirements for each service, (b) administers, supervises and enforces the
performance by the services of their duties and responsibilities under the
servicing agreements, and (c) maintains any primary insurance, standard hazard
insurance, special hazard insurance and any pool insurance required by the terms
of the certificates. The master service may be an affiliate of the depositor and
also may be the service with respect to all or a portion of the mortgage loans
contained in a trust fund for a series of certificates.
Zero Coupon and Pay-In-Kind Securities
The Funds may invest in zero coupon securities. The Convertible, Balanced, and
High Yield II Funds will limit their investments in such securities to 35% of
their respective net assets. Zero coupon, or deferred interest securities are
debt obligations that do not entitle the holder to any periodic payment of
interest prior to maturity or a specified date when the securities begin paying
current interest (the "cash payment date") and therefore are issued and traded
at a discount from their face amounts or par value. The discount varies,
depending on the time remaining until maturity or cash payment date, prevailing
interest rates, liquidity of the security and the perceived credit quality of
the issuer. The discount, in the absence of financial difficulties of the
issuer, decreases as the final maturity or cash payment date of the security
approaches. The market prices of zero coupon and delayed interest securities
generally are more volatile than the market prices of securities that pay
interest periodically and are likely to respond to changes in interest rates to
a greater degree than do non-zero coupon securities having similar maturities
and credit quality. Current federal income tax law requires holders of zero
coupon securities to report as interest income each year the portion of the
original issue discount on such securities (other than tax-exempt original issue
discount from a zero coupon security) that accrues that year, even though the
holders receive no cash payments of interest during the year.
The Funds may also invest in pay-in-kind securities. Pay-in-kind securities are
securities that pay interest or dividends through the issuance of additional
securities. A Fund will be required to report as income annual inclusions of
original issue discount over the life of such securities as if it were paid on a
current basis, although no cash interest or dividend payments are received by
the Funds until the cash payment date or the
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securities mature. Under certain circumstances, the Funds could also be required
to include accrued market discount or capital gain with respect to its
pay-in-kind securities.
The risks associated with lower rated debt securities apply to these securities.
Zero coupon and pay-in-kind securities are also subject to the risk that in the
event of a default, the Fund may realize no return on its investment, because
these securities do not pay cash interest.
American Depositary Receipts and European Depositary Receipts
The Advisory Funds, High Yield Fund, MagnaCap Fund, and the Pilgrim Mutual Funds
(other than the Money Market Funds) may invest in securities of foreign issuers
in the form of American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") or other similar securities representing securities of foreign
issuers. These securities may not necessarily be denominated in the same
currency as the securities they represent. ADRs are receipts typically issued by
a United States bank or trust company evidencing ownership of the underlying
foreign securities. EDRs are receipts issued by a European financial institution
evidencing a similar arrangement. Generally, ADRs, in registered form, are
designed for use in the United States securities markets, and EDRs, in bearer
form, are designed for use in European securities markets.
Foreign and Emerging Market Securities
Each Fund, except Government Securities Fund, may invest in securities of
foreign issuers. Each of these Funds other than International Value, Emerging
Markets Value, High Yield, High Total Return II and High Total Return Funds may
invest up to 20% of its net assets in foreign securities, of which 10% of its
net assets may be invested in foreign securities that are not listed on a U.S.
securities exchange. High Yield Fund may invest up to 35% of its total assets
and High Total Return Fund II and High Total Return Fund may each invest up to
50% of its assets in foreign securities. International Value Fund and Emerging
Markets Value Fund may each invest up to 100% of its assets in securities of
foreign issuers. The Balance Sheet Opportunities Fund may invest up to 20% of
its net assets in foreign securities, of which 10% of its net assets may be
invested in foreign securities that are not listed on a U.S. securities
exchange.
The Asia-Pacific Equity Fund invests primarily, and the MagnaCap Fund may invest
up to 5% of its total assets, in certain foreign securities (including ADRs).
The International Value Fund may invest up to 25% of its assets and the Emerging
Markets Value Fund may invest greater than 65% of its assets in securities of
companies located in countries with emerging securities markets. The High Yield
Fund may invest up to 10% of its total assets in debt obligations (including
preferred stocks) issued or guaranteed by foreign corporations, certain
supranational entities (such as the World Bank) and foreign governments
(including political subdivisions having taxing authority) or their agencies or
instrumentalities, including ADRs. These securities may be denominated in either
U.S. dollars or in non-U.S. currencies. The Asia-Pacific Equity Fund will invest
substantially all of its assets in the equity securities of companies based in
the Asia-Pacific region. The Asia-Pacific countries include, but are not limited
to, China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan
and Thailand, although the Fund will not invest in Japan and Australia.
Foreign financial markets, while growing in volume, have, for the most part,
substantially less volume than United States markets, and securities of many
foreign companies are less liquid and their prices more volatile than securities
of comparable domestic companies. The foreign markets also have different
clearance and settlement procedures, and in certain markets there have been
times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delivery of securities may not occur at the same time as payment in some foreign
markets. Delays in settlement could result in temporary periods when a portion
of the assets of a Fund is uninvested and no return is earned thereon. The
inability of the Funds to make intended security purchases due to settlement
problems could cause the Funds to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Funds due to subsequent
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declines in value of the portfolio security or, if the Funds have entered into a
contract to sell the security, could result in possible liability to the
purchaser.
As foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards and practices comparable to those applicable
to domestic companies, there may be less publicly available information about
certain foreign companies than about domestic companies. There is generally less
government supervision and regulation of exchanges, financial institutions and
issuers in foreign countries than there is in the United States. A foreign
government may impose exchange control regulations that may have an impact on
currency exchange rates, and there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments that could affect U.S. investments in those countries.
Although the Funds will use reasonable efforts to obtain the best available
price and the most favorable execution with respect to all transactions and the
Investment Manager or Portfolio Manager will consider the full range and quality
of services offered by the executing broker or dealer when making these
determinations, fixed commissions on many foreign stock exchanges are generally
higher than negotiated commissions on U.S. exchanges. Certain foreign
governments levy withholding taxes against dividend and interest income, or may
impose other taxes. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received by the Funds on these investments. However, these foreign
withholding taxes are not expected to have a significant impact on the Fund,
since the Fund's investment objective is to seek long-term capital appreciation
and any income earned by the Fund should be considered incidental.
The risks of investing in foreign securities may be intensified in the case of
investments in issuers domiciled or doing substantial business in emerging
markets or countries with limited or developing capital markets. Security prices
in emerging markets can be significantly more volatile than in the more
developed nations of the world, reflecting the greater uncertainties of
investing in less established markets and economies. In particular, countries
with emerging markets may have relatively unstable governments, present the risk
of sudden adverse government action and even nationalization of businesses,
restrictions on foreign ownership, or prohibitions of repatriation of assets,
and may have less protection of property rights than more developed countries.
The economies of countries with emerging markets may be predominantly based on
only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. Transaction settlement and dividend collection procedures
may be less reliable in emerging markets than in developed markets. Securities
of issuers located in countries with emerging markets may have limited
marketability and may be subject to more abrupt or erratic price movements.
International Debt Securities. The Funds indicated above may invest in debt
obligations (which may be denominated in U.S. dollar or in non-U.S. currencies)
of any rating issued or guaranteed by foreign corporations, certain
supranational entities (such as the World Bank) and foreign governments
(including political subdivisions having taxing authority) or their agencies or
instrumentalities, including American Depository Receipts. No more than 10% of
the High Yield Fund's total assets, at the time of purchase, will be invested in
securities of foreign issuers. These investments may include debt obligations
such as bonds (including sinking fund and callable bonds), debentures and notes,
together with preferred stocks, pay-in-kind securities, and zero coupon
securities.
In determining whether to invest in debt obligations of foreign issuers, the
Fund will consider the relative yields of foreign and domestic high yield
securities, the economies of foreign countries, the condition of such countries'
financial markets, the interest rate climate of such countries and the
relationship of such countries' currency to the U.S. Dollar. These factors are
judged on the basis of fundamental economic criteria (e.g., relative inflation
levels and trends, growth rate forecasts, balance of payments status and
economic policies) as well as technical and political data. Subsequent foreign
currency losses may result in the Fund having previously distributed more income
in a particular period than was available from
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investment income, which could result in a return of capital to shareholders.
The Fund's portfolio of foreign securities may include those of a number of
foreign countries, or, depending upon market conditions, those of a single
country.
Investments in securities of issuers in non-industrialized countries generally
involve more risk and may be considered highly speculative. Although a portion
of the Fund's investment income may be received or realized in foreign
currencies, the Fund will be required to compute and distribute its income in
U.S. dollars and absorb the cost of currency fluctuations and the cost of
currency conversions. Investment in foreign securities involves considerations
and risks not associated with investment in securities of U.S. issuers. For
example, foreign issuers are not required to use generally accepted accounting
principles. If foreign securities are not registered under the Securities Act of
1933, as amended, the issuer does not have to comply with the disclosure
requirements of the Securities Exchange Act of 1934, as amended. The values of
foreign securities investments will be affected by incomplete or inaccurate
information available to the Investment Manager as to foreign issuers, changes
in currency rates, exchange control regulations or currency blockage,
expropriation or nationalization of assets, application of foreign tax laws
(including withholding taxes), changes in governmental administration or
economic or monetary policy. In addition, it is generally more difficult to
obtain court judgments outside the United States.
Investing in Developing Asia-Pacific Securities Markets and Economies. The
securities markets of developing Asia-Pacific countries are not as large as the
U.S. securities markets and have substantially less trading volume, resulting in
a lack of liquidity and high price volatility. Certain markets, such as those of
China, are in only the earliest stages of development. There is also a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of investors and financial intermediaries. Many of such markets
also may be affected by developments with respect to more established markets in
the region, such as in Japan. Developing Asia-Pacific brokers typically are
fewer in number and less capitalized than brokers in the United States. These
factors, combined with the U.S. regulatory requirements of open-end investment
companies and the restrictions on foreign investments discussed below, result in
potentially fewer investment opportunities for Asia-Pacific Equity Fund and may
have an adverse impact on the investment performance of the Fund. The Fund's
investment restrictions permit it to invest up to 15% of its net assets in
securities that are determined by the Portfolio Manager to be illiquid.
The investment objective of the Asia-Pacific Equity Fund reflects the belief
that the economies of the developing Asia-Pacific countries will continue to
grow in such a fashion as to provide attractive investment opportunities. At the
same time, emerging economies present certain risks that do not exist in more
established economies. Especially significant is that political and social
uncertainties exist for many of the developing Asia-Pacific countries. In
addition, the governments of many of such countries, such as Indonesia, have a
heavy role in regulating and supervising the economy. Another risk common to
most such countries is that the economy is heavily export oriented and,
accordingly, is dependent upon international trade. The existence of
overburdened infrastructure and obsolete financial systems also presents risks
in certain countries, as do environmental problems. Certain economies also
depend to a significant degree upon exports of primary commodities and,
therefore, are vulnerable to changes in commodity prices which, in turn, may be
affected by a variety of factors. In addition, certain developing Asia-Pacific
countries, such as the Philippines, are especially large debtors to commercial
banks and foreign governments.
Archaic legal systems in certain developing Asia-Pacific countries also may have
an adverse impact on the Asia-Pacific Equity Fund. For example, while the
potential liability of a shareholder in a U.S. corporation with respect to acts
of the corporation is generally limited to the amount of the shareholder's
investment, the notion of limited liability is less clear in certain developing
Asia-Pacific countries. Similarly, the rights of investors in Asia-Pacific
companies may be more limited than those of shareholders of U.S. corporations.
Certain of the risks associated with international investments and investing in
smaller capital markets are heightened for investments in developing
Asia-Pacific countries. For example, some of the currencies of developing
Asia-Pacific countries have experienced devaluations relative to the U.S.
dollar, and major adjustments have been made periodically in certain of such
currencies. Certain countries face serious
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exchange constraints. In addition, as mentioned above, governments of many
developing Asia-Pacific countries have exercised and continue to exercise
substantial influence over many aspects of the private sector.
In certain cases, the government owns or controls many companies, including the
largest in the country. Accordingly, government actions in the future could have
a significant effect on economic conditions in developing Asia-Pacific
countries, which could affect private sector companies and the Asia-Pacific
Equity Fund, as well as the value of securities in the Fund's portfolio.
In addition to the relative lack of publicly available information about
developing Asia-Pacific issuers and the possibility that such issuers may not be
subject to the same accounting, auditing and financial reporting standards as
are applicable to U.S. companies, inflation accounting rules in some developing
Asia-Pacific countries require, for companies that keep accounting records in
the local currency, for both tax and accounting purposes, that certain assets
and liabilities be restated on the company's balance sheet in order to express
items in terms of currency of constant purchasing power. Inflation accounting
may indirectly generate losses or profits for certain developing Asia-Pacific
companies.
Satisfactory custodial services for investment securities may not be available
in some developing Asia-Pacific countries, which may result in the Asia-Pacific
Equity Fund incurring additional costs and delays in providing transportation
and custody services for such securities outside such countries, if possible.
As a result, the Portfolio Manager of the Asia-Pacific Equity Fund may determine
that, notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular developing Asia-Pacific
country. The Fund may invest in countries in which foreign investors, including
the Portfolio Manager of the Fund, have had no or limited prior experience.
Restrictions on Foreign Investments. Some developing countries prohibit or
impose substantial restrictions on investments in their capital markets,
particularly their equity markets, by foreign entities such as a Fund. As
illustrations, certain countries may require governmental approval prior to
investments by foreign persons or limit the amount of investment by foreign
persons in a particular company or limit the investment by foreign persons to
only a specific class of securities of a company that may have less advantageous
terms (including price) than securities of the company available for purchase by
nationals. Certain countries may restrict investment opportunities in issuers or
industries deemed important to national interests.
The manner in which foreign investors may invest in companies in certain
developing countries, as well as limitations on such investments, also may have
an adverse impact on the operations of a Fund that invests in such countries.
For example, the Fund may be required in certain of such countries to invest
initially through a local broker or other entity and then have the shares
purchased re-registered in the name of the Fund. Re-registration may in some
instances not be able to occur on timely basis, resulting in a delay during
which a Fund may be denied certain of its rights as an investor, including
rights as to dividends or to be made aware of certain corporate actions. There
also may be instances where a Fund places a purchase order but is subsequently
informed, at the time of re-registration, that the permissible allocation of the
investment to foreign investors has been filled, depriving the Fund of the
ability to make its desired investment at that time.
Substantial limitations may exist in certain countries with respect to a Fund's
ability to repatriate investment income, capital or the proceeds of sales of
securities by foreign investors. A Fund could be adversely affected by delays
in, or a refusal to grant, any required governmental approval for repatriation
of capital, as well as by the application to the Fund of any restrictions on
investments. No more than 15% of a Fund's net assets may be comprised, in the
aggregate, of assets that are (i) subject to material legal restrictions on
repatriation or (ii) invested in illiquid securities. Even where there is no
outright restriction on repatriation of capital, the mechanics of repatriation
may affect certain aspects of the operations of the Fund. For example, funds may
be withdrawn from the People's Republic of China only in U.S. or Hong Kong
dollars and only at an exchange rate established by the government once each
week.
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In certain countries, banks or other financial institutions may be among the
leading companies or have actively traded securities. The 1940 Act restricts
each Fund's investments in any equity securities of an issuer that, in its most
recent fiscal year, derived more than 15% of its revenues from "securities
related activities," as defined by the rules thereunder. The provisions may
restrict the Fund's investments in certain foreign banks and other financial
institutions.
Foreign Currency Risks. Currency risk is the risk that changes in foreign
exchange rates will affect, favorably or unfavorably, the U.S. dollar value of
foreign securities. In a period when the U.S. dollar generally rises against
foreign currencies, the returns on foreign stocks for a U.S. investor will be
diminished. By contrast, in a period when the U.S. dollar generally declines,
the returns on foreign securities will be enhanced. Unfavorable changes in the
relationship between the U.S. dollar and the relevant foreign currencies,
therefore, will adversely affect the value of a Fund's shares.
The introduction of the euro (a common currency for the European Economic and
Monetary Union) in January 1999 could have an adverse effect of the Fund's
ability to value holdings denominated in local currencies and on trading and
other administrative systems which affect such securities.
Foreign Currency Exchange Transactions. Because the Funds that invest in foreign
securities may buy and sell securities denominated in currencies other than the
U.S. Dollar, and receive interest, dividends and sale proceeds in currencies
other than the U.S. Dollar, the Funds may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. Dollar. The Funds either enter into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward foreign currency contracts
to purchase or sell foreign currencies. Asia-Pacific Equity Fund may not invest
more than 5% of its assets (taken at market value at the time of investment) in
forward foreign currency contracts.
A forward foreign currency exchange contract is an agreement to exchange one
currency for another -- for example, to exchange a certain amount of U.S.
Dollars for a certain amount of Korean Won -- at a future date. Forward foreign
currency contracts are included in the group of instruments that can be
characterized as derivatives. Neither spot transactions nor forward foreign
currency exchange contracts eliminate fluctuations in the prices of the Fund's
portfolio securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.
Although these transactions tend to minimize the risk of loss due to a decline
in the value of the hedged currency, at the same time they tend to limit any
potential gain that might be realized should the value of the hedged currency
increase. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future value
of these securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain. Use of currency hedging techniques may also be
limited by management's need to protect the status of the Fund as a regulated
investment company under the Code.
Foreign Bank Obligations. Through its investment in the Primary Fund, the Money
Market Fund invests in obligations of foreign banks and foreign branches of U.S.
banks. Obligations of foreign banks and foreign branches of U.S. banks involve
somewhat different investment risks from those affecting obligations of U.S.
banks, including the possibilities that liquidity could be impaired because of
future political and economic developments; the obligations may be less
marketable than comparable obligations of U.S. banks; a foreign jurisdiction
might impose withholding taxes on interest income payable on those obligations;
foreign deposits may be seized or nationalized; foreign governmental
restrictions (such as foreign exchange controls) may be adopted which might
adversely affect the payment of principal and interest on those obligations; and
the selection of those obligations may be more difficult because there may be
less publicly available information concerning foreign banks. In addition, the
accounting, auditing and financial reporting standards, practices and
requirements applicable to foreign banks may differ from those applicable to
U.S. banks. In that connection, foreign banks are not subject to
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examination by any U.S. government agency or instrumentality.
Sovereign Debt Securities. Certain Funds may invest in sovereign debt securities
issued by governments of foreign countries. The sovereign debt in which the
Funds may invest may be rated below investment grade. These securities usually
offer higher yields than higher rated securities but are also subject to greater
risk than higher rated securities.
Brady Bonds. Brady bonds represent a type of sovereign debt. These obligations
were created under a debt restructuring plan introduced by former U.S. Secretary
of the Treasury, Nicholas F. Brady, in which foreign entities issued these
obligations in exchange for their existing commercial bank loans. Brady Bonds
have been issued by Argentina, Brazil, Costa Rica, the Dominican Republic,
Mexico, the Philippines, Uruguay and Venezuela, and may be issued by other
emerging countries.
Risks of Investing in Foreign Securities. Investments in foreign securities
involve certain inherent risks, including the following:
Market Characteristics. Settlement practices for transactions in foreign markets
may differ from those in United States markets, and may include delays beyond
periods customary in the United States. Foreign security trading practices,
including those involving securities settlement where Fund assets may be
released prior to receipt of payment or securities, may expose the Funds to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer.
Transactions in options on securities, futures contracts, futures options and
currency contracts may not be regulated as effectively on foreign exchanges as
similar transactions in the United States, and may not involve clearing
mechanisms and related guarantees. The value of such positions also could be
adversely affected by the imposition of different exercise terms and procedures
and margin requirements than in the United States. The value of a Fund's
positions may also be adversely impacted by delays in its ability to act upon
economic events occurring in foreign markets during non-business hours in the
United States.
Legal and Regulatory Matters. In addition to nationalization, foreign
governments may take other actions that could have a significant effect on
market prices of securities and payment of interest, including restrictions on
foreign investment, expropriation of goods and imposition of taxes, currency
restrictions and exchange control regulations.
Taxes. The interest payable on certain of the Funds' foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to the Funds' shareholders. A
shareholder otherwise subject to United States federal income taxes may, subject
to certain limitations, be entitled to claim a credit or deduction of U.S.
federal income tax purposes for his proportionate share of such foreign taxes
paid by the Funds.
Costs. The expense ratios of the Funds are likely to be higher than those of
investment companies investing in domestic securities, since the cost of
maintaining the custody of foreign securities is higher.
In considering whether to invest in the securities of a foreign company, the
Investment Manager or Portfolio Manager considers such factors as the
characteristics of the particular company, differences between economic trends
and the performance of securities markets within the U.S. and those within other
countries, and also factors relating to the general economic, governmental and
social conditions of the country or countries where the company is located. The
extent to which a Fund will be invested in foreign companies and countries and
depository receipts will fluctuate from time to time within the limitations
described in the Prospectus, depending on the Investment Manager's or Portfolio
Manager's assessment of prevailing market, economic and other conditions.
Securities Swaps
The Funds that comprise the Pilgrim Mutual Funds (other than the Money Market
Fund) may enter into
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securities swaps, a technique primarily used to indirectly participate in the
securities market of a country from which a Fund would otherwise be precluded
for lack of an established securities custody and safekeeping system. The Fund
deposits an amount of cash with its custodian (or the broker, if legally
permitted) in an amount equal to the selling price of the underlying security.
Thereafter, the Fund pays or receives cash from the broker equal to the change
in the value of the underlying security.
Options on Securities and Securities Indices
Purchasing Put and Call Options. Each Fund (other than the Money Market Fund,
Advisory Funds, Investment Funds, Bank and Thrift Fund, and Government
Securities Income Fund) is authorized to purchase put and call options with
respect to securities which are otherwise eligible for purchase by the Fund and
with respect to various stock indices subject to certain restrictions. The
Advisory Funds may only purchase put options on portfolio securities. Put and
call options are derivative securities traded on United States and foreign
exchanges, including the American Stock Exchange, Chicago Board Options
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange and New York Stock
Exchange. Except as indicated in "Non-Hedging Strategic Transactions," the Funds
will engage in trading of such derivative securities exclusively for hedging
purposes.
If a Fund purchases a put option, the Fund acquires the right to sell the
underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when the Investment Manager or Portfolio Manager perceives
significant short-term risk but substantial long-term appreciation for the
underlying security. The put option acts as an insurance policy, as it protects
against significant downward price movement while it allows full participation
in any upward movement. If the Fund holds a stock which the Investment Manager
or Portfolio Manager believes has strong fundamentals, but for some reason may
be weak in the near term, the Fund may purchase a put option on such security,
thereby giving itself the right to sell such security at a certain strike price
throughout the term of the option. Consequently, the Fund will exercise the put
only if the price of such security falls below the strike price of the put. The
difference between the put's strike price and the market price of the underlying
security on the date the Fund exercises the put, less transaction costs, is the
amount by which the Fund hedges against a decline in the underlying security. If
during the period of the option the market price for the underlying security
remains at or above the put's strike price, the put will expire worthless,
representing a loss of the price the Fund paid for the put, plus transaction
costs. If the price of the underlying security increases, the premium paid for
the put option less any amount for which the put may be sold reduces the profit
the Fund realizes on the sale of the securities.
If a Fund purchases a call option, it acquires the right to purchase the
underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the Fund has a short position in the
underlying security and the security thereafter increases in price. The Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If a Fund purchases the call
option to hedge a short position in the underlying security and the price of the
underlying security thereafter falls, the premium paid for the call option less
any amount for which such option may be sold reduces the profit the Fund
realizes on the cover of the short position in the security.
Prior to exercise or expiration, an option may be sold when it has remaining
value by a purchaser through a "closing sale transaction," which is accomplished
by selling an option of the same series as the option previously purchased. The
Funds generally will purchase only those options for which the Investment
Manager or Portfolio Manager believes there is an active secondary market to
facilitate closing transactions.
Writing Call Options. Each Fund (other than the Money Market Fund, Investment
Funds, Bank and Thrift Fund, and Government Securities Income Fund) may write
covered call options. A call option is "covered" if a Fund owns the security
underlying the call or has an absolute right to acquire the security
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without additional cash consideration (or, if additional cash consideration is
required, cash or cash equivalents in such amount as are held in a segregated
account by the Custodian). The writer of a call option receives a premium and
gives the purchaser the right to buy the security underlying the option at the
exercise price. The writer has the obligation upon exercise of the option to
deliver the underlying security against payment of the exercise price during the
option period. If the writer of an exchange-traded option wishes to terminate
his obligation, he may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. A writer may not effect a closing purchase transaction after it has
been notified of the exercise of an option.
Effecting a closing transaction in the case of a written call option will permit
a Fund to write another call option on the underlying security with either a
different exercise price, expiration date or both. Also, effecting a closing
transaction allows the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments of the Fund.
If the Fund desires to sell a particular security from its portfolio on which it
has written a call option, it will effect a closing transaction prior to or
concurrent with the sale of the security.
A Fund realizes a gain from a closing transaction if the cost of the closing
transaction is less than the premium received from writing the option or if the
proceeds from the closing transaction are more than the premium paid to purchase
the option. A Fund realizes a loss from a closing transaction if the cost of the
closing transaction is more than the premium received from writing the option or
if the proceeds from the closing transaction are less than the premium paid to
purchase the option. However, because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, appreciation of the underlying security owned by the Fund generally
offsets, in whole or in part, any loss to the Fund resulting from the repurchase
of a call option.
The staff of the Securities and Exchange Commission (the "SEC") has taken the
position that purchased over-the-counter options ("OTC Options") and the assets
used as cover for written OTC Options are illiquid securities. A Fund will write
OTC Options only with primary U.S. Government Securities dealers recognized by
the Board of Governors of the Federal Reserve System or member banks of the
Federal Reserve System ("primary dealers"). In connection with these special
arrangements, the Fund intends to establish standards for the creditworthiness
of the primary dealers with which it may enter into OTC Option contracts and
those standards, as modified from time to time, will be implemented and
monitored by the Investment Manager. Under these special arrangements, the Fund
will enter into contracts with primary dealers that provide that the Fund has
the absolute right to repurchase an option it writes at any time at a repurchase
price which represents the fair market value, as determined in good faith
through negotiation between the parties, but that in no event will exceed a
price determined pursuant to a formula contained in the contract. Although the
specific details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a multiple of the
premium received by the Fund for writing the option, plus the amount, if any, by
which the option is "in-the-money." The formula will also include a factor to
account for the difference between the price of the security and the strike
price of the option if the option is written "out-of-the-money." "Strike price"
refers to the price at which an option will be exercised. "Cover assets" refers
to the amount of cash or liquid assets that must be segregated to collateralize
the value of the futures contracts written by the Fund. Under such
circumstances, the Fund will treat as illiquid that amount of the cover assets
equal to the amount by which the formula price for the repurchase of the option
is greater than the amount by which the market value of the security subject to
the option exceeds the exercise price of the option (the amount by which the
option is "in-the-money"). Although each agreement will provide that the Fund's
repurchase price shall be determined in good faith (and that it shall not exceed
the maximum determined pursuant to the formula), the formula price will not
necessarily reflect the market value of the option written. Therefore, the Fund
might pay more to repurchase the OTC Option contract than the Fund would pay to
close out a similar exchange traded option.
Stock Index Options. Each Fund (other than the Money Market Fund, Investment
Funds, Bank and Thrift Fund, and Government Securities Income Fund) may also
purchase put and call options with respect to the S&P 500 and other stock
indices. The Funds may purchase such options as a hedge against changes in the
values of portfolio securities or securities which it intends to purchase or
sell, or to reduce risks
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inherent in the ongoing management of the Fund.
The distinctive characteristics of options on stock indices create certain risks
not found in stock options generally. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss on the purchase
or sale of an option on an index depends upon movements in the level of stock
prices in the stock market generally rather than movements in the price of a
particular stock. Accordingly, successful use by a Fund of options on a stock
index depends on the Investment Manager's or Portfolio Manager's ability to
predict correctly movements in the direction of the stock market generally. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
Index prices may be distorted if circumstances disrupt trading of certain stocks
included in the index, such as if trading were halted in a substantial number of
stocks included in the index. If this happens, the Fund could not be able to
close out options which it had purchased, and if restrictions on exercise were
imposed, the Fund might be unable to exercise an option it holds, which could
result in substantial losses to the Fund. The Funds purchase put or call options
only with respect to an index which the Investment Manager or Portfolio Manager
believes includes a sufficient number of stocks to minimize the likelihood of a
trading halt in the index.
Risks of Investing in Options. There are several risks associated with
transactions in options on securities and indices. Options may be more volatile
than the underlying instruments and, therefore, on a percentage basis, an
investment in options may be subject to greater fluctuation than an investment
in the underlying instruments themselves. There are also significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objective. In addition, a liquid secondary market for particular options may
be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of option of underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or clearing corporation may not at all times be adequate to handle
current trading volume; or one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or unexpected events. The extent to which
a Fund may enter into options transactions may be limited by the Internal
Revenue Code requirements for qualification of the Fund as a regulated
investment company. See "Dividends, Distributions and Taxes."
In addition, foreign option exchanges do not afford to participants many of the
protections available in United States option exchanges. For example, there may
be no daily price fluctuation limits in such exchanges or markets, and adverse
market movements could therefore continue to an unlimited extent over a period
of time. Although the purchaser of an option cannot lose more than the amount of
the premium plus related transaction costs, this entire amount could be lost.
