0000950147-01-501714.txt : 20011010 0000950147-01-501714.hdr.sgml : 20011010 ACCESSION NUMBER: 0000950147-01-501714 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20011005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM GROWTH & INCOME FUND INC CENTRAL INDEX KEY: 0000059146 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 221644924 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-14767 FILM NUMBER: 1753246 BUSINESS ADDRESS: STREET 1: 7337 E DOUBLETREE RANCH ROAD STREET 2:   CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 1-800-992-0180 MAIL ADDRESS: STREET 1: 7337 E DOUBLETREE RANCH ROAD STREET 2:   CITY: SCOTTSDALE STATE: AZ ZIP: 85258 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON GROWTH & INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON RESEARCH FUND INC DATE OF NAME CHANGE: 19910506 FORMER COMPANY: FORMER CONFORMED NAME: LEXINGTON RESEARCH INVESTING CORP DATE OF NAME CHANGE: 19690813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM MUTUAL FUNDS CENTRAL INDEX KEY: 0000895430 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-56094 FILM NUMBER: 1753247 BUSINESS ADDRESS: STREET 1: 7337 E DOUBLETREE RANCH ROAD STREET 2:   CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 1-800-992-0180 MAIL ADDRESS: STREET 1: 7337 E DOUBLETREE RANCH ROAD STREET 2:   CITY: SCOTTSDALE STATE: AZ ZIP: 85258 FORMER COMPANY: FORMER CONFORMED NAME: NICHOLAS APPLEGATE MUTUAL FUNDS DATE OF NAME CHANGE: 19930328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PILGRIM INVESTMENT FUNDS INC/MD CENTRAL INDEX KEY: 0000061448 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 136066974 STATE OF INCORPORATION: MD FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 002-34552 FILM NUMBER: 1753248 BUSINESS ADDRESS: STREET 1: 7337 E DOUBLETREE RANCH ROAD STREET 2:   CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 1-800-992-0180 MAIL ADDRESS: STREET 1: 7337 E DOUBLETREE RANCH ROAD STREET 2:   CITY: SCOTTSDALE STATE: AZ ZIP: 85258 FORMER COMPANY: FORMER CONFORMED NAME: MAGNACAP FUND INC DATE OF NAME CHANGE: 19850701 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM INVESTMENT FUNDS INC DATE OF NAME CHANGE: 19950503 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM MAGNACAP FUND INC DATE OF NAME CHANGE: 19920703 497 1 e-7579.txt DEFINITIVE PROSPECTUSES DATED 10/01/2001 PROSPECTUS October 1, 2001 U.S. EQUITY FUNDS CLASSES A, B, C, M AND T Pilgrim MagnaCap Pilgrim Growth and Income Pilgrim Research Enhanced Index Pilgrim Tax Efficient Equity Pilgrim Growth Opportunities Pilgrim LargeCap Growth Pilgrim MidCap Opportunities Pilgrim MidCap Growth Pilgrim Growth + Value Pilgrim SmallCap Opportunities Pilgrim SmallCap Growth Pilgrim Financial Services Pilgrim Internet EQUITY & INCOME FUNDS Pilgrim Balanced Pilgrim Convertible [GRAPHIC] 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 U.S. 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. [LOGO] ING PILGRIM WHAT'S INSIDE -------------------------------------------------------------------------------- [GRAPHIC] OBJECTIVE These pages contain a description of each of our Funds included in this prospectus, including each Fund's objective, investment strategy and risks. [GRAPHIC] INVESTMENT STRATEGY You'll also find: [GRAPHIC] RISKS How the Fund has performed. A chart that shows the Fund's financial performance for the past ten years (or since inception, if shorter). [GRAPHIC] HOW THE FUND HAS PERFORMED 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 U.S. EQUITY FUNDS Pilgrim MagnaCap 4 Pilgrim Growth and Income 6 Pilgrim Research Enhanced Index 8 Pilgrim Tax Efficient Equity 10 Pilgrim Growth Opportunities 12 Pilgrim LargeCap Growth 14 Pilgrim MidCap Opportunities 16 Pilgrim MidCap Growth 18 Pilgrim Growth + Value 20 Pilgrim SmallCap Opportunities 22 Pilgrim SmallCap Growth 24 Pilgrim Financial Services 26 Pilgrim Internet 28 EQUITY & INCOME FUNDS Pilgrim Balanced 30 Pilgrim Convertible 32 What You Pay to Invest 34 Shareholder Guide 39 Management of the Funds 46 Dividends, Distributions and Taxes 49 More Information About Risks 50 Financial Highlights 54 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. U.S. EQUITY FUNDS ING Pilgrim's U.S. Equity Funds focus on long-term growth by investing primarily in domestic equities. They may suit you if you: * are investing for the long-term -- at least several years * are willing to accept higher risk in exchange for long-term growth. EQUITY AND INCOME FUNDS ING Pilgrim's Equity and Income Funds seek income and growth of capital. They may suit you if you: * want both regular income and capital appreciation * are looking for growth potential, but don't feel comfortable with the level of risk associated with the Equity Funds. [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 4.
FUND INVESTMENT OBJECTIVE ---- -------------------- U.S. Equity MagnaCap Fund Growth of capital, with dividend income as a Funds Adviser: ING Pilgrim Investments, LLC secondary consideration Growth and Income Fund Long-term capital appreciation, with income as Adviser: ING Pilgrim Investments, LLC a secondary objective Research Enhanced Index Fund Capital appreciation Adviser: ING Pilgrim Investments, LLC Sub-Adviser: Aeltus Investment Management, Inc. Tax Efficient Equity Fund High total return on an after-tax basis Adviser: ING Pilgrim Investments, LLC Sub-Adviser: Delta Asset Management Growth Opportunities Fund Long-term growth of capital Adviser: ING Pilgrim Investments, LLC LargeCap Growth Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC MidCap Opportunities Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC MidCap Growth Fund Maximum long-term capital appreciation Adviser: ING Pilgrim Investments, LLC Growth + Value Fund Capital appreciation Adviser: ING Pilgrim Investments, LLC Sub-Adviser: Navellier Fund Management, Inc. SmallCap Opportunities Fund Capital appreciation Adviser: ING Pilgrim Investments, LLC SmallCap Growth Fund Maximum long-term capital appreciation Adviser: ING Pilgrim Investments, LLC Financial Services Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC Internet Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC Sub-Adviser: ING Investment Management Advisors B.V. Equity & Balanced Fund Long-term capital appreciation and current income Income Funds Adviser: ING Pilgrim Investments, LLC Convertible Fund Total return, consisting of capital appreciation Adviser: ING Pilgrim Investments, LLC and current income
2 FUNDS AT A GLANCE --------------------------------------------------------------------------------
MAIN INVESTMENTS MAIN RISKS ---------------- ---------- Equity securities that meet disciplined selection Price volatility and other risks that accompany an criteria designed to identify companies capable of investment in equity securities. paying rising dividends. Equity securities of large, ably managed, and Price volatility and other risks that accompany an well-financed U.S. companies. investment in equity securities. Equity securities of large U.S. companies that Price volatility and other risks that accompany an make up the S&P 500 Index. investment in equity securities. Equity securities and instruments whose returns Price volatility and other risks that accompany an depend upon stock market prices, managed in a investment in equity securities. May not provide manner that will attempt to reduce net realized as high a return before taxes as other funds, and gains each year. as a result may not be suitable for investors who are not subject to current income tax. Equity securities of large, medium, and small U.S. Price volatility and other risks that accompany an companies believed to have growth potential. investment in growth-oriented equity securities. Equity securities of large U.S. companies believed Price volatility and other risks that accompany an to have growth potential. investment in growth-oriented equity securities. Equity securities of medium-sized U.S. companies Price volatility and other risks that accompany an believed to have growth potential. investment in equity securities of growth-oriented and medium-sized companies. Particularly sensitive to price swings during periods of economic uncertainty. Equity securities of medium-sized U.S. companies Price volatility and other risks that accompany an believed to have growth potential. investment in equity securities of medium-sized companies. Particularly sensitive to price swings during periods of economic uncertainty. Equity securities of small-sized U.S. companies. Price volatility and other risks that accompany an investment in equity securities of growth-oriented and small-sized companies. Particularly sensitive to price swings during periods of economic uncertainty. Equity securities of small-sized U.S. companies Price volatility and other risks that accompany an believed to have growth potential. investment in equity securities of growth-oriented and small-sized companies. Particularly sensitive to price swings during periods of economic uncertainty. Equity securities of small-sized U.S. companies Price volatility and other risks that accompany an believed to have growth potential. investment in equity securities of growth-oriented and small-sized companies. Particularly sensitive to price swings during periods of economic uncertainty. Equity securities of financial services companies Price volatility and other risks that accompany an or their holding or parent companies. investment in equity securities. Susceptible to risks of decline in the price of securities concentrated in the financial services industries. U.S. and non-U.S. internet technology companies. Price volatility and other risks that accompany an investment in equity securities and maintaining a non diversified portfolio. Will also experience risks related to investments in foreign securities (for example, currency exchange rate fluctuations). Products and services of companies engaged in internet-related activities are subject to relatively high risks of rapid obsolescence caused by scientific and technological advances. A mix of equity and debt securities. Price volatility and other risks that accompany an investment in equity securities. Credit, interest rate and other risks that accompany an investment in debt securities. Convertible securities of companies of various Price volatility and other risks that accompany an sizes, as well as equities, and high-yield debt. investment in equity securities. Credit, interest rate, liquidity and other risks that accompany an investment in debt securities,and lower quality debt securities.
3 Adviser PILGRIM MAGNACAP FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks growth of capital, with dividend income as a secondary consideration. INVESTMENT STRATEGY [GRAPHIC] The Fund is managed with the philosophy that companies that can best meet the Fund's objectives have paid increasing dividends or have had the capability to pay rising dividends from their operations. The Fund normally invests at least 65% of its assets in equity securities of companies that meet the following disciplined criteria: Consistent Dividends -- A company must have paid or had the financial capability from its operations to pay a dividend in eight out of the last ten years. Substantial Dividend Increases -- A company must have increased its dividends or had the financial capability from its operations to have increased its dividends at least 100% over the past 10 years. Reinvested Earnings -- Dividend payout must be less than 65% of current earnings. Strong Balance Sheet -- Long term debt should be no more than 25% of the company's total capitalization or a company's bonds must be rated at least A- or A-3. Attractive Price -- A company's current share price should be in the lower half of the stock's price/earnings ratio range for the past ten years, or the ratio of the share price to its anticipated future earnings must be an attractive value in relation to the average for its industry peer group or that of the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index). The equity securities in which the Fund may invest include common stocks, convertible securities, and rights or warrants. Normally the Fund's investments are primarily in larger companies that are included in the largest 500 U.S. companies. The remainder of the Fund's assets may be invested in equity securities that the adviser believes have growth potential because they represent an attractive value. In selecting securities for the Fund, preservation of capital is also an important consideration. Although the Fund normally will be invested as fully as practicable in equity securities, assets that are not invested in equity securities may be invested in high quality debt securities. The Fund may invest up to 5% of its assets, measured at the time of investment, in foreign securities. -------------------------------------------------------------------------------- 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. Market Trends -- from time to time, the stock market may not favor the value securities that meet the Fund's disciplined investment criteria. Rather, the market could favor growth-oriented stocks or small company stocks, or may not favor equities at all. 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. Credit Risk -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This is especially true during periods of economic uncertainty or economic downturns. 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. 4 Pilgrim MagnaCap Fund PILGRIM MAGNACAP 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 before and after income taxes is not an indication of future performance. Year by Year Total Returns (%)(1) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 25.28 8.02 9.25 4.15 35.22 18.51 27.73 16.09 12.20 1.23 ---------- (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. Best and worst quarterly performance during this period: 4th quarter 1998: 18.93% 3rd quarter 1990: -15.99% The Fund's year-to-date total return as of June 30, 2001: -9.60% Average Annual Total Returns (For the periods ended December 31, 2000) 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 S&P 500 Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class) (or Life of Class) ------ ------------------ ------------------ Class A Return Before Taxes(1) -4.58% 13.47% 14.63% Class A Return After Taxes on Distributions(1) -7.00% 9.46% 11.81% Class A Return After Taxes on Distributions and Sale of Fund Shares(1) -0.65% 9.91% 11.50% Class B Return Before Taxes(2) -3.90% 13.84% 15.27%(3) Class C Return Before Taxes(4) -0.30% 4.11%(5) N/A Class M Return Before Taxes(6) -2.62% 13.54% 14.92%(7) S&P 500 Index (reflects no deduction for fees, expenses or taxes)(8) -9.11% 18.33% 17.46%(9)
---------- (1) Reflects deduction of sales charge of 5.75%. (2) Reflects deduction of deferred sales charge of 5%, 2% and 1% respectively, for 1 year, 5 year and since inception returns. (3) Class B commenced operations on July 17, 1995. (4) Reflects deduction of deferred sales charge of 1% for 1-year return. (5) Class C commenced operations on June 1, 1999. (6) Reflects deduction of sales charges of 3.5%. (7) Class M commenced operations on July 17, 1995. (8) Index return is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. (9) Index return of the S&P 500 Index since July 17, 1995 (inception date of Class B and Class M) is 19.03%, and the return since June 1, 1999 (the inception date of Class C) is 2.09%. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MagnaCap Fund 5 Adviser PILGRIM GROWTH AND INCOME FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund's principal investment objective is long-term capital appreciation. Income is a secondary objective. INVESTMENT STRATEGY [GRAPHIC] The Fund will invest at least 65% of its total assets in common stocks of U.S. companies, which may include dividend paying securities and securities convertible into shares of common stock. The Fund seeks to invest in large, ably managed and well financed companies. The investment approach is to identify high quality companies with good earnings and price momentum which sell at attractive valuations. The Fund may invest the remaining 35% of its assets in foreign securities and smaller capitalization companies. -------------------------------------------------------------------------------- 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. The Fund also may invest in small and medium-sized companies, which may be more susceptible to price swings 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 large company value securities in which the Fund invests. Rather, the market could favor growth-oriented stocks or small company stocks, or may not favor equities at all. Inability to Sell Securities -- securities of smaller companies trade in lower volume and may be less liquid than securities of larger, more established 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. 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. 6 Pilgrim Growth and Income Fund PILGRIM GROWTH AND INCOME 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 before and after income taxes is not an indication of future performance. Year by Year Total Returns (%)(1)(2) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 24.87 12.36 13.22 -3.11 22.57 26.46 30.36 21.42 15.54 -3.13 ---------- (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. Best and worst quarterly performance during this period: 4th quarter 1998: 21.95% 3rd quarter 1998: -12.33% The Fund's year-to-date total return as of June 30, 2001: -7.35% Average Annual Total Returns(1) (For the periods ended December 31, 2000) 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 Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index). The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class) (or Life of Class) ------ ------------------ ------------------ Class A Return Before Taxes(2) -8.70% 16.12% 14.82% Class A Return After Taxes on Distributions(2) -12.56% 12.53% 11.18% Class A Return After Taxes on Distributions and Sale of Fund Shares(2) -2.83% 12.67% 11.15% S&P 500 Index (reflects no deduction for fees, expenses or taxes)(3) -9.11% 18.33% 17.46%
---------- (1) The table shows the performance of 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 year ended December 31, 2000. (2) Reflects deductions of sales charge of 5.75%. (3) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Growth and Income Fund 7 Adviser ING Pilgrim Investments, LLC Sub-Adviser PILGRIM RESEARCH ENHANCED INDEX FUND Aeltus Investment Management, Inc. -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests at least 80% of its net assets in stocks included in the Standard & Poor's Composite Stock Price Index (S&P 500 Index). The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. In managing the Fund, the portfolio managers attempt to achieve the investment objective by overweighting those stocks in the S&P 500 Index that the portfolio managers believe will outperform the index, and underweighting (or avoiding altogether) those stocks that the portfolio managers believe will underperform the index. In determining stock weightings, the portfolio managers use internally developed quantitative computer models to evaluate various criteria such as the financial strength of each company and its potential for strong, sustained earnings growth. At any one time, the portfolio managers generally include in the Fund approximately 400 of the stocks included in the S&P 500 Index. Although the Fund will not hold all the stocks in the S&P 500 Index. the portfolio managers expect that there will be a close correlation between the performance of the Fund and that of the S&P 500 Index in both rising and falling markets, as the Fund is designed to have risk characteristics (e.g. price-to-earnings ratio, dividend yield, volatility) which approximate those of the S&P 500 Index. The Fund may also invest in certain higher-risk investments, including derivatives (generally, these investments will be limited to S&P 500 Index options and futures on the S&P 500 Index). -------------------------------------------------------------------------------- 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. The portfolio managers try to remain fully invested in companies included in the S&P 500 Index, and generally do not change this strategy even temporarily, which could make the Fund more susceptible to poor market conditions. Market Trends -- from time to time, the stock market may not favor the large company securities that are ranked as undervalued or fairly valued in which the Fund invests. Rather, the market could favor small company stocks, growth- oriented stocks, or may not favor equities at all. Risks of Using Derivatives -- derivatives are subject to the risk of changes in the market price of the security and the risk of loss due to changes in interest rates. The use of certain derivatives may also have a leveraging effect, which may increase the volatility of the Fund. The use of derivatives may reduce returns for the Fund. 8 Pilgrim Research Enhanced Index Fund PILGRIM RESEARCH ENHANCED INDEX 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 before and after income taxes is not an indication of future performance. Year by Year Total Return %(1)(2) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 18.59 -12.79 ---------- (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 August 1, 2001, the Fund was managed by another sub-adviser. Best and worst quarterly performance during this period: 4th quarter 1999: 12.41% 4th quarter 2000: -8.54% The Fund's year-to-date total return as of June 30, 2001: -6.52% Average Annual Total Returns (For the periods ended December 31, 2000) 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 S&P 500 Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class) (1) (or Life of Class) ------ ---------------------- ------------------ Class A Return Before Taxes(2) -17.23% -0.94% N/A Class A Return After Taxes on Distributions(2) -17.23% -1.17% N/A Class A Return After Taxes on Distributions and Sale of Fund Shares(2) -10.41% -0.84% N/A Class B Return Before Taxes(3) -17.16% -0.10% N/A Class C Return Before Taxes(4) -13.66% 1.43% N/A S&P 500 Index (reflects no deduction for fees, expenses or taxes)(5) -9.11% 4.89%(6) N/A
---------- (1) The Fund commenced operations on December 30, 1998. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5%, and 3% respectively, for the 1 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for the 1-year return. (5) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. (6) Index return is for the period beginning as of January 1, 1999. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Research Enhanced Index Fund 9 Adviser ING Pilgrim Investments, LLC Sub-Adviser PILGRIM TAX EFFICIENT EQUITY FUND Delta Asset Management -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks capital appreciation. The Fund seeks to provide taxable investors with a high total return on an after-tax basis. INVESTMENT STRATEGY [GRAPHIC] Under normal market conditions, the Fund will operate as a diversified fund and invest at least 80% of its total assets in a portfolio of equity securities whose returns depend upon stock market prices. The Sub-Adviser will manage the Fund's portfolio in a manner that will attempt to reduce net realized capital gains each year. An emphasis will be placed on common stocks of companies which the Sub-Adviser believes to have superior appreciation potential. As a general matter, the Fund expects these investments to be in common stocks of large, mid-sized, and small companies. In choosing investments for the Fund, the Sub-Adviser employs a highly disciplined investment process, combining macroeconomic analysis and fundamental company research that seeks to identify growth at a reasonable price: * The Sub-Adviser first determines the outlook for market sectors and industries based on business cycle characteristics. * The Sub-Adviser next searches for companies with improving fundamentals and accelerating growth. * Finally, the Sub-Adviser assesses company stock prices relative to their expected earnings growth rates and to the overall equity markets. The Sub-Adviser attempts to minimize tax consequences to investors by focusing on non-dividend paying or low-dividend paying stocks and by reducing annual portfolio turnover. -------------------------------------------------------------------------------- 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. The Fund also may invest in small and medium-sized companies, which may be more susceptible to price swings 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 that meet the Fund's disciplined investment criteria. Rather, the market could favor more value-oriented stocks or may not favor equities at all. Tax Efficient Management -- the Fund is managed to provide high after-tax returns. Therefore, it may not provide as high a return before tax as other funds, and as a result may not be suitable for investors who are not subject to current income tax (for example, those investing through a tax-deferred retirement account, such as an IRA or a 401(k) Plan). 10 Pilgrim Tax Efficient Equity Fund PILGRIM TAX EFFICIENT 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 before and after income taxes is not an indication of future performance. Year by Year Total Return (%)(1) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 18.53 -8.21 ---------- (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. Best and worst quarterly performance during this period: 4th quarter 1999: 11.98% 3rd quarter 1999: -6.79% The Fund's year-to-date total return as of June 30, 2001: -4.12% Average Annual Total Returns (For the periods ended December 31, 2000) 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 Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index). The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class) (1) (or Life of Class) ------ ---------------------- ------------------ Class A Return Before Taxes(2) -13.52% 4.96% N/A Class A Return After Taxes on Distributions(2) -13.59% 4.83% N/A Class A Return After Taxes on Distributions and Sale of Fund Shares(2) -8.16% 3.93% N/A Class B Return Before Taxes(3) -13.41% 5.71% N/A Class C Return Before Taxes(4) -9.86% 7.36% N/A S&P 500 Index (reflects no deduction for fees, expenses or taxes)(5) -9.11% 4.89%(6) N/A
---------- (1) The Fund commenced operations on December 15, 1998. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5%, and 3% respectively, for the 1 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for the 1-year return. (5) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. (6) Index return is for the period beginning as of January 1, 1999. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Tax Efficient Equity Fund 11 Adviser PILGRIM GROWTH OPPORTUNITIES FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] This Fund seeks long-term growth of capital. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in common stock of U.S. companies that the portfolio manager feels have above average prospects for growth. Under normal market conditions, the Fund invests at least 65% of its total assets in securities purchased on the basis of the potential for capital appreciation. These securities may be from large-cap, mid-cap or small-cap companies. The portfolio managers use a "top down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a trend-oriented approach in structuring the portfolio and a sell discipline. The portfolio managers seek to invest in companies expected to benefit most from major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and attempt to provide a framework for identifying the industries and companies expected to benefit most. This top down approach is combined with rigorous fundamental research (a bottom-up approach) to guide stock selection and portfolio structure. -------------------------------------------------------------------------------- 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 portfolio manager feels 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 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 may not favor equities at all. Inability to Sell Securities -- securities of smaller companies trade in lower volume and may be less liquid than securities of larger, more established 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. 12 Pilgrim Growth Opportunities Fund PILGRIM GROWTH OPPORTUNITIES 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 before and after income taxes is not an indication of future performance. Year by Year Total Returns (%)(1) 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 shares from year to year. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 38.10 8.05 10.36 -7.66 24.40 20.54 23.59 23.61 93.26 -19.11 ---------- (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. The figures shown for 1996 to 2000 provide performance for Class A shares of the Fund. The figures shown for the years 1991 to 1995 provide performance for Class T shares of the Fund. Class T shares would have substantially similar annual returns as the Class A shares because the classes are invested in the same portfolio of securities. Annual returns would differ only to the extent Class A shares and Class T shares have different expenses. Best and worst quarterly performance during this period: 4th quarter 1999: 39.10% 4th quarter 2000: -24.38% The Fund's year-to-date total return as of June 30, 2001: -28.53% Average Annual Total Returns (For the periods ended December 31, 2000) 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 Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index). The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class) (or Life of Class) ------ ------------------ ------------------ Class A Return Before Taxes(1)(2) -23.75% 22.09% 21.95% Class A Return After Taxes on Distributions(1)(2) -24.67% 18.76% 17.46% Class A Return After Taxes on Distributions and Sale of Fund Shares(1)(2) -13.62% 17.72% 16.73% Class B Return Before Taxes(2)(3) -24.66% 22.53% 22.37% Class C Return Before Taxes(2)(4) -20.65% 22.73% 22.45% Class T Return Before Taxes(5)(6) -23.60% 22.77% 18.10% S&P 500 Index (reflects no deduction for fees, expenses or taxes)(7) -9.11% 18.33% 17.46%(8)
---------- (1) Reflects deduction of sales charge of 5.75%. (2) Classes A, B and C commenced operations on June 5, 1995. (3) Reflects deduction of deferred sales charge of 5%, 2% and 1% respectively, for 1 year, 5 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for 1-year return. (5) Class T commenced operations on February 3, 1986. (6) Reflects deduction of deferred sales charge of 4% for the 1-year return. (7) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. (8) Index return since June 5, 1995 (inception date of Classes A, B and C) is 19.52%. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Growth Opportunities Fund 13 Adviser PILGRIM LARGECAP GROWTH 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 net assets in equity securities of large U.S. companies that the portfolio managers believe have above-average prospects for growth. The equity securities in which the Fund may invest include common and preferred stock and warrants. The Fund considers a company to be large if its market capitalization corresponds at the time of purchase to the upper 90% of the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index). As of June 30, 2001, this meant market capitalizations in the range of $8.4 billion to $484 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 expectations. The portfolio managers use 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. The Fund also may 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 primarily in equity securities of larger companies, which sometimes have more stable prices than smaller companies. Market Trends -- from time to time, the stock market may not favor the large company, growth-oriented securities in which the Fund invests. Rather, the market could favor value stocks or small company stocks, or may not favor equities at all. 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 LargeCap Growth Fund PILGRIM LARGECAP 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 before and after income taxes is not an indication of future performance. Year by Year Total Returns (%)(1)(2) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 59.45 96.41 -19.12 ---------- (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. Best and worst quarterly performance during this period: 4th quarter 1999: 45.04% 4th quarter 2000: -23.23% The Fund's year-to-date total return as of June 30, 2001: -27.10% Average Annual Total Returns (For the periods ended December 31, 2000) 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 Russell 1000 Growth Index and the S&P 500 Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class)(1) (or Life of Class) ------ --------------------- ------------------ Class A Return Before Taxes(2) -23.77% 31.42% N/A Class A Return After Taxes on Distributions(2) -24.04% 30.67% N/A Class A Return After Taxes on Distributions and Sale of Fund Shares(2) -14.21% 26.13% N/A Class B Return Before Taxes(3) -23.67% 32.38% N/A Class C Return Before Taxes(4) -20.51% 32.82% N/A Russell 1000 Growth Index (reflects no deduction for fees, expenses or taxes)(5) -22.42% 11.19%(6) N/A S&P 500 Index (reflects no deduction for fees, expenses or taxes)(7) -9.11% 11.46%(8) N/A
---------- (1) The Fund commenced operations on July 21, 1997. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5%, and 3% respectively, for the 1 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for the 1-year return. (5) The Russell 1000 Growth Index is an unmanaged index that measures the performance of those companies among the Russell 1000 Index with higher than average price-to-book ratios and forecasted growth. (6) The Russell 1000 Growth Index return is for period beginning July 1, 1997. (7) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. (8) The S&P 500 Index return is for period beginning August 1, 1997. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim LargeCap Growth Fund 15 Adviser PILGRIM MIDCAP OPPORTUNITIES FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] This Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund normally invests at least 65% of its total assets in the common stocks of mid-sized U.S. companies that the portfolio managers feel have above average prospects for growth. For this Fund, mid-sized companies are companies with market capitalizations that fall within the range of companies in the Standard & Poor's MidCap 400 Index (S&P MidCap 400 Index). As of June 30, 2001, the market capitalization of companies in the S&P MidCap 400 Index ranged from $312 million to $11.8 billion. The market capitalization range will change as the range of the companies included in the S&P MidCap 400 Index changes. The portfolio managers use a "top-down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a trend-oriented approach in structuring the portfolio and a sell discipline. The portfolio managers seek to invest in companies expected to benefit most from the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and attempt to provide a framework for identifying the industries and companies expected to benefit most. This top-down approach is combined with rigorous fundamental research (a bottom-up approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. -------------------------------------------------------------------------------- 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 portfolio managers feel have the potential for 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 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 may be dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the mid-cap growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or large or small company 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. Inability to Sell Securities -- securities of mid-size companies usually trade in lower volume and may be less liquid than securities of larger, more established 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. Initial Public Offerings -- A significant portion of the Fund's return may be attributable to its investment in initial public offerings. When the Fund's asset base is small, the impact of such investments on the Fund's return will be magnified. As the Fund's assets grow, it is probable that the effect of the Fund's investment in initial public offerings on the Fund's total return will decline. 16 Pilgrim MidCap Opportunities Fund PILGRIM MIDCAP OPPORTUNITIES 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 before and after income taxes is not an indication of future performance. Year by Year Total Return (%)(1) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 103.24 -0.35 ---------- (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. Best and worst quarterly performance during this period: 4th quarter 1999: 44.90% 4th quarter 2000: -19.33% The Fund's year-to-date total return as of June 30, 2001: -26.94% Average Annual Total Returns (For the periods ended December 31, 2000) 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 S&P MidCap 400 Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class)(1) (or Life of Class) ------ --------------------- ------------------ Class A Return Before Taxes(2) -6.08% 46.55% N/A Class A Return After Taxes on Distributions(2) -8.87% 39.95% N/A Class A Return After Taxes on Distributions and Sale of Fund Shares(2) -2.68% 35.38% N/A Class B Return Before Taxes(3) -6.13% 48.64% N/A Class C Return Before Taxes(4) -2.03% 49.17% N/A S&P MidCap 400 Index (reflects no deduction for fees, expenses or taxes)(5) 17.51% 30.86%(6) N/A
---------- (1) The Fund commenced operations on August 20, 1998. (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 1-year return. (5) The S&P MidCap 400 Index is an unmanaged index that measures the performance of the mid-size company segment of the U.S. market. (6) The S&P MidCap 400 Index return is for period beginning August 20, 1998. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MidCap Opportunities Fund 17 Adviser PILGRIM MIDCAP 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 total assets in equity securities of medium-sized U.S. companies, and at least 75% of its total assets in common stocks that the portfolio managers feel have above average prospects for growth. Medium-sized companies are companies with market capitalizations between $1.6 billion and $10.7 billion. The market capitalization range will change as the range of the companies included in the Standard & Poor's MidCap 400 Index (S&P MidCap 400 Index) changes and with market conditions. The portfolio managers emphasize a growth approach by searching for successful, growing companies that are managing change advantageously and may be poised to exceed growth expectations. The portfolio managers use both a "bottom-up" analysis that evaluates the financial condition and competitiveness of individual companies and a thematic approach in structuring the portfolio and a sell discipline. Themes attempt to articulate the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and provide a framework for identifying the industries and companies expected to benefit most. This top down approach is combined with rigorous fundamental research (a "bottom up" approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. In periods of unusual market conditions, the Fund may temporarily invest part or all of its assets in cash or high quality money market securities. In these circumstances, the Fund may not achieve its objective. -------------------------------------------------------------------------------- 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 portfolio manager feels have the potential for 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 medium-sized companies, which may be more susceptible to price swings than larger companies because they have fewer financial resources and more limited product and market diversification, and may be dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the mid-cap growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or large or small company 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. Inability to Sell Securities -- securities of mid-size companies usually trade in lower volume and may be less liquid than securities of larger, more established 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. Initial Public Offerings -- A significant portion of the Fund's return may be attributable to its investment in initial public offerings. When the Fund's asset base is small, the impact of such investments on the Fund's return will be magnified. As the Fund's assets grow, it is probable that the effect of the Fund's investment in initial public offerings on the Fund's total return will decline. 18 Pilgrim MidCap Growth Fund PILGRIM MIDCAP 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 before and after income taxes is not an indication of future performance. Year by Year Total Returns (%)(1)(2) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -11.00 37.64 15.84 15.88 14.14 97.56 -4.57 ---------- (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 April 1, 2000, the Fund was managed by a sub-adviser. Best and worst quarterly performance during this period: 4th quarter 1999: 62.66% 4th quarter 2000: -21.09% The Fund's year-to-date total return as of June 30, 2001: -26.60% Average Annual Total Returns (For the periods ended December 31, 2000) The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to those of broad measures of market performance -- the S&P MidCap 400 Index and the Russell Midcap Growth Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class) (or Life of Class)(1) ------ ------------------ --------------------- Class A Return Before Taxes(2) -10.07% 22.17% 19.00% Class A Return After Taxes on Distributions(2) -13.93% 16.90% 15.63% Class A Return After Taxes on Distributions and Sale of Fund Shares(2) -3.21% 16.65% 15.07% Class B Return Before Taxes(3) -8.99% 22.68% 24.85% Class C Return Before Taxes(4) -5.95% 22.88% 19.18% S&P MidCap 400 Index (reflects no deduction for fees, expenses or taxes)(5) 17.51% 20.41% 18.27%(6) Russell MidCap Growth Index (reflects no deduction for fees, expenses or taxes)(7) -11.75% 17.77% 17.36%(8)
