Pilgrim
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THE VALUE OF INVESTING
Semi-Annual Report
December 31, 1998
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MagnaCap Fund
LargeCap Leaders Fund
MidCap Value Fund
Bank and Thrift Fund
Asia-Pacific Equity Fund
High Yield Fund
Government Securities Income Fund
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Pilgrim Funds
SEMI-ANNUAL REPORT
December 31, 1998
TABLE OF CONTENTS
Chairman's Message................................ 1
Portfolio Managers' Reports:
Pilgrim MagnaCap Fund............................. 2
Pilgrim LargeCap Leaders Fund..................... 6
Pilgrim MidCap Value Fund......................... 10
Pilgrim Bank and Thrift Fund...................... 14
Pilgrim Asia-Pacific Equity Fund.................. 17
Pilgrim High Yield Fund........................... 21
Pilgrim Government Securities Income Fund......... 24
Statements of Assets and Liabilities.............. 27
Statements of Operations.......................... 29
Statements of Changes in Net Assets............... 31
Financial Highlights.............................. 34
Notes to Financial Statements..................... 44
Portfolios of Investments:
Pilgrim MagnaCap Fund............................. 53
Pilgrim LargeCap Leaders Fund..................... 57
Pilgrim MidCap Value Fund......................... 61
Pilgrim Bank and Thrift Fund...................... 65
Pilgrim Asia-Pacific Equity Fund.................. 69
Pilgrim High Yield Fund........................... 75
Pilgrim Government Securities Income Fund......... 80
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Pilgrim Funds
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CHAIRMAN'S MESSAGE
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Dear Shareholder:
We are pleased to present the Semi-Annual Reports for the Pilgrim Funds which
consist of Pilgrim MagnaCap Fund ("MagnaCap Fund"), Pilgrim LargeCap Leaders
Fund ("LargeCap Leaders Fund"), Pilgrim MidCap Value Fund ("MidCap Value
Fund"), Pilgrim Bank and Thrift Fund ("Bank and Thrift Fund"), Pilgrim
Asia-Pacific Equity Fund ("Asia-Pacific Equity Fund"), Pilgrim High Yield Fund
("High Yield Fund") and Pilgrim Government Securities Income Fund ("Government
Securities Income Fund"). In the following pages, the portfolio manager for
each fund discusses the results of operations for the year ended December 31,
1998, as well as the markets and factors which have affected each of the Funds
during this period.
MagnaCap Fund, LargeCap Leaders Fund, Bank and Thrift Fund, High Yield Fund and
Government Securities Income Fund are designed to give investors access to the
seasoned investment managers of Pilgrim Investments, Inc. ("PII") who bring a
depth of experience and knowledge to their specific investment disciplines.
MidCap Value Fund and Asia-Pacific Equity Fund are designed to give investors
access to private money managers who typically manage similar portfolios
primarily for high net worth individuals and institutional investors. Each
money manager has extensive knowledge and proven experience in their
specialized market segments.
At Pilgrim, we are dedicated to providing core investments for the serious
investor. We believe that the key to success is matching quality core
investments to the individual needs of investors. Core investments are the
foundation of every portfolio and the basis of other important investment
decisions. Pilgrim prides itself on providing a family of core investments
designed to help you reach your financial goals. Our goal is for every investor
to have a successful investment experience.TM/SM
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim Group, Inc.
February 4, 1999
1
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Pilgrim MagnaCap Fund
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PORTFOLIO MANAGER'S REPORT
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Dear Shareholder,
We are very pleased to report that Pilgrim MagnaCap Fund (the "Fund") had
another good year in 1998. Twenty years ago the Fund initiated its disciplined
investment philosophy and 1998 marked the 19th year in the last 20 that the
Fund produced a positive return. For the 12 months ended December 31, 1998, the
Fund provided a total return of 16.09%(1) compared to the Standard & Poor's 500
Index ("S&P 500") which gained 28.58% for the same period. Over the last six
months, the Fund was up 5.68% compared to the S&P 500 which gained 9.23% for
the same period. The Fund's average annual total returns for the five and ten
year periods ended December 31, 1998 were 19.87% and 15.81%, respectively.
A $10,000 investment in the Fund on January 1, 1979, the year in which the Fund
adopted its disciplined investment philosophy, would have grown to $202,517 as
of December 31, 1998, after deduction of the maximum Class A 5.75% sales
charge, and assuming the reinvestment of all dividends and capital gains
distributions.
GENERAL ECONOMIC AND EQUITY MARKET ENVIRONMENTS
The current economic expansion is the longest peacetime expansion in U.S.
history. The cycle is not only unique for its longevity but unprecedented along
many dimensions. Inflation is negligible and has never been so low so far into
a cycle. Inflation adjusted corporate profits rose more rapidly than in any
prior cycle. The combination of the strongest profit cycle and weakest pricing
cycle led the equity market to stage the biggest bull run in history.
1998 will be remembered most for the sharp break in confidence that sent the
stock market plunging late in the summer and for the complete reversal in
psychology that led it back to new highs in the fall. A number of significant
market trends became clear as the year progressed. Among the major themes were
the outperformance of a small group of large-cap stocks, the vulnerability of
Wall Street and U.S. corporate profits to foreign economic events, and a
heightened degree of volatility coming from the boom in day trading and online
investing.
During the year, many companies cited global financial turmoil and, in
particular, weakness in Asia for their failure to meet profit expectations. And
Wall Street debated whether weakness abroad was enough to derail the economic
expansion at home. The devaluation of Russia's ruble and its rescheduling of
debt hastened a flight to quality and away from emerging markets. Wall Street
was hit with a liquidity crisis. New debt issues and public offerings dried up,
and panic set in.
The resulting bear market was relatively short lived, lasting from July through
October. The sudden return of the bull market was tied to the Federal Reserve.
The Federal Reserve disappointed Wall Street with just a quarter point interest
rate cut in September. But the Federal Reserve surprised Wall Street when it
cut interest rates on October 15, when no meeting of the Federal Open Market
Committee was
2
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Pilgrim MagnaCap Fund
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PORTFOLIO MANAGER'S REPORT (Continued)
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scheduled. A third interest rate cut on November 10, paved the way for the
stock market to surpass its July high. The S&P 500 finished the year with a
28.6% gain, its fourth straight year of gaining more than 20%. The Dow Jones
Industrial Average gained 16.1%, and the Nasdaq gained 39.6%. But the healthy
gains by the Indexes concealed a mixed performance of the broad base of stocks.
It was the year of the big and mega-cap stock.
PILGRIM MAGNACAP FUND
As a disciplined investment philosophy fund, MagnaCap invests in a very select
group of companies that have been able to sustain growth over a 10-year period.
In selecting portfolio securities, generally companies are assessed with
reference to the following criteria:
1. A company must have paid or had the financial capability from its operations
to pay a dividend in 8 out of the last 10 years.
2. A company must have increased its dividend or had the financial capability
from its operations to have increased its dividend at least 100% over the
past 10 years.
3. Dividend pay out must be less than 65% of current earnings.
4. Long term debt should be no more than 25% of total capitalization or a
company's bonds must be rated at least A- or A-3.
5. The current price should be in the lower half of the stock's price/earnings
ratio range for the past 10 years or the ratio of the price of the
company's stock at the time of purchase to its anticipated future earnings
must be an attractive value in relation to the average for its industry
peer group or that of the S&P 500.
We believe that the Fund's past success can be attributed to the very explicit
investment criteria which normally determine the kinds of companies that
qualify for inclusion in the portfolio. Out of a universe of approximately
4,000 publicly traded companies and based upon both in-house and external
research, we continue to aim to select the 50 to 70 equities which we believe
will offer the greatest potential to exhibit a high degree of performance.
Going forward, we will continue to employ a "bottom-up" approach to stock
selection, drawing from the pool of companies that come closest to meeting the
Fund's strict investment criteria given market conditions, and circumstances of
the company and of the sector within which it falls. We believe the bull market
in U.S. stocks is starting its ninth year. It has been firmly based on
extraordinary changes in the economy that have given us one of the longest
economic expansions in U.S. history. This bull market has been one of the best
in U.S. history and we believe it is likely to continue for several reasons.
First, the economic expansion that has propelled stock prices higher has been
one of the most durable. It has been accompanied by mild inflation, job
creation and high-quality profit growth. Second, the current economic and
market cycles have benefited from several long-term structural changes. These
include an increase in the nation's ownership of stocks and a notable reduction
in the government's budget deficit. There has also been a shift to a more
sophisticated, technology driven private sector that has spurred
3
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Pilgrim MagnaCap Fund
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PORTFOLIO MANAGER'S REPORT (Continued)
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widespread productivity gains, and this offers new opportunities for growth and
jobs. Most bull markets end when stocks are overpriced. However, it has
traditionally been extremely difficult to identify the degree of overpricing at
which any particular bull market will end. We believe stock prices can continue
to rise selectively in 1999 in concert with improvements in corporate earnings
and cash flows. Accordingly, we intend to remain almost fully invested,
selecting stocks on the basis described at the beginning of this paragraph.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost-effective way to acquire
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic reinvestment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box
419368, Kansas City, MO 64141, or call (800) 992-0180.
We thank you for giving us this opportunity to help you work towards your
investment needs.
Sincerely,
/s/ Howard N. Kornblue /s/ G. David Underwood
Howard N. Kornblue G. David Underwood
Senior Vice President Vice President and Director of Research
Senior Portfolio Manager Senior Portfolio Manager
Pilgrim Investments, Inc. Pilgrim Investments, Inc.
See Footnotes on page 5.
4
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Pilgrim MagnaCap Fund
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FOOTNOTES
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(1) Excluding the Class A maximum 5.75% sales charge and assuming reinvestment
of all dividends and distributions. Total returns for the one, five and
ten-year periods ended December 31, 1998, including the maximum sales
charge and assuming reinvestment of all dividends and distributions were
9.40%, 18.46% and 15.13%, respectively.
Average annual total returns for Class B shares including the applicable
contingent deferred sales charge and assuming reinvestment of all dividends
and distributions for the year ended December 31, 1998 and from July 17,
1995 (commencement of offering of shares) to December 31, 1998 were 10.26%
and 20.73%, respectively. Average annual total returns for Class M shares
including the maximum sales charge of 3.50% and assuming reinvestment of all
dividends and distributions for the year ended December 31, 1998 and from
July 17, 1995 (commencement of offering of shares) to December 31, 1998 were
11.56% and 20.31%, respectively.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
This letter contains statements that may be "forward-looking" statements.
Actual results may differ materially from those projected in the
"forward-looking" statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
5
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Pilgrim LargeCap Leaders 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 LargeCap
Leaders Fund (the "Fund") for the six months ended December 31, 1998. As you
may know, during the period the Fund changed its name from Pilgrim America
LargeCap Value Fund to Pilgrim LargeCap Leaders Fund.
For the six months, the Fund earned a total return of 8.15%(1) compared to
9.23% for the Standard & Poor's 500 Index (the "S&P 500"). The Fund earned a
total return of 20.08%(1) in the twelve months ending December 31, 1998, versus
the S&P 500 return of 28.58%. An index of the value-oriented stocks of the S&P
500, the S&P/Barra Index(2) which compares better to the investment discipline
of the Fund, underperformed the Fund with returns of 2.26% and 14.66% for the
respective six month and twelve month periods ended December 31, 1998.
ECONOMIC ENVIRONMENT AND EQUITY MARKET CONDITIONS
The stock market produced above-average gains for another year. This was the
fourth consecutive year in which the market advanced more than 20%. Somewhat
reminiscent of 1997, the market rose, sold off, then recovered to new highs.
But this past year's market was unlike the prior year's market pattern of an
early advance that culminated in a correction in the spring, a six-month
recovery and then a trading range until year end. The 1998 market advanced
smartly until summer, sold off to where returns were negative for the year,
recovered slightly during August and September and then went on to significant
advances in each of the three final months of the year. Fueling the market
recovery in large measure were the Federal Reserve's three interest rate cuts
in a period of seven weeks.
Real concern about what impact the economic wind-down in the Asian Pacific
Basin would have on the U.S. economy and corporate earnings drove much of the
market early in the year. Carried over from 1997's fourth quarter, investors
preferred stocks of companies that were less cyclical and that derived a high
measure of profits from the solid domestic U.S. economy. Companies linked
strongly to the consumer, such as retailers and healthcare, were particularly
desired early on. Some of this market sentiment did change, once companies had
had an opportunity to report financial results for the March quarter and
investors got an idea of earnings vulnerability. But throughout the year,
investors maintained a bias in favor of companies thought to have visible
earnings. This led to a market dominated, and thus driven, by a select handful
of stocks, despite the implied breadth that the overall market indices conveyed
as they recovered and rose.
Entering 1998, we believed that the market held the potential to advance
further. We did however, think returns would be good by historical standards,
though perhaps less spectacular than those of the prior three years and much
less than the 28.58% experienced. As 1999 begins, we believe the outlook is
much the same despite stocks starting the year from higher valuations. Once
again, we think that earnings growth will propel stocks more than expansion of
the market P/E. Still unchanged are domestic economic growth, a low interest
rate environment and constructive monetary policy to provide a favorable
setting.
6
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Pilgrim LargeCap Leaders Fund
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PORTFOLIO MANAGER'S REPORT (Continued)
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LARGECAP LEADERS FUND
Your fund produced good returns throughout the year, but especially during the
last three months of 1998. Although trailing the S&P 500 for the year as a
whole, it outperformed the market by 2.83% during a time when the market was
rising briskly. Overall, performance was very consistent with the value-style
of investing, seeking meaningful returns with lower risk.
Some insight arises when the S&P 500's performance in 1998 is analyzed. As was
noted, investors narrowed their preferences to stocks thought capable of
weathering the impact of economic events in the Asia-Pacific basin. This
resulted in a market led by high-growth, high-P/E stocks. Since the S&P 500 is
an index calculated on a market capitalization basis ( i.e., company shares
times market price), stocks with high market prices can make a large impact on
the index. According to investment house Morgan Stanley Dean Witter, a mere 15
stocks in the index accounted for half the S&P 500's increase. Moreover, the
largest 100 stocks, measured by market capitalization, accounted for 85% of its
performance although they only make up 66% of the index(3).
The Fund was positioned to take advantage of much of the economic and market
setting. Representations in Consumer Duarables and Entertainment/Leisure
directly addressed these fundamentals. The Retailing and Healthcare sectors
contributed to performance during much of the year. Retailing benefited both
from strong fundamentals in the homecenter and mass market retailers as well as
the market's preference for domestic companies. The Healthcare sector profited
from a greater focus on pharmaceutical companies. Technology exerted a very
strong influence on the portfolio in the second half of the year after acting
as somewhat of a retardant earlier. Although the Fund had a sizable
representation in the Financial sector, the strategy was shifted to emphasize
insurance companies in preference to banks, a helpful move. The strategy of
modest representation in the Industrial and Basic Industry sectors also worked
well. Energy was moved to an under-weight during the year despite continually
attractive stock valuations. Oil and natural gas prices remained on a steep
descent throughout 1998, eroding the intermediate-term fundamental case for the
sector.
Starting 1999, the Fund has the most emphasis on the Technology sector. The
secular trend for productivity enhancement through technological innovation
remains strong and intact. New and broader telecommunications services are
demanding increasing amounts of sophisticated components. Additionally,
fundamentals are improving as a major portion of the sector is already
rebounding from a recent cyclical low. Consumer Cyclicals are the second
largest representation. Full employment and low interest rates keep fortifying
consumer resources that, apart from retirement savings, are being channeled
into quality of life services and devices. The Fund has the least emphasis on
the Basic Industries, Industrial and Energy sectors. Most of these sectors
continue to suffer from overcapacity and low commodity prices.
7
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Pilgrim LargeCap Leaders Fund
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PORTFOLIO MANAGER'S REPORT (Continued)
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We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy 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 LargeCap Leaders Fund
See Footnotes on page 9.
8
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Pilgrim LargeCap Leaders 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, 1998, and from September 1, 1995 (commencement of operations)
to December 31, 1998, were 13.16% and 18.67%, respectively.
Average annual total returns for Class B shares including the applicable
contingent deferred sales charge and assuming reinvestment of all dividends
and distributions for the year ended December 31, 1998 and from September 1,
1995 (commencement of operations) to December 31, 1998 were 14.33% and
19.28%, respectively. Average annual total returns for Class M shares
including the maximum sales charge of 3.50% and assuming reinvestment of all
dividends and distributions for the year ended December 31, 1998 and from
September 1, 1995 (commencement of operations) to December 31, 1998 were
15.43% and 18.93%, respectively.
All return figures reflect a partial waiver of fees for the periods stated.
Without such a waiver, returns would have been lower.
(2) The S&P/Barra Index is a capitalization-weighted index of all of the stocks
in the S&P 500 that have low price-to-book ratios. It is designed so that
approximately 50% of the market capitalization is in the Value Index.
(3) Source: Morgan Stanley Dean Witter, January 7, 1999.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
This letter contains statements that may be "forward-looking" statements.
Actual results may differ materially from those projected in the
"forward-looking" statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
9
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Pilgrim 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 Pilgrim MidCap Value
Fund (the "Fund") for the period ended December 31, 1998.
For the twelve months ended December 31, 1998, the Fund earned a total return
of 4.89%(1) compared to 10.01% for the Russell MidcapTM Index(2) and 5.08% for
the Russell MidcapTM Value Index(3). For the six months ended December 31,
1998, the Fund earned -2.92 %(1) compared to 0.88% for the Russell Midcap Index
and -1.94% for the Russell Midcap Value Index.
After three years of extraordinary results from the US stock market, many
expected a downturn in 1998, but all wondered just what kind of market we would
have. In actuality, we experienced three distinctly different markets during
the year, and nowhere was this more pronounced than in the small cap arena.
Small stocks struggled to keep up with the broad market rally during the early
part of the year, gaining 12.8% before peaking in late April and shrugging off
- -36.5% of their value from April to early October. The latest rate cut by the
Federal Reserve helped fuel a fourth quarter small cap rebound, pushing them to
gains of over 36% between October and the end of the year.
Looking back, the most defining characteristics of the 1998 stock market were
volatility and narrowness. Falling commodity prices, continued global woes
culminating in the summer meltdown in Russia, the near term collapse of hedge
fund Long Term Capital Management and, to a lesser degree, political unrest
surrounding both Clinton's presidency and renewed conflict with Iraq all sent
shock waves through the marketplace. Prior to 1998, the Dow had fewer than five
swings of 5% in each calendar year since 1946; in 1998 we experienced ten such
events. The speculative frenzy in Internet related stocks not only topped
historic sector booms, but also translated into similar results for any stock
which seemed to have even a cursory relationship with this "new brave world,"
whether it existed within the technology or a service related sector. The Dow
Jones US technology index finished the year up 62% versus the overall gain in
the broad based index of 26.8%, which, incidentally, is the first time in
history that the Dow has experienced four years of double digit gains in a
row(4).
Markets favor certain types of stocks during one cycle to the next, vacillating
between large cap and small cap, value and growth, etc., and while 1998 was not
an exception to the rule, it was clearly an exception as to the extent that
this rule applies. A continued "flight to quality" sent investors scurrying to
US stocks, and a "flight to liquidity" sent them to large cap growth names,
further widening the already unprecedented disparity between performance and
valuations of large cap stocks versus small cap stocks as shown in the graph on
page 11. Not only was the market narrow in terms of stock size and sector, but
also in terms of style and individual issues. Growth dramatically out-performed
value, with growth stocks gaining 42.2% versus a gain of 14.7% in value stocks.
With regard to individual issues, ten stocks were responsible for almost half
of the Standard & Poor's 500 Index ("S & P 500") gain, and over 70% of stocks
within the S&P 500 group lagged the market(5). All in all, it was an
exceptionally difficult year for anyone who was not investing in the largest,
growth-oriented names and, even then, only if they were exposed to the right
sectors and a few select names.
10
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Pilgrim MidCap Value Fund
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PORTFOLIO MANAGER'S REPORT (Continued)
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Cramer Rosenthal McGlynn LLC
Large Capitalization Stocks vs. Small Capitalization Stocks
[GRAPHIC OMITTED]
The top five contributors to performance during the year were as follows:
Wellpoint Health Networks 101.5%, Fred Meyer 44.0%, General Instrument 73.4%,
Montana Power 43.0% and Cincinnati Bell 25.1%. On the other hand, the five
stocks which detracted from performance the most were Ocean Energy -60.4%,
Golden State Bancorp -20.3%, EEX Corp -62.7%, Danka -35.8% and Raychem -26.2%.
Again, from a sector standpoint, technology was the top contributor across the
board. As you would expect from true value investors, our weighting in
technology was roughly one quarter that of the Russell MidcapTM Index and half
that of the Russell MidcapTM Value Index. With a 36.1% gain in the fourth
quarter and a 36.3% gain for the year, the technology sector contributed more
to performance of the Russell MidcapTM Index than any other sector. Our
over-weighting in energy stocks, one of the sectors that suffered the most in
1998, did not help portfolio performance despite the fact that several of our
companies, including Amerada Hess, Columbia Gas and Coastal Corp.,
out-performed the energy sector as a whole.
Regardless, performance for the year of +4.89% slightly trailed the Russell
MidcapTM Value Index result of +5.08%, aided in part by our over-weighting in
utility stocks -- an allocation which worked very well during the October
market sell-off. Again, this is consistent with our desire to capture the
majority of market performance in bull markets and protect capital during
bearish environments. Montana Power announced the completion of their utility
restructuring and Wall Street began realizing the power behind the fiber optic
telecommunications and data network of Montana's subsidiary Touch America, thus
driving the price of the stock from our cost basis of approximately $32 per
share to a year-end market value of $56.56 per share. Other success stories and
changes to the portfolio include Allergan and Fort James Corporation. Allergan
reached its target price and was sold after the company rolled out two new
drugs that surpassed our expectations and announced the appointment of a new
CEO who implemented a successful corporate-wide restructuring. Similarly, the
cost savings of the combined Fort Howard and James River companies came in
ahead of plan, prompting Fort James Corp. to reach our target price well in
advance of expectations.
11
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Pilgrim MidCap Value Fund
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PORTFOLIO MANAGER'S REPORT (Continued)
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With 1998 behind us, the only pertinent topics at hand revolve around what 1999
may bring. At this moment, we are witnessing the third consecutive year of an
early revival of interest in economically sensitive stocks and potentially
strong first quarter GDP growth. That being said, the continued impact of the
Asian crisis, slower world growth and the accompanying contraction in the US
manufacturing sector are at the forefront of continued concerns of potential
deflation later in the year, all signaling slower growth in 1999. Huge question
marks loom around foreign markets and their potential to either continue to
weaken and send shock waves through the global economy, or strengthen and
stabilize, thus helping the US level out and springboard onto another growth
pattern. With the weakening of global economies, we have added companies to the
portfolio whose sales are more domestically focused, thus reducing our exposure
to uncertainty in foreign markets. The new additions to the portfolio are
generally less cyclical in nature as well, in an effort to buffer ourselves
against a slower US economy. We have made several new purchases in the health
care sector, including Healthsouth Corp., whose stock we believe has been
over-sold by the market given their strong unit growth and sound fundamentals
as we see them.
Increasing share prices for large companies has provided powerful currency for
them to continue merger mania. Next year we will see whether or not these
mega-mergers such as Deutsche Bank/Bankers Trust, America Online/Netscape,
Exxon/Mobil, Travelers/Citicorp and Daimler-Benz/Chrysler will be able to
digest their consolidation pills. Even stronger, we think that factors such as
lofty prices to forward earnings and a historically increased reliance on
international trade will spell trouble for large stocks relative to small
stocks. 1998 was a year in which we saw a squeeze on corporate earnings, yet a
dramatic rise in share prices. It was also a year in which operating profits
for smaller cap stocks topped large cap stocks, yet large stocks out-performed
small cap stocks ten times over. Of course, no one can predict future markets,
but we expect 1999 will be a year in which reality sets in again, and only
those companies with realistic valuations and discernable earnings growth
relative to those prices will prevail. Simply stated, we believe a reversal of
fortune is in order.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way to acquire
additional shares of the Fund without incurring a sales charge. Should you
decide to switch from cash dividends to automatic investment, please notify
your broker or contact the Transfer Agent, c/o DST Systems, Inc. , P.O. Box
419368, Kansas City, MO 64141-6368 or call (800) 992-0180.
We thank you for giving us the opportunity to help you work towards your
investment needs.
Sincerely,
CRAMER ROSENTHAL MCGLYNN, L.L.C.
See Footnotes on page 13.
12
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Pilgrim 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 Class A maximum sales charge and assuming
reinvestment of all dividends and distributions for the year ended
December 31, 1998, and from September 1, 1995 (commencement of operations)
to December 31, 1998, were -1.15% and 15.53%, respectively.
Average annual total returns for Class B shares including the applicable
contingent deferred sales charge and assuming reinvestment of all dividends
and distributions for the year ended December 31, 1998 and from September 1,
1995 (commencement of offering of shares) to December 31, 1998 were -0.75%
and 16.07%, respectively. Average annual total returns for Class M shares
including the maximum sales charge of 3.50% and assuming reinvestment of all
dividends and distributions for the year ended December 31, 1998 and from
September 1, 1995 (commencement of offering of shares) to December 31, 1998
were 0.63% and 15.70%, respectively.
