As filed with the Securities and Exchange Commission on December 22, 2000
Securities Act File No. 33-67852
Investment Company Act File No. 811-7978
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 44 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 46
(Check appropriate box or boxes) [X]
PILGRIM MAYFLOWER TRUST
(Exact Name of Registrant Specified in Charter)
7337 E. Doubletree Ranch Road
Scottsdale, AZ 85258
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 992-0180
James M. Hennessy, Esq.
ING Pilgrim Investments, Inc.
7337 E. Doubletree Ranch Road
Scottsdale, AZ 85258
(Name and Address of Agent for Service)
With copies to:
Jeffrey S. Puretz, Esq.
Dechert
1775 Eye Street, N.W.
Washington, DC 20006
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on March 1, 2001 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designated a new effective
date for a previously filed post-effective amendment.
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<PAGE>
March 1, 2001
Classes A, B, C, M and T
INCOME FUNDS
ING Pilgrim Government Securities Income
ING Pilgrim GNMA Income
ING Pilgrim National Tax-Exempt Bond
ING Pilgrim Intermediate Bond
ING Pilgrim Strategic Income
ING Pilgrim High Yield
ING Pilgrim High Yield II
ING Pilgrim High Total Return
ING Pilgrim High Yield Bond
Pilgrim Money Market
ING Money Market
This prospectus contains important information about investing in the ING
Pilgrim Funds. You should read it carefully before you invest, and keep it for
future reference. Please note that your investment: is not a bank deposit, is
not insured or guaranteed by the FDIC, the Federal Reserve Board or any other
government agency and is affected by market fluctuations. There is no guarantee
that the Funds will achieve their objectives. As with all mutual funds, the
Securities and Exchange Commission (SEC) has not approved or disapproved these
securities nor has the SEC judged whether the information in this prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
<PAGE>
WHAT'S INSIDE
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These pages contain a description of each of our Funds included in this
prospectus, including its objective, investment strategy and risks.
[GRAPHIC]
OBJECTIVE
[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 ING Pilgrim Funds
Funds At A Glance
INCOME FUNDS
ING Pilgrim Government Securities Income
ING Pilgrim GNMA Income
ING Pilgrim National Tax-Exempt Bond
ING Pilgrim Intermediate Bond
ING Pilgrim Strategic Income
ING Pilgrim High Yield
ING Pilgrim High Yield II
ING Pilgrim High Total Return
ING Pilgrim High Yield Bond
ING Pilgrim High Total Return II
Pilgrim Money Market
ING Money Market
What You Pay to Invest
Shareholder Guide
Management of the Funds
Dividends, Distributions and Taxes
More Information About Risks
Financial Highlights
Where To Go For More Information Back cover
<PAGE>
INTRODUCTION TO THE
ING PILGRIM FUNDS
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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 ING 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.
INCOME FUNDS
ING Pilgrim offers both aggressive and conservative Income Funds.
They may suit you if you:
* want a regular stream of income.
Income Funds other than the Money Market Fund may suit you if you:
* want greater growth potential than a money market fund
* are willing to accept more risk than a money market fund.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
1
<PAGE>
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Funds
At A
Glance
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This table is a summary of the objectives, main investments and risks of each
ING 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.
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
---- --------------------
<S> <C> <C>
Income Government Securities Income Fund High current income, consistent with liquidity
Funds Adviser: ING Pilgrim Investments, Inc. and preservation of capital
GNMA Income Fund High current income, consistent with liquidity
Adviser: ING Pilgrim Investments, Inc. and safety of principal
National Tax-Exempt Bond Fund High current income that is exempt from federal
Adviser: ING Mutual Funds Management Co. LLC income taxes consistent with the preservation
Sub-Adviser: Furman Selz Capital Management LLC of capital
Intermediate Bond Fund High current income consistent with the
Adviser: ING Mutual Funds Management Co. LLC preservation of capital and liquidity
Sub-Adviser: ING Investment Management LLC
Strategic Income Fund Maximum total return
Adviser: ING Pilgrim Investments, Inc.
High Yield Fund High current income, with capital appreciation
Adviser: ING Pilgrim Investments, Inc. as a secondary objective
High Yield Fund II High level of current income and capital growth
Adviser: ING Pilgrim Investments, Inc.
High Total Return Fund High income and capital appreciation
Adviser: ING Pilgrim Investments, Inc.
High Yield Bond Fund A high level of current income and total return
Adviser: ING Mutual Funds Management Co. LLC
Sub-Adviser: ING Investment Management LLC
High Total Return Fund II High income and capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Pilgrim Money Market Fund High current income consistent with the preservation
Adviser: ING Pilgrim Investments, Inc. of capital and liquidity
ING Money Market Fund High current Income consistent with the preservation
Adviser: ING Mutual Funds Management Co. LLC of capital and liquidity
Sub-Adviser: ING Investment Management LLC
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MAIN INVESTMENTS MAIN RISKS
---------------- ----------
<S> <C>
Securities issued or guaranteed by the Credit, interest rate, prepayment and other risks that
U.S. Government and certain of its accompany an investment in government bonds and mortgage
agencies or instrumentalities. related investments. Generally has less credit risk than the
other income funds.
Mortgage-backed GNMA Certificates that Credit, interest rate, prepayment and other risks that
are guaranteed as to the timely payment accompany an investment in government bonds and mortgage
of principal and interest by the U.S. related investments. Generally has less credit risk than the
Government. other income funds.
Investment grade debt securities of Credit, interest rate, prepayment and other risks that
municipal issuers, the interest from accompany an investment in investment grade debt securities
which is exempt from federal income of municipal issuers.
taxes.
Investment grade debt securities with a Credit, interest rate, prepayment and other risks that
minimum average portfolio quality being accompany an investment in fixed income securities. May be
investment grade, and dollar weighted sensitive to credit risk during economic downturns.
average maturity generally ranging
between three and ten years.
Investment grade and high yield debt Credit, interest rate, prepayment and other risks that
securities. accompany an investment in debt securities, including high
yield debt securities. May be sensitive to credit risk
during economic downturns.
High yield debt securities. Credit, interest rate and other risks that accompany an
investment in lower-quality debt securities. Particularly
sensitive to credit risk during economic downturns.
High yield debt securities, including Credit, liquidity, interest rate and other risks that
those in the lowest ratings, as well as accompany an investment in lower-quality debt securities.
equities and foreign securities. Particularly sensitive to credit risk during economic
downturns. May also present price volatility from equity
exposure, and foreign securities. May be sensitive to
currency exchange rates, international political and
economic conditions, and other risks.
High yield debt securities, including Credit, liquidity, interest rate and other risks that
those in the lowest ratings, and foreign accompany an investment in lower-quality debt securities.
securities. Particularly sensitive to credit risk during economic
downturns. Foreign securities may be sensitive to currency
exchange rates, international political and economic
conditions, and other risks.
A diversified portfolio of high yield Credit, interest rate, prepayment and other risks that
(high risk) debt securities that are accompany an investment in lower quality debt securities.
unrated or rated below investment grade. Particulary sensitive to credit risk during economic
downturns.
High yield debt securities, including Credit, liquidity, interest rate and other risks that
those in the lowest ratings, and foreign accompany an investment in lower- quality debt securities.
securities. Particularly sensitive to credit risk during economic
downturns. Foreign securities may be sensitive to currency
exchange rates international, political and economic
conditions, and other risks.
Shares of another investment company Credit, interest rate and other risks that accompany an
whose main investments incudes investment in government bonds and mortgage related
short-term securities issued or investments. Presents less credit and interest rate risk
guaranteed by the U.S. Government and than the other income funds.
certain of its agencies and
instrumentalities.
High quality, U.S. dollar-denominated Credit, interest rate and other risks that accompany an
short-term debt securities. investment in U.S. dollar-denominated short-term debt
securities.
</TABLE>
3
<PAGE>
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Income
Funds
------
Adviser
ING PILGRIM GOVERNMENT SECURITIES INCOME FUND ING Pilgrim Investments, Inc.
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OBJECTIVE
[GRAPHIC]
The Fund seeks high current income, consistent with liquidity and preservation
of capital.
INVESTMENT STRATEGY
[GRAPHIC]
The Fund normally invests at least 70% of its total assets in securities issued
or guaranteed by the U.S. Government and the following agencies or
instrumentalities of the U.S. Government: the Government National Mortgage
Association (GNMA), the Federal National Mortgage Association (FNMA), and the
Federal Home Loan Mortgage Corporation (FHLMC). Such securities include direct
obligations of the U.S. Treasury and mortgage-backed securities. The Fund may
fall below the 70% threshold due to changes in the value of the Fund's holdings
or the sale of securities to meet redemptions, in which case the Fund will
purchase only U.S. Government securities until the 70% level is restored. The
remainder of the Fund's assets may be invested in securities issued by other
agencies and instrumentalities of the U.S. Government and in instruments
collateralized by securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The foregoing policies are fundamental and may
not be changed without shareholder approval.
The Fund may invest in securities of any maturity; however, the Fund is expected
to have a dollar-weighted average duration within a range of 20% above or below
that of the Lehman Intermediate Treasury Index. As of September 30, 2000, the
dollar-weighted average duration of the Lehman Intermediate Treasury Index was
3.09 years. The adviser determines the composition of the Fund's portfolio on
the basis of its judgment of existing market conditions, such as the general
direction of interest rates, trends in creditworthiness, expected inflation,
supply and demand of fixed income securities, and other factors. The Fund may
enter into reverse repurchase agreements, dollar roll transactions or pairing
off transactions. The Fund does not invest in highly leveraged derivatives, such
as swaps, interest-only or principal-only stripped mortgage-backed securities,
or interest rate futures contracts.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. This Fund may be particularly sensitive to interest rates
because it primarily invests in U.S. government securities. Debt 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 debt security is
unable to meet its financial obligations or goes bankrupt. This Fund is subject
to less credit risk than the other income funds because it principally invests
in debt securities issued or guaranteed by the U.S. Government, its agencies and
government sponsored enterprises.
Prepayment Risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
4 ING Pilgrim Government Securities Income Fund
<PAGE>
ING PILGRIM GOVERNMENT SECURITIES INCOME FUND
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HOW THE FUND HAS PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
11.90 7.46 4.71(8) -3.61 14.51 2.56 7.85 5.61 -1.17
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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 Lehman Brothers Government/Mortgage Index and the Lehman
Brothers Intermediate Treasury Index.
Average Annual Total Returns(2)
<TABLE>
<CAPTION>
Lehman Lehman
Gov't/ Intermediate
Mortgage Treasury
Class A(2) Class B(3) Class C(4) Class M(5) Index(7) Index(8)
---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 % --
Five years, ended
December 31, 2000 % N/A
Ten years, ended
December 31, 2000(9) % N/A N/A
Since inception of
Classes B and M(10) % N/A N/A
Since inception of
Classes C and T(10) % N/A N/A -- N/A -- --
</TABLE>
-------
(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) Class T shares did not have a full year's performance for the year ended
December 31, 2000.
(3) Reflects deduction of sales charge of 4.75%.
(4) Reflects deduction of deferred sales charge of 5%, 2% and 1%, respectively
for 1 year, 5 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) Reflects deduction of sales charge of 3.25%.
(7) Reflects deduction of deferred sales charge of 4% for the 1 year return.
(8) The Lehman Brothers Government/Mortgage Index is an unmanaged index that
measures the performance of U.S. Government agencies and instrumentalities,
as well as mortgage pass-through instruments issued by FNMA, FHLMC and
GNMA.
(9) The Lehman Brothers Intermediate Treasury Index is an unmanaged index that
measures the performance of U.S. Treasuries with maturities of under 10
years. Information on the Lehman Intermediate Index is presented because
effective May 24, 1999, the Fund seeks an average portfolio duration within
+/-20% of the duration of that Index. Previously, the Fund's average
portfolio maturity was generally longer.
(10) The Fund earned income and realized capital gains as a result of entering
into reverse repurchase agreements during the six-month period from July to
December 1992 that caused the Fund to exceed its 10% investment restriction
on borrowing. Therefore, the Fund's performance was higher than it would
have been had the Fund adhered to its borrowing restriction.
(11) Classes B and M commenced operations on July 17, 1995. Classes C and T
commenced operations on June 11, 1999. Class T commenced operations on
April 5, 2000.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Government Securities Income Fund 5
<PAGE>
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Income
Funds
------
Adviser
ING PILGRIM GNMA INCOME FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund's investment objective is to seek a high level of current income,
consistent with liquidity and safety of principal, through investment primarily
in Government National Mortgage Association ("GNMA") mortgage-backed securities
(also known as "GNMA Certificates") that are guaranteed as to the timely payment
of principal and interest by the United States Government.
INVESTMENT STRATEGY
[GRAPHIC]
Under normal conditions, the Fund will invest at least 80% of the value of its
total assets in GNMA ("Ginnie Mae") Certificates. The remaining assets of the
Fund will be invested in other securities issued or guaranteed by the U.S.
Government, including U.S. Treasury securities. The Fund may invest in debt
securities of any maturity, although the portfolio manager expects to invest in
long-term debt instruments.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Prepayment Risk -- Through investment in GNMA securities, the Fund may expose
you to certain risks which may cause you to lose money. Mortgage prepayments are
affected by the level of interest rates and other factors, including general
economic conditions and the underlying location and age of the mortgage. In
periods of rising interest rates, the prepayment rate tends to decrease,
lengthening the average life of a pool of GNMA securities. In periods of falling
interest rates, the prepayment rate tends to increase, shortening the life of a
pool. Because prepayments of principal generally occur when interest rates are
declining, it is likely that the Fund may have to reinvest the proceeds of
prepayments at lower interest rates than those of their previous investments. If
this occurs, the Fund's yields will decline correspondingly.
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. This Fund may be particularly sensitive to interest rates
because it primarily invests in U.S. government securities. Debt 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 debt security is
unable to meet its financial obligations or goes bankrupt. This Fund is subject
to less credit risk than the other income funds because it principally invests
in debt securities issued or guaranteed by the U.S. Government, its agencies and
government sponsored enterprises.
Please refer to the statement of additional information for a complete
description of GNMA Certificates and Modified Pass Through GNMA Certificates.
The Fund intends to use the proceeds from principal payments to purchase
additional GNMA Certificates or other U.S. Government guaranteed securities.
6 ING Pilgrim GNMA Income Fund
<PAGE>
ING PILGRIM GNMA INCOME FUND
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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
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
15.75 5.19 8.06 -2.07 15.91 5.71 10.20 7.52 0.58
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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 Lehman Brothers Mortgage-Backed Securities Index.
Average Annual Total Returns(3)
Lehman Brothers
Class Class Class Mortgage-Backed
A(4) B C Securities Index(5)
------- ------- ------- --------------------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 %
----------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund and the Fund's shares were sold on a no-load basis.
Effective July 31, 2000, the Fund's outstanding shares were classified as
"Class A" shares.
(3) This table shows the performance of the Class A shares of the Fund. Class M
and Class T did not have a full year's performance as of December 31, 2000.
(4) Reflects deduction of sales charge of 4.75%.
(5) The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index
comprised of 520 mortgage backed securities with an average yield of 7.58%.
The average coupon of the index is 6.85%. This index is typically used as a
benchmark for intermediate-term bond funds.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim GNMA Income Fund 7
<PAGE>
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Income
Funds
------
Adviser
ING Mutual Funds Management Co. LLC
Sub-Adviser
ING PILGRIM NATIONAL TAX-EXEMPT BOND FUND Furman Selz Capital Management LLC
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks to provide investors with a high level of current income that is
exempt from federal income taxes, consistent with preservation of capital.
INVESTMENT STRATEGY
[GRAPHIC]
The Fund normally invests at least 80% of its total assets in debt obligations
issued by states, territories and possessions of the United States and the
District of Columbia or their political subdivisions, agencies and
instrumentalities, multi-state agencies or authorities the interest from which
is, in the opinion of bond counsel of the issuer, exempt from federal income
tax. The Fund will invest at least 80% of its total assets in securities the
interest on which is not a preference item for purposes of the federal
alternative minimum tax. The remainder of the Fund's assets may be invested in
taxable debt securities when sufficient tax-exempt municipal obligations are not
available for purchase. The taxable securities in which the Fund may invest
include: U.S. Government securities, instruments of U.S. commercial banks or
savings and loan institutions which have total assets of $1 billion or more as
shown on the last published financial statements at the time of investment, and
repurchase agreements involving any of such securities.
There are no restrictions on the average maturity of the Fund or, on the
maturity of any single investment. Maturities may vary widely depending on the
Sub-Adviser's assessment of interest rate trends and other economic or market
factors. The Fund may purchase the following types of municipal obligations, but
only if such securities, at the time of purchase, either have the requisite
rating, or are of comparable quality if unrated: (i) municipal bonds rated
investment grade (for example, rated at least BBB by Standard & Poor's Rating
Group or Baa by Moody's Investor Services) or have an equivalent rating by a
nationally recognized statistical rating organization, or of comparable quality
if unrated; (ii) municipal notes receiving the highest rating by such a rating
agency; and (iii) tax-exempt commerical paper receiving the highest rating by
such a rating agency.
The Fund may invest in variable and floating rate obligations, may purchase
securities on a "when-issued" basis, and reserves the right to engage in
transactions involving standby commitments. The Fund may also purchase other
types of tax-exempt instruments as long as they are of a quality equivalent to
the long-term bond or commercial paper ratings stated above. The Fund will not
invest more than 15% of its net assets in illiquid securities. The Fund may
engage in swap agreements.
Not more than 25% of the Fund's total assets will be invested in either (i)
municipal obligations whose issuers are located in the same state or (ii)
municipal obligations the interest on which is derived from revenues of similar
type projects. The second restriction does not apply to municipal obligations in
any of the following categories: public housing authorities; general obligations
or states and localities; state and local housing finance authorities; or
municipal utilities systems.
In choosing instruments for the Fund, the Sub-Adviser identifies interest rate
trends and then sets a target duration and creates the portfolio around such
target. The Sub-Adviser analyzes sectors of the municipal bond market to
determine the appropriate weighting of such sectors. Individual issues that meet
duration and sector criteria are selected on the basis of yield, quality and
marketability.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. An investment in the Fund is
not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency. The Fund may be affected
by the following risks, among others:
Price Volatility -- Debt securities face market, issuer and other risks, and
their values may go up and 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.
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. Debt 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.
Spread Risk -- the price of a fixed income security is generally determined by
adding an interest rate spread to a benchmark interest rate, such as the U.S.
Treasury rate. As the spread on a security widens (or increases), the price (or
value) of the security falls.
Default Risk -- an issuer of a security may default on its obligation to pay
principal and/or interest.
Credit Risk -- the Fund could lose money if the issuer of a debt security is
unable to meet its financial obligations or goes bankrupt. The Fund is subject
to less credit risk than other income funds because it principally invests in
debt securities issued or guaranteed by states, territories and possessions of
the United States and the District of Columbia or their political subdivisions,
agencies and instrumentalities, or multi-state agencies or authorities.
Prepayment Risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Risk of Municipal Obligations -- there could by economic, business or political
developments which might affect all municipal obligations of a similar type. To
the extent that a significant portion of the Fund's assets are invested in
municipal obligations payable from revenue or similar projects, the Fund will be
subject to the peculiar risks presented by such projects to a greater extent
than it would be if the Fund's assets were not so invested.
8 ING Pilgrim National Tax-Exempt Bond Fund
<PAGE>
ING PILGRIM NATIONAL TAX-EXEMPT BOND FUND
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HOW THE FUND HAS PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Best and worst quarterly performance during this period:
quarter 19 : %
quarter 19 : %
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.
Average Annual Total Returns
Lehman Bros.
Class Class Class Aggregate
A(2) B(3) C(4) Index(5)
------- ------- ------- -------------
One year, ended
December 31, 2000 % -- -- -- --
Since inception(6) % -- -- -- --
----------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of deferred sales charge of 5% and 4%, respectively, for
1 year and since inception returns.
(4) Reflects deduction of deferred sales charge of 1% for the 1 year return.
(5) The Lehman Bros. Aggregate Index is a widely recognized, unmanaged index of
publicly issued fixed rate U.S. government and investment grade
mortgage-backed and corporated debt securities.
(6) Classes A, B and C commenced operations on December 31, 1999.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim National Tax-Exempt Bond Fund 9
<PAGE>
------
Income
Funds
------
Adviser
ING Mutual Funds Management Co. LLC
Sub-Adviser
ING PILGRIM INTERMEDIATE BOND FUND ING Investment Management LLC
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks to provide investors with a high level of current income
consistent with the preservation of capital and liquidity.
INVESTMENT STRATEGY
[GRAPHIC]
Under normal market conditions, the Fund will operate as a diversifed fund and
invest at least 65% of its total assets in a portfolio of debt securities which,
at the time of investment, are rated investment grade (for example, rated at
least BBB by Standard & Poor's Rating Group or Baa by Moody's Investor Services)
or have an equivalent rating by a nationally recognized statistical rating
organization, or of comparable quality if unrated. Although the Fund may invest
a portion of its assets in high yield (high risk) debt securities rated below
investment grade, the Fund will seek to maintain a minimum average portfolio
quality rating of at least investment grade. The dollar-weighted average
maturity of the Fund will generally range between three and ten years.
The Fund may invest the remainder of its assets in: convertible securities and
preferred stocks, U.S. Government securities, securities of foreign governments
and supranational organizations, and high-quality money market instruments that
the Sub-Adviser believes are appropriate in light of the Fund's investment
objective; municipal bonds, notes and commercial paper; and debt securities of
foreign issuers. The Fund may purchase structured debt obligations and may
engage in dollar roll transactions and swap agreements. The Fund may also sell
securities short and may use options and futures contracts involving securities,
securities indices and interest rates. A portion of the Fund's assets may be
invested in mortgage-backed securities and asset-backed debt securities.
In choosing investments for the Fund, the Sub-Adviser employs a highly
disciplined, five-step investment process which uses fundamental economic and
market research to identify bond market sectors and individual securities
expected to provided above-average returns. The five steps are:
* First, the Sub-Adviser examines the sensitivity to interest rate movements
of the portfolio and of the specific holdings of the portfolio to position
the Fund in a way that attempts to maximize return while minimizing
volatility.
* Second, the Sub-Adviser reviews yields relative to maturity and risk of
bonds to determine the risk/reward characteristics of bonds of different
maturity classes.
* Third, the Sub-Adviser identifies sectors that offer attractive value
relative to other sectors.
* Fourth, the Sub-Adviser selects securities within identified sectors that
offer attractive value relative to other securities within their sectors.
* Finally, the Sub-Adviser seeks trading opportunities to take advantage of
market inefficiencies to purchase bonds at prices below their calculated
value.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. An investment in the Fund is
not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. The Fund may be affected
by the following risks, among others:
Price Volatility -- Debt securities face market, issuer and other risks, and
their values may go up and 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.
Changes in Interest Rate -- the value of the Fund's investments 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 durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Spread Risk -- the price of a fixed income security is generally determined by
adding an interest rate spread to a benchmark interest rate, such as the U.S.
Treasury rate. As the spread on a security widens (or increases), the price (or
value) of the security falls.
Default Risk -- an issuer of a security may default on its obligation to pay
principal and/or interest.
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. This Fund may
be subject to more credit risk than 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.
Prepayment Risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Extension Risk -- slower than expected principal payments on a mortgage-backed
or asset-backed security may extend such security's life, thereby locking in a
below-market interest rate, increasing the security's duration and reducing the
value of the security.
Risks of High Yield Bonds -- high yield bonds carry particular market risks and
may experience greater volatility in market value than investment grade bonds.
Changes in interest rates, the market's perception of the issuers and the
creditworthiness of the issuers may significantly affect the value of these
bonds. Some of these securities may have a structure that makes their reaction
to interest rates and other factors difficult to predict, causing their value to
be highly volatile. Certain high yield bonds, such as zero coupon, deferred
interest and payment-in-kind bonds, are issued at deep discounts and may
experience greater volatility in market value. The secondary market for high
yield bonds may be less liquid than the markets for higher quality securities
and this may have an adverse effect on the maket values of certain securities.
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.
10 ING Pilgrim Intermediate Bond Fund
<PAGE>
ING PILGRIM INTERMEDIATE BOND FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-0.94
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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 -- Lehman Bros. Aggregate Index(5)
Average Annual Total Returns(5)
Lehman Bros.
Aggregate
Class A(2) Class B(3) Class C(4) Index(5)
---------- ----------- ----------- ------------
One year ended
December 31, 2000 % -- -- -- --
Since inception(6) % -- -- -- --
----------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The Lehman Bros. Aggregate Index is a widely recognized, unmanaged index of
publicly issued fixed-rate U.S. govern-ment and investment grade
mortgage-backed and corporate debt securities.
(6) Classes A, B and C commenced operations on December 15, 1998.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Intermediate Bond Fund 11
<PAGE>
------
Income
Funds
------
Adviser
ING PILGRIM STRATEGIC INCOME FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks maximum total return.
INVESTMENT STRATEGY
[GRAPHIC]
Under normal conditions, the Fund invests at least 60% of its total assets in
debt securities issued by U.S. and foreign corporations, U.S. and foreign
governments, and their agencies and instrumentalities that are rated in one of
the top four categories by a nationally recognized statistical rating agency, or
of comparable quality if unrated. These securities include bonds, notes,
mortgage-backed and asset-backed securities with rates that are fixed, variable
or floating. The Fund may invest up to 40% of its total assets in high yield
debt securities, commonly known as "junk bonds." There is no minimum credit
rating for high yield debt securities in which the Fund may invest. The "total
return" sought by the Fund consists of income earned on the Fund's investments,
plus capital appreciation, if any, which generally arises from decreases in
interest rates or improving credit fundamentals for a particular sector or
security.
The Fund may invest in debt securities of any maturity; however, the average
portfolio duration of the Fund will generally range from two to eight years. The
Fund may invest up to 30% of its total assets in securities payable in foreign
currencies. 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 also use options, futures contracts and interest rate and currency swaps as
hedging techniques. The Fund does not invest in interest-only or principal-only
stripped mortgage-backed securities.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- the value of the Fund's investments 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 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 debt 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 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.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. A security in the lowest rating categories, that is
unrated, or whose credit rating has been lowered may be particularly difficult
to sell. Foreign securities and mortgage-related and asset-backed debt
securities may be less liquid than other debt securities. 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.
Other Investment Companies -- because the Fund invests in other investment
companies you may 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.
12 ING Pilgrim Strategic Income Fund
<PAGE>
ING PILGRIM STRATEGIC 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
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-1.16
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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 Lehman Aggregate Bond Index.
Average Annual Total Returns
Lehman
Aggregate
Class Class Class Bond
A(3) B (4) C (5) Index(6)
------- ------- ------- ----------
One year, ended
December 31, 2000 %
Since inception of
Classes A, B, and C (7) %
----------
(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.
(3) Reflects deduction of sales charge of 4.75%.
(4) Reflects deduction of a deferred sales charge of 5% and 3%, respectively,
for the 1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The Lehman Aggregate Bond Index is an unmanaged index that measures the
performance of fixed income securities that are similar, but not identical,
to those in the Fund's portfolio.
(7) Classes A, B and C commenced operations on July 27, 1998.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Strategic Income Fund 13
<PAGE>
------
Income
Funds
------
Adviser
ING PILGRIM HIGH YIELD FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks a high level of current income, with capital appreciation as a
secondary objective.
INVESTMENT STRATEGY
[GRAPHIC]
The Fund normally invests at least 65% of its assets in high yield debt
securities, including preferred stock and convertible securities, that do not in
the opinion of the adviser involve undue risk relative to their expected return.
High yield securities, which are commonly known as "junk bonds," are securities
that are rated below investment grade, i.e., rated lower than Baa by Moody's
Investors Service, Inc. or BBB by Standard and Poor's, or of comparable quality
if not rated. Generally, the Fund will invest in securities rated lower than B
by Moody's or S&P only when the adviser believes the financial condition of the
issuer or other available protections reduce the risk to the Fund or that there
is greater value in the securities than is reflected in their prevailing market
price. There is no minimum credit rating for high yield securities in which the
Fund may invest. The Fund may invest in debt securities of any maturity. In
selecting securities for the Fund, preservation of capital is a consideration.
The remainder of the Fund's assets may be invested in common stocks, investment
grade preferred stocks, investment grade debt obligations of all types, U.S.
Government securities, warrants, money market instruments (including repurchase
agreements on U.S. Government securities), mortgage-related securities and
participation interests and assignments in floating rate loans and notes. The
Fund may also invest up to 10% of its assets in foreign debt securities of any
rating. The Fund may invest in financial futures and related options to attempt
to hedge risk, although the Fund has not invested in such instruments since
Pilgrim Investments, Inc. became the adviser in 1995 through the date of this
prospectus.
In selecting equity securities, the portfolio managers use a "bottom-up"
analysis that focuses on individual companies and assesses the company's
valuation, financial condition, management, competitiveness, and other factors.
Differences Between the Fund and High Yield Fund II -- While both Funds invest
primarily in high yield securities, the High Yield Fund normally emphasizes
bonds with stronger credit ratings in the high yield bond universe. Thus, of the
two Funds, High Yield Fund II normally presents the potential for higher income,
but with potentially higher credit risk and volatility.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
The Fund is subject to risks associated with investing in lower rated debt
securities. You could lose money on an investment in the Fund. The Fund may be
affected by the following risks, among others:
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 other income mutual funds because it invests in
high yield (or "junk bond") 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. The Fund is also subject to credit risk
through its investment in floating rate loans.
Changes in Interest Rates -- the value of the Fund's investments 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 durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. The Fund could lose money if it cannot sell a
security at the time and price that would be most beneficial. A security whose
credit rating has been lowered may be particularly difficult to sell.
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.
Price Volatility -- Equity securities face market, issuer and other risks, and
their values may go up and 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.
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, securities depositories or exchanges than those in the U.S., and
foreign controls on investment.
14 ING Pilgrim High Yield Fund
<PAGE>
ING PILGRIM HIGH YIELD FUND
--------------------------------------------------------------------------------
HOW THEFUND HAS PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
29.44 16.19 18.52 -1.55 17.71 15.76 14.98 -2.96 -1.14
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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 Lehman Brothers High Yield Bond Index.
Average Annual Total Returns
Lehman
High Yield
Class Class Class Class Bond
A(2) B(3) C(4) M(5) Index(6)
------- ------- --------- ------- ----------
One year, ended
December 31, 2000 % --
Five years, ended
December 31, 2000 % N/A N/A N/A
Ten years, ended
December 31, 2000 % N/A N/A N/A
Since inception of
Classes B and M(7) % N/A N/A
Since inception of
Class C(8) % N/A N/A -- N/A --
----------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 4.75%.
(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 a deferred sales charge of 1% for the 1 year return.
(5) Reflects deduction of a sales charge of 3.25%.
(6) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the Fund's portfolio.
(7) Classes B and M commenced operations on July 17, 1995.
(8) Class C commenced operations on .
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim High Yield Fund 15
<PAGE>
------
Income
Funds
------
Adviser
ING PILGRIM HIGH YIELD FUND II ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks a high level of current income and capital growth.
INVESTMENT STRATEGY
[GRAPHIC]
Under normal conditions, the Fund invests at least 65% of its total assets in
high yield, lower rated debt securities, which are commonly referred to as "junk
bonds," and convertible securities 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 limit on either
the portfolio maturity or the acceptable rating of securities bought by the
Fund. Securities may bear rates that are fixed, variable or floating. The Fund
may invest up to 35% of its total assets in equity securities of U.S. and
foreign companies, including securities of companies in emerging markets. In
selecting equity securities, the portfolio managers use a "bottom-up" analysis
that focuses on individual companies and assesses the company's valuation,
financial condition, management, competitiveness, and other factors.
The Fund is not restricted to investments in companies of any particular size,
but currently intends to invest principally in companies with market
capitalization above $100 million at the time of purchase. The Fund may also use
options, futures contracts and interest rate and currency swaps as hedging
techniques or to help seek the Fund's investment objectives.
Differences Between the Fund and High Yield Fund
While both Funds invest primarily in high yield securities, the High Yield Fund
normally emphasizes bonds with stronger credit ratings in the high yield bond
universe. Thus, of the two Funds, High Yield Fund II normally presents the
potential for higher income, but with potentially higher credit risk and
volatility.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
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 other income mutual funds because it invests 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.
Changes in Interest Rates -- the value of the Fund's investments 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 term
maturities. Debt 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.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the owners of the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality 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. A
security in the lowest rating categories, that is unrated, or whose credit
rating has been lowered may be particularly difficult to sell. Valuing less
liquid securities involves greater exercise of judgment and may be more
subjective than valuing securities using market quotes.
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 information,
differences in the way securities markets operate, less secure foreign banks or
securities depositories than those in the U.S., and foreign controls on
investment. Investments in emerging markets countries are generally riskier than
other kinds of foreign investments, partly because emerging market countries may
be less politically and economically stable than other countries. It may also be
more difficult to buy and sell securities in emerging market countries.
Risk 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 derivative 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.
Price Volatility -- equity securities face market, issuer and other risks, and
their values may go up and 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.
16 ING Pilgrim High Yield Fund II
<PAGE>
ING PILGRIM HIGH YIELD FUND II
--------------------------------------------------------------------------------
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 shares from year to
year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
21.05 4.17 6.12
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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 High Yield Index.
Average Annual Total Returns
First
Boston
High
Class Class Class Class Yield
A(3) B(4) C(5) T(6) Index(7)
------- ------- ------- ------- --------
One year, ended
December 31, 2000 % --
Since inception of
Classes A, B and C(8) % N/A
Since inception
of Class T(8) % N/A N/A N/A --
----------
(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. The figure
shown for the year 1999 provides performance for the Class A shares of the
Fund. The figures shown for the years 1997 and 1998 provide performance for
Institutional Class shares of the Fund, revised to reflect the higher
expenses of Class A shares.
(3) Reflects deduction of a sales charge of 4.75%.
(4) Reflects deduction of a deferred sales charge of 5% and 3%, respectively,
for the 1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) Reflects deduction of deferred sales charge of 4% for the 1 year return.
(7) The First Boston High Yield Index is an unmanaged index that measures the
performance of fixed income securities similar, but not identical, to those
in the Fund's portfolio.
(8) Classes A, B and C commenced operations on March 27, 1998. Class T
commenced operations on January 4, 2000.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim High Yield Fund II 17
<PAGE>
------
Income
Funds
------
Adviser
ING PILGRIM HIGH TOTAL RETURN FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks high income and capital appreciation.
INVESTMENT STRATEGY
[GRAPHIC]
The Fund invests primarily in higher-yielding, lower-rated bonds (junk bonds) to
achieve high current income with potential for capital growth.
Under normal market conditions, the Fund invests at least 65% of its total
assets in high-yielding, lower-rated U.S. dollar-denominated debt securities of
any maturity of U.S. and foreign issuers. It may also invest up to 35% of its
total assets in securities denominated in foreign currencies. It may invest up
to 50% of its assets in securities of foreign issuers, including 35% in emerging
market debt. Most of the debt securities the Fund invests in are lower-rated and
considered speculative, including bonds in the lowest rating categories and
unrated bonds. It can invest up to 10%, and can hold up to 25%, of its assets in
securities rated below Caa by Moody's or CCC by S&P. It also holds debt
securities that pay fixed, floating or adjustable interest rates and may hold
pay-in-kind securities and discount obligations, including zero coupon
securities, and mortgage-related or asset-backed debt securities.
The Fund may also invest in equity or equity-related securities, such as common
stock, preferred stock, convertible securities and rights and warrants attached
to debt instruments.
In selecting equity securities, the portfolio managers use a "bottom-up"
analysis that focuses on individual companies and assesses the company's
valuation, financial condition, management, competitiveness, and other factors.
PENDING MERGER -- subject to shareholder approval, the Fund's Board of Trustees
has approved the reorganization of the Fund into ING Pilgrim High Yield Fund II.
You could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- The Fund's performance is significantly affected by
changes in interest rates. The value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with longer durations. Debt 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.
The value of the Fund's high-yield and 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 is subject
to more credit risk than many other income mutual funds, because it invests 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 for bonds in the lowest rating category and
unrated bonds, and during periods of economic uncertainty or economic downturns.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high-yield securities may be less liquid than
higher quality investments. Foreign securities and mortgage-related and
asset-backed debt securities may be less liquid than other debt securities. The
Fund could lose money if it cannot sell a security at the time and price that
would be most beneficial to the Fund. A security in the lowest rating
categories, that is unrated, or whose credit rating has been lowered may be
particularly difficult to sell. Valuing less liquid securities involves greater
exercise of judgement and may be more subjective than valuing securities using
market quotes.
Risk of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
The Fund may invest in midcap and smallcap 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.
18 ING Pilgrim High Total Return Fund
<PAGE>
ING PILGRIM HIGH TOTAL RETURN FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-8.57 21.17 15.70 11.44 -7.96 -13.23
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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 Lehman Brothers High Yield Bond Index.
Average Annual Total Returns
<TABLE>
<CAPTION>
Lehman
High Yield
Bond
Class A(2) Class B(3) Class C(4) Index(5)
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of Class A(6) % N/A N/A
Since inception of Class B(6) % N/A N/A
Since inception of Class C(6) % N/A N/A
</TABLE>
----------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 4.75%.
(3) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for
1 year and 5 year returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the Fund's portfolio.
(6) Class A commenced operations on November 8, 1993. Classes B and C commenced
operations on February 9, 1994 and March 21, 1994, respectively.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim High Total Return Fund 19
<PAGE>
------
Income
Funds
------
Adviser
ING Mutual Management Co. LLC
Sub-Adviser
ING PILGRIM HIGH YIELD BOND FUND ING Investment Management LLC
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks to provide investors with a high level of current income and
total return.
INVESTMENT STRATEGY
[GRAPHIC]
Under normal market conditions, the Fund will operate as a diversified fund and
invest at least 65% of its total assets in a portfolio of high yield (high risk)
bonds. High yield bonds are debt securities that are not rated by a nationally
recognized statistical rating organization or are rated below investment grade
(for example, rated below BBB by Standard & Poor's Rating Group or Baa by
Moody's Investor Services) or have an equivalent rating by a nationally
recognized statistical rating organization. The Fund defines high yield bonds to
include: bank loans; payment-in-kind securities; fixed, variable, floating rate
and deferred interest debt obligations; zero coupon bonds; mortgage-backed and
asset-backed debt obligations; structured debt obligations; and convertible
bonds, provided they are unrated or rated below investment grade. In evaluating
the quality of a particular high yield bond for investment by the Fund, the
Sub-Adviser does not rely exclusively on ratings assigned by the nationally
recognized statistical rating organizations. The Sub-Adviser will utilize a
security's credit rating as simply one indication of an issuer's
creditworthiness and will principally rely upon its own analysis of any
security. However, the Sub-Adviser does not have restrictions on the rating
level of the securities in the Fund's portfolio and may purchase and hold
securities in default. There are no restrictions on the average maturity of the
Fund or the maturity of any single investment. Maturities may vary widely
depending on the Sub-Adviser's assessment of interest rate trends and other
economic or market factors.
Any remaining assets may be invested in investment grade debt securities; common
and preferred stocks; U.S. Government securities and money market instruments
that the Sub-Adviser believes are appropriate in light of the Fund's investment
objectives; and debt securities of foreign issuers. The Fund may purchase
structured debt obligations and may engage in dollar roll transactions and swap
agreements. The Fund may also use options and futures contracts involving
securities, securities indices and interest rates.
The Fund will not purchase any common stocks if, after such purchase, more than
20% of the value of its total assets would be invested in common stocks. The
Fund will invest in common stocks in order to attempt to achieve either a
combination of its primary and secondary objectives, in which case the common
stocks will be dividend-paying, or to achieve its secondary objective, in which
case the common stocks may not pay dividends.
In choosing investments for the Fund, the Sub-Adviser combines extensive company
and industry research with relative value analysis to identify high yield bonds
expected to provide above-average returns. Relative value analysis is intended
to enhance returns by moving from overvalued to undervalued sectors of the bond
market. The Sub-Adviser's team approach to decision making includes
contributions from individual managers responsible for specific industry
sectors.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. An investment in the Fund is
not a bank deposit and is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. The Fund may be affected
by the following risks, among others.
Price Volatility -- debt securities face market, issuer and other risks, and
their values may go up and 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.
Changes in Interest Rates -- the value of the Fund's investments 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 durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Special Risk -- the price of a fixed income security is generally determined by
adding an interest rate spread to a benchmark interest rate, such as the U.S.
Treasury rate. As the spread on a security widens (or increases), the price (or
value) of the security falls.
Default Risk -- an issuer of a security may default on its obligation to pay
principal and/or interest.
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. This Fund may
be subject to more credit risk than 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.
Prepayment Risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Extension Risk -- slower than expected principal payments on a mortgage-backed
or asset-backed security may extend such security's life, thereby locking in a
below-market interest rate, increasing the security's duration and reducing the
value of the security.
Risk of High Yield Bonds -- high yield bonds carry particular market risks and
may experience greater volatility in market value than investment grade bonds.
Changes in interest rates, the market's perception of the issuers, and the
creditworthiness of the issuers may significantly affect the value of these
bonds. Some of these securities may have a structure that makes their reaction
to interest rates and other factors difficult to predict, causing their value to
be highly volatile. Certain high yield bonds, such as zero coupon, deferred
interest and payment-in-kind bonds, may be issued at deep discounts and may
experience greater volatility in market value. The secondary market for high
yield bonds may be less liquid than the markets for higher quality securities
and this may have an adverse effect on the market values of certain securities.
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.
Risks of Equity Investments -- equity securities face market, issuer and other
risks, and their values may go 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. Equities generally
have higher volatility than debt securities.
20 ING Pilgrim High Yield Bond Fund
<PAGE>
ING PILGRIM HIGH YIELD BOND FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
9.14
Best and worst quarterly performance during this period:
quarter 19 : %
quarter 19 : %
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 -- Lehman Bros. High Yield Index.
Average Annual Total Returns
Lehman
Bros.
High
Class Class Class Yield
A(2) B(3) C(4) Index(5)
------- ------- ------- ---------
One year, ended
December 31, 2000 % -- -- -- --
Since inception(6) % -- -- -- --
----------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
1 year and since inception returns..
(4) Reflects deduction of deferred sales charge of 1% for the 1 year return.
(5) Lehman Bros. High Yield Index is a widely recognized unmanaged index of
high yield debt securities.
(6) Classes A, B and C commenced operations on December 15, 1998.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim High Yield Bond Fund 21
<PAGE>
------
Income
Funds
------
Adviser
ING PILGRIM HIGH TOTAL RETURN FUND II ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks high income and capital appreciation.
INVESTMENT STRATEGY
[GRAPHIC]
The Fund invests primarily in higher-yielding, lower-rated bonds (junk bonds) to
achieve high current income with potential for capital growth.
Under normal market conditions, the Fund invests at least 65% of its total
assets in high-yielding, lower-rated U.S. dollar-denominated debt securities of
any maturity of U.S. and foreign issuers. It may also invest up to 35% of its
total assets in securities denominated in foreign currencies. It may invest up
to 50% of its assets in securities of foreign issuers, including 35% in emerging
market debt. Most of the debt securities the Fund invests in are lower-rated and
considered speculative, including bonds in the lowest rating categories and
unrated bonds. It can invest up to 10%, and can hold up to 25%, of its assets in
securities rated below Caa by Moody's or CCC by S&P. It also holds debt
securities that pay fixed, floating or adjustable interest rates and may hold
pay-in-kind securities and discount obligations, including zero coupon
securities, and mortgage-related or asset-backed debt securities.
The Fund may also invest in equity or equity-related securities, such as common
stock, preferred stock, convertible securities and rights and warrants attached
to debt instruments. In selecting equity securities, the portfolio managers use
a "bottom-up" analysis that focuses on individual companies and assesses the
company's valuation, financial condition, management, competitiveness, and other
factors.
PENDING MERGER -- subject to shareholder approval, the Fund's Board of Trustees
has approved the reorganization of the Fund into ING Pilgrim High Yield Fund II.
You could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- The Fund's performance is significantly affected by
changes in interest rates. The value of the Fund's investments may fall when
interest rates rise. The Fund may be sensitive to changes in interest rates
because it may invest in debt securities with longer maturities. Debt 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.
The value of the Fund's high yield and 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 is subject
to more credit risk than many other income mutual funds, because it invests 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 for bonds in the lowest rating catergories and
unrated bonds, and during periods of economic uncertainty or economic downturns.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. An unrated bond, a bond in the lowest rating
catorgories, or a security whose credit rating has been lowered may be
particularly difficult to sell. Foreign securities and mortgage-related and
asset-backed debt securities may be less liquid than other debt securities. The
Fund could lose money if it cannot sell a security at the time and price that
would be most beneficial to the Fund.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Risk of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
22 ING Pilgrim High Total Return Fund II
<PAGE>
ING PILGRIM HIGH TOTAL RETURN FUND II
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-2.93 -13.86
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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 Lehman Brothers High Yield Bond Index.
Average Annual Total Returns
Lehman
High Yield
Bond
Class A(2) Class B(3) Class C(4) Index(5)
---------- ---------- ---------- ----------
One year, ended
December 31, 2000 %
Since inception(6) %
----------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 4.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the Fund's portfolio.
(6) The Fund commenced operations on January 31, 1997.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim High Total Return Fund II 23
<PAGE>
------
Income
Funds
------
Adviser
PILGRIM MONEY MARKET FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks to provide as high a level of current income as is consistent
with the preservation of capital and liquidity.
INVESTMENT STRATEGY
[GRAPHIC]
The Fund invests all of its assets in Class A shares of the Primary
Institutional Fund, a series of Reserve Institutional Trust, a registered
open-end management investment company, rather than directly in a portfolio of
securities.In turn, the Primary Institutional Fund seeks to provide as high a
level of current income as is consistent with the preservation of capital and
liquidity. This structure is different from that of other Pilgrim Funds and many
other investment companies, which directly acquire and manage their own
portfolio of securities.
The Primary Institutional Fund seeks to achieve its investment objective by
investing in instruments issued by the U.S. Government, its agencies and
instrumentalities ("U.S. Government Securities "); high quality deposit-type
obligations, such as negotiable certificates of deposit and time deposits,
bankers' acceptances and letters of credit of domestic, foreign banks and
foreign branches of foreign banks, savings and loan associations and savings
banks; other short-term instruments of similar quality; and instruments fully
collateralized by such obligations. The dollar weighted average portfolio
maturity of the Fund will not exceed 90 days.
The Primary Institutional Fund may invest in obligations of U.S.banking
institutions that are insured by the Federal Deposit Insurance Corporation. The
Primary Institutional Fund may also invest in obligations of foreign branches of
both U.S. banks and foreign banks (Eurodollars). Investment in foreign banks
will be limited to those located in Australia, Canada, Western Europe and Japan
and which, at the time of investment, have more than $25 billion (or the
equivalent in other currencies) in total assets and which, in the opinion of the
Primary Institutional Fund's investment adviser, are of comparable quality to
the obligations of U.S. banks which may be purchased by the Primary
Institutional Fund. The Primary Institutional Fund may also invest in municipal
obligations, the interest on which is not exempt from federal income taxation.
The Primary Institutional Fund may also engage in repurchase agreements and
periodically lend securities on a short-term basis to banks, brokers and dealers
(but not individuals) and receive as collateral cash or securities issued by the
U.S. Government or its agencies or instrumentalities (or any combination
thereof). The value of the securities loaned cannot exceed 25% of the Primary
Institutional Fund's total assets.
The Primary Institutional Fund may invest, without limitation, in U.S.
Government Securities and in instruments secured or collateralized by U.S.
Government Securities. The Primary Institutional Fund will not invest more than
10% of its net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven (7) days after notice and will not
concentrate more than 25% of its total assets in securities of issuers in a
single industry, except that it may invest more than 25% of its assets in bank
obligations. In addition, the Primary Institutional Fund will not invest more
than 5% of its assets in the securities of any single issuer (except U.S.
Government Securities or repurchase agreements). The Primary Institutional Fund
may borrow money for extraordinary or emergency purposes but not in an amount
exceeding 5% of its total assets.
The Primary Institutional Fund uses the amortized cost method of valuation to
help the Fund maintain a stable $1.00 share price. Of course, there is no
guarantee that the Fund will be able to maintain a $1.00 share price.
Since the Fund invests substantially all of its assets in another investment
company, the fund could be considered a feeder fund in an arrangement resembling
a master/feeder structure.
Investment of the Fund's assets in the Class A shares of the Primary
Institutional Fund is not a fundamental policy of the Fund and a shareholder
vote is not required for the Fund to withdraw its investment in the Primary
Institutional Fund.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
The Fund is subject to the risks associated with investing in debt securities.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
The Fund may be affected by these other risks by virtue of its investment in the
Primary Institutional Fund:
Changes in Interest Rates -- money market funds like the Fund are subject to
less interest rate risk than other income funds because they invest in debt
securities with a remaining maturity not greater than 397 days. Still, the value
of the Fund 's investment may fall when interest rates rise.
Credit Risk -- money market funds like the Fund are subject to less credit risk
than other income funds because they invest in short-term debt securities of the
highest quality. Still, the Fund could lose money if the issuer of a debt
security is unable to meet its financial obligations or goes bankrupt.
U.S.Government Securities -- some U.S. Government agency securities may be
subject to varying degrees of credit risk, and all U.S. Government Securities
may be subject to price declines in the securities due to changing interest
rates. If an obligation, such as obligations issued by the Federal National
Mortgage Association, the Student Loan Marketing Association, the Federal Home
Loan Bank and the Federal Home Loan Mortgage Corporation is supported only by
the credit of the agency or instrumentality issuing the obligation, the investor
must look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment. Securities directly supported by the full faith and credit
of the United States have less credit risk.
Risk of Concentration in Banking Obligations -- the risks of concentrating in
investments in the banking industry include credit risk, interest rate risks,and
regulatory risk (the impact of state or federal legislation and regulations).
Because the Fund invests all of its assets in another registered management
investment, company, the Fund and its shareholders will bear the investment
advisory fees and expenses of the Fund and the other registered management
investment company in which it invests with the result that the Fund's expenses
may be higher than those of other money market funds which invest directly in
money market instruments. The Fund is also designed for investors who desire a
short-term investment and may not be appropriate for those investors desiring a
long-term investment.
24 Pilgrim Money Market Fund
<PAGE>
PILGRIM MONEY MARKET 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 availability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some inidication of the risk of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
4.64
Best and worst quarterly performance during this period:
Quarter: %
Quarter: %
The following performance table discloses the Fund average annual return as of
December 31, 2000 for each class of shares.
Average Annual Total Return(1)
Class A Class B(3) Class C(4)
-------- --------- ----------
One year %
Since inception(2) %
The Fund's seven-day yields as of December 31, 2000 for the Class A, B and C
shares were %, % and %, respectively. The "seven-day yield" is an annual figure
-- the amount you would earn if you kept your investment in the Fund and the
Fund continued to earn the same net interest income throughout the year.
The Fund's seven-day effective yields as of December 31, 2000 for the Class A, B
and C shares were %, % and %, respectively. The "seven-day effective yield"
(also an annualized figure) assumes that dividends are reinvested and
compounded.
----------
(1) Total returns reflect the deduction of the applicable contingent defined
sales load.
(2) The Fund commenced operations on July 12, 1999.
(3) Reflects deduction of deferred sales change of 5% and 4%, respectively, for
1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Pilgrim Money Market Fund 25
<PAGE>
------
Income
Funds
------
Adviser
ING Mutual Funds Management Co. LLC
Sub-Adviser
ING MONEY MARKET FUND ING Investment Management LLC
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks to provide investors with a high level of current income as is
consistent with the preservation of capital and liquidity and the maintenance of
a stable $1.00 net asset value per share.
INVESTMENT STRATEGY
[GRAPHIC]
The Fund will operate as a diversified fund and invest in a portfolio of
high-quality. U.S. dollar denominated short-term debt obligations which are
determined by the Sub-Adviser to present minimal credit risks.
Portfolio investments of the Fund are value based on the amortized cost
valuation method pursuant to Rule 2a-7 under the Investment Company Act of 1940.
Obligations in which the Fund invests generally have remaining maturities of 397
days or less, although upon satisfying certain conditions of Rule 2a-7, the Fund
may, to the extent otherwise permissible, invest in instruments subject to
repurchase agreements and certain variable and floating rate obligations that
bear longer final maturities. The dollar-weighted average portfolio maturity of
the Fund will not exceed 90 days.
The Fund will invest in obligations permitted to be purchased under Rule 2a-7
including, but not limited to, (i) U.S. Government securities and obligations of
its agencies or instrumentalities; (ii) commercial paper, mortgage-backed and
asset-backed securities, guaranteed investment contracts, loan participation
interests, medium term notes, and other promissory notes, including floating and
variable rate obligations; and (iii) the following domestic, Yankeedollar and
Eurodollar obligations; certificates of deposit, time deposits, bankers
acceptances, commercial paper, and other promissory notes, including floating
and variable rate obligations issued by U.S. or foreign bank holding companies
and their bank subsidiaries, branches and agencies. The Fund may invest more
than 25% of its total assets in instruments issued by domestic banks.
The Fund may purchase securities on a "when-issued" basis and purchase or sell
them on a "forward commitment" basis. The Fund may also invest in variable rate
master demand obligations, which are unsecured demand notes that permit the
underlying indebtedness to vary, and provide for periodic adjustments in the
interest rate. The Fund may enter into repurchase agreements.
In choosing investments for the Fund, the Sub-Adviser employs a highly
disciplined, four step investment process designed to ensure preservation of
capital and liquidity as well as adherence to regulatory requirements. The
four-step are:
* First, a formal list of high-quality issuers is actively maintained;
* Second, securities of issuers on the approved list which meet maturity
guidelines and are rated "first tier" (that is, they are given the highest
short-term rating by at least two nationally recognized statistical rating
organizations, or by a single rating organization if a security is rated
only by that organization, or are determined to be of comparable quality by
the Sub-Adviser pursuant to guidelines approved by the Fund's Board of
Trustees) are selected for investment;
* Third, diversification is continuously monitored to ensure that regulatory
limits are not exceeded; and
* Finally, portfolio maturity decisions are made based upon expected cash
flows, income opportunities available in the market and expectations of
future interest rates.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
The Fund is subject to the risks associated with investing in debt securities.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
Changes in Interest Rates -- money market funds like the Fund are subject to
less interest rate risk than other income funds because they invest in debt
securities with a remaining maturity not greater than 397 days. Still, the value
of the Fund's investment may fall when interest rates rise.
Credit Risk -- money market funds like the Fund are subject to less credit risk
than other income funds because they invest in short-term debt securities of the
highest quality. Still, the Fund could lose money if the issuer of a debt
security is unable to meet its financial obligations or goes bankrupt.
U.S. Government Securities -- some U.S. Government agency securities may be
subject to varying degrees of credit risk, and all U.S. Government Securities
may be subject to price declines in the securities due to changing interest
rates. If an obligation, such as obligations issued by the Federal National
Mortgage Association, the Student Loan Marketing Association, the Federal Home
Loan Bank and the Federal Home Loan Mortgage Corporation is supported only by
the credit of the agency or instrumentality issuing the obligation, the investor
must look principally to the agency issuing or guaranteeing the obligation for
ultimate repayment. Securities directly supported by the full faith and credit
of the United States have less credit risk.
Risk of Concentration in Banking Obligations -- the risks of concentrating in
investments in the banking industry include credit risk, interest rate risks,
and regulatory risk (the impact of state or federal legislation and
regulations).
26 ING Money Market Fund
<PAGE>
ING MONEY MARKET 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 availability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some inidication of the risk of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
4.64
Best and worst quarterly performance during this period:
During the period shown in the bar chart, the best and worst quarterly
performance were as follows:
Quarter: %
Quarter: %
The folllowing performance table discloses the Fund average annual return as of
December 31, 1999 for each class of shares.
Average Annual Total Return(1)
iMoney Net, Inc.
First Tier
Class A Class B(3) Class C(4) Retail Index(5)
------- ------- ------- ----------------
One year %
Since inception(2) %
The Fund's seven-day yields as of December 31, 2000 for the Class A, B and C
shares were %, % and %, respectively. The "seven-day yield" is an annual figure
-- the amount you would earn if you kept your investment in the Fund and the
Fund continued to earn the same net interest income throughout the year.
The Fund's seven-day effective yields as of December 31, 2000 for the Class A, B
and C shares were %, % and %, respectively. The "seven-day effective yield"
(also an annualized figure) assumes that dividends are reinvested and
compounded.
----------
(1) Total returns reflect the deduction of the applicable contingent defined
sales load.
(2) The Fund commenced operations on December 15, 1988.
(3) Reflects deduction of deferred sales charge of 5% and 3% respectively, for
1 year and since inception returns.
(4) Reflects deduction of deferred sales charge of 1% for the one year return.
(5) The iMoney Net, Inc. First Tier Retail Index is a weekly report tracking
the performance, assets, average maturities and portfolio composition of
over 1,300 taxable and tax-free money market funds.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Money Market Fund 27
<PAGE>
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 ING Pilgrim Funds.
Fees You Pay Directly
<TABLE>
<CAPTION>
Class A Class B Class C(1) Class M(1) Class T(2)
------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Maximum sales charge on your investment
(as a % of offering price) %
Income Funds (except Pilgrim Money Market
and ING Money Market) 4.75(3) none none 3.25(3) none
Pilgrim Money Market
and ING Money Market none none none N/A N/A
Maximum deferred sales charge (as a % of
purchase or sales price, whichever is less)
Income Funds (including Pilgrim Money Market
and ING Money Market) none(4) 5.00(5) 1.00(6) none 4.00(7)
</TABLE>
----------
(1) Not all Funds offer Classes C and M. Please see page 32.
(2) Class T shares are available only for certain exchanges or reinvestment of
dividends. Please see page 32.
(3) Reduced for purchases of $50,000 and over. Please see page 32.
(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 32.
(5) Imposed upon redemption within 6 years from purchase. The fee has scheduled
reductions after the first year. Please see page 32.
(6) Imposed upon redemption within 1 year from purchase.
(7) Imposed upon redemption within 4 years from purchase. The fee has scheduled
reductions after the first year. Please see page 32.
Operating Expenses Paid Each Year by the Funds(1)
(as a % of average net assets)
<TABLE>
<CAPTION>
Class A
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(2) Expenses
---- --- ---- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Government Securities Income(3) % 0.50 0.25 0.60 1.35 -- 1.35
GNMA Income % 0.54 0.25 -- -- -- --
National Tax-Exempt Bond % 0.50 0.35 -- -- -- --
Intermediate Bond % 0.50 0.35 -- -- -- --
Strategic Income % 0.45 0.35 1.84 2.64 -1.68 0.96
High Yield % 0.60 0.25 0.32 1.17 -0.12 1.05
High Yield II(3) % 0.60 0.35 0.42 1.37 -0.19 1.18
High Total Return(4) % 0.60 0.30 -- -- -- --
High Yield Bond % 0.65 0.35
High Total Return II(4) % 0.60 0.30 -- -- -- --
Pilgrim Money Market % 0.25 0.25 1.78 2.28 -1.43 0.85
ING Money Market % 0.25 0.75 -- -- -- --
Class B(5)
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses(2) Expenses Adviser(2) Expenses
---- --- ---- -------- -------- ---------- --------
Government Securities Income(3) % 0.50 1.00 0.60 2.10 -- 2.10
GNMA Income % 0.54 1.00 -- -- --
National Tax-Exempt Bond % 0.50 1.00 -- -- --
Intermediate Bond % 0.50 1.00 -- -- --
Strategic Income % 0.45 0.75 1.84 3.04 -1.68 1.36
High Yield % 0.60 1.00 0.32 1.92 -0.12 1.80
High Yield II(3) % 0.60 1.00 0.42 2.02 -0.19 1.83
High Total Return(4) % 0.60 1.00 -- -- -- --
High Yield Bond % 0.65 1.00
High Total Return II(4) % 0.60 1.00 -- -- -- --
Pilgrim Money Market % 0.25 1.00 1.78 3.03 -1.43 1.60
ING Money Market % 0.25 1.00 -- -- -- --
</TABLE>
28 What You Pay to Invest
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
Operating Expenses Paid Each Year by the Funds(1)
(as a % of average net assets)
Class C(6)
<TABLE>
<CAPTION>
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(2) Expenses
---- --- ---- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Government Securities Income(3) % 0.50 1.00 0.60 2.10 -- 2.10
GNMA Income % 0.54 1.00 -- -- --
National Tax-Exempt Bond % 0.50 1.00
Intermediate Bond % 0.50 1.00
Strategic Income % 0.45 0.75 1.84 3.04 -1.68 1.36
High Yield % 0.60 1.00 0.32 1.92 -0.12 1.80
High Yield II(3) % 0.60 1.00 0.42 2.02 -0.19 1.83
High Total Return(4) % 0.60 1.00 -- -- --
High Yield Bond % 0.65 1.00
High Total Return II(4) % 0.60 1.00 -- -- --
Pilgrim Money Market % 0.25(8) 1.00 1.78(9) 3.03 -1.43 1.60
ING Money Market % 0.25 1.00 -- -- -- --
Class M
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(2) Expenses
---- --- ---- -------- -------- ---------- --------
Government Securities Income(3) % 0.50 0.75 0.60 1.85 -- 1.85
High Yield % 0.60 0.75 0.32 1.67 -0.12 1.55
GNMA Income % 0.54 0.75 -- -- -- --
Class T(7)
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(2) Expenses
---- --- ---- -------- -------- ---------- --------
Government Securities Income(3) % 0.50 0.65 0.60 1.75 -- 1.75
High Yield II(3) % 0.60 0.65 0.42 1.67 -0.19 1.48
GNMA Income % 0.54 0.65
</TABLE>
(1) These tables show the estimated operating expenses for each Fund by class
as a ratio of expenses to average daily net assets. These estimates are
based on each Fund's actual operating expenses for its most recent complete
fiscal year and fee waivers to which the Advisers have agreed for each Fund
except for GNMA Income Fund. For GNMA Income Fund, estimated operating
expenses are based on estimated contractual operating expenses commencing
with ING Pilgrim Investments' management of the Fund.
(2) ING Pilgrim Investments has entered into written expense limitation
agreements with each Fund except Government Securities Income, High Total
Return, and High Total Return II 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 or ING Mutual Funds Management
Co. LLC is shown under the heading "Fee Waiver by Adviser". For each Fund
except Government Securities Income Fund, the expense limit will continue
through at least October 31, 2001. ING Pilgrim Investments has separately
agreed to reimburse Government Securities Income Fund to the extent that
total Fund operating expenses, excluding interest, taxes, brokerage
commissions, extraordinary expenses, and distribution fees in excess of
0.25%, exceed 1.50% of the Fund's average daily net assets on the first $40
million in net assets and 1% of average daily net assets in excess of $40
million. The expense limit for Government Securities Income Fund will
terminate only with termination of the advisory contract with ING Pilgrim
Investments. Similarly, ING Mutual Funds Management Co. LLC has entered
into written expense limitation agreements with National Tax-Exempt Bond,
Intermediate Bond and High Yield Bond Funds. For each Fund, the expense
limit will continue through at least February 28, 2001.
(3) Effective April 1, 2000, certain ING Pilgrim Funds merged with High Yield
II and Government Securities Income Funds. It is expected that as a result
of the mergers, operating expenses for High Yield II and Government
Securities Income Funds will be lower than the operating expenses prior to
the mergers.
(4) For the High Total Return Fund and High Total Return Fund II, the
management fee shown reflects a fee waiver effective July 26, 2000. Absent
the waiver, the management fees for the High Total Return Fund and High
Total Return Fund II would be 0.71% and 0.75%, respectively.
(5) Because Class B shares are new for GNMA Income Fund, its expenses are
estimated based on Class A expenses.
(6) Because Class C shares are new for Government Securities Income, GNMA
Income and High Yield Funds, their expenses are estimated based on Class B
expenses.
(7) Because Class T shares are new for High Yield II, GNMA Income and
Government Securities Income Funds, their expenses are estimated based on
Class A expenses.
(8) The Primary Institutional Fund charges a comprehensive annual management
fee of 0.25% of average daily net assets for both advisory and ordinary
operating expenses. Pursuant to its investment advisory agreement with the
Fund, ING Pilgrim Investments, Inc. charges a maximum annual advisory fee
equal to 0.50% of average daily net assets if the Fund does not invest
substantially of all of its assets in another investment company. If the
Fund invests substantially all of its assets in another investment
company, ING Pilgrim Investments, Inc. does not charge an advisory fee.
The Fund anticipates investing substantially all of its assets in another
investment company.
(9) ING Pilgrim Investments, Inc. receives an annual administration fee equal
to 0.25% of average daily net assets.
(10) Because Class M shares are now for GNMA Income Fund, its expenses are
estimated based on Class A expenses.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
What You Pay to Invest 29
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
Examples
The examples that follow are intended to help you compare the cost of investing
in the ING 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.
<TABLE>
<CAPTION>
Class A
Fund 1 year 3 years 5 years 10 years
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Government Securities Income $ 606 882 1,179 2,022
GNMA Income $
National Tax-Exempt Bond $
Intermediate Bond $
Strategic Income $ 568 1,104 1,665 3,188
High Yield $ 577 818 1,077 1,818
High Yield II $ 590 870 1,172 2,027
High Total Return $
High Yield Bond $
High Total Return II $
Pilgrim Money Market $ 87 575 1,090 2,504
ING Money Market $ -- -- -- --
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
---- ------ ------- ------- -------- ------ ------- ------- --------
Government Securities Income $ 713 958 1,329 2,240 213 658 1,129 2,240
GNMA Income $
National Tax-Exempt Bond $
Intermediate Bond $
Strategic Income $ 638 1,081 1,649 3,143 138 781 1,449 3,143
High Yield $ 683 891 1,226 2,038 183 591 1,026 2,038
High Yield II $ 686 915 1,271 2,166 186 615 1,071 2,166
High Total Return $
High Yield Bond $
High Total Return II $
Pilgrim Money Market $ 663 1,102 1,666 3,068 163 802 1,466 3,068
ING Money Market $ -- -- -- -- -- -- -- --
</TABLE>
30 What You Pay to Invest
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
Examples
<TABLE>
<CAPTION>
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
---- ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government Securities Income $ 313 658 1,129 2,431 213 658 1,129 2,431
GNMA Income $
National Tax-Exempt Bond $
Intermediate Bond $
Strategic Income $ 238 781 1,449 3,237 138 781 1,449 3,237
High Yield $ 283 591 1,026 2,234 183 591 1,026 2,234
High Yield II $ 286 615 1,071 2,333 186 615 1,071 2,333
High Total Return $
High Yield Bond $
High Total Return II $
Pilgrim Money Market $ 263 802 1,466 3,245 163 802 1,466 3,245
ING Money Market $ -- -- -- -- -- -- -- --
Class M
Fund 1 year 3 years 5 years 10 years
---- ------ ------- ------- --------
Government Securities Income $ 507 888 1,293 2,424
High Yield $ 478 823 1,194 2,237
GNMA Income $
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
---- ------ ------- ------- -------- ------ ------- ------- --------
Government Securities Income $ 578 751 949 1,957 178 551 949 1,957
High Yield II $ 557 708 890 1,881 151 508 890 1,881
GNMA Income $
</TABLE>
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
What You Pay to Invest 31
<PAGE>
SHAREHOLDER
GUIDE CHOOSING A SHARE CLASS
--------------------------------------------------------------------------------
ING PILGRIM PURCHASE OPTIONSTM
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 (except for Pilgrim
Money Market and ING Money Market Funds).
* Distribution and service (12b-1) fees of 0.25% to 0.35%.
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% (0.75% for Strategic Income
Fund).
* 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% (0.75% for Strategic Income
Fund).
* 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.
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 Government Securities Income Fund, GNMA Income Fund and
High Yield 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 0.65%.
* A contingent deferred sales charge, as described in this section.
* Automatic conversion to Class A shares after 8 years, thus reducing future
annual expenses.
* Offered only by Government Securities Income Fund, GNMA Income Fund and
High Yield Fund II.
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.
32 Shareholder Guide
<PAGE>
SHAREHOLDER
CHOOSING A SHARE CLASS GUIDE
--------------------------------------------------------------------------------
SALES CHARGE CALCULATION
Class A(1)
Class A shares of the Funds are sold subject to the following sales charge:
Income Funds
------------------------
As a %
of the As a % of
offering net
Your Investment price asset value
--------------- ----- -----------
Less than $50,000 4.75 4.99
$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.
Money Market Fund. There is no sales charge if you purchase Class A shares of
either the Pilgrim Money Market or ING Money Market Funds. However, if the Class
A shares are exchanged for shares of another Pilgrim Fund, you will be charged
the applicable sales load for that fund upon the exchange.
Investments of $1 Million or More. There is no front-end sales charge if you
purchase Class A shares in an amount of $1 million or more. However, the shares
will be subject to a contingent deferred sales charge if they are redeemed
within one or two years of purchase, depending on the amount of the purchase, as
follows:
Period during which
Your investment CDSC CDSC applies
--------------- ---- ------------
$1,000,000 to $2,499,999 1.00% 2 years
$2,500,000 to $4,999,999 0.50% 1 year
$5,000,000 and over 0.25% 1 year
However, Class A shares that were purchased in an amount of $1 million or more
through Funds that were part of the Nicholas-Applegate Mutual Funds at the time
of purchase will be subject to a contingent deferred sales charge of 1% within
one year from the date of purchase.
Class A shares that were purchased in an amount of $1 million or more through
funds that were part of the Northstar family of funds and the ING family of
funds at the time of purchase are 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:
Government
Securities
Income and
High Yield
Funds
-----------------------
As a % As a % of
of the net
offering asset
Your Investment price value
--------------- ----- -----
Less than $50,000 3.25% 3.36%
$50,000 - $99,999 2.25% 2.30%
$100,000 - $249,999 1.50% 1.52%
$250,000 - $499,999 1.00% 1.01%
$500,000 and over none none
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Shareholder Guide 33
<PAGE>
SHAREHOLDER
GUIDE CHOOSING A SHARE CLASS
--------------------------------------------------------------------------------
Sales Charge Reductions and Waivers
Reduced Sales Charges. You may reduce the initial sales charge on a purchase of
Class A or Class M shares of the Funds by combining multiple purchases to take
advantage of the breakpoints in the sales charge schedules. You may do this by:
* Letter of Intent -- lets you purchase shares over a 13 month period and pay
the same sales charge as if the shares had all been purchased at once.
* Rights of Accumulation -- lets you add the value of shares of any open-end
ING Pilgrim Fund (excluding the Pilgrim Money Market and ING Money Market
Funds) you already own to the amount of your next purchase for purposes of
calculating the sales charge.
* Combination Privilege -- shares held by investors in the ING 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 Statement of Additional Information for
details, or contact your financial representative or the Shareholder Servicing
Agent for more information.
CDSC Waivers. If you notify the Transfer Agent at the time of redemption, the
CDSC for each Class will be waived in the following cases:
* redemptions following the death or permanent disability of a shareholder if
made within one year of death or the initial determination of permanent
disability. The waiver is available only for shares held at the time of death
or initial determination of permanent disability.
* for Class B Shares, redemptions pursuant to a Systematic Withdrawal Plan, up
to a maximum of 12% per year of a shareholder's account value based on the
value of the account at the time the plan is established and annually
thereafter, provided all dividends and distributions are reinvested and the
total redemptions do not exceed 12% annually.
* mandatory distributions from a tax-deferred retirement plan or an IRA.
However, if you purchased shares that were part of the Nicholas-Applegate
Mutual Funds, you may be eligible for a CDSC waiver prior to the mandatory
distribution age.
* If you think you may be eligible for a CDSC waiver, contact your financial
representative or the Shareholder Servicing Agent.
Reinstatement Privilege. If you sell Class B, Class C or Class T shares of an
ING Pilgrim Fund, you may reinvest some or all of the proceeds in the same share
class within 90 days without a sales charge. Reinstated Class B, 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 Statement of Additional
Information.
34 Shareholder Guide
<PAGE>
SHAREHOLDER
HOW TO PURCHASE SHARES GUIDE
--------------------------------------------------------------------------------
The minimum initial investment amounts for the ING Pilgrim Funds are as follows:
* Non-retirement accounts: $1,000
* Retirement accounts: $250
* Pre-Authorized Investment Plan: $100 to open; you must invest at least $100 a
month.
The minimum additional investment is $100.
Make your investment using the table on the right.
The Funds and the Distributor reserve the right to reject any purchase order.
Please note that cash, travelers checks, third party checks, money orders and
checks drawn on non-US banks (even if payment may be effected through a US bank)
will not be accepted. The ING Pilgrim Funds reserve the right to waive minimum
investment amounts. The Funds reserve the right to liquidate sufficient shares
to recover annual transfer agent fees or to close your account and redeem your
shares should you fail to maintain your account value at a minimum of $1,000.00
($250.00 for IRAs).
Retirement Plans
The Funds have available prototype qualified retirement plans for both
corporations and for self-employed individuals. They also have available
prototype IRA, Roth IRA and Simple IRA plans (for both individuals and
employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans
and Tax Sheltered Retirement Plans for employees of public educational
institutions and certain non-profit, tax-exempt organizations. State Street Bank
and Trust Company (SSB) acts as the custodian under these plans. For further
information, contact the Shareholder Servicing Agent at (800) 992-0180. SSB
currently receives a $12 custodial fee annually for the maintenance of such
accounts.
Initial Additional
Method Investment Investment
------ ---------- ----------
By Contacting An investment
Your professional with an
Investment authorized firm
Professional can help you establish
and maintain your
account.
By Mail Visit or consult an Visit or consult an
investment investment professional.
professional. Make Fill out the Account
your check payable to Additions
the ING Pilgrim Funds form included on the
and mail it, along with bottom of your account
a completed statement along with
Application. Please your check payable to
indicate your the Fund and mail
investment professional them to the address on
on the New Account the account statement.
Application Remember to write
your account number
on the check.
By Wire Call the ING Pilgrim Wire the funds in the
Operations Department same manner described
at (800) 336-3436 to under "Initial
obtain an account Investment."
number and indicate
your investment
professional on the
account.
Instruct your bank to
wire funds to the Fund
in the care of:
State Street Bank and
Trust Company ABA #101003621
Kansas City, MO
credit to:____________
(the Fund) A/C #751-8315;
for further credit
to:_____________
Shareholder A/C #__________
(A/C # you received over the
telephone)
Shareholder Name:
________________________
(Your Name Here)
After wiring funds you
must complete the
Account Application
and send it to:
ING Pilgrim Funds
P.O. Box 219368
Kansas City, MO 64121-6368
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Shareholder Guide 35
<PAGE>
SHAREHOLDER
GUIDE HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
You may redeem shares using the table on the right.
Under unusual circumstances, a Fund may suspend the right of redemption as
allowed by federal securities laws.
Systematic Withdrawal Plan
You may elect to make periodic withdrawals from your account on a regular basis.
* Your account must have a current value of at least $10,000.
* Minimum withdrawal amount is $100.
* You may choose from monthly, quarterly, semi-annual or annual payments.
For additional information, contact the Shareholder Servicing Agent, see the
Account Application or the Statement of Additional Information.
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. 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 Professional investment professional. Investment
professionals may charge for their services in
connection with your redemption request, but
neither the Fund nor the Distributor imposes
any such charge.
By Mail Send a written request specifying the Fund
name and share class, your account number,
the name(s) in which the account is
registered, and the dollar value or number of
shares you wish to redeem to:
ING Pilgrim Funds
P.O. Box 219368
Kansas City, MO 64121-6368
If certificated shares have been issued, the
certificate must accompany the written
request. Corporate investors and other
associations must have an appropriate
certification on file authorizing redemptions.
A suggested form of such certification is
provided on the Account Application. A
signature guarantee may be required.
By Telephone -- You may redeem shares by telephone on all
Expedited Redemption 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 ING 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.
36 Shareholder Guide
<PAGE>
SHAREHOLDER
TRANSACTION POLICIES GUIDE
--------------------------------------------------------------------------------
Net Asset Value
The net asset value (NAV) per share for each Fund and class is determined each
business day as of the close of regular trading on the New York Stock Exchange
(usually at 4:00 p.m. Eastern Time). The NAV per share of each class of each
Fund is calculated by taking the value of the Fund's assets attributable to that
class, subtracting the Fund's liabilities attributable to that class, and
dividing by the number of shares of that class that are outstanding. Because
foreign securities may trade on days when the Funds do not price shares, the net
asset value 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.
Pilgrim Money Market Fund. The Pilgrim Money Market Fund tries to maintain a
stable NAV of $1.00 per share. Because the Primary Institutional Fund uses the
amortized cost method of valuing the securities held by it and rounds its per
share net asset value to the nearest whole cent, it is anticipated that the net
asset value of the Primary Institutional Fund will remain constant at $1.00 per
share. However, the Pilgrim Money Market Fund makes no assurance that either it
or the Primary Institutional Fund can maintain a $1.00 net asset value per
share.
ING Money Market Fund
The ING Money Market Fund uses the amortized cost method to value its portfolio
securities and seeks to maintain a constant net asset value of $1.00 per share,
although there may be circumstances under which this goal cannot be acheived.
The amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity, regardless of the impact
of fluctuating interest rates or the market value of the security. Although the
Board of Trustees has established procedures designed to stabilize to the extent
reasonably possible, the share price of the Fund, there can be no assurance that
the Fund's net asset value can be maintained at $1.00 per share.
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 ING
Pilgrim Fund, except for Lexington Money Market Trust and ING Pilgrim Corporate
Leaders Trust Fund, without paying any additional sales charge, except that
Class A shares of the Pilgrim Money Market and ING 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 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.
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
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Shareholder Guide 37
<PAGE>
SHAREHOLDER
GUIDE TRANSACTION POLICIES
--------------------------------------------------------------------------------
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.
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 ING 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 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.
38 Shareholder Guide
<PAGE>
MANAGEMENT
ADVISER OF THE FUNDS
--------------------------------------------------------------------------------
ING Pilgrim Investments, Inc. ("ING Pilgrim" or "ING Pilgrim Investments")
serves as the investment adviser to each of the Funds (except the National Tax
Exempt Bond, Intermediate Bond, High Yield Bond, and ING Money Market Funds).
ING Pilgrim has overall responsibility for the management of the Funds. ING
Mutual Funds Management LLC ("IMFC") serves as investment adviser to the
National Tax Exempt Bond, Intermediate Bond, High Yield Bond Funds, and ING
Money Market. ING Pilgrim or IMFC 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 ReliaStar Financial Corp.
("ReliaStar"). Through its subsidiaries, ReliaStar offers individuals and
institutions life insurance and annuities, employee benefits products and
services, life and health reinsurance, retirement plans, mutual funds, bank
products and personal finance education.
On July 26, 2000, ReliaStar was acquired by ING Group (NYSE: ING). ING Group is
a global financial institution active in the field of insurance, banking, and
asset management in more than 65 countries, with almost 100,000 employees.
Prior to April 30, 2000, Pilgrim Advisors, Inc. ("Pilgrim Advisors") served as
investment adviser to certain of the Funds. On April 30, 2000, Pilgrim Advisors,
an indirect wholly-owned subsidiary of ReliaStar, merged with ING Pilgrim
Investments. Pilgrim Advisors and ING Pilgrim Investments were sister companies
and shared certain resources and investment personnel.
Prior to July 26, 2000, Lexington Management Corporation ("Lexington") served as
investment adviser to certain of the Funds. On July 26, 2000, ReliaStar acquired
Lexington Global Asset Managers, Inc., the parent company of Lexington, and ING
Pilgrim Investments was approved as Adviser to the Funds formerly advised by
Lexington.
Organized in ______________, IMFC is registered as an investment adviser. IMFC
is a wholly owned Subsidiary of ING Group.
As of December 31, 2000, ING Pilgrim managed over $___ billion in assets.
As of December 31, 2000, IMFC managed over $ billion in assets.
ING Pilgrim's and IMFC's principal address is 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258.
ING Pilgrim and IMFC receives a monthly fee for their services based on the
average daily net assets of each of the Funds.
