Pilgrim America
Funds
Masters Series
______________
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
Annual Report
June 30, 1997
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Pilgrim America
Funds
Masters Series
______________
Annual Report
June 30, 1997
Table of Contents
Chairman's Message ........................................................ 4
Portfolio Manager's Reports:
Pilgrim America Masters Asia-Pacific Equity Fund .................. 5
Pilgrim America Masters MidCap Value Fund ......................... 11
Pilgrim America Masters LargeCap Value Fund ....................... 15
Report of Independent Auditors ............................................ 19
Statements of Assets and Liabilities ...................................... 20
Statements of Operations .................................................. 21
Statements of Changes in Net Assets ....................................... 22
Financial Highlights ...................................................... 23
Notes to Financial Statements ............................................. 26
Portfolios of Investments:
Pilgrim America Masters Asia-Pacific Equity Fund .................. 32
Pilgrim America Masters MidCap Value Fund ......................... 39
Pilgrim America Masters LargeCap Value Fund ....................... 42
Tax Information ........................................................... 46
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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 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 fiscal year ended June 30, 1997, 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 private money
managers who typically manage similar portfolios primarily 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 a family of 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 and Chief Executive Officer
Pilgrim America Group, Inc.
August 20, 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 year ended June 30, 1997.
For the twelve months, the Fund earned a total return of 5.78%(1) compared to
2.82% for the Morgan Stanley Capital International All Countries Far East Free
ex-Japan Index (the "MSCI"), a measure of the performance of Far East markets
excluding Japan. During the same time, the Fund's net assets increased from
$42.6 million to $73.8 million.
General Economic Environment
With one or two notable exceptions, the region has continued to suffer from a
combination of negative cyclical and structural factors. The cyclical factors
include decelerating growth and earnings led by very weak exports. This has also
resulted in persistent trade deficits and, as a consequence, high real interest
rates in spite of an improving inflation environment. Structural problems have
also been evident in some countries such as Thailand and Korea. Within the
region, Hong Kong benefited from a soft landing in China and an improved
property market. The macro-economic outlook for Taiwan is generally positive as
evidenced by strong industrial production and rising imports, which will be
beneficial for corporate earnings growth. The Hong Kong and Taiwan equity
markets 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 countries in which the Fund
invests. The MSCI Country Indices are unmanaged, market capitalization -
weighted indices representing a broadly diversified mix of publicly traded
companies listed on the principal stock exchange of each respective country. The
indices are calculated by Morgan Stanley Capital International on a total return
basis for the period indicated, including the effects of any dividend or
distributions.
Total Return
Country 7/1/96 - 6/30/97
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Hong Kong +29.63%
Malaysia -4.48%
Singapore -10.94%
Thailand -59.07%
Indonesia +16.74%
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Pilgrim America Masters Asia-Pacific Equity Fund
Total Return
Country 7/1/96 - 6/30/97
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Philippines -13.75%
South Korea -19.18%
Taiwan +30.05%
China +35.49%
As previously mentioned, Hong Kong benefited from a subdued inflationary
environment and strength in the residential property sector. In addition, an
improvement in China's economic condition fueled investors' interest in "China
concept" stocks. The political overhang attributed to the handover of
sovereignty was removed with the election of a pro-business Chief Executive for
the future Special Administrative Zone. In the run-up to the reunification of
Hong Kong with China, widespread positive sentiment was evident as witnessed by
the surge in the "red chips" (Mainland Chinese companies listed in Hong Kong)
and the high turnover volume.
The equity risk premium is rising in Malaysia. Although Malaysia continued to
experience economic slowing, improvements were seen in the trade balance as
exports staged a moderate recovery. Investors took caution of the market as
concerns that the recent guidelines set by Bank Negara to limit lending to
property and stock purchases could hurt corporate earnings. Sentiment was also
affected by the financial crisis in Thailand which triggered a sharp rise in
domestic interest rates as the Malaysian central bank joined other regional
banks to fend off currency speculators. The economic slowing in Singapore was
more than anticipated as electrical products companies saw a fall in industrial
production for the first time since 1992. Further, property prices may continue
to depreciate some but most of that news has already been priced. The new
guidelines in the allocation of public housing between first-timers and
upgraders to reduce the waiting period continued to influence sentiment.
Additionally, the financial crisis in Thailand resulted in some selling pressure
on banking stocks as investors were worried about Singapore banks' exposure to
Thailand as the latter's financial crisis escalated.
Economic statistics in Thailand continued to show a slowing economy with little
improvements in exports. This reduced expectations for a needed cut in interest
rates to jump start economic growth. The deteriorating economic environment
prompted Moody's to place Thailand's sovereign rating and a number of Thai banks
under review, while Standard & Poor's downgraded Thai Farmers Bank's and Siam
Commercial Bank's ratings. These moves prompted the Bank of Thailand to increase
provisioning requirements for banks and finance companies and to establish a
$3.87 (US) billion property bail-out scheme. Huge speculative attacks were made
against Thailand's currency, the baht, with the government imposing capital
controls and restricting access to the baht. Subsequently, early July saw the
Thai authorities change to a managed float of the baht, which prompted much
renewed interest in the market on higher
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Pilgrim America Masters Asia-Pacific Equity Fund
volumes. Indonesia experienced some of the highest earnings growth in the region
and is expected to show continued growth through 1997. Additionally, fears of a
tighter monetary policy were reduced on subdued inflation. These two factors led
to increased investor interest in Indonesia. In addition, Indonesia also
experienced significant liquidity as additional mutual funds were mobilized into
the system. Similar to Singapore, the Philippines also suffered from a slowdown
in electrical component exports as well as disappointing bank earnings. This led
to profit-taking by investors. Concerns that the Philippines would suffer a
Thai-style crisis also continued to influence market sentiment. As the Thai
financial crisis escalated, the Philippine central bank raised overnight
borrowing rates to defend the Peso which caused pressure on the index.
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.
The proposed controversial labor bill which would give employers the right to
lay off employees prompted labor unions across the country to begin an
indefinite strike. In addition, bankruptcy rumors continue to plague the market
as concerns over banks and other companies prompted investigations by the Bank
of Korea, which subsequently injected funds into the market to increase
liquidity. Finally, 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, which resulted in a flow of funds into Taiwan stocks during the second
half of 1996. However, in the first half of 1997, the market experienced a
strong liquidity-driven rally as optimistic comments by the U.S. Securities and
Exchange Commission, the proposal of new market liberalization measures and the
announcements of privatization plans all helped to boost sentiment. Expectations
of a stronger economy in 1997, low bank deposit rates and the upward revisions
of corporate earnings further supported the rally.
Pilgrim America Masters Asia-Pacific Equity Fund
Our strategy for most of the twelve-month period 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 the next twelve months will be when to
take profits in the Hong Kong market, and re-deploy funds to the rest of the
region. At present, the dynamics of a bull market in Hong Kong are intact.
Optimism remains high regarding prospects for the on-going integration of Hong
Kong into China, and Hong Kong's role as "financier" of China's move towards a
privatized economy. Whilst some excesses, in terms of property valuations, are
building, we are reluctant to reduce Hong Kong's exposure until more compelling
opportunities are evident elsewhere. The present trend towards weaker currencies
in Southeast Asia, together with a bottoming in export performance is, perhaps,
providing the background for a switch out of Hong Kong later in the year.
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Pilgrim America Masters Asia-Pacific Equity Fund
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way to acquire
additional shares of the Fund without incurring a sales charge. Should you
decide to switch from cash dividends to automatic investment, please notify your
broker or contact the Transfer Agent, c/o DST Systems, Inc., PO Box 419338,
Kansas City, Missouri 64141-6338 or call (800) 992-0180.
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
See footnotes on page 10.
Pilgrim America Funds
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Pilgrim America Masters Asia-Pacific Equity Fund
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COMPARISON OF A $10,000 INVESTMENT
JUNE 30, 1997
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Comparison of the Change in Value of a $10,000 Investment in Pilgrim America
Masters Asia-Pacific Equity Fund (the "Fund") and the MSCI Far East ex-Japan
(Free) Index (the "MSCI").
Based on a $10,000 initial investment, the graph below illustrates the total
return of the Fund against the MSCI. Note that the MSCI has inherent performance
advantages over any fund since it has no cash in its portfolio, imposes no sales
charges and incurs no operating expenses. An investor cannot invest in an index.
The Fund's performance reflected below assumes the deduction of the Class A
maximum sales charges in all cases.
Growth of a $10,000 Investment
9/1/95 6/30/96 6/30/97
------ ------- -------
MSCI Far East ex-Japan (Free) Index $10,000 $11,385 $11,707
Pilgrim America Asia-Pacific Equity Fund $ 9,425 $ 9,780 $10,345
All returns assume reinvestment of all dividends and distributions.
