ING [GRAPHIC] PILGRIM Annual Report
October 31, 2000
Classes A, B, C, and I
U.S. Equity Funds
Pilgrim Growth + Value
Pilgrim Research Enhanced Index
Income Funds
Pilgrim High Total Return
Pilgrim High Total Return II
[GRAPHIC]
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Pilgrim
Funds
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TABLE OF CONTENTS
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Letter to Shareholders ....................... 1
Portfolio Managers' Reports:
U.S. Equity Funds .......................... 2
Income Funds ............................... 6
Index Descriptions ........................... 10
Shareholder Meeting .......................... 11
Report of Independent Accountants ............ 13
Statements of Assets and Liabilities ......... 14
Statements of Operations ..................... 18
Statements of Changes in Net Assets .......... 20
Financial Highlights ......................... 22
Notes to Financial Statements ................ 26
Portfolios of Investments .................... 34
Tax Information .............................. 46
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Pilgrim
Funds
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LETTER TO SHAREHOLDERS
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Dear Shareholder:
We are pleased to present the Annual Report for several of Pilgrim Mayflower
Trust's (the "Trust") Funds. The Funds included in this report are Pilgrim
Growth + Value Fund, Pilgrim Researched Enhanced Index Fund, Pilgrim High Total
Return Fund and Pilgrim High Total Return Fund II. The two other Funds of the
Trust, Pilgrim International Value Fund and Pilgrim Emerging Markets Value Fund
are included on a separate report containing the International Funds of the ING
Pilgrim Fund Family.
On September 1, 2000 ING Groep N.V. (NYSE: ING) acquired ReliaStar Financial
Corp., the indirect parent company of Pilgrim Investments, Inc., Adviser to the
Funds, Pilgrim Securities, Inc., Distributor to the Funds and Pilgrim Group,
Inc, Administrator to the Funds. In conjunction with ING Pilgrim Group, Inc. the
acquisition the Adviser, Distributor and Administrator changed their names to
ING Pilgrim Investments, Inc., ING Pilgrim Securities, Inc. and effective
September 8, 2000.
Our fund family now has many funds of varying types which provide core
investment choices for the serious investor.
At ING Pilgrim, we are dedicated to providing core investments for the serious
investor. We believe that the key to success is matching quality core
investments to the individual needs of investors. Core investments are the
foundation of every portfolio and the basis of other important investment
decisions. Pilgrim prides itself on providing a family of core investments
designed to help you reach your financial goals. Our goal is for every investor
to have a successful investment experience.(SM)
Sincerely,
ING Pilgrim Group, Inc.
December 28, 2000
1
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U.S. Equity
Funds
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Portfolio
PILGRIM GROWTH + VALUE FUND Managers' Report
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Portfolio Management: Louis Navellier, Chief Investment Officer and President,
Navellier Fund Management Inc.
Goal: The Fund seeks to provide long-term capital appreciation by investing in
equity securities of fast growing companies utilizing quantitative analysis.
Market Overview: The period between October 31, 1999 and October 31, 2000 can
only be characterized as one of the most volatile periods for the stock market
in the last 20 years. For the period beginning October 31, 1999 to its peak in
mid March, the Russell 2000 grew by over 41% as investor enthusiasm continued
unabated. Indeed, the first nine-plus weeks of the first quarter were very
positive for small and mid cap stocks, albeit volatile as well. The final two
and a half weeks saw a massive rotation into large company value-oriented
stocks. The rotation that began at the end of the first quarter continued
through the second quarter and third quarters of 2000 with value investing
outperforming growth investing and small company stocks outperforming large
company stocks. The month of October is traditionally a bad month for investors
and this year was no exception. Stocks were dragged down as many of the flagship
tech stocks reported disappointing earnings, inflation fears and the uncertainty
associated with the election furthered investor anxiety as well.
Performance: For the one year ended October 31, 2000, the Fund's Class A shares,
excluding sales charges, provided a total return of 40.18% compared to the
Russell 2000 Index which was up 17.41% for the same period. Naturally, this
period includes a period of very strong performance from the end October 1999
through early March. Since early March the overall market and the Fund have
suffered dramatic volatility.
Portfolio Specifics: During the first half of the year, the Fund remained
heavily concentrated in technology stocks. Unfortunately, the technology sector
suffered the most damage during the stock market correction that began in
mid-March.
Value stocks have prospered in recent months as the bargain hunters have come
out, while growth stocks have stumbled. We recently added two new screens to our
model: Liquidation Value to Price and Capital Expenditure Growth, which are both
value-related screens. The Liquidation Value to Price screen is similar to
measuring a stock on its book value, except that it only measures a stock on its
assets that can be liquidated. The companies with high liquidation values are
perennial acquisition targets. The Capital Expenditure Growth screen measures
how much a company re-invests in capital equipment and infrastructure. The
higher a company's capital expenditures, the better the company's stock
typically performs.
Even though we maintain a growth bias, we will utilize whatever fundamental
stock selection criteria outperform the overall stock market on a trailing one
and three year basis. Today, we are utilizing five growth criteria and two value
criteria in our stock selection model.
Market Outlook: The problem with the stock market was not the third quarter
earnings, which represented record results for many companies. The big problem
is that Wall Street has literally no idea of where future earnings are headed.
Unfortunately, we are now in the midst of a "hard" economic landing. As a
result, many companies and analysts have warned Wall Street not to expect too
much in the future. The U.S. economy is slowing faster than previously
anticipated. There is no doubt that the U.S. economy needs a jump-start to get
back on track. Wall Street is now counting on the Federal Reserve Board to
rescue the stock market. Currently, there is just too much uncertainty
surrounding the U.S. economy, in fact durable goods orders recently plummeted,
signaling severe weakness. October was volatile due to tax loss selling by many
mutual funds. Unfortunately, we suspect that the large capitalization arena will
be volatile through February due to massive redemptions in many popular large
capitalization growth funds. After reviewing the third quarter earnings results,
we are anticipating a strong recovery in many of our stocks. We remain very
bullish on our favorite small-to-mid capitalization stocks. Many stocks are real
bargains at this point, in fact we believe the best buying opportunity in the
past two years is now at hand. We will continue to buy with confidence the
stocks that still have strong revenue and earnings growth. We feel that the more
impressive rally will occur in the small to mid cap stocks because the earnings
are more robust there. The volatility in the markets should start to settle down
after the election is finally decided and we expect the market to rebound nicely
once this overwhelming condition of uncertainty is eliminated.
2
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Portfolio
Managers' Report PILGRIM GROWTH + VALUE FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
11/18/96 10/31/97 10/31/98 10/31/99 10/31/00
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Pilgrim Growth + Value Fund Class A With Sales Charge 10000 11451 10005 18937 26546
Pilgrim Growth + Value Fund Class A Without Sales Charge 10000 12150 10615 20092 28166
Russell 2000 Index 10000 12421 10950 12578 14768
Average Annual Total Returns for the Periods Ended October 31, 2000
-------------------------------------------------------------------
Since Inception
1 Year 11/18/96
------ --------
Including Sales Charge:
Class A (1) 32.09% 28.04%
Class B (2) 34.32% 28.71%
Class C (3) 38.35% 29.06%
Excluding Sales Charge:
Class A 40.18% 29.97%
Class B 39.33% 29.07%
Class C 39.35% 29.06%
Russell 2000 Index 17.41% 10.47% (4)
</TABLE>
Based on a $10,000 initial investment, the graph and table above illustrates the
total return of Pilgrim Growth + Value Fund against the Russell 2000 Index. The
Index has an inherent performance advantage over the Fund since it has no cash
in its portfolio, imposes no sales charges and incurs no operating expenses. An
investor cannot invest directly in an index. The Fund's performance is shown
both with and without the imposition of sales charges.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 5.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 3%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1
year return.
(4) Since inception performance for the Index is shown from 12/01/96.
Principal Risk Factor(s): Exposure to financial and market risks that accompany
investments in equities. In exchange for higher growth potential, investing in
stocks of smaller and mid-sized companies may entail greater price variability
than investing in stocks of larger companies.
See accompanying index descriptions on page 10.
3
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U.S. Equity
Funds
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Portfolio
PILGRIM RESEARCH ENHANCED INDEX FUND Managers' Report
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Portfolio Management Team: Timothy Devlin, Vice President and Portfolio Manager;
Bernard Kroll, Managing Director and Portfolio Manager. J.P. Morgan Investment
Management Inc.
Goal: The Fund seeks to earn a total return modestly in excess of the S&P 500
Index while maintaining a return volatility similar to the S&P 500 Index.
Market Overview: The large-cap U.S. equity market has been a tale of two cities
with a continued theme of technology running through out the past twelve months.
The first half of the year was characterized by positive earnings and price
momentum as investors focused on short-term earnings, projecting them forward
indefinitely, and pricing technology stocks with no margin for disappointments.
Since April, the slowdown in the economy has materialized and threats of a
recession have been priced into the market resulting in the S&P 500 dropping to
levels not witnessed in over a year. Because the investment strategy employed by
the Fund focuses on normalized earnings and intermediate-term growth rates, it
tends not to perform as well in a market environment such as we experienced
during the latter part of the year. The Fund is well diversified and its risk
controls are robust, however, during times of extreme internal market
divergence, even modest exposures to common risk factors, such as price
momentum, can result in out of scale performance results.
Performance: For the one year ended October 31, 2000, the Fund's Class A shares,
excluding sales charges, provided a total return of 1.55% compared to 6.09% for
the S&P 500 Index.
Portfolio Specifics: On a stock selection basis, Philip Morris, the food and
tobacco company, contributed dramatically to the funds performance as it
benefited from the announced purchase of Nabisco, the Kraft division IPO and
tobacco settlement issues. September and October saw us challenged by the
market's flight from technology to less risky sectors as tech bellwether Sun
Microsystems, which had reaffirmed strong revenue growth and improved gross
profit margins, dropped dramatically. Overweights in pharmaceutical stocks Alza
Corp. and Forest Labs added to performance. While underweight positions in
Oracle and Network Appliance, two names that topped the list with great returns,
consequently detracted from performance.
Market Outlook: We remain confident in our investment process and risk controls,
and expect that the historically wide spread between the most and least
attractive names in our universe suggests opportunities ahead. Most of the
performance of the last few years has been driven by the momentum technology
boom. The valuations on these stocks is much higher than that of the rest of the
market. We expect the market to broaden. We believe that a slowing of global
growth will cause investors to look beyond these over priced stocks to companies
that trade at much lower multiples. The beginnings of this trend have
materialized and we expect it to continue going forward.
4
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Portfolio
Managers' Report PILGRIM RESEARCH ENHANCED INDEX FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
12/30/98 10/31/99 10/31/00
-------- -------- --------
<S> <C> <C> <C>
Pilgrim Research Enhanced Index Fund Class A With Sales Charge 10000 10500 10622
Pilgrim Research Enhanced Index Fund Class A Without Sales Charge 10000 11140 11312
S&P 500 Index 10000 11203 11885
Average Annual Total Returns for the Periods Ended October 31,2000
------------------------------------------------------------------
Since Inception
1 Year 12/30/98
------ --------
Including Sales Charge:
Class A (1) -4.29% 3.55%
Class B (2) -4.15% 4.17%
Class C (3) -0.08% 6.31%
Class I 2.00% 7.34%
Excluding Sales Charge:
Class A 1.55% 6.93%
Class B 0.83% 6.26%
Class C 0.92% 6.31%
Class I 2.00% 7.34%
S&P 500 Index 6.09% 9.88% (4)
</TABLE>
Based on a $10,000 initial investment, the graph and table above illustrates the
total return of Pilgrim Research Enhanced Index Fund against the S&P 500 Index.
The Index has an inherent performance advantage over the Fund since it has no
cash in its portfolio, imposes no sales charges and incurs no operating
expenses. An investor cannot invest directly in an index. The Fund's performance
is shown both with and without the imposition of sales charges.
Total returns reflect the fact that the Investment Manager has waived certain
fees and expenses otherwise payable by the Fund. Total returns would have been
lower had there been no waiver to the Fund.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 5.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 4%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1
year return.
(4) Since inception performance for the Index is shown from 01/01/99.
Principal Risk Factor(s): Exposure to financial and market risks that accompany
investments in equities.
See accompanying index descriptions on page 10.
5
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Income
Funds
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Portfolio
PILGRIM HIGH TOTAL RETURN FUND Managers' Report
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Portfolio Management Team: Ed Schriver, Senior Vice President & Senior Portfolio
Manager, Russ Stiver, Vice President & Portfolio Manager, Andy Mitchell, Vice
President & Portfolio Manager.
Goals: The Fund invests primarily in higher-yielding, lower-rated bonds to
achieve high current income with potential for capital growth.
Market Overview: In the six-month period ended October 31, 2000, securities
markets experienced historical record high levels of price volatility. Investors
became increasingly uneasy with the prospects for continued economic growth with
low inflation in the United States. The economy began to show signs of slower
growth following repeated interest rate hikes by the Federal Reserve. Higher
interest costs, weaker sales growth, and Euro weakness all negatively impacted
earnings of corporations in various industries.
High yield bond prices have trended downward for the last year amid concerns
about the economy and inflation that has contributed to an outflow of funds from
high yield mutual funds. The high yield market has been experiencing increased
levels of defaults and decreased recovery rates from those defaults. Concerns
about corporate credit quality have caused spreads to widen. The effect has been
most pronounced in the high yield market, but all levels of corporate bond
credit quality have experienced wider spreads versus treasuries.
Additionally, the telecommunications industry was negatively impacted by an
increase in bankruptcies within that industry and lower than expected recovery
rates. This combined with earnings disappointments from both large and small
telecommunications companies caused a major downward valuation in
telecommunications related securities. Currently, access to the capital markets
is limited to high quality companies. Many of the telecommunications companies
are lower rated and will need additional funding to complete their business
plan.
Performance: For the one year ended October 31, 2000, the Fund's Class A shares,
excluding sales charges, declined 16.95% compared to the Lehman Brothers High
Yield Index which declined 1.61% for the same period.
Portfolio Specifics: The Fund is marketed as an aggressive High Yield Fund, and
hence has an over-weighting in both lower credit quality and deferred income
securities. Both of these factors negatively impacted Fund performance over the
past 12 months. The Merrill Lynch Triple-C/Double-C/Single-C subindex for the
12-month period ended October 31, 2000 under-performed the Single-B sub-index by
5.78%, while the Merrill Lynch Deferred Income sub-index under-performed cash
pay bonds by 7.55%. Credit specific events involving some material positions
also impacted performance. For example, Intracel, a biotechnology firm, and
Poland Telecom Operators, a Polish telecom company, both ran low on cash, as
investors' concerns regarding their business prospects prevented them from
raising funds. Globix, a company providing internet services to businesses, felt
the effects of the substantial decline in market valuations of internet-related
companies. The Fund's over-weighting in the telecommunications sector, by far
the largest sector within the high yield market, also impacted performance. The
Merrill Lynch Telecommunications sub-index under-performed the broader market by
4.23%.
The Fund currently holds cash at a normalized level in the range of 2 to 5%.
Average credit quality is being held in the low Single-B range given our
expectation of continued economic growth, albeit at a slower pace. The fund is
currently well diversified across most industries.
Market Outlook: By most conventional measures of valuation, the high yield
market looks cheap. Spreads on most of the major high yield indexes have only
been wider in the recession of 1989-90. Default rates seem to be near their peak
and defaults tend to peak before recessions. While our outlook is for a slowing
economy, the current state of the high yield market is allowing us to invest in
attractively priced securities of companies that appear able to withstand a
recession.
6
<PAGE>
Portfolio
Managers' Report PILGRIM HIGH TOTAL RETURN FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
11/8/93 10/31/94 10/31/95 10/31/96 10/31/97 10/31/98 10/31/99 10/31/00
------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pilgrim High Total Return Fund
Class A With Sales Charge 9524 9226 10427 12317 14170 12235 12008 9972
Pilgrim High Total Return Fund
Class A Without Sales Charge 10000 9687 10948 12933 14878 12847 12608 10471
Lehman Brothers High Yield Bond Index 10000 10123 11712 13010 14795 14722 15361 15114
Average Annual Total Returns for the Periods Ended October 31, 2000
-------------------------------------------------------------------------------------
Since Inception Since Inception Since Inception
of Class A of Class B of Class C
1 Year 5 Year 11/8/93 2/9/94 3/21/94
------ ------ ------- ------ -------
Including Sales Charge:
Class A (1) -20.80% -1.83% -0.04% -- --
Class B (2) -21.27% -1.79% -- -0.92% --
Class C (3) -18.20% -1.51% -- -- -0.57%
Excluding Sales Charge:
Class A -16.95% -0.89% 0.66% -- --
Class B -17.55% -1.55% -- -0.92% --
Class C -17.45% -1.51% -- -- -0.57%
Lehman Brothers High Yield
Bond Index -1.61% 5.23% 6.08% (4) 5.70% (4) 6.52% (4)
</TABLE>
Based on a $10,000 initial investment, the graph and table above illustrates the
total return of Pilgrim High Total Return Fund against the Lehman Brothers High
Yield Bond Index. The Index has an inherent performance advantage over the Fund
since it has no cash in its portfolio, imposes no sales charges and incurs no
operating expenses. An investor cannot invest directly in an index. The Fund's
performance is shown both with and without the imposition of sales charges.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The managers' views are
subject to change at any time based on market and other conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 4.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 2%,
respectively, for the 1 year and 5 year returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1
year return.
