Pilgrim America
Funds (R)
Pilgrim America (R)
Bank and Thrift Fund
Pilgrim America
MagnaCap Fund
Pilgrim America
MidCap Value Fund
Pilgrim America
LargeCap Value Fund
Pilgrim America
Asia-Pacific Equity Fund
Pilgrim America
High Yield Fund
Pilgrim America
Securities Income Fund
ANNUAL REPORT
JUNE 30, 1998
<PAGE>
Pilgrim America
Funds
ANNUAL REPORT
June 30, 1998
TABLE OF CONTENTS
Chairman's Message ............................. 1
Portfolio Managers' Reports:
Pilgrim America Bank and Thrift Fund ....... 2
Pilgrim America MagnaCap Fund ............ 6
Pilgrim America MidCap Value Fund ......... 11
Pilgrim America LargeCap Value Fund ...... 15
Pilgrim America Asia-Pacific Equity Fund ... 20
Pilgrim America High Yield Fund ............ 25
Pilgrim Government Securities Income Fund ... 29
Report of Independent Auditors ................. 33
Statements of Assets and Liabilities ........... 34
Statements of Operations ....................... 36
Statements of Changes in Net Assets ........... 38
Financial Highlights .......................... 41
Notes to Financial Statements ................. 51
Portfolios of Investments:
Pilgrim America Bank and Thrift Fund ...... 61
Pilgrim America MagnaCap Fund ............ 65
Pilgrim America MidCap Value Fund ......... 69
Pilgrim America LargeCap Value Fund ...... 72
Pilgrim America Asia-Pacific Equity Fund ... 76
Pilgrim America High Yield Fund ............ 82
Pilgrim Government Securities Income Fund ... 87
Shareholder Meeting ............................. 89
Tax Information ................................ 90
<PAGE>
Pilgrim America Funds
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CHAIRMAN'S MESSAGE
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Dear Shareholder:
We are pleased to present the Annual Reports for the Pilgrim America Funds which
consist of Pilgrim America Bank and Thrift Fund ("Bank and Thrift Fund"),
Pilgrim America MagnaCap Fund ("MagnaCap Fund"), Pilgrim America MidCap Value
Fund ("MidCap Value Fund"), Pilgrim America LargeCap Value Fund ("LargeCap Value
Fund"), Pilgrim America Asia-Pacific Equity Fund ("Asia-Pacific Equity Fund"),
Pilgrim America High Yield Fund ("High Yield Fund") and Pilgrim Government
Securities Income Fund ("Government Securities Income Fund"). In the following
pages, the portfolio manager for each fund discusses the results of operations
for the fiscal year ended June 30, 1998, as well as the markets and factors
which have affected each of the Funds during this period.
Bank and Thrift Fund, MagnaCap Fund, LargeCap Value Fund, High Yield Fund and
Government Securities Income Fund are designed to give investors access to the
seasoned investment managers of Pilgrim America Investments, Inc. ("PAII") who
bring a depth of experience and knowledge to their specific investment
disciplines.
Asia-Pacific Equity Fund and MidCap Value Fund are 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.
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 designed to help you reach your financial goals. Our goal is for
every investor to have a successful investment experience.TM/SM
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim America Group, Inc.
August 14, 1998
1
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Pilgrim America Bank and Thrift Fund
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PORTFOLIO MANAGER'S REPORT
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Dear Shareholders,
After turning in exceptional results last year, results in the first half of
this year have eased. Our total return was 6.4%(1) during this period, trailing
the Dow Jones Industrial Average which rose 14.1%, the Standard & Poor's 500
Index(2) which rose 17.7% and the S&P Major Regional Banks Index(3) which gained
9.3%.
We can point to three factors which have, temporarily we believe, dampened our
performance in the first half of 1998: the relative popularity of large cap bank
names in the market, our exposure to thrifts, and the diminishment of takeover
premiums in selected bank names. We believe that much of the impact of these
factors that worked against us in the first half will reverse, although we
obviously cannot be sure that this will occur in the second half of this year or
anytime thereafter.
The first factor relates to the relative outperformance of larger banks to
smaller and mid-sized banks so far this year. Big has been beautiful this year
and we have about 59% of the Pilgrim America Bank and Thrift Fund (the "Fund")
invested in names that are not big. In our opinion this phenomenon has occurred
because portfolio managers are uncomfortable with the high level of the overall
markets and believe that the large cap names will give them the liquidity to
bail out if the strong trend of the market reverses. We believe that the better
relative value today is mostly in the smaller and mid cap bank names.
Another contributing factor has been the increased representation of thrifts in
the Fund. When the yield curve flattened out and prepayments started to pick up,
thrift stocks came under pressure. We used this as an opportunity to increase
our representation in this area under the premise that historically the curve
does not stay flat forever. The yield curve remains flat and there are fears
that if rates decline again, there will be another round of mortgage
prepayments. Therefore, this bet has not paid off yet, though we believe that it
will.
Last year our exceptional performance benefited from many of our names acquiring
some takeover premium. In many cases some of this relative takeover premium was
given back in the first half of this year. While we did not add to our positions
when they were trading at these premiums, we generally did not sell them either.
Since we opened the Fund in October of last year to new investors we have seen
substantial inflows of new money. On a net basis the size of the Fund from
inflows alone has more than doubled since then. Our intent was to invest this
new inflow of funds in the most attractive opportunities around. Some of these
opportunities occurred in names that, while of good quality, became more
attractively priced as they lost much of their previous takeover premium. This
loss of takeover premium occurred as market perception shifted from viewing
these names primarily as takeover targets to viewing them as active acquirers as
well as possible targets. We used this as an opportunity to add to our positions
in names such as First American Corp. and Union Planters Corp. Instead of
recovering their relative value, these names continue to languish and in some
cases have continued to slip in relative value. We believe that these names are
potential acquisition candidates and we believe that our patience will be
rewarded in the future.
We believe the fundamentals that effect the banking industry are still good.
Earnings for the banking group should continue to look very good when compared
to other sectors and it is likely that there will be fewer disappointments in
the bank group. Despite their more favorable outlook, bank stocks still look
relatively cheap compared to the market as a whole.
2
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Pilgrim America Bank and Thrift Fund
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PORTFOLIO MANAGER'S REPORT (Continued)
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In the first half we added to many of our existing positions. In addition, we
added the following new names: American Safety Insurance Group, Ltd., Astoria
Financial Corp, BancFirst Corp, CFI ProServices, Inc., Comdisco, Inc., Cowlitz
Bancorp, Delphi Financial Group, Inc., First Alliance Corp, First American
Corp., Freedom Securities Corp., Golden West Financial Corp., H. F. Ahmanson &
Co., Hartford Life, Inc., Imperial Bancorp, Liberty Financial Co., Inc., London
Pacific Group Limited, NationsBank Corp., North Fork Bancorp, UniCapital Corp.,
United Security Bancorp and Washington Mutual Inc. We also established a
position in One Valley Bancorp, Inc. by acquiring FFVA Financial which was in
the process of being acquired by One Valley Bancorp. Also in the first half, we
established new positions and subsequently sold the following names for gains
ranging from 8%-25%: Heller Financial, Inc., Matrix Capital Corp., Midwest Banc
Holdings and Republic Banking Corp. We sold our entire positions in Conning,
First Enterprise Financial Group, Long Island Community Bank, Security Shares,
Inc. and Sterling Cooke Brown Holdings. We partially reduced our holdings in
Cowlitz Bank Corp, First Alliance Corp., Independent Bank Corp, International
Aircraft Investors and Popular, Inc.
Three of our holdings agreed to be acquired during the first half of 1998, only
one of which was a bank or thrift. Security First agreed to be acquired by
FirstMerit, Devon Group was acquired by Applied Graphics Technologies, and
Summit Holdings Southeast agreed to be acquired by Liberty Mutual.
NationsBank, which we established a position in during the first half of 1998,
announced a merger of equals with BankAmerica.
We believe that investors who wish to remain in equities, should still have a
significant portion of this equity investment in financial stocks.
As of June 30, 1998, the Fund has changed it's fiscal and tax year-ends from
December 31 to June 30. We will begin to combine all of our open-end funds
together in one semi and annual report and prospectus. We believe that this will
be beneficial for the funds because it will provide a more efficient
presentation and will save shareholders money on both printing and mailing
costs.
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 reinvestment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box
419368, Kansas City, MO 64141-6368, or call (800) 992-0180.
We thank you for giving us this opportunity to help you work towards your
investment needs. Please do not hesitate to contact us if you have any questions
or need additional information.
Sincerely,
/s/ Carl Dorf
Carl Dorf, C.F.A
Senior Vice President and Senior Portfolio Manager
Pilgrim America Investments, Inc.
See Footnotes on Page 5.
3
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Pilgrim America Bank and Thrift Fund
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COMPARISON OF A $10,000 INVESTMENT through June 30, 1998
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The line graph below shows the growth of an initial investment of $10,000 in
Pilgrim America Bank and Thrift Fund compared to the performance of two relevant
unmanaged indices, the Standard & Poor's 500 Index and the Standard & Poor's
Major Regional Banks Index. Note that the indices have inherent performance
advantages over any fund since they have no cash in their portfolios, impose no
sales charges and incur no operating expenses. An investor cannot invest
directly in an index. The Fund's performance is shown both with and without the
imposition of the maximum sales load of 5.75% currently associated with Class A
shares of the Fund
<TABLE>
<CAPTION>
6/30/88 6/30/89 6/30/90 6/30/91 6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bank and Thrift Fund 9,425 10,956 10,606 12,175 16,513 19,704 25,548 28,730 37,857 61,821 87,653
(including sales charge)
Bank and Thrift Fund
(excluding sales charge) 10,000 11,624 11,253 12,917 17,520 20,906 27,107 30,483 40,167 65,593 93,000
S&P 500 Index 10,000 12,048 14,032 15,068 17,085 19,410 19,683 24,808 31,254 42,096 54,788
S&P Major Regional Banks 10,000 11,617 9,938 11,237 16,017 20,158 20,361 22,895 30,709 47,172 63,795
</TABLE>
* Carl Dorf, the Fund's Portfolio Manager, began managing the Fund in
January 1991.
Average Annual Total Returns
As of June 30, 1998
<TABLE>
<CAPTION>
Ending
Redeemable
1 Year 3 Year 5 Year 10 Year Value
-------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Bank and Thrift Fund Class A (including sales charge) 34.22% 42.41% 28.54% 22.05% $87,653
Bank and Thrift Fund Class A (excluding sales charge) 42.41% 45.25% 30.07% 22.75% $93,000
S&P 500 Index 30.16% 30.19% 23.08% 18.56% $54,788
S&P Major Regional Banks Index 35.24% 40.67% 25.90% 20.36% $63,795
</TABLE>
Past performance is no guarantee of future results.
All performance information given on these pages for the Fund assumes no
participation in the 1992 rights offering and full participation in the 1993
rights offering. The Fund's total returns assume reinvestment of all dividends
and distributions. The indices' total returns assume investment of interest
income.
See Footnotes on Page 5.
4
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Pilgrim America Bank and Thrift Fund
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FOOTNOTES
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(1) Total return for Class A shares calculated at NAV and assuming reinvestment
of all dividends and distributions. Sales charges or commissions are not
reflected in these total returns.
Average annual total returns based on NAV, assuming reinvestment of all
dividends and distributions and including the deduction of the maximum Class
A sales charge of 5.75% were 34.22%, 28.54% and 22.05% for the one, five and
ten-year periods ended June 30, 1998.
Prior to October 20, 1997, the Fund operated as a closed-end investment
company. All performance information prior to this date reflects the
historical expense levels of the Fund as a closed-end investment company
without adjustment for the higher annual expenses of the Fund's Class A
shares. Performance would have been lower if adjusted for these charges and
expenses. Performance information for periods after October 20, 1997
includes Class A expenses. Five and ten-year returns assume no participation
in the 1992 rights offering and full participation in the 1993 rights
offering.
The Fund also offers Class B shares which are subject to different fees and
expenses which will affect their performance.
(2) The Standard & Poor's 500 Index is an unmanaged index of 500 common stocks
and is a generally accepted measure of stock market performance.
(3) The S&P Major Regional Banks Index is a capitalization-weighted index
designed to measure the performance of the major regional banks within the
Standard & Poor's 500 Index.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
Principal risk factors: Because the Fund's portfolio is concentrated in the
banking and thrift industry it may be subject to greater risk than a portfolio
that is not concentrated in one industry.
This letter contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Pilgrim America Bank and Thrift Fund's primary investment objective is long-term
capital appreciation, with income as a secondary objective. The Fund seeks to
achieve its objectives by investing primarily in the equity securities of banks
and thrifts.
5
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Pilgrim America MagnaCap Fund
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PORTFOLIO MANAGER'S REPORT
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Dear Shareholder:
In our last Semi-Annual Report, we reported that Pilgrim America MagnaCap Fund
(the "Fund") had another good year in 1997. Nineteen years ago, the Fund
initiated its disciplined investment philosophy and 1997 marked the 18th year in
the last 19 that the Fund produced a positive return. We are very pleased to
report that the Fund continues to deliver for its shareholders in 1998. For the
year ended June 30, 1998, the Fund provided a total return of 20.53%(1) compared
to the Standard & Poor's 500 Index ("S&P 500 Index") -- a common proxy for the
U.S. stock market -- which gained 30.16% for the same period. For the six months
ended June 30, 1998, the Fund was up 9.84%(1), compared to the S&P 500 Index
which gained 17.71% for the same period. The Fund's Class A average annual total
returns for the five and ten-year periods ended June 30, 1998, were 20.28% and
15.64%, respectively.(1)
A $10,000 investment in Class A shares of the Fund on January 1, 1979, the year
which the Fund adopted its disciplined investment philosophy, would have grown
to $191,626 as of June 30, 1998, after deduction of the maximum 5.75% sales
charge and assuming the reinvestment of all dividend and capital gain
distributions. The net asset value of Class A shares of the Fund was $17.07 on
June 30, 1998, which represents a $1.15 or 7.22% increase from the net asset
value of $15.92 on June 30, 1997.
General Economic and Equity Market Environment
All indications are that the United States economy is remarkably sound. That is
why midway through 1998, stock prices are near their all-time highs. The Dow
Jones Industrial Average, the best known market barometer, is up approximately
13% for the first six months of 1998. At the beginning of the year, many Wall
Street analysts had forecast full year returns of only 8-10%. The United States
economy seems to be in the throes of what Federal Reserve Chairman Alan
Greenspan has called a "virtuous cycle" of powerful growth, little if any
inflation, low unemployment and rising wage gains. That's a positive economic
scenario that could be compensating for a gradual slowdown in profit growth. So
far in the 1990's, the Dow Jones Industrial Average has increased about 280%,
including a record three consecutive years with gains of 20% or more.
Pilgrim America MagnaCap Fund
As a disciplined investment philosophy fund, MagnaCap invests in a very select
group of companies that have been able to sustain growth over a 10-year period.
In selecting portfolio securities, companies are assessed with reference to the
following criteria as ideal:
1. A company must have paid or had the financial capability from its operations
to pay a dividend in 8 out of the last 10 years.
2. A company must have increased its dividend or had the financial capability
from its operations to have increased its dividend at least 100% over the
past 10 years.
3. Dividend payout must be less than 65% of current earnings.
6
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Pilgrim America MagnaCap Fund
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PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
4. Long term debt should be no more than 25% of total capitalization or a
company's bonds must be rated at least A- or A-3.
5. The current price should be in the lower half of the stock's price/earnings
ratio range for the past ten years or the ratio of the price of the
company's stock at the time of purchase to its anticipated future earnings
must be an attractive value in relation to the average for its industry peer
group or that of the S&P 500.
We believe that the Fund's past success can be attributed to the very explicit
investment criteria which normally determine the kinds of companies that qualify
for inclusion in the portfolio. Out of a universe of approximately 4,000
publicly traded companies and based upon both in-house and external research, we
aim to select the 40 to 50 equities which we believe will be most likely to
exhibit a high degree of performance.
Going forward, we will continue to employ a "bottom-up" approach to stock
selection, drawing from the pool of companies that come closest to meeting the
Fund's strict investment criteria given market conditions, the circumstances of
the company and the sector within which it falls. The bull market in U.S. stocks
is in its seventh year. It has been firmly based on extraordinary changes in the
economy that have given us one of the longest economic expansions in U.S.
history. This bull market has been one of the best in U.S. history and we
believe it is likely to continue for several reasons. First, the economic
expansion that has propelled stock prices higher has been one of the most
durable. It has been accompanied by mild inflation, job creation and
high-quality profit growth. Second, the current economic and market cycles have
benefited from several long-term structural changes. These include an increase
in the nation's savings rate and a notable reduction in the government's budget
deficit. There has also been a shift to a more sophisticated, technology driven
private sector that has spurred wide-spread productivity gains, and this offers
new opportunities for growth and jobs. Most bull markets end when stocks are
overpriced. However, it has traditionally been extremely difficult to identify
the degree of overpricing at which any particular bull-market will end. We
believe stock prices can continue to rise selectively in 1998 in concert with
improvements in corporate earnings and cash flows. Accordingly, we intend to
remain almost fully invested, selecting stocks on the basis described at the
beginning of this paragraph.
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 reinvestment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box
419368, Kansas City, MO 64141-6368, or call (800) 992-0180.
7
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Pilgrim America MagnaCap Fund
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PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
We thank you for giving us this opportunity to help you work towards your
investment needs. Please do not hesitate to contact us if you have any questions
or need additional information.
Sincerely,
/s/ Howard N. Kornblue
Howard N. Kornblue
Senior Vice President and Senior Portfolio Manager
Pilgrim America Investments, Inc.
/s/ G. David Underwood
G. David Underwood
Vice President and Director of Research
Pilgrim America Investments, Inc.
See Footnotes on Page 10.
8
<PAGE>
Pilgrim America MagnaCap Fund
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COMPARISON OF A $10,000 INVESTMENT through June 30, 1998
- --------------------------------------------------------------------------------
Comparison of the Change in Value of a $10,000 Investment in Pilgrim America
MagnaCap Fund and the Standard & Poor's 500 Index (the "S&P 500 Index").
Based on a $10,000 initial investment, the graph below illustrates the total
return of Pilgrim America MagnaCap Fund against the S&P 500 Index. Note that the
S&P 500 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 charge in all
cases.
<TABLE>
<CAPTION>
6/30/88 6/30/89 6/30/90 6/30/91 6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MagnaCap Fund A 9,423 11,031 12,557 13,212 14,788 16,003 17,464 21,063 25,551 33,426 40,287
S&P 500 Index 10,000 12,048 14,032 15,068 17,085 19,410 19,683 24,808 31,254 42,096 54,788
</TABLE>
SEC Average Annual Total Returns
As of June 30, 1998
Ending
Redeemable
1 Year 5 Year 10 Year Value
-------- -------- --------- ------------
MagnaCap Fund Class A ...... 13.61% 18.85% 14.95% $40,287
S&P 500 Index ............... 30.16% 23.08% 18.56% $54,788
Past performance is no guarantee of future results.
See Footnotes on Page 10.
9
<PAGE>
Pilgrim America MagnaCap Fund
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FOOTNOTES
- --------------------------------------------------------------------------------
(1) Excluding the Class A maximum 5.75% sales charge and assuming reinvestment
of all dividends and distributions. Total returns for the one, five and
ten-year periods ended June 30, 1998, including the maximum sales charge and
assuming reinvestment of all dividends and distributions were 13.61%, 18.85%
and 14.95%, 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, 1998, were
14.76% and 15.77%, respectively.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This letter contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
10
<PAGE>
Pilgrim America MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder,
We are pleased to report the results of operations for Pilgrim America MidCap
Value Fund (the "Fund") for the year ended June 30, 1998.
For the twelve months, the Fund earned a total return of 18.40%(1) compared to
25.00% for the Russell MidCapTM Index(2).
During the past three years, largecap stocks have dominated the stock market.
This trend continued throughout the second quarter of this year as the Standard
& Poor's 500 Index (the "S&P 500")(3), a proxy for the broad U.S. stock market,
increased 3.3%, significantly outperforming all small and mid-cap indices.
Within the S&P 500, however, the performance of individual stocks has been very
narrow with favorite blue chip stocks such as GE, Microsoft, Pfizer, Coke and
Wal-Mart driving this largecap index to higher levels. As an example, during the
first six months of 1998, the top 14 performers in the S&P 500 added 20% to the
performance of that index. With the S&P 500 up 17.7% during that period, the
remaining 486 stocks were down a total of 2.3%. Interestingly, the trailing
12-month price/earnings ratio for these 14 performers is currently 40x, quite
high by historical valuation measures.
The rise in the largecap indices is not surprising given the increased flow of
capital into mutual funds, the strong domestic economy and low interest rates.
We have seen this unusual time period during previous bull markets. In the early
1970's, the stock market was characterized by the "nifty fifty". Stocks such as
Polaroid, Avon and Xerox traded at earnings multiples that approached triple
digits. This, of course, ended in the bear market of 1974 when the S&P 500 fell
by more than 46% from its peak the prior year. Despite the outperformance of
largecap issues, we have not ventured outside of our investment criteria of
purchasing high quality mid-cap companies, which over the long term has offered
very favorable rates of returns on both an absolute and risk adjusted basis. Of
course, past performance is no guarantee of future results.
To reiterate what we have described in previous letters to shareholders, our
approach to finding good investments for the Fund is no different from the
approach we have successfully employed for our private management clients over
the past 24 years. We invest in companies undergoing some significant change --
change in revenue/asset mix, change in management, or change in ownership
structure. This change often creates a period of neglect in the minds of
investors, which results in an attractive entry point for our investment. As
value investors, we are looking to acquire stocks that are trading at discounts
to the market and comparable company multiples on both earnings and cashflow. As
an additional valuation tool, we develop a private market valuation for our
investments, i.e., what a strategic buyer might be willing to pay for the whole
company.
A good example of our investment philosophy and process is our investment in
Montana Power Co., a new position in the Fund during this quarter. Montana Power
is primarily an electric and gas utility based in Butte, Montana. The company
also has a large group of unregulated businesses consisting of coal, oil and
gas, independent power and telecommunications. Our interest in Montana Power is
two-fold. First, the company is selling their electric generating assets, which
should provide proceeds of $750 million to be used to pay down debt, repurchase
shares or to grow their unregulated businesses. Second, Montana Power's
telecommunications subsidiary, Touch America, is building a fiberoptic
telecommunications and data network similar to those of Qwest Communications,
Williams Companies and Level Three Communications. While still regional in
nature, the network will expand throughout the nation in the next two years.
Wall Street believes that Montana Power is a sleepy utility that will not
realize the value of their telecommunications business. We think differently. We
believe that ultimately,
11
<PAGE>
Pilgrim America MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
the company will monetize a portion of the telecommunication business to
highlight its value. We have experience with these multi-industry companies that
spin-off or outright sell subsidiaries. Cincinnati Bell, Inc., for example,
announced this quarter that they would take their fast growing CBIS and Matrix
subsidiaries public in order to highlight their value. We believe that Montana
Power is approximately 18 to 24 months behind Cincinnati Bell. We may be early,
but we have been paid a 4.75% dividend while we wait.
During this quarter our performance was led by General Instrument Corp., a cable
television equipment supplier which was up 30% and Allergan, Inc., a
pharmaceutical and medical products company which was up 22%. Investors have
come to the realization that the most efficient, cost effective and quickest
access to the Internet will be through cable television infrastructure. The
acquisition of TCI by AT&T has confirmed this thesis. General Instrument is the
largest manufacturer of cable television set-top boxes and network equipment. As
cable television and telecommunications converge, we believe that General
Instrument will be a primary beneficiary of a new wave of capital spending to
upgrade these companys' architecture. As for Allergan, a company that had been
viewed by Wall Street primarily as a contact lens solution company, new CEO
David Pyott has announced a series of restructuring efforts to focus the company
on its faster growing pharmaceutical businesses. David is no stranger to the
drug industry as he spent the past 10 years at Novartis, a large Swiss
pharmaceutical company.
