SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-Q

[X]      QUARTERLY  REPORT  PURSUANT  TO SECTION  13 or 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934

                For the quarterly period ended DECEMBER 31, 1998
                         Commission File Number 0-19799

                       PILGRIM AMERICA CAPITAL CORPORATION
                       -----------------------------------
             (Exact name of Registrant as specified in its charter)

           Delaware                                      86-0670679
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

             40 North Central Avenue, Suite 1200, Phoenix, AZ 85004
             ------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code        (602) 417-8100
                                                   -----------------------------

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

         Indicate the number of shares  outstanding of each of the  Registrant's
classes of common stock, as of the latest practicable date.

        5,322,477 Shares of Common Stock outstanding on January 31, 1999

<PAGE>

                                      INDEX

PART I.  FINANCIAL INFORMATION                                              Page

     Item 1. Financial Statements

          (a)  Condensed Consolidated Financial Statements ...................3

          (b)  Notes to Condensed Consolidated Financial Statements ..........6

     Item 2. Management's Discussion and Analysis of Financial
             Condition and Results of Operations .............................9

PART II.  OTHER INFORMATION

     Item 6. Exhibits and Reports on Form 8-K ...............................15

     Signatures .............................................................16

                                       2
<PAGE>

ITEM 1. FINANCIAL STATEMENTS

PILGRIM AMERICA CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                    December 31,   September 30,
                                                       1998            1998
--------------------------------------------------------------------------------
ASSETS
  Cash and cash equivalents                           $  1,104       $    763
  Investments                                           22,979         18,808
  Accounts receivable                                      441            438
  Notes receivable                                       4,136          4,136
  Costs assigned to management contracts                             
    acquired, less accumulated amortization                          
    of $4,846 and $4,523                                27,417         27,740
  Furniture, fixtures and equipment, less                            
    accumulated depreciation of $608 and $536              978            879
  Deferred acquisition costs, less accumulated                       
    amortization of $71 and $3,442                       1,534         26,562
  Other assets                                           3,821          4,169
                                                      --------       --------
TOTAL ASSETS                                          $ 62,410       $ 83,495
                                                      ========       ========
-----------------------------------------------------------------------------
                                                                     
LIABILITIES AND STOCKHOLDERS' EQUITY                                 
Liabilities:                                                         
  Current income taxes payable                        $  1,554       $   --
  Notes payable                                          8,175         30,375
  Accrued compensation                                   3,558          2,763
  Accounts payable and accrued expenses                  3,778          3,793
                                                      --------       --------
         Total liabilities                              17,065         36,931
                                                      --------       --------

Stockholders' equity:                                                
  Common stock, $.01 par value, 10,000,000 shares                    
    authorized, 8,085,722 and 8,081,722 shares issued,               
    with 5,337,477 and 5,588,477 shares outstanding                  
    at December 31, 1998 and September 30, 1998             81             81
  Less: Treasury stock of 2,748,245 and 2,493,245 at                 
    December 31, 1998 and September 30, 1998           (16,958)        12,530)
  Additional paid-in capital                            48,805         48,790
  Retained earnings                                     13,427         10,296
  Accumulated other comprehensive earnings                           
    Unrealized loss on investments, net of tax             (10)           (73)
                                                      --------       --------
         Total stockholders' equity                     45,345         46,564
                                                      --------       --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY            $ 62,410       $ 83,495
                                                      ========       ========
                                                                     
-----------------------------------------------------------------------------

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       3
<PAGE>

PILGRIM AMERICA CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                          Three months ended
                                                             December 31,
                                                        1998             1997
--------------------------------------------------------------------------------

REVENUES:
  Management and administrative fees                 $    6,750       $    5,036
  Private account management fees                         3,213              688
  Distribution fees                                       1,223            1,135
  Commissions                                               221              260
  Investment and other income                             1,250              438
                                                     ----------       ----------
    Total revenues                                       12,657            7,557
                                                     ----------       ----------
EXPENSES:
  General and administrative                              4,115            2,158
  Selling                                                 2,602            1,600
  Interest expense                                          166              154
  Amortization and depreciation                             431              799
                                                     ----------       ----------
    Total expense                                         7,314            4,711
                                                     ----------       ----------

Earnings before income taxes                              5,343            2,846

Income taxes                                              2,212            1,178
                                                     ----------       ----------

NET EARNINGS                                         $    3,131       $    1,668
                                                     ==========       ==========
Earnings  per common and
common equivalent share