The following table shows the aggregate annual management fee paid by each Fund
for the most recent fiscal year as a percentage of that Fund's average daily net
assets:
Management
Fund Fee
---- ---
ING Pilgrim Government Securities Income 0.50%
ING Pilgrim GNMA Income 0.54
ING Pilgrim National Tax Exempt Bond 0.50
ING Pilgrim Intermediate Bond 0.50
ING Pilgrim Strategic Income 0.45
ING Pilgrim High Yield 0.60
ING Pilgrim High Yield II 0.60
ING Pilgrim High Total Return 0.71
ING Pilgrim High Yield Bond 0.65
ING Pilgrim High Total Return II 0.75
ING Pilgrim Money Market 0.25
ING Pilgrim Directly Manages the Portfolios of the Following Funds:
GNMA Income Fund
Denis P. Jamison, Senior Vice President and Senior Portfolio Manager of ING
Pilgrim since July 2000, has served as Senior Portfolio Manager of GNMA Income
Fund since July 1981. Prior to July 2000, he was a Senior Vice President at
Lexington (which was acquired by ING Pilgrim's parent company in July 2000). He
is a Chartered Financial Analyst and a member of the New York Society of
Security Analysts.
Roseann G. McCarthy, Assistant Vice President of ING Pilgrim since July 2000,
has served as co-manager of GNMA Income Fund since May 1999. Prior to July 2000,
she was an Assistant Vice President at Lexington (which was acquired by ING
Pilgrim's parent company in July 2000). Prior to joining the Lexington Fixed
Income Department in 1997, she was Mutual Fund Marketing and Research
Coordinator. Prior to 1995, Ms. McCarthy was Fund Statistician and a Shareholder
Service Representative for the Lexington Funds.
High Total Return Fund and High Total Return Fund II
Edwin Schriver, Senior Vice President of ING Pilgrim, has served as a Senior
Portfolio Manager of the portfolio management team that manages High Total
Return Fund and High Total Return Fund II 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 managment positions.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Management of the Funds 39
<PAGE>
MANAGEMENT
OF THE FUNDS SUB-ADVISER
--------------------------------------------------------------------------------
Andy Mitchell, Vice President of ING Pilgrim, has served as Co-Portfolio Manager
of the portfolio management team that manages High Total Return Fund and High
Total Return Fund II since October 2000. Prior to joining ING Pilgrim in July
2000, Mr. Mitchell was a Senior Credit Analyst with Katonah Capital since March
2000. From March 1998 to March 2000, Mr. Mitchell was a Vice President and
Senior High Yield Analyst at Merrill Lynch Asset Management. From March 1994 to
March 1998, Mr. Mitchell was Assistant Vice President and Senior High Yield
Analyst at Schroder Capital Management.
Russ Stiver, Vice President of ING Pilgrim, has served as Co-Portfolio Manager
of the portfolio management team that manages High Total Return Fund and High
Total Return Fund II since October 2000. Prior to joining ING Pilgrim in May
2000, Mr. Stiver was Portfolio Manager (1996-2000) and Acting V.P. at Manulife
Financial (1999-2000). From 1994 to 1996, Mr. Stiver analyzed investment grade,
high yield and emerging market sovereign debt securities for Toronto--Dominion
Bank.
Strategic Income Fund
The following individuals share responsibility for the day-to-day management of
the Strategic Income Fund:
Robert K. Kinsey, Vice President of ING Pilgrim, has served as a Portfolio
Manager of Strategic Income Fund since May 24, 1999. Mr. Kinsey manages
Strategic Income 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, whose background is described above, has served as Senior
Portfolio Manager of the high yield portion of Strategic Income Fund's assets
since October 2000.
Government Securities Income Fund
Robert K. Kinsey, whose background is described above, has primary
responsibility for the day-to-day management of Government Securities Income
Fund, and has served as Senior Portfolio Manager of Government Securities Income
Fund since May 24, 1999.
High Yield Fund and High Yield Fund II
Edwin Schriver, whose background is described above, has served as Senior
Portfolio Manager of the portfolio management team that manages High Yield Fund
and High Yield Fund II since October 2000.
Andy Mitchell, whose background is described above, has served as Co-Portfolio
Manager of the portfolio management team that manages High Yield Fund and High
Yield Fund II since October 2000.
Russ Stiver, Vice President of ING Pilgrim, has served as Co-Portfolio Manager
of the portfolio management team that manages High Yield Fund and High Yield
Fund II since October 2000.
For the following Funds, IMFC has engaged a Sub-Adviser to provide the
day-to-day management of the Fund's portfolio. The Sub-Advisers have , at least
in part, been selected on the basis of their successful application of a
consistent, well-defined, long-term investment approach over a period of several
market cycles
National Tax Exempt Bond Fund
Furman Selz Capital Management LLC. Furman Selz Capital Management LLC ("FSCM")
serves as sub-adviser to the National Tax-Exempt Bond Fund. FSCM is located at
230 Park Avenue, New York, NY 10169. FSCM is engaged in the business of
providing investment advice to institutional and individual client accounts
which, as of October 31, 2000, were valued at approximately $5.1 billion.
Mr. Robert Schonbrunn and Mr. Alan Segars have primary responsibility for
managing the Fund. Mr. Schonbrunn has been an investment professional with FSMC
since 1985 and has 32 years of investment experience. Mr. Segars has been an
investment professional with FSCM since 1993 and has 30 years of investment
experience.
Intermediate Bond Fund and High Yield Bond Fund
ING Investment Management LLC. ING Investment Management LLC ("IIM") serves as
sub-adviser to the ING Intermediate Bond Fund and the ING High Yield Bond Fund.
IIM is located at 5780 Powers Ferry Road, N.W., Suite 300, Atlanta, GA 30327.
IIM is engaged in the business of providing investment advice to portfolios
which, as of September 30, 2000, were valued at $29.67 billion, IIM also advises
other registered investment companies.
Mr. James Kauffman, with 12 years of investment experience, leads a team of
three investment professionals in managing the Intermediate Bond Fund.
Mr. Robert Bowman, with more than 20 years of investment experience, leads a
team of five investment professionals in managing the High Yield Bond Fund. Mr
Bowman has been a Senior Vice President and Managing Director at ING Investment
LLC since 1999.
40 Management of the Funds
<PAGE>
DIVIDENDS,
DISTRIBUTIONS
DIVIDENDS/TAXES 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:
Monthly(1)
ING Pilgrim Government Securities Income
ING Pilgrim GNMA Income
ING Pilgrim National Tax-Exempt Bond
ING Intermediate Bond
ING Pilgrim Strategic Income
ING Pilgrim High Yield
ING Pilgrim High Yield II
ING Pilgrim High Total Return
ING Pilgrim High Yield Bond
ING Pilgrim High Total Return II
Pilgrim Money Market
ING Money Market
(1) Distributions normally expected to consist primarily of 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 ING Pilgrim Fund.
Taxes
The following information is meant as a general summary for U.S. shareholders.
Please see the Statement of Additional Information for additional information.
You should rely 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 most of its net investment income and net capital
gains to its shareholders each year. Although the Funds will not be taxed on
amounts they distribute, most shareholders will be taxed on amounts they
receive. A particular distribution generally will be taxable as either ordinary
income or long-term capital gains. It does not matter how long you have held
your Fund shares or whether you elect to receive your distributions in cash or
reinvest them in additional Fund shares. For example, if a Fund designates a
particular distribution as a long-term capital gains distribution, it will be
taxable to you at your long-term capital gains rate.
Dividends declared by a Fund in October, November or December and paid during
the following January may be treated as having been received by shareholders in
the year the distributions were declared.
You will receive an annual statement summarizing your dividend and capital gains
distributions.
If you invest through a tax-deferred account, such as a retirement plan, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
consult your tax adviser about investment through a tax-deferred account.
There may be tax consequences to you if you sell or redeem Fund shares. You will
generally have a capital gain or loss, which will be long-term or short-term,
generally depending on how long you hold those shares. If you exchange shares,
you may be treated as if you sold them. You are responsible for any tax
liabilities generated by your transactions.
As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax;
rather, it is a way in which the IRS ensures it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Dividends, Distributions and Taxes 41
<PAGE>
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 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 (All Funds except Government Securities
Income, GNMA Income, National Tax-Exempt Bond and Money Market 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. Also, securities of
many foreign companies may be less liquid and the prices more volatile than
those of domestic companies. With certain foreign countries, there is the
possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Funds,
including the withholding of dividends.
Each Fund that invests in foreign securities may enter into foreign currency
transactions either on a spot or cash basis at prevailing rates or through
forward foreign currency exchange contracts to have the necessary currencies to
settle transactions, or to help protect Fund assets against adverse changes in
foreign currency exchange rates, or to provide exposure to a foreign currency
commensurate with the exposure to securities from that country. Such efforts
could limit potential gains that might result from a relative increase in the
value of such currencies, and might, in certain cases, result in losses to the
Fund.
Emerging Markets Investments (High Yield II, High Total Return, High Yield Bond.
Intermediate Bond, and High Total Return II Funds). Because of less developed
markets and economies and, in some countries, less mature governments and
governmental institutions, the risks of investing in foreign securities can be
intensified in the case of investments in issuers domiciled or doing substantial
business in emerging market countries. These risks include: high concentration
of market capitalization and trading volume in a small number of issuers
representing a limited number of industries, as well as a high concentration of
investors and financial intermediaries; political and social uncertainties;
over-dependence on exports, especially with respect to primary commodities,
making these economies vulnerable to changes in commodity prices; overburdened
infrastructure and obsolete or unseasonal financial systems; environmental
problems; less well developed legal systems; and less reliable custodial
services and settlement practices.
Inability to Sell Securities (All Funds except Government Securities Income,
GNMA Income and Money Market 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 (All Funds except National Tax-Exempt Bond, Government
Securities Income, GNMA Income and Money Market 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 (All Funds except Government Securities Income, GNMA
Income and Pilgrim Money Market 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
42 More Information About Risks
<PAGE>
MORE INFORMATION
ABOUT RISKS
--------------------------------------------------------------------------------
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 abond 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.
U.S. Government Securities (National Tax-Exempt Bond, International Bond, High
Yield Bond, High Yield, High Yield II, High Total Return and High Total Return
II Funds). 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.
Convertible Securities (All Funds except National Tax-Exempt Bond, High Yield
II, High Total Return and High Total Return II 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 (National Tax-Exempt Bond, Intermediate Bond,
Strategic Income and High Yield Bond Funds). The 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.
Mortgage-Related Securities (All Funds except Money Market and National
Tax-Exempt Bond Funds). 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.
Interests in Loans (All Funds except Government Securities Income, GNMA Income
and Money Market Funds). Certain Funds 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 (National Tax-Exempt Bond, Intermediate Bond, Strategic Income, High
Yield and High Yield II, and High Yield Bond 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 might imperfectly judge the
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
More Information About Risks 43
<PAGE>
MORE INFORMATION
ABOUT RISKS
--------------------------------------------------------------------------------
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 Government Securities Income, GNMA Income,
Pilgrim Money Market and ING Money Market Funds, is generally expected to engage
in frequent and active trading of portfolio securities to achieve its investment
objective. A high portfolio turnover rate involves greater expenses to a Fund,
including brokerage commissions and other transaction costs, and is likely to
generate more taxable short-term gains for shareholders, which may have an
adverse effect on the performance of the Fund.
OTHER RISKS
Restricted and Illiquid Securities. Each Fund may invest in restricted and
illiquid securities. If a security is illiquid, the Fund might be unable to sell
the security at a time when the Adviser might wish to sell, and the security
could have the effect of decreasing the overall level of the Fund's liquidity.
Further, the lack of an established secondary market may make it more difficult
to value illiquid securities, which could vary from the amount the Fund could
realize upon disposition. Restricted securities, i.e., securities subject to
legal or contractual restrictions on resale, may be illiquid. However, some
restricted securities may be treated as liquid, although they may be less liquid
than registered securities traded on established secondary markets.
Temporary Defensive Strategies. When the Adviser to a Fund anticipates unusual
market or other conditions, the Fund may temporarily depart from its principal
investment strategies as a defensive measure. To the extent that a Fund invests
defensively, it likely will not achieve capital appreciation.
Repurchase Agreements. Each Fund may enter into repurchase agreements, which
involve the purchase by a Fund of a security that the seller has agreed to buy
back. If the seller defaults and the collateral value declines, the Fund might
incur a loss. If the seller declares bankruptcy, the Fund may not be able to
sell the collateral at the desired time.
Lending Portfolio Securities. In order to generate additional income, certain
Funds may lend portfolio securities in an amount up to 331|M/3% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in the collateral should
the borrower default or fail financially.
Borrowing. Certain Funds may borrow for certain types of temporary or emergency
purposes subject to certain limits. Borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the net asset value
of a Fund, and money borrowed will be subject to interest costs. Interest costs
on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
Reverse Repurchase Agreements (all Funds) and Dollar Rolls (all Funds except
National Tax-Exempt Bond Fund). 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. Each Fund (except Government Securities Income, GNMA Income,
National Tax-Exempt Bond, High Yield, High Yield II, and High Total Return I &
II 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.
44 More Information About Risks
<PAGE>
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.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Financial Highlights 45
<PAGE>
FINANCIAL
HIGHLIGHTS
ING PILGRIM GOVERNMENT SECURITIES INCOME FUND
--------------------------------------------------------------------------------
The information in the table below, except for the six months ended December 31,
2000, has been audited by KPMG LLP, independent auditors.
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------
Six months
ended Dec.
31, 2000 Year Ended June 30,
(unaudited) 2000 1999 1998 1997 1996
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 12.35 12.88 12.71 12.59 12.97
Income (loss) from investment operations:
Net investment income $ 0.75 0.76 0.64 0.69 0.75
Net realized and unrealized gain (loss) on
investments $ (0.43) (0.52) 0.30 0.20 (0.32)
Total from investment operations $ 0.32 0.24 0.94 0.89 0.43
Less distributions from:
Net investment income $ 0.74 0.77 0.77 0.73 0.75
Tax return of capital $ -- -- -- 0.04 0.06
Total distributions $ 0.74 0.77 0.77 0.77 0.81
Net asset value, end of period $ 11.93 12.35 12.88 12.71 12.59
Total Return(2): % 2.79 1.89 7.63 7.33 3.34
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 54,206 21,060 23,682 29,900 38,753
Ratios to average net assets:
Net expenses after expense reimbursement(3)(4) % 1.35 1.40 1.50 1.42 1.51
Gross expenses prior to expense
reimbursement(3) % 1.35 1.40 1.58 1.42 1.57
Net investment income after expense
reimbursement(3)(4) % 5.87 6.05 5.13 5.78 5.64
Portfolio turnover rate % 44 58 134 172 170
<CAPTION>
Class B
------------------------------------------------------------------
Six months July 17,
ended Dec. 1995(1) to
31, 2000 Year Ended June 30, June 30,
(unaudited) 2000 1999 1998 1997 1996
----------- ---- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period 12.30 12.84 12.68 12.59 12.95
Income (loss) from investment operations:
Net investment income 0.67 0.69 0.60 0.67 0.66
Net realized and unrealized gain (loss) on
investments (0.42) (0.54) 0.24 0.11 (0.37)
Total from investment operations 0.25 0.15 0.84 0.78 0.29
Less distributions from:
Net investment income 0.66 0.69 0.68 0.69 0.65
Tax return of capital -- -- -- -- --
Total distributions 0.66 0.69 0.68 0.69 0.65
Net asset value, end of period 11.89 12.30 12.84 12.68 12.59
Total Return(2): 2.12 1.09 6.78 6.38 2.25
Ratios/Supplemental Data:
Net assets, end of period (000's) 33,692 12,426 3,220 1,534 73
Ratios to average net assets:
Net expenses after expense reimbursement(3)(4) 2.10 2.15 2.25 2.17 2.26
Gross expenses prior to expense
reimbursement(3) 2.10 2.15 2.29 2.17 2.41
Net investment income after expense
reimbursement(3)(4) 5.12 5.30 4.24 4.92 4.98
Portfolio turnover rate 44 58 134 172 170
</TABLE>
<TABLE>
<CAPTION>
Class C Class T
------------------------------------- ---------------------------
Six months Year June 11, Six months April 5,(1)
ended Dec. Ended 1999(1) to ended Dec. to
31, 2000 June 30, June 30, 31, 2000 June 30,
(unaudited) 2000 1999 (unaudited) 2000
----------- ---- ---- ----------- ----
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 12.43 12.24 11.80
Income (loss) from investment operations:
Net investment income $ 0.68 2.05 0.17
Net realized and unrealized gain (loss) on
investments $ (0.44) (1.86) 0.03
Total from investment operations $ 0.24 0.19 0.20
Less distributions from:
Net investment income $ 0.66 -- 0.11
Tax return of capital $ -- -- --
Total distributions 0.66 -- 0.11
Net asset value, end of period $ 12.01 12.43 11.89
Total Return(2) % 2.09 1.55 .24
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,047 7 22,888
Ratios to average net assets:
Net expenses after expense reimbursement(3)(4) % 2.10 2.15 1.75
Gross expenses prior to expense reimbursement(3) % 2.10 2.15 1.75
Net investment income after expense
reimbursement(3)(4) % 5.12 5.30 5.47
Portfolio turnover rate % 44 58 44
Class M
---------------------------------------------------------------------
Six months Year July 17,
ended Dec. Ended 1995(1) to
31, 2000 June 30, Year Ended June 30, June 30,
(unaudited) 2000 1999 1998 1997 1996
----------- ---- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period 12.34 12.88 12.72 12.59 12.95
Income (loss) from investment operations:
Net investment income 0.59 0.69 0.64 0.70 0.68
Net realized and unrealized gain (loss) on
investments (0.32) (0.52) 0.23 0.14 (0.36)
Total from investment operations 0.27 0.17 0.87 0.84 0.32
Less distributions from:
Net investment income 0.69 0.71 0.71 0.70 0.68
Tax return of capital -- -- -- 0.01 --
Total distributions 0.69 0.71 0.71 0.71 0.68
Net asset value, end of period 11.92 12.34 12.88 12.72 12.59
Total Return(2) 2.28 1.31 7.02 6.88 2.52
Ratios/Supplemental Data:
Net assets, end of period (000's) 510 751 224 61 24
Ratios to average net assets:
Net expenses after expense reimbursement(3)(4) 1.85 1.90 2.00 1.92 2.01
Gross expenses prior to expense reimbursement(3) 1.85 1.90 2.05 1.92 2.16
Net investment income after expense
reimbursement(3)(4) 5.37 5.57 4.29 5.25 5.73
Portfolio turnover rate 44 58 134 172 170
</TABLE>
----------
(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 Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
46 ING Pilgrim Government Securities Income Fund
<PAGE>
FINANCIAL
HIGHLIGHTS
ING PILGRIM GNMA INCOME FUND
--------------------------------------------------------------------------------
The information in the table below, has been audited by KPMG LLP, independent
auditors.
<TABLE>
<CAPTION>
Year ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 8.53 8.40 8.12 8.19
Net investment income (loss) $ 0.50 0.48 0.51 0.53
Net realized and unrealized gain (loss) from
investment operations $ (0.45) 0.13 0.29 (0.08)
Total income (loss) from investment operations $ 0.05 0.61 0.80 0.45
Less distributions:
Distributions from net investment income $ 0.50 0.48 0.52 0.52
Total distributions $ 0.50 0.48 0.52 0.52
Net asset value, end of period $ 8.08 8.53 8.40 8.12
Total Return(1) % 0.58 7.52 10.20 5.71
Ratios/Supplemental Data:
Net assets, end of period (thousands) $ 376,580 273,591 158,071 133,777
Ratio of expenses to average net asset(2) % 0.99 1.01 1.01 1.05
Ratio of net investment income (loss) to average
net assets(2) % 6.04 5.85 6.28 6.56
Portfolio turnover rate % 25.10 54.47 134.28 128.76
</TABLE>
----------
(1) 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.
(2) Annualized for periods less than one year.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim GNMA Income Fund 47
<PAGE>
FINANCIAL
ING PILGRIM NATIONAL TAX-EXEMPT BOND FUND HIGHLIGHTS
--------------------------------------------------------------------------------
The information in the table below has been audited by Ernst & Young LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Shares(1) Class B Shares(1) Class C Shares(1)
------------------- ------------------- ------------------
Year ended Year ended Year ended
October 31, 2000 October 31, 2000 October 31, 2000
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value per share, beginning of period $
From investment operations:(2)
Net investment income loss $
Net realized and unrealized $
Total from investment operations $
Distributions paid from investment income $
Net asset value per share, end of period $
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $
Total investment return at net asset value(3)(4) %
Ratios to average net assets:(5)
Net expenses %
Gross expenses %
Net investment income %
Porfolio turnover rate(4) %
</TABLE>
----------
(1) Commenced Operations on November 8, 1999.
(2) Per share calculation is based on average number of shares outstanding
during the period.
(3) Total return assumes reinvestment of all dividend and capital gain
distributions, if any, and does not reflect the deduction of the applicable
sales charges with respect to Class B and C shares. Total returns would be
lower if part of the Fund's expenses were not waived or reimbursed.
(4) Not annualized.
(5) Annualized.
48 ING Pilgrim National Tax-Exempt Bond Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM INTERMEDIATE BOND FUND
--------------------------------------------------------------------------------
The information in the table below has been audited by Ernst & Young LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Shares(1) Class B Shares(1) Class C Shares(1)
------------------------ ----------------------- ------------------------
October 31, October 31, October 31, October 31, October 31, October 31,
2000 1999 2000 1999 2000 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value per share, beginning of period $ 10.00 10.00 10.00
From investment operations:(2)
Net investment income $ 0.45 0.40 0.42
Net realized and unrealized loss $ (0.60) (0.61) (0.63)
Total from investment operations $ (0.15) (0.21) (0.21)
Distributions paid from investment income $ (0.45) (0.39) (0.39)
Net asset value per share, end of period $ 9.40 9.40 9.40
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 32,013 1,958 1,082
Total investment return at net asset value(3)(4) % (1.46) (2.13) (2.10)
Ratios to average net assets:(5)
Net expenses % 0.96 1.70 1.71
Gross expenses % 2.12 2.39 2.44
Net investment income % 5.38 4.83 4.94
Porfolio turnover rate(4) % 431.50 431.50 431.50
</TABLE>
----------
(1) Class A, B and C shares commenced operations on December 15, 1999.
(2) Per share calculation is based on average number of shares outstanding
during the period.
(3) Total return assumes reinvestment of all dividend and capital gain
distributions, if any, and does not reflect the deduction of the applicable
sales charges with respect to Class A shares or the applicable contingent
deferred sales charges with respect to Class B and C shares. Total returns
would be lower if part of the Fund's expenses were not waived or
reimbursed.
(4) Not annualized.
(5) Annualized.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Intermediate Bond Fund 49
<PAGE>
FINANCIAL
ING PILGRIM STRATEGIC INCOME FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Class A
----------------------------------------------
Six months Three
ended Year months July 27,
Dec. 31, Ended ended 1998(1) to
2000 June 30, June 30, March 31,
(unaudited) 2000 1999(2) 1999
----------- ---- ------- ----
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 12.59 12.89 13.08
Income from investment
operations:
Net investment income $ 0.92 0.26 0.53
Net realized and unrealized
gains (loss) on investments $ (0.52) (0.42) (0.08)
Total from investment operations $ 0.40 (0.16) 0.45
Less distributions from:
Net investment income $ 0.92 0.14 0.53
Net realized gains on
investments $ -- -- 0.11
Net asset value, end of period $ 12.07 12.59 12.89
Total Return(3): % 3.42 (1.23) 5.60
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,726 2,736 5,751
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 0.96 0.90 0.96
Gross expenses prior to expense
reimbursement(4) % 2.64 1.56 1.98
Net investment income (loss)
after expense reimbursement(4)(5) % 7.69 5.88 5.81
Portfolio turnover % 168 69 274
Class B
-----------------------------------------------
Six months Three
ended Year months July 27,
Dec. 31, Ended ended 1998(1) to
2000 June 30, June 30, March 31,
(unaudited) 2000 1999(2) 1999
----------- ---- ------- ----
Per Share Operating Performance:
Net asset value, beginning of period 12.33 12.61 12.78
Income from investment
operations:
Net investment income 0.88 0.18 0.45
Net realized and unrealized
gains (loss) on investments (0.53) (0.33) (0.05)
Total from investment operations 0.35 (0.15) 0.40
Less distributions from:
Net investment income 0.88 0.13 0.46
Net realized gains on
investments -- -- 0.11
Net asset value, end of period 11.80 12.33 12.61
Total Return(3): 3.00 (1.20) 5.17
Ratios/Supplemental Data:
Net assets, end of period (000's) 4,460 5,658 6,637
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) 1.36 1.29 1.37
Gross expenses prior to expense
reimbursement(4) .04 1.95 2.42
Net investment income (loss)
after expense reimbursement(4)(5) 7.29 5.49 5.35
Portfolio turnover 168 69 274
Class C
------------------------------------------------
Six months Three
ended Year months July 27,
Dec. 31, Ended ended 1998(1) to
2000 Juned 30, June 30, March 31,
(unaudited) 2000 1999(2) 1999
----------- ---- ------- ----
Per Share Operating Performance:
Net asset value, beginning of period 12.81 13.10 13.27
Income from investment
operations:
Net investment income 0.87 0.19 0.48
Net realized and unrealized
gains (loss) on investments (0.51) (0.35) (0.06)
Total from investment operations 0.36 (0.16) 0.42
Less distributions from:
Net investment income 0.87 0.13 0.48
Net realized gains on
investments -- -- 0.11
Net asset value, end of period 12.30 12.81 13.10
Total Return(3): 3.02 (1.21) 5.19
Ratios/Supplemental Data:
Net assets, end of period (000's) 3,966 7,965 8,128
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) 1.36 1.29 1.36
Gross expenses prior to expense
reimbursement(4) 3.04 1.95 2.41
Net investment income (loss)
after expense reimbursement(4)(5) 7.29 5.49 5.36
Portfolio turnover 168 69 274
</TABLE>
----------
(1) The Fund commenced operations on July 27, 1998.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., became the
Investment Manager of the Fund and the Fund changed its year end to June
30.
(3) Total returns are not annualized for periods of less than one year and do
not reflect the impact of sales charges.
(4) Annualized for periods less than one year.
(5) The Investment Manager has agreed to limit expenses, excluding interest,
taxes, brokerage and extraordinary expenses.
50 ING Pilgrim Strategic Income Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM HIGH YIELD FUND
--------------------------------------------------------------------------------
The information in the table below, except for the six months ended December 31,
2000, has been audited by KPMG LLP, independent auditors.
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------
Six months
ended
Dec. 31,
2000 Year ended June 30,
(unaudited) 2000 1999 1998 1997 1996
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 5.93 6.94 6.80 6.36 6.15
Income (loss) from investment
operations:
Net investment income $ 0.56 0.58 0.61 0.61 0.59
Net realized and unrealized gain (loss)
on investments $ (0.85) (0.96) 0.16 0.43 0.16
Total from investment operations $ (0.29) (0.38) 0.77 1.04 0.75
Less distributions from:
Net investment income $ 0.57 0.62 0.63 0.60 0.54
Tax return of capital $ 0.03 0.01 -- -- --
Total distributions $ 0.60 0.63 0.63 0.60 0.54
Net asset value, end of period $ 5.04 5.93 6.94 6.80 6.36
Total Return(2): % (5.20) (5.57) 11.71 17.14 12.72
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 85,870 131,535 102,424 35,940 18,691
Ratios to average net assets:
Net expenses after expense
reimbursement(3)(4) % 1.05 1.00 1.00 1.00 1.00
Gross expenses prior to expense
reimbursement(3) % 1.17 1.12 1.17 1.42 2.19
Net investment income after expense
reimbursement(3)(4) % 10.41 9.32 9.05 9.54 9.46
Portfolio turnover rate % 89 184 209 394 399
Class B
----------------------------------------------------------------
Six months
ended July 17,
Dec. 31, 1995(1) to
2000 Year ended June 30, June 30,
(unaudited) 2000 1999 1998 1997 1996
----------- ---- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period 5.92 6.92 6.78 6.36 6.20
Income (loss) from investment
operations:
Net investment income 0.53 0.53 0.58 0.57 0.48
Net realized and unrealized gain (loss)
on investments (0.86) (0.96) 0.14 0.41 0.14
Total from investment operations (0.33) (0.43) 0.72 0.98 0.62
Less distributions from:
Net investment income 0.53 0.56 0.58 0.56 0.46
Tax return of capital 0.03 0.01 -- -- --
Total distributions 0.56
Net asset value, end of period 5.03 5.92 6.92 6.78 6.36
Total Return(2): (5.91) (6.23) 10.90 16.04 10.37
Ratios/Supplemental Data:
Net assets, end of period (000's) 199,618 261,589 154,303 40,225 2,374
Ratios to average net assets:
Net expenses after expense
reimbursement(3)(4) 1.80 1.75 1.75 1.75 1.75
Gross expenses prior to expense
reimbursement(3) 1.92 1.87 1.92 2.17 2.94
Net investment income after expense
reimbursement(3)(4) 9.66 8.57 8.30 8.64 9.02
Portfolio turnover rate 89 184 209 394 339
Class C
-------------------------------------
Six months
ended Year May 27,
Dec. 31, Ended 1999(1) to
2000 June 30, June 30,
(unaudited) 2000 1999
----------- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 5.92 5.91
Income (loss) from investment
operations:
Net investment income $ 0.57 0.05
Net realized and unrealized gain (loss)
on investments $ (0.90) 0.01
Total from investment operations $ (0.33) 0.06
Less distributions from:
Net investment income $ 0.57 0.05
Tax return of capital $ -- --
Total distributions 0.57
Net asset value, end of period $ 5.02 5.92
Total Return(2): % (5.99) 0.34
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 5,930 551
Ratios to average net assets:
Net expenses after expense
reimbursement(3)(4) % 1.80 1.75
Gross expenses prior to expense
reimbursement(3) % 1.92 1.87
Net investment income after expense
reimbursement(3)(4) % 9.66 8.57
Portfolio turnover rate % 89 184
Class M
-----------------------------------------------------------------
Six months
ended Year July 17,
Dec. 31, Ended 1995(1) to
2000 June 30, Year ended June 30, June 30,
(unaudited) 2000 1999 1998 1997 1996
----------- ---- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period 5.93 6.92 6.78 6.36 6.20
Income (loss) from investment
operations:
Net investment income 0.52 0.55 0.59 0.58 0.50
Net realized and unrealized gain (loss)
on investments (0.85) (0.95) 0.14 0.41 0.14
Total from investment operations (0.33) (0.40) 0.73 0.99 0.64
Less distributions from:
Net investment income 0.54 0.58 0.59 0.57 0.48
Tax return of capital 0.03 0.01 -- -- --
Total distributions 0.57
Net asset value, end of period 5.03 5.93 6.92 6.78 6.36
Total Return(2): (5.86) (5.85) 11.16 16.29 10.69
Ratios/Supplemental Data:
Net assets, end of period (000's) 12,730 24,129 19,785 8,848 1,243
Ratios to average net assets:
Net expenses after expense
reimbursement(3)(4) 1.55 1.50 1.50 1.50 1.50
Gross expenses prior to expense
reimbursement(3) 1.67 1.62 1.67 1.92 2.69
Net investment income after expense
reimbursement(3)(4) 9.91 8.82 8.55 8.93 9.41
Portfolio turnover rate 89 184 209 394 339
</TABLE>
----------
(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 information 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.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim High Yield Fund 51
<PAGE>
FINANCIAL
ING PILGRIM HIGH YIELD FUND II HIGHLIGHTS
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------
Six months Three
ended Year months Year March 27,
Dec. 31, ended ended ended 1998 to
2000 June 30, June 30, March 31, March 31,
(unaudited) 2000 1999(2) 1999 1998(1)
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 11.57 11.66 12.72 12.70
Income from investment operations:
Net investment income $ 1.18 0.28 1.12 0.01
Net realized and unrealized gains (loss)
on investments $ (0.75) (0.09) (1.00) 0.01
Total from investment operations $ 0.43 0.19 0.12 0.02
Less distributions from:
Net investment income $ 1.20 0.28 1.18 --
Net asset value, end of period $ 10.80 11.57 11.66 12.72
Total Return(3): % 3.96 1.60 1.13 0.16
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 34,416 16,795 17,327 4,690
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.18 1.10 1.12 1.06
Gross expenses prior to expense
reimbursement(4) % 1.37 1.37 1.53 1.06
Net investment income (loss) after
expense reimbursement(4)(5) % 0.63 9.68 9.44 7.22
Portfolio turnover % 113 44 242 484
Class B
-----------------------------------------------------------
Six months Three
ended Year months Year March 27,
Dec. 31, Ended ended ended 1998 to
2000 June 30, June 30, March 31, March 31,
(unaudited) 2000 1999(2) 1999 1998(1)
----------- ---- ------- ---- -------
Per Share Operating Performance:
Net asset value, beginning of period 11.58 11.66 12.71 12.69
Income from investment operations:
Net investment income 1.11 0.27 1.04 0.01
Net realized and unrealized gains (loss)
on investments (0.75) (0.09) (0.99) 0.01
Total from investment operations 0.36 0.18 0.05 0.02
Less distributions from:
Net investment income 1.13 0.26 1.10 --
Net asset value, end of period 10.81 11.58 11.66 12.71
Total Return(3): 3.28 1.53 0.55 0.16
Ratios/Supplemental Data:
Net assets, end of period (000's) 103,246 41,882 42,960 8,892
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) 1.83 1.75 1.77 1.69
Gross expenses prior to expense
reimbursement(4) 2.02 2.02 2.18 1.69
Net investment income (loss) after
expense reimbursement(4)(5) 9.98 9.03 8.84 6.61
Portfolio turnover 113 44 242 484
Class C Class T
------------------------------------------------------- -----------------------
Six months Three Six months
ended Year months Year March 27, ended March 31,
Dec. 31, ended ended ended 1998 to Dec. 31, 2000(6) to
2000 June 30, June 30, March 31, March 31, 2000 June 30,
(unaudited) 2000 1999(2) 1999 1998(1) (unaudited) 2000
Per Share Operating Performance:
Net asset value, beginning of period $ 11.58 11.66 12.71 12.69 11.07
Income from investment operations:
Net investment income $ 1.10 0.27 1.04 0.01 0.29
Net realized and unrealized gains (loss)
on investments $ (0.74) (0.09) (0.99) 0.01 (0.25)
Total from investment operations $ 0.36 0.18 0.05 0.02 0.04
Less distributions from:
Net investment income $ 1.13 0.26 1.10 -- 0.30
Net asset value, end of period $ 10.81 11.58 11.66 12.71 10.81
Total Return(3): % 3.28 1.53 0.55 0.16 (0.49)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 23,324 18,618 21,290 4,815 31,342
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.83 1.75 1.77 1.66 1.48
Gross expenses prior to expense
reimbursement(4) % 2.02 2.02 2.18 1.66 1.67
Net investment income (loss) after
expense reimbursement(4)(5) % 9.98 9.03 8.79 6.91 10.33
Portfolio turnover % 113 44 242 484 113
</TABLE>
----------
(1) The Fund commenced operations on March 27, 1998.
(2) Effective May 24, 1999, ING Pilgrim Investments Inc., 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 voluntarily agreed to limit expenses,
excluding, interest, taxes, brokerage and extraordinary expenses.
(6) Commencement of offering of shares.
52 ING Pilgrim High Yield Fund II
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM HIGH TOTAL RETURN FUND
--------------------------------------------------------------------------------
The information in the table below has been audited by PricewaterhouseCoopers
LLP, independent auditors.
<TABLE>
<CAPTION>
Class A
------------------------------------------------
Year ended October 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating performance
Net asset value at the beginning
of the period $ 3.77 5.00 4.78 4.48
Net investment income $ 0.37 0.46 0.48 0.46
Net realized and unrealized gain
(loss) on investments $ (0.41) (1.07) 0.20 0.32
Total from investment operations $ (0.04) (0.61) 0.68 0.78
Dividends from net investment
income $ (0.39) (0.47) (0.46) (0.48)
Dividends from net investment
gain on investments sold $ -- (0.15) -- --
Distributions declared from
capital $ (0.05) -- -- --
Total distributions $ (0.44) (0.62) (0.46) (0.48)
Net asset value at the end of the
period $ 3.29 3.77 5.00 4.78
Total investment return(1) % (1.86) (13.65) 15.03 18.14
Ratios and supplemental data
Net assets at the end of the
period ($000s) $ 91,991 148,650 215,361 167,698
Ratio of expenses to average net
assets(2) % 1.34 1.30 1.42 1.52
Ratio of net investment income
to average net assets(2) % 10.16 9.93 9.88 9.86
Portfolio turnover rate % 59 123 183 158
Class B
---------------------------------------------------
Year ended October 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating performance
Net asset value at the beginning
of the period 3.77 5.00 4.77 4.47
Net investment income 0.34 0.43 0.44 0.43
Net realized and unrealized gain
(loss) on investments (0.41) (1.07) 0.22 0.32
Total from investment operations (0.07) (0.64) 0.66 0.75
Dividends from net investment
income (0.37) (0.44) (0.43) (0.45)
Dividends from net investment
gain on investments sold -- (0.15) -- --
Distributions declared from
capital (0.04) -- -- --
Total distributions (0.41) (0.59) (0.43) (0.45)
Net asset value at the end of the
period 3.29 3.77 5.00 4.77
Total investment return(1) (2.56) (14.28) 14.46 17.08
Ratios and supplemental data
Net assets at the end of the
period ($000s) 280,413 428,903 577,351 346,919
Ratio of expenses to average net
assets(2) 2.06 2.02 2.12 2.23
Ratio of net investment income
to average net assets(2) 9.42 9.20 9.18 9.14
Portfolio turnover rate 59 123 183 158
Class C
--------------------------------------------------
Year ended October 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating performance
Net asset value at the beginning
of the period $ 3.78 5.02 4.79 4.49
Net investment income $ 0.34 0.43 0.44 0.43
Net realized and unrealized gain
(loss) on investments $ (0.40) (1.08) 0.22 0.32
Total from investment operations $ (0.06) (0.65) 0.66 0.75
Dividends from net investment
income $ (0.37) (0.44) (0.43) (0.45)
Dividends from net investment
gain on investments sold $ -- (0.15) -- --
Distributions declared from
capital $ (0.04) -- -- --
Total distributions $ (0.41) (0.59) (0.43) (0.45)
Net asset value at the end of the
period $ 3.31 3.78 5.02 4.79
Total investment return(1) % (2.24) (14.41) 14.42 17.28
Ratios and supplemental data
Net assets at the end of the
period ($000s) $ 40,503 64,141 97,457 54,382
Ratio of expenses to average net
assets(2) % 2.07 2.03 2.13 2.23
Ratio of net investment income
to average net assets(2) % 9.42 9.19 9.18 9.14
Portfolio turnover rate % 59 123 183 158
</TABLE>
----------
(1) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(2) Annualized for periods less than one year.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim High Total Return Fund 53
<PAGE>
FINANCIAL
ING PILGRIM HIGH YIELD BOND FUND HIGHLIGHTS
--------------------------------------------------------------------------------
The information in the table below has been audited by Ernst & Young LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Shares(1)
---------------------------
October 31, October 31,
2000 1999
---- ----
<S> <C> <C>
Per Share Operating Performance:
Net asset value per share, beginning of period $ 10.00
From investment operations:(3)
Net investment income $ 0.67
Net realized and unrealized loss $ (0.04)
Total from investment operations $ 0.63
Distributions paid from:
Capital gain $ --
Investment income $ (0.67)
Total distributions $ (0.67)
Net asset value per share, end of period $ 9.96
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 30,537
Total investment return at net asset value(4)(5) % 6.37
Ratios to average net assets:(6)
Net expenses % 1.00
Gross expenses % 2.32
Net investment income % 7.53
Porfolio turnover rate(5) % 756.40
<CAPTION>
Class B Shares(1) Class C Shares(1)
------------------------- -------------------------
October 31, October 31, October 31, October 31,
2000 1999 2000 1999
---- ---- ---- ----
Per Share Operating Performance:
Net asset value per share, beginning of period 10.00 10.00
From investment operations:(3)
Net investment income 0.60 0.62
Net realized and unrealized loss (0.05) (0.06)
Total from investment operations 0.55 0.56
Distributions paid from:
Capital gain -- --
Investment income (0.59) (0.60)
Total distributions (0.59) (0.60)
Net asset value per share, end of period 9.96 9.96
Ratios/Supplemental Data:
Net assets, end of period (in thousands) 2,374 776
Total investment return at net asset value(4)(5) 5.57 5.67
Ratios to average net assets:(6)
Net expenses 1.72 1.73
Gross expenses 2.64 2.66
Net investment income 6.90 7.01
Porfolio turnover rate(5) 756.40 756.40
</TABLE>
----------
(1) Class A, B and C shares commenced operations on December 15, 1998.
(2) Per share calculation is based on average number of shares outstanding
during the period.
(3) Total return assumes reinvestment of all dividends and capital gain
distributions, if any, and does not reflect the deduction of the applicable
contingent deferred sales charges with respect to Class B and C shares.
Total returns would be lower if the Fund's expenses were not waived or
reimbursed.
(4) Not annualized.
(5) Annualized.
54 ING Pilgrim High Yield Bond Fund
<PAGE>
FINANCIAL
HIGHLIGHTS
ING PILGRIM HIGH TOTAL RETURN FUND II
--------------------------------------------------------------------------------
The information in the table below, has been audited by PricewaterhouseCoopers
LLP, independent auditors.
<TABLE>
<CAPTION>
Class A(1) Class B(1)
------------------------------------- -----------------------------------
Year ended October 31, Year ended October 31,
2000 1999 1998 1997 2000 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating performance
Net asset value at the beginning of the period $ 4.78 5.49 5.00 4.18 5.49 5.00
Net investment income $ 0.43 0.50 0.28 0.21 0.47 0.25
Net realized and unrealized (loss) on
investments $ (0.55) (0.70) 0.53 (0.66) (0.70) 0.53
Total from investment operations $ (0.12) (0.20) 0.81 (0.45) (0.23) 0.78
Dividends from net investment income $ (0.43) (0.48) (0.28) (0.20) (0.44) (0.25)
Distributions declared from capital $ (0.05) (0.03) (0.04) -- (0.03) (0.04)
Total distributions $ (0.48) (0.51) (0.32) (0.20) (0.47) (0.29)
Net asset value at the end of the period $ 4.18 4.78 5.49 3.53 4.79 5.49
Total investment return(2) % (3.10) (4.23) 16.53 (11.61) (4.90) 15.91
Ratios and supplemental data
Net assets at the end of the period ($000s) $ 20,003 40,924 8,548 66,348 168,859 38,076
Ratio of expenses to average net assets(3) % 1.40 1.44 1.26 2.15 2.17 1.95
Ratio of expense reimbursement to average
net assets(3) % -- 0.01 3.36 -- 0.02 0.75
Ratio of net investment income to average
net assets(3) % 9.46 8.90 5.89 10.65 8.17 5.20
Portfolio turnover rate % 110 150 164 60 150 164
Class C(1)
----------------------------------------
Year ended October 31,
2000 1999 1998 1997
---- ---- ---- ----
Operating performance
Net asset value at the beginning of the period $ 4.79 5.50 5.00
Net investment income $ 0.40 0.47 0.25
Net realized and unrealized (loss) on
investments $ (0.55) (0.71) 0.54
Total from investment operations $ (0.15) (0.24) 0.79
Dividends from net investment income $ (0.41) (0.44) (0.25)
Distributions declared from capital $ (0.04) (0.03) (0.04)
Total distributions $ (0.45) (0.47) (0.29)
Net asset value at the end of the period $ 4.19 4.79 5.50
Total investment return(2) % (3.77) (4.90) 16.12
Ratios and supplemental data
Net assets at the end of the period ($000s) $ 31,014 53,703 12,334
Ratio of expenses to average net assets(3) % 2.12 2.17 1.95
Ratio of expense reimbursement to average
net assets(3) % -- 0.01 0.78
Ratio of net investment income to average
net assets(3) % 8.70 8.16 5.17
Portfolio turnover rate % 110 150 164
</TABLE>
----------
(1) Classes A, B & C commenced operations on January 31, 1997.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized for periods less than one year.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim High Total Return Fund II 55
<PAGE>
FINANCIAL
PILGRIM MONEY MARKET FUND HIGHLIGHTS
--------------------------------------------------------------------------------
The information in the table below, except for the six months ended December 31,
2000, has been audited by KPMG LLP, independent auditors.
<TABLE>
<CAPTION>
Class A Class B Class C
------------------------ ------------------------ ----------------------
Six months Six months Six months
ended Period ended Period ended Period
Dec. 31, ended Dec. 31, ended Dec. 31, ended
2000 June 30, 2000 June 30, 2000 June 30,
(unaudited) 2000(1) (unaudited) 2000(2) (unaudited) 2000(2)
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 1.00 1.00 1.00
Income from investment operations:
Net investment income $ 0.02 0.03 0.02
Net realized and unrealized gains (loss) on
investments $ -- -- --
Total from investment operations $ 0.02 0.03 0.02
Less distributions from:
Net investment income $ 0.02 0.03 0.02
Net realized gains on investments $ -- -- --
Net asset value, end of period $ 1.00 .00 1.00
Total Return(3): % 3.58 3.60 3.58
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 75,430 12,035 5,431
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 0.85 1.60 1.60
Gross expenses prior to expense reimbursement(4) % 2.28 3.03 3.03
Net investment income (loss) after expense
reimbursement(4)(5) % 5.18 3.96 3.96
</TABLE>
----------
(1) Commenced operations on November 24, 1999.
(2) Commenced operations on July 12, 1999.
(3) Total returns are not annualized for periods of less than one year and do
not reflect the impact of sales charges.
(4) Annualized for periods less than one year.
(5) The investment manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
56 Pilgrim Money Market Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING MONEY MARKET FUND
--------------------------------------------------------------------------------
The information in the table below has been audited by Ernst & Young LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A(1)
---------------------------
October 31, October 31,
2000 1999
---- ----
<S> <C> <C>
Per Share Operating Performance:
Net asset value per share, beginning of period $ 1.00
From investment operations:(3)
Net investment income $ 0.04
Net realized and unrealized gains (loss) on
investments $ --
Total from investment operations $ 0.04
Distributions paid from investment income $ (0.04)
Net asset value per share, end of period $ 1.00
Net asset value per share, end of period $ 1.00
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $ 228,124
Ratio of investment return at net asset value(4) % 3.98
Ratios to average net assets:(6)
Net expenses % 0.73
Gross expenses % 1.67
Net investment income % 4.59
<CAPTION>
Class B(1) Class C(1)
--------------------------- --------------------------
October 31, October 31, October 31, October 31,
2000 1999 2000 1999
---- ---- ---- ----
Per Share Operating Performance:
Net asset value per share, beginning of period 1.00 1.00
From investment operations:(3)
Net investment income 0.03 0.03
Net realized and unrealized gains (loss) on
investments -- --
Total from investment operations 0.03 0.03
Distributions paid from investment income (0.03) (0.03)
Net asset value per share, end of period 1.00 1.00
Net asset value per share, end of period 1.00 1.00
Ratios/Supplemental Data:
Net assets, end of period (in thousands) 1,173 444
Ratio of investment return at net asset value(4) 3.31 3.30
Ratios to average net assets:(6)
Net expenses 1.41 1.41
Gross expenses 1.79 1.78
Net investment income 3.85 3.89
</TABLE>
----------
(1) Class A, B and C shares commenced operations on December 15, 1998.
(2) Unaudited.
(3) Per share calculation is based on average number of shares outstanding
during the period.
(4) Total return assumes reinvestment of all dividends and capital gain
distributions, if any, and does not reflect the deduction of the
applicable contingent deferred sales charges with respect to Class B and C
shares. Total returns would be lower if the Fund's expenses were not
waived or reimbursed.
(5) Not annualized.
(6) Annualized.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Money Market Fund 57
<PAGE>
WHERE TO GO FOR MORE INFORMATION
You'll find more information about the ING 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 ING Pilgrim Funds. The SAI
is legally part of this prospectus (it is incorporated by reference). A copy has
been filed with the Securities and Exchange Commission (SEC). Please write or
call for a free copy of the current Annual/Semi-Annual reports, the SAI or other
Fund information, or to make shareholder inquiries:
THE ING PILGRIM FUNDS
7337 East Doubletree Ranch Road
Scottsdale, AZ 85258-2034
1-800-992-0180
Or visit our website at www.pilgrimfunds.com
This information may also be reviewed or obtained from the SEC. In order to
review the information in person, you will need to visit the SEC's Public
Reference Room in Washington, D.C. or call 202-942-8090. Otherwise, you may
obtain the information for a fee by contacting the SEC at:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-0102
or at the e-mail address: [email protected]
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:
ING Pilgrim GNMA Income Fund, Inc. 811-2401
ING Pilgrim Mayflower Trust 811-7978
ING Pilgrim Government Securities Income Fund, Inc. 811-4031
ING Pilgrim Investment Funds, Inc. 811-1939
ING Pilgrim Mutual Funds 811-7428
ING Funds Trust 811-8895
INCPROSXXXXXX-XXXXXX
<PAGE>
March 1, 2001
Classes A, B, C and M
INTERNATIONAL EQUITY FUNDS
ING Pilgrim Worldwide Growth
ING Pilgrim Global Corporate Leaders
ING Pilgrim International Value
ING Pilgrim International
ING Pilgrim International Core Growth
ING Pilgrim International SmallCap Growth
ING Pilgrim Emerging Markets Value
ING Pilgrim Emerging Countries
ING Pilgrim Worldwide Emerging Markets
ING Pilgrim Global Technology
ING Pilgrim Global Communications
ING Pilgrim Global Information Technology
ING Pilgrim Asia-Pacific Equity
ING Pilgrim SmallCap Asia Growth
ING Pilgrim European Equity
ING Pilgrim Troika Dialog Russia
Precious Metals Funds
ING Pilgrim Gold
ING Pilgrim Silver
International Income Fund
ING Pilgrim Global Income
This prospectus contains important information about investing in the ING
Pilgrim Funds. You should read it carefully before you invest, and keep it for
future reference. Please note that your investment: is not a bank deposit, is
not insured or guaranteed by the FDIC, the Federal Reserve Board or any other
government agency and is affected by market fluctuations. There is no guarantee
that the Funds will achieve their objectives. As with all mutual funds, the
Securities and Exchange Commission (SEC) has not approved or disapproved these
securities nor has the SEC judged whether the information in this prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
<PAGE>
WHAT'S INSIDE
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OBJECTIVE
These pages contain a description of each of our Funds included in this
prospectus, including its objective, investment strategy and risks.
INVESTMENT STRATEGY
You'll also find:
RISKS
HOW THE FUND HAS PERFORMED
How the Fund has performed. A chart that shows the Fund's financial performance
for the past ten years (or since inception, if shorter).
What you pay to invest. A list of the fees and expenses you pay -- both directly
and indirectly -- when you invest in a Fund.
An Introduction to the ING Pilgrim Funds 1
Funds At A Glance 2
INTERNATIONAL EQUITY FUNDS
ING Pilgrim Worldwide Growth 6
ING Pilgrim Global Corporate Leaders 8
ING Pilgrim International Value 10
ING Pilgrim International 12
ING Pilgrim International Core Growth 14
ING Pilgrim International SmallCap Growth 16
ING Pilgrim Emerging Markets Value 18
ING Pilgrim Emerging Countries 20
ING Pilgrim Worldwide Emerging Markets 22
ING Pilgrim Global Technology 24
ING Pilgrim Global Communications 26
ING Pilgrim Global Information Technology 28
ING Pilgrim Asia-Pacific Equity 30
ING Pilgrim SmallCap Asia Growth 32
ING Pilgrim European Equity 34
ING Pilgrim Troika Dialog Russia 36
PRECIOUS METALS FUNDS
ING Pilgrim Gold 38
ING Pilgrim Silver 40
INTERNATIONAL INCOME FUND
ING Pilgrim Global Income 42
What You Pay to Invest 44
Shareholder Guide 48
Management of the Funds 55
Dividends, Distributions and Taxes 59
More Information About Risks 60
Financial Highlights 64
Where To Go For More Information Back cover
<PAGE>
INTRODUCTION TO THE ING 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.
If you have any questions about the ING Pilgrim Funds, please call your
financial consultant or us at 1-800-992-0180.
This prospectus is designed to help you make informed decisions about your
investments.
INTERNATIONAL EQUITY FUNDS
ING Pilgrim offers International Equity Funds that emphasize a growth
approach to international investing, as well as International Equity Funds
that apply the technique of "value investing". These Funds focus on
long-term growth by investing primarily in foreign equities.
They may suit you if you:
* are investing for the long-term -- at least several years
* are looking for exposure to international markets
* are willing to accept higher risk in exchange for long-term growth.
PRECIOUS METALS FUNDS
ING Pilgrim's Precious Metals Funds seek long-term growth.
They may suit you if you:
* are investing for the long-term -- at least several years
* are looking for exposure to international markets and precious metals
* are willing to accept higher risk in exchange for long-term growth.
INTERNATIONAL INCOME FUND
ING Pilgrim's Global Income Fund seeks high current income.
It may suit you if you:
* want a regular stream of income
* want greater growth potential than a money market fund
* are willing to accept more risk than a money market fund.
If you have any questions, please call 1-800-992-0180.
1
<PAGE>
Funds At A Glance
This table is a summary of the objectives, main investments and risks of each
ING Pilgrim Fund. It is designed to help you understand the differences between
the Funds, the main risks associated with each, and how risk and investment
objectives relate. This table is only a summary. You should read the complete
descriptions of each Fund's investment objectives, strategies and risks, which
begin on page 6.
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
-------------------------------------------------------------------------------
<S> <C> <C>
International Worldwide Growth Fund Long-term capital appreciation
Equity Funds Adviser: ING Pilgrim Investments, Inc.
Global Corporate Leaders Fund Long-term growth of capital
Adviser: ING Pilgrim Investments, Inc.
International Value Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Sub-Adviser: Brandes
Investment Partners, L.P.
International Fund Long-term growth of capital
Adviser: ING Pilgrim Investments, Inc.
International Core Growth Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
International SmallCap Growth Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Sub-Adviser: Nicholas-Applegate Capital Mgt.
Emerging Markets Value Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Sub-Adviser: Brandes Investment
Partners, L.P.
Emerging Countries Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Worldwide Emerging Markets Fund Long-term growth of capital
Adviser: ING Pilgrim Investments, Inc.
Global Technology Fund Long-term growth of capital
Adviser: ING Pilgrim Investments, Inc.
ING Global Communications Fund Long-term capital appreciation
Adviser: ING Mutual Funds Management Co. LLC
Sub-Adviser: ING Investment Management Advisors B.V.
ING Global Information Technology Fund Long-term capital appreciation
Adviser: ING Mutual Funds Management Co. LLC
Sub-Adviser: ING Investment Management Advisors B.V.
Asia-Pacific Equity Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
</TABLE>
2
<PAGE>
MAIN INVESTMENTS MAIN RISKS
--------------------------------------------------------------------------------
Equity securities of companies Price volatility and other risks
located in countries around the that accompany an investment in
world, which may include the U.S., growth-oriented foreign equities.
believed to have growth potential. Sensitive to currency exchange
rates, international political and
economic conditions and other risks
that affect foreign securities.
Equity securities and equity Price volatility and other risks
equivalents of foreign and U.S. that accompany an investment in
companies. [growth-oriented] foreign equities.
Sensitive to currency exchange
rates, international political and
economic conditions and other risks
that affect foreign securities.
Equity securities of issuers Price volatility and other risks
located in countries outside the that accompany an investment in
U.S., believed to have prices below foreign equities. Sensitive to
their long-term value. currency exchange rates,
international political and
economic conditions and other risks
that affect foreign securities.
Equity securities and equity Price volatility and other risks
equivalents of companies outside of that accompany an investment in
the U.S. [growth-oriented] foreign equities.
Sensitive to currency exchange
rates, international political and
economic conditions and other risks
that affect foreign securities.
Equity securities of larger Price volatility and other risks
companies in countries around the that accompany an investment in
world, which may include the U.S., growth-oriented foreign equities.
believed to have growth potential. Sensitive to currency exchange
rates, international political and
economic conditions and other risks
that affect foreign securities.
Equity securities of small-sized Price volatility, liquidity and
companies in countries around the other risks that accompany an
world, which may include the U.S., investment in equity securities of
believed to have growth potential. foreign, small-sized companies.
Sensitive to currency exchange
rates, international political and
economic conditions and other risks
that affect foreign securities.
Equity securities of issuers Price volatility, liquidity and
located in countries with emerging other risks that accompany an
securities markets believed to have investment in equities from
prices below their long-term value. emerging countries. Sensitive to
currency exchange rates,
international political and
economic conditions and other risks
that affect foreign securities.
Equity securities of issuers Price volatility, liquidity and
located in countries with emerging other risks that accompany an
securities markets believed to have investment in equities from
growth potential. emerging countries. Sensitive to
currency exchange rates,
international political and
economic conditions and other risks
that affect foreign securities.
Equity securities and equity Price volatility, liquidity and
equivalents of emerging market other risks that accompany an
companies. investment in equities from
emerging countries. Sensitive to
currency exchange rates,
international political and
economic conditions and other risks
that affect foreign securities.
Equity securities or equity Price volatility due to
equivalents of technology or non-diversification and
information infrastructure related concentration in stocks in the
companies. technology sector. May be sensitive
to currency exchange rates,
international, political and
economic conditions and other risks
that affect foreign securities.
Equity securities of communications Price volatility and risks related
companies located throughout the to investments in equity
world, including the United States. securities. Sensitive to currency
exchange rates, international,
political and economic conditions
and other risks that affect foreign
securities. Products and services
of companies engaged in the
communications sector are subject
to relatively high risks of rapid
obsolescence caused by scientific
and technological advances.
Equity securities of information Price volatility and risks related
technology companies located to investments in equity
throughout the world, including the securities. Products and services
United States. of companies engaged in the
information technology sector are
subject to relatively high risks of
rapid obsolescence caused by
scientific and technological
advances.
Equity securities of companies Price volatility and other risks
based in the Asia-Pacific region, that accompany an investment in
excluding Australia and Japan. foreign equities and in securities
of issuers in a single region.
Sensitive to currency exchange
rates, international political and
economic conditions and other risks
that affect foreign securities.
3
<PAGE>
Funds At A Glance
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
<S> <C> <C>
International SmallCap Asia Growth Fund Long-term capital appreciation
Equity Funds Adviser: ING Pilgrim Investments, Inc.
ING European Equity Fund Long-term capital appreciation
Advisor: ING Mutual Funds Management Co. LLC
Sub-Adviser: ING Investment Management Advisors B.V.
Troika Dialog Russia Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Precious Metals Gold Fund Capital appreciation and a hedge against the loss of
Funds Adviser: ING Pilgrim Investments, Inc. buying power of the U.S. Dollar
Silver Fund Maximum total return from long-term growth of capital
Adviser: ING Pilgrim Investments, Inc. and income
International Global Income Fund High current income, with capital appreciation as a
Income Fund Adviser: ING Pilgrim Investments, Inc. secondary objective
</TABLE>
4
<PAGE>
MAIN INVESTMENTS MAIN RISKS
--------------------------------------------------------------------------------
Equity securities and equity Price volatility, liquidity and
equivalents of companies in the other risks that accompany an
Asia region having market investment in equity securities of
capitalizations of less than $1 issuers in a single region.
billion. Sensitive to currency exchange
rates, international political and
economic conditions and other risks
that affect foreign securities.
Equity securities of issuers which Price volatility and risks related
are principally traded in the to investments in equity
European capital markets, or that securities. Sensitive to currency
derive a majority of their total exchange rates, international,
revenues from either goods produced political and economic conditions
or services rendered within Europe, and other risks that affect foreign
or that are organized under the securities of companies in a single
laws of and have a principal office region.
in a European country.
Equity securities of Russian Risk due to extremely volatile and
companies. often illiquid nature of the
Russian securities markets, and
volatility due to
non-diversification of investments.
Particularly sensitive to Russian
political and economic conditions,
currency exchange rates, and other
risks that affect funds investing
in securities of a single country.
Potential for expropri- ation,
dilution, devaluation, default or
excessive taxation by the Russian
government.
Gold and securities of companies Price volatility due to
engaged in mining or processing non-diversification and
gold throughout the world. concentration in the gold/precious
metals industry. The market for
gold and other precious metals is
widely unregulated and is located
in foreign countries that have the
potential for instability. Precious
metals earn no income, have higher
transaction/storage costs, and
realize gain only with an increase
in market price.
Securities of companies which are Price volatility due to
engaged in the exploration, mining, non-diversification and
processing, fabrication or concentration in stocks in the
distribution of silver and in silver industry. The market for
silver bullion. silver is limited and widely
unregulated and is located in
foreign countries that have the
potential for instability. Precious
metals earn no income, have higher
transaction/storage costs, and
realize gain only with an increase
in market price.
Foreign and domestic high yield, Credit, liquidity, interest rate
lower rated or unrated debt and other risks that accompany an
securities. investment in lower-quality debt
securities. Particularly sensitive
to credit risk during economic
downturns. May also present price
volatility from foreign securities.
May be sensitive to currency
exchange rates, international
political and economic conditions,
and other risks.
5
<PAGE>
International
Equity Funds
-------------
Adviser
ING Pilgrim
ING PILGRIM WORLDWIDE GROWTH FUND Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
The Fund seeks maximum long-term capital appreciation.
INVESTMENT STRATEGY
Under normal conditions, the Fund invests at least 65% of its net assets in
equity securities of issuers located in at least three countries, one of which
may be the U.S. The Fund generally invests at least 75% of its total assets in
common and preferred stocks, warrants and convertible securities. The Fund may
invest in companies located in countries with emerging securities markets when
the portfolio managers believe they present attractive investment opportunities.
International Component. The portfolio managers primarily use a "bottom-up"
fundamental analysis to identify stocks which they believe offer good value
relative to their peers in the same industry, sector or region. The portfolio
managers will invest at least 65% of the Fund in assets of companies which,
based upon a fundamental analysis of a company's earning prospects, they believe
will experience faster earnings per share growth than that of other companies
located in one or more of the same market, sector, or industry. In conducting
its fundamental analysis, the portfolio managers focus on various factors,
including valuation of the companies, potential catalysts to stock price
appreciation, quality of management, and financial measures, especially cash
flow and the cash flow return on capital. They also use a "top-down" analysis to
identify important themes or issues which may affect the investment environment
in certain regions or sectors and to estimate regional market risks.
U.S. Component. The Fund normally invests in equity securities of large U.S.
companies that the portfolio managers feel have above-average prospects for
growth. The Fund considers a company to be large if its market capitalization
corresponds at the time of purchase to the upper 90% of the S&P 500 Index. As of
December 31, 2000 this meant market capitalizations in the range of $ billion to
$ billion. Capitalization of companies in the S&P 500 Index will change with
market conditions.
The portfolio managers emphasize a growth approach by searching for companies
that they believe are managing change advantageously and may be poised to exceed
growth expections. The portfolio managers focus on both a "bottom-up" analysis
that evaluates the financial condition and competitiveness of individual
companies and a "top-down" thematic approach and a sell discipline. The
portfolio managers seek to identify themes that reflect the major social,
economic and technological trends that they believe are likely to shape the
future of business and commerce over the next three to five years, and seek to
provide a framework for identifying the industries and companies they believe
may benefit most. This "top-down" approach is combined with rigorous fundamental
research (a "bottom-up" approach) to guide stock selection and portfolio
structure.
From time to time, the Adviser reviews the allocation between U.S. stocks and
non-U.S. stocks in the portfolio, and may rebalance the portfolio using factors
that the Adviser deems appropriate.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potenial for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
Adviser believes have the potential for rapid growth, which may give the Fund a
higher risk of price volatility than a Fund that emphasizes other styles, such
as a value-oriented style. The Fund may also invest in small and medium-sized
companies, which may be more susceptible to greater price swings than larger
companies because they may have fewer financial resources, more limited product
and market diversification and many may be dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Fund invests. Rather, the market could favor
value-oriented stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Inability to Sell Securities -- securities of foreign companies may trade in
lower volume and may be less liquid than securities of U.S. companies. The Fund
could lose money if it cannot sell a security at the time and price that would
be most beneficial to the Fund.
Securities Lending -- There is the risk that when lending portfolio securities,
the securities may not be available to the Fund on a timely basis and the Fund
may, therefore, lose the opportunity to sell the securities at a desirable
price.
6 ING Pilgrim Worldwide Growth Fund
<PAGE>
ING PILGRIM WORLDWIDE GROWTH FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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 2.45
1995 14.74
1996 17.92
1997 17.28
1998 37.34
1999 83.52
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Morgan Stanley Capital International World Index (MSCI World
Index).
Average Annual Total Returns
MSCI
World
Class A(3) Class B(4) Class C(5) Index(6)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of
Classes A and C(7) % N/A
Since inception
of Class B(7) % N/A N/A
--------------------------------------------------------------------------------
(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, Inc. has been the Fund's investment adviser since
May 24, 1999; however, prior to October 1, 2000, the Fund was advised by a
sub-adviser.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 1%, respectively, for
1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The MSCI World Index is an unmanaged index that measures the performance of
over 1,400 securities listed on exchanges in the U.S., Europe, Canada,
Australia, New Zealand and the Far East.
(7) Classes A and C commenced operations on April 19, 1993. Class B commenced
operations on May 31, 1995.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Worldwide Growth Fund 7
<PAGE>
International
Equity Funds
Adviser
ING Pilgrim
ING PILGRIM GLOBAL CORPORATE LEADERS FUND Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
The Fund's investment objective is to seek long-term growth of capital through
investment in equity securities and equity equivalents of foreign and U.S.
companies.
INVESTMENT STRATEGY
The Fund normally invests at least 65% of its total assets in a diversified
portfolio of blue chip securities (including common and preferred stock,
warrants and convertible securities) that the portfolio managers believe
represents "corporate leaders" in their respective industries. The portfolio
managers consider whether these companies have a sustainable competitive edge.
The Fund may invest in the securities of companies and governments of the
following regions:
* Asia Region (including Japan);
* Europe;
* Latin America;
* Africa;
* North America (including U.S. and Canada); and
* Other areas and countries as the Adviser may decide from time to time.
The Fund will normally invest in at least three different countries. The Fund
intends to select the countries, currencies and companies that provide the
greatest potential for long-term growth.
The Fund may invest 35% of its total assets in:
* securities of smaller capitalization companies;
* debt securities; and
* other investments.
PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors
has approved the reorganization of the Fund into ING Pilgrim Worldwide Growth
Fund. You could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
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. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Debt securities -- the value of debt securities may fall when interest rates
rise. Debt securities with longer maturities tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter maturities.
8 ING Pilgrim Global Corporate Leaders Fund
<PAGE>
ING PILGRIM GLOBAL CORPORATE LEADERS FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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 15.55
1992 -3.55
1993 31.88
1994 1.84
1995 10.69
1996 16.43
1997 6.90
1998 19.06
1999 39.06
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Morgan Stanley Capital International World Index (MSCI World
Index).
Average Annual Total Returns
MSCI
World
Class A(3) Index(4)
------------ ---------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 %
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund and the Fund's shares were sold on a no-load basis.
Effective July 31, 2000, the Fund's outstanding shares were classified as
"Class A" shares.
(3) Reflects deduction of sales charge of 5.75%.
(4) The MSCI World Index is an unmanaged index that measures the performance of
over 1,400 securities listed on exchanges in the U.S., Europe, Canada,
Australia, New Zealand, and the Far East.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Global Corporate Leaders Fund 9
<PAGE>
International Equity Funds
Adviser
ING Pilgrim
Investments, Inc.
Sub-Adviser
Brandes Investment
Partners, L.P.
ING PILGRIM INTERNATIONAL VALUE FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund seeks long-term capital appreciation.
INVESTMENT STRATEGY
The Fund invests primarily in foreign companies with market capitalizations
greater than $1 billion, but it may hold up to 25% of its assets in companies
with smaller market capitalizations.
The portfolio managers apply the technique of "value investing" by seeking
stocks that their research indicates are priced below their long-term value.
The Fund holds common stocks, preferred stocks, American, European and Global
depository receipts, as well as convertible securities.
Under normal circumstances, the Fund will invest at least 65% of its total
assets in securities of companies located in at least three countries other than
the U.S. The Fund may invest up to the greater of:
* 20% of its assets in any one country or industry, or,
* 150% of the weighting of the country or industry in the Morgan Stanley
Capital International Europe, Australia and Far East (MSCI EAFE) Index, as
long as the Fund meets any industry concentration or diversification
requirements under the Investment Company Act.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund's investments may be
affected by the following additional risks:
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests primarily in equity
securities of larger companies, which sometimes have more stable prices than
smaller companies. However, the Fund may also invest in small and medium-sized
companies, which may be more susceptible to price swings than larger companies
because they have fewer financial resources, more limited product and market
diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the
value-oriented stocks in which the Fund invests. Rather, the market could favor
growth-oriented stocks, or may not favor equities at all.
Inability to Sell Securities -- securities of smaller companies and some foreign
companies may trade in lower volume and may be less liquid than securities of
larger, more established companies or U.S. companies. The Fund could lose money
if it cannot sell a security at the time and price that would be most beneficial
to the Fund.
10 ING Pilgrim International Value Fund
<PAGE>
ING PILGRIM INTERNATIONAL VALUE FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Return (%)(1)
1991
1992
1993
1994
1995
1996 15.23
1997 17.86
1998 13.46
1999 51.49
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Morgan Stanley Capital International Europe, Australia and
Far East Index (MSCI EAFE Index).
Average Annual Total Returns
MSCI
EAFE
Class A(2) Class B(3) Class C(4) Index(5)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Five years ended
December 31, 2000 % N/A
Since inception of
Classes A and C(6) % N/A
Since inception
of Class B(6) % N/A N/A
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The MSCI EAFE Index is an unmanaged index that measures the performance of
securities listed on exchanges in markets in Europe, Australia and the Far
East.
(6) Classes A and C commenced operations on March 6, 1995. Class B commenced
operations on April 18, 1997.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim International Value Fund 11
<PAGE>
International Equity Funds
Adviser
ING Pilgrim
Investments, Inc.
ING PILGRIM INTERNATIONAL FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund's investment objective is to seek long-term growth of capital through
investment in equity securities and equity equivalents of companies outside of
the U.S.
INVESTMENT STRATEGY
Under normal conditions, the Fund invests at least 65% of its net assets in
equity securities of issuers located in countries outside of the U.S. The Fund
generally invests at least 75% of its total assets in common and preferred
stocks, warrants and convertible securities. The Fund may invest in companies
located in countries with emerging securities markets when the portfolio
managers believe they present attractive investment opportunities. The Fund also
may invest up to 35% of its assets in securities of U.S. issuers, including
investment-grade debt securities.
The portfolio managers primarily use "bottom-up" fundamental analysis to
identify stocks which they believe offer good value relative to their peers in
the same industry, sector or region. They also use "top-down" analysis to
identify important themes or issues which may affect the investment environment
in certain regions or sectors and to estimate regional market risks. In
conducting its fundamental analysis, the portfolio managers focus on various
factors, including valuation of the companies, catalysts to stock price
appreciation, quality of management and financial measures, especially cash flow
and the cash flow return on capital.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund's investments may be
affected by the following additional risks:
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
The Fund invests primarily in equity securities of larger companies, which
sometimes have more stable prices than smaller companies. However, the Fund may
also invest in small and medium-sized companies, which may be more susceptible
to price swings than larger companies because they have fewer financial
resources, more limited product and market diversification and many are
dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the
securities in which the Fund invests.
Debt securities -- the value of debt securities may fall when interest rates
rise. Debt securities with longer maturities tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter maturities.
Inability to Sell Securities -- securities of smaller and foreign companies
trade in lower volume and may be less liquid than securities of larger U.S.
companies. The Fund could lose money if it cannot sell a security at the time
and price that would be most beneficial to the Fund.
12 ING Pilgrim International Fund
<PAGE>
ING PILGRIM INTERNATIONAL FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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 5.87
1995 5.77
1996 13.57
1997 1.61
1998 19.02
1999 47.58
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Morgan Stanley Capital International Europe, Australia and
Far East Index (MSCI EAFE Index).
Average Annual Total Returns
MSCI
EAFE
Class A(3)(4) Index(5)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of
Class A(6) %
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund and the Fund's shares were sold on a no-load basis.
Effective July 31, 2000, the Fund's outstanding shares were classified as
"Class A" shares.
(3) This table shows the performance of the Class A shares of the Fund. Class B
and Class C shares of the Fund did not have a full year's performance
during the period ended December 31, 2000.
(4) Reflects deduction of sales charge of 5.75%.
(5) The MSCI EAFE Index is an unmanaged index that measures the performance of
securities listed on exchanges in markets in Europe, Australia, and the Far
East.
(6) Class A commenced operations on January 3, 1994.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim International Fund 13
<PAGE>
International Equity Funds
Adviser
ING Pilgrim
Investments, Inc.
ING PILGRIM INTERNATIONAL CORE GROWTH FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund seeks maximum long-term capital appreciation.
INVESTMENT STRATEGY
Under normal conditions, the Fund invests at least 65% of its net assets in
equity securities of issuers located in countries outside the U.S. The Fund
generally invests at least 75% of its total assets in common and preferred
stocks, warrants and convertible securities. The Fund may invest in companies
located in countries with emerging securities markets when the portfolio
managers believe they present attractive investment opportunities. The Fund may
also invest up to 35% of its assets in securities of U.S. issuers, including
investment-grade debt securities.
In pursuing the Fund's investment strategy, the portfolio managers primarily use
a "bottom-up" fundamental analysis to identify stocks which they believe offer
good value relative to their peers in the same industry, sector or region. The
portfolio managers will invest 65% of the Fund in asset of companies which,
based upon a fundamental analysis of a company's earnings prospects, they
believe will experience faster earnings per share growth than that of other
companies located in one or more of the same market, sector, or industry. In
conducting its fundamental analysis, the portfolio managers focus on various
factors, including valuation of the companies, potential catalysts to stock
price appreciation, quality of management and financial measures, especially
cash flow and the cash flow return on capital. They also use a "top-down"
analysis to identify important themes or issues which may affect the investment
environment in certain regions or sectors and to estimate regional market risks.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
Adviser believes have the potential for rapid growth, which may give the Fund a
higher risk of price volatility than a Fund that emphasizes other styles, such
as a value-oriented style. The Fund invests in large companies, which sometimes
have more stable prices than smaller companies.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Fund invests. Rather, the market could favor
value-oriented stocks or smaller company stocks, or may not favor equities at
all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Securities Lending -- There is the risk that when lending portfolio securities,
the securities may not be available to the Fund on a timely basis and the Fund
may, therefore, lose the opportunity to sell the securities at a desirable
price.
14 ING Pilgrim International Core Growth Fund
<PAGE>
ING PILGRIM INTERNATIONAL CORE GROWTH FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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 20.92
1999 66.69
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Morgan Stanley Capital International Europe, Australia and
Far East Index (MSCI EAFE Index).
Average Annual Total Returns
MSCI
EAFE
Class A(3) Class B(4) Class C(5) Index(6)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Since inception(7) %
--------------------------------------------------------------------------------
(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, Inc. has been the Fund's investment adviser since
May 24, 1999; however, prior to October 1, 2000, the Fund was advised by a
Sub-Adviser.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3% respectively for 1
year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The MSCI EAFE Index is an unmanaged index that measures the performance of
securities listed on exchanges in markets in Europe, Australia and the Far
East.
(7) The Fund commenced operations on February 28, 1997.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim International Core Growth Fund 15
<PAGE>
International Equity Funds
Adviser
ING Pilgrim
Investments, Inc.
Sub-Adviser
Nicholas-Applegate
Capital Management
ING PILGRIM INTERNATIONAL SMALLCAP GROWTH FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund seeks maximum long-term capital appreciation.
INVESTMENT STRATEGY
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of small companies located outside the U.S. The Fund may invest up to
35% of its total assets in U.S. issuers.
The Fund invests primarily in smaller-capitalized companies ("small cap stocks")
located worldwide. In the opinion of the Fund's Sub-Adviser, small cap stocks
are those whose stock market capitalizations are predominantly in the bottom 25%
of publicly traded companies as measured by stock market capitalizations in over
50 countries. The market capitalization ranges of the various countries' small
cap stocks may vary greatly due to fluctuating currency values, differences in
the size of the respective economies, and movements in the local stock markets.
The Fund normally invests at least 75% of its total assets in common and
preferred stocks, warrants and convertible securities. The Fund may invest in
companies located in countries with emerging securities markets when the
Sub-Adviser believes they present attractive investment opportunities.
The Fund's Sub-Adviser emphasizes a growth approach by searching for successful,
growing companies that are managing change advantageously and poised to exceed
growth expectations. It focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of traditional fundamental research of individual securities,
calling on the expertise of many external analysts in different countries
throughout the world, and a computer intensive ranking system that analyzes and
ranks securities. The Sub-Adviser seeks to uncover signs of "change at the
margin" -- positive business developments which are not yet fully reflected in a
company's stock price.
In analyzing specific companies for possible investment, the Sub-Adviser
ordinarily looks for several of the following characteristics: above-average per
share earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
Sub-Adviser usually considers whether to sell a particular security when any of
those factors materially changes.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
Sub-Adviser believes have the potential for rapid growth, which may give the
Fund a higher risk of price volatility than a Fund that emphasizes other styles,
such as a value-oriented style. The Fund invests in small companies, which may
be more susceptible to greater price swings than larger companies because they
may have fewer financial resources, more limited product and market
diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the small-cap
growth securities in which the Fund invests. Rather, the market could favor
value-oriented stocks or large company stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Inability to Sell Securities -- securities of smaller and foreign companies
trade in lower volume and may be less liquid than securities of larger U.S.
companies. The Fund could lose money if it cannot sell a security at the time
and price that would be most beneficial to the Fund.
Securities Lending -- There is the risk that when lending portfolio securities,
the securities may not be available to the Fund on a timely basis and the Fund
may, therefore, lose the opportunity to sell the securities at a desirable
price.
16 ING Pilgrim International SmallCap Growth Fund
<PAGE>
ING PILGRIM INTERNATIONAL SMALLCAP GROWTH FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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 5.51
1996 17.58
1997 13.46
1998 35.57
1999 121.93
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- the Salomon Europe Pacific, Australia and Composite Market Index
(Salomon EPAC EM Index).
Average Annual Total Returns
Salomon
EPAC
EM
Class A(3) Class B(4) Class C(5) Index(6)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of
Classes A and C(7) % N/A
Since inception
of Class B(7) % N/A N/A
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the
adviser, rather than Sub-Adviser, to the Fund.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 1%, respectively, for
1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The Salomon EPAC EM Index is an unmanaged index that measures the
performance of securities of smaller-capitalization companies in 22
countries excluding the U.S. and Canada.
(7) Classes A and C commenced operations on August 31, 1994. Class B commenced
operations on May 31, 1995.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim International SmallCap Growth Fund 17
<PAGE>
International Equity Funds
Adviser
ING Pilgrim
Investments, Inc.
Sub-Adviser
Brandes Investment
Partners, L.P.
ING PILGRIM EMERGING MARKETS VALUE FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund seeks long-term capital appreciation.
INVESTMENT STRATEGY
The Fund invests primarily in companies located in countries with emerging
markets, including companies that may be smaller and lesser-known.
The portfolio managers apply the technique of "value investing" by seeking
stocks that their research indicates are priced below their long-term value.
The Fund may invest in common stocks, preferred stocks, American, European and
Global depositary receipts, as well as convertible securities.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in securities of companies located in countries with emerging markets.
Countries with emerging markets include those countries that are generally
considered to be emerging market countries by the international financial
community. The Fund may invest up to the greater of:
* 20% of its assets in any one country or industry, or,
* 150% of the weighting of the country or industry in the Morgan Stanley
Capital International Emerging Markets Free (MSCI EMF) Index, as long as
the Fund meets any industry concentration or diversification requirements
under the Investment Company Act.
PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Trustees
has approved the reorganization of the Fund into ING Pilgrim Emerging Countries
Fund. You could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund's investments may be
affected by the following additional risks:
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. For emerging market countries, the risks may be greater,
partly because emerging market countries may be less politically and
economically stable than other countries. It may also be more difficult to buy
and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund may invest in smaller companies,
which may be more susceptible to price swings than larger companies because they
have fewer financial resources, more limited product and market diversification
and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may
not favor the value-oriented stocks in which the Fund invests. Rather, the
market could favor growth-oriented stocks, or may not favor equities at all.
Inability to Sell Securities -- securities of smaller and emerging market
companies trade in lower volume and may be less liquid than securities of
companies in larger, more established markets. The Fund could lose money if it
cannot sell a security at the time and price that would be most beneficial to
the Fund.
18 ING Pilgrim Emerging Markets Value Fund
<PAGE>
ING PILGRIM EMERGING MARKETS VALUE FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Return (%)(1)
1991
1992
1993
1994
1995
1996
1997
1998 -22.58
1999 67.11
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Morgan Stanley Capital International Emerging Markets Free
Index (MSCI EMF Index).
Average Annual Total Return
MSCI
EMF
Class A(2) Class B(3) Class C(4) Index(5)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Since Inception(6) %
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The MSCI EMF Index is an unmanaged index that measures the performance of
securities listed on exchanges in developing nations throughout the world.
(6) The Fund commenced operations on January 1, 1998.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Emerging Markets Value Fund 19
<PAGE>
International Equity Funds
Adviser
ING Pilgrim
Investments, Inc.
ING PILGRIM EMERGING COUNTRIES FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund seeks maximum long-term capital appreciation.
INVESTMENT STRATEGY
The Fund invests at least 65% of its net assets in securities of issuers located
in at least three countries with emerging securities markets. Countries with
emerging securities markets are those countries which generally are considered
to be emerging market countries by the international financial community.
The Fund may invest up to 35% of its total assets in securities of U.S. and
other developed market issuers, including investment-grade debt securities of
U.S. issuers. Under normal conditions, the Fund invests at least 75% of its
total assets in common and preferred stocks, warrants and convertible
securities.
In selecting securities located in emerging market countries, the Adviser uses a
"bottom-up" fundamental analysis to identify companies which it believes have
good earnings growth prospects and that can be bought at a price which seems
reasonable. To help in this process, the Adviser scores the emerging markets
stocks on a wide range of quantitive and qualitative measures, with particular
attention paid to long-term and short-term earnings growth prospects and
valuation measures. The Adviser seeks securities of emerging market issuers
which are relatively liquid and covered by professional securities analysts.
In selecting stocks in developed markets, the portfolio managers seek the most
attractive opportunities in such markets. For such securities, the portfolio
managers use "bottom-up" analysis to choose companies which offer good value
relative to their peers in the same industry, sector or region. They also use
"top-down" analysis to identify important themes or issues which may affect the
investment environment in certain regions or sectors and to estimate regional
market risks. In conducting their fundamental analysis, the portfolio managers
focus on various matters, including valuation of the companies, potential
catalysts to stock price appreciation, quality of management, and financial
measures, especially cash flow and cash flow return on capital.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
Adviser believes have the potential for rapid growth, which may give the Fund a
higher risk of price volatility than a Fund that emphasizes other styles, such
as a value-oriented style. The Fund may invest in small and medium-sized
companies, which may be more susceptible to greater price swings than larger
companies because they may have fewer financial resources, more limited product
and market diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Fund invests, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. Investments in emerging market countries are generally
riskier than other kinds of foreign investments, partly because emerging market
countries may be less politically and economically stable than other countries.
It may also be more difficult to buy and sell securities in emerging market
countries.
Inability to Sell Securities -- securities of emerging market companies trade in
lower volume and may be less liquid than securities of companies in larger, more
established markets. The Fund could lose money if it cannot sell a security at
the time and price that would be most beneficial to the Fund.
Securities Lending -- There is the risk that when lending portfolio securities,
the securities may not be available to the Fund on a timely basis and the Fund
may, therefore, lose the opportunity to sell the securities at a desirable
price.
20 ING Pilgrim Emerging Countries Fund
<PAGE>
ING PILGRIM EMERGING COUNTRIES FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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 6.34
1996 27.50
1997 9.44
1998 -22.19
1999 75.80
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Morgan Stanley Capital International Emerging Markets Free
Index (MSCI EMF Index).
Average Annual Total Returns
MSCI
EMF
Class A(3) Class B(4) Class C(5) Index(6)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of
Classes A and C(7) % N/A
Since inception
of Class B(7) % N/A N/A
--------------------------------------------------------------------------------
(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, Inc. has been the Fund's investment adviser since
May 24, 1999; however, prior to October 1, 2000, the Fund was advised by a
sub-adviser.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 1%, respectively, for
1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) The MSCI EMF Index is an unmanaged index that measures the performance of
securities listed on exchanges in developing nations throughout the world.
(7) Classes A and C commenced operations on November 28, 1994. Class B
commenced operations on May 31, 1995.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Emerging Countries Fund 21
<PAGE>
International Equity Funds
Adviser
ING Pilgrim
Investments, Inc.
ING PILGRIM WORLDWIDE EMERGING MARKETS FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund's investment objective is to seek long-term growth of capital primarily
through investment in equity securities and equity equivalents of emerging
market companies.
INVESTMENT STRATEGY
The Fund will invest at least 65% of its total assets according to its
investment objective. The Fund's definition of emerging markets includes, but is
not limited to, the following:
Africa -- Botswana, Egypt, Ghana, Ivory Coast, Kenya, Mauritius, Morocco,
Namibia, South Africa, Swaziland, Tunisia, Zambia and Zimbabwe;
Asia: -- Bahrain, Bangladesh, China, Hong Kong, India, Indonesia, Malaysia,
Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and
Thailand;
Europe -- Croatia, Cyprus, Czech Republic, Estonia, Finland, Greece, Hungary,
Latvia, Lithuania, Poland, Portugal, Romania, Russia, Slovakia and Slovenia;
The Middle East -- Israel, Jordan, Lebanon, Oman and Turkey;
Latin America -- Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico,
Nicaragua, Peru and Venezuela.
The Adviser considers an emerging markets company to be any company domiciled in
an emerging market country, or any company that derives 50% or more of its total
revenue from either goods or services produced or sold in countries with
emerging markets.
The Fund may invest the remaining 35% of its assets in equity securities without
regard to whether the issuer qualifies as an emerging market company,
investment-grade debt securities denominated in the currency of an emerging
market country or issued or guaranteed by an emerging market company or the
government of an emerging market country or short-term or medium-term investment
grade debt securities.
The Fund's investment approach is to focus on positive returns through long-term
capital gains. The investment strategy is based on a "top-down" approach that
compares macro trends, such as economics, politics, industry trends, and
commodity trends on a relative basis. Countries are grouped regionally and
globally and ranked based on their macro scores. Once specific countries are
identified as relative outperformers, specific companies are selected as
investments. The selection process for selecting individual companies is based
on fundamental research, industry themes, and identifying specific catalysts for
growth.
PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors
has approved the reorganization of the Fund into ING Pilgrim Emerging Countries
Fund. You could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund may invest in small and
medium-sized companies, which may be more susceptible to greater price swings
than larger companies because they may have fewer financial resources, more
limited product and market diversification and many are dependent on a few key
managers.
Market Trends -- from time to time, the stock market may not favor the
securities in which the Fund invests, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. Investments in emerging market countries are generally
riskier than other kinds of foreign investments, partly because emerging market
countries may be less politically and economically stable than other countries.
It may also be more difficult to buy and sell securities in emerging market
countries.
Inability to Sell Securities -- securities of emerging market companies trade in
lower volume and may be less liquid than securities of companies in larger, more
established markets. The Fund could lose money if it cannot sell a security at
the time and price that would be most beneficial to the Fund.
Debt securities -- the value of debt securities may fall when interest rates
rise. Debt securities with longer maturities tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter maturities.
22 ING Pilgrim Worldwide Emerging Markets Fund
<PAGE>
ING PILGRIM WORLDWIDE EMERGING MARKETS FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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 24.19
1992 3.77
1993 63.37
1994 -13.81
1995 -5.93
1996 7.38
1997 -11.40
1998 -29.06
1999 112.58
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that two broad measures of market
performance -- The Morgan Stanley Capital International Emerging Markets Free
Index (MSCI Emerging Markets Free Index) and the MSCI EAFE Index.
Average Annual Total Returns
MSCI MSCI
EMF EAFE
Class A(4) Index(5) Index(6)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 %
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund. Lexington Management Corporation engaged a sub-adviser
to manage the Fund until June 7, 2000. Prior to July 26, 2000, the Fund's
shares were sold on a no-load basis. Effective July 31, 2000, the Fund's
outstanding shares were classified as "Class A" shares.
(3) Prior to June 17, 1991, the Fund operated under a different investment
objective.
(4) Reflects deduction of sales charge of 5.75%.
(5) The MSCI EMF Index is an unmanaged index that measures the performance of
securities listed on exchanges in developing nations throughout the world.
(6) The Morgan Stanley Capital International Europe, Australia and Far East
(MSCI EAFE) Index is an unmanaged index that measures the performance of
securities listed on exchanges in markets in Europe, Australia, and the Far
East.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Worldwide Emerging Markets Fund 23
<PAGE>
International Equity Funds
Adviser
ING Pilgrim
Investments, Inc.
ING PILGRIM GLOBAL TECHNOLOGY FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund's investment objective is to seek long term growth of capital. This
objective may not be changed without the approval of shareholders, and there is
no assurance that the Fund will achieve its objective.
INVESTMENT STRATEGY
The Fund seeks to achieve its objective by investing at least 80% of its total
assets in equity securities or equity equivalents (including common and
preferred stocks, warrants and convertible securities) of technology or
information infrastructure related companies of any capitalization. The Adviser
considers technology or information infrastructure related companies to be in
the following industries within the technology or information sectors:
biotechnology, broadcasting and media content, computers, electronic components
and equipment, electronic commerce and data services, data processing,
information systems, internet, medical technology, networking, office
automation, on-line services, semiconductors, semiconductor capital equipment,
server hardware producers, software companies, telecommunications,
telecommunications equipment and services, and companies involved in the
distribution, servicing, science and development of these industries.
The Fund expects that such companies will be located within Africa, Asia,
Europe, the Middle East and Latin America. However, the Fund is not limited to
these countries and may invest in any country so long as it meets the Fund's
objective. Many of the regions in which the Fund will invest will include
emerging market countries.
The Fund's portfolio managers use a "bottom-up" approach in stock selection
focusing on those companies that they believe have rising earnings expectations
and rising valuations. The Fund seeks growth companies with long-term capital
appreciation potential. In selecting individual securities the Adviser looks for
companies that it believes display or are expected to display the following
characteristics:
* Robust growth prospects
* High profit margins or return on capital
* Attractive valuations relative to expected earnings or cash flow
* Quality management
* Unique technological and competitive advantages
The Fund generally sells a stock if the Adviser believes that its target price
has been reached, its earnings are disappointing, its revenue growth has slowed
or its underlying fundamentals have deteriorated. In addition, the Adviser will
overlay a top-down macro economic and political screening process in order to
assess country specific risks and enhance returns. The Fund may invest in
larger, more established companies or in smaller or unseasoned companies.
The Fund may invest the remaining 20% of its assets in investment-grade debt
securities of any maturity denominated in U.S. or foreign currencies.
PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors
has approved the reorganization of the Fund into ING Pilgrim Global Information
Technology Fund. You could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund may invest in small and
medium-sized companies, which may be more susceptible to greater price swings
than larger companies because they may have fewer financial resources, more
limited product and market diversification and many are dependent on a few key
managers.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. Investments in emerging market countries are generally
riskier than other kinds of foreign investments, partly because emerging market
countries may be less politically and economically stable than other countries.
It may also be more difficult to buy and sell securities in emerging market
countries.
Risks of Concentration in the Technology Sector -- because the Fund's
investments are concentrated in the technology sector, the value of the Fund may
be subject to greater volatility than a fund with a portfolio that is less
concentrated. If the securities of companies in the technology sector fall out
of favor, the Fund could underperform funds that focus on other types of
companies. In addition, investments in companies in the rapidly changing fields
of technology and science face special risks such as competitive pressures and
technological obsolescence and may be subject to greater governmental regulation
than many other industries.
Non-Diversification Risk -- the Fund is a non-diversified investment company.
There is additional risk associated with being non-diversified, since a greater
proportion of the Fund's total assets may be invested in a single company.
Debt securities -- the value of debt securities may fall when interest rates
rise. Debt securities with longer maturities tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter maturities.
24 ING Pilgrim Global Technology Fund
<PAGE>
ING PILGRIM GLOBAL TECHNOLOGY FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Pacific Stock Exchange Technology Index (PSE Technology
Index).
Average Annual Total Returns
PSE
Class Technology
A(3) Index(4)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 % 21.04
Since inception % -- --
--------------------------------------------------------------------------------
(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, 2000, Lexington Management Corporation served as the
adviser to the Fund. Lexington Management Corporation engaged a sub-adviser
to manage the Fund until June 7, 2000. Prior to August 1, 2000, the Fund's
shares were sold on a no-load basis. Effective July 31, 2000, the Fund's
outstanding shares were classified as "Class A" shares.
(3) Reflects a deduction of sales charge of 5.75%.
(4) The PSE Technology Index is a price-weighted index of the top 100 U.S.
technology stocks.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Global Technology Fund 25
<PAGE>
International Equity Funds
Adviser
ING Mutual Funds
Management Co. LLC
Sub-Adviser
ING Investment
Management Advisors B.V.
ING PILGRIM GLOBAL COMMUNICATIONS FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund seeks to provide investors with long-term capital appreciation.
INVESTMENT STRATEGY
Under normal market conditions, the Fund will operate as a diversified fund and
invest at least 65% of its total assets in a portfolio of equity securities of
communications companies. This portion of the portfolio will have investments
located in at least three different countries, including the United States. As a
general matter, the Fund expects these investments to be in common stocks of
large, mid-sized and small companies.
The Fund considers communications companies to be those that derive at least 50%
of their total revenues or earnings from designing, developing, operating,
financing, manufacturing or providing the following activities, products and
services: communications equipment and service (including equipment and services
for both data and voice transmission); electronic components and equipment;
broadcast (including television and radio, satellite, microwave and cable
television); computer equipment, mobile telecommunications and cellular radio
and paging; electronic mail; local and wide area networking and linkage of work
and data processing systems (collectivley, "communications activities").
The Sub-Adviser believes that because of rapid advances in communications,
investment in companies within this sector should offer substantial
opportunities for long-term capital appreciation. The communications area has
exhibited and continues to demonstrate rapid growth, both through increasing
demand for existing products and services and the broadening of the technology
market. Generally, the Sub-Adviser's overall stock selection for the Fund will
be based on an assessment of the company's fundamental prospects. The
Sub-Adviser anticipates, however, that a portion of the Fund's holdings will be
invested in newly issued securities being sold in the primary or secondary
market.
The Sub-Adviser combines broad industry analysis and "bottom-up" company
analysis to identify the stocks of companies it believes will become tomorrow's
communications leaders. In choosing investments for the Fund, the Sub-Adviser
first identifies themes that address industry and technological changes. Using
intensive fundamental research, the Sub-Adviser then analyzes individual
companies worldwide to find those firms most likely to benefit from the selected
investment themes.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potenial for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund may also invest in small and
medium-sized companies, which may be more susceptible to greater price swings
than larger companies because they may have fewer financial resources, more
limited product and market diversification and many may be dependent on a few
key managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Fund invests. Rather, the market could favor
value-oriented stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. Investments in emerging markets countries are generally
riskier than other kinds of foreign investments, partly because emerging market
countries may be less politically and economically stable than other countries.
It may also be more difficult to buy and sell securities in emerging market
countries.
Industry Concentration -- as a result of the Fund concentrating its assets in
securities related to a particular industry, the Fund may be subject to greater
market fluctuation than a fund which has securities representing a broader range
of investment alternatives.
Communications Technology Risk -- communications companies are generally subject
to the rate of change in technology, which is higher than other industries. In
addition, products and services of companies engaged in the communications
industry are subject to relatively high risks of rapid obsolescence caused by
scientific and technological advances. Swings in investor psychology or
significant trading by large institutional investors can result in significant
price fluctuations and stock price declines.
Governmental Regulation -- certain communications industries, such as the
telecommunications industry, may be subject to greater governmental regulation
than
26 ING Pilgrim Global Communications Fund
<PAGE>
ING PILGRIM GLOBAL COMMUNICATIONS FUND
--------------------------------------------------------------------------------
many other industries. Accordingly, such industries may be subject to changes in
governmental policies and the need for regulatory approvals may have a material
effect on the products and services offered. Telephone operating companies in
the United States, for example, are subject to both federal and state regulation
affecting permitted rates of return and the kinds of services that may be
offered.
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The Fund does not have a performance history because it has not yet commenced
operation.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Global Communications Fund 27
<PAGE>
International Equity Funds
Adviser
ING Mutual Funds
Management Co. LLC
Sub-Adviser
ING Investment
Management Advisors B.V.
ING PILGRIM GLOBAL INFORMATION TECHNOLOGY FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund seeks to provide investors with long-term capital appreciation.
INVESTMENT STRATEGY
Under normal market conditions, the Fund will operate as a diversified fund and
invest at least 65% of its total assets in a portfolio of equity securities of
information technology companies. The Fund defines information technology
companies as those companies that derive at least 50% of their total revenues or
earnings from information technology, hardware or software, or related
consulting and services industries. This portion of the portfolio will have
investments located in at least three different countries, including the United
States. 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 because of rapid advances in information
technology, investment in companies within this sector should offer substantial
opportunities for long-term capital appreciation. The information technology
area has exhibited and continues to demonstrate rapid growth, both through
increasing demand for existing products and services and the broadening of the
technology market. Generally, the Sub-Adviser's overall stock selection for the
Fund will be based on an assessment of the company's fundamental prospects. The
Sub-Adviser anticipates, however, that a portion of the Fund's holdings will be
invested in newly issued securities being sold in the primary or secondary
market.
The Sub-Adviser combines broad industry analysis and "bottom-up" company
analysis to identify the stocks of companies it believes will become tomorrow's
information technology leaders. In choosing investments for the Fund, the
Sub-Adviser first identifies themes that address industry and technological
changes. Using intensive fundamental research, the Sub-Adviser then analyzes
individual companies worldwide to find those firms most likely to benefit from
the selected investment themes.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potenial for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund may also invest in small and
medium-sized companies, which may be more susceptible to greater price swings
than larger companies because they may have fewer financial resources, more
limited product and market diversification and many may be dependent on a few
key managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Fund invests. Rather, the market could favor
value-oriented stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. Investments in emerging markets countries are generally
riskier than other kinds of foreign investments, partly because emerging market
countries may be less politically and economically stable than other countries.
It may also be more difficult to buy and sell securities in emerging market
countries.
Industry Concentration -- as a result of the Fund concentrating its assets in
securities related to a particular industry, the Fund may be subject to greater
market fluctuation than a fund which has securities representing a broader range
of investment alternatives.
Information Technology Risk -- information technology companies are generally
subject to the rate of change in technology, which is higher than other
industries. In addition, products and services of companies engaged in the
information technology industry are subject to relative high risks of rapid
obsolescence caused by scientific and technological advances. Swings in investor
psychology or significant trading by large institutional investors can result in
significant price fluctuations and stock price declines.
28 ING Pilgrim Global Information Technology Fund
<PAGE>
ING PILGRIM GLOBAL INFORMATION TECHNOLOGY FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991
1992
1993
1994
1995
1996
1997
1998
1999 140.15
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Goldman Sachs Technology Industry Composite Index.
Average Annual Total Returns
Goldman
Sachs
Tech.
Industry
Class Class Class Comp.
A(2) B(3) C(4) Index(5)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 % -- -- -- --
Since inception(6) % -- -- -- --
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
1 year and since inception returns..
(4) Reflects deduction of deferred sales charge of 1% for the 1 year return
(5) The Goldman Sachs Technology Industry Composite Index is a widely
recongnized, unmanaged index of technology stocks.
(6) Classes A, B and C commenced operations on December 15, 1998.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Global Information Technology Fund 29
<PAGE>
International Equity Funds
Adviser
ING Pilgrim
Investments, Inc.
ING PILGRIM ASIA-PACIFIC EQUITY FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund seeks long-term capital appreciation.
INVESTMENT STRATEGY
The Fund normally invests at least 65% of its total assets in equity securities
listed on stock exchanges in countries in the Asia-Pacific region or issued by
companies based in this region. Asia-Pacific countries in which the Fund invests
include, but are not limited to, China, Hong Kong, Indonesia, Korea, Malaysia,
Philippines, Singapore, Taiwan and Thailand, but do not include Japan and
Australia. The equity securities in which the Fund may invest include common
stock, convertible securities, preferred stock, warrants, American Depositary
Receipts, European Depositary Receipts and other depositary receipts.
The Adviser bases investment decisions on a disciplined approach that takes into
consideration the following factors: a macroeconomic overview of the region,
specific country analysis, setting target country weightings, evaluation of
industry sectors within each country, and selection of specific stocks. In
selecting specific securities, the Adviser emphasizes a value approach that
seeks growth at a reasonable price. This approach involves analysis of such
fundamental factors as absolute rates of change of earnings growth, earnings
growth relative to the market and industry, quality of earnings and stability of
earnings growth, quality of management and product line, interest rate
sensitivity and liquidity of the stock.
The criteria used by the Fund to determine whether an issuer is based in the
Asia-Pacific region are: the country in which the issuer was organized; the
country in which the principal securities market for that issuer is located; the
country in which the issuer derives at least 50% of its revenues or profits from
goods produced or sold, investments made, or services performed; or the country
in which at least 50% of the issuer's assets are located.
--------------------------------------------------------------------------------
RISKS
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 in which the Fund invests. Rather, the market could favor
growth-oriented stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Risks of the Asia-Pacific Region -- the Asia-Pacific region includes countries
in various stages of economic development, including emerging market countries.
In 1997 and 1998, securities markets in Asian countries suffered significant
downturns and volatility, and currencies lost value in relation to the U.S.
dollar. Currency devaluation in any one country may have a significant effect on
the entire region. Increased political or social unrest in some or all Asian
countries could cause further economic and market uncertainty.
Risks of Concentration -- because the Fund concentrates on a single region of
the world, the Fund's performance may be more volatile than that of a Fund that
invests globally. If Asia-Pacific securities fall out of favor, it may cause the
Fund to underperform funds that focus on other types of stocks.
Inability to Sell Securities -- securities of emerging market companies trade in
lower volume and may be less liquid than securities of companies in larger, more
established markets. The Fund could lose money if it cannot sell a security at
the time and price that would be most beneficial to the Fund.
30 ING Pilgrim Asia-Pacific Equity Fund
<PAGE>
ING PILGRIM ASIA-PACIFIC EQUITY FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991
1992
1993
1994
1995
1996 9.46
1997 -43.73
1998 -15.51
1999 74.41
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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 -- Morgan Stanley Capital International Far East Free ex-Japan Index
(MSCI Far East ex-Japan Index).
Average Annual Total Returns
MSCI
Far East
Free
ex-Japan
Class A(2) Class B(3) Class M(4) Index(5)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception(6) %
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to January 2, 2001, the Fund was managed by a sub-adviser.
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 1%, respectively, for
1 year and since inception returns.
(4) Reflects deduction of sales charge of 3.5% for the 1 year return.
(5) The MSCI Far East ex-Japan Index is an unmanaged index that measures the
performance of securities listed on exchanges in the Far East markets,
excluding Japan.
(6) The Fund commenced operations on September 1, 1995.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Asia-Pacific Equity Fund 31
<PAGE>
International Equity Funds
Adviser
ING Pilgrim
Investments, Inc.
ING PILGRIM SMALLCAP ASIA GROWTH FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund's investment objective is to seek long-term capital appreciation
primarily by investing in equity securities and equity equivalents of companies
in the Asia Region having market capitalizations of less than $1 billion.
INVESTMENT STRATEGY
The Fund will normally invest at least 65% of its total assets in equity
securities and equity equivalents (including common and preferred stocks,
warrants and convertible securities) of smaller companies in the Asia Region.
The Fund will primarily invest in listed securities but may also invest in
unlisted securities.
The Fund intends to invest primarily in companies which:
* have proven management;
* are undervalued and under-researched by the investment community;
* are within industry sectors with strong growth prospects; and
* which have potential investment returns that are superior to the Asian
market as a whole.
The Fund may invest 35% of its total assets in:
* companies with market capitalizations of $1 billion or more;
* companies outside the Asia Region (e.g. Australia or New Zealand); and
* Investment-grade debt securities of any maturity
* The Fund considers the following countries to be in the Asia Region:
Bangladesh, China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan,
The Philippines, Singapore, Sri Lanka, Vietnam, Taiwan and Thailand. The
Fund considers a company to be within the Asia Region if its principal
securities' trading market is located in the Asia Region. The Fund will
normally invest in at least three different countries. The Fund does not
intend to invest in Japanese securities.
During times that the Adviser believes that stock of smaller companies presents
undue risk, the Fund may adopt a defensive investment posture, and invest in
equity securities and equity equivalents of medium and large companies in the
Asia region. At a meeting held on December 8, 2000, the Adviser informed the
Fund's Board of Directors that the Fund likely will continue to be invested
primarily in such securities for the immediate future, and potentially through
the reorganization of the Fund with the ING Pilgrim Asia-Pacific Equity Fund, to
the extent warranted by market conditions. At times that the Fund is primarily
invested in securities of medium and large companies, it will not realize
capital appreciation from a primary investment in smaller companies.
PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors
has approved the reorganization of the Fund into ING Pilgrim Asia-Pacific Equity
Fund. You could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
The Fund invests in small companies, which may be more susceptible to price
swings than larger companies because they may have fewer financial resources,
more limited product and market diversification and many are dependent on a few
key managers.
Market Trends -- from time to time, the stock market may not favor the
securities in which the Fund invests.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Risks of the Asia Region -- the Asia region includes countries in various stages
of economic, development, including emerging market countries. In 1997 and 1998,
securities markets in Asian countries suffered significant downturns and
volatility, and currencies lost value in relation to the U.S. dollar. Currency
devaluation in any one country may have a significant effect on the entire
region. Increased political or social unrest in some or all Asian countries
could cause further economic and market uncertainty.
Risks of Concentration -- because the Fund concentrates on a single region of
the world, the Fund's performance may be more volatile than that of a Fund that
invests globally. If Asian securities fall out of favor, it may cause the Fund
to underperform funds that focus on other types of stocks.
Inability to Sell Securities -- securities of smaller and emerging market
companies trade in lower volume and may be less liquid than securities of
companies in larger, more established markets. The Fund could lose money if it
cannot sell a security at the time and price that would be most beneficial to
the Fund.
Debt securities -- the value of debt securities may fall when interest rates
rise. Debt securities with longer maturities tend to be more sensitive to
changes in intrest rates, usually making them more volatile than debt securities
with shorter maturities.
32 ING Pilgrim SmallCap Asia Growth Fund
<PAGE>
ING PILGRIM SMALLCAP ASIA GROWTH FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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 25.50
1997 -42.32
1998 -19.41
1999 57.29
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that two broad measures of market
performance -- The Morgan Stanley Capital International Far East Free ex Japan
Index (MSCI Far East Free ex-Japan Index) and The Morgan Stanley Capital
International Europe, Australia and Far East Index (MSCI EAFE Index).
Average Annual Total Returns
MSCI MSCI
Far East Free EAFE
Class A(4)(5) ex Japan Index(6) Index(7)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of
Class A(8) %
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund and another firm served as sub-adviser to the Fund.
Prior to July 26, 2000, the Fund's shares were sold on a no-load basis.
Effective July 31, 2000, the Fund's outstanding shares were classified as
"Class A" shares.
(3) Prior to January 2, 2001, the Fund was advised by a sub-adivser.
(4) This table shows the per-formance of the Class A shares of the Fund. Class
B shares of the Fund did not have a full year's performance during the
period ended December 31, 2000.
(5) Reflects deduction of sales charge of 5.75%.
(6) The MSCI Far East Free ex Japan Index is an unmanaged index that measures
the performance of securities listed on exchanges in the Far East markets
except Japan.
(7) The MSCI EAFE Index is an unmanaged index that measures the performance of
securities listed on exchanges in markets in Europe, Australia, and the Far
East.
(8) Class A commenced operations on July 3, 1995.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim SmallCap Asia Growth Fund 33
<PAGE>
International Equity Funds
Adviser
ING Mutual Funds
Management Co. LLC
Sub-Adviser
ING Investment
Management Adivsors B.V.
ING PILGRIM EUROPEAN EQUITY FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund seeks to provide investors with long-term capital appreciation.
INVESTMENT STRATEGY
Under normal market conditions, the Fund will operate as a diversified fund and
invest at least 65% of its total assets in a portfolio of equity securities of
European issuers. The Sub-Adviser considers European issuers to be companies
whose securities are principally traded in the European capital markets, that
derive at least 50% of their total reveues or earnings from either goods
produced or services rendered in countries located in Europe, regardless of
where the securities of such companies are principally traded, or that are
organized under the laws of and have a principal office in a European country.
As a general matter, the Fund expects these investments to be in common stocks
of large companies whose market capitalizations are generally in excess of $10
billion.
In choosing investments for the Fund, the Sub-Adviser employs a highly
disciplined, five-step investment process that seeks to identify underpriced
earnings growth in European companies. The five steps are:
* First, the Sub-Adviser ranks possible investments according to trading
volume and liquidity relative to their peers;
* Second, the Sub-Adviser performs additional screens to determine which
companies should be further researched;
* Third, the Sub-Adviser performs fundamental analysis of cyclical and
non-cyclical market sectors and companies to identify underpriced earnings
or cash flow growth.
* Fourth, the Sub-Adviser determines portfolio weightings within each sector.
* Finally, the Sub-Adviser continuously monitors the portfolio to maintain
favorable risk-reward relationships.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the The Fund may be affected by the
following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potenial for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund may also invest in small and
medium-sized companies, which may be more susceptible to greater price swings
than larger companies because they may have fewer financial resources, more
limited product and market diversification and many may be dependent on a few
key managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Fund invests. Rather, the market could favor
value-oriented stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. Investments in emerging market countries are generally
riskier than other kinds of foreign investments partly because emerging market
countries may be less politically and economically stable than other countries.
It may also be more difficult to buy and sell securities in emerging market
countries.
34 ING Pilgrim European Equity Fund
<PAGE>
ING PILGRIM EUROPEAN EQUITY FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)
1991
1992
1993
1994
1995
1996
1997
1998
1999 18.59
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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 -- FT-Europe Index.
Average Annual Total Returns(5)
FT-Europe
Class A(2) Class B(3) Class C(4) Index(5)
--------------------------------------------------------------------------------
One year ended
December 31, 2000 % -- -- -- --
Since inception(6) % -- -- -- --
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The FT-Europe Index is widely recognized, unmanaged index of European stock
markets.
(6) Classes A, B and C commenced operations on December 15, 1998.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim European Equity Fund 35
<PAGE>
International Equity Funds
Adviser
ING Pilgrim
Investments, Inc.
ING PILGRIM TROIKA DIALOG RUSSIA FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund's investment objective is to seek long-term capital appreciation
through investment primarily in equity securities of Russian companies.
INVESTMENT STRATEGY
The Fund seeks to achieve its objective by investing at least 65% of its total
assets in equity securities (including common and preferred stocks, warrants and
convertible securities) of Russian companies. The portfolio manager may invest
in companies with any market capitalization. The Fund may invest the other 35%
of its total assets in debt securities issued by Russian companies and debt
securities issued or guaranteed by the Russian government without any
restrictions based on investment quality or maturity of the debt securities. The
Fund may also invest in the equity securities of issuers outside of Russia which
the Fund believes will experience growth in revenue and profits from
participation in the development of the economies of the former Soviet Union.
When the Fund anticipates unusual market or other conditions, it may temporarily
depart from its goal and invest substantially in high-quality short-term
investments. This could help the Fund avoid losses, but may mean lost
opportunities.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Risks of Investing in Securities of Russian Companies
The following risks apply to all mutual funds that invest in securities of
Russian companies including ING Pilgrim Troika Dialog Russia Fund.
Political Risk -- Since the breakup of the Soviet Union in 1991, Russia has
experienced and continues to experience dramatic political and social change.
Russia is undergoing a rapid transition from a centrally-controlled command
system to a more market-oriented democratic model. The Fund may be affected
unfavorably by political developments, social instability, changes in government
policies, and other political and economic developments.
Market Concentration and Liquidity Risk -- The Russian securities markets are
substantially smaller, less liquid and more volatile than the securities markets
in the United States. A few issuers represent a large percentage of market
capitalization and trading volume. Due to these factors and despite the Fund's
policy on liquidity, it may be difficult for the Fund to buy or sell some
securities because of the poor liquidity.
Lack of Reliable Financial Information -- There may not be available reliable
financial information which has been prepared and audited in accordance with
U.S. or Western European generally accepted accounting principles and auditing
standards.
Unfavorable Actions -- There is the potential for unfavorable action such as
expropriation, dilution, devaluation, default or excessive taxation by the
Russian government or any of its agencies or political subdivisions with respect
to investments in Russian securities by or for the benefit of foreign entities.
The Fund's investments will include investments in Russian companies that have
characteristics and business relationships common to companies outside of
Russia, and as a result, outside economic forces may cause fluctuations in the
value of securities held by the Fund.
Settlement and Custody Risk -- Ownership of shares in Russian companies is
recorded by the companies themselves and by registrars instead of through a
central registration system. It is possible that the Fund's ownership rights
could be lost through fraud or negligence. Since the Russian banking
institutions and registrars are not guaranteed by the state, the Fund may not be
able to pursue claims on behalf of the Fund's shareholders.
Risks of Concentration -- because the Fund concentrates on a single region of
the world, the Fund's performance may be more volatile than that of a fund that
invests globally. If Russian securities fall out of favor, it may cause the Fund
to underperform funds that focus on other types of stocks.
Lower Quality Debt Securities -- Junk bonds are highly speculative. Changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity of issuers of securities to make principal and interest payments than
with higher-grade debt securities.
Non-Diversification Risk -- The Fund is a non-diversified investment company.
There is additional risk associated with being non-diversified, since a greater
proportion of the Fund's total assets may be invested in a single company.
Debt Securities -- The value of debt securities may fall when interest rates
rise. Debt securities with longer maturities tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter maturities.
36 ING Pilgrim Troika Dialog Russia Fund
<PAGE>
ING PILGRIM TROIKA DIALOG RUSSIA FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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 67.50
1998 -82.99
1999 159.76
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that two broad measures of market
performance -- the Moscow Times Index and the Russian Trading System Index.
Average Annual Total Returns
Russian
Moscow Trading
Times System
Class A(3)(4) Index(5) Index(6)
-------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Since inception of Class A(7) %
-------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund and the Fund's shares were sold on a no-load basis.
Effective July 31, 2000, the Fund's outstanding shares were classified as
"Class A" shares. Prior to January 2, 2001, the Fund was advised by a
sub-adviser.
(3) This table shows the performance of the Class A shares of the Fund.
(4) Reflects deduction of sales charge of 5.75%.
(5) The Moscow Times Index is an unmanaged index that measures the performance
of 50 Russian stocks considered to represent the most liquid and most
highly capitalized Russian stocks.
(6) The Russian Trading System Index is a capitalization-weighted index that is
calculated in U.S. dollars. The index is comprised of 100 stocks traded on
the Russian Trading System.
(7) Class A commenced operations on July 3, 1996.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Troika Dialog Russia Fund 37
<PAGE>
Precious Metals Funds
Adviser
ING Pilgrim
Investments, Inc.
ING PILGRIM GOLD FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund's investment objective is to attain capital appreciation and hedge
against the loss of buying power of the U.S. Dollar as may be obtained through
investment in gold and securities of companies engaged in mining or processing
gold throughout the world.
INVESTMENT STRATEGY
The Fund normally invests at least 65% of the value of its total assets in gold
bullion and the equity securities of companies engaged in the exploration,
mining, processing, fabrication or distribution of gold ("gold-related
companies"). The Fund may invest the remaining 35% of its total assets in other
precious metal, including silver, platinum, and palladium, and in the equity
securities of companies engaged in the exploration, mining, processing,
fabrication or distribution of other precious metals or materials. From time to
time, the Fund invests to in silver bullion or the common stock of companies
engaged in the exploration, mining, processing, fabrication or distribution of
silver ("silver-related companies"). The Fund may also invest in other types of
securities, including convertible securities, preferred stocks, bonds, notes and
warrants, of gold-related companies, silver-related companies, or companies
related to other precious metals. The Fund intends to invest less than half of
the value of its assets directly in bullion or other direct forms of gold,
silver, and other precious metals (as opposed to securities).
The Fund's performance and ability to meet its objective will be largely
dependent on the market value of gold, and, to a lesser degree, silver and other
precious metals. A substantial portion of the Fund's investment will be in the
securities of foreign issuers.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund's investments may be
affected by the following additional risks:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
Precious Metals Risk -- the Fund's focus on precious metals and precious metal
stocks may expose the investor to additional risks. Precious metal prices can
swing sharply in response to cyclical economic conditions, political events or
the monetary policies of various countries. The supply and demand for gold may
vary widely and may be affected by actions of governments or their agencies or
national banks, all of which may affect the price of a precious metal or a
related company. Under current U.S. tax law, the Fund may not receive more than
10% of its yearly income from selling precious metals or any other physical
commodity. That law may require the Fund, for example, to hold precious metals
when it would rather sell, or to sell other securities when it would rather hold
them -- both may cause investment losses or lost opportunities for profit.
Direct investments in precious metals such a bullion have the following
characteristics: they earn no income; transaction and storage costs may be
higher than for securities; and the Fund will realize gain only with an increase
in the market price.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging, market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Non-Diversification Risk -- The Fund is a non-diversified investment company.
There is additional risk associated with being non-diversified, since a greater
proportion of the Fund's total assets may be invested in a single company.
38 ING Pilgrim Gold Fund
<PAGE>
ING PILGRIM GOLD FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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 -6.14
1992 -20.51
1993 86.96
1994 -7.28
1995 -1.89
1996 7.84
1997 -42.98
1998 -6.39
1999 8.58
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that two broad measures of market
performance -- Standard & Poor's 500 Stock Price Index (S&P 500 Index) and Gold
Bullion.
Average Annual Total Returns
S&P 500 Gold
Class A(3) Index(4) Bullion(5)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 %
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund and the Fund's shares were sold on a no-load basis.
Effective July 31, 2000, the Fund's outstanding shares were classified as
"Class A" shares.
(3) Reflects deduction of sales charge of 5.75%.
(4) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies.
(5) Gold Bullion is a commodity traded on the New York Mercantile Exchange.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Gold Fund 39
<PAGE>
Precious Metals Funds
Adviser
ING Pilgrim
Investments, Inc.
ING PILGRIM SILVER FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund's investment objective is to maximize total return on its assets from
long-term growth of capital and income principally through investment in a
portfolio of securities which are engaged in the exploration, mining,
processing, fabrication or distribution of silver ("silver-related companies")
and in silver bullion.
INVESTMENT STRATEGY
The Fund will seek to achieve its objective through investment in common stocks
of established silver-related companies and in silver bullion which have the
potential for long-term growth of capital or income, or both. The common stocks
of silver-related companies in which the Fund intends to invest may or may not
pay dividends. The Fund may also invest in other types of securities of
silver-related companies including convertible securities, preferred stocks,
bonds, notes and warrants. The Fund invests primarily in companies with a large
market capitalization, but may also invest in mid- and small-size companies.
When the Adviser believes that the return on debt securities will equal or
exceed the return on common stocks, the Fund may, in pursuing its objective of
maximizing growth and income, substantially increase its holding in
investment-grade debt securities of any maturity.
The securities in which the Fund invests include issues of established
silver-related companies domiciled in the United States, Canada and Mexico as
well as other silver producing countries throughout the world. At least 80% of
the Fund's assets will be invested in established silver-related companies which
have been in business more than three years. Approximately 80% of silver is
provided as a by-product or co-product of other mining operations, such as gold
mining. The Fund has the ability to significantly increase its exposure to
silver by increasing its holding of silver bullion.
PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors
has approved the reorganization of the Fund into ING Pilgrim Gold Fund. You
could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund's investments may be
affected by the following additional risks:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
Precious Metals Risk -- the Fund's focus on precious metals and precious metal
stocks may expose the investor to additional risks. The market for silver is
relatively limited, the sources of silver are concentrated in countries that
have the potential for instability and the market for silver is widely
unregulated. As a result, the price of silver, and therefore the Fund, may
fluctuate significantly. Precious metal investments have the following
characteristics: they earn no income; transaction and storage costs may be
higher; and the Fund will realize gain only with an increase in the market
price.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging, market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries: It may
also be more difficult to buy and sell securities in emerging market countries.
Debt securities -- the value of debt securities may fall when interest rates
rise. Debt securities with longer maturities tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter maturities.
Non-Diversification Risk -- The Fund is a non-diversified investment company.
There is additional risk associated with being non-diversified, since a greater
proportion of the Fund's total assets may be invested in a single company.
40 ING Pilgrim Silver Fund
<PAGE>
ING PILGRIM SILVER FUND
--------------------------------------------------------------------------------
HOW THE FUND HAS PERFORMED
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 -19.01
1993 76.52
1994 -8.37
1995 12.37
1996 2.38
1997 -8.05
1998 -29.64
1999 8.70
2000
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that two broad measures of market
performance -- Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index)
and Silver Bullion.
Average Annual Total Returns
S&P 500 Silver
Class A(3) Index(4) Bullion(5)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of Class A(6) %
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund and the Fund's shares were sold on a no-load basis.
Effective July 31, 2000, the Fund's outstanding shares were classified as
"Class A" shares.
(3) Reflects deduction of sales charge of 5.75%.
(4) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies.
(5) Silver Bullion is a commodity traded on the New York Mercantile Exchange.
(6) Class A commenced operations on January 2, 1992.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Silver Fund 41
<PAGE>
International Income Fund
Adviser
ING Pilgrim
Investments, Inc.
ING PILGRIM GLOBAL INCOME FUND
--------------------------------------------------------------------------------
OBJECTIVE
The Fund's investment objective is to seek high current income. Capital
appreciation is a secondary objective. The Fund invests in a combination of
foreign and domestic high-yield, lower rated or unrated debt securities.
INVESTMENT STRATEGY
The Fund invests in a variety of foreign and domestic high yield, lower rated or
unrated debt securities.
The Fund, under normal conditions, invests substantially all of its assets in
lower rated or unrated debt securities of domestic companies, companies in
developed foreign countries, and companies in emerging markets. The credit
quality of the foreign debt securities which the Fund intends to buy is
generally equal to U.S. corporate debt securities known as "junk bonds". The
debt securities in which the Fund invests consist of bonds, notes, debentures
and other similar instruments. The Fund may invest in debt securities issued by
foreign governments, their agencies and instrumentalities, central banks,
commercial banks and other corporate entities. The Fund may invest up to 100% of
its total assets in domestic and foreign debt securities that are rated below
investment grade or are of comparable quality. The Fund may also invest in
securities that are in default as to payment of principal and/or interest, and
bank loan participations and assignments.
The Fund's investment strategy stresses diversification to help reduce the
Fund's price volatility. Global fixed income securities are divided into four
categories. The categories reflect whether the securities are U.S. dollar
denominated or not and whether borrowers are in developed markets or emerging
markets. The Fund then seeks to select the best values in each of these four
segments. The balance the Fund maintains between these sectors attempts to limit
the price volatility.
The Fund may invest in debt securities of any maturity, although the portfolio
manager expects to invest in long-term debt instruments.
PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Trustees
has approved the reorganization of the Fund into ING Pilgrim Strategic Income
Fund. You could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
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 other income funds because it invests 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.
Changes in Interest Rates -- the value of the Fund's investments 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 term
maturities. Debt 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.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality 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. A
security in the lowest rating categories, that is unrated, or whose credit
rating has been lowered may be particularly difficult to sell. Valuing less
liquid securities involves greater exercise of judgment and may be more
subjective than valuing securities using market quotes.
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 information,
differences in the way securities markets operate, less secure foreign banks or
securities depositories than those in the U.S., and foreign controls on
investment. Investments in emerging markets countries are generally riskier than
other kinds of foreign investments, partly because emerging market countries may
be less politically and economically stable than other countries. It may also be
more difficult to buy and sell securities in emerging market countries.
42 ING Pilgrim Global Income Fund
<PAGE>
ING PILGRIM GLOBAL INCOME FUND
--------------------------------------------------------------------------------
Non-Diversification Risk -- The Fund is a non-diversified investment company.
There is additional risk associated with being non-diversified, since a greater
proportion of the Fund's total assets may be invested in a single company.
HOW THE FUND HAS PERFORMED
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)
1990 6.62
1991 10.03
1992 6.51
1993 10.90
1994 -6.52
1995 20.10
1996 13.33
1997 5.00
1998 8.21
1999 -.31
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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 Lehman Brothers Global Treasury Index.
Average Annual Total Returns
Lehman Brothers
Global Treasury
Class A(4)(5) Index(6)
--------------------------------------------------------------------------------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 %
--------------------------------------------------------------------------------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund and the Fund's shares were sold on a no-load basis.
Effective July 31, 2000, the Fund's outstanding shares were classified as
"Class A" shares.
(3) Prior to December 31, 1994, the Fund operated under a different investment
objective.
(4) This table shows the performance of the Class A shares of the Fund. Class B
and Class C shares of the Fund did not have a full year's performance
during the period ended December 31, 2000.
(5) Reflects deduction of sales charge of 4.75%.
(6) The Lehman Brothers Global Treasury Index is an unmanaged index that is
comprised of 19 countries with an average maturity of 7.46%. The index is
overweighted in the U.S. and Japan, 27% and 25%, respectively. The average
coupon is 5.37%. The index returns are calculated in three ways: U.S.
Dollar, hedged U.S. Dollar, and local returns (local currencies). The
modified adjusted duration of the index is 5.5 years.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Global Income Fund 43
<PAGE>
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 ING Pilgrim Funds.
Fees You Pay Directly
<TABLE>
<CAPTION>
Class A Class B(1) Class C(1) Class M(1)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum sales charge on your investment
(as a % of offering price) %
International Equity Funds and Precious Metals
Funds 5.75(2) none none 3.50(2)
International Income Fund 4.75(2) none none 3.25(2)
Maximum deferred sales charge (as a % of
purchase or sales price, whichever is less)
All Funds none(3) 5.00(4) 1.00(5) none
Redemption fee (as a % of amount redeemed,
if applicable)
Global Technology Fund and Troika Dialog
Russia Fund 2.00(6) N/A N/A N/A
</TABLE>
(1) Not all Funds offer Classes B, C and M. Please page 48.
(2) Reduced for purchases of $50,000 and over. Please see page 49.
(3) A contingent deferred sales charge of no more than 1% may be assessed on
redemptions of Class A shares that were purchased without an initial sales
charge as part of an investment of $1 million or more. Please see page 49.
(4) Imposed upon redemption within 6 years from purchase. The fee has scheduled
reductions after the first year. Please see page 49.
(5) Imposed upon redemption within 1 year from purchase.
(6) The 2.0% redemption fee applies only to shares held less than 90 days for
Global Technology Fund and less than 365 days for Troika Dialog Russia
Fund.
Operating Expenses Paid Each Year by the Funds(1)
(as a % of average net assets)
<TABLE>
<CAPTION>
Class A
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(2) Expenses
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Worldwide Growth % 1.00 0.35 -- -- -- --
Global Corporate Leaders % 1.00 0.25 -- -- -- --
International Value % 1.00 0.30 -- -- -- --
International % 1.00 0.25 -- -- -- --
International Core Growth % 1.00 0.35 -- -- -- --
International SmallCap Growth % 1.00 0.35 -- -- -- --
Emerging Markets Value % 1.00 0.30 -- -- -- --
Emerging Countries % 1.25 0.35 -- -- -- --
Worldwide Emerging Markets % 1.00 0.25 -- -- -- --
Global Technology % 1.25 0.25 -- -- -- --
Global Communications % 1.00 0.35 -- -- -- --
Global Information Technology % 1.25 0.35 -- -- -- --
Asia-Pacific Equity % 1.25 0.25 -- -- -- --
SmallCap Asia Growth % 1.25 0.25 -- -- -- --
European Equity % 1.15 0.35 -- -- -- --
Troika Dialog Russia % 1.25 0.25 -- -- -- --
Gold % 0.95 0.25 -- -- -- --
Silver % 1.00 0.25 -- -- -- --
Global Income % 1.00 0.25 -- -- -- --
</TABLE>
44 What You Pay to Invest
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Expenses Paid Each Year by the Funds(1)
(as a % of average net assets)
Class B(3)
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(2) Expenses
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Worldwide Growth % 1.00 1.00 -- -- -- --
International Value % 1.00 1.00 -- -- -- --
International % 1.00 1.00 -- -- -- --
International Core Growth % 1.00 1.00 -- -- -- --
International SmallCap Growth % 1.00 1.00 -- -- -- --
Emerging Markets Value % 1.00 1.00 -- -- -- --
Emerging Countries % 1.25 1.00 -- -- -- --
Global Communications % 1.00 1.00 -- -- -- --
Global Information Technology % 1.25 1.00 -- -- -- --
Asia-Pacific Equity % 1.25 1.00 -- -- -- --
SmallCap Asia Growth % 1.25 1.00 -- -- -- --
European Equity % 1.15 1.00 -- -- -- --
Global Income % 1.00 1.00 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class C(4)
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(2) Expenses
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Worldwide Growth % 1.00 1.00 0.32 -- -- --
International Value % 1.00 1.00 0.41 -- -- --
International % 1.00 1.00 0.70 -- -- --
International Core Growth % 1.00 1.00 0.81 -- -- --
International SmallCap Growth % 1.00 1.00 0.32 -- -- --
Emerging Markets Value % 1.00 1.00 0.91 -- -- --
Emerging Countries % 1.25 1.00 0.74 -- -- --
Global Communications % 1.00 1.00 -- -- -- --
Global Information Technology % 1.25 1.00 -- -- -- --
European Equity % 1.15 1.00 -- -- -- --
Global Income % 1.00 1.00 0.51 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Class M
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(2) Expenses
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific Equity % 1.25 0.75 -- -- -- --
</TABLE>
--------------------------------------------------------------------------------
(1) These tables show the estimated operating expenses for each Fund by class
as a ratio of expenses to average daily net assets. These estimates are
based on each Fund's actual operating expenses for its most recent complete
fiscal year and fee waivers to which the Adviser has agreed for each Fund
except Global Corporate Leaders, Global Technology, International,
Worldwide Emerging Markets, SmallCap Asia Growth, Troika Dialog Russia,
Gold, Silver and Global Income Funds. For those Funds, estimated operating
expenses are based on estimated contractual operating expenses commencing
with ING Pilgrim Investments' management of these Funds.
(2) ING Pilgrim Investments has entered into written expense limitation
agreements with each Fund except International Value and Emerging Markets
Value, 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 "Fee Waiver by Adviser".
For each Fund (other than Global Communications, Global Information
Technology and European Equity Funds) the expense limit will continue
through at least October 31, 2001. For Global Communications, Global
Information Technology and European Equity Funds the expense limit will
continue through at least . Nicholas-Applegate Capital Management bears 50%
of the cost of maintaining the expense limit for the International SmallCap
Growth Fund.
(3) Because Class B shares are new for International, SmallCap Asia Growth and
Global Income Funds, their expenses are estimated based on Class A
expenses.
(4) Because Class C shares are new for International Fund and Global Income
Fund, expenses are estimated based on Class A expenses.
If you have any questions, please call 1-800-992-0180.
What You Pay to Invest 45
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
Examples
The examples that follow are intended to help you compare the cost of investing
in the ING 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.
<TABLE>
<CAPTION>
Class A
Fund 1 year 3 years 5 years 10 years
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Worldwide Growth $ -- -- -- --
Global Corporate Leaders $ -- -- -- --
International Value $ -- -- -- --
International $ -- -- -- --
International Core Growth $ -- -- -- --
International SmallCap Growth $ -- -- -- --
Emerging Markets Value $ -- -- -- --
Emerging Countries $ -- -- -- --
Worldwide Emerging Markets $ -- -- -- --
Global Technology(1) $ -- -- -- --
Global Communications $ -- -- -- --
Global Information Technology $ -- -- -- --
Asia-Pacific Equity $ -- -- -- --
SmallCap Asia Growth $ -- -- -- --
European Equity $ -- -- -- --
Troika Dialog Russia (1) $ -- -- -- --
Gold $ -- -- -- --
Silver $ -- -- -- --
Global Income $ -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
If you sell your shares If you don't sell your shares
Class B ----------------------------------------- ---------------------------------------
Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Worldwide Growth $ -- -- -- -- -- -- -- --
International Value $ -- -- -- -- -- -- -- --
International $ -- -- -- -- -- -- -- --
International Core Growth $ -- -- -- -- -- -- -- --
International SmallCap Growth $ -- -- -- -- -- -- -- --
Emerging Markets Value $ -- -- -- -- -- -- -- --
Emerging Countries $ -- -- -- -- -- -- -- --
Global Communications $ -- -- -- -- -- -- -- --
Global Information Technology $ -- -- -- -- -- -- -- --
Asia-Pacific Equity $ -- -- -- -- -- -- -- --
SmallCap Asia Growth $ -- -- -- -- -- -- -- --
European Equity $ -- -- -- -- -- -- -- --
Global Income $ -- -- -- -- -- -- -- --
</TABLE>
46 What You Pay to Invest
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
If you sell your shares If you don't sell your shares
Class C ---------------------------------------- -------------------------------------
Fund 1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Worldwide Growth $ -- -- -- -- -- -- -- --
International Value $ -- -- -- -- -- -- -- --
International $ -- -- -- -- -- -- -- --
International Core Growth $ -- -- -- -- -- -- -- --
International SmallCap Growth $ -- -- -- -- -- -- -- --
Emerging Markets Value $ -- -- -- -- -- -- -- --
Emerging Countries $ -- -- -- -- -- -- -- --
Global Communications $ -- -- -- -- -- -- -- --
Global Information Technology $ -- -- -- -- -- -- -- --
European Equity $ -- -- -- -- -- -- -- --
Global Income $ -- -- -- -- -- -- -- --
</TABLE>
Class M
Fund 1 year 3 years 5 years 10 years
--------------------------------------------------------------------------------
Asia-Pacific Equity $ -- -- -- --
--------------------------------------------------------------------------------
(1) The cost of investing in the Global Technology Fund and the Troika Dialog
Russia Fund for one year is ____, and ____, respectively, if shares were
held for less than 90 and 365 days, respectively.
If you have any questions, please call 1-800-992-0180.
What You Pay to Invest 47
<PAGE>
SHAREHOLDER GUIDE CHOOSING A SHARE CLASS
--------------------------------------------------------------------------------
ING PILGRIM PURCHASE OPTIONS TM
Depending upon the Fund, you may select from up to four separate classes of
shares: Class A, Class B, Class C and Class M.
Class A
* Front-end sales charge, as described on the next page.
* Distribution and service (12b-1) fees of 0.25% to 0.30%.
Class B
* No front-end sales charge; all your money goes to work for you right away.
* Distribution and service (12b-1) fees of 1%.
* A contingent deferred sales charge, as described on the next page.
* Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses. Class B shares acquired initially through Funds
that were part of the Nicholas-Applegate Mutual Funds at the time of
purchase will convert after seven years from the date of original purchase.
* Not offered by Global Corporate Leaders Fund, Worldwide Emerging Markets
Fund, Troika Dialog Russia Fund, Gold Fund and Silver Fund.
Class C
* No front-end sales charge; all your money goes to work for you right away.
* Distribution and service (12b-1) fees of 1%.
* A 1% contingent deferred sales charge on shares sold within one year of
purchase.
* No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of your investment.
* Not offered by Asia-Pacific Equity Fund, Global Corporate Leaders Fund,
Worldwide Emerging Markets Fund, SmallCap Asia Growth Fund, Troika Dialog
Russia Fund, Gold Fund and Silver Fund.
Class M
* Lower front-end sales charge than Class A, as described on the next page.
* Distribution and service (12b-1) fees of 0.75%.
* No automatic conversion to Class A shares, so annual expenses continue at
the Class M level throughout the life of your investment.
* Offered only by Asia-Pacific Equity Fund.
When choosing between classes, you should carefully consider the ongoing annual
expenses along with the initial sales charge or the contingent deferred sales
charge. The relative impact of the initial sales charges and ongoing annual
expenses will depend on the length of time a share is held. Higher distribution
fees mean a higher expense ratio, so Class B and Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A or Class M shares. Orders for Class B shares and Class M shares in excess of
$250,000 and $1,000,000, respectively, will be accepted as orders for Class A
shares or declined. You should discuss which Class of shares is right for you
with your investment professional.
Distribution and Shareholder Service Fees
To pay for the cost of promoting the Funds and servicing your shareholder
account, each class of each Fund has adopted a Rule 12b-1 plan which requires
fees to be paid out of the assets of each class. Over time the fees will
increase your cost of investing and may exceed the cost of paying other types of
sales charges.
48 Shareholder Guide
<PAGE>
CHOOSING A SHARE CLASS SHAREHOLDER GUIDE
--------------------------------------------------------------------------------
SALES CHARGE CALCULATION
Class A(1)
Class A shares of the Funds are sold subject to the following sales charge:
International
Equity Funds, International
and Precious Metals Funds Income Fund
-------------------------- -------------------------
As a % As a %
of the As a % of of the As a % of
offering net offering net
Your Investment price asset value price asset value
Less than $50,000 5.75 6.10 4.75 4.99
$50,000 - $99,999 4.50 4.71 4.50 4.71
$100,000 - $249,999 3.50 3.63 3.50 3.63
$250,000 - $499,999 2.50 2.56 2.50 2.56
$500,000 - $1,000,000 2.00 2.04 2.00 2.04
$1,000,000 and over See below See below
(1) Shareholders that purchased funds that were a part of the Lexington family
of funds at the time of purchase are not subject to sales charges for the
life of their account.
Investments of $1 Million or More. There is no front-end sales charge if you
purchase Class A shares in an amount of $1 million or more. However, the shares
will be subject to a contingent deferred sales charge if they are redeemed
within one or two years of purchase, depending on the amount of the purchase, as
follows:
Period during which
Your investment CDSC CDSC applies
$1,000,000 to $2,499,999 1.00% 2 years
$2,500,000 to $4,999,999 0.50% 1 year
$5,000,000 and over 0.25% 1 year
However, Class A shares that were purchased in an amount of $1 million or more
through Funds that were part of the Nicholas-Applegate Mutual Funds at the time
of purchase will be subject to a contingent deferred sales charge of 1% within
one year from the date of purchase.
Class A shares that were purchased in an amount of $1 million or more through
funds that were part of the Northstar family of funds and the ING family of
funds at the time of purchase may be subject to a different contingent deferred
sales charge period of 18 months and 12 months respectively, from the date of
purchase. See the SAI for further information.
Class B and Class C
Class B and Class C shares are offered at their net asset value per share
without any initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) on shares that you sell within a certain period of
time after you bought them. The amount of the CDSC is based on the lesser of the
net asset value of the shares at the time of purchase or redemption. There is no
CDSC on shares acquired through the reinvestment of dividends and capital gains
distributions. The CDSCs are as follows:
Class B Deferred Sales Charge(2)
CDSC on shares
Years after purchase being sold
1st year 5%
2nd year 4%
3rd year 3%
4th year 3%
5th year 2%
6th year 1%
After 6th year none
(2) Class B shares that were purchased through funds that were part of the
Northstar family of funds at the time of purchase are subject to a
different contingent deferred sales charge. Please see the SAI for further
information.
Class C Deferred Sales Charge
CDSC on shares
Years after purchase being sold
1st year 1%
After 1st year none
To keep your CDSC as low as possible, each time you place a request to redeem
shares the Funds will first redeem shares in your account that are not subject
to a CDSC, and then will sell shares that have the lowest CDSC.
Class M
Class M shares are sold subject to the following sales charge.
Asia-Pacific
Equity Fund
-------------------------------
As a % 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
If you have any questions, please call 1-800-992-0180.
Shareholder Guide 49
<PAGE>
SHAREHOLDER GUIDE CHOOSING A SHARE CLASS
--------------------------------------------------------------------------------
Sales Charge Reductions and Waivers
Reduced Sales Charges. You may reduce the initial sales charge on a purchase of
Class A or Class M shares of the Funds by combining multiple purchases to take
advantage of the breakpoints in the sales charge schedules. You may do this by:
* Letter of Intent -- lets you purchase shares over a 13 month period and pay
the same sales charge as if the shares had all been purchased at once.
* Rights of Accumulation -- lets you add the value of shares of any open-end
Pilgrim Fund (excluding the Money Market Fund) 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 Statement of Additional Information for
details, or contact your financial representative or the Shareholder Servicing
Agent for more information.
CDSC Waivers. If you notify the Transfer Agent at the time of redemption, the
CDSC for each Class will be waived in the following cases:
* redemptions following the death or permanent disability of a shareholder if
made within one year of death or the initial determination of permanent
disability. The waiver is available only for shares held at the time of
death or initial determination of permanent disability.
* for Class B Shares, redemptions pursuant to a Systematic Withdrawal Plan,
up to a maximum of 12% per year of a shareholder's account value based on
the value of the account at the time the plan is established and annually
thereafter, provided all dividends and distributions are reinvested and the
total redemptions do not exceed 12% annually.
* mandatory distributions from a tax-deferred retirement plan or an IRA.
However, if you purchased shares that were part of the Nicholas-Applegate
Mutual Funds, you may be eligible for a CDSC waiver prior to the mandatory
distribution age.
* If you think you may be eligible for a CDSC waiver, contact your financial
representative or the Shareholder Servicing Agent.
Reinstatement Privilege. If you sell Class B and Class C shares of a Pilgrim
Fund, you may reinvest some or all of the proceeds in the same share class
within 90 days without a sales charge. Reinstated Class B and Class C shares
will retain their original cost and purchase date for purposes of the CDSC. This
privilege can be used only once per calendar year. If you want to use the
Reinstatement Privilege, contact your financial representative or the
Shareholder Servicing Agent. Consult the SAI for more information.
Sales Charge Waivers. Class A or Class M shares may be purchased without a sales
charge by certain individuals and institutions. For additional information,
contact the Shareholder Servicing Agent, or see the Statement of Additional
Information.
50 Shareholder Guide
<PAGE>
HOW TO PURCHASE SHARES SHAREHOLDER GUIDE
--------------------------------------------------------------------------------
The minimum initial investment amounts for the Pilgrim Funds are as follows:
* Non-retirement accounts: $1,000
* Retirement accounts: $250
* Pre-Authorized Investment Plan: $100 to open; you must invest at least $100
a month.
The minimum additional investment is $100.
Make your investment using the table on the right.
The Funds and the Distributor reserve the right to reject any purchase order.
Please note that cash, travelers checks, third party checks, money orders and
checks drawn on non-US banks (even if payment may be effected through a US bank)
will not be accepted. The Pilgrim Funds reserve the right to waive minimum
investment amounts. The Funds reserve the right to liquidate sufficient shares
to recover annual transfer agent fees or to close your account and redeem your
shares should you fail to maintain your account value at a minimum of $1,000.00
($250.00 for IRAs).
Retirement Plans
The Funds have available prototype qualified retirement plans for both
corporations and for self-employed individuals. They also have available
prototype IRA, Roth IRA and Simple IRA plans (for both individuals and
employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans
and Tax Sheltered Retirement Plans for employees of public educational
institutions and certain non-profit, tax-exempt organizations. State Street Bank
and Trust Company (SSB) acts as the custodian under these plans. For further
information, contact the Shareholder Servicing Agent at (800) 992-0180. SSB
currently receives a $12 custodial fee annually for the maintenance of such
accounts.
Initial Additional
Method Investment Investment
-----------------------------------------------------------------------
By Contacting An investment
Your professional with an
Investment authorized firm
Professional can help you establish
and maintain your
account.
By Mail Visit or consult an Visit or consult an
investment investment
professional. Make professional. Fill out
your check payable to the Account Additions
the Pilgrim Funds and form included on the
mail it, along with a bottom of your account
completed Application. statement along with
Please indicate your your check payable to
investment professional the Fund and mail
on the New Account them to the address on
Application the account statement.
Remember to write
your account number
on the check.
By Wire Call the ING Pilgrim Wire the funds in the
Operations Department same manner described
at (800) 336-3436 to under "Initial
obtain an account Investment."
number and indicate
your investment
professional on the
account.
Instruct your bank to
wire funds to the
Fund in the care of:
State Street Bank and
Trust Company ABA
#101003621 Kansas
City, MO credit to:
-------------- (the
Fund) A/C #751-8315;
for further credit
to: -----------------
Shareholder A/C
#----------------
(A/C # you received
over the telephone)
Shareholder Name:
---------------------
(Your Name Here)
After wiring funds
you must complete the
Account Application
and send it to: ING
Pilgrim Funds P.O.
Box 219368 Kansas
City, MO 64121-6368
If you have any questions, please call 1-800-992-0180.
Shareholder Guide 51
<PAGE>
SHAREHOLDER GUIDE HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
You may redeem shares using the table on the right.
Under unusual circumstances, a Fund may suspend the right of redemption as
allowed by federal securities laws.
Systematic Withdrawal Plan
You may elect to make periodic withdrawals from your account on a regular basis.
* Your account must have a current value of at least $10,000.
* Minimum withdrawal amount is $100.
* You may choose from monthly, quarterly, semi-annual or annual payments.
For additional information, contact the Shareholder Servicing Agent, see the
Account Application or the Statement of Additional Information.
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. When you place
a request to redeem shares for which the purchase money has not yet been
collected, the request will be executed at the next determined net asset value,
but the Fund will not release the proceeds until your purchase payment clears.
This may take up to 15 days or more. To reduce such delay, purchases should be
made by bank wire or federal funds.
Each Fund normally intends to pay in cash for all shares redeemed, but under
abnormal conditions that make payment in cash unwise, a Fund may make payment
wholly or partly in securities at their then current market value equal to the
redemption price. In such case, a Fund could elect to make payment in securities
for redemptions in excess of $250,000 or 1% of its net assets during any 90-day
period for any one shareholder. An investor may incur brokerage costs in
converting such securities to cash.
Redemption Fee
A 2% redemption fee will be charged on the redemption of shares of the Pilgrim
Troika Dialog Russia Fund held less than 365 days and shares of the Pilgrim
Global Technology Fund held less than 90 days. The redemption fee will not apply
to shares representing the reinvestment of dividends and capital gains
distributions. The redemption fee will be applied on a share by share basis
using the "first shares in, first shares out" (FIFO) method. Therefore, the
oldest shares are sold first.
Method Procedures
By Contacting Your You may redeem by contacting your
Investment Professional investment professional. Investment
professionals may charge for their services in
connection with your redemption request, but
neither the Fund nor the Distributor imposes
any such charge.
By Mail Send a written request specifying the Fund
name and share class, your account number,
the name(s) in which the account is
registered, and the dollar value or number of
shares you wish to redeem to:
ING Pilgrim Funds
P.O. Box 219368
Kansas City, MO 64121-6368
If certificated shares have been issued, the
certificate must accompany the written
request. Corporate investors and other
associations must have an appropriate
certification on file authorizing redemptions.
A suggested form of such certification is
provided on the Account Application. A
signature guarantee may be required.
By Telephone -- You may redeem shares by telephone on all
Expedited Redemption 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.
52 Shareholder Guide
<PAGE>
TRANSACTION POLICIES SHAREHOLDER GUIDE
--------------------------------------------------------------------------------
Net Asset Value
The net asset value (NAV) per share for each Fund and class is determined each
business day as of the close of regular trading on the New York Stock Exchange
(usually at 4:00 p.m. Eastern Time). The NAV per share of each class of each
Fund is calculated by taking the value of the Fund's assets attributable to that
class, subtracting the Fund's liabilities attributable to that class, and
dividing by the number of shares of that class that are outstanding. Because
foreign securities may trade on days when the Funds do not price shares, the net
asset value 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 ING
Pilgrim Fund, except for Lexington Money Market Trust and ING Pilgrim Corporate
Leaders Trust Fund, without paying any additional sales charge, except that
Class A shares of the Pilgrim Money Market Fund for which no sales charge was
paid must pay the applicable sales load on an exchange into Class A shares of
another Fund. Shares subject to a CDSC will continue to age from the date that
the original shares were purchased. If you exchange shares of a Fund that at the
time you acquired the shares was a Nicholas-Applegate Mutual Fund, the shares
you receive on the exchange will be subject to the current CDSC structure and
conversion rights of the Fund being acquired, although the shares will continue
to age for CDSC and conversion purposes from the date the original shares were
acquired.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the Fund into which they are being exchanged.
Exchanges of shares are sales and may result in a gain or loss for federal and
state income tax purposes. There is no specific limit on exchange frequency;
however, the Funds are intended for long-term investment and not as a short-term
trading vehicle. The Adviser may prohibit excessive exchanges (more than four
per year). The adviser also may, on 60 days' prior notice, restrict the
frequency of, otherwise modify, or impose charges of up to $5.00 upon exchanges.
You will automatically have the ability to request an exchange by calling the
Shareholder Service Agent unless you mark the box on the Account Application
that indicates that you do not wish to have the telephone exchange privilege. A
Fund may change or cancel its exchange policies at any time, upon 60 days'
written notice to shareholders.
If you have any questions, please call 1-800-992-0180.
Shareholder Guide 53
<PAGE>
SHAREHOLDER GUIDE TRANSACTION POLICIES
--------------------------------------------------------------------------------
Systematic Exchange Privilege
With an initial account balance of at least $5,000 and subject to the
information and limitations outlined above, you may elect to have a specified
dollar amount of shares systematically exchanged, monthly, quarterly,
semi-annually or annually (on or about the 10th of the applicable month), from
your account to an identically registered account in the same class of any other
open-end Pilgrim Fund. 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 Net Asset Value (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 ING Pilgrim shares are held through a third-party fiduciary or in an
omnibus registration at your bank or brokerage firm, you may be able to access
your account information over the internet at www.pilgrimfunds.com, or via touch
tone telephone by calling (800) 992-0180 and selecting Option 1. Should you wish
to speak with a Shareholder Service Representative you may call the toll-free
number listed above and select Option 2.
54 Shareholder Guide
<PAGE>
ADVISERS MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
ING Pilgrim Investments, Inc. ("ING Pilgrim" or "ING Pilgrim Investments")
serves as the investment adviser to each of the Funds (except Global
Communications, Global Information Technology and European Equity Funds). ING
Pilgrim has overall responsibility for the management of these Funds. ING Mutual
Funds Management Co. LLC ("IMFC") serves as the investment adviser to the Global
Communications, Global Information Technology and European Equity Funds, ING
Pilgrim and IMFC provide or oversee all investment advisory and portfolio
management services for each Fund, and assist in managing and supervising all
aspects of the general day-to-day business activities and operations of the
Funds, including custodial, transfer agency, dividend disbursing, accounting,
auditing, compliance and related services.
Organized in December 1994, ING Pilgrim is registered as an investment adviser.
ING Pilgrim is an indirect wholly-owned subsidiary of ReliaStar Financial Corp.
("ReliaStar"). Through its subsidiaries, ReliaStar offers individuals and
institutions life insurance and annuities, employee benefits products and
services, life and health reinsurance, retirement plans, mutual funds, bank
products, and personal finance education.
On July 26, 2000, ReliaStar was acquired by ING Group (NYSE: ING). ING Group is
a global financial institution active in the field of insurance, banking, and
asset management in more than 65 countries, with almost 100,000 employees.
Prior to April 30, 2000, Pilgrim Advisors, Inc. ("Pilgrim Advisors") served as
investment adviser to certain of the Funds. On April 30, 2000, Pilgrim Advisors,
an indirect wholly-owned subsidiary of ReliaStar, merged with ING Pilgrim
Investments. Pilgrim Advisors and ING Pilgrim Investments were sister companies
and shared certain resources and investment personnel.
Prior to July 26, 2000, Lexington Management Corporation ("Lexington") served as
investment adviser to certain of the Funds. On July 26, 2000, ReliaStar acquired
Lexington Global Asset Managers, Inc., the parent company of Lexington, and ING
Pilgrim Investments was approved as Adviser to the Funds formerly advised by
Lexington.
Organized in ,IMFC is registered as an investment adviser. IMFC is a
wholly-owned subsidiary of ING Group.
As of December 31, 2000, ING Pilgrim managed over $ billion in assets.
As of December 31, 2000, IMFC managed over $ billion in assets.
ING Pilgrim's and IMFC's principal address is 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258.
ING Pilgrim and IMFC receive a monthly fee for their services based on the
average daily net assets of each of the Funds.
The following table shows the aggregate annual management fee paid by each Fund
for the most recent fiscal year as a percentage of that Fund's average daily net
assets:
Management
Fund Fee
Worldwide Growth 1.00%
Global Corporate Leaders 1.00
International Value 1.00
International 1.00
International Core Growth 1.00
International SmallCap Growth 1.00
Emerging Markets Value 1.00
Emerging Countries 1.25
Worldwide Emerging Markets 1.00
Global Technology 1.25
Global Communications 1.00
Global Information Technology 1.25
Asia-Pacific Equity 1.25
SmallCap Asia Growth 1.25
European Equity 1.15
Troika Dialog Russia 1.25
Gold 0.95
Silver 1.00
Global Income 1.00
ING Pilgrim Directly Manages the Portfolios of the Following Funds:
Worldwide Growth Fund
The following individuals share responsibility for the day-to-day management of
the Worldwide Growth Fund: Mary Lisanti, Executive Vice President and Chief
Investment Officer--Domestic Equities of ING Pilgrim, has served as a Senior
Portfolio Manager of the domestic equity portion of the Worldwide Growth Fund's
assets since October 2000. Prior to joining ING Pilgrim in October 1999, Ms.
Lisanti was Executive Vice President and Chief Investment Officer -- Domestic
Equities with Northstar Investment Management Corp., which subsequently merged
into ING Pilgrim. From 1996 to 1998, Ms. Lisanti was a Portfolio Manager at
Strong Capital Management. >From 1993 to 1996, Ms. Lisanti was a Managing
Director and Head of Small- and Mid-Capitalization Equity Strategies at Bankers
Trust Corp. Thomas J. Sullivan, Vice President of ING Pilgrim, has served as a
Portfolio Manager of the domestic equity portion of the Worldwide Growth Fund's
assets since October 1, 2000. Prior to joining ING Pilgrim in September 2000,
Mr. Sullivan was a Partner and Equity Trader for First NY Securities, LLC. From
April, 1994 to March, 2000, Mr. Sullivan was Vice President and portfolio
manager at Nicholas-Applegate Capital Management.
Richard T. Saler, Senior Vice President and Director of International Equity
Investment Strategy of ING Pilgrim, has served as Senior Portfolio Manager of
the international portion of the Worldwide Growth Fund's assets since October
2000. From 1986 until July 2000, he was Senior Vice President and Director of
International Equity Strategy at Lexington (which was acquired by ING Pilgrim's
parent company in July 2000).
If you have any questions, please call 1-800-992-0180.
Management of the Funds 55
<PAGE>
MANAGEMENT OF THE FUNDS ADVISERS
--------------------------------------------------------------------------------
Phillip A. Schwartz, Senior Vice President and Director of International Equity
Investment Strategy of ING Pilgrim, has served as Senior Portfolio Manager of
the international portion of the Worldwide Growth Fund's assets since October,
2000. Prior to joining ING Pilgrim in July 2000, Mr. Schwartz was Senior Vice
President and Director of International Equity Investment Strategy at Lexington
(which was acquired by ING Pilgrim's parent company in July 2000). Prior to
1993, Mr. Schwartz was a Vice President of European Research Sales with
Cheuvreux de Virieu in Paris and New York.
Global Corporate Leaders Fund
Richard T. Saler, whose background is described above, has served as a member of
the portfolio management team that manages Global Corporate Leaders Fund since
July 1994.
Philip A. Schwartz, whose background is described above, has served as as a
member of the portfolio management team that manages Global Corporate Leaders
Fund since January 1998.
Alan H. Wapnick, Senior Vice President and Senior Portfolio Manager of ING
Pilgrim, has served as a member of the portfolio management team that manages
Global Corporate Leaders Fund since January 1998. Mr. Wapnick joined ING Pilgrim
in July 2000. Prior to July 2000, he was Senior Vice President and Senior
Portfolio Manager at Lexington (which was acquired by ING Pilgrim's parent
company in July 2000).
International Fund and International Core Growth Fund
Richard T. Saler, whose background is described above, has served as the Senior
Portfolio Manager of the portfolio management team that manages International
Fund since January 1994, and International Core Growth Fund since October 2000.
Philip A. Schwartz, whose background is described above, has served as a member
of the portfolio management team that manages International Fund since January
1998 and International Core Growth Fund since October 2000.
Worldwide Emerging Markets Fund and Emerging Countries Fund.
Richard T. Saler, whose background is described above, has served as the Senior
Portfolio Manager of the portfolio management team that manages Worldwide
Emerging Markets Fund since June 7, 2000, and Emerging Countries Fund since
October 2000.
Phillip A. Schwartz, whose background is described above, has served as a member
of the portfolio management team that manages Worldwide Emerging Markets Fund
since June 7, 2000, and Emerging Countries Fund since October 2000.
Jan Wim Derks, Vice President of ING Pilgrim, has served as a member of the
portfolio management team that manages the Emerging Countries Fund and the
Worldwide Emerging Markets Fund since October 2000. In addition to his role with
ING Pilgrim, Mr. Derks also serves as Director of Global Emerging Markets
Equities at ING Investment Management -- Europe. Prior to joining ING Investment
Management -- Europe in 1997, Mr. Derks managed a Latin American equity fund
with ABN AMRO.
Eric Anderson, Vice President of ING Pilgrim, has served as a member of the
portfolio management team that manages the Emerging Countries Fund and the
Worldwide Emerging Markets Fund since October 2000. In addition to his role with
ING Pilgrim, Mr. Anderson also serves as Senior Portfolio Manager -- Global
Emerging Markets Equities at ING Investment Management -- Americas. Prior to
joining ING Investment Management -- Americas in 1997, Mr. Anderson managed a
Latin America equity portfolio and participated in the management of an emerging
market debt portfolio at Offitbank in New York.
Bratin Sanyal, Vice President of ING Pilgrim, has served as a member of the
portfolio management team that manages the Emerging Countries Fund and the
Worldwide Emerging Markets Fund since October 2000. In addition to his role with
ING Pilgrim, Mr. Sanyal serves as the Senior Portfoio Manager -- Global Emerging
Markets Equities at ING Investment Management -- Europe. Mr. Sanyal has held
several positions with ING Investment Management -- Europe, most recently as an
Asian equity fund manager. Prior to joining ING Investment Management -- Europe
in 1993, he was an economist at the World Bank where he structured debt workouts
for the Highly Indebted Countries.
Global Technology Fund
The following individuals share responsibility for the day-to-day management of
Global Technology Fund:
Richard T. Saler, whose background is described above, has served as a member of
the portfolio management team that manages Global Technology Fund since June
2000.
Phillip A. Schwartz, whose background is described above, has served as a member
of the portfolio management team that manages Global Technology Fund since June
2000.
Alan H. Wapnick, whose background is described above, has served as a member of
the portfolio management team that manages Global Technology Fund since June
2000.
Asia-Pacific Equity Fund and SmallCap Asia Growth Fund
Richard T. Saler, whose background is described above, has served as a member of
the portfolio management team that manages Asia-Pacific Equity Fund and SmallCap
Asia Growth Fund since January 2000.
Philip A. Schwartz, whose background is described above, has served as a member
of the portfolio management team that manages Asia-Pacific Equity Fund and
SmallCap Asia Growth Fund since January 2000.
Troika Dialog Russia Fund
Jan Wim Derks, whose background is described above, has served as a member of
the portfolio management team that manages Troika Dialog Russia Fund since
January 2000.