This quarter was not without its disappointments. Two underperformers during
this quarter were Raychem Corp., an electrical components and materials company
and Ocean Energy, an independent exploration and production company. Raychem has
some exposure to Asia Pacific, and therefore experienced a slowdown in two key
growth products. Ocean Energy saw cashflow estimates reduced as a result of
weakening commodity prices. Both issues facing these companies, we believe, are
short term. We have added to the Ocean Energy position and are monitoring
Raychem closely. When we believe the company has recovered from the effects of
Asia, we will purchase additional shares. Raychem is a very healthy company with
50% gross margins, strong free cashflow and a very competent management team.
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., P.O. Box 419368,
Kansas City, MO 64141-6368 or call (800) 992-0180.
We thank you for giving us the opportunity to help you work towards your
investment needs.
Sincerely,
CRM ADVISORS, LLC
See Footnotes on page 14.
12
<PAGE>
Pilgrim America MidCap Value Fund
- --------------------------------------------------------------------------------
COMPARISON OF A $10,000 INVESTMENT through June 30, 1998
- --------------------------------------------------------------------------------
Comparison of the Change in Value of a $10,000 Investment in Pilgrim America
MidCap Value Fund (the "Fund") and the Russell MidcapTM 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 charge in all cases.
9/1/95 6/30/96 6/30/97 6/30/98
------ ------- ------- -------
MidCap Value Fund A 9,425 11,355 14,068 16,657
Russell MidCap Index 10,000 11,506 14,148 17,685
SEC Average Annual Total Returns
As of June 30, 1998
Ending
Redeemable
1 Year Inception* Value
----------- ------------ ------------
MidCap Value Fund Class A 11.62% 19.76% $16,657
Russell MidCapTM Index 25.00% 22.32% $17,685
*September 1, 1995 (Commencement of Operations)
Past performance is no guarantee of future results.
See Footnotes on Page 14.
13
<PAGE>
Pilgrim America MidCap Value Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(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, 1998, and
from September 1, 1995 (commencement of operations) to June 30, 1998, were
11.62% and 19.76%, 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.
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 MidCapTM Index is a broad based measure of the performance of
mid-cap stocks.
(3) The S&P 500 is an unmanaged index of common stocks and is a generally
accepted measure of stock market performance.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This letter contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
14
<PAGE>
Pilgrim America LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to report the results of operations for Pilgrim America LargeCap
Value Fund (the "Fund") for the year ended June 30, 1998. As you may know, on
November 1, 1997, Pilgrim America Investments, Inc. assumed the portfolio
management responsibilities of the Fund from Ark Asset Management Company, Inc.
For the twelve months, the Fund earned a total return of 17.71%(1) compared to
30.16% for that of the Standard & Poor's 500 Index (the "S&P 500"),(2) a proxy
for the broad U.S. stock market, and compared to 24.99% for the Standard &
Poor's Barra Value Index (the "Barra Index")(3). The Fund earned a total return
of 11.03%(1) for the six months ended June 30, 1998, versus the S&P 500 return
of 17.71% and the Barra Index return of 12.01%.
Economic Environment and Equity Market Conditions
Our year end 1997 expectation that the equity market could again advance in 1998
was more than met through the first half of 1998. We thought that investment
returns would be good as measured by long-term historical standards, though
perhaps less spectacular than those experienced over 1995-1997. Further, we
thought earnings growth, more than expansion of the market's price-to-earnings
ratio (P/E), would play a greater role in propelling the stocks. These factors,
we thought, would rest upon a favorable setting of good, but slowing economic
growth, low interest rates and constructive domestic monetary policy.
With a few differences, our thesis played out. Through the first half of 1998,
the equity market, as defined by the S&P 500, had one of its best ever
performances on both an annualized and historical basis. The domestic economy
was more than cooperative, growing 5.4% in the first calendar quarter and very
likely to grow at 1.0-1.5% in the second -- the gradual slowing we anticipated.
Interest rates and monetary policy also tracked our expectations.
We were correct in thinking that growth in earnings would play a greater role
than P/E expansion in advancing the equity market. True, the P/E's did expand
for the high or sustained growth companies. But throughout the six-month period,
and for the vast majority of stocks, the rate and direction of earnings growth
was a pacing issue. The specter of broadly weakening economic conditions
besetting the Asian nations and its impact on U.S. companies overshadowed stocks
the entire period. As companies reported their financial results for 1997 during
January and February, the Asian impact appeared less pronounced than feared and
the larger stocks rallied. This scenario repeated in the April-May reporting
period.
Nevertheless, corporate vulnerability to Asia did impact stock returns. Despite
the S&P 500's 17.71% return through June, most of it was produced in the first
quarter when the market return was 14.0% as compared to 3.3% in the second
quarter. Not unsurprisingly, the market's returns mimicked the overall pattern
of earnings growth, one that decelerated from better than 3% to about 1.5%.
15
<PAGE>
Pilgrim America LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
Varying sentiment about earnings led to some disparate returns among stocks. In
general, largecap stocks outperformed their smaller brethren. S.C. Bernstein, a
Wall Street brokerage and research firm, has noted that, on an equally weighted
basis, the 50 largest stocks of the S&P 500 are up 22.5% in 1998 while the next
largest 450 are up merely 12%. They further note that the 20 largest growth
stocks represent about a third of the S&P 500. It follows that since cyclical
and Asian factors had less worrisome effects on this relatively small pool of
growth stocks, investors not bound to a disciplined value strategy gravitated
toward them despite extended valuations. This has made the overall S&P 500 a
difficult benchmark to surpass with diversified portfolios, let alone with a
value strategy.
LargeCap Value Fund
Your fund generated good performance for the past three and six months. Overall,
performance was very consistent with the value style of investing. The Fund
returned 0.34% and 11.03% for the last three and six months ended June 30, 1998,
respectively as compared to the Barra Index returns of 0.41% and 12.01% for the
same periods.
Following through on the initiative set forth in November, we continued to
gradually restructure the Fund, but stayed consistent with an orientation toward
value. We reduced the number of individual holdings further to 54, down from 71
in December and 83 at the outset. The Fund has very good diversification without
over-dilution.
Keeping with our strategy outlook, we reduced exposure in the portfolio to the
more economically sensitive sectors, broad classifications that include various
common industry groups, eliminating or reducing positions in the basic
industries: Metals, Diversified Chemicals, Paper & Forest Products, Packaging,
Rails and Pollution Control. Our mixed sentiment at the beginning of the year
toward energy stocks was appropriate, as oil prices continued to retreat until
mid year, in turn driving the stocks down further. The Fund has maintained about
8% in the sector, modest and in line with their representation in market,
despite attractive valuations. Conversely, we increased the more defensive
sectors or portions less exposed to Asia: Pharmaceuticals, Retail, Airlines and
Publishing.
Looking forward, we are not yet anticipating a recession, but do expect the
economy to enter an extended period of slower growth. Asian influences, a high
level of employment and somewhat less accommodating monetary policy are apt to
throttle the economy. As such, we plan to continue a more defensive posture with
the Fund. Within that framework, we plan to keep the Fund oriented toward
undervalued companies with strong underlying cash flows and solid fundamental
prospects.
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
16
<PAGE>
Pilgrim America LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
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., P.O. Box 419368, Kansas City, MO 64141-6368 or call (800)
992-0180.
We thank you for giving us the opportunity to help you work towards your
investment needs.
Sincerely,
/s/ G. David Underwood
G. David Underwood, CFA
Vice President and Senior Portfolio Manager
Pilgrim America LargeCap Value Fund
See Footnotes on page 19.
17
<PAGE>
Pilgrim America LargeCap Value Fund
- --------------------------------------------------------------------------------
COMPARISON OF A $10,000 INVESTMENT through June 30, 1998
- --------------------------------------------------------------------------------
Comparison of the Change in Value of a $10,000 Investment in Pilgrim America
LargeCap Value Fund (the "Fund"), the Standard & Poor's 500 Index (the "S&P
500") and the Standard & Poor's Barra Value Index (the "Barra Index").
Based on a $10,000 initial investment, the graph below illustrates the total
return of the Fund against the S&P 500 and the Barra Indexes. Note that the
indexes have inherent performance advantages over any fund since they have no
cash in their portfolios, impose no sales charges and incur 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.
9/1/98 6/30/96 6/30/97 6/30/98
------ ------- ------- -------
LargeCap Value Fund A 9,425 11,269 13,888 16,348
S&P 500 Index 10,000 12,164 16,385 21,327
S&P Barra Value Index 10,000 11,829 15,479 19,347
SEC Average Annual Total Returns
As of June 30, 1998
Ending
Redeemable
1 Year Inception* Value
-------- ------------ ------------
LargeCap Value Fund Class A 10.98% 18.97% $16,348
S&P 500 Index 30.16% 30.68% $21,327
S&P Barra Value Index 24.99% 26.26% $19,347
*September 1, 1995 (Commencement of Operations)
Past performance is no guarantee of future results.
See Footnotes on Page 19.
18
<PAGE>
Pilgrim America LargeCap Value Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(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, 1998, and
from September 1, 1995 (commencement of operations) to June 30, 1998, were
10.98% and 18.97%, 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.
All return figures reflect a partial waiver of fees for the periods stated.
Without such a waiver, returns would have been lower.
(2) The S&P 500 is an unmanaged index of common stocks and is a generally
accepted measure of stock market performance.
(3) The S&P Barra Index is a capitalization-weighted index of all of the stocks
in the S&P 500 that have low price-to-book ratios. It is designed so that
approximately 50% of the market capitalization is in the Value Index.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This letter contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
19
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder:
The following are the results of operations for Pilgrim America Asia-Pacific
Equity Fund (the "Fund"), for the year ended June 30, 1998.
For the twelve months, the Fund earned a net return of -59.29%(1) compared to
- -60.49% for the Morgan Stanley Capital International All Countries Far East
ex-Japan (Free) Index (the "MSCI"), a measure of the performance of Far East
markets excluding Japan.
General Economic Environment
The Asia Pacific region generally finds itself in the worst economic and
financial environment since the first oil crisis. The factors that we described
in our last report twelve months ago, in terms of inter-related currency
weakness, high interest rates, and sharp decelerations in regional economies
have become more evident in the first half of 1998. With the notable exceptions
of China, Taiwan, and possibly the Philippines, we expect all regional economies
to contract this year. Exacerbating regional difficulties has been the continued
poor performance of the Japanese economy to which South East Asia is especially
sensitive. The weakness of the Japanese economy has led to a fall in the value
of the Yen, which affects Japanese direct investment, Japan's propensity to
import from Asia, and Asia's ability to compete with Japan in third markets. In
addition, the distress in the Japanese banking system has tended to result in
the withdrawal of Japanese credit and lending from Asia, thus exacerbating
liquidity problems in the region.
Specific Equity Market Conditions
The table below summarizes the total returns of the respective MSCI Country
Indices, which comprise the Far East ex-Japan (Free) Index:
Total Return (%)
Country 7/1/97 - 6/30/98
------- ----------------
Hong Kong ............. -48.39
Malaysia ............. -74.66
Singapore ............. -57.77
Thailand ............. -72.76
Indonesia ............. -89.68
Philippines ............ -59.36
South Korea ............ -68.47
Taiwan ................ -38.35
Source: Frank Russell Company
20
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
Much of the last year has been characterized by a sense of crisis and contagion,
with problems emanating from South Asia increasingly having an impact on the
Greater China bloc and Korea. In the case of Hong Kong a strong run in the
economy and asset prices prior to, and surrounding the resumption of Chinese
sovereignty gave way to a much more difficult environment in the last twelve
months. With a currency board system, Hong Kong's increased "risk premium" has
been reflected in much higher interest rate differentials versus the U.S. dollar
which has, obviously, had a significant negative impact on real economic
activity, as well as asset prices. This adjustment process continues. However
Hong Kong has a sound banking system, relatively good corporate governance, and
a proximity to, and integration with China which remains a very attractive
longer term story. Against this background we believe Hong Kong will continue to
have significant regional advantages, although short term we expect the economy
to be in recession for at least the balance of 1998.
Thailand, Malaysia, and of course Indonesia are facing difficulties of a
different magnitude altogether. In Indonesia economic difficulties have been
exponentially increased by political uncertainty and subsequent succession. The
collapse in the currency and resulting explosion in the scale of dollar debt in
the corporate sector suggests a very painful debt workout and recapitalization
of the banking sector. In Thailand a collapse in domestic demand has resulted in
a sharp turnaround in the trade and current account, and a start has been made
on closure of insolvent financial institutions and the recapitalization of the
banking sector. Nevertheless the economic contraction is likely to last well
into 1999. As with other regional economies, greater access of foreign capital
to the ownership of Thai assets is an essential part of a "recovery scenario".
This will require greater transparency in bankruptcy and foreclosure procedures,
as well as acceptance of foreign ownership. In Malaysia the economy is
decelerating later than the rest of the region, but against the background of
excessive leverage in the corporate sector, oversupply in the property market,
and an embryonic bad debt problem in the banking sector. Whilst this has already
been partially discounted in the equity market the key issue for investors is
the credibility of domestic policy, and the risk of premature attempts to
reflate.
Singapore and the Philippines provide a fundamentally more positive environment.
In Singapore relatively strong balance sheets and rigorous banking governance
means that the fabric of the real and financial economy is intact. However a
slowdown in the critical electronics sector, as well as immediate difficulties
in the geographically close economies of Malaysia and Indonesia, means that
Singapore is not immune to a cyclical slowdown of some magnitude. In the
Philippines strong growth characteristics have up until recently been evident.
Excesses, in terms of "asset bubbles" and the mispricing of capital via fixed
exchange rates are less evident in the Philippines, and we are optimistic
regarding longer term prospects.
In Taiwan the economy is on a much sounder footing although deceleration is
evident. A current account surplus, closed capital account and the absence of
capital misallocation are positive, although cyclical risks related to Japan and
the region are clear. In Korea the collapse of the currency has finally exposed
the massive leverage in the corporate sector, and the culture of the pursuit of
market share growth, rather than returns on investment. The involvement of the
IMF and collapse in domestic demand is leading to historically high levels of
unemployment, and the urgent need to restructure,
21
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
attract foreign capital, and to address the relationship between capital and
labor, which is close to the Japanese practice. This requires strong political
leadership, which appears to be evident.
Pilgrim America Asia-Pacific Equity Fund
Our strategy for the last twelve months has been to remain focused on Greater
China. Although these markets have, obviously, suffered with the region we
remain optimistic regarding the longer term prospects for China, and with Hong
Kong. Elsewhere we believe that Singapore with its strong regulatory
environment, robust corporate balance sheets, and sound banking system suggests
a faster recovery potential than other markets in South Asia. We also feel the
Philippines, although subject to regional difficulties, has excellent longer
term potential given its relative immaturity in terms of development. Elsewhere
we have no exposure to Indonesia, and small positions in Thailand and Malaysia.
Korea provides stock specific opportunities in export sectors, given its
competitive industrial base. In Taiwan we expect to increase exposure when we
have greater confidence in the technology sector, in which Taiwanese companies
continue to be both competitive and well managed.
Overall the financial dislocation of 1997 is now resulting in deep recessions,
asset price adjustment and solvency difficulties. There is, after a decade of
strong growth, undoubtedly a need for a cleansing process, restructuring,
greater transparency, and a more robust regulatory environment. Foreign capital
is essential for recovery over a reasonable time frame, which is likely to
return with the appropriate policy framework, and the restoration of confidence.
This would have a dramatic impact on interest rates and sentiment. This will
take time, and the balance of 1998 is likely to remain difficult both for the
economies of the region and their capital markets.
Nevertheless we believe the most traumatic period is now behind us, and we hope
to report a more positive environment when we next write to you.
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., P.O. Box 419368,
Kansas City, MO 64141-6368 or call (800) 992-0180.
We thank you for giving us the 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 24.
22
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
COMPARISON OF A $10,000 INVESTMENT through June 30, 1998
- --------------------------------------------------------------------------------
Comparison of the Change in Value of a $10,000 Investment in Pilgrim America
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 charge in all cases.
9/1/98 6/30/96 6/30/97 6/30/98
------ ------- ------- -------
Asia-Pacific Equity Fund A 9,425 9,780 10,345 4,211
MSCI Far East ex Japan 10,000 11,386 11,707 4,780
(Free) Index
Average Annual Total Returns
As of June 30, 1998
Ending
Redeemable
1 Year Inception* Value
--------- ------------ ------------
Asia-Pacific Equity Fund Class A -61.55% -26.27% $4,211
MSCI Far East ex Japan (Free) Index -60.49% -22.96% $4,780
*September 1, 1995 (Commencement of Operations)
Past performance is no guarantee of future results.
See Footnotes on Page 24.
23
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(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, 1998, and
from September 1, 1995 (commencement of operations) to June 30, 1998, were
-61.55% and -26.27%, 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.
All return figures reflect a partial waiver of fees for the periods stated.
Without such a waiver, returns would have been lower.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
Principal risk factors: exposure to financial and market risks that accompany
investment in equities, and exposure to changes in currency exchange rates and
economic and political risks of foreign investing.
This letter contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
24
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder:
It is our pleasure to share with you the results of operations for the Pilgrim
America High Yield Fund ("the Fund") for the year ended June 30, 1998.
With the economic crisis in Asia and a weakening equity market, some of the
optimism in the high yield market has begun to wane. Investors have become
increasingly concerned about the spillover effect from collapsing economies
overseas. The fear of cheap imports as well as a reduction in demand for the
domestic export market has given the market reason to reassess individual
credits. Performance results for the year ending June 30, 1998, were above
average. The Fund had a total return of 11.71%(1) versus the Lipper High Current
Yield average of 11.45%. These results ranked the Fund 81 of 215 comparable
funds in the High Current Yield category for the same period.(1)(2)(3)
Monetary policy has remained steady in the United States for the last twelve
months, as the Federal Funds rate target was unchanged at 5.50%. The Federal
Open Market Committee had feared the domestic economy was overheating in the
second half of 1997, but did not tighten monetary policy in the US as the
initial hits to the Asian currencies began. The situation has worsened overseas
in 1998 and has continued to keep the FOMC on hold. They are still very
concerned about inflation, particularly wage inflation, but also realize that
the dramatically weaker currencies of the Pacific Rim countries could present a
slower economic growth scenario for the US.
The interest rate environment has been friendly to corporations the last year.
Short-term interest rates have remained relatively unchanged with the Prime Rate
not moving from 8.50% and three-month LIBOR quoted in a range from 5.60% to
5.90%. Short term interest rates are important for high yield issuers because
many of the companies that issue long term bonds also borrow short term at rates
that are set at a margin above LIBOR. Low short-term rates have saved money and
helped increase cash flows for high yield issuers.
Long-term interest rates have improved dramatically for high yield issuers
during the last twelve months as ten year Treasuries have fallen from the 6.40%
area to the 5.40% area. This has helped lower the long term cost of capital for
many of the companies in which the Fund invests, which is credit positive, but
also has the negative effect of lowering available yields on assets the Fund
purchases. Every effort is made to maintain the Fund's dividend without
compromising credit quality. This is an area that we, your Fund's management,
have emphasized as we invest in high yield issues.
High yield issues have traded in a range of approximately 250 to 340 basis
points off ten-year treasuries in the last year, according to the KDP High Yield
Index. Spreads, which are a measure of additional yield paid above treasuries
for the risk we take owning these securities, have generally widened during the
year. This reflects the market's concern about an economic slowdown in the US as
a result of the problems in Asia. While spread widening is very much a concern
for us, we believe that ultimately international problems will not drive the
domestic economy into a recession.
New issues set a blistering pace for the calendar year 1997 totaling a record
$125.5 billion. The first six months of 1998 have similarly been very active
with issuance totaling $97.2 billion versus $55.3 billion for the comparable
period in 1997. This places the high yield market on a pace to break the new
issuance record again in 1998. However, as the second half of 1998 has begun
issuance has slowed as investors have become more concerned about earnings and
some high yield mutual funds have experienced
25
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
redemptions. We remain cautious about the outlook for the calendar in the second
half of 1998, at the same time, we realize there are opportunities in the
occasional dips that occur in our market as profit taking occurs.
Top industry weightings include Communications, Retail, and Media &
Entertainment. Gaming, formerly one of our top industry weightings was reduced,
as we have become concerned about overbuilding in the Las Vegas market and new
competition creating over saturation in some of the regional markets. Retail has
been added to the top holding list. Issues purchased include Tuesday Morning and
Advance Stores. In the current strong domestic consumption environment these
issues should perform well. Long term we are concerned about aging population
demographic effects on this sector, but we believe these factors will take a
much longer time frame to develop, changing the cash flow picture for these
companies.
Assets of the Fund have continued to grow in 1998. This reflects both the good
performance of the Fund within the high yield asset class, and the general
popularity of high yield bonds. During the early part of 1998 we have been
accumulating cash as we have observed valuations in the equity markets reaching
historically high levels and spreads on high yield bonds remaining relatively
tight. We remain cautious on the market and will not hesitate to increase cash
if we feel the market does not recognize value.
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 419368,
Kansas City, Missouri 64141-6368 or call (800) 992-0180.
Thank you for the opportunity to serve your high yield investment needs. If you
have any questions or comments, please do not hesitate to contact us.
Sincerely,
/s/ Kevin G. Mathews
Kevin G. Mathews
Vice President and Senior Portfolio Manager
Pilgrim America Group, Inc.
See Footnotes on Page 28.
26
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
COMPARISON OF A $10,000 INVESTMENT through June 30, 1998
- --------------------------------------------------------------------------------
Comparison of the Change in Value of a $10,000 Investment in Pilgrim America
High Yield Fund, the Lehman Brothers High Yield Index (the "Lehman Index") and
the CS First Boston High Yield Index (the "First Boston Index").
Based on a $10,000 initial investment, the graph below illustrates the total
return of Pilgrim America High Yield Fund against the Lehman Index and the First
Boston Index. Note that the Lehman Index and the First Boston Index have
inherent performance advantages over any fund since they have no cash in their
portfolios, impose no sales charges and incur 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.
<TABLE>
<CAPTION>
6/30/88 6/30/89 6/30/90 6/30/91 6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield Fund A 9,522 10,255 9,879 10,720 13,202 15,366 16,027 17,571 19,806 23,202 25,918
Lehman High Yield A 10,000 10,917 10,759 12,300 15,310 17,752 18,383 20,925 22,950 26,138 29,107
CS First Boston High Yield 10,000 10,967 10,759 12,447 15,579 18,222 19,013 21,389 23,522 26,972 29,934
</TABLE>
Average Annual Total Returns
As of June 30, 1998
<TABLE>
<CAPTION>
Ending
Redeemable
1 Year 5 Year 10 Year Value
-------- -------- --------- ------------
<S> <C> <C> <C> <C>
High Yield Fund Class A ............... 6.39% 9.95% 9.99% $25,918
Lehman High Yield Index ............... 11.36% 11.02% 11.28% $29,107
CS First Boston High Yield Index ...... 10.98% 10.44% 11.59% $29,934
</TABLE>
Past performance is no guarantee of future results.
See Footnotes on Page 28.
27
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(1) Total return figures and rankings reflect a partial waiver of expenses for
the period stated. Performance figures shown pertain only to Class A shares
of the Fund without deducting the 4.75% maximum sales charge. The average
annual total returns for the one, five and ten-year periods ended June 30,
1998, after deduction of the Class A maximum sales charge of 4.75% were
6.39%, 9.95% and 9.99%, 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 3.25% for the year ended June 30, 1998 were 5.90% and 7.52%,
respectively.