Basic:
Net earnings                                         $     0.59       $     0.29
                                                     ==========       ==========

Shares used in per share calculation                  5,344,890        5,799,495
                                                     ==========       ==========
Diluted:
Net earnings                                         $     0.51       $     0.25
                                                     ==========       ==========

Shares used in per share calculation                  6,122,891        6,585,558
                                                     ==========       ==========
--------------------------------------------------------------------------------

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       4
<PAGE>
PILGRIM AMERICA CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS)

                                                             Three months ended
                                                                December 31,
                                                              1998        1997
--------------------------------------------------------------------------------
Net earnings                                                $ 3,131     $ 1,668

Other comprehensive earnings, net of tax
  Unrealized holding gains (losses) arising
    during the period                                            63         (38)
  Less:  Reclassification adjustment for gains
  included in net earnings                                     --          (129)
                                                            -------     -------

Comprehensive earnings                                      $ 3,194     $ 1,501
                                                            =======     =======
--------------------------------------------------------------------------------

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       5
<PAGE>

PILGRIM AMERICA CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)

                                                            For the Three Months
                                                             Ended December 31,
--------------------------------------------------------------------------------
                                                               1998      1997
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings                                                 $  3,131  $  1,668
Adjustments to reconcile net earnings to net 
 cash provided by (used in) operating activities:
  Amortization and depreciation                                   409       799
  Gain on sale of investments                                      --      (219)
  Gain on sale of deferred acquisition costs                     (153)       --
  (Increase) decrease in accounts receivable                       (3)       16
  Increase in deferred acquisition costs due to subscriptions  (4,108)   (3,895)
  Decrease in deferred acquisition costs due to redemptions      --          75
  Net change in deferred  tax asset/ current tax liability      2,290     1,178
  Increase in operating liabilities                               780       782
  Increase in other operating assets                             (429)     (674)
                                                             --------  --------
Net cash provided by (used in) operating activities             1,917      (270)
                                                             --------  --------
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Investment in Pilgrim Funds                                      --        (9)
  Sale of Pilgrim Funds                                            --     1,180
  Investments in Private Accounts                              (4,045)   (4,750)
  Sales of furniture, fixtures and equipment                       --         4
  Purchases of furniture, fixtures and equipment                 (171)     (205)
                                                             --------  --------
Net cash used in investing activities                          (4,216)   (3,780)
                                                             --------  --------
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Purchase of treasury stock                                   (4,428)       --
  Proceeds from exercise of stock options                          15        --
  Proceeds from sale of deferred acquisition costs             29,253        --
  Term debt borrowing (repayment)                             (22,200)    4,350
                                                             --------  --------
  Net cash provided by financing activities                     2,640     4,350
                                                             --------  --------
  Net  increase  in cash and cash equivalents                     341       300
  Cash and cash equivalents, beginning of period                  763       219
                                                             --------  --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                     $  1,104  $    519
                                                             ========  ========
--------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
  Interest paid                                              $    465  $     51
  Income taxes paid                                                68        --
--------------------------------------------------------------------------------

SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

                                       6
<PAGE>
                       PILGRIM AMERICA CAPITAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)  BASIS OF FINANCIAL STATEMENT PRESENTATION

PRINCIPLES OF CONSOLIDATION.  The accompanying  condensed consolidated financial
statements of Pilgrim America  Capital  Corporation  and its  subsidiaries  (the
"Company")  were  prepared in  accordance  with  generally  accepted  accounting
principles for interim  financial  information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X.  Accordingly,  they do not include all of
the  information  and  footnotes  required  by  generally  accepted   accounting
principles for complete financial statements. In the opinion of management,  all
adjustments  considered  necessary  for fair  presentation  have been  included.
Operating  results  for  the  three  months  ended  December  31,  1998  are not
necessarily  indicative of the results which may be expected for the fiscal year
ending September 30, 1999. For additional information, refer to the consolidated
financial  statements  for the fiscal  year ended  September  30, 1998 which are
included in the Company's Form 10-K-A.

The condensed  consolidated  financial  statements  include the Company's wholly
owned   subsidiary,   Pilgrim  Group,   Inc.  ("PGI")  and  PGI's  wholly  owned
subsidiaries,   Pilgrim  Investments,  Inc.  ("PII"),  a  registered  investment
advisor,  and Pilgrim  Securities,  Inc.,  ("PSI"),  a registered  broker/dealer
(collectively  "Pilgrim").  The condensed consolidated financial statements also
include  the  Company's  wholly-owned  mortgage  banking  subsidiaries,  Express
America TC, Inc.,  EAMC  Liquidation  Corp.  ("EAMC"),  and EAMC's  wholly-owned
subsidiaries, Wesav Investment Corporation and Wesav Investment Inc.-2.

