PILGRIM AMERICA MASTERS SERIES INC, N-30D, 1996-03-04

PILGRIM AMERICA MASTERS SERIES INC
N-30D, 1996-03-04

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SEMI-ANNUAL REPORT
DECEMBER 31, 1995

PILGRIM AMERICA
FUNDS
- -----------------------------

Masters Series
- --------------

Pilgrim America Masters
Asia-Pacific Equity Fund

Pilgrim America Masters
MidCap Value Fund

Pilgrim America Masters
LargeCap Value Fund
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Dear Shareholder:

I am pleased to present the Semi-Annual Report for the Pilgrim America
Masters Series of Funds ("Masters Series") which consists of Pilgrim
America Masters Asia-Pacific Equity Fund, Pilgrim America Masters MidCap
Value Fund and Pilgrim America Masters LargeCap Value Fund. In the
following pages, the portfolio manager for each Fund of the Masters Series
discusses the results of operations for the four month period ended
December 31, 1995, as well as the markets and factors which affected each
of the Funds during this period.

The Masters Series is designed to give investors access to private money
managers who typically manage similar portfolios only for high net worth
individuals and institutional investors. Each money manager has extensive
knowledge and proven experience in their specialized market segments.

The Masters Series commenced operations on September 1, 1995. Pilgrim
America Masters Asia-Pacific Equity Fund invests primarily in the equity
securities of companies based in the Asia-Pacific region. Pilgrim America
Masters MidCap Value Fund invests primarily in equity securities of
companies that have a market capitalization between $200 million and $5
billion. Pilgrim America Masters LargeCap Value Fund invests primarily in
equity securities of companies that have a market capitalization in excess
of $5 billion.

At Pilgrim America, we are dedicated to providing core investments for the
serious investor. We believe that the key to success is matching quality
core investments to the individual needs of investors. Core investments are
the foundation of every portfolio and the basis for other important
investment decisions. Pilgrim America prides itself on providing a high
level of quality core investments to help you reach your financial goals.
Our goal is for every investor to have a successful investment experience.

Thank you for selecting the Pilgrim America Masters Series of Funds. We
appreciate the confidence you have placed with us in serving your
investment needs.

Sincerely,

Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim America Group, Inc.
February 26, 1996

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Portfolio Manager's Report
PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND
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Dear Shareholder:

We are pleased to report the results of operation for the Pilgrim America
Masters Asia-Pacific Equity Fund (the "Fund") for the four months ended
December 31, 1995. Equities were mixed in the Asia-Pacific region with some
countries benefiting from moderate growth with low inflation while others were
characterized by high inflation and political strife. The Fund, during this
period, provided a total return of -1.20%*, compared with the Morgan Stanley
Combined Far East ex-Japan (Free) Index -- a measure of Far East markets
excluding Japan -- which had a positive return of 4.08% for the same period. The
Fund has grown steadily in size since inception. It rose to US $6,790,404.33 by
December 31, 1995.

GENERAL ECONOMIC ENVIRONMENT
The general economic environment in the last four months ending December 31,
1995, has been characterized by economic overheating in selected countries,
widening current account deficits leading to rising interest rates, downward
revisions in corporate earnings estimates, and political uncertainties in
countries such as Korea and Taiwan. However, longer term, we believe the region
looks attractive because we expect i) economic growth of over 7% in 1996 and
1997, ii) near term earnings growth of over 15%, iii) the US economy and US
interest rates to remain favorable for growth in the Asia-Pacific region, and
iv) current valuations to continue to be reasonable compared to interest rates
and earnings.

EQUITY MARKET ENVIRONMENT
The Asian stock markets saw substantial volatility during the period under
review. Hong Kong attracted the most attention as investors anticipated the
reduction of US interest rates. As Hong Kong was perceived to be ahead of the
other Asian economies in the business cycle, it was believed to be the first
beneficiary of a more benign interest rate environment. Despite the slowdown in
the local economy, as witnessed by the high unemployment and sluggish retail
sales, investment sentiment improved amid gradually increasing activities in the
property market, improving Sino-British relationships and signals that inflation
in China was beginning to come under control.

Performance of the stock markets elsewhere in the region was mixed. The
Singapore market performed well as investors were encouraged by its good
macroeconomic performance and healthy corporate sector. The economy appears to
be slowing, with a massive current account surplus providing liquidity and
keeping interest rates low. In Malaysia, however, worries about economic
overheating and interest rate hikes and a possible downgrade in corporate
earnings dampened share price performance. In Thailand, unexciting corporate
results and continued internal political strife sent the stock market down. In
addition, despite improvements in the core inflation, the flood led to high
headline inflation figures and resulted in concerns about tight monetary policy.
In Indonesia, on the other hand, improving inflation, strong capital inflows and
above average corporate earnings growth underpinned the performance of the
market. In the Philippines, despite the improving external account, stubbornly
high inflation and concerns about rising interest rates resulted in a negative
stock market return over the period. In Korea, the market was depressed by
political concerns, a slowdown in corporate earnings growth and a weak Yen. In
Taiwan, sentiment was affected by the economic slowdown and escalating tension
between China and Taiwan.

PILGRIM AMERICA MASTERS ASIA-PACIFIC EQUITY FUND
During the period, we remained slightly underweight in Hong Kong given the
slowdown in economy and corporate earnings. Nonetheless, in anticipation of
lower interest rates and better liquidity we raised our exposure to the interest
rate sensitive stocks such as property developers and banks. We have reduced our
underweight position in Singapore by adding to our weighting in the shipyards
and the banks. In Malaysia, we have become more underweighted as the

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medium outlook for inflation and economic overheating remains a cause for
concern. We have decided to reduce the exposure to gaming and certain other
stocks. We remain overweighted in Thailand, emphasizing the banks, given their
strong earnings growth potential and cheap valuation. We are also overweighted
in Indonesia on the back of strong corporate earnings growth. In the
Philippines, our weighting was reduced to neutral as we closely monitored the
development on the inflation front. We have trimmed our weighting in Korea to
neutral, expecting an economic "soft-landing" in the near term. Despite the
sharp volatility caused by political uncertainty, we maintain our small exposure
to Taiwan on grounds of attractive valuation and access to a selected number of
growth companies.

We believe, the outlook of the Asia-Pacific markets remains attractive on a
fundamental basis. Equity markets will continue to be driven by earnings growth
while liquidity inflows will also provide support to markets. In addition,
valuations are undemanding with market multiples trading at the low-end of the
five-year range. Given the economic potential of the respective regional
economies, investors' interest in the equity markets will be sustained.

We thank you for giving us this opportunity to help you to meet your investment
needs.

Sincerely,

HSBC ASSET MANAGEMENT AMERICAS, INC.

* Calculated without deducting the Class A maximum 5.75% sales charge and
assuming reinvestment of all dividends and distributions. Total return with the
deduction of the maximum sales charge and assuming reinvestment of all dividends
and distributions since September 1, 1995 (commencement of operations) was
- -6.88%.

Performance figures shown pertain only to Class A shares of the Fund. Class B
and M Shares, are subject to different fees and expenses, which will affect
their performance.

Performance data represents past performance and is not indicative of future
results. Investment return and principal value of an investment in the Fund will
fluctuate. Shares, when redeemed, may be worth more or less than their original
cost.

