Pilgrim America
Funds
MASTERS SERIES
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Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
SEMI-ANNUAL REPORT
DECEMBER 31, 1997
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Pilgrim America
Funds
Masters Series
--------------
SEMI-ANNUAL REPORT
December 31, 1997
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Table of Contents
Chairman's Message ............................................. 4
Portfolio Manager's Reports:
Pilgrim America Masters Asia-Pacific Equity Fund ....... 5
Pilgrim America Masters MidCap Value Fund .............. 10
Pilgrim America Masters LargeCap Value Fund ............ 13
Statements of Assets and Liabilities ........................... 17
Statements of Operations ....................................... 18
Statements of Changes in Net Assets ............................ 19
Financial Highlights ........................................... 20
Notes to Financial Statements .................................. 23
Portfolios of Investments:
Pilgrim America Masters Asia-Pacific Equity Fund ....... 28
Pilgrim America Masters MidCap Value Fund .............. 33
Pilgrim America Masters LargeCap Value Fund ............ 36
Shareholder Meeting ............................................ 40
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Pilgrim America Masters Series
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Chairman's Message
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Dear Shareholder:
We are pleased to present the Annual Report for Pilgrim America Masters Series,
Inc. ("Masters Series") which consists of Pilgrim America Masters Asia-Pacific
Equity Fund, Pilgrim America Masters MidCap Value Fund and Pilgrim America
Masters LargeCap Value Fund. In the following pages, the portfolio manager for
each Fund of the Masters Series discusses the results of operations for the six
months and year ended December 31, 1997, as well as the markets and factors
which have affected each of the Funds during these periods.
Effective November 1, 1997 Pilgrim America Investments, Inc. began providing
investment advisory services to Pilgrim America Masters LargeCap Value Fund.
Pilgrim America Masters Asia-Pacific Equity Fund and Pilgrim America Masters
MidCap Value Fund give investors access to private money managers who typically
manage similar portfolios primarily for high net worth individuals and
institutional investors. Each money manager has extensive knowledge and proven
experience in their specialized market segments.
The Masters Series commenced operations on September 1, 1995. Pilgrim America
Masters Asia-Pacific Equity Fund invests primarily in the equity securities of
companies based in the Asia-Pacific Region. Pilgrim America Masters MidCap Value
Fund invests primarily in equity securities of companies that have a market
capitalization between $200 million and $5 billion. Pilgrim America Masters
LargeCap Value Fund invests primarily in equity securities of companies that
have a market capitalization in excess of $5 billion.
At Pilgrim America, we are dedicated to providing core investments for the
serious investor. We believe that the key to success is matching quality core
investments to the individual needs of investors. Core investments are the
foundation of every portfolio and the basis of other important investment
decisions. Pilgrim America prides itself on providing only high quality core
investments to help you reach your financial goals. Our goal is for every
investor to have a successful investment experience.
Thank you for selecting Pilgrim America Masters Series. We appreciate the
confidence you have placed with us in serving your investment needs.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim America Group, Inc.
February 20, 1998
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Pilgrim America Masters Asia-Pacific Equity Fund
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Portfolio Manager's Report
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Dear Shareholder :
We are pleased to report the results of operations for the Pilgrim America
Masters Asia-Pacific Equity Fund ("the Fund") for the six months ended December
31, 1997.
For the six months, the Fund's total return was -44.56%(1). This compares to the
return of -44.97% on the Morgan Stanley Capital International Combined Far East
Free (excluding Japan) Index (the "MSCI"), a measure of the performance of the
Far East equity markets excluding Japan. Net assets in the Fund at December 31,
1997 totalled $35.8 million.
Global Economic Overview
We expect financial and economic turbulence in Asia to result in a deceleration
of 0.5% to 1% in real economic growth in the OECD countries as a whole. However,
regional differences in growth rates will persist as various economies move
through different stages of the economic cycle. For example, in the US, real GDP
growth is expected to slow from the current rate of over 3% to around 2.5% per
annum. In the UK, a strong currency and rising interest rates coupled with the
Asian crisis are expected to cause a sharp slowdown in economic growth. In
Continental Europe, we expect the economic recovery to gather momentum, and real
GDP growth to potentially exceed trend levels. In Japan, we anticipate that the
economy will continue to struggle with growth averaging below 1% for 1998.
Finally, in Asia, the collapse in exchange rates, financial and real asset
values is likely to lead to a sharp contraction in domestic demand.
On the inflation front, we expect price pressures at the producer and consumer
level to remain subdued, as considerable spare capacity still exists around the
world. Consequently, we expect the global interest rate environment to remain
generally stable.
Asia Pacific Region
The difficulties of Asia have been well documented in recent months. Stock
markets in some cases have fallen by over 70% in U.S. dollar terms. The table
below summarizes the returns on various MSCI Indices for the twelve months ended
December 31, 1997 :
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Pilgrim America Masters Asia-Pacific Equity Fund
Index Total Return
Hong Kong - 23.29 %
Singapore - 30.05
Malaysia - 68.26
Indonesia - 73.92
South Korea - 66.67
Taiwan - 6.29
Thailand - 76.75
Philippines - 62.59
Source : MSCI Index Returns as reported to Bloomberg.
The IMF has most recently been called into Korea, and is now "operating" in much
of the region. The difficulties from trade deficits, overinvestment, and massive
U.S. dollar borrowings with insufficient regard to foreign exchange risks, has
led to a collapse in exchange rates across much of the region, with obvious
implications for interest rates, and equity valuations, as well as distressed
borrowers.
The critical issue remains the implementation of IMF agreed terms, and whether
the political will exists to take the necessarily tough medicine. Investor
skepticism on this front is justifiably high, as is doubt on whether the
existing scale of the IMF packages is adequate. While macro economic risks
remain prevalent throughout the region from a "bottom up" perspective, Hong
Kong, China, Taiwan and Singapore appear sound with an absence of excessive
balance sheet leverage.
We expect to see a turnaround in trade accounts in 1998 but mostly as a result
of sharply contracting domestic demand. This will over time improve domestic
liquidity and the interest rate environment. Balance sheet adjustment will be
painful but necessary, as is a pragmatic and transparent approach by
policymakers. Although we remain cautious regarding prospects for the region
over the near term, we believe much of the known negatives have already been
priced in.
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Pilgrim America Masters Asia-Pacific Equity Fund
Regional Outlook
In the short term, the Hong Kong market will be vulnerable as the Asian
contagion spreads to the SAR. Interest rates are moving up to support the peg
with adverse consequences for asset prices. In addition, question marks over
growth rates in China could adversely affect sentiment. However, once the
economic turbulence has subsided, the strong relative economic and corporate
fundamentals in Hong Kong will re-exert themselves. China's economy is still
robust and inflation is negligible which should allow further monetary easing.
However, concerns over China's competitiveness, given the Asian currency
collapse, and adverse impact of the economic restructuring is creating weakness
in stock markets. Loan growth in Malaysia is still unacceptably high despite a
slowdown in the economy. When lending does decline substantially, the economic
contraction will be very painful. Corporate profits will also be vulnerable and
bankruptcies will accelerate, particularly in the vastly oversupplied property
sector. Turmoil in countries surrounding Singapore are impacting asset prices
and increasing non-performing loans in the banking sector. Consequently, the
stock market and currency will be under pressure.
After a 77% fall in share prices (in USD terms) in Thailand, there are some
positive signs emerging. The current account is now in surplus, the IMF program
is being successfully implemented and financial restructuring is being
instituted. Notwithstanding these factors, economic growth will decline and
corporate profits will continue to fall while recapitalizations will further
dilute earnings. In Indonesia, the currency is in free fall, creating a vicious
cycle of rising corporate currency losses, an increasing demand for US dollars
and an erosion of equity values. Until we see some stability in the Rupiah, we
are taking a more cautious view towards this market. The Philippines does not
have the credit creation excesses of its neighbors. However, loan growth has
been high over the last few years. With economic growth forecast to decline and
corporate profits being downgraded, a cautious outlook is warranted. Our long
term view is more positive given the market's low relative valuation and
potential for economic growth to accelerate once the Asian turmoil moderates.
South Korea has made some progress in turning around its economy. The current
account surplus has widened which will support the currency. As importantly,
there seems to be a willingness amongst both politicians and populous to take
the pain associated with restructuring the economy. The economic cycle in Taiwan
continues to be positive for equity investment with low interest rates and
buoyant liquidity. We are seeing a change in emphasis towards a domestic-led
recovery. Electronic exports will also be strong given the price competitiveness
of Taiwanese component products for American customers.
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Pilgrim America Masters Asia-Pacific Equity Fund
Over the near term, we will continue to favor the larger, more liquid markets as
their economic fundamentals continue to look relatively stronger. Further, we
will be looking for good value throughout the region as many of the companies
have fallen dramatically in price. Stock selection rather than country
allocation is likely to be the driver of performance as we begin 1998.
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 419338,
Kansas City, MO 64141-6338 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 9.
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Pilgrim America Masters Asia-Pacific Equity Fund
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FOOTNOTES
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(1) Excluding the Class A maximum sales charge of 5.75% and assuming
reinvestment of all dividends and distributions. Average annual total
returns including the Class A maximum sales charge and assuming
reinvestment of all dividends and distributions for the year ended
December 31, 1997 and from September 1, 1995 (commencement of operations)
to December 31, 1997 were -46.52% and -21.15%, 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 returns figures reflect a partial waiver of fees for the periods
stated. Without such a waiver, returns would have been lower.
Past performance is not indicative of future returns. Investment return
and principal value of an investment will fluctuate. Shares, when redeemed
may be worth more or less than their original cost.
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 could differ materially from those projected in the
"forward-looking statements."
The views expressed in this report reflect those of the portfolio manager,
only through the end of the period as stated on the cover. The manager's
views are subject to change at any time based on market and other
conditions.