---------- (1) Classes A and C commenced operations on April 19, 1993. Class B commenced operations on June 1, 1995. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5%, 2% and 1% respectively, for 1 year, 5 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for 1-year return. (5) The S&P MidCap 400 Index is an unmanaged index that measures the performance of the mid-size company segment of the U.S. market. (6) Index return since April 19, 1993 (inception date of Class A and Class C) is 18.27%. Index return since June 1, 1995 (the inception date of Class B) is 20.18%. (7) The Russell Midcap Growth Index is an unmanaged index that measures the performance of the 800 smallest companies in the Russell 1000 Index. (8) Russell MidCap Growth Index return is for period beginning May 1, 1993. Index return since April 19, 1993 (inception date of Class A and Class C) is 17.36%. Index return since June 1, 1995 (the inception date of Class B) is 19.08%. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MidCap Growth Fund 19 Adviser ING Pilgrim Investments, LLC Sub-Adviser PILGRIM GROWTH + VALUE FUND Navellier Fund Management, Inc. -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in a diversified portfolio of equity securities, including common and preferred stock, warrants and convertible securities. The Fund invests in common stock of companies the portfolio manager believes are poised to rise in price. The Sub-Adviser uses a "bottom-up" quantitative screening process designed to identify and select inefficiently priced stocks that achieved superior returns compared to their risk characteristics. The Sub-Adviser first uses a proprietary computer model designed to identify stocks with above average market returns and risk levels which are reasonable for higher return rates. The Sub-Adviser then applies a quantitative analysis which focuses on growth and value fundamental characteristics, such as earnings growth, earnings momentum, price to earnings (P/E) ratios, and internal reinvestment rates. The Sub-Adviser then allocates stocks according to how they complement other portfolio holdings. Under normal market conditions, the Fund invests at least 65% of its total assets in securities purchased on the basis of the potential for capital appreciation. These securities may be from large-cap, mid-cap, or small-cap companies. -------------------------------------------------------------------------------- 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's performance will be affected if the Sub-Adviser makes an inaccurate assessment of economic conditions and investment opportunities, and chooses growth companies that do not grow as quickly as hoped, or value companies that continue to be undervalued by the market. Although the sub-adviser invests in value companies to decrease volatility, these investments may also lower the Fund's performance. The Fund's investments in smaller and mid-sized companies may be more susceptible to price swings than investments in 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 mix of growth and value securities in which the Fund invests. Rather, the market could favor growth stocks to the exclusion of value stocks, or favor value stocks to the exclusion of growth stocks, or may not favor equities at all. Inability to Sell Securities -- securities of smaller and mid-sized companies usually trade in lower volume and may be less liquid than securities of larger, more established 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. Changes in Interest Rates -- the value of the Fund's convertible securities may fall when interest rates rise. Convertible securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. Credit Risk -- the Fund could lose money if the issuer of a convertible security is unable to meet its financial obligations or goes bankrupt. 20 Pilgrim Growth + Value Fund PILGRIM GROWTH + 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 before and after income taxes is not an indication of future performance. Year by Year Total Returns (%)(1) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 18.10 17.72 88.10 -13.02 ---------- (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. Best and worst quarterly performance during this period: 4th quarter 1999: 43.50% 4th quarter 2000: -27.69% The Fund's year-to-date total return as of June 30, 2001: -23.44% Average Annual Total Returns (For the periods ended December 31, 2000) The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to those of broad measures of market performance -- the Russell 2000 Index and the Russell 3000 Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class)(1) (or Life of Class) ------ --------------------- ------------------ Class A Return Before Taxes(2) -18.02% 19.51% N/A Class A Return After Taxes on Distributions(2) -19.67% 17.73% N/A Class A Return After Taxes on Distributions and Sale of Fund Shares(2) -8.94% 16.05% N/A Class B Return Before Taxes(3) -17.46% 20.12% N/A Class C Return Before Taxes(4) -14.33% 20.38% N/A Russell 2000 Index (reflects no deduction for fees, expenses or taxes)(5) -3.02% 9.32%(6) N/A Russell 3000 Index (reflects no deduction for fees, expenses or taxes)(7) -7.46% 15.61%(8) N/A
---------- (1) The Fund commenced operations on November 18, 1996. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5% and 2% respectively, for 1 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for 1-year return. (5) The Russell 2000 Index is an unmanaged index that measures the performance of securities of smaller U.S. companies. (6) The Russell 2000 Index return is for period beginning December 1, 1996. (7) The Russell 3000 Index is an unmanaged index that measures the performance of 3000 U.S companies based on total market capitalization. (8) The Russell 3000 Index return is for period beginning December 1, 1996. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Growth + Value Fund 21 Adviser PILGRIM SMALLCAP OPPORTUNITIES FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests at least 65% of its total assets in the common stock of smaller, lesser-known U.S. companies that the portfolio manager believes have above average prospects for growth. For this Fund, smaller companies are those with market capitalizations that fall within the range of companies in the Russell 2000 Index, which is an index that measures the performance of small companies. The market capitalization range will change as the range of the companies included in the Russell 2000 changes. The market capitalization of companies held by the Fund as of June 30, 2001 ranged from $133 million to $8.9 billion. The portfolio manager uses a "top-down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a brand-oriented approach in structuring the portfolio and a sell discipline. The portfolio manager seeks to invest in companies expected to benefit most from the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and attempts to provide a framework for identifying the industries and companies expected to benefit most. This top-down approach is combined with rigorous fundamental research (a bottom-up approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. -------------------------------------------------------------------------------- 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 portfolio manager feels have above average prospects for 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 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 small sized 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. 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. Inability to Sell Securities -- securities of smaller companies usually trade in lower volume and may be less liquid than securities of larger, more established 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. Initial Public Offerings -- A significant portion of the Fund's return may be attributable to its investment in initial public offerings. When the Fund's asset base is small, the impact of such investments on the Fund's return will be magnified. As the Fund's assets grow, it is probable that the effect of the Fund's investment in initial public offerings on the Fund's total return will decline. 22 Pilgrim SmallCap Opportunities Fund PILGRIM SMALLCAP OPPORTUNITIES 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 before and after income taxes is not an indication of future performance. Year by Year Total Returns (%)(1) 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 shares from year to year. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 57.27 14.54 20.16 -4.86 11.34 18.16 14.92 7.59 146.94 -6.04 ---------- (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. The figures shown for the years 1996 to 2000 provide performance for Class A shares of the Fund. The figures shown for the years 1991 to 1995 provide performance for Class T shares of the Fund. Class T shares would have substantially similar annual returns as the Class A shares because the classes are invested in the same portfolio of securities. Annual returns would differ only to the extent Class A shares and Class T shares have different expenses. Best and worst quarterly performance during this period: 4th quarter 1999: 68.12% 3rd quarter 1998: -24.07% The Fund's year-to-date total return as of June 30, 2001: -18.59% Average Annual Total Returns (For the periods ended December 31, 2000) 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 Russell 2000 Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class) (or Life of Class) ------ ------------------ ------------------ Class A Return Before Taxes(1)(2) -11.44% 26.15% 25.71% Class A Return After Taxes on Distributions(1)(2) -16.03% 22.84% 22.46% Class A Return After Taxes on Distributions and Sale of Fund Shares(1)(2) -5.97% 20.65% 20.39% Class B Return Before Taxes(2)(3) -11.71% 26.62% 26.11% Class C Return Before Taxes(2)(4) -7.76% 26.72% 26.14% Class T Return Before Taxes (5)(6) -10.52% 26.93% 22.41% Russell 2000 Index (reflects no deduction for fees, expenses or taxes)(7) -3.02% 10.31% 15.53%(8)
---------- (1) Reflects deduction of sales charge of 5.75%. (2) Classes A, B and C commenced operations on June 5, 1995. (3) Reflects deduction of deferred sales charge of 5%, 2% and 1% respectively, for 1 year, 5 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for 1-year return. (5) Class T commenced operations on February 3, 1986. (6) Reflects deduction of deferred sales charge of 4%, for the 1-year return. (7) The Russell 2000 Index is an unmanaged index that measures the performance of securities of small companies. (8) Index return since June 5, 1995 (inception date of Classes A, B and C) is 12.49%. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim SmallCap Opportunities Fund 23 Adviser PILGRIM SMALLCAP 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 total assets in equity securities of small U.S. companies, and at least 75% of its total assets in common stocks that the portfolio manager feels have above average prospects for growth. Smaller companies are companies with market capitalizations that fall within the range of companies in the Russell 2000 Growth Index. As of June 30, 2001, the market capitalization of companies held by the Fund ranged from $133 million to $9.2 billion. The market capitalization range will change as the range of the companies included in the Russell 2000 Growth Index changes. The Fund emphasizes a growth approach by searching for successful, growing companies that are managing change advantageously and may be poised to exceed growth expectations. It focuses on both a "bottom-up" analysis that evaluates the financial condition and competitiveness of individual companies and a thematic approach in structuring the portfolio and a sell discipline. Themes attempt to articulate the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and provide a framework for identifying the industries and companies expected to benefit most. This top down approach is combined with rigorous fundamental research (a "bottom up" approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. In periods of unusual market conditions, the Fund may temporarily invest part or all of its assets in cash or high quality money market securities. In these circumstances, the Fund may not achieve its objective. The Fund considers a company to be small if it has a market capitalization corresponding at the time of purchase to the middle 90% of the Russell 2000 Growth Index. In the Adviser's opinion, the middle 90% includes companies with capitalizations between $255 million and $1.4 billion. Capitalization of companies in the Index will change with market conditions. -------------------------------------------------------------------------------- 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 portfolio manager feels have above average prospects for 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-cap 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 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. 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. Initial Public Offerings -- A significant portion of the Fund's return may be attributable to its investment in initial public offerings. When the Fund's asset base is small, the impact of such investments on the Fund's return will be magnified. As the Fund's assets grow, it is probable that the effect of the Fund's investment in initial public offerings on the Fund's total return will decline. 24 Pilgrim SmallCap Growth Fund PILGRIM 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 before and after income taxes is not an indication of future performance. Year by Year Total Returns (%)(1)(2) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -4.03 34.87 18.27 11.24 3.68 89.97 -5.52 ---------- (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 April 1, 2000, the Fund was managed by a sub-adviser. Best and worst quarterly performance during this period: 4th quarter 1999: 50.47% 3rd quarter 1998: -23.64% The Fund's year-to-date total return as of June 30, 2001: -17.73% Average Annual Total Return (For the periods ended December 31, 2000) 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 Russell 2000 Growth Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class) (or Life of Class)(1) ------ ------------------ --------------------- Class A Return Before Taxes(2) -10.95% 18.21% 17.42% Class A Return After Taxes on Distributions(2) -13.05% 12.86% 13.59% Class A Return After Taxes on Distributions and Sale of Fund Shares(2) -4.45% 13.41% 13.56% Class B Return Before Taxes(3) -10.36% 18.56% 21.17% Class C Return Before Taxes(4) -7.05% 18.87% 17.67% Russell 2000 Growth Index (reflects no deduction for fees, expenses or taxes)(5) -22.43% 7.14% 8.81%(6)
---------- (1) Classes A and C commenced operations on December 27, 1993. Class B commenced operations on May 31, 1995. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5%, 2% and 1%, respectively, for the 1 year, 5 year, and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for the 1-year return. (5) The Russell 2000 Growth Index is an unmanaged index that measures the performance of securities of smaller U.S. companies with greater-than-average growth orientation. (6) Index return since December 27, 1993 (inception date of Class A and Class C) is 8.81%. Index return since May 31, 1995 (inception date of Class B) is 10.04%. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim SmallCap Growth Fund 25 Adviser PILGRIM FINANCIAL SERVICES FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests, under normal market conditions, at least 65% of its total assets in equity securities of companies principally engaged in financial services. The equity securities in which the Fund invests are normally common stock, but may also include preferred stocks, warrants, and convertible securities. As a general matter, the Fund expects these investments to be in common stocks of large, mid-sized, and small companies. Financial services companies may include the following: banks; bank holding companies; investment banks; trust companies; insurance companies; insurance brokers; finance companies; securities broker-dealers; electronic trading networks; investment management firms; custodians of financial assets; companies engaged in trading, dealing or managing commodities; companies that invest significantly in or deal in, financial instruments; government-sponsored financial enterprises; thrifts and savings banks; mortgage companies; title companies; conglomerates with significant interests in financial services companies; foreign financial services companies; companies that process financial transactions; administrators of financial products or services; companies that render services primarily to other financial services companies; companies that produce, sell, or market software or hardware related to financial services or products or directed to financial services companies; and other companies whose assets or earnings can be significantly affected by financial instruments or services. The Fund may invest the remaining 35% of its assets in equity or debt securities of financial services companies or companies that are not financial services companies, and in money market instruments. The Fund may also invest in savings accounts of mutual thrifts that may allow the Fund to participate in potential future stock conversions of the thrift. The portfolio manager emphasizes a value approach, and selects securities that are undervalued relative to the market and have potential for future growth, including securities of institutions that the portfolio manager believes are well positioned to take advantage of investment opportunities in the banking and thrift industries. -------------------------------------------------------------------------------- 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- to 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 securities in which the Fund invests. Rather, the market could favor growth-oriented stocks or large company stocks, or may not favor equities at all. Risks of Concentration -- because the Fund's investments are concentrated in the financial services industries, the value of the Fund may be subject to greater volatility than a fund with a portfolio that is less concentrated. If securities of financial services companies as a group falls out of favor, the Fund could underperform funds that have greater industry diversification. Changes in Interest Rates -- because the profitability of financial services companies may be largely dependent on the availability and cost of capital, which fluctuates significantly in responses to changes in interest rates and general economic conditions, the value of the Fund's securities may fall when interest rates rise. 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. 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. 26 Pilgrim Financial Services Fund PILGRIM FINANCIAL SERVICES 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 before and after income taxes is not an indication of future performance. Year by Year Total Returns (%)(1)(2) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 49.49 32.36 7.79 -1.89 49.69 41.10 64.86 -1.83 -18.64 27.79 ---------- (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 October 17, 1997, the Fund operated as a closed-end investment company. Prior to May 22, 2001, the Fund operated under a different investment strategy. Best and worst quarterly performance during this period: 3rd quarter 2000: 20.34% 3rd quarter 1998: -19.30% The Fund's year-to-date total return as of June 30, 2001: 11.12% Average Annual Total Returns (For the periods ended December 31, 2000) The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to those of broad measures of market performance -- the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index), the S&P Major Regional Banks Index, the NASDAQ 100 Financial Index, and the S&P Financial Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class) (or Life of Class) ------ ------------------ ------------------ Class A Return Before Taxes(1) 20.43% 17.43% 20.97% Class A Return After Taxes on Distributions(1) 19.21% 14.65% 17.96% Class A Return After Taxes on Distributions and Sale of Fund Shares(1) 12.23% 13.63% 16.87% Class B Return Before Taxes(2) 21.82% 2.68%(3) N/A S&P 500 Index (reflects no deduction for fees, expenses or taxes)(4) -9.11% 18.33% 17.46%(5) S&P Major Regional Banks Index (reflects no deduction for fees, expenses or taxes)(6) 27.32% 19.87% 24.43%(7) NASDAQ 100 Financial Index (reflects no deduction for fees, expenses or taxes)(8) 13.61% 14.50%(9) N/A S&P Financial Index (reflects no deduction for fees, expenses or taxes)(10) 26.09% 23.92% 24.47%(11)
---------- (1) Reflects deduction of sales charge of 5.75%. (2) Reflects deduction of deferred sales charge of 5%, and 3% respectively, for 1 year, since inception returns. (3) Class B commenced operations on October 17, 1997. (4) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. (5) Index return since October 17, 1997 (inception date of Class B) is 13.79%. (6) The S&P Major Regional Banks Index is an unmanaged index that measures the performance of securities of major regional banks in the S&P 500 Index. (7) Index return since October 17, 1997 (inception date of Class B) is 9.81%. (8) The NASDAQ 100 Financial Index is an unmanaged index that measures the performance of securities of the 100 largest financial companies traded on NASDAQ. (9) Index return since October 17, 1997 (inception date of Class B) is 5.07%. (10) The S&P Financial Index is a capitalization-weighted index of all stocks designed to measure the performance of the financial sector of the S&P 500 Index. (11) Index return since October 17, 1997 (inception date of Class B) is 15.89%. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Financial Services Fund 27 Adviser ING Pilgrim Investments, LLC Sub-Adviser PILGRIM INTERNET FUND ING Investment 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 non-diversified fund and invest at least 65% of its total assets in a portfolio of equity securities of U.S. and non-U.S. internet technology companies. The Fund defines internet technology companies as those companies with internet businesses or internet related consulting or services businesses, or that derive at least 50% of their total revenues or earnings from business operations in internet related hardware, software or infrastructure industries. As a general matter, the Fund expects these investments to be in common stocks of large, mid-sized, and small companies. The Sub-Adviser believes that the internet is in the early stages of a period of promising growth. The internet has enabled companies to tap into new markets, use new distribution channels and do business with end users of their products all over the world without having to go through wholesalers and distributors. The Sub-Adviser believes that investment in companies related to the internet should offer substantial opportunities for long-term capital appreciation. Generally, the Sub-Adviser's overall stock selection for the Fund will be based on an assessment of a 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. In choosing investments for the Fund, the Sub-Adviser first identifies themes which it believes will drive the internet in the future. Then, by conducting extensive fundamental research, the Sub-Adviser analyzes individual companies worldwide to identify those firms that are 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 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 small and medium-sized companies, which may be more susceptible to price swings because they have fewer financial resources, more limited product and market diversification, and many are dependent on a few key managers. The Fund may also invest in equity securities of larger companies, which sometimes have more stable prices than smaller companies. Market Trends -- from time to time, the stock market may not favor the securities that meet the Fund's disciplined investment criteria. 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. Lack of Diversification -- the Fund is classified as a non-diversified investment company, which means that, compared with other funds, the Fund may invest a greater percentage of its assets in a particular issuer. The investment of a large percentage of the Fund's assets in the securities of a smaller number of issuers may cause the Fund's share price to fluctuate more than that of a diversified investment company. 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. Internet Technology Risk -- Internet and internet-related 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 internet and internet-related activities 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. 28 Pilgrim Internet Fund PILGRIM INTERNET 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 before and after income taxes is not an indication of future performance. Year by Year Total Return (%)(1) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -69.16 ---------- (1) These figures are as of December 31, 2000. They do not reflect sales charges and would be lower if they did. Best and worst quarterly performance during this period: 1st quarter 2000: 0.35% 4th quarter 2000: -53.08% The Fund's year-to-date total return as of June 30, 2001: -36.33% Average Annual Total Returns (For the periods ended December 31, 2000) The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to those of broad measures of market performance -- the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index) and the @Net Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class)(1) (or Life of Class) ------ --------------------- ------------------ Class A Return Before Taxes(2) -70.93% -22.49% N/A Class A Return After Taxes on Distributions(2) -72.04% -24.68% N/A Class A Return After Taxes on Distributions and Sale of Fund Shares(2) -41.13% -16.53% N/A Class B Return Before Taxes(3) -70.56% -21.60% N/A Class C Return Before Taxes(4) -69.66% -19.99% N/A S&P 500 Index (reflects no deduction for fees, expenses or taxes)(5) -9.11% -1.41%(6) N/A @Net Index (reflects no deduction for fees, expenses or taxes)(7) -51.24% -7.19%(8) N/A
---------- (1) The Fund commenced operations on July 1, 1999. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5% and 4% respectively, for 1 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for 1-year return. (5) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. (6) The S&P 500 Index return is for period beginning July 1, 1999. (7) The @Net Index encompasses 50 companies which are key components in the development of the Internet. The Index is weighted based upon market capitalization of each of the component stocks. (8) The @Net Index return is for period beginning June 30, 1999. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Internet Fund 29 Adviser PILGRIM BALANCED FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks a balance of long-term capital appreciation and current income. INVESTMENT STRATEGY [GRAPHIC] The Fund's Adviser actively manages a blended portfolio of equity and debt securities with an emphasis on overall total return. The Fund normally maintains 40% to 60% of its assets in debt securities of any maturity issued by corporations or other business entities and the U.S. Government and its agencies and instrumentalities, and government sponsored enterprises, and normally seeks a target allocation of 50%, although this may vary with market conditions. The remainder of the Fund's assets are normally invested in equity securities of large companies that the Adviser believes are leaders in their industries. The Adviser considers whether these companies have a sustainable competitive edge. The portfolio managers emphasize a value approach in equity selection, and seek securities whose prices in relation to projected earnings are believed to be reasonable in comparison to the market. For this Fund, a company with a market capitalization of over $5 billion is considered to be a large company, although the Fund may also invest to a limited degree in companies that have a market capitalization between $1 billion and $5 billion. A portion of the Fund's net assets (up to 35%) may be invested in high yield debt securities (commonly known as "junk bonds") rated below investment grade (i.e., lower than the four-highest rating categories) by a nationally recognized statistical rating agency, or of comparable quality if unrated. There is no minimum credit quality for the high yield debt securities in which the Fund may invest. The Fund may invest up to 10% of its assets in other investment companies that invest in secured floating rate loans, including up to 5% of its assets in Pilgrim Prime Rate Trust, a closed-end investment company. The Fund may invest up to 20% of its total assets in foreign securities. The Fund may use options on securities, securities indices, interest rates and foreign currencies as a hedging technique or in furtherance of its investment objective. The Fund may invest up to 35% of its net assets in zero coupon securities. -------------------------------------------------------------------------------- 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 also may invest in smaller companies, which may be more susceptible to price swings than larger companies. Market Trends -- from time to time, the stock market may not favor the large company value securities in which the Fund invests. Rather, the market could favor growth-oriented stocks or small company stocks, or may not favor equities at all. Changes in Interest Rates -- the value of debt and equity securities can change in response to changes in interest rates. The value of the debt securities held by the Fund may fall when interest rates rise. The Fund may be sensitive to changes in interest rates because it may invest in debt securities with intermediate and long terms to maturity. 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. Zero coupon securities are particularly sensitive to changes in interest rates. Credit Risk -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This Fund may be subject to more credit risk than the other income funds, because it may invest in high yield debt securities, which are considered predominantly speculative with respect to the issuer's continuing ability to meet interest and principal payments. This is especially true during periods of economic uncertainty or economic downturns. Inability to Sell Securities -- high yield securities and securities of smaller companies may be less liquid than other investments. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to 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. Risks of Using Derivatives -- derivatives are subject to the risk of changes in the market price of the security, credit risk with respect to the counterparty to the derivatives instrument, and the risk of loss due to changes in interest rates. The use of certain derivatives may also have a leveraging effect, which may increase the volatility of the Fund. The use of derivatives may reduce returns for the Fund. 30 Pilgrim Balanced Fund PILGRIM BALANCED 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 before and after income taxes is not an indication of future performance. Year by Year Total Returns (%)(1)(2) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -6.29 23.43 16.39 20.50 23.35 8.48 -3.23 ---------- (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, a different adviser managed the Fund. Best and worst quarterly performance during this period: 3rd quarter 1997: 14.44%. 2nd quarter 1994: -5.93% The Fund's year-to-date total return as of June 30, 2001: -3.13% Average Annual Total Returns (For the periods ended December 31, 2000) The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to those of broad measures of market performance -- the Standard & Poor's Barra Value Index (S&P Barra Value Index), the Lehman Aggregate Bond Index, the Lipper Balanced Fund Index and a composite index consisting of 60% S&P 500 Composite Stock Price Index (S&P 500 index) and 40% Lehman Brothers Government/Corporate Bond Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class) (or Life of Class) ------ ------------------ ------------------ Class A Return Before Taxes(1)(2) -8.78% 11.34% 11.07% Class A Return After Taxes on Distributions(1)(2) -11.25% 7.00% 7.99% Class A Return After Taxes on Distributions and Sale of Fund Shares(1)(2) -4.02% 7.92% 8.20% Class B Return Before Taxes(2)(3) -8.17% 11.83% 12.66% Class C Return Before Taxes(2)(4) -4.68% 11.93% 11.23% S&P Barra Value Index (reflects no deduction for fees, expenses or taxes)(6) 27.84% 17.04% 16.10%(7) Lehman Aggregate Bond Index (reflects no deduction for fees, expenses or taxes)(8) 11.63% 6.46% 6.72%(9) Lipper Balanced Fund Index (reflects no deduction for fees, expenses or taxes)(10) 2.39% 11.80% N/A Composite Index (reflects no deduction for fees, expenses or taxes)(11) 1.50% 11.38% N/A
---------- (1) Reflects deduction of sales charge of 5.75%. (2) Classes A and C commenced operations on April 19, 1993. Class B commenced operations on May 31, 1995. (3) Reflects deduction of deferred sales charge of 5%, 2% and 1%, respectively, for 1 year, 5 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for 1-year return. (5) Class T did not have a full year's performance as of December 31, 2000. Class T commenced operations on January 4, 2000. (6) The S&P Barra Value Index is a capitalization-weighted index of all stocks in the S&P 500 Index that have low price-to-book ratios. It is designed so that approximately 50% of the market capitalization of the S&P 500 Index is in the S&P Barra Value Index. (7) Index return since April 19, 1993 (inception date of Class A and Class C) is 16.10% and the return since May 31, 1995 (the inception date of Class B) is 18.46%. (8) The Lehman Aggregate Bond Index is an unmanaged index that measures the performance of the U.S. investment grade fixed rate bond market, including government and corporate securities, mortgage pass-through securities, and asset-backed securities. (9) Index return since April 19, 1993 (inception date of Class A and Class C) is 6.72% and the return since May 31, 1995 (the inception date of Class B) is 7.07%. (10) The Lipper Balanced Fund Index is an unmanaged index that measures the performance of balanced funds (funds that seek current income balanced with capital appreciation). (11) The Composite Index consists of 60% of the S&P 500 Index and 40% Lehman Brothers Government/Corporate Bond Index. The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. The Lehman Brothers Government/Corporate Bond Index is a widely recognized unmanaged index of publicly issued fixed rate U.S. Government investment grade mortgage-backed and corporate debt securities. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Balanced Fund 31 Adviser PILGRIM CONVERTIBLE FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum total return, consisting of capital appreciation and current income. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its total assets in convertible securities. Convertible securities are generally preferred stock or other securities, including debt securities, that are convertible into common stock. The Fund emphasizes companies with market capitalizations above $500 million. The convertible debt securities in which the Fund invests my be rated below investment grade (high risk instruments), or, if not rated, may be of comparable quality. There is no minimum credit rating for securities in which the Fund may invest. Through investments in convertible securities, the Fund seeks to capture the upside potential of the underlying equities with less downside exposure. The Fund may also invest up to 35% of its total assets in common and nonconvertible preferred stocks, and in nonconvertible debt securities, which may include high yield debt (commonly known as "junk bonds") rated below investment grade, or of comparable quality if unrated. The Fund may also invest in securities issued by the U.S. government and its agencies and instrumentalities. Most but not all of the bonds in which the Fund invests have a remaining maturity of 10 years or less, or, in the case of convertible debt securities, have a remaining maturity or may be put back to the issuer in 10 years or less. In evaluating convertibles, the Fund's Adviser evaluates each security's investment characteristics as a fixed income instrument as well as its potential for capital appreciation. In analyzing specific companies for possible investment, the 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 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. Convertible securities have investment characteristics of both equity and debt securities. 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. Changes in Interest Rates -- the value of the convertible and debt securities held by the Fund may fall when interest rates rise. The Fund may be sensitive to changes in interest rates because it may invest in securities with intermediate and long terms to maturity. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Due to their hybrid nature, convertible securities are typically more sensitive to changes in interest rates than the underlying common stock, but less sensitive to interest rate changes than a fixed rate corporate bond. Credit Risk -- the Fund could lose money if the issuer of a security is unable to meet its financial obligations or goes bankrupt. This is especially true during periods of economic uncertainty or economic downturns. This Fund may be subject to more credit risk than many bond funds, because the convertible securities and debt securities in which it invests may be lower-rated securities. Inability to Sell Securities -- convertible securities and lower rated debt may be less liquid than other investments. 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. 32 Pilgrim Convertible Fund PILGRIM CONVERTIBLE 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 before and after income taxes is not an indication of future performance. Year by Year Total Returns (%)(1)(2) 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. 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- -8.23 21.67 20.29 22.58 20.86 50.20 -9.03 ---------- (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. Best and worst quarterly performance during this period: 3rd quarter 1997: 14.44% 4th quarter 2000: -16.02% The Fund's year-to-date total return as of June 30, 2001: -6.25% Average Annual Total Returns (For the periods ended December 31, 2000) 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 First Boston Convertible Index. The table also shows returns on a before tax and after tax basis. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Class A only. After-tax returns for other Classes will vary.