56 Management of the Funds
<PAGE>
SUB-ADVISERS MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
Mr. Oubadia has seven years experience in portfolio management. He is Vice
President of ING Pilgrim. Mr. Oubadia is responsible for investments in the
emerging markets of Europe, including Russia. He joined IIM in September 1996
when he was the Senior Equity Manager at IIM's office in Prague in the Czech
Republic. He joined IIM's global emerging markets team in January 1998. Mr.
Oubadia holds an MBA from Concordia University in Montreal, Canada.
Gold Fund and Silver Fund
James A. Vail has served as the Portfolio Manager of Gold Fund and Silver Fund
since June 1998.
Mr. Vail has served as Vice President and Portfolio Manager of ING Pilgrim since
July 2000. He is a Chartered Financial Analyst, a member of the New York Society
of Security Analysts and has 25 years of investment experience. Prior to joining
ING Pilgrim in July 2000, he was a Vice President at Lexington (which was
acquired by ING Pilgrim's parent company in July 2000) Prior to joining
Lexington in 1991, Mr. Vail held investment research positions with Chemical
Bank, Oppenheimer & Co., Robert Fleming, Inc. and most recently, Beacon Trust
Company, where he was a Senior Investment Analyst.
Global Income Fund
Denis P. Jamison, Senior Vice President and Senior Portfolio Manager of ING
Pilgrim, since July 2000, has served as Senior Portfolio Manager of Global
Income Fund since July 1986. Prior to July 2000, he was a Senior Vice President
at Lexington (which was acquired by ING Pilgrim's parent company in July 2000).
He is a Chartered Financial Analyst and a member of the New York Society of
Security Analysts.
For the following Funds, ING Pilgrim or IMFC has engaged a Sub-Adviser to
provide the day-to-day management of the Fund's portfolio. The Sub-Advisers are
among the most respected institutional investment advisers in the world, and
have been selected primarily on the basis of their successful application of a
consistent, well-defined, long-term investment approach over a period of several
market cycles
International Value Fund and Emerging Markets Value Fund
Brandes Investment Partners, L.P.
A registered investment adviser, Brandes Investment Partners, L.P. (Brandes)
serves as Sub-Adviser to the Pilgrim International Value Fund and the Pilgrim
Emerging Markets Value Fund. The company was formed in May 1996 as the successor
to its general partner, Brandes Investment Partners, Inc. which has been
providing investment advisory services (through various predecessor entities)
since 1974. Brandes currently manages over $33 billion in international
portfolios. Brandes' principal address is 12750 High Bluff Drive, San Diego,
California 92130.
Charles Brandes has co-managed the Pilgrim International Value Fund and the
Pilgrim Emerging Markets Value Fund since the Funds were formed in March 1995
and January 1998, respectively. Mr. Brandes has over 31 years of investment
management experience. He founded the general partner of Brandes in 1974 and
owns a controlling interest in it. At Brandes, he serves as a Managing Partner.
He is a Chartered Financial Analyst and a Member of the Association for
Investment Management and Research.
Ian Sunder has co-managed the Pilgrim Emerging Markets Value Fund since the Fund
was formed in January 1998. Mr. Sunder has over nine years of investment
management experience. At Brandes, he serves as a Portfolio Manager. He is a
Chartered Financial Analyst, and a Member of the Association for Investment
Management and Research and the Financial Analysts Society.
Jeff Busby has co-managed the Pilgrim International Value Fund since the fund
was formed in March 1995. Mr. Busby has over 13 years of investment management
experience. At Brandes, he serves as a Managing Partner. He is also responsible
for overseeing all trading activities for the firm. He is a Chartered Financial
Analyst, and a Member of the Association for Investment Management and Research
and the Financial Analysts Society.
International SmallCap Growth Fund
Nicholas-Applegate Capital Management (NACM)
NACM serves as Sub-Adviser to the Fund listed above. Founded in 1984, NACM
manages over $40 billion of discretionary assets for numerous clients, including
employee benefit plans of corporations, public retirement systems and unions,
university endowments, foundations, and other institutional investors and
individuals. The Fund listed above is managed by a team of portfolio managers
and analysts employed by NACM. NACM has offices in San Diego, New York, Chicago
and San Francisco. It's principal business address is 600 West Broadway, San
Diego, California 92101.
If you have any questions, please call 1-800-992-0180.
Management of the Funds 57
<PAGE>
MANAGEMENT OF THE FUNDS SUB-ADVISERS
--------------------------------------------------------------------------------
Global Communications Fund, Global Information Technology Fund and European
Equity Fund
ING Investment Management LLC. ING Investment Management Advisors B.V. ("IIMA")
serves as Sub-Adviser to the ING Pilgrim European Equity Fund, the ING Pilgrim
Global Information Technology Fund and the ING Pilgrim Global Communications
Fund. IIMA is located at Schenkkade 65, 2595 AS the Hague, The Netherlands. IIMA
is a company organized to manage investments and provide investment advice on a
worldwide basis to entities affiliated and unaffiliated with ING Group. IIMA
operates under the collective management of ING Investment Management which has
assets under management of $ billion as of December 31, 2000.
ING Global Communications Fund. Mr. Daniel Hayes has primary responsibility in
managing the Fund. Mr. Hayes has been employed by IIMA and its affiliates since
1998 and has ten years of investment experience.
ING Global Information Technology Fund. Mr. Guy Uding has primary responsibility
for managing the Fund and heads a three member team of investment professionals.
Mr. Uding has been employed by IIMA and it affiliates since 1995 and has five
years of investment experience.
ING European Equity Fund. Mr. Adrian van Tiggelen has primary responsibility for
managing the Fund and heads an eight member team of investment professionals.
The average experience of the team is nine years. Mr. van Tiggelen has been
employed by IIMA and its affiliates since 1988 and has eleven years of
investment experience.
58 Management of the Funds
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES DIVIDENDS/TAXES
--------------------------------------------------------------------------------
Dividends
The Funds generally distribute most or all of their net earnings in the form of
dividends. Each Fund pays dividends and capital gains, if any, annually, except
for Global Income Fund, which pays dividends quarterly.
Dividend Reinvestment
Unless you instruct a Fund to pay you dividends in cash, dividends and
distributions paid by a Fund will be reinvested in additional shares of the
Fund. You may, upon written request or by completing the appropriate section of
the Account Application, elect to have all dividends and other distributions
paid on Class A, B, C or M shares of a Fund invested in another ING Pilgrim Fund
which offers the same class shares. If you are a shareholder of ING 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 Statement of Additional Information 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 most of its net investment income and net capital
gains to its shareholders each year. Although the Funds will not be taxed on
amounts they distribute, most shareholders will be taxed on amounts they
receive. A particular distribution generally will be taxable as either ordinary
income or long-term capital gains. It does not matter how long you have held
your Fund shares or whether you elect to receive your distributions in cash or
reinvest them in additional Fund shares. For example, if a Fund designates a
particular distribution as a long-term capital gains distribution, it will be
taxable to you at your long-term capital gains rate.
Dividends declared by a Fund in October, November or December and paid during
the following January may be treated as having been received by shareholders in
the year the distributions were declared.
You will receive an annual statement summarizing your dividend and capital gains
distributions.
If you invest through a tax-deferred account, such as a retirement plan, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
consult your tax adviser about investment through a tax-deferred account.
There may be tax consequences to you if you sell or redeem Fund shares. You will
generally have a capital gain or loss, which will be long-term or short-term,
generally depending on how long you hold those shares. If you exchange shares,
you may be treated as if you sold them. You are responsible for any tax
liabilities generated by your transactions.
As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax;
rather, it is a way in which the IRS ensures it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
59 Dividends, Distributions and Taxes
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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
(SAI).
Many of the investment techniques and strategies discussed in this prospectus
and in the SAI are discretionary, which means that the Adviser or Sub-Adviser
can decide whether to use them or not. The Funds named below invest in these
securities or use these techniques as part of the Fund's principal investment
strategy. However, the Adviser or Sub-Adviser of any Fund may also use these
investment techniques or make investments in securities that are not a part of
the Fund's principal investment strategy.
PRINCIPAL RISKS
Investments in Foreign Securities (All Funds). There are certain risks in owning
foreign securities, including those resulting from: fluctuations in currency
exchange rates; devaluation of currencies; political or economic developments
and the possible imposition of currency exchange blockages or other foreign
governmental laws or restrictions; reduced availability of public information
concerning issuers; accounting, auditing and financial reporting standards or
other regulatory practices and requirements that are not uniform when compared
to those applicable to domestic companies; settlement and clearance procedures
in some countries that may not be reliable and can result in delays in
settlement; higher transaction and custody expenses than for domestic
securities; and limitations on foreign ownership of equity securities. Also,
securities of many foreign companies may be less liquid and the prices more
volatile than those of domestic companies. With certain foreign countries, there
is the possibility of expropriation, nationalization, confiscatory taxation and
limitations on the use or removal of funds or other assets of the Funds,
including the withholding of dividends.
Each Fund that invests in foreign securities may enter into foreign currency
transactions either on a spot or cash basis at prevailing rates or through
forward foreign currency exchange contracts to have the necessary currencies to
settle transactions, or to help protect Fund assets against adverse changes in
foreign currency exchange rates, or to provide exposure to a foreign currency
commensurate with the exposure to securities from that country. Such efforts
could limit potential gains that might result from a relative increase in the
value of such currencies, and might, in certain cases, result in losses to the
Fund.
Emerging Markets Investments (All Funds) Because of less developed markets and
economies and, in some countries, less mature governments and governmental
institutions, the risks of investing in foreign securities can be intensified in
the case of investments in issuers domiciled or doing substantial business in
emerging market countries. These risks include: high concentration of market
capitalization and trading volume in a small number of issuers representing a
limited number of industries, as well as a high concentration of investors and
financial intermediaries; political and social uncertainties; over-dependence on
exports, especially with respect to primary commodities, making these economies
vulnerable to changes in commodity prices; overburdened infrastructure and
obsolete or unseasonal financial systems; environmental problems; less well
developed legal systems; and less reliable custodial services and settlement
practices.
Inability to Sell Securities (All Funds). Some securities usually trade in lower
volume and may be less liquid than securities of large established companies.
These less liquid securities could include securities of small and mid-size U.S.
companies, high-yield securities, convertible securities, unrated debt and
convertible securities, securities that originate from small offerings, and
foreign securities, particularly those from companies in emerging markets. The
Fund could lose money if it cannot sell a security at the time and price that
would be most beneficial to the Fund.
High Yield Securities (Troika Dialog Russia Fund and Global Income Fund).
Investments in high yield securities generally provide greater income and
increased opportunity for capital appreciation than investments in higher
quality debt securities, but they also typically entail greater potential price
volatility and principal and income risk. High yield securities are not
considered investment grade, and are regarded as predominantly speculative with
respect to the issuing company's continuing ability to meet principal and
interest payments. The prices of high yield securities have been found to be
less sensitive to interest rate changes than higher-rated investments, but more
sensitive to adverse economic downturns or individual corporate developments.
High yield securities structured as zero coupon or pay-in-kind securities tend
to be more volatile. The secondary market in which high yield securities are
traded is generally less liquid than the market for higher grade bonds. At times
of less liquidity, it may be more difficult to value high yield securities.
Corporate Debt Securities (Global Corporate Leaders, International, Worldwide
Emerging Markets and Global Income 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
If you have any questions, please call 1-800-992-0180.
More Information About Risks 60
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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 years, and the duration of a
noncallable 7% coupon bond with a remaining maturity of 10 years is
approximately 8 years. Material changes in interest rates may impact the
duration calculation.
Convertible Securities (All Funds). The price of a convertible security will
normally fluctuate in some proportion to changes in the price of the underlying
equity security, and as such is subject to risks relating to the activities of
the issuer and general market and economic conditions. The income component of
convertible securities causes fluctuations based upon changes in interest rates
and the credit quality of the issuer. Convertible securities are often lower
rated securities. A Fund may be required to redeem or convert a convertible
security before the holder would otherwise choose.
Interests in Loans (Global Income Fund). Certain Funds 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.
Portfolio Turnover. Each Fund, except International Value, Emerging Markets
Value, Troika Dialog Russia, Gold, Silver and Global Income Funds, is generally
expected to engage in frequent and active trading of portfolio securities to
achieve its investment objective. A high portfolio turnover rate involves
greater expenses to a Fund, including brokerage commissions and other
transaction costs, and is likely to generate more taxable short-term gains for
shareholders, which may have an adverse effect on the performance of the Fund.
Communications Technology Risk (Global Communications Fund). Communications
companies are generally subject to the rate of change in technology, which is
higher than other industries. In addition, products and services of companies
engaged in the communications industry are subject to relatively high risks of
rapid obsolescence caused by scientific and technological advances. Swings in
investor psychology or significant trading by large institutional investors can
result in significant price fluctuations and stock price declines.
Governmental Regulation (Global Communications Fund). Certain communications
industries, such as the telecommunications industry, may be subject to greater
governmental regulation than many other industries. Accordingly, such industries
may be subject to changes in governmental policies and the need for regulatory
approvals may have a material effect on the products and services offered.
Telephone operating companies in the United States, for example, are subject to
both federal and state regulation affecting permitted rates of return and the
kinds of services that may be offered.
Industry Concentration (Global Communications and Global Information Technology
Funds). As a result of the Funds concentrating their assets in securities
related to a particular industry, the Funds may be subject to greater market
fluctuation than a fund which has securities representing a broader range of
investment alternatives.
Information Technology Risk (Global Information Technology Fund). Information
technology companies are generally subject to the rate of change in technology,
which is higher than other industries. In addition, products and services of
companies engaged in the information technology industry are subject to
relatively high risks of rapid obsolescence caused by scientific and
technological advances. Swings in investor psychology or significant trading by
large institutional investors can result in significant price fluctuations and
stock price declines.
61 More Information About Risks
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OTHER RISKS
U.S. Government Securities. Some U.S. Government agency securities may be
subject to varying degrees of credit risk particularly those not backed by the
full faith and credit of the United States Government. All U.S. Government
securities may be subject to price declines in the securities due to changing
interest rates.
Other Investment Companies. Each Fund may invest up to 10% of its assets in
other investment companies. When a Fund invests in other investment companies,
you indirectly pay a proportionate share of the expenses of that other
investment company (including management fees, administration fees, and
custodial fees) in addition to the expenses of the Fund.
Restricted and Illiquid Securities. Each Fund may invest in restricted and
illiquid securities If a security is illiquid, the Fund might be unable to sell
the security at a time when the Adviser might wish to sell, and the security
could have the effect of decreasing the overall level of the Fund's liquidity.
Further, the lack of an established secondary market may make it more difficult
to value illiquid securities, which could vary from the amount the Fund could
realize upon disposition. Restricted securities, i.e., securities subject to
legal or contractual restrictions on resale, may be illiquid. However, some
restricted securities may be treated as liquid, although they may be less liquid
than registered securities traded on established secondary markets.
Mortgage-Related Securities. Although mortgage loans underlying a
mortgage-backed security may have maturities of up to 30 years, the actual
average life of a mortgage-backed security typically will be substantially less
because the mortgages will be subject to normal principal amortization, and may
be prepaid prior to maturity. Like other fixed income securities, when interest
rates rise, the value of a mortgage-backed security generally will decline;
however, when interest rates are declining, the value of mortgage-backed
securities with prepayment features may not increase as much as other fixed
income securities. The rate of prepayments on underlying mortgages will affect
the price and volatility of a mortgage-related security, and may have the effect
of shortening or extending the effective maturity of the security beyond what
was anticipated at the time of the purchase. Unanticipated rates of prepayment
on underlying mortgages can be expected to increase the volatility of such
securities. In addition, the value of these securities may fluctuate in response
to the market's perception of the creditworthiness of the issuers of
mortgage-related securities owned by a Fund. Additionally, although mortgages
and mortgage-related securities are generally supported by some form of
government or private guarantee and/or insurance, there is no assurance that
private guarantors or insurers will be able to meet their obligations.
Derivatives. Generally, derivatives can be characterized as financial
instruments whose performance is derived, at least in part, from the performance
of an underlying asset or assets. Some derivatives are sophisticated instruments
that typically involve a small investment of cash relative to the magnitude of
risks assumed. These may include swap agreements, options, forwards and futures.
Derivative securities are subject to market risk, which could be significant for
those that have a leveraging effect. Many of the Funds do not invest in these
types of derivatives, and some do, so please check the description of the Fund's
policies. Derivatives are also subject to credit risks related to the
counterparty's ability to perform, and any deterioration in the counterparty's
creditworthiness could adversely affect the instrument. A risk of using
derivatives is that the Adviser or Sub-Adviser might imperfectly judge the
market's direction. For instance, if a derivative is used as a hedge to offset
investment risk in another security, the hedge might not correlate to the
market's movements and may have unexpected or undesired results, such as a loss
or a reduction in gains.
Temporary Defensive Strategies. When the Adviser or Sub-Adviser to a Fund
anticipates unusual market or other conditions, the Fund may temporarily depart
from its principal investment strategies as a defensive measure. To the extent
that a Fund invests defensively, it likely will not achieve capital
appreciation.
Repurchase Agreements. Each Fund may enter into repurchase agreements, which
involve the purchase by a Fund of a security that the seller has agreed to buy
back. If the seller defaults and the collateral value declines, the Fund might
incur a loss. If the seller declares bankruptcy, the Fund may not be able to
sell the collateral at the desired time.
Lending Portfolio Securities. In order to generate additional income, certain
Funds may lend portfolio securities in an amount up to 331|M/3% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in the collateral should
the borrower default or fail financially.
Borrowing. Certain Funds may borrow for certain types of temporary or emergency
purposes subject to certain limits. Borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the net asset value
of a Fund, and money borrowed will be subject to interest costs. Interest costs
on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
Reverse Repurchase Agreements and Dollar Rolls. A reverse repurchase agreement
or dollar roll involves the sale of a security, with an agreement to repurchase
the same or substantially similar
If you have any questions, please call 1-800-992-0180.
More Information About Risks 62
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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.
63 More Information About Risks
<PAGE>
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.
If you have any questions, please call 1-800-992-0180.
63
<PAGE>
ING PILGRIM WORLDWIDE GROWTH FUND FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
For the four months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods ending prior to October 31, 2000, the financial information was audited
by other independent auditors.
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------------
Four Three
months Year months
ended Ended ended Year ended March 31,
Oct. 31, June 30, June 30, -------------------------------------
2000(1) 2000 1999(2) 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 23.58 21.39 19.33 16.88 16.57 14.29
Income from investment operations:
Net investment income (loss) $ (0.15) -- (0.02) 0.04 (0.16) (0.07)
Net realized and unrealized gains
(loss) on investments $ 9.62 2.19 5.78 5.33 2.20 2.86
Total from investment operations $ 9.47 2.19 5.76 5.37 2.04 2.79
Less distributions from:
Net investment income $ -- -- 0.06 -- -- 0.12
Net realized gains on investments $ 3.07 -- 3.64 2.92 1.73 0.39
Net asset value, end of period $ 29.98 23.58 21.39 19.33 16.88 16.57
Total Return(4): % 42.43 10.24 33.56 34.55 12.51 19.79
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 235,341 66,245 49,134 38,647 24,022 23,481
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) % 1.67 1.75 1.86 1.86 1.85 1.85
Gross expenses prior to expense
reimbursement(5) % 1.67 1.75 2.02 2.21 2.17 2.17
Net investment income (loss) after
expense reimbursement(5)(6) % (0.79) (0.03) (0.62) (0.69) (0.93) (0.35)
Portfolio turnover % 169 57 247 202 182 132
<CAPTION>
Class B
------------------------------------------------------------------------------
Four Three
months Year months May 31,
ended Ended ended Year ended March 31, 1995(3) to
Oct. 31, June 30, June 30, -------------------------- March 31,
2000(1) 2000 1999(2) 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period 26.64 24.21 20.10 16.02 14.34 12.50
Income from investment operations:
Net investment income (loss) (0.28) (0.03) (0.08) (0.17) (0.14) (0.05)
Net realized and unrealized gains
(loss) on investments 10.76 2.46 6.25 5.44 1.82 1.89
Total from investment operations 10.48 2.43 6.17 5.27 1.68 1.84
Less distributions from:
Net investment income -- -- 0.01 -- -- --
Net realized gains on investments 3.46 -- 2.05 1.19 -- --
Net asset value, end of period 33.66 26.64 24.21 20.10 16.02 14.34
Total Return(4): 41.54 10.04 32.74 34.03 11.72 14.72
Ratios/Supplemental Data:
Net assets, end of period (000's) 130,988 27,938 18,556 10,083 5,942 1,972
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) 2.32 2.40 2.51 2.51 2.50 2.50
Gross expenses prior to expense
reimbursement(5) 2.32 2.40 2.67 2.70 4.81 9.50
Net investment income (loss) after
expense reimbursement(5)(6) (1.44) (0.68) (1.31) (1.37) (1.62) (1.28)
Portfolio turnover 169 57 247 202 182 132
</TABLE>
<TABLE>
<CAPTION>
Class C
------------------------------------------------------------------------------
Four Three
months Year months
ended Ended ended Year ended March 31,
Oct. 31, June 30, June 30, -------------------------------------
2000(1) 2000 1999(2) 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 23.69 21.52 19.05 16.92 16.76 14.44
Income from investment operations:
Net investment income (loss) $ (0.33) (0.04) (0.20) (0.19) (0.28) (0.21)
Net realized and unrealized gains
(loss) on investments $ 9.65 2.21 5.83 5.41 2.23 2.92
Total from investment operations $ 9.32 2.17 5.63 5.22 1.95 2.71
Less distributions from:
Net investment income $ -- -- 0.01 -- -- 0.01
Net realized gains on investments $ 3.09 -- 3.15 3.09 1.79 0.38
Net asset value, end of period $ 29.92 23.69 21.52 19.05 16.92 16.76
Total Return(4): % 41.48 10.08 32.73 33.72 11.81 18.95
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 239,432 111,250 98,470 84,292 70,345 71,155
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) % 2.32 2.40 2.51 2.51 2.50 2.50
Gross expenses prior to expense
reimbursement(5) % 2.32 2.40 2.67 2.77 2.61 2.57
Net investment income (loss) after
expense reimbursement(5)(6) % (1.44) (0.68) (1.28) (1.34) (1.57) (0.99)
Portfolio turnover % 169 57 247 202 182 132
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from June 30 to
October 31.
(2) Effective May 24, 1999, ING Pilgrim Investments Inc., 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) Commencement of offering shares.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(5) Annualized for periods less than one year.
(6) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
64 ING Pilgrim Worldwide Growth Fund
<PAGE>
FINANCIAL HIGHLIGHTS ING PILGRIM GLOBAL CORPORATE LEADERS FUND
-----------------------------------------------------------------------------
For the ten months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods ending prior to October 31, 2000, the financial information was audited
by other independent auditors.
<TABLE>
<CAPTION>
Ten months
ended Year ended December 31,
October 31, -------------------------------------------------
2000(1) 1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 9.46 10.59 11.28 11.32 11.17
Net investment income (loss) $ (0.02) 0.99 0.03 0.01 0.09
Net realized and unrealized gain (loss) from
investment operations $ 3.67 1.02 0.73 1.84 1.10
Total income (loss) from investment operations $ 3.65 2.01 0.76 1.85 1.19
Less distributions:
Distributions from net investment income $ 0.74 0.80 0.09 0.16 0.29
Distributions in excess of net investment income $ -- -- -- -- 0.13
Distributions from net realized gains $ 0.08 2.34 1.36 1.73 0.62
Total distributions $ 0.82 3.14 1.45 1.89 1.04
Net asset value, end of period $ 12.29 9.46 10.59 11.28 11.32
Total Return(2) % 39.06 19.06 6.90 16.43 10.69
Ratios/Supplemental Data
Net asset, end of period (thousands) $ 19,617 17,803 35,085 37,223 53,614
Ratio of expenses to average net assets(3) % 1.96 2.12 1.75 1.90 1.67
Ratio of net investment income (loss) to average net
assets(3) % (0.65) (0.06) 0.23 0.11 0.48
Portfolio Turnover Rate % 12.76 137.33 177.48 128.05 166.35
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from December
31 to October 31.
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value. Total return for less than
one year is not annualized.
(3) Annualized for periods less than one year.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Global Corporate Leaders Fund 65
<PAGE>
ING PILGRIM INTERNATIONAL VALUE FUND FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
For the years ended 2000, 1999, 1998 and 1997, the information in the table
below has been audited by PricewaterhouseCoopers LLP, independent auditors. For
all periods ending prior to October 31, 1997, the financial information was
audited by other independent auditors.
<TABLE>
<CAPTION>
Class A Class B
------------------------------------------------ ---------------------------------
Year ended October 31, Year ended October 31,
----------------------------------------------------------------------------------------- ---------------------------------
2000 1999 1998 1997 1996 2000 1999 1998 1997(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the
period $ 11.88 10.90 9.05 8.10 11.76 10.87 10.00
Net investment income (loss) $ 0.08 0.11 (0.09) 0.14 0.01 0.07 (0.02)
Net realized and unrealized gain on
investments $ 3.58 0.96 2.30 0.85 3.51 0.91 0.89
Total from investment operations $ 3.66 1.07 2.21 0.99 3.52 0.98 0.87
Dividends from net investment
income $ (0.12) -- (0.14) (0.04) (0.04) -- --
Distributions from net realized gain $ (0.67) (0.09) (0.22) -- (0.67) (0.09) --
Total distributions $ (0.79) (0.09) (0.36) (0.04) (0.71) (0.09) --
Net asset value, end of the period $ 14.75 11.88 10.90 9.05 14.57 11.76 10.87
Total return(2) % 32.55 9.86 27.59 12.15 31.55 9.16 8.70
Ratios and supplemental data:
Net assets, end of the period (000's) $ 451,815 211,018 60,539 16,777 278,871 145,976 59,185
Ratio of expenses to average net
assets after reimbursement (4) % 1.68 1.74 1.80 1.85 2.41 2.47 2.50(3)
Ratio of expenses to average net
assets prior to expense
reimbursement % 1.68 1.74 2.07 2.82 2.41 2.47 2.58(3)
Ratio of net investment income
(loss) to average net assets % 0.92 1.62 0.46 1.52 0.18 0.69 (0.71)(3)
Portfolio turnover % 29 32 26 74 29 32 26
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------
Year ended October 31,
----------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of the period $ 11.75 10.86 8.93 8.05
Net investment (income loss) $ -- 0.06 (0.06) 0.05
Net realized and unrealized gain on
investments $ 3.51 0.92 2.20 0.86
Total from investment operations $ 3.51 0.98 2.14 0.91
Dividends from net investment
income $ (0.04) -- (0.04) (0.03)
Distributions from net realized gain $ (0.67) (0.09) (0.17) --
Total distributions $ (0.71) (0.09) (0.21) (0.03)
Net asset value, end of the period $ 14.55 11.75 10.86 8.93
Total return(2) % 31.50 9.07 25.92 11.39
Ratios and supplemental data:
Net assets, end of the period (000's) $ 310,227 137,651 62,103 14,530
Ratio of expenses to average net
assets after reimbursement (4) % 2.41 2.47 2.50 2.50
Ratio of expenses to average net
assets prior to expense
reimbursement % 2.41 2.47 2.74 3.71
Ratio of net investment income (loss)
to average net assets % 0.19 0.68 (0.23) 0.62
Portfolio turnover % 29 32 26 74
</TABLE>
--------------------------------------------------------------------------------
(1) Class B commenced operations on April 17, 1997.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
(4) Expenses calculated net of taxes and advisor reimbursement
66 ING Pilgrim International Value Fund
<PAGE>
FINANCIAL HIGHLIGHTS ING PILGRIM INTERNATIONAL FUND
-----------------------------------------------------------------------------
For the ten months ended October 31, 2000, the information in the table below,
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods ending prior to October 31, 2000, the financial information was audited
by other independent auditors.
<TABLE>
<CAPTION>
Ten months ended Year ended December 31,
October 31, ------------------------------------------------
2000(1) 1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 11.61 10.10 10.86 10.60 10.37
Net investment income (loss) $ (0.01) 0.17 0.07 (0.02) (0.01)
Net realized and unrealized gain (loss) from
investment operations $ 5.46 1.74 0.10 1.45 0.61
Total income (loss) from investment operations $ 5.45 1.91 0.17 1.43 0.60
Less distributions:
Distributions from net investment income $ 0.03 0.06 0.13 0.20 --
Distributions in excess of net investment income $ -- -- -- -- 0.35
Distributions from net realized gains $ 3.58 0.34 0.80 0.97 0.02
Total distributions $ 3.61 0.40 0.93 1.17 0.37
Net asset value, end of period $ 13.45 11.61 10.10 10.86 10.60
Total Return(1) % 47.85 19.02 1.61 13.57 5.77
Ratios/Supplemental Data
Net assets, end of period (thousands) $ 25,304 24,000 19,949 18,891 17,855
Ratio of expenses to average net assets, before
reimbursement or waiver(2) % 1.98 2.25 2.15 2.45 2.46
Ratio of expenses to average net assets, net of
reimbursement or waiver(2) % 1.98 1.75 1.75 2.45 2.46
Ratio of net investment income (loss) to
average net assets, before reimbursement
or waiver(2) % (0.21) (0.16) 0.13 (0.39) (0.12)
Ratio of net investment income (loss) to
average net assets, net of reimbursement
or waiver(2) % (0.21) 0.35 0.53 (0.39) (0.12)
Portfolio Turnover Rate % 143.82 143.67 122.56 113.55 137.72
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from December
31 to October 31
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value. Total return for less than
one year is not annualized.
(3) Annualized for periods less than one year.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim International Fund 67
<PAGE>
ING PILGRIM INTERNATIONAL CORE GROWTH FUND FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
For the four months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods ending prior to October 31, 2000, the financial information was audited
by other independent auditors.
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------
Four Three
months Year months February 28,
ended Ended ended Year ended March 31, 1997(3) to
Oct. 31, June 30, June 30, -------------------- March 31,
2000(1) 2000 1999(2) 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value, beginning of period $ 18.92 17.71 17.01 12.73 12.50
Income from investment operations:
Net investment income (loss) $ (0.17) 0.04 (0.01) (0.02) --
Net realized and unrealized gains on
investments $ 6.25 1.17 1.02 4.56 0.23
Total from investment operations $ 6.08 1.21 1.01 4.54 0.23
Less distributions from:
Net investment income $ -- -- 0.18 -- --
Net realized gains on investments $ 1.16 -- 0.13 0.26 --
Net asset value, end of period $ 23.84 18.92 17.71 17.01 12.73
Total Return(4): % 32.83 6.83 5.90 36.10 1.76
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 23,003 12,409 21,627 12,664 2
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) % 1.85 1.77 1.89 1.96 1.95
Gross expenses prior to expense
reimbursement(5) % 2.16 1.86 2.13 3.02 4,579.78
Net investment income (loss) after
expense reimbursement(5)(6) % (0.83) 0.50 (0.51) (0.45) 0.00
Portfolio turnover % 200 67 214 274 76
<CAPTION>
Class B
----------------------------------------------------------------------
Four Three
months Year months February 28,
ended Ended ended Year ended March 31, 1997(3) to
Oct. 31, June 30, June 30, -------------------- March 31,
2000(1) 2000 1999(2) 1999 1998 1997
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period 19.08 17.89 17.10 12.68 12.50
Income from investment operations:
Net investment income (loss) (0.30) -- (0.16) (0.11) --
Net realized and unrealized gains on
investments 6.21 1.19 1.05 4.66 0.18
Total from investment operations 5.91 1.19 0.89 4.55 0.18
Less distributions from:
Net investment income -- -- 0.03 -- --
Net realized gains on investments 1.16 -- 0.07 0.13 --
Net asset value, end of period 23.83 19.08 17.89 17.10 12.68
Total Return(4): 31.62 6.65 5.24 35.31 1.44
Ratios/Supplemental Data:
Net assets, end of period (000's) 21,543 12,034 11,033 7,942 1
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) 2.50 2.36 2.53 2.61 2.59
Gross expenses prior to expense
reimbursement(5) 2.81 2.45 2.77 3.04 16,000.25
Net investment income (loss) after
expense reimbursement(5)(6) (1.48) (0.09) (1.13) (1.32) 0.00
Portfolio turnover 200 67 214 274 76
</TABLE>
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------------------------------
Four Three
months Year months February 28,
ended Ended ended Year ended March 31, 1997(3) to
Oct. 31, June 30, June 30, --------------------- March 31,
2000(1) 2000 1999(2) 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 19.14 17.94 17.16 12.68 12.50
Income from investment operations:
Net investment income (loss) $ (0.27) -- (0.05) (0.07) --
Net realized and unrealized gains
on investments $ 6.22 1.20 0.94 4.55 0.18
Total from investment operations $ 5.95 1.20 0.89 4.48 0.18
Less distributions from:
Net investment income $ -- -- 0.11 -- --
Net realized gains on investments $ 1.16 -- -- -- --
Net asset value, end of period $ 23.93 19.14 17.94 17.16 12.68
Total Return(4): % 31.73 6.69 5.22 35.25 1.44
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 26,734 11,936 10,400 3,517 43
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) % 2.50 2.36 2.55 2.61 2.41
Gross expenses prior to expense
reimbursement(5) % 2.81 2.45 2.79 5.10 25.55
Net investment income (loss) after
expense reimbursement(5)(6) % (1.48) (0.09) (1.19) (1.27) (0.07)
Portfolio turnover % 200 67 214 274 76
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from June 30 to
October 31.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., 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) The Fund commenced operations on February 28, 1997.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(5) Annualized for periods less than one year.
(6) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
68 ING Pilgrim International Core Growth Fund
<PAGE>
FINANCIAL HIGHLIGHTS ING PILGRIM INTERNATIONAL SMALLCAP GROWTH FUND
-----------------------------------------------------------------------------
For the four months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods ending prior to October 31, 2000, the financial information was audited
by other independent auditors.
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------------
Four Three
months Year months
ended Ended ended Year ended March 31,
Oct. 31, June 30, June 30, -------------------------------------
2000(1) 2000 1999(2) 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 40.94 23.80 21.03 19.29 14.92 13.15 11.51
Income from investment operations:
Net investment income (loss) $ (0.11) (0.18) (0.03) 0.02 (0.15) 0.04 (0.02)
Net realized and unrealized gains on
investments $ (4.76) 19.38 2.80 3.21 5.36 1.88 1.79
Total from investment operations $ -- 19.20 2.77 3.23 5.21 1.92 1.77
Less distributions from:
Net investment income $ -- -- -- -- -- 0.01 0.13
Net realized gains on investments $ -- 2.06 -- 1.49 0.84 0.14 --
Net asset value, end of period $ 36.07 40.94 23.80 21.03 19.29 14.92 13.15
Total Return(4): % (11.90) 82.89 13.17 17.26 36.31 14.67 15.46
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 273,362 278,480 37,490 25,336 11,183 5,569 1,056
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) % 1.67 1.84 1.94 1.96 1.95 1.95
Gross expenses prior to expense
reimbursement(5) % 1.67 1.86 2.08 2.75 3.76 10.06
Net investment income (loss) after
expense reimbursement(5)(6) % (0.80) (0.69) (0.82) (1.56) (1.05) (0.27)
Portfolio turnover % 56 44 146 198 206 141
<CAPTION>
Class B
-------------------------------------------------------------------------------
Four Three
months Year months May 31,
ended Ended ended Year ended March 31, 1995(3) to
Oct. 31, June 30, June 30, ---------------------------- March 31,
2000(6) 2000 1999(2) 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period 43.27 25.33 22.43 20.16 15.89 13.96 12.50
Income from investment operations:
Net investment income (loss) (0.19) (0.37) (0.07) (0.20) (0.15) (0.15) (0.02)
Net realized and unrealized gains on
investments (5.03) 20.50 2.97 3.46 5.56 2.09 1.48
Total from investment operations (5.22) 20.13 2.90 3.26 5.41 1.94 1.46
Less distributions from:
Net investment income -- -- -- -- -- 0.01 --
Net realized gains on investments -- 2.19 -- 0.99 1.14 -- --
Net asset value, end of period 38.0 43.27 25.33 22.43 20.16 15.89 13.96
Total Return(4): (12.05) 81.63 12.93 16.55 35.73 13.96 11.68
Ratios/Supplemental Data:
Net assets, end of period (000's) 126,846 132,028 19,331 16,158 12,033 5,080 1,487
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) 2.32 2.32 2.49 2.59 2.61 2.60 2.60
Gross expenses prior to expense
reimbursement(5) 2.32 2.32 2.51 2.73 2.98 4.89 16.15
Net investment income (loss) after
expense reimbursement(5)(6) (1.46) (1.41) (1.34) (1.45) (2.20) (1.66) (0.64)
Portfolio turnover 56 164 44 146 198 206 141
</TABLE>
<TABLE>
<CAPTION>
Class C
--------------------------------------------------------------------------
Four Three
months Year months
ended Ended ended Year ended March 31,
Oct. 31, June 30, June 30, ---------------------------------------
2000(1) 2000 1999(2) 1999 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 39.71 23.34 20.60 18.53 14.87 13.05 11.32
Income from investment operations:
Net investment income (loss) $ (0.18) (0.31) (0.06) (0.10) (0.11) (0.16) 0.01
Net realized and unrealized gains on
investments $ (4.60) 18.69 2.80 3.09 5.09 1.98 1.72
Total from investment operations $ (4.28) 18.38 2.74 2.99 4.98 1.82 1.73
Less distributions from:
Net investment income $ -- -- -- -- -- -- --
Net realized gains on investments $ -- 2.01 -- 0.92 1.32 -- --
Net asset value, end of period $ 34.93 39.71 23.34 20.60 18.53 14.87 13.05
Total Return(4): % (12.04) 80.89 13.31 16.55 35.63 13.98 15.30
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 136,814 144,068 18,354 13,226 8,014 3,592 933
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) % 2.32 2.32 2.49 2.59 2.61 2.60 2.60
Gross expenses prior to expense
reimbursement(5) % 2.32 2.32 2.51 2.73 3.38 3.95 16.15
Net investment income (loss) after
expense reimbursement(5)(6) % (1.46) (1.41) (1.34) (1.45) (2.18) (1.67) (1.02)
Portfolio turnover % 56 164 44 146 198 206 141
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from June 30 to
October 31.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., 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) Commencement of share offerings.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(5) Annualized for periods less than one year.
(6) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim International SmallCap Growth Fund 69
<PAGE>
ING PILGRIM EMERGING MARKETS VALUE FUND FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
The information in the table below has been audited by PricewaterhouseCoopers
LLP, independent auditors.
<TABLE>
<CAPTION>
Class A Class B
------------------------------------- ---------------------------
Year ended October 31, Year ended October 31,
------------------------------------------------------------------------------- ---------------------------
2000 1999 1998(1) 2000 1999 1998(1)
Operating performance:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of the period $ 7.69 10.00 7.65 10.00
Net investment income $ 0.12 0.12 0.08 0.09
Net realized and unrealized gain (loss) on
investments $ 3.01 (2.43) 2.97 (2.44)
Total from investment operations $ 3.13 (2.31) 3.05 (2.35)
Dividends from net investment income $ (0.14) -- (0.10) --
Distributions from net realized gain $ -- -- -- --
Total distributions $ (0.14) -- (0.10) --
Net asset value, end of the period $ 10.68 7.69 10.60 7.65
Total return(2) % 41.48 (23.10) 40.41 (23.50)
Ratios and supplemental data:
Net assets, end of the period (000's) $ 9,281 3,815 3,823 3,583
Ratio of expenses to average net assets
after reimbursement(4) % 2.06 1.80(3) 2.70 2.50(3)
Ratio of expenses to average net assets
prior to expense reimbursement % 2.21 3.88(3) 2.93 4.74(3)
Ratio of net investment income to
average net assets % 1.36 3.38(3) 0.67 2.55(3)
Portfolio turnover % 38 7 38 7
</TABLE>
Class C
----------------------------------
Year ended October 31,
----------------------------------
2000 1999 1998(1)
-------------------------------------------------------------------------------
Operating performance:
Net asset value, beginning of the period 7.63 10.00
Net investment income 0.04 0.09
Net realized and unrealized gain (loss) on
investments 3.00 (2.46)
Total from investment operations 3.04 (2.37)
Dividends from net investment income (0.11) --
Distributions from net realized gain -- --
Total distributions (0.11) --
Net asset value, end of the period 10.56 7.63
Total return(2) 40.49 (23.70)
Ratios and supplemental data:
Net assets, end of the period (000's) 6,674 2,304
Ratio of expenses to average net assets
after reimbursement(4) 2.75 2.50(3)
Ratio of expenses to average net assets
prior to expense reimbursement 2.91 4.87(3)
Ratio of net investment income to
average net assets 0.61 2.68(3)
Portfolio turnover 38 7
--------------------------------------------------------------------------------
(1) Class A, B and C commenced operations on January 1, 1998.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
(4) Expenses calculated net of taxes and advisor reimbursement.
70 ING Pilgrim Emerging Markets Value Fund
<PAGE>
FINANCIAL HIGHLIGHTS ING PILGRIM EMERGING COUNTRIES FUND
-----------------------------------------------------------------------------
For the four months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods ending prior to October 31, 2000, the financial information was audited
by other independent auditors.
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------------
Four Three
months Year months
ended Ended ended Year Ended March 31,
Oct. 31, June 30, June 30, ------------------------------------------
2000(1) 2000 1999(2) 1999 1998 1997 1996
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 16.74 13.43 17.39 17.20 14.03 11.00
Income from investment operations:
Net investment income (loss) $ (0.20) (0.05) (0.06) 0.03 (0.06) (0.04)
Net realized and unrealized gains
(loss) on investments $ 3.63 3.36 (3.81) 1.22 3.51 3.15
Total from investment operations $ 3.43 3.31 (3.87) 1.25 3.45 3.11
Less distributions from:
Net investment income $ -- -- 0.02 -- -- 0.02
Net realized gains on investments $ -- -- 0.07 1.06 0.28 0.06
Net asset value, end of period $ 20.17 16.74 13.43 17.39 17.20 14.03
Total Return(4): % 20.49 24.65 (22.23) 8.06 24.79 28.43
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 75,311 53,483 47,180 71,014 38,688 4,718
Ratio to average net assets:
Net expenses after expense
reimbursement(5)(6) % 2.19 2.13 2.27 2.26 2.25 2.25
Gross expenses prior to expense
reimbursement(5) % 2.34 2.66 2.56 2.48 3.08 6.72
Net investment income (loss) after
expense reimbursement(5)(6) % (1.15) (1.30) (0.25) 0.55 (1.14) (0.35)
Portfolio turnover % 211 67 213 243 176 118
<CAPTION>
Class B
-----------------------------------------------------------------------------
Four Three
months Year months May 31,
ended Ended ended Year Ended March 31, 1995(3) to
Oct. 31, June 30, June 30, ---------------------------- March 31,
2000(1) 2000 1999(2) 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period 16.98 13.64 17.64 17.29 14.02 12.50
Income from investment operations:
Net investment income (loss) (0.35) (0.07) (0.22) (0.07) (0.11) (0.04)
Net realized and unrealized gains
(loss) on investments 3.67 3.41 (3.70) 1.26 3.47 1.56
Total from investment operations 3.32 3.34 (3.92) 1.19 3.36 1.52
Less distributions from:
Net investment income -- -- -- -- -- --
Net realized gains on investments -- -- 0.08 0.84 0.09 --
Net asset value, end of period 20.30 16.98 13.64 17.64 17.29 14.02
Total Return(4): 19.55 24.49 (22.23) 7.47 24.00 12.16
Ratios/Supplemental Data:
Net assets, end of period (000's) 30,322 26,342 22,338 38,796 24,558 3,557
Ratio to average net assets:
Net expenses after expense
reimbursement(5)(6) 2.84 2.75 2.91 2.91 2.90 2.90
Gross expenses prior to expense
reimbursement(5) 2.99 3.28 3.20 3.06 3.66 7.58
Net investment income (loss) after
expense reimbursement(5)(6) (1.80) (1.92) (0.80) (0.20) (1.77) (1.05)
Portfolio turnover 211 67 213 243 176 118
</TABLE>
<TABLE>
<CAPTION>
Class C
------------------------------------------------------------------------
Four Three
months Year months
ended Ended ended Year Ended March 31,
Oct. 31, June 30, June 30, -------------------------------------
2000(1) 2000 1999(2) 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 16.35 13.14 16.98 16.81 13.71 10.79
Income from investment operations:
Net investment income (loss) $ (0.32) (0.07) (0.27) (0.12) (0.10) (0.05)
Net realized and unrealized gains
(loss) on investments $ 3.53 3.28 (3.49) 1.26 3.37 2.97
Total from investment operations $ 3.21 3.21 (3.76) 1.14 3.27 2.92
Less distributions from:
Net investment income $ -- -- -- -- -- --
Net realized gains on investments $ -- -- 0.08 0.97 0.17 --
Net asset value, end of period $ 19.56 16.35 13.14 16.98 16.81 13.71
Total Return(4): % 19.63 24.43 (22.21) 7.47 23.94 27.30
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 29,610 24,230 19,246 36,986 29,376 4,345
Ratio to average net assets:
Net expenses after expense
reimbursement(5)(6) % 2.84 2.75 2.90 2.91 2.90 2.90
Gross expenses prior to expense
reimbursement(5) % 2.99 3.28 3.19 3.09 3.12 6.23
Net investment income (loss) after
expense reimbursement(5)(6) % (1.80) (1.92) (0.77) (0.26) (1.75) (1.06)
Portfolio turnover % 211 67 213 243 176 118
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from June 30 to
October 31.
(2) Effective May 24, 1999, INC Pilgrim Investments, Inc., 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) Commencement of offering shares.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(5) Annualized for periods less than one year.
(6) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Emerging Countries Fund 71
<PAGE>
ING PILGRIM WORLDWIDE EMERGING MARKETS FUND FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
For the ten months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods prior to October 31, 2000, the financial information was audited by
other independent auditors.
<TABLE>
<CAPTION>
Ten months
ended Year ended December 31,
October 31, ------------------------------------------------------
2000(1) 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ -- 7.13 10.18 11.49 10.70 11.47
Net investment income (loss) $ -- (0.05) 0.12 0.01 -- 0.08
Net realized and unrealized gain (loss) from investment
operations $ -- 8.05 (3.08) (1.32) 0.79 (0.76)
Total income (loss) from investment operations $ -- 8.00 (2.96) (1.31) 0.79 (0.68)
Less distributions:
Distributions from net investment income $ -- 0.03 0.09 -- -- 0.08
Distributions in excess of net investment income $ -- -- -- -- -- 0.01
Total distributions $ -- 0.03 0.09 -- -- 0.09
Net asset value, end of period $ -- 15.10 7.13 10.18 11.49 10.70
Total Return(2) % -- 112.58 (29.06) (11.40) 7.38 (5.93)
Ratios/Supplemental Data
Net assets, end of period (thousands) $ -- 154,994 65,323 137,686 254,673 265,544
Ratio of expenses to average net assets(3) % -- 2.00 1.85 1.82 1.76 1.88
Ratio of net investment income (loss) to average net
assets(3) % -- (0.66) 1.14 0.09 (0.01) 0.70
Portfolio Turnover Rate % -- 184.39 107.19 112.05 86.26 92.85
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from December 31
to October 31.
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value. Total return for less than
one year is not annualized.
(3) Annualized for periods less than one year.
72 ING Pilgrim Worldwide Emerging Markets Fund
<PAGE>
FINANCIAL HIGHLIGHTS ING PILGRIM GLOBAL TECHNOLOGY FUND
-----------------------------------------------------------------------------
The information in the table below has been audited by PricewaterhouseCoopers,
LLP, independent auditors.
Ten
months
ended
October 31,
2000
-------------------------------------------------------------------------------
Per Share Operating Performance
Net Asset Value, Beginning of Period $
Net investment income (loss) $
Net realized and unrealized gain (loss) from investment
operations $
Total income (loss) from investment operations $
Net asset value, end of period $
Total Return(2) %
Ratios/Supplemental Data
Net assets, end of period (thousands) $
Ratio of expenses to average net assets, before
reimbursement or waiver(3) %
Ratio of expenses to average net assets, net of
reimbursement or waiver(3) %
Ratio of net investment income (loss) to average net
assets, before reimbursement or waiver(3) %
Ratio of net investment income (loss) to average net
assets, net of reimbursement or waiver(3) %
Portfolio Turnover Rate %
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from December 31
to October 31.
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value. Total return for less than
one year is not annualized.
(3) Annualized for periods less than one year.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Global Technology Fund 73
<PAGE>
ING PILGRIM GLOBAL COMMUNICATIONS FUND FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
The information in the table below has been audited by Ernst & Young LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Shares(1) Class B Shares(1) Class C Shares(1)
Year ended October 31, Year ended October 31, Year ended October 31,
2000 2000 2000
----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value Per Share, Beginning of Period $
Net investment operations:
Net investment loss $
Net realized and unrealized loss(2) $
Total income from investment operations $
Distributions paid from investment income $
Net asset value per share, end of period $
Net assets, end of period (thousands) $
Total investment return at net asset value(3)(4) %
Ratios/Supplemental Data
Ratio to average net assets(5)
Net expenses %
Gross expenses %
Net investment loss %
Portfolio Turnover Rate(4) %
</TABLE>
--------------------------------------------------------------------------------
(1) Commenced operations on March 1, 2000.
(2) Includes gains and losses on foreign currency transactions.
(3) Total return assumes reinvestment of all dividend and capital gain
distributions, if any, and does not reflect the deduction of the applicable
sales charges with respect to Class A shares or the applicable contingent
deferred sales charges with respect to Class B and C shares. Total returns
would be lower if part of the Fund's expenses were not waived or
reimbursed.
(4) Not annualized.
(5) Annualized.
74 ING Pilgrim Global Communications Fund
<PAGE>
FINANCIAL HIGHLIGHTS ING PILGRIM GLOBAL INFORMATION TECHNOLOGY FUND
-----------------------------------------------------------------------------
The information in the table below has been audited by Ernst & Young LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Shares(1) Class B Shares(1) Class C Shares(1)
------------------- ------------------- ------------------
Year ended October Year ended October Year ended October
31, 31, 31,
2000 1999 2000 1999 2000 1999
-------------------------------------------------------------------------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value Per Share, Beginning of Period $ 10.00 10.00 10.00
Net investment operations:
Net investment loss $ (0.13) (0.08) (0.05)
Net realized and unrealized gains(2) $ 7.51 7.36 7.33
Total income from investment operations $ 7.38 7.28 7.28
Distributions paid from capital gain $ -- -- --
Net asset value per share, end of period $ 17.38 17.28 17.38
Net assets, end of period (thousands) $ 54.198 5.964 2.102
Total investment return at net asset value(3)(4) % 73.80 72.80 72.80
Ratios/Supplemental Data
Ratio to average net assets(5)
Net expenses % 1.37 2.25 2.24
Gross expenses % 2.55 3.22 3.20
Net investment loss % (1.29) (2.04) 2.05
Portfolio Turnover Rate(6) % 56.88 56.88 56.88
</TABLE>
--------------------------------------------------------------------------------
(1) Class A, B and C shares commenced operations on December 15, 1998.
(2) Includes gains and losses on foreign currency transactions.
(3) Total return assumes reinvestment of all dividend and capital gain
distributions, if any, and does not reflect the deduction of the applicable
sales charges with respect to Class A shares or the applicable contingent
deferred sales charges with respect to Class B and C shares. Total returns
would be lower if part of the Fund's expenses were not waived or
reimbursed.
(4) Not annualized.
(5) Annualized.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Global Information Technology Fund 75
<PAGE>
ING PILGRIM ASIA-PACIFIC EQUITY FUND FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
For the four months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods prior to October 31, 2000, the financial information was audited by
other independent auditors.
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------
Four months Sept. 1,
ended Year Ended June 30, 1995 to
October 31, ------------------------------------- June 30,
2000(1) 2000 1999 1998 1997 1996(2)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 7.22 4.46 10.93 10.35 10.00
Income from investment operations:
Net investment income (loss) $ (0.05) -- 0.03 0.02 0.03
Net realized and unrealized gain (loss) on
investments $ 0.06 2.76 (6.50) 0.58 0.34
Total from investment operations $ 0.01 2.76 (6.47) 0.60 0.37
Less distributions from:
Net investment income $ -- -- -- -- --
In excess of net investment income $ -- -- -- -- 0.02
Tax return of capital $ -- -- -- 0.02 --
Net asset value, end of period $ 7.23 7.22 4.46 10.93 10.35
Total Return(3): % 0.14 61.88 (59.29) 5.78 3.76
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 11,726 14,417 11,796 32,485 18,371
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 2.11 2.00 2.00 2.00 2.00
Gross expenses prior to expense
reimbursement(4) % 2.55 2.98 2.80 2.54 3.47
Net investment income (loss) after expense
reimbursement(4)(5) % (0.56) 0.01 0.38 0.00 0.33
Portfolio turnover rate % 138 111 81 38 15
<CAPTION>
Class B
-------------------------------------------------------------------
Four months Sept. 1,
ended Year Ended June 30, 1995 to
October 31, ------------------------------------- June 30,
2000(1) 2000 1999 1998 1997 1996(2)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period 7.02 4.37 10.83 10.31 10.00
Income from investment operations:
Net investment income (loss) (0.11) (0.04) (0.03) (0.07) (0.01)
Net realized and unrealized gain (loss) on
investments 0.06 2.69 (6.43) 0.59 0.32
Total from investment operations (0.05) 2.65 (6.46) 0.52 0.31
Less distributions from:
Net investment income -- -- -- -- --
In excess of net investment income -- -- -- -- --
Tax return of capital -- -- -- -- --
Net asset value, end of period 6.97 7.02 4.37 10.83 10.31
Total Return(3): (0.71) 60.64 (59.65) 5.04 3.19
Ratios/Supplemental Data:
Net assets, end of period (000's) 12,228 12,959 9,084 30,169 17,789
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) 2.86 2.75 2.75 2.75 2.75
Gross expenses prior to expense
reimbursement(4) 3.30 3.73 3.55 3.29 4.10
Net investment income (loss) after expense
reimbursement(4)(5) (1.31) (0.74) (0.39) (0.79) (0.38)
Portfolio turnover rate 138 111 81 38 15
</TABLE>
<TABLE>
<CAPTION>
Class M
-----------------------------------------------------------------
Four months Sept. 1,
ended Year Ended June 30, 1995 to
October 31, ----------------------------------- June 30,
2000(1) 2000 1999 1998 1997 1996(2)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 7.07 4.40 10.86 10.32 10.00
Income from investment operations:
Net investment income (loss) $ (0.11) (0.02) -- (0.05) --
Net realized and unrealized gain (loss)
on investments $ 0.08 2.69 (6.46) 0.59 0.33
Total from investment operations $ (0.03) 2.67 (6.46) 0.54 0.33
Less distributions from:
Net investment income $ -- -- -- -- --
In excess of net investment income $ -- -- -- -- 0.01
Tax return of capital $ -- -- -- -- --
Net asset value, end of period $ 7.04 7.07 4.40 10.86 10.32
Total Return(3): % (0.42) 60.68 (59.48) 5.26 3.32
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 3,749 5,184 4,265 11,155 6,476
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 2.61 2.50 2.50 2.50 2.50
Gross expenses prior to expense
reimbursement(4) % 3.05 3.48 3.30 3.04 3.88
Net investment income (loss) after expense
reimbursement(4)(5) % (1.06) (0.49) (0.07) (0.55) (0.16)
Portfolio turnover rate % 138 111 81 38 15
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from June 30 to
October 31.
(2) The Fund commenced operations on September 1, 1995.
(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 information 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.
76 ING Pilgrim Asia-Pacific Equity Fund
<PAGE>
FINANCIAL HIGHLIGHTS ING PILGRIM SMALLCAP ASIA GROWTH FUND
-----------------------------------------------------------------------------
For the ten months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods prior to October 31, 2000, the financial information was audited by
other independent auditors.
<TABLE>
<CAPTION>
Ten months
ended Year ended December 31,
October 31, ------------------------------------------------
2000(1) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 5.69 7.06 12.24 9.76 10.00
Net investment income (loss) $ (0.10) -- (0.05) (0.05) 0.02
Net realized and unrealized gain (loss) from
investment operations $ 3.36 (1.37) (5.13) 2.54 (0.24)
Total income (loss) from investment operations $ 3.26 (1.37) (5.18) 2.49 (0.22)
Less distributions:
Distributions from net investment income $ -- -- -- -- 0.02
Distributions in excess of net investment income $ -- -- -- 0.01 --
Total distributions $ -- -- -- 0.01 0.02
Net asset value, end of period $ 8.95 5.69 7.06 12.24 9.76
Total Return(3) % 57.29 (19.41) (42.32) 25.50 4.39
Ratios/Supplemental Data
Net asset, end of period (thousands) $ 14,392 18,278 13,867 23,796 8,936
Ratio of expenses to average net assets, before
reimbursement or waiver(4) % 3.00 2.86 2.30 2.64 3.51
Ratio of expenses to average net assets, net of
reimbursement or waiver(4) % 2.50 2.50 2.30 2.42 1.75
Ratio of net investment income (loss)to average net
assets, before reimbursement or waiver(4) % (1.56) (0.57) (0.32) (0.86) (1.24)
Ratio of net investment income (loss)to average net
assets, net of reimbursement or waiver(4) % (1.05) (0.21) (0.32) (0.64) 0.52
Portfolio Turnover Rate % 172.89 193.48 187.41 176.49 40.22
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from December 31
to October 31.
(2) The Fund commenced operations on July 3, 1995.
(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.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim SmallCap Asia Growth Fund 77
<PAGE>
ING PILGRIM EUROPEAN EQUITY FUND FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
The information in the table below has been audited by Ernst & Young LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A(1) Class B(1) Class C(1)
--------------------- ----------------------- ----------------------
Year ended October 31, Year ended October 31, Year ended October 31,
2000(2) 1999 2000(2) 1999 2000(2) 1999
---------------------------------------------------------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value Per Share, Beginning of Period $ 10.00 10.00 10.00
Net investment operations:
Net investment income (loss) $ 0.04 0.00(7) (0.01)
Net realized and unrealized gains(2) $ 0.91 0.89 0.90
Total from investment operations $ 0.95 0.89 0.89
Distributions paid from:
Capital gain $ -- -- --
Investment income $ -- -- --
Total distributions $ -- -- --
Net asset value per share, end of period $ 10.95 10.89 10.89
Net assets, end of period (thousands) $ 28,746 849 62
Total investment return at net asset value(3)(4) % 9.50 8.90 8.90
Ratios/Supplemental Data
Ratio to average net assets(5)
Net expenses % 1.61 2.27 2.26
Gross expenses % 3.06 3.35 3.34
Net investment loss % 0.48 (0.08) (0.15)
Portfolio Turnover Rate(4) % 62.91 62.91 62.91
</TABLE>
--------------------------------------------------------------------------------
(1) Class A, B and C shares commenced operations on December 15, 1998.
(2) Includes gains and losses on foreign currency transactions.
(3) Total return assumes reinvestment of all dividend and capital gain
distributions, if any, and does not reflect the deduction of the applicable
sales charges with respect to Class A shares or the applicable contingent
deferred sales charges with respect to Class B and C shares. Total returns
would be lower if part of the Fund's expenses were not waived or
reimbursed.
(4) Not annualized.
(5) Annualized.
(6) Amount represents less than $0.01.
78 ING Pilgrim European Equity Fund
<PAGE>
FINANCIAL HIGHLIGHTS ING PILGRIM TROIKA DIALOG RUSSIA FUND
--------------------------------------------------------------------------------
For the ten months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods prior to October 31, 2000, the financial information was audited by
other independent auditors.
<TABLE>
<CAPTION>
Ten months
ended Year ended December 31,
October 31, --------------------------------------------
2000(1) 1999 1998 1997 1996(2)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 2.64 17.50 11.24 12.12
Net investment income (loss) $ 0.18 0.15 (0.01) (0.05)
Net realized and unrealized gain (loss) from investment
operations $ 3.99 (14.70) 7.57 (0.51)
Total income (loss) from investment operations $ 4.17 (14.55) 7.56 (0.56)
Less distributions:
Distributions from net investment income $ 0.07 0.07 -- --
Distributions from net realized gains $ -- 0.24 1.30 0.32
Total distributions $ 0.07 0.31 1.30 0.32
Net asset value, end of period $ 6.74 2.64 17.50 11.24
Total Return(3) % 159.76 82.99 67.50 (9.01)
Ratios/Supplemental Data
Net assets, end of period (thousands) $ 59,011 19,147 137,873 13,846
Ratio of expenses to average net assets, before
redemption fee proceeds(4) % 3.32 2.64 2.89 5.07
Ratio of expenses to average net assets, net of
redemption fee proceeds(4) % 2.23 1.84 1.85 2.65
Ratio of net investment income (loss) to average net
assets, before redemption fee proceeds(4) % 3.30 0.57 (1.14) (3.69)
Ratio of net investment income (loss) to average net
assets, net of redemption fee proceeds(4) % 4.39 1.36 (0.11) (1.27)
Portfolio Turnover Rate % 91.14 65.76 66.84 115.55
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from December 31 to
October 31.
(2) The Fund's commencement of operations was June 3, 1996 with the investment
of its initial capital. The Fund's registration statement with the
Securities and Exchange Commission became effective on July 3, 1996.
Financial results prior to the effective date of the Fund's registration
statement are not presented in this Financial Highlights Table.
(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.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Troika Dialog Russia Fund 79
<PAGE>
ING PILGRIM GOLD FUND FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
For the ten months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods prior to October 31, 2000, the financial information was audited by
other independent auditors.
<TABLE>
<CAPTION>
Ten months
ended
October 31, Year ended December 31,
2000(1) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 3.03 3.24 5.97 6.24 6.37
Net investment income (loss) $ (0.01) -- -- 0.02 --
Net realized and unrealized gain (loss) from
investment operations $ 0.27 (0.21) (2.52) 0.50 (0.12)
Total income (loss) from investment operations $ 0.26 (0.21) (2.52) 0.52 (0.12)
Less distributions:
Distributions from net investment income $ -- -- 0.21 0.79 0.01
Total distributions $ -- -- 0.21 0.79 0.01
Net asset value, end of period $ 3.29 3.03 3.24 5.97 6.24
Total Return(2) % 8.58 (6.39) (42.98) 7.84 (1.89)
Ratios/Supplemental Data
Net assets, end of period (thousands) $ 72,516 50,841 53,707 109,287 135,779
Ratio of expenses to average net assets(3) % 1.94 1.74 1.65 1.60 1.70
Ratio of net investment income (loss) to
average net assets(3) % (0.02) 0.08 0.17 (0.32) 0.07
Portfolio Turnover Rate % 78.55 28.93 38.32 31.04 40.41
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from December 31 to
October 31.
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value. Total return for less than
one year is not annualized.
(3) Annualized for periods less than one year.
80 ING Pilgrim Gold Fund
<PAGE>
FINANCIAL HIGHLIGHTS ING PILGRIM SILVER FUND
--------------------------------------------------------------------------------
For the ten months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods prior to October 31, 2000, the financial information was audited by
other independent auditors.
<TABLE>
<CAPTION>
Ten months Six month
ended Year ended period ended Year ended June 30,
October 31, December 31, December 31, -----------------------------------
2000(1) 1999 1998(2) 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 2.73 3.26 3.95 4.46 4.00 3.92
Net investment income (loss) $ 0.01 (0.01) (0.02) (0.04) (0.03) (0.03)
Net realized and unrealized gain (loss) from investment
operations $ 0.23 (0.52) (0.66) (0.43) 0.51 0.11
Total income (loss) from investment operations $ 0.24 (0.53) (0.68) (0.47) 0.48 0.08
Less distributions:
Distributions from net investment income $ 0.01 -- -- -- -- --
Distributions in excess of net investment income $ -- -- 0.01 0.04 0.02 --
Total distributions $ 0.01 -- 0.01 0.04 0.02 --
Net asset value, end of period $ 2.96 2.73 3.26 3.95 4.46 4.00
Total Return(3) % 8.70 (16.26) (17.32) (10.76) 12.02 2.04
Ratios/Supplemental Data
Net assets, end of period (thousands) $ 25,413 25,560 34,921 42,035 73,945 65,517
Ratio of expenses to average net assets(4) % 2.11 2.37 1.90 1.96 1.73 1.82
Ratio of net investment income (loss) to average net
assets(4) % 0.49 (0.61) (0.54) (0.78) (0.72) (0.83)
Portfolio Turnover Rate % 29.44 5.68 28.78 18.76 44.30 44.22
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from December 31 to
October 31.
(2) The Fund changed its fiscal year-end from June 30 to December 31.
(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.
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Silver Fund 81
<PAGE>
ING PILGRIM GLOBAL INCOME FUND FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
For the ten months ended October 31, 2000, the information in the table below
has been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods prior to October 31, 2000, the financial information was audited by
other independent auditors.
<TABLE>
<CAPTION>
Ten months
ended
October 31, Year ended December 31,
2000(1) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 10.36 10.58 11.22 10.75 9.80
Net investment income (loss) $ 1.16 0.90 1.04 1.01 0.96
Net realized and unrealized gain (loss) from
investment operations $ (1.20) (0.07) (0.50) 0.36 0.95
Total income (loss) from investment operations $ 0.04 0.83 0.54 1.37 1.91
Less distributions:
Distributions from net investment income $ 0.82 0.87 0.91 0.86 0.96
Distributions from net realized gains $ 0.05 0.18 0.27 0.04 --
Total distributions $ 0.87 1.05 1.18 0.90 0.96
Net asset value, end of period $ 9.45 10.36 10.58 11.22 10.75
Total Return(2) % (0.31) 8.21 5.00 13.33 20.10
Ratios/Supplemental Data:
Net assets, end of period (thousands) $ 31,696 36,407 23,668 29,110 12,255
Ratio of expenses to average net assets, before
reimbursement or waiver(3) % 1.86 (4) 1.89 2.17 2.33 3.07
Ratio of expenses to average net assets, net of
reimbursement or waiver(3) % 1.86 (4) 1.50 1.50 1.50 2.75
Ratio of net investment income (loss) to average net
assets, before reimbursement or waiver(3) % 11.52 10.99 8.99 9.49 9.48
Ratio of net investment income (loss) to average net
assets, net of reimbursement or waiver(3) % 11.52 11.38 9.66 10.32 9.80
Portfolio turnover rate % 24.56 45.25 117.94 71.83 164.72
</TABLE>
--------------------------------------------------------------------------------
(1) Effective , 2000, the Fund changed its fiscal year end from December 31 to
October 31.
(2) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value. Total return for less than
one year is not annualized.
(3) Annualized for periods less than one year.
(4) The Fund incepted operation on October 23, 2000.
(5) Annualized for periods less than one year.
82 ING Pilgrim Global Income Fund
<PAGE>
WHERE TO GO FOR MORE INFORMATION
You'll find more information about the ING 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 ING Pilgrim Funds. The SAI
is legally part of this prospectus (it is incorporated by reference). A copy has
been filed with the Securities and Exchange Commission (SEC).
Please write or call for a free copy of the current Annual/Semi-Annual reports,
the SAI or other Fund information, or to make shareholder inquiries:
THE ING PILGRIM FUNDS
7337 East Doubletree Ranch Road
Scottsdale, AZ 85258-2034
1-800-992-0180
Or visit our website at www.pilgrimfunds.com
This information may also be reviewed or obtained from the SEC. In order to
review the information in person, you will need to visit the SEC's Public
Reference Room in Washington, D.C. or call 202-942-8090. Otherwise, you may
obtain the information for a fee by contacting the SEC at:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-0102
or at the e-mail address: [email protected]
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:
ING Pilgrim Mayflower Trust 811-7978
ING Pilgrim Advisory Funds, Inc. 811-9040
ING Pilgrim Mutual Funds 811-7428
ING Pilgrim Global Corporate Leaders Fund, Inc. 811-5113
ING Pilgrim International Fund, Inc. 811-8172
ING Pilgrim Worldwide Emerging Markets Fund, Inc. 811-1838
ING Pilgrim Global Technology Fund, Inc. 811-9649
ING Pilgrim SmallCap Asia Growth Fund, Inc. 811-7287
ING Pilgrim Troika Dialog Russia Fund, Inc. 811-7587
ING Pilgrim Gold Fund, Inc. 811-2881
ING Pilgrim Silver Fund, Inc. 811-4111
ING Pilgrim Global Income Fund 811-4675
ING Funds Trust 811-8895
INTLPROSXXXXXX-XXXXXX
<PAGE>
March 1, 2001
Classes A, B, C, M and T
U.S. EQUITY FUNDS
ING Pilgrim MagnaCap
ING Pilgrim Growth and Income
ING Pilgrim LargeCap Leaders
ING Pilgrim Research Enhanced Index
ING Pilgrim Tax Efficient Equity
ING Pilgrim Growth Opportunities
ING Pilgrim LargeCap Growth
ING Pilgrim MidCap Value
ING Pilgrim MidCap Opportunities
ING Pilgrim MidCap Growth
ING Pilgrim Growth + Value
ING Pilgrim SmallCap Opportunities
ING Pilgrim SmallCap Growth
ING Pilgrim Bank and Thrift
ING Pilgrim Internet
Equity & Income Funds
ING Pilgrim Balanced
ING Pilgrim Convertible
This prospectus contains important information about investing in the ING
Pilgrim Funds. You should read it carefully before you invest, and keep it for
future reference. Please note that your investment: is not a bank deposit, is
not insured or guaranteed by the FDIC, the Federal Reserve Board or any other
government agency and is affected by market fluctuations. There is no guarantee
that the Funds will achieve their objectives. As with all mutual funds, the
Securities and Exchange Commission (SEC) has not approved or disapproved these
securities nor has the SEC judged whether the information in this prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
<PAGE>
WHAT'S INSIDE
--------------------------------------------------------------------------------
These pages contain a description of each of our Funds included in this
prospectus, including its objective, investment strategy and risks.
[GRAPHIC]
OBJECTIVE
[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 ING Pilgrim Funds 1
Funds At A Glance 2
U.S. EQUITY FUNDS
ING Pilgrim MagnaCap 4
ING Pilgrim Growth and Income 6
ING Pilgrim LargeCap Leaders 8
ING Pilgrim Research Enhanced Index 10
ING Pilgrim Tax Efficient Equity 12
ING Pilgrim Growth Opportunities 14
ING Pilgrim LargeCap Growth 16
ING Pilgrim MidCap Value 18
ING Pilgrim MidCap Opportunities 20
ING Pilgrim MidCap Growth 22
ING Pilgrim Growth + Value 24
ING Pilgrim SmallCap Opportunities 26
ING Pilgrim SmallCap Growth 28
ING Pilgrim Bank and Thrift 30
ING Pilgrim Internet 32
EQUITY & INCOME FUNDS
ING Pilgrim Balanced 34
ING Pilgrim Convertible 36
WHAT YOU PAY TO INVEST 38
SHAREHOLDER GUIDE 43
MANAGEMENT OF THE FUNDS 50
DIVIDENDS, DISTRIBUTIONS AND TAXES 53
MORE INFORMATION ABOUT RISKS 54
FINANCIAL HIGHLIGHTS 57
WHERE TO GO FOR MORE INFORMATION Back cover
<PAGE>
INTRODUCTION TO THE
ING 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.
If you have any questions about the ING 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 about the ING Pilgrim Funds, please call your
financial consultant or us at 1-800-992-0180.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
1
<PAGE>
--------
Funds
At A
Glance
--------
This table is a summary of the objectives, main investments and risks of each
ING 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.
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
---- --------------------
<S> <C> <C>
U.S. Equity MagnaCap Fund Growth of capital, with dividend income as a
Funds Adviser: ING Pilgrim Investments, Inc. secondary consideration
Growth and Income Fund Long-term capital appreciation, with income
Adviser: ING Pilgrim Investments, Inc. as a secondary objective
LargeCap Leaders Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Research Enhanced Index Fund Capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Sub-Adviser: J.P. Morgan
Investment Management Inc.
Tax Efficient Equity Fund High total return on an after-tax basis
Adviser: ING Mutual Funds Management Co. LLC.
Sub-Adviser: Delta Asset Management.
Growth Opportunities Fund Long-term growth of capital
Adviser: ING Pilgrim Investments, Inc.
LargeCap Growth Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
MidCap Value Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
MidCap Opportunities Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
MidCap Growth Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Growth + Value Fund Capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Sub-Adviser: Navellier Fund
Management, Inc.
SmallCap Opportunities Fund Capital appreciation
Adviser: ING Pilgrim Investments, Inc.
SmallCap Growth Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Bank and Thrift Fund Long-term capital appreciation, with income
Adviser: ING Pilgrim Investments, Inc. as a secondary objective
Internet Fund
Adviser: ING Mutual Funds Management Co. LLC. Long-term capital appreciation
Sub-Adviser: ING Investment Management Advisors B.V.
Equity & Balanced Fund Long-term capital appreciation and current income
Income Funds Adviser: ING Pilgrim Investments, Inc.
Convertible Fund Total return, consisting of capital appreciation
Adviser: ING Pilgrim Investments, Inc. and current income
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MAIN INVESTMENTS MAIN RISKS
---------------- ----------
<S> <C>
Equity securities that meet disciplined Price volatility and other risks that accompany an investment in
selection criteria designed to identify equity securities.
companies capable of paying rising
dividends.
Equity securities of large, ably Price volatility and other risks that accompany an investment in
managed, and well-financed U.S. equity securities.
companies.
Equity securities of large U.S. Price volatility and other risks that accompany an investment in
companies believed to be leaders in equity securities.
their industries.
Equity securities of large U.S. Price volatility and other risks that accompany an investment in
companies that make up the S&P 500 equity securities.
Index.
Equity securities and instruments whose Price volatility and other risks that accompany an investment in
returns depend upon stock market prices, equity securities. May not provide as high a return before taxes
managed in a manner that will attempt to as other funds, and as a result may not be suitable for investors
reduce net realized gains each year. who are not subject to current income tax.
Equity securities of large, medium, and Price volatility and other risks that accompany an investment in
small U.S. companies believed to have growth-oriented equity securities.
growth potential.
Equity securities of large U.S. Price volatility and other risks that accompany an investment in
companies believed to have growth growth-oriented equity securities.
potential.
Equity securities of medium-sized U.S. Price volatility and other risks that accompany an investment in
companies that meet disciplined equity securities of medium-sized companies. Particularly
selection criteria designed to identify sensitive to price swings during periods of economic uncertainty.
companies with prices below their
long-term value.
Equity securities of medium-sized U.S. Price volatility and other risks that accompany an investment in
companies believed to have growth equity securities of growth-oriented and medium-sized companies.
potential. 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 investment in
companies believed to have growth equity securities of medium-sized companies. Particularly
potential. sensitive to price swings during periods of economic uncertainty.
Equity securities of small-sized U.S. Price volatility and other risks that accompany an investment in
companies. 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 investment in
companies believed to have growth equity securities of growth-oriented and small-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 investment in
companies believed to have growth equity securities of growth-oriented and small-sized companies.
potential. Particularly sensitive to price swings during periods of economic
uncertainty.
Equity securities of banks and thrifts Price volatility and other risks that accompany an investment in
or their holding or parent companies, equity securities. Susceptible to risks of decline in the price
and savings accounts of mutual thrifts. of securities concentrated in the banking and thrift industries.
U.S. and non-U.S. internet technology Price volatility and other risks that accompany an investment in
companies. 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 Price volatility and other risks that accompany an investment in
various sizes, as well as equities, and equity securities. Credit, interest rate, liquidity and other
high-yield debt. risks that accompany an investment in debt securities,and lower
quality debt securities.
</TABLE>
3
<PAGE>
------------
U.S. Equity
Funds
------------
ING PILGRIM MAGNACAP FUND Adviser
ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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 10 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 ING Pilgrim MagnaCap Fund
<PAGE>
ING 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 A shares from
year to year.
Year by Year Total Returns (%)(1)
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
Best and worst quarterly performance during this period:
quarter : up %
quarter : down %
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.
Average Annual Total Returns
<TABLE>
<CAPTION>
S&P
500
Class A(3) Class B(4) Class C(4) Class M(5) Index(6)
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 % N/A
Ten years, ended
December 31, 2000 % N/A
Since inception of
Classes B and M(7) % N/A
Since inception of
Classes C(8) % N/A N/A -- N/A --
</TABLE>
----------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5%, 2% and 1% respectively,
for 1 year, five year and since inception returns.
(4) Reflects deduction of deferred sales charge of 1% for 1 year return.
(5) Reflects deduction of sales charge of 3.5%.
(6) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies.
(7) Classes B and M commenced operations on July 17, 1995.
(8) Class C commenced operations on ___________.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim MagnaCap Fund 5
<PAGE>
-----------
U.S. Equity
Funds
-----------
ING PILGRIM GROWTH AND INCOME FUND
Adviser
ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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 ING Pilgrim Growth and Income Fund
<PAGE>
ING 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
Best and worst quarterly performance during this period:
quarter 1998: up %
quarter 1990: down %
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).
Average Annual Total Returns
S&P
500
Class A(3)(4) Index(5)
------------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 %
----------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Prior to July 26, 2000, Lexington Management Corporation served as the
adviser to the Fund and the Fund's shares were sold on a no-load basis.
Effective July 31, 2000, the Fund's outstanding shares were classified as
"Class A" shares.
(3) This table shows the performance of the Class A shares of the Fund. Class B
and Class C shares of the Fund did not have a full year's performance
during the year ended December 31, 2000.
(4) Reflects a deduction of sales charge of 5.75%.
(5) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Growth and Income Fund 7
<PAGE>
-----------
U.S. Equity
Funds
-----------
ING PILGRIM LARGECAP LEADERS FUND Adviser
ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund normally invests at least 65% of its total assets in equity securities
of large U.S. companies that the adviser believes are leaders in their
industries. The portfolio managers consider whether these companies have a
sustainable competitive edge.
The portfolio managers emphasize a value approach, 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
(outstanding shares multiplied by price per share) 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.
The equity securities in which the Fund may invest include common stock,
convertible securities, preferred stock, American Depositary Receipts, and
warrants. The Fund normally invests as fully as practicable (at least 80%) in
equity securities.
Pending Merger -- Subject to Shareholder approval, the Fund's Board of Directors
has approved the reorganization of the Fund into ING Pilgrim MagnaCap Fund. You
could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests 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.
8 ING Pilgrim LargeCap Leaders Fund
<PAGE>
ING PILGRIM LARGECAP LEADERS 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
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
21.07 20.15 20.08 18.94
Best and worst quarterly performance during this period:
quarter 1998: up %
quarter 1998: down %
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).
Average Annual Total Returns
<TABLE>
<CAPTION>
S&P 500
Class A(3) Class B(4) Class C(5) Class M(6) Index(7)
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> C> <C> <C>
One year, ended
December 31 2000 %
--
Five years, ended
December 31, 2000 % -- -- N/A -- --
Since inception of N/A
Classes A, B and M(8) %
Since inception of
Class C(9) % N/A N/A -- N/A
</TABLE>
----------
(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 November 1, 1998, the Fund's investment policies were different in
that they emphasized large company value stocks without necessarily
emphasizing industry leaders. ING Pilgrim Investments, Inc. has been the
Fund's investment adviser since the Fund commenced operations; however,
prior to November 1, 1997, the Fund was managed by a sub-adviser.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for
1 year and since inception returns.
(5) Reflects deduction of deferred sales charge of 1% for 1 year return.
(6) Reflects deduction of sales charge of 3.5%.
(7) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies.
(8) Classes A, B and M commenced operations on September 1, 1995.
(9) Class C shares commenced operations on ____________.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim LargeCap Leaders Fund 9
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING Pilgrim Investments, Inc.
Sub-Adviser
ING PILGRIM RESEARCH ENHANCED INDEX FUND J.P. Morgan Investment Management Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund invests primarily in large companies that make up the Standard & Poor's
500 Composite Stock Price Index (S&P 500 Index). Based on extensive research
regarding projected company earnings and dividends, a valuation model ranks
companies in each industry group according to their relative value. Using this
valuation model, the portfolio managers select stocks for the Fund. Within each
industry, the Fund modestly overweights stocks that are ranked as undervalued or
fairly valued while modestly underweighting or not holding stocks that appear
overvalued. Industry by industry, the Fund's assets are invested so that the
Fund's industry sector allocations and market cap weightings closely parallel
those of the S&P 500 Index.
