Pilgrim America Funds
Masters Series
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Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
Semi-Annual Report
December 31, 1996
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MASTERS SERIES
PA
MONEY MANAGER
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Pilgrim America Funds
Masters Series
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Semi-Annual Report
December 31, 1996
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Table of Contents
Chairman's Message ........................................................ 4
Portfolio Managers' Reports:
Pilgrim America Masters Asia-Pacific Equity Fund .................. 5
Pilgrim America Masters MidCap Value Fund ......................... 8
Pilgrim America Masters LargeCap Value Fund ....................... 12
Statements of Assets and Liabilities ...................................... 15
Statements of Operations .................................................. 16
Statements of Changes in Net Assets ....................................... 17
Financial Highlights ...................................................... 18
Notes to Financial Statements ............................................. 21
Portfolio of Investments:
Pilgrim America Masters Asia-Pacific Equity Fund .................. 26
Pilgrim America Masters MidCap Value Fund ......................... 33
Pilgrim America Masters LargeCap Value Fund ....................... 37
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Pilgrim America Masters Series
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Chairman's Message
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Dear Shareholder:
We are pleased to present the Semi-Annual Report for Pilgrim America Masters
Series of Funds ("Masters Series") which consists of Pilgrim America Masters
Asia-Pacific Equity Fund, Pilgrim America Masters MidCap Value Fund and Pilgrim
America Masters LargeCap Value Fund. In the following pages, the portfolio
manager for each Fund of the Masters Series discusses the results of operations
for the six month period ended December 31, 1996, as well as the markets and
factors which have affected each of the Funds during this period.
The Masters Series is designed to give investors access to money managers who
typically manage similar portfolios only for high net worth individuals and
institutional investors. Each money manager has extensive knowledge and proven
experience in their specialized market segments.
The Masters Series commenced operations on September 1, 1995. Pilgrim America
Masters Asia-Pacific Equity Fund invests primarily in the equity securities of
companies based in the Asia-Pacific Region. Pilgrim America Masters MidCap Value
Fund invests primarily in equity securities of companies that have a market
capitalization between $200 million and $5 billion. Pilgrim America Masters
LargeCap Value Fund invests primarily in equity securities of companies that
have a market capitalization in excess of $5 billion.
At Pilgrim America, 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 America prides itself on providing only high quality core
investments to help you reach your financial goals. Our goal is for every
investor to have a successful investment experience.
Thank you for selecting Pilgrim America Masters Series. We appreciate the
confidence you have placed with us in serving your investment needs.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman
Pilgrim America Investments, Inc.
February 25, 1997
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Pilgrim America Masters Asia-Pacific Equity Fund
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Portfolio Manager's Report
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Dear Shareholder:
We are pleased to report the results of operations for Pilgrim America Masters
Asia-Pacific Equity Fund (the "Fund"), for the six months ended December 31,
1996.
For the six months, the Fund earned a net return of 4.23%(1). This compares to
the 1.60% return on the Morgan Stanley Capital International Combined Far East
Free (excluding Japan) Index (the "MSCI")(2) over the same period. During that
time, Fund net assets increased from $42 million to $61 million. The Fund's
total return for the year ended December 31, 1996 was 9.46%(1), compared to the
MSCI return of 11.14% for the same period.
General Economic Environment
After a cautious first six months of 1996, the economic environment improved for
the region over the second half of the year. Evidence of moderate growth with
low inflation took the pressure off U.S. interest rates which is a key factor
for the region, given its link to the U.S. dollar. Within the region, Hong Kong
benefited from a soft landing in China and an improved property market. The Hong
Kong equity market led the region as the other countries continued to deal with
rising local interest rates, declining profit growth, current account deficits
and rising political uncertainty.
Specific Equity Market Conditions
The table below summarizes the total returns of the respective MSCI Country
Indices which comprise the Far East Free (excluding Japan) Index:
Total Return
Country 6/28/96 - 12/31/96
------- ------------------
Hong Kong 18.10%
Indonesia 9.09
Malaysia 8.22
Taiwan 2.40
Singapore -3.18
Philippines -4.46
South Korea -27.59
Thailand -36.34
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Pilgrim America Masters Asia-Pacific Equity Fund
As previously mentioned, Hong Kong benefited from a subdued inflationary
environment and strength in the residential property sector. Indonesia
experienced some of the highest earnings growth in the region and is expected to
show continued growth through 1997. Additionally, fears of tighter monetary
policy were reduced on subdued inflation. These two factors led to increased
investor interest in Indonesia. Although Malaysia continued to experience
economic slowing, improvements were seen in the trade balance as exports staged
a moderate recovery. Confidence in earnings coupled with potential interest rate
cuts fueled the advance in Malaysia. Taiwan continued to show signs of an
economic slowdown in GDP, domestic investment, M2 growth and unemployment.
Against this backdrop was the inclusion by MSCI of Taiwan in the Combined Far
East Free (excluding Japan) Index. This resulted in a flow of funds into Taiwan
stocks during the second half of 1996.
Singapore faired the best of the lagging markets in the region. Economic slowing
was more than anticipated as electrical products and components saw a fall in
industrial production for the first time since 1992. Further, property prices
may continue to depreciate but we believe most of that news has already been
priced. The Philippines also suffered from a slowdown in electrical component
exports as well as disappointing bank earnings. Earnings in Korea were impacted
by inventory build-up in semi-conductors, steel and autos. Sentiment was also
impacted by cross border tensions with the North. Finally, Thailand continued to
suffer from an excessive current account deficit. This reduced expectations for
a needed cut in interest rates to jump start economic growth.
Pilgrim America Masters Asia-Pacific Equity Fund
Our strategy for most of the second half of 1996 was to overweight Hong Kong and
Indonesia. This proved to help the Fund's performance as Hong Kong and Indonesia
led the region's markets. The key for 1997 will be when to reallocate away from
Hong Kong towards some of the other lagging markets in the region. Most of the
improvements in the Hong Kong property market have been priced along with a
successful transition of power on July 1, 1997. Although Thailand and Korea look
much more attractive on a valuation basis, we need to be more confident of
improvements in corporate earnings growth. Once we see that, we will look to
take some profits in Hong Kong and put the proceeds to work in the rest of the
region. In total, improved valuations, supportive economics and benign inflation
make the outlook for Asian equities quite attractive.
We thank you for giving us this opportunity to help you work towards your
investment needs.
Sincerely,
HSBC Asset Management Americas, Inc.
HSBC Asset Management Hong Kong Limited
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Pilgrim America Masters Asia-Pacific Equity Fund
(1) Calculated without deducting the Class A maximum 5.75% sales charge and
assuming reinvestment of all dividends and distributions. Total return for
the one year period ended December 31, 1996 and the average annualized
total return for the period from September 1, 1995 (date of commencement of
operations) to December 31, 1996, after the deduction of the maximum sales
charges and assuming reinvestment of all dividends and distributions were
3.20% and 1.44%, respectively.
Performance figures shown pertain only to Class A shares of the Fund. Total
returns for Class B and M shares, calculated without deducting sales
charges, for the year ended December 31, 1996 were 8.62% and 8.87%,
respectively. Average annualized total returns, excluding the applicable
sales charges, for the period from September 1, 1995 (date of commencement
of operations) to December 31, 1996 were 5.25% and 5.51%, respectively.
Total returns for Class B and M shares, after deducting the maximum
contingent deferred sales charge of 5.00% (Class B shares only) or the
maximum sales charge of 3.50% (Class M shares only) for the year ended
December 31, 1996 were 3.60% and 5.04%, respectively. Average annualized
total returns, after the applicable sales charges, for the period from
September 1, 1995 (date of commencement of operations) to December 31, 1996
were 2.32% and 2.76%, respectively.
Since inception, the Fund's manager has reimbursed a portion of the Fund's
expenses. Without such a waiver, SEC yield and total returns would have
been lower.
(2) The MSCI is a measure of the performance of the Far East Market excluding
Japan.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed may be
worth more or less than their original cost.
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Pilgrim America Masters Mid Cap Value Fund
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Portfolio Manager's Report
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Dear Shareholder:
We are pleased to report the results of operations for Pilgrim America Masters
MidCap Value Fund (the "Fund") for the six months ended December 31, 1996.
For the six months, the Fund earned 11.40%(1) compared to 9.16% for the Russell
MidCap IndexTM (2). For the year ended December 31, 1996, the Fund's total
return was 29.56%(1), compared to the Russell MidCap IndexTM return of 19.00%.
The Fund's return placed it in the top 4% or fifth out of 154 funds in the
Lipper MidCap Funds category for the year(3).
General Economic Environment
The economic outlook for 1997, according to consensus opinion, appears to be
more of what characterized 1996; i.e. slow growth of gross domestic product in a
range of 2-3%, low inflation of around 2% and stable interest rates. The
consensus differs, however, on the prospects for corporate earnings and the
current valuation of the general market. An important impetus to the growth in
profits during the past few years has been the downsizing, cost-cutting and
restructuring prevalent throughout Corporate America. Pricing power, for the
most part, has been notably absent during this period. Many observers feel that
companies have exhausted their ability to grow profits in this manner which will
result in a dramatic slowdown in earnings growth during 1997. We, however,
disagree that there is any decline in restructuring activity; it appears to be
continuing at an uninterrupted pace. Furthermore, managements have become more
and more incented to rationalize every aspect of their business especially in a
slow growth economy.
The valuation of the market does not appear excessive to us; based upon
conservative estimates of Standard and Poor's 500 operating earnings the market
multiple approximates 17 to 18, or very close to its historic average. The
implication is obvious: while some stocks may be overvalued, particularly in the
large capitalization/growth sectors, many companies are priced at a discount to
the market and at reasonable levels. Our suspicion is that investors during 1997
will direct more attention to those industries and companies that appear
undervalued and/or have underperformed.