(2) Lipper Analytical Services, Inc. ranked Class A shares of the Fund for total
return, without deducting sales charges and assuming reinvestments of all
dividends and distributions, and reflecting a partial waiver of expenses.
For the five and ten-year periods ended June 30, 1998, the Fund ranked 12
and 23 out of 76 and 52 funds, respectively. Performance figures shown
pertain only to Class A shares of the Fund. Class B and Class M shares,
which are also offered by the Fund, are subject to different fees and
expenses which will affect their performance.
(3) The Lipper High Current Yield average is an average of one-year returns for
215 funds in that Lipper category as of June 30, 1998. For the five and
ten-year periods ended June 30, 1998, the Lipper High Current Yield average
returns were 9.90% and 10.23% for 76 and 52 funds, respectively.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
Principal risk factors: exposure to financial, market and interest rate risks.
High yields reflect the higher credit risks associated with certain lower rated
securities in the Fund's portfolio and in some cases, the lower market prices
for those instruments.
This letter contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
28
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to report the results of operations for the Pilgrim Government
Securities Income Fund ("the Fund") for the year ended June 30, 1998. As of June
30, 1998, the Fund's 30-day standardized SEC yield was 3.84%(1). The average
annual total returns for the one, five, and ten year periods ended June 30,
1998, the reinvestment of all dividends and distributions were 7.63%, 4.87%, and
6.88%, respectively(1).
General Economic and Market Environment
In reviewing last year's shareholder letter, I find that not much has changed in
the economic environment. The Asian economies have been weaker than expected but
their impact on the United States economy has so far been minimal. I would argue
that the Asian crisis has been Goldilocks' best friend. I say this because it
has moderated growth in the United States while containing price inflation.
On the employment front, the unemployment rate has declined from 5.0% (as of
June 97) to 4.5% today; however, the employment cost index (a measure of wage
inflation) has not risen. This relation-ship between employment and inflation
does not follow traditional economic theory. The Federal Reserve, which is
responsible for maintaining price stability, must be nervous about the
historically low unemployment rate and its impact on future inflation.
Mortgage Securities Market in Particular
The last twelve months have not been kind to mortgage securities. The low
interest rate environ-ment has caused the mortgage refinance index to rise to
historic levels. This has been exasperated by the increased sophistication of
the average homeowner who receives numerous solicitations to refinance his
mortgage. Management has reduced its impact from prepayments by reallocating the
portfolio's mortgage concentration into the agency market where prepayment risk
does not exist. Although allowed by the prospectus, management continues its
pledge to avoid mortgage derivatives while emphasizing more stable, seasoned
mortgage pass-throughs.
Analysis of the Pilgrim Government Securities Income Fund
The effective duration (a measure of price sensitivity) of the portfolio as of
June 30, 1998, was approximately 4.0, slightly below the Lehman
Government/Mortgage Index and significantly below most other government
securities funds. During most of the second half of 1998, management maintained
a portfolio duration either at or slightly below the benchmark. The Fund strives
to provide competitive returns while having less volatility and more downside
protection than most other government securities funds. That being said, the
strong bullish environment that has prevailed over the last twelve months is not
one in which this Fund excels. It is our belief that the strategy and philosophy
that we adhere to is one that will provide the potential for an attractive
long-term risk/reward profile. The
29
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
Fund continues its ongoing commitment to shareholders of avoiding the risks
associated with exotic derivatives, leverage, as well as futures and options.
For the second half of 1998, we believe that economic growth will remain slow,
however, we do not see recessionary conditions. Consumer demand remains strong
and manufacturing should improve towards the end of 1998 as inventories return
to normalized levels. The one risk to the economy is not Asia but rather the
stock market. A significant correction in the stock market could stifle consumer
demand as discretionary incomes decline and consumer confidence is negatively
impacted. Looking forward, the Federal Reserve will most likely take no action
on monetary policy for the foreseeable future. The strong labor market will keep
the Federal Reserve fearful of inflation and therefore, hesitant to ease rates.
The weak Asian economies and their impact on the United States (both direct and
indirect) will keep them from raising rates. As we go to press, the thirty-year
treasury is currently trading just above 5.50% and the two-year treasury just
below 5.375%. The yield curve is very flat with not much difference in yield
between the two and thirty-year treasury. Historically, the yield curve does not
stay flat for long. The probability is high that the yield curve will revert
back to a normal upward sloping curve within the next six months.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way of acquiring
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic reinvestment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box
419338, Kansas City, Missouri 64141-6338 or call (800) 992-0180.
Thank you for your continued support, and do not hesitate to contact us with any
comments or questions regarding the Fund.
Sincerely,
/s/ Charles G. Ullerich
Charles G. Ullerich, C.F.A.
Portfolio Manager
Pilgrim America Investments, Inc.
See Footnotes on Page 32.
30
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
COMPARISON OF A $10,000 INVESTMENT through June 30, 1998
- --------------------------------------------------------------------------------
Comparison of the Change in Value of a $10,000 Investment in Pilgrim Government
Securities Income Fund, the Lehman Brothers GNMA Index, the Lehman Brothers
Intermediate Government Securities Index and the Lehman Brothers Treasuries
Index.
Based on a $10,000 initial investment, the graph below illustrates the total
return of Pilgrim Government Securities Income Fund against the Lehman Brothers
GNMA Index, the Lehman Brothers Intermediate Government Securities Index and the
Lehman Brothers Treasuries Index. Note that the Lehman Brothers Indices have
inherent performance advantages over any fund since they have no cash in the
portfolios, impose no sales charges and incur 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.
<TABLE>
<CAPTION>
6/30/88 6/30/89 6/30/90 6/30/91 6/30/92 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 6/30/98
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gov't Securities Income A 9,525 10,494 11,177 12,204 13,309 14,616 14,251 15,528 16,046 17,222 18,536
Lehman GNMA Index 10,000 11,224 12,309 13,785 15,701 17,130 16,911 19,025 20,170 22,058 23,999
Lehman Intermediate
Gov't Index 10,000 11,009 11,859 13,109 14,795 16,280 16,249 17,833 18,713 20,013 21,690
Lehman Treasuries Index 10,000 11,222 11,986 13,187 14,999 16,949 16,719 18,735 19,572 21,001 23,380
</TABLE>
Average Annual Total Returns
As of June 30, 1998
<TABLE>
<CAPTION>
Ending
Redeemable
1 Year 5 Year 10 Year Value
-------- -------- --------- ------------
<S> <C> <C> <C> <C>
Government Securities Income Fund A ...... 7.63% 4.87% 6.88% $18,536
Lehman GNMA Index ........................ 8.80% 6.98% 9.15% $23,999
Lehman Intermediate Government Index ...... 8.38% 5.91% 8.05% $21,690
Lehman Treasuries Index .................. 11.33% 6.65% 8.86% $23,380
</TABLE>
Past performance is no guarantee of future results.
See Footnotes on Page 32.
31
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(1) Total return and yield figures reflect a partial waiver of expenses for some
of the periods stated. Performance figures shown pertain only to Class A
shares of the Fund excluding the 4.75% maximum sales charge. The average
annual total returns for the one, five and ten-year periods ended June 30,
1998, including the Class A maximum sales charge were 2.55%, 3.85% and
6.37%, respectively. The 30-day standardized SEC yields for Class B and M
shares as of June 30, 1998, were 3.36% and 3.44%, respectively.
Total returns for Class B and M shares for the year ended June 30, 1998,
including the maximum contingent deferred sales charge of 5.00% (Class B
shares only) or the maximum sales charge of 3.25% (Class M shares only) and
assuming reinvestment of all dividends and distributions were 1.78% and
3.52%, respectively. Total returns for Class B and M shares excluding sales
charges and assuming reinvestment of all dividends and distributions were
6.78% and 7.02%, respectively for the year ended June 30, 1998.
The Fund earned income and realized capital gains as a result of entering
into reverse repurchase agreements during the six month period from July to
December, 1992. Therefore the Fund's performance was higher than it would
have been had the Fund adhered to its 10% borrowing investment restriction.
(2) The Lehman Brothers GNMA, Intermediate Government and Treasuries Indices are
unmanaged market indices representative of different types of holdings in
the Fund's portfolio.
Performance data represents past performance and is no assurance of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when sold, may be worth more or less than their original
cost.
This letter contains statements that may be "forward-looking" statements. Actual
results may differ materially from those projected in the "forward-looking"
statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
32
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
Pilgrim America Funds:
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Pilgrim America Bank and Thrift Fund, Pilgrim
America MagnaCap Fund, Pilgrim America MidCap Value Fund, Pilgrim America
LargeCap Value Fund, Pilgrim America Asia-Pacific Equity Fund, Pilgrim America
High Yield Fund, and Pilgrim Government Securities Income Fund as of June 30,
1998, and the related statements of operations for the year then ended, except
for the Pilgrim America Bank and Thrift Fund which are for the six-month period
ended June 30, 1998, and the year ended December 31, 1997, and the statements of
changes in net assets for each of the years in the two-year period ended June
30, 1998 except for the Pilgrim America Bank and Thrift Fund which are for the
six-month period ended June 30, 1998, and each of the years in the two-year
period ended December 31, 1997, and financial highlights for the six months
ended June 30, 1998 and each of the years in the three-year period ended
December 31, 1997 for the Pilgrim America Bank and Thrift Fund, for each of the
years in the four-year period ended June 30, 1998 for the Pilgrim America
MagnaCap Fund and Pilgrim Government Securities Income Fund, for each of the
years in the two-year period ended June 30, 1998, and the period from September
1, 1995 (commencement of operations) to June 30, 1996, for the Pilgrim America
MidCap Value Fund, Pilgrim America LargeCap Value Fund, and Pilgrim America
Asia-Pacific Equity Fund, and for each of the years in the three-year period
ended June 30, 1998, and the eight-month period ended June 30, 1995, for the
Pilgrim America High Yield Fund. 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. For all periods ending prior to January 1, 1995 for Pilgrim
America Bank and Thrift Fund, and all periods ended prior to July 1, 1994, for
Pilgrim America MagnaCap Fund and Pilgrim Government Securities Income Fund, for
all periods ending prior to November 1, 1994 for Pilgrim America High Yield
Fund, the financial highlights were audited by other auditors whose reports
thereon dated January 19, 1995, July 22, 1994 and November 17, 1995,
respectively, expressed unqualified opinions on those financial highlights.
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 misstatements. 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, 1998, by correspondence with custodians 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 aforementioned funds as of June 30, 1998, the results of their
operations, the changes in their net assets, and financial highlights for each
of the 1995 through 1998 years or periods indicated above in conformity with
generally accepted accounting principals.
KPMG PEAT MARWICK LLP
Los Angeles, California
July 31, 1998
33
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES As of June 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bank and MidCap
Thrift MagnaCap Value
Fund Fund Fund
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in securities at market value (Cost $547,761,252
$307,227,777 and $61,674,394, respectively) $826,899,911 $425,441,014 $ 72,573,349
Affiliated Issuers (Cost $4,064,062) 3,995,000 -- --
Short-term investments at amortized cost 79,817,000 17,084,000 9,965,000
Cash 22,958 13,244 19,713
Receivables:
Fund shares sold 9,488,821 657,096 364,774
Dividends and interest 857,359 568,511 51,469
Due from affiliate -- -- 5,638
Investment securities sold -- -- 1,247,380
Prepaid expenses 124,677 53,504 22,700
Deferred organization expenses -- -- 56,525
------------- ------------- -------------
Total Assets 921,205,726 443,817,369 84,306,548
------------- ------------- -------------
LIABILITIES:
Payable for investment securities purchased 11,066,397 895,900 2,875,166
Payable for fund shares redeemed 766,373 1,429,008 86,091
Payable to affiliate 13,000 4,000 1,000
Other accrued expenses and liabilities 251,537 267,303 52,777
------------- ------------- -------------
Total Liabilities 12,097,307 2,596,211 3,015,034
------------- ------------- -------------
NET ASSETS $909,108,419 $441,221,158 $ 81,291,514
============= ============= =============
NET ASSETS CONSIST OF:
Paid-in capital $623,029,322 $276,915,083 $ 66,624,460
Undistributed net investment income 2,306,539 -- --
Accumulated net realized gain on investments 4,702,961 46,092,838 3,768,099
Net unrealized appreciation of investments 279,069,597 118,213,237 10,898,955
------------- ------------- -------------
Net Assets $909,108,419 $441,221,158 $ 81,291,514
============= ============= =============
Class A:
Net assets $549,281,761 $348,758,838 $ 27,484,859
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 100,000,000 80,000,000 28,000,000
Shares outstanding 19,959,143 20,428,975 1,636,942
Net asset value and redemption price per share $ 27.52 $ 17.07 $ 16.79
Maximum offering price per share(1) $ 29.20 $ 18.11 $ 17.81
Class B:
Net assets $359,826,658 $ 77,786,761 $ 40,574,456
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 100,000,000 80,000,000 28,000,000
Shares outstanding 13,131,548 4,614,763 2,463,511
Net asset value, redemption and offering price per share(2) $ 27.40 $ 16.86 $ 16.47
Maximum offering price per share(2) $ 27.40 $ 16.86 $ 16.47
Class M:
Net assets $ -- $ 14,675,559 $ 13,232,199
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) -- 40,000,000 14,000,000
Shares outstanding -- 865,956 800,889
Net asset value and redemption price per share $ -- $ 16.95 $ 16.52
Maximum offering price per share(3) $ -- $ 17.56 $ 17.12
</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
34
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES As of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LargeCap Asia-Pacific Government
Value Equity High Yield Securities
Fund Fund Fund Income Fund
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities at market value (Cost $22,994,397,
$33,736,612, $235,368,035 and $24,915,749,
respectively) $ 27,679,748 $ 21,649,056 $235,033,203 $ 25,199,957
Short-term investments at amortized cost 1,072,000 3,881,000 36,615,000 1,586,000
Cash 39,438 79,337 41,995 10,493
Receivables:
Fund shares sold 36,454 37,352 5,073,459 81,946
Dividends and interest 33,851 94,707 4,569,744 278,379
Due from affiliate 20,824 13,910 19,932 --
Investment securities sold -- 3,916 5,127,854 --
Other -- -- -- 5,344
Prepaid expenses 17,046 18,654 46,174 16,123
Deferred organization expenses 56,525 56,525 -- --
------------- ------------- ------------ --------------
Total Assets 28,955,886 25,834,457 286,527,361 27,178,242
------------- ------------- ------------ --------------
LIABILITIES:
Payable for investment securities purchased 134,085 -- 9,503,750 --
Payable for fund shares redeemed 22,339 553,309 444,739 8,385
Payable to affiliate 850 2,500 2,000 200
Other accrued expenses and liabilities 54,210 133,352 65,184 43,919
------------- ------------- ------------ --------------
Total Liabilities 211,484 689,161 10,015,673 52,504
------------- ------------- ------------ --------------
NET ASSETS $ 28,744,402 $ 25,145,296 $276,511,688 $ 27,125,738
============= ============= ============ ==============
NET ASSETS CONSIST OF:
Paid-in capital $ 23,361,324 $ 62,095,868 $284,645,744 $ 32,617,081
Undistributed (overdistributed) net investment income -- (182,809) 1,300,067 --
Accumulated net realized gain (loss) on investments
and foreign currency transactions 697,727 (24,680,224) (9,099,291) (5,775,551)
Net unrealized appreciation (depreciation) of investments
and other assets, liabilities and forward contracts
denominated in foreign currencies 4,685,351 (12,087,539) (334,832) 284,208
------------- ------------- ------------ --------------
Net Assets $ 28,744,402 $ 25,145,296 $276,511,688 $ 27,125,738
============= ============= ============ ==============
Class A:
Net assets $ 7,606,252 $ 11,796,384 $102,424,365 $ 23,682,312
Shares authorized ($0.10, $1.00 and $0.00 par value,
respectively) 28,000,000 24,000,000 80,000,000 1,000,000,000
Shares outstanding 517,272 2,647,775 14,769,012 1,839,287
Net asset value and redemption price per share $ 14.70 $ 4.46 $ 6.94 $ 12.88
Maximum offering price per share(1) $ 15.60 $ 4.73 $ 7.29 $ 13.52
Class B:
Net assets $ 15,605,341 $ 9,083,593 $154,302,700 $ 3,219,939
Shares authorized ($0.10, $1.00 and $0.00 par value,
respectively) 28,000,000 24,000,000 80,000,000 1,000,000,000
Shares outstanding 1,081,073 2,078,785 22,304,824 250,823
Net asset value, redemption and offering price per share(2) $ 14.44 $ 4.37 $ 6.92 $ 12.84
Maximum offering price per share(2) $ 14.44 $ 4.37 $ 6.92 $ 12.84
Class M:
Net assets $ 5,532,809 $ 4,265,319 $ 19,784,623 $ 223,487
Shares authorized ($0.10, $1.00 and $0.00 par value,
respectively) 14,000,000 12,000,000 40,000,000 1,000,000,000
Shares outstanding 380,211 968,740 2,858,403 17,356
Net asset value and redemption price per share $ 14.55 $ 4.40 $ 6.92 $ 12.88
Maximum offering price per share(3) $ 15.08 $ 4.56 $ 7.15 $ 13.31
</TABLE>
- ------------
(1) Maximum offering price is computed at 100/94.25 of net asset value for
LargeCap Value and Asia-Pacific Equity Fund and 100/95.25 of net asset value
for High Yield Fund and Government Securities Income Fund. 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 for
LargeCap Value Fund and Asia-Pacific Equity Fund and 100/96.75 of net
asset value for High Yield Fund and Government Securities Income Fund. On
purchases of $50,000 or more, the offering price is reduced.