All return figures reflect a partial waiver of fees for the periods stated.
Without such a waiver, returns would have been lower.
(2) The Russell MidCapTM Index measures the performance of the 800 smallest
companies in the Russell 1000TM Index which represents approximately 35%
of the market capitalization of the Russell 1000TM Index.
(3) The Russell MidCapTM Value Index measures the performance of those Russell
MidCap companies with lower price-to-book ratios and lower forecasted
growth values. The stocks are also members of the Russell 1000TM Value
Index.
(4) Source: Wall Street Journal, January 4, 1999.
(5) Source: Salomon Smith Barney, December 23, 1998.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
This letter contains statements that may be "forward-looking" statements.
Actual results may differ materially from those projected in the
"forward-looking" statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
13
<PAGE>
Pilgrim Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholders,
Financial stocks performed poorly last year. This follows five years of good
performance and we believe that the profit taking that took place has created
exceptional relative value in this group as well as some exceptional absolute
value in the smaller cap sector of this group. Pilgrim Bank and Thrift Fund's (
the "Fund") net asset value declined 1.8%(1) during this period trailing the
Dow Jones Industrial Average which rose 18.2%, the Standard & Poor's 500 Index,
which rose 28.6%, and the S&P Major Regional Banks Index(2) which gained 10.4%.
Since the Fund now contains numerous financial stocks other than banks and
thrifts, we have also started comparing ourselves to the NASDAQ 100 Financial
Index(3). This index declined 1.1% last year and was much closer to our
performance.
Most of the factors that we mentioned in our last report as contributing to our
poor performance have not reversed yet. We still believe that this reversal
will take place and are hopeful that it will occur this year.
The increased size of the Fund resulted in considerable trading activity last
year. The changes are too numerous to list as I have in the past. An
abbreviated version of this is that fifteen new names were added and are still
retained and nine of our holdings were completely sold.
Fundamentals affecting the bank and thrift industry are still basically good.
Credit quality is very little changed and still looks good. The yield curve
still remains relatively flat and this as well as lower interest rates is
putting some pressure on most bank and thrift margins. As a result of this, I
believe that earnings growth in 1999 will be lower than is generally
anticipated-- about the plus 7-9% range but this is still better than the
anticipated growth rate of 4-6% for the S&P 500 index.
While there are no signs of it yet, I still believe that the next major credit
problem for the banking industry will be credit cards. We continue to limit our
exposure to this segment.
Loan demand actually picked up in the fourth quarter as many competing non-bank
companies had trouble raising funds in the securitization market thus resulting
in additional loan demand for the banks.
Consolidation in the industry has slowed as companies concentrate on making
their operating systems year 2000 compliant and then testing these systems.
They do not want to be burdened during this period with the risk of integrating
a different operating system with theirs until they are sure that their own
system will be year 2000 compliant. We believe that this will be basically
proven out by the end of the third quarter of this year and that consolidation
activity will pick up with a vengeance after this.
Too, bank earnings should benefit in the year 2000 from the elimination of year
2000 expenditures as well as from some of the new equipment that was added in
the process of making the bank year 2000 compliant.
If I could sum up the current scenario in the banking sector with one word, it
would be "Value!"
14
<PAGE>
Pilgrim Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
When you have been around as long as I have, you develop an ability to ignore
the hype when stocks are running unquestioned to stratospheric multiples and,
conversely, to see through the exaggerated pessimism when value presents
itself. I believe there is considerable opportunity in today's marketplace.
I continue to stick to my old way of doing things -- that is, selling our more
expensive names and buying the better quality names that look relatively and
absolutely cheap. I believe that the Fund is in good shape for this year.
There have been some scattered redemptions so far in 1999. I strongly believe
that this is not the time to take money out of this fund. The underperformance
of the sector last year and its continued underperformance so far this year
have created exceptional relative value in this Fund. The average multiples on
the banks and thrifts in the Fund is about 12.8 times 1999 estimated earnings
vs. over 25 times for the S&P 500. Also, more importantly, for the first time
in about 12 months, I am seeing stocks that are attractive on an absolute
basis. These are small cap banks and financial services companies, with the
banks trading at between 10.5 and 12 times 1999 earnings with good growth
prospects. I believe that they will go back to premium multiples when
consolidation picks up again later in the year or in early 2000.
Some financial services companies are selling at multiples that are even
cheaper than those for banks and thrifts, and if our holdings in this area were
included in our multiple calculation, it would bring the Fund's average
multiple to below 12.8 times estimated 1999 earnings.
Overall, the Fund is primed for a relatively strong 1999. Of course, there can
be no guarantees but I believe that when values are this good, it's time to
invest, wait out the volatility, and wait for the opportunities for your
investments to pay off.
We wish to remind shareholders that the Fund offers an automatic dividend
reinvestment plan, which provides and easy and cost-effective way to acquire
additional shares in the Fund , without incurring a sales charge. Should you
decide to switch from cash dividends to automatic reinvestment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box
419368, Kansas City, MO 64141-6368, or call (800) 992-0180.
We thank you for giving us the opportunity to help you work towards your
investment needs. Please do not hesitate to contact us if you have any
questions or need additional information.
Sincerely,
/s/ Carl Dorf
Carl Dorf, C.F.A.
Senior Vice President and Senior Portfolio Manager
Pilgrim Investments, Inc.
See Footnotes on page 16.
15
<PAGE>
Pilgrim Bank and Thrift Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(1) Total return for Class A shares calculated at NAV and assuming reinvestment
of all dividends and distributions. Sales charges or commissions are not
reflected in these total returns.
Average annual total returns based on NAV, assuming reinvestment of all
dividends and distributions and including the deduction of the maximum Class
A sales charge of 5.75% were -7.48%, 25.89% and 20.90% for the one, five and
ten-year periods ended December 31, 1998.
Prior to October 20, 1997, the Fund operated as a closed-end investment
company. All performance information prior to this date reflects the
historical expense levels of the Fund as a closed-end investment company
without adjustment for the higher annual expenses of the Fund's Class A
shares. Performance would have been lower if adjusted for these charges and
expenses. Performance information for periods after October 20, 1997
includes Class A expenses. Ten-year returns assume no participation in the
1992 rights offering and full participation in the 1993 rights offering.
Average annual total returns for Class B shares including the applicable
contingent deferred sales charge and assuming reinvestment of all dividends
and distributions for the year ended December 31, 1998 and from October 20,
1997 (commencement of offering of shares) to December 31, 1998 were -7.27%
and 4.29%, respectively.
(2) The S&P Major Regional Banks Index is a capitalization-weighted index
designed to measure the performance of the major regional banks within the
Standard & Poor's 500 Index.
(3) The NASDAQ 100 Financial Index is a capitalization-weighted index of the
100 largest financial companies, as well as foreign issues, including
American Depository Receipts, traded on the NASDAQ National Market System
and Small Cap Market.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
PRINCIPAL RISK FACTORS: BECAUSE THE FUND'S PORTFOLIO IS CONCENTRATED IN THE
BANKING AND THRIFT INDUSTRY IT MAY BE SUBJECT TO GREATER RISK THAN A PORTFOLIO
THAT IS NOT CONCENTRATED IN ONE INDUSTRY.
This letter contains statements that may be "forward-looking" statements.
Actual results may differ materially from those projected in the
"forward-looking" statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
Pilgrim Bank and Thrift Fund's primary investment objective is long-term
capital appreciation, with income as a secondary objective. The Fund seeks to
achieve its objectives by investing primarily in the equity securities of banks
and thrifts.
16
<PAGE>
Pilgrim Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder:
The following are the results of operations for Pilgrim Asia-Pacific Equity
Fund (the "Fund"), for the year ended December 31, 1998.
For the twelve months, the Fund earned a net return of -15.51%(1) compared to
- -4.82% for the Morgan Stanley Capital International All Countries Far East Free
ex-Japan Index (the "MSCI"), a measure of the performance of Far East markets
excluding Japan.
GENERAL ECONOMIC ENVIRONMENT
A combination of a strong yen and weaker US dollar was the major factor behind
the recent recovery which took place in most of the regional currencies. This
in turn has enabled interest rates to be reduced, a process which was helped by
a cut in the Federal Funds rate. However, the economic picture is still very
gloomy with only China, Singapore and Taiwan showing growth in 1998, and in the
case of the latter two, at much reduced levels. China only managed to keep
growth close to that of 1997 by embarking on huge infrastructure spending as
export growth fell dramatically. Elsewhere, 3Q GDP contracted in Hong Kong,
Malaysia and South Korea. Coupled with this contraction was a rise in
unemployment and in some cases, inflation turning negative. The countries which
the IMF is helping, namely Indonesia, the Philippines and South Korea, all made
progress which has enabled the IMF to allow some relaxation of its conditions
for the former two, and for the South Korean government to begin to repay some
of its loans. Social unrest is still very much to the fore in both Indonesia,
where rioting in Jakarta is still prevalent, and in Malaysia.
SPECIFIC EQUITY MARKET CONDITIONS
The table below summarizes the total returns on the respective MSCI Country
Indices which comprise the Far East Free (excluding Japan) Index:
Total Return
Country 1/1/98 - 12/31/98
------- -----------------
Hong Kong -2.92%
Malaysia -30.81%
Singapore -3.59%
Thailand 11.56%
Indonesia -31.52%
Philippines 13.45%
South Korea 141.15%
Taiwan -20.64%
China -42.36%
Much of 1998 has been characterised by a sense of crisis and contagion.
Declining economies remain crippled by banking problems, but the combination of
a strong yen and weak dollar in the fourth quarter contributed to the recovery
of most regional currencies while lower US interest rates reduced pressure on
regional rates. The economic picture remained gloomy around the region with
unemployment rising and in some cases, some countries moving into a
deflationary environment.
17
<PAGE>
Pilgrim Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
HONG KONG had a volatile year as the economy adjusted to regional instabilities
and rigidities of Hong Kong's currency board system, high interest rates, tight
liquidity, increasing unemployment and falling asset prices. These factors are
still persisting, and while asset prices have stabilized, significant upside
momentum is still elusive. In the long run, the important issue for Hong Kong
remains its role in China's economic development and its status as a
competitive international financial center. While Hong Kong remains the best
gateway to China, the prevailing domestic credit crunch and a lethargic primary
market may undermine its fund-raising capability for Chinese enterprises.
Furthermore, the long-held policy of "active non-intervention" may render Hong
Kong not as flexible in cost-cutting or restructuring as other economies. With
investors beginning to emphasize "reform" at both a macro and micro level, the
general perception is that Hong Kong is less ready than some of its regional
peers in introducing competition and dismantling cartels. While the absolute
downside may not be huge, the Hong Kong market may under-perform in a regional
context before this perception is changed.
The MALAYSIA market has staged a remarkable recovery over the past few months.
While fiscal and monetary policies are expected to be aggressively expansionary
in 1999, the economy remains fragile while growth is likely to remain weak
because of implementation delays, cautious consumer and weak investor
sentiment. Driven by local funds, the market is likely to remain strong in the
short term, although a complete turnaround is unwarranted as it is unclear
whether the controversial corrective measures adopted by the government is
properly setting the country back on the path of recovery. Investing in
INDONESIA continues to demand a considerable risk appetite. Politically, the
country remains trapped in the transition from Suharto's 32-year rule, with the
current administration unable to secure sustainable political and social
stability. The June legislative elections and December presidential polls could
bring either stability or intensify unrest. Tough decisions must be made
regarding banking sector recapitalisation, private debt restructuring and
privatization, which in turn will be the driving forces for the economy and the
stock market. In THAILAND, the debate between participating in liquidity-driven
rallies and the need to evaluate the market on a fundamental valuation basis is
expected to continue into 1999. While the worst for the economy has passed, the
government must take the lead in accelerating recapitalization and debt
restructuring. More importantly, the passage of amended bankruptcy and
foreclosure laws in full will be key in re-establishing investor confidence and
accelerating bank loan restructuring.
Singapore and the Philippines provide a fundamentally more positive
environment. SINGAPORE has won widespread approval for its handling of the
Asian financial crisis. On the corporate front, restructuring momentum,
earnings improvement from cost reduction initiatives and cash-rich companies
bargain hunting in the region should help retain investor interest. In terms of
the economy, domestic government policies to reform and hone competitiveness
should provide a cushion against the challenging external environment in the
event of a slowdown in the US and Europe. Despite headline GDP numbers showing
a milder recession for the PHILIPPINES compared to some of its neighbors in the
Association of South East Asian Nations, the country is likely to face another
year of consolidation in 1999. Optimism will be tempered with reality, with
buoyant export growth one of the saving graces.
Slowing growth, deteriorating exports, concerns surrounding financial leverage
and stock market activity by corporates has left TAIWAN at the back of the
performance "pack". 1999 will be a challenging
18
<PAGE>
Pilgrim Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
year as Taiwan attempts to maintain economic growth momentum. Growth will
continue to be driven by investment and private consumption rather than by
exports as banks adopt more conservative lending policies following rising
corporate failures and non-performing loans. KOREA has been a phenomenal
performer over the past few months, which together with the currency move and
its changed market capitalization weighting has transformed its importance in
regional benchmarks. Macro-economic numbers indicate that the economy has seen
the bottom, while Korean chaebols are forced to restructure, with banks asked
to facilitate the process by withdrawing new credit from those chaebols which
refuse to cooperate. Korea is clearly attempting to re-engineer its corporate
and financial sectors to become more competitive. The market may experience a
long-term rally if corporate sector reforms are implemented successfully.
PILGRIM AMERICA MASTERS ASIA PACIFIC EQUITY FUND
Our strategy for the last twelve months has been to adopt a relatively
defensive position for the portfolio, emphasizing good quality blue chip
companies with strong franchises and balance sheets, who are able to withstand
the significant domestic recessionary conditions that all Asian economies are
experiencing. Against this background, country allocation has been of slightly
less importance than in circumstances where economies are functioning normally.
Nevertheless we have taken a strategic overweight position in Singapore where
we believe, at both a macro and micro level, fundamentally positive
developments are occurring. In particular, at the micro level, it is our view
that corporate emphasis is shifting from asset accumulation and growth towards
a focus in investment returns. This is likely to be rewarding for shareholders,
particularly in view of government policy geared towards making Singapore a
lower cost and more business-friendly economy.
Elsewhere we have rebuilt positions in Thailand and Korea which are economies
and markets that have made significant progress in reform and restructuring,
against the background of a massive improvement in their trade accounts and
commensurate reduction in interest rates. While more remains to be done in both
countries we would be inclined to add to both markets in a correction. In
contrast we have remained cautious on Indonesia, whilst a reassessment of
prospects in Malaysia requires a reversal of the capital controls imposed in
September.
We have remained relatively cautious on immediate prospects in Hong Kong and
China, and as a result, our Hong Kong weighting has been relatively neutral
with emphasis on blue chip leaders in Utilities, Telecoms and Banks. We have
viewed Hong Kong's fixed exchange rate as preventing policy makers from having
as much monetary flexibility as elsewhere in Asia, with the economy essentially
adjusting around the currency. This suggests to us that the adjustment process
will be painful and although we probably under-estimated the scale of the rally
in Hong Kong in the fourth quarter of 1998, our focus is likely to remain on
the rest of the region in the short term. Cash levels were run down in the
fourth quarter, and we remain fully invested.
We thank you for giving us this opportunity to help you work towards your
investment needs.
Sincerely,
HSBC ASSET MANAGEMENT AMERICA, INC.
HSBC ASSET MANAGEMENT HONG KONG LIMITED
See Footnotes on page 20.
19
<PAGE>
Pilgrim Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(1) Excluding the Class A maximum sales charge of 5.75% and assuming
reinvestment of all dividends and distributions. Average annual total
returns including the Class A maximum sales charge and assuming
reinvestment of all dividends and distributions for the year ended
December 31, 1998, and from September 1, 1995 (commencement of operations)
to December 31, 1998, were -20.37% and -19.55%, respectively.
Average annual total returns for Class B shares including the applicable
contingent deferred sales charge and assuming reinvestment of all dividends
and distributions for the year ended December 31, 1998 and from September 1,
1995 (commencement of operations) to December 31, 1998 were -20.57% and
-19.51%, respectively. Average annual total returns for Class M shares
including the maximum sales charge of 3.50% and assuming reinvestment of all
dividends and distributions for the year ended December 31, 1998 and from
September 1, 1995 (commencement of operations) to December 31, 1998 were
-19.26% and -19.47%, respectively.
All return figures reflect a partial waiver of fees for the periods stated.
Without such a waiver, returns would have been lower.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
PRINCIPAL RISK FACTORS: EXPOSURE TO FINANCIAL AND MARKET RISKS THAT ACCOMPANY
INVESTMENT IN EQUITIES, AND EXPOSURE TO CHANGES IN CURRENCY EXCHANGE RATES AND
THE ECONOMIC AND POLITICAL RISKS OF FOREIGN INVESTING.
This letter contains statements that may be "forward-looking" statements.
Actual results may differ materially from those projected in the
"forward-looking" statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
20
<PAGE>
Pilgrim High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder:
It is our pleasure to share with you the results of operations for the Pilgrim
High Yield Fund ("the Fund") for the semi-annual period ended December 31,
1998. For the year ended December 31, 1998 the Fund earned a total return of
- -2.96(1) compared to the Lehman High Yield Index which returned 1.60% for the
same period.
For 1998, results fell short of expectations as the energy, mining and
communication sectors under-performed. While short-term performance fell short
of our goals, longer-term five-year performance remains in the top quartile of
the Lipper High Current Yield category. It is management's top priority to
maintain this long-term ranking.
GENERAL ECONOMIC AND MARKET ENVIRONMENT
Early 1998 brought the continuation of economic trends witnessed the previous
year. While domestic trends were benign, a storm was brewing on the
international front. Later in the year rumblings of concern about international
economic instability could be heard from Alan Greenspan, among others. It
became evident that U.S. capital markets would not escape the economic and
political instability in Russia, Asia, and Brazil unscathed. Globalization, for
better or worse, had arrived. As a result, the Federal Reserve Open Market
Committee, in an effort to maintain liquidity and restore investor confidence,
lowered the Federal Funds rate target three times during the second half of
1998, from 5.50% to 4.75%. By year-end, the committee's stance had become
neutral; lessening the near-term risk there would be a further decline in
interest rates.
1998 also brought a significant decline in interest rates. At the beginning of
the year, the 30-year Treasury bond yielded 5.92%. After reaching a low of
4.72% on October 5, 1998, treasuries pulled back for the remainder of 1998,
ending the year 83 basis points lower at 5.09%. At year-end, the yield curve
reflected the Federal Reserve's neutral stance as well a low, but steady, rate
of inflation. As of this writing (February 1999), interest rates have risen to
5.43%, as market participants exhibit concern over the strong economic growth
witnessed in the fourth quarter of 1998.
HIGH YIELD MARKET
For the second year in a row, the high yield market set a record for new
issues, with $142 billion new bonds priced. This record was even more
impressive given the tumultuous two-month period between September and October,
when new issuance virtually came to a standstill. Including new issues, the
total market for high yield grew to $599 billion, a net increase of $104
billion from year-end 1997. Even with a bumper crop of new issues the high
yield market saw its share of market erosion. Towards the latter half of 1998,
spreads widened a dramatic 271 basis points (from 386 to 657 basis points over
comparable treasuries) according to the CSFB High Yield Index. Currently,
spreads of high yield securities are on the wider side of average giving them
room to tighten in a positive economic environment
21
<PAGE>
Pilgrim High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
High yield default rates in 1998 mirrored historical averages. Moody's reported
a trailing twelve month default rate of 3.31% nearly matching the annual mean
(1971-1998) of 3.35%. (The default rate is reported as a percentage of
issuers.) Dr. Edward Altman of New York University tracks an additional measure
of high yield defaults, exclusive of international emerging markets corporates.
Dr. Altman reported a final default rate for 1998 of 1.60% compared to a 1.50%
median default rate for the previous 27 years.
PILGRIM HIGH YIELD FUND
Over the past twelve months, the Fund's industry weightings have been
reallocated. Top industry weightings include Communications, Retail, Leisure,
Automotive and Gaming. Communications, while under-performing in the second
half of 1998, has rebounded strongly in the opening months of 1999. Market
participants recognized the relative value of the sector and the opportunities
afforded by the deregulation of the industry and growth of the Internet. Media
and entertainment companies continue to provide stable and predictable cash
flow. In the retailing sector, the focus is on issuers who exhibit competent
management and strong comparable sales growth. In the automotive sector, the
portfolio's holdings were concentrated in wholesale and retail distributors of
automotive parts. Consolidation within this sector has allowed the remaining
companies to improve profit margins through back office integration. Margins
have been further improved by the consolidating company's ability to negotiate
more favorable terms from suppliers.
Net assets of the Fund have grown dramatically in the last year. Management
spent the fourth quarter reinvesting cash, as investment opportunities became
attractive. Cash declined from a high of 13% in September to approximately 8%
at year-end 1998. Typically, in a fully invested portfolio, cash will remain in
a 0-3% range.
We wish to remind shareholders that the fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way to acquire
additional shares in the Fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic investment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Inc., PO Box 419338,
Kansas City, Missouri 64141-6338 or call (800) 992-0180.
We thank you for giving us the opportunity to work towards your investment
needs.
Sincerely,
/s/ Kevin G. Mathews
Kevin G. Mathews
Senior Vice President and Senior Portfolio Manager
Pilgrim Group, Inc.
See Footnotes on page 23.
22
<PAGE>
Pilgrim High Yield Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(1) Performance figures shown pertain only to Class A shares of the Fund
without deducting the 4.75% maximum sales charge. The average annual total
returns for the one, five and ten-year periods ended December 31, 1998,
after deduction of the Class A maximum sales charge of 4.75% were -7.60%,
7.36% and 8.88%, respectively.
Average annual total returns for Class B shares including the applicable
contingent deferred sales charge and assuming reinvestment of all dividends
and distributions for the year ended December 31, 1998 and from July 17,
1995 (commencement of offering of shares) to December 31, 1998 were -8.02%
and 7.75%, respectively. Average annual total returns for Class M shares
including the maximum sales charge of 3.25% and assuming reinvestment of all
dividends and distributions for the year ended December 31, 1998 and from
July 17, 1995 (commencement of offering of shares) to December 31, 1998 were
-6.58% and 7.69%, respectively.
All return figures reflect a partial waiver of fees for the periods stated.
Without such a waiver, returns would have been lower.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
PRINCIPAL RISK FACTORS: EXPOSURE TO FINANCIAL, MARKET AND INTEREST RATE RISKS.
HIGH YIELDS REFLECT THE HIGHER CREDIT RISKS ASSOCIATED WITH CERTAIN LOWER RATED
SECURITIES IN THE FUND'S PORTFOLIO AND IN SOME CASES, THE LOWER MARKET PRICES
FOR THOSE INSTRUMENTS.
This letter contains statements that may be "forward-looking" statements.
Actual results may differ materially from those projected in the
"forward-looking" statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
23
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to report the results of operations for the Pilgrim Government
Securities Income Fund ("the Fund") for the year ended December 31, 1998. As of
December 31, 1998, the Fund's standardized 30 day SEC yield was 4.44%(1). The
average annual total returns for the one, five, and ten year periods ended
December 31, 1998 assuming reinvestment of all dividends and distributions,
were 5.61%, 5.22%, and 7.07%, respectively.(1)
GENERAL ECONOMIC AND MARKET ENVIRONMENT
We can thank Alan Greenspan for another year of positive economic and
investment fundamentals. The Federal Reserve in a series of moves, starting
late in the third quarter, lowered the Federal Funds rate from 5.50% to 4.75%.
These monetary easings provided liquidity in a time of perceived crisis. More
importantly, they instilled confidence in investors and allowed the year to
close on a positive note for both equity and bond investors. Interest rates
spent most of the first half of 1998 trading in a very tight range. Then in the
later half of May, Mr. Greenspan gave testimony to the House Agricultural
Committee. In his prepared statement, Greenspan said that while the world
economy has so far "avoided the continuing downward spiral some feared" from
Asia's economic crisis, there is still a chance a second round of instability
could have "unexpected large negative effects." It is almost eerie on how well
these comments foreshadowed the events that transpired soon after. First Asia,
then Russia and then finally Brazil would send the US and global financial
markets on a roller coaster ride over the next eight months. The thirty-year
bond reached it low of 4.72% on October 5, less than a week after the Federal
Reserve eased monetary policy for the first time in three years. In the final
quarter of 1998, the Federal Reserve eased monetary policy two more times and
interest rates moved into a slightly higher range as assets were reallocated
back to the equity market. This reallocation of assets propelled the equity
market to new highs.
MORTGAGE SECURITIES MARKET IN PARTICULAR
The mortgage market, over the last twelve months, has been challenged by low
rates and corresponding high prepayments. The increased sophistication of the
average homeowner, who receives numerous solicitations to refinance their
mortgage, has exacerbated this situation. Management has reduced its impact to
prepayments by reallocating the portfolio's mortgage concentration into
agencies and lower coupon mortgages, which have little or no prepayment risk.