Equity Market Environment
1996 was a year of unexpectedly strong performance which was interrupted only
briefly during the summer months. Fully invested portfolios with exposure to
large capitalization growth companies in the tech-
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Pilgrim America Masters Mid Cap Value Fund
nology, consumer products, energy and finance industries were amply rewarded.
Underinvested portfolios with less exposure to those industries significantly
lagged the general market averages. The S&P 500 Index ended the year up 22.96%.
Medium sized companies performed slightly under the broad market with the S&P
MidCap 400 Index(2) registering a 19.23% gain. Small cap stocks, as measured by
the Russell 2000 Index(2), lagged the larger cap indices, posting a 16.55% gain.
Our success can be attributed to what we believe we do best: invest in the
stocks of companies that are undergoing dynamic change which is either not
recognized or misunderstood in the marketplace and which represent compelling
relative value. Corporate restructuring continued to be a powerful trend during
1996 and provided us with numerous opportunities.
Another important element of our success in 1996 was the avoidance of mistakes.
Company specific risk is always present in portfolios and is the primary reason
accounts are prudently diversified among many different stocks. An important
component of company risk is what has become known as "expectational" risk, or
that risk associated with a stock's price when a company does not meet the
expectations of Wall Street analysts; damage to the price can be brutal and
irrational. Our intensive due diligence on companies strives hard to measure
expectational risk and we experienced few setbacks of this sort during 1996.
Pilgrim America Masters MidCap Value Fund
The following are examples of stocks in the Fund that are representative of the
investment opportunities we see in the market:
[] Premark spun off its Tupperware division and we continue to own both
entities.
[] Manville sold its Riverwood International subsidiary, distributed the
proceeds to shareholders by way of a cash dividend and changed its name to
Schuller Corporation; we continue to own Schuller.
[] Dial Corporation split into two companies, Dial and Viad, both of which we
continue to hold.
[] Westinghouse will spin off its industrial operations in early 1997; we have
made no decision as yet regarding disposition of the separate pieces.
[] Owens Illinois is benefiting by consolidation in the glass industry and has
recently announced an acquisition in Europe.
Our strategy for stock selection during the coming year will not shift from a
focus on dynamic change, lack of recognition and compelling value. It is a
strategy that has few restrictions as to company type just as long as the above
mentioned characteristics are in place.
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Pilgrim America Masters Mid Cap Value Fund
We thank you for giving us the opportunity to help you meet your investment
needs.
Sincerely,
CRM Advisors, LLC
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(1) Calculated without deducting the Class A maximum 5.75% sales charge and
assuming reinvestment of all dividends and distributions. Total return for
the one year period ended December 31, 1996 and the average annualized
total return for the period from September 1, 1995 (date of commencement of
operations) to December 31, 1996, after the deduction of the maximum sales
charges and assuming reinvestment of all dividends and distributions were
22.14% and 19.18%, respectively.
Performance figures shown pertain only to Class A shares of the Fund. Total
return for Class B and M shares, calculated without deducting sales
charges, for the year ended December 31, 1996 was 28.66% and 28.85%,
respectively. Average annualized total return, excluding the applicable
sales charges, for the period from September 1, 1995 (date of commencement
of operations) to December 31, 1996 was 23.65% and 23.78%, respectively.
Total return for Class B and M shares, after deducting the maximum
contingent deferred sales charge of 5.00% (Class B shares only) or the
maximum sales charge of 3.50% (Class M shares only) for the year ended
December 31, 1996 was 22.70% and 24.40%, respectively. Average annualized
total return, after the applicable sales charges, for the period from
September 1, 1995 (date of commencement of operations) to December 31, 1996
was 20.97% and 20.56%, respectively.
Since inception, the Fund's manager has reimbursed a portion of the Fund's
expenses. Without such a waiver, SEC yield and total returns would have
been lower.
(2) The Russell MidCapTM and the S&P MidCap 400 indices are two broad based
measures of the performance of the middle capitalization market. The
Russell 2000 index is a broad based measure of the performance of the small
capitalization market.
(3) Lipper Analytical Services Inc., ranked Class A shares of the Fund for
total return, without deducting sales charges and assuming reinvestment of
all dividends and distributions, and reflecting a partial waiver of
expenses.
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Pilgrim America Masters Mid Cap Value Fund
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed may be
worth more or less than their original cost.
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Pilgrim America Masters Large Cap Value Fund
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Portfolio Manager's Report
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Dear Shareholder:
It is our pleasure to share with you the results of operations for the Pilgrim
America Masters LargeCap Value Fund (the "Fund") for the six months ended
December 31, 1996.
For the six months, the Fund earned a net return of 8.75%(1), compared to 11.65%
for the Standard and Poor's 500 Index (the "S&P"), a measure of the performance
of the broad U.S. stock market. For the year ended December 31, 1996, the Fund's
total return was 21.07%(1), compared to the S&P return of 22.96%.
Economic Environment and Equity Market Conditions
The year just ended has proven to be one of the best years for stock prices over
the last twenty, with the S&P rising by +22.96%. When one considers that this
has occurred on the heels of an even stronger 1995 (S&P was +37.58%), it is
apparent that we have experienced one of the most remarkably positive periods
for stock prices in the post-World War II period.
The market performed strong in 1996 because:
1. Stocks were attractively valued relative to strong profitability;
2. Interest rates averaged 6.7% and the long and short-rates remained stable,
which was very positive for stocks
3. There was modest economic growth of about 2.8% with low inflation; and
4. There were no unexpected international developments that negatively
impacted the financial markets.
Looking forward, we believe 1997 will be a much more difficult year for stock
prices because of higher stock valuations, slower earnings growth and
potentially higher interest rates. There is little room for error in 1997 and
therefore, we expect a more volatile market. Interest rates will play a key role
in determining the direction of stock prices with any sharp increase in rates
likely to cause a decline. The steepness of such a decline is difficult to
determine but it is instructive to note that the July 1996 decline was about 10%
when measured from intra-day high to intra-day low. It should be noted, however,
that this decline was short in duration and was quickly followed by a strong
market.
Pilgrim America Masters LargeCap Value Fund
A high percentage of the Fund's performance occurred during the first part of
1996 when the more eco-
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Pilgrim America Masters Large Cap Value Fund
nomically sensitive areas of the market along with financial issues did well.
For the year as a whole, energy, financial and basic industry issues helped the
Fund participate in the rise of stock prices. The Fund's consumer and capital
spending issues did well too, but modestly underperformed the S&P average for
all of 1996. During the second half of 1996 the market was led by growth stocks
as investors became concerned about an economic slowdown.
Ark Asset Management believes that 1997 will see continued economic growth of
about 2.5% to 2.8%, inflation in the 3.0% to 3.2% range, long-rates in the 6.3%
to 6.90% range and corporate profit growth of about 7%. These are
middle-of-the-road assumptions and on this basis we would expect modestly rising
stock-prices through 1997 which may be punctuated with occasional sharp declines
due to unexpected events (e.g. a sharp increase in rates or a significant
slowdown in new money earmarked for equities). This potential increase in stock
prices reflects the expected growth in corporate earnings for the S&P without
any improvement in valuation.
We hope to be able to take advantage of any declines to purchase those issues we
find most attractive on a long term basis. To accomplish this objective, we
employ different stock valuation techniques. One of the most useful strategies
for stock valuation is to study the price/earnings ratio of individual stocks
relative to that of the S&P. If we can determine that a stock is selling at a
significant discount to the valuation of the overall market and is fundamentally
attractive, we will purchase the issue.
We seek to construct portfolios that contain more relative value than the stock
market as a whole. If the account is attractive on a valuation basis it will
work to defend values in a down market.
Currently, we have above average exposure to certain basic industry issues such
as DuPont, Eastman Chemical and Aluminum Company of America, consumer cyclical
issues including Ford Motor, May Department Stores, and Sears, Roebuck, and
transport issues including AMR, and CSX. We remain overweighted in communication
utilities, hospital management and broadcasting and publishing issues.
We thank you for the opportunity to help you meet your investment needs.
Sincerely,
ARK ASSET MANAGEMENT COMPANY, INC.
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Pilgrim America Masters Large Cap Value Fund
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(1) Calculated without deducting the Class A maximum 5.75% sales charge and
assuming reinvestment of all dividends and distributions. Total return for
the one year period ended December 31, 1996 and the average annualized
total return for the period from September 1, 1995 (date of commencement of
operations) to December 31, 1996, after the deduction of the maximum sales
charges and assuming reinvestment of all dividends and distributions were
14.06% and 16.39%, respectively.
Performance figures shown pertain only to Class A shares of the Fund. Total
return for Class B and M shares, calculated without deducting sales
charges, for the year ended December 31, 1996 was 20.05% and 20.47%,
respectively. Average annualized total return, excluding the applicable
sales charges, for the period from September 1, 1995 (date of commencement
of operations) to December 31, 1996 was 20.72% and 21.03%, respectively.
Total return for Class B and M shares, after deducting the maximum
contingent deferred sales charge of 5.00% (Class B shares only) or the
maximum sales charge of 3.50% (Class M shares only) for the year ended
December 31, 1996 was 15.10% and 16.24%, respectively. Average annualized
total return, after the applicable sales charges, for the period from
September 1, 1995 (date of commencement of operations) to December 31, 1996
was 18.01% and 17.87%, respectively.
Since inception, the Fund's manager has reimbursed a portion of the Fund's
expenses. Without such a waiver, SEC yield and total returns would have
been lower.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed may be
worth more or less than their original cost.