The  activities  of  the  Company  consist  primarily  of  providing  investment
management and related  services to various  open-end and closed-end  investment
companies  (each a "Fund" and  collectively  the "Pilgrim Funds" or the "Funds")
and Private Accounts operating under the Pilgrim name. The results of operations
reported  in the  condensed  consolidated  financial  statements  reflect  these
investment management activities.

COSTS ASSIGNED TO MANAGEMENT  CONTRACTS  ACQUIRED.  Costs assigned to management
contracts acquired represent the fair value of the investment  management rights
acquired through the acquisition in April 1995 of such management contracts (the
"Acquisition")  and also represent the excess of the purchase  price  (including
liabilities  assumed)  over the fair value of net assets  acquired and resulting
costs from the Acquisition. These amounts are being amortized on a straight-line
basis over 25 years.

The  Company  periodically  analyzes  costs  assigned  to  management  contracts
acquired to determine  whether any impairment in value has occurred.  Based upon
anticipated  future cash flows from  operations,  in the  opinion of  management
there has been no impairment.

DEFERRED  ACQUISITION  COSTS.  The Company  pays  commissions  of up to 4.00% to
authorized  broker-dealers  at the time that certain  Fund shares are sold.  The
commissions are recovered via distribution fees received from the related shares
and contingent deferred sales charges ("CDSC"s) received should the shareholders
redeem shares during a specified period (up to six years). Such commission costs
are  capitalized  as Deferred  Acquisition  Costs ("DAC") and amortized over the
period  that the CDSC is in effect.  On December  11,  1998,  the  Company  sold
without  recourse its existing DAC asset related to certain of the Funds' shares
(the "B Shares")  and has agreed to sell DAC assets  generated on future B Share
sales through November 1999. The Company funds the DAC daily and sells the asset
monthly.  The  purchaser of the DAC asset is entitled to 0.75%,  annualized,  in
distribution  fees paid from B Share  assets  and all  CDSCs  received  from any
redemptions  of the  related B Shares.  Prior to the sale of the DAC asset,  the
Company  amortized the B Share DAC over a six-year  period,  which is the period
during which the CDSC is in effect for such Shares.

                                       7
<PAGE>
                       PILGRIM AMERICA CAPITAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAX.  Deferred tax assets and  liabilities  are initially  recognized for
temporary  differences  between the consolidated  financial  statement  carrying
amount and the tax bases of assets and  liabilities  which will result in future
deductible amounts and operating loss and tax credit carryforwards.  A valuation
allowance is then  established  to reduce the deferred tax asset to the level at
which it is "more likely than not" that the tax benefits will be realized. Based
on  management's  analysis,  it is anticipated  that all the deferred tax assets
will be utilized,  therefore,  no valuation allowance has been established as of
December 31, 1998.

NET EARNINGS PER SHARE.  Basic EPS is computed by dividing  income  available to
common  stockholders by the weighted average number of common shares outstanding
for the period.  Diluted EPS is computed by dividing income available for common
shareholders  by the  weighted  average  number  of  common  shares  outstanding
adjusted for the effect of dilutive  common stock  equivalents,  including stock
options, during the period.

Shares outstanding and the net EPS per share data reported for the quarter ended
December 31, 1997, have been restated to give  retroactive  recognition to a 50%
stock dividend accounted for as a 3 for 2 stock split that occurred in the third
quarter of Fiscal 1998.

The following is a reconciliation  of the basic and diluted EPS computations for
the three months ended (amounts in thousands, except per share amounts):

                                                     December 31,   December 31,
                                                         1998           1997
                                                     ------------   ------------
Net earnings for basic and diluted EPS               $      3,131   $      1,668
                                                     ============   ============
Shares of common stock and common
  stock equivalents:

  Average number of common shares used in
    basic computation                                       5,345          5,799
  Effect of dilutive securities - options                     778            787
                                                     ------------   ------------
  Average shares used in diluted                            6,123          6,586
                                                     ============   ============
Net earnings per share:
  Basic                                              $       0.59   $       0.29
                                                     ============   ============
  Diluted                                            $       0.51   $       0.25
                                                     ============   ============