On December 31, 1997 the Fund had no exposure to mortgages with a coupon less
than 7% and 47% of the mortgage securities had a coupon greater than or equal
to 10%. On December 31, 1998 the Fund's allocation had been shifted to where
40% of the mortgage securities had a coupon less than or equal to 7% and 25% of
the mortgage securities had a coupon greater than or equal to 10%.
24
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------
ANALYSIS OF THE PILGRIM GOVERNMENT SECURITIES INCOME FUND
The effective duration (a measure of price sensitivity) of the portfolio as of
December 31, 1998 was approximately 4.0, slightly above the Lehman
Government/Mortgage Index. Our goal is to provide competitive returns while
having less volatility and more downside protection than most other government
securities funds. That being said, the strong bullish environment that has
continued to prevail over the last twelve months is not one in which this fund
excels. It is our belief that the strategy and philosophy, which we adhere to,
is one that will provide you with an attractive long-term risk/reward profile.
The Fund continues its ongoing commitment to shareholders of avoiding the risks
associated with exotic derivatives, leverage as well as futures and options.
For the first half of 1999, we believe that economic growth will moderate from
the strong pace witnessed in the fourth quarter of 1998. The stock market will
be a factor to watch in 1999 as it relates to both the economy and the bond
market. We believe interest rates will stay confined within a range and that
the focus in 1999 will be on income. That being said, the Pilgrim Government
Securities Income Fund with it high concentration of mortgage pass-throughs
seeks to provide investors with a good source of income.
We wish to remind shareholders that the fund offers an automatic dividend
reinvestment plan, which provides an easy and cost effective way of acquiring
additional shares in the fund, without incurring a sales charge. Should you
decide to switch from cash dividends to automatic reinvestment, please notify
your broker or contact the Transfer Agent, c/o DST Systems Inc., P.O. Box
419338, Kansas City, Missouri 64141-6338 or call (800) 992-0180.
We thank you for giving us this opportunity to help you work towards your
investment needs.
Sincerely,
/s/ Charles G. Ullerich
Charles G. Ullerich, C.F.A.
Portfolio Manager
Pilgrim Investments, Inc.
See Footnotes on Page 26.
25
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
FOOTNOTES
- --------------------------------------------------------------------------------
(1) Total return and yield figures reflect a partial waiver of expenses for
some of the periods stated. Performance figures shown pertain only to
Class A Shares of the Fund excluding the 4.75% maximum sales charge.
Average annual total returns for the one, five and ten-year periods ended
December 31, 1998, including the maximum sales charge and assuming
reinvestment of all dividends and distributions were 0.63%, 4.20% and
6.56%, respectively.
Average annual total returns for Class B shares including the applicable
contingent deferred sales charge and assuming reinvestment of all dividends
and distributions for the year ended December 31, 1998 and from July 17,
1995 (commencement of offering of shares) to December 31, 1998 were -0.15%
and 4.42%, respectively. Average annual total returns for Class M shares
including the maximum sales charge of 3.25% and assuming reinvestment of all
dividends and distributions for the year ended December 31, 1998 and from
July 17, 1995 (commencement of offering of shares) to December 31, 1998 were
1.66% and 4.50%, respectively.
The 30-day standardized SEC yields for Class B and M as of December 31, 1998
were 3.86% and 4.04%, respectively.
The Fund earned income and realized capital gains as a result of entering
into reverse repurchase agreements during the six month period from July to
December, 1992. Therefore, the Fund's performance was higher than it would
have been had the Fund adhered to it's 10% borrowing investment restriction.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR
ORIGINAL COST.
This letter contains statements that may be "forward-looking" statements.
Actual results may differ materially from those projected in the
"forward-looking" statements.
The views expressed in this report reflect those of the portfolio manager, only
through the end of the period as stated on the cover. The manager's views are
subject to change at any time based on market and other conditions.
26
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LargeCap MidCap
MagnaCap Leaders Value
Fund Fund Fund
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS:
Investments in securities at market value (Cost $303,275,265,
$21,031,720 and $62,144,590, respectively) $424,334,243 $25,485,602 $ 69,212,481
Short-term securities at amortized cost 30,259,000 2,495,000 3,524,000
Cash 14,433 8,870 8,608
Receivables:
Fund shares sold 1,370,629 3,075 108,366
Dividends and interest 441,086 14,883 36,935
Due from affiliate -- 10,256 3,196
Investment securities sold 6,284,216 136,854 231,934
Prepaid expenses 71,873 17,594 27,187
Deferred organization expenses -- 43,410 43,410
------------ ----------- ------------
Total Assets 462,775,480 28,215,544 73,196,117
------------ ----------- ------------
LIABILITIES:
Payable for investment securities purchased 970,275 -- 640,663
Payable for fund shares redeemed 634,972 17,962 194,192
Payable to affiliate 6,552 649 1,828
Other accrued expenses and liabilities 245,413 73,478 95,734
------------ ----------- ------------
Total Liabilities 1,857,212 92,089 932,417
------------ ----------- ------------
NET ASSETS $460,918,268 $28,123,455 $ 72,263,700
============ =========== ============
NET ASSETS CONSIST OF:
Paid-in capital $314,748,813 $21,179,968 $ 65,936,367
Overdistributed net investment income (loss) (253,559) (109,458) (266,232)
Accumulated net realized gain (loss) on investments and foreign
currency transactions 25,364,036 2,599,063 (474,326)
Net unrealized appreciation of investments 121,058,978 4,453,882 7,067,891
------------ ----------- ------------
Net Assets $460,918,268 $28,123,455 $ 72,263,700
============ =========== ============
Class A:
Net assets $350,702,866 $ 7,004,739 $ 22,898,522
Shares authorized ($1.00, $0.10 and $0.00 par value, respectively) 80,000,000 28,000,000 28,000,000
Shares outstanding 21,541,256 443,519 1,521,846
Net asset value and redemption price per share $ 16.28 $ 15.79 $ 15.05
Maximum offering price per share(1) $ 17.27 $ 16.75 $ 15.97
Class B:
Net assets $ 94,968,442 $15,659,749 $ 37,167,666
Shares authorized ($1.00, $0.10 and $0.00 par value, respectively) 80,000,000 28,000,000 28,000,000
Shares outstanding 5,924,990 1,013,916 2,532,099
Net asset value, redemption and offering price per share(2) $ 16.03 $ 15.44 $ 14.68
Maximum offering price per share(2) $ -- $ -- $ --
Class M:
Net assets $ 15,246,960 $ 5,458,967 $ 12,197,512
Shares authorized ($1.00, $0.10 and $0.00 par value, respectively) 40,000,000 14,000,000 14,000,000
Shares outstanding 944,053 350,165 827,217
Net asset value and redemption price per share $ 16.15 $ 15.59 $ 14.75
Maximum offering price per share(3) $ 16.74 $ 16.16 $ 15.28
</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
27
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES as of December 31, 1998 (Unaudited)
(Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bank and Asia-Pacific Government
Thrift Equity High Yield Securities
Fund Fund Fund Income Fund
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities at market value (Cost $671,959,872,
$23,841,769, $364,245,066 and $40,165,070,
respectively) $851,834,045 $ 23,536,222 $345,500,785 $ 40,400,113
Affiliated issuers (Cost $11,022,381) 8,138,601 -- -- --
Short-term investments at amortized cost 25,045,000 -- 26,814,000 2,762,000
Foreign currency (Cost $0, $722,308, $0 and
r$0, espectively) -- 505,503 -- --
Cash 652,272 -- 2,486,950 8,610
Receivables:
Fund shares sold 5,111,517 13,406 6,716,269 1,045,399
Dividends and interest 1,166,505 39,432 7,914,697 409,375
Due from affiliate -- 11,964 36,164 --
Investment securities sold 7,217,118 -- -- --
Other -- -- -- 29,531
Prepaid expenses 191,688 17,989 98,219 15,286
Deferred organization expenses -- 43,410 -- --
------------- ------------- ------------- --------------
Total Assets 899,356,746 24,167,926 389,567,084 44,670,314
------------- ------------- ------------- --------------
LIABILITIES:
Payable for investment securities purchased 5,523,461 -- 2,468,000 --
Payable for fund shares redeemed 4,445,589 531,138 1,574,513 70,392
Payable to custodian -- 704,560 -- --
Payable to affiliate 13,109 1,566 2,961 439
Other accrued expenses and liabilities 315,683 171,788 73,740 49,369
------------- ------------- ------------- --------------
Total Liabilities 10,297,842 1,409,052 4,119,214 120,200
------------- ------------- ------------- --------------
NET ASSETS $889,058,904 $ 22,758,874 $385,447,870 $ 44,550,114
============= ============= ============= ==============
NET ASSETS CONSIST OF:
Paid-in capital $700,793,892 $ 55,774,610 $428,102,143 $ 50,143,234
Undistributed (overdistributed) net investment income
(loss) 1,785,023 (209,441) 409,195 23,956
Accumulated net realized gain (loss) on investments
and foreign currency transactions 9,489,596 (32,283,124) (24,319,187) (5,852,119)
Net unrealized appreciation (depreciation) of investments
and other assets, liabilities and forward contracts
denominated in foreign currencies 176,990,393 (523,171) (18,744,281) 235,043
------------- ------------- ------------- --------------
Net Assets $889,058,904 $ 22,758,874 $385,447,870 $ 44,550,114
============= ============= ============= ==============
Class A:
Net assets $492,638,959 $ 9,691,887 $127,391,677 $ 26,943,609
Shares authorized ($0.00, $0.01, $0.10 and $0.00 par
value, respectively) 100,000,000 24,000,000 80,000,000 1,000,000,000
Shares outstanding 20,007,801 1,893,735 20,640,994 2,094,500
Net asset value and redemption price per share $ 24.62 $ 5.12 $ 6.17 $ 12.86
Maximum offering price per share(1) $ 26.12 $ 5.43 $ 6.48 $ 13.50
Class B:
Net assets $396,419,945 $ 9,172,817 $233,916,497 $ 16,119,933
Shares authorized ($0.00, $0.01, $0.10 and $0.00 par
value, respectively) 100,000,000 24,000,000 80,000,000 1,000,000,000
Shares outstanding 16,150,750 1,833,136 37,978,541 1,257,575
Net asset value, redemption and offering price per share(2) $ 24.54 $ 5.00 $ 6.16 $ 12.82
Maximum offering price per share(2) $ 24.54 $ -- $ -- $ --
Class M:
Net assets $ -- $ 3,894,170 $ 24,139,696 $ 1,486,572
Shares authorized ($0.00, $0.01, $0.10 and $0.00 par
value, respectively) -- 12,000,000 40,000,000 1,000,000,000
Shares outstanding -- 774,247 3,917,206 115,607
Net asset value and redemption price per share $ -- $ 5.03 $ 6.16 $ 12.86
Maximum offering price per share(3) $ -- $ 5.21 $ 6.37 $ 13.29
</TABLE>
- ------------
(1) Maximum offering price is computed at 100/94.25 of net asset value for Bank
and Thrift Fund and Asia-Pacific Equity Fund and 100/95.25 of net asset
value for High Yield Fund and Government Securities Income Fund. On
purchases of $50,000 or more, the offering price is reduced.
(2) Redemption price per share is equal to the net asset value per share less
any applicable contingent deferred sales charge.
(3) Maximum offering price is computed at 100/96.50 of net asset value for
Asia-Pacific Equity Fund and 100/96.75 of net asset value for High Yield
Fund and Government Securities Income Fund.
See Accompanying Notes to Financial Statements
28
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS for the Six Months Ended December 31, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LargeCap
MagnaCap Leaders MidCap Value
Fund Fund Fund
----------- ---------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 776,890 $ 34,865 $ 175,095
Dividends (net of foreign withholding taxes of
$20,633, and $3,586, respectively) 2,860,443 147,243 352,340
----------- ---------- ------------
Total investment income 3,637,333 182,108 527,435
----------- ---------- ------------
EXPENSES:
Investment management fees 1,524,356 127,831 357,397
Distribution expenses
Class A Shares 493,426 8,353 28,698
Class B Shares 411,387 69,486 183,105
Class M Shares 52,766 18,701 44,624
Transfer agent and registrar fees 357,722 66,200 87,153
Reports to shareholders 85,029 5,394 13,314
Professional fees 50,143 5,152 11,346
Custodian fees 48,981 3,241 8,378
Miscellaneous expenses 42,393 15,346 44,614
Registration and filing fees 40,749 17,142 23,074
Recordkeeping and pricing fees 35,500 2,179 6,027
Shareholder servicing fee 27,740 2,997 6,882
Directors' fees 15,271 756 2,773
Organization expense -- 13,116 13,116
Insurance expense -- 1,047 2,899
----------- ---------- ------------
Total expenses 3,185,463 356,941 833,400
----------- ---------- ------------
Less:
Waived and reimbursed fees -- (64,633) (37,665)
Earnings credits (8,670) (742) (2,068)
----------- ---------- ------------
Net expenses 3,176,793 291,566 793,667
----------- ---------- ------------
Net investment income (loss) 460,540 (109,458) (266,232)
----------- ---------- ------------
REALIZED AND UNREALIZED GAIN
(LOSS) FROM INVESTMENTS:
Net realized gain from investments 20,678,833 2,080,191 1,098,256
Net change in unrealized appreciation
(depreciation) of investments 2,845,741 (231,469) (3,831,064)
----------- ---------- ------------
Net gain (loss) from investments 23,524,574 1,848,722 (2,732,808)
----------- ---------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $23,985,114 $1,739,264 $ (2,999,040)
=========== ========== ============
</TABLE>
See Accompanying Notes to Financial Statements
29
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS for the Six Months Ended December 31, 1998
(Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bank and Asia-Pacific Government
Thrift Equity High Yield Securities
Fund Fund Fund Income Fund
-------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 1,763,349 $ 74,847 $ 16,289,444 $1,355,839
Redemption fee income 408,140 -- -- --
Dividends (net of foreign withholding taxes of
$6,050, $21,977, $0 and $0, respectively) 8,822,204 180,969 -- --
-------------- ------------ ------------- ----------
Total investment income 10,993,693 255,816 16,289,444 1,355,839
-------------- ------------ ------------- ----------
EXPENSES:
Investment management fees 3,065,197 149,471 949,447 91,400
Distribution expenses
Class A Shares 614,603 14,125 394,722 32,872
Class B Shares 1,821,357 43,879 705,259 48,163
Class M Shares -- 14,398 52,388 2,400
Transfer agent and registrar fees 984,000 97,388 205,089 65,493
Reports to shareholders 120,146 9,922 49,829 6,515
Miscellaneous expenses 115,238 33,372 6,888 5,389
Registration and filing fees 99,336 31,369 55,455 19,154
Custodian fees 77,346 33,134 49,894 11,813
Recordkeeping and pricing fees 71,606 2,113 31,532 3,610
Professional fees 66,836 4,420 24,129 5,925
Shareholder servicing fee 58,365 9,244 13,641 1,707
Insurance expense 30,107 1,129 8,514 978
Directors' fees 20,164 1,260 7,562 1,870
Organization expense -- 13,116 -- --
-------------- ------------ ------------- ----------
Total expenses 7,144,301 458,340 2,554,349 297,289
-------------- ------------ ------------- ----------
Less:
Waived and reimbursed fees -- (175,350) (194,013) --
Earnings credits (6,926) (542) (24,762) (248)
-------------- ------------ ------------- ----------
Net expenses 7,137,375 282,448 2,335,574 297,041
-------------- ------------ ------------- ----------
Net investment income (loss) 3,856,318 (26,632) 13,953,870 1,058,798
-------------- ------------ ------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS:
Net realized gain (loss) from:
Investments 24,568,646 (7,591,532) (15,219,896) (76,568)
Foreign currency transactions -- (11,368) -- --
Net change in unrealized appreciation
(depreciation) of:
Investments (102,079,204) 11,782,008 (18,409,449) (49,165)
Other assets, liabilities and forward
contracts denominated in foreign
currencies -- (217,640) -- --
-------------- ------------ ------------- ----------
Net gain (loss) from investments (77,510,558) 3,961,468 (33,629,345) (125,733)
-------------- ------------ ------------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ (73,654,240) $ 3,934,836 $ (19,675,475) $ 933,065
============== ============ ============= ==========
</TABLE>
See Accompanying Notes to Financial Statements
30
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MagnaCap Fund
---------------------------------
Six Months Year
Ended Ended
December 31, June 30,
1998 (Unaudited) 1998
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net
assets from operations
Net investment income $ 460,540 $ 626,120
Net realized gain from
investments 20,678,833 63,902,750
Net change in unrealized
appreciation (depreciation)
of investments 2,845,741 7,551,908
--------------- ---------------
Net increase (decrease) in
net assets resulting
from operations 23,985,114 72,080,778
--------------- ---------------
Distributions to shareholders:
Net investment income:
Class A shares (599,512) (626,120)
Class B shares -- --
Class M shares -- --
In excess of net investment
income:
Class A shares (114,160) (563,340)
Class B shares (427) (85,798)
Class M shares -- (22,509)
Net realized gains:
Class A shares (15,998,556) (33,690,960)
Class B shares (3,994,804) (6,012,889)
Class M shares (685,474) (1,155,826)
In excess of net realized gains:
Class A shares (15,526,755) --
Class B shares (4,522,438) --
Class M shares (679,607) --
Tax return of capital
Class A shares -- --
Class B shares -- --
Class M shares -- --
--------------- ---------------
Total distributions (42,121,733) (42,157,442)
--------------- ---------------
Capital share transactions:
Net proceeds from sale of
shares 147,442,175 226,880,255
Shares resulting from dividend
reinvestments 38,693,896 39,050,738
Cost of shares redeemed (148,302,342) (189,163,043)
--------------- ---------------
Net increase (decrease) in net
assets resulting from capital
share transactions 37,833,729 76,767,950
--------------- ---------------
Net increase (decrease) in
net assets 19,697,110 106,691,286
--------------- ---------------
Net assets, beginning of
period 441,221,158 334,529,872
--------------- ---------------
Net assets, end of period** $ 460,918,268 $ 441,221,158
=============== ===============
** Including overdistributed
net investment income
(loss) of: $ (253,559) $ --
=============== ===============
<CAPTION>
LargeCap Leaders Fund MidCap Value Fund
-------------------------------- --------------------------------
Six Months Year Six Months Year
Ended Ended Ended Ended
December 31, June 30, December 31, June 30,
1998 (Unaudited) 1998 1998 (Unaudited) 1998
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Increase (decrease) in net
assets from operations
Net investment income $ (109,458) $ (128,521) $ (266,232) $ (673,722)
Net realized gain from
investments 2,080,191 2,762,882 1,098,256 5,591,383
Net change in unrealized
appreciation (depreciation)
of investments (231,469) 1,905,453 (3,831,064) 5,351,298
------------- -------------- -------------- --------------
Net increase (decrease) in
net assets resulting
from operations 1,739,264 4,539,814 (2,999,040) 10,268,959
------------- -------------- -------------- --------------
Distributions to shareholders:
Net investment income:
Class A shares -- -- -- --
Class B shares -- -- -- --
Class M shares -- -- -- --
In excess of net investment
income:
Class A shares -- -- -- --
Class B shares -- -- -- --
Class M shares -- -- -- --
Net realized gains:
Class A shares (44,367) (832,744) (1,682,103) (678,728)
Class B shares (99,803) (1,416,831) (2,759,814) (1,045,324)
Class M shares (34,685) (513,305) (898,764) (353,906)
In excess of net realized gains:
Class A shares -- (200,668) -- --
Class B shares -- (341,418) -- --
Class M shares -- (123,694) -- --
Tax return of capital
Class A shares -- -- -- --
Class B shares -- -- -- --
Class M shares -- -- -- --
------------- -------------- -------------- --------------
Total distributions (178,855) (3,428,660) (5,340,681) (2,077,958)
------------- -------------- -------------- --------------
Capital share transactions:
Net proceeds from sale of
shares 3,603,938 11,925,184 8,643,394 48,130,133
Shares resulting from dividend
reinvestments 167,251 3,254,387 4,927,025 1,918,895
Cost of shares redeemed (5,952,545) (14,837,322) (14,258,512) (25,569,526)
------------- -------------- -------------- --------------
Net increase (decrease) in net
assets resulting from capital
share transactions (2,181,356) 342,249 (688,093) 24,479,502
------------- -------------- -------------- --------------
Net increase (decrease) in
net assets (620,947) 1,453,403 (9,027,814) 32,670,503
------------- -------------- -------------- --------------
Net assets, beginning of
period 28,744,402 27,290,999 81,291,514 48,621,011
------------- -------------- -------------- --------------
Net assets, end of period** $ 28,123,455 $ 28,744,402 $ 72,263,700 $ 81,291,514
============= ============== ============== ==============
** Including overdistributed
net investment income
(loss) of: $ (109,458) $ -- $ (266,232) $ --
============= ============== ============== ==============
</TABLE>
See Accompanying Notes to Financial Statements
31
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Bank and Thrift Fund Asia-Pacific Equity Fund
------------------------------------------------ --------------------------------
Six Months Six Months Year Six Months Year
Ended Ended Ended Ended Ended
December 31, June 30, December 31, December 31, June 30,
1998 (Unaudited) 1998 1997 1998 (Unaudited) 1998
--------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
from operations
Net investment income (loss) $ 3,856,318 $ 2,306,539 $ 4,408,320 $ (26,632) $ 6,895
Net realized gain (loss) from
investments 24,568,646 4,702,961 40,749,713 (7,591,532) (22,507,777)
Net realized loss from foreign
currency transaction -- -- -- (11,368) (262,006)
Net change in unrealized
appreciation (depreciation) of
investments (102,079,204) 25,621,214 117,597,499 11,782,008 (17,738,326)
Net change in unrealized
appreciation (depreciation) of
other investments denominated
in foreign currency -- -- -- (217,640) 10,172
-------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from operations (73,654,240) 32,630,714 162,755,532 3,934,836 (40,491,042)
-------------- ------------- ------------- ------------- -------------
Distributions to shareholders:
Net investment income:
Class A shares (3,007,002) -- (4,332,270) -- --
Class B shares (849,316) -- (76,050) -- --
Class M shares -- -- -- -- --
In excess of net investment
income:
Class A shares (508,642) -- (55,332) -- --
Class B shares (12,874) -- (4,451) -- --
Class M shares -- -- -- -- --
Net realized gains:
Class A shares (11,015,988) -- (36,807,832) -- --
Class B shares (8,766,023) -- (3,941,881) -- --
Class M shares -- -- -- -- --
In excess of net realized gains:
Class A shares -- -- (119,078) -- --
Class B shares -- -- -- -- --
Class M shares -- -- -- -- --
Tax return of capital
Class A shares -- -- (2,537,766) -- --
Class B shares -- -- (549,279) -- --
Class M shares -- -- -- -- --
-------------- ------------- ------------- ------------- -------------
Total distributions (24,159,845) -- (48,423,939) -- --
-------------- ------------- ------------- ------------- -------------
Capital share transactions:
Net proceeds from sale of shares 206,846,358 465,635,786 113,608,987 69,892,739 82,247,275
Shares resulting from dividend
reinvestments 18,755,835 -- 22,209,369 -- --
Cost of shares redeemed (147,837,623) (48,502,831) (43,147,277) (76,213,997) (90,420,188)
-------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets resulting from capital
share transactions 77,764,570 417,132,955 92,671,079 (6,321,258) (8,172,913)
-------------- ------------- ------------- ------------- -------------
Net increase (decrease) in net
assets (20,049,515) 449,763,669 207,002,672 (2,386,422) (48,663,955)
-------------- ------------- ------------- ------------- -------------
Net assets, beginning of period 909,108,419 459,344,750 252,342,078 25,145,296 73,809,251
-------------- ------------- ------------- ------------- -------------
Net assets, end of period** $ 889,058,904 $ 909,108,419 $459,344,750 $ 22,758,874 $ 25,145,296
============== ============= ============= ============= =============
** Including undistributed
(overdistributed) net
investment income (loss) of: $ 1,785,023 $ 2,306,539 $ -- $ (209,441) $ (182,809)
============== ============= ============= ============= =============
</TABLE>
See Accompanying Notes to Financial Statements
32
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High Yield Fund
--------------------------------
Six Months Year
Ended Ended
December 31, June 30,
1998 (Unaudited) 1998
--------------- --------------
<S> <C> <C>
Increase (decrease) in net assets from operations
Net investment income $ 13,953,870 $ 13,829,456
Net realized gain (loss) from investments (15,219,896) 1,228,407
Net change in unrealized appreciation (depreciation) of