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<TABLE>
<CAPTION>
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STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1996 (Unaudited)
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Asia-Pacific MidCap LargeCap
Equity Value Value
Fund Fund Fund
---------------- ------------------ ----------------
ASSETS:
<S> <C> <C> <C>
Investments in securities at market value (Cost $56,207,367,
$21,400,796 and $16,999,061, respectively) $ 59,500,748 $ 23,436,613 $ 17,958,012
Short-term securities at amortized cost 1,039,812 1,715,000 1,365,000
Cash 89,469 13,067 16,791
Receivables:
Foreign currency (Cost $577,395) 577,395 -- --
Fund shares sold 451,968 1,781,925 256,657
Dividends and interest 57,657 27,006 32,891
Due from affiliate 26,339 -- 8,108
Investment securities sold -- 70,750 9,082
Prepaid expenses 26,283 7,729 8,221
Deferred organization expenses 95,444 95,444 95,444
---------------- ------------------ ----------------
Total Assets 61,865,115 27,147,534 19,750,206
---------------- ------------------ ----------------
LIABILITIES:
Investment securities purchased 455,506 757,851 1,036,312
Payable for fund shares redeemed 60,410 32,629 50,014
Other accrued expenses and liabilities 130,146 14,739 25,775
---------------- ------------------ ----------------
Total Liabilities 646,062 805,219 1,112,101
---------------- ------------------ ----------------
NET ASSETS $ 61,219,053 $ 26,342,315 $ 18,638,105
================ ================== ================
Net Assets consist of:
Paid-in capital $ 58,886,689 $ 24,043,248 $ 16,971,412
Undistributed (overdistributed) net investment income (loss) (241,944) (12,387) 8,175
Accumulated net realized gains (losses) on investments and
foreign currency transactions (708,333) 275,637 699,567
Net unrealized appreciation of investments and other
assets, liabilities and forward contracts denominated
in foreign currencies 3,282,641 2,035,817 958,951
---------------- ------------------ ----------------
Net Assets $ 61,219,053 $ 26,342,315 $ 18,638,105
================ ================== ================
Class A:
Net assets $ 25,602,824 $ 10,162,720 $ 6,379,814
Shares authorized ($0.10, $1.00 and $0.00 par value, (24,000,000 28,000,000 28,000,000
respectively)
Shares outstanding 2,377,748 765,198 499,521
Net asset value and redemption price per share $ 10.77 $ 13.28 $ 12.77
Maximum offering price per share(1) $ 11.43 $ 14.09 $ 13.55
Class B:
Net assets $ 25,560,700 $ 11,554,902 $ 9,044,312
Shares authorized ($0.10, $1.00 and $0.00 par value, 24,000,000 28,000,000 28,000,000
respectively)
Shares outstanding 2,387,953 876,033 713,290
Net asset value, redemption and offering price per share(2) $ 10.70 $ 13.19 $ 12.68
Class M:
Net assets $ 10,055,529 $ 4,624,693 $ 3,213,979
Shares authorized ($0.10, $1.00 and $0.00 par value, 12,000,000 14,000,000 14,000,000
respectively)
Shares outstanding 937,458 350,847 252,661
Net asset value and redemption price per share $ 10.73 $ 13.18 $ 12.72
Maximum offering price per share(3) $ 11.12 $ 13.66 $ 13.18
- ----------------------------
(1) Maximum offering price is computed at 100/94.25 of net asset value. On purchases of $50,000 or more, the offering
price is reduced.
(2) Redemption price per share is equal to the net asset value per share less any applicable contingent deferred sales
charge.
(3) Maximum offering price is computed at 100/96.50 of net asset value. On purchases of $50,000 or more, the offering
price is reduced.
</TABLE>
See Accompanying Notes to Financial Statements
15
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<TABLE>
<CAPTION>
Pilgrim America Masters Series
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STATEMENTS OF OPERATIONS
For the Six Months Ended December 31, 1996 (Unaudited)
- -----------------------------------------------------------------------------------------------------------------
Asia-Pacific MidCap LargeCap
Equity Value Value
Fund Fund Fund
--------------- --------------- ---------------
<S> <C> <C> <C>
Investment Income:
Interest $ 53,076 $ 28,216 $ 21,265
Dividends (net of foreign withholding taxes
of $28,066, $0 and $104, respectively) 386,116 83,454 110,714
--------------- --------------- ---------------
Total investment income 439,192 111,670 131,979
--------------- --------------- ---------------
Expenses:
Investment management fees 327,640 63,506 61,093
Distribution expenses
Class A Shares 27,567 5,858 5,907
Class B Shares 110,504 25,231 25,862
Class M Shares 31,005 11,133 8,701
Custodian fees 105,947 5,560 19,968
Transfer agent and registrar fees 88,446 8,355 10,188
Professional fees 19,240 4,187 8,322
Registration and filing fees 14,787 10,130 7,097
Recordkeeping and pricing fees 11,575 1,496 1,571
Miscellaneous expenses 10,848 1,665 3,510
Organization expense 9,196 9,196 9,196
Reports to shareholders 8,884 1,093 1,664
Directors' fees 3,160 705 1,571
Insurance expense 2,195 299 229
--------------- --------------- ---------------
Total expenses 770,994 148,414 164,879
--------------- --------------- ---------------
Less:
Waived and reimbursed fees (140,763) (16,441) (32,705)
Earnings credits (1,847) (600) (609)
--------------- --------------- ---------------
Net expenses 628,384 131,373 131,565
--------------- --------------- ---------------
Net investment income (loss) (189,192) (19,703) 414
--------------- --------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gains (losses) from:
Investments (642,348) 210,527 569,482
Foreign currency transactions (18,114)
Net change in unrealized appreciation
(depreciation) of:
Investments 3,499,231 1,637,435 778,308
Other assets, liabilities and forward contracts
denominated in foreign currencies (12,789)
--------------- --------------- ---------------
Net gain from investments 2,825,980 1,847,962 1,347,790
--------------- --------------- ---------------
Net increase in net assets
resulting from operations $ 2,636,788 $ 1,828,259 $ 1,348,204
=============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
16
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<TABLE>
<CAPTION>
Pilgrim America Masters Series
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STATEMENTS OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
Asia-Pacific Equity Fund MidCap Value Fund LargeCap Value Fund
-------------------------------- -------------------------------- ------------------------------
Six Months Ten Months Six Months Ten Months Six Months Ten Months
Ended Ended Ended Ended Ended Ended
December 31, June 30, December 31, June 30, December 31, June 30,
1996 (Unaudited) 1996 1996 (Unaudited) 1996 1996 (Unaudited) 1996
---------------- --------------- ----------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income (loss) $ (189,192) $ (3,977) $ (19,703) $ 32,309 $ 414 $ 8,132
Net realized gain (loss)
from investments (642,348) (46,713) 210,527 65,110 569,482 146,051
Net realized loss from foreign
currency transactions (18,114) (27,170) -- -- -- --
Net change in unrealized
appreciation (depreciation)
of investments 3,499,231 (204,282) 1,637,435 398,382 778,308 180,643
Net change in unrealized
appreciation (depreciation) of
other investments denominated
in foreign currency (12,789) 481 -- -- -- --
--------------- ---------------- ---------------- --------------- -------------- --------------
Net increase (decrease) in
net assets resulting from
operations 2,636,788 (281,661) 1,828,259 495,801 1,348,204 334,826
--------------- ---------------- ---------------- --------------- -------------- --------------
Distributions
to shareholders:
Net investment income:
Class A shares -- -- -- (4,590) (274) (6,203)
Class B shares -- -- -- (1,500) -- (801)
Class M shares -- -- -- (711) (140) (1,128)
Excess of net investment income:
Class A shares (30,685) (8,287) (16,602) -- (7,025) (3,494)
Class B shares -- (897) (9,771) -- -- (451)
Class M shares (1,611) (768) (11,821) -- (222) (635)
Net realized gains:
Class A shares -- -- -- -- -- (11,797)
Class B shares -- -- -- -- -- (1,745)
Class M shares (2,424)
Excess of realized gains:
Class A shares -- (1,570) -- -- -- --
Class B shares -- (783) -- -- -- --
Class M shares -- (399) -- -- -- --
--------------- ---------------- ---------------- --------------- -------------- --------------
Total distributions (32,296) (12,704) (38,194) (6,801) (7,661) (28,678)
--------------- ---------------- ---------------- --------------- -------------- --------------
Capital share transactions:
Net proceeds from sale of shares 29,378,058 44,111,419 18,786,807 5,793,907 13,340,243 5,027,606
Shares resulting from dividend
reinvestment 30,383 11,795 36,907 6,614 7,384 26,938
Cost of shares redeemed (13,430,041) (1,226,688) (514,305) (79,680) (1,243,890) (199,867)
--------------- ---------------- ---------------- --------------- -------------- --------------
Net increase in net assets
resulting from capital share
transactions 15,978,400 42,896,526 18,309,409 5,720,841 12,103,737 4,854,677
--------------- ---------------- ---------------- --------------- -------------- --------------
Net increase in net assets 18,582,892 42,602,161 20,099,474 6,209,841 13,444,280 5,160,825
--------------- ---------------- ---------------- --------------- -------------- --------------
Net assets, beginning of period 42,636,161 34,000 6,242,841 33,000 5,193,825 33,000
--------------- ---------------- ---------------- --------------- -------------- --------------
Net assets, end of period * $ 61,219,053 $ 42,636,161 $ 26,342,315 $ 6,242,841 $ 18,638,105 $ 5,193,825
=============== ================ ================ =============== ============== ==============
* Including undistributed
(overdistributed) net
investment income (loss) of:$ (241,944) $ (20,456) $ (12,387) $ 45,510 $ 8,175 $ 15,422
=============== ================ ================ =============== ============== ==============
</TABLE>
See Accompanying Notes to Financial Statements
17
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters Asia-Pacific Equity Fund
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- ---------------------------------------------------------------------------------------------------------------------------
Class A Class B Class M
-------------- ----------- ------------- ------------ ------------ ----------
Six Months Ten Six Months Ten Six Months Ten
Ended Months Ended Months Ended Months
December 31, Ended December 31, Ended December 31, Ended
1996 June 30, 1996 June 30, 1996 June 30,
(Unaudited) 1996 (a) (Unaudited) 1996 (a) (Unaudited) 1996 (a)
-------------- ----------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of period $ 10.35 $ 10.00 $ 10.31 $ 10.00 $ 10.32 $ 10.00
Income from investment
operations:
Net investment income (loss) (0.01) 0.03 (0.06) (0.01) (0.03) --
Net realized and unrealized
gain on investments and
foreign currency transactions 0.45 0.34 0.45 0.32 0.44 0.33
------------- ---------- ------------ ------------ ------------ ----------
Total from investment
operations 0.44 0.37 0.39 0.31 0.41 0.33
------------- ---------- ------------ ------------ ------------ ----------
Less distributions:
Net investment income 0.02 -- -- -- -- --
In excess of net investment
income -- 0.02 -- -- -- 0.01
Realized gains on investments -- -- -- -- -- --
------------- ---------- ------------ ------------ ------------ ----------
Total distributions 0.02 0.02 -- -- -- 0.01
------------- ---------- ------------ ------------ ------------ ----------
Net asset value, end of period $ 10.77 $ 10.35 $ 10.70 $ 10.31 $ 10.73 $ 10.32
============= ========== ============ ============ ============ ==========
Total Return (b) 4.23% 3.76% 3.78% 3.19% 4.00% 3.32%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 25,603 $ 18,371 $ 25,561 $ 17,789 $ 10,056 $ 6,476
Ratios to average net assets:
Expenses (c)(d)(e) 2.11% 2.00% 2.86% 2.75% 2.61% 2.50%
Net investment income (loss) (c)(d)(e) (0.33)% 0.33% (1.07)% (0.38)% (0.83)% (0.16)%
Portfolio turnover rate 12% 15% 12% 15% 12% 15%
- -----------------------
(a) The Fund commenced operations on September 1, 1995.
