-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IRHRObh6J0AOhep34QJF0J/poDAB2OFRaZwu6EmjHrIhzvQ70xgbwYDEkM3Pc/lW nO3Ac+VURikZ9bCKN4Irqg== 0000950147-01-500425.txt : 20010307 0000950147-01-500425.hdr.sgml : 20010307 ACCESSION NUMBER: 0000950147-01-500425 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20010301 EFFECTIVENESS DATE: 20010301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM WORLDWIDE EMERGING MARKETS FUND INC CENTRAL INDEX KEY: 0000059139 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 221868144 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-32488 FILM NUMBER: 1558595 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-01838 FILM NUMBER: 1558596 BUSINESS ADDRESS: STREET 1: ING PILGRIM FUNDS STREET 2: 7337 E. DOUBLETREE RANCH ROAD CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 800-992-0180 MAIL ADDRESS: STREET 1: ING PILGRIM FUNDS STREET 2: 7337 E. DOUBLETREE RANCH ROAD CITY: SCOTTSDALE STATE: AZ ZIP: 85258 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON WORLDWIDE EMERGING MARKETS FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON GROWTH FUND INC DATE OF NAME CHANGE: 19910711 485BPOS 1 e6381.txt POST-EFFECTIVE AMENDMENT NO. 43 TO FORM N-1A As filed with the Securities and Exchange Commission on March 1, 2001 Securities Act File No. 2-32488 Investment Company Act File No. 811-1838 ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM N-1A Registration Statement Under The Securities Act of 1933 [X] Pre-Effective Amendment No. Post-Effective Amendment No. 43 [X] and/or Registration Statement Under The Investment Company Act of 1940 [X] Amendment No. 45 [X] (Check appropriate box or boxes) PILGRIM WORLDWIDE EMERGING MARKETS FUND, INC. (Exact Name of Registrant Specified in Charter) 7337 E. Doubletree Ranch Road Scottsdale, AZ 85258 (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (800) 992-0180 James M. Hennessy, Esq. With copies to: ING Pilgrim Investments, LLC Jeffrey S. Puretz, Esq. 7337 E. Doubletree Ranch Road Dechert Scottsdale, AZ 85258 1775 Eye Street, N.W. (Name and Address of Agent for Service) Washington, DC 20006 ---------- It is proposed that this filing will become effective (check appropriate box): [ ] Immediately upon filing pursuant to paragraph (b) [X] on March 1, 2001 pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(1) [ ] on (date) pursuant to paragraph (a)(1) [ ] 75 days after filing pursuant to paragraph (a)(2) [ ] on (date) pursuant to paragraph (a)(2) of Rule 485 If appropriate, check the following box: [ ] This post-effective amendment designated a new effective date for a previously filed post-effective amendment. ================================================================================ [LOGO] Prospectus March 1, 2001 Classes A, B, C and M International Equity Funds Pilgrim Worldwide Growth Pilgrim International Value Pilgrim International Pilgrim International Core Growth Pilgrim International SmallCap Growth Pilgrim Emerging Markets Value Pilgrim Emerging Countries Pilgrim Worldwide Emerging Markets Pilgrim Global Technology Pilgrim Global Communications Pilgrim Global Information Technology Pilgrim Asia-Pacific Equity Pilgrim SmallCap Asia Growth Pilgrim European Equity Pilgrim Russia Precious Metals Funds Pilgrim Precious Metals Pilgrim Silver This prospectus contains important information about investing in the Pilgrim Funds. You should read it carefully before you invest, and keep it for future reference. Please note that your investment: is not a bank deposit, is not insured or guaranteed by the FDIC, the Federal Reserve Board or any other government agency and is affected by market fluctuations. There is no guarantee that the Funds will achieve their objectives. As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities nor has the SEC judged whether the information in this prospectus is accurate or adequate. Any representation to the contrary is a criminal offense. WHAT'S INSIDE - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] INVESTMENT STRATEGY [GRAPHIC] RISKS [GRAPHIC] HOW THE FUND HAS PERFORMED [GRAPHIC] These pages contain a description of each of our Funds included in this prospectus, including its objective, investment strategy and risks. You'll also find: How the Fund has performed. A chart that shows the Fund's financial performance for the past ten years (or since inception, if shorter). What you pay to invest. A list of the fees and expenses you pay -- both directly and indirectly -- when you invest in a Fund. An Introduction to the Pilgrim Funds 1 Funds At A Glance 2 INTERNATIONAL EQUITY FUNDS Pilgrim Worldwide Growth 6 Pilgrim International Value 8 Pilgrim International 10 Pilgrim International Core Growth 12 Pilgrim International SmallCap Growth 14 Pilgrim Emerging Markets Value 16 Pilgrim Emerging Countries 18 Pilgrim Worldwide Emerging Markets 20 Pilgrim Global Technology 22 Pilgrim Global Communications 24 Pilgrim Global Information Technology 26 Pilgrim Asia-Pacific Equity 28 Pilgrim SmallCap Asia Growth 30 Pilgrim European Equity 32 Pilgrim Russia 34 PRECIOUS METALS FUNDS Pilgrim Precious Metals 36 Pilgrim Silver 38 What You Pay to Invest 40 Shareholder Guide 44 Management of the Funds 51 Dividends, Distributions and Taxes 54 More Information About Risks 55 Financial Highlights 58 Where To Go For More Information Back cover INTRODUCTION TO THE PILGRIM FUNDS - -------------------------------------------------------------------------------- Risk is the potential that your investment will lose money or not earn as much as you hope. All mutual funds have varying degrees of risk, depending on the securities they invest in. Please read this prospectus carefully to be sure you understand the principal risks and strategies associated with each of our Funds. You should consult the Statement of Additional Information (SAI) for a complete list of the risks and strategies. [GRAPHIC] If you have any questions about the Pilgrim Funds, please call your financial consultant or us at 1-800-992-0180. This prospectus is designed to help you make informed decisions about your investments. INTERNATIONAL EQUITY FUNDS ING Pilgrim offers International Equity Funds that emphasize a growth approach to international investing, as well as International Equity Funds that apply the technique of "value investing." These Funds focus on long-term growth by investing primarily in foreign equities. They may suit you if you: * are investing for the long-term -- at least several years * are looking for exposure to international markets * are willing to accept higher risk in exchange for long-term growth. PRECIOUS METALS FUNDS ING Pilgrim's Precious Metals Funds seek long-term growth. They may suit you if you: * are investing for the long-term -- at least several years * are looking for exposure to international markets and precious metals * are willing to accept higher risk in exchange for long-term growth. [GRAPHIC] If you have any questions, please call 1-800-992-0180. 1 - ------ Funds At A Glance - ------ This table is a summary of the objectives, main investments and risks of each Pilgrim Fund. It is designed to help you understand the differences between the Funds, the main risks associated with each, and how risk and investment objectives relate. This table is only a summary. You should read the complete descriptions of each Fund's investment objectives, strategies and risks, which begin on page 6.
FUND INVESTMENT OBJECTIVE - ------------------------------------------------------------------------------------------------------------------------------------ International Worldwide Growth Fund Long-term capital appreciation Equity Funds Adviser: ING Pilgrim Investments, LLC International Value Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC Sub-Adviser: Brandes Investment Partners, L.P. International Fund Long-term growth of capital Adviser: ING Pilgrim Investments, LLC International Core Growth Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC International SmallCap Growth Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC Sub-Adviser: Nicholas-Applegate Capital Mgt. Emerging Markets Value Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC Sub-Adviser: Brandes Investment Partners, L.P. Emerging Countries Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC Worldwide Emerging Markets Fund Long-term growth of capital Adviser: ING Pilgrim Investments, LLC Global Technology Fund Long-term growth of capital Adviser: ING Pilgrim Investments, LLC Global Communications Fund Long-term capital appreciation Adviser: ING Mutual Funds Management Co. LLC Sub-Adviser: ING Investment Management Advisors B.V. Global Information Technology Fund Long-term capital appreciation Adviser: ING Mutual Funds Management Co. LLC Sub-Adviser: ING Investment Management Advisors B.V. Asia-Pacific Equity Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC
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MAIN INVESTMENTS MAIN RISKS - ------------------------------------------------------------------------------------------------------------------------------------ Equity securities of companies located in countries around Price volatility and other risks that accompany an the world, which may include the U.S., believed to have investment in growth-oriented foreign equities. Sensitive to growth potential. currency exchange rates, international political and economic conditions and other risks that affect foreign securities. Equity securities of issuers located in countries outside Price volatility and other risks that accompany an the U.S., believed to have prices below their long-term investment in foreign equities. Sensitive to currency value. exchange rates, international political and economic conditions and other risks that affect foreign securities. Equity securities and equity equivalents of companies Price volatility and other risks that accompany an outside of the U.S. investment in growth-oriented foreign equities. Sensitive to currency exchange rates, international political and economic conditions and other risks that affect foreign securities. Equity securities of larger companies in countries around Price volatility and other risks that accompany an the world, which may include the U.S., believed to have investment in growth-oriented foreign equities. Sensitive to growth potential. currency exchange rates, international political and economic conditions and other risks that affect foreign securities. Equity securities of small-sized companies in countries Price volatility, liquidity and other risks that accompany around the world, which may include the U.S., believed to an investment in equity securities of foreign, small-sized have growth potential. companies. Sensitive to currency exchange rates, international political and economic conditions and other risks that affect foreign securities. Equity securities of issuers located in countries with Price volatility, liquidity and other risks that accompany emerging securities markets believed to have prices below an investment in equities from emerging countries. Sensitive their long-term value. to currency exchange rates, international political and economic conditions and other risks that affect foreign securities. Equity securities of issuers located in countries with Price volatility, liquidity and other risks that accompany emerging securities markets believed to have growth an investment in equities from emerging countries. Sensitive potential. to currency exchange rates, international political and economic conditions and other risks that affect foreign securities. Equity securities and equity equivalents of emerging market Price volatility, liquidity and other risks that accompany companies. an investment in equities from emerging countries. Sensitive to currency exchange rates, international political and economic conditions and other risks that affect foreign securities. Equity securities or equity equivalents of technology Price volatility due to non-diversification and companies (which include information infrastructure concentration in stocks in the technology sector. May be related companies). sensitive to currency exchange rates, international political and economic conditions and other risks that affect foreign securities. Equity securities of communications companies located Price volatility and risks related to investments in equity throughout the world, including the United States. securities. Sensitive to currency exchange rates, international political and economic conditions and other risks that affect foreign securities. Products and services of companies engaged in the communications sector are subject to relatively high risks of rapid obsolescence caused by scientific and technological advances. Equity securities of information technology companies Price volatility and risks related to investments in equity located throughout the world, including the United States. securities. Products and services of companies engaged in the information technology sector are subject to relatively high risks of rapid obsolescence caused by scientific and technological advances. Equity securities of companies based in the Asia-Pacific Price volatility and other risks that accompany an region, excluding Australia and Japan. investment in foreign equities and in securities of issuers in a single region. Sensitive to currency exchange rates, international political and economic conditions and other risks that affect foreign securities.
3 - ------ Funds At A Glance - ------
FUND INVESTMENT OBJECTIVE - ------------------------------------------------------------------------------------------------------------------------------------ International SmallCap Asia Growth Fund Long-term capital appreciation Equity Funds Adviser: ING Pilgrim Investments, LLC European Equity Fund Long-term capital appreciation Advisor: ING Mutual Funds Management Co. LLC Sub-Adviser: ING Investment Management Advisors B.V. Russia Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC Precious Metals Precious Metals Fund Capital appreciation and a hedge against the loss of Funds Adviser: ING Pilgrim Investments, LLC buying power of the U.S. Dollar Silver Fund Maximum total return from long-term growth of Adviser: ING Pilgrim Investments, LLC capital and income
4
MAIN INVESTMENTS MAIN RISKS - ------------------------------------------------------------------------------------------------------------------------------------ Equity securities and equity equivalents of companies in the Price volatility, liquidity and other risks that accompany Asia region having market capitalizations of less than $1 an investment in equity securities of issuers in a single billion. region. Sensitive to currency exchange rates, international political and economic conditions and other risks that affect foreign securities. Equity securities of issuers which are principally traded in Price volatility and risks related to investments in equity the European capital markets, or that derive a majority of securities. Sensitive to currency exchange rates, their total revenues from either goods produced or services international political and economic conditions and other rendered within Europe, or that are organized under the laws risks that affect foreign securities of companies in a of and have a principal office in a European country. single region. Equity securities of Russian companies. Risk due to extremely volatile and often illiquid nature of the Russian securities markets, and volatility due to non-diversification of investments. Particularly sensitive to Russian political and economic conditions, currency exchange rates, and other risks that affect funds investing in securities of a single country. Potential for expropriation, dilution, devaluation, default or excessive taxation by the Russian government. Gold and securities of companies engaged in mining or Price volatility due to non-diversification and processing gold throughout the world. concentration in the gold/precious metals industry. The market for gold and other precious metals is widely unregulated and is located in foreign countries that have the potential for instability. Precious metals earn no income, have higher transaction/storage costs, and realize gain only with an increase in market price. Securities of companies which are engaged in the Price volatility due to non-diversification and exploration, mining, processing, fabrication or distribution concentration in stocks in the silver industry. The market of silver and in silver bullion. for silver is limited and widely unregulated and is located in foreign countries that have the potential for instability. Precious metals earn no income, have higher transaction/storage costs, and realize gain only with an increase in market price.
5 - ------------- International Equity Funds - ------------- Adviser PILGRIM WORLDWIDE GROWTH FUND ING Pilgrim Investments, LLC - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its net assets in equity securities of issuers located in at least three countries, one of which may be the U.S. The Fund generally invests at least 75% of its total assets in common and preferred stocks, warrants and convertible securities. The Fund may invest in companies located in countries with emerging securities markets when the portfolio managers believe they present attractive investment opportunities. International Component. The portfolio managers primarily use a "bottom-up" fundamental analysis to identify stocks which they believe offer good value relative to their peers in the same industry, sector or region. The portfolio managers will invest at least 65% of the Fund in assets of companies which, based upon a fundamental analysis of a company's earning prospects, they believe will experience faster earnings per share growth than that of other companies located in one or more of the same market, sector, or industry. In conducting its fundamental analysis, the portfolio managers focus on various factors, including valuation of the companies, potential catalysts to stock price appreciation, quality of management, and financial measures, especially cash flow and the cash flow return on capital. They also use a "top-down" analysis to identify important themes or issues which may affect the investment environment in certain regions or sectors and to estimate regional market risks. U.S. Component. The Fund normally invests in equity securities of large U.S. companies that the portfolio managers feel have above-average prospects for growth. The Fund considers a company to be large if its market capitalization corresponds at the time of purchase to the upper 90% of the S&P 500 Index. As of December 31, 2000 this meant market capitalizations in the range of $9.1 billion to $475 billion. Capitalization of companies in the S&P 500 Index will change with market conditions. The portfolio managers emphasize a growth approach by searching for companies that they believe are managing change advantageously and may be poised to exceed growth expections. The portfolio managers focus on both a "bottom-up" analysis that evaluates the financial condition and competitiveness of individual companies and a "top-down" thematic approach and a sell discipline. The portfolio managers seek to identify themes that reflect the major social, economic and technological trends that they believe are likely to shape the future of business and commerce over the next three to five years, and seek to provide a framework for identifying the industries and companies they believe may benefit most. This "top-down" approach is combined with rigorous fundamental research (a "bottom-up" approach) to guide stock selection and portfolio structure. From time to time, the Adviser reviews the allocation between U.S. stocks and non-U.S. stocks in the portfolio, and may rebalance the portfolio using factors that the Adviser deems appropriate. The Fund may also lend portfolio securities on a short-term or long-term basis, up to 30% of its total assets. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potenial for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the Adviser believes have the potential for rapid growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund may also invest in small and medium-sized companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many may be dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks, or may not favor equities at all. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Inability to Sell Securities -- securities of foreign companies may trade in lower volume and may be less liquid than securities of U.S. companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. Securities Lending -- There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. 6 Pilgrim Worldwide Growth Fund PILGRIM WORLDWIDE GROWTH FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2)(3) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 2.45 14.74 17.92 17.28 37.34 83.52 -22.26 Best and worst quarterly performance during this period: 4th quarter 1999: up 44.54% 4th quarter 2000: down 15.85% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- The Morgan Stanley Capital International World Index (MSCI World Index). Average Annual Total Returns
MSCI World Class A(4) Class B(5) Class C(6) Index(7) ---------- ---------- ---------- -------- One year, ended December 31, 2000 % -26.74 -26.46 -23.48 -13.92 Five years, ended December 31, 2000 % 20.62 21.16 21.30 11.58 Since inception of Classes A and C(8) % 17.34 N/A 17.50 11.96 Since inception of Class B(8) % N/A 20.56 N/A 12.15
- ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) ING Pilgrim Investments, LLC has been the Fund's investment adviser since May 24, 1999; however, prior to October 1, 2000, the Fund was advised by a sub-adviser. (3) Prior to November 2, 2000, the Fund's portfolio manager employed a different stock selection criteria. (4) Reflects deduction of sales charge of 5.75%. (5) Reflects deduction of deferred sales charge of 5%, 2% and 1%, respectively, for 1 year, 5 year and since inception returns. (6) Reflects deduction of deferred sales charge of 1% for the 1 year return. (7) The MSCI World Index is an unmanaged index that measures the performance of over 1,400 securities listed on exchanges in the U.S., Europe, Canada, Australia, New Zealand and the Far East. (8) Classes A and C commenced operations on April 19, 1993. Class B commenced operations on May 31, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Worldwide Growth Fund 7 - ------------- International Equity Funds - ------------- Adviser ING Pilgrim Investments, LLC Sub-Adviser PILGRIM INTERNATIONAL VALUE FUND Brandes Investment Partners, L.P. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in foreign companies with market capitalizations greater than $1 billion, but it may hold up to 25% of its assets in companies with smaller market capitalizations. The portfolio managers apply the technique of "value investing" by seeking stocks that their research indicates are priced below their long-term value. The Fund holds common stocks, preferred stocks, American, European and global depository receipts, as well as convertible securities. Under normal circumstances, the Fund will invest at least 65% of its total assets in securities of companies located in at least three countries other than the U.S., which may include emerging market countries. The Fund may invest up to the greater of: * 20% of its assets in any one country or industry, or, * 150% of the weighting of the country or industry in the Morgan Stanley Capital International Europe, Australia and Far East (MSCI EAFE) Index, as long as the Fund meets any industry concentration or diversification requirements under the Investment Company Act. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund invests primarily in equity securities of larger companies, which sometimes have more stable prices than smaller companies. However, the Fund may also invest in small and medium-sized companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the value-oriented stocks in which the Fund invests. Rather, the market could favor growth-oriented stocks, or may not favor equities at all. Inability to Sell Securities -- securities of smaller companies and some foreign companies may trade in lower volume and may be less liquid than securities of larger, more established companies or U.S. companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 8 Pilgrim International Value Fund PILGRIM INTERNATIONAL VALUE FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Return (%)(1) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 15.23 17.86 13.46 51.49 1.89 Best and worst quarterly performance during this period: 4th quarter 1999: up 24.50% 3rd quarter 1998: down 14.73% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index). Average Annual Total Returns
MSCI EAFE Class A(2) Class B(3) Class C(4) Index(5) ---------- ---------- ---------- -------- One year, ended December 31, 2000 % -3.97 -3.27 0.24 -13.96 Five years, ended December 31, 2000 % 17.52 N/A 18.11 7.43 Since inception of Classes A and C(6) % 17.14 N/A 17.55 9.12 Since inception of Class B(6) % N/A 18.52 N/A 8.70
- ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for 1 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for the 1 year return. (5) The MSCI EAFE Index is an unmanaged index that measures the performance of securities listed on exchanges in markets in Europe, Australia and the Far East. (6) Classes A and C commenced operations on March 6, 1995. Class B commenced operations on April 18, 1997. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim International Value Fund 9 - ------------- International Equity Funds - ------------- Adviser PILGRIM INTERNATIONAL FUND ING Pilgrim Investments, LLC - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund's investment objective is to seek long-term growth of capital through investment in equity securities and equity equivalents of companies outside of the U.S. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its net assets in equity securities of issuers located in countries outside of the U.S. The Fund invests primarily in companies with a large market capitalization, but may also invest in mid- and small-size companies. The Fund generally invests at least 75% of its total assets in common and preferred stocks, warrants and convertible securities. The Fund may invest in companies located in countries with emerging securities markets when the portfolio managers believe they present attractive investment opportunities. The Fund also may invest up to 35% of its assets in securities of U.S. issuers, including investment-grade debt securities. The portfolio managers primarily use "bottom-up" fundamental analysis to identify stocks which they believe offer good value relative to their peers in the same industry, sector or region. They also use "top-down" analysis to identify important themes or issues which may affect the investment environment in certain regions or sectors and to estimate regional market risks. In conducting its fundamental analysis, the portfolio managers focus on various factors, including valuation of the companies, catalysts to stock price appreciation, quality of management and financial measures, especially cash flow and the cash flow return on capital. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund invests primarily in equity securities of larger companies, which sometimes have more stable prices than smaller companies. However, the Fund may also invest in small and medium-sized companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the securities in which the Fund invests. Debt securities -- the value of debt securities may fall when interest rates rise. Debt securities with longer maturities tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter maturities. The Fund could also lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. Inability to Sell Securities -- securities of smaller and foreign companies trade in lower volume and may be less liquid than securities of larger U.S. companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 10 Pilgrim International Fund PILGRIM INTERNATIONAL FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2)(3) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 5.87 5.77 13.46 1.56 19.02 47.50 -8.30 Best and worst quarterly performance during this period: 4th quarter 1999: up 27.01% 4th quarter 1997: down 10.65% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index). Average Annual Total Returns MSCI EAFE Class A(4)(5) Index(6) ------------- -------- One year, ended December 31, 2000 % -13.57 -13.96 Five years, ended December 31, 2000 % 11.90 7.43 Since inception of Class A(7) % 10.13 8.10 - ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to July 26, 2000, Lexington Management Corporation served as the adviser to the Fund and the Fund's shares were sold on a no-load basis. Effective July 31, 2000, the Fund's outstanding shares were classified as "Class A" shares. (3) Prior to November 2, 2000, the Fund's portfolio manager employed a different stock selection criteria. (4) This table shows the performance of the Class A shares of the Fund. Class B and Class C shares of the Fund did not have a full year's performance during the period ended December 31, 2000. (5) Reflects deduction of sales charge of 5.75%. (6) The MSCI EAFE Index is an unmanaged index that measures the performance of securities listed on exchanges in markets in Europe, Australia, and the Far East. (7) Class A commenced operations on January 3, 1994. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim International Fund 11 - ------------- International Equity Funds - ------------- Adviser PILGRIM INTERNATIONAL CORE GROWTH FUND ING Pilgrim Investments, LLC - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its net assets in equity securities of issuers located in countries outside the U.S. The Fund invests primarily in companies with a large market capitalization, but may also invest in mid- and small-size companies. The Fund generally invests at least 75% of its total assets in common and preferred stocks, warrants and convertible securities. The Fund may invest in companies located in countries with emerging securities markets when the portfolio managers believe they present attractive investment opportunities. The Fund may also invest up to 35% of its assets in securities of U.S. issuers, including investment-grade debt securities. In pursuing the Fund's investment strategy, the portfolio managers primarily use a "bottom-up" fundamental analysis to identify stocks which they believe offer good value relative to their peers in the same industry, sector or region. The portfolio managers will invest 65% of the Fund in assets of companies which, based upon a fundamental analysis of a company's earnings prospects, they believe will experience faster earnings per share growth than that of other companies located in one or more of the same market, sector, or industry. In conducting its fundamental analysis, the portfolio managers focus on various factors, including valuation of the companies, potential catalysts to stock price appreciation, quality of management and financial measures, especially cash flow and the cash flow return on capital. They also use a "top-down" analysis to identify important themes or issues which may affect the investment environment in certain regions or sectors and to estimate regional market risks. The Fund may also lend portfolio securities on a short-term or long-term basis, up to 30% of its total assets. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the Adviser believes have the potential for rapid growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund invests in large companies, which sometimes have more stable prices than smaller companies. However, the Fund may also invest in small and medium-sized companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or smaller company stocks, or may not favor equities at all. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Securities Lending -- There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. 12 Pilgrim International Core Growth Fund PILGRIM INTERNATIONAL CORE GROWTH FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2)(3) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 20.92 66.69 -25.04 Best and worst quarterly performance during this period: 4th quarter 1999: up 44.07% 2nd quarter 2000: down 9.77% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index). Average Annual Total Returns
MSCI EAFE Class A(4) Class B(5) Class C(6) Index(7) ---------- ---------- ---------- -------- One year, ended December 31, 2000 % -29.36 -29.13 -26.29 -13.96 Since inception(8) % 14.53 15.03 15.43 8.58
- ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) ING Pilgrim Investments, LLC has been the Fund's investment adviser since May 24, 1999; however, prior to October 1, 2000, the Fund was advised by a sub-adviser. (3) Prior to November 2, 2000, the Fund's portfolio manager employed a different stock selection criteria. (4) Reflects deduction of sales charge of 5.75%. (5) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for 1 year and since inception returns. (6) Reflects deduction of deferred sales charge of 1% for the 1 year return. (7) The MSCI EAFE Index is an unmanaged index that measures the performance of securities listed on exchanges in markets in Europe, Australia and the Far East. (8) The Fund commenced operations on February 28, 1997. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim International Core Growth Fund 13 - ------------- International Equity Funds - ------------- Adviser ING Pilgrim Investments, LLC Sub-Adviser Nicholas-Applegate Capital PILGRIM INTERNATIONAL SMALLCAP GROWTH FUND Management - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its total assets in securities of small companies located outside the U.S. The Fund may invest up to 35% of its total assets in U.S. issuers. The Fund invests primarily in smaller-capitalized companies ("small cap stocks") located worldwide. In the opinion of the Fund's Sub-Adviser, small cap stocks are those whose stock market capitalizations are predominantly in the bottom 25% of publicly traded companies as measured by stock market capitalizations in over 50 countries. The market capitalization ranges of the various countries' small cap stocks may vary greatly due to fluctuating currency values, differences in the size of the respective economies, and movements in the local stock markets. The Fund normally invests at least 75% of its total assets in common and preferred stocks, warrants and convertible securities. The Fund may invest in companies located in countries with emerging securities markets when the Sub-Adviser believes they present attractive investment opportunities. The Fund's Sub-Adviser emphasizes a growth approach by searching for successful, growing companies that are managing change advantageously and poised to exceed growth expectations. It focuses on a "bottom-up" analysis that evaluates the financial conditions and competitiveness of individual companies worldwide. It uses a blend of traditional fundamental research of individual securities, calling on the expertise of many external analysts in different countries throughout the world, and a computer intensive ranking system that analyzes and ranks securities. The Sub-Adviser seeks to uncover signs of "change at the margin" -- positive business developments which are not yet fully reflected in a company's stock price. In analyzing specific companies for possible investment, the Sub-Adviser ordinarily looks for several of the following characteristics: above-average per share earnings growth; high return on invested capital; a healthy balance sheet; sound financial and accounting policies and overall financial strength; strong competitive advantages; effective research and product development and marketing; development of new technologies; efficient service; pricing flexibility; strong management; and general operating characteristics that will enable the companies to compete successfully in their respective markets. The Sub-Adviser usually considers whether to sell a particular security when any of those factors materially changes. The Fund may also lend portfolio securities on a short-term or long-term basis, up to 30% of its total assets. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the Sub-Adviser believes have the potential for rapid growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund invests in small companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the small-cap growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or large company stocks, or may not favor equities at all. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Inability to Sell Securities -- securities of smaller and foreign companies trade in lower volume and may be less liquid than securities of larger U.S. companies. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. Securities Lending -- There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. 14 Pilgrim International SmallCap Growth Fund PILGRIM INTERNATIONAL SMALLCAP GROWTH FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 5.51 17.58 13.46 35.57 121.93 -16.60 Best and worst quarterly performance during this period: 4th quarter 1999: up 53.34% 3rd quarter 1998: down 15.35% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- The Salomon Europe Pacific, Australia and Composite Market Index (Salomon EPAC EM Index). Average Annual Total Returns
Salomon EPAC EM Class A(3) Class B(4) Class C(5) Index(6) ---------- ---------- ---------- -------- One year, ended December 31, 2000 % -21.40 -20.90 -17.85 -11.08 Five years, ended December 31, 2000 % 25.84 26.43 26.54 3.57 Since inception of Classes A and C(7) % 19.81 N/A 20.06 2.57 Since inception of Class B(7) % N/A 24.45 N/A 4.01
- ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the adviser, rather than sub-adviser, to the Fund. (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5%, 2% and 1%, respectively, for 1 year, 5 year and since inception returns. (5) Reflects deduction of deferred sales charge of 1% for the 1 year return. (6) The Salomon EPAC EM Index is an unmanaged index that measures the performance of securities of smaller-capitalization companies in 22 countries excluding the U.S. and Canada. (7) Classes A and C commenced operations on August 31, 1994. Class B commenced operations on May 31, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim International SmallCap Growth Fund 15 - ------------- International Equity Funds - ------------- Adviser ING Pilgrim Investments, LLC Sub-Adviser PILGRIM EMERGING MARKETS VALUE FUND Brandes Investment Partners, L.P. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in companies located in countries with emerging markets, including companies that may be smaller and lesser-known. The portfolio managers apply the technique of "value investing" by seeking stocks that their research indicates are priced below their long-term value. The Fund may invest in common stocks, preferred stocks, American, European and global depositary receipts, as well as convertible securities. Under normal market conditions, the Fund will invest at least 65% of its total assets in securities of companies located in countries with emerging markets. Countries with emerging markets include those countries that are generally considered to be emerging market countries by the international financial community. The Fund may invest up to the greater of: * 20% of its assets in any one country or industry, or, * 150% of the weighting of the country or industry in the Morgan Stanley Capital International Emerging Markets Free Index Index (MSCI EMF Index), as long as the Fund meets any industry concentration or diversification requirements under the Investment Company Act. PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Trustees has approved the reorganization of the Fund into Pilgrim Emerging Countries Fund. You could therefore ultimately hold shares of that Fund. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. For emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund may invest in smaller companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the value-oriented stocks in which the Fund invests. Rather, the market could favor growth-oriented stocks, or may not favor equities at all. Inability to Sell Securities -- securities of smaller and emerging market companies trade in lower volume and may be less liquid than securities of companies in larger, more established markets. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 16 Pilgrim Emerging Markets Value Fund PILGRIM EMERGING MARKETS VALUE FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Return (%)(1) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -22.58 67.11 -17.64 Best and worst quarterly performance during this period: 2nd quarter 1999: up 26.74% 2nd quarter 1998: down 24.79% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- The Morgan Stanley Capital International Emerging Markets Free Index (MSCI EMF Index). Average Annual Total Return
MSCI EMF Class A(2) Class B(3) Class C(4) Index(5) ---------- ---------- ---------- -------- One year, ended December 31, 2000 % -22.38 -21.24 -18.84 -30.61 Since Inception(6) % 0.14 0.72 1.37 -4.83
- ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for 1 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for the 1 year return. (5) The MSCI EMF Index is an unmanaged index that measures the performance of securities listed on exchanges in developing nations throughout the world. (6) The Fund commenced operations on January 1, 1998. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Emerging Markets Value Fund 17 - ------------- International Equity Funds - ------------- Adviser PILGRIM EMERGING COUNTRIES FUND ING Pilgrim Investments, LLC - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests at least 65% of its net assets in securities of issuers located in at least three countries with emerging securities markets. Countries with emerging securities markets are those countries which generally are considered to be emerging market countries by the international financial community. The Fund may invest up to 35% of its total assets in securities of U.S. and other developed market issuers, including investment-grade debt securities of U.S. issuers. Under normal conditions, the Fund invests at least 75% of its total assets in common and preferred stocks, warrants and convertible securities. In selecting securities located in emerging market countries, the Adviser uses a "bottom-up" fundamental analysis to identify companies which it believes have good earnings growth prospects and that can be bought at a price which seems reasonable. To help in this process, the Adviser scores the emerging markets stocks on a wide range of quantitive and qualitative measures, with particular attention paid to long-term and short-term earnings growth prospects and valuation measures. The Adviser seeks securities of emerging market issuers which are relatively liquid and covered by professional securities analysts. In selecting stocks in developed markets, the portfolio managers seek the most attractive opportunities in such markets. For such securities, the portfolio managers use "bottom-up" analysis to choose companies which offer good value relative to their peers in the same industry, sector or region. They also use "top-down" analysis to identify important themes or issues which may affect the investment environment in certain regions or sectors and to estimate regional market risks. In conducting their fundamental analysis, the portfolio managers focus on various matters, including valuation of the companies, potential catalysts to stock price appreciation, quality of management, and financial measures, especially cash flow and cash flow return on capital. The Fund may also lend portfolio securities on a short-term or long-term basis, up to 30% of its total assets. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. This Fund invests in companies that the Adviser believes have the potential for rapid growth, which may give the Fund a higher risk of price volatility than a Fund that emphasizes other styles, such as a value-oriented style. The Fund may invest in small and medium-sized companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the growth securities in which the Fund invests, or may not favor equities at all. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. Investments in emerging market countries are generally riskier than other kinds of foreign investments, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Debt Securities -- the value of debt securities may fall when interest rates rise. Debt securities with longer maturities tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter maturities. The Fund could also lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. Inability to Sell Securities -- securities of emerging market companies trade in lower volume and may be less liquid than securities of companies in larger, more established markets. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. Securities Lending -- There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. 18 Pilgrim Emerging Countries Fund PILGRIM EMERGING COUNTRIES FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2)(3) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 6.34 27.50 9.44 -22.19 75.80 -31.94 Best and worst quarterly performance during this period: 4th quarter 1999: up 36.28% 3rd quarter 1998: down 26.06% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- The Morgan Stanley Capital International Emerging Markets Free Index (MSCI EMF Index). Average Annual Total Returns
MSCI EMF Class A(4) Class B(5) Class C(6) Index(7) ---------- ---------- ---------- -------- One year, ended December 31, 2000 % -35.84 -35.76 -33.03 -30.61 Five years, ended December 31, 2000 % 4.13 4.51 4.84 -4.17 Since inception of Classes A and C(8) % 3.65 N/A 3.78 -5.59 Since inception of Class B(8) % N/A 4.38 N/A -4.04
- ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) ING Pilgrim Investments, LLC has been the Fund's investment adviser since May 24, 1999; however, prior to October 1, 2000, the Fund was advised by a sub-adviser. (3) Prior to November 2, 2000, the Fund's portfolio manager employed a different stock selection criteria. (4) Reflects deduction of sales charge of 5.75%. (5) Reflects deduction of deferred sales charge of 5%, 2% and 1%, respectively, for 1 year, 5 year and since inception returns. (6) Reflects deduction of deferred sales charge of 1% for the 1 year return. (7) The MSCI EMF Index is an unmanaged index that measures the performance of securities listed on exchanges in developing nations throughout the world. (8) Classes A and C commenced operations on November 28, 1994. Class B commenced operations on May 31, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Emerging Countries Fund 19 - ------------- International Equity Funds - ------------- Adviser PILGRIM WORLDWIDE EMERGING MARKETS FUND ING Pilgrim Investments, LLC - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund's investment objective is to seek long-term growth of capital primarily through investment in equity securities and equity equivalents of emerging market companies. INVESTMENT STRATEGY [GRAPHIC] The Fund will invest at least 65% of its total assets according to its investment objective. The Fund's definition of emerging markets includes, but is not limited to, the following: Africa -- Botswana, Egypt, Ghana, Ivory Coast, Kenya, Mauritius, Morocco, Namibia, South Africa, Swaziland, Tunisia, Zambia and Zimbabwe; Asia: -- Bahrain, Bangladesh, China, Hong Kong, India, Indonesia, Malaysia, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and Thailand; Europe -- Croatia, Cyprus, Czech Republic, Estonia, Finland, Greece, Hungary, Latvia, Lithuania, Poland, Portugal, Romania, Russia, Slovakia and Slovenia; The Middle East -- Israel, Jordan, Lebanon, Oman and Turkey; Latin America -- Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Nicaragua, Peru and Venezuela. The Adviser considers an emerging market company to be any company domiciled in an emerging market country, or any company that derives 50% or more of its total revenue from either goods or services produced or sold in countries with emerging markets. The Fund may invest the remaining 35% of its assets in equity securities without regard to whether the issuer qualifies as an emerging market company, investment-grade debt securities denominated in the currency of an emerging market country or issued or guaranteed by an emerging market company or the government of an emerging market country or short-term or medium-term investment grade debt securities. The Fund's investment approach is to focus on positive returns through long-term capital gains. The investment strategy is based on a "top-down" approach that compares macro trends, such as economics, politics, industry trends, and commodity trends on a relative basis. Countries are grouped regionally and globally and ranked based on their macro scores. Once specific countries are identified as relative outperformers, specific companies are selected as investments. The selection process for selecting individual companies is based on fundamental research, industry themes, and identifying specific catalysts for growth. PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors has approved the reorganization of the Fund into Pilgrim Emerging Countries Fund. You could therefore ultimately hold shares of that Fund. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund may invest in small and medium-sized companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the securities in which the Fund invests, or may not favor equities at all. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. Investments in emerging market countries are generally riskier than other kinds of foreign investments, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Inability to Sell Securities -- securities of emerging market companies trade in lower volume and may be less liquid than securities of companies in larger, more established markets. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. Debt securities -- the value of debt securities may fall when interest rates rise. Debt securities with longer maturities tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter maturities. The Fund could also lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. 20 Pilgrim Worldwide Emerging Markets Fund PILGRIM WORLDWIDE EMERGING MARKETS FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2)(3) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 24.12 3.87 63.37 -13.81 -5.93 7.38 -11.40 -29.06 112.58 -47.09 Best and worst quarterly performance during this period: 4th quarter 1999: up 78.49% 2nd quarter 2000: down 31.37% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of two broad measures of market performance -- The Morgan Stanley Capital International Emerging Markets Free Index (MSCI EMF Index) and the Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index). Average Annual Total Returns MSCI MSCI EMF EAFE Class A(4) Index(5) Index(6) ---------- -------- -------- One year, ended December 31, 2000 % -50.12 -30.61 -13.96 Five years, ended December 31, 2000 % -6.47 -4.17 7.43 Ten years, ended December 31, 2000 % 2.02 8.26 8.56 - ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to July 26, 2000, Lexington Management Corporation served as the adviser to the Fund. Lexington Management Corporation engaged a sub-adviser to manage the Fund until June 7, 2000. Prior to July 26, 2000, the Fund's shares were sold on a no-load basis. Effective July 31, 2000, the Fund's outstanding shares were classified as "Class A" shares. (3) Prior to June 17, 1991, the Fund operated under a different investment objective. (4) Reflects deduction of sales charge of 5.75%. (5) The MSCI EMF Index is an unmanaged index that measures the performance of securities listed on exchanges in developing nations throughout the world. (6) The MSCI EAFE Index is an unmanaged index that measures the performance of securities listed on exchanges in markets in Europe, Australia, and the Far East. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Worldwide Emerging Markets Fund 21 - ------------- International Equity Funds - ------------- Adviser PILGRIM GLOBAL TECHNOLOGY FUND ING Pilgrim Investments, LLC - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund's investment objective is to seek long term growth of capital. This objective may not be changed without the approval of shareholders, and there is no assurance that the Fund will achieve its objective. INVESTMENT STRATEGY [GRAPHIC] The Fund seeks to achieve its objective by investing at least 80% of its total assets in equity securities or equity equivalents (including common and preferred stocks, warrants and convertible securities) of technology companies (which include information infrastructure related companies) of any capitalization. The Adviser considers technology or information infrastructure related companies to be in the following industries within the technology or information sectors: biotechnology, broadcasting and media content, computers, electronic components and equipment, electronic commerce and data services, data processing, information systems, internet, medical technology, networking, office automation, on-line services, semiconductors, semiconductor capital equipment, server hardware producers, software companies, telecommunications, telecommunications equipment and services, and companies involved in the distribution, servicing, science and development of these industries. The Fund expects that such companies will be located within Africa, Asia, Europe, the Middle East and Latin America. However, the Fund is not limited to these countries and may invest in any country so long as it meets the Fund's objective. Many of the regions in which the Fund will invest will include emerging market countries. The Fund's portfolio managers use a "bottom-up" approach in stock selection focusing on those companies that they believe have rising earnings expectations and rising valuations. The Fund seeks growth companies with long-term capital appreciation potential. In selecting individual securities the Adviser looks for companies that it believes display or are expected to display the following characteristics: * Robust growth prospects; * High profit margins or return on capital; * Attractive valuations relative to expected earnings or cash flow; * Quality management; and * Unique technological and competitive advantages. The Fund generally sells a stock if the Adviser believes that its target price has been reached, its earnings are disappointing, its revenue growth has slowed or its underlying fundamentals have deteriorated. In addition, the Adviser will overlay a "top-down" macro economic and political screening process in order to assess country specific risks and enhance returns. The Fund may invest in larger, more established companies or in smaller or unseasoned companies. The Fund may invest the remaining 20% of its assets in investment-grade debt securities of any maturity denominated in U.S. or foreign currencies. PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors has approved the reorganization of the Fund into Pilgrim Global Information Technology Fund. You could therefore ultimately hold shares of that Fund. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund may invest in small and medium-sized companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. Investments in emerging market countries are generally riskier than other kinds of foreign investments, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Risks of Concentration in the Technology Sector -- because the Fund's investments are concentrated in the technology sector, the value of the Fund may be subject to greater volatility than a fund with a portfolio that is less concentrated. If the securities of companies in the technology sector fall out of favor, the Fund could underperform funds that focus on other types of companies. In addition, investments in companies in the rapidly changing fields of technology and science face special risks such as competitive pressures and technological obsolescence and may be subject to greater governmental regulation than many other industries. Non-Diversification Risk -- the Fund is a non-diversified investment company. There is additional risk associated with being non-diversified, since a greater proportion of the Fund's total assets may be invested in a single company. Debt securities -- the value of debt securities may fall when interest rates rise. Debt securities with longer maturities tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter maturities. 22 Pilgrim Global Technology Fund PILGRIM GLOBAL TECHNOLOGY FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -40.60 Best and worst quarterly performance during this period: 1st quarter 2000: up 28.70% 4th quarter 2000: down 30.85% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- The Pacific Stock Exchange Technology Index (PSE Technology Index). Average Annual Total Returns PSE Class Technology A(3) Index(4) ---- -------- One year, ended December 31, 2000 % -44.02 -16.12 Since inception(5) % -43.37 -12.10 - ---------- (1) These figures are for the year ended December 31, 2000. It does not reflect sales charges and would be lower if they did. (2) Prior to August 1, 2000, Lexington Management Corporation served as the adviser to the Fund. Lexington Management Corporation engaged a sub-adviser to manage the Fund until June 7, 2000. Prior to August 1, 2000, the Fund's shares were sold on a no-load basis. Effective July 31, 2000, the Fund's outstanding shares were classified as "Class A" shares. (3) Reflects deduction of sales charge of 5.75%. (4) The PSE Technology Index is a price-weighted index of the top 100 U.S. technology stocks. (5) Class A commenced operations on December 27, 1999. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Global Technology Fund 23 - ------------- International Equity Funds - ------------- Adviser ING Mutual Funds Management Co. LLC Sub-Adviser ING Investment PILGRIM GLOBAL COMMUNICATIONS FUND Management Advisors B.V. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks to provide investors with long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] Under normal market conditions, the Fund will operate as a diversified fund and invest at least 65% of its total assets in a portfolio of equity securities of communications companies. This portion of the portfolio will have investments located in at least three different countries, including the United States and which may also include emerging market countries. As a general matter, the Fund expects these investments to be in common stocks of large, mid- and small sized companies. The Fund considers communications companies to be those that derive at least 50% of their total revenues or earnings from designing, developing, operating, financing, manufacturing or providing the following activities, products and services: communications equipment and service (including equipment and services for both data and voice transmission); electronic components and equipment; broadcast (including television and radio, satellite, microwave and cable television); computer equipment, mobile telecommunications and cellular radio and paging; electronic mail; local and wide area networking and linkage of work and data processing systems (collectivley, "communications activities"). The Sub-Adviser believes that because of rapid advances in communications, investment in companies within this sector should offer substantial opportunities for long-term capital appreciation. The communications area has exhibited and continues to demonstrate rapid growth, both through increasing demand for existing products and services and the broadening of the technology market. Generally, the Sub-Adviser's overall stock selection for the Fund will be based on an assessment of the company's fundamental prospects. The Sub-Adviser anticipates, however, that a portion of the Fund's holdings will be invested in newly issued securities being sold in the primary or secondary market. The Sub-Adviser combines broad industry analysis and "bottom-up" company analysis to identify the stocks of companies it believes will become tomorrow's communications leaders. In choosing investments for the Fund, the Sub-Adviser first identifies themes that address industry and technological changes. Using intensive fundamental research, the Sub-Adviser then analyzes individual companies worldwide to find those firms most likely to benefit from the selected investment themes. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities, and in particular securities issued in initial public offerings, face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potenial for greater long-term growth than most debt securities, they generally have higher volatility. The Fund may also invest in small and medium-sized companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many may be dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks, or may not favor equities at all. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. Investments in emerging market countries are generally riskier than other kinds of foreign investments, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Industry Concentration -- as a result of the Fund concentrating its assets in securities related to a particular industry, the Fund may be subject to greater market fluctuation than a fund which has securities representing a broader range of investment alternatives. Communications Technology Risk -- communications companies are generally subject to the rate of change in technology, which is higher than other industries. In addition, products and services of companies engaged in the communications industry are subject to relatively high risks of rapid obsolescence caused by scientific and technological advances. Swings in investor psychology or significant trading by large institutional investors can result in significant price fluctuations and stock price declines. Governmental Regulation -- certain communications industries, such as the telecommunications industry, may be subject to greater governmental regulation than many other industries. Accordingly, such industries may be subject to changes in governmental policies and the need for regulatory approvals may have a material effect on the products and services offered. Telephone operating companies in the United States, for example, are subject to both federal and state regulation affecting permitted rates of return and the kinds of services that may be offered. 24 Pilgrim Global Communications Fund PILGRIM GLOBAL COMMUNICATIONS FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The Fund did not have a full year's performance during the period ended December 31, 2000. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Global Communications Fund 25 - ------------- International Equity Funds - ------------- Adviser ING Mutual Funds Management Co. LLC Sub-Adviser ING Investment PILGRIM GLOBAL INFORMATION TECHNOLOGY FUND Management Advisors B.V. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks to provide investors with long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] Under normal market conditions, the Fund will operate as a diversified fund and invest at least 65% of its total assets in a portfolio of equity securities of information technology companies. The Fund defines information technology companies as those companies that derive at least 50% of their total revenues or earnings from information technology, hardware or software, or related consulting and services industries. This portion of the portfolio will have investments located in at least three different countries, including the United States which may also include emerging market countries. As a general matter, the Fund expects these investments to be in common stocks of large-, mid- and small-size companies. The Sub-Adviser believes that because of rapid advances in information technology, investment in companies within this sector should offer substantial opportunities for long-term capital appreciation. The information technology area has exhibited and continues to demonstrate rapid growth, both through increasing demand for existing products and services and the broadening of the technology market. Generally, the Sub-Adviser's overall stock selection for the Fund will be based on an assessment of the company's fundamental prospects. The Sub-Adviser anticipates, however, that a portion of the Fund's holdings will be invested in newly issued securities being sold in the primary or secondary market. The Sub-Adviser combines broad industry analysis and "bottom-up" company analysis to identify the stocks of companies it believes will become tomorrow's information technology leaders. In choosing investments for the Fund, the Sub-Adviser first identifies themes that address industry and technological changes. Using intensive fundamental research, the Sub-Adviser then analyzes individual companies worldwide to find those firms most likely to benefit from the selected investment themes. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities, and in particular securities issued in initial public offerings, face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potenial for greater long-term growth than most debt securities, they generally have higher volatility. The Fund may also invest in small and medium-sized companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many may be dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks, or may not favor equities at all. The Fund's investment in technology sectors of the stock market and in initial public offerings has had a significant impact on performance in 1999 and other periods. There can be no assurance that these factors will continue to have a positive effect on the Fund. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. Investments in emerging market countries are generally riskier than other kinds of foreign investments, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Industry Concentration -- as a result of the Fund concentrating its assets in securities related to a particular industry, the Fund may be subject to greater market fluctuation than a fund which has securities representing a broader range of investment alternatives. Information Technology Risk -- information technology companies are generally subject to the rate of change in technology, which is higher than other industries. In addition, products and services of companies engaged in the information technology industry are subject to relative high risks of rapid obsolescence caused by scientific and technological advances. Swings in investor psychology or significant trading by large institutional investors can result in significant price fluctuations and stock price declines. 26 Pilgrim Global Information Technology Fund PILGRIM GLOBAL INFORMATION TECHNOLOGY FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 140.15 -29.01 Best and worst quarterly performance during this period: 4th quarter 1999: up 78.51% 4th quarter 2000: down 36.82% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- The Goldman Sachs Technology Industry Composite Index. Average Annual Total Returns
Goldman Sachs Tech. Industry Class Class Class Comp. A(2) B(3) C(4) Index(5) ---- ---- ---- -------- One year, ended December 31, 2000 % -33.10 -31.94 -30.00 -37.84 Since inception(6) % 34.58 36.24 37.62 8.37
- ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for 1 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for the 1 year return. (5) The Goldman Sachs Technology Industry Composite Index is a widely recognized, unmanaged index of technology stocks. (6) Classes A, B and C commenced operations on December 15, 1998. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Global Information Technology Fund 27 - ------------- International Equity Funds - ------------- Adviser PILGRIM ASIA-PACIFIC EQUITY FUND ING Pilgrim Investments, LLC - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund normally invests at least 65% of its total assets in equity securities listed on stock exchanges in countries in the Asia-Pacific region or issued by companies based in this region. Asia-Pacific countries in which the Fund invests include, but are not limited to, China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand, but do not include Japan and Australia. The Fund invests primarily in companies with a large market capitalization, but may also invest in mid- and small-size companies. The equity securities in which the Fund may invest include common stock, convertible securities, preferred stock, warrants, American, European and other depositary receipts. The Adviser bases investment decisions on a disciplined approach that takes into consideration the following factors: a macroeconomic overview of the region, specific country analysis, setting target country weightings, evaluation of industry sectors within each country, and selection of specific stocks. In selecting specific securities, the Adviser emphasizes a value approach that seeks growth at a reasonable price. This approach involves analysis of such fundamental factors as absolute rates of change of earnings growth, earnings growth relative to the market and industry, quality of earnings and stability of earnings growth, quality of management and product line, interest rate sensitivity and liquidity of the stock. The criteria used by the Fund to determine whether an issuer is based in the Asia-Pacific region are: the country in which the issuer was organized; the country in which the principal securities market for that issuer is located; the country in which the issuer derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed; or the country in which at least 50% of the issuer's assets are located. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund invests primarily in equity securities of larger companies, which sometimes have more stable prices than smaller companies. However, the Fund may also invest in small and medium-sized companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many may be dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the value securities in which the Fund invests. Rather, the market could favor growth-oriented stocks, or may not favor equities at all. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Risks of the Asia-Pacific Region -- the Asia-Pacific region includes countries in various stages of economic development, including emerging market countries. In 1997 and 1998, securities markets in Asian countries suffered significant downturns and volatility, and currencies lost value in relation to the U.S. dollar. Currency devaluation in any one country may have a significant effect on the entire region. Increased political or social unrest in some or all Asian countries could cause further economic and market uncertainty. Risks of Concentration -- because the Fund concentrates on a single region of the world, the Fund's performance may be more volatile than that of a Fund that invests globally. If Asia-Pacific securities fall out of favor, it may cause the Fund to underperform funds that focus on other types of stocks. Inability to Sell Securities -- securities of emerging market companies trade in lower volume and may be less liquid than securities of companies in larger, more established markets. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. 28 Pilgrim Asia-Pacific Equity Fund PILGRIM ASIA-PACIFIC EQUITY FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 9.46 -43.73 -15.51 74.41 -47.63 Best and worst quarterly performance during this period: 2nd quarter 1999: up 39.92% 4th quarter 1997: down 33.11% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- The Morgan Stanley Capital International Far East Free ex Japan Index (MSCI Far East ex Japan Index). Average Annual Total Returns
MSCI Far East ex Japan Class A(3) Class B(4) Class M(5) Index(6) ---------- ---------- ---------- -------- One year, ended December 31, 2000 % -50.62 -50.68 -49.79 -36.80 Five years, ended December 31, 2000 % -14.83 -14.89 -14.98 -9.60 Since inception(7) % -14.16 -14.08 -14.30 -8.35
- ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to January 2, 2001, the Fund was managed by a sub-adviser. (3) Reflects deduction of sales charge of 5.75%. (4) Reflects deduction of deferred sales charge of 5%, 2% and 1%, respectively, for 1 year, 5 year and since inception returns. (5) Reflects deduction of sales charge of 3.5%. (6) The MSCI Far East ex Japan Index is an unmanaged index that measures the performance of securities listed on exchanges in the Far East markets, excluding Japan. (7) The Fund commenced operations on September 1, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Asia-Pacific Equity Fund 29 - ------------- International Equity Funds - ------------- Adviser PILGRIM SMALLCAP ASIA GROWTH FUND ING Pilgrim Investments, LLC - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund's investment objective is to seek long-term capital appreciation primarily by investing in equity securities and equity equivalents of companies in the Asia Region having market capitalizations of less than $1 billion. INVESTMENT STRATEGY [GRAPHIC] The Fund will normally invest at least 65% of its total assets in equity securities and equity equivalents (including common and preferred stocks, warrants and convertible securities) of smaller companies in the Asia Region. The Fund will primarily invest in listed securities but may also invest in unlisted securities. The Fund intends to invest primarily in companies which: * have proven management; * are undervalued and under-researched by the investment community; * are within industry sectors with strong growth prospects; and * which have potential investment returns that are superior to the Asian market as a whole. The Fund may invest 35% of its total assets in: * companies with market capitalizations of $1 billion or more; * companies outside the Asia Region (e.g. Australia or New Zealand); and * investment-grade debt securities of any maturity. The Fund considers the following countries to be in the Asia Region: Bangladesh, China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, The Philippines, Singapore, Sri Lanka, Vietnam, Taiwan and Thailand. The Fund considers a company to be within the Asia Region if its principal securities trading market is located in the Asia Region. The Fund will normally invest in at least three different countries. The Fund does not intend to invest in Japanese securities. During times that the Adviser believes that stock of smaller companies presents undue risk, the Fund may adopt a defensive investment posture, and invest in equity securities and equity equivalents of medium and large companies in the Asia Region. At a meeting held on December 8, 2000, the Adviser informed the Fund's Board of Directors that the Fund likely will continue to be invested primarily in such securities for the immediate future, and potentially through the reorganization of the Fund with the Pilgrim Asia-Pacific Equity Fund, to the extent warranted by market conditions. At times that the Fund is primarily invested in securities of medium and large companies, it will not realize capital appreciation from a primary investment in smaller companies. PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors has approved the reorganization of the Fund into Pilgrim Asia-Pacific Equity Fund. You could therefore ultimately hold shares of that Fund. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund invests in small companies, which may be more susceptible to price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many are dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the securities in which the Fund invests. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Risks of the Asia Region -- the Asia Region includes countries in various stages of economic, development, including emerging market countries. In 1997 and 1998, securities markets in Asian countries suffered significant downturns and volatility, and currencies lost value in relation to the U.S. dollar. Currency devaluation in any one country may have a significant effect on the entire region. Increased political or social unrest in some or all Asian countries could cause further economic and market uncertainty. Risks of Concentration -- because the Fund concentrates on a single region of the world, the Fund's performance may be more volatile than that of a Fund that invests globally. If Asian securities fall out of favor, it may cause the Fund to underperform funds that focus on other types of stocks. Inability to Sell Securities -- securities of smaller and emerging market companies trade in lower volume and may be less liquid than securities of companies in larger, more established markets. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. Debt securities -- the value of debt securities may fall when interest rates rise. Debt securities with longer maturities tend to be more sensitive to changes in intrest rates, usually making them more volatile than debt securities with shorter maturities. 30 Pilgrim SmallCap Asia Growth Fund PILGRIM SMALLCAP ASIA GROWTH FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2)(3) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 25.50 -42.32 -19.41 57.29 -41.23 Best and worst quarterly performance during this period: 2nd quarter 1999: up 39.57% 4th quarter 1997: down 41.41% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of two broad measures of market performance -- The Morgan Stanley Capital International Far East ex Japan Index (MSCI Far East ex Japan Index) and The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index). Average Annual Total Returns
MSCI MSCI Far East EAFE Class A(4)(5) ex Japan Index(6) Index(7) ------------- ----------------- -------- One year, ended December 31, 2000 % -44.63 -36.80 -13.96 Five years, ended December 31, 2000 % -12.67 -9.60 7.43 Since inception of Class A(8) % -11.93 -8.66 8.33
- ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to July 26, 2000, Lexington Management Corporation served as the adviser to the Fund and another firm served as sub-adviser to the Fund. Prior to July 26, 2000, the Fund's shares were sold on a no-load basis. Effective July 31, 2000, the Fund's outstanding shares were classified as "Class A" shares. (3) Prior to January 2, 2001, the Fund was advised by a sub-adivser. (4) This table shows the per-formance of the Class A shares of the Fund. Class B shares of the Fund did not have a full year's performance during the period ended December 31, 2000. (5) Reflects deduction of sales charge of 5.75%. (6) The MSCI Far East ex Japan Index is an unmanaged index that measures the performance of securities listed on exchanges in the Far East markets except Japan. (7) The MSCI EAFE Index is an unmanaged index that measures the performance of securities listed on exchanges in markets in Europe, Australia, and the Far East. (8) Class A commenced operations on July 3, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim SmallCap Asia Growth Fund 31 - ------------- International Equity Funds - ------------- Adviser ING Mutual Funds Management Co. LLC Sub-Adviser ING Investment PILGRIM EUROPEAN EQUITY FUND Management Advisors B.V. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks to provide investors with long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] Under normal market conditions, the Fund will operate as a diversified fund and invest at least 65% of its total assets in a portfolio of equity securities of European issuers. The Sub-Adviser considers European issuers to be companies whose securities are principally traded in the European capital markets, that derive at least 50% of their total revenues or earnings from either goods produced or services rendered in countries located in the European Union and those countries eligible to join the European Union from time to time, regardless of where the securities of such companies are principally traded, or that are organized under the laws of and have a principal office in a European country. As a general matter, the Fund expects these investments to be in common stocks of large companies whose market capitalizations are generally in excess of $10 billion, although the Fund may also invest in mid-size companies. In choosing investments for the Fund, the Sub-Adviser employs a highly disciplined, five-step investment process that seeks to identify underpriced earnings growth in European companies. The five steps are: * First, the Sub-Adviser ranks possible investments according to trading volume and liquidity relative to their peers; * Second, the Sub-Adviser performs additional screens to determine which companies should be further researched; * Third, the Sub-Adviser performs fundamental analysis of cyclical and non-cyclical market sectors and companies to identify underpriced earnings or cash flow growth; * Fourth, the Sub-Adviser determines portfolio weightings within each sector; and * Finally, the Sub-Adviser continuously monitors the portfolio to maintain favorable risk-reward relationships. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potenial for greater long-term growth than most debt securities, they generally have higher volatility. The Fund may also invest in medium-sized companies, which may be more susceptible to greater price swings than larger companies because they may have fewer financial resources, more limited product and market diversification and many may be dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks, or may not favor equities at all. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. 32 Pilgrim European Equity Fund PILGRIM EUROPEAN EQUITY FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 18.59 -7.59 Best and worst quarterly performance during this period: 4th quarter 1999: up 18.93% 3rd quarter 1999: down 5.76% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of a broad measure of market performance -- The FT-Europe Index. Average Annual Total Returns
FT-Europe Class A(2) Class B(3) Class C(4) Index(5) ---------- ---------- ---------- -------- One year, ended December 31, 2000 % -12.88 -12.66 -9.51 -7.42 Since inception(6) % 4.42 4.88 6.53 3.34
- ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for 1 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for the 1 year return. (5) The FT-Europe Index is a widely recognized, unmanaged index of European stock markets. (6) Classes A, B and C commenced operations on December 15, 1998. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim European Equity Fund 33 - ------------- International Equity Funds - ------------- Adviser PILGRIM RUSSIA FUND ING Pilgrim Investments, LLC - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund's investment objective is to seek long-term capital appreciation through investment primarily in equity securities of Russian companies. INVESTMENT STRATEGY [GRAPHIC] The Fund seeks to achieve its objective by investing at least 65% of its total assets in equity securities (including common and preferred stocks, warrants and convertible securities) of Russian companies. The portfolio manager may invest in companies with any market capitalization. The Fund may invest the other 35% of its total assets in debt securities issued by Russian companies and debt securities issued or guaranteed by the Russian government without any restrictions based on investment quality or maturity of the debt securities. The Fund may also invest in the equity securities of issuers outside of Russia which the Fund believes will experience growth in revenue and profits from participation in the development of the economies of the former Soviet Union. When the Fund anticipates unusual market or other conditions, it may temporarily depart from its goal and invest substantially in high-quality short-term investments. This could help the Fund avoid losses, but may mean lost opportunities. The criteria used by the Fund to determine whether an issuer is based in Russia are: the issuer is organized in Russia; the principal securities market for the issuer is Russia; the issuer derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed in Russia; or at least 50% of the issuer's assets are located in Russia. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Risks of Investing in Securities of Russian Companies The following risks apply to all mutual funds that invest in securities of Russian companies including Pilgrim Russia Fund. Political Risk -- Since the breakup of the Soviet Union in 1991, Russia has experienced and continues to experience dramatic political and social change. Russia is undergoing a rapid transition from a centrally-controlled command system to a more market-oriented democratic model. The Fund may be affected unfavorably by political developments, social instability, changes in government policies, and other political and economic developments. Market Concentration and Liquidity Risk -- The Russian securities markets are substantially smaller, less liquid and more volatile than the securities markets in the U.S. A few issuers represent a large percentage of market capitalization and trading volume. Due to these factors and despite the Fund's policy on liquidity, it may be difficult for the Fund to buy or sell some securities because of the poor liquidity. Lack of Reliable Financial Information -- There may not be available reliable financial information which has been prepared and audited in accordance with U.S. or Western European generally accepted accounting principles and auditing standards. Unfavorable Actions -- There is the potential for unfavorable action such as expropriation, dilution, devaluation, default or excessive taxation by the Russian government or any of its agencies or political subdivisions with respect to investments in Russian securities by or for the benefit of foreign entities. The Fund's investments will include investments in Russian companies that have characteristics and business relationships common to companies outside of Russia, and as a result, outside economic forces may cause fluctuations in the value of securities held by the Fund. Settlement and Custody Risk -- Ownership of shares in Russian companies is recorded by the companies themselves and by registrars instead of through a central registration system. It is possible that the Fund's ownership rights could be lost through fraud or negligence. Since the Russian banking institutions and registrars are not guaranteed by the state, the Fund may not be able to pursue claims on behalf of the Fund's shareholders. Risks of Concentration -- because the Fund concentrates on a single region of the world, the Fund's performance may be more volatile than that of a fund that invests globally. If Russian securities fall out of favor, it may cause the Fund to underperform funds that focus on other types of stocks. Lower Quality Debt Securities -- Junk bonds are highly speculative. Changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of issuers of securities to make principal and interest payments than with higher-grade debt securities. Non-Diversification Risk -- The Fund is a non-diversified investment company. There is additional risk associated with being non-diversified, since a greater proportion of the Fund's total assets may be invested in a single company. Debt Securities -- The value of debt securities may fall when interest rates rise. Debt securities with longer maturities tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter maturities. 34 Pilgrim Russia Fund PILGRIM RUSSIA FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 67.50 -82.99 159.76 -17.80 Best and worst quarterly performance during this period: 4th quarter 1999: up 95.36% 3rd quarter 1998: down 64.89% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of two broad measures of market performance -- The Moscow Times Index and the Russian Trading System Index. Average Annual Total Returns Russian Moscow Trading Times System Class A(3)(4) Index(5) Index(6) ------------- -------- -------- One year, ended December 31, 2000 % -22.52 -9.98 -18.24 Since inception of Class A(7) % -12.55 -2.86 -7.55 - ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to July 26, 2000, Lexington Management Corporation served as the adviser to the Fund and the Fund's shares were sold on a no-load basis. Effective July 31, 2000, the Fund's outstanding shares were classified as "Class A" shares. Prior to January 2, 2001, the Fund was advised by a sub-adviser. (3) This table shows the performance of the Class A shares of the Fund. (4) Reflects deduction of sales charge of 5.75%. (5) The Moscow Times Index is an unmanaged index that measures the performance of 50 Russian stocks considered to represent the most liquid and most highly capitalized Russian stocks. (6) The Russian Trading System Index is a capitalization-weighted index that is calculated in U.S. dollars. The index is comprised of 100 stocks traded on the Russian Trading System. (7) Class A commenced operations on July 3, 1996. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Russia Fund 35 - ------------ Precious Metals Funds - ------------ Adviser PILGRIM PRECIOUS METALS FUND ING Pilgrim Investments, LLC - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund's investment objective is to attain capital appreciation and hedge against the loss of buying power of the U.S. dollar as may be obtained through investment in gold and securities of companies engaged in mining or processing gold throughout the world. INVESTMENT STRATEGY [GRAPHIC] The Fund normally invests at least 65% of the value of its total assets in gold bullion and the equity securities of companies engaged in the exploration, mining, processing, fabrication or distribution of gold ("gold-related companies"). The Fund normally invests in companies with a large capitalization, but may also invest in mid- and small-size companies. The Fund may invest the remaining 35% of its total assets in other precious metals, including silver, platinum, and palladium, and in the equity securities of companies engaged in the exploration, mining, processing, fabrication or distribution of other precious metals or materials. From time to time, the Fund invests in silver bullion or the common stock of companies engaged in the exploration, mining, processing, fabrication or distribution of silver ("silver-related companies"). The Fund may also invest in other types of securities, including convertible securities and preferred stocks of gold-related companies, silver-related companies, or companies related to other precious metals. The Fund intends to invest less than half of the value of its assets directly in bullion or other direct forms of gold, silver, and other precious metals (as opposed to securities). The Fund's performance and ability to meet its objective will be largely dependent on the market value of gold, and, to a lesser degree, silver and other precious metals. A substantial portion of the Fund's investment will be in the securities of foreign issuers, including emerging market issuers. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. The Fund normally invests in equity securities of larger companies, which sometimes have more stable prices than smaller companies. However, the Fund may also invest in small and medium-sized companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources, more limited product and market diversification and many may be dependent on a few key managers. Precious Metals Risk -- the Fund's focus on precious metals and precious metal stocks may expose the investor to additional risks. Precious metal prices can swing sharply in response to cyclical economic conditions, political events or the monetary policies of various countries. The supply and demand for gold may vary widely and may be affected by actions of governments or their agencies or national banks, all of which may affect the price of a precious metal or a related company. Under current U.S. tax law, the Fund may not receive more than 10% of its yearly income from selling precious metals or any other physical commodity. That law may require the Fund, for example, to hold precious metals when it would rather sell, or to sell other securities when it would rather hold them -- both may cause investment losses or lost opportunities for profit. Direct investments in precious metals such as bullion have the following characteristics: they earn no income; transaction and storage costs may be higher than for securities; and the Fund will realize gain only with an increase in the market price. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging, market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Non-Diversification Risk -- The Fund is a non-diversified investment company. There is additional risk associated with being non-diversified, since a greater proportion of the Fund's total assets may be invested in a single company. 36 Pilgrim Precious Metals Fund PILGRIM PRECIOUS METALS FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2)(3) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -6.14 -20.51 86.96 -7.28 -1.89 7.84 -42.98 -6.39 8.58 -22.05 Best and worst quarterly performance during this period: 2nd quarter 1993: up 34.36% 4th quarter 1997: down 29.07% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of two broad measures of market performance -- The Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) and Gold Bullion. Average Annual Total Returns S&P 500 Gold Class A(4) Index(5) Bullion(6) ---------- -------- ---------- One year, ended December 31, 2000 % -26.52 -9.11 -5.65 Five years, ended December 31, 2000 % -14.41 18.33 -6.64 Ten years, ended December 31, 2000 % -5.26 17.46 -3.27 - ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to July 26, 2000, Lexington Management Corporation served as the adviser to the Fund and the Fund's shares were sold on a no-load basis. Effective July 31, 2000, the Fund's outstanding shares were classified as "Class A" shares. (3) Prior to November 2, 2000, the Fund's portfolio manager employed a different stock selection criteria. (4) Reflects deduction of sales charge of 5.75%. (5) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization U.S. companies. (6) Gold bullion is a commodity traded on the New York Mercantile Exchange. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Precious Metals Fund 37 - ------------ Precious Metals Funds - ------------ Adviser PILGRIM SILVER FUND ING Pilgrim Investments, Inc. - -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund's investment objective is to maximize total return on its assets from long-term growth of capital and income principally through investment in a portfolio of securities which are engaged in the exploration, mining, processing, fabrication or distribution of silver ("silver-related companies") and in silver bullion. INVESTMENT STRATEGY [GRAPHIC] The Fund will seek to achieve its objective through investment in common stocks of established silver-related companies and in silver bullion which have the potential for long-term growth of capital or income, or both. The common stocks of silver-related companies in which the Fund intends to invest may or may not pay dividends. The Fund may also invest in other types of securities of silver-related companies including convertible securities, preferred stocks, bonds, notes and warrants. The Fund invests primarily in companies with a large market capitalization, but may also invest in mid- and small-size companies. When the Adviser believes that the return on debt securities will equal or exceed the return on common stocks, the Fund may, in pursuing its objective of maximizing growth and income, substantially increase its holding in investment-grade debt securities of any maturity. The securities in which the Fund invests include issues of established silver-related companies domiciled in the United States, Canada and Mexico as well as other silver producing countries throughout the world. At least 80% of the Fund's assets will be invested in established silver-related companies which have been in business more than three years. Approximately 80% of silver is provided as a by-product or co-product of other mining operations, such as gold mining. The Fund has the ability to significantly increase its exposure to silver by increasing its holding of silver bullion. PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors has approved the reorganization of the Fund into Pilgrim Precious Metals Fund. You could therefore ultimately hold shares of that Fund. RISKS [GRAPHIC] You could lose money on an investment in the Fund. The Fund may be affected by the following risks, among others: Price Volatility -- the value of the Fund changes as the prices of its investments go up or down. Equity securities face market, issuer and other risks, and their values may go up or down, sometimes rapidly and unpredictably. Market risk is the risk that securities may decline in value due to factors affecting securities markets generally or particular industries. Issuer risk is the risk that the value of a security may decline for reasons relating to the issuer, such as changes in the financial condition of the issuer. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. Precious Metals Risk -- the Fund's focus on precious metals and precious metal stocks may expose the investor to additional risks. The market for silver is relatively limited, the sources of silver are concentrated in countries that have the potential for instability and the market for silver is widely unregulated. As a result, the price of silver, and therefore the Fund, may fluctuate significantly. Precious metal investments have the following characteristics: they earn no income; transaction and storage costs may be higher; and the Fund will realize gain only with an increase in the market price. Risks of Foreign Investing -- foreign investments may be riskier than U.S. investments for many reasons, including changes in currency exchange rates, unstable political and economic conditions, a lack of adequate company information, differences in the way securities markets operate, less secure foreign banks or securities depositories than those in the U.S., and foreign controls on investment. To the extent the Fund invests in emerging, market countries, the risks may be greater, partly because emerging market countries may be less politically and economically stable than other countries. It may also be more difficult to buy and sell securities in emerging market countries. Debt securities -- the value of debt securities may fall when interest rates rise. Debt securities with longer maturities tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter maturities. Non-Diversification Risk -- The Fund is a non-diversified investment company. There is additional risk associated with being non-diversified, since a greater proportion of the Fund's total assets may be invested in a single company. 38 Pilgrim Silver Fund PILGRIM SILVER FUND - -------------------------------------------------------------------------------- HOW THE FUND HAS PERFORMED [GRAPHIC] The bar chart and table below show the Fund's annual returns and long-term performance, and illustrate the variability of the Fund's returns. The Fund's past performance is not an indication of future performance. The bar chart below provides some indication of the risks of investing in the Fund by showing changes in the performance of the Fund's Class A shares from year to year. Year by Year Total Returns (%)(1)(2) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -19.01 76.52 -8.37 12.37 2.38 -8.05 -29.64 8.70 -27.20 Best and worst quarterly performance during this period: 2nd quarter 1993: up 34.36% 4th quarter 1997: down 29.07% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of two broad measures of market performance -- The Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) and Silver Bullion. Average Annual Total Returns