SEC Average Annual Total Returns
as of June 30, 1997
--------------------------------------------------
1 Year Inception*
------ ----------
Pilgrim America
Asia-Pacific Equity Fund Class A -0.29% 1.87%
MSCI Far East ex-Japan
(Free) Index 2.82% 8.99%
September 1, 1995 (commencement of operations).
See Footnotes on page 10
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Pilgrim America Masters Asia-Pacific Equity Fund
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FOOTNOTES
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(1) Excluding the Class A maximum sales charge of 5.75% and assuming
reinvestment of all dividends and distributions. Average annual total
returns including the Class A maximum sales charge and assuming
reinvestment of all dividends and distributions for the year ended June 30,
1997 and from September 1, 1995 (commencement of operations) to June 30,
1997 were -0.29% and 1.87%, respectively.
Performance figures shown pertain only to Class A shares of the Fund. Class
B and M shares, which are also offered by the Fund, are subject to
different fees and expenses which will affect their performance. Total
returns for Class B and M shares, excluding the applicable sales charges
for the year ended June 30, 1997 were 5.04% and 5.26%, respectively.
Average annual total returns excluding the applicable sales charges and
assuming reinvestment of all dividends and distributions for the period
from September 1, 1995 (commencement of operations) to June 30, 1997, were
4.50% and 4.69%, respectively.
Total returns for Class B and M shares including the applicable 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 June 30, 1997 were
0.00% and 1.61%, respectively. Average annual total returns including the
applicable sales charges for the period from September 1, 1995
(commencement of operations) to June 30, 1997, were 2.38% and 2.69%,
respectively.
All returns figures reflect a partial waiver of fees for the periods
stated. Without such a waiver, returns would have been lower.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed may
be worth more or less than their original cost.
This letter contains statements that may be "forward-looking" statements.
Actual results could differ materially from those projected in the
"forward-looking" statements.
The views expressed in this report reflect those of the portfolio 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.
Pilgrim America Funds
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Pilgrim America Masters MidCap 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 year ended June 30, 1997.
For the twelve months, the Fund earned a total return of 23.89%(1) compared to
22.96% the Russell MidCap(tm) Index.
SECOND QUARTER REVIEW
"The race is on . . . . . "
As with a well tuned racing car, all cylinders are firing at the same time to
sustain a bull market in stocks. The economy is growing at a steady pace;
inflation is actually declining; interest rates remain low and the Federal
Reserve continues to pursue a stable money policy; unemployment is dipping below
5% for the first time in many years; the recent tax reductions; even the
mutterings of Japan's Hashimoto and Alan Greenspan cannot talk the market down
from record high levels. It is no wonder that money flows into equity funds
continue to test managers' ability to put these assets to work. For the time
being, we are willing to ride this wave with the majority of managers. To use
the analogy above, however, even a good race car has to pull off the track for
some adjustments; history tells us that highly positive trends can be the
genesis of their own undoing. For instance, low unemployment implies a tight
labor market which can be an early harbinger of inflationary pressures; or,
valuations, particularly for large company stocks, reach levels that cannot be
justified by potential earnings growth and the first signs of a profit slowdown
generates a selling wave; or, the pace of money flows into mutual funds abates
with any market correction that lasts more than a few days. The point is that
any number of unforeseen surprises could set off a chain reaction that would
upset the "race" and turn unbridled enthusiasm into cautious optimism then
skittishness and finally outright fear of losing money.
While we suspect the above chain reaction will not occur, we have to be
sensitive to its possibility in our day to day processing of investment
candidates. Our value approach should work towards protecting portfolios in a
market decline, but our tolerance for "paying up" for companies undergoing
change is being regularly tested. Corporate America continues to restructure at
a rapid pace, but valuations of these companies are being inexorably dragged to
higher levels by the general market.
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Pilgrim America Masters MidCap Value Fund
Nevertheless, during the quarter ended June 30, 1997 we have made new purchases
in stocks that reflect well our interest in companies undergoing change with
compelling value. Mapco Inc., for instance, (formerly Mid-American Pipeline
Company) is an energy company which has sold several businesses in the past year
in order to expand its operations in natural gas liquids and propane gas, and is
also repurchasing shares. Newmont Mining Corp. has been added to provide
exposure in the gold mining industry which is currently very much out of favor;
Newmont acquired Santa Fe Gold in late 1996 which positions the combined company
as the second largest gold miner in the world and will result in substantial
cost savings. Likewise, Fort Howard Corp. is merging with James River resulting
in the second largest tissue manufacturer after Kimberly Clark. Again, savings
derived from the combination will be significant as the two companies are very
complementary to each other. In each case, we feel these investments have
minimal downside risk but whose potential has not been recognized in the
marketplace.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way to acquire
additional shares of the Fund without incurring a sales charge. Should you
decide to switch from cash dividends to automatic investment, please notify your
broker or contact the Transfer Agent, c/o DST Systems, Inc., PO Box 419338,
Kansas City, Missouri 64141-6338 or call (800) 992-0180.
We thank you for giving us this opportunity to help you work towards your
investment needs.
Sincerely,
CRAMER ROSENTHAL MCGLYNN, INC.
See Footnotes on page 14
Pilgrim America Funds
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Pilgrim America Masters MidCap Value Fund
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COMPARISON OF A $10,000 INVESTMENT
JUNE 30, 1997
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Comparison of the Change in Value of a $10,000 Investment in Pilgrim America
Masters MidCap Value Fund (the "Fund") and the Russell MidCap(tm) Index (the
"Russell Index").
Based on a $10,000 initial investment, the graph below illustrates the total
return of the Fund against the Russell Index. Note that the Russell Index has
inherent performance advantages over any fund since it has no cash in its
portfolio, imposes no sales charges and incurs no operating expenses. An
investor cannot invest in an index. The Fund's performance reflected below
assumes the deduction of the Class A maximum sales charges in all cases.
Growth of a $10,000 Investment
9/1/95 6/30/96 6/30/97
------ ------- -------
Russell MidCap(tm) Index $10,000 $11,506 $14,148
Pilgrim America MidCap Value Fund Class A $ 9,425 $11,355 $14,068
All returns assume reinvestment of all dividends and distributions.
SEC Average Annual Total Returns
as of June 30, 1997
--------------------------------------------------
1 Year Inception*
------ ----------
Pilgrim America MidCap Value Fund Class A 16.78% 20.50%
Russell MidCap(tm) Index 22.96% 20.88%
September 1, 1995 (commencement of operations).
See Footnotes on page 14
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Pilgrim America Masters MidCap Value Fund
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FOOTNOTES
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(1) Excluding the Class A maximum sales charge of 5.75% and assuming
reinvestment of all dividends and distributions. Average annual total
returns including the maximum sales charge and assuming reinvestment of all
dividends and distributions for the year ended June 30, 1997 and from
September 1, 1995 (commencement of operations) to June 30, 1997 was 16.78%
and 20.50%, respectively.
Performance figures shown pertain only to Class A shares of the Fund. Class
B and M shares, which are also offered by the Fund, are subject to
different fees and expenses which will affect their performance. Total
returns for Class B and M shares, excluding the applicable sales charges
and assuming reinvestment of all dividends and distributions for the year
ended June 30, 1997 were 22.95% and from 23.21%, respectively. Average
annual total returns excluding the applicable sales charges and assuming
reinvestment of all dividends and distributions for the period from
September 1, 1995 (commencement of operations) to June 30, 1997 were 23.57%
and 23.72%, respectively.
Total returns for Class B and M shares including the applicable 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 June 30, 1997 were
17.90% and 18.92%, respectively. Average annual total returns including the
applicable sales charges for the period from September 1, 1995
(commencement of operations) to June 30, 1997 were 21.72% and 21.35%,
respectively.
All return figures reflect a partial waiver of fees for the periods stated.
Without such a waiver, returns would have been lower.
(2) The Russell MidCap(tm) Index is a broad based measure of the performance of
MidCap stocks.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed may
be worth more or less than their original cost.
This letter contains statements that may be "forward-looking" statements.
Actual results could differ materially from those projected in the
"forward-looking" statements.
The views expressed in this report reflect those of the portfolio 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.
Pilgrim America Funds
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Pilgrim America Masters LargeCap 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
LargeCap Value Fund (the "Fund") for the year ended June 30, 1997.
For the twelve months, the Fund earned a total return of 23.24%(1) compared to
34.70% for the Standard & Poor's 500 Index (the "S&P 500").(2)
ECONOMIC ENVIRONMENT AND EQUITY MARKET CONDITIONS
Despite higher valuations going into 1997, equity prices have continued their
march to new highs finishing the second quarter with a strong upward move led by
high P/E growth stocks such as Coca- Cola and Microsoft. We stated previously
that interest rates would be a key influence on stock prices in 1997 and this
has been correct as long rates, after an initial increase in January, declined
through mid-February, allowing the stock market to reach new highs. In March
through late-April, interest rates increased and then finally decreased again
into late June. This caused the stock market to rally to new all-time highs.