Pilgrim America Funds
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Pilgrim America Masters MidCap Value Fund
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Portfolio Manager's Report
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Dear Shareholders,
We are pleased to report the results of operations for the Pilgrim America
Masters MidCap Value Fund (the "Fund") for the six months ended December 31,
1997.
For the six months ended December 31, 1997 the Fund had a total return of
9.58%(1) compared to 14.54% for the Russell MidCap Index(TM) (2).
1997 FOURTH QUARTER REVIEW
Once again we enter the new year with many concerns on the minds of investors.
The fourth quarter debacle in the Asian currency and security markets has caused
reverberations around the globe and are likely to continue well into the current
year. For the U.S., many are predicting slower domestic economic growth, smaller
than expected earnings gains, limited pricing power and a bigger trade deficit.
The word "deflation" has entered many conversations about the global economic
outlook, replacing "disinflation", a term that has been warmly embraced for
several years. A volatile year for the stocks of multinational corporations is
likely if the Asian economies continue to deteriorate and leadership falters.
The prospect of slower top-line growth, narrowing margins and weaker profits
would inevitably lower the market valuation of these large companies.
This sobering backdrop for the U.S. equity market makes us feel even more
comfortable with our value approach to investing, particularly in the mid and
small capitalization company sectors. Since these sectors are comprised of
companies that have, on average, little to no exposure to foreign markets, we
believe the quality of earnings should be relatively immune to the "Asian Flu".
They are also generally characterized by modest valuations having underperformed
the large cap sector for over two years. Also, increased volatility should give
us better control over the prices we pay for stocks, as inefficient pricing by
the market often occurs with these gyrations. Throughout 1995 and 1996 when the
general trend was inexorably up, we often found ourselves challenged by
increased multiples. We therefore look forward to 1998 as a year in which U.S.
economic fundamentals remain sound, Wall Street continues to "climb a wall of
worry", and where astute stock selection and strict attention to valuation
provide greater relative returns.
The markets again rewarded equity investors with well above average returns for
1997. While the high multiple investment environment continued to test our
discipline, it is difficult not to be satisfied
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Pilgrim America Masters MidCap Value Fund
with absolute returns greater than 20% in any given year. By comparison, the
Russell 2500 gained 24.6% for the year.
The diversified structure of the Fund served its purpose throughout the year and
accentuated the value of good stock selection within each industry group. For
example, the consumer staple segment, the largest portfolio sector,
substantially contributed to performance. The most significant players in this
category were Fred Meyer and Owens-Illinois. The well-strategized and successful
acquisition strategies of both of these companies were recognized by the market.
These positions will likely be held in the Fund as our conviction in each
company's fundamentals and management abilities remains strong.
The financial sector of the market outperformed the broad averages and was the
leading performer for the year. Approximately 18% of the Standard and Poor's
index is comprised of financial services companies. Our limited exposure to this
sector affected our competition with the indexers.
While representation among various industries is an important portfolio
management consideration, specific stock selection ranks as our highest
priority. In search of companies that looked inappropriately priced by this
market place, Cincinnati Bell, came into an attractive price-range in the last
quarter. A thorough review of the three segments of the company and several
conversations with management convinced us that the enterprise value of the
company was above the current value the market suggested. We believe the
company's above-average earnings growth rate compared to it's telecommunications
peer group should be recognized over time.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way to acquire
additional shares 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 419338,
Kansas City, MO 64141-6338 or call (800) 992-0180.
We thank you for giving us this opportunity to help you work towards your
investment needs.
Sincerely,
CRM Advisors, LLC
See Footnotes on page 12
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Pilgrim America Masters MidCap Value Fund
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FOOTNOTES
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(1) Excluding the Class A maximum sales charge of 5.75% and assuming
reinvestment of all dividends and distributions. Average annual total
returns including the maximum sales charge and assuming reinvestment of
all dividends and distributions for the year ended December 31, 1997 and
from September 1, 1995 (commencement of operations) to December 31, 1997
were 14.86% and 20.32%, 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 MidCap(tm) Index is a broad based measure of the performance
of MidCap stocks.
Past performance is not indicative of future returns. Investment return
and principal value of an investment will fluctuate. Shares, when redeemed
may be worth more or less than their original cost.
This letter contains statements that may be "forward-looking statements."
Actual results could differ materially from those projected in the
"forward-looking statements."
The views expressed in this report reflect those of the portfolio manager,
only through the end of the period as stated on the cover. The manager's
views are subject to change at any time based on market and other
conditions.
Pilgrim America Funds
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Pilgrim America Masters LargeCap Value Fund
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Portfolio Manager's Report
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Dear Shareholder:
We are pleased to report the results of operations for Pilgrim America Masters
LargeCap Value Fund (the "Fund") for the six months ended December 31, 1997. 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 six months, the Fund earned a total return of 6.02%(1) compared to
10.57% for the Standard & Poor's 500 Index (the "S&P 500")(2), a proxy for the
broad U.S. stock market. The Fund earned a total return of 20.15%(1) in the
twelve months ending December 31, 1997 versus the S&P 500 return of 33.36%.
ECONOMIC ENVIRONMENT AND EQUITY MARKET CONDITIONS
This was the third consecutive year in which the stock market produced
above-average investment returns. Most of the market's performance occurred
between April and October, following an initial three months when first the
market soared, then sold off an equal amount. Since August, the S&P 500 and the
major equity market indices have traded within a choppy, narrow range.
Beneath the surface of the market, quite a lot went on. Over the summer, the
high price/earnings ratio ("P/E") growth stocks, of which many derive a large
portion of their earnings from outside the U.S., handed off their market
leadership to more cyclically-oriented stocks. Incessant strength in U.S.
currency foreign exchange rates was the catalyst. But this shift proved to be
short-lived. Deteriorating economic conditions in the Asian Pacific Basin
prompted another shift, this time toward companies with purely domestic
operations focused on the consumer. As it did earlier in the year, the U.S.
equity market rebounded after selling off sharply in October, testament to its
resilience.
Despite the market's unprecedented "hat trick" of 25-35% annual returns over the
past three years, we believe the market can advance again in 1998. Returns are
likely to be good by long-term historical standards, though perhaps less
spectacular than those experienced over 1995-1997. We don't expect the market
P/E to expand as much, leaving it to earnings growth alone to propel stocks.
Good, albeit slower domestic economic growth, a low interest rate environment
and constructive monetary policy should provide a favorable setting.
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Pilgrim America Masters LargeCap Value Fund
Your fund generated solid returns for the past six and twelve months even though
it trailed those of the S&P 500. Overall, performance was very consistent with
the value-style of investing in which the Fund seeks to minimize loss during
market declines and participate meaningfully in strong advances.
A large measure of the variance between returns of the Fund and that of the S&P
500 related to the influence high P/E growth factors had on the overall market.
For example, the Goldman Sachs brokerage firm has determined that the S&P 500
Index increased 2.4% in the last four months of 1997, but the average S&P 500
stock actually fell 0.2%, thus underperforming the Index by 2.6%! Moreover, they
note that only 25 stocks supplied almost one-half of S&P 500's 1997 return. This
suggests that the remaining 475 stocks would have underperformed the Index by
more than 6%.
During 1997, the underweight in Consumer Staple and Healthcare issues, typically
high P/E growth as opposed to value stocks, was a decided factor in constraining
the Fund's performance. These sectors, particularly Healthcare's pharmaceutical
stocks, principally drove the market in late 1997. Prior Fund management had
placed more emphasis on hospital and HMO companies, Healthcare stocks that did
not advance as much. Additionally, one hospital management company,
Columbia/HCA, suffered a sharp decline in early October which affected Fund
performance. Throughout the past six and twelve months, the Fund had significant
representation in Financials and Energy, two sectors that performed very well
throughout these periods.
Since assuming management at the beginning of November, we have been gradually
restructuring the Fund. Continuing to adhere to the value discipline, we have
been taking advantage of market opportunities to selectively reduce the number
of securities in the portfolio while updating it. The portfolio currently has 64
holdings, down from 83; we hope to hold an optimum 30 to 40 positions. During
November, we sold May Department Stores and added the proceeds to existing
positions in Dillards Department Stores, Federated Department Stores and Sears
Roebuck and Co. Texas Utilities and the Southern Company were sold to
consolidate the Electric Utilities sector. In December, we initiated positions
in Carnival Cruise Lines and Harley Davidson.
Here in early 1998, we continue to favor the Financial sector, with a preference
for Banking issues and some insurance companies. We have mixed sentiments toward
the Energy sector; many stocks have overcorrected in step with the sharp decline
in crude oil and natural gas prices and are selling at very attractive prices.
However, the earnings picture is less ebullient for many of the major integrated
oil companies,
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Pilgrim America Masters LargeCap Value Fund
leading us to prefer the oil service companies. Finally, with the domestic
economy set to grow at a rate that is one-half percent slower this year, we have
less enthusiasm for cyclical companies. Our strategy is to position the Fund
toward undervalued companies with strong underlying cash flows and solid
earnings 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 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 419338,
Kansas City, MO 64141-6338 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 Masters LargeCap Value Fund
See Footnotes on page 16
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Pilgrim America Masters LargeCap Value Fund
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FOOTNOTES
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(1) Excluding the Class A maximum sales charge of 5.75% and assuming
reinvestment of all dividends and distributions. Average annual total
returns including the maximum sales charge and assuming reinvestment of
all dividends and distributions for the year ended December 31, 1997 and
from September 1, 1995 (commencement of operations) to December 31, 1997
were 13.23% and 17.98%, 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 period stated.
Without such a waiver, returns would have been lower.
(2) The S&P is an unmanaged index of 500 common stocks and is a generally
accepted measure of stock market performance.
Past performance is not indicative of future returns. Investment return
and principal value of an investment will fluctuate. Shares, when redeemed
may be worth more or less than their original cost.