5 Years 10 Years 1 Year (or Life of Class) (or Life of Class)(1) ------ ------------------ --------------------- Class A Return Before Taxes(2) -14.26% 18.07% 16.04% Class A Return After Taxes on Distributions(2) -20.26% 13.81% 12.45% Class A Return After Taxes on Distributions and Sale of Fund Shares(2) -6.98% 13.51% 12.03% Class B Return Before Taxes(3) -13.08% 18.65% 19.34% Class C Return Before Taxes(4) -10.18% 18.76% 16.19% First Boston Convertible Index (reflects no deduction for fees, expenses or taxes)(5) -7.83% 13.21% 12.23%(6)
---------- (1) Classes A and C commenced operations on April 19, 1993. Class B commenced operations on May 31, 1995. (2) Reflects deduction of sales charge of 5.75%. (3) Reflects deduction of deferred sales charge of 5%, 2% and 1%, respectively, for 1 year, 5 year and since inception returns. (4) Reflects deduction of deferred sales charge of 1% for 1-year return. (5) The First Boston Convertible Index is an unmanaged index that measures the performance of a universe of convertible securities that are similar, but not identical, to those in the Fund's portfolio. (6) Index return since April 19, 1993 (inception date of Class A and Class C) is 12.23%, and the return since May 31, 1995 (the inception date of Class B) is 13.86%. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Convertible Fund 33 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 Class C(1) Class M(1) Class T(2) ------- ------- ---------- ---------- ---------- Maximum sales charge on your investment (as a % of offering price) % Equity Funds and Equity & Income Funds 5.75(3) none none 3.50(3) none Maximum deferred sales charge (as a % of purchase or sales price, whichever is less) Equity Funds and Equity & Income Funds none(4) 5.00(5) 1.00(6) none 4.00(7)
---------- (1) Not all Funds offer Classes C and M. Please see page 39. (2) Class T shares are available only for certain exchanges or reinvestment of dividends. Please see page 39. (3) Reduced for purchases of $50,000 and over. Please see page 40. (4) 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 40. (5) Imposed upon redemption within 6 years from purchase. The fee has scheduled reductions after the first year. Please see page 40. (6) Imposed upon redemption within 1 year from purchase. Please see page 40. (7) Imposed upon redemption within 4 years from purchase. The fee has scheduled reductions after the first year. Please see page 40. Operating Expenses Paid Each Year by the Funds(1) (as a % of average net assets) Class A
Distribution Total and Service Fund Waivers Management (12b-1) Other Operating and Net Fund Fee Fees Expenses Expenses Reimbursements(2)(3) Expenses ---- --- ---- -------- -------- -------------------- -------- MagnaCap(4) % 0.72 0.30 0.28 (5) 1.30 (5) -- 1.30 (5) Growth and Income(4) % 0.63 0.25 0.54 (6)(10) 1.42 (6) -- 1.42 (6) Research Enhanced Index % 0.70 0.30 0.45 (10) 1.45 -- 1.45 Tax Efficient Equity % 0.80 0.35 0.63 (10) 1.78 -0.38 1.40 Growth Opportunities % 0.95 0.30 0.48 (10) 1.73 -- 1.73 LargeCap Growth(4) % 0.73 0.35 0.38 (7) 1.46 (7) -- 1.46 (7) MidCap Opportunities(4) % 1.00 0.30 0.67 (8)(10) 1.97 (8) -- 1.97 (8) MidCap Growth % 0.75 0.35 0.34 1.44 0.01 (11) 1.45 Growth + Value % 1.00 0.30 0.47 (10) 1.77 -- 1.77 SmallCap Opportunities(4) % 1.00 0.30 0.36 (9)(10) 1.66 (9) -- 1.66 (9) SmallCap Growth % 1.00 0.35 0.37 1.72 0.01 (11) 1.73 Financial Services % 0.73 0.25 0.44 1.42 -- 1.42 Internet % 1.25 0.35 1.03 (10) 2.63 -1.01 1.62 Balanced % 0.75 0.35 0.43 1.53 -0.21 1.32 Convertible % 0.75 0.35 0.31 1.41 0.01 (11) 1.42
34 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
Distribution Total and Service Fund Waivers Management (12b-1) Other Operating and Net Fund Fee Fees Expenses Expenses Reimbursements(2) Expenses ---- --- ---- -------- -------- ----------------- -------- MagnaCap(4) % 0.72 1.00 0.28 (5) 2.00 (5) -- 2.00 (5) Growth and Income(4) % 0.63 1.00 0.54 (6)(10) 2.17 (6) -- 2.17 (6) Research Enhanced Index % 0.70 1.00 0.45 (10) 2.15 -- 2.15 Tax Efficient Equity % 0.80 1.00 0.63 (10) 2.43 -0.38 2.05 Growth Opportunities % 0.95 1.00 0.48 (10) 2.43 -- 2.43 LargeCap Growth(4) % 0.73 1.00 0.38 (7) 2.11 (7) -- 2.11 (7) MidCap Opportunities(4) % 1.00 1.00 0.67 (8)(10) 2.67 (8) -- 2.67 (8) MidCap Growth % 0.75 1.00 0.34 2.09 0.01 (11) 2.10 Growth + Value % 1.00 1.00 0.47 (10) 2.47 -- 2.47 SmallCap Opportunities(4) % 1.00 1.00 0.36 (9)(10) 2.36 (9) -- 2.36 (9) SmallCap Growth % 1.00 1.00 0.37 2.37 0.01 (11) 2.38 Financial Services % 0.73 1.00 0.44 2.17 -- 2.17 Internet % 1.25 1.00 1.03 (10) 3.28 -0.96 2.32 Balanced % 0.75 1.00 0.43 2.18 -0.21 1.97 Convertible % 0.75 1.00 0.31 2.06 0.01 (11) 2.07
Class C
Distribution Total and Service Fund Waivers Management (12b-1) Other Operating and Net Fund Fee Fees Expenses Expenses Reimbursements(2) Expenses ---- --- ---- -------- -------- ----------------- -------- MagnaCap(4) % 0.72 1.00 0.28 (5) 2.00 (5) -- 2.00 (5) Growth and Income(4) % 0.63 1.00 0.54 (6)(10) 2.17 (6) -- 2.17 (6) Research Enhanced Index % 0.70 1.00 0.45 (10) 2.15 -- 2.15 Tax Efficient Equity % 0.80 1.00 0.63 (10) 2.43 -0.38 2.05 Growth Opportunities % 0.95 1.00 0.48 (10) 2.43 -- 2.43 LargeCap Growth(4) % 0.73 1.00 0.38 (7) 2.11 (7) -- 2.11 (7) MidCap Opportunities(4) % 1.00 1.00 0.67 (8)(10) 2.67 (8) -- 2.67 (8) MidCap Growth % 0.75 1.00 0.34 2.09 0.01 (11) 2.10 Growth + Value % 1.00 1.00 0.47 (10) 2.47 -- 2.47 SmallCap Opportunities(4) % 1.00 1.00 0.36 (9)(10) 2.36 (9) -- 2.36 (9) SmallCap Growth % 1.00 1.00 0.37 2.37 0.01 (11) 2.38 Internet % 1.25 1.00 1.03 (10) 3.28 -0.96 2.32 Balanced % 0.75 1.00 0.43 2.18 -0.21 1.97 Convertible % 0.75 1.00 0.31 2.06 0.01 (11) 2.07
[GRAPHIC] If you have any questions, please call 1-800-992-0180. What You Pay to Invest 35 WHAT YOU PAY TO INVEST -------------------------------------------------------------------------------- Operating Expenses Paid Each Year by the Funds(1) (as a % of average net assets) Class M
Distribution Total and Service Fund Waivers Management (12b-1) Other Operating and Net Fund Fee Fees Expenses Expenses Reimbursements(2) Expenses ---- --- ---- -------- -------- ----------------- -------- MagnaCap(4) % 0.72 0.75 0.28 (5) 1.75 (5) -- 1.75 (5) Class T Distribution Total and Service Fund Waivers Management (12b-1) Other Operating and Net Fund Fee Fees Expenses Expenses Reimbursements(2) Expenses ---- --- ---- -------- -------- ----------------- -------- Growth Opportunities % 0.95 0.95 0.48 (10) 2.38 -- 2.38 SmallCap Opportunities(4) % 1.00 0.95 0.36 (9)(10) 2.31 (9) -- 2.31 (9) Balanced % 0.75 0.75 0.43 1.93 -0.21 1.72
---------- (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, unless otherwise noted, are based on each Fund's actual operating expenses for its most recent complete fiscal year, as adjusted for contractual changes, and fee waivers to which the Adviser has agreed for each Fund. (2) ING Pilgrim Investments has entered into written expense limitation agreements with each Fund which it advises except MagnaCap, Financial Services, Research Enhanced Index, Growth Opportunities, MidCap Opportunities, Growth + Value, and SmallCap Opportunities, 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". For each Fund, except the Tax Efficient Equity and Internet Funds, the expense limit will continue through at least October 31, 2001. For the Tax Efficient Equity and Internet Funds, the expense limit will continue through at least February 28, 2002. The expense limitation agreements are contractual and shall renew automatically for one-year terms unless the Adviser provides written notice of the termination of the expense limitation agreement at least 30 days prior to the end of the then current term or upon termination of the investment management agreement. (3) This includes a waiver of 0.10% of Distribution Fee for Tax Efficient Equity and Internet Funds for Class A only. (4) Effective February 23, 2001 and March 23, 2001, certain funds merged with MagnaCap, Growth and Income, LargeCap Growth, MidCap Opportunities and SmallCap Opportunities Funds. It is expected that as a result of the mergers, operating expenses will be lower than the operating expenses prior to the mergers. (5) Excludes one-time merger fees of 0.01%, 0.01%, 0.01% and 0.01% for Class A, B, C and M, respectively, incurred in connection with the merger of another investment company into Pilgrim MagnaCap Fund. (6) Excludes one-time merger fees of 0.06%, 0.06% and 0.06% for Class A, B and C, respectively, incurred in connection with the merger of another investment company into Pilgrim Growth and Income Fund. (7) Excludes one-time merger fees of 0.01%, 0.01% and 0.01% for Class A, B and C, respectively, incurred in connection with the merger of another investment company into Pilgrim LargeCap Growth Fund. (8) Excludes one-time merger fees of 0.09%, 0.09% and 0.09% for Class A, B and C, respectively, incurred in connection with the merger of another investment company into Pilgrim MidCap Opportunities Fund. (9) Excludes one-time merger fees of 0.03%, 0.03%, 0.03% and 0.03% for Class A, B, C and T, respectively, incurred in connection with the merger of another investment company into Pilgrim SmallCap Opportunities Fund. (10) ING Pilgrim Group, LLC receives an annual administration fee equal to 0.10% of average daily net assets. (11) Amount recouped by ING Pilgrim Investments, LLC pursuant to the Expense Limitation Agreement between the Fund and ING Pilgrim Investments, LLC. 36 What You Pay to Invest 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 ---- ------ ------- ------- -------- MagnaCap $ 700 963 1,247 2,053 Growth and Income $ 711 999 1,307 2,179 Research Enhanced Index $ 714 1,007 1,322 2,210 Tax Efficient Equity $ 745 1,103 1,484 2,549 Growth Opportunities $ 741 1,089 1,460 2,499 LargeCap Growth $ 715 1,010 1,327 2,221 MidCap Opportunities $ 763 1,158 1,576 2,739 MidCap Growth $ 713 1,004 1,317 2,200 Growth + Value $ 745 1,100 1,479 2,539 SmallCap Opportunities $ 734 1,068 1,425 2,427 SmallCap Growth $ 740 1,086 1,455 2,488 Financial Services $ 711 999 1,307 2,179 Internet $ 826 1,345 1,890 3,368 Balanced $ 722 1,031 1,361 2,294 Convertible $ 710 996 1,302 2,169 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 ---- ------ ------- ------- -------- ------ ------- ------- -------- MagnaCap $ 703 927 1,278 2,147 203 627 1,078 2,147 Growth and Income $ 720 979 1,364 2,313 220 679 1,164 2,313 Research Enhanced Index $ 718 973 1,354 2,305 218 673 1,154 2,305 Tax Efficient Equity $ 746 1,058 1,496 2,606 246 758 1,296 2,606 Growth Opportunities $ 746 1,058 1,496 2,593 246 758 1,296 2,593 LargeCap Growth $ 714 961 1,334 2,276 214 661 1,134 2,276 MidCap Opportunities $ 770 1,129 1,615 2,834 270 829 1,415 2,834 MidCap Growth $ 712 955 1,324 2,255 212 655 1,124 2,255 Growth + Value $ 750 1,070 1,516 2,634 250 770 1,316 2,634 SmallCap Opportunities $ 739 1,036 1,460 2,522 239 736 1,260 2,522 SmallCap Growth $ 740 1,039 1,465 2,545 240 739 1,265 2,545 Financial Services $ 720 979 1,364 2,313 220 679 1,164 2,313 Internet $ 831 1,310 1,912 3,429 331 1,010 1,712 3,429 Balanced $ 721 982 1,369 2,349 221 682 1,169 2,349 Convertible $ 709 946 1,308 2,223 209 646 1,108 2,223
[GRAPHIC] If you have any questions, please call 1-800-992-0180. What You Pay to Invest 37 WHAT YOU PAY TO INVEST -------------------------------------------------------------------------------- Examples 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 ---- ------ ------- ------- -------- ------ ------- ------- -------- MagnaCap $ 303 627 1,078 2,327 203 627 1,078 2,327 Growth and Income $ 320 679 1,164 2,506 220 679 1,164 2,506 Research Enhanced Index $ 318 673 1,154 2,483 218 673 1,154 2,483 Tax Efficient Equity $ 346 758 1,296 2,766 246 758 1,296 2,766 Growth Opportunities $ 346 758 1,296 2,766 246 758 1,296 2,766 LargeCap Growth $ 314 661 1,134 2,441 214 661 1,134 2,441 MidCap Opportunities $ 370 829 1,415 3,003 270 829 1,415 3,003 MidCap Growth $ 312 655 1,124 2,421 212 655 1,124 2,421 Growth + Value $ 350 770 1,316 2,806 250 770 1,316 2,806 SmallCap Opportunities $ 339 736 1,260 2,696 239 736 1,260 2,696 SmallCap Growth $ 340 739 1,265 2,706 240 739 1,265 2,706 Internet $ 431 1,010 1,712 3,576 331 1,010 1,712 3,576 Balanced $ 321 682 1,169 2,513 221 682 1,169 2,513 Convertible $ 309 646 1,108 2,390 209 646 1,108 2,390
Class M Fund 1 year 3 years 5 years 10 years ---- ------ ------- ------- -------- MagnaCap $ 522 882 1,266 2,340 Class T
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 ---- ------ ------- ------- -------- ------ ------- ------- -------- Growth Opportunities $ 641 942 1,270 2,555 241 742 1,270 2,555 SmallCap Opportunities $ 634 921 1,235 2,483 234 721 1,235 2,483 Balanced $ 596 806 1,042 2,150 196 606 1,042 2,150
38 What You Pay to Invest CHOOSING A SHARE CLASS SHAREHOLDER GUIDE -------------------------------------------------------------------------------- PILGRIM PURCHASE OPTIONS(TM) Depending upon the Fund, you may select from up to five separate classes of shares: Class A, Class B, Class C, Class M and Class T. 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. 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 Financial Services 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 MagnaCap Fund. Class T * No longer available for purchase, unless you are investing income earned on Class T shares or exchanging Class T shares of another Fund. * Distribution and service (12b-1) fees of 0.75 to 0.95% (varies by Fund). * A contingent deferred sales charge, as described on the next page. * Automatic conversion to Class A shares after 8 years, thus reducing future annual expenses. * Offered only by Growth Opportunities Fund, SmallCap Opportunities Fund and Balanced 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. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 39 SHAREHOLDER GUIDE CHOOSING A SHARE CLASS -------------------------------------------------------------------------------- SALES CHARGE CALCULATION Class A(1) Class A shares of the Funds are sold subject to the following sales charge: U.S. Equity Funds and Equity & Income Funds --------------------- As a % As a % of the of net offering asset Your Investment price 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 - $2,499,999 1.00% 2 years $2,500,000 - $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, Class C and Class T Class B, Class C and Class T 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 Class T Deferred Sales Charge CDSC on shares Years after purchase being sold -------------------- ---------- 1st year 4% 2nd year 3% 3rd year 2% 4th year 1% After 4th 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 of the Funds are sold subject to the following sales charge. MagnaCap Fund ----------------- As a % As a % of the of net offering 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 40 Shareholder Guide CHOOSING A SHARE CLASS SHAREHOLDER GUIDE -------------------------------------------------------------------------------- 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 and ING Pilgrim Money Market Funds and the Lexington Money Market Trust) 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 and Class C 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, Class C or Class T 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, Class C and Class T 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. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 41 SHAREHOLDER GUIDE HOW TO PURCHASE SHARES -------------------------------------------------------------------------------- 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-U.S. banks (even if payment may be effected through a U.S. 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 ($250 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 Co. (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 the Account to the Pilgrim Funds Additions form and mail it, along included on the with a completed bottom of your Application. Please account statement indicate your along with your investment check payable to the professional on the Fund and mail them New Account to the address on the Application. account statement. Remember to write your account number on the check. By Wire Call the ING Pilgrim Wire the funds in the Operations same manner Department at (800) described under 336-3436 to obtain "Initial Investment." an account 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 64121-9368 42 Shareholder Guide HOW TO REDEEM SHARES SHAREHOLDER GUIDE -------------------------------------------------------------------------------- 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. Method Procedures ------ ---------- By Contacting Your You may redeem by contacting your investment Investment Professional 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 64121-9368 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. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 43 SHAREHOLDER GUIDE TRANSACTION POLICIES -------------------------------------------------------------------------------- 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 and ING 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. In addition, Class T shares of any Fund may be exchanged for Class B shares of the Pilgrim Money Market and ING Pilgrim Money Market Funds. 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. You should review the prospectus of the Pilgrim Fund you intend to exchange into before exchanging your shares. If you exchange into Pilgrim Senior Income Fund, your ability to sell or liquidate your investment will be limited. Pilgrim Senior Income Fund, is a closed-end interval fund and does not redeem its shares on a daily basis, and it is not expected that a secondary market for the fund's shares will develop, so you will not be able to sell them through a broker or other investment professional. To provide a measure of liquidity, the fund will normally make quarterly repurchase offers for 5% of its outstanding common shares. If more than 5% of the fund's common shares are tendered, you may not be able to completely liquidate your holdings in any one quarter. You also would not have liquidity between these quarterly repurchase dates. Investors exercising the exchange privilege with Pilgrim Senior Income Fund should carefully review the prospectus of that fund. Investors may obtain a copy of the Pilgrim Senior Income Fund prospectus or any other Pilgrim Fund prospectus by calling (800) 992-0180. 44 Shareholder Guide TRANSACTION POLICIES SHAREHOLDER GUIDE -------------------------------------------------------------------------------- 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. CDSC on Exchange to Pilgrim Senior Income Fund You are not required to pay an applicable CDSC upon an exchange from any Pilgrim Fund described in this prospectus to the Pilgrim Senior Income Fund. However, if you exchange into Pilgrim Senior Income Fund and subsequently offer your common shares for repurchase by that fund, the CDSC will apply from the original Pilgrim Fund from which you exchanged. The time period for application of the CDSC will be calculated based on the first date you acquired your shares in the original Pilgrim Fund. 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. 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 acount information over the internet at www.pilgrimfunds.com, or via a 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. Privacy Policy You may review the Fund's policy concerning investor privacy over the internet at www.pilgrimfunds.com, or you may obtain a copy of the policy by calling (800) 992-0180 and selecting Option 1. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 45 MANAGEMENT OF THE FUNDS ADVISER -------------------------------------------------------------------------------- ING Pilgrim Investments, LLC. (ING Pilgrim) a Delaware limited liability company serves as the investment adviser to each of the Funds. ING Pilgrim has overall responsibility for the management of the Funds. ING Pilgrim provides or oversees all investment advisory and portfolio management services for each Fund, and assists 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. ING Pilgrim is an indirect 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 in more than 65 countries, with almost 100,000 employees. Prior to April 30, 2001, ING Mutual Funds Management Co. LLC (IMFC) served as investment adviser to certain of the Funds. On April 30, 2001, IMFC, an indirect wholly-owned subsidiary of ING Group that had been under common control with ING Pilgrim Investments, merged with ING Pilgrim Investments. As of June 30, 2001, ING Pilgrim managed over $18.4 billion in assets. ING Pilgrim's principal address is 7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258. ING Pilgrim receives a monthly fee for its 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 ---- --- MagnaCap 0.72% Growth and Income 0.63 Research Enhanced Index 0.70 Tax Efficient Equity 0.80 Growth Opportunities 0.95 LargeCap Growth 0.73 MidCap Opportunities 1.00 MidCap Growth 0.75 Growth + Value 1.00 SmallCap Opportunities 1.00 SmallCap Growth 1.00 Financial Services 0.73 Internet 1.25 Balanced 0.75 Convertible 0.75 ING Pilgrim Directly Manages the Portfolios of the Following Funds: Growth Opportunities Fund, LargeCap Growth Fund, MidCap Opportunities Fund and MidCap Growth Fund. The following individuals share responsibility for the day-to-day management of the Growth Opportunities Fund, LargeCap Growth Fund, MidCap Opportunities Fund and MidCap Growth Fund. Mary Lisanti, Executive Vice President and Chief Investment Officer -- Domestic Equities of ING Pilgrim, has served as a Senior Portfolio Manager of MidCap Opportunities Fund since the fund was formed in August 1998, Growth Opportunities Fund since November 1998, MidCap Growth Fund since April 2000, and LargeCap Growth Fund 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 a Senior Portfolio Manager of MidCap Opportunities Fund since the fund was formed in August 1998, Growth Opportunities Fund since November 1998, and MidCap Growth Fund since April 2000. Mr. Bernstein has served as Co-Portfolio Manager of LargeCap Growth Fund 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. SmallCap Opportunities Fund and SmallCap Growth Fund Mary Lisanti, whose background is described above, has served as a manager of the SmallCap Opportunities Fund since July 1998 and SmallCap Growth Fund since April 2000. Growth and Income Fund Thomas Jackson, Senior Vice President and Senior Portfolio Manager for value equity strategies at ING Pilgrim, has served as Portfolio Manager of Growth and Income Fund since June 2001. Prior to joining ING Pilgrim in June 2001, Mr. Jackson was a Managing Director at Prudential Investments (April 1990 through December 2000). Prior to April 1990, Mr. Jackson was Co-Chief Investment Officer and Managing Director at Century Capital Associates and Red Oak Advisors Inc. 46 Management of the Funds ADVISER MANAGEMENT OF THE FUNDS -------------------------------------------------------------------------------- Financial Services Fund The following individuals share responsibility for the day-to-day management of the Financial Services Fund: Robert M. Kloss, Vice President of ING Pilgrim, has served as Co-Portfolio Manager of Financial Services Fund since January 2001. Mr. Kloss has served as an Equity Analyst and Portfolio Manager for ING Pilgrim since 1998. >From 1995 to 1998, he served as a Product Manager for the Pilgrim America Masters Series funds. Prior to 1995, Mr. Kloss was Vice President for Financial Planning at Express America Holdings, Corp., which subsequently acquired ING Pilgrim's predecessor (Pilgrim America Investments, Inc.). Mr. Kloss has also served as a principal with Phoenix Strategies, and as a Vice President of Operations and Vice President and Vice President and Director of Financial Planning for Wells Fargo Credit Corporation. Steven L. Rayner, Vice President of ING Pilgrim, has served as Co-Portfolio Manager of Financial Services Fund since January 2001. Mr. Rayner has served as Equity Analyst for the Financial Services Fund since June 1995. Mr. Rayner held the same position at ING Pilgrim's predecessor (Pilgrim America Investments, Inc.) from 1993 to 1994. Mr. Rayner holds the professional designations of Chartered Financial Analyst and Certified Public Accountant. Mary Lisanti, Executive Vice President and Chief Investment Officer -- Domestic Equities of ING Pilgrim, has oversight for the Fund's strategy. MagnaCap Fund Thomas Jackson, whose background is described above, has served as Portfolio Manager of MagnaCap Fund since June 2001. Howard Kornblue, Senior Vice President and Senior Portfolio Manager for ING Pilgrim, has served as Auxiliary Portfolio Manager of MagnaCap Fund since June 2001. From January 2001 to present, Mr. Kornblue has served as Director of Value Strategies at ING Pilgrim. Mr. Kornblue served as Portfolio Manager of MagnaCap Fund from 1989 until January 2001. Balanced Fund The following individuals share responsibility for the day-to-day management of the Balanced Fund: Thomas Jackson, whose background is described above, has served as Portfolio Manager of the equity portion of the Balanced Fund since June 2001. Robert K. Kinsey, Vice President and Portfolio Manager, has served as a Portfolio Manager of Balanced Fund since May 24, 1999. Mr. Kinsey manages Balanced Fund's assets that are invested in assets other than high yield debt securities. Prior to joining ING Pilgrim, Mr. Kinsey was a Vice President and Fixed Income Portfolio Manager for Federated Investors from January 1995 to March 1999. From July 1992 to January 1995, Mr. Kinsey was a Principal and Portfolio Manager for Harris Investment Management. Edwin Schriver, Senior Vice President of ING Pilgrim, has served as a Senior Portfolio Manager of the high yield portion of the Balanced Fund's assets since October 2000. Prior to joining ING Pilgrim, Mr. Schriver was a Senior High Yield Analyst for Dreyfus Corporation since 1998. From 1996 to 1997, Mr. Schriver was the President of Crescent City Research, an investment research and software firm. Prior to 1996, Mr. Schriver was President of an SEC registered investment adviser and held various senior portfolio management positions. Convertible Fund Andrew Chow, Vice President of ING Pilgrim, has served as a Portfolio Manager of Convertible Fund since October 1, 2000. Prior to joining ING Pilgrim, Mr. Chow was the portfolio manager of the Conseco Convertible Securities Fund since 1998. He joined Conseco in 1991 where he was also responsible for managing convertible securities accounts. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Management of the Funds 47 MANAGEMENT OF THE FUNDS SUB-ADVISERS -------------------------------------------------------------------------------- SUB-ADVISERS For the following Funds, ING Pilgrim 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. Research Enhanced Index Fund Aeltus Investment Management, Inc. Aeltus Investment Management, Inc., (Aeltus) serves as Sub-Adviser to the Pilgrim Research Enhanced Index Fund. Founded in 1972, Aeltus is registered as an investment adviser. Aeltus is an indirect wholly-owned subsidiary of ING Group, and is an affiliate of ING Pilgrim. Aeltus has acted as adviser or sub-adviser to mutual funds since 1994 and has managed institutional accounts since 1972. As of June 30, 2001, Aeltus managed over $41 billion in assets. Its principal office is located at 10 State House Square, Hartford, Connecticut 06103-3602. Hugh T. M. Whelan and Douglas E. Cote share the responsibility for the day-to-day management of the Pilgrim Research Enhanced Index Fund. Mr. Whelan has served as co-manager of the Pilgrim Research Enhanced Index Fund since August 1, 2001. At Aeltus, he has served as a quantitative equity analyst since 1999. Previously, Mr. Whelan was a quantitative portfolio manager in Aeltus' fixed income group, specializing in corporate securities since 1944. Mr. Cote has served as co-manager of the Pilgrim Research Enhanced Index Fund since August 1, 2001. At Aeltus, Mr. Cote has been serving as a quantitative equity analyst since 1996. Previously, Mr. Cote was responsible for developing quantitative applications for Aeltus' equity department. Tax Efficient Equity Fund Delta Asset Management Delta Asset Management (Delta) serves as Sub-Advisor to the Pilgrim Tax Efficient Equity Fund. Delta is a division of Furman Selz Capital Management LLC (FSCM) a registered investment adviser. Delta manages over $5 billion for institutions and high net worth individuals. Delta's principal address is 333 South Grand Avenue, Los Angeles, CA 90071. Mr. Robert Sandroni, Mr. Carl Goldsmith and Ms. Marla K. Ryan have primary responsibility for managing the Fund. Mr. Sandroni and Mr. Goldsmith have been investment professionals with Delta since 1991 and each has over 20 years of investment experience. Ms. Ryan has been an investment professional with Delta since 1998 and has over 10 years of investment experience. Growth + Value Fund Navellier Fund Management, Inc. A registered investment adviser, Navellier Fund Management Inc. (Navellier) serves as Sub-Adviser to the Pilgrim Growth + Value Fund. Navellier and its affiliate, Navellier & Associates, Inc., manage over $5 billion for institutions, pension funds and high net worth individuals. Navellier's principal address is 1 East Liberty, Third Floor, Reno, Nevada 89501. Louis Navellier has managed the Pilgrim Growth + Value Fund since the Fund was formed in November 1996. Mr. Navellier has over 19 years of investment management experience and is the principal owner of Navellier & Associates, Inc., a registered investment adviser that manages investments for institutions, pension funds and high net worth individuals. Mr. Navellier's investment newsletter, MPT Review, has been published for over 19 years and is widely renowned throughout the investment community. Internet Fund ING Investment Management Advisors B.V. A registered investment adviser, ING Investment Management Advisors B.V. (IIMA) serves as sub-advisor to the Pilgrim Internet Fund. As of December 31, 2000, IIMA manages over $144.4 billion for entities affiliated and unaffiliated with ING Group. IIMA's principal address is Schenkkede 65, 2595 AS The Hague, The Netherlands. 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 its affiliates since 1995 and has five years of investment experience. 48 Management of the Funds DIVIDENDS, DISTRIBUTIONS AND TAXES -------------------------------------------------------------------------------- Dividends The Funds generally distribute most or all of their net earnings in the form of dividends. Each Fund pays dividends, if any, as follows: Annually(1) Semi-Annually(1) Quarterly(2) ----------- ---------------- ------------ Research Enhanced MagnaCap Balanced Index Growth and Convertible Tax Efficient Equity Income Growth Opportunities LargeCap Growth MidCap Opportunities MidCap Growth Growth + Value SmallCap Opportunities SmallCap Growth Financial Services Internet ---------- (1) Distributions normally expected to consist primarily of capital gains. (2) Distributions normally expected to consist on an annual basis of a variable combination of capital gains and ordinary income. Each Fund distributes 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, M or T 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 30.5% (30% in 2002 and 2003) 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. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Dividends, Distributions and Taxes 49 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 Statement of Additional Information (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 (MagnaCap, Balanced, Growth and Income, and Internet 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. Inability to Sell Securities (All Funds except MagnaCap, Research Enhanced Index, LargeCap Growth and Financial Services 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 (Balanced and Convertible Funds). 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 (Balanced and Convertible 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. 50 More Information About Risks 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 except Research Enhanced Index and Growth Opportunities 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. Other Investment Companies (Financial Services and Balanced Funds). 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. Interests in Loans (Balanced Fund). The Fund may invest in participation interests or assignments in secured variable or floating rate loans, which include participation interests in lease financings. Loans are subject to the credit risk of nonpayment of principal or interest. Substantial increases in interest rates may cause an increase in loan defaults. Although the loans will generally be fully collateralized at the time of acquisition, the collateral may decline in value, be relatively illiquid, or lose all or substantially all of its value subsequent to the Fund's investment. Many loans are relatively illiquid, and may be difficult to value. Derivatives (Balanced and Research Enhanced Index Funds). 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. Portfolio Turnover. Each Fund (except MagnaCap Fund) 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. Investments in Small- and Mid-Capitalization Companies (MidCap Opportunities, MidCap Growth, SmallCap Opportunities, SmallCap Growth, Tax Efficient Equity, Financial Services and Internet Funds). The Funds may invest in small and mid capitalization companies. Investments in mid-and small-capitalization companies involve greater risk than is customarily associated with larger, more established companies due to the greater business risks of small size, limited markets and financial resources, narrow product lines and the frequent lack of depth of management. The securities of smaller companies are often traded over-the-counter and may not be traded in volumes typical on a national securities exchange. Consequently, the securities of smaller companies may have limited market stability and may be subject to more abrupt or erratic market movements than securities of larger, more established growth companies or the market averages in general. Non-diversified Investment Companies (Internet Fund). Certain Funds are classified as non-diversified investment companies under the 1940 Act, which means that each Fund is not limited by the 1940 Act in the proportion of its assets that it may invest in the obligations of a single issuer. The investment of a large percentage of a Fund's assets in the securities of a small number of issuers may cause that Fund's share price to fluctuate more than that of a diversified investment company. [GRAPHIC] If you have any questions, please call 1-800-992-0180. More Information About Risks 51 MORE INFORMATION ABOUT RISKS -------------------------------------------------------------------------------- Concentration (Financial Services and Internet Funds). Certain Funds "concentrate" (for purposes of the 1940 Act) their assets in securities related to a particular sector or industry, which means that at least 25% of its assets will be invested in these assets at all times. As a result, each Fund may be subject to greater market fluctuation than a fund which has securities representing a broader range of investment alternatives. Lending Portfolio Securities (LargeCap Growth, MidCap Growth, SmallCap Growth, Balanced, and Convertible.) 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. OTHER RISKS Emerging Markets Investments. 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. 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. Restricted and Illiquid Securities. Each Fund may invest in restricted and illiquid securities (except MagnaCap Fund may not invest in restricted 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 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. 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. 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. 52 More Information About Risks MORE INFORMATION ABOUT RISKS -------------------------------------------------------------------------------- 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 53 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. 54 Financial Highlights FINANCIAL HIGHLIGHTS PILGRIM MAGNACAP FUND -------------------------------------------------------------------------------- The information in the table below has been audited by KPMG LLP, independent auditors.