(b) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value
and excluding the deduction of sales charges. Total return information for less than one year is not annualized.
(c) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of
expenses to average net assets were 3.47%, 4.10% and 3.88% and the annualized ratios of net investment income (loss)
to average net assets were (1.14)%, (1.73)% and (1.53)% for Class A, B and M shares, respectively.
(d) Prior to the waiver and reimbursement of expenses for the period ended December 31, 1996, the annualized ratios of
expenses to average net assets were 2.65%, 3.39% and 3.17% and the annualized ratios of net investment income (loss)
to average net assets were (0.86)%, (1.61)% and (1.39)% for Class A, B and M shares, respectively.
(e) Annualized.
</TABLE>
See Accompanying Notes to Financial Statements
18
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters MidCap Value Fund
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------------------------------------------------
Class A Class B Class M
--------------------------- -------------------------- -----------------------
Six Months Ten Six Months Ten Six Months Ten
Ended Months Ended Months Ended Months
December 31, Ended December 31, Ended December 31, Ended
1996 June 30, 1996 June 30, 1996 June 30,
(Unaudited) 1996 (a) (Unaudited) 1996 (a) (Unaudited) 1996 (a)
------------- ------------ -------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of period $ 11.99 $ 10.00 $ 11.94 $ 10.00 $ 11.93 $ 10.00
Income from investment
operations:
Net investment income (loss) (0.01) 0.13 (0.01) 0.07 -- 0.06
Net realized and unrealized
gains on investments 1.37 1.91 1.31 1.90 1.31 1.91
------------- ------------ -------------- ---------- ----------- ----------
Total from investment
operations 1.36 2.04 1.30 1.97 1.31 1.97
------------- ------------ -------------- ---------- ----------- ----------
Less distributions:
Net investment income -- 0.05 -- 0.03 -- 0.04
In excess of net investment
income 0.07 -- 0.05 -- 0.06 --
Realized gains on investments -- -- -- -- -- --
------------- ------------ -------------- ---------- ----------- ----------
Total distributions 0.07 0.05 0.05 0.03 0.06 0.04
------------- ------------ -------------- ---------- ----------- ----------
Net asset value, end of period $ 13.28 $ 11.99 $ 13.19 $ 11.94 $ 13.18 $ 11.93
============= ============ ============== ========== =========== ==========
Total Return (b) 11.40% 20.48% 10.94% 19.80% 11.09% 19.82%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 10,163 $ 2,389 $ 11,555 $ 2,123 $ 4,625 $ 1,731
Ratios to average net assets:
Expenses (c)(d)(e) 1.75% 1.75% 2.50% 2.50% 2.25% 2.25%
Net investment income (loss) (c)(d)(e) 0.10% 2.00% (0.62)% 1.27% (0.43)% 1.16%
Portfolio turnover rate 35% 60% 35% 60% 35% 60%
- -----------------------
(a) The Fund commenced operations on September 1, 1995.
(b) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value
and excluding the deduction of sales charges. Total return information for less than one year is not annualized.
(c) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of
expenses to average net assets were 4.91%, 5.32% and 4.72% and the annualized ratios of net investment income (loss)
to average net assets were (1.17)%, (1.56)% and (1.32)% for Class A, B and M shares, respectively.
(d) Prior to the waiver and reimbursement of expenses for the period ended December 31, 1996, the annualized ratios of
expenses to average net assets were 1.93%, 2.69% and 2.35% and the annualized ratios of net investment income (loss)
to average net assets were (0.17)%, (0.91)% and (0.62)% for Class A, B and M shares, respectively.
(e) Annualized.
</TABLE>
See Accompanying Notes to Financial Statements
19
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters LargeCap Value Fund
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- -----------------------------------------------------------------------------------------------------------------------
Class A Class B Class M
------------------------ ------------------------ ------------------------
Six Months Ten Six Months Ten Six Months Ten
Ended Months Ended Months Ended Months
December 31, Ended December 31, Ended December 31, Ended
1996 June 30, 1996 June 30, 1996 June 30,
(Unaudited) 1996 (a) (Unaudited) 1996 (a) (Unaudited) 1996 (a)
----------- ----------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of period $ 11.77 $ 10.00 $ 11.71 $ 10.00 $ 11.73 $ 10.00
Income from investment
operations:
Net investment income 0.04 0.07 0.06 -- 0.06
Net realized and unrealized
gains on investments 0.99 1.87 0.97 1.81 0.99 1.83
----------- ----------- ----------- ---------- ---------- ----------
Total from investment
operations 1.03 1.94 0.97 1.87 0.99 1.89
----------- ----------- ----------- ---------- ---------- ----------
Less distributions:
Net investment income 0.03 0.07 -- 0.06 -- 0.06
In excess of net investment
income -- 0.01 -- 0.01 -- 0.01
Realized gains on investments -- 0.09 -- 0.09 -- 0.09
----------- ----------- ----------- ---------- ---------- ----------
Total distributions 0.03 0.17 -- 0.16 -- 0.16
----------- ----------- ----------- ---------- ---------- ----------
Net asset value, end of period $ 12.77 $ 11.77 $ 12.68 $ 11.71 $ 12.72 $ 11.73
=========== =========== =========== ========== ========== ==========
Total Return (b) 8.75% 19.56% 8.28% 18.85% 8.46% 19.06%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 6,380 $0 2,530 $ 9,044 $ 1,424 $ 3,214 $ 1,240
Ratios to average net assets:
Expenses (c)(d)(e) 1.75% 1.75% 2.50% 2.50% 2.25% 2.25%
Net investment income (loss) (c)(d)(e) 0.43% 0.65% (0.34)% (0.25)% (0.08)% 0.06%
Portfolio turnover rate 40% 59% 40% 59% 40% 59%
- -----------------------
(a) The Fund commenced operations on September 1, 1995.
(b) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset
value and excluding the deduction of sales charges. Total return information for less than one year is not
annualized.
(c) Prior to the waiver and reimbursement of expenses for the period ended June 30, 1996, the annualized ratios of
expenses to average net assets were 5.44%, 5.79% and 5.90% and the annualized ratios of net investment income
(loss) to average net assets were (3.04)%, (3.53)% and (3.59)% for Class A, B and M shares, respectively.
(d) Prior to the waiver and reimbursement of expenses for the period ended December 31, 1996, the annualized ratios of
expenses to average net assets were 2.21%, 3.11% and 2.73% and the annualized ratios of net investment income
(loss) to average net assets were (0.05)%, (0.95)% and (0.57)% for Class A, B and M shares, respectively.
(e) Annualized.
</TABLE>
See Accompanying Notes to Financial Statements
20
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies
Organization. Pilgrim America Masters Series ("Masters Series") is an open-end
management investment company that was organized as a Maryland Corporation in
1995 and is registered under the Investment Company Act of 1940 as amended. This
Masters Series consists of three separate diversified open-end investment
companies: Pilgrim America Masters Asia-Pacific Equity Fund ("Asia-Pacific
Equity Fund"), Pilgrim America Masters MidCap Value Fund ("MidCap Value Fund")
and Pilgrim America Masters LargeCap Value Fund ("LargeCap Value Fund"), each
with its own investment objective and policies.
Each Fund offers three classes of shares, Class A, Class B and Class M. Each
class represents interests in the same assets of the applicable Fund and the
classes are identical except for differences in their sales charge structure and
ongoing distribution fees. In addition, Class B shares, along with their prorata
reinvested dividend shares, automatically convert to Class A shares
approximately eight years after purchase.
The following significant accounting policies are consistently followed by the
Funds in the preparation of their financial statements, and such policies are in
conformity with generally accepted accounting principles for investment
companies.