COMPREHENSIVE  INCOME.  Effective December 31, 1998 the Company has adopted SFAS
No. 130 "Reporting Comprehensive Income". Comprehensive income is defined as the
change in equity of a business  enterprise during a period from transactions and
other events and circumstances from non-owner  sources.  It includes all changes
to equity during a period except those resulting from  investments by owners and
distribution to owners. The SFAS requires that all items that are required to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other  financial  statements.  The SFAS requires that an enterprise (1) classify
items of other comprehensive income by their nature in a financial statement and
(2) display the accumulated  balance of other  comprehensive  income  separately
from retained  earnings and additional  paid in capital in the equity section of
the statement of financial  condition.  No earnings per share  disclosure of the
effect of comprehensive income is required under the SFAS. The SFAS is effective
for fiscal  years  beginning  after  December 15, 1997 and  reclassification  of
financial  statements for earlier periods provided for a comparative  purpose is
required.

                                       8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS.

GENERAL

The Company is a holding  company that,  through its wholly owned  subsidiaries,
provides  investment  management and related  services for seven open-end Funds,
one closed-end Fund and five Private Accounts.

RESULTS OF OPERATIONS

The following table presents  comparative  quarterly data regarding assets under
management,  Fund share sales,  and increases in Private  Account assets for the
four quarters ended December 31, 1998

                                              PILGRIM FUNDS
                                      SELECTED FUND DATA (UNAUDITED)
                                         FOR THE QUARTERS ENDED,
                                                ($000,000)
                              --------------------------------------------------
                              December 31,  September 30,  June 30,    March 31,
                                  1998         1998         1998        1998
                               ---------    ---------    ---------    ---------
OPEN-END FUNDS:
  Beginning Assets             $ 1,614.3    $ 1,786.3    $ 1,508.1    $ 1,153.3
  Direct Sales                     178.7        210.0        359.3        307.8
  Direct Redemptions               (85.1)       (91.7)       (51.9)       (48.9)
  Exchanges In (Out)(1)              2.1         (8.5)         4.1         (4.1)
  Investment Activities (2)        189.9       (281.8)       (33.3)       100.0
                               ---------    ---------    ---------    ---------
  Ending Assets                  1,899.9      1,614.3      1,786.3      1,508.1
                              
CLOSED-END FUNDS:             
  Beginning Assets               1,663.4      1,574.6      1,473.2      1,453.8
  Direct Sales (4)                  28.0         71.6         71.5         --
  Investment Activities (2)         59.9         17.2         29.9         19.4
                               ---------    ---------    ---------    ---------
  Ending Assets                  1,751.3      1,663.4      1,574.6      1,473.2
                              
PRIVATE ACCOUNTS:             
  Beginning Assets               1,896.0      1,378.5        870.0        587.3
  Increases (3)                    172.3        517.5        508.5        282.7
                               ---------    ---------    ---------    ---------
  Ending Assets                  2,068.3      1,896.0      1,378.5        870.0
                               ---------    ---------    ---------    ---------
Ending Assets Under           
  Management                   $ 5,719.5    $ 5,173.7    $ 4,739.4    $ 3,851.3
                               =========    =========    =========    =========

(1)  Net exchanges from (to) the company's sponsored money market fund.

(2)  Investment activities include net investment income,  realized gain/(loss),
     change  in  appreciation/(depreciation)   and  net  cash  distributions  to
     shareholders.  Investment  activities for  closed-end  funds include assets
     acquired using borrowed funds.

(3)  Includes assets  accumulated in private account  transactions which had not
     closed as of the related  quarter end date. Such  transactions  were in the
     ramp up stages at those dates.

(4)  Registration statements covering securities to be issued pursuant to a cash
     Purchase  Plan and a Shelf  Offering for Prime Rate Trust (the  "Programs")
     were  filed  with  the  Securities  and  Exchange  Commission  and  are now
     effective.

                                       9
<PAGE>
QUARTER ENDED DECEMBER 31, 1998 COMPARED TO THE QUARTER ENDED DECEMBER 31, 1997

Net earnings for the December 31, 1998 quarter  amounted to $3.1 million or $.51
per diluted  share  compared to net earnings of $1.7 million or $.25 per diluted
share for the quarter ended December 31, 1997.

REVENUES.  Revenues for the  December  31, 1998  quarter  were $12.6  million an
increase of $5.1 million or 67% over revenues for the December 31, 1997 quarter.