See Accompanying Notes to Financial Statements
35
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MidCap
MagnaCap Value
Bank and Thrift Fund Fund Fund
--------------------------------- ------------- --------------
Six Months Year Ended Year Ended Year Ended
Ended June 30, December 31, June 30, June 30,
1998 1997 1998 1998
---------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,035,958 $ 627,412 $ 890,523 $ 219,590
Redemption Fee Income 408,264 630,157 -- --
Dividends (net of foreign withholding taxes of
$8,030, $10,962, $42,060 and $6,156,
respectively) 5,812,718 6,710,470 5,569,658 604,393
----------- ------------ ----------- ------------
Total investment income 7,256,940 7,968,039 6,460,181 823,983
----------- ------------ ----------- ------------
EXPENSES:
Investment management fees 2,446,063 2,361,103 2,846,061 678,816
Distribution expenses
Class A Shares 579,328 182,388 968,928 56,593
Class B Shares 1,079,655 76,709 590,009 338,344
Class M Shares -- -- 85,446 85,576
Conversion expenses -- 399,900 -- --
Transfer agent and registrar fees 515,992 65,986 664,400 164,172
Custodian fees 65,165 72,373 84,160 20,183
Professional fees 41,547 47,889 85,883 29,093
Registration and filing fees 14,849 -- 94,636 45,628
Organization expense -- -- -- 26,017
Shareholder servicing fee 56,435 18,586 65,313 13,417
Reports to shareholders 61,206 129,937 168,305 30,383
Miscellaneous expenses 1,299 96,884 32,248 8,764
Recordkeeping and pricing fees 62,965 79,151 82,803 14,449
Insurance expense 16,824 13,766 37,611 5,050
Directors' fees 11,112 22,408 30,294 4,728
----------- ------------ ----------- ------------
Total expenses 4,952,440 3,567,080 5,836,097 1,521,213
----------- ------------ ----------- ------------
Less:
Waived and reimbursed fees -- -- -- (21,934)
Earnings credits (2,039) (7,361) (2,036) (1,574)
----------- ------------ ----------- ------------
Net expenses 4,950,401 3,559,719 5,834,061 1,497,705
----------- ------------ ----------- ------------
Net investment income (loss) 2,306,539 4,408,320 626,120 (673,722)
----------- ------------ ----------- ------------
REALIZED AND UNREALIZED GAIN
FROM INVESTMENTS:
Net realized gain from investments 4,702,961 40,749,713 63,902,750 5,591,383
Net change in unrealized appreciation
of investments 25,621,214 117,597,499 7,551,908 5,351,298
----------- ------------ ----------- ------------
Net gain from investments 30,324,175 158,347,212 71,454,658 10,942,681
----------- ------------ ----------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $32,630,714 $162,755,532 $72,080,778 $ 10,268,959
=========== ============ =========== ============
</TABLE>
See Accompanying Notes to Financial Statements
36
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LargeCap Asia-Pacific Government
Value Equity High Yield Securities
Fund Fund Fund Income Fund
------------- ----------------- -------------- -------------
Year Ended Year Ended Year Ended Year Ended
June 30, June 30, June 30, June 30,
1998 1998 1998 1998
------------- ----------------- -------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 71,447 $ 200,395 $16,145,138 $1,913,517
Dividends (net of foreign withholding taxes of
$0, $62,261, $0 and $0, respectively) 440,218 841,086 -- --
----------- ------------- ------------ ----------
Total investment income 511,665 1,041,481 16,145,138 1,913,517
----------- ------------- ------------ ----------
EXPENSES:
Investment management fees 286,830 553,589 977,868 144,487
Distribution expenses
Class A Shares 21,208 50,935 151,235 66,414
Class B Shares 149,117 172,593 854,684 21,853
Class M Shares 39,659 49,902 110,681 1,100
Transfer agent and registrar fees 124,754 235,176 218,550 127,763
Custodian fees 20,063 127,220 59,179 32,516
Professional fees 20,115 32,524 40,195 10,805
Registration and filing fees 35,800 55,936 60,856 26,095
Organization expense 26,017 26,017 -- --
Shareholder servicing fee 7,202 19,695 27,366 6,301
Reports to shareholders 13,322 27,694 58,035 11,563
Miscellaneous expenses 37,162 18,439 6,832 10,808
Recordkeeping and pricing fees 6,224 10,052 41,767 6,913
Insurance expense 2,880 8,181 9,039 3,713
Directors' fees 2,155 4,944 9,345 1,870
----------- ------------- ------------ ----------
Total expenses 792,508 1,392,897 2,625,632 472,201
----------- ------------- ------------ ----------
Less:
Waived and reimbursed fees (151,645) (355,259) (269,351) (20,563)
Earnings credits (677) (3,052) (40,599) --
----------- ------------- ------------ ----------
Net expenses 640,186 1,034,586 2,315,682 451,638
----------- ------------- ------------ ----------
Net investment income (loss) (128,521) 6,895 13,829,456 1,461,879
----------- ------------- ------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments 2,762,882 (22,507,777) 1,228,407 561,221
Foreign currency transactions -- (262,006) -- --
Net change in unrealized appreciation
(depreciation) of:
Investments 1,905,453 (17,738,326) (2,126,621) 100,378
Other assets, liabilities and forward
contracts denominated in foreign
currencies -- 10,172 -- --
----------- ------------- ------------ ----------
Net gain (loss) from investments 4,668,335 (40,497,937) (898,214) 661,599
----------- ------------- ------------ ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 4,539,814 $ (40,491,042) $12,931,242 $2,123,478
=========== ============= ============ ==========
</TABLE>
See Accompanying Notes to Financial Statements
37
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bank and Thrift Fund MagnaCap Fund
----------------------------------------------------- -----------------------------------
Six Months Year Year Year Year
Ended Ended Ended Ended Ended
June 30, December 31, December 31, June 30, June 30,
1998 1997 1996 1998 1997
---------------- --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Increase in net assets from
operations
Net investment income $ 2,306,539 $ 4,408,320 $ 4,482,008 $ 626,120 $ 1,667,703
Net realized gain from
investments 4,702,961 40,749,713 29,471,619 63,902,750 74,330,966
Net change in unrealized
appreciation of investments 25,621,214 117,597,499 43,705,991 7,551,908 1,078,094
------------- ------------- ------------- -------------- --------------
Net increase in net assets
resulting from operations 32,630,714 162,755,532 77,659,618 72,080,778 77,076,763
------------- ------------- ------------- -------------- --------------
Distributions to shareholders:
Net investment income:
Class A shares -- (4,332,270) (4,482,008) (626,120) (1,648,742)
Class B shares -- (76,050) -- -- --
Class M shares -- -- -- -- (3,788)
Excess of net investment income:
Class A shares -- (55,332) (395,707) (563,340) --
Class B shares -- (4,451) -- (85,798) --
Class M shares -- -- -- (22,509) --
Net realized gains:
Class A shares -- (36,807,832) (30,200,965) (33,690,960) (67,754,162)
Class B shares -- (3,941,881) -- (6,012,889) (4,722,175)
Class M shares -- -- -- (1,155,826) (802,030)
Excess of net realized gains:
Class A shares -- (119,078) -- -- --
Class B shares -- -- -- -- --
Class M shares -- -- -- -- --
Tax return of capital
Class A shares -- (2,537,766) -- -- --
Class B shares -- (549,279) -- -- --
Class M shares -- -- -- -- --
------------- ------------- ------------- -------------- --------------
Total distributions -- (48,423,939) (35,078,680) (42,157,442) (74,930,897)
------------- ------------- ------------- -------------- --------------
Capital share transactions:
Net proceeds from sale of shares 465,635,786 115,009,912 -- 231,988,722 140,156,531
Shares resulting from dividend
reinvestments -- 20,808,444 8,065 33,942,271 59,470,837
Cost of shares redeemed (48,502,831) (43,147,277) -- (189,163,043) (115,106,546)
------------- ------------- ------------- -------------- --------------
Net increase in net assets
resulting from capital share
transactions 417,132,955 92,671,079 8,065 76,767,950 84,520,822
------------- ------------- ------------- -------------- --------------
Net increase in net assets 449,763,669 207,002,672 42,589,003 106,691,286 86,666,688
------------- ------------- ------------- -------------- --------------
Net assets, beginning of period 459,344,750 252,342,078 209,753,075 334,529,872 247,863,184
------------- ------------- ------------- -------------- --------------
Net assets, end of period** $ 909,108,419 $459,344,750 $ 252,342,078 $ 441,221,158 $ 334,529,872
============= ============= ============= ============== ==============
** Including undistributed
(overdistributed) net
investment income (loss) of: $ 2,306,539 $ -- $ (431,916) $ -- $ 1,290,711
============= ============= ============= ============== ==============
</TABLE>
See Accompanying Notes to Financial Statements
38
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MidCap Value Fund LargeCap Value Fund Asia-Pacific Equity Fund
-------------------------------- -------------------------------- -------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
---------------- --------------- ---------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations
Net investment income (loss) $ (673,722) $ (141,391) $ (128,521) $ (6,512) $ 6,895 $ (245,742)
Net realized gain (loss) from
investments 5,591,383 1,180,396 2,762,882 1,682,366 (22,507,777) (2,050,338)
Net realized loss from foreign
currency transaction -- -- -- -- (262,006) (62,302)
Net change in unrealized
appreciation (depreciation) of
investments 5,351,298 5,149,275 1,905,453 2,599,255 (17,738,326) 5,856,620
Net change in unrealized
appreciation (depreciation) of
other investments denominated
in foreign currency -- -- -- -- 10,172 (12,204)
-------------- ------------- -------------- ------------- -------------- --------------
Net increase (decrease) in net
assets resulting from operations 10,268,959 6,188,280 4,539,814 4,275,109 (40,491,042) 3,486,034
-------------- ------------- -------------- ------------- -------------- --------------
Distributions to shareholders:
Net investment income:
Class A shares -- -- -- -- -- --
Class B shares -- -- -- -- -- --
Class M shares -- -- -- -- -- --
Excess of net investment income:
Class A shares -- (16,602) -- (21,236) -- --
Class B shares -- (9,771) -- (2,711) -- --
Class M shares -- (11,821) -- (1,802) -- --
Net realized gains:
Class A shares (678,728) (87,623) (832,744) (118,836) -- --
Class B shares (1,045,324) (100,153) (1,416,831) (169,692) -- --
Class M shares (353,906) (40,101) (513,305) (60,108) -- --
Excess of net realized gains:
Class A shares -- -- (200,668) -- -- --
Class B shares -- -- (341,418) -- -- --
Class M shares -- -- (123,694) -- -- --
Tax return of capital
Class A shares -- -- -- -- -- (30,685)
Class B shares -- -- -- -- -- --
Class M shares -- -- -- -- (1,611)
-------------- -------------- ------------- -------------- --------------
Total distributions (2,077,958) (266,071) (3,428,660) (374,385) -- (32,296)
-------------- ------------- -------------- ------------- -------------- --------------
Capital share transactions:
Net proceeds from sale of shares 48,268,290 43,491,828 12,124,908 20,775,389 82,247,275 85,779,972
Shares resulting from dividend
reinvestments 1,780,738 229,750 3,054,663 321,069 -- 30,383
Cost of shares redeemed (25,569,526) (7,265,617) (14,837,322) (2,900,008) (90,420,188) (58,091,003)
-------------- ------------- -------------- ------------- -------------- --------------
Net increase (decrease) in net
assets resulting from capital
share transactions 24,479,502 36,455,961 342,249 18,196,450 (8,172,913) 27,719,352
-------------- ------------- -------------- ------------- -------------- --------------
Net increase (decrease) in net
assets 32,670,503 42,378,170 1,453,403 22,097,174 (48,663,955) 31,173,090
-------------- ------------- -------------- ------------- -------------- --------------
Net assets, beginning of period 48,621,011 6,242,841 27,290,999 5,193,825 73,809,251 42,636,161
-------------- ------------- -------------- ------------- -------------- --------------
Net assets, end of period** $ 81,291,514 $ 48,621,011 $ 28,744,402 $ 27,290,999 $ 25,145,296 $ 73,809,251
============== ============= ============== ============= ============== ==============
** Including undistributed
(overdistributed) net
investment income (loss) of: $ -- $ (120,796) $ -- $ 3,755 $ (182,809) $ (49,943)
============== ============= ============== ============= ============== ==============
</TABLE>
See Accompanying Notes to Financial Statements
39
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Government Securities
High Yield Fund Income Fund
--------------------------------- ------------------------------------
Year Year Year Year
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
---------------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets from operations
Net investment income $ 13,829,456 $ 4,415,066 $ 1,461,879 $ 1,965,969
Net realized gain (loss) from investments 1,228,407 1,037,959 561,221 (65,952)
Net change in unrealized appreciation (depreciation) of
investments (2,126,621) 1,455,802 100,378 510,175
-------------- -------------- -------------- ---------------
Net increase in net assets resulting from operations 12,931,242 6,908,827 2,123,478 2,410,192
-------------- -------------- -------------- ---------------
Distributions to shareholders:
Net investment income:
Class A shares (5,189,232) (2,371,451) (1,362,962) (1,929,871)
Class B shares (6,676,547) (1,291,124) (92,626) (34,226)
Class M shares (1,217,170) (353,811) (6,291) (1,872)
Excess of net investment income:
Class A shares -- -- (249,557) (74,945)
Class B shares -- -- (21,100) (632)
Class M shares -- -- (1,314) --
Net realized gains:
Class A shares -- -- -- --
Class B shares -- -- -- --
Class M shares -- -- -- --
Excess of net realized gains:
Class A shares -- -- -- --
Class B shares -- -- -- --
Class M shares -- -- -- --
Tax return of capital
Class A shares -- -- -- (63,350)
Class B shares -- -- -- --
Class M shares -- -- -- (5)
-------------- -------------- -------------- ---------------
Total distributions (13,082,949) (4,016,386) (1,733,850) (2,104,901)
-------------- -------------- -------------- ---------------
Capital share transactions:
Net proceeds from sale of shares 266,689,070 78,745,209 6,954,416 3,683,618
Shares resulting from dividend reinvestments 6,023,875 1,870,419 740,194 898,604
Cost of shares redeemed (81,063,350) (20,802,137) (12,453,169) (12,242,953)
-------------- -------------- -------------- ---------------
Net increase (decrease) in net assets resulting from capital
share transactions 191,649,595 59,813,491 (4,758,559) (7,660,731)
-------------- -------------- -------------- ---------------
Net increase (decrease) in net assets 191,497,888 62,705,932 (4,368,931) (7,355,440)
-------------- -------------- -------------- ---------------
Net assets, beginning of period 85,013,800 22,307,868 31,494,669 38,850,109
-------------- -------------- -------------- ---------------
Net assets, end of period** $ 276,511,688 $ 85,013,800 $ 27,125,738 $ 31,494,669
============== ============== ============== ===============
** Including undistributed (overdistributed)
net investment income (loss) of: $ 1,300,067 $ 553,560 $ -- $ (76,374)
============== ============== ============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
40
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended --------------------------------
June 30, 1998* 1997 1996
------------------------------------- -------------------------------- ------------
Class A Class B(a) Class A Class B(a)
------------------ ------------------ ------------- ------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value,
beginning of year $ 25.87 $ 25.85 $ 17.84 $ 25.25 $ 14.83
------------- ------------- ----------- ------------- ----------
Income (loss) from investment
operations:
Net investment income 0.11 0.01 0.34 0.04 0.32
Net realized and unrealized
gain (loss) on investments 1.54 1.54 10.83 2.92 5.18
------------- ------------- ----------- ------------- ----------
Total from investment operations 1.65 1.55 11.17 2.96 5.50
------------- ------------- ----------- ------------- ----------
Less distributions:
Net investment income -- -- 0.31 0.04 0.32
Excess of net investment
income -- -- -- -- 0.03
Realized capital gains -- -- 2.65 2.04 2.14
Tax return of capital -- -- 0.18 0.28 --
------------- ------------- ----------- ------------- ----------
Total distributions 0.00 0.00 3.14 2.36 2.49
------------- ------------- ----------- ------------- ----------
Other:
Reduction in net asset value
from rights offering -- -- -- -- --
------------- ------------- ----------- ------------- ----------
Net asset value, end of year $ 27.52 $ 27.40 $ 25.87 $ 25.85 $ 17.84
============= ============= =========== ============= ==========
Closing market price, end of year -- -- -- -- $ 15.75
Total investment return at
Market Value(c) -- -- -- -- 43.48%
Total investment return at
Net Asset Value(e) 6.38 % 6.00 % 64.86 % 11.88 % 41.10%
Ratios/Supplemental Data
Net assets, end of year ($millions) $ 549 $ 360 $ 383 $ 76 $ 252
Ratios to average net assets:
Expenses 1.20 (h)) 1.95 (h)) 1.10 % 1.89 (h)) 1.01%
Net investment income 0.94 (h)) 0.19 (h)) 1.39 % 0.99 (h)) 1.94%
Portfolio turnover rate 2% 2% 22% 22% 21%
Average commission rate paid(i) $ 0.023 $ 0.023 $ 0.013 $ 0.013 --
<CAPTION>
1995(b) 1994 1993 1992 1991
------------ ------------ -------------- ----------------- ----------- -
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value,
beginning of year $ 10.73 $ 11.87 $ 12.46 $ 10.12 $ 7.49
---------- ------------ ------------ ------------ ----------
Income (loss) from investment
operations:
Net investment income 0.31 0.26 0.26 0.22 0.24
Net realized and unrealized
gain (loss) on investments 4.78 (0.53) 0.75 2.93 3.33
---------- ------------ ------------ ------------ ----------
Total from investment operations 5.09 (0.27) 1.01 3.15 3.57
---------- ------------ ------------ ------------ ----------
Less distributions:
Net investment income 0.31 0.22 0.26 0.22 0.24
Excess of net investment
income 0.03 -- -- -- --
Realized capital gains 0.65 0.65 0.73 0.47 --
Tax return of capital -- -- -- 0.12 0.70
---------- ------------ ------------ ------------ ----------
Total distributions 0.99 0.87 0.99 0.81 0.94
---------- ------------ ------------ ------------ ----------
Other:
Reduction in net asset value
from rights offering -- -- (0.61) -- --
---------- ------------ ------------ ------------ ----------
Net asset value, end of year $ 14.83 $ 10.73 $ 11.87 $ 12.46 $ 10.12
========== ============ ============ ============ ==========
Closing market price, end of year $ 12.88 $ 9.13 $ 10.88 $ 11.63 $ 9.50
Total investment return at
Market Value(c) 52.81% (8.85)% 1.95%(d) 31.53% 47.52%
Total investment return at
Net Asset Value(e) 49.69% (1.89)% 7.79%(f) 32.36%(g) 49.49%
Ratios/Supplemental Data
Net assets, end of year ($millions) $ 210 $ 152 $ 168 $ 141 $ 101
Ratios to average net assets:
Expenses 1.05% 1.28% 0.91% 1.24% 1.31%
Net investment income 2.37% 2.13% 2.08% 2.00% 2.68%
Portfolio turnover rate 13% 14% 17% 20% 31%
Average commission rate paid(i) -- -- -- -- --
<CAPTION>
1990 1989 1988
------------ ------------ ------------
<S> <C> <C> <C>
Per Share Operating Performance
Net Asset Value,
beginning of year $ 10.26 $ 9.54 $ 8.17
------------ ---------- ----------
Income (loss) from investment
operations:
Net investment income 0.31 0.30 0.31
Net realized and unrealized
gain (loss) on investments (2.20) 1.50 1.43
------------ ---------- ----------
Total from investment operations (1.89) 1.80 1.74
------------ ---------- ----------
Less distributions:
Net investment income 0.31 0.31 0.37
Excess of net investment
income -- -- --
Realized capital gains -- 0.44 --
Tax return of capital 0.57 0.33 --
------------ ---------- ----------
Total distributions 0.88 1.08 0.37
------------ ---------- ----------
Other:
Reduction in net asset value
from rights offering -- -- --
------------ ---------- ----------
Net asset value, end of year $ 7.49 $ 10.26 $ 9.54
============ ========== ==========
Closing market price, end of year $ 7.13 $ 9.13 $ 7.75
Total investment return at
Market Value(c) (12.45)% 32.25% 30.17%
Total investment return at
Net Asset Value(e) (18.14)% 20.79% 22.58%
Ratios/Supplemental Data
Net assets, end of year ($millions) $ 75 $ 103 $ 96
Ratios to average net assets:
Expenses 1.29% 1.26% 1.18%
Net investment income 3.59% 4.15% 3.28%
Portfolio turnover rate 46% 63% 43%
Average commission rate paid(i) -- -- --
</TABLE>
Footnotes on next page
41
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
(Continued)
- --------------------------------------------------------------------------------
- ------------
* Effective June 30, 1998, Bank and Thrift Fund changed its year end to June
30.
(a) From the period October 20, 1997 (initial offering of Class B shares)
through December 31, 1997.
(b) On April 7, 1995, the Investment Manager acquired the rights to manage the
Fund and certain other mutual funds previously managed by Pilgrim
Management Corporation.
(c) Total return was calculated at market value without deduction of sales
commissions and assuming reinvestment of all dividends and distributions
during the period.
(d) Calculation of total return excludes the effect of the per share dilution
resulting from the Rights Offering as the total account value of a fully
subscribed shareholder was minimally impacted.
(e) Total return is calculated at net asset value without deduction of sales
commissions and assumes reinvestment of all dividends and distributions
during the period. Total investment returns based on net asset value, which
can be higher or lower than market value, may result in substantially
different returns than total return based on market value. For all periods
prior to January 1, 1997, the total returns presented are unaudited.
(f) Total return is calculated assuming full participation in the 1993 rights
offering.
(g) Total return is calculated assuming no particpation in the 1992 rights
offering.
(h) Annualized.
(i) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
See Accompanying Notes to Financial Statements
42
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------------------
Year Ended June 30,
-------------------------------------------------------------------------------------------------
1998 1997 1996 1995(a) 1994 1993 1992
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period $ 15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98 $ 10.93
--------- --------- ----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment income
(loss) 0.04 0.10 0.09 0.12 0.15 0.14 0.13
Net realized and
unrealized gain on
investments 3.02 4.16 2.87 2.29 0.89 0.82 1.16
--------- --------- ----------- ----------- ----------- ----------- -----------
Total from investment
operations 3.06 4.26 2.96 2.41 1.04 0.96 1.29
--------- --------- ----------- ----------- ----------- ----------- -----------
Less distributions from:
Net investment income 0.04 0.10 0.06 0.14 0.14 0.12 0.24
Distributions in excess of
net investment income 0.02 0.02 -- -- -- -- --
Realized gains on
investment 1.85 4.91 0.24 0.60 0.59 0.77 --
--------- --------- ----------- ----------- ----------- ----------- -----------
Total distributions 1.91 5.03 0.30 0.74 0.73 0.89 0.24
--------- --------- ----------- ----------- ----------- ----------- -----------
Net asset value,
end of period $ 17.07 $ 15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05 $ 11.98
========= ========= =========== =========== =========== =========== ===========
Total Return(c) 20.53% 30.82% 21.31% 20.61% 9.13% 8.21% 11.93%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 348,759 $ 290,355 $ 235,393 $ 211,330 $ 190,435 $ 197,250 $ 196,861
Ratios to average net
assets:
Expenses 1.37% 1.46% 1.68% 1.59% 1.53% 1.53% 1.60%
Net investment income 0.29% 0.64% 0.54% 0.98% 1.16% 1.09% 1.20%
Portfolio turnover rate 53% 77% 15% 6% 7% 36% 49%
Average commission
rate paid(e) $ 0.0422 $ 0.0686 -- -- -- -- --
<CAPTION>
CLASS B CLASS M
---------------------------------------------- -----------------------------------------------
Year Year July 17, Year Year July 17,
Ended Ended 1995(b)to Ended Ended 1995(b) to
June 30, June 30, June 30, June 30, June 30, June 30,
1998 1997 1996 1998 1997 1996
------------- ------------- ------------------ ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period $ 15.81 $ 16.59 $ 14.22 $ 15.87 $ 16.63 $ 14.22
------------- ------------- ------------- ------------- --------- -------------
Income from investment
operations:
Net investment income
(loss) (0.04) -- 0.06 -- 0.02 0.08
Net realized and
unrealized gain on
investments 2.97 4.13 2.61 2.98 4.16 2.63
------------- ------------- ------------- ------------- --------- -------------
Total from investment
operations 2.93 4.13 2.67 2.98 4.18 2.71
------------- ------------- ------------- ------------- --------- -------------
Less distributions from:
Net investment income -- -- 0.06 -- 0.02 0.06
Distributions in excess of
net investment income 0.03 -- -- 0.05 0.01 --
Realized gains on
investment 1.85 4.91 0.24 1.85 4.91 0.24
------------- ------------- ------------- ------------- --------- -------------
Total distributions 1.88 4.91 0.30 1.90 4.94 0.30
------------- ------------- ------------- ------------- --------- -------------
Net asset value,
end of period $ 16.86 $ 15.81 $ 16.59 $ 16.95 $ 15.87 $ 16.63
============= ============= ============= ============= ========= =============
Total Return(c) 19.76% 29.92% 18.98% 20.00% 30.26% 19.26%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 77,787 $ 37,427 $ 10,509 $ 14,675 $ 6,748 $ 1,961
Ratios to average net
assets:
Expenses 2.07% 2.16% 2.38%(d) 1.82% 1.91% 2.13%(d)
Net investment income (0.41)% (0.04)% 0.07%(d) (0.16)% 0.22% 0.32%(d)
Portfolio turnover rate 53% 77% 15% 53% 77% 15%
Average commission
rate paid(e) $ 0.0422 $ 0.0686 -- $ 0.0422 $ 0.0686 --
</TABLE>
- ------------
(a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(b) Commencement of offering of shares.
(c) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(d) Annualized.
(e) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
See Accompanying Notes to Financial Statements
43
<PAGE>
Pilgrim America MidCap Value Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
-------------------------------------------------
Year Year Ten Months
Ended Ended Ended
June 30, June 30, June 30,
1998 1997 1996 (a)
------------- ------------- ---------------------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 14.64 $ 11.99 $ 10.00
Income from investment Operations
Net investment income (loss) (0.07) (0.02) 0.13
Net realized and unrealized gain on investments 2.71 2.85 1.91
------------- ------------- -------------
Total from investment operations 2.64 2.83 2.04
------------- ------------- -------------
Less distributions:
Net investment income -- -- 0.05
In excess of net investment income -- 0.07 --
Realized gains on investments 0.49 0.11 --
------------- ------------- -------------
Total distributions 0.49 0.18 0.05
------------- ------------- -------------
Net asset value, end of period $ 16.79 $ 14.64 $ 11.99
============= ============= =============
Total Return (b) 18.40% 23.89% 20.48%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 27,485 $ 16,985 $ 2,389
Ratios to average net assets:
Expenses (c)(d)(e) 1.75% 1.75% 1.75%(f)
Net investment income (loss) (c)(d)(e) (0.53)% (0.13)% 2.00%(f)
Portfolio turnover rate 85% 86% 60%(f)
Average commission rate paid (g) $ 0.0421 $ 0.0592 --
<CAPTION>
Class B Class M
------------------------------------------------- ----------------------------
Year Year Ten Months Year Year
Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30,
1998 1997 1996 (a) 1998 1997
------------- ------------- --------------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 14.49 $ 11.94 $ 10.00 $ 14.49 $ 11.93
Income from investment Operations
Net investment income (loss) (0.18) (0.05) 0.07 (0.15) (0.03)
Net realized and unrealized gain on investments 2.65 2.76 1.90 2.67 2.76
------------- ------------- ------------- ------------- -------------
Total from investment operations 2.47 2.71 1.97 2.52 2.73
------------- ------------- ------------- ------------- -------------
Less distributions:
Net investment income -- -- 0.03 -- --
In excess of net investment income -- 0.05 -- -- 0.06
Realized gains on investments 0.49 0.11 -- 0.49 0.11
------------- ------------- ------------- ------------- -------------
Total distributions 0.49 0.16 0.03 0.49 0.17
------------- ------------- ------------- ------------- -------------
Net asset value, end of period $ 16.47 $ 14.49 $ 11.94 $ 16.52 $ 14.49
============= ============= ============= ============= =============
Total Return (b) 17.40% 22.95% 19.80% 17.76% 23.21%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 40,575 $ 23,258 $ 2,123 $ 13,232 $ 8,378
Ratios to average net assets:
Expenses (c)(d)(e) 2.50% 2.50% 2.50%(f) 2.25% 2.25%
Net investment income (loss) (c)(d)(e) (1.28)% (0.90)% 1.27%(f) (1.03)% (0.63)%
Portfolio turnover rate 85% 86% 60%(f) 85% 86%
Average commission rate paid (g) $ 0.0421 $ 0.0592 -- $ 0.0421 $ 0.0592
<CAPTION>
Ten Months
Ended
June 30,
1996 (a)
---------------------
<S> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 10.00
Income from investment Operations
Net investment income (loss) 0.06
Net realized and unrealized gain on investments 1.91
-------------
Total from investment operations 1.97
-------------
Less distributions:
Net investment income 0.04
In excess of net investment income --
Realized gains on investments --
-------------
Total distributions 0.04
-------------
Net asset value, end of period $ 11.93
=============
Total Return (b) 19.82%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 1,731
Ratios to average net assets:
Expenses (c)(d)(e) 2.25%(f)
Net investment income (loss) (c)(d)(e) 1.16%(f)
Portfolio turnover rate 60%(f)
Average commission rate paid (g) --
</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, 1998, the ratios of expenses to average net assets were 1.78%, 2.53%
and 2.28% and the ratios of net investment income (loss) to average net
assets were (0.57)%, (1.32)% and (1.07)% for Class A, B and M shares,
respectively.