Moreover, a Fund as an option writer could lose amounts substantially in excess
of its initial investment, due to the margin and collateral requirements
typically associated with such option writing. See "Dealer Options" below.
Limits on use of Options. A Fund may not purchase or sell options if more than
25% of its net assets would be hedged. The Funds may write covered call options
and secured put options to seek to generate income or lock in gains on up to 25%
of their net assets.
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Dealer Options. The Funds indicated above may engage in transactions involving
dealer options as well as exchange-traded options. Certain risks are specific to
dealer options. While the Funds might look to a clearing corporation to exercise
exchange-traded options, if a Fund purchases a dealer option it must rely on the
selling dealer to perform if the Fund exercises the option. Failure by the
dealer to do so would result in the loss of the premium paid by the Fund as well
as loss of the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while dealer
options may not. Consequently, a Fund can realize the value of a dealer option
it has purchased only by exercising or reselling the option to the issuing
dealer. Similarly, when a Fund writes a dealer option, the Fund can close out
the option prior to its expiration only by entering into a closing purchase
transaction with the dealer. While the Fund seeks to enter into dealer options
only with dealers who will agree to and can enter into closing transactions with
the Fund, no assurance exists that the Fund will at any time be able to
liquidate a dealer option at a favorable price at any time prior to expiration.
Unless the Fund, as a covered dealer call option writer, can effect a closing
purchase transaction, it will not be able to liquidate securities (or other
assets) used as cover until the option expires or is exercised. In the event of
insolvency of the other party, the Fund may be unable to liquidate a dealer
option. With respect to options written by the Fund, the inability to enter into
a closing transaction may result in material losses to the Fund. For example,
because a Fund must maintain a secured position with respect to any call option
on a security it writes, the Fund may not sell the assets which it has
segregated to secure the position while it is obligated under the option. This
requirement may impair the Fund's ability to sell portfolio securities at a time
when such sale might be advantageous.
The Staff of the Securities and Exchange Commission (the "Commission") takes the
position that purchased dealer options are illiquid securities. A Fund may treat
the cover used for written dealer options as liquid if the dealer agrees that
the Fund may repurchase the dealer option it has written for a maximum price to
be calculated by a predetermined formula. In such cases, the dealer option would
be considered illiquid only to the extent the maximum purchase price under the
formula exceeds the intrinsic value of the option. With that exception, however,
the Fund will treat dealer options as subject to the Fund's limitation on
illiquid securities. If the Commission changes its position on the liquidity of
dealer options, the Fund will change its treatment of such instruments
accordingly.
Foreign Currency Options
The Funds that comprise the Pilgrim Mutual Funds (other than the Money Market
Fund) may buy or sell put and call options on foreign currencies. A put or call
option on a foreign currency gives the purchaser of the option the right to sell
or purchase a foreign currency at the exercise price until the option expires.
The Funds use foreign currency options separately or in combination to control
currency volatility. Among the strategies employed to control currency
volatility is an option collar. An option collar involves the purchase of a put
option and the simultaneous sale of call option on the same currency with the
same expiration date but with different exercise (or "strike") prices.
Generally, the put option will have an out-of-the-money strike price, while the
call option will have either an at-the-money strike price or an in-the-money
strike price. Foreign currency options are derivative securities. Currency
options traded on U.S. or other exchanges may be subject to position limits
which may limit the ability of the Funds to reduce foreign currency risk using
such options.
As with other kinds of option transactions, writing options on foreign currency
constitutes only a partial hedge, up to the amount of the premium received. The
Funds could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against exchange
rate fluctuations; however, in the event of exchange rate movements adverse to a
Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs.
Forward Currency Contracts
The Funds that invest in foreign securities may enter into forward currency
contracts in anticipation of
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changes in currency exchange rates. A forward currency contract is an obligation
to purchase or sell a specific currency at a future date, which may be any fix
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. For example, a Fund might purchase a
particular currency or enter into a forward currency contract to preserve the
U.S. dollar price of securities it intends to or has contracted to purchase.
Alternatively, it might sell a particular currency on either a spot or forward
basis to hedge against an anticipated decline in the dollar value of securities
it intends to or has contracted to sell. Although this strategy could minimize
the risk of loss due to a decline in the value of the hedged currency, it could
also limit any potential gain from an increase in the value of the currency.
Each of the Funds (other than the Money Market Fund, Advisory Funds, MagnaCap
Fund, Bank and Thrift Fund, and the Government Securities Income Fund) may
invest in futures contracts and in options on futures contracts as a hedge
against changes in market conditions or interest rates. As a general rule, no
Fund will purchase or sell futures if, immediately thereafter, more than 25% of
its net assets would be hedged.
Financial Futures Contracts and Related Options. A Fund may use financial
futures contracts and related options to hedge against changes in the market
value of its portfolio securities or securities that it intends to purchase. The
Fund could purchase a financial futures contract (such as an interest rate
futures contract or securities index futures contract) to protect against a
decline in the value of its portfolio or to gain exposure to securities which
the Fund otherwise wishes to purchase. Hedging is accomplished when an investor
takes a position in the futures market opposite to his cash market position.
There are two types of hedges -- long (or buying) and short (or selling) hedges.
Historically, prices in the futures market have tended to move in concert with
cash market prices, and prices in the futures market have maintained a fairly
predictable relationship to prices in the cash market. Thus, a decline in the
market value of securities in the Fund's portfolio may be protected against to a
considerable extent by gains realized on futures contracts sales. Similarly, it
is possible to protect against an increase in the market price of securities
that the Fund may wish to purchase in the future by purchasing futures
contracts.
A Fund may purchase or sell any financial futures contracts which are traded on
a recognized exchange or board of trade. Financial futures contracts consist of
interest rate futures contracts and securities index futures contracts. A public
market presently exists in interest rate futures contracts covering long-term
U.S. Treasury bonds, U.S. Treasury notes, three-month U.S. Treasury bills and
GNMA certificates. Securities index futures contracts are currently traded with
respect to the Standard & Poor's 500 Composite Stock Price Index and such other
broad-based stock market indices as the New York Stock Exchange Composite Stock
Index and the Value Line Composite Stock Price Index. A clearing corporation
associated with the exchange or board of trade on which a financial futures
contract trades assumes responsibility for the completion of transactions and
also guarantees that open futures contracts will be performed.
An interest rate futures contract obligates the seller of the contract to
deliver, and the purchaser to take delivery of, the interest rate securities
called for in the contract at a specified future time and at a specified price.
A stock index assigns relative values to the common stocks included in the
index, and the index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. An option on a financial futures contract
gives the purchaser the right to assume a position in the contract (a long
position if the option is a call and short position if the option is a put) at a
specified exercise price at any time during the period of the option.
In contrast to the situation when a Fund purchases or sells a security, no
security is delivered or received by the Fund upon the purchase or sale of a
financial futures contract. Initially, the Fund will be required to segregate
with its custodian bank an amount of cash and/or liquid assets. This amount is
known as initial margin and is in the nature of a performance bond or good faith
deposit on the contract. The current initial margin deposit required per
contract is approximately 5% of the contract amount. Brokers may establish
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deposit requirements higher than this minimum. Subsequent payments, called
variation margin, will be made to and from the account on a daily basis as the
price of the futures contract fluctuates. This process is known as marking to
market. At the time of purchase of a futures contract or a call option on a
futures contract, an amount of cash, U. S. Government securities or other
appropriate high-grade securities equal to the market value of the futures
contract minus the Fund's initial margin deposit with respect thereto will be
segregated with the Fund's custodian bank to collateralize fully the position
and thereby ensure that it is not leveraged. The extent to which the Fund may
enter into financial futures contracts and related options may also be limited
by the requirements of the Internal Revenue Code for qualification as a
regulated investment company.
The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Although financial futures contracts by their terms call for actual delivery or
acceptance of securities, in most cases the contracts are closed out before the
settlement date without the making or taking of delivery. Closing out is
accomplished by effecting an offsetting transaction. A futures contract sale is
closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller immediately would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.
The Fund will pay commissions on financial futures contracts and related options
transactions. These commissions may be higher than those that would apply to
purchases and sales of securities directly.
Limitations on Futures Contracts and Related Options. The Funds may not engage
in transactions in financial futures contracts or related options for
speculative purposes but only as a hedge against anticipated changes in the
market value of its portfolio securities or securities that it intends to
purchase. The High Yield Fund may not purchase or sell financial futures
contracts or related options if, immediately thereafter, the sum of the amount
of initial margin deposits on the Fund's existing futures and related options
positions and the premiums paid for related options would exceed 2% of the
market value of the Fund's total assets after taking into account unrealized
profits and losses on any such contracts. No Fund of the Pilgrim Mutual Funds
may purchase or sell futures or purchase related options if, immediately
thereafter, more than 25% of its net assets would be hedged. Those Funds also
may not purchase or sell futures or purchase related options if, immediately
thereafter, the sum of the amount of margin deposits on the Fund's existing
futures positions and premiums paid for such options would exceed 5% of the
market value of the Fund's net assets. At the time of purchase of a futures
contract or a call option on a futures contract, an amount of cash, U.S.
Government securities or other appropriate high-grade debt obligations equal to
the market value of the futures contract minus the Fund's initial margin deposit
with respect thereto will be segregated with the Fund's custodian bank to
collateralize fully the position and thereby ensure that it is not leveraged.
The extent to which a Fund may enter into financial futures contracts and
related options also may be limited by the requirements of the Internal Revenue
Code for qualification as a regulated investment company.
Risks Relating to Options and Futures Contracts. The purchase of options
involves certain risks. If a put option purchased by a Fund is not sold when it
has remaining value, and if the market price of the underlying security remains
equal to or greater than the exercise price, the Fund will lose its entire
investment in the option. Also, where a put option is purchased to hedge against
price movements in a
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particular security, the price of the put option may move more or less than the
price of the related security. There can be no assurance that a liquid market
will exist when a Fund seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options markets, a Fund
may be unable to close out a position. Positions in futures contracts and
related options may be closed out only on an exchange that provides a secondary
market for such contracts or options. A Fund will enter into an option or
futures position only if there appears to be a liquid secondary market. However,
there can be no assurance that a liquid secondary market will exist for any
particular option or futures contract at any specific time. Thus, it may not be
possible to close out a futures or related option position. In the case of a
futures position, in the event of adverse price movements the Fund would
continue to be required to make daily margin payments. In this situation, if the
Fund have insufficient cash to meet daily margin requirements it may have to
sell portfolio securities at a time when it may be disadvantageous to do so. In
addition, the Fund may be required to take or make delivery of the securities
underlying the futures contracts it holds. The inability to close out futures
positions also could have an adverse impact on the Fund's ability to hedge its
portfolio effectively.
There are several risks in connection with the use of futures contracts as a
hedging device. While hedging can provide protection against an adverse movement
in market prices, it can also preclude a hedger's opportunity to benefit from a
favorable market movement. In addition, investing in futures contracts and
options on futures contracts will cause the Funds to incur additional brokerage
commissions and may cause an increase in the Fund's portfolio turnover rate.
The successful use of futures contracts and related options also depends on the
ability of the Investment Manager to forecast correctly the direction and extent
of market movements within a given time frame. To the extent market prices
remain stable during the period a futures contract or option is held by the Fund
or such prices move in a direction opposite to that anticipated, the Fund may
realize a loss on the hedging transaction that is not offset by an increase in
the value of its portfolio securities. As a result, the return of the Fund for
the period may be less than if it had not engaged in the hedging transaction.
The use of futures contracts involves the risk of imperfect correlation in
movements in the price of futures contracts and movements in the price of the
securities that are being hedged. If the price of the futures contract moves
more or less than the price of the securities being hedged, a Fund will
experience a gain or loss that will not be completely offset by movements in the
price of the securities. It is possible that, where a Fund has sold futures
contracts to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in the Fund's portfolio may decline. If
this occurred, the Fund would lose money on the futures contract and would also
experience a decline in value in its portfolio securities. Where futures are
purchased to hedge against a possible increase in the prices of securities
before the Fund is able to invest its cash (or cash equivalents) in securities
(or options) in an orderly fashion, it is possible that the market may decline;
if the Fund then determines not to invest in securities (or options) at that
time because of concern as to possible further market decline or for other
reasons, the Fund will realize a loss on the futures that would not be offset by
a reduction in the price of the securities purchased.
The market prices of futures contracts may be affected if participants in the
futures market elect to close out their contracts through off-setting
transactions rather than to meet margin deposit requirements. In such a case,
distortions in the normal relationship between the cash and futures markets
could result. Price distortions could also result if investors in futures
contracts opt to make or take delivery of the underlying securities rather than
to engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, due to the fact that, from the
point of view of speculators, the deposit requirements in the futures markets
are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of market trends may still not result in a successful transaction.
Compared to the purchase or sale of futures contracts, the purchase of put or
call options on futures contracts involves less potential risk for a Fund
because the maximum amount at risk is the premium paid
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for the options plus transaction costs. However, there may be circumstances when
the purchase of an option on a futures contract would result in a loss to a Fund
while the purchase or sale of the futures contract would not have resulted in a
loss, such as when there is no movement in the price of the underlying
securities.
Index Warrants. The Research Enhanced Index Fund may purchase put warrants and
call warrants whose values vary depending on the change in the value of one or
more specified securities indices ("Index Warrants"). Index Warrants are
generally issued by banks or other financial institutions and give the holder
the right, at any time during the term of the warrant, to receive upon exercise
of the warrant a cash payment from the issuer, based on the value of the
underlying index at the time of exercise. In general, if the value of the
underlying index rises above the exercise price of the Index Warrant, the holder
of a call warrant will be entitled to receive a cash payment from the issuer
upon exercise, based on the difference between the value of the index and the
exercise price of the warrant; if the value of the underlying index falls, the
holder of a put warrant will be entitled to receive a cash payment from the
issuer upon exercise, based on the difference between the exercise price of the
warrant and the value of the index. The holder of a warrant would not be
entitled to any payments from the issuer at any time when, in the case of a call
warrant, the exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than the value of
the underlying index. If the Research Enhanced Index Fund were not to exercise
an Index Warrant prior to its expiration, then the Fund would lose the amount of
the purchase price paid by it for the warrant. The Research Enhanced Index Fund
will normally use Index Warrants in a manner similar to its use of options on
securities indices. The risks of the Fund's use of Index Warrants are generally
similar to those relating to its use of index options. Unlike most index
options, however, Index Warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution that issues the warrant. Also, Index Warrants
generally have longer terms than index options. Although the Research Enhanced
Index Fund will normally invest only in exchange-listed warrants, Index Warrants
are not likely to be as liquid as certain index options backed by a recognized
clearing agency. In addition, the terms of Index Warrants may limit the Fund's
ability to exercise the warrants at such time, or in such quantities, as the
Fund would otherwise wish to do.
Foreign Currency Futures Contracts. Each Fund (other than the Money Market Fund,
Advisory Funds, MagnaCap Fund, Bank and Thrift Fund, and the Government
Securities Income Fund) may use foreign currency future contracts for hedging
purposes. A foreign currency futures contract provides for the future sale by
one party and purchase by another party of a specified quantity of a foreign
currency at a specified price and time. A public market exists in futures
contracts covering several foreign currencies, including the Australian dollar,
the Canadian dollar, the British pound, the German mark, the Japanese yen, the
Swiss franc, and certain multinational currencies such as the European Currency
Unit ("ECU"). Other foreign currency futures contracts are likely to be
developed and traded in the future. The Funds will only enter into futures
contracts and futures options which are standardized and traded on a U.S. or
foreign exchange, board of trade, or similar entity, or quoted on an automated
quotation system.
Risks of Transactions in Futures Contracts. There are several risks related to
the use of futures as a hedging device. One risk arises because of the imperfect
correlation between movements in the price of the futures contract and movements
in the price of the securities which are the subject of the hedge. The price of
the future may move more or less than the price of the securities being hedged.
If the price of the future moves less than the price of the securities which are
the subject of the hedge, the hedge will not be fully effective, but if the
price of the securities being hedged has moved in an unfavorable direction, a
Fund would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by the loss on the future. If the price of
the future moves more than the price of the hedged securities, the Fund will
experience either a loss or a gain on the future which will not be completely
offset by movements in the price of the securities which are subject to the
hedge.
To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of the futures contract, a
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the historical volatility of the
prices of such
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securities has been greater than the historical volatility over such time
period of the future. Conversely, the Fund may buy or sell fewer futures
contracts if the historical volatility of the price of the securities being
hedged is less than the historical volatility of the futures contract being
used. It is possible that, when the Fund has sold futures to hedge its portfolio
against a decline in the market, the market may advance while the value of
securities held in the Fund's portfolio may decline. If this occurs, the Fund
will lose money on the future and also experience a decline in value in its
portfolio securities. However, the Investment Manager or Portfolio Manager
believes that over time the value of a diversified portfolio will tend to move
in the same direction as the market indices upon which the futures are based.
When futures are purchased to hedge against a possible increase in the price of
securities before a Fund is able to invest its cash (or cash equivalents) in
securities (or options) in an orderly fashion, it is possible that the market
may decline instead. If the Fund then decides not to invest in securities or
options at that time because of concern as to possible further market decline or
for other reasons, it will realize a loss on the futures contract that is not
offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in the futures and the securities being
hedged, the price of futures may not correlate perfectly with movement in the
stock index or cash market due to certain market distortions. All participants
in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the index or cash market and
futures markets. In addition, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. As a result of price distortions in the futures
market and the imperfect correlation between movements in the cash market and
the price of securities and movements in the price of futures, a correct
forecast of general trends by the Investment Manager or Portfolio Manager may
still not result in a successful hedging transaction over a very short time
frame.
Positions in futures may be closed out only on an exchange or board of trade
which provides a secondary market for such futures. Although the Funds intend to
purchase or sell futures only on exchanges or boards of trade where there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures position, and in the event of adverse price movements, the Funds
would continue to be required to make daily cash payments of variation margin.
When futures contracts have been used to hedge portfolio securities, such
securities will not be sold until the futures contract can be terminated. In
such circumstances, an increase in the price of the securities, if any, may
partially or completely offset losses on the futures contract. However, as
described above, there is no guarantee that the price of the securities will in
fact correlate with the price movements in the futures contract and thus provide
an offset to losses on a futures contract.
Most United States futures exchanges limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Successful use of futures by a Fund depends on the Investment Manager's or
Portfolio Manager's ability to predict correctly movements in the direction of
the market. For example, if the Fund hedges against the possibility of a decline
in the market adversely affecting stocks held in its portfolio and stock prices
increase instead, the Fund will lose part or all of the benefit of the increased
value of the stocks which it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if
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the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be, but will not
necessarily be, at increased prices which reflect the rising market. The Fund
may have to sell securities at a time when it may be disadvantageous to do so.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in futures contracts or options, the Fund could experience delays
and losses in liquidating open positions purchased or sold through the broker,
and incur a loss of all or part of its margin deposits with the broker.
Interest Rate and Currency Swaps
The Funds that comprise the Pilgrim Mutual Funds (other than the Money Market
Fund) may enter into interest rate and currency swap transactions and purchase
or sell interest rate and currency caps and floors, and may enter into currency
swap cap transactions. An interest rate or currency swap involves an agreement
between a Fund and another party to exchange payments calculated as if they were
interest on a specified ("notional") principal amount (e.g., an exchange of
floating rate payments by one party for fixed rate payments by the other). An
interest rate cap or floor entitles the purchaser, in exchange for a premium, to
receive payments of interest on a notional principal amount from the seller of
the cap or floor, to the extent that a specified reference rate exceeds or falls
below a predetermined level.
A Fund usually enters into such transactions on a "net" basis, with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
streams. The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each swap is accrued on a daily basis, and an
amount of cash or high-quality liquid securities having an aggregate net asset
value at least equal to the accrued excess is maintained in a segregated account
by the Trust's custodian. If a Fund enters into a swap on other than a net
basis, or sells caps or floors, the Fund maintains a segregated account in the
full amount accrued on a daily basis of the Fund's obligations with respect to
the transaction. Such segregated accounts are maintained in accordance with
applicable regulations of the Commission.
A Fund will not enter into any of these derivative transactions unless the
unsecured senior debt or the claims paying ability of the other party to the
transaction is rated at least "high quality" at the time of purchase by at least
one of the established rating agencies (e.g., AAA or AA by S&P). The swap market
has grown substantially in recent years, with a large number of banks and
investment banking firms acting both as principals and agents utilizing standard
swap documentation, and the Investment Manager or Portfolio Manager has
determined that the swap market has become relatively liquid. Swap transactions
do not involve the delivery of securities or other underlying assets or
principal, and the risk of loss with respect to such transactions is limited to
the net amount of payments that the Fund is contractually obligated to make or
receive. Caps and floors are more recent innovations for which standardized
documentation has not yet been developed; accordingly, they are less liquid than
swaps, and caps and floors purchased by a Fund are considered to be illiquid
assets.
Interest Rate Swaps. As indicated above, an interest rate swap is a contract
between two entities ("counterparties") to exchange interest payments (of the
same currency) between the parties. In the most common interest rate swap
structure, one counterparty agrees to make floating rate payments to the other
counterparty, which in turn makes fixed rate payments to the first counterparty.
Interest payments are determined by applying the respective interest rates to an
agreed upon amount, referred to as the "notional principal amount." In most such
transactions, the floating rate payments are tied to the London Interbank
Offered Rate, which is the offered rate for short-term Eurodollar deposits
between major international banks. As there is no exchange of principal amounts,
an interest rate swap is not an investment or a borrowing.
Cross-Currency Swaps. A cross-currency swap is a contract between two
counterparties to exchange interest and principal payments in different
currencies. A cross-currency swap normally has an exchange of principal at
maturity (the final exchange); an exchange of principal at the start of the swap
(the initial exchange) is optional. An initial exchange of notional principal
amounts at the spot exchange rate serves the same function as a spot transaction
in the foreign exchange market (for an immediate exchange of
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foreign exchange risk). An exchange at maturity of notional principal amounts at
the spot exchange rate serves the same function as a forward transaction in the
foreign exchange market (for a future transfer of foreign exchange risk). The
currency swap market convention is to use the spot rate rather than the forward
rate for the exchange at maturity. The economic difference is realized through
the coupon exchanges over the life of the swap. In contrast to single currency
interest rate swaps, cross-currency swaps involve both interest rate risk and
foreign exchange risk.
Swap Options. The Funds indicated above may invest in swap options. A swap
option is a contract that gives a counterparty the right (but not the
obligation) to enter into a new swap agreement or to shorten, extend, cancel or
otherwise change an existing swap agreement, at some designated future time on
specified terms. It is different from a forward swap, which is a commitment to
enter into a swap that starts at some future date with specified rates. A swap
option may be structured European-style (exercisable on the pre-specified date)
or American-style (exercisable during a designated period). The right pursuant
to a swap option must be exercised by the right holder. The buyer of the right
to receive fixed pursuant to a swap option is said to own a call.
Caps and Floors. The Funds indicated above may invest in interest rate caps and
floors and currency swap cap transactions. An interest rate cap is a right to
receive periodic cash payments over the life of the cap equal to the difference
between any higher actual level of interest rates in the future and a specified
strike (or "cap") level. The cap buyer purchases protection for a floating rate
move above the strike. An interest rate floor is the right to receive periodic
cash payments over the life of the floor equal to the difference between any
lower actual level of interest rates in the future and a specified strike (or
"floor") level. The floor buyer purchases protection for a floating rate move
below the strike. The strikes are typically based on the three-month LIBOR
(although other indices are available) and are measured quarterly. Rights
arising pursuant to both caps and floors are exercised automatically if the
strike is in the money. Caps and floors eliminate the risk that the buyer fails
to exercise an in-the-money option.
Risks Associated with Swaps. The risks associated with interest rate and
currency swaps and interest rate caps and floors are similar to those described
above with respect to dealer options. In connection with such transactions, a
Fund relies on the other party to the transaction to perform its obligations
pursuant to the underlying agreement. If there were a default by the other party
to the transaction, the Fund would have contractual remedies pursuant to the
agreement, but could incur delays in obtaining the expected benefit of the
transaction or loss of such benefit. In the event of insolvency of the other
party, the Fund might be unable to obtain its expected benefit. In addition,
while each Fund will seek to enter into such transactions only with parties
which are capable of entering into closing transactions with the Fund, there can
be no assurance that a Fund will be able to close out such a transaction with
the other party, or obtain an offsetting position with any other party, at any
time prior to the end of the term of the underlying agreement. This may impair a
Fund's ability to enter into other transactions at a time when doing so might be
advantageous.
Non-Hedging Strategic Transactions. A Fund's options, futures and swap
transactions will generally be entered into for hedging purposes -- to protect
against possible changes in the market values of securities held in or to be
purchased for the Fund's portfolio resulting from securities markets, currency
or interest rate fluctuations, to protect the Fund's unrealized gains in the
values of its portfolio securities, to facilitate the sale of such securities
for investment purposes, to manage the effective maturity or duration of the
Fund's portfolio, or to establish a position in the derivatives markets as a
temporary substitute for purchase or sale of particular securities. However, in
addition to the hedging transactions referred to above, the Strategic Income
Fund may enter into options, futures and swap transactions to enhance potential
gain in circumstances where hedging is not involved. Each Fund's net loss
exposure resulting from transactions entered into for each purposes will not
exceed 5% of the Fund's net assets at any one time and, to the extent necessary,
the Fund will close out transactions in order to comply with this limitation.
Such transactions are subject to the limitations described above under
"Options," "Futures Contracts," and "Interest Rate and Currency Swaps."
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Restricted and Illiquid Securities. Each Fund may invest in an illiquid or
restricted security if the Investment Manager or Portfolio Manager believes that
it presents an attractive investment opportunity, except that MagnaCap Fund may
not invest in restricted securities. Generally, a security is considered
illiquid if it cannot be disposed of within seven days. Its illiquidity might
prevent the sale of such a security at a time when a Portfolio Manager might
wish to sell, and these securities could have the effect of decreasing the
overall level of a Fund's liquidity. Further, the lack of an established
secondary market may make it more difficult to value illiquid securities,
requiring the Funds to rely on judgments that may be somewhat subjective in
determining value, which could vary from the amount that a Fund could realize
upon disposition.
Each Fund (except MagnaCap Fund) may purchase restricted securities (i.e.,
securities the disposition of which may be subject to legal restrictions) and
securities that may not be readily marketable. Because of the nature of these
securities, a considerable period of time may elapse between the Funds' decision
to dispose of these securities and the time when the Funds are able to dispose
of them, during which time the value of the securities could decline. The
expenses of registering restricted securities (excluding securities that may be
resold by the Funds pursuant to Rule 144A) may be negotiated at the time such
securities are purchased by the Funds. When registration is required before the
securities may be resold, a considerable period may elapse between the decision
to sell the securities and the time when the Funds would be permitted to sell
them. Thus, the Funds may not be able to obtain as favorable a price as that
prevailing at the time of the decision to sell. The Funds may also acquire
securities through private placements. Such securities may have contractual
restrictions on their resale, which might prevent their resale by the Funds at a
time when such resale would be desirable. Securities that are not readily
marketable will be valued by the Funds in good faith pursuant to procedures
adopted by the Company's Board of Directors.
Restricted securities, including private placements, are subject to legal or
contractual restrictions on resale. They can be eligible for purchase without
SEC registration by certain institutional investors known as "qualified
institutional buyers," and under the Funds' procedures, restricted securities
could be treated as liquid. However, some restricted securities may be illiquid
and restricted securities that are treated as liquid could be less liquid than
registered securities traded on established secondary markets. The Funds may not
invest more than 15% of its net assets in illiquid securities, measured at the
time of investment. Each Fund will adhere to a more restrictive investment
limitation on its investments in illiquid or restricted securities as required
by the securities laws of those jurisdictions where shares of the Funds are
registered for sale.
The Emerging Countries Fund may invest in foreign securities that are restricted
against transfer within the United States or to United States persons. Although
securities subject to such transfer restrictions may be marketable abroad, they
may be less liquid than foreign securities of the same class that are not
subject to such restrictions. Unless these securities are acquired directly from
the issuer or its underwriter, the Fund treats foreign securities whose
principal market is abroad as not subject to the investment limitation on
securities subject to legal or contractual restrictions on resale.
Other Investment Companies
The LargeCap Leaders Fund, MidCap Value Fund, Bank and Thrift Fund Asia-Pacific
Equity Fund and the Pilgrim Mutual Funds each may invest in other investment
companies ("Underlying Funds"). Each Fund may not (i) invest more than 10% of
its total assets in Underlying Funds, (ii) invest more than 5% of its total
assets in any one Underlying Fund, or (iii) purchase greater than 3% of the
total outstanding securities of any one Underlying Fund. The Funds (except the
Money Market Fund) may also make indirect foreign investments through other
investment companies that have comparable investment objectives and policies as
the Funds. In addition to the advisory and operational fees a Fund bears
directly in connection with its own operation, the Fund would also bear its pro
rata portions of each other investment company's advisory and operational
expenses.
Investment Companies that Invest in Senior Loans. The Funds that comprise the
Pilgrim Mutual Funds, and in particular the Strategic Income and Balanced Funds,
may invest in investment companies that
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invest primarily in interests in variable or floating rate loans or notes
("Senior Loans"). Senior Loans in most circumstances are fully collateralized by
assets of a corporation, partnership, limited liability company, or other
business entity. Senior Loans vary from other types of debt in that they
generally hold a senior position in the capital structure of a borrower. Thus,
Senior Loans are generally repaid before unsecured bank loans, corporate bonds,
subordinated debt, trade creditors, and preferred or common stockholders.