investments (18,409,449) (2,126,621)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations (19,675,475) 12,931,242
-------------- --------------
Distributions to shareholders:
Net investment income:
Class A shares (4,998,399) (5,189,232)
Class B shares (8,034,617) (6,676,547)
Class M shares (920,854) (1,217,170)
In excess of net investment income:
Class A shares (365,035) --
Class B shares (471,142) --
Class M shares (54,695) --
-------------- --------------
Total distributions (14,844,742) (13,082,949)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares 233,645,903 265,753,457
Shares resulting from dividend reinvestments 7,630,588 6,959,488
Cost of shares redeemed (97,820,092) (81,063,350)
-------------- --------------
Net increase (decrease) in net assets resulting from capital
share transactions 143,456,399 191,649,595
-------------- --------------
Net increase (decrease) in net assets 108,936,182 191,497,888
-------------- --------------
Net assets, beginning of period 276,511,688 85,013,800
-------------- --------------
Net assets, end of period** $ 385,447,870 $ 276,511,688
============== ==============
** Including undistributed net investment income (loss) of: $ 409,195 $ 1,300,067
============== ==============
<CAPTION>
Government Securities
Income Fund
--------------------------------
Six Months Year
Ended Ended
December 31, June 30,
1998 (Unaudited) 1998
--------------- --------------
<S> <C> <C>
Increase (decrease) in net assets from operations
Net investment income $ 1,058,798 $ 1,461,879
Net realized gain (loss) from investments (76,568) 561,221
Net change in unrealized appreciation (depreciation) of
investments (49,165) 100,378
-------------- --------------
Net increase (decrease) in net assets resulting from
operations 933,065 2,123,478
-------------- --------------
Distributions to shareholders:
Net investment income:
Class A shares (788,160) (1,362,962)
Class B shares (229,879) (92,626)
Class M shares (16,803) (6,291)
In excess of net investment income:
Class A shares -- (249,557)
Class B shares -- (21,100)
Class M shares -- (1,314)
-------------- --------------
Total distributions (1,034,842) (1,733,850)
-------------- --------------
Capital share transactions:
Net proceeds from sale of shares 42,642,640 6,791,580
Shares resulting from dividend reinvestments 618,138 903,030
Cost of shares redeemed (25,734,625) (12,453,169)
-------------- --------------
Net increase (decrease) in net assets resulting from capital
share transactions 17,526,153 (4,758,559)
-------------- --------------
Net increase (decrease) in net assets 17,424,376 (4,368,931)
-------------- --------------
Net assets, beginning of period 27,125,738 31,494,669
-------------- --------------
Net assets, end of period** $ 44,550,114 $ 27,125,738
============== ==============
** Including undistributed net investment income (loss) of: $ 23,956 $ --
============== ==============
</TABLE>
See Accompanying Notes to Financial Statements
33
<PAGE>
Pilgrim MagnaCap Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------
Six Months
Ended Year Ended June 30,
December 31, ---------------------------------------------------------------------
1998 1998 1997 1996 1995(a) 1994
(Unaudited) ------------- ------------- ------------- ------------- -------------
-----------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 17.07 $ 15.92 $ 16.69 $ 14.03 $ 12.36 $ 12.05
------------ ----------- ----------- ----------- ----------- -----------
Income from investment
operations:
Net investment income
(loss) 0.03 0.04 0.10 0.09 0.12 0.15
Net realized and
unrealized gain on
investments 0.84 3.02 4.16 2.87 2.29 0.89
------------ ----------- ----------- ----------- ----------- -----------
Total from
investment
operations 0.87 3.06 4.26 2.96 2.41 1.04
------------ ----------- ----------- ----------- ----------- -----------
Less distributions from:
Net investment income 0.03 0.04 0.10 0.06 0.14 0.14
In excess of net
investment income 0.01 0.02 0.02 -- -- --
Realized gains on
investment 0.84 1.85 4.91 0.24 0.60 0.59
In excess of realized
gains on investments 0.78 -- -- -- -- --
------------ ----------- ----------- ----------- ----------- -----------
Total distributions 1.66 1.91 5.03 0.30 0.74 0.73
------------ ----------- ----------- ----------- ----------- -----------
Net asset value,
end of period $ 16.28 $ 17.07 $ 15.92 $ 16.69 $ 14.03 $ 12.36
============ =========== =========== =========== =========== ===========
Total Return(c) 5.68% 20.53% 30.82% 21.31% 20.61% 9.13%
Ratios/Supplemental
Data
Net assets, end of
period (000's) $ 350,703 $ 348,759 $ 290,355 $ 235,393 $ 211,330 $ 190,435
Ratios to average net
assets:
Expenses 1.34%(d) 1.37% 1.46% 1.68% 1.59% 1.53%
Net investment income 0.36%(d) 0.29% 0.64% 0.54% 0.98% 1.16%
Portfolio turnover rate 31% 53% 77% 15% 6% 7%
<CAPTION>
CLASS B CLASS M
---------------------------------------------------------------- -------------------------------
Six Months Year Year July 17, Six Months Year
Ended Ended Ended 1995(b) to Ended Ended
December 31, June 30, June 30, June 30, December 31, June 30,
1998 1998 1997 1996 1998 1998
(Unaudited) ------------ ------------ --------------- (Unaudited) -------------
---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 16.86 $ 15.81 $ 16.59 $ 14.22 $ 16.95 $ 15.87
------------ ------------- ------------- ------------- ------------ -------------
Income from investment
operations:
Net investment income
(loss) (0.01) (0.04) -- 0.06 -- --
Net realized and
unrealized gain on
investments 0.80 2.97 4.13 2.61 0.82 2.98
------------ ------------- ------------- ------------- ------------ -------------
Total from
investment
operations 0.79 2.93 4.13 2.67 0.82 2.98
------------ ------------- ------------- ------------- ------------ -------------
Less distributions from:
Net investment income -- -- -- 0.06 -- --
In excess of net
investment income -- 0.03 -- -- -- 0.05
Realized gains on
investment 0.80 1.85 4.91 0.24 0.82 1.85
In excess of realized
gains on investments 0.82 -- -- -- 0.80 --
------------ ------------- ------------- ------------- ------------ -------------
Total distributions 1.62 1.88 4.91 0.30 1.62 1.90
------------ ------------- ------------- ------------- ------------ -------------
Net asset value,
end of period $ 16.03 $ 16.86 $ 15.81 $ 16.59 $ 16.15 $ 16.95
============ ============= ============= ============= ============ =============
Total Return(c) 5.28% 19.76% 29.92% 18.98% 5.43% 20.00%
Ratios/Supplemental
Data
Net assets, end of
period (000's) $ 94,968 $ 77,787 $ 37,427 $ 10,509 $ 15,247 $ 14,675
Ratios to average net
assets:
Expenses 2.04%(d) 2.07% 2.16% 2.38%(d) 1.79%(d) 1.82%
Net investment income (0.34)%(d) (0.41)% (0.04)% 0.07%(d) (0.09)%(d) (0.16)%
Portfolio turnover rate 31% 53% 77% 15% 31% 53%
<CAPTION>
Year July 17,
Ended 1995(b) to
June 30, June 30,
1997 1996
----------- -------------
<S> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 16.63 $ 14.22
----------- -------------
Income from investment
operations:
Net investment income
(loss) 0.02 0.08
Net realized and
unrealized gain on
investments 4.16 2.63
----------- -------------
Total from
investment
operations 4.18 2.71
----------- -------------
Less distributions from:
Net investment income 0.02 0.06
In excess of net
investment income 0.01 --
Realized gains on
investment 4.91 0.24
In excess of realized
gains on investments -- --
----------- -------------
Total distributions 4.94 0.30
----------- -------------
Net asset value,
end of period $ 15.87 $ 16.63
=========== =============
Total Return(c) 30.26% 19.26%
Ratios/Supplemental
Data
Net assets, end of
period (000's) $ 6,748 $ 1,961
Ratios to average net
assets:
Expenses 1.91% 2.13%(d)
Net investment income 0.22% 0.32%(d)
Portfolio turnover rate 77% 15%
</TABLE>
(a) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired assets of
Pilgrim Management Corporation, the Fund's former Investment Manager, in a
transaction that closed on April 7, 1995.
(b) Commencement of offering of shares.
(c) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return for less than one year is not annualized.
(d) Annualized.
See Accompanying Notes to Financial Statements
34
<PAGE>
Pilgrim LargeCap Leaders Fund*
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
Six Months Ten Months
Ended Year Ended June 30, Ended
December 31, --------------------------- June 30,
1998 (Unaudited) 1998 1997 1996 (a)
---------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 14.70 $ 14.17 $ 11.77 $ 10.00
Income from investment operations
Net investment income (loss) (0.12) 0.01 0.06 0.07
Net realized and unrealized gain on
investments 1.31 2.30 2.63 1.87
------------ ----------- ----------- -------------
Total from investment operations 1.19 2.31 2.69 1.94
------------ ----------- ----------- -------------
Less distributions:
Net investment income -- -- -- 0.07
In excess of net investment income -- -- 0.05 0.01
Realized gains on investments 0.10 1.59 0.24 0.09
In excess of realized gains -- 0.19 -- --
------------ ----------- ----------- -------------
Total distributions 0.10 1.78 0.29 0.17
------------ ----------- ----------- -------------
Net asset value, end of period $ 15.79 $ 14.70 $ 14.17 $ 11.77
============ =========== =========== =============
Total Return (b) 8.15% 17.71% 23.24% 19.56%
Ratios/Supplemental Data
Net assets, end of period (000's) 7,005 $ 7,606 $ 8,961 $ 2,530
Ratios to average net assets:
Expenses (c)(d)(e)(f) 1.75%(g) 1.75% 1.75% 1.75%(g)
Net investment income (loss)
(c)(d)(e)(f) (0.34)%(g) 0.03% 0.41% 0.65%(g)
Portfolio turnover rate 70% 78% 86% 59%
<CAPTION>
Class B Class M
----------------------------------------------------------------- ------------------
Six Months Ten Months Six Months
Ended Year Ended June 30, Ended Ended
December 31, --------------------------- June 30, December 31,
1998 (Unaudited) 1998 1997 1996 (a) 1998 (Unaudited)
------------------ ------------- ------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 14.44 $ 14.04 $ 11.71 $ 10.00 $ 14.55
Income from investment operations
Net investment income (loss) (0.18) (0.10) (0.02) 0.06 (0.17)
Net realized and unrealized gain on
investments 1.28 2.28 2.59 1.81 1.31
------------ ------------- ------------- ------------- ------------
Total from investment operations 1.10 2.18 2.57 1.87 1.14
------------ ------------- ------------- ------------- ------------
Less distributions:
Net investment income -- -- -- 0.06 --
In excess of net investment income -- -- -- 0.01 --
Realized gains on investments 0.10 1.59 0.24 0.09 0.10
In excess of realized gains -- 0.19 -- -- --
------------ ------------- ------------- ------------- ------------
Total distributions 0.10 1.78 0.24 0.16 0.10
------------ ------------- ------------- ------------- ------------
Net asset value, end of period $ 15.44 $ 14.44 $ 14.04 $ 11.71 $ 15.59
============ ============= ============= ============= ============
Total Return (b) 7.68% 16.91% 22.23% 18.85% 7.90%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 15,660 $ 15,605 $ 13,611 $ 1,424 $ 5,459
Ratios to average net assets:
Expenses (c)(d)(e)(f) 2.50%(g) 2.50% 2.50% 2.50%(g) 2.25%(g)
Net investment income (loss)
(c)(d)(e)(f) (1.09)%(g) (0.72)% (0.35)% (0.25)%(g) (0.84)%(g)
Portfolio turnover rate 70% 78% 86% 59% 70%
<CAPTION>
Ten Months
Year Ended June 30, Ended
--------------------------- June 30,
1998 1997 1996 (a)
------------- ------------- -------------------
<S> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 14.10 $ 11.73 $ 10.00
Income from investment operations
Net investment income (loss) (0.07) -- 0.06
Net realized and unrealized gain on
investments 2.30 2.62 1.83
------------- ------------- -------------
Total from investment operations 2.23 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 1.59 0.24 0.09
In excess of realized gains 0.19 -- --
------------- ------------- -------------
Total distributions 1.78 0.25 0.16
------------- ------------- -------------
Net asset value, end of period $ 14.55 $ 14.10 $ 11.73
============= ============= =============
Total Return (b) 17.20% 22.58% 19.06%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 5,533 $ 4,719 $ 1,240
Ratios to average net assets:
Expenses (c)(d)(e)(f) 2.25% 2.25% 2.25%(g)
Net investment income (loss)
(c)(d)(e)(f) (0.47)% (0.10)% 0.06%(g)
Portfolio turnover rate 78% 86% 59%
</TABLE>
- ------------
(a) The Fund commenced operations on September 1, 1995.
(b) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(c) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were 2.28%, 3.03% and
2.78% and the ratios of net investment income (loss) to average net assets
were (0.50)%, (1.25)% and (1.00)% for Class A, B and M shares, respectively.
(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1997, the ratios of expenses to average net assets were 2.33%, 3.08% and
2.83% and the ratios of net investment income (loss) to average net assets
were (0.18)%, (0.91)% and (0.68)% for Class A, B and M shares, respectively.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratios of expenses to average net assets were
5.44%, 5.79% and 5.90% and the annualized ratios of net investment income
(loss) to average net assets were (3.04)%, (3.53)% and (3.59)% for Class A,
B and M shares, respectively.
(f) Prior to the waiver and reimbursement of expenses for the period ended
December 31, 1998, the annualized ratios of expenses to average net assets
were 2.26%, 3.01% and 2.76% and the annualized ratios of net loss to average
net assets were (0.82)%, (1.57)% and (1.32)%, for Class A, B and M,
respectively.
(g) Annualized.
* Effective November 1, 1997, Pilgrim Investments, Inc. assumed the portfolio
investment responsibilities of the Fund from ARK Asset Management Company,
Inc.
See Accompanying Notes to Financial Statements
35
<PAGE>
Pilgrim MidCap Value Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
-----------------------------------------------------------------
Six Months Ten Months
Ended Year Ended June 30, Ended
December 31, --------------------------- June 30,
1998 (Unaudited) 1998 1997 1996(a)
------------------ ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period $ 16.79 $ 14.64 $ 11.99 $ 10.00
Income from investment
operations:
Net investment income
(loss) (0.03) (0.07) (0.02) 0.13
Net realized and
unrealized gain (loss)
on investments (0.54) 2.71 2.85 1.91
------------- ------------- ------------- -------------
Total from investment
operations (0.57) 2.64 2.83 2.04
------------- ------------- ------------- -------------
Less distributions:
Net investment income -- -- -- 0.05
In excess of net
investment income -- -- 0.07 --
Realized gains on
investments -- 0.49 0.11 --
In excess of realized
gains on investments 1.17 -- -- --
------------- ------------- ------------- -------------
Total distributions 1.17 0.49 0.18 0.05
------------- ------------- ------------- -------------
Net asset value,
end of period $ 15.05 $ 16.79 $ 14.64 $ 11.99
============= ============= ============= =============
Total Return(b) (2.92)% 18.40% 23.89% 20.48%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 22,899 $ 27,485 $ 16,985 $ 2,389
Ratios to average net
assets:
Expenses (c)(d)(e)(f) 1.75%(g) 1.75% 1.75% 1.75%(g)
Net investment income
(loss) (c)(d)(e)(f) (0.27)%(g) (0.53)% (0.13)% 2.00%(g)
Portfolio turnover rate 50% 85% 86% 60%
<CAPTION>
CLASS B CLASS M
----------------------------------------------------------------- --------------------------------
Six Months Ten Months Six Months Year Ended
Ended Year Ended June 30, Ended Ended June 30,
December 31, --------------------------- June 30, December 31, -------------
1998 (Unaudited) 1998 1997 1996(a) 1998 (Unaudited) 1998
------------------ ------------- ------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period $ 16.47 $ 14.49 $ 11.94 $ 10.00 $ 16.52 $ 14.49
Income from investment
operations:
Net investment income
(loss) (0.07) (0.18) (0.05) 0.07 (0.05) (0.15)
Net realized and
unrealized gain (loss)
on investments (0.55) 2.65 2.76 1.90 (0.55) 2.67
------------- ------------- ------------- ------------- ------------- -------------
Total from investment
operations (0.62) 2.47 2.71 1.97 (0.60) 2.52
------------- ------------- ------------- ------------- ------------- -------------
Less distributions:
Net investment income -- -- -- 0.03 -- --
In excess of net
investment income -- -- 0.05 -- -- --
Realized gains on
investments -- 0.49 0.11 -- -- 0.49
In excess of realized
gains on investments 1.17 -- -- -- 1.17 --
------------- ------------- ------------- ------------- ------------- -------------
Total distributions 1.17 0.49 0.16 0.03 1.17 0.49
------------- ------------- ------------- ------------- ------------- -------------
Net asset value,
end of period $ 14.68 $ 16.47 $ 14.49 $ 11.94 $ 14.75 $ 16.52
============= ============= ============= ============= ============= =============
Total Return(b) (3.28)% 17.40% 22.95% 19.80% (3.15)% 17.76%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 37,168 $ 40,575 $ 23,258 $ 2,123 $ 12,198 $ 13,232
Ratios to average net
assets:
Expenses (c)(d)(e)(f) 2.50%(g) 2.50% 2.50% 2.50%(g) 2.25%(g) 2.25%
Net investment income
(loss) (c)(d)(e)(f) (1.02)%(g) (1.28)% (0.90)% 1.27%(g) (0.77)%(g) (1.03)%
Portfolio turnover rate 50% 85% 86% 60% 50% 85%
<CAPTION>
Year Ended Ten Months
June 30, Ended
------------ June 30,
1997 1996(a)
------------ -----------------
<S> <C> <C>
Per Share Operating
Performance
Net asset value, beginning
of period $ 11.93 $ 10.00
Income from investment
operations:
Net investment income
(loss) (0.03) 0.06
Net realized and
unrealized gain (loss)
on investments 2.76 1.91
------------ ------------
Total from investment
operations 2.73 1.97
------------ ------------
Less distributions:
Net investment income -- 0.04
In excess of net
investment income 0.06 --
Realized gains on
investments 0.11 --
In excess of realized
gains on investments -- --
------------ ------------
Total distributions 0.17 0.04
------------ ------------
Net asset value,
end of period 14.49 11.93
============ ============
Total Return(b) 23.21% 19.82%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 8,378 $ 1,731
Ratios to average net
assets:
Expenses (c)(d)(e)(f) 2.25% 2.25%(g)
Net investment income
(loss) (c)(d)(e)(f) (0.63)% (1.16)%(g)
Portfolio turnover rate 86% 60%
</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 reimbursment of expenses for the period ended
December 31, 1998, the annualized ratios of expenses to average net assets
were 1.86%, 2.61% and 2.36% and the annualized ratios of net investment
income (loss) to average net assets were (0.38)%, (1.13)% and (0.88)% for
Class A, B and M shares, respectively.
(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were 1.78%, 2.53%
and 2.28% and the ratios of net investment income (loss) to average net
assets were (0.57)%, (1.31)% and (1.07)% for Class A, B and M shares,
respectively.
(e) 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 (0.84)% for Class A, B and M shares,
respectively.
(f) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the 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.
(g) Annualized.
See Accompanying Notes to Financial Statements
36
<PAGE>
Pilgrim Bank and Thrift Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
December 31, Six Months Ended
1998 (Unaudited) June 30, 1998*
----------------------------------- -------------------------------------
Class A Class B(a) Class A Class B(a)
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value,
beginning of year $ 27.52 $ 27.40 $ 25.87 $ 25.85
------------ ------------ ------------- -------------
Income (loss) from investment
operations:
Net investment income 0.15 0.06 0.11 0.01
Net realized and unrealized
gain (loss) on investments (2.31) (2.31) 1.54 1.54
------------ ------------ ------------- -------------
Total from investment operations (2.16) (2.25) 1.65 1.55
------------ ------------ ------------- -------------
Less distributions:
Net investment income 0.15 0.05 -- --
Excess of net investment
income 0.03 -- -- --
Realized capital gains -- -- -- --
Excess of net realized gain 0.56 0.56
Tax return of capital -- -- -- --
------------ ------------ ------------- -------------
Total distributions 0.74 0.61 0.00 0.00
------------ ------------ ------------- -------------
Other:
Reduction in net asset value
from rights offering -- -- -- --
------------ ------------ ------------- -------------
Net asset value, end of year $ 24.62 $ 24.54 $ 27.52 $ 27.40
============ ============ ============= =============
Closing market price, end of year -- -- -- --
Total investment return at
Market Value(c) -- -- -- --
Total investment return at
Net Asset Value(e) (7.71)% (8.04)% 6.38% 6.00%
Ratios/Supplemental Data
Net assets, end of year ($millions) $ 493 $ 396 $ 549 $ 360
Ratios to average net assets:
Expenses 1.34%(h) 2.09%(h) 1.20%(h) 1.95%(h)
Net investment income 1.22%(h) 0.47%(h) 0.94%(h) 0.19%(h)
Portfolio turnover rate 8% 8% 2% 2%
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1997 1996 1995(b) 1994 1993
-------------------------------- ------------ ------------ ------------ --------------
Class A Class B(a)
------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value,
beginning of year $ 17.84 $ 25.25 $ 14.83 $ 10.73 $ 11.87 $ 12.46
----------- ------------- ---------- ---------- ------------ ------------
Income (loss) from investment
operations:
Net investment income 0.34 0.04 0.32 0.31 0.26 0.26
Net realized and unrealized
gain (loss) on investments 10.83 2.92 5.18 4.78 (0.53) 0.75
----------- ------------- ---------- ---------- ------------ ------------
Total from investment operations 11.17 2.96 5.50 5.09 (0.27) 1.01
----------- ------------- ---------- ---------- ------------ ------------
Less distributions:
Net investment income 0.31 0.04 0.32 0.31 0.22 0.26
Excess of net investment
income -- -- 0.03 0.03 -- --
Realized capital gains 2.65 2.04 2.14 0.65 0.65 0.73
Excess of net realized gain
Tax return of capital 0.18 0.28 -- -- -- --
----------- ------------- ---------- ---------- ------------ ------------
Total distributions 3.14 2.36 2.49 0.99 0.87 0.99
----------- ------------- ---------- ---------- ------------ ------------
Other:
Reduction in net asset value
from rights offering -- -- -- -- -- (0.61)
----------- ------------- ---------- ---------- ------------ ------------
Net asset value, end of year $ 25.87 $ 25.85 $ 17.84 $ 14.83 $ 10.73 $ 11.87
=========== ============= ========== ========== ============ ============
Closing market price, end of year -- -- $ 15.75 $ 12.88 $ 9.13 $ 10.88
Total investment return at
Market Value(c) -- -- 43.48% 52.81% (8.85)% 1.95%(d)
Total investment return at
Net Asset Value(e) 64.86% 11.88% 41.10% 49.69% (1.89)% 7.79%(f)
Ratios/Supplemental Data
Net assets, end of year ($millions) $ 383 $ 76 $ 252 $ 210 $ 152 $ 168
Ratios to average net assets:
Expenses 1.10% 1.89%(h) 1.01% 1.05% 1.28% 0.91%
Net investment income 1.39% 0.99%(h) 1.94% 2.37% 2.13% 2.08%
Portfolio turnover rate 22% 22% 21% 13% 14% 17%
<CAPTION>
1992 1991
----------------- ------------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value,
beginning of year $ 10.12 $ 7.49
------------ ----------
Income (loss) from investment
operations:
Net investment income 0.22 0.24
Net realized and unrealized
gain (loss) on investments 2.93 3.33
------------ ----------
Total from investment operations 3.15 3.57
------------ ----------
Less distributions:
Net investment income 0.22 0.24
Excess of net investment
income -- --
Realized capital gains 0.47 --
Excess of net realized gain
Tax return of capital 0.12 0.70
------------ ----------
Total distributions 0.81 0.94
------------ ----------
Other:
Reduction in net asset value
from rights offering -- --
------------ ----------
Net asset value, end of year $ 12.46 $ 10.12
============ ==========
Closing market price, end of year $ 11.63 $ 9.50
Total investment return at
Market Value(c) 31.53% 47.52%
Total investment return at
Net Asset Value(e) 32.36%(g) 49.49%
Ratios/Supplemental Data
Net assets, end of year ($millions) $ 141 $ 101
Ratios to average net assets:
Expenses 1.24% 1.31%
Net investment income 2.00% 2.68%
Portfolio turnover rate 20% 31%
</TABLE>
Footnotes on next page
37
<PAGE>
Pilgrim Bank and Thrift Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
(Continued)
- --------------------------------------------------------------------------------
- ------------
* Effective June 30, 1998, Bank and Thrift Fund changed its year end to June
30.
(a) From the period October 20, 1997 (initial offering of Class B shares)
through December 31, 1997.
(b) On April 7, 1995, the Investment Manager acquired the rights to manage the
Fund and certain other mutual funds previously managed by Pilgrim Management
Corporation.
(c) Total return was calculated at market value without deduction of sales
commissions and assuming reinvestment of all dividends and distributions
during the period.
(d) Calculation of total return excludes the effect of the per share dilution
resulting from the Rights Offering as the total account value of a fully
subscribed shareholder was minimally impacted.