(d) 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.
(e) 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.
(f) Annualized.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
See Accompanying Notes to Financial Statements
44
<PAGE>
Pilgrim America LargeCap Value Fund*
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------
Year Year Ten Months
Ended Ended Ended
June 30, June 30, June 30,
1998 1997 1996 (a)
------------- ------------- ------------------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 14.17 $ 11.77 $ 10.00
Income from investment operations
Net investment income (loss) 0.01 0.06 0.07
Net realized and unrealized gain on investments 2.30 2.63 1.87
--------- --------- -------------
Total from investment operations 2.31 2.69 1.94
--------- --------- -------------
Less distributions:
Net investment income -- -- 0.07
In excess of net investment income -- 0.05 0.01
Realized gains on investments 1.59 0.24 0.09
In excess of realized gains 0.19 -- --
--------- --------- -------------
Total distributions 1.78 0.29 0.17
--------- --------- -------------
Net asset value, end of period $ 14.70 $ 14.17 $ 11.77
========= ========= =============
Total Return (b) 17.71% 23.24% 19.56%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 7,606 $ 8,961 $ 2,530
Ratios to average net assets:
Expenses (c)(d)(e) 1.75% 1.75% 1.75%(f)
Net investment income (loss) (c)(d)(e) 0.03% 0.41% 0.65%(f)
Portfolio turnover rate 78% 86% 59%(f)
Average commission rate paid (g) $ 0.0518 $ 0.0586 --
<CAPTION>
Class B Class M
---------------------------------------------- ----------------------------
Year Year Ten Months Year Year
Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30,
1998 1997 1996 (a) 1998 1997
------------- ------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 14.04 $ 11.71 $ 10.00 $ 14.10 $ 11.73
Income from investment operations
Net investment income (loss) (0.10) (0.02) 0.06 (0.07) --
Net realized and unrealized gain on investments 2.28 2.59 1.81 2.30 2.62
------------- ------------- ------------- ------------- -------------
Total from investment operations 2.18 2.57 1.87 2.23 2.62
------------- ------------- ------------- ------------- -------------
Less distributions:
Net investment income -- -- 0.06 -- --
In excess of net investment income -- -- 0.01 -- 0.01
Realized gains on investments 1.59 0.24 0.09 1.59 0.24
In excess of realized gains 0.19 -- -- 0.19 --
------------- ------------- ------------- ------------- -------------
Total distributions 1.78 0.24 0.16 1.78 0.25
------------- ------------- ------------- ------------- -------------
Net asset value, end of period $ 14.44 $ 14.04 $ 11.71 $ 14.55 $ 14.10
============= ============= ============= ============= =============
Total Return (b) 16.91% 22.23% 18.85% 17.20% 22.58%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 15,605 $ 13,611 $ 1,424 $ 5,533 $ 4,719
Ratios to average net assets:
Expenses (c)(d)(e) 2.50% 2.50% 2.50%(f) 2.25% 2.25%
Net investment income (loss) (c)(d)(e) (0.72)% (0.35)% (0.25)%(f) (0.47)% (0.10)%
Portfolio turnover rate 78% 86% 59%(f) 78% 86%
Average commission rate paid (g) $ 0.0518 $ 0.0586 -- $ 0.0518 $ 0.0586
<CAPTION>
Ten Months
Ended
June 30,
1996 (a)
---------------------
<S> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 10.00
Income from investment operations
Net investment income (loss) 0.06
Net realized and unrealized gain on investments 1.83
-------------
Total from investment operations 1.89
-------------
Less distributions:
Net investment income 0.06
In excess of net investment income 0.01
Realized gains on investments 0.09
In excess of realized gains --
-------------
Total distributions 0.16
-------------
Net asset value, end of period $ 11.73
=============
Total Return (b) 19.06%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 1,240
Ratios to average net assets:
Expenses (c)(d)(e) 2.25%(f)
Net investment income (loss) (c)(d)(e) 0.06%(f)
Portfolio turnover rate 59%(f)
Average commission rate paid (g) --
</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, 1998, the ratios of expenses to average net assets were 2.28%, 3.03%
and 2.78% and the ratios of net investment income (loss) to average net
assets were (0.50)%, (1.25)% and (1.00)% for Class A, B and M shares,
respectively.
(d) 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.
(e) 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.
(f) Annualized.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
* Effective November 1, 1997, Pilgrim America Investments, Inc. assumed the
portfolio investment responsibilities of the Fund from ARK Asset Management
Company, Inc.
See Accompanying Notes to Financial Statements
45
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------
Year Year Ten Months
Ended Ended Ended
June 30, June 30, June 30,
1998 1997 1996 (a)
------------- ------------- ------------------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 10.93 $ 10.35 $ 10.00
Income from investment operations:
Net investment income (loss) 0.03 0.02 0.03
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (6.50) 0.58 0.34
------------ --------- -------------
Total from investment operations (6.47) 0.60 0.37
------------ --------- -------------
Less distributions:
Net investment income -- -- --
In excess of net investment income -- -- 0.02
Realized gains on investments -- -- --
Tax return of capital -- 0.02 --
------------ --------- -------------
Total distributions -- 0.02 0.02
------------ --------- -------------
Net asset value, end of period $ 4.46 $ 10.93 $ 10.35
============ ========= =============
Total Return (b) (59.29)% 5.78% 3.76%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 11,796 $ 32,485 $ 18,371
Ratios to average net assets:
Expenses (c)(d)(e) 2.00% 2.00% 2.00%(f)
Net investment income (loss) (c)(d)(e) 0.38% 0.00% 0.33%(f)
Portfolio turnover rate 81% 38% 15%
Average commission rate paid (g) $ 0.0081 $ 0.0096 --
<CAPTION>
Class B Class M
----------------------------------------------- ----------------------------
Year Year Ten Months Year Year
Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30,
1998 1997 1996 (a) 1998 1997
-------------- ------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 10.83 $ 10.31 $ 10.00 $ 10.86 $ 10.32
Income from investment operations:
Net investment income (loss) (0.03) (0.07) (0.01) -- (0.05)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (6.43) 0.59 0.32 (6.46) 0.59
------------- ------------- ------------- ------------- -------------
Total from investment operations (6.46) 0.52 0.31 (6.46) 0.54
------------- ------------- ------------- ------------- -------------
Less distributions:
Net investment income -- -- -- -- --
In excess of net investment income -- -- -- -- --
Realized gains on investments -- -- -- -- --
Tax return of capital -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Total distributions -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Net asset value, end of period $ 4.37 $ 10.83 $ 10.31 $ 4.40 $ 10.86
============= ============= ============= ============= =============
Total Return (b) (59.65)% 5.04% 3.19% (59.48)% 5.26%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 9,084 $ 30,169 $ 17,789 $ 4,265 $ 11,155
Ratios to average net assets:
Expenses (c)(d)(e) 2.75% 2.75% 2.75%(f) 2.50% 2.50%
Net investment income (loss) (c)(d)(e) (0.39)% (0.79)% (0.38)%(f) (0.07)% (0.55)%
Portfolio turnover rate 81% 38% 15% 81% 38%
Average commission rate paid (g) $ 0.0081 $ 0.0096 -- $ 0.0081 $ 0.0096
<CAPTION>
Ten Months
Ended
June 30,
1996 (a)
-------------------
<S> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 10.00
Income from investment operations:
Net investment income (loss) --
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.33
-------------
Total from investment operations 0.33
-------------
Less distributions:
Net investment income --
In excess of net investment income 0.01
Realized gains on investments --
Tax return of capital --
-------------
Total distributions 0.01
-------------
Net asset value, end of period $ 10.32
=============
Total Return (b) 3.32%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 6,476
Ratios to average net assets:
Expenses (c)(d)(e) 2.50%(f)
Net investment income (loss) (c)(d)(e) (0.16)%(f)
Portfolio turnover rate 15%
Average commission rate paid (g) --
</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, 1998, the ratios of expenses to average net assets were 2.80%, 3.55%
and 3.30% and the ratios of net investment income (loss) to average net
assets were (0.42)%, (1.19)% and (0.88)% for Class A, B and M shares,
respectively.
(d) 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.
(e) 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.
(f) Annualized.
(g) For fiscal years beginning on or after September 1, 1995, a fund is
required to disclose its average commission rate per share for trades on
which commissions are charged.
See Accompanying Notes to Financial Statements
46
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-------------------------------------------------------------------------------------------
Eight
Months
Year Ended June 30, Ended Year Ended October 31,
------------------------------------ June 30, -------------------------------------
1998 1997 1996 1995(a)(b) 1994 1993 1992
------------ ----------- ----------- ---------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 6.80 $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77 $ 5.70
Income (loss) from
investment operations:
Net investment income 0.61 0.61 0.59 0.35 0.54 0.53 0.63
Net realized and
unrealized gain (loss)
on investments 0.16 0.43 0.16 0.21 (0.51) 0.70 0.07
-------- ------- ------- ----------- ------- -------- --------
Total from investment
operation 0.77 1.04 0.75 0.56 0.03 1.23 0.70
-------- ------- ------- ----------- ------- -------- --------
Less distributions from:
Net investment income 0.63 0.60 0.54 0.36 0.55 0.53 0.63
Distributions in excess of
net investment income -- -- -- -- -- -- --
-------- ------- ------- ----------- ------- -------- --------
Total distributions 0.63 0.60 0.54 0.36 0.55 0.53 0.63
-------- ------- ------- ----------- ------- -------- --------
Net asset value,
end of period $ 6.94 $ 6.80 $ 6.36 $ 6.15 $ 5.95 $ 6.47 $ 5.77
======== ======= ======= =========== ======= ======== ========
Total Return(d) 11.71% 17.14% 12.72% 9.77% 0.47% 22.12% 12.65%
Ratios/Supplemental Data
Net assets, end of
period (000's) $102,424 $35,940 $18,691 $ 15,950 $16,046 $ 18,797 $ 17,034
Ratios to average net
assets:
Expenses(e)(f)(g) 1.00% 1.00% 1.00% 2.25%(i) 2.00% 2.02% 2.03%
Net investment
income(e)(f)(g)(h) 9.05% 9.54% 9.46% 8.84%(i) 8.73% 8.36% 10.93%
Portfolio turnover rate 209% 394% 399% 166% 192% 116% 193%
<CAPTION>
CLASS B CLASS M
------------------------------------------- ------------------------------------------
July 17, July 17,
Year Ended June 30, 1995(c) to Year Ended June 30, 1995(c)
-------------------------- June 30, ------------------------ June 30,
1998 1997 1996 1998 1997 1996
------------- ------------ ---------------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 6.78 $ 6.36 $ 6.20 $ 6.78 $ 6.36 $ 6.20
Income (loss) from
investment operations:
Net investment income 0.58 0.57 0.48 0.59 0.58 0.50
Net realized and
unrealized gain (loss)
on investments 0.14 0.41 0.14 0.14 0.41 0.14
--------- -------- ----------- -------- --------- -----------
Total from investment
operation 0.72 0.98 0.62 0.73 0.99 0.64
--------- -------- ----------- -------- --------- -----------
Less distributions from:
Net investment income 0.58 0.56 0.46 0.59 0.57 0.48
Distributions in excess of
net investment income -- -- -- -- -- --
--------- -------- ----------- -------- --------- -----------
Total distributions 0.58 0.56 0.46 0.59 0.57 0.48
--------- -------- ----------- -------- --------- -----------
Net asset value,
end of period $ 6.92 $ 6.78 $ 6.36 $ 6.92 $ 6.78 $ 6.36
========= ======== =========== ======== ========= ===========
Total Return(d) 10.90% 16.04% 10.37% 11.16% 16.29% 10.69%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 154,303 $ 40,225 $ 2,374 $ 19,785 $ 8,848 $ 1,243
Ratios to average net
assets:
Expenses(e)(f)(g) 1.75% 1.75% 1.75%(i) 1.50% 1.50% 1.50%(i)
Net investment
income(e)(f)(g)(h) 8.30% 8.64% 9.02%(i) 8.55% 8.93% 9.41%(i)
Portfolio turnover rate 209% 394% 339% 209% 394% 339%
</TABLE>
Footnotes on next page
47
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
(Continued)
- --------------------------------------------------------------------------------
- ------------
(a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(b) Effective November 1, 1994, High Yield Fund changed its year end to June
30.
(c) Commencement of offering of shares.
(d) 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.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were 1.17%, 1.92%
and 1.67% and the ratios of net investment income to average net assets
were 8.88%, 8.13% and 8.38% for Class A, B and M shares, respectively.
(f) Prior to the waiver and reimbursement of expenses for the year ended June
30, 1997, the ratios of expenses to average net assets were 1.42%, 2.17%
and 1.92% and the ratios of net investment income to average net assets
were 9.09%, 8.18% and 8.47% for Class A, B and M shares, respectively.
(g) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the ratios of expenses to average net assets were 2.19%, 2.94%
(i) and 2.69% (i), and the ratios of net investment income to average net
assets were 8.27%, 8.05% (i) and 8.51% (i), for Class A, B and M shares,
respectively.
(h) Prior to the waiver of expenses, the ratio of expenses to average net
assets was 2.35% (i) in 1995 and 2.07% in 1994 for Class A shares. Prior to
the waiver of expenses, the ratio of net investment income to average net
assets was 8.74% (i) in 1995 and 8.66% in 1994 for Class A shares.
(i) Annualized.
See Accompanying Notes to Financial Statements
48
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------------------------------------
Year Ended June 30,
-----------------------------------------------------------------------------------------------
1998 1997 1996 1995(a) 1994 1993(c) 1992
------------- ------------- ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 12.71 $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76 $ 13.76
Income (loss) from
investment operations:
Net investment income 0.64 0.69 0.75 0.84 0.84 1.13 1.19
Net realized and
unrealized gain (loss)
on investments 0.30 0.20 (0.32) 0.24 (1.17) 0.18 --
----------- ----------- --------- ----------- ------------- ----------- -----------
Total from investment
operations 0.94 0.89 0.43 1.08 (0.33) 1.31 1.19
----------- ----------- --------- ----------- ------------- ----------- -----------
Less distributions from:
Net investment income 0.64 0.69 0.75 0.84 0.90 1.11 1.19
Distributions in excess of
net investment income 0.13 0.04 -- -- -- -- --
Tax return of capital -- 0.04 0.06 -- -- -- --
----------- ----------- --------- ----------- ------------- ----------- -----------
Total distributions 0.77 0.77 0.81 0.84 0.90 1.11 1.19
----------- ----------- --------- ----------- ------------- ----------- -----------
Net asset value,
end of period $ 12.88 $ 12.71 $ 12.59 $ 12.97 $ 12.73 $ 13.96 $ 13.76
=========== =========== ========= =========== ============= =========== ===========
Total Return(d) 7.63% 7.33% 3.34% 8.96% (2.50)% 9.82% 8.98%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 23,682 $ 29,900 $ 38,753 $ 43,631 $ 61,100 $ 87,301 $ 96,390
Ratios to average net
assets:
Expenses(e)(f)(g) 1.50% 1.42% 1.51% 1.40% 1.21% 1.12% 1.10%
Net investment
income(e)(f)(g) 5.13% 5.78% 5.64% 6.37% 6.44% 8.06% 8.59%
Portfolio turnover rate 134% 172% 170% 299% 402% 466% 823%
<CAPTION>
CLASS B CLASS M
---------------------------------------------- ---------------------------------------------
Year Year July 17, Year Year July 17,
Ended Ended 1995(b) to Ended Ended 1995(b) to
June 30, June 30, June 30, June 30, June 30, June 30,
1998 1997 1996 1998 1997 1996
------------- ------------- ------------------ ------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 12.68 $ 12.59 $ 12.95 $ 12.72 $ 12.59 $ 12.95
Income (loss) from
investment operations:
Net investment income 0.60 0.67 0.66 0.64 0.70 0.68
Net realized and
unrealized gain (loss)
on investments 0.24 0.11 (0.37) 0.23 0.14 (0.36)
----------- ----------- ------------- ----------- ---------- ------------
Total from investment
operations 0.84 0.78 0.29 0.87 0.84 0.32
----------- ----------- ------------- ----------- ---------- ------------
Less distributions from:
Net investment income 0.60 0.67 0.65 0.63 0.70 0.68
Distributions in excess of
net investment income 0.08 0.02 -- 0.08 -- --
Tax return of capital -- -- -- -- 0.01 --
----------- ----------- ------------- ----------- ---------- ------------
Total distributions 0.68 0.69 0.65 0.71 0.71 0.68
----------- ----------- ------------- ----------- ---------- ------------
Net asset value,
end of period $ 12.84 $ 12.68 $ 12.59 $ 12.88 $ 12.72 $ 12.59
=========== =========== ============= =========== ========== ============
Total Return(d) 6.78% 6.38% 2.25% 7.02% 6.88% 2.52%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 3,220 $ 1,534 $ 73 $ 224 $ 61 $ 24
Ratios to average net
assets:
Expenses(e)(f)(g) 2.25% 2.17% 2.26%(h) 2.00% 1.92% 2.01%(h)
Net investment
income(e)(f)(g) 4.24% 4.92% 4.98%(h) 4.29% 5.25% 5.73%(h)
Portfolio turnover rate 134% 172% 170% 134% 172% 170%
</TABLE>
Footnotes on next page
49
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
(Continued)
- --------------------------------------------------------------------------------
- ------------
(a) Pilgrim America Investments, Inc., the Fund's Investment Manager, acquired
assets of Pilgrim Management Corporation, the Fund's former Investment
Manager, in a transaction that closed on April 7, 1995.
(b) Commencement of offering of shares.
(c) During this period, average daily borrowing were $11,038,044, average
monthly shares outstanding were 6,429,755 and average daily borrowings per
share were $1.72. The Fund earned income and realized capital gains as a
result of entering into reverse repurchase agreements during the six months
from July to December 1992. Such transactions constituted borrowing
transactions and, as a result, the Fund exceeded its 10% borrowing
limitations during that period. Therefore, the Fund's performance was
higher than it would have been had the Fund adhered to its investment
restrictions. This borrowing technique was discontinued subsequent to
December 1992, until April 4, 1995, when shareholders approved a change in
the Fund's investment policies.
(d) 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.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were 1.58%, 2.29%
and 2.05% (g), and the ratios of net investment income to average net
assets were 5.06%, 4.20% and 4.24% for Class A, B and M shares,
respectively.
(f) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the ratios of expenses to average net assets were 1.57%, 2.41%(g)
and 2.16%(g), and the ratios of net investment income to average net assets
were 5.74%, 4.83%(g) and 5.58%(g) for Class A, B and M shares,
respectively.
(g) Prior to the waiver expenses for the period ended June 30, 1995, the ratio
of expenses to average net assets was 1.54%, and the ratio of net
investment income to average net assets was 6.23% for Class A shares.
(h) Annualized.
See Accompanying Notes to Financial Statements
50
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1998
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Organization. Pilgrim America Bank and Thrift Fund, Inc. ("Bank and Thrift
Fund"), Pilgrim America Investment Funds, Inc. ("PAIF"), Pilgrim America Masters
Series, Inc. ("PAMS") and Pilgrim Government Securities Income Fund ("Government
Securities Income Fund") are open-end investment management companies registered
under the Investment Company Act of 1940, as amended.
Bank and Thrift Fund, the single series of Bank and Thrift Fund, was organized
as a Maryland Corporation in 1986. The investment objective of Bank and Thrift
Fund is to invest at least 65% of total assets in equity securities of national
and state-chartered banks (other than money center banks), thrifts, holding or
parent companies of such depository institutions, and in savings accounts of
mutual thrifts. The remaining 35% of total assets may be invested in equity
securities of money center banks, other financial services companies, other
issuers, debt securities, and securities of other investment companies. On
October 20, 1997, Bank and Thrift Fund converted from a closed-end fund to an
open-end fund. During the current period the Fund changed its year-end from
December 31 to June 30.
PAIF, a Maryland Corporation organized in 1969, consists of Pilgrim America
MagnaCap Fund ("MagnaCap Fund") and Pilgrim America High Yield Fund ("High Yield
Fund") each with its own investment objectives and policies. The investment
objectives are as follows:
MagnaCap Fund -- generally invests in companies that meet the "Rising
Dividends" criteria: consistent dividend increases, substantial dividend
increases, reinvested substantial earnings, strong balance sheets and
attractive prices.
High Yield Fund -- invests in high-yielding fixed income securities that do
not involve undue risk, relative to the securities' return characteristics.
PAMS, a Maryland Corporation organized in 1995, consists of Pilgrim America
MidCap Value Fund ("MidCap Value Fund"). Pilgrim America LargeCap Value Fund
("LargeCap Value Fund") and Pilgrim America Asia-Pacific Equity Fund
("Asia-Pacific Equity Fund") each with its own investment objectives and
policies. The investment objectives are as follows:
MidCap Value Fund -- invests in equity securities of companies believed to
be undervalued and that have a market capitalization of between $200 million
and $5 billion.
LargeCap Value Fund -- invests in equity securities of companies believed to
be undervalued that generally have a market capitalization of at least $5
billion.
Asia-Pacific Equity Fund -- invests in equity securities of companies based
in the Asia-Pacific region which includes China, Hong Kong, Indonesia,
Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, but does not
include Japan or Australia.
Government Securities Income Fund, a California Corporation organized in 1984,
is the single series of Government Securities Income Fund. The investment
objective of Government Securities Income Fund is to normally invest at least
70% of its assets in securities issued or guaranteed by the U.S. Government, or
certain of its agencies and instrumentalities. It does not invest in highly
leveraging derivatives.
Each Fund, except Bank and Thrift Fund, offers three classes of shares, Class A,
Class B and Class M. Bank and Thrift Fund only offers Class A and Class B
shares. 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. Investments in securities traded on a national
securities exchange or included on the NASDAQ National Market System are
valued at the last reported sale price. Securities traded on an exchange of
NASDAQ for which there has been no sale and securities traded in the over-
51
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
the-counter-market are valued at the mean between the last reported bid and
ask prices. Securities for which market quotations are not readily available
are valued at their respective fair values as determined in good faith and
in accordance with policies set by the Board of Directors.
Investments in securities maturing in less than 60 days are valued at cost,
which when combined with accrued interest approximates market value. All
investments quoted in foreign currencies will be valued daily in U.S.
dollars on the basis of the foreign currency exchange rates prevailing at
the time such valuation is determined by each Fund's custodian. U.S.
Government obligations are valued by using market quotations or independent
pricing services which uses prices provided by market-makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics.
B. Security Transactions and Revenue Recognition. Securities transactions are
accounted for on the trade date. Realized gains and losses are reported on
the basis of identified cost of securities delivered. Interest income is
recorded on an accrual basis and dividend income is recorded on the
ex-dividend date (except in the case of Asia-Pacific Equity Fund, for
certain securities which are recorded as soon after the ex-date as the Fund
becomes aware of such dividend). All premium amortization and discount
accretion are determined by the effective yield method.
C. Foreign Currency Translation. The books and records of Asia-Pacific Equity
Fund are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis:
(1) Market value of investment securities, other assets and liabilities
-- at the exchange rates prevailing at the end of the day.
(2) Purchases and sales of investment securities, income and expenses --
at the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market value of Asia-Pacific Equity Fund are
presented at the foreign exchange rates at the end of the day, Asia-Pacific
Equity Fund does not isolate the portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gains or
losses from investments. Reported net realized foreign exchange gains or
losses arise from sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books, and the U.S. 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 the
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 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 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.