Substantial increases in interest rates may cause an increase in loan defaults
as borrowers may lack resources to meet higher debt service requirements. The
value of a Fund's assets may also be affected by other uncertainties such as
economic developments affecting the market for Senior Loans or affecting
borrowers generally.
Senior Loans usually include restrictive covenants which must be maintained by
the borrower. Under certain interests in Senior Loans, an investment company
investing in a Senior Loan may have an obligation to make additional loans upon
demand by the borrower. Senior Loans, unlike certain bonds, usually do not have
call protection. This means that interests, while having a stated one to
ten-year term, may be prepaid, often without penalty. The rate of such
prepayments may be affected by, among other things, general business and
economic conditions, as well as the financial status of the borrower. Prepayment
would cause the actual duration of a Senior Loan to be shorter than its stated
maturity.
Credit Risk. Information about interests in Senior Loans generally is not be in
the public domain, and interests are generally not currently rated by any
nationally recognized rating service. Senior Loans are subject to the risk of
nonpayment of scheduled interest or principal payments. Issuers of Senior Loans
generally have either issued debt securities that are rated lower than
investment grade, or, if they had issued debt securities, such debt securities
would likely be rated lower than investment grade. However, unlike other types
of debt securities, Senior Loans are generally fully collateralized.
In the event of a failure to pay scheduled interest or principal payments on
Senior Loans, an investment company investing in that Senior Loan could
experience a reduction in its income, and would experience a decline in the
market value of the particular Senior Loan so affected, and may experience a
decline in the NAV or the amount of its dividends. In the event of a bankruptcy
of the borrower, the investment company could experience delays or limitations
with respect to its ability to realize the benefits of the collateral securing
the Senior Loan.
Collateral. Senior Loans typically will be secured by pledges of collateral from
the borrower in the form of tangible assets and intangible assets. In some
instances, an investment company may invest in Senior Loans that are secured
only by stock of the borrower or its subsidiaries or affiliates. The value of
the collateral may decline below the principal amount of the Senior Loan
subsequent to an investment in such Senior Loan. In addition, to the extent that
collateral consists of stock of the borrower or its subsidiaries or affiliates,
there is a risk that the stock may decline in value, be relatively illiquid, or
may lose all or substantially all of its value, causing the Senior Loan to be
undercollateralized.
Limited Secondary Market. Although it is growing, the secondary market for
Senior Loans is currently limited. There is no organized exchange or board of
trade on which Senior Loans may be traded; instead, the secondary market for
Senior Loans is an unregulated inter-dealer or inter-bank market. Accordingly,
Senior Loans may be illiquid. In addition, Senior Loans generally require the
consent of the borrower prior to sale or assignment. These consent requirements
may delay or impede a fund's ability to sell Senior Loans. In addition, because
the secondary market for Senior Loans may be limited, it may be difficult to
value Senior Loans. Market quotations may not be available and valuation may
require more research than for liquid securities. In addition, elements of
judgment may play a greater role in the valuation, because there is less
reliable, objective data available.
Hybrid Loans. The growth of the syndicated loan market has produced loan
structures with characteristics similar to Senior Loans but which resemble bonds
in some respects, and generally offer less covenant or other protections than
traditional Senior Loans while still being collateralized ("Hybrid
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Loans"). With Hybrid Loans, a fund may not possess a senior claim to all of the
collateral securing the Hybrid Loan. Hybrid Loans also may not include covenants
that are typical of Senior Loans, such as covenants requiring the maintenance of
minimum interest coverage ratios. As a result, Hybrid Loans present additional
risks besides those associated with traditional Senior Loans, although they may
provide a relatively higher yield. Because the lenders in Hybrid Loans waive or
forego certain loan covenants, their negotiating power or voting rights in the
event of a default may be diminished. As a result, the lenders' interests may
not be represented as significantly as in the case of a conventional Senior
Loan. In addition, because an investment company's security interest in some of
the collateral may be subordinate to other creditors, the risk of nonpayment of
interest or loss of principal may be greater than would be the case with
conventional Senior Loans.
Subordinated and Unsecured Loans. Certain investment companies may invest in
subordinated and unsecured loans. The primary risk arising from a holder's
subordination is the potential loss in the event of default by the issuer of the
loans. Subordinated loans in an insolvency bear an increased share, relative to
senior secured lenders, of the ultimate risk that the borrower's assets are
insufficient to meet its obligations to its creditors. Unsecured loans are not
secured by any specific collateral of the borrower. They do not enjoy the
security associated with collateralization and may pose a greater risk of
nonpayment of interest or loss of principal than do secured loans.
There are some potential disadvantages associated with investing in other
investment companies. For example, you would indirectly bear additional fees.
The Underlying Funds pay various fees, including, management fees,
administration fees, and custody fees. By investing in those Underlying Funds
indirectly, you indirectly pay a proportionate share of the expenses of those
funds (including management fees, administration fees, and custodian fees), and
you also pay the expenses of the Fund.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
respect to its portfolio securities. Pursuant to such agreements, the Fund
acquires securities from financial institutions such as banks and broker-dealers
as are deemed to be creditworthy by the Investment Manager or Portfolio Manager,
subject to the seller's agreement to repurchase and the Fund's agreement to
resell such securities at a mutually agreed upon date and price. The repurchase
price generally equals the price paid by the Fund plus interest negotiated on
the basis of current short-term rates (which may be more or less than the rate
on the underlying portfolio security). Securities subject to repurchase
agreements will be held by the Custodian or in the Federal Reserve/Treasury
Book-Entry System or an equivalent foreign system. The seller under a repurchase
agreement will be required to maintain the value of the underlying securities at
not less than 102% (100% for the Money Market Fund) of the repurchase price
under the agreement. If the seller defaults on its repurchase obligation, the
Fund holding the repurchase agreement will suffer a loss to the extent that the
proceeds from a sale of the underlying securities is less than the repurchase
price under the agreement. Bankruptcy or insolvency of such a defaulting seller
may cause the Fund's rights with respect to such securities to be delayed or
limited. Repurchase agreements are considered to be loans under the Investment
Company Act.
Pursuant to an Exemptive Order under Section 17(d) and Rule 17d-1 obtained by
the SmallCap Opportunities, Growth Opportunities, Balance Sheet Opportunities,
and the High Yield III Funds, on March 5, 1991, such Funds may deposit
uninvested cash balances into a single joint account to be used to enter into
repurchase agreements.
As an alternative to using repurchase agreements, the funds which comprise the
Mayflower Trust, Equity Trust, SmallCap Opportunities Fund, Growth Opportunities
Fund, Balance Sheet Opportunities Trust, Government Securities Fund, and High
Yield Fund III may, from time to time, invest up to 5% of its assets in money
market investment companies sponsored by a third party for short-term liquidity
purposes. Such investments are subject to the non-fundamental investment
limitations described herein.
Reverse Repurchase Agreements and Dollar Roll Transactions. The Government
Securities Income Fund and the funds which comprise the Pilgrim Mutual Funds,
Mayflower Trust, Equity Trust, SmallCap
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Opportunities Fund, Growth Opportunities Fund, Balance Sheet Opportunities
Trust, Government Securities Fund, and High Yield Fund III may enter into
reverse repurchase agreement transactions. Such transactions involve the sale of
U.S. Government securities held by the Fund, with an agreement that the Fund
will repurchase such securities at an agreed upon price and date. The Fund will
employ reverse repurchase agreements when necessary to meet unanticipated net
redemptions so as to avoid liquidating other portfolio investments during
unfavorable market conditions. At the time it enters into a reverse repurchase
agreement, the Fund will place in a segregated custodial account cash and/or
liquid assets having a dollar value equal to the repurchase price. Reverse
repurchase agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"). Reverse repurchase agreements, together
with other permitted borrowings, may constitute up to 33 1/3% of the Fund's
total assets. Under the 1940 Act, the Fund is required to maintain continuous
asset coverage of 300% with respect to borrowings and to sell (within three
days) sufficient portfolio holdings to restore such coverage if it should
decline to less than 300% due to market fluctuations or otherwise, even if such
liquidations of the Fund's holdings may be disadvantageous from an investment
standpoint. Leveraging by means of borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the Fund's net
asset value, and money borrowed will be subject to interest and other costs
(which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income received from the
securities purchased with borrowed funds.
In order to enhance portfolio returns and manage prepayment risks, Government
Securities Income Fund and the funds which comprise the Pilgrim Mutual Funds,
Mayflower Trust, Equity Trust, SmallCap Opportunities Fund, Growth Opportunities
Fund, Balance Sheet Opportunities Trust, Government Securities Fund, and High
Yield Fund III may engage in dollar roll transactions with respect to mortgage
securities issued by GNMA, FNMA and FHLMC. In a dollar roll transaction, a Fund
sells a mortgage security held in the portfolio to a financial institutional
such as a bank or broker-dealer, and simultaneously agrees to repurchase a
substantially similar security (same type, coupon and maturity) from the
institution at a later date at an agreed upon price. The mortgage securities
that are repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase, the
Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, could generate income for the Fund exceeding
the yield on the sold security. When a Fund enters into a dollar roll
transaction, cash and/or liquid assets of the Fund, in a dollar amount
sufficient to make payment for the obligations to be repurchased, are segregated
with its custodian at the trade date. These securities are marked daily and are
maintained until the transaction is settled.
Whether a reverse repurchase agreement or dollar-roll transaction produces a
gain for a Fund depends upon the "costs of the agreements" (e.g., a function of
the difference between the amount received upon the sale of its securities and
the amount to be spent upon the purchase of the same or "substantially the same"
security) and the income and gains of the securities purchased with the proceeds
received from the sale of the mortgage security. If the income and gains on the
securities purchased with the proceeds of the agreements exceed the costs of the
agreements, then a Fund's net asset value will increase faster than otherwise
would be the case; conversely, if the income and gains on such securities
purchased fail to exceed the costs of the structure, net asset value will
decline faster than otherwise would be the case. Reverse repurchase agreements
and dollar-roll transactions, as leveraging techniques, may increase a Fund's
yield in the manner described above; however, such transactions also increase a
Fund's risk to capital and may result in a shareholder's loss of principal.
Participation Interests. The High Yield Fund may invest in participation
interests, subject to the limitation on its net assets that may be invested in
illiquid investments. Participation interests provide the Fund an undivided
interest in a loan made by a bank or other financial institution in the
proportion that the Fund's participation interest bears to the total principal
amount of the loan. No more than 5% of the Fund's net assets can be invested in
participation interests of the same issuing bank. The Fund must look to the
creditworthiness of the borrowing corporation, which is obligated to make
payments of principal
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and interest on the loan. In the event the borrower fails to pay scheduled
interest or principal payments, the Fund would experience a reduction in its
income and might experience a decline in the net asset value of its shares. In
the event of a failure by the bank to perform its obligations in connection with
the participation agreement, the Fund might incur certain costs and delays in
realizing payment or may suffer a loss of principal and/or interest.
Lending of Portfolio Securities. In order to generate additional income, each
Fund may lend portfolio securities in an amount up to 33-1/3% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities (up to 30% of the value of the total
assets in the case of the International Value and the Emerging Markets Value
Funds). No lending may be made with any companies affiliated with the Investment
Manager. The Funds may lend securities only to financial institutions such as
banks, broker/ dealers and other recognized institutional investors in amounts
up to 30% of the Fund's total assets. These loans earn income for the Funds and
are collateralized by cash, securities or letters of credit. The Funds might
experience a loss if the financial institution defaults on the loan. Loans by
the Primary Fund in which the Money Market Fund invests will not exceed 25% of
the Fund's total assets.
The borrower at all times during the loan must maintain with the Fund cash or
cash equivalent collateral or provide to the Funds an irrevocable letter of
credit equal in value to at least 100% of the value of the securities loaned.
During the time portfolio securities are on loan, the borrower pays the Funds
any interest paid on such securities, and the Funds may invest the cash
collateral and earn additional income, or it may receive an agreed-upon amount
of interest income from the borrower who has delivered equivalent collateral or
a letter of credit. Loans are subject to termination at the option of the Funds
or the borrower at any time. The Funds may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
income earned on the cash to the borrower or placing broker. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower fail financially.
Loan Participations and Assignments. Each Fund may invest in loan participations
and loan assignments. A Fund's investment in loan participations typically will
result in the Fund having a contractual relationship only with the Lender and
not with the borrower. The Fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participations and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, the Fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the Loan, nor any right of set-off
against the borrower, and the Fund may not directly benefit from any collateral
supporting the Loan in which it has purchased the Participation. As a result,
the Fund may be subject to the credit risk of both the borrower and the Lender
that is selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Fund may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
When a Fund purchases a loan assignment from Lenders, it will acquire direct
rights against the borrowers on the Loan. Because Assignments are arranged
through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Fund anticipates that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular assignments or participations when necessary to meet redemptions
of Fund shares, to meet the Fund's liquidity needs or when necessary in response
to a specific economic event, such as deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for assignments and
participations also may make it more difficult for a Fund to value these
securities for purposes of calculating its net asset value.
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Pairing-Off Transactions. Government Securities Income Fund engages in a
pairing-off transaction when the Fund commits to purchase a security at a future
date ("delayed delivery" or "when issued"), and then prior to the predetermined
settlement date, the Fund "pairs-off" the purchase with a sale of the same
security prior to, or on, the original settlement date. At all times when the
Fund has an outstanding commitment to purchase securities, cash and/or liquid
assets equal to the value of the outstanding purchase commitments will be
segregated from general investible funds and marked to the market daily.
When the time comes to pay for the securities acquired on a delayed delivery
basis, Government Securities Income Fund will meet its obligations from the
available cash flow, sale of the securities held in the separate account, sale
of other securities or, although it would not normally expect to do so, from
sale of the when-issued securities themselves (which may have a market value
greater or less than the Fund's payment obligation).
Whether a pairing-off transaction produces a gain for Government Securities
Income Fund, depends upon the movement of interest rates. If interest rates
decrease, then the money received upon the sale of the same security will be
greater than the anticipated amount needed at the time the commitment to
purchase the security at the future date was entered. Consequently, the Fund
will experience a gain. However, if interest rates increase, than the money
received upon the sale of the same security will be less than the anticipated
amount needed at the time the commitment to purchase the security at the future
date was entered. Consequently, the Fund will experience a loss.
The Pilgrim Mutual Funds and the Mayflower Trust, Equity Trust, Balance Sheet
Opportunities Fund, Government Securities Fund, and High Yield Fund III may
enter into To Be Announced ("TBA") sale commitments wherein the unit price and
the estimated principal amount are established upon entering into the contract,
with the actual principal amount being within a specified range of the estimate.
A Fund will enter into TBA sale commitments to hedge its portfolio positions or
to sell mortgage-backed securities it owns under delayed delivery arrangements.
Proceeds of TBA sale commitments are not received until the contractual
settlement date. During the time a TBA sale commitment is outstanding, the Fund
will maintain, in a segregated account, cash or marketable securities in an
amount sufficient to meet the purchase price. Unsettled TBA sale commitments are
valued at current market value of the underlying securities. If the TBA sale
commitment is closed through the acquisition of an offsetting purchase
commitment, the Fund realizes a gain or loss on the commitment without regard to
any unrealized gain or loss on the underlying security. If the Fund delivers
securities under the commitment, the Fund realizes a gain or loss from the sale
of the securities, based upon the unit price established at the date the
commitment was entered into.
Floating or Variable Rate Instruments. The Funds that comprise the Mayflower
Trust, Equity Trust, SmallCap Opportunities Fund, Growth Opportunities Fund,
Balance Sheet Opportunities Fund, Government Securities Fund, and High Yield
Fund III may purchase floating or variable rate bonds, which normally provide
that the holder can demand payment of the obligation on short notice at par with
accrued interest. Such bonds are frequently secured by letters of credit or
other credit support arrangements provided by banks. Floating or variable rate
instruments provide for adjustments in the interest rate at specified intervals
(weekly, monthly, semiannually, etc.). A Fund would anticipate using these bonds
as cash equivalents, pending longer term investment of its funds. Other longer
term fixed-rate bonds, with a right of the holder to request redemption at
certain times (often annually, after the lapse of an intermediate term), may
also be purchased by a Fund. These bonds are more defensive than conventional
long-term bonds (protecting to some degree against a rise in interest rates),
while providing greater opportunity than comparable intermediate term bonds
since the Fund may retain the bond if interest rates decline. By acquiring these
kinds of bonds, a Fund obtains the contractual right to require the issuer of
the security, or some other person (other than a broker or dealer), to purchase
the security at an agreed upon price, which right is contained in the obligation
itself rather than in a separate agreement with the seller or some other person.
A Fund will purchase securities on a when-issued, forward commitment or delayed
settlement basis only
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with the intention of completing the transaction. If deemed advisable as a
matter of investment strategy, however, a Fund may dispose of or renegotiate a
commitment after it is entered into, and may sell securities it has committed to
purchase before those securities are delivered to the Fund on the settlement
date. In these cases the Fund may realize a taxable capital gain or loss. When a
Fund engages in when-issued, forward commitment and delayed settlement
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in a Fund's incurring a loss or missing an
opportunity to obtain a price credited to be advantageous.
The market value of the securities underlying a when-issued purchase, forward
commitment to purchase securities, or a delayed settlement and any subsequent
fluctuations in their market value is taken into account when determining the
market value of a Fund starting on the day the Fund agrees to purchase the
securities. A Fund does not earn interest on the securities it has committed to
purchase until they are paid for and delivered on the settlement date.
Short Sales
The Pilgrim Mutual Funds, Mayflower Trust, Mid-Cap Value Fund, Equity Trust,
SmallCap Opportunities Fund, Growth Opportunities Fund, Balance Sheet
Opportunities Fund, Government Securities Fund, and the High Yield Fund III, may
make short sales of securities they own or have the right to acquire at no added
cost through conversion or exchange of other securities they own (referred to as
short sales "against the box") and short sales of securities which they do not
own or have the right to acquire.
In a short sale that is not "against the box," a Fund sells a security which it
does not own, in anticipation of a decline in the market value of the security.
To complete the sale, the Fund must borrow the security generally from the
broker through which the short sale is made) in order to make delivery to the
buyer. The Fund must replace the security borrowed by purchasing it at the
market price at the time of replacement. The Fund is said to have a "short
position" in the securities sold until it delivers them to the broker. The
period during which the Fund has a short position can range from one day to more
than a year. Until the Fund replaces the security, the proceeds of the short
sale are retained by the broker, and the Fund must pay to the broker a
negotiated portion of any dividends or interest which accrue during the period
of the loan. To meet current margin requirements, the Fund must deposit with the
broker additional cash or securities so that it maintains with the broker a
total deposit equal to 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).
Short sales by a Fund that are not made "against the box" create opportunities
to increase the Fund's return but, at the same time, involve specific risk
considerations and may be considered a speculative technique. Since the Fund in
effect profits from a decline in the price of the securities sold short without
the need to invest the full purchase price of the securities on the date of the
short sale, the Fund's net asset value per share tends to increase more when the
securities it has sold short decrease in value, and to decrease more when the
securities it has sold short increase in value, than would otherwise be the case
if it had not engaged in such short sales. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of any premium,
dividends or interest the Fund may be required to pay in connection with the
short sale. Short sales theoretically involve unlimited loss potential, as the
market price of securities sold short may continually increase, although a Fund
may mitigate such losses by replacing the securities sold short before the
market price has increased significantly. Under adverse market conditions the
Fund might have difficulty purchasing securities to meet its short sale delivery
obligations, and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales.
If a Fund makes a short sale "against the box," the Fund would not immediately
deliver the securities sold and would not receive the proceeds from the sale.
The seller is said to have a short position in the securities sold until it
delivers the securities sold, at which time it receives the proceeds of the
sale. To secure its obligation to deliver securities sold short, a Fund will
deposit in escrow in a separate account with the Custodian an equal amount of
the securities sold short or securities convertible into or
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exchangeable for such securities. The Fund can close out its short position by
purchasing and delivering an equal amount of the securities sold short, rather
than by delivering securities already held by the Fund, because the Fund might
want to continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
A Fund's decision to make a short sale "against the box" may be a technique to
hedge against market risks when the Investment Manager or Portfolio Manager
believes that the price of a security may decline, causing a decline in the
value of a security owned by the Fund or a security convertible into or
exchangeable for such security. In such case, any future losses in the Fund's
long position would be reduced by a gain in the short position. The extent to
which such gains or losses in the long position are reduced will depend upon the
amount of securities sold short relative to the amount of the securities the
Fund owns, either directly or indirectly, and, in the case where the Fund owns
convertible securities, changes in the investment values or conversion premiums
of such securities.
In the view of the Commission, a short sale involves the creation of a "senior
security" as such term is defined in the Investment Company Act, unless the sale
is "against the box" and the securities sold short are placed in a segregated
account (not with the broker), or unless the Fund's obligation to deliver the
securities sold short is "covered" by placing in a segregated account (not with
the broker) cash, U.S. Government securities or other liquid debt or equity
securities in an amount equal to the difference between the market value of the
securities sold short at the time of the short sale and any such collateral
required to be deposited with a broker in connection with the sale (not
including the proceeds from the short sale), which difference is adjusted daily
for changes in the value of the securities sold short. The total value of the
cash, U.S. Government securities or other liquid debt or equity securities
deposited with the broker and otherwise segregated may not at any time be less
than the market value of the securities sold short at the time of the short
sale. Each Fund will comply with these requirements. In addition, as a matter of
policy, the Trust's Board of Trustees has determined that no Fund will make
short sales of securities or maintain a short position if to do so could create
liabilities or require collateral deposits and segregation of assets aggregating
more than 25% of the Fund's total assets (no more than 5% for the Mid-Cap Value
Fund), taken at market value.
The extent to which a Fund may enter into short sales transactions may be
limited by the Internal Revenue Code requirements for qualification of the Fund
as a regulated investment company. See "Dividends, Distributions and Taxes."
Investment Techniques and Processes
The investment techniques and processes used by the Portfolio Manager for the
Pilgrim Mutual Funds, which it has used in managing institutional portfolios for
many years, are described generally in the Funds' prospectus of the Funds it
manages. In making decisions with respect to equity securities for the Funds,
growth over time(R) is the Portfolio Manager's underlying goal. It's how the
Portfolio Manager built its reputation. Over the past ten years, the Portfolio
Manager has built a record as one of the finest performing investment managers
in the United States. It has successfully delivered growth over time to many
institutional investors, pension plans, foundations, endowments and high net
worth individuals. The Portfolio Manager's methods have proven their ability to
achieve growth over time through a variety of investment vehicles.
The Portfolio Manager emphasizes growth over time through investment in
securities of companies with earnings growth potential. The Portfolio Manager's
style is a "bottom-up" growth approach that focuses on the growth prospects of
individual companies rather than on economic trends. It builds portfolios stock
by stock. The Portfolio Manager's decision-making is guided by three critical
questions: Is there a positive change? Is it sustainable? Is it timely? The
Portfolio Manager uses these three factors because it focuses on discovering
positive developments when they first show up in an issuer's earnings, but
before they are fully reflected in the price of the issuer's securities. The
Portfolio Manager is always looking for companies that are driving change and
surpassing analysts' expectations. It seeks to identify companies poised for
rapid growth. The Portfolio Manager focuses on recognizing successful companies,
regardless
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of their capitalization or whether they are domestic or foreign companies.
Diversification
Each Fund (other than the Money Market Fund) is "diversified" within the meaning
of the Investment Company Act. In order to qualify as diversified, a Fund must
diversify its holdings so that at all times at least 75% of the value of its
total assets is represented by cash and cash items (including receivables),
securities issued or guaranteed as to principal or interest by the United States
or its agencies or instrumentalities, securities of other investment companies,
and other securities (for this purpose other securities of any one issuer are
limited to an amount not greater than 5% of the value of the total assets of the
Fund and to not more than 10% of the outstanding voting securities of the
issuer). The Primary Institutional Fund in which the Money Market Fund will
invest substantially all of its assets is a non-diversified fund. However, the
Primary Institutional Fund intends to comply with the diversification
requirement of Rule 2a-7 under the Investment Company Act which generally limits
a money-market fund to investing no more than 5% of its total assets in the
securities, except U.S. government securities, of any one issuer.
The equity securities of each issuer that are included in the investment
portfolio of a Fund are purchased by the Investment Manager or Portfolio Manager
in approximately equal amounts, and the Investment Manager or Portfolio Manager
attempts to stay fully invested within the applicable percentage limitations set
forth in the Prospectus. In addition, for each issuer whose securities are added
to an investment portfolio, the Investment Manager or Portfolio Manager sells
the securities of one of the issuers currently included in the portfolio.
Borrowing. Each Advisory Fund may borrow money from banks solely for temporary
or emergency purposes, but not in an amount exceeding one-third of the value of
its total assets. The Pilgrim Mutual Funds may each borrow up to 20% (other than
the Money Market Fund which is limited to 5%). Magna Fund and High Yield Fund
may borrow from banks solely for temporary or emergency purposes, but not in an
amount exceeding 5% of the value of its total assets. Bank and Thrift Fund may
borrow, only in an amount up to 15% of its total assets to obtain such
short-term credits as are necessary for the clearance of securities
transactions. Government Securities Income Fund may borrow money from banks
solely for temporary or emergency purposes, but not in an amount in excess of
10% of the value of its total assets.
For the Government Securities Income Fund, no additional investment may be made
while any such borrowings are in excess of 5% of total assets. For purposes of
this investment restriction, the Fund's entry into reverse repurchase agreements
and dollar-rolls and delayed delivery transactions, including those relating to
pair-offs, shall not constitute borrowings. Such borrowings, together with
reverse repurchase agreements, may constitute up to 33% of the Fund's total
assets. The Government Securities Income Fund may not mortgage, pledge or
hypothecate its assets, except to the extent necessary to secure permitted
borrowings and to the extent related to the deposit of assets in escrow in
connection with the Fund's purchasing of securities on a forward commitment or
delayed delivery basis, entering into reverse repurchase agreements and engaging
in dollar-roll transactions.
Under the Investment Company Act of 1940, each Fund is required to maintain
continuous asset coverage of 300% with respect to such borrowings and to sell
(within three days) sufficient portfolio holdings to restore such coverage if it
should decline to less than 300% due to market fluctuations or otherwise, even
if such liquidations of the Fund's holdings may be disadvantageous from an
investment standpoint.
When a Fund borrows money, its share price may be subject to greater fluctuation
until the borrowing is paid off. If a Fund makes additional investments while
borrowings are outstanding, this may be construed as a form of leverage.
Leveraging by means of borrowing may exaggerate the effect of any increase or
decrease in the value of portfolio securities or the Fund's net asset value, and
money borrowed will be subject to interest and other
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costs (which may include commitment fees and/or the cost of maintaining minimum
average balances) which may or may not exceed the income received from the
securities purchased with borrowed funds.
INVESTMENT RESTRICTIONS -- THE ADVISORY FUNDS
The Funds have adopted the following investment restrictions as fundamental
policies that cannot be changed without approval by the holders of a majority of
its outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. None of the Funds may:
(1) invest in a security if, with respect to 75% of the total assets, more
than 5% of the total assets (taken at market value at the time of such
investment) would be invested in the securities of any one issuer, except
that this restriction does not apply to securities issued or guaranteed by
the U.S. Government or its agencies or instrumentalities;
(2) invest in a security if, with respect to 75% of its assets, it would hold
more than 10% (taken at the time of such investment) of the outstanding
voting securities of any one issuer, except securities issued or
guaranteed by the U.S. Government, or its agencies or instrumentalities;
(3) invest in a security if more than 25% of its total assets (taken at market
value at the time of such investment) would be invested in the securities
of companies primarily engaged in any one industry, except that this
restriction does not apply to securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities (or repurchase agreements
with respect thereto);
(4) lend any funds or other assets, except that a Fund may, consistent with
its investment objective and policies:
(a) invest in debt obligations, even though the purchase of such
obligations may be deemed to be the making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with applicable
guidelines established by the SEC and any guidelines established by
the Board of Directors;
(5) borrow money or pledge, mortgage, or hypothecate its assets, (a) except
that a Fund may borrow from banks, but only if immediately after each
borrowing and continuing thereafter there is asset coverage of 300%; and
(b) and except that the following shall not be considered a pledge,
mortgage, or hypothecation of a Fund's assets for these purposes: entering
into reverse repurchase agreements; transactions in options, futures,
options on futures, and forward currency contracts; the deposit of assets
in escrow in connection with the writing of covered put and call options;
and the purchase of securities on a "when-issued" or delayed delivery
basis; collateral arrangements with respect to initial or variation margin
and other deposits for futures contracts, options on futures contracts,
and forward currency contracts;
(6) issue senior securities, except insofar as a Fund may be deemed to have
issued a senior security by reason of borrowing money in accordance with
that Fund's borrowing policies, and except for purposes of this investment
restriction, collateral or escrow arrangements with respect to the making
of short sales, purchase or sale of futures contracts or related options,
purchase or sale of forward currency contracts, writing of stock options,
and collateral arrangements with respect to margin or other deposits
respecting futures contracts, related options, and forward currency
contracts are not deemed to be an issuance of a senior security;
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(7) act as an underwriter of securities of other issuers, except, when in
connection with the disposition of portfolio securities, a Fund may be
deemed to be an underwriter under the federal securities laws;
(8) purchase or sell real estate (other than marketable securities
representing interests in, or backed by, real estate or securities of
companies that deal in real estate or mortgages).