This letter contains statements that may be "forward-looking statements".
Actual results could differ materially from those projected in the
"forward-looking statements."
The views expressed in this report reflect those of the portfolio manager,
only through the end of the period as stated on the cover. The manager's
views are subject to change at any time based on market and other
conditions.
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Pilgrim America Masters Series
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STATEMENTS OF ASSETS AND LIABILITIES December 31, 1997 (Unaudited)
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<TABLE>
<CAPTION>
Asia-Pacific MidCap LargeCap
Equity Value Value
Fund Fund Fund
---------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investments in securities at market value (Cost $38,196,428,
$54,952,079 and $24,416,335, respectively) $ 30,288,545 $63,899,019 $26,813,940
Short-term securities at amortized cost 3,509,567 3,194,428 1,219,781
Foreign currency (Cost $242,434) 240,728 -- --
Cash 10,875 14,521 13,438
Receivables:
Fund shares sold 180,886 229,837 29,174
Dividends and interest 218,753 85,890 42,838
Due from affiliate 167,041 321 60,924
Investment securities sold 3,322,570 1,632,258 957,206
Other receivables 184,274 -- --
Prepaid expenses 30,791 25,932 17,428
Deferred organization expenses 69,427 69,427 69,427
------------- ----------- -----------
Total Assets 38,223,457 69,151,633 29,224,156
------------- ----------- -----------
LIABILITIES:
Investment securities purchased 1,475,886 1,230,195 915,121
Payable for fund shares redeemed 812,519 203,488 65,473
Payable to affiliate 3,330 2,140 2,339
Other accrued expenses and liabilities 159,528 30,176 30,223
------------- ----------- -----------
Total Liabilities 2,451,263 1,465,999 1,013,156
------------- ----------- -----------
NET ASSETS $ 35,772,194 $67,685,634 $28,211,000
============= =========== ===========
Net Assets consist of:
Paid-in capital 63,577,430 58,200,249 $25,843,676
Overdistributed net investment income (125,635) (350,485) (41,221)
Accumulated net realized gains (losses) on investments and foreign
currency transactions (19,770,437) 888,930 10,940
Net unrealized appreciation (depreciation) of investments and other assets,
liabilities and forward contracts denominated in foreign currencies (7,909,164) 8,946,940 2,397,605
------------- ----------- -----------
Net Assets $ 35,772,194 $67,685,634 $28,211,000
============= =========== ===========
Class A:
Net assets $ 16,374,560 $22,167,494 $ 8,579,913
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 24,000,000 28,000,000 28,000,000
Shares outstanding 2,686,640 1,426,465 648,226
Net asset value and redemption price per share $ 6.09 $ 15.54 $ 13.24
Maximum offering price per share(1) $ 6.46 $ 16.49 $ 14.05
Class B:
Net assets $ 13,847,073 $33,954,123 $14,382,686
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 24,000,000 28,000,000 28,000,000
Shares outstanding 2,304,734 2,217,398 1,103,611
Net asset value, redemption and offering price per share(2) $ 6.01 $ 15.31 $ 13.03
Class M:
Net assets $ 5,550,561 $11,564,017 $ 5,248,401
Shares authorized ($0.10, $1.00 and $0.00 par value, respectively) 12,000,000 14,000,000 14,000,000
Shares outstanding 918,761 753,777 399,905
Net asset value and redemption price per share $ 6.04 $ 15.34 $ 13.12
Maximum offering price per share(3) $ 6.26 $ 15.90 $ 13.60
</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
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Pilgrim America Masters Series
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STATEMENTS OF OPERATIONS For the Six Months Ended December 31, 1997
(Unaudited)
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<TABLE>
<CAPTION>
Asia-Pacific MidCap LargeCap
Equity Value Value
Fund Fund Fund
---------------- ------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 79,653 $ 108,656 $ 32,832
Dividends (net of foreign withholding taxes of $42,232,
$3,669 and $0, respectively) 497,303 319,035 243,236
------------ ---------- ----------
Total investment income 576,956 427,691 276,068
------------ ---------- ----------
EXPENSES:
Investment management fees 351,129 304,844 144,647
Distribution expenses
Class A Shares 31,775 25,966 11,342
Class B Shares 112,737 150,075 73,301
Class M Shares 30,800 38,180 19,483
Transfer agent and registrar fees 113,391 61,253 57,213
Custodian fees 85,889 10,976 18,825
Miscellaneous expenses 26,727 1,765 2,320
Reports to shareholders 21,529 10,937 5,123
Registration and filing fees 21,271 20,290 16,271
Professional fees 18,307 24,560 17,660
Organization expense 13,116 13,116 13,116
Recordkeeping and pricing fees 7,573 7,245 3,522
Shareholder Servicing fee 5,850 4,980 3,968
Directors' fees 5,000 3,470 2,500
Insurance expense 3,321 1,835 1,101
------------ ---------- ----------
Total expenses 848,415 679,492 390,392
------------ ---------- ----------
Less:
Waived and reimbursed fees (193,766) (20,972) (68,901)
Earnings credits (2,001) (1,140) (447)
------------ ---------- ----------
Net expenses 652,648 657,380 321,044
------------ ---------- ----------
Net investment loss (75,692) (229,689) (44,976)
------------ ---------- ----------
REALIZED AND UNREALIZED GAINS (LOSSES)
FROM INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gains (losses) from:
Investments (17,392,818) 1,942,679 1,974,060
Foreign currency transactions (205,172) - -
Net change in unrealized appreciation (depreciation) of:
Investments (13,558,653) 3,399,283 (382,293)
Other assets, liabilities and forward contracts
denominated in foreign currencies 8,874 - -
------------- ---------- ----------
Net gain (loss) from investments (31,147,769) 5,341,962 1,591,767
------------- ---------- ----------
Net increase (decrease) in net assets resulting from
operations $(31,223,461) $5,112,273 $1,546,791
============= ========== ==========
</TABLE>
See Accompanying Notes to Financial Statements
18
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS For the Six Months Ended December 31, 1997
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Asia-Pacific Equity Fund MidCap Value Fund LargeCap Value Fund
--------------------------------- ------------------------------- ------------------------------
Six Months Six Months Six Months
Ended Year Ended Year Ended Year
December 31, Ended December 31, Ended December 31, Ended
1997 June 30, 1997 June 30, 1997 June 30,
(Unaudited) 1997 (Unaudited) 1997 (Unaudited) 1997
---------------- ---------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations:
Net investment loss $ (75,692) $ (245,742) $ (229,689) $ (141,391) $ (44,976) $ (6,512)
Net realized gain (loss) from
investments (17,392,818) (2,050,338) 1,942,679 1,180,396 1,974,060 1,682,366
Net realized loss from foreign
currency transaction (205,172) (62,302) - - - -
Net change in unrealized
appreciation (depreciation)
of investments (13,558,653) 5,856,620 3,399,283 5,149,275 (382,293) 2,599,255
Net change in unrealized
appreciation (depreciation)
of other investments
denominated in foreign
currency 8,874 (12,204) - - - -
------------- ------------- ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from
operations (31,223,461) 3,486,034 5,112,273 6,188,280 1,546,791 4,275,109
------------- ------------- ------------ ------------ ------------ ------------
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 - - (678,714) (87,623) (1,033,331) (118,836)
Class B shares - - (1,046,073) (100,153) (1,758,269) (169,692)
Class M shares - - (353,906) (40,101) (635,335) (60,108)
Excess of net realized gains:
Class A shares - - - - - -
Class B shares - - - - - -
Class M shares - - - - - -
Tax return of capital
Class A shares - (30,685) - - - -
Class B shares - - - - - -
Class M shares - (1,611) - - - -
------------- ------------- ------------ ------------ ------------ ------------
Total distributions - (32,296) (2,078,693) (266,071) (3,426,935) (374,385)
============= ============= ============ ============ ============ ============
Capital share transactions:
Net proceeds from sale of
shares 23,696,815 85,779,972 21,591,950 43,491,828 3,349,820 20,775,389
Shares resulting from dividend
reinvestments - 30,383 1,780,691 229,750 3,052,934 321,069
Cost of shares redeemed (30,510,411) (58,091,003) (7,341,598) (7,265,617) (3,602,609) (2,900,008)
------------- ------------- ------------ ------------ ------------ ------------
Net increase (decrease) in net
assets resulting from capital
share transactions (6,813,596) 27,719,352 16,031,043 36,455,961 2,800,145 18,196,450
------------- ------------- ------------ ------------ ------------ ------------
Net increase (decrease) in
net assets (38,037,057) 31,173,090 19,064,623 42,378,170 920,001 22,097,174
------------- ------------- ------------ ------------ ------------ ------------
Net assets, beginning
of period 73,809,251 42,636,161 48,621,011 6,242,841 27,290,999 5,193,825
------------- ------------- ------------ ------------ ------------ ------------
Net assets, end of period** $ 35,772,194 $ 73,809,251 $ 67,685,634 $ 48,621,011 $ 28,211,000 $ 27,290,999
============= ============= ============ ============ ============ ============
** Including undistributed
(overdistributed) net invest-
ment income (loss) of: $ (125,635) $ (49,943) $ (350,485) $ (120,796) $ (41,221) $ 3,755
============= ============= ============ ============ ============ ============
</TABLE>
See Accompanying Notes to Financial Statements
19
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------------ ---------------------------------------------------
Six Months Ten Six Months Ten
Ended Year Months Ended Year Months
December 31, Ended Ended December 31, Ended Ended
1997 June 30, June 30, 1997 June 30, June 30,
(Unaudited) 1997 1996(a) (Unaudited) 1997 1996(a)
------------------- ----------- ---------------- ------------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period $ 10.93 $ 10.35 $ 10.00 $ 10.83 $ 10.31 $ 10.00
Income from investment
operations:
Net investment income
(loss) ( 0.01) 0.02 0.03 ( 0.05) ( 0.07) ( 0.01)
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions ( 4.83) 0.58 0.34 ( 4.77) 0.59 0.32
----------- -------- --------- ------------ -------- ----------
Total from investment
operations ( 4.84) 0.60 0.37 ( 4.82) 0.52 0.31
----------- -------- --------- ------------ -------- ----------
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 $ 6.09 $ 10.93 $ 10.35 $ 6.01 $ 10.83 $ 10.31
=========== ========= ========= ============ ======== ==========
Total Return(b) (44.56)% 5.78% 3.76% (44.78)% 5.04% 3.19%
Ratios/Supplemental Data
Net assets, end of period
(000's) $ 16,375 $ 32,485 $ 18,371 $ 13,847 $ 30,169 $ 17,789
Ratios to average net assets:
Expenses(c)(d)(e) 2.00 %(f) 2.00% 2.00%(f) 2.75%(f) 2.75% 2.75%(f)
Net investment income
(loss) (c)(d)(e) ( 0.10)%(f) 0.00% 0.33%(f) (0.65)%(f) ( 0.79)% ( 0.38)%(f)
Portfolio turnover rate 42 % 38% 15% 42 % 38 % 15%
Average commission rate paid $ 0.0101 $ 0.0096 -- $ 0.0101 $ 0.0096 --
Class M
------------------------------------------------------
Six Months Ten
Ended Year Months
December 31, Ended Ended
1997 June 30, June 30,
(Unaudited) 1997 1996(a)
------------------------------------------------------
<S> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning of
period $ 10.86 $ 10.32 $ 10.00
Income from investment
operations:
Net investment income
(loss) ( 0.02) ( 0.05) --
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions ( 4.80) 0.59 0.33
----------- -------- -------
Total from investment
operations ( 4.82) 0.54 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 $ 6.04 $ 10.86 $ 10.32
=========== ======== =======
Total Return(b) (44.66)% 5.26% 3.32%
Ratios/Supplemental Data
Net assets, end of period
(000's) $ 5,551 $ 11,155 $ 6,476
Ratios to average net assets:
Expenses(c)(d)(e) 2.50%(f) 2.50% 2.50%(f)
Net investment income
(loss) (c)(d)(e) ( 0.38)%(f) (0.55)% ( 0.16)%(f)
Portfolio turnover rate 42 % 38% 15%
Average commission rate paid $ 0.0101 $ 0.0096 --
</TABLE>
- -----------
(a) The Fund commenced operations on September 1, 1995.