52
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
E. Distributions to Shareholders. The Funds record distributions to their
shareholders on ex-date. Distributions from income are declared by MagnaCap
Fund on a semi-annual basis. Distributions from income are declared on a
monthly basis for High Yield Fund and Government Securities Income Fund.
Distributions from income are declared on an annual basis for Bank and
Thrift Fund, MidCap Value Fund, LargeCap Value Fund and Asia-Pacific Equity
Fund. Distributions from capital gains, if any, are declared on at least an
annual basis for all Funds. 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/or net realized capital gains for tax
purposes, they are reported as distributions of paid-in capital.
Accordingly, amounts as of June 30, 1998 have been reclassified as follows:
<TABLE>
<CAPTION>
Accumulated net
Undistributed realized gains (losses) on
Paid-in (overdistributed) investments and foreign
capital net investment income currency transactions
------------ ----------------------- ----------------------------
<S> <C> <C> <C>
MagnaCap Fund $ -- $ 619,064 $ (619,064)
MidCap Value Fund 24,248 (794,518) 770,270
LargeCap Value Fund 24,456 (124,766) 100,310
Asia-Pacific Equity Fund 122,245 139,761 (262,006)
Government Securities Income Fund 2,284,236 (348,345) (1,935,891)
</TABLE>
F. Federal Income Taxes. The Funds' policies are to comply with the
requirements of the Internal Revenue Code that are applicable to regulated
investment companies and to distribute substantially all of their net
investment income and any net realized capital gains to their 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 realized capital gains, each Fund intends not to
be subject to any federal excise tax. Capital loss carryforwards were as
follows at June 30, 1998:
<TABLE>
<CAPTION>
Amount Expiration Dates
------------ ------------------
<S> <C> <C>
Asia-Pacific Equity Fund $5,411,661 2005 to 2006
High Yield Fund 8,803,066 1999 to 2002
Government Securities Income Fund 5,775,551 1999 to 2004
</TABLE>
The Board of Directors intends to offset net capital gains with each capital
loss carryforward until each carryforward has been fully utilized of
expires. In addition, no capital gain distribution 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
principles. 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%
53
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
of the amount being 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 amortized by each Fund
equally over a period of five years from the date of commencement of its
operations.
NOTE 2 -- INVESTMENTS
For the year ended June 30, 1998, except for The Bank and Thrift Fund which is
for the six-month period ended June 30, 1998, the cost of purchases and proceeds
from the sales of securities, excluding short-term securities, were as follows:
Purchases Sales
-------------- --------------
Bank and Thrift Fund $382,295,331 $ 10,392,798
MagnaCap Fund 234,303,110 200,193,554
MidCap Value Fund 65,074,879 51,336,018
LargeCap Value Fund 21,332,996 24,463,884
Asia-Pacific Equity Fund 33,491,548 41,296,173
High Yield Fund 469,752,526 312,276,108
Government Securities Income Fund 37,271,887 37,163,581
NOTE 3 -- INVESTMENT IN AFFILIATE
Affiliated companies, as defined in Section 2(a)(3) of the Investment Company
Act of 1940, are companies 5% or more of whose outstanding voting shares are
held by a fund. At June 30, 1998, Bank and Thrift Fund has the following holding
in affiliated companies:
<TABLE>
<CAPTION>
Acquisition Shares Market % of
Date Held Cost Value Net Assets
------------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
American Safety Insurance February 13, 1998
Group, Ltd. to June 15, 1998 340,000 $4,064,062 $3,995,000 0.44%
</TABLE>
There was no dividend income from affiliates during the year ended June 30,
1998.
NOTE 4 -- 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: Bank and Thrift Fund pays the Manager a monthly fee at
an annual rate of 1.00% on the first $30 million of average daily net assets of
the Fund, 0.75% of the next $95 million of average daily net assets and 0.70% on
average daily net assets in excess of $125 million; MagnaCap Fund pays the
Manager a monthly fee at an annual rate of 1.00% on the first $30 million of
average daily net assets of the Fund, 0.75% of the average daily net assets
above $30 million to $250 million, 0.625% of the average daily net assets above
$250 million to $500 million, and 0.50% of the average daily net assets in
excess of $500 million; MidCap Value Fund and LargeCap Value Fund pay the
Manager a monthly fee at an annual rate of 1.00% of each Fund's average daily
net assets; Asia-Pacific Equity Fund pays the Manager at an annual rate of 1.25%
of the Fund's average daily net assets; for the period from July 1, 1997 to
April 17, 1998 High Yield Fund paid the Manager a monthly fee at an annual rate
of 0.75% on the first $25 million of average daily net assets of the Fund,
0.625% of
54
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
the average daily net assets over $25 million to $100 million, 0.50% of the
average daily net assets over $100 million to $500 million, and 0.40% of the
average daily net assets in excess of $500 million; for the period from April
18, 1998 to June 30, 1998 the High Yield Fund paid the Manager a monthly fee at
an annual rate of 0.60% of daily average net assets; Government Securities
Income Fund pays the Manager a monthly fee at an annual rate of 0.50% on the
first $500 million of average daily net assets of the Fund, 0.45% of the average
daily net assets above $500 million to $1 billion, and 0.40% of the average
daily net assets in excess of $1 billion.
Each share class of the Funds has adopted a Plan pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plans"), whereby Pilgrim America Securities, Inc. (the
"Distributor") is reimbursed or compensated (depending on the class of shares)
by the Funds for expenses incurred in the distribution of each Funds' shares.
Pursuant to the 12b-1 Plans, the Distributor is entitled to payment 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 preparation 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 Fund pays the
Distributor the following annual fees:
Class A Class B Class M
--------- --------- ---------
Bank and Thrift Fund 0.25% 1.00% N/A
MagnaCap Fund 0.30 1.00 0.75%
MidCap Value Fund 0.25 1.00 0.75
LargeCap Value Fund 0.25 1.00 0.75
Asia-Pacific Equity Fund 0.25 1.00 0.75
High Yield Fund 0.25 1.00 0.75
Government Securities Income Fund 0.25 1.00 0.75
Each of the Funds has entered into a Service Agreement with PAG whereby PAG will
act as 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, 1998, the Funds owed the following
in service fees:
Bank and Thrift Fund $13,000 Asia-Pacific Equity Fund $ 2,500
MagnaCap Fund 4,000 High Yield Fund 2,000
MidCap Value Fund 1,000 Government Securities
LargeCap Value Fund 850 Income Fund 200
Bank and Thrift Fund's current prospectus allows that until October 17, 1998 a
2% redemption fee will be imposed on redemptions or exchanges of Class A shares
acquired prior to October 17, 1997. Such redemption fee is payable to the Fund
and is reflected as redemption fee income in the accompanying financial
statements.
The Manager has voluntarily agreed to limit other expenses, excluding
distribution fees, interest, taxes, brokerage and extraordinary expenses to
1.50%, 1.50% and 1.75% of all classes of shares of MidCap Value Fund, LargeCap
Value Fund and Asia-Pacific Equity Fund, respectively. This expense limitation
will apply to each Fund individually until December 31, 1998. At June 30, 1998
MidCap Value Fund, LargeCap Value Fund and Asia-Pacific Equity Fund accrued
$5,638, $20,824, and $13,910, respectively as reimbursement due from the
Manager. Effective July 1, 1995, the Manager has voluntarily agreed to waive all
or a portion of its fees and reimburse operating expenses of the High Yield
Fund, excluding distribution fees, interest, taxes, brokerage and extraordinary
expenses, so that total operating expenses do not exceed 0.75% for all classes
of shares of the Fund. This expense limitation will apply until December 31,
1998. At June 30, 1998, High Yield Fund accrued $19,932 as a reimbursement due
from the
55
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
Manager for such excess expenses. The Manager has agreed to reimburse the
Government Securities Income Fund for all gross operating costs and expenses of
the Fund, excluding any interest, taxes, brokerage commissions, amortization of
organizational expenses, extraordinary expenses, and certain distribution fees
which exceed 1.50% of the Fund's daily average net assets on the first $40
million of net assets and 1.00% of average daily net assets in excess of $40
million for any one fiscal year. This expense limitation cannot be changed
without shareholder approval. At June 30, 1998 no amounts were due from the
Manager to the Government Securities Income Fund.
During the year ended June 30, 1998, MagnaCap Fund sold an equity security to
Bank and Thrift Fund at the closing market price on the trade date. The proceeds
and cost of such securities were $6,798,625 and $6,541,097, respectively.
NOTE 5 -- CAPITAL SHARES
Transactions in capital shares and dollars were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares
---------------------------------- ----------------------------------
Six months Year Six months Year
Ended Ended Ended Ended
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Bank and Thrift Fund
(Number of Shares)
Shares sold 6,598,183 1,562,472 10,545,101 2,911,186
Shares issued as reinvestment
of dividends -- 705,087 -- 111,936
Shares redeemed (1,439,132) (1,608,708) (370,014) (66,661)
------------- ------------- ------------ ------------
Net increase in shares outstanding 5,159,051 658,851 10,175,087 2,956,461
============= ============= ============ ============
Bank and Thrift Fund ($)
Shares sold $ 179,351,328 $ 40,159,509 $286,284,458 $ 74,850,403
Shares issued as reinvestment
of dividends -- 17,958,557 -- 2,849,887
Shares redeemed (38,524,439) (41,390,698) (9,978,392) (1,756,579)
------------- ------------- ------------ ------------
Net increase in shares outstanding $ 140,826,889 $ 16,727,368 $276,306,066 $ 75,943,711
============= ============= ============ ============
</TABLE>
56
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
--------------------------------- ------------------------------- -----------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
---------------- ---------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
MagnaCap Fund
(Number of Shares)
Shares sold 11,183,759 7,162,084 2,388,906 1,625,552 472,559 308,520
Shares issued as
reinvestments of
dividends 1,790,521 3,978,472 336,705 332,790 74,569 58,378
Shares redeemed (10,784,171) (7,008,858) (478,018) (224,729) (106,454) (59,549)
-------------- -------------- ------------ ------------ ------------ ----------
Net increase in
shares outstanding 2,190,109 4,131,698 2,247,593 1,733,613 440,674 307,349
============== ============== ============ ============ ============ ==========
MagnaCap Fund ($)
Shares sold $ 185,038,585 $ 110,144,369 $ 39,179,921 $ 25,252,042 $ 7,770,216 $4,760,120
Shares issued as
reinvestments of
dividends 27,653,374 54,179,774 5,144,613 4,499,323 1,144,284 791,740
Shares redeemed (179,526,800) (110,376,550) (7,887,759) (3,781,590) (1,748,484) (948,406)
-------------- -------------- ------------ ------------ ------------ ----------
Net increase in
shares outstanding $ 33,165,159 $ 53,947,593 $ 36,436,775 $ 25,969,775 $ 7,166,016 $4,603,454
============== ============== ============ ============ ============ ==========
MidCap Value Fund
(Number of Shares)
Shares sold 1,472,596 1,232,243 1,202,294 1,639,838 317,196 472,644
Shares issued as
reinvestment of
dividends 36,205 6,530 60,175 7,579 22,792 3,974
Shares redeemed (1,031,906) (277,940) (404,459) (219,806) (117,161) (43,618)
-------------- -------------- ------------ ------------ ------------ ----------
Net increase in
shares outstanding 476,895 960,833 858,010 1,427,611 222,827 433,000
============== ============== ============ ============ ============ ==========
MidCap Value Fund ($)
Shares sold $ 24,410,597 $ 16,074,019 $ 18,867,187 $ 21,333,357 $ 4,990,506 $6,084,452
Shares issued as
reinvestment of
dividends 546,336 82,971 894,798 96,914 339,604 49,865
Shares redeemed (17,333,221) (3,689,711) (6,378,858) (2,999,461) (1,857,447) (576,445)
-------------- -------------- ------------ ------------ ------------ ----------
Net increase in
shares outstanding $ 7,623,712 $ 12,467,279 $ 13,383,127 $ 18,430,810 $ 3,472,663 $5,557,872
============== ============== ============ ============ ============ ==========
LargeCap Value Fund
(Number of Shares)
Shares sold 570,993 538,935 202,935 896,451 65,704 258,463
Shares issued as
reinvestment of
dividends 70,791 10,222 115,112 10,999 46,941 4,609
Shares redeemed (756,854) (131,788) (206,334) (59,761) (66,998) (34,204)
-------------- -------------- ------------ ------------ ------------ ----------
Net increase (decrease) in
shares outstanding (115,070) 417,369 111,713 847,689 45,647 228,868
============== ============== ============ ============ ============ ==========
LargeCap Value Fund ($)
Shares sold $ 8,310,728 $ 6,622,780 $ 2,865,690 $ 10,967,866 $ 948,490 $3,184,743
Shares issued as
reinvestment of
dividends 937,280 126,842 1,501,054 136,496 616,329 57,731
Shares redeemed (10,980,774) (1,694,967) (2,915,958) (768,404) (940,590) (436,637)
-------------- -------------- ------------ ------------ ------------ ----------
Net increase (decrease) in
shares outstanding $ (1,732,766) $ 5,054,655 $ 1,450,786 $ 10,335,958 $ 624,229 $2,805,837
============== ============== ============ ============ ============ ==========
</TABLE>
57
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
-------------------------------- -------------------------------- ------------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
---------------- --------------- ---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific Equity Fund
(Number of Shares)
Shares sold 11,941,838 6,022,829 760,416 1,612,143 1,111,797 566,273
Shares issued as
reinvestment of
dividends -- 2,937 -- -- -- 157
Shares redeemed (12,266,159) (4,828,816) (1,467,592) (551,927) (1,169,806) (167,256)
------------- ------------- ------------- ------------ ------------ ------------
Net increase (decrease)
in shares outstanding (324,321) 1,196,950 (707,176) 1,060,216 (58,009) 399,174
============= ============= ============= ============ ============ ============
Asia-Pacific Equity Fund ($)
Shares sold $ 70,165,316 $ 63,317,753 $ 5,448,555 $ 16,573,290 $ 6,633,404 $ 5,888,929
Shares issued as
reinvestment of
dividends -- 28,842 -- -- -- 1,541
Shares redeemed (72,683,235) (50,678,714) (10,287,190) (5,661,337) (7,449,763) (1,750,952)
------------- ------------- ------------- ------------ ------------ ------------
Net increase (decrease)
in shares outstanding $ (2,517,919) $ 12,667,881 $ (4,838,635) $ 10,911,953 $ (816,359) $ 4,139,518
============= ============= ============= ============ ============ ============
High Yield Fund
(Number of Shares)
Shares sold 17,205,462 4,403,729 18,361,132 6,227,264 2,577,308 1,214,198
Shares issued as
reinvestment of
dividends 401,106 178,853 368,962 76,353 95,635 29,000
Shares redeemed (8,125,142) (2,232,708) (2,356,559) (745,853) (1,118,663) (134,582)
------------- ------------- ------------- ------------ ------------ ------------
Net increase in
shares outstanding 9,481,426 2,349,874 16,373,535 5,557,764 1,554,280 1,108,616
============= ============= ============= ============ ============ ============
High Yield Fund ($)
Shares sold $ 120,395,431 $ 29,353,593 $ 128,294,665 $ 41,339,576 $ 17,998,974 $ 8,052,040
Shares issued as
reinvestment of
dividends 2,792,483 1,175,204 2,566,895 503,880 664,497 191,335
Shares redeemed (56,782,132) (14,956,120) (16,455,583) (4,952,839) (7,825,635) (893,178)
------------- ------------- ------------- ------------ ------------ ------------
Net increase in
shares outstanding $ 66,405,782 $ 15,572,677 $ 114,405,977 $ 36,890,617 $ 10,837,836 $ 7,350,197
============= ============= ============= ============ ============ ============
</TABLE>
58
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
---------------------------------- ------------------------------ ---------------------------
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
---------------- ---------------- -------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Government Securities
Income Fund
(Number of Shares)
Shares sold 247,597 87,019 250,027 200,561 42,995 4,833
Shares issued as
reinvestment of
dividends 54,444 70,258 3,560 890 592 146
Shares redeemed (815,395) (882,634) (123,763) (86,251) (30,971) (2,111)
------------- ------------- ------------ ------------ ---------- ---------
Net increase (decrease)
in shares outstanding (513,354) (725,357) 129,824 115,200 12,616 2,868
============= ============= ============ ============ ========== =========
Government Securities
Income Fund ($)
Shares sold $ 3,180,560 $ 1,099,502 $ 3,221,905 $ 2,523,084 $ 551,951 $ 61,032
Shares issued as
reinvestment of
dividends 697,317 885,529 35,275 11,224 7,602 1,851
Shares redeemed (10,465,540) (11,132,819) (1,590,074) (1,083,379) (397,555) (26,755)
------------- ------------- ------------ ------------ ---------- ---------
Net increase (decrease)
in shares outstanding $ (6,587,663) $ (9,147,788) $ 1,667,106 $ 1,450,929 $ 161,998 $ 36,128
============= ============= ============ ============ ========== =========
</TABLE>
NOTE 6 -- 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, 1998, (six months ended June 30, 1998 with respect to the Bank and Thrift
Fund) the Funds received the following earnings credits:
Bank and Thrift Fund $ 2,039 LargeCap Value Fund $ 677
MagnaCap Fund 2,036 Asia-Pacific Equity Fund 3,052
MidCap Value Fund 1,574 High Yield Fund 40,599
59
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
NOTE 7 -- SUBSEQUENT EVENTS
Subsequent to June 30, 1998, the following funds declared dividends from net
investment income of:
Per Share Amount Payable Date Record Date
------------------ ----------------- ---------------
MagnaCap Fund
Class A $0.0311 August 10, 1998 July 31, 1998
High Yield Fund
Class A $0.0500 July 15, 1998 June 30, 1998
Class B $0.0459 July 15, 1998 June 30, 1998
Class M $0.0470 July 15, 1998 June 30, 1998
Class A $0.0500 August 17, 1998 July 31, 1998
Class B $0.0459 August 17, 1998 July 31, 1998
Class M $0.0471 August 17, 1998 July 31, 1998
Government Securities Income Fund
Class A $0.0645 July 15, 1998 June 30, 1998
Class B $0.0568 July 15, 1998 June 30, 1998
Class M $0.0596 July 15, 1998 June 30, 1998
Class A $0.0645 August 17, 1998 July 31, 1998
Class B $0.0573 August 17, 1998 July 31, 1998
Class M $0.0593 August 17, 1998 July 31, 1998
60
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998
- --------------------------------------------------------------------------------
COMMON STOCKS: 89.4%
Market
Shares Industry/Issuer Value
- ---------- ----------------------------------------- -------------
Automotive: 0.6%
220,000 (a) Keystone Automotive Industries, Inc. $ 5,087,500
------------
Banks: 61.3%
171,000 Alabama National Bancorp (AL) 6,433,875
276,057 Associated Banc-Corp (WI) 10,386,645
14,500 BancFirst Corp. (OK) 674,250
151,155 BB&T Corp. (NC) 10,221,857
114,000 (a) BNCCorp, Inc. (ND) 2,023,500
77,250 (a) BOK Financial Corp. (OK) 3,650,063
218,175 BSB Bancorp, Inc. (NY) 6,599,794
270,000 The Bank of New York Company, Inc. (NY) 16,385,625
123,200 Bank of the Ozarks, Inc. (AR) 3,819,200
545,000 BankBoston Corp. (MA) 30,315,625
176,000 Banknorth Group, Inc. (VT) 6,512,000
91,500 Bay Bancshares, Inc. (TX) 1,784,250
44,500 CCB Financial Corp. (NC) 4,728,125
105,600 CNBT Bankshares, Inc. (TX) 1,597,200
201,000 Columbia Bancorp (MD) 3,618,000
558,500 Comerica Inc. (MI) 37,000,625
154,218 Commerce Bancshares, Inc. (MO) 7,527,766
211,500 Community Bank System, Inc. (NY) 6,622,593
337,474 Community First Bankshares, Inc. (ND) 8,837,600
195,000 Compass Bancshares, Inc. (AL) 8,799,375
57,500 Cowlitz Bancorp. (WA) 693,594
335,000 First American Corp. (TN) 16,121,875
16,000 First Merchants Corp. (IN) 732,000
2,236 First National Bank Anchorage (AK) 2,940,340
417,655 First Security Corp. (UT) 8,940,427
500,187 First Union Corp. (NC) 29,135,892
211,704 Fleet Financial Group, Inc. (MA) 17,677,284
184,320 Greater Bay Bancorp (CA) 6,393,600
40,000 (a) Hamilton Bancorp Inc. (FL) 1,441,250
36,900 (a) Imperial Bancorp. (CA) 1,107,000
114,047 Independent Bank Corp. (MI) 5,018,068
448,800 KeyCorp (OH) 15,988,500
20,000 MainStreet Financial Corp. (VA) 590,000
415,800 Mercantile Bankshares Corp. (MD) 14,475,038
See Accompanying Notes to Financial Statements
61
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
Market
Shares Industry/Issuer Value
- ---------- --------------------------------------------- -------------
Banks (continued)
60,775 (a) National City Bancorporation (MN) $ 2,020,769
469,600 National City Corp. (OH) 33,341,600
491,000 NationsBank Corp. (NC) 37,561,500
42,817 North Dallas Bank & Trust Co. (TX) 2,665,358
164,600 North Fork Bancorp (NY) 4,022,413
52,925 North Valley Bancorp (CA) 1,627,444
147,400 One Valley Bancorp., Inc. (WV) 5,361,675
933,000 Pacific Century Financial Corp. (HI) 22,392,000
609,000 Peoples Heritage Financial Group, Inc. (ME) 14,387,625
119,000 Popular, Inc. (PR) 7,913,500
103,000 Prime Bancshares, Inc. (TX) 2,613,625
190,400 Regions Financial Corp. (AL) 7,818,300
68,500 (a) Six Rivers National Bank (CA) 1,130,250
82,500 Southtrust Corp. (AL) 3,588,750
484,687 Sterling Bancshares, Inc. (TX) 7,633,820
375,900 Summit Bancorp (NJ) 17,855,250
248,400 Summit Bancshares, Inc. (TX) 5,278,500
216,200 (a) Surety Capital Corp. (TX) 918,850
181,900 TCF Financial Corp. (MN) 5,366,050
464,900 Union Planters Corp. (TN) 27,341,931
305,600 UnionBanCal Corp. (CA) 29,490,400
52,000 (a) United Security Bancorp. (WA) 1,118,000
69,800 USBANCORP, Inc. (PA) 5,396,412
53,500 West Coast Bancorp (OR) 1,317,437
55,353 Westamerica Bancorp (CA) 1,778,215
572,000 Westernbank Puerto Rico (PR) 9,652,500
-------------
558,385,010
-------------
Construction: 0.5%
342,500 (a) Schuff Steel Co. 5,051,875
-------------
Business Services: 0.1%
46,000 (a) CFI ProServices, Inc. 782,000
-------------
Finance: 1.2%
120,000 Comdisco, Inc. 2,280,000
107,500 (a) First Alliance Corp. 752,500
220,000 (a) International Aircraft Investors 1,897,500
327,000 (a) UniCapital Corp. 6,253,875
-------------
11,183,875
-------------
Construction: 0.9%
376,375 D.R. Horton, Inc. 7,856,828
-------------
See Accompanying Notes to Financial Statements
62
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Industry/Issuer Value
- ----------- ------------------------------------------------------ --------------
<S> <C> <C> <C>
Insurance: 4.9%
340,000 (a)(b) American Safety Insurance Group, Ltd. $ 3,995,000
951,000 ARM Financial Group, Inc. Class A 21,040,875
12,852 (a) Delphi Financial Group, Inc. 723,728
80,000 Hartford Life, Inc. 4,555,000
130,000 Liberty Financial Co., Inc. 4,485,000
30,000 London Pacific Group Limited 476,250
341,000 Reliance Group Holdings, Inc. 5,967,500
98,000 (a) Summit Holding Southeast, Inc. 3,123,750
-------------
44,367,103
-------------
Printing: 0.4%
77,160 (a) Applied Graphics Technologies, Inc. 3,530,070
-------------
Real Estate and Financial Services: 0.3%
175,000 Imperial Credit Commercial Mortgage Investment Corp. 2,285,938
-------------
Retail: 1.9%
389,106 (a) Consolidated Stores Corp. 14,105,093
80,000 (a) Michaels Stores, Inc. 2,822,500
-------------
16,927,593
-------------
Securities Related Business: 1.1%
560,100 Freedom Securities Corp. 10,151,812
-------------
Thrifts: 16.2%
104,400 Astoria Financial Corp. (NY) 5,585,400
1,525,800 Charter One Financial, Inc. (OH) 51,400,388
710,250 Commercial Federal Corp. (NE) 22,461,656
218,300 Golden West Financial Corp. (CA) 23,208,019
185,000 H.F. Ahmanson & Co. (CA) 13,135,000
20,250 Home Federal Bancorp (IN) 612,563
99,600 InterWest Bancorp, Inc. (WA) 4,320,150
63,655 Laurel Capital Group, Inc. (PA) 1,273,100
200,000 Security First Corp. (OH) 5,150,000
469,000 Washington Mutual Inc. (WA) 20,372,187
-------------
147,518,463
-------------
Total Common Stocks (Cost $536,979,025) 813,128,067
-------------
LIMITED PARTNERSHIP: 2.0%
701,900 Alliance Capital Management 17,766,844
-------------
Total Limited Partnership Stock (Cost $14,846,289) 17,766,844
-------------
Total Long-Term Investments (Cost $551,825,314) 830,894,911
-------------
</TABLE>
See Accompanying Notes to Financial Statements
63
<PAGE>
Pilgrim America Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 8.8%
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------- -----------------
<S> <C> <C> <C>
Repurchase Agreements: 8.8%
$79,817,000 State Street Bank & Trust Repurchase Agreement, 5.70% due 07/01/98 $ 79,817,000
-------------
(Collateralized by $60,280,000 U.S. Treasury Bonds, 8.75%
Due 05/15/2017, Market Value $81,428,313)
Total Short-Term Investments (Cost $79,817,000) 79,817,000
-------------
Total Investments in Securities (Cost $631,642,314) 100.2% 910,711,911
Liabilities in Excess of Other Assets (0.2)% (1,603,492)
---------- -------------
Net Assets 100.0% $ 909,108,419
========== =============
- -------------------------
Cost for federal income tax purposes is $631,732,896. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 286,147,085
Gross Unrealized Depreciation (7,168,070)
-------------
Net Unrealized Appreciation $ 278,979,015
=============
</TABLE>
(a) Non-income producing security
(b) Company in which there is any direct or indirect ownership of 5% or more of
the outstanding voting securities.