Earnings were also a key positive influence on equity prices in the first half
of 1997. Corporations have reported net results which were better than
expectations and most strategists have increased their yearly earnings estimates
for the S&P 500. This has contributed to the increase in stock prices in 1997.
The above factors along with overwhelming confidence exhibited by the general
public in the current economic situation has led investors to bid stock prices
up to valuation levels not seen since the early 1960's. Growth stocks have led
the way to higher equity prices.
LARGECAP VALUE FUND
Your fund, while underperforming the S&P 500 in the first half of 1997, produced
an attractive return relative to inflation, long bonds and other value funds. In
a market led by high P/E growth stocks, it is always difficult for a value fund
to keep pace -- the current market is no exception. As an example, if we look at
the largest 50 stocks in the S&P 500, we see that three quarters of the highest
P/E stocks accounted for the highest returns in the S&P Top 50 through May 1997.
We seek to construct portfolios with stocks that are selling at a discount to
the overall market when looking at forward years estimated earnings. This means
we are not going to own issues that sell at significant
Pilgrim America Funds
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Pilgrim America Masters LargeCap Value Fund
premiums to the market valuation on initial purchase. This allows us to defend
values in a down market. However, given our valuation discipline, outperformance
in a strong growth stock market is difficult to achieve.
Our underweighting in Consumer Staple, Health Care and certain Technology issues
contributed to our relative underperformance for the first half of 1997.
Currently we have above average exposure to certain Basic Material issues such
as DuPont (E.I.) DeNemours & Co., James River Corp. of Virginia and Aluminum
Company of America; Consumer Cyclical issues including Ford Motor Co., May
Department Stores Co. and Sears, Roebuck and Co.; and Transportation issues,
including Burlington Northern S.F. and CSX Corp. We continue to have solid
exposure to Financial and Energy issues.
We believe these stocks offer great value in an over-valued market and we expect
these and our other issues to increase in value over time.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way to acquire
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic investment, please notify your
broker or contact the Transfer Agent, c/o DST Systems, Inc., PO Box 419338,
Kansas City, Missouri 64141-6338 or call (800) 992-0180.
We thank you for giving us this opportunity to help you work towards your
investment needs.
Sincerely,
ARK ASSET MANAGEMENT COMPANY, INC.
See Footnotes on page 18
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Pilgrim America Masters LargeCap Value Fund
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COMPARISON OF A $10,000 INVESTMENT
June 30, 1997
- --------------------------------------------------------------------------------
Comparison of the Change in Value of a $10,000 Investment in Pilgrim America
Masters LargeCap Value Fund (the "Fund") and the Standard & Poor's 500 Index
(the "S&P 500").
Based on a $10,000 initial investment, the graph below illustrates the total
return of the Fund against the S&P 500. Note that the S&P 500 has inherent
performance advantages over any fund since it has no cash in its portfolio,
imposes no sales charges and incurs no operating expenses. An investor cannot
invest in an index. The Fund's performance reflected below assumes the deduction
of the Class A maximum sales charge in all cases.
Growth of a $10,000 Investment
9/1/95 6/30/96 6/30/97
------ ------- -------
Pilgrim America LargeCap Value Fund Class A $10,000 $11,269 $13,888
S&P 500 Index $ 9,425 $12,166 $16,446
All returns assume reinvestment of all dividends and distributions.
SEC Average Annual Total Returns
as of June 30, 1997
--------------------------------
1 Year Inception*
------ ---------
Pilgrim America LargeCap Value Fund Class A 16.14% 19.66%
S&P 500 Index 34.70% 31.24%
*September 1, 1995 (commencement of operations).
See Footnotes on page 18.
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Pilgrim America Masters LargeCap Value Fund
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FOOTNOTES
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(1) Excluding the Class A maximum sales charge of 5.75% and assuming
reinvestment of all dividends and distributions. Total return including of
the maximum sales charge and assuming reinvestment of all dividends and
distributions for the year ended June 30, 1997 and from September 1, 1995
(commencement of operations) to June 30, 1997 was 16.14% and 19.66%,
respectively.
Performance figures shown pertain only to Class A shares of the Fund. Class
B and M shares, which are also offered by the Fund, are subject to
different fees and expenses which will affect their performance. Total
returns for Class B and M shares, excluding the applicable sales charges
and assuming reinvestment of all dividends and distributions for the year
ended June 30, 1997 were 22.23% and 22.58%, respectively. Average annual
total returns excluding the applicable sales charges and assuming
reinvestment of all dividends and distributions for the period from
September 1, 1995 (commencement of operations) to June 30, 1997 were 22.64%
and 22.95%, respectively.
Total returns for Class B and M shares including the applicable 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 June 30, 1997 were
17.23% and 18.25%, respectively. Average annual total returns including the
applicable sales charges for the period from September 1, 1995
(commencement of operations) to June 30, 1997 were 20.78% and 20.60%,
respectively.
All return figures reflect a partial waiver of fees for the period stated.
Without such a waiver, returns would have been lower.
(2) The S&P 500 is an unmanaged index of 500 common stocks and is a generally
accepted measure of stock market performance.
Past performance is not indicative of future returns. Investment return and
principal value of an investment will fluctuate. Shares, when redeemed may
be worth more or less than their original cost.
This letter contains statements that may be "forward-looking" statements.
Actual results could differ materially from those projected in the
"forward-looking" statements.
The views expressed in this report reflect those of the portfolio 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.
Pilgrim America Funds
18
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Pilgrim America Masters Series
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REPORT OF INDEPENDENT AUDITORS
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To the Shareholders and Board of Trustees of
Pilgrim America Masters Series, Inc:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Pilgrim America Masters Asia-Pacific Equity
Fund, Pilgrim America Masters MidCap Value Fund and Pilgrim America Masters
LargeCap Value Fund (the three funds comprising Pilgrim America Masters Series,
Inc.), as of June 30, 1997, and the related statements of operations for the
year then ended, and statements of changes in net assets and financial
highlights for the year ended June 30, 1997 and the period from September 1,
1995 (commencement of operations) to June 30, 1996. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the funds comprising Pilgrim America Masters Series, Inc. as of June 30,
1997, the results of their operations for the year then ended, and the changes
in their net assets and financial highlights for the year ended June 30, 1997
and the period from September 1, 1995 to June 30, 1996, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
August 1, 1997
19
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
As of June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Asia-Pacific MidCap LargeCap
Equity Value Value
Fund Fund Fund
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investments in securities at market value (cost $64,343,405,
$ 42,439,445 and $23,558,068, respectively) $ 69,994,175 $ 47,987,102 $ 26,337,966
Short-term securities at amortized cost 3,015,000 840,000 770,000
Foreign currency (cost $403,014) 402,897 -- --
Cash -- 13,265 11,173
Receivables:
Fund shares sold 1,004,231 443,184 81,725
Dividends and interest 164,555 64,285 45,614
Due from affiliate 39,828 14,700 26,319
Investment securities sold 301,219 1,190,821 212,161
Prepaid expenses 18,968 11,153 8,521
Deferred organization expenses 82,542 82,542 82,542
------------ ------------ ------------
Total Assets 75,023,415 50,647,052 27,576,021
------------ ------------ ------------
LIABILITIES:
Investment securities purchased 464,120 1,579,339 241,597
Payable for fund shares redeemed 351,933 416,376 13,246
Payable to custodian 246,376 -- --
Payable to affiliate 4,000 988 714
Other accrued expenses and liabilities 147,735 29,338 29,465
------------ ------------ ------------
Total Liabilities 1,214,164 2,026,041 285,022
------------ ------------ ------------
NET ASSETS $ 73,809,251 $ 48,621,011 $ 27,290,999
============ ============ ============
Net Assets consist of:
Paid-in capital $ 70,391,026 $ 42,169,206 $ 23,043,531
Undistributed (overdistributed) net investment income (49,943) (120,796) 3,755
Accumulated net realized gains (losses) on investments and
foreign currency transactions (2,172,447) 1,024,944 1,463,815
Net unrealized appreciation of investments and other
assets, liabilities and forward contracts denominated
in foreign currencies 5,640,615 5,547,657 2,779,898
------------ ------------ ------------
Net Assets $ 73,809,251 $ 48,621,011 $ 27,290,999
============ ============ ============
Class A:
Net assets $ 32,485,341 $ 16,984,786 $ 8,961,061
Shares authorized ($0.01, $0.01 and $0.01 par value, respectively) 24,000,000 28,000,000 28,000,000
Shares outstanding 2,972,096 1,160,047 632,342
Net asset value and redemption price per share $ 10.93 $ 14.64 $ 14.17
Maximum offering price per share(1) $ 11.60 $ 15.53 $ 15.03
Class B:
Net assets $ 30,169,197 $ 23,258,020 $ 13,611,428
Shares authorized ($0.01, $0.01 and $0.01 par value, respectively) 24,000,000 28,000,000 28,000,000
Shares outstanding 2,785,961 1,605,501 969,360
Net asset value, redemption and offering price per share(2) $ 10.83 $ 14.49 $ 14.4
Class M:
Net assets $ 11,154,713 $ 8,378,205 $ 4,718,510
Shares authorized ($0.01, $0.01 and $0.01 par value, respectively) 12,000,000 14,000,000 14,000,000
Shares outstanding 1,026,749 578,062 334,564
Net asset value and redemption price per share $ 10.86 $ 14.49 $ 14.10
Maximum offering price per share(3) $ 11.25 $ 15.02 $ 14.61
</TABLE>
- ------------
(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.