(4) Index return from 11/01/93 for Class A, 02/01/94 for Class B and 04/01/94
for Class C.
Principal Risk Factor(s): Exposure to financial and interest rate risks. High
yields reflect the higher credit risks associated with certain lower rated
securities in the Fund's portfolio and in some cases, the lower market prices
for those instruments. The fund may invest in mortgage related securities, which
may involve prepayment risk. Assets may also be invested in foreign securities.
International investing does pose special risks, including currency fluctuation
and political risks, not found in investments that are solely domestic. Risks of
foreign investing are generally intensified for investments in emerging markets.
See accompanying index descriptions on page 10.
7
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Income
Funds
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Portfolio
PILGRIM HIGH TOTAL RETURN FUND II Managers' Report
--------------------------------------------------------------------------------
Portfolio Management Team: Ed Schriver, Senior Vice President & Senior Portfolio
Manager, Russ Stiver, Vice President & Portfolio Manager, Andy Mitchell, Vice
President & Portfolio Manager.
Goals: The Fund invests primarily in higher-yielding, lower-rated bonds to
achieve high current income with potential for capital growth.
Market Overview: In the six-month period ended October 31, 2000, securities
markets experienced historical record high levels of price volatility. Investors
became increasingly uneasy with the prospects for continued economic growth with
low inflation in the United States. The economy began to show signs of slower
growth following repeated interest rate hikes by the Federal Reserve. Higher
interest costs, weaker sales growth, and Euro weakness all negatively impacted
earnings of corporations in various industries.
High yield bond prices have trended downward for the last year amid concerns
about the economy and inflation that has contributed to an outflow of funds from
high yield mutual funds. The high yield market has been experiencing increased
levels of defaults and decreased recovery rates from those defaults. Concerns
about corporate credit quality have caused spreads to widen. The effect has been
most pronounced in the high yield market, but all levels of corporate bond
credit quality have experienced wider spreads versus treasuries.
Additionally, the telecommunications industry was negatively impacted by an
increase in bankruptcies within that industry and lower than expected recovery
rates. This combined with earnings disappointments from both large and small
telecommunications companies caused a major downward valuation in
telecommunications related securities. Currently, access to the capital markets
is limited to high quality companies. Many of the telecommunications companies
are lower rated and will need additional funding to complete their business
plan.
Performance: For the one year ended October 31, 2000, the Fund's Class A shares,
excluding sales charges, declined 19.10% compared to the Lehman Brothers High
Yield Index which declined 1.61% for the same period.
Portfolio Specifics: The Fund is marketed as an aggressive High Yield Fund, and
hence has an over-weighting in both lower credit quality and deferred income
securities. Both of these factors negatively impacted Fund performance over the
past 12 months. The Merrill Lynch Triple-C/Double-C/Single-C subindex for the
12-month period ended October 31, 2000 under-performed the Single-B sub-index by
5.78%, while the Merrill Lynch deferred income sub-index under-performed cash
pay bonds by 7.55%. Credit specific events involving some material positions
also impacted performance. For example, Globix, a company providing internet
services to businesses, felt the effects of the substantial decline in market
valuations of internet-related companies. Decora Industries, a maker of adhesive
paper, suffered from competitive pressures. Romacorp, a restauranteur,
experienced difficulties as a result of rising costs of both labor and food
products. RSL, an international long-distance provider, was forced to constrain
growth plans due to a lack of cash. The funds over-weighting in the
telecommunications sector, by far the largest sector within the High Yield
market, also negatively impacted performance. The Merrill Lynch
telecommunications sub-index under-performed the broader market by 4.23%.
The Fund currently has an above average cash position in the range of 8 to 10%.
Management is in the process of deploying that cash and moving toward a more
fully invested position. Average credit quality is being held in the low
Single-B range given our expectation of continued economic growth, albeit at a
slower pace. The fund is currently well diversified across most industries.
Market Outlook: By most conventional measures of valuation, the high yield
market looks attractive. Spreads on most of the major high yield indexes have
only been wider in the recession of 1989-90. Default rates seem to be near their
peak and defaults tend to peak before recessions. While our outlook is for a
slowing economy, the current state of the high yield market is allowing us to
invest in attractively priced securities of companies that appear able to
withstand a recession.
8
<PAGE>
Portfolio
Managers' Report PILGRIM HIGH TOTAL RETURN FUND II
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1/31/97 10/31/97 10/31/98 10/31/99 10/31/00
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Pilgrim High Total Return Fund II Class A With Sales Charge 10000 11078 10609 10279 8316
Pilgrim High Total Return Fund II Class A Without Sales Charge 10000 11632 11139 10793 8732
Lehman Brothers High Yield Bond Index 10000 10965 10911 11385 11201
Average Annual Total Returns for the Periods Ended October 31, 2000
-------------------------------------------------------------------
Since Inception
of Class A, B and C
1 Year 1/31/97
------ -------
Including Sales Charge:
Class A (1) -22.97% -4.80%
Class B (2) -23.29% -4.79%
Class C (3) -20.60% -4.24%
Excluding Sales Charge:
Class A -19.10% -3.55%
Class B -19.65% -4.23%
Class C -19.87% -4.24%
Lehman Brothers High Yield
Bond Index -1.61% 3.07% (4)
</TABLE>
Based on a $10,000 initial investment, the graph and table above illustrates the
total return of Pilgrim High Total Return Fund II against the Lehman Brothers
High Yield Bond Index. The Index has an inherent performance advantage over the
Fund since it has no cash in its portfolio, imposes no sales charges and incurs
no operating expenses. An investor cannot invest directly in an index. The
Fund's performance is shown both with and without the imposition of sales
charges.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This report contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Portfolio holdings are subject to change daily.
(1) Reflects deduction of the maximum Class A sales charge of 4.75%.
(2) Reflects deduction of the Class B deferred sales charge of 5% and 3%,
respectively, for the 1 year and since inception returns.
(3) Reflects deduction of the Class C deferred sales charge of 1.00% for the 1
year return.
(4) Since inception performance for the Index is shown from 02/01/97.
Principal Risk Factor(s): Exposure to financial and interest rate risks. High
yields reflect the higher credit risks associated with certain lower rated
securities in the Fund's portfolio and in some cases, the lower market prices
for those instruments. The Fund may invest in mortgage-related securities, which
may involve prepayment risk. Assets may also be invested in foreign securities.
International investing does pose special risks, including currency fluctuation
and political risks, not found in investments that are solely domestic. Risks of
foreign investing are generally intensified for investments in emerging markets.
See accompanying index descriptions on page 10.
9
<PAGE>
-------
Pilgrim
Funds
-------
INDEX DESCRIPTIONS
--------------------------------------------------------------------------------
The S&P 500 Index is a widely recognized unmanaged index of 500 common stocks.
The Russell 2000 Index is an unmanaged index that measures the performance of
2000 small companies.
The Lehman Brothers High Yield Bond Index is an unmanaged index comprised of
non-investment grade bonds with maturities between seven to ten years.
The Merrill Lynch Triple-C/Double-C/Single-C Index, a sub-index of the Merrill
Lynch High Yield Index, is an unmanaged index which measures the performance of
non-investment grade U.S. domestic bonds.
The Merrill Lynch Single-B Index, a sub-index of the Merrill Lynch High Yield
Index, is an unmanaged index which measures the performance of non-investment
grade U.S. domestic bonds.
The Merrill Lynch Deferred Income Index, a sub-index of the Merrill Lynch Yield
Index, is an unmanaged index which measures the performance of non-investment
grade U.S. domestic bonds which are deferred income securities.
The Merrill Lynch Telecommunications Index, a sub-index of the Merrill Lynch
High Yield Index, is an unmanaged index which measures the performance of
non-investment grade U.S. domestic bonds issued by telecomunications companies.
An investor cannot invest directly in an index.
10
<PAGE>
SHAREHOLDER MEETING (Unaudited)
--------------------------------------------------------------------------------
A special meeting of shareholders of the Pilgrim Funds was held in Phoenix,
Arizona on August 18, 2000. A brief description of each matter voted upon as
well as the results are outlined below:
<TABLE>
<CAPTION>
Shares
Shares voted against Shares
voted for or withheld abstained Total
--------- ----------- --------- -----
<S> <C> <C> <C> <C>
1. The election as Trustee of four of the six funds
comprising Pilgrim Mayflower Trust, of each of the
following persons, until his or her successor is
elected, and has been qualified:
Al Burton 136,240,055 2,091,873 -- 138,331,928
Paul S. Doherty 136,334,240 1,997,688 -- 138,331,928
Robert B. Goode, Jr. 136,309,230 2,022,698 -- 138,331,928
Alan L. Gosule 136,363,867 1,968,061 -- 138,331,928
Walter H. May 136,367,133 1,964,795 -- 138,331,928
Jock Patton 136,355,214 1,976,714 -- 138,331,928
David W.C. Putnam 136,353,547 1,978,381 -- 138,331,928
John R. Smith 136,245,075 2,086,853 -- 138,331,928
Robert W. Stallings 136,376,932 1,954,996 -- 138,331,928
John G. Turner 136,356,131 1,975,797 -- 138,331,928
David W. Wallace 136,261,113 2,070,815 -- 138,331,928
2. To approve new Investment Advisory Agreements between
the Funds and Pilgrim Investments, Inc. to reflect the
acquisition of ReliaStar Financial Corp. by ING Groep,
NV:
Pilgrim Growth + Value Fund 27,941,306 316,269 601,320 28,858,895
Pilgrim Research Enhanced Index Fund 19,273,892 190,446 435,304 19,899,642
Pilgrim High Total Return Fund 64,431,458 1,213,070 1,703,342 67,347,870
Pilgrim High Total Return Fund II 21,446,390 302,061 477,072 22,225,523
3. To approve new Sub-Advisory Agreement among Navellier
Fund Management, Inc. and ING Pilgrim Investments, Inc.
to reflect the acquisition of ReliaStar Financial Corp.
by ING Groep, NV:
Pilgrim Growth + Value Fund 27,950,499 319,020 589,376 28,858,895
4. To approve new Sub-Advisory Agreement among J.P. Morgan
Investment Management, Inc. and ING Pilgrim
Investments, Inc. to reflect the acquisition of
ReliaStar Financial Corp. by ING Groep, NV:
Pilgrim Reseach Enhanced Index Fund 19,382,743 102,733 414,166 19,899,642
5. To ratify the selection of PricewaterhouseCoopers LLP
as independent accountants for each Fund for the fiscal
year ending October 31, 2000.
Pilgrim Growth + Value Fund 28,385,767 135,762 337,366 28,858,895
Pilgrim Research Enhanced Index Fund 19,513,375 56,841 329,426 19,899,642
Pilgrim High Total Return Fund 65,868,942 396,074 1,082,854 67,347,870
Pilgrim High Total Return Fund II 21,742,068 144,118 339,337 22,225,523
</TABLE>
11
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
12
<PAGE>
-------
Pilgrim
Funds
-------
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Shareholders and Trustees of
Pilgrim Mayflower Trust:
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Pilgrim Growth + Value Fund,
Pilgrim Research Enhanced Index Fund, Pilgrim High Total Return Fund and Pilgrim
High Total Return Fund II, four of the six funds comprising Pilgrim Mayflower
Trust, (collectively, the "Trust") at October 31, 2000, and the results of each
of their operations for the year then ended, the changes in each of their net
assets for each of the two years in the period then ended, except for the
Pilgrim Research Enhanced Index Fund for which the periods were for the year
ended October 31, 2000 and for the period December 30, 1998 (commencement of
operations) to October 31, 1999, and the financial highlights for each of the
periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Trust's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Denver, CO
December 28, 2000
13
<PAGE>
-----------
U.S. Equity
Funds
-----------
STATEMENTS OF ASSETS AND LIABILITIES as of October 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim Research
Growth + Enhanced
Value Fund Index Fund
---------- ----------
<S> <C> <C>
ASSETS:
Investments in securities, at market value
(cost $833,047,299 and $224,415,278, respectively) $ 979,057,962 $234,686,037
Repurchase agreements 52,565,000 562,000
Cash 133 161
Receivable for investments sold 9,548,712 2,192,746
Receivable for shares of beneficial interest sold 8,486,492 1,945,360
Dividends and interest receivable 23,558 217,551
Receivable for futures variation margin -- 7,250
Prepaid expenses 77,166 1,302
-------------- ------------
Total Assets 1,049,759,023 239,612,407
-------------- ------------
LIABILITIES:
Payable for investments purchased -- 2,213,738
Investment advisory fee payable 858,048 137,243
Payable for shares of beneficial interest reacquired 1,111,349 2,020,410
Distribution fees payable 715,501 159,320
Administrative service fees payable 85,805 19,479
Transfer agent fees payable 257,374 78,538
Accrued expenses 17,306 190,644
-------------- ------------
Total Liabilities 3,045,383 4,819,372
-------------- ------------
NET ASSETS $1,046,713,640 $234,793,035
============== ============
NET ASSETS CONSIST OF:
Paid in capital for shares of beneficial interest, $0.01 par value
outstanding (unlimited shares authorized) $ 814,721,611 $226,456,696
Accumulated net realized gain (loss) on investments, foreign
currency and futures contracts 85,981,366 (1,859,574)
Net unrealized appreciation of investments, foreign currency and
futures contracts 146,010,663 10,195,913
-------------- ------------
Net Assets $1,046,713,640 $234,793,035
============== ============
</TABLE>
See Accompanying Notes to Financial Statements
14
<PAGE>
-----------
U.S. Equity
Funds
-----------
STATEMENTS OF ASSETS AND LIABILITIES as of October 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim Research
Growth + Enhanced
Value Fund Index Fund
---------- ----------
<S> <C> <C>
Class A:
Net assets $ 257,601,361 $ 23,570,632
Shares outstanding 10,343,128 2,109,934
Net asset value and redemption value per share
(net assets/shares outstanding) $ 24.91 $ 11.17
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $ 26.43 $ 11.85
Class B
Net assets $ 507,282,073 $ 94,027,522
Shares outstanding 20,988,563 8,514,231
Net asset value and offering price per share(1)
(net assets/shares outstanding) $ 24.17 $ 11.04
Class C:
Net assets $ 280,483,714 $ 88,449,172
Shares outstanding 11,609,122 8,005,582
Net asset value and offering price per share(1)
(net assets/shares outstanding) $ 24.16 $ 11.05
Class I:
Net assets N/A $ 28,472,760
Shares outstanding N/A 2,531,789
Net asset value, offering price and redemption
price per share (net assets/shares outstanding) N/A $ 11.25
Class Q:
Net assets $ 1,346,492 $ 272,949
Shares outstanding 54,071 24,444
Net asset value, offering price and redemption
price per share
(net assets/shares outstanding) $ 24.90 $ 11.17
</TABLE>
----------
(1) Redemption price per share varies with length of time Class B and C shares
are held.
See Accompanying Notes to Financial Statements
15
<PAGE>
------
Income
Funds
------
STATEMENTS OF ASSETS AND LIABILITIES as of October 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim
High Total High Total
Return Fund Return Fund II
----------- --------------
<S> <C> <C>
ASSETS:
Investments in securities, at value (cost $270,303,732
and $81,587,126, respectively) $ 152,468,829 $ 56,811,219
Repurchase agreements 3,069,000 6,261,000
Cash 949,013 411,358
Receivable for shares of beneficial interest sold 3,996 25,126
Receivable for investments sold 3,312,709 3,668,997
Dividends and interest receivable 5,481,130 1,418,902
Prepaid expenses 16,536 4,511
Other assets 267,727 107,089
-------------- -------------
Total Assets 165,568,940 68,708,202
-------------- -------------
LIABILITIES:
Payable for investments purchased 4,126,130 1,922,135
Investment advisory fee payable 86,548 35,775
Payable for shares of beneficial interest reacquired 735,332 316,122
Distribution fees payable 121,195 36,816
Administrative service fees payable 14,425 5,962
Transfer agent fee payable 43,707 10,021
Accrued expenses 56,714 11,681
-------------- -------------
Total Liabilities 5,184,051 2,338,512
-------------- -------------
NET ASSETS $ 160,384,889 $ 66,369,690
============== =============
NET ASSETS CONSIST OF:
Paid in capital for shares of beneficial interest, $0.01 par value
outstanding (unlimited shares authorized) $ 459,980,908 $ 168,153,103
Distributions in excess of net investment income (1,037,134) (165,763)
Accumulated net realized loss on investments and foreign
currency (180,657,911) (76,810,135)
Net unrealized depreciation of investments and foreign currency (117,900,974) (24,807,515)
-------------- -------------
Net Assets $ 160,384,889 $ 66,369,690
============== =============
</TABLE>
See Accompanying Notes to Financial Statements
16
<PAGE>
------
Income
Funds
------
STATEMENTS OF ASSETS AND LIABILITIES as of October 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim
High Total High Total
Return Fund Return Fund II
----------- --------------
<S> <C> <C>
Class A:
Net assets $ 36,367,124 $ 8,165,386
Shares outstanding 14,815,677 2,689,714
Net asset value and redemption value per share
(net assets/shares outstanding) $ 2.45 $ 3.04
Maximum offering price per share (net asset value plus sales
charge of 4.75% and 4.75%, respectively of offering price) $ 2.57 $ 3.19
Class B:
Net assets $109,283,733 $48,151,580
Shares outstanding 44,560,902 15,862,109
Net asset value and offering price per share(1)
(net assets/shares outstanding) $ 2.45 $ 3.04
Class C:
Net assets $ 14,734,032 $10,052,724
Shares outstanding 5,972,134 3,307,337
Net asset value and offering price per share(1)
(net assets/shares outstanding) $ 2.47 $ 3.04
</TABLE>
----------
(1) Redemption price per share varies with length of time Class B and C shares
are held.