(b) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return information for less than one year is not
annualized.
(c) Prior to the waiver and reimbursement of expenses for the period ended
December 31, 1997, the annualized ratios of expenses to average net assets
were 2.66%, 3.41% and 3.16% and the annualized ratios of net investment
income (loss) to average net assets were (0.59)%, (1.34)% and (1.07)% for
Class A, B an 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.
See Accompanying Notes to Financial Statements
20
<PAGE>
Pilgrim America Masters MidCap Value Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------------- -------------------------------------------------
Six Months Ten Six Months Ten
Ended Year Months Ended Year Months
December 31, Ended Ended December 31, Ended Ended
1997 June 30, June 30, 1997 June 30, June 30,
(Unaudited) 1997 1996(a) (Unaudited) 1997 1996(a)
------------------ ------------- ---------------- ------------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period $ 14.64 $ 11.99 $ 10.00 $ 14.49 $ 11.94 $ 10.00
Income from investment
operations:
Net investment income
(loss) ( 0.02) ( 0.02) 0.13 ( 0.06) ( 0.05) 0.07
Net realized and unrealized
gain on investments 1.41 2.85 1.91 1.37 2.76 1.90
---------- -------- --------- ---------- -------- ---------
Total from investment
operations 1.39 2.83 2.04 1.31 2.71 1.97
---------- -------- --------- ---------- -------- ---------
Less distributions:
Net investment income -- -- 0.05 -- -- 0.03
In excess of net investment
income -- 0.07 -- -- 0.05 --
Realized gains on
investments 0.49 0.11 -- 0.49 0.11 --
---------- -------- --------- ---------- -------- ---------
Total distributions 0.49 0.18 0.05 0.49 0.16 0.03
---------- -------- --------- ---------- -------- ---------
Net asset value, end of period $ 15.54 $ 14.64 $ 11.99 $ 15.31 $ 14.49 $ 11.94
========== ======== ========= ========== ======== =========
Total Return (b) 9.58% 23.89% 20.48% 9.13% 22.95% 19.80%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 22,167 $ 16,985 $ 2,389 $ 33,954 $ 23,258 $ 2,123
Ratios to average net assets:
Expenses(c)(d)(e) 1.75%(f) 1.75% 1.75%(f) 2.50%(f) 2.50% 2.50%(f)
Net investment income
(loss)(c)(d)(e) ( 0.31)%(f) ( 0.13)% 2.00%(f) ( 1.04)%(f) ( 0.90)% 1.27%(f)
Portfolio turnover rate 31% 86% 60% 31% 86% 60%
Average commission rate paid $ 0.0383 $ 0.0592 -- $ 0.0383 $ 0.0592 --
Class M
----------------------------------------------------
Six Months Ten
Ended Year Months
December 31, Ended Ended
1997 June 30, June 30,
(Unaudited) 1997 1996(a)
------------------ ---------------------------------
<S> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period $ 14.49 $ 11.93 $ 10.00
Income from investment
operations:
Net investment income
(loss) ( 0.03) ( 0.03) 0.06
Net realized and unrealized
gain on investments 1.37 2.76 1.91
---------- -------- ----------
Total from investment
operations 1.34 2.73 1.97
---------- -------- ----------
Less distributions:
Net investment income -- -- 0.04
In excess of net investment
income -- 0.06 --
Realized gains on
investments 0.49 0.11 --
---------- -------- ----------
Total distributions 0.49 0.17 0.04
---------- -------- ----------
Net asset value, end of period $ 15.34 $ 14.49 $ 11.93
========== ======== ==========
Total Return (b) 9.34% 23.21% 19.82%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 11,564 $ 8,378 $ 1,731
Ratios to average net assets:
Expenses(c)(d)(e) 2.25%(f) 2.25% 2.25%(f)
Net investment income
(loss)(c)(d)(e) ( 0.80)%(f) ( 0.63) ( 1.16)%(f)
Portfolio turnover rate 31% 86% 60%
Average commission rate paid $ 0.0383 $ 0.0592 --
</TABLE>
- -----------
(a) The Fund commenced operations on September 1, 1995.
(b) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return information for less than one year is not
annualized.
(c) Prior to the waiver and reimbursement of expenses for the period ended
December 31, 1997, the annualized ratios of expenses to average net assets
were 1.77%, 2.52% and 2.27% and the annualized ratios of net investment
income (loss) to average net assets were (0.38)%, (1.11)% and (0.87)% 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.
See Accompanying Notes to Financial Statements
21
<PAGE>
Pilgrim America Masters LargeCap Value Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
Class A
----------------------------------------------
Six Months Ten
Ended Year Months
December 31, Ended Ended
1997 June 30, June 30,
(Unaudited) 1997 1996(a)
---------------- ------------ ----------------
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 0.84 2.63 1.87
--------- --------- ---------
Total from investment
operations 0.85 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 1.78 0.24 0.09
--------- --------- ---------
Total distributions 1.78 0.29 0.17
--------- --------- ---------
Net asset value, end of
period $ 13.24 $ 14.17 $ 11.77
========= ========= =========
Total Return(b) 6.02% 23.24% 19.56%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 8,580 $ 8,961 $ 2,530
Ratios to average net assets:
Expenses(c)(d)(e) 1.75%(f) 1.75% 1.75%(f)
Net investment income
(loss)(c)(d)(e) 0.16%(f) 0.41% 0.65%(f)
Portfolio turnover rate 54% 86% 59%
Average commission
rate paid $ 0.0547 $ 0.0586 --
Class B
-------------------------------------------------
Six Months Ten
Ended Year Months
December 31, Ended Ended
1997 June 30, June 30,
(Unaudited) 1997 1996(a)
---------------- ------------- ------------------
Per Share Operating
Performance
Net asset value, beginning
of period $ 14.04 $ 11.71 $ 10.00
Income from investment
operations:
Net investment income
(loss) ( 0.04) ( 0.02) 0.06
Net realized and
unrealized gain on
investments 0.81 2.59 1.81
---------- -------- ----------
Total from investment
operations 0.77 2.57 1.87
---------- -------- ----------
Less distributions:
Net investment income -- -- 0.06
In excess of net
investment income -- -- 0.01
Realized gains on
investments 1.78 0.24 0.09
---------- -------- ----------
Total distributions 1.78 0.24 0.16
---------- -------- ----------
Net asset value, end of
period $ 13.03 $ 14.04 $ 11.71
========== ======== ==========
Total Return(b) 5.50% 22.23% 18.85%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 14,383 $ 13,611 $ 1,424
Ratios to average net assets:
Expenses(c)(d)(e) 2.50%(f) 2.50% 2.50%(f)
Net investment income
(loss)(c)(d)(e) ( 0.59)%(f) ( 0.35)% ( 0.25)%(f)
Portfolio turnover rate 54% 86% 59%
Average commission
rate paid $ 0.0547 $ 0.0586 --
Class M
-------------------------------------------------
Six Months Ten
Ended Year Months
December 31, Ended Ended
1997 June 30, June 30,
(Unaudited) 1997 1996(a)
------------------ ------------ ---------------
Per Share Operating
Performance
Net asset value, beginning
of period $ 14.10 $ 11.73 $ 10.00
Income from investment
operations:
Net investment income
(loss) ( 0.02) -- 0.06
Net realized and
unrealized gain on
investments 0.82 2.62 1.83
---------- -------- ---------
Total from investment
operations 0.80 2.62 1.89
---------- -------- ---------
Less distributions:
Net investment income -- -- 0.06
In excess of net
investment income -- 0.01 0.01
Realized gains on
investments 1.78 0.24 0.09
---------- -------- ---------
Total distributions 1.78 0.25 0.16
---------- -------- ---------
Net asset value, end of
period $ 13.12 $ 14.10 $ 11.73
========== ======== =========
Total Return(b) 5.68% 22.58% 19.06%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 5,248 $ 4,719 $ 1,240
Ratios to average net assets:
Expenses(c)(d)(e) 2.25%(f) 2.25% 2.25%(f)
Net investment income
(loss)(c)(d)(e) ( 0.34)%(f) ( 0.10)% 0.06%(f)
Portfolio turnover rate 54% 86% 59%
Average commission
rate paid $ 0.0547 $ 0.0586 --
- -----------
(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
December 31, 1997, the annualized ratios of expenses to average net assets
were 2.22%, 2.97% and 2.72% and the annualized ratios of net investment
income (loss) to average net assets were (0.32)%, (1.07)% and (0.82)% 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.
