PILGRIM ADVISORY FUNDS INC
N-30D, 1999-03-10
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Pilgrim
- -------
THE VALUE OF INVESTING


                                                              Semi-Annual Report

                                                               December 31, 1998


                                                                          ------


                                                                   MagnaCap Fund

                                                           LargeCap Leaders Fund

                                                               MidCap Value Fund

                                                            Bank and Thrift Fund

                                                        Asia-Pacific Equity Fund

                                                                 High Yield Fund

                                               Government Securities Income Fund
<PAGE>

                                 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

<PAGE>
                                 Pilgrim Funds

- --------------------------------------------------------------------------------
 CHAIRMAN'S MESSAGE
- --------------------------------------------------------------------------------

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
<PAGE>
                             Pilgrim MagnaCap Fund

- --------------------------------------------------------------------------------
 PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------

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
<PAGE>
                             Pilgrim MagnaCap Fund

- --------------------------------------------------------------------------------
 PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------

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
<PAGE>
                             Pilgrim MagnaCap Fund

- --------------------------------------------------------------------------------
 PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------

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
<PAGE>
                             Pilgrim MagnaCap Fund

- --------------------------------------------------------------------------------
 FOOTNOTES
- --------------------------------------------------------------------------------

(1) Excluding  the  Class A maximum 5.75% sales charge and assuming reinvestment
    of  all  dividends  and  distributions.  Total returns for the one, five and
    ten-year  periods  ended  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
<PAGE>
                         Pilgrim LargeCap Leaders Fund

- --------------------------------------------------------------------------------
 PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------

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
<PAGE>
                         Pilgrim LargeCap Leaders Fund

- --------------------------------------------------------------------------------
 PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------

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
<PAGE>
                         Pilgrim LargeCap Leaders Fund

- --------------------------------------------------------------------------------
 PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------

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
<PAGE>
                         Pilgrim LargeCap Leaders 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 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
<PAGE>
                           Pilgrim MidCap Value Fund

- --------------------------------------------------------------------------------
 PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------

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
<PAGE>
                           Pilgrim MidCap Value Fund

- --------------------------------------------------------------------------------
 PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------

                          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
<PAGE>
                           Pilgrim MidCap Value Fund

- --------------------------------------------------------------------------------
 PORTFOLIO MANAGER'S REPORT (Continued)
- --------------------------------------------------------------------------------

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
<PAGE>
                           Pilgrim MidCap Value Fund

- --------------------------------------------------------------------------------
 FOOTNOTES
- --------------------------------------------------------------------------------

(1) Excluding   the   Class  A  maximum  sales  charge  of  5.75%  and  assuming
    reinvestment  of  all  dividends  and  distributions.  Average  annual total
    returns   including   the   Class   A  maximum  sales  charge  and  assuming
    reinvestment   of  all  dividends  and  distributions  for  the  year  ended
    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.


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