See Accompanying Notes to Financial Statements
20
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the Year Ended June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Asia-Pacific MidCap LargeCap
Equity Value Value
Fund Fund Fund
------------ ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 124,741 $ 98,690 $ 50,845
Dividends (net of foreign withholding taxes of
$88,263, $810 and $104, respectively) 1,099,411 308,127 323,575
----------- ----------- -----------
Total investment income 1,224,152 406,817 374,420
----------- ----------- -----------
EXPENSES:
Investment management fees 773,252 250,512 174,325
Distribution expenses
Class A Shares 69,149 23,128 15,378
Class B Shares 247,869 111,392 81,801
Class M Shares 70,601 34,954 23,260
Transfer agent and registrar fees 235,993 71,323 71,400
Custodian fees 184,471 14,460 39,622
Miscellaneous expenses 41,960 363 1,138
Reports to shareholders 40,325 14,426 9,164
Registration and filing fees 39,916 27,616 22,666
Professional fees 34,961 8,373 5,995
Recordkeeping and pricing fees 22,497 10,311 8,582
Organization expense 22,098 22,098 22,098
Shareholder service fees 19,293 8,202 5,511
Insurance expense 5,187 815 602
Directors' fees 3,385 803 763
----------- ----------- -----------
Total expenses 1,810,957 598,776 482,305
----------- ----------- -----------
Less:
Waived and reimbursed fees (334,704) (49,495) (100,148)
Earnings credits (6,359) (1,073) (1,225)
----------- ----------- -----------
Net expenses 1,469,894 548,208 380,932
----------- ----------- -----------
Net investment loss (245,742) (141,391) (6,512)
----------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gains (losses) from:
Investments (2,050,338) 1,180,396 1,682,366
Foreign currency transactions (62,302) -- --
Net change in unrealized appreciation of:
Investments 5,856,620 5,149,275 2,599,255
Other assets, liabilities and forward contracts
denominated in foreign currencies (12,204) -- --
----------- ----------- -----------
Net gain from investments 3,731,776 6,329,671 4,281,621
----------- ----------- -----------
Net increase in net assets
resulting from operations $ 3,486,034 $ 6,188,280 $ 4,275,109
=========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
21
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Asia-Pacific Equity Fund MidCap Value Fund LargeCap Value Fund
---------------------------- -------------------------- ----------------------------
Year Ten Months Year Ten Months Year Ten Months
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1997 1996(a) 1997 1996(a) 1997 1996(a)
------------ ------------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Increase in net assets from operations:
Net investment income (loss) $ (245,742) $ (3,977) $ (141,391) $ 32,309 $ (6,512) $ 8,132
Net realized gain (loss) from investments (2,050,338) (46,713) 1,180,396 65,110 1,682,366 146,051
Net realized loss from foreign
currency transactions (62,302) (27,170) -- -- -- --
Net change in unrealized
appreciation (depreciation)
of investments 5,856,620 (204,282) 5,149,275 398,382 2,599,255 180,643
Net change in unrealized
appreciation (depreciation) of other
investments denominated
in foreign currency (12,204) 481 -- -- -- --
------------ ------------ ------------ ----------- ------------ ------------
Net increase (decrease) in
net assets resulting from
operations 3,486,034 (281,661) 6,188,280 495,801 4,275,109 334,826
------------ ------------ ------------ ----------- ------------ ------------
Distributions to shareholders:
Net investment income:
Class A shares -- -- -- (4,590) -- (6,203)
Class B shares -- -- -- (1,500) -- (801)
Class M shares -- -- -- (711) -- (1,128)
Excess of net investment income:
Class A shares -- (8,287) (16,602) -- (21,236) (3,494)
Class B shares -- (897) (9,771) -- (2,711) (451)
Class M shares -- (768) (11,821) -- (1,802) (635)
Net realized gains:
Class A shares -- -- (87,623) -- (118,836) (11,797)
Class B shares -- -- (100,153) -- (169,692) (1,745)
Class M shares -- -- (40,101) -- (60,108) (2,424)
Excess of realized gains:
Class A shares -- (1,570) -- -- -- --
Class B shares -- (783) -- -- -- --
Class M shares -- (399) -- -- -- --
Tax return of capital:
Class A Shares (30,685) -- -- -- -- --
Class B shares -- -- -- -- -- --
Class M shares (1,611) -- -- -- -- --
------------ ------------ ------------ ----------- ------------ ------------
Total distributions (32,296) (12,704) (266,071) (6,801) (374,385) (28,678)
------------ ------------ ------------ ----------- ------------ ------------
Capital share transactions:
Net proceeds from sale of shares 85,779,972 44,111,419 43,491,828 5,793,907 20,775,389 5,027,606
Shares resulting from dividend
reinvestment 30,383 11,795 229,750 6,614 321,069 26,938
Cost of shares redeemed (58,091,003) (1,226,688) (7,265,617) (79,680) (2,900,008) (199,867)
------------ ------------ ------------ ----------- ------------ ------------
Net increase in net assets
resulting from capital share
transactions 27,719,352 42,896,526 36,455,961 5,720,841 18,196,450 4,854,677
------------ ------------ ------------ ----------- ------------ ------------
Net increase in net assets 31,173,090 42,602,161 42,378,170 6,209,841 22,097,174 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 ** $ 73,809,251 $ 42,636,161 $ 48,621,011 $ 6,242,841 $ 27,290,999 $ 5,193,825
============ ============ ============ =========== ============ ============
** Including undistributed
(overdistributed) net investment
income (loss) of: $ (49,943) $ (20,456) $ (120,796) $ 45,510 $ 3,755 $ 15,422
============ ============ ============ =========== ============ ============
</TABLE>
(a) The Fund commenced operations September 1, 1995.
See Accompanying Notes to Financial Statements
22
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class M
-------------------------- --------------------------- --------------------------
Ten Ten Ten
Year Months Year Months Year Months
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1997 1996 (a) 1997 1996 (a) 1997 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) 0.02 0.03 (0.07) (0.01) (0.05) --
Net realized and unrealized gain on
investments and foreign currency
transactions 0.58 0.34 0.59 0.32 0.59 0.33
----------- --------- ----------- ---------- ------------ ---------
Total from investment operations 0.60 0.37 0.52 0.31 0.54 0.33
----------- --------- ----------- ---------- ------------ ---------
Less distributions:
Net investment income -- -- -- -- -- --
In excess of net investment income -- 0.02 -- -- -- 0.01
Realized gains on investments -- -- -- -- -- --
Tax return of capital 0.02 -- -- -- -- --
----------- --------- ----------- ---------- ------------ ---------
Total distributions 0.02 0.02 -- -- -- 0.01
----------- --------- ----------- ---------- ------------ ---------
Net asset value, end of period $ 10.93 $ 10.35 $ 10.83 $ 10.31 $ 10.86 $ 10.32
=========== ========= =========== ========== ============ =========
Total Return (b) 5.78% 3.76% 5.04% 3.19% 5.26% 3.32%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 32,485 $ 18,371 $ 30,169 $ 17,789 $ 11,155 $ 6,476
Ratios to average net assets:
Expenses (c)(d) 2.00% 2.00%(e) 2.75% 2.75%(e) 2.50% 2.50%(e)
Net investment income (loss) (c)(d) 0.00% 0.33%(e) (0.79)% (0.38)%(e) (0.55)% (0.16)%(e)
Portfolio turnover rate 38% 15%(e) 38% 15%(e) 38% 15%(e)
Average commission rate paid $ 0.0096 -- $ 0.0096 -- $ 0.0096 --
</TABLE>
- ------------
(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, 1997, the ratios of expenses to average net assets were 2.54%, 3.29% and
3.04% and the ratios of net investment income (loss) to average net assets
were (0.53)%, (1.33)% and (1.09)% for Class A, B and M shares, respectively.
(d) 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.
(e) Annualized.