S&P 500 Silver Class A(3) Index(4) Bullion(5) ---------- -------- ---------- One year, ended December 31, 2000 % -31.37 -9.11 -14.17 Five years, ended December 31, 2000 % -13.17 18.33 -8.67 Since inception of Class A(6) % -2.53 16.09 -2.31
- ---------- (1) These figures are for the year ended December 31 of each year. They do not reflect sales charges and would be lower if they did. (2) Prior to July 26, 2000, Lexington Management Corporation served as the adviser to the Fund and the Fund's shares were sold on a no-load basis. Effective July 31, 2000, the Fund's outstanding shares were classified as "Class A" shares. (3) Reflects deduction of sales charge of 5.75%. (4) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization U.S. companies. (5) Silver bullion is a commodity traded on the New York Mercantile Exchange. (6) Class A commenced operations on January 2, 1992. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Silver Fund 39 WHAT YOU PAY TO INVEST - -------------------------------------------------------------------------------- There are two types of fees and expenses when you invest in mutual funds: fees, including sales charges, you pay directly when you buy or sell shares, and operating expenses paid each year by the Fund. The tables that follow show the fees and expenses for each of the Pilgrim Funds. Fees You Pay Directly
Class A Class B(1) Class C(1) Class M(1) ------- ---------- ---------- ---------- Maximum sales charge on your investment (as a % of offering price) All Funds 5.75(2) none none 3.50(2) Maximum deferred sales charge (as a % of purchase or sales price, whichever is less) All Funds none(3) 5.00(4) 1.00(5) none Redemption fee (as a % of amount redeemed, if applicable) Global Technology Fund and Russia Fund 2.00(6) N/A N/A N/A
- ---------- (1) Not all Funds offer Classes B, C and M. Please see page 44. (2) Reduced for purchases of $50,000 and over. Please see page 45. (3) A contingent deferred sales charge of no more than 1% may be assessed on redemptions of Class A shares that were purchased without an initial sales charge as part of an investment of $1 million or more. Please see page 45. (4) Imposed upon redemption within 6 years from purchase. The fee has scheduled reductions after the first year. Please see page 45. (5) Imposed upon redemption within 1 year from purchase. (6) The 2.0% redemption fee applies only to shares held less than 90 days for Global Technology Fund and less than 365 days for Russia Fund. Operating Expenses Paid Each Year by the Funds(1) (as a % of average net assets)
Class A Distribution Total and Service Fund Management (12b-1) Other Operating Waivers and Net Fund Fee Fees Expenses Expenses Reimbursements(2)(3)(6) Expenses - ---- --- ---- -------- -------- ----------------------- -------- Worldwide Growth % 1.00 0.35 0.26 1.61 -- 1.61 International Value % 1.00 0.30 0.34 1.64 -- 1.64 International % 1.00 0.25 0.98 2.23 -- 2.23 International Core Growth % 1.00 0.35 0.55 1.90 -0.14 1.76 International SmallCap Growth % 1.00 0.35 0.32 1.67 -- 1.67 Emerging Markets Value % 1.00 0.30 0.68 1.98 -- 1.98 Emerging Countries % 1.25 0.35 0.78 2.38 -0.15 2.23 Worldwide Emerging Markets % 1.00 0.25 0.90 2.15 -- 2.15 Global Technology % 1.25 0.25 2.73 4.23 -1.63 2.60 Global Communications % 1.00 0.35 0.76 2.11 -0.41 1.70 Global Information Technology % 1.25 0.35 0.73 2.33 -0.38 1.95 Asia-Pacific Equity % 1.25 0.25 1.21 2.71 -0.66 2.05 SmallCap Asia Growth % 1.25 0.25 2.57 4.07 -1.44 2.63 European Equity % 1.15 0.35 1.07 2.57 -0.67 1.90 Russia % 1.25 0.25 1.35 2.85 -1.45 1.40 Precious Metals % 1.00 0.25 0.93 2.18 -- 2.18 Silver % 1.00 0.25 1.53 2.78 -0.32 2.46
40 What You Pay to Invest WHAT YOU PAY TO INVEST - -------------------------------------------------------------------------------- Operating Expenses Paid Each Year by the Funds(1) (as a % of average net assets)
Class B(4) Distribution Total and Service Fund Waivers Management (12b-1) Other Operating and Net Fund Fee Fees Expenses Expenes Reimbursements(2)(3) Expenses - ---- --- ---- -------- ------- -------------------- -------- Worldwide Growth % 1.00 1.00 0.26 2.26 -- 2.26 International Value % 1.00 1.00 0.34 2.34 -- 2.34 International(4) % 1.00 1.00 0.98 2.98 -- 2.98 International Core Growth % 1.00 1.00 0.56 2.56 -0.15 2.41 International SmallCap Growth % 1.00 1.00 0.32 2.32 -- 2.32 Emerging Markets Value % 1.00 1.00 0.75 2.75 -- 2.75 Emerging Countries % 1.25 1.00 0.87 3.12 -0.14 2.98 Global Communications % 1.00 1.00 0.76 2.76 -0.31 2.45 Global Information Technology % 1.25 1.00 0.75 3.00 -0.30 2.70 Asia-Pacific Equity % 1.25 1.00 1.20 3.45 -0.65 2.80 SmallCap Asia Growth(4) % 1.25 1.00 2.57 4.82 -1.44 3.38 European Equity % 1.15 1.00 1.11 3.26 -0.61 2.65 Class C Distribution Total and Service Fund Waivers Management (12b-1) Other Operating and Net Fund Fee Fees Expenses Expenes Reimbursements(2)(3) Expenses - ---- --- ---- -------- ------- -------------------- -------- Worldwide Growth % 1.00 1.00 0.26 2.26 -- 2.26 International Value % 1.00 1.00 0.34 2.34 -- 2.34 International(5) % 1.00 1.00 0.98 2.98 -- 2.98 International Core Growth % 1.00 1.00 0.56 2.56 -0.15 2.41 International SmallCap Growth % 1.00 1.00 0.32 2.32 -- 2.32 Emerging Markets Value % 1.00 1.00 0.71 2.71 -- 2.71 Emerging Countries % 1.25 1.00 0.84 3.09 -0.11 2.98 Global Communications % 1.00 1.00 0.76 2.76 -0.31 2.45 Global Information Technology % 1.25 1.00 0.73 2.98 -0.28 2.70 European Equity % 1.15 1.00 1.10 3.25 -0.60 2.65 Class M Distribution Total and Service Fund Waivers Management (12b-1) Other Operating and Net Fund Fee Fees Expenses Expenes Reimbursements(2)(3) Expenses - ---- --- ---- -------- ------- -------------------- -------- Asia-Pacific Equity % 1.25 0.75 1.18 3.18 -0.65 2.53
- ---------- (1) These tables show the estimated operating expenses for each Fund by class as a ratio of expenses to average daily net assets. These estimates are based on each Fund's actual operating expenses for its most recent complete fiscal year and fee waivers to which the Adviser has agreed for each Fund except Global Technology, International, Worldwide Emerging Markets, SmallCap Asia Growth, Russia, Precious Metals and Silver Funds. For those Funds, estimated operating expenses are based on estimated contractual operating expenses commencing with ING Pilgrim Investments' management of these Funds. (2) ING Pilgrim Investments has entered into written expense limitation agreements with each Fund which it advises except Global Communications, Global Information Technology, European Equity. International Value and Emerging Markets Value Funds, under which it will limit expenses of the Fund, excluding interest, taxes, brokerage and extraordinary expenses, subject to possible reimbursement to ING Pilgrim Investments within three years. The amount of each Fund's expenses waived or reimbursed during the last fiscal year by ING Pilgrim Investments is shown under the heading "Waivers and Reimbursements." The expense limits will continue through at least October 31, 2001. Nicholas-Applegate Capital Management bears 50% of the cost of maintaining the expense limit for the International SmallCap Growth Fund. (3) ING Mutual Funds Management Co. LLC ("IMFC") has entered into written expense limitation agreements with the Global Communications, Global Information Technology and European Equity Funds under which it will limit expenses of the Fund, excluding interest, taxes, brokerage and extraordinary expenses, subject to possible reimbursement to IMFC within three years. The expense limits will continue through at least February 28, 2002. (4) Because Class B shares are new for International and SmallCap Asia Growth Funds, their expenses are estimated based on Class A expenses. (5) Because Class C shares are new for International Fund expenses are estimated based on Class A expenses. (6) This includes a waiver of 0.10% of service fee for Global Communications, Global Information Technology and European Equity Funds for Class A only. [GRAPHIC] If you have any questions, please call 1-800-992-0180. What You Pay to Invest 41 WHAT YOU PAY TO INVEST - -------------------------------------------------------------------------------- Examples The examples that follow are intended to help you compare the cost of investing in the Pilgrim Funds with the cost of investing in other mutual funds. Each example assumes that you invested $10,000, reinvested all your dividends, the Fund earned an average annual return of 5%, and annual operating expenses remained at the current level. Keep in mind that this is only an estimate -- actual expenses and performance may vary. Class A
Fund 1 year 3 years 5 years 10 years - ---- ------ ------- ------- -------- Worldwide Growth $ 729 1,054 1,401 2,376 International Value $ 732 1,063 1,415 2,407 International $ 788 1,232 1,701 2,992 International Core Growth $ 744 1,125 1,530 2,659 International SmallCap Growth $ 735 1,071 1,430 2,438 Emerging Markets Value $ 764 1,161 1,581 2,749 Emerging Countries $ 788 1,261 1,760 3,124 Worldwide Emerging Markets $ 781 1,209 1,663 2,915 Global Technology(1) $ 823 1,646 2,481 4,627 Global Communications $ 777 1,198 1,644 2,876 Global Information Technology $ 798 1,261 1,749 3,088 Asia-Pacific Equity $ 771 1,309 1,872 3,396 SmallCap Asia Growth $ 826 1,619 2,426 4,511 European Equity $ 820 1,329 1,862 3,313 Russia(1) $ 709 1,278 1,871 3,470 Precious Metals $ 783 1,218 1,677 2,944 Silver $ 810 1,359 1,933 3,483
Class B
If you sell your shares If you don't sell your shares --------------------------------------- --------------------------------------- Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years - ---- ------ ------- ------- -------- ------ ------- ------- -------- Worldwide Growth $ 729 1,006 1,410 2,432 229 706 1,210 2,432 International Value $ 737 1,030 1,450 2,502 237 730 1,250 2,502 International $ 801 1,221 1,767 3,123 301 921 1,567 3,123 International Core Growth $ 744 1,082 1,547 2,123 244 782 1,347 2,723 International SmallCap Growth $ 735 1,024 1,440 2,494 235 724 1,240 2,494 Emerging Markets Value $ 778 1,153 1,654 2,896 278 853 1,454 2,896 Emerging Countries $ 801 1,250 1,823 3,249 301 950 1,623 3,249 Global Communications $ 779 1,156 1,659 2,934 279 856 1,459 2,934 Global Information Technology $ 803 1,227 1,777 3,161 303 927 1,577 3,161 Asia-Pacific Equity $ 783 1,299 1,938 3,250 283 999 1,738 3,250 SmallCap Asia Growth $ 841 1,622 2,507 4,637 341 1,322 2,307 4,637 European Equity $ 829 1,304 1,902 3,401 329 1,004 1,702 3,401
42 What You Pay to Invest WHAT YOU PAY TO INVEST - -------------------------------------------------------------------------------- Class C
If you sell your shares If you don't sell your shares --------------------------------------- --------------------------------------- Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years - ---- ------ ------- ------- -------- ------ ------- ------- -------- Worldwide Growth $ 329 706 1,210 2,595 229 706 1,210 2,575 International Value $ 337 720 1,250 2,676 237 730 1,250 2,676 International $ 401 921 1,567 3,299 301 921 1,567 3,299 International Core Growth $ 344 782 1,347 2,884 244 782 1,347 2,884 International SmallCap Growth $ 325 724 1,240 2,656 235 724 1,240 2,656 Emerging Markets Value $ 374 841 1,435 3,041 274 841 1,435 3,041 Emerging Countries $ 401 944 1,611 3,394 301 944 1,611 3,394 Global Communications $ 379 856 1,459 3,090 279 856 1,459 3,090 Global Information Technology $ 401 921 1,567 3,299 301 921 1,567 3,299 European Equity $ 428 1,001 1,698 3,549 328 1,001 1,698 3,549 Class M Fund 1 year 3 years 5 years 10 years - ---- ------ ------- ------- -------- Asia-Pacific Equity $ 597 1,238 1,901 3,670
- ---------- (1) The cost of investing in the Global Technology Fund and the Russia Fund for one year, is $1,030 and $909, respectively, if shares were held for less than 90 and 365 days, respectively. [GRAPHIC] If you have any questions, please call 1-800-992-0180. What You Pay to Invest 43 SHAREHOLDER GUIDE CHOOSING A SHARE CLASS - -------------------------------------------------------------------------------- PILGRIM PURCHASE OPTIONS(TM) Depending upon the Fund, you may select from up to four separate classes of shares: Class A, Class B, Class C and Class M. Class A * Front-end sales charge, as described on the next page. * Distribution and service (12b-1) fees of 0.25% to 0.35% (varies by Fund). Class B * No front-end sales charge; all your money goes to work for you right away. * Distribution and service (12b-1) fees of 1%. * A contingent deferred sales charge, as described on the next page. * Automatic conversion to Class A shares after eight years, thus reducing future annual expenses. Class B shares acquired initially through Funds that were part of the Nicholas-Applegate Mutual Funds at the time of purchase will convert after seven years from the date of original purchase. * Not offered by Worldwide Emerging Markets Fund, Global Technology Fund, Russia Fund, Precious Metals Fund and Silver Fund. Class C * No front-end sales charge; all your money goes to work for you right away. * Distribution and service (12b-1) fees of 1%. * A 1% contingent deferred sales charge on shares sold within one year of purchase. * No automatic conversion to Class A shares, so annual expenses continue at the Class C level throughout the life of your investment. * Not offered by Asia-Pacific Equity Fund, Worldwide Emerging Markets Fund, SmallCap Asia Growth Fund, Global Technology Fund, Russia Fund, Precious Metals Fund and Silver Fund. Class M * Lower front-end sales charge than Class A, as described on the next page. * Distribution and service (12b-1) fees of 0.75%. * No automatic conversion to Class A shares, so annual expenses continue at the Class M level throughout the life of your investment. * Offered only by Asia-Pacific Equity Fund. When choosing between classes, you should carefully consider the ongoing annual expenses along with the initial sales charge or the contingent deferred sales charge. The relative impact of the initial sales charges and ongoing annual expenses will depend on the length of time a share is held. Higher distribution fees mean a higher expense ratio, so Class B and Class C shares pay correspondingly lower dividends and may have a lower net asset value than Class A or Class M shares. Orders for Class B shares and Class M shares in excess of $250,000 and $1,000,000, respectively, will be accepted as orders for Class A shares or declined. You should discuss which Class of shares is right for you with your investment professional. Distribution and Shareholder Service Fees To pay for the cost of promoting the Funds and servicing your shareholder account, each class of each Fund has adopted a Rule 12b-1 plan which requires fees to be paid out of the assets of each class. Over time the fees will increase your cost of investing and may exceed the cost of paying other types of sales charges. 44 Shareholder Guide SHAREHOLDER CHOOSING A SHARE CLASS GUIDE - -------------------------------------------------------------------------------- SALES CHARGE CALCULATION Class A(1) Class A shares of the Funds are sold subject to the following sales charge: All Funds ---------------------------- As a % of As a % of the offering net Your Investment price asset value - --------------- ------------ ----------- Less than $50,000 5.75 6.10 $50,000 - $99,999 4.50 4.71 $100,000 - $249,999 3.50 3.63 $250,000 - $499,999 2.50 2.56 $500,000 - $1,000,000 2.00 2.04 $1,000,000 and over See below - ---------- (1) Shareholders that purchased funds that were a part of the Lexington family of funds at the time of purchase are not subject to sales charges for the life of their account. Investments of $1 Million or More. There is no front-end sales charge if you purchase Class A shares in an amount of $1 million or more. However, the shares will be subject to a contingent deferred sales charge if they are redeemed within one or two years of purchase, depending on the amount of the purchase, as follows: Period during which Your investment CDSC CDSC applies - --------------- ---- ------------ $1,000,000 to $2,499,999 1.00% 2 years $2,500,000 to $4,999,999 0.50% 1 year $5,000,000 and over 0.25% 1 year However, Class A shares that were purchased in an amount of $1 million or more through Funds that were part of the Nicholas-Applegate Mutual Funds at the time of purchase will be subject to a contingent deferred sales charge of 1% within one year from the date of purchase. Class A shares that were purchased in an amount of $1 million or more through funds that were part of the Northstar family of funds and the ING family of funds at the time of purchase may be subject to a different contingent deferred sales charge period of 18 months and 12 months respectively, from the date of purchase. See the SAI for further information. Class B and Class C Class B and Class C shares are offered at their net asset value per share without any initial sales charge. However, you may be charged a contingent deferred sales charge (CDSC) on shares that you sell within a certain period of time after you bought them. The amount of the CDSC is based on the lesser of the net asset value of the shares at the time of purchase or redemption. There is no CDSC on shares acquired through the reinvestment of dividends and capital gains distributions. The CDSCs are as follows: Class B Deferred Sales Charge(2) CDSC on shares Years after purchase being sold - -------------------- ---------- 1st year 5% 2nd year 4% 3rd year 3% 4th year 3% 5th year 2% 6th year 1% After 6th year none - ---------- (2) Class B shares that were purchased through funds that were part of the Northstar family of funds at the time of purchase are subject to a different contingent deferred sales charge. Please see the SAI for further information. Class C Deferred Sales Charge CDSC on shares Years after purchase being sold - -------------------- ---------- 1st year 1% After 1st year none To keep your CDSC as low as possible, each time you place a request to redeem shares, the Funds will first redeem shares, in your account that are not subject to a CDSC, and then will sell shares that have the lowest CDSC. Class M Class M shares are sold subject to the following sales charge. Asia-Pacific Equity Fund --------------------------- As a % of As a % of the offering net asset Your investment price value - --------------- ------------ --------- Less than $50,000 3.50% 3.63% $50,000 - $99,999 2.50% 2.56% $100,000 - $249,999 1.50% 1.52% $250,000 - $499,999 1.00% 1.01% $500,000 and over none none [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 45 SHAREHOLDER GUIDE CHOOSING A SHARE CLASS - -------------------------------------------------------------------------------- Sales Charge Reductions and Waivers Reduced Sales Charges. You may reduce the initial sales charge on a purchase of Class A or Class M shares of the Funds by combining multiple purchases to take advantage of the breakpoints in the sales charge schedules. You may do this by: * Letter of Intent -- lets you purchase shares over a 13 month period and pay the same sales charge as if the shares had all been purchased at once. * Rights of Accumulation -- lets you add the value of shares of any open-end Pilgrim Fund (excluding the Pilgrim Money Market Funds) you already own to the amount of your next purchase for purposes of calculating the sales charge. * Combination Privilege -- shares held by investors in the Pilgrim Funds which impose a CDSC may be combined with Class A or Class M shares for a reduced sales charge. See the Account Application or the SAI for details, or contact your financial representative or the Shareholder Servicing Agent for more information. CDSC Waivers. If you notify the Transfer Agent at the time of redemption, the CDSC for each Class will be waived in the following cases: * redemptions following the death or permanent disability of a shareholder if made within one year of death or the initial determination of permanent disability. The waiver is available only for shares held at the time of death or initial determination of permanent disability. * for Class B shares, redemptions pursuant to a Systematic Withdrawal Plan, up to a maximum of 12% per year of a shareholder's account value based on the value of the account at the time the plan is established and annually thereafter, provided all dividends and distributions are reinvested and the total redemptions do not exceed 12% annually. * mandatory distributions from a tax-deferred retirement plan or an IRA. However, if you purchased shares that were part of the Nicholas-Applegate Mutual Funds, you may be eligible for a CDSC waiver prior to the mandatory distribution age. * If you think you may be eligible for a CDSC waiver, contact your financial representative or the Shareholder Servicing Agent. Reinstatement Privilege. If you sell Class B and Class C shares of a Pilgrim Fund, you may reinvest some or all of the proceeds in the same share class within 90 days without a sales charge. Reinstated Class B and Class C shares will retain their original cost and purchase date for purposes of the CDSC. This privilege can be used only once per calendar year. If you want to use the Reinstatement Privilege, contact your financial representative or the Shareholder Servicing Agent. Consult the SAI for more information. Sales Charge Waivers. Class A or Class M shares may be purchased without a sales charge by certain individuals and institutions. For additional information, contact the Shareholder Servicing Agent, or see the SAI. 46 Shareholder Guide SHAREHOLDER HOW TO PURCHASE SHARES GUIDE - -------------------------------------------------------------------------------- The minimum initial investment amounts for the Pilgrim Funds are as follows: * Non-retirement accounts: $1,000 * Retirement accounts: $250 * Pre-Authorized Investment Plan: $100 to open; you must invest at least $100 a month. The minimum additional investment is $100. Make your investment using the table on the right. The Funds and the Distributor reserve the right to reject any purchase order. Please note that cash, travelers checks, third party checks, money orders and checks drawn on non-US banks (even if payment may be effected through a US bank) will not be accepted. The Pilgrim Funds reserve the right to waive minimum investment amounts. The Funds reserve the right to liquidate sufficient shares to recover annual transfer agent fees or to close your account and redeem your shares should you fail to maintain your account value at a minimum of $1,000.00 ($250.00 for IRAs). Retirement Plans The Funds have available prototype qualified retirement plans for both corporations and for self-employed individuals. They also have available prototype IRA, Roth IRA and Simple IRA plans (for both individuals and employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans and Tax Sheltered Retirement Plans for employees of public educational institutions and certain non-profit, tax-exempt organizations. State Street Bank and Trust Company (SSB) acts as the custodian under these plans. For further information, contact the Shareholder Servicing Agent at (800) 992-0180. SSB currently receives a $12 custodial fee annually for the maintenance of such accounts. Initial Additional Method Investment Investment ------ ---------- ---------- By Contacting An investment Your professional with an Investment authorized firm Professional can help you establish and maintain your account. By Mail Visit or consult an Visit or consult an investment investment professional. Make professional. Fill out your check payable to the Account Additions the Pilgrim Funds and form included on the mail it, along with a bottom of your account completed Application. statement along with Please indicate your your check payable to investment professional the Pilgrim Funds and on the New Account mail them to the Application. address on the account statement. Remember to write your account number on the check. By Wire Call the ING Pilgrim Wire the funds in the Operations Department same manner described at (800) 336-3436 to under "Initial obtain an account Investment." number and indicate your investment professional on the account. Instruct your bank to wire funds to the Fund in the care of: State Street Bank and Trust Company ABA #101003621 Kansas City, MO credit to: ____________ (the Fund) A/C #751-8315; for further credit to: ____________ Shareholder A/C # ____________ (A/C # you received over the telephone) Shareholder Name: ____________ (Your Name Here) After wiring funds you must complete the Account Application and send it to: Pilgrim Funds P.O. Box 219368 Kansas City, MO 64121-6368 [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 47 SHAREHOLDER GUIDE HOW TO REDEEM SHARES - -------------------------------------------------------------------------------- You may redeem shares using the table on the right. Under unusual circumstances, a Fund may suspend the right of redemption as allowed by federal securities laws. Systematic Withdrawal Plan You may elect to make periodic withdrawals from your account on a regular basis. * Your account must have a current value of at least $10,000. * Minimum withdrawal amount is $100. * You may choose from monthly, quarterly, semi-annual or annual payments. For additional information, contact the Shareholder Servicing Agent, see the Account Application or the SAI. Payments Normally, payment for shares redeemed will be made within three days after receipt by the Transfer Agent of a written request in good order. The Fund has the right to take up to seven days to pay your redemption proceeds, and may postpone payment longer in the event of an economic emergency as determined by the U.S. Securities and Exchange Commission. When you place a request to redeem shares for which the purchase money has not yet been collected, the request will be executed at the next determined net asset value, but the Fund will not release the proceeds until your purchase payment clears. This may take up to 15 days or more. To reduce such delay, purchases should be made by bank wire or federal funds. Each Fund normally intends to pay in cash for all shares redeemed, but under abnormal conditions that make payment in cash unwise, a Fund may make payment wholly or partly in securities at their then current market value equal to the redemption price. In such case, a Fund could elect to make payment in securities for redemptions in excess of $250,000 or 1% of its net assets during any 90-day period for any one shareholder. An investor may incur brokerage costs in converting such securities to cash. Redemption Fee A 2% redemption fee will be charged on the redemption of shares of the Pilgrim Russia Fund held less than 365 days and shares of the Pilgrim Global Technology Fund held less than 90 days. The redemption fee will not apply to shares representing the reinvestment of dividends and capital gains distributions. The redemption fee will be applied on a share by share basis using the "first shares in, first shares out" (FIFO) method. Therefore, the oldest shares are sold first. Method Procedures ------ ---------- By Contacting Your You may redeem by contacting your Investment Professional investment professional. Investment professionals may charge for their services in connection with your redemption request, but neither the Fund nor the Distributor imposes any such charge. By Mail Send a written request specifying the Fund name and share class, your account number, the name(s) in which the account is registered, and the dollar value or number of shares you wish to redeem to: Pilgrim Funds P.O. Box 219368 Kansas City, MO 64121-6368 If certificated shares have been issued, the certificate must accompany the written request. Corporate investors and other associations must have an appropriate certification on file authorizing redemptions. A suggested form of such certification is provided on the Account Application. A signature guarantee may be required. By Telephone -- You may redeem shares by telephone on all accounts Expedited Redemption other than retirement accounts, unless you check the box on the Account Application which signifies that you do not wish to use telephone redemptions. To redeem by telephone, call the Shareholder Servicing Agent at (800) 992-0180. Receiving Proceeds By Check: You may have redemption proceeds (up to a maximum of $100,000) mailed to an address which has been on record with Pilgrim Funds for at least 30 days. Receiving Proceeds By Wire: You may have redemption proceeds (subject to a minimum of $5,000) wired to your pre-designated bank account. You will not be able to receive redemption proceeds by wire unless you check the box on the Account Application which signifies that you wish to receive redemption proceeds by wire and attach a voided check. Under normal circumstances, proceeds will be transmitted to your bank on the business day following receipt of your instructions, provided redemptions may be made. In the event that share certificates have been issued, you may not request a wire redemption by telephone. 48 Shareholder Guide SHAREHOLDER TRANSACTION POLICIES GUIDE - -------------------------------------------------------------------------------- Net Asset Value The net asset value (NAV) per share for each Fund and class is determined each business day as of the close of regular trading on the New York Stock Exchange (usually at 4:00 p.m. Eastern Time). The NAV per share of each class of each Fund is calculated by taking the value of the Fund's assets attributable to that class, subtracting the Fund's liabilities attributable to that class, and dividing by the number of shares of that class that are outstanding. Because foreign securities may trade on days when the Funds do not price shares, the NAV of a Fund that invests in foreign securities may change on days when shareholders will not be able to purchase or redeem the Fund's shares. In general, assets are valued based on actual or estimated market value, with special provisions for assets not having readily available market quotations, and short-term debt securities, and for situations where market quotations are deemed unreliable. Short-term debt securities having a maturity of 60 days or less are valued at amortized cost, unless the amortized cost does not approximate market value. Securities prices may be obtained from automated pricing services. When market quotations are not readily available or are deemed unreliable, securities are valued at their fair value as determined in good faith under the supervision of the Board of Directors or Trustees. Valuing securities at fair value involves greater reliance on judgment than securities that have readily available market quotations. Price of Shares When you buy shares, you pay the NAV plus any applicable sales charge. When you sell shares, you receive the NAV minus any applicable deferred sales charge. Exchange orders are effected at NAV. Execution of Requests Purchase and sale requests are executed at the next NAV determined after the order is received in proper form by the Transfer Agent or Distributor. A purchase order will be deemed to be in proper form when all of the required steps set forth above under "How to Purchase Shares" have been completed. If you purchase by wire, however, the order will be deemed to be in proper form after the telephone notification and the federal funds wire have been received. If you purchase by wire, you must submit an application form in a timely fashion. If an order or payment by wire is received after the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time), the shares will not be credited until the next business day. You will receive a confirmation of each new transaction in your account, which also will show you the number of Fund shares you own including the number of shares being held in safekeeping by the Transfer Agent for your account. You may rely on these confirmations in lieu of certificates as evidence of your ownership. Certificates representing shares of the Funds will not be issued unless you request them in writing. Telephone Orders The Funds and their transfer agent will not be responsible for the authenticity of phone instructions or losses, if any, resulting from unauthorized shareholder transactions if they reasonably believe that such instructions were genuine. The Funds and their transfer agent have established reasonable procedures to confirm that instructions communicated by telephone are genuine. These procedures include recording telephone instructions for exchanges and expedited redemptions, requiring the caller to give certain specific identifying information, and providing written confirmation to shareholders of record not later than five days following any such telephone transactions. If the Funds and their transfer agent do not employ these procedures, they may be liable for any losses due to unauthorized or fraudulent telephone instructions. Exchanges You may exchange shares of a Fund for shares of the same class of any other Pilgrim Fund, except for Lexington Money Market Trust and Pilgrim Corporate Leaders Trust Fund, without paying any additional sales charge, except that Class A shares of the Pilgrim Money Market Funds for which no sales charge was paid must pay the applicable sales load on an exchange into Class A shares of another Fund. Shares subject to a CDSC will continue to age from the date that the original shares were purchased. If you exchange shares of a Fund that at the time you acquired the shares was a Nicholas-Applegate Mutual Fund, the shares you receive on the exchange will be subject to the current CDSC structure and conversion rights of the Fund being acquired, although the shares will continue to age for CDSC and conversion purposes from the date the original shares were acquired. The total value of shares being exchanged must at least equal the minimum investment requirement of the Fund into which they are being exchanged. Exchanges of shares are sales and may result in a gain or loss for federal and state income tax purposes. There is no specific limit on exchange frequency; however, the Funds are intended for long-term investment and not as a short-term trading vehicle. The Adviser may prohibit excessive exchanges (more than four per year). The Adviser also may, on 60 days' prior notice, restrict the frequency of, otherwise modify, or impose charges of up to $5.00 upon exchanges. You will automatically have the ability to request an exchange by calling the Shareholder Service Agent unless you mark the box on the Account Application that indicates that you do not wish to have the telephone exchange privilege. A Fund may change or cancel its exchange policies at any time, upon 60 days' written notice to shareholders. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 49 SHAREHOLDER GUIDE TRANSACTION POLICIES - -------------------------------------------------------------------------------- Systematic Exchange Privilege With an initial account balance of at least $5,000 and subject to the information and limitations outlined above, you may elect to have a specified dollar amount of shares systematically exchanged, monthly, quarterly, semi-annually or annually (on or about the 10th of the applicable month), from your account to an identically registered account in the same class of any other open-end Pilgrim Fund, except for Lexington Money Market Trust and Pilgrim Corporate Leaders Trust Fund. This exchange privilege may be modified at any time or terminated upon 60 days' written notice to shareholders. Small Accounts Due to the relatively high cost of handling small investments, the Funds reserve the right upon 30 days' written notice to redeem, at NAV, the shares of any shareholder whose account (except for IRAs) has a value of less than $1,000, other than as a result of a decline in the NAV per share. Account Access Unless your Pilgrim shares are held through a third-party fiduciary or in an omnibus registration at your bank or brokerage firm, you may be able to access your account information over the internet at www.pilgrimfunds.com, or via touch tone telephone by calling (800) 992-0180 and selecting Option 1. Should you wish to speak with a Shareholder Service Representative you may call the toll-free number listed above and select Option 2. 50 Shareholder Guide MANAGEMENT ADVISERS OF THE FUNDS - -------------------------------------------------------------------------------- ING Pilgrim Investments, LLC ("ING Pilgrim" or "ING Pilgrim Investments") serves as the investment adviser to each of the Funds (except Global Communications, Global Information Technology and European Equity Funds). ING Pilgrim has overall responsibility for the management of these Funds. ING Mutual Funds Management Co. LLC ("IMFC") serves as the investment adviser to the Global Communications, Global Information Technology and European Equity Funds. ING Pilgrim and IMFC provide or oversee all investment advisory and portfolio management services for each Fund, and assist in managing and supervising all aspects of the general day-to-day business activities and operations of the Funds, including custodial, transfer agency, dividend disbursing, accounting, auditing, compliance and related services. Organized in December 1994, ING Pilgrim is registered as an investment adviser. Organized in September 1998, IMFC is registered as an investment adviser. ING Pilgrim and IMFC are indirect wholly-owned subsidiaries of ING Group (NYSE: ING). ING Group is a global financial institution active in the field of insurance, banking, and asset management in more than 65 countries, with almost 100,000 employees. As of December 31, 2000, ING Pilgrim managed over $19.3 billion in assets. As of December 31, 2000, IMFC managed over $1.3 billion in assets. ING Pilgrim's and IMFC's principal address is 7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258. ING Pilgrim and IMFC receive a monthly fee for their services based on the average daily net assets of each of the Funds. The following table shows the aggregate annual management fee paid by each Fund for the most recent fiscal year as a percentage of that Fund's average daily net assets: Management Fund Fee - ---- --- Worldwide Growth 1.00% International Value 1.00 International 1.00 International Core Growth 1.00 International SmallCap Growth 1.00 Emerging Markets Value 1.00 Emerging Countries 1.25 Worldwide Emerging Markets 1.00 Global Technology 1.25 Global Communications 1.00 Global Information Technology 1.25 Asia-Pacific Equity 1.25 SmallCap Asia Growth 1.25 European Equity 1.15 Russia 1.25 Precious Metals 1.00 Silver 1.00 ING Pilgrim Directly Manages the Portfolios of the Following Funds: Worldwide Growth Fund The following individuals share responsibility for the day-to-day management of the Worldwide Growth Fund: Mary Lisanti, Executive Vice President and Chief Investment Officer--Domestic Equities of ING Pilgrim, has served as a Senior Portfolio Manager of the domestic equity portion of the Worldwide Growth Fund's assets since October 2000. Prior to joining ING Pilgrim in October 1999, Ms. Lisanti was Executive Vice President and Chief Investment Officer -- Domestic Equities with Northstar Investment Management Corp., which subsequently merged into ING Pilgrim. From 1996 to 1998, Ms. Lisanti was a Portfolio Manager at Strong Capital Management. >From 1993 to 1996, Ms. Lisanti was a Managing Director and Head of Small- and Mid-Capitalization Equity Strategies at Bankers Trust Corp. Jeffrey Bernstein, Senior Vice President of ING Pilgrim, has served as Portfolio Manager of the domestic equity portion of the Worldwide Growth Fund's assests since January 2001. Prior to joining ING Pilgrim in October 1999, Mr. Bernstein was a portfolio manager at Northstar Investment Management Corp., which subsequently merged into ING Pilgrim. Prior to May 1998, Mr. Bernstein was a Portfolio Manager at Strong Capital Management. From 1995 to 1997, Mr. Bernstein was a Portfolio Manager at Berkeley Capital. Richard T. Saler, Senior Vice President and Director of International Equity Investment Strategy of ING Pilgrim, has served as Senior Portfolio Manager of the international portion of the Worldwide Growth Fund's assets since October 2000. From 1986 until July 2000, he was Senior Vice President and Director of International Equity Strategy at Lexington Management Corporation (Lexington) (which was acquired by ING Pilgrim's parent company in July 2000). [GRAPHIC] If you have any questions, please call 1-800-992-0180. Management of the Funds 51 MANAGEMENT OF THE FUNDS ADVISERS - -------------------------------------------------------------------------------- Phillip A. Schwartz, Senior Vice President and Director of International Equity Investment Strategy of ING Pilgrim, has served as Senior Portfolio Manager of the international portion of the Worldwide Growth Fund's assets since October, 2000. Prior to joining ING Pilgrim in July 2000, Mr. Schwartz was Senior Vice President and Director of International Equity Investment Strategy at Lexington (which was acquired by ING Pilgrim's parent company in July 2000). Prior to 1993, Mr. Schwartz was a Vice President of European Research Sales with Cheuvreux de Virieu in Paris and New York. International Fund and International Core Growth Fund Richard T. Saler, whose background is described above, has served as the Senior Portfolio Manager of the portfolio management team that manages International Fund since January 1994, and International Core Growth Fund since October 2000. Philip A. Schwartz, whose background is described above, has served as a member of the portfolio management team that manages International Fund since January 1998 and International Core Growth Fund since October 2000. Worldwide Emerging Markets Fund and Emerging Countries Fund. Richard T. Saler, whose background is described above, has served as the Senior Portfolio Manager of the portfolio management team that manages Worldwide Emerging Markets Fund since June 7, 2000, and Emerging Countries Fund since October 2000. Phillip A. Schwartz, whose background is described above, has served as a member of the portfolio management team that manages Worldwide Emerging Markets Fund since June 7, 2000, and Emerging Countries Fund since October 2000. Jan Wim Derks, Vice President of ING Pilgrim, has served as a member of the portfolio management team that manages the Emerging Countries Fund and the Worldwide Emerging Markets Fund since October 2000. In addition to his role with ING Pilgrim, Mr. Derks also serves as Director of Global Emerging Markets Equities at ING Investment Management -- Europe. Prior to joining ING Investment Management -- Europe in 1997, Mr. Derks managed a Latin American equity fund with ABN AMRO. Eric Anderson, Vice President of ING Pilgrim, has served as a member of the portfolio management team that manages the Emerging Countries Fund and the Worldwide Emerging Markets Fund since October 2000. In addition to his role with ING Pilgrim, Mr. Anderson also serves as Senior Portfolio Manager -- Global Emerging Markets Equities at ING Investment Management -- Americas. Prior to joining ING Investment Management -- Americas in 1997, Mr. Anderson managed a Latin America equity portfolio and participated in the management of an emerging market debt portfolio at Offitbank in New York. Bratin Sanyal, Vice President of ING Pilgrim, has served as a member of the portfolio management team that manages the Emerging Countries Fund and the Worldwide Emerging Markets Fund since October 2000. In addition to his role with ING Pilgrim, Mr. Sanyal serves as the Senior Portfoio Manager -- Global Emerging Markets Equities at ING Investment Management -- Europe. Mr. Sanyal has held several positions with ING Investment Management -- Europe, most recently as an Asian equity fund manager. Prior to joining ING Investment Management -- Europe in 1993, he was an economist at the World Bank where he structured debt workouts for the Highly Indebted Countries. Global Technology Fund The following individuals share responsibility for the day-to-day management of Global Technology Fund: Richard T. Saler, whose background is described above, has served as a member of the portfolio management team that manages Global Technology Fund since June 2000. Phillip A. Schwartz, whose background is described above, has served as a member of the portfolio management team that manages Global Technology Fund since June 2000. Alan H. Wapnick, Senior Vice President and Senior Portfolio Manager at ING Pilgrim, has served as a member of the portfolio management team that manages Global Technology Fund since June 2000. Prior to June 2000, he was Senior Vice President and Senior Portfolio Manager at Lexington (which was acquired by ING Pilgrim's parent company in July 2000). Asia-Pacific Equity Fund and SmallCap Asia Growth Fund Richard T. Saler, whose background is described above, has served as a member of the portfolio management team that manages Asia-Pacific Equity Fund and SmallCap Asia Growth Fund since January 2000. Philip A. Schwartz, whose background is described above, has served as a member of the portfolio management team that manages Asia-Pacific Equity Fund and SmallCap Asia Growth Fund since January 2000. Russia Fund Jan Wim Derks, whose background is described above, has served as a member of the portfolio management team that manages Russia Fund since January 2000. Mr. Oubadia has seven years experience in portfolio management. He is Vice President of ING Pilgrim. Mr. Oubadia is responsible for investments in the emerging markets of Europe, including Russia. He joined IIM in September 1996 when he was the Senior Equity Manager at IIM's office in Prague in the Czech Republic. He joined IIM global emerging markets team in January 1998. Mr. Oubadia holds an MBA from Concordia University in Montreal, Canada. 52 Management of the Funds MANAGEMENT SUB-ADVISERS OF THE FUNDS - -------------------------------------------------------------------------------- Precious Metals Fund and Silver Fund James A. Vail has served as the Portfolio Manager of Precious Metals Fund and Silver Fund since June 1998. Mr. Vail has served as Vice President and Portfolio Manager of ING Pilgrim since July 2000. He is a Chartered Financial Analyst, a member of the New York Society of Security Analysts and has 25 years of investment experience. Prior to joining ING Pilgrim in July 2000, he was a Vice President at Lexington (which was acquired by ING Pilgrim's parent company in July 2000) Prior to joining Lexington in 1991, Mr. Vail held investment research positions with Chemical Bank, Oppenheimer & Co., Robert Fleming, Inc. and most recently, Beacon Trust Company, where he was a Senior Investment Analyst. For the following Funds, ING Pilgrim or IMFC has engaged a Sub-Adviser to provide the day-to-day management of the Fund's portfolio. The Sub-Advisers are among the most respected institutional investment advisers in the world, and have been selected primarily on the basis of their successful application of a consistent, well-defined, long-term investment approach over a period of several market cycles. International Value Fund and Emerging Markets Value Fund Brandes Investment Partners, L.P. A registered investment adviser, Brandes Investment Partners, L.P. (Brandes) serves as Sub-Adviser to the Pilgrim International Value Fund and the Pilgrim Emerging Markets Value Fund. The company was formed in May 1996 as the successor to its general partner, Brandes Investment Partners, Inc. which has been providing investment advisory services (through various predecessor entities) since 1974. Brandes currently manages over $33 billion in international portfolios. Brandes' principal address is 12750 High Bluff Drive, San Diego, California 92130. Charles Brandes has co-managed the Pilgrim International Value Fund and the Pilgrim Emerging Markets Value Fund since the Funds were formed in March 1995 and January 1998, respectively. Mr. Brandes has over 31 years of investment management experience. He founded the general partner of Brandes in 1974 and owns a controlling interest in it. At Brandes, he serves as a Managing Partner. He is a Chartered Financial Analyst and a Member of the Association for Investment Management and Research. Ian Sunder has co-managed the Pilgrim Emerging Markets Value Fund since the Fund was formed in January 1998. Mr. Sunder has over nine years of investment management experience. At Brandes, he serves as a Portfolio Manager. He is a Chartered Financial Analyst, and a Member of the Association for Investment Management and Research and the Financial Analysts Society. Jeff Busby has co-managed the Pilgrim International Value Fund since the fund was formed in March 1995. Mr. Busby has over 13 years of investment management experience. At Brandes, he serves as a Managing Partner. He is also responsible for overseeing all trading activities for the firm. He is a Chartered Financial Analyst, and a Member of the Association for Investment Management and Research and the Financial Analysts Society. International SmallCap Growth Fund Nicholas-Applegate Capital Management (NACM) Nicholas-Applegate Capital Management serves as Sub-Adviser to the Pilgrim International SmallCap Growth Fund. Founded in 1984 by Arthur Nicholas, Managing Director and Fred Applegate as an institutional investment manager. Nicholas-Applegate, now a wholly owned subsidiary of Allianz AG, manages in excess of $36 billion of discretionary assets for numerous clients, including employee benefit plans of corporations, public retirement systems and unions, university endowments, foundations, and other institutional investors and individuals. The Fund is managed by a team of portfolio managers and analysts headed by Loretta Morris and Randall Kahn. Nicholas-Applegate has offices in San Diego, New York, San Francisco and Chicago. Its principal place of business is 600 West Broadway, San Diego, California 92101. Global Communications Fund, Global Information Technology Fund and European Equity Fund ING Investment Management Advisors B.V. ING Investment Management Advisors B.V. ("IIMA") serves as Sub-Adviser to the Pilgrim European Equity Fund, the Pilgrim Global Information Technology Fund and the Pilgrim Global Communications Fund. IIMA is located at Schenkkade 65, 2595 AS the Hague, The Netherlands. IIMA is a company organized to manage investments and provide investment advice on a worldwide basis to entities affiliated and unaffiliated with ING Group. IIMA operates under the collective management of ING Investment Management which has assets under management of $144.4 billion as of December 31, 2000. Global Communications Fund. Mr. Daniel Hayes has primary responsibility in managing the Fund. Mr. Hayes has been employed by IIMA and its affiliates since 1998 and has ten years of investment experience. Global Information Technology Fund. Mr. Guy Uding has primary responsibility for managing the Fund and heads a three member team of investment professionals. Mr. Uding has been employed by IIMA and it affiliates since 1995 and has five years of investment experience. European Equity Fund. Mr. Adrian van Tiggelen has primary responsibility for managing the Fund and heads an eight member team of investment professionals. The average experience of the team is nine years. Mr. van Tiggelen has been employed by IIMA and its affiliates since 1988 and has eleven years of investment experience. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Management of the Funds 53 DIVIDENDS, DISTRIBUTIONS AND TAXES DIVIDENDS/TAXES - -------------------------------------------------------------------------------- Dividends The Funds generally distribute most or all of their net earnings in the form of dividends. Each Fund pays dividends and capital gains, if any, annually. Dividend Reinvestment Unless you instruct a Fund to pay you dividends in cash, dividends and distributions paid by a Fund will be reinvested in additional shares of the Fund. You may, upon written request or by completing the appropriate section of the Account Application, elect to have all dividends and other distributions paid on Class A, B, C or M shares of a Fund invested in another Pilgrim Fund which offers the same class shares. If you are a shareholder of Pilgrim Prime Rate Trust, whose shares are not held in a broker or nominee account, you may, upon written request, elect to have all dividends invested into a pre-existing Class A account of any open-end Pilgrim Fund. Taxes The following information is meant as a general summary for U.S. shareholders. Please see the SAI for additional information. You should rely on your own tax adviser for advice about the particular federal, state and local tax consequences to you of investing in a Fund. Each Fund will distribute all or substantially all of its net investment income and net capital gains to its shareholders each year. Although the Funds will not be taxed on amounts they distribute, most shareholders will be taxed on amounts they receive. A particular distribution generally will be taxable as either ordinary income or long-term capital gains. It does not matter how long you have held your Fund shares or whether you elect to receive your distributions in cash or reinvest them in additional Fund shares. For example, if a Fund designates a particular distribution as a long-term capital gains distribution, it will be taxable to you at your long-term capital gains rate. Dividends declared by a Fund in October, November or December and paid during the following January may be treated as having been received by shareholders in the year the distributions were declared. You will receive an annual statement summarizing your dividend and capital gains distributions. If you invest through a tax-deferred account, such as a retirement plan, you generally will not have to pay tax on dividends until they are distributed from the account. These accounts are subject to complex tax rules, and you should consult your tax adviser about investment through a tax-deferred account. There may be tax consequences to you if you sell or redeem Fund shares. You will generally have a capital gain or loss, which will be long-term or short-term, generally depending on how long you hold those shares. If you exchange shares, you may be treated as if you sold them. You are responsible for any tax liabilities generated by your transactions. As with all mutual funds, a Fund may be required to withhold U.S. federal income tax at the rate of 31% of all taxable distributions payable to you if you fail to provide the Fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the IRS that you are subject to backup withholding. Backup withholding is not an additional tax; rather, it is a way in which the IRS ensures it will collect taxes otherwise due. Any amounts withheld may be credited against your U.S. federal income tax liability. 54 Dividends, Distributions and Taxes MORE INFORMATION ABOUT RISKS - -------------------------------------------------------------------------------- All mutual funds involve risk -- some more than others -- and there is always the chance that you could lose money or not earn as much as you hope. A Fund's risk profile is largely a factor of the principal securities in which it invests and investment techniques that it uses. The following pages discuss the risks associated with certain of the types of securities in which the Funds may invest and certain of the investment practices that the Funds may use. For more information about these and other types of securities and investment techniques that may be used by the Funds, see the SAI. Many of the investment techniques and strategies discussed in this prospectus and in the SAI are discretionary, which means that the Adviser or Sub-Adviser can decide whether to use them or not. The Funds named below invest in these securities or use these techniques as part of the Fund's principal investment strategy. However, the Adviser or Sub-Adviser of any Fund may also use these investment techniques or make investments in securities that are not a part of the Fund's principal investment strategy. PRINCIPAL RISKS Investments in Foreign Securities (All Funds). There are certain risks in owning foreign securities, including those resulting from: fluctuations in currency exchange rates; devaluation of currencies; political or economic developments and the possible imposition of currency exchange blockages or other foreign governmental laws or restrictions; reduced availability of public information concerning issuers; accounting, auditing and financial reporting standards or other regulatory practices and requirements that are not uniform when compared to those applicable to domestic companies; settlement and clearance procedures in some countries that may not be reliable and can result in delays in settlement; higher transaction and custody expenses than for domestic securities; and limitations on foreign ownership of equity securities. Also, securities of many foreign companies may be less liquid and the prices more volatile than those of domestic companies. With certain foreign countries, there is the possibility of expropriation, nationalization, confiscatory taxation and limitations on the use or removal of funds or other assets of the Funds, including the withholding of dividends. Each Fund that invests in foreign securities may enter into foreign currency transactions either on a spot or cash basis at prevailing rates or through forward foreign currency exchange contracts to have the necessary currencies to settle transactions, or to help protect Fund assets against adverse changes in foreign currency exchange rates, or to provide exposure to a foreign currency commensurate with the exposure to securities from that country. Such efforts could limit potential gains that might result from a relative increase in the value of such currencies, and might, in certain cases, result in losses to the Fund. Emerging Markets Investments (All Funds). Because of less developed markets and economies and, in some countries, less mature governments and governmental institutions, the risks of investing in foreign securities can be intensified in the case of investments in issuers domiciled or doing substantial business in emerging market countries. These risks include: high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries; political and social uncertainties; over-dependence on exports, especially with respect to primary commodities, making these economies vulnerable to changes in commodity prices; overburdened infrastructure and obsolete or unseasoned financial systems; environmental problems; less well developed legal systems; and less reliable custodial services and settlement practices. Inability to Sell Securities (All Funds). Some securities usually trade in lower volume and may be less liquid than securities of large established companies. These less liquid securities could include securities of small and mid-size U.S. companies, high-yield securities, convertible securities, unrated debt and convertible securities, securities that originate from small offerings, and foreign securities, particularly those from companies in emerging markets. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to the Fund. High Yield Securities (Russia Fund). Investments in high yield securities generally provide greater income and increased opportunity for capital appreciation than investments in higher quality debt securities, but they also typically entail greater potential price volatility and principal and income risk. High yield securities are not considered investment grade, and are regarded as predominantly speculative with respect to the issuing company's continuing ability to meet principal and interest payments. The prices of high yield securities have been found to be less sensitive to interest rate changes than higher-rated investments, but more sensitive to adverse economic downturns or individual corporate developments. High yield securities structured as zero coupon or pay-in-kind securities tend to be more volatile. The secondary market in which high yield securities are traded is generally less liquid than the market for higher grade bonds. At times of less liquidity, it may be more difficult to value high yield securities. Corporate Debt Securities (International, Russia and Worldwide Emerging Markets Funds). Corporate debt securities are subject to the risk of the issuer's inability to meet principal and interest payments on the obligation and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the credit-worthiness of the issuer and general market liquidity. When interest rates decline, the value of the Fund's debt securities can be expected to rise, and when interest rates rise, the value of those securities can be expected to decline. Debt securities with longer maturities tend to be more sensitive to interest rate movements than those with shorter maturities. [GRAPHIC] If you have any questions, please call 1-800-992-0180. More Information About Risks 55 MORE INFORMATION ABOUT RISKS - -------------------------------------------------------------------------------- One measure of risk for fixed income securities is duration. Duration is one of the tools used by a portfolio manager in selection of fixed income securities. Historically, the maturity of a bond was used as a proxy for the sensitivity of a bond's price to changes in interest rates, otherwise known as a bond's "interest rate risk" or "volatility." According to this measure, the longer the maturity of a bond, the more its price will change for a given change in market interest rates. However, this method ignores the amount and timing of all cash flows from the bond prior to final maturity. Duration is a measure of average life of a bond on a present value basis, which was developed to incorporate a bond's yield, coupons, final maturity and call features into one measure. For point of reference, the duration of a noncallable 7% coupon bond with a remaining maturity of 5 years is approximately 4.5 years, and the duration of a noncallable 7% coupon bond with a remaining maturity of 10 years is approximately 8 years. Material changes in interest rates may impact the duration calculation. Convertible Securities (All Funds). The price of a convertible security will normally fluctuate in some proportion to changes in the price of the underlying equity security, and as such is subject to risks relating to the activities of the issuer and general market and economic conditions. The income component of convertible securities causes fluctuations based upon changes in interest rates and the credit quality of the issuer. Convertible securities are often lower rated securities. A Fund may be required to redeem or convert a convertible security before the holder would otherwise choose. Portfolio Turnover. Each Fund, except International Value, Emerging Markets Value, Russia, Precious Metals and Silver Funds, is generally expected to engage in frequent and active trading of portfolio securities to achieve its investment objective. A high portfolio turnover rate involves greater expenses to a Fund, including brokerage commissions and other transaction costs, and is likely to generate more taxable short-term gains for shareholders, which may have an adverse effect on the performance of the Fund. Communications Technology Risk (Global Communications Fund). Communications companies are generally subject to the rate of change in technology, which is higher than other industries. In addition, products and services of companies engaged in the communications industry are subject to relatively high risks of rapid obsolescence caused by scientific and technological advances. Swings in investor psychology or significant trading by large institutional investors can result in significant price fluctuations and stock price declines. Governmental Regulation (Global Communications Fund). Certain communications industries, such as the telecommunications industry, may be subject to greater governmental regulation than many other industries. Accordingly, such industries may be subject to changes in governmental policies and the need for regulatory approvals may have a material effect on the products and services offered. Telephone operating companies in the United States, for example, are subject to both federal and state regulation affecting permitted rates of return and the kinds of services that may be offered. Industry Concentration Risk (Global Communications, Global Information Technology and Global Technology Funds). As a result of the Funds concentrating their assets in securities related to a particular industry, the Funds may be subject to greater market fluctuation than a fund which has securities representing a broader range of investment alternatives. Information Technology Risk (Global Information Technology and Global Technology Funds). Information technology companies are generally subject to the rate of change in technology, which is higher than other industries. In addition, products and services of companies engaged in the information technology industry are subject to relatively high risks of rapid obsolescence caused by scientific and technological advances. Swings in investor psychology or significant trading by large institutional investors can result in significant price fluctuations and stock price declines. OTHER RISKS U.S. Government Securities. Some U.S. Government agency securities may be subject to varying degrees of credit risk particularly those not backed by the full faith and credit of the United States Government. All U.S. Government securities may be subject to price declines in the securities due to changing interest rates. Other Investment Companies. Each Fund may invest up to 10% of its assets in other investment companies. When a Fund invests in other investment companies, you indirectly pay a proportionate share of the expenses of that other investment company (including management fees, administration fees, and custodial fees) in addition to the expenses of the Fund. Restricted and Illiquid Securities. Each Fund may invest in restricted and illiquid securities. If a security is illiquid, the Fund might be unable to sell the security at a time when the Adviser might wish to sell, and the security could have the effect of decreasing the overall level of the Fund's liquidity. Further, the lack of an established secondary market may make it more difficult to value illiquid securities, which could vary from the amount the Fund could realize upon disposition. Restricted securities, i.e., securities subject to legal or contractual restrictions on resale, may be illiquid. However, some restricted securities may be treated as liquid, although they may be less liquid than registered securities traded on established secondary markets. Mortgage-Related Securities. Although mortgage loans underlying a mortgage-backed security may have maturities of up to 30 years, the actual average life of a mortgage-backed security typically will 56 More Information About Risks MORE INFORMATION ABOUT RISKS - -------------------------------------------------------------------------------- be substantially less because the mortgages will be subject to normal principal amortization, and may be prepaid prior to maturity. Like other fixed income securities, when interest rates rise, the value of a mortgage-backed security generally will decline; however, when interest rates are declining, the value of mortgage-backed securities with prepayment features may not increase as much as other fixed income securities. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may have the effect of shortening or extending the effective maturity of the security beyond what was anticipated at the time of the purchase. Unanticipated rates of prepayment on underlying mortgages can be expected to increase the volatility of such securities. In addition, the value of these securities may fluctuate in response to the market's perception of the creditworthiness of the issuers of mortgage-related securities owned by a Fund. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will be able to meet their obligations. Derivatives. Generally, derivatives can be characterized as financial instruments whose performance is derived, at least in part, from the performance of an underlying asset or assets. Some derivatives are sophisticated instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. These may include swap agreements, options, forwards and futures. Derivative securities are subject to market risk, which could be significant for those that have a leveraging effect. Many of the Funds do not invest in these types of derivatives, and some do, so please check the description of the Fund's policies. Derivatives are also subject to credit risks related to the counterparty's ability to perform, and any deterioration in the counterparty's creditworthiness could adversely affect the instrument. A risk of using derivatives is that the Adviser or Sub-Adviser might imperfectly judge the market's direction. For instance, if a derivative is used as a hedge to offset investment risk in another security, the hedge might not correlate to the market's movements and may have unexpected or undesired results, such as a loss or a reduction in gains. Temporary Defensive Strategies. When the Adviser or Sub-Adviser to a Fund anticipates unusual market or other conditions, the Fund may temporarily depart from its principal investment strategies as a defensive measure. To the extent that a Fund invests defensively, it likely will not achieve capital appreciation. Repurchase Agreements. Each Fund may enter into repurchase agreements, which involve the purchase by a Fund of a security that the seller has agreed to buy back. If the seller defaults and the collateral value declines, the Fund might incur a loss. If the seller declares bankruptcy, the Fund may not be able to sell the collateral at the desired time. Lending Portfolio Securities. In order to generate additional income, certain Funds may lend portfolio securities in an amount up to 331|M/3% of total Fund assets to broker-dealers, major banks, or other recognized domestic institutional borrowers of securities. As with other extensions of credit, there are risks of delay in recovery or even loss of rights in the collateral should the borrower default or fail financially. Borrowing. Certain Funds may borrow for certain types of temporary or emergency purposes subject to certain limits. Borrowing may exaggerate the effect of any increase or decrease in the value of portfolio securities or the net asset value of a Fund, and money borrowed will be subject to interest costs. Interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the return earned on borrowed funds. Under adverse market conditions, a Fund might have to sell portfolio securities to meet interest or principal payments at a time when fundamental investment considerations would not favor such sales. Reverse Repurchase Agreements and Dollar Rolls. A reverse repurchase agreement or dollar roll involves the sale of a security, with an agreement to repurchase the same or substantially similar securities at an agreed upon price and date. Whether such a transaction produces a gain for a Fund depends upon the costs of the agreements and the income and gains of the securities purchased with the proceeds received from the sale of the security. If the income and gains on the securities purchased fail to exceed the costs, net asset value will decline faster than otherwise would be the case. Reverse repurchase agreements and dollar rolls, as leveraging techniques, may increase a Fund's yield; however, such transactions also increase a Fund's risk to capital and may result in a shareholder's loss of principal. Short Sales. Certain Funds may make short sales. A "short sale" is the sale by a Fund of a security which has been borrowed from a third party on the expectation that the market price will drop. If the price of the security rises, the Fund may have to cover its short position at a higher price than the short sale price, resulting in a loss. Pairing Off Transactions. A pairing-off transaction occurs when a Fund commits to purchase a security at a future date, and then the Fund "pairs-off" the purchase with a sale of the same security prior to or on the original settlement date. Whether a pairing-off transaction on a debt security produces a gain depends on the movement of interest rates. If interest rates increase, then the money received upon the sale of the same security will be less than the anticipated amount needed at the time the commitment to purchase the security at the future date was entered and the Fund will experience a loss. Percentage and Rating Limitations Unless otherwise stated, the percentage limitations in this prospectus apply at the time of investment. [GRAPHIC] If you have any questions, please call 1-800-992-0180. More Information About Risks 57 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- The financial highlights tables on the following pages are intended to help you understand each Fund's financial performance for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). A report of each Fund's independent auditors, along with the Fund's financial statements, is included in the Fund's annual report, which is available upon request. 58 Financial Highlights FINANCIAL HIGHLIGHTS PILGRIM WORLDWIDE GROWTH FUND - -------------------------------------------------------------------------------- For the four months ended October 31, 2000, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods ending prior to October 31, 2000, the financial information was audited by other independent auditors.
Class A ------------------------------------------------------------------------------- Four Three months Year months ended Ended ended Year ended March 31, October 31, June 30, June 30, ----------------------------------------- 2000(6)(7) 2000 1999(1) 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 29.98 23.58 21.39 19.33 16.88 16.57 14.29 Income from investment operations: Net investment income (loss) $ (0.07) (0.15) -- (0.02) 0.04 (0.16) (0.07) Net realized and unrealized gain (loss) on investments $ (3.55) 9.62 2.19 5.78 5.33 2.20 2.86 Total from investment operations $ (3.62) 9.47 2.19 5.76 5.37 2.04 2.79 Less distributions from: Net investment income $ -- -- -- (0.06) -- -- (0.12) Net realized gains on investments $ -- (3.07) -- (3.64) (2.92) (1.73) (0.39) Total distributions $ -- (3.07) -- (3.70) (2.92) (1.73) (0.51) Net asset value, end of period $ 26.36 29.98 23.58 21.39 19.33 16.88 16.57 Total Return(3): % (12.07) 42.43 10.24 33.56 34.55 12.51 19.79 Ratios/Supplemental Data: Net assets, end of period (000's) $ 246,590 235,341 66,245 49,134 38,647 24,022 23,481 Ratios to average net assets: Net expenses after expense reimbursement(recoupment)(4)(5) % 1.61 1.67 1.75 1.86 1.86 1.85 1.85 Gross expenses prior to expense reimbursement(recoupment)(4) % 1.61 1.67 1.75 2.02 2.21 2.17 2.17 Net investment income (loss) after expense reimbursement(recoupment)(4)(5) % (0.71) (0.79) (0.03) (0.62) (0.69) (0.93) (0.35) Portfolio turnover % 71 169 57 247 202 182 132 Class B ------------------------------------------------------------------------------- Four Three months Year months May 31, ended Ended ended Year ended March 31, 1995(2) to October 31, June 30, June 30, ------------------------------ March 31, 2000(6)(7) 2000 1999(1) 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 33.66 26.64 24.21 20.10 16.02 14.34 12.50 Income from investment operations: Net investment income (loss) $ (0.15) (0.28) (0.03) (0.08) (0.17) (0.14) (0.05) Net realized and unrealized gain (loss) on investments $ (3.99) 10.76 2.46 6.25 5.44 1.82 1.89 Total from investment operations $ (4.14) 10.48 2.43 6.17 5.27 1.68 1.84 Less distributions from: Net investment income $ -- -- -- (0.01) -- -- -- Net realized gains on investments $ -- (3.46) -- (2.05) (1.19) -- -- Total distributions $ -- (3.46) -- (2.06) (1.19) -- -- Net asset value, end of period $ 29.52 33.66 26.64 24.21 20.10 16.02 14.34 Total Return(3): % (12.27) 41.54 10.04 32.74 34.03 11.72 14.72 Ratios/Supplemental Data: Net assets, end of period (000's) $ 126,756 130,988 27,938 18,556 10,083 5,942 1,972 Ratios to average net assets: Net expenses after expense reimbursement(recoupment)(4)(5) % 2.26 2.32 2.40 2.51 2.51 2.50 2.50 Gross expenses prior to expense reimbursement(recoupment)(4) % 2.26 2.32 2.40 2.67 2.70 4.81 9.50 Net investment income (loss) after expense reimbursement(recoupment)(4)(5) % (1.37) (1.44) (0.68) (1.31) (1.37) (1.62) (1.28) Portfolio turnover % 71 169 57 247 202 182 132 Class C ------------------------------------------------------------------------------- Four Three months Year months ended Ended ended Year ended March 31, October 31, June 30, June 30, ----------------------------------------- 2000(6)(7) 2000 1999(1) 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 29.92 23.69 21.52 19.05 16.92 16.76 14.44 Income from investment operations: Net investment loss $ (0.13) (0.33) (0.04) (0.20) (0.19) (0.28) (0.21) Net realized and unrealized gain (loss) on investments $ (3.53) 9.65 2.21 5.83 5.41 2.23 2.92 Total from investment operations $ (3.66) 9.32 2.17 5.63 5.22 1.95 2.71 Less distributions from: Net investment income $ -- -- -- (0.01) -- -- (0.01) Net realized gains on investments $ -- (3.09) -- (3.15) (3.09) (1.79) (0.38) Total distributions $ -- (3.09) -- (3.16) (3.09) (1.79) (0.39) Net asset value, end of period $ 26.26 29.92 23.69 21.52 19.05 16.92 16.76 Total Return(3): % (12.23) 41.48 10.08 32.73 33.72 11.81 18.95 Ratios/Supplemental Data: Net assets, end of period (000's) $ 213,843 239,432 111,250 98,470 84,292 70,345 71,155 Ratios to average net assets: Net expenses after expense reimbursement(recoupment)(4)(5) % 2.26 2.32 2.40 2.51 2.51 2.50 2.50 Gross expenses prior to expense reimbursement(recoupment)(4) % 2.26 2.32 2.40 2.67 2.77 2.61 2.57 Net investment loss after expense reimbursement(recoupment)(4)(5) % (1.37) (1.44) (0.68) (1.28) (1.34) (1.57) (0.99) Portfolio turnover % 71 169 57 247 202 182 132
- ---------- (1) Effective May 24, 1999, Pilgrim Investments, LLC became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-adviser and the Fund changed its fiscal year-end to June 30. (2) Commencement of offering of shares. (3) 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. (4) Annualized for periods less than one year. (5) The Investment Manager has agreed to limit expenses excluding interest, taxes, brokerage and extraordinary expenses, subject to possible reimbursement to ING Pilgrim Investments, LLC within three years. (6) Effective October 1,2000, ING Pilgrim Investments, LLC became the Investment Manager of the Fund, replacing Nicholas-Applegate Capital Management. (7) The Fund changed its fiscal year-end from June 30 to October 31. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Worldwide Growth Fund 59 FINANCIAL HIGHLIGHTS PILGRIM INTERNATIONAL VALUE FUND - -------------------------------------------------------------------------------- For the years ended 2000, 1999, 1998 and 1997, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods ending prior to October 31, 1997, the financial information was audited by other independent auditors.
Class A ---------------------------------------------------------- Year ended October 31, ---------------------------------------------------------- 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 14.75 11.88 10.90 9.05 8.10 Income from investment operations: Net investment income (loss) $ 0.15 0.08 0.11 (0.09) 0.14 Net realized and unrealized gains on investments $ 2.58 3.58 0.96 2.30 0.85 Total from investment operations $ 2.73 3.66 1.07 2.21 0.99 Less distributions from: Net investment income $ (0.11) (0.12) -- (0.14) (0.04) Net realized gains on investments $ (0.69) (0.67) (0.09) (0.22) -- Total distributions $ (0.80) (0.79) (0.09) (0.36) (0.04) Net asset value, end of period $ 16.68 14.75 11.88 10.90 9.05 Total Return(2): % 18.56 32.55 9.86 27.59 12.15 Ratios/Supplemental Data: Net assets, end of period (000's) $ 920,591 451,815 211,018 60,539 16,777 Ratios to average net assets: Net expenses after expense reimbursement (3)(4) % 1.64 1.68 1.74 1.80 1.85 Gross expenses prior to expense reimbursement(3) % 1.64 1.68 1.74 2.07 2.82 Net investment income (loss) after expense reimbursement(3)(4) % 1.14 0.92 1.62 0.46 1.52 Portfolio turnover % 34 29 32 26 74 Class B ----------------------------------------------- Year ended October 31, ----------------------------------------------- 2000 1999 1998 1997(1) - ---------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 14.57 11.76 10.87 10.00 Income from investment operations: Net investment income (loss) $ 0.07 0.01 0.07 (0.02) Net realized and unrealized gains on investments $ 2.51 3.51 0.91 0.89 Total from investment operations $ 2.58 3.52 0.98 0.87 Less distributions from: Net investment income $ (0.03) (0.04) -- -- Net realized gains on investments $ (0.69) (0.67) (0.09) -- Total distributions $ (0.72) (0.71) (0.09) -- Net asset value, end of period $ 16.43 14.57 11.76 10.87 Total Return(2): % 17.69 31.55 9.16 8.70 Ratios/Supplemental Data: Net assets, end of period (000's) $ 437,765 278,871 145,976 59,185 Ratios to average net assets: Net expenses after expense reimbursement (3)(4) % 2.34 2.41 2.47 2.50 Gross expenses prior to expense reimbursement(3) % 2.34 2.41 2.47 2.58 Net investment income (loss) after expense reimbursement(3)(4) % 0.45 0.18 0.69 (0.71) Portfolio turnover % 34 29 32 26 Class C --------------------------------------------------------- Year ended October 31, --------------------------------------------------------- 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 14.55 11.75 10.86 8.93 8.05 Income from investment operations: Net investment income (loss) $ 0.07 -- 0.06 (0.06) 0.05 Net realized and unrealized gains on investments $ 2.52 3.51 0.92 2.20 0.86 Total from investment operations $ 2.59 3.51 0.98 2.14 0.91 Less distributions from: Net investment income $ (0.04) (0.04) -- (0.04) (0.03) Net realized gains on investments $ (0.69) (0.67) (0.09) (0.17) -- Total distributions $ (0.73) (0.71) (0.09) (0.21) (0.03) Net asset value, end of period $ 16.41 14.55 11.75 10.86 8.93 Total Return(2): % 17.76 31.50 9.07 25.92 11.39 Ratios and Supplemental Data: Net assets, end of period (000's) $ 605,678 310,227 137,651 62,103 14,530 Ratios to average net assets: Net expenses after expense reimbursement (3)(4) % 2.34 2.41 2.47 2.50 2.50 Gross expenses prior to expense reimbursement(3) % 2.34 2.41 2.47 2.74 3.71 Net investment income (loss) after expense reimbursement(3)(4) % 0.46 0.19 0.68 (0.23) 0.62 Portfolio turnover % 34 29 32 26 74
- ---------- (1) Classes A and C commenced operations on March 6, 1995, and Class B commenced operations on April 17, 1997. (2) Total return is calculated assuming reinvestment of all dividends and capital gains distributions at net asset value and excluding the deduction of sales charges. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (4) Expenses calculated net of advisor reimbursement. 60 Pilgrim International Value Fund FINANCIAL HIGHLIGHTS PILGRIM INTERNATIONAL FUND - -------------------------------------------------------------------------------- For the ten months ended October 31, 2000, the information in the table below, has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods ending prior to October 31, 2000, the financial information was audited by other independent auditors.