(e) Total return is calculated at net asset value without deduction of sales
commissions and assumes reinvestment of all dividends and distributions
during the period. Total investment returns based on net asset value, which
can be higher or lower than market value, may result in substantially
different returns than total return based on market value. For all periods
prior to January 1, 1997, the total returns presented are unaudited.
(f) Total return is calculated assuming full participation in the 1993 rights
offering.
(g) Total return is calculated assuming no particpation in the 1992 rights
offering.
(h) Annualized.
See Accompanying Notes to Financial Statements
38
<PAGE>
Pilgrim Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
----------------------------------------------------------------
Six Months Ten Months
Ended Year Ended June 30, Ended
December 31, -------------------------- June 30,
1998 (Unaudited) 1998 1997 1996 (a)
------------------ ------------ ------------- ------------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 4.46 $ 10.93 $ 10.35 $ 10.00
Income from investment operations:
Net investment income (loss) 0.01 0.03 0.02 0.03
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.65 (6.50) 0.58 0.34
----------- ------------ ----------- -------------
Total from investment operations 0.66 (6.47) 0.60 0.37
----------- ------------ ----------- -------------
Less distributions:
Net investment income -- -- -- --
In excess of net investment income -- -- 0.02 --
Realized gains on investments -- -- -- --
Tax return of capital -- 0.02 -- --
----------- ------------ ----------- -------------
Total distributions -- 0.02 0.02 --
----------- ------------ ----------- -------------
Net asset value, end of period $ 5.12 $ 4.46 $ 10.93 $ 10.35
=========== ============ =========== =============
Total Return (b) 14.80% (59.29)% 5.78% 3.76%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 9,692 $ 11,796 $ 32,485 $ 18,371
Ratios to average net assets:
Expenses (c)(d)(e)(f) 2.00%(g) 2.00% 2.00% 2.00%(g)
Net investment income
(loss) (c)(d)(e)(f) 0.11%(g) 0.38% 0.00% 0.33%(g)
Portfolio turnover rate 51% 81% 38% 15%
<CAPTION>
Class B Class M
----------------------------------------------------------------- ------------------
Six Months Ten Months Six Months
Ended Year Ended June 30, Ended Ended
December 31, --------------------------- June 30, December 31,
1998 (Unaudited) 1998 1997 1996 (a) 1998 (Unaudited)
------------------ ------------- ------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value, beginning of period $ 4.37 $ 10.83 $ 10.31 $ 10.00 $ 4.40
Income from investment operations:
Net investment income (loss) (0.03) (0.03) (0.07) (0.01) (0.03)
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 0.66 (6.43) 0.59 0.32 0.66
----------- ------------- ------------- ------------- -----------
Total from investment operations 0.63 (6.46) 0.52 0.31 0.63
----------- ------------- ------------- ------------- -----------
Less distributions:
Net investment income -- -- -- -- --
In excess of net investment income -- -- -- -- --
Realized gains on investments -- -- -- -- --
Tax return of capital -- -- -- -- --
----------- ------------- ------------- ------------- -----------
Total distributions -- -- -- -- --
----------- ------------- ------------- ------------- -----------
Net asset value, end of period $ 5.00 $ 4.37 $ 10.83 $ 10.31 $ 5.03
=========== ============= ============= ============= ===========
Total Return (b) 14.42% (59.65)% 5.04% 3.19% 14.32%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 9,173 $ 9,084 $ 30,169 $ 17,789 $ 3,894
Ratios to average net assets:
Expenses (c)(d)(e)(f) 2.75%(g) 2.75% 2.75% 2.75%(g) 2.50%(g)
Net investment income
(loss) (c)(d)(e)(f) (0.64)%(g) (0.39)% (0.79)% (0.38)%(g) (0.39)%(g)
Portfolio turnover rate 51% 81% 38% 15% 51%
<CAPTION>
Ten Months
Year Ended June 30, Ended
--------------------------- June 30,
1998 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) -- (0.05) --
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (6.46) 0.59 0.33
------------- ------------- -------------
Total from investment operations (6.46) 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 $ 4.40 $ 10.86 $ 10.32
============= ============= =============
Total Return (b) (59.48)% 5.26% 3.32%
Ratios/Supplemental Data
Net assets, end of period (000's) $ 4,265 $ 11,155 $ 6,476
Ratios to average net assets:
Expenses (c)(d)(e)(f) 2.50% 2.50% 2.50%(g)
Net investment income
(loss) (c)(d)(e)(f) (0.07)% (0.55)% (0.16)%(g)
Portfolio turnover rate 81% 38% 15%
</TABLE>
- ------------
(a) The Fund commenced operations on September 1, 1995.
(b) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(c) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were 2.80%, 3.55% and
3.30% and the ratios of net investment income (loss) to average net assets
were (0.42)%, (1.19)% and (0.88)% for Class A, B and M shares, respectively.
(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1997, the ratios of expenses to average net assets were 2.54%, 3.29% and
3.04% and the ratios of net investment income (loss) to average net assets
were (0.53)%, (1.33)% and (1.09)% for Class A, B and M shares, respectively.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the annualized ratios of expenses to average net assets were
3.47%, 4.10% and 3.88% and the annualized ratios of net investment income
(loss) to average net assets were (1.14)%, (1.73)% and (1.53)% for Class A,
B and M shares, respectively.
(f) Prior to the waiver and reimbursent of expenses for the period ended
December 31, 1998, the annualized ratios of expenses to the average net
assets were 3.47%, 4.22% and 3.97% and the annualized ratios of net
investment income (loss) to average net assets were (1.36)%, (2.11)% and
(1.86)%, for Class A, B and M, respectively.
(g) Annualized.
See Accompanying Notes to Financial Statements
39
<PAGE>
Pilgrim High Yield Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------
Six Eight
Months Months
Ended Year Ended June 30, Ended
December 31, --------------------------------------- June 30,
1998 (Unaudited) 1998 1997 1996 1995(a)(b)
------------------ ------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 6.94 $ 6.80 $ 6.36 $ 6.15 $ 5.95
Income (loss) from investment
operations:
Net investment income 0.29 0.61 0.61 0.59 0.35
Net realized and unrealized
gain (loss) on investments (0.74) 0.16 0.43 0.16 0.21
----------- --------- -------- -------- -----------
Total from investment
operation (0.45) 0.77 1.04 0.75 0.56
----------- --------- -------- -------- -----------
Less distributions from:
Net investment income 0.29 0.63 0.60 0.54 0.36
Distributions in excess of net
investment income 0.03 -- -- -- --
----------- --------- -------- -------- -----------
Total distributions 0.32 0.63 0.60 0.54 0.36
----------- --------- -------- -------- -----------
Net asset value,
end of period $ 6.17 $ 6.94 $ 6.80 $ 6.36 $ 6.15
=========== ========= ======== ======== ===========
Total Return(d) (6.48)% 11.71% 17.14% 12.72% 9.77%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 127,392 $ 102,424 $ 35,940 $ 18,691 $ 15,950
Ratios to average net assets:
Expenses(e)(f)(g)(h)(i) 1.00%(j) 1.00% 1.00% 1.00% 2.25%(j)
Net investment
income(e)(f)(g)(h)(i) 9.28%(j) 9.05% 9.54% 9.46% 8.84%(j)
Portfolio turnover rate 70% 209% 394% 399% 166%
<CAPTION>
CLASS B
---------------------------------------------
Six
Months
Year Ended October 31, Ended Year Ended June 30,
------------------------------------- December 31, --------------------------
1994 1993 1992 1998 (Unaudited) 1998 1997
----------- ------------ ------------ ------------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 6.47 $ 5.77 $ 5.70 $ 6.92 $ 6.78 $ 6.36
Income (loss) from investment
operations:
Net investment income 0.54 0.53 0.63 0.23 0.58 0.57
Net realized and unrealized
gain (loss) on investments (0.51) 0.70 0.07 (0.74) 0.14 0.41
------- -------- -------- ----------- --------- --------
Total from investment
operation 0.03 1.23 0.70 (0.51) 0.72 0.98
------- -------- -------- ----------- --------- --------
Less distributions from:
Net investment income 0.55 0.53 0.63 0.23 0.58 0.56
Distributions in excess of net
investment income -- -- -- 0.02 -- --
------- -------- -------- ----------- --------- --------
Total distributions 0.55 0.53 0.63 0.25 0.58 0.56
------- -------- -------- ----------- --------- --------
Net asset value,
end of period $ 5.95 $ 6.47 $ 5.77 $ 6.16 $ 6.92 $ 6.78
======= ======== ======== =========== ========= ========
Total Return(d) 0.47% 22.12% 12.65% (6.76)% 10.90% 16.04%
Ratios/Supplemental Data
Net assets, end of
period (000's) $16,046 $ 18,797 $ 17,034 $ 233,916 $ 154,303 $ 40,225
Ratios to average net assets:
Expenses(e)(f)(g)(h)(i) 2.00% 2.02% 2.03% 1.75%(j) 1.75% 1.75%
Net investment
income(e)(f)(g)(h)(i) 8.73% 8.36% 10.93% 8.53%(j) 8.30% 8.64%
Portfolio turnover rate 192% 116% 193% 70% 209% 394%
<CAPTION>
CLASS M
-------------------------------------------------------------
Six
July 17, Months July 17,
1955(c) to Ended Year Ended June 30, 1995(c)
June 30, December 31, ------------------------ June 30,
1996 1998 (Unaudited) 1998 1997 1996
---------------- ------------------ ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 6.20 $ 6.92 $ 6.78 $ 6.36 $ 6.20
Income (loss) from investment
operations:
Net investment income 0.48 0.28 0.59 0.58 0.50
Net realized and unrealized
gain (loss) on investments 0.14 (0.74) 0.14 0.41 0.14
----------- ----------- -------- --------- -----------
Total from investment
operation 0.62 (0.46) 0.73 0.99 0.64
----------- ----------- -------- --------- -----------
Less distributions from:
Net investment income 0.46 0.28 0.59 0.57 0.48
Distributions in excess of net
investment income -- 0.02 -- -- --
----------- ----------- -------- --------- -----------
Total distributions 0.46 0.30 0.59 0.57 0.48
----------- ----------- -------- --------- -----------
Net asset value,
end of period $ 6.36 $ 6.16 $ 6.92 $ 6.78 $ 6.36
=========== =========== ======== ========= ===========
Total Return(d) 10.37% (6.64)% 11.16% 16.29% 10.69%
Ratios/Supplemental Data
Net assets, end of
period (000's) $ 2,374 $ 24,140 $ 19,785 $ 8,848 $ 1,243
Ratios to average net assets:
Expenses(e)(f)(g)(h)(i) 1.75%(j) 1.50%(j) 1.50% 1.50% 1.50%(j)
Net investment
income(e)(f)(g)(h)(i) 9.02%(j) 8.78%(j) 8.55% 8.93% 9.41%(j)
Portfolio turnover rate 339% 70% 209% 394% 339%
</TABLE>
Footnotes on next page
40
<PAGE>
Pilgrim High Yield Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
(Continued)
- --------------------------------------------------------------------------------
- ------------
(a) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired assets of
Pilgrim Management Corporation, the Fund's former Investment Manager, in a
transaction that closed on April 7, 1995.
(b) Effective November 1, 1994, High Yield Fund changed its year end to June 30.
(c) Commencement of offering of shares.
(d) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(e) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were 1.17%, 1.92% and
1.67% and the ratios of net investment income to average net assets were
8.88%, 8.13% and 8.38% for Class A, B and M shares, respectively.
(f) Prior to the waiver and reimbursement of expenses for the year ended June
30, 1997, the ratios of expenses to average net assets were 1.42%, 2.17% and
1.92% and the ratios of net investment income to average net assets were
9.09%, 8.18% and 8.47% for Class A, B and M shares, respectively.
(g) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1996, the ratios of expenses to average net assets were 2.19%, 2.94% (j)
and 2.69% (j), and the ratios of net investment income to average net assets
were 8.27%, 8.05% (j) and 8.51% (j), for Class A, B and M shares,
respectively.
(h) Prior to the waiver of expenses, the ratio of expenses to average net assets
was 2.35% (j) in 1995 and 2.07% in 1994 for Class A shares. Prior to the
waiver of expenses, the ratio of net investment income to average net assets
was 8.74% (j) in 1995 and 8.66% in 1994 for Class A shares.
(i) Prior to the waiver and reimbursement of expenses for the period ended
December 31, 1998, the annualized ratios of expenses to average net assets
were 1.12%, 1.87% and 1.62% and the annualized ratios of net investment
income to average net assets were 9.16%, 8.41% and 8.66%, for Class A, B and
M, respectively.
(j) Annualized.
See Accompanying Notes to Financial Statements
41
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------------------------------------
Six Months
Ended Year Ended June 30,
December 31, -------------------------------------------------------------------
1998 (Unaudited) 1998 1997 1996 1995(a) 1994
------------------ ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 12.88 $ 12.71 $ 12.59 $ 12.97 $ 12.73 $ 13.96
Income (loss) from
investment
operations:
Net investment
income 0.43 0.64 0.69 0.75 0.84 0.84
Net realized and
unrealized gain
(loss) on
investments (0.06) 0.30 0.20 (0.32) 0.24 (1.17)
------------ ----------- ----------- --------- ----------- -------------
Total from
investment
operations 0.37 0.94 0.89 0.43 1.08 (0.33)
------------ ----------- ----------- --------- ----------- -------------
Less distributions from:
Net investment
income 0.39 0.64 0.69 0.75 0.84 0.90
Distributions in
excess of net
investment income -- 0.13 0.04 -- -- --
Tax return of capital -- -- 0.04 0.06 -- --
------------ ----------- ----------- --------- ----------- -------------
Total distributions 0.39 0.77 0.77 0.81 0.84 0.90
------------ ----------- ----------- --------- ----------- -------------
Net asset value,
end of period $ 12.86 $ 12.88 $ 12.71 $ 12.59 $ 12.97 $ 12.73
============ =========== =========== ========= =========== =============
Total Return(c) 2.89% 7.63% 7.33% 3.34% 8.96% (2.50)%
Ratios/Supplemental
Data
Net assets, end of
period (000's) $ 26,944 $ 23,682 $ 29,900 $ 38,753 $ 43,631 $ 61,100
Ratios to average net
assets:
Expenses(d)(e)(f) 1.43%(g) 1.50% 1.42% 1.51% 1.40% 1.21%
Net investment
income(d)(e)(f) 6.02%(g) 5.13% 5.78% 5.64% 6.37% 6.44%
Portfolio turnover rate 29% 134% 172% 170% 299% 402%
<CAPTION>
CLASS B CLASS M
----------------------------------------------------------------- --------------------------------
Six Months Year Year July 17, Six Months Year
Ended Ended Ended 1995(b) to Ended Ended
December 31, June 30, June 30, June 30, December 31, June 30,
1998 (Unaudited) 1998 1997 1996 1998 (Unaudited) 1998
------------------ ------------- ------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 12.84 $ 12.68 $ 12.59 $ 12.95 $ 12.88 $ 12.72
Income (loss) from
investment
operations:
Net investment
income 0.43 0.60 0.67 0.66 0.43 0.64
Net realized and
unrealized gain
(loss) on
investments (0.11) 0.24 0.11 (0.37) (0.09) 0.23
------------ ----------- ----------- ------------- ------------ -----------
Total from
investment
operations 0.32 0.84 0.78 0.29 0.34 0.87
------------ ----------- ----------- ------------- ------------ -----------
Less distributions from:
Net investment
income 0.34 0.60 0.67 0.65 0.36 0.63
Distributions in
excess of net
investment income -- 0.08 0.02 -- -- 0.08
Tax return of capital -- -- -- -- -- --
------------ ----------- ----------- ------------- ------------ -----------
Total distributions 0.34 0.68 0.69 0.65 0.36 0.71
------------ ----------- ----------- ------------- ------------ -----------
Net asset value,
end of period $ 12.82 $ 12.84 $ 12.68 $ 12.59 $ 12.86 $ 12.88
============ =========== =========== ============= ============ ===========
Total Return(c) 2.55% 6.78% 6.38% 2.25% 2.67% 7.02%
Ratios/Supplemental
Data
Net assets, end of
period (000's) $ 16,120 $ 3,220 $ 1,534 $ 73 $ 1,487 $ 224
Ratios to average net
assets:
Expenses(d)(e)(f) 2.18%(g) 2.25% 2.17% 2.26%(g) 1.93%(g) 2.00%
Net investment
income(d)(e)(f) 5.27%(g) 4.24% 4.92% 4.98%(g) 5.52%(g) 4.29%
Portfolio turnover rate 29% 134% 172% 170% 29% 134%
<CAPTION>
Year July 17,
Ended 1995(b) to
June 30, June 30,
1997 1996
------------ ------------------
<S> <C> <C>
Per Share Operating
Performance
Net asset value,
beginning of period $ 12.59 $ 12.95
Income (loss) from
investment
operations:
Net investment
income 0.70 0.68
Net realized and
unrealized gain
(loss) on
investments 0.14 (0.36)
---------- ------------
Total from
investment
operations 0.84 0.32
---------- ------------
Less distributions from:
Net investment
income 0.70 0.68
Distributions in
excess of net
investment income -- --
Tax return of capital 0.01 --
---------- ------------
Total distributions 0.71 0.68
---------- ------------
Net asset value,
end of period $ 12.72 $ 12.59
========== ============
Total Return(c) 6.88% 2.52%
Ratios/Supplemental
Data
Net assets, end of
period (000's) $ 61 $ 24
Ratios to average net
assets:
Expenses(d)(e)(f) 1.92% 2.01%(g)
Net investment
income(d)(e)(f) 5.25% 5.73%(g)
Portfolio turnover rate 172% 170%
</TABLE>
Footnotes on next page
42
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a Share Outstanding Throughout Each Period
(Continued)
- --------------------------------------------------------------------------------
- ------------
(a) Pilgrim Investments, Inc., the Fund's Investment Manager, acquired assets of
Pilgrim Management Corporation, the Fund's former Investment Manager, in a
transaction that closed on April 7, 1995.
(b) Commencement of offering of shares.
(c) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction of
sales charges. Total return information for less than one year is not
annualized.
(d) Prior to the waiver and reimbursement of expenses for the period ended June
30, 1998, the ratios of expenses to average net assets were 1.58%, 2.29% and
2.05%, and the ratios of net investment income to average net assets were
5.06%, 4.20% and 4.24% for Class A, B and M shares, respectively.
(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
1.57%, 2.41% and 2.16%, and the annualized ratios of net investment income
to average net assets were 5.74%, 4.83% and 5.58% for Class A, B and M
shares, respectively.
(f) Prior to the waiver expenses for the period ended June 30, 1995, the ratio
of expenses to average net assets was 1.54%, and the ratio of net investment
income to average net assets was 6.23% for Class A shares.
(g) Annualized.
See Accompanying Notes to Financial Statements
43
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Organization. Pilgrim Bank and Thrift Fund, Inc. ("Bank and Thrift Fund"),
Pilgrim Investment Funds, Inc. ("PIF"), Pilgrim Advisory Funds, Inc. ("PAFI")
and Pilgrim Government Securities Income Fund ("Government Securities Income
Fund") are open-end investment management companies registered under the
Investment Company Act of 1940, as amended.
Bank and Thrift Fund, the single series of Bank and Thrift Fund, was organized
as a Maryland Corporation in 1986. The investment objective of Bank and Thrift
Fund is to invest at least 65% of total assets in equity securities of national
and state-chartered banks (other than money center banks), thrifts, holding or
parent companies of such depository institutions, and in savings accounts of
mutual thrifts. The remaining 35% of total assets may be invested in equity
securities of money center banks, other financial services companies, other
issuers, debt securities, and securities of other investment companies. On
October 20, 1997, Bank and Thrift Fund converted from a closed-end fund to an
open-end fund. During the current period the Fund changed its year-end from
December 31 to June 30.
PIF, a Maryland Corporation organized in 1969, consists of Pilgrim MagnaCap
Fund ("MagnaCap Fund") and Pilgrim High Yield Fund ("High Yield Fund") each
with its own investment objectives and policies. The investment objectives are
as follows:
MagnaCap Fund -- generally invests in companies that meet the "Rising
Dividends" criteria: consistent dividend increases, substantial dividend
increases, reinvested substantial earnings, strong balance sheets and
attractive prices.
High Yield Fund -- invests in high-yielding fixed income securities that
do not involve undue risk, relative to the securities' return
characteristics.
PAFI, a Maryland Corporation organized in 1995, consists of Pilgrim MidCap
Value Fund ("MidCap Value Fund"). Pilgrim LargeCap Leaders Fund ("LargeCap
Leaders Fund") and Pilgrim Asia-Pacific Equity Fund ("Asia-Pacific Equity
Fund") each with its own investment objectives and policies. The investment
objectives are as follows:
MidCap Value Fund -- invests in equity securities of companies believed to
be undervalued and that have a market capitalization of between $200
million and $5 billion.
LargeCap Leaders Fund -- invests in equity securities of companies
believed to be undervalued that generally have a market capitalization of
at least $5 billion.
Asia-Pacific Equity Fund -- invests in equity securities of companies
based in the Asia-Pacific region which includes China, Hong Kong,
Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand,
but does not include Japan or Australia.
Government Securities Income Fund, a California Corporation organized in 1984,
is the single series of Government Securities Income Fund. The investment
objective of Government Securities Income Fund is to normally invest at least
70% of its assets in securities issued or guaranteed by the U.S. Government, or
certain of its agencies and instrumentalities. It does not invest in highly
leveraging derivatives.
Each Fund, except Bank and Thrift Fund, offers three classes of shares, Class
A, Class B and Class M. Bank and Thrift Fund only offers Class A and Class B
shares. Each class represents interests in the same assets of the applicable
Fund and the classes are identical except for differences in their sales charge
structure and ongoing distribution fees. In addition, Class B shares, along
with their pro rata reinvested dividend shares, automatically convert to Class
A shares approximately eight years after purchase.
The following significant accounting policies are consistently followed by the
Funds in the preparation of their financial statements, and such policies are
in conformity with generally accepted accounting principles for investment
companies.
A. Security Valuation. Investments in securities traded on a national
securities exchange or included on the NASDAQ National Market System are
valued at the last reported sale price. Securities traded on an exchange of
NASDAQ for which there has been no sale and securities traded in the over-
44
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
the-counter-market are valued at the mean between the last reported bid and
ask prices. Securities for which market quotations are not readily available
are valued at their respective fair values as determined in good faith and
in accordance with policies set by the Board of Directors.
Investments in securities maturing in less than 60 days are valued at cost,
which when combined with accrued interest approximates market value. All
investments quoted in foreign currencies will be valued daily in U.S.
dollars on the basis of the foreign currency exchange rates prevailing at
the time such valuation is determined by each Fund's custodian. U.S.
Government obligations are valued by using market quotations or independent
pricing services which uses prices provided by market-makers or estimates of
market values obtained from yield data relating to instruments or securities
with similar characteristics.
B. Security Transactions and Revenue Recognition. Securities transactions are
accounted for on the trade date. Realized gains and losses are reported on
the basis of identified cost of securities delivered. Interest income is
recorded on an accrual basis and dividend income is recorded on the
ex-dividend date (except in the case of Asia-Pacific Equity Fund, for
certain securities which are recorded as soon after the ex-date as the Fund
becomes aware of such dividend). All premium amortization and discount
accretion are determined by the effective yield method.
C. Foreign Currency Translation. The books and records of Asia-Pacific Equity
Fund are maintained in U.S. dollars. Foreign currency amounts are translated
into U.S. dollars on the following basis:
(1) Market value of investment securities, other assets and liabilities
-- at the exchange rates prevailing at the end of the day.
(2) Purchases and sales of investment securities, income and expenses --
at the rates of exchange prevailing on the respective dates of such
transactions.
Although the net assets and the market value of Asia-Pacific Equity Fund are
presented at the foreign exchange rates at the end of the day, Asia-Pacific
Equity Fund does not isolate the portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gains or
losses from investments. Reported net realized foreign exchange gains or
losses arise from sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on
the Fund's books, and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise
from changes in the value of assets and liabilities other than investments
in securities at fiscal year end, resulting from changes in the exchange
rate. Foreign security and currency transactions may involve certain
considerations and risks not typically associated with investing in U.S.
companies and the U.S. Government. These risks include but are not limited
to re-evaluation of currencies and future adverse political and economic
developments which could cause securities and their markets to be less
liquid and prices more volatile than those of comparable U.S. companies and
the U.S. Government.
D. Foreign Currency Exchange Transactions. Asia-Pacific Equity Fund may enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to and from the U.S. dollar in connection with the
planned purchases or sales of securities. The Fund either enters into these
transactions on a spot basis at the spot rate prevailing in the foreign
currency exchange market or uses forward foreign currency contracts to
purchase or sell foreign currencies. Asia-Pacific Equity Fund may not invest
more than 5% of its assets (at market value at the time of investment) in
forward foreign currency contracts. Risks may arise upon entering into
forward contracts from the potential inability of counterparties to meet the
terms of their forward contracts and from the potential inability of
counterparties to meet the terms of their forward contracts and from
unanticipated movements in the value of foreign currencies relative to the
U.S. dollar.