See Accompanying Notes to Financial Statements
22
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Organization. Pilgrim America Masters Series, Inc. ("Masters Series") is an
open-end management investment company that was organized as a Maryland
Corporation in 1995 and is registered under the Investment Company Act of 1940
as amended. This Masters Series consists of three separate diversified open-end
investment companies: Pilgrim America Masters Asia-Pacific Equity Fund
("Asia-Pacific Equity Fund"), Pilgrim America Masters MidCap Value Fund
("MidCap Value Fund") and Pilgrim America Masters LargeCap Value Fund
("LargeCap Value Fund"), each with its own investment objective and policies.
Each Fund offers three classes of shares, Class A, Class B and Class M. Each
class represents interests in the same assets of the applicable Fund and the
classes are identical except for differences in their sales charge structure
and ongoing distribution fees. In addition, Class B shares, along with their
pro rata reinvested dividend shares, automatically convert to Class A shares
approximately eight years after purchase.
The following significant accounting policies are consistently followed by the
Funds in the preparation of their financial statements, and such policies are
in conformity with generally accepted accounting principles for investment
companies.
A. Security Valuation. Securities which are listed on the U.S. and foreign
stock exchanges are valued at the last sales price on the day the
securities are being valued. Debt and equity securities traded in the
over-the-counter market and listed securities for which no sales were
reported on that date are valued at the mean between the last reported bid
and ask prices. Short-term debt securities maturing in 60 days or less are
valued at amortized cost. Securities for which market quotations are not
readily available are valued at fair value as determined by policies set by
the Board of Directors. All investments quoted in foreign currencies will
be valued daily in U.S. dollars on the basis of the foreign currency
exchange rates prevailing at the time such valuation is determined by each
Fund's custodian.
B. Security Transactions and Revenue Recognition. Securities transactions are
accounted for on the trade date. Realized gains or losses are reported on
the basis of identified cost of securities delivered. Interest income is
recorded on an accrual basis and dividend income is recorded on the
ex-dividend date (except in the case of Asia-Pacific Equity Fund, for
certain securities which are recorded as soon after the ex-date as the Fund
becomes aware of such dividend).
C. Foreign Currency Translation. The books and records of Asia-Pacific Equity
Fund are maintained in U.S. dollars. Foreign currency amounts are
translated into U.S. dollars on the following basis:
(1) Market value of investment securities, other assets and liabilities
-- at the exchange rates prevailing at the end of the day.
(2) Purchases and sales of investment securities, income and expenses --
at the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market value of Asia-Pacific Equity Fund
are presented at the foreign exchange rates at the end of the day,
Asia-Pacific Equity Fund does not isolate the portion of the results of
operations resulting from changes in foreign exchange rates on investments
from the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and unrealized
gains or losses from investments. Reported net realized foreign exchange
gains or losses arise from sales and maturities of short-term securities,
sales of foreign currencies, currency gains or losses realized between the
trade and settlement dates on securities transactions, the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books, and the U.S. 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
23
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
considerations and risks not typically associated with investing in U.S.
companies and the U.S. Government. These risks include but are not limited
to re-evaluation of currencies and future adverse political and economic
developments which could cause securities and their markets to be less
liquid and prices more volatile than those of comparable U.S. companies and
the U.S. Government.
D. Foreign Currency Exchange Transactions. Asia-Pacific Equity Fund may enter
into foreign currency exchange transactions to convert to and from
different foreign currencies and to and from the U.S. dollar in connection
with planned purchases or sales of securities. The Fund either enters into
these transactions on a spot basis at the spot rate prevailing in the
foreign currency exchange market or uses forward foreign currency contracts
to purchase or sell foreign currencies. Asia-Pacific Equity Fund may not
invest more than 5% of its assets (at market value at the time of the
investment) in forward foreign currency contracts. Risks may arise upon
entering into forward contracts from the potential inability of
counterparties to meet the terms of their forward contracts and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
E. Distributions to Shareholders. The Funds record distributions to their
shareholders on the ex-date. The Funds intend to make distributions of net
investment income and capital gains, if any, at least annually. The amount
of distributions from net investment income, and net realized capital gains
are determined in accordance with federal income tax regulations, which may
differ from generally accepted accounting principles. These "book/tax"
differences are either considered temporary or permanent in nature. Key
differences are the treatment of short-term capital gains, foreign currency
transactions, organization costs and other temporary differences. To the
extent that these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassifications.
Distributions which exceed net investment income and net realized capital
gains for financial reporting purposes but not for tax purposes are
reported as distributions in excess of net investment income and/or net
realized capital gains. To the extent they exceed net investment income and
net realized capital gains for tax purposes, they are reported as
distributions of paid-in capital.
F. Federal Income Taxes. The Fund's policy is to comply with the requirements
of the Internal Revenue Code that are applicable to regulated investments
companies and to distribute substantially all of its net investment income
and any net realized capital gains to its shareholders. Therefore, a
federal income tax provision is not required. In addition, by distributing
during each calendar year substantially all of its net investment income
and net capital gains, each Fund intends not to be subject to any federal
excise tax. Capital loss carryforwards were as follows at June 30, 1997:
Amounts Expiration Dates
----------- -----------------
Asia - Pacific Equity Fund $651,710 2004
MidCap Value Fund -- N/A
LargeCap Value Fund -- N/A
The Board of Directors intends to offset net capital gains with each
capital loss carryforward until each carryforward has been fully utilized
or expires. In addition, no capital gain 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
principals. Actual results could differ from these estimates.
H. Repurchase Agreements. Each Fund may invest any portion of its assets
otherwise invested in money market instruments in U.S. Government
securities and concurrently enter into repurchase agreements with respect
to such securities. Such repurchase agreements will be made only with
government securities dealers recognized by the Board of Governors of the
Federal Reserve System or with member banks of the Federal Reserve System.
Under such agreements, the seller of the security agrees to repurchase it
at a mutually agreed upon time and price. The resale price is in
24
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
excess of the purchase price and reflects an agreed upon interest rate for
the period of time the agreement is outstanding. The period of the
repurchase agreements is usually short, from overnight to one week, while
the underlying securities generally have longer maturities. Each Fund will
always receive as collateral securities acceptable to it whose market value
is equal to at least 100% of the amount invested by the Fund, and the Fund
will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of its custodian. If the
seller defaults, a Fund might incur a loss or delay in the realization of
proceeds if the value of the collateral securing the repurchase agreement
declines and it might incur disposition costs in liquidating the
collateral.
I. Deferred Organization Expenses. All expenses incurred in connection with the
organization and registration of the Funds under the Investment Company Act
of 1940 and the Securities Act of 1933 are being paid for by the Funds. The
total organization expenses are being amortized by each Fund equally over a
period of five years from the date of commencement of its operations.
NOTE 2 -- INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS
WITH AFFILIATES
Each of the Funds has entered into an Investment Management Agreement with
Pilgrim America Investments, Inc. ("the Manager"), a wholly owned subsidiary of
Pilgrim America Group, Inc. ("PAG"). The investment management agreements
compensate the Manager with a fee, computed daily and payable monthly, at the
following annual rates: Asia-Pacific Equity Fund pays the Manager a fee at an
annual rate of 1.25% of the Fund's average daily net assets; MidCap Value Fund
and LargeCap Value Fund pay the Manager a fee at an annual rate of 1.00% of
each Fund's average daily net assets.
Effective November 1, 1997 the Manager provides investment advisory services
for LargeCap Value Fund. The Manager has carefully selected Portfolio Managers
for the other Funds on the basis of their successful application of a
well-defined, long-term investment approach over a period of several market
cycles. HSBC Asset Management Americas Inc. and HSBC Asset Management Hong Kong
Limited ("HSBC") serve jointly as the Portfolio Managers to Asia-Pacific Equity
Fund. CRM Advisors, LLC ("CRM") serves as Portfolio Manager to MidCap Value
Fund. As compensation for their services to the Funds, the Manager (and not the
Fund) pays HSBC and CRM fees at annual rates of 0.50% of the average daily net
assets of Asia-Pacific Equity Fund and MidCap Value Fund .
The Manager is responsible for managing the day to day operations of the
Masters Series.
On September 1, 1995, the Funds adopted a Plan pursuant to Rule 12b-1 under the
1940 Act (the "12b-1 Plans"), whereby Pilgrim America Securities, Inc. (the
"Distributor") is compensated by the Funds for expenses incurred in the
distribution of each Funds' shares. Pursuant to the 12b-1 Plans, the
Distributor is entitled to compensation each month for actual expenses incurred
in the distribution and promotion of each Fund's shares, including the printing
of prospectuses and reports used for sales purposes, expenses of preparing and
printing of sales literature and other such distribution related expenses,
including any distribution or service fees paid to securities dealers who have
executed a distribution agreement with the Distributor.