See Accompanying Notes to Financial Statements
17
<PAGE>
-----------
U.S. Equity
Funds
-----------
STATEMENTS OF OPERATIONS for the year ended October 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim Research
Growth + Enhanced
Value Fund Index Fund
---------- ----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $0 and
$24,290, respectively) $ 221,045 $ 3,189,778
Interest 2,463,831 215,827
------------- ------------
Total investment income 2,684,876 3,405,605
------------- ------------
EXPENSES:
Investment advisory fees 7,639,602 1,741,851
Distribution fees:
Class A 510,815 84,544
Class B 3,956,212 1,023,994
Class C 1,978,306 891,570
Class Q 591 260
Transfer agent fees and expenses 763,960 236,223
Administrative fees 836,071 272,002
Accounting and custodian fees 229,188 211,510
Shareholder reporting 82,396 24,884
Registration fees 78,985 104,627
Professional fees 53,616 36,875
Trustee fees 17,980 10,980
Miscellaneous 16,501 7,572
------------- ------------
Total expenses 16,164,223 4,646,892
------------- ------------
Net investment loss (13,479,347) (1,241,287)
------------- ------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss) on investments 96,147,664 (1,264,718)
Net change in unrealized appreciation of investments and futures 50,016,590 4,751,252
------------- ------------
Net realized and unrealized gain on investments and futures 146,164,254 3,486,534
------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 132,684,907 $ 2,245,247
============= ============
</TABLE>
See Accompanying Notes to Financial Statements
18
<PAGE>
------
Income
Funds
------
STATEMENTS OF OPERATIONS for the year ended October 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Pilgrim
High Total High Total
Return Fund Return Fund II
----------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 3,235,664 $ 551,823
Interest 26,357,401 11,400,906
------------- -------------
Total investment income 29,593,065 11,952,729
------------- -------------
EXPENSES:
Investment advisory fees 1,783,120 727,402
Distribution fees:
Class A 167,826 37,471
Class B 1,697,060 719,686
Class C 225,419 159,251
Transfer agent fees and expenses 248,190 100,384
Administrative fees 286,472 116,019
Accounting and custodian fees 86,866 35,135
Shareholder reporting 24,819 10,038
Registration fees 66,600 50,133
Professional fees 109,492 49,400
Trustee fees 12,480 10,980
Miscellaneous 78,681 30,425
------------- -------------
Total expenses 4,787,025 2,046,324
------------- -------------
Net investment income 24,806,040 9,906,405
------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (74,749,309) (44,788,105)
Net realized loss on foreign currency (290,748) (113,322)
Net change in unrealized appreciation of investments and
foreign currency 947,281 10,627,278
------------- -------------
Net realized and unrealized loss on investments and foreign
currency (74,092,776) (34,274,149)
------------- -------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (49,286,736) $ (24,367,744)
============= =============
</TABLE>
See Accompanying Notes to Financial Statements
19
<PAGE>
-----------
U.S. Equity
Funds
-----------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim Growth + Value Fund Pilgrim Research Enhanced Index Fund
---------------------------- ------------------------------------
Year Ended Year Ended Year Ended For the period
October 31, Otober 31, October 31, December 30, 1998(1)
2000 1999 2000 to October 31, 1999
---- ---- ---- -------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment loss $ (13,479,347) $ (5,045,729) $ (1,241,287) $ (160,475)
Net realized gain (loss) on investments
and futures 96,147,664 83,963,594 (1,264,718) 2,844,931
Net change in unrealized appreciation of
investments and futures 50,016,590 83,444,021 4,751,252 5,444,661
-------------- -------------- ------------- ------------
Net increase in net assets resulting from
operations 132,684,907 162,361,886 2,245,247 8,129,117
-------------- -------------- ------------- ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain from investments (52,769,105) -- (3,268,200) --
-------------- -------------- ------------- ------------
Total distributions (52,769,105) -- (3,268,200) --
-------------- -------------- ------------- ------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 795,463,400 215,319,842 70,474,849 231,460,935
Net asset value of shares resulting from
dividend reinvestment 32,130,552 -- 1,900,825 --
-------------- -------------- ------------- ------------
827,593,952 215,319,842 72,375,674 231,460,935
Cost of shares redeemed (253,638,470) (161,711,440) (66,766,343) (9,383,395)
-------------- -------------- ------------- ------------
Net increase in net assets resulting from capital
share transactions 573,955,482 53,608,402 5,609,331 222,077,540
-------------- -------------- ------------- ------------
Net increase in net assets 653,871,284 215,970,288 4,586,378 230,206,657
NET ASSETS:
Beginning of year 392,842,356 176,872,068 230,206,657 --
-------------- -------------- ------------- ------------
End of year $1,046,713,640 $ 392,842,356 $ 234,793,035 $230,206,657
============== ============== ============= ============
</TABLE>
----------
(1) Commencement of operations.
See Accompanying Notes to Financial Statements
20
<PAGE>
------
Income
Funds
------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pilgrim High Total Return Fund Pilgrim High Total Return Fund II
------------------------------ ---------------------------------
Year Ended Year Ended Year Ended Year Ended
October 31, October 31, October 31, October 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income $ 24,806,040 $ 56,920,134 $ 9,906,405 $ 21,989,470
Net realized loss on investments (74,749,309) (98,451,507) (44,788,105) (32,191,393)
Net realized gain (loss) on foreign currency (290,748) 12,477 (113,322) 123,782
Net change in unrealized appreciation of
investments and foreign currency 947,281 41,058,535 10,627,278 5,135,407
-------------- -------------- -------------- --------------
Net decrease in net assets
resulting from operations (49,286,736) (460,361) (24,367,744) (4,942,734)
-------------- -------------- -------------- --------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income
Class A (5,529,080) (14,655,522) (1,254,879) (3,313,676)
Class B (15,721,646) (39,701,333) (6,751,342) (14,809,329)
Class C (2,056,355) (6,029,049) (1,481,378) (4,292,131)
Return of capital
Class A (540,481) (1,294,305) (61,211) (217,482)
Class B (1,536,830) (3,506,231) (329,315) (971,960)
Class C (201,014) (532,457) (72,258) (281,699)
-------------- -------------- -------------- --------------
Total distributions (25,585,406) (65,718,897) (9,950,383) (23,886,277)
-------------- -------------- -------------- --------------
FROM CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares 22,662,136 100,856,295 6,999,527 55,051,024
Net asset value of shares resulting from
dividend reinvestment 7,352,055 21,713,962 2,732,445 6,839,575
-------------- -------------- -------------- --------------
30,014,191 122,570,257 9,731,972 61,890,599
Cost of shares redeemed (207,663,281) (285,177,676) (85,857,636) (119,733,819)
-------------- -------------- -------------- --------------
Net decrease in net assets
derived from capital share transactions (177,649,090) (162,607,419) (76,125,664) (57,843,220)
-------------- -------------- -------------- --------------
Net decrease in net assets (252,521,232) (228,786,677) (110,443,791) (86,672,231)
NET ASSETS:
Beginning of year 412,906,121 641,692,798 176,813,481 263,485,712
-------------- -------------- -------------- --------------
End of year $ 160,384,889 $ 412,906,121 $ 66,369,690 $ 176,813,481
============== ============== ============== ==============
Distributions in excess of net investment
income $ (1,037,134) $ (2,245,345) $ (165,763) $ (471,247)
============== ============== ============== ==============
</TABLE>
See Accompanying Notes to Financial Statements
21
<PAGE>
Financial
PILGRIM GROWTH + VALUE FUND Highlights
--------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
Class A
---------------------------------------
Year ended October 31,
---------------------------------------
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997(1)
---- ---- ---- -------
Operating performance:
Net asset value, beginning of the period $ 19.76 10.44 12.15 10.00
Net investment loss $ (0.20) (0.17) (0.11) (0.05)
Net realized and unrealized gain (loss)
on investments $ 7.81 9.49 (1.42) 2.20
Total from investment operations $ 7.61 9.32 (1.53) 2.15
Distributions from net realized gain $ (2.46) -- (0.18) --
Total distributions $ (2.46) -- (0.18) --
Net asset value, end of the period $ 24.91 19.76 10.44 12.15
Total return(2) % 40.18 89.27 (12.63) 21.50
Ratios and supplemental data:
Net assets, end of the period (000's) $ 257,601 81,225 33,425 34,346
Ratio of expenses to average net assets
after reimbursement(4) % 1.57 1.69 1.72 1.84 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 1.57 1.69 1.72 1.86 (3)
Ratio of net investment loss to average
net assets % (1.22) (1.30) (0.92) (0.94) (3)
Portfolio turnover % 163 197 162 144
Class B
---------------------------------------
Year ended October 31,
---------------------------------------
2000 1999 1998 1997(1)
---- ---- ---- -------
Operating performance:
Net asset value, beginning of the period $ 19.34 10.29 12.08 10.00
Net investment loss $ (0.36) (0.27) (0.16) (0.08)
Net realized and unrealized gain (loss)
on investments $ 7.65 9.32 (1.45) 2.16
Total from investment operations $ 7.29 9.05 (1.61) 2.08
Distributions from net realized gain $ (2.46) -- (0.18) --
Total distributions $ (2.46) -- (0.18) --
Net asset value, end of the period $ 24.17 19.34 10.29 12.08
Total return(2) % 39.33 87.95 (13.38) 20.80
Ratios and supplemental data:
Net assets, end of the period (000's) $ 507,282 227,227 105,991 76,608
Ratio of expenses to average net assets
after reimbursement(4) % 2.27 2.39 2.45 2.55 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 2.27 2.39 2.45 2.57 (3)
Ratio of net investment loss to average
net assets % (1.92) (2.00) (1.67) (1.68)(3)
Portfolio turnover % 163 197 162 144
Class C
---------------------------------------
Year ended October 31,
---------------------------------------
2000 1999 1998 1997(1)
---- ---- ---- -------
Operating performance:
Net asset value, beginning of the period $ 19.33 10.29 12.08 10.00
Net investment loss $ (0.33) (0.26) (0.16) (0.08)
Net realized and unrealized gain (loss)
on investments $ 7.62 9.30 (1.45) 2.16
Total from investment operations $ 7.29 9.04 (1.61) 2.08
Distributions from net realized gain $ (2.46) -- (0.18) --
Total distributions $ (2.46) -- (0.18) --
Net asset value, end of the period $ 24.16 19.33 10.29 12.08
Total return(2) % 39.35 87.85 (13.38) 20.80
Ratios and supplemental data:
Net assets, end of the period (000's) $ 280,484 84,391 37,456 26,962
Ratio of expenses to average net assets
after reimbursement(4) % 2.27 2.40 2.46 2.56 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 2.27 2.40 2.46 2.58 (3)
Ratio of net investment loss to average
net assets % (1.92) (2.01) (1.69) (1.70) (3)
Portfolio turnover % 163 197 162 144
</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.
(4) Expenses calculated net of advisor reimbursement.
See Accompanying Notes to Financial Statements
22
<PAGE>
Financial
Highlights PILGRIM RESEARCH ENHANCED INDEX FUND
--------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
Class A Class B
------------------------- -------------------------
Period Period
Year ended ended Year ended ended
October 31, Oct. 31, October 31, Oct. 31,
2000 1999(1) 2000 1999(1)
---- ------- ---- -------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 11.14 10.00 11.09 10.00
Net investment income (loss) $ -- 0.01 (0.08) (0.02)
Net realized and unrealized gain on
investments $ 0.18 1.13 0.18 1.11
Total from investment operations $ 0.18 1.14 0.10 1.09
Distributions from net realized gain $ (0.15) -- (0.15) --
Total distributions $ (0.15) -- (0.15) --
Net asset value, end of the period $ 11.17 11.14 11.04 11.09
Total return(2) % 1.55 11.40 0.83 10.90
Ratios and supplemental data:
Net assets, end of the period (000's) $ 23,571 27,091 94,028 99,249
Ratio of expenses to average net assets
after reimbursement(4) % 1.37 1.29 (3) 2.07 1.99 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 1.37 1.56 (3) 2.07 2.29 (3)
Ratio of net investment income (loss) to
average net assets % 0.01 0.23 (3) (0.70) (0.49)(3)
Portfolio turnover % 57 26 57 26
Class C Class I
------------------------- -------------------------
Period Period
Year ended ended Year ended ended
October 31, Oct. 31, October 31, Oct. 31,
2000 1999(1) 2000 1999(1)
---- ------- ---- -------
Operating performance:
Net asset value, beginning of the period $ 11.09 10.00 11.17 10.00
Net investment income (loss) $ (0.08) (0.02) 0.04 0.06
Net realized and unrealized gain on
investments $ 0.19 1.11 0.19 1.11
Total from investment operations $ 0.11 1.09 0.23 1.17
Distributions from net realized gain $ (0.15) -- (0.15) --
Total distributions $ (0.15) -- (0.15) --
Net asset value, end of the period $ 11.05 11.09 11.25 11.17
Total return(2) % 0.92 10.90 2.00 11.70
Ratios and supplemental data:
Net assets, end of the period (000's) $ 88,449 75,941 28,473 27,927
Ratio of expenses to average net assets
after reimbursement(4) % 2.07 1.99 (3) 1.07 0.98 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 2.07 2.27 (3) 1.07 1.23 (3)
Ratio of net investment income (loss) to
average net assets % (0.70) (0.49)(3) 0.34 0.62 (3)
Portfolio turnover % 57 26 57 26
</TABLE>
----------
(1) Class A, B, C and I commenced operations on December 30, 1998.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized
(4) Expenses calculated net of taxes and advisor reimbursement.
See Accompanying Notes to Financial Statements
23
<PAGE>
Financial
PILGRIM HIGH TOTAL RETURN FUND Highlights
--------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------
Year ended October 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 3.29 3.77 5.00 4.78 4.48
Net investment income $ 0.29 0.37 0.46 0.48 0.46
Net realized and unrealized gain (loss)
on investments $ (0.81) (0.41) (1.07) 0.20 0.32
Total from investment operations $ (0.52) (0.04) (0.61) 0.68 0.78
Dividends from net investment income $ (0.28) (0.39) (0.47) (0.46) (0.48)
Distributions from net realized gain -- -- (0.15) -- --
Distributions from capital $ (0.03) (0.05) -- -- --
Total distributions $ (0.31) (0.44) (0.62) (0.46) (0.48)
Net asset value, end of the period $ 2.45 3.29 3.77 5.00 4.78
Total return(1) % (16.95) (1.86) (13.65) 15.03 18.14
Ratios and supplemental data:
Net assets, end of the period (000's) $ 36,367 91,991 148,650 215,361 167,698
Ratio of expenses to average net assets % 1.39 1.34 1.30 1.42 1.52
Ratio of net investment income to
average net assets % 10.52 10.16 9.93 9.88 9.86
Portfolio turnover % 136 59 123 183 158
Class B
--------------------------------------------------------
Year ended October 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating performance:
Net asset value, beginning of the period $ 3.29 3.77 5.00 4.77 4.47
Net investment income $ 0.26 0.34 0.43 0.44 0.43
Net realized and unrealized gain (loss)
on investments $ (0.80) (0.41) (1.07) 0.22 0.32
Total from investment operations $ (0.54) (0.07) (0.64) 0.66 0.75
Dividends from net investment income $ (0.26) (0.37) (0.44) (0.43) (0.45)
Distributions from net realized gain -- -- (0.15) -- --
Distributions from capital $ (0.03) (0.04) -- -- --
Total distributions $ (0.29) (0.41) (0.59) (0.43) (0.45)
Net asset value, end of the period $ 2.45 3.29 3.77 5.00 4.77
Total return(1) % (17.55) (2.56) (14.28) 14.46 17.08
Ratios and supplemental data:
Net assets, end of the period (000's) $ 109,284 280,413 428,903 577,351 346,919
Ratio of expenses to average net assets % 2.09 2.06 2.02 2.12 2.23
Ratio of net investment income to
average net assets % 9.85 9.42 9.20 9.18 9.14
Portfolio turnover % 136 59 123 183 158
Class C
--------------------------------------------------------
Year ended October 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating performance:
Net asset value, beginning of the period $ 3.31 3.78 5.02 4.79 4.49
Net investment income $ 0.27 0.34 0.43 0.44 0.43
Net realized and unrealized gain (loss)
on investments $ (0.81) (0.40) (1.08) 0.22 0.32
Total from investment operations $ (0.54) (0.06) (0.65) 0.66 0.75
Dividends from net investment income $ (0.26) (0.37) (0.44) (0.43) (0.45)
Distributions from net realized gain -- -- (0.15) -- --
Distributions from capital $ (0.03) (0.04) -- -- --
Total distributions (0.29) (0.41) (0.59) (0.43) (0.45)
Net asset value, end of the period $ 2.47 3.31 3.78 5.02 4.79
Total return(1) $ (17.45) (2.24) (14.41) 14.42 17.28
Ratios and supplemental data:
Net assets, end of the period (000's) $ 14,734 40,503 64,141 97,457 54,382
Ratio of expenses to average net assets $ 2.09 2.07 2.03 2.13 2.23
Ratio of net investment income to
average net assets % 9.82 9.42 9.19 9.18 9.14
Portfolio turnover % 136 59 123 183 158
</TABLE>
----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
See Accompanying Notes to Financial Statements
24
<PAGE>
Financial
Highlights PILGRIM HIGH TOTAL RETURN FUND II
--------------------------------------------------------------------------------
Selected data for a share of beneficial interest outstanding throughout each
period.