By owning a large number of stocks within the S&P 500 Index, with an emphasis on
those that appear undervalued or fairly valued, and by tracking the industry
weightings and other characteristics of that index, the Fund seeks returns that
modestly exceed those of the S&P 500 Index over the long term with virtually the
same level of volatility.
Under normal market conditions, the Fund invests at least 80% of its total
assets in common stocks included in the S&P 500 Index. It may also invest in
other common stocks not included in 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).
--------------------------------------------------------------------------------
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.
10 ING Pilgrim Research Enhanced Index Fund
<PAGE>
ING 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 Return (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
18.59
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
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.
Average Annual Total Return
<TABLE>
<CAPTION>
S&P 500
Class A(2) Class B(3) Class C(4) Index(5)
---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000(6) %
Since inception(6) % -- -- -- --
</TABLE>
----------
(1) These figures are for the year ended December 31, of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of deferred sales charge of 5% and 3% respectively, for
the 1 year and since inception returns.
(4) Reflects deduction of a 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 U.S. companies.
(6) The Fund commenced operations on December 30, 1998.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Research Enhanced Index Fund 11
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING Mutual Funds Management Co. LLC
Sub-Adviser
ING 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.
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.
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).
12 ING Pilgrim Tax Efficient Equity Fund
<PAGE>
ING 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 is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Return (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
18.53
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
The table below provides some indication of the risks of investing in the Fund,
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).
Average Annual Total Returns
S&P 500
Class A(2) Class B(3) Class C(4) Index(5)
---------- ---------- ---------- --------
One year, ended
December 31, 2000
Since inception(6)
----------
(1) These figures are for the year ended December 31, of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of deferred sales charge of 5% and 3% respectively, for
the 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) The S&P 500 Index is an unregulated index that measures performance of
securities of approximately 500 large capitalization U.S. companies.
(6) The Fund commenced operations on December 15, 1998.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Tax Efficient Equity Fund 13
<PAGE>
------------
U.S. Equity
Funds
------------
Adviser
ING PILGRIM GROWTH OPPORTUNITIES FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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.
14 ING Pilgrim Growth Opportunities Fund
<PAGE>
ING 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 shares from year to
year.
Year by Year Total Returns (%)(1)
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
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
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).
Average Annual Total Returns
<TABLE>
<CAPTION>
S&P 500
Class A(2) Class B(3) Class C(4) Class T(5) Index(6)
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 %
Since inception of
Classes A, B, and C(7) %
</TABLE>
----------
(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.
(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, five year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(5) Reflects deduction of a deferred sales charge of 4% for the 1 year return.
(6) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies.
(7) Classes A, B and C commenced operations on June 5, 1995. Class T commenced
operations on February 3, 1986.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Growth Opportunities Fund 15
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM LARGECAP GROWTH FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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, warrants, and convertible securities. 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 December 31, 2000, this meant market
capitalizations in the range of $ billion to $ 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 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.
16 ING Pilgrim LargeCap Growth Fund
<PAGE>
ING 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 A shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
59.45 96.41
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
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.
Average Annual Total Returns
<TABLE>
<CAPTION>
Russell 1000
Growth S&P 500
Class A(3) Class B(4) Class C(5) Index(6) Index (7)
---------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Since inception(8) %
</TABLE>
----------
(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, Inc. has been the Fund's investment adviser since
May 24, 1999; however, prior to October 1, 2000, the Fund was advised by a
sub-adviser.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
1 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) 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.
(7) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large capitalization U.S. companies.
(8) The Fund commenced operations on July 21, 1997.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim LargeCap Growth Fund 17
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM MIDCAP VALUE FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund normally invests as fully as practicable (at least 80% of its assets)
in equity securities of medium-sized U.S. companies. The Fund will normally
invest at least 65% of its assets in equity securities of companies that meet
the following disciplined criteria, which are intended to identify companies
that are attractive values:
Consistent Dividends -- The company must have paid or had the financial
capability from its operations to pay a dividend in its last five fiscal years.
Strong Balance Sheet -- If the company has debt that is rated, that debt is
rated investment grade by a nationally recognized rating agency. If the company
does not have debt that is rated, the company's long-term debt to capitalization
ratio is below 25%.
Reinvested Earnings -- The company currently pays out in dividends less than 65%
of current earnings, or less than the dividend payout as a percentage of current
earnings of at least half of the medium-sized companies in similar industries.
Attractive Price -- The ratio of the stock's price to the next fiscal year's
anticipated earnings is less than the corresponding ratio for at least half of
the medium-sized companies in similar industries.
The Fund considers a company to be medium-sized if it has a market
capitalization between $1 billion and $8 billion. The equity securities in which
the Fund may invest include common stock, convertible securities, preferred
stock and warrants.
PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors
has approved the reorganization of the Fund into Pilgrim MagnaCap Fund. You
could therefore ultimately hold shares of that fund.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests in medium-sized
companies, which may be more susceptible to price swings than larger companies,
but usually tend to have less volatile price swings than smaller companies.
Securities of medium-size companies 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 mid-cap
value securities that meet the Fund's disciplined investment criteria. Rather,
the market could favor growth-oriented stocks or large or small company stocks,
or may not favor equities at all.
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.
18 ING Pilgrim MidCap Value Fund
<PAGE>
ING PILGRIM MIDCAP 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
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
29.56 21.87 4.89 -7.32
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
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 Midcap Index and the Russell Midcap Value Index.
Average Annual Total Returns
<TABLE>
<CAPTION>
Russell
Russell Midcap
Midcap Value
Class A(3) Class B(4) Class C(5) Class M(6) Index(7) Index(8)
---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Five years ended
December 31, 2000 % N/A
Since inception of
Classes A, B and M(9) % N/A
Since inception of
Class C(10) % N/A N/A N/A
</TABLE>
----------
(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 1, 1999, the Fund's investment policies were different in
that they emphasized midcap value stocks without employing the current
disciplined selection criteria. ING Pilgrim Investments, Inc. has been the
Fund's investment adviser since the Fund commenced operations; however,
prior to October 1, 1999, the Fund was managed by a sub-adviser.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5%, 2% and 1%, respectively,
for 1 year, 5 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) Reflects deduction of a sales charge of 3.5%.
(7) The Russell Midcap Index is an unmanaged index that measures the
performance of the 800 smallest companies in the Russell 1000 Index.
(8) The Russell MidCap Value Index measures the performance of companies in the
Russell Midcap Index with lower book-to-price ratios and lower forecasted
growth values.
(9) Classes A, B and M commenced operations on September 1, 1995.
(10) Class C commenced operations on May 24, 1999.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim MidCap Value Fund 19
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM MIDCAP OPPORTUNITIES FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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 December 31, 2000, the
market capitalization of companies in the S&P MidCap 400 Index ranged from $
million to $ 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.
20 ING Pilgrim MidCap Opportunities Fund
<PAGE>
ING 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 Return (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
103.24
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : up %
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.
Average Annual Total Return
<TABLE>
<CAPTION>
S&P
MidCap 400
Class A(2) Class B(3) Class C(4) Index(5)
---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Since Inception(6) %
</TABLE>
----------
(1) These figures are for the year ended December 31, of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
the 1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 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 Fund commenced operations on August 20, 1998.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim MidCap Opportunities Fund 21
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM MIDCAP GROWTH FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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. 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.
--------------------------------------------------------------------------------
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.
22 ING Pilgrim MidCap Growth Fund
<PAGE>
ING 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 A shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-11.00 37.64 15.84 15.88 14.14 97.56
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
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.
Average Annual Total Returns
<TABLE>
<CAPTION>
S&P Russell
MidCap Midcap
400 Growth
Class A(3) Class B(4) Class C(5) Index(6) Index(7)
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of
Classes A and C(8) % N/A (9)
Since inception
of Class B(8) % N/A N/A
</TABLE>
----------
(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, Inc. 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.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5%, 2% and 1%, respectively,
for 1 year, 5 year and since inception returns.
(5) Reflects deduction of a sales charge of 1% for the 1 year return.
(6) 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.
(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) Classes A and C commenced operations on April 19, 1993. Class B commenced
operations on May 31, 1995.
(9) Index return is for period beginning April 30, 1993.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim MidCap Growth Fund 23
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING Pilgrim Investments, Inc.
Sub-Adviser
ING 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.
24 ING Pilgrim Growth + Value Fund
<PAGE>
ING 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)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
18.10 17.72 86.10
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
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 2000 Index and the Russell 3000 Index.
Average Annual Total Returns
<TABLE>
<CAPTION>
Russell Russell
2000 3000
Class A(2) Class B(3) Class C(4) Index(5) Index(6)
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Since inception(7) %
</TABLE>
----------
(1) These figures are for the year ended December 31 of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%.
(3) Reflects deduction of deferred sales charge of 5% and 2%, respectively, for
1 year and since inception returns.
(4) Reflects deduction of a deferred sales charge of 1% for the 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 3000 Index is an unmanaged index that measures the performance
of the 3,000 largest U.S. companies based on total market capitalization.
(7) The Fund commenced operations on November 18, 1996.
(8) Index return is for period beginning December 1, 1996.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Growth + Value Fund 25
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM SMALLCAP OPPORTUNITIES FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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 December 31, 2000 ranged from $ million to $
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.
The Fund was closed to new investors effective February 29, 2000. Investors who
were shareholders of the Fund on that day may continue to buy shares after that
date into accounts existing on that day. The Fund may reopen in the future
subject to the discretion of the Board of Trustees.
--------------------------------------------------------------------------------
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.
26 ING Pilgrim SmallCap Opportunities Fund
<PAGE>
ING 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 shares from year to
year.
Year by Year Total Returns (%)(1)
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
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
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.
Average Annual Total Returns
<TABLE>
<CAPTION>
Russell
2000
Class A(2) Class B(3) Class C(4) Class T(5) Index(6)
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 %
Since inception of
Classes A, B, and C(7) % N/A
</TABLE>
----------
(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.
(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 a deferred sales charge of 1% for the 1 year return.
(5) Reflects deduction of a deferred sales charge of 4% for the 1 year return.
(6) The Russell 2000 Index is an unmanaged index that measures the performance
of securities of small companies.
(7) Classes A, B and C commenced operations on June 5, 1995. Class T commenced
operations on February 3, 1986.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim SmallCap Opportunities Fund 27
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM SMALLCAP GROWTH FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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
December 31, 2000, the market capitalization of companies held by the Fund
ranged from $ million to $ billion. The market capitalization range will change
as the range of the companies included in the Russell 2000 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.
28 ING Pilgrim SmallCap Growth Fund
<PAGE>
ING 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 A shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-4.03 34.87 18.27 11.24 3.68 89.97
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
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.
Average Annual Total Returns
<TABLE>
<CAPTION>
Russell
2000
Growth
Class A(3) Class B(4) Class C(5) Index(6)
---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of
Classes A and C(7) % N/A (8)
Since inception
for Class B(7) % N/A N/A
</TABLE>
----------
(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, Inc. 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.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5%, 2% and 1%, respectively,
for 1 year, 5 year and since inception returns.
(5) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(6) 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.
(7) Classes A and C commenced operations on December 27, 1993. Class B
commenced operations on May 31, 1995.
(8) Index return is for period beginning December 31, 1993.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim SmallCap Growth Fund 29
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM BANK AND THRIFT FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund primarily seeks long-term capital appreciation; a secondary objective
is income.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund invests, under normal market conditions, at least 65% of its total
assets in equity securities of national and state-chartered banks (other than
money center banks), thrifts, and the holding or parent companies of such
depository institutions, and in savings accounts of mutual thrifts that may
allow the Fund to participate in stock conversions of the mutual thrift. This
policy may only be changed with approval of the shareholders of the Fund. The
equity securities described above include common stocks, convertible securities
(including convertible preferred stock) and warrants, but do not include
non-convertible preferred stocks or adjustable rate preferred stocks. The Fund
invests primarily in banking organizations that are small- to medium-sized.
The Fund may invest up to 35% of its total assets in equity securities,
including preferred stocks or adjustable rate preferred stocks, of other types
of issuers, including money center banks, other financial services companies,
and companies that are not in financial services industries, and in
nonconvertible debt securities (including certificates of deposit, commercial
paper, notes, bonds or debentures) of any maturity that are either issued or
guaranteed by the United States Government or an agency thereof or issued by a
corporation or other issuer and rated in one of the top four categories by
Moody's (Baa and better) or S&P (BBB and better) or similarly rated by another
nationally recognized rating organization. The Fund may invest up to 10% of its
assets in securities of other investment companies.
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 invests primarily in small- to
medium-sized 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 value
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
banking and thrift 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 banks and thrifts as a group falls out of favor, the Fund could underperform
funds that focus on other types of companies.
Other Investment Companies -- because the Fund invests in other investment
companies, you may indirectly pay a proporationate 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.
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.
30 ING Pilgrim Bank and Thrift Fund
<PAGE>
ING PILGRIM BANK AND THRIFT 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
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
49.49 32.36 7.79 -1.89 49.69 41.10 64.86 -1.83 -18.64
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of three 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 and the NASDAQ 100 Financial Index.
Average Annual Total Returns(2)
<TABLE>
<CAPTION>
S&P Major
Regional NASDAQ 100
S&P 500 Banks Financial
Class A(3) Class B(4) Index(5) Index(6) Index(7)
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 % N/A N/A
Since inception
of Class B(8) % N/A
</TABLE>
----------
(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.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5% and 3%, respectively, for
1 year and since inception returns.
(5) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies.
(6) 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) The NASDAQ 100 Financial Index is an unmanaged index that measures the
performance of securities of the 100 largest financial companies traded on
NASDAQ.
(8) Class B shares commenced operations on October 17, 1997.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Bank and Thrift Fund 31
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING Mutual Funds Management Co. LLC
Sub-Adviser
ING 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.
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.
32 ING Pilgrim Internet Fund
<PAGE>
ING 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 is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Return (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Best and worst quarterly performance during this period:
quarter 2000: up %
quarter 2000: down %
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.
Average Annual Total Return
<TABLE>
<CAPTION>
S&P 500 @Net
Class A(2) Class B(3) Class C(4) Index(5) Index (6)
---------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Since inception(7) % -- -- -- --
</TABLE>
----------
(1) These figures are for the year ended December 31, of each year. They do not
reflect sales charges and would be lower if they did.
(2) Reflects deduction of sales charge of 5.75%
(3) Reflects deduction of deferred sales charge of 5% and 4% respectively, for
the 1 year and since inception returns.
(4) Reflects deduction of a 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 U.S. companies
(6) 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.
(7) The Fund commenced operations on July 1, 1999.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Internet Fund 33
<PAGE>
------------
Equity &
Income Funds
------------
Adviser
ING PILGRIM BALANCED FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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.
34 ING Pilgrim Balanced Fund
<PAGE>
ING 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 A shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-6.29 23.43 16.39 20.50 23.35 6.46
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that 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 and 40% Lehman
Brothers Government/Corporate Bond Index.
Average Annual Total Returns(3)
<TABLE>
<CAPTION>
S&P Lehman Lipper
Barra Aggregate Balanced
Class Class Class Value Bond Fund Composite
A(4) B(5) C(6) Index(7) Index(8) Index(9) Index
---- ---- ---- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of
Class A and C(10) %
Since inception of
Class B(10) %
</TABLE>
----------
(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.
(3) Class T did not have a full year's performance as of December 31, 2000.
(4) Reflects deduction of sales charge of 5.75%.
(5) Reflects deduction of deferred sales charge of 5%, 2% and 1% respectively,
for 1 year, 5 year and since inception returns.
(6) Reflects deduction of a deferred sales charge of 1% for the 1 year return.
(7) The S&P Barra Value Index is a capitalization-weighted index of all stocks
in the Standard and Poor's 500 Composite Stock Price Index ("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.
(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) 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).
(10) Classes A and C commenced operations on April 19, 1993. Class B commenced
operations on May 31, 1995. Class T commenced operations on January 4,
2000.
(11) Index return is for period beginning May 1, 1993.
(12) Index return is for period beginning April 30, 1993.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Balanced Fund 35
<PAGE>
------------
Equity &
Income Funds
------------
Adviser
ING PILGRIM CONVERTIBLE FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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. Through investments in convertible securities, the Fund seeks to
capture the upside potential of the underlying equities with less downside
exposure.
The Fund normally invests a minimum of 25% of its total assets in common and
preferred stocks, and 25% in other income producing convertible and debt
securities. The Fund may also invest up to 35% of its net assets in high yield
debt or convertible securities (commonly known as "junk bonds") rated below
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated. There is no minimum credit rating for high yield
securities in which the Fund may invest. The Fund may also invest in securities
issued by the U.S. government and its agencies and instrumentalities.
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. Zero coupon securities are particularly
sensitive to changes in interest rates.
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 and
covertible 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.
36 ING Pilgrim Convertible Fund
<PAGE>
ING 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 A shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-8.23 21.67 20.29 22.58 20.86 50.20
Best and worst quarterly performance during this period:
quarter 19 : up %
quarter 19 : down %
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.
Average Annual Total Returns
<TABLE>
<CAPTION>
First
Boston
Convertible
Class A(3) Class B(4) Class C(5) Index(6)
---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of
Classes A and C(7) % N/A
Since inception of
Class B(7) % N/A N/A
</TABLE>
----------
(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, Inc. has been the Fund's investment adviser since
May 24, 1999; however, prior to October 1, 2000, the Fund was advised by a
sub-adviser.
(3) Reflects deduction of sales charge of 5.75%.
(4) Reflects deduction of deferred sales charge of 5%, 2% and 1% respectively
for 1 year, 5 year and since inception returns.
(5) Reflects deduction of sales charge of 1% for the 1 year return.
(6) 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.
(7) Classes A and C commenced operations on April 19, 1993. Class B commenced
operations on May 31, 1995.
(8) Index returns for period beginning April 30, 1993.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Convertible Fund 37
<PAGE>
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 ING Pilgrim Funds.
FEES YOU PAY DIRECTLY
<TABLE>
<CAPTION>
Class A Class B Class C(1) Class M(1) Class T(2)
------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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)
</TABLE>
----------
(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.
(7) Imposed upon redemption within 4 years from purchase. The fee has scheduled
reductions after the first year. Please see page 40.
<TABLE>
<CAPTION>
Operating Expenses Paid Each Year by the Funds(1)
(as a % of average net assets)
Class A
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(2) Expenses
---- --- ---- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MagnaCap % 0.71 0.30 0.28 1.29 -- 1.29
Growth and Income % 0.62 0.25 0.42 1.29 -- 1.29
LargeCap Leaders(3) % 0.85 0.25 0.59 1.69 -- 1.69
Research Enhanced Index % 0.70 0.30 0.56 1.56 -- 1.56
Tax Efficient Equity % 0.80 0.35 -- --
Growth Opportunities % 0.95 0.30 0.34 1.59 -- 1.59
LargeCap Growth % 0.75 0.35 0.26 1.36 -- 1.36
MidCap Value(3) % 0.85 0.25 0.63 1.73 -- 1.73
MidCap Opportunities % 1.00 0.30 0.44 1.74 -- 1.74
MidCap Growth % 0.75 0.35 0.26 1.36 -- 1.36
Growth + Value % 1.00 0.30 0.39 1.69 -- 1.69
SmallCap Opportunities % 1.00 0.30 0.38 1.68 -- 1.68
SmallCap Growth % 1.00 0.35 0.32 1.67 -0.05 1.62
Bank and Thrift % 0.72 0.25 0.44 1.41 -- 1.41
Internet % 1.25 0.35 0.64 -- --
Balanced(4) % 0.75 0.35 0.51 1.61 -0.21 1.40
Convertible % 0.75 0.35 0.25 1.35 -- 1.35
</TABLE>
38 What You Pay to Invest
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Expenses Paid Each Year by the Funds(1)
(as a % of average net assets)
Class B(5)
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(3) Expenses
---- --- ---- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MagnaCap % 0.71 1.00 0.28 1.99 -- 1.99
Growth and Income % 0.62 1.00 0.42 2.04 -- 2.04
LargeCap Leaders % 0.85 1.00 0.59 2.44 -- 2.44
Research Enhanced Index % 0.70 1.00 0.59 2.29 -- 2.29
Tax Efficient Equity % 0.80 1.00 -- --
Growth Opportunities % 0.95 1.00 0.35 2.30 -- 2.30
LargeCap Growth % 0.75 1.00 0.26 2.01 -- 2.01
MidCap Value % 0.85 1.00 0.63 2.48 -- 2.48
MidCap Opportunities % 1.00 1.00 0.40 2.40 -- 2.40
MidCap Growth % 0.75 1.00 0.26 2.01 -- 2.01
Growth + Value % 1.00 1.00 0.39 2.39 -- 2.39
SmallCap Opportunities % 1.00 1.00 0.40 2.40 -- 2.40
SmallCap Growth % 1.00 1.00 0.32 2.32 -0.05 2.27
Bank and Thrift % 0.72 1.00 0.44 2.16 -- 2.16
Internet % 1.25 1.00 -- --
Balanced(4) % 0.75 1.00 0.51 2.26 -0.21 2.05
Convertible % 0.75 1.00 0.25 2.00 -- 2.00
Class C(6)
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(3) Expenses
---- --- ---- -------- -------- ---------- --------
MagnaCap % 0.71 1.00 0.28 1.99 -- 1.99
Growth and Income % 0.62 1.00 0.42 2.04 -- 2.04
LargeCap Leaders % 0.85 1.00 0.59 2.44 -- 2.44
Research Enhanced Index % 0.70 1.00 0.57 2.27 -- 2.27
Tax Efficient Equity % 0.80 1.00 0.70 2.50
Growth Opportunities % 0.95 1.00 0.35 2.30 -- 2.30
LargeCap Growth % 0.75 1.00 0.26 2.01 -- 2.01
MidCap Value % 0.85 1.00 0.63 2.48 -- 2.48
MidCap Opportunities % 1.00 1.00 0.36 2.36 -- 2.36
MidCap Growth % 0.75 1.00 0.26 2.01 -- 2.01
Growth + Value % 1.00 1.00 0.40 2.40 -- 2.40
SmallCap Opportunities % 1.00 1.00 0.43 2.43 -- 2.43
SmallCap Growth % 1.00 1.00 0.32 2.32 -0.05 2.27
Internet % 1.25 1.00 0.64 2.89
Balanced(4) % 0.75 1.00 0.51 2.26 -0.21 2.05
Convertible % 0.75 1.00 0.25 2.00 -- 2.00
</TABLE>
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
What You Pay to Invest 39
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class M
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(3) Expenses
---- --- ---- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MagnaCap % 0.71 0.75 0.28 1.74 -- 1.74
LargeCap Leaders % 0.85 0.75 0.59 2.19 -- 2.19
MidCap Value % 0.85 0.75 0.63 2.23 -- 2.23
Class T(7)
Distribution Total
and Service Fund Fee Waiver
Management (12b-1) Other Operating by Net
Fund Fee Fees Expenses Expenses Adviser(3) Expenses
---- --- ---- -------- -------- ---------- --------
Growth Opportunities % 0.95 0.95 0.33 2.23 -- 2.23
SmallCap Opportunities % 1.00 0.95 0.36 2.31 -- 2.31
Balanced(4) % 0.75 0.75 0.51 2.01 -0.21 1.80
</TABLE>
----------
(1) These tables show the estimated operating expenses for each Fund by class
as a ratio of expenses to average daily net assets. These estimates are
based on each Fund's actual operating expenses for its most recent complete
fiscal year, as adjusted for contractual changes, and fee waivers to which
the Adviser has agreed for each Fund except Growth and Income. For Growth
and Income, estimated operating expenses are based on estimated contractual
operating expenses commencing with ING Pilgrim Investments' management of
the Fund.
(2) ING Pilgrim Investments has entered into written expense limitation
agreements with each Fund which it advises except MagnaCap, Bank and
Thrift, 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 "Fee Waiver by Adviser". For each Fund, the expense
limit will continue through at least October 31, 2001.
(3) IMFC has entered into written expense limitation agreements with the Tax
Efficient Equity and Internet Funds, under which it will limit expenses of
the Fund excluding interest, taxes, brokerage and extraordinary expenses.
The amount of each Fund's expenses waived during the last fiscal year by
IMFC is shown under the heading "Fee Waiver by Adviser." For each Fund, the
expense limit will continue through at least ______________ , 2001.
(4) Effective April 1, 2000, certain ING Pilgrim Funds merged into Balanced
Fund. As a result of the mergers, it is expected that operating expenses
for Balanced Fund will be lower than the operating expenses prior to the
mergers.
(5) Because Class B Shares are new for Growth and Income Fund, its expenses are
estimated based on Class A expenses.
(6) Because Class C shares are new for Growth and Income, its expenses are
estimated based on Class A expenses.
(7) Because Class T shares are new for Balanced Fund, its expenses are
estimated based on Class A expenses.
40 What You Pay to Invest
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
Examples
The examples that follow are intended to help you compare the cost of investing
in the ING 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 $ 699 960 1,242 2,042
Growth and Income $ 699 960 1,242 2,042
LargeCap Leaders $ 737 1,077 1,440 2,458
Research Enhanced Index $ 725 1,039 1,376 2,325
Tax Efficient Equity
Growth Opportunities $ 727 1,048 1,391 2,356
LargeCap Growth $ 706 981 1,277 2,116
MidCap Value $ 741 1,089 1,460 2,499
MidCap Opportunities $ 742 1,091 1,464 2,509
MidCap Growth $ 706 981 1,277 2,116
Growth + Value $ 737 1,077 1,440 2,458
SmallCap Opportunities $ 736 1,074 1,435 2,448
SmallCap Growth $ 730 1,067 1,426 2,434
Bank and Thrift $ 710 996 1,302 2,169
Internet
Balanced $ 709 1,034 1,382 2,360
Convertible $ 705 978 1,272 2,105
<TABLE>
<CAPTION>
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
----------------------- -------- --------- --------- ---------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MagnaCap $ 702 924 1,273 2,136 202 624 1,073 2,136
Growth and Income $ 707 940 1,298 2,176 207 640 1,098 2,176
LargeCap Leaders $ 747 1,061 1,501 2,591 247 761 1,301 2,591
Research Enhanced Index $ 732 1,015 1,425 2,443 232 715 1,225 2,443
Tax Efficient Equity
Growth Opportunities $ 733 1,018 1,430 2,458 233 718 1,230 2,458
LargeCap Growth $ 704 931 1,283 2,170 204 631 1,083 2,170
MidCap Value $ 751 1,073 1,521 2,632 251 773 1,321 2,632
MidCap Opportunities $ 743 1,048 1,480 2,573 243 748 1,280 2,573
MidCap Growth $ 704 931 1,283 2,170 204 631 1,083 2,170
Growth + Value $ 742 1,045 1,475 2,553 242 745 1,275 2,553
SmallCap Opportunities $ 743 1,048 1,480 2,558 243 748 1,280 2,558
SmallCap Growth $ 730 1,020 1,436 2,490 230 720 1,236 2,490
Bank and Thrift $ 719 976 1,359 2,303 219 676 1,159 2,303
Internet
Balanced $ 708 986 1,391 2,415 208 686 1,191 2,415
Convertible $ 703 927 1,278 2,160 203 627 1,078 2,160
</TABLE>
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
What You Pay to Invest 41
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
Examples
<TABLE>
<CAPTION>
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
---- ------ ------- ------- -------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MagnaCap $ 302 624 1,073 2,317 202 624 1,073 2,317
Growth and Income $ 307 640 1,098 2,369 207 640 1,098 2,369
LargeCap Leaders $ 347 761 1,301 2,776 247 761 1,301 2,776
Research Enhanced Index $ 330 709 1,215 2,605 230 709 1,215 2,605
Tax Efficient Equity
Growth Opportunities $ 333 718 1,230 2,636 233 718 1,230 2,636
LargeCap Growth $ 304 631 1,083 2,338 204 631 1,083 2,338
MidCap Value $ 351 773 1,321 2,816 251 773 1,321 2,816
MidCap Opportunities $ 339 736 1,260 2,696 239 736 1,260 2,696
MidCap Growth $ 304 631 1,083 2,338 204 631 1,083 2,338
Growth + Value $ 343 748 1,280 2,736 243 748 1,280 2,736
SmallCap Opportunities $ 346 758 1,296 2,766 246 758 1,296 2,766
SmallCap Growth $ 330 720 1,236 2,652 230 720 1,236 2,652
Internet Balanced $ 308 686 1,191 2,579 208 686 1,191 2,579
Convertible $ 303 627 1,078 2,327 203 627 1,078 2,327
</TABLE>
Class M
Fund 1 year 3 years 5 years 10 years
------------------- -------- --------- --------- ---------
MagnaCap $ 521 879 1,261 2,330
LargeCap Leaders $ 564 1,011 1,483 2,785
MidCap Value $ 568 1,023 1,503 2,825
<TABLE>
<CAPTION>
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
---------------------- -------- --------- --------- ---------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Opportunities $ 626 897 1,195 2,403 226 697 1,195 2,403
SmallCap Opportunities $ 634 921 1,235 2,488 234 721 1,235 2,488
Balanced $ 583 810 1,064 2,218 183 610 1,064 2,218
</TABLE>
42 What You Pay to Invest
<PAGE>
SHAREHOLDER GUIDE
CHOOSING A SHARE CLASS
--------------------------------------------------------------------------------
ING 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%.
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 Bank and Thrift 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, LargeCap Leaders Fund and MidCap Value 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 43
<PAGE>
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 %
of the As a % of
offering net
Your Investment price asset value
--------------- ----- -----------
Less than $50,000 5.75 6.10
$50,000 - $99,999 4.50 4.71
$100,000 - $249,999 3.50 3.63
$250,000 - $499,999 2.50 2.56
$500,000 - $1,000,000 2.00 2.04
$1,000,000 and over See below
----------
(1) Shareholders that purchased funds that were a part of the Lexington family
of funds at the time of purchase are not subject to sales charges for the
life of their account.
Investments of $1 Million or More. There is no front-end sales charge if you
purchase Class A shares in an amount of $1 million or more. However, the shares
will be subject to a contingent deferred sales charge if they are redeemed
within one or two years of purchase, depending on the amount of the purchase, as
follows:
Period during which
Your investment CDSC CDSC applies
--------------- ---- ------------
$1,000,000 to $2,499,999 1.00% 2 years
$2,500,000 to $4,999,999 0.50% 1 year
$5,000,000 and over 0.25% 1 year
However, Class A shares that were purchased in an amount of $1 million or more
through Funds that were part of the Nicholas-Applegate Mutual Funds at the time
of purchase will be subject to a contingent deferred sales charge of 1% within
one year from the date of purchase.
Class A shares that were purchased in an amount of $1 million or more through
funds that were part of the Northstar family of funds and the ING Family of
Funds at the time of purchase may be subject to a different contingent deferred
sales charge period of 18 months and 12 months, respectively, from the date of
purchase. See the SAI for further information.
Class B, 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,
LargeCap Leaders and
MidCap Value Funds
-------------------------
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
44 Shareholder Guide
<PAGE>
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
ING Pilgrim Fund (excluding the Money Market Fund) 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 ING 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 Statement of Additional Information for
details, or contact your financial representative or the Shareholder Servicing
Agent for more information.
CDSC Waivers. If you notify the Transfer Agent at the time of redemption, the
CDSC for each Class will be waived in the following cases:
* redemptions following the death or permanent disability of a shareholder if
made within one year of death or the initial determination of permanent
disability. The waiver is available only for shares held at the time of death
or initial determination of permanent disability.
* for Class B Shares, redemptions pursuant to a Systematic Withdrawal Plan, up
to a maximum of 12% per year of a shareholder's account value based on the
value of the account at the time the plan is established and annually
thereafter, provided all dividends and distributions are reinvested and the
total redemptions do not exceed 12% annually.
* mandatory distributions from a tax-deferred retirement plan or an IRA.
However, if you purchased shares that were part of the Nicholas-Applegate
Mutual Funds, you may be eligible for a CDSC waiver prior to the mandatory
distribution age.
* If you think you may be eligible for a CDSC waiver, contact your financial
representative or the Shareholder Servicing Agent.
Reinstatement Privilege. If you sell Class B, Class C or Class T shares of a ING
Pilgrim Fund, you may reinvest some or all of the proceeds in the same share
class within 90 days without a sales charge. Reinstated Class B, 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 Statement of Additional
Information.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Shareholder Guide 45
<PAGE>
SHAREHOLDER GUIDE HOW TO PURCHASE SHARES
--------------------------------------------------------------------------------
The minimum initial investment amounts for the ING Pilgrim Funds are as follows:
* Non-retirement accounts: $1,000
* Retirement accounts: $250
* Pre-Authorized Investment Plan: $100 to open; you must invest at least $100
a month.
The minimum additional investment is $100.
Make your investment using the table on the right.
The Funds and the Distributor reserve the right to reject any purchase order.
Please note that cash, travelers checks, third party checks, money orders and
checks drawn on non-US banks (even if payment may be effected through a US bank)
will not be accepted. The ING Pilgrim Funds reserve the right to waive minimum
investment amounts. The Funds reserve the right to liquidate sufficient shares
to recover annual transfer agent fees or to close your account and redeem your
shares should you fail to maintain your account value at a minimum of $1,000.00
($250.00 for IRAs).
Retirement Plans
The Funds have available prototype qualified retirement plans for both
corporations and for self-employed individuals. They also have available
prototype IRA, Roth IRA and Simple IRA plans (for both individuals and
employers), Simplified Employee Pension Plans, Pension and Profit Sharing Plans
and Tax Sheltered Retirement Plans for employees of public educational
institutions and certain non-profit, tax-exempt organizations. State Street Bank
and Trust -- Kansas City (SSB) acts as the custodian under these plans. For
further information, contact the Shareholder Servicing Agent at (800) 992-0180.
SSB currently receives a $12 custodial fee annually for the maintenance of such
accounts.
Initial Additional
Method Investment Investment
------ ---------- ----------
By Contacting An investment
Your professional with an
Investment authorized firm
Professional can help you establish
and maintain your
account.
By Mail Visit or consult an Visit or consult an
investment investment
professional. Make professional. Fill out
your check payable to the Account Additions
the ING Pilgrim Funds form included on the
and mail it, along with bottom of your account
a completed statement along with
Application. Please your check payable to
indicate your the Fund and mail
investment professional them to the address on
on the New Account the account statement.
Application Remember to write
your account number
on the check.
By Wire Call the ING Pilgrim Wire the funds in the
Operations Department same manner described
at (800) 336-3436 to under "Initial
obtain an account Investment."
number and indicate
your investment
professional on the
account.
Instruct your bank to
wire funds to the Fund
in the care of:
State Street Bank and
Trust -- 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:
ING Pilgrim Funds
P.O. Box 219368
Kansas City, MO 64121-6368
46 Shareholder Guide
<PAGE>
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 Statement of Additional Information.
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. 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 Professional investment professional. Investment
professionals may charge for their services in
connection with your redemption request, but
neither the Fund nor the Distributor imposes
any such charge.
By Mail Send a written request specifying the Fund
name and share class, your account number,
the name(s) in which the account is
registered, and the dollar value or number of
shares you wish to redeem to:
ING Pilgrim Funds
P.O. Box 219368
Kansas City, MO 64121-6368
If certificated shares have been issued, the
certificate must accompany the written
request. Corporate investors and other
associations must have an appropriate
certification on file authorizing redemptions.
A suggested form of such certification is
provided on the Account Application. A
signature guarantee may be required.
By Telephone -- You may redeem shares by telephone on all
Expedited Redemption 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 ING 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 47
<PAGE>
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 net
asset value 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 ING
Pilgrim Fund, except for Lexington Money Market Trust and ING Pilgrim Corporate
Leaders Trust Fund, without paying any additional sales charge, except that
Class A shares of the Pilgrim Money Market Fund 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 Fund. Shares subject to a CDSC will
continue to age from the date that the original shares were purchased. If you
exchange shares of a Fund that at the time you acquired the shares was a
Nicholas-Applegate Mutual Fund, the shares you receive on the exchange will be
subject to the current CDSC structure and conversion rights of the Fund being
acquired, although the shares will continue to age for CDSC and conversion
purposes from the date the original shares were acquired.
The total value of shares being exchanged must at least equal the minimum
investment requirement of the Fund into which they are being exchanged.
Exchanges of shares are sales and may result in a gain or loss for federal and
state income tax purposes. There is no specific limit on exchange frequency;
however, the Funds are intended for long-term investment and not as a short-term
trading vehicle. The Adviser may prohibit excessive exchanges (more than four
per year). The Adviser also may, on 60 days' prior notice, restrict the
frequency of, otherwise modify, or impose charges of up to $5.00 upon exchanges.
You will automatically have the ability to request an exchange by calling the
Shareholder Service Agent unless you mark the box on the Account Application
that indicates that you do not wish to have the telephone exchange privilege. A
Fund may change or cancel its exchange policies at any time, upon 60 days'
written notice to shareholders.
48 Shareholder Guide
<PAGE>
TRANSACTION POLICIES SHAREHOLDER GUIDE
--------------------------------------------------------------------------------
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 ING 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 Net Asset Value (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 ING 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.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Shareholder Guide 49
<PAGE>
MANAGEMENT OF THE FUNDS ADVISERS
--------------------------------------------------------------------------------
ING Pilgrim Investments, Inc. ("ING Pilgrim" or "ING Pilgrim Investments")
serves as the investment adviser to each of the Funds (except the Tax Efficient
Equity and Internet Funds). ING Mutual Funds Management Co. LLC ("IMFC") serves
as the investment adviser to the Tax Efficient Equity and Internet Funds. ING
Pilgrim and IMFC have overall responsibility for the management of the Funds.
ING Pilgrim and IMFC provide or oversee all investment advisory and portfolio
management services for each Fund, and assist in managing and supervising all
aspects of the general day-to-day business activities and operations of the
Funds, including custodial, transfer agency, dividend disbursing, accounting,
auditing, compliance and related services.
Organized in December 1994, ING Pilgrim is registered as an investment adviser.
ING Pilgrim is an indirect wholly-owned subsidiary of ReliaStar Financial Corp.
("ReliaStar"). Through its subsidiaries, ReliaStar offers individuals and
institutions life insurance and annuities, employee benefits products and
services, life and health reinsurance, retirement plans, mutual funds, bank
products, and personal finance education.
On July 26, 2000, ReliaStar was acquired by ING Group (NYSE: ING). ING Group is
a global financial institution active in the field of insurance, banking, and
asset management in more than 65 countries, with almost 100,000 employees.
Prior to April 30, 2000, Pilgrim Advisors, Inc. ("Pilgrim Advisors") served as
investment adviser to certain of the Funds. On April 30, 2000, Pilgrim Advisors,
an indirect wholly-owned subsidiary of ReliaStar, merged with ING Pilgrim
Investments. Pilgrim Advisors and ING Pilgrim Investments were sister companies
and shared certain resources and investment personnel.
Prior to July 26, 2000, Lexington Management Corporation ("Lexington") served as
investment adviser to certain of the Funds. On July 26, 2000, ReliaStar acquired
Lexington Global Asset Managers, Inc. the parent company of Lexington, and ING
Pilgrim Investments was approved as Adviser to the Funds formerly advised by
Lexington.
Organized in _____________ , IMFC is registered as an investment adviser. IMFC
is a wholly owned subsidiary of ING Group.
As of December 31, 2000, ING Pilgrim managed over $ billion in assets.
As of December 31, 2000, IMFC managed over $ billion in assets.
ING Pilgrim's and IMFC's principal address is 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258.
ING Pilgrim and IMFC receives a monthly fee for their services based on the
average daily net assets of each of the Funds.
The following table shows the aggregate annual management fee paid by each Fund
for the most recent fiscal year as a percentage of that Fund's average daily net
assets:
Management
Fund Fee
---- ---
MagnaCap 0.71%
Growth and Income 0.62
LargeCap Leaders 1.00
Research Enhanced Index 0.70
Tax Efficient Equity 0.80
Growth Opportunities 0.75
LargeCap Growth 0.75
MidCap Value 1.00
MidCap Opportunities 1.00
MidCap Growth 0.75
Growth + Value 1.00
SmallCap Opportunities 0.75
SmallCap Growth 1.00
Bank and Thrift 0.72
Internet 1.25
Balanced 0.75
Convertible 0.75
ING Pilgrim Directly Manages the Portfolios of the Following Funds:
Growth Opportunities Fund, MidCap
Opportunities Fund and MidCap Growth Fund.
The following individuals share responsibility for the day-to-day management of
the Growth Opportunities 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 August 1998, and ING 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 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 August 1998, and ING Pilgrim MidCap
Growth Fund since April 2000. 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.
50 Management of the Funds
<PAGE>
ADVISERS MANAGEMENT OF THE FUNDS
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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.
MagnaCap Fund
This Fund is managed by a team led by Howard N. Kornblue, Senior Vice President
and Senior Portfolio Manager for ING Pilgrim. Mr. Kornblue has served as a
Portfolio Manager of MagnaCap Fund since 1989. The other individual on the team
is G. David Underwood.
Growth and Income Fund
Alan H. Wapnick, Senior Vice President and Senior Portfolio Manager of Growth
and Income Fund has been managing the Fund's portfolio since January, 1994. He
joined ING Pilgrim in July 2000. Prior to July 2000, he was Senior Vice
President and Senior Portfolio Manager at Lexington (which was acquired by ING
Pilgrim's parent company in July 2000). Prior to joining Lexington in 1986, Mr.
Wapnick was an equity analyst with Merrill Lynch, J.W. Seligman, Dean Witter and
most recently Union Carbide Corporation.
LargeCap Leaders and MidCap Value Fund
The LargeCap Leaders and MidCap Value Funds are managed by a team led by G.
David Underwood, Senior Vice President and Senior Portfolio Manager for ING
Pilgrim. Mr. Underwood is the Lead Portfolio Manager of LargeCap Leaders Fund.
Prior to joining ING Pilgrim in December, 1996, Mr. Underwood served as
Director of Funds Management for First Interstate Capital Management. Mr.
Underwood's prior experience includes a 10 year association with Integra Trust
Company of Pittsburgh where he served as Director of Research and Senior
Portfolio Manager.
LargeCap Growth Fund
Mary Lisanti, whose background is described above, has served as Senior
Portfolio Manager of the LargeCap Growth Fund since October 1, 2000.
Thomas J. Sullivan, Vice President of ING Pilgrim, has served as a Portfolio
Manager of LargeCap Growth Fund since October 1, 2000. Prior to joining ING
Pilgrim, Mr. Sullivan was a Partner and Equity Trader for First NY Securities,
LLC since April, 2000. From April, 1994 to March, 2000, Mr. Sullivan was Vice
President and portfolio manager at Nicholas-Applegate Capital Management.
Bank and Thrift Fund
Carl Dorf, Senior Vice President and Senior Portfolio Manager of Bank and Thrift
Fund has been managing the Fund's portfolio since January 1991, when he joined
ING Pilgrim's predecessor. Mr. Dorf is also a Senior Vice President of ING
Pilgrim.
Balanced Fund
The following individuals share responsibility for the day-to-day management of
the Balanced Fund:
G. David Underwood, whose background is described above, has served as Senior
Portfolio Manager of the equity portion of the Balanced Fund's assets since May
24, 1999.
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 51
<PAGE>
MANAGEMENT OF THE FUNDS SUB-ADVISERS
--------------------------------------------------------------------------------
For the following Funds, ING Pilgrim and IMFC has engaged a Sub-Adviser to
provide the day-to-day management of the Fund's portfolio. The Sub-Advisers are
among the most respected institutional investment advisers in the world, and
have been selected primarily on the basis of their successful application of a
consistent, well-defined, long-term investment approach over a period of several
market cycles.
Research Enhanced Index Fund
J.P. Morgan Investment Management Inc.
A registered investment adviser, J.P. Morgan Investment Management Inc. (J.P.
Morgan) serves as Sub-Adviser to the ING Pilgrim Research Enhanced Index Fund.
The firm was formed in 1984. The firm evolved from the Trust and Investment
Division of Morgan Guaranty Trust Company which acquired its first tax-exempt
client in 1913 and its first pension account in 1940. J.P. Morgan currently
manages approximately $349 billion for institutions and pension funds. The
company is a wholly owned subsidiary of J.P. Morgan & Co. J.P. Morgan's
principal address is 522 Fifth Avenue, New York, New York 10036.
Nanette Buziak, Timothy Devlin and Bernard Kroll share the responsibility for
the day-to-day management of the ING Pilgrim Research Enhanced Index Fund.
Ms. Buziak has co-managed the ING Pilgrim Research Enhanced Index Fund since
April 1999. At J.P. Morgan, she serves as a Portfolio Manager and Member of the
Structured Equity Group.
Ms. Buziak has over 8 years of investment management experience. Before joining
J.P. Morgan in 1997, Ms. Buziak was an index arbitrage trader and convertible
bond portfolio manager at First Marathon America, Inc.
Mr. Devlin has co-managed the ING Pilgrim Research Enhanced Index Fund since
the Fund was formed in December 1998. At J.P. Morgan, he serves as a Portfolio
Manager and Member of the Structured Equity Group.
Mr. Devlin has over 12 years of investment management experience. Before
joining J.P. Morgan in 1996, Mr. Devlin was a Portfolio Manager for nine years
at Mitchell Hutchins Asset Management, Inc. where he managed
quantitatively-driven portfolios for institutional and retail investors.
Mr. Kroll has co-managed the ING Pilgrim Research Enhanced Index Fund since
March 2000. At J.P. Morgan he serves as a Portfolio Manager and Member of the
Structured Equity Group.
Mr. Kroll has over 20 years of investment experience. Before joining J.P. Morgan
in 1996, Mr. Kroll was an equity derivatives specialist at Goldman Sachs & Co.
Earlier, he managed his own software development firm and options broker-dealer,
and managed several derivatives businesses at Kidder, Peabody & Co.
Tax Efficient Equity Fund
Delta Asset Management
A registered investment adviser, Delta Asset Management ("Delta") serves as
Sub-Advisor to the ING Pilgrim Tax Efficient Equity Fund. Delta is a division of
Furman Selz Capital Management LLC ("FSCM"). 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 ING 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 ING 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 ING Pilgrim Internet Fund. IIMA manages
over $159 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.
52 Management of the Funds
<PAGE>
DIVIDENDS/TAXES 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)
----------- ---------------- ------------
LargeCap Leaders MagnaCap Balanced
Research Enhanced Growth and Convertible
Index Income
Tax Efficient Equity
Growth
Opportunities
LargeCap Growth
MidCap Value
MidCap
Opportunities
MidCap Growth
Growth + Value
SmallCap
Opportunities
SmallCap Growth
Bank and Thrift
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 ING Pilgrim
Fund which offers the same class shares. If you are a shareholder of ING 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 ING Pilgrim Fund.
Taxes
The following information is meant as a general summary for U.S. shareholders.
Please see the Statement of Additional Information 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 most of its net investment income and net capital
gains to its shareholders each year. Although the Funds will not be taxed on
amounts they distribute, most shareholders will be taxed on amounts they
receive. A particular distribution generally will be taxable as either ordinary
income or long-term capital gains. It does not matter how long you have held
your Fund shares or whether you elect to receive your distributions in cash or
reinvest them in additional Fund shares. For example, if a Fund designates a
particular distribution as a long-term capital gains distribution, it will be
taxable to you at your long-term capital gains rate.
Dividends declared by a Fund in October, November or December and paid during
the following January may be treated as having been received by shareholders in
the year the distributions were declared.
You will receive an annual statement summarizing your dividend and capital gains
distributions.
If you invest through a tax-deferred account, such as a retirement plan, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
consult your tax adviser about investment through a tax-deferred account.
There may be tax consequences to you if you sell or redeem Fund shares. You will
generally have a capital gain or loss, which will be long-term or short-term,
generally depending on how long you hold those shares. If you exchange shares,
you may be treated as if you sold them. You are responsible for any tax
liabilities generated by your transactions.
As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax;
rather, it is a way in which the IRS ensures it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Dividends, Distributions and Taxes 53
<PAGE>
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 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 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 Bank and Thrift 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.
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.
54 More Information About Risks
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MORE INFORMATION ABOUT RISKS
--------------------------------------------------------------------------------
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 (Bank and Thrift 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 Fund). 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 the MagnaCap,
LargeCap Leaders, Research Enhanced Index, MidCap Value and Bank and Thrift
Funds) is generally expected to engage in frequent and active trading of
portfolio securities to achieve its investment objective. A high portfolio
turnover rate involves greater expenses to a Fund, including brokerage
commissions and other transaction costs, and is likely to generate more taxable
short-term gains for shareholders, which may have an adverse effect on the
performance of the Fund.
Investments in Small- and Mid-Capitalization Companies (MidCap Value, MidCap
Opportunities, MidCap Growth, SmallCap Opportunities, SmallCap Growth, Tax
Efficient Equity 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.
Concentration (Bank and Thrift 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.
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 unseasonal financial systems; environmental problems; less well
developed legal systems; and less reliable custodial services and settlement
practices.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
More Information About Risks 55
<PAGE>
MORE INFORMATION ABOUT RISKS
--------------------------------------------------------------------------------
U.S. Government Securities. Some U.S. Government agency securities may be
subject to varying degrees of credit risk particularly those not backed by the
full faith and credit of the United States Government. All U.S. Government
securities may be subject to price declines in the securities due to changing
interest rates.
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.
Lending Portfolio Securities. In order to generate additional income, certain
Funds may lend portfolio securities in an amount up to 331|M/3% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in the collateral should
the borrower default or fail financially.
Borrowing. Certain Funds may borrow for certain types of temporary or emergency
purposes subject to certain limits. Borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the net asset value
of a Fund, and money borrowed will be subject to interest costs. Interest costs
on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
Reverse Repurchase Agreements and Dollar Rolls. A reverse repurchase agreement
or dollar roll involves the sale of a security, with an agreement to repurchase
the same or substantially similar securities at an agreed upon price and date.
Whether such a transaction produces a gain for a Fund depends upon the costs of
the agreements and the income and gains of the securities purchased with the
proceeds received from the sale of the security. If the income and gains on the
securities purchased fail to exceed the costs, net asset value will decline
faster than otherwise would be the case. Reverse repurchase agreements and
dollar rolls, as leveraging techniques, may increase a Fund's yield; however,
such transactions also increase a Fund's risk to capital and may result in a
shareholder's loss of principal.
Short Sales. Certain Funds may make short sales. A "short sale" is the sale by a
Fund of a security which has been borrowed from a third party on the expectation
that the market price will drop. If the price of the security rises, the Fund
may have to cover its short position at a higher price than the short sale
price, resulting in a loss.
Pairing Off Transactions. A pairing-off transaction occurs when a Fund commits
to purchase a security at a future date, and then the Fund "pairs-off" the
purchase with a sale of the same security prior to or on the original settlement
date. Whether a pairing-off transaction on a debt security produces a gain
depends on the movement of interest rates. If interest rates increase, then the
money received upon the sale of the same security will be less than the
anticipated amount needed at the time the commitment to purchase the security at
the future date was entered and the Fund will experience a loss.
Percentage and Rating Limitations Unless otherwise stated, the percentage
limitations in this prospectus apply at the time of investment.
56 More Information About Risks
<PAGE>
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.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
Financial Highlights 57
<PAGE>
FINANCIAL
ING PILGRIM MAGNACAP FUND HIGHLIGHTS
--------------------------------------------------------------------------------
The information in the table below, except for the six months ended December 31,
2000 has been audited by KPMG LLP, independent auditors.
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------------
Six months
ended
12-31-00 Year Ended June 30,
(unaudited) 2000 1999 1998 1997 1996
----------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 17.69 17.07 15.92 16.69 14.03
Income from investment operations:
Net investment income (loss) $ 0.07 0.07 0.04 0.10 0.09
Net realized and unrealized gains on
investments $ (0.08) 2.37 3.02 4.16 2.87
Total from investment operations $ (0.01) 2.44 3.06 4.26 2.96
Less distributions from:
Net investment income $ 0.05 0.04 0.06 0.12 0.06
Net realized gains on investments $ 1.79 1.78 1.85 4.91 0.24
Net asset value, end of period $ 15.84 17.69 17.07 15.92 16.69
Total Return(2): % (0.36) 15.93 20.53 30.82 21.31
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 303,864 368,508 348,759 290,355 235,393
Ratios to average net assets:
Expenses(3) % 1.29 1.35 1.37 1.46 1.68
Net investment income (loss)(3) % 0.41 0.41 0.29 0.64 0.54
Portfolio turnover rate % 26 48 53 77 15
Class B
--------------------------------------------------------------------------
Six months July 17,
ended 1995(1) to
12-31-00 Year Ended June 30, June 30,
(unaudited) 2000 1999 1998 1997 1996
Per Share Operating Performance:
Net asset value, beginning of period $ 17.36 16.86 15.81 16.59 14.22
Income from investment operations:
Net investment income (loss) $ (0.05) (0.04) (0.04) -- 0.06
Net realized and unrealized gains on
investments $ (0.08) 2.32 2.97 4.13 2.61
Total from investment operations $ (0.13) 2.28 2.93 4.13 2.67
Less distributions from:
Net investment income $ -- -- 0.03 -- 0.06
Net realized gains on investments $ 1.79 1.78 1.85 4.91 0.24
Net asset value, end of period $ 15.44 17.36 16.86 15.81 16.59
Total Return(2): % (1.11) 15.12 19.76 29.92 18.98
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 87,167 116,227 77,787 37,427 10,509
Ratios to average net assets:
Expenses(3) % 1.99 2.05 2.07 2.16 2.38
Net investment income (loss)(3) % (0.29) (0.29) (0.41) (0.04) 0.07
Portfolio turnover rate % 6 48 53 77 15
Class C
-------------------------------------
Six months Year June 1,
ended ended 1999(1) to
12-31-00 June 30, June 30,
(unaudited) 2000 1999
----------- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 17.37 16.69
Income from investment operations:
Net investment income (loss) $ (0.10) --
Net realized and unrealized gains on
investments $ (0.04) 0.68
Total from investment operations $ (0.14) 0.68
Less distributions from:
Net investment income $ -- --
Net realized gains on investments $ 1.79 --
Net asset value, end of period $ 15.44 17.37
Total Return(2): % (1.17) 4.07
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 3,660 601
Ratios to average net assets:
Expenses(3) % 1.99 1.12
Net investment income (loss)(3) % (0.29) 0.42
Portfolio turnover rate % 26 48
Class M
---------------------------------------------------------------------------
Six months July 17,
ended 1995(1) to
12-31-00 Year ended June 30, June 30,
(unaudited) 2000 1999 1998 1997 1996
----------- ---- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 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 gains on
investments $ (0.06) 2.35 2.98 4.16 2.63
Total from investment operations $ (0.07) 2.34 2.98 4.18 2.71
Less distributions from:
Net investment income $ 0.01 -- 0.05 0.03 0.06
Net realized gains on investments $ 1.79 1.78 1.85 4.91 0.24
Net asset value, end of period $ 15.64 17.51 16.95 15.87 16.63
Total Return(2): % (0.71) 15.41 20.00 30.26 19.26
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 13,050 16,351 14,675 6,748 1,961
Ratios to average net assets:
Expenses(3) % 1.74 1.80 1.82 1.91 2.13
Net investment income (loss)(3) % (0.04) (0.04) (0.16) 0.22 0.32
Portfolio turnover rate % 26 48 53 77 15
</TABLE>
----------
(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.
58 ING Pilgrim MagnaCap Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM GROWTH AND INCOME FUND
--------------------------------------------------------------------------------
The information in the table below has been audited by KPMG LLP, independent
auditors.
<TABLE>
<CAPTION>
Class A
-----------------------------------------------------------------
Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 21.91 20.27 18.56 15.71 14.36
Net investment income (loss) $ 0.05 -- 0.05 0.07 0.22
Net realized and unrealized gain (loss) from
investment operations $ 3.33 4.30 5.46 4.08 3.00
Total income (loss) from investment operations $ 3.38 4.30 5.51 4.15 3.22
Less distributions:
Distributions from net investment income $ 0.05 -- 0.07 0.13 0.22
Distributions from net realized gains $ 2.86 2.66 3.73 1.17 1.65
Total distributions $ 2.91 2.66 3.80 1.30 1.87
Net asset value, end of period $ 22.38 21.91 20.27 18.56 15.71
Total return(1) % 15.54 21.42 30.36 26.46 22.57
Ratios/Supplemental Data:
Net assets, end of period (thousands) $ 254,532 245,790 228,037 200,309 138,901
Ratio of expenses to average net assets(2) % 0.95 1.16 1.17 1.13 1.09
Ratio of net investment income (loss)
to average net assets(2) % 0.21 0.06 0.21 0.43 1.38
Portfolio Turnover Rate % 86.31 63.20 88.15 101.12 159.94
</TABLE>
----------
(1) Total returns 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.
(2) Annualized for periods less than one year.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Growth and Income Fund 59
<PAGE>
FINANCIAL
ING PILGRIM LARGECAP LEADERS FUND HIGHLIGHTS
--------------------------------------------------------------------------------
The information in the table below, except the six months ended December 31,
2000, has been audited by KPMG LLP, independent auditors.
<TABLE>
<CAPTION>
Class A
---------------------------------------------------------------------
Six months Sept. 1,
ended 1995 to
Dec. 31, 2000 Year Ended June 30, June 30,
(unaudited) 2000 1999 1998(2) 1997 1996(1)
----------- ---- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 17.35 14.70 14.17 11.77 10.00
Income from investment operations:
Net investment income (loss) $ (0.04) -- 0.01 0.06 0.07
Net realized and unrealized gains on
investments $ 0.57 3.00 2.30 2.63 1.87
Total from investment operations $ 0.53 3.00 2.31 2.69 1.94
Less distributions from:
Net investment income $ -- -- -- 0.05 0.08
Net realized gains on investments $ 2.00 0.35 1.78 0.24 0.09
Net asset value, end of period $ 15.88 17.35 14.70 14.17 11.77
Total Return(4): % 3.05 20.66 17.71 23.24 19.56
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 10,024 8,506 7,606 8,961 2,530
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) % 1.75 1.75 1.75 1.75 1.75
Gross expenses prior to expense
reimbursement(5) % 1.84 1.98 2.28 2.33 5.44
Net investment income (loss) after
expense reimbursement(5)(6) % (0.27) (0.04) 0.03 0.41 0.65
Portfolio turnover rate % 39 87 78 86 59
Class B
---------------------------------------------------------------------
Six months Sept. 1,
ended 1995 to
Dec. 31, 2000 Year Ended June 30, June 30,
(unaudited) 2000 1999 1998(2) 1997 1996(1)
----------- ---- ---- ------- ---- -------
Per Share Operating Performance:
Net asset value, beginning of period $ 16.90 14.44 14.04 11.71 10.00
Income from investment operations:
Net investment income (loss) $ (0.17) (0.09) (0.10) (0.02) 0.06
Net realized and unrealized gains on
investments $ 0.57 2.90 2.28 2.59 1.81
Total from investment operations $ 0.40 2.81 2.18 2.57 1.87
Less distributions from:
Net investment income $ -- -- -- -- 0.07
Net realized gains on investments $ 2.00 0.35 1.78 0.24 0.09
Net asset value, end of period $ 15.30 16.90 14.44 14.04 11.71
Total Return(4): % 2.30 19.71 16.91 22.23 18.85
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 21,544 24,213 15,605 13,611 1,424
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) % 2.50 2.50 2.50 2.50 2.50
Gross expenses prior to expense
reimbursement(5) % 2.59 2.73 3.03 3.08 5.79
Net investment income (loss) after
expense reimbursement(5)(6) % (1.02) (0.79) (0.72) (0.35) (0.25)
Portfolio turnover rate % 39 87 78 86 59
Class C
---------------------------------------
Six months Year June 17,
ended Ended 1999(3) to
Dec. 31, 2000 June 30, June 30,
(unaudited) 2000 1999
----------- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 16.92 16.54
Income from investment operations:
Net investment income (loss) $ (0.06) --
Net realized and unrealized gains on
investments $ 0.46 0.38
Total from investment operations $ 0.40 0.38
Less distributions from:
Net investment income $ -- --
Net realized gains on investments $ 2.00 --
Net asset value, end of period $ 15.32 16.92
Total Return(4): % 2.30 2.30
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 1,364 --
Ratios to average net assets:
Net expenses after expense reimbursement(5)(6) % 2.50 --
Gross expenses prior to expense
reimbursement(5) % 2.59 --
Net investment income (loss) after expense
reimbursement(5)(6) % (1.02) --
Portfolio turnover rate % 39 87
Class M
------------------------------------------------------------------
Six months Sept. 1,
ended 1995 to
Dec. 31, 2000 Year Ended June 30, June 30,
(unaudited) 2000 1999 1998(2) 1997 1996(1)
----------- ---- ---- ------- ---- -------
Per Share Operating Performance:
Net asset value, beginning of period 17.08 14.55 14.10 11.73 10.00
Income from investment operations:
Net investment income (loss) (0.14) (0.09) (0.07) -- 0.06
Net realized and unrealized gains on
investments 0.58 2.97 2.30 2.62 1.83
Total from investment operations 0.44 2.88 2.23 2.62 1.89
Less distributions from:
Net investment income -- -- -- 0.01 0.07
Net realized gains on investments 2.00 0.35 1.78 0.24 0.09
Net asset value, end of period 15.52 17.08 14.55 14.10 11.73
Total Return(4): 2.54 20.04 17.20 22.58 19.06
Ratios/Supplemental Data:
Net assets, end of period (000's) 4,677 5,661 5,533 4,719 1,240
Ratios to average net assets:
Net expenses after expense reimbursement(5)(6) 2.25 2.25 2.25 2.25 2.25
Gross expenses prior to expense
reimbursement(5) 2.34 2.48 2.78 2.83 5.90
Net investment income (loss) after expense
reimbursement(5)(6) (0.77) (0.54) (0.47) (0.10) 0.06
Portfolio turnover rate 39 87 78 86 59
</TABLE>
----------
(1) The Fund commenced operations on September 1, 1995.
(2) Effective November 1, 1997, ING Pilgrim Investments, Inc. assumed the
portfolio investment responsibilities of the Fund from ARK Asset Management
Company, Inc.
(3) Commencement of offering shares.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return information for less than one year is not
annualized.
(5) Annualized for periods less than one year.
(6) The Investment Manager has agreed to limit expenses, excluding interest,
taxes, brokerage and extraordinary expenses.
60 ING Pilgrim LargeCap Leaders Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM RESEARCH ENHANCED INDEX FUND
--------------------------------------------------------------------------------
The information in the table below has been audited by PricewaterhouseCoopers
LLP, independent auditors.
<TABLE>
<CAPTION>
Class A Class B Class C
--------------------- ---------------------- --------------------
Year Period Year Period Year Period
ended ended ended ended ended ended
Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31, Oct. 31,
2000 1999(1) 2000 1999(1) 2000 1999(1)
---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 10.00 10.00 10.00
Net investment income (loss) $ 0.01 (0.02) (0.02)
Net realized and unrealized gain on
investments $ 1.13 1.11 1.11
Total from investment operations $ 1.14 1.09 1.09
Distributions from net realized gain $ -- -- --
Total distributions $ -- -- --
Net asset value, end of the period $ 11.14 11.09 11.09
Total return(2) % 11.40 10.90 10.90
Ratios and supplemental data:
Net assets, end of the period (000's) $ 27,091 99,249 75,941
Ratio of expenses to average net assets
after reimbursement(4) % 1.29 (3) 1.99 (3) 1.99 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 1.56 (3) 2.29 (3) 2.27 (3)
Ratio of net investment income (loss) to
average net assets % 0.23 (3) (0.49)(3) (0.49)(3)
Portfolio turnover % 26 26 26
</TABLE>
----------
(1) Class A, B and C commenced operations on December 30, 1998.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
(4) Expenses calculated net of taxes and advisor reimbursement.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Research Enhanced Index Fund 61
<PAGE>
FINANCIAL
ING TAX EFFICIENT EQUITY FUND HIGHLIGHTS
--------------------------------------------------------------------------------
The information in the table below has been audited by Ernst & Young LLP,
independent auditors.
<TABLE>
<CAPTION>
Class A Class B Class C
---------------------- ---------------------- ----------------------
Year ended October 31, Year ended October 31, Year ended October 31,
---------------------- ---------------------- ----------------------
2000 1999(1) 2000 1999(1) 2000 1999(1)
---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $
Net investment income (loss) $
Net realized and unrealized gain on
investments $
Total from investment operations $
Distributions from net realized gain $
Total distributions $
Net asset value, end of the period $
Total return(2) %
Ratios and supplemental data:
Net assets, end of the period (000's) $
Ratio of expenses to average net assets
after reimbursement(4) %
Ratio of expenses to average net assets
prior to expense reimbursement %
Ratio of net investment income (loss) to
average net assets %
Portfolio turnover %
</TABLE>
----------
(1) Class A, B and C commenced operations on December 15, 1998.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Expenses calculated net of taxes and advisor reimbursement.
62 ING Tax Efficient Equity Fund
<PAGE>
FINANCIAL
ING PILGRIM GROWTH OPPORTUNITIES FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ended December 31, 2000, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
December 31, 2000, the financial information was audited by other independent
auditors.
<TABLE>
<CAPTION>
Class A
Year ended December 31,
---------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 26.06 21.26 17.92 15.53
Net investment income (loss) $ (0.15) (0.08) 0.03 0.02
Net realized and unrealized gain
on investments $ 20.10 5.09 4.16 3.18
Total from investment operations $ 19.95 5.01 4.19 3.20
Dividends from net
investment income $ -- -- -- --
Distributions from net realized gain $ (12.84) (0.21) (0.85) (0.81)
Total distributions $ (12.84) (0.21) (0.85) (0.81)
Net asset value, end of the period $ 33.17 26.06 21.26 17.92
Total return(2) % 93.26 23.61 23.59 20.54
Ratios and supplemental data:
Net assets at the end
of the period (000s) $ 101,260 29,358 9,334 4,750
Ratio of expenses to average net
assets after reimbursement % 1.39 1.37 1.37 150
Ratio of expenses to average net
assets prior to expense
reimbursement % 1.39 1.37 1.40 1.56
Ratio of net investment income
(loss) to average net assets % (0.98) (0.47) 0.04 0.11
Portfolio turnover % 286 98 32 62
Class B
Year ended December 31,
---------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 25.46 20.93 17.76 15.50
Net investment income (loss) $ (0.18) (0.23) (0.15) (0.06)
Net realized and unrealized gain
on investments $ 19.26 4.97 4.17 3.13
Total from investment operations $ 19.08 4.74 4.02 3.07
Dividends from net
investment income $ -- -- -- --
Distributions from net realized gain $ (12.84) (0.21) (0.85) (0.81)
Total distributions $ (12.84) (0.21) (0.85) (0.81)
Net asset value, end of the period $ 31.70 25.46 20.93 17.76
Total return(2) % 91.84 22.69 22.84 19.74
Ratios and supplemental data:
Net assets at the end
of the period (000s) $ 88,305 15,480 8,815 4,444
Ratio of expenses to average net
assets after reimbursement % 2.10 2.13 2.14 2.20
Ratio of expenses to average net
assets prior to expense
reimbursement % 2.10 2.13 2.14 2.24
Ratio of net investment income
(loss) to average net assets % (1.69) (1.26) (0.95) (0.55)
Portfolio turnover % 286 98 32 62
Class C
Year ended December 31,
---------------------------------------------------
2000 1999 1998 1997 1996
Operating performance:
Net asset value, beginning of the period $ 25.48 20.91 17.76 15.50
Net investment income (loss) $ (0.10) (0.27) (0.13) (0.05)
Net realized and $
unrealized gain on investments $ 19.21 5.05 4.13 3.12
Total from investment operations $ 19.11 4.78 4.00 3.07
Dividends from net $
investment income $ -- -- -- --
Distributions from net realized gain $ (12.84) (0.21) (0.85) (0.81)
Total distributions $ (12.84) (0.21) (0.85) (0.81)
Net asset value, end of the period $ 31.75 25.48 20.91 17.76
Total return(2) % 91.90 22.90 22.73 19.74
Ratios and supplemental data:
Net assets at the end of the
period (000s) $ 21,006 1,625 1,152 365
Ratio of expenses to average net assets
after reimbursement % 2.10 2.13 2.17 2.20
Ratio of expenses to average net assets
prior to expense reimbursement 2.10 2.13 2.17 2.35
Ratio of net investment income (loss) to %
average net assets (1.69) (1.24) (1.00) (0.57)
Portfolio turnover % 286 98 32 62
Class T
Year ended December 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Operating performance:
Net asset value, beginning of the period $ 25.59 21.02 17.82 15.53
Net investment income (loss) $ (0.39) (0.36) (0.17) (0.06)
Net realized and
unrealized gain on investments $ 19.57 5.14 4.22 3.16
Total from investment operations $ 19.18 4.78 4.05 3.10
Dividends from net
investment income $ -- -- -- --
Distributions from net realized gain $ (12.84) (0.21) (0.85) (0.81)
Total distributions $ (12.84) (0.21) (0.85) (0.81)
Net asset value, end of the period $ 31.93 25.59 21.02 17.82
Total return(2) % 91.72 22.79 22.94 19.90
Ratios and supplemental data:
Net assets at the end of the
period (000s) $ 83,772 52,023 73,674 70,406
Ratio of expenses to average net assets
after reimbursement % 2.03 2.05 2.03 2.00
Ratio of expenses to average net assets
prior to expense reimbursement 2.03 2.05 2.03 2.04
Ratio of net investment income (loss) to %
average net assets (1.62) (1.19) (0.81) (3.05)
Portfolio turnover % 286 98 32 62
</TABLE>
----------
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
63 ING Pilgrim Growth Opportunities Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM LARGECAP GROWTH FUND
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by another independent auditor.
<TABLE>
<CAPTION>
Class A
------------------------------------------------------------------
Six months Year Three months Year July 21,
ended Ended ended ended 1997(1) to
Dec. 31, 2000 June 30, June 30, March 31, March 31,
(unaudited) 2000 1999(2) 1999 1998
----------- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 28.09 24.94 15.73 12.50
Income from investment operations:
Net investment income (loss) $ (0.22) (0.02) (0.08) (0.03)
Net realized and unrealized gains on
investments $ 15.63 3.17 9.77 3.29
Total from investment operations $ 15.41 3.15 9.69 3.26
Less distributions from:
Net investment income $ -- -- -- --
Net realized gains on investments $ 0.38 -- 0.48 0.03
Net asset value, end of period $ 43.12 28.09 24.94 15.73
Total Return(3): % 55.35 12.63 63.06 62.35
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 186,261 30,108 12,445 4,742
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.36 1.43 1.59 1.60
Gross expenses prior to expense
reimbursement(4) % 1.36 1.45 2.24 4.70
Net investment income (loss) after
expense reimbursement(4)(5) % (0.87) (0.56) (0.65) (0.87)
Portfolio turnover % 139 27 253 306
Class B
------------------------------------------------------------------
Six months Year Three months Year July 21,
ended Ended ended ended 1997(1) to
Dec. 31, 2000 June 30, June 30, March 31, March 31,
(unaudited) 2000 1999(2) 1999 1998
----------- ---- ------- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 28.15 25.04 15.64 12.50
Income from investment operations:
Net investment income (loss) $ (0.39) (0.05) (0.08) (0.07)
Net realized and unrealized gains on
investments $ 15.56 3.16 9.71 3.24
Total from investment operations $ 15.17 3.11 9.63 3.17
Less distributions from:
Net investment income $ -- -- -- --
Net realized gains on investments $ 0.38 -- 0.23 0.03
Net asset value, end of period $ 42.94 28.15 25.04 15.64
Total Return(3): % 55.37 12.42 62.28 61.08
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 333,256 49,057 20,039 3,187
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 2.01 2.08 2.24 2.25
Gross expenses prior to expense
reimbursement(4) % 2.01 2.10 2.89 4.78
Net investment income (loss) after
expense reimbursement(4)(5) % (1.52) (1.21) (1.28) (1.36)
Portfolio turnover % 139 27 253 306
Class C
---------------------------------------------------------------
Six months Year Three months Year July 21,
ended Ended ended ended 1997(1) to
Dec. 31, 2000 June 30, June 30, March 31, March 31,
(unaudited) 2000 1999(2) 1999 1998
----------- ---- ------- ---- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 28.07 24.97 15.63 12.50
Income from investment operations:
Net investment income (loss) $ (0.35) (0.06) (0.07) (0.05)
Net realized and unrealized gains on
investments $ 15.48 3.16 9.65 3.24
Total from investment operations $ 15.13 3.10 9.58 3.19
Less distributions from:
Net investment income $ -- -- -- --
Net realized gains on investments $ 0.38 -- 0.24 0.06
Net asset value, end of period $ 42.82 28.07 24.97 15.63
Total Return(3): % 54.38 12.41 61.97 61.38
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 152,682 17,755 8,004 960
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 2.01 2.08 2.25 2.25
Gross expenses prior to expense reimbursement(4) % 2.01 2.10 2.90 7.79
Net investment income (loss) after expense
reimbursement(4)(5) % (1.52) (1.21) (1.26) (1.49)
Portfolio turnover % 139 27 253 306
</TABLE>
----------
(1) The Fund commenced operations on July 21, 1997.
(2) Effective May 24, 1999, ING Pilgrim Investments Inc., became the Investment
Manager 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 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.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim LargeCap Growth Fund 64
<PAGE>
FINANCIAL
ING PILGRIM MIDCAP VALUE FUND HIGHLIGHTS
--------------------------------------------------------------------------------
The information in the table below, except for the six months ended December 31,
2000, has been audited by KMPG LLP, independent auditors.
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------
Six months Sept. 1,
ended 1995 to
Dec. 31, 2000 Year Ended June 30, June 30,
(unaudited) 2000 1999 1998 1997 1996(1)
----------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 15.65 16.79 14.64 11.99 10.00
Income from investment operations:
Net investment income (loss) $ (0.09) (0.09) (0.07) (0.02) 0.13
Net realized and unrealized gains
on investments $ (1.17) 0.12 2.71 2.85 1.91
Total from investment operations $ (1.26) 0.03 2.64 2.83 2.04
Less distributions from:
Net investment income $ -- -- -- 0.07 0.05
Net realized gains on investments $ 0.09 1.17 0.49 0.11 --
Net asset value, end of period $ 14.30 15.65 16.79 14.64 11.99
Total Return(3): % (8.05) 0.95 18.40 23.89 20.48
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 8,875 18,621 27,485 16,985 2,389
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 1.75 1.75 1.75 1.75 1.75
Gross expenses prior to expense
reimbursement(4) % 1.88 1.79 1.78 1.94 4.91
Net investment income (loss) after expense
reimbursement(4)(5) % (0.49) (0.48) (0.53) (0.13) 2.00
Portfolio turnover rate % 122 109 85 86 60
Class B
---------------------------------------------------------------------
Six months Sept. 1,
ended 1995 to
Dec. 31, 2000 Year Ended June 30, June 30,
(unaudited) 2000 1999 1998 1997 1996(1)
Per Share Operating Performance:
Net asset value, beginning of period $ 15.21 16.47 14.49 11.94 10.00
Income from investment operations:
Net investment income (loss) $ (0.23) (0.21) (0.18) (0.05) 0.07
Net realized and unrealized gains
on investments $ (1.11) 0.12 2.65 2.76 1.90
Total from investment operations $ (1.34) (0.09) 2.47 2.71 1.97
Less distributions from:
Net investment income $ -- -- -- 0.05 0.03
Net realized gains on investments $ 0.09 1.17 0.49 0.11 --
Net asset value, end of period $ 13.78 15.21 16.47 14.49 11.94
Total Return(3): % (8.81) 0.21 17.40 22.95 19.80
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 15,840 31,223 40,575 23,258 2,123
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 2.50 2.50 2.50 2.50 2.50
Gross expenses prior to expense
reimbursement(4) % 2.63 2.54 2.53 2.69 5.32
Net investment income (loss) after expense
reimbursement(4)(5) % (1.24) (1.23) (1.28) (0.90) 1.27
Portfolio turnover rate % 122 109 85 86 60
Class C
-------------------------------------
Six months Year June 2,
ended Ended 1999 to
Dec. 31, 2000 June 30, June 30,
(unaudited) 2000 1999(2)
----------- ---- -------
Per Share Operating Performance:
Net asset value, beginning of period $ 15.20 14.84
Income from investment operations:
Net investment income (loss) $ (0.02) (0.02)
Net realized and unrealized gains
on investments $ (1.31) 0.38
Total from investment operations $ (1.33) 0.36
Less distributions from:
Net investment income $ -- --
Net realized gains on investments $ 0.09 --
Net asset value, end of period $ 13.78 15.20
Total Return(3): % (8.75) 2.43
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 2,688 47
Ratios to average net assets:
Net expenses after expense reimbursement:(4)(5) % 2.50 2.50
Gross expenses prior to expense
reimbursement:(4) % 2.63 2.54
Net investment income (loss) after expense
reimbursement:(4)(5) % (1.24) (1.23)
Portfolio turnover rate % 122 109
Class M
---------------------------------------------------------------------
Six months Sept. 1,
ended 1995 to
Dec. 31, 2000 Year Ended June 30, June 30,
(unaudited) 2000 1999 1998 1997 1996(1)
----------- ---- ---- ---- ---- -------
Per Share Operating Performance:
Net asset value, beginning of period $ 15.30 16.52 14.49 11.93 10.00
Income from investment operations:
Net investment income (loss) $ (0.23) (0.17) (0.15) (0.03) 0.06
Net realized and unrealized gains
on investments $ (1.07) 0.12 2.67 2.76 1.91
Total from investment operations $ (1.30) (0.05) 2.52 2.73 1.97
Less distributions from:
Net investment income $ -- -- -- 0.06 0.04
Net realized gains on investments $ 0.09 1.17 0.49 0.11 --
Net asset value, end of period $ 13.91 15.30 16.52 14.49 11.93
Total Return(3): % (8.49) 0.46 17.76 23.21 19.82
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 3,873 10,504 13,232 8,378 1,731
Ratios to average net assets:
Net expenses after expense reimbursement:(4)(5) % 2.25 2.25 2.25 2.25 2.25
Gross expenses prior to expense
reimbursement:(4) % 2.38 2.29 2.28 2.44 4.72
Net investment income (loss) after expense
reimbursement:(4)(5) % (0.99) (0.98) (1.03) (0.63) 1.16
Portfolio turnover rate % 122 109 85 86 60
</TABLE>
----------
(1) The Fund commenced operations on September 1, 1995.
(2) Commencement of offering shares.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized for periods less than one year.
(5) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
65 ING Pilgrim MidCap Value Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM MIDCAP OPPORTUNITIES FUND
--------------------------------------------------------------------------------
For the year ended December 31, 2000, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
December 31, 2000, the financial information was audited by other independent
auditors.