3
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Portfolio Manager's Report
PILGRIM AMERICA MASTERS MIDCAP VALUE FUND
- --------------------------------------------------------------------------------

Dear Shareholder:

We are pleased to report the results of operation for the Pilgrim America
Masters MidCap Value Fund for the four months ended December 31, 1995.

GENERAL ECONOMIC ENVIRONMENT
With long-term rates coming down throughout the year, money flowed into mutual
funds at an unprecedented rate which helped push large company stock prices to
new highs. This in turn created some interesting phenomena. With the S&P
500 -- a common proxy for the US stock market -- rising in 11 out of 12 months
the dividend yield reached the lowest level in this century while the ratio of
total equity capitalization to GDP and the ten year rate of return reached their
highest levels in this century. The S&P 500 continued its longest period of
growth without a 10% decline. While evidence of extremes abound, there are also
logical explanations for what has happened. These include positive demographics
resulting in higher savings as well as buy back and merger activity which
reduced the supply of equities.

EQUITY MARKET ENVIRONMENT
We believe that medium and small company stocks will do better than the very
largest company stocks which are very dependent on interest rate changes for
their performance. A significant dip below 6% on the long bond is possible, but
difficult to see in the absence of general deflation. Even with a benign
combination of low inflation, low interest rates and a slow growth economy, one
would have to believe that we are in a new era for equities to see stocks
significantly higher in 1996. With 1996 shaping up as a strongly political year,
the possibility for disruption in the market seems reasonably high when combined
with difficult earnings comparisons for many companies. The "noise" created by
our government's inability to agree on a budget has been the catalyst for
weakness already this year. As long as interest rates remain low, however, any
declines should be of limited scope and relatively short duration.

PILGRIM AMERICA MASTERS MIDCAP VALUE FUND
The strength in technology stocks for most of the year did not help our
performance as we were underrepresented there. We are now benefiting from that
underweighting as the technology area has undergone a severe reevaluation during
the last few months. The action of the first few weeks of January suggests that
we may be reaching an extreme in that correction. Our results for the last two
months were strong absolutely as well as relatively. Our style of finding
positive change in less popular small and medium-sized companies offers the
potential for very good risk adjusted returns over a long period of time. Our
intention is to continue to focus on this approach.

A prevalent theme in 1995 was the success that companies had when management
refocused or restructured their businesses. This finally resulted in a higher
price for W.R. Grace which culminated in the firing of the CEO and subsequent
board shakeup. Also affected positively were companies whose focus on cost
reduction propelled these formerly sleepy stocks higher.

Sterling Software is seeking to create value by selling a portion of its fast
growing electronic data interchange business to the public. This business
provides software and communications technology to retailers and suppliers who
wish to automate their inventory management, order processing, and billing
procedures. One of our companies, Westinghouse, is engaged in a complete refocus
of its business. As a conglomerate struggling to regain its profitability, the
management was making slow but steady progress. The acquisition of CBS, however,
will leverage Westinghouse's highly profitable broadcast division and result in
significant cost savings. In order to finance the acquisition, Michael Jordan,
the CEO, not

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the basketball star, planned to sell existing divisions. He delivered in
December by announcing the sale of defense electronics and Knoll Furniture.
Additional businesses may be sold to further reduce debt although there is no
longer strong pressure to do so.

We currently are researching companies that operate in a broad range of
industries; even high technology, in the wake of its recent sharp decline, is
presenting some compelling opportunities to value investors like ourselves. Our
search is ongoing to find companies that are undergoing dynamic change which is
under-recognized or misunderstood and that are good values relative to
comparable investments.

We thank you for giving us this opportunity to help you to meet your investment
needs.

Sincerely,

CRAMER ROSENTHAL MCGLYNN, INC.

5
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Portfolio Manager's Report
PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
- --------------------------------------------------------------------------------

Dear Shareholder:

We are pleased to report the results of operation for the Pilgrim America
Masters LargeCap Value Fund (the "Fund") for the four months ended December 31,
1995.

GENERAL ECONOMIC ENVIRONMENT
The second half of 1995 was characterized by a slowing economy due to the
consumer's unwillingness to increase his borrowings from already record debt
levels. This led to weak spending at the retail level through the last quarter
of 1995. Inventories for many industries such as automobile products rose and
the Federal Reserve cut rates 25 basis points in the fourth quarter as inflation
remained low at 2.5%, about 1% below 1995 expectations. This was the second rate
cut since June 30, 1995.

The slow growth economy coupled with declining interest rates helped boost
equity prices in the second half of 1995 and the fourth quarter. The slowdown
led investors to sell electronic-related technology issues as well as other
cyclical issues and purchase stocks related to non-durable areas such as food,
tobacco and health-care where growth is more likely.

EQUITY MARKET ENVIRONMENT
Fourth quarter results for the fund industry varied significantly from the
general market. Only utility funds [+6.82%] and health and biotech funds
[+11.45] did appreciably better than Standard & Poor's 500 Index [+6.02%]. Most
other fund sectors underperformed the S&P 500 including growth and income funds
[+4.58%] and equity-income funds [+5.7%]. The quickly shifting market emphasis
negatively hit technology stocks first, then economically sensitive and
financial issues and finally in late December, certain non-durable stocks. The
lack of any sustaining upward price movements in the fourth quarter of 1995 for
most sectors was another reason for the difficulty most funds faced in
performing during the final quarter of 1995.

PILGRIM AMERICA MASTERS LARGECAP VALUE FUND
The criteria we use for choosing individual stocks as a value investor include:
(1) price earnings ratio generally below the market on a normalized earnings
basis, (2) dividend that is often at or above the market dividend, but
remembering that not all issues we own will pay a dividend, (3) price to book
value ratio that is generally below the market and (4) capitalization that
places the stock in the top half of all market capitalizations in the S&P 500.
Because we maintain very conservative sell targets for each issue we own, the
issues we own at the beginning of the year often will not be in the account at
the end of the year. One of the better sectors in 1995 was the financial sector
and we began the fund overweighted in financials. However, over the last three
months of 1995, we sold off many of the bank issues as they reached upside
target prices. This area contributed to our 4.9%* performance in the fourth
quarter.

As profits were taken in financial and other stocks, we reinvested the proceeds
in other more economically sensitive issues which were coming under selling
pressure during the fourth quarter. This allowed us to build positions in good
companies at attractive prices and to become overweighted in certain basic
industry and capital spending areas such as retail department stores and
entertainment issues, and underweighted in financial and public utility issues
going into 1996. While our investments in these areas dampened performance in
the final quarter of 1995, we expect these areas to contribute to the fund's
results in 1996.

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Unlike 1995, we believe 1996 will be a more volatile year for stock prices and a
more restrained year in terms of upward price movements. We believe economic
growth will be modest and profits are expected to grow about 5%-7% as opposed to
the 15%-20% growth of the last two years. With slightly lower interest rates,
the low profit growth expectations should cause the market to trade in a more
modest but upward range in 1996. We expect to do well in this environment.

We thank you for giving us this opportunity to help you to meet your investment
needs.

Sincerely,

ARK ASSET MANAGEMENT COMPANY, INC.

Performance figures shown pertain only to Class A shares of the Fund. Class B
and M Shares, are subject to different fees and expenses, which will affect
their performance.