<TABLE>
<CAPTION>
Class A
----------------------------------------------
Year ended October 31,
----------------------------------------------
2000 1999 1998 1997(1)
---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the
period $ 4.18 4.78 5.49 5.00
Net investment income $ 0.37 0.43 0.50 0.28
Net realized and unrealized gain
(loss) on investments $ (1.13) (0.55) (0.70) 0.53
Total from investment operations $ (0.76) (0.12) (0.20) 0.81
Dividends from net investment
income $ (0.36) (0.43) (0.48) (0.28)
Distributions from capital $ (0.02) (0.05) (0.03) (0.04)
Total distributions $ (0.38) (0.48) (0.51) (0.32)
Net asset value, end of the period $ 3.04 4.18 4.78 5.49
Total return(2) % (19.10) (3.10) (4.23) 16.53
Ratios and supplemental data:
Net assets, end of the period (000's) $ 8,165 20,003 40,924 8,548
Ratio of expenses to average net
assets after reimbursement(4) % 1.43 1.40 1.44 1.26 (3)
Ratio of expenses to average net
assets prior to expense
reimbursement % 1.43 1.40 1.45 4.62 (3)
Ratio of net investment income to
average net assets % 10.52 9.46 8.90 5.89 (3)
Portfolio turnover % 120 110 150 164
Class B
----------------------------------------------
Year ended October 31,
----------------------------------------------
2000 1999 1998 1997(1)
---- ---- ---- -------
Operating performance:
Net asset value, beginning of the
period $ 4.18 4.79 5.49 5.00
Net investment income $ 0.34 0.41 0.47 0.25
Net realized and unrealized gain
(loss) on investments $ (1.13) (0.57) (0.70) 0.53
Total from investment operations $ (0.79) (0.16) (0.23) 0.78
Dividends from net investment
income $ (0.33) (0.42) (0.44) (0.25)
Distributions from capital $ (0.02) (0.03) (0.03) (0.04)
Total distributions $ (0.35) (0.45) (0.47) (0.29)
Net asset value, end of the period $ 3.04 4.18 4.79 5.49
Total return(2) % (19.65) (4.00) (4.90) 15.91
Ratios and supplemental data:
Net assets, end of the period (000's) $ 48,152 125,796 168,859 38,076
Ratio of expenses to average net
assets after reimbursement(4) % 2.13 2.11 2.17 1.95 (3)
Ratio of expenses to average net
assets prior to expense
reimbursement % 2.13 2.11 2.19 2.70 (3)
Ratio of net investment income to
average net assets % 9.78 8.66 8.17 5.20 (3)
Portfolio turnover % 120 110 150 164
Class C
----------------------------------------------
Year ended October 31,
----------------------------------------------
2000 1999 1998 1997(1)
---- ---- ---- -------
Operating performance:
Net asset value, beginning of the
period $ 4.19 4.79 5.50 5.00
Net investment income $ 0.34 0.40 0.47 0.25
Net realized and unrealized gain
(loss) on investments $ (1.14) (0.55) (0.71) 0.54
Total from investment operations $ (0.80) (0.15) (0.24) 0.79
Dividends from net investment
income $ (0.33) (0.41) (0.44) (0.25)
Distributions from capital $ (0.02) (0.04) (0.03) (0.04)
Total distributions (0.35) (0.45) (0.47) (0.29)
Net asset value, end of the period $ 3.04 4.19 4.79 5.50
Total return(2) $ (19.87) (.77) (4.90) 16.12
Ratios and supplemental data:
Net assets, end of the period (000's) $ 10,053 31,014 53,703 12,234
Ratio of expenses to average net as-
sets after reimbursement(4) $ 2.13 2.12 2.17 1.95 (3)
Ratio of expenses to average
average net assets prior to expense
reimbursement % 2.13 2.12 2.18 2.73 (3)
Ratio of net investment income to
average net assets % 9.81 8.70 8.16 5.17 (3)
Portfolio turnover % 120 110 150 164
</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.
(4) Expenses calculated net of advisor reimbursement.
See Accompanying Notes to Financial Statements
25
<PAGE>
-------
Pilgrim
Funds
-------
NOTES TO FINANCIAL STATEMENTS as of October 31, 2000
--------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization. The Pilgrim Mayflower Trust (the "Trust") comprising Pilgrim
Growth + Value Fund, Pilgrim Research Enhanced Index Fund, Pilgrim International
Value Fund, Pilgrim Emerging Markets Value Fund, Pilgrim High Total Return Fund
and Pilgrim High Total Return Fund II (collectively, the "Funds") was organized
under the laws of the Commonwealth of Massachusetts and registered under the
Investment Company Act of 1940 as a diversified open-end management investment
company. All funds except Pilgrim International Value Fund and Pilgrim Emerging
Markets Value Fund are included in this report.
Pilgrim Growth + Value Fund is a diversified portfolio with the investment
objective of capital appreciation by investing in equity securities. The Fund
seeks to achieve its objective through investments in companies the portfolio
manager identifies as either growth or value through quantitative analysis.
Pilgrim Research Enhanced Index Fund is a diversified portfolio with the
investment objective of capital appreciation. The Fund seeks to achieve its
objective 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 data characteristics of the S&P 500.
Pilgrim High Total Return Fund is a diversified portfolio with the investment
objective of high income and capital appreciation. The Fund invests primarily in
a diversified group of fixed income securities which are selected for high
current income and the potential for capital growth, including lower-rated fixed
income securities, convertible securities, securities issued by U.S. companies
in foreign currencies, and securities issued by foreign governments and
companies.
Pilgrim High Total Return Fund II is a diversified portfolio with the investment
objective of high income and capital appreciation. The Fund invests primarily in
a diversified group of fixed income securities which are selected for high
current income and the potential for capital growth, including lower-rated fixed
income securities, convertible securities, securities issued by U.S companies in
foreign currencies, and securities issued by foreign governments and companies.
Each Fund offers at least three of the following classes of shares: Class A,
Class B, Class C, Class I and Class Q. The separate classes of shares differ
principally in the applicable sales charges (if any), distribution fees and
shareholder servicing fees. Shareholders of each class also bear certain
expenses that pertain to that particular class. All shareholders bear the common
expenses of the Fund and earn income from the portfolio pro rata based on the
average daily net assets of each class, without distinction between share
classes. Dividends are determined separately for each class based on income and
expenses allocable to each class. Distribution from realized gains are allocated
to each class pro rata based on the net assets of each class on the date of
distribution. No class has preferential dividend rights. Differences in per
share dividend rates result from differences in separate class expenses,
including distribution and shareholder servicing fees. Class B shares, along
with their reinvested dividend shares, automatically convert to Class A shares
approximately eight years after purchase.
On October 29, 1999, ReliaStar Financial Corp., the indirect parent company of
Northstar Investment Management Corporation ("Northstar") the investment adviser
to the Funds, acquired Pilgrim Capital Corporation and its subsidiaries. In
conjunction with the acquisition, Northstar changed its name to Pilgrim
Advisors, Inc. On April 30, 2000 Pilgrim Advisors, Inc. merged into Pilgrim
Investments, Inc.
On September 1, 2000, ING Groep N.V. (NYSE: ING) acquired ReliaStar Financial
Corp., the indirect parent company of Pilgrim Investments, Inc., Adviser to the
Funds, Pilgrim Securities, Inc., Distributor to the Funds and Pilgrim Group,
Inc, Administrator to the Funds. In conjunction with the acquisition the
Adviser, Distributor and Administrator changed their names to ING Pilgrim
Investments, Inc., ING Pilgrim Securities, Inc. and ING Pilgrim Group, Inc.
effective September 8, 2000.
Security Valuation. Equity securities are valued daily at the closing sale
prices reported on recognized securities
26
<PAGE>
-------
Pilgrim
Funds
-------
NOTES TO FINANCIAL STATEMENTS as of October 31, 2000 (Continued)
--------------------------------------------------------------------------------
exchanges or lacking any sales, at the last available bid price. Prices of
long-term debt securities are valued on the basis of last reported sales price,
or if no sales are reported, the value is determined based upon the mean of
representative quoted bid and asked prices for such securities, or, if such
prices are not available, at prices provided by market makers, or at prices for
securities of comparable maturity, quality and type. Short-term debt instruments
with remaining maturities of less than 60 days are valued at amortized cost,
unless the Trustees determine that amortized cost does not reflect the fair
value of such obligations. Securities for which market quotations are not
readily available are valued at fair value determined in good faith by or under
direction of the Trustees of the Funds. At October 31, 2000, the High Total
Return Fund and the High Total Return Fund II contained 10 and 7 securities,
respectively, for which market quotations were not readily available and which
were fair valued pursuant to the Funds' procedures. The securities in the High
Total Return Fund had a total value of $6,571,936 representing 4.10% of the
Fund's net assets. The securities in the High Total Return Fund II had a total
value of $1,630,246 representing 2.46% of the Fund's net assets. The books and
records of the Funds are maintained in U.S. dollars. Securities quoted in
foreign currencies are translated into U.S. dollars based on the prevailing
exchange rates on that day. The Adviser uses independent pricing services to
price the Funds' securities.
Security Transactions, Investment Income, Expenses. Security transactions are
recorded on the trade date. Realized gains or losses on sales of investments are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis except when collection is not expected; discounts are accreted,
and premiums are amortized to par at maturity; dividend income is recorded on
the ex-dividend dates. Income, expenses (except class specific expenses), and
realized/unrealized gains/losses, are allocated proportionately to each Fund or
class of shares based upon the relative daily net asset value.
Distributions to Shareholders. Dividends from net investment income are declared
and paid monthly by the High Total Return Fund and High Total Return Fund II and
declared and paid annually by the Growth + Value Fund and Research Enhanced
Index Fund. Distributions of net realized capital gains, if any, are declared
annually; however, to the extent that a net realized capital gain can be reduced
by a capital loss carryover, such gain will not be distributed.
The Funds may periodically make reclassifications among certain of their capital
accounts as a result of the timing and characterization of certain income and
capital gains distributions determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of net operating
losses and foreign currency transactions. As of October 31, 2000, the following
amounts have been reclassified between undistributed net investment income
(loss), accumulated net realized gain (loss) in investments and paid in capital:
Undistributed Accumulated Net
Net Investment Realized Gain (Loss) Paid in
income (Loss) on Investments Capital
------------- -------------- -------
Growth + Value Fund $ 13,479,347 $(10,032,180) $ (3,447,167)
Researched Enhanced
Index Fund 1,241,287 (11,112) (1,230,175)
High Total Return Fund 1,987,577 290,748 (2,278,325)
High Total Return
Fund II 349,462 113,322 (462,784)
These reclassifications did not affect net investment income (loss), net
realized gain (loss) on investments or net assets for the year ended October 31,
2000.
Foreign Currency. The Funds isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Net realized gain (loss) on foreign currency transactions represents the foreign
exchange: (1) gains and losses from the sale of holdings of foreign currencies,
(2) gains and losses between trade date and settlement date on investment
securities transactions and forward exchange contracts, and (3) gains and losses
from the difference between amounts of interest and dividends recorded and the
amounts actually received. Net change in unrealized appreciation (depreciation)
of investments and foreign currency arise from changes in the value of assets
and liabilities including investment in securities at fiscal year end, resulting
from changes in the exchange rates.
27
<PAGE>
-------
Pilgrim
Funds
-------
NOTES TO FINANCIAL STATEMENTS as of October 31, 2000 (Continued)
--------------------------------------------------------------------------------
Forward Foreign Currency Contracts. The Funds may enter into forward foreign
currency contracts primarily to hedge against foreign currency exchange rate
risks on their non-U.S. dollar denominated investment securities. When entering
into a currency forward contract, the Funds agree to receive or deliver a fixed
quantity of foreign currency for an agreed-upon price on an agreed future date.
These contracts are valued daily and the funds' net equity therein, representing
unrealized gain or loss on the contracts as measured by the difference between
the forward foreign exchange rates at the dates of entry into the contracts and
the forward rates at the reporting date, is included in the statement of assets
and liabilities. Realized and unrealized gains and losses are included in the
statement of operations. These instruments involve market and/or credit risk in
excess of the amount recognized in the statement of assets and liabilities.
Risks arise from the possible inability of counterparties to meet the terms of
their contracts and from movement in currency and securities values and interest
rates.
Options. The Funds may write (sell) and purchase put and call options. The
premium collected or paid by a Fund for the sale or purchase of a call or put
option is recorded as an investment and subsequently "marked to market" to
reflect the current market value of the option. If an option which a Fund has
sold or purchased expires on the stipulated expiration date, the Fund realizes a
gain or loss in the amount of the premium received or paid for the option.
For written options, the Fund's obligation may be discharged in three ways: (1)
the option expires on the stipulated expiration date; (2) the option holder
exercises the right to call (buy) or put (sell) the securitiy; or (3) the Fund
enters into a closing transaction. If the option is held until expiration, the
Fund recognizes a gain equal to the amount of premium received. If the written
call option is exercised by the counterparty, the premium is added to the
proceeds from the sale of the underlying security or currency in determining
whether the Fund has realized a gain or loss. If the written put option is
exercised by the counterparty, the premium reduces the cost basis of the
securities purchased by the Fund. If the Fund enters into a closing transaction,
a gain or loss is recognized equal to the difference between the premium
received by the Fund from the counterparty and the amount paid by the Fund on
effecting a closing purchase transaction, including brokerage commissions. As
the writer of options, the Fund bears the market risk of an unfavorable change
in the price of the security underlying the written option.
Futures Contracts. The Funds may invest in futures contracts solely for the
purpose of hedging its existing portfolio securities, or securities that the
Funds intend to purchase, against fluctuations in fair value caused by changes
in prevailing market or interest rates.
Initial margin deposits made upon entering into futures contracts are recognized
as assets due from the broker (the Funds' agent in acquiring the futures
position). During the period the futures contract is open, changes in the value
of the contract are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the daily market value of the contract.
Variation margin payments are received or made by the Funds each day, depending
upon the daily fluctuations in the fair value of the underlying instrument. The
Funds recognize a gain or loss equal to the daily variation margin. When the
contract is closed, the Funds record a realized gain or loss equal to the
difference between the proceeds from (or cost of) the closing transaction and
the Funds' basis in the contract.
Should market conditions move unexpectedly, the Funds may not achieve the
anticipated benefits of the financial futures contracts and may realize a loss.
The use of futures transactions involve the risk of imperfect correlation in
movements in the price of futures contracts, interest rates, and the underlying
hedged assets.
Repurchase Agreements. The Funds' Custodian takes possession of collateral
pledged for investments in repurchase agreements. The underlying collateral is
valued daily on a mark-to-market basis to assure that the value, including
accrued interest, is at least equal to the repurchase price. In the event of
default of the obligation to repurchase, the Funds have the right to liquidate
the collateral and apply the proceeds in satisfaction of the obligation. If the
seller defaults and the value of the
28
<PAGE>
-------
Pilgrim
Funds
-------
NOTES TO FINANCIAL STATEMENTS as of October 31, 2000 (Continued)
--------------------------------------------------------------------------------
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Funds may be
delayed or limited.
Federal Income Taxes. The Funds intend to comply with the special provisions of
the Internal Revenue Code available to investment companies and to distribute
all of the taxable net income to their respective shareholders. Therefore, no
federal income tax provision or excise tax provision is required.