Management and administrative  fees, the Company's largest revenue source,  were
$6.7 million in the current quarter, an increase of $1.7 million or 34% compared
to the December 31, 1997 quarter.  These revenues are derived from the Company's
open-end  and  closed-end  Funds,  which  averaged  $3.5 billion in assets under
management during the current quarter, an increase of $1.1 billion or 43.3% over
Fund assets under  management  in the quarter ended  December 31, 1997.  Private
Account  management  fees  increased  $2.5  million or 367% over the  comparable
quarter as a result of the  increase of Private  Account  average  assets  under
management of $1.5 billion or 296%

Distribution  fees of $1.2  million,  for the quarter  ended  December  31, 1998
increased  $88,000 or 8% compared to the quarter ended  December 31, 1997,  even
though fund assets which generate distribution fee income increased $746 million
or 65% during the comparable quarters.  The nominal increase in distribution fee
income is  attributable  to the fact that the Company sold its DAC asset and the
related rights to receive .75% of the 1.00% annualized distribution fees paid by
the Funds' B Share assets effective September 30, 1998. Accordingly,  no related
distribution fees were recorded during the current quarter.

Investment  and other income for the December 31, 1998 quarter was $1.2 million,
an  increase  of  $812,000 or 185% over the  December  31,  1997  quarter.  This
increase was primarily due to the increase in the Company's  investments  in the
Private Accounts that it manages, which was partially reduced by a $219,000 gain
the Company  recognized  in the  December  1997  quarter due to the sale of cash
investments  made  initially  in the  Pilgrim  Funds at the time the Funds  were
established.  Private Account  investments totaled $22.4 million at December 31,
1998 compared to $4.8 million at December 31, 1997.

EXPENSES.  Total expenses,  excluding  amortization,  depreciation  and interest
expense,  for the current  quarter were $6.7 million an increase of $3.0 million
or 81% compared to the December 31, 1997 quarter.  This increase in expenses was
primarily a result of a $2.0  million  increase  in general  and  administrative
expenses due to an increase in  personnel  and  compensation  and a $1.0 million
increase in selling expenses  primarily  related to an increase in the Company's
personnel costs for sales and marketing.

Interest expense increased to $166,000 in the quarter ended December 31, 1998 an
increase of $12,000 or 8% compared to the quarter ended  December 31, 1997.  The
relatively flat interest expense between  quarters is primarily  attributable to
the sale of the DAC asset in December  1998.  The Company was  reimbursed by the
purchaser of the DAC asset for the interest expense that the Company incurred on
related  borrowings  between the effective date of sale,  September 30, 1998 and
the date the funds were  received,  at the  closing of  transaction  in December
1998. The funds received in December from the sale of the DAC asset were used to
pay  down  debt   outstanding   under  the  Company's   Credit   Agreement  (see
"Liquidity").

Amortization and depreciation  expenses decreased $368,000 primarily as a result
of the sale of the DAC asset.  The DAC assets  consisted of commissions  paid on
the sale of  certain  Fund  shares.  Prior to the sale of the DAC  asset,  these
commissions were capitalized and amortized over a six-year period.

SUBSEQUENT EVENT

The Company  entered into an agreement  with the investment  management  firm of
Nicholas-Applegate  Capital  Management of San Diego,  California to acquire the
rights to manage and distribute eleven open-end retail Nicholas-Applegate Mutual
Funds with net assets  totaling  $1.4  billion.  The agreement is subject to the
approval  of the Funds'  trustees  and  shareholders  and  review by  regulatory
agencies.  The  transaction  is  expected  to close in May or June of 1999.  The
purchase price to be paid at closing is  approximately  $22.5 million,  adjusted
for sales,  redemptions and changes in market value of the funds prior to close.
As  of  February  1,  1999,   the  Company   became  the   distributor   of  the
Nicholas-Applegate open-end retail mutual funds.

                                       10
<PAGE>
LIQUIDITY

The Company's  principal  liquidity  needs arise in connection  with general and
administrative  expenses,  selling expenses,  including  commissions paid by the
Company in connection with the sale of Fund shares,  and investments made by the
Company in connection  with the  management of Private  Accounts.  The Company's
principal  sources of  liquidity  and capital  resources  include cash flow from
operations and borrowings available under a $43.3 million credit agreement ("the
Credit Agreement").  During the first three months of fiscal 1999, the Company's
operations  provided  cash of $1.9  million and the Company used $4.2 million in
its  investing  activities  of  which  $4.0  million  was  used to  purchase  an
investment  in a new Private  Account  asset.  The Company had a net increase in
cash from financing  activity due to the $29.3 million received from the sale of
the DAC asset offset by $4.4 million in purchases of the  Company's  stock and a
decrease in borrowings of $22.2 million.