Under the 12b-1 Plans, each class of shares of the Funds pay the Distributor at
the annual rate of 0.25% of the average daily net assets of Class A, 1.00% of
the average daily net assets of Class B and 0.75% of the average daily net
assets of Class M.
Each of the Funds has entered into a Service Agreement with PAG whereby PAG
will act as the shareholder service agent for each Fund. The agreement provides
that PAG will be compensated for incoming and outgoing shareholder telephone
calls and letters and all reasonable out-of-pocket expenses incurred in
connection with the performance of such services. At December 31, 1997,
Asia-Pacific Equity Fund, MidCap Value Fund, and LargeCap Value Fund owed PAG
$3,330, $2,140, and $2,339, respectively in service fees.
The Manager has voluntarily agreed to limit other expenses, excluding
distribution fees, interest, taxes, brokerage and extraordinary expenses to
1.75%, 1.50% and 1.50% of all classes of shares of the
25
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Asia-Pacific Equity Fund, MidCap Value Fund and LargeCap Value Fund,
respectively. This expense limitation will apply to each Fund individually
until June 30, 1998. At December 31, 1997, Asia-Pacific Equity Fund, MidCap
Value Fund and LargeCap Value Fund accrued $167,041, $321, and $60,924,
respectively as a reimbursement due from the manager.
NOTE 3 -- INVESTMENT TRANSACTIONS
For the six months ended December 31, 1997, the cost of purchases and proceeds
from the sales of securities, excluding short-term securities, were as follows:
Asia-Pacific MidCap LargeCap
Equity Fund Value Fund Value Fund
-------------- --------------- ---------------
Purchases $ 21,580,368 $ 27,869,095 $ 14,695,644
Sales 30,039,915 17,203,846 15,811,436
NOTE 4 -- CAPITAL SHARES
Transactions in capital shares and dollars were as follows:
<TABLE>
<CAPTION>
Class A Shares
---------------------------------
Six Months Year
Ended Ended
December 31, June 30,
1997 1997
---------------- ----------------
<S> <C> <C>
Asia-Pacific
Equity Fund (Number of Shares)
Shares sold 2,338,771 6,022,829
Shares issued as reinvestment
of dividends -- 2,937
Shares redeemed (2,624,227) (4,828,816)
---------- ----------
Net increase (decrease) in
shares outstanding (285,456) 1,196,950
========== ==========
Asia-Pacific Equity Fund ($)
Shares sold $ 17,218,087 $ 63,317,753
Shares issued as reinvestment
of dividends -- 28,842
Shares redeemed (19,283,469) (50,678,714)
------------- --------------
Net increase (decrease) in
shares outstanding $ (2,065,382) $ 12,667,881
============= ==============
MidCap Value Fund (Number
of Shares)
Shares sold 472,802 1,232,243
Shares issued as reinvestment
of dividends 36,204 6,530
Shares redeemed (242,588) (277,940)
------------- --------------
Net increase in
shares outstanding 266,418 960,833
============= ==============
MidCap Value Fund ($)
Shares sold $ 7,263,045 $ 16,074,019
Shares issued as reinvestment
of dividends 546,322 82,971
Shares redeemed (3,719,232) (3,689,711)
------------- --------------
Net increase in shares outstanding $ 4,090,135 $ 12,467,279
============= ==============
<CAPTION>
Class B Shares Class M Shares
-------------------------------- --------------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
December 31, June 30, December 31, June 30,
1997 1997 1997 1997
---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Asia-Pacific
Equity Fund (Number of Shares)
Shares sold 540,135 1,612,143 340,587 566,273
Shares issued as reinvestment
of dividends -- -- -- 157
Shares redeemed (1,021,362) (551,927) (448,575) (167,256)
---------- --------- -------- --------
Net increase (decrease) in
shares outstanding (481,227) 1,060,216 (107,988) 399,174
========== ========= ======== ========
Asia-Pacific Equity Fund ($)
Shares sold $ 4,251,186 $ 16,573,290 $ 2,227,542 $ 5,888,929
Shares issued as reinvestment
of dividends -- -- -- 1,541
Shares redeemed (7,912,383) (5,661,337) (3,314,559) (1,750,952)
------------ ------------ ------------ -------------
Net increase (decrease) in
shares outstanding $ (3,661,197) $ 10,911,953 $ (1,087,017) $ 4,139,518
============ ============ ============ =============
MidCap Value Fund (Number
of Shares)
Shares sold 770,526 1,639,838 199,282 472,644
Shares issued as reinvestment
of dividends 60,173 7,579 22,792 3,974
Shares redeemed (218,802) (219,806) (46,359) (43,618)
------------ ------------ ------------ -------------
Net increase in
shares outstanding 611,897 1,427,611 175,715 433,000
============ ============ ============ =============
MidCap Value Fund ($)
Shares sold $ 11,311,744 $ 21,333,357 $ 3,017,161 $ 6,084,452
Shares issued as reinvestment
of dividends 894,765 96,914 339,604 49,865
Shares redeemed (2,935,347) (2,999,461) (687,019) (576,445)
------------ ------------ ------------ -------------
Net increase in shares outstanding $ 9,271,162 $ 18,430,810 $ 2,669,746 $ 5,557,872
============ ============ ============ =============
</TABLE>
26
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
------------------------------ ------------------------------ -----------------------------
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
December 31, June 30, December 31, June 30, December 31, June 30,
1997 1997 1997 1997 1997 1997
-------------- --------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
LargeCap Value Fund (Number of
Shares)
Shares Sold 57,376 538,935 119,441 896,451 55,556 258,463
Shares issued as reinvestment
of dividends 70,785 10,222 115,113 10,999 46,814 4,609
Shares redeemed (112,277) (131,788) (100,303) (59,761) (37,029) (34,204)
-------- -------- -------- ------- ------- -------
Net increase in shares outstanding 15,884 417,369 134,251 847,689 65,341 228,868
======== ======== ======== ======= ======= =======
LargeCap Value Fund ($)
Shares sold $ 853,107 $ 6,622,780 $ 1,712,415 $10,967,866 $ 784,298 $3,184,743
Shares issued as reinvestment
of dividends 937,200 126,842 1,501,068 136,496 614,666 57,731
Shares redeemed (1,661,091) (1,694,967) (1,435,036) (768,404) (506,482) (436,637)
------------ ------------ ------------ ----------- ---------- ----------
Net increase in shares outstanding $ 129,216 $ 5,054,655 $ 1,778,447 $10,335,958 $ 892,482 $2,805,837
============ ============ ============ =========== ========== ==========
</TABLE>
NOTE 5 -- CUSTODIAL AGREEMENT
Investors Fiduciary Trust Company (IFTC) serves as the Funds' custodian and
recordkeeper. Custody fees paid to IFTC are reduced by an earnings credit based
on the cash balances held by IFTC for each of the Funds. For the six months
ended December 31, 1997, Asia-Pacific Equity Fund, MidCap Value Fund and
LargeCap Value Fund received earnings credits of $2,001, $1,140 and $447,
respectively.