Management's Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
Organization Costs. Costs incurred by the Trust in connection with its
organization of each Fund have been deferred and are being amortized over a
period of five years from the date the funds commenced operations.
NOTE 2. INVESTMENT ADVISER, ADMINISTRATOR AND DISTRIBUTOR
ING Pilgrim Investments, Inc. (the "Advisor"), serves as each Fund's investment
adviser.
ING Pilgrim Group, Inc. (the "Administrator") serves as administator to each
Fund. The Funds pay the Administrator a fee calculated at an annual rate of
0.10% of each Fund's average daily net assets, and an annual shareholder account
servicing fee of $5.00, payable semi-annually, for each account of beneficial
owners of shares. For the year ended October 31, 2000, the Administrator earned
$1,510,564 in administrative and account servicing fees.
ING Pilgrim Securities, Inc. (the "Distributor") is the distributor of each
Fund's shares. Under separate Plans of Distribution pertaining to Class A, Class
B, Class C, and Class Q, the Funds pay the Distributor monthly service fees at
an annual rate of 0.25% of the average daily net assets in the case of Class A,
Class B, Class C, and Class Q shares, and monthly distribution fees at the
annual rate of 0.05% of the average daily net assets of Class A shares and 0.75%
of the average daily net assets of Class B and Class C shares for all Funds.
Class I shares do not pay distribution or service fees. For the year ended
October 31, 2000 the Distributor earned $11,453,005 in service and distribution
fees.
The Distributor also receives the proceeds of the initial sales charges paid by
shareholders upon the purchase of Class A shares, and the contingent deferred
sales charge paid by shareholders upon certain redemptions of Class A, Class B
and Class C shares. For the year ended October 31, 2000, the Distributor earned
the following amounts in sales charges from Mayflower Trust:
Class A Class B Class C
Shares Shares Shares
------ ------ ------
Initial sales charges $890,373 N/A N/A
Contingent deferred
sales charges 104,791 N/A $150,713
The Growth + Value Fund, pays the Advisor an investment advisory fee calculated
at an annual rate of 1.00% of average daily net assets. The Research Enhanced
Index Fund pays the Advisor an investment advisory fee calculated at an annual
rate of 0.70% of average daily net assets. Prior to July 26, 2000, the High
Total Return Fund paid the Advisor an investment advisory fee calculated at an
annual rate of 0.75% on the first $250,000,000 of aggregate average daily net
assets, 0.70% on the next $250,000,000 of such assets, 0.65% on the next
$250,000,000 of such assets, 0.60% on the next $250,000,00 of such assets, and
0.55% on the assets in excess of $1 billion. On July 26, 2000, the fee changed
to 0.60% on the first $1 billion of aggregate average daily net assets and 0.55%
on the assets in excess of $1 billion. Prior to July 26, 2000, the High Total
Return Fund II paid the Advisor an investment advisory fee calculated at an
annual rate of 0.75% of average daily net assets. On July 26, 2000 the fee
changed to 0.60% of average daily net assets. For the year ended October 31,
2000, the Advisor earned $11,891,975 in investment advisory fees. Navellier Fund
Management, Inc. ("Navellier"), a registered investment advisor, serves as
subadvisor to the Growth + Value Fund pursuant to a Subadivsory Agreement dated
July 31, 1996 and amended and restated on July 1, 1998,
29
<PAGE>
-------
Pilgrim
Funds
-------
NOTES TO FINANCIAL STATEMENTS as of October 31, 2000 (Continued)
--------------------------------------------------------------------------------
between the Advisor and Navellier. For its services, Navellier receives from the
Advisor, a fee equal to 0.50% of the average daily net assets of the Fund. For
the year ended October 31, 2000, Navellier received $3,541,560 in subadvisory
fees from the Advisor. J.P. Morgan Investment Management, Inc. ("J.P. Morgan"),
a registered investment advisor, serves as subadvisor to the Research Enhanced
Index Fund pursuant to a Subadvisory Agreement dated December 21, 1998, between
the Advisor and J.P. Morgan. For its services, J.P. Morgan receives from the
Advisor, a fee equal to 0.20% of the average daily net assets of the Fund. For
the year ended October 31, 2000, J.P. Morgan received $495,110 in subadvisory
fees from the Advisor. The Advisor voluntarily undertook to limit the expenses
of the Research Enhanced Index Fund to 1.30% (Class A), 2.00% (Class B and C),
and 1.00% (Class I) of each respective class's average net assets from inception
through October 31, 1999.
NOTE 3. FUTURES CONTRACTS
On October 31, 2000, the Research Enhanced Index Fund had $65,000 principal
amount of U.S. Treasury obligations pledged as collateral to cover margin
requirements for open futures contracts.
Open futures contracts at October 31, 2000, were as follows:
Number of Unrealized
Contract Contracts Month Commitment Depreciation
-------- --------- ----- ---------- ------------
S&P 500 1 December Buy $ (74,846)
NOTE 4 -- PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments
(excluding short-term investments) for the year ended October 31, 2000, were as
follows:
<TABLE>
<CAPTION>
Research Enhanced High Total High Total
Growth + Value Fund Index Fund Return Fund Return Fund II
------------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Aggregate purchases $1,626,046,443 $150,423,322 $313,894,504 $112,403,325
Aggregate sales $1,167,454,793 $139,880,419 $470,059,629 $185,014,559
NOTE 5. CAPITAL SHARE TRANSACTIONS
Transactions in capital shares of each Fund for the year ended October 31, 2000,
were as follows:
Growth + Value Fund
----------------------------------------------------------------
Class A Class B
------------------------------ ------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 11,866,737 $ 303,851,859 11,175,519 $ 278,695,932
Shares issued as reinvestment
of dividends 380,695 8,366,591 806,730 17,285,755
Shares redeemed (6,015,701) (151,084,341) (2,742,651) (67,678,591)
------------- ------------- ------------- -------------
Net increase 6,231,731 $ 161,134,109 9,239,598 $ 228,303,096
============= ============= ============= =============
Growth + Value Fund
----------------------------------------------------------------
Class C Class Q
------------------------------ ------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 8,365,370 $ 211,475,739 54,841 $ 1,439,870
Shares issued as reinvestment
of dividends 302,389 6,478,206 -- --
Shares redeemed (1,424,913) (34,857,895) (770) (17,643)
------------- ------------- ------------- -------------
Net increase 7,242,846 $ 183,096,050 54,071 $ 1,422,227
============= ============= ============= =============
</TABLE>
30
<PAGE>
-------
Pilgrim
Funds
-------
NOTES TO FINANCIAL STATEMENTS as of October 31, 2000 (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Research Enhanced Index Fund
------------------------------------------------------------
Class A Class B
---------------------------- ----------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold 905,210 $ 10,303,882 2,050,650 $ 23,253,462
Shares issued as
reinvestment
of dividends 14,197 165,396 52,910 612,733
Shares redeemed (1,242,238) (14,134,442) (2,542,262) (28,592,017)
------------ ------------ ------------ ------------
Net increase
(decrease) (322,831) $ (3,665,164) (438,702) $ (4,725,822)
============ ============ ============ ============
Research Enhanced Index Fund
------------------------------------------------------------------------------------------
Class C Class I Class Q
---------------------------- --------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Shares sold 3,232,804 $ 36,538,030 -- $ -- 33,521 $ 379,475
Shares issued as
reinvestment
of dividends 64,089 751,195 31,779 371,501 -- --
Shares redeemed (2,138,973) (23,939,384) -- -- (9,077) (100,500)
------------ ------------ ------------ ------------ ------------ ------------
Net increase
(decrease) 1,157,920 $ 13,349,841 31,779 $ 371,501 24,444 $ 278,975
============ ============ ============ ============ ============ ============
High Total Return Fund
--------------------------------------------------------------------------------------------------
Class A Class B Class C
------------------------------ ------------------------------ ------------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Shares sold 4,980,440 $ 14,431,405 1,981,156 $ 5,645,390 897,043 $ 2,585,341
Shares issued as
reinvestment
of dividends 787,142 2,268,979 1,515,463 4,370,060 246,019 713,016
Shares redeemed (18,876,469) (55,376,246) (44,140,515) (130,166,377) (7,420,050) (22,120,658)
------------- ------------- ------------- ------------- ------------- -------------
Net decrease (13,108,887) $ (38,675,862) (40,643,896) $(120,150,927) (6,276,988) $ (18,822,301)
============= ============= ============= ============= ============= =============
High Total Return Fund II
--------------------------------------------------------------------------------------------
Class A Class B Class C
---------------------------- ---------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Shares sold 520,871 $ 1,864,615 1,072,638 $ 3,828,212 348,388 $ 1,306,700
Shares issued as
reinvestment
of dividends 135,874 494,033 510,080 1,811,021 122,147 427,391
Shares redeemed (2,754,704) (10,016,341) (15,800,611) (58,692,029) (4,570,092) (17,149,266)
------------ ------------ ------------ ------------ ------------ ------------
Net decrease (2,097,959) $ (7,657,693) (14,217,893) $(53,052,796) (4,099,557) $(15,415,175)
============ ============ ============ ============ ============ ============
Transactions in capital shares of each Fund for the year ended October 31, 1999,
were as follows:
Growth + Value Fund
--------------------------------------------------------------------------------------------------
Class A Class B Class C
------------------------------ ------------------------------ ------------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Shares sold 8,330,313 $ 119,944,285 3,968,213 $ 62,085,069 2,142,358 $ 33,290,488
Shares redeemed (7,420,035) (104,892,760) (2,518,709) (36,547,165) (1,416,685) (20,271,515)
------------- ------------- ------------- ------------- ------------- -------------
Net increase 910,278 $ 15,051,525 1,449,504 $ 25,537,904 725,673 $ 13,018,973
============= ============= ============= ============= ============= =============
Research Enhanced Index Fund
----------------------------------------------------------------
Class A Class B
------------------------------ ------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 2,723,102 $ 29,720,302 9,270,282 $ 100,006,579
Shares redeemed (290,337) (3,146,624) (317,349) (3,429,082)
------------- ------------- ------------- -------------
Net increase 2,432,765 $ 26,573,678 8,952,933 $ 96,577,497
============= ============= ============= =============
Research Enhanced Index Fund
-----------------------------------------------------------
Class C Class I
---------------------------- ---------------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold 7,106,428 $ 76,733,954 2,500,010 $ 25,000,100
Shares redeemed (258,766) (2,807,689) -- --
------------ ------------ ------------ ------------
Net increase 6,847,662 $ 73,926,265 2,500,010 $ 25,000,100
============ ============ ============ ============
</TABLE>
31
<PAGE>
-------
Pilgrim
Funds
-------
NOTES TO FINANCIAL STATEMENTS as of October 31, 2000 (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Total Return Fund
--------------------------------------------------------------------------------------------------
Class A Class B Class C
------------------------------ ------------------------------ ------------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 8,697,448 $ 32,933,540 13,334,418 $ 50,908,759 4,400,033 $ 17,013,996
Shares issued as
reinvestment
of dividends 1,876,811 7,018,801 3,352,068 12,515,097 580,868 2,180,064
Shares redeemed (22,068,969) (81,688,893) (45,307,016) (167,404,229) (9,679,733) (36,084,554)
------------- ------------- ------------- ------------- ------------- -------------
Net decrease (11,494,710) $ (41,736,552) (28,620,530) $(103,980,373) (4,698,832) $ (16,890,494)
============= ============= ============= ============= ============= =============
High Total Return Fund II
--------------------------------------------------------------------------------------------
Class A Class B Class C
---------------------------- ---------------------------- ----------------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Shares sold 1,794,866 $ 8,643,904 6,738,331 $ 32,524,712 2,873,473 $ 13,882,408
Shares issued as
reinvestment
of dividends 252,341 1,186,807 878,947 4,141,238 320,184 1,511,530
Shares redeemed (5,815,058) (27,242,596) (12,809,519) (59,589,557) (6,990,259) (32,901,666)
------------ ------------ ------------ ------------ ------------ ------------
Net decrease (3,767,851) $(17,411,885) (5,192,241) $(22,923,607) (3,796,602) $(17,507,728)
============ ============ ============ ============ ============ ============
</TABLE>
NOTE 6. CREDIT RISK AND DEFAULTED SECURITIES
Although each Fund has a diversifed portfolio, the High Total Return Fund and
High Total Return Fund II had 98.03% and 90.07%, respectively, of their
portfolios invested in lower rated and comparable quality unrated high yield
securities. Investments in high yield securities are accompanied by a greater
degree of credit risk and such lower rated securities tend to be more sensitive
to economic conditions than higher rated securities. The risk of loss due to
default by the issuer may be significantly greater for the holders of high
yielding securities, because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. At October 31, 2000, the
High Total Return Fund held SA Telecommunications, Inc., US Interactive, Poland
Telecom and Packaging Resources, defaulted securities. The aggregate value for
these securities is $2,157,354. At October 31, 2000, the High Total Return Fund
II held Poland Telecom, a defaulted security. The aggregate value for this
security is $40,020.
For financial reporting purposes, it is each Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds for the current reporting period.
NOTE 7. SECURITY LOANS
Each Fund may lend its securities to brokers, dealers and other financial
institutions in amounts up to one third of the value of its total assets. The
loans are fully collateralized at all times by cash or liquid high grade
securities. As with other extensions of credit, each Fund may bear risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Funds receive compensation for lending their
securities in the form of fees or all or a portion of the income from
investments of the collateral. The Funds also continue to earn income on the
securities loaned. At October 31, 2000, the Funds did not have any securities on
loan.
NOTE 8. FEDERAL INCOME TAX -- CAPITAL LOSS CARRYFORWARD
At October 31, 2000, capital loss carryforwards were as follows:
Expiration
Amount Dates
------ -----
High Total Return Fund $ 6,107,124 10/31/06
$99,343,698 10/31/07
$74,555,141 10/31/08
High Total Return Fund II $31,512,402 10/31/07
$45,075,619 10/31/08
32
<PAGE>
-------
Pilgrim
Funds
-------
NOTES TO FINANCIAL STATEMENTS as of October 31, 2000 (Continued)
--------------------------------------------------------------------------------
NOTE 9. LETTER OF CREDIT
The Pilgrim Funds, Pilgrim Equity Trust, Pilgrim Variable Products Trust
(formerly Northstar Galaxy Trust) and Pilgrim Mayflower Trust (collectively, the
"Funds") have entered into an unsecured committed revolving line of credit
agreement (the "Credit Agreement") with State Street Bank and Trust Company for
an aggregate amount of $50,000,000. The proceeds may be used only to (1)
temporarily finance the purchase and sale of securities; (2) finance the
redemption of shares of an investor in the Funds; and (3) enable the Funds to
meet other emergency expenses as defined in the Credit Agreement. The Funds pay
a commitment fee equal to 0.08% per annum on the daily unused portion of the
committed line amount payable quarterly in arrears. Average borrowings during
the year ended October 31, 2000 were $19,263,200 and $10,000,000 at average
annualized interest rates of 6.27% and 6.19% for High Total Return Fund and High
Total Return Fund II, respectively.
NOTE 10. SUBSEQUENT EVENTS
Subsequent to October 31, 2000, the following funds declared dividends from net
investment income and capital gains of:
Per Share Payable Record
Type Amount Date Date
---- ------ ---- ----
High Total Return
Class A NII $ 0.0210 12/05/00 11/30/00
Class B NII $ 0.0190 12/05/00 11/30/00
Class C NII $ 0.0190 12/05/00 11/30/00
High Total Return II
Class A NII $ 0.0250 12/05/00 11/30/00
Class B NII $ 0.0240 12/05/00 11/30/00
Class C NII $ 0.0240 12/05/00 11/30/00
Growth + Value
All Classes LTCG $ 2.2155 11/20/00 11/15/00
On December 1, 2000, a proxy statement was filed with the Securities and
Exchange Commission for the reorganization of Pilgrim High Total Return Fund and
Pilgrim High Total Return Fund II into Pilgrim High Yield Fund II. Upon
approval, proxy statements will be mailed to the shareholders.