See Accompanying Notes to Financial Statements
23
<PAGE>
Pilgrim America Masters MidCap Value Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class M
--------------------------- --------------------------- --------------------------
Ten Ten Ten
Year Months Year Months Year Months
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1997 1996 (a) 1997 1996 (a) 1997 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) (0.02) 0.13 (0.05) 0.07 (0.03) 0.06
Net realized and unrealized
gains on investments 2.85 1.91 2.76 1.90 2.76 1.91
-------- --------- -------- --------- -------- ---------
Total from investment operations 2.83 2.04 2.71 1.97 2.73 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 0.11 -- 0.11 -- 0.11 --
-------- --------- -------- --------- -------- ---------
Total distributions 0.18 0.05 0.16 0.03 0.17 0.04
-------- --------- -------- --------- -------- ---------
Net asset value, end of period $ 14.64 $ 11.99 $ 14.49 $ 11.94 $ 14.49 $ 11.93
======== ========= ======== ========= ======== =========
Total Return (b) 23.89% 20.48% 22.95% 19.80% 23.21% 19.82%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 16,985 $ 2,389 $ 23,258 $ 2,123 $ 8,378 $ 1,731
Ratios to average net assets:
Expenses (c)(d) 1.75% 1.75%(e) 2.50% 2.50%(e) 2.25% 2.25%(e)
Net investment income (loss) (c)(d) (0.13)% 2.00%(e) (0.90)% 1.27%(e) (0.63)% 1.16%(e)
Portfolio turnover rate 86% 60%(e) 86% 60%(e) 86% 60%(e)
Average commission rate paid $ 0.0592 -- $ 0.0592 -- $ 0.0592 --
</TABLE>
- ------------
(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, 1997, the ratios of expenses to average net assets were 1.94%, 2.69% and
2.44% and the ratios of net investment income (loss) to average net assets
were (0.32)%, (1.11)% and (0.81)% for Class A, B and M shares, respectively.
(d) 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.
(e) Annualized.
See Accompanying Notes to Financial Statements
24
<PAGE>
Pilgrim America Masters LargeCap Value Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B Class M
---------------------- --------------------------- --------------------------
Ten Ten Ten
Year Months Year Months Year Months
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1997 1996 (a) 1997 1996 (a) 1997 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 (loss) 0.06 0.07 (0.02) 0.06 -- 0.06
Net realized and unrealized
gains on investments 2.63 1.87 2.59 1.81 2.62 1.83
------- --------- -------- ---------- -------- ---------
Total from investment
operations 2.69 1.94 2.57 1.87 2.62 1.89
------- --------- -------- ---------- -------- ---------
Less distributions:
Net investment income -- 0.07 -- 0.06 -- 0.06
In excess of net investment income 0.05 0.01 -- 0.01 0.01 0.01
Realized gains on investments 0.24 0.09 0.24 0.09 0.24 0.09
------- --------- -------- ---------- -------- ---------
Total distributions 0.29 0.17 0.24 0.16 0.25 0.16
------- --------- -------- ---------- -------- ---------
Net asset value, end of period $ 14.17 $ 11.77 $ 14.04 $ 11.71 $ 14.10 $ 11.73
======= ========= ======== ========== ======== =========
Total Return (b) 23.24% 19.56% 22.23% 18.85% 22.58% 19.06%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 8,961 $ 2,530 $ 13,611 $ 1,424 $ 4,719 $ 1,240
Ratios to average net assets:
Expenses (c)(d) 1.75% 1.75%(e) 2.50% 2.50%(e) 2.25% 2.25%(e)
Net investment income (loss) (c)(d) 0.41% 0.65%(e) (0.35)% (0.25)%(e) (0.10)% 0.06%(e)
Portfolio turnover rate 86% 59%(e) 86% 59%(e) 86% 59%(e)
Average commission rate paid $0.0586 -- $ 0.0586 -- $ 0.0586 --
</TABLE>
- ------------
(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, 1997, the ratios of expenses to average net assets were 2.33%, 3.08% and
2.83% and the ratios of net investment income (loss) to average net assets
were (0.18)%, (0.91)% and (0.68)% for Class A, B and M shares, respectively.
(d) 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.
(e) Annualized.
See Accompanying Notes to Financial Statements
25
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997
- --------------------------------------------------------------------------------
(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 pro
rata 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 are 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 certain securities of Asia-Pacific Equity Fund, 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.
26
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997
- --------------------------------------------------------------------------------
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. 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. Accordingly, amounts as of June 30, 1997 have been
reclassified as follows:
Asia-Pacific MidCap LargeCap
Equity Fund Value Fund Value Fund
------------ ---------- ----------
Paid-in capital (236,615) (20,594) (20,594)
Undistributed (overdistributed) net
investment income 248,551 13,279 20,594
Accumulated net realized gains
(losses) on investments and
foreign currency transactions (11,936) 7,315 --
27
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997
- --------------------------------------------------------------------------------
F. Federal Income Taxes. Each 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.
Capital loss carryforwards were as follows at June 30, 1997:
Amounts Expiration Dates
------- ----------------
Asia-Pacific Equity Fund $651,710 2004
MidCap Value Fund -- N/A
LargeCap Value Fund -- N/A
The Board of Directors intends to offset net capital gains with each capital
loss carryforward until each carryforward has been fully utilized or expires.
In addition, no capital gain distributions shall be made until the capital
loss carryforward has been fully utilized or expires.
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 the repurchase agreements is usually
short, from overnight to one week, while the underlying securities generally
have longer maturities. Each Fund will always receive as collateral
securities acceptable to it whose market value is equal to at least 100% of
the amount invested by the Fund, and the Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to
the account of its custodian. If the seller defaults, a Fund might incur a
loss or delay in the realization of proceeds if the value of the collateral
securing the repurchase agreement declines and it might incur disposition
costs in liquidating the collateral.
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. ("PAG"). 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
28
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997
- --------------------------------------------------------------------------------
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.
Each of the Funds has entered into a Service Agreement with PAG whereby PAG will
act as the shareholder service agent for each Fund. The agreement provides that
PAG will be compensated for incoming and outgoing shareholder telephone calls
and letters and all reasonable out-of-pocket expenses incurred in connection
with the performance of such services. At June 30, 1997, Asia-Pacific Equity
Fund, MidCap Value Fund and LargeCap Value Fund owed PAG $4,000, $988 and $714,
respectively in service fees.
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 apply to each Fund individually until June 30, 1997. At June 30, 1997,
Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value Fund accrued
$39,828, $14,700 and $26,319, respectively as a reimbursement due from the
manager.
(3) Investment Transactions
For the year ended June 30, 1997, the cost of purchases and proceeds from the
sales of securities, excluding short-term securities, were as follows:
Asia-Pacific MidCap LargeCap
Equity Fund Value Fund Value Fund
------------- ---------- ----------
Purchases $ 47,358,195 $ 56,200,763 $ 31,622,958
Sales 22,312,681 20,087,394 14,090,678
29
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997
- --------------------------------------------------------------------------------
(4) Capital Shares
Transactions in capital shares and dollars were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
------------------------------- ------------------------------- ----------------------------
Year Ten Months Year Ten Months Year Ten Months
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
--------------- --------------- --------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific
Equity Fund
(Number of shares)
Shares sold 6,022,829 1,839,719 1,612,143 1,749,194 566,273 653,491
Shares issued as
reinvestment of
dividends 2,937 944 -- 151 157 96
Shares redeemed (4,828,816) (68,717) (551,927) (23,700) (167,256) (26,112)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in
shares outstanding 1,196,950 1,771,946 1,060,216 1,725,645 399,174 627,475
============ ============ ============ ============ ============ ============
Asia-Pacific
Equity Fund ($)
Shares sold $ 63,317,753 $ 19,083,997 $ 16,573,290 $ 18,231,217 $ 5,888,929 $ 6,796,205
Shares issued as
reinvestment of
dividends 28,842 9,350 -- 1,497 1,541 948
Shares redeemed (50,678,714) (711,977) (5,661,337) (244,539) (1,750,952) (270,172)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in
shares outstanding $ 12,667,881 $ 18,381,370 $ 10,911,953 $ 17,988,175 $ 4,139,518 $ 6,526,981
============ ============ ============ ============ ============ ============
MidCap Value Fund
(Number of shares)
Shares sold 1,232,243 201,649 1,639,838 178,110 472,644 145,744
Shares issued as
reinvestment of
dividends 6,530 443 7,579 137 3,974 56
Shares redeemed (277,940) (5,978) (219,806) (457) (43,618) (838)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in shares out-
standing 960,833 196,114 1,427,611 177,790 433,000 144,962
============ ============ ============ ============ ============ ============
MidCap Value Fund ($)
Shares sold $ 16,074,019 $ 2,157,665 $ 21,333,357 $ 1,976,175 $ 6,084,452 $ 1,660,067
Shares issued as
reinvestment of
dividends 82,971 4,608 96,914 1,428 49,865 578
Shares redeemed (3,689,711) (65,602) (2,999,461) (4,699) (576,445) (9,379)
------------ ------------ ------------ ------------ ------------ ------------
Net increase in shares out-
standing $ 12,467,279 $ 2,096,671 $ 18,430,810 $ 1,972,904 $ 5,557,872 $ 1,651,266
============ ============ ============ ============ ============ ============
</TABLE>
30
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
-------------------------------- -------------------------------- ------------------------------
Year Ten Months Year Ten Months Year Ten Months
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
-------------- --------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
LargeCap Value Fund
(Number of shares)
Shares sold 538,935 217,003 896,451 130,422 258,463 106,606
Shares issued as
reinvestment of
dividends 10,222 1,977 10,999 279 4,609 270
Shares redeemed (131,788) (7,107) (59,761) (9,130) (34,204) (1,280)
----------- ----------- ----------- ---------- ---------- ----------
Net increase in shares
outstanding 417,369 211,873 847,689 121,571 228,868 105,596
=========== =========== =========== ========== ========== ==========
LargeCap Value Fund ($)
Shares sold $ 6,622,780 $ 2,326,399 $10,967,866 $1,501,267 $3,184,743 $1,199,940
Shares issued as
reinvestment of
dividends 126,842 21,090 136,496 2,970 57,731 2,878
Shares redeemed (1,694,967) (81,933) (768,404) (103,183) (436,637) (14,751)
----------- ----------- ----------- ---------- ---------- ----------
Net increase in shares
outstanding $ 5,054,655 $ 2,265,556 $10,335,958 $1,401,054 $2,805,837 $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 year ended June
30, 1997, Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value Fund
received earnings credits of $6,359, $1,073 and $1,225, respectively.