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STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1995 (Unaudited)

- -------------------------

<TABLE>
<CAPTION>
ASIA-PACIFIC MIDCAP LARGECAP
EQUITY VALUE VALUE
FUND FUND FUND
------------ ---------- ----------
<S> <C> <C> <C>
ASSETS:
Investments in securities at value
(Cost $6,464,200, $1,334,550, and $1,684,391, respectively) .......... $6,540,931 $1,404,669 $1,763,538
Short-term securities at amortized cost ............................... 1,359,470 160,596 221,745

Foreign cash .......................................................... 4,697 -- --
Receivables:
Dividends and interest ............................................... 4,772 1,392 2,316
Fund shares sold ..................................................... 481,369 28,609 11,690

Investment securities sold ........................................... 54,388 -- --
Due from manager ..................................................... 24,137 22,035 23,980
Deferred organization expenses ........................................ 145,143 145,143 145,143
Other assets .......................................................... 737 737 737
---------- ---------- ----------
Total Assets ........................................................ 8,615,644 1,763,181 2,169,149
---------- ---------- ----------
LIABILITIES:
Investment securities purchased ....................................... $1,623,943 $ 42,434 $ 149,703

Payable for fund shares redeemed ...................................... 21,280 -- --
Accrued organization expense .......................................... 155,224 155,224 155,224
Payable to affiliates ................................................. 7,976 1,895 2,090
Other accrued expenses and liabilities ................................ 16,817 12,439 13,288
---------- ---------- ----------
Total Liabilities ................................................... 1,825,240 211,992 320,305
---------- ---------- ----------
NET ASSETS ............................................................ $6,790,404 $1,551,189 $1,848,844
========== ========== ==========
Net Assets consist of:
Paid-in capital ...................................................... $6,725,311 $1,484,014 $1,746,556
Undistributed net investment income .................................. 2,218 (1,197) 3,602
Accumulated net realized gains (losses) on investments ............... (12,486) (1,747) 19,539
Net unrealized appreciation of investments and other
assets, liabilities and forward contracts denominated
in foreign currencies ............................................... 75,361 70,119 79,147
---------- ---------- ----------
Net Assets .......................................................... $6,790,404 $1,551,189 $1,848,844
========== ========== ==========
CLASS A:
Net assets ........................................................... $3,877,374 $ 943,088 $1,366,820
Shares outstanding ................................................... $ 392,433 $ 91,074 $ 127,260
Net asset value and redemption price per share ....................... $ 9.88 $ 10.36 $ 10.74
Maximum offering price per share (100/94.25 of net asset value)* ..... $ 10.48 $ 10.99 $ 11.40
CLASS B:
Net assets ........................................................... $1,928,506 $ 444,364 $ 201,753
Shares outstanding ................................................... $ 195,688 $ 43,008 $ 18,829
Net asset value, redemption and offering price per share** ........... $ 9.86 $ 10.33 $ 10.72
CLASS M:
Net assets ........................................................... $ 984,524 $ 163,737 $ 280,271
Shares outstanding ................................................... $ 99,788 $ 15,845 $ 26,149
Net asset value and redemption price per share ....................... $ 9.87 $ 10.33 $ 10.72
Maximum offering price per share (100/96.50 of net asset value)* ..... $ 10.23 $ 10.71 $ 11.11
</TABLE>

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*On purchases of $50,000 or more, the offering price is reduced.
*Redemption price per share is equal to the net asset value per share less any
applicable contingent deferred sales charge.

See Notes to Financial Statements

8
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STATEMENTS OF OPERATIONS
For the Four Months Ended December 31, 1995 (Unaudited)

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<TABLE>
<CAPTION>
ASIA-PACIFIC MIDCAP LARGECAP
EQUITY VALUE VALUE
FUND FUND FUND
------------ -------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest ............................................................... $ 14,561 $ 2,309 $ 2,699
Dividends
(net of foreign withholding taxes of $413, $0, and $0 respectively) ... 8,630 3,909 9,398
-------- -------- --------
Total investment income ............................................... 23,191 6,218 12,097
-------- -------- --------
EXPENSES:
Investment management fees ............................................. 11,800 3,717 4,633
Amortization of organization expenses .................................. 10,082 10,082 10,082
Transfer agent and registrar fees ...................................... 6,518 3,132 3,111
Professional fees ...................................................... 6,148 6,209 6,074
Distribution expenses
Class A Shares ........................................................ 1,457 623 995
Class B Shares ........................................................ 1,898 965 172
Class M Shares ........................................................ 1,287 195 356
Reports to shareholders ................................................ 2,426 2,480 2,480
Custodian fees ......................................................... 1,789 601 3,077
Insurance expense ...................................................... 929 929 929
Recordkeeping and pricing fees ......................................... 397 155 193
Miscellaneous expenses ................................................. 237 313 314
Directors' fees ........................................................ 142 49 59
-------- -------- --------
Total expenses ........................................................ 45,110 29,450 32,475
-------- -------- --------
Less waived and reimbursed fees ........................................ (24,137) (22,035) (23,980)
-------- -------- --------
Net expenses .......................................................... 20,973 7,415 8,495
-------- -------- --------
Net investment income (loss) .......................................... 2,218 (1,197) 3,602
-------- -------- --------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain (losses) from:
Investments ........................................................... (6,163) (1,747) 19,539

Foreign currency transactions ......................................... (6,323) -- --
Net change in unrealized appreciation/depreciation of:
Investments ........................................................... 76,731 70,119 79,147

Other assets, liabilities and forward contracts denominated
in foreign currencies ................................................. (1,370) -- --
-------- -------- --------
Net gain from investments .............................................. 62,875 68,372 98,686
-------- -------- --------
Net increase in net assets resulting from operations .................. $ 65,093 $ 67,175 $102,288
======== ======== ========
</TABLE>

See Notes to Financial Statements

9
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STATEMENTS OF CHANGES IN NET ASSETS
For the Four Months Ended December 31, 1995 (Unaudited)

- -------------------------

<TABLE>
<CAPTION>
ASIA-PACIFIC MIDCAP LARGECAP
EQUITY VALUE VALUE
FUND FUND FUND
----------- ------ --------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS:
Net investment income (loss) ................................ $ 2,218 $ (1,197) $ 3,602
Net realized gain (loss) from investments ................... (6,163) (1,747) 19,539
Net realized loss from foreign currency transactions ........ (6,323) -- --
Net change in unrealized
appreciation of investments ............................... 76,731 70,119 79,147
Net change in unrealized depreciation of other assets,
liabilities and forward contracts denominated in
foreign currencies ........................................ (1,370) -- --
---------- ---------- ----------
Net increase in net assets resulting from operations ........ 65,093 67,175 102,288
---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS(a):
Net proceeds from sale of shares ............................ 6,714,556 1,463,704 1,714,391
Cost of shares redeemed ..................................... (23,245) (12,690) (835)
---------- ---------- ----------
Net increase in net assets resulting
from capital share transactions ........................... 6,691,311 1,451,014 1,713,556
Net assets at the beginning of the
period .................................................... 34,000 33,000 33,000
---------- ---------- ----------
Net assets at the end of the
period .................................................... $6,790,404 $1,551,189 $1,848,844
========== ========== ==========

(a) A SUMMARY OF CAPITAL SHARE TRANSACTIONS IS AS FOLLOWS:

SHARES ISSUED AND REDEEMED:
Shares sold ................................................. 687,077 148,073 169,216
Shares redeemed ............................................. (2,368) (1,246) (78)
---------- ---------- ----------
Net increase in shares outstanding .......................... 684,709 146,827 169,138
========== ========== ==========
</TABLE>