33
<PAGE>
Pilgrim
Growth +
Value Fund PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Shares Value
------ -----
COMMON STOCKS: 93.54%
Biotechnology: 4.37%
314,700 @ CuraGen Corp. $ 20,337,487
187,900 @ Protein Design Labs, Inc. 25,381,180
--------------
45,718,667
--------------
Commercial Services: 2.55%
193,500 @ Aurora Biosciences Corp. 11,791,406
236,900 @ Plexus Corp. 14,939,506
--------------
26,730,912
--------------
Computers: 5.70%
489,800 @ Mentor Graphics Corp. 11,479,688
1,063,000 @ Silicon Storage Technology, Inc. 24,183,250
468,800 @ Sungard Data Systems, Inc. 23,967,400
--------------
59,630,338
--------------
Electrical Components and
Equipment: 4.52%
181,500 C&D Technologies, Inc. 10,731,188
516,600 @ Power-One, Inc. 36,646,312
--------------
47,377,500
--------------
Electronics: 4.45%
277,300 @ Nanometrics, Inc. 6,377,900
192,900 PerkinElmer, Inc. 23,051,550
90,800 Technitrol, Inc. 10,067,450
231,900 @ Varian, Inc. 7,145,419
--------------
46,642,319
--------------
Entertainment: 2.60%
373,800 @ Macrovision Corp. 27,240,675
--------------
Healthcare - Products: 3.59%
446,800 @ Oakley, Inc. 9,382,800
249,600 @ Techne Corp. 28,142,400
--------------
37,525,200
--------------
Healthcare-Services: 5.15%
108,200 @ Laboratory Corp. of America Holdings 14,593,475
167,200 @ Quest Diagnostics, Inc. 16,093,000
198,400 @ Wellpoint Health Networks Inc. 23,200,400
--------------
53,886,875
--------------
Internet: 5.26%
202,700 @ Art Technology Group, Inc. 12,719,425
248,900 @ i2 Technologies, Inc. 42,313,000
--------------
55,032,425
--------------
Manufacturing: 1.25%
383,700 @ Applied Films Corp. $ 13,045,800
--------------
Oil and Gas Producers: 1.22%
415,900 @ Triton Energy Ltd. 12,788,925
--------------
Oil and Gas Services: 2.60%
518,600 @ BJ Services Co. 27,194,088
--------------
Pharmaceuticals: 8.05%
383,600 @ Celgene Corp. 24,694,250
500,400 @ IVAX Corp. 21,767,400
405,800 @ Vertex Pharmaceuticals, Inc. 37,783,784
--------------
84,245,434
--------------
Retail: 4.04%
578,700 @ CDW Computer Centers, Inc. 37,289,981
149,700 @ Christopher & Banks Corp. 4,958,813
--------------
42,248,794
--------------
Semiconductors: 8.82%
702,600 @ Applied Micro Circuits Corp. 53,661,075
610,600 @ International Rectifier Corp. 27,248,025
408,600 @ OAK Technology, Inc. 11,466,338
--------------
92,375,438
--------------
Software: 11.61%
678,400 Adobe Systems, Inc 51,600,800
429,800 @ Mercury Interactive Corp. 47,707,800
357,300 @ Nvidia Corp. 22,202,845
--------------
121,511,445
--------------
Telecommunications: 17.76%
421,500 @ Digital Lightwave, Inc. 21,364,781
254,900 @ Emulex Corp. 37,438,437
405,700 @ Natural Microsystems Corp. 18,332,569
246,600 Newport Corp. 28,162,490
567,000 @ Powerwave Technologies, Inc. 27,286,875
427,600 Scientific-Atlanta, Inc. 29,263,875
250,800 @ Tollgrade Communications, Inc. 24,014,100
--------------
185,863,127
--------------
Total Common Stocks (Cost $833,047,299) 979,057,962
--------------
Principal
Amount Value
--------- -----
SHORT-TERM INVESTMENTS: 5.02%
Repurchase Agreement: 5.02%
$52,565,000 State Street Bank & Trust
Repurchase Agreement,
6.450% due 11/01/00
(Collateralized by
$2,350,000 U.S. Treasury
Bonds, 8.750% Due
11/15/08 Value
$2,620,250, $22,870,000
U.S. Treasury Bonds,
8.750%, Due 11/15/08,
Value $25,500,050,
$25,190,000 U.S.
Treasury Notes, 6.125%,
Due 08/31/02, Value
$25,504,875) $ 52,565,000
--------------
Total Short-Term Investments
(Cost $52,565,000) 52,565,000
--------------
Total Investments in Securities
(Cost $ 885,612,299)* 98.56% 1,031,622,962
Other Assets and Liabilities-Net 1.44% 15,090,678
------ --------------
Net Assets 100.00% $1,046,713,640
====== ==============
----------
@ Non-income producing security
* Cost for federal income tax purposes is $ 840,239,457.
Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 180,740,824
Gross Unrealized Depreciation (41,922,319)
-------------
Net Unrealized Appreciation $ 138,818,505
=============
See Accompanying Notes to Financial Statements
34
<PAGE>
Pilgrim
Research
Enhanced
Index Fund PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Shares Value
------ -----
COMMON STOCKS: 99.92%
Aerospace/Defense: 0.58%
8,400 Boeing Co. $ 569,625
7,900 Goodrich (B.F.) Co. 323,406
2,000 Lockheed Martin Corp. 71,700
5,600 United Technologies Corp. 390,950
-----------
1,355,681
-----------
Airlines: 0.37%
8,100 @ AMR Corp. 265,275
2,100 Continental Airlines, Inc. 110,250
600 Delta Air Lines, Inc. 28,350
3,600 @ Northwest Airlines Corp. 102,600
12,900 Southwest Airlines 367,650
-----------
874,125
-----------
Apparel: 0.25%
6,800 @ Jones Apparel Group, Inc. 189,125
10,200 Nike, Inc. 407,362
-----------
596,487
-----------
Auto Manufacturers: 1.41%
65,900 Ford Motor Co. 1,721,636
22,900 General Motors Corp. 1,422,662
3,700 Paccar, Inc. 155,631
-----------
3,299,929
-----------
Auto Parts & Equipment: 0.27%
6,700 Dana Corp. 148,656
23,900 Delphi Automotive Systems 374,931
6,400 Visteon Corp. 113,200
-----------
636,787
-----------
Banks: 3.04%
9,500 Amsouth Bancorporation $ 132,406
21,800 Bank of America Corp. 1,047,762
35,000 Bank One Corp. 1,277,500
4,200 Banknorth Group, Inc. 76,125
600 Chase Manhattan Corp. 27,300
100 Comerica, Inc. 6,031
2,900 Compass Bancshares, Inc. 52,744
4,400 First Tennessee National Corp. 101,200
27,000 First Union Corp. 818,438
12,700 Fleet Boston Financial Corp. 482,600
4,500 Hibernia Corp. 53,719
16,500 KeyCorp 407,344
1,000 Marshall & Ilsley Corp. 45,312
6,000 National Commerce Bancorp 127,500
10,700 PNC Financial Services Group 715,562
6,400 Regions Financial Corp. 150,800
5,600 SouthTrust Corp. 181,300
5,000 Summit Bancorp 187,500
2,500 TCF Financial Corp. 101,094
43,600 U.S. Bancorp 1,054,575
1,800 Wells Fargo & Co. 83,362
-----------
7,130,174
-----------
Beverages: 1.23%
100 Anheuser-Busch Companies, Inc. 4,575
32,900 Coca-Cola Co. 1,986,338
18,700 PepsiCo, Inc. 905,781
-----------
2,896,694
-----------
Biotechnology: 0.47%
14,300 @ Amgen, Inc. 828,506
1,000 @ Genzyme Corp. -- General Division 71,000
2,200 @ Human Genome Sciences, Inc. 194,460
-----------
1,093,966
-----------
Chemicals: 1.10%
13,700 Air Products & Chemicals, Inc. 511,181
27,800 Dow Chemical Co. 851,375
10,500 PPG Industries, Inc. 468,563
9,800 Praxair, Inc. 365,050
13,000 Rohm & Haas Co. 390,812
-----------
2,586,981
-----------
Commercial Services: 0.20%
39,000 Cendant Corp. $ 468,000
-----------
Computers: 7.37%
700 @ Apple Computer, Inc. 13,694
48,200 Compaq Computer Corp. 1,465,762
56,200 @ Dell Computer Corp. 1,657,900
39,400 EMC Corp. 3,509,062
31,600 Hewlett-Packard Co. 1,467,425
28,100 International Business Machines 2,767,850
1,800 NCR Corp. 77,625
18,700 @ Seagate Technology, Inc. 1,306,663
39,847 @ Sun Microsystems, Inc. 4,418,036
4,500 @ Veritas Software Corp. 634,570
-----------
17,318,587
-----------
Cosmetics/Personal Care: 1.87%
3,700 Estee Lauder Cos., Inc. 171,819
40,200 Gillette Co. 1,401,975
9,700 Kimberly-Clark Corp. 640,200
30,500 Procter & Gamble Co. 2,178,844
-----------
4,392,838
-----------
Distribution/Wholesale Total: 0.06%
4,400 W.W. Grainger, Inc. 140,525
-----------
See Accompanying Notes to Financial Statements
35
<PAGE>
Pilgrim
Research
Enhanced
Index Fund PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Shares Value
------ -----
Diversified Financial Services: 8.09%
10,400 American Express Co. $ 624,000
21,500 Associates First Capital Corp. 798,188
2,000 Bear Stearns Cos., Inc. 121,250
9,000 Capital One Financial Corp. 568,125
9,600 CIT Group, Inc. 167,400
100,700 Citigroup, Inc. 5,299,338
5,900 Countrywide Credit Ind., Inc. 220,881
2,500 Edwards (A.G.), Inc. 126,875
26,400 Fannie Mae 2,032,800
7,200 Franklin Resources, Inc. 308,448
23,100 Freddie Mac 1,386,000
10,600 Goldman Sachs Group, Inc. 1,058,013
13,800 Household Int'l, Inc. 694,312
1,600 Legg Mason, Inc. 83,100
7,400 Lehman Brothers Holdings, Inc. 477,300
7,600 MBNA Corp. 285,475
26,200 Merrill Lynch & Co. 1,834,000
26,000 Morgan Stanley Dean Witter & Co. 2,088,125
600 Price (T Rowe) Associates 28,087
7,800 Providian Financial Corp. 811,200
-----------
19,012,917
-----------
Electric: 2.34%
5,000 Ameren Corp. 198,750
11,600 American Electric Power 481,400
7,800 Cinergy Corp. 238,875
7,100 CMS Energy Corp. 191,700
7,300 Consolidated Edison, Inc. 256,869
15,900 CP&L Energy, Inc. 640,969
8,400 DTE Energy Co. 303,450
9,100 Edison Int'l 217,262
13,000 Entergy Corp. 498,062
6,300 FPL Group, Inc. 415,800
5,900 GPU, Inc. 195,069
4,900 NiSource, Inc. 122,194
14,000 PG&E Corp. 377,125
4,600 Pinnacle West Capital Corp. 199,812
5,800 Public Service Enterprise Group 240,700
13,500 TXU Corp. 500,344
6,400 Wisconsin Energy Corp. 120,400
11,400 XCEL Energy, Inc. 291,413
-----------
5,490,194
-----------
Electrical Components & Equipment: 0.08%
2,600 Emerson Electric Co. $ 190,938
-----------
Electronics: 0.19%
3,400 @ Johnson Controls, Inc. 202,725
5,200 Parker Hannifin Corp. 215,150
200 PE Corp.-PE Biosystems Group 23,400
-----------
441,275
-----------
Environment Control: 0.02%
2,300 Waste Management, Inc. 46,000
-----------
Food: 2.27%
11,900 Albertson's, Inc. 281,881
2,400 Campbell Soup Co. 70,200
11,100 General Mills, Inc. 463,425
15,200 Heinz (H.J.) Co. 637,450
17,800 Kellogg Co. 451,675
37,000 @ Kroger Co. 834,813
5,300 Quaker Oats Co. 432,281
16,100 Safeway, Inc. 880,469
25,100 @@ Unilever NV 1,275,394
-----------
5,327,588
-----------
Forest Products & Paper: 0.36%
6,500 Georgia-Pacific 174,688
15,400 International Paper Co. 564,025
2,200 Temple-Inland, Inc. 98,450
-----------
837,163
-----------
Healthcare-Products: 1.86%
4,600 Bard (C.R.), Inc. 192,625
4,700 Baxter Int'l, Inc. 386,281
13,400 Becton, Dickinson & Co. 448,900
18,600 @ Boston Scientific Corp. 296,437
8,200 @ Guidant Corp. 434,087
16,100 Johnson & Johnson 1,483,213
14,600 Medtronic, Inc. 792,963
5,900 ST Jude Medical, Inc. 324,500
-----------
4,359,006
-----------
Healthcare-Services: 0.66%
24,300 HCA -- The Healthcare Co. 970,481
14,500 @ Tenet Healthcare Corp. 570,032
-----------
1,540,513
-----------
Household Products/Wares: 0.16%
8,500 Clorox Co. 379,313
-----------
Insurance: 4.01%
2,400 Aetna, Inc. $ 138,750
6,700 Aflac, Inc. 489,519
27,000 Allstate Corp. 1,086,750
3,800 AMBAC Financial Group, Inc. 303,287
5,500 American General Corp. 442,750
29,300 American Int'l Group 2,871,400
9,500 AON Corp. 393,656
7,400 Cigna Corp. 902,430
10,800 Hartford Financial Services 803,925
13,000 @ John Hancock Financial Services 411,125
6,400 Lincoln National Corp. 309,600
5,300 MBIA, Inc. 385,244
24,000 @ Metlife, Inc 663,000
6,700 Torchmark Corp. 223,194
-----------
9,424,630
-----------
Internet: 1.65%
44,600 @ America Online, Inc. 2,249,178
11,600 @ Charles Schwab Corp. 407,450
12,400 @ E*TRADE Group, Inc. 180,575
3,600 Network Associates, Inc. 69,300
18,800 @ TD Waterhouse Group 311,375
4,900 Tibco Software, Inc. 308,700
6,100 @ Yahoo, Inc. 357,613
-----------
3,884,191
-----------
Iron/Steel: 0.03%
3,900 Allegheny Technologies, Inc. 78,975
-----------
Lodging: 0.30%
6,400 Hilton Hotels Corp. 60,800
10,000 Marriott Int'l, Inc. 405,000
7,900 Starwood Hotels & Resorts Worldwide 234,038
-----------
699,838
-----------
Machinery-Construction & Mining: 0.26%
17,100 Caterpillar, Inc. 599,569
-----------
Machinery Diversified: 0.16%
2,200 Dover Corp. 93,363
7,100 Ingersoll-Rand Co. 268,025
500 Rockwell Int'l Corp. 19,656
-----------
381,044
-----------
See Accompanying Notes to Financial Statements
36
<PAGE>
Pilgrim
Research
Enhanced
Index Fund PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Shares Value
------ -----
Media: 3.44%
36,800 @ AT&T-Liberty Media Group $ 662,400
34,200 @ Comcast Corp. 1,393,650
20,200 Disney (Walt) Co. 723,413
4,000 @ Fox Entertainment Group, Inc. 86,000
10,200 Gannett Co., Inc. 591,600
8,600 Gemstar-TV Guide International, Inc. 589,637
4,300 Knight Ridder, Inc. 216,075
3,800 New York Times Co. 139,650
32,200 Time Warner, Inc. 2,444,302
21,500 @ Viacom, Inc. 1,222,813
-----------
8,069,540
-----------
Mining: 0.44%
36,000 Alcoa, Inc. 1,032,750
-----------
1,032,750
-----------
Miscellaneous Manufacturing: 7.03%
3,800 Cooper Industries, Inc. 145,350
4,300 Eastman Kodak Co. 192,962
3,900 Eaton Corp. 265,444
201,900 General Electric Co. 11,066,644
17,700 Honeywell Int'l, Inc. 952,481
11,500 Illinois Tool Works 638,969
9,800 ITT Industries, Inc. 319,112
51,400 @@ Tyco Int'l, Ltd. 2,913,738
-----------
16,494,700
-----------
Oil & Gas Producers: 5.82%
5,800 Anadarko Petroleum Corp. 371,490
2,400 Apache Corp. 132,750
18,900 Chevron Corp. 1,552,162
11,400 Conoco Inc. 309,938
2,100 Devon Energy Corp. 105,840
800 Diamond Offshore Drilling 27,650
1,700 Ensco International, Inc. 56,525
73,200 Exxon Mobil Corp. 6,528,525
10,300 @ Global Marine Inc. 272,950
53,000 @@ Royal Dutch Petroleum Co. 3,146,875
19,800 Texaco, Inc. 1,169,438
-----------
13,674,143
-----------
Oil & Gas Services: 0.47%
9,700 Baker Hughes, Inc. 333,437
7,600 @ Cooper Cameron Corp. 414,200
9,900 Halliburton Co. 366,919
-----------
1,114,556
-----------
Packaging & Containers: 0.06%
9,600 @ Smurfit-Stone Container Corp. $ 129,600
-----------
Pharmaceuticals: 9.17%
25,200 Abbott Laboratories 1,330,875
2,500 @ Alza Corp. 202,344
27,700 American Home Products Corp. 1,758,950
34,300 Bristol-Myers Squibb Co. 2,090,156
29,300 Eli Lilly & Co. 2,618,687
2,000 Forest Laboratories -- Class A 265,000
50,200 Merck & Co., Inc. 4,514,863
114,000 Pfizer Inc. 4,923,375
31,100 Pharmacia Corp. 1,710,500
41,400 Schering-Plough Corp. 2,139,863
-----------
21,554,613
-----------
Pipelines: 0.44%
1,400 Columbia Energy Group 100,713
5,300 Dynegy, Inc. 245,456
2,800 EL Paso Energy Corp. 175,525
700 Enron Corp. 57,444
10,600 Williams Cos., Inc. 443,212
-----------
1,022,350
-----------
Retail: 4.64%
10,700 @ Best Buy Co., Inc. 537,006
4,000 Costco Wholesale Corp. 146,500
9,600 @ Federated Department Stores, Inc. 312,600
38,200 Gap, Inc. 986,037
48,600 Home Depot, Inc. 2,089,800
2,600 Kohl's Corp. 140,887
15,600 Limited, Inc. 393,900
12,100 Lowe's Cos. 552,819
16,300 May Department Stores Co. 427,875
17,000 McDonald's Corp. 527,000
100 Sears, Roebuck, and Co. 2,973
39,600 Target Corp. 1,093,950
16,200 TJX Cos., Inc. 441,450
71,500 Wal-Mart Stores, Inc. 3,244,313
-----------
10,897,110
-----------
Savings & Loans: 0.62%
6,200 Dime Bancorp, Inc. $ 151,513
4,000 Golden West Financial Corp. 224,250
3,700 Greenpoint Financial Corp. 110,075
21,900 Washington Mutual, Inc. 963,600
-----------
1,449,438
-----------
Semiconductors: 4.83%
2,300 @ Advanced Micro Devices 52,038
12,000 @ Altera Corp. 491,250
8,300 Analog Devices, Inc. 539,500
18,600 @ Applied Materials, Inc. 988,125
1,700 Broadcom Corp. 378,038
3,500 Cypress Semiconductor Corp. 131,031
112,000 Intel Corp. 5,040,000
2,800 @ Lattice Semiconductor Corp. 81,725
6,100 Linear Technology Corp. 393,831
17,000 Micron Technology, Inc. 590,750
11,100 @ National Semiconductor Corp. 288,600
700 PMC -- Sierra, Inc. 118,650
34,500 Texas Instruments, Inc. 1,692,656
7,700 @ Xilinx, Inc. 557,769
-----------
11,343,963
-----------
Software: 6.01%
7,000 Adobe Systems, Inc. 532,437
11,700 Automatic Data Processing 764,156
7,700 @ BEA Systems, Inc. 552,475
2,600 @ Citrix Systems, Inc. 57,525
115,400 @ Microsoft Corp. 7,948,175
1,200 Novell, Inc. 10,800
102,300 Oracle Corp. 3,375,900
7,800 Parametric Technology Corp. 96,037
6,600 @ Siebel Systems, Inc. 692,587
1,800 @ Symantec Corp. 70,312
-----------
14,100,404
-----------
See Accompanying Notes to Financial Statements
37
<PAGE>
Pilgrim
Research
Enhanced
Index Fund PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Shares Value
------ -----
Telecommunications: 14.38%
200 @ Allegiance Telecom, Inc. $ 6,287
53,200 @ AT&T Corp. 1,233,575
7,175 @ Avaya, Inc. 96,414
12,700 Bellsouth Corp. 613,569
143,800 Cisco Systems, Inc. 7,747,225
20,100 Corning, Inc. 1,537,650
23,500 @@@ Global Crossing, Ltd. 555,188
26,500 JDS Uniphase Corp. 2,156,437
10,900 Level 3 Communications, Inc. 519,794
64,900 Lucent Technologies, Inc. 1,512,981
33,200 Motorola, Inc. 827,925
4,100 Network Appliance, Inc. 487,900
19,300 Nextel Communications, Inc. 741,844
71,700 @@ Nortel Networks Corp. 3,262,350
9,900 @ Qualcomm, Inc. 644,583
48,700 Qwest Communications Int'l 2,368,037
62,200 SBC Communications, Inc. 3,588,162
4,500 Sprint Corp. (FON Group) 114,750
21,000 @ Sprint Corp. (PCS Group) 800,625
12,400 @ Tellabs, Inc. 619,225
51,300 Verizon Communications 2,965,781
58,000 @ Worldcom, Inc. 1,377,500
------------
33,777,802
------------
Tobacco: 1.19%
76,200 Philip Morris Cos., Inc. 2,790,825
------------
Toys/Games/Hobbies: 0.13%
7,400 Hasbro, Inc. 79,550
17,500 Mattel, Inc. 226,406
------------
305,956
------------
Transportation: 0.59%
15,500 Burlington Northern Santa Fe Co. $ 411,719
1,600 C.H. Robinson Worldwide, Inc. 87,500
4,300 @ FedEx Corp. 201,498
16,200 Norfolk Southern Corp. 228,825
9,600 Union Pacific Corp. 450,000
------------
1,379,542
------------
Total Common Stocks (Cost $224,350,431) 234,621,220
------------
Principal
Amount Value
------ -----
SHORT-TERM INVESTMENTS: 0.27%
U.S. Government Securities: 0.03%
$ 65,000 (1) U.S. Treasury Note, 5.625%, due 02/28/01
(cost $64,847) $ 64,817
------------
Repurchase Agreement: 0.24%
562,000 State Street Bank & Trust Repurchase
Agreement, 6.450% due 11/01/00.