The Funds are also subject to the following restrictions and policies that are
not fundamental and may, therefore, be changed by the Board of Directors
(without shareholder approval). Unless otherwise indicated, a Fund may not:
(1) invest in securities that are illiquid if, as a result of such investment,
more than 15% of the total assets of the Fund (taken at market value at
the time of such investment) would be invested in such securities;
(2) invest in companies for the purpose of exercising control or management;
(3) purchase or sell physical commodities or commodities contracts (which, for
purposes of this restriction, shall not include foreign currency or
forward foreign currency contracts), except any Fund may engage in
interest rate futures contracts, stock index futures contracts, futures
contracts based on other financial instruments or securities, and options
on such futures contracts;
(4) invest directly in interests in oil, gas or other mineral exploration or
development programs or mineral leases (other than marketable securities
of companies engaged in the business of oil, gas, or other mineral
exploration).
(5) invest more than 5% of its total assets in warrants, whether or not listed
on the New York or American Stock Exchanges, including no more than 2% of
its total assets which may be invested in warrants that are not listed on
those exchanges. Warrants acquired by a Fund in units or attached to
securities are not included in this restriction;
(6) purchase securities of issuers which are restricted from being sold to the
public without registration under the Securities Act of 1933 (unless such
securities are deemed to be liquid under the Company's Liquidity
Procedures) if by reason of such investment the Fund's aggregate
investment in such securities will exceed 10% to the Fund's total assets;
(7) invest more than 5% of the value of its total assets in securities of
issuers which have been in continuous operation less than three years;
(8) invest in puts, calls, straddles, spreads or any combination thereof if,
as a result of such investment, more than 5% of the total assets of the
Fund (taken at market value at the time of such investment) would be
invested in such securities;
(9) loan portfolio securities unless collateral values are continuously
maintained at no less than 100% by "marking to market" daily;
(10) invest in real estate limited partnerships.
Other non-fundamental policies include the following: each Fund may not purchase
securities on margin; make short sales, except for short sales "against the
box," or purchase or retain in its portfolio any security if an officer or
Director of the Company or the Investment Manager or any Portfolio Manager owns
beneficially more than 1/2 of 1% of the outstanding securities of such issuer,
and in the aggregate such persons own beneficially more than 5% of the
outstanding securities of such issuer.
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INVESTMENT RESTRICTIONS -- THE MAGNACAP FUND
The Fund has adopted the following investment restrictions as fundamental
policies that cannot be changed without approval by the holders of a majority of
its outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. The Fund may not:
(1) Engage in the underwriting of securities of other issuers.
(2) Invest in "restricted securities" which cannot in the absence of an
exemption be sold without an effective registration statement under the
Securities Act of 1933, as amended.
(3) Engage in the purchase and sale of interests in real estate, commodities
or commodity contracts (although this does not preclude marketable
securities of companies engaged in these activities).
(4) Engage in the making of loans to other persons, except (a) through the
purchase of a portion of an issue of publicly distributed bonds,
debentures or other evidences of indebtedness customarily purchased by
institutional investors or (b) by the loan of its portfolio securities in
accordance with the policies described under "Lending of Portfolio
Securities."
(5) Borrow money except from banks for temporary or emergency purposes, and
then not in excess of 5% of the value of its total assets.
(6) Mortgage, pledge or hypothecate its assets in any manner, except in
connection with any authorized borrowings and then not in excess of 10% of
the value of its total assets.
(7) Purchase securities on margin, except that it may obtain such short-term
credits as may be necessary for the clearance of its portfolio
transactions.
(8) Effect short sales, or purchase or sell puts, calls, spreads or straddles.
(9) Buy or sell oil, gas, or other mineral leases, rights or royalty
contracts, or participate on a joint or joint and several basis in any
securities trading account.
(10) Invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation or acquisition of assets.
(11) Invest more than 25% of the value of its total assets in any one industry.
(12) Purchase or retain in its portfolio any security if an Officer or Director
of the Fund or its investment manager owns beneficially more than 1/2 of
1% of the outstanding securities of such issuer, and in the aggregate such
persons own beneficially more than 5% of the outstanding securities of
such issuer.
(13) Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security by reason of borrowing money in accordance with
the Fund's borrowing policies or investment techniques, and except for
purposes of this investment restriction, collateral, escrow, or margin or
other deposits with respect to the making of short sales, the purchase or
sale of futures contracts or related options, purchase or sale of forward
foreign currency contracts, and the writing of options on securities are
not deemed to be an issuance of a senior security.
The Fund is also subject to the following restrictions and policies that are not
fundamental and may, therefore, be changed by the Board of Directors without
shareholder approval. The Fund will limit its investments in warrants, valued at
the lower of cost or market, to 5% of its net assets. Included within
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that amount, but not to exceed 2% of the Fund's net assets, may be warrants that
are not listed on the New York or American Stock Exchange. The Fund will not
engage in the purchase or sale of real estate or real estate limited
partnerships. The Fund also will not make loans to other persons unless
collateral values are continuously maintained at no less than 100% by "marking
to market" daily. The Fund also may not invest more than 5% of its total assets
in securities of companies which, including predecessors, have not had a record
of at least three years of continuous operations, and may not invest in any
restricted securities.
INVESTMENT RESTRICTIONS -- THE SMALLCAP
OPPORTUNITIES FUND, GROWTH OPPORTUNITIES FUND,
GOVERNMENT SECURITIES FUND, AND HIGH YIELD III FUND
The Funds have adopted investment restrictions numbered 1 through 12 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of such Fund's outstanding voting shares. Investment
restrictions numbered 13 through 21 are not fundamental policies and may be
changed by vote of a majority of the Trust's Board members at any time. Each
Fund may not:
(1) Borrow money, except from a bank and as a temporary measure for
extraordinary or emergency purposes, provided the Fund maintains asset
coverage of 300% for all borrowings;
(2) Purchase securities of any one issuer (except U.S. government securities)
if, as a result, more than 5% of the Fund's total assets would be invested
in that issuer, or the Fund would own or hold more than 10% of the
outstanding voting securities of the issuer; provided, however, that up to
25% of the Fund's total assets may be invested without regard to these
limitations;
(3) Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter;
(4) Concentrate its assets in the securities of issuers all of which conduct
their principal business activities in the same industry (this restriction
does not apply to obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities);
(5) Make any investment in real estate, commodities or commodities contracts,
except that these Funds may: (a) purchase or sell readily marketable
securities that are secured by interest in real estate or issued by
companies that deal in real estate, including real estate investment and
mortgage investment trusts; and (b) engage in financial futures contracts
and related options, as described herein and in the Fund's Prospectus;
(6) Make loans, except that each of these Funds may: (a) invest in repurchase
agreements, and (b) loan its portfolio securities in amounts up to
one-third of the market or other fair value of its total assets;
(7) Issue senior securities, except as appropriate to evidence indebtedness
that it is permitted to incur, provided that the deposit or payment by the
Fund of initial or maintenance margin in connection with futures contracts
and related options is not considered the issuance of senior securities;
(8) Borrow money in excess of 5% of its total assets (taken at market value);
(9) Pledge, mortgage or hypothecate in excess of 5% of its total assets (the
deposit or payment by a Fund of initial or maintenance margin in
connection with futures contracts and related options is not considered a
pledge or hypothecation of assets);
(10) Purchase more than 10% of the voting securities of any one issuer, except
U.S. government securities;
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(11) Invest more than 15% of its net assets in illiquid securities, including
repurchase agreements maturing in more than 7 days, that cannot be
disposed of within the normal course of business at approximately the
amount at which the Fund has valued the securities, excluding restricted
securities that have been determined by the Trustees of the Fund (or the
persons designated by them to make such determinations) to be readily
marketable;
(12) Purchase securities of any issuer with a record of less than 3 years of
continuous operations, including predecessors, except U.S. government
securities and obligations issued or guaranteed by any foreign government
or its agencies or instrumentalities, if such purchase would cause the
investments of a Fund in all such issuers to exceed 5% of the total assets
of the Fund taken at market value;
(13) Purchase securities on margin, except these Funds may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities (the deposit or payment by a Fund of initial or
maintenance margin in connection with futures contracts or related options
is not considered the purchase of a security on margin);
(14) Write put and call options, unless the options are covered and the Fund
invests through premium payments no more than 5% of its total assets in
options transactions, other than options on futures contracts;
(15) Purchase and sell futures contracts and options on futures contracts,
unless the sum of margin deposits on all futures contracts held by the
Fund, and premiums paid on related options held by the Fund, does not
exceed more than 5% of the Fund's total assets, unless the transaction
meets certain "bona fide hedging," criteria (in the case of an option that
is in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing the 5%);
(16) Invest in securities of any issuer if any officer or Trustee of the Fund
or any officer or director of Pilgrim owns more than 1/2 of 1% of the
outstanding securities of the issuer, and such officers, directors and
Trustees own in the aggregate more than 5% of the securities of such
issuer;
(17) Invest in interests in oil, gas or other mineral exploration or
development programs, (although it may invest in issuers that own or
invest in such interests);
(18) Purchase securities of any investment company, except by purchase in the
open market where no commission or profit to a sponsor or dealer results
from such purchase, or except when such purchase, though not made in the
open market, is part of a plan of merger, consolidation, reorganization or
acquisition of assets;
(19) Purchase more than 3% of the outstanding voting securities of another
investment company, invest more than 5% of its total assets in another
investment company, or invest more than 10% of its total assets in other
investment companies;
(20) Purchase warrants if, as a result, warrants taken at the lower of cost or
market value would represent more than 5% of the value of the Fund's net
assets or if warrants that are not listed on the New York or American
Stock Exchanges or on an exchange with comparable listing requirements,
taken at the lower of cost or market value, would represent more than 2%
of the value of the Fund's net assets (for this purpose, warrants attached
to securities will be deemed to have no value); or
(21) Make short sales, unless, by virtue of its ownership of other securities,
the Fund has the right to obtain securities equivalent in kind and amount
to the securities sold and, if the right is conditional, the sale is made
upon the same conditions, except in connection with arbitrage
transactions.
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INVESTMENT RESTRICTIONS -- THE MIDCAP OPPORTUNITIES FUND
The Fund has adopted investment restrictions numbered 1 through 11 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting shares. Investment restrictions numbered 12 through 15 are not
fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Fund may not:
(1) Borrow money, issue senior securities, or pledge, mortgage or hypothecate
its assets, except that it may: (a) borrow from banks up to 10% of its net
assets for temporary purposes but only if, immediately after such
borrowing there is asset coverage of 300%, and (b) enter into transactions
in options, futures, and options on futures and other transactions not
deemed to involve the issuance of senior securities;
(2) Underwrite the securities of others;
(3) Purchase or sell real property, including real estate limited partnerships
(the Fund may purchase marketable securities of companies that deal in
real estate or interests therein, including real estate investment
trusts);
(4) Deal in commodities or commodity contracts, except in the manner described
in the current Prospectus and SAI of the Fund;
(5) Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to
brokers or dealers or other financial institutions not affiliated with the
Fund or Pilgrim, subject to conditions established by Pilgrim), and may
purchase or hold participations in loans, in accordance with the
investment objectives and policies of the Fund, as described in the
current Prospectus and SAI of the Fund;
(6) Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts will not be deemed to be purchases of securities on
margin);
(7) Sell short, except that the Fund may enter into short sales against the
box;
(8) Invest more than 25% of its assets in any one industry or related group of
industries;
(9) With respect to 75% of the Fund's assets, purchase a security (other than
U.S. government obligations) if, as a result, more than 5% of the value of
total assets of the Fund would be invested in securities of a single
issuer;
(10) Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of an
issuer, would be held by the Fund;
(11) Borrow money in excess of 10% of its net assets for temporary purposes;
(12) Purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that the Fund
may purchase shares of other investment companies, subject to such
restrictions as may be imposed by the 1940 Act and rules thereunder or by
any state in which shares of the Fund are registered;
(13) Make an investment for the purpose of exercising control over management;
(14) Invest more than 15% of its net assets in illiquid securities; or
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(15) Borrow any amount in excess of 10% of the Fund's assets, other than for
temporary emergency or administrative purposes. In addition, the Fund will
not make additional investments when its borrowings exceed 5% of total
assets.
INVESTMENT RESTRICTIONS -- THE GROWTH + VALUE FUND
The Fund has adopted investment restrictions numbered 1 through 11 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of such Fund's
outstanding voting shares. Investment restrictions numbered 12 through 15 are
not fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Fund may not:
(1) Borrow money, issue senior securities, or pledge, mortgage or hypothecate
its assets, except that it may: (a) borrow from banks but only if,
immediately after such borrowing there is asset coverage of 300%, and (b)
enter into transactions in options, futures, and options on futures and
other transactions not deemed to involve the issuance of senior
securities;
(2) Underwrite the securities of others;
(3) Purchase or sell real property, including real estate limited partnerships
(each of these Funds may purchase marketable securities of companies that
deal in real estate or interests therein, including real estate investment
trusts);
(4) Deal in commodities or commodity contracts, except in the manner described
in the current Prospectus and SAI of the Fund;
(5) Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to
brokers or dealers or other financial institutions not affiliated with the
Fund or Pilgrim, subject to conditions established by Pilgrim) (See
"Lending Portfolio Securities" in this SAI), and may purchase or hold
participations in loans, in accordance with the investment objectives and
policies of the Fund, as described in the cur-rent Prospectus and SAI of
the Fund;
(6) Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts will not be deemed to be purchases of securities on
margin);
(7) Sell short, except that these Funds may enter into short sales against the
box;
(8) Invest more than 25% of its assets in any one industry or related group of
industries;
(9) With respect to 75% of the Fund's assets, purchase a security (other than
U.S. government obligations) if, as a result, more than 5% of the value of
total assets of the Fund would be invested in securities of a single
issuer;
(10) Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of an
issuer, would be held by the Fund;
(11) Borrow money except to the extent permitted under the 1940 Act;
(12) Purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that these
Funds may purchase shares of other investment companies, subject to such
restrictions as may be imposed by the 1940 Act and rules thereunder or by
any state in which shares of the Fund are registered;
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(13) Make an investment for the purpose of exercising control over management;
(14) Invest more than 15% of its net assets in illiquid securities; or
(15) Borrow any amount in excess of 10% of their respective assets, other than
for temporary emergency or administrative purposes. In addition, the Fund
will not make additional investments when its borrowings exceed 5% of
total assets.
INVESTMENT RESTRICTIONS -- THE INTERNATIONAL
VALUE FUND AND THE EMERGING MARKETS VALUE FUND
The Funds have adopted investment restrictions numbered 1 through 6 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of such Fund's
outstanding voting shares. Investment restrictions numbered 7 through 12 are not
fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Funds may not:
(1) Issue senior securities, except to the extent permitted under the 1940
Act, borrow money or pledge its assets, except that the Fund may borrow on
an unsecured basis from banks for temporary or emergency purposes or for
the clearance of transactions in amounts not exceeding 10% of its total
assets (not including the amount borrowed), provided that it will not make
investments while borrowings are in excess of 5% of the value of its total
assets are outstanding;
(2) Act as underwriter (except to the extent the Fund may be deemed to be an
underwriter in connection with the sale of securities in its investment
portfolio);
(3) Invest 25% or more of its total assets, calculated at the time of purchase
and taken at market value, in any one industry (other than U.S. government
securities), except that the Fund reserves the right to invest all of its
assets in shares of another investment company;
(4) Purchase or sell real estate or interests in real estate or real estate
limited partnerships (although the Fund may purchase and sell securities
which are secured by real estate, securities of companies which invest or
deal in real estate and securities issued by real estate investment
trusts);
(5) Purchase or sell commodities or commodity futures contracts, except that
the Fund may purchase and sell stock index futures contracts for hedging
purposes to the extent permitted under applicable federal and state laws
and regulations and except that the Fund may engage in foreign exchange
forward contracts;
(6) Make loans (except for purchases of debt securities consistent with the
investment policies of the Fund and except for repurchase agreements);
(7) Make short sales of securities or maintain a short position, except for
short sales against the box;
(8) Purchase securities on margin, except such short-term credits as may be
necessary for the clearance of transactions;
(9) Write put or call options, except that the Fund may (i) write covered call
options on individual securities and on stock indices; (ii) purchase put
and call options on securities which are eligible for purchase by the Fund
and on stock indices; and (iii) engage in closing transactions with
respect to its options writing and purchases, in all cases subject to
applicable federal and state laws and regulations;
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(10) Purchase any security if as a result the Fund would then hold more than
10% of any class of voting securities of an issuer (taking all common
stock issues as a single class, all preferred stock issues as a single
class, and all debt issues as a single class), except that the Fund
reserves the right to invest all of its assets in a class of voting
securities of another investment company;
(11) Invest more than 10% of its assets in the securities of other investment
companies or purchase more than 3% of any other investment company's
voting securities or make any other investment in other investment
companies except as permitted by federal and state law, except that the
Fund reserves the right to invest all of its assets in another investment
company;
(12) Invest more than 15% of its net assets in illiquid securities.
INVESTMENT RESTRICTIONS -- THE RESEARCH ENHANCED INDEX FUND
The Fund has adopted investment restrictions numbered 1 through 8 as fundamental
policies. These restrictions cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the Fund's outstanding voting
shares. Investment restrictions numbered 9 through 14 are not fundamental
policies and may be changed by vote of a majority of the Trust's Board members
at any time. The Fund may not:
(1) Borrow money, issue senior securities, or pledge, mortgage or hypothecate
its assets, except that it may: (a) borrow from banks up to 33'/3% of its
net assets for temporary purposes but only if, immediately after such
borrowing there is asset coverage of 300%, and (b) enter into transactions
in options, futures, and options on futures and other transactions not
deemed to involve the issuance of senior securities;
(2) Underwrite the securities of others;
(3) Purchase or sell real estate, including real estate limited partnerships
(the Fund may purchase marketable securities of companies that deal in
real estate or interests therein, including real estate investment
trusts);
(4) Deal in commodities or commodity contracts, except in the manner described
in the current Prospectus and SAI of the Fund;
(5) Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 33 1/3% of net assets at the time the loan is made, to
brokers or dealers or other financial institutions not affiliated with the
Fund or Pilgrim, subject to conditions established by Pilgrim) (See
"Lending Portfolio Securities" in this SAI), and may purchase or hold
participations in loans, in accordance with the investment objectives and
policies of the Fund, as described in the current Prospectus and SAI of
the Fund;
(6) Invest more than 25% of its assets in any one industry;
(7) With respect to 75% of the Fund's assets, purchase a security (other than
U.S. government obligations) if, as a result, more than 5% of the value of
total assets of the Fund would be invested in securities of a single
issuer;
(8) Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of an
issuer, would be held by the Fund;
(9) Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts will not be deemed to be purchases of securities on
margin);
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(10) Sell short, except that the Fund may enter into short sales against the
box;
(11) Purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that the Fund
may purchase shares of other investment companies, subject to such
restrictions as may be imposed by the 1940 Act, rules thereunder or any
order pursuant thereto or by any state in which shares of the Fund are
registered;
(12) Make an investment for the purpose of exercising control over management;
(13) Invest more than 15% of its net assets in illiquid securities; or
(14) Borrow any amount in excess of 33 1/3% of the Fund's assets, other than
for temporary emergency or administrative purposes.
As a fundamental policy, this Fund may borrow money from banks to the extent
permitted under the 1940 Act. As an operating (non-fundamental) policy, this
Fund does not intend to borrow any amount in excess of 10% of its assets, and
would do so only for temporary emergency or administrative purposes. In
addition, to avoid the potential leveraging of assets, this Fund will not make
additional investments when its borrowings, including those investment
techniques which are regarded as a form of borrowing, are in excess of 5% of
total assets. If this Fund should determine to expand its ability to borrow
beyond the current operating policy, the Fund's Prospectus would be amended and
shareholders would be notified.
In addition to the above noted investment policies, the Research Enhanced Index
Fund's Sub-Adviser intends to monitor the sector and security weightings of its
portfolio relative to the composition of the S&P 500 Index. In that regard, the
Sub-Adviser intends to manage the Fund so that its sector weightings and
securities holdings closely approximate the sector and securities weightings of
the Index. As noted in the prospectus, the Sub-Adviser may vary modestly the
weightings of portfolio securities so that index securities that appear to be
overvalued may be underweighted and securities that may appear to be
underweighted may be overvalued. Steps will be taken periodically to rebalance
positions consistent with maintaining reasonable transaction costs and
reasonable weightings relative to the Index. While the Fund seeks to modestly
outperform the S&P 500 Index, the Fund expects that its returns will have a
coefficient correlation of 0.90% or better to the S&P 500 Index.
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INVESTMENT RESTRICTIONS -- THE INCOME & GROWTH FUND,
HIGH TOTAL RETURN FUND II, AND THE HIGH TOTAL RETURN FUND
The Funds have adopted investment restrictions numbered 1 through 11 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of such Fund's
outstanding voting shares. Investment restrictions numbered 12 through 17 are
not fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Funds may not:
(1) Borrow money, issue senior securities, or pledge, mortgage or hypothecate
its assets, except that it may: (a) borrow from banks but only if,
immediately after such borrowing there is asset coverage of 300%, and (b)
enter into transactions in options, futures, and options on futures and
other transactions not deemed to involve the issuance of senior
securities;
(2) Underwrite the securities of others;
(3) Purchase or sell real property, including real estate limited partnerships
(each of these Funds may purchase marketable securities of companies that
deal in real estate or interests therein, including real estate investment
trusts);
(4) Deal in commodities or commodity contracts, except in the manner described
in the current Prospectus and SAI of the Fund;
(5) Make loans to other persons (but the Funds may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to
brokers or dealers or other financial institutions not affiliated with the
Funds or Pilgrim, subject to conditions established by Pilgrim) (See
"Lending Portfolio Securities" in this SAI), and may purchase or hold
participations in loans, in accordance with the investment objectives and
policies of the Fund, as described in the current Prospectus and SAI of
the Fund;
(6) Participate in any joint trading accounts;
(7) Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts will not be deemed to be purchases of securities on
margin);
(8) Sell short, except that these Funds may enter into short sales against the
box;
(9) Invest more than 25% of its assets in any one industry or related group of
industries;
(10) Purchase a security (other than U.S. government obligations) if, as a
result, more than 5% of the value of total assets of the Fund would be
invested in securities of a single issuer;
(11) Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of an
issuer, would be held by the Fund;
(12) Invest in a security if, as a result of such investment, more than 5% of
its total assets (taken at market value at the time of such investment)
would be invested in securities of issuers (other than issuers of federal
agency obligations) having a record, together with predecessors or
unconditional guarantors, of less than three years of continuous
operation;
(13) Purchase securities of other investment companies, except in connection
with a merger, consolidation or sale of assets, and except that these
Funds may purchase shares of other investment companies, subject to such
restrictions as may be imposed by the 1940 Act and rules thereunder or by
any state in which shares of the Fund are registered;
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(14) Purchase or retain securities of any issuer if 5% of the securities of
such issuer are owned by those officers and directors or trustees of the
Fund or of Pilgrim who each own beneficially more than 1/2 Of I% of its
securities;
(15) Make an investment for the purpose of exercising control over management;
(16) Invest more than 15% of its net assets (determined at the time of
investment) in illiquid securities, including securities subject to legal
or contractual restrictions on resale (which may include private
placements and those 144A securities for which the Trustees, pursuant to
procedures adopted by the Fund, have not determined there is a liquid
secondary market), repurchase agreements maturing in more than seven days,
options traded over the counter that a Fund has purchased, securities
being used to cover options a Fund has written, securities for which
market quotations are not readily available, or other securities that,
legally or in the Adviser's or Trustees' opinion, may be deemed illiquid;
or
(17) Invest in interests in oil, gas or other mineral exploration development
programs (including oil, gas or other mineral leases).
As a fundamental policy, these Funds may borrow money from banks to the extent
permitted under the 1940 Act. As an operating (non- fundamental) policy, these
Funds do not intend to borrow any amount in excess of 10% of their respective
assets, and would do so only for temporary emergency or administrative purposes.
In addition, to avoid the potential leveraging of assets, neither of these Funds
will make additional investments when its borrowings, including those investment
techniques which are regarded as a form of borrowing, are in excess of 5% of
total assets. If any of these three Funds should determine to expand its ability
to borrow beyond the current operating policy, the Fund's Prospectus would be
amended and shareholders would be notified.
In addition to the restrictions described above, each of these Funds may, from
time to time, agree to additional investment restrictions for purposes of
compliance with the securities laws of those foreign jurisdictions where that
Fund intends to offer or sell its shares.
INVESTMENT RESTRICTIONS -- THE BALANCE SHEET OPPORTUNITIES FUND
The Funds have adopted investment restrictions numbered 1 through 12 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of such Fund's outstanding voting shares. Investment
restrictions numbered 13 through 21 are not fundamental policies and may be
changed by vote of a majority of the Trust's Board members at any time. The Fund
may not:
(1) Borrow money, except from a bank and as a temporary measure for
extraordinary or emergency purposes, provided the Fund maintains asset
coverage of 300% for all borrowings;
(2) Purchase securities of any one issuer (except U.S. government securities)
if, as a result, more than 5% of the Fund's total assets would be invested
in that issuer, or the Fund would own or hold more than 10% of the
outstanding voting securities of the issuer; provided, however, that up to
25% of the Fund's total assets may be invested without regard to these
limitations;
(3) Underwrite the securities of other issuers, except to the extent that in
connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter;
(4) Concentrate its assets in the securities of issuers all of which conduct
their principal business activities in the same industry (this restriction
does not apply to obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities);
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(5) Make any investment in real estate, commodities or commodities contracts,
except that these Funds may: (a) purchase or sell readily marketable
securities that are secured by interest in real estate or issued by
companies that deal in real estate, including real estate investment and
mortgage investment trusts; and (b) engage in financial futures contracts
and related options, as described herein and in the Fund's Prospectus;
(6) Make loans, except that each of these Funds may: (a) invest in repurchase
agreements, and (b) loan its portfolio securities in amounts up to
one-third of the market or other fair value of its total assets;
(7) Issue senior securities, except as appropriate to evidence indebtedness
that it is permitted to incur, provided that the deposit or payment by the
Fund of initial or maintenance margin in connection with futures contracts
and related options is not considered the issuance of senior securities;
(8) Borrow money in excess of 5% of its total assets (taken at market value);
(9) Pledge, mortgage or hypothecate in excess of 5% of its total assets (the
deposit or payment by a Fund of initial or maintenance margin in
connection with futures contracts and related options is not considered a
pledge or hypothecation of assets);
(10) Purchase more than 10% of the voting securities of any one issuer, except
U.S. Government securities;
(11) Invest more than 15% of its net assets in illiquid securities, including
repurchase agreements maturing in more than 7 days, that cannot be
disposed of within the normal course of business at approximately the
amount at which the Fund has valued the securities, excluding restricted
securities that have been determined by the Trustees of the Fund (or the
persons designated by them to make such determinations) to be readily
marketable;
(12) Purchase securities of any issuer with a record of less than 3 years of
continuous operations, including predecessors, except U.S. Government
securities and obligations issued or guaranteed by any foreign government
or its agencies or instrumentalities, if such purchase would cause the
investments of a Fund in all such issuers to exceed 5% of the total assets
of the Fund taken at market value;
(13) Purchase securities on margin, except these Funds may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities (the deposit or payment by a Fund of initial or
maintenance margin in connection with futures contracts or related options
is not considered the purchase of a security on margin);
(14) Write put and call options, unless the options are covered and the Fund
invests through premium payments no more than 5% of its total assets in
options transactions, other than options on futures contracts;
(15) Purchase and sell futures contracts and options on futures contracts,
unless the sum of margin deposits on all futures contracts held by the
Fund, and premiums paid on related options held by the Fund, does not
exceed more than 5% of the Fund's total assets, unless the transaction
meets certain "bona fide hedging," criteria (in the case of an option that
is in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing the 5%);
(16) Invest in securities of any issuer if any officer or Trustee of the Fund
or any officer or director of Pilgrim owns more than 1/2 of 1% of the
outstanding securities of the issuer, and such officers, directors and
trustees own in the aggregate more than 5% of the securities of such
issuer;
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(17) Invest in interests in oil, gas or other mineral exploration or
development programs, (although it may invest in issuers that own or
invest in such interests);
(18) Purchase securities of any investment company, except by purchase in the
open market where no commission or profit to a sponsor or dealer results
from such purchase, or except when such purchase, though not made in the
open market, is part of a plan of merger, consolidation, reorganization or
acquisition of assets;
(19) Purchase more than 3% of the outstanding voting securities of another
investment company, invest more than 5% of its total assets in another
investment company, or invest more than 10% of its total assets in other
investment companies;
(20) Purchase warrants if, as a result, warrants taken at the lower of cost or
market value would represent more than 5% of the value of the Fund's net
assets or if warrants that are not listed on the New York or American
Stock Exchanges or on an exchange with comparable listing requirements,
taken at the lower of cost or market value, would represent more than 2%
of the value of the Fund's net assets (for this purpose, warrants attached
to securities will be deemed to have no value); or
(21) Make short sales, unless, by virtue of its ownership of other securities,
the Fund has the right to obtain securities equivalent in kind and amount
to the securities sold and, if the right is conditional, the sale is made
upon the same conditions, except in connection with arbitrage
transactions.
In addition to the restrictions described above, the Fund may, from time to
time, agree to additional investment restrictions for purposes of compliance
with the securities laws of those state and foreign jurisdictions where that
fund intends to offer or sell its shares.
INVESTMENT RESTRICTIONS -- THE PILGRIM MUTUAL FUNDS
The Funds have adopted the following fundamental policies that cannot be changed
without the affirmative vote of a majority of the outstanding shares of the
appropriate Fund (as defined in the Investment Company Act).