31
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of June 30, 1997
- --------------------------------------------------------------------------------
COMMON STOCKS: 92.1%
Market
Shares Value
------ -----
CHINA: 0.9%
Automotive: 0.5%
666,000 Quingling Motor Co. $ 343,875
-----------
Diversified Holdings: 0.4%
278,000 First Tractor Co. 183,013
522,000 Zhejiang Expressway CL H 126,676
-----------
309,689
-----------
Total China Common Stocks 653,564
-----------
HONG KONG: 43.1%
Banks: 1.2%
1,400,000 FPB Bank Holding Company, Ltd. 867,433
-----------
Commercial & Industrial: 9.8%
175,000 Citic Pacific, Ltd. 1,093,326
250,000 Cosco Pacific 579,256
407,000 Hutchison Whampoa, Ltd. 3,519,943
225,000 Swire Pacific, Ltd. 2,025,784
-----------
7,218,309
-----------
Construction: 0.5%
131,000 Cheung Kong Infrastructure 379,624
-----------
Financial: 8.8%
336,096 Bank of East Asia 1,401,304
320,000 Dao Heng Bank Group, Ltd. 1,751,388
304,000 Liu Chong Hing Bank 800,516
250,000 Union Bank of Hong Kong 722,860
300,000 Wing Hang Bank, Ltd. 1,812,314
-----------
6,488,382
-----------
Food Distributor: 0.4%
250,000 Ng Fung Hong Ltd. 374,338
-----------
Manufacturing: 1.1%
130,000(a) Shanghai Industrial Holding 808,829
-----------
Properties: 15.1%
340,000 Cheung Kong Holdings, Ltd. 3,357,429
200,000 China Resources Enterprises 981,025
122,000 Hysan Development Co., Ltd. 359,843
280,000 New World Development Co., Ltd. 1,669,808
280,000 Sun Hung Kai Properties, Ltd. 3,370,337
325,000 Wharf Holdings, Ltd. 1,409,578
-----------
11,148,020
-----------
See Accompanying Notes to Financial Statements
32
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
Market
Shares Value
------ -----
Utilities: 6.2%
1,152,000 Beijing Data Power $ 531,612
165,000 China Light & Power Co., Ltd. 935,007
235,000 Hong Kong Electric Holdings, Ltd. 946,431
900,000 Hong Kong Telecommunications, Ltd. 2,149,219
-----------
4,562,269
-----------
Total Hong Kong Common Stocks 31,847,204
-----------
INDONESIA: 8.1%
Banks: 1.6%
690,000 PT Bank Danamon 361,739
784,000 PT Lippo Bank 805,921
-----------
1,167,660
-----------
Manufacturing/Electronic: 3.6%
380,400 PT Indofood Sukses Makmur 875,921
1,107,000 PT Telekommunikasi Indonesia - Class B 1,809,345
-----------
2,685,266
-----------
Mines & Minerals: 0.2%
119,000 PT Tambang Timah 184,714
-----------
Real Estate & Financial Services: 0.6%
332,000 PT Kawasan Industries 443,668
-----------
Tobacco Products: 1.7%
155,000 PT Gudang Garam 650,082
155,000(a) PT Hanjaya Mandala Sampoerna 591,129
-----------
1,241,211
-----------
Transportation: 0.4%
119,500 PT Semem Gresik 267,794
-----------
Total Indonesia Common Stocks 5,990,313
-----------
MALAYSIA: 14.3%
Commercial & Industrial: 8.0%
163,000 Genting Berhad 781,418
360,000 Leader Universal Holding 647,544
380,000 Magnum Corporation Berhad 572,108
688,000 Renong Berhad 899,525
396,000 Sime Darby Berhad 1,317,908
207,000 Telekom Malaysia Berhad 967,750
150,000 Tenaga Nasional Berhad 730,983
-----------
5,917,236
-----------
Financial: 5.4%
214,000 Affin Holdings Berhad 508,716
16,300 DCB Sakura Merchant Shares --
238,000 Malayan Banking Berhad 2,498,811
290,000 RHB Capital BHD 919,176
-----------
3,926,703
-----------
See Accompanying Notes to Financial Statements
33
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
Market
Shares Value
------ -----
Properties: 0.9%
94,000 (a) United Engineers Malaysia $ 677,813
-----------
Total Malaysia Common Stocks 10,521,752
-----------
PHILIPPINES: 3.8%
Banks: 0.5%
55,000 Bank of Philippine Island 350,318
-----------
Communications: 1.1%
12,500 Philippine Long Distance Telephone Co., ADR 803,125
-----------
Home Building: 0.4%
715,000 C & P Homes, Inc. 268,369
-----------
Miscellaneous: 0.4%
43,000(a) Benpres Holdings GDR 293,346
-----------
Real Estate & Financial Services: 1.0%
2,602,000 SM Prime Holdings, Inc. 769,472
-----------
Utilities: 0.4%
65,000 Manila Electric Co. - Class B 320,367
-----------
Total Philippines Common Stocks 2,804,997
-----------
SINGAPORE: 9.9%
Commercial & Industrial: 0.9%
144,250 Keppel Corp., Ltd. 634,993
-----------
Financial: 4.2%
139,400 Overseas-Chinese Bank 1,443,044
105,000 Overseas Union Bank 653,634
99,000 United Overseas Bank 1,017,906
-----------
3,114,584
-----------
Food and Beverage: 0.4%
42,400 Fraser & Neave, Ltd. 302,497
-----------
Hotels: 0.5%
170,000 Marco Polo Developments 363,853
-----------
Properties: 1.7%
99,000(a) City Developments, Ltd. 969,434
65,000 Singapore Land, Ltd. 295,517
-----------
1,264,951
-----------
Publishing: 1.3%
48,000 Singapore Press Holdings, Ltd. 966,916
-----------
See Accompanying Notes to Financial Statements
34
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
Market
Shares Value
- ------ -----
Transportation: 0.9%
73,000 Singapore Airlines, Ltd. $ 653,564
----------
Total Singapore Common Stocks 7,301,358
----------
SOUTH KOREA: 4.2%
Banks: 0.5%
19,824 Kook Min Bank 374,245
----------
Construction: 0.4%
16,632(a) Dong Ah Construction 314,659
----------
Electrical Equipment: 0.8%
4,550 LG Information & Communication 563,626
----------
Manufacturing/Electronic: 0.7%
5,035 Samsung Electronics Co. 399,738
1,000 Sungmi Telecom Electronics 123,874
----------
523,612
----------
Mines & Minerals 0.4%
2,550 Pohang Iron & Steel Co., Ltd., ADR 81,600
3,320 Samchully Co. 213,108
----------
294,708
----------
Oil & Gas: 0.4%
6,759 Daehan City Gas Co. 303,698
----------
Steel: 0.2%
2,580 Pohang Iron & Steel 184,784
----------
Utilities-Electric: 0.8%
15,000 Korea Electric Power 447,635
5,805 Korea Electric Power Corp., ADR 108,481
----------
556,116
----------
Total South Korea Common Stocks 3,115,448
----------
TAIWAN: 5.0%
Building Products: 0.3%
16,125(a) Asia Cement Corp. 249,534
----------
Computer Systems/Software: 0.5%
32,800 Asustek Computer Inc-GDR 361,948
----------
Electrical Equipment: 0.4%
13,500(a) Yageo Corp. 273,375
----------
Electronics-Defense: 1.2%
49,000 Acer Inc. GDR 870,975
----------
See Accompanying Notes to Financial Statements
35
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
Market
Shares Value
------ -----
Machinery & Equipment: 0.3%
9,760 Teco Electric & Machinery-GDR $ 178,852
-----------
Marine: 0.5%
21,000(a) Evergreen Marine Corp. 354,375
-----------
Steel: 1.2%
42,681(a) China Steel Corp., GDR 901,636
-----------
Technology: 0.6%
17,316 (a) Lite-On Technology Corp. 474,891
-----------
Total Taiwan Common Stocks 3,665,586
-----------
THAILAND: 2.8%
Banks: 0.7%
40,000 Bangkok Bank Public Co., Ltd. 286,519
56,000 Thai Farmers Bank Public Co., Ltd. 247,887
-----------
534,406
-----------
Communications: 0.5%
44,000 Advanced Information Services PCL 327,565
-----------
Mines & Minerals: 0.5%
25,000 Banpu Public Co., Ltd. 380,282
-----------
Oil & Gas: 1.1%
55,000 PTT Exploration & Production 832,193
-----------
Total Thailand Common Stocks 2,074,446
-----------
Total Common Stocks (Cost $62,651,712) 67,974,668
-----------
RIGHTS & WARRANTS: 0.0%
SOUTH KOREA: 0.0%
Manufacturing/Electronic
5,035(a) Samsung Electronics Co. Rights --
-----------
SINGAPORE: 0.0%
Financial
21,000(a) Overseas Union Bank Rights 28,055
-----------