See Accompanying Notes to Financial Statements
64
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998
- --------------------------------------------------------------------------------
COMMON STOCK: 94.6%
Market
Shares Value
- ---------- -------------
Banks: 3.3%
80,000 Chase Manhattan Corp. $ 6,040,000
88,900 UnionBanCal Corp. 8,578,850
------------
14,618,850
------------
Capital Goods: 1.8%
215,000 Parker Hannifin Corp. 8,196,875
------------
Chemicals: 2.0%
120,000 Du Pont, (E.I.) DeNemours & Co. 8,955,000
------------
Communications Equipment: 1.3%
112,500 Motorola, Inc. 5,913,281
------------
Computers/Hardware: 3.7%
100,000 Hewlett Packard 5,987,500
240,000 (a) Sun Microsystems, Inc. 10,425,000
------------
16,412,500
------------
Computer Software & Service: 2.7%
165,000 Automatic Data Processing, Inc. 12,024,375
------------
Electrical Equipment: 3.1%
150,000 General Electric Co. 13,650,000
------------
Energy: 2.6%
165,700 Elf Aquitane-Sponsored ADR 11,764,700
------------
Energy Services: 1.4%
60,000 Halliburton Co. 2,673,750
150,000 Helmerich & Payne, Inc. 3,337,500
------------
6,011,250
------------
See Accompanying Notes to Financial Statements
65
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
- ---------- -------------
<S> <C> <C> <C>
Beverages (Non-Alcoholic): 1.9%
200,000 Pepsico, Inc. $ 8,237,500
------------
Foods: 1.6%
125,000 Sara Lee Corp. 6,992,187
------------
Healthcare: 4.7%
270,000 Abbott Laboratories 11,036,250
160,000 Hillenbrand Industries 9,600,000
------------
20,636,250
------------
Hotels: 2.0%
368,100 Patriot American Hospitality, Inc. 8,811,394
------------
Industrial: 4.1%
170,000 Nucor Corp. 7,820,000
217,500 Praxair, Inc. 10,181,719
------------
18,001,719
------------
Insurance: 1.8%
185,000 Traveler's Property Casualty Corp. -- Class A 7,931,875
------------
Insurance Life: 2.7%
400,000 AFLAC, Inc. 12,125,000
------------
Integrated Oil-International: 1.3%
70,000 Chevron Corp. 5,814,375
------------
Leisure: 1.6%
278,800 Brunswick Corp. 6,900,300
------------
Machinery & Equipment: 0.9%
120,000 Dover Corp. 4,110,000
------------
Diversified Manufacturing: 1.6%
187,500 Lancaster Colony Corp. 7,101,562
------------
Manufacturing / Electronic: 2.0%
105,000 Honeywell, Inc. 8,774,063
------------
</TABLE>
See Accompanying Notes to Financial Statements
66
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- --------------
Medical Products: 4.9%
200,000 Baxter International $ 10,762,500
137,400 Becton Dickinson & Co. 10,665,675
-------------
21,428,175
-------------
Industrial Equipment: 0.8%
50,000 Illinois Tool Works, Inc. 3,334,375
-------------
Office Equipment & Services: 1.7%
75,000 Xerox Corp. 7,621,875
-------------
Office Products & Services: 1.7%
136,500 Avery-Dennison Corp. 7,336,875
-------------
Integrated Oil -- Domestic: 1.1%
60,000 Atlantic Richfield 4,687,500
-------------
Oil Well Equipment & Services: 2.6%
104,000 Schlumberger Ltd. 7,104,500
130,000 Tidewater, Inc. 4,290,000
-------------
11,394,500
-------------
Pharmaceuticals: 5.4%
110,000 Bristol-Myers Squibb, Co. 12,643,125
121,000 Schering-Plough Corp. 11,086,625
-------------
23,729,750
-------------
Regional Banks: 5.3%
169,200 Comerica, Inc. 11,209,500
208,760 First Union Corp. 12,160,270
-------------
23,369,770
-------------
Restaurant: 5.6%
210,000 McDonalds Corp. 14,490,000
325,000 (a) Tricon Global Restaurants, Inc. 10,298,438
-------------
24,788,438
-------------
Retail: 8.0%
150,000 Home Depot, Inc. 12,459,375
170,000 Lowe's Companies, Inc. 6,895,625
264,000 Wal-Mart Stores, Inc. 16,038,000
-------------
35,393,000
-------------
Savings & Loans: 5.6%
546,000 Charter One Financial, Inc. 18,393,375
60,000 Golden West Financial Corp. 6,378,750
-------------
24,772,125
-------------
See Accompanying Notes to Financial Statements
67
<PAGE>
Pilgrim America MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
- ---------- --------------
<S> <C> <C> <C>
Electronics -- Semiconductors: 3.0%
125,000 Intel Corp. $ 9,265,625
80,000 Rockwell 3,845,000
-------------
13,110,625
-------------
Thrifts: 0.6%
60,000 Washington Mutual Inc. 2,606,250
-------------
Transportation: 0.2%
53,200 Arnold Industries, Inc. 784,700
-------------
Total Common Stocks (Cost $301,233,117) 417,341,014
-------------
LIMITED PARTNERSHIP: 1.8%
320,000 Alliance Capital Management 8,100,000
-------------
Total Limited Partnership Stock (Cost $5,994,660) 8,100,000
-------------
Total Long-Term Investments (Cost $307,227,777) 425,441,014
-------------
</TABLE>
SHORT-TERM INVESTMENTS: 3.9%
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------- ----------------
<S> <C> <C> <C>
Commercial Paper: 3.9%
$17,084,000 Merrill Lynch Commercial Paper, 6.12% due 07/01/98 17,084,000
-------------
Total Short-Term Investments (Cost $17,084,000) 17,084,000
-------------
Total Investments in Securities (Cost $324,311,777)* 100.3% 442,525,014
Liabilities in Excess of Other Assets (0.3)% (1,303,856)
---------- -------------
Net Assets 100.0% $ 441,221,158
========== =============
</TABLE>
- -------------------------
<TABLE>
<S> <C> <C> <C>
* Cost for federal income tax purposes is the same as for financial
statement purposes. Net unrealized appreciation
consists of:
Gross Unrealized Appreciation $ 130,663,356
Gross Unrealized Depreciation (12,450,119)
-------------
Net Unrealized Appreciation $ 118,213,237
=============
</TABLE>
See Accompanying Notes to Financial Statments
68
<PAGE>
Pilgrim America MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998
- --------------------------------------------------------------------------------
COMMON STOCK: 88.9%
<TABLE>
<CAPTION>
Market
Shares Value
- ---------- -------------
<S> <C> <C> <C>
Automotive: 2.1%
70,000 Mascotech, Inc. $ 1,680,000
------------
Banks: 3.3%
160,000 John Hancock Bank & Thrift Opportunity Fund 1,910,000
30,000 UST Corp. 795,000
------------
2,705,000
------------
Business Services: 1.5%
101,100 Danka Business Systems 1,194,244
------------
Building Products: 4.8%
61,400 (a) Dal-Tile International Inc. 602,487
60,000 Johns Manville Corp 903,750
40,000 Masco Corp. 2,420,000
------------
3,926,237
------------
Communications: 4.8%
93,900 Cincinnati Bell Inc. 2,687,887
43,000 General Cable Corp. 1,241,625
------------
3,929,512
------------
Computer Software and Service: 0.1%
7,600 (a) Vanstar Corp. 110,675
------------
Consumer Products: 2.3%
52,700 Snap-on Inc. 1,910,375
------------
Diversified Holding Company: 1.1%
46,900 Hussman International, Inc. 870,581
------------
Electrical Equipment: 7.0%
41,000 Applied Power Inc. -- CL A 1,409,375
14,000 Columbia Energy Group 778,750
63,000 Raychem Corp. 1,862,437
34,000 Thomas & Betts Corp. 1,674,500
------------
5,725,062
------------
Financial: 1.5%
42,000 (a) Golden State Bancorp. 1,249,500
------------
Food Stores: 3.6%
68,500 (a) Meyer (Fred), Inc. 2,911,250
------------
</TABLE>
See Accompanying Notes to Financial Statements
69
<PAGE>
Pilgrim America MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- -------------
Gaming: 3.2%
77,700 (a) Gtech Holdings $ 2,617,519
------------
Health Care: 5.3%
20,400 Integrated Health Services, Inc. 765,000
9,000 (a) Pacificare Health Systems 795,375
37,100 Wellpoint Health Network 2,745,400
------------
4,305,775
------------
Industrial: 1.4%
301,300 (a) Laidlaw Environmental Services 1,092,212
------------
Insurance: 2.4%
30,400 Allamerica Financial Corp. 1,976,000
------------
Life Insurance: 2.1%
37,000 Torchmark Corp. 1,692,750
------------
Machinary & Equipment: 2.6%
64,500 United Dominion Industry Ltd. 2,152,687
------------
Medical: 1.7%
30,000 Allergan, Inc. 1,391,250
------------
Real Estate and Financial Services: 1.8%
67,700 Trizec Hahn Corp. 1,451,319
------------
Office Products & Services: 5.2%
38,700 (a) Choicepoint Inc. 1,959,187
34,400 (a) United Stationers Inc. 2,227,400
------------
4,186,587
------------
Oil & Gas: 8.6%
38,600 Coastal Corp. 2,694,762
268,000 (a) EEX Corp. 2,512,500
91,580 (a) Ocean Energy New 1,791,534
------------
6,998,796
------------
Packaging Products: 3.2%
57,500 (a) Owens-Illinois, Inc. 2,573,125
------------
Pharmaceuticals: 1.5%
19,800 Perkin-Elmer Corp. 1,231,313
------------
See Accompanying Notes to Financial Statements
70
<PAGE>
Pilgrim America MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
- ---------- -------------
<S> <C> <C> <C>
Railways: 1.3%
35,112 Marketspan Corp. $ 1,051,166
------------
Restaurants: 0.9%
42,200 Luby's Cafeterias Inc. 741,138
------------
Retail: 1.9%
2,800 Harcourt General Inc. 166,600
126,200 (a) Sunglass Hut International 1,396,088
------------
1,562,688
------------
Technology: 7.0%
70,000 Comsat Corp 1,981,875
79,400 (a) General Instrument Corp. 2,158,688
72,000 (a) Unova, Inc. 1,548,000
------------
5,688,563
------------
Textile: 1.2%
28,600 Unifi Inc. 979,550
------------
Utilities: 5.5%
50,600 Interstate Energy Corp. 1,644,500
80,600 Montana Power Co. 2,800,850
------------
4,445,350
------------
Total Common Stocks (Cost $61,512,458) 72,350,224
------------
WARRANTS: 0.3%
Financial: 0.3%
42,000 (a) Golden State Bancorp 223,125
------------
Total Warrants (Cost $161,936) 223,125
------------
Total Long-Term Investments (Cost $61,674,394) 72,573,349
------------
</TABLE>
SHORT-TERM INVESTMENTS: 12.3%
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------ ----------------
<S> <C> <C> <C>
Repurchase Agreement: 12.3%
$9,965,000 State Street Bank & Trust Repurchase Agreement, 5.70% 9,965,000
------------
due 07/01/98
(Collaterized by $7,530,000 U.S. Treasury Bonds, 8.75%
Due 05/15/2017, Market Value $10,171,784)
Total Short-Term Investments (Cost $9,965,000) 9,965,000
------------
Total Investments (Cost $71,639,394)* 101.5% 82,538,349
Liabilities in Excess of Other Assets (1.5)% (1,246,835)
---------- ------------
Net Assets 100.0% $ 81,291,514
========== ============
(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 $ 12,975,135
Gross Unrealized Depreciation (2,076,180)
------------
Net Unrealized Appreciation $ 10,898,955
============
</TABLE>
See Accompanying Notes to Financial Statements
71
<PAGE>
Pilgrim America LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998
- --------------------------------------------------------------------------------
COMMON STOCK: 96.3%
Market
Shares Value
- -------- ------------
Airlines: 4.5%
8,100 (a) AMR Corp. $ 674,325
8,100 (a) UAL Corp. 631,800
-----------
1,306,125
-----------
Automotive: 3.4%
4,500 Goodyear Tire & Rubber Corp. 289,969
17,500 Harley Davidson, Inc. 678,125
-----------
968,094
-----------
Banks: 5.6%
10,600 Chase Manhattan Corp. 800,300
13,770 First Union Corp. 802,102
-----------
1,602,402
-----------
Broadcasting: 1.4%
10,435 (a) Tele-Communications-TCI Group -- A 401,095
-----------
Building Products: 1.6%
7,400 Masco Corp. 447,700
-----------
Capital Goods: 1.3%
10,000 Parker Hannifin Corp. 381,250
-----------
Chemicals: 2.5%
9,700 DuPont, (E.I.) DeNemours & Co. 723,862
-----------
Computer Services: 1.8%
9,000 (a) Ceridian Corp. 528,750
-----------
Computer Systems: 2.6%
8,300 (a) Seagate Technology 197,644
12,600 (a) Sun Microsystems 547,313
-----------
744,957
-----------
Defense: 1.8%
4,900 Lockheed Martin Corp. 518,788
-----------
Foods: 1.2%
18,531 Archer-Daniels-Midland 359,038
-----------
See Accompanying Notes to Financial Statements
72
<PAGE>
Pilgrim America LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- -------- ------------
Healthcare: 4.4%
23,000 Abbot Laboratories $ 940,125
10,300 (a) Humana, Inc. 321,231
-----------
1,261,356
-----------
Industrial: 2.2%
13,500 Praxair Inc. 631,969
-----------
Insurance: 8.2%
7,000 Allstate Corp. 640,938
10,200 Cigna Corp. 703,800
8,100 Chubb Corp. 651,037
1,400 General Re Corp. 354,900
-----------
2,350,675
-----------
Insurance Life: 1.3%
5,300 American General Corp. 377,294
-----------
Integrated Oil -- International: 1.0%
3,500 Chevron 290,719
-----------
Manufacturing: 2.5%
16,000 AlliedSignal, Inc. 710,000
-----------
Leisure: 1.6%
12,000 Carnival Corp. -- CLA 475,500
-----------
Natural Gas Pipeline: 2.0%
10,000 Enron 540,625
800 Williams Cos Inc. 27,000
-----------
567,625
-----------
Office Equipment, Products & Services: 5.6%
6,500 Hewlett Packard 389,187
4,300 International Business Machines 493,694
7,100 Xerox Corp. 721,537
-----------
1,604,418
-----------
Oil & Gas: 3.8%
6,900 Amerada Hess Corp. 374,756
3,800 Burlington Resources 163,638
20,100 Occidental Petroleum Corp. 542,700
-----------
1,081,094
-----------
Oil Well Equipment & Services: 2.0%
8,500 Baker Hughes 293,781
9,000 Tidewater Inc. 297,000
-----------
590,781
-----------
See Accompanying Notes to Financial Statements
73
<PAGE>
Pilgrim America LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- -------- -------------
Paper and Forest Products: 1.4%
8,700 Kimberly-Clark Corp. $ 399,113
------------
Pharmaceuticals: 7.2%
7,000 Bristol-Myers Squibb Co. 804,562
5,300 Johnson & Johnson 390,875
9,500 Schering-Plough Corp. 870,438
------------
2,065,875
------------
Publishing: 2.5%
10,000 Gannett Co. 710,625
------------
Regional Banks: 1.3%
1,000 Wells Fargo & Co. 369,000
------------
Restaurant: 1.3%
5,600 McDonald Corp. 386,400
------------
Retail: 9.5%
10,100 (a) Federated Department Stores, Inc. 543,506
26,800 Lowe's Companies 1,087,075
17,800 Sears, Roebuck and Co. 1,086,913
------------
2,717,494
------------
Technology: 3.5%
8,000 Intel Corp. 593,000
5,900 (a) National Semiconductor 77,806
7,000 Rockwell 336,438
------------
1,007,244
------------
Utilities: 7.3%
2,300 American Electric Power 104,362
15,220 Bell Atlantic Corp. 694,412
4,100 Consolidated Edison of NY 188,856
12,600 GTE Corp. 700,875
10,300 SBC Communications 412,000
------------
2,100,505
------------
Total Common Stocks (Cost $22,994,397) 27,679,748
------------
See Accompanying Notes to Financial Statments
74
<PAGE>
Pilgrim America LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 3.7%
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------ ----------------
<S> <C> <C> <C>
Repurchase Agreement: 3.7%
$1,072,000 State Street Bank & Trust Repurchase Agreement, 5.70% due 07/01/98 $ 1,072,000
------------
(Collaterized by $810,000 U.S. Treasury Bonds, 8.75%
Due 05/15/2017, Market Value $1,094,176)
Total Short-Term Investments (Cost $1,072,000) 1,072,000
------------
Total Investments in Securities (Cost $24,066,397)* 100.0% 28,751,748
Liabilities in Excess of Other Assets (0.0)% (7,346)
---------- ------------
Net Assets 100.0% $ 28,744,402
========== ============
</TABLE>
- -------------------------
(a) Non-income producing security
ADR -- American Depository Receipt
* Cost for federal income tax purposes is $24,074,744. Net unrealized
appreciation consists of:
<TABLE>
<S> <C> <C> <C>
Gross Unrealized Appreciation $ 5,596,562
Gross Unrealized Depreciation (919,557)
-----------
Net Unrealized Appreciation $ 4,677,005
===========
</TABLE>
See Accompanying Notes to Financial Statments
75
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998
- --------------------------------------------------------------------------------
COMMON STOCK: 83.2%
Market
Shares Value
- ---------- ------------
CHINA: 1.6%
Automotive: 0.8%
732,000 Qingling Motor Co. $ 203,150
-----------
Mines & Minerals: 0.4%
550,000 (a) Yanzhou Coal Mining Co. 105,072
-----------
Construction: 0.4%
644,000 Zhejiang Expressway CL H 108,068
-----------
Total China 416,290
-----------
HONG KONG: 42.5%
Commercial & Industrial: 8.7%
140,000 Citic Pacific, Ltd. 247,580
270,000 Hutchison Whampoa, Ltd. 1,425,455
135,000 Swire Pacific, Ltd. 509,713
-----------
2,182,748
-----------
Communication: 4.2%
600,000 (a) China Telcom (HK) 1,041,694
-----------
Construction: 2.1%
275,000 Cheung Kong Infrastructure 520,040
-----------
Diversified Holdings : 1.5%
600,000 Ocean-Land Group Ltd. 116,174
300,000 (a) Tianjin Development Holdings 255,583
-----------
371,757
-----------
Financial: 2.3%
280,000 Dao Heng Bank Group, Ltd. 397,573
140,000 Wing Hang Bank, Ltd. 187,040
-----------
584,613
-----------
Properties: 10.1%
240,000 Cheung Kong Holdings, Ltd. 1,180,328
300,000 China Resources Enterprises 309,797
150,000 New World Development Co., Ltd. 290,435
180,000 Sun Hung Kai Properties, Ltd. 764,425
-----------
2,544,985
-----------
See Accompanying Notes to Financial Statements
76
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
- ----------- -------------
<S> <C> <C> <C>
Utilities: 13.6%
260,000 CLP Holdings, Ltd. $ 1,184,717
330,000 Hong Kong Electric Holdings, Ltd. 1,022,331
650,000 Hong Kong Telecommunications, Ltd. 1,220,795
------------
3,427,843
------------
Total Hong Kong 10,673,680
------------
MALAYSIA: 4.0%
Commercial & Industrial: 3.8%
110,000 Genting Berhad 199,468
266,000 Magnum Corporation Berhad 99,043
281,000 Sime Darby Berhad 194,309
196,000 Telekom Malaysia 331,721
113,000 Tenaga Nasional Berhad 136,605
------------
961,146
------------
Diversified Holdings : 0.2%
50,000 Jaya Tiasa Holdinds BHD 62,258
------------
Total Malaysia 1,023,404
------------
PHILIPPINES: 5.8%
Communications: 1.8%
580,000 (a) Benpres Holdings GDR 87,626
16,000 Philippine Long Distance Telephone Co., ADR 362,000
------------
449,626
------------
Real Estate & Financial Services: 2.8%
2,450,000 SM Prime Holdings, Inc. 387,770
633,800 Ayala Land Inc. 182,388
22,000 Metropolitan Bank & Trust 129,257
------------
699,415
------------
Technology: 0.4%
4,000 Phillipine Long Distance 91,127
------------
Utilities: 0.8%
80,000 Manila Electric Co. -- Class B 211,031
------------
Total Philippines 1,451,199
------------
SINGAPORE: 12.8%
Commercial & Industrial: 0.8%
108,000 Keppel Corp. 162,647
46,000 Keppel Land Ltd. 42,274
------------
204,921
------------
</TABLE>
See Accompanying Notes to Financial Statements
77
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- ------------
Computer Systems/Software: 0.4%
4,500 (a) Creative Tech Ltd. $ 54,696
12,600 Elec & Eltek International Co. Ltd. 42,588
-----------
97,284
-----------
Aerospace: 1.7%
591,000 ST Engineering 416,987
-----------
Financial: 3.7%
53,000 Development Bank Singapore 293,816
130,000 Overseas-Chinese Bank 443,199
66,000 United Overseas Bank 205,443
-----------
942,458
-----------
Food and Beverage: 0.3%
30,400 Fraser & Neave, Ltd. 81,831
-----------
Hotels: 0.4%
117,000 Marco Polo Developments 88,100
-----------
Manufacturing: 0.3%
34,000 Venture Manufacturing 64,508
-----------
Properties: 0.8%
71,000 (a) City Developments, Ltd. 198,696
-----------
Publishing: 1.1%
40,000 Singapore Press Holdings, Ltd. 267,995
-----------
Steel: 0.3%
90,000 Natsteel Ltd. 87,513
-----------
Transportation: 0.9%
46,000 Singapore Airlines, Ltd. 215,463
-----------
Utilities: 2.1%
384,000 Singapore Telecommunication 546,425
-----------
Total Singapore 3,212,181
-----------
See Accompanying Notes to Financial Statements
78
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- ------------
South Korea: 4.0%
Manufacturing: 1.5%
4,563 Samsung Display Devices $ 124,627
7,909 Samsung Electronics Co. 244,816
1,463 Yageo (Rights) --
-----------
369,443
-----------
Steel: 2.0%
15,000 Pohang Iron & Steel 500,189
-----------
Utilities: 0.5%
12,500 Korea Electric Power 133,376
-----------
Total South Korea 1,003,008
-----------
TAIWAN: 9.6%
Building Products: 0.5%
14,223 Asia Cement Corp. 122,676
-----------
Computer Services: 0.4%
6,000 (a) Syntex Technology 102,750
-----------
Computer Systems/Software: 5.0%
92,500 (a) Asustek Computer Inc. -- GDR 694,888
34,000 (a) Taiwan Semiconductor -- Sponsored ADR 573,750
-----------
1,268,638
-----------
Electrical Equipment: 0.7%
18,900 (a) Yageo Corp. 165,375
-----------
Electronics -- Defense: 0.7%
30,000 (a) Acer Inc. GDR 177,000
-----------
Food & Beverages: 0.4%
10,000 (a) President Enterprises 90,000
-----------
Insurance: 0.9%
13,500 (a) Fubon Insurance Co. LD-GDR 234,563
-----------
Steel: 1.0%
21,268 (a) China Steel Corp., GDR 259,471
-----------
Total Taiwan 2,420,473
-----------
See Accompanying Notes to Financial Statements
79
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
- ----------- -------------
<S> <C> <C> <C>
Thailand: 2.9%
Communications: 0.7%
41,000 Advanced IFO Services $ 175,297
------------
Financial: 1.1%
66,500 Bangkok Bank 82,138
206,200 Thai Farmers Bank 182,445
------------
264,583
------------
Utilities: 1.1%
37,500 PTT Exploration & Production 285,036
------------
Total Thailand 724,916
------------
Total Common Stocks (Cost $32,950,530) 20,925,151
------------
</TABLE>
CONVERTIBLE BONDS: 2.9%
<TABLE>
<CAPTION>
Principal
Amount
- -----------
<S> <C> <C> <C>
TAIWAN: 2.9%
Industrial: 2.6%
$260,000 Nan Ya Plastic Corp., 1.75% due July 2001 278,200
240,000 Orient Semiconductor Electric, 1.50% due February 2003 214,800
160,000 United Microelectronics, 0.25% due May 2004 168,400
-----------
661,400
-----------
Marine: 0.3%
54,000 Yangming Marine, 2.00% due October 2001 62,505
-----------
Total Convertible Bonds (Cost $786,082) 723,905
-----------
Total Long-Term Investments (Cost $33,736,612) 21,649,056
-----------
</TABLE>
SHORT-TERM INVESTMENTS: 15.4%
<TABLE>
<S> <C> <C> <C>
Repurchase Agreement: 15.4%
3,881,000 State Street Bank & Trust Repurchase Agreement, 5.70% due 07/01/98 3,881,000
---------
(Collaterized by $2,935,000 U.S. Treasury Bonds, 8.75%
Due 05/15/2017, Market Value $3,964,698)
Total Short-Term Investments (Cost $3,881,000) 3,881,000
---------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Total Investments (Cost $37,617,612)* 101.5% 25,530,056
Liabilities in Excess of Other Assets (1.5)% (384,760)
---------- ------------
Net Assets 100.0% $ 25,145,296
========== ============
</TABLE>
See Accompanying Notes to Financial Statements
80
<PAGE>
Pilgrim America Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
(a) Non-income producing security
ADR -- American Depository Receipt
EDR -- European Depository Receipt
GDR -- Global Depository Receipt
* Cost for federal income tax purposes is $38,591,300. Net unrealized
depreciation consists of:
Gross Unrealized Appreciation $ 365,323
Gross Unrealized Depreciation (13,426,567)
-------------
Net Unrealized Depreciation ($ 13,061,244)
=============
The Asia-Pacific Equity Fund had the following outstanding forward foreign
currency exchange contracts as of June 30, 1998:
Settlement Currency Currency
Date to Receive to Deliver
------------ --------------------- ----------------
7/3/98 30,349 3,915
(Hong Kong dollars) (U.S. dollars)
Net unrealized depreciation of $1 on these contracts at June 30, 1998 is
included in the accompanying financial statements.