All percentage limitations set forth below apply immediately after a purchase or
initial investment, and any subsequent change in any applicable percentage
resulting from market fluctuations will not require elimination of any security
from the relevant portfolio.
The investment objective of each Fund is a fundamental policy. In addition, no
Fund:
(1) May invest in securities of any one issuer if more than 5% of the market
value of its total assets would be invested in the securities of such
issuer, except that up to 25% of a Fund's total assets may be invested
without regard to this restriction and a Fund will be permitted to invest
all or a portion of its assets in another diversified, open-end management
investment company with substantially the same investment objective,
policies and restrictions as the Fund. This restriction also does not
apply to investments by a Fund in securities of the U.S. Government or any
of its agencies and instrumentalities.
(2) May purchase more than 10% of the outstanding voting securities, or of any
class of securities, of any one issuer, or purchase the securities of any
issuer for the purpose of exercising control or management, except that a
Fund will be permitted to invest all or a portion of its assets in another
diversified, open-end management investment company with substantially the
same investment objective, policies and restrictions as the Fund.
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(3) May invest 25% or more of the market value of its total assets in the
securities of issuers in any one particular industry, except that a Fund
will be permitted to invest all or a portion of its assets in another
diversified, open-end management investment company with substantially the
same investment objective, policies and restrictions as the Fund. This
restriction does not apply to investments by a Fund in securities of the
U.S. Government or its agencies and instrumentalities or to investments by
the Money Market Fund in obligations of domestic branches of U.S. banks
and U.S. branches of foreign banks which are subject to the same
regulation as U.S. banks.
(4) May purchase or sell real estate. However, a Fund may invest in securities
secured by, or issued by companies that invest in, real estate or
interests in real estate.
(5) May make loans of money, except that a Fund may purchase publicly
distributed debt instruments and certificates of deposit and enter into
repurchase agreements. Each Fund reserves the authority to make loans of
its portfolio securities in an aggregate amount not exceeding 30% of the
value of its total assets. This restriction does not apply to the Money
Market Fund.
(6) May borrow money on a secured or unsecured basis, except for temporary,
extraordinary or emergency purposes or for the clearance of transactions
in amounts not exceeding 20% of the value of its total assets at the time
of the borrowing, provided that, pursuant to the Investment Company Act, a
Fund may borrow money if the borrowing is made from a bank or banks and
only to the extent that the value of the Fund's total assets, less its
liabilities other than borrowings, is equal to at least 300% of all
borrowings (including proposed borrowings), and provided, further that the
borrowing may be made only for temporary, extraordinary or emergency
purposes or for the clearance of transactions in amounts not exceeding 20%
of the value of the Fund's total assets at the time of the borrowing. If
such asset coverage of 300% is not maintained, the Fund will take prompt
action to reduce its borrowings as required by applicable law.
(7) May pledge or in any way transfer as security for indebtedness any
securities owned or held by it, except to secure indebtedness permitted by
restriction 6 above. This restriction shall not prohibit the Funds from
engaging in options, futures and foreign currency transactions, and shall
not apply to the Money Market Fund.
(8) May underwrite securities of other issuers, except insofar as it may be
deemed an underwriter under the Securities Act in selling portfolio
securities.
(9) May invest more than 15% (10% in the case of the Money Market Fund) of the
value of its net assets in securities that at the time of purchase are
illiquid.*
(10) May purchase securities on margin, except for initial and variation margin
on options and futures contracts, and except that a Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and
sales of securities.
(11) May engage in short sales (other than the MidCap Growth, SmallCap Growth,
Worldwide Growth, International Core Growth, International SmallCap
Growth, Strategic Income and High Yield II Funds), except that a Fund may
use such short-term credits as are necessary for the clearance of
transactions.
(12) May invest in securities of other investment companies, except (a) that a
Fund will be permitted to invest all or a portion of its assets in another
diversified, open-end management investment company with substantially the
same investment objective, policies and restrictions as the Fund; (b) in
compliance with the Investment Company Act and applicable state securities
laws, or (c) as part of a merger, consolidation, acquisition or
reorganization involving the Fund.
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(13) May issue senior securities, except that a Fund may borrow money as
permitted by restrictions 6 and 7 above. This restriction shall not
prohibit the Funds from engaging in short sales, options, futures and
foreign currency transactions.
(14) May enter into transactions for the purpose of arbitrage, or invest in
commodities and commodities contracts, except that a Fund may invest in
stock index, currency and financial futures contracts and related options
in accordance with any rules of the Commodity Futures Trading Commission.
(15) May purchase or write options on securities, except for hedging purposes
(except in the case of the Strategic Income Fund, which may do so for
non-hedging purposes) and then only if (i) aggregate premiums on call
options purchased by a Fund do not exceed 5% of its net assets, (ii)
aggregate premiums on put options purchased by a Fund do not exceed 5% of
its net assets, (iii) not more than 25% of a Fund's net assets would be
hedged, and (iv) not more than 25% of a Fund's net assets are used as
cover for options written by the Fund. This restriction does not apply to
the Money Market Fund.
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* For the LargeCap Growth, MidCap Growth, Worldwide Growth, Emerging Countries,
High Yield II and Balanced Funds, as of the date of this Statement of Additional
Information this investment restriction reads: "May invest more than 15% of the
value of its net assets in securities that at the time of purchase have legal or
contractual restrictions on resale or are otherwise illiquid." At a Meeting of
Shareholders on May 21, 1999, a change to this investment restriction was
approved by the shareholders of all Funds except the LargeCap Growth, MidCap
Growth, Worldwide Growth, Emerging Countries, High Yield II and Balanced Funds.
The Meeting has been adjourned with respect to those Funds, and upon shareholder
approval the investment restriction will be changed as described above.
For purposes of investment restriction number 5, the Trust considers the
restriction to prohibit the Funds from entering into instruments that have the
character of a loan, i.e., instruments that are negotiated on a case-by-case
basis between a lender and a borrower. The Trust considers the phrase "publicly
distributed debt instruments" in that investment restriction to include, among
other things, registered debt securities and unregistered debt securities that
are offered pursuant to Rule 144A under the Securities Act of 1933. As a result,
the Funds may invest in such securities. Further, the Trust does not consider
investment restriction number 5 to prevent the Funds from investing in
investment companies that invest in loans.
INVESTMENT RESTRICTIONS -- THE HIGH YIELD FUND
The Fund has adopted the following investment restrictions as fundamental
policies that cannot be changed without approval by the holders of a majority of
its outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. The Fund may not:
(1) Issue senior securities. Good faith hedging transactions and similar
investment strategies will not be treated as senior securities for
purposes of this restriction so long as they are covered in accordance
with applicable regulatory requirements and are structured consistent with
current SEC interpretations.
(2) Underwrite securities of other issuers.
(3) Invest in commodities except that the Fund may purchase and sell futures
contracts, including those relating to securities, currencies, indexes and
options on futures contracts or indexes and currencies underlying or
related to any such futures contracts.
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(4) Make loans to persons except (a) through the purchase of a portion of an
issue of publicly distributed bonds, notes, debentures and other evidences
of indebtedness customarily purchased by institutional investors, (b) by
the loan of its portfolio securities in accordance with the policies
described under "Lending of Portfolio Securities," or (c) to the extent
the entry into a repurchase agreement is deemed to be a loan.
(5) Purchase the securities of another investment company or investment trust,
except as they may be acquired as part of a merger, consolidation or
acquisition of assets.
(6) Purchase any securities on margin or effect a short sale of a security.
(This restriction does not preclude the Fund from obtaining such
short-term credits as may be necessary for the clearance of purchases and
sales of its portfolio securities.)
(7) Buy securities from or sell securities to its investment adviser or
principal distributor or any of their affiliates or any affiliates of its
Directors, as principal.
(8) Buy, lease or hold real property except for office purposes. (This
restriction does not preclude investment in marketable securities of
companies engaged in real estate activities.)
(9) As to 75% of the value of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer (other than
the United States Government) or acquire more than 10% of the outstanding
voting securities of any one issuer; but as to the remaining 25% of its
total assets, it retains freedom of action.
(10) Borrow money except from banks for temporary or emergency purposes and not
for investment purposes, and then only in amounts not in excess of 5% of
the value of its total assets.
(11) Invest in the securities of any company that, including its predecessors,
has not been in business for at least three years.
(12) Invest more than 25% of the value of its total assets in any one industry.
(13) Invest in securities of any one issuer for the purpose of exercising
control or management.
The Fund is also subject to the following restrictions and policies that are not
fundamental and may, therefore, be changed by the Board of Directors without
shareholder approval. Notwithstanding the restrictions above, the High Yield
Fund will not, so long as its shares are registered for sale in the State of
South Dakota: (i) have more than 10% of its total assets invested in securities
of issuers that the Fund is restricted from selling to the public without
registration under the Securities Act of 1933, as amended; (ii) have more than
10% of its total assets invested in real estate investment trusts or investment
companies; (iii) have more than 5% of its assets invested in options, financial
futures or stock index futures, other than hedging positions or positions that
are covered by cash or securities; (iv) have more than 5% of its assets invested
in equity securities of issuers that are not readily marketable and securities
of issuers that have been in operation for less than three years; and (v) invest
any part of its total assets in real estate or interests in real estate,
excluding readily marketable securities and real estate used for office
purposes; commodities, other than precious metals not to exceed 10% of the
Fund's total assets; commodity futures contracts or options other than as
permitted by investment companies qualifying for an exemption from the
definition of commodity pool operator; or interests in commodity pools or oil,
gas or other mineral exploration or development programs.
The High Yield Fund will not, so long as its shares are registered for sale in
the State of Texas, invest in oil, gas or other mineral leases or in real estate
limited partnerships. The Fund will limit its investments in warrants, valued at
the lower of cost or market, to 5% of its net assets. Included within that
amount, but not to exceed 2% of the Fund's net assets, may be warrants that are
not listed on the New York or
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American Stock Exchange. The Fund will not make loans unless collateral values
are continuously maintained at no less than 100% by "marking to market" daily.
The High Yield Fund will not, so long as its shares are registered for sale in
the State of Ohio: (i) purchase or retain securities of any issuer if the
officers or directors of the Fund, its adviser or manager owning beneficially
more than one-half of one percent of the securities of an issuer together own
beneficially more than five percent of the securities of that issuer, or (ii)
borrow, pledge, mortgage or hypothecate its assets in excess of 1/3 of total
Fund assets. The Fund will only borrow money for emergency or extraordinary
purposes.
INVESTMENT RESTRICTIONS -- THE BANK AND THRIFT FUND
The Fund has adopted the following investment restrictions as fundamental
policies that cannot be changed without approval by the holders of a majority of
its outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. The Fund may not:
(1) Invest more than 25% of its total assets in any industry or group of
related industries other than the banking and thrift industries, except
for temporary or defensive positions.
(2) Borrow, except that it may borrow in an amount up to 15% of its total
assets to obtain such short-term credits as are necessary for the
clearance of securities transactions.
(3) Invest in repurchase agreements maturing in more than 7 days, if as a
result of such investment more than 10% of the Fund's total assets would
be invested in such repurchase agreements.
(4) Purchase securities for which there are legal or contractual restrictions
on resale, if as a result of such purchase more than 10% of the Fund's
total assets would be invested in such securities.
(5) Invest more than 5% of the value of its net assets in marketable warrants
to purchase common stock.
(6) Purchase securities of any one issuer, other than U.S. Government
securities, if immediately after such purchase more than 5% of the value
of the Fund's total assets would be invested in such issuer or the Fund
would own more than 10% of the outstanding voting securities of an issuer
or more than 10% of any class of securities of an issuer, except that up
to 25% of the Fund's total assets may be invested without regard to the
restrictions in this Item 6. For this purpose, all outstanding bonds and
other evidences of indebtedness shall be deemed within a single class
regardless of maturities, priorities, coupon rates, series, designations,
conversion rights, security or other differences.
(7) Act as an underwriter of securities of other issuers, except, to the
extent that it may be deemed to act as an underwriter in certain cases
when disposing of restricted securities (See also Item 4 above.).
(8) Purchase or sell real estate, commodities, commodity futures contracts, or
oil or gas exploration or development programs; or sell short, or write,
purchase, or sell straddles, spreads or combinations thereof.
(9) Make loans, except that the Fund may purchase or hold Debt Securities in
accordance with its investment policies and objectives.
(10) Purchase securities on margin or hypothecate, mortgage or pledge any of
its assets except for the purpose of securing borrowings permitted by Item
2 above and then only in an amount up to 15% of the value of the Fund's
total assets at the time of borrowing.
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The following investment restrictions are not fundamental and may be changed by
the Board of Directors without shareholder approval. Appropriate notice will be
given of any changes in these restrictions made by the Board of Directors. The
Fund may not:
(11) Participate on a joint or joint and several basis in any trading account
in securities.
(12) Purchase securities of any issuer for the purposes of exercising control
or management, except in connection with a merger, consolidation,
acquisition or reorganization.
(13) Invest more than 5% of the Fund's total assets in securities of any issuer
which, together with its predecessors, has been in continuous operation
less than three years.
(14) Purchase or retain the securities of any issuer if those officers or
Directors of the Fund or officers or Directors of the Investment Manager
who each own beneficially more than 1/2 of 1% of the securities of that
issuer together own more than 5% of the securities of such issuer.
(15) Invest in illiquid securities if, as a result, more than 15% of the Fund's
net assets would be invested in such securities.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in a percentage from a change in values of portfolio
securities or amount of total assets will not be considered a violation of any
of the foregoing restrictions.
INVESTMENT RESTRICTIONS -- THE GOVERNMENT SECURITIES INCOME FUND
The Fund has adopted the following investment restrictions as fundamental
policies that cannot be changed without approval by the holders of a majority of
its outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. The Fund may not:
(1) Purchase any securities other than obligations issued or guaranteed by the
United States Government or its agencies, some of which may be subject to
repurchase agreements. There is no limit on the amount of the Fund's
assets that may be invested in the securities of any one issuer of such
obligations.
(2) Make loans to others, except (a) through the purchase of debt securities
in accordance with its investment objective and policies, (b) to the
extent the entry into a repurchase agreement is deemed to be a loan or (c)
by the loan of its portfolio securities in accordance with the policies
described under "Investment Objective and Policies."
(3) (a) Borrow money, except temporarily for extraordinary or emergency
purposes from a bank and then not in excess of 10% of its total
assets (at the lower of cost or fair market value). No additional
investment may be made while any such borrowing are in excess of 5%
of total assets. For purposes of this investment restriction, the
entry into reverse repurchase agreements, dollar-rolls and delayed
delivery transactions, including those relating to pair-offs, shall
not constitute borrowing.
(b) Mortgage, pledge or hypothecate any of its assets except to the
extent necessary to secure permitted borrowing and to the extent
related to the deposit of assets in escrow in connection with (i)
the purchase of securities on a forward commitment or delayed
delivery basis, and (ii) reverse repurchase agreements and
dollar-rolls.
(c) Borrow money, including the entry into reverse repurchase agreements
and dollar roll transactions and purchasing securities on a delayed
delivery basis, if, as a result of such
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borrowing, more than 33-1/3 of the total assets of the Fund, taken
at market value at the time of such borrowing, is derived from
borrowing. For purposes of this limitation, a delay between purchase
and settlement of a security that occurs in the ordinary course for
the market on which the security is purchased or issued is not
considered a purchase of a security on a delayed delivery basis.
(4) Purchase securities on margin, sell securities short or participate on a
joint or joint and several basis in any securities trading account. (Does
not preclude the Fund from obtaining such short-term credit as may be
necessary for the clearance of purchases and sales of its portfolio
securities.)
(5) Underwrite any securities, except to the extent the Fund may be deemed to
be an underwriter in connection with the sale of securities held in its
portfolio.
(6) Buy or sell interests in oil, gas or mineral exploration or development
programs, or purchase or sell commodities, commodity contracts or real
estate. (Does not preclude the purchase of GNMA mortgage-backed
certificates.)
(7) Purchase or hold securities of any issuer, if, at the time of purchase or
thereafter, any of the Officers and Directors of the Fund or its
Investment Manager own beneficially more than 1/2 of 1%, and such Officers
and Directors holding more than 1/2 of 1% together own beneficially more
than 5%, of the issuer's securities.
(8) Invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation or acquisition of assets.
(9) Issue senior securities, except insofar as the Fund may be deemed to have
issued a senior security by reason of borrowing money in accordance with
the Fund's borrowing policies or investment techniques, and except for
purposes of this investment restriction, collateral, escrow, or margin or
other deposits with respect to the making of short sales, the purchase or
sale of futures contracts or related options, purchase or sale of forward
foreign currency contracts, and the writing of options on securities are
not deemed to be an issuance of a senior security.
The Fund is also subject to the following restrictions and policies that are not
fundamental and may, therefore, be changed by the Board of Directors without
shareholder approval. The Fund will not invest more than 5% of the net assets of
the Fund in warrants, whether or not listed on the New York or American Stock
Exchanges, including no more than 2% of its total assets which may be invested
in warrants that are not listed on those exchanges. Warrants acquired by the
Fund in units or attached to securities are not included in this restriction.
The Fund will not, so long as its shares are registered in the State of Texas,
invest in oil, gas, or other mineral leases or real estate limited partnership
interests. The Fund will not make loans to others, unless collateral values are
continuously maintained at no less than 100% by "marking to market" daily.
Operating Restrictions - for the Pilgrim Mutual Funds
As a matter of operating (not fundamental) policy adopted by the Board of
Trustees of the Trust, no Fund:
(1) May invest in interests in oil, gas or other mineral exploration or
development programs or leases, or real estate limited partnerships,
although a Fund may invest in the securities of companies which invest in
or sponsor such programs.
(2) May lend any securities from its portfolio unless the value of the
collateral received therefor is continuously maintained in an amount not
less than 100% of the value of the loaned securities by marking to market
daily.
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Primary Fund Restrictions for the Pilgrim Mutual Funds
The following are the fundamental operating restrictions of the Primary Fund in
which the Money Market Fund invests substantially all of its assets:
The Primary Fund cannot:
(1) borrow money except as a temporary or emergency measure and not in an
amount to exceed 5% of the market value of its total assets;
(2) issue securities senior to its capital stock;
(3) act as an underwriter with respect to the securities of others;
(4) concentrate investments in any particular industry except to the extent
that its investments are concentrated exclusively in U.S. government
securities and bank obligations or repurchase agreements secured by such
obligations;
(5) purchase, sell or otherwise invest in real estate or commodities or
commodity contracts;
(6) lend more than 33 1/3% of the value of its total assets except to the
extent its investments may be considered loans;
(7) sell any security short or write, sell or purchase any futures contract or
put or call option;
(8) invest in voting securities or in companies for the purpose of exercising
control;
(9) invest in the securities of other investment companies except in
compliance with the Investment Company Act of 1940 ("1940 Act");
(10) make investments on a margin basis;
(11) purchase or sell any securities (other than securities of the Primary
Fund) from or to any officer or Trustee of the Primary Fund, the
investment adviser or affiliated person except in compliance with the 1940
Act.
PORTFOLIO TRANSACTIONS
Each Investment Management Agreement and Portfolio Management Agreement
authorizes the Investment Manager or Portfolio Manager to select the brokers or
dealers that will execute the purchase and sale of investment securities for
each Fund. In all purchases and sales of securities for the portfolio of a Fund,
the primary consideration is to obtain the most favorable price and execution
available. Pursuant to the Investment Management Agreements and Portfolio
Management Agreements, each Investment Manager or Portfolio Manager determines,
subject to the instructions of and review by the Board of Directors of the Fund,
which securities are to be purchased and sold by the Funds and which brokers are
to be eligible to execute portfolio transactions of the Fund. Purchases and
sales of securities in the over-the-counter market will generally be executed
directly with a "market-maker," unless in the opinion of an Investment Manager
or Portfolio Manager, a better price and execution can otherwise be obtained by
using a broker for the transaction.
In placing portfolio transactions, each Investment Manager or Portfolio Manager
will use its best efforts to choose a broker capable of providing the brokerage
services necessary to obtain the most favorable price and execution available.
The full range and quality of brokerage services available will be considered in
making these determinations, such as the size of the order, the difficulty of
execution, the operational facilities of the firm involved, the firm's risk in
positioning a block of securities, and other factors. With respect to Bank and
Thrift Fund, such other Factors would include the firm's ability to engage in
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transactions in shares of banks and thrifts that are not listed on an organized
stock exchange. The Investment Managers or Portfolio Manager will seek to obtain
the best commission rate available from brokers that are believed to be capable
of providing efficient execution and handling of the orders. In those instances
where it is reasonably determined that more than one broker can offer the
brokerage services needed to obtain the most favorable price and execution
available, consideration may be given to those brokers that supply research and
statistical information to a Fund, the Investment Manager, and/or the Portfolio
Manager, and provide other services in addition to execution services. Each
Investment Manager or Portfolio Manager considers such information, which is in
addition to and not in lieu of the services required to be performed by the
Investment Manager or Portfolio Manager to be useful in varying degrees, but of
indeterminable value. Consistent with this policy, portfolio transactions may be
executed by brokers affiliated with the Pilgrim Group or any of the Investment
Managers or Portfolio Managers, so long as the commission paid to the affiliated
broker is reasonable and fair compared to the commission that would be charged
by an unaffiliated broker in a comparable transaction. The placement of
portfolio brokerage with broker-dealers who have sold shares of a Fund is
subject to rules adopted by the National Association of Securities Dealers, Inc.
("NASD") Provided the Fund's officers are satisfied that the Fund is receiving
the most favorable price and execution available, the Fund may also consider the
sale of the Fund's shares as a factor in the selection of broker-dealers to
execute its portfolio transactions.
While it will continue to be the Funds' general policy to seek first to obtain
the most favorable price and execution available, in selecting a broker to
execute portfolio transactions for a Fund, the Fund may also give weight to the
ability of a broker to furnish brokerage and research services to the Fund, the
Investment Manager or the Portfolio Manager, even if the specific services were
not imputed to the Fund and were useful to the Investment Manager and/or
Portfolio Manager in advising other clients. In negotiating commissions with a
broker, the Fund may therefore pay a higher commission than would be the case if
no weight were given to the furnishing of these supplemental services, provided
that the amount of such commission has been determined in good faith by the
Investment Manager or Portfolio Manager to be reasonable in relation to the
value of the brokerage and research services provided by such broker.
Purchases of securities for a Fund also may be made directly from issuers or
from underwriters. Where possible, purchase and sale transactions will be
effected through dealers which specialize in the types of securities which the
Fund will be holding, unless better executions are available elsewhere. Dealers
and underwriters usually act as principals for their own account. Purchases from
underwriters will include a concession paid by the issuer to the underwriter and
purchases from dealers will include the spread between the bid and the asked
price. If the execution and price offered by more than one dealer or underwriter
are comparable, the order may be allocated to a dealer or underwriter which has
provided such research or other services as mentioned above.
Some securities considered for investment by a Fund may also be appropriate for
other clients served by that Fund's Investment Manager or Portfolio Manager. If
the purchase or sale of securities consistent with the investment policies of a
Portfolio and one or more of these other clients serviced by the Investment
Manager or Portfolio Manager is considered at or about the same time,
transactions in such securities will be allocated among the Fund and the
Investment Manager's or Portfolio Manager's other clients in a manner deemed
fair and reasonable by the Investment Manager or Portfolio Manager. Although
there is no specified formula for allocating such transactions, the various
allocation methods used by a Investment Manager or Portfolio Manager, and the
results of such allocations, are subject to periodic review by the Board of
Directors. To the extent any of Funds seek to acquire the same security at the
same time, one or more of the Funds may not be able to acquire as large a
portion of such security as it desires, or it may have to pay a higher price for
such security. It is recognized that in some cases this system could have a
detrimental effect on the price or value of the security insofar as a specific
Fund is concerned.
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Each Fund does not intend to effect any transactions in its portfolio securities
with any broker-dealer affiliated directly or indirectly with the Investment
Manager, except for any sales of portfolio securities that may legally be made
pursuant to a tender offer, in which event the Investment Manager will offset
against its management fee a part of any tender fees that may be legally
received and retained by an affiliated broker-dealer.
Purchases and sales of fixed income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. Each Fund may also
purchase such securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed income securities
are traded on a net basis and do not involve brokerage commissions. The cost of
executing fixed income securities transactions consists primarily of dealer
spreads and underwriting commissions.
In purchasing and selling fixed income securities, it is the policy of each Fund
to obtain the best results, while taking into account the dealer's general
execution and operational facilities, the type of transaction involved and other
factors, such as the dealer's risk in positioning the securities involved. While
Pilgrim generally seeks reasonably competitive spreads or commissions, the Funds
will not necessarily pay the lowest spread or commission available.
Brokerage commissions paid by each Fund for each of the last three fiscal years
are as follows:
For the fiscal years ended June 30, 1999
----------------------------------------
1999 1998 1997
Asia-Pacific Equity Fund $302,383 $320,036
MidCap Value Fund $16,687 $146,795
LargeCap Leaders Fund $50,835 $56,375
MagnaCap Fund $456,000 $600,000
High Yield Fund $0 $0
Bank and Thrift Fund 316,000(1) 85,000
Government Securities Income Fund $0 $0
International Core Growth Fund $1,150,595 $ 464,615 $ 24,643
Worldwide Growth Fund 1,166,321 1,065,153 970,564
International SmallCap Growth Fund 873,671 745,259 692,326
Emerging Countries Fund 3,945,783 3,634,338 1,427,861
LargeCap Growth Fund 115,558 30,907 4,620
MidCap Growth Fund 1,291,517 1,809,755 1,139,938
SmallCap Growth Fund 974,722 1,002,867 987,245
Convertible Fund 158,049 130,017 114,243
High Yield Fund II [ ] [ ] [ ]
Balanced Fund 25,782 43,966 35,105
Strategic Income Fund(2) 0 100 0
Money Market Fund N/A N/A N/A
(1) For the six month period ended June 30, 1999.
(2) The Government Income Fund, the assets and liabilities of which were
assigned to and assumed by the Strategic Income Fund paid no brokerage fees in
the fiscal year ended June 30, 1998.
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For The Fiscal Years Ended October 31,
1999 1998 1997
---- ---- ----
Growth + Value Fund ................. $339,495 $170,986
International Value Fund(1) ......... $995,910 $421,452
Emerging Markets Value Fund(2) ...... $ 33,868 N/A
Research Enhanced Index Fund(3) ..... N/A N/A
Income and Growth Fund .............. $ 93,492 $507,638
High Total Return Fund II ........... $______ $______
High Total Return Fund .............. $______ $ 222
- ------------------------
(1) Prior to April 21, 1997, the International Value Fund was operated as the
Brandes International Fund, a series of the Brandes Investment Trust, and
distributed by Worldwide Value Distributors, L.L.C.
(2) The Emerging Markets Value Fund commenced operations on January 1, 1998.
(3) The Research Enhanced Index Fund commenced operations on December 30,
1998.
For The Fiscal Years Ended December 31,
1998 1997 1996
---- ---- ----
SmallCap Opportunities Fund .......... $957,784 $874,698 $479,135
Mid-Cap Opportunities Fund(1) ........ $ 54,968 N/A N/A
Growth Opportunities Fund ............ $423,680 $169,066 $124,024
Balance Sheet Opportunities Fund ..... $ 13,025 $ 81,371
Government Securities Fund ........... $193,230 $______ $ 1,049
High Yield Fund III .................. $______ $______ $ 16,591
- -------------------------
(1) The Mid-Cap Opportunities Fund commenced operations on August 20, 1998.
Of the total commissions paid during the fiscal period ended June 30, 1999,
$__________, (_____%) were paid to firms which provided research, statistical or
other services to the Investment Adviser. The Investment Adviser has not
separately identified a portion of such commissions as applicable to the
provision of such research, statistical or otherwise.
During the fiscal year ended June 30, 1999, the following Funds (or their
predecessor master funds) acquired securities of their regular brokers or
dealers (as defined in Rule 10b-1 under the Investment Company Act) or their
parents: International Core Growth Fund -- J. P. Morgan & Co.; Worldwide Growth
Fund -- J. P. Morgan & Co.; MidCap Growth Fund -- Donaldson Lufkin & Jenrette,
J. P. Morgan & Co.; SmallCap Growth Fund -- J. P. Morgan & Co.; Convertible Fund
- -- J. P. Morgan & Co., Merrill Lynch & Co., Morgan Stanley Dean Witter Discover
Co.; Balanced Fund -- Donaldson Lufkin & Jenrette, Merrill Lynch & Co., Morgan
Stanley Dean Witter Discover & Co.; Strategic Income -- Donaldson Lufkin &
Jenrette, J. P. Morgan & Co., Merrill Lynch & Co., Morgan Stanley Dean Witter
Discover & Co. The holdings of securities of such brokers and dealers were as
follows as of March 31, 1999: Worldwide Growth Fund -- J. P. Morgan & Co.
($__________); Convertible Fund -- J. P. Morgan & Co. ($__________), Merrill
Lynch & Co. ($__________), Morgan Stanley Dean Witter Discover Co.
($__________); Balanced Fund -- Donaldson Lufkin & Jenrette ($__________),
Merrill Lynch & Co. ($__________), Morgan Stanley Dean Witter Discover & Co.
($__________); Strategic Income -- Donaldson Lufkin & Jenrette ($__________), J.
P. Morgan & Co. ($__________), Merrill Lynch & Co. ($__________), Morgan Stanley
Dean Witter Discover & Co. ($__________).