A. Security Valuation. Securities which are listed on the U.S. and foreign
stock exchanges are valued at the last sales price on the day the securities
are being valued. Debt and equity securities traded in the over-the-counter
market and listed securities for which no sales were reported on that date
are valued at the mean between the last reported bid and ask prices.
Short-term debt securities maturing in 60 days or less are valued at
amortized cost. Securities for which market quotations are not readily
available are valued at fair value as determined by policies set by the
Board of Directors. All investments quoted in foreign currencies will be
valued daily in U.S. dollars on the basis of the foreign currency exchange
rates prevailing at the time such valuation is determined by each Fund's
custodian.
B. Security Transactions and Revenue Recognition. Securities transactions are
accounted for on the trade date. Realized gains or losses are reported on
the basis of identified cost of securities delivered. Interest income is
recorded on an accrual basis and dividend income is recorded on the
ex-dividend date (except in the case of Asia-Pacific Equity Fund, for
certain securities which are recorded as soon after the ex-date as the Fund
becomes aware of such dividend).
C. Foreign Currency Translation. The books and records of Asia-Pacific Equity
Fund are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis:
(1) Market value of investment securities, other assets and
liabilities - at the exchange rates prevailing at the end of the
day.
(2) Purchases and sales of investment securities, income and expenses
- at the rates of exchange prevailing on the respective dates of
such transactions.
Although the net assets and the market value of Asia-Pacific Equity Fund are
presented at the foreign exchange rates at the end of the day, Asia-Pacific
Equity Fund does not isolate the 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. Such
fluctuations are included with the net realized and unrealized gains or
losses from investments. Reported net realized foreign exchange gains or
losses arise from sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books, and the U.S.
21
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets
and liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate. Foreign security and currency
transactions may involve certain considerations and risks not typically
associated with investing in U.S. companies and the U.S. Government. These
risks include but are not limited to re-evaluation of currencies and future
adverse political and economic developments which could cause securities and
their markets to be less liquid and prices more volatile than those of
comparable U.S. companies and the U.S. Government..
D. Foreign Currency Exchange Transactions. Asia-Pacific Equity Fund may enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to and from the U.S. dollar in connection with
planned purchases or sales of securities. The Fund either enters into these
transactions on a spot basis at the spot rate prevailing in the foreign
currency exchange market or uses forward foreign currency contracts to
purchase or sell foreign currencies. Asia-Pacific Equity Fund may not invest
more than 5% of its assets (at market value at the time of the investment)
in forward foreign currency contracts. Risks may arise upon entering into
forward contracts from the potential inability of counterparties to meet the
terms of their forward contracts and from unanticipated movements in the
value of foreign currencies relative to the U.S. dollar.
E. Distributions to Shareholders. The Funds record distributions to their
shareholders on the ex-date. The Funds intend to make distributions on net
investment income and capital gains, if any, at least annually. The amount
of distributions from net investment income, and net realized capital gains
are determined in accordance with federal income tax regulations, which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. Key
differences are the treatment of short-term capital gains, foreign currency
transactions, organization costs and other temporary differences. To the
extent that these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassifications.
Distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are reported
as distributions in excess of net investment income and/or net realized
capital gains. To the extent they exceed net investment income and net
realized capital gains for tax purposes, they are reported as distributions
of paid-in capital.
F. Federal Income Taxes. The Fund's policy is to comply with the requirements
of the Internal Revenue Code that are applicable to regulated investments
companies and to distribute substantially all of its net investment income
and any net realized capital gains to its shareholders. Therefore, a federal
income tax provision is not required. In addition, by distributing during
each calendar year substantially all of its net investment income and net
capital gains, each Fund intends not to be subject to any federal excise
tax.
G. Use of Estimates. Management of the Funds has made certain estimates and
assumptions relating to the reporting of assets and liabilities to prepare
these financial statements in conformity with generally accepted accounting
principals. Actual results could differ from these estimates.
H. Repurchase Agreements. Each Fund may invest any portion of its assets
otherwise invested in money market instruments in U.S. Government securities
and concurrently enter into repurchase agreements with respect to such
securities. Such repurchase agreements will be made only with government
securities dealers recognized by the Board of Governors of the Federal
Reserve System or with member banks of the Federal Reserve System. Under
such agreements, the seller of the security agrees to repurchase it at a
mutually agreed upon time and price. The resale price is in excess of the
purchase price and reflects an agreed upon interest rate for the period of
time the agreement is outstanding. The period of these repurchase agreements
22
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
is usually short, from overnight to one week, while the underlying
securities generally have longer maturities. Each Fund will always receive
as collateral securities acceptable to it whose market value is equal to at
least 100% of the amount invested by the Fund, and the Fund will make
payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of its custodian. If the seller defaults, a
Fund might incur a loss or delay in the realization of proceeds if the value
of the collateral securing the repurchase agreement declines and it might
incur disposition costs in liquidating the collateral.
I. Deferred Organization Expenses. All expenses incurred in connection with the
organization and registration of the Funds under the Investment Company Act
of 1940 and the Securities Act of 1933 are being paid for by the Funds. The
total organization expenses are being amortized by each Fund equally over a
period of five years from the date of commencement of its operations.
(2) Investment Management Fee and Other Transactions with Affiliates
Each of the Funds has entered into an Investment Management Agreement with
Pilgrim America Investments, Inc. ("the Manager"), a wholly owned subsidiary of
Pilgrim America Group, Inc. The investment management agreements compensate the
Manager with a fee, computed daily and payable monthly, at the following annual
rates: Asia-Pacific Equity Fund pays the Manager a fee at an annual rate of
1.25% of the Fund's average daily net assets; MidCap Value Fund and LargeCap
Value Fund pay the Manager a fee at an annual rate of 1.00% of each Fund's
average daily net assets.
The manager has carefully selected Portfolio Managers for each of the Funds on
the basis of their successful application of a well-defined, long-term
investment approach over a period of several market cycles. HSBC Asset
Management Americas Inc. and HSBC Asset Management Hong Kong Limited ("HSBC")
serve jointly as the Portfolio Managers to Asia-Pacific Equity Fund. CRM
Advisors, LLC ("CRM") serves as Portfolio Manager to MidCap Value Fund. Ark
Asset Management Co., Inc. ("ARK") serves as Portfolio Manager to LargeCap Value
Fund. As compensation for their services to the Funds, the Manager (and not the
Fund) pays HSBC, CRM and ARK fees at annual rates of 0.50% of the average daily
net assets of Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value
Fund, respectively.
The Manager is responsible for managing the day to day operations of the Masters
Series.
On September 1, 1995, the Funds adopted a Plan pursuant to Rule 12b-1 under the
1940 Act (the "12b-1 Plans"), whereby Pilgrim America Securities, Inc. (the
"Distributor") is compensated by the Funds for expenses incurred in the
distribution of each Funds' shares. Pursuant to the 12b-1 Plans, the Distributor
is entitled to compensation each month for actual expenses incurred in the
distribution and promotion of each Fund's shares, including the printing of
prospectuses and reports used for sales purposes, expenses of preparing and
printing of sales literature and other such distribution related expenses,
including any distribution or service fees paid to securities dealers who have
executed a distribution agreement with the Distributor.
Under the 12b-1 Plans, each class of shares of the Funds pay the Distributor at
the annual rate of 0.25% of the average daily net assets of Class A, 1.00% of
the average daily net assets of Class B and 0.75% of the average daily net
assets of Class M.
The manager has voluntarily agreed to limit other expenses, excluding
distribution fees, interest, taxes, brokerage and extraordinary expenses to
1.75%, 1.50% and 1.50% of all classes of shares of the Asia-Pacific Equity Fund,
MidCap Value Fund and LargeCap Value Fund, respectively. This expense limitation
will
23
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited)
- --------------------------------------------------------------------------------
apply to each fund individually until June 30, 1997. At December 31, 1996,
Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value Fund accrued
$26,399, $0 and $8,108, respectively as a reimbursement due from the manager.