27
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS: 80.4%
Market
Shares Industry/Issuer Value
- --------------------- --------------------------------- ------------
CHINA: 1.0%
Automotive: 0.8%
594,000 Qingling Motor Co. $ 291,353
---------
Diversified Holdings: 0.2%
268,000 Zhejiang Expressway CL H 54,311
---------
Total China Common Stocks 345,664
---------
HONG KONG: 46.4%
Commercial & Industrial: 9.8%
251,000 Citic Pacific, Ltd. 997,870
270,000 Hutchison Whampoa, Ltd. 1,693,751
150,000 Swire Pacific, Ltd. 822,867
---------
3,514,488
---------
Communication: 2.8%
588,000 China Telecom 1,009,436
---------
Construction: 1.6%
200,000 Cheung Kong Infrastructure 565,358
---------
Financial: 2.6%
96 Bank of East Asia 225
255,000 Dao Heng Bank Group, Ltd. 636,899
98,000 Wing Hang Bank, Ltd. 277,026
---------
914,150
---------
Manufacturing: 1.0%
100,000 (a) Shanghai Industrial Holding 371,742
---------
Properties: 15.4%
250,000 Cheung Kong Holdings, Ltd. 1,637,667
200,000 China Resources Enterprises 446,607
101,000 Hysan Development Co., Ltd. 201,418
251,000 New World Development Co., Ltd. 868,277
225,000 Sun Hung Kai Properties, Ltd. 1,568,288
251,000 Wharf Holdings, Ltd. 550,773
293,000 Henderson Investment, Ltd. 230,700
---------
5,503,730
---------
See Accompanying Notes to Financial Statements
28
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Industry/Issuer Value
- --------------------- --------------------------------------------- -------------
<S> <C> <C>
Utilities: 13.2%
948,000 Beijing Data Power $ 434,397
229,500 China Light & Power Co., Ltd. 1,273,798
343,000 Hong Kong Electric Holdings, Ltd. 1,303,855
830,000 Hong Kong Telecommunications, Ltd. 1,708,789
----------
4,720,839
----------
Total Hong Kong Common Stocks 16,599,743
----------
INDONESIA: 0.3%
Manufacturing / Electronic: 0.3%
380,400 PT Indofood Sukses Makmur 124,495
----------
Total Indonesia Common Stocks 124,495
----------
PHILIPPINES: 3.8%
Communications: 1.6%
25,000 Philippine Long Distance Telephone Co., ADR 562,500
----------
Miscellaneous: 0.5%
60,200 (a) Benpres Holdings GDR 180,600
----------
Real Estate & Financial Services: 1.1%
2,602,000 SM Prime Holdings, Inc. 385,481
----------
Utilities: 0.6%
65,000 Manila Electric Co. -- Class B 215,062
----------
Total Philippines Common Stocks 1,343,643
----------
SINGAPORE: 18.1%
Aerospace: 1.4%
656,477 Singapore Technologies Engineering, Ltd. 495,528
----------
Commercial & Industrial: 1.4%
144,250 Keppel Corp. 414,959
65,000 Keppel Land Ltd. 89,629
----------
504,588
----------
</TABLE>
See Accompanying Notes to Financial Statements
29
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Market
Shares Industry/Issuer Value
- --------------------- -------------------------------------- ------------
Computer Systems/Software: 0.8%
9,000 Creative Technology Ltd. $ 182,942
22,600 Elec & Eltek International Co., Ltd. 103,508
---------
286,450
---------
Financial: 6.0%
157,400 Overseas -- Chinese Bank 916,802
150,200 Overseas Union Bank 575,804
119,000 United Overseas Bank 661,308
---------
2,153,914
---------
Food and Beverage: 0.5%
40,400 Fraser & Neave, Ltd. 175,287
---------
Hotels: 0.7%
156,000 Marco Polo Developments 235,507
---------
Manufacturing: 0.5%
58,000 Venture Manufacturing 162,021
---------
Metals & Minerals: 0.2%
54,000 Natsteel Broadway 80,460
---------
Properties: 1.3%
101,000 (a) City Developments, Ltd. 468,232
---------
Publishing: 0.9%
25,000 Singapore Press Holdings, Ltd. 313,521
---------
Steel: 0.4%
100,000 Natsteel Ltd. 135,513
---------
Transportation: 1.1%
63,000 Singapore Airlines, Ltd. 411,887
---------
Utilities: 2.9%
564,000 Singapore Telecommunications, Ltd. 1,052,576
---------
Total Singapore Common Stocks 6,475,484
---------
See Accompanying Notes to Financial Statements
30
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Market
Shares Industry/Issuer Value
- --------------------- ---------------------------------------- -------------
TAIWAN: 10.8%
Building Products: 0.4%
13,136 (a) Asia Cement Corp. $ 148,765
----------
Computer Services: 0.4%
8,000 Syntex Technology 148,000
----------
Computer Systems/Software: 3.3%
47,800 Asustek Computer Inc -- GDR 763,605
22,545 Taiwan Semiconductor 410,037
----------
1,173,642
----------
Electrical Equipment: 0.6%
18,900 (a) Yageo Corp. 207,900
----------
Electronics -- Defense: 0.7%
36,250 Acer Inc. GDR 277,313
----------
Food & Beverages: 0.5%
15,000 President Enterprises 180,000
----------
Investment Company Services: 1.4%
63,000 ROC Taiwan Fund Common 511,875
----------
Machinery & Equipment: 0.5%
13,693 Teco Electric & Machinery -- GDR 175,750
----------
Marine: 0.9%
28,470 (a) Evergreen Marine Corp. 315,305
----------
Steel: 1.7%
40,681 (a) China Steel Corp., GDR 600,045
----------
Technology: 0.4%
8,316 (a) Lite-On Technology Corp. 143,451
----------
Total Taiwan Common Stocks 3,882,046
----------
Total Common Stocks (Cost $36,789,500) 28,771,075
----------
See Accompanying Notes to Financial Statements
31
<PAGE>
Pilgrim America Masters Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS: 4.3%
<TABLE>
<CAPTION>
Principal
Amount
- --------------
<S> <C> <C>
TAIWAN: 4.3%
Industrial: 3.2%
$ 260,000 Nan Ya Plastic Corp., 1.75% due July 2001 $ 297,700
550,000 United Microelectronics, 0.25% due May 2004 657,250
109,000 Yageo Corp., 1.25% due July 2003 190,205
----------
1,145,155
----------
Marine: 1.1%
112,000 Far East Department Store, 3.00% due July 2001 103,600
241,000 Yangming Marine, 2.00% due October 2001 268,715
----------
372,315
----------
Total Convertible Bonds (Cost $1,406,928) 1,517,470
----------
Total Long-Term Investments (Cost $38,196,428) 30,288,545
----------
SHORT-TERM INVESTMENTS: 9.8%
Commercial Paper: 6.7%
1,200,000 General Mills Commercial Paper, 6.55% due 01/02/98 1,199,782
1,200,000 International Leasing Commercial Paper, 6.45% due 01/02/98 1,199,785
----------
Total Commercial Paper 2,399,567
----------
Repurchase Agreement: 3.1%
1,100,000 Merrill Lynch Repurchase Agreement, 5.50% due 01/02/98
(Collateralized by $1,055,000 U.S. Treasury Bonds,
8.00% Due 05/15/01) 1,110,000
----------
Total Repurchase Agreement 1,110,000
----------
Total Short -- Term Investments (Cost $3,509,567) 3,509,567
----------
Total Investments (Cost $41,705,995)* 94.5% 33,798,112
Cash and Other Assets in Excess of Liabilities-Net 5.5% 1,974,082
----- ----------
Total Net Assets 100.0% $35,772,194
===== ===========
</TABLE>
- ---------------------
(a) Non-income producing security
ADR -- American Depository Receipt
EDR -- European Depository Receipt
GDR -- Global Depository Receipt
* Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized depreciation
consists of:
Gross Unrealized Appreciation $ 1,014,596
Gross Unrealized Depreciation (8,922,479)
-----------
Net Unrealized Depreciation ($ 7,907,883)
===========
See Accompanying Notes to Financial Statements
32
<PAGE>
Pilgrim America Masters MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS: 94.4%
<TABLE>
<CAPTION>
Market
Shares Industry/Issuer Value
- --------------------- --------------------------------------------- -------------
<S> <C> <C>
Aerospace: 1.8%
30,000 (a) Goodrich, (B.F.) Co. $1,243,125
----------
Automotive: 1.9%
70,000 (a) Mascotech, Inc. 1,286,250
----------
Banks: 3.5%
160,000 John Hancock Bank & Thrift Opportunity Fund 2,340,000
----------
Broadcasting: 1.8%
38,000 Comcast Corp., Class A 1,199,375
----------
Building Products: 5.2%
70,000 Dal-Tile International Inc. 857,500
60,000 Johns Manville Corp 603,750
40,000 Masco Corp. 2,035,000
----------
3,496,250
----------
Business Services: 3.0%
126,100 Danka Business Systems -- Sponsored ADR 2,009,719
----------
Capital Goods: 2.7%
62,500 CBS Corp. 1,839,844
----------
Chemicals: 1.7%
30,000 Mallinckrodt, Inc. 1,140,000
----------
Communications: 4.3%
93,900 Cincinnati Bell Inc. 2,910,900
----------
Computer Systems: 2.4%
92,000 Data General Corp. 1,604,250
----------
Defense: 2.0%
23,000 Litton Industries 1,322,500
----------
Diversified Holding Company: 2.1%
55,000 Whitman Corp. 1,433,437
----------
Electrical Equipment: 8.4%
63,000 Raychem Corp. 2,712,938
28,800 Thomas & Betts Corp. 1,360,800
40,000 (a) Ucar International, Inc. 1,597,500
----------
5,671,238
----------
</TABLE>
See Accompanying Notes to Financial Statements
33
<PAGE>
Pilgrim America Masters MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Market
Shares Industry/Issuer Value
- --------------------- --------------------------------- -------------
Financial: 2.3%
42,000 Golden State Bancorp. $1,569,750
----------
Food Stores: 4.6%
85,000 (a) Meyer (Fred), Inc. 3,091,875
----------
Healthcare: 2.0%
32,100 (a) Wellpoint Health Network 1,356,225
----------
Home Products: 0.7%
11,500 Harmon International Industries 488,031
----------
Housewares: 1.6%
40,000 Tupperware Corp. 1,115,000
----------
Medical: 1.5%
30,000 (a) Allergan, Inc. 1,006,875
----------
Medical Equipment: 2.1%
50,000 Depuy Inc. 1,437,500
----------
Miscellaneous: 1.8%
51,700 Trizec Hahn Corp. 1,198,794
----------
Office Products & Services: 2.4%
33,700 (a) Choicepoint Inc. 1,609,175
----------
Oil & Gas: 12.9%
26,000 (a) Amerada Hess Corp. 1,426,750
38,600 (a) Coastal Corp. 2,390,787
213,500 Enserch Exploration 1,934,844
37,000 Mapco, Inc. 1,711,250
26,000 Ocean Energy Inc. 1,282,125
----------
8,745,756
----------
Packaging Products: 4.5%
80,000 Owens-Illinois, Inc. 3,035,000
----------
Paper and Forest Products: 2.1%
38,000 Fort James Corp. 1,453,500
----------
Paper Products: 1.8%
117,000 Macmillan Bloedel Ltd. 1,243,125
----------
See Accompanying Notes to Financial Statements
34
<PAGE>