About the Money Market Fund. With respect to the Primary Fund in which the Money
Market Fund
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invests its assets, Reserve Management Company, Inc. is responsible for
decisions to buy and sell securities, broker-dealer selection and negotiation of
commission rates. As investment securities transactions made by the Primary Fund
are normally principal transactions at net prices, the Primary Fund does not
normally incur brokerage commissions. Purchases of securities from underwriters
involve a commission or concession paid by the issuer to the underwriter and
aftermarket transactions with dealers involve a spread between the bid and asked
prices. The Primary Fund has not paid any brokerage commissions during the past
three fiscal years.
The Primary Fund's policy of investing in debt securities maturing within 13
months results in high portfolio turnover. However, because the cost of these
transactions is minimal, high turnover does not have a material, adverse effect
upon the net asset value ("NAV") or yield of the Primary Fund.
Subject to the overall supervision of the officers of the Primary Fund and the
Board of Trustees, Reserve Management Company, Inc. places all orders for the
purchase and sale of the Primary Fund's investment securities. In general, in
the purchase and sale of investment securities, Reserve Management Company, Inc.
will seek to obtain prompt and reliable execution of orders at the most
favorable prices and yields. In determining best price and execution, Reserve
Management Company, Inc. may take into account a dealer's operational and
financial capabilities, the type of transaction involved, the dealer's general
relationship with Reserve Management Company, Inc., and any statistical,
research, or other services provided by the dealer to Reserve Management
Company, Inc. To the extent such non-price factors are taken into account the
execution price paid may be increased, but only in reasonable relation to the
benefit of such non-price factors to the Primary Fund as determined by Reserve
Management Company, Inc. Brokers or dealers who execute investment securities
transactions may also sell shares of the Primary Fund; however, any such sales
will be neither a qualifying nor disqualifying factor in the selection of
brokers or dealers.
When orders to purchase or sell the same security on identical terms are
simultaneously placed for the Primary Fund and other investment companies
managed by Reserve Management Company, Inc., the transactions are allocated as
to amount in accordance with each order placed for each fund. However, Reserve
Management Company, Inc. may not always be able to purchase or sell the same
security on identical terms for all investment companies affected.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
A complete description of the manner in which shares may be purchased, redeemed
or exchanged appears in the Prospectus under "Shareholder Guide." Shares of the
Funds are offered at the net asset value next computed following receipt of the
order by the dealer (and/or the Distributor) or by the Company's transfer agent,
DST Systems, Inc. ("Transfer Agent"), plus, for Class A and Class M shares, a
varying sales charge depending upon the class of shares purchased and the amount
of money invested, as set forth in the Prospectus.
Certain investors may purchase shares of the Funds with liquid assets with a
value which is readily ascertainable by reference to a domestic exchange price
and which would be eligible for purchase by a Fund consistent with the Fund's
investment policies and restrictions. These transactions only will be effected
if the Portfolio Manager intends to retain the security in the Fund as an
investment. Assets so purchased by a Fund will be valued in generally the same
manner as they would be valued for purposes of pricing the Fund's shares, if
such assets were included in the Fund's assets at the time of purchase. The
Company reserves the right to amend or terminate this practice at any time.
Special Purchases at Net Asset Value. Class A or Class M shares of the Funds may
be purchased at net asset value, without a sales charge, by persons who have
redeemed their Class A or Class M Shares of a Fund (or shares of other funds
managed by the Investment Manager in accordance with the terms of such
privileges established for such funds) within the previous 90 days. The amount
that may be so reinvested in the Fund is limited to an amount up to, but not
exceeding, the redemption proceeds (or to the nearest full share if fractional
shares are not purchased). In order to exercise this privilege, a written order
for the
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purchase of shares must be received by the Transfer Agent, or be postmarked,
within 90 days after the date of redemption. This privilege may only be used
once per calendar year. Payment must accompany the request and the purchase will
be made at the then current net asset value of the Fund. Such purchases may also
be handled by a securities dealer who may charge a shareholder for this service.
If the shareholder has realized a gain on the redemption, the transaction is
taxable and any reinvestment will not alter any applicable Federal capital gains
tax. If there has been a loss on the redemption and a subsequent reinvestment
pursuant to this privilege, some or all of the loss may not be allowed as a tax
deduction depending upon the amount reinvested, although such disallowance is
added to the tax basis of the shares acquired upon the reinvestment.
Class A Shares of the Funds may also be purchased at net asset value by any
person who can document that Fund shares were purchased with proceeds from the
redemption (within the previous 90 days) of shares from any unaffiliated mutual
fund on which a sales charge was paid or which were subject at any time to a
CDSC, and the Distributor has determined in its discretion that the unaffiliated
fund invests primarily in the same types of securities as the Pilgrim Fund
purchased.
Additionally, Class A or Class M Shares of the Funds may also be purchased at
net asset value by any charitable organization or any state, county, or city, or
any instrumentality, department, authority or agency thereof that has determined
that a Fund is a legally permissible investment and that is prohibited by
applicable investment law from paying a sales charge or commission in connection
with the purchase of shares of any registered management investment company ("an
eligible governmental authority"). If an investment by an eligible governmental
authority at net asset value is made though a dealer who has executed a selling
group agreement with respect to the Company (or the other open-end Pilgrim
Funds) the Distributor may pay the selling firm 0.25% of the Offering Price.
Shareholders of Pilgrim General Money Market Shares who acquired their shares by
using all or a portion of the proceeds from the redemption of Class A or Class M
shares of other open-end Pilgrim Funds distributed by the Distributor may
reinvest such amount plus any shares acquired through dividend reinvestment in
Class A or Class M Shares of a Fund at its current net asset value, without a
sales charge.
The Officers, directors and bona fide full-time employees of the Company and the
officers, directors and full-time employees of the Investment Manager, any
Portfolio Manager, the Distributor, any service provider to a Fund or affiliated
corporations thereof or any trust, pension, profit-sharing or other benefit plan
for such persons, broker-dealers, for their own accounts or for members of their
families (defined as current spouse, children, parents, grandparents, uncles,
aunts, siblings, nephews, nieces, step-relations, relations at-law, and cousins)
employees of such broker-dealers (including their immediate families) and
discretionary advisory accounts of the Investment Manager or any Portfolio
Manager, may purchase Class A or Class M Shares of a Fund at net asset value
without a sales charge. Such purchaser may be required to sign a letter stating
that the purchase is for his own investment purposes only and that the
securities will not be resold except to the Fund. The Company may, under certain
circumstances, allow registered investment adviser's to make investments on
behalf of their clients at net asset value without any commission or concession.
Class A or M shares may also be purchased at net asset value by certain fee
based registered investment advisers, trust companies and bank trust departments
under certain circumstances making investments on behalf of their clients and by
shareholders who have authorized the automatic transfer of dividends from the
same class of another open-end fund managed by the Investment Manager or from
Pilgrim Prime Rate Trust.
Class A or Class M shares may also be purchased without a sales charge by (i)
shareholders who have authorized the automatic transfer of dividends from the
same class of another Pilgrim Fund distributed by the Distributor or from
Pilgrim Prime Rate Trust; (ii) registered investment advisors, trust companies
and bank trust departments investing in Class A shares on their own behalf or on
behalf of their clients, provided that the aggregate amount invested in any one
or more Funds, during the 13 month period starting with the first investment,
equals at least $1 million; (iii) broker-dealers, who have signed selling group
agreements with the Distributor, and registered representatives and employees of
such broker-
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dealers, for their own accounts or for members of their families (defined as
current spouse, children, parents, grandparents, uncles, aunts, siblings,
nephews, nieces, step relations, relations-at-law and cousins); (iv)
broker-dealers using third party administrators for qualified retirement plans
who have entered into an agreement with the Pilgrim Funds or an affiliate,
subject to certain operational and minimum size requirements specified from
time-to-time by the Pilgrim Funds; (v) accounts as to which a banker or
broker-dealer charges an account management fee (`wrap accounts'); and (vi) any
registered investment company for which Pilgrim Investments, Inc. serves as
adviser.
Shares of the MagnaCap Fund are acquired at net asset value by Investors
Fiduciary Trust Company, Kansas City, Missouri, as Custodian for Pilgrim
Investment Plans, a unit investment trust for the accumulation of shares of the
Fund. As of June 30, 1999, less than 2% of the Fund's then total outstanding
shares were held by said Custodian for the account of such plan holders.
The Funds may terminate or amend the terms of these sales charge waivers at any
time.
Letters of Intent and Rights of Accumulation. An investor may immediately
qualify for a reduced sales charge on a purchase of Class A or Class M shares of
any of the Funds which offers Class A shares, Class M shares or shares with
front-end sales charges, by completing the Letter of Intent section of the
Shareholder Application in the Prospectus (the "Letter of Intent" or "Letter").
By completing the Letter, the investor expresses an intention to invest during
the next 13 months a specified amount which if made at one time would qualify
for the reduced sales charge. At any time within 90 days after the first
investment which the investor wants to qualify for the reduced sales charge, a
signed Shareholder Application, with the Letter of Intent section completed, may
be filed with the Fund. After the Letter of Intent is filed, each additional
investment made will be entitled to the sales charge applicable to the level of
investment indicated on the Letter of Intent as described above. Sales charge
reductions based upon purchases in more than one investment in the Pilgrim Funds
will be effective only after notification to the Distributor that the investment
qualifies for a discount. The shareholder's holdings in the Investment Manager's
funds (excluding Pilgrim General Money Market Shares) acquired within 90 days
before the Letter of Intent is filed will be counted towards completion of the
Letter of Intent but will not be entitled to a retroactive downward adjustment
of sales charge until the Letter of Intent is fulfilled. Any redemptions made by
the shareholder during the 13-month period will be subtracted from the amount of
the purchases for purposes of determining whether the terms of the Letter of
Intent have been completed. If the Letter of Intent is not completed within the
13-month period, there will be an upward adjustment of the sales charge as
specified below, depending upon the amount actually purchased (less redemption)
during the period.
An investor acknowledges and agrees to the following provisions by completing
the Letter of Intent section of the Shareholder Application in the Prospectus. A
minimum initial investment equal to 25% of the intended total investment is
required. An amount equal to the maximum sales charge or 5.75% of the total
intended purchase will be held in escrow at Pilgrim Funds, in the form of
shares, in the investor's name to assure that the full applicable sales charge
will be paid if the intended purchase is not completed. The shares in escrow
will be included in the total shares owned as reflected on the monthly
statement; income and capital gain distributions on the escrow shares will be
paid directly by the investor. The escrow shares will not be available for
redemption by the investor until the Letter of Intent has been completed, or the
higher sales charge paid. If the total purchases, less redemptions, equal the
amount specified under the Letter, the shares in escrow will be released. If the
total purchases, less redemptions, exceed the amount specified under the Letter
and is an amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made by the Distributor and the dealer with
whom purchases were made pursuant to the Letter of Intent (to reflect such
further quantity discount) on purchases made within 90 days before, and on those
made after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the applicable offering price.
If the total purchases, less redemptions, are less than the amount specified
under the Letter, the investor will remit to the Distributor an amount equal to
the difference in dollar amount of sales charge actually paid and the amount of
sales charge which would have applied to the aggregate purchases if the total of
such purchases had been made at a single account in the name of the investor or
to the investor's order. If within 10 days after written request such difference
in
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sales charge is not paid, the redemption of an appropriate number of shares in
escrow to realize such difference will be made. If the proceeds from a total
redemption are inadequate, the investor will be liable to the Distributor for
the difference. In the event of a total redemption of the account prior to
fulfillment of the Letter of Intent, the additional sales charge due will be
deducted from the proceeds of the redemption and the balance will be forwarded
to the Investor. By completing the Letter of Intent section of the Shareholder
Application, an investor grants to the Distributor a security interest in the
shares in escrow and agrees to irrevocably appoint the Distributor as his
attorney-in-fact with full power of substitution to surrender for redemption any
or all shares for the purpose of paying any additional sales charge due and
authorizes the Transfer Agent or Sub-Transfer Agent to receive and redeem shares
and pay the proceeds as directed by the Distributor. The investor or the
securities dealer must inform the Transfer Agent or the Distributor that this
Letter is in effect each time a purchase is made.
If at any time prior to or after completion of the Letter of Intent the investor
wishes to cancel the Letter of Intent, the investor must notify the Distributor
in writing. If, prior to the completion of the Letter of Intent, the investor
requests the Distributor to liquidate all shares held by the investor, the
Letter of Intent will be terminated automatically. Under either of these
situations, the total purchased may be less than the amount specified in the
Letter of Intent. If so, the Distributor will redeem at NAV to remit to the
Distributor and the appropriate authorized dealer an amount equal to the
difference between the dollar amount of the sales charge actually paid and the
amount of the sales charge that would have been paid on the total purchases if
made at one time.
The value of shares of the Fund plus shares of the other open-end funds
distributed by the Distributor (excluding Pilgrim General Money Market Shares)
can be combined with a current purchase to determine the reduced sales charge
and applicable offering price of the current purchase. The reduced sales charge
apply to quantity purchases made at one time or on a cumulative basis over any
period of time by (i) an investor, (ii) the investor's spouse and children under
the age of majority, (iii) the investor's custodian accounts for the benefit of
a child under the Uniform gift to Minors Act, (iv) a trustee or other fiduciary
of a single trust estate or a single fiduciary account (including a pension,
profit-sharing and/or other employee benefit plans qualified under Section 401
of the Code), by trust companies' registered investment advisors, banks and bank
trust departments for accounts over which they exercise exclusive investment
discretionary authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity.
The reduced sales charge also apply on a non-cumulative basis, to purchases made
at one time by the customers of a single dealer, in excess of $1 million. The
Letter of Intent option may be modified or discontinued at any time.
Shares of the Fund and other open-end Pilgrim Funds (excluding Pilgrim General
Money Market Shares) purchased and owned of record or beneficially by a
corporation, including employees of a single employer (or affiliates thereof)
including shares held by its employees, under one or more retirement plans, can
be combined with a current purchase to determine the reduced sales charge and
applicable offering price of the current purchase, provided such transactions
are not prohibited by one or more provisions of the Employee Retirement Income
Security Act or the Internal Revenue Code. Individuals and employees should
consult with their tax advisors concerning the tax rules applicable to
retirement plans before investing.
For the purposes of Rights of Accumulation and the Letter of Intent Privilege,
shares held by investors in the Pilgrim Funds which impose a CDSC may be
combined with Class A or Class M shares for a reduced sales charge but will not
affect any CDSC which may be imposed upon the redemption of shares of a Fund
which imposes a CDSC.
Redemptions. Payment to shareholders for shares redeemed will be made within
seven days after receipt by the Fund's Transfer Agent of the written request in
proper form, except that a Fund may suspend the right of redemption or postpone
the date of payment during any period when (a) trading on the New York Stock
Exchange is restricted as determined by the SEC or such exchange is closed for
other than weekends and holidays; (b) an emergency exists as determined by the
SEC making disposal of portfolio series or valuation of net assets of a Fund not
reasonably practicable; or (c) for such other period as the SEC may permit for
the
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protection of a Fund's shareholders. At various times, a Fund may be requested
to redeem shares for which it has not yet received good payment. Accordingly,
the Fund may delay the mailing of a redemption check until such time as it has
assured itself that good payment has been collected for the purchase of such
shares, which may take up to 15 days or longer.
Each Fund intends to pay in cash for all shares redeemed, but under abnormal
conditions that make payment in cash unwise, a Fund may make payment wholly or
partly in securities at their then current market value equal to the redemption
price. In such case, an investor may incur brokerage costs in converting such
securities to cash. However, each Company has elected to be governed by the
provisions of Rule 18f-1 under the 1940 Act, which contain a formula for
determining the minimum amount of cash to be paid as part of any redemption. In
the event a Fund must liquidate portfolio securities to meet redemptions, it
reserves the right to reduce the redemption price by an amount equivalent to the
pro-rated cost of such liquidation not to exceed one percent of the net asset
value of such shares.
Due to the relatively high cost of handling small investments, each Fund Company
reserves the right, upon 30 days written notice, to redeem, at net asset value
(less any applicable deferred sales charge), the shares of any shareholder whose
account has a value of less than $1,000 in the Fund, other than as a result of a
decline in the net asset value per share. Before the Fund redeems such shares
and sends the proceeds to the shareholder, it will notify the shareholder that
the value of the shares in the account is less than the minimum amount and will
allow the shareholder 30 days to make an additional investment in an amount that
will increase the value of the account to at least $1,000 before the redemption
is processed. This policy will not be implemented where a Fund has previously
waived the minimum investment requirements.
The value of shares on redemption or repurchase may be more or less than the
investor's cost, depending upon the market value of the portfolio securities at
the time of redemption or repurchase.
Certain purchases of Class A shares and most Class B and Class C shares may be
subject to a CDSC. Shareholders will be charged a CDSC if certain of those
shares are redeemed within the applicable time period as stated in the
prospectus.
No CDSC is imposed on any shares subject to a CDSC to the extent that those
shares (i) are no longer subject to the applicable holding period, (ii) resulted
from reinvestment of distributions on CDSC shares; or (iii) were exchanged for
shares of another fund managed by the Investment Manager, provided that the
shares acquired in such exchange and subsequent exchanges will continue to
remain subject to the CDSC, if applicable, until the applicable holding period
expires.
The CDSC or redemption fee will be waived for certain redemptions of shares upon
(i) the death or permanent disability of a shareholder, or (ii) in connection
with mandatory distributions from an Individual Retirement Account ("IRA") or
other qualified retirement plan. The CDSC or redemption fee will be waived in
the case of a redemption of shares following the death or permanent disability
of a shareholder if the redemption is made within one year of death or initial
determination of permanent disability. The waiver is available for total or
partial redemptions of shares owned by an individual or an individual in joint
tenancy (with rights of survivorship), but only for redemptions of shares held
at the time of death or initial determination of permanent disability. The CDSC
or redemption fee will also be waived in the case of a total or partial
redemption of shares in connection with any mandatory distribution from a
tax-deferred retirement plan or an IRA. The waiver does not apply in the case of
a tax-free rollover or transfer of assets, other than one following a separation
from services, except that a CDSC or redmption fee may be waived in certain
circumstances involving redemptions in connection with a distribution from a
qualified employer retirement plan in connection with termination of employment
or termination of the employer's plan and the transfer to another employer's
plan or to an IRA. The shareholder must notify the Fund either directly or
through the Distributor at the time of redemption that the shareholder is
entitled to a waiver of CDSC or redemption fee. The waiver will then be granted
subject to confirmation of the shareholder's entitlement. The CDSC or redemption
fee, which may be imposed on Class A shares purchased in excess of $1 million,
will also be waived for registered investment advisors, trust companies and bank
trust departments investing on their own behalf or on behalf of their clients.
These waivers may be changed at any time.
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Reinstatement Privilege. If you sell Class B or Class C shares of a Pilgrim
Fund, you may reinvest some or all of the proceeds in the same share class
within 90 days without a sales charge. Reinstated Class B and Class C shares
will retain their original cost and purchase date for purposes of the CDSC. The
amount of any CDSC also will be reinstated. To exercise this privilege, the
written order for the purchase of shares must be received by the Transfer Agent
or be postmarked within 90 days after the date of redemption. This privilege can
be used only once per calendar year. If a loss is incurred on the redemption and
the reinstatement privilege is used, some or all of the loss may not be allowed
as a tax deduction.
Conversion of Class B Shares. A shareholder's Class B shares will automatically
convert to Class A shares in the Fund on the first business day of the month in
which the eighth anniversary of the issuance of the Class B shares occurs,
together with a pro rata portion of all Class B shares representing dividends
and other distributions paid in additional Class B shares. The conversion of
Class B shares into Class A shares is subject to the continuing availability of
an opinion of counsel or an Internal Revenue Service ("IRS") ruling, if the
Investment Manager deems it advisable to obtain such advice, to the effect that
(1) such conversion will not constitute taxable events for federal tax purposes;
and (2) the payment of different dividends on Class A and Class B shares does
not result in the Fund's dividends or distributions constituting "preferential
dividends" under the Internal Revenue Code of 1986. The Class B shares so
converted will no longer be subject to the higher expenses borne by Class B
shares. The conversion will be effected at the relative net asset values per
share of the two Classes.
CDSC Schedule For Shares of the Equity Trust, SmallCap Opportunities Fund,
Growth Opportunities Fund, Mayflower Trust, Balance Sheet Opportunities Fund,
Government Securities Fund, and the High Yield Fund III Purchased Before
November 1, 1999
Effective November 1, 1999, the above listed Funds adopted a new CDSC schedule,
as set forth in the prospectus. Class B shares of those Funds purchased before
November 1, 1999 are subject to the following contingent sales deferred change
schedule:
Years After You CDSC As A Percentage
Bought The Shares of Amount Redeemed
----------------- ------------------
1st Year 5.00%
2nd Year 4.00%
3rd Year 3.00%
4th Year 2.00%
5th Year 2.00%
After 5 Years ---
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Dealer Commissions and Other Incentives. In connection with the sale of shares
of the Funds, the Distributor may pay Authorized Dealers of record a sales
commission as a percentage of the purchase price. In connection with the sale of
Class A and Class M shares, the Distributor will reallow to Authorized Dealers
of record from the sales charge on such sales the following amounts:
Equity Funds
Dealers' Reallowance as a Percentage of
Offering Price
---------------------------------------------
Amount of
Transaction Class A Class M
----------- ------- -------
Less than $50,000 5.00% 3.00%
$50,000 - $99,999 3.75% 2.00%
$100,000 - $249,999 2.75% 1.00%
$250,000 - $499,000 2.00% 1.00%
$500,000 - $999,999 1.75% None
$1,000,000 and over See below None
Income Funds
Dealers' Reallowance as a Percentage of
Offering Price
---------------------------------------------
Amount of
Transaction Class A Class M
----------- ------- -------
Less than $50,000 4.25% 3.00%
$50,000 - $99,999 4.00% 2.00%
$100,000 - $249,999 3.00% 1.25%
$250,000 - $499,000 2.25% 1.00%
$500,000 - $999,999 1.75% None
$1,000,000 and over See below None
The Distributor may pay to Authorized Dealers out of its own assets commissions
on shares sold in Classes A, B and C, at net asset value, which at the time of
investment would have been subject to the imposition of a contingent deferred
sales charge ("CDSC") if redeemed. There is no sales charge on purchases of
$1,000,000 or more of Class A shares. However, such purchases may be subject to
a CDSC, as disclosed in the Prospectus. The Distributor will pay Authorized
Dealers of record commissions at the rates shown in the table below for
purchases of Class A shares that are subject to a CDSC:
Dealer Commission as a
Percentage of Amount
Amount of Transaction Invested
--------------------- --------
$1,000,000 to $2,499,000 1.00%
$2,500,000 to $4,999,999 0.50%
$5,000,000 and over 0.25%
Also, the Distributor will pay out of its own assets a commission of 1% of the
amount invested for purchases of Class A shares of less than $1 million by
qualified employer retirement plans with 50 or more participants.
The Distributor will pay out of its own assets a commission of 4% of the amount
invested for purchases of Class B shares subject to a CDSC. For purchases of
Class C shares subject to a CDSC, the Distributor may pay out of its own assets
a commission of 1% of the amount invested of each Fund other than Strategic
Income Fund and 0.75% of the amount invested of Strategic Income Fund.
The Distributor may, from time to time, at its discretion, allow a selling
dealer to retain 100% of a sales charge, and such dealer may therefore be deemed
an "underwriter" under the Securities Act of 1933, as amended. The Distributor,
at its expense, may also provide additional promotional incentives to dealers.
The incentives may include payment for travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered representatives
and members of their families to locations within or
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outside of the United States, merchandise or other items. For more information
on incentives, see "Management of the Funds -- 12b-1 Plans" in this Statement of
Additional Information.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of each class
of each Fund's shares will be determined once daily as of the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. New York time) during
each day on which that Exchange is open for trading. As of the date of this
Statement of Additional Information, the New York Stock Exchange is closed on
the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
Portfolio securities listed or traded on a national securities exchange or
included in the NASDAQ National Market System will be valued at the last
reported sale price on the valuation day. Securities traded on an exchange or
NASDAQ for which there has been no sale that day and other securities traded in
the over-the-counter market will be valued at the mean between the last reported
bid and asked prices on the valuation day. Portfolio securities underlying
traded call options written by the High Yield Fund will be valued at their
market price as determined above; however, the current market value of the
option written by the High Yield Fund will be subtracted from net asset value.
In cases in which securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the authority of
the Board of Directors as the primary market. Short-term obligations maturing in
less than 60 days will generally be valued at amortized cost. This involves
valuing a security at cost on the date of acquisition and thereafter assuming a
constant accretion of a discount or amortization of a premium to maturity,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price a Fund would receive if it sold the instrument. See "How
Net Asset Value is Determined" in the Prospectus. The mortgage securities held
in a Fund's portfolio will be valued at the mean between the most recent bid and
asked prices as obtained from one or more dealers that make markets in the
securities when over-the counter market quotations are readily available.
Securities for which quotations are not readily available and all other assets
will be valued at their respective fair values as determined in good faith by or
under the direction of the Board of Directors of the Company. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation.
The value of the foreign securities traded on exchanges outside the United
States is based upon the price on the exchange as of the close of business of
the exchange preceding the time of valuation (or, if earlier, at the time of a
Fund's valuation). Quotations of foreign securities in foreign currency are
converted to U.S. dollar equivalents using the foreign exchange quotation in
effect at the time net asset value is computed. The calculation of net asset
value of a Fund may not take place contemporaneously with the determination of
the prices of certain portfolio securities of foreign issuers used in such
calculation. Further, the prices of foreign securities are determined using
information derived from pricing services and other sources. Information that
becomes known to a Fund or its agents after the time that net asset value is
calculated on any business day may be assessed in determining net asset value
per share after the time of receipt of the information, but will not be used to
retroactively adjust the price of the security so determined earlier or on a
prior day. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the time when the Fund's net
asset value is determined may not be reflected in the calculation of net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities may be valued at fair value as determined by
the management and approved in good faith by the Board of Directors.
In computing a class of a Fund's net asset value, all class-specific liabilities
incurred or accrued are deducted from the class' net assets. The resulting net
assets are divided by the number of shares of the class outstanding at the time
of the valuation and the result (adjusted to the nearest cent) is the net asset
value per share.
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The per share net asset value of Class A shares generally will be higher than
the per share net asset value of shares of the other classes, reflecting daily
expense accruals of the higher distribution fees applicable to Class B, Class C
and Class M shares. It is expected, however, that the per share net asset value
of the classes will tend to converge immediately after the payment of dividends
or distributions that will differ by approximately the amount of the expense
accrual differentials between the classes.
Orders received by dealers prior to the close of regular trading on the New York
Stock Exchange will be confirmed at the offering price computed as of the close
of regular trading on the Exchange provided the order is received by the
Distributor prior to its close of business that same day (normally 4:00 P.M.
Pacific time). It is the responsibility of the dealer to insure that all orders
are transmitted timely to the Fund. Orders received by dealers after the close
of regular trading on the New York Stock Exchange will be confirmed at the next
computed offering price as described in the Prospectus.
SHAREHOLDER INFORMATION
Certificates representing shares of a particular Fund will not normally be
issued to shareholders. The Transfer Agent will maintain an account for each
shareholder upon which the registration and transfer of shares are recorded, and
any transfers shall be reflected by bookkeeping entry, without physical
delivery.
The Transfer Agent will require that a shareholder provide requests in writing,
accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.).
Each Company reserves the right, if conditions exist that make cash payments
undesirable, to honor any request for redemption or repurchase order with
respect to shares of a Fund by making payment in whole or in part in readily
marketable securities chosen by the Fund and valued as they are for purposes of
computing the Fund's net asset value (redemption-in-kind). If payment is made in
securities, a shareholder may incur transaction expenses in converting theses
securities to cash. Each Company has elected, however, to be governed by Rule
18f-1 under the 1940 Act as a result of which a Fund is obligated to redeem
shares with respect to any one shareholder during any 90-day period solely in
cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at
the beginning of the period.
SHAREHOLDER SERVICES AND PRIVILEGES
As discussed in the Prospectus, the Funds provide a Pre-Authorized Investment
Program for the convenience of investors who wish to purchase shares of a Fund
on a regular basis. Such a Program may be started with an initial investment
($1,000 minimum) and subsequent voluntary purchases ($100 minimum) with no
obligation to continue. The Program may be terminated without penalty at any
time by the investor or the Funds. The minimum investment requirements may be
waived by the Fund for purchases made pursuant to (i) employer-administered
payroll deduction plans, (ii) profit-sharing, pension, or individual or any
employee retirement plans, or (iii) purchases made in connection with plans
providing for periodic investments in Fund shares.
For investors purchasing shares of a Fund under a tax-qualified individual
retirement or pension plan or under a group plan through a person designated for
the collection and remittance of monies to be invested in shares of a Fund on a
periodic basis, the Fund may, in lieu of furnishing confirmations following each
purchase of Fund shares, send statements no less frequently than quarterly
pursuant to the provisions of the Securities Exchange Act of 1934, as amended,
and the rules thereunder. Such quarterly statements, which would be sent to the
investor or to the person designated by the group for distribution to its
members, will be made within five business days after the end of each quarterly
period and shall reflect all transactions in the investor's account during the
preceding quarter.
All shareholders will receive a confirmation of each new transaction in their
accounts, which will also show the total number of Fund shares owned by each
shareholder, the number of shares being held in safekeeping by the Fund's
Transfer Agent for the account of the shareholder and a cumulative record of the
account for
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the entire year. Shareholders may rely on these statements in lieu of
certificates. Certificates representing shares of a fund will not be issued
unless the shareholder requests them in writing.