Class A -------------------------------------------------------------------------- Ten months ended Year ended December 31, October 31, ------------------------------------------------------ 2000(4)(6) 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 13.45 11.61 10.10 10.86 10.60 10.37 Income from investment operations: Net investment income (loss) $ 0.19 (0.01) 0.17 0.07 (0.02) (0.01) Net realized and unrealized gain (loss) on investments $ (1.48) 5.46 1.74 0.10 1.45 0.61 Total from investment operations $ (1.29) 5.45 1.91 0.17 1.43 0.60 Less distributions from: Net investment income $ (0.86) (0.03) (0.06) (0.13) (0.20) -- In excess of net investment income $ -- -- -- -- -- (0.35) Net realized gains on investments $ (0.08) (3.58) (0.34) (0.80) (0.97) (0.02) Total distributions $ (0.94) (3.61) (0.40) (0.93) (1.17) (0.37) Net asset value, end of period $ 11.22 13.45 11.61 10.10 10.86 10.60 Total Return(2): % (10.22) 47.85 19.02 1.61 13.57 5.77 Ratios/Supplemental Data: Net assets, end of period (000's) $ 30,653 25,304 24,000 19,949 18,891 17,855 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 2.23 1.98 1.75 1.75 2.45 2.45 Gross expenses prior to expense reimbursement(3) % 2.23 1.98 2.25 2.15 2.45 2.46 Net investment income (loss) after expense reimbursement(3)(5) % (0.23) (0.21) 0.35 0.53 (0.39) (0.12) Portfolio turnover % 113 144 144 123 114 138 Class B Class C ----------- ------------- August 22, September 15, 2000(1) to 2000(1) to October 31, October 31, 2000(4) 2000(4) - --------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 12.28 11.67 Income from investment operations: Net investment income (loss) $ (0.05) (0.04) Net realized and unrealized gain (loss) on investments $ (1.04) (0.42) Total from investment operations $ (1.09) (0.46) Less distributions from: Net investment income $ -- -- In excess of net investment income $ -- -- Net realized gains on investments $ -- -- Total distributions $ -- -- Net asset value, end of period $ 11.19 11.21 Total Return(2): % (8.88) (3.94) Ratios/Supplemental Data: Net assets, end of period (000's) $ 80 85 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 2.76 2.96 Gross expenses prior to expense reimbursement(3) % 2.76 2.96 Net investment income (loss) after expense reimbursement(3)(5) % (7.02) (3.97) Portfolio turnover % 113 113
- ---------- (1) Commencement of offering of shares. (2) 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. (3) Annualized for periods less than one year. (4) The Fund changed its fiscal year-end from December 31 to October 31. (5) The Investment Manager has agreed to limit expenses excluding interest, taxes, brokerage and extraordinary expenses. (6) Effective July 26, 2000 Pilgrim Investments, LLC became the Investment Manager of the Fund. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim International Fund 61 FINANCIAL PILGRIM INTERNATIONAL CORE GROWTH FUND HIGHLIGHTS - -------------------------------------------------------------------------------- For the four months ended October 31, 2000, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods ending prior to October 31, 2000, the financial information was audited by other independent auditors.
Class A --------------------------------------------------------------------------------- Four Three months Year months February 28, ended Ended ended Year ended March 31, 1997(1) to October 31, June 30, June 30, ------------------------- March 31, 2000(6)(7) 2000 1999(2) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 23.84 18.92 17.71 17.01 12.73 12.50 Income from investment operations: Net investment income (loss) $ (0.03) (0.17) 0.04 (0.01) (0.02) -- Net realized and unrealized gain (loss) on investments $ (2.89) 6.25 1.17 1.02 4.56 0.23 Total from investment operations $ (2.92) 6.08 1.21 1.01 4.54 0.23 Less distributions from: Net investment income $ -- -- -- (0.18) -- -- Net realized gains on investments $ -- (1.16) -- (0.13) (0.26) -- Total distributions $ -- (1.16) -- (0.31) (0.26) -- Net asset value, end of period $ 20.92 23.84 18.92 17.71 17.01 12.73 Total Return(3): % (12.25) 32.83 6.83 5.90 36.10 1.76 Ratios/Supplemental Data: Net assets, end of period (000's) $ 23,588 23,003 12,409 21,627 12,664 2 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 1.76 1.85 1.77 1.89 1.96 1.95 Gross expenses prior to expense reimbursement(4) % 1.90 2.16 1.86 2.13 3.02 4,579.78 Net investment income (loss) after expense reimbursement(4)(5) % (0.48) (0.83) 0.50 (0.51) (0.45) -- Portfolio turnover % 73 200 67 214 274 76 Class B --------------------------------------------------------------------------------- Four Three months Year months February 28, ended Ended ended Year ended March 31, 1997(1) to October 31, June 30, June 30, ------------------------- March 31, 2000(6)(7) 2000 1999(2) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 23.83 19.08 17.89 17.10 12.68 12.50 Income from investment operations: Net investment income (loss) $ (0.09) (0.30) -- (0.16) (0.11) -- Net realized and unrealized gain (loss) on investments $ (2.86) 6.21 1.19 1.05 4.66 0.18 Total from investment operations $ (2.95) 5.91 1.19 0.89 4.55 0.18 Less distributions from: Net investment income $ -- -- -- (0.03) -- -- Net realized gains on investments $ -- (1.16) -- (0.07) (0.13) -- Total distributions $ -- (1.16) -- (0.10) (0.13) -- Net asset value, end of period $ 20.88 23.83 19.08 17.89 17.10 12.68 Total Return(3): % (12.38) 31.62 6.65 5.24 35.31 1.44 Ratios/Supplemental Data: Net assets, end of period (000's) $ 19,116 21,543 12,034 11,033 7,942 1 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 2.41 2.50 2.36 2.53 2.61 2.59 Gross expenses prior to expense reimbursement(4) % 2.56 2.81 2.45 2.77 3.04 16,000.25 Net investment income (loss) after expense reimbursement(4)(5) % (1.16) (1.48) (0.09) (1.13) (1.32) -- Portfolio turnover % 73 200 67 214 274 76 Class C --------------------------------------------------------------------------------- Four Three months Year months February 28, ended Ended ended Year ended March 31, 1997(1) to October 31, June 30, June 30, ------------------------- March 31, 2000(6)(7) 2000 1999(2) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 23.93 19.14 17.94 17.16 12.68 12.50 Income from investment operations: Net investment loss $ (0.08) (0.27) -- (0.05) (0.07) -- Net realized and unrealized gain (loss) on investments $ (2.89) 6.22 1.20 0.94 4.55 0.18 Total from investment operations $ (2.97) 5.95 1.20 0.89 4.48 0.18 Less distributions from: Net investment income $ -- -- -- (0.11) -- -- Net realized gains on investments $ -- (1.16) -- -- -- -- Total distributions $ -- (1.16) -- (0.11) -- -- Net asset value, end of period $ 20.96 23.93 19.14 17.94 17.16 12.68 Total Return(3): % (12.41) 31.73 6.69 5.22 35.25 1.44 Ratios/Supplemental Data: Net assets, end of period (000's) $ 25,501 26,734 11,936 10,400 3,517 43 Ratios to average net assets: Net expenses after expense reimbursement(4)(5) % 2.41 2.50 2.36 2.55 2.61 2.41 Gross expenses prior to expense reimbursement(4) % 2.56 2.81 2.45 2.79 5.10 25.55 Net investment income (loss) after expense reimbursement(4)(5) % (1.16) (1.48) (0.09) (1.19) (1.27) (0.07) Portfolio turnover % 73 200 67 214 274 76
- ---------- (1) Commencement of operations. (2) Effective May 24, 1999, Pilgrim Investments, LLC became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-adviser and the Fund changed its fiscal year-end to June 30. (3) 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. (4) Annualized for periods less than one year. (5) The Investment Manager has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses, subject to possible reimbursement to ING Pilgrim Investments, Inc. within three years. (6) Effective October 1, 2000, ING Pilgrim Investments, LLC became the Investment Manager of the Fund, replacing Nicholas-Applegate Capital Management. (7) The Fund changed its fiscal year-end from June 30 to October 31. 62 Pilgrim International Core Growth Fund FINANCIAL HIGHLIGHTS PILGRIM INTERNATIONAL SMALLCAP GROWTH FUND - -------------------------------------------------------------------------------- For the four months ended October 31, 2000, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods ending prior to October 31, 2000, the financial information was audited by other independent auditors.
Class A ----------------------------------------------------------------------------------- Four Three months Year months ended Ended ended Year ended March 31, October 31, June 30, June 30, ----------------------------------------- 2000(1) 2000 1999(2) 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Per Share Operating Performance: Net asset value, beginning of period $ 40.94 23.80 21.03 19.29 14.92 13.15 11.51 Income from investment operations: Net investment income (loss) $ (0.10) (0.18) (0.03) 0.02 (0.15) 0.04 (0.02) Net realized and unrealized gain (loss) on investments $ (4.76) 19.38 2.80 3.21 5.36 1.88 1.79 Total from investment operations $ (4.86) 19.20 2.77 3.23 5.21 1.92 1.77 Less distributions from: Net investment income $ -- -- -- -- -- (0.01) (0.13) Net realized gains on investments $ -- (2.06) -- (1.49) (0.84) (0.14) -- Total distributions $ -- (2.06) -- (1.49) (0.84) (0.15) (0.13) Net asset value, end of period $ 36.08 40.94 23.80 21.03 19.29 14.92 13.15 Total Return(4): % (11.90) 82.89 13.17 17.26 36.31 14.67 15.46 Ratios/Supplemental Data: Net assets, end of period (000's) $ 273,393 278,480 37,490 25,336 11,183 5,569 1,056 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(5)(6) % 1.67 1.67 1.84 1.94 1.96 1.95 1.95 Gross expenses prior to expense reimbursement (recoupment)(5) % 1.67 1.67 1.86 2.08 2.75 3.76 10.06 Net investment income (loss) after expense reimbursement (recoupment)(5)(6) % (0.80) (0.76) (0.69) (0.82) (1.56) (1.05) (0.27) Portfolio turnover % 56 164 44 146 198 206 141 Class B ----------------------------------------------------------------------------------- Four Three months Year months ended Ended ended Year ended March 31, October 31, June 30, June 30, ----------------------------------------- 2000(1) 2000 1999(2) 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Per Share Operating Performance: Net asset value, beginning of period $ 43.27 25.33 22.43 20.16 15.89 13.96 12.50 Income from investment operations: Net investment income (loss) $ (0.20) (0.37) (0.07) (0.20) (0.15) (0.15) (0.02) Net realized and unrealized gain (loss) on investments $ (5.02) 20.50 2.97 3.46 5.56 2.09 1.48 Total from investment operations $ (5.22) 20.13 2.90 3.26 5.41 1.94 1.46 Less distributions from: Net investment income $ -- -- -- -- -- (0.01) -- Net realized gains on investments $ -- (2.19) -- (0.99) (1.14) -- -- Total distributions $ -- (2.19) -- (0.99) (1.14) (0.01) -- Net asset value, end of period $ 38.05 43.27 25.33 22.43 20.16 15.89 13.96 Total Return(4): % (12.05) 81.63 12.93 16.55 35.73 13.96 11.68 Ratios/Supplemental Data: Net assets, end of period (000's) $ 126,861 132,028 19,331 16,158 12,033 5,080 1,487 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(5)(6) % 2.32 2.32 2.49 2.59 2.61 2.60 2.60 Gross expenses prior to expense reimbursement (recoupment)(5) % 2.32 2.32 2.51 2.73 2.98 4.89 16.15 Net investment income (loss) after expense reimbursement (recoupment)(5)(6) % (1.46) (1.41) (1.34) (1.45) (2.20) (1.66) (0.64) Portfolio turnover % 56 164 44 146 198 206 141 Class C ----------------------------------------------------------------------------------- Four Three months Year months ended Ended ended Year ended March 31, October 31, June 30, June 30, ----------------------------------------- 2000(1) 2000 1999(2) 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Per Share Operating Performance: Net asset value, beginning of period $ 39.71 23.34 20.60 18.53 14.87 13.05 11.32 Income from investment operations: Net investment income (loss) $ (0.18) (0.31) (0.06) (0.10) (0.11) (0.16) 0.01 Net realized and unrealized gain (loss) on investments $ (4.60) 18.69 2.80 3.09 5.09 1.98 1.72 Total from investment operations $ (4.78) 18.38 2.74 2.99 4.98 1.82 1.73 Less distributions from: Net investment income $ -- -- -- -- -- -- -- Net realized gains on investments $ -- (2.01) -- (0.92) (1.32) -- -- Total distributions $ -- (2.01) -- (0.92) (1.32) -- -- Net asset value, end of period $ 34.93 39.71 23.34 20.60 18.53 14.87 13.05 Total Return(4): % (12.04) 80.89 13.31 16.55 35.63 13.98 15.30 Ratios/Supplemental Data: Net assets, end of period (000's) $ 136,830 144,068 18,354 13,226 8,014 3,592 933 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(5)(6) % 2.32 2.32 2.49 2.59 2.61 2.60 2.60 Gross expenses prior to expense reimbursement (recoupment)(5) % 2.32 2.32 2.51 2.73 3.38 3.95 16.15 Net investment income (loss) after expense reimbursement(recoupment)(5)(6) % (1.46) (1.41) (1.34) (1.45) (2.18) (1.67) (1.02) Portfolio turnover % 56 164 44 146 198 206 141
- ---------- (1) The Fund changed its fiscal year-end from June 30 to October 31. (2) Effective May 24, 1999, Pilgrim Investments, LLC became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-adviser and the Fund changed its fiscal year-end to June 30. (3) Commencement of offering of shares. (4) 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. (5) Annualized for periods less than one year. (6) The Investment Manager has agreed to limit expenses excluding interest, taxes, brokerage and extraordinary expenses, subject to possible reimbursement to ING Pilgrim Investments, LLC within three years. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim International SmallCap Growth Fund 63 FINANCIAL PILGRIM EMERGING MARKETS VALUE FUND HIGHLIGHTS - -------------------------------------------------------------------------------- The information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants.
Class A Class B ---------------------------------- ---------------------------------- Year ended October 31, Year ended October 31, ---------------------------------- ---------------------------------- 2000 1999 1998(1) 2000 1999 1998(1) - ---------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 10.68 7.69 10.00 10.60 7.65 10.00 Income from investment operations: Net investment income $ 0.22 0.12 0.12 0.07 0.08 0.09 Net realized and unrealized gain (loss) on investments $ (0.08) 3.01 (2.43) (0.01) 2.97 (2.44) Total from investment operations $ 0.14 3.13 (2.31) 0.06 3.05 (2.35) Less distribution from: Net investment income $ (0.11) (0.14) -- (0.04) (0.10) -- Net realized gains on investments $ (0.44) -- -- (0.44) -- -- Total distributions $ (0.55) (0.14) -- (0.48) (0.10) -- Net asset value, end of period $ 10.27 10.68 7.69 10.18 10.60 7.65 Total Return(2): % 0.60 41.48 (23.10) (0.12) 40.41 (23.50) Ratios/Supplemental Data: Net assets, end of period (000's) $ 4,549 9,281 3,815 4,101 3,823 3,583 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.98 2.06 1.80 2.75 2.70 2.50 Gross expenses prior to expense reimbursement(3) % 1.98 2.21 3.88 2.75 2.93 4.74 Net investment income after expense reimbursement(3)(4) % 1.37 1.36 3.38 0.61 0.67 2.55 Portfolio turnover % 32 38 7 32 38 7 Class C ---------------------------------- Year ended October 31, ---------------------------------- 2000 1999 1998(1) - ---------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 10.56 7.63 10.00 Income from investment operations: Net investment income $ 0.07 0.04 0.09 Net realized and unrealized gain (loss) on investments $ (0.01) 3.00 (2.46) Total from investment operations $ 0.06 3.04 (2.37) Less distribution from: Net investment income $ (0.05) (0.11) -- Net realized gains on investments $ (0.44) -- -- Total distributions $ (0.49) (0.11) -- Net asset value, end of period $ 10.13 10.56 7.63 Total Return(2): % (0.09) 40.49 (23.70) Ratios/Supplemental Data: Net assets, end of period (000's) $ 4,468 6,674 2,304 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 2.71 2.71 2.50 Gross expenses prior to expense reimbursement(3) % 2.71 2.91 4.87 Net investment income after expense reimbursement(3)(4) % 0.62 0.62 2.60 Portfolio turnover % 32 38 7
- ---------- (1) Class A, B and C commenced operations on January 1, 1998. (2) Total return is calulated assuming reinvestments 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. (3) Annualized for periods less than one year. (4) Expenses calculated net of adviser reimbursement. 64 Pilgrim Emerging Markets Value Fund FINANCIAL HIGHLIGHTS PILGRIM EMERGING COUNTRIES FUND - -------------------------------------------------------------------------------- For the four months ended October 31, 2000, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods ending prior to October 31, 2000, the financial information was audited by other independent auditors.
Class A --------------------------------------------------------------------------------- Four Three months Year months ended Ended ended Year Ended March 31, October 31, June 30, June 30, ------------------------------------------- 2000(6)(7) 2000 1999(2) 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 20.17 16.74 13.43 17.39 17.20 14.03 11.00 Income from investment operations: Net investment income (loss) $ (0.24) (0.20) (0.05) (0.06) 0.03 (0.06) (0.04) Net realized and unrealized gain (loss) on investments $ (3.60) 3.63 3.36 (3.81) 1.22 3.51 3.15 Total from investment operations $ (3.84) 3.43 3.31 (3.87) 1.25 3.45 3.11 Less distributions from: Net investment income $ -- -- -- (0.02) -- -- (0.02) Net realized gains on investments $ -- -- -- (0.07) (1.06) (0.28) (0.06) Total distributions $ -- -- -- (0.09) (1.06) (0.28) (0.08) Net asset value, end of period $ 16.33 20.17 16.74 13.43 17.39 17.20 14.03 Total Return(3): % (19.04) 20.49 24.65 (22.23) 8.06 24.79 28.43 Ratios/Supplemental Data: Net assets, end of period (000's) $ 59,541 75,311 53,483 47,180 71,014 38,688 4,718 Ratio to average net assets: Net expenses after expense reimbursement(4)(5) % 2.23 2.19 2.13 2.27 2.26 2.25 2.25 Gross expenses prior to expense reimbursement(4) % 2.38 2.34 2.66 2.56 2.48 3.08 6.72 Net investment income (loss) after expense reimbursement(4)(5) % (1.31) (1.15) (1.30) (0.25) 0.55 (1.14) (0.35) Portfolio turnover % 94 211 67 213 243 176 118 Class B --------------------------------------------------------------------------------- Four Three months Year months May 31, ended Ended ended Year Ended March 31, 1995(1) to October 31, June 30, June 30, ------------------------------ March 31, 2000(6)(7) 2000 1999(2) 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 20.30 16.98 13.64 17.64 17.29 14.02 12.50 Income from investment operations: Net investment income (loss) $ (0.23) (0.35) (0.07) (0.22) (0.07) (0.11) (0.04) Net realized and unrealized gain (loss) on investments $ (3.66) 3.67 3.41 (3.70) 1.26 3.47 1.56 Total from investment operations $ (3.89) 3.32 3.34 (3.92) 1.19 3.36 1.52 Less distributions from: Net investment income $ -- -- -- -- -- -- -- Net realized gains on investments $ -- -- -- (0.08) (0.84) (0.09) -- Total distributions $ -- -- -- (0.08) (0.84) (0.09) -- Net asset value, end of period $ 16.41 20.30 16.98 13.64 17.64 17.29 14.02 Total Return(3): % (19.16) 19.55 24.49 (22.23) 7.47 24.00 12.16 Ratios/Supplemental Data: Net assets, end of period (000's) $ 22,707 30,322 26,342 22,338 38,796 24,558 3,557 Ratio to average net assets: Net expenses after expense reimbursement(4)(5) % 2.98 2.84 2.75 2.91 2.91 2.90 2.90 Gross expenses prior to expense reimbursement(4) % 3.12 2.99 3.28 3.20 3.06 3.66 7.58 Net investment income (loss) after expense reimbursement(4)(5) % (1.01) (1.80) (1.92) (0.80) (0.20) (1.77) (1.05) Portfolio turnover % 94 211 67 213 243 176 118 Class C --------------------------------------------------------------------------------- Four Three months Year months ended Ended ended Year Ended March 31, October 31, June 30, June 30, ------------------------------------------- 2000(6)(7) 2000 1999(2) 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 19.56 16.35 13.14 16.98 16.81 13.71 10.79 Income from investment operations: Net investment loss $ (0.22) (0.32) (0.07) (0.27) (0.12) (0.10) (0.05) Net realized and unrealized gain (loss) on investments $ (3.53) 3.53 3.28 (3.49) 1.26 3.37 2.97 Total from investment operations $ (3.75) 3.21 3.21 (3.76) 1.14 3.27 2.92 Less distributions from: Net investment income $ -- -- -- -- -- -- -- Net realized gains on investments $ -- -- -- (0.08) (0.97) (0.17) -- Total distributions $ -- -- -- (0.08) (0.97) (0.17) -- Net asset value, end of period $ 15.81 19.56 16.35 13.14 16.98 16.81 13.71 Total Return(3): % (19.17) 19.63 24.43 (22.21) 7.47 23.94 27.30 Ratios/Supplemental Data: Net assets, end of period (000's) $ 22,456 29,610 24,230 19,246 36,986 29,376 4,345 Ratio to average net assets: Net expenses after expense reimbursement(4)(5) % 2.98 2.84 2.75 2.90 2.91 2.90 2.90 Gross expenses prior to expense reimbursement(4) % 3.09 2.99 3.28 3.19 3.09 3.12 6.23 Net investment loss after expense reimbursement(4)(5) % (0.95) (1.80) (1.92) (0.77) (0.26) (1.75) (1.06) Portfolio turnover % 94 211 67 213 243 176 118
- ---------- (1) Commencement of offering of shares. (2) Effective May 24, 1999, Pilgrim Investments, LLC became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-adviser and the Fund changed its fiscal year-end to June 30. (3) 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. (4) Annualized for periods less than one year. (5) The Investment Manager has agreed to limit expenses excluding interest, taxes, brokerage and extraordinary expenses, subject to possible reimbursement to ING Pilgrim Investments, LLC within three years. (6) Effective October 1, 2000, ING Pilgrim Investments, LLC became the Investment Manager of the Fund, replacing Nicholas-Applegate Capital Management. (7) The Fund changed its fiscal year-end from June 30 to October 31. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Emerging Countries Fund 65 FINANCIAL PILGRIM WORLDWIDE EMERGING MARKETS FUND HIGHLIGHTS - -------------------------------------------------------------------------------- For the ten months ended October 31, 2000, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods prior to October 31, 2000, the financial information was audited by other independent auditors.
Class A --------------------------------------------------------------------- Ten months ended Year ended December 31, October 31, ------------------------------------------------------ 2000(1)(4) 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 15.10 7.13 10.18 11.49 10.70 11.47 Income from investment operations: Net investment income (loss) $ (0.17) (0.05) 0.12 0.01 -- 0.08 Net realized and unrealized gain (loss) on investments $ (6.18) 8.05 (3.08) (1.32) 0.79 (0.76) Total from investment operations $ (6.35) 8.00 (2.96) (1.31) 0.79 (0.68) Less distributions from: Net investment income $ -- (0.03) (0.09) -- -- (0.08) In excess of net investment income $ -- -- -- -- -- (0.01) Total distributions $ -- (0.03) (0.09) -- -- (0.09) Net asset value, end of period $ 8.75 15.10 7.13 10.18 11.49 10.70 Total Return(2): % (42.05) 112.58 (29.06) (11.40) 7.38 (5.93) Ratios/Supplemental Data: Net assets, end of period (000's) $ 81,496 154,994 65,323 137,686 254,673 265,544 Ratios to average net assets: Expenses(3) % 2.15 2.00 1.85 1.82 1.76 1.88 Net investment income (loss) (3) % (1.34) (0.66) 1.14 0.09 (0.01) 0.70 Portfolio turnover % 241 184 107 112 86 93
- ---------- (1) The Fund changed its fiscal year-end from December 31 to October 31. (2) 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. (3) Annualized for periods less than one year. (4) Effective July 26, 2000, Pilgrim Investments, LLC became the Investment Manager of the Fund. 66 Pilgrim Worldwide Emerging Markets Fund FINANCIAL HIGHLIGHTS PILGRIM GLOBAL TECHNOLOGY FUND - -------------------------------------------------------------------------------- The information in the table below has been audited by PricewaterhouseCoopers, LLP, independent accountants.
Class A ----------------- Ten months ended October 31, 2000(3)(5) - ------------------------------------------------------------------------------ Per Share Operating Performance: Net asset value, beginning of period $ 10.00 Income from investment operations: Net investment loss $ (0.13) Net realized and unrealized loss on investments $ (2.01) Total from investment operations $ (2.14) Net asset value, end of period $ 7.86 Total Return(1): % (21.40) Ratios/Supplemental Data: Net assets, end of period (000's) $ 8,888 Ratios to average net assets: Net expenses after redemption fee proceeds and expense reimbursement (2)(4) % 2.60 Gross expenses prior to redemption fee proceeds and expense reimbursement(2) % 4.23 Net investment loss after redemption fee proceeds and expense reimbursement(2)(4) % (1.73) Portfolio turnover % 162
- ---------- (1) 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. (2) Annualized for periods less than one year. (3) The Fund changed its fiscal year-end from December 31 to October 31. (4) The Investment Manager has agreed to limit expenses excluding interest, taxes, brokerage and extraordinary expenses. (5) Effective July 26, 2000, Pilgrim Investments, LLC became the Investment Manager of the Fund. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Global Technology Fund 67 FINANCIAL PILGRIM GLOBAL COMMUNICATIONS FUND HIGHLIGHTS - -------------------------------------------------------------------------------- The information in the table below has been audited by Ernst & Young LLP, independent auditors.
Class A Class B Class C Year ended Year ended Year ended October 31,(1) October 31,(1) October 31,(1) 2000 2000 2000 - ---------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 10.00 10.00 10.00 Income from investment operations: Net investment loss $ (0.06) (0.09) (0.09) Net realized and unrealized loss on investments $ (2.64) (2.64) (2.63) Total from investment operations $ (2.70) (2.73) (2.72) Distributions paid from investment income $ -- -- -- Net asset value, end of period $ 7.30 7.27 7.28 Net assets, end of period (thousands) $ 55,459 31,035 7,603 Total Return(2) % (27.00) (27.30) (27.20) Ratios/Supplemental Data Ratio to average net assets Net expenses % 1.37 2.01 2.01 Gross expenses(3) % 2.56 2.81 2.81 Net investment loss(3) % (1.02) (1.67) (1.68) Portfolio turnover % 60 60 60
- ---------- (1) The Fund commenced operations on March 1, 2000. (2) Total return assumes reinvestment of all dividend and capital gain distributions, if any, and does not reflect the deduction of the applicable sales charges. Total returns would be lower if part of the Fund's expenses were not waived or reimbursed. Total returns for periods less than one year are not annualized. (3) Annualized. 68 Pilgrim Global Communications Fund FINANCIAL HIGHLIGHTS PILGRIM GLOBAL INFORMATION TECHNOLOGY FUND - -------------------------------------------------------------------------------- The information in the table below has been audited by Ernst & Young LLP, independent auditors.
Class A Class B Year ended Year ended October 31,(1) October 31,(1) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------ Per Share Operating Performance: Net asset value beginning of period $ 17.38 10.00 17.28 10.00 Income from investment operations:(4) Net investment loss $ (0.33) (0.13) (0.41) (0.08) Net realized and unrealized gains on investments(5) $ 10.41 7.51 10.30 7.36 Total from investment operations $ 10.08 7.38 9.89 7.28 Distributions paid from capital gain $ (0.84) -- (0.84) -- Net asset value, end of period $ 26.62 17.38 26.33 17.28 Net assets, end of period (thousands) $ 108,763 54,798 37,915 5,964 Total Return(2) % 58.61 73.80 57.82 72.80 Ratios/Supplemental Data Ratio to average net assets Net expenses % 1.53 1.57 (3) 2.17 2.25 (3) Gross expenses % 2.65 2.95 (3) 2.89 3.22 (3) Net investment loss % (1.30) (1.29)(3) (1.94) (2.04)(3) Portfolio Turnover % 77 57 77 57 Class C Year ended October 31,(1) 2000 1999 - -------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value beginning of period $ 17.28 10.00 Income from investment operations:(4) Net investment loss $ (0.42) (0.05) Net realized and unrealized gains on investments(5) $ 10.30 7.33 Total from investment operations $ 9.88 7.28 Distributions paid from capital gain $ (0.84) -- Net asset value, end of period $ 26.32 17.28 Net assets, end of period (thousands) $ 18,486 2,102 Total Return(2) % 57.77 72.80 Ratios/Supplemental Data Ratio to average net assets Net expenses % 2.17 2.24 (3) Gross expenses % 2.89 3.20 (3) Net investment loss % (1.94) (2.05)(3) Portfolio Turnover % 77 57
- ---------- (1) The Fund commenced operations on December 15, 1998. (2) Total return assumes reinvestment of all dividend and capital gain distributions, if any, and does not reflect the deduction of the applicable sales charges. Total returns would be lower if part of the Fund's expenses were not waived or reimbursed. Total returns for periods less than one year are not annualized. (3) Annualized. (4) Per share calculation for the year ended October 31, 2000 is based on average number of shares outstanding during the year. (5) Includes gains and losses on foreign currency transactions. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Global Information Technology Fund 69 FINANCIAL PILGRIM ASIA-PACIFIC EQUITY FUND HIGHLIGHTS - -------------------------------------------------------------------------------- For the four months ended October 31, 2000, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods prior to October 31, 2000, the financial information was audited by other independent auditors.
Class A -------------------------------------------------------------------------- Four months September 1, ended Year Ended June 30, 1995(1) to October 31, --------------------------------------- June 30, 2000(5) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 7.23 7.22 4.46 10.93 10.35 10.00 Income from investment operations: Net investment income (loss) $ 0.08 (0.05) -- 0.03 0.02 0.03 Net realized and unrealized gain (loss) on investments $ (2.32) 0.06 2.76 (6.50) 0.58 0.34 Total from investment operations $ (2.24) 0.01 2.76 (6.47) 0.60 0.37 Less distributions: In excess of net investment income $ -- -- -- -- -- (0.02) Tax return of capital $ -- -- -- -- (0.02) -- Total distributions $ -- -- -- -- (0.02) (0.02) Net asset value, end of period $ 4.99 7.23 7.22 4.46 10.93 10.35 Total Return(2): % (30.98) 0.14 61.88 (59.29) 5.78 3.76 Ratios/Supplemental Data: Net assets, end of period (000's) $ 8,471 11,726 14,417 11,796 32,485 18,371 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 2.05 2.11 2.00 2.00 2.00 2.00 Gross expenses prior to expense reimbursement(3) % 2.71 2.55 2.98 2.80 2.54 3.47 Net investment income (loss) after expense reimbursement(3)(4) % 4.28 (0.56) 0.01 0.38 0.00 0.33 Portfolio turnover % 13 138 111 81 38 15 Class B -------------------------------------------------------------------------- Four months September 1, ended Year Ended June 30, 1995(1) to October 31, --------------------------------------- June 30, 2000(5) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 6.97 7.02 4.37 10.83 10.31 10.00 Income from investment operations: Net investment income (loss) $ 0.07 (0.11) (0.04) (0.03) (0.07) (0.01) Net realized and unrealized gain (loss) on investments $ (2.24) 0.06 2.69 (6.43) 0.59 0.32 Total from investment operations $ (2.17) (0.05) 2.65 (6.46) 0.52 0.31 Less distributions: In excess of net investment income $ -- -- -- -- -- -- Tax return of capital $ -- -- -- -- -- -- Total distributions $ -- -- -- -- -- -- Net asset value, end of period $ 4.80 6.97 7.02 4.37 10.83 10.31 Total Return(2): % (31.13) (0.71) 60.64 (59.65) 5.04 3.19 Ratios/Supplemental Data: Net assets, end of period (000's) $ 7,678 12,228 12,959 9,084 30,169 17,789 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 2.80 2.86 2.75 2.75 2.75 2.75 Gross expenses prior to expense reimbursement(3) % 3.45 3.30 3.73 3.55 3.29 4.10 Net investment income (loss) after expense reimbursement(3)(4) % 3.48 (1.31) (0.74) (0.39) (0.79) (0.38) Portfolio turnover % 13 138 111 81 38 15 Class M -------------------------------------------------------------------------- Four months September 1, ended Year Ended June 30, 1995(1) to October 31, --------------------------------------- June 30, 2000(5) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 7.04 7.07 4.40 10.86 10.32 10.00 Income from investment operations: Net investment income (loss) $ 0.07 (0.11) (0.02) -- (0.05) -- Net realized and unrealized gain (loss) on investments $ (2.26) 0.08 2.69 (6.46) 0.59 0.33 Total from investment operations $ (2.19) (0.03) 2.67 (6.46) 0.54 0.33 Less distributions: In excess of net investment income $ -- -- -- -- -- (0.01) Total distributions $ -- -- -- -- -- (0.01) Net asset value, end of period $ 4.85 7.04 7.07 4.40 10.86 10.32 Total Return(2): % (31.11) (0.42) 60.68 (59.48) 5.26 3.32 Ratios/Supplemental Data: Net assets, end of period (000's) $ 2,711 3,749 5,184 4,265 11,155 6,476 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 2.53 2.61 2.50 2.50 2.50 2.50 Gross expenses prior to expense reimbursement(3) % 3.18 3.05 3.48 3.30 3.04 3.88 Net investment income (loss) after expense reimbursement(3)(4) % 3.72 (1.06) (0.49) (0.07) (0.55) (0.16) Portfolio turnover % 13 138 111 81 38 15
- ---------- (1) Commencement of operations. (2) 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. (3) Annualized for periods less than one year. (4) The Investment Manager has agreed to limit expenses excluding interest, taxes, brokerage and extraordinary expenses, subject to possible reimbursement to ING Pilgrim Investments, LLC within three years. (5) The Fund changed it fiscal year-end from June 30 to October 31. 70 Pilgrim Asia-Pacific Equity Fund FINANCIAL HIGHLIGHTS PILGRIM SMALLCAP ASIA GROWTH FUND - -------------------------------------------------------------------------------- For the ten months ended October 31, 2000, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods prior to October 31, 2000, the financial information was audited by other independent auditors.
Class A -------------------------------------------------------------------------- Ten months ended Year ended December 31, October 31, ------------------------------------------------------- 2000(4)(6) 1999 1998 1997 1996 1995(1) - --------------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 8.95 5.69 7.06 12.24 9.76 10.00 Income from investment operations: Net investment income (loss) $ (0.15) (0.10) -- (0.05) (0.05) 0.02 Net realized and unrealized gain (loss) on investments $ (3.08) 3.36 (1.37) (5.13) 2.54 (0.24) Total from investment operations $ (3.23) 3.26 (1.37) (5.18) 2.49 (0.22) Less distributions from: Net investment income $ -- -- -- -- -- (0.02) In excess of net investment income $ -- -- -- -- (0.01) -- Total distributions $ -- -- -- -- (0.01) (0.02) Net asset value, end of period $ 5.72 8.95 5.69 7.06 12.24 9.76 Total Return(2): % (36.09) 57.29 (19.41) (42.32) 25.50 4.39 Ratios/Supplemental Data: Net assets, end of period (000's) $ 4,630 14,392 18,278 13,867 23,796 8,936 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 2.63 2.50 2.50 2.30 2.42 1.75 Gross expenses prior to expense reimbursement(3) % 4.07 3.00 2.86 2.30 2.64 3.51 Net investment income (loss) after expense reimbursement (3)(5) % (1.21) (1.05) (0.21) (0.32) (0.64) 0.52 Portfolio turnover % 108 173 193 187 176 40
- ---------- (1) The Fund commenced operations on July 3, 1995. (2) 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. (3) Annualized for periods less than one year. (4) The Fund changed its fiscal year-end from December 31 to October 31. (5) The Investment Manager has agreed to limit expenses excluding interest, taxes, brokerage and extraordinary expenses. (6) Effective July 26, 2000 Pilgrim Investments, LLC became the Investment Manager of the Fund. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim SmallCap Asia Growth Fund 71 FINANCIAL PILGRIM EUROPEAN EQUITY FUND HIGHLIGHTS - -------------------------------------------------------------------------------- The information in the table below has been audited by Ernst & Young LLP, independent auditors.
Class A Class B -------------------- -------------------- Year ended Year ended October 31, October 31, 2000(2) 1999(1) 2000(2) 1999(1) - -------------------------------------------------------------------------------------------------------- Per Share Operating Performance Net asset value, beginning of period $ 10.95 10.00 10.89 10.00 Income from investment operations:(4) Net investment income (loss) $ (0.01) 0.04 (0.08) 0.00 (5) Net realized and unrealized gains on investments $ 0.34 0.91 0.33 0.89 Total from investment operations $ 0.33 0.95 0.25 0.89 Less distributions from: Net realized gains on investments $ (0.28) -- (0.28) -- Net investment income $ (0.05) -- (0.03) -- Total distributions $ (0.33) -- (0.31) -- Net asset value, end of period $ 10.95 10.95 10.83 10.89 Net assets, end of period (thousands) $ 31,985 28,746 1,117 849 Total Return(2) % 2.93 9.50 2.14 8.90 Ratios/Supplemental Data Ratio to average net assets Net expenses % 1.63 1.61 (3) 2.28 2.27 (3) Gross expenses % 2.83 3.06 (3) 3.08 3.35 (3) Net investment loss % (0.09) 0.48 (3) (0.75) (0.08)(3) Portfolio Turnover % 61 63 61 63 Class C -------------------- Year ended October 31, 2000(2) 1999(1) - ----------------------------------------------------------------------------- Per Share Operating Performance Net asset value, beginning of period $ 10.89 10.00 Income from investment operations:(4) Net investment income (loss) $ (0.06) (0.01) Net realized and unrealized gains on investments $ 0.27 0.90 Total from investment operations $ 0.21 0.89 Less distributions from: Net realized gains on investments $ (0.28) -- Net investment income $ (0.05) -- Total distributions $ (0.33) -- Net asset value, end of period $ 10.77 10.89 Net assets, end of period (thousands) $ 188 62 Total Return(2) % 1.76 8.90 Ratios/Supplemental Data Ratio to average net assets Net expenses % 2.28 2.26 (3) Gross expenses % 3.08 3.34 (3) Net investment loss % (0.68) (0.15)(3) Portfolio Turnover % 61 63
- ---------- (1) The Fund commenced operations on December 15, 1998. (2) Total return assumes reinvestment of all dividend and capital gain distributions, if any, and does not reflect the deduction of the applicable sales charges. Total returns would be lower if part of the Fund's expenses were not waived or reimbursed. Total returns for periods less than one year are not annualized. (3) Per share calculation for the year ended October 31, 2000 is based on average number of shares outstanding during the year. (4) Amount represents less than $0.01. 72 Pilgrim European Equity Fund FINANCIAL HIGHLIGHTS PILGRIM RUSSIA FUND - -------------------------------------------------------------------------------- For the ten months ended October 31, 2000, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods prior to October 31, 2000, the financial information was audited by other independent auditors.
Class A ------------------------------------------------------------- Ten months ended Year ended December 31, October 31, --------------------------------------------- 2000(4)(6) 1999 1998 1997 1996(1) - --------------------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 6.74 2.64 17.50 11.24 12.12 Income from investment operations: Net investment income (loss) $ (0.07) 0.18 0.15 (0.01) (0.05) Net realized and unrealized gain (loss) on investments $ 0.48 3.99 (14.70) 7.57 (0.51) Total from investment operations $ 0.41 4.17 (14.55) 7.56 (0.56) Less distributions from: Net investment income $ -- (0.07) (0.07) -- -- Net realized gains on investments $ -- -- (0.24) (1.30) (0.32) Total distributions $ -- (0.07) (0.31) (1.30) (0.32) Net asset value, end of period $ 7.15 6.74 2.64 17.50 11.24 Total Return(2): % 6.08 159.76 (82.99) 67.50 (9.01) Ratios/Supplemental Data: Net assets, end of period (000's) $ 53,637 59,011 19,147 137,873 13,846 Ratios to average net assets: Net expenses after redemption fee proceeds and expense reimbursement(3)(5) % 1.40 2.23 1.84 1.85 2.65 Gross expenses prior to redemption fee proceeds and expense reimbursement(3) % 2.85 3.32 2.64 2.89 5.07 Net investment income (loss) after redemption fee proceeds and expense reimbursement(3)(5) % (0.90) 4.39 1.36 (0.11) (1.27) Portfolio turnover % 52 91 66 67 116
- ---------- (1) The Fund's commencement of operations was June 3, 1996 with the investment of its initial capital. The Fund's registration statement with the Securities and Exchange Commission became effective on July 3, 1996. Financial results prior to the effective date of the Fund's registration statement are not presented in this Financial Highlights Table. (2) 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. (3) Annualized for periods less than one year. (4) The Fund changed its fiscal year-end from December 31 to October 31. (5) The Investment Manager has agreed to limit expenses excluding, interest, taxes, brokerage and extraordinary expenses. (6) Effective July 26, 2000 Pilgrim Investments, LLC became the Investment Manager of the Fund. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Russia Fund 73 FINANCIAL PILGRIM PRECIOUS METALS FUND HIGHLIGHTS - -------------------------------------------------------------------------------- For the ten months ended October 31, 2000, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods prior to October 31, 2000, the financial information was audited by other independent auditors.
Class A --------------------------------------------------------------------- Ten months ended Year ended December 31, October 31, ------------------------------------------------------ 2000(3)(4) 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ Per Share Operating Performance: Net asset value, beginning of period $ 3.29 3.03 3.24 5.97 6.24 6.37 Income from investment operations: Net investment income (loss) $ 0.01 (0.01) -- -- 0.02 -- Net realized and unrealized gain (loss) on investments $ (1.03) 0.27 (0.21) (2.52) 0.50 (0.12) Total from investment operations $ (1.02) 0.26 (0.21) (2.52) 0.52 (0.12) Less distributions from: Net investment income $ -- -- -- (0.21) (0.79) (0.01) Total distributions $ -- -- -- (0.21) (0.79) (0.01) Net asset value, end of period $ 2.27 3.29 3.03 3.24 5.97 6.24 Total Return(1): % (30.98) 8.58 (6.39) (42.98) 7.84 (1.89) Ratios/Supplemental Data: Net assets, end of period (000's) $ 40,130 72,516 50,841 53,707 109,287 135,779 Ratios to average net assets: Expenses (2) % 2.18 1.94 1.74 1.65 1.60 1.70 Net investment income (loss) (2) % 0.28 (0.02) 0.08 0.17 (0.32) 0.07 Portfolio turnover % 27 79 29 38 31 40
- ---------- (1) 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. (2) Annualized for periods less than one year. (3) The Fund changed its fiscal year-end from December 31 to October 31. (4) Effective July 26, 2000, Pilgrim Investments, LLC became the Investment Manager of the Fund. 74 Pilgrim Precious Metals Fund FINANCIAL HIGHLIGHTS PILGRIM SILVER FUND - -------------------------------------------------------------------------------- For the ten months ended October 31, 2000, the information in the table below has been audited by PricewaterhouseCoopers LLP, independent accountants. For all periods prior to October 31, 2000, the financial information was audited by other independent auditors.
Class A -------------------------------------------------- Ten months Six months ended Year ended ended October 31, December 31, December 31, 2000(4)(6) 1999 1998(1) - --------------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 2.96 2.73 3.26 Income from investment operations: Net investment income (loss) $ 0.03 0.01 (0.01) Net realized and unrealized gain (loss) on investments $ (0.84) 0.23 (0.52) Total from investment operations $ (0.81) 0.24 (0.53) Less distributions from: Net investment income $ (0.01) (0.01) -- In excess of net investment income $ -- -- -- Total distributions $ (0.01) (0.01) -- Net asset value, end of period $ 2.14 2.96 2.73 Total Return(2): % (27.45) 8.70 (16.26) Ratios/Supplemental Data: Net assets, end of period (000's) $ 14,691 25,413 25,560 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 2.46 2.11 2.37 Gross expenses prior to expense reimbursement(3) % 2.78 -- -- Net investment income (loss) after expense reimbursement(3)(5) % 1.07 0.49 (0.61) Portfolio turnover % 9 29 6 Class A ---------------------------------------------- Year ended June 30, ---------------------------------------------- 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------- Per Share Operating Performance: Net asset value, beginning of period $ 3.95 4.46 4.00 3.92 Income from investment operations: Net investment income (loss) $ (0.02) (0.04) (0.03) (0.03) Net realized and unrealized gain (loss) on investments $ (0.66) (0.43) 0.51 0.11 Total from investment operations $ (0.68) (0.47) 0.48 0.08 Less distributions from: Net investment income $ (0.01) (0.04) -- -- In excess of net investment income $ -- -- (0.02) -- Total distributions $ (0.01) (0.04) (0.02) -- Net asset value, end of period $ 3.26 3.95 4.46 4.00 Total Return(2): % (17.32) (10.76) 12.02 2.04 Ratios/Supplemental Data: Net assets, end of period (000's) $ 34,921 42,035 73,945 65,517 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.90 1.96 1.73 1.82 Gross expenses prior to expense reimbursement(3) % -- -- -- -- Net investment income (loss) after expense reimbursement(3)(5) % (0.54) (0.78) (0.72) (0.83) Portfolio turnover % 29 19 44 44
- ---------- (1) The Fund changed its fiscal year-end from June 30 to December 31. (2) 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. (3) Annualized for periods less than one year. (4) The Fund changed its fiscal year-end from December 31 to October 31. (5) The Investment Manager has agreed to limit expenses excluding interest, taxes, brokerage and extraordinary expenses. (6) Effective July 26, 2000 Pilgrim Investments, LLC became the Investment Manager of the Fund. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Silver Fund 75 Where To Go For More Information You'll find more information about the Pilgrim Funds in our: Annual/Semi-Annual Reports Includes a discussion of recent market conditions and investment strategies that significantly affected performance, the financial statements and the independent accountants' reports (in annual report only). Statement of Additional Information (SAI) The SAI contains more detailed information about the Pilgrim Funds. The SAI is legally part of this prospectus (it is incorporated by reference). A copy has been filed with the Securities and Exchange Commission (SEC). Please write or call for a free copy of the current Annual/Semi-Annual reports, the SAI or other Fund information, or to make shareholder inquiries: The Pilgrim Funds 7337 East Doubletree Ranch Road Scottsdale, AZ 85258-2034 1-800-992-0180 Or visit our website at www.pilgrimfunds.com This information may also be reviewed or obtained from the SEC. In order to review the information in person, you will need to visit the SEC's Public Reference Room in Washington, D.C. or call 202-942-8090. Otherwise, you may obtain the information for a fee by contacting the SEC at: Securities and Exchange Commission Public Reference Section Washington, D.C. 20549-0102 or at the e-mail address: publicinfo@sec.gov Or obtain the information at no cost by visiting the SEC's Internet website at http://www.sec.gov When contacting the SEC, you will want to refer to the Fund's SEC file number. The file numbers are as follows: Pilgrim Mayflower Trust 811-7978 Pilgrim International Value Pilgrim Emerging Markets Value Pilgrim Mutual Funds 811-7428 Pilgrim Worldwide Growth Pilgrim International Core Growth Pilgrim International SmallCap Growth Pilgrim Emerging Countries Pilgrim Worldwide Emerging Markets Fund, Inc. 811-1838 Pilgrim Russia Fund, Inc. 811-7587 Pilgrim Global Technology Fund, Inc. 811-9649 Pilgrim Advisory Funds, Inc. 811-9040 Pilgrim Asia-Pacific Equity Pilgrim Funds Trust 811-8895 Pilgrim Global Communications Pilgrim Global Information Technology Pilgrim European Equity Pilgrim International Fund, Inc. 811-8172 Pilgrim Precious Metals Fund, Inc. 811-2881 Pilgrim Silver Fund, Inc. 811-4111 Pilgrim SmallCap Asia Growth Fund, Inc. 811-7287 INTLPROS030101-030101 GRAPHICS DESCRIPTION APPENDIX The cover of the prospectuses has an image of the earth set behind the type similar to a watermark that crosses over on both the front and back cover pages. The ING Pilgrim Logo which is a lion at rest between the words ING and Pilgrim. There are four icon sized graphics used throughout the prospectus as follows: 1. In the sections describing the Objective of the Funds, the graphic icon is that of a dart in the bullseye of a target. 2. In the sections describing the Investment Strategy of the Funds, the graphic icon is that of a compass pointing due north. 3. In the sections describing the Risks of the Funds, the graphic icon is that of an old fashioned scale tilting heavy on the left side. 4. In the sections describing the Performance history of the Funds, the graphic icon is that of a stack of US currency bills. 5. On the bottom footer of every odd numbered page (right hand page), the graphic icon is that of a telephone by the 800 number of the fund to call for information. STATEMENT OF ADDITIONAL INFORMATION 7337 East Doubletree Ranch Road Scottsdale, Arizona 85258 (800) 992-0180 March 1, 2001 PILGRIM GLOBAL TECHNOLOGY FUND, INC. PILGRIM GNMA INCOME FUND, INC. PILGRIM PRECIOUS METALS FUND, INC. PILGRIM GROWTH AND INCOME FUND, INC. PILGRIM INTERNATIONAL FUND, INC. PILGRIM SILVER FUND, INC. PILGRIM SMALLCAP ASIA GROWTH FUND, INC. PILGRIM RUSSIA FUND, INC. PILGRIM WORLDWIDE EMERGING MARKETS FUND, INC. LEXINGTON MONEY MARKET TRUST (each a "Fund" and collectively the "Funds") This Statement of Additional Information ("SAI") relates to each investment company listed on the front cover page. Prospectuses for the Funds, dated March 1, 2001 which provide the basic information you should know before investing in the Funds, may be obtained without charge from the Funds or the Funds' principal underwriter, ING Pilgrim Securities, Inc. ("ING Pilgrim Securities" or the "Distributor"), at the address listed above. This SAI is not a prospectus and it should be read in conjunction with the Prospectuses dated March 1, 2001 which have been filed with the U.S. Securities and Exchange Commission ("SEC"). In addition, the financial statements from the Funds' December 31, 1999 Annual Report and June 30, 2000 Semi-Annual Report (for GNMA Income Fund, Inc.; Growth and Income Fund, Inc. and Lexington Money Market Trust), and October 31, 2000 Annual Report (for Global Technology Fund, Inc.; Precious Metals Fund, Inc.; International Fund, Inc.; Silver Fund, Inc.; SmallCap Asia Growth Fund, Inc.; Russia Fund, Inc. and Worldwide Emerging Markets Fund, Inc.), are incorporated herein by reference. Copies of the Funds' Prospectuses and Annual or Semi-Annual Reports may be obtained without charge by contacting the Pilgrim Funds at the address and phone number written above. TABLE OF CONTENTS HISTORY OF THE FUNDS...........................................................2 MANAGEMENT OF THE FUNDS........................................................3 INVESTMENT MANAGER............................................................12 INVESTMENT MANAGER FEES.......................................................14 EXPENSE LIMITATION AGREEMENTS.................................................16 RULE 12b-1 PLANS..............................................................18 SUPPLEMENTAL DESCRIPTION OF INVESTMENTS.......................................22 INVESTMENT RESTRICTIONS.......................................................37 PORTFOLIO TRANSACTIONS........................................................55 ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................58 DETERMINATION OF SHARE PRICE..................................................65 SHAREHOLDER INFORMATION.......................................................67 SHAREHOLDER SERVICES AND PRIVILEGES...........................................68 DISTRIBUTIONS.................................................................70 TAX CONSIDERATIONS............................................................71 CALCULATION OF PERFORMANCE DATA...............................................77 GENERAL INFORMATION...........................................................80 FINANCIAL STATEMENTS..........................................................81 1 HISTORY OF THE FUNDS PILGRIM GLOBAL TECHNOLOGY FUND, INC. Pilgrim Global Technology Fund, Inc. ("Global Technology Fund") is a corporation organized under the laws of the State of Maryland on September 13, 1999 under the name of Lexington Emerging Technology Fund, Inc. The Fund is a non-diversified, open-end management investment company. The name of the Fund was changed on October 8, 1999 from Lexington Emerging Technology Fund, Inc. to Lexington Global Technology Fund, Inc., and on July 31, 2000, to Pilgrim Global Technology Fund, Inc. The Directors have approved an Agreement and Plan of Reorganization for Global Technology Fund that, if approved by shareholders of Global Technology Fund, will result in the reorganization of Global Technology Fund into the Pilgrim Global Information Technology Fund (the "Global Information Technology Fund"). PILGRIM GNMA INCOME FUND, INC. Pilgrim GNMA Income Fund, Inc. ("GNMA Income Fund") is a corporation organized under the laws of the State of Maryland on August 15, 1973 under the name of Lexington GNMA Income Fund, Inc. The Fund is a diversified, open-end management investment company. The name of the Fund was changed on July 26, 2000 from Lexington GNMA Income Fund, Inc. to Pilgrim GNMA Income Fund, Inc. PILGRIM PRECIOUS METALS FUND, INC. Pilgrim Precious Metals Fund, Inc. ("Precious Metals Fund") is a corporation formed under the laws of the State of Maryland on May 11, 1988 under the name of Lexington Goldfund, Inc. The Fund was originally organized as a Delaware corporation on December 3, 1975. The Fund is a non-diversified, open-end management investment company. The name of the Fund was changed on July 26, 2000 from Lexington Goldfund, Inc. to Pilgrim Gold Fund, Inc. The name of Pilgrim Gold Fund, Inc. was changed on March 1, 2001 to Pilgrim Precious Metals Fund, Inc. PILGRIM GROWTH AND INCOME FUND, INC. Pilgrim Growth and Income Fund, Inc. ("Growth and Income Fund") is a corporation organized under the laws of the State of Maryland on April 30, 1991 under the name of Lexington Growth and Income Fund, Inc. The Fund was originally organized as a New Jersey Corporation on February 11, 1959. The Fund is an open-end, diversified management investment company. The name of the Fund was changed on July 26, 2000 from Lexington Growth and Income Fund, Inc. to Pilgrim Growth and Income Fund, Inc. PILGRIM INTERNATIONAL FUND, INC. Pilgrim International Fund, Inc. ("International Fund") is a corporation organized under the laws of the State of Maryland on November 23, 1993 under the name of Lexington International Fund, Inc. The Fund is an open-end, diversified management investment company. The name of the Fund was changed on July 26, 2000 from Lexington International Fund, Inc. to Pilgrim International Fund, Inc. PILGRIM SILVER FUND, INC. Pilgrim Silver Fund, Inc. ("Silver Fund") is a corporation formed under the laws of the State of Maryland on January 3, 1992 under the name of Lexington Silver Fund, Inc. The Fund is a non-diversified, open-end management investment company. The name of the Fund was changed on July 26, 2000 from Lexington Silver Fund, Inc. to Pilgrim Silver Fund, Inc. 2 The Directors have approved an Agreement and Plan of Reorganization for Silver Fund that, if approved by shareholders of Silver Fund, will result in the reorganization of Silver Fund into the Precious Metals Fund. PILGRIM SMALLCAP ASIA GROWTH FUND, INC. Pilgrim SmallCap Asia Growth Fund, Inc. ("SmallCap Asia Growth Fund") is a corporation organized under the laws of the State of Maryland on April 18, 1995 under the name of Crosby Small Cap Asia Growth Fund, Inc. The Fund is an open-end, diversified management investment company. The name of the Fund was changed on May 3, 1999 from Lexington Crosby Small Cap Asia Growth Fund, Inc. to Lexington Small Cap Asia Growth Fund, Inc. and on July 26, 2000 to Pilgrim SmallCap Asia Growth Fund, Inc. The Directors have approved an Agreement and Plan of Reorganization for SmallCap Asia Growth Fund that, if approved by shareholders of SmallCap Asia Growth Fund, will result in the reorganization of SmallCap Asia Growth Fund into the Pilgrim Asia-Pacific Equity Fund (the "Asia-Pacific Equity Fund"). PILGRIM RUSSIA FUND, INC. Pilgrim Russia Fund, Inc. ("Russia Fund") is a corporation organized under the laws of the State of Maryland on November 20, 1995. The Fund is a non-diversified, open-end management investment company. The name of the Fund was changed on April 2, 1996 from Lexington Russia Fund, Inc. to Lexington Troika Dialog Russia Fund, Inc., and on July 26, 2000, to Pilgrim Troika Dialog Russia Fund, Inc. The name of Pilgrim Troika Dialog Russia Fund, Inc. was changed on March 1, 2001 to Pilgrim Russia Fund, Inc. PILGRIM WORLDWIDE EMERGING MARKETS FUND, INC. Pilgrim Worldwide Emerging Markets Fund, Inc. ("Worldwide Emerging Markets Fund") is a corporation organized under the laws of the State of Maryland on January 22, 1969 under the name of Lexington Growth Fund, Inc. The Fund is a diversified, open-end management investment company. The name of the Fund was changed on June 14, 1991 from Lexington Growth Fund, Inc. to Lexington Worldwide Emerging Markets Fund, Inc., and on July 26, 2000, to Pilgrim Worldwide Emerging Markets Fund, Inc. The Directors have approved an Agreement and Plan of Reorganization for Worldwide Emerging Markets Fund that, if approved by shareholders of Worldwide Emerging Markets Fund, will result in the reorganization of Worldwide Emerging Markets Fund into the Pilgrim Emerging Countries Fund (the "Emerging Countries Fund"). LEXINGTON MONEY MARKET TRUST Lexington Money Market Trust ("Money Market Trust") is an organization commonly referred to as a business trust formed under the laws of the Commonwealth of Massachusetts on June 30, 1977 under the name of Banner Redi-Resources Trust. The name of the Fund was changed on March 2, 1979 from Banner Redi-Resources Trust to "Lexington Money Market Trust". MANAGEMENT OF THE FUNDS BOARD OF DIRECTORS/TRUSTEES Each Fund is managed by its Directors/Trustees ("Board of Directors" and "Board of Trustees" are used interchangeably in this SAI). The Directors/Trustees and Officers of the Funds are listed below. An asterisk (*) has been placed next to the name of each Director/Trustee who is an "interested person," as that term is defined in the Investment Company Act of 1940 Act, as amended (the "1940 Act"), by virtue of that person's affiliation with the Funds, or the Funds' adviser ING Pilgrim Investments, LLC ("ING Pilgrim Investments" or the "Investment Manager"). Unless otherwise noted, the mailing address of the Directors/Trustees is 7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258. The Board of Directors/Trustees governs each Fund and is responsible for protecting the interests of shareholders. The Directors/Trustees are experienced executives who oversee the Funds' activities, review contractual arrangements with companies that provide services to the Funds, and review each Fund's performance. 3 Set forth below is information regarding the Directors/Trustees of the Funds.
POSITION(S) WITH NAME, AGE THE FUND PRINCIPAL OCCUPATION DURING PAST 5 YEARS - --------- -------- ---------------------------------------- Paul S. Doherty Director/Trustee President, of Doherty, Wallace, Pillsbury and Murphy, P.C., (Age 66) Attorneys. Formerly a Director of Tambrands, Inc. (1993-1998). Mr. Doherty is also a Director or Trustee of each of the Pilgrim Funds. Alan L. Gosule Director/Trustee Partner and Chairman of the Tax Department of Clifford Chance (Age 60) Rogers & Wells (since 1991). Mr. Gosule is a Director of F.L. Putnam Investment Management Co., Inc., Simpson Housing Limited Partnership, Home Properties of New York, Inc. and Colonnade Partners. Mr. Gosule is also a Director or Trustee of each of the Pilgrim Funds. Walter H. May Director/Trustee Retired. Mr. May was formerly Managing Director and Director of (Age 64) Marketing for Piper Jaffray, Inc. Mr. May is also a Director or Trustee of each of the Pilgrim Funds. *Thomas J. McInerney Director/Trustee General Manager and Chief Executive Officer of ING U.S. Worksite (Age 44) Financial Services (since December 2000). Mr. McInerney was formerly President of Aetna Financial Services (August 1997 - December 2000), head of National Accounts and Core Sales and Marketing for Aetna U.S. Healthcare (April 1996-March 1997), head of Corporate Strategies for Aetna Inc. (July 1995 - April 1996), and held a variety of line and corporate staff positions since 1978. Mr. McInerney is a member of the Board National Commission on Retirement Policy, the Governor's Council on Economics Competitiveness and Technology of Connecticut, the Board of Directors of the Connecticut Business & Industry Association, the Board of Trustees of The Bushnell, the Board for The Connecticut Forum, and the Board of the MetroHartford Chamber of Commerce, and is Chairman of Concerned Citizens for Effective Government. Effective February 26, 2001, Mr. McInerney will become a director or trustee of each of the Pilgrim Funds. Jock Patton Director/Trustee Private Investor. Director of Hypercom Corporation (since January (Age 55) 1999), and JDA Software Group, Inc. (since January 1999). Mr. Patton is also a Director of Buick of Scottsdale, Inc., National Airlines, Inc., BG Associates, Inc., BK Entertainment, Inc., Arizona Rotorcraft, Inc. and Director and Chief Executive Officer of Rainbow Multimedia Group, Inc. Mr. Patton was formerly Director of Stuart Entertainment, Inc., Director of Artisoft, Inc. (August 1994-July 1998); and a President and Co-owner of StockVal, Inc. (April 1993 - June 1997). Mr. Patton is also a Director or Trustee of each of the Pilgrim Funds. David W.C. Putnam Director/Trustee President, Clerk and Director of F.L. Putnam Securities Company, (Age 61) Inc. and its affiliates (since 1978). Mr. Putnam is Director of Anchor Investment Trust, the Principled Equity Market Trust and Progressive Capital Accumulation Trust. Mr. Putnam was formerly Director of Trust Realty Corp. and Bow Ridge Mining Co. Mr. Putnam is also a Director or Trustee of each of the Pilgrim Funds. Blaine E. Rieke Director/Trustee General Partner of Huntington Partners (1997 - present). Mr. (Age 67) Rieke was formerly Chairman and Chief Executive Officer of Firstar Trust Company (1973-1996). Mr. Rieke is currently the Chairman of the Board and a trustee of each of the ING Funds. Effective February 26, 2001, Mr. Rieke will also become a director or trustee of each of the Pilgrim Funds.
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POSITION(S) WITH NAME, AGE THE FUND PRINCIPAL OCCUPATION DURING PAST 5 YEARS - --------- -------- ---------------------------------------- *John G. Turner Director/Trustee Trustee and Vice Chairman of ING Americas. Mr. Turner was (Age 61) formerly Chairman and Chief Executive Officer of ReliaStar Financial Corp. and ReliaStar Life Insurance Co. (1993-2000); Chairman of ReliaStar Life Insurance Company of New York (1995-2000); Chairman of Northern Life Insurance Company (1992-2000); and Chairman and Director/Trustee of the Northstar affiliated investment companies (1993-2000). Mr. Turner was formerly Director of Northstar Investment Management Corporation and affiliates (1993 to 2000). Mr. Turner is also Chairman of each of the Pilgrim Funds. Richard A. Wedemeyer Director/Trustee Vice President of The Channel Corporation (1996-present). Mr. (Age 64) Wedemeyer was formerly Vice President of Performance Advantage, Inc. (1992-1996), and Vice President, Operations and Administration, of Jim Henson Productions (1979-1997). Mr. Wedemeyer is a trustee of the First Choice Funds. Mr. Wedemeyer is a trustee of each of the ING Funds. Effective February 26, 2001, Mr. Wedemeyer will also become a director or trustee of each of the Pilgrim Funds.
In addition, the following individuals serve as Advisory Board Members to certain of the Pilgrim Funds.
POSITION(S) WITH NAME, AGE THE FUND PRINCIPAL OCCUPATION DURING PAST 5 YEARS - --------- -------- ---------------------------------------- Mary A. Baldwin, Ph.D. Advisory Board Member Realtor, Caldwell Bankers Success Realty (formerly, The Prudential (Age 60) Arizona Realty) for more than the last five years. Ms. Baldwin is also Vice President, United States Olympic Committee (November 1996-present), and formerly Treasurer, United States Olympic Committee (November 1992-November 1996). Ms. Baldwin is an Advisory Board Member of each of the Funds managed by ING Pilgrim Investments. S.M.S. Chadha Advisory Board Member Secretary, Ministry of External Affairs, New Delhi, India; Head of (Age 61) Foreign Service Institute, New Delhi, India; Special Envoy of the Government of India; Director, Special Unit for Technical Cooperation among Developing countries, United Nations Development Program, New York. Mr. Chada is an Advisory Board Member of Global Technology, International, SmallCap Asia Growth and Russia Funds. Andrew M. McCosh Advisory Board Member Professor of the Organisation of Industry and Commerce, Department of (Age 58) Business Studies, The University of Edinburgh, Scotland. Mr. McCosh is an Advisory Board Member of Global Technology, International, SmallCap Asia Growth and Russia Funds.