One of the Company's  principal  uses of cash is the payment of  commissions  in
connection  with the sale of B Shares.  Such costs are capitalized as DAC assets
and are recovered  through  distribution  fees and CDSC fees received from the B
Share assets.  On December 11, 1998, the Company sold its September 30, 1998 DAC
asset for $26.5  million and agreed to sell any DAC assets  generated  through B
Share sales through November,  1999, with a right of first refusal on a two-year
extension  thereafter.  The  purchaser  of the DAC asset is  entitled  to 0.75%,
annualized, in distribution fees paid from B Share assets and all CDSCs received
from any  redemptions of the related B Shares.  The Company's  inability to sell
its  future DAC  assets or to borrow to fund  commissions  could have an adverse
affect on the Company's ability to finance the continued sale of open-end Fund B
Shares.

The Company uses a significant portion of its cash to invest in Private Accounts
that it manages. The Company may be required to invest an agreed upon percentage
in each new Private  Account on the date the transaction  closes.  The Company's
inability to generate funds from  operations or to borrow funds needed to invest
in new Private Accounts could have an adverse effect on the Company's ability to
continue to close and manage  additional  Private Account assets. As of December
31, 1998 the Company had $22.4 million in investments in Private Accounts, which
are accounted for under the equity method.

The Company  intends to continue  funding its investment  management  operations
with cash provided by operations and with  borrowings  obtained under the Credit
Agreement.  The Company's  Credit Agreement was amended and restated on December
22,  1998,  and allows the  Company or the  Company's  wholly  owned  subsidiary
Pilgrim Group, Inc ("PGI") to borrow up to $43.3 million.  The borrowings can be
used for various purposes including (i) general corporate working capital;  (ii)
acquisition of investment management  contracts;  (iii) financing of commissions
paid by the  Company  in  connection  with  sales of Fund  shares  subject  to a
contingent deferred sales charge, (iv) financing Private Account investments and
(v) repurchasing  Company stock. The agreement  contains  restrictive  covenants
which  require  PGI and the  Company to maintain  certain  financial  ratios and
prohibits certain  "restricted  payments"  including dividends by the Company to
its shareholders.  Borrowings under the Credit Agreement are collateralized by a
pledge by the  Company  of the stock of PGI,  by a pledge of PGI of the stock of
its  wholly  owned  subsidiaries,  by a security  interest  in the assets of the
Company,  PGI and PGI's wholly owned  subsidiaries,  Pilgrim  Investments,  Inc.
("PII") and Pilgrim  Securities,  Inc., and by a guarantee by PGI's wholly owned
subsidiary, PII.

At December 31, 1998 the Company had  borrowings of  approximately  $8.2 million
outstanding  under the Credit  Agreement  and had  approximately  $35.1  million
additional borrowings available.

On August 5, 1997, the Company's  Board of Directors  approved  purchasing up to
750,000   shares  of  its  common  stock  from  time  to  time  in  open  market
transactions.  The Company will use cash generated from operations or borrowings
obtained  under the Credit  Agreement to purchase the shares.  As of January 31,
1999 the Company had purchased 486,650 shares pursuant to this authorization. In
August 1998, the Company's Board of Directors approved the purchase from time to
time of additional 500,000 shares of common stock.

YEAR 2000

Many  existing  computer  programs only use two digits to identify a year in the
date field. The change from 1999 to 2000 may cause many computer applications to
fail or create erroneous results. The endeavor to correct this year 2000 problem
has commonly become known as Y2K and affects virtually all companies.