Self-Employed and Corporate Retirement Plans. For self-employed individuals and
corporate investors that wish to purchase shares of a Fund, there is available
through the Fund a Prototype Plan and Custody Agreement. The Custody Agreement
provides that Investors Fiduciary Trust Company, Kansas City, Missouri, will act
as Custodian under the Plan, and will furnish custodial services for an annual
maintenance fee of $12.00 for each participant, with no other charges. (This fee
is in addition to the normal Custodian charges paid by the Funds.) The annual
contract maintenance fee may be waived from time to time. For further details,
including the right to appoint a successor Custodian, see the Plan and Custody
Agreements as provided by the Company. Employers who wish to use shares of a
Fund under a custodianship with another bank or trust company must make
individual arrangements with such institution.
Individual Retirement Accounts. Investors having earned income are eligible to
purchase shares of a Fund under an IRA pursuant to Section 408(a) of the
Internal Revenue Code. An individual who creates an IRA may contribute annually
certain dollar amounts of earned income, and an additional amount if there is a
non-working spouse. Simple IRA plans that employers may establish on behalf of
their employees are also available. Roth IRA plans that enable employed and
self-employed individuals to make non-deductible contributions, and, under
certain circumstances, effect tax-free withdrawals, are also available. Copies
of a model Custodial Account Agreement are available from the Distributor.
Investors Fiduciary Trust Company, Kansas City, Missouri, will act as the
Custodian under this model Agreement, for which it will charge the investor an
annual fee of $12.00 for maintaining the Account (such fee is in addition to the
normal custodial charges paid by the Funds). Full details on the IRA are
contained in an IRS required disclosure statement, and the Custodian will not
open an IRA until seven (7) days after the investor has received such statement
from the Company. An IRA using shares of a Fund may also be used by employers
who have adopted a Simplified Employee Pension Plan.
Purchases of Fund shares by Section 403(b) and other retirement plans are also
available. Section 403(b) plans are arrangements by a public school organization
or a charitable, educational, or scientific organization that is described in
Section 501(c)(3) of the Internal Revenue Code under which employees are
permitted to take advantage of the federal income tax deferral benefits provided
for in Section 403(b) of the Code. It is advisable for an investor considering
the funding of any retirement plan to consult with an attorney or to obtain
advice from a competent retirement plan consultant.
Telephone Redemption and Exchange Privileges. As discussed in the Prospectus,
the telephone redemption and exchange privileges are available for all
shareholder accounts; however, retirement accounts may not utilize the telephone
redemption privilege. The telephone privileges may be modified or terminated at
any time. The privileges are subject to the conditions and provisions set forth
below and in the Prospectus.
(1) Telephone redemption and/or exchange instructions received in good order
before the pricing of a Fund on any day on which the New York Stock
Exchange is open for business (a "Business Day"), but not later than 4:00
p.m. eastern time, will be processed at that day's closing net asset
value. For each exchange, the shareholder's account may be charged an
exchange fee. There is no fee for telephone redemption; however,
redemptions of Class A and Class B shares may be subject to a contingent
deferred sales charge (See "Redemption of Shares" in the Prospectus).
(2) Telephone redemption and/or exchange instructions should be made by
dialing 1-800-992-0180 and selecting option 3.
(3) Pilgrim Funds will not permit exchanges in violation of any of the terms
and conditions set forth in the Funds' Prospectus or herein.
(4) Telephone redemption requests must meet the following conditions to be
accepted by Pilgrim Funds:
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(a) Proceeds of the redemption may be directly deposited into a
predetermined bank account, or mailed to the current address on the
registration. This address cannot reflect any change within the
previous sixty (30) days.
(b) Certain account information will need to be provided for
verification purposes before the redemption will be executed.
(c) Only one telephone redemption (where proceeds are being mailed to
the address of record) can be processed with in a 30 day period.
(d) The maximum amount which can be liquidated and sent to the address
of record at any one time is $100,000.
(e) The minimum amount which can be liquidated and sent to a
predetermined bank account is $5,000.
(5) If the exchange involves the establishment of a new account, the dollar
amount being exchanged must at least equal the minimum investment
requirement of the Pilgrim Fund being acquired.
(6) Any new account established through the exchange privilege will have the
same account information and options except as stated in the Prospectus.
(7) Certificated shares cannot be redeemed or exchanged by telephone but must
be forwarded to Pilgrim at P.O. Box 419368, Kansas City, MO 64141 and
deposited into your account before any transaction may be processed.
(8) If a portion of the shares to be exchanged are held in escrow in
connection with a Letter of Intent, the smallest number of full shares of
the Pilgrim Fund to be purchased on the exchange having the same aggregate
net asset value as the shares being exchanged shall be substituted in the
escrow account. Shares held in escrow may not be redeemed until the Letter
of Intent has expired and/or the appropriate adjustments have been made to
the account.
(9) Shares may not be exchanged and/or redeemed unless an exchange and/or
redemption privilege is offered pursuant to the Funds' then-current
prospectus.
(10) Proceeds of a redemption may be delayed up to 15 days or longer until the
check used to purchase the shares being redeemed has been paid by the bank
upon which it was drawn.
Systematic Withdrawal Plan. You may elect to make periodic withdrawals from your
account in any fixed amount in excess of $100 ($1,000 in the case of Class Q) to
yourself, or to anyone else you properly designate, as long as the account has a
current value of at least $10,000 ($250,000 in the case of Class Q). To
establish a systematic cash withdrawal, complete the Systematic Withdrawal Plan
section of the Account Application. To have funds deposited to your bank
account, follow the instructions on the Account Application. You may elect to
have monthly, quarterly, semi-annual or annual payments. Redemptions are
normally processed on the fifth day prior to the end of the month, quarter or
year. Checks are then mailed or proceeds are forwarded to your bank account on
or about the first of the following month. You may change the amount, frequency
and payee, or terminate the plan by giving written notice to the Transfer Agent.
A Systematic Withdrawal Plan may be modified at any time by the Fund or
terminated upon written notice by the relevant Fund.
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During the withdrawal period, you may purchase additional shares for deposit to
your account, subject to any applicable sales charge, if the additional
purchases are equal to at least one year's scheduled withdrawals, or $1,200
($12,000 in the case of Class Q), whichever is greater. There are no separate
charges to you under this Plan, although a CDSC may apply if you purchased Class
A, B or C shares. Shareholders who elect to have a systematic cash withdrawal
must have all dividends and capital gains reinvested. As shares of a Fund are
redeemed under the Plan, you may realize a capital gain or loss for income tax
purposes.
DISTRIBUTIONS
As noted in the Prospectus, shareholders have the privilege of reinvesting both
income dividends and capital gains distributions, if any, in additional shares
of a respective class of a Fund at the then current net asset value, with no
sales charge. The Funds' management believes that most investors desire to take
advantage of this privilege. It has therefore made arrangements with its
Transfer Agent to have all income dividends and capital gains distributions that
are declared by the Funds automatically reinvested for the account of each
shareholder. A shareholder may elect at any time by writing to the Fund or the
Transfer Agent to have subsequent dividends and/or distributions paid in cash.
In the absence of such an election, each purchase of shares of a class of a Fund
is made upon the condition and understanding that the Transfer Agent is
automatically appointed the shareholder's agent to receive his dividends and
distributions upon all shares registered in his name and to reinvest them in
full and fractional shares of the respective class of the Fund at the applicable
net asset value in effect at the close of business on the reinvestment date. A
shareholder may still at any time after a purchase of Fund shares request that
dividends and/or capital gains distributions be paid to him in cash.
TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax considerations
generally affecting the Funds and its shareholders. This discussion does not
provide a detailed explanation of all tax consequences, and shareholders are
advised to consult their own tax advisers with respect to the particular
federal, state, local and foreign tax consequences to them of an investment in
the Funds. This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations issued thereunder, and judicial and
administrative authorities as in effect on the date of this Statement of
Additional Information, all of which are subject to change, which change may be
retroactive.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, each Fund
must, among other things: (a) derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock or securities and gains
from the sale or other disposition of foreign currencies, or other income
(including gains from options, futures contracts and forward contracts) derived
with respect to the Fund's business of investing in stocks, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities, with such other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the Fund's total assets and to not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of the Fund's total assets is invested in the securities (other than U.S.
Government securities or securities of other regulated investment companies) of
any one issuer or of any two or more issuers that the Fund controls and that are
determined to be engaged in the same business or similar or related businesses;
and (c) distribute at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) each taxable year.
The U.S. Treasury Department is authorized to issue regulations providing that
foreign currency gains that are not directly related to a Fund's principal
business of investing in stock or securities (or options and futures with
respect to stock or securities) will be excluded from the income which qualifies
for purposes of the 90% gross income requirement described above. To date,
however, no such regulations have been issued.
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The status of the Funds as regulated investment companies does not involve
government supervision of management or of their investment practices or
policies. As a regulated investment company, a Fund generally will be relieved
of liability for U.S. federal income tax on that portion of its investment
company taxable income and net realized capital gains which it distributes to
its shareholders. Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement also are subject to a nondeductible 4%
excise tax. To prevent application of the excise tax, each Fund intends to make
distributions in accordance with the calendar year distribution requirement.
Distributions. Dividends of investment company taxable income (including net
short-term capital gains) are taxable to shareholders as ordinary income.
Distributions of investment company taxable income may be eligible for the
corporate dividends-received deduction to the extent attributable to a Fund's
dividend income from U.S. corporations, and if other applicable requirements are
met. However, the alternative minimum tax applicable to corporations may reduce
the benefit of the dividends-received deduction. Distributions of net capital
gains (the excess of net long-term capital gains over net short-term capital
losses) designated by a Fund as capital gain dividends are not eligible for the
dividends-received deduction and will generally be taxable to shareholders as
long-term capital gains, regardless of the length of time the Fund's shares have
been held by a shareholder, and are not eligible for the dividends-received
deduction. Net capital gains from assets held for one year of less will be taxed
as ordinary income. Generally, dividends and distributions are taxable to
shareholders, whether received in cash or reinvested in shares of a Fund. Any
distributions that are not from a Fund's investment company taxable income or
net capital gain may be characterized as a return of capital to shareholders or,
in some cases, as capital gain. Shareholders will be notified annually as to the
federal tax status of dividends and distributions they receive and any tax
withheld thereon.
Dividends, including capital gain dividends, declared in October, November, or
December with a record date in such month and paid during the following January
will be treated as having been paid by a Fund and received by shareholders on
December 31 of the calendar year in which declared, rather than the calendar
year in which the dividends are actually received.
Distributions by a Fund reduce the net asset value of the Fund shares. Should a
distribution reduce the net asset value below a shareholder's cost basis, the
distribution nevertheless may be taxable to the shareholder as ordinary income
or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should
be careful to consider the tax implication of buying shares just prior to a
distribution by a Fund. The price of shares purchased at that time includes the
amount of the forthcoming distribution, but the distribution will generally be
taxable to them.
Original Issue Discount. Certain debt securities acquired by a Fund may be
treated as debt securities that were originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Fund, original issue
discount that accrues on a debt security in a given year generally is treated
for federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the Code. If the High Yield Fund
invests in certain high yield original issue discount securities issued by
corporations, a portion of the original issue discount accruing on the
securities may be eligible for the deduction for dividends received by
corporations. In such event, properly designated dividends of investment company
taxable income received from the High Yield Fund by its corporate shareholders,
to the extent attributable to such portion of accrued original issue discount,
may be eligible for this deduction for dividends received by corporations.
Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by a
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the
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election of a Fund, at a constant yield to maturity which takes into account the
semi-annual compounding of interest.
Foreign Currency Transactions. Under the Code, gains or losses attributable to
fluctuations in foreign currency exchange rates which occur between the time a
Fund accrues income or other receivable or accrues expenses or other liabilities
denominated in a foreign currency and the time a Fund actually collects such
receivable or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain financial contracts and options,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "section 988" gains and losses, may increase or
decrease the amount of a Fund's net investment income to be distributed to its
shareholders as ordinary income.
Passive Foreign Investment Companies. A Fund may invest in stocks of foreign
companies that are classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign company is classified as a PFIC if at
least one-half of its assets constitute investment-type assets or 75% or more of
its gross income is investment-type income. Under the PFIC rules, an "excess
distribution" received with respect to PFIC stock is treated as having been
realized ratably over the period during which a Fund held the PFIC stock. A Fund
itself will be subject to tax on the portion, if any, of the excess distribution
that is allocated to that Fund's holding period in prior taxable years (and an
interest factor will be added to the tax, as if the tax had actually been
payable in such prior taxable years) even though the Fund distributes the
corresponding income to shareholders. Excess distributions include any gain from
the sale of PFIC stock as well as certain distributions from a PFIC. All excess
distributions are taxable as ordinary income.
A Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, a Fund generally would
be required to include in its gross income its share of the earnings of a PFIC
on a current basis, regardless of whether any distributions are received from
the PFIC. If this election is made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. Alternatively, another
election is available that involves marking to market the Funds' PFIC stock at
the end of each taxable year with the result that unrealized gains are treated
as though they were realized and are reported as ordinary income; any
mark-to-market losses, as well as loss from an actual disposition of PFIC stock,
are reported as ordinary loss to the extent of any net mark-to-market gains
included in income in prior years.
Foreign Withholding Taxes. Income received by a Fund from sources within foreign
countries may be subject to withholding and other income or similar taxes
imposed by such countries. If more than 50% of the value of an Advisory Fund's
total assets at the close of its taxable year consists of securities of foreign
corporations, that Advisory Fund will be eligible and intends to elect to "pass
through" to the Fund's shareholders the amount of foreign income and similar
taxes paid by that Fund. Pursuant to this election, a shareholder will be
required to include in gross income (in addition to taxable dividends actually
received) his pro rata share of the foreign taxes paid by an Advisory Fund, and
will be entitled either to deduct (as an itemized deduction) his pro rata share
of foreign income and similar taxes in computing his taxable income or to use it
as a foreign tax credit against his U.S. federal income tax liability, subject
to limitations. No deduction for foreign taxes may be claimed by a shareholder
who does not itemize deductions, but such a shareholder may be eligible to claim
the foreign tax credit (see below). Each shareholder will be notified within 60
days after the close of the relevant Advisory Fund's taxable year whether the
foreign taxes paid by the Advisory Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his foreign source taxable
income. For this purpose, if the pass-through election is made, the source of an
Advisory Fund's income flows through to its shareholders. With respect to an
Advisory Fund, gains from the sale of securities will be treated as derived from
U.S. sources and certain currency fluctuation gains, including fluctuation gains
from foreign currency denominated debt securities, receivable and payable, will
be treated as ordinary income derived from U.S. sources. The limitation on the
foreign tax
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credit is applied separately to foreign source passive income (as defined for
purposes of the foreign tax credit), including the foreign source passive income
passed through by a Fund. Shareholders may be unable to claim a credit for the
full amount of their proportionate share of the foreign taxes paid by a Fund.
The foreign tax credit limitation rules do not apply to certain electing
individual taxpayers who have limited creditable foreign taxes and no foreign
source income other than passive investment-type income. The foreign tax credit
is eliminated with respect to foreign taxes withheld on dividends if the
dividend-paying shares or the shares of the Fund are held by the Fund or the
shareholders, as the case may be, for less than 16 days (46 days in the case of
preferred shares) during the 30-day period (90-day period for preferred shares)
beginning 15 days (45 days for preferred shares) before the shares become
ex-dividend. Foreign taxes may not be deducted in computing alternative minimum
taxable income and the foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If a Fund is not eligible
to make the election to "pass through" to its shareholders its foreign taxes,
the foreign income taxes it pays generally will reduce investment company
taxable income and the distributions by a Fund will be treated as United States
source income.
Options and Hedging Transactions. The taxation of equity options (including
options on narrow-based stock indices) and over-the-counter options on debt
securities is governed by Code Section 1234. Pursuant to Code Section 1234, with
respect to a put or call option that is purchased by a Fund, if the option is
sold, any resulting gain or loss will be a capital gain or loss, and will be
short-term or long term, depending upon the holding period of the option. If the
option expires, the resulting loss is a capital loss and is short-term or
long-term, depending upon the holding period of the option. If the option is
exercised, the cost of the option, in the case of a call option, is added to the
basis of the purchased security and, in the case of a put option, reduces the
amount realized on the underlying security in determining gain or loss.
Certain options and financial contracts in which the Funds may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses
("60/40"); however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income or
loss. Also, section 1256 contracts held by a Fund at the end of each taxable
year (and on certain other dates as prescribed under the Code) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of the straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income when
distributed to shareholders.
A Fund may make one or more of the elections available under the Code which are
applicable to straddles. If a Fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Notwithstanding any of the foregoing, a Fund may recognize gain (but not loss)
from a constructive sale of certain "appreciated financial positions" if the
Fund enters into a short sale, notional principal contract, futures or forward
contract transaction with respect to the appreciated position or substantially
identical
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property. Appreciated financial positions subject to this constructive sale
treatment are interests (including options, futures and forward contracts and
short sales) in stock, partnership interests, certain actively traded trust
instruments and certain debt instruments. Constructive sale treatment does not
apply to certain transactions closed in the 90-day period ending with the 30th
day after the close of the Fund's taxable year, if certain conditions are met.
Requirements relating to each Fund's tax status as a regulated investment
company may limit the extent to which a Fund will be able to engage in
transactions in options and foreign currency forward contracts.
Short Sales Against the Box. If a Fund sells short "against the box," unless
certain constructive sale rules (discussed above) apply, it may realize a
capital gain or loss upon the closing of the sale. Such gain or loss generally
will be long- or short-term depending upon the length of time the Fund held the
security which it sold short. In some circumstances, short sales may have the
effect of reducing an otherwise applicable holding period of a security in the
portfolio. Were that to occur, the affected security would again have to be held
for the requisite period before its disposition to avoid treating that security
as having been sold within the first three months of its holding period. The
constructive sale rule, however, alters this treatment by treating certain short
sales against the box and other transactions as a constructive sale of the
underlying security held by the Fund, thereby requiring current recognition of
gain, as described more fully under "Options and Hedging Transactions" above.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will recognize gain at that time as though it
had closed the short sale. Future Treasury regulations may apply similar
treatment to other transactions with respect to property that becomes
substantially worthless.
Other Investment Companies. It is possible that by investing in other investment
companies, a Fund may not be able to meet the calendar year distribution
requirement and may be subject to federal income and excise tax. The
diversification and distribution requirements applicable to each Fund may limit
the extent to which each Fund will be able to invest in other investment
companies.
Sale or Other Disposition of Shares. Upon the sale or exchange of his shares, a
shareholder will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, which generally may be eligible
for reduced Federal tax rates, depending on the shareholder's holding period for
the shares. Any loss realized on a sale or exchange will be disallowed to the
extent that the shares disposed of are replaced (including replacement through
the reinvesting of dividends and capital gain distributions in a Fund) within a
period of 61 days beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss. Any loss realized by a shareholder
on the sale of a Fund's shares held by the shareholder for six months or less
will be treated for federal income tax purposes as a long-term capital loss to
the extent of any distributions of capital gain dividends received by the
shareholder with respect to such shares.
In some cases, shareholders will not be permitted to take sales charges into
account for purposes of determining the amount of gain or loss realized on the
disposition of their shares. This prohibition generally applies where (1) the
shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the shares
exchanged all or a portion of the sales charge incurred in acquiring those
shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
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<PAGE>
Backup Withholding. Each Fund generally will be required to withhold federal
income tax at a rate of 31% ("backup withholding") from dividends paid, capital
gain distributions, and redemption proceeds to shareholders if (1) the
shareholder fails to furnish a Fund with the shareholder's correct taxpayer
identification number or social security number and to make such certifications
as a Fund may require, (2) the IRS notifies the shareholder or a Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
Foreign Shareholders. Taxation of a shareholder who, as to the United States, is
a nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder. If the income from the Fund is not effectively connected with
a U.S. trade or business carried on by a foreign shareholder, ordinary income
dividends will be subject to U.S. withholding tax at the rate of 30% (or lower
treaty rate) upon the gross amount of the dividend. Such a foreign shareholder
would generally be exempt from U.S. federal income tax on gains realized on the
sale of shares of the Fund, capital gain dividends and amounts retained by the
Fund that are designated as undistributed capital gains. If the income from the
Fund is effectively connected with a U.S. trade or business carried on by a
foreign shareholder, then ordinary income dividends, capital gain dividends and
any gains realized upon the sale of shares of the Fund will be subject to U.S.
federal income tax at the rates applicable to U.S. citizens or domestic
corporations.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund, including the
applicability of foreign taxes.
Other Taxes. Distributions also may be subject to state, local and foreign
taxes. U.S. tax rules applicable to foreign investors may differ significantly
from those outlined above. This discussion does not purport to deal with all of
the tax consequences applicable to shareholders. Shareholders are advised to
consult their own tax advisers for details with respect to the particular tax
consequences to them of an investment in a Fund.
Purchases In-Kind of the International Value Fund. Investors may, subject to the
approval of the International Value Fund, the Investment Manager and Brandes,
purchase shares of the International Value Fund with liquid securities that are
eligible for purchase by the Fund and that have a value that is readily
ascertainable. These transactions will be effected only if the Investment
Manager or Brandes intends to retain the securities in the Fund as an
investment. The Fund reserves the right amend or terminate this practice at any
time.
Redemptions. The right to redeem shares may be suspended and payment therefor
postponed during periods when the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or, if permitted by rules of the SEC,
during periods when trading on the Exchange is restricted, during any emergency
that makes it impracticable for any Fund to dispose of its securities or to
determine fairly the value of its net assets, or during any other period
permitted by order of the SEC for the protection of investors. Furthermore, the
Transfer Agent will not mail redemption proceeds until checks received for
shares purchased have cleared, but payment will be forwarded immediately upon
the funds becoming available. Shareholders will be subject to the applicable
deferred sales charge, if any, for their shares at the time of redemption.
The contingent deferred sales charge will be waived with respect to Class T
shares in the following instances: (i) any partial or complete redemption of
shares of a shareholder who dies or becomes disabled, so long as the redemption
is requested within one year of death or the initial determination of
disability; (ii) any partial or complete redemption in connection with
distributions under Individual Retirement Accounts ("IRAs") or other qualified
retirement plans in connection with a lump sum or other form of
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distribution following retirement within the meaning of Section 72(t)(2)(A) (iv)
or (v) of the Code, disability or death, or after attaining the age of 59 1/2 in
the case of an IRA, Keogh Plan or custodial account pursuant to Section
403(b)(7) of the Code, or on any redemption that results from a tax free return
of an excess contribution pursuant to Section 408(d)(4) or (5) of the Code or
Section 4979(f) of the Code; (iii) redemptions effected pursuant to the Funds'
right to liquidate a shareholder's account if the aggregate net asset value of
the shares held in the account is less than $500; (iv) redemptions effected by
(A) employees of The Advest Group, Inc. ("AGI") and its subsidiaries, (B) IRAs,
Keogh plans and employee benefit plans for those employees, and (C) spouses and
minor children of those employees, so long as orders for shares are placed on
behalf of the spouses or children by the employees; (v) redemptions effected by
accounts managed by investment advisory subsidiaries of AGI registered under the
Investment Advisers Act of 1940; and (vi) redemptions in connection with
exchanges of Fund Class T shares, including shares of the Class T account of the
Money Market Portfolio.
Exchanges. The following conditions must be met for all exchanges among the
Funds and the Money Market Portfolio: (i) the shares that will be acquired in
the exchange (the "Acquired Shares") are available for sale in the shareholder's
state of residence; (ii) the Acquired shares will be registered to the same
shareholder account as the shares to be surrendered (the "Exchanged Shares");
(iii) the Exchanged Shares must have been held in the shareholder's account for
at least 30 days prior to the exchange; (iv) except for exchanges into the Money
Market Portfolio, the account value of the Fund whose shares are to be acquired
must equal or exceed the minimum initial investment amount required by that Fund
after the exchange is implemented; and (v) a properly executed exchange request
has been received by the Transfer Agent.
Each Fund reserves the right to delay the actual purchase of the Acquired Shares
for up to five business days if it determines that it would be disadvantaged by
an immediate transfer of proceeds from the redemption of Exchanged Shares.
Normally, however, the redemption of Exchanged Shares and the purchase of
Acquired Shares will take place on the day that the exchange request is received
in proper form. Each Fund reserves the right to terminate or modify its exchange
privileges at any time upon prominent notice to shareholders. Such notice will
be given at least 60 days in advance. It is the policy of Pilgrim to discourage
and prevent frequent trading by shareholders among the Funds in response to
market fluctuations. Accordingly, in order to maintain a stable asset base in
each Fund and to reduce administrative expenses borne by each Fund, Pilgrim
reserves the right to reject any exchange request.
Conversion Feature. Class B and Class T shares of each Fund will automatically
convert to Class A shares without a sales charge at the relative net asset
values of each of the classes after eight years from the acquisition of the
Class B or Class T shares, and as a result, will thereafter be subject to the
lower distribution fee (but same service fee) under the Class A Rule 12b-1 plan
for each Fund.
CALCULATION OF PERFORMANCE DATA
Each Fund may, from time to time, include "total return" in advertisements or
reports to shareholders or prospective investors. Quotations of average annual
total return will be expressed in terms of the average annual compounded rate of
return of a hypothetical investment in a Fund over periods of 1, 5 and 10 years
(up to the life of the Fund), calculated pursuant to the following formula which
is prescribed by the SEC:
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<PAGE>
P(1 + T)(n) = ERV
Where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
All total return figures assume that all dividends are reinvested when paid.
From time to time, a Fund may advertise its average annual total return over
various periods of time. These total return figures show the average percentage
change in value of an investment in the Fund from the beginning date of the
measuring period. These figures reflect changes in the price of the Fund's
shares and assume that any income dividends and/or capital gains distributions
made by the Fund during the period were reinvested in shares of the Fund.
Figures will be given for one, five and ten year periods (if applicable) and may
be given for other periods as well (such as from commencement of the Fund's
operations, or on a year-by-year basis).
Prior to October 17, 1997, the Bank and Thrift Fund operated as a closed-end
investment company. Upon conversion of the Fund to an open-end investment
company on October 17, 1997, all outstanding shares of Common Stock of the Fund
were designated as Class A shares. Performance information for the period prior
to October 17, 1997 reflects the performance of the Fund as a closed-end fund.
Performance information presented by the Fund for all periods is restated to
reflect the current maximum front-end sales load payable by the Class A shares
of the Fund. Performance information for the period prior to October 17, 1997
has not been adjusted to reflect annual Rule 12b-1 fees of Class A shares plus
additional expenses incurred in connection with operating as an open-end
investment company. Performance would have been lower if adjusted for these
charges and expenses. Performance information for all periods after October 17,
1997 reflects Class A's annual Rule 12b-1 fees and other expenses associated
with open-end investment companies.
Government Securities Income Fund earned income and realized capital gains as a
result of entering into reverse repurchase agreements during the six-month
period from July to December 1992 that caused the Fund to exceed its 10%
investment restriction on borrowing. Therefore, the Fund's performance was
higher than it would have been had the Fund adhered to its borrowing
restriction.
Quotations of yield for a Fund will be based on all investment income per share
earned during a particular 30-day period (including dividends and interest),
less expenses accrued during the period ("net investment income") and are
computed by dividing net investment income by the maximum offering price per
share on the last day of the period, according to the following formula:
Yield= 2[(a-b/cd + 1)(6) - 1]
where
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period
that were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the
period.
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<PAGE>
Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (1) computing the yield to maturity of each obligation
held by the Fund based on the market value of the obligation (including actual
accrued interest) at the close of business on the last day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest), (2) dividing that figure by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation for each day of the subsequent month that the obligation is in the
Fund's portfolio (assuming a month of 30 days) and (3) computing the total of
the interest earned on all debt obligations and all dividends accrued on all
equity securities during the 30-day or one month period. In computing dividends
accrued, dividend income is recognized by accruing 1/360 of the stated dividend
rate of a security each day that the security is in the Fund's portfolio. For
purposes of "b" above, Rule 12b-1 Plan expenses are included among the expenses
accrued for the period. Any amounts representing sales charges will not be
included among these expenses; however, the Fund will disclose the maximum sales
charge as well as any amount or specific rate of any nonrecurring account
charges. Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price calculation required pursuant to "d" above.
A Fund may also from time to time advertise its yield based on a 30-day or
90-day period ended on a date other than the most recent balance sheet included
in the Fund's Registration Statement, computed in accordance with the yield
formula described above, as adjusted to conform with the differing period for
which the yield computation is based. Any quotation of performance stated in
terms of yield (whether based on a 30-day or 90-day period) will be given no
greater prominence than the information prescribed under SEC rules. In addition,
all advertisements containing performance data of any kind will include a legend
disclosing that such performance data represents past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
A Fund may also publish a distribution rate in sales literature and in investor
communications preceded or accompanied by a copy of the current Prospectus. The
current distribution rate for a Fund is the annualization of the Fund's
distribution per share divided by the maximum offering price per share of a Fund
at the respective month-end. The current distribution rate may differ from
current yield because the distribution rate may contain items of capital gain
and other items of income, while yield reflects only earned net investment
income. In each case, the yield, distribution rates and total return figures
will reflect all recurring charges against Fund income and will assume the
payment of the maximum sales load, including any applicable contingent deferred
sales charge.