COMPENSATION OF DIRECTORS/TRUSTEES The Funds pay each Director/Trustee who is not an interested person a pro rata share, as described below, of: (i) an annual retainer of $35,000 (Mssrs. Patton and May, as lead directors receive an annual retainer of $45,000); (ii) $5,500 for each in person meeting of the Board; (iii) $1,000 for attendance of any committee meeting; (iv) $1,000 per telephonic meeting; and (v) out-of-pocket expenses. The pro rata share paid by the Funds is based on each Fund's average net assets as a percentage of the average net assets of all the funds managed by the Investment Manager for which the Directors/Trustees serve in common as Directors/Trustees. The Funds pay each Advisory Board Member a fee of $15,000 annually, plus reasonable travel expenses. Prior to July 26, 2000, (and July 31, 2000 for the Global Technology Fund), the Funds had a different compensation structure in place. The following table sets forth information regarding compensation of Directors/Trustees by the Funds for the fiscal year ended December 31, 2000. Officers of the Funds and Directors/Trustees who are interested persons of the Funds do not receive any compensation from the Fund or any other funds managed by the Investment Manager. In the column headed "Total Compensation from Registrants and Fund Complex Paid to Director/Trustee," the number in parentheses indicates the total number of boards in the fund complex on which the Director/Trustee served during that fiscal year. 5 COMPENSATION TABLE
AGGREGATE AGGREGATE AGGREGATE AGGREGATE COMPENSATION COMPENSATION AGGREGATE AGGREGATE COMPENSATION COMPENSATION AGGREGATE FROM FROM GLOBAL COMPENSATION COMPENSATION FROM GROWTH FROM COMPENSATION SMALLCAP NAME OF PERSON, TECHNOLOGY FROM GNMA FROM PRECIOUS AND INCOME INTERNATIONAL FROM SILVER ASIA GROWTH POSITION FUND*** INCOME FUND METALS FUND FUND FUND FUND FUND -------- ------- ----------- ----------- ---- ---- ---- ---- S.M.S. Chadha** $ 121 $6,395 $ 746 $3,933 $ 528 $ 251 $ 64 Robert M. DeMichele* $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Beverly C. Duer $ 94 $4,961 $ 579 $3,051 $ 410 $ 194 $ 49 Barbara R. Evans $ 64 $3,384 $ 395 $2,081 $ 279 $ 133 $ 34 Richard M. Hisey $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Jerard F. Maher $ 104 $5,535 $ 645 $3,404 $ 457 $ 217 $ 55 Andrew M. McCosh** $ 121 $6,395 $ 746 $3,933 $ 528 $ 251 $ 64 Donald B. Miller $ 110 $5,804 $ 677 $3,570 $ 479 $ 227 $ 58 Francis Olmstead* $ 91 $4,818 $ 562 $2,963 $ 398 $ 189 $ 48 John G. Preston $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Allen H. Stowe $ 104 $5,535 $ 645 $3,404 $ 457 $ 217 $ 55 Margaret W. Russell* $ 93 $4,904 $ 572 $3,016 $ 405 $ 192 $ 49 Philip C. Smith* $ 103 $5,507 $ 642 $3,387 $ 455 $ 216 $ 55 Francis A. Sunderland* $ 91 $4,818 $ 562 $2,963 $ 398 $ 189 $ 48 Al Burton $ 31 $1,669 $ 195 $1,026 $ 138 $ 65 $ 17 Paul S. Doherty $ 28 $ 1490 $ 174 $ 916 $ 123 $ 58 $ 15 Robert B. Goode $ 31 $1,655 $ 193 $1,018 $ 137 $ 65 $ 16 Alan L. Gosule $ 31 $1,655 $ 193 $1,018 $ 137 $ 65 $ 16 Walter H. May $ 31 $1,627 $ 190 $1,001 $ 134 $ 64 $ 16 Jock Patton $ 32 $1,683 $ 196 $1,035 $ 139 $ 66 $ 17 David W.C. Putnam $ 31 $1,648 $ 192 $1,014 $ 136 $ 65 $ 16 John R. Smith $ 31 $1,669 $ 195 $1,026 $ 138 $ 65 $ 17 Robert W. Stallings $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 John G. Turner $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 David W. Wallace $ 31 $1,669 $ 195 $1,026 $ 138 $ 65 $ 17
- ---------- * Officers of the Funds and Directors/Trustees who are interested persons of the Funds do not receive any compensation from the Fund or any other funds managed by the Investment Manager. * Retired prior to July 26, 2000. ** Prior to July 26, 2000 Messrs. Chadha and McCosh served as Trustees/Directors of each of the Funds (and with respect to the Global Technology Fund, served as Trustees prior to July 31, 2000). Effective July 26, 2000, Messrs. Chadha and McCosh serve as Advisory Board Members of certain Funds. *** Global Technology Fund commenced operations on December 27, 1999. 6 COMPENSATION TABLE
AGGREGATE AGGREGATE COMPENSATION AGGREGATE TOTAL COMPENSATION FROM COMPENSATION COMPENSATION FROM TROIKA WORLDWIDE FROM MONEY FROM FUND NAME OF PERSON, DIALOG EMERGING MARKET COMPLEX POSITION RUSSIA FUND MARKETS FUND TRUST TO DIRECTORS -------- ----------- ------------ ----- ------------ S.M.S. Chadha $ 680 $ 1,226 $ 1,105 $22,298 (15 Boards) Robert M. DeMichele $ 0 $ 0 $ 0 $ 0 (15 Boards) Beverly C. Duer $ 528 $ 951 $ 857 $17,298 (15 Boards) Barbara R. Evans $ 360 $ 649 $ 584 $11,798 (15 Boards) Richard M. Hisey $ _____ $ _____ $ _____ $ _____ (8 Boards) Jerard F. Maher $ 589 $ 1,061 $ 956 $19,298 (15 Boards) Andrew M. McCosh $ 680 $ 1,226 $ 1,105 $22,298 (15 Boards) Donald B. Miller $ 617 $ 1,113 $ 1,002 $20,236 (15 Boards) Francis Olmstead* $ 513 $ 924 $ 832 $16,800 (N/A) John G. Preston $ _____ $ _____ $ _____ $ _____ (15 Boards) Allen H. Stowe $ 589 $ 1,061 $ 956 $19,298 (8 Boards) Margaret W. Russell* $ 522 $ 940 $ 847 $17,100 (N/A) Philip C. Smith* $ 586 $ 1,056 $ 951 $19,200 (N/A) Francis A. Sunderland* $ 513 $ 924 $ 832 $16,800 (N/A) Al Burton $ 176 $ 320 $ 288 $60,500 (13 Boards) Paul S. Doherty $ 158 $ 286 $ 257 $54,000 (13 Boards) Robert B. Goode $ 176 $ 317 $ 286 $60,000 (13 Boards) Alan L. Gosule $ 176 $ 317 $ 286 $60,000 (13 Boards) Walter H. May $ _____ $ _____ $ _____ $ _____ (13 Boards) Jock Patton $ 179 $ 323 $ 291 $61,000 (13 Boards) David W.C. Putnam $ 175 $ 316 $ 285 $59,750 (13 Boards) John R. Smith $ 178 $ 320 $ 288 $60,500 (13 Boards) Robert W. Stallings $ _____ $ _____ $ _____ $ _____ (13 Boards) John G. Turner $ _____ $ _____ $ _____ $ _____ (13 Boards) David W. Wallace $ 178 $ 320 $ 288 $60,500 (13 Boards)
- ---------- * Retired prior to July 26, 2000. 7 The following table shows the annual benefits payable to certain Directors/Trustees who are eligible for benefits under the Funds' Retirement Plan for Eligible Directors/Trustees, effective September 12, 1995, and amended and restated on April 18, 2000 (the "Retirement Plan"). The Retirement Plan applies to individuals who were Directors/Trustees of the Funds prior to July 26, 2000 (and with respect to the Global Technology Fund, those who were Directors/Trustees prior to July 31, 2000). The Retirement Plan was amended by the Directors/Trustees on April 18, 2000 to, among other things, eliminate the age a Director/Trustee must attain in order to receive retirement benefits. As amended, a Director/Trustee would be eligible for retirement benefits upon completion of ten continuous or non-forfeited years of service, as defined in the Retirement Plan, and service has terminated due to death, disability or voluntary or involuntary termination other than for "cause," as defined in the Retirement Plan. Messrs. Duer, Maher, Miller and Stowe were not nominated to serve as Directors/Trustees of the Funds after the completion of the Lexington Acquisition. Therefore, their service was terminated and their benefits commenced with the closing of the Lexington Acquisition and will continue for ten years, in accordance with the terms of the Retirement Plan. NAME OF DIRECTOR/TRUSTEE ANNUAL BENEFIT DATE BENEFITS EXPECTED TO END - ------------------------ -------------- ----------------------------- Beverley C. Duer $21,750 July 2010 Jerard F. Maher* $18,000 July 2010 Donald B. Miller $21,750 July 2010 Francis Olmsted $16,800 October 1, 2005 Margaret W. Russell $18,000 April 1, 2008 Philip C. Smith $19,200 October 1, 2006 Allen H. Stowe* $18,000 July 2010 Francis A. Sunderland $16,800 April 1, 2006 - ---------- * Messrs. Maher and Stowe are eligible to receive benefits under the Retirement Plan as a result of their prior service as a Trustee of another fund. In addition, Mr. Chadha and Mr. McCosh will be eligible for retirement benefits after six years of service, provided that if the Retirement Plan is terminated during that period for reasons other than for "cause," as defined in the Retirement Plan, they will be eligible to receive retirement benefits as if they had completed 10 years of service. OFFICERS Unless otherwise noted, the mailing address of the Officers is 7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258. The following individuals serve as Officers for the Funds: James M. Hennessy, President, Chief Executive Officer and Chief Operating Officer. (Age 51) President and Chief Executive Officer (since February 2001) and Chief Operating Officers (since June 2000). Formerly Senior Executive Vice President (since June 2000) and formerly Secretary (since April 1995), Pilgrim Capital (formerly Express America Holdings Corporation), ING Pilgrim Group, ING Pilgrim Securities and ING Pilgrim Investments; Senior Executive Vice President and Secretary of each of the other Pilgrim Funds. Formerly Executive Vice President, Pilgrim Capital Corporation and its affiliates (May 1998- June 2000) and Senior Vice President, ING Pilgrim Capital (April 1995 - April 1998). Stanley D. Vyner, Executive Vice President and Chief Investment Officer - Fixed Income and International Equities. (Age 50) Executive Vice President of most of the Pilgrim Funds (since July 1996). Formerly, President and Chief Executive Officer of Pilgrim Investments (August 1996-August 2000). Mary Lisanti, Executive Vice President and Chief Investment Officer - Domestic Equities. (Age 44) Executive Vice President of the Pilgrim Funds (since May 1998). Formerly Portfolio Manger, Strong Capital Management; and Managing Director and Head of Small- and MidCapitalization Equity Strategies at Bankers Trust Corp. (1993-1996). 8 Michael J. Roland, Senior Vice President and Principal Financial Officer. (Age 42) Senior Vice President and Chief Financial Officer, ING Pilgrim Group, ING Pilgrim Investments and ING Pilgrim Securities (since June 1998); Senior Vice President and Principal Financial Officer of each of the other Pilgrim Funds. He served in same capacity from January, 1995 - April, 1997. Formerly, Chief Financial Officer of Endeaver Group (April, 1997 to June, 1998). Robert S. Naka, Senior Vice President and Assistant Secretary. (Age 37) Senior Vice President, ING Pilgrim Investments (since November 1999) and ING Pilgrim Group (since August 1999). Senior Vice President and Assistant Secretary of each of the other Pilgrim Funds. Formerly Vice President, ING Pilgrim Investments (April 1997 - October 1999), ING Pilgrim Group (February 1997 - August 1999). Formerly Assistant Vice President, ING Pilgrim Group (August 1995-February 1997). Robyn L. Ichilov, Vice President and Treasurer. (Age 33) Vice President, ING Pilgrim Investments (since August 1997), Accounting Manager (since November 1995). Vice President and Treasurer of most of the other Pilgrim Funds. Kimberly A. Anderson, Vice President. (Age 36) Vice President and Secretary of Pilgrim Group, Inc. (since January 2001) and of each of the Pilgrim Funds (since February 2001). Formerly Assistant President and Assistant Secretary of each of the Pilgrim Funds (since August 1999) and of Pilgrim Group, Inc. (since November 1999). Ms. Anderson has held various other positions with Pilgrim Group, Inc. for more than the last five years. CODE OF ETHICS The Funds have adopted a Code of Ethics governing personal trading activities of all Directors/Trustees and Officers of the Funds and persons who, in connection with their regular functions, play a role in the recommendation of any purchase or sale of a security by the Funds or obtain information pertaining to such purchase or sale. The Code is intended to prohibit fraud against the Funds that may arise from personal trading. Personal trading is permitted by such persons subject to certain restrictions; however they are generally required to pre-clear all security transactions with the Funds' Compliance Officer or her designee and to report all transactions on a regular basis. Sub-Advisers have adopted their own Code of Ethics to govern the personal trading activities of their personnel. PRINCIPAL SHAREHOLDERS As of January 31, 2001 the Directors and Officers as a group owned less than 1% of any class of the Funds' outstanding shares. As of that date, to the knowledge of management, no person owned beneficially or of record more than 5% of the outstanding Class A, Class B, Class C, or Class Q shares of the Funds, except as follows below. 9
CLASS AND TYPE OF PERCENTAGE PERCENTAGE FUND NAME AND ADDRESS OWNERSHIP(1) OF CLASS OF FUND ---- ---------------- ------------ -------- ------- Global Technology Fund The Public Institution for Class A 79.91% 79.91% Social Security Record Holder PO Box 24324 Safat 13104 Kuwait GNMA Income Fund First Clearing Corp FBO Class B 6.40% 0.02% Acct #8004-6487 Beneficial Patricia & Marvin Sanders Owner 3405 Indian Lane Reno, NV 89506 GNMA Income Fund First Clearing Corp FBO Class B 10.05% 0.03% Acct #8587-5303 Beneficial Vendome Copper & Brasswork 401k Owner 707 Colonel Anderson Pkwy Louisville, KY 40222 GNMA Income Fund Wedbush Morgan Securities FBO Class B 7.32% 0.03% Acct #4117-0750 Beneficial 1000 Wilshire Blvd Owner Los Angeles, CA 90017 GNMA Income Fund First Clearing Corp FBO Class B 10.44% 0.03% Acct #4743-3030 Beneficial Dorothy Galbraith Owner PO Box 146 Whitefish, MT 59937 GNMA Income Fund PaineWebber FBO Class B 8.87% 0.03% Robert Lange (Acct #1) Beneficial PO Box 3321 Owner Weehawken, NJ 07087 GNMA Income Fund PaineWebber FBO Class B 8.60% 0.03% Robert Lange (Acct #2) Beneficial PO Box 3321 Owner Weehawken, NJ 07087 GNMA Income Fund State Street Bank & Trust Cust FBO Class C 5.64% 0.02% Albert Skarzynski IRA Beneficial 136 Hawthorne Dr Owner Fairfield, CT 06432 GNMA Income Fund Raymond James & Assoc FBO Class C 7.22% 0.03% Acct #10691351 Beneficial Madeline McDermott Trust Owner 2012 Long Boat Dr Lakeland, FL 33810 Growth & Income Fund NFSC FBO Acct #C6B-033200 Class B 5.06% 0.03% Perry Cohn Beneficial 4800 Gulf of Mexico Dr Owner Bldg C, Apt PH1 Longboat Key, FL 34228 Growth & Income Fund NFSC FBO Acct #C6B-507091 Class B 11.11% 0.06% Dr Herbert Marton Beneficial 75 Stonehurst Drive Owner Tenafly, NJ 07670
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CLASS AND TYPE OF PERCENTAGE PERCENTAGE FUND NAME AND ADDRESS OWNERSHIP(1) OF CLASS OF FUND ---- ---------------- ------------ -------- ------- Growth & Income Fund PaineWebber FBO Class C 51.36% 0.18% James & Kathleen Domenico JTWROS Beneficial 34 Tamarade Dr Owner Littleton, CO 80127 Growth & Income Fund Robert W Baird & Co Inc FBO Class C 8.30% 0.03% Acct #4575-7608 Beneficial E Milwaukee Ave Owner Milwaukee, WI 53202 International Fund Grace Jones Richardson Trust Class A 14.87% 14.70% Piedmont Financial Company Record Holder Attn: Susan Gleason PO Box 20124 Greensboro, NC 27420 International Fund Lexington Mgmt Corp FBO Class A 32.09% 31.74% Center for Creative Leader Beneficial Attn: Alan Wapnick Owner Park 80 West Plaza II Saddlebrook, NJ 07662 International Fund First Clearing Corp FBO Class B 8.31% 0.03% Acct #2036-4480 Record Holder Patricia Carbine Tr 8730 E San Rafael Dr Phoenix, AZ 85018 International Fund First Clearing Corp FBO Class B 13.19% 0.05% Acct #8225-5610 Record Holder Esther & Wayne Simpson 3822 Thornton Dr Cincinnati, OH 45236 International Fund Jacqueline Goldberg Class B 5.97% 0.02% 3149 Cristobal Way Record Holder Las Vegas, NV 89117 International Fund PaineWebber FBO Class B 12.71% 0.05% Samuel Thomas Bowen Beneficial PO Box 3321 Owner Weehawken, NJ 07087 International Fund PaineWebber FBO Class B 7.99% 0.03% Jill Nanney Beneficial PO Box 3321 Owner Weehawken, NJ 07087 International Fund Linda Treybig Minter Class C 18.07% 0.14% 10896 St Johns Rd Record Holder Pilot Point, TX 76258 International Fund First Clearing Corp FBO Class C 6.07% 0.05% Acct #8225-5610 Beneficial Esther & Wayne Simpson Owner 3822 Thornton Dr Cincinnati, OH 45236 International Fund CIBC World Markets Corp FBO Class C 17.14% 0.13% Acct #092-46770-24 Beneficial PO Box 3484 Owner Church Street Station New York, NY 10008
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CLASS AND TYPE OF PERCENTAGE PERCENTAGE FUND NAME AND ADDRESS OWNERSHIP(1) OF CLASS OF FUND ---- ---------------- ------------ -------- ------- International Fund Marion J Wainwright MD Trust Class C 9.88% 0.08% Biloxi Internal Medicine Clinic MPP Record Holder 808 Howard Ave Biloxi, MS 39530 International Fund Edward D Jones Cust FBO Class C 11.23% 0.09% James Johnson IRA, Acct #223-91315 Beneficial PO Box 2500 Owner Maryland Heights, MO 63043 International Fund John & Kristen Hague Class C 6.81% 0.05% 1820 Birchwood Cir Record Holder Walled Lake, MI 48390 SmallCap Asia Growth Fund National Investor Services FBO Class A 5.98% 5.98% Acct #454-00698-14 Beneficial 55 Water Street, 32nd Floor Owner New York, NY 10041 Russia Fund NFSC FBO Acct #X99-335649 Class A 10.59% 10.59% Robert Craddock Beneficial Norwood Clinic Owner Box C-230 Birmingham AL 35283 Worldwide Emerging Markets Fund Smith Barney Corporate Trust Tr FBO Class A 8.59% 8.59% Smith Barney 401k Advisor Group Beneficial Two Tower Center, PO Box 1063 Owner E Brunswick, NJ 08816 Worldwide Emerging Markets Fund Salomon Smith Barney Inc FBO Class A 21.14% 21.14% Acct #00109801250 Beneficial 388 Greenwich St Owner New York, NY 10013
- ---------- (1) Prior to July 31, 2000, the Lexington Funds offered only one class of shares as a no-load mutual fund complex. INVESTMENT MANAGER The Investment Manager for the Funds is ING Pilgrim Investments, LLC. The Investment Manager, subject to the authority of the Directors/Trustees of the Funds, serves as investment manager to the Funds and has overall responsibility for the management of each Fund's portfolio pursuant to an investment management agreement between the Investment Manager and each Fund ("Investment Management Agreement"). Each Fund's Investment Management Agreement requires the Investment Manager to provide, subject to the supervision of the Board of Directors/Trustees, investment advice and investment services to the Fund and to furnish advice and recommendations with respect to investment of the Fund's assets and the purchase or sale of its portfolio securities. The Investment Manager also provides investment research and analysis. Each Investment Management Agreement provides that the Investment Manager is not subject to liability to the Fund for any act or omission in the course of, or connected with, rendering services under the Investment Management Agreement, except by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations and duties under the Investment Management Agreement. 12 After an initial two year term, each Investment Management Agreement continues in effect from year to year so long as such continuance is specifically approved at least annually by (a) the Board of Directors/Trustees or (b) the vote of a "majority" (as defined in the 1940 Act) of the Fund's outstanding shares voting as a single class; provided, that in either event the continuance is also approved by at least a majority of the Board of Directors/Trustees who are not "interested persons" (as defined in the 1940 Act) of the Investment Manager by vote cast in person at a meeting called for the purpose of voting on such approval. Each Investment Management Agreement is terminable without penalty with not less than 60 days' notice by the Board of Directors/Trustees or by a vote of the holders of a majority of the Fund's outstanding shares voting as a single class, or upon not less than 60 days' notice by the Investment Manager. An Investment Management Agreement will terminate automatically in the event of its "assignment" (as defined in the 1940 Act). Subject to the expense reimbursement provisions described in this SAI, other expenses incurred in the operation of the Funds are borne by the Funds, including, without limitation, investment advisory fees; brokerage commissions; interest; legal fees and expenses of attorneys; fees of independent auditors, transfer agents and dividend disbursing agents, accounting agents, and custodians; the expense of obtaining quotations for calculating each Fund's net asset value; taxes, if any, and the preparation of each Fund's tax returns; cost of stock certificates and any other expenses (including clerical expenses) of issue, sale, repurchase or redemption of shares; fees and expenses of registering and maintaining the registration of shares of the Funds under federal and state laws and regulations; expenses of printing and distributing reports, notices and proxy materials to existing shareholders; expenses of printing and filing reports and other documents filed with governmental agencies; expenses of annual and special shareholder meetings; expenses of printing and distributing prospectuses and statements of additional information to existing shareholders; fees and expenses of Directors/Trustees of the Funds who are not employees of the Investment Manager or any Sub-Adviser, or their affiliates; membership dues in trade associations; insurance premiums; and extraordinary expenses such as litigation expenses. ING Pilgrim Investments is registered as an investment adviser with the SEC and serves as an investment adviser to registered investment companies (or series thereof), as well as privately managed accounts. As of December 31, 2000, the Investment Manager had assets under management of approximately $20.7 billion. ING Pilgrim Investments is a wholly-owned subsidiary of ING Groep N.V. (NYSE: ING) ("ING GROUP"). ING Group is a global financial institution active in the field of insurance, banking and asset management. Headquartered in Amsterdam, it conducts business in more than 65 countries, and has almost 100,000 employees. ING seeks to provide a full range of integrated financial services to private, corporate, and institutional clients through a variety of distribution channels. As of December 31, 2000, ING had total assets under management of approximately $1.3 billion. The principal executive offices are located at Strawinskylaan 2631, 1077 ZZ Amsterdam, P.O. Box 810, 1000 AV Amsterdam, the Netherlands. 13 INVESTMENT MANAGER FEES The Investment Manager bears the expense of providing its services. For its services, each Fund pays the Investment Manager a monthly fee in arrears equal to a percentage of each Fund's average daily net assets during the month. The annual investment management fees for the Funds are as follows. FUND NAME ADVISER FEE - --------- ----------- Global Technology Fund 1.25% GNMA Income Fund 0.60% on the first $150 million, 0.50% on the next $250 million, 0.45% on the next $400 million, 0.40% thereafter. Precious Metals Fund 1.00% on the first $50 million and 0.75% thereafter. Growth and Income Fund 0.75% on the first $100 million, 0.60% on the next $50 million, 0.50% on the next $100 million and 0.40% thereafter. International Fund 1.00% Silver Fund 1.00% on the first $30 million and 0.75% thereafter. SmallCap Asia Growth Fund 1.25% Russia Fund 1.25% Worldwide Emerging Markets Fund 1.00% Lexington Money Market Trust 0.50% on the first $500 million and 0.45% thereafter. The total amount of advisory fees paid by each Fund (except for the Silver Fund) for the fiscal years ended December 31 1998, 1999, and 2000 were as follows: TOTAL ADVISORY FEES PAID DURING FISCAL YEAR ENDED
DECEMBER OCTOBER DECEMBER DECEMBER DECEMBER 2000 2000 (1) 1999 1998 1997 ---- -------- ---- ---- ---- Global Technology Fund(2) N/A $ 102,819 -- N/A N/A GNMA Income Fund $1,949,162 N/A $1,844,256 $1,224,048 $ 885,774 Precious Metals Fund N/A $ 439,593 $ 583,491 $ 552,235 $ 769,527 Growth and Income Fund 1,549,898 N/A $1,498,729 $1,466,333 $1,403,527 International Fund(3) N/A $ 228,277 $ 224,416 $ 217,864 $ 210,897 SmallCap Asia Growth Fund(4) N/A $ 116,528 $ 167,228 $ 185,265 $ 207,247 Russia Fund N/A $ 740,035 $ 444,970 $ 796,381 $1,307,946 Worldwide Emerging Markets Fund N/A $1,171,197 $ 785,431 $ 991,861 $2,373,753 Lexington Money Market Trust(5) $ 403,175 N/A $ 422,726 $ 455,434 $ 455,446
- ---------- (1) For the ten months from January 1, 2000 to October 31, 2000. Effective July 26, 2000, the following Funds changed their fiscal year end from December 31 to October 31: Global Technology Fund; Precious Metals Fund; International Fund; SmallCap Asia Growth Fund; Russia Fund; Worldwide Emerging Markets Fund. 14 (2) Global Technology Fund commenced operations on December 27, 1999, and as such did not operate for a full fiscal year in 1998, 1999 or 2000. (3) Does not reflect LMC reimbursement to Lexington International Fund of $109,634 in 1998. (4) Does not reflect LMC reimbursement to Lexington Small Cap Asia Growth Fund of $116,528, $67,545 and $53,928 in 2000, 1999, and 1998 respectively. (5) Does not reflect LMC reimbursement to Lexington Money Market Fund of $9,546 in 1999. The total amount of advisory fees paid by the Silver Fund for fiscal years ended June 30, 1997 and June 30 1998 were $462,896 and $630,181, respectively. For the six months ended December 31, 1998, the advisory fees paid by the Silver Fund were $150,258. In 1999, the Silver Fund paid $261,004 in advisory fees. For the ten month period from 1/1/00 to 10/31/00, the advisory fees paid by the Silver Fund were $167,432. SUB-ADVISORY AGREEMENTS The Investment Management Agreements for the Funds provide that the Investment Manager, with the approval of the Fund's Board of Directors/Trustees, may select and employ investment advisers to serve as a Sub-Adviser for any Fund ("Sub-Adviser"), and shall monitor the Sub-Advisers' investment programs and results, and coordinate the investment activities of the Sub-Advisers to ensure compliance with regulatory restrictions. The Investment Manager pays all of its expenses arising from the performance of its obligations under the Investment Management Agreement, including all fees payable to the Sub-Advisers, executive salaries and expenses of the Directors/Trustees and Officers of the Funds who are employees of the Investment Manager or its affiliates. The Sub-Advisers pay all of their expenses arising from the performance of their obligations under the sub-advisory agreements (the "Sub-Advisory Agreements"). A Sub-Advisory Agreement may be terminated without payment of any penalties by the Investment Manager, the Directors/Trustees, on behalf of the Fund, or the shareholders of the Fund upon 60 days' prior written notice. Otherwise, the Sub-Advisory Agreement will remain in effect for two years and will, thereafter, continue in effect from year to year, subject to the annual approval of the appropriate Board of Directors/Trustees, or the vote of a majority of the outstanding voting securities, and the vote, cast in person at a meeting duly called and held, of a majority of the Directors/Trustees, who are not parties to the Sub-Advisory Agreement or "interested persons" (as defined in the 1940 Act) of any such Party. The Funds do not have any current Sub-Advisers. FORMER SUB-ADVISER FOR SMALLCAP ASIA GROWTH FUND. Insinger Asset Management (U.S.) Inc. ("Insinger") acted as Sub-Adviser to the SmallCap Asia Growth Fund from July 26, 2000 to January 2, 2001. Prior to July 2000, Crosby Asset Management (US) Inc. ("Crosby") was the sub-adviser to the Fund. Effective January 2, 2001, ING Pilgrim will assume full investment management responsibilities for the Fund under its existing Investment Management Agreement. FORMER SUB-ADVISER FOR THE RUSSIA FUND. Troika Dialog Asset Management (Cayman Islands), Ltd. ("Troika Dialog"), Troika Dialog acted as Sub-Adviser to the Russia Fund until January 2, 2001. As of January 2, 2001, ING Pilgrim will directly manage the Troika Dialog Russia Fund. The total amounts of sub-advisory fees paid by SmallCap Asia Growth Fund for fiscal years ended December 31, 1997, 1998, 1999, and the ten month period from 1/1/00 to 10/31/00 were $45,931, $41,168, $83,626, and $58,264 respectively, and the total amounts of sub-advisory fees paid by Russia Fund for the fiscal years ended December 31, 1997, 1998, 1999, and the ten month period from 1/1/00 to 10/31/00 were $ 653,973, $398,191, $222,485, and $370,018 respectively. 15 FORMER SUB-ADVISER FOR GLOBAL TECHNOLOGY FUND AND WORLDWIDE EMERGING MARKETS FUND. Stratos Advisors, Inc. ("Stratos") served as Sub-Adviser to Global Technology Fund from December 27, 1999 to June 7, 2000 and as Sub-Adviser to Worldwide Emerging Markets Fund from October 1, 1998 to June 7, 2000. The total amount of sub-advisory fees paid by Worldwide Emerging Markets Fund for the fiscal year ended December 31, 1999, was $242,457. Fees for fiscal year ending December 31, 1998 with respect to Worldwide Emerging Markets Fund, and December 31, 1999 with respect to Global Technology Fund, were not calculated because Stratos had not served as sub-adviser for a full fiscal year. ADMINISTRATION ING Pilgrim Group serves as Administrator for the Funds, pursuant to an Administrative Services Agreement. Subject to the supervision of the Board of Directors/Trustees, the Administrator provides the overall business management and administrative services necessary to conduct properly the Funds' business, except for those services performed by the Investment Manager under the Investment Management Agreements, the Custodian for the Funds under the Custodian Agreements, the Transfer Agent for the Funds under the Transfer Agency Agreements, and such other service providers as may be retained by the Funds from time to time. The Administrator acts as liaison among these service providers to the Funds. The Administrator is also responsible for ensuring that the Funds operate in compliance with applicable legal requirements and for monitoring the Investment Manager for compliance with requirements under applicable law and with the investment policies and restrictions of each Fund. The Administrator is an affiliate of the Investment Manager. For its services under the Administration Services Agreement, ING Pilgrim Group receives an annual fee equal to 0.10% of each Fund's average daily net assets. Prior to July 26, 2000, LMC acted as administrator to the Funds and performed certain administrative and internal accounting services, including but not limited to, maintaining general ledger accounts, regulatory compliance, preparing financial information for semiannual and annual reports, preparing registration statements, calculating net asset values, providing shareholder communications, supervising the Custodian and Transfer Agent and providing facilities for such services. The Funds reimbursed LMC for its actual cost in providing such services, facilities and expenses. Prior to July 26, 2000, the adviser performed certain accounting, shareholder servicing and other administrative services and was reimbursed by the Funds for the costs of performing such services. EXPENSE LIMITATION AGREEMENTS The Investment Manager has entered into an expense limitation agreement with the Funds, pursuant to which the Investment Manager has agreed to waive or limit its fees. In connection with this agreement and certain U.S. tax requirements, the Investment Manager will assume other expenses so that the total annual ordinary operating expenses of the Funds (which excludes interest, taxes, brokerage commissions, extraordinary expenses such as litigation, other expenses not incurred in the ordinary course of the Funds' business, and expenses of any counsel or other persons or services retained by the Funds' directors who are not "interested persons" (as defined in the 1940 Act) of the Investment Manager do not exceed: MAXIMUM OPERATING EXPENSE LIMIT (AS A PERCENTAGE OF AVERAGE NET ASSETS) NAME OF FUND CLASS A CLASS B CLASS C CLASS Q - ------------ ------- ------- ------- ------- Global Technology Fund 2.75% N/A N/A N/A GNMA Income Fund 1.29% 2.04% 2.04% 1.29% Precious Metals Fund 2.75% N/A N/A N/A Growth and Income Fund 2.75% 3.50% 3.50% 2.75% International Fund 2.75% 3.50% 3.50% 2.75% Silver Fund 2.75% N/A N/A N/A SmallCap Asia Growth Fund 2.75% 3.50% N/A N/A Russia Fund 3.35% 4.10% N/A N/A Worldwide Emerging Markets Fund 2.75% N/A N/A N/A Lexington Money Market Trust 1.00% N/A N/A N/A 16 The Funds will at a later date reimburse the Investment Manager for management fees waived and other expenses assumed by the Investment Manager during the previous 36 months, but only if, after such reimbursement, each Fund's expense ratio does not exceed the percentage described above. The Investment Manager will only be reimbursed for fees waived or expenses assumed after the effective date of the expense limitation agreements. The expense limitation agreement provides that these expense limitations shall continue until July 26, 2002. Thereafter, the agreement will automatically renew for one-year terms unless the Investment Manager provides written notice of the termination of the agreement to the Funds at least 30 days prior to the end of the then-current term. In addition, the agreement will terminate upon termination of the Investment Management Agreement, or it may be terminated by the Funds, without payment of any penalty, upon ninety (90) days' prior written notice to the Investment Manager at its principal place of business. Prior to July 26, 2000, the Funds voluntarily limited expenses of the Funds to the following amounts: MAXIMUM OPERATING EXPENSE LIMIT (AS A PERCENTAGE OF AVERAGE NET ASSETS) FUND NAME PREVIOUS EXPENSE CAP --------- -------------------- Global Technology Fund 2.50% GNMA Income Fund 1.04% Precious Metals Fund 2.75% Growth and Income Fund 2.75% International Fund 2.75% Silver Fund 2.50% SmallCap Asia Growth Fund 2.50% Russia Fund 3.35% Worldwide Emerging Markets Fund 2.75% Lexington Money Market Trust 1.00% DISTRIBUTOR Shares of the Funds are distributed by ING Pilgrim Securities pursuant to a Distribution Agreement between each Fund and the Distributor. Each Distribution Agreement requires the Distributor to use its best efforts on a continuing basis to solicit purchases of shares of each Fund. The Funds and the Distributor have agreed to indemnify each other against certain liabilities. At the discretion of the Distributor, all sales charges may at times be re-allowed to an authorized dealer ("Authorized Dealer"). If 90% or more of the sales commission is re-allowed, such Authorized Dealer may be deemed to be an "underwriter" as that term is defined under the Securities Act of 1933, as amended. Each Distribution Agreement will remain in effect for two years and from year to year thereafter only if its continuance is approved annually by a majority of the Board of Directors/Trustees who are not parties to such agreement or "interested persons" of any such party and must be approved either by votes of a majority of the Board of Directors/Trustees or a majority of the outstanding voting securities of the Fund. See the Prospectus for information on how to purchase and sell shares of the Funds, and the charges and expenses associated with an investment. The sales charge retained by the Distributor and the commissions re-allowed to selling dealers are not an expense of the Funds and have no effect on the net asset value of the Funds. The Distributor, like the Investment Manager, is a wholly owned indirect subsidiary of ING Group. Prior to July 26, 2000, the distributor for the Funds was Lexington Funds Distributor, Inc. ("LFD"). 17 RULE 12b-1 PLANS Each Fund (with the exception of the Lexington Money Market Trust) has a distribution or shareholder service plan pursuant to Rule 12b-1 under the 1940 Act ("Rule 12b-1 Plans") applicable to all classes of shares offered by each Fund. The Funds intend to operate the Rule 12b-1 Plans in accordance with their terms and the National Association of Securities Dealers, Inc. rules concerning sales charges. Under the Rule 12b-1 Plans, the Distributor may be entitled to payment each month in connection with the offering, sale, and shareholder servicing of Class A, Class B, Class C, and Class Q shares in the following amounts: 0.25% of average daily net assets for Class A shares, 1.00 % of average daily net assets for Class B shares, 1.00% of average daily net assets for Class C shares and 0.25% of average daily net assets for Class Q shares. These fees may be used to cover the expenses of the Distributor primarily intended to result in the sale of Class A, Class B, Class C and Class Q shares of the Funds, including payments to dealers for selling shares of the Funds and for servicing shareholders of these classes of the Funds. Activities for which these fees may be used include: promotional activities; preparation and distribution of advertising materials and sales literature; expenses of organizing and conducting sales seminars; personnel costs and overhead of the Distributor; printing of prospectuses and statements of additional information (and supplements thereto) and reports for other than existing shareholders; payments to dealers and others that provide shareholder services; interest on accrued distribution expenses; and costs of administering the Rule 12b-1 Plans. No more than 0.75% per annum of each Fund's average net assets may be used to finance distribution expenses, exclusive of shareholder servicing payments, and no Authorized Dealer may receive shareholder servicing payments in excess of 0.25% per annum of a Fund's average net assets held by the Authorized Dealer's clients or customers. Under the Rule 12b-1 Plans, ongoing payments will be made on a quarterly basis to Authorized Dealers for both distribution and shareholder servicing at rates that are based on the average daily net assets of shares that are registered in the name of that Authorized Dealer as nominee or held in a shareholder account that designates the Authorized Dealer as the dealer of record. The rates, on an annual basis, are as follows: 0.25% for Class A, 0.25% for Class B, and 1.00% for Class C. Rights to these ongoing payments begin to accrue in the 13th month following a purchase of Class A, B or C shares. With respect to each 12b-1 Plan, the Distributor shall receive payment without regard to actual distribution expenses it incurs. In the event a Rule 12b-1 Plan is terminated in accordance with its terms, the obligations of a Fund to make payments to the Distributor pursuant to the Rule 12b-1 Plan will cease and the Fund will not be required to make any payments for expenses incurred after the date the Plan terminates. In addition to providing for the expenses discussed above, the Rule 12b-1 Plans also recognize that the Investment Manager and/or the Distributor may use their resources to pay expenses associated with activities primarily intended to result in the promotion and distribution of the Funds' shares and other funds managed by the Investment Manager. In some instances, additional compensation or promotional incentives may be offered to dealers. Such compensation and incentives may include, but are not limited to, cash, merchandise, trips and financial assistance to dealers in connection with pre-approved conferences or seminars, sales or training programs for invited sales personnel, payment for travel expenses (including meals and lodging) incurred by sales personnel and members of their families, or other invited guests, to various locations for such seminars or training programs, seminars for the public, advertising and sales campaigns regarding the Funds or other funds managed by the Investment Manager and/or other events sponsored by dealers. In addition, the Distributor may, at its own expense, pay concessions in addition to those described above to dealers that satisfy certain criteria established from time to time by the Distributor. These conditions relate to increasing sales of shares of the Funds over specified periods and to certain other factors. These payments may, depending on the dealer's satisfaction of the required conditions, be periodic and may be up to (1) 0.30% of the value of the Funds' shares sold by the dealer during a particular period, and (2) 0.10% of the value of the Funds' shares held by the dealer's customers for more than one year, calculated on an annual basis. 18 The Rule 12b-1 Plans have been approved by the Board of Directors/Trustees of each Fund, including all of the Directors/Trustees who are not interested persons of the Funds as defined in the 1940 Act. The Rule 12b-1 Plans must be renewed annually by the Board of Directors/Trustees, including a majority of the Directors/Trustees who are not interested persons of the Funds and who have no direct or indirect financial interest in the operation of the Rule 12b-1 Plans, cast in person at a meeting called for that purpose. It is also required that the selection and nomination of such Directors/Trustees be committed to the Directors/Trustees who are not interested persons. Each Rule 12b-1 Plan and any distribution or service agreement may be terminated as to a Fund at any time, without any penalty, by such Directors/Trustees or by a vote of a majority of each Fund's outstanding shares on 60 days written notice. The Distributor or any dealer or other firm may also terminate their respective distribution or service agreement at any time upon written notice. In approving each Rule 12b-1 Plan, the Board of Directors/Trustees has determined that differing distribution arrangements in connection with the sale of new shares of a Fund is necessary and appropriate in order to meet the needs of different potential investors. Therefore, the Board of Directors/Trustees, including those Directors/Trustees who are not interested persons of the Funds, concluded that, in the exercise of their reasonable business judgment and in light of their fiduciary duties, there is a reasonable likelihood that the Rule 12b-1 Plans as tailored to each class of the Funds, will benefit the Funds and their respective shareholders. Each Rule 12b-1 Plan and any distribution or service agreement may not be amended to increase materially the amount spent for distribution expenses as to a Fund without approval by a majority of each Fund's outstanding shares, and all material amendments to a Plan or any distribution or service agreement shall be approved by the Directors/Trustees who are not interested persons of the Fund, cast in person at a meeting called for the purpose of voting on any such amendment. The Distributor is required to report in writing to the Board of Directors/Trustees at least quarterly on the monies reimbursed to it under a Rule 12b-1 Plan, as well as to furnish the Board with such other information as may be reasonably be requested in connection with the payments made under the Rule 12b-1 Plan in order to enable the Board to make an informed determination of whether a Rule 12b-1 Plan should be continued. Prior to July 26, 2000, the Precious Metals, Growth and Income, International, Russia, Worldwide Emerging Markets each had a reimbursement style 12b-1 Plan, which provided that the Funds pay distribution fees, including payments to Lexington Funds Distributor, Inc. (the Funds' former distributor), at an annual rate not to exceed 0.25% of their average daily net assets for distribution services. Under this 12b-1 Plan, the Funds, either directly or through the Investment Manager, would make payments periodically (i) to the distributor or to select broker/dealers, (ii) to other persons who have entered into shareholder processing and service agreements with the investment manager or with the distributor, with respect to Fund shares owned by shareholders for which such broker-dealers were the dealer or holder of record, or (iii) for expenses associated with distribution of Fund shares, including the compensation of the sales personnel of the distributor. Payments were also made for any advertising and promotional expenses relating to selling efforts, including but not limited to the incremental costs of printing prospectuses, statements of additional information, annual reports and other periodic reports for distribution to persons who are not shareholders of the Fund; the costs of preparing and distributing any other supplemental sales literature; costs of radio, television, newspaper and other advertising; telecommunications expenses, including the cost of telephones, telephone lines and other communications equipment, incurred by or for the Distributor in carrying out its obligations under the Distribution Agreement. 19 The following table shows the expenses incurred by the Funds for distribution-related activities under the Rule 12b-1 Plans during the fiscal year ended.
AGGREGATE AMOUNT PAID AGGREGATE AMOUNT PAID AGGREGATE AMOUNT PAID NAME OF THE FUND DECEMBER 31, 2000 OCTOBER 31, 2000(2) DECEMBER 31, 1999 - ---------------- ----------------- ------------------- ----------------- Global Technology Fund (1) N/A $ 6,343 N/A GNMA Income Fund $ 382,136 N/A N/A Precious Metals(1) N/A $ 63,622 $ 75,410 Growth and Income Fund (1) $ 401,010 N/A $102,040 International Fund (1) N/A $ 24,734 $ 17,424 Silver Fund (1) N/A $ 10,728 N/A SmallCap Asia Growth Fund (1) N/A $ 5,110 N/A Russia Fund (1) N/A $170,532 $ 61,804 Worldwide Emerging Markets Fund (1) N/A $262,807 $196,336 Lexington Money Market Trust $ 52,601 N/A N/A
- ---------- (1) Effective July 26, 2000, the Fund changed its fiscal year end to October 31. (2) Represents the ten months from January 31, 2000 to October 31, 2000. Total distribution expenses incurred by the Distributor for the costs of promotion and distribution of each Fund shares for the fiscal period ended were as follows.
October 31, 2000** DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T ------- ------- ------- ------- ------- GLOBAL TECHNOLOGY FUND Advertising $ 162 N/A N/A N/A N/A Printing 3,073 N/A N/A N/A N/A Salaries & Commissions 21,227 N/A N/A N/A N/A Broker Servicing 11,982 N/A N/A N/A N/A Miscellaneous 13,167 N/A N/A N/A N/A TOTAL 49,611 N/A N/A N/A N/A December 31, 2000 DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T GNMA INCOME FUND ------- ------- ------- ------- ------- Advertising $ 17,655 32 33 N/A N/A Printing 335,450 605 636 N/A N/A Salaries & Commissions 98,186 177 186 N/A N/A Broker Servicing 31,731 57 60 N/A N/A Miscellaneous 91,158 164 173 N/A N/A TOTAL 574,181 1,035 1,088 N/A N/A October 31, 2000** DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T PRECIOUS METALS FUND ------- ------- ------- ------- ------- Advertising $ 162 N/A N/A N/A N/A Printing 3,073 N/A N/A N/A N/A Salaries & Commissions 21,227 N/A N/A N/A N/A Broker Servicing 23,573 N/A N/A N/A N/A Miscellaneous 13,167 N/A N/A N/A N/A TOTAL 61,202 N/A N/A N/A N/A
20
December 31, 2000 DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T ------- ------- ------- ------- ------- GROWTH AND INCOME FUND Advertising $ 424 1 1 N/A N/A Printing 8,058 13 14 N/A N/A Salaries & Commissions 55,937 88 100 N/A N/A Broker Servicing 159,673 250 285 N/A N/A Miscellaneous 36,934 60 67 N/A N/A TOTAL 261,027 412 467 N/A N/A October 31, 2000** DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T INTERNATIONAL FUND ------- ------- ------- ------- ------- Advertising $ 105 23 33 1 N/A Printing 1,990 439 625 19 N/A Salaries & Commissions 13,745 3,036 4,316 130 N/A Broker Servicing 11,408 2,520 3,583 108 N/A Miscellaneous 8,562 1,890 2,689 81 N/A TOTAL 35,810 7,908 11,246 339 N/A October 31, 2000** DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T SILVER FUND ------- ------- ------- ------- ------- Advertising $ 162 N/A N/A N/A N/A Printing 3,073 N/A N/A N/A N/A Salaries & Commissions 21,227 N/A N/A N/A N/A Broker Servicing 14,688 N/A N/A N/A N/A Miscellaneous 13,167 N/A N/A N/A N/A TOTAL 52,317 N/A N/A N/A N/A October 31, 2000 DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T SMALLCAP ASIA GROWTH FUND ------- ------- ------- ------- ------- Advertising $ 89 72 N/A N/A N/A Printing 1,696 1,377 N/A N/A N/A Salaries & Commissions 11,714 9,514 N/A N/A N/A Broker Servicing 7,134 5,795 N/A N/A N/A Miscellaneous 7,266 5,901 N/A N/A N/A TOTAL 27,899 22,659 N/A N/A N/A October 31, 2000 DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T RUSSIA FUND ------- ------- ------- ------- ------- Advertising $ 162 N/A N/A N/A N/A Printing 3,073 N/A N/A N/A N/A Salaries & Commissions 21,227 N/A N/A N/A N/A Broker Servicing 29,468 N/A N/A N/A N/A Miscellaneous 13,167 N/A N/A N/A N/A TOTAL 67,097 N/A N/A N/A N/A **October 31, 2000** DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T WORLDWIDE EMERGING MARKETS FUND ------- ------- ------- ------- ------- Advertising $ 242 N/A 48 N/A N/A Printing 4,603 N/A 904 N/A N/A Salaries & Commissions 31,612 N/A 6,210 N/A N/A Broker Servicing 38,345 N/A 7,532 N/A N/A Miscellaneous 19,221 N/A 3,776 N/A N/A TOTAL 94,023 N/A 18,470 N/A N/A
- ---------- * Effective July 26, 2000, the Fund changed its fiscal year end to October 31. ** Represents the ten months from January 31, 2000 to October 31, 2000. 21 SHAREHOLDER SERVICING AGENT ING Pilgrim Group serves as Shareholder Servicing Agent for the Funds. The Shareholder Servicing Agent is responsible for responding to written and telephonic inquiries from shareholders. Each Fund pays the Shareholder Servicing Agent a monthly fee on a per-contact basis, based upon incoming and outgoing telephonic and written correspondence. OTHER EXPENSES In addition to the management fee and other fees described previously, each Fund pays other expenses, such as legal, audit, transfer agency and custodian out-of-pocket fees, proxy solicitation costs, and the compensation of Directors/Trustees who are not affiliated with the Investment Manager. Most Fund expenses are allocated proportionately among all of the outstanding shares of that Fund. However, where applicable, the Rule 12b-1 Plan fees for each class of shares are charged proportionately only to the outstanding shares of that class. For the Lexington Money Market Trust, Fund expenses are allocated proportionately among all of the outstanding shares of the Fund. SUPPLEMENTAL DESCRIPTION OF INVESTMENTS Some of the different types of securities in which the Funds may invest, subject to their respective investment objectives, policies and restrictions are described in the Prospectus under "The Funds," and "More Information About Risks." Additional information concerning the characteristics and risks of certain of the Funds' investments are set forth below. There can be no assurance that any of the Funds will achieve their investment objectives. COMMON STOCK, CONVERTIBLE SECURITIES AND OTHER EQUITY SECURITIES Each Fund (except GNMA Income Fund and Money Market Trust) may invest in common stocks, which represent an equity (ownership) interest in a company. This ownership interest generally gives a Fund the right to vote on issues affecting the company's organization and operations. Each Fund (other than GNMA Income Fund and Money Market Trust) may also buy other types of equity securities such as convertible securities, preferred stock, and warrants or other securities that are exchangeable for shares of common stock. A convertible security is a security that may be converted either at a stated price or rate within a specified period of time into a specified number of shares of common stock. By investing in convertible securities, a Fund seeks the opportunity, through the conversion feature, to participate in the capital appreciation of the common stock into which the securities are convertible, while investing at a better price than may be available on the common stock or obtaining a higher fixed rate of return than is available on common stocks. The value of a convertible security is a function of its "investment value" (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its "conversion value" (the security's worth at market value, if converted into the underlying common stock). The credit standing of the issuer and other factors may also affect the investment value of a convertible security. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. 22 The market value of convertible debt securities tends to vary inversely with the level of interest rates. The value of the security declines as interest rates increase and increases as interests rates decline. Although under normal market conditions longer term debt securities have greater yields than do shorter term debt securities of similar quality, they are subject to greater price fluctuations. A convertible security may be subject to redemption at the option of the issuer at a price established in the instrument governing the convertible security. If a convertible security held by a Fund is called for redemption, the Fund must permit the issuer to redeem the security, convert it into the underlying common stock or sell it to a third party. A warrant gives the holder a right to purchase at any time during a specified period a predetermined number of shares of common stock at a fixed price. Unlike convertible debt securities or preferred stock, warrants do not pay a fixed dividend. Investments in warrants involve certain risks, including the possible lack of a liquid market for resale of the warrants, potential price fluctuations as a result of speculation or other factors, and failure of the price of the underlying security to reach or have reasonable prospects of reaching a level at which the warrant can be prudently exercised (in which event the warrant may expire without being exercised, resulting in a loss of the Fund's entire investment therein). The Global Technology Fund will not purchase warrants except in units with other securities in original issuance thereof or attached to other securities, if at the time of the purchase, the Fund's investment in warrants, valued at the lower of cost or market, would exceed 5% of the Fund's total assets. For these purposes, warrants attached to units or other securities shall be deemed to be without value. PREFERRED STOCK Each Fund (other than GNMA Income Fund and Money Market Trust) may invest in preferred stock. Preferred stock, unlike common stock, offers a stated dividend rate payable from a corporation's earnings. Such preferred stock dividends may be cumulative or non-cumulative, participating, or auction rate. If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of preferred stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as call/redemption provisions prior to maturity, a negative feature when interest rates decline. Dividends on some preferred stock may be "cumulative," requiring all or a portion of prior unpaid dividends to be paid before dividends are paid on the issuer's common stock. Preferred stock also generally has a preference over common stock on the distribution of a corporation's assets in the event of liquidation of the corporation, and may be "participating," which means that it may be entitled to a dividend exceeding the stated dividend in certain cases. The rights of preferred stocks on the distribution of a corporation's assets in the event of a liquidation are generally subordinate to the rights associated with a corporation's debt securities. AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS The Funds (other than GNMA Income Fund and Money Market Trust) may invest in securities of foreign issuers in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or other similar securities representing securities of foreign issuers. These securities may not necessarily be denominated in the same currency as the securities they represent. ADRs are receipts typically issued by a United States bank or trust company evidencing ownership of the underlying foreign securities. EDRs are receipts issued by a European financial institution evidencing a similar arrangement. Generally, ADRs, in registered form, are designed for use in the United States securities markets, and EDRs, in bearer form, are designed for use in European securities markets. U.S. GOVERNMENT SECURITIES The Funds may invest in fixed-rate and floating- or variable-rate U.S. government securities. The U.S. Government guarantees payments of interest and principal of U.S. Treasury bills, notes and bonds, mortgage-related securities and other securities issued by the U.S. government. Other securities issued by 23 U.S. government agencies or instrumentalities are supported only by the credit of the agency or instrumentality, for example those issued by the Federal Home Loan Bank, whereas others, such as those issued by the FNMA, Farm Credit System and Student Loan Marketing Association, have an additional line of credit with the U.S. Treasury. Short-term U.S. government securities generally are considered to be among the safest short-term investments. However, the U.S. government does not guarantee the net asset value of the Funds' shares. With respect to U.S. government securities supported only by the credit of the issuing agency or instrumentality or by an additional line of credit with the U.S. Treasury, there is no guarantee that the U.S. government will provide support to such agencies or instrumentalities. Accordingly, such U.S. government securities may involve risk of loss of principal and interest. Each Fund may invest in the following types of money market instruments (i.e., debt instruments with less than 12 months remaining until maturity) denominated in U.S. dollars or other currencies: (a) obligations issued or guaranteed by the U.S. or foreign governments, their agencies, instrumentalities or municipalities; (b) obligations of international organizations designed or supported by multiple foreign governmental entities to promote economic reconstruction or development; (c) finance company obligations, corporate commercial paper and other short-term commercial obligations; (d) bank obligations (including certificates of deposit, time deposits, demand deposits and bankers' acceptances), subject to the restriction that the Fund may not invest more than 25% of its total assets in bank securities; (e) repurchase agreements with respect to the foregoing; and (f) other substantially similar short-term debt securities with comparable characteristics. CORPORATE DEBT SECURITIES Each Fund may invest in corporate debt securities. Corporate debt securities include corporate bonds, debentures, notes and other similar corporate debt instruments, including convertible securities. The investment return on a corporate debt security reflects interest earnings and changes in the market value of the security. The market value of a corporate debt security will generally increase when interest rates decline, and decrease when interest rates rise. There is also the risk that the issuer of a debt security will be unable to pay interest or principal at the time called for by the instrument. Investments in corporate debt securities that are rated below investment grade are described in "Junk Bonds" below. Debt obligations that are deemed investment grade carry a rating of at least Baa from Moody's or BBB from Standard and Poor's, or a comparable rating from another rating agency or, if not rated by an agency, are determined by the Investment Adviser to be of comparable quality. Bonds rated Baa or BBB have speculative characteristics and changes in economic circumstances are more likely to lead to a weakened capacity to make interest and principal payments than higher rated bonds. With respect to the Global Technology, International and Worldwide Emerging Markets Funds, when the Funds' portfolio manager believes that debt securities will provide capital appreciation through favorable changes in relative foreign exchange rates, in relative interest rate levels or in the creditworthiness of issuers, the Funds may invest primarily in debt securities. The Russia Fund and Worldwide Emerging Markets Fund may invest (up to 35% of its total assets in the case of the Russia Fund) in Short-Term and Medium-Term Debt Securities. The Short-Term and Medium-Term Debt Securities in which the Funds may invest are foreign and domestic debt securities, including short-term (less than twelve months to maturity) and medium-term (not greater than five years to maturity) obligations issued by the U.S. Government, foreign governments, foreign and domestic corporations and banks, and repurchase agreements. The Precious Metals Fund and Silver Fund may invest in debt securities of companies engaged in mining and processing gold and silver. These debt securities can be expected to be comparable to that of other debt obligations and generally will not react to fluctuations in the price of gold and silver. An 24 investment in the debt instruments of these companies, therefore, cannot be expected to provide the hedge against inflation that may be provided through investments in equity securities of companies engaged in such activities and can be expected to fluctuate inversely with prevailing interest rates. JUNK BONDS The Precious Metals Fund and Silver Fund may invest in high yield, lower rated debt securities known as "junk bonds." Junk bonds are debt obligations rated below investment grade and non-rated securities of comparable quality. Junk bonds are considered speculative and thus pose a greater risk of default than investment grade securities. Investments of this type are subject to greater risk of loss of principal and interest, but in general provide higher yields than higher rated debt obligations. Bonds issued by companies domiciled in emerging markets are usually rated below investment grade. SHORT SALES AND SHORT SALES "AGAINST THE BOX" The Precious Metals Fund and Silver Fund may invest in debt securities of companies engaged in mining and processing gold and silver. These debt securities can be expected to be comparable to that of other debt obligations and generally will not react to fluctuations in the price of gold and silver. An investment in the debt instruments of these companies, therefore, cannot be expected to provide the hedge against inflation that may be provided through investments in equity securities of companies engaged in such activities and can be expected to fluctuate inversely with prevailing interest rates. GNMA CERTIFICATES GNMA Income Fund may invest in GNMA certificates. GNMA Certificates are Government National Mortgage Association ("GNMA") mortgage-backed securities representing part ownership of a pool of mortgage loans. GNMA is a U.S. Government corporation within the Department of Housing and Urban Development. Such loans are initially made by lenders such as mortgage bankers, commercial banks and savings and loan associations and are either insured by the Federal Housing Administration (FHA) or Farmers' Home Administration (FMHA) or guaranteed by the Veterans Administration (VA). A GNMA Certificate represents an interest in a specific pool of such mortgages which, after being approved by GNMA, is offered to investors through securities dealers. Once approved by GNMA, the timely payment of interest and principal on each certificate is guaranteed by the full faith and credit of the United States Government. GNMA Certificates differ from bonds in that principal is scheduled to be paid back by the borrower over the length of the loan rather than returned in a lump sum at maturity. The GNMA Income Fund will purchase "modified pass through" type GNMA Certificates, which entitle the holder to receive all interest and principal payments owed on the mortgages in the pool (net of issuers' and GNMA fees), regardless of whether or not the mortgagor has made such payment. The Fund will use principal payments to purchase additional GNMA Certificates or other government guaranteed securities. The balance of the Fund's assets will be invested in other securities issued or guaranteed by the U.S. Government, including U.S. Treasury bills, note or bonds. The Fund may also invest in repurchase agreements secured by such U.S. Government securities or GNMA Certificates. GNMA Certificates are created by an "issuer", which is an FHA approved mortgage banker who also meets criteria imposed by GNMA. The issuer assembles a pool of FHA, FMHA, or VA insured or guaranteed mortgages which are homogeneous as to interest rate, maturity and type of dwelling. Upon application by the issuer, and after approval by GNMA of the pool, GNMA provides its commitment to guarantee timely payment of principal and interest on the GNMA Certificates backed by the mortgages included in the pool. The GNMA Certificates, endorsed by GNMA, are then sold by the issuer through securities dealers. GNMA is authorized under the Federal National Housing Act to guarantee timely payment of principal and interest on GNMA Certificates. This guarantee is backed by the full faith and credit of the United States. GNMA may borrow U.S. Treasury funds to the extent needed to make payments under its guarantee. When mortgages in the pool underlying GNMA Certificates are prepaid by mortgagors or by result of foreclosure, such principal payments are passed through to the 25 certificate holders. Accordingly, the life of the GNMA Certificate is likely to be substantially shorter than the stated maturity of the mortgages in the underlying pool. Because of such variation in prepayment rates, it is not possible to predict the life of a particular GNMA certificate but FHA statistics indicate that 25 to 30 year single family dwelling mortgages have an average life of approximately 12 years. The majority of GNMA certificates are backed by mortgages of this type, and accordingly the generally accepted practice has developed to treat GNMA certificates as 30 year securities which prepay fully in the 12th year. GNMA certificates bear a nominal "coupon rate" which represents the effective FHA-VA mortgage rate at the time of issuance, less 0.5% which constitutes the GNMA and issuer's fees. For providing its guarantees, GNMA receives an annual fee of 0.06% of the outstanding principal on certificates backed by single family dwelling mortgages, and the issuer receives an annual fee of 0.44% for assembling the pool and for passing through monthly payments of interest and principal. Payments to holders of GNMA certificates consist of the monthly distributions of interest and principal less the GNMA and issuer's fees. The actual yield to be earned by a holder of a GNMA certificate is calculated by dividing such payments by the purchase price paid for the GNMA certificate (which may be at a premium or a discount from the face value of the certificate). Monthly distributions of interest, as contrasted to semi-annual distributions which are common for other fixed interest investments, have the effect of compounding and thereby raising the effective annual yield earned on GNMA certificates. Because of the variation in the life of the pools of mortgages which back various GNMA certificates, and because it is impossible to anticipate the rate of interest at which future principal payments may be reinvested, the actual yield earned from a portfolio of GNMA certificates, such as that in which the Fund is invested, will differ significantly from the yield estimated by using an assumption of a 12 year life for each GNMA certificate included in such a portfolio as described. The actual rate of prepayment for any GNMA certificate does not lend itself to advance determination, although regional and other characteristics of a given mortgage pool may provide some guidance for investment analysis. Also, secondary market trading of outstanding GNMA certificates tends to be concentrated in issues bearing the current coupon rate. GNMA Income Fund may purchase construction loan securities which are issued to finance building costs. The funds are disbursed as needed or in accordance with a prearranged plan. The securities provide for the timely payment to the registered holder of interest at the specified rate plus scheduled installments of principal. Upon completion of the construction phase, the construction loan securities are terminated, and project loan securities are issued. It is the Fund's policy to record these GNMA certificates on trade date, and to segregate assets to cover its commitments on trade date as well. GNMA CERTIFICATES -- WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS GNMA Certificates may at times be purchased or sold on a delayed delivery basis or on a when-issued basis. These transactions arise when GNMA Certificates are purchased or sold by the GNMA Income Fund with payment and delivery taking place in the future, in order to secure what is considered to be an advantageous price and yield to the Fund. No payment is made until delivery is due, often a month or more after the purchase. The Settlement date on such transactions will take place no more than 120 days from the trade date. When the Fund engages in when-issued and delayed delivery transactions, the Fund relies on the buyer or seller, as the case may be, to consummate the sale. Failure of the buyer or seller to do so may result in the Fund missing the opportunity of obtaining a price considered to be advantageous. While when-issued GNMA Certificates may be sold prior to the settlement date, the Fund intends to purchase such securities with the purpose of actually acquiring them unless a sale appears desirable for investment reasons. At the time the Fund makes the commitment to purchase a GNMA 26 Certificate on a when-issued basis, it will record the transaction and reflect the value of the security in determining its net asset value. The Fund does not believe that its net asset value or income will be adversely affected by its purchase of GNMA Certificates on a when-issued basis. The Fund may invest in when-issued securities without other conditions. Such securities either will mature or be sold on or about the settlement date. The Fund may earn interest on such account or securities for the benefit of shareholders. SETTLEMENT TRANSACTIONS When the Funds (with the exception of GNMA Income and Growth and Income Funds and Lexington Money Market Trust) enter into contracts for purchase or sale of a portfolio security denominated in a foreign currency, they may be required to settle a purchase transaction in the relevant foreign currency or receive the proceeds of a sale in that currency. In either event, the Funds will be obligated to acquire or dispose of such foreign currency as is represented by the transaction by selling or buying an equivalent amount of United States dollars. Furthermore, the Funds may wish to "lock in" the United States dollar value of the transaction at or near the time of a purchase or sale of portfolio securities at the exchange rate or rates then prevailing between the United States dollar and the currency in which the foreign security is denominated. Therefore, the Funds may, for a fixed amount of United States dollars, enter into a forward foreign exchange contract for the purchase or sale of the amount of foreign currency involved in the underlying securities transaction. In so doing, the Funds will attempt to insulate themselves against possible losses resulting from a change in the relationship between the United States dollar and the foreign currency during the period between the date a security is purchased or sold and the date on which payment is made or received. This process is known as "transaction hedging". To effect the translation of the amount of foreign currencies involved in the purchase and sale of foreign securities and to effect the "transaction hedging" described above, the Funds may purchase or sell foreign currencies on a "spot" (i.e. cash) basis or on a forward basis whereby the Funds purchases or sells a specific amount of foreign currency, at a price set at the time of the contract, for receipt of delivery at a specified date which may be any fixed number of days in the future. Such spot and forward foreign exchange transactions may also be utilized to reduce the risk inherent in fluctuations in the exchange rate between the United States dollar and the relevant foreign currency when foreign securities are purchased or sold for settlement beyond customary settlement time (as described below). Neither type of foreign currency transaction will eliminate fluctuations in the prices of the Funds' portfolio or securities or prevent loss if the price of such securities should decline. PORTFOLIO HEDGING Some or all of the Global Technology, Precious Metals, International, Silver, SmallCap Asia Growth, Russia, and Worldwide Emerging Markets Funds' portfolio will be denominated in foreign currencies. As a result, in addition to the risk of change in the market value of portfolio securities, the value of the portfolio in United States dollars is subject to fluctuations in the exchange rate between such foreign currencies and the United States dollar. When, in the opinion of the Investment Manager it is desirable to limit or reduce exposure in a foreign currency in order to moderate potential changes in the United States dollar value of the portfolio, the Funds may enter into a forward foreign currency exchange contract by which the United States dollar value of the underlying foreign portfolio securities can be approximately matched by an equivalent United States dollar liability. This technique is known as "portfolio hedging" and moderates or reduces the risk of change in the United States dollar value of the Funds' portfolios only during the period before the maturity of the forward contract (which will not be in excess of one year). The Global Technology, GNMA Income, Precious Metals, Growth and Income, International, Silver, SmallCap Asia, Russia and Worldwide Emerging Markets Funds may hedge against changes in financial markets, currency rates and interest rates. The Funds may hedge with "derivatives." Derivatives are instruments whose value is linked to, or derived from, another instrument, like an index or a commodity. Hedging transactions involve certain risks. Although 27 the Funds may benefit from hedging, unanticipated changes in interest rates or securities prices may result in greater losses for the Funds than if they did not hedge. If the Funds do not correctly predict a hedge, they may lose money. In addition, the Funds pay commissions and other costs in connection with hedging transactions. The Global Technology, Precious Metals, International, Silver, SmallCap Asia Growth, Russia and Worldwide Emerging Markets Funds for hedging purposes only, may also enter into forward foreign currency exchange contracts to increase its exposure to a foreign currency that the Investment Manager expects to increase in value relative to the United States dollar. The Funds will not attempt to hedge all of its foreign portfolio positions and will enter into such transactions only to the extent, if deemed appropriate by the Investment Manager or Sub-Adviser. Hedging against a decline in the value of currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. The Funds will not enter into forward foreign currency exchange transactions for speculative purposes. The Funds intend to limit transactions as described in this paragraph to not more than 70% of total Fund assets. RISKS ASSOCIATED WITH HEDGING TRANSACTIONS. Hedging transactions have special risks associated with them, including possible default by the Counterparty to the transaction, illiquidity and, to the extent the Investment Manager's view as to certain market movements is incorrect, the risk that the use of a hedging transaction could result in losses greater than if it had not been used. Use of call options could result in losses to the Funds, force the sale or purchase of portfolio securities at inopportune times or for prices lower than current market values, or cause the Funds to hold a security it might otherwise sell. Currency hedging involves some of the same risks and considerations as other transactions with similar instruments. Currency transactions can result in losses to the Funds if the currency being hedged fluctuates in value to a degree or in a direction that is not anticipated. Further, the risk exists that the perceived linkage between various currencies may not be present or may not be present during the particular time that the Funds are engaging in portfolio hedging. Currency transactions are also subject to risks different from those of other portfolio transactions. Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases and sales of currency and related instruments can be adversely affected by government exchange controls, limitations or restrictions on repatriation of currency, and manipulations or exchange restrictions imposed by governments. These forms of governmental actions can result in losses to the Funds if they are unable to deliver or receive currency or monies in settlement of obligations and could also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs. In addition, the Funds pay commissions and other costs in connection with such investments. Losses resulting from the use of hedging transactions will reduce the Funds' net asset value, and possibly income, and the losses can be greater than if hedging transactions had not been used. RISKS OF HEDGING TRANSACTIONS OUTSIDE THE UNITED STATES. When conducted outside the U.S., hedging transactions may not be regulated as rigorously as in the U.S., may not involve a clearing mechanism and related guarantees, and will be subject to the risk of government actions affecting trading in, or the price of, foreign securities, currencies and other instruments. The value of positions taken as part of non-U.S. hedging transactions also could be adversely affected by: (1) other complex foreign political, legal and economic factors; (2) lesser availability of data on which to make trading decisions than in the U.S.; (3) delays in the Funds' ability to act upon economic events occurring in foreign markets during non-business hours in the U.S.; (4) the imposition of different exercise and settlement terms and procedures and margin requirements than in the U.S.; and (5) lower trading volume and liquidity. OPTIONS ON SECURITIES, SECURITIES INDICES AND CURRENCIES Options may be used as a means of participating in an anticipated price change of a security on a more limited basis than would be possible if the security itself were purchased. The Funds (with the exception of the GNMA Income 28 Fund and the Lexington Money Market Trust) may purchase put options on particular securities (or on currencies in which those securities are denominated) in order to protect against a decline in the market value of the underlying security below the exercise price less the premium paid for the option (or an adverse movement in the applicable currency relative to the U.S. dollar). Prior to expiration, most options are expected to be sold in a closing sale transaction. Profit or loss from the sale depends upon whether the amount received is more or less than the premium paid plus transaction costs. The Russia Fund may purchase call options on securities that they intend to purchase (or on currencies in which those securities are denominated) in order to limit the risk of a substantial increase in the market price of such security (or an adverse movement in the applicable currency). COVERED PUT AND CALL OPTIONS The Russia Fund may write put options. The Fund would write put options only on a covered basis, which means that the Funds would either (i) set aside cash, U.S. government securities or other liquid, high-grade debt securities in an amount not less than the exercise price at all times while the put option is outstanding (the rules of the Options Clearing Corporation currently require that such assets be deposited in escrow to secure payment of the exercise price), (ii) sell short the security or currency underlying the put option at the same or higher price than the exercise price of the put option, or (iii) purchase a put option, if the exercise price of the purchased put option is the same or higher than the exercise price of the put option sold by the Fund. The Fund generally would write covered put options in circumstances where the Investment Manager and the Sub-Adviser, as applicable, wish to purchase the underlying security or currency for the Fund's portfolio at a price lower than the current market price of the security or currency. In such event, the Fund would write a put option at an exercise price which, reduced by the premium received on the option, reflects the lower price they are willing to pay. Since the Fund also would receive interest on debt securities or currencies maintained to cover the exercise price of the option, this technique could be used to enhance current return during periods of market uncertainty. The risk in such a transaction would be that the market price of the underlying security or currency would decline below the exercise price less the premiums received. The Global Technology, International, SmallCap Asia Growth and Russia Funds may write call options only on securities owned by the Funds or securities which the Funds have the right to acquire without additional consideration. Since it can be expected that a call option will be exercised if the market value of the underlying security increases to a level greater than the exercise price, this strategy will generally be used when the Investment Manager believes that the call premium received by the Funds plus anticipated appreciation in the price of the underlying security, up to the exercise price of the call, will be greater than the appreciation in the price of the security. The Global Technology, SmallCap Asia Growth, Russia Funds intend to limit transactions as described in this paragraph to those where the sum of initial margin deposits and premiums paid does not exceed 5% of its total assets. The Global Technology and International Funds intend to limit transactions as described in this paragraph to less than 5% of Fund assets. The SmallCap Asia Growth and Russia Funds will not write options in excess of 25% of their total assets. The Funds will cause their custodian to segregate cash, U.S. Government Securities or other high grade liquid debt obligations having a value sufficient to meet the Fund's obligations under the call options. The Global Technology, International, and SmallCap Asia Growth Funds will not purchase put and call options by others and will not write any put options. Each Fund except GNMA Income Fund and Money Market Trust may purchase put and call options on stock indices in order to hedge against risks of stock market or industry wide stock price fluctuations. The Russia Fund will not enter into options on securities, securities indices or currencies or related options (including options on futures) if the sum of initial margin deposits and premiums paid for any such option or options would exceed 5% of its total assets, and it will not enter into options with respect to more than 25% of its total assets. 29 FUTURES, SWAPS AND OPTIONS ON FUTURES Each Fund (except GNMA Income Fund and Money Market Trust) may enter into interest rate futures contracts. An interest rate futures contract is an agreement to purchase or sell debt securities, usually U.S. government securities, at a specified date and price. For example, the fund may sell interest rate futures contracts (i.e., enter into a futures contract to sell the underlying debt security) in an attempt to hedge against an anticipated increase in interest rates and a corresponding decline in debt securities it owns. The Funds will have collateral assets equal to the purchase price of the portfolio securities represented by the underlying interest rate futures contracts it has an obligation to purchase. The Funds may purchase and sell futures contracts and related options under the following conditions: (a) the then-current aggregate futures market prices of financial instruments required to be delivered and purchased under open futures contracts shall not exceed 30% of each Fund's total assets, at market value; and (b) no more than 5% of the assets, at market value at the time of entering into a contract, shall be committed to margin deposits in relation to futures contracts. Each Fund (except GNMA Income, Growth and Income and Money Market Trust) may engage in equity swaps. Equity swaps allow the parties to exchange the dividend income or other components of return on an equity investment (e.g., a group of equity securities or an index) for a component of return on another non-equity or equity investment. Equity swap transactions may be volatile and may present the Funds with counterparty risks. An interest rate Futures Contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument (debt security or currency) for a specified price at a designated date, time and place. Brokerage fees are incurred when a Futures Contract is bought or sold, and margin deposits must be maintained at all times the Futures Contract is outstanding. Although Futures Contracts typically require future delivery of and payment for financial instruments or currencies, Futures Contracts usually are closed out before the delivery date. Closing out an open Futures Contract sale or purchase is effected by entering into an offsetting Futures Contract purchase or sale, respectively, for the same aggregate amount of the identical financial instrument or currency and the same delivery date. If the offsetting purchase price is less than the original sale price, the Fund realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. The transaction costs also must be included in these calculations. There can be no assurance, however, that the Fund will be able to enter into an offsetting transaction with respect to a particular Futures Contract at a particular time. If the Fund is not able to enter into an offsetting transaction, the Fund will continue to be required to maintain the margin deposits on the Futures Contract. The prices of Futures Contracts are volatile and are influenced, among other things, by actual and anticipated changes in interest rates, which in turn are affected by fiscal and monetary policies and national and international political and economic events. REPURCHASE AGREEMENTS The Funds' investment portfolios may include repurchase agreements ("repos") with banks and dealers in U.S. Government securities. A repurchase agreement involves the purchase by a Fund of an investment contract from a bank or a dealer in U.S. Government securities which contract is secured by debt securities whose value is equal to or greater than the value of the repurchase agreement including the agreed upon interest. The agreement provides that the institution will repurchase the underlying securities at an agreed upon time and price. Under the 1940 Act, repurchase agreements are considered to be loans by a Fund and must be fully collateralized by collateral assets. If the seller defaults on its obligations to repurchase the underlying security, the Fund may experience delay or difficulty in exercising its rights to realize upon the security, may incur a loss if the value of the security declines and may incur disposition costs in liquidating the security. The total amount received on repurchase would exceed the price paid by the Fund, reflecting an agreed upon 30 rate of interest for the period from the date of the repurchase agreement to the settlement date, and would not be related to the interest rate on the underlying securities. The difference between the total amount to be received upon the repurchase of the securities and the price paid by the Fund upon its acquisition is accrued daily as interest. If the institution defaults on the repurchase agreement, the Fund will retain possession of the underlying securities. In addition, if bankruptcy proceedings are commenced with respect to the seller, realization on the collateral by the Fund may be delayed or limited and the Fund may incur additional costs. In such case, the Fund will be subject to risks associated with changes in the market value of the collateral securities. The Funds intend to limit repurchase agreements to institutions believed by the Investment Manager or the Sub-Adviser to present minimal credit risk. The Global Technology, GNMA Income, Precious Metals, International, Silver and Worldwide Emerging Markets Funds and Money Market Trust will enter into repurchase agreements only with member banks of the Federal Reserve System and with "primary dealers" in United States government securities. The Global Technology, GNMA Income, Precious Metals, International, Silver, and Worldwide Emerging Markets Funds may enter into repurchase agreements with respect to any portfolio securities it may acquire consistent with its investment objectives and policies, but intends to enter into repurchase agreements only with respect to obligations of the U.S. government or its agencies and instrumentalities, to meet anticipated redemptions or pending investments or reinvestment of Fund assets in portfolio securities. The Funds will not enter into repurchase agreements maturing in more than seven days if the aggregate of such repurchase agreements and all other illiquid securities when taken together would exceed 15% (10% in the case of the GNMA Income Fund) of the total assets of the Fund. The Funds treat any securities subject to restrictions on repatriation for more than seven days, and securities issued in connection with foreign debt conversion programs that are restricted as to remittance of invested capital or profit, as illiquid. Illiquid securities do not include securities that are restricted from trading on formal markets for some period of time but for which an active informal market exists, or securities that meet the requirements of Rule 144A under the Securities Act of 1933 and that, subject to the review by the Board of Directors/Trustees and guidelines adopted by the Board of Directors/Trustees, the Investment Manager has determined to be liquid. REVERSE REPURCHASE AGREEMENTS All of the Funds except Money Market Trust may enter into reverse purchase agreements. In a reverse repurchase agreement, a Fund sell to a financial institution a security that it holds and agrees to repurchase the same security at an agreed-upon price and date. A Fund will maintain, in a segregated account with a custodian, cash, U.S. government securities or other liquid, high grade debt securities in an amount sufficient to cover its obligation under reverse repurchase agreements. WHEN ISSUED AND FORWARD COMMITMENT SECURITIES The Global Technology, Precious Metals Fund, International, Silver, Worldwide Emerging Markets and SmallCap Asia Growth Funds may make contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments") because new issues of securities are typically offered to investors, such as the Funds, on that basis. Forward commitments involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. This risk is in addition to the risk of decline in value of the Funds' other assets. Although the Funds will enter into such contracts with the intention of acquiring the securities, the Funds may dispose of a commitment prior to settlement if the investment adviser deems it appropriate to do so. The Funds may realize short-term profits or losses upon the sale of forward commitments. The Funds may purchase U.S. government or other securities on a "when-issued" basis and may purchase or sell securities on a "delayed delivery" basis. The price is fixed at the time the commitment is made, but delivery and payment for the securities take place at a later date. When-issued securities and forward commitments may be sold prior to the settlement date, but a Fund will enter into when-issued and forward commitments 31 only with the intention of actually receiving or delivering the securities. No income accrues on securities that have been purchased pursuant to a forward commitment or on a when-issued basis prior to delivery to a Fund. At the time a Fund enters into a transaction on a when-issued or forward commitment basis, it supports its obligation with collateral assets equal to the value of the when-issued or forward commitment securities and causes the collateral assets to be marked to market daily. There is a risk that the securities may not be delivered and that the Fund may incur a loss. FORWARD CURRENCY CONTRACTS The Global Technology, Precious Metals Fund, International, Silver, SmallCap Asia Growth, Russia and Worldwide Emerging Markets Funds may enter into forward currency contracts. A forward currency contract is a contract individually negotiated and privately traded by currency traders and their customers and creates an obligation to purchase or sell a specific currency for an agreed-upon price at a future date. The Funds generally do not enter into forward contracts with terms greater than one year. The Funds generally enter into forward contracts only under two circumstances. First, if the Funds enter into a contract for the purchase or sale of a security denominated in a foreign currency, they may desire to "lock in" the U.S. dollar price of the security by entering into a forward contract to buy the amount of a foreign currency needed to settle the transaction. Second, if the Investment Manager believes that the currency of a particular foreign country will substantially rise or fall against the U.S. dollar, it may enter into a forward contract to buy or sell the currency approximating the value of some or all of the Funds' portfolio securities denominated in such currency. The Funds will not enter into a forward contract if, as a result, it would have more than one-third of total assets committed to such contracts (unless they own the currency that it is obligated to deliver or has caused its custodian to segregate segregable assets having a value sufficient to cover its obligations). Although forward contracts are used primarily to protect the Funds from adverse currency movements, they involve the risk that currency movements will not be accurately predicted. Investors should recognize that investing in securities of foreign companies and in particular securities of companies domiciled in or doing business in emerging markets and emerging countries involves certain risk considerations, including those set forth below, which are not typically associated with investing in securities of U.S. companies. FOREIGN SECURITIES CONSIDERATIONS FOREIGN CURRENCY CONSIDERATIONS. The Global Technology, Precious Metals Fund, International, Silver, SmallCap Asia Growth, Russia and Worldwide Emerging Markets Funds' assets will be invested in securities of foreign companies and substantially all income will be received by the Funds in foreign currencies. However, the Funds will compute and distribute their income in dollars, and the computation of income will be made on the date of its receipt by the Funds at the foreign exchange rate in effect on that date. Therefore, if the value of the foreign currencies in which the Funds receive their income falls relative to the dollar between receipt of the income and the making of Funds' distributions, the Funds will be required to liquidate securities in order to make distributions if the Funds has insufficient cash in dollars to meet distribution requirements. The value of the assets of the Funds as measured in dollars also may be affected favorably or unfavorably by fluctuations in currency rates and exchange control regulations. Further, the Funds may incur costs in connection with conversions between various currencies. Foreign exchange dealers realize a profit based on the difference between the prices at which they are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Funds at one rate, while offering a lesser rate of exchange should the Funds desire immediately to resell that currency to the dealer. The Funds will conduct their foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or through entering into forward or futures contracts to purchase or sell foreign currencies. INVESTMENT AND REPATRIATION RESTRICTIONS. (Global Technology, Precious Metals Fund, International, Silver, Russia, SmallCap Asia Growth and Worldwide Emerging Markets Funds.) 