                                       11
<PAGE>
The  Company  is  working  to ensure  that its  information  technology  systems
("systems")  will, along with those of its third party service providers ("third
parties" or "third  party"),  continue to function  properly upon the arrival of
the year 2000. The Company has developed and is implementing a comprehensive Y2K
plan (the "plan") to complete all internal system upgrades or conversions by the
fourth quarter of fiscal 1999. A significant part of the plan involves upgrading
hardware  and  software to newer  versions  that have been  certified  to be Y2K
compliant.  To date, most of the Company's current hardware and software systems
have  been  certified,  by the  manufacturers,  as Y2K  compliant.  Based on the
Company's  plan, it is estimated that  incremental  expenses for the Y2K project
will not  have a  material  impact  on the  Company's  operations  or  financial
results. To date, the Company has spent approximately  $751,000 on upgrading its
hardware and software systems to those that are Y2K compliant and to accommodate
the Company's growth.  The Company estimates that the remaining cost to complete
the  implementation  of the plan will be  between  $200,000  and  $500,000.  The
Company will use its own cash or to the extent available borrow from its line of
credit for any Y2K  expenditure.  It is the Company's  policy to capitalize  all
costs for hardware and software  that have a useful life of over  one-year.  The
cost of these assets will be  depreciated  based on the  estimated  useful life.
Costs for remediation and testing are expensed as incurred.

The Company is  measuring  its progress by  following  the three  action  phases
outlined in its plan:  Assessment,  Remediation/Implementation  and Testing. The
Assessment  phase included  completing an inventory of all-internal and external
systems,  office  equipment,  third  party  dependencies,  physical  facilities,
business issues and creating a budget and strategy to address the Y2K issue. The
Remediation/Implementation  phase includes  upgrading or replacing  hardware and
software systems,  issuance of Company  statements of Y2K readiness,  compliance
with regulatory disclosure  requirements,  development of a Y2K contingency plan
and contacting and monitoring third parties.  The Testing phase includes several
levels of testing  some of which rely upon the third  parties.  The Company must
test internal  systems on a stand-alone  basis and also complete  point-to-point
testing with some of its third  parties.  Additionally,  the Company will obtain
the results of certain  third party  testing that will be conducted on behalf of
the Company and its affiliates on an industry wide basis.  Below is a table that
summarizes the status of the Company's Y2K readiness.

                             Status of Y2K Readiness
--------------------------------------------------------------------------------
      Y2k Plan Phase              % Completed         Completion Target Date
                             As of February 1, 1999
--------------------------------------------------------------------------------
Assessment                           100%                    01/31/99

Remediation/Implementation            85%                    09/30/99

Testing                               75%                    10/31/99
--------------------------------------------------------------------------------

The Company's core business  activities are highly  dependent upon certain third
parties that are classified as Y2K "mission  critical".  A failure of any single
mission  critical  third party or  combination  of parties  could  likely have a
material  negative  impact to the Company'  ability to conduct its business.  As
part of its plan,  the  Company  has been  monitoring  the Y2K  progress of such
mission critical third parties. To date based upon written disclosures  provided
by such third parties,  the Company has not received any significant  indication
that a mission critical third party will likely experience a Y2K failure.

                                       12
<PAGE>
Below is a  summary  table  that  sets  forth  the most  current  Y2K  status as
disclosed by certain of the Company's mission critical third parties:

                    Mission Critical Third Party - Y2K Status

--------------------------------------------------------------------------------
Third Party                        Current Status                    Last Update
--------------------------------------------------------------------------------
Funds Transfer Agent  The five major systems of the TA system are 
                      generally Y2K ready. Testing will continue through 
                      the second quarter of 1999.                          1/99
--------------------------------------------------------------------------------
Funds Custodian       The information technology (IT) applications:       11/98
                      Correction                97% complete
                      Testing & Implementation  91% complete
                      Level 2 Testing           75% Complete
                      Level 3 Testing           51% Complete
                      72% of the sub-custodians indicate Y2K readiness by 12/98.
--------------------------------------------------------------------------------
Funds Accounting      On target to achieve goal of Y2K compliant 
Agent                 production environment by 12/98.                     10/98
--------------------------------------------------------------------------------
Communication         Both vendors have remediation and renovation 
Vendors               well under way.                                      11/98
--------------------------------------------------------------------------------
Electrical Vendor     All It and non It systems have been inventoried.     
                      All renovations are scheduled for completion by 
                      mid 1999.                                             1/99
--------------------------------------------------------------------------------
Corporate Banker      Systems are compliant. Testing continues 
                      through mid-1999                                      1/99
--------------------------------------------------------------------------------

The Company is  developing a  contingency  plan with the  objective of providing
reasonable  alternatives  to  systems,  third  party  vendors,   facilities  and
procedures  enabling  the Company to conduct  its core  business  operations  if
confronted  with a Y2K  failure.  The  scope of the  contingency  plan  includes
mission critical systems,  physical  facilities and the Company's  communication
systems. The contingency plan will provide the Company guidance should it or any
of the  Company's  primary third party  providers  fail to meet its goals and be
Year 2000  compliant  and includes an alternate  vendor list for its third party
mission critical providers. The Company has determined that even though it has a
list of alternative  vendors  selected,  it cannot ensure that these  alternates
will be Y2K ready or have the  wherewithal to accept the Company  business.  The
Company has also  determined  that there are some third party  mission  critical
vendors do not have an alternate source. The Company relies heavily on its third
party mission critical systems to conduct its day to day business operations and
to the extent that its contingency plan fails, the Company's financial condition
may be adversely effected.