See Notes to Financial Statements

10
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FINANCIAL HIGHLIGHTS
For a Share Outstanding for the Period
September 1, 1995* Through December 31, 1995 (Unaudited)

- -------------------------

<TABLE>
<CAPTION>
ASIA-PACIFIC EQUITY FUND MIDCAP VALUE FUND LARGECAP VALUE FUND
--------------------------- --------------------------- ---------------------------
CLASS A CLASS B CLASS M CLASS A CLASS B CLASS M CLASS A CLASS B CLASS M
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
Income (loss) from
investment operations:

Net investment income (loss) 0.01 -- -- -- (0.02) (0.01) 0.03 -- --
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions (0.13) (0.14) (0.13) 0.36 0.35 0.34 0.71 0.72 0.72
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations (0.12) (0.14) (0.13) 0.36 0.33 0.33 0.74 0.72 0.72
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $ 9.88 $ 9.86 $ 9.87 $10.36 $10.33 $10.33 $10.74 $10.72 $10.72
====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN(b) (1.20)% (1.40)% (1.30)% 3.60% 3.30% 3.30% 7.40% 7.20% 7.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(in thousands) 3,877 1,928 985 943 444 164 1,367 202 280
Ratio to average net assets:
Expenses(a)(c) 2.00% 2.75% 2.50% 1.75% 2.50% 2.25% 1.75% 2.50% 2.25%
Net investment
income (loss)(a)(c) 0.50 (0.32)% (0.07)% (0.08)% (0.92)% (0.41)% 0.89% (0.33)% 0.22%
Portfolio turnover rate 10% 10% 10% 7% 7% 7% 28% 28% 28%
</TABLE>

- ---------------
* Commencement of operations.

(a) Annualized.

(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 of expenses, the ratio of expenses to average net
assets was 4.45%, 5.36% and 5.06% for Asia-Pacific Equity Fund Class A, B
and M, respectively; 7.61%, 8.56% and 8.43% for MidCap Value Fund Class A,
B and M, respectively; and 6.89%, 7.86% and 7.67% for LargeCap Value Fund
Class A, B and M, respectively. Prior to the waiver of expenses, the ratio
of net investment income to average net assets was (1.95)%, (2.93)% and
(2.63)% for Asia-Pacific Equity Fund Class A, B and M, respectively;
(5.94)%, (6.98)% and (6.59)% for MidCap Value Fund Class A, B and M,
respectively; and (4.25)%, (5.69)% and (5.20)% for LargeCap Value Fund
Class A, B and M, respectively.

See Notes to Financial Statements

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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 (Unaudited)
- ----------------------------------------------------

(1) SIGNIFICANT ACCOUNTING POLICIES

Organization - Pilgrim America Masters Series, Inc. ("Master Series") is an
open-end management investment company that was organized as a Maryland
Corporation in 1995 and is registered under the Investment Company Act of 1940,
as amended. The Masters Series currently consists of three separate diversified
open-end investment companies, Pilgrim America Masters Asia-Pacific Equity Fund
("Asia-Pacific Equity Fund"), Pilgrim America Masters MidCap Value Fund ("MidCap
Value Fund") and Pilgrim America Masters LargeCap Value Fund ("LargeCap Value
Fund"), collectively referred to as the "Funds", each with its own investment
objectives and policies. Each Fund commenced operations on September 1, 1995.

Each Fund offers three classes of shares, Class A, Class B and Class M. Each
class represents interests in the same assets of the applicable Fund and the
classes are identical except for differences in their sales charge structure and
ongoing distribution fees. In addition, Class B shares, along with their prorata
reinvested dividend shares, automatically convert to Class A shares
approximately eight years after purchase.

The following significant accounting policies are consistently followed by
the Funds in the preparation of their financial statements, and such policies
are in conformity with generally accepted accounting principles for investment
companies.

(a) Security Valuation

Securities traded on the U.S. and foreign stock exchanges are valued at the
last reported sales price. Securities traded on a U.S. and foreign stock
exchange for which there has been no sale and securities traded in the
over-the-counter market are valued at the mean between the last reported bid and
asked prices. Securities for which market quotations are not readily available
are valued at fair value as determined by policies set by the Board of
Directors. Short-term investments 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.

(b) Security Transactions and Revenue Recognition

Securities transactions are accounted for on the trade date. Realized gains
or losses are reported on the basis of identified cost of securities delivered.
Interest income is recorded on an accrual basis and dividend income is recorded
on the ex-dividend date (except in the case of Asia-Pacific Equity Fund, for
certain securities which are recorded as soon after the ex-date as the Fund
becomes aware of such dividend).

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 generally isolate the effect of unrealized fluctuations in
foreign exchange rates from the effect of changes in market prices of
securities. However, Asia-Pacific Equity Fund does isolate the effect of
realized fluctuations in foreign exchange rates when determining the realized
gain or loss upon

12
<PAGE> 14
the sale or maturity of foreign currency denominated securities pursuant to
federal income tax regulations. Foreign security and currency transactions may
involve certain considerations and risks not typically associated with investing
in U.S. companies and the U.S. Government. These risks include but are not
limited to re-evaluation of currencies and future adverse political and economic
developments which could cause securities and their markets to be less liquid
and prices more volatile than those of comparable U.S. companies and the U.S.
Government.

(d) Foreign Currency Exchange Transactions

Asia-Pacific Equity Fund may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to and from
the U.S. dollar in connection with planned purchases or sales of securities. The
Fund either enters into these transactions on a spot basis at the spot rate
prevailing in the foreign currency exchange market or uses forward foreign
currency contracts to purchase or sell foreign currencies. Asia-Pacific Equity
Fund may not invest more than 5% of its assets (at market value at the time of
the investment) in forward foreign currency contracts. Risks may arise upon
entering into forward contracts from the potential inability of counterparties
to meet the terms of their forward contracts and from unanticipated movements in
the value of foreign currencies relative to the U.S. dollar.

(e) Distributions to Shareholders

The Funds record distributions to their shareholders on the ex-date. The
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, organization costs
and other timing 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 realized
capital gains. To the extent they exceed net investment income and net realized
capital gains for tax purposes, they are reported as distributions of paid-in
capital.

(f) Federal Income Taxes

The Company's policy is to comply with the requirements of the Internal
Revenue Code that are applicable to regulated investment companies and to
distribute substantially all of its net investments income and any net realized
capital gains to its shareholders. Therefore, a federal income tax provision is
not required. In addition, by distributing during each calendar year
substantially all of its net investment income and net capital gains each Fund
intends not to be subject to any federal excise tax.

(g) Use of Estimates

Management of the Funds has made certain estimates and assumptions relating
to the reporting of assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principals. Actual results
could differ from these estimates.

(h) Repurchase Agreements

Each Fund may invest any portion of its assets otherwise invested in money
market instruments in U.S. Government securities and concurrently enter into
repurchase agreements with respect to such securities. Such repurchase
agreements will be made only with government securities dealers recognized by
the Board of Governors of the Federal Reserve System or with member banks of the
Federal Reserve System. Under such agreements, the seller of the security agrees
to repurchase it at a mutually agreed upon time and price. The resale price is
in excess of the purchase price and reflects an agreed upon interest rate for
the period of time the agreement is outstanding. The period of these repurchase

13
<PAGE> 15
agreements is usually short, from overnight to one week, while the underlying
securities generally have longer maturities. Each Fund will always receive as
collateral securities acceptable to it whose market value is equal to at least
100% of the amount invested by the Fund, and the Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of its Custodian. If the seller defaults, a Fund might incur a loss or
delay in the realization of proceeds if the value of the collateral securing the
repurchase agreement declines and it might incur disposition costs in
liquidating the collateral.