32 Some foreign countries may have laws and regulations which currently preclude direct foreign investment in the securities of their companies. However, indirect foreign investment in the securities of companies listed and traded on the stock exchanges in these countries is permitted by certain foreign countries through investment funds which have been specifically authorized. The Funds may invest in these investment funds subject to the provisions of the 1940 Act as discussed below under "Investment Restrictions". If the Funds invest in such investment funds, the Funds' shareholders will bear not only their proportionate share of the expenses of the Funds (including operating expenses and the fees of the Investment Manager), but also will bear indirectly similar expenses of the underlying investment funds. In addition, prior governmental approval for foreign investments may be required under certain circumstances in some foreign countries, while the extent of foreign investment in domestic companies may be subject to limitation in other foreign countries. Foreign ownership limitations also may be imposed by the charters of individual companies in foreign countries to prevent, among other concerns, violation of foreign investment limitations. Repatriation of investment income, capital and the proceeds of sales by foreign investors may require governmental registration and/or approval in some foreign countries. The Funds could be adversely affected by delays in or a refusal to grant any required governmental approval for such repatriation. EMERGING COUNTRY AND EMERGING SECURITIES MARKETS Certain Funds may invest in securities in emerging markets. Investing in securities in emerging countries may entail greater risks than investing in debt securities in developed countries. These risks include (i) less social, political and economic stability; (ii) the small current size of the markets for such securities and the currently low or nonexistent volume of trading, which result in a lack of liquidity and in greater price volatility; (iii) certain national policies which may restrict the Fund's investment opportunities, including restrictions on investment in issuers or industries deemed sensitive to national interests; (iv) foreign taxation; and (v) the absence of developed structures governing private or foreign investment or allowing for judicial redress for injury to private property. FOREIGN SECURITIES MARKETS. (Global Technology, Precious Metals Fund, International, Silver, SmallCap Asia Growth, Russia and Worldwide Emerging Markets) Trading volume on foreign country and, in particular emerging market stock exchanges is substantially less than that on the New York Stock Exchange. Further, securities of some foreign and in particular emerging market companies are less liquid and more volatile than securities of comparable U.S. companies. Similarly, volume and liquidity in most foreign bond markets is substantially less than in the U.S. and, consequently, volatility of price can be greater than in the U.S. Fixed commissions on foreign exchanges are generally higher than negotiated commissions on U.S. exchanges, although the Funds endeavor to achieve the most favorable net results on its portfolio transactions and may be able to purchase the securities in which the Funds may invest on other stock exchanges where commissions are negotiable. Foreign stock exchanges, brokers and listed companies are generally subject to less government supervision and regulation than in the United States. The customary settlement time for foreign securities may be longer than the five day customary settlement time for United States securities. Companies in foreign countries are not generally subject to uniform accounting, auditing and financial reporting standards, practices and disclosure requirements comparable to those applicable to U.S. companies. Consequently, there may be less publicly available information about a foreign company than about a U.S. company. Further, there is generally less governmental supervision and regulation of foreign stock exchanges, brokers and listed companies than in the U.S. Further, the Funds may encounter difficulties or be unable to pursue legal remedies and obtain judgments in foreign courts. ECONOMIC AND POLITICAL RISKS. (Global Technology, Precious Metals Fund, International, Silver, SmallCap Asia Growth, Russia and Emerging Markets Funds) 33 The economies of individual foreign countries in which the Funds invest may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position. Further, the economies of foreign countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected by trade barriers, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be adversely affected by economic conditions in the countries with which they trade. The export driven nature of Asian economies is often dependent on the strength of their trading partners in the United States and Europe, although growing intra-regional trade is seen mitigating some of this external dependence. With respect to any foreign country, there is the possibility of nationalization, expropriation or confiscatory taxation, political changes, government regulation, social instability or diplomatic developments (including war) which could affect adversely the economies of such countries or the Funds' investments in those countries. In addition, it may be more difficult to obtain a judgement in a court outside of the United States. INVESTING IN ASIA REGION SECURITIES The SmallCap Asia Growth Fund will invest at least 65% of its total assets in equity securities and equivalents of companies in the Asia Region which have market capitalizations of less than $1 billion. Approximately 13,000 companies are listed on recognized exchanges in the Asia Region. Approximately 300 companies in the Asia Region are capitalized over $1 billion. These companies form the principal components of their respective market indices and consequently attract the majority of foreign investment in the region. Approximately 3,000 companies, which are considered Small Capitalization companies, will be the primary focus for the Fund's investments. These companies are frequently under-researched by international investors and undervalued by their markets. The companies in which the Fund intends to invest will generally have the following characteristics: a market capitalization of less than $1 billion; part of a strong growth industry; proven management; under-researched; and undervalued. INVESTING IN RUSSIAN SECURITIES For the purposes of the Russia Fund section of the prospectus, and this statement of additional information, Russian company means a legal entity (i) that is organized under the laws of, or with a principal office and domicile in, Russia, (ii) for which the principal equity securities trading market is in Russia, or (iii) that derives at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed, in Russia or that has at least 50% of its assets situated in Russia. The Russia Fund intends to invest its assets in Russian companies in a broad array of industries, including the following: oil and gas, energy generation and distribution, communications, mineral extraction, trade, financial and business services, transportation, manufacturing, real estate, textiles, food processing and construction. The Fund is not permitted to invest more than 25% of the value of its total assets in any one industry. It may, however, invest an unrestricted amount of its assets in the oil and gas industry. The Fund's investments will include investments in Russian companies that have characteristics and business relationships common to companies outside of Russia. As a result, outside economic forces may cause fluctuations in the value of securities held by the Fund. Under current conditions, the Russia Fund expects to invest at least 20% of its total assets in very liquid assets to maintain liquidity and provide stability. As the Russian equity markets develop, however, and the liquidity of Russian securities becomes less problematic, the Fund will invest a greater percentage of its assets in Russian equity securities. 34 As further described above, the Russia Fund is authorized to use various investment strategies, some or all of which may be classified as derivatives, to hedge various market risks and to enhance total return, which may be deemed a form of speculation. Subject to the requirements of the 1940 Act, as amended, the Russia Fund may hedge up to 100% of its assets when deemed appropriate by the Investment Manager. The Fund is also authorized to use investment strategies to manage the effective maturity or duration of debt securities or instruments held by the Fund, or to enhance the Fund's income or gain. Although these strategies are regularly used by some investment companies and other institutional investors in various markets, most of these strategies are currently unavailable in Russia and may not become available in the future. Techniques and instruments may change over time, however, as new instruments and strategies are developed or regulatory changes occur. INVESTMENT IN GOLD AND SILVER The Precious Metals Fund's and Silver Fund's performance and ability to meet their objective will generally be largely dependent on the market value of gold and silver, respectively. The Funds' professional management seeks to maximize on advances and minimize on declines by monitoring and anticipating shifts in the relative values of silver and gold and the equity securities of companies engaged in mining or processing silver and gold ("silver-related securities" and "gold-related securities"). The Funds may also invest in other precious metals, including platinum and palladium. A substantial portion of the Precious Metals Fund's and Silver Fund's investments will be in the securities of foreign issuers. The Precious Metals Fund and Silver Fund are of the belief that a silver and gold investment medium will, over the long term, protect capital from adverse monetary and political developments of a national or international nature and, in the face of what appears to be continuous worldwide inflation, may offer better opportunity for capital growth than many other forms of investment. Throughout history, silver and gold have been thought of as the most basic monetary standards. Investments in silver and gold may provide more of a hedge against currencies with declining buying power, devaluation, and inflation than other types of investments. Of course, there can be no assurance that management's' belief will be realized or that the investment objective will be achieved. To the extent that investments in silver and gold and silver and gold related securities appreciate in value relative to the U.S. dollar, the Funds' investments may serve to offset erosion in the purchasing power of the U.S. dollar. The Precious Metals Fund and Silver Fund may invest in debt securities of companies engaged in mining and processing gold and silver. These debt securities can be expected to be comparable to that of other debt obligations and generally will not react to fluctuations in the price of gold and silver. An investment in the debt instruments of these companies, therefore, cannot be expected to provide the hedge against inflation that may be provided through investments in equity securities of companies engaged in such activities and can be expected to fluctuate inversely with prevailing interest rates. It is anticipated that, except for temporary defensive or liquidity purposes, 65% of the total assets of the Funds will be invested in silver and gold and silver-related or gold-related securities. At any time management deems it advisable for defensive or liquidity purposes, the Funds may hold cash or cash equivalents in the currency of any major industrial nation, and invest in, or hold unlimited amounts of debt obligations of the United States Government or its political subdivisions, and money market instruments including repurchase agreements with maturities of seven days or less and Certificates of Deposit. It is the Investment Manager's present intention to manage the Precious Metals Fund's and the Silver Fund's investments so that (i) less than half of the value of their portfolios will consist of silver, gold or other precious metals and (ii) more than half of the value of their portfolios will be invested in silver or gold-related securities, including securities of foreign issuers. Although the Funds' Board of Directors/Trustees present policy prohibits investments in speculative securities trading at extremely low prices and in relatively illiquid markets, investments in such securities can be made when and 35 if the Board determines such investments to be in the best interests of the Funds and their shareholders. The policies set forth in this paragraph are subject to change by the Board of Directors/Trustees of the Precious Metals Fund or Silver Fund, respectively, in their sole discretion. FLUCTUATIONS IN THE PRICE OF GOLD AND SILVER. The prices of silver and gold have been subject to dramatic downward and upward price movements over short periods of time and may be affected by unpredictable international monetary and political policies, such as currency devaluations or revaluations, economic conditions within an individual country, trade imbalances, or trade or currency restrictions between countries. The price of silver and gold, in turn, is likely to affect the market prices of securities of companies mining or processing silver and gold, and accordingly, the value of the Funds' investments in such securities may also be affected. POTENTIAL EFFECT OF CONCENTRATION OF SOURCE OF SUPPLY AND CONTROL OF SALES. The two largest national producers of silver and gold bullion are the Republic of South Africa and the United States of America. Changes in political and economic conditions affecting either country may have direct impact on that country's sales of silver and gold. Under South African law, the only authorized sales agent for silver and gold produced in South Africa is the Reserve Bank of South Africa, which through its retention policies controls the time and place of any sale of South African bullion. The South African Ministry of Mines determines silver and gold mining policy. South Africa depends predominately on silver and gold sales for the foreign exchange necessary to finance its imports, and its sales policy is necessarily subject to national economic and political developments. INVESTMENTS IN SILVER AND GOLD BULLION. Unlike certain more traditional investment vehicles such as savings deposits and stocks and bonds, which may produce interest or dividend income, silver and gold bullion earns no income return. Appreciation in the market price of silver and gold is the sole manner in which the Funds will be able to realize gains on its investment in silver and gold bullion. Furthermore, the Funds may encounter storage and transaction costs in connection with its ownership of silver and gold bullion which may be higher than those attendant to the purchase, holding and disposition of more traditional types of investments. INTERNATIONAL AND DOMESTIC MONETARY SYSTEMS. Substantial amounts of silver and gold bullion serving as primary official reserve assets play a major role in the international monetary system. Since December 31, 1974, when it again became legal to invest in silver and gold, several new markets have developed in the United States. In connection with this legalization of silver ownership, the U.S. Treasury and the International Monetary Fund embarked upon programs to dispose of substantial amounts of silver and gold bullion. OTHER INVESTMENT COMPANIES All of the Funds may invest in other investment companies ("Underlying Funds"). Each Fund may not (i) invest more than 10% of its total assets in Underlying Funds, (ii) invest more than 5% of its total assets in any one Underlying Fund, or (iii) purchase greater than 3% of the total outstanding securities of any one Underlying Fund. The Funds may also make indirect foreign investments through other investment companies that have comparable investment objectives and policies as the Funds. In addition to the advisory and operational fees a Fund bears directly in connection with its own operation, the Fund would also bear its pro rata portions of each other investment company's advisory and operational expenses. INVESTMENT STRATEGIES AND RISKS -- MONEY MARKET TRUST In order for the Money Market Trust to achieve its objective of seeking as high a level of current income as is available from short term investments and consistent with the preservation of capital and liquidity, the Fund will invest its assets in the following money market instruments: (l) Obligations issued, or guaranteed as to interest and principal, by the Government of the United States or any agency or instrumentality thereof; (2) 36 U.S. dollar denominated time deposits, certificates of deposit and bankers' acceptances of U.S. banks and their London and Nassau branches and of U.S. branches of foreign banks, provided that the bank has total assets of one billion dollars; (3) Commercial paper of U.S. corporations, rated Al, A2 by Standard & Poor's Corporation or Pl, P2 by Moody's Investors Service, Inc. or, if not rated, of such issuers having outstanding debt rated A or better by either of such services, or debt obligations of such issuers maturing in two years or less and rated A or better; (4) Repurchase agreements under which the Fund may acquire an underlying debt instrument for a relatively short period subject to the obligation of the seller to repurchase, and of the Fund to resell, at a fixed price. The underlying security must be of the same quality as those described herein, although the usual practice is to use U.S. Government or government agency securities. The Fund will enter into repurchase agreements only with commercial banks and dealers in U.S. Government securities. Repurchase agreements when entered into with dealers, will be fully collateralized including the interest earned thereon during the entire term of the agreement. If the institution defaults on the repurchase agreement, the Fund will retain possession of the underlying securities. In addition, if bankruptcy proceedings are commenced with respect to the seller, realization on the collateral by the Fund may be delayed or limited and the Fund may incur additional costs. In such case the Fund will be subject to risks associated with changes in the market value of the collateral securities. The Fund intends to limit repurchase agreements to institutions believed by the Investment Manager to present minimal credit risk. The Fund will not enter into repurchase agreements maturing in more than seven days if the aggregate of such repurchase agreements would exceed 10% of the total assets of the Fund; or (5) Other money market instruments. The obligations of London and Nassau branches of U.S. banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by governmental regulation. Payment of interest and principal upon these obligations may also be affected by governmental action in the country of domicile of the branch (generally referred to as "sovereign risk"). In addition, evidences of ownership of portfolio securities may be held outside of the U.S., and the Lexington Money Market Trust may be subject to the risks associated with the holding of such property overseas. Examples of governmental actions would be the imposition of currency controls, interest limitations, seizure of assets, or the declaration of a moratorium. Obligations of U.S. branches of foreign banks may be general obligations of the parent bank in addition to the issuing branch, or may be limited by the terms of a specific obligation and by Federal and state regulation as well as by governmental action in the country in which the foreign bank has its head office. While the Funds will carefully consider these factors on making such investments, there are no limitations on the percentage of the Funds' portfolio which may be invested in any one type of instrument. The Investment Policies stated above are fundamental and may not be changed without shareholder approval. The Fund may not invest in securities other than the types of securities listed above and is subject to other specific restrictions as detailed under "Investment Restrictions" below. INVESTMENT RESTRICTIONS FUNDAMENTAL INVESTMENT RESTRICTIONS -- GLOBAL TECHNOLOGY FUND The Fund's investment objective and the following investment restrictions are matters of fundamental policy which may not be changed without the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund present at a shareholders' meeting at which more than 50% of the outstanding shares are present or represented by proxy or (b) more than 50% of the outstanding shares. Under these investment restrictions: (1) the Fund will not issue any senior security (as defined in the 1940 Act), except that: (a) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including reverse repurchase agreements, foreign exchange contracts and delayed delivery and when-issued securities, which may be considered the issuance of senior securities; (b) the Fund may engage in transactions that may result in the issuance of a senior 37 security to the extent permitted under applicable regulations, interpretation of the 1940 Act or an exemptive order; (c) the Fund may engage in short sales of securities to the extent permitted in its investment program and other restrictions; (d) the purchase or sale of futures contracts and related options shall not be considered to involve the issuance of senior securities; and (e) subject to fundamental restrictions, the Fund may borrow money as authorized by the 1940 Act. (2) The Fund will not borrow money, except that: (a) the Fund may enter into certain futures contracts and options related thereto; (b) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including delayed delivery and when-issued securities and reverse repurchase agreements; (c) for temporary emergency purposes, the Fund may borrow money in amounts not exceeding 5% of the value of its total assets at the time the loan is made; (d) The Fund may pledge its portfolio securities or receivables or transfer or assign or otherwise encumber them in an amount not exceeding one-third of the value of its total assets; and (e) for purposes of leveraging, the Fund may borrow money from banks (including its custodian bank), only if, immediately after such borrowing, the value of the Fund's assets, including the amount borrowed, less its liabilities, is equal to at least 300% of the amount borrowed, plus all outstanding borrowings. If at any time, the value of the Fund's assets fails to meet the 300% asset coverage requirement relative only to leveraging, the Fund will, within three days (not including Sundays and holidays), reduce its borrowings to the extent necessary to meet the 300% test. (3) The Fund will not act as an underwriter of securities except to the extent that, in connection with the disposition of portfolio securities by the Fund, the Fund may be deemed to be an underwriter under the provisions of the 1933 Act. (4) The Fund will not purchase real estate, interests in real estate or real estate limited partnership interests except that, to the extent appropriate under its investment program, the Fund may invest in securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which deal in real estate or interests therein. (5) The Fund will not make loans, except that, to the extent appropriate under its investment program, the Fund may: (a) purchase bonds, debentures or other debt securities, including short-term obligations; (b) enter into repurchase transactions; and (c) lend portfolio securities provided that the value of such loaned securities does not exceed one-third of the Fund's total assets. (6) The Fund will not invest in commodity contracts, except that the Fund may, to the extent appropriate under its investment program, purchase securities of companies engaged in such activities, enter into transactions in financial and index futures contracts and related options, engage in transactions on a when-issued or forward commitment basis, and enter into forward currency contracts. (7) The Fund will not concentrate its investments in any one industry, except that the Fund may invest up to 25% of its total assets in securities issued by companies principally engaged in any one industry. The Fund considers foreign government securities and supranational organizations to be industries. This limitation, however, will not apply to securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities. In addition to the above fundamental restrictions, the Fund has undertaken the following non fundamental restrictions, which may be changed in the future by the Board of Directors, without a vote of the shareholders of the Fund: 38 (1) The Fund may purchase and sell futures contracts and related options under the following conditions: (a) the then-current aggregate futures market prices of financial instruments required to be delivered and purchased under open futures contracts shall not exceed 30% of the Fund's total assets, at market value; and (b) no more than 5% of the assets, at market value at the time of entering into a contract, shall be committed to margin deposits in relation to futures contracts. (2) The Fund will not make short sales of securities, other than short sales "against the box," or purchase securities on margin except for short-term credits necessary for clearance of portfolio transactions, provided that this restriction will not be applied to limit the use of options, futures contracts and related options, in the manner otherwise permitted by the investment restrictions, policies and investment programs of the Fund. (3) The Fund will not purchase the securities of any other investment company, except as permitted under the 1940 Act. (4) The Fund will not invest more than 15% of its total assets in illiquid securities. Illiquid securities are securities that are not readily marketable or cannot be disposed of promptly within seven days and in the usual course of business without taking a materially reduced price. Such securities include, but are not limited to, time deposits and repurchase agreements with maturities longer than seven days. Securities that may be resold under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended, and any other security that is restricted as to resale under federal securities laws but is determined to be liquid by the Investment Adviser based on criteria established by the Board of Directors shall not be deemed illiquid solely by reason of being unregistered. The percentage restrictions referred to above are to be adhered to at the time of investment and are not applicable to a later increase or decrease in percentage beyond the specified limit resulting from change in values or net assets. FUNDAMENTAL INVESTMENT RESTRICTIONS--GNMA INCOME FUND The following investment restrictions are matters of fundamental policy which may not be changed without the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund present at a shareholders' meeting at which more than 50% of the outstanding shares are present or represented by proxy or (b) more than 50% of the outstanding shares. Under these investment restrictions, the Fund will not : (1) issue senior securities; (2) borrow money; (3) underwrite securities of other issuers; (4) concentrate its investments in a particular industry to an extent greater than 25% of its total assets, provided that such limitation shall not apply to securities issued or guaranteed by the U.S. Government or its agencies; (5) purchase or sell real estate, commodity contracts or commodities (however, the Fund may purchase interests in GNMA mortgage-backed certificates); 39 (6) make loans to other persons except: (a) through the purchase of a portion or portions of an issue or issues of securities issued or guaranteed by the U.S. Government or its agencies, or (b) through investments in "repurchase agreements" (which are arrangements under which the Fund acquires a debt security subject to an obligation of the seller to repurchase it at a fixed price within a short period), provided that no more than 10% of the Fund's assets may be invested in repurchase agreements which mature in more than seven days; (7) purchase the securities of another investment company or investment trust, except in the open market and then only if no profit, other than the customary broker's commission, results to a sponsor or dealer, or by merger or other reorganization; (8) purchase any security on margin or effect a short sale of a security; (9) buy securities from or sell securities (other than securities issued by the Fund) to any of its officers, directors or its investment adviser, as principal; (10) contract to sell any security or evidence of interest therein, except to the extent that the same shall be owned by the Fund; (11) purchase or retain securities of an issuer when one or more of the officers and directors of the Fund or of the Adviser, or a person owning more than 10% of the stock of either, own beneficially more than 1/2 of 1% of the securities of such issuer and such persons owning more than 1/2 of 1% of such securities together own beneficially more than 5% of the securities of such issuer; (12) invest more than 5% of its total assets in the securities of any one issuer (except securities issued or guaranteed by the U.S. Government or its agencies), except that such restriction shall not apply to 25% of the Fund's portfolio so long as the net asset value of the portfolio does not exceed $2,000,000; (13) purchase any securities if such purchase would cause the Fund to own at the time of purchase more than 10% of the outstanding voting securities of any one issuer; (14) purchase any security restricted as to disposition under Federal securities laws; (15) invest in interests in oil, gas or other mineral exploration or development programs; or (16) buy or sell puts, calls or other options. In addition to the above fundamental restrictions, the Fund has undertaken the following non fundamental restrictions, which may be changed in the future by the Board of Directors, without a vote of the shareholders of the Fund: (1) invest in real estate limited partnership interests, oil, gas or mineral leases, as well as exploration or development programs; or (2) purchase warrants except in units with other securities in original issuance thereof or attached to other securities, if at the time of purchase, the Fund's investment in warrants, valued at the lower of cost or market, would exceed 5% of the Fund's total assets. Warrants which are not listed on the New York or American stock exchanges shall not exceed 2% of the Fund's net assets. Shares of the Fund will not be issued for consideration other than cash. The percentage restrictions referred to above are to be adhered to at the time of investment and are not applicable to a later increase or decrease in percentage beyond the specified limit resulting from change in values or net assets. 40 FUNDAMENTAL INVESTMENT RESTRICTIONS -- PRECIOUS METALS FUND The Fund's investment objective, as described under "investment policy" and the following investment restrictions are matters of fundamental policy which may not be changed without the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund present at a shareholders' meeting at which more than 50% of the outstanding shares are present or represented by proxy or (b) more than 50% of the outstanding shares. Under these investment restrictions: (1) The Fund will not issue any senior security (as defined in the 1940 Act), except that (a) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including reverse repurchase agreements, foreign exchange contracts, delayed delivery and when-issued securities, which may be considered the issuance of senior securities; (b) the Fund may engage in transactions that may result in the issuance of a senior security to the extent permitted under applicable regulations, interpretation of the 1940 Act or an exemptive order; (c) the Fund may engage in short sales of securities to the extent permitted in its investment program and other restrictions; (d) the purchase or sale of futures contracts and related options shall not be considered to involve the issuance of senior securities; and (e) subject to fundamental restrictions, the Fund may borrow money as authorized by the 1940 Act. (2) at the end of each quarter of the taxable year, (i) with respect to at least 50% of the market value of the Fund's assets, the Fund may invest in cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purchases of this calculation to an amount not greater than 5% of the value of the Fund's total assets, and (ii) not more than 25% of the value of its total assets be invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies). (3) The Fund will not concentrate its investments by investing more than 25% of its assets in the securities of issuers in any one industry. This limit will not apply to gold and gold-related securities, and to securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities. (4) The Fund will not invest in commodity contracts, except that the Fund may, to the extent appropriate under its investment program, purchase securities of companies engaged in such activities, may enter into transactions in financial and index futures contracts and related options, and may enter into forward currency contracts. Transactions in gold, platinum, palladium or silver bullion will not be subject to this restriction. (5) The Fund will not purchase real estate, interests in real estate or real estate limited partnership interest except that, to the extent appropriate under its investment program, the Fund may invest in securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which deal in real estate or interests therein. (6) The Fund will not make loans, except that, to the extent appropriate under its investment program, the Fund may (a) purchase bonds, debentures or other debt securities, including short-term obligations, (b) enter into repurchase transactions and (c) lend portfolio securities provided that the value of such loaned securities does not exceed one-third of the Fund's total assets. (7) The Fund will not borrow money, except that (a) the Fund may enter into certain futures contracts and options related thereto; (b) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including delayed delivery and when-issued securities and reverse repurchase agreements; (c) for temporary emergency purposes, the Fund may borrow money in amounts not exceeding 5% of the value of its total assets at the time 41 when the loan is made; (d) the Fund may pledge its portfolio securities or receivables or transfer or assign or otherwise encumber then in an amount not exceeding one-third of the value of its total assets; and (e) for purposes of leveraging, the Fund may borrow money from banks (including its custodian bank), only if, immediately after such borrowing, the value of the Fund's assets, including the amount borrowed, less its liabilities, is equal to at least 300% of the amount borrowed, plus all outstanding borrowings. If at any time, the value of the Fund's assets fails to meet the 300% asset coverage requirement relative only to leveraging, the Fund will, within three days (not including Sundays and holidays), reduced its borrowings to the extent necessary to meet the 300% test. The Fund will only invest in reverse repurchase agreements up to 5% of the Fund's total assets. (8) The Fund will not act as underwriter of securities except to the extent that, in connection with the disposition of portfolio securities by the Fund, the Fund may be deemed to be an underwriter under the provisions of the 1933 Act. In additional to the above fundamental restrictions, the Fund has undertaken the following non fundamental restrictions, which may be changed in the future by the Board of Directors, without a vote of the shareholders of the Fund: (1) The Fund will not invest more than 15% of its total assets in illiquid securities. Illiquid securities are securities that are not readily marketable or cannot be disposed of promptly within seven days and in the usual course of business without taking a materially reduced price. Such securities include, but are not limited to, time deposits and repurchase agreements with maturities longer than seven days. Securities that may be resold under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended, shall not be deemed illiquid solely by reason of being unregistered. The Investment Adviser shall determine whether a particular security is deemed to be liquid based on the trading markets for the specific security and other factors. (2) The Fund will not make short sales of securities, other than short sales "against the box," or purchase securities on margin except for short-term credits necessary for clearance of portfolio transactions, provided that this restriction will not be applied to limit the use of options, futures contracts and related options, in the manner otherwise permitted by the investment restrictions, policies and investment programs of the Fund. (3) The Fund will not write, purchase or sell puts or calls on underlying securities. However, the Fund may invest up to 15% of the value of its assets in warrants. This restriction on the purchase of warrants does not apply to warrants attached to, or otherwise included in, a unit with other securities. (4) The Fund may purchase and sell futures contracts and related options under the following conditions: (a) the then-current aggregate futures market prices of financial instruments required to be delivered and purchased under open futures contracts shall not exceed 30% of the Fund's total assets, at market value; and (b) no more than 5% of the assets, at market value at the time of entering into a contract, shall be committed to margin deposits in relation to futures contracts. (5) The Fund will not purchase the securities of any other investment company, except as permitted under the 1940 Act. (6) The Fund will not invest for the purpose of exercising control over or management of any company. (7) The Fund will not participate on a joint or joint-and-several basis in any securities trading account. The "bunching" of orders for the sale or purchase of marketable portfolio securities with other accounts under the management of the investment adviser to save commissions or to average prices among them is not deemed to result in a securities trading account. The percentage restrictions referred to above are to be adhered to at the time of investment and are not applicable to a later increase or decrease in percentage beyond the specified limit resulting from change in values or net assets. 42 FUNDAMENTAL INVESTMENT RESTRICTIONS -- GROWTH AND INCOME FUND The Fund shareholder vote required for modification of the investment policies or restrictions listed below is the lesser of: (a) 67% or more of the voting securities present at a meeting if the holders of more than 50% are present or represented by proxy; or (b) more than 50% of the voting securities. The Fund shall not: (1) issue senior securities; (2) underwrite securities of other issuers; (3) purchase or sell real estate, commodity contracts or commodities (however, the Fund may purchase interests in real estate investment trusts whose securities are registered under the Securities Act of 1933 and are readily marketable); (4) make loans to other persons except (a) through the purchase of a portion or portions of publicly distributed bonds, notes, debentures and evidences of indebtedness authorized by its investment policy, or (b) through investments in" repurchase agreements" (which are arrangements under which the Fund acquires a debt security subject to an obligation of the seller to repurchase it at a fixed price within a short period), provided that no more than 10% of the Fund's assets may be invested in repurchase agreements which mature in more than seven days; (5) purchase the securities of another investment company or investment trust except in the open market where no profit results to a sponsor or dealer, other than the customary broker's commission; (6) purchase any security on margin or effect a short sale of a security; (7) buy securities from or sell securities to any of its officers and directors or those of the investment adviser or principal distributor as principal; (8) contract to sell any security or evidence of interest therein except to the extent that the same shall be owned by the Fund; (9) retain securities of an issuer when one or more of the officers and directors of the Fund or the investment adviser or a person owning more than 10% of the stock of either, own beneficially more than 0.5% of the securities of such issuer and the persons owning more than 0.5% of such securities together own beneficially more than 5% of the securities of such issuer; (10) invest more than 5% of the value of its total assets in the securities of any one issuer nor acquire more than 10% of the outstanding voting securities of any one issuer; (11) invest in companies for the purpose of exercising management or control; or (12) concentrate its investments in a particular industry; thus the Fund will not purchase a security if the immediate effect of such purchase would be to increase the Fund's holdings in such industry above 25% of the Fund's assets. In addition to the above fundamental investment restrictions, the Fund has undertaken not to: a) invest an aggregate of more than 5% of its total assets in the securities of unseasoned issuers and equity securities of issuers which are not readily marketable; b) invest in puts, calls, straddles, spreads, and any combination thereof; or c) pledge, mortgage or hypothecate the assets of the Fund to an extent greater than 15% of the gross assets of the Fund taken at cost. The Fund has authority to borrow money from a bank not in excess of the lesser of: (a) 5% of the gross assets of the Fund at the current market value at the time of such borrowing; or (b) 10% of the gross assets of the Fund taken at cost. Any such borrowing may be undertaken only as a temporary measure for extraordinary or emergency purposes. This borrowing power has not been exercised by the Fund's management. 43 The 5% diversification limitation set forth in subparagraph (x) above does not apply to obligations issued or guaranteed as to principal and interest by the United States Government, nor does it apply to bank certificates of deposit, which are not classified by the Fund as securities for the purposes of this limitation. The Fund may not use more than 5% of its net assets to purchase illiquid securities. The Fund treats any securities subject to restrictions on repatriation for more than seven days, and securities issued in connection with foreign debt conversion programs that are restricted as to remittance of invested capital or profit, as illiquid. The Fund also treats repurchase agreements with maturities in excess of seven days as illiquid. Illiquid securities do not include securities that are restricted from trading on formal markets for some period of time but for which an active informal market exists, or securities that meet the requirements of Rule 144A under the Securities Act of 1933 and that, subject to the review by the Board of Directors and guidelines adopted by the Board of Directors, the Investment Manager has determined to be liquid. FUNDAMENTAL INVESTMENT RESTRICTIONS -- INTERNATIONAL FUND The Fund's investment objective and the following investment restrictions are matters of fundamental policy which may not be changed without the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund present at a shareholders' meeting at which more than 50% of the outstanding shares are present or represented by proxy or (b) more than 50% of the outstanding shares. Under these investment restrictions: (1) The Fund will not issue any senior security (as defined in the 1940 Act), except that: (a) The Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including reverse repurchase agreements, foreign exchange contracts, delayed delivery and when-issued securities, which may be considered the issuance of senior securities; (b) the Fund may engage in transactions that may result in the issuance of a senior security to the extent permitted under applicable regulations, interpretation of the 1940 Act or an exemptive order; (c) the Fund may engage in short sales of securities to the extent permitted in its investment program and other restrictions; (d) the purchase or sale of futures contracts and related options shall not be considered to involve the issuance of senior securities; and (e) subject to fundamental restrictions, the Fund may borrow money as authorized by the 1940 Act. (2) The Fund will not borrow money, except that: (a) the Fund may enter into certain futures contracts and options related thereto; (b) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including delayed delivery and when-issued securities and reverse repurchase agreements; (c) for temporary emergency purposes, the Fund may borrow money in amounts not exceeding 5% of the value of its total assets at the time when the loan is made; (d) The Fund may pledge its portfolio securities or receivables or transfer or assign or otherwise encumber them in an amount not exceeding one-third of the value of its total assets; and (e) for purposes of leveraging, the Fund may borrow money from banks (including its custodian bank), only if, immediately after such borrowing, the value of the Fund's assets, including the amount borrowed, less its liabilities, is equal to at least 300% of the amount borrowed, plus all outstanding borrowings. If at any time, the value of the Fund's assets fails to meet the 300% asset coverage requirement relative only to leveraging, the Fund will, within three days (not including Sundays and holidays), reduce its borrowings to the extent necessary to meet the 300% test. (3) The Fund will not act as an underwriter of securities except to the extent that, in connection with the disposition of portfolio securities by the Fund, the Fund may be deemed to be an underwriter under the provisions of the 1933 Act. 44 (4) The Fund will not purchase real estate, interests in real estate or real estate limited partnership interests except that, to the extent appropriate under its investment program, the Fund may invest in securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which deal in real estate or interests therein. (5) The Fund will not make loans, except that, to the extent appropriate under its investment program, the Fund may: (a) purchase bonds, debentures or other debt securities, including short-term obligations; (b) enter into repurchase transactions; and (c) lend portfolio securities provided that the value of such loaned securities does not exceed one-third of the Fund's total assets. (6) The Fund will not invest in commodity contracts, except that the Fund may, to the extent appropriate under its investment program, purchase securities of companies engaged in such activities, may enter into transactions in financial and index futures contracts and related options, may engage in transactions on a when-issued or forward commitment basis, and may enter into forward currency contracts. (7) The Fund will not concentrate its investments in any one industry, except that the Fund may invest up to 25% of its total assets in securities issued by companies principally engaged in any one industry. The Fund considers foreign government securities and supranational organizations to be industries. This limitation, however, will not apply to securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities. (8) The Fund will not purchase securities of an issuer, if (a) more than 5% of the Fund's total assets taken at market value would at the time be invested in the securities of such issuer, except that such restriction shall not apply to securities issued or guaranteed by the United States government or its agencies or instrumentalities or, with respect to 25% of the Fund's total assets, to securities issued or guaranteed by the government of any country other than the United States which is a member of the Organization for Economic Cooperation and Development ("OECD"). The member countries of OECD are at present: Australia, Austria, Belgium, Canada, Denmark, Germany, Finland, France, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States; or (b) such purchases would at the time result in more than 10% of the outstanding voting securities of such issuer being held by the Fund. In addition to the above fundamental restrictions, the Fund has undertaken the following non fundamental restrictions, which may be changed in the future by the Board of Directors, without a vote of the shareholders of the Fund: (1) The Fund will not participate on a joint or joint-and-several basis in any securities trading account. The "bunching" of orders for the sale or purchase of marketable portfolio securities with other accounts under the management of the investment adviser to save commissions or to average prices among them is not deemed to result in a securities trading account. (2) The Fund may purchase and sell futures contracts and related options under the following conditions: (a) The then-current aggregate futures market prices of financial instruments required to be delivered and purchased under open futures contracts shall not exceed 30% of the Fund's total assets, at market value; and (b) no more than 5% of the assets, at market value at the time of entering into a contract, shall be committed to margin deposits in relation to futures contracts. (3) The Fund will not make short sales of securities, other than short sales "against the box," or purchase securities on margin except for short-term credits necessary for clearance of portfolio transactions, provided that this 45 restriction will not be applied to limit the use of options, futures contracts and related options, in the manner otherwise permitted by the investment restrictions, policies and investment programs of the Fund. (4) The Fund will not purchase the securities of any other investment company, except as permitted under the 1940 Act. (5) The Fund will not invest for the purpose of exercising control over or management of any company. (6) The Fund will not purchase warrants except in units with other securities in original issuance thereof or attached to other securities, if at the time of the purchase, the Fund's investment in warrants, valued at the lower of cost or market, would exceed 5% of the Fund's total assets. For these purposes, warrants attached to units or other securities shall be deemed to be without value. (7) The Fund will not invest more than 15% of its total assets in illiquid securities. Illiquid securities are securities that are not readily marketable or cannot be disposed of promptly within seven days and in the usual course of business without taking a materially reduced price. Such securities include, but are not limited to, time deposits and repurchase agreements with maturities longer than seven days. Securities that may be resold under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended, shall not be deemed illiquid solely by reason of being unregistered. The Investment Adviser shall determine whether a particular security is deemed to be liquid based on the trading markets for the specific security and other factors. The percentage restrictions referred to above are to be adhered to at the time of investment and are not applicable to a later increase or decrease in percentage beyond the specified limit resulting from change in values or net assets. FUNDAMENTAL INVESTMENT RESTRICTIONS -- SILVER FUND The Fund's investment objective, as described under "Investment Objective" in the Fund's prospectus, and the following investment restrictions are matters of fundamental policy which may not be changed without the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund present at a shareholders' meeting at which more than 50% of the outstanding shares are present or represented by proxy or (b) more than 50% of the outstanding shares. Under these investment restrictions: (1) At least 80% of the Fund's assets will be invested in established silver-related companies which have been in business for more than three years. (2) At the end of each quarter of the taxable year, (i) at least 50% of the market value of the Fund's assets be invested in cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer counted for the purposes of this calculation only if the value of thereof is not greater than 5% of the value of the Fund's total assets, and (ii) not more than 25% of its total assets be invested in securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies). (3) The Fund will not purchase real estate, interests in real estate or real estate limited partnership interests except that, to the extent appropriate under its investment program, the Fund may invest in securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which deal in real estate or interests therein. (4) The Fund will not invest in commodity contracts, except that the Fund may, to the extent appropriate under its investment program, purchase securities of companies engaged in such activities, may enter into transactions in financial and index futures contracts and related options, may engage in transactions on a when-issued or forward commitment basis, and may enter into forward currency contracts. Transactions in which silver bullion is taken in payment of principal, interest or both or a debt instrument and where the Fund disposes of the silver bullion for cash will not be subject to this restriction. 46 (5) The Fund will not make loans, except that, to the extent appropriate under its investment program, the Fund may (a) purchase bonds, debentures or other debt securities, including short-term obligations, (b) enter into repurchase transactions and (c) lend portfolio securities or bullion provided that the value of such loaned securities does not exceed one-third of the Fund's total assets. (6) The Fund will not borrow money, except that (a) the Fund may enter into certain futures contracts and options related thereto; (b) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including delayed delivery and when-issued securities and reverse repurchase agreements; (c) for temporary emergency purposes, the Fund may borrow money in amounts not exceeding 5% of the value of its total assets at the time when the loan is made; (d) the Fund may pledge its silver or portfolio securities or receivables or transfer or assign or otherwise encumber them in an amount not exceeding one-third of the value of its total assets; and (e) for purposes of leveraging, the Fund may borrow money from banks (including its custodian bank), only if, immediately after such borrowing, the value of the Fund's assets, including the amount borrowed, less its liabilities, is equal to at least 300% of the amount borrowed, plus all outstanding borrowings. If at any time, the value of the Fund's assets fails to meet the 300% asset coverage requirement relative only to leveraging, the Fund will, within three days (not including Sundays and holidays), reduce its borrowings to the extent necessary to meet the 300% test. (7) The Fund will not issue any senior security (as defined in the 1940 Act), except that (a) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including reverse repurchase agreements, foreign exchange contracts, delayed delivery and when-issued securities, which may be considered the issuance of senior securities; (b) the Fund may engage in transactions that may result in the issuance of a senior security to the extent permitted under applicable regulations, interpretations of the 1940 Act or an exemptive order; (c) the Fund may engage in short sales of securities to the extent permitted in its investment program and other restrictions; (d) the purchase or sale of futures contracts and related options shall not be considered to involve the issuance of senior securities; and (e) subject to fundamental restrictions, the Fund may borrow money as authorized by the 1940 Act. (8) The Fund will not act as an underwriter of securities except to the extent that, in connection with the disposition of portfolio securities by the Fund, the Fund may be deemed to be an underwriter under the provisions of the Securities Act of 1933, as amended (the "1933 Act"). In addition to the above fundamental restrictions, the Fund has undertaken the following nonfundamental restrictions, which may be changed in the future by the Board of Directors, without a vote of the shareholders of the Fund: (1) The Fund will not invest more than 15% of its total net assets at market value in illiquid securities. Illiquid securities are securities that are not readily marketable or cannot be disposed of promptly within seven days and in the usual course of business without taking a materially reduced price. Such securities include, but are not limited to, time deposits and repurchase agreements with maturities longer than seven days. Securities that may be resold under Rule 144A or securities offered pursuant to Section 4(2) of the 1933 Act shall not be deemed illiquid solely by reason of being unregistered. The Investment Adviser shall determine whether a particular security is deemed to be liquid based on the trading markets for the specific security and other factors. (2) The Fund will not invest for the purpose of exercising control over management of any company. (3) The Fund may purchase and sell futures contracts and related options under the following conditions: (a) the then-current aggregate futures market prices of financial instruments required to be delivered and purchased under open futures contracts shall not exceed 30% of the Fund's total assets, at market value; and (b) no more than 5% of the Fund's total assets, at market value at the time of entering into a contract, shall be committed to margin deposits in relation to futures contracts. 47 (4) The Fund will not issue its securities for any considerations other than cash or securities except as a dividend or distribution in connection with a reorganization. (5) The Fund will not purchase the securities of any other investment company, except as permitted under the 1940 Act. (6) The Fund will not make short sales of securities, other than short sales "against the box," or purchase securities on margin except for short-term credits necessary for clearance of portfolio transactions, provided that this restriction will not be applied to limit the use of options, futures contracts and related options, in the manner otherwise permitted by the investment restrictions, policies and investment programs of the Fund. (7) The Fund will not write, purchase or sell puts, calls on underlying securities. However, the Fund may invest up to 15% of the value of its total assets in warrants. This restriction on the purchase of warrants does not apply to warrants attached to, or otherwise included in, a unit with other securities. The percentage restrictions referred to above are to be adhered to at the time of investment and are not applicable to a later increase or decrease in percentage beyond the specified limit resulting from change in values or net assets. FUNDAMENTAL INVESTMENT RESTRICTIONS -- SMALLCAP ASIA GROWTH FUND The Fund's investment objective and the following investment restrictions are matters of fundamental policy which may not be changed without the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund present at a shareholders' meeting at which more than 50% of the outstanding shares are present or represented by proxy or (b) more than 50% of the outstanding shares. Under these investment restrictions: (1) The Fund will not issue any senior security (as defined in the 1940 Act), except that (a) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including reverse repurchase agreements, foreign exchange contracts, delayed delivery and when-issued securities, which may be considered the issuance of senior securities; (b) the Fund may engage in transactions that may result in the issuance of a senior security to the extent permitted under applicable regulations, interpretation of the 1940 Act or an exemptive order; (c) the Fund may engage in short sales of securities to the extent permitted in its investment program and other restrictions; (d) the purchase or sale of futures contracts and related options shall not be considered to involve the issuance of senior securities; and (e) subject to fundamental restrictions, the Fund may borrow money as authorized by the 1940 Act. (2) The Fund will not borrow money, except that (a) the Fund may enter into certain futures contracts and options related thereto; (b) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including delayed delivery and when-issued securities and reverse repurchase agreements; (c) for temporary emergency purposes, the Fund may borrow money in amounts not exceeding 5% of the value of its total assets at the time when the loan is made; (d) The Fund may pledge its portfolio securities or receivables or transfer or assign or otherwise encumber them in an amount not exceeding one-third of the value of its total assets; and (e) for purposes of leveraging, the Fund may borrow money from banks (including its custodian bank), only if, immediately after such borrowing, the value of the Fund's assets, including the amount borrowed, less its liabilities, is equal to at least 300% of the amount borrowed, plus all outstanding borrowings. If at any time, the value of the Fund's assets fails to meet the 300% asset coverage requirement relative only to leveraging, the Fund will, within three days (not including Sundays and holidays), reduce its borrowings to the extent necessary to meet the 300% test. (3) The Fund will not act as an underwriter of securities except to the extent that, in connection with the disposition of portfolio securities by the Fund, the Fund may be deemed to be an underwriter under the provisions of the 1933 Act. 48 (4) The Fund will not purchase real estate, interests in real estate or real estate limited partnership interests except that, to the extent appropriate under its investment program, the Fund may invest in securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which deal in real estate or interests therein. (5) The Fund will not make loans, except that, to the extent appropriate under its investment program, the Fund may (a) purchase bonds, debentures or other debt securities, including short-term obligations, (b) enter into repurchase transactions and (c) lend portfolio securities provided that the value of such loaned securities does not exceed one-third of the Fund's total assets. (6) The Fund will not invest in commodity contracts, except that the Fund may, to the extent appropriate under its investment program, purchase securities of companies engaged in such activities, enter into transactions in financial and index futures contracts and related options, engage in transactions on a when-issued or forward commitment basis, and enter into forward currency contracts. (7) The Fund will not concentrate its investments in any one industry, except that the Fund may invest up to 25% of its total assets in securities issued by companies principally engaged in any one industry. The Fund considers foreign government securities and supranational organizations to be industries. This limitation, however, will not apply to securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities. (8) The Fund will not purchase securities of an issuer, if (a) more than 5% of the Fund's total assets taken at market value would, at the time, be invested in the securities of such issuer, except that such restriction shall not apply to securities issued or guaranteed by the United States government or its agencies or instrumentalities or, with respect to 25% of the Fund's total assets, to securities issued or guaranteed by the government of any country other than the United States which is a member of the Organization for Economic Cooperation and Development ("OECD"). The member countries of OECD are at present: Australia, Austria, Belgium, Canada, Denmark, Germany, Finland, France, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States; or (b) such purchases would at the time result in more than 10% of the outstanding voting securities of such issuer being held by the Fund. In addition to the above fundamental restrictions, the Fund has undertaken the following non-fundamental restrictions, which may be changed in the future by the Board of Directors, without a vote of the shareholders of the Fund: (1) The Fund will not participate on a joint or joint-and-several basis in any securities trading account. The "bunching" of orders for the sale or purchase of marketable portfolio securities with other accounts under the management of the investment adviser or sub-adviser to save commissions or to average prices among them is not deemed to result in a securities trading account. (2) The Fund may purchase and sell futures contracts and related options under the following conditions: (a) the then-current aggregate futures market prices of financial instruments required to be delivered and purchased under open futures contracts shall not exceed 30% of the Fund's total assets, at market value; and (b) no more than 5% of the assets, at market value at the time of entering into a contract, shall be committed to margin deposits in relation to futures contracts. (3) The Fund will not make short sales of securities, other than short sales "against the box," or purchase securities on margin except for short-term credits necessary for clearance of portfolio transactions, provided that this restriction will not be applied to limit the use of options, futures contracts and related options, in the manner otherwise permitted by the investment restrictions, policies and investment programs of the Fund. 49 (4) The Fund will not purchase the securities of any other investment company, except as permitted under the 1940 Act. (5) The Fund will not invest for the purpose of exercising control over or management of any company. (6) The Fund will not purchase warrants except in units with other securities in original issuance thereof or attached to other securities, if at the time of the purchase, the Fund's investment in warrants, valued at the lower of cost or market, would exceed 5% of the Fund's total assets. For these purposes, warrants attached to units or other securities shall be deemed to be without value. (7) The Fund will not invest more than 15% of its total assets in illiquid securities. Illiquid securities are securities that are not readily marketable or cannot be disposed of promptly within seven days and in the usual course of business without taking a materially reduced price. Such securities include, but are not limited to, time deposits and repurchase agreements with maturities longer than seven days. Securities that may be resold under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended, shall not be deemed illiquid solely by reason of being unregistered. The Investment Adviser shall determine whether a particular security is deemed to be liquid based on the trading markets for the specific security and other factors. (8) The Fund will not enter into options on securities, securities indices or currencies or related options (including options on futures) if the sum of initial margin deposits and premiums paid for any such option or options would exceed 5% of its total assets, and it will not enter into options with respect to more than 25% of its total assets. (9) The Fund may purchase and sell futures contracts and related options under the following conditions: (a) the then-current aggregate futures market prices of financial instruments required to be delivered and purchased under open futures contracts shall not exceed 30% of the Fund's total assets, at market value; and (b) no more than 5% of the assets, at market value at the time of entering into a contract, shall be committed to margin deposits in relation to futures contracts. The percentage restrictions referred to above are to be adhered to at the time of investment and are not applicable to a later increase or decrease in percentage beyond the specified limit resulting from change in values or net assets. FUNDAMENTAL INVESTMENT RESTRICTIONS -- RUSSIA FUND The Fund's investment objective, as described under `investment policy' and the following investment restrictions are matters of fundamental policy which may not be changed without the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund present at a shareholders' meeting at which more than 50% of the outstanding shares are present or represented by proxy or (b) more than 50% of the outstanding shares. Under these investment restrictions: (1) The Fund will not issue any senior security (as defined in the 1940 Act), except that (a) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including reverse repurchase agreements, foreign exchange contracts, delayed delivery and when-issued securities, which may be considered the issuance of senior securities; (b) the Fund may engage in transactions that may result in the issuance of a senior security to the extent permitted under applicable regulations, interpretation of the 1940 Act or an exemptive order; (c) the Fund may engage in short sales of securities to the extent permitted in its investment program and other restrictions; (d) the purchase or sale of futures contracts and related options shall not be considered to involve the issuance of senior securities; and (e) subject to fundamental restrictions, the Fund may borrow money as authorized by the 1940 Act. 50 (2) at the end of each quarter of the taxable year, (i) with respect to at least 50% of the market value of the Fund's assets, the Fund may invest in cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purchases of this calculation to an amount not greater than 5% of the value of the Fund's total assets, and (ii) not more than 25% of the value of its total assets be invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies). (3) The Fund will not concentrate its investments by investing more than 25% of its assets in the securities of issuers in any one industry. This limit will not apply to oil and gas related securities and to securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities. (4) The Fund will not invest in commodity contracts, except that the Fund may, to the extent appropriate under its investment program, purchase securities of companies engaged in such activities, may enter into transactions in financial and index futures contracts and related options, and may enter into forward currency contracts. (5) The Fund will not purchase real estate, interests in real estate or real estate limited partnership interest except that, to the extent appropriate under its investment program, the Fund may invest in securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which deal in real estate or interests therein. (6) The Fund will not make loans, except that, to the extent appropriate under its investment program, the Fund may (a) purchase bonds, debentures or other debt securities, including short-term obligations, (b) enter into repurchase transactions and (c) lend portfolio securities provided that the value of such loaned securities does not exceed one-third of the Fund's total assets. (7) The Fund will not borrow money, except that (a) the Fund may enter into certain futures contracts and options related thereto; (b) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including delayed delivery and when-issued securities and reverse repurchase agreements; (c) for temporary emergency purposes, the Fund may borrow money in amounts not exceeding 5% of the value of its total assets at the time when the loan is made; (d) the Fund may pledge its portfolio securities or receivables or transfer or assign or otherwise encumber then in an amount not exceeding one-third of the value of its total assets; and (e) for purposes of leveraging, the Fund may borrow money from banks (including its custodian bank), only if, immediately after such borrowing, the value of the Fund's assets, including the amount borrowed, less its liabilities, is equal to at least 300% of the amount borrowed, plus all outstanding borrowings. If at any time, the value of the Fund's assets fails to meet the 300% asset coverage requirement relative only to leveraging, the Fund will, within three days (not including Sundays and holidays), reduce its borrowings to the extent necessary to meet the 300% test. The Fund will only invest in reverse repurchase agreements up to 5% of the Fund's total assets. (8) The Fund will not act as underwriter of securities except to the extent that, in connection with the disposition of portfolio securities by the Fund, the Fund may be deemed to be an underwriter under the provisions of the 1933 Act. In addition to the above fundamental restrictions, the Russia Fund has undertaken the following non- fundamental restrictions, which may be changed in the future by the Board of Directors, without a vote of the shareholders of the Fund: (1) The Fund will not invest more than 15% of its total assets in illiquid securities. Illiquid securities are securities that are not readily marketable or cannot be disposed of promptly within seven days and in the usual course of business without taking a materially reduced price. Such securities include, but 51 are not limited to, time deposits and repurchase agreements with maturities longer than seven days. Securities that may be resold under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended, shall not be deemed illiquid solely by reason of being unregistered. The Investment Adviser shall determine whether a particular security is deemed to be liquid based on the trading markets for the specific security and other factors. (2) The Fund will not make short sales of securities, other than short sales `against the box,' or purchase securities on margin except for short-term credits necessary for clearance of portfolio transactions, provided that this restriction will not be applied to limit the use of options, futures contracts and related options, in the manner otherwise permitted by the investment restrictions, policies and investment programs of the Fund. (3) The Fund may invest up to 15% of the value of its assets in warrants. This restriction on the purchase of warrants does not apply to warrants attached to, or otherwise included in, a unit with other securities. (4) The Fund may purchase and sell futures contracts and related options under the following conditions: (a) the then-current aggregate futures market prices of financial instruments required to be delivered and purchased under open futures contracts shall not exceed 30% of the Fund's total assets, at market value; and (b) no more than 5% of the assets, at market value at the time of entering into a contract, shall be committed to margin deposits in relation to futures contracts. (5) The Fund will not purchase the securities of any other investment company, except as permitted under the 1940 Act. (6) The Fund will not invest for the purpose of exercising control over or management of any company. (7) The Fund will not participate on a joint or joint-and-several basis in any securities trading account. The `bunching' of orders for the sale or purchase of marketable portfolio securities with other accounts under the management of the investment adviser to save commissions or to average prices among them is not deemed to result in a securities trading account. The percentage restrictions referred to above are to be adhered to at the time of investment and are not applicable to a later increase or decrease in percentage beyond the specified limit resulting from change in values or net assets. FUNDAMENTAL INVESTMENT RESTRICTIONS -- WORLDWIDE EMERGING MARKETS FUND The Fund's investment objective and the following investment restrictions are matters or fundamental policy which may not be changed without the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund present at a shareholders' meeting at which more than 50% of the outstanding shares are present or represented by proxy or (b) more than 50% of the outstanding shares. Under these investment restrictions: (1) The Fund will not issue any senior security (as defined in the 1940 Act), except that: (a) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including reverse repurchase agreements, foreign exchange contracts, delayed delivery and when-issued securities, which may be considered the issuance of senior securities; (b) the Fund may engage in transactions that may result in the issuance of a senior security to the extent permitted under applicable regulations, interpretation of the 1940 Act or an exemptive order; (c) the Fund may engage in short sales of securities to the extent permitted in its investment program and other restrictions; (d) the purchase or sale of futures contracts and related options shall not be considered to involve the issuance of senior securities; and (e) subject to fundamental restrictions, the Fund may borrow money as authorized by the 1940 Act. 52 (2) The Fund shall not act as an underwriter of securities except to the extent that, in connection with the disposition of portfolio securities by the Fund, the Fund may be deemed to be an underwriter under the provisions of the 1933 Act. (3) The Fund shall not purchase real estate, interests in real estate or real estate limited partnership interests except that, to the extent appropriate under its investment program, the Fund may invest in securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which deal in real estate or interests therein. (4) The Fund will not invest in commodity contracts, except that the Fund may, to the extent appropriate under its investment program, purchase securities of companies engaged in such activities, may enter into transactions in financial and index futures contracts and related options, may engage in transactions on a when-issued or forward commitment basis, and may enter into forward currency contracts. (5) The Fund shall not make loans, except that, to the extent appropriate under its investment program, the Fund may: (a) purchase bonds, debentures or other debt securities, including short-term obligations; (b) enter into repurchase transactions; and (c) lend portfolio securities provided that the value of such loaned securities does not exceed one-third of the Fund's total assets. (6) The Fund will not hold more than 5% of the value of its total assets in the securities of any one issuer or hold more than 10% of the outstanding voting securities of any one issuer. This restriction applies only to 75% of the value of the Fund's total assets. Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities are excluded from this restriction. (7) The Fund will not concentrate its investments in any one industry except that the Fund may invest up to 25% of its total assets in securities issuers principally engaged in any one industry. This limitation, however, will not apply to securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, securities invested in, or repurchase agreements for, U.S. Government securities, and certificates of deposit, or bankers' acceptances, or securities of U.S. banks and bank holding companies. (8) The Fund shall not borrow money, except that (a) the Fund may enter into certain futures contracts and options related thereto; (b) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including delayed delivery and when-issued securities and reverse repurchase agreements; (c) for temporary emergency purposes, the Fund may borrow money in amounts not exceeding 5% of the value of its total assets at the time when the loan is made; (d) the Fund may pledge its portfolio securities or receivables or transfer or assign or otherwise encumber them in an amount not exceeding one-third of the value of its total assets; and (e) for purposes of leveraging, the Fund may borrow money from banks (including its custodian bank), only if, immediately after such borrowing, the value of the Fund's assets, including the amount borrowed, less its liabilities, is equal to at least 300% of the amount borrowed, plus all outstanding borrowings. If at any time, the value of the Fund's assets fails to meet the 300% asset coverage requirement relative only to leveraging, the Fund will, within three days (not including Sundays and holidays), reduce its borrowings to the extent necessary to meet the 300% test. In addition to the above fundamental restrictions, the Fund has undertaken the following non-fundamental restrictions, which may be changed in the future by the Board of Directors, without a vote of the shareholders of the Fund: (1) The Fund may purchase and sell futures contracts and related options under the following conditions: (a) the then-current aggregate futures market prices of financial instruments required to be delivered and purchased under open futures contracts shall not exceed 30% of the Fund's total assets, at market value; and (b) no more than 5% of the assets, at market value at the time of entering into a contract, shall be committed to margin deposits in relation to futures contracts. 53 (2) The Fund will not purchase the securities of any other investment company, except as permitted under the 1940 Act. (3) The Fund will not purchase any securities on margin or make short sales of securities, other than short sales `against the box,' or purchase securities on margin except for short-term credits necessary for clearance of portfolio transactions, provided that this restriction will not be applied to limit the use of options, futures contracts and related options, in the manner otherwise permitted by the investment restrictions, policies and investment programs of the Fund. (4) The Fund shall not buy securities from or sell securities (other than securities issued by the Fund) to any of its officers, directors or its investment adviser or distributor as principal. (5) The Fund shall not contract to sell any security or evidence of interest therein, except to the extent that the same shall be owned by the Fund. (6) The Fund will not invest for the purpose of exercising control over or management of any company. (7) The Fund shall not write, purchase or sell puts or calls on underlying securities. However, the Fund may invest up to 15% of the value of its assets in warrants. This restriction on the purchase of warrants does not apply to warrants attached to, or otherwise included in, a unit with other securities. (8) The Fund will not invest more than 15% of its total assets in illiquid securities. Illiquid securities are securities that are not readily marketable or cannot be disposed of promptly within seven days and in the usual course of business without taking a materially reduced price. Such securities include, but are not limited to, time deposits and repurchase agreements with maturities longer than seven days. Securities that may be resold under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended, shall not be deemed illiquid solely by reason of being unregistered. The Investment Adviser shall determine whether a particular security is deemed to be liquid based on the trading markets for the specific security and other factors. The percentage restrictions referred to above are to be adhered to at the time of investment and are not applicable to a later increase or decrease in percentage beyond the specified limit resulting from change in values or net assets. FUNDAMENTAL INVESTMENT RESTRICTIONS -- MONEY MARKET TRUST The following investment restrictions adopted by the Fund may not be changed without the affirmative vote of a majority (defined as the lesser of: 67% of the shares represented at a meeting at which 50% of outstanding shares are present, or 50% of outstanding shares) of its outstanding shares. The Fund may not: (l) purchase any securities other than money market instruments or other debt securities maturing within two years of the date of purchase; (2) borrow an amount which is in excess of one-third of its total assets taken at market value (including the amount borrowed); and then only from banks as a temporary measure for extraordinary or emergency purposes. The Fund will not borrow to increase income but only to meet redemption requests which might otherwise require undue disposition of portfolio securities. The Fund will not invest while it has borrowings outstanding; (3) pledge its assets except in an amount up to 15% of the value of its total assets taken at market value in order to secure borrowings made in accordance with number (2) above; (4) sell securities short unless at all times while a short position is open the Fund maintains a long position in the same security in an amount at least equal thereto; (5) write or purchase put or call options; (6) purchase securities on margin except the Fund may obtain such short term credit as may be necessary for the clearance of purchases and sales of portfolio securities; (7) make investments for the purpose of exercising control or management; (8) purchase securities of other investment companies, except in connection with a merger, consolidation, acquisition or reorganization; (9) make loans to other persons, provided that the Fund may purchase money market securities or enter into 54 repurchase agreements and lend securities owned or held by it as provided herein; (10) lend its portfolio securities, except in conformity with the guidelines set forth below; (11) concentrate more than 25% of its total assets, taken at market value at the time of such investment, in any one industry, except U.S. Government and U.S. Government agency securities and U.S. bank obligations; (12) purchase any securities other than U.S. Government or U.S. Government agency securities, if immediately after such purchase more than 5% of its total assets would be invested in securities of any one issuer for more than three business days; (taken at market value) (13) purchase or hold real estate, commodities or commodity contracts; ( 14 ) invest more than 5% of its total assets (taken at market value) in issues for which no readily available market exists or with legal or contractual restrictions on resale except for repurchase agreements; (15) act as an underwriter (except as it may be deemed such as to the sale of restricted securities); or (16) enter into reverse repurchase agreements. LENDING OF PORTFOLIO SECURITIES. As stated in number (10) above, subject to guidelines established by the Funds and by the Securities and Exchange Commission, the Lexington Money Market Trust, from time-to-time, may lend portfolio securities to brokers, dealers, corporations or financial institutions and receive collateral which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. Such collateral will be either cash or fully negotiable U. S. Treasury or agency issues. If cash, such collateral will be invested in short term securities, the income from which will increase the return to the Fund. However, a portion of such incremental return may be shared with the borrower. If securities, the usual procedure will be for the borrower to pay a fixed fee to the Fund for such time as the loan is outstanding. The Fund will retain substantially all rights of beneficial ownership as to the loaned portfolio securities including rights to interest or other distributions and will have the right to regain record ownership of loaned securities in order to exercise such beneficial rights. Such loans will be terminable at any time. The Fund may pay reasonable fees to persons unaffiliated with it in connection with the arranging of such loans. PORTFOLIO TRANSACTIONS Subject to policies established by the Funds' Board of Directors/Trustees, the Investment Manager is responsible for the execution of the Funds' portfolio transactions and the selection of brokers/dealers that execute such transactions on behalf of the Funds. The Funds' primary policy is to execute all purchases and sales of portfolio instruments at the most favorable prices consistent with best execution, taking into account such factors as the price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm involved. This policy governs the selection of brokers and dealers and the market in which a transaction is executed. Consistent with this policy, the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and such other policies as the Directors may determine, ING Pilgrim Investments may consider sales of shares of the Funds and of the other funds managed by ING Pilgrim Investments (the `Pilgrim Funds') as a factor in the selection of broker-dealers to execute the Funds' portfolio transactions. Consistent with the interests of the Funds, the Investment Manager may select brokers to execute the Funds' portfolio transactions on the basis of the research and brokerage services they provide to the Investment Manager for its use in managing the Funds and its other advisory accounts so long as the criteria of Section 28(e) of the Securities Exchange Act of 1934 are met. Section 28(e) of the Securities Exchange Act of 1934 was adopted in 1975 and specifies that a person with investment discretion shall not be `deemed to have acted unlawfully or to have breached a fiduciary duty' solely because such person has caused the account to pay higher commissions than the lowest available under certain circumstances, provided that the person so exercising investment discretion makes a good faith determination that the amount of 55 commissions paid was `reasonable in relation to the value of the brokerage and research services provided are viewed in terms of either that particular transaction or his overall responsibilities with respect to the accounts as to which he exercises investment discretion.' Such services may include furnishing analyses, reports and information concerning issuers, industries, securities, geographic regions, economic factors and trends, portfolio strategy, and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). Research and brokerage services received from such brokers are in addition to, and not in lieu of, the services required to be performed by the Investment Manager under the Investment Management Agreement. A commission paid to such brokers may be higher than that which another qualified broker would have charged for effecting the same transaction, provided that the Investment Manager determines in good faith that such commission is reasonable in terms either of that particular transaction or the overall responsibility of the Investment Manager to the Fund and its other clients and that the total commissions paid by the Fund will be reasonable in relation to the benefits received by the Fund over the long term. Research services may also be received from dealers who execute Fund transactions. Currently, it is not possible to determine the extent to which commissions that reflect an element of value for research services (`soft dollars') might exceed commissions that would be payable for execution services alone. Nor generally can the value of research services to the Funds be measured. Research services furnished might be useful and of value to ING Pilgrim Investments and its affiliates, in serving other clients as well as the Funds. On the other hand, any research services obtained by ING Pilgrim Investments or its affiliates from the placement of portfolio brokerage of other clients might be useful and of value to ING Pilgrim Investments in carrying out its obligations to the Funds. With respect to Precious Metals Fund and Silver Fund it is, as a general matter, the Funds' policy to execute in the U.S. all transactions with respect to securities traded in the U.S. and to execute its gold transactions in the U.S. except when better price and execution can, in the judgment of management of the Funds, be obtained elsewhere. For the Precious Metals Fund and Silver Fund, over-the-counter purchases and sales are normally made with principal market makers, except where, in the opinion of management, the best executions are available elsewhere. Investment decisions for the Funds and for other investment accounts managed by the Investment Manager are made independently of each other in light of differing conditions. However, the same investment decision occasionally may be made for two or more of such accounts. In such cases, simultaneous transactions may occur. Purchases or sales are then allocated as to price or amount in a manner deemed fair and equitable to all accounts involved. While in some cases this practice could have a detrimental effect upon the price or value of the security as far as the Funds are concerned, in other cases the Investment Manager believes that coordination and the ability to participate in volume transactions will be beneficial to the Funds. Debt securities generally are traded on a `net' basis with a dealer acting as principal for its own account without a stated commission, although the price of the security usually includes a profit to the dealer. U.S. and foreign government securities and money market instruments generally are traded in the OTC markets. In underwritten offerings, securities usually are purchased at a fixed price which includes a amount of compensation to the underwriter. On occasion, securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. Brokers/dealers may receive commissions on futures, currency and options transactions. The Funds anticipate that their brokerage transactions involving securities of companies domiciled in countries other than the United States will normally be conducted on the principal stock exchanges of those countries. Fixed commissions of foreign stock exchange transactions are generally higher than the negotiated commission rates available in the United States. There is generally less government supervision and regulation of foreign stock exchanges and broker-dealers than in the United States. 