The Company's ability to manage the Y2K issue is subject to uncertainties beyond
its  control  and actual  results  could  differ  materially  from what has been
discussed  above.  There are several factors that could effect the Y2K issue for
the Company,  including;  the success of the Company in identifying  systems and
programs  that are affected by Y2K; the amount and nature of testing on internal
and external  systems  that is  required;  the  installation,  programming,  and
systems work related to  upgrading or replacing  each of the affected  programs;
the cost,  magnitude and  availability  of labor and  consulting to complete the
required  Y2K  projects and the success of the  Company's  external  third party
providers and other industry or  governmental  entities in addressing  their Y2K
issues and assessing their risks.

The failure of the Company, the Company's mission critical third party providers
or other  industry or  governmental  entities to resolve Y2K issues could have a
material  adverse affect on the Company's  business,  financial  condition,  and
results of  operations.  The Company  could  become the subject of legal  claims
regarding its inability to operate its business due to Y2K failures by it or any
of its mission  critical third party  vendors.  The Company is also regulated by
several governmental  agencies that may decide to impose fines or sanctions that
could  adversely  effect the  Company's  ability to do business or in some cases
require the Company to cease  operations.  The Company  could also  experience a
decline in assets under  management  of investors if its Funds become  concerned
about the Y2K problem and withdraw their investments.  A decline in assets under
management would have an adverse effect upon the Company's  business,  financial
condition and results of operations.

                                       13
<PAGE>
FORWARD LOOKING STATEMENT

When  used in this  Form  10-Q and in future  filings  by the  Company  with the
Securities  and  Commission,  in  the  Company's  press  releases  and  in  oral
statements made with the approval of an authorized  executive officer, the words
or phrases,  "will likely  result",  "are expected  to",  "will  continue",  "is
anticipated",  "estimate",  "project",  or similar  expressions  are intended to
identify  "forward  looking"  statements,  within  the  meaning  of the  Private
Securities  Litigation  Reform  Act of  1995.  All  assumptions,  anticipations,
expectations and forecasts  contained herein are forward looking statements that
involve risks and  uncertainties.  Discussions  in  Management's  Discussion and
Analysis  about the  Company's  estimated  completion  dates  for  phases of the
Company's  Year 2000 plan,  related cost  estimates,  statements  about possible
effects of the year 2000 problem and related contingency plans are also "forward
looking"   statements.   Such  statements  are  subject  to  certain  risks  and
uncertainties  that  could  cause  actual  results  to  differ  materially  from
historical  earnings and those presently  anticipated or projected.  The Company
wishes  to  caution   readers   not  to  place   undue   reliance  on  any  such
forward-looking statements,  which speak only as of the date made, and should be
read in  conjunction  with the risk  disclosures.  The Company  wishes to advise
readers  that the  factors in the Year 2000  discussed  above  could  affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ  materially  from any opinions or statements  expressed
with respect to future periods in any current statements.

The Company will not  undertake  and  specifically  declines any  obligation  to
release  publicly  the  result  of  any  revisions  which  may  be  made  to any
forward-looking  statements to reflect events or circumstances after the date of
such  statements or to reflect the occurrence of  anticipated  or  unanticipated
events.

                                       14
<PAGE>

                           PART II - OTHER INFORMATION

ITEMS 1. THROUGH 5. ARE NOT APPLICABLE AND HAVE BEEN OMITTED.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         10.1 Amended and Restated Credit Agreement Date December 22, 1998
         27.0 Financial Data Schedules

(b)      Reports on Form 8-K.

         None

                                       15
<PAGE>

SIGNATURES

         Pursuant to the  requirements of Section 13 of the Securities  Exchange
Act of 1934,  the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                       PILGRIM AMERICA CAPITAL CORPORATION

Date:  February 9, 1999
                                       /s/ James R. Reis
                                       -----------------------------------------
                                       James R. Reis
                                       Vice-Chairman and Chief Financial Officer
                                       (Principal Accounting Officer)


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