(i) Deferred Organization Expenses

All expenses incurred in connection with the organization and registration
of the Funds under the Investment Company Act of 1940 and the Securities Act of
1933 are being paid for by the Funds. Asia-Pacific Equity Fund, MidCap Value
Fund and LargeCap Value Fund each incurred approximately $155,000 in
organization expenses. These organization expenses are being amortized by each
Fund over a period of five years from the date of commencement of its
operations.

(2) INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Each of the Funds has entered into an Investment Management Agreement with
Pilgrim America Investments, Inc. (the "Manager") a wholly owned subsidiary of
Pilgrim America Group, Inc. ("PAG"). The investment management agreements
compensate the manager with a fee, computed daily and payable monthly, at the
following annual rates: Asia-Pacific Equity Fund pays the Manager a fee at an
annual rate of 1.25% of the Fund's average daily net assets; MidCap Value Fund
and LargeCap Value Fund each pay the Manager a fee at an annual rate of 1.00% of
each Funds average daily net assets. At December 31, 1995 Asia-Pacific Equity
Fund, MidCap Value Fund and LargeCap Value Fund owed $5,638, $1,254 and $1,497
respectively in investment management fees.

The Manager has carefully selected Portfolio Managers for each of the Funds
on the basis of their successful application of a well-defined, long-term
investment approach over a period of several market cycles. HSBC Asset
Management Americas Inc. and HSBC Asset Management Hong Kong Limited ("HSBC")
serve jointly as the Portfolio Managers to the Asia-Pacific Equity Fund. CRM
Advisors, LLC ("CRM") serves as Portfolio Manager to the MidCap Value Fund. Ark
Asset Management Co., Inc. ("ARK") serves as Portfolio Manager to the LargeCap
Value Fund. As compensation for their services to the Funds, the Investment
Manager (and not the Fund) pays HSBC, CRM and Ark fees at annual rates of 0.50%
of the average daily net assets of the Asia-Pacific Equity, MidCap Value and
LargeCap Value Funds, respectively.

The Funds adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the
"12b-1 Plans"), whereby Pilgrim America Securities, Inc. (the "Distributor") is
reimbursed by the Funds for expenses incurred in the distribution of each Funds'
shares. Pursuant to the 12b-1 Plans, the Distributor is entitled to
reimbursement 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 security dealers who have executed a
distribution agreement with the distributor.

Under separate plans of distribution pertaining to the Class A, Class B and
Class M shares, each class of shares of each Fund pays the Distributor at the
annual rate of 0.25% of the average daily net assets of Class A, 1.00% of the
average daily net assets of Class B and 0.75% of the average daily net assets of
Class M. At December 31, 1995 the Asia-Pacific Equity Fund, MidCap Value Fund
and LargeCap Value Fund owed to the Distributor $2,338, $641 and $593,
respectively in 12b-1 Distribution Fees.

The Investment Manager has voluntarily agreed to limit other expenses, excluding
distribution fees, interest, taxes, brokerage and extraordinary expenses to
1.75%, 1.50% and 1.50% of all classes of shares of the Asia-Pacific Equity Fund,
MidCap Value Fund and LargeCap Value Fund, respectively. This expense limitation
will apply to each Fund individually only until such Fund reaches $50 million in
net assets.

14
<PAGE> 16
(3) INVESTMENT TRANSACTIONS

For the four months ended December 31, 1995, the cost of purchases and the
proceeds from the sales of securities, excluding short-term notes, were as
follows:

<TABLE>
<CAPTION>
FUND PURCHASES SALES
------------------------ ------------- ---------
<S> <C> <C>
Asia-Pacific Equity Fund $6,687,466 $217,179
MidCap Value Fund $1,399,157 $ 62,967
LargeCap Value Fund $1,975,631 $310,895
</TABLE>

(4) CAPITAL SHARES

As of December 31, 1995, authorized capital consisted of 1 billion shares of
$0.01 par value capital stock for the Masters Series.

(5) CUSTODIAL AGREEMENT

Investors Fiduciary Trust Company (IFTC) serves as the Funds' custodian and
recordkeeper. Custody fees paid to IFTC are reduced by an earnings credit based
on the cash balances held by IFTC for each of the Funds. For the four months
ended December 31, 1995, Asia-Pacific Equity Fund, MidCap Value Fund and
LargeCap Value Fund received no earnings credits.

- -----------------

15
<PAGE> 17
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS
as of December 31, 1995 (Unaudited)

COMMON STOCKS: 95.9%

<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
HONG KONG: 30.9%

COMMERCIAL & INDUSTRIAL: 8.5%
46,000 China Resources Enterprise, Ltd. ..................... $ 23,796
20,000 Citic Pacific, Ltd. .................................. 68,413
14,000 Guangdong Investments ................................ 8,419
48,000 Hutchison Whampoa, Ltd. .............................. 292,376
120,000 Regal Hotels International ........................... 28,244
20,000 Swire Pacific, Ltd. .................................. 155,189
----------
576,437
----------
FINANCIAL: 6.5%
56,400 Bank of East Asia .................................... 202,405
58,000 Dao Heng Bank Group, Ltd. ............................ 208,522
9,000 Wing Hang Bank, Ltd. ................................. 28,400
----------
439,327
----------
PROPERTIES: 10.5%
35,000 Cheung Kong Holdings, Ltd. ........................... 213,191
11,000 Great Eagle Holdings, Ltd. ........................... 28,451
28,000 Henderson Investment, Ltd. ........................... 22,994
15,000 Hong Kong Land Holdings, Ltd. ........................ 27,750
32,000 Hysan Development Co., Ltd. .......................... 84,630
21,000 New World Development Co., Ltd. ...................... 91,523
23,000 Sun Hung Kai Properties, Ltd. ........................ 188,134
18,000 Wharf Holdings, Ltd. ................................. 59,942
----------
716,615
----------
UTILITIES: 5.4%
29,000 China Light & Power Co., Ltd. ........................ 133,514
18,000 Hong Kong Electric Holdings, Ltd. .................... 59,011
97,600 Hong Kong Telecommunications, Ltd. ................... 174,184
----------
366,709
----------
Total Hong Kong Common Stocks ..................... 2,099,088
----------

INDONESIA: 6.1%

BANKS: 0.8%
34,000 PT Lippo Bank ........................................ 52,416
----------
ELECTRONICS: 0.4%
776 PT Indonesian Satellite Corp., ADR ................... 28,324
----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

16
<PAGE> 18
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of December 31, 1995 (Unaudited)

<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
MANUFACTURING: 2.8%
28,000 PT Astra International ............................... $ 58,168
13,000 PT Indofood Sukses Makmur ............................ 62,541
52,000 PT Telekommunikasi Indonesia - Class B ............... 68,203
----------
188,912
----------
TOBACCO PRODUCTS: 1.2%
5,000 PT Gudang Garam ...................................... 52,263
3,000 PT Hanjaya Mandala Sampoerna ......................... 31,227
----------
83,490
----------
TRANSPORTATION: 0.9%
21,000 PT Semem Gresik ...................................... 58,780
----------
Total Indonesia Common Stocks ..................... 411,922
----------