Total Rights & Warrants (Cost $0) 28,055
-----------
See Accompanying Notes to Financial Statements
36
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS: 2.7%
<TABLE>
<CAPTION>
Principal Market
Amount Value
------ -----
<S> <C> <C> <C>
TAIWAN: 2.7%
Industrial: 1.5%
$240,000 Nan Ya Plastic Corp., 1.75% due July 2001 $ 339,600
385,000 United Microelectronics, 0.25% due May 2004 469,700
163,000 Yageo Corp., 1.25% due July 2003 304,402
-----------
1,113,702
-----------
Marine: 1.2%
500,000 Far East Department Store, 3.00% due July 2001 542,500
300,000 Yangming Marine, 2.00% due October 2001 335,250
-----------
877,750
-----------
Total Convertible Bonds (Cost $1,691,693) 1,991,452
-----------
Total Long-Term Investments (Cost $64,343,405) 69,994,175
-----------
SHORT-TERM INVESTMENTS: 4.1%
Commercial Paper: 4.1%
3,015,000 Merrill Lynch Commercial Paper, 6.22% due 07/01/97 3,015,000
-----------
Total Short-Term Investments (Cost $3,015,000) 3,015,000
-----------
Total Investments (Cost $67,358,405)* 98.9% 73,009,175
Cash and Other Assets in Excess of Liabilities-Net 1.1 800,076
------ ------------
Total Net Assets 100.0% $ 73,809,251
====== ============
(a) Non - income producing security
ADR - American Depository Receipt
EDR - European Depository Receipt
GDR - Global Depository Receipt
* Cost for federal income tax purposes is $67,529,322. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 9,877,013
Gross Unrealized Depreciation (4,397,160)
------------
Net Unrealized Appreciation $ 5,479,853
============
</TABLE>
See Accompanying Notes to Financial Statements
37
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
The Asia-Pacific Equity Fund had the following outstanding forward foreign
currency exchange contracts as of June 30, 1997:
Settlement Currency Currency
Date to Receive to Deliver
---------- ----------------- -----------------
7/2/97 $301,219 430,653
Singapore dollars
7/3/97 1,137,679 $146,803
Hong Kong dollars
7/3/97 $258,807 2,005,677
Hong Kong dollars
7/7/97 3,595,539 $464,072
Hong Kong dollars
Net unrealized depreciation of $90 on these contracts at June 30, 1997 is
included in the accompanying financial statements.
See Accompanying Notes to Financial Statements
38
<PAGE>
Pilgrim America Masters MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of June 30, 1997
- --------------------------------------------------------------------------------
COMMON STOCKS: 98.7%
Market
Shares Value
- ------ -----
Automotive: 3.0%
70,000(a) Mascotech, Inc. $1,461,250
----------
Banks: 2.9%
40,000 John Hancock Bank & Thrift Opportunity Fund 1,425,000
----------
Broadcasting: 3.1%
70,000 Comcast Corp., Class A 1,496,250
----------
Building Products: 5.8%
70,000 Dal-Tile International Inc. 1,299,375
60,000 Johns Manville Corp 708,750
20,000 Masco Corp. 835,000
----------
2,843,125
----------
Capital Goods: 3.6%
75,000 Westinghouse Electric Corp. 1,734,375
----------
Chemicals: 2.4%
30,000 Mallinckrodt, Inc. 1,140,000
----------
Commercial & Industrial: 1.8%
54,900 Dial Corp. 857,813
----------
Computer Systems: 2.0%
38,000 Data General Corp. 988,000
----------
Defense: 2.3%
23,000 Litton Industries 1,111,188
----------
Diversified Holding Company: 2.4%
3,500(a) U.S. Industries, Inc. 124,688
42,000 Whitman Corp. 1,063,125
----------
1,187,813
----------
Electrical Equipment: 8.8%
26,100 Raychem Corp. 1,941,188
20,000 Thomas & Betts Corp. 1,051,250
27,700(a) Ucar International, Inc. 1,267,275
----------
4,259,713
----------
Financial: 1.3%
25,000 Glendale Federal Bank 653,125
----------
Food Stores: 3.6%
28,000(a) Meyer (Fred), Inc. 1,447,250
6,000 Smith's Food & Drug 321,750
----------
1,769,000
----------
See Accompanying Notes to Financial Statements
39
<PAGE>
Pilgrim America Masters MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
Market
Shares Value
- ------ -----
Foods: 2.6%
30,000 Dole Food Co. $1,282,500
----------
Home Products: 1.9%
21,500 Harmon International Industries 905,688
----------
Housewares: 3.0%
40,000 Tupperware Corp. 1,460,000
----------
Industrial: 1.4%
16,600 Stanley Works 664,000
----------
Medical: 2.0%
30,000 (a) Allergan, Inc. 954,375
----------
Medical Equipment: 1.9%
40,000 Depuy Inc. 920,000
----------
Metals & Minerals: 2.0%
40,000 Cyprus Amax Minerals Co. 980,000
----------
Mines & Minerals: 2.1%
26,000 Newmont Mining Corp. 1,014,000
----------
Miscellaneous: 2.6%
60,000 Trizec Hahn Corp. 1,282,500
----------
Office Equipment & Services: 2.5%
63,000 Viking Office Products 1,197,000
----------
Oil & Gas: 7.3%
23,000 (a) Amerada Hess Corp. 1,277,938
20,000 (a) Coastal Corp. 1,063,750
68,500 Enserch Exploration 749,219
15,000 Mapco, Inc. 472,500
----------
3,563,407
----------
Packaging Products: 6.7%
36,800 Ball Corp. 1,106,300
70,000 Owens-Illinois, Inc. 2,170,000
----------
3,276,300
----------
See Accompanying Notes to Financial Statements
40
<PAGE>
Pilgrim America Masters MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
Market
Shares Value
- ------ -----
Paper and Forest Products: 3.6%
34,500 Fort Howard Corp. $ 1,746,563
------------
Paper Products: 1.8%
63,600 Macmillan Bloedel Ltd. 866,550
------------
Retail: 3.8%
17,200 Harcourt General Inc. 819,150
36,500 Mail Boxes Etc. 1,017,438
------------
1,836,588
-----------
Technology: 7.2%
22,680 Ascent Entertainment Group 206,958
46,400 Comsat Corp 1,104,900
58,000 General Instrument Corp. 1,450,000
18,000(a) Johnson Controls, Inc. 739,121
------------
3,500,979
------------
Utilities: 3.3%
70,000 Long Island Lighting Co. 1,610,000
------------
Total Common Stocks (Cost $42,439,445) 47,987,102
------------
SHORT-TERM INVESTMENTS: 1.7%
<TABLE>
<CAPTION>
Principal
Amount Value
- --------- -----
<S> <C> <C>
Commercial Paper: 1.7%
$840,000 Merrill Lynch Commercial Paper, 6.22% due 07/01/97 $ 840,000
-----------
Total Short-Term Investments (Cost $840,000) 840,000
-----------
Total Investments (Cost $43,279,445)* 100.4% 48,827,102
Liabilities in Excess of Cash and Other Assets-Net (0.4) (206,091)
------ -----------
Total Net Assets 100.0% $48,621,011
====== ===========
(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 $6,062,526
Gross Unrealized Depreciation (514,869)
----------
Net Unrealized Appreciation $5,547,657
==========
</TABLE>
See Accompanying Notes to Financial Statements
41
<PAGE>
Pilgrim America Masters LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of June 30, 1997
- --------------------------------------------------------------------------------
COMMON STOCKS: 96.5%
Market
Shares Value
- ------ -----
Automotive: 4.4%
16,300 Chrysler Corp. $ 534,844
14,500 Ford Motor Co. 547,375
1,600 Goodyear Tire & Rubber Corp. 101,300
----------
1,183,519
----------
Banks: 3.4%
2,500 Bankers Trust NY 217,500
2,200 Chase Manhattan Corp. 213,539
3,200 First Chicago NBD 193,600
1,100 Wells Fargo & Co. 296,450
----------
921,089
----------
Broadcasting: 2.0%
27,500 Tele-Communications, Inc. 409,063
7,300 U.S. West Media Group 147,825
----------
556,888
----------
Building Products: 3.3%
12,500 GTE Corp. 548,438
8,600 Masco Corp. 359,050
----------
907,488
----------
Chemicals: 2.3%
7,200 DuPont, (E.I.) DeNemours & Co. 452,700
400 W.R. Grace & Co. 22,050