Class A ------------------------------------------------------------------------------ Eleven Months Ended Year Ended June 30, May 31, ---------------------------------------------------------- 2001(4) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 15.84 17.69 17.07 15.92 16.69 14.03 Income from investment operations: Net investment income (loss) $ 0.05 0.07 0.07 0.04 0.10 0.09 Net realized and unrealized gain (loss) on investments $ (0.38) (0.08) 2.37 3.02 4.16 2.87 Total from investment operations $ (0.33) (0.01) 2.44 3.06 4.26 2.96 Less distributions from: Net investment income $ 0.09 0.05 0.04 0.06 0.12 0.06 Net realized gain on investments $ 1.88 1.79 1.78 1.85 4.91 0.24 Total distributions 1.97 1.84 1.82 1.91 5.03 0.30 Net asset value, end of period $ 13.54 15.84 17.69 17.07 15.92 16.69 Total Return(2): % (2.77) (0.36) 15.93 20.53 30.82 21.31 Ratios/Supplemental Data: Net assets, end of period (000's) $ 277,722 303,864 368,508 348,759 290,355 235,393 Ratios to average net assets: Expenses(3) % 1.31 1.29 1.35 1.37 1.46 1.68 Net investment income (loss)(3) % 0.33 0.41 0.41 0.29 0.64 0.54 Portfolio turnover rate % 92 26 48 53 77 15 Class B --------------------------------------------------------------------------------------- Eleven Months July 17, Ended Year Ended June 30, 1995(1) to May 31, ------------------------------------------------- June 30, 2001(4) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 15.44 17.36 16.86 15.81 16.59 14.22 Income from investment operations: Net investment income (loss) $ (0.01) (0.05) (0.04) (0.04) -- 0.06 Net realized and unrealized gain (loss) on investments $ (0.41) (0.08) 2.32 2.97 4.13 2.61 Total from investment operations $ (0.42) (0.13) 2.28 2.93 4.13 2.67 Less distributions from: Net investment income $ -- -- -- 0.03 -- 0.06 Net realized gain on investments $ 1.88 1.79 1.78 1.85 4.91 0.24 Total distributions 1.88 1.79 1.78 1.88 4.91 0.30 Net asset value, end of period $ 13.14 15.44 17.36 16.86 15.81 16.59 Total Return(2): % (3.40) (1.11) 15.12 19.76 29.92 18.98 Ratios/Supplemental Data: Net assets, end of period (000's) $ 112,286 87,167 116,227 77,787 37,427 10,509 Ratios to average net assets: Expenses(3) % 2.01 1.99 2.05 2.07 2.16 2.38 Net investment income (loss)(3) % (0.37) (0.29) (0.29) (0.41) (0.04) 0.07 Portfolio turnover rate % 92 26 48 53 77 15 Class C ---------------------------------------- Eleven Months Year June 1, Ended Ended 1999(1) to May 31, June 30, June 30, 2001(4) 2000 1999 ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 15.44 17.37 16.69 Income from investment operations: Net investment income (loss) $ (0.01) (0.10) -- Net realized and unrealized gain (loss) on investments $ (0.41) (0.04) 0.68 Total from investment operations $ (0.42) (0.14) 0.68 Less distributions from: Net investment income $ -- -- -- Net realized gain on investments $ 1.88 1.79 -- Total distributions 1.88 1.79 -- Net asset value, end of period $ 13.14 15.44 17.37 Total Return(2): % (3.41) (1.17) 4.07 Ratios/Supplemental Data: Net assets, end of period (000's) $ 10,887 3,660 601 Ratios to average net assets: Expenses(3) % 2.01 1.99 1.12 Net investment income (loss)(3) % (0.37) (0.29) 0.42 Portfolio turnover rate % 92 26 48 Class M ------------------------------------------------------------------------ Eleven Months July 17, Ended Year Ended June 30, 1995(1) to May 31, ---------------------------------------- June 30, 2001(4) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 15.64 17.51 16.95 15.87 16.63 14.22 Income from investment operations: Net investment income (loss) $ -- (0.01) (0.01) -- 0.02 0.08 Net realized and unrealized gain (loss) on investments $ (0.39) (0.06) 2.35 2.98 4.16 2.63 Total from investment operations $ (0.39) (0.07) 2.34 2.98 4.18 2.71 Less distributions from: Net investment income $ 0.01 0.01 -- 0.05 0.03 0.06 Net realized gain on investments $ 1.88 1.79 1.78 1.85 4.91 0.24 Total distributions $ 1.89 1.80 1.78 1.90 4.94 0.30 Net asset value, end of period $ 13.36 15.64 17.51 16.95 15.87 16.63 Total Return(2): % (3.21) (0.71) 15.41 20.00 30.26 19.26 Ratios/Supplemental Data: Net assets, end of period (000's) $ 17,440 13,050 16,351 14,675 6,748 1,961 Ratios to average net assets: Expenses(3) % 1.76 1.74 1.80 1.82 1.91 2.13 Net investment income (loss)(3) % (0.12) (0.04) (0.04) (0.16) 0.22 0.32 Portfolio turnover rate % 92 26 48 53 77 15
---------- (1) Commencement of offering 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 to May 31. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MagnaCap Fund 55 PILGRIM GROWTH AND INCOME FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- The information in the table below has been audited by KPMG LLP, independent auditors.
Class A ---------------------------------------------------------------------------- Five Months Ended Year Ended December 31, May 31, ----------------------------------------------------------- 2001(5) 2000(4) 1999 1998 1997 1996 ------- ------- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 18.10 22.38 21.91 20.27 18.56 15.71 Income from investment operations: Net investment income (loss) $ (0.03) (0.01) 0.05 -- 0.05 0.07 Net realized and unrealized gain (loss) on investments $ (0.93) (0.51) 3.33 4.30 5.46 4.08 Total from investment operations $ (0.96) (0.52) 3.38 4.30 5.51 4.15 Less distributions from: Net investment income $ -- -- 0.05 -- 0.07 0.13 Net realized gain from investments $ -- 3.76 2.86 2.66 3.73 1.17 Total distributions $ -- 3.76 2.91 2.66 3.80 1.30 Net asset value, end of period $ 17.14 18.10 22.38 21.91 20.27 18.56 Total Return(2) % (5.30) (3.13) 15.54 21.42 30.36 26.46 Ratios/Supplemental Data: Net assets, end of period (000s) $ 212,962 226,905 254,532 245,790 228,037 200,309 Ratios to average net assets: Expenses(3) % 1.48 1.09 0.95 1.16 1.17 1.13 Net investment income (loss(3)) % (0.32) (0.06) 0.21 0.06 0.21 0.43 Portfolio turnover rate % 54 85 86 63 88 101 Class B Class C ---------------------------- ----------------------------- Five Months August 22, Five Months September 26, Ended 2000(1) thru Ended 2000(1) thru May 31, December 31, May 31, December 31, 2001(5) 2000 2001(5) 2000 ------- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 18.09 24.16 18.05 23.40 Income from investment operations: Net investment loss $ (0.05) (0.02) (0.03) (0.02) Net realized and unrealized loss on investments $ (0.95) (2.73) (0.98) (2.01) Total from investment operations $ (1.00) (2.75) (1.01) (2.03) Less distributions from: Net investment income $ -- -- -- -- Net realized gain on investments $ -- 3.32 -- 3.32 Total distributions $ -- 3.32 -- 3.32 Net asset value, end of period $ 17.09 18.09 17.04 18.05 Total Return(2) % (5.53) (11.95) (5.60) (9.30) Ratios/Supplemental Data: Net assets, end of period (000s) $ 4,901 722 3,462 160 Ratios to average net assets: Expenses(3) % 2.23 1.84 2.23 1.64 Net investment loss(3) % (1.07) (0.81) (1.07) (0.81) Portfolio turnover rate % 54 85 54 85
---------- (1) Commencement of offerings 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 information for less than one year is not annualized. (3) Annualized for periods less than one year. (4) Effective July 26, 2000, ING Pilgrim Investments, LLC. became the Investment Manager of the Fund. (5) The Fund changed its fiscal year end to May 31. 56 Pilgrim Growth and Income Fund FINANCIAL HIGHLIGHTS PILGRIM RESEARCH ENHANCED INDEX FUND -------------------------------------------------------------------------------- For the seven months ended May 31, 2001, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to May 31, 2001 the financial information was audited by other independent auditors.
Class A ------------------------------------- Seven Months Year Period Ended Ended Ended May 31, October 31, Oct. 31, 2001(5) 2000 1999(1) ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 11.17 11.14 10.00 Income from investment operations: Net investment income (loss) $ (0.01) -- 0.01 Net realized and unrealized gain (loss) on investments $ (1.29) 0.18 1.13 Total from investment operations $ (1.30) 0.18 1.14 Less distributions from: Net realized gain on investments $ -- 0.15 -- Total distributions $ -- 0.15 -- Net asset value, end of period $ 9.87 11.17 11.14 Total return(2) % (11.64) 1.55 11.40 Ratios and supplemental data: Net assets, end of period (000's) $ 12,748 23,571 27,091 Ratios to average net assets: Net expenses after expense reimbursement(3) % 1.45 1.37 1.29 (4) Gross expenses prior to expense reimbursement(3) % 1.45 1.37 1.56 Net investment income (loss) after expense reimbursement(3) % (0.13) 0.01 0.23 (4) Portfolio turnover rate % 26 57 26 Class B ------------------------------------- Seven Months Year Period Ended Ended Ended May 31, October 31, Oct. 31, 2001(5) 2000 1999(1) ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 11.04 11.09 10.00 Income from investment operations: Net investment income (loss) $ (0.05) (0.08) (0.02) Net realized and unrealized gain (loss) on investments $ (1.29) 0.18 1.11 Total from investment operations $ (1.34) 0.10 1.09 Less distributions from: Net realized gain on investments $ -- 0.15 -- Total distributions $ -- 0.15 -- Net asset value, end of period $ 9.70 11.04 11.09 Total return(2) % (12.14) 0.83 10.90 Ratios and supplemental data: Net assets, end of period (000's) $ 76,726 94,028 99,249 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.15 2.07 1.99 (4) Gross expenses prior to expense reimbursement(3) % 2.15 2.07 2.29 Net investment income (loss) after expense reimbursement(3) % (0.83) (0.70) (0.49)(4) Portfolio turnover rate % 26 57 26 Class C ------------------------------------- Seven Months Year Period Ended Ended Ended May 31, October 31, Oct. 31, 2001(5) 2000 1999(1) ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 11.05 11.09 10.00 Income from investment operations: Net investment income (loss) $ (0.05) (0.08) (0.02) Net realized and unrealized gain (loss) on investments $ (1.30) 0.19 1.11 Total from investment operations $ (1.35) 0.11 1.09 Less distributions from: Net realized gain on investments $ -- 0.15 -- Total distributions $ -- 0.15 -- Net asset value, end of period $ 9.70 11.05 11.09 Total return(2) % (12.22) 0.92 2.00 Ratios and supplemental data: Net assets, end of period (000's) $ 66,252 88,449 75,941 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.15 2.07 1.99 (4) Gross expenses prior to expense reimbursement(3) % 2.15 2.07 2.27 Net investment income (loss) after expense reimbursement(3) % (0.83) (0.70) (0.49)(4) Portfolio turnover rate % 26 57 26
---------- (1) The Fund commenced operations on December 30, 1998. (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 information for less than one year is not annualized. (3) Annualized for periods less than one year. (4) Expenses calculated net of taxes and advisor reimbursement. (5) The Fund changed its fiscal year end to May 31. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Research Enhanced Index Fund 57 PILGRIM TAX EFFICIENT EQUITY FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- For the seven months ended May 31, 2001, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to May 31, 2001 the financial information was audited by other independent auditors.
Class A -------------------------------------- Seven Months Ended Year Ended October 31, May 31, ---------------------- 2001(4) 2000 1999(1) ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 12.37 11.99 10.00 Income from investment operations: Net investment income (loss) $ 0.02 0.05 0.04 Net realized and unrealized gain (loss) on investments $ (0.84) 0.38 1.95 Total from investment operations $ (0.82) 0.43 1.99 Less distributions from: Net investment income $ 0.03 0.05 -- Total distributions $ 0.03 0.05 -- Net asset value, end of period $ 11.52 12.37 11.99 Total Return(2) % (6.66) 3.62 19.90 Ratios and supplemental data: Net assets, end of period (000's) $ 42,640 47,647 45,714 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 1.40 1.31 1.28 Gross expenses prior to expense reimbursement(3) % 1.78 2.22 2.40 Ratio of net investment income (loss) after expense reimbursement(3)(5) % 0.25 0.36 0.49 Portfolio turnover rate % 9 14 9 Class B -------------------------------------- Seven Months Ended Year Ended October 31, May 31, ---------------------- 2001(4) 2000 1999(1) ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 12.28 11.96 10.00 Income from investment operations: Net investment income (loss) $ (0.03) (0.04) (0.01) Net realized and unrealized gain (loss) on investments $ (0.83) 0.39 1.97 Total from investment operations $ (0.86) 0.35 1.96 Less distributions from: Net investment income $ 0.01 0.03 -- Total distributions $ 0.01 0.03 -- Net asset value, end of period $ 11.41 12.28 11.96 Total Return(2) % (6.97) 2.94 19.60 Ratios and supplemental data: Net assets, end of period (000's) $ 9,930 8,268 7,059 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 2.05 1.96 1.95 Gross expenses prior to expense reimbursement(3) % 2.43 2.47 2.66 Ratio of net investment income (loss) after expense reimbursement(3)(5) % (0.40) (0.29) (0.14) Portfolio turnover rate % 9 14 9 Class C ------------------------------------- Seven Months Ended Year Ended October 31, May 31, ---------------------- 2001(4) 2000 1999(1) ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 12.20 11.92 10.00 Income from investment operations: Net investment income (loss) $ (0.01) (0.04) -- Net realized and unrealized gain (loss) on investments $ (0.85) 0.39 1.92 Total from investment operations $ (0.86) 0.35 1.92 Less distributions from: Net investment income $ 0.01 0.07 -- Total distributions $ 0.01 0.07 -- Net asset value, end of period $ 11.33 12.20 11.92 Total Return(2) % (7.01) 2.91 19.20 Ratios and supplemental data: Net assets, end of period (000's) $ 2,202 2,870 1,222 Ratios to average net assets: Net expenses after expense reimbursement(3)(5) % 2.05 1.95 1.97 Gross expenses prior to expense reimbursement(3) % 2.43 2.47 2.64 Ratio of net investment income (loss) after expense reimbursement(3)(5) % (0.40) (0.32) (0.14) Portfolio turnover rate % 9 14 9
---------- (1) The Fund commenced operations on December 15, 1998. (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 information for less than one year is not annualized. (3) Annualized for periods less than a year. (4) The Fund changed its fiscal year end to May 31. (5) The Investment Manager has agreed to limit expenses; excluding interest, taxes, brokerage and extraordinary expenses. 58 Pilgrim Tax Efficient Equity Fund FINANCIAL HIGHLIGHTS PILGRIM GROWTH OPPORTUNITIES FUND -------------------------------------------------------------------------------- For the five months ended May 31, 2001 and the year ended December 31, 2000, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to December 31, 2000, the financial information was audited by other independent auditors.
Class A ------------------------------------------------------------------------------ Five Months Ended Year Ended December 31, May 31, ----------------------------------------------------------- 2001(5) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 25.45 33.17 26.06 21.26 17.92 15.53 Income from investment operations: Net investment income (loss) $ (0.11) (0.21) (0.15) (0.08) 0.03 0.02 Net realized and unrealized gain (loss) on investments $ (6.71) (6.02) 20.10 5.09 4.16 3.18 Total from investment operations $ (6.82) (6.23) 19.95 5.01 4.19 3.20 Less distributions from: Net realized gain on investments $ -- 1.49 12.84 0.21 0.85 0.81 Total distributions $ -- 1.49 12.84 0.21 0.85 0.81 Net asset value, end of period $ 18.63 25.45 33.17 26.06 21.26 17.92 Total Return(2) % (26.80) (19.11) 93.26 23.61 23.59 20.54 Ratios and supplemental data: Net assets, end of period (000s) $ 158,754 206,590 101,260 29,358 9,334 4,750 Ratios to average net assets: Net expenses after expense reimbursement(3) % 1.73 1.46 1.39 1.37 1.37 (4) 1.50 (4) Gross expenses prior to expense reimbursement(3) % 1.73 1.46 1.39 1.37 1.40 1.56 Net investment income (loss) after expense reimbursement(3) % (1.34) (0.86) (0.98) (0.47) 0.04 (4) 0.11 (4) Portfolio turnover rate % 217 326 286 98 32 62 Class B ------------------------------------------------------------------------ Five Months Ended Year Ended December 31, May 31, ------------------------------------------------------ 2001(5) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 24.09 31.70 25.46 20.93 17.76 15.50 Income from investment operations: Net investment income (loss) $ (0.17) (0.35) (0.18) (0.23) (0.15) (0.06) Net realized and unrealized gain (loss) on investments $ (6.34) (5.77) 19.26 4.97 4.17 3.13 Total from investment operations $ (6.51) (6.12) 19.08 4.74 4.02 3.07 Less distributions from: Net realized gain on investments $ -- 1.49 12.84 0.21 0.85 0.81 Total distributions $ -- 1.49 12.84 0.21 0.85 0.81 Net asset value, end of period $ 17.58 24.09 31.70 25.46 20.93 17.76 Total Return(2) % (27.02) (19.66) 91.84 22.69 22.84 19.74 Ratios and supplemental data: Net assets, end of period (000s) $ 162,106 224,299 88,305 15,480 8,815 4,444 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.43 2.16 2.10 2.13 2.14 2.20 (4) Gross expenses prior to expense reimbursement(3) % 2.43 2.16 2.10 2.13 2.14 2.24 Net investment income (loss) after expense reimbursement(3) % (2.04) (1.56) (1.69) (1.26) (0.95) (0.55)(4) Portfolio turnover rate % 217 326 286 98 32 62 Class C ------------------------------------------------------------------------- Five Months Ended Year Ended December 31, May 31, ------------------------------------------------------- 2001(5) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 24.13 31.75 25.48 20.91 17.76 15.50 Income from investment operations: Net investment income (loss) $ (0.17) (0.31) (0.10) (0.27) (0.13) (0.05) Net realized and unrealized gain (loss) on investments $ (6.34) (5.82) 19.21 5.05 4.13 3.12 Total from investment operations $ (6.51) (6.13) 19.11 4.78 4.00 3.07 Less distributions from: Net realized gain on investments $ -- 1.49 12.84 0.21 0.85 0.81 Total distributions $ -- 1.49 12.84 0.21 0.85 0.81 Net asset value, end of period $ 17.62 24.13 31.75 25.48 20.91 17.76 Total Return(2) % (26.98) (19.65) 91.90 22.90 22.73 19.74 Ratios and supplemental data: Net assets, end of period (000s) $ 93,537 130,389 21,006 1,625 1,152 365 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.43 2.16 2.10 2.13 2.17 2.20 (4) Gross expenses prior to expense reimbursement(3) % 2.43 2.16 2.10 2.13 2.17 2.35 Net investment income (loss) after expense reimbursement(3) % (2.04) (1.56) (1.69) (1.24) (1.00) (0.57)(4) Portfolio turnover rate % 217 326 286 98 32 62 Class T -------------------------------------------------------------------------- Five Months Ended Year Ended December 31, May 31, -------------------------------------------------------- 2001(5) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 24.29 31.93 25.59 21.02 17.82 15.53 Income from investment operations: Net investment income (loss) $ (0.17) (0.50) (0.39) (0.36) (0.17) (0.06) Net realized and unrealized gain (loss) on investments $ (6.39) (5.65) 19.57 5.14 4.22 3.16 Total from investment operations $ (6.56) (6.15) 19.18 4.78 4.05 3.10 Less distributions from: Net realized gain on investments $ -- 1.49 12.84 0.21 0.85 0.81 Total distributions $ -- 1.49 12.84 0.21 0.85 0.81 Net asset value, end of period $ 17.73 24.29 31.93 25.59 21.02 17.82 Total Return(2) % (27.01) (19.60) 91.72 22.79 22.94 19.90 Ratios and supplemental data: Net assets, end of period (000s) $ 29,666 48,095 83,772 52,023 73,674 70,406 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.38 2.11 2.03 2.05 2.03 2.00 (4) Gross expenses prior to expense reimbursement(3) % 2.38 2.11 2.03 2.05 2.03 2.04 Net investment income (loss) after expense reimbursement(3) % (1.99) (1.51) (1.62) (1.19) (0.81) (3.05)(4) Portfolio turnover rate % 217 326 286 98 32 62
---------- (1) Class I commenced offering of shares on March 31, 1997. (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 information for less than one year is not annualized. (3) Annualized for periods less than a year. (4) Expenses calculated net of taxes and advisor reimbursement. (5) The Fund changed its fiscal year end to May 31. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Growth Opportunities Fund 59 PILGRIM LARGECAP GROWTH FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- For the eleven months ended May 31, 2001, the year ended June 30, 2000, and the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to June 30, 1999 the financial information was audited by other independent auditors.
Class A ------------------------------------------------------------------- Eleven Months Year Three Months Year July 21, Ended Ended Ended Ended 1997(1) to May 31, June 30, June 30, March 31, March 31, 2001(6) 2000 1999(2) 1999 1998 ------- ---- ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 43.12 28.09 24.94 15.73 12.50 Income from investment operations: Net investment loss $ (0.20) (0.22) (0.02) (0.08) (0.03) Net realized and unrealized gain (loss) on investments $ (18.05) 15.63 3.17 9.77 3.29 Total from investment operations $ (18.25) 15.41 3.15 9.69 3.26 Less distributions from: Net investment income $ -- -- -- -- -- Net realized gain on investments $ 0.47 0.38 -- 0.48 0.03 Total distributions 0.47 0.38 -- 0.48 0.03 Net asset value, end of period $ 24.40 43.12 28.09 24.94 15.73 Total Return(3): % (42.67) 55.35 12.63 63.06 62.35 Ratios/Supplemental Data: Net assets, end of period (000's) $ 161,824 186,261 30,108 12,445 4,742 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(4)(5) % 1.47 1.36 1.43 1.59 1.60 Gross expenses prior to expense reimbursement (recoupment)(4) % 1.47 1.36 1.45 2.24 4.70 Net investment loss after expense reimbursement (recoupment)(4)(5) % (0.78) (0.87) (0.56) (0.65) (0.87) Portfolio turnover rate % 331 139 27 253 306 Class B ----------------------------------------------------------------- Eleven Months Year Three Months Year July 21, Ended Ended Ended Ended 1997(1) to May 31, June 30, June 30, March 31, March 31, 2001(6) 2000 1999(2) 1999 1998 ------- ---- ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 42.94 28.15 25.04 15.64 12.50 Income from investment operations: Net investment loss $ (0.41) (0.39) (0.05) (0.08) (0.07) Net realized and unrealized gain (loss) on investments $ (17.92) 15.56 3.16 9.71 3.24 Total from investment operations $ (18.33) 15.17 3.11 9.63 3.17 Less distributions from: Net investment income $ -- -- -- -- -- Net realized gain on investments $ 0.47 0.38 -- 0.23 0.03 Total distributions 0.47 0.38 -- 0.23 0.03 Net asset value, end of period $ 24.14 42.94 28.15 25.04 15.64 Total Return(3): % (43.04) 55.37 12.42 62.28 61.08 Ratios/Supplemental Data: Net assets, end of period (000's) $ 224,572 333,256 49,057 20,039 3,187 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(4)(5) % 2.12 2.01 2.08 2.24 2.25 Gross expenses prior to expense reimbursement (recoupment)(4) % 2.12 2.01 2.10 2.89 4.78 Net investment loss after expense reimbursement (recoupment)(4)(5) % (1.43) (1.52) (1.21) (1.28) (1.36) Portfolio turnover rate % 331 139 27 253 306 Class C -------------------------------------------------------------------- Eleven Months Year Three Months Year July 21, Ended Ended Ended Ended 1997(1) to May 31, June 30, June 30, March 31, March 31, 2001(6) 2000 1999(2) 1999 1998 ------- ---- ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 42.82 28.07 24.97 15.63 12.50 Income from investment operations: Net investment loss $ (0.39) (0.35) (0.06) (0.07) (0.05) Net realized and unrealized gain (loss) on investments $ (17.89) 15.48 3.16 9.65 3.24 Total from investment operations $ (18.28) 15.13 3.10 9.58 3.19 Less distributions from: Net investment income $ -- -- -- -- -- Net realized gain on investments $ 0.47 0.38 -- 0.24 0.06 Total distributions 0.47 0.38 -- 0.24 0.66 Net asset value, end of period $ 24.07 42.82 28.07 24.97 15.63 Total Return(3): % (43.04) 54.38 12.41 61.97 61.38 Ratios/Supplemental Data: Net assets, end of period (000's) $ 117,222 152,682 17,755 8,004 960 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(4)(5) % 2.12 2.01 2.08 2.25 2.25 Gross expenses prior to expense reimbursement (recoupment)(4) % 2.12 2.01 2.10 2.90 7.79 Net investment loss after expense reimbursement (recoupment)(4)(5) % (1.43) (1.52) (1.21) (1.26) (1.49) Portfolio turnover rate % 331 139 27 253 306
---------- (1) The Fund commenced operations on July 21, 1997. (2) Effective May 24, 1999, Pilgrim Investment LLC, became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor and the Fund changed its 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. (6) The Fund changed its fiscal year end to May 31. 60 Pilgrim LargeCap Growth Fund FINANCIAL HIGHLIGHTS PILGRIM MIDCAP OPPORTUNITIES FUND -------------------------------------------------------------------------------- For the five months ended May 31, 2001 and the year ended December 31, 2000, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to December 31, 2000, the financial information was audited by other independent auditors.