MALAYSIA: 21.2%

COMMERCIAL & INDUSTRIAL: 11.5%
12,000 Genting Berhad ....................................... 100,197
24,000 Leader Universal Holding ............................. 54,825
29,000 Magnum Corporation Berhad ............................ 54,825
8,000 Petronas Gas Berhad .................................. 27,255
69,000 Renong Berhad ........................................ 102,182
36,000 Sime Darby Berhad .................................... 95,707
32,000 Telekom Malaysia Berhad .............................. 249,547
25,000 Tenaga Nasional Berhad ............................... 98,464
----------
783,002
----------
FINANCIAL: 5.5%
23,000 Affin Holdings Berhad ................................ 44,388
28,000 DCB Holdings Berhad .................................. 81,607
29,000 Malayan Banking Berhad .............................. 244,427
----------
370,422
----------
LODGING: 1.0%
13,000 Resorts World Berhad ................................. 69,634
----------
PROPERTIES: 3.2%
9,000 Hume Industries (Malaysia) Berhad .................... 43,245
14,000 Land & General Holdings Berhad ....................... 30,327
22,000 United Engineers Malaysia ............................ 140,370
----------
213,942
----------
Total Malaysia Common Stock ....................... 1,437,000
----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

17
<PAGE> 19
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 (UNAUDITED)

<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
PHILIPPINES: 3.1%

COMMUNICATIONS: 0.8%
270 Philippine Long Distance Telephone Co., ADR .......... $ 14,614
38,000 Pilipino Telephone Corp. ............................. 38,391
----------
53,005
----------
HOME BUILDING: 0.5%
49,000 C & P Homes, Inc. .................................... 35,961
----------
REAL ESTATE: 0.8%
205,000 SM Prime Holdings, Inc. .............................. 58,616
----------
UTILITIES: 1.0%
8,100 Manila Electric Co. - Class B ........................ 66,085
----------
Total Philippines Common Stock .................... 213,667
----------

SINGAPORE: 11.9%

COMMERCIAL & INDUSTRIAL: 2.7%
17,000 Keppel Corp., Ltd. ................................... 151,453
7,000 Van Der Horst. ....................................... 35,389
----------
186,842
----------
FINANCIAL: 4.0%
14,000 Overseas-Chinese Bank ................................ 175,210
10,000 United Overseas Bank ................................. 96,161
----------
271,371
----------
FOOD AND BEVERAGE 0.4%
2,000 Fraser & Neave, Ltd. ................................. 25,454
----------
MARINE: 0.5%
4,000 Jurong Shipyard, Ltd. ................................ 30,828
----------
PROPERTIES: 2.2%
13,000 City Developments, Ltd. .............................. 94,676
4,000 Singapore Land, Ltd. ................................. 25,879
14,000 Wing Tai Holdings, Ltd. .............................. 28,608
----------
149,163
----------
PUBLISHING: 1.0%
4,000 Singapore Press Holdings, Ltd. ....................... 70,706
----------
TRANSPORTATION: 1.1%
8,000 Singapore Airlines, Ltd. ............................. 74,666
----------
Total Singapore Common Stocks ..................... 809,030
----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

18
<PAGE> 20
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 (UNAUDITED)

<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
SOUTH KOREA: 3.6%

MANUFACTURING/ELECTRONIC: 1.2%
430 Samsung Electronics Co. .............................. $ 78,156
----------
METALS AND MINERALS: 0.8%
2,550 Pohang Iron & Steel Col, Ltd., ADR ................... 55,781
----------
UTILITIES-ELECTRIC: 1.6%
4,005 Korea Electric Power Corp., ADR ...................... 107,134
----------
Total South Korea Common Stocks ................... 241,071
----------

TAIWAN: 1.5%

ELECTRONICS: 1.0%
2,600 Acer, Inc., GDR ...................................... 33,150
2,320 Siliconware Precision, GDR ........................... 38,002
----------
71,152
----------
INVESTMENT TRUSTS: 0.5%
3,242 ROC Taiwan Fund Common ............................... 34,041
----------
Total Taiwan Common Stocks ........................ 105,193
----------

THAILAND: 17.6%

BANKS: 8.6%
13,500 Bangkok Bank Public Co., Ltd. ........................ 163,994
28,800 Bangkok Metropolitan Bank ............................ 27,439
24,100 Siam City Bank Public Co., Ltd. ...................... 27,745
6,800 Siam Commerical Bank Public Co., Ltd. ................ 89,623
19,100 Thai Farmers Bank Public Co., Ltd. ................... 192,592
20,400 Thai Military Bank Public Co., Ltd. .................. 82,604
----------
583,997
----------
COMMUNICATIONS: 2.2%
8,400 Advanced Information Services PCL .................... 148,726
----------
CONSTRUCTION: 2.4%
3,000 Siam Cement Public Co., Ltd. ......................... 166,256
----------
HOME BUILDING: 0.8%
3,300 Land & House Public Co., Ltd. ........................ 54,236
----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

19
<PAGE> 21
ASIA-PACIFIC EQUITY FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 (UNAUDITED)

<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
INSURANCE: 1.6%
12,500 Phatra Thanakit Public Co., Ltd. ..................... $ 107,185
----------
MINING: 2.0%
3,600 Banpu Public Co., Ltd. ............................... 77,459
17,500 Electricity Generating Public Co., Ltd. .............. 59,746
----------
137,205
----------
Total Thailand Common Stocks ...................... 1,197,605
----------
Total Common Stocks (Cost $6,438,370) ............. 6,514,576
----------
</TABLE>

CONVERTIBLE BONDS: 0.4%

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------
<S> <C> <C> <C>
TAIWAN: 0.4%
28,000 U-Ming Marine Transport ......................................... 26,355
-----------
Total Convertible Bonds (Cost $25,830) ....................... 26,355
-----------

SHORT-TERM INVESTMENTS: 20.0%

REPURCHASE AGREEMENTS: 20.0%
1,359,470 State Street Repurchase Agreement, 4.25%, Due 01/02/96 .......... 1,359,470
-----------
Total Short-Term Investments (Cost $1,359,470) ............... 1,359,470
-----------

TOTAL INVESTMENTS (COST $7,823,670)* ..................... 116.3% 7,900,401
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS-NET ....... (16.3 ) (1,109,997)
----- -----------
TOTAL NET ASSETS ...................................... 100.0% $ 6,790,404
===== ===========
</TABLE>
- ----------
ADR - American Depository Receipt
GDR - Global Depository Receipt

*Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized appreciation consists of:

<TABLE>
<S> <C>
Gross Unrealized Appreciation.......................... $ 193,435
Gross Unrealized Depreciation.......................... (116,704)
---------
Net Unrealized Appreciation........................... $ 76,731
=========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

20
<PAGE> 22
MIDCAP VALUE FUND
PORTFOLIO OF INVESTMENTS
as of December 31, 1995 (Unaudited)

COMMON STOCKS: 90.6%
<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------ -----
<S> <C> <C>
BANKS: 2.4%
1,500 John Hancock Bank & Thrift Opportunity Fund ......... $ 36,938
----------

BUILDING PRODUCTS: 3.8%
4,500 Manville Corp. ...................................... 59,062
----------