3,100 Hercules Inc. 148,413
----------
623,163
----------
Chemicals-Diversified: 1.6%
7,600 PPG Industries, Inc. 441,750
----------
Communications: 1.2%
9,600 AT&T Corp. 336,600
----------
Computer Systems: 1.2%
3,600 Digital Equipment 127,577
5,800 Seagate Technology 204,088
----------
331,665
----------
Construction: 0.6%
2,800 Fluor Corp. 154,525
----------
Consumer Products: 3.5%
11,600 Anheuser Busch Co. 486,475
6,100 Eastman Kodak Co. 468,175
----------
954,650
----------
See Accompanying Notes to Financial Statements
42
<PAGE>
Pilgrim America Masters LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
Market
Shares Value
- ------ -----
Defense: 3.1%
5,000 Lockheed Martin Corp. $ 517,813
6,500 Raytheon Co. 331,500
----------
849,313
----------
Drugs: 1.2%
2,200 Bristol Myers Squibb Co. 178,200
1,800 Georgia Pacific Corp. 153,675
----------
331,875
----------
Electrical Equipment: 1.7%
10,900 Amp, Inc. 455,075
----------
Entertainment: 1.1%
10,400 Viacom, Inc. 312,000
----------
Financial: 0.9%
5,600 Morgan Stanley, Dean Witter, Discover & Co. 241,153
----------
Foods: 2.7%
26,025 Archer-Daniels-Midland 611,588
1,200 CPC International, Inc. 110,775
----------
722,363
----------
Healthcare: 2.4%
3,500 American Home Products 267,750
10,300 Humana, Inc. 238,188
2,800 United Healthcare Corp. 145,600
----------
651,538
----------
Hospitals: 2.9%
19,950 Columbia/HCA Healthcare Corp. 784,284
----------
Insurance: 8.0%
4,600 Aetna Life & Casualty Co. 470,925
7,500 Allstate Corp. 547,500
7,400 Chubb Corp. 494,875
3,700 General Re Corp. 673,400
----------
2,186,700
----------
Insurance Life: 1.7%
7,000 American General Corp. 334,250
2,800 Unum Corp. 117,600
----------
451,850
---------
Machinery & Equipment: 1.1%
7,900 Baker Hughes Inc. 305,631
----------
Manufacturing: 1.3%
4,300 AlliedSignal, Inc. 361,200
----------
See Accompanying Notes to Financial Statements
43
<PAGE>
Pilgrim America Masters LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
Market
Shares Value
- ------ -----
Metals & Minerals: 1.5%
5,600 Aluminum Company of America $ 422,100
----------
Mines & Minerals: 1.8%
12,400 Newmont Mining Corp. 483,600
----------
Miscellaneous: 1.6%
4,300 Loews Corp. 430,538
----------
Natural Gas Pipeline: 1.8%
11,800 Enron 481,588
----------
Natural Resources: 1.6%
11,300 Unolocal 438,581
----------
Office Equipment, Products & Services: 1.9%
6,600 Xerox Corp. 520,575
----------
Office Products & Services: 3.9%
3,500 Hewlett Packard 196,000
9,600 International Business Machines 865,800
----------
1,061,800
----------
Oil & Gas: 8.2%
6,400 Amerada Hess Corp. 355,600
3,200 Atlantic Richfield 225,600
4,700 Burlington Resources 207,388
10,500 Dresser Industries Inc. 391,125
21,600 Occidental Petroleum Corp. 541,350
2,200 Tenneco Inc. 99,413
1,100 Texaco, Inc. 119,625
11,300 Union Pacific Resources Group, Inc. 281,088
----------
2,221,189
----------
Paper and Forest Products: 3.2%
5,600 Champion International Corp. 309,400
7,100 James River Corp. of Virginia 262,700
6,000 Kimberly-Clark Corp. 298,500
----------
870,600
----------
Pollution Control: 1.1%
9,400 Waste Management Inc. 301,975
----------
Publishing: 0.4%
1,200 Gannett 118,500
----------
Railways: 3.9%
5,400 Burlington Northern S.F. 485,325
10,600 CSX Corp. 588,300
----------
1,073,625
----------
See Accompanying Notes to Financial Statements
44
<PAGE>
Pilgrim America Masters LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of June 30, 1997
- --------------------------------------------------------------------------------
Market
Shares Value
------ -----
Retail: 7.4%
12,500 Dillard Department Stores, Inc. $ 432,813
10,900 Federated Department Stores, Inc. 378,775
9,200 The Gap Inc. 357,650
7,600 May Department Stores Co. 359,100
9,400 Sears, Roebuck and Co. 505,250
-----------
2,033,588
-----------
Supermarket: 1.4%
10,400 Albertson's, Inc. 379,600
-----------
Technology: 0.7%
3,300 Rockwell 194,700
-----------
Utilities: 4.5%
9,200 Nynex Corp. 530,150
4,700 SBC Corp. 290,800
12,200 Texas Utilities 420,138
-----------
1,241,088
-----------
Total Common Stocks (Cost $23,558,068) 26,337,966
-----------
SHORT-TERM INVESTMENTS: 2.8%
<TABLE>
<CAPTION>
Principal
Amount Value
------ -----
<S> <C> <C> <C>
Commerical Paper: 2.8%
$770,000 Merrill Lynch Commercial Paper, 6.22% due 07/01/97 $ 770,000
-----------
Total Short-Term Investments (Cost $770,000) 770,000
-----------
Total Investments in Securities (Cost $24,328,068)* 99.3% 27,107,966
Cash and Other Assets in Excess of Liabilities-Net 0.7 183,033
----- -----------
Total Net Assets 100.0% $27,290,999
===== ===========
(a) Non-income producing security
ADR - American Depository Receipt
* Cost for federal income tax purposes is $24,383,767. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $2,943,051
Gross Unrealized Depreciation (218,852)
----------
Net Unrealized Appreciation $2,724,199
==========
</TABLE>
See Accompanying Notes to Financial Statements
45
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
TAX INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
Dividends declared during the tax year ended June 30, 1997 were as follows:
Asia-Pacific MidCap LargeCap
Per Share Data: Equity Fund Value Fund Value Fund
--------------- ----------- ---------- ----------
Ordinary Income:
Class A $ -- $0.0667 $0.0544
Class B -- 0.0484 0.0038
Class M -- 0.0626 0.0082
Short-term capital gains(a)* -- 0.1096 0.2224
Long-term capital gains(a) -- 0.0047 0.0155
Tax return of capital:
Class A 0.0160
Class B --
Class M 0.0023
- ------------
(a) Amounts apply to all classes
* Taxable as ordinary income
Corporate shareholders are generally entitled to take the dividend received
deduction on the portion of the Fund's dividend distribution that qualifies
under tax law. The percentage of the Funds' fiscal year 1997 net investment
income dividends that qualify for the corporate dividend received deductions is
0.66%, 94.84% and 97.54% for Asia-Pacific Equity Fund, MidCap Value Fund and
LargeCap Value Fund, respectively.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investment in the Funds. In January 1998,
shareholders, excluding corporate shareholders, will received an IRS Form 1099
DIV regarding the federal tax status of the dividends and distributions received
by you in calendar year 1997.
46
<PAGE>
Pilgrim America
Funds
INVESTMENT MANAGER
Pilgrim America Investments, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
DISTRIBUTION
Pilgrim America Securities, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
1-800-334-3444
SHAREHOLDER SERVICING AGENT
Pilgrim America Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
1-800-331-1080
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 419541
Kansas City, Missouri 64141
CUSTODIAN
Investors Fiduciary Trust Company
127 West 10th Street
14th Floor
Kansas City, Missouri 64105
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C 20005
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Funds. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004
1-800-331-1080
Pilgrim America Funds
<PAGE>
Pilgrim America Funds
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-071797 082997