Class A ------------------------------------------------ Five Months Year Ended Ended December 31, May 31, ------------------------------ 2001(5) 2000 1999 1998(1) ------- ---- ---- ------- Per Share Operating Performance Net asset value, beginning of period $ 19.12 21.29 12.96 10.00 Income from investment operations: Net investment loss $ (0.11) (0.15) (0.09) (0.03) Net realized and unrealized gain (loss) on investments $ (4.43) 0.16 12.01 2.99 Total from investment operations $ (4.54) 0.01 11.92 2.96 Less distributions from: Net realized loss on investments $ -- (2.18) (3.59) -- Total distributions $ -- (2.18) (3.59) -- Net asset value, end of period $ 14.58 19.12 21.29 12.96 Total Return(2): % (23.74) (0.35) 103.24 29.60 Ratios and supplemental data: Net assets, end of period (000s) $ 24,265 25,742 6,291 610 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.06 1.66 1.74 1.80(4) Gross expenses prior to expense reimbursement(3) % 2.06 1.66 1.74 2.42 Net investment loss after expense reimbursement(3) % (1.52) (0.96) (1.34) (1.10)(4) Portfolio turnover rate % 182 188 201 61 Class B ------------------------------------------------ Five Months Year Ended Ended December 31, May 31, ------------------------------ 2001(5) 2000 1999 1998(1) ------- ---- ---- ------- Per Share Operating Performance Net asset value, beginning of period $ 18.79 21.12 12.97 10.00 Income from investment operations: Net investment loss $ (0.14) (0.24) (0.07) (0.03) Net realized and unrealized gain (loss) on investments $ (4.35) 0.09 11.81 3.00 Total from investment operations $ (4.49) (0.15) 11.74 2.97 Less distributions from: Net realized loss on investments $ -- (2.18) (3.59) -- Total distributions $ -- (2.18) (3.59) -- Net asset value, end of period $ 14.30 18.79 21.12 12.97 Total Return(2): % (23.90) (1.13) 101.73 29.70 Ratios and supplemental data: Net assets, end of period (000s) $ 28,448 35,551 8,252 140 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.76 2.36 2.40 2.50 (4) Gross expenses prior to expense reimbursement(3) % 2.76 2.36 2.40 3.27 Net investment loss after expense reimbursement(3) % (2.22) (1.66) (2.00) (2.05)(4) Portfolio turnover rate % 182 188 201 61 Class C ------------------------------------------------ Five Months Year Ended Ended December 31, May 31, ------------------------------ 2001(5) 2000 1999 1998(1) ------- ---- ---- ------- Per Share Operating Performance Net asset value, beginning of period $ 18.72 21.03 12.96 10.00 Income from investment operations: Net investment loss $ (0.14) (0.24) (0.07) (0.04) Net realized and unrealized gain (loss) on investments $ (4.34) 0.11 11.73 3.00 Total from investment operations $ (4.48) (0.13) 11.66 2.96 Less distributions from: Net realized loss on investments $ -- (2.18) (3.59) -- Total distributions $ -- (2.18) (3.59) -- Net asset value, end of period $ 14.24 18.72 21.03 12.96 Total Return(2): % (23.93) (1.03) 101.16 29.60 Ratios and supplemental data: Net assets, end of period (000s) $ 18,901 25,939 4,560 87 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.76 2.36 2.36 2.50 (4) Gross expenses prior to expense reimbursement(3) % 2.76 2.36 2.36 3.22 Net investment loss after expense reimbursement(3) % (2.22) (1.66) (1.98) (2.04)(4) Portfolio turnover rate % 182 188 201 61
---------- (1) Fund commenced operations on August 20, 1998. (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) Expenses calculated net of taxes and adviser reimbursement. (5) The Fund changed its fiscal year end to May 31. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MidCap Opportunities Fund 61 PILGRIM MIDCAP GROWTH FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- For the eleven months ended May 31, 2001, the year ended June 30, 2000 and the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to June 30, 1999 the financial information was audited by other independent auditors.
Class A ------------------------------------------------------------------------- Eleven Three Months Year Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, ------------------------------ 2001(5) 2000 1999(1) 1999 1998 1997 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 28.17 21.34 19.93 18.63 16.80 18.37 Income from investment operations: Net investment loss $ (0.16) (0.22) (0.06) (0.50) (0.14) (0.17) Net realized and unrealized gain (loss) on investments $ (7.96) 14.08 1.47 3.17 6.50 0.57 Total from investment operations $ (8.12) 13.86 1.41 2.67 6.36 0.40 Less distributions from: Net investment income $ -- -- -- -- -- -- Net realized gain on investments $ 4.70 7.03 -- 1.37 4.53 1.97 Total distributions 4.70 7.03 -- 1.37 4.53 1.97 Net asset value, end of period $ 15.35 28.17 21.34 19.93 18.63 16.80 Total Return(2): % (33.32) 77.33 7.07 15.36 41.81 1.09 Ratios/Supplemental Data: Net assets, end of period (000's) $ 98,530 155,976 66,586 67,550 90,619 76,108 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(3)(4) % 1.45 1.36 1.49 1.56 1.57 1.60 Gross expenses prior to expense reimbursement (recoupment)(3) % 1.44 1.36 1.50 1.64 1.66 1.56 Net investment loss after expense reimbursement (recoupment)(3)(4) % (0.84) (1.10) (1.20) (1.04) (1.33) (1.05) Portfolio turnover rate % 262 148 55 154 200 153 Class B ------------------------------------------------------------------------- Eleven Three Months Year Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, ------------------------------ 2001(5) 2000 1999(1) 1999 1998 1997 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 33.04 25.18 23.54 21.55 16.33 16.25 Income from investment operations: Net investment loss $ (0.31) (0.41) (0.11) (0.42) (0.25) (0.17) Net realized and unrealized gain (loss) on investments $ (9.33) 16.55 1.75 3.42 6.74 0.25 Total from investment operations $ (9.64) 16.14 1.64 3.00 6.49 0.08 Less distributions from: Net investment income $ -- -- -- -- -- -- Net realized gain on investments $ 5.50 8.28 -- 1.01 1.27 -- Total distributions 5.50 8.28 -- 1.01 1.27 -- Net asset value, end of period $ 17.90 33.04 25.18 23.54 21.55 16.33 Total Return(2): % (33.71) 76.28 6.97 14.59 40.84 (0.49) Ratios/Supplemental Data: Net assets, end of period (000's) $ 85,111 116,334 49,335 45,876 46,806 29,002 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(3)(4) % 2.10 2.01 2.14 2.22 2.22 2.25 Gross expenses prior to expense reimbursement (recoupment)(3) % 2.09 2.01 2.14 2.29 2.21 2.66 Net investment loss after expense reimbursement (recoupment)(3)(4) % (1.49) (1.75) (1.85) (1.69) (1.99) (1.69) Portfolio turnover rate % 262 148 55 154 200 153 Class C ----------------------------------------------------------------------------- Eleven Three Months Year Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, -------------------------------- 2001(5) 2000 1999(1) 1999 1998 1997 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 25.94 19.78 18.49 17.15 16.48 18.06 Income from investment operations: Net investment loss $ (0.26) (0.38) (0.09) (0.61) (0.28) (0.32) Net realized and unrealized gain (loss) on investments $ (7.31) 13.04 1.38 2.97 6.26 0.62 Total from investment operations $ (7.57) 12.66 1.29 2.36 5.98 0.30 Less distributions from: Net investment income $ -- -- -- -- -- -- Net realized gain on investments $ 4.32 6.50 -- 1.02 5.31 1.88 Total distributions 4.32 6.50 -- 1.02 5.31 1.88 Net asset value, end of period $ 14.05 25.94 19.78 18.49 17.15 16.48 Total Return(2): % (33.72) 76.18 6.98 14.60 40.95 0.56 Ratios/Supplemental Data: Net assets, end of period (000's) $ 156,528 249,255 144,832 141,685 166,849 157,501 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(3)(4) % 2.10 2.01 2.14 2.23 2.27 2.14 Gross expenses prior to expense reimbursement (recoupment)(3) % 2.09 2.01 2.14 2.30 2.33 2.17 Net investment loss after expense reimbursement (recoupment)(3)(4) % (1.49) (1.75) (1.85) (1.70) (2.01) (1.59) Portfolio turnover rate % 262 148 55 154 200 153
---------- (1) Effective May 24, 1999, Pilgrim Investment LLC became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor and the Fund changed its year end to June 30. (2) Total return is calculated assuming reinvestment of 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. (5) The Fund changed its fiscal year end to May 31. 62 Pilgrim MidCap Growth Fund FINANCIAL HIGHLIGHTS PILGRIM GROWTH + VALUE FUND -------------------------------------------------------------------------------- For the seven months ended May 31, 2001, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to May 31, 2001 the financial information was audited by other independent auditors.
Class A ----------------------------------------------------------------- Seven Months Ended Year Ended October 31, May 31, --------------------------------------------- 2001(5) 2000 1999 1998 1997(1) ------- ---- ---- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 24.91 19.76 10.44 12.15 10.00 Income from investment operations: Net investment loss $ (0.13) (0.20) (0.17) (0.11) (0.05) Net realized and unrealized gain (loss) on investments $ (8.68) 7.81 9.49 (1.42) 2.20 Total from investment operations $ (8.81) 7.61 9.32 (1.53) 2.15 Less distributions from: Net realized gain on investments $ 2.16 2.46 -- 0.18 -- Tax return of capital $ 0.06 -- -- -- -- Total distributions $ 2.22 2.46 -- 0.18 -- Net asset value, end of period $ 13.88 24.91 19.76 10.44 12.15 Total Return(2) % (38.02) 40.18 89.27 (12.63) 21.50 Ratios and supplemental data: Net assets, end of period (000's) $ 160,251 257,601 81,225 33,425 34,346 Ratios to average net assets: Net expenses after expense reimbursement(3) % 1.77 1.57 1.69 1.72 1.84 (4) Gross expenses prior to expense reimbursement(3) % 1.77 1.57 1.69 1.72 1.86 Net investment loss after expense reimbursement(3) % (1.52) (1.22) (1.30) (0.92) (0.94)(4) Portfolio turnover rate % 95 163 197 162 144 Class B ------------------------------------------------------------------- Seven Months Ended Year Ended October 31, May 31, ----------------------------------------------- 2001(5) 2000 1999 1998 1997(1) ------- ---- ---- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 24.17 19.34 10.29 12.08 10.00 Income from investment operations: Net investment loss $ (0.19) (0.36) (0.27) (0.16) (0.08) Net realized and unrealized gain (loss) on investments $ (8.40) 7.65 9.32 (1.45) 2.16 Total from investment operations $ (8.59) 7.29 9.05 (1.61) 2.08 Less distributions from: Net realized gain on investments $ 2.16 2.46 -- 0.18 -- Tax return of capital $ 0.06 -- -- -- -- Total distributions $ 2.22 2.46 -- 0.18 -- Net asset value, end of period $ 13.36 24.17 19.34 10.29 12.08 Total Return(2) % (38.31) 39.33 87.95 (13.38) 20.80 Ratios and supplemental data: Net assets, end of period (000's) $ 326,139 507,282 227,227 105,991 76,608 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.47 2.27 2.39 2.45 2.55 (4) Gross expenses prior to expense reimbursement(3) % 2.47 2.27 2.39 2.45 2.57 Net investment loss after expense reimbursement(3) % (2.22) (1.92) (2.00) (1.67) (1.68)(4) Portfolio turnover rate % 95 163 197 162 144 Class C ----------------------------------------------------------------- Seven Months Ended Year Ended October 31, May 31, --------------------------------------------- 2001(5) 2000 1999 1998 1997(1) ------- ---- ---- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 24.16 19.33 10.29 12.08 10.00 Income from investment operations: Net investment loss $ (0.19) (0.33) (0.26) (0.16) (0.08) Net realized and unrealized gain (loss) on investments $ (8.40) 7.62 9.30 (1.45) 2.16 Total from investment operations $ (8.59) 7.29 9.04 (1.61) 2.08 Less distributions from: Net realized gain on investments $ 2.16 2.46 -- 0.18 -- Tax return of capital $ 0.06 -- -- -- -- Total distributions $ 2.22 2.46 -- 0.18 -- Net asset value, end of period $ 13.35 24.16 19.33 10.29 12.08 Total Return(2) % (38.33) 39.35 87.85 (13.38) 20.80 Ratios and supplemental data: Net assets, end of period (000's) $ 183,037 280,484 84,391 37,456 26,962 Ratios to average net assets: Net expenses after expense reimbursement(3) % 2.47 2.27 2.40 2.46 2.56 (4) Gross expenses prior to expense reimbursement(3) % 2.47 2.27 2.40 2.46 2.58 Net investment loss after expense reimbursement(3) % (2.22) (1.92) (2.01) (1.69) (1.70)(4) Portfolio turnover rate % 95 163 197 162 144
---------- (1) The Fund commenced operations on November 18, 1996. (2) Total return is calculated assuming reinvestment of 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 advisor reimbursement. (5) The fund changed its fiscal year end to May 31. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Growth + Value Fund 63 PILGRIM SMALLCAP OPPORTUNITIES FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- For the five months ended May 31, 2001 and the year ended December 31, 2000, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to December 31, 2000, the financial information was audited by other independent auditors.
Class A ----------------------------------------------------------------------------- Five Months Ended Year Ended December 31, May 31, ---------------------------------------------------------- 2001(4) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 47.17 59.35 29.00 27.77 24.72 20.92 Income from investment operations: Net investment loss $ (0.23) (0.54) (0.32) (0.27) (0.02) (0.04) Net realized and unrealized gain (loss) on investments $ (8.16) (2.74) 38.23 2.23 3.68 3.84 Total from investment operations $ (8.39) (3.28) 37.91 1.96 3.66 3.80 Less distributions from: Net realized gain on investments $ -- 8.90 7.56 0.73 0.61 -- Total distributions $ -- 8.90 7.56 0.73 0.61 -- Net asset value, end of period $ 38.78 47.17 59.35 29.00 27.77 24.72 Total Return(1) % (17.79) (6.04) 146.94 7.59 14.92 18.16 Ratios and supplemental data: Net assets, end of period (000s) $ 159,641 177,286 123,377 45,461 78,160 65,660 Ratios to average net assets: Net expenses after expense reimbursement(2) % 1.69 1.45 1.43 1.47 1.43 1.46 (3) Gross expenses prior to expense reimbursement(2) % 1.69 1.45 1.43 1.47 1.43 1.47 Net investment loss after expense reimbursement(2) % (1.41) (1.05) (1.21) (0.70) (0.07) (0.30)(3) Portfolio turnover rate % 104 134 223 257 175 140 Class B ------------------------------------------------------------------------------- Five Months Ended Year Ended December 31, May 31, ------------------------------------------------------------ 2001(4) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 44.64 57.06 28.26 27.27 24.46 20.84 Income from investment operations: Net investment loss $ (0.33) (0.96) (0.60) (0.48) (0.19) (0.12) Net realized and unrealized gain (loss) on investments $ (7.71) (2.56) 36.96 2.20 3.61 3.74 Total from investment operations $ (8.04) (3.52) 36.36 1.72 3.42 3.62 Less distributions from: Net realized gain on investments $ -- 8.90 7.56 0.73 0.61 -- Total distributions $ -- 8.90 7.56 0.73 0.61 -- Net asset value, end of period $ 36.60 44.64 57.06 28.26 27.27 24.46 Total Return(1) % (18.01) (6.71) 145.24 6.84 14.10 17.37 Ratios and supplemental data: Net assets, end of period (000s) $ 206,968 266,348 264,677 124,065 169,516 126,859 Ratios to average net assets: Net expenses after expense reimbursement(2) % 2.39 2.15 2.15 2.18 2.15 2.17 (3) Gross expenses prior to expense reimbursement(2) % 2.39 2.15 2.15 2.18 2.15 2.18 Net investment loss after expense reimbursement(2) % (2.11) (1.75) (1.93) (1.43) (0.78) (1.01)(3) Portfolio turnover rate % 104 134 223 257 175 140 Class C --------------------------------------------------------------------------- Five Months Ended Year Ended December 31, May 31, --------------------------------------------------------- 2001(4) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 44.54 56.98 28.24 27.26 24.46 20.84 Income from investment operations: Net investment loss $ (0.33) (0.97) (0.53) (0.55) (0.20) (0.13) Net realized and unrealized gain (loss) on investments $ (7.68) (2.57) 36.83 2.26 3.61 3.75 Total from investment operations $ (8.01) (3.54) 36.30 1.71 3.41 3.62 Less distributions from: Net realized gain on investments $ -- 8,90 7.56 0.73 0.61 -- Total distributions $ -- 8.90 7.56 0.73 0.61 -- Net asset value, end of period $ 36.53 44.54 56.98 28.24 27.26 24.46 Total Return(1) % (17.98) (6.76) 145.12 6.81 14.06 17.37 Ratios and supplemental data: Net assets, end of period (000s) $ 78,658 104,094 72,581 29,746 51,460 37,342 Ratios to average net assets: Net expenses after expense reimbursement(2) % 2.39 2.15 2.18 2.22 2.18 2.20 (3) Gross expenses prior to expense reimbursement(2) % 2.39 2.15 2.18 2.22 2.18 2.21 Net investment loss after expense reimbursement(2) % (2.11) (1.75) (1.96) (1.45) (0.82) (1.03)(3) Portfolio turnover rate % 104 134 223 257 175 140 Class T --------------------------------------------------------------------------- Five Months Ended Year Ended December 31, May 31, -------------------------------------------------------- 2001(4) 2000 1999 1998 1997 1996 ------- ---- ---- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 45.04 57.39 28.36 27.34 24.48 20.84 Income from investment operations: Net investment loss $ (0.34) (0.90) (0.65) (0.51) (0.18) (0.21) Net realized and unrealized gain (loss) on investments $ (7.76) (2.55) 37.24 2.26 3.65 3.85 Total from investment operations $ (8.10) (3.45) 36.59 1.75 3.47 3.64 Less distributions from: Net realized gain on investments $ -- 8.90 7.56 0.73 0.61 -- Total distributions $ -- 8.90 7.56 0.73 0.61 -- Net asset value, end of period $ 36.94 45.04 57.39 28.36 27.34 24.48 Total Return(1) % (17.99) (6.52) 145.51 6.94 14.29 17.47 Ratios and supplemental data: Net assets, end of period (000s) $ 16,316 23,441 33,634 18,203 32,800 35,670 Ratios to average net assets: Net expenses after expense reimbursement(2) % 2.34 2.10 2.06 2.10 1.99 2.07 (3) Gross expenses prior to expense reimbursement(2) % 2.34 2.10 2.06 2.10 1.99 2.11 Net investment loss after expense reimbursement(2) % (2.06) (1.70) (1.85) (1.33) (0.62) (0.89)(3) Portfolio turnover rate % 104 134 223 257 175 140
---------- (1) Total return is calculated assuming reinvestment of 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) Expenses calculated net of taxes and adviser reimbursement. (4) The Fund changed its fiscal year end to May 31. 64 Pilgrim SmallCap Opportunities Fund FINANCIAL HIGHLIGHTS PILGRIM SMALLCAP GROWTH FUND -------------------------------------------------------------------------------- For the eleven months ended May 31, 2001, the year ended June 30, 2000 and the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to June 30, 1999 the financial information was audited by other independent auditors.
Class A ---------------------------------------------------------------------------- Eleven Three Months Year Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, ------------------------------- 2001(5) 2000 1999(1) 1999 1998 1997 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 18.39 19.08 16.72 19.75 15.15 17.93 Income from investment operations: Net investment loss $ (0.17) (0.20) (0.06) (0.85) (0.08) (0.22) Net realized and unrealized gain (loss) on investments $ (4.17) 9.24 2.42 0.69 6.91 (0.66) Total from investment operations $ (4.34) 9.04 2.36 (0.16) 6.83 (0.88) Less distributions from: Net investment income $ -- -- -- -- -- -- Net realized gain on investments $ 2.01 9.73 -- 2.87 2.23 1.90 Total distributions $ 2.01 9.73 -- 2.87 2.23 1.90 Net asset value, end of period $ 12.04 18.39 19.08 16.72 19.75 15.15 Total Return(2): % (25.78) 60.66 14.11 0.37 46.32 (6.26) Ratios/Supplemental Data: Net assets, end of period (000's) $ 119,136 168,239 102,641 94,428 201,943 121,742 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(3)(4) % 1.73 1.62 1.70 1.85 1.89 1.72 Gross expenses prior to expense reimbursement (recoupment)(3) % 1.72 1.67 1.74 1.95 1.90 1.72 Net investment loss after expense reimbursement (recoupment)(3)(4) % (1.24) (1.31) (1.46) (1.32) (1.85) (1.26) Portfolio turnover rate % 170 127 32 90 92 113 Class B ------------------------------------------------------------------------ Eleven Three Months Year Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, ------------------------------ 2001(5) 2000 1999(1) 1999 1998 1997 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 23.03 24.05 21.12 22.53 15.51 16.69 Income from investment operations: Net investment loss $ (0.31) (0.34) (0.12) (0.53) (0.27) (0.21) Net realized and unrealized gain (loss) on investments $ (5.20) 11.56 3.05 0.33 7.29 (0.97) Total from investment operations $ (5.51) 11.22 2.93 (0.20) 7.02 (1.18) Less distributions from: Net investment income $ -- -- -- -- -- -- Net realized gain on investments $ 2.52 12.24 -- 1.21 -- -- Total distributions $ 2.52 12.24 -- 1.21 -- -- Net asset value, end of period $ 15.00 23.03 24.05 21.12 22.53 15.51 Total Return(2): % (26.16) 59.68 13.87 (0.29) 45.26 (7.07) Ratios/Supplemental Data: Net assets, end of period (000's) $ 75,304 97,239 49,448 45,140 55,215 28,030 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(3)(4) % 2.38 2.27 2.35 2.57 2.62 2.61 Gross expenses prior to expense reimbursement (recoupment)(3) % 2.37 2.32 2.39 2.66 2.63 2.73 Net investment loss after expense reimbursement (recoupment)(3)(4) % (1.89) (1.96) (2.11) (2.03) (2.59) (2.13) Portfolio turnover rate % 170 127 32 90 92 113 Class C ---------------------------------------------------------------------------- Eleven Three Months Year Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, -------------------------------- 2001(5) 2000 1999(1) 1999 1998 1997 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 18.01 18.81 16.51 18.62 14.69 17.62 Income from investment operations: Net investment loss $ (0.25) (0.30) (0.09) (0.84) (0.38) (0.31) Net realized and unrealized gain (loss) on investments $ (4.05) 9.07 2.39 0.61 6.84 (0.63) Total from investment operations $ (4.30) 8.77 2.30 (0.23) 6.46 (0.94) Less distributions from: Net investment income $ -- -- -- -- -- -- Net realized gain on investments $ 1.97 9.57 -- 1.88 2.53 1.99 Total distributions $ 1.97 9.57 -- 1.88 2.53 1.99 Net asset value, end of period $ 11.74 18.01 18.81 16.51 18.62 14.69 Total Return(2): % (26.10) 59.67 13.93 (0.24) 45.40 (6.81) Ratios/Supplemental Data: Net assets, end of period (000's) $ 159,910 229,473 153,471 144,597 225,025 182,907 Ratios to average net assets: Net expenses after expense reimbursement (recoupment)(3)(4) % 2.38 2.27 2.35 2.51 2.57 2.35 Gross expenses prior to expense reimbursement (recoupment)(3) % 2.37 2.32 2.39 2.60 2.59 2.35 Net investment loss after expense reimbursement (recoupment)(3)(4) % (1.89) (1.96) (2.11) (1.97) (2.53) (1.89) Portfolio turnover rate % 170 127 32 90 92 113
---------- (1) Effective May 24, 1999, Pilgrim Investments LLC, became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor and the Fund changed its year end to June 30. (2) Total return is calculated assuming reinvestment of 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 less periods than one year. (4) The Investment Manager has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. (5) The Fund changed its fiscal year end to May 31. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim SmallCap Growth Fund 65 PILGRIM FINANCIAL SERVICES FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- The information in the table below, with the exception of the information in the row labeled "Total Investment Return at Net Asset Value" for periods prior to January 1, 1997, has been audited by KPMG LLP, independent auditors. Prior to October 17, 1997, the Class A shares were designated as Common Stock and the Fund operated as a closed-end investment company.
Class A ------------------------------------------------------------- Eleven Six Months Year Year Months Year Ended Ended Ended Ended Ended December 31, May 31, June 30, June 30, June 30, -------------- 2001(6) 2000 1999 1998(2) 1997 1996 ------- ---- ---- ------- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 16.42 24.38 27.52 25.87 17.84 14.83 Income from investment operations: Net investment income $ 0.31 0.32 0.29 0.11 0.34 0.32 Net realized and unrealized gain (loss) on investments $ 7.11 (5.30) (2.70) 1.54 10.83 5.18 Total from investment operations $ 7.42 (4.98) (2.41) 1.65 11.17 5.50 Less distributions from: Net investment income $ 0.33 0.25 0.18 -- 0.31 0.35 Net realized gain on investments $ 0.15 2.73 0.55 -- 2.65 2.14 Tax return of capital $ -- -- -- -- 0.18 -- Total distributions $ 0.48 2.98 0.73 -- 3.14 2.49 Net asset value, end of period $ 23.36 16.42 24.38 27.52 25.87 17.84 Closing market price, end of period -- -- -- -- -- 15.75 Total Investment Return At Market Value(3) % -- -- -- -- -- 43.48 Total Investment Return At Net Asset Value(4) % 46.01 (22.44) (8.61) 6.38 64.86 41.10 Ratios/Supplemental Data: Net assets, end of year ($millions) $ 252 210 403 549 383 252 Ratio to average net assets: Expenses(5) % 1.42 1.41 1.39 1.20 1.10 1.01 Net investment income(5) % 1.48 1.46 1.09 0.94 1.39 1.94 Portfolio turnover rate % 39 10 29 2 22 21 Class B --------------------------------------------------------- Eleven Six Months Year Year Months Oct. 20, Ended Ended Ended Ended 1997(1) to May 31, June 30, June 30, June 30, Dec. 31, 2001(6) 2000 1999 1998(2) 1997 ------- ---- ---- ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 16.35 24.21 27.40 25.85 25.25 Income from investment operations: Net investment income $ 0.15 0.22 0.08 0.01 0.04 Net realized and unrealized gain (loss) on investments $ 7.12 (5.32) (2.66) 1.54 2.92 Total from investment operations $ 7.27 (5.10) (2.58) 1.55 2.96 Less distributions from: Net investment income $ 0.19 0.03 0.06 -- 0.04 Net realized gain on investments $ 0.15 2.73 0.55 -- 2.04 Tax return of capital $ -- -- -- -- 0.28 Total distributions $ 0.34 2.76 0.61 -- 2.36 Net asset value, end of period $ 23.28 16.35 24.21 27.40 25.85 Closing market price, end of period -- -- -- -- -- Total Investment Return At Market Value(3) % -- -- -- -- -- Total Investment Return At Net Asset Value(4) % 45.01 (23.00) (9.31) 6.00 11.88 Ratios/Supplemental Data: Net assets, end of year ($millions) $ 183 148 343 360 76 Ratio to average net assets: Expenses(5) % 2.17 2.16 2.14 1.95 1.89 Net investment income(5) % 0.73 0.71 0.34 0.19 0.99 Portfolio turnover rate % 39 10 29 2 22
---------- (1) Commencement of offering shares. (2) Effective June 30, 1998, the Financial Services Fund changed its year end to June 30. (3) Total return was calculated at market value without deduction of sales commissions and assuming reinvestment of all dividends and distributions during the period. (4) Total return is calculated at net asset value without deduction of sales commissions and assumes reinvestment of all dividends and distributions during the period. Total investment returns based on net asset value, which can be higher or lower than market value, may result in substantially different returns than total return based on market value. For all periods prior to January 1, 1997, the total returns presented are unaudited. (5) Annualized for periods less than one year. (6) The Fund changed its fiscal year end to May 31. 66 Pilgrim Financial Services Fund FINANCIAL HIGHLIGHTS PILGRIM INTERNET FUND -------------------------------------------------------------------------------- For the seven months ended May 31, 2001, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to May 31, 2001 the financial information was audited by other independent auditors.
Class A Class B ------------------------------------- ------------------------------------ Seven Months Year Ended Seven Months Year Ended Ended October 31, Ended October 31, May 31, ------------------ May 31, ------------------ 2001(5) 2000 1999(1) 2001(5) 2000 1999(1) ------- ---- ------- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 12.03 12.67 10.00 11.91 12.63 10.00 Income from investment operations: Net investment loss $ (0.06) (0.24) (0.03) (0.07) (0.32) (0.03) Net realized and unrealized gain (loss) on investments $ (6.28) (0.17) 2.70 (6.20) (0.17) 2.66 Total from investment operations $ (6.34) 0.41 2.67 (6.27) 0.49 2.63 Less distributions from: $ Net realized gain on investments $ 1.85 0.23 -- 1.85 0.23 -- Total distributions $ 1.85 0.23 -- 1.85 0.23 -- Net asset value, end of period $ 3.84 12.03 12.67 3.79 11.91 12.63 Total Return(2) $ (60.56) (3.98) 26.70 (60.58) (4.63) 26.30 Ratios/Supplemental Data: Net assets, end of period (000's) $ 17,725 59,155 35,798 13,903 38,726 14,869 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 1.62 1.47 1.54 2.32 2.12 2.17 Gross expenses prior to expense reimbursment(3) % 2.63 2.76 3.35 3.28 3.01 3.75 Net investment loss after expense reimbursement(3)(4) % (1.59) (1.36) (1.15) (2.24) (2.01) (1.88) Portfolio turnover rate % 69 112 22 69 112 22 Class C ------------------------------------ Seven Months Year Ended Ended October 31, May 31, ------------------ 2001(5) 2000 1999(1) ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 11.92 12.63 10.00 Income from investment operations: Net investment loss $ (0.07) (0.34) (0.03) Net realized and unrealized gain (loss) on investments $ (6.22) (0.14) 2.66 Total from investment operations $ (6.29) 0.48 2.63 Less distributions from: Net realized gain on investments $ 1.85 0.23 -- Total distributions $ 1.85 0.23 -- Net asset value, end of period $ 3.78 11.92 12.63 Total Return(2) $ (60.72) (4.55) 26.30 Ratios/Supplemental Data: Net assets, end of period (000's) $ 5,561 17,709 5,290 Ratios to average net assets: Net expenses after expense reimbursement(3)(4) % 2.32 2.12 2.18 Gross expenses prior to expense reimbursment(3) % 3.28 3.01 3.79 Net investment loss after expense reimbursement(3)(4) % (2.24) (2.01) (1.88) Portfolio turnover rate % 69 112 22
---------- (1) The Fund commenced operations on July 1, 1999. (2) Total return is calculated assuming reinvestment of all dividend and capital gain distributions at net asset value end excluding the deduction of the 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. (5) The Fund changed its fiscal year end to May 31. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Internet Fund 67 PILGRIM BALANCED FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- For the eleven months ended May 31, 2001, the year ended June 30, 2000 and the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to June 30, 1999 the financial information was audited by other independent auditors.