CAPITAL GOODS: 4.3%
4,000 Westinghouse Electric Corp. ......................... 66,000
----------

COMMUNICATIONS: 3.3%
1,400 DSC Communications Corp. ............................ 51,625
----------

COMPUTER SOFTWARE & SERVICES: 2.0%
500 Sterling Software, Inc. ............................. 31,188
----------

CONSUMER PRODUCTS: 7.3%
1,500 Nine West Group, Inc. ............................... 56,250
1,200 Polaroid Corp. ...................................... 56,850
----------
113,100
----------
DEFENSE: 4.6%
2,000 Loral Corp. ......................................... 70,750
----------

ELECTRICAL EQUIPMENT: 5.2%
1,000 Raychem Corp. ....................................... 56,875
700 Ucar International, Inc. ............................ 23,625
----------
80,500
----------
ENERGY: 7.1%
1,500 Louisiana Land & Exploration Co. .................... 64,312
8,000 Petro Canada ........................................ 46,000
----------
110,312
----------
FINANCIAL: 2.3%
2,000 Glendale Federal Bank ............................... 35,000
----------

FOOD STORES: 2.9%
2,000 Meyer (Fred), Inc. .................................. 45,000
----------

HOME PRODUCTS: 2.7%
1,500 Singer Co. .......................................... 41,813
----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

21
<PAGE> 23
MIDCAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of December 31, 1995 (Unaudited)

<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------ -----
<S> <C> <C>
HOUSEWARES: 1.6%
500 Premark International, Inc. ......................... $ 25,312
----------

MACHINERY & EQUIPMENT: 2.1%
1,000 Harnischfeger Industries, Inc. ...................... 33,250
----------

MEDICAL SERVICES: 2.7%
4,000 Beverly Enterprises ................................. 42,194
----------

OFFICE PRODUCTS & SERVICES: 2.3%
2,000 Lexmark International Group, Inc. ................... 36,500
----------

OIL & GAS: 6.1%
5,000 Hugoton Energy Corp. ................................ 43,750
2,000 Union Pacific Resources Group, Inc. ................. 50,750
----------
94,500
----------
PACKAGING PRODUCTS: 2.7%
1,500 Ball Corp. .......................................... 41,250
----------

PAPER AND FOREST PRODUCTS: 2.5%
2,000 Riverwood International Corp. ....................... 38,250
----------

POLLUTION CONTROL: 3.9%
2,500 Culligan Water Technologies, Inc. ................... 60,625
----------

PRINTING: 2.2%
2,000 Quebecor Printing, Inc. ............................. 33,750
----------

REAL ESTATE & FINANCIAL SERVICES: 6.7%
1,500 Insignia Financial Group, Inc. ...................... 57,750
3,000 RFS Hotel Investors, Inc. ........................... 46,125
----------
103,875
----------
RETAIL: 7.9%
4,000 Egghead, Inc. ....................................... 25,750
2,000 Federated Department Stores, Inc. ................... 55,000
1,600 Proffitt's, Inc. .................................... 42,000
----------
122,750
----------
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

22
<PAGE> 24
MIDCAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
AS OF DECEMBER 31, 1995 (UNAUDITED)

<TABLE>
<CAPTION>
MARKET
SHARES VALUE
- ------ -----
<S> <C> <C>
UTILITIES: 2.0%
1,500 UGI Corp. ........................................... $ 31,125
----------
Total Common Stocks (Cost $1,334,550) ............. 1,404,669
----------
</TABLE>

SHORT-TERM INVESTMENTS: 10.3%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C> <C>
REPURCHASE AGREEMENTS: 10.3%
160,596 State Street Repurchase Agreement, 4.25%, Due 01/02/96 ........... 160,596
----------
Total Short-Term Investments (Cost $160,596) ................... 160,596
----------

TOTAL INVESTMENTS (COST $1,495,146)* ..................... 100.9% 1,565,265
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS-NET ....... (0.9 ) (14,076)
----- ----------
TOTAL NET ASSETS ....................................... 100.0% $1,551,189
===== ==========
</TABLE>
- ----------

*Cost for federal income tax purposes is the same as for financial statement
purposes. Net unrealized appreciation consists of:

<TABLE>
<CAPTION>
<S> <C>
Gross Unrealized Appreciation ............................ $124,155
Gross Unrealized Depreciation ............................ (54,036)
--------
Net Unrealized Appreciation ......................... $ 70,119
========
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

23
<PAGE> 25
LARGECAP VALUE FUND
PORTFOLIO OF INVESTMENTS
as of December 31, 1995 (Unaudited)

- -------------------------

<TABLE>
<CAPTION>
COMMON STOCKS: 95.4%
MARKET
SHARES VALUE
------ -----
<S> <C> <C>
AEROSPACE: 2.0%
700 Rockwell International Corp. .......................... $ 37,013
--------
AUTOMOTIVE: 5.9%
1,400 Ford Motor Co. ........................................ 40,600
600 General Motors Corp. .................................. 31,725
800 Goodyear Tire & Rubber Co. ............................ 36,300
--------
108,625
--------
BANKS: 3.0%
700 Chemical Banking Corp. ................................ 41,125
200 Nationsbank Corp. ..................................... 13,925
--------
55,050
--------
BROADCASTING: 1.6%
1,500 Tele-Communications, Inc. ............................. 29,812
--------
BUILDING PRODUCTS: 1.4%
200 Lowe's Companies, Inc. ................................ 6,700
600 Masco Corp. ........................................... 18,825
--------
25,525
--------
CHEMICALS: 3.2%
500 DuPont, (E.I.) DeNemours & Co. ........................ 34,938
200 Monsanto Co. .......................................... 24,500
--------
59,438
--------
CHEMICALS-DIVERSIFIED: 1.7%
700 PPG Industries, Inc. .................................. 32,025
--------
COMMUNICATIONS: 4.7%
500 AT&T Corp. ............................................ 32,375
800 MCI Communications Corp. .............................. 20,900
100 NYNEX Corp. ........................................... 5,400
700 Sprint Corp. .......................................... 27,912
--------
86,587
--------
CONSUMER PRODUCTS: 1.1%
300 Eastman Kodak Co. ..................................... 20,100
--------
DEFENSE: 1.1%
200 General Dynamics Corp. ................................ 11,825
200 Raytheon Co. .......................................... 9,450
--------
21,275
--------
DRUGS: 2.7%
400 Bristol Myers Squibb Co. .............................. 34,350
400 Pharmacia & Upjohn, Inc. .............................. 15,500
--------
49,850
--------
</TABLE>

See Notes to Financial Statements

24
<PAGE> 26
LARGECAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of December 31, 1995 (Unaudited)