(3) Investment Transactions
For the six months ended December 31, 1996, the cost of purchases and proceeds
from the sales of securities were as follows:
<TABLE>
<CAPTION>
Asia-Pacific MidCap LargeCap
Equity Fund Value Fund Value Fund
----------- ---------- ----------
<S> <C> <C> <C>
Purchases $ 21,413,391 $ 20,252,217 $ 16,518,561
Sales 5,911,906 4,207,630 4,452,101
(4) Capital Shares
</TABLE>
Transactions in capital shares and dollars were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
------------------------------ --------------------------- --------------------------
Six Months Ten Months Six Months Ten Months Six Months Ten Months
Ended Ended Ended Ended Ended Ended
December 31, June 30, December 31, June 30, December 31, June 30,
1996 1996 1996 1996 1996 1996
-------------- --------------- ------------ ------------- ------------- ------------
Asia-Pacific
Equity Fund (Shares)
<S> <C> <C> <C> <C> <C> <C>
Shares sold 1,719,730 1,839,719 780,269 1,749,194 360,804 653,491
Shares issued as reinvestment
of dividends 2,937 944 0 151 157 96
Shares redeemed (1,120,065) (68,717) (118,061) (23,700) (51,078) (26,112)
-------------- --------------- ------------ ------------- ------------- ------------
Net increase in
shares outstanding 602,602 1,771,946 662,208 1,725,645 309,883 627,475
============== =============== ============ ============= ============= ============
Asia-Pacific
Equity Fund ($)
Shares sold $17,765,849 $ 19,083,997 $7,913,205 $18,231,217 $3,699,004 $6,796,205
Shares issued as reinvestment
of dividends 28,842 9,350 0 1,497 1,541 948
Shares redeemed (11,697,465) (711,977) (1,208,141) (244,539) (524,435) (270,172)
-------------- --------------- ------------ ------------- ------------- ------------
Net increase in
shares outstanding $ 6,097,226 $ 18,381,370 $6,705,064 $17,988,175 $3,176,110 $6,526,981
============== =============== ============ ============= ============= ============
MidCap Value Fund (Shares)
Shares sold 590,235 201,649 706,554 178,110 212,161 145,744
Shares issued as reinvestment
of dividends 1,388 443 835 137 1,014 56
Shares redeemed (25,639) (5,978) (9,246) (457) (7,390) (838)
-------------- --------------- ------------ ------------- ------------- ------------
Net increase in
shares outstanding 565,984 196,114 698,143 177,790 205,785 144,962
============== =============== ============ ============= ============= ============
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters Series
- ----------------------------------------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class M Shares
------------------------------ --------------------------- --------------------------
Six Months Ten Months Six Months Ten Months Six Months Ten Months
Ended Ended Ended Ended Ended Ended
December 31, June 30, December 31, June 30, December 31, June 30,
1996 1996 1996 1996 1996 1996
-------------- --------------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
MidCap Value Fund ($)
Shares sold $ 7,407,460 $ 2,157,665 $ 8,786,440 $ 1,976,175 $2,592,907 $1,660,067
Shares issued as reinvestment
of dividends 15,865 4,608 9,515 1,428 11,527 578
Shares redeemed (311,437) (65,602) (113,641) (4,699) (89,227) (9,379)
-------------- --------------- -------------- ------------- ------------ ------------
Net increase in shares
outstanding $ 7,111,888 $ 2,096,671 $ 8,682,314 $ 1,972,904 $ 2,515,207 $1,651,266
============== =============== ============== ============= ============ ============
LargeCap Value Fund (Shares)
Shares Sold 359,683 217,003 596,101 130,422 160,248 106,606
Shares issued as reinvestment
of dividends 622 1,977 0 279 30 270
Shares redeemed (75,757) (7,107) (4,482) (9,130) (13,313) (1,280)
-------------- --------------- -------------- ------------- ------------ ------------
Net increase in
shares outstanding 284,548 211,873 591,619 121,571 146,965 105,596
============== =============== ============== ============= ============ ============
LargeCap Value Fund ($)
Shares sold $ 4,289,980 $ 2,326,399 $ 7,156,461 $ 1,501,267 $ 1,893,802 $1,199,940
Shares issued as reinvestment
of dividends 7,041 21,090 0 2,970 343 2,878
Shares redeemed (947,506) (81,933) (130,920) (103,183) (165,464) (14,751)
-------------- --------------- -------------- ------------- ------------ ------------
Net increase in
shares outstanding $ 3,349,515 $ 2,265,556 $ 7,025,541 $ 1,401,054 $ 1,728,681 $1,188,067
============== =============== ============== ============= ============ ============
</TABLE>
(5) Custodial Agreement
Investors Fiduciary Trust Company (IFTC) serves as the Funds' custodian and
recordkeeper. Custody fees paid to IFTC are reduced by an earnings credit based
on the cash balances held by IFTC for each of the Funds. For the six months
ended December 31, 1996, Asia-Pacific Equity Fund, MidCap Value Fund and
LargeCap Value Fund received earnings credits of $1,847, $600 and $609,
respectively.
25
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters Asia-Pacific Equity Fund
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1996 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 94.5%
Market
Shares Value
------ -----
<S> <C> <C> <C>
HONG KONG: 37.9%
Banks: 0.6%
780,000 FPB Bank Holding Company, Ltd. $ 350,443
----------------
Commercial & Industrial: 8.5%
165,000 Citic Pacific, Ltd. 957,851
353,000 Hutchison Whampoa, Ltd. 2,772,610
1,100,000 (a) KPI Company, Ltd. 155,019
139,000 Swire Pacific, Ltd. 1,325,393
----------------
5,210,873
----------------
Diversified Holding Company: 0.8%
400,000 Cosco Pacific 465,447
----------------
Financial: 5.5%
208,080 Bank of East Asia 925,458
220,000 Dao Heng Bank Group, Ltd. 1,055,272
120,000 Liu Chong Hing Bank 200,142
250,000 Union Bank of Hong Kong 315,146
200,000 Wing Hang Bank, Ltd. 907,622
----------------
3,403,640
----------------
Food Distributor: 0.9%
600,000 Ng Fung Hong Ltd. 539,143
----------------
Manufacturing: 1.0%
175,000 (a) Shanghai Industrial Holding 638,050
----------------
Properties: 15.8%
273,000 Cheung Kong Holdings, Ltd. 2,426,628
170,000 China Resources Enterprises 382,442
70,000 Great Eagle Holdings, Ltd. 288,706
230,000 Henderson Investment, Ltd. 275,066
170,000 Hysan Development Co., Ltd. 676,967
240,000 New World Development Co., Ltd. 1,621,307
220,000 Sun Hung Kai Properties, Ltd. 2,695,068
260,000 Wharf Holdings, Ltd. 1,297,563
----------------
9,663,747
----------------
Real Estate & Financial Services: 0.7%
300,000 Lai Sun Development Co., Ltd. 453,811
----------------
Retail Clothing: 0.6%
1,150,000 First Sign International Holding 367,994
----------------
See Accompanying Notes to Financial Statements
26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters Asia-Pacific Equity Fund
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C> <C>
Utilities: 3.5%
83,000 China Light & Power Co., Ltd. $ 369,151
165,000 Hong Kong Electric Holdings, Ltd. 548,258
750,000 Hong Kong Telecommunications, Ltd. 1,207,253
----------------
2,124,662
----------------
Total Hong Kong Common Stocks 23,217,810
----------------
INDONESIA: 7.7%
Banks: 1.3%
784,000 PT Lippo Bank 763,421
----------------
Building Products: 0.1%
20,000 PT Semen Cibinong 56,308
----------------
Manufacturing: 3.5%
317,000 PT Indofood Sukses Makmur 630,779
880,000 PT Telekommunikasi Indonesia - Class B 1,518,205
----------------
2,148,984
----------------
Real Estate: 0.4%
232,000 PT Kawasan Industries 270,110
----------------
Tobacco Products: 1.4%
125,000 PT Gudang Garam 539,797
56,000 (a) PT Hanjaya Mandala Sampoerna 298,730
----------------
838,527
----------------
Transportation: 1.0%
197,000 PT Semem Gresik 633,870
----------------
Total Indonesia Common Stocks 4,711,220
----------------
MALAYSIA: 21.0%
Commercial & Industrial: 12.5%
134,000 Genting Berhad 923,223
313,000 Leader Universal Holding 656,860
380,000 Magnum Corporation Berhad 737,280
85,000 Petronas Gas Berhad 353,395
673,000 Renong Berhad 1,193,839
290,000 Sime Darby Berhad 1,142,546
216,000 Telekom Malaysia Berhad 1,924,371
150,000 Tenaga Nasional Berhad 718,670
----------------
7,650,184
----------------
See Accompanying Notes to Financial Statements
27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters Asia-Pacific Equity Fund
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C> <C>
Financial: 5.9%
90,000 Affin Holdings Berhad $ 247,674
250,000 DCB Holdings Berhad 856,266
195,000 MBF Capital Berhad 316,571
195,000 Malayan Banking Berhad 2,161,948
----------------
3,582,459
----------------
Properties: 2.6%
129,000 Land & General Holdings Berhad 309,028
144,000 (a) United Engineers Malaysia 1,300,020
----------------
1,609,048
----------------
Total Malaysia Common Stocks 12,841,691
----------------
PHILIPPINES: 3.9%
Building Products: 0.5%
2,714,000 (a) Southeast Asia Cement HL 314,742
----------------
Communications: 0.8%
10,000 Philippine Long Distance Telephone Co., ADR 510,000
----------------
Home Building: 0.5%
575,000 C & P Homes, Inc. 295,152
----------------
Miscellaneous: 0.5%
38,000 (a) Benpres Holdings GDR 285,000
----------------
Real Estate: 1.1%
2,472,000 SM Prime Holdings, Inc. 639,148
----------------
Utilities: 0.5%
40,000 Manila Electric Co. - Class B 326,996
----------------
Total Philippines Common Stocks 2,371,038
----------------
SINGAPORE: 11.5%
Commercial & Industrial: 2.3%
148,000 Keppel Corp., Ltd. 1,152,697
61,000 Van Der Horst. 254,984
----------------
1,407,681
----------------
Financial: 3.8%
95,000 Overseas-Chinese Bank 1,181,136
34,000 Overseas Union Bank 262,380
80,000 United Overseas Bank 891,747
----------------
2,335,263
----------------