See Accompanying Notes to Financial Statements
81
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998
- --------------------------------------------------------------------------------
COORPORATE BONDS: 84.7%
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ------------ -------------
<S> <C> <C> <C>
Airlines: 0.4%
$1,000,000 Amtran Inc., 10.500% due 08/01/04 $ 1,021,250
------------
Automotive: 1.8%
5,000,000 (a) JH Heafner Co., 10.000% due 05/15/08 5,100,000
------------
Broadcasting: 1.9%
3,000,000 Salem Communications, 9.500% due 10/01/07 3,127,500
2,000,000 Shop At Home, Inc., 11.000% due 04/01/05 2,077,500
------------
5,205,000
------------
Business Services: 2.9%
2,000,000 (a) MSX International, Inc., 11.375% due 01/15/08 2,070,000
3,000,000 T/SF Communications, 10.375% due 11/01/07 3,075,000
3,000,000 (a) Young America Corp., 11.625% due 02/15/06 2,977,500
------------
8,122,500
------------
Communications: 17.7%
3,000,000 (a) American Cellular Corp., 10.500% due 05/15/08 2,992,500
6,000,000 (a) Bell Technology Group, 13.000% due 05/01/05 6,120,000
2,000,000 (a) CCPR Services, Inc., 10.000% due 02/01/07 2,022,500
3,000,000 (a) Dobson Wireline Co., 12.250% due 06/15/08 2,925,000
5,000,000 (a) Exodus Communications, Inc.,11.250% due 07/01/08 5,018,750
6,000,000 MGC Communications, Inc., 13.000% due 10/01/04 6,000,000
2,000,000 Paging Network, 10.000% due 10/15/08 2,080,000
2,000,000 (a) Pathnet, Inc., 12.250% due 04/15/08 2,170,000
3,000,000 Phonetel Tech, 12.000% due 12/15/06 3,007,500
1,500,000 RCN Corp., 10.000% due 10/15/07 1,545,000
5,000,000 Rogers Cantel, Inc., 8.30% due 10/01/07 4,875,000
5,000,000 Teligent, Inc., 11.500% due 12/01/07 5,087,500
5,000,000 (a) Winstar Communications, Inc., 10.000% due 03/15/08 4,975,000
------------
48,818,750
------------
Consumer Durables: 1.4%
4,000,000 (a) Samsonite Corp., 10.750% due 06/15/08 3,980,000
------------
Education: 0.7%
2,000,000 (a) La Petite Acad./LPA Hldgs, 10.000% due 05/15/08 2,025,000
------------
Electronics-Defense: 0.4%
1,500,000 (a) Phase Metrics, Inc., 10.750% due 02/01/05 1,095,000
------------
Energy: 0.5%
1,500,000 (a) JTM Industries, Inc., 10.000% due 04/15/08 1,522,500
------------
</TABLE>
See Accompanying Notes to Financial Statements
82
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ------------ -------------
<S> <C> <C> <C>
Entertainment: 1.8%
$5,000,000 (a) Silver Cinemas, Inc., 10.500% due 04/15/05 $ 5,118,750
------------
Financial: 1.3%
5,000,000 Emergent Group, 10.750% due 09/15/04 3,675,000
------------
Food Distributors: 2.5%
5,000,000 Di Giorgio Corp., 10.000% due 06/15/07 4,975,000
2,000,000 (a) Richmont Marketing Specialist, 10.125% due 12/15/07 2,042,500
------------
7,017,500
------------
Foods: 3.9%
2,000,000 CFP Holdings, Inc., 11.625% due 01/15/04 1,880,000
1,000,000 (a) Cuddy International Corp., 10.750% due 12/01/07 967,500
4,000,000 (a) Favorite Brands Intl., Inc., 10.750% due 05/15/06 4,045,000
4,000,000 Imperial Holly Corp., 9.750% due 12/15/07 4,040,000
------------
10,932,500
------------
Gaming: 4.4%
3,000,000 Alliance Gaming Corp., 10.000% due 08/01/07 3,060,000
4,000,000 (a) Fitzgeralds Gaming Corp., 12.250% due 12/15/04 3,890,000
3,000,000 Isle of Capri/Cap Corp., 13.000% due 08/31/04 3,172,500
2,000,000 Venetian Casino, 12.250% due 11/15/04 2,070,000
------------
12,192,500
------------
Industrial: 3.1%
2,500,000 (a) American Business Info., 9.500% due 06/15/08 2,512,500
4,000,000 (a) Aqua Chem, Inc., 11.250% due 07/01/08 4,060,000
2,000,000 (a) Morris Materials Handling, 9.500% due 04/01/08 1,865,000
------------
8,437,500
------------
Leisure: 3.6%
5,000,000 Bally Total Fitness Holding, 9.875% due 10/15/07 5,162,500
3,000,000 Epic Resorts LLC/CAP, 13.000% due 06/15/05 3,000,000
2,000,000 Silverleaf Resorts, Inc., 10.500% due 04/01/08 1,910,000
------------
10,072,500
------------
Manufacturing: 2.4%
2,000,000 Jordan Industries Inc., 10.375% due 08/01/07 2,055,000
5,000,000 (a) Paragon Corp. Holdings, 9.625% due 04/01/08 4,600,000
------------
6,655,000
------------
</TABLE>
See Accompanying Notes to Financial Statements
83
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ------------ -------------
<S> <C> <C> <C>
Manufacturing/Electronic: 1.5%
$2,000,000 (a) MCMS, Inc., 9.750% due 03/01/08 $ 1,885,000
2,000,000 Motors and Gears, Inc., 10.750% due 11/15/06 2,155,000
------------
4,040,000
------------
Media & Entertainment: 3.8%
3,000,000 Echostar DBS Corp., 12.500% due 07/01/02 3,367,500
2,000,000 James Cable Partners-LP, 10.750% due 08/15/04 2,140,000
5,000,000 Star Choice Communications, 13.000% due 12/15/05 5,118,750
------------
10,626,250
------------
Metals & Minerals: 1.8%
5,000,000 (a) Metal Management, Inc., 10.000% due 05/15/08 4,950,000
------------
Mines & Minerals: 4.3%
3,000,000 (a) Anker Coal Group, 9.750% due 10/01/07 2,760,000
5,000,000 (a) Lodestar Holdings, Inc., 11.500% due 05/15/05 5,056,250
4,000,000 (a) P&L Coal Holdings Corp., 9.625% due 05/15/08 4,120,000
------------
11,936,250
------------
Oil & Gas: 3.6%
5,000,000 Abraxas Petro, 11.500% due 11/01/04 5,150,000
5,000,000 Transamerican Energy, 11.500% due 06/15/02 4,750,000
------------
9,900,000
------------
Packaging Products: 0.6%
1,500,000 (a) IMPAC Group, Inc., 10.125% due 03/15/08 1,522,500
------------
Paper & Forest Products: 1.9%
5,000,000 Stone Container Corp., 12.250% due 04/01/02 5,150,000
------------
Plastic Products: 1.1%
1,000,000 (a) Indesco International, Inc., 9.750% due 04/15/08 987,500
2,000,000 (a) Moll Industries, 10.500% due 07/01/08 2,035,000
------------
3,022,500
------------
Pollution Control: 1.3%
3,500,000 (a) Marsulex, Inc., 9.625% due 07/01/08 3,570,000
------------
Publishing: 0.8%
2,000,000 (a) American Lawyer Media, 9.750% due 12/15/07 2,080,000
------------
</TABLE>
See Accompanying Notes to Financial Statements
84
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ------------ --------------
<S> <C> <C> <C>
Retail: 7.0%
$6,000,000 (a) Advance Stores Co., Inc., 10.250% due 04/15/08 $ 6,232,500
4,000,000 (a) Cluett American Corp., 10.125% due 05/15/08 3,960,000
2,000,000 Commemorative Brands, 11.000% due 01/15/07 2,032,500
4,000,000 Tuesday Morning, 11.000% due 12/15/07 4,180,000
3,000,000 United Auto Group, 11.000% due 07/15/07 2,940,000
-------------
19,345,000
-------------
Shipping: 1.1%
2,999,700 (a) Ermis Maritime Holdings, 12.500% due 06/15/06 2,969,703
-------------
Steel: 2.6%
3,000,000 (a) Schuff Steel Co., 10.500% due 06/01/08 3,015,000
4,000,000 WHX Corp., 10.500% due 04/15/05 4,080,000
-------------
7,095,000
-------------
Textile: 2.6%
3,000,000 Anvil Knitwear, 10.875% due 03/15/07 3,108,750
4,000,000 (a) Westpoint Stevens, 7.875% due 06/15/08 4,000,000
-------------
7,108,750
-------------
Total Corporate Bonds (Cost $234,698,035) 234,307,203
-------------
</TABLE>
WARRANTS: 0.1%
Shares
- ----------
Communications: 0.1%
2,000 (a) MGC Communication 126,000
115,800 Star Choice Communications --
------------
Total Warrants (Cost $70,000) 126,000
------------
OTHER: 0.2%
<TABLE>
<S> <C> <C> <C>
Financial: 0.2%
60,000 Pilgrim America Prime Rate Trust (b) 600,000
-------------
Total Other (Cost $600,000) 600,000
-------------
Total Long-Term Investments (Cost $235,368,035) 235,033,203
-------------
</TABLE>
See Accompanying Notes to Financial Statements
85
<PAGE>
Pilgrim America High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 13.2%
<TABLE>
<CAPTION>
Principal
Amount Value
- -------------- --------------
<S> <C> <C> <C>
Commercial Paper: 5.0%
$13,970,000 Merrill Lynch Commercial Paper, 6.12% due 07/01/98 $ 13,970,000
-------------
Repurchase Agreements: 8.2%
22,645,000 Merrill Lynch Repurchase Agreement, 5.45% due 07/01/98 22,645,000
-------------
(Collaterized by $22,620,000 U.S. Treasury Note, 5.875%
due 02/28/99, Market Value $22,648,428)
Total Short-Term Investments (Cost $36,615,000) 36,615,000
-------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Total Investments in Securities (Cost $271,983,035)* 98.2% 271,648,203
Other Assets in Excess of Liabilities 1.8% 4,863,485
------ -------------
Net Assets 100.0% $276,511,688
====== =============
</TABLE>
------------------
(a) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may not be resold subject to that rule, except to qualified
institutional buyers.
(b) Pilgrim America Prime Rate Trust is a closed-end fund managed by PAII.
* Cost for federal income tax purposes is $272,068,325. Net unrealized
depreciation consists of:
<TABLE>
<S> <C>
Gross Unrealized Appreciation $ 3,121,315
Gross Unrealized Depreciation (3,541,437)
------------
Net Unrealized Depreciation ($ 420,122)
============
</TABLE>
See Accompanying Notes to Financial Statements
86
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES: 92.9%
<TABLE>
<CAPTION>
Principal Market
Amount Rate Maturity Value
- ------------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation: 20.6%
$3,205,000 Federal Home Loan Mortgage Corporation 7.010% 2007 $ 3,318,681
244,200 Federal Home Loan Mortgage Corporation 8.500% 2017 257,397
138,151 Federal Home Loan Mortgage Corporation 9.000% 2006 142,770
1,026,451 Federal Home Loan Mortgage Corporation 9.500% 2005 to 2014 1,083,266
91,452 Federal Home Loan Mortgage Corporation 9.905% 2020 97,981
515,216 Federal Home Loan Mortgage Corporation 12.250% 2015 592,978
80,901 Federal Home Loan Mortgage Corporation -- Gold 9.000% 2021 85,464
------------
5,578,537
------------
Federal National Mortgage Association: 33.1%
506,756 Federal National Mortgage Association 8.000% 2023 524,564
850,603 Federal National Mortgage Association 8.500% 2017 to 2021 891,707
276,349 Federal National Mortgage Association 9.000% 2017 292,240
557,646 Federal National Mortgage Association 9.250% 2009 to 2016 591,183
110,152 Federal National Mortgage Association 9.750% 2008 117,622
245,740 Federal National Mortgage Association 10.000% 2007 to 2012 263,599
1,378,262 Federal National Mortgage Association 10.500% 2021 1,544,300
655,546 Federal National Mortgage Association 11.000% 2017 734,560
1,022,189 Federal National Mortgage Association 11.250% 2016 1,155,554
89,921 Federal National Mortgage Association 12.000% 2007 100,474
206,138 Federal National Mortgage Association 12.500% 2007 232,396
1,334,442 Federal National Mortgage Association 13.000% 2012 to 2014 1,550,248
838,942 Federal National Mortgage Association 13.500% 2007 to 2017 996,428
------------
8,994,875
------------
Government National Mortgage Association: 31.3%
1,031,126 Government National Mortgage Association 7.000% 2016 to 2017 1,052,651
699,080 Government National Mortgage Association 7.500% 2023 718,816
1,533,903 Government National Mortgage Association 8.000% 2023 to 2024 1,598,764
1,150,553 Government National Mortgage Association 9.000% 2013 to 2022 1,234,105
536,032 Government National Mortgage Association 9.250% 2016 to 2021 576,847
1,347,321 Government National Mortgage Association 9.500% 2016 to 2019 1,453,917
64,005 Government National Mortgage Association 11.000% 2016 71,578
194,354 Government National Mortgage Association 11.250% 2013 218,995
47,595 Government National Mortgage Association 11.750% 2015 54,308
805,140 Government National Mortgage Association 12.000% 2013 to 2015 919,407
109,565 Government National Mortgage Association 13.000% 2014 128,533
405,090 Government National Mortgage Association --
Mobile Home D 11.250% 2011 455,504
------------
8,483,425
------------
U.S. Treasury Securities: 7.9%
2,000,000 U.S. Treasury Bonds 6.125% 2027 2,143,120
------------
Total U.S. Government Securities
(Cost $24,915,749) 25,199,957
------------
</TABLE>
See Accompanying Notes to Financial Statements
87
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of June 30, 1998 (Continued)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 5.8%
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------ --------------
<S> <C> <C> <C> <C>
Repurchase Agreements: 5.8%
$1,586,000 State Street Bank & Trust Repurchase Agreement, 5.70% due 07/01/98 $ 1,586,000
-------------
(Collateralized by $1,200,000 U.S. Treasury Bonds, 8.750%
due 05/15/2017, Market Value $1,621,000)
Total Short-Term Investments (Cost $1,586,000) 1,586,000
-------------
Total Investments in Securities (Cost $26,501,749)* 98.7% 26,785,957
Other Assets in Excess of Liabilities 1.3% 339,781
------ -------------
Net Assets 100.0% $ 27,125,738
====== =============
</TABLE>
- ------------------
* Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 319,561
Gross Unrealized Depreciation (35,353)
-----------
Net Unrealized Appreciation $ 284,208
===========
See Accompanying Notes to Financial Statements
88
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING
- --------------------------------------------------------------------------------
SPECIAL MEETING
A special meeting of shareholders of Pilgrim America High Yield Fund was
held at the offices of the Fund on April 16, 1998. A brief description of each
matter voted upon as well as the voting results are outlined below:
Shares
Shares voted against Shares Broker
voted for or withheld abstained non-vote Total
--------- ----------- --------- -------- -----
I. To approve an Amendment to the Investment Management Agreement between the
Fund and Pilgrim America Investments, Inc. that changes the investment
management fee paid by the Fund.
11,065,450 1,624,190 861,237 -- 13,550,877
II. To transact such other business as may properly come before the Special
Meeting of Shareholders or any adjournments thereof:
12,049,644 613,076 888,156 -- 13,550,876
See Accompanying Notes to Financial Statements
89
<PAGE>
Pilgrim America Funds
- --------------------------------------------------------------------------------
TAX INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
Dividends declared during the tax year ended June 30, 1998 were as follows:
Type Per Share Amount
------ ------------------
MagnaCap Fund
Class A NII $0.0640
Class B NII $0.0315
Class M NII $0.0464
All Classes STCG $0.3380
All Classes LTCG $1.5071
MidCap Value Fund
All Classes STCG $0.3876
All Classes LTCG $0.1011
LargeCap Value Fund
All Classes STCG $1.5104
All Classes LTCG $0.2724
Asia-Pacific Equity Fund None
High Yield Fund
Class A NII $0.6296
Class B NII $0.5774
Class M NII $0.5939
Government Securities Income Fund
Class A NII $0.7740
Class B NII $0.6810
Class M NII $0.7115
NII -- Net investment income
STCG -- Short-term capital gain taxable as ordinary income
LTCG -- Long-term capital gain
Corporate shareholders are generally entitled to take the dividend received
deduction on the portion of a Funds' dividend distribution that qualifies under
tax law. The percentage of fiscal year 1998 net investment income dividends that
qualify for the corporate dividend received deduction is 0%, 100%, 62.65%,
22.94%, and 0%, respectively for Bank and Thrift Fund, MagnaCap Fund, MidCap
Value Fund, LargeCap Value Fund and Asia-Pacific Equity Fund.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investments in the Funds. In January 1999,
shareholders, excluding corporate shareholders, will receive an IRS Form 1099
DIV regarding the federal tax status of the dividends and distributions received
by you in calendar 1998.
90
<PAGE>
Pilgrim America
Funds
INVESTMENT MANAGER CUSTODIAN
Pilgrim America Investments, Inc. Investors Fiduciary Trust Company
Two Renaissance Square 127 West 10th Street
40 North Central Avenue, Suite 1200 14th Floor
Phoenix, Arizona 85004 Kansas City, Missouri 64105
DISTRIBUTOR LEGAL COUNSEL
Pilgrim America Securities, Inc. Dechert Price & Rhoads
Two Renaissance Square 1775 Eye Street, N. W.
40 North Central Avenue, Suite 1200 Washington, D.C. 20006
Phoenix, Arizona 85004
1-800-334-3444
SHAREHOLDER SERVICING AGENT INDEPENDENT AUDITORS
Pilgrim America Group, Inc. KPMG Peat Marwick LLP
Two Renaissance Square 725 South Figueroa Street
40 North Central Avenue, Suite 1200 Los Angeles, California 90017
Phoenix, Arizona 85004
1-800-331-1080
TRANSFER AGENT This report and the financial
statements contained herein are
DST Systems, Inc. submitted for the general
P.O. Box 419368 information of the shareholders of
Kansas City, Missouri 64141 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