(Collateralized by $535,000 U.S.
Treasury Notes, 6.375%, Due 08/15/27
Value $574,456) 562,000
------------
Total Short-Term Investments
(cost $626,847) 626,817
------------
Total Investments in Securities
(Cost $224,977,278)* 100.19% 235,248,037
Other Assets and Liabilities-Net -0.19% (455,002)
------ ------------
Net Assets 100.00% $234,793,035
====== ============
----------
@ Non-income producing security
@@ Foreign Issuer
(1) This security has been segregated as collateral for futures contracts.
* Cost for federal income tax purposes is $225,005,811. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation $ 31,212,105
Gross Unrealized Depreciation (21,596,696)
------------
Net Unrealized Appreciation $ 9,615,409
============
See Accompanying Notes to Financial Statements
38
<PAGE>
Pilgrim
High Total
Return Fund PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Principal
Amount Value
------ -----
CORPORATE BONDS AND NOTES: 78.71%
Aerospace: 1.29%
3,996,000 CV Simula, Inc., 8.000%,
due 05/01/04 $ 2,057,940
-----------
Airlines: 3.14%
2,000,000 Amtran Inc., 10.500%,
due 08/01/04 1,835,000
3,250,000 Atlas Air, Inc., 9.375%,
due 11/15/06 3,201,250
-----------
5,036,250
-----------
Broadcasting: 3.07%
5,300,000 $ Brill Media Company, LLC, 0/7.500%,
due 12/15/07 3,498,000
1,500,000 Sinclair Broadcast Group, 10.000%,
due 09/30/05 1,426,875
-----------
4,924,875
-----------
Cable TV-: 11.12%
2,500,000 $ Charter Communications LLC 0/11.750%,
due 01/15/10 1,450,000
8,500,000 $ Charter Communications LLC 0/9.920%,
due 04/01/11 4,961,875
9,000,000 $ NTL Communications Corp., 0/9.750%,
due 04/05/09 6,006,930
4,000,000 @@ Star Choice Communications, 13.000%,
due 12/15/05 4,300,000
3,000,000 $@@ United Pan-Europe Communications, 0/13.750%,
due 02/01/10 1,125,000
-----------
17,843,805
-----------
Capital Goods: 1.01%
1,830,000 Terex Corp., 8.875%, due 04/01/08 1,619,550
-----------
Consumer Products: 0.70%
1,200,000 Simmons Company, 10.250%, due 03/15/09 $ 1,122,000
-----------
Containers: 1.29%
1,500,000 Owens-Illinois, Inc., 7.850%,
due 05/15/04 1,132,500
4,041,738 **$# Packaging Resources, 0/13.000%,
due 06/30/03 363,756
575,000 Stone Container Corp., 12.250%,
due 04/01/02 577,875
-----------
2,074,131
-----------
Diversified Media: 2.66%
6,900,000 $ Diva Systems Corp., 0/12.625%,
due 03/01/08 2,846,250
3,750,000 Source Media, Inc., 12.000%,
due 11/01/04 1,425,000
-----------
4,271,250
-----------
Electric: 2.58%
1,900,000 AES Corp., 9.375%,
due 09/15/10 1,938,000
2,225,000 Calpine Corp., 8.625%,
due 08/15/10 2,200,954
-----------
4,138,954
-----------
Energy: 6.83%
1,000,000 Clark Refining & Marketing, 8.375%,
due 11/15/07 830,000
4,065,000 Energy Corp. of America, 9.500%,
due 05/15/07 3,150,375
3,353,961 #@@ Hurricane Hydrocarbons, 16.000%,
due 12/31/01 3,345,576
3,000,000 @@ Northern Offshore Asa, 10.000%,
due 05/15/05 2,205,000
2,150,000 United Refining Corp., 10.750%,
due 06/15/07 1,419,000
-----------
10,949,951
-----------
Environmental: 2.41%
4,500,000 # Allied Waste North America, Inc.,
10.000%, due 08/01/09 $ 3,870,000
-----------
Equipment Rental: 1.33%
1,525,000 United Rentals, Inc., 9.000%, due
04/01/09 1,242,875
850,000 United Rentals, Inc., 9.250%, due
01/15/09 701,250
225,000 United Rentals, Inc., 8.800%, due
08/15/08 181,125
-----------
2,125,250
-----------
Food/Beverage: 1.16%
2,225,000 Packaged Ice, Inc., 9.750%,
due 02/01/05 1,857,875
-----------
Gaming & Lottery: 8.27%
1,250,000 # Anchor Gaming, 9.875%,
due 10/15/08 1,270,313
1,750,000 ++# Autotote Corp., 12.500%,
due 08/15/10 1,732,500
5,000,000 # Hollywood Casino Shreveport, 13.000%,
due 08/01/06 5,375,000
2,250,000 Park Place Entertainment, 8.875%,
due 09/15/08 2,216,250
1,900,000 ++# Station Casinos, Inc., 9.875%,
due 07/01/10 1,914,250
750,000 Station Casinos, Inc., 9.750%,
due 04/15/07 753,750
-----------
13,262,063
-----------
Health Care: 3.15%
500,000 Columbia/HCA Healthcare Corp., 7.250%,
due 05/20/08 466,267
25,746,342 ++X# Intracel Corp. Series A 2nd Priority,
prime+2.000%, due 02/18/02 2,832,098
1,300,000 ++X# Intracel Corp.Series A 1st Priority,
prime+2.000%, due 02/18/02 1,092,000
797,275 ++X# Intracel Corp.Class B Priority, 11.500%,
due 02/18/02 669,711
-----------
5,060,076
-----------
See Accompanying Notes to Financial Statements
39
<PAGE>
Pilgrim
High Total
Return Fund PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Principal
Amount Value
------ -----
Homebuilding: 0.92%
800,000 Lennar Corp., 9.950%,
due 05/01/10 $ 808,000
750,000 Lennar Corp., 7.625%,
due 03/01/09 669,578
------------
1,477,578
------------
Hotels: 0.47%
750,000 Prime Hospitality Corp., 9.750%,
due 04/01/07 757,500
------------
Leisure: 0.21%
350,000 Bally Total Fitness Holdings, 9.875%,
due 10/15/07 327,250
------------
Paper: 0.53%
1,425,000 Doman Industries, Ltd., 8.750%,
due 03/15/04 844,313
------------
Rail Transportation: 0.51%
800,000 #++ Kansas City Southern Railway, 9.500%,
due 10/01/08 816,000
------------
Shipping: 2.99%
5,750,000 Ultrapetrol Bahamas, Ltd., 10.500%,
due 04/01/08 4,801,250
------------
Specialty Retail: 0.32%
750,000 Jo-Ann Stores, Inc., 10.375%,
due 05/01/07 513,750
------------
Steel: 0.94%
1,310,000 AK Steel Corp., 9.125%,
due 12/15/06 1,290,350
225,000 Armco, Inc., 9.000%,
due 09/15/07 212,625
------------
1,502,975
------------
Technology: 3.28%
500,000 Fairchild Semiconductor, 10.125%,
due 03/15/07 487,500
1,250,000 Flextronics Int'l, Ltd., 8.750%,
due 10/15/07 1,212,500
4,270,000 Zilog, Inc., 9.500%,
due 03/01/05 3,565,450
------------
5,265,450
------------
Telecommunications: 18.53%
1,070,000 #@@++ Asia Global Crossing, 13.375%,
due 10/15/10 $ 995,100
6,000,000 Call-Net Enterprises, Inc., 8.940%,
due 08/15/08 1,710,000
3,250,000 # Colo.Com, 13.875%,
due 03/15/10 2,453,750
6,000,000 @@ Esprit Telecom Group, 11.500%,
due 12/15/07 1,314,664
2,000,000 @@ Esprit Telecom Group PLC, 11.500%,
due 12/15/07 410,000
950,000 Globix Corp., 12.500%,
due 02/01/10 527,250
4,800,000 $ Level 3 Communications, Inc., 0/12.875%,
due 03/15/10 2,388,000
10,195,500 Metromedia Int'l Group, 10.500%,
due 09/30/07 4,791,885
4,800,000 $ Nextel Communications, 0/9.950%,
due 02/15/08 3,588,000
3,000,000 $ Nextlink Communications, Inc., 0/12.250%,
due 06/01/09 1,582,500
2,000,000 Northeast Optic Network, 12.750%,
due 08/15/08 1,470,000
7,000,000 **#@@ Poland Telecom Finance, 14.000%,
due 12/01/07 140,000
750,000 PSI Net, Inc., 10.000%,
due 02/15/05 361,875
2,000,000 @@ RSL Communications,PLC 12.250%,
due 11/15/06 370,000
5,000,000 CV# SA Telecommunications, Inc., 10.000%,
** due 08/15/06 0
8,500,000 CV# SA Telecommunications, Inc., 10.000%,
** due 08/15/06 0
3,800,000 CV# SA Telecommunications, Inc., 10.000%,
** due 08/15/06 0
8,267,451 **&X U.S.Interactive, 12.000%,
due 04/17/05 1,653,490
4,525,000 $ U.S. Unwired, Inc., 0/13.375%,
due 11/01/01 $ 2,228,563
1,500,000 @@ Versatel Telecom BV, 11.875%,
due 07/15/09 1,102,500
8,750,000 Viatel, Inc., 12.500%,
due 04/15/08 2,625,000
------------
29,712,577
------------
Total Corporate Bonds and Notes
(Cost $204,713,877) 126,232,613
------------
See Accompanying Notes to Financial Statements
40
<PAGE>
Pilgrim
High Total
Return Fund PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Shares Value
------ -----
COMMON STOCKS: 0.66%
Conglomerates: 0.07%
2,100 X@ Jordan Telecommunications $ 109,200
------------
Health Care: 0.01%
140,282 X@++ Intracel Corp. 15,431
------------
Restaurants: 0.00%
1,088 @X International Fast Food Corp. 4,489
------------
Telecommunications: 0.58%
61,806 @ Adelphia Business Solutions Class B 386,288
52,900 @ Globix Corp. 535,613
37,790 @@ GST Telecommunications 756
410,929 @ International Wireless
Communications Holdings, Inc. 4,109
------------
926,766
------------
Total Common Stocks
(Cost $ 13,623,299) 1,055,886
------------
PREFERRED STOCKS: 14.54%
Broadcasting: 3.21%
51,630 @& Paxson Communications Corp. 5,150,092
------------
Consumer Products: 0.64%
100,000 Commemerative Brands, Inc. 1,025,000
------------
Food / Beverage: 8.81%
819,540 & North Atlantic Trading 14,137,065
------------
Restaurants: 0.12%
129,423 X@CV International Fast Food Corp.