45
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
E. Distributions to Shareholders. The Funds record distributions to their
shareholders on ex-date. Distributions from income are declared by MagnaCap
Fund on a semi-annual basis. Distributions from income are declared on a
monthly basis for High Yield Fund and Government Securities Income Fund.
Distributions from income are declared on an annual basis for Bank and
Thrift Fund, MidCap Value Fund, LargeCap Leaders Fund and Asia-Pacific
Equity Fund. Distributions from capital gains, if any, are declared on at
least an annual basis for all Funds. The amount of distributions from net
investment income and net realized capital gains are determined in
accordance with federal income tax regulations, which may differ from
generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. Key differences are the
treatment of short-term capital gains, foreign currency transactions,
organization costs and other temporary differences. To the extent that these
differences are permanent in nature, such amounts are reclassified within
the capital accounts based on their federal tax-basis treatment; temporary
differences do not require reclassifications. Distributions which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as distributions in excess of
net investment income and/or net realized capital gains. To the extent they
exceed net investment income and/or net realized capital gains for tax
purposes, they are reported as distributions of paid-in capital.
Accordingly, amounts as of June 30, 1998 have been reclassified as follows:
<TABLE>
<CAPTION>
Accumulated net
Undistributed realized gains (losses) on
Paid-in (overdistributed) investments and foreign
capital net investment income currency transactions
------------ ----------------------- ----------------------------
<S> <C> <C> <C>
MagnaCap Fund $ -- $ 619,064 $ (619,064)
LargeCap Leaders Fund 24,456 (124,766) 100,310
MidCap Value Fund 24,248 (794,518) 770,270
Asia-Pacific Equity Fund 122,245 139,761 (262,006)
Government Securities Income Fund 2,284,236 (348,345) (1,935,891)
</TABLE>
F. Federal Income Taxes. The Funds' policies are to comply with the
requirements of the Internal Revenue Code that are applicable to regulated
investment companies and to distribute substantially all of their net
investment income and any net realized capital gains to their shareholders.
Therefore, a federal income tax provision is not required. In addition, by
distributing during each calendar year substantially all of its net
investment income and net realized capital gains, each Fund intends not to
be subject to any federal excise tax. Capital loss carryforwards were as
follows at June 30, 1998:
Amount Expiration Dates
---------- ----------------
Asia-Pacific Equity Fund $5,411,661 2005 to 2006
High Yield Fund 8,803,066 1999 to 2002
Government Securities Income Fund 5,775,551 1999 to 2004
The Board of Directors intends to offset net capital gains with each capital
loss carryforward until each carryforward has been fully utilized of
expires. In addition, no capital gain distribution shall be made until the
capital loss carryforward has been fully utilized or expires.
G. Use of Estimates. Management of the Funds has made certain estimates and
assumptions relating to the reporting of assets and liabilities to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
H. Repurchase Agreements. Each Fund may invest any portion of its assets
otherwise invested in money market instruments in U.S. Government securities
and concurrently enter into repurchase agreements with respect to such
securities. Such repurchase agreements will be made only with government
securities dealers recognized by the Board of Governors of the Federal
Reserve System or with member banks of the Federal Reserve System. Under
such agreements, the seller of the security agrees to repurchase it at a
mutually agreed upon time and price. The resale price is in excess of the
purchase price and reflects an agreed upon interest rate for the period of
time the agreement is outstanding. The period of the repurchase agreements
is usually short, from overnight to one week, while the underlying
securities generally have longer maturities. Each Fund will
46
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
always receive as collateral securities acceptable to it whose market value
is equal to at least 100% of the amount being invested by the Fund, and the
Fund will make payment for such securities only upon physical delivery or
evidence of book entry transfer to the account of its custodian. If the
seller defaults, a Fund might incur a loss or delay in the realization of
proceeds if the value of the collateral securing the repurchase agreement
declines and it might incur disposition costs in liquidating the collateral.
I. Deferred Organization Expenses. All expenses incurred in connection with the
organization and registration of the Funds under the Investment Company Act
of 1940 and the Securities Act of 1933 are being amortized by each Fund
equally over a period of five years from the date of commencement of its
operations.
J. Reclassification. Certain prior period amounts in the accompanying financial
statements have been reclassified to conform with current period
presentation.
NOTE 2 -- INVESTMENTS
For the six months ended December 31, 1998, the cost of purchases and proceeds
from the sales of securities, excluding short-term securities, were as follows:
Purchases Sales
------------ ------------
MagnaCap Fund $122,006,061 $146,637,407
LargeCap Leaders Fund 16,735,332 20,778,201
MidCap Value Fund 32,580,633 33,021,639
Bank and Thrift Fund 165,893,559 59,305,266
Asia-Pacific Equity Fund 10,727,163 13,030,474
High Yield Fund 338,599,831 194,511,310
Government Securities Income Fund 28,122,396 9,453,621
NOTE 3 -- INVESTMENT IN AFFILIATE
Affiliated companies, as defined in Section 2(a)(3) of the Investment Company
Act of 1940, are companies 5% or more of whose outstanding voting shares are
held by a fund. At December 31, 1998, Bank and Thrift Fund has the following
holding in affiliated companies:
<TABLE>
<CAPTION>
Acquisition Shares Market % of
Date Held Cost Value Net Assets
-------------------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
American Safety Insurance February 13, 1998 to
Group, Ltd. November 6, 1998 430,000 $4,914,375 $4,138,750 0.47%
21st Century Holding
Company November 5, 1998 177,000 $1,330,875 $1,239,000 0.14%
International Aircraft November 5, 1997 to
Investors November 24, 1998 267,500 $2,514,277 $1,638,438 0.18%
October 6, 1997 to
Surety Capital Corp. November 27, 1998 544,200 $2,262,854 $1,122,413 0.13%
</TABLE>
There was no dividend income from affiliates during the six months ended
December 31, 1998.
NOTE 4 -- INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH
AFFILIATES
Each of the Funds has entered into an Investment Management Agreement with
Pilgrim Investments, Inc. ("the Manager"), a wholly owned subsidiary of Pilgrim
Group, Inc. ("PGI"). The investment management agreements compensate the
Manager with a fee, computed daily and payable monthly, at the following annual
rates: Bank and Thrift Fund pays the Manager a monthly fee at an annual rate of
1.00% on the first $30 million of average daily net assets of the Fund, 0.75%
of the next $95 million of average daily net assets and 0.70% on average daily
net assets in excess of $125 million; MagnaCap Fund pays the Manager a monthly
fee at an annual rate of 1.00% on the first $30 million of average daily
47
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
net assets of the Fund, 0.75% of the average daily net assets above $30 million
to $250 million, 0.625% of the average daily net assets above $250 million to
$500 million, and 0.50% of the average daily net assets in excess of $500
million; MidCap Value Fund and LargeCap Leaders Fund pay the Manager a monthly
fee at an annual rate of 1.00% of each Fund's average daily net assets;
Asia-Pacific Equity Fund pays the Manager at an annual rate of 1.25% of the
Fund's average daily net assets; High Yield Fund pays the Manager a monthly fee
at an annual rate of 0.60% of daily average net assets; Government Securities
Income Fund pays the Manager a monthly fee at an annual rate of 0.50% on the
first $500 million of average daily net assets of the Fund, 0.45% of the
average daily net assets above $500 million to $1 billion, and 0.40% of the
average daily net assets in excess of $1 billion.
Each share class of the Funds has adopted a Plan pursuant to Rule 12b-1 under
the 1940 Act (the "12b-1 Plans"), whereby Pilgrim Securities, Inc. (the
"Distributor") is reimbursed or compensated (depending on the class of shares)
by the Funds for expenses incurred in the distribution of each Funds' shares.
Pursuant to the 12b-1 Plans, the Distributor is entitled to payment each month
for actual expenses incurred in the distribution and promotion of each Fund's
shares, including the printing of prospectuses and reports used for sales
purposes, expenses of preparation and printing of sales literature and other
such distribution related expenses, including any distribution or service fees
paid to securities dealers who have executed a distribution agreement with the
Distributor. Under the 12b-1 Plans, each class of shares of the Fund pays the
Distributor the following annual fees:
Class A Class B Class M
------- ------- -------
MagnaCap Fund 0.30% 1.00% 0.75%
LargeCap Leaders Fund 0.25 1.00 0.75
MidCap Value Fund 0.25 1.00 0.75
Bank and Thrift Fund 0.25 1.00 N/A
Asia-Pacific Equity Fund 0.25 1.00 0.75
High Yield Fund 0.25 1.00 0.75
Government Securities Income Fund 0.25 1.00 0.75
Each of the Funds has entered into a Service Agreement with PGI whereby PGI
will act as Shareholder Service Agent for each Fund. The agreement provides
that PGI 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, 1998, the
Funds owed the following in service fees:
MagnaCap Fund $ 6,552 Asia-Pacific Equity Fund $ 1,566
LargeCap Leaders Fund 649 High Yield Fund 2,961
MidCap Value Fund 1,828 Government Securities
Bank and Thrift Fund 13,109 Income Fund 439
Bank and Thrift Fund's current prospectus allows that until October 17, 1998 a
2% redemption fee will be imposed on redemptions or exchanges of Class A shares
acquired prior to October 17, 1997. Such redemption fee is payable to the Fund
and is reflected as redemption fee income in the accompanying financial
statements.
The Manager has voluntarily agreed to limit other expenses, excluding
distribution fees, interest, taxes, brokerage and extraordinary expenses to
1.50%, 1.50% and 1.75% of all classes of shares of MidCap Value Fund, LargeCap
Leaders Fund and Asia-Pacific Equity Fund, respectively. This expense
limitation will apply to each Fund individually until June 30, 1999. At
December 31, 1998 MidCap Value Fund, LargeCap Leaders Fund and Asia-Pacific
Equity Fund accrued $3,196, $10,256, and $11,964, respectively as reimbursement
due from the Manager. Effective July 1, 1995, the Manager has voluntarily
agreed to waive all or a portion of its fees and reimburse operating expenses
of the High Yield Fund, excluding distribution fees, interest, taxes, brokerage
and extraordinary expenses, so that total operating expenses do not exceed
0.75% for all classes of shares of the Fund. This expense limitation will apply
until June
48
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
30, 1999. At December 31, 1998, High Yield Fund accrued $36,164 as a
reimbursement due from the Manager for such excess expenses. The Manager has
agreed to reimburse the Government Securities Income Fund for all gross
operating costs and expenses of the Fund, excluding any interest, taxes,
brokerage commissions, amortization of organizational expenses, extraordinary
expenses, and certain distribution fees which exceed 1.50% of the Fund's daily
average net assets on the first $40 million of net assets and 1.00% of average
daily net assets in excess of $40 million for any one fiscal year. This expense
limitation cannot be changed without shareholder approval. At December 31, 1998
no amounts were due from the Manager to the Government Securities Income Fund.
NOTE 5 -- CAPITAL SHARES
Transactions in capital shares and dollars were as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class M Shares
----------------------------------- --------------------------------- -------------------------------
Six Months Year Six Months Year Six Months Year
Ended Ended Ended Ended Ended Ended
December 31, June 30, December 31, June 30, December 31, June 30,
1998 1998 1998 1998 1998 1998
---------------- ---------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
MagnaCap Fund
(Number of Shares)
Shares sold 7,665,883 10,897,364 1,275,904 2,344,628 106,410 471,961
Shares issued as
reinvestments of
dividends 1,907,040 2,076,916 530,273 380,983 87,515 75,167
Shares redeemed (8,460,642) (10,784,171) (495,950) (478,018) (115,828) (106,454)
-------------- -------------- ------------ ------------ ------------ ------------
Net increase in
shares outstanding 1,112,281 2,190,109 1,310,227 2,247,593 78,097 440,674
============== ============== ============ ============ ============ ============
MagnaCap Fund ($)
Shares sold $ 125,176,837 $ 180,615,597 $ 20,537,786 $ 38,503,625 $ 1,727,552 $ 7,761,033
Shares issued as
reinvestments of
dividends 29,337,146 32,076,362 8,023,021 5,820,909 1,333,729 1,153,467
Shares redeemed (138,554,336) (179,526,800) (7,909,297) (7,887,759) (1,838,709) (1,748,484)
-------------- -------------- ------------ ------------ ------------ ------------
Net increase in
shares outstanding $ 15,959,647 $ 33,165,159 $ 20,651,510 $ 36,436,775 $ 1,222,572 $ 7,166,016
============== ============== ============ ============ ============ ============
</TABLE>
<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,
1998 1998 1998 1998 1998 1998
-------------- ---------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
LargeCap Leaders Fund
(Number of Shares)
Shares sold 114,779 568,398 122,597 190,371 12,567 65,587
Shares issued as
reinvestment of
dividends 2,791 73,386 6,976 127,676 2,254 47,058
Shares redeemed (191,323) (756,854) (196,730) (206,334) (44,867) (66,998)
------------ ------------- ------------ ------------ ---------- ----------
Net increase (decrease) in
shares outstanding (73,753) (115,070) (67,157) 111,713 (30,046) 45,647
============ ============= ============ ============ ========== ==========
LargeCap Leaders
Fund ($)
Shares sold $ 1,715,971 $ 8,276,374 $ 1,702,337 $ 2,701,856 $ 185,630 $ 946,954
Shares issued as
reinvestment of
dividends 41,280 971,634 93,056 1,664,888 32,915 617,865
Shares redeemed (2,738,850) (10,980,774) (2,621,780) (2,915,958) (591,915) (940,590)
------------ ------------- ------------ ------------ ---------- ----------
Net increase (decrease) in
shares outstanding $ (981,599) $ (1,732,766) $ (826,387) $ 1,450,786 $ (373,370) $ 624,229
============ ============= ============ ============ ========== ==========
</TABLE>
49
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<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,
1998 1998 1998 1998 1998 1998
-------------- --------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
MidCap Value Fund
(Number of Shares)
Shares sold 178,700 1,470,177 284,417 1,195,501 99,376 317,153
Shares issued as
reinvestment of
dividends 105,360 38,624 187,926 66,968 61,139 22,835
Shares redeemed (399,156) (1,031,906) (403,755) (404,459) (134,187) (117,161)
------------ ------------- ------------ ------------ ------------ ------------
Net increase (decrease)
in shares outstanding (115,096) 476,895 68,588 858,010 26,328 222,827
============ ============= ============ ============ ============ ============
MidCap Value Fund ($)
Shares sold $ 2,794,627 $ 24,374,092 $ 4,326,837 $ 18,766,179 $ 1,521,930 $ 4,989,862
Shares issued as
reinvestment of
dividends 1,488,742 582,841 2,591,514 995,806 846,769 340,248
Shares redeemed (6,268,487) (17,333,221) (5,975,503) (6,378,858) (2,014,522) (1,857,447)
------------ ------------- ------------ ------------ ------------ ------------
Net increase (decrease)
in shares outstanding $(1,985,118) $ 7,623,712 $ 942,848 $ 13,383,127 $ 354,177 $ 3,472,663
============ ============= ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Class A Shares Class B Shares
-------------------------------------------------- -------------------------------------------------
Six Months Six Months Year Six Months Six Months Year
Ended Ended Ended Ended Ended Ended
December 31, June 30, December 31, December 31, June 30, December 31,
1998 1998 1997 1998 1998 1997
----------------- ---------------- --------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Bank and Thrift Fund
(Number of Shares)
Shares sold 3,876,305 6,598,183 1,551,663 4,398,454 10,545,101 2,866,975
Shares issued as
reinvestment
of dividends 423,497 -- 715,896 384,546 -- 156,147
Shares redeemed (4,251,144) (1,439,132) (1,608,708) (1,763,798) (370,014) (66,661)
-------------- ------------- ------------- ------------- ------------ ------------
Net increase in shares
outstanding 48,658 5,159,051 658,851 3,019,202 10,175,087 2,956,461
============== ============= ============= ============= ============ ============
Bank and Thrift Fund ($)
Shares sold $ 99,498,079 $ 179,351,328 $ 39,884,193 $ 107,348,279 $286,284,458 $ 73,724,794
Shares issued as
reinvestment
of dividends 9,842,075 -- 18,233,873 8,913,760 -- 3,975,496
Shares redeemed (107,045,852) (38,524,439) (41,390,698) (40,791,771) (9,978,392) (1,756,579)
-------------- ------------- ------------- ------------- ------------ ------------
Net increase in shares
outstanding $ 2,294,302 $ 140,826,889 $ 16,727,368 $ 75,470,268 $276,306,066 $ 75,943,711
============== ============= ============= ============= ============ ============
</TABLE>
50
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<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,
1998 1998 1998 1998 1998 1998
---------------- ---------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific Equity Fund
(Number of Shares)
Shares sold 14,219,098 11,941,838 903,329 760,416 253,449 1,111,797
Shares issued as
reinvestment of
dividends -- -- -- -- -- --
Shares redeemed (14,973,138) (12,266,159) (1,148,978) (1,467,592) (447,942) (1,169,806)
------------- ------------- ------------- ------------- ------------ ------------
Net decrease in
shares outstanding (754,040) (324,321) (245,649) (707,176) (194,493) (58,009)
============= ============= ============= ============= ============ ============
Asia-Pacific Equity Fund ($)
Shares sold $ 64,705,536 $ 70,165,316 $ 4,064,386 $ 5,448,555 $ 1,122,817 $ 6,633,404
Shares issued as
reinvestment of
dividends -- -- -- -- -- --
Shares redeemed (68,977,622) (72,683,235) (5,203,435) (10,287,190) (2,032,940) (7,449,763)
------------- ------------- ------------- ------------- ------------ ------------
Net decrease in
shares outstanding $ (4,272,086) $ (2,517,919) $ (1,139,049) $ (4,838,635) $ (910,123) $ (816,359)
============= ============= ============= ============= ============ ============
High Yield Fund
(Number of Shares)
Shares sold 16,760,207 17,174,055 18,003,848 18,262,275 1,413,611 2,573,150
Shares issued as
reinvestment of
dividends 466,190 432,513 643,864 467,819 92,630 99,793
Shares redeemed (11,354,415) (8,125,142) (2,973,995) (2,356,559) (447,438) (1,118,663)
------------- ------------- ------------- ------------- ------------ ------------
Net increase in
shares outstanding 5,871,982 9,481,426 15,673,717 16,373,535 1,058,803 1,554,280
============= ============= ============= ============= ============ ============
High Yield Fund ($)
Shares sold $ 109,592,166 $ 120,176,870 $ 114,570,634 $ 127,606,617 $ 9,483,103 $ 17,969,970
Shares issued as
reinvestment of
dividends 2,965,069 3,011,044 4,076,277 3,254,943 589,242 693,501
Shares redeemed (75,676,363) (56,782,132) (18,775,139) (16,455,583) (3,368,590) (7,825,635)
------------- ------------- ------------- ------------- ------------ ------------
Net increase in
shares outstanding $ 36,880,872 $ 66,405,782 $ 99,871,772 $ 114,405,977 $ 6,703,755 $ 10,837,836
============= ============= ============= ============= ============ ============
</TABLE>
51
<PAGE>
Pilgrim Funds
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<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,
1998 1998 1998 1998 1998 1998
--------------- ---------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Government Securities
Income Fund
(Number of Shares)
Shares sold 1,360,878 236,845 1,795,640 251,983 81,130 42,995
Shares issued as
reinvestment of
dividends 35,826 65,196 11,305 1,604 960 592
Shares redeemed (1,141,491) (815,395) (800,193) (123,763) 16,161 (30,971)
------------- ------------- ------------- ------------ ---------- ----------
Net increase (decrease)
in shares outstanding 255,213 (513,354) 1,006,752 129,824 98,251 12,616
============= ============= ============= ============ ========== ==========
Government Securities
Income Fund ($)
Shares sold $ 17,553,754 $ 3,042,775 $ 23,541,255 $ 3,196,854 $1,547,631 $ 551,951
Shares issued as
reinvestment of
dividends 460,715 835,102 145,085 60,326 12,338 7,602
Shares redeemed (14,709,956) (10,465,540) (10,731,632) (1,590,074) (293,037) (397,555)
------------- ------------- ------------- ------------ ---------- ----------
Net increase (decrease)
in shares outstanding $ 3,304,513 $ (6,587,663) $ 12,954,708 $ 1,667,106 $1,266,932 $ 161,998
============= ============= ============= ============ ========== ==========
</TABLE>
NOTE 6 -- CUSTODIAL AGREEMENT
Investors Fiduciary Trust Company ("IFTC") serves as the Funds' custodian and
recordkeeper. Custody fees paid to IFTC are reduced by an earnings credit based
on the cash balances held by IFTC for each of the Funds. For the six months
ended December 31, 1998, the Funds received the following earnings credits:
MagnaCap Fund $ 8,670 Asia-Pacific Equity Fund $ 542
LargeCap Leaders Fund 742 High Yield Fund 24,762
MidCap Value Fund 2,068 Government Securites
Bank and Thrift Fund 6,926 Income Fund 248
NOTE 7 -- SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the following funds declared dividends from
net investment income of:
Per Share Amount Payable Date Record Date
------------------ ------------------- ------------------
High Yield Fund
Class A $0.0500 February 16, 1999 January 29, 1999
Class B $0.0460 February 16, 1999 January 29, 1999
Class M $0.0470 February 16, 1999 January 29, 1999
Class A $0.0500 January 15, 1999 January 2, 1999
Class B $0.0460 January 15, 1999 Janaury 2, 1999
Class M $0.0470 January 15, 1999 January 2, 1999
Government Securities Income Fund
Class A $0.0645 February 16, 1999 January 29, 1999
Class B $0.0560 February 16, 1999 Janaury 29, 1999
Class M $0.0590 February 16, 1999 January 29, 1999
Class A $0.0645 January 15, 1999 January 2, 1999
Class B $0.0580 January 15, 1999 January 2, 1999
Class M $0.0590 January 15, 1999 January 2, 1999
52
<PAGE>
Pilgrim MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS: 90.6%
Market
Shares Value
- ---------- -------------
Automotive: 1.0%
100,000 Harley Davidson, Inc. $ 4,737,500
------------
Banks: 7.2%
20,000 BankAmerica Corp. 1,202,500
80,000 Chase Manhattan Corp. 5,445,000
119,200 Comerica Inc. 8,127,950
143,760 First Union Corp. 8,742,405
130,000 USBANCORP, Inc. 4,615,000
150,000 UnionBanCal Corp. 5,109,375
------------
33,242,230
------------
Beverages -- Non Alcholic: 1.8%
200,000 Pepsico, Inc. 8,187,500
------------
Capital Goods: 1.1%
160,000 Parker Hannifan Corp. 5,240,000
------------
Chemicals: 1.4%
120,000 E.I. Dupont de Nemours 6,367,500
------------
Communications: 4.2%
80,000 ALLTEL Corp. 4,785,000
80,000 AT & T Corp. 6,020,000
50,000 (a) MCI Worldcom, Inc. 3,587,500
70,000 (a) Tellabs, Inc. 4,799,375
------------
19,191,875
------------
Computer Hardware: 3.6%
25,000 (a) Cisco Systems 2,320,313
150,000 Compaq Computer 6,290,625
115,000 Hewlett Packard 7,855,937
------------
16,466,875
------------
Computer Software & Services: 5.0%
112,000 Automatic Data Processing 8,981,000
25,000 Computer Sciences 1,610,938
146,500 (a) Sun Microsystems 12,544,062
------------
23,136,000
------------
Electrical Equipment: 1.3%
60,000 General Electric 6,123,750
------------
Electronics -- Semiconductors: 1.7%
65,000 Intel Corp. 7,706,563
------------
See Accompanying Notes to Financial Statements
53
<PAGE>
Pilgrim MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- -------------
Energy: 2.0%
165,700 Elf Aquitane -- Sponsored (ADR) $ 9,382,763
------------
Energy Services: 0.5%
69,700 Halliburton Co. 2,064,863
------------
Financial: 2.6%
60,000 Fannie Mae 4,440,000
50,000 Freddie Mac 3,221,875
50,000 Sunamerica, Inc. 4,056,250
------------
11,718,125
------------
Food & Beverages: 0.2%
30,000 Kellogg Co. 1,023,750
------------
Foods: 1.5%
250,000 Sara Lee 7,046,875
------------
Healthcare: 4.7%
255,000 Abbott Laboratories 12,495,000
160,000 Hillenbrand Industries 9,100,000
------------
21,595,000
------------
Home Products: 1.3%
150,000 Newell Company 6,187,500
------------
Industrial: 2.4%
120,000 Nucor Corp. 5,190,000
170,000 Praxair, Inc. 5,992,500
------------
11,182,500
------------
Industrial Equipment: 0.6%
50,000 Illinois Tool Works 2,900,000
------------
Insurance: 0.9%
73,800 Marsh & Mclennan 4,312,688
------------
Insurance Life: 3.5%
250,000 AFLAC, Inc. 11,000,000
65,000 American General Corp. 5,070,000
------------
16,070,000
------------
Integrated Oil -- Domestic: 0.8%
60,000 Atlantic Ritchfield 3,915,000
------------
Integrated Oil -- International: 1.2%
70,000 Chevron Corp. 5,805,625
70,000 Chevron Corp -- Rights --
------------
5,805,625
------------
See Accompanying Notes to Financial Statements
54
<PAGE>
Pilgrim MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- -------------
Machinery & Equipment: 1.0%
120,000 Dover Corp. $ 4,395,000
------------
Manufacturing: 0.8%
80,000 AlliedSignal, Inc. 3,545,000
------------
Manufacturing -- Electronic: 1.9%
116,000 Honeywell, Inc 8,736,250
------------
Marine: 0.5%
50,000 Carnival Corp. 2,400,000
------------
Medical Products: 4.2%
187,000 Baxter International 12,026,437
172,000 Becton Dickenson & Co. 7,342,250
------------
19,368,687
------------
Office Equipment & Services: 2.6%
100,000 Xerox Corp. 11,800,000
------------
Office Products & Services: 1.4%
146,500 Avery-Dennison Corp. 6,601,656
------------
Oil Well Equipment & Services: 1.0%
104,000 Schlumberger Limited 4,797,000
------------
Pharmaceuticals: 6.0%
93,500 Bristol-Myers Squibb Co. 12,511,468
107,000 Johnson & Johnson 8,974,625
110,000 Schering-Plough Corp. 6,077,500
------------
27,563,593
------------
Publishing: 0.2%
20,000 New York Times -- Class A 693,750
------------
Restaurant: 4.2%
165,000 McDonald's Corp. 12,643,125
130,000 (a) Tricon Global Restaurants 6,516,250
------------
19,159,375
------------
Retail: 6.6%
15,000 (a) Dayton-Hudson 813,750
154,000 Home Depot, Inc. 9,422,875
150,000 Lowe's Companies 7,678,125
152,000 Wal-Mart Stores, Inc. 12,378,500
------------
30,293,250
------------
See Accompanying Notes to Financial Statements
55
<PAGE>
Pilgrim MagnaCap Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- --------------
Supermarket: 1.4%
102,000 Albertson's $ 6,496,125
-------------
Thrifts: 3.6%
271,300 Charter One Financial, Inc. 7,528,575
50,000 Golden West Financial Corp. 4,584,375
120,000 Washington Mutual Inc. 4,582,500
-------------
16,695,450
-------------
Tobacco Products: 0.9%
75,000 Philip Morris Companies, Inc. 4,012,500
-------------
Utilities: 3.8%
100,000 Duke Power Co. 6,406,250
55,000 FPL Group, Inc. 3,389,375
75,500 SBC Communications 4,048,687
125,000 Southern Co. 3,632,813
-------------
17,477,125
-------------
Total Common Stocks (Cost $298,179,823) 417,639,243
-------------
LIMITED PARTNERSHIP: 1.4%
<TABLE>
<S> <C> <C> <C>
Securities Related Business: 1.4%
260,000 Alliance Capital Management 6,695,000
------------
Total Limited Partnership Stock (Cost $5,095,442) 6,695,000
------------
Total Long-Term Investments (Cost $303,275,265) 424,334,243
------------
</TABLE>
SHORT-TERM INVESTMENTS: 6.6%
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------ ---------------
<S> <C> <C> <C>
Commercial Paper: 6.6%
22,845,000 GE Capital Corp Commercial Paper, 5.00% due 01/04/99 22,845,000
7,414,000 Merrill Lynch Commercial Paper, 5.05% due 01/04/99 7,414,000
--------------
Total Short-Term Investments (Cost $ 30,246,361) 30,259,000
--------------
Total Investments in Securities (Cost $333,521,625)* 98.6% 454,593,243
Cash and Other Assets in Excess of Liabilities -- Net 1.4% 6,325,025
------ --------------
Total Net Assets 100.0% $ 460,918,268
====== ==============
</TABLE>
- -------------------------
(a) Non-income producing security
* Cost for federal income tax purposes is $333,521,625, which is the same as
for financial statement purposes.
Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 131,010,864
Gross Unrealized Depreciation (9,951,886)
--------------
Net Unrealized Appreciation $ 121,058,978
==============
See Accompanying Notes to Financial Statements
56
<PAGE>
Pilgrim LargeCap Leaders Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS: 90.6%
Market
Shares Value
- --------- ------------
Automotive: 3.1%
4,723 Daimlerchrysler $ 453,703
7,000 Ford Motor Co. 410,813
-----------
864,516
-----------
Banks: 1.6%
6,800 Chase Manhattan Corp. New 462,825
-----------
Broadcasting: 1.7%
8,500 (a) Tele Communication-TCI Group-A 470,156
-----------
Chemicals: 1.2%
6,300 DuPont 334,294
-----------
Communications: 3.2%
5,600 AT&T Corp. 421,400
6,600 (a) MCI Worldcom, Inc. 473,550
-----------
894,950
-----------
Computer Software & Service: 4.5%
2,400 (a) America Online, Inc. 347,400
3,400 (a) Microsoft Corp. 471,537
5,300 (a) Sun Microsystems 453,813
-----------
1,272,750
-----------
Computer Systems: 1.4%
5,500 Dell Computer Corporation 402,531
-----------
Computer Hardware: 3.0%
4,700 (a) Cisco Systems 436,218
10,000 Compaq Computer 419,375
-----------
855,593
-----------
Consumer Durables: 1.3%
5,200 Sony Corp -- ADR 373,100
-----------
Consumer Products: 6.9%
6,200 Anheuser Busch Company 406,875
5,300 Coca-Cola 354,437
4,200 Colgate-Palmolive Company 390,075
4,200 Procter & Gamble 383,512
8,900 Unilever PLC -- ADR 400,500
-----------
1,935,399
-----------
See Accompanying Notes to Financial Statements
57
<PAGE>
Pilgrim LargeCap Leaders Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- --------- ------------
Cosmetics: 1.4%
8,200 Gillette $ 396,163
-----------
Defense: 1.2%
3,900 Lockheed Martin Corp. 330,525
-----------
Diversified Conglomerate: 1.6%
5,800 Tyco International Ltd. 437,538
-----------
Drugstores: 1.6%
7,800 Walgreens Co. 456,788
-----------
Energy: 1.3%
5,600 Duke Power Co. 358,750
-----------
Financial: 5.9%
4,100 American Express 419,225
8,700 Citigroup Inc 430,650
5,300 Fannie Mae 392,200
6,600 Freddie Mac 425,287
-----------
1,667,362
-----------
Food Stores: 1.7%
7,800 (a) Safeway Inc. 475,313
-----------
Foods: 1.2%
12,000 Sara Lee 338,250
-----------
Insurance: 2.6%
8,700 Allstate Corp. 336,038
4,000 American Int'l Group 386,500
-----------
722,538
-----------
Integrated Oil Intl: 1.3%
4,400 Chevron Corp. 364,925
-----------
Marine: 2.0%
12,000 Carnival Corp. Common 576,000
-----------
Medical Products: 1.4%
7,800 Abbott Laboratories 382,200
-----------
Metals & Minerals: 1.3%
4,800 Aluminum Co. of America 357,900
-----------
See Accompanying Notes to Financial Statements
58
<PAGE>
Pilgrim LargeCap Leaders Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- --------- ------------
Natural Gas Pipeline: 1.4%
6,900 Enron $ 393,731
-----------
Office Products & Services: 3.1%
6,200 Hewlett Packard 423,538
2,400 International Business Machines 443,400
-----------
866,938
-----------
Oil & Gas: 2.6%
5,100 Exxon Corp. 372,937
7,500 Royal Dutch Petroleum Company 359,063
-----------
732,000
-----------
Oil Well Equipment & Service: 1.3%
7,900 Schlumberger Ltd. 364,388
-----------
Pharmaceuticals: 7.3%
3,300 Bristol-Myers Squibb Co. 441,581
4,400 Johnson & Johnson 369,050
2,700 Merck & Co. 398,756
3,400 Pfizer 426,487
5,400 Warner Lambert Co. 406,013
-----------
2,041,887
-----------
Publishing: 1.4%
5,900 Gannett Co. 390,506
-----------
Restaurant: 1.5%
5,600 McDonalds Corp. 429,100
-----------
Retail: 7.3%
6,400 Costco Companies, Inc. 462,000
7,200 The Gap Inc. 405,000
7,000 Home Depot Inc. 428,313
7,100 Sears, Roebuck and Company 301,750
5,500 Wal-Mart Stores, Inc. 447,906
-----------
2,044,969
-----------
Technology: 4.8%
3,200 Intel Corp. 379,400
4,500 Lucent Technologies 495,000
4,000 Nokia Corp -- ADR A 481,750
-----------
1,356,150
-----------
See Accompanying Notes to Financial Statements
59
<PAGE>
Pilgrim LargeCap Leaders Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
- ------------ --------------
<S> <C> <C> <C>
Tobacco Products: 1.3%
7,000 Philip Morris Companies Inc. $ 374,500
------------
Transportation: 1.4%
4,500 (a) FDX Corporation 400,500
------------
Utilities: 4.8%
8,520 Bell Atlantic Corp. 484,042
9,300 SBC Communications 498,712
13,000 Southern Co. 377,813
------------
1,360,567
------------
Total Common Stocks (Cost $21,031,720) 25,485,602
------------
SHORT-TERM INVESTMENTS: 8.9%
Principal
Amount Value
---------- -----
Repurchase Agreement: 8.9%
$2,495,000 State Street Bank, 4.50% due 01/04/99 2,495,000
------------
(Collateralized by $1,565,000 U.S. Treasury Bonds, 10.625%, due
08/15/2015, Market Value $2,551,684)
Total Short-Term Investments (Cost $2,495,000) 2,495,000
------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Total Investments in Securities (Cost $23,526,720)* 99.5% 27,980,602
Other Assets in Excess of Liabilities 0.5% 142,853
------ ------------
Net Assets 100.0% $28,123,455
====== ============
</TABLE>
- ------------
(a) Non-income producing security
ADR -- American Depository Receipt
* Cost for federal income tax purposes is, $23,526,720, which is the same as
for financial statement purposes. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $4,712,524
Gross Unrealized Depreciation (258,642)
----------
Net Unrealized Appreciation $4,453,882
==========
See Accompanying Notes to Financial Statements
60
<PAGE>
Pilgrim MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS: 94.4%
Market
Shares Value
- ---------- -----------
Automotive: 1.7%
70,000 (a) Mascotech, Inc. $1,198,750
-----------
Banks: 4.6%
160,000 (a) John Hancock Bank & Thrift Opportunity Fund 1,710,000
65,000 Sovereign Bancorp Inc. 926,250
30,000 UST Corp. 706,875
-----------
3,343,125
-----------
Building Products: 3.6%
60,000 Johns Manville Corp. 986,250
57,000 Masco Corp. 1,638,750
-----------
2,625,000
-----------
Business Services: 1.7%
82,500 (a) Modis Professional Services 1,196,250
-----------
Chemicals: 1.9%
45,300 Mallinckrodt Inc. 1,395,805
-----------
Communications: 6.5%
124,400 Cincinnati Bell Inc. 4,703,875
-----------
Consumer Products: 1.5%
31,200 Snap-On Inc. 1,086,150
-----------
Electrical Equipment: 10.5%
47,600 Applied Power Inc -- CL A 1,796,900
31,800 Columbia Energy Group 1,836,450
50,000 Edison International 1,393,750
33,400 Raychem Corp. 1,079,238
34,000 Thomas & Betts Corp. 1,472,625
-----------
7,578,963
-----------
See Accompanying Notes to Financial Statements
61
<PAGE>
Pilgrim MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- ------------
Entertainment: 2.0%
140,000 Loews Cineplex Entertainment $1,417,500
-----------
Financial: 3.8%
66,000 CIT Group Inc. 2,099,625
45,300 Golden State Bancorp. 626,763
-----------
2,726,388
-----------
Food & Beverages: 4.5%
113,200 Chiquita Brands International 1,082,475
72,100 Dole Food Company 2,163,000
-----------
3,245,475
-----------
Food Stores: 2.2%
26,000 (a) Meyer (Fred), Inc. 1,566,500
-----------
Health Care: 4.4%
29,600 Humana Inc. 527,250
37,100 Wellpoint Health Network 2,618,700
-----------
3,145,950
-----------
Industrial: 2.3%
119,875 Safety-Kleen Corp. 1,693,234
-----------
Insurance: 3.1%
38,400 Allamerica Financial Corp. 2,222,400
-----------
Life Insurance: 2.3%
41,000 Torchmark Corp. 1,447,813
10,040 Waddell & Reed Financial -- Class B 233,430
-----------
1,681,243
-----------
Media & Entertainment: 2.6%
65,600 (a) King World Productions Inc. 1,931,100
-----------
Medical Services: 2.8%
47,500 (a) HCR Manor Care 1,395,313
41,100 (a) Healthsouth Corp. 634,481
-----------
2,029,794
-----------
See Accompanying Notes to Financial Statements
62
<PAGE>
Pilgrim MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- ------------
Office Products & Services: 6.9%
41,700 Choicepoint Inc. $2,689,650
88,300 United Stationers Inc. 2,295,800
-----------
4,985,450
-----------
Oil & Gas: 3.7%
34,000 Coastal Corp. 1,187,875
127,433 EEX Corp. 892,033
93,280 Ocean Energy New 588,830
-----------
2,668,738
-----------
Packaging Products: 2.4%
57,500 Owens-Illinois, Inc. 1,760,938
-----------
Railways: 1.0%
23,612 Keyspan Energy Corp. 731,972
-----------
Real Estate & Financial Services: 1.9%
67,700 Trizec Hahn Corp. 1,387,850
-----------
Retail: 2.1%
99,000 Kmart 1,515,937
-----------
Retail Clothing: 2.2%
83,200 Polo Ralph Lauren Corp. 1,596,400
-----------
Technology: 6.4%
75,000 Comsat Corp. 2,700,000
56,400 General Instrument Corp. 1,914,075
-----------
4,614,075
-----------
Trucking & Leasing: 1.5%
40,900 Ryder 1,063,400
-----------
See Accompanying Notes to Financial Statements
63
<PAGE>
Pilgrim MidCap Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- -------------
Utilities: 4.3%
54,500 Montana Power Co. $ 3,082,656
------------
Total Common Stocks (Cost $61,096,831) 68,194,918
------------
CONVERTIBLE CORPORATE BONDS: 0.4%
<TABLE>
<CAPTION>
Amount
- ----------
<S> <C> <C> <C>
Industrial: 0.4%
500,000 Inacom Corp., 4.50% due 11/01/2004 301,250
-----------
Total Convertible Bonds (Cost $348,000) 301,250
-----------
WARRANTS: 1.0%
Financials: 1.0%
157,000 Golden State Bancorp 716,313
-----------
Total Warrants (Cost $699,759) 716,313
-----------
Total Long-Term Investments (Cost $62,144,590) 69,212,481
-----------
</TABLE>
SHORT-TERM INVESTMENTS: 4.9%
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------ ----------------
<S> <C> <C> <C>
Repurchase Agreement: 4.9%
$3,524,000 State Street Bank, 4.50% due 01/04/99 $ 3,524,000
-----------
(Collateralized by $2,205,000 U.S. Treasury Bonds, 10.625%,
due 08/15/2015 Market Value $3,595,184.)
Total Short-Term Investments (Cost $3,524,000) 3,524,000
-----------
Total Investments (Cost $65,668,590)* 100.7% 72,736,481
Liabilities in Excess of Other Assets (0.7)% (472,781)
---------- -----------
Total Net Assets 100.0% $72,263,700
========== ===========
</TABLE>
- ------------
(a) Non-income producing security
* Cost for federal income tax purposes is $65,668,590, which is the same as
for financial statement purposes. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 11,427,134
Gross Unrealized Depreciation (4,359,243)
------------
Net Unrealized Appreciation $ 7,067,891
============
See Accompanying Notes to Financial Statements
64
<PAGE>
Pilgrim Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS: 96.7%
Market
Shares Industry/Issuer Value
- ---------- ----------------------------------------- -------------
Automotive: 0.6%
275,000 (a) Keystone Automotive Industries, Inc. $ 5,757,813
------------
Banks: 61.0%
171,000 Alabama National Bancorporation (AL) 4,563,563
276,057 Associated Banc-Corp. (WI) 9,437,699
14,500 BancFirst Corp. (OK) 520,187
220,000 BancWest Corp. (HI) 10,560,000
114,000 (a) BNCCorp., Inc. (ND) 1,225,500
79,567 (a) BOK Financial Corp. (OK) 3,749,595
241,675 BSB Bancorp, Inc. (NY) 7,945,065
268,400 The Bank of New York Company, Inc. (NY) 10,803,100
149,700 Bank of the Ozarks, Inc. (AR) 3,424,388
386,000 BankAmerica Corp. (NC) 23,208,250
721,000 BankBoston Corp. (MA) 28,073,938
176,000 Banknorth Group, Inc. (VT) 6,622,000
98,500 Bay Bancshares, Inc. (TX) 1,428,250
89,000 CCB Financial Corp. (NC) 5,073,000
110,000 Chittenden Corp. (VT) 3,520,000
108,600 CNBT Bankshares, Inc. (TX) 1,072,425
220,000 Colonial BancGroup, Inc. (AL) 2,640,000
191,500 Columbia Bancorp (MD) 3,255,500
558,500 Comerica Inc. (MI) 38,082,719
140,928 Commerce Bancshares, Inc. (MO) 5,989,440
211,500 Community Bank System, Inc. (NY) 6,199,594
337,474 Community First Bankshares, Inc. (ND) 7,108,046
195,000 Compass Bancshares, Inc. (AL) 7,422,187
64,500 Cowlitz Bancorp. (WA) 507,937
345,200 First American Corp. (TN) 15,318,250
24,000 First Merchants Corp. (IN) 627,000
217,100 FirstMerit Corp. (OH) 5,834,562
2,236 First National Bank of Anchorage (AK) 2,325,440
417,655 First Security Corp. (UT) 9,762,686
500,187 First Union Corp. (NC) 30,417,622
125,000 First United Bancshares, Inc. (AK) 2,218,750
423,408 Fleet Financial Group, Inc. (MA) 18,921,045
184,320 Greater Bay Bancorp (CA) 6,220,800
313,250 HUBCO Inc. (NJ) 9,436,656
38,500 (a) Hamilton Bancorp Inc. (FL) 1,027,469
179,623 Independent Bank Corp. (MI) 3,637,366
See Accompanying Notes to Financial Statements
65
<PAGE>
Pilgrim Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Industry/Issuer Value
- ---------- --------------------------------------------- --------------
<S> <C> <C> <C>
Banks (continued)
513,800 KeyCorp (OH) $ 16,441,600
200,000 Lamar Capital Corp. (MS) 2,000,000
20,000 MainStreet Financial Corp. (VA) 928,750
415,800 Mercantile Bankshares Corp. (MD) 16,008,300
485,700 National City Corp. (OH) 35,213,250
42,817 North Dallas Bank & Trust Co. (TX) 2,825,922
164,600 North Fork Bancorp. (NY) 3,940,113
55,300 North Valley Bancorp (CA) 677,425
202,400 One Valley Bancorp., Inc. (WV) 6,653,900
953,000 Pacific Century Financial Corp. (HI) 23,229,375
829,000 Peoples Heritage Financial Group, Inc. (ME) 16,580,000
213,000 Prime Bancshares, Inc. (TX) 3,674,250
240,000 Prosperity Bancshares, Inc. (TX) 2,970,000
190,400 Regions Financial Corp. (AL) 7,675,500
68,500 (a) Six Rivers National Bank (CA) 796,313
82,500 SouthTrust Corp. (AL) 3,047,343
484,687 Sterling Bancshares, Inc. (TX) 7,209,719
375,900 Summit Bancorp (NJ) 16,422,131
248,400 Summit Bancshares, Inc. (TX) 4,595,400
544,200 (a)(b) Surety Capital Corp. (TX) 1,122,412
181,900 TCF Financial Corp. (MN) 4,399,706
499,900 Union Planters Corp. (TN) 22,651,719
916,800 UnionBanCal Corp. (CA) 31,228,500
130,100 (a)(b) United Security Bancorp. (WA) 1,967,762
209,400 USBANCORP, Inc. (PA) 4,161,825
86,350 West Coast Bancorp (OR) 1,813,350
55,353 Westamerica Bancorp (CA) 2,034,223
229,500 Westernbank Puerto Rico (PR) 3,643,313
-------------
542,092,130
-------------
Construction: 1.5%
501,375 D.R. Horton, Inc. 11,531,625
342,500 (a) Schuff Steel Co. 1,883,750
-------------
13,415,375
-------------
</TABLE>
See Accompanying Notes to Financial Statements
66
<PAGE>
Pilgrim Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Industry/Issuer Value
- ----------- ------------------------------------------------------ -------------
<S> <C> <C> <C>
Finance: 4.1%
244,500 (a) CFI ProServices, Inc. $ 2,842,313
325,000 CIT Group Inc. 10,339,063
380,000 Comdisco, Inc. 6,412,500
267,500 (a)(b) International Aircraft Investors 1,638,438
13,500 Matrix Bancorp Inc. 182,250
54,800 Sea Containers Ltd. 1,640,575
800,000 (a) Sirrom Capital Corp. 3,950,000
1,292,000 (a) UniCapital Corp. 9,528,500
------------
36,533,639
------------
Insurance: 5.5%
430,000 (a)(b) American Safety Insurance Group, Ltd. 4,138,750
1,151,000 ARM Financial Group, Inc. -- Class A 25,537,812
215,000 Liberty Financial Co., Inc. 5,805,000
356,500 Reliance Group Holdings, Inc. 4,589,937
240,000 Travelers Property Casualty -- Class A 7,440,000
177,000 (a)(b) 21st Century Holding Company 1,239,000
------------
48,750,499
------------
Printing: 1.8%
955,160 (a) Applied Graphics Technologies, Inc. 15,760,140
------------
Real Estate and Financial Services: 0.4%
375,000 Imperial Credit Commercial Mortgage Investment Corp. 3,515,625
------------
Retail: 1.7%
464,106 (a) Consolidated Stores Corp. 9,369,140
335,000 (a) Michaels Stores, Inc. 6,061,406
------------
15,430,546
------------
Securities Related Business: 1.0%
573,400 Freedom Securities Corp. 8,672,675
------------
</TABLE>
See Accompanying Notes to Financial Statements
67
<PAGE>
Pilgrim Bank and Thrift Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Industry/Issuer Value
- ----------- ------------------------------------------------------ --------------
<S> <C> <C> <C>
Thrifts: 17.0%
245,000 Astoria Financial Corp. (NY) $ 11,208,750
1,746,340 Charter One Financial, Inc. (OH) 48,460,935
1,261,238 Commercial Federal Corp. (NE) 29,244,945
34,900 First Mutual Savings Bank (WA) 462,425
253,300 Golden West Financial Corp. (CA) 23,224,443
20,250 Home Federal Bancorp (IN) 450,563
149,400 InterWest Bancorp, Inc. (WA) 3,305,475
63,655 Laurel Capital Group, Inc. (PA) 1,106,005
100,000 Seacoast Financial Services Corp. (MA) 1,025,000
849,800 Washington Mutual Inc. (WA) 32,451,738
-------------
150,940,279
-------------
Total Common Stocks (Cost $667,113,251) 840,868,721
-------------
LIMITED PARTNERSHIP: 2.1%
741,900 Alliance Capital Management 19,103,925
-------------
Total Limited Partnership Stock (Cost $15,869,002) 19,103,925
-------------
Total Long-Term Investments (Cost $682,982,253) 859,972,646
-------------
</TABLE>
SHORT-TERM INVESTMENTS: 2.8%
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------- ---------------
<S> <C> <C> <C>
Repurchase Agreement: 2.8%
$25,045,000 State Street Bank, 4.50% due 01/04/99 25,045,000
--------------
(Collateralized by $17,415,000 U.S. Treasury Bonds, 12.750%,
due 11/15/10 Market Value $25,306,172.)
Total Short-Term Investments (Cost $25,045,000) 25,045,000
--------------
Total Investments in Securities (Cost $708,027,253) 99.5% 885,017,646
Other Assets in Excess of Liabilities 0.5% 4,041,258
------ --------------
Net Assets 100.0% $ 889,058,904
====== ==============
</TABLE>
- ------------
* Cost for federal income tax purposes is $708,027,253, which is the same as
for financial statement purposes. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 242,406,708
Gross Unrealized Depreciation (65,416,315)
-------------
Net Unrealized Appreciation $ 176,990,393
=============
- ------------
(a) Non-income producing security
(b) Company in which there is any direct or indirect ownership of 5% or more of
the outstanding voting securities.