Class A --------------------------------------------------------------------- Eleven Three Months Year Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, -------------------------- 2001(6) 2000 1999(2) 1999 1998 1997 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 15.04 19.23 19.03 19.53 15.54 16.16 Income from investment operations: Net investment income (loss) $ 0.93 0.51 0.10 0.36 0.26 0.32 Net realized and unrealized gain (loss) on investments $ (1.01) (0.60) 0.17 2.58 5.70 0.84 Total from investment operations $ (0.08) (0.09) 0.27 2.94 5.96 1.16 Less distributions from: Net investment $ 0.51 0.39 0.07 0.43 0.27 0.32 Net realized gain on investments $ 1.15 3.71 -- 3.01 1.70 1.46 Total distributions $ 1.66 4.10 0.07 3.44 1.97 1.78 Net asset value, end of period $ 13.30 15.04 19.23 19.03 19.53 15.54 Total Return(3): % (0.61) (1.01) 1.42 17.10 39.34 6.74 Ratio/Supplemental Data: Net assets, end of period (000's) $ 61,477 63,592 9,619 9,519 6,675 4,898 Ratio to average net assets: Net expenses after expense reimbursement(4)(5) % 1.32 1.40 1.49 1.59 1.61 1.60 Gross expenses prior to expense reimbursement(4) % 1.53 1.61 1.75 1.97 2.56 3.00 Net investment income after expense reimbursement(4)(5) % 3.54 3.26 2.06 2.08 3.58 1.87 Portfolio turnover rate % 76 173 63 165 260 213 Class B ----------------------------------------------------------------- Eleven Three Months Year Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, -------------------------- 2001(6) 2000 1999(2) 1999 1998 1997 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 16.09 20.59 20.38 20.07 14.88 14.18 Income from investment operations: Net investment income (loss) $ 0.80 0.44 0.07 0.28 0.15 0.17 Net realized and unrealized gain (loss) on investments $ (0.98) (0.64) 0.18 2.74 5.58 0.70 Total from investment operations $ (0.18) (0.20) 0.25 3.02 5.73 0.87 Less distributions from: Net investment $ 0.39 0.33 0.04 0.31 0.15 0.17 Net realized gain on investments $ 1.24 3.97 -- 2.40 0.39 -- Total distributions $ 1.63 4.30 0.04 2.71 0.54 0.17 Net asset value, end of period $ 14.28 16.09 20.59 20.38 20.07 14.88 Total Return(3): % (1.21) (1.58) 1.24 16.49 38.79 6.10 Ratio/Supplemental Data: Net assets, end of period (000's) $ 35,828 41,026 7,157 6,048 4,254 2,133 Ratio to average net assets: Net expenses after expense reimbursement(4)(5) % 1.97 2.05 2.14 2.24 2.26 2.25 Gross expenses prior to expense reimbursement(4) % 2.18 2.26 2.40 2.62 2.71 6.44 Net investment income after expense reimbursement(4)(5) % 2.89 2.61 1.41 1.43 2.99 1.25 Portfolio turnover rate % 76 173 63 165 260 213 Class C ----------------------------------------------------------------------- Eleven Three Months Year Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, ---------------------------- 2001(6) 2000 1999(2) 1999 1998 1997 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 14.45 18.53 18.35 19.90 15.59 16.20 Income from investment operations: Net investment income $ 0.74 0.45 0.06 0.26 0.15 0.21 Net realized and unrealized gain (loss) on investments $ (0.91) (0.62) 0.16 2.52 5.71 0.85 Total from investment operations $ (0.17) (0.17) 0.22 2.78 5.86 1.06 Less distributions from: Net investment $ 0.39 0.34 0.04 0.28 0.15 0.21 Net realized gain on investments $ 1.11 3.57 -- 4.05 1.40 1.46 Total distributions $ 1.50 3.91 0.04 4.33 1.55 1.67 Net asset value, end of period $ 12.78 14.45 18.53 18.35 19.90 15.59 Total Return(3): % (1.28) (1.53) 1.21 16.34 38.35 6.05 Ratio/Supplemental Data: Net assets, end of period (000's) $ 22,679 25,838 21,331 21,655 20,784 16,990 Ratio to average net assets: Net expenses after expense reimbursement(4)(5) % 1.97 2.05 2.14 2.23 2.26 2.25 Gross expenses prior to expense reimbursement(4) % 2.18 2.26 2.40 2.61 2.68 2.83 Net investment income after expense reimbursement(4)(5) % 2.89 2.61 1.41 1.43 2.93 1.23 Portfolio turnover rate % 76 173 63 165 260 213 Class T ---------------------- Eleven Months March 31, Ended 2000(1) to May 31, June 30, 2001(6) 2000 ------- ---- Per Share Operating Performance: Net asset value, beginning of period $ 16.10 16.83 Income from investment operations: Net investment income $ 1.00 0.09 Net realized and unrealized gain (loss) on investments $ (1.16) (0.82) Total from investment operations $ (0.16) (0.73) Less distributions from: Net investment $ 0.48 -- Net realized gain on investments $ 1.23 -- Total distributions $ 1.71 -- Net asset value, end of period $ 14.23 16.10 Total Return(3): % (1.06) (4.34) Ratio/Supplemental Data: Net assets, end of period (000's) $ 7,725 10,953 Ratio to average net assets: Net expenses after expense reimbursement(4)(5) % 1.72 1.70 Gross expenses prior to expense reimbursement(4) % 1.93 1.91 Net investment income after expense reimbursement(4)(5) % 3.14 2.96 Portfolio turnover rate % 76 173
---------- (1) Commencement of offering of shares. (2) Effective May 24, 1999, Pilgrim Investment LLC, became the Investment Manager of the Fund and the Fund changed its 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. (6) The Fund changed its fiscal year end to May 31. 68 Pilgrim Balanced Fund FINANCIAL HIGHLIGHTS PILGRIM CONVERTIBLE FUND -------------------------------------------------------------------------------- For the eleven months ended May 31, 2001, the year ended June 30, 2000 and the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to June 30, 1999 the financial information was audited by other independent auditors.
Class A --------------------------------------------------------------------- Eleven Three Months Year Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, ---------------------------- 2001(5) 2000 1999(1) 1999 1998 1997 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 27.70 23.27 21.92 19.12 16.59 15.68 Income from investment operations: Net investment income $ 0.85 0.42 0.10 0.40 0.44 0.47 Net realized and unrealized gain (loss) on investments $ (5.29) 8.02 1.35 3.17 4.49 1.64 Total from investment operations $ (4.44) 8.44 1.45 3.57 4.93 2.11 Less distributions from: Net investment $ 0.51 0.32 0.10 0.41 0.44 0.48 Net realized gain on investments $ 4.86 3.69 -- 0.36 1.96 0.72 Total distributions $ 5.37 4.01 0.10 0.77 2.40 1.20 Net asset value, end of period $ 17.89 27.70 23.27 21.92 19.12 16.59 Total Return(2): % (17.78) 39.88 6.62 19.17 31.04 13.73 Ratios/Supplemental Data: Net assets, end of period (000's) $ 98,896 131,218 73,133 65,742 47,290 32,082 Ratio to average net assets: Net expenses after expense reimbursement (recoupment)(3)(4) % 1.42 1.35 1.45 1.53 1.57 1.60 Gross expenses prior to expense reimbursement (recoupment)(3) % 1.41 1.35 2.10 1.65 1.74 1.75 Net investment income after expense reimbursement (recoupment)(3)(4) % 2.20 1.78 1.82 2.08 5.64 2.83 Portfolio turnover rate % 145 129 28 138 160 167 Class B --------------------------------------------------------------------- Eleven Three Months Year Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, ---------------------------- 2001(5) 2000 1999(1) 1999 1998 1997 ------- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 30.20 25.34 23.86 20.56 16.60 14.96 Income from investment operations: Net investment income $ 0.49 0.29 0.07 0.29 0.32 0.31 Net realized and unrealized gain (loss) on investments $ (5.49) 8.77 1.47 3.47 4.65 1.64 Total from investment operations $ (5.00) 9.06 1.54 3.76 4.97 1.95 Less distributions from: Net investment $ 0.34 0.19 0.06 0.27 0.32 0.31 Net realized gain on investments $ 5.30 4.01 -- 0.19 0.69 -- Total distributions $ 5.64 4.20 0.06 0.46 1.01 0.31 Net asset value, end of period $ 19.56 30.20 25.34 23.86 20.56 16.60 Total Return(2): % (18.26) 39.21 6.47 18.52 30.51 13.01 Ratios/Supplemental Data: Net assets, end of period (000's) $ 125,366 139,704 68,091 58,736 36,725 12,740 Ratio to average net assets: Net expenses after expense reimbursement (recoupment)(3)(4) % 2.07 2.00 2.10 2.18 2.22 2.25 Gross expenses prior to expense reimbursement (recoupment)(3) % 2.06 2.00 2.10 2.30 2.33 3.19 Net investment income after expense reimbursement (recoupment)(3)(4) % 1.55 1.13 1.17 1.44 5.04 2.29 Portfolio turnover rate % 145 129 28 138 160 167 Class C -------------------------------- Eleven Three Months Year Months Ended Ended Ended May 31, June 30, June 30, 2001(5) 2000 1999(1) ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 28.33 23.78 22.40 Income from investment operations: Net investment income $ 0.58 0.28 0.07 Net realized and unrealized gains (loss) on investments $ (5.26) 8.22 1.37 Total from investment operations $ (4.68) 8.50 1.44 Less distributions from: Net investment $ 0.35 0.19 0.06 Net realized gain on investments $ 4.97 3.76 -- Total distributions $ 5.32 3.95 0.06 Net asset value, end of period $ 18.33 28.33 23.78 Total Return(2): % (18.25) 39.24 6.45 Ratios/Supplemental Data: Net assets, end of period (000's) $ 118,363 156,592 100,276 Ratio to average net assets: Net expenses after expense reimbursement (recoupment)(3)(4) % 2.07 2.00 2.10 Gross expenses prior to expense reimbursement (recoupment)(3) % 2.06 2.00 2.10 Net investment income after expense reimbursement (recoupment)(3)(4) % 1.55 1.13 1.17 Portfolio turnover rate % 145 129 28 Class C ----------------------------- Year Ended March 31, ----------------------------- 1999 1998 1997 ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 19.55 17.05 15.89 Income from investment operations: Net investment income $ 0.28 0.34 0.37 Net realized and unrealized gains (loss) on investments $ 3.25 4.60 1.66 Total from investment operations $ 3.53 4.94 2.03 Less distributions from: Net investment $ 0.25 0.34 0.37 Net realized gain on investments $ 0.43 2.10 0.50 Total distributions $ 0.68 2.44 0.87 Net asset value, end of period $ 22.40 19.55 17.05 Total Return(2): % 18.45 30.22 12.91 Ratios/Supplemental Data: Net assets, end of period (000's) $ 95,998 81,561 62,143 Ratio to average net assets: Net expenses after expense reimbursement (recoupment)(3)(4) % 2.18 2.22 2.25 Gross expenses prior to expense reimbursement (recoupment)(3) % 2.30 2.31 2.29 Net investment income after expense reimbursement (recoupment)(3)(4) % 1.44 4.99 2.18 Portfolio turnover rate % 138 160 167
---------- (1) Effective May 24, 1999, Pilgrim Investment LLC, became the Investment Manager of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-advisor and the Fund changed its year end to June 30. (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. (5) The Fund changed its fiscal year end to May 31. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Convertible Fund 69 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 auditors' 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 U.S. 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: U.S. Securities and Exchange Commission Public Reference Section 450 Fifth Street, NW 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 Growth Opportunities Fund 811-4431 Pilgrim Mutual Funds 811-7428 Pilgrim Equity Trust 811-8817 Pilgrim LargeCap Growth Fund Pilgrim MidCap Opportunities Fund Pilgrim MidCap Growth Fund Pilgrim Mayflower Trust 811-7978 Pilgrim SmallCap Growth Fund Pilgrim Research Enhanced Index Fund Pilgrim Balanced Fund Pilgrim Growth + Value Fund Pilgrim Convertible Fund Pilgrim SmallCap Opportunities Fund 811-4434 Pilgrim Financial Services Fund, Inc. 811-4504 Pilgrim Growth and Income Fund, Inc. 811-0865 Pilgrim Funds Trust 811-8895 Pilgrim Investment Funds, Inc. 811-1939 Pilgrim Tax Efficient Equity Fund Pilgrim MagnaCap Fund Pilgrim Internet Fund
[LOGO] ING PILGRIM USEQPROS100101-100101 PROSPECTUS U.S. EQUITY FUNDS October 1, 2001 Pilgrim MagnaCap Pilgrim Growth and Income CLASS Q Pilgrim Research Enhanced Index Pilgrim Growth Opportunities Pilgrim LargeCap Growth Pilgrim MidCap Opportunities Pilgrim MidCap Growth Pilgrim Growth + Value Pilgrim SmallCap Opportunities Pilgrim SmallCap Growth EQUITY & INCOME FUNDS Pilgrim Balanced Pilgrim Convertible [GRAPHIC] THIS PROSPECTUS CONTAINS IMPORTANT INFORMATION ABOUT INVESTING IN THE CLASS Q SHARES OF 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 U.S. 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. [LOGO] ING PILGRIM WHAT'S INSIDE -------------------------------------------------------------------------------- [GRAPHIC] OBJECTIVE These pages contain a description of each of our Funds included in this prospectus, including each Fund's objective, investment strategy and risks. [GRAPHIC] INVESTMENT STRATEGY You'll also find: [GRAPHIC] RISKS How the Fund has performed. A chart that shows the Fund's financial performance for the past ten years (or since inception, if shorter). [GRAPHIC] HOW THE FUND HAS PERFORMED What you pay to invest. A list of the fees and expenses you pay -- both directly and indirectly -- when you invest in a Fund. Introduction to the Pilgrim Funds 1 Funds At A Glance 2 U.S. EQUITY FUNDS Pilgrim MagnaCap 4 Pilgrim Growth and Income 6 Pilgrim Research Enhanced Index 8 Pilgrim Growth Opportunities 10 Pilgrim LargeCap Growth 12 Pilgrim MidCap Opportunities 14 Pilgrim MidCap Growth 16 Pilgrim Growth + Value 18 Pilgrim SmallCap Opportunities 20 Pilgrim SmallCap Growth 22 EQUITY & INCOME FUNDS Pilgrim Balanced 24 Pilgrim Convertible 26 What You Pay to Invest 28 Shareholder Guide 30 Management of the Funds 34 Dividends, Distributions and Taxes 37 More Information About Risks 38 Financial Highlights 41 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. U.S. EQUITY FUNDS ING Pilgrim's U.S. Equity Funds focus on long-term growth by investing primarily in domestic equities. They may suit you if you: * are investing for the long-term -- at least several years. * are willing to accept higher risk in exchange for long-term growth. EQUITY AND INCOME FUNDS ING Pilgrim's Equity and Income Funds seek income and growth of capital. They may suit you if you: * want both regular income and capital appreciation. * are looking for growth potential but don't feel comfortable with the level of risk associated with the Equity Funds. [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 4.
FUND INVESTMENT OBJECTIVE -------------------------------------------------------------------------------- U.S. Equity MagnaCap Fund Growth of capital, with dividend income Funds Adviser: ING Pilgrim Investments, LLC as a secondary consideration Growth and Income Fund Long-term capital appreciation with Adviser: ING Pilgrim Investments, LLC income as a secondary objective Research Enhanced Index Fund Capital appreciation Adviser: ING Pilgrim Investments, LLC Sub-Adviser: Aeltus Investment Management, Inc. Growth Opportunities Fund Long-term growth of capital Adviser: ING Pilgrim Investments, LLC LargeCap Growth Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC MidCap Opportunities Fund Long-term capital appreciation Adviser: ING Pilgrim Investments, LLC MidCap Growth Fund Maximum long-term capital appreciation Adviser: ING Pilgrim Investments, LLC Growth + Value Fund Capital appreciation Adviser: ING Pilgrim Investments, LLC Sub-Adviser: Navellier Fund Management, Inc. SmallCap Opportunities Fund Capital appreciation Adviser: ING Pilgrim Investments, LLC SmallCap Growth Fund Maximum long-term capital appreciation Adviser: ING Pilgrim Investments, LLC Equity & Balanced Fund Long-term capital appreciation and Income Funds Adviser: ING Pilgrim Investments, LLC current income Convertible Fund Total return, consisting of capital Adviser: ING Pilgrim Investments, LLC appreciation and current income
2 FUNDS AT A GLANCE --------------------------------------------------------------------------------
MAIN INVESTMENTS MAIN RISKS ------------------------------------------------------------------------------------------------------- Equity securities that meet disciplined Price volatility and other risks that accompany an selection criteria designed to identify investment in equity securities. companies capable of paying rising dividends. Equity securities of large, ably Price volatility and other risks that accompany an managed, and well-financed U.S. investment in equity securities. companies. Equity securities of large U.S. Price volatility and other risks that accompany an companies that make up the S&P 500 investment in equity securities. Index. Equity securities of large, medium, and Price volatility and other risks that accompany an small U.S. companies believed to have investment in growth-oriented equity securities. growth potential. Equity securities of large U.S. Price volatility and other risks that accompany an companies believed to have growth investment in growth-oriented equity securities. potential. Equity securities of medium-sized U.S. Price volatility and other risks that accompany an companies believed to have growth investment in equity securities of growth-oriented and potential. medium-sized companies. Particularly sensitive to price swings during periods of economic uncertainty. Equity securities of medium-sized U.S. Price volatility and other risks that accompany an companies believed to have growth investment in equity securities of medium-sized companies. potential. Particularly sensitive to price swings during periods of economic uncertainty. Equity securities of small-sized U.S. Price volatility and other risks that accompany an companies. investment in equity securities of growth-oriented and small-sized companies. Particularly sensitive to price swings during periods of economic uncertainty. Equity securities of small-sized U.S. Price volatility and other risks that accompany an companies believed to have growth investment in equity securities of growth-oriented and potential. small-sized companies. Particularly sensitive to price swings during periods of economic uncertainty. Equity securities of small-sized U.S. Price volatility and other risks that accompany an companies believed to have growth investment in equity securities of growth-oriented and potential. small-sized companies. Particularly sensitive to price swings during periods of economic uncertainty. A mix of equity and debt securities. Price volatility and other risks that accompany an investment in equity securities. Credit, interest rate and other risks that accompany an investment in debt securities. Convertible securities of companies of Price volatility and other risks that accompany an various sizes, as well as equities, and investment in equity securities. Credit, interest rate, high-yield debt. liquidity and other risks that accompany an investment in debt securities,and lower quality debt securities.
3 Adviser PILGRIM MAGNACAP FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks growth of capital, with dividend income as a secondary consideration. INVESTMENT STRATEGY [GRAPHIC] The Fund is managed with the philosophy that companies that can best meet the Fund's objectives have paid increasing dividends or have had the capability to pay rising dividends from their operations. The Fund normally invests at least 65% of its assets in equity securities of companies that meet the following disciplined criteria: Consistent Dividends -- A company must have paid or had the financial capability from its operations to pay a dividend in eight out of the last ten years. Substantial Dividend Increases -- A company must have increased its dividends or had the financial capability from its operations to have increased its dividends at least 100% over the past 10 years. Reinvested Earnings -- Dividend payout must be less than 65% of current earnings. Strong Balance Sheet -- Long term debt should be no more than 25% of the company's total capitalization or a company's bonds must be rated at least A- or A-3. Attractive Price -- A company's current share price should be in the lower half of the stock's price/earnings ratio range for the past ten years, or the ratio of the share price to its anticipated future earnings must be an attractive value in relation to the average for its industry peer group or that of the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index). The equity securities in which the Fund may invest include common stocks, convertible securities, and rights or warrants. Normally the Fund's investments are primarily in larger companies that are included in the largest 500 U.S. companies. The remainder of the Fund's assets may be invested in equity securities that the adviser believes have growth potential because they represent an attractive value. In selecting securities for the Fund, preservation of capital is also an important consideration. Although the Fund normally will be invested as fully as practicable in equity securities, assets that are not invested in equity securities may be invested in high quality debt securities. The Fund may invest up to 5% of its assets, measured at the time of investment, in foreign securities. -------------------------------------------------------------------------------- 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. Market Trends -- from time to time, the stock market may not favor the value securities that meet the Fund's disciplined investment criteria. Rather, the market could favor growth-oriented stocks or small company stocks, or may not favor equities at all. 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. Credit Risk -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This is especially true during periods of ecomonic uncertainty or economic downturns. 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. 4 Pilgrim MagnaCap Fund PILGRIM MAGNACAP 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 Q shares from year to year. Year by Year Total Returns (%)(1) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 1.33 ---------- (1) These figures are for the year ended December 31 of each year. Best and worst quarterly performance during this period: 3rd quarter 2000: 4.32% 1st quarter 2000: -1.48% The Fund's year-to-date total return as of June 30, 2001: -9.54% 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 S&P 500 Index. For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns S&P 500 Class Q Index(2) ------- -------- One year, ended December 31, 2000 % 1.33 -9.11 Since inception (3) % 1.19 -5.24 ---------- (2) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. (3) Class Q commenced operations on November 22, 1999. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MagnaCap Fund 5 Adviser PILGRIM GROWTH AND INCOME FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund's principal investment objective is long-term capital appreciation. Income is a secondary objective. INVESTMENT STRATEGY [GRAPHIC] The Fund will invest at least 65% of its total assets in common stocks of U.S. companies, which may include dividend paying securities and securities convertible into shares of common stock. The Fund seeks to invest in large, ably managed and well financed companies. The investment approach is to identify high quality companies with good earnings and price momentum which sell at attractive valuations. The Fund may invest the remaining 35% of its assets in foreign securities and smaller capitalization companies. -------------------------------------------------------------------------------- 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. The Fund also may invest in small and medium-sized companies, which may be more susceptible to price swings 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 large company value securities in which the Fund invests. Rather, the market could favor growth-oriented stocks or small company stocks, or may not favor equities at all. Inability to Sell Securities -- securities of smaller companies trade in lower volume and may be less liquid than securities of larger, more established 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. 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. 6 Pilgrim Growth and Income Fund PILGRIM GROWTH AND INCOME 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 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 24.87 12.36 13.22 -3.11 22.57 26.46 30.36 21.42 15.54 -3.13 ---------- (1) These figures are for the year ended December 31 of each year. (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 26, 2000, the Fund's outstanding shares were classified as Class A shares. Because Class Q shares were first offered in 2001, the returns in the bar chart are based upon the performance of Class A shares of the Fund. Class A shares are not offered in this prospectus. Class A shares would have substantially similar annual returns as the Class Q shares because the classes are invested in the same portfolio of securities. Annual returns would differ only to the extent Class Q and Class A shares have different expenses. Best and worst quarterly performance during this period: 4th quarter 1998: 21.91% 3rd quarter 1998: -12.33% The Fund's year-to-date total return as of June 30, 2001: -7.35% 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 S&P 500 Index. For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns S&P 500 Class A(3) Index(4) ---------- -------- One year, ended December 31, 2000 % -8.70 -9.11 Five years, ended December 31, 2000 % 16.12 18.33 Ten years, ended December 31, 2000 % 14.82 17.44 ---------- (3) This table shows performance of the Class A shares of the Fund because Class Q shares of the Fund did not have a full year's performance during the year ended December 31, 2000. Reflects deduction of Class A sales charge of 5.75%. See footnote (2) to the bar chart above. (4) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Growth and Income Fund 7 Adviser ING Pilgrim Investments, LLC Sub-Adviser PILGRIM RESEARCH ENHANCED INDEX FUND Aeltus Investment Management, Inc. -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests at least 80% of its net assets in stocks included in the Standard & Poor's Composite Stock Price Index (S&P 500 Index). The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. In managing the Fund, the portfolio managers attempt to achieve the investment objective by overweighting those stocks in the S&P 500 Index that the portfolio managers believe will outperform the index, and underweighting (or avoiding altogether) those stocks that the portfolio managers believe will underperform the index. In determining stock weightings, the portfolio managers use internally developed quantitative computer models to evaluate various criteria such as the financial strength of each company and its potential for strong, sustained earnings growth. At any one time, the portfolio managers generally include in the Fund approximately 400 of the stocks included in the S&P 500 Index. Although the Fund will not hold all the stocks in the S&P 500 Index, the portfolio managers expect that there will be a close correlation between the performance of the Fund and that of the S&P 500 Index in both rising and falling markets, as the Fund is designed to have risk characteristics (e.g. price-to-earnings ratio, dividend yield, volatility) which approximate those of the S&P 500 Index. The Fund may also invest in certain higher-risk investments, including derivatives (generally, these investments will be limited to S&P 500 Index options and futures on the S&P 500 Index). -------------------------------------------------------------------------------- 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 portfolio managers try to remain fully invested in companies included in the S&P 500 Index, and generally do not change this strategy even temporarily, which could make the Fund more susceptible to poor market conditions. Market Trends -- from time to time, the stock market may not favor the large company securities that are ranked as undervalued or fairly valued in which the Fund invests. Rather, the market could favor small company stocks, growth- oriented stocks, or may not favor equities at all. Risks of Using Derivatives -- derivatives are subject to the risk of changes in the market price of the security and the risk of loss due to changes in interest rates. The use of certain derivatives may also have a leveraging effect, which may increase the volatility of the Fund. The use of derivatives may reduce returns for the Fund. 8 Pilgrim Research Enhanced Index Fund PILGRIM RESEARCH ENHANCED INDEX 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 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 18.59 -12.79 ---------- (1) These figures are for the year ended December 31 of each year. (2) Because Class Q shares were first offered in 2000, the returns in the bar chart are based upon the performance of Class A shares of the Fund. Class A shares are not offered in this prospectus. Class A shares would have substantially similar annual returns as the Class Q shares because the classes are invested in the same portfolio of securities. Annual returns would differ only to the extent Class Q and Class A shares have different expenses. (3) Prior to August 1, 2001, the Fund was managed by a different sub-adviser. Best and worst quarterly performance during this period: 4th quarter 1999: 12.41% 4th quarter 2000: -8.54% The Fund's year-to-date total return as of June 30, 2001: -6.52% 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 S&P 500 Index. For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns S&P 500 Class A(4) Index(5) ---------- -------- One year, ended December 31, 2000 % -17.23 -9.11 Since inception(6) % -0.94 4.89 ---------- (4) This table shows performance of the Class A shares of the Fund because Class Q shares of the Fund did not have a full year's performance during the year ended December 31, 2000. Reflects deduction of Class A sales charge of 5.75%. See footnote (2) to the bar chart above. (5) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. (6) Class A commenced operations on December 30, 1998. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Research Enhanced Index Fund 9 Adviser PILGRIM GROWTH OPPORTUNITIES FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] This Fund seeks long-term growth of capital. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in common stock of U.S. companies that the portfolio manager feels have above average prospects for growth. Under normal market conditions, the Fund invests at least 65% of its total assets in securities purchased on the basis of the potential for capital appreciation. These securities may be from large-cap, mid-cap, or small-cap companies. The portfolio manager uses a "top-down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a trend-oriented approach in structuring the portfolio and a sell discipline. The portfolio managers seek to invest in companies expected to benefit most from major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and attempt to provide a framework for identifying the industries and companies expected to benefit most. This "top-down" approach is combined with rigorous fundamental research (a "bottom-up" approach) to guide stock selection and portfolio structure. -------------------------------------------------------------------------------- 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 portfolio manager feels 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 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 may not favor equities at all. Inability to Sell Securities -- securities of smaller companies trade in lower volume and may be less liquid than securities of larger, more established 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 Growth Opportunities Fund PILGRIM GROWTH OPPORTUNITIES 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 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 20.54 23.59 23.61 93.26 -19.11 ---------- (1) These figures are for the year ended December 31 of each year. (2) Because Class Q shares were first offered in 2000, the returns in the bar chart are based upon the performance of Class A shares of the Fund. Class A shares are not offered in this prospectus. Class A shares would have substantially similar annual returns as the Class Q shares because the classes are invested in the same portfolio of securities. Annual returns would differ only to the extent Class Q and Class A shares have different expenses. Best and worst quarterly performance during this period: 4th quarter 1999: 39.10% 4th quarter 2000: -24.38% The Fund's year-to-date total return as of June 30, 2001: -28.53% 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 Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index). For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns S&P 500 Class A(3) Index(4) ---------- -------- One year, ended December 31, 2000 % -23.75 -9.11 Five years, ended December 31, 2000 % 22.09 18.33 Since Inception(5) % 21.95 19.52 ---------- (3) This table shows performance of the Class A shares of the Fund, because Class Q shares of the Fund did not have a full year's performance during the year ended December 31, 2000. Reflects deduction of Class A sales charge of 5.75%. See footnote (2) to the bar chart above. (4) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. (5) Class A commenced operations on June 5, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Growth Opportunities Fund 11 Adviser PILGRIM LARGECAP GROWTH 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 net assets in equity securities of large U.S. companies that the portfolio managers believe have above-average prospects for growth. The equity securities in which the Fund may invest include common and preferred stock and warrants. The Fund considers a company to be large if its market capitalization corresponds at the time of purchase to the upper 90% of the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index). As of June 30, 2001, this meant market capitalizations in the range of $8.4 billion to $484 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 expectations. 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. 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 primarily in equity securities of larger companies, which sometimes have more stable prices than smaller companies. Market Trends -- from time to time, the stock market may not favor the large company, growth-oriented securities in which the Fund invests. Rather, the market could favor value stocks or small company stocks, or may not favor equities at all. 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 LargeCap Growth Fund PILGRIM LARGECAP 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 Q shares from year to year. Year by Year Total Returns (%)(1)(2) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 60.02 96.93 -19.12 ---------- (1) These figures are for the year ended December 31 of each year. (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. Best and worst quarterly performance during this period: 4th quarter 1999: 45.16% 4th quarter 2000: -23.25% The Fund's year-to-date total return as of June 30, 2001: -27.01% 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 Russell 1000 Growth Index and the S&P 500 Index. For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns Russell 1000 Growth S&P 500 Class Q Index(3) Index(4) ------- -------- -------- One year, ended December 31, 2000 % -19.12 -22.42 -9.11 Since inception(5) % 33.90 11.19 11.46 ---------- (3) The Russell 1000 Growth Index is an unmanaged index that measures the performance of securities of companies among the Russell 1000 Index with higher than average price to book ratios and forcasted growth. (4) The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large- capitalization companies whose securities are traded on major U.S. stock markets. (5) Class Q commenced operations on July 21, 1997. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim LargeCap Growth Fund 13 Adviser PILGRIM MIDCAP OPPORTUNITIES FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] This Fund seeks long-term capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund normally invests at least 65% of its total assets in the common stocks of mid-sized U.S. companies that the portfolio managers feel have above average prospects for growth. For this Fund, mid-sized companies are companies with market capitalizations that fall within the range of companies in the Standard & Poor's MidCap 400 Index (S&P MidCap 400 Index). As of June 30, 2001, the market capitalization of companies in the S&P MidCap 400 Index ranged from $312 million to $11.8 billion. The market capitalization range will change as the range of the companies included in the S&P MidCap 400 Index changes. The portfolio managers use a "top-down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a trend-oriented approach in structuring the portfolio and a sell discipline. The portfolio managers seek to invest in companies expected to benefit most from major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and attempt to provide a framework for identifying the industries and companies expected to benefit most. This "top-down" approach is combined with rigorous fundamental research (a "bottom-up" approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. -------------------------------------------------------------------------------- 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 portfolio managers feel have the potential for 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 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 may be dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the mid-cap growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or large or small company 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. Inability to Sell Securities -- securities of mid-size companies trade in lower volume and may be less liquid than securities of larger, more established 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. Initial Public Offerings -- a significant portion of the Fund's return may be attributable to its investment in initial public offerings. When the Fund's asset base is small, the impact of such investments on the Fund's return will be magnified. As the Fund's assets grow, it is probable that the effect of the Fund's investment in initial public offerings on the Fund's total return will decline. 