56 The Funds engage in portfolio trading when the Investment Manager concludes that the sale of a security owned by the Funds and/or the purchase of another security of better value can enhance principal and/or increase income. A security may be sold to avoid any prospective decline in market value, or a security may be purchased in anticipation of a market rise. Consistent the Funds' investment objectives, a security also may be sold and a comparable security purchased coincidentally in order to take advantage of what is believed to be a disparity in the normal yield and price relationship between the two securities. Although the Funds do not generally intend to trade for short-term profits, the Funds' investments may be changed when circumstances warrant, without regard to the length of time a particular security has been held. It is expected that the Funds will have an annual portfolio turnover rate that will generally not exceed 100%. A 100% portfolio turnover rate would occur if the lesser of the value of purchases or sales of portfolio securities for the Fund for a year (excluding purchases of U.S. Treasury and other securities with a maturity at the date of purchase of one year or less) were equal to 100% of the average monthly value of the securities, excluding short-term investments, held by the Funds during such year. A high turnover rate (100% or more) results in correspondingly greater brokerage commissions and other transactional expenses which are borne by the Funds. High portfolio turnover may result in the realization of net short-term capital gains by the Funds which, when distributed to shareholders, will be taxable as ordinary income. See `Tax Considerations.' The brokerage commissions paid by each Fund and the Fund's portfolio turnover rate for the last three years are as follows: GNMA INCOME FUND TOTAL BROKERAGE SOFT DOLLAR PORTFOLIO COMMISSION PAID COMMISSION PAID TURNOVER RATE --------------- --------------- ------------- 12/98 $ 34,516 $ 0 54.47% 12/99 $ 60,939 $ 0 25.10% 12/00 $ -0- $ _______ 164.00% PRECIOUS METALS FUND (1) TOTAL BROKERAGE SOFT DOLLAR PORTFOLIO COMMISSION PAID COMMISSION PAID TURNOVER RATE --------------- --------------- ------------- 12/97 $ 223,351 $ 42,728 38.32% 12/98 $ 124,761 $ 31,159 28.93% 12/99 $ 389,449 $ 110,507 78.55% 10/00 $ 140,353 $ _______ 27.00% GROWTH AND INCOME FUND TOTAL BROKERAGE SOFT DOLLAR PORTFOLIO COMMISSION PAID COMMISSION PAID TURNOVER RATE --------------- --------------- ------------- 12/98 $ 372,204 $ 177,110 63.20% 12/99 $ 482,487 $ 237,439 86.31% 12/00 $ 592,997 $ _______ 46.00% INTERNATIONAL FUND (1) TOTAL BROKERAGE SOFT DOLLAR PORTFOLIO COMMISSION PAID COMMISSION PAID TURNOVER RATE --------------- --------------- ------------- 12/97 $ 177,179 $ 20,613 122.56% 12/98 $ 174,405 $ 40,453 143.67% 12/99 $ 167,074 $ 38,707 148.82% 10/00 $ 167,309 $ _______ 113.00% 57 SILVER FUND (1) TOTAL BROKERAGE SOFT DOLLAR PORTFOLIO COMMISSION PAID COMMISSION PAID TURNOVER RATE --------------- --------------- ------------- 12/97 $ 111,983 $ 0 18.76% 12/98 $ 62,713 $ 0 28.78% 12/99 $ 36,882 $ 11,129 29.44% 10/00 $ 25,226 $ _______ 9.00% SMALLCAP ASIA GROWTH FUND (1) TOTAL BROKERAGE SOFT DOLLAR PORTFOLIO COMMISSION PAID COMMISSION PAID TURNOVER RATE --------------- --------------- ------------- 12/97 $ 632,268 $ 0 187.41% 12/98 $ 290,149 $ 0 192.28% 12/99 $ 235,538 $ 0 172.89% 10/00 $ 124,584 $ _______ 108.00% RUSSIA FUND (1) TOTAL BROKERAGE SOFT DOLLAR PORTFOLIO COMMISSION PAID COMMISSION PAID TURNOVER RATE --------------- --------------- ------------- 12/97 $ 5,475 $ 0 66.84% 12/98 $ 47,806 $ 0 65.76% 12/99 $ 91,247 $ 0 91.14% 10/00 $ 36,454 $ _______ 52.00% WORLDWIDE EMERGING MARKETS FUND (1) TOTAL BROKERAGE SOFT DOLLAR PORTFOLIO COMMISSION PAID COMMISSION PAID TURNOVER RATE --------------- --------------- ------------- 12/97 $ 2,989,156 $ 234,472 112.05% 12/98 $ 924,618 $ 36,566 107.19% 12/99 $ 1,367,102 $ 170,098 184.39% 10/00 $ 2,166,094 $ ________ 241.00% - ---------- (1) Effective July 26th, 2000, the Fund changed its fiscal year end to October 31. October 2000 numbers represent the ten months from January 1, 2000 to October 31, 2000. ABOUT THE MONEY MARKET TRUST Portfolio securities are normally purchased directly from the issuer or from an underwriter or market maker for money market instruments. Therefore, usually no brokerage commissions were paid by the Fund. Transactions are allocated to various dealers by the Investment Manager in its best judgment. Dealers are selected primarily on the basis of prompt execution of orders at the most favorable prices. The Fund has no obligation to deal with any dealer or group of dealers. Particular dealers may be selected for research or statistical and other services to enable the Investment Manager to supplement its own research and analysis with that of such firms. Information so received will be in addition to and not in lieu of the services required to be performed by the Investment Manager under the Investment Management Agreement and the expenses of the Investment Manager will not necessarily be reduced as a result of the receipt of such supplemental information. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION A complete description of the manner in which shares may be purchased, redeemed or exchanged appears in the Prospectus under `Shareholder Guide.' Shares of the Funds are offered at the net asset value next computed following receipt of the order by the dealer (and/or the Distributor) or by the Funds' transfer agent, DST Systems, Inc. (`Transfer Agent'), plus, for Class A, a varying sales charge depending upon the amount of money invested, as set forth in the Prospectus. 58 SPECIAL PURCHASES AT NET ASSET VALUE Class A shares of the Funds may be purchased at net asset value, without a sales charge, by persons who have redeemed their Class A shares of a Fund (or shares of other funds managed by the Investment Manager in accordance with the terms of such privileges established for such funds) within the previous 90 days. The amount that may be so reinvested in the Fund is limited to an amount up to, but not exceeding, the redemption proceeds (or to the nearest full share if fractional shares are not purchased). In order to exercise this privilege, a written order for the purchase of shares must be received by the Transfer Agent, or be postmarked, within 90 days after the date of redemption. This privilege may only be used once per calendar year. Payment must accompany the request and the purchase will be made at the then current net asset value of the Fund. Such purchases may also be handled by a securities dealer who may charge a shareholder for this service. If the shareholder has realized a gain on the redemption, the transaction is taxable and any reinvestment will not alter any applicable Federal capital gains tax. If there has been a loss on the redemption and a subsequent reinvestment pursuant to this privilege, some or all of the loss may not be allowed as a tax deduction depending upon the amount reinvested, although such disallowance is added to the tax basis of the shares acquired upon the reinvestment. Class A shares of the Funds may also be purchased at net asset value by any person who can document that Fund shares were purchased with proceeds from the redemption (within the previous 90 days) of shares from any unaffiliated mutual fund on which a sales charge was paid or which were subject at any time to a CDSC, and the Distributor has determined in its discretion that the unaffiliated fund invests primarily in the same types of securities as the ING Pilgrim Fund purchased. Additionally, Class A shares of the Funds may also be purchased at net asset value by any charitable organization or any state, county, or city, or any instrumentality, department, authority or agency thereof that has determined that a Fund is a legally permissible investment and that is prohibited by applicable investment law from paying a sales charge or commission in connection with the purchase of shares of any registered management investment company (`an eligible governmental authority'). If an investment by an eligible governmental authority at net asset value is made though a dealer who has executed a selling group agreement with respect to the Fund (or the other open-end Pilgrim Funds) the Distributor may pay the selling firm 0.25% of the Offering Price. The officers, directors/trustees and bona fide full-time employees of each Fund and the officers, directors and full-time employees of the Investment Manager, any Sub-Advisers, the Distributor, any service provider to the Funds or affiliated corporations thereof or any trust, pension, profit-sharing or other benefit plan for such persons, broker-dealers, for their own accounts or for members of their families (defined as current spouse, children, parents, grandparents, uncles, aunts, siblings, nephews, nieces, step-relations, relations at-law, and cousins) employees of such broker-dealers (including their immediate families) and discretionary advisory accounts of the Investment Manager or any Sub-Adviser, may purchase Class A shares of a Fund at net asset value without a sales charge. Such purchaser may be required to sign a letter stating that the purchase is for his own investment purposes only and that the securities will not be resold except to the Fund. The Funds may, under certain circumstances, allow registered investment advisers to make investments on behalf of their clients at net asset value without any commission or concession. Class A shares may also be purchased at net asset value by certain fee based registered investment advisers, trust companies and bank trust departments under certain circumstances making investments on behalf of their clients and by shareholders who have authorized the automatic transfer of dividends from the same class of another open-end fund managed by the Investment Manager or from Pilgrim Prime Rate Trust. 59 Class A shares may also be purchased without a sales charge by (i) shareholders who have authorized the automatic transfer of dividends from the same class of another Pilgrim Fund distributed by the Distributor or from Pilgrim Prime Rate Trust; (ii) registered investment advisors, trust companies and bank trust departments investing in Class A shares on their own behalf or on behalf of their clients, provided that the aggregate amount invested in any one or more Funds, during the 13 month period starting with the first investment, equals at least $1 million; (iii) broker-dealers, who have signed selling group agreements with the Distributor, and registered representatives and employees of such broker-dealers, for their own accounts or for members of their families (defined as current spouse, children, parents, grandparents, uncles, aunts, siblings, nephews, nieces, step relations, relations-at-law and cousins); (iv) broker-dealers using third party administrators for qualified retirement plans who have entered into an agreement with the Pilgrim Funds or an affiliate, subject to certain operational and minimum size requirements specified from time-to-time by the Pilgrim Funds; (v) accounts as to which a banker or broker-dealer charges an account management fee (`wrap accounts'); and (vi) any registered investment company for which Pilgrim Investments serves as Investment Manager. The Funds may terminate or amend the terms of these sales charge waivers at any time. LETTERS OF INTENT AND RIGHTS OF ACCUMULATION An investor may immediately qualify for a reduced sales charge on a purchase of Class A shares by completing the Letter of Intent section of the Shareholder Application in the Prospectus (the `Letter of Intent' or `Letter'). By completing the Letter, the investor expresses an intention to invest during the next 13 months a specified amount which if made at one time would qualify for the reduced sales charge. At any time within 90 days after the first investment which the investor wants to qualify for the reduced sales charge, a signed Shareholder Application, with the Letter of Intent section completed, may be filed with the Funds. After the Letter of Intent is filed, each additional investment made will be entitled to the sales charge applicable to the level of investment indicated on the Letter of Intent as described above. Sales charge reductions based upon purchases in more than one investment in the Pilgrim Funds will be effective only after notification to the Distributor that the investment qualifies for a discount. The shareholder's holdings in the Investment Manager's funds (excluding Pilgrim General Money Market shares) acquired within 90 days before the Letter of Intent is filed will be counted towards completion of the Letter of Intent but will not be entitled to a retroactive downward adjustment of sales charge until the Letter of Intent is fulfilled. Any redemptions made by the shareholder during the 13-month period will be subtracted from the amount of the purchases for purposes of determining whether the terms of the Letter of Intent have been completed. If the Letter of Intent is not completed within the 13-month period, there will be an upward adjustment of the sales charge as specified below, depending upon the amount actually purchased (less redemption) during the period. An investor acknowledges and agrees to the following provisions by completing the Letter of Intent section of the Shareholder Application in the Prospectus. A minimum initial investment equal to 25% of the intended total investment is required. An amount equal to the maximum sales charge or 5.75% of the total intended purchase will be held in escrow at Pilgrim Funds, in the form of shares, in the investor's name to assure that the full applicable sales charge will be paid if the intended purchase is not completed. The shares in escrow will be included in the total shares owned as reflected on the monthly statement; income and capital gain distributions on the escrow shares will be paid directly by the investor. The escrow shares will not be available for 60 redemption by the investor until the Letter of Intent has been completed, or the higher sales charge paid. If the total purchases, less redemptions, equal the amount specified under the Letter, the shares in escrow will be released. If the total purchases, less redemptions, exceed the amount specified under the Letter and is an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made by the Distributor and the dealer with whom purchases were made pursuant to the Letter of Intent (to reflect such further quantity discount) on purchases made within 90 days before, and on those made after filing the Letter. The resulting difference in offering price will be applied to the purchase of additional shares at the applicable offering price. If the total purchases, less redemptions, are less than the amount specified under the Letter, the investor will remit to the Distributor an amount equal to the difference in dollar amount of sales charge actually paid and the amount of sales charge which would have applied to the aggregate purchases if the total of such purchases had been made at a single account in the name of the investor or to the investor's order. If within 10 days after written request such difference in sales charge is not paid, the redemption of an appropriate number of shares in escrow to realize such difference will be made. If the proceeds from a total redemption are inadequate, the investor will be liable to the Distributor for the difference. In the event of a total redemption of the account prior to fulfillment of the Letter of Intent, the additional sales charge due will be deducted from the proceeds of the redemption and the balance will be forwarded to the Investor. By completing the Letter of Intent section of the Shareholder Application, an investor grants to the Distributor a security interest in the shares in escrow and agrees to irrevocably appoint the Distributor as his attorney-in-fact with full power of substitution to surrender for redemption any or all shares for the purpose of paying any additional sales charge due and authorizes the Transfer Agent or Sub-Transfer Agent to receive and redeem shares and pay the proceeds as directed by the Distributor. The investor or the securities dealer must inform the Transfer Agent or the Distributor that this Letter is in effect each time a purchase is made. If at any time prior to or after completion of the Letter of Intent the investor wishes to cancel the Letter of Intent, the investor must notify the Distributor in writing. If, prior to the completion of the Letter of Intent, the investor requests the Distributor to liquidate all shares held by the investor, the Letter of Intent will be terminated automatically. Under either of these situations, the total purchased may be less than the amount specified in the Letter of Intent. If so, the Distributor will redeem at NAV to remit to the Distributor and the appropriate authorized dealer an amount equal to the difference between the dollar amount of the sales charge actually paid and the amount of the sales charge that would have been paid on the total purchases if made at one time. The value of shares of the Funds plus shares of the other open-end funds distributed by the Distributor (excluding ING Pilgrim General Money Market shares) can be combined with a current purchase to determine the reduced sales charge and applicable offering price of the current purchase. The reduced sales charge applies to quantity purchases made at one time or on a cumulative basis over any period of time by (i) an investor, (ii) the investor's spouse and children under the age of majority, (iii) the investor's custodian accounts for the benefit of a child under the Uniform Gift to Minors Act, (iv) a trustee or other fiduciary of a single trust estate or a single fiduciary account (including a pension, profit-sharing and/or other employee benefit plans qualified under Section 401 of the Code), by trust companies' registered investment advisors, banks and bank trust departments for accounts over which they exercise exclusive investment discretionary authority and which are held in a fiduciary, agency, advisory, custodial or similar capacity. The reduced sales charge also apply on a non-cumulative basis, to purchases made at one time by the customers of a single dealer, in excess of $1 million. The Letter of Intent option may be modified or discontinued at any time. 61 Shares of the Funds and other open-end Pilgrim Funds (excluding ING Pilgrim General Money Market shares) purchased and owned of record or beneficially by a corporation, including employees of a single employer (or affiliates thereof) including shares held by its employees, under one or more retirement plans, can be combined with a current purchase to determine the reduced sales charge and applicable offering price of the current purchase, provided such transactions are not prohibited by one or more provisions of the Employee Retirement Income Security Act or the Internal Revenue Code. Individuals and employees should consult with their tax advisors concerning the tax rules applicable to retirement plans before investing. For the purposes of Rights of Accumulation and the Letter of Intent Privilege, shares held by investors in the Pilgrim Funds which impose a CDSC may be combined with Class A shares for a reduced sales charge but will not affect any CDSC which may be imposed upon the redemption of shares of a Fund which imposes a CDSC. REDEMPTIONS Payment to shareholders for shares redeemed will be made within seven days after receipt by the Funds' Transfer Agent of the written request in proper form, except that a Fund may suspend the right of redemption or postpone the date of payment during any period when (a) trading on the New York Stock Exchange is restricted as determined by the SEC or such exchange is closed for other than weekends and holidays; (b) an emergency exists as determined by the SEC making disposal of portfolio series or valuation of net assets of the Fund not reasonably practicable; or (c) for such other period as the SEC may permit for the protection of the Funds' shareholders. At various times, a Fund may be requested to redeem shares for which it has not yet received good payment. Accordingly, the Fund may delay the mailing of a redemption check until such time as it has assured itself that good payment has been collected for the purchase of such shares, which may take up to 15 days or longer. The Funds intend to pay in cash for all shares redeemed, but under abnormal conditions that make payment in cash unwise, a Fund may make payment wholly or partly in securities at their then current market value equal to the redemption price. In such case, an investor may incur brokerage costs in converting such securities to cash. However, the Funds have elected to be governed by the provisions of Rule 18f-1 under the 1940 Act, which contains a formula for determining the minimum amount of cash to be paid as part of any redemption. In the event the Funds must liquidate portfolio securities to meet redemptions, they reserves the right to reduce the redemption price by an amount equivalent to the pro-rated cost of such liquidation not to exceed one percent of the net asset value of such shares. Due to the relatively high cost of handling small investments, each Fund reserves the right, upon 30 days written notice, to redeem, at net asset value (less any applicable deferred sales charge), the shares of any shareholder whose account has a value of less than $1,000 in the Fund, other than as a result of a decline in the net asset value per share. Before the Fund redeems such shares and sends the proceeds to the shareholder, it will notify the shareholder that the value of the shares in the account is less than the minimum amount and will allow the shareholder 30 days to make an additional investment in an amount that will increase the value of the account to at least $1,000 before the redemption is processed. This policy will not be implemented where a Fund has previously waived the minimum investment requirements. The value of shares on redemption or repurchase may be more or less than the investor's cost, depending upon the market value of the portfolio securities at the time of redemption or repurchase. Certain purchases of Class A shares and most Class B and Class C shares may be subject to a CDSC. Shareholders will be charged a CDSC if certain of those shares are redeemed within the applicable time period as stated in the prospectus. No CDSC is imposed on any shares subject to a CDSC to the extent that those shares (i) are no longer subject to the applicable holding period, (ii) resulted from reinvestment of distributions on CDSC shares, or (iii) were exchanged for 62 shares of another fund managed by the Investment Manager, provided that the shares acquired in such exchange and subsequent exchanges will continue to remain subject to the CDSC, if applicable, until the applicable holding period expires. The CDSC or redemption fee will be waived for certain redemptions of shares upon (i) the death or permanent disability of a shareholder, or (ii) in connection with mandatory distributions from an Individual Retirement Account (`IRA') or other qualified retirement plan. The CDSC or redemption fee will be waived in the case of a redemption of shares following the death or permanent disability of a shareholder if the redemption is made within one year of death or initial determination of permanent disability. The waiver is available for total or partial redemptions of shares owned by an individual or an individual in joint tenancy (with rights of survivorship), but only for redemptions of shares held at the time of death or initial determination of permanent disability. The CDSC or redemption fee will also be waived in the case of a total or partial redemption of shares in connection with any mandatory distribution from a tax-deferred retirement plan or an IRA. The waiver does not apply in the case of a tax-free rollover or transfer of assets, other than one following a separation from services, except that a CDSC or redemption fee may be waived in certain circumstances involving redemptions in connection with a distribution from a qualified employer retirement plan in connection with termination of employment or termination of the employer's plan and the transfer to another employer's plan or to an IRA. The shareholder must notify the Fund either directly or through the Distributor at the time of redemption that the shareholder is entitled to a waiver of CDSC or redemption fee. The waiver will then be granted subject to confirmation of the shareholder's entitlement. The CDSC or redemption fee, which may be imposed on Class A shares purchased in excess of $1 million, will also be waived for registered investment advisors, trust companies and bank trust departments investing on their own behalf or on behalf of their clients. These waivers may be changed at any time. REINSTATEMENT PRIVILEGE If you sell Class B or Class C shares of a ING Pilgrim Fund, you may reinvest some or all of the proceeds in the same share class within 90 days without a sales charge. Reinstated Class B and Class C shares will retain their original cost and purchase date for purposes of the CDSC. The amount of any CDSC also will be reinstated. To exercise this privilege, the written order for the purchase of shares must be received by the Transfer Agent or be postmarked within 90 days after the date of redemption. This privilege can be used only once per calendar year. If a loss is incurred on the redemption and the reinstatement privilege is used, some or all of the loss may not be allowed as a tax deduction. CONVERSION OF CLASS B SHARES A shareholder's Class B shares will automatically convert to Class A shares in a Fund on the first business day of the month in which the eighth anniversary of the issuance of the Class B shares occurs, together with a pro rata portion of all Class B shares representing dividends and other distributions paid in additional Class B shares. The conversion of Class B shares into Class A shares is subject to the continuing availability of an opinion of counsel or an Internal Revenue Service (`IRS') ruling, if the Investment Manager deems it advisable to obtain such advice, to the effect that (1) such conversion will not constitute taxable events for federal tax purposes; and (2) the payment of different dividends on Class A and Class B shares does not result in the Fund's dividends or distributions constituting `preferential dividends' under the Internal Revenue Code of 1986. The Class B shares so converted will no longer be subject to the higher expenses borne by Class B shares. The conversion will be effected at the relative net asset values per share of the two Classes. DEALER'S COMMISSIONS AND OTHER INCENTIVES In connection with the sale of shares of the Funds, the Distributor may pay Authorized Dealers of record a sales commission as a percentage of the purchase price. In connection with the sale of Class A shares, the Distributor will re-allow to Authorized Dealers of record from the sales charge on such sales the following amounts: 63 EQUITY FUNDS DEALER'S REALLOWANCE AS A PERCENTAGE OF OFFERING PRICE AMOUNT OF TRANSACTION CLASS A --------------------- ------- Less than $ 50,000 5.00% $ 50,000 -- $ 99,999 3.75% $ 100,000 -- $ 249,999 2.75% $ 250,000 -- $ 499,999 2.00% $ 500,000 -- $ 999,999 1.75% $1,000,000 and over See below INCOME FUNDS DEALER'S REALLOWANCE AS A PERCENTAGE OF OFFERING PRICE AMOUNT OF TRANSACTION CLASS A --------------------- ------- Less than $ 50,000 4.25% $ 50,000 -- $ 99,999 4.00% $ 100,000 -- $ 249,999 3.00% $ 250,000 -- $ 499,999 2.25% $ 500,000 -- $ 999,999 1.75% $1,000,000 and over See below The Distributor may pay to Authorized Dealers out of its own assets commissions on shares sold in Classes A, B and C, at net asset value, which at the time of investment would have been subject to the imposition of a contingent deferred sales charge (`CDSC') if redeemed. There is no sales charge on purchases of $1,000,000 or more of Class A shares. However, such purchases may be subject to a CDSC, as disclosed in the Prospectus. The Distributor will pay Authorized Dealers of record commissions at the rates shown in the table below for purchases of Class A shares that are subject to a CDSC. DEALER COMMISSION AS A AMOUNT OF TRANSACTION PERCENTAGE OF AMOUNT INVESTED --------------------- ----------------------------- $1,000,000 to $2,499,000 1.00% $2,500,000 to $4,999,999 0.50% $5,000,000 and over 0.25% Also, the Distributor will pay out of its own assets a commission of 1% of the amount invested for purchases of Class A shares of less than $1 million by qualified employer retirement plans with 50 or more participants. The Distributor will pay out of its own assets a commission of 4% of the amount invested for purchases of Class B shares subject to a CDSC. For purchases of Class C shares subject to a CDSC, the Distributor may pay out of its own assets a commission of 1% of the amount invested of each Fund. The Distributor may, from time to time, at its discretion, allow a selling dealer to retain 100% of a sales charge, and such dealer may therefore be deemed an `underwriter' under the Securities Act of 1933, as amended. the Distributor, at its expense, may also provide additional promotional incentives to dealers. The incentives may include payment for travel expenses, including lodging, incurred in connection with trips taken by qualifying registered representatives and members of their families to locations within or outside of the United States, merchandise or other items. For more information on incentives, see `Management of the Funds -- 12b-1 Plans' in this Statement of Additional Information. 64 DETERMINATION OF SHARE PRICE The Funds calculate net asset value as of the close of normal trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time, unless weather, equipment failure or other factors contribute to an earlier closing time) each business day. It is expected that the New York Stock Exchange will be closed on Saturdays and Sundays and on New Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Per share net asset value is calculated by dividing the value of the Funds' total net assets by the total number of the Funds' shares then outstanding. For the Money Market Trust, substantially all of the Fund's net income calculated from the immediately preceding determination of net income, is declared daily as dividends. The Funds' portfolio securities and other assets are valued as follows: Portfolio securities are valued using current market valuations: either the last reported sales price or, in the case of securities for which there is no reported last sale and fixed-income securities, the mean between the closing bid and asked price. Securities and assets for which market quotations are not readily available (including restricted securities which are subject to limitations as to their sale) are valued at their fair values as determined in good faith by or under the supervision of each Fund's Board, in accordance with methods that are specifically authorized by the Board. The valuation procedures applied in any specific instance are likely to vary from case to case. However, consideration is generally given to the financial position of the issuer and other fundamental analytical data relating to the investment and to the nature of the restrictions on disposition of the securities (including any registration expenses that might be borne by the Funds in connection with such disposition). In addition, specific factors also are generally considered, such as the cost of the investment, the market value of any unrestricted securities of the same class (both at the time of purchase and at the time of valuation), the size of the holding, the prices of any recent transactions or offers with respect to such securities and any available analysts' reports regarding the issuer. The fair value of other assets is added to the value of all securities positions to arrive at the value of a Fund's total assets. The Fund's liabilities, including accruals for expenses, are deducted from its total assets. Once the total value of the Fund's net assets is so determined, that value is then divided by the total number of shares outstanding (excluding treasury shares), and the result, rounded to the nearest cent, is the net asset value per share. Short-term obligations with maturities of 60 days or less are valued at amortized cost as reflecting fair value. Options are valued at the mean of the last bid and asked price on the exchange where the option is primarily traded. Long-term debt obligations are valued at the mean of representative quoted bid or asked prices for such securities or, if such prices are not available, at prices for securities of comparable maturity, quality and type; however, when the Investment Manager deems it appropriate, prices obtained for the day of valuation from a bond pricing service will be used. Short-term debt investments are amortized to maturity based on their cost, adjusted for foreign exchange translation, provided such valuation represents fair value. Options on currencies purchased by the Funds are valued at their last bid price in the case of listed options or at the average of the last bid prices obtained from dealers in the case of OTC options. The value of each security denominated in a currency other than U.S. dollars will be translated into U.S. dollars at the prevailing market rate as determined by the Investment Manager on that day. The value of securities denominated in foreign currencies and traded on foreign exchanges or in foreign markets will be translated into U.S. dollars at the last price of their respective currency denomination against U.S. dollars quoted by a major bank or, if no such quotation is available, at the rate of exchange determined in accordance with policies established in good faith by the 65 Boards. Because the value of securities denominated in foreign currencies must be translated into U.S. dollars, fluctuations in the value of such currencies in relation to the U.S. dollar may affect the net asset value of a Fund's shares even without any change in the foreign-currency denominated values of such securities. Because foreign securities markets may close before a Fund determines its net asset value, events affecting the value of portfolio securities occurring between the time prices are determined and the time the Fund calculates its net asset value may not be reflected unless the Investment Manager, under supervision of the Board, determines that a particular event would materially affect the Fund's net asset value. European, Far Eastern or Latin American securities trading may not take place on all days on which the NYSE is open. Further, trading takes place in Japanese markets on certain Saturdays and in various foreign markets on days on which the NYSE is not open. Consequently, the calculation of a Fund's respective net asset values therefore may not take place contemporaneously with the determination of the prices of securities held by the Fund. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of regular trading on the NYSE will not be reflected in a Fund's net asset value unless the Investment Manager, under the supervision of the Fund's Board of Trustees, determines that the particular event would materially affect net asset value. As a result, the Fund's net asset value may be significantly affected by such trading on days when a shareholder cannot purchase or redeem shares of the Fund. The per share net asset value of Class A shares generally will be higher than the per share net asset value of shares of the other classes, reflecting daily expense accruals of the higher distribution fees applicable to Class B and Class C. It is expected, however, that the per share net asset value of the classes will tend to converge immediately after the payment of dividends or distributions that will differ by approximately the amount of the expense accrual differentials between the classes. The price of silver and gold bullion is determined by measuring the mean between the closing bid and asked quotations of silver and gold bullion set at the time of the close of the New York Stock Exchange, as supplied by the Precious Metals Fund's and Silver Fund's custodian bank or other broker-dealers or banks approved by the Precious Metals Fund and Silver Fund, on each date that the Exchange is open for business. LEXINGTON MONEY MARKET TRUST For the purpose of determining the price at which shares are issued and redeemed, the net asset value per share is calculated immediately after the daily dividend declaration by: (a) valuing all securities and instruments as set forth below; (b) deducting the Fund's liabilities; and (c) dividing the resulting amount by the number of shares outstanding. As discussed below, it is the intention of the Fund to maintain a net asset value per share of $1.00. The Fund's portfolio instruments are valued on the basis of amortized cost. This involves valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the security. While this method provides certainty in valuation, it may result in periods during which the value, as determined by amortized cost, is higher or lower than the price the Fund would receive if it sold its portfolio. During periods of declining interest rates, the daily yield on shares of the Fund computed as described above may be higher than a like computation made by a fund with identical investments utilizing a method of valuation based upon market prices and estimates of market prices for all its portfolio instruments. Thus, if the use of amortized cost by the Fund results in a lower aggregate portfolio value on a particular day, a prospective investor in the Fund would be able to obtain a somewhat higher yield than would result from an investment in a fund utilizing solely market values, and existing investors in the Fund would receive less investment income. The converse would apply in a period of rising interest rates. 66 The Fund's use of amortized cost and the maintenance of the Fund's per share net value at $1.00 is based on its election to operate under the provisions of Rule 2a-7 under the 1940 Act. As a condition of operating under that rule, the Fund must maintain a dollar-weighted average portfolio maturity of 90 days or less, purchase only instruments having remaining maturities of thirteen months or less, and invest only in securities which are determined by the Board of Trustees to present minimal credit risks and which are of high quality as required by the Rule, or in the case of any instrument not so rated, considered by the Board of Trustees to be of comparable quality. Securities in the Trust will consist of money market instruments that have been rated (or whose issuer's short-term debt obligations are rated) in one of the two highest categories (i.e., `Al/Pl') by both Standard & Poor's Corporation (`S&P') and Moody's Investors Services, Inc. (`Moody's'), two nationally recognized statistical rating organizations (`NRSRO'). The Fund may invest up to 5% of its assets in any single `Tier I' security (other than U.S. Government securities), measured at the time of acquisition; however, it may invest more than 5% of its assets in a single Tier 1 security for no more than three business days. A `Tier I' security is one that has been rated (or the issuer of such security has been rated) by both S&P and Moody's in the highest rating category or, if unrated, is of comparable quality. A security rated in the highest category by only one of these NRSROs is also considered a Tier 1 security. In addition, the Fund may invest not more than 5% of its assets in `Tier 2' securities. A Tier 2 security is a security that is (a) rated in the second highest category by either S&P or Moody's or (b) an unrated security that is deemed to be of comparable quality by the Fund's investment advisor. The Fund may invest up to 1% of its assets in any single Tier 2 security. The Fund may invest only in a money market instrument that has a remaining maturity of 13 months (397 days) or less, provided that the Fund's average weighted maturity is 90 days or less. The Board of Trustees has also agreed, as a particular responsibility within the overall duty of care owed to its shareholders, to establish procedures reasonably designed, taking into account current market conditions and the Fund's investment objective, to stabilize the net asset value per share as computed for the purposes of sales and redemptions at $1.00. These procedures include periodic review, as the Board deems appropriate and at such intervals as are reasonable in light of current market conditions, of the relationship between the amortized cost value per share and a net asset value per share based upon available indications of market value. In such review, investments for which market quotations are readily available are valued at the most recent bid price or quoted yield equivalent for such securities or for securities of comparable maturity, quality and type as obtained from one or more of the major market makers for the securities to be valued. Other investments and assets are valued at fair value, as determined in good faith by the Board of Trustees. SHAREHOLDER INFORMATION Certificates representing shares of the Funds will not normally be issued to shareholders. The Transfer Agent will maintain an account for each shareholder upon which the registration and transfer of shares are recorded, and any transfers shall be reflected by bookkeeping entry, without physical delivery. The Transfer Agent will require that a shareholder provide requests in writing, accompanied by a valid signature guarantee form, when changing certain information in an account (i.e., wiring instructions, telephone privileges, etc.). Each Fund reserves the right, if conditions exist that make cash payments undesirable, to honor any request for redemption or repurchase order with respect to shares of the Fund by making payment in whole or in part in readily marketable securities chosen by the Fund and valued as they are for purposes of 67 computing a Fund's net asset value (redemption-in-kind). If payment is made in securities, a shareholder may incur transaction expenses in converting theses securities to cash. Each Fund has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a result of which the Fund is obligated to redeem shares with respect to any one shareholder during any 90-day period solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning of the period. SHAREHOLDER SERVICES AND PRIVILEGES As discussed in the Prospectus, the Funds provide a Pre-Authorized Investment Program for the convenience of investors who wish to purchase shares of the Funds on a regular basis. Such a Program may be started with an initial investment ($1,000 minimum) and subsequent voluntary purchases ($100 minimum) with no obligation to continue. The Program may be terminated without penalty at any time by the investor or the Funds. The minimum investment requirements may be waived by the Funds for purchases made pursuant to (i) employer-administered payroll deduction plans, (ii) profit-sharing, pension, or individual or any employee retirement plans, or (iii) purchases made in connection with plans providing for periodic investments in Fund shares. For investors purchasing shares of the Funds under a tax-qualified individual retirement or pension plan or under a group plan through a person designated for the collection and remittance of monies to be invested in shares of the Funds on a periodic basis, the Funds may, in lieu of furnishing confirmations following each purchase of Fund shares, send statements no less frequently than quarterly pursuant to the provisions of the Securities Exchange Act of 1934, as amended, and the rules thereunder. Such quarterly statements, which would be sent to the investor or to the person designated by the group for distribution to its members, will be made within five business days after the end of each quarterly period and shall reflect all transactions in the investor's account during the preceding quarter. All shareholders will receive a confirmation of each new transaction in their accounts, which will also show the total number of Fund shares owned by each shareholder, the number of shares being held in safekeeping by the Funds' Transfer Agent for the account of the shareholder and a cumulative record of the account for the entire year. Shareholders may rely on these statements in lieu of certificates. Certificates representing shares of the Fund will not be issued unless the shareholder requests them in writing. SELF-EMPLOYED AND CORPORATE RETIREMENT PLANS For self-employed individuals and corporate investors that wish to purchase shares of a Fund, there is available through the Fund a Prototype Plan and Custody Agreement. The Custody Agreement provides that Investors Fiduciary Trust Company, Kansas City, Missouri, will act as Custodian under the Plan, and will furnish custodial services for an annual maintenance fee of $12.00 for each participant, with no other charges. (This fee is in addition to the normal Custodian charges paid by the Funds.) The annual contract maintenance fee may be waived from time to time. For further details, including the right to appoint a successor Custodian, see the Plan and Custody Agreements as provided by the Funds. Employers who wish to use shares of a Fund under a custodianship with another bank or trust company must make individual arrangements with such institution. INDIVIDUAL RETIREMENT ACCOUNTS Investors having earned income are eligible to purchase shares of a Fund under an IRA pursuant to Section 408(a) of the Internal Revenue Code. An individual who creates an IRA may contribute annually certain dollar amounts of earned income, and an additional amount if there is a non-working spouse. Simple IRA plans that employers may establish on behalf of their employees are also available. Roth IRA plans that enable employed and self-employed individuals to 68 make non-deductible contributions, and, under certain circumstances, effect tax-free withdrawals, are also available. Copies of a model Custodial Account Agreement are available from the Distributor. Investors Fiduciary Trust Company, Kansas City, Missouri, will act as the Custodian under this model Agreement, for which it will charge the investor an annual fee of $12.00 for maintaining the Account (such fee is in addition to the normal custodial charges paid by the Funds). Full details on the IRA are contained in an IRS required disclosure statement, and the Custodian will not open an IRA until seven (7) days after the investor has received such statement from the Funds. An IRA using shares of a Fund may also be used by employers who have adopted a Simplified Employee Pension Plan. Purchases of Fund shares by Section 403(b) and other retirement plans are also available. Section 403(b) plans are arrangements by a public school organization or a charitable, educational, or scientific organization that is described in Section 501(c)(3) of the Internal Revenue Code under which employees are permitted to take advantage of the federal income tax deferral benefits provided for in Section 403(b) of the Code. It is advisable for an investor considering the funding of any retirement plan to consult with an attorney or to obtain advice from a competent retirement plan consultant. TELEPHONE REDEMPTION AND EXCHANGE PRIVILEGES As discussed in the Prospectus, the telephone redemption and exchange privileges are available for all shareholder accounts; however, retirement accounts may not utilize the telephone redemption privilege. The telephone privileges may be modified or terminated at any time. The privileges are subject to the conditions and provisions set forth below and in the Prospectus. (1) Telephone redemption and/or exchange instructions received in good order before the pricing of a Fund on any day on which the New York Stock Exchange is open for business (a `Business Day'), but not later than 4:00 p.m. eastern time, will be processed at that day's closing net asset value. For each exchange, the shareholder's account may be charged an exchange fee. There is no fee for telephone redemption; however, redemptions of Class A and Class B shares may be subject to a contingent deferred sales charge (See `Redemption of shares' in the Prospectus). (2) Telephone redemption and/or exchange instructions should be made by dialing 1-800-992-0180 and selecting option 3. (3) The Funds will not permit exchanges in violation of any of the terms and conditions set forth in the Funds' Prospectus or herein. (4) Telephone redemption requests must meet the following conditions to be accepted by the Funds: (a) Proceeds of the redemption may be directly deposited into a predetermined bank account, or mailed to the current address on the registration. This address cannot reflect any change within the previous thirty (30) days. (b) Certain account information will need to be provided for verification purposes before the redemption will be executed. (c) Only one telephone redemption (where proceeds are being mailed to the address of record) can be processed with in a 30 day period. (d) The maximum amount which can be liquidated and sent to the address of record at any one time is $100,000. (e) The minimum amount which can be liquidated and sent to a predetermined bank account is $5,000. (5) If the exchange involves the establishment of a new account, the dollar amount being exchanged must at least equal the minimum investment requirement of the ING Pilgrim Fund being acquired. (6) Any new account established through the exchange privilege will have the same account information and options except as stated in the Prospectus. 69 (7) Certificated shares cannot be redeemed or exchanged by telephone but must be forwarded to ING Pilgrim at P.O. Box 419368, Kansas City, MO 64141 and deposited into your account before any transaction may be processed. (8) If a portion of the shares to be exchanged are held in escrow in connection with a Letter of Intent, the smallest number of full shares of the Fund to be purchased on the exchange having the same aggregate net asset value as the shares being exchanged shall be substituted in the escrow account. Shares held in escrow may not be redeemed until the Letter of Intent has expired and/or the appropriate adjustments have been made to the account. (9) Shares may not be exchanged and/or redeemed unless an exchange and/or redemption privilege is offered pursuant to the Fund's then-current prospectus. (10) Proceeds of a redemption may be delayed up to 15 days or longer until the check used to purchase the shares being redeemed has been paid by the bank upon which it was drawn. SYSTEMATIC WITHDRAWAL PLAN You may elect to make periodic withdrawals from your account in any fixed amount in excess of $100 to yourself, or to anyone else you properly designate, as long as the account has a current value of at least $10,000. To establish a systematic cash withdrawal, complete the Systematic Withdrawal Plan section of the Account Application. To have funds deposited to your bank account, follow the instructions on the Account Application. You may elect to have monthly, quarterly, semi-annual or annual payments. Redemptions are normally processed on the fifth day prior to the end of the month, quarter or year. Checks are then mailed or proceeds are forwarded to your bank account on or about the first of the following month. You may change the amount, frequency and payee, or terminate the plan by giving written notice to the Transfer Agent. A Systematic Withdrawal Plan may be modified at any time by the Funds or terminated upon written notice by the relevant Fund. During the withdrawal period, you may purchase additional shares for deposit to your account, subject to any applicable sales charge, if the additional purchases are equal to at least one year's scheduled withdrawals, or $1,200, whichever is greater. There are no separate charges to you under this Plan, although a CDSC may apply if you purchased Class A, B or C shares. Shareholders who elect to have a systematic cash withdrawal must have all dividends and capital gains reinvested. As shares of the Fund are redeemed under the Plan, you may realize a capital gain or loss for income tax purposes. DISTRIBUTIONS As noted in the Prospectus, shareholders have the privilege of reinvesting both income dividends and capital gains distributions, if any, in additional shares of a respective class of a Fund at the then current net asset value, with no sales charge. The Funds' management believes that most investors desire to take advantage of this privilege. It has therefore made arrangements with its Transfer Agent to have all income dividends and capital gains distributions that are declared by the Funds automatically reinvested for the account of each shareholder. A shareholder may elect at any time by writing to the Fund or the Transfer Agent to have subsequent dividends and/or distributions paid in cash. In the absence of such an election, each purchase of shares of a class of a Fund is made upon the condition and understanding that the Transfer Agent is automatically appointed the shareholder's agent to receive his dividends and distributions upon all shares registered in his name and to reinvest them in full and fractional shares of the respective class of the Fund at the applicable net asset value in effect at the close of business on the reinvestment date. A shareholder may still at any time after a purchase of Fund shares request that dividends and/or capital gains distributions be paid to him in cash. 70 TAX CONSIDERATIONS Information set forth in the Prospectus and this SAI is only a summary of certain key tax considerations generally affecting purchasers of shares of the Funds. The following is only a summary of certain additional tax considerations generally affecting the Funds and their shareholders that are not described in the Prospectus. No attempt has been made to present a complete explanation of the federal, state and local tax treatment of the Funds or the implications to shareholders, and the discussions here and in the Funds' Prospectus are not intended as substitutes for careful tax planning. Accordingly, potential purchasers of shares of the Funds are urged to consult their tax advisers with specific reference to their own tax circumstances. In addition, the tax discussion in the Prospectus and this SAI is based on tax law in effect on the date of the Prospectus and this SAI; such laws and regulations may be changed by legislative, judicial or administrative action, sometimes with retroactive effect. QUALIFICATION AS A REGULATED INVESTMENT COMPANY Each Fund has elected to be taxed as a regulated investment company under Subchapter M of the Code. As a regulated investment company, each Fund is not subject to federal income tax on the portion of its net investment income (i.e., taxable interest, dividends and other taxable ordinary income, net of expenses) and capital gain net income (i.e., the excess of capital gains over capital losses) that it distributes to shareholders, provided that it distributes at least 90% of its investment company taxable income (i.e., net investment income and the excess of net short-term capital gain over net long-term capital loss) for the taxable year (the `Distribution Requirement'), and satisfies certain other requirements of the Code that are described below. Distributions by a Fund made during the taxable year or, under specified circumstances, within twelve months after the close of the taxable year, will be considered distributions of income and gains of the taxable year and will, therefore, count toward satisfaction of the Distribution Requirement. In addition to satisfying the Distribution Requirement, a regulated investment company must derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the `Income Requirement'). In general, gain or loss recognized by a Fund on the disposition of an asset will be a capital gain or loss. In addition, gain will be recognized as a result of certain constructive sales, including short sales `against the box.' However, gain recognized on the disposition of a debt obligation purchased by a Fund at a market discount (generally, at a price less than its principal amount) will be treated as ordinary income to the extent of the portion of the market discount which accrued during the period of time the Fund held the debt obligation. In addition, under the rules of Code section 988, gain or loss recognized on the disposition of a debt obligation denominated in a foreign currency or an option with respect thereto (but only to the extent attributable to changes in foreign currency exchange rates), and gain or loss recognized on the disposition of a foreign currency forward contract, futures contract, option or similar financial instrument, or of foreign currency itself, except for regulated futures contracts or non-equity options subject to Code section 1256 (unless the Fund elects otherwise), will generally be treated as ordinary income or loss. 71 Further, the Code also treats as ordinary income a portion of the capital gain attributable to a transaction where substantially all of the return realized is attributable to the time value of a Fund's net investment in the transaction and: (1) the transaction consists of the acquisition of property by the Fund and a contemporaneous contract to sell substantially identical property in the future; (2) the transaction is a straddle within the meaning of section 1092 of the Code; (3) the transaction is one that was marketed or sold to the Fund on the basis that it would have the economic characteristics of a loan but the interest-like return would be taxed as capital gain; or (4) the transaction is described as a conversion transaction in the Treasury Regulations. The amount of the gain recharacterized generally will not exceed the amount of the interest that would have accrued on the net investment for the relevant period at a yield equal to 120% of the federal long-term, mid-term, or short-term rate, depending upon the type of instrument at issue, reduced by an amount equal to: (1) prior inclusions of ordinary income items from the conversion transaction and (2) the capital interest on acquisition indebtedness under Code section 263(g). Built-in losses will be preserved where a Fund has a built-in loss with respect to property that becomes a part of a conversion transaction. No authority exists that indicates that the converted character of the income will not be passed through to a Fund's shareholders. In general, for purposes of determining whether capital gain or loss recognized by a Fund on the disposition of an asset is long-term or short-term, the holding period of the asset may be affected if (1) the asset is used to close a `short sale' (which includes for certain purposes the acquisition of a put option) or is substantially identical to another asset so used, (2) the asset is otherwise held by the Fund as part of a `straddle' (which term generally excludes a situation where the asset is stock and the Fund grants a qualified covered call option (which, among other things, must not be deep-in-the-money) with respect thereto), or (3) the asset is stock and the Fund grants an in-the-money qualified covered call option with respect thereto. In addition, a Fund may be required to defer the recognition of a loss on the disposition of an asset held as part of a straddle to the extent of any unrecognized gain on the offsetting position. Any gain recognized by a Fund on the lapse of, or any gain or loss recognized by a Fund from a closing transaction with respect to, an option written by the Fund will be treated as a short-term capital gain or loss. Certain transactions that may be engaged in by certain Funds (such as regulated futures contracts, certain foreign currency contracts, and options on stock indexes and futures contracts) will be subject to special tax treatment as `Section 1256 contracts.' Section 1256 contracts are treated as if they are sold for their fair market value on the last business day of the taxable year, even though a taxpayer's obligations (or rights) under such contracts have not terminated (by delivery, exercise, entering into a closing transaction or otherwise) as of such date. Any gain or loss recognized as a consequence of the year-end deemed disposition of Section 1256 contracts is taken into account for the taxable year together with any other gain or loss that was previously recognized upon the termination of Section 1256 contracts during that taxable year. Any capital gain or loss for the taxable year with respect to Section 1256 contracts (including any capital gain or loss arising as a consequence of the year-end deemed sale of such contracts) is generally treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss. A Fund, however, may elect not to have this special tax treatment apply to Section 1256 contracts that are part of a `mixed straddle' with other investments of the Fund that are not Section 1256 contracts. Certain Funds may purchase securities of certain foreign investment funds or trusts which constitute passive foreign investment companies ("PFICs") for federal income tax purposes. If a Fund invests in a PFIC, it has three separate options. First, it may elect to treat the PFIC as a qualified electing fund (a "QEF"), in which event the Fund will each year have ordinary income equal to its pro rata share of the PFIC's ordinary earnings for the year and long-term capital gain equal to its pro rata share of the PFIC's net capital gain for the year, regardless of whether the Fund receives distributions of any such ordinary earnings or capital gains from the PFIC. Second, a Fund that invests in stock of a PFIC may make a mark-to-market election with respect to such stock. Pursuant to such election, the Fund will include as ordinary income any excess of the fair market value of such stock at the close of any taxable year over the Fund's 72 adjusted tax basis in the stock. If the adjusted tax basis of the PFIC stock exceeds the fair market value of the stock at the end of a given taxable year, such excess will be deductible as ordinary loss in an amount equal to the lesser of the amount of such excess or the net mark-to-market gains on the stock that the Fund included in income in previous years. A Fund's holding period with respect to its PFIC stock subject to the election will commence on the first day of the next taxable year. If the Fund makes the mark-to-market election in the first taxable year it holds PFIC stock, it will not incur the tax described below under the third option. Finally, if a Fund does not elect to treat the PFIC as a QEF and does not make a mark-to-market election, then, in general, (1) any gain recognized by the Fund upon the sale or other disposition of its interest in the PFIC or any `excess distribution' (as defined) received by the Fund from the PFIC will be allocated ratably over the Fund's holding period of its interest in the PFIC stock, (2) the portion of such gain or excess distribution so allocated to the year in which the gain is recognized or the excess distribution is received shall be included in the Fund's gross income for such year as ordinary income (and the distribution of such portion by the Fund to shareholders will be taxable as an ordinary income dividend, but such portion will not be subject to tax at the Fund level), (3) the Fund shall be liable for tax on the portions of such gain or excess distribution so allocated to prior years in an amount equal to, for each such prior year, (i) the amount of gain or excess distribution allocated to such prior year multiplied by the highest tax rate (individual or corporate) in effect for such prior year, plus (ii) interest on the amount determined under clause (i) for the period from the due date for filing a return for such prior year until the date for filing a return for the year in which the gain is recognized or the excess distribution is received, at the rates and methods applicable to underpayments of tax for such period, and (4) the distribution by the Fund to its shareholders of the portions of such gain or excess distribution so allocated to prior years (net of the tax payable by the Fund thereon) will again be taxable to the shareholders as an ordinary income dividend. Treasury Regulations permit a regulated investment company, in determining its investment company taxable income and net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) for any taxable year, to elect (unless it has made a taxable year election for excise tax purposes as discussed below) to treat all or any part of any net capital loss, any net long-term capital loss or any net foreign currency loss (including, to the extent provided in Treasury Regulations, losses recognized pursuant to the PFIC mark-to-market election) incurred after October 31 as if it had been incurred in the succeeding year. In addition to satisfying the requirements described above, each Fund must satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each quarter of a Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and cash items, U.S. Government securities, securities of other regulated investment companies, and securities of other issuers (as to each of which the Fund has not invested more than 5% of the value of the Fund's total assets in securities of such issuer and does not hold more than 10% of the outstanding voting securities of such issuer), and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. Generally, an option (call or put) with respect to a security is treated as issued by the issuer of the security, not the issuer of the option. If for any taxable year a Fund does not qualify as a regulated investment company, all of its taxable income (including its net capital gain) will be subject to tax at regular corporate rates without any deduction for distributions to shareholders, and such distributions will be taxable to the shareholders as ordinary dividends to the extent of the Fund's current and accumulated earnings and profits. Such distributions generally will be eligible for the dividends-received deduction in the case of corporate shareholders. 73 EXCISE TAX ON REGULATED INVESTMENT COMPANIES. A 4% non-deductible excise tax is imposed on a regulated investment company that fails to distribute in each calendar year an amount equal to 98% of its ordinary income for such calendar year and 98% of capital gain net income for the one-year period ended on October 31 of such calendar year (or, at the election of a regulated investment company having a taxable year ending November 30 or December 31, for its taxable year (a `taxable year election')). The balance of such income must be distributed during the next calendar year. For the foregoing purposes, a regulated investment company is treated as having distributed any amount on which it is subject to income tax for any taxable year ending in such calendar year. For purposes of the excise tax, a regulated investment company shall: (1) reduce its capital gain net income (but not below its net capital gain) by the amount of any net ordinary loss for the calendar year and (2) exclude foreign currency gains and losses and ordinary gains or losses arising as a result of a PFIC mark-to-market election (or upon the actual disposition of the PFIC stock subject to such election) incurred after October 31 of any year (or after the end of its taxable year if it has made a taxable year election) in determining the amount of ordinary taxable income for the current calendar year (and, instead, include such gains and losses in determining ordinary taxable income for the succeeding calendar year). Each Fund intends to make sufficient distributions or deemed distributions of its ordinary taxable income and capital gain net income prior to the end of each calendar year to avoid liability for the excise tax. However, investors should note that a Fund may in certain circumstances be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability. FUND DISTRIBUTIONS Each Fund anticipates distributing all or substantially all of its investment company taxable income for each taxable year. Such distributions will be taxable to shareholders as ordinary income and treated as dividends for federal income tax purposes. Distributions attributable to dividends received by a Fund from domestic corporations will qualify for the 70% dividends-received deduction for corporate shareholders only to the extent discussed below. Distributions attributable to interest received by a Fund will not, and distributions attributable to dividends paid by a foreign corporation generally should not, qualify for the dividend-received deduction. Ordinary income dividends paid by each Fund with respect to a taxable year will qualify for the 70% dividends-received deduction generally available to corporations (other than corporations such as S corporations, which are not eligible for the deduction because of their special characteristics, and other than for purposes of special taxes such as the accumulated earnings tax and the personal holding company tax) to the extent of the amount of qualifying dividends received by the Fund from domestic corporations for the taxable year. A dividend received by a Fund will not be treated as a qualifying dividend (1) if it has been received with respect to any share of stock that the Fund has held for less than 46 days (91 days in the case of certain preferred stock), excluding for this purpose under the rules of Code Section 246(c)(3) and (4): (i) any day more than 45 days (or 90 days in the case of certain preferred stock) after the date on which the stock becomes ex-dividend and (ii) any period during which the Fund has an option to sell, is under a contractual obligation to sell, has made and not closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option to buy, or has otherwise diminished its risk of loss by holding other positions with respect to, such (or substantially identical) stock; (2) to the extent that the Fund is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property; or (3) to the extent the stock on which the dividend is paid is treated as debt-financed under the rules of Code Section 246A. Moreover, the dividends-received deduction for a corporate shareholder may be disallowed or reduced (1) if the corporate shareholder fails to satisfy the foregoing requirements with respect to its shares of the Fund or (2) by application of Code Section 246(b) which in general limits the dividends-received deduction to 70% of the shareholder's taxable income (determined without regard to the dividends-received deduction and certain other items). 74 A Fund may either retain or distribute to shareholders its net capital gain for each taxable year. Each Fund currently intends to distribute any such amounts. Net capital gain that is distributed and designated as a capital gain dividend will be taxable to shareholders as long-term capital gain, regardless of the length of time the shareholder has held his shares or whether such gain was recognized by the Fund prior to the date on which the shareholder acquired his shares. The Code provides, however, that under certain conditions only 50% (58% for alternative minimum tax purposes) of the capital gain recognized upon a Fund's disposition of domestic `small business' stock will be subject to tax. Conversely, if a Fund elects to retain its net capital gain, the Fund will be taxed thereon (except to the extent of any available capital loss carryovers) at the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it is expected that the Fund also will elect to have shareholders of record on the last day of its taxable year treated as if each received a distribution of his pro rata share of such gain, with the result that each shareholder will be required to report his pro rata share of such gain on his tax return as long-term capital gain, will receive a refundable tax credit for his pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for his shares by an amount equal to the deemed distribution less the tax credit. Alternative minimum tax (`AMT') is imposed in addition to, but only to the extent it exceeds, the regular tax and is computed at a maximum marginal rate of 28% for non corporate taxpayers and 20% for corporate taxpayers on the excess of the taxpayer's alternative minimum taxable income (`AMTI') over an exemption amount. For purposes of the corporate AMT, the corporate dividends-received deduction is not itself an item of tax preference that must be added back to taxable income or is otherwise disallowed in determining a corporation's AMTI. However, a corporate shareholder will generally be required to take the full amount of any dividend received from a Fund into account (without a dividends-received deduction) in determining its adjusted current earnings, which are used in computing an additional corporate preference item (i.e., 75% of the excess of a corporate taxpayer's adjusted current earnings over its AMTI (determined without regard to this item and the AMT net operating loss deduction)) includable in AMTI. Investment income that may be received by a Fund from sources within foreign countries may be subject to foreign taxes withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle a Fund to a reduced rate of, or exemption from, taxes on such income. It is impossible to determine the effective rate of foreign tax in advance since the amount of a Fund's assets to be invested in various countries is not known. If more than 50% of the value of a Fund's total assets at the close of its taxable year consist of the stock or securities of foreign corporations, the Fund may elect to `pass through' to its shareholders the amount of foreign taxes paid by the Fund. If a Fund so elects, each shareholder would be required to include in gross income, even though not actually received, his pro rata share of the foreign taxes paid by the Fund, but would be treated as having paid his pro rata share of such foreign taxes and would therefore be allowed to either deduct such amount in computing taxable income or use such amount (subject to various Code limitations) as a foreign tax credit against federal income tax (but not both). For purposes of the foreign tax credit limitation rules of the Code, each shareholder would treat as foreign source income his pro rata share of such foreign taxes plus the portion of dividends received from the Fund representing income derived from foreign sources. No deduction for foreign taxes could be claimed by an individual shareholder who does not itemize deductions. Each shareholder should consult his own tax adviser regarding the potential application of foreign tax credits. Distributions by a Fund that do not constitute ordinary income dividends or capital gain dividends will be treated as a return of capital to the extent of (and in reduction of) the shareholder's tax basis in his shares; any excess will be treated as gain from the sale of his shares, as discussed below. Distributions by a Fund will be treated in the manner described above regardless of whether such distributions are paid in cash or reinvested in additional Fund shares or shares of another Fund. Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, 75 determined as of the reinvestment date. In addition, if the net asset value at the time a shareholder purchases shares of a Fund reflects undistributed net investment income or recognized capital gain net income, or unrealized appreciation in the value of the assets of the Fund, distributions of such amounts will be taxable to the shareholder in the manner described above, although they economically constitute a return of capital to the shareholder. Ordinarily, shareholders are required to take distributions by a Fund into account in the year in which the distributions are made. However, dividends declared in October, November or December of any year and payable to shareholders of record on a specified date in such month will be deemed to have been received by the shareholders (and made by the Fund) on December 31 of such calendar year if such dividends are actually paid in January of the following year. Shareholders will be advised annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year. The Funds will be required in certain cases to withhold and remit to the U.S. Treasury 31% of ordinary income dividends and capital gain dividends, and the proceeds of redemption of shares, paid to any shareholder (1) who has failed to provide a correct taxpayer identification number, (2) who is subject to backup withholding for failure to properly report the receipt of interest or dividend income, or (3) who has failed to certify to the Fund that it is not subject to backup withholding or that it is an exempt recipient (such as a corporation). SALE OR REDEMPTION OF SHARES A shareholder will recognize gain or loss on the sale or redemption of shares of a Fund in an amount equal to the difference between the proceeds of the sale or redemption and the shareholder's adjusted tax basis in the shares (however, because the Money Market Trust normally maintains a stable value, in most cases there will be no gain or loss on the sale of shares of that Fund). All or a portion of any loss so recognized may be disallowed if the shareholder purchases other shares of a Fund within 30 days before or after the sale or redemption. In general, any gain or loss arising from (or treated as arising from) the sale or redemption of shares of a Fund will be considered capital gain or loss and will be long-term capital gain or loss if the shares were held for longer than one year. However, any capital loss arising from the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received on such shares. For this purpose, the special holding period rules of Code section 246(c)(3) and (4) (discussed above in connection with the dividends-received deduction for corporations) generally will apply in determining the holding period of shares. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income. FOREIGN SHAREHOLDERS Taxation of a shareholder who, as to the United States, is a nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership (`foreign shareholder') depends on whether the income from a Fund is `effectively connected' with a U.S. trade or business carried on by such shareholder. If the income from a Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder, ordinary income dividends paid to a foreign shareholder will be subject to U.S. withholding tax at the rate of 30% (or lower applicable treaty rate) upon the gross amount of the dividend. Furthermore, such foreign shareholder may be subject to U.S. withholding tax at the rate of 30% (or lower applicable treaty rate) on the gross income resulting from a Fund's election to treat any foreign taxes paid by it as paid by its shareholders, but may not be allowed a deduction against this gross income or a credit against this U.S. withholding tax for the foreign shareholder's pro rata share of such foreign taxes which it is treated as having paid. Such foreign shareholder would generally be exempt from U.S. federal income tax on gains realized on the sale of shares of a Fund, capital gain dividends, and amounts retained by a Fund that are designated as undistributed capital gains. 76 If the income from a Fund is effectively connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends, and any gains realized upon the sale of shares of the Fund will be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations. In the case of foreign non-corporate shareholders, a Fund may be required to withhold U.S. federal income tax at the rate of 31% on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless such shareholders furnish the Fund with proper notification of their foreign status. The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax consequences to them of an investment in a Fund, including the applicability of foreign taxes. EFFECT OF FUTURE LEGISLATION; STATE AND LOCAL TAX CONSIDERATIONS The foregoing general discussion of U.S. federal income tax consequences is based on the Code and the Treasury Regulations issued thereunder as in effect on the date of this Statement of Additional Information. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed herein, and any such changes or decisions may have a retroactive effect. Rules of state and local taxation of ordinary income dividends and capital gain dividends from regulated investment companies may differ from the rules for U.S. federal income taxation described above. Shareholders are urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in a Fund. CALCULATION OF PERFORMANCE DATA For the purpose of quoting and comparing the performance of the Funds (with the exception of the Lexington Money Market Trust) to that of other mutual funds and to other relevant market indices in advertisements or in reports to shareholders, performance may be stated in terms of total return. Under the rules of the SEC (`SEC rules'), funds advertising performance must include total return quotes calculated according to the following formula: n P(l+T) = ERV Where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years (1, 5 or 10) ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10 year periods or at the end of the 1, 5 or 10 year periods (or fractional portion thereof). Under the foregoing formula, the time periods used in advertising will be based on rolling calendar quarters, updated to the last day of the most recent quarter prior to submission of the advertising for publication, and will cover one, five and ten year periods or a shorter period dating from the effectiveness of the Funds' Registration Statement. In calculating the ending redeemable value, all dividends and distributions by the Funds are assumed to have been reinvested at net asset value as described in the prospectus on the reinvestment dates during the period. Total return, or `T' in the formula above, is computed by finding the average annual compounded rates of return over the 1, 5 and 10 year periods (or fractional portion thereof) that would equate the initial amount invested to the ending redeemable value. Any recurring account charges that might in the future be imposed by the Funds would be included at that time. 77 The Funds may also from time to time include in such advertising a total return figure that is not calculated according to the formula set forth above in order to compare more accurately the performance of the Funds with other measures of investment return. For example, in comparing the Funds' total return with data published by Lipper Analytical Services, Inc., or with the performance of the Standard and Poor's 500 Stock Index or the Dow Jones Industrial Average, the Funds calculate their aggregate total return for the specified periods of time assuming the investment of $10,000 in Fund shares and assuming the reinvestment of each dividend or other distribution at net asset value on the reinvestment date. Percentage increases are determined by subtracting the initial value of the investment from the ending value and by dividing the remainder by the beginning value. With respect to the Lexington Money Market Fund, the Fund provides current yield and effective yield quotations, which are calculated in accordance with the regulations of the Securities and Exchange Commission, based upon changes in account value during a recent seven-day base period. Current yield quotations are computed by annualizing (on a 365-day basis) the `base period return'. The `base period return' is computed by determining the net change exclusive of capital changes in the value of the account, divided by the value of the account at the beginning of the base period. Effective yield is computed by compounding the `base period return.' Based upon dividends actually credited to the shareholders' accounts (i.e.: based upon net investment income), the current yield to an investor in the Fund during the last seven calendar days of its fiscal year ended December 31, 1999 was at an annual rate of 5.08% and the effective yield was at an annual rate of 4.96%. The average weighted maturity of investments was 46 days. The current and effective yield are affected by market conditions, portfolio quality, portfolio maturity, type of instruments held and operating expenses. The Fund attempts to keep its net asset value per share at $1.00, but attainment of this objective is not guaranteed. This Statement of Additional Information may be in use for a full year and it can be expected that these yields will fluctuate substantially from the example shown above. The current and effective yield figures are not a representation of future yield as the Fund's net income and expenses will vary based on many factors, including changes in short term money market yields generally and the types of instruments in the Fund's portfolio. The stated yield of the Fund may be useful in reviewing the Fund's performance and in providing a basis for comparison with other investment alternatives. However, unlike bank deposits and other investments which pay fixed yields for stated periods of time, the yield of the Fund fluctuates. In addition, other investment companies may calculate yield on a different basis and may purchase securities for their portfolios which have different qualities and maturities than those of the Fund's portfolio securities. PERFORMANCE COMPARISONS In reports or other communications to shareholders or in advertising material, a Fund may compare the performance of its Class A, Class B, Class C or Class Q shares with that of other mutual funds as listed in the rankings prepared by Lipper Analytical Services, Inc., Morningstar, Inc., CDA Technologies, Inc., Value Line, Inc. or similar independent services that monitor the performance of mutual funds or with other appropriate indexes of investment securities. In addition, certain indexes may be used to illustrate historic performance of select asset classes. The performance information may also include evaluations of the Funds published by nationally recognized ranking services and by financial publications that are nationally recognized, such as Business Week, Forbes, Fortune, Institutional Investor, Money and The Wall Street Journal. If a Fund compares its performance to other funds or to relevant indexes, the Fund's performance will be stated in the same terms in which such comparative data and indexes are stated, which is normally total return rather than yield. For these purposes the performance of the Fund, as well as the performance of such investment companies or indexes, may not reflect sales charges, which, if reflected, would reduce performance results. 78 Reports and promotional literature may also contain the following information: (i) a description of the gross national or domestic product and populations, including but not limited to age characteristics, of various countries and regions in which a Fund may invest, as compiled by various organizations, and projections of such information; (ii) the performance of worldwide equity and debt markets; (iii) the capitalization of U.S. and foreign stock markets prepared or published by the International Finance Corporation, Morgan Stanley Capital International or a similar financial organization; (iv) the geographic distribution of a Fund's portfolio; (v) the major industries located in various jurisdictions; (vi) the number of shareholders in the Funds or other Pilgrim Funds and the dollar amount of the assets under management; (vii) descriptions of investing methods such as dollar-cost averaging, best day/worst day scenarios, etc.; (viii) comparisons of the average price to earnings ratio, price to book ratio, price to cash flow and relative currency valuations of the Funds and individual stocks in a Fund's portfolio, appropriate indices and descriptions of such comparisons; (ix) quotes from the Sub-Adviser of a Fund or other industry specialists; (x) lists or statistics of certain of a Fund's holdings including, but not limited to, portfolio composition, sector weightings, portfolio turnover rate, number of holdings, average market capitalization, and modern portfolio theory statistics; (xi) NASDAQ symbols for each class of shares of each Fund; and descriptions of the benefits of working with investment professionals in selecting investments. In addition, reports and promotional literature may contain information concerning the Investment Manager, the Sub-Advisers, ING Pilgrim Capital, ING Pilgrim Group or affiliates of the Company, the Investment Manager, the Sub-Advisers, ING Pilgrim Capital or ING Pilgrim Group including: (i) performance rankings of other funds managed by the Investment Manager or a Sub-Adviser, or the individuals employed by the Investment Manager or a Sub-Adviser who exercise responsibility for the day-to-day management of a Fund, including rankings of mutual funds published by Lipper Analytical Services, Inc., Morningstar, Inc., CDA Technologies, Inc., or other rating services, companies, publications or other persons who rank mutual funds or other investment products on overall performance or other criteria; (ii) lists of clients, the number of clients, or assets under management; (iii) information regarding the acquisition of the Pilgrim Funds by ING Pilgrim Capital; (iv) the past performance of ING Pilgrim Capital and ING Pilgrim Group (v) information regarding rights offerings conducted by closed-end funds managed by the Investment Manager. The average annual total returns, including sales charges, for each Fund for the one-, five-, and ten-year periods ended December 31, 2000, are as follows. If a Fund has been in existence for less than 10 years, performance for the period since inception and ended December 31, 2000 is also provided.