- -------------------------

<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<S> <C> <C>
ELECTRICAL EQUIPMENT: 1.2%
300 General Electric Co. ................................... $ 21,600
--------
ENERGY SERVICES: 0.9%
700 Dresser Industries, Inc. ............................... 17,063
--------
ENTERTAINMENT: 2.0%
1,000 Time Warner, Inc. ...................................... 37,875
--------
FINANCIAL: 3.2%
400 American Express Co. ................................... 16,550
900 Dean Witter Discover & Co. ............................. 42,300
--------
58,850
--------
FOODS: 1.2%
1,200 Archer-Daniels-Midland ................................. 21,600
--------
HOSPITALS: 3.5%
700 Columbia/HCA Healthcare Corp. .......................... 35,525
1,400 Tenet Healthcare Corp. ................................. 29,050
--------
64,575
--------
INSURANCE: 2.9%
600 Allstate Corp. ......................................... 24,675
100 American International Group, Inc. ..................... 9,250
200 Chubb Corp. ............................................ 19,350
--------
53,275
--------
INSURANCE LIFE: 1.5%
500 Unum Corp. ............................................. 27,500
--------
MACHINERY & EQUIPMENT: 0.8%
400 Deere & Co. ............................................ 14,100
--------
MANUFACTURING: 2.8%
1,100 AlliedSignal, Inc. ..................................... 52,250
--------
MANUFACTURING/ELECTRONIC: 1.5%
900 Corning, Inc. .......................................... 28,800
--------
METALS & MINERALS: 1.9%
500 Aluminum Company of America ............................ 26,437
600 LTV Corp. New .......................................... 8,250
--------
34,687
--------
MINES & MINERALS: 1.5%
600 Newmont Mining Corp. ................................... 27,150
--------
MISCELLANEOUS: 0.4%
100 Loews Corp. ............................................ 7,838
--------
</TABLE>

See Notes to Financial Statements

25
<PAGE> 27
LARGECAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of December 31, 1995 (Unaudited)

- -------------------------

MARKET
SHARES VALUE
------ ------
<S> <C> <C>
OFFICE EQUIPMENT & SERVICES: 2.2%
300 Xerox Corp. ............................................ $ 41,100
--------
OFFICE PRODUCTS & SERVICES: 4.5%
900 International Business Machines Corp. .................. 82,575
--------
OIL & GAS: 12.0%
500 Amerada Hess Corp. ..................................... 26,500
300 Atlantic Richfield Co. ................................. 33,225
300 British Petroleum Co.-Sponsored ADR .................... 30,637
400 Burlington Resources, Inc. ............................. 15,700
1,700 Occidental Petroleum Corp. ............................. 36,338
500 Oryx Energy Co. ........................................ 6,687
1,600 USX-Marathon Group ..................................... 31,200
500 Union Pacific Resources Group, Inc. .................... 12,688
1,000 Unocal Corp. ........................................... 29,125
--------
222,100
--------
PAPER AND FOREST PRODUCTS: 4.1%
800 Champion International Corp. ........................... 33,600
700 International Paper Co. ................................ 26,512
200 Kimberly Clark Corp. ................................... 16,550
--------
76,662
--------
POLLUTION CONTROL: 1.8%
1,100 WMX Technologies, Inc. ................................. 32,863
--------
PUBLISHING: 0.7%
200 Dun & Bradstreet Corp. ................................. 12,950
--------
RAILWAYS: 2.1%
400 CSX Corp. .............................................. 18,250
300 Union Pacific Corp. .................................... 19,800
--------
38,050
--------
RETAIL: 7.1%
1,100 Dillard Department Stores, Inc. ........................ 31,350
1,200 Federated Department Stores, Inc. ...................... 33,000
800 May Department Stores Co. .............................. 33,800
700 Penney (J.C.) Co., Inc. ................................ 33,337
--------
131,487
--------
TECHNOLOGY: 1.1%
400 Texas Instruments, Inc. ................................ 20,700
--------
TRANSPORATION: 1.9%
200 AMR Corp. .............................................. 14,850
800 Ryder System, Inc. ..................................... 19,800
--------
34,650
--------
</TABLE>

See Notes to Financial Statements

26
<PAGE> 28
LARGECAP VALUE FUND
PORTFOLIO OF INVESTMENTS (CONTINUED)
as of December 31, 1995 (Unaudited)

- -------------------------

<TABLE>
<CAPTION>
MARKET
SHARES VALUE
------ ------
<S> <C> <C>
UTILITIES: 4.2%
300 Entergy Corp. ................................................. $ 8,775
100 General Public Utilities Corp. ................................ 3,400
600 Pacific Gas & Electric ........................................ 17,025
1,100 Panhandle Eastern Corp. ....................................... 30,663
600 Peco Energy Co. ............................................... 18,075
----------
77,938
----------
Total Common Stocks (Cost $1,684,391) ....................... 1,763,538
----------

<CAPTION>
SHORT-TERM INVESTMENTS: 12.0%
PRINCIPAL
AMOUNT VALUE
--------- -----
<S> <C> <C> <C>
REPURCHASE AGREEMENTS: 12.0%
221,745 State Street Repurchase Agreement, 4.25%, Due 01/02/96 ....... 221,745
----------
Total Short-Term Investments (Cost $221,745) ................ 221,745
----------

TOTAL INVESTMENTS IN SECURITIES (COST $1,906,136)*.. 107.4% 1,985,283
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS-NET.. (7.4) (136,439)
----- ----------
TOTAL NET ASSETS ................................ 100.0% $1,848,844
===== ==========

- ---------------

ADR - American Depository Receipt
* Cost for federal income tax purposes is the same as for financial statement purposes.
Net unrealized appreciation consists of:

Gross Unrealized Appreciation ..................................... $ 102,025
Gross Unrealized Depreciation ..................................... (22,878)
----------
Net Unrealized Appreciation ................................... $ 79,147
==========
</TABLE>

See Notes to Financial Statements

27
<PAGE> 29
MASTERS SERIES
- --------------
PILGRIM AMERICA MASTERS
ASIA-PACIFIC EQUITY FUND

PILGRIM AMERICA MASTERS PILGRIM AMERICA
MIDCAP VALUE FUND FUNDS

PILGRIM AMERICA MASTERS
LARGECAP VALUE FUND

Two Renaissance Square, 40 North Central Avenue, Suite 1200, Phoenix, Arizona
85004
1-800-331-1080

TABLE OF CONTENTS INVESTMENT MANAGER
Chairman's Message.............1 Pilgrim America Investments, Inc.
Portfolios Managers' Reports: Two Renaissance Square
Pilgrim America Masters 40 North Central Avenue
Asia-Pacific Equity Fund.......2 Suite 1200
Phoenix, Arizona 85004
Pilgrim America Masters
MidCap Value Fund..............4 DISTRIBUTOR
Pilgrim America Securities, Inc.
Pilgrim America Masters Two Renaissance Square
LargeCap Value Fund............6 40 North Central Avenue
Suite 1200
Statements of Assets and Phoenix, Arizona 85004
Liabilities..................8 1-800-334-3444

Statements of Operations.......9 SHAREHOLDER SERVICING AGENT
Pilgrim America Group, Inc.
Statements of Changes in Net Two Renaissance Square
Assets......................10 40 North Central Avenue
Suite 1200
Financial Highlights..........11 Phoenix, Arizona 85004
1-800-331-1080
Notes to Financial Statements.12
TRANSFER AGENT
Portfolios of Investments: Investors Fiduciary Trust Company
c/o DST Systems, Inc.
Pilgrim America Masters P.O. Box 419368
Asia-Pacific Equity Fund....16 Kansas City, Missouri 64141-6368

Pilgrim America Masters CUSTODIAN
MidCap Value Fund...........21 Investors Fiduciary Trust Company
127 W. 10th Street/14th Floor
Pilgrim America Masters Kansas City, Missouri 64105
LargeCap Value Fund.........24
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005

INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, California 90017

THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR THE
GENERAL INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS IN THE FUND UNLESS
PRECEDED OR ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.