14 Pilgrim MidCap Opportunities Fund PILGRIM MIDCAP OPPORTUNITIES 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 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 103.24 -0.35 ---------- (1) These figures are for the year ended December 31 of each year. (2) Because Class Q shares were first offered in 2000, the returns in the bar chart are based upon the performance of Class A shares of the Fund. Class A shares are not offered in this prospectus. Class A shares would have substantially similar annual returns as the Class Q shares because the classes are invested in the same portfolio of securities. Annual returns would differ only to the extent Class Q and Class A shares have different expenses. Best and worst quarterly performance during this period: 4th quarter 1999: 44.90% 4th quarter 2000: -19.33% The Fund's year-to-date total return as of June 30, 2001: -26.94% 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 S&P MidCap 400 Index. For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns S&P MidCap 400 Class A(3) Index(4) ---------- -------- One year, ended December 31, 2000 % -6.08 17.51 Since Inception(5) % 46.55 30.86 ---------- (3) This table shows performance of the Class A shares of the Fund because Class Q shares of the Fund did not have a full year's performance during the year ended December 31, 2000. Reflects deduction of Class A sales charge of 5.75%. See footnote (2) to the bar chart above. (4) The S&P MidCap 400 Index is an unmanaged index that measures the performance of the mid-size company segment of the U.S. market. (5) Class A commenced operations on August 20, 1998. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MidCap Opportunities Fund 15 Adviser PILGRIM MIDCAP 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 total assets in equity securities of medium-sized U.S. companies, and at least 75% of its total assets in common stocks that the portfolio managers feel have above average prospects for growth. For this Fund, mid-sized companies are companies with market capitalizations between $1.6 billion and $10.7 billion. The market capitalization range will change as the range of the companies included in the Standard and Poor's MidCap 400 Index (S&P MidCap 400 Index) changes and with market conditions. The portfolio managers emphasize a growth approach by searching for successful, growing companies that are managing change advantageously and may be poised to exceed growth expectations. The portfolio managers use both a "bottom-up" analysis that evaluates the financial condition and competitiveness of individual companies and a thematic approach in structuring the portfolio and a sell discipline. Themes attempt to articulate the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and provide a framework for identifying the industries and companies expected to benefit most. This top down approach is combined with rigorous fundamental research (a "bottom up" approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. In periods of unusual market conditions, the Fund may temporarily invest part or all of its assets in cash or high quality money market securities. In these circumstances, the Fund may not achieve its objective. -------------------------------------------------------------------------------- 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 portfolio manager feels have the potential for 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 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 may be dependent on a few key managers. Market Trends -- from time to time, the stock market may not favor the mid-cap growth securities in which the Fund invests. Rather, the market could favor value-oriented stocks or large or small company 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. Inability to Sell Securities -- securities of mid-size companies usually trade in lower volume and may be less liquid than securities of larger, more established 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. Initial Public Offerings -- a significant portion of the Fund's return may be attributable to its investment in initial public offerings. When the Fund's asset base is small, the impact of such investments on the Fund's return will be magnified. As the Fund's assets grow, it is probable that the effect of the Fund's investment in initial public offerings on the Fund's total return will decline. 16 Pilgrim MidCap Growth Fund PILGRIM MIDCAP 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 Q shares from year to year. Year by Year Total Returns (%)(1)(2) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 38.24 16.06 16.20 14.32 98.50 -4.47 ---------- (1) These figures are for the year ended December 31 of each year. (2) ING Pilgrim Investments, LLC has been the Fund's investment adviser since May 24, 1999; however, prior to April 1, 2000, the Fund was managed by a sub-adviser. Best and worst quarterly performance during this period: 4th quarter 1999: 62.82% 4th quarter 2000: -21.08% The Fund's year-to-date total return as of June 30, 2001: -26.56% 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 S&P MidCap 400 Index and the Russell MidCap Growth Index. For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns S&P Russell MidCap MidCap 400 Growth Class Q Index(3) Index(4) ------- -------- -------- One year, ended December 31, 2000 % -4.47 17.51 -11.75 Five years, ended December 31, 2000 % 23.93 20.41 17.77 Since inception(5) % 24.28 20.98 19.63 ---------- (3) The S&P MidCap 400 Index is an unmanaged index that measures the performance of the mid-size company segment of the U.S. market. (4) The Russell MidCap Growth Index is an unmanaged index that measures the performance of the 800 smallest companies in the Russell 1000 Index. (5) Class Q shares commenced operations on June 30, 1994. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MidCap Growth Fund 17 Adviser ING Pilgrim Investments, LLC Sub-Adviser PILGRIM GROWTH + VALUE FUND Navellier Fund Management, Inc. -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] This Fund seeks capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests primarily in a diversified portfolio of equity securities, including common and preferred stock, warrants and convertible securities. The Fund invests in common stock of companies the portfolio manager believes are poised to rise in price. The Sub-Adviser uses a "bottom-up" quantitative screening process designed to identify and select inefficiently priced stocks that achieved superior returns compared to their risk characteristics. The Sub-Adviser first uses a proprietary computer model designed to identify stocks with above average market returns and risk levels which are reasonable for higher return rates. The Sub-Adviser then applies a quantitative analysis, which focuses on growth and value fundamental characteristics, such as earnings growth, earnings momentum, price to earnings (P/E) ratios, and internal reinvestment rates. The Sub-Adviser then allocates stocks according to how they complement other portfolio holdings. Under normal market conditions, the Fund invests at least 65% of its total assets in securities purchased on the basis of the potential for capital appreciation. These securities may be from large-cap, mid-cap, or small-cap companies. -------------------------------------------------------------------------------- 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's performance will be affected if the Sub-Adviser makes an inaccurate assessment of economic conditions and investment opportunities, and chooses growth companies that do not grow as quickly as hoped, or value companies that continue to be undervalued by the market. Although the Sub-Adviser invests in value companies to decrease volatility, these investments may also lower the Fund's performance. The Fund's investments in smaller and mid-sized companies may be more susceptible to price swings than investments in 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 mix of growth and value securities in which the Fund invests. Rather, the market could favor growth stocks to the exclusion of value stocks, or favor value stocks to the exclusion of growth stocks, or may not favor equities at all. Inability to Sell Securities -- securities of smaller and mid-sized companies usually trade in lower volume and may be less liquid than securities of larger, more established 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. Changes in Interest Rates -- the value of the Fund's convertible securities may fall when interest rates rise. Convertible securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. Credit Risk -- the Fund could lose money if the issuer of a convertible security is unable to meet its financial obligations or goes bankrupt. 18 Pilgrim Growth + Value Fund PILGRIM GROWTH + 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 Returns (%)(1)(2) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 18.10 17.72 88.10 -13.02 ---------- (1) These figures are for the year ended December 31 of each year. (2) Because Class Q shares were first offered in 2000, the returns in the bar chart are based upon the performance of Class A shares of the Fund. Class A shares are not offered in this prospectus. Class A shares would have substantially similar annual returns as the Class Q shares because the classes are invested in the same portfolio of securities. Annual returns would differ only to the extent Class Q and Class A shares have different expenses. Best and worst quarterly performance during this period: 4th quarter 1999: 43.50% 4th quarter 2000: -27.69% The Fund's year-to-date total return as of June 30, 2001: -23.44% 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 Russell 2000 Index. For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns Russell Russell 2000 3000 Class A(3) Index(4) Index(5) ---------- -------- -------- One year, ended December 31, 2000 % -18.02 -3.02 -7.46 Since inception(6) % 19.51 9.32(7) 15.61(7) ---------- (3) This table shows performance of the Class A shares of the Fund, because Class Q shares of the Fund did not have a full year's performance during the year ended December 31, 2000. Reflects deduction of Class A sales charge of 5.75%. See footnote (2) to the bar chart above. (4) The Russell 2000 Index is an unmanaged index that measures the performance of securities of smaller U.S. companies. (5) The Russell 3000 Index is an unmanaged index that measures the performance of 3000 large U.S. companies based on total market capitalization. (6) Class A commenced operations on November 18, 1996. (7) Index return is for the period beginning December 1, 1996. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Growth + Value Fund 19 Adviser PILGRIM SMALLCAP OPPORTUNITIES FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] This Fund seeks capital appreciation. INVESTMENT STRATEGY [GRAPHIC] The Fund invests at least 65% of its total assets in the common stock of smaller, lesser-known U.S. companies that the portfolio manager believes have above average prospects for growth. For this Fund, smaller companies are those with market capitalizations that fall within the range of companies in the Russell 2000 Index, which is an index that measures the performance of small companies. The market capitalization range will change as the range of the companies included in the Russell 2000 Index changes. The market capitalization of companies held by the Fund as of June 30, 2001 ranged from $133 million to $8.9 billion. The portfolio manager uses a "top-down" disciplined investment process, which includes extensive database screening, frequent fundamental research, identification and implementation of a trend-oriented approach in structuring the portfolio and a sell discipline. The portfolio manager seeks to invest in companies expected to benefit most from major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and attemps to provide a framework for identifying the industries and companies expected to benefit most. This "top-down" approach is combined with rigorous fundamental research (a "bottom-up" approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. -------------------------------------------------------------------------------- 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 portfolio manager feels have above average prospects for 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 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 small sized 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. 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. Inability to Sell Securities -- securities of smaller companies trade in lower volume and may be less liquid than securities of larger, more established 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. Initial Public Offerings -- a significant portion of the Fund's return may be attributable to its investment in initial public offerings. When the Fund's asset base is small, the impact of such investments on the Fund's return will be magnified. As the Fund's assets grow, it is probable that the effect of the Fund's investment in initial public offerings on the Fund's total return will decline. 20 Pilgrim SmallCap Opportunities Fund PILGRIM SMALLCAP OPPORTUNITIES 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 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 18.16 14.92 7.59 146.94 -6.04 ---------- (1) These figures are for the year ended December 31 of each year. (2) Because Class Q shares were first offered in 2000, the returns in the bar chart are based upon the performance of Class A shares of the Fund. Class A shares are not offered in this prospectus. Class A shares would have substantially similar annual returns as the Class Q shares because the classes are invested in the same portfolio of securities. Annual returns would differ only to the extent Class Q and Class A shares have different expenses. Best and worst quarterly performance during this period: 4th quarter 1999: 68.12% 3rd quarter 1998: -24.07% The Fund's year-to-date total return as of June 30, 2001: -18.59% 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 Russell 2000 Index. For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns Russell 2000 Class A(3) Index(4) ---------- -------- One year, ended December 31, 2000 % -11.44 -3.02 Five years, ended December 31, 2000 % 26.15 10.31 Since inception(5) % 25.73 12.49 (3) This table shows performance of the Class A shares of the Fund, because Class Q shares of the Fund did not have a full year's performance during the year ended December 31, 2000. Reflects deduction of Class A sales charge of 5.75%. See footnote (2) to the bar chart above. (4) The Russell 2000 Index is an unmanaged index that measures the performance of securities of small companies. (5) Class A commenced operations on June 5, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim SmallCap Opportunities Fund 21 Adviser PILGRIM SMALLCAP 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 total assets in equity securities of small U.S. companies, and at least 75% of its total assets in common stocks that the portfolio manager feels have above average prospects for growth. Smaller companies are companies with market capitalizations that fall within the range of companies in the Russell 2000 Growth Index. As of June 30, 2001, the market capitalization of companies held by the Fund ranged from $133 million to $9.2 billion. The market capitalization range will change as the range of the companies included in the Russell 2000 Index changes. The Fund emphasizes a growth approach by searching for successful, growing companies that are managing change advantageously and may be poised to exceed growth expectations. It focuses on both a "bottom-up" analysis that evaluates the financial condition and competitiveness of individual companies and a thematic approach in structuring the portfolio and a sell discipline. Themes attempt to articulate the major social, economic and technological trends that are likely to shape the future of business and commerce over the next three to five years, and provide a framework for identifying the industries and companies expected to benefit most. This "top-down" approach is combined with rigorous fundamental research (a "bottom up" approach) to guide stock selection and portfolio structure. The Fund may invest in initial public offerings. In periods of unusual market conditions, the Fund may temporarily invest part or all of its assets in cash or high quality money market securities. In these circumstances, the Fund may not achieve its objective. The Fund considers a company to be small if it has a market capitalization corresponding at the time of purchase to the middle 90% of the Russell 2000 Growth Index. In the adviser's opinion, the middle 90% includes companies with capitalizations between $255 million and $1.4 billion. Capitalization of companies in the Index will change with market conditions. -------------------------------------------------------------------------------- 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 portfolio manager feels have above average prospects for 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-cap 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 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. 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. Initial Public Offerings -- a significant portion of the Fund's return may be attributable to its investment in initial public offerings. When the Fund's asset base is small, the impact of such investments on the Fund's return will be magnified. As the Fund's assets grow, it is probable that the effect of the Fund's investment in initial public offerings on the Fund's total return will decline. 22 Pilgrim SmallCap Growth Fund PILGRIM 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 Q shares from year to year. Year by Year Total Returns (%)(1)(2) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 19.44 11.56 4.26 90.58 -5.40 ---------- (1) These figures are for the year ended December 31 of each year. (2) ING Pilgrim Investments, LLC has been the Fund's investment adviser since May 24, 1999; however, prior to April 1, 2000, the Fund was managed by a sub-adviser. Best and worst quarterly performance during this period: 4th quarter 1999: 50.68% 3rd quarter 1998: -23.41% The Fund's year-to-date total return as of June 30, 2001: -17.51% 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 Russell 2000 Growth Index. For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns Russell 2000 Growth Class Q Index(3) ------- -------- One year, ended December 31, 2000 % -5.40 -22.43 Five years, ended December 31, 2000 % 20.16 7.14 Since inception(4) % 19.77 7.39 ---------- (3) The Russell 2000 Growth Index is an unmanaged index that measures the performance of securities of smaller U.S. companies with greater-than-average growth orientation. (4) Class Q commenced operations on August 31, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim SmallCap Growth Fund 23 Adviser PILGRIM BALANCED FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks a balance of long-term capital appreciation and current income. INVESTMENT STRATEGY [GRAPHIC] The Fund's Adviser actively manages a blended portfolio of equity and debt securities with an emphasis on overall total return. The Fund normally maintains 40% to 60% of its assets in debt securities of any maturity issued by corporations or other business entities and the U.S. Government and its agencies and instrumentalities, and government sponsored enterprises, and normally seeks a target allocation of 50%, although this may vary with market conditions. The remainder of the Fund's assets are normally invested in equity securities of large companies that the Adviser believes are leaders in their industries. The Adviser considers whether these companies have a sustainable competitive edge. The portfolio managers emphasize a value approach in equity selection and seek securities whose prices in relation to projected earnings are believed to be reasonable in comparison to the market. For this Fund, a company with a market capitalization of over $5 billion is considered to be a large company, although the Fund may also invest to a limited degree in companies that have a market capitalization between $1 billion and $5 billion. A portion of the Fund's net assets (up to 35%) may be invested in high yield debt securities (commonly known as "junk bonds") rated below investment grade (i.e., lower than the four highest rating categories) by a nationally recognized statistical rating agency, or of comparable quality if unrated. There is no minimum credit quality for the high yield debt securities in which the Fund may invest. The Fund may invest up to 10% of its assets in other investment companies that invest in secured floating rate loans, including up to 5% of its assets in Pilgrim Prime Rate Trust, a closed-end investment company. The Fund may invest up to 20% of its total assets in foreign securities. The Fund may use options on securities, securities indices, interest rates and foreign currencies as a hedging technique or in furtherance of this investment objective. The Fund may invest up to 35% of its net assets in zero coupon securities. -------------------------------------------------------------------------------- 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 also may invest in smaller companies, which may be more susceptible to price swings than larger companies. Market Trends -- from time to time, the stock market may not favor the large company value securities in which the Fund invests. Rather, the market could favor growth-oriented stocks or small company stocks, or may not favor equities at all. Changes in Interest Rates -- the value of debt and equity securities can change in response to changes in interest rates. The value of the debt securities held by the Fund may fall when interest rates rise. The Fund may be sensitive to changes in interest rates because it may invest in debt securities with intermediate and long terms to maturity. 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. Zero coupon securities are particularly sensitive to changes in interest rates. Credit Risk -- the Fund could lose money if the issuer of a debt security is unable to meet its financial obligations or goes bankrupt. This Fund may be subject to more credit risk than the other income mutual funds, because it may invest in high yield debt securities, which are considered predominantly speculative with respect to the issuer's continuing ability to meet interest and principal payments. This is especially true during periods of economic uncertainty or economic downturns. Inability to Sell Securities -- high yield securities and securities of smaller companies may be less liquid than other investments. The Fund could lose money if it cannot sell a security at the time and price that would be most beneficial to 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. Risks of Using Derivatives -- derivatives are subject to the risk of changes in the market price of the security, credit risk with respect to the counterparty to the derivatives instrument, and the risk of loss due to changes in interest rates. The use of certain derivatives may also have a leveraging effect, which may increase the volatility of the Fund. The use of derivatives may reduce returns for the Fund. 24 Pilgrim Balanced Fund PILGRIM BALANCED 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 Q shares from year to year. Year by Year Total Returns (%)(1)(2) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 16.88 21.46 23.52 8.69 -3.06 ---------- (1) These figures are for the year ended December 31 of each year. (2) Prior to May 24, 1999, a different adviser managed the Fund. Best and worst quarterly performance during this period: 4th quarter 1998: 14.47% 1st quarter 1997: -5.00% The Fund's year-to-date total return as of June 30, 2001: -3.06% The table below provides some indication of the risks of investing in the Fund by comparing the Fund's performance to that of four broad measures of market performance -- the Standard and Poor's Barra Value Index (S&P Barra Value Index), the Lehman Aggregate Bond Index, the Lipper Balanced Fund Index and a composite index consisting of 60% S&P 500 composite stock Index and 40% Lehman Brothers Government/Corporate Bond Index (Composite Index). For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns
Lehman Lipper S&P Barra Aggregate Balanced Class Value Bond Fund Composite Q Index(3) Index(4) Index(5) Index(6) ----- -------- -------- -------- -------- One year, ended December 31, 2000 % -3.06 27.84 11.63 2.39 1.50 Five years, ended December 31, 2000 % 13.06 17.04 6.46 11.80 11.38 Since inception(7) % 12.10 17.80 7.07 N/A 14.58
---------- (3) The S&P Barra Value Index is a capitalization-weighted index of all stocks in the S&P 500 Index that have low price-to-book ratios. It is designed so that approximately 50% of the market capitalization of the S&P 500 Index is in the Standard and Poor's Barra Value Index. (4) The Lehman Aggregate Bond Index is an unmanaged index that measures the performance of the U.S. investment grade fixed rate bond market, including government and corporate securities, mortgage pass-through securities, and asset-backed securities. (5) The Lipper Balanced Fund Index is an unmanaged index that measures the performance of balanced funds (funds that seek current income balanced with capital appreciation). (6) The Composite Index consists of 60% of the S&P 500 Index and 40% of the Lehman Brothers Government/Corporate Bond Index. The S&P 500 Index is an unmanaged index that measures the performance of securities of approximately 500 large-capitalization companies whose securities are traded on major U.S. stock markets. The Lehman Brothers Government/Corporate Bond Index is a widely recognized, unmanaged index of publicly issued fixed rate U.S. Government, investment grade, mortgage-backed and corporate debt securities. (7) Class Q commenced operations on August 31, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Balanced Fund 25 Adviser PILGRIM CONVERTIBLE FUND ING Pilgrim Investments, LLC -------------------------------------------------------------------------------- OBJECTIVE [GRAPHIC] The Fund seeks maximum total return, consisting of capital appreciation and current income. INVESTMENT STRATEGY [GRAPHIC] Under normal conditions, the Fund invests at least 65% of its total assets in convertible securities. Convertible securities are generally preferred stock or other securities, including debt securities, that are convertible into common stock. The Fund emphasizes companies with market capitalizations above $500 million. The convertible debt securities in which the Fund invests may be rated below investment grade (high risk instruments), or, if not rated, may be of comparable quality. There is no minimum credit rating for securities in which the Fund may invest. Through investments in convertible securities, the Fund seeks to capture the upside potential of the underlying equities with less downside exposure. The Fund may also invest up to 35% of its total assets in common and nonconvertible preferred stocks, and in debt securities, which may include high yield debt (commonly known as "junk bonds") rated below investment grade, or of comparable quality if unrated. The Fund may also invest in securities issued by the U.S. government and its agencies and instrumentalities. Most but not all of the bonds in which the Fund invests have a remaining maturity of 10 years or less, or, in the case of convertible debt securities, have a remaining maturity or may be put back to the issuer in 10 years or less. In evaluating convertibles the Fund's Adviser evaluates each security's investment characteristics as a fixed income instrument as well as its potential for capital appreciation. In analyzing specific companies for possible investment, the 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 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. Convertible securities have investment characteristics of both equity and debt securities. 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. Changes in Interest Rates -- the value of the convertible and debt securities held by the Fund may fall when interest rates rise. The Fund may be sensitive to changes in interest rates because it may invest in securities with intermediate and long terms to maturity. Securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. Due to their hybrid nature, convertible securities are typically more sensitive to changes in interest rates than the underlying common stock, but less sensitive to interest rate changes than a fixed rate corporate bond. Credit Risk -- the Fund could lose money if the issuer of a security is unable to meet its financial obligations or goes bankrupt. This is especially true during periods of economic uncertainty or economic downturns. This Fund may be subject to more credit risk than many bond funds, because the convertible securities and debt securities in which it invests may be lower-rated securities. Inability to Sell Securities -- convertible securities and lower rated debt securities may be less liquid than other investments. 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. 26 Pilgrim Convertible Fund PILGRIM CONVERTIBLE 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 Q shares from year to year. Year by Year Total Returns (%)(1)(2) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 20.74 23.04 21.40 50.44 -8.74 ---------- (1) These figures are for the year ended December 31 of each year. (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. Best and worst quarterly performance during this period: 4th quarter 1999: 34.68% 4th quarter 2000: -16.00% The Fund's year-to-date total return as of June 30, 2001: -6.15% 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 First Boston Convertible Index. For total returns of the Fund on an after-tax basis, see the SAI. Average Annual Total Returns First Boston Convertible Class Q Index(3) ------- -------- One year, ended December 31, 2000 % -8.74 -7.83 Five years, ended December 31, 2000 % 19.88 13.21 Since inception(4) % 19.29 12.83 ---------- (3) The First Boston Convertible Index is an unmanaged index that measures the performance of a universe of convertible securities that are similar, but not identical, to those in the Fund's portfolio. (4) Class Q commenced operations on August 31, 1995. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Convertible Fund 27 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 table below shows the fees and expenses for Class Q shares of the Funds. Fees You Pay Directly Class Q ------- Maximum sales charge on your investment (as a % of offering price) none Maximum deferred sales charge (as a % of purchase or sales price, whichever is less) none Operating Expenses Paid Each Year by the Funds(1) (as a % of average net assets)
Total Fund Waivers Management Service Other Operating and Net Fund Fee Fees Expenses Expenses Reimbursements(2) Expenses ---- --- ---- -------- -------- ----------------- -------- MagnaCap(3) % 0.72 0.25 0.13(4) 1.10(4) -- 1.10(4) Growth and Income(3) % 0.63 0.25 0.54(5)(6)(7) 1.42(5) -- 1.42(5) Research Enhanced Index % 0.70 0.25 0.34(7) 1.29 -- 1.29 Growth Opportunities % 0.95 0.25 0.36(7) 1.56 -- 1.56 LargeCap Growth(3) % 0.73 0.25 0.18(8) 1.16(8) -- 1.16(8) MidCap Opportunities(3) % 1.00 0.25 0.48(7)(9) 1.73(9) -- 1.73(9) MidCap Growth % 0.75 0.25 0.18 1.18 0.01(10) 1.19 Growth + Value % 1.00 0.25 0.44(7) 1.69 -- 1.69 SmallCap Opportunities(3) % 1.00 0.25 0.28(7)(11) 1.53(11) -- 1.53(11) SmallCap Growth % 1.00 0.25 0.24 1.49 0.01(10) 1.50 Balanced % 0.75 0.25 0.46 1.46 -0.21 1.25 Convertible % 0.75 0.25 0.14 1.14 0.01(10) 1.15