<TABLE>
<CAPTION>
Class A Class B
------------------------- ---------------------------
Year ended Year ended
Dec. 31, Dec. 31,
------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000 1999 1998(1) 2000 1999 1998(1)
Operating performance
Net asset value, beginning of the period $ 12.96 10.00 12.97 10.00
Net investment loss $ (0.09) (0.03) (0.07) (0.03)
Net realized and unrealized gain on
investments $ 12.01 2.99 11.81 3.00
Total from investment operations $ 11.92 2.96 11.74 2.97
Distributions from net realized gain $ (3.59) -- (3.59) --
Total distributions $ (3.59) -- (3.59) --
Net asset value, end of the period $ 21.29 12.96 21.12 12.97
Total return(2): % 103.24 29.60 101.73 29.70
Ratios and supplemental data
Net assets, end of the period (000s) $ 6,291 610 8,252 140
Ratio of expenses to average net assets
after reimbursement % 1.74 1.80 (3) (3) 2.40 2.50 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 1.74 2.42 (3) (3) 2.40 3.27 (3)
Ratio of net investment loss to average
net assets % (1.34) (1.10)(3) (3) (2.00) (2.05)(3)
Portfolio turnover % 201 61 201 61
Class C
-------------------------------------
Year ended
Dec. 31,
-------------------------------------
<S> <C> <C> <C>
2000 1999 1998(1)
Operating performance
Net asset value, beginning of the period 12.96 10.00
Net investment loss (0.07) (0.04)
Net realized and unrealized gain on
investments 11.73 3.00
Total from investment operations 11.66 2.96
Distributions from net realized gain (3.59) --
Total distributions (3.59) --
Net asset value, end of the period 21.03 12.96
Total return(2): 101.16 29.60
Ratios and supplemental data
Net assets, end of the period (000s) 4,560 87
Ratio of expenses to average net assets
after reimbursement (3) 2.36 2.50 (3)
Ratio of expenses to average net assets
prior to expense reimbursement (3) 2.36 3.22 (3)
Ratio of net investment loss to average
net assets (3) (1.98) (2.04)(3)
Portfolio turnover 201 61
</TABLE>
----------
(1) Class A, B and C commenced operations on August 20, 1998.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim MidCap Opportunities Fund 66
<PAGE>
FINANCIAL
ING PILGRIM MIDCAP GROWTH FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------------
Six Three
months Year months
ended Ended ended
Dec. 31, 2000 June 30, June 30, Year ended March 31,
(unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 21.34 19.93 18.63 16.80 18.37 13.61
Income from investment operations:
Net investment income (loss) $ (0.22) (0.06) (0.50) (0.14) (0.17) (0.18)
Net realized and unrealized gains on
investments $ 14.08 1.47 3.17 6.50 0.57 4.94
Total from investment operations $ 13.86 1.41 2.67 6.36 0.40 4.76
Less distributions from:
Net investment income $ -- -- -- -- -- --
Net realized gains on investments $ 7.03 -- 1.37 4.53 1.97 --
Net asset value, end of period $ 28.17 21.34 19.93 18.63 16.80 18.37
Total Return(3): % 77.33 7.07 15.36 41.81 1.09 35.07
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 155,976 66,586 67,550 90,619 76,108 77,275
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.36 1.49 1.56 1.57 1.60 1.58
Gross expenses prior to expense
reimbursement(4) % 1.36 1.50 1.64 1.66 1.56 1.56
Net investment income (loss) after
expense reimbursement(4)(5) % (1.10) (1.20) (1.04) (1.33) (1.05) (0.91)
Portfolio turnover % 148 55 154 200 153 114
</TABLE>
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------------------------
Six Three
months Year months May 31,
ended Ended ended 1995(2) to
Dec. 31, 2000 June 30, June 30, Year ended March 31, March 31,
(unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 25.18 23.54 21.55 16.33 16.25 12.50
Income from investment operations:
Net investment income (loss) $ (0.41) (0.11) (0.42) (0.25) (0.17) (0.09)
Net realized and unrealized gains on
investments $ 16.55 1.75 3.42 6.74 0.25 3.84
Total from investment operations $ 16.14 1.64 3.00 6.49 0.08 3.75
Less distributions from:
Net investment income $ -- -- -- -- -- --
Net realized gains on investments $ 8.28 -- 1.01 1.27 -- --
Net asset value, end of period $ 33.04 25.18 23.54 21.55 16.33 16.25
Total Return(3): % 76.28 6.97 14.59 40.84 (0.49) 30.00
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 116,334 49,335 45,876 46,806 29,002 11,186
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 2.01 2.14 2.22 2.22 2.25 2.22
Gross expenses prior to expense
reimbursement(4) % 2.01 2.14 2.29 2.21 2.66 3.39
Net investment income (loss) after
expense reimbursement(4)(5) % (1.75) (1.85) (1.69) (1.99) (1.69) (1.61)
Portfolio turnover % 148 55 154 200 153 114
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------------------------------------------------------------
Six Three
months Year months
ended Ended ended
Dec. 31, 2000 June 30, June 30, Year ended March 31,
(unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 19.78 18.49 17.15 16.48 18.06 13.45
Income from investment operations:
Net investment income (loss) $ (0.38) (0.09) (0.61) (0.28) (0.32) (0.27)
Net realized and unrealized gains on
investments $ 13.04 1.38 2.97 6.26 0.62 4.88
Total from investment operations $ 12.66 1.29 2.36 5.98 0.30 4.61
Less distributions from:
Net investment income $ -- -- -- -- -- --
Net realized gains on investments $ 6.50 -- 1.02 5.31 1.88 --
Net asset value, end of period $ 25.94 19.78 18.49 17.15 16.48 18.06
Total Return(3): % 76.18 6.98 14.60 40.95 0.56 34.28
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 249,255 144,832 141,685 166,849 157,501 177,461
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 2.01 2.14 2.23 2.27 2.14 2.14
Gross expenses prior to expense
reimbursement(4) % 2.01 2.14 2.30 2.33 2.17 2.14
Net investment income (loss) after
expense reimbursement(4)(5) % (1.75) (1.85) (1.70) (2.01) (1.59) (1.47)
Portfolio turnover % 148 55 154 200 153 114
</TABLE>
----------
(1) Effective May 24, 1999, ING Pilgrim Investments Inc. became the Investment
Manager of the Fund, concurrently Nicholas-Applegate Capital Management was
appointed as sub-adviser and the Fund changed its year end to June 30.
(2) Commencement of offering shares.
(3) 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.
(4) Annualized for periods less than one year.
(5) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
67 ING Pilgrim MidCap Growth Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM GROWTH + VALUE FUND
--------------------------------------------------------------------------------
The information in the table below has been audited by PricewaterhouseCoopers
LLP, independent auditors.
<TABLE>
<CAPTION>
Class A
-------------------------------------
Year ended October 31,
-------------------------------------
2000 1999 1998 1997(1)
---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 10.44 12.15 10.00
Net investment loss $ (0.17) (0.11) (0.05)
Net realized and unrealized gain (loss)
on investments $ 9.49 (1.42) 2.20
Total from investment operations $ 9.32 (1.53) 2.15
Distributions from net realized gain $ -- (0.18) --
Total distributions $ -- (0.18) --
Net asset value, end of the period $ 19.76 10.44 12.15
Total return(2) % 89.27 (12.63) 21.50
Ratios and supplemental data:
Net assets, end of the period (000's) $ 81,225 33,425 34,346
Ratio of expenses to average net assets
after reimbursement(4) % .69 1.72 1.84 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 1.69 1.72 1.86 (3)
Ratio of net investment loss to average
net assets % (1.30) (0.92) (0.94) (3)
Portfolio turnover % 197 162 144
</TABLE>
<TABLE>
<CAPTION>
Class B
-------------------------------------
Year ended October 31,
-------------------------------------
2000 1999 1998 1997(1)
---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 10.29 12.08 10.00
Net investment loss $ (0.27) (0.16) (0.08)
Net realized and unrealized gain (loss)
on investments $ 9.32 (1.45) 2.16
Total from investment operations $ 9.05 (1.61) 2.08
Distributions from net realized gain $ -- (0.18) --
Total distributions $ -- (0.18) --
Net asset value, end of the period $ 19.34 10.29 12.08
Total return(2) % 87.95 (13.38) 20.80
Ratios and supplemental data:
Net assets, end of the period (000's) $ 227,227 105,991 76,608
Ratio of expenses to average net assets
after reimbursement(4) % 2.39 2.45 2.55 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 2.39 2.45 2.57 (3)
Ratio of net investment loss to average
net assets % (2.00) (1.67) (1.68)(3)
Portfolio turnover % 197 162 144
</TABLE>
<TABLE>
<CAPTION>
Class C
-------------------------------------
Year ended October 31,
-------------------------------------
2000 1999 1998 1997(1)
---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the period $ 10.29 12.08 10.00
Net investment loss $ (0.26) (0.16) (0.08)
Net realized and unrealized gain (loss)
on investments $ 9.30 (1.45) 2.16
Total from investment operations $ 9.04 (1.61) 2.08
Distributions from net realized gain $ -- (0.18) --
Total distributions $ -- (0.18) --
Net asset value, end of the period $ 19.33 10.29 12.08
Total return(2) % 87.85 (13.38) 20.80
Ratios and supplemental data:
Net assets, end of the period (000's) $ 84,391 37,456 26,962
Ratio of expenses to average net assets
after reimbursement(4) % 2.40 2.46 2.56 (3)
Ratio of expenses to average net assets
prior to expense reimbursement % 2.40 2.46 2.58 (3)
Ratio of net investment loss to average
net assets % (2.01) (1.69) (1.70) (3)
Portfolio turnover % 197 162 144
</TABLE>
----------
(1) Class A, B and C commenced operations on November 18, 1996.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
(4) Expenses calculated net of taxes and advisor reimbursement.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Growth + Value Fund 68
<PAGE>
FINANCIAL
ING PILGRIM SMALLCAP OPPORTUNITIES FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period 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.
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------
Year Ended
December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the
period $ 29.00 27.77 24.72 20.92 19.56
Net investment loss $ (0.32) (0.27) (0.02) (0.04) (0.09)
Net realized and unrealized gain on
investments $ 38.23 2.23 3.68 3.84 2.48
Total from investment operations $ 37.91 1.96 3.66 3.80 2.39
Distributions from net realized gain $ (7.56) (0.73) (0.61) -- (1.03)
Total distributions $ (7.56) (0.73) (0.61) -- (1.03)
Net asset value, end of the period $ 59.35 29.00 27.77 24.72 20.92
Total return(2) % 146.94 7.59 14.92 18.16 12.20
Ratios and supplemental data:
Net assets at the end of the period
(000s) $ 123,377 45,461 78,160 65,660 2,335
Ratio of expenses to average net
assets after reimbursement % .43 1.47 1.43 1.46 1.50 (3)
Ratio of expenses to average net
assets prior to expense
reimbursement % 1.43 1.47 1.43 1.47 1.50 (3)
Ratio of net investment loss to
average net assets % (1.21) (0.70) (0.07) (0.30) (0.91) (3)
Portfolio turnover % 223 257 175 140 71
</TABLE>
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------
Year Ended
December 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the
period $ 28.26 27.27 24.46 20.84 19.56
Net investment loss $ (0.60) (0.48) (0.19) (0.12) (0.12)
Net realized and unrealized gain on
investments $ 36.96 2.20 3.61 3.74 2.43
Total from investment operations $ 36.36 1.72 3.42 3.62 2.31
Distributions from net realized gain $ (7.56) (0.73) (0.61) -- (1.03)
Total distributions $ (7.56) (0.73) (0.61) -- (1.03)
Net asset value, end of the period $ 57.06 28.26 27.27 24.46 20.84
Total return(2) % 145.24 6.84 14.10 17.37 11.79
Ratios and supplemental data:
Net assets at the end of the period
(000s) 264,677 124,065 169,516 126,859 1,491
Ratio of expenses to average net $
assets after reimbursement 2.15 2.18 2.15 2.17 2.20 (3)
Ratio of expenses to average net %
assets prior to expense
reimbursement 2.15 2.18 2.15 2.18 2.21 (3)
Ratio of net investment loss to %
average net assets (1.93) (1.43) (0.78) (1.01) (1.64) (3)
Portfolio turnover % 223 257 175 140 71
</TABLE> %
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------
Year Ended
December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the
period $ 28.24 27.26 24.46 20.84 19.56
Net investment loss $ (0.53) (0.55) (0.20) (0.13) (0.15)
Net realized and unrealized gain
(loss) on investments $ 36.83 2.26 3.61 3.75 2.46
Total from investment operations $ 36.30 1.71 3.41 3.62 2.31
Distributions from net realized gain $ (7.56) (0.73) (0.61) -- (1.03)
Total distributions $ (7.56) (0.73) (0.61) -- (1.03)
Net asset value, end of the period $ 56.98 28.24 27.26 24.46 20.84
Total return(2) % 145.12 6.81 14.06 17.37 11.79
Ratios and supplemental data:
Net assets at the end of the period
(000s) $ 72,581 29,746 51,460 37,342 62
Ratio of expenses to average net
assets after reimbursement % 2.18 2.22 2.18 2.20 2.20 (3)
Ratio of expenses to average net
assets prior to expense reimbursement % 2.18 2.22 2.18 2.21 2.23 (3)
Ratio of net investment loss to
average net assets % (1.96) (1.45) (0.82) (1.03) (1.60) (3)
Portfolio turnover % 223 257 175 140 71
</TABLE>
<TABLE>
<CAPTION>
Class T
---------------------------------------------------------------
Year Ended
December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of the
period $ 28.36 27.34 24.48 20.84 19.64
Net investment loss $ (0.65) (0.51) (0.18) (0.21) (0.34)
Net realized and unrealized gain
(loss) on investments $ 37.24 2.26 3.65 3.85 2.57
Total from investment operations $ 36.59 1.75 3.47 3.64 2.23
Distributions from net realized gain $ (7.56) (0.73) (0.61) -- (1.03)
Total distributions $ (7.56) (0.73) (0.61) -- (1.03)
Net asset value, end of the period $ 57.39 28.36 27.34 24.48 20.84
Total return(2) % 145.51 6.94 14.29 17.47 11.34
Ratios and supplemental data:
Net assets at the end of the period
(000s) $ 33,634 18,203 32,800 35,670 33,557
Ratio of expenses to average net
assets after reimbursement % 2.06 2.10 1.99 2.07 2.16
Ratio of expenses to average net
assets prior to expense reimbursement % 2.06 2.10 1.99 2.11 2.16
Ratio of net investment loss to
average net assets % (1.85) (1.33) (0.62) (0.89) (1.50)
Portfolio turnover % 223 257 175 140 71
</TABLE>
----------
(1) Classes A, B & C commenced operations on June 5, 1995.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
69 ING Pilgrim SmallCap Opportunities Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM SMALLCAP GROWTH FUND
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------------
Six months Three
ended Year months
Dec. 31, Ended ended
2000 June 30, June 30, Year ended March 31,
(unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 19.08 16.72 19.75 15.15 17.93 13.06
Income from investment operations:
Net investment income (loss) $ (0.20) (0.06) (0.85) (0.08) (0.22) (0.20)
Net realized and unrealized gains (loss)
on investments $ 9.24 2.42 0.69 6.91 (0.66) 5.09
Total from investment operations $ 9.04 2.36 (0.16) 6.83 (0.88) 4.89
Less distributions from:
Net investment income $ -- -- -- -- -- --
Net realized gains on investments $ 9.73 -- 2.87 2.23 1.90 0.02
Net asset value, end of period $ 18.39 19.08 16.72 19.75 15.15 17.93
Total Return(3): % 60.66 14.11 0.37 46.32 (6.26) 37.48
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 168,239 102,641 94,428 201,943 121,742 138,155
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.62 1.70 1.85 1.89 1.72 1.74
Gross expenses prior to expense
reimbursement(4) % 1.67 1.74 1.95 1.90 1.72 1.74
Net investment income (loss) after
expense reimbursement(4)(5) % (1.31) (1.46) (1.32) (1.85) (1.26) (1.20)
Portfolio turnover % 127 32 90 92 113 130
</TABLE>
<TABLE>
<CAPTION>
Class B
-------------------------------------------------------------------------------
Six months Three
ended Year months
Dec. 31, Ended ended
2000 June 30, June 30, Year ended March 31,
(unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 24.05 21.12 22.53 15.51 16.69 12.50
Income from investment operations:
Net investment income (loss) $ (0.34) (0.12) (0.53) (0.27) (0.21) (0.14)
Net realized and unrealized gains (loss)
on investments $ 11.56 3.05 0.33 7.29 (0.97) 4.33
Total from investment operations $ 11.22 2.93 (0.20) 7.02 (1.18) 4.19
Less distributions from:
Net investment income $ -- -- -- -- -- --
Net realized gains on investments $ 12.24 -- 1.21 -- -- --
Net asset value, end of period $ 23.03 24.05 21.12 22.53 15.51 16.69
Total Return(3): % 59.68 13.87 (0.29) 45.26 (7.07) 33.52
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 97,239 49,448 45,140 55,215 28,030 13,626
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 2.27 2.35 2.57 2.62 2.61 2.58
Gross expenses prior to expense
reimbursement(4) % 2.32 2.39 2.66 2.63 2.73 3.26
Net investment income (loss) after
expense reimbursement(4)(5) % (1.96) (2.11) (2.03) (2.59) (2.13) (2.09)
Portfolio turnover % 127 32 90 92 113 130
</TABLE>
<TABLE>
<CAPTION>
Class C
-------------------------------------------------------------------------------
Six months Three
ended Year months
Dec. 31, Ended ended
2000 June 30, June 30, Year ended March 31,
(unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 18.81 16.51 18.62 14.69 17.62 12.96
Income from investment operations:
Net investment income (loss) $ (0.30) (0.09) (0.84) (0.38) (0.31) (0.29)
Net realized and unrealized gains on
investments $ 9.07 2.39 0.61 6.84 (0.63) 5.03
Total from investment operations $ 8.77 2.30 (0.23) 6.46 (0.94) 4.74
Less distributions from:
Net investment income $ -- -- -- -- -- --
Net realized gains on investments $ 9.57 -- 1.88 2.53 1.99 0.08
Net asset value, end of period $ 18.01 18.81 16.51 18.62 14.69 17.62
Total Return(3): % 59.67 13.93 (0.24) 45.40 (6.81) 37.18
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 229,473 153,471 144,597 225,025 182,907 207,332
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 2.27 2.35 2.51 2.57 2.35 2.35
Gross expenses prior to expense
reimbursement(4) % 2.32 2.39 2.60 2.59 2.35 2.35
Net investment income (loss) after
expense reimbursement(4)(5) % (1.96) (2.11) (1.97) (2.53) (1.89) (1.81)
Portfolio turnover % 127 32 90 92 113 130
</TABLE>
----------
(1) Effective May 24, 1999, ING Pilgrim Investments Inc., became the Investment
Manager of the Fund, concurrently Nicholas-Applegate Capital Management was
appointed as sub-adviser and the Fund changed its year end to June 30.
(2) Commencement of offering shares.
(3) 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.
(4) Annualized for periods less than one year.
(5) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim SmallCap Growth Fund 70
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM BANK AND THRIFT FUND
--------------------------------------------------------------------------------
For the year ended June 30, 1999 and 2000, the six-month period ended June 30,
1998 and the years ended December 31, 1997, 1996, and 1995, 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, have
been audited by KPMG LLP, independent auditors. The information in the row
labeled "Total Investment Return at Net Asset Value" has not been audited for
periods prior to January 1, 1997. Prior to October 17, 1997, the Class A shares
were designated as Common Stock and the Fund operated as a closed-end investment
company.
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------
Six months Six
ended Year Year months
Dec. 31, Ended ended ended
2000 June 30, June 30, June 30, Year ended December 31,
(unaudited) 2000 1999 1998(3) 1997 1996 1995
----------- ---- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 24.38 27.52 25.87 17.84 14.83 10.73
Income (loss) from investment operations:
Net investment income $ 0.32 0.29 0.11 0.34 0.32 0.31
Net realized and unrealized gains (loss) on
investments $ (5.30) (2.70) 1.54 10.83 5.18 4.78
Total from investment operations $ (4.98) (2.41) 1.65 11.17 5.50 5.09
Less distributions from:
Net investment income $ 0.25 0.18 -- 0.31 0.35 0.34
Net realized gains on investments $ 2.73 0.55 -- 2.65 2.14 0.65
Tax return of capital $ -- -- -- 0.18 -- --
Net asset value, end of year $ 16.42 24.38 27.52 25.87 17.84 14.83
Closing market price, end of year -- -- -- -- 15.75 12.88
Total Investment Return At Market Value(4) % -- -- -- -- 43.48 52.81
Total Investment Return At Net Asset Value(5) % (22.44) (8.61) 6.38 64.86 41.10 49.69
Ratios/Supplemental Data:
Net assets, end of year ($millions) $ 210 403 549 383 252 210
Ratio to average net assets:
Expenses(6) % 1.41 1.39 1.20 1.10 1.01 1.05
Net investment income(6) % 1.46 1.09 0.94 1.39 1.94 2.37
Portfolio turnover rate % 10 29 2 22 21 13
</TABLE>
<TABLE>
<CAPTION>
Class B
--------------------------------------------------------
Six months Six
ended Year Year months Oct. 20,
Dec. 31, Ended ended ended 1997(2) to
2000 June 30, June 30, June 30, Dec. 31,
(unaudited) 2000 1999 1998(3) 1997
----------- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 24.21 27.40 25.85 25.25
Income (loss) from investment operations:
Net investment income $ 0.22 0.08 0.01 0.04
Net realized and unrealized gains (loss) on
investments $ (5.32) (2.66) 1.54 2.92
Total from investment operations $ (5.10) (2.58) 1.55 2.96
Less distributions from:
Net investment income $ 0.03 0.06 -- 0.04
Net realized gains on investments $ 2.73 0.55 -- 2.04
Tax return of capital $ -- -- -- 0.28
Net asset value, end of year $ 16.35 24.21 27.40 25.85
Closing market price, end of year -- -- -- --
Total Investment Return At Market Value(4) % -- -- -- --
Total Investment Return At Net Asset Value(5) % (23.00) (9.31) 6.00 11.88
Ratios/Supplemental Data:
Net assets, end of year ($millions) $ 148 343 360 76
Ratio to average net assets:
Expenses(6) % 2.16 2.14 1.95 1.89
Net investment income(6) % 0.71 0.34 0.19 0.99
Portfolio turnover rate % 10 29 2 22
</TABLE>
----------
(1) ING Pilgrim Investments, Inc., the Fund's Investment Manager, acquired
certain assets of Pilgrim Management Corporation, the Fund's former
Investment Manager, in a transaction that closed on April 7, 1995.
(2) Commencement of offering shares.
(3) Effective June 30, 1998, Bank and Thrift Fund changed its year end to June
30.
(4) Total return was calculated at market value without deduction of sales
commissions and assuming reinvestment of all dividends and distributions
during the period.
(5) 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.
(6) Annualized for periods less than one year.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Bank and Thrift Fund 71
<PAGE>
FINANCIAL
ING PILGRIM INTERNET FUND HIGHLIGHTS
--------------------------------------------------------------------------------
TO COME
72 ING Pilgrim Internet Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM BALANCED FUND
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------
Six months Three
ended Year months
Dec. 31, ended ended
2000 June 30, June 30, Year ended March 31,
(unaudited) 2000 1999(2) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 19.23 19.03 19.53 15.54 16.16 13.74
Income from investment operations:
Net investment income $ 0.51 0.10 0.36 0.26 0.32 0.34
Net realized and unrealized gains on
investments $ (0.60) 0.17 2.58 5.70 0.84 2.42
Total from investment operations $ (0.09) 0.27 2.94 5.96 1.16 2.76
Less distributions from:
Net investment income $ 0.39 0.07 0.43 0.27 0.32 0.34
Net realized gains on investments $ 3.71 -- 3.01 1.70 1.46 --
Net asset value, end of period $ 15.04 19.23 19.03 19.53 15.54 16.16
Total Return(3): % (1.01) 1.42 17.10 39.34 6.74 20.16
Ratio/Supplemental Data:
Net assets, end of period (in thousands) $ 63,592 9,619 9,519 6,675 4,898 5,902
Ratio to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.40 1.49 1.59 1.61 1.60 1.60
Gross expenses prior to expense
reimbursement(4) % 1.61 1.75 1.97 2.56 3.00 3.30
Net investment income (loss) after
expense reimbursement(4)(5) % 3.26 2.06 2.08 3.58 1.87 2.16
Portfolio turnover % 173 63 165 260 213 197
Class B
----------------------------------------------------------------------
Six months Three
ended Year months May 31,
Dec. 31, ended ended 1995(1) to
2000 June 30, June 30, Year ended March 31, March 31,
(unaudited) 2000 1999(2) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 20.59 20.38 20.07 14.88 14.18 12.50
Income from investment operations:
Net investment income $ 0.44 0.07 0.28 0.15 0.17 0.12
Net realized and unrealized gains on
investments $ (0.64) 0.18 2.74 5.58 0.70 1.68
Total from investment operations $ (0.20) 0.25 3.02 5.73 0.87 1.80
Less distributions from:
Net investment income $ 0.33 0.04 0.31 0.15 0.17 0.12
Net realized gains on investments $ 3.97 -- 2.40 0.39 -- --
Net asset value, end of period $ 16.09 20.59 20.38 20.07 14.88 14.18
Total Return(3): % (1.58) 1.24 16.49 38.79 6.10 14.45
Ratio/Supplemental Data:
Net assets, end of period (in thousands) $ 41,026 7,157 6,048 4,254 2,133 673
Ratio to average net assets:
Net expenses after expense
reimbursement(4)(5) % 2.05 2.14 2.24 2.26 2.25 2.25
Gross expenses prior to expense
reimbursement(4) % 2.26 2.40 2.62 2.71 6.44 13.05
Net investment income (loss) after
expense reimbursement(4)(5) % 2.61 1.41 1.43 2.99 1.25 1.38
Portfolio turnover % 173 63 165 260 213 197
Class C
------------------------------------------------------------------------
Six months Three
ended Year months
Dec. 31, ended ended
2000 June 30, June 30, Year ended March 31,
(unaudited) 2000 1999(2) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 18.53 18.35 19.90 15.59 16.20 13.76
Income from investment operations:
Net investment income $ 0.45 0.06 0.26 0.15 0.21 0.24
Net realized and unrealized gains
on investments $ (0.62) 0.16 2.52 5.71 0.85 2.44
Total from investment operations $ (0.17) 0.22 2.78 5.86 1.06 2.68
Less distributions from:
Net investment income $ 0.34 0.04 0.28 0.15 0.21 0.24
Net realized gains on investments $ 3.57 -- 4.05 1.40 1.46 --
Net asset value, end of period $ 14.45 18.53 18.35 19.90 15.59 16.20
Total Return(3): % (1.53) 1.21 16.34 38.35 6.05 19.58
Ratio/Supplemental Data:
Net assets, end of period (in thousands) $ 25,838 21,331 21,655 20,784 16,990 16,586
Ratio to average net assets:
Net expenses after expense
reimbursement(4)(5) % 2.05 2.14 2.23 2.26 2.25 2.25
Gross expenses prior to expense
reimbursement(4) % 2.26 2.40 2.61 2.68 2.83 3.01
Net investment income (loss) after
expense reimbursement(4)(5) % 2.61 1.41 1.43 2.93 1.23 1.53
Portfolio turnover % 173 63 165 260 213 197
Class T
-------------------------
Six months
ended March 31,
Dec. 31, 2000(1) to
2000 June 30,
(unaudited) 2000
----------- ----
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period 16.83
Income from investment operations:
Net investment income 0.09
Net realized and unrealized gains
on investments (0.82)
Total from investment operations (0.73)
Less distributions from:
Net investment income --
Net realized gains on investments --
Net asset value, end of period 16.10
Total Return(3): (4.34)
Ratio/Supplemental Data:
Net assets, end of period (in thousands) 10,953
Ratio to average net assets:
Net expenses after expense
reimbursement(4)(5) 1.70
Gross expenses prior to expense
reimbursement(4) 1.91
Net investment income (loss) after
expense reimbursement(4)(5) 2.96
Portfolio turnover 173
</TABLE>
----------
(1) Commencement of offering of shares.
(2) Effective May 24, 1999, ING Pilgrim Investments Inc., 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.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim Balanced Fund 73
<PAGE>
FINANCIAL
ING PILGRIM CONVERTIBLE FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------------
Six months Three
ended Year months
Dec. 31, ended ended
2000 June 30, June 30, Year ended March 31,
(unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 23.27 21.92 19.12 16.59 15.68 12.86
Income from investment operations:
Net investment income (loss) $ 0.42 0.10 0.40 0.44 0.47 0.48
Net realized and unrealized gains
(loss) on investments $ 8.02 1.35 3.17 4.49 1.64 2.82
Total from investment operations $ 8.44 1.45 3.57 4.93 2.11 3.30
Less distributions from:
Net investment income $ 0.32 0.10 0.41 0.44 0.48 0.48
Net realized gains on investments $ 3.69 -- 0.36 1.96 0.72 --
Net asset value, end of period $ 27.70 23.27 21.92 19.12 16.59 15.68
Total Return(3): % 39.88 6.62 19.17 31.04 13.73 26.00
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $ 131,218 73,133 65,742 47,290 32,082 31,712
Ratio to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.35 1.45 1.53 1.57 1.60 1.60
Gross expenses prior to expense
reimbursement(4) % 1.35 2.10 1.65 1.74 1.75 1.76
Net investment income (loss) after
expense reimbursement(4)(5) % 1.78 1.82 2.08 5.64 2.83 3.29
Portfolio turnover % 129 28 138 160 167 145
Class B
---------------------------------------------------------------------------------
Six months Three
ended Year months May 31,
Dec. 31, ended ended 1995(2) to
2000 June 30, June 30, Year ended March 31, March 31,
(unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 25.34 23.86 20.56 16.60 14.96 12.50
Income from investment operations:
Net investment income (loss) $ 0.29 0.07 0.29 0.32 0.31 0.24
Net realized and unrealized gains
(loss) on investments $ 8.77 1.47 3.47 4.65 1.64 2.46
Total from investment operations $ 9.06 1.54 3.76 4.97 1.95 2.70
Less distributions from:
Net investment income $ 0.19 0.06 0.27 0.32 0.31 0.24
Net realized gains on investments $ 4.01 -- 0.19 0.69 -- --
Net asset value, end of period $ 30.20 25.34 23.86 20.56 16.60 14.96
Total Return(3): % 39.21 6.47 18.52 30.51 13.01 21.72
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $ 139,704 68,091 58,736 36,725 12,740 2,125
Ratio to average net assets:
Net expenses after expense
reimbursement(4)(5) % 2.00 2.10 2.18 2.22 2.25 2.25
Gross expenses prior to expense
reimbursement(4) % 2.00 2.10 2.30 2.33 3.19 7.08
Net investment income (loss) after
expense reimbursement(4)(5) % 1.13 1.17 1.44 5.04 2.29 2.59
Portfolio turnover % 129 28 138 160 167 145
Class C
---------------------------------------------------------------------------------
Six months Three
ended Year months
Dec. 31, ended ended
2000 June 30, June 30, Year ended March 31,
(unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 23.78 22.40 19.55 17.05 15.89 13.03
Income from investment operations:
Net investment income (loss) $ 0.28 0.07 0.28 0.34 0.37 0.40
Net realized and unrealized gains
(loss) on investments $ 8.22 1.37 3.25 4.60 1.66 2.86
Total from investment operations $ 8.50 1.44 3.53 4.94 2.03 3.26
Less distributions from:
Net investment income $ 0.19 0.06 0.25 0.34 0.37 0.40
Net realized gains on
investments $ 3.76 -- 0.43 2.10 0.50 --
Net asset value, end of period $ 28.33 23.78 22.40 19.55 17.05 15.89
Total Return(3): % 39.24 6.45 18.45 30.22 12.91 25.24
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) $ 156,592 100,276 95,998 81,561 62,143 58,997
Ratio to average net assets:
Net expenses after expense
reimbursement(4)(5) % 2.00 2.10 2.18 2.22 2.25 2.25
Gross expenses prior to expense
reimbursement(4) % 2.00 2.10 2.30 2.31 2.29 2.28
Net investment income (loss) after
expense reimbursement(4)(5) % 1.13 1.17 1.44 4.99 2.18 2.64
Portfolio turnover % 129 28 138 160 167 145
</TABLE>
----------
(1) Effective May 24, 1999, ING Pilgrim Investments Inc., became the Investment
Manager of the Fund, concurrently Nicholas-Applegate Capital Management was
appointed as sub-adviser and the Fund changed its year end to June 30.
(2) Commencement of offering shares.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized for periods less than one year.
(5) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
74 ING Pilgrim Convertible Fund
<PAGE>
WHERE TO GO FOR MORE INFORMATION
You'll find more information about the ING 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 ING Pilgrim Funds. The SAI
is legally part of this prospectus (it is incorporated by reference). A copy has
been filed with the Securities and Exchange Commission (SEC).
Please write or call for a free copy of the current Annual/Semi-Annual reports,
the SAI or other Fund information, or to make shareholder inquiries:
THE ING PILGRIM FUNDS
7337 East Doubletree Ranch Road
Scottsdale, AZ 85258-2034
1-800-992-0180
Or visit our website at www.pilgrimfunds.com
This information may also be reviewed or obtained from the SEC. In order to
review the information in person, you will need to visit the SEC's Public
Reference Room in Washington, D.C. or call 202-942-8090. Otherwise, you may
obtain the information for a fee by contacting the SEC at:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-0102
or at the e-mail address: [email protected]
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:
ING Pilgrim Growth Opportunities Fund 811-4431
ING Pilgrim Equity Trust 811-8817
ING Pilgrim Mayflower Trust 811-7978
ING Pilgrim SmallCap Opportunities Fund 811-4434
ING Pilgrim Advisory Funds, Inc. 811-9040
ING Pilgrim Growth and Income Fund, Inc. 811-0865
ING Pilgrim Investment Funds, Inc. 811-1939
ING Pilgrim Mutual Funds 811-7428
ING Pilgrim Bank and Thrift Fund, Inc. 811-4504
ING Funds Trust 811-8895
USEQPROSXXXXXX-XXXXXX
<PAGE>
March 1, 2001
Class Q
U.S. EQUITY FUNDS
ING Pilgrim MagnaCap
ING Pilgrim Growth and Income
ING Pilgrim LargeCap Leaders
ING Pilgrim Research Enhanced Index
ING Pilgrim Growth Opportunities
ING Pilgrim LargeCap Growth
ING Pilgrim MidCap Value
ING Pilgrim MidCap Opportunities
ING Pilgrim MidCap Growth
ING Pilgrim Growth + Value
ING Pilgrim SmallCap Opportunities
ING Pilgrim SmallCap Growth
INTERNATIONAL EQUITY FUNDS
ING Pilgrim Worldwide Growth
ING Pilgrim International Value
ING Pilgrim International
ING Pilgrim International Core Growth
ING Pilgrim International SmallCap Growth
ING Pilgrim Emerging Countries
INCOME FUNDS
ING Pilgrim Government Securities Income
ING Pilgrim GNMA Income
ING Pilgrim Strategic Income
ING Pilgrim High Yield
ING Pilgrim High Yield II
ING Pilgrim Global Income
EQUITY & INCOME FUNDS
ING Pilgrim Balanced
ING Pilgrim Convertible
This prospectus contains important information about investing in the Class Q
shares of the ING Pilgrim Funds. You should read it carefully before you invest,
and keep it for future reference. Please note that your investment: is not a
bank deposit, is not insured or guaranteed by the FDIC, the Federal Reserve
Board or any other government agency and is affected by market fluctuations.
There is no guarantee that the Funds will achieve their objectives. As with all
mutual funds, the Securities and Exchange Commission (SEC) has not approved or
disapproved these securities nor has the SEC judged whether the information in
this prospectus is accurate or adequate. Any representation to the contrary is a
criminal offense.
<PAGE>
WHAT'S INSIDE
--------------------------------------------------------------------------------
[GRAPHIC]
OBJECTIVE
These pages contain a description of each of our Funds included in this
prospectus, including its 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
ING Pilgrim Funds 1
Funds At A Glance 2
U.S. EQUITY FUNDS
ING Pilgrim MagnaCap 6
ING Pilgrim Growth and Income 8
ING Pilgrim LargeCap Leaders 10
ING Pilgrim Research Enhanced Index 12
ING Pilgrim Growth Opportunities 14
ING Pilgrim LargeCap Growth 16
ING Pilgrim MidCap Value 18
ING Pilgrim MidCap Opportunities 20
ING Pilgrim MidCap Growth 22
ING Pilgrim Growth + Value 24
ING Pilgrim SmallCap Opportunities 26
ING Pilgrim SmallCap Growth 28
INTERNATIONAL EQUITY FUNDS
ING Pilgrim Worldwide Growth 30
ING Pilgrim International Value 32
ING Pilgrim International 34
ING Pilgrim International Core Growth 36
ING Pilgrim International SmallCap Growth 38
ING Pilgrim Emerging Countries 40
INCOME FUNDS
ING Pilgrim Government Securities Income 42
ING Pilgrim GNMA Income 44
ING Pilgrim Strategic Income 46
ING Pilgrim High Yield 48
ING Pilgrim High Yield II 50
ING Pilgrim Global Income 52
EQUITY & INCOME FUNDS
ING Pilgrim Balanced 54
ING Pilgrim Convertible 56
What You Pay to Invest 58
Shareholder Guide 60
Management of the Funds 64
Dividends, Distributions and Taxes 69
More Information About Risks 70
Financial Highlights 73
Where To Go For More Information Back cover
<PAGE>
INTRODUCTION
TO THE ING 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 ING 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.
INTERNATIONAL EQUITY FUNDS
ING Pilgrim offers International Equity Funds that emphasize a growth approach
to international investing, as well as International Equity Funds that apply
the technique of "value investing". These Funds focus on long-term growth by
investing primarily in foreign equities.
They may suit you if you:
* are investing for the long-term -- at least several years
* are looking for exposure to international markets
* are willing to accept higher risk in exchange for long-term growth.
INCOME FUNDS
ING Pilgrim offers both aggressive and conservative Income Funds.
They may suit you if you:
* want a regular stream of income
* want greater growth potential than a money market fund
* are willing to accept more risk than a money market fund.
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
<PAGE>
------
Funds
At A
Glance
------
This table is a summary of the objectives, main investments and risks of each
ING Pilgrim Fund. It is designed to help you understand the differences between
the Funds, the main risks associated with each, and how risk and investment
objectives relate. This table is only a summary. You should read the complete
descriptions of each Fund's investment objectives, strategies and risks, which
begin on page 6.
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
<S> <C> <C>
U.S. Equity MagnaCap Fund Growth of capital, with dividend income as a
Funds Adviser: ING Pilgrim Investments, Inc. secondary consideration
Growth and Income Fund Long-term capital appreciation with income as a
Adviser: ING Pilgrim Investments, Inc. secondary objective
LargeCap Leaders Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Research Enhanced Index Fund Capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Sub-Adviser: J.P. Morgan
Investment Management Inc.
Growth Opportunities Fund Long-term growth of capital
Adviser: ING Pilgrim Investments, Inc.
LargeCap Growth Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
MidCap Value Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
MidCap Opportunities Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
MidCap Growth Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Growth + Value Fund Capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Sub-Adviser: Navellier Fund
Management, Inc.
SmallCap Opportunities Fund Capital appreciation
Adviser: ING Pilgrim Investments, Inc.
SmallCap Growth Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
International Worldwide Growth Fund Long-term capital appreciation
Equity Funds Adviser: ING Pilgrim Investments, Inc.
International Value Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Sub-Adviser: Brandes
Investment Partners, L.P.
International Fund Long-term growth of capital
Adviser: ING Pilgrim Investments, Inc.
International Core Growth Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
</TABLE>
2
<PAGE>
MAIN INVESTMENTS MAIN RISKS
--------------------------------------------------------------------------------
Equity securities that meet Price volatility and other risks
disciplined selection criteria that accompany an investment in
designed to identify companies equity securities.
capable of paying rising dividends.
Equity securities of large, ably Price volatility and other risks
managed, and well-financed U.S. that accompany an investment in
companies. equity securities.
Equity securities of large U.S. Price volatility and other risks
companies believed to be leaders in that accompany an investment in
their industries. equity securities.
Equity securities of large U.S. Price volatility and other risks
companies that make up the S&P 500 that accompany an investment in
Index. equity securities.
Equity securities of large, medium, Price volatility and other risks
and small U.S. companies believed that accompany an investment in
to have growth potential. growth-oriented equity securities.
Equity securities of large U.S. Price volatility and other risks
companies believed to have growth that accompany an investment in
potential. growth-oriented equity securities.
Equity securities of medium-sized Price volatility and other risks
U.S. companies that meet that accompany an investment in
disciplined selection criteria equity securities of medium-sized
designed to identify companies with companies. Particularly sensitive
prices below their long-term value. to price swings during periods of
economic uncertainty.
Equity securities of medium-sized Price volatility and other risks
U.S. companies believed to have that accompany an investment in
growth potential. equity securities of
growth-oriented and medium-sized
companies. Particularly sensitive
to price swings during periods of
economic uncertainty.
Equity securities of medium-sized Price volatility and other risks
U.S. companies believed to have that accompany an investment in
growth potential. equity securities of medium-sized
companies. Particularly sensitive
to price swings during periods of
economic uncertainty.
Equity securities of small-sized Price volatility and other risks
U.S. companies. 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 Price volatility and other risks
U.S. companies believed to have that accompany an investment in
growth potential. equity securities of
growth-oriented and small-sized
companies. Particularly sensitive
to price swings during periods of
economic uncertainty.
Equity securities of small-sized Price volatility and other risks
U.S. companies believed to have that accompany an investment in
growth potential. equity securities of
growth-oriented and small-sized
companies. Particularly sensitive
to price swings during periods of
economic uncertainty.
Equity securities of companies Price volatility and other risks
located in countries around the that accompany an investment in
world, which may include the U.S., growth-oriented foreign equities.
believed to have growth potential. Sensitive to currency exchange
rates, international political and
economic conditions and other risks
that affect foreign securities.
Equity securities of issuers Price volatility and other risks
located in countries outside the that accompany an investment in
U.S., believed to have prices below foreign equities. Sensitive to
their long-term value. currency exchange rates,
international political and
economic conditions and other risks
that affect foreign securities.
Equity securities and equity Price volatility and other risks
equivalents of companies outside of that accompany an investment in
the U.S. growth-oriented foreign equities.
Sensitive to currency exchange
rates, international political and
economic conditions and other risks
that affect foreign securities.
Equity securities of larger Price volatility and other risks
companies in countries around the that accompany an investment in
world, which may include the U.S., growth-oriented foreign equities.
believed to have growth potential. Sensitive to currency exchange
rates, international political and
economic conditions and other risks
that affect foreign securities.
3
<PAGE>
------
Funds
At A
Glance
------
FUND INVESTMENT OBJECTIVE
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
International SmallCap Growth Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Sub-Adviser: Nicholas-Applegate Capital Mgt.
Emerging Countries Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Income Funds Government Securities Income Fund High current income, consistent with liquidity
Adviser: ING Pilgrim Investments, Inc. and preservation of capital
GNMA Income Fund High current income, consistent with liquidity
Adviser: ING Pilgrim Investments, Inc. and safety of principal
Strategic Income Fund Maximum total return
Adviser: ING Pilgrim Investments, Inc.
High Yield Fund High current income, with
Adviser: ING Pilgrim Investments, Inc. capital appreciation as a secondary objective
High Yield Fund II High level of
Adviser: ING Pilgrim Investments, Inc. current income and capital growth
Global Income Fund High current income, with
Adviser: ING Pilgrim Investments, Inc. capital appreciation as a secondary objective
Equity & Balanced Fund Long-term capital appreciation and current income
Income Funds Adviser: ING Pilgrim Investments, Inc.
Convertible Fund Total return, consisting of capital appreciation
Adviser: ING Pilgrim Investments, Inc. and current income
</TABLE>
4
<PAGE>
MAIN INVESTMENTS MAIN RISKS
--------------------------------------------------------------------------------
Equity securities of small-sized Price volatility, liquidity and
companies in countries around the other risks that accompany an
world, which may include the U.S., investment in equity securities of
believed to have growth potential. foreign, small-sized companies.
Sensitive to currency exchange
rates, international political and
economic conditions and other risks
that affect foreign securities.
Equity securities of issuers Price volatility, liquidity and
located in countries with emerging other risks that accompany an
securities markets believed to have investment in equities from
growth potential. emerging countries. Sensitive to
currency exchange rates,
international political and
economic conditions and other risks
that affect foreign securities.
Securities issued or guaranteed by Credit, interest rate, prepayment
the U.S. Government and certain of and other risks that accompany an
its agencies or instrumentalities. investment in government bonds and
mortgage related investments.
Generally has less credit risk than
the other income funds.
Mortgage-backed GNMA Certificates Credit, interest rate, prepayment
that are guaranteed as to the and other risks that accompany an
timely payment of principal and investment in government bonds and
interest by the U.S. Government. mortgage related investments.
Generally has less credit than the
other income funds.
Investment grade and high yield Credit, interest rate, prepayment
debt securities. and other risks that accompany an
investment in debt securities,
including high yield debt
securities. May be sensitive to
credit risk during economic
downturns.
High yield debt securities. Credit, interest rate and other
risks that accompany an investment
in lower-quality debt securities.
Particularly sensitive to credit
risk during economic downturns.
High yield debt securities, Credit, liquidity, interest rate
including those in the lowest and other risks that accompany an
ratings, as well as equities and investment in lower-quality debt
foreign securities. securities. Particularly sensitive
to credit risk during economic
downturns. May also present price
volatility from equity exposure,
and foreign securities. May be
sensitive to currency exchange
rates, international political and
economic conditions, and other
risks.
Foreign and domestic high yield, Credit, liquidity, interest rate
lower rated or unrated debt and other risks that accompany an
securities. investment in lower-quality debt
securities. Particularly sensitive
to credit risk during economic
downturns. May also present price
volatility from foreign securities.
May be sensitive to currency
exchange rates, international
political and economic conditions,
and other risks.
A mix of equity and debt Price volatility and other risks
securities. that accompany an investment in
equity securities. Credit, interest
rate and other risks that accompany
an investment in debt securities.
Convertible securities of companies Price volatility and other risks
of various sizes, as well as that accompany an investment in
equities, and high-yield debt. equity securities. Credit, interest
rate, liquidity and other risks
that accompany an investment in
debt securities,and lower quality
debt securities.
5
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM MAGNACAP FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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 10 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.
6 ING Pilgrim MagnaCap Fund
<PAGE>
ING 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
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
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.
Average Annual Total Returns
S&P
500
Class Q Index(2)
------- --------
One year, ended
December 31, 2000 % %
Since inception (3) % %
----------
(2) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large-capitalization U.S. companies.
(3) Class Q commenced operations on November 22, 1999.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim MagnaCap Fund 7
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM GROWTH AND INCOME FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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.
8 ING Pilgrim Growth and Income Fund
<PAGE>
ING 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
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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 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.
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 Index (S&P 500 Index).
Average Annual Total Returns
S&P
500
Class A(3) Index(4)
---------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 %
----------
(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 U.S. companies.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Growth and Income Fund 9
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM LARGECAP LEADERS FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund normally invests at least 65% of its total assets in equity securities
of large U.S. companies that the adviser believes are leaders in their
industries. The portfolio managers consider whether these companies have a
sustainable competitive edge.
The portfolio managers emphasize a value approach, 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
(outstanding shares multiplied by price per share) 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.
The equity securities in which the Fund may invest include common stock,
convertible securities, preferred stock, American Depositary Receipts, and
warrants. The Fund normally invests as fully as practicable (at least 80%) in
equity securities.
Pending Merger -- Subject to shareholder approval, the Fund's Board of Directors
has approved the reorganization of the Fund into ING Pilgrim MagnaCap Fund. You
could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests 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.
10 ING Pilgrim LargeCap Leaders Fund
<PAGE>
ING PILGRIM LARGECAP LEADERS FUND
--------------------------------------------------------------------------------
HOW THE
FUND HAS
PERFORMED
[GRAPHIC]
T he 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
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
21.07 21.05 20.08 18.94
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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 November 1, 1998, the Fund's investment policies were different in
that they emphasized large company value stocks without necessarily
emphasizing industry leaders. ING Pilgrim Investments, Inc. has been the
Fund's investment adviser since the Fund commenced operations; however,
prior to November 1, 1997, the Fund was managed by a sub-adviser.
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).
Average Annual Total Returns
S&P
500
Class A(4) Index(5)
------------ -----------
One year, ended
December 31, 2000 % %
Since inception(6) % %
----------
(4) This table shows performance of the Class A shares of the Fund because
Class Q shares 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
the footnote 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 U.S. companies.
(6) Class A commenced operations on September 1, 1995. Class Q commenced
operations April 4, 2000.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim LargeCap Leaders Fund 11
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING Pilgrim Investments, Inc.
Sub-Adviser
ING PILGRIM RESEARCH ENHANCED INDEX FUND J.P. Morgan Investment Management Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund invests primarily in large companies that make up the Standard & Poor's
500 Composite Stock Price Index (S&P 500 Index). Based on extensive research
regarding projected company earnings and dividends, a valuation model ranks
companies in each industry group according to their relative value. Using this
valuation model, the portfolio managers select stocks for the Fund. Within each
industry, the Fund modestly overweights stocks that are ranked as undervalued or
fairly valued while modestly underweighting or not holding stocks that appear
overvalued. Industry by industry, the Fund's assets are invested so that the
Fund's industry sector allocations and market cap weightings closely parallel
those of the S&P 500 Index.
By owning a large number of stocks within the S&P 500 Index, with an emphasis on
those that appear undervalued or fairly valued, and by tracking the industry
weightings and other characteristics of that index, the Fund seeks returns that
modestly exceed those of the S&P 500 Index over the long term with virtually the
same level of volatility.
Under normal market conditions, the Fund invests at least 80% of its total
assets in common stocks included in the S&P 500 Index. It may also invest in
other common stocks not included in 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).
--------------------------------------------------------------------------------
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.
12 ING Pilgrim Research Enhanced Index Fund
<PAGE>
ING 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)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
18.59
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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.
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.
Average Annual Total Returns
S&P
500
Class A(3) Index(4)
---------- --------
One year, ended
December 31, 2000 %
Since inception(5) %
----------
(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 U.S. companies.
(5) Class A commenced operations on December 30, 1998.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Research Enhanced Index Fund 13
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM GROWTH OPPORTUNITIES FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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.
14 ING Pilgrim Growth Opportunities Fund
<PAGE>
ING 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
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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.
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).
Average Annual Total Returns
S&P
500
Class A(3) Index(4)
---------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since Inception(5) %
----------
(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 U.S. companies.
(5) Class A commenced operations on June 5, 1995.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Growth Opportunities Fund 15
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM LARGECAP GROWTH FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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, warrants, and convertible securities. 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 December 31, 2000, this meant market
capitalizations in the range of $ billion to $ 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.
16 ING Pilgrim LargeCap Growth Fund
<PAGE>
ING 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
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
(2) ING Pilgrim Investments, Inc. 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.
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.
Average Annual Total Returns
Russell
1000
Growth S&P 500
Class Q Index(3) Index(4)
------- -------- --------
One year, ended
December 31, 2000 %
Since inception(5) %
----------
(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 U.S. companies.
(5) Class Q commenced operations on July 21, 1997.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim LargeCap Growth Fund 17
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM MIDCAP VALUE FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund normally invests as fully as practicable (at least 80% of its assets)
in equity securities of medium-sized U.S. companies. The Fund will normally
invest at least 65% of its assets in equity securities of companies that meet
the following disciplined criteria, which are intended to identify companies
that are attractive values:
Consistent Dividends -- The company must have paid or had the financial
capability from its operations to pay a dividend in its last five fiscal years.
Strong Balance Sheet -- If the company has debt that is rated, that debt is
rated investment grade by a nationally recognized rating agency. If the company
does not have debt that is rated, the company's long-term debt to capitalization
ratio is below 25%.
Reinvested Earnings -- The company currently pays out in dividends less than 65%
of current earnings, or less than the dividend payout as a percentage of current
earnings of at least half of the medium-sized companies in similar industries.
Attractive Price -- The ratio of the stock's price to the next fiscal year's
anticipated earnings is less than the corresponding ratio for at least half of
the medium-sized companies in similar industries.
The Fund considers a company to be medium-sized if it has a market
capitalization between $1 billion and $8 billion. The equity securities in which
the Fund may invest include common stock, convertible securities, preferred
stock and warrants.
PENDING MERGER -- Subject to shareholder approval, the Fund's Board of Directors
has approved the reorganization of the Fund into ING Pilgrim MagnaCap Fund. You
could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests in medium-sized
companies, which may be more susceptible to price swings than larger companies,
but usually tend to have less volatile price swings than smaller companies.
Securities of medium-size companies 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 mid-cap
value securities that meet the Fund's disciplined investment criteria. Rather,
the market could favor growth-oriented stocks or large or small company stocks,
or may not favor equities at all.
Inability to Sell Securities -- securities of medium-size companies trade in
lower volume an 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.
18 ING Pilgrim MidCap Value Fund
<PAGE>
ING PILGRIM MIDCAP 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 Q shares from
year to year.
Year by Year Total Returns (%)(1)(2)(3)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
29.56 21.87 4.89 -7.32
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
(2) The figure shown for the year 2000 provides performance for the Class Q
shares of the Fund. The figures shown for the years 1996 to 1999 provide
performance for Class A shares of the Fund. Class A shares would have
substantially similar performance annual returns as Class Q shares because
the classes are invested in the same portfolio of securities. Annual
returns would differ only to the extent Class Q shares and Class A shares
have different expenses.
(3) Prior to October 1, 1999, the Fund's investment policies were different in
that they emphasized midcap value stocks without employing the current
disciplined selection criteria. ING Pilgrim Investments, Inc. has been the
Fund's investment adviser since the Fund commenced operations; however,
prior to October 1, 1999, the Fund was managed by a sub-adviser.
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 Midcap Index and the Russell Midcap Value Index.
Average Annual Total Returns
Russell
Russell MidCap
MidCap Value
Class A(4) Class Q Index(5) Index(6)
---------- ------- -------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception
of Class A(7) %
Since inception of
Class Q(8)
----------
(4) Class A shares on the Fund are not offered in this prospectus. Reflects
deduction of Class A sales charge of 5.75%. See footnote (2) to the bar
chart above.
(5) The Russell Midcap Index is an unmanaged index that measures the
performance of the 800 smallest companies in the Russell 1000 Index.
(6) The Russell MidCap Value Index is an unmanaged index that measures the
performance of companies in the Russell Midcap Index with lower
book-to-price ratios and lower forecasted growth values.
(7) Class A commenced operations on September 1, 1995.
(8) Class Q commenced operations on January 4, 2000.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim MidCap Value Fund 19
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM MIDCAP OPPORTUNITIES FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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 December 31, 2000, the
market capitalization of companies in the S&P MidCap 400 Index ranged from $
million to $ 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.
20 ING Pilgrim MidCap Opportunities Fund
<PAGE>
ING 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
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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.
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.
Average Annual Total Returns
S&P
MidCap 400
Class A(3) Index(4)
---------- --------
One year, ended
December 31, 2000 %
Since Inception(5) %
----------
(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.
ING Pilgrim MidCap Opportunities Fund 21
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM MIDCAP GROWTH FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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. 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
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. 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.
--------------------------------------------------------------------------------
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.
22 ING Pilgrim MidCap Growth Fund
<PAGE>
ING 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
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
(2) ING Pilgrim Investments, Inc. 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.
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.
Average Annual Total Returns
S&P Russell
MidCap MidCap
400 Growth
Class Q Index(3) Index(4)
------- -------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception(5) %
----------
(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.
ING Pilgrim MidCap Growth Fund 23
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING Pilgrim Investments, Inc.
Sub-Adviser
ING 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.
24 ING Pilgrim Growth + Value Fund
<PAGE>
ING 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
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
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.
----------
(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.
Average Annual Total Returns
Russell
2000
Class A(3) Index(4)
---------- --------
One year, ended
December 31, 2000 %
Since inception(5) %
----------
(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) Class A commenced operations on November 18, 1996.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Growth + Value Fund 25
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM SMALLCAP OPPORTUNITIES FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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 changes. The market capitalization of
companies held by the Fund as of December 31, 2000 ranged from $ million to $
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.
The Fund was closed to new investors effective February 29, 2000. Investors who
were shareholders of the Fund on that day may continue to buy shares into
accounts existing on that day. The Fund may reopen in the future subject to the
discretion of the Board of Trustees.
--------------------------------------------------------------------------------
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.
26 ING Pilgrim SmallCap Opportunities Fund
<PAGE>
ING 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
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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.
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.
Average Annual Total Returns
Russell
2000
Class A(3) Index(4)
---------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception(5) %
----------
(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 durring
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.
ING Pilgrim SmallCap Opportunities Fund 27
<PAGE>
-----------
U.S. Equity
Funds
-----------
Adviser
ING PILGRIM SMALLCAP GROWTH FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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
December 31, 2000, the market capitalization of companies held by the Fund
ranged from $ million to $ 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.
28 ING Pilgrim SmallCap Growth Fund
<PAGE>
ING 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
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
(2) ING Pilgrim Investments, Inc. 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.
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.
Average Annual Total Returns
Russell
2000
Growth
Class Q Index(3)
------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception(4) %
----------
(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.
ING Pilgrim SmallCap Growth Fund 29
<PAGE>
-------------
International
Equity Funds
-------------
Adviser
ING PILGRIM WORLDWIDE GROWTH FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks maximum long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
Under normal conditions, the Fund invests at least 65% of its net assets in
equity securities of issuers located in at least three countries, one of which
may be the U.S. The Fund generally invests at least 75% of its total assets in
common and preferred stocks, warrants and convertible securities. The Fund may
invest in companies located in countries with emerging securities markets when
the portfolio managers believe they present attractive investment opportunities.
International Component -- The portfolio managers primarily use a "bottom-up"
fundamental analysis to identify stocks which they believe offer good value
relative to their peers in the same industry, sector or region. The portfolio
managers will invest at least 65% of the Fund in assets of companies which,
based upon a fundamental analysis of a company's earning prospects, they believe
will experience faster earnings per share growth than that of other companies
located in one or more of the same market, sector, or industry. In conducting
its fundamental analysis, the portfolio managers focus on various factors
including valuation of the companies, potential catalysts to stock price
appreciation, quality of management, and financial measures, especially cash
flow and the cash flow return on capital. They also use a "top-down" analysis to
identify important themes or issues which may affect the investment environment
in certain regions or sectors and to estimate regional market risks.
U.S. Component -- The Fund normally invests in equity securities of large U.S.
companies that the portfolio managers feel have above-average prospects for
growth. The Fund considers a company to be large if its market capitalization
corresponds at the time of purchase to the upper 90% of the S&P 500 Index. As of
December 31, 2000, this meant market capitalizations in the range of $ billion
to $ 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.
* From time to time, the Adviser reviews the allocation between the U.S.
stocks and non-U.S. stocks in the portfolio, and may rebalance the
portfolio using factors that the Adviser deems appropriate.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
Sub-Adviser believes have the potential for rapid growth, which may give the
Fund a higher risk of price volatility than a fund that emphasizes other styles,
such as a value-oriented style. The Fund may also invest in small and
medium-sized companies, which may be more susceptible to greater price swings
than larger companies because they may have fewer financial resources, more
limited product and market diversification and may be dependent on a few key
managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Fund invests. Rather, the market could favor
value-oriented stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging markets
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Inability to Sell Securities -- securities of foreign companies may trade in
lower volume and may be less liquid than securities of U.S. companies. The Fund
could lose money if it cannot sell a security at the time and price that would
be most beneficial to the Fund.
Securities Lending -- There is the risk that when lending portfolio securities,
the securities may not be available to the Fund on a timely basis and the Fund
may, therefore, lose the opportunity to sell the securities at a desirable
price.
30 ING Pilgrim Worldwide Growth Fund
<PAGE>
ING PILGRIM WORLDWIDE GROWTH FUND
--------------------------------------------------------------------------------
HOW THE
FUND HAS
PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class Q shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
18.32 17.64 37.92 83.79
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
(2) ING Pilgrim Investments, Inc. 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.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- the Morgan Stanley Capital International World Index (MSCI World
Index).
Average Annual Total Returns
MSCI
World
Class Q Index(3)
------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception(4) %
----------
(3) MSCI World Index is an unmanaged index that measures the performance of
over 1,400 securities listed on exchanges in the U.S., Europe, Canada,
Australia, New Zealand and the Far East.
(4) Class Q commenced operations on August 31, 1995.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Worldwide Growth Fund 31
<PAGE>
-------------
International
Equity Funds
-------------
Adviser
ING Pilgrim Investments, Inc.
Sub-Adviser
ING PILGRIM INTERNATIONAL VALUE FUND Brandes Investment Partners, L.P.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
This Fund seeks long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund invests primarily in foreign companies with market capitalizations
greater than $1 billion, but it may hold up to 25% of its assets in companies
with smaller market capitalizations.
The portfolio managers apply the technique of "value investing" by seeking
stocks that their research indicates are priced below their long-term value.
The Fund holds common stocks, preferred stocks, American, European and Global
depositary receipts, as well as convertible securities.
Under normal circumstances, the Fund invests at least 65% of its total assets in
securities of companies located in at least three countries other than the U.S.
The Fund may invest up to the greater of:
* 20% of its assets in any one country or industry, or,
* 150% of the weighting of the country or industry in the Morgan Stanley
Capital International Europe, Australia, and Far East (MSCI EAFE) Index, as
long as the Fund meets any industry concentration or diversification
requirements under the Investment Company Act.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund's investments may be
affected by the following additional risks:
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political, social and economic conditions, a lack of adequate or
accurate company information, differences in the way securities markets operate,
less secure foreign banks or securities depositories than those in the U.S., and
foreign controls on investment. To the extent that the Fund invests in emerging
market countries, the risks may be greater, partly because emerging market
countries may be less politically and economically stable than other countries.
It may also be more difficult to buy and sell securities in emerging market
countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. The Fund invests primarily in equity
securities of larger companies, which sometimes have more stable prices than
smaller companies. However, the Fund may also invest in small and medium-sized
companies, which may be more susceptible to price swings than larger companies
because they have fewer financial resources, more limited product and market
diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the
value-oriented stocks in which the Fund invests. Rather, the market could favor
growth-oriented stocks, or may not favor equities at all.
Inability to Sell Securities -- securities of smaller companies and some foreign
companies may trade in lower volume and may be less liquid than securities of
larger, more established companies or U.S. companies. The Fund could lose money
if it cannot sell a security at the time and price that would be most beneficial
to the Fund.
32 ING Pilgrim International Value Fund
<PAGE>
ING PILGRIM INTERNATIONAL VALUE FUND
--------------------------------------------------------------------------------
HOW THE
FUND HAS
PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Return (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
15.23 17.86 13.46 51.49
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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.
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 MSCI EAFE Index.
Average Annual Total Returns
MSCI
EAFE
Class A(3) Index(4)
---------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception(5) %
----------
(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) MSCI EAFE Index is an unmanaged index that measures the performance of
securities listed on exchanges in markets in Europe, Australia and the Far
East.
(5) Class A commenced operations on March 6, 1995.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim International Value Fund 33
<PAGE>
-------------
International
Equity Funds
-------------
Adviser
ING PILGRIM INTERNATIONAL FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund's investment objective is to seek long-term growth of capital through
investment in equity securities and equity equivalents of companies outside of
the U.S.
INVESTMENT
STRATEGY
[GRAPHIC]
Under normal conditions, the Fund invests at least 65% of its net assets in
equity securities of issuers located in countries outside the U.S. The Fund
generally invests at least 75% of its total assets in common and preferred
stocks, warrants and convertible securities. The Fund may invest in companies
located in countries with emerging securities markets when the portfolio
managers believe they present attractive investment opportunities. The Fund also
may invest up to 35% of its assets in securities of U.S. issuers, including
investment-grade debt securities.
The portfolio managers primarily use "bottom-up" fundamental analysis to
identify stocks which they believe offer good value relative to their peers in
the same industry, sector or region. They also use "top-down" analysis to
identify important themes or issues which may affect the investment environment
in certain regions or sectors and to estimate regional market risks. In
conducting its fundamental analysis, the portfolio managers focus on various
factors, including valuation of the companies, catalysts to stock price
appreciation, quality of management and financial measures, especially cash flow
and the cash flow return on capital.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund's investments may be
affected by the following additional risks:
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries: It may
also be more difficult to buy and sell securities in emerging market countries.
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility.
The Fund invests primarily in equity securities of larger companies, which
sometimes have more stable prices than smaller companies. However, the Fund may
also invest in small and medium-sized companies, which may be more susceptible
to price swings than larger companies because they have fewer financial
resources, more limited product and market diversification and many are
dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the
securities in which the Fund invests.
Debt securities -- the value of debt securities may fall when interest rates
rise. Debt securities with longer maturities tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter maturities.
Inability to Sell Securities -- securities of smaller and foreign companies
trade in lower volume and may be less liquid than securities of larger U.S.
companies. The Fund could lose money if it cannot sell a security at the time
and price that would be most beneficial to the Fund.
34 ING Pilgrim International Fund
<PAGE>
ING PILGRIM INTERNATIONAL FUND
--------------------------------------------------------------------------------
HOW THE
FUND HAS
PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class A shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
5.87 5.77 13.57 1.61 19.02 47.85
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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 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.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Morgan Stanley Capital International Europe, Australia, and
Far East Index (MSCI EAFE Index).
Average Annual Total Returns
MSCI EAFE
Class A (3) Index(4)
----------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception of Class A(5) %
----------
(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) MSCI EAFE Index is an unmanaged index that measures the performance of
securities listed on exchanges in markets in Europe, Australia, and the Far
East.
(5) Class A commenced operations on January 3, 1994.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim International Fund 35
<PAGE>
-------------
International
Equity Funds
-------------
Adviser
ING PILGRIM INTERNATIONAL CORE GROWTH FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks maximum long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
Under normal conditions, the Fund invests at least 65% of its net assets in
equity securities of issuers located in countries outside the U.S. The Fund
generally invests at least 75% of its total assets in common and preferred
stocks, warrants and convertible securities. The Fund may invest in companies
located in countries with emerging securities markets when the portfolio
managers believe they present attractive investment opportunities. The Fund also
may invest up to 35% of its assets in securities if U.S. issuers, including
investment-grade debt securites.
In pursuing the Fund's investment strategy, the portfolio managers primarily use
a "bottom-up" fundamental analysis to identify stocks which they believe offer
good value relative to their peers in the same industry, sector or region. The
portfolio managers will invest at least 65% of the Fund in assets of companies
which, based upon a fundamental analysis of a company's earning prospects, they
believe will experience faster earnings per share growth than that of other
companies located in one or more of the same market, sector, or industry. In
conducting its fundamental analysis, the portfolio managers focus on various
factors, including valuation of the companies, potential catalysts to stock
price appreciation, quality of management, and financial measures, especially
cash flow and the cash flow return on capital. They also use a "top-down"
analysis to identify important themes or issues which may affect the investment
environment in certain regions or sectors and to estimate regional market risks.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
Adviser believes have the potential for rapid growth, which may give the Fund a
higher risk of price volatility than a fund that emphasizes other styles, such
as a value-oriented style. The Fund invests in large companies, which sometimes
have more stable prices than smaller companies.
Market Trends -- from time to time, the stock market may not favor the growth
securities in which the Fund invests. Rather, the market could favor
value-oriented stocks or smaller company stocks, or may not favor equities at
all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Securities Lending -- There is the risk that when lending portfolio securities,
the securities may not be available to the Fund on a timely basis and the Fund
may, therefore, lose the opportunity to sell the securities at a desirable
price.
36 ING Pilgrim International Core Growth Fund
<PAGE>
ING PILGRIM INTERNATIONAL CORE GROWTH FUND
--------------------------------------------------------------------------------
HOW THE
FUND HAS
PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class Q shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
21.22 66.97
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
(2) ING Pilgrim Investments, Inc. 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.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Morgan Stanley Capital International Europe, Australia, and
Far East Index (MSCI EAFE Index).
Average Annual Total Returns
MSCI
EAFE
Class Q Index(3)
------- --------
One year, ended
December 31, 2000 %
Since inception(4) %
----------
(3) MSCI EAFE Index is an unmanaged index that measures the performance of
securities listed on exchanges in markets in Europe, Australia and the Far
East.
(4) Class Q commenced operations on February 28, 1997.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim International Core Growth Fund 37
<PAGE>
-------------
International
Equity Funds
-------------
Adviser
ING Pilgrim Investments, Inc.
ING PILGRIM INTERNATIONAL Sub-Adviser
SMALLCAP GROWTH FUND Nicholas-Applegate Capital Management
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks maximum long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
Under normal conditions, the Fund invests at least 65% of its total assets in
securities of small companies located outside the U.S. The Fund may invest up to
35% of its total assets in U.S. issuers. The Fund invests primarily in
smaller-capitalized companies ("small cap stocks") located worldwide. In the
opinion of the Fund's Sub-Adviser, small cap stocks are those whose stock market
capitalizations are predominantly in the bottom 25% of publicly traded companies
as measured by stock market capitalizations in over 50 countries. The market
capitalization ranges of the various countries' small cap stocks may vary
greatly due to fluctuating currency values, differences in the size of the
respective economies, and movements in the local stock markets.
The Fund normally invests at least 75% of its total assets in common and
preferred stock, warrants and convertible securities. The Fund may invest in
companies located in countries with emerging securities markets when the
Sub-Adviser believes they present attractive investment opportunities.
The Fund's Sub-Adviser emphasizes a growth approach by searching for successful,
growing companies that are managing change advantageously and poised to exceed
growth expectations. It focuses on a "bottom-up" analysis that evaluates the
financial conditions and competitiveness of individual companies worldwide. It
uses a blend of traditional fundamental research of individual securities,
calling on the expertise of many external analysts in different countries
throughout the world, and a computer intensive ranking system that analyzes and
ranks securities. The Sub-Adviser seeks to uncover signs of "change at the
margin" -- positive business developments which are not yet fully reflected in a
company's stock price.
In analyzing specific companies for possible investment, the Sub-Adviser
ordinarily looks for several of the following characteristics: above-average per
share earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
Sub-Adviser usually considers whether to sell a particular security when any of
those factors materially changes.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
Sub-Adviser believes have the potential for rapid growth, which may give the
Fund a higher risk of price volatility than a fund that emphasizes other styles,
such as a value-oriented style. The Fund invests in small companies, which may
be more susceptible to greater price swings than larger companies because they
may have fewer financial resources, more limited product and market
diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the small-cap
growth securities in which the Fund invests. Rather, the market could favor
value-oriented stocks or large company stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. To the extent the Fund invests in emerging market
countries, the risks may be greater, partly because emerging market countries
may be less politically and economically stable than other countries. It may
also be more difficult to buy and sell securities in emerging market countries.
Inability to Sell Securities -- securities of smaller and foreign companies
trade in lower volume and may be less liquid than securities of larger U.S.
companies. The Fund could lose money if it cannot sell a security at the time
and price that would be most beneficial to the Fund.
Securities Lending -- There is the risk that when lending portfolio securities,
the securities may not be available to the Fund on a timely basis and the Fund
may, therefore, lose the opportunity to sell the securities at a desirable
price.
38 ING Pilgrim International SmallCap Growth Fund
<PAGE>
ING PILGRIM INTERNATIONAL SMALLCAP GROWTH FUND
--------------------------------------------------------------------------------
HOW THE
FUND HAS
PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class Q shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
17.98 13.93 35.96 121.97
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
(2) Prior to May 24, 1999, Nicholas-Applegate Capital Management was the
adviser, rather than sub-adviser, to the Fund.
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 -- Salomon Europe Pacific Australasia Composite Extended Market
Index (Salomon EPAC EM Index).
Average Annual Total Returns
Salomon
EPAC
EM
Class Q Index(3)
------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception(4) %
----------
(3) Salomon EPAC EM Index is an unmanaged index that measures the performance
of securities of smaller capitalization companies in 22 countries excluding
the U.S. and Canada.
(4) Class Q commenced operations on August 31, 1995.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim International SmallCap Growth Fund 39
<PAGE>
-------------
International
Equity Funds
-------------
Adviser
ING PILGRIM EMERGING COUNTRIES FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks maximum long-term capital appreciation.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund invests at least 65% of its net assets in securities of issuers located
in at least three countries with emerging securities markets. Countries with
emerging securities markets are those countries which generally are considered
to be emerging market countries by the international financial community.
The Fund may invest up to 35% of its total assets in securities of U.S. and
other developed market issuers, including investment-grade debt securities of
U.S. issuers. Under normal conditions, the Fund invests at least 75% of its
total assets in common and preferred stocks, warrants and convertible
securities.
In selecting securities of issuers located in emerging market countries, the
Adviser uses a "bottom-up" fundamental analyis to identify companies which it
believes have good earnings growth prospects and that can be bought at a price
which seems reasonable. To help in this process, the Adviser scores the emerging
markets stocks on a wide range of quantitative and qualilative measures, with
particular attention paid to long-term and short-term earnings growth prospects
and valuation measures. The Adviser seeks securities of emerging market issuers
which are relatively liquid and covered by professional securities analysts.
In selecting stocks in developed markets, the portfolio managers seek the most
attractive opportunities in such markets. For such securities, the portfolio
managers use "bottom-up" analysis to choose companies which offer good value
relative to their peers in the same industry sector or region. They also use
"top-down" analysis to identify important themes or issues which may affect the
investment environment in certain regions or sectors and to estimate regional
market risks. In their conducting their fundamental analysis, the portfolio
managers focus on various matters, including valuation of the companies,
potential catalysts to stock price appreciation, quality of management, and
financial measures, especially cash flow and cash flow return on capital.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Price Volatility -- the value of the Fund changes as the prices of its
investments go up or down. Equity securities face market, issuer and other
risks, and their values may go up or down, sometimes rapidly and unpredictably.
Market risk is the risk that securities may decline in value due to factors
affecting securities markets generally or particular industries. Issuer risk is
the risk that the value of a security may decline for reasons relating to the
issuer, such as changes in the financial condition of the issuer. While equities
may offer the potential for greater long-term growth than most debt securities,
they generally have higher volatility. This Fund invests in companies that the
Adviser believes have the potential for rapid growth, which may give the Fund a
higher risk of price volatility than a fund that emphasizes other styles, such
as a value-oriented style. The Fund may invest in small and medium-sized
companies, which may be more susceptible to greater price swings than larger
companies because they may have fewer financial resources, more limited product
and market diversification and many are dependent on a few key managers.
Market Trends -- from time to time, the stock market may not favor the growth
securities in company stocks, or may not favor equities at all.
Risks of Foreign Investing -- foreign investments may be riskier than U.S.
investments for many reasons, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the U.S., and foreign
controls on investment. Investments in emerging markets countries are generally
riskier than other kinds of foreign investments, partly because emerging market
countries may be less politically and economically stable than other countries.
It may also be more difficult to buy and sell securities in emerging market
countries.
Inability to Sell Securities -- securities of emerging market companies trade in
lower volume and may be less liquid than securities of companies in larger, more
established markets. The Fund could lose money if it cannot sell a security at
the time and price that would be most beneficial to the Fund.
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.
40 ING Pilgrim Emerging Countries Fund
<PAGE>
ING PILGRIM EMERGING COUNTRIES FUND
--------------------------------------------------------------------------------
HOW THE
FUND HAS
PERFORMED
[GRAPHIC]
The bar chart and table below show the Fund's annual returns and long-term
performance, and illustrate the variability of the Fund's returns. The Fund's
past performance is not an indication of future performance.
The bar chart below provides some indication of the risks of investing in the
Fund by showing changes in the performance of the Fund's Class Q shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
27.75 10.00 -21.46 76.30
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
(2) ING Pilgrim Investments, Inc. 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.
The table below provides some indication of the risks of investing in the Fund
by comparing the Fund's performance to that of a broad measure of market
performance -- The Morgan Stanley Capital International Emerging Markets Free
Index (MSCI EMF Index).
Average Annual Total Returns
MSCI
EMF
Class Q Index(3)
------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception(4) %
----------
(3) MSCI EMF Index is an unmanaged index that measures the performance of
securities listed on exchanges in developing nations throughout the world.
(4) Class Q commenced operations on August 31, 1995.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Emerging Countries Fund 41
<PAGE>
------
Income
Funds
------
Adviser
ING PILGRIM GOVERNMENT SECURITIES INCOME FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks high current income, consistent with liquidity and preservation
of capital.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund normally invests at least 70% of its total assets in securities issued
or guaranteed by the U.S. Government and the following agencies or
instrumentalities of the U.S. Government: the Government National Mortgage
Association (GNMA), the Federal National Mortgage Association (FNMA), and the
Federal Home Loan Mortgage Corporation (FHLMC). Such securities include direct
obligations of the U.S. Treasury and mortgage-backed securities. The Fund may
fall below the 70% threshold due to changes in the value of the Fund's holdings
or the sale of securities to meet redemptions, in which case the Fund will
purchase only U.S. Government securities until the 70% level is restored. The
remainder of the Fund's assets may be invested in securities issued by other
agencies and instrumentalities of the U.S. Government and in instruments
collateralized by securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities. The foregoing policies are fundamental and may
not be changed without shareholder approval.
The Fund may invest in securities of any maturity; however, the Fund is expected
to have a duration within a range of 20% above or below that of the Lehman
Intermediate Treasury Index. As of December 31, 2000, the dollar-weighted
average duration of the Lehman Intermediate Treasury Index was
years. The Adviser determines the composition of the Fund's portfolio on
the basis of its judgment of existing market conditions, such as the general
direction of interest rates, trends in creditworthiness, expected inflation,
supply and demand of fixed income securities, and other factors. The Fund may
enter into reverse repurchase agreements, dollar roll transactions or pairing
off transactions. The Fund does not invest in highly leveraged derivatives, such
as swaps, interest-only or principal-only stripped mortgage-backed securities,
or interest rate futures contracts.
Pending Merger -- Subject to shareholder approval, the Fund's Board of Directors
has approved the reorganization of the Fund into ING Pilgrim GNMA Fund. You
could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. This Fund may be particularly sensitive to interest rates
because it primarily invests in U.S. government securities. Debt 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 debt security is
unable to meet its financial obligations or goes bankrupt. This Fund is subject
to less credit risk than the other income funds because it principally invests
in debt securities issued or guaranteed by the U.S. Government, its agencies and
government sponsored enterprises.
Prepayment Risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
42 ING Pilgrim Government Securities Income Fund
<PAGE>
ING PILGRIM GOVERNMENT SECURITIES 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
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
11.90 7.46 7.46(7) -3.61 14.51 2.56 7.85 5.61 -1.17
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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.
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 Lehman Brothers Government/Mortgage Index and the Lehman
Brothers Intermediate Treasury Index.
Average Annual Total Returns
Lehman Lehman
Gov't/ Intermediate
Mortgage Treasury
Class A(3)(4) Index(5) Index(6)
------------- -------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000(7) %
----------
(3) This table shows performance of the Class A shares of the Fund, because
Class Q shares did not have a full year's performance during the year ended
December 31, 2000. Reflects deduction of Class A sales charge of 4.75%. See
footnote (2) to the bar chart above.
(4) The Fund commenced operations on January 1, 1985.
(5) The Lehman Brothers Government/Mortgage Index is an unmanaged index that
measures the performance of U.S. Government agencies and instrumentalities,
as well as mortgage pass-through instruments issued by FNMA, FHLMC and
GNMA.
(6) The Lehman Brothers Intermediate Treasury Index is an unmanaged index that
measures the performance of U.S. Treasuries with maturities of under 10
years. Information on the Lehman Intermediate Treasury Index is presented
because effective May 24, 1999, the Fund seeks an average portfolio
duration within +/-20% of the duration of that Index. Previously, the
Fund's average portfolio maturity was generally longer.
(7) The Fund earned income and realized capital gains as a result of entering
into reverse repurchase agreements during the six-month period from July to
December 1992 that caused the Fund to exceed its 10% investment restriction
on borrowing. Therefore, the Fund's performance was higher than it would
have been had the Fund adhered to its borrowing restriction.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Government Securities Income Fund 43
<PAGE>
------
Income
Funds
------
Adviser
ING PILGRIM GNMA INCOME FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund's investment objective is to seek a high level of current income,
consistent with liquidity and safety of principal, through investment primarily
in Government National Mortgage Association ("GNMA") mortgage-backed securities
(also known as "GNMA Certificates") that are guaranteed as to the timely payment
of principal and interest by the United States Government.
INVESTMENT
STRATEGY
[GRAPHIC]
Under normal conditions, the Fund will invest at least 80% of the value of its
total assets in GNMA (Ginnie Mae) Certificates. The remaining assets of the Fund
will be invested in other securities issued or guaranteed by the U.S.