Pilgrim America Masters MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Industry/Issuer Value
- --------------------- ------------------------------------------ -------------
<S> <C> <C>
Regional Banks: 1.2%
30,000 UST Corp. $ 832,500
----------
Retail: 1.6%
20,000 Harcourt General Inc. 1,095,000
----------
Technology: 7.4%
70,000 Comsat Corp. 1,697,500
119,400 (a) Next Level Systems Inc. 2,134,275
72,000 (a) Unova Inc. 1,183,500
----------
5,015,275
----------
Utilities: 3.1%
70,000 Long Island Lighting Co. 2,108,750
----------
Total Common Stocks (Cost $54,952,079) 63,899,019
----------
</TABLE>
SHORT-TERM INVESTMENTS: 4.7%
<TABLE>
<CAPTION>
Principal
Amount Value
- --------------- -------------
<S> <C> <C> <C>
Commercial Paper: 4.7%
$ 3,195,000 International Lease Commercial Paper, 6.45% due 01/02/98 $ 3,194,428
-----------
Total Short-Term Investments (Cost $3,194,428) 3,194,428
-----------
Total Investments (Cost $58,146,507)* 99.1% 67,093,447
Cash and Other Assts in Excess of Liabilities-Net 0.9% 592,187
----- -----------
Total Net Assets 100.0% $67,685,634
===== ===========
(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 $11,627,190
Gross Unrealized Depreciation (2,680,250)
------------
Net Unrealized Appreciation $ 8,946,940
============
</TABLE>
See Accompanying Notes to Financial Statements
35
<PAGE>
Pilgrim America Masters LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS: 95.1%
Market
Shares Industry/Issuer Value
- ------------ --------------------------------------- ------------
Aerospace: 1.6%
9,400 Boeing Co. $ 460,013
---------
Airlines: 1.5%
4,700 UAL Corp. 434,750
---------
Automotive: 2.0%
4,500 Goodyear Tire & Rubber Corp. 286,312
10,000 Harley Davidson, Inc. 273,750
---------
560,062
---------
Banks: 4.5%
5,300 Chase Manhattan Corp. 580,350
8,500 CoreStates Financial Corp. 680,531
---------
1,260,881
---------
Broadcasting: 1.5%
10,345 Tele-Communications -- TCI Group Inc. 291,528
111 Tele-Comm -- TCI Venture Group -A 3,143
4,100 U.S. West Media Group 118,387
---------
413,058
---------
Building Products: 5.9%
12,600 GTE Corp. 658,350
13,400 Lowe's Companies 639,012
7,400 Masco Corp. 376,475
---------
1,673,837
---------
Chemicals: 2.1%
9,700 DuPont, (E.I.) DeNemours & Co. 582,606
---------
Chemicals -- Diversified: 1.6%
8,100 PPG Industries, Inc. 462,713
---------
Computer Software & Service: 0.8%
5,700 Sun Microsystems 227,288
---------
Computer Systems: 0.6%
8,300 Seagate Technology 159,775
---------
Consumer Products: 2.2%
6,700 Anheuser Busch Co. 294,800
3,500 Crown Cork & Seal Co. 175,438
3,700 Tenneco Inc. 146,150
---------
616,388
---------
See Accompanying Notes to Financial Statements
36
<PAGE>
Pilgrim America Masters LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Market
Shares Industry/Issuer Value
- ------------ ------------------------------- ------------
Defense: 2.9%
4,900 Lockheed Martin Corp. $ 482,650
6,500 Raytheon Co., Class B 328,250
---------
810,900
---------
Drugs: 1.2%
5,300 Johnson & Johnson 349,138
---------
Electrical Equipment: 0.8%
5,300 Amp, Inc. 222,600
---------
Electronics -- Defense: 1.5%
7,500 Emerson Electric Co. 423,281
---------
Foods: 1.9%
25,031 Archer-Daniels-Midland 542,860
---------
Healthcare: 5.8%
11,500 Abbott Laboratories 753,969
8,700 American Home Products 665,550
10,300 Humana, Inc. 213,725
---------
1,633,244
---------
Hospitals: 1.8%
17,050 Columbia/HCA Healthcare Corp. 505,106
---------
Industrial: 2.1%
13,500 Praxair Inc. 607,500
---------
Insurance: 10.1%
4,200 Aetna Life & Casualty Co. 296,362
7,000 Allstate Corp. 636,125
3,400 Cigna Corp. 588,412
8,100 Chubb Corp. 612,563
3,400 General Re Corp. 720,800
---------
2,854,262
---------
Insurance-Life: 1.5%
5,300 American General Corp. 286,531
2,400 Unum Corp. 130,500
---------
417,031
---------
Machinery & Equipment: 1.0%
5,000 Baker Hughes Inc. 218,125
900 Deere & Co. 52,481
---------
270,606
---------
Manufacturing: 2.2%
16,000 AlliedSignal, Inc. 623,000
---------
See Accompanying Notes to Financial Statements
37
<PAGE>
Pilgrim America Masters LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Market
Shares Industry/Issuer Value
- ------------ ------------------------------------- ------------
Marine: 1.2%
6,000 Carnival Corp. -- Class A $ 332,250
---------
Metals & Minerals: 0.2%
800 Aluminum Company of America 56,300
---------
Miscellaneous: 1.3%
3,400 Loews Corp. 360,825
---------
Natural Gas Pipeline: 2.0%
13,100 Enron 544,469
800 Williams Companies Inc. 22,700
---------
567,169
---------
Office Equipment & Services: 1.1%
4,100 Xerox Corp. 302,631
---------
Office Products & Services: 4.6%
6,500 Hewlett Packard 406,250
8,600 International Business Machines 899,238
---------
1,305,488
---------
Oil & Gas: 5.0%
6,900 Amerada Hess Corp. 378,637
3,800 Burlington Resources 170,288
20,100 Occidental Petroleum Corp. 589,181
11,500 Union Pacific Resources Group, Inc. 278,875
---------
1,416,981
---------
Oil Well Equipment & Services: 1.8%
9,000 Tidewater Inc. 496,125
---------
Paper and Forest Products: 2.6%
7,700 Fort James Corp. 294,525
8,700 Kimberly-Clark Corp. 429,019
---------
723,544
---------
Pollution Control: 0.6%
6,200 Waste Management Inc. 170,500
---------
Publishing: 0.5%
2,400 Gannett Co. 148,350
---------
Railways: 2.6%
2,400 Burlington Northern S.F. 223,050
9,600 CSX Corp. 518,400
---------
741,450
---------
See Accompanying Notes to Financial Statements
38
<PAGE>
Pilgrim America Masters LargeCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (Continued)
As of December 31, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Market
Shares Industry/Issuer Value
- ------------ ---------------------------------------- -------------
Regional Banks: 0.8%
700 Wells Fargo & Co. $ 237,606
----------
Restaurant: 1.0%
5,600 McDonalds Corp. 267,400
----------
Retail: 6.6%
15,800 Dillard Department Stores, Inc. 556,950
10,100 Federated Department Stores, Inc. 434,931
19,500 Sears, Roebuck and Co. 882,375
----------
1,874,256
----------
Technology: 1.3%
5,900 National Semiconductor 153,031
4,000 Rockwell 209,000
----------
362,031
----------
Utilities: 4.8%
2,300 American Electric Power 118,738
5,110 Bell Atlantic Corp. 465,010
4,100 Consolidated Edison of NY 168,100
1,400 FPL Group Inc. 82,862
6,900 SBC Communications 505,425
----------
1,340,135
----------
Total Common Stocks (Cost $24,416,335) 26,813,940
----------
SHORT-TERM INVESTMENTS: 4.3%
<TABLE>
<CAPTION>
Principal
Amount Value
- --------------- -------------
<S> <C> <C> <C>
Commerical Paper: 4.3%
$ 1,220,000 International Lease Commercial Paper, 6.45% due 01/02/98 $ 1,219,781
-----------
Total Short -- Term Investments (Cost $1,219,781) 1,219,781
-----------
Total Investments in Securities (Cost $25,636,116)* 99.4% 28,033,721
Cash and Other Assets in Excess of Liabilities -- Net 0.6% 177,279
----- -----------
Total Net Assets 100.0% $28,211,000
===== ===========
</TABLE>
- ----------------
(a) Non-income producing security
ADR -- American Depository Receipt
* Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $3,157,745
Gross Unrealized Depreciation (760,140)
----------
Net Unrealized Appreciation $2,397,605
==========
See Accompanying Notes to Financial Statements
39
<PAGE>
Pilgrim America Masters Series
- --------------------------------------------------------------------------------
SHAREHOLDER MEETING
- --------------------------------------------------------------------------------
SPECIAL MEETING
A special meeting of shareholders of Pilgrim America Masters MidCap Value Fund
was held at the offices of the Fund on December 18, 1997. 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 a new Portfolio Management Agreement between Pilgrim America
Investments, Inc. and Cramer Rosenthal McGlynn, LLC, the successor to the
current Portfolio Manager:
2,292,634 23,910 71,069 497,391 2,885,004
II. To transact such other business as may properly come before the Special
Meeting of Shareholders or any adjournments thereof:
2,775,591 25,570 83,842 -- 2,885,003
Pilgrim America Masters Series
40
<PAGE>
Pilgrim America Funds
Investment Manager
Pilgrim America Investments, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
Distributor
Pilgrim America Securities, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
1-800-334-3444
Shareholder Servicing Agent
Pilgrim America Group, Inc.
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
1-800-331-1080
Transfer Agent
DST Systems, Inc.
P.O. Box 419541
Kansas City, Missouri 64141
<PAGE>
Custodian
Investors Fiduciary Trust Company
127 West 10th Street
14th Floor
Kansas City, Missouri 64105
Legal Counsel
Dechert Price & Rhoads
1775 Eye Street, N. W.
Washington, D.C. 20006
Independent Auditors
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Funds. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Two Renaissance Square, 40 North Central Avenue, Suite 1200,
Phoenix, Arizona 85004
1-800-331-1080
Pilgrim America Funds
<PAGE>
PILGRIM AMERICA FUNDS
MASTERS SERIES
--------------
Pilgrim America Masters
Asia-Pacific Equity Fund
Pilgrim America Masters
MidCap Value Fund
Pilgrim America Masters
LargeCap Value Fund
ELITE SERIES
------------
Pilgrim America
MagnaCap Fund
Pilgrim America
High Yield Fund
Pilgrim Government
Securities Income Fund
Pilgrim America
Funds
"Our goal is for every investor to have a successful investment experience."
Prospectuses containing more complete information regarding the Funds, including
charges and expenses, may be obtained by calling Pilgrim America Securities,
Inc. Distributor at 1-800-334-3444. Please read the Prospectuses carefully
before you invest or send money.
21-SS-020598 022898