---------- (1) This table shows the estimated operating expenses for Class Q shares of each Fund as a ratio of expenses to average daily net assets. These estimated expenses, unless otherwise noted, are based on each Fund's actual operating expenses for its most recent complete fiscal year, as adjusted for contractual changes, and fee waivers to which the Adviser has agreed for each fund. (2) ING Pilgrim Investments, LLC has entered into written expense limitation agreements with each Fund, except MagnaCap Fund, Research Enhanced Index Fund, Growth Opportunities Fund, MidCap Opportunities Fund, Growth + Value Fund and SmallCap Opportunities Fund under which it will limit expenses of the Fund, excluding interest, taxes, brokerage and extraordinary expenses, subject to possible reimbursement to ING Pilgrim Investments, LLC within three years. The amount of each Fund's expenses waived or reimbursed during the last fiscal year by ING Pilgrim Investments, LLC is shown under the heading "Waivers and Reimbursements." For each Fund, the expense limit will continue through at least October 31, 2002. The expense limitation agreements are contractual and shall renew automatically for one-year terms unless the Adviser provides written notice of the termination of the expense limitation agreement at least 30 days prior to the end of the then current term or upon termination of the investment management agreement. (3) Effective February 23, 2001 and March 23, 2001, certain funds merged with MagnaCap, Growth and Income, LargeCap Growth, MidCap Opportunities and SmallCap Opportunities Funds. It is expected that as a result of the mergers, operating expenses will be lower than the operating expenses prior to the mergers. (4) Excludes one-time merger fees of 0.01% incurred in connection with the mergers of other investment companies into Pilgrim MagnaCap Fund. (5) Excludes one-time merger fees of 0.06% incurred in connection with the merger of another investment company into Pilgrim Growth and Income Fund. (6) Because Class Q shares are new for Growth and Income Fund the expenses are estimated based on Class A expenses of the Fund. (7) ING Pilgrim Group, LLC receives an annual adminstration fee equal to 0.10% of average daily net assets. (8) Excludes one-time merger fees of 0.03% incurred in connection with the mergers of other investment companies into Pilgrim LargeCap Growth Fund. (9) Excludes one-time merger fees of 0.09% incurred in connection with the merger of another investment company into Pilgrim MidCap Opportunities Fund. (10) Amount recouped by ING Pilgrim Investments, LLC pursuant to the Expense Limitation Agreement between the Fund and ING Pilgrim Investments, LLC. (11) Excludes one-time merger fees of 0.03% incurred in connection with the merger of another investment company into Pilgrim SmallCap Opportunities Fund. 28 What You Pay to Invest 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 Q Fund 1 year 3 years 5 years 10 years ---- ------ ------- ------- -------- MagnaCap $ 112 350 606 1,340 Growth and Income $ 145 449 776 1,702 Research Enhanced Index $ 131 409 708 1,556 Growth Opportunities $ 159 493 850 1,856 LargeCap Growth $ 118 368 638 1,409 MidCap Opportunities $ 176 545 939 2,041 MidCap Growth $ 120 375 649 1,432 Growth + Value $ 172 533 918 1,998 SmallCap Opportunities $ 156 483 834 1,824 SmallCap Growth $ 152 471 813 1,779 Balanced $ 149 462 797 1,746 Convertible $ 116 362 628 1,386 [GRAPHIC] If you have any questions, please call 1-800-992-0180. What You Pay to Invest 29 SHAREHOLDER GUIDE HOW TO PURCHASE SHARES -------------------------------------------------------------------------------- Purchase of Shares Class Q Shares are offered at net asset value without a sales charge to qualified retirement plans, financial and other institutions and "wrap accounts." The minimum initial investment is $250,000, and the minimum subsequent investment is $10,000. The Distributor may waive these minimums from time to time. Certain Funds also offer Class A, B, C, M and T shares, which have different sales charges and other expenses that may affect their performance. You can obtain more information about these other share classes by calling (800) 992-0180. 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-U.S. banks (even if payment may be effected through a U.S. bank) will not be accepted. ING Pilgrim reserves 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 $250,000. If you are a participant in a qualified retirement plan, you should make purchases through your plan administrator or sponsor, who is responsible for transmitting orders. All other purchasers may purchase shares by the methods outlined in the table on the right. Distribution and Shareholder Service Fees To pay for the cost of servicing your shareholder account, each Fund has adopted a Rule 12b-1 plan for Class Q shares which requires fees to be paid out of the assets of the class. Each Fund pays a service fee at an annual rate of 0.25% of the average daily net assets of the Class Q shares of the Fund. Retirement Plans You may invest in each Fund through various retirement plans, including IRAs, Simplified Employee Plan (SEP) IRAs, Roth IRAs, 403(b) plans, 457 plans, and all qualified retirement plans. For further information about any of the plans, agreements, applications and annual fees, contact the Distributor, your financial consultant or plan sponsor. To determine which retirement plan is appropriate for you, consult your tax adviser. For further information, contact the Shareholder Servicing Agent at (800) 992-0180. Initial Additional Method Investment Investment ------ ---------- ---------- By Contacting A financial consultant Visit or consult a Your Financial with an authorized financial consultant. Consultant firm can help you establish and maintain your account. By Mail Visit or speak with a Fill out the Account financial consultant. Additions form Make your check included on the payable to the bottom of your Pilgrim Funds and account statement mail it, along with a along with your completed check payable to the Application. Please Fund and mail them indicate your to the address on the investment account statement. professional on the Remember to write New Account your account number Application. on the check. By Wire Call the ING Pilgrim Wire the funds in the Operations same manner Department at (800) described under 336-3436 to obtain "Initial Investment." an account 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 Kansas City 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 64121-9368 30 Shareholder Guide HOW TO REDEEM SHARES SHAREHOLDER GUIDE -------------------------------------------------------------------------------- If you are a participant in a qualified retirement plan, you should make redemptions through your plan administrator or sponsor, who is responsible for transmitting orders. All other shareholders may redeem shares by the methods outlined in 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 $250,000. * Minimum withdrawal amount is $1,000. * 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. Method Procedures ------ ---------- By Contacting Your You may redeem by contacting your Financial Consultant financial consultant who 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 64121-9368 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 Expedited Redemption all accounts 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. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 31 SHAREHOLDER GUIDE TRANSACTION POLICIES -------------------------------------------------------------------------------- Net Asset Value The net asset value (NAV) per share for Class Q shares of each Fund 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 Class Q shares of each Fund is calculated by taking the value of the Fund's assets attributable to Class Q shares, subtracting the Fund's liabilities attributable to Class Q shares, and dividing by the number of Class Q shares 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, 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, although the actual calculations will be made by persons acting under the supervision of the Board. 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. When you sell shares, you receive the NAV. 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 Pilgrim 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 Class Q shares for Class Q shares of any other Pilgrim Fund that offers Class Q shares. The total value of shares being exchanged must at least equal the minimum investment requirement for Class Q shares 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 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 should review the prospectus of the Pilgrim Fund you intend to exchange into before exchanging your shares. If you exchange into Pilgrim Senior Income Fund, your ability to sell or liquidate your investment will be limited. Pilgrim Senior Income Fund is a closed-end interval fund and does not redeem its shares on a daily basis, and it is not expected that a secondary market for the fund's share will develop, so you will not be able to sell them through a broker or other investment professional. To provide a measure of liquidity, the fund will normally make quarterly repurchase offers for 5% of its outstanding common shares. If more than 5% of the fund's common shares are tendered, you may not be able to completely liquidate your holdings in any one quarter. You also would not have liquidity between these quarterly repurchase dates. Investors exercising the exchange privilege with Pilgrim Senior Income Fund should carefully review the prospectus of that fund. Investors may obtain a copy of the Pilgrim Senior Income Fund prospectus or any other Pilgrim Fund prospectus by calling (800) 992-0180. 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. 32 Shareholder Guide TRANSACTION POLICIES SHAREHOLDER GUIDE -------------------------------------------------------------------------------- Systematic Exchange Privilege You may elect to have a specified dollar amount of Class Q 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 Class Q shares of any other open-end Pilgrim Fund. This exchange privilege may be modified at any time or terminated upon 60 days' written notice to shareholders. Small Accounts (Non-Retirement Only) If you draw down a non-retirement account so that its total value is less than the Fund minimum, you may be asked to purchase more shares within 60 days. If you do not take action, the Fund may close out your account and mail you the proceeds. Your account will not be closed if its drop in value is due to Fund performance. 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 a 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. Privacy Policy You may review the Funds' policy concerning investor privacy over the Internet at www.pilgrimfunds.com, or you may obtain a copy of the policy by calling (800) 992-0180 and selecting Option 1. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Shareholder Guide 33 MANAGEMENT OF THE FUNDS ADVISER -------------------------------------------------------------------------------- ING Pilgrim Investments, LLC (ING Pilgrim), a Delaware limited liability company, serves as the investment adviser to each of the Funds. ING Pilgrim has overall responsibility for the management of the Funds. ING Pilgrim provides or oversees all investment advisory and portfolio management services for each Fund, and assists 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 with the SEC. ING Pilgrim is an indirect 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 in more than 65 countries, with almost 100,000 employees. As of June 30, 2001, ING Pilgrim managed over $18.4 billion in assets. ING Pilgrim's principal address is 7337 East Doubletree Ranch Road, Scottsdale, Arizona 85258. ING Pilgrim receives a monthly fee for its 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: Fund Management Fee ---- -------------- MagnaCap 0.72% Growth and Income 0.63 Research Enhanced Index 0.70 Growth Opportunities 0.95 LargeCap Growth 0.73 MidCap Opportunities 1.00 MidCap Growth 0.75 Growth + Value 1.00 SmallCap Opportunities 1.00 SmallCap Growth 1.00 Balanced 0.75 Convertible 0.75 ING Pilgrim Directly Manages the Portfolios of the Following Funds: Growth Opportunities Fund LargeCap Growth Fund MidCap Opportunities Fund MidCap Growth Fund The following individuals share responsibility for the day-to-day management of the Growth Opportunities Fund, the LargeCap Growth Fund, the MidCap Opportunities Fund and MidCap Growth Fund: Mary Lisanti, Executive Vice President and Chief Investment Officer -- Domestic Equities of ING Pilgrim, has served as a Senior Portfolio Manager of MidCap Opportunities Fund since the Fund was formed in August 1998, LargeCap Growth Fund since October 1, 2000, Growth Opportunities Fund since November 1998, and Pilgrim MidCap Growth Fund since April 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 to1996, 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 a Senior Portfolio Manager of MidCap Opportunities Fund since the Fund was formed in August 1998, Growth Opportunities Fund since November 1998, Pilgrim MidCap Growth Fund since April 2000 and Co-Portfolio Manager of LargeCap Growth Fund since January 2001. Prior to joining 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. Berstein was a Portfolio Manager at Berkeley Capital. SmallCap Opportunities Fund and SmallCap Growth Fund Mary Lisanti, whose background is described above, has served as manager of the SmallCap Opportunities Fund since July 1998 and SmallCap Growth Fund since April 2000. 34 Management of the Funds ADVISER MANAGEMENT OF THE FUNDS -------------------------------------------------------------------------------- Growth and Income Fund Thomas Jackson, Senior Vice President and Senior Portfolio Manager for value equity strategies at ING Pilgrim, has served as Portfolio Manager of Growth and Income Fund since June 2001. Prior to joining ING Pilgrim in June 2001, Mr. Jackson was a Managing Director at Prudential Investments (April 1990 through December 2000). Prior to April 1990, Mr. Jackson was Co-Chief Investment Officer and Managing Director at Century Capital Associates and Red Oak Advisors Inc. MagnaCap Fund Thomas Jackson, whose background is described above, has served as Portfolio Manager of MagnaCap Fund since June 2001. Howard Kornblue, Senior Vice President and Senior Portfolio Manager for ING Pilgrim, has served as auxiliary Portfolio Manager of MagnaCap Fund since June 2001. From January 2001 to the present, Mr. Kornblue has served as Director of Value Strategies at ING Pilgrim. Mr. Kornblue served as Portfolio Manager of MagnaCap Fund from 1989 until January 2001. Balanced Fund The following individuals share responsibility for the day-to-day management of the Balanced Fund: Thomas Jackson, whose background is described above has served as Portfolio Manager of the equity portion of Balanced Fund since June 2001. Robert K. Kinsey, Vice President of ING Pilgrim, has served as a Portfolio Manager of the portion of Balanced Fund's assets that are invested in fixed-income assets other than high yield securities since May 24, 1999. Prior to joining ING Pilgrim, Mr. Kinsey was a Vice President and Fixed Income Portfolio Manager for Federated Investors from January 1995 to March 1999. From July 1992 to January 1995, Mr. Kinsey was a Principal and Portfolio Manager for Harris Investment Management. Edwin Schriver, Senior Vice President of ING Pilgrim, has served as Senior Portfolio Manager of the high yield portion of the Balanced Fund's fixed-income assets since October 2000. Prior to joining ING Pilgrim, Mr. Schriver was a Senior High Yield Analyst for Dreyfus Corporation since 1998. From 1996 to 1997, Mr. Schriver was the President of Crescent City Research, an investment research and software firm. Prior to 1996, Mr. Schriver was president of an SEC registered investment adviser and held various senior portfolio management positions. Convertible Fund Andrew Chow, Vice President of ING Pilgrim, has served as a Portfolio Manager of Convertible Fund since October 1, 2000. Prior to joining ING Pilgrim, Mr. Chow was the portfolio manager of the Conseco Convertible Securities Fund since 1998. He joined Conseco, where he was also responsible for managing convertible securities accounts, in 1991. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Management of the Funds 35 MANAGEMENT OF THE FUNDS SUB-ADVISERS -------------------------------------------------------------------------------- SUB-ADVISERS For the following Funds, ING Pilgrim has engaged a Sub-Adviser to provide the day-to-day management of the Fund's portfolio. Research Enhanced Index Fund Aeltus Investment Management, Inc. Aeltus Investment Management, Inc. (Aeltus) serves as Sub-Adviser to the Pilgrim Research Enhanced Index Fund. Founded in 1972, Aeltus is registered as an investment adviser. Aeltus is an indirect wholly-owned subsidiary of ING Group, and is an affiliate of ING Pilgrim. Aeltus has acted as adviser or sub-adviser to mutual funds since 1994 and has managed institutional accounts since 1972. As of June 30, 2001, Aeltus managed over $41 billion in assets. Its principal office is located at 10 State House Square, Hartford, Connecticut 06103-3602. Hugh T. M. Whelan and Douglas E. Cote share the responsibility for the day-to-day management of the Pilgrim Research Enhanced Index Fund. Mr. Whelan has served as co-manager of the Pilgrim Research Enhanced Index Fund since August 1, 2001. At Aeltus, he has served as a quantitative equity analyst since 1999. Previously, Mr. Whelan served as an analyst in Aeltus' fixed income group specializing in corporate securities since 1994. Mr. Cote has served as co-manager of the Pilgrim Research Enhanced Index Fund since August 1, 2001. At Aeltus, Mr. Cote has been serving as a quantitative equity analyst since 1996. Previously, Mr. Cote was responsible for developing quantitative applications for Aeltus' equity department. Growth + Value Fund Navellier Fund Management, Inc. A registered investment adviser, Navellier Fund Management, Inc. (Navellier) serves as Sub-Adviser to the Pilgrim Growth + Value Fund. Navellier and its affiliate, Navellier & Associates, Inc., manage over $5 billion for institutions, pension funds and high net worth individuals. Navellier's principal address is 1 East Liberty, Third Floor, Reno, Nevada 89501. Louis Navellier has managed the Pilgrim Growth + Value Fund since the Fund was formed in November 1996. Mr. Navellier has over 19 years of investment management experience and is the principal owner of Navellier & Associates, Inc. Mr. Navellier's investment newsletter, MPT Review, has been published for over 19 years and is widely renowned throughout the investment community. 36 Management of the Funds DIVIDENDS, DISTRIBUTIONS AND TAXES -------------------------------------------------------------------------------- Dividends The Funds generally distribute most or all of their net earnings in the form of dividends. Each Fund pays dividends, if any, as follows: Annually(1) Semi-Annually(1) Quarterly(2) ----------- ---------------- ------------ Research Enhanced Index MagnaCap Balanced Growth Opportunities Growth and Income Convertible LargeCap Growth MidCap Opportunities MidCap Growth Growth + Value SmallCap Opportunities SmallCap Growth ---------- (1) Distributions normally expected to consist primarily of capital gains. (2) Distributions normally expected to consist, on an annual basis, of a variable combination of capital gains and ordinary income. Each Fund distributes 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 Q shares of a Fund invested in another Pilgrim Fund which offers Class Q shares. Taxes The following information is meant as a general summary for U.S. shareholders. Please see the Statement of Additional Information (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 30.5% (30% in 2002 and 2003) 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. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Dividends, Distributions and Taxes 37 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 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 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 (MagnaCap, Balanced and Growth and Income 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 of 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. Inability to Sell Securities (All Funds except MagnaCap, Research Enhanced Index and LargeCap Growth 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. A 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 (Balanced and Convertible Funds). 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 (Balanced and Convertible 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. 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 38 More Information About Risks MORE INFORMATION ABOUT RISKS -------------------------------------------------------------------------------- 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 except Research Enhanced Index, and Growth Opportunities 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. Other Investment Companies (Balanced Fund). The Fund may invest up to 10% of its assets in other investment companies. When the 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. Interests in Loans (Balanced Fund). The Fund may invest in participation interests or assignments in secured variable or floating rate loans, which include participation interests in lease financings. Loans are subject to the credit risk of nonpayment of principal or interest. Substantial increases in interest rates may cause an increase in loan defaults. Although the loans will generally be fully collateralized at the time of acquisition, the collateral may decline in value, be relatively illiquid, or lose all or substantially all of its value subsequent to the Fund's investment. Many loans are relatively illiquid, and may be difficult to value. Derivatives (Research Enhanced Index and Balanced Funds). 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. Investments in Small- and Mid-Capitalization Companies (MidCap Opportunities, MidCap Growth, SmallCap Opportunities and SmallCap Growth Funds). The Funds may invest in small and mid- capitalization companies. Investments in small- and mid-capitalization companies involve greater risk than is customarily associated with larger, more established companies due to the greater business risks of small size, limited markets and financial resouces, narrow product lines and the frequent lack of depth of management. The securities of smaller companies are often traded over-the-counter and may not be traded in volume typical on a national securities exchange. Consequently, the securities of smaller companies may have limited market stability and may be subject to more abrupt or erractic market movements than securities of larger, more established growth companies or the market averages in general. Portfolio Turnover. Each Fund (except MagnaCap Fund) 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. Lending Portfolio Securities. (LargeCap Growth and Convertible Funds) In order to generate additional income, certain Funds may lend portfolio securities in an amount up to 33 1/3% 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. OTHER RISKS Restricted and Illiquid Securities. Each Fund may invest in restricted and illiquid securities (except MagnaCap Fund may not invest in restricted 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. 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. [GRAPHIC] If you have any questions, please call 1-800-992-0180. More Information About Risks 39 MORE INFORMATION ABOUT RISKS -------------------------------------------------------------------------------- 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 involves the sale of a security, with an agreement to repurchase the same 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, 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. 40 More Information About Risks 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. Due to Class Q being recently offered, Financial Highlights are not included for Growth and Income Fund. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Financial Highlights 41 PILGRIM MAGNACAP FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- The information in the table below has been audited by KPMG LLP, independent auditors.
Eleven Months Period Ended Ended May 31, 2001 June 30, 2000(1) ------------ ---------------- Per Share Operating Performance: Net asset value, beginning of period $ 15.84 16.26 Income from investment operations: Net investment income $ 0.07 0.05 Net realized and unrealized loss on investments $ (0.38) (0.47) Total from investment operations $ (0.31) (0.42) Less distributions from: Net investment income $ 0.10 -- Net realized gain on investments $ 1.88 -- Total distributions $ 1.98 -- Net asset value, end of period $ 13.55 15.84 Total Return(2): % (2.60) (2.58) Ratios/Supplemental Data: Net assets, end of period (000's) $ 11,184 9,928 Ratios to average net assets: Expenses(3) % 1.11 1.24 Net investment income (3) % 0.53 0.46 Portfolio turnover % 92 26
---------- (1) Class Q commenced offering of shares on November 19, 1999. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. 42 Pilgrim MagnaCap Fund FINANCIAL HIGHLIGHTS PILGRIM RESEARCH ENHANCED INDEX FUND -------------------------------------------------------------------------------- For the seven months ended May 31, 2001, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to May 31, 2001, the financial information was audited by other independent auditors.
Seven Months Period Ended Ended May 31, October 31, 2001 2000(1) ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 11.17 11.98 Income from investment operations: Net investment income $ -- -- Net realized and unrealized loss on investments $ (1.32) (0.81) Total from investment operations $ (1.32) (0.81) Net asset value, end of period $ 9.85 11.17 Total return(2) % (11.82) (6.76) Ratios/Supplemental Data: Net assets, end of period (000's) $ 456 273 Ratios to average net assets: Expenses(3) % 1.29 1.32 Net investment income (loss)(3) % 0.03 (0.05) Portfolio turnover % 26 57
---------- (1) Class Q commenced offering of shares on April 4, 2000. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Research Enhanced Index Fund 43 PILGRIM GROWTH OPPORTUNITIES FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- The information in the table below has been audited by KPMG LLP, independent auditors.
Period Five Months Ended Ended December 31, May 31, 2001 2000(1) ------------ ------- Per Share Operating Performance: Net asset value, beginning of period $ 25.48 32.58 Income from investment operations: Net investment loss $ (0.10) (0.15) Net realized and unrealized loss on investments $ (6.68) (5.46) Total from investment operations $ (6.78) (5.61) Less distributions from: Net realized gain on investments $ -- 1.49 Total distributions $ -- 1.49 Net asset value, end of period $ 18.70 25.48 Total return(2) % (26.61) (17.55) Ratios/Supplemental Data: Net assets, end of period (000s) $ 7,947 10,274 Ratios to average net assets: Expenses(3) % 1.56 1.41 Net investment loss(3) % (1.17) (0.81) Portfolio turnover % 217 326
---------- (1) Class Q commenced offering of shares on June 1, 2000. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (3) Annualized for periods less than a year. 44 Pilgrim Growth Opportunities Fund FINANCIAL HIGHLIGHTS PILGRIM LARGECAP GROWTH FUND -------------------------------------------------------------------------------- For the eleven months ended May 31, 2001, the year ended June 30, 2000 and the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to June 30, 1999, the financial information was audited by other independent auditors.
Eleven Months Year Three Months Year Period Ended Ended Ended Ended Ended May 31, June 30, June 30, March 31, March 31, 2001(1) 2000 1999(2) 1999 1998(3) ------- ---- ------- ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 43.71 28.43 25.24 15.66 12.50 Income from investment operations: Net investment loss $ (0.17) (0.20) (0.03) (0.02) (0.01) Net realized and unrealized gain (loss) on investments $ (18.26) 15.86 3.22 9.87 3.26 Total from investment operations $ (18.43) 15.66 3.19 9.85 3.25 Less distributions from: Net investment income $ -- -- -- -- 0.01 Net realized gain on investments $ 0.47 0.38 -- 0.27 0.08 Total distributions $ 0.47 0.38 -- 0.27 0.09 Net asset value, end of period $ 24.81 43.71 28.43 25.24 15.66 Total Return(4): % (42.50) 55.57 12.64 63.76 62.47 Ratios/Supplemental Data: Net assets, end of period ($000's) $ 12,534 24,838 6,044 4,908 799 Ratios to average net assets: Net expenses after expense reimbursement(5)(6) % 1.19 1.26 1.23 1.26 1.25 Gross expenses prior to expense reimbursement(5) % 1.19 1.26 1.25 1.91 10.45 Net investment loss after expense reimbursement(5)(6) % (0.50) (0.77) (0.36) (0.28) (0.62) Portfolio turnover % 331 139 27 253 306
---------- (1) Effective October 1, 2000, ING Pilgrim Investments, LLC assumed responsibility for the day-to-day management of the Fund. (2) Effective May 24, 1999, ING Pilgrim Investments, LLC became the Adviser of the Fund; concurrently, Nicholas-Applegate Capital Management was appointed as sub-adviser and the Fund changed its year end to June 30. (3) The Fund commenced operations on July 21, 1997. (4) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (5) Annualized for periods less than one year. (6) The Adviser has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim LargeCap Growth Fund 45 PILGRIM MIDCAP OPPORTUNITIES FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- The information in the table below has been audited by KPMG LLP, independent auditors.
Five Months Period Ended Ended May 31, December 31, 2001 2000(1) ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 19.16 22.57 Income from investment operations: Net investment loss $ (0.08) (0.06) Net realized and unrealized loss on investments $ (4.45) (1.17) Total from investment operations $ (4.53) (1.23) Less distributions from: Net realized gain on investments $ -- 2.18 Total distributions $ -- 2.18 Net asset value, end of period $ 14.63 19.16 Total return(2): % (23.64) (5.86) Ratios/Supplemental Data: Net assets, end of period (000s) $ 3,071 3,264 Ratios to average net assets: Expenses(3) % 1.82 1.61 Net investment loss(3) % (1.28) (0.91) Portfolio turnover % 182 188
---------- (1) Class Q commenced offering of shares on April 4, 2000. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. 46 Pilgrim MidCap Opportunities Fund FINANCIAL HIGHLIGHTS PILGRIM MIDCAP GROWTH FUND -------------------------------------------------------------------------------- For the eleven months ended May 31, 2001, the year ended June 30, 2000 and the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to June 30, 1999, the financial information was audited by other independent auditors.
Eleven Months Year Three Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, ------------------------------ 2001 2000(1) 1999(2) 1999 1998 1997 ---- ------- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 35.67 26.94 25.14 23.30 18.01 17.99 Income from investment operations: Net investment loss $ (0.12) (0.29) (0.06) (0.12) (0.21) (0.04) Net realized and unrealized gain (loss) on investments $ (10.10) 17.92 1.86 3.56 7.48 0.32 Total from investment operations $ (10.22) 17.63 1.80 3.44 7.27 0.28 Less distributions from: Net realized gain on investments $ 5.96 8.90 -- 1.60 1.98 0.26 Total distributions $ 5.96 8.90 -- 1.60 1.98 0.26 Net asset value, end of period $ 19.49 35.67 26.94 25.14 23.30 18.01 Total Return(3): % (33.14) 77.87 7.16 15.77 42.00 1.39 Ratios/Supplemental Data: Net assets, end of period (000's) $ 16,412 19,792 19,383 14,350 12,204 13,115 Ratios to average net assets: Net expenses after expense reimbursement/recoupment(4)(5) % 1.19 1.26 1.24 1.23 1.22 1.25 Gross expenses prior to expense reimbursement/recoupment(4) % 1.18 1.26 1.25 1.31 1.95 1.84 Net investment loss after expense reimbursement/recoupment(4)(5) % (0.58) (1.00) (0.95) (0.71) (0.97) (0.69) Portfolio turnover % 262 148 55 154 200 153
---------- (1) Effective April 1, 2000, ING Pilgrim Investments, LLC assumed responsibility for the day-to-day management of the Fund. (2) Effective May 24, 1999, ING Pilgrim Investments, LLC became the Adviser of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-adviser and the Fund changed its year end to June 30. (3) Total return is calculated assuming reinvestment of dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (4) Annualized for periods less than one year. (5) The Adviser has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim MidCap Growth Fund 47 PILGRIM GROWTH + VALUE FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- For the seven months ended May 31, 2001, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to May 31, 2001, the financial information was audited by other independent auditors.
Seven Months Period Ended October 31, Ended May 31, 2001 2000(1) ------------------ ------- Per Share Operating Performance: Net asset value, beginning of period $ 24.90 26.73 Income from investment operations: Net investment loss $ (0.18) (0.05) Net realized and unrealized loss on investments $ (8.62) (1.78) Total from investment operations $ (8.80) (1.83) Less distributions from: Net realized gain on investments $ 2.16 -- Tax return of capital $ 0.06 -- Total distributions $ 2.22 -- Net asset value, end of period $ 13.88 24.90 Total return(2) % (38.00) (6.85) Ratios/Supplemental Data: Net assets, end of period (000's) $ 454 1,346 Ratios to average net assets: Expenses(3) % 1.69 1.53 Net investment loss(3) % (1.43) (1.19) Portfolio turnover % 95 163
---------- (1) Class Q commenced offering of shares on June 5, 2000. (2) Total return is calculated assuming reinvestment of dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. 48 Pilgrim Growth + Value Fund PILGRIM SMALLCAP OPPORTUNITIES FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- The information in the table below has been audited by KPMG LLP, independent auditors.
Five Months Period Ended Ended May 31, December 31, 2001 2000(1) ---- ------- Per Share Operating Performance: Net asset value, beginning of period $ 47.20 60.86 Income from investment operations: Net investment loss $ (0.20) (0.27) Net realized and unrealized loss on investments $ (8.19) (4.49) Total from investment operations $ (8.39) (4.76) Less distributions from: Net realized gain on investments $ -- 8.90 Total distributions $ -- 8.90 Net asset value, end of period $ 38.81 47.20 Total return(2) % (17.78) (8.29) Ratios/Supplemental Data: Net assets, end of period (000s) $ 2,832 2,545 Ratios to average net assets: Expenses(3) % 1.56 1.40 Net investment loss(3) % (1.28) (1.10) Portfolio turnover % 104 134
---------- (1) Class Q commenced offering of shares on April 4, 2000. (2) Total return is calculated assuming reinvestment of dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim SmallCap Opportunities Fund 49 PILGRIM SMALLCAP GROWTH FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- For the eleven months ended May 31, 2001, the year ended June 30, 2000 and the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to June 30, 1999, the financial information was audited by other independent auditors.
Eleven Months Year Three Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, ----------------------------- 2001 2000(1) 1999(2) 1999 1998 1997 ---- ------- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 20.47 21.19 18.56 19.27 13.19 14.16 Income from investment operations: Net investment income (loss) $ (0.16) (0.21) (0.06) (0.15) 0.03 (0.07) Net realized and unrealized gain (loss) on investments $ (4.61) 10.30 2.69 0.22 6.16 (0.77) Total from investment operations $ (4.77) 10.09 2.63 0.07 6.19 (0.84) Less distributions from: Net realized gain on investments $ 2.24 10.81 -- 0.78 0.11 0.13 Total distributions $ 2.24 10.81 -- 0.78 0.11 0.13 Net asset value, end of period $ 13.46 20.47 21.19 18.56 19.27 13.19 Total Return(3): % (25.46) 61.08 14.17 0.96 47.01 (6.03) Ratios/Supplemental Data: Net assets, end of period (000's) $ 9,080 12,569 11,013 9,107 12,508 1,013 Ratios to average net assets: Net expenses after expense reimbursement/recoupment(4)(5) % 1.50 1.52 1.45 1.53 1.52 1.51 Gross expenses prior to expense reimbursement/recoupment(4) % 1.49 1.57 1.49 1.63 2.39 10.79 Net investment loss after expense reimbursement/recoupment(4)(5) % (1.01) (1.21) (1.21) (0.97) (1.52) (1.02) Portfolio turnover % 170 127 32 90 92 113
---------- (1) Effective April 1, 2000, ING Pilgrim Investments, LLC assumed responsibility for the day-to-day management of the Fund. (2) Effective May 24, 1999, ING Pilgrim Investments, LLC, became the Adviser of the Fund, concurrently Nicholas-Applegate Capital Management was appointed as sub-adviser and the Fund changed its year end to June 30. (3) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (4) Annualized for periods less than one year. (5) The Adviser has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. 50 Pilgrim SmallCap Growth Fund FINANCIAL HIGHLIGHTS PILGRIM BALANCED FUND -------------------------------------------------------------------------------- For the eleven months ended May 31, 2001, the year ended June 30, 2000 and the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to June 30, 1999, the financial information was audited by other independent auditors.
Eleven Months Year Three Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, -------------------------- 2001 2000 1999(1) 1999 1998 1997 ---- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 14.94 19.04 18.85 18.48 13.42 12.69 Income from investment operations: Net investment income $ 0.44 0.54 0.11 0.44 0.30 0.24 Net realized and unrealized gain (loss) on investments $ (0.54) (0.57) 0.16 2.50 5.07 0.73 Total from investment operations $ (0.10) (0.03) 0.27 2.94 5.37 0.97 Less distributions from: Net investment income $ 0.47 0.40 0.08 0.50 0.31 0.24 Net realized gain on investments $ 1.14 3.67 -- 2.07 -- -- Total distributions $ 1.61 4.07 0.08 2.57 0.31 0.24 Net asset value, end of period $ 13.23 14.94 19.04 18.85 18.48 13.42 Total Return(2): % (0.70) (0.60) 1.44 17.49 40.21 7.60 Ratio/Supplemental Data: Net assets, end of period (000's) $ 373 230 190 176 166 73 Ratio to average net assets: Net expenses after expense reimbursement(3)(4) % 1.25 1.30 1.25 1.25 1.26 1.26 Gross expenses prior to expense reimbursement(3) % 1.46 1.51 1.51 1.63 11.28 126.75 Net investment income after expense reimbursement(3)(4) % 3.61 3.36 2.30 2.41 4.09 2.15 Portfolio turnover % 76 173 63 165 260 213
---------- (1) Effective May 24, 1999, ING Pilgrim Investments, LLC, became the Adviser of the Fund and the Fund changed its year end to June 30. (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 Adviser has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses [GRAPHIC] If you have any questions, please call 1-800-992-0180. Pilgrim Balanced Fund 51 PILGRIM CONVERTIBLE FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- For the eleven months ended May 31, 2001, the year ended June 30, 2000 and the three months ended June 30, 1999, the information in the table below has been audited by KPMG LLP, independent auditors. For all periods ended prior to June 30, 1999, the financial information was audited by other independent auditors.
Eleven Months Year Three Months Ended Ended Ended Year Ended March 31, May 31, June 30, June 30, -------------------------- 2001 2000 1999(1) 1999 1998 1997 ---- ---- ------- ---- ---- ---- Per Share Operating Performance: Net asset value, beginning of period $ 26.85 22.51 21.22 18.47 15.19 13.72 Income from investment operations: Net investment income $ 0.59 0.44 0.09 0.43 0.48 0.42 Net realized and unrealized gain (loss) on investments $ (4.84) 7.82 1.31 3.09 4.19 1.50 Total from investment operations $ (4.25) 8.26 1.40 3.52 4.67 1.92 Less distributions from: Net investment income $ 0.53 0.35 0.11 0.46 0.48 0.42 Net realized gain on investments $ 4.70 3.57 -- 0.31 0.91 0.03 Total distributions $ 5.23 3.92 0.11 0.77 1.39 0.45 Net asset value, end of period $ 17.37 26.85 22.51 21.22 18.47 15.19 Total Return(2): % (17.50) 40.36 6.62 19.66 31.54 14.13 Ratios/Supplemental Data: Net assets, end of period (000's) $ 29,629 56,165 17,537 8,741 7,080 4,599 Ratio to average net assets: Net expenses after expense reimbursement/recoupment(3)(4) % 1.15 1.25 1.23 1.23 1.22 1.25 Gross expenses prior to expense reimbursement/recoupment(3) % 1.14 1.25 1.23 1.35 2.35 2.90 Net investment income after expense reimbursement/recoupment(3)(4) % 2.47 1.88 2.04 2.37 5.99 3.29 Portfolio turnover % 145 129 28 138 160 167
---------- (1) Effective May 24, 1999, ING Pilgrim Investments, LLC, became the Adviser of the Fund and the Fund changed its year end to June 30. (2) Total return is calculated assuming reinvestment of all dividends and capital gain distributions at net asset value. Total return for less than one year is not annualized. (3) Annualized for periods less than one year. (4) The Adviser has agreed to limit expenses, excluding, interest, taxes, brokerage and extraordinary expenses. 52 Pilgrim Convertible Fund 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 auditors' 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 U.S. 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: U.S. 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 Growth Opportunities Fund 811-4431 Pilgrim Mutual Funds 811-7428 Pilgrim Equity Trust 811-8817 Pilgrim LargeCap Growth Fund Pilgrim MidCap Opportunities Fund Pilgrim MidCap Growth Fund Pilgrim Mayflower Trust 811-7978 Pilgrim SmallCap Growth Fund Pilgrim Research Enhanced Index Fund Pilgrim Balanced Fund Pilgrim Growth + Value Fund Pilgrim Convertible Fund Pilgrim SmallCap Opportunities Fund 811-4434 Pilgrim Growth and Income Fund, Inc. 811-0865 Pilgrim Investment Funds, Inc. 811-1939 Pilgrim MagnaCap Fund
[LOGO] ING PILGRIM QUSEQPROS100101-100101 The cover of the Class Q and A, B, C, M and T prospectuses has an image of a globe showing the North American Continent. The Class I prospectus has an image of the entrance to the New York Stock Exchange. The ING Pilgrim Logo which is a lion at rest between the words ING and Pilgrim appears at the bottom of the outside front cover. There are five 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.