See Accompanying Notes to Financial Statements
28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters Asia-Pacific Equity Fund
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C> <C>
Food and Beverage: 0.4%
26,400 Fraser & Neave, Ltd. $ 271,640
----------------
Properties: 2.2%
70,000 (a) City Developments, Ltd. 630,225
80,000 Singapore Land, Ltd. 443,015
100,000 Wing Tai Holdings 285,816
----------------
1,359,056
----------------
Publishing: 1.3%
40,000 Singapore Press Holdings, Ltd. 788,853
----------------
Transportation: 1.5%
99,000 Singapore Airlines, Ltd. 898,392
----------------
Total Singapore Common Stocks 7,060,885
----------------
SOUTH KOREA: 3.4%
Banks: 0.7%
19,660 (a) Cho Hung Bank 153,557
18,000 Kook Min Bank 286,615
----------------
440,172
----------------
Construction: 0.1%
1,632 (a) Dong Ah Construction 34,764
2,230 (a) Dong Ah Construction, EDR 23,861
----------------
58,625
----------------
Electrical Equipment: 0.5%
4,550 LG Information & Communication 290,769
----------------
Manufacturing/Electronic: 0.5%
1,600 Samsung Display Devices 91,456
323 (a) Samsung Elect N-1 16,590
1,072 Samsung Electronics Co. 57,723
1,000 Sungmi Telecom Electronics 149,112
----------------
314,881
----------------
Metals and Minerals: 0.5%
2,550 Pohang Iron & Steel Col, Ltd., ADR 51,638
3,320 Samchully Co. 231,811
----------------
283,449
----------------
Oil & Gas: 0.2%
2,200 Daehan City Gas Co. 158,817
----------------
See Accompanying Notes to Financial Statements
29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters Asia-Pacific Equity Fund
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C> <C>
Utilities-Electric: 0.9%
15,000 Korea Electric Power $ 436,686
5,805 Korea Electric Power Corp., ADR 119,003
----------------
555,689
----------------
Total South Korea Common Stocks 2,102,402
----------------
TAIWAN: 2.8%
Building Products: 0.5%
15,000 (a) Asia Cement Corp. 267,938
----------------
Computer Systems/Software: 0.3%
14,047 (a) Macronix International Co., Ltd, ADR 187,885
----------------
Electrical Equipment: 0.2%
13,500 (a) Yageo Corp. 131,625
----------------
Marine: 0.4%
13,000 (a) Evergreen Marine Corp. 258,375
----------------
Steel: 1.1%
33,640 (a) China Steel Corp., GDR 670,277
----------------
Technology: 0.3%
10,320 (a) Lite-On Technology Corp. 176,162
----------------
Total Taiwan Common Stocks 1,692,262
----------------
THAILAND: 6.3%
Banks: 3.7%
110,000 Bangkok Bank Public Co., Ltd. 1,063,382
28,500 Siam Commercial Bank Public Co., Ltd. 206,634
155,000 Thai Farmers Bank Public Co., Ltd. 966,711
----------------
2,236,727
----------------
Communications: 0.4%
28,000 Advanced Information Services PCL 237,936
----------------
Construction: 0.3%
6,700 Siam Cement Public Co., Ltd. 209,979
----------------
Insurance: 0.2%
40,000 Phatra Thanakit Public Co., Ltd. 113,822
----------------
See Accompanying Notes to Financial Statements
30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters Asia-Pacific Equity Fund
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C> <C>
Mining: 0.8%
25,000 Banpu Public Co., Ltd. $ 463,865
----------------
Oil & Gas: 0.9%
40,000 PTT Exploration & Production 576,908
----------------
Total Thailand Common Stocks 3,839,237
----------------
Total Common Stocks (Cost $54,629,037) 57,836,545
----------------
WARRANTS: 0.0%
HONG KONG: 0.0%
4,500 (a) Hysan Development Co., Ltd. 4,073
220,000 (a) KPI Company, Ltd 10,240
----------------
14,313
----------------
THAILAND: 0.0%
13,375 (a) Thai Farmers Bank Public Co., Ltd. 12,643
----------------
Total Warrants (Cost $13,211) 26,956
----------------
CONVERTIBLE BONDS: 2.7%
Principal
Amount
TAIWAN: 2.7%
Marine: 2.0%
500,000 (a) Far East Department Stores, 3.00% due July 2001 527,500
250,000 (a) President Enterprises Co., 0.00% due July 2001 376,875
300,000 Yangming Marine, 2.00% due October 2001 342,000
----------------
1,246,375
----------------
Industrial: 0.7%
240,000 Nan Ya Plastic Corp., 1.75% due July 2001 273,600
105,000 Yageo Corp., 1.25% due July 2003 117,272
----------------
390,872
----------------
Total Convertible Bonds (Cost $1,565,119) 1,637,247
----------------
Total Long-Term Investments (Cost $56,207,367) 59,500,748
----------------
SHORT-TERM INVESTMENTS: 1.7%
Commercial Paper: 1.7%
1,040,000 Merrill Lynch Commercial Paper, 6.50% due 01/02/97 1,039,812
----------------
Total Short-Term Investments (Cost $1,039,812) 1,039,812
----------------
Total Investments (Cost $57,247,179)* 98.9% 60,540,560
Cash and Other Assets in Excess of Liabilities-Net 1.1% 678,493
---------- ----------------
Total Net Assets 100.0% $ 61,219,053
========== ================
See Accompanying Notes to Financial Statements
31
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters Asia-Pacific Equity Fund
- ---------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a) Non-income producing security
ADR - American Depository Receipt
EDR - European Depository Receipt
GDR - Global Depository Receipt
* Cost for federal income tax purposes is the same as for financial statements. Net unrealized appreciation
appreciation consists of:
Gross Unrealized Appreciation $ 7,478,238
Gross Unrealized Depreciation (4,193,857)
----------------
Net Unrealized Appreciation $ 3,284,381
================
</TABLE>
The Asia-Pacific Equity Fund had the following outstanding forward foreign
currency exchange contracts as of December 31, 1996:
Settlement Currency Currency
Date to Receive to Deliver
---- ---------- ----------
1/6/97 204,824 $146,670
Singapore dollars U.S. dollars
1/9/97 397,200 $157,307
Malaysian ringgits U.S. dollars
Net unrealized depreciation of $345 on these contracts at December 31, 1996, is
included in the accompanying financial statements.
See Accompanying Notes to Financial Statements
32
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters MidCap Value Fund
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 88.8%
Market
Shares Value
------ -----
<S> <C> <C> <C>
Automotive: 4.9%
15,000 Lucasvarity PLC, ADR $ 570,000
44,000 (a) Mascotech, Inc. 720,500
------------------
1,290,500
------------------
Banks: 2.1%
18,000 John Hancock Bank & Thrift Opportunity Fund 553,500
------------------
Broadcasting: 4.0%
45,000 Comcast Corp., Class A 801,563
9,000 (a) Young Broadcasting Corp. Class A 263,250
------------------
1,064,813
------------------
Building Products: 4.1%
12,000 Masco Corp. 432,000
60,000 Schuller Corp. 637,500
------------------
1,069,500
------------------
Capital Goods: 3.0%
40,000 Westinghouse Electric Corp. 795,000
------------------
Chemicals: 6.0%
13,000 (a) Great Lakes Chemical 607,750
22,000 Mallinckrodt, Inc. 970,750
------------------
1,578,500
------------------
Chemicals-Diversified: 1.1%
7,000 (a) Millipore Corp. 289,625
------------------
Commercial & Industrial: 3.0%
36,000 Dial Corp. 531,000
15,000 Viad Corp. 247,500
------------------
778,500
------------------
Computer Software & Services: 1.8%
8,000 Reynolds & Reynolds 208,000
8,500 (a) Sterling Software, Inc. 268,812
------------------
476,812
------------------
Computer Systems: 2.8%
30,000 (a) Gulfstream Aerospace Corp. 727,500
------------------
Defense: 0.8%
10,000 Tracor, Inc. 212,500
------------------
See Accompanying Notes to Financial Statements
33
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters MidCap Value Fund
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C> <C>
Diversified Holding Company: 1.8%
14,000 (a) U.S. Industries, Inc. $ 481,250
------------------
Electrical Equipment: 7.9%
10,000 National Service Industries, Inc. 373,750
12,000 Raychem Corp. 961,500
20,000 (a) Ucar International, Inc. 752,500
------------------
2,087,750
------------------
Financial: 1.1%
12,000 Glendale Federal Bank 279,000
------------------
Food Stores: 3.2%
24,100 (a) Meyer (Fred), Inc. 855,550
------------------
Home Building: 1.0%
18,000 (a) Walter Industries, Inc. 254,250
------------------
Home Products: 0.7%
13,000 Furniture Brands International, Inc. 182,000
------------------
Housewares: 4.3%
15,000 Premark International, Inc. 333,750
15,100 Tupperware Corp. 809,738
------------------
1,143,488
------------------
Industrial: 1.5%
15,000 (a) Stanley Works 405,000
------------------
Manufacturing/Electronic: 4.1%
14,000 (a) Corning, Inc. 647,500
22,500 Elsag Bailey Process Auto 421,875
------------------
1,069,375
------------------
Medical: 2.1%
13,000 (a) Allergan, Inc. 463,125
4,400 Choice Hotels Corp. 77,550
900 Manor Care, Inc. 24,300
------------------
564,975
------------------
Metals & Minerals: 1.2%
12,000 Schnitzer Steel Industries 307,500
------------------
See Accompanying Notes to Financial Statements
34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters MidCap Value Fund
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C> <C>
Miscellaneous: 2.3%
27,500 Trizec Hahn Corp. $ 605,000
------------------
Oil & Gas: 9.1%
14,000 (a) Amerada Hess Corp. 810,250
14,000 (a) Coastal Corp. 684,250
18,000 Forest Oil corp. 317,250
20,000 Valero Energy Corp. 572,500
------------------
2,384,250
------------------
Packaging Products: 4.8%
17,900 Ball Corp. 465,400
35,000 Owens-Illinois, Inc. 796,250
------------------
1,261,650
------------------
Paper and Forest Products: 2.1%
20,000 Fort Howard Corp. 553,750
------------------
Real Estate & Financial Services: 2.8%
20,000 Insignia Financial Group, Inc. 450,000
15,000 RFS Hotel Investors, Inc. 296,250
------------------
746,250
------------------
Retail: 1.8%
45,000 (a) Kmart Corp. 466,875
------------------
Technology: 1.9%
6,000 (a) Johnson Controls, Inc. 497,250
------------------