Government, including U.S. Treasury securities. The Fund may invest in debt
securites of any maturity, although the portfoio manager expects to invest in
long-term debt instruments.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Prepayment Risk -- Through investment in GNMA securities, the Fund may expose
you to certain risks which may cause you to lose money. Mortgage prepayments are
affected by the level of interest rates and other factors, including general
economic conditions and the underlying location and age of the mortgage. In
periods of rising interest rates, the prepayment rate tends to decrease,
lengthening the average life of a pool of GNMA securities. In periods of falling
interest rates, the prepayment rate tends to increase, shortening the life of a
pool. Because prepayments of principal generally occur when interest rates are
declining, it is likely that the Fund may have to reinvest the proceeds of
prepayments at lower interest rates than those of their previous investments. If
this occurs, the Fund's yields will decline correspondingly.
Changes in Interest Rates -- the value of the Fund's investments may fall when
interest rates rise. This Fund may be particularly sensitive to interest rates
because it primarily invests in U.S. government securities. Debt 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 debt security is
unable to meet its financial obligations or goes bankrupt. This Fund is subject
to less credit risk than the other income funds because it principally invests
in debt securities issued or guaranteed by the U.S. Government, its agencies and
government sponsored enterprises.
Please refer to the statement of additional information for a complete
description of GNMA Certificates and Modified Pass Through GNMA Certificates.
The Fund intends to use the proceeds from principal payments to purchase
additional GNMA Certificates or other U.S. Government guaranteed securities.
44 ING Pilgrim GNMA Income Fund
<PAGE>
ING PILGRIM GNMA 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
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
15.75 5.19 8.06 -2.07 15.91 5.71 10.20 7.52 0.58
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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 2000, the
returns in the bar chart are based upon the performance of Class A shares
of the Fund, adjusted to reflect the current Class A expenses. 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.
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 Lehman Brothers Mortgage-Backed Securities Index.
Average Annual Total Returns
Lehman Brothers
Mortgage-Backed
Securities
Class A(3) Index(4)
---------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 %
----------
(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 4.75%. See footnote (2) to the bar chart above.
(4) The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index
that measures comprised of 520 mortgage backed securities with an average
yield of 7.58%. The average coupon of the index is 6.85%. This index is
typically used as a benchmark for intermediate-term bond funds.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim GNMA Income Fund 45
<PAGE>
------
Income
Funds
------
Adviser
ING PILGRIM STRATEGIC INCOME FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks maximum total return.
INVESTMENT
STRATEGY
[GRAPHIC]
Under normal conditions, the Fund invests at least 60% of its total assets in
debt securities issued by U.S. and foreign corporations, U.S. and foreign
governments, and their agencies and instrumentalities that are rated in one of
the top four categories by a nationally recognized statistical rating agency, or
of comparable quality if unrated. These securities include bonds, notes,
mortgage-backed and asset-backed securities with rates that are fixed, variable
or floating. The Fund may invest up to 40% of its total assets in high yield
debt securities, commonly known as "junk bonds." There is no minimum credit
rating for high yield debt securities in which the Fund may invest.
The "total return" sought by the Fund consists of income earned on the Fund's
investments, plus capital appreciation, if any, which generally arises from
decreases in interest rates or improving credit fundamentals for a particular
sector or security.
The Fund may invest in debt securities of any maturity; however, the average
portfolio duration of the Fund will generally range from two to eight years. The
Fund may invest up to 30% of its total assets in securities payable in foreign
currencies. 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 also use options, futures contracts and interest rate and currency swaps as
hedging techniques. The Fund does not invest in interest-only or principal-only
stripped mortgage-backed securities.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
Changes in Interest Rates -- the value of the Fund's investments 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 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 debt 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 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.
Prepayment Risk -- the Fund may invest in mortgage related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality investments. A security in the lowest rating catergories, that is
unrated, or whose credit rating has been lowered may be particularly difficult
to sell. Foreign securities and mortgage-related and asset-backed debt
securities may be less liquid than other debt securities. 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.
Other Investment Companies -- because the Fund invests in other investment
companies, you may 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.
46 ING Pilgrim Strategic Income Fund
<PAGE>
ING PILGRIM STRATEGIC 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 Q shares from
year to year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
-0.97
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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.
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 Lehman Aggregate Bond Index.
Average Annual Total Returns
Lehman
Aggregate
Bond
Class Q Index(3)
------- --------
One year, ended
December 31, 2000 %
Since inception(4) %
----------
(3) The Lehman Aggregate Bond Index is an unmanaged index that measures the
performance of fixed income securities that are similar, but not identical,
to those in the Fund's portfolio.
(4) Class Q shares of the Fund commenced operations on July 27, 1998.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Strategic Income Fund 47
<PAGE>
------
Income
Funds
------
Adviser
ING PILGRIM HIGH YIELD FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks a high level of current income, with capital appreciation as a
secondary objective.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund normally invests at least 65% of its assets in high yield debt
securities, including preferred stock and convertible securities, that do not in
the opinion of the adviser involve undue risk relative to their expected return.
High yield securities, which are commonly known as "junk bonds," are securities
that are rated below investment grade, i.e., rated lower than Baa by Moody's
Investors Service, Inc. or BBB by Standard and Poor's, or of comparable quality
if not rated. Generally, the Fund will invest in securities rated lower than B
by Moody's or S&P only when the adviser believes the financial condition of the
issuer or other available protections reduce the risk to the Fund or that there
is greater value in the securities than is reflected in their prevailing market
price. There is no minimum credit rating for high yield securities in which the
Fund may invest. The Fund may invest in debt securities of any maturity. In
selecting securities for the Fund, preservation of capital is a consideration.
The remainder of the Fund's assets may be invested in common stocks, investment
grade preferred stocks, investment grade debt obligations of all types, U.S.
Government securities, warrants, money market instruments (including repurchase
agreements on U.S. Government securities), mortgage-related securities and
participation interests and assignments in floating rate loans and notes. The
Fund may also invest up to 10% of its assets in foreign debt securities of any
rating. The Fund may invest in financial futures and related options to attempt
to hedge risk, although the Fund has not invested in such instruments since
Pilgrim Investments, Inc. became the adviser in 1995 through the date of this
prospectus. In selecting equity securities, the portfolio managers use a
"bottom-up" analysis that focuses on individual companies and assesses the
company's valuation, financial condition, management, competitiveness, and other
factors.
Differences between the Fund and High Yield Fund II -- While both Funds invest
primarily in high yield securities, the High Yield Fund normally emphasizes
bonds with stronger credit ratings in the high yield bond universe. Thus, of the
two Funds, High Yield Fund II normally presents the potential for higher income,
but with potentially higher credit risk and volatility.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in
the Fund. The Fund may be affected by the following risks, among others:
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 other income mutual funds because it invests in
high yield (or "junk bond") 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. The Fund is also subject to credit risk
through its investment in floating rate loans.
Changes in Interest Rates -- the value of the Fund's investments 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 durations tend to be more sensitive to
changes in interest rates, usually making them more volatile than debt
securities with shorter durations.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the borrowers on the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality 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. A
security whose credit rating been lowered may be particularly difficult to sell.
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.
Price Volatility -- Equity securities face market, issuer and other risks, and
their values may go up and 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.
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, securities depositories or exchanges than those in the U.S., and
foreign controls on investment.
48 ING Pilgrim High Yield Fund
<PAGE>
ING PILGRIM HIGH YIELD 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
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
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 Lehman High Yield Bond Index.
Average Annual Total Returns
Lehman
High
Yield
Bond
Class Q Index(2)
------- --------
One year, ended
December 31, 2000 %
Since inception(3) %
----------
(2) The Lehman Brothers High Yield Bond Index is an unmanaged index that
measures the performance of fixed-income securities that are similar, but
not identical, to those in the Fund's portfolio.
(3) Class Q shares commenced operations on June 17, 1999.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim High Yield Fund 49
<PAGE>
------
Income
Funds
------
Adviser
ING PILGRIM HIGH YIELD FUND II ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund seeks a high level of current income and capital growth.
INVESTMENT
STRATEGY
[GRAPHIC]
Under normal conditions, the Fund invests at least 65% of its total assets in
high yield, lower rated debt securities, which are commonly referred to as "junk
bonds," and convertible securities rated below investment grade (i.e., lower
than the four highest rating catergories) by a nationally recognized statistical
rating agency, or of comparable quality if unrated. There is no limit on either
the portfolio maturity or the acceptable rating of securities bought by the
Fund. Securities may bear rates that are fixed, variable or floating. The Fund
may invest up to 35% of its total assets in equity securities of U.S. and
foreign companies, including securities of companies in emerging markets. In
selecting equity securities, the portfolio managers use a "bottom-up" analysis
that focuses on individual companies and assesses the company's valuation,
financial condition, management, competitiveness, and other factors.
The Fund is not restricted to investments in companies of any particular size,
but currently intends to invest principally in companies with market
capitalization above $100 million at the time of purchase. The Fund may also use
options, futures contracts and interest rate and currency swaps as hedging
techniques or to help seek the Fund's investment objective.
Differences between the Fund and High Yield Fund -- While both Funds invest
primarily in high yield securities, the High Yield Fund normally emphasizes
bonds with stronger credit ratings in the high yield bond universe. Thus, of the
two Funds, High Yield Fund II normally presents the potential for higher income,
but with potentially higher credit risk and volatility.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
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 other income mutual funds because it invests in
high yield (or "junk bond") 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.
Changes in Interest Rates -- the value of the Fund's investments 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 term
maturities. Debt 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.
Prepayment Risk -- the Fund may invest in mortgage-related securities, which can
be paid off early if the owners of the underlying mortgages pay off their
mortgages sooner than scheduled. If interest rates are falling, the Fund will be
forced to reinvest this money at lower yields.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality 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. A
security in the lowest rating categories, that is unrated, or whose credit
rating has been lowered may be particularly difficult to sell. Valuing less
liquid securities involves greater exercise of judgment and may be more
subjective than valuing securities using market quotes.
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 information,
differences in the way securities markets operate, less secure foreign banks or
securities depositories than those in the U.S., and foreign controls on
investment. Investments in emerging market countries are generally riskier than
other kinds of foreign investments, partly because emerging market countries may
be less politically and economically stable than other countries. It may also be
more difficult to buy and sell securities in emerging market countries.
Risk 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 derivative 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.
Price Volatility -- equity securities face market, issuer and other risks, and
their values may go up and 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.
50 ING Pilgrim High Yield Fund II
<PAGE>
ING PILGRIM HIGH YIELD FUND II
--------------------------------------------------------------------------------
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 shares from year to
year.
Year by Year Total Returns (%)(1)(2)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
21.07 5.03 6.03
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
(2) The figures shown for the years 1999 and 2000 provide performance for the
Class Q shares of the Fund. The figures shown for the years 1997 and 1998
provide performance for Institutional Class shares of the Fund, revised to
reflect expenses of Class Q shares. Prior to May 24, 1999, the Fund was
managed by a different adviser.
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 High Yield Index.
Average Annual Total Returns
First
Boston
High
Institutional Yield
Class Q Class(3) Index(4)
--------- --------------- -----------
One year, ended
December 31, 2000 %
Since inception of
Class Q(5) %
Since inception of
Institutional Class(5) %
----------
(3) Institutional Class shares of the Fund are no longer offerred.
(4) The First Boston High Yield Index is an unmanaged index that measures the
performance of fixed income securities similar, but not identical, to those
in the Fund's portfolio.
(5) Class Q commenced operations on March 27, 1998. Institutional Class shares
of the Fund commenced operations on July 31, 1996.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim High Yield Fund II 51
<PAGE>
------
Income
Funds
------
Adviser
ING PILGRIM GLOBAL INCOME FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
OBJECTIVE
[GRAPHIC]
The Fund's investment objective is to seek high current income. Capital
appreciation is a secondary objective. The Fund invests in a combination of
foreign and domestic high-yield, lower rated or unrated debt securities.
INVESTMENT
STRATEGY
[GRAPHIC]
The Fund invests in a variety of foreign and domestic high yield, lower rated or
unrated debt securities.
The Fund, under normal conditions, invests substantially all of its assets in
lower rated or unrated debt securities of domestic companies, companies in
developed foreign countries, and companies in emerging markets. The credit
quality of the foreign debt securities which the Fund intends to buy is
generally equal to U.S. corporate debt securities known as "junk bonds". The
debt securities in which the Fund invests consist of bonds, notes, debentures
and other similar instruments. The Fund may invest in debt securities issued by
foreign governments, their agencies and instrumentalities, central banks,
commercial banks and other corporate entities. The Fund may invest up to 100% of
its total assets in domestic and foreign debt securities that are rated below
investment grade or are of comparable quality. The Fund may also invest in
securities that are in default as to payment of principal and/or interest, and
bank loan participations and assignments.
The Fund's investment strategy stresses diversification to help reduce the
Fund's price volatility. Global fixed income securities are divided into four
categories. The categories reflect whether the securities are U.S. dollar
denominated or not and whether borrowers are in developed markets or emerging
markets. The Fund then seeks to select the best values in each of these four
segments. The balance the Fund maintains between these sectors attempts to limit
the price volatility.
Pending Merger -- Subject to shareholder approval, the Fund's Board of Trustees
has approved the reorganization of the Fund into ING Pilgrim Strategic Income
Fund. You could therefore ultimately hold shares of that Fund.
--------------------------------------------------------------------------------
RISKS
[GRAPHIC]
You could lose money on an investment in the Fund. The Fund may be affected by
the following risks, among others:
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 other income funds because it invests 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.
Changes in Interest Rates -- the value of the Fund's investments 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 term
maturities. Debt 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.
Inability to Sell Securities -- high yield securities may be less liquid than
higher quality 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. A
security in the lowest rating categories, that is unrated, or whose credit
rating has been lowered may be particularly difficult to sell. Valuing less
liquid securities involves greater exercise of judgment and may be more
subjective than valuing securities using market quotes.
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 information,
differences in the way securities markets operate, less secure foreign banks or
securities depositories than those in the U.S., and foreign controls on
investment. Investments in emerging markets countries are generally riskier than
other kinds of foreign investments, partly because emerging market countries may
be less politically and economically stable than other countries. It may also be
more difficult to buy and sell securities in emerging market countries.
Non-Diversification Risk -- The Fund is a non-diversified investment company.
There is additional risk associated with being non-diversified, since a greater
proportion of the Fund's total assets may be invested in a single company.
52 ING Pilgrim Global Income Fund
<PAGE>
ING PILGRIM GLOBAL 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)(3)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
10.03 6.51 10.90 -6.52 20.10 13.33 5.00 8.21 -0.31
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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 2000, the
returns in the bar chart are based upon the performance of Class A shares
of the Fund, adjusted to reflect the current Class A expenses. 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 December 31, 1994, the Fund operated under a different investment
objective.
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 Lehman Brothers Global Treasury Index.
Average Annual Total Returns
Lehman Brothers
Global Treasury
Class A(4) Index(5)
---------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Ten years, ended
December 31, 2000 %
----------
(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 4.75%. See footnote (2) to the bar chart above.
(5) The Lehman Brothers Global Treasury Index is an unmanaged index that is
comprised of 19 countries with an average maturity of 7.46%. The index is
overweighted in the U.S. and Japan, 27% and 25% respectively. The average
coupon is 5.37%. The index returns are calculated in three ways: U.S.
Dollars hedged, U.S. Dollars and local returns (local currencies). The
modified adjusted duration of the index is 5.5 years.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Global Income Fund 53
<PAGE>
------------
Equity and
Income Funds
------------
Adviser
ING PILGRIM BALANCED FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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.
54 ING Pilgrim Balanced Fund
<PAGE>
ING 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
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(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.
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 Index and 40% Lehman Brothers
Government/Corporate Bond Index.
Average Annual Total Returns
<TABLE>
<CAPTION>
Lehman Lipper
S&P Barra Aggregate Balanced
Value Bond Fund Composite
Class Q Index(4) Index(5) Index(6) Index
------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception(3) %
</TABLE>
----------
(3) Class Q commenced operations on August 31, 1995.
(4) The S&P Barra Value Index is a capitalization-weighted index of all stocks
in the Standard and Poor's 500 Composite Stock Price Index ("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.
(5) 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.
(6) 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).
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Balanced Fund 55
<PAGE>
------------
Equity and
Income Funds
------------
Adviser
ING PILGRIM CONVERTIBLE FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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. Through investments in convertible securities, the Fund seeks to
capture the upside potential of the underlying equities with less downside
exposure.
The Fund normally invests a minimum of 25% of its total assets in common and
preferred stocks, and 25% in other income producing convertible and debt
securities. The Fund may also invest up to 35% of its net assets in high yield
or convertible debt securities (commonly known as "junk bonds") rated below
investment grade by a nationally recognized statistical rating agency, or of
comparable quality if unrated. There is no minimum credit rating for high yield
securities in which the Fund may invest.
The Fund may also invest in securities issued by the U.S. government and its
agencies and instrumentalities.
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. Zero coupon securities are particularly
sensitive to Changes in Interest Rates.
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 and
convertible 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.
56 ING Pilgrim Convertible Fund
<PAGE>
ING 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
Best and worst quarterly performance during this period:
___ quarter ___: ___________%
___ quarter ___: ___________%
----------
(1) These figures are for the year ended December 31 of each year.
(2) ING Pilgrim Investments, Inc. 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.
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.
Average Annual Total Returns
First
Boston
Convertible
Class Q Index(3)
------- --------
One year, ended
December 31, 2000 %
Five years, ended
December 31, 2000 %
Since inception(4) %
----------
(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.
ING Pilgrim Convertible Fund 57
<PAGE>
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 ING Pilgrim 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)
<TABLE>
<CAPTION>
Total
Fund Fee Waiver
Management Service Other Operating by Net
Fund Fee Fees Expenses(2)(3) Expenses Adviser(4) Expenses
--------------------------------- ------------ --------- ---------------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
MagnaCap % 0.71 0.25 0.28 1.24 -- 1.24
Growth and Income % 0.62 0.25
LargeCap Leaders % 0.85 0.25 0.59 1.69 -- 1.69
Research Enhanced Index % 0.70 0.25
Growth Opportunities % 0.95 0.25
LargeCap Growth % 0.75 0.25 0.26 1.26 -- 1.26
MidCap Value % 0.85 0.25 0.63 1.73 -- 1.73
MidCap Opportunities % 1.00 0.25
MidCap Growth % 0.75 0.25 0.26 1.26 -- 1.26
Growth + Value % 1.00 0.25
SmallCap Opportunities % 1.00 0.25
SmallCap Growth % 1.00 0.25 0.32 1.57 -0.05 1.52
Worldwide Growth % 1.00 0.25
International Value % 1.00 0.25
International % 1.00 0.25
International Core Growth % 1.00 0.25
International SmallCap Growth % 1.00 0.25
Emerging Countries % 1.25 0.25
Government Securities Income(5) % 0.50 0.25 0.60 1.35 -- 1.35
GNMA Income % 0.54 0.25
Strategic Income % 0.45 0.25 1.84 2.54 -1.68 0.86
High Yield % 0.60 0.25 0.32 1.17 -0.12 1.05
High Yield II(5) % 0.60 0.25 0.42 1.27 -0.19 1.08
Global Income % 1.00 0.25
Balanced(5) % 0.75 0.25 0.51 1.51 -0.21 1.30
Convertible % 0.75 0.25 0.25 1.25 -- 1.25
</TABLE>
----------
(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 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.
(2) Because Class Q shares are new for Growth and Income Fund, LargeCap Leaders
Fund, Research Enhanced Index Fund, Growth Opportunities Fund, MidCap
Opportunities Fund, Growth + Value Fund, SmallCap Opportunities Fund,
International Value Fund, International Fund, Government Securities Income
Fund, GNMA Income Fund and Global Income Fund, the expenses for each Fund
are estimated based on Class A expenses of the Fund.
(3) For Growth and Income Fund, International Fund, GNMA Income Fund and
Global Income Fund, estimated operating expenses are based on estimated
contractual operating expenses commencing with ING Pilgrim Investments,
Inc.'s management of these Funds.
(4) ING Pilgrim Investments, Inc. has entered written into expense limitation
agreements with each Fund which it advises except MagnaCap Fund, Research
Enhanced Index Fund, Growth Opportunities Fund, MidCap Opportunities Fund,
Growth + Value Fund, SmallCap Opportunities Fund, International Value Fund
and Government Securities Income 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,
Inc. within three years. The amount of each Fund's expenses waived or
reimbursed during the last fiscal year by ING Pilgrim Investments, Inc. is
shown under the heading "Fee Waiver by Adviser." For each Fund except
Government Securities Income Fund, the expense limit will continue through
at least October 31, 2001. Nicholas-Applegate Capital Management bears 50%
of the cost of maintaining the expense limit for International SmallCap
Growth Fund. ING Pilgrim Investments, Inc. has separately agreed to
reimburse Government Securities Income Fund to the extent that total Fund
operating expenses, excluding interest, taxes, brokerage commissions,
extraordinary expenses, and distribution fees in excess of 0.25%, exceed
1.50% of the Fund's average daily net assets on the first $40 million in
net assets and 1% of average daily net assets in excess of $40 million. The
expense limit for Government Securities Income Fund will terminate only
with termination of the advisory contract with ING Pilgrim Investments,
Inc.
(5) Effective April 1, 2000, certain Pilgrim Funds merged with High Yield II,
Balanced, and Government Securities Income Funds. It is expected that as a
result of the mergers, operating expenses for High Yield II, Balanced and
Government Securities Income Funds will be lower than the operating
expenses prior to the mergers.
58 What You Pay to Invest
<PAGE>
WHAT YOU PAY TO INVEST
--------------------------------------------------------------------------------
Examples
The examples that follow are intended to help you compare the cost of investing
in the ING 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
<TABLE>
<CAPTION>
Fund 1 year 3 years 5 years 10 years
---- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
MagnaCap $ 126 393 681 1,500
Growth and Income $
LargeCap Leaders $ 172 533 918 1,998
Research Enhanced Index $
Growth Opportunities $
LargeCap Growth $ 128 400 692 1,523
MidCap Value $ 176 545 939 2,041
MidCap Opportunities $
MidCap Growth $ 128 400 692 1,523
Growth + Value $
SmallCap Opportunities $
SmallCap Growth $ 155 491 850 1,863
Worldwide Growth $
International Value $
International $
International Core Growth $
International SmallCap Growth $
Emerging Countries $
Government Securities Income $ 137 428 739 1,624
GNMA Income $
Strategic Income $ 88 630 1,199 2,749
High Yield $ 107 360 632 1,410
High Yield II $ 110 384 679 1,517
Global Income $
Balanced $ 132 457 804 1,784
Convertible $ 127 397 686 1,511
</TABLE>
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
What You Pay to Invest 59
<PAGE>
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-US banks (even if payment may be effected through a US bank)
will not be accepted. 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.
<TABLE>
<CAPTION>
Initial Additional
Method Investment Investment
------ ---------- ----------
<S> <C> <C>
By Contacting A financial consultant Visit or consult a
Your Financial with an authorized firm financial consultant.
Consultant 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 bottom
payable to the ING of your account
Pilgrim Funds and mail statement along with
it, along with a your check payable to
completed Application. the Fund and mail
Please indicate your them to the address on
investment professional the account statement.
on the New Account Remember to write
Application your account number
on the check.
By Wire Call the ING Pilgrim Wire the funds in the
Operations Department same manner described
at (800) 336-3436 to under "Initial
obtain an account Investment."
number and indicate
your investment
professional on the
account.
Instruct your bank to
wire funds to the Fund
in the care of:
State Street Bank and
Trust 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: ING Pilgrim Funds P.O.
Box 219368 Kansas City,
MO 64121-6368
</TABLE>
60 Shareholder Guide
<PAGE>
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. 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
Financial Consultant 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:
ING Pilgrim Funds
P.O. Box 219368
Kansas City, MO 64121-6368
If certificated shares have been issued, the
certificate must accompany the written
request. Corporate investors and other
associations must have an appropriate
certification on file authorizing redemptions.
A suggested form of such certification is
provided on the Account Application. A
signature guarantee may be required.
By Telephone -- You may redeem shares by telephone on all
Expedited Redemption 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 ING 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 61
<PAGE>
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 net asset value 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 ING 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 ING 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 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.
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 ING Pilgrim Fund. This exchange
privilege may be modified at any time or terminated upon 60 days' written notice
to shareholders.
62 Shareholder Guide
<PAGE>
TRANSACTION POLICIES SHAREHOLDER GUIDE
--------------------------------------------------------------------------------
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 ING 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.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Shareholder Guide 63
<PAGE>
MANAGEMENT OF THE FUNDS ADVISER
--------------------------------------------------------------------------------
ING Pilgrim Investments, Inc. ("ING Pilgrim" or "ING Pilgrim Investments")
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 ReliaStar Financial Corp.
("ReliaStar"). Through its subsidiaries, ReliaStar offers individuals and
institutions life insurance and annuities, employee benefits products and
services, life and health reinsurance, retirement plans, mutual funds, bank
products, and personal finance education.
On July 26, 2000, ReliaStar was acquired by ING Group (NYSE: ING). ING Group is
a global financial institution active in the field of insurance, banking, and
asset management in more than 65 countries, with almost 100,000 employees.
Prior to April 30, 2000, Pilgrim Advisors, Inc. ("Pilgrim Advisors") served as
investment adviser to certain of the Funds. On April 30, 2000, Pilgrim Advisors,
an indirect wholly-owned subsidiary of ReliaStar, merged with ING Pilgrim
Investments. Pilgrim Advisors and ING Pilgrim Investments were sister companies
and shared certain resources and investment personnel.
Prior to July 26, 2000, Lexington Management Corporation ("Lexington") served as
investment adviser to certain of the Funds. On July 26, 2000, ReliaStar acquired
Lexington Global Asset Managers, Inc., the parent company of Lexington, and ING
Pilgrim Investments was approved as Adviser to the Funds formerly advised by
Lexington.
As of December 31, 2000, ING Pilgrim managed over $ 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 0.71%
Growth and Income 0.62
LargeCap Leaders 1.00
Research Enhanced Index 0.70
Growth Opportunities 0.75
LargeCap Growth 0.75
MidCap Value 1.00
MidCap Opportunities 1.00
MidCap Growth 0.75
Growth + Value 1.00
SmallCap Opportunities 0.75
SmallCap Growth 1.00
Worldwide Growth 1.00
International Value 1.00
International 1.00
International Core Growth 1.00
International SmallCap Growth 1.00
Emerging Countries 1.25
Government Securities Income 0.50
GNMA Income 0.54
Strategic Income 0.45
High Yield 0.60
High Yield II 0.60
Global Income 1.00
Balanced 0.75
Convertible 0.75
ING Pilgrim Directly Manages the Portfolios of the Following Funds:
Growth Opportunities Fund
MidCap Opportunities Fund
MidCap Growth Fund
The following individuals share responsibility for the day-to-day management of
the Growth Opportunities 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, Growth
Opportunities Fund since August 1998, and ING 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 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
64 Management of the Funds
<PAGE>
ADVISER MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
the fund was formed in August 1998, Growth Opportunities Fund since August 1998,
and ING Pilgrim MidCap Growth Fund since April 2000. Prior to joining ING
Pilgrim in October 1999, Mr. Bernstein was a portfolio manager at Northstar
Investment Management Corp., which subsequently merged in 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.
Growth and Income Fund
Alan H. Wapnick, Senior Vice President and Senior Portfolio Manager of Growth
and Income Fund has been managing the Fund's portfolio since July 1994. He
joined ING Pilgrim in July 2000. Prior to July 2000, he was Senior Vice
President and Senior Portfolio Manager at Lexington (which was acquired by ING
Pilgrim's parent company in July 2000). Prior to joining Lexington in 1986, Mr.
Wapnick was an equity analyst with Merrill Lynch, L.W. Seligman, Dean Witter and
most recently Union Carbide Corporation. Mr. Wapnick graduated from Dartmouth
College and received an M.B.A. from Columbia University.
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.
MagnaCap Fund
This Fund is managed by a team led by Howard N. Kornblue, Senior Vice President
and Senior Portfolio Manager for ING Pilgrim Investments. Mr. Kornblue has
served as a Portfolio Manager of MagnaCap Fund since 1989. The other individual
on the team is G. David Underwood.
Mr. Underwood has over 21 years of investment management experience. At ING
Pilgrim, he serves as a Senior Vice President and Senior Portfolio Manager.
Prior to joining ING Pilgrim in December 1996, Mr. Underwood was a Director of
Funds Management for First Interstate Capital Management. Mr. Underwood's prior
experience includes a 10 year association with Integra Trust Company of
Pittsburgh where he served as Director of Research and Senior Portfolio Manager.
LargeCap Leaders Fund and MidCap Value Fund
The LargeCap Leaders and MidCap Value Funds are managed by a team led by G.
David Underwood, Senior Vice President and Senior Portfolio Manager for ING
Pilgrim. Mr. Underwood is the Lead Portfolio Manager of the Funds.
LargeCap Growth Fund
Mary Lisanti, whose background is described above, has served as Senior
Portfolio Manager of the LargeCap Growth Fund since October 1, 2000.
Thomas J. Sullivan, Vice President of ING Pilgrim, has served as a Portfolio
Manager of LargeCap Growth Fund since October 1, 2000. Prior to joining ING
Pilgrim in September 2000, Mr. Sullivan was a Partner and Equity Trader for
First NY Securities, LLC. From April, 1994 to March, 2000, Mr. Sullivan was Vice
President and portfolio manager at Nicholas-Applegate Capital Management.
International Fund
International Core Growth Fund
Richard T. Saler, Senior Vice President and Director of International Equity
Investment Strategy of ING Pilgrim, has served as Senior Portfolio Manager of
International Fund since January 1994, and International Core Growth Fund since
October 2000. From 1986 until July 2000, he was Senior Vice President and
Director of International Equity Strategy at Lexington (which was acquired by
ING Pilgrim's parent company in July 2000).
Phillip A. Schwartz, Senior Vice President and Director of International Equity
Investment Strategy of ING Pilgrim, has served as Senior Portfolio Manager of
International Fund since January 1998, and International Core Growth Fund since
October 2000. Prior to joining ING Pilgrim in July 2000, Mr. Schwartz was Senior
Vice President and Director of International Equity Investment Strategy at
Lexington (which was acquired by ING Pilgrim's parent company in July 2000).
Prior to 1993, Mr. Schwartz was a Vice President of European Research Sales with
Cheuvreux de Virieu in Paris and New York.
Emerging Countries Fund
Richard T. Saler, whose background is described above, has served as the Senior
Portfolio Manager of the portfolio management team that manages Emerging
Countries Fund since October 2000.
Phillip A. Schwartz, whose background is described above, has served as a member
of the portfolio management team that manages Emerging Countries Fund since
October 2000.
Jan Wim Derks, Vice President of ING Pilgrim, has served as a member of the
portfolio management team that manages the Emerging Countries Fund since October
2000. In addition to his role with ING Pilgrim, Mr. Derks also serves as
Director of Global Emerging Markets Equities at ING Investment Management --
Europe. Prior to joining ING Investment Management -- Europe in 1997, Mr. Derks
managed a Latin American equity fund with ABN AMRO.
Eric Anderson, Vice President of ING Pilgrim, has served as a member of the
portfolio management team that manages the
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Management of the Funds 65
<PAGE>
MANAGEMENT OF THE FUNDS ADVISER
--------------------------------------------------------------------------------
Emerging Countries Fund since October 2000. In addition to his role with ING
Pilgrim, Mr. Anderson also serves as Senior Portfolio Manager -- Global Emerging
Markets Equities at ING Investment Management -- Americas. Prior to joining ING
Investment Management -- Americas in 1997, Mr. Anderson managed a Latin America
equity portfolio and participated in the management of an emerging market debt
portfolio at Offitbank in New York.
Bratin Sanyal, Vice President of ING Pilgrim, has served as a member of the
portfolio management team that manages the Emerging Countries Fund since October
2000. In addition to his role with ING Pilgrim, Mr. Sanyal serves as the Senior
Portfoio Manager -- Global Emerging Markets Equities at ING Investment
Management -- Europe. Mr. Sanyal has held several positions with ING Investment
Management -- Europe, most recently as an Asian equity fund manager. Prior to
joining ING Investment Management -- Europe in 1993, he was an economist at the
World Bank where he structured debt workouts for the Highly Indebted Countries.
Worldwide Growth Fund
The following individuals share responsibility for the day-to-day management of
the Worldwide Growth Fund:
Mary Lisanti, whose background is described above, has served as Senior
Portfolio Manager of the domestic equity portion of the Worldwide Growth Fund's
assets since October 1, 2000.
Thomas J. Sullivan, whose background is described above, has served as Portfolio
Manager of the domestic equity portion of the Worldwide Growth Fund's assets
since October 1, 2000.
Richard T. Saler, whose background is described above, has served as Senior
Portfolio Manager of the international portion of the Worldwide Growth Fund's
assets since October 1, 2000.
Philip A. Schwartz, whose background is described above, has served as Senior
Portfolio Manager of the international portion of the Worldwide Growth Fund's
assets since October 1, 2000.
GNMA Income Fund and Global Income Fund
Denis P. Jamison, Senior Vice President and Senior Portfolio Manager of ING
Pilgrim, has served as Senior Portfolio Manager of GNMA Income Fund since July
1981 and Global Income Fund since July 1986. He is a Chartered Financial Analyst
and a member of the New York Society of Security Analysts.
Roseann G. McCarthy, Assistant Vice President of ING Pilgrim since July 2000 has
served as co-manager of GNMA Income Fund since November 1997. Prior to July
2000, she was an Assistant Vice President at Lexington (which was acquired by
ING Pilgrim's parent company in July 2000). Prior to joining the Lexington
Fixed-Income Department in 1997, she was Mutual Fund Marketing and Research
Coordinator. Prior to 1995, Ms. McCarthy was Fund Statistician and a Shareholder
Service Representative for the Lexington Funds.
Strategic Income Fund
The following individuals share responsibility for the day-to-day management of
the Strategic Income Fund:
Robert K. Kinsey, Vice President of ING Pilgrim, has served as a Portfolio
Manager of Strategic Income Fund since May 24, 1999. Mr. Kinsey manages
Strategic Income 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 portfolio management team that manages the high yield
portion of the Strategic Income 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.
Government Securities Income Fund
Robert K. Kinsey, whose background is described above, has primary
responsibility for the day-to-day management of Government Securities Income
Fund, and has served as Senior Portfolio Manager of Government Securities Income
Fund since May 24, 1999.
High Yield Fund and High Yield Fund II
Edwin Schriver, whose background is described above, has served as Senior
Portfolio Manager of the portfolio management team that manages High Yield Fund
and High Yield Fund II since October 2000.
Andy Mitchell, Vice President of ING Pilgrim, has served as Co-Portfolio Manager
of the portfolio management team that manages High Yield Fund and High Yield
Fund II since October 2000. Prior to joining ING Pilgrim in July 2000, Mr.
Mitchell was a Senior Credit Analyst with Katonah Capital since March 2000.
>From March 1998 to March 2000, Mr. Mitchell was a Vice President and Senior
High Yield Analyst at Merrill Lynch Asset Management. From March 1994 to March
1998, Mr. Mitchell was Assistant Vice President and Senior High Yield Analyst at
Schroder Capital Management.
Russ Stiver, Vice President of ING Pilgrim, has served as Co-Portfolio Manager
of the portfolio management team that manages High Yield Fund and High Yield
Fund II since October 2000. Prior to joining ING Pilgrim in May 2000, Mr. Stiver
was Portfolio Manager (1996-2000) and Acting V.P. at Manulife Financial
(1999-2000). From 1994 to 1996, Mr. Stiver analyzed investment grade, high yield
and emerging market sovereign debt securities for Toronto-Dominion Bank.
66 Management of the Funds
<PAGE>
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
Balanced Fund
The following individuals share responsibility for the day-to-day management of
the Balanced Fund:
G. David Underwood, whose background is described above, has served as Senior
Portfolio Manager of the equity portion of the Balanced Fund's assets since May
24, 1999.
Robert K. Kinsey, whose background is described above, has served as a Portfolio
Manager of the portion of Balanced Fund's assets that are invested in assets
other than high yield securities since May 24, 1999.
Edwin Schriver, whose background is described above, has served as Senior
Portfolio Manager of the high yield portion of the Balanced Fund's assets since
October 2000.
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.
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 have, at least
in part, been selected 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
J.P. Morgan Investment Management Inc.
A registered investment adviser, J.P. Morgan Investment Management Inc. (J.P.
Morgan) serves as Sub-Adviser to the ING Pilgrim Research Enhanced Index Fund.
The firm was formed in 1984. The firm evolved from the Trust and Investment
Division of Morgan Guaranty Trust Company which acquired its first tax-exempt
client in 1913 and its first pension account in 1940. J.P. Morgan currently
manages approximately $349 billion for institutions and pension funds. The
company is a wholly owned subsidiary of J.P. Morgan & Co. J.P. Morgan's
principal address is 522 Fifth Avenue, New York, New York 10036.
Nanette Buziak, Timothy Devlin and Bernard Kroll share the responsibility for
the day-to-day management of the Research Enhanced Index Fund.
Ms. Buziak has co-managed the ING Pilgrim Research Enhanced Index Fund since
April 1999. At J.P. Morgan, she serves as a Portfolio Manager and Member of the
Structured Equity Group.
Ms. Buziak has over 8 years of investment management experience. Before joining
J.P. Morgan in 1997, Ms. Buziak was an index arbitrage trader and convertible
bond portfolio manager at First Marathon America, Inc.
Mr. Devlin has co-managed the ING Pilgrim Research Enhanced Index Fund since the
Fund was formed in December 1998. At J.P. Morgan, he serves as a Portfolio
Manager and Member of the Structured Equity Group.
Mr. Devlin has over 12 years of investment management experience. Before joining
J.P. Morgan in 1996, Mr. Devlin was a Portfolio Manager for nine years at
Mitchell Hutchins Asset Management, Inc. where he managed quantitatively-driven
portfolios for institutional and small investments.
Mr. Kroll has co-managed the ING Pilgrim Research Enhanced Index Fund since
March 2000. At J.P. Morgan, he serves as a Portfolio Manager and Member of the
Structured Equity Group.
Mr. Kroll has over 20 years of investment management experience. Before joining
J.P. Morgan in 1996, Mr. Kroll was an equity derivatives specialist at Goldman
Sachs & Co. Earlier, he managed his own software development firm and options
broker-dealer, and managed several derivatives businesses at Kidder Peabody &
Co.
Growth + Value Fund
Navellier Fund Management, Inc.
A registered investment adviser, Navellier Fund Management, Inc. (Navellier)
serves as Sub-Adviser to the ING 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 ING 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.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Management of the Funds 67
<PAGE>
MANAGEMENT OF THE FUNDS SUB-ADVISERS
--------------------------------------------------------------------------------
International Value Fund
Brandes Investment Partners, L.P.
A registered investment adviser, Brandes Investment Partners, L.P. (Brandes)
serves as Sub-Adviser to the ING Pilgrim International Value Fund. The company
was formed in May 1996 as the successor to its general partner, Brandes
Investment Partners, Inc., which has been providing investment advisory services
(through various predecessor entities) since 1974. Brandes currently manages
over $33 billion in international portfolios. Brandes' principal address is
12750 High Bluff Drive, San Diego, California 92130.
Charles Brandes has co-managed the ING Pilgrim International Value Fund since
the Funds were formed in March 1995 and January 1998, respectively. Mr. Brandes
has over 31 years of investment management experience. He founded the general
partner of Brandes in 1974 and owns a controlling interest in it. At Brandes, he
serves as a Managing Partner. He is a Chartered Financial Analyst and a Memeber
of the Association for Investment Management and Research.
Jeff Busby has co-managed the ING Pilgrim International Value Fund since the
fund was formed in March 1995. Mr. Busby has over 13 years of investment
management experience. At Brandes he serves as a Managing Partner. He is also
responsible for overseeing all trading activities for the firm. He is a
Chartered Financial Analyst, and a Member of the Association for Investment
Management and Research and the Financial Analyst Society.
International SmallCap Growth Fund
Nicholas-Applegate Capital Management (NACM)
NACM serves as sub-adviser to the ING Pilgrim International SmallCap Growth
Fund. Founded in 1984, NACM manages over $40 billion of discretionary assets for
numerous clients, including employee benefit plans of corporations, public
retirement systems and unions, university endowments, foundations, and other
institutional investors and individuals. The International SmallCap Growth Fund
is managed by a team of portfolio managers and analysts employed by NACM. NACM
has offices in San Diego, New York, Chicago and San Francisco. It's principal
business address is 600 West Broadway, San Diego, California, 92101.
68 Management of the Funds
<PAGE>
DIVIDENDS/TAXES 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) Monthly(3)
----------- ---------------- ------------ ----------
LargeCap Leaders MagnaCap Balanced Government
Research Enhanced Growth and Convertible Securities
Index Income Global Income
Growth Income GNMA
Opportunities Income
LargeCap Growth High Yield
MidCap Value High Yield II
MidCap Strategic
Opportunities Income
MidCap Growth
Growth + Value
SmallCap
Opportunities
SmallCap Growth
Worldwide
Growth
International
Value
International
International
Core Growth
International
SmallCap Growth
Emerging
Countries
----------
(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.
(3) Distributions normally expected to consist primarily of 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 ING Pilgrim Fund which
offers the Class Q shares.
Taxes
The following information is meant as a general summary for U.S. shareholders.
Please see the Statement of Additional Information 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 most of its net investment income and net capital
gains to its shareholders each year. Although the Funds will not be taxed on
amounts they distribute, most shareholders will be taxed on amounts they
receive. A particular distribution generally will be taxable as either ordinary
income or long-term capital gains. It does not matter how long you have held
your Fund shares or whether you elect to receive your distributions in cash or
reinvest them in additional Fund shares. For example, if a Fund designates a
particular distribution as a long-term capital gains distribution, it will be
taxable to you at your long-term capital gains rate.
Dividends declared by a Fund in October, November or December and paid during
the following January may be treated as having been received by shareholders in
the year the distributions were declared.
You will receive an annual statement summarizing your dividend and capital gains
distributions.
If you invest through a tax-deferred account, such as a retirement plan, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
consult your tax adviser about investment through a tax-deferred account.
There may be tax consequences to you if you sell or redeem Fund shares. You will
generally have a capital gain or loss, which will be long-term or short-term,
generally depending on how long you hold those shares. If you exchange shares,
you may be treated as if you sold them. You are responsible for any tax
liabilities generated by your transactions.
As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax;
rather, it is a way in which the IRS ensures it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Dividends, Distributions and Taxes 69
<PAGE>
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
(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, Growth and Income, Worldwide
Growth, International Value, International, International Core Growth,
International SmallCap Growth, Emerging Countries, High Yield, High Yield II and
Global 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.
Emerging Markets Investments (Emerging Countries, High Yield II and Global
Income Funds). Because of less developed markets and economies and, in some
countries, less mature governments and governmental institutions, the risks of
investing in foreign securities can be intensified in the case of investments in
issuers domiciled or doing substantial business in emerging market countries.
These risks include: high concentration of market capitalization and trading
volume in a small number of issuers representing a limited number of industries,
as well as a high concentration of investors and financial intermediaries;
political and social uncertainties; over-dependence on exports, especially with
respect to primary commodities, making these economies vulnerable to changes in
commodity prices; overburdened infrastructure and obsolete financial systems;
environmental problems; less well developed legal systems; and less reliable
custodial services and settlement practices.
Inability to Sell Securities (All Funds except MagnaCap, Research Enhanced
Index, LargeCap Growth, SmallCap Growth, International Core Growth, Government
Securities Income and GNMA Income 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 (Strategic Income, High Yield, High Yield II, Global
Income, 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 (International, Strategic Income, High Yield, High
Yield II, Global Income, 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
70 More Information About Risks
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MORE INFORMATION ABOUT RISKS
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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 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.
U.S. Government Securities (Government Securities Income, GNMA Income, Strategic
Income, High Yield and High Yield II Funds). Some U.S. Government agency
securities may be subject to varying degrees of credit risk, particularly those
that are 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.
Convertible Securities (All Funds except Research Enhanced Index, Growth
Opportunities, Government Securities Income, GNMA Income, Strategic Income and
Global Income 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 (Strategic Income and Balanced Funds). Each Fund
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.
Mortgage-Related Securities (Government Securities Income, GNMA Income,
Strategic Income, High Yield and High Yield II Funds). 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.
Interests in Loans (Strategic Income, High Yield, High Yield II, Global Income
and Balanced Funds). Certain Funds 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, Strategic Income, High Yield, High Yield
II 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
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
More Information About Risks 71
<PAGE>
MORE INFORMATION ABOUT RISKS
--------------------------------------------------------------------------------
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 Value, MidCap
Opportunities, MidCap Growth, SmallCap Opportunities, SmallCap Growth 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.
Portfolio Turnover. Each Fund (except MagnaCap, LargeCap Leaders, Research
Enhanced Index, MidCap Value, International Value, Government Securities Income,
GNMA Income and Global Income Funds) is generally expected to engage in frequent
and active trading of portfolio securities to achieve its investment objective.
A high portfolio turnover rate involves greater expenses to a Fund, including
brokerage commissions and other transaction costs, and is likely to generate
more taxable short-term gains for shareholders, which may have an adverse effect
on the performance of the Fund
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.
Lending Portfolio Securities. In order to generate additional income, certain
Funds may lend portfolio securities in an amount up to 33 1|M/3% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. As with other extensions of credit, there
are risks of delay in recovery or even loss of rights in the collateral should
the borrower default or fail financially.
Borrowing. Certain Funds may borrow for certain types of temporary or emergency
purposes subject to certain limits. Borrowing may exaggerate the effect of any
increase or decrease in the value of portfolio securities or the net asset value
of a Fund, and money borrowed will be subject to interest costs. Interest costs
on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, a Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
Reverse Repurchase Agreements and Dollar Rolls. A reverse repurchase agreement
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.
72 More Information About Risks
<PAGE>
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.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Financial Highlights 73
<PAGE>
FINANCIAL
ING PILGRIM MAGNACAP FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ending June 30, 2000, the information in the table below has been
audited by KPMG LLP, independent auditors.
<TABLE>
<CAPTION>
Six Months ended Nov. 22, 1999(1)
December 31, 2000 to
(Unaudited) June 30, 2000
----------- -------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 16.26
Income from investment operations:
Net investment income (loss) $ 0.05
Net realized and unrealized gains on investments $ (0.47)
Total from investment operations $ (0.42)
Less distributions from:
Net investment income $ --
Net realized gains on investments $ --
Net asset value, end of period $ 15.84
Total Return(2): % (2.58)
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 9,928
Ratios to average net assets:
Expenses(3) % 1.24
Net investment income (loss)(3) % 0.46
Portfolio turnover % 26
</TABLE>
----------
(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.
74 ING Pilgrim MagnaCap Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM GROWTH AND INCOME FUND
--------------------------------------------------------------------------------
For the period ended December 31, 2000, the information in the table below was
audited by KPMG LLP, independent auditors.
Period Ended
December
31, 2000
--------
Operating performance:
Net asset value, beginning of the period $
Net investment income (loss) $
Net realized and unrealized gain on investments $
Total from investment operations $
Dividends from net investment income $
Distributions from net realized gain $
Total distributions $
Net asset value, end of the period $
Total return(2) %
Ratios and supplemental data:
Net assets at the end of the period (000s) $
Ratio of expenses to average net assets(3) %
%
Ratio of net investment income (loss) to average
net assets(3) %
Portfolio turnover %
----------
(1) Commenced operations on , 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Growth And Income Fund 75
<PAGE>
FINANCIAL
ING PILGRIM LARGECAP LEADERS FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ended June 30, 2000, the information in the table below has been
audited by KPMG LLP, independent auditors.
Six Months April 4,
ended 2000(1) to
December 31, 2000 June 30,
(Unaudited) 2000
----------- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 16.67
Income from investment operations:
Net investment income (loss) $ --
Net realized and unrealized gains on investments $ (0.79)
Total from investment operations $ (0.79)
Less distributions from:
Net investment income $ --
Net realized gains on investments $ --
Net asset value, end of period $ 15.88
Total Return(2): % (4.74)
Ratios/Supplemental Data:
Net assets, end of period ($000's) $ 199
Ratios to average net assets:
Net expenses after expense reimbursement(3)(4) % 1.75
Gross expenses prior to expense reimbursement(3) % 1.84
Net investment income (loss) after expense
reimbursement(3)(4) % (0.27)
Portfolio turnover % 39
----------
(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 Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
76 ING Pilgrim LargeCap Leaders Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM RESEARCH ENHANCED INDEX FUND
--------------------------------------------------------------------------------
For the period ended October 31, 2000, the information in the table below was
audited by PricewaterhouseCoopers LLP, independent auditors.
April 4, 2000(1)
to
October 31, 2000
----------------
Operating performance:
Net asset value, beginning of the period $
Net investment income (loss) $
Net realized and unrealized loss on investments $
Total from investment operations $
Distributions from net realized gain $
Total distributions $
Net asset value, end of the period $
Total return(2) %
Ratios and supplemental data:
Net assets, end of the period (000's) $
Ratio of expenses to average net assets %
Ratio of net investment loss to average net assets %
Portfolio turnover %
----------
(1) Class Q commenced operations on April 4, 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Research Enhanced Index Fund 77
<PAGE>
FINANCIAL
ING PILGRIM GROWTH OPPORTUNITIES FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ended December 31, 2000, the information in the table below was
audited by KPMG LLP, independent auditors.
June 1, 2000(1)
to December
31, 2000
--------
Operating performance:
Net asset value, beginning of the period $
Net investment income (loss) $
Net realized and unrealized gain on investments $
Total from investment operations $
Dividends from net investment income $
Distributions from net realized gain $
Total distributions $
Net asset value, end of the period $
Total return(2) %
Ratios and supplemental data:
Net assets at the end of the period (000s) $
Ratio of expenses to average net assets(3) %
%
Ratio of net investment income (loss) to
average net assets(3) %
Portfolio turnover %
----------
(1) Commenced operations on June 1, 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
78 ING Pilgrim Growth Opportunities Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM LARGECAP GROWTH FUND
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by another independent auditors.
<TABLE>
<CAPTION>
Six months Year Three months Year July 21,
ended ended ended ended 1997(1) to
December 31, 2000 June 30, June 30, March 31, March 31,
(Unaudited) 2000 1999(2) 1999 1998
----------- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 28.43 25.24 15.66 12.50
Income from investment operations:
Net investment income (loss) $ (0.20) (0.03) (0.02) (0.01)
Net realized and unrealized gains on investments $ 15.86 3.22 9.87 3.26
Total from investment operations $ 15.66 3.19 9.85 3.25
Less distributions from:
Net investment income $ -- -- -- 0.01
Net realized gains on investments $ 0.38 -- 0.27 0.08
Net asset value, end of period $ 43.71 28.43 25.24 15.66
Total Return(3): % 55.57 12.64 63.76 62.47
Ratios/Supplemental Data:
Net assets, end of period ($000's) $ 24,838 6,044 4,908 799
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 1.26 1.23 1.26 1.25
Gross expenses prior to expense reimbursement(4) % 1.26 1.25 1.91 10.45
Net investment income (loss) after expense
reimbursement(4)(5) % (0.77) (0.36) (0.28) (0.62)
Portfolio turnover % 139 27 253 306
</TABLE>
----------
(1) The Fund commenced operations on July 21, 1997.
(2) Effective May 24, 1999, ING Pilgrim Investments Inc., became the Investment
Manager 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 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.
[GRAPHIC]
If you have any questions, please call 1-800-992-0180.
ING Pilgrim LargeCap Growth Fund 79
<PAGE>
FINANCIAL
ING PILGRIM MIDCAP VALUE FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ended June 30, 2000, the information in the table below has been
audited by KPMG LLP, independent auditors.
<TABLE>
<CAPTION>
Six months January 3,
ended 2000(1) to
December 31, 2000 June 30,
(Unaudited) 2000
----------- ----
Per Share Operating Performance:
<S> <C> <C>
Net asset value, beginning of period $ 13.53
Income from investment operations:
Net investment income (loss) $ (0.02)
Net realized and unrealized gains on investments $ 0.78
Total from investment operations $ 0.76
Less distributions from:
Net investment income $ --
Net realized gains on investments $ --
Net asset value, end of period $ 14.29
Total Return(2): % 5.62
Ratios/Supplemental Data:
Net assets, end of period ($000's) $ 139
Ratios to average net assets:
Net expenses after expense reimbursement(3)(4) % 1.75
Gross expenses prior to expense reimbursement(3) % 1.88
Net investment income (loss) after expense
reimbursement(3)(4) % (0.49)
Portfolio turnover % 122
</TABLE>
----------
(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 Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
80 ING Pilgrim MidCap Value Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM MIDCAP OPPORTUNITIES FUND
--------------------------------------------------------------------------------
For the period ended Decmeber 31, 2000, the information in the table below was
audited by KPMG LLP, independent auditors.
April 4, 2000(1)
to
December 31, 2000
-----------------
Operating performance
Net asset value, beginning
of the period $
Net investment loss $
Net realized and unrealized gain on investments $
Total from investment operations $
Distributions from net
realized gain $
Total distributions $
Net asset value, end of the period $
Total return(2): %
Ratios and supplemental data
Net assets, end of the
period (000s) $
Ratio of expenses to average net assets(3) %
%
Ratio of net investment loss to average net assets(3) %
Portfolio turnover %
----------
(1) Commenced operations on April 4, 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim MidCap Opportunities Fund 81
<PAGE>
FINANCIAL
ING PILGRIM GROWTH & VALUE FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ended October 31, 2000, the information in the table below was
audited by PricewaterhouseCoopers LLP, independent auditors.
Period Ended
December
31, 2000
--------
Operating performance:
Net asset value, beginning of the period $
Net investment income (loss) $
Net realized and unrealized gain on investments $
Total from investment operations $
Dividends from net investment income $
Distributions from net realized gain $
Total distributions $
Net asset value, end of the period $
Total return(2) %
Ratios and supplemental data:
Net assets at the end of the period (000s) $
Ratio of expenses to average net assets(3) %
%
Ratio of net investment income (loss) to average
net assets(3) %
Portfolio turnover %
----------
(1) Commenced operations on , 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
82 ING Pilgrim Growth & Value Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM MIDCAP GROWTH FUND
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Six months Year Three months
ended ended ended
December 31, 2000 June 30, June 30, Year ended March 31,
(Unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 26.94 25.14 23.30 18.01 17.99 13.66
Income from investment operations:
Net investment income (loss) $ (0.29) (0.06) (0.12) (0.21) (0.04) (0.07)
Net realized and unrealized gains on
investments $ 17.92 1.86 3.56 7.48 0.32 4.86
Total from investment operations $ 17.63 1.80 3.44 7.27 0.28 4.79
Less distributions from:
Net realized gains on investments $ 8.90 -- 1.60 1.98 0.26 0.46
Net asset value, end of period $ 35.67 26.94 25.14 23.30 18.01 17.99
Total Return(2): % 77.87 7.16 15.77 42.00 1.39 35.37
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 19,792 19,383 14,350 12,204 13,115 4,274
Ratios to average net assets:
Net expenses after expense
reimbursement(3)(4) % 1.26 1.24 1.23 1.22 1.25 1.23
Gross expenses prior to expense
reimbursement(3) % 1.26 1.25 1.31 1.95 1.84 2.84
Net investment income (loss) after
expense reimbursement(3) % (1.00) (0.95) (0.71) (0.97) (0.69) (0.57)
Portfolio turnover % 148 55 154 200 153 114
</TABLE>
----------
(1) Effective May 24, 1999, ING Pilgrim Investments, Inc. became the Investment
Manager of the Fund, concurrently Nicholas-Applegate Capital Management was
appointed as sub-adviser 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.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim MidCap Growth Fund 83
<PAGE>
FINANCIAL
ING PILGRIM SMALLCAP OPPORTUNITIES FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ended December 31, 2000, the information in the table below was
audited by KPMG LLP, independent auditors.
April 4, 2000(1)
to
December 31, 2000
-----------------
Operating performance:
Net asset value, beginning of the period $
Net investment loss $
Net realized and unrealized gain on investments $
Total from investment operations $
Distributions from net realized gain $
Total distributions $
Net asset value, end of the period $
Total return(2) %
Ratios and supplemental data:
Net assets at the end of the period (000s) $
Ratio of expenses to average net assets(3) %
%
Ratio of net investment loss to
average net assets(3) %
Portfolio turnover %
----------
(1) Commenced operations on April 4, 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
84 ING Pilgrim SmallCap Opportunities Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM SMALLCAP GROWTH FUND
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Six months Year Three months August 31,
ended ended ended 1995(2) to
December 31, 2000 June 30, June 30, Year ended March 31, March 31,
(Unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
Per Share Operating Performance:
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 21.19 18.56 19.27 13.19 14.16 12.50
Income from investment operations:
Net investment income (loss) $ (0.21) (0.06) (0.15) 0.03 (0.07) (0.03)
Net realized and unrealized gains
(loss) on investments $ 10.30 2.69 0.22 6.16 (0.77) 1.69
Total from investment operations $ 10.09 2.63 0.07 6.19 (0.84) 1.66
Less distributions from:
Net realized gains on investments $ 10.81 -- 0.78 0.11 0.13 --
Net asset value, end of period $ 20.47 21.19 18.56 19.27 13.19 14.16
Total Return(3): % 61.08 14.17 0.96 47.01 (6.03) 13.28
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 12,569 11,013 9,107 12,508 1,013 314
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.52 1.45 1.53 1.52 1.51 1.49
Gross expenses prior to expense
reimbursement(4) % 1.57 1.49 1.63 2.39 10.79 37.86
Net investment income (loss) after
expense reimbursement(4)(5) % (1.21) (1.21) (0.97) (1.52) (1.02) (1.05)
Portfolio turnover % 127 32 90 92 113 130
</TABLE>
----------
(1) Effective May 24, 1999, ING Pilgrim Investments, Inc., became the
Investment Manager of the Fund, concurrently Nicholas-Applegate Capital
Management was appointed as sub-adviser and the Fund changed its year end
to June 30.
(2) Commencement of offering shares.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized for periods less than one year.
(5) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim SmallCap Growth Fund 85
<PAGE>
FINANCIAL
ING PILGRIM INTERNATIONAL FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ended December 31, 2000, the information in the table below was
audited by PricewaterhouseCoopers LLP, independent auditors.
Period Ended
December
31, 2000
--------
Operating performance:
Net asset value, beginning of the period $
Net investment income (loss) $
Net realized and unrealized gain on investments $
Total from investment operations $
Dividends from net investment income $
Distributions from net realized gain $
Total distributions $
Net asset value, end of the period $
Total return(2) %
Ratios and supplemental data:
Net assets at the end of the period (000s) $
Ratio of expenses to average net assets(3) %
%
Ratio of net investment income (loss) to
average net assets(3) %
Portfolio turnover %
----------
(1) Commenced operations on , 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
86 ING Pilgrim International Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM WORLDWIDE GROWTH FUND
--------------------------------------------------------------------------------
For the period ended October 31, 2000, the information in the table below has
been audited by PricewaterhouseCoopers LLP , independent auditors. For all
periods ending prior to October 31, 2000, the financial information was audited
by other independent auditors.
<TABLE>
<CAPTION>
Period Year Three months August 31,
ended ended ended 1995(3) to
October 31, June 30, June 30, Year ended March 31, March 31,
2000(1) 2000 1999(2) 1999 1998 1997 1996
------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 27.12 24.59 19.63 15.00 13.27 12.50
Income from investment operations:
Net investment income (loss) $ (0.16) 0.01 0.22 (0.11) 0.01 (0.04)
Net realized and unrealized gains
(loss) on investments $ 11.11 2.52 6.15 5.29 1.72 0.81
Total from investment operations $ 10.95 2.53 6.37 5.18 1.73 0.77
Less distributions from:
Net investment income $ -- -- 0.15 -- -- --
Net realized gains on investments $ 3.54 -- 1.26 0.55 -- --
Net asset value, end of period $ 34.53 27.12 24.59 19.63 15.00 13.27
Total Return(4): % 42.63 10.29 33.97 35.11 12.87 6.32
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 54,418 14,870 7,320 645 642 1
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) % 1.57 1.55 1.59 1.61 1.61 1.60
Gross expenses prior to expense
reimbursement(5) % 1.57 1.55 1.76 3.75 34.99 3,232.53
Net investment income (loss) after
expense reimbursement(5)(6) % (0.69) 0.17 0.17 (0.47) (0.91) (0.50)
Portfolio turnover % 169 57 247 202 182 132
</TABLE>
----------
(1) The Fund Changed its year end from June 30 to October 31.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., became the
Investment Manager of the Fund, concurrently Nicholas-Applegate Capital
Management was appointed as sub-adviser and the Fund changed its year end
to June 30.
(3) Commencement of offering shares.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(5) Annualized for periods less than one year.
(6) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Worldwide Growth Fund 87
<PAGE>
FINANCIAL
ING PILGRIM INTERNATIONAL VALUE FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ended October 31, 2000, the information in the table below has
been audited by PricewaterhouseCoopers LLP, independent auditors.
Period
ended
October 31, 2000(1)
-------------------
Operating performance:
Net asset value, beginning of the period $
Net investment income $
Net realized and unrealized loss on investments $
Total from investment operations $
Distributions from net realized gain $
Total distributions $
Net asset value, end of the period $
Total return(2) %
Ratios and supplemental data:
Net assets, end of the period (000's) $
Ratio of expenses to average net assets %
Ratio of net investment income to average net assets %
Portfolio turnover %
----------
(1) Class Q commenced operations on January 25, 2000.
(2) Assumes dividends have been reinvested and does not reflect the effects of
sales charges.
(3) Annualized.
88 ING Pilgrim International Value Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM INTERNATIONAL CORE GROWTH FUND
--------------------------------------------------------------------------------
For the period ended October 31, 2000, the information in the table below has
been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods ending prior to October 31, 2000, the financial information was audited
by another independent auditors.
<TABLE>
<CAPTION>
Period Year Three months February 28,
ended ended ended 1997(3) to
October 31, June 30, June 30, Year ended March 31, March 31,
2000(1) 2000 1999(2) 1999 1998 1997
------- ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 19.63 18.36 17.43 12.75 12.50
Income from investment operations:
Net investment income (loss) $ (0.17) 0.04 0.09 (0.04) --
Net realized and unrealized gains
on investments $ 6.48 1.23 0.97 4.72 0.25
Total from investment operations $ 6.31 1.27 1.06 4.68 0.25
Less distributions from:
Net investment income $ -- -- 0.13 -- --
Net realized gains on investments $ 1.16 -- -- -- --
Net asset value, end of period $ 24.78 19.63 18.36 17.43 12.75
Total Return(4): % 32.56 6.92 6.11 36.63 2.00
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 16,567 9,390 11,268 1,719 1
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) % 1.75 1.54 1.63 1.66 0.00
Gross expenses prior to expense
reimbursement(5) % 2.06 1.63 1.87 3.18 2,667.07
Net investment income (loss) after
expense reimbursement(5)(6) % (0.73) 0.73 (0.27) (0.47) 0.00
Portfolio turnover % 200 67 214 274 76
</TABLE>
----------
(1) The Fund changed its year end from June 30 to October 31.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., became the
Investment Manager 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 February 28, 1997.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(5) Annualized for periods less than one year.
(6) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim International Core Growth Fund 89
<PAGE>
FINANCIAL
ING PILGRIM GNMA INCOME FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ended December 31, 2000, the information in the table below was
audited by KPMG LLP, independent auditors.
Period Ended
December
31, 2000
--------
Operating performance:
Net asset value, beginning of the period $
Net investment income (loss) $
Net realized and unrealized gain on investments $
Total from investment operations $
Dividends from net investment income $
Distributions from net realized gain $
Total distributions $
Net asset value, end of the period $
Total return(2) %
Ratios and supplemental data:
Net assets at the end of the period (000s) $
Ratio of expenses to average net assets(3) %
%
Ratio of net investment income (loss) to
average net assets(3) %
Portfolio turnover %
----------
(1) Commenced operations on _________, 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
90 ING Pilgrim GNMA Income Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM INTERNATIONAL SMALLCAP GROWTH FUND
--------------------------------------------------------------------------------
For the period ended October 31, 2000, the information in the table below has
been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods ending prior to October 31, 2000, the financial information was audited
by other independent auditors.
<TABLE>
<CAPTION>
Period Year Three months August 31,
ended ended ended 1995(3) to
October 31, June 30, June 30, Year ended March 31, March 31,
2000(1) 2000 1999(2) 1999 1998 1997 1996
------- ---- ------- ---- ---- ---- ----
Per Share Operating Performance:
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 25.16 22.23 19.18 14.01 13.52 12.50
Income from investment operations:
Net investment income (loss) $ (0.21) (0.03) (0.02) 0.05 (0.06) 0.01
Net realized and unrealized gains
on investments $ 20.53 2.96 3.36 5.12 2.01 1.01
Total from investment operations $ 20.32 2.93 3.34 5.17 1.95 1.02
Less distributions from:
Net investment income $ -- -- 0.09 -- -- --
Net realized gains on investments $ 2.18 -- 0.20 -- 1.46 --
Net asset value, end of period $ 43.30 25.16 22.23 19.18 14.01 13.52
Total Return(4): % 82.99 13.18 17.61 36.90 15.03 8.16
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 163,843 42,881 32,819 8,810 42 19
Ratios to average net assets:
Net expenses after expense
reimbursement(5)(6) % 1.57 1.65 1.65 1.66 1.66 1.65
Gross expenses prior to expense
reimbursement(5) % 1.57 1.67 1.80 6.15 151.33 531.72
Net investment income (loss) after
expense reimbursement(5)(6) % (0.66) (0.50) (0.50) (0.43) (0.64) 0.33
Portfolio turnover % 164 44 146 198 206 141
</TABLE>
----------
(1) The Fund changed its year end from June 30 to October 31.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., became the
Investment Manager of the Fund, concurrently Nicholas-Applegate Capital
Management was appointed as sub-adviser and the Fund changed its year end
to June 30.
(3) Commencement of offering shares.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(5) Annualized for periods less than one year.
(6) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim International SmallCap Growth Fund 91
<PAGE>
FINANCIAL
ING PILGRIM EMERGING COUNTRIES FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ended October 31, 2000, the information in the table below has
been audited by PricewaterhouseCoopers LLP, independent auditors. For all
periods ending prior to October 31, 2000, the financial information was audited
by other independent auditors.
<TABLE>
<CAPTION>
Period Year Three months August 31,
ended ended ended 1995(3) to
October 31, June 30, June 30, Year Ended March 31, March 31,
2000(1) 2000 1999(2) 1999 1998 1997 1996
------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 17.20 13.79 17.76 16.47 13.18 12.50
Income from investment operations:
Net investment income (loss) $ (0.16) (0.04) (0.01) 0.07 (0.04) 0.01
Net realized and unrealized gains
(loss) on investments $ 3.70 3.45 (3.78) 1.33 3.37 0.67
Total from investment operations $ 3.54 3.41 (3.79) 1.40 3.33 0.68
Less distributions from:
Net investment income $ -- -- 0.18 -- -- --
Net realized gains on investments $ -- -- -- 0.11 0.04 --
Net asset value, end of $ 20.74 17.20 13.79 17.76 16.47 13.18
Total Return(4): % 20.58 24.73 (21.42) 8.60 25.29 5.44
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 119,251 79,130 53,125 46,711 8,660 350
Ratio to average net assets:
Net expenses after expense
reimbursement(5)(6) % 2.09 1.90 1.94 1.91 1.91 1.90
Gross expenses prior to expense
reimbursement(5) % 2.24 2.43 2.23 2.43 4.20 44.24
Net investment income (loss) after
expense reimbursement(5)(6) % (1.05) (1.07) (0.01) 1.06 (0.87) 0.47
Portfolio turnover % 211 67 213 243 176 118
</TABLE>
----------
(1) The Fund changed its year end from June 30 to October 31.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., 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) Commencement of offering shares.
(4) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(5) Annualized for periods less than one year.
(6) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
92 ING Pilgrim Emerging Countries Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM GLOBAL INCOME FUND
--------------------------------------------------------------------------------
For the period ended December 31, 2000, the information in the table below was
audited by KPMG LLP, independent auditors.
Period Ended
December
31, 2000
--------
Operating performance:
Net asset value, beginning of the period $
Net investment income (loss) $
Net realized and unrealized gain on investments $
Total from investment operations $
Dividends from net investment income $
Distributions from net realized gain $
Total distributions $
Net asset value, end of the period $
Total return(2) %
Ratios and supplemental data:
Net assets at the end of the period (000s) $
Ratio of expenses to average net assets(3) %
%
Ratio of net investment income (loss) to
average net assets(3) %
Portfolio turnover %
----------
(1) Commenced operations on ______________, 2000.
(2) Assumes dividends have been reinvested and does not reflect the effect of
sales charges.
(3) Annualized.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Global Income Fund 93
<PAGE>
FINANCIAL
ING PILGRIM GOVERNMENT SECURITIES INCOME FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the period ended June 30, 2000, the information in the table below has been
audited by KPMG LLP, independent auditors.
Six months April 5,
ended 2000(1) to
December 31, 2000 June 30,
(Unaudited) 2000
----------- ----
Per Share Operating Performance:
Net asset value, beginning of period $ 11.88
Income from investment operations:
Net investment income $ 0.15
Net realized and unrealized (loss)
on investments $ 0.03
Total from investment operations $ 0.18
Less distributions from:
Net investment income $ (0.12)
Net realized gains on investments $ --
Net asset value, end of period $ 11.94
Total Return(2): % 0.94
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 22
Ratios to average net assets:
Net expenses after expense
reimbursement(3)(4) % 1.35
Gross expenses prior to expense
reimbursement(3) % 1.35
Net investment income (loss) after
expense reimbursement(3)(4) % 5.87
Portfolio turnover % 44
----------
(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 Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
94 ING Pilgrim Government Securities Income Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM STRATEGIC INCOME FUND
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by another independent auditors.
<TABLE>
<CAPTION>
Six months Year Three months July 27
ended ended ended 1998(1) to
December 31, 2000 June 30, June 30, March 31,
(Unaudited) 2000 1999(2) 1999
----------- ---- ------- ----
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 11.99 12.26 12.43
Income from investment operations:
Net investment income $ 0.94 0.25 0.48
Net realized and unrealized (loss) on .
investments $ (0.54) (0.38) (0.04)
Total from investment operations $ 0.40 (0.13) 0.44
Less distributions from:
Net investment income $ 0.94 0.14 0.50
Net realized gains on investments $ -- -- 0.11
Net asset value, end of period $ 11.45 11.99 12.26
Total Return(3): % 3.55 1.16 5.78
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 228 171 314
Ratios to average net assets:
Net expenses after expense reimbursement(4)(5) % 0.86 0.71 0.69
Gross expenses prior to expense reimbursement(4) % 2.54 1.37 1.74
Net investment income (loss) after expense
reimbursement(4)(5) % 7.79 6.07 6.03
Portfolio turnover % 168 69 274
</TABLE>
----------
(1) The Fund commenced operations on July 27, 1998.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., 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.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Strategic Income Fund 95
<PAGE>
FINANCIAL
ING PILGRIM HIGH YIELD FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For the year ended June 30, 2000 and the period ending June 30, 1999, the
information in the table below has been audited by KPMG LLP, independent
auditors.
<TABLE>
<CAPTION>
Six months Year From June 17
ended ended thru
December 31, 2000 June 30, June 30,
(Unaudited) 2000 1999(1)
----------- ---- -------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 5.93 5.91
Income (loss) from investment
operations:
Net investment income $ 0.60 0.02
Net realized and unrealized gain
(loss) on investments $ (0.33) --
Total from investment operation $ (0.27) 0.02
Less distributions from:
Net investment income $ 0.60 --
Realized capital gains $ -- --
Total distributions $ 0.60 --
Net asset value, end of period $ 5.60 5.93
Total Return(2): % (5.29) 0.34
Ratios/Supplemental Data:
Net assets, end of period (000's) $ -- --
Ratios to average net assets:
Net expenses after expense
reimbursement(3)(4) % 1.05 --
Gross expenses prior to expense
reimbursement(3) % 1.17 --
Net investment income (loss) after
expense reimbursement(3)(4) % 10.41 --
Portfolio turnover rate % 89 184
</TABLE>
----------
(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 information 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.
96 ING Pilgrim High Yield Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM HIGH YIELD FUND II
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by another independent auditors.
<TABLE>
<CAPTION>
Six months Year Three months Year March 27,
ended ended ended ended 1998(1) to
December 31, 2000 June 30, June 30, March 31, March 31,
(Unaudited) 2000 1999(2) 1999 1998
----------- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 11.59 11.68 12.72 12.70
Income from investment operations:
Net investment income (loss) $ 1.20 0.30 1.16 0.01
Net realized and unrealized gains (loss)
on securities and foreign currency $ (0.76) (0.11) (1.01) 0.01
Total from investment operations $ 0.44 0.19 0.15 0.02
Less distributions from:
Net investment income $ (1.21) 0.28 1.19 --
Net asset value, end of period $ 10.82 11.59 11.68 12.72
Total Return(3): % 4.04 1.63 1.40 0.16
Ratios/Supplemental Data:
Net assets, end of period (000's) $ 6,882 3,229 6,502 567
Ratios to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.08 0.90 0.87 0.97
Gross expenses prior to expense
reimbursement(4) % 1.27 1.17 1.28 0.97
Net investment income (loss) after
expense reimbursement(4)(5) % 10.73 9.88 10.01 7.53
Portfolio turnover % 113 44 242 484
</TABLE>
----------
(1) The Fund commenced operations on March 27, 1998.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., 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
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim High Yield Fund II 97
<PAGE>
FINANCIAL
ING PILGRIM BALANCED FUND HIGHLIGHTS
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Six months Year Three months August 31,
ended ended ended 1995(1) to
December 31, 2000 June 30, June 30, Year ended March 31, March 31,
(Unaudited) 2000 1999(2) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 19.04 18.85 18.48 13.42 12.69 12.50
Income from investment operations:
Net investment income $ 0.54 0.11 0.44 0.30 0.24 0.15
Net realized and unrealized gains on
investments $ (0.57) 0.16 2.50 5.07 0.73 0.19
Total from investment operations $ (0.03) 0.27 2.94 5.37 0.97 0.34
Less distributions from:
Net investment income $ 0.40 0.08 0.50 0.31 0.24 0.15
Net realized gains on investments $ 3.67 -- 2.07 -- -- --
Net asset value, end of period $ 14.94 19.04 18.85 18.48 13.42 12.69
Total Return(3): % (0.60) 1.44 17.49 40.21 7.60 2.77
Ratio/Supplemental Data:
Net assets, end of period (in
thousands) $ 230 190 176 166 73 1
Ratio to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.30 1.25 1.25 1.26 1.26 1.25
Gross expenses prior to expense
reimbursement(4) % 1.51 1.51 1.63 11.28 126.75 3,094.48
Net investment income (loss) after
expense reimbursement(4)(5) % 3.36 2.30 2.41 4.09 2.15 2.16
Portfolio turnover % 173 63 165 260 213 197
</TABLE>
----------
(1) Commencement of offering of shares.
(2) Effective May 24, 1999, ING Pilgrim Investments, Inc., 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.
98 ING Pilgrim Balanced Fund
<PAGE>
FINANCIAL
HIGHLIGHTS ING PILGRIM CONVERTIBLE FUND
--------------------------------------------------------------------------------
For 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 ending prior to June 30, 1999, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Six months Year Three months August 31,
ended ended ended 1995(2) to
December 31, 2000 June 30, June 30, Year ended March 31, March 31,
(Unaudited) 2000 1999(1) 1999 1998 1997 1996
----------- ---- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of period $ 22.51 21.22 18.47 15.19 13.72 12.50
Income from investment operations:
Net investment income (loss) $ 0.44 0.09 0.43 0.48 0.42 0.17
Net realized and unrealized gains
(loss) on investments $ 7.82 1.31 3.09 4.19 1.50 1.22
Total from investment operations $ 8.26 1.40 3.52 4.67 1.92 1.39
Less distributions from:
Net investment income $ (0.35) 0.11 0.46 0.48 0.42 0.17
Net realized gains on investments $ (3.57) -- 0.31 0.91 0.03 --
Net asset value, end of period $ 26.85 22.51 21.22 18.47 15.19 13.72
Total Return(3): % 40.36 6.62 19.66 31.54 14.13 11.13
Ratios/Supplemental Data:
Net assets, end of period (in
thousands) $ 56,165 17,537 8,741 7,080 4,599 1,085
Ratio to average net assets:
Net expenses after expense
reimbursement(4)(5) % 1.25 1.23 1.23 1.22 1.25 1.25
Gross expenses prior to expense
reimbursement(4) % 1.25 1.23 1.35 2.35 2.90 9.21
Net investment income (loss) after
expense reimbursement(4)(5) % 1.88 2.04 2.37 5.99 3.29 3.59
Portfolio turnover % 129 28 138 160 167 145
</TABLE>
----------
(1) Effective May 24, 1999, ING Pilgrim Investments, Inc., became the
Investment Manager of the Fund and the Fund changed its year end to June
30.
(2) Commencement of offering shares.
(3) Total return is calculated assuming reinvestment of all dividends and
capital gain distributions at net asset value and excluding the deduction
of sales charges. Total return for less than one year is not annualized.
(4) Annualized for periods less than one year.
(5) The Investment Manager has agreed to limit expenses, excluding, interest,
taxes, brokerage and extraordinary expenses.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Convertible Fund 99
<PAGE>
WHERE TO GO FOR MORE INFORMATION
You'll find more information about the ING 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 ING Pilgrim Funds. The SAI
is legally part of this prospectus (it is incorporated by reference). A copy has
been filed with the Securities and Exchange Commission (SEC).
Please write or call for a free copy of the current Annual/Semi-Annual reports,
the SAI or other Fund information, or to make shareholder inquiries:
The ING Pilgrim Funds
7337 East Doubletree Ranch Road
Scottsdale, AZ 85258-2034
1-800-992-0180
Or visit our website at www.pilgrimfunds.com
This information may also be reviewed or obtained from the SEC. In order to
review the information in person, you will need to visit the SEC's Public
Reference Room in Washington, D.C. or call 202-942-8090. Otherwise, you may
obtain the information for a fee by contacting the SEC at:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-0102
or at the e-mail address: [email protected]
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:
ING Pilgrim Growth Opportunities Fund 811-4431
ING Pilgrim Equity Trust 811-8817
ING Pilgrim Mayflower Trust 811-7978
ING Pilgrim SmallCap Opportunities Fund 811-4434
ING Pilgrim Advisory Funds, Inc. 811-9040
ING Pilgrim Government Securities Income Fund, Inc. 811-4031
ING Pilgrim Investment Funds, Inc. 811-1939
ING Pilgrim Mutual Funds 811-7428
ING Pilgrim Growth and Income Fund, Inc. 811-0865
ING Pilgrim International Fund, Inc. 811-8172
ING Pilgrim GNMA Income Fund, Inc. 811-2401
ING Pilgrim Global Income Fund 811-4675
QPROSxxxxxx-xxxxxx
<PAGE>
March 1, 2001
Class I
INSTITUTIONAL CLASS SHARES
ING Pilgrim Research Enhanced Index
ING Pilgrim Growth Opportunities
ING Pilgrim MidCap Opportunities
ING Pilgrim SmallCap Opportunities
ING Money Market
This prospectus contains important information about investing in the ING
Pilgrim Funds. You should read it carefully before you invest, and keep it for
future reference. Please note that your investment: is not a bank deposit, is
not insured or guaranteed by the FDIC, the Federal Reserve Board or any other
government agency and is affected by market fluctuations. There is no guarantee
that the Funds will achieve their objectives. As with all mutual funds, the
Securities and Exchange Commission (SEC) has not approved or disapproved these
securities nor has the SEC judged whether the information in this prospectus is
accurate or adequate. Any representation to the contrary is a criminal offense.
<PAGE>
WHAT'S INSIDE
--------------------------------------------------------------------------------
[GRAPHIC] OBJECTIVE
[GRAPHIC] INVESTMENT STRATEGY
[GRAPHIC] RISKS
[GRAPHIC] HOW THE FUND HAS PERFORMED
These pages contain a description of each of our Funds included in this
prospectus, including its objective, investment strategy, and risks.
You'll also find:
How the Fund has performed.
A chart that shows the Fund's financial performance for the past ten years (or
since inception, if shorter).
What you pay to invest. A list of the fees and expenses you pay -- both directly
and indirectly -- when you invest in a Fund.