SINCE INCEPTION FUND NAME 1 YEAR 5 YEAR 10 YEAR INCEPTION DATE - --------- ------ ------ ------- --------- ---- Global Technology Fund -44.02 -- -- -43.37 12/27/99 Precious Metals Fund -26.52 -14.41 -5.26 -- 12/3/75 International Fund -13.57 11.90 -- 10.13 1/3/94 Silver Fund -31.37 -13.17 -- -2.53 1/2/92 SmallCap Asia Growth Fund -44.63 -12.67 -- -11.93 7/3/95 Russia Fund -22.52 -- -- -12.55 7/3/96 Worldwide Emerging Markets Fund -50.12 -6.47 2.02 -- 1/22/96 GNMA Income Fund 5.15 5.76 7.06 -- 8/17/73 Growth and Income Fund -8.72 16.12 14.82 -- 2/11/73 Lexington Money Market Trust(1) 5.57 4.74 4.28 -- 1/2/79
- ---------- (1) Shares of the Money Market Trust are sold without a sales load. 79 GENERAL INFORMATION CUSTODIAN Brown Brothers Harriman & Co., 40 Walker Street, Boston, Massachusetts 02109, has been retained to act as the Custodian for all Funds' (except Pilgrim Growth & Income Fund, Pilgrim GNMA Income Fund and Lexington Money Market Trust) portfolio securities including those to be held by foreign banks and foreign securities depositories which qualify as eligible foreign custodians under the rules adopted by the SEC and for the Funds' domestic securities and other assets. State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02181, has been retained to act as the custodian for the portfolio securities of Pilgrim Growth & Income Fund, Pilgrim GNMA Income Fund and Lexington Money Market Trust. DST Systems, Inc. has been retained to act as the transfer agent. Neither Brown Brothers Harriman nor DST Systems, Inc. have any part in determining the investment policies of the Funds or in determining which portfolio securities are to be purchased or sold by the Funds or in the declaration of dividends and distributions. LEGAL COUNSEL Legal matters for the Funds are passed upon by Dechert, 1775 Eye Street, N.W., Washington, D.C. 20006. INDEPENDENT ACCOUNTANTS/AUDITORS PricewaterhouseCoopers LLP has been selected as independent accountants for the GNMA Income Fund for the fiscal year ending March 31, 2001. KPMG LLP has been selected as independent auditors for the Growth and Income Fund for the fiscal year ending May 31, 2001. PricewaterhouseCoopers LLP has been selected as independent accountants for the Global Technology, Precious Metals, International, Silver, SmallCap Asia Growth, Russia and Worldwide Emerging Markets Funds for the fiscal year ending October 31, 2001. KPMG LLP has been selected as independent auditors for the Lexington Money Market Trust for the fiscal year ending December 31, 2001. DECLARATION OF TRUST The Money Market Trust are organized as Massachusetts business trusts. The Declaration of Trust of each of these Funds provides that obligations of the Fund are not binding upon its Trustees, officers, employees and agents individually and that the Trustees, officers, employees and agents will not be liable to the trust or its investors for any action or failure to act, but nothing in the Declaration of Trust protects a Trustee, officer, employee or agent against any liability to the trust or its investors to which the Trustee, officer, employee or agent would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of his or her duties. The Declaration of Trust also provides that the debts, liabilities, obligations and expenses incurred, contracted for or existing with respect to a designated Fund shall be enforceable against the assets and property of such Fund only, and not against the assets or property of any other Fund or the investors therein. OTHER INFORMATION The Funds are registered with the SEC as an open-end management investment company. Such registration does not involve supervision of the management or policies of the Funds by any governmental agency. The Prospectus and this Statement of Additional Information omit certain of the information contained in the Funds' Registration Statement filed with the SEC and copies of this information may be obtained from the SEC upon payment of the prescribed fee or examined at the SEC in Washington, D.C. without charge. 80 Investors in the Funds will be kept informed of their progress through semi-annual reports showing portfolio composition, statistical data and any other significant data, including financial statements audited by independent certified public accountants. REPORTS TO SHAREHOLDERS The fiscal year for the following Funds is October 31: Global Technology Fund; Precious Metals Fund; International Fund; SmallCap Asia Growth Fund; Russia Fund; Worldwide Emerging Markets Fund. The fiscal year for the following Funds is December 31: GNMA Income Fund; Growth and Income Fund; Lexington Money Market Trust. The Funds will send financial statements to its shareholders at least semiannually. An annual report containing financial statements audited by the independent accountants will be sent to shareholders each year. FINANCIAL STATEMENTS The financial statements from the Funds' December 31, 1999 Annual Report and June 30, 2000 Semi-Annual Report (for GNMA Income Fund, Inc.; Growth and Income Fund, Inc. and Lexington Money Market Trust), and October 31, 2000 Annual Report (for Global Technology Fund, Inc.; Precious Metals Fund, Inc.; International Fund, Inc.; Silver Fund, Inc.; SmallCap Asia Growth Fund, Inc.; Russia Fund, Inc. and Worldwide Emerging Markets Fund, Inc.), are incorporated herein by reference. Copies of the Funds' Annual and Semi-Annual Reports may be obtained without charge by contacting Pilgrim Funds at 7337 East Doubletree Ranch Road, Scottsdale, Arizona, (800) 992-0180. 81 PART C OTHER INFORMATION ITEM 23. EXHIBITS (a) (1) Form of Amended and Restated Articles of Incorporation (2) Form of Articles Supplementary (3) Form of Articles Supplementary (4) Form of Articles Supplementary Designating Class A - Filed as an exhibit to Post Effective Amendment No. 42 to the Registrant's Form N-1A Registration Statement on July 26, 2000 and incorporated herein by reference. (b) Form of Bylaws - Filed as an exhibit to Post Effective Amendment No. 42 to the Registrant's Form N-1A Registration Statement on July 26, 2000 and incorporated herein by reference. (c) Not Applicable (d) Form of Investment Management Agreement between Registrant and Pilgrim Investments, Inc. (e) Form of Underwriting Agreement between Registrant and Pilgrim Securities, Inc. (f) Not Applicable (g) (1) Form of Custodian Agreement between Registrant and Brown Brothers Harriman & Co. - - Filed as an exhibit to Post Effective Amendment No. 42 to the Registrant's Form N-1A Registration Statement on July 26, 2000 and incorporated herein by reference. (2) Form of Amended Custody Agreement between Registrant and Brown Brothers Harriman & Co. (h) (1) Form of Administration Agreement between Registrant and Pilgrim Group, Inc. -- Filed as an exhibit to Post Effective Amendment No. 42 to the Registrant's Form N-1A Registration Statement on July 26, 2000 and incorporated herein by reference. (2) Form of Expense Limitation Agreement between Registrant and Pilgrim Investments, Inc. - - Filed as an exhibit to Post Effective Amendment No. 42 to the Registrant's Form N-1A Registration Statement on July 26, 2000 and incorporated herein by reference. (i) Opinion of Counsel - Filed as an exhibit to Registrant's Form N-1A Registration Statement and incorporated herein by reference. (j) (1) Consent of PricewaterhouseCoopers LLP (2) Consent of Dechert (k) Not Applicable (l) Form of Investment Letter of Initial Investors - Filed as an exhibit to Registrant's Form N-1A Registration Statement and incorporated herein by reference. (m) Form of Service and Distribution Plan for Class A Shares - Filed as an exhibit to Post Effective Amendment No. 42 to the Registrant's Form N-1A Registration Statement on July 26, 2000 and incorporated herein by reference. (n) Form of Multiple Class Plan Pursuant to Rule 18f-3 - Filed as an exhibit to Post Effective Amendment No. 42 to the Registrant's Form N-1A Registration Statement on July 26, 2000 and incorporated herein by reference. (p) Form of Code of Ethics - Filed as an exhibit to Post Effective Amendment No. 42 to the Registrant's Form N-1A Registration Statement on July 26, 2000 and incorporated herein by reference. C-1 ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT None. ITEM 25. INDEMNIFICATION Article Seventh of the Articles of Incorporation provides to the fullest extent that limitations on the liability of directors and officers are permitted by the Maryland General Corporation Law, no director or officer of the corporation shall have any liability to the corporation or its stockholders for damages. This limitation on liability applies to events occurring at the time a person serves as a director or officer of the corporation whether or not such person is a director or officer at the time of any proceeding in which liability is asserted. The corporation shall indemnify and advance expenses to its currently acting and its former directors to the fullest extent that indemnification of directors is permitted by the Maryland General Corporation Law. The corporation shall indemnify and advance expenses to its officers to the same extent as its directors and to such further extent as is consistent with the law. The Board of Directors may, through a by-law, resolution or agreement, make further provisions for indemnification of directors, officers, employees and agents to the fullest extent permitted by Maryland General Corporation Law. No provision of the Articles of Incorporation shall be effective to require a waiver of compliance with any provision of the Securities Act of 1933, as amended or of the Investment Company Act of 1940, as amended or of any valid rule, regulation or order of the U.S. Securities and Exchange Commission thereunder or to protect or purport to protect any director or officer of the corporation against any liability to the corporation or its stockholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Section 7 of Registrant's Administration Agreement provides for the indemnification of Registrant's Administrator against all liabilities incurred by it in performing its obligations under the agreement, except with respect to matters involving its disabling conduct. Registrant has obtained from a major insurance carrier a trustees' and officers' liability policy covering certain types of errors and omissions. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a trustee, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISERS Information as to the directors and officers of the Investment Manager, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by the directors and officers of the Investment Manager in the last two years, is included in its application for registration as an investment adviser on Form ADV (File No. 801-48282) filed under the Investment Advisers Act of 1940, as amended and is incorporated herein by reference thereto. C-2 ITEM 27. PRINCIPAL UNDERWRITERS (a) ING Pilgrim Securities, Inc. is the principal underwriter for the Registrant and for Pilgrim Advisory Funds, Inc., Pilgrim Investment Funds, Inc., Pilgrim Bank and Thrift Fund, Inc., Pilgrim Prime Rate Trust, Pilgrim Mutual Funds, Pilgrim Equity Trust, Pilgrim SmallCap Opportunities Fund, Pilgrim Growth Opportunities Fund, Pilgrim Mayflower Trust, Pilgrim Global Technology Fund, Inc., Pilgrim GNMA Income Fund, Inc., Pilgrim Precious Metals Fund, Inc., Pilgrim Growth and Income Fund, Inc., Pilgrim International Fund, Inc., Pilgrim Silver Fund, Inc., Pilgrim SmallCap Asia Growth Fund, Inc., Pilgrim Russia Fund, Inc., Pilgrim Funds Trust and Lexington Money Market Trust. (b) Information as to the directors and officers of the Distributor, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by the directors and officers of the Distributor in the last two years, is included in its application for registration as a broker-dealer on Form BD (File No. 8-48020) filed under the Securities Exchange Act of 1934 and is incorporated herein by reference thereto. (c) Not applicable. ITEM 28. LOCATION OF ACCOUNTS AND RECORDS All accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder are maintained at the offices of (a) the Registrant, (b) ING Pilgrim Investments, LLC, (c) ING Pilgrim Group, LLC, (d) the Portfolio Managers, (e) the Custodians and (f) the Transfer Agent. The address of each is as follows: (a) Pilgrim Worldwide Emerging Markets Fund, Inc. 7337 East Doubletree Ranch Road Scottsdale, Arizona 85258 (b) ING Pilgrim Investments, LLC 7337 East Doubletree Ranch Road Scottsdale, Arizona 85258 (c) ING Pilgrim Group, LLC 7337 East Doubletree Ranch Road Scottsdale, Arizona 85258 (d) ING Pilgrim Investments, LLC 7337 East Doubletree Ranch Road Scottsdale, Arizona 85258 (e) Brown Brothers Harriman & Co. 40 Water Street Boston, Massachusetts 02109-3661 (f) DST Systems, Inc. P.O. Box 419368 Kansas City, Missouri 64141 ITEM 29. MANAGEMENT SERVICES None. ITEM 32. UNDERTAKINGS Not Applicable C-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, Registrant certifies that it meets all the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale and State of Arizona on the 28th day of February, 2001. PILGRIM WORLDWIDE EMERGING MARKETS FUND, INC. By: /s/ Kimberly A. Anderson ------------------------------------------ Kimberly A. Anderson Vice President & Secretary Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated. SIGNATURE TITLE DATE --------- ----- ---- Director and Chairman February 28, 2001 - ------------------------- John G. Turner* President and Chief - ------------------------- Executive Officer February 28, 2001 James M. Hennessy* Senior Vice President and - ------------------------- Principal Financial Officer February 28, 2001 Michael J. Roland* Director February 28, 2001 - ------------------------- Paul S. Doherty* Director February 28, 2001 - ------------------------- Alan L. Gosule* Director February 28, 2001 - ------------------------- Walter H. May, Jr.* Director February 28, 2001 - ------------------------- Thomas J. McInerney* C-4 Director February 28, 2001 - ------------------------- Jock Patton* Director February 28, 2001 - ------------------------- David W.C. Putnam* Director February 28, 2001 - ------------------------- Blaine E. Rieke* Director February 28, 2001 - ------------------------- Richard A. Wedemeyer* * By: /s/ Kimberly A. Anderson ------------------------------ Kimberly A. Anderson Attorney-in-Fact** ** Powers of Attorney for James M. Hennessy, Michael J. Roland and the Directors are filed herewith. C-5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints James M. Hennessy, Michael J. Roland, Kimberly A. Anderson, Jeffrey S. Puretz and Karen L. Anderberg, and each of them his true and lawful attorney-in-fact as agent with full power of substitution and resubstitution of him in his name, place, and stead, to sign any and all registration statements on Form N-1A applicable to the Pilgrim Advisory Funds, Inc., Pilgrim Investment Funds, Inc., Pilgrim Bank and Thrift Fund, Inc., Pilgrim Mutual Funds, Pilgrim SmallCap Opportunities Fund, Pilgrim Growth Opportunities Fund, Pilgrim Equity Trust, Pilgrim Mayflower Trust, Pilgrim Global Technology Fund, Inc., Pilgrim GNMA Income Fund, Inc., Pilgrim Precious Metals Fund, Inc., Pilgrim Growth and Income Fund, Inc., Pilgrim International Fund, Inc., Pilgrim Silver Fund, Inc., Pilgrim SmallCap Asia Growth Fund, Inc., Pilgrim Russia Fund, Inc., Pilgrim Worldwide Emerging Markets Fund, Inc., Lexington Money Market Trust, Lexington Emerging Markets Fund, Inc., Pilgrim Variable Products Trust, USLICO Series Fund, Lexington Natural Resources Trust, and ING Variable Insurance Trust and any amendment or supplement thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 26, 2001 /s/ Paul S. Doherty /s/ Thomas J. McInerney /s/ Blaine E. Rieke - ------------------------- ------------------------- ------------------------- Paul S. Doherty Thomas J. McInerney Blaine E. Rieke /s/ Alan L. Gosule /s/ Jock Patton /s/ John G. Turner - ------------------------- ------------------------- ------------------------- Alan L. Gosule Jock Patton John G. Turner /s/ Walter H. May, Jr. /s/ David W.C. Putnam /s/ Richard A. Wedemeyer - ------------------------- ------------------------- ------------------------- Walter H. May, Jr. David W.C. Putnam Richard A. Wedemeyer C-6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints James M. Hennessy, Kimberly A. Anderson, Jeffrey S. Puretz and Karen L. Anderberg, and each of them his true and lawful attorney-in-fact as agent with full power of substitution and resubstitution of him in his name, place, and stead, to sign any and all registration statements on Form N-1A applicable to the Pilgrim Advisory Funds, Inc., Pilgrim Investment Funds, Inc., Pilgrim Bank and Thrift Fund, Inc., Pilgrim Mutual Funds, Pilgrim SmallCap Opportunities Fund, Pilgrim Growth Opportunities Fund, Pilgrim Equity Trust, Pilgrim Mayflower Trust, Pilgrim Global Technology Fund, Inc., Pilgrim GNMA Income Fund, Inc., Pilgrim Precious Metals Fund, Inc., Pilgrim Growth and Income Fund, Inc., Pilgrim International Fund, Inc., Pilgrim Silver Fund, Inc., Pilgrim SmallCap Asia Growth Fund, Inc., Pilgrim Russia Fund, Inc., Pilgrim Worldwide Emerging Markets Fund, Inc., Lexington Money Market Trust, Lexington Emerging Markets Fund, Inc., Pilgrim Variable Products Trust, USLICO Series Fund, Lexington Natural Resources Trust, and ING Variable Insurance Trust and any amendment or supplement thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 26, 2001 /s/ Michael J. Roland - ------------------------------- Michael J. Roland C-7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Michael J. Roland, Kimberly A. Anderson, Jeffrey S. Puretz and Karen L. Anderberg, and each of them his true and lawful attorney-in-fact as agent with full power of substitution and resubstitution of him in his name, place, and stead, to sign any and all registration statements on Form N-1A applicable to the Pilgrim Advisory Funds, Inc., Pilgrim Investment Funds, Inc., Pilgrim Bank and Thrift Fund, Inc., Pilgrim Mutual Funds, Pilgrim SmallCap Opportunities Fund, Pilgrim Growth Opportunities Fund, Pilgrim Equity Trust, Pilgrim Mayflower Trust, Pilgrim Global Technology Fund, Inc., Pilgrim GNMA Income Fund, Inc., Pilgrim Precious Metals Fund, Inc., Pilgrim Growth and Income Fund, Inc., Pilgrim International Fund, Inc., Pilgrim Silver Fund, Inc., Pilgrim SmallCap Asia Growth Fund, Inc., Pilgrim Russia Fund, Inc., Pilgrim Worldwide Emerging Markets Fund, Inc., Lexington Money Market Trust, Lexington Emerging Markets Fund, Inc., Pilgrim Variable Products Trust, USLICO Series Fund, Lexington Natural Resources Trust, and ING Variable Insurance Trust and any amendment or supplement thereto, and to file the same with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be done by virtue hereof. Dated: February 26, 2001 /s/ James M. Hennessy - ------------------------------- James M. Hennessy C-8 EXHIBIT LIST EXHIBIT NUMBER NAME OF EXHIBIT - -------------- --------------- (a)(1) Form of Amended and Restated Articles of Incorporation (a)(2) Form of Articles Supplementary (a)(3) Form of Articles Supplementary (d) Form of Investment Management Agreement between Registrant and Pilgrim Investments, Inc. (e) Form of Underwriting Agreement between Registrant and Pilgrim Securities, Inc. (g)(2) Form of Amended Custody Agreement between Registrant and Brown Brothers Harriman & Co. (j)(1) Consent of PricewaterhouseCoopers LLP (j)(2) Consent of Dechert EX-99.A.1 2 ex-a1.txt AMENDED AND RESTATED ARTICLES OF INCORPORATION Exhibit (a)(1) LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. FORM OF ARTICLES OF AMENDMENT AND RESTATEMENT (Under Section 2-609 of the Corporations and Associations Article) LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC., a Maryland corporation having its principal office in the State of Maryland as c/o United States Corporation Company, 1123 North Eutaw Street, Baltimore, Maryland 21201, and having United States Corporation Company as its resident agent located at 1123 North Eutaw Street, Baltimore, Maryland 21201, hereby certifies to the State Department of Assessments and Taxation of Maryland, that: FIRST: The charter of the Corporation is hereby amended by striking out Articles First through Eighteenth of the Articles of Incorporation as currently in effect and inserting in lieu thereof the following restatement of the charter of the Corporation to read as follows: Name The name of the corporation is Lexington Worldwide Emerging Markets Fund, Inc. (the Corporation). Corporate Purposes The purpose for which the Corporation is formed is to engage in the business of an investment company. The Corporation may engage in any other business and shall have all powers conferred upon or permitted to corporations by the Maryland General Corporation Law. Principal Office and Resident Agent The post office address of the principal office of the Corporation in Maryland is c/o United States Corporation Company, 1123 North Eutaw Street, Baltimore, Maryland 21201. The name and post office address of the resident agent of the Corporation in Maryland is United States Corporation Company, 1123 North Eutaw Street, Baltimore, Maryland 21201. Capital Stock and Stockholders Section 1. Authorized Shares. (a) The total number of shares of all classes of stock heretofore authorized is Fifteen Million (15,000,000) shares of common stock of the par value of One Dollar ($1.00) each. The aggregate par value of all such shares of all classes heretofore authorized is Fifteen Million Dollars ($15,000,000). (b) The total number of shares of all classes of stock as increased is Thirty Million (30,000,000) shares of common stock of the par value of One Dollar ($1.00) each, of which Fifteen million (15,000,000) shares are designated as Lexington Worldwide Emerging Markets Fund shares and the balance of which are unclassified. The aggregate par value of all shares of all classes as increased is Thirty Million Dollars ($30,000,000). (c) The Board of Directors is authorized to classify or to reclassify, from time to time, any unissued shares of stock of the Corporation, whether now or hereafter authorized, by setting, changing or eliminating the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or terms and conditions of or rights to require redemption of the stock. (d) The provisions of these Articles, including those in this Section shall apply to each class of stock unless otherwise provided by the Board of Directors prior to issuance of any shares of that class: (i) The assets and liabilities and the income and expenses of each class of the Corporation s stock shall be determined separately and, accordingly, the net asset value of shares of the Corporation's stock may vary from class to class. The income or gain and the expenses or liabilities of the Corporation shall be allocated to each class of stock as determined by or under the direction of the Board of Directors. (ii) Shares of each class of stock shall be entitled to such dividends or distributions, in stock or in cash or both, as may he declared from time to time by the Board of Directors with respect to such class. Dividends or distributions shall be paid on shares of a class of stock only out of the assets belonging to that class. (iii) In the event of the liquidation or dissolution of the Corporation, the stockholders of a class of the Corporation's stock shall be entitled to receive, as a class, out of the assets of the Corporation available for distribution to stockholders, the assets belonging to that class less the liabilities allocated to that class. The assets so distributable to the stockholders of a class shall be distributed among such stockholders in proportion to the number of shares of that class held by them and recorded on the books of the Corporation. In the event that there are any assets available for distribution that are not attributable to any particular class of stock, such assets shall be allocated to all classes in proportion to the net asset value of the respective classes. 2 (iv) All holders of shares of stock shall vote as a single class except with respect to any matter which affects only one or more classes of stock, in which case only the holders of shares of the classes affected shall be entitled to vote. (v) Except for the differences set forth above, each class of the Corporation s stock shall have the same preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of and rights to require redemption. Section 2. Fractional Shares. The Corporation may issue fractional shares. Any fractional share shall carry proportionately all the rights of a whole share, excepting any right to receive a certificate evidencing such fractional share, but including, without limitation, the right to vote and the right to receive dividends. Section 3. Quorum Requirements. The presence in person or by proxy of the holders of one-third of the shares of stock of the Corporation entitled to vote without regard to class shall constitute a quorum at any meeting of the stockholders, except with respect to any matter which by law requires the approval of one or more classes of stock, in which case the presence in person or by proxy of the holders of one-third of the shares of stock of each class entitled to vote on the matter shall constitute a quorum. Section 4. Voting. Notwithstanding any provision of the laws of the State of Maryland requiring any action to be taken or authorized by the affirmative vote of the holders of more than a majority of the outstanding stock of the Corporation, that action shall, except to the extent otherwise required by the Investment Company Act of 1940, be effective and valid if taken or authorized by the affirmative vote of the holders of the majority of the total number of votes entitled to be cast thereon. Section 5. No Preemptive Rights. No holder of shares of stock of the Corporation shall be entitled to any preemptive right other than as the Board of Directors may establish. Section 6. Redemption of Stock. Each stockholder may require the Corporation to redeem all or any part of the stock owned by that holder, upon request to the Corporation of its designated agent, at the net asset value of the shares of that class next determined following receipt of the request in a form approved by the Corporation and accompanied by surrender of the certificate or certificates for the shares, if any, less the amount of any applicable redemption charge imposed by the Board of Directors. The Board of Directors may establish procedures for redemption of stock. Payment of the redemption price by the Corporation or its designated agent shall be made within seven days after redemption. The right of redemption may be suspended and payment of the redemption price may be postponed when permitted or required by applicable law. The right of a holder of stock redeemed by the Corporation to receive dividends thereon and all other rights with respect to the shares shall terminate at the time as of which the redemption price has been determined, except the right to 3 receive the redemption price and any dividend or distribution to which that holder had become entitled as the record holder of the shares on the record date for that dividend. Upon the terms set forth in this Section, the Corporation may cause the redemption of shares of stock owned by stockholders whose shares have an aggregate net asset value of Five Hundred Dollars ($500) or less or such other minimum amount as determined by the Board of Directors. Section 7. Determinations by Board of Directors. Any determination made in good faith by or pursuant to the direction of the Board of Directors as to the amount of the assets, debts, obligations or liabilities of the Corporation, as to the amount of any reserves or charges set up and the propriety thereof, as to the time of or purpose for creating such reserves or charges, as to the use, alteration or cancellation of any reserves or charges (whether or not any debt, obligation or liability for which such reserves or charges shall have been created shall have been paid or discharged or shall be then or thereafter required to be paid or discharged), as to the value of or the method of valuing any investment or other asset owned or held by the Corporation, as to the number of shares or any class of stock outstanding, as to the income of the Corporation or as to any other matter relating to the determination of net asset value, the declaration of dividends or the issue, sale, redemption or other acquisition of shares of the Corporation, shall be final and conclusive and shall be binding upon the Corporation and all holders of its shares, past, present and future, and shares of the Corporation are issued and sold on the condition and understanding that any and all such determinations shall be binding as aforesaid. Board of Directors Section 8. Number of Directors. The number of Directors in office may he changed from time to time in the manner specified in the By-Laws of the Corporation, but this number shall never be less than the minimum number required under the Maryland General Corporation Law. Section 9. Certain Powers of Board of Directors. In addition to its other powers explicitly or implicitly granted under these Articles of Incorporation, by law or otherwise, the Board of Directors of the Corporation (a) is expressly authorized to make, alter, amend or repeal the By-Laws of the Corporation, (b) may from time to time determine whether, to what extent, at what times and places, and under what conditions and regulations the accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account, book or document of the Corporation except as conferred by statute or as authorized by the Board of Directors of the Corporation, (c) is empowered to authorize, without stockholder approval, the issuance and sale from time to time of shares of stock of the Corporation whether nor or hereafter authorized, and (d) is authorized to adopt procedures for determination of and to maintain constant the net asset value of shares of the Corporation's stock. 4 Liability and Indemnification (a) To the fullest extent that limitations on the liability of directors and officers are permitted by the Maryland General Corporation Law, no director or officer or the Corporation shall have any liability to the Corporation or its stockholders for damages. This limitation on liability applies to events occurring at the time a person serves as a director or officer of the Corporation whether or not such person is a director or officer at the time of any proceeding in which liability is asserted. (b) The Corporation shall indemnify and advance expenses to its currently acting and its former directors to the fullest extent that indemnification of directors is permitted by the Maryland General Corporation Law. The Corporation shall indemnify and advance expenses to its officers to the same extent as its directors and may do so to such further extent as is consistent with law. The Board of Directors may by By-Law, resolution or agreement make further provision for indemnification of directors, officers, employees and agents to the fullest extent permitted by the Maryland General Corporation Law. (c) No provision of this Article shall be effective to protect or purport to protect any director or officer of the Corporation against any liability to the Corporation or its stockholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. (d) References to the Maryland General Corporation Law in this Article are to that law as from time to time amended. No amendment to the charter of the Corporation shall affect any right of any person under this Article based on any event, omission or proceeding prior to the amendment. Amendments The Corporation reserves the right from time to time to make any amendment of these Articles now or hereafter authorized by law, including any amendment which alters the contract rights, as expressly set forth in these Articles, of any outstanding capital stock. SECOND: The number of directors of the corporation currently is Thirteen (13). The names of such directors are: Robert M. DeMichele Barbara M. Richardson Beverly C. Duer Margaret W. Russell W. E. S. Griswold, Jr. Philip C. Smith Lawrence Kantor Williams S. Stack Donald B. Miller Leon M. Stern Francis Olmsted Francis A. Sunderland John G. Preston 5 The board of directors of the corporation, at a meeting duly convened and held on February 26, 1991, adopted a resolution in which was set forth the foregoing amendment to the charter, declaring that the said amendment and restatement of the charter was advisable and directing that it be submitted for action thereon by the stockholders at the annual meeting to be held on April 15, 1991. THIRD: Notice setting forth the said amendment of the charter (or a summary of the changes to be effected by said amendment of the charter) and that a restatement of the charter was advisable and stating that a purpose of the meeting of the stockholders would be to take action thereon, was given, as required by law, to all stockholders entitled to vote thereon; and like notice was given to all stockholders of the corporation not entitled to vote thereon, whose contract rights as expressly set forth in the charter would be altered by the amendment. FOURTH: In accordance with the provisions of the charter of the Corporation as permitted by the Maryland General Corporation Law, the amendment of the charter as hereinabove set forth and the restatement of the charter were approved by the stockholders of the Corporation at said meeting by the affirmative vote of the holders of a majority of the outstanding shares of stock entitled to vote thereon. IN WITNESS WHEREOF, Lexington Worldwide Emerging Markets Fund, Inc. has caused these presents to be signed in its name and on its behalf by its President (or vice president), attested (or witnessed) by its Secretary (or Assistant Secretary), on April 21, 1991. LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. By: ------------------------------------ Robert M. DeMichele, President ATTEST: - ------------------------------------ Lisa Curcio, Secretary 6 LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. PRESIDENT'S CERTIFICATE THE UNDERSIGNED, President of LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC., who executed on behalf of said corporation the foregoing Articles of Amendment and Restatement of Charter, of which this certificate is made a part, hereby acknowledges, in the name and on behalf of said corporation, the foregoing Articles of Amendment and Restatement of Charter to be the corporate act of said corporation and further certifies that, to the best of his knowledge, information and belief, the matters and facts set forth herein with respect to the approval thereof are true in all material respects, under the penalties of perjury. By: ------------------------------------ Robert M. DeMichele, President 7 EX-99.A.2 3 ex-a2.txt FORM OF ARTICLES SUPPLEMENTARY Exhibit (a)(2) LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. FORM OF ARTICLES SUPPLEMENTARY LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC., a Maryland corporation having its principal office in Maryland in the City of Baltimore (hereinafter called the ( Corporation ) certifies that: FIRST: The Board of Directors of the Corporation hereby increases the aggregate number of shares of Common Stock that the corporation has authority to issue by Twenty Million (20,000,000) shares. SECOND: The Corporation's Board of Directory has classified Fifteen Million (15,000,000) of such unissued shares of the Common Stock, par value One Dollar ($1.00) per share, of the corporation as Lexington Worldwide Emerging Markets Fund shares. Five Million (5,000,000) of the additional shares of Common Stock be unclassified. THIRD: The Lexington Worldwide Emerging Markets Fund shares of Common Stock classified herein by the Corporation's Board of Directors shall have the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption as currently set forth in the Charter of the Corporation for Lexington Worldwide Emerging Markets Fund shares. FOURTH: A. Immediately before the increase in authorized capital stock provided for herein, the total number of shares of stock of all classes which the Corporation had authority to issue was Thirty Million (30,000,000) shares, the par value of all classes of the stock being one Dollar ($1.00) per share, with an aggregate par value of Thirty Million Dollars ($30,000,000), all designated initially as Common Stock, of which Fifteen Million (15,000,000) shares were classified as Lexington Worldwide Emerging Markets Fund shares and Fifteen Million (15,000,000) shares were unclassified. B. Immediately after the increase in authorized capital stock provided for herein, the total number of shares of stock of all classes which the corporation has authority to issue if Fifty Million (50,000,000) shares, the par value of all classes of the stock being one Dollar ($1.00) per share, with an aggregate par value of Fifty Million Dollars ($50,000,000), all designated initially as Common Stock, of which Thirty Million (30,000,000) shares are classified as Lexington Worldwide Emerging Markets Fund shares and Twenty Million (20,000,000) shares are unclassified. FIFTH: The Corporation is registered as an open-end company under the Investment Company Act of 1940. SIXTH: The total number of shares that the Corporation has authority to issue has been increased by the Board of Directors in accordance with Section 2-105(c) of the Maryland General Corporation Law. SEVENTH: The Lexington Worldwide Emerging Markets Fund shares aforesaid have been duly classified by the Corporation s Board of Directors pursuant to authority and power contained in the Corporation's Articles of Incorporation. IN WITNESS WHEREOF, Lexington Worldwide Emerging Markets Fund, Inc. has caused these Articles Supplementary to be executed by its Vice-President and witnessed by its Secretary on this 28th day of December, 1993. The Vice President of the Corporation who signed these Articles Supplementary acknowledges them to be the act of the Corporation and states under the penalties of perjury that, to the best of his knowledge, information and belief, the matters and facts set forth herein relating to authorization and approval hereof are true in all material respects. LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. By: ------------------------------------ Lawrence Kantor, Vice President WITNESS - ---------------------------------------- Lisa Curcio, Secretary EX-99.A.3 4 ex-a3.txt FORM OF ARTICLES SUPPLEMENTARY Exhibit (a)(3) LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. FORM OF ARTICLES SUPPLEMENTARY LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC., a Maryland corporation having its principal office in Maryland in the City of Baltimore (hereinafter called the Corporation ) certifies that: FIRST: The Board of Directors of the Corporation hereby increases the aggregate number of shares of Common Stock that the Corporation has authority to issue by Seventy Million (70,000,000) shares. SECOND: The Corporation's Board of Directors has classified Seventy Million (70,000,000) of such unissued shares of the Common Stock, par value One Dollar ($1.00) per share, of the Corporation as Lexington Worldwide Emerging Markets Fund shares. THIRD: The Lexington Worldwide Emerging Markets Fund shares of Common Stock classified herein by the Corporation's Board of Directors shall have the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption as currently set forth in the Charter of the Corporation for Lexington Worldwide Emerging Markets Fund shares. FOURTH: A. Immediately before the increase in authorized capital stock provided for herein, the total number of shares of stock of all classes which the Corporation had authority to issue was Fifty Million (50,000,000) shares, the par value of all classes of the stock being One Dollar ($1.00) per share, with an aggregate par value of Fifty Million Dollars ($50,000,000), all designated initially as Common Stock, of which Thirty Million (30,000,000) shares were classified as Lexington Worldwide Emerging Markets Fund shares and Twenty Million (20,000,000) shares were unclassified. B. Immediately after the increase in authorized capital stock provided for herein, the total number of shares of stock of all classes which the Corporation has authority to issue is One Hundred Twenty Million (120,000,000) shares, the par value of all classes of the stock being One Dollar ($1.00) per share, with an aggregate par value of One Hundred Twenty Million Dollars ($120,000,000), all designated initially as Common Stock, of which One Hundred Million (100,000,000) shares are classified as Lexington Worldwide Emerging Markets Fund shares and Twenty Million (20,000,000) shares are unclassified. FIFTH: The Corporation is registered as an open-end company under the Investment Company Act of 1940. SIXTH: The total number of shares that the Corporation has authority to issue has been increased by the Board of Directors in accordance with Section 2-105(c) of the Maryland General Corporation Law. SEVENTH: The Lexington Worldwide Emerging Markets Fund shares aforesaid have been duly classified by the Corporation's Board of Directors pursuant to authority and power contained in the corporation's Articles of Incorporation. IN WITNESS WHEREOF, Lexington Worldwide Emerging Markets Fund, Inc. has caused these Articles Supplementary to be executed by its Vice-President and witnessed by its Secretary on this 15th day of February, 1994. The Vice President of the Corporation who signed these Articles Supplementary acknowledges them to be the act of the Corporation and states under the penalties of perjury that, to the best of his knowledge, information and belief, the matters and facts set forth herein relating to authorization and approval hereof are true in all material respects. LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. By: ------------------------------------ Lawrence Kantor, Vice President WITNESS - ------------------------------------ Lisa Curcio Secretary EX-99.D 5 ex-d.txt FORM OF INVESTMENT MANAGEMENT AGREEMENT Exhibit (d) FORM OF INVESTMENT MANAGEMENT AGREEMENT AGREEMENT made this ___ day of September, 2000 between Pilgrim Worldwide Emerging Markets Fund, Inc. (the "Fund"), a Maryland corporation, and Pilgrim Investments, Inc. (the "Manager"), a Delaware corporation (the "Agreement"). WHEREAS, the Fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, the Fund is authorized to issue shares of common stock in separate series with each such series representing interests in a separate portfolio of securities and other assets; WHEREAS, the Fund may offer shares of additional series in the future; WHEREAS, the Fund desires to avail itself of the services of the Manager for the provision of advisory and management services for the Fund; and WHEREAS, the Manager is willing to render such services to the Fund; NOW, THEREFORE, in consideration of the premises, the promises and mutual covenants herein contained, it is agreed between the parties as follows: 1. APPOINTMENT. The Fund hereby appoints the Manager, subject to the direction of the Board of Directors, for the period and on the terms set forth in this Agreement, to provide advisory, management, and other services, as described herein, with respect to the Pilgrim Worldwide Emerging Markets Fund series of the Fund (referred to herein as "Series"). The Manager accepts such appointment and agrees to render the services herein set forth for the compensation herein provided. In the event the Fund establishes and designates additional series with respect to which it desires to retain the Manager to render advisory services hereunder, it shall notify the Manager in writing. If the Manager is willing to render such services, it shall notify the Fund in writing, whereupon such additional series shall become a Series hereunder. 2. SERVICES OF THE MANAGER. The Manager represents and warrants that it is registered as an investment adviser under the Investment Advisers Act of 1940 and will maintain such registration for so long as required by applicable law. Subject to the general supervision of the Board of Directors of the Fund, the Manager shall provide the following advisory, management, and other services with respect to the Series: (a) Provide general, investment advice and guidance with respect to the Series and provide advice and guidance to the Fund's Directors, and oversee the management of the investments of the Series and the composition of each Series' portfolio of securities and investments, including cash, and the purchase, retention and disposition thereof, in accordance with each Series' investment objective or objectives and policies as stated in the Fund's current registration statement, which management may be provided by others selected by the Manager and approved by the Board of Directors as provided below or directly by the Manager as provided in Section 3 of this Agreement; (b) In the event that the Manager wishes to select others to render investment management services, the Manager shall analyze, select and recommend for consideration and approval by the Fund's Board of Directors investment advisory firms (however organized) to provide investment advice to one or more of the Series, and, at the expense of the Manager, engage (which engagement may also be by the Fund) such investment advisory firms to render investment advice and manage the investments of such Series and the composition of each such Series' portfolio of securities and investments, including cash, and the purchase, retention and disposition thereof, in accordance with the Series' investment objective or objectives and policies as stated in the Fund's current registration statement (any such firms approved by the Board of Directors and engaged by the Fund and/or the Manager are referred to herein as "Sub-Advisers"); (c) Periodically monitor and evaluate the performance of the Sub-Advisers with respect to the investment objectives and policies of the Series; (d) Monitor the Sub-Advisers for compliance with the investment objective or objectives, policies and restrictions of each Series, the 1940 Act, Subchapter M of the Internal Revenue Code, and if applicable, regulations under such provisions, and other applicable law; (e) If appropriate, analyze and recommend for consideration by the Fund's Board of Directors termination of a contract with a Sub-Adviser under which the Sub-Adviser provides investment advisory services to one or more of the Series; (f) Supervise Sub-Advisers with respect to the services that such Sub-Advisers provide under respective portfolio management agreements ("Sub-Adviser Agreements"); (g) Render to the Board of Directors of the Fund such periodic and special reports as the Board may reasonably request; and (h) Make available its officers and employees to the Board of Directors and officers of the Fund for consultation and discussions regarding the administration and management of the Series and services provided to the Fund under this Agreement. 3. INVESTMENT MANAGEMENT AUTHORITY. In the event the Manager wishes to render investment management services directly to a Series, then with respect to any such Series, the Manager, subject to the supervision of the Fund's Board of Directors, will provide a continuous investment program for the Series' portfolio and determine the composition of the assets of the Series' portfolio, including determination of the purchase, retention, or sale of the securities, cash, and other investments contained in the portfolio. The Manager will provide investment research and conduct a continuous program of evaluation, investment, sales, and reinvestment of the Series' assets by determining the securities and other investments that shall be purchased, entered into, sold, closed, offered to the public, or exchanged for the Series, when these transactions should be executed, and what portion of the assets of the Series should be held in the various securities and other investments in which it may invest, and the Manager is hereby authorized to execute and perform such services on behalf of the Series. To the extent permitted by the investment policies of the Series, the Manager shall make decisions for the Series as to foreign currency matters and make determinations as to, and execute and perform, foreign currency exchange contracts on behalf of the Series. The Manager will provide the services under this Agreement in accordance with the Series' investment objective or objectives, policies, and restrictions as stated in the Fund's Registration Statement filed with the Securities and Exchange Commission (the "SEC"), as amended. Furthermore: (a) The Manager will manage the Series so that each will qualify as a regulated investment company under Subchapter M of the Internal Revenue Code. In managing the Series in accordance with these requirements, the Manager shall be entitled to receive and act upon advice of counsel to the Fund or counsel to the Manager. 2 (b) The Manager will conform with the 1940 Act and all rules and regulations thereunder, all other applicable federal and state laws and regulations, with any applicable procedures adopted by the Fund's Board of Directors, and the provisions of the Registration Statement of the Fund under the Securities Act of 1933 and the 1940 Act, as supplemented or amended. (c) On occasions when the Manager deems the purchase or sale of a security to be in the best interest of the Series as well as any other investment advisory clients, the Manager may, to the extent permitted by applicable laws and regulations and any applicable procedures adopted by the Fund's Board of Directors, but shall not be obligated to, aggregate the securities to be so sold or purchased with those of its other clients where such aggregation is not inconsistent with the policies set forth in the Registration Statement. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Manager in a manner that is fair and equitable in the judgment of the Manager in the exercise of its fiduciary obligations to the Fund and to such other clients. (d) In connection with the purchase and sale of securities of the Series, the Manager will arrange for the transmission to the custodian for the Fund on a daily basis, of such confirmation, trade tickets, and other documents and information, including, but not limited to, Cusip, Cedel, or other numbers that identify securities to be purchased or sold on behalf of the Series, as may be reasonably necessary to enable the custodian to perform its administrative and recordkeeping responsibilities with respect to the Series. With respect to portfolio securities to be purchased or sold through the Depository Trust Company, the Manager will arrange for the prompt transmission of the confirmation of such trades to the Fund's custodian. (e) The Manager will assist the custodian or portfolio accounting agent for the Fund in determining, consistent with the procedures and policies stated in the Registration Statement for the Fund and any applicable procedures adopted by the Fund's Board of Directors, the value of any portfolio securities or other assets of the Series for which the custodian or portfolio accounting agent seeks assistance or review from the Manager. (f) The Manager will make available to the Fund, promptly upon request, any of the Series' or the Manager's investment records and ledgers as are necessary to assist the Fund to comply with requirements of the 1940 Act, as well as other applicable laws. The Manager will furnish to regulatory authorities having the requisite authority any information or reports in connection with its services which may be requested in order to ascertain whether the operations of the Fund are being conducted in a manner consistent with applicable laws and regulations. (g) The Manager will regularly report to the Fund's Board of Directors on the investment program for the Series and the issuers and securities represented in the Series' portfolio, and will furnish the Fund's Board of Directors with respect to the Series such periodic and special reports as the Directors may reasonably request. (h) In connection with its responsibilities under this Section 3, the Manager is responsible for decisions to buy and sell securities and other investments for the Series' portfolio, broker-dealer selection, and negotiation of brokerage commission rates. The Manager's primary consideration in effecting a security transaction will be to obtain the best execution for the Series, taking into account the factors specified in the Prospectus and/or Statement of Additional Information for the Fund, which include price (including the 3 applicable brokerage commission or dollar spread), the size of the order, the nature of the market for the security, the timing of the transaction, the reputation, experience and financial stability of the broker-dealer involved, the quality of the service, the difficulty of execution, execution capabilities and operational facilities of the firms involved, and the firm's risk in positioning a block of securities. Accordingly, the price to the Series in any transaction may be less favorable than that available from another broker-dealer if the difference is reasonably justified, in the judgment of the Manager in the exercise of its fiduciary obligations to the Fund, by other aspects of the portfolio execution services offered. Subject to such policies as the Board of Directors may determine and consistent with Section 28(e) of the Securities Exchange Act of 1934, as amended, the Manager shall not be deemed to have acted unlawfully or to have breached any duty created by this Agreement or otherwise solely by reason of its having caused the Series to pay a broker-dealer for effecting a portfolio investment transaction in excess of the amount of commission another broker-dealer would have charged for effecting that transaction, if the Manager determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such broker-dealer, viewed in terms of either that particular transaction or the Manager's overall responsibilities with respect to the Series and to its other clients as to which it exercises investment discretion. To the extent consistent with these standards and in accordance with Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, the Manager is further authorized to allocate the orders placed by it on behalf of the Series to the Manager if it is registered as a broker-dealer with the SEC, to an affiliated broker-dealer, or to such brokers and dealers who also provide research or statistical material or other services to the Series, the Manager or an affiliate of the Manager. Such allocation shall be in such amounts and proportions as the Manager shall determine consistent with the above standards, and the Manager will report on said allocation regularly to the Board of Directors of the Fund indicating the broker-dealers to which such allocations have been made and the basis therefor. 4. CONFORMITY WITH APPLICABLE LAW. The Manager, in the performance of its duties and obligations under this Agreement, shall act in conformity with the Registration Statement of the Fund and with the instructions and directions of the Board of Directors of the Fund and will conform to, and comply with, the requirements of the 1940 Act and all other applicable federal and state laws and regulations. 5. EXCLUSIVITY. The services of the Manager to the Fund under this Agreement are not to be deemed exclusive, and the Manager, or any affiliate thereof, shall be free to render similar services to other investment companies and other clients (whether or not their investment objectives and policies are similar to those of any of the Series) and to engage in other activities, so long as its services hereunder are not impaired thereby. 6. DOCUMENTS. The Fund has delivered properly certified or authenticated copies of each of the following documents to the Manager and will deliver to it all future amendments and supplements thereto, if any: (a) certified resolution of the Board of Directors of the Fund authorizing the appointment of the Manager and approving the form of this Agreement; (b) the Registration Statement as filed with the SEC and any amendments thereto; and (c) exhibits, powers of attorney, certificates and any and all other documents relating to or filed in connection with the Registration Statement described above. 4 7. RECORDS. The Fund agrees to maintain and to preserve for the periods prescribed under the 1940 Act any such records as are required to be maintained by the Fund with respect to the Series by the 1940 Act. The Manager further agrees that all records of the Series are the property of the Fund and, to the extent held by the Manager, it will promptly surrender any of such records upon request. 8. EXPENSES. During the term of this Agreement, the Manager will pay all expenses incurred by it in connection with its activities under this Agreement, except such expenses as are assumed by the Fund under this Agreement and such expenses as are assumed by a Sub-Adviser under its Sub-Adviser Agreement. The Manager further agrees to pay all fees payable to the Sub-Advisers, executive salaries and expenses of the Directors of the Fund who are employees of the Manager or its affiliates, and office rent of the Fund. The Fund shall be responsible for all of the other expenses of its operations, including, without limitation, the management fee payable hereunder; brokerage commissions; interest; legal fees and expenses of attorneys; fees of auditors, transfer agents and dividend disbursing agents, custodians and shareholder servicing agents; the expense of obtaining quotations for calculating each Fund's net asset value; taxes, if any, and the preparation of the Fund's tax returns; cost of stock certificates and any other expenses (including clerical expenses) of issue, sale, repurchase or redemption of shares; expenses of registering and qualifying shares of the Fund under federal and state laws and regulations (including the salary of employees of the Manager engaged in the registering and qualifying of shares of the Fund under federal and state laws and regulations or a pro-rata portion of the salary of employees to the extent so engaged); salaries of personnel involved in placing orders for the execution of the Fund's portfolio transactions; expenses of disposition or offering any of the portfolio securities held by a Series; expenses of printing and distributing reports, notices and proxy materials to existing shareholders; expenses of printing and filing reports and other documents filed with governmental agencies; expenses in connection with shareholder and director meetings; expenses of printing and distributing prospectuses and statements of additional information to existing shareholders; fees and expenses of Directors of the Fund who are not employees of the Manager or any Sub-Adviser, or their affiliates; trade association dues; insurance premiums; extraordinary expenses such as litigation expenses. To the extent the Manager incurs any costs or performs any services which are an obligation of the Fund, as set forth herein, the Fund shall promptly reimburse the Manager for such costs and expenses. To the extent the services for which the Fund is obligated to pay are performed by the Manager, the Manager shall be entitled to recover from the Fund only to the extent of its costs for such services. 9. COMPENSATION. For the services provided by the Manager to each Series pursuant to this Agreement, the Fund will pay to the Manager an annual fee equal to 1.00% of the Series' average daily net assets, payable monthly in arrears. Payment of the above fees shall be in addition to any amount paid to the Manager for the salary of its employees for performing services which are an obligation of the Fund as provided in Section 8. The fee will be appropriately pro-rated to reflect any portion of a calendar month that this Agreement is not in effect between us. 10. LIABILITY OF THE MANAGER. The Manager may rely on information reasonably believed by it to be accurate and reliable. Except as may otherwise be required by the 1940 Act or the rules thereunder, neither the Manager nor its stockholders, officers, directors, employees, or agents shall be subject to, and the Fund will indemnify such persons from and against, any liability for, or any damages, expenses, or losses incurred in connection with, any act or omission connected with or arising out of any services rendered under this Agreement, except by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Manager's duties, or by reason of reckless disregard of the Manager's obligations and duties under this Agreement. Except as may otherwise be required by the 1940 Act or the rules thereunder, neither the Manager nor its stockholders, officers, directors, employees, or agents shall be subject to, and the Fund will indemnify such persons from and against, any liability for, or any 5 damages, expenses, or losses incurred in connection with, any act or omission by a Sub-Adviser or any of the Sub-Adviser's stockholders or partners, officers, directors, employees, or agents connected with or arising out of any services rendered under a Sub-Adviser Agreement, except by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Manager's duties under this Agreement, or by reason of reckless disregard of the Manager's obligations and duties under this Agreement. No director, officer, employee or agent of the Fund shall be subject to any personal liability whatsoever, in his or her official capacity, to any person, including the Sub-Adviser, other than to the Fund or its shareholders, in connection with Fund property or the affairs of the Fund, save only that arising from his or her bad faith, willful misfeasance, gross negligence or reckless disregard of his or her duty to such person; and all such persons shall look solely to the Fund property for satisfaction of claims of any nature against a director, officer, employee or agent of the Fund arising in connection with the affairs of the Fund. Moreover, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a Series shall be enforceable against the assets and property of that Series only, and not against the assets or property of any other series of the Fund. 11. CONTINUATION AND TERMINATION. This Agreement shall become effective on the date first written above, subject to the condition that the Fund's Board of Directors, including a majority of those Directors who are not interested persons (as such term is defined in the 1940 Act) of the Manager, and the shareholders of each Series, shall have approved this Agreement. Unless terminated as provided herein, the Agreement shall continue in full force and effect for two (2) years from the effective date of this Agreement, and shall continue from year to year thereafter with respect to each Series so long as such continuance is specifically approved at least annually (i) by the vote of a majority of the Board of Directors of the Fund, or (ii) by vote of a majority of the outstanding voting shares of the Series (as defined in the 1940 Act), and provided continuance is also approved by the vote of a majority of the Board of Directors of the Fund who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of the Fund or the Manager, cast in person at a meeting called for the purpose of voting on such approval. This Agreement may not be amended in any material respect without a majority vote of the outstanding voting shares (as defined in the 1940 Act). However, any approval of this Agreement by the holders of a majority of the outstanding shares (as defined in the 1940 Act) of a Series shall be effective to continue this Agreement with respect to such Series notwithstanding (i) that this Agreement has not been approved by the holders of a majority of the outstanding shares of any other Series or (ii) that this Agreement has not been approved by the vote of a majority of the outstanding shares of the Fund, unless such approval shall be required by any other applicable law or otherwise. This Agreement may be terminated by the Fund at any time, in its entirety or with respect to a Series, without the payment of any penalty, by vote of a majority of the Board of Directors of the Fund or by a vote of a majority of the outstanding voting shares of the Fund, or with respect to a Series, by vote of a majority of the outstanding voting shares of such Series, on sixty (60) days' written notice to the Manager, or by the Manager at any time, without the payment of any penalty, on sixty (60) days' written notice to the Fund. This Agreement will automatically and immediately terminate in the event of its "assignment" as described in the 1940 Act. 12. USE OF NAME. It is understood that the name "Pilgrim Investments, Inc." or any derivative thereof (including the name "Pilgrim") or logo associated with that name is the valuable property of the Manager and its affiliates, and that the Fund and/or the Series have the right to use such name (or derivative or logo) only so long as this Agreement shall continue with respect to such Fund and/or Series. Upon termination of this Agreement, the Fund (or Series) shall forthwith cease to use such name (or derivative or logo) and, in the case of the Fund, shall promptly amend its Articles of Incorporation to change its name (if such name is included therein). 6 13. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original. 14. APPLICABLE LAW. (a) This Agreement shall be governed by the laws of the State of Arizona, provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or any rules or order of the SEC thereunder. (b) If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. (c) The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. PILGRIM WORLDWIDE EMERGING MARKETS FUND, INC. --------------------------------------------- By: Michael J. Roland Senior Vice President PILGRIM INVESTMENTS, INC. --------------------------------- By: James M. Hennessy Senior Executive Vice President EX-99.E 6 ex-e.txt FORM OF UNDERWRITING AGREEMENT Exhibit (e) FORM OF PILGRIM WORLDWIDE EMERGING MARKETS FUND, INC. 40 N. Central Avenue, Suite 1200 Phoenix, Arizona 85004 September ___, 2000 Pilgrim Securities, Inc. 40 N. Central Avenue, Suite 1200 Phoenix, Arizona 85004 Re: Underwriting Agreement Ladies and Gentlemen: Pilgrim Worldwide Emerging Markets Fund, Inc. is a Maryland corporation operating as an open-end management investment company (hereinafter referred to as the "Company"). The Company is registered as such under the Investment Company Act of 1940, as amended (the "1940 Act"), and its shares are registered under the Securities Act of 1933, as amended (the "1933 Act"). The Company consists of one separate series: Pilgrim Worldwide Emerging Markets Fund (the "Fund"). The Company on behalf of the Fund desires to offer and sell the authorized but unissued shares of the Fund to the public in accordance with applicable federal and state securities laws. You have informed us that Pilgrim Securities, Inc. is registered as a broker-dealer under the provisions of the Securities Exchange Act of 1934 and is a member in good standing of the National Association of Securities Dealers, Inc. You have indicated your desire to act as the exclusive selling agent and principal underwriter for the shares of the Fund. We have been authorized by the Company to execute and deliver this Agreement to you by a resolution of our Board of Directors (the "Directors") adopted at a meeting of the Directors, at which a majority of Directors, including a majority of our Directors who are not otherwise interested persons of our investment manager or its related organizations, were present and voted in favor of the said resolution approving this Underwriting Agreement. 1. APPOINTMENT OF UNDERWRITER. Upon the execution of this Agreement and in consideration of the agreements on your part herein expressed and upon the terms and conditions set forth herein, we hereby appoint you as the exclusive distributor of the shares (other than sales made directly by the Company without sales charge) and agree that we will deliver to you such shares as may be sold through your efforts. You agree to use your best efforts to promote the sale of the shares, but you are not obligated to sell any specific number of the shares. 2. INDEPENDENT CONTRACTOR. You will undertake and discharge your obligations hereunder as an independent contractor and shall have no authority or power to obligate or bind the Company or the Fund by your actions, conduct or contracts, except that you are authorized to accept orders for the purchase or repurchase of the shares as our agent. You may appoint sub-agents or distribute the shares through dealers (or otherwise) as you may determine necessary or desirable from time to time. This Agreement shall not, however, be construed as authorizing any dealer or other person to accept orders for sale or repurchase on our behalf or to otherwise act as our agent for any purpose. 3. OFFERING PRICE. Shares of the Fund shall be offered at a price equivalent to its net asset value plus, as appropriate, a variable percentage of the public offering price as a sales load, as set forth in the Fund's Prospectus. On each business day on which the New York Stock Exchange is open for business, we will furnish you with the net asset value of the shares, which shall be determined and become effective as of the time described in the Company's prospectus. The net asset value so determined shall apply to all orders for the purchase of the shares received by dealers prior to the time as of which net asset value is determined, and you are authorized in your capacity as our agent to accept orders and confirm sales at such net asset value; PROVIDED THAT, such dealers notify you of the time when they received the particular order and that the order is placed with you prior the time as of which net asset value is determined. To the extent that our Shareholder Servicing and Transfer Agent (collectively, "Agent") and the Custodian(s) for any pension, profit-sharing, employer or self-employed plan receive payments on behalf of the investors, such Agent and Custodian(s) shall be required to record the time of such receipt with respect to each payment, and the applicable net asset value shall be that which is next determined and effective after the time of receipt by them. In all events, you shall forthwith notify all of the dealers comprising your selling group and the Agent and Custodian(s) of the effective net asset value as received from us. Should we at any time calculate our net asset value more frequently than once each business day, you and we will follow procedures with respect to such additional price or prices comparable to those set forth above in this Section 3. 4. ORDERS. You shall promptly advise us of all purchase orders for shares of the Fund received by you. Any order may be rejected by us; provided, however, that we and the Company will not arbitrarily or without reasonable cause refuse to accept or confirm orders for the purchase of shares of the Fund. We or our agent will confirm orders upon receipt, will make appropriate book entries and, upon receipt by the Company (or its agent) of payment therefor, will deliver deposit receipts for the shares. 5. SALES COMMISSION. (a) In respect of each Class of Shares other than Class B Shares: (i) You shall be entitled to receive a sales commission on the sale of shares of the Fund in the amounts and according to the procedures set forth in the Fund's Prospectus then in effect under the 1933 Act (including any supplements or amendments thereto). (ii) In addition to the payments of the sales commissions to you provided for in paragraph 5(a)(i), you may also receive reimbursement for expenses or a maintenance or trail fee as may be required by and described in the distribution plans adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act (the "Distribution Plans"). 2 (b) In respect of the Class B Shares of the Fund, the following provisions shall apply (if such shares are offered): (i) In consideration of your services as principal underwriter of the Fund's Class B Shares pursuant to this Underwriting Agreement and our distribution plan pursuant to Rule 12b-1 under the 1940 Act in respect of such shares (the "Class B Distribution Plan"), we agree: (I) to pay to you monthly in arrears your "Allocable Portion" (as hereinafter defined) of a fee (the "Distribution Fee") which shall accrue daily in an amount equal to the product of (A) the daily equivalent of 0.75% per annum multiplied by (B) the net asset value of the Class B Shares of the Fund outstanding on such day, and (II) to withhold from redemption proceeds your Allocable Portion of the Contingent Deferred Sales Charges ("CDSCs") and to pay the same over to you or at your direction. (ii) The Allocation Schedule attached hereto as Schedule A and each of the provisions set forth in clauses (I) through (V) of the second sentence of Section 1(A) of the Class B Distribution Plan as in effect on the date hereof, together with the related definitions, are hereby incorporated herein by reference with the same force and effect as if set forth herein in their entirety. (iii) In addition to the payments of amounts provided for in Section 5(b)(i) and (ii), you may also receive reimbursement for expenses or a maintenance or trail fee as may be required by and described in the Class B Distribution Plan. (c) You may allow appointed sub-agents or dealers such commissions or discounts (not exceeding the total sales commission) as you shall deem advisable, so long as any such commissions or discounts are set forth in the Fund's then current Prospectus, to the extent required by the applicable federal and state securities laws. 6. PAYMENT OF SHARES. At or prior to the time of delivery of any of our shares you will pay or cause to be paid to the Custodian, for our account, an amount in cash equal to the net asset value of such shares. In the event that you pay for shares sold by you prior to your receipt of payment from purchasers, you are authorized to reimburse yourself for the net asset value of such shares from the offering price of such shares when received by you. 7. REDEMPTION. (a) We represent that any of the outstanding shares of the Fund may be tendered for redemption at any time, and we represent that the Company will repurchase or redeem the shares so tendered in accordance with the Company's Articles of Incorporation and Bylaws and the applicable provisions of the Fund's Prospectus. The price to be paid to redeem or repurchase the shares shall be equal to the net asset value, less any applicable contingent deferred sales charge, if any, determined as set forth in the applicable Prospectus (the "redemption price"). 8. REGISTRATION OF SHARES. No shares shall be registered on our books until (i) receipt by us of your written request therefor; (ii) receipt by the Custodian and Agent of a certificate signed by an officer of the Company stating the amount to be received therefor; and (iii) receipt of payment of that amount by the Custodian. We will provide for the recording of all shares purchased in 3 unissued form in "book accounts", unless a request in writing for certificates is received by the Agent, in which case certificates for shares in such names and amounts as is specified in such writing will be delivered by the Agent, as soon as practicable after registration thereof on the books. 9. PURCHASES FOR YOUR OWN ACCOUNT. You shall not purchase shares for your own account for purposes of resale to the public, but you may purchase shares for your own investment account upon your written assurance that the purchase is for investment purposes only and that the shares will not be resold except through redemption by us. 10. SALE OF SHARES TO AFFILIATES. You may sell the Class A and Class C shares (if such shares are offered) at net asset value, without a sales charge as appropriate, pursuant to a uniform offer described in the Fund's current Prospectus (i) to our Directors and officers, our investment manager or your company or affiliated companies thereof, (ii) to the bona fide, full time employees or sales representatives of any of the foregoing who have acted as such for at least ninety (90) days, (iii) to any trust, pension, profit-sharing, or other benefit plan for such persons, or (iv) to any other person set forth in the Fund's then current Prospectus; PROVIDED that such sales are made in accordance with the rules and regulations under the 1940 Act and that such sales are made upon the written assurance of the purchaser that the purchases are made for investment purposes only, not for the purpose of resale to the public and that the shares will not be resold except through redemption by us. 11. ALLOCATION OF EXPENSES. (a) We will pay the following expenses in connection with the sales and distribution of shares of the Fund: (i) expenses pertaining to the preparation of our audited and certified financial statements to be included in any amendments ("Amendments") to our Registration Statement under the 1933 Act, including the Prospectuses and Statements of Additional Information included therein; (ii) expenses pertaining to the preparation (including legal fees) and printing of all Amendments or supplements filed with the Securities and Exchange Commission, including the copies of the Prospectuses and Statements of Additional Information included in such Amendments and the first ten (10) copies of the definitive Prospectuses and Statements of Additional Information or supplements thereto, other than those necessitated by or related to your (including your "Parents") activities where such amendments or supplements result in expenses which we would not otherwise have incurred; (iii) expenses pertaining to the preparation, printing, and distribution of any reports or communications, including Prospectuses and Statements of Additional Information, which are sent to our existing shareholders; (iv) filing and other fees to federal and state securities regulatory authorities necessary to register and maintain registration of the shares; and 4 (v) expenses of the Agent, including all costs and expenses in connection with the issuance, transfer and registration of the shares, including but not limited to any taxes and other governmental charges in connection therewith. (b) Except to the extent that you are entitled to reimbursement under the provisions of any of the Distribution Plans for the Fund, you will pay the following expenses: (i) expenses of printing additional copies of the Prospectus and Statement of Additional Information and any amendments or supplements thereto which are necessary to continue to offer our shares to the public; (ii) expenses pertaining to the preparation (excluding legal fees) and printing of all amendments and supplements to our Registration Statement if the Amendment or supplement arises from or is necessitated by or related to your (including your "Parent") activities where those expenses would not otherwise have been incurred by us; and (iii) expenses pertaining to the printing of additional copies, for use by you as sales literature, of reports or other communications which have been prepared for distribution to our existing shareholders or incurred by you in advertising, promoting and selling our shares to the public. 12. FURNISHING OF INFORMATION. We will furnish to you such information with respect to our company and its shares, in such form and signed by such of our officers as you may reasonably request, and we warrant that the statements therein contained when so signed will be true and correct. We will also furnish you with such information and will take such action as you may reasonably request in order to qualify our shares for sale to the public under the Blue Sky Laws or in jurisdictions in which you may wish to offer them. We will furnish you at least annually with audited financial statements of our books and accounts certified by independent public accountants, and with such additional information regarding our financial condition, as you may reasonably request from time to time. 13. CONDUCT OF BUSINESS. Other than the currently effective Prospectus and Statement of Additional Information, you will not issue any sales material or statements except literature or advertising which conforms to the requirements of federal and state securities laws and regulations and which have been filed, where necessary, with the appropriate regulatory authorities. You will furnish us with copies of all such material prior to their use and no such material shall be published if we shall reasonably and promptly object. You shall comply with the applicable federal and state laws and regulations where our shares are offered for sale and conduct your affairs with us and with dealers, brokers or investors in accordance with the Conduct Rules of the National Association of Securities Dealers, Inc. 14. REDEMPTION OR REPURCHASE WITHIN SEVEN DAYS. If shares are tendered to us for redemption or are repurchased by us within seven (7) business days after your acceptance of the original purchase order for such shares, you will immediately refund to us the full amount of any sales commission (net of allowances to dealers or brokers) allowed to you on the original sale, and will 5 promptly, upon receipt thereof, pay to us any refunds from dealers or brokers of the balance of sales commissions reallowed by you. We shall notify you of such tender for redemption within ten (10) days of the day on which notice of such tender for redemption is received by us. 15. OTHER ACTIVITIES. Your services pursuant to this Agreement shall not be deemed to be exclusive, and you may render similar services and act as an underwriter, distributor or dealer for other investment companies in the offering of their shares. 16. TERM OF AGREEMENT. This Agreement shall become effective on the date first written above or on such later date approved by the Company's Board of Directors, including a majority of those Directors who are not parties to this Agreement or interested persons (as such term is defined in the Investment Company Act of 1940) thereof. Unless terminated as provided herein, the Agreement shall continue in full force and effect for two (2) years from the effective date of this Agreement, and shall continue in effect from year to year thereafter for successive one (1) year periods if approved at least annually (i) by a vote of a majority of the outstanding voting securities of the Fund or by a vote of the Directors of the Company, and (ii) by a vote of a majority of the Directors of the Company who are not interested persons or parties to this Agreement (other than as Directors of the Company), cast in person at a meeting called for the purpose of voting on this Agreement. 17. TERMINATION. This Agreement: (i) may be terminated at any time without the payment of any penalty, either by vote of the Directors of the Company or by a vote of a majority of the outstanding voting securities of the Fund, on sixty (60) days' written notice to you; (ii) shall terminate immediately in the event of its assignment; and (iii) may be terminated by you on sixty (60) days' written notice to us. 18. SUSPENSION OF SALES. We reserve the right at all times to suspend or limit the public offering of the shares upon written notice to you, and to reject any order in whole or in part. 19. MISCELLANEOUS. This Agreement shall be subject to the laws of the State of Arizona and shall be interpreted and construed to further and promote the operation of the Company as an open-end investment company. As used herein, the terms "Net Asset Value," "Offering Price," "Investment Company," "Open-End Investment Company," "Assignment," "Principal Underwriter," "Interested Person," "Parents," and "Majority of the Outstanding Voting Securities," shall have the meanings set forth in the 1933 Act and the 1940 Act, as applicable, and the rules and regulations promulgated thereunder. 20. LIABILITY. Nothing contained herein shall be deemed to protect you against any liability to us or to our shareholders to which you would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of your duties hereunder, or by reason of your reckless disregard of your obligations and duties hereunder. 6 21. AMENDMENT. This Agreement may be amended with respect to the Fund by the parties only if such amendment is specifically approved by (a) the Directors or by the vote of a majority of the outstanding voting securities of the Fund, and (b) by the vote of a majority of the distinerested Directors cast in person at a meeting called for the purpose of voting on such amendment. If the foregoing meets with your approval, please acknowledge your acceptance by signing each of the enclosed counterparts hereof and returning such counterparts to us, whereupon this shall constitute a binding agreement as of the date first above written. Very truly yours, PILGRIM WORLDWIDE EMERGING MARKETS FUND, INC. ---------------------------------------- By: Michael J. Roland Senior Vice President Agreed to and Accepted: PILGRIM SECURITIES, INC. - ---------------------------------------- By: James M. Hennessy Senior Executive Vice President 7 SCHEDULE A to the Underwriting Agreement UNDERWRITING AGREEMENT ALLOCATION PROCEDURES CDSCs and Distribution Fees related to Shares of each separate series of Pilgrim Worldwide Emerging Markets Fund, Inc. (each a "Fund") shall be allocated by such Fund among Pilgrim Securities, Inc. ("PSI") and any replacement principal underwriter for Shares of such Fund (the "Successor Distributor") in accordance with this Schedule A. Defined terms used in this Schedule A and not otherwise defined herein shall have the meaning assigned to them in the Underwriting Agreement for Shares of each Fund to which this Schedule A is attached. As used herein the following terms shall have the meanings indicated. "COMMISSION SHARE" means, in respect of any Fund, each Share of such Fund which is issued under circumstances which would normally give rise to an obligation of the holder of such Share to pay a CDSC upon redemption of such Share (including, without limitation, any Share of such Fund issued in connection with a Free Exchange) and any such Share shall continue to be a Commission Share of such Fund prior to the redemption (including a redemption in connection with a Free Exchange) or conversion of such Share, even though the obligation to pay the CDSC may have expired or conditions for waivers thereof may exist. "DATE OF ORIGINAL ISSUANCE" means in respect of any Commission Share, the date with reference to which the amount of the CDSC payable on redemption thereof, if any, is computed. "FREE EXCHANGE" means an exchange of a Commission Share of one Fund for a Commission Share of another Fund under circumstances where the CDSC which would have been payable in respect of a redemption of the exchanged Commission Share on the date of such exchange is waived and the Commission Share issued in such exchange is treated as a continuation of the investment in the Commission Share exchanged for purposes of determining the CDSC payable if such Commission Share issued in the exchange is thereafter redeemed. "FREE SHARE" means, in respect of any Fund, each Share of such Fund, other than a Commission Share, including, without limitation, any Share issued in connection with the reinvestment of dividends or capital gains. "INCEPTION DATE" means, in respect of any Fund, the first date on which such Fund issued Shares. "NET ASSET VALUE" means, (i) with respect to any Fund, as of the date any determination thereof is made, the net asset value of such Fund computed in the manner such value is required to be computed by such Fund in its reports to its shareholders, and (ii) with respect to any Share of such Fund as of any date, 8 the quotient obtained by dividing: (A) the net asset value of such Fund (as computed in accordance with clause (i) above) allocated to Shares of such Fund (in accordance with the constituent documents for such Fund) as of such date, by (B) the number of Shares of such Fund outstanding on such date. "OMNIBUS SHARE" means, in respect of the Fund, a Commission Share or Free Share sold by one of the Selling Agents listed on Exhibit I to this Schedule. If PSI and its Transferees reasonably determine that the Transfer Agent is able to track all Commission Shares and Free Shares sold by any of the Selling Agents listed on Exhibit I (taking into account all information provided to the Transfer Agent by such Selling Agent on a schedule sufficient to enable the Transfer Agent to Complete all required reports involving such information in a timely manner), in the same manner as Commission Shares and Free Shares are currently tracked in respect of Selling Agents not listed on Exhibit I, then Exhibit I shall be amended to delete such Selling Agent from Exhibit I so that Commission Shares and Free Shares sold by such Selling Agent will no longer be treated as Omnibus Shares. "SHARE" means, in respect of any Fund, each Class B share of such Fund. PART I: ATTRIBUTION OF SHARES Shares of each Fund, which are outstanding from time to time, shall be attributed to PSI and any Successor Distributor in accordance with the following rules; (1) COMMISSION SHARES OTHER THAN OMNIBUS SHARES: (a) Commission Shares (excluding Omnibus Shares) attributed to PSI shall be Commission Shares (excluding Omnibus Shares) the Date of Original Issuance of which occurred on or after the Inception Date of such Fund and on or prior to the last day on which PSI acts as principal underwriter of Shares for such Fund. (b) Commission Shares (excluding Omnibus Shares) attributable to the Successor Distributor shall be Commission Shares (excluding Omnibus Shares) the Date of Original Issuance of which occurs on or after the first day on which such Successor Distributor acts as principal underwriter of Shares for such Fund and on or prior to the last day such Successor for Distributor acts as principal underwriter of Shares for such Fund. (c) A Commission Share (other than an Omnibus Share) of a particular Fund (the "ISSUING FUND") issued in consideration of the investment of proceeds of the redemption of a Commission Share of another Fund (the "REDEEMING FUND") in connection with a Free Exchange, is deemed to have a Date of Original Issuance identical to the Date of Original Issuance of the Commission Share of the Redeeming Fund and any such Commission Share will be attributed to PSI or the Successor Distributor based upon such Date of Original Issuance in accordance with Part I(a) and (b) above. (d) A Commission Share (other than an Omnibus Share) redeemed (other than in connection with a Free Exchange) or converted to a Class A share is attributable to PSI or Successor Distributor based upon the Date of Original Issuance in accordance with Part I(a), (b) and (c) above. 