Utilities-Gas Transmission: 1.5%
12,000 (a) Peoples Energy Corp. 406,500
------------------
Total Common Stocks (Cost $21,382,796) 23,388,413
------------------
WARRANTS: 0.2%
Machinery & Equipment: 0.2%
2,000 (a) Terex Warrants 48,200
------------------
Total Warrants (Cost $18,000) 48,200
------------------
Total Long-Term Investments (Cost $21,400,795) 23,436,613
------------------
See Accompanying Notes to Financial Statements
35
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters MidCap Value Fund
- ----------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 6.5%
Principal
Amount Value
------ -----
<S> <C> <C> <C> <C>
Repurchase Agreements: 6.5%
$1,715,000 Merrill Lynch Repurchase Agreement, 5.75% due 01/02/97
(Collateralized by $1,755,955 U.S. Treasury Bonds, 6.625%
due 07/31/01) $ 1,715,000
------------------
Total Short-Term Investments (Cost $1,715,000) 1,715,000
------------------
Total Investments (Cost $23,115,796)* 95.5% 25,151,613
Cash and Other Assets in Excess of Liabilities-Net 4.5% 1,190,702
----------- ------------------
Total Net Assets 100.0% $ 26,342,315
=========== ==================
- --------------------------------
(a) Non-income producing security
* Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation $ 2,357,276
Gross Unrealized Depreciation (321,459)
------------------
Net Unrealized Appreciation $ 2,035,817
==================
See Accompanying Notes to Financial Statements
36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters LargeCap Value Fund
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
COMMON STOCKS: 96.4%
Market
Shares Value
------ -----
<S> <C> <C> <C>
Automotive: 3.6%
13,400 Ford Motor Co. $ 427,125
4,000 General Motors Corp. 223,000
----------------
650,125
----------------
Banks: 1.9%
1,500 Chase Manhattan Corp. 133,875
4,100 First Chicago NBD 220,375
----------------
354,250
----------------
Broadcasting: 2.7%
25,400 Tele-Communications, Inc. 331,788
8,900 U.S. West Media Group 164,650
----------------
496,438
----------------
Building Products: 3.4%
9,200 GTE Corp. 418,600
5,800 Masco Corp. 208,800
----------------
627,400
----------------
Chemicals: 3.2%
3,600 DuPont, (E.I.) DeNemours & Co. 339,750
3,800 Hercules, Inc. 164,350
2,400 Union Carbide Corp. Holding Co. 98,100
----------------
602,200
----------------
Chemicals-Diversified: 2.2%
4,600 Eastman Chemical Co. 254,150
2,900 PPG Industries, Inc. 162,762
----------------
416,912
----------------
Communications: 5.5%
20,200 AT&T Corp. 878,700
3,600 Sprint Corp. 143,550
----------------
1,022,250
----------------
Computer Systems: 1.5%
7,900 Digital Equipment 287,362
----------------
Construction: 1.0%
2,900 Fluor Corp. 181,975
----------------
Consumer Products: 1.7%
3,900 Anheuser Busch Co. 156,000
1,900 Eastman Kodak Co. 152,475
----------------
308,475
----------------
Defense: 1.0%
3,700 Raytheon Co. 178,063
----------------
See Accompanying Notes to Financial Statements
37
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters LargeCap Value Fund
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C> <C>
Drugs: 4.1%
2,700 Bristol Myers Squibb Co. $ 293,625
1,600 Georgia Pacific Corp. 115,200
9,000 Pharmacia & Upjohn, Inc. 356,625
----------------
765,450
----------------
Electrical Equipment: 1.6%
7,600 Amp, Inc. 291,650
----------------
Entertainment: 1.5%
7,700 Time Warner, Inc. 288,750
----------------
Financial: 2.2%
6,200 Dean Witter Discover & Co. 410,750
----------------
Foods: 1.7%
9,925 Archer-Daniels-Midland 218,350
1,200 CPC International, Inc. 93,000
----------------
311,350
----------------
Healthcare: 2.3%
10,600 Humana, Inc. 202,725
5,100 United Healthcare Corp. 229,500
----------------
432,225
----------------
Hospitals: 2.7%
12,450 Columbia/HCA Healthcare Corp. 507,337
----------------
Hotels: 1.4%
6,000 ITT Corp. 260,250
----------------
Insurance: 9.9%
6,200 Aetna Life & Casualty Co. 496,000
7,200 Allstate Corp. 416,700
1,100 American International Group, Inc. 119,075
8,400 Chubb Corp. 451,500
2,300 General Re Corp. 362,825
----------------
1,846,100
----------------
Insurance Life: 0.9%
2,200 Unum Corp. 158,950
----------------
Manufacturing: 0.8%
2,300 AlliedSignal, Inc. 154,100
----------------
Medical Equipment: 0.4%
1,600 Becton Dickinson & Co. 69,400
----------------
See Accompanying Notes to Financial Statements
38
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters LargeCap Value Fund
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C> <C>
Metals & Minerals: 1.3%
2,900 Aluminum Company of America $ 184,875
4,900 LTV Corp. 58,188
----------------
243,063
----------------
Mines & Minerals: 1.7%
7,100 Newmont Mining Corp. 317,725
----------------
Miscellaneous: 1.5%
3,000 Loews Corp. 282,750
----------------
Office Equipment, Products & Services: 4.5%
2,800 International Business Machines Corp. 422,800
8,000 Xerox Corp. 421,000
----------------
843,800
----------------
Oil & Gas: 7.1%
4,600 Amerada Hess Corp. 266,225
2,100 Amoco Oil Co. 169,050
2,400 Mobil Corp. 293,400
15,100 Occidental Petroleum Corp. 352,963
600 Texaco, Inc. 58,875
6,200 Union Pacific Resources Group, Inc. 181,350
----------------
1,321,863
----------------
Paper and Forest Products: 2.4%
6,400 Champion International Corp. 276,800
2,300 International Paper Co. 92,862
900 Kimberly-Clark Corp. 85,725
----------------
455,387
----------------
Pollution Control: 1.2%
6,800 WMX Technologies, Inc. 221,850
----------------
Publishing: 0.5%
3,100 Cognizant Corp. 102,300
----------------
Railways: 2.0%
700 Burlington Northern S.F. 60,462
7,100 CSX Corp. 312,650
----------------
373,112
----------------
Retail: 6.6%
10,100 Dillard Department Stores, Inc. 311,838
10,900 Federated Department Stores, Inc. 371,962
See Accompanying Notes to Financial Statements
39
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pilgrim America Masters LargeCap Value Fund
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1996 (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
Market
Shares Value
------ -----
<S> <C> <C> <C>
Retail (continued)
5,400 May Department Stores Co. $ 252,450
6,400 Sears, Roebuck and Co. 295,200
----------------
1,231,450
----------------
Supermarket: 0.8%
4,200 Albertson's, Inc. 149,625
----------------
Technology: 1.7%
3,500 Rockwell 213,063
1,700 Texas Instruments, Inc. 108,375
----------------
321,438
----------------
Transporation: 2.0%
2,100 AMR Corp. 185,062
2,600 Delta Airlines, Inc. 184,275
----------------
369,337
----------------
Utilities: 5.9%
6,700 Frontier Corp. 151,587
10,100 Nynex Corp. 486,063
6,700 SBC Communications 346,725
2,900 Texas Utilities 118,175
----------------
1,102,550
----------------
Total Common Stocks (Cost $16,999,061) 17,958,012
----------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS: 8.2%
Principal
Amount Value
------ -----
<S> <C> <C> <C> <C>
Commerical Paper: 8.2%
$1,365,000 Merrill Lynch Repurchase Agreement, 5.75% due 01/02/97
(Collateralized by $1,395,674 U.S. Treasury Bonds, 6.625%
due 07/31/01) 1,365,000
----------------
Total Short-Term Investments (Cost $1,365,000) 1,365,000
----------------
Total Investments in Securities (Cost $18,364,061)* 103.7% 19,323,012
Liabilities in Excess of Cash and Other Assets-Net (3.7) (684,907)
-------- ----------------
Total Net Assets 100.0% $ 18,638,105
- ------------------------------ ======== ================
(a) Non-income producing security
ADR - American Depository Receipt
* Cost for federal income tax purposes is the same as for financial statement purposes. Net unrealized
appreciation consists of:
Gross Unrealized Appreciation $ 1,262,820
Gross Unrealized Depreciation (303,869)
----------------
Net Unrealized Appreciation $ 958,951
================
See Accompanying Notes to Financial Statements
40
</TABLE>
<PAGE>
Pilgrim America
Funds
Investment Manager Custodian
Pilgrim America Investments, Inc. Investors Fiduciary Trust Company
Two Renaissance Square 127 West 10th Street
40 North Central Avenue, Suite 1200 14th Floor
Phoenix, Arizona 85004 Kansas City, Missouri 64105
Distributor Legal Counsel
Pilgrim America Securities, Inc. Dechert Price & Rhoads
Two Renaissance Square 1500 K Street, N. W.
40 North Central Avenue, Suite 1200 Washington, D.C. 20005
Phoenix, Arizona 85004
1-800-334-3444
Shareholder Servicing Agent Independent Auditors
Pilgrim America Group, Inc. KPMG Peat Marwick LLP
Two Renaissance Square 725 South Figueroa Street
40 North Central Avenue, Suite 1200 Los Angeles, California 90017
Phoenix, Arizona 85004
1-800-331-1080
Transfer Agent This report and the financial
Investors Fiduciary Trust Company statements contained herein are
c/o DST Systems, Inc. submitted for the general information
P.O. Box 419541 of the shareholders of the Funds. This
Kansas City, Missouri 64141 report is not authorized for
distribution to prospective investors
in the Fund unless preceded or
accompanied by an effective prospectus.
Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004 1-800-331-1080
[GRAPHIC OMITTED]
PILGRIM AMERICA FUNDS
<PAGE>
Pilgrim America Funds
Masters Series
--------------
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
Elite Series
------------
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
Pilgrim America
Funds
"Our goal is for every investor to have a successful investment experience"
Prospectuses containing more complete information regarding the Funds, including
charges and expenses, may be obtained by calling Pilgrim America Securities,
Inc. Distributor at 1-800-334-3444. Please read the prospectuses carefully
before you invest or send money.
21-SS-073096 022897