Additional Performance Quotations. Advertisements of total return will always
show a calculation that includes the effect of the maximum sales charge but may
also show total return without giving effect to that charge. Because these
additional quotations will not reflect the maximum sales charge payable, these
performance quotations will be higher than the performance quotations that
reflect the maximum sales charge.
Total returns and yields are based on past results and are not necessarily a
prediction of future performance.
Performance Comparisons. In reports or other communications to shareholders or
in advertising material, a Fund may compare the performance of its Class A,
Class B, Class C, Class M, Class Q, and Class T shares with that of other mutual
funds as listed in the rankings prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc., CDA Technologies, Inc., Value Line, Inc. or similar
independent services that monitor the performance of mutual funds or with other
appropriate indexes of investment securities. In addition, certain indexes may
be used to illustrate historic performance of select asset classes. The
performance information may also include evaluations of the Funds published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Money and The Wall Street Journal. If a Fund compares its performance
to other funds or to relevant indexes, the Fund's performance will be stated in
the same terms in which such comparative data and indexes are stated, which is
normally total return rather than yield. For these purposes
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<PAGE>
the performance of the Fund, as well as the performance of such investment
companies or indexes, may not reflect sales charges, which, if reflected, would
reduce performance results. Prior to October 17, 1997, the Bank and Thrift Fund
was rated as a closed-end fund, which had a different fee structure. Fee
structures are incorporated into certain ratings. If the Fund had been rated
using the fee structure of an open-end fund, ratings for those periods may have
been different.
The yield for the various classes of Pilgrim fixed income funds for the month
ended June 30, 1999 (October 31, 1999 for Mayflower Trust) was as follows:
<TABLE>
<CAPTION>
Fund Class A Class B Class C Class M Class Q Class T
- ---- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income & Growth Fund ..............
Government Securities Fund ........
High Yield Fund III ...............
High Total Return Fund II .........
High Total Return Fund ............
Balance SheetOpportunities Fund ...
High Yield Fund ...................
Convertible Fund ..................
Strategic Income Fund .............
Balanced Fund .....................
High Yield Fund II ................
</TABLE>
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<PAGE>
The average annual total returns, including sales charges, for each class of
shares of each Fund for the one-five-and ten-year periods ended June 30, 1999
(October 31, 1999 for Emerging Markets Value Fund, Growth + Value Fund, High
Total Return Fund, High Total Return Fund II, Income & Growth Fund,
International Value Fund, and Research Enhanced Index Fund), if applicable, and
for classes that have not been in operation for ten years, the average annual
total return from for the period from commencement of operations to June 30,
1999, is as follows:
<TABLE>
<CAPTION>
Since
1 Year 5 Year 10 Year Inception(1) Inception Date
------ ------ ------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Asia-Pacific Equity Fund(1)
Class A N/A N/A
Class B N/A N/A
Class C
Class M N/A N/A
LargeCap Leaders Fund(1)
Class A N/A N/A
Class B N/A N/A
Class C
Class M N/A N/A
MidCap Value Fund(1)
Class A N/A N/A
Class B N/A N/A
Class C
Class M N/A N/A
MagnaCap Fund(2)
Class A N/A N/A
Class B N/A N/A
Class C
Class M N/A N/A
High Yield Fund(3)
Class A N/A N/A
Class B N/A N/A
Class C
Class M N/A N/A
Class Q
Bank and Thrift Fund(4)
Class A N/A N/A
Class B N/A N/A
Government Securities
Income Fund(5)
Class A N/A N/A
Class B N/A N/A
Class C
Class M N/A N/A
</TABLE>
131
<PAGE>
<TABLE>
<CAPTION>
Since
1 Year 5 Year 10 Year Inception(1) Inception Date
------ ------ ------- ------------ --------------
<S> <C> <C> <C> <C> <C>
International Core
Growth Fund
Class A % N/A N/A % 2/28/97
Class B % N/A N/A % 2/28/97
Class C % N/A N/A % 2/28/97
Class Q % N/A N/A % 2/28/97
Worldwide Growth Fund
Class A % % N/A % 4/19/93
Class B % N/A N/A % 5/31/95
Class C % % N/A % 4/19/93
Class Q % % N/A % 8/31/95
International SmallCap
Growth Fund
Class A % % N/A % 12/27/93
Class B % N/A N/A % 5/31/95
Class C % % N/A % 12/27/93
Class Q % % N/A % 8/31/95
Emerging Countries Fund
Class A % N/A N/A % 11/28/94
Class B % N/A N/A % 5/31/95
Class C % N/A N/A % 11/28/94
Class Q % N/A N/A % 8/31/95
LargeCap Growth Fund
Class A % N/A N/A % 7/21/97
Class B % N/A N/A % 7/21/97
Class C % N/A N/A % 7/21/97
Class Q % N/A N/A % 7/21/97
MidCap Growth Fund
Class A % % N/A % 4/19/93
Class B % N/A N/A % 5/31/95
Class C % % N/A % 4/19/93
Class Q % % N/A % 6/30/94
SmallCap Growth Fund
Class A % % N/A % 12/27/93
Class B % N/A N/A % 5/31/95
Class C % % N/A % 12/27/93
Class Q % % N/A % 8/31/95
Convertible Fund
Class A % % N/A % 4/19/93
Class B % N/A N/A % 5/31/95
Class C % % N/A % 4/19/93
Class Q % % N/A % 8/31/95
</TABLE>
132
<PAGE>
<TABLE>
<CAPTION>
Since
1 Year 5 Year 10 Year Inception(1) Inception Date
------ ------ ------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Balanced Fund
Class A % % N/A % 4/19/93
Class B % N/A N/A % 5/31/95
Class C % % N/A % 4/19/93
Class Q % N/A N/A % 8/31/95
High Yield II Fund
Class A N/A N/A % 3/27/98
Class B % N/A N/A % 3/27/98
Class C % N/A N/A % 3/27/98
Class Q % N/A N/A % 3/27/98
Strategic Income Fund
Class A N/A N/A % 8/31/95
Class B N/A N/A % 8/31/95
Class C N/A N/A % 8/31/95
Class Q N/A N/A % 8/31/95
Growth + Value Fund
Class A
Class B
Class C
International Value Fund
Class A
Class B
Class C
Emerging Markets Value
Fund
Class A
Class B
Class C
Research Enhanced
Index Fund
Class A
Class B
Class C
Income and Growth Fund
Class A
Class B
Class C
High Total Return Fund
Class A
Class B
Class C
</TABLE>
133
<PAGE>
<TABLE>
<CAPTION>
Since
1 Year 5 Year 10 Year Inception(1) Inception Date
------ ------ ------- ------------ --------------
<S> <C> <C> <C> <C> <C>
High Total Return Fund II
Class A
Class B
Class C
SmallCap Opportunities Fund
Class A
Class B
Class C
Class T
Mid-Cap Opportunities Fund
Class A
Class B
Class C
Class T
Growth Opportunities Fund
Class A
Class B
Class C
Class T
Government Securities Fund
Class A
Class B
Class C
Class T
High Yield Fund III
Class A
Class B
Class C
Class T
Balance Sheet
Opportunities Fund
Class A
Class B
Class C
Class T
</TABLE>
(1) Class A, B and M shares of Asia-Pacific Equity Fund, the LargeCap Leaders
Fund, and MidCap Value Fund commenced on September 1, 1995. The inception
date for Class A, B and C shares of the Growth + Value Fund is November
18, 1997. The inception date for Class A and C shares of the International
Value Fund is March 6, 1995; the inception date for Class B shares of the
international Value Fund is April 18, 1997. The inception date for Class
A, B and C shares of the Emerging Markets Value Fund is January 1, 1998.
The inception date for Class A, B and C shares of the Research Enhanced
Index Fund is December 30, 1998. The inception date of Class A. B and C
shares of the Income and Growth Fund and High Total Return Fund is
November 8, 1993, February 9, 1994 and March 21, 1994, respectively. The
inception date for Class A, B and C shares of the High Total Return Fund
11 is January 31, 1997.
(2) Class B and M shares of MagnaCap Fund commenced operations on July 17,
1995.
(3) Class B and M shares of High Yield commenced operations on July 17, 1995.
134
<PAGE>
(4) Class B shares of Bank and Thrift Fund commenced operations on October 20,
1997.
(5) Class B and M shares of Government Securities Income commenced operations
on July 17, 1995. Government Securities Income Fund earned income and
realized capital gains as a result of entering into reverse repurchase
agreements during the six-month period from July to December 1992 that
caused the Fund to exceed its 10% investment restriction on borrowing.
Therefore, the Fund's performance was higher than it would have been had
the Fund adhered to its borrowing restriction.
No performance information is provided for the Money Market Fund because it had
not yet commenced operations as of June 30, 1999.
Reports and promotional literature may also contain the following information:
(i) a description of the gross national or domestic product and populations,
including but not limited to age characteristics, of various countries and
regions in which a Fund may invest, as compiled by various organizations, and
projections of such information; (ii) the performance of worldwide equity and
debt markets; (iii) the capitalization of U.S. and foreign stock markets
prepared or published by the International Finance Corporation, Morgan Stanley
Capital International or a similar financial organization; (iv) the geographic
distribution of a Fund's portfolio; (v) the major industries located in various
jurisdictions; (vi) the number of shareholders in the Funds or other Pilgrim
Funds and the dollar amount of the assets under management; (vii) descriptions
of investing methods such as dollar-cost averaging, best day/worst day
scenarios, etc.; (viii) comparisons of the average price to earnings ratio,
price to book ratio, price to cash flow and relative currency valuations of the
Funds and individual stocks in a Fund's portfolio, appropriate indices and
descriptions of such comparisons; (ix) quotes from the portfolio manager of a
Fund or other industry specialists; (x) lists or statistics of certain of a
Fund's holdings including, but not limited to, portfolio composition, sector
weightings, portfolio turnover rate, number of holdings, average market
capitalization, and modern portfolio theory statistics; (xi) NASDAQ symbols for
each class of shares of each Fund; and descriptions of the benefits of working
with investment professionals in selecting investments.
In addition, reports and promotional literature may contain information
concerning the Investment Manager, the Portfolio Managers, Pilgrim Capital,
Pilgrim Group, Inc. or affiliates of the Company, the Investment Manager, the
Portfolio Managers, Pilgrim Capital or Pilgrim Group, Inc. including: (i)
performance rankings of other funds managed by the Investment Manager or a
Portfolio Manager, or the individuals employed by the Investment Manager or a
Portfolio Manager who exercise responsibility for the day-to-day management of a
Fund, including rankings of mutual funds published by Lipper Analytical
Services, Inc., Morningstar, Inc., CDA Technologies, Inc., or other rating
services, companies, publications or other persons who rank mutual funds or
other investment products on overall performance or other criteria; (ii) lists
of clients, the number of clients, or assets under management; (iii) information
regarding the acquisition of the Pilgrim Funds by Pilgrim Capital; (iv) the past
performance of Pilgrim Capital and Pilgrim Group, Inc.; (v) the past performance
of other funds managed by the Investment Manager; and (vi) information regarding
rights offerings conducted by closed-end funds managed by the Investment
Manager.
GENERAL INFORMATION
Capitalization and Voting Rights. The authorized capital stock of the Advisory
Funds consists of 1,000,000,000 shares having par value of $.01 per share. The
authorized capital stock of Pilgrim Investment Funds, Inc. consists of
500,000,000 shares of $.10 par value each, of which 200,000,000 shares are
classified as shares of MagnaCap Fund, 200,000,000 shares are classified as
shares of the High Yield Fund, and 100,000,000 are not classified. The
authorized capital stock of the Bank and Thrift Fund, Inc. consists of
100,000,000 shares of common stock having a par value of $0.00/per share.
Holders of shares of the Advisory Funds and Bank and Thrift Fund have one vote
for each share held, and a proportionate fraction of a vote for each fraction of
a share held. The authorized capital stock of the Government Securities Income
Fund, Inc. consists of 5,000,000 shares. The authorized capital of the Pilgrim
Mutual Funds, Equity Trust, Small Cap Opportunities Fund, Growth Opportunities
Fund, Mayflower Trust, Balance Sheet Opportunities Fund, Government Securities
Fund, and High Yield Fund II is in each case an unlimited number of shares of
beneficial interest. All shares when issued are fully paid, non-assessable, and
redeemable. Shares have no preemptive rights. All shares have equal voting,
dividend and liquidation rights. Shares have non-cumulative voting rights, which
means that the holders
135
<PAGE>
of more than 50% of the shares voting for the election of Directors can elect
100% of the Directors if they choose to do so, and in such event the holders of
the remaining shares voting for the election of Directors will not be able to
elect any person or persons to the Board of Directors. Generally, there will not
be annual meetings of shareholders. There will normally be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of the Trustees holding office have been elected by
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Shareholders may, in
accordance with a Fund's charter, cause a meeting, of shareholders to be held
for the purpose of voting on the removal of Trustees. Meetings of the
shareholders will be called upon written request of shareholders holding in the
aggregate not less than 10% of the outstanding shares of the affected Fund or
class having voting rights. Except as set forth above and subject to the 1940
Act, the Trustees will continue to hold office and appoint successor Trustees.
The Board of Directors may classify or reclassify any unissued shares into
shares of any series by setting or changing in any one or more respects, from
time to time, prior to the issuance of such shares, the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends or
qualifications of such shares. Any such classification or reclassification will
comply with the provisions of the 1940 Act. The Board of Directors may create
additional series (or classes of series) of shares without shareholder approval.
Any series or class of shares may be terminated by a vote of the shareholders of
such series or class entitled to vote or by the Directors of the Company by
written notice to shareholders of such series or class. Shareholders may remove
Directors from office by votes cast at a meeting of shareholders or by written
consent.
Custodian. The cash and securities owned by each Fund are held by Investors
Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri 64105, as
Custodian, which takes no part in the decisions relating to the purchase or sale
of a Fund's portfolio securities.
Legal Counsel. Legal matters for each Company are passed upon by Dechert Price &
Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006.
Independent Auditors. KPMG LLP, 725 South Figueroa Street, Los Angeles,
California 90017, acts as independent auditors for each Fund.
Other Information. Each Company is registered with the SEC as an open-end
management investment company. Such registration does not involve supervision of
the management or policies of the Company by any governmental agency. The
Prospectus and this Statement of Additional Information omit certain of the
information contained in each Company's Registration Statement filed with the
SEC and copies of this information may be obtained from the SEC upon payment of
the prescribed fee or examined at the SEC in Washington, D.C. without charge.
Investors in the Funds will be kept informed of their progress through
semi-annual reports showing portfolio composition, statistical data and any
other significant data, including financial statement audited by independent
certified public accountants.
Reports to Shareholders. The fiscal year of the Funds which comprise the
Mayflower Trust ends on October 31. The fiscal year of the Funds which comprise
the Bank and Thrift Fund, Advisory Funds, Investment Funds, Pilgrim Mutual
Funds, and the Government Securities Income Fund, ends on June 30. The fiscal
year of Funds which comprise the Equity Trust, SmallCap Opportunities Fund,
Growth Opportunities Fund, Balance Sheet Opportunities Fund, Government
Securities Fund, and the High Yield Fund III ends on December 31. Each Fund will
send financial statements to its shareholders at least semiannually. An annual
report containing financial statements audited by the independent accountants
will be sent to shareholders each year.
Year 2000 Compliance. The services provided to the Funds by the Investment
Manager, the Sub-Advisers, the Administrator and the Funds' other service
providers are dependent on those service providers' computer systems. Many
computer software and hardware systems in use today cannot
136
<PAGE>
distinguish between the year 2000 and the year 1900 because of the way dates are
encoded and calculated (the "Year 2000 Issue"). The failure to make this
distinction could have a negative implication on handling securities trades,
pricing and account services. The Investment Manager, the Sub-Advisers, the
Administrator and the Funds' other service providers are taking steps that each
believes are reasonably designed to address the Year 2000 Issue with respect to
the computer systems that they use. Although there can be no assurances, the
Funds believe these steps will be sufficient to avoid any material adverse
impact on the Funds. The costs or consequences of incomplete or untimely
resolution of the Year 2000 Issue are unknown to the Investment Manager,
Sub-Advisers, Administrator and the Funds' other service providers at this time
but could have a material adverse impact on the operations of the Funds and the
Investment Manager, Sub-Advisers, Administrator and the Funds' other service
providers. Further, there can be no assurances, that the systems of the
companies in which the Funds invest will be timely converted or that the value
of such investments will not be adversely affected by the Year 2000 Issue.
Declaration of Trust. The Equity Trust, SmallCap Opportunities Fund, Growth
Opportunities Fund, Mayflower Trust, Balance Sheet Opportunities Fund,
Government Securities Fund, and High Yield Fund III are organized as
Massachusetts business trusts. The Declaration of Trust of each of these Funds
provides that obligations of the Fund are not binding upon its Trustees,
officers, employees and agents individually and that the Trustees, officers,
employees and agents will not be liable to the trust or its investors for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trustee, officer, employee or agent against any liability to the trust or its
investors to which the Trustee, officer, employee or agent would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of his or her duties. The Declaration of Trust also provides
that the debts, liabilities, obligations and expenses incurred, contracted for
or existing with respect to a designated Fund shall be enforceable against the
assets and property of such Fund only, and not against the assets or property of
any other Fund or the investors therein.
FINANCIAL STATEMENTS
The financial statements from the Funds' June 30, 1999 Annual Reports (for Bank
and Thrift Fund, Advisory Funds, Investment Funds, Pilgrim Mutual Funds, and
Government Securities Income Fund), December 31, 1998 Annual Report and June 30,
1999 Semi-Annual Report (Equity Trust, SmallCap Opportunities Fund, Growth
Opportunities Fund, Balance Sheet Opportunities Fund, Government Securities
Fund, and High Yield Fund III), and October 31, 1999 Annual Report (for
Mayflower Trust) are incorporated herein by reference. Copies of the Funds'
Annual and Semi-Annual Reports may be obtained without charge by contacting
Pilgrim Funds at Suite 1200, 40 North Central Avenue, Phoenix, Arizona 85004,
(800) 992-0180. There are no financial statements for the Money Market Fund at
this time.
137
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Articles of Incorporation. (1) and (4)
(b) By-laws. (1)
(c) N/A
(d) Investment Advisory Contracts. (1)
(e) Underwriting Contracts. (1) and (5)
(f) N/A
(g) Custodian Agreements. (1) and (5)
(h) Other Material Contracts. (1) and (3)
(i) Legal Opinion. (5)
(j) Consent of Independent Accountants.(6)
(k) N/A
(l) N/A
(m) Rule 12b-1 Plan. (1) and (5)
(o) Rule 18f-3 Plan. (4)
- -----------------------------------
NOTES TO EXHIBIT LISTING
(1). Previously filed as an Exhibit to the Registrant's Post-Effective
Amendment No. 16 and incorporated herein by reference.
(2). The Power of Attorney executed by Walter May was filed as an Exhibit to
the Registrant's Post-Effective Amendment No. 18 and is
incorporated herein by reference. All other powers of attorney were
filed as an Exhibit to the Registrant's Post-Effective Amendment No. 15
and are incorporated herein by reference.
(3). Previously filed as an Exhibit to the Registrant's Post-Effective
Amendment No. 17 and incorporated herein by reference.
(4). Previously filed as an Exhibit to Registrant's Post-Effective Amendment
No. 21 and incorporated herein by reference.
(5). Previously filed as an Exhibit to Registrant's Post-Effective Amendment
No. 23 filed on February 27, 1998 and incorporated herein by reference.
(6). To be filed by Amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
There are no persons controlled by or under common control with Registrant.
C-1
<PAGE>
ITEM 25. INDEMNIFICATION
Section 5.4 of Registrant's Declaration of Trust provides the following:
(a) Subject to Paragraph (c) hereof every person who is, or has been, a Trustee,
Officer, employee or agent of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee, Officer, employee or agent and against amounts
paid or incurred by him in the settlement thereof in such manner, provided, that
to the extent any claim, action, suit or proceeding involves any particular
Series or Classes of Shares of the Trust or the assets or operations of one or
more Series or Classes of Shares, such indemnification shall be provided only
from the assets (or proceeds thereof or income therefrom of such one or more
Series or Classes of Shares and not from the assets (or proceeds thereof or
income therefrom) of any other Series or Class of Shares of the Trust.
(b) The words "claim", "action", "suit" or "proceeding" shall apply to all
claims, acitons, suits or proceedings (civil, criminal, or other including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include without limitation, attorneys fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(c) No indemnification shall be provided hereunder to a Trustee or Officer:
(i) against any liability to the Trust, a series thereof, or the
Shareholders by reason of a final adjudication by a court or other body before
which a proceeding was brought or that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in reasonable belief that his action
was in the best interest of the Trust; and
(iii) in the event of a settlement or other disposition not involving a
final adjudication as provided in paragraph (b)(i) or (b)(ii) resulting in a
payment by a Trustee or Officer, unless there has been a determination that such
Trustee or Officer did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office:
(A) by the court or other body approving the settlement or
other disposition; or
(B) based upon the review of readily available facts (as
opposed to full trial-type inquiry) by (x) vote of a majority
of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office
act on the matter) or (y) written opinion of independent legal
counsel.
C-2
<PAGE>
(d) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to shich any Trustee or Officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or Officer and shall
inure to the benefit of the heirs, executors, administrators and assigns of such
a person. Nothing contained herein shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and Officers may be entitled by
contract or otherwise under law.
(e) Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in paragraph (a) of this Section
may be advanced by the Trust prior to final disposition therof upon receipt of
an undertaking by or on behalf of the recipient to repay such amount if it is
ultimately determined that he is not entitled to indemnification under this
Section, provided that either;
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees act on
the matter) or an independent legal counsel in a written opinion shall
determine, based upon a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Section, a "Disinterested Trustee" is one who is not (i) an
Interested Person of the Trust (including anyone who has been exempted from
being an Interested Person by any rule, regulation or order of the Commission),
or (ii) involved in the claim, action, suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities Acto of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, Officer or controlling person of the Registrant in
connection with the successful defense of any action, suit or proceeding) is
asserted by such Trustee, Officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy, as expressed in the Act and be governed by final
adjudication of such issue.
C-3
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "MANAGEMENT OF THE FUNDS" in the Prospectus and "Services of Pilgrim
and the Administrator" and "Trustees and Officers" in the Statement of
Additional Information, each of which is included in this Post-Effective
Amendment to the Registration Statement. Set forth is a list of each officer and
director of the Adviser indicating each business, profession, vocation or
employment of a substantial nature in which each such person has been engaged
since November 1, 1997.
<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL
INVESTMENT BUSINESS, PROFESSION
NAME ADVISER VOCATION OR EMPLOYMENT
- - --------- --------------------------- --------------------------------------------
<S> <C> <C>
John Turner Director Chairman and CEO, ReliaStar
Financial Corp. and affiliates;
Director of Pilgrim Affiliates;
Trustee and Chairman, Pilgrim
Affiliated Investment Companies.
Mark L. Lipson Chairman/CEO Trustee and President, Pilgrim Affiliated
Director Investment Companies. Chairman and
CEO, Pilgrim Holdings Corporation and
Northstar Distributors, Inc. Director and
President, Pilgrim Group, Inc. and
Northstar Funding, Inc.
Stanley D. Vyner President and CEO Executive Vice President, Pilgrim Affiliated
Investment Companies.
James M. Hennessy Secretary (General Counsel) Executive Vice President and Secretary,
Executive Vice President Pilgrim Affiliated Investment Companies.
Mary Lisanti Executive Vice President Executive Vice President, Pilgrim Affiliated
and Chief Investment Investment Companies. Former Portfolio Manager
Officer Equities with Strong Capital Management.
James R. Reis Executive Vice President Executive Vice President and Assistant
and Director of Secretary, Pilgrim Affiliated Investment
Structured Finance Companies.
Carl Dorf Senior Vice President Senior Vice President, Pilgrim Affiliated
Investment Companies and Senior Portfolio
Manager.
Howard N. Kornblue Senior Vice President Senior Vice President, Pilgrim Affiliated
Investment Companies and Senior Portfolio
Manager.
Kevin G. Mathews Senior Vice President Senior Vice President, Pilgrim Affiliated
Investment Companies and Senior Portfolio
Manager.
Robert S. Naka Senior Vice President Senior Vice President, Pilgrim Affiliated
Investment Companies.
Michael J. Roland Senior Vice President Senior Vice President and Principal Financial
Treasurer and CFO Officer, Pilgrim Affiliated Investment
Companies. Former Chief Financial Officer,
Endeaver Group.
Lauren D. Bensinger Vice President Vice President, Pilgrim Affiliated Investment
Companies and Chief Compliance Officer.
Jeffrey Bernstein Vice President Vice President, Pilgrim Affiliated Investment
Companies and Portfolio Manager. Former
Portfolio Manager with Strong Capital Management.
Robyn Ichilov Vice President Vice President, Pilgrim Affiliated Investment
Companies.
Robert Kinsey Vice President Vice President, Pilgrim Affiliated Investment
Companies and Senior Portfolio Manager.
Charles Ullerich Vice President Vice President, Pilgrim Affiliated Investment
Companies and Portfolio Manager.
Grant David Underwood Vice President Vice President, Pilgrim Affiliated Investment
Companies and Senior Portfolio Manager.
</TABLE>
C-4
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITER
(a) See "HOW THE FUNDS ARE ORGANIZED AND MANAGED", "MEET THE PORTFOLIO
MANAGERS" and "YOUR GUIDE TO BUYING, SELLING AND EXCHANGING SHARES OF NORTHSTAR
FUNDS" in the Prospectus and "Underwriter and Distribution Services" in the
Statement of Additional Information, both of which are included in this
Post-Effective Amendment to the Registration Statement. Unless otherwise
indicated, the principal business address for each person is c/o Pilgrim, 40
North Central Avenue, Suite 1200, Phoenix, AZ 85004.
<TABLE>
<CAPTION>
(b) (1) (2) (3)
Name and Principal Position and Offices Position and Offices
Address with Underwriter with Registrant
- ------------------- -------------------- --------------------
<S> <C> <C>
John Turner Director Trustee, Chairman
20 Washington Ave. South
Minneapolis, MN
Mark L. Lipson Chairman and Director Trustee and President
300 First Stamford Place
Stamford, CT
Robert J. Boulware President and CEO None
James W. Hennessy Secretary (General Counsel) Executive Vice
Executive Vice President President and
Secretary
Michael J. Roland Senior Vice President Senior Vice
Treasurer and CFO President and
Principal Financial
Officer
Joann Ham Senior Vice President None
David O. Linton Senior Vice President None
300 First Stamford Place
Stamford, CT
Herb Morgan Senior Vice President None
Lauren D. Bensinger Vice President and
Chief Compliance Officer None
</TABLE>
C-5
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
State Street Bank and Trust Co. maintains the following records at 1776
Heritage Drive, North Quincy, MA 02171 as Custodian and Fund Accounting Agent
for the Registrant.
(1) Receipts and delivery of securities including certificate numbers;
(2) Receipts and disbursement of cash;
(3) Records of securities in transfer, securities in physical possession,
securities owned and securities loaned.
(4) Fund Accounting Records.
DST Systems, Inc., ("DST") maintains the following
records at 210 West 10th Street, 8th Floor, Kansas City, MO 64105, as
Transfer Agent and Blue Sky Administrator for the Registrant.
(1) Shareholder Records;
(2) Share accumulation accounts: Details as to dates and number of shares
of each accumulation, price of each accumulation.
(3) Fund Accounting Records
(4) State Securities Regisitration Records
All other records required by item 30(a) are maintained at the office of the
Administrator, 40 North Central Avenue, Suite 1200, Phoenix, AZ 85004.
ITEM 29. Management Services
Not Applicable.
ITEM 30. Undertakings
(a) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees when
requested in writing to do so by the holders of at least 10% of the Trusts'
outstanding shares of beneficial interest and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
(b) Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of Registrant's latest annual report to shareholders, upon
request and without charge.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Stamford
and the State of Connecticut on the 2nd day of November, 1999.
REGISTRANT
By: /s/ MARK L. LIPSON
------------------------------
Mark L. Lipson, President
SIGNATURES TITLE DATE
JOHN G. TURNER Chairman and November 2, 1999
- ----------------------------- Trustee
John G. Turner*
MARK L. LIPSON Trustee November 2, 1999
- -----------------------------
Mark L. Lipson*
JOHN R. SMITH Trustee November 2, 1999
- -----------------------------
John R. Smith*
PAUL S. DOHERTY Trustee November 2, 1999
- -----------------------------
Paul S. Doherty*
DAVID W. WALLACE Trustee November 2, 1999
- -----------------------------
David W. Wallace*
ROBERT B. GOODE, JR. Trustee November 2, 1999
- -----------------------------
Robert B. Goode, Jr.*
ALAN L. GOSULE Trustee November 2, 1999
- -----------------------------
Alan L. Gosule*
DAVID W.C. PUTNAM Trustee November 2, 1999
- -----------------------------
David W.C. Putnam*
WALTER H. MAY, JR. Trustee November 2, 1999
- -----------------------------
Walter H. May, Jr.**
AGNES MULLADY Principal Financial November 2, 1999
- ----------------------------- and Accounting
Agnes Mullady Officer
By: /s/ AGNES MULLADY*
-------------------------
Agnes Mullady
Attorney-in-fact
* Executed pursuant to powers of attorney filed with Pilgrim Government
Securities Fund (formerly the "Northstar Government Securities Fund")- PEA
No.15.
** Executed pursuant to power of attorney filed with Pilgrim Government
Securities Fund (formerly the "Northstar Government Securities Fund") -
PEA No. 17.