9 (2) FREE SHARES OTHER THAN OMNIBUS SHARES: Free Shares (excluding Omnibus Shares) of a Fund outstanding on any date shall be attributed to PSI or a Successor Distributor, as the case may be, in the same proportion that the Commission Shares (excluding Omnibus Shares) of such Fund outstanding on such date are attributed to it on such date; PROVIDED that if PSI reasonably determines that the Transfer Agent or the Selling Agent is able to produce monthly reports which track the Date of Original Issuance for the Commission Shares related to such Free Shares, then the Free Shares shall be allocated pursuant to clause 1(a), (b) and (c) above. (3) OMNIBUS SHARES: Omnibus Shares of the Fund outstanding on any date shall be attributed to PSI or a Successor Distributor, as the case may be, in the same proportion that the Commission Shares which are not Omnibus Shares of the Fund outstanding on such date are attributed to it on such date; PROVIDED that if PSI and its transferees reasonably determine that the Transfer Agent is able to produce monthly reports which track the Date of Original Issuance for the Omnibus Shares, then the Omnibus Shares shall be allocated pursuant to clause 1(a), (b) and (c) above. PART II: ALLOCATION OF CDSCS (1) CDSCS RELATED TO THE REDEMPTION OF COMMISSION SHARES OTHER THAN OMNIBUS SHARES: CDSCs in respect of the redemption of Commission Shares which are not Omnibus Shares shall be allocated to PSI or Successor Distributor depending upon whether the related redeemed Commission Share is attributable to PSI or Successor Distributor, as the case may be, in accordance with Part I above. (2) CDSCS RELATED TO THE REDEMPTION OF OMNIBUS SHARES: CDSCs in respect of the redemption of Omnibus Shares shall be allocated to PSI or a Successor Distributor in the same proportion that CDSCs related to the redemption of Commission Shares are allocated to each thereof; PROVIDED, that if PSI and its transferees reasonably determine that the Transfer Agent is able to produce monthly reports which track the Date of Original Issuance for the Omnibus Shares, then the CDSCs in respect of the redemption of Omnibus Shares shall be allocated among PSI and any Successor Distributors depending on whether the related redeemed Omnibus Share is attributable to PSI or a Successor Distributor, as the case may be, in accordance with Part I above. PART III: ALLOCATION OF DISTRIBUTION FEES Assuming that the Distribution Fee remains constant over time and among Funds so that Part IV hereof does not become operative: 10 (1) The portion of the aggregate Distribution Fees accrued in respect of all Shares of all Funds during any calendar month allocable to PSI or a Successor Distributor is determined by multiplying the total of such Distribution Fees by the following fraction: (A + C) /2 ---------- (B + D) /2 where: A = The aggregate Net Asset Value of all Shares of all Funds attributed to PSI or such Successor Distributor, as the case may be, and outstanding at the beginning of such calendar month B = the aggregate Net Asset Value of all Shares of all Funds at the beginning of such calendar month C = The aggregate Net Asset Value of all Shares of all Funds attributed to PSI or such Successor Distributor, as the case may be, and outstanding at the end of such calendar month D = The aggregate Net Asset Value of all Shares of all Funds at the end of such calendar month (2) If PSI reasonably determines that the Fund or its transfer agent is able to produce automated monthly reports which allocate the average Net Asset Value of the Commission Shares (or all Shares if available) of all Funds among PSI and each Successor Distributor in a manner consistent with the methodology detailed in Part I and Part III(1) above, the portion of the Distribution Fees accrued in respect of all such Shares of all Funds during a particular calendar month will be allocated to PSI or each Successor Distributor by multiplying the total of such Distribution Fees by the following fraction: (A) / (B) where: A = Average Net Asset Value of all such Shares of all Funds for such calendar month attributed to PSI or such Successor Distributor, as the case may be B = Total average Net Asset Value of all such Shares of all Funds for such calendar month 11 PART IV: ADJUSTMENT OF PSI'S SHARE AND SUCCESSOR DISTRIBUTORS' SHARES If the terms of any Underwriting Agreement, any Plan, any Prospectus, the Conduct Rules or any other applicable law change the rate at which Distribution Fees or Service Fees are computed with reference to the Net Asset Value of Shares of any Fund, these allocation procedures must be revised in light of such changes in a manner which carries out the intent of these allocation procedures. 12 EXHIBIT I To Schedule A to the Pilgrim Worldwide Emerging Markets Fund, Inc. Underwriting Agreement SELLING AGENTS EX-99.G.2 7 ex-g2.txt FORM OF AMENDED CUSTODY AGREEMENT Exhibit (g)(2) FORM OF AMENDED CUSTODY AGREEMENT THIS AGREEMENT, dated as of ______________________, 2000 between [NAME OF REGISTRANT], an open-end management investment company organized under the laws of the State of Delaware and registered with the Securities and Exchange Commission under the 1940 Act (the FUND) on behalf of each of the portfolios listed on the attached Appendix "C" as the same may be amended from time to time (each a PORTFOLIO and collectively the PORTFOLIOS), and BROWN BROTHERS HARRIMAN & CO., a limited partnership formed under the laws of the State of New York (BBH&CO. or the CUSTODIAN), WITNESSETH: WHEREAS, the Fund wishes to employ BBH&Co. to act as custodian for the Fund and to provide related services, all as provided herein, and BBH&Co. is willing to accept such employment, subject to the terms and conditions herein set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Fund and BBH&Co. hereby agree, as follows: 1. APPOINTMENT OF CUSTODIAN. The Fund hereby appoints BBH&Co. as the Fund's custodian, and BBH&Co. hereby accepts such appointment. All Investments of the Fund delivered to the Custodian or its agents or Subcustodians shall be dealt with as provided in this Agreement. The duties of the Custodian with respect to the Fund's Investments shall be only as set forth expressly in this Agreement which duties are generally comprised of safekeeping and various administrative duties that will be performed in accordance with Instructions and as reasonably required to effect Instructions. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE FUND. The Fund hereby represents, warrants and covenants each of the following: 2.1 This Agreement has been, and at the time of delivery of each Instruction such Instruction will have been, duly authorized, executed and delivered by the Fund. This Agreement does not violate any Applicable Law or conflict with or constitute a default under the Fund's prospectus or other organic document, agreement, judgment, order or decree to which the Fund is a party or by which it or its Investments is bound. 2.2 By providing an Instruction with respect to the first acquisition of an Investment in a jurisdiction other than the United States of America, the Fund shall be deemed to have confirmed to the Custodian that the Fund has (a) assessed and accepted all material Country or Sovereign Risks and accepted responsibility for their occurrence, (b) made all determinations required to be made by the Fund under the 1940 Act, and (iii) appropriately and adequately disclosed to its shareholders, all material investment risks, including those relating to the custody and settlement infrastructure or the servicing of securities in such jurisdictions. 2.3 The Fund shall safeguard and shall solely be responsible for the safekeeping of any testkeys, identification codes, passwords, other security devices or statements of account with which the Custodian provides it. In furtherance and not limitation of the foregoing, in the event the Fund utilizes any on-line service offered by the Custodian, the Fund and the Custodian shall be fully responsible for the security of its respective connecting terminal, access thereto and the proper and authorized use thereof and the initiation and application of continuing effective safeguards in respect thereof. 3. REPRESENTATION AND WARRANTY OF BBH&CO. BBH&Co. hereby represents and warrants that this Agreement has been duly authorized, executed and delivered by BBH&Co. and does not and will not violate any Applicable Law or conflict with or constitute a default under BBH&Co.'s limited partnership agreement or any agreement, instrument, judgment, order or decree to which BBH&Co. is a party or by which it is bound. BBH&Co. hereby further warrants to the Fund that as of the date of this Agreement it is maintaining a sufficient bankers blanket bond and hereby agrees to notify the Fund in the event its bankers blanket bond is canceled or otherwise lapses. 4. INSTRUCTIONS. Unless otherwise explicitly indicated herein, the Custodian shall perform its duties pursuant to Instructions. As used herein, the term INSTRUCTION shall mean a directive initiated by the Fund, acting directly or through its board of directors, officers or other Authorized Persons, which directive shall conform to the requirements of this Section 4. 4.1 AUTHORIZED PERSONS. For purposes hereof, an AUTHORIZED PERSON shall be a person or entity authorized to give Instructions for or on behalf of the Fund by written notices to the Custodian or otherwise in accordance with procedures delivered to and acknowledged by the Custodian, including without limitation the Fund's Investment Adviser or Foreign Custody Manager. The Custodian may treat any Authorized Person as having full authority of the Fund to issue Instructions hereunder unless the notice of authorization contains explicit limitations as to said authority. The Custodian shall be entitled to rely upon the authority of Authorized Persons until it receives appropriate written notice from the Fund to the contrary. 4.2 FORM OF INSTRUCTION. Each Instruction shall be transmitted by such secured or authenticated electro-mechanical means as the Custodian shall make available to the Fund from time to time unless the Fund shall elect to transmit such Instruction in accordance with Subsections 4.2.1 through 4.2.3 of this Section. 4.2.1 FUND DESIGNATED SECURED-TRANSMISSION METHOD. Instructions may be transmitted through a secured or tested electro-mechanical means identified by the Fund or by an Authorized Person entitled to give Instruction and acknowledged and accepted by the Custodian; it being understood that such acknowledgment shall authorize the Custodian to receive and process instructions received by such means of delivery but shall not represent a judgment by the Custodian as to the reasonableness or security of the method determined by the Authorized Person. 2 4.2.2 WRITTEN INSTRUCTIONS. Instructions may be transmitted in a writing that bears the manual signature of Authorized Persons. 4.2.3 OTHER FORMS OF INSTRUCTION. Instructions may also be transmitted by another means determined by the Fund or Authorized Persons and acknowledged and accepted by the Custodian (subject to the same limits as to acknowledgements as is contained in Subsection 4.2.1, above) including Instructions given orally or by SWIFT, telex or telefax (whether tested or untested). When an Instruction is given by means established under this Subsection 4.2, it shall be the responsibility of the Custodian to use reasonable care to adhere to any security or other procedures established in writing between the Custodian and the Authorized Person with respect to such means of Instruction. When an Instruction is given by means established under Subsections 4.2.1 through 4.2.3, it shall be the responsibility of such Authorized Person for determining that the particular means chosen is reasonable under the circumstances. Oral Instructions shall be binding upon the Custodian only if and when the Custodian takes action with respect thereto. With respect to telefax instructions, the parties agree and acknowledge that receipt of legible Instructions cannot be assured, that the Custodian cannot verify that authorized signatures on telefax Instructions are original or properly affixed, and that the Custodian shall not be liable for losses or expenses incurred through actions taken in reliance on inaccurately stated, illegible or unauthorized telefax Instructions. The provisions of Section 4A of the Uniform Commercial Code shall apply to funds transfers performed in accordance with Instructions. The Funds Transfer Services Schedule to this Agreement shall comprise a designation of form of a means of delivering Instructions for purposes of this Section 4.2. 4.3 COMPLETENESS AND CONTENTS OF INSTRUCTIONS. The Authorized Person shall be responsible for assuring the adequacy and accuracy of Instructions. Particularly, upon any acquisition or disposition or other dealing in the Fund's Investments and upon any delivery and transfer of any Investment or moneys, the person initiating such Instruction shall give the Custodian an Instruction with appropriate detail, including, without limitation: 4.3.1 The transaction date and the date and location of settlement; 4.3.2 The specification of the type of transaction; 4.3.4 A description of the Investments or moneys in question, including, as appropriate, quantity, price per unit, amount of money to be received or delivered and currency information. Where an Instruction is communicated by electronic means, or otherwise where an Instruction contains an identifying number such as a CUSIP, SEDOL or ISIN number, the Custodian shall be entitled to rely on such number as controlling notwithstanding any inconsistency contained in such Instruction, particularly with respect to Investment description; 4.3.5 The name of the broker or similar entity concerned with execution of the transaction. 3 If the Custodian shall determine that an Instruction is either unclear or incomplete, the Custodian may give prompt notice of such determination to the Fund, and the Fund shall thereupon amend or otherwise reform such Instruction. In such event, the Custodian shall have no obligation to take any action in response to the Instruction initially delivered until the redelivery of an amended or reformed Instruction. 4.4 TIMELINESS OF INSTRUCTIONS. In giving an Instruction, the Fund shall take into consideration delays which may occur due to the involvement of a Subcustodian or agent, differences in time zones, and other factors particular to a given market, exchange or issuer. When the Custodian has established specific timing requirements or deadlines with respect to particular classes of Instruction, or when an Instruction is received by the Custodian at such a time that it could not reasonably be expected to have acted on such Instruction due to time zone differences or other factors beyond its reasonable control, the execution of any Instruction received by the Custodian after such deadline or at such time (including any modification or revocation of a previous Instruction) shall be at the risk of the Fund. 5. SAFEKEEPING OF FUND ASSETS. The Custodian shall hold Investments delivered to it or Subcustodians for the Fund in accordance with the provisions of this Section. The Custodian shall not be responsible for (a) the safekeeping of Investments not delivered or that are not caused to be issued to it or its Subcustodians; or (b) pre-existing faults or defects in Investments that are delivered to the Custodian, or its Subcustodians. The Custodian is hereby authorized to hold with itself or a Subcustodian, and to record in one or more accounts, all Investments delivered to and accepted by the Custodian, any Subcustodian or their respective agents pursuant to an Instruction or in consequence of any corporate action. The Custodian shall hold Investments for the account of the Fund and shall segregate Investments from assets belonging to the Custodian and shall cause its Subcustodians to segregate Investments from assets belonging to the Subcustodian in an account held for the Fund or in an account maintained by the Subcustodian generally for non-proprietary assets of the Custodian. 5.1 USE OF SECURITIES DEPOSITORIES. The Custodian may deposit and maintain Investments in any Securities Depository, either directly or through one or more Subcustodians appointed by the Custodian. Investments held in a Securities Depository shall be held (a) subject to the agreement, rules, statement of terms and conditions or other document or conditions effective between the Securities Depository and the Custodian or the Subcustodian, as the case may be, and (b) in an account for the Fund or in bulk segregation in an account maintained for the non-proprietary assets of the entity holding such Investments in the Depository. If market practice or the rules and regulations of the Securities Depository prevent the Custodian, the Subcustodian or (any agent of either) from holding its client assets in such a separate account, the Custodian, the Subcustodian or other agent shall as appropriate segregate such Investments for benefit of the Fund or for benefit of clients of the Custodian generally on its own books. 5.2 CERTIFICATED ASSETS. Investments which are certificated may be held in registered or bearer form: (a) in the Custodian's vault; (b) in the vault of a Subcustodian or agent of the Custodian or a Subcustodian; or (c) in an account maintained by the Custodian, Subcustodian or agent at a Securities Depository; all in accordance with customary market practice in the jurisdiction in which any Investments are held. 4 5.3 REGISTERED ASSETS. Investments which are registered may be registered in the name of the Custodian, a Subcustodian, or in the name of the Fund or a nominee for any of the foregoing, and may be held in any manner set forth in paragraph 5.2 above with or without any identification of fiduciary capacity in such registration. 5.4 BOOK ENTRY ASSETS. Investments which are represented by book-entry may be so held in an account maintained by the Book-Entry Agent on behalf of the Custodian, a Subcustodian or another agent of the Custodian, or a Securities Depository. 5.5 REPLACEMENT OF LOST INVESTMENTS. In the event of a loss of Investments for which the Custodian is responsible under the terms of this Agreement, the Custodian shall replace such Investment, or in the event that such replacement cannot be effected, the Custodian shall pay to the Fund the fair market value of such Investment based on the last available price as of the close of business in the relevant market on the date that a claim was first made to the Custodian with respect to such loss, or, if less, such other amount as shall be agreed by the parties as the date for settlement. 6. ADMINISTRATIVE DUTIES OF THE CUSTODIAN. The Custodian shall perform the following administrative duties with respect to Investments of the Fund. 6.1 PURCHASE OF INVESTMENTS. Pursuant to Instruction, Investments purchased for the account of the Fund shall be paid for (a) against delivery thereof to the Custodian or a Subcustodian, as the case may be, either directly or through a Clearing Corporation or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (b) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such Investment. 6.2 SALE OF INVESTMENTS. Pursuant to Instruction, Investments sold for the account of the Fund shall be delivered (a) against payment therefor in cash, by check or by bank wire transfer, (b) by credit to the account of the Custodian or the applicable Subcustodian, as the case may be, with a Clearing Corporation or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (c) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such Investment. 6.3 DELIVERY IN CONNECTION WITH BORROWINGS OF THE FUND OR OTHER COLLATERAL AND MARGIN REQUIREMENTS. Pursuant to Instruction, the Custodian may deliver Investments or cash of the Fund in connection with borrowings and other collateral and margin requirements. 6.4 FUTURES AND OPTIONS. If, pursuant to an Instruction, the Custodian shall become a party to an agreement with the Fund and a futures commission merchant regarding margin (TRI-PARTY AGREEMENT), the Custodian shall (a) receive and retain, to the extent the same are provided to the Custodian, confirmations or other documents evidencing the purchase or sale by the Fund of exchange-traded futures contracts and commodity options, (b) when required by such Tri-Party Agreement, deposit and maintain in an account opened pursuant to such Agreement (MARGIN ACCOUNT), segregated either physically or by book-entry in a Securities Depository for the benefit of any futures commission merchant, such Investments as the Fund shall have designated as initial, maintenance or 5 variation "margin" deposits or other collateral intended to secure the Fund's performance of its obligations under the terms of any exchange-traded futures contracts and commodity options; and (c) thereafter pay, release or transfer Investments into or out of the margin account in accordance with the provisions of the such Agreement. Alternatively, the Custodian may deliver Investments, in accordance with an Instruction, to a futures commission merchant for purposes of margin requirements in accordance with Rule 17f-6 under the 1940 Act. The Custodian shall in no event be responsible for the acts and omissions of any futures commission merchant to whom Investments are delivered pursuant to this Section; for the sufficiency of Investments held in any Margin Account; or, for the performance of any terms of any exchange-traded futures contracts and commodity options. 6.5 CONTRACTUAL OBLIGATIONS AND SIMILAR INVESTMENTS. From time to time, the Fund's Investments may include Investments that are not ownership interests as may be represented by certificate (whether registered or bearer), by entry in a Securities Depository or by book entry agent, registrar or similar agent for recording ownership interests in the relevant Investment. If the Fund shall at any time acquire such Investments, including without limitation deposit obligations, loan participations, repurchase agreements and derivative arrangements, the Custodian shall (a) receive and retain, to the extent the same are provided to the Custodian, confirmations or other documents evidencing the arrangement; and (b) perform on the Fund's account in accordance with the terms of the applicable arrangement, but only to the extent directed to do so by Instruction, or in accordance with agreed upon written procedures adopted by the Fund and delivered to the Custodian . The Custodian shall have no responsibility for agreements running to the Fund as to which it is not a party other than to retain, to the extent the same are provided to the Custodian, documents or copies of documents evidencing the arrangement and, in accordance with Instruction, to include such arrangements in reports made to the Fund. 6.6 EXCHANGE OF SECURITIES. Unless otherwise directed by Instruction, the Custodian shall: (a) exchange securities held for the account of the Fund for other securities in connection with any reorganization, recapitalization, conversion, split-up, change of par value of shares or similar event, and (b) deposit any such securities in accordance with the terms of any reorganization or protective plan. 6.7 SURRENDER OF SECURITIES. Unless otherwise directed by Instruction, the Custodian may surrender securities: (a) in temporary form for definitive securities; (b) for transfer into the name of an entity allowable under Section 5.3; and (c) for a different number of certificates or instruments representing the same number of shares or the same principal amount of indebtedness. 6.8 RIGHTS, WARRANTS, ETC. Pursuant to Instruction, the Custodian shall (a) deliver warrants, puts, calls, rights or similar securities to the issuer or trustee thereof, or to any agent of such issuer or trustee, for purposes of exercising such rights or selling such securities, and (b) deposit securities in response to any invitation for the tender thereof. 6.9 MANDATORY CORPORATE ACTIONS. Unless otherwise directed by Instruction, the Custodian shall: (a) comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions or similar rights of securities ownership affecting securities held on the Fund's account and promptly notify the Fund of such action, and (b) collect all stock dividends, rights and other items of like nature with respect to such securities. 6 6.10 INCOME COLLECTION. Unless otherwise directed by Instruction, the Custodian shall collect any amount due and payable to the Fund with respect to Investments and promptly credit the amount collected to a Principal or Agency Account; provided, however, that the Custodian shall not be responsible for: (a) the collection of amounts due and payable with respect to Investments on which the issuer fails to make a payment , or (b) the collection of cash or share entitlements with respect to Investments that are not registered in the name of the Custodian or its Subcustodians. The Custodian is hereby authorized to endorse and deliver any instrument required to be so endorsed and delivered to effect collection of any amount due and payable to the Fund with respect to Investments. 6.11 OWNERSHIP CERTIFICATES AND DISCLOSURE OF THE FUND'S INTEREST. The Custodian is hereby authorized to execute on behalf of the Fund ownership certificates, affidavits or other disclosure required under Applicable Law or established market practice in connection with the receipt of income, capital gains or other payments by the Fund with respect to Investments, or in connection with the sale, purchase or ownership of Investments. 6.12 PROXY MATERIALS. The Custodian shall deliver, or cause to be delivered, to the Fund proxy forms, notices of meeting, and any other notices or announcements materially affecting or relating to Investments received by the Custodian or any nominee. 6.13. TAXES. The Custodian shall, where applicable, assist the Fund in the reclamation of taxes withheld on dividends and interest payments received by the Fund. In the performance of its duties with respect to tax withholding and reclamation, the Custodian shall be entitled to rely on the advice of counsel and upon information and advice regarding the Fund's tax status that is received from or on behalf of the Fund without duty of separate inquiry. 6.14 OTHER DEALINGS. The Custodian shall otherwise act as directed by Instruction, including without limitation effecting the free payments of moneys or the free delivery of securities, provided that such Instruction shall indicate the purpose of such payment or delivery and that the Custodian shall record the party to whom such payment or delivery is made. The Custodian shall attend to all nondiscretionary details in connection with the sale or purchase or other administration of Investments, except as otherwise directed by an Instruction, and may make payments to itself or others for minor expenses of administering Investments under this Agreement; provided that the Fund shall have the right to request an accounting with respect to such expenses. In fulfilling the duties set forth in Sections 6.6 through 6.10 above, the Custodian shall provide to the Fund all material information pertaining to a corporate action which the Custodian actually receives; provided that the Custodian shall not be responsible for the completeness or accuracy of such information. Any advance credit of cash or shares expected to be received as a result of any corporate action shall be subject to actual collection and may, when the Custodian deems collection unlikely, be reversed by the Custodian. 7 The Custodian may at any time or times in its discretion appoint (and may at any time remove) agents (other than Subcustodians) to carry out some or all of the administrative provisions of this Agreement (AGENTS), provided, however, that the appointment of such agent shall not relieve the Custodian of its administrative obligations under this Agreement. 7. CASH ACCOUNTS, DEPOSITS AND MONEY MOVEMENTS. Subject to the terms and conditions set forth in this Section 7, the Fund hereby authorizes the Custodian to open and maintain, with itself or with Subcustodians, cash accounts in United States Dollars, in such other currencies as are the currencies of the countries in which the Fund maintains Investments or in such other currencies as the Fund shall from time to time request by Instruction. 7.1 TYPES OF CASH ACCOUNTS. Cash accounts opened on the books of the Custodian (PRINCIPAL ACCOUNTS) shall be opened in the name of the Fund. Such accounts collectively shall be a deposit obligation of the Custodian and shall be subject to the terms of this Section 7 and the general liability provisions contained in Section 9. Cash accounts opened on the books of a Subcustodian may be opened in the name of the Fund or the Custodian or in the name of the Custodian for its customers generally (AGENCY ACCOUNTS). Such deposits shall be obligations of the Subcustodian and shall be treated as an Investment of the Fund. Accordingly, the Custodian shall be responsible for exercising reasonable care in the administration of such accounts but shall not otherwise be liable for their repayment in the event such Subcustodian, by reason of its bankruptcy, insolvency or otherwise, fails to make repayment. 7.2 PAYMENTS AND CREDITS WITH RESPECT TO THE CASH ACCOUNTS. The Custodian shall make payments from or deposits to any of said accounts in the course of carrying out its administrative duties, including but not limited to income collection with respect to the Fund's Investments, and otherwise in accordance with Instructions. The Custodian and its Subcustodians shall be required to credit amounts to the cash accounts only when moneys are actually received in cleared funds in accordance with banking practice in the country and currency of deposit. Any credit made to any Principal or Agency Account before actual receipt of cleared funds shall be provisional and may be reversed by the Custodian in the event such payment is not actually collected. Repayment of a deposit shall be subject to the terms of Section 7.3 below. 7.3 CURRENCY AND RELATED RISKS. The Fund bears risks of holding or transacting in any currency. The Custodian shall not be liable for any loss or damage arising from the applicability of any law or regulation now or hereafter in effect, or from the occurrence of any event, which may delay or affect the transferability, convertibility or availability of any currency in the country (a) in which such Principal or Agency Accounts are maintained or (b) in which such currency is issued, and in no event shall the Custodian be obligated to make payment of a deposit denominated in a currency during the period during which its transferability, convertibility or availability has been affected by any such law, regulation or event. Without limiting the generality of the foregoing, neither the Custodian nor any Subcustodian shall be required to repay any deposit made at a foreign branch of either the Custodian or Subcustodian if such branch cannot repay the deposit due to a cause for which the Custodian would not be responsible in accordance with the terms of Section 9 of this Agreement unless the Custodian or such Subcustodian expressly agrees in writing to repay the deposit under such circumstances. All currency transactions in any account opened pursuant to this Agreement are subject to exchange control 8 regulations of the United States and of the country where such currency is the lawful currency or where the account is maintained. Any taxes, costs, charges or fees imposed on the convertibility of a currency held by the Fund shall be for the account of the Fund. 7.4 FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall, subject to the terms of this Section, settle foreign exchange transactions (including contracts, futures, options and options on futures) on behalf and for the account of the Fund with such currency brokers or banking institutions, including Subcustodians, as the Fund may direct pursuant to Instructions. The Custodian may act as principal in any foreign exchange transaction with the Fund in accordance with Section 7.4.2 of this Agreement. The obligations of the Custodian in respect of all foreign exchange transactions (whether or not the Custodian shall act as principal in such transaction) shall be contingent on the free, unencumbered transferability of the currency transacted on the actual settlement date of the transaction. 7.4.1 THIRD PARTY FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall process foreign exchange transactions (including without limitation contracts, futures, options, and options on futures), where any third party acts as principal counterparty to the Fund on the same basis it performs duties as agent for the Fund with respect to any other of the Fund's Investments. Accordingly the Custodian shall only be responsible for delivering or receiving currency on behalf of the Fund in respect of such contracts pursuant to Instructions. The Custodian shall not be responsible for the failure of any counterparty (including any Subcustodian) in such agency transaction to perform its obligations thereunder. The Custodian (a) shall transmit cash and Instructions to and from the currency broker or banking institution with which a foreign exchange contract or option has been executed pursuant hereto, (b) may make free outgoing payments of cash in the form of United States Dollars or foreign currency without receiving confirmation of a foreign exchange contract or option or confirmation that the countervalue currency completing the foreign exchange contract has been delivered or received or that the option has been delivered or received, and (c) shall hold all confirmations, certificates and other documents and agreements received by the Custodian and evidencing or relating to such foreign exchange transactions in safekeeping. The Fund accepts full responsibility for its use of third-party foreign exchange dealers and for performance under said foreign exchange contracts and options and understands that the Fund shall be responsible for any and all costs and interest charges which may be incurred by the Fund or the Custodian as a result of the failure or delay of third parties to deliver foreign exchange. 7.4.2 FOREIGN EXCHANGE WITH THE CUSTODIAN AS PRINCIPAL. The Custodian may undertake foreign exchange transactions with the Fund as principal as the Custodian and the Fund may agree from time to time. In such event, the foreign exchange transaction will be performed in accordance with the 9 particular agreement of the parties, or in the event a principal foreign exchange transaction is initiated by Instruction in the absence of specific agreement, such transaction will be performed in accordance with the usual commercial terms of the Custodian. 7.5 DELAYS. If no event of Force Majeure shall have occurred and be continuing and in the event that a delay shall have been caused by the negligence or willful misconduct of the Custodian in carrying out an Instruction to credit or transfer cash, the Custodian shall be liable to the Fund: (a) with respect to Principal Accounts, for interest to be calculated at the rate customarily paid on such deposit and currency by the Custodian on overnight deposits at the time the delay occurs for the period from the day when the transfer should have been effected until the day it is in fact effected; and, (b) with respect to Agency Accounts, for interest to be calculated at the rate customarily paid on such deposit and currency by the Subcustodian on overnight deposits at the time the delay occurs for the period from the day when the transfer should have been effected until the day it is in fact effected. Except is set forth in Section 8.3, the Custodian shall not be liable for delays in carrying out such Instructions to transfer cash which are not due to the Custodian's own negligence or willful misconduct. 7.6 ADVANCES. If, for any reason in the conduct of its safekeeping duties pursuant to Section 5 hereof or its administration of the Fund's assets pursuant to Section 6 hereof, the Custodian or any Subcustodian advances monies to facilitate settlement or otherwise for benefit of the Fund (whether or not any Principal or Agency Account shall be overdrawn either during, or at the end of, any Business Day), the Fund hereby does: 7.6.1 acknowledge that the Fund shall have no right or title to any Investments purchased with such Advance save a right to receive such Investments upon: (a) the debit of the Principal or Agency Account; or, (b) if such debit would produce an overdraft in such account, other reimbursement of the associated Advance; 7.6.2 grant to the Custodian a security interest in Investments to the extent of such Advance; and, 7.6.3 agree that the Custodian may secure the resulting Advance by perfecting a security interest in all Investments under Applicable Law. Neither the Custodian nor any Subcustodian shall be obligated to advance monies to the Fund, and in the event that such Advance occurs, any transaction giving rise to an Advance shall be for the account and risk of the Fund and shall not be deemed to be a transaction undertaken by the Custodian for its own account and risk. If such Advance shall have been made by a Subcustodian or any other person, the Custodian may assign the security interest and any other rights granted to the Custodian hereunder to such Subcustodian or other person. If the Fund shall fail to repay when due or within 24 hours of receipt of a demand notice requesting payment of the principal balance of an Advance and accrued and unpaid interest thereon, the Custodian or its assignee, as the case may be, shall be entitled to utilize, upon prior notice to the Fund, the available cash balance in any Agency or Principal Account and to dispose of any Property to the extent necessary to recover payment of all principal of, and interest on, such 10 Advance in full. The Custodian may assign any rights it has hereunder to a Subcustodian or third party. Any security interest in Investments taken hereunder shall be treated as financial assets credited to securities accounts under Articles 8 and 9 of the Uniform Commercial Code as adopted in New York. Accordingly, the Custodian shall have the rights and benefits of a secured creditor that is a securities intermediary under such Articles 8 and 9. 7.7 INTEGRATED ACCOUNT. Subject to Section 16 hereof, for purposes hereof, deposits maintained in all Principal Accounts (whether or not denominated in United States Dollars) shall collectively constitute a single and indivisible current account with respect to the Fund's obligations to the Custodian, or its assignee, and balances in such Principal Accounts shall be available for satisfaction of the Fund's obligations under this Section 7. The Custodian shall further have a right of offset against the balances in any Agency Account maintained hereunder to the extent that the aggregate of all Principal Accounts is overdrawn. 8. SUBCUSTODIANS AND SECURITIES DEPOSITORIES. Subject to the provisions hereinafter set forth in this Section 8, the Fund hereby authorizes the Custodian to utilize Securities Depositories to act on behalf of the Fund and to appoint from time to time and to utilize Subcustodians. With respect to securities and funds held by a Subcustodian, either directly or indirectly (including by a Securities Depository or Clearing Corporation), notwithstanding any provisions of this Agreement to the contrary, payment for securities purchased and delivery of securities sold may be made prior to receipt of securities or payment, respectively, and securities or payment may be received in a form, in accordance with (a) governmental regulations, (b) rules of Securities Depositories and clearing agencies, (c) generally accepted trade practice in the applicable local market, (d) the terms and characteristics of the particular Investment, or (e) the terms of Instructions. 8.1 DOMESTIC SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The Custodian may deposit and/or maintain, either directly or through one or more agents appointed by the Custodian, Investments of the Fund in any Securities Depository in the United States, including The Depository Trust Company, The Participants Trust Company and the Federal Reserve Book-Entry System provided such Depository meets applicable requirements of the Federal Reserve Bank or of the Securities and Exchange Commission. With the prior approval of the Fund which shall not be unreasonably withheld, the Custodian may, appoint any bank as defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act on behalf of the Fund as a Subcustodian for purposes of holding Investments of the Fund in the United States. 8.2 FOREIGN SECURITIES DEPOSITORIES AND SUBCUSTODIANS. Unless instructed otherwise by the Fund, the Custodian may deposit and/or maintain non-U.S. Investments of the Fund in any non-U.S. Securities Depository provided such Securities Depository meets the requirements of an "eligible securities depository" under Rule 17f-7 promulgated under the 1940 Act, or any successor rule or regulation ("Rule 17f-7") or which by order of the Securities and Exchange Commission is exempted therefrom. Prior to the time that securities are placed with such depository, but subject to the provisions of Section 8.2.4 below, the Custodian shall have prepared an assessment of the custody risks associated with maintaining assets with the Securities Depository and shall have established a system to monitor such risks on a continuing basis in accordance with subsection 8.2.3 of this Section. 11 Additionally, the Custodian may, at any time and from time to time, appoint (a) any bank, trust company or other entity meeting the requirements of an "eligible foreign custodian" under Rule 17f-5 or which by order of the Securities and Exchange Commission is exempted therefrom, or (b) any bank as defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act on behalf of the Fund as a Subcustodian for purposes of holding Investments of the Fund outside the United States. Such appointment of foreign Subcustodians shall be subject to approval of the Fund in accordance with Subsections 8.2.1 and 8.2.2 hereof, and use of non-U.S. Securities Depositories shall be subject to the terms of Subsections 8.2.3 and 8.2.4 hereof. An Instruction to open an account in a given country shall comprise authorization of the Custodian to hold assets in such country in accordance with the terms of this Agreement. The Custodian shall not be required to make independent inquiry as to the authorization of the Fund to invest in such country. 8.2.1 BOARD APPROVAL OF FOREIGN SUBCUSTODIANS. Unless and except to the extent that the Board has delegated to and the Custodian has accepted delegation of review of certain matters concerning the appointment of Subcustodians pursuant to Subsection 8.2.2, the Custodian shall, prior to the appointment of any Subcustodian for purposes of holding Investments of the Fund outside the United States, obtain written confirmation of the approval of the Board of Trustees or Directors of the Fund with respect to (a) the identity of a Subcustodian, and (b) the Subcustodian agreement which shall govern such appointment, such approval to be signed by an Authorized Person. 8.2.2 DELEGATION OF BOARD REVIEW OF SUBCUSTODIANS. From time to time, the Custodian may agree to perform certain reviews of Subcustodians and of Subcustodian Contracts as delegate of the Fund's Board. In such event, the Custodian's duties and obligations with respect to this delegated review will be performed in accordance with the terms of the attached 17f-5 Delegation Schedule to this Agreement. 8.2.3 MONITORING AND RISK ASSESSMENT OF SECURITIES DEPOSITORIES. Prior to the placement of any assets of the Fund with a non-U.S. Securities Depository, the Custodian: (a) shall provide to the Fund or its authorized representative an assessment of the custody risks associated with maintaining assets within such Securities Depository; and (b) shall have established a system to monitor the custody risks associated with maintaining assets with such Securities Depository on a continuing basis and to promptly notify the Fund or its Investment Adviser of any material changes in such risk. In performing its duties under this subsection, the Custodian shall use reasonable care, prudence and diligence and may rely on such reasonable sources of information as may be available including but not limited to: (i) published ratings; (ii) information supplied by a Subcustodian that is a participant in such Securities Depository; (iii) industry surveys or publications; (iv) information supplied by the 12 depository itself, by its auditors (internal or external) or by the relevant Foreign Financial Regulatory Authority. It is acknowledged that information procured through some or all of these sources may not be independently verifiable by the Custodian and that direct access to Securities Depositories is limited under most circumstances. Accordingly, the Custodian shall not be responsible for errors or omissions in its duties hereunder provided that it has performed its monitoring and assessment duties with reasonable care, prudence and diligence. The risk assessment shall be provided to the Fund or its Investment Advisor by such means as the Custodian shall reasonably establish. Advices of material change in such assessment may be provided by the Custodian in the manner established as customary between the Fund and the Custodian for transmission of material market information. To the extent that a custody arrangement with an Eligible Securities Depository no longer meets the requirements described herein, the Fund's assets must be withdrawn from the depository as soon as reasonably practicable. If withdrawal is not possible, the Fund and the Custodian will confer to discuss appropriate steps to ensure compliance with 17f-7. 8.2.4 SPECIAL TRANSITIONAL RULE. It is acknowledged that Rule 17f-7 has an effective date of July 1, 2001 and that the Custodian will require a period of time to fully prepare risk assessment information and to establish a risk monitoring system as provided in Subsection 8.2.3. Accordingly, until July 1, 2001, the Custodian shall use reasonable efforts to implement the measures required by Subsection 8.2.3, and shall in the interim provide to the Fund or its Investment Advisor the depository information customarily provided and shall promptly inform the Fund or its Investment Advisor of any material development affecting the custody risks associated with the maintenance of assets with a particular Securities Depository of which it becomes aware in the course of its general duties under this Agreement or from its duties under Section 8.2.3 as such duties have been implemented at any given time. 8.3 RESPONSIBILITY FOR SUBCUSTODIANS. With respect to those Subcustodians listed on Appendix "A" hereto, the Custodian shall be liable to the Fund for any loss or damage to the Fund caused by or resulting from the acts omissions of any Subcustodian to the extent that such acts or omissions would be deemed to be negligence, gross negligence or willful misconduct in accordance with the terms of the relevant subcustodian agreement under the laws, circumstances and practices prevailing in the place where the act or omission occurred. In the countries indicated in Appendix "B" to this Agreement, the liability of the Custodian shall be subject to the additional condition that the Custodian actually recovers such loss or damage from the Subcustodian. 8.4 NEW COUNTRIES. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed Investment which is to be held in a country in which no Subcustodian is authorized to act in order that the Custodian shall, if it deems appropriate to do so, have sufficient time to establish a subcustodial arrangement in accordance herewith. In the event, however, the Custodian is unable to establish such arrangements prior to the time such Investment is to be acquired, the Custodian is authorized to designate at its discretion a local safekeeping agent, and the use of such local 13 safekeeping agent with respect to such Investment shall be at the sole risk of the Fund, and accordingly the Custodian shall be responsible to the Fund for the actions of such agent if and only to the extent the Custodian shall have recovered from such agent for any damages caused the Fund by such agent. 9. RESPONSIBILITY OF THE CUSTODIAN. In performing its duties and obligations hereunder, the Custodian shall comply with all requirements of applicable law and shall use reasonable care under the facts and circumstances prevailing in the market where performance is effected. Subject to the specific provisions of this Section, the Custodian shall be liable for any direct damage incurred by the Fund in consequence of the Custodian's negligence, bad faith or willful misconduct. In no event shall the Custodian be liable hereunder for any special, indirect, punitive or consequential damages arising out of, pursuant to or in connection with this Agreement even if the Custodian has been advised of the possibility of such damages. It is agreed that the Custodian shall have no duty to assess the risks inherent in the Fund's Investments or to provide investment advice with respect to such Investments and that the Fund as principal shall bear any risks attendant to particular Investments such as failure of counterparty or issuer. 9.1 LIMITATIONS OF PERFORMANCE. The Custodian shall not be responsible under this Agreement for any failure to perform its duties, and shall not liable hereunder for any loss or damage in association with such failure to perform, for or in consequence of the following causes: 9.1.1 FORCE MAJEURE. FORCE MAJEURE shall mean any circumstance or event which is beyond the reasonable control of the Custodian, a Subcustodian or any agent of the Custodian or a Subcustodian and which adversely affects the performance by the Custodian of its obligations hereunder, by the Subcustodian of its obligations under its Subcustody Agreement or by any other agent of the Custodian or the Subcustodian, including any event caused by, arising out of or involving (a) an act of God, (b) accident, fire, water damage or explosion, (c) any computer, system or other equipment failure or malfunction, outside the Custodian's control, caused by any computer virus or the malfunction or failure of any communications medium, (d) any interruption of the power supply or other utility service, (e) any strike or other work stoppage, whether partial or total, (f) any delay or disruption resulting from or reflecting the occurrence of any Sovereign Risk, (g) any disruption of, or suspension of trading in, the securities, commodities or foreign exchange markets, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, (h) any encumbrance on the transferability of a currency or a currency position on the actual settlement date of a foreign exchange transaction, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, or (i) any other cause similarly beyond the reasonable control of the Custodian. 9.1.2 COUNTRY RISK. COUNTRY RISK shall mean, with respect to the acquisition, ownership, settlement or custody of Investments in a jurisdiction, all risks relating to, or arising in consequence of, systemic and market factors affecting the acquisition, payment for or ownership of Investments including (a) the prevalence of crime and corruption, (b) the 14 inaccuracy or unreliability of business and financial information, (c) the instability or volatility of banking and financial systems, or the absence or inadequacy of an infrastructure to support such systems, (d) custody and settlement infrastructure of the market in which such Investments are held and transactions in such Investment take place, (e) the acts, omissions and operation of any Securities Depository, (f) the risk of the bankruptcy or insolvency of banking agents, counterparties to cash and securities transactions, registrars or transfer agents, and (g) the existence of market conditions which prevent the orderly execution or settlement of transactions or which affect the value of assets. 9.1.3 SOVEREIGN RISK. SOVEREIGN RISK shall mean, in respect of any jurisdiction, including the United States of America, where Investments are acquired or held hereunder or under a Subcustody Agreement, (a) any act of war, terrorism, riot, insurrection or civil commotion, (b) the imposition of any investment, repatriation or exchange control restrictions by any Governmental Authority, (c) the confiscation, expropriation or nationalization of any Investment by any Governmental Authority, whether de facto or de jure, (iv) any devaluation or revaluation of the currency, (d) the imposition of taxes, levies or other charges affecting Investments, (vi) any change in the Applicable Law, or (e) any other economic or political risk incurred or experienced. 9.2. LIMITATIONS ON LIABILITY. The Custodian shall not be liable for any loss, claim, damage or other liability arising from the following causes: 9.2.1 FAILURE OF THIRD PARTIES. The failure of any third party excluding subcustodians, but including: (a) any issuer of Investments or book-entry or other agent of any issuer; (b) any counterparty with respect to any Investment, including any issuer of exchange-traded or other futures, option, derivative or commodities contract; (c) failure of an Investment Advisor, third-party Foreign Custody Manager or other agent of the Fund; or (d) failure of other third parties similarly beyond the control or choice of the Custodian. 9.2.2 INFORMATION SOURCES. The Custodian may rely upon information received from issuers of Investments or agents of such issuers, information received from Subcustodians and from other commercially reasonable sources such as commercial data bases and the like, but shall not be responsible for specific inaccuracies in such information, provided that the Custodian has relied upon such information in good faith, or for the failure of any commercially reasonable information provider. 9.2.3 RELIANCE ON INSTRUCTION. Action by the Custodian or the Subcustodian in accordance with an Instruction, even when such action conflicts with, or is contrary to any provision of, the Fund's declaration of trust or by-laws, Applicable Law, or actions by the trustees, or shareholders of the Fund. 15 9.2.4 RESTRICTED SECURITIES. The limitations inherent in the rights, transferability or similar investment characteristics of a given Investment of the Fund. 10. INDEMNIFICATION. The Fund hereby indemnifies the Custodian and each Subcustodian, and their respective agents, nominees and their partners, employees, officers and directors, and agrees to hold each of them harmless from and against all claims and liabilities, including counsel fees and taxes, incurred or assessed against any of them in connection with the performance of this Agreement and any Instruction, provided that such performance was without negligence, bad faith or willful misconduct on the part of the Custodian or Subcustodian. If a Subcustodian or any other person indemnified under the preceding sentence, gives written notice of claim to the Custodian, the Custodian shall promptly give written notice to the Fund. 11. REPORTS AND RECORDS. The Custodian shall: 11.1 create and maintain records relating to the performance of its obligations under this Agreement; 11.2 make available to the Fund, its auditors, agents and employees, during regular business hours of the Custodian, upon reasonable request, all records maintained by the Custodian pursuant to Subsection 11.1 above, subject, however, to all reasonable security requirements of the Custodian then applicable to the records of its custody customers generally; and 11.3 make available to the Fund all electronic reports; it being understood that the Custodian shall not be liable hereunder for the inaccuracy or incompleteness thereof or for errors in any information included therein. The Fund shall examine all records, howsoever produced or transmitted, promptly upon receipt thereof and notify the Custodian promptly of any discrepancy or error therein. Unless the Fund delivers written notice of any such discrepancy or error within 60 days after its receipt thereof, such records shall be deemed to be true and accurate. It is understood that the Custodian now obtains and will in the future obtain information on the value of assets from outside sources which may be utilized in certain reports made available to the Fund. The Custodian deems such sources to be reliable but it is acknowledged and agreed that the Custodian does not verify nor represent nor warrant as to the accuracy or completeness of such information and accordingly shall be without liability in selecting and using such sources and furnishing such information, provided such sources are selected and information is utilized with reasonable care. The books and records pertaining to the Fund and each designated series or portfolio of the Fund, which are in the possession of the Custodian shall be the property of the Fund. Such books and records shall be prepared and maintained as required by the 1940 Act and other applicable securities laws, rules and regulations. The Custodian shall send copies of statements of custodial activity to the Fund and to its recordkeeping agent. Such statements shall include: 16 statements of cash account(s) including transfers to and from such account(s), statements regarding receipt and delivery of securities and statements reflecting month end activity. Such statements may also be available through BBH&Co.'s BIDS system. The Custodian shall enter into and shall maintain in effect, at no additional expense to the Fund, with appropriate parties one or more agreements making reasonable provision for emergency use of electronic data processing equipment to the extent appropriate equipment is available. In the event of unforeseeable third-party equipment failures, the Custodian shall, at no additional expense to the Fund, take reasonable steps to minimize service interruptions but shall have no liability with respect thereto. 12. MISCELLANEOUS. 12.1 PROXIES, ETC. The Fund will promptly execute and deliver, upon request, such proxies, powers of attorney or other instruments as may be reasonably necessary or desirable for the Custodian to provide, or to cause any Subcustodian to provide, custody services to the Fund hereunder. 12.2 ENTIRE AGREEMENT. Except as specifically provided herein, this Agreement constitutes the entire agreement between the Fund and the Custodian with respect to the subject matter hereof. Accordingly, this Agreement supersedes any custody agreement or other oral or written agreements heretofore in effect between the Fund and the Custodian with respect to the custody of the Fund's Investments. 12.3 WAIVER AND AMENDMENT. No provision of this Agreement may be waived, amended or modified, and no addendum to this Agreement shall be or become effective, or be waived, amended or modified, except by an instrument in writing executed by the party against which enforcement of such waiver, amendment or modification is sought; provided, however, that an Instruction, whether or not such Instruction shall constitute a waiver, amendment or modification for purposes hereof, shall be deemed to have been accepted by the Custodian when it commences actions pursuant thereto or in accordance therewith. 12.4 GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND BE GOVERNED BY THE LAWS OF, THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE LAWS OF CONFLICTS OF LAW OF SUCH STATE. THE PARTIES HERETO IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY IN THE BOROUGH OF MANHATTAN WITH RESPECT TO MATTERS RESULTING FROM THIS AGREEMENT. 12.5 NOTICES. Notices and other writings contemplated by this Agreement, other than Instructions, shall be delivered (a) by hand, (b) by first class registered or certified mail, postage prepaid, return receipt requested, (c) by a nationally recognized overnight courier or (d) by facsimile transmission, provided that any notice or other writing sent by facsimile transmission shall also be mailed, postage prepaid, to the party to whom such notice is addressed. All such notices shall be addressed, as follows: 17 If to the Fund: [name of Registrant] 7337 East Doubletree Ranch Road Scottsdale, Arizona 82528 If to the Custodian: Brown Brothers Harriman & Co. 40 Water Street Boston, Massachusetts 02109 Attn: Manager, Securities Department Telephone: (617) 772-1818 Facsimile: (617) 772-2263, or such other address as the Fund or the Custodian may from time to time designate in writing to the other. 12.6 HEADINGS. Paragraph headings included herein are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof. 12.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. This Agreement shall become effective when one or more counterparts have been signed and delivered by the Fund and the Custodian. 12.8 CONFIDENTIALITY. The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party to the other regarding its business and operations. All confidential information provided by a party hereto shall be used by any other party hereto solely for the purpose of rendering or obtaining services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior consent of such providing party. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by or to any bank examiner of the Custodian or any Subcustodian, any regulatory authority, any auditor of the parties hereto, or by judicial or administrative process or otherwise by Applicable Law. 13. DEFINITIONS. For the purpose of this Agreement, the following defined terms will have the respective meanings set forth below. 13.1 ADVANCE shall mean any extension of credit by or through the Custodian or by or through any Subcustodian and shall include amounts paid to third parties for account of the Fund or in discharge of any expense, tax or other item payable by the Fund. 13.2 AGENCY ACCOUNT shall mean any deposit account opened on the books of a Subcustodian or other banking institution in accordance with Section 7.1. 18 13.3 AGENT shall have the meaning set forth in the last system of Section 6. 13.4 APPLICABLE LAW shall mean with respect to each jurisdiction, all (a) laws, statutes, treaties, regulations, guidelines (or their equivalents); (b) orders, interpretations licenses and permits; and (c) judgments, decrees, injunctions writs, orders and similar actions by a court of competent jurisdiction; compliance with which is required or customarily observed in such jurisdiction. 13.5 AUTHORIZED PERSON shall mean any person or entity authorized to give Instructions on behalf of the Fund in accordance with Section 4.1. 13.6 BOOK-ENTRY AGENT shall mean an entity acting as agent for the issuer of Investments for purposes of recording ownership or similar entitlement to Investments, including without limitation a transfer agent or registrar. 13.7 CLEARING CORPORATION shall mean any entity or system established for purposes of providing securities settlement and movement and associated functions for a given market. 13.8 DELEGATION AGREEMENT shall mean any separate agreement entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning the appointment and administration of Subcustodians delegated to the Custodian pursuant to Rule 17f-5. 13.9 FOREIGN CUSTODY MANAGER shall mean the Fund's foreign custody manager appointed pursuant to Rule 17f-5. 13.10 FOREIGN FINANCIAL REGULATORY AUTHORITY shall have the meaning given by Section 2(a)(50) of the 1940 Act. 13.11 FUNDS TRANSFER SERVICES AGREEMENT shall mean any separate agreement entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning the processing of payment orders from Principal Accounts of the Fund. 13.12 INSTRUCTION(S) shall have the meaning assigned in Section 4. 13.13 INVESTMENT ADVISOR shall mean any person or entity who is an Authorized Person to give Instructions with respect to the investment and reinvestment of the Fund's Investments. 13.14 INVESTMENTS shall mean any investment asset of the Fund, including without limitation securities, bonds, notes, and debentures as well as receivables, derivatives, contractual rights or entitlements and other intangible assets. 13.15 MARGIN ACCOUNT shall have the meaning set forth in Section 6.4 hereof. 19 13.16 PRINCIPAL ACCOUNT shall mean deposit accounts of the Fund carried on the books of BBH&Co. as principal in accordance with Section 7. 13.17 SAFEKEEPING ACCOUNT shall mean an account established on the books of the Custodian or any Subcustodian for purposes of segregating the interests of the Fund (or clients of the Custodian or Subcustodian) from the assets of the Custodian or any Subcustodian. 13.18 SECURITIES DEPOSITORY shall mean a central or book entry system or agency established under Applicable Law for purposes of recording the ownership and/or entitlement to investment securities for a given market that, if a foreign Securities Depository, meets the definitional requirements of Rule 17f-7 under the 1940 Act. 13.19 SUBCUSTODIAN shall mean each foreign bank appointed by the Custodian pursuant to Section 8, but shall not include Securities Depositories. 13.20 TRI-PARTY AGREEMENT shall have the meaning set forth in Section 6.4 hereof. 13.21 1940 ACT shall mean the Investment Company Act of 1940, as amended. 14. COMPENSATION. The Fund agrees to pay to the Custodian (a) a fee in an amount set forth in the fee letter between the Fund and the Custodian in effect on the date hereof or as amended from time to time, and (b) all reasonable out-of-pocket expenses incurred by the Custodian, including the fees and expenses of all Subcustodians, and payable from time to time. Amounts payable by the Fund under and pursuant to this Section 14 shall be payable by wire transfer to the Custodian at BBH&Co. in New York, New York. 15. TERMINATION. This Agreement may be terminated by either party in accordance with the provisions of this Section. The provisions of this Agreement and any other rights or obligations incurred or accrued by any party hereto prior to termination of this Agreement shall survive any termination of this Agreement. 15.1 NOTICE AND EFFECT. This Agreement may be terminated by either party by written notice effective no sooner than seventy-five days following the date that notice to such effect shall be delivered to other party at its address set forth in paragraph 12.5 hereof. 15.2 SUCCESSOR CUSTODIAN. In the event of the appointment of a successor custodian, it is agreed that the Investments of the Fund held by the Custodian or any Subcustodian shall be delivered to the successor custodian in accordance with reasonable Instructions. The Custodian agrees to cooperate with the Fund in the execution of documents and performance of other actions necessary or desirable in order to facilitate the succession of the new custodian. If no successor custodian shall be appointed, the Custodian shall in like manner transfer the Fund's Investments in accordance with Instructions. 20 15.3 DELAYED SUCCESSION. If no Instruction has been given as of the effective date of termination, the Custodian may at any time on or after such termination date and upon ten days written notice to the Fund either (a) deliver the Investments of the Fund held hereunder to the Fund at the address designated for receipt of notices hereunder; or (b) deliver any investments held hereunder to a bank or trust company having a capitalization of $2 million United States Dollars or equivalent and operating under the Applicable law of the jurisdiction where such Investments are located and qualified to act as a Custodian or Subcustodian of the Funds' Investments under the 1940 Act, such delivery to be at the risk of the Fund. In the event that Investments or moneys of the Fund remain in the custody of the Custodian or its Subcustodians after the date of termination owing to the failure of the Fund to issue Instructions with respect to their disposition or owing to the fact that such disposition could not be accomplished in accordance with such Instructions despite diligent efforts of the Custodian, the Custodian shall be entitled to compensation for its services with respect to such Investments and moneys during such period as the Custodian or its Subcustodians retain possession of such items and the provisions of this Agreement shall remain in full force and effect until disposition in accordance with this Section is accomplished. 16. LIMITATIONS ON LIABILITY. Pursuant to the Fund's Declaration of Trust, no trustee, officer, employee or agent of the Fund shall be subject to any personal liability whatsoever, in his or her official or individual capacity, to any person, including the Custodian or any Subcustodian, other than to the Fund or its shareholders, in connection with Fund property or the affairs of the Fund,; and all persons shall look solely to the Fund property for satisfaction of claims of any nature against a trustee, officer, employee or agent of the Fund arising in connection with the affairs of the Fund. Moreover, notwithstanding any other provision of this Agreement to the contrary, the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to a designated series or Portfolio of the Fund shall be enforceable against the assets and property of such series or Portfolio only, and not against the assets and property of any other series or Portfolio. 21 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written. [Name of Registrant] on behalf of each of the portfolios listed on the attached Appendix "C" By: -------------------------------- By: BROWN BROTHERS HARRIMAN & CO. By: -------------------------------- 22 FUNDS TRANSFER SERVICES SCHEDULE 1. EXECUTION OF PAYMENT ORDERS. The Custodian is hereby instructed by the Fund to execute each payment order, whether denominated in United States dollars or other applicable currencies, received by the Custodian in the Fund's name as sender and authorized and confirmed by an Authorized Person as defined in the body of this Agreement , provided that the Fund has sufficient available funds on deposit in a Principal Account as defined in the Agreement and provided that the order (i) is received by the Custodian in the manner specified in this Funds Transfer Services Schedule or any amendment hereafter; (ii) complies with any written instructions and restrictions of the Fund as set forth in this Funds Transfer Services Schedule or any amendment hereafter; (iii) is authorized by the Fund or is verified by the Custodian in compliance with a security procedure set forth in Paragraph 2 below for verifying the authenticity of a funds transfer communication sent to the Custodian in the name of the Fund or for the detection of errors set forth in any such communication; and (iv) contains sufficient data to enable the Custodian to process such transfer. 2. SECURITY PROCEDURE. The Fund hereby elects to use the procedure selected below as its security procedure (the Security Procedure). The Security Procedure will be used by the Custodian to verify the authenticity of a payment order or a communication amending or canceling a payment order. The Custodian will act on instructions received provided the instruction is authenticated by the Security Procedure. The Fund agrees and acknowledges in connection with (i) the size, type and frequency of payment orders normally issued or expected to be issued by the Fund to the Custodian, (ii) all of the security procedures offered to the Fund by the Custodian, and (iii) the usual security procedures used by customers and receiving banks similarly situated, that authentication through the Security Procedure shall be deemed commercially reasonable for the authentication of all payment orders submitted to the Custodian. The Fund hereby elects (PLEASE CHOOSE ONE) the following Security Procedure as described below: [ ] BIDS AND BIDS WORLDVIEW PAYMENT PRODUCTS. BIDS and BIDS Worldview Payment Products, are on-line payment order authorization facilities with built-in authentication procedures. The Custodian and the Fund shall each be responsible for maintaining the confidentiality of passwords or other codes to be used by them in connection with BIDS. The Custodian will act on instructions received through BIDS without duty of further confirmation unless the Fund notifies the Custodian that its password is not secure. [ ] SWIFT. The Custodian and the Fund shall comply with SWIFT's authentication procedures. The Custodian will act on instructions received via SWIFT provided the instruction is authenticated by the SWIFT system. [ ] TESTED TELEX. The Custodian will accept payment orders sent by tested telex, provided the test key matches the algorithmic key the Custodian and Fund have agreed to use. 23 [ ] COMPUTER TRANSMISSION. The Custodian is able to accept transmissions sent from the Fund's computer facilities to the Custodian's computer facilities provided such transmissions are encrypted and digitally certified or are otherwise authenticated in a reasonable manner based on available technology. Such procedures shall be established in an operating protocol between the Custodian and the Fund. [ ] TELEFAX INSTRUCTIONS. A payment order transmitted to the Custodian by telefax transmission shall transmitted by the Customer to a telephone number specified from time to time by the Custodian for such purposes. If it detects no discrepancies, the Custodian will then either: 1. If the telefax requests a repetitive payment order, the Custodian will take no further action to confirm the order's authenticity unless the transaction is incomplete or the repetitive payment order is not clearly identified; or 2. If the telefax requests a non-repetitive order, the Custodian will call the Fund at its last known telephone number, request to speak to the Fund or Authorized Person, and confirm the authorization of the payment order (a "Callbank"). All faxes must be accompanied by a fax cover sheet which indicates the sender's name, Fund name, telephone number, fax number, number of pages, and number of transactions or instructions attached. [ ] TELEPHONIC. A telephonic payment order shall be called into the Custodian at the telephone number designated from time to time by the Custodian for that purpose. The caller shall identify herself/himself as an Authorized Person. The Custodian shall obtain the payment order data from the caller. The Custodian shall then: 1. If a telephonic repetitive payment order and the Custodian reasonably believes the caller to be authorized, the Custodian will take no further action to confirm the order's authenticity; or 2. If a telephonic non-repetitive payment order, the Custodian will perform a Callback. 3. REJECTION OF PAYMENT ORDERS. The Custodian shall give the Fund timely notice of the Custodian's rejection of a payment order. Such notice may be given in writing or orally by telephone, each of which is hereby deemed commercially reasonable. In the event the Custodian fails to execute a properly executable payment order and fails to give the Fund timely notice of the Custodian's non-execution, the Custodian shall be liable only for the Fund's actual damages and only to the extent that such damages are recoverable under UCC 4A (as defined in Paragraph 7 below). Notwithstanding anything in this Funds Transfer Services Schedule and the Agreement to the contrary, the Custodian shall in no event be liable for any consequential or special damages under this Agreement and Funds Transfer Services Schedule, whether or not such damages relate to services covered by UCC 4A, even if the Custodian has been advised of the possibility of such damages. Whenever compensation in the form of interest is payable by the Custodian to the Fund pursuant to this Agreement and Funds Transfer Services Schedule, such compensation will be payable at the rate specified in UCC 4A. 4. CANCELLATION OF PAYMENT ORDERS. The Fund may cancel a payment order but the Custodian shall have no liability for the Custodian's failure to act on a cancellation instruction unless the Custodian has received such cancellation instruction at a time and in a manner affording the Custodian reasonable opportunity to act prior to the Custodian's execution of the order. Any cancellation shall be sent and confirmed in the manner set forth in Paragraph 2 above. 24 5. RESPONSIBILITY FOR THE DETECTION OF ERRORS AND UNAUTHORIZED PAYMENT ORDERS. Except as may be provided, the Custodian is not responsible for detecting any Fund error contained in any payment order sent by the Fund to the Custodian. In the event that the Fund's payment order to the Custodian either (i) identifies the beneficiary by both a name and an identifying or bank account number and the name and number identify different persons or entities, or (ii) identifies any bank by both a name and an identifying number and the number identifies a person or entity different from the bank identified by name, execution of the payment order, payment to the beneficiary, cancellation of the payment order or actions taken by any bank in respect of such payment order may be made solely on the basis of the number. The Custodian shall not be liable for interest on the amount of any payment order that was not authorized or was erroneously executed unless the Fund so notifies the Custodian within thirty (30) business days following the Fund's receipt of notice that such payment order had been processed. If a payment order in the name of the Fund accepted by the Custodian was not authorized by the Fund, the liability of the parties will be governed by the applicable provisions of UCC 4A. 6. LAWS AND REGULATIONS. The rights and obligations of the Custodian and the Fund with respect to any payment order executed pursuant to this Funds Transfer Services Schedule will be governed by any applicable laws, regulations, circulars and funds transfer system rules, the laws and regulations of the United States of America and of other relevant countries including exchange control regulations and limitations on dealings or other sanctions, and including without limitation those sanctions imposed under the law of the United States of America by the Office of Foreign Assets Control. Any taxes, fines, costs, charges or fees imposed by relevant authorities on such transactions shall be for the account of the Fund. 7. MISCELLANEOUS. All accounts opened by the Fund or its authorized agents at the Custodian subsequent to the date hereof shall be governed by this Funds Transfer Schedule. All terms used in this Funds Transfer Services Schedule shall have the meaning set forth in Article 4A of the Uniform Commercial Code as currently in effect in the State of New York (UCC 4A) unless otherwise set forth herein. The terms and conditions of this Funds Transfer Services Schedule are in addition to, and do not modify or otherwise affect, the terms and conditions of the Agreement and any other agreement or arrangement between the parties hereto. Accepted and agreed: BROWN BROTHERS HARRIMAN & CO. [NAME OF REGISTRANT] on behalf of each of the portfolios listed on the attached Appendix "C" By: By: -------------------------------- ------------------------------------- Name: Name: Title: Title: Date: Date: 25 17f-5 DELEGATION SCHEDULE By its execution of this Delegation Schedule, [name of Registrant], a management investment company registered with the Securities and Exchange Commission (the "Commission") under the Investment Company Act of 1940, as amended, (the "1940 Act"), acting through its Board of Directors/Trustees or its duly appointed representative, hereby appoints BROWN BROTHERS HARRIMAN & CO., a New York limited partnership with an office in Boston, Massachusetts (the "Delegate") as its delegate to perform certain functions with respect to the custody of Fund's Assets outside the United States. 1. MAINTENANCE OF FUND'S ASSETS ABROAD. The Fund, acting through its Board or its duly authorized representative, hereby instructs Delegate pursuant to the terms of the Custodian Agreement, and specifically Sections 8.2, 8.3 and 8.4, to place and maintain the Fund's Assets in countries outside the United States in accordance with Instructions received from the Fund's investment advisor. Such instruction shall represent a Proper Instruction under the terms of the Custodian Agreement which Custodian acknowledges it has properly received. The Fund acknowledges that - (a) the Delegate shall perform services hereunder only with respect to the countries where it provides custodial services to the Fund under the Custodian Agreement; (b) depending on conditions in the particular country, advance notice, upon the request of the Delegate, may be required before the Delegate shall be able to perform its duties hereunder in or with respect to such country (such advance notice to be reasonable in light of the specific facts and circumstances attendant to performance of duties in such country); and (c) nothing in this Delegation Schedule shall require the Delegate to provide delegated or custodial services in any country, and there may from time to time be countries as to which the Delegate determines it will not provide delegation services. 2. DELEGATION. Pursuant to the provisions of Rule 17f-5 under the 1940 Act as amended, the Board hereby delegates to the Delegate, and the Delegate hereby accepts such delegation and agrees to perform, only those duties set forth in this Delegation Schedule concerning the safekeeping of the Fund's Assets in each of the countries as to which it acts as the Board's delegate. The Delegate is hereby authorized to take such actions on behalf of or in the name of the Fund as are reasonably required to discharge its duties under this Delegation Schedule, including, without limitation, to cause the Fund's Assets to be placed with a particular Eligible Foreign Custodian in accordance herewith. The Fund confirms to the Delegate that the investment adviser to the Fund has considered, or shall consider, the Sovereign Risk and prevailing country risk as part of its 26 continuing investment decision process, including such factors as may be reasonably related to the systemic risk of maintaining the Fund's Assets in a particular country, including, but not limited to, financial infrastructure, prevailing custody and settlement systems and practices (including the use of any Securities Depository in the context of information provided by the Custodian in the performance of its duties as required under Rule 17f-7 and the terms of the Custodian Agreement governing such duties). 3. SELECTION OF ELIGIBLE FOREIGN CUSTODIAN AND CONTRACT ADMINISTRATION. The Delegate shall perform the following duties exercising reasonable care, prudence and diligence with respect to the selection of Eligible Foreign Custodians and administration of certain contracts governing the Fund's foreign custodial arrangements: (a) SELECTION OF ELIGIBLE FOREIGN CUSTODIAN. The Delegate shall place and maintain the Fund's Assets with an Eligible Foreign Custodian; PROVIDED that the Delegate shall have determined that the Fund's Assets will be subject to reasonable care based on the standards applicable to custodians in the relevant market after considering all factors relevant to the safekeeping of such assets including without limitation: (i) The Eligible Foreign Custodian's practices, procedures, and internal controls, including, but not limited to, the physical protections available for certificated securities (if applicable), the controls and procedures for dealing with any Securities Depository, the method of keeping custodial records, and the security and data protection practices; (ii) Whether the Eligible Foreign Custodian has the requisite financial strength to provide reasonable care for the Fund's Assets; (iii) The Eligible Foreign Custodian's general reputation and standing; and (iv) Whether the Fund will have jurisdiction over and be able to enforce judgments against the Eligible Foreign Custodian, such as by virtue of the existence of any offices of such Eligible Foreign Custodian in the United States or such Eligible Foreign Custodian's appointment of an agent for service of process in the United States or consent to jurisdiction in the United States. The Delegate shall be required to make the foregoing determination to the best of its knowledge and belief based on information reasonably available to it after diligent efforts. (b) CONTRACT ADMINISTRATION. The Delegate shall cause the foreign custody arrangements with an Eligible Foreign Custodian to be governed by a written contract that the Delegate has determined will provide reasonable care for Fund assets based on the standards applicable to custodians in the relevant market. Each such contract shall, except as set forth in the last paragraph of this subsection (b), include provisions that provide: (i) For indemnification or insurance arrangements (or any combination of the foregoing) such that the Fund will be adequately protected against the risk of loss of assets held in accordance with such contract; 27 (ii) That the Fund's Assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the Eligible Foreign Custodian or its creditors except a claim of payment for their safe custody or administration or, in the case of cash deposits, liens or rights in favor of creditors of such Custodian arising under bankruptcy, insolvency or similar laws; (iii) That beneficial ownership of the Fund's Assets will be freely transferable without the payment of money or value other than for safe custody or administration; (iv) That adequate records will be maintained identifying the Fund's Assets as belonging to the Fund or as being held by a third party for the benefit of the Fund; (v) That the Fund's independent public accountants will be given access to those records described in (iv) above or confirmation of the contents of such records; and (vi) That the Delegate will receive sufficient and timely periodic reports with respect to the safekeeping of the Fund's Assets, including, but not limited to, notification of any transfer to or from the Fund's account or a third party account containing the Fund's Assets. Such contract may contain, in lieu of any or all of the provisions specified in this Section 3 (b), such other provisions that the Delegate determines will provide, in their entirety, the same or a greater level of care and protection for the Fund's Assets as the specified provisions, in their entirety. (c) LIMITATION TO DELEGATED SELECTION. Notwithstanding anything in this Delegation Schedule to the contrary, the duties under this Section 3 shall apply only to Eligible Foreign Custodians selected by the Delegate and shall not apply to Securities Depositories or to any Eligible Foreign Custodian that the Delegate is directed to use pursuant to Section 7. 4. MONITORING. The Delegate shall establish a system to monitor the appropriateness of maintaining the Fund's Assets with each Eligible Foreign Custodian that has been selected by the Delegate pursuant to Section 3 of this Delegation Schedule. The Delegate shall monitor the continuing appropriateness of placement of the Fund's Assets in accordance with the criteria established under Section 3(a) of this Delegation Schedule. The Delegate shall monitor the continuing appropriateness of the contract governing the Fund's arrangements in accordance with the criteria established under Section 3(b) of this Delegation Schedule. 5. REPORTING. At least annually and more frequently as reasonably requested by the Fund, the Delegate shall provide to the Board written reports specifying placement of the Fund's Assets with each Eligible Foreign Custodian selected by the Delegate pursuant to Section 3 of this Delegation Schedule and shall promptly report any material changes to such foreign custody arrangements. Delegate will prepare such a report with respect to any Eligible Foreign Custodian that the Delegate has been instructed to use pursuant to Section 7 only to the extent specifically agreed with respect to the particular situation. 28 6. WITHDRAWAL OF FUND'S ASSETS. If the Delegate determines that an arrangement with a specific Eligible Foreign Custodian selected by the Delegate under Section 3 of this Delegation Schedule no longer meets the requirements of said Section, Delegate shall withdraw the Fund's Assets from the non-complying arrangement as soon as reasonably practicable; PROVIDED, however, that if in the reasonable judgment of the Delegate, such withdrawal would require liquidation of any of the Fund's Assets or would materially impair the liquidity, value or other investment characteristics of the Fund's Assets, it shall be the duty of the Delegate promptly to provide information regarding the particular circumstances and to act only in accordance with Proper Instructions of the Fund or its Investment Advisor with respect to such liquidation or other withdrawal. 7. DIRECTION AS TO ELIGIBLE FOREIGN CUSTODIAN. Notwithstanding this Delegation Schedule, the Fund, acting through its Board, its Investment Adviser or its other authorized representative, may direct the Delegate to place and maintain the Fund's Assets with a particular Eligible Foreign Custodian, including without limitation with respect to investment in countries as to which the Custodian will not provide delegation services. In such event, the Delegate shall be entitled to rely on any such instruction as a Proper Instruction under the terms of the Custodian Agreement and shall have no duties under this Delegation Schedule with respect to such arrangement save those that it may undertake specifically in writing with respect to each particular instance. 8. STANDARD OF CARE. In carrying out its duties under this Delegation Schedule, the Delegate agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for safekeeping and maintaining the Fund's Assets would exercise. 9. REPRESENTATIONS.The Delegate hereby represents and warrants that it is a U.S. Bank and that this Delegation Schedule has been duly authorized, executed and delivered by the Delegate and is a legal, valid and binding agreement of the Delegate. The Fund hereby represents and warrants that its Board of Directors/Trustees has determined that it is reasonable to rely on the Delegate to perform the delegated responsibilities provided for herein and that this Delegation Schedule has been duly authorized, executed and delivered by the Fund and is a legal, valid and binding agreement of the Fund. 10. EFFECTIVENESS; TERMINATION. This Delegation Schedule shall be effective as of the date on which this Delegation Schedule shall have been accepted by the Delegate, as indicated by the date set forth below the Delegate's signature. This Delegation Schedule may be terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Such termination shall be effective on the 30th day following the date on which the non-terminating party shall receive the foregoing notice. The foregoing to the contrary notwithstanding, this Delegation Schedule shall be deemed to have been terminated concurrently with the termination of the Custodian Agreement. 29 11. NOTICES.Notices and other communications under this Delegation Schedule are to be made in accordance with the arrangements designated for such purpose under the Custodian Agreement unless otherwise indicated in a writing referencing this Delegation Schedule and executed by both parties. 12. DEFINITIONS. Capitalized terms in this Delegation Schedule have the following meanings: a. ELIGIBLE FOREIGN CUSTODIAN - shall have the meaning set forth in Rule 17f-5(a)(1) and shall also include a U.S. Bank. b. FUND'S ASSETS - shall mean any of the Fund's investments (including foreign currencies) for which the primary market is outside the United States, and such cash and cash equivalents as are reasonably necessary to effect the Fund's transactions in such investments. c. PROPER INSTRUCTIONS - shall have the meaning set forth in the Custodian Agreement. d. SECURITIES DEPOSITORY - shall have the meaning set forth in Rule 17f-7. e. SOVEREIGN RISK - shall have the meaning set forth in Section 9.1.3 of the Custodian Agreement. f . U.S. BANK - shall mean a bank which qualifies to serve as a custodian of assets of investment companies under Section 17(f) of the Act. 13. GOVERNING LAW AND JURISDICTION. This Delegation Schedule shall be construed in accordance with the laws of the State of New York. The parties hereby submit to the exclusive jurisdiction of the Federal courts sitting in the State of New York or of the state courts of such State. 14. FEES. Delegate shall perform its functions under this Delegation Schedule for the compensation determined under the Custodian Agreement. 15. INTEGRATION. This Delegation Schedule sets forth all of the Delegate's duties with respect to the selection and monitoring of Eligible Foreign Custodians, the administration of contracts with Eligible Foreign Custodians, the withdrawal of assets from Eligible Foreign Custodians and the issuance of reports in connection with such duties. The terms of the Custodian Agreement shall apply generally as to matters not expressly covered in this Delegation Schedule, including dealings with the Eligible Foreign Custodians in the course of discharge of the Delegate's obligations under the Custodian Agreement. 30 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written. BROWN BROTHERS HARRIMAN & CO. [NAME OF REGISTRANT] on behalf of each of the portfolios listed on the attached Appendix "C" By: By: -------------------------------- ------------------------------------- Name: Name: Title: Title: Date: Date: 31 APPENDIX C TO THE CUSTODIAN AGREEMENT BETWEEN [NAME OF REGISTRANT] AND BROWN BROTHERS HARRIMAN & CO. The following is a list of Funds for which the Custodian shall serve under a Custodian Agreement dated as of _______________________ to provide custodial services to the Funds. (the "Agreement"): [Name of Fund] 32 EX-99.J.1 8 exj_1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit(j)(1) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated December 29, 2000, relating to the financial statements and financial highlights of Pilgrim Global Technology Funds, Inc., Pilgrim Precious Metals Fund, Inc. (formerly Pilgrim Gold Fund, Inc.), Pilgrim International Fund, Inc., Pilgrim Silver Fund, Inc., Pilgrim SmallCap Asia Growth Fund, Inc., Pilgrim Russia, Inc. (formerly Pilgrim Troika Dialog Russia Fund, Inc.), and Pilgrim Worldwide Emerging Markets Fund, Inc., which appears in the October 31, 2000 Annual Report to Shareholders of Pilgrim Funds, which is also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights" and "Independent Accountants/Auditors" in such Registration Statement. /s/ PricewaterhouseCoopers LLP Denver, Colorado February 28, 2001 EX-99.J.2 9 ex-j2.txt CONSENT OF DECHERT Exhibit (j)(2) [LETTERHEAD OF DECHERT] February 28, 2001 Pilgrim Worldwide Emerging Markets Fund, Inc. 7337 East Doubletree Ranch Road Scottsdale, Arizona 85258-2034 Re: Pilgrim Worldwide Emerging Markets Fund, Inc. (File Nos. 2-32488 and 811-1838) Dear Sirs: We hereby consent to all references to our firm in Post-Effective Amendment No. 43 to the Registration Statement of Pilgrim Worldwide Emerging Markets Fund, Inc. In giving such consent, however, we do not admit that we are within the category of persons whose consent is required by Section 7 of the Securities Act of 1933, as amended, and the rules and regulations thereunder. Very truly yours, /s/ Dechert -----END PRIVACY-ENHANCED MESSAGE-----