See Accompanying Notes to Financial Statements
68
<PAGE>
Pilgrim Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCKS: 101.3%
Market
Shares Value
- ----------- ------------
CHINA: 2.1%
Construction: 1.1%
644,000 Zhejiang Expressway CL H $ 130,504
500,000 Shenzhen Expressway Co. 116,167
-----------
246,671
-----------
Mines & Minerals: 0.5%
650,000 Yanzhou Coal Mining Co. 109,067
-----------
Properties: 0.5%
1,000,000 Anhui Expressway 117,457
-----------
Total China Common Stocks 473,195
-----------
HONG KONG: 41.3%
Banks: 0.8%
160,000 Kwong On Bank Limited 188,964
-----------
Commercial & Industrial: 9.3%
120,000 Citic Pacific, Ltd. 258,664
200,000 Hutchison Whampoa, Ltd. 1,413,359
100,000 Swire Pacific, Ltd. 447,886
-----------
2,119,909
-----------
Communication: 1.9%
250,000 (a) China Telcom (HK) 432,398
-----------
Construction: 2.8%
150,000 Cheung Kong Infrastructure 334,947
200,000 New World Infrastructure 292,998
-----------
627,945
-----------
Diversified Holdings : 2.5%
100,000 Dah Sing Financial 245,240
1,000,000 JCG Holdings Limited 322,685
-----------
567,925
-----------
See Accompanying Notes to Financial Statements
69
<PAGE>
Pilgrim Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
- ----------- ------------
<S> <C> <C> <C>
Financial: 1.4%
100,000 Dao Heng Bank Group, Ltd. $ 309,132
-----------
Properties: 12.6%
210,000 Cheung Kong Holdings, Ltd. 1,511,133
150,000 Sun Hung Kai Properties, Ltd. 1,093,901
180,000 Wharf Holdings 262,536
-----------
2,867,570
-----------
Oil & Gas: 1.7%
300,000 Hong Kong & China Gas 381,413
-----------
Utilities: 8.3%
140,000 CLP Holdings, Ltd. 697,515
80,000 Hong Kong Electric Holdings, Ltd. 242,659
550,000 Hong Kong Telecommunications, Ltd. 961,923
-----------
1,902,097
-----------
Total Hong Kong Common Stocks 9,397,353
-----------
PHILIPPINES: 6.2%
Communications: 1.9%
580,000 Benpres Holdings -- GDR 93,933
13,000 Philippine Long Distance Telephone Co. -- ADR 337,188
-----------
431,121
-----------
Foods: 0.8%
90,000 San Miguel Corp. -- Class B 173,522
-----------
Real Estate & Financial Services: 2.6%
500,000 Ayala Land Inc. 141,388
21,500 Metropolitan Bank & Trust 154,756
1,650,000 SM Prime Holdings, Inc. 313,882
-----------
610,026
-----------
</TABLE>
See Accompanying Notes to Financial Statements
70
<PAGE>
Pilgrim Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- ------------
Utilities: 0.9%
65,000 Manila Electric Co. -- Class B $ 208,869
-----------
Total Philippines Common Stocks 1,423,538
-----------
SINGAPORE: 21.9%
Aerospace: 2.8%
691,000 Singapore Technologies Engineering, Ltd. 644,543
-----------
Commercial & Industrial: 1.4%
120,000 Keppel Corp. 321,260
-----------
Computer Systems/Software: 0.3%
12,600 Elec & Eltek International Co. Ltd. 68,040
-----------
Financial: 6.6%
80,000 Development Bank Singapore 721,987
120,000 United Overseas Bank 770,442
-----------
1,492,429
-----------
Hotels: 0.5%
117,000 Marco Polo Developments 123,307
-----------
Manufacturing: 0.6%
34,000 Venture Manufacturing 129,740
-----------
Properties: 1.4%
71,000 (a) City Developments, Ltd. 307,480
-----------
Publishing: 1.7%
36,000 Singapore Press Holdings, Ltd. 390,309
-----------
Transportation: 2.9%
90,000 Singapore Airlines, Ltd. 659,600
-----------
Utilities: 3.7%
550,000 Singapore Telecommunication 839,491
-----------
Total Singapore Common Stocks 4,976,199
-----------
See Accompanying Notes to Financial Statements
71
<PAGE>
Pilgrim Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
Market
Shares Value
- ---------- ------------
South Korea: 14.5%
Banks: 1.8%
32,000 Housing & Commercial Bank $ 396,343
-----------
Manufacturing: 4.3%
11,400 Samsung Electronics Co. 764,738
4,350 Samsung Display Devices 214,426
-----------
979,164
-----------
Securities Related Business: 0.9%
14,000 Dongwon Securities 214,131
-----------
Steel: 3.7%
13,000 Pohang Iron & Steel 837,479
-----------
Utilities: 3.8%
35,000 Korea Electric Power 866,999
-----------
Total South Korea Common Stocks 3,294,116
-----------
TAIWAN: 10.6%
Computer Services: 1.2%
15,300 Synnex Technology 272,799
-----------
Computer Systems/Software: 4.3%
30,000 Asustek Computer Inc -- GDR 263,250
50,000 Taiwan Semiconductor -- SP (ADR) 709,375
-----------
972,625
-----------
Electrical Equipment: 0.7%
26,460 (a) Yageo Corp. 171,990
-----------
See Accompanying Notes to Financial Statements
72
<PAGE>
Pilgrim Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Shares Value
- ---------- --------------
<S> <C> <C> <C>
Electronics -- Defense: 0.6%
25,000 Acer Inc. -- GDR $ 143,125
-------------
Food & Beverages: 0.8%
20,730 President Enterprises 183,979
-------------
Insurance: 1.2%
24,507 Fubon Insurance Co. LD-GDR 270,190
-------------
Steel: 1.8%
33,700 (a) China Steel Corp. -- GDR 411,141
-------------
Total Taiwan Common Stocks 2,425,849
-------------
Thailand: 4.7%
Communications: 1.1%
41,000 Advanced IFO Services 243,632
-------------
Financial: 1.6%
206,200 Thai Farmers Bank 363,048
-------------
Utilities: 2.0%
42,000 Electricity Generating Public Co. 113,810
50,000 PTT Exploration & Production 352,132
-------------
465,942
-------------
Total Thailand Common Stocks 1,072,622
-------------
Total Common Stocks (Cost $23,371,644) $ 23,062,872
-------------
</TABLE>
See Accompanying Notes to Financial Statements
73
<PAGE>
Pilgrim Asia-Pacific Equity Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS: 2.1%
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------ ---------------
<S> <C> <C> <C>
TAIWAN: 2.1%
Industrial: 2.1%
$260,000 Nan Ya Plastic Corp., 1.75% due July 2001 $ 295,750
160,000 United Microelectronics, 0.25% due May 2004 177,600
------------
Total Convertible Bonds (Cost $470,125) 473,350
------------
Total Long-Term Investments (Cost $23,841,769) 23,536,222
------------
Total Investments (Cost $23,841,769)* 103.4% 23,536,222
Liabilities in Excess of Other Assets (3.4)% (777,348)
---------- ------------
Total Net Assets 100.0% $ 22,758,874
========== ============
</TABLE>
(a) Non-income producing security
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
* Cost for federal income tax purposes is, $23,841,769, which is the same as
for financial statements. Net unrealized depreciation consists of:
Gross Unrealized Appreciation $ 2,535,168
Gross Unrealized Depreciation (2,840,715)
------------
Net Unrealized Depreciation $ (305,547)
============
See Accompanying Notes to Financial Statements
74
<PAGE>
Pilgrim High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
CORPORATE BONDS: 89.6%
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ------------ -------------
<S> <C> <C> <C>
Aerospace: 1.1%
$4,000,000 (a) BE Aerospace, 9.500%, due 11/01/2008 $ 4,240,000
------------
Automotive: 4.7%
4,000,000 (a) Breed Technology, 9.250%, due 04/15/2008 3,530,000
5,000,000 Hayes Lemmerz International, Inc., 8.250%, due 12/15/2008 5,000,000
3,000,000 (a) JH Heafner Co., 10.000%, due 05/15/2008 3,037,500
6,500,000 JH Heafner Co., 10.000%, due 05/15/2008 6,581,250
------------
18,148,750
------------
Broadcasting: 4.4%
7,000,000 Fox Family Worldwide, Inc., 9.250%, 11/01/2007 6,930,000
7,000,000 (a) Pegasus Communications, 9.750%, due 12/01/2006 7,026,250
3,000,000 (a) Salem Communications, 9.500%, due 10/01/2007 3,056,250
------------
17,012,500
------------
Building Materials: 0.8%
3,000,000 Republic Group, 9.500%, due 07/15/2008 2,932,500
------------
Business Services: 0.3%
1,500,000 (a) American Business Information, 9.500%, due 06/15/2008 1,132,500
------------
Communications: 17.3%
2,000,000 (a) CCPR Services, Inc., 10.000%, due 02/01/2007 1,930,000
1,000,000 Convergent Communications, 13.000%, due 04/01/2008 500,000
3,000,000 (a) Dobson Wireline, 12.500%, due 06/15/2008 2,767,500
8,000,000 Globix Corp., 13.000%, due 05/01/2005 6,700,000
4,000,000 Iridium LLC, 10.875%, due 07/15/2005 3,315,000
6,000,000 (a) MGC Communications, Inc., 13.000%, due 10/01/2004 3,990,000
6,000,000 (a) Metromedia Fiber, 10.000%, due 11/15/2008 6,217,500
7,000,000 (a) Nextlink Communications, 10.750%, due 11/15/2008 7,192,500
7,000,000 Northeast Optic Network, 12.750%, due 08/15/2008 6,903,750
4,000,000 (a) Paging Network, 10.000%, due 10/15/2008 3,900,000
2,000,000 Pathnet, Inc., 12.250%, due 04/15/2008 1,400,000
3,000,000 Phonetel Technologies, 12.000%, due 12/15/2006 1,230,000
6,000,000 (a) RSL Communications, 10.500%, due 11/15/2008 3,890,000
4,000,000 (a) Rogers Cantel, Inc., 8.300%, due 10/01/2007 6,000,000
6,000,000 Teligent, Inc., 11.500%, due 12/01/2007 5,640,000
6,000,000 Winstar Communications, Inc., 10.000%, due 03/15/2008 5,160,000
------------
66,736,250
------------
</TABLE>
See Accompanying Notes to Financial Statements
75
<PAGE>
Pilgrim High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ------------ -------------
<S> <C> <C> <C>
Consumer Durables: 2.9%
$7,000,000 (a) Carson, Inc., 10.375%, due 11/01/2007 $ 5,250,000
7,000,000 Samsonite Corp., 10.750%, due 06/15/2008 5,950,000
------------
11,200,000
------------
Education: 0.5%
2,000,000 La Petite Acadamy, 10.000%, due 05/15/2008 1,980,000
------------
Entertainment: 3.6%
7,000,000 (a) Regal Cinemas, Inc., 9.500%, due 06/01/2008 7,297,500
9,000,000 (a) Silver Cinemas, Inc., 10.500%, due 04/15/2005 6,390,000
------------
13,687,500
------------
Financial: 1.6%
2,500,000 (a) Emergent Group, 10.750%, due 09/15/2004 1,112,500
5,000,000 (a) GS Escrow Corp., 7.125%, due 08/01/2005 4,993,750
------------
6,106,250
------------
Foods: 2.0%
8,000,000 (a) Imperial Holly Corp., 9.750%, due 12/15/2007 7,900,000
------------
Gaming: 4.9%
3,000,000 (a) Alliance Gaming Corp., 10.000%, due 08/01/2007 2,707,500
8,000,000 Caesars World, 8.875%, due 05/15/2002 8,040,000
3,000,000 Isle of Capri Capital Corp., 13.000%, due 08/31/2004 3,187,500
5,000,000 (a) Stations Casinos, 8.875%, due 12/01/2008 5,037,500
------------
18,972,500
------------
Health Care: 0.5%
2,000,000 (a) Genesis Health, 9.875%, due 01/15/2009 1,920,000
------------
Hotels: 1.5%
6,000,000 HMH Properties, 7.875%, due 08/01/2008 5,857,500
------------
Housewares: 1.6%
6,000,000 (a) Albecca, Inc., 10.750%, due 08/15/2008 6,105,000
------------
Industrial: 1.0%
4,000,000 (a) Aqua Chem, Inc., 11.250%, due 07/01/2008 3,800,000
------------
Leisure: 4.5%
9,000,000 (a) Bally Total Fitness Holdings, 9.875%, 10/15/2007 8,802,500
4,000,000 (a) Bell Sports, Inc., 11.000%, due 08/15/2008 4,110,000
3,000,000 Epic Resorts, LLC, 13.000%, 06/15/2005 2,906,250
2,000,000 Silverleaf Resorts, Inc., 10.500%, due 04/01/2008 1,725,000
------------
17,543,750
------------
</TABLE>
See Accompanying Notes to Financial Statements
76
<PAGE>
Pilgrim High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ------------ -------------
<S> <C> <C> <C>
Machinery & Equipment: 2.0%
$4,000,000 (a) United Rentals, Inc., 9.250%, due 01/15/2009 $ 4,040,000
4,000,000 (a) United Rentals, Inc., 8.800%, due 08/15/2008 3,920,000
------------
7,960,000
------------
Manufacturing: 2.0%
9,000,000 Paragon Holdings, 9.625%, due 04/01/2008 7,560,000
------------
Media & Entertainment: 4.8%
3,000,000 (a) Avalon Cable, 9.375%, due 12/01/2008 3,060,000
4,000,000 (a) Classic Cable Inc., 9.875%, due 08/01/2008 4,170,000
6,000,000 (a) Coaxial Communications, 10.000%, due 08/15/2006 6,180,000
5,000,000 Star Choice Communications, 13.000%, due 12/15/2005 4,975,000
------------
18,385,000
------------
Metals & Minerals: 0.8%
5,000,000 Metal Management, 10.000%, due 05/15/2008 3,000,000
------------
Mines & Minerals: 1.6%
3,000,000 (a) Anker Coal Group, 9.750%, due 10/01/2007 1,650,000
6,000,000 (a) Lodestar Holdings, Inc., 11.500%, due 05/15/2005 4,650,000
------------
6,300,000
------------
Oil Well Equipment & Services: 1.1%
5,000,000 Eagle Geophysical, Inc., 10.750%, due 07/15/2008 4,200,000
------------
Paper & Forest Products: 1.3%
5,000,000 Stone Container Corp., 12.250%, due 04/01/2002 5,012,500
------------
Pharmaceuticals: 2.4%
6,000,000 (a) Biovail Corporation International, 10.875%, due 11/15/2005 6,105,000
3,000,000 (a) ICN Pharmaceutical, 8.750%, due 11/15/2008 3,030,000
------------
9,135,000
------------
Plastic Products: 1.3%
1,000,000 Indesco International, 9.750%, due 04/15/2008 935,000
4,000,000 (a) Moll Industries, 10.500%, due 07/01/2008 3,960,000
------------
4,895,000
------------
Pollution Control: 0.9%
3,500,000 Marsulex, Inc., 9.625%, due 07/01/2008 3,591,875
------------
Printing: 1.8%
7,000,000 (a) Premier Graphics, 11.500%, due 12/01/2005 7,008,750
------------
Publishing: 1.6%
6,000,000 (a) Primark Corp., 9.250%, due 12/15/2008 6,015,000
------------
</TABLE>
See Accompanying Notes to Financial Statements
77
<PAGE>
Pilgrim High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Value
- ------------- --------------
<S> <C> <C> <C>
Retail: 10.7%
$6,000,000 Advance Stores Co., 10.250%, due 04/15/2008 $ 6,090,000
5,000,000 (a) Big 5 Corp., 10.875%, due 11/15/2007 5,125,000
8,000,000 CSK Auto, Inc., 11.000%, due 11/01/2006 8,440,000
6,000,000 Cluett American Corp., 10.125%, due 05/15/2008 5,700,000
4,000,000 Sonic Automotive, Inc., 11.000%, due 08/01/2008 3,885,000
7,000,000 Tuesday Morning, 11.000%, due 12/15/2007 6,842,500
6,000,000 (a) United Auto Group, 11.000%, due 07/15/2007 5,280,000
-------------
41,362,500
-------------
Shipping: 0.2%
2,999,700 Ermis Maritime Holdings Limited, 12.500%, due 03/15/2006 899,910
-------------
Steel: 0.7%
3,000,000 Schuff Steel Co., 10.500%, due 06/01/2008 2,670,000
-------------
Textile: 1.1%
4,000,000 Westpoint Steven, 7.875%, due 06/15/2008 4,110,000
-------------
Transportation: 2.1%
5,000,000 Amtran, Inc., 9.625%, due 12/15/2005 5,000,000
3,000,000 (a) Atlas Air, Inc., 9.375%, due 11/15/2006 3,056,250
-------------
8,056,250
-------------
Total Corporate Bonds (Cost $364,175,066) 345,436,785
-------------
STOCKS PURCHASE WARRANTS AND OTHER SECURITIES: 0.0%
Shares or
Par
Amount
Value
Communications: 0.0%
8,000 (a) Bell Technology Group, Warrant representing 8,000 common shares,
expires 05/01/2005 --
4,000 (a) Convergent Communications, Warrant representing 4,000 common shares,
expires 04/01/2008 --
2,000 (a) MGC Communication, Warrant representing 2,000 common shares, expires
10/01/2004 64,000
2,000 (a) Pathnet, Inc., Warrant representing 2,000 common shares, expires
04 /15/2008 --
-------------
64,000
-------------
Leisure: 0.0%
3,000 (a) Epic Resorts, LLC, Warrant representing 3,000 common shares, expires
06/15/2005 --
-------------
Media & Entertainment: 0.0%
115,800 (a) Star Choice Communications, Warrant representing 115,800 common
shares, expires 12/15/2005 --
-------------
Shipping: 0.0%
2,727 Ermis Maritime Holdings Limited, Warrant representing 2,727 common
shares, expires 01/01/2001 --
-------------
Total Stocks Purchase Warrants and Other Securities (Cost $70,000) 64,000
-------------
</TABLE>
See Accompanying Notes to Financial Statements
78
<PAGE>
Pilgrim High Yield Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 7.0%
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------- -------------
<S> <C> <C> <C>
Commercial Paper: 7.0%
$19,100,000 General Electric Capital Corp., 5.000%, due 01/04/1999 $19,100,000
7,714,000 Merrill Lynch, 5.050%, due 01/04/1999 7,714,000
------------
Total Short-Term Investments (Cost $26,802,795) 26,814,000
------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
Total Investments in Securities (Cost $391,047,861)* 96.6% 372,314,785
Cash and Other Assets in Excess of Liabilities-Net 3.4% 13,133,085
------ -------------
Total Net Assets 100.0% $385,447,870
====== =============
</TABLE>
- ------------------
(a) Issues designated 144A.
* Cost for federal income tax purposes is $391,047,861, which is the same as
for financial statement purposes. Net unrealized depreciation consists of:
Gross Unrealized Appreciation $ 4,139,570
Gross Unrealized Depreciation (22,883,851)
-------------
Net Unrealized Depreciation $ (18,744,281)
=============
See Accompanying Notes to Financial Statements
79
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES: 90.7%
<TABLE>
<CAPTION>
Principal Market
Amount Rate Maturity Value
- ------------- --------- -------------- -------------
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation: 4.5%
$622,787 Federal Home Loan Mortgage Corporation 9.500% 2005 $ 656,262
486,182 Federal Home Loan Mortgage Corporation 12.250% 2015 552,575
226,966 Federal Home Loan Mortgage Corporation 9.500% 2014 239,708
21,147 Federal Home Loan Mortgage Corporation 8.500% 2017 223,238
132,393 Federal Home Loan Mortgage Corporation 9.000% 2006 137,192
90,524 Federal Home Loan Mortgage Corporation 9.905% 2020 96,634
79,943 Federal Home Loan Mortgage Corporation 9.000% 2021 84,514
10,565 Federal Home Loan Mortgage Corporation 9.500% 2005 11,133
------------
2,001,256
------------
Federal National Mortgage Association: 37.2%
3,005,846 Federal National Mortgage Association 6.500% 2018 3,056,555
2,990,994 Federal National Mortgage Association 6.500% 2028 3,015,322
2,435,191 Federal National Mortgage Association 10.500% 2014 to 2021 2,763,710
2,162,024 Federal National Mortgage Association 9.000% 2007 to 2017 2,440,336
1,111,741 Federal National Mortgage Association 13.000% 2012 1,287,116
998,554 Federal National Mortgage Association 10.000% 2020 1,077,050
787,062 Federal National Mortgage Association 11.500% 2019 875,945
492,284 Federal National Mortgage Association 8.500% 2017 518,420
356,239 Federal National Mortgage Association 11.000% 2007 to 2017 400,736
307,714 Federal National Mortgage Association 8.000% 2023 318,674
154,553 Federal National Mortgage Association 9.250% 2016 163,874
154,183 Federal National Mortgage Association 8.500% 2021 162,180
131,268 Federal National Mortgage Association 9.250% 2016 139,185
104,803 Federal National Mortgage Association 9.750% 2005 112,191
89,267 Federal National Mortgage Association 9.250% 2009 94,650
82,320 Federal National Mortgage Association 9.250% 2015 87,285
68,889 Federal National Mortgage Association 9.250% 2016 73,044
------------
16,586,273
------------
Government National Mortgage Association: 25.0%
4,800,765 Government National Mortgage Association 6.500% 2026 4,853,925
754,851 Government National Mortgage Association 8.000% 2024 787,401
625,775 Government National Mortgage Association 9.500% 2016 669,754
649,018 Government National Mortgage Association 7.500% 2023 669,183
543,140 Government National Mortgage Association 7.000% 2016 557,495
528,393 Government National Mortgage Association 8.000% 2023 552,662
410,667 Government National Mortgage Association 9.000% 2016 to 2017 440,419
410,701 Government National Mortgage Association 7.000% 2017 421,737
315,646 Government National Mortgage Association 11.250% 2011 353,325
308,718 Government National Mortgage Association 9.250% 2016 to 2017 330,783
249,951 Government National Mortgage Association 9.500% 2016 266,091
220,555 Government National Mortgage Association 9.000% 2022 236,534
192,958 Government National Mortgage Association 9.250% 2021 207,750
178,327 Government National Mortgage Association 9.000% 2013 191,247
</TABLE>
See Accompanying Notes to Financial Statements
80
<PAGE>
Pilgrim Government Securities Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS as of December 31, 1998 (Unaudited) (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Market
Amount Rate Maturity Value
- ------------- --------- -------------- -------------
<S> <C> <C> <C> <C>
$171,209 Government National Mortgage Association 9.500% 2019 $ 183,813
82,553 Government National Mortgage Association 13.000% 2014 94,729
75,012 Government National Mortgage Association 9.000% 2016 to 2017 80,714
63,423 Government National Mortgage Association 11.000% 2016 70,114
53,908 Government National Mortgage Association 9.000% 2016 57,814
47,179 Government National Mortgage Association 11.750% 2015 53,264
44,543 Government National Mortgage Association 9.000% 2016 47,770
30,283 Government National Mortgage Association 9.000% 2016 32,476
------------
11,159,000
------------
U.S. Government Agency Securities: 7.6%
3,205,000 Federal Home Loan Mortgage Corporation 7.010% 2007 3,363,744
------------
U.S. Treasury Securities: 16.4%
3,000,000 U.S. Treasury Bond 5.500% 2028 3,140,160
2,000,000 U.S. Treasury Bond 4.750% 2008 2,015,620
2,000,000 U.S. Treasury Bond 5.625% 2008 2,134,060
------------
7,289,840
------------
Total U.S. Government Securities
(Cost $40,165,070) 40,400,113
------------
</TABLE>
SHORT-TERM INVESTMENTS: 6.2%
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- --------------
<S> <C> <C> <C> <C>
Repurchase Agreements: 6.2%
2,762,000 State Street Bank, 4.50% due 01/04/99 2,762,000
-------------
(Collateralized by $1,730,000 U.S. Treasury Bonds, 10.625%
due 08/15/2015, Market Value $2,820,711)
Total Short-Term Investments (Cost $2,762,000 ) 2,762,000
-------------
Total Investments in Securities (Cost $42,927,070)* 96.9% 43,162,113
Other Assets in Excess of Liabilities 3.1% 1,388,001
------ -------------
Total Net Assets 100.0% $ 44,550,114
====== =============
</TABLE>
- ------------------
* Cost for federal income tax purposes is, $42,927,070, which is the same as
for financial statement purposes. Net unrealized appreciation consists of:
Gross Unrealized Appreciation $ 386,095
Gross Unrealized Depreciation (151,052)
----------
Net Unrealized Appreciation $ 235,043
==========
See Accompanying Notes to Financial Statements
81
<PAGE>
Investment Manager
PILGRIM INVESTMENTS, INC.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4408
Distributor
PILGRIM SECURITIES, INC.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4408
Shareholder Servicing Agent
PILGRIM GROUP, INC.
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004-4408
Transfer Agent
DST SYSTEMS, INC.
P.O. Box 419368
Kansas City, Missouri 64141-6368
Custodian
INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania
Kansas City, Missouri 64105
Legal Counsel
DECHERT PRICE & RHOADS
1775 Eye Street, N.W.
Washington, D.C. 20006
Independent Auditors
KPMG LLP
725 South Figueroa Street
Los Angeles, California 90017
Prospectuses containing more complete information regarding the Funds, including
charges and expenses, may be obtained by calling PILGRIM SECURITIES, INC.
DISTRIBUTOR AT 1-800-334-3444. Please read the prospectuses carefully before you
invest or send money.