Series B 195,429
------------
Telecommunications: 1.76%
31,950 & Adelphia Business Solutions Series B 1,285,987
7,500 @@ Global Crossing, Ltd., 1,532,813
------------
2,818,800
------------
Total Preferred Stocks
(Cost $ 51,188,640) 23,326,386
------------
Contracts Value
--------- -----
WARRANTS: 1.16%
Convenience Stores: 0.01%
23,632 Dairy Mart Convenience Stores
expires 12/01/01 $ 14,179
------------
Diversified Media: 0.18%
20,700 Diva Systems expires 03/01/08 292,387
------------
Finance: 0.00%
5,000 X Olympic Financial, Ltd.
expires 03/15/07 50
------------
Food/Beverage: 0.80%
5,550 # North Atlantic Trading, Inc.
expires 06/15/07 555,000
20,700 # Packaged Ice, Inc.
expires 04/15/04 729,675
------------
1,284,675
------------
Services: 0.02%
71,825 Comforce Corporation
expires 12/01/09 25,138
------------
Steel: 0.00%
7,000 # Bar Technologies, Inc.
expires 04/01/01 70
12,500 Sheffield Steel Corp.
expires 11/01/01 --
------------
70
------------
Telecommunications: 0.15%
10,000 # Cellnet Data Systems
expires 09/15/07 $ 2,510
177,000 Geotex Communications
expires 06/20/01 1,770
6,600 # ICG Communications, Inc.
expires 09/15/05 875
8,500 # International Wireless Communications
Holding Co. expires 08/15/01 85
9,500 # Mccaw Int'l, Ltd.
expires 04/15/07 223,848
7,000 @@ PLD Telekom, Inc.,
expires 03/31/03 70
7,000 @@ PLD Telekom, Inc.,
expires 06/01/06 2,100
7,000 @@** Poland Telecom Finance
expires 12/01/07 70
3,833 **X U.S. Interactive
expires 03/31/05 38
7,795 # Unifi Communications
expires 12/31/03 78
------------
231,444
------------
Transportation: 0.00%
2,000 @@ CHC Helicopter Corp.
expires 12/15/00 6,000
------------
Total Warrants (Cost $777,916) 1,853,945
------------
Total Long-Term Investments
(Cost $270,303,732) 152,468,829
------------
See Accompanying Notes to Financial Statements
41
<PAGE>
Pilgrim
High Total
Return Fund PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Principal
Amount Value
------ -----
SHORT-TERM INVESTMENTS: 1.91%
Repurchase Agreement: 1.91%
$3,069,000 State Street Bank & Trust
Repurchase Agreement, 6.450%
due 11/01/00 (Collateralized by
$2,810,000 U.S. Treasury Notes,
8.750% Due 11/15/08, Value
$3,133,150) $ 3,069,000
------------
Total Short-Term Investments
(Cost $3,069,000) 3,069,000
------------
Total Investments in Securities
(Cost $ 273,372,732)* 96.98% 155,537,829
Other Assets and Liabilities-Net 3.02% 4,847,060
------ -----------
Net Assets 100.00% $ 160,384,889
====== =============
----------
@ Non-income producing security
@@ Foreign Issuer
& Payment-in-kind security
CV Convertible
++ Private Placement
$ Step bond
** Defaulted security
# Securities with purchases pursuant to Rule 144A, under the Securities Act
of 1933 and may not be resold subject to that rule, except to qualified
institutional buyers.
X Market Value determined by Pilgrim Valuation Committee appointed by the
Fund's Board of Directors.
* Cost for federal income tax purposes is $270,955,680. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 2,923,301
Gross Unrealized Depreciation (121,410,152)
--------------
Net Unrealized Depreciation
$ (118,486,851)
==============
See Accompanying Notes to Financial Statements
42
<PAGE>
Pilgrim
High Total
Return Fund II PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Principal
Amount Value
------ -----
CORPORATE BONDS AND NOTES: 78.60%
Aerospace: 0.00%
$ 4,000 CV Simula, Inc., 8.000%,
due 05/01/04 $ 2,060
------------
Airlines: 1.48%
1,000,000 Atlas Air, Inc., 9.375%,
due 11/15/06 985,000
------------
Broadcasting: 3.70%
3,000,000 $ Brill Media Co. LLC, 0/7.500%,
due 12/15/07 1,980,000
500,000 Sinclair Broadcast Group, Inc. 10.000%,
due 09/30/05 475,625
------------
2,455,625
------------
Cable TV: 17.12%
6,500,000 $ Charter Communications Holdings LLC,
0/9.920%, due 04/01/11 3,794,375
3,250,000 @@ NTL Communications Corp., 9.750%,
due 04/05/09 2,169,169
4,150,000 $@@ NTL, Inc., 0/9.750%
due 04/01/08 2,334,375
2,500,000 @@ Star Choice Communications, 13.000%,
due 12/15/05 2,687,500
1,000,000 $@@ United Pan-Europe Communications,
13.750%, due 02/01/10 375,000
------------
11,360,419
------------
Capital Goods: 0.94%
675,000 Terex Corp., 8.875%,
due 04/01/08 597,375
30,000 Terex Corp., Series D, 8.875%,
due 04/01/08 26,550
------------
623,925
------------
Consumer Products: 0.91%
650,000 Simmons Co., 10.250%,
due 03/15/09 607,750
------------
Containers: 1.00%
$ 610,000 Owens Illinois, Inc., 7.850%,
due 05/15/04 $ 460,550
200,000 Stone Container Corp., 12.250%,
due 04/01/02 201,000
------------
661,550
------------
Diversified Media: 2.25%
2,700,000 $ Diva Systems Corp., 0/12.625%,
due 03/01/08 1,113,750
1,000,000 Source Media, Inc., 12.000%,
due 11/01/04 380,000
------------
1,493,750
------------
Electric: 2.48%
765,000 AES Corp., 9.375%
due 09/15/10 780,300
875,000 Calpine Corp., 8.625%,
due 08/15/10 865,544
------------
1,645,844
------------
Energy: 5.32%
500,000 Clark Refining & Marketing, Inc.,
8.375%, due 11/15/07 415,000
1,740,000 Energy Corp. of America, 9.500%,
due 05/15/07 1,348,500
838,490 #@@ Hurricane Hydrocarbons, 16.000%,
due 12/31/01 836,394
500,000 @@ Northern Oil ASA, 10.000%,
due 05/15/05 367,500
850,000 United Refining, 10.750%,
due 06/15/07 561,000
------------
3,528,394
------------
Environmental: 2.46%
1,900,000 Allied Waste North America,
10.000%, due 08/01/09 1,634,000
------------
Equipment Rentals: 1.60%
100,000 United Rentals, Inc., 8.800%,
due 08/15/08 80,500
600,000 United Rentals, Inc., 9.000%,
due 04/01/09 489,000
600,000 United Rentals Inc., 9.250%,
due 01/15/09 495,000
------------
1,064,500
------------
Food, Beverage & Tobacco: 2.53%
$1,100,000 North Atlantic Trading Co., 11.000%,
due 06/15/04 $ 896,500
600,000 Packaged Ice, Inc., 9.750%,
due 06/01/05 501,000
350,000 Standard Commercial Tobacco Co.,
8.875%, due 08/01/05 281,750
------------
1,679,250
------------
Gaming & Lottery: 4.88%
500,000 Anchor Gaming, 9.875%,
due 10/15/08 508,125
750,000 #++ Autotote Corp., 12.500%,
due 08/15/10 742,500
1,000,000 Park Place Entertainment Corp.,
8.875%, due 09/15/08 985,000
250,000 Station Casinos, Inc., 9.750%,
due 04/15/07 251,250
750,000 #++ Station Casinos, Inc., 9.875%,
due 07/01/10 755,625
------------
3,242,500
------------
Health Care: 3.24%
600,000 Columbia/HCA Healthcare Corp., 7.250%,
due 05/20/08 559,521
8,912,195 X++# Intracel, Corp. Series A 2nd Priority
Prime + 2.000%, due 02/18/02 980,341
450,000 X++# Intracel, Corp. Series A 1st Priority
Prime + 2.000%, due 02/18/02 378,000
275,984 X++# Intracel, Corp. Class B Priority
Prime + 2.000%, due 02/18/02 231,827
------------
2,149,689
------------
Homebuilding: 0.83%
325,000 Lennar Corp., 9.950%,
due 05/01/10 328,250
250,000 Lennar Corp., 7.625%,
due 05/01/09 223,193
------------
551,443
------------
See Accompanying Notes to Financial Statements
43
<PAGE>
Pilgrim
High Total
Return Fund II PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Principal
Amount Value
------ -----
Hotels: 0.38%
$250,000 Prime Hospitality Corp., 9.750%,
due 04/01/07 $ 252,500
-----------
Leisure: 0.14%
100,000 Bally Total Fitness Holding, 9.875%,
due 10/15/07 93,500
-----------
Paper: 0.67%
750,000 Doman Industries, Ltd., 8.750%,
due 03/15/04 444,375
-----------
Restaurants: 0.75%
1,000,000 Roma Restaurant Holdings, Inc., 12.000%,
due 07/01/06 500,000
-----------
Shipping: 1.01%
800,000 Ultrapetrol Bahamas, Ltd., 10.500%,
due 04/01/08 668,000
-----------
Specialty Retail: 0.31%
300,000 Jo-Ann Stores, Inc., 10.375%,
due 05/01/07 205,500
-----------
Steel: 1.47%
425,000 AK Steel Corp., 7.875%,
due 02/15/09 386,750
500,000 AK Steel Corp., 9.125%,
due 12/15/06 492,500
100,000 Armco, Inc., 9.000%
due 09/15/07 94,500
-----------
973,750
-----------
Technology: 3.11%
150,000 Fairchild Semiconductor Intl, Inc.,
10.125%, due 03/15/07 146,250
510,000 Flextronics Intl, Ltd., 8.750%,
due 10/15/07 494,700
1,705,000 Zilog, Inc., 9.500%,
due 03/01/05 1,423,675
-----------
2,064,625
-----------
Telecommunications: 19.09%
$500,000 @@#++ Asia Global Crossing, Ltd., 13.375%,
due 10/15/10 $ 465,000
3,000,000 Call-Net Enterprises, Inc., 8.940%,
due 08/15/08 855,000
1,250,000 # Colo.com, Inc., 13.875%,
due 03/15/10 943,750
1,475,000 Globix Corp., 12.500%,
due 02/01/10 818,625
1,600,000 $ Level 3 Communications, Inc.,
0/12.875%, due 03/15/10 796,000
3,900,000 $ Nextel Communications, Inc., 0/9.950%,
due 02/15/08 2,915,250
2,000,000 $ Nextlink Communications, Inc., 0/12.250%,
due 06/01/09 1,055,000
3,000,000 Northeast Optic Network 12.750%,
due 08/15/08 2,205,000
2,000,000 **@@ Poland Telecom Finance BV, 14.000%,
due 12/01/07 40,000
150,000 Psinet, Inc., 10.000%,
due 02/15/05 72,375
1,000,000 @@ RSL Communications, PLC, 0/ 12.250%,
due 11/15/06 185,000
1,825,000 $ U.S. Unwired, Inc., 0/13.375%,
due 11/01/09 898,812
500,000 @@ Versatel Telecom International NV,
11.875%, due 07/15/09 367,500
3,500,000 Viatel, Inc., 12.500%,
due 04/15/08 1,050,000
-----------
12,667,312
-----------
Transportation: 0.93%
325,000 Gulfmark Offshore, Inc., 8.750%,
due 06/01/08 308,750
300,000 #++ Kansas City Southern Railway, 9.500%,
due 10/01/08 306,000
-----------
614,750
-----------
Total Corporate Bonds and Notes
(Cost $71,256,051) 52,170,011
-----------
Shares Value
------ -----
COMMON STOCKS: 0.45%
Conglomerates: 0.02%
250 @X Jordan Telecommunications $ 13,000
-----------
Health Care: 0.01%
29,069 ++X@# Intracel Corp. 3,198
-----------
Restaurants: 0.00%
130 @X International Fast Food Corp. 536
-----------
Telecommunications: 0.42%
21,160 @ Globix Corp. 214,245
72,516 @ International Wireless
Communications Holdings, Inc. 725
3,684 RCN Corp. 65,391
-----------
280,361
-----------
Total Common Stocks
(Cost $ 2,603,822) 297,095
-----------
PREFERRED STOCKS: 6.23%
Broadcasting: 0.81%
100 @& Paxson Communications Corp. 9,025
5,310 @& Paxson Communications Corp. 529,673
-----------
538,698
-----------
Food, Beverage & Tobacco: 2.05%
78,964 & North Atlantic Trading Co., 1,357,472
-----------
Restaurants: 0.04%
15,460 CV@X International Fast Food Corp.
Series B 23,344
-----------
Steel: 1.09%
10,000 ++@@& International Utility Structures, Inc. 702,500
368 ++&@@# International Utility Structures, Inc. 23,276
-----------
725,776
-----------
See Accompanying Notes to Financial Statements
44
<PAGE>
Pilgrim
High Total
Return Fund II PORTFOLIO OF INVESTMENTS as of October 31, 2000
--------------------------------------------------------------------------------
Shares Value
------ -----
Telecommunications: 2.24%
21,700 & Adelphia Business Solutions,
Inc., Series B $ 873,425
3,000 @@ Global Crossing, Ltd., 613,125
------------
1,486,550
------------
Total Preferred Stocks
(Cost $ 7,575,863) 4,131,840
------------
Contracts Value
--------- -----
WARRANTS: 0.32%
Business Services: 0.01%
21,125 & Comforce Corp.
expires 12/01/09 $ 7,394
------------
Diversified Media: 0.17%
8,100 Diva Systems Corp.
expires 03/01/08 114,412
------------
Food, Beverage & Tobacco: 0.14%
550 # North Atlantic Trading, Inc.
expires 06/15/07 55,000
1,000 # Packaged Ice, Inc.
expires 04/15/04 35,250
5 # Packaged Ice, Inc.
expires 04/15/04 176
------------
90,426
------------
Telecommunications: 0.00%
1,500 # International Wireless Communications
Holding Co. expires 08/15/01 $ 15
2,000 **@@ Poland Telecom Finance BV
expires 12/01/07 20
505 # Unifi Communications, Inc.
expires 12/13/03 5
------------
40
------------
Total Warrants (Cost $151,390) 212,272
------------
Total Long-Term Investments
(Cost $81,587,126) 56,811,219
------------
Principal
Amount
------
SHORT-TERM INVESTMENTS: 9.43%
Repurchase Agreement: 9.43%
$6,261,000 State Street Bank & Trust
Repurchase Agreement, 6.450%
due 11/01/00 (Collateralized by
$6,225,000 U.S. Treasury Notes,
6.375% Due 06/30/02, Value
$6,388,406) 6,261,000
------------
Total Short-Term Investments
(Cost $6,261,000) 6,261,000
------------
Total Investments in Securities
(Cost $ 87,848,126)* 95.03% 63,072,219
Other Assets and Liabilities-Net 4.97% 3,297,471
------ ------------
Net Assets 100.00% $ 66,369,690
====== ============
----------
@ Non-income producing security
X Market Value determined by Pilgrim Valuation Committee appointed by the
Fund's Board of Directors.
# Securities with purchases pursuant to Rule 144A, under the Securities Act
of 1933 and may not be resold subject to that rule, except to qualified
institutional buyers.
& Payment-in-kind
@@ Foreign Issuer
$ Step bond
** Defaulted security
++ Private placement
* Cost for federal income tax purposes is $81,809,240. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 464,726
Gross Unrealized Depreciation (25,462,747)
-------------
Net Unrealized Depreciation $ (24,998,021)
=============
See Accompanying Notes to Financial Statements
45
<PAGE>
-------
Pilgrim
Funds
-------
TAX INFORMATION (Unaudited)
--------------------------------------------------------------------------------
Dividends paid during the fiscal year ended October 31, 2000 were as follows:
Fund Name Type Per Share Amount
--------- ---- ----------------
Growth + Value Fund
All Classes STCG $ 1.7419
All Classes LTCG $ 0.7190
--------
$ 2.4609
========
Research Enhanced Index Fund
All Classes STCG $ 0.1364
All Classes LTCG $ 0.0122
--------
$ 0.1486
========
High Total Return Fund
Class A NII $ 0.2840
Class B NII $ 0.2630
Class C NII $ 0.2620
All Classes ROC $ 0.0300
High Total Return Fund II
Class A NII $ 0.3580
Class B NII $ 0.3340
Class C NII $ 0.3330
All Classes ROC $ 0.0200
----------
NII -- Net investment income
STCG -- Short-term capital gain
LTCG -- Long-term capital gain
ROC -- Return of capital
Of the ordinary distributions made during the fiscal year ended October 31,
2000, the following percentages qualify for the dividends received deduction
available to corporate shareholders; 12.74% and 4.60% for the High Total Return
Fund and High Total Return Fund II, respectively.
The above figure may differ from those cited elsewhere in this report due to
differences in the calculation of income and gains for Securities and Exchange
Commissions (book) purposes and Internal Revenue Service (tax) purposes.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their Investments in the Funds. In January 2001,
shareholders, excluding corporate shareholders, will receive an IRS Form 1099
DIV regarding the federal tax status of the dividends and distributions received
by them in calendar 2000.
46
<PAGE>
INVESTMENT MANAGER
ING Pilgrim Investments, Inc.
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
ADMINISTRATOR
ING Pilgrim Group, Inc.
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 419368
Kansas City, Missouri 64141-6368
CUSTODIAN
State Street Bank & Trust
One Heritage Drive
North Quincy, Massachusetts 02171
LEGAL COUNSEL
Dechert
1775 Eye Street, N.W.
Washington, D.C. 20006
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
1670 Broadway, Suite1000
Denver, Colorado 80202
Prospectus containing more complete information regarding the Funds, including
charges and expenses, may be obtained by calling ING Pilgrim Securities, Inc.
Distributor at 1-800-334-3444. Please read the prospectus carefully before you
invest or send money.
MAYAN103100-122900
[GRAPHIC]
<PAGE>
GRAPHICS DESCRIPTION APPENDIX
The front and back cover pages of the Annual Report have an image of the earth
set behind the type similar to a watermark that crosses over on both the front
and back cover pages.
The front cover has the ING Pilgrim logo in the upper left which consists of a
graphic of a lion in between the two words ING and Pilgrim