Funds At A Glance 2
ING Pilgrim Research Enhanced Index 4
ING Pilgrim Growth Opportunities 6
ING Pilgrim MidCap Opportunities 8
ING Pilgrim SmallCap Opportunities 10
ING Money Market 12
What You Pay to Invest 14
Shareholder Guide 15
Management of the Funds 19
Dividends, Distributions and Taxes 21
More Information About Risks 22
Financial Highlights 25
Where To Go For More Information Back cover
<PAGE>
Funds At A Glance
This table is a summary of the objectives, main investments and risks of each
ING 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.
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
---- --------------------
<S> <C> <C>
U.S. Equity Research Enhanced Index Fund Capital appreciation
Funds Adviser: ING Pilgrim Investments, Inc.
Sub-Adviser: J.P. Morgan
Investment Management Inc.
Growth Opportunities Fund Long-term growth of capital
Adviser: ING Pilgrim Investments, Inc.
MidCap Opportunities Fund Long-term capital appreciation
Adviser: ING Pilgrim Investments, Inc.
SmallCap Opportunities Fund Capital appreciation
Adviser: ING Pilgrim Investments, Inc.
Sub-Adviser: ING Investment Management LLC
Income Money Market Fund A high level of current income as is
Fund Adviser: ING Mutual Funds Management Co. LLC consistent with the preservation of capital and
Sub-Adviser: ING Investment Management LLC liquidity and the maintenance of a stable
$1.00 net asset value per share.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MAIN INVESTMENTS MAIN RISKS
---------------- ----------
<S> <C>
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 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 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 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.
A diversified portfolio of high quality, U.S. The Fund's yield will vary. There can be no
dollar-denominated short-term debt securities assurance that the Fund will be able to maintain a
which are determined by the Sub-Adviser to present stable net asset value of $1.00 per share.
minimal credit risks.
</TABLE>
3
<PAGE>
Adviser
ING Pilgrim Investments, Inc.
Sub-Adviser
J.P. Morgan Investment
ING PILGRIM RESEARCH ENHANCED INDEX FUND Management
--------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC]
The Fund seeks capital appreciation.
INVESTMENT STRATEGY [GRAPHIC]
The Fund invests primarily in large companies that make up the S&P 500 Index.
Based on extensive research regarding projected company earnings and dividends,
a valuation model ranks companies in each industry group according to their
relative value. Using this valuation model, the portfolio managers select stocks
for the Fund. Within each industry, the Fund modestly overweights stocks that
are ranked as undervalued or fairly valued while modestly underweighting or not
holding stocks that appear overvalued. Industry by industry, the Fund's assets
are invested so that the Fund's industry sector allocations and market cap
weightings closely parallel those of the S&P 500 Index.
By owning a large number of stocks within the S&P 500 Index, with an emphasis on
those that appear undervalued or fairly valued, and by tracking the industry
weightings and other characteristics of that index, the Fund seeks returns that
modestly exceed those of the S&P 500 Index over the long term with virtually the
same level of volatility.
Under normal market conditions, the Fund invests at least 80% of its total
assets in common stocks included in the S&P 500 Index. It may also invest in
other common stocks not included in the S&P 500 Index. The Fund may also invest
in certain higher-risk investments, including derivatives (generally these
investments will be limited to options 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.
4 ING Pilgrim Research Enhanced Index Fund
<PAGE>
ING 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 shares from year to
year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
18.99
----------
(1) These figures are as of December 31, 2000.
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risk 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.
Average Annual Total Returns
<TABLE>
<CAPTION>
S&P
500
Class I Index(2)
--------- ---------
<S> <C> <C> <C>
One year, ended
December 31, 2000 %
Since inception(3)
</TABLE>
----------
(2) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large- capitalization U.S. companies.
(3) The class commenced operations on December 30, 1998.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Research Enhanced Index Fund 5
<PAGE>
Adviser
ING PILGRIM GROWTH OPPORTUNITIES FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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 believes 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.
6 ING Pilgrim Growth Opportunities Fund
<PAGE>
ING 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 shares from year to
year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
24.06 93.86
----------
(1) These figures are as of December 31, of each year.
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risk 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.
Average Annual Total Returns
<TABLE>
<CAPTION>
S&P
500
Class I Index(2)
--------- ---------
<S> <C> <C> <C>
One year, ended
December 31, 2000 %
Since Inception(3) %
</TABLE>
----------
(2) The S&P 500 Index is an unmanaged index that measures the performance of
securities of approximately 500 large- capitalization U.S. companies.
(3) The class commenced operations on March 31, 1997.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Growth Opportunities Fund 7
<PAGE>
Adviser
ING PILGRIM MIDCAP OPPORTUNITIES FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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 S&P MidCap
400 Index. As of December 31, 2000, the market capitalization of companies in
the S&P MidCap 400 Index ranged from $ million to $ 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.
8 ING Pilgrim MidCap Opportunities Fund
<PAGE>
ING 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 shares from year to
year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
103.19
----------
(1) These figures are as of December 31, of each year.
Best and worst quarterly performance during this period:
quarter : %
quarter : %
The table below provides some indication of the risk of investing in the Fund by
comparing the Fund's performance to that of a broad measure of market
performance -- the Standard & Poor's MidCap 400 Index.
Average Annual Total Returns
<TABLE>
<CAPTION>
S&P
MidCap 400
Class I Index(2)
--------- -----------
<S> <C> <C> <C>
One year, ended
December 31, 2000 %
Since Inception(3) %
</TABLE>
----------
(2) 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.
(3) The class commenced operations on August 20, 1998.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim MidCap Opportunities Fund 9
<PAGE>
Adviser
ING PILGRIM SMALLCAP OPPORTUNITIES FUND ING Pilgrim Investments, Inc.
--------------------------------------------------------------------------------
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 changes. The market capitalization of
companies held by the Fund as of , 2000 ranged from $ billion to
$ 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 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.
The Fund was closed to new investors effective February 29, 2000. Investors who
were shareholders of the Fund on that day may continue to buy shares into
accounts existing on that day. The Fund may reopen in the future subject to the
discretion of the Board of Trustees.
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.
10 ING Pilgrim SmallCap Opportunities Fund
<PAGE>
ING 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 shares from year to
year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
----------
(1) These figures are as of December 31, 2000.
Best and worst quarterly performance during this period:
quarter : %
quarter : %
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.
Average Annual Total Returns
<TABLE>
<CAPTION>
Russell
2000
Class I Index(2)
--------- -----------
<S> <C> <C> <C>
One year, ended
December 31, 2000 %
Since inception(3) %
</TABLE>
----------
(2) The Russell 2000 Index is an unmanaged index that measures the performance
of securities of small companies.
(3) Class I commenced operations on April 1, 1999.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim SmallCap Opportunities Fund 11
<PAGE>
Adviser
ING Mutual Funds Management Co. LLC
Sub-Adviser
ING MONEY MARKET FUND ING Investment Management LLC
--------------------------------------------------------------------------------
OBJECTIVE [GRAPHIC]
The Fund seeks to provide investors with a high level of current income as is
consistent with the preservation of capital and liquidity and the maintenance of
a stable $1.00 net asset value per share.
INVESTMENT STRATEGY [GRAPHIC]
The Fund will operate as a diversified fund and invest in a portfolio of
high-quality, U.S. dollar denominated short-term debt obligations which are
determined by the Sub-Adviser to present minimal credit risks.
Portfolio investments of the Fund are valued based on the amortized cost
valuation method pursuant to Rule 2a-7 under the Investment Company Act of 1940.
Obligations in which the Fund invests generally have remaining maturities of 397
days or less, although upon satisfying certain conditions of Rule 2a-7, the Fund
may, to the extent otherwise permissible, invest in instruments subject to
repurchase agreements and certain variable and floating rate obligations that
bear longer final maturities. The dollar-weighted average portfolio maturity of
the Fund will not exceed 90 days.
The Fund will invest in obligations permitted to be purchased under Rule 2a-7
including, but not limited to, (i) U.S. Government securities and obligations of
its agencies or instrumentalities; (ii) commercial paper, mortgage-backed and
asset-backed securities, guaranteed investment contracts, loan participation
interests, medium-term notes, and other promissory notes, including floating and
variable rate obligations, and (iii) the following domestic, Yankeedollar and
Eurodollar obligations: certificates of deposit, time deposits, bankers
acceptances, commercial paper, and other promissory notes, including floating
and variable rate obligations issued by U.S. or foreign bank holding companies
and their bank subsidiaries branches and agencies. The Fund may invest more than
25% of its total assets in instruments issued by domestic banks.
The Fund may purchase securities on a "when -issued" basis and purchase or sell
them on a "forward commitment" basis. The Fund may also invest in variable rate
master demand obligations, which are unsecured demand notes that permit the
underlying indebtedness to vary, and provide for periodic adjustments in the
interest rate. The Fund may enter into repurchase agreements.
In choosing investments for the Fund, the Sub-Adviser employs a highly
disciplined, four step investment process designed to ensure preservation of
capital and liquidity, as well as adherence to regulatory requirements. The four
steps are:
* First, a formal list of high-quality issuers is actively maintained;
* Second, securities of issuers on the approved list which meet maturity
guidelines and are rated "first tier" (that is, they are given the highest
short-term rating by at least two nationally recognized statistical rating
organizations, or by a single rating organization if a security is rated only by
that organization, or are determined to be of comparable quality by the
Sub-Adviser pursuant to guidelines approved by the Fund's Board of Trustees) are
selected for investment;
* Third, diversification is continuously monitored to ensure that regulatory
limits are not exceeded; and
* Finally, portfolio maturity decisions are made based upon expected cash flows,
income opportunities available in the market and expectations of future interest
rates.
RISKS [GRAPHIC]
The Fund is subject to the risks associated with investing in debt securities.
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
Changes in Interest Rates -- money market funds like the Fund are subject to
less interest rate risk than other income funds because they invest in debt
securities with a remaining maturity not greater than 397 days. Still, the value
of the Fund's investment may fall when interest rates rise.
Credit Risk -- money market funds like the Fund are subject to less credit risk
than other income funds because they invest in short-term debt securities of the
highest quality. Still, the Fund could lose money if the issuer of a debt
security is unable to meet its financial obligations or goes bankrupt.
U.S. Government Securities -- some U.S. Government agency securities may be
subject to varying degrees of credit risk, and all U.S. Government Securities
may be subject to price declines in the securities due to changing interest
rates. If an obligation, such as obligations issued by the Federal National
Mortgage Association, the Student Loan Marketing Association, the Federal Home
Loan Bank and the Federal Home Loan Mortgage Corporation, is supported only by
the credit of the agency or instrumentality issuing the obligation, the investor
must look principally to the agency issuing or guaranteeing the oligation for
ultimate repayment. Securities directly supported by the full faith and credit
of the United States have less credit risk.
Risk of Concentration in Banking Obligations -- the risks of concentrating in
investments in the banking industry include credit risk, interest rate risks,
and regulatory risk (the impact of state or federal legislation and
regulations).
12 ING Money Market Fund
<PAGE>
ING MONEY MARKET 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 shares from year to
year.
Year by Year Total Returns (%)(1)
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
----------
(1) These figures are as of December 31, 2000.
Best and worst quarterly performance during this period:
quarter : up %
quarter : down %
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 -- iMoney Net, Inc. First Tier Retail Index.
The following performance table discloses the Fund's average annual return
Average Annual Total Returns
<TABLE>
<CAPTION>
iMoney Net, Inc.
First Tier
Class I Retail Index(2)
--------- -----------------
<S> <C> <C> <C>
One year ended December 31, 2000 %
Since inception(3) %
</TABLE>
The Fund's seven-day yield as of December 31, 2000 for the Class I shares was %.
The "seven-day yield" is an annualized figure -- the amount you would earn if
you kept your investment in the Fund and the Fund continued to earn the same net
interest income throughout the year.
The Fund's seven-day effective yield as of December 31, 2000 for the Class I
shares was %. The "seven-day effective yield" (also an annualized figure)
assumes that dividends are reinvested and compounded.
For the Fund's current seven-day yield and seven-day effective yield, call the
Fund at 1-800-992-0180.
----------
(2) The iMoney Net, Inc. First Tier Retail Index is a weekly report tracking
the performance,assets, average maturities and portfolio composition of
over 1,300 taxable and tax-free money market funds.
(3) The Class commenced operations on October 31, 1999.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Money Market Fund 13
<PAGE>
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 ING Pilgrim Funds.
Fees You Pay Directly
<TABLE>
<CAPTION>
Class I
-------
<S> <C>
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
</TABLE>
Operating Expenses Paid Each Year by the Funds(1)
(as a % of average net assets)
Class I
<TABLE>
<CAPTION>
Distribution Total
and service Fund
Management (12b-1) Other operating
Fund fee fees expenses expenses
---- --- ---- -------- --------
<S> <C> <C> <C> <C>
Research Enhanced Index 0.70% -- -- --
Growth Opportunities 0.75 -- -- --
MidCap Opportunities 1.00 -- -- --
SmallCap Opportunities 0.75 -- -- --
Money Market 0.25 -- -- --
</TABLE>
----------
(1) These tables show the estimated operating expenses for each Fund as a ratio
of expenses to average daily net assets. These estimates are based on each
Fund's actual operating expenses for its most recent complete fiscal year.
Examples
The examples that follow are intended to help you compare the cost of investing
in the ING 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 I
<TABLE>
<CAPTION>
Fund 1 year 3 years 5 years 10 years
---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Research Enhanced Index -- -- -- --
Growth Opportunities -- -- -- --
MidCap Opportunities -- -- -- --
SmallCap Opportunities -- -- -- --
Money Market -- -- -- --
</TABLE>
14 What You Pay to Invest
<PAGE>
SHAREHOLDER
HOW TO PURCHASE SHARES GUIDE
--------------------------------------------------------------------------------
* The minimum initial investment for Class I Shares is $1,000,000. Class I
Shares are only available to (i) certain defined benefit plans, insurance
companies and foundations investing for their own account; (ii) retirement
plans affiliated with ING Group; and (iii) ING Group and its affiliates for
purposes of corporate cash management.
* The minimum amount of each Class I investment after your first one is
$100,000.
* We record most shares on our books electronically. We will issue a
certificate if you ask us in writing, however most of our shareholders
prefer not to have their shares in certificate form because certified
shares can't be sold or exchanged by telephone.
* We have the right to refuse a request to buy shares.
Make your investment using the table on the right.
The Funds and the Distributor reserve the right to reject any purchase order.
Please note that cash, travelers checks, third party checks, money orders and
checks drawn on non-US banks (even if payment may be effected through a US bank)
will not be accepted. The ING 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 $10,000.
Initial Additional
Method Investment Investment
------ ---------- ----------
By Contacting An investment Visit or consult an
Your professional with an investment
Investment authorized firm professional.
Professional can help you establish
and maintain your
account.
By Mail Visit or consult an Fill out the Account
investment Additions form
professional. Make included on the bottom
your check payable to of your account
the ING Pilgrim Funds statement along with
and mail it, along with your check payable to
a completed the Fund and mail
Application. Please them to the address on
indicate your the account statement.
investment professional Remember to write
on the New Account your account number
Application on the check.
By Wire Call the ING Pilgrim Wire the funds in the
Operations Department same manner described
at (800) 336-3436 to under "Initial
obtain an account Investment."
number and indicate
your investment
professional on the
account.
Instruct your bank to
wire funds to the Fund
in the care of:
State Street Bank and
Trust Company
ABA #101003621
Kansas City, MO
credit to:____________
(the Fund)
A/C #751-8315; for
further credit
to:___________________
Shareholder
A/C #_________________
(A/C # you received over
the telephone)
Shareholder Name:
______________________
(Your Name Here)
After wiring funds you
must complete the
Account Application and
send it to:
ING Pilgrim Funds
P.O. Box 219368
Kansas City, MO
64121-6368
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Shareholder Guide 15
<PAGE>
SHAREHOLDER
GUIDE HOW TO REDEEM SHARES
--------------------------------------------------------------------------------
You may redeem shares using the table on the right:
Under unusual circumstances, a Fund may suspend the right of redemption as
allowed by federal securities laws.
Systematic Withdrawal Plan
You may elect to make periodic withdrawals from your account on a regular basis.
* Your account must have a current value of at least $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 Statement of Additional Information.
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. 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 Professional investment professional. Investment
professionals may charge for their services in
connection with your redemption request, but
neither the Fund nor the Distributor imposes
any such charge.
By Mail Send a written request specifying the Fund
name and share class, your account number,
the name(s) in which the account is
registered, and the dollar value or number of
shares you wish to redeem to:
ING Pilgrim Funds
P.O. Box 219368
Kansas City, MO 64121-6368
If certificated shares have been issued, the
certificate must accompany the written
request. Corporate investors and other
associations must have an appropriate
certification on file authorizing redemptions.
A suggested form of such certification is
provided on the Account Application. A
signature guarantee may be required.
By Telephone -- You may redeem shares by telephone on all
Expedited Redemption 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 ING 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.
16 Shareholder Guide
<PAGE>
SHAREHOLDER
TRANSACTION POLICIES GUIDE
--------------------------------------------------------------------------------
Net Asset Value
The net asset value (NAV) per share for each Fund and class is determined each
business day as of the close of regular trading on the New York Stock Exchange
(usually at 4:00 p.m. Eastern Time). The NAV per share of Class I of each Fund
is calculated by taking the value of the Fund's assets attributable to Class I,
subtracting the Fund's liabilities attributable to Class I, and dividing by the
number of shares of Class I that are outstanding. Because foreign securities may
trade on days when the Funds do not price shares, the net asset value 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. Valuing
securities at fair value involves greater reliance on judgment than securities
that have readily available market quotations.
The Money Market Fund uses the amortized cost method to value its portfolio
securities and seeks to maintain a constant net asset value of $1.00 per share,
although there may be circumstances under which this goal cannot be acheived.
The amortized cost method involves valuing a security at its cost and amortizing
any discount or premium over the period until maturity, regardless of the impact
of fluctuating interest rates or the market value of the security. Although the
Board of Trustees has established procedures designed to stabilize to the extent
reasonably possible, the share price of the Fund, there can be no assurance that
the Fund's net asset value can be maintained at $1.00 per share.
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 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 ING
Pilgrim Fund.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Shareholder Guide 17
<PAGE>
SHAREHOLDER
GUIDE TRANSACTION POLICIES
--------------------------------------------------------------------------------
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.
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 $10,000,
other than as a result of a decline in the NAV per share.
18 Shareholder Guide
<PAGE>
MANAGEMENT
ADVISER OF THE FUNDS
--------------------------------------------------------------------------------
ING Pilgrim Investments, Inc. ("ING Pilgrim" or "ING Pilgrim Investments")
serves as the investment adviser to each of the Funds (except Money Market
Fund). ING Pilgrim has overall responsibility for management of the Funds
(except Money Market Fund). ING Mutual Funds Management Co. LLC ("IMFC") serves
as the investment adviser to Money Market Fund. ING Pilgrim and IMFC provide or
oversee all investment advisory and portfolio management services for each Fund,
and assist in managing and supervising all aspects of the general day-to-day
business activities and operations of the Funds, including custodial, transfer
agency, dividend disbursing, accounting, auditing, compliance and related
services.
Organized in December 1994, ING Pilgrim is registered as an investment adviser.
ING Pilgrim is an indirect wholly-owned subsidiary of ReliaStar Financial Corp.
("ReliaStar") (NYSE:RLR). Through its subsidiaries, ReliaStar offers individuals
and institutions life insurance and annuities, employee benefits products and
services, life and health reinsurance, retirement plans, mutual funds, bank
products, and personal finance education.
On July 26, 2000, Reliastar was acquired by ING Group (NYSE: ING). ING Group is
a global financial institution active in the field fo insurance, banking, and
asset management in more than 65 countries, with almost 100,000 employees.
Prior to April 30, 2000, Pilgrim Advisors, Inc. ("Pilgrim Advisors") served as
investment adviser to the Funds (other than Money Market Fund). On April 30,
2000, Pilgrim Advisors, an indirectly wholly-owned subsidiary of ReliaStar,
merged with ING Pilgrim Investments. Pilgrim Advisors and ING Pilgrim
Investments were sister companies and shared certain resources and investment
personnel.
Organized in , , IMFC is registered as an investment adviser. IMFC is a
wholly-owned indirect subsidiary of ING Group.
As of December 31, 2000, ING Pilgrim managed over $ billion in assets.
As of December 31, 2000, IMFC managed over $ billion in assets.
ING Pilgrim's and IMFC's principal address is 7337 East Doubletree Ranch Road,
Scottsdale, Arizona 85258.
ING Pilgrim and IMFC receive a monthly fee for their services based on the
average daily net assets of each of the Funds.
The following table shows the aggregate annual advisory fee paid by each Fund
for the most recent fiscal year as a percentage of that Fund's average daily net
assets:
<TABLE>
<CAPTION>
Fund Advisory Fee
---- ------------
<S> <C>
Research Enhanced Index 0.70%
Growth Opportunities 0.95
MidCap Opportunities 1.00
SmallCap Opportunities 1.00
Money Market 0.25
</TABLE>
ING Pilgrim Directly Manages the Portfolios of the
Following Funds:
Growth Opportunities Fund and MidCap
Opportunities Fund.
The following individuals share responsibility for the day-to-day management of
the Growth Opportunities Fund and MidCap Opportunities 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 and Growth
Opportunities Fund since August 1998. 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 and Growth Opportunities Fund since August 1998, 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
Mary Lisanti, whose background is described above, has served as manager of the
SmallCap Opportunities Fund since July 1998.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Management of the Funds 19
<PAGE>
MANAGEMENT
OF THE FUNDS SUB-ADVISERS
--------------------------------------------------------------------------------
For the following Funds, ING Pilgrim or IMFC has engaged a Sub-Adviser to
provide the day-to-day management of the Fund's portfolio. Each Sub-Adviser is
among the most respected institutional investment advisers in the world, and has
been selected primarily on the basis of its successful application of a
consistent, well-defined, long-term investment approach over a period of several
market cycles.
Research Enhanced Index Fund
J.P. Morgan Investment Management Inc.
A registered investment adviser, J.P. Morgan Investment Management Inc. (J.P.
Morgan) serves as Sub-Adviser to the Research Enhanced Index Fund. The firm was
formed in 1984. The firm evolved from the Trust and Investment Division of
Morgan Guaranty Trust Company which acquired its first tax-exempt client in 1913
and its first pension account in 1940. J.P. Morgan currently manages
approximately $349 billion for institutions and pension funds. The company is a
wholly owned subsidiary of J.P. Morgan & Co. J.P. Morgan's principal address is
522 Fifth Avenue, New York, New York 10036.
Nanette Buziak, Timothy Devlin and Bernard Kroll share the responsibility for
the day-to-day management of the ING Pilgrim Research Enhanced Index Fund.
Ms. Buziak has co-managed the ING Pilgrim Research Enhanced Index Fund since
April 1999. At J.P. Morgan, she serves as a Portfolio Manager and Member of the
Structured Equity Group.
Ms. Buziak has over 8 years of investment management experience. Before joining
J.P. Morgan in 1997, Ms. Buziak was an index arbitrage trader and convertible
bond portfolio manager at First Marathon America, Inc.
Mr. Devlin has co-managed the ING Pilgrim Research Enhanced Index Fund since the
Fund was formed in December 1998. At J.P. Morgan, he serves as a Portfolio
Manager and Member of the Structured Equity Group.
Mr. Devlin has over 12 years of investment management experience. Before joining
J.P. Morgan in 1996, Mr. Devlin was a Portfolio Manager for nine years at
Mitchell Hutchins Asset Management, Inc. where he managed quantitatively-driven
portfolios for institutional and retail investors.
Mr. Kroll has co-managed the ING Pilgrim Research Enhanced Index Fund since
March 2000. At J.P. Morgan, he serves as a Portfolio Manager and Member of the
Structured Equity Group.
Mr. Kroll has over 20 years of investment management experience. Before joining
J.P. Morgan in 1996, Mr. Kroll was an equity derivatives specialist at Goldman
Sachs & Co. Earlier, he managed his own software development firm and options
broker-dealer, and managed several derivatives businesses at Kidder, Peabody &
Co.
Money Market Fund
ING Investment Management LLC
ING Investment Management LLC ("IIM") serves as Sub-Adviser to the ING Money
Market Fund. IIM is located at 5780 Powers Ferry Road, N.W., Suite 300, Atlanta,
GA 30327. IIM is engaged in the business of providing investment advice to
portfolios which, as of December 31, 2000, were valued at $ billion. IIM also
advises other registered investment companies.
Ms. Jennifer J. Thompson, CFA leads a team of three investment professionals in
managing the ING Money Market Fund. Ms. Thompson has been employed by IIM as an
investment professional since 1998 and has seven years of investment experience.
20 Management of the Funds
<PAGE>
DIVIDENDS,
DISTRIBUTIONS
DIVIDENDS/TAXES AND TAXES
--------------------------------------------------------------------------------
Dividends
The Funds (other than Money Market Fund) distribute most or all of their net
earnings and net capital gains to shareholders annually in the form of
dividends. The Money Market Fund declares dividends daily and pays dividends
monthly. The Fund distributes net 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 I Shares of a Fund invested in another Pilgrim Fund which offers
the Class.
Taxes
The following information is meant as a general summary for U.S. shareholders.
Please see the Statement of Additional Information for additional information.
You should rely 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 most of its net investment income and net capital
gains to its shareholders each year. Although the Funds will not be taxed on
amounts they distribute, most shareholders will be taxed on amounts they
receive. A particular distribution generally will be taxable as either ordinary
income or long-term capital gains. It does not matter how long you have held
your Fund shares or whether you elect to receive your distributions in cash or
reinvest them in additional Fund shares. For example, if a Fund designates a
particular distribution as a long-term capital gains distribution, it will be
taxable to you at your long-term capital gains rate.
Dividends declared by a Fund in October, November or December and paid during
the following January may be treated as having been received by shareholders in
the year the distributions were declared.
You will receive an annual statement summarizing your dividend and capital gains
distributions.
If you invest through a tax-deferred account, such as a retirement plan, you
generally will not have to pay tax on dividends until they are distributed from
the account. These accounts are subject to complex tax rules, and you should
consult your tax adviser about investment through a tax-deferred account.
There may be tax consequences to you if you sell or redeem Fund shares. You will
generally have a capital gain or loss, which will be long-term or short-term,
generally depending on how long you hold those shares. If you exchange shares,
you may be treated as if you sold them. You are responsible for any tax
liabilities generated by your transactions.
As with all mutual funds, a Fund may be required to withhold U.S. federal income
tax at the rate of 31% of all taxable distributions payable to you if you fail
to provide the Fund with your correct taxpayer identification number or to make
required certifications, or if you have been notified by the IRS that you are
subject to backup withholding. Backup withholding is not an additional tax;
rather, it is a way in which the IRS ensures it will collect taxes otherwise
due. Any amounts withheld may be credited against your U.S. federal income tax
liability.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
Dividends, Distributions and Taxes 21
<PAGE>
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
(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 a 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
Inability to Sell Securities (All Funds except Research Enhanced Index and Money
Market Fund). 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.
U.S. Government Securities (Money Market Fund). 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.
Convertible Securities (MidCap Opportunities and SmallCap 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 (Money Market Fund). The Fund, except as limited in
the Statement of Additional Information, may invest up to 10% of its assets in
other investment companies. When the Fund invests in other investment companies,
you indirectly pay a proportionate share of the expenses of that other
investment company (including management fees, administration fees, and
custodial fees) in addition to the expenses of the Fund.
Restricted and Illiquid Securities (All Funds). Each Fund may invest in
restricted and illiquid securities, except as limited in the Statement of
Additional Information. 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 (ING Money Market Fund).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.
Asset-Backed Securities (ING Money Market Fund).Asset-backed securities involve
certain risks that are not posed by mortgage-related securities, resulting
mainly from the fact that asset-backed securities often do not contain the
benefit of a complete security interest in the related collateral. The risks
associated with asset-backed securities may be reduced by the addition of credit
enhancements such as a bank letter of credit or a third-party guarantee.
22 More Information About Risks
<PAGE>
MORE INFORMATION
ABOUT RISKS
--------------------------------------------------------------------------------
Derivatives (Research Enhanced Index Fund). 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. Derivatives
are also subject to credit risks related to the counterparty's ability to
perform, and any deterioration in the counterparty's creditworthiness could
adversely affect the instrument. A risk of using derivatives is that the adviser
or sub-adviser might imperfectly judge the market's direction. For instance, if
a derivative is used as a hedge to offset investment risk in another security,
the hedge might not correlate to the market's movements and may have unexpected
or undesired results, such as a loss or a reduction in gains.
Temporary Defensive Strategies (All Funds except Money Market Fund). 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.
Portfolio Turnover (All Funds except Research Enhanced Index Fund). Each 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.
OTHER RISKS
Investments in Foreign Securities. 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.
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.
Corporate Debt Securities. 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 Funds'
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.
Lending Portfolio Securities. In order to generate additional income, each Fund
may lend portfolio securities in an amount up to 331|M/3% of total Fund assets
to broker-dealers, major banks, or other recognized domestic institutional
borrowers of securities. As with other extensions of credit, there are risks of
delay in recovery or even loss of rights in the collateral should the borrower
default or fail financially.
Borrowing. Each Fund 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.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
More Information About Risks 23
<PAGE>
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.
Percentage and Rating Limitations. Unless otherwise stated, the percentage
limitations in this prospectus apply at the time of investment.
24 More Information About Risks
<PAGE>
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 accountant, along with the Fund's financial statements,
is included in the Fund's annual report, which is available upon request.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
25
<PAGE>
Financial
ING PILGRIM RESEARCH ENHANCED INDEX FUND Highlights
--------------------------------------------------------------------------------
For the year ended October 31, 2000, the information in the table below has been
audited by KPMG LLP, independent auditors. For all other periods, the financial
information was audited by other independent auditors.
<TABLE>
<CAPTION>
Class I(1)
Year ended October 31,
-------------------------
2000 1999
------ ------
<S> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 10.00
Net investment income $ 0.06
Net realized and unrealized gain on investments $ 1.11
Total from investment operations $ 1.17
Net asset value at the end of the period $ 11.17
Total investment return(2) % 11.70
Ratios and supplemental data:
Net assets at the end of the period ($000s) $ 27,927
Ratio of net expenses to average net assets after reimbursement % 0.98 (3)
Ratio of expenses to average net assets prior to expense reimbursement % 1.23 (3)
Ratio of net investment income to average net assets % 0.62 (3)
Portfolio turnover rate % 26
</TABLE>
----------
(1) Class I commenced operations on December 30, 1998.
(2) Assumes dividends have been reinvested.
(3) Annualized.
26 ING Pilgrim Research Enhanced Index Fund
<PAGE>
Financial
Highlights ING PILGRIM GROWTH OPPORTUNITIES FUND
--------------------------------------------------------------------------------
For the period ended December 31, 2000, the information in the table below has
been audited by KPMG LLP, independent auditors. For all periods ending prior to
December 31, 2000, the financial information was audited by other independent
auditors.
<TABLE>
<CAPTION>
Class I
Year ended December 31,
-------------------------------------------------
2000 1999 1998 1997(1)
------ ------ ------ ---------
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 26.28 21.36 17.90
Net investment income (loss) $ (0.17) (0.05) 0.01
Net realized and unrealized gain on investments $ 20.49 5.18 4.30
Total from investment operations $ 20.32 5.13 4.31
Dividends from net realized gain $ (12.84) (0.21) (0.85)
Total distributions $ (12.84) (0.21) (0.85)
Net asset value at the end of the period $ 33.76 26.28 21.36
Total investment return(2) % 93.86 24.06 24.29
Ratios and supplemental data:
Net assets at the end of the period ($000s) $ 132,953 83,233 113,529
Ratio of expenses to average net assets after reinbursement % 1.00 1.00 1.02 (3)
Ratio of expenses to average net assets prior to expense reimbursement % 1.00 1.00 1.02 (3)
Ratio of net investment income (loss) to average net assets % (0.61) (0.13) 0.08 (3)
Portfolio turnover rate % 286 98 32
</TABLE>
----------
(1) Class I commenced operations on March 31, 1997.
(2) Assumes dividends have been reinvested.
(3) Annualized
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim Growth Opportunities Fund 27
<PAGE>
Financial
ING PILGRIM MIDCAP OPPORTUNITIES FUND Highlights
--------------------------------------------------------------------------------
For the year ended December 31, 2000, the information in the table below was
audited by KPMG LLP, independent auditors. For all periods ending prior to
December 31, 2000, the financial information was audited by other independent
auditors.
<TABLE>
<CAPTION>
Class I
Year ended December 31,
----------------------------------
2000 1999 1998(1)
------ ------ --------
<S> <C> <C> <C> <C>
Operating performance
Net asset value at the beginning of the period $ 12.99 10.00
Net investment loss $ (0.15) (0.02)
Net realized and unrealized gain on investments $ 12.09 3.01
Total from investment operations $ 11.94 2.99
Distributions from net realized gain $ (3.59) --
Net asset value at the end of the period $ 21.34 12.99
Total investment return(2): % 103.19 29.90
Ratios and supplemental data
Net assets at the end of the period ($000s) $ 67,954 33,441
Ratio of net expenses to average net assets after reimbursement % 1.41 1.50 (3)
Ratio of expenses to average net assets prior to expense reimbursement: % 1.41 2.01 (3)
Ratio of net investment loss to average net assets: % (1.04) (0.70)(3)
Portfolio turnover rate % 201 61
</TABLE>
----------
(1) Class I commenced operations on August 20, 1998.
(2) Assumes dividends have been reinvested.
(3) Annualized.
28 ING Pilgrim MidCap Opportunities Fund
<PAGE>
Financial
Highlights ING PILGRIM SMALLCAP OPPORTUNITIES FUND
--------------------------------------------------------------------------------
For the period ended December 31, 2000, the information in table below has been
audited by KPMG LLP, independent auditors. For all periods ending prior to
December 31, 2000, the financial information was audited by other independent
auditors.
<TABLE>
<CAPTION>
Class I
Year ended December 31,
-----------------------
2000 1999(1)
------ ---------
<S> <C> <C> <C>
Operating performance:
Net asset value at the beginning of the period $ 31.78
Net investment loss $ (0.08)
Net realized and unrealized gain on investments $ 35.40
Total from investment operations $ 35.32
Distributions from net realized gain $ (7.56)
Net asset value at the end of the period $ 59.54
Total investment return(2) % 126.05
Ratios and supplemental data:
Net assets at the end of the period ($000s) $ --
Ratio of expenses to average net assets after reimbursement % 0.47 (3)
Ratio of expenses to average net assets prior to expense reimbursement % 0.47 (3)
Ratio of net investment loss to average net assets % (0.35) (3)
Portfolio turnover rate % 223
</TABLE>
----------
(1) Class I commenced operations on April 1, 1999.
(2) Assumes dividends have been reinvested.
(3) Annualized.
[GRAPHIC] If you have any questions, please call 1-800-992-0180.
ING Pilgrim SmallCap Opportunities Fund 29
<PAGE>
Financial
ING MONEY MARKET FUND Highlights
--------------------------------------------------------------------------------
The information in the table below has been audited by Ernst & Young LLP,
independent auditors.
<TABLE>
<CAPTION>
Class I (1)
Year ended October 31,
---------------------
2000 1999
------ ------
<S> <C> <C> <C>
Operating performance:
Net asset value per share, beginning of period $ 1.00
From investment operations:
Net investment income(2) $ 0.00*
Net realized and unrealized gain $ --
Total from investment operations $ 0.00*
Distributions paid from investment income $ (0.00)*
Ratios and supplemental data:
Net assets value per share, end of period $ 1.00
Net assets, end of period (in thousands) $ 1,906
Total investment return at net asset value (3)(4) % 0.28
Ratio to average net assets(5):
Net expenses % 0.31
Gross expenses % 0.59
Net investment income % 5.29
</TABLE>
----------
(1) Class I commenced offering on October 13, 1999.
(2) Per share amount is based on average number of shares outstanding during
the period.
(3) Total return assumes reinvestment of all dividends and capital gain
distributions, if any. Total returns would be lower if the Fund's expenses
were not waived or reimbursed.
(4) Not annualized.
(5) Annualized.
* Amount represents less than $0.01.
30 ING Money Market Fund
<PAGE>
WHERE TO GO FOR MORE INFORMATION
You'll find more information about the ING 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 ING Pilgrim Funds. The SAI
is legally part of this prospectus (it is incorporated by reference). A copy has
been filed with the Securities and Exchange Commission (SEC).
Please write or call for a free copy of the current Annual/Semi-Annual reports,
the SAI or other Fund information, or to make shareholder inquiries:
THE ING PILGRIM FUNDS
7337 East Doubletree Ranch Road
Scottsdale, AZ 85258-2034
1-800-992-0180
Or visit our website at www.pilgrimfunds.com
This information may also be reviewed or obtained from the SEC. In order to
review the information in person, you will need to visit the SEC's Public
Reference Room in Washington, D.C. or call 202-942-8090. Otherwise, you may
obtain the information for a fee by contacting the SEC at:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-0102
or at the e-mail address: [email protected]
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:
ING Pilgrim Growth Opportunities Fund 811-4431
ING Pilgrim Equity Trust 811-8817
ING Pilgrim Mayflower Trust 811-7978
ING Pilgrim SmallCap Opportunities Fund 811-4434
ING Funds Trust 811-8895
IPROSxxxxxx-xxxxxx
<PAGE>
GRAPHICS DESCRIPTION APPENDIX
The cover of the prospectuses has an image of the earth set behind the type
similar to a watermark that crosses over on both the front and back cover pages.
There are four icon sized graphics used throughout the prospectus as follows:
1. In the sections describing the Objective of the Funds, the graphic icon is
that of a dart in the bullseye of a target.
2. In the sections describing the Investment Strategy of the Funds, the
graphic icon is that of a compass pointing due north.
3. In the sections describing the Risks of the Funds, the graphic icon is that
of an old fashioned scale tilting heavy on the left side.
4. In the sections describing the Performance history of the Funds, the
graphic icon is that of a stack of US currency bills.
5. On the bottom footer of every odd numbered page (right hand page), the
graphic icon is that of a telephone by the 800 number of the fund to call
for information.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258
(800) 992-0180
March 1, 2001
ING PILGRIM ADVISORY FUNDS, INC.
ING Pilgrim Asia-Pacific Equity Fund
ING Pilgrim MidCap Value Fund
ING Pilgrim LargeCap Leaders Fund
ING PILGRIM INVESTMENT FUNDS, INC.
ING Pilgrim MagnaCap Fund
ING Pilgrim High Yield Fund
ING PILGRIM BANK AND THRIFT FUND, INC.
ING Pilgrim Bank and Thrift Fund
ING PILGRIM GOVERNMENT SECURITIES INCOME FUND, INC.
ING Pilgrim Government Securities Income Fund
ING PILGRIM MUTUAL FUNDS
ING Pilgrim International Core Growth Fund
ING Pilgrim Worldwide Growth Fund
ING Pilgrim International SmallCap Growth Fund
ING Pilgrim Emerging Countries Fund
ING Pilgrim LargeCap Growth Fund
ING Pilgrim MidCap Growth Fund
ING Pilgrim SmallCap Growth Fund
ING Pilgrim Convertible Fund
ING Pilgrim Balanced Fund
ING Pilgrim High Yield Fund II
ING Pilgrim Strategic Income Fund
Pilgrim Money Market Fund
ING PILGRIM SMALLCAP OPPORTUNITIES FUND
ING Pilgrim SmallCap Opportunities Fund
ING PILGRIM GROWTH OPPORTUNITIES FUND
ING Pilgrim Growth Opportunities Fund
ING PILGRIM EQUITY TRUST
ING Pilgrim MidCap Opportunities Fund
ING PILGRIM MAYFLOWER TRUST
ING Pilgrim Emerging Markets Value Fund
ING Pilgrim Growth + Value Fund
ING Pilgrim High Total Return Fund
ING Pilgrim High Total Return Fund II
ING Pilgrim International Value Fund
ING Pilgrim Research Enhanced Index Fund
<PAGE>
TABLE OF CONTENTS
ORGANIZATION OF THE REGISTRANTS............................................. 1
MANAGEMENT OF THE FUNDS..................................................... 5
INVESTMENT MANAGER FEES..................................................... 13
EXPENSE LIMITATION AGREEMENTS............................................... 25
RULE 12b-1 PLANS............................................................ 28
SUPPLEMENTAL DESCRIPTION OF INVESTMENTS..................................... 36
INVESTMENT RESTRICTIONS..................................................... 79
PORTFOLIO TRANSACTIONS...................................................... 97
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.............................. 101
DETERMINATION OF SHARE PRICE................................................ 107
SHAREHOLDER INFORMATION..................................................... 108
SHAREHOLDER SERVICES AND PRIVILEGES......................................... 109
DISTRIBUTIONS............................................................... 111
TAX CONSIDERATIONS.......................................................... 112
CALCULATION OF PERFORMANCE DATA............................................. 118
GENERAL INFORMATION......................................................... 125
FINANCIAL STATEMENTS........................................................ 127
i
<PAGE>
This Statement of Additional Information ("SAI") relates to each series
(each a "Fund" and collectively the "Funds") of each Registrant (each a
"Company") listed above. Prospectuses for the Funds, dated March 1, 2001, which
provide the basic information you should know before investing in the Funds, may
be obtained without charge from the Funds or the Funds' Principal Underwriter,
ING Pilgrim Securities, Inc. ("ING Pilgrim Securities" or the "Distributor"), at
the address listed above. This Statement of Additional Information is not a
prospectus and it should be read in conjunction with the Prospectuses, dated
March 1, 2001, which have been filed with the Securities and Exchange Commission
("SEC"). In addition, the financial statements from the Funds' Annual Report
dated December 31, 2000 (SmallCap Opportunities Fund, Growth Opportunities Fund,
and Equity Trust), the Annual Report dated October 31, 2000 (Mayflower Trust)
and the Annual Report dated June 30, 2000 (Advisory Funds, Inc., Investment
Funds, Bank and Thrift Fund, Government Securities Income Fund, and ING Pilgrim
Mutual Funds) are incorporated herein by reference. Copies of the Funds'
Prospectuses and Annual or Semi-Annual Reports may be obtained without charge by
contacting ING Pilgrim Funds at the address and phone number written above.
ii
<PAGE>
ORGANIZATION OF THE REGISTRANTS
ING PILGRIM ADVISORY FUNDS
ING Pilgrim Advisory Funds, Inc. ("Advisory Funds") is a Maryland
corporation registered as an open-end, diversified management investment
company. Advisory Funds was organized in April 1985. The Company currently
consists of three separate diversified investment funds: ING Pilgrim
Asia-Pacific Equity Fund ("Asia-Pacific Equity Fund"), ING Pilgrim MidCap Value
Fund ("MidCap Value Fund") and ING Pilgrim LargeCap Leaders Fund ("LargeCap
Leaders Fund"), each with its own investment objective and policies.
On November 16, 1998, the name of Pilgrim Advisory Funds, Inc. was changed
from "Pilgrim America Masters Series, Inc.," and the names of the Funds were
changed from "Pilgrim America Masters Asia-Pacific Equity Fund," "Pilgrim
America Masters MidCap Value Fund," and "Pilgrim America Masters LargeCap Value
Fund" to "Pilgrim Asia-Pacific Equity Fund," "Pilgrim MidCap Value Fund," and
"Pilgrim LargeCap Leaders Fund."
On __________________, the name of ING Pilgrim Advisory Funds, Inc. was
changed from "Pilgrim Advisory Funds, Inc." and the names of the Funds were
changed from Pilgrim Asia-Pacific Equity Fund, Pilgrim MidCap Value Fund and
Pilgrim LargeCap Leaders Fund to "ING Pilgrim Asia-Pacific Equity Fund," "ING
Pilgrim MidCap Value Fund," and "ING Pilgrim LargeCap Leaders Fund."
The Directors have approved an Agreement and Plan of Reorganization for
MidCap Value Fund that, if approved by shareholders of MidCap Value Fund, will
result in the reorganization of Pilgrim MidCap Value Fund into the Pilgrim
MagnaCap Fund series of Pilgrim Investment Funds, Inc. It is expected that
shareholder approval of the Agreement and Plan of Reorganization will be sought
in the near future.
ING PILGRIM INVESTMENT FUNDS
ING Pilgrim Investment Funds, Inc. ("Investment Funds") is a Maryland
corporation registered as an open-end, diversified management investment
company. Investment Funds was organized in July 1969. The Company currently
consists of two separate diversified investment funds: ING Pilgrim MagnaCap Fund
("MagnaCap Fund") and ING Pilgrim High Yield Fund ("High Yield Fund").
On August 18, 1989, shareholders of the High Yield Fund approved a proposal
to reorganize the High Yield Fund from a New York common law trust to a series
of Pilgrim High Yield Trust, a Massachusetts business trust. Effective January
18, 1990, Pilgrim High Yield Trust changed its name to Pilgrim Strategic
Investment Series ("PSIS") and the High Yield Fund became a series of PSIS.
Subsequently, on April 4, 1995, shareholders approved a proposal to reorganize
High Yield Fund from a series of PSIS to a series of the Company, a Maryland
corporation, in connection with the sale by the former Pilgrim Management
Corporation of its name and its books and records related to the Fund to a
subsidiary of Pilgrim America Capital Corporation (formerly Express America
Holdings Corporation). This reorganization, while having no ramifications with
respect to the investment objectives, policies, or restrictions of the High
Yield Fund, did result in a change of manager and distributor.
1
<PAGE>
On July 14, 1995, Investments Funds' name was changed from "Pilgrim
Investment Funds, Inc." to "Pilgrim America Investment Funds, Inc.," MagnaCap
Fund's name was changed from "Pilgrim MagnaCap Fund" to "Pilgrim America
MagnaCap Fund," and High Yield Fund's name was changed from "Pilgrim High Yield
Fund" to "Pilgrim America High Yield Fund." On November 16, 1998, the name of
the Investments Funds became "Pilgrim Investment Funds, Inc.," the name of
MagnaCap Fund became "Pilgrim MagnaCap Fund," and the name of High Yield Fund
became "Pilgrim High Yield Fund." On __________________, the name of Investment
Funds was changed from "Pilgrim Investment Funds, Inc." to "ING Pilgrim
Investment Funds, Inc." On _______________, the name of MagnaCap Fund was
changed from "Pilgrim MagnaCap Fund," to "ING Pilgrim MagnaCap Fund" and High
Yield Fund was changed from "Pilgrim High Yield Fund" to "ING Pilgrim High Yield
Fund."
ING PILGRIM MUTUAL FUNDS
ING Pilgrim Mutual Funds is a Delaware business trust registered as an
open-end, diversified management investment company. The Trust was organized in
1992. Prior to a reorganization of the Trust, which became effective on July 24,
1998 (the "Reorganization"), the Trust offered shares in a number of separate
diversified portfolios, each of which invested all of its assets in a
corresponding master fund of Nicholas-Applegate Investment Trust (the "Master
Trust"). The Reorganization eliminated this two-tiered "master-feeder"
structure.
On March 15, 1999, the name of the Trust was changed from
"Nicholas-Applegate Mutual Funds," and the name of each Fund (except the Money
Market Fund, which is a new fund) was changed as follows:
<TABLE>
<CAPTION>
OLD NAME NEW NAME
-------- --------
<S> <C>
Nicholas-Applegate International Core Growth Fund Pilgrim International Core Growth Fund
Nicholas-Applegate Worldwide Growth Fund Pilgrim Worldwide Growth Fund
Nicholas-Applegate International Small Cap Growth Fund Pilgrim International SmallCap Growth Fund
Nicholas-Applegate Emerging Countries Fund Pilgrim Emerging Countries Fund
Nicholas-Applegate Large Cap Growth Fund Pilgrim Large Cap Growth Fund
Nicholas-Applegate Mid Cap Growth Fund Pilgrim MidCap Growth Fund
Nicholas-Applegate Small Cap Growth Fund Pilgrim SmallCap Growth Fund
Nicholas-Applegate Convertible Fund Pilgrim Convertible Fund
Nicholas-Applegate Balanced Growth Fund Pilgrim Balanced Fund
Nicholas-Applegate High Yield Bond Fund Pilgrim High Yield Fund II
Nicholas-Applegate High Quality Bond Fund Pilgrim High Quality Bond Fund
</TABLE>
On May 24, 1999, the names of the following Funds were changed as follows:
<TABLE>
<CAPTION>
OLD NAME NEW NAME
-------- --------
<S> <C>
Pilgrim International Small Cap Growth Fund Pilgrim International SmallCap Growth Fund
Pilgrim Large Cap Growth Fund Pilgrim LargeCap Growth Fund
Pilgrim Mid Cap Growth Fund Pilgrim MidCap Growth Fund
Pilgrim Small Cap Growth Fund Pilgrim SmallCap Growth Fund
Pilgrim High Quality Bond Fund Pilgrim Strategic Income Fund
</TABLE>
2
<PAGE>
On ______________, the name of the Trust was changed to ING Pilgrim Mutual
Funds. The names of each of the following Funds were changed as follows:
<TABLE>
<CAPTION>
OLD NAME NEW NAME
-------- --------
<S> <C>
Pilgrim International Core Growth Fund ING Pilgrim International Core Growth Fund
Pilgrim Worldwide Growth Fund ING Pilgrim Worldwide Growth Fund
Pilgrim International SmallCap Growth Fund ING Pilgrim International SmallCap Growth Fund
Pilgrim Emerging Countries Fund ING Pilgrim Emerging Countries Fund
Pilgrim Large Cap Growth Fund ING Pilgrim Large Cap Growth Fund
Pilgrim MidCap Growth Fund ING Pilgrim MidCap Growth Fund
Pilgrim SmallCap Growth Fund ING Pilgrim SmallCap Growth Fund
Pilgrim Convertible Fund ING Pilgrim Convertible Fund
Pilgrim Balanced Fund ING Pilgrim Balanced Fund
Pilgrim High Yield Fund II ING Pilgrim High Yield Fund II
Pilgrim High Quality Bond Fund ING Pilgrim High Quality Bond Fund
Pilgrim International SmallCap Growth Fund ING Pilgrim International SmallCap Growth Fund
Pilgrim LargeCap Growth Fund ING Pilgrim LargeCap Growth Fund
Pilgrim MidCap Growth Fund ING Pilgrim MidCap Growth Fund
Pilgrim SmallCap Growth Fund ING Pilgrim SmallCap Growth Fund
Pilgrim Strategic Income Fund ING Pilgrim Strategic Income Fund
</TABLE>
ING PILGRIM BANK AND THRIFT FUND
ING Pilgrim Bank and Thrift Fund, Inc. ("Bank and Thrift Fund") is a
Maryland corporation registered as an open-end, diversified management
investment company. The Bank and Thrift Fund was organized in November 1985 and
changed its name from "Pilgrim Regional BankShares, Inc." to "Pilgrim America
Bank and Thrift Fund, Inc." in April, 1996. The Fund operated as a closed-end
fund prior to October 17, 1997. On October 16, 1997, shareholders approved
open-ending the Fund, and since October 17, 1997, the Fund has operated as an
open-end fund. On November 16, 1998, the name of the Fund became "Pilgrim Bank
and Thrift Fund." On __________________, the name of Pilgrim Bank and Thrift,
Inc. was changed from "Pilgrim Bank and Thrift, Inc." to "ING Pilgrim Bank and
Thrift, Inc."
ING PILGRIM GOVERNMENT SECURITIES INCOME FUND
ING Pilgrim Government Securities Income Fund, Inc. ("Government Securities
Income Fund") is a California corporation registered as an open-end, diversified
management investment company. The Government Securities Income Fund was
organized in May 1984.
ING PILGRIM SMALLCAP OPPORTUNITIES FUND
ING Pilgrim SmallCap Opportunities Fund ("SmallCap Opportunities Fund") is
a Massachusetts business trust registered as an open-end, diversified management
investment company. SmallCap Opportunities Fund was organized in 1986. On
November 1, 1999, the name of SmallCap Opportunities Fund was changed from
"Northstar Special Fund" (formerly Advantage Special Fund). On
__________________, the name of the Fund became "ING Pilgrim SmallCap
Opportunities Fund. "
3
<PAGE>
ING PILGRIM GROWTH OPPORTUNITIES FUND
ING Pilgrim Growth Opportunities Fund ("Growth Opportunities Fund") is a
Massachusetts business trust registered as an open-end, diversified management
investment company. Growth Opportunities Fund was organized in 1986. On November
1, 1999, the name of Growth Opportunities Fund was changed from "Northstar
Growth Fund" (formerly Advantage Growth Fund). On __________________, the name
of the Fund became "ING Pilgrim Growth Opportunities Fund."
ING PILGRIM EQUITY TRUST
ING Pilgrim Equity Trust ("Equity Trust") is a Massachusetts business trust
registered as an open-end, diversified management investment company. Equity
Trust was organized in June of 1998. The Company currently consists of one
separate diversified investment fund, Pilgrim MidCap Opportunities Fund ("MidCap
Opportunities Fund"). On November 1, 1999, the name of Equity Trust was changed
from the "Northstar Equity Trust", and MidCap Opportunities Fund was changed
from "Northstar Mid-Cap Growth Fund." On __________________, the name of the
Equity Trust became "ING Pilgrim Equity Trust."
ING PILGRIM MAYFLOWER TRUST
ING Pilgrim Mayflower Trust ("Mayflower Trust") is a Massachusetts business
trust registered as an open-end, management investment company. The Mayflower
Trust and one of its series, ING Pilgrim High Total Return Fund ("High Total
Return Fund"), were organized in 1993. ING Pilgrim Growth + Value Fund ("Growth
+ Value Fund") and ING Pilgrim High Total Return Fund II ("High Total Return
Fund II") were organized in 1996. ING Pilgrim International Value Fund
("International Value Fund") commenced operations on March 6, 1995 as the
Brandes International Fund, a series of Brandes Investment Trust. It was
reorganized on April 21, 1997 as the International Value Fund, a series of
Mayflower Trust. ING Pilgrim Emerging Markets Value Fund ("Emerging Markets
Value Fund") and ING Pilgrim Research Enhanced Index Fund ("Research Enhanced
Index Fund"), each a series of Mayflower Trust, were organized in 1998.
On November 1, 1999, the name of Mayflower Trust was changed from
"Northstar Trust" (formerly Northstar Advantage Trust). On the same date, the
following funds changed their names as follows:
OLD NAME NEW NAME
-------- --------
Northstar Emerging Markets Value Fund Pilgrim Emerging Markets Value Fund
Northstar Growth + Value Fund Pilgrim Growth + Value Fund
Northstar High Total Return Fund
(formerly Northstar Advantage
High Total Return Fund) Pilgrim High Total Return Fund
Northstar High Total Return Fund II Pilgrim High Total Return Fund II
Northstar International Value Fund Pilgrim International Value Fund
Northstar Research Enhanced Index Fund Pilgrim Research Enhanced Index Fund
On ______________, the name of ING Pilgrim Mayflower Trust was changed from
"Pilgrim Mayflower Trust" and the names of each of the following Funds were
changed as follows:
OLD NAME NEW NAME
-------- --------
Pilgrim Emerging Markets Value Fund ING Pilgrim Emerging Markets Value Fund
Pilgrim Growth + Value Fund ING Pilgrim Growth + Value Fund
Pilgrim High Total Return Fund ING Pilgrim High Total Return Fund
Pilgrim High Total Return Fund II ING Pilgrim High Total Return Fund II
Pilgrim International Value Fund ING Pilgrim International Value Fund
Pilgrim Research Enhanced Index Fund ING Pilgrim Research Enhanced Index Fund
4
<PAGE>
The Trustees have approved an Agreement and Plan of Reorganization for the
High Total Return and High Total Return II Funds that, if approved by
shareholders of those Funds, will result in the reorganization of those Funds
into the High Yield Fund II. It is expected that shareholder approval of the
Agreement and Plan of Reorganization will be sought in the near future.
The Trustees have also approved an Agreement and Plan of Reorganization for
the Emerging Markets Value Fund that, if approved by the shareholders of
Emerging Markets Value Fund, will result in the reorganization of the Fund into
Emerging Countries Fund. It is expected that shareholder approval of the
Agreement and Plan of Reorganization will be sought in the near future.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS/TRUSTEES
Each Company is managed by its Directors/Trustees ("Board of Directors" and
"Board of Trustees" are used interchangeably in this SAI). The
Directors/Trustees and officers of the Companies are listed below. An asterisk
(*) has been placed next to the name of each Director/Trustee who is an
"interested person," as that term is defined in the 1940 Act, by virtue of that
person's affiliation with the Companies, or the Companies' Investment Manager
("ING Pilgrim Investments" or the "Investment Manager"). Unless otherwise noted,
the mailing address of the Directors/Trustees and officers is 7337 E. Doubletree
Ranch Road, Scottsdale, Arizona 85258.
The Board of Directors/Trustees governs each Fund and is responsible for
protecting the interests of shareholders. The Directors/Trustees are experienced
executives who oversee the Funds' activities, review contractual arrangements
with companies that provide services to each Fund, and review each Fund's
performance.
Set forth below is information regarding the Directors/Trustees of the
Funds. (Ms. Baldwin is not a Director/Trustee of the Pilgrim Funds, but rather
serves as a member of its Advisory Board.)
Mary A. Baldwin, Ph.D. (Age 61) Advisory Board Member. Realtor, Coldwell
Banker Success Realty (formerly, The Prudential Arizona Realty) for more
than the last five years. Ms. Baldwin is also Vice President, United States
Olympic Committee (November 1996 - Present), and formerly Treasurer, United
States Olympic Committee (November 1992 - November 1996). Ms. Baldwin is
also a Director, Trustee, or a member of the Advisory Board of each of the
Funds managed by the Investment Manager.
Al Burton. (Age 72) Director. President of Al Burton Productions for more
than the last five years; formerly Vice President, First Run Syndication,
Castle Rock Entertainment (July 1992 - November 1994). Mr. Burton is also a
Director, Trustee, or a member of the Advisory Board of each of the Funds
managed by the Investment Manager.
Paul S. Doherty. (Age 66) Director. President, of Doherty, Wallace,
Pillsbury and Murphy, P.C., Attorneys. Mr. Doherty was formerly a Director
of Tambrands, Inc. (1993 - 1998). Mr. Doherty is also a Director and/or
Trustee of each of the Funds managed by the Investment Manager.
Robert B. Goode. (Age 70) Director. Currently retired. Mr. Goode was
formerly Chairman of American Direct Business Insurance Agency, Inc. (1996
- 2000), Chairman of The First Reinsurance Company of Hartford (1990-1991)
and President and Director of American Skandis Life Assurance Company
(1987-1989). Mr. Goode is also a Director and/or Trustee of each of the
Funds managed by the Investment Manager.
5
<PAGE>
Alan L. Gosule. (Age 59) Director. Partner, Rogers & Wells (since 1991).
Mr. Gosule is a Director of F.L. Putnam Investment Management Co., Inc,
Simpson Housing Limited Partnership, Home Properties of New York, Inc.,
CORE Cap, Inc. and Colonnade Partners. Mr. Gosule is also a Director and/or
Trustee of each of the Funds managed by the Investment Manager.
Walter H. May. (Age 63) Director. Retired. Mr. May was formerly Managing
Director and Director of Marketing for Piper Jaffray, Inc. Mr. May is also
a Director and/or Trustee of each of the Funds managed by the Investment
Manager.
Jock Patton. (Age 54) Director. Private Investor. Director of Hypercom
Corporation (since January 1999), and JDA Software Group, Inc. (since
January 1999). Mr. Patton is also a Director of Buick of Scottsdale, Inc.,
National Airlines, Inc., BG Associates, Inc. , BK Entertainment, Inc.,
Arizona Rotorcraft, Inc. and Director and Chief Executive Officer of
Rainbow Multimedia Group, Inc. Mr. Patton was formerly Director of Stuart
Entertainment, Inc., Director of Artisoft, Inc. (August 1994 - July 1998);
President and co-owner of StockVal, Inc. (April 1993 - June 1997) and a
Partner and Director of the law firm of Streich, Lang, P.A. (1972 - 1993).
Mr. Patton is also a Director, Trustee, or a member of the Advisory Board
of each of the Funds managed by the Investment Manager.
David W.C. Putnam. (Age 61) Director. President and Director of F.L. Putnam
Securities Company, Inc. and affiliates. Mr. Putnam is Director of Anchor
Investment Trusts, the Principled Equity Market Trust, and Progressive
Capital Accumulation Trust. Mr. Putnam was formerly Director of Trust
Realty Corp. and Bow Ridge Mining Co. Mr. Putnam is also a Director and/or
Trustee of each of the Funds managed by the Investment Manager.
John R. Smith. (Age 77) Director. President of New England Fiduciary
Company (since 1991). Mr. Smith is Chairman of Massachusetts Educational
Financing Authority (since 1987), Vice Chairman of Massachusetts Health and
Education Authority (since 1979), Vice-Chairman of MHI, Inc. (Massachusetts
non-profit Energy Purchasers Consortium) (since 1996), and formerly
Financial Vice President of Boston College (1970-1991). Mr. Smith is also a
Director and/or Trustee of each of the Funds managed by the Investment
Manager.
Robert W. Stallings. (Age 51) Director. Chief Executive Officer and
President. Chairman, Chief Executive Officer and President of Pilgrim
Group, Inc. ("Pilgrim Group") (since December 1994); Chairman (since
December 1994), President and Chief Investment Officer (since August 2000)
Pilgrim Investments, Inc.; Chairman, Pilgrim Securities, Inc. ("Pilgrim
Securities") (since December 1994); President and Chief Executive Officer
of Pilgrim Funding, Inc. (since November 1999); and Chairman, President and
Chief Executive Officer of Pilgrim Capital Corporation (since August 1991).
Mr. Stallings is also a Director, Trustee, or a member of the Advisory
Board of each of the Funds managed by the Investment Manager.
*John G. Turner. (Age 61) Chairman. Chairman and Chief Executive Officer of
ReliaStar Financial Corp. and ReliaStar Life Insurance Co. (since 1993);
Chairman of ReliaStar United Services Life Insurance Company and ReliaStar
Life Insurance Company of New York (since 1995); Chairman of Northern Life
Insurance Company (since 1992); Chairman and Director/Trustee of the
Northstar affiliated investment companies (since October 1993). Mr. Turner
was formerly Director of Northstar Investment Management Corporation and
affiliates (1993-1999); President of ReliaStar Financial Corp. and
ReliaStar Life Insurance Co. (1989-1991) and President and Chief Operating
Officer of ReliaStar Life Insurance Company (1986-1991). Mr. Turner is also
Chairman of each of the Funds managed by the Investment Manager.
6
<PAGE>
David W. Wallace. (Age 76) Director. Chairman of FECO Engineered Systems,
Inc. Mr. Wallace is President and Director/Trustee of the Robert R. Young
Foundation, Governor of the New York Hospital, Trustee of Greenwit Hospital
and Director of UMC Electronics and Zurn Industries, Inc. Mr. Wallace was
formerly Chairman of Lone Star Industries, Putnam Trust Company, Chairman
of Todd Shipyards, Bangor Punta Corporation, and National Securities &
Research Corporation. Mr. Wallace is also a Director and/or Trustee of each
of the Funds managed by the Investment Manager.
Each Fund pays each Director who is not an interested person a pro rata
share, as described below, of (i) an annual retainer of $35,000, (Mssrs. Patton
and May, as lead directors, receive an annual retainer of $45,000); (ii) $5,500
per quarterly Board meeting; (iii) $1,000 per committee meeting; (iv) $1,000 per
special or telephonic meeting; and (v) out-of-pocket expenses. The pro rata
share paid by each Fund is based on the Funds' average net assets as a
percentage of the average net assets of all the funds managed by the Investment
Manager for which the Directors/Trustees serve in common as Directors/Trustees
(and, in the case of Mary A. Baldwin, Funds for which she serves as a member of
the Advisory Board).
COMPENSATION OF DIRECTORS/TRUSTEES
The following tables set forth information regarding compensation of
Directors/Trustees by each Company and other funds managed by the Investment
Manager for the year ended December 31, 2000. Officers of the Companies and
Directors/Trustees who are interested persons of the Companies do not receive
any compensation from the Fund or any other funds managed by the Investment
Manager. In the column headed "Total Compensation From Registrant and Fund
Complex Paid to Directors/Trustees," the number in parentheses indicates the
total number of boards in the fund complex on which the Director/Trustees served
during that fiscal year.
7
<PAGE>
COMPENSATION TABLE *#
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE AGGREGATE
COMPENSATION COMPENSATION COMPENSATION AGGREGATE AGGREGATE AGGREGATE
FROM FROM FROM COMPENSATION COMPENSATION COMPENSATION
PILGRIM SMALLCAP GROWTH FROM FROM FROM
NAME OF MUTUAL OPPORTUNITIES OPPORTUNITIES EQUITY MAYFLOWER ADVISORY
PERSON, POSITION FUNDS(1)(2) FUND(2) FUND(2) TRUST(2) TRUST(2) FUNDS
---------------- ----------- ------- ------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
MARY A. BALDWIN(3)(4)
ADVISORY BOARD
MEMBER
AL BURTON(3)(5)
DIRECTOR
PAUL S. DOHERTY (3)(5)
DIRECTOR
ROBERT B. GOODE, JR.(3)(5)
DIRECTOR
ALAN S. GOSULE (3)(5)
DIRECTOR
MARK L. LIPSON (3)(6)(7)
DIRECTOR
WALTER H. MAY (3)(5)
JOCK PATTON (3)(5)
DIRECTOR
DAVID W.C. PUTNAM (3)(5)
DIRECTOR
JOHN R. SMITH (3)(5)
DIRECTOR
ROBERT W. STALLINGS (3)(5)(7)
JOHN G. TURNER (3)(5)(7)
DIRECTOR
DAVID W. WALLACE (3)(5)
TOTAL
AGGREGATE PENSION OR COMPENSATION
AGGREGATE COMPENSATION RETIREMENT FROM
AGGREGATE COMPENSATION FROM BENEFITS ESTIMATED REGISTRANT
COMPENSATION FROM GOVERNMENT ACCRUED ANNUAL AND FUND
FROM BANK AND SECURITIES AS PART BENEFITS COMPLEX
NAME OF INVESTMENT THRIFT INCOME OF FUND UPON PAID TO
PERSON, POSITION FUNDS FUND FUND EXPENSES RETIREMENT DIRECTORS
---------------- ----- ---- ---- -------- ---------- ---------
MARY A. BALDWIN(3)(4)
ADVISORY BOARD
MEMBER
AL BURTON(3)(5)
DIRECTOR
PAUL S. DOHERTY (3)(5)
DIRECTOR
ROBERT B. GOODE, JR.(3)(5)
DIRECTOR
ALAN S. GOSULE (3)(5)
DIRECTOR
MARK L. LIPSON (3)(6)(7)
DIRECTOR
WALTER H. MAY (3)(5)
JOCK PATTON (3)(5)
DIRECTOR
DAVID W.C. PUTNAM (3)(5)
DIRECTOR
JOHN R. SMITH (3)(5)
DIRECTOR
ROBERT W. STALLINGS (3)(5)(7)
JOHN G. TURNER (3)(5)(7)
DIRECTOR
DAVID W. WALLACE (3)(5)
</TABLE>
8
<PAGE>
* Officers and Trustees who are interested persons do not receive any
compensation from the Funds.
# The fiscal year end for all Funds which invest primarily in international
securities is October 31. The fiscal year end of the remaining Funds
currently are March 31 or May 31.
(1) Prior to May 24, 1999, the Trust was part of a different Fund complex.
Effective May 24, 1999, when Pilgrim Investments, Inc. became the
investment adviser to the Funds, the Trust joined the Pilgrim family of
funds.
(2) Prior to November 1, 1999, the Fund was part of a different Fund complex.
Effective November 1, 1999, the Trust joined the Pilgrim family of funds.
(3) Also serves as a member of the Board of Trustees, or is an Advisory Board
Member, of the Pilgrim Prime Rate Trust.
(4) Elected a Trustee or non-voting advisory board member of SmallCap
Opportunities Fund, Growth Opportunities Fund, Equity Trust and Mayflower
Trust on November 16, 1999.
(5) Elected a Director/Trustee of the Pilgrim Funds on September 1, 2000.
(6) Resigned as a Director/Trustee effective July 26, 2000.
(7) "Interested person," as defined in the Investment Company Act of 1940, of
the Company because of the affiliation with the Investment Manager.
OFFICERS
Unless otherwise noted, the mailing address of the officers is 7337 E.
Doubletree Ranch Road, Scottsdale, Arizona 85258. The following individuals
serve as officers for each Fund:
James M. Hennessy, Senior Executive Vice President, Chief Operating Officer
and Secretary. (Age 51) Senior Executive Vice President and Chief Operating
Officer (since June 2000) and Secretary (since April 1995), Pilgrim Capital
(formerly Express America Holdings Corporation), Pilgrim Group, Pilgrim
Securities and Pilgrim Investments; Senior Executive Vice President and
Secretary of each of the other Pilgrim Funds. Formerly Executive Vice
President , Pilgrim Capital Corporation and its affiliates (May 1998 - June
2000) and Senior Vice President, Pilgrim Capital and its affiliates (April
1995 - April 1998).
9
<PAGE>
Stanley D. Vyner, Executive Vice President and Chief Investment Officer -
Fixed Income and International Equities. (Age 50) Executive Vice President
of most of the other Pilgrim Funds (since July 1996). Formerly President
and Chief Executive Officer (August 1996 - August 2000), Pilgrim
Investments; Chief Executive Officer (November 1993 - December 1995) HSBC
Asset Management (Americas), Inc.
Mary Lisanti, Executive Vice President and Chief Investment Officer -
Domestic Equities. (Age 44) Executive Vice President of most of the Pilgrim
Funds (since May 1998). Formerly Portfolio Manager, Strong Capital
Management; Managing Director and Head of Small- and Mid-Capitalization
Equity Strategies at Bankers Trust Corp. (1993 - 1996).
Michael J. Roland, Senior Vice President and Principal Financial Officer.
(Age 42) Senior Vice President and Chief Financial Officer, Pilgrim Group,
Pilgrim Investments and Pilgrim Securities (since June 1998); Senior Vice
President and Principal Financial Officer of each of the other Pilgrim
Funds. He served in same capacity from January, 1995 - April, 1997.
Formerly, Chief Financial Officer of Endeaver Group (April 1997 to June
1998).
Robert S. Naka, Senior Vice President and Assistant Secretary. (Age 37)
Senior Vice President, Pilgrim Investments (since November 1999) and
Pilgrim Group, Inc. (since August 1999). Senior Vice President and
Assistant Secretary of each of the other Pilgrim Funds. Formerly Vice
President, Pilgrim Investments (April 1997 - October 1999), Pilgrim Group,
Inc. (February 1997 - August 1999). Formerly Assistant Vice President,
Pilgrim Group, Inc. (August 1995 - February 1997). Formerly Operations
Manager, Pilgrim Group, Inc. (April 1992 - April 1995).
Robyn L. Ichilov, Vice President and Treasurer. (Age 33) Vice President,
Pilgrim Investments (since August 1997), Accounting Manager (since November
1995). Vice President and Treasurer of most of the other Pilgrim Funds.
Formerly Assistant Vice President and Accounting Supervisor for PaineWebber
(June 1993 - April 1995).
In addition to the above listed officers, the following individuals also
serve as officers for the indicated Fund:
ADVISORY FUNDS
G. David Underwood, Senior Vice President and Senior Portfolio Manager.
(Age 51) Senior Vice President, Pilgrim Investments (since January 2000).
Formerly Vice President, Pilgrim Investments (December 1996 - December
2000); Director of Funds Management, First Interstate Capital Management
(January 1995 - November 1996); Vice President, Director of Research and
Manager of Investment Products, Integra Trust Company (1993 - January
1995).
INVESTMENT FUNDS
Howard N. Kornblue, Senior Vice President and Senior Portfolio Manager .
(Age 58) Senior Vice President, Pilgrim Investments (since August 1995).
Formerly Senior Vice President, Pilgrim Group, Inc. (November 1986 - April
1995).
Edwin Schriver, Senior Vice President and Senior Portfolio Manager. (Age
55) Senior Vice President, Pilgrim Investments (since November 1999.)
Formerly, Senior High Yield Analyst for Dreyfus Corporation (from April
1998 to November 1999); President of Cresent City Research 9from July 1993
to April 1998).
10
<PAGE>
ING PILGRIM MUTUAL FUNDS
G. David Underwood, Senior Vice President and Senior Portfolio Manager.
(Age 51) Senior Vice President, Pilgrim Investments (since January 2000).
Formerly Vice President, Pilgrim Investments (December 1996 - December
2000); Director of Funds Management, First Interstate Capital Management
(January 1995 - November 1996); Vice President, Director of Research and
Manager of Investment Products, Integra Trust Company (1993 - January
1995).
Edwin Schriver, Senior Vice President and Senior Portfolio Manager. (Age
55) Senior Vice President, Pilgrim Investments (since November 1999.)
Formerly, Senior High Yield Analyst for Dreyfus Corporation (from April
1998 to November 1999); President of Cresent City Research 9from July 1993
to April 1998).
Robert K. Kinsey, Vice President and Portfolio Manager . (Age 42) Vice
President, Pilgrim Investments (since March 1999). Formerly Vice President
and Fixed Income Sub-Adviser, Federated Investors (January 1995 - March
1999); Principal and Sub-Adviser, Harris Investment Management (July 1992 -
January 1995).
BANK AND THRIFT FUND
Carl Dorf, Senior Vice President and Senior Portfolio Manager . (Age 60)
Senior Vice President (since February 1997), Pilgrim Investments, Inc.
Formerly Vice President, Pilgrim Investments, Inc. (August 1995 - February
1997). Formerly Vice President, Pilgrim Bank and Thrift Fund, Inc. (January
1996 - May 1997). Formerly Vice President, Pilgrim Management Corporation
(January 1991 - April 1995).
GOVERNMENT SECURITIES INCOME FUND
Robert K. Kinsey, Vice President and Senior Portfolio Manager . (Age 42)
Vice President, Pilgrim Investments (since March 1999). Formerly Vice
President and Fixed Income Sub-Adviser, Federated Investors (January 1995 -
March 1999); Principal and Sub-Adviser, Harris Investment Management (July
1992 - January 1995).
MAYFLOWER TRUST
Mary Lisanti, Executive Vice President and Senior Portfolio Manager . (Age
44) Executive Vice President and Chief Investment Adviser-Equities, Pilgrim
Investments (since November 1999). Formerly Sub-Adviser, Strong Capital
Management (September 1996 - May 1998); Managing Director and Sub-Adviser,
Banker Trust Corporation (March 1993 - August 1996).
Edwin Schriver, Senior Vice President and Senior Portfolio Manager. (Age
55) Senior Vice President, Pilgrim Investments (since November 1999.)
Formerly, Senior High Yield Analyst for Dreyfus Corporation (from April
1998 to November 1999); President of Cresent City Research 9from July 1993
to April 1998).
EQUITY TRUST
Mary Lisanti, Executive Vice President and Senior Portfolio Manager . (Age
44) Executive Vice President and Chief Investment Adviser-Equities, Pilgrim
Investments (since November 1999). Formerly Sub-Adviser, Strong Capital
Management (September 1996 - May 1998); Managing Director and Sub-Adviser,
Banker Trust Corporation (March 1993 - August 1996).
11
<PAGE>
SMALLCAP OPPORTUNITIES FUND
Mary Lisanti, Executive Vice President and Senior Portfolio Manager . (Age
44) Executive Vice President and Chief Investment Adviser-Equities, Pilgrim
Investments (since November 1999). Formerly Sub-Adviser, Strong Capital
Management (September 1996 - May 1998); Managing Director and Sub-Adviser,
Banker Trust Corporation (March 1993 - August 1996).
GROWTH OPPORTUNITIES FUND
Mary Lisanti, Executive Vice President and Senior Portfolio Manager . (Age
44) Executive Vice President and Chief Investment Adviser-Equities, Pilgrim
Investments (since November 1999). Formerly Sub-Adviser, Strong Capital
Management (September 1996 - May 1998); Managing Director and Sub-Adviser,
Banker Trust Corporation (March 1993 - August 1996).
PRINCIPAL SHAREHOLDERS
As of _________________, 2001, the Directors/Trustees and officers as a
group owned less than 1% of any class of each Fund's outstanding shares. As of
that date, to the knowledge of management, no person owned beneficially or of
record more than 5% of the outstanding shares of any class of the Funds, except
as follows:
CLASS AND TYPE PERCENTAGE OF PERCENTAGE OF
FUND ADDRESS OF OWNERSHIP CLASS FUND
---- ------- ------------ ----- ----
INVESTMENT MANAGERS
The Investment Manager for the Funds is ING Pilgrim Investments, Inc. ("ING
Pilgrim Investments" or the "Investment Manager"). Prior to April 30, 2000,
Pilgrim Advisors, Inc. ("Pilgrim Advisors," formerly Northstar Investment
Management Corporation) served as investment adviser to certain of the Funds. On
April 30, 2000, Pilgrim Advisors, an indirect wholly-owned subsidiary of
ReliaStar, merged with ING Pilgrim Investments. Pilgrim Advisors and ING Pilgrim
Investments were sister companies and shared certain resources and investment
personnel.
On September 1, 2000, ReliaStar Financial Corp., the indirect parent
company of ING Pilgrim Investments, Inc., Advisor to the Funds, and ING Pilgrim
Securities, Inc., Distributor to the Funds, was acquired by 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.
The Investment Manager, subject to the authority of the Directors/Trustees
of the Funds, serves as investment manager to the Funds and has overall
responsibility for the management of each Funds' portfolio, subject to
delegation of certain responsibilities to Navellier Fund Management, Inc. as the
Sub-Adviser for the Growth + Value Fund, Brandes Investment Partners, L.P. as
the Sub-Adviser for the International Value Fund and the Emerging Markets Value
Fund, Nicholas-Applegate Capital Management as the Sub-Adviser for the
International SmallCap Growth Fund, and J.P. Morgan Investment Management Inc.
as the Sub-Adviser for the Research Enhanced Index Fund. The Investment Manager
serves pursuant to separate Investment Management Agreements between the
Investment Manager and each Company on behalf of the Funds. The Investment
Management Agreements require the Investment Manager to oversee the provision of
all investment advisory and portfolio management services for the Funds. The
Investment Manager oversees the investment management of the Sub-Advisers for
the Funds which are managed by a Sub-Adviser.
12
<PAGE>
ING Pilgrim Investments, Inc. is registered as an investment adviser with
the SEC and serves as an investment adviser to registered investment companies
(or series thereof), as well as privately managed accounts. As of December 31,
2000, Investment Manager had assets under management of approximately ______
billion. ING Pilgrim Investments, Inc. is a wholly-owned indirect subsidiary of
ING Group.
Each Investment Management Agreement requires the Investment Manager to
provide, subject to the supervision of the Board of Directors/Trustees,
investment advice and investment services to the Fund and to furnish advice and
recommendations with respect to investment of the Fund's assets and the purchase
or sale of its portfolio securities. The Investment Manager also provides
investment research and analysis. Each Investment Management Agreement provides
that the Investment Manager is not subject to liability to the Fund for any act
or omission in the course of, or connected with, rendering services under the
Agreement, except by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties under the Agreement.
After an initial two year term, each Investment Management Agreement
continues in effect from year to year so long as such continuance is
specifically approved at least annually by (a) the Board of Directors/Trustees
or (b) the vote of a "majority" (as defined in the 1940 Act) of the Fund's
outstanding shares voting as a single class; provided, that in either event the
continuance is also approved by at least a majority of the Board of
Directors/Trustees who are not "interested persons" (as defined in the 1940 Act)
of the Investment Manager by vote cast in person at a meeting called for the
purpose of voting on such approval.
Each Investment Management Agreement is terminable without penalty with not
less than 60 days' notice by the Board of Directors/Trustees or by a vote of the
holders of a majority of the Fund's outstanding shares voting as a single class,
or upon not less than 60 days' notice by the Investment Manager. The Investment
Management Agreement will terminate automatically in the event of its
"assignment" (as defined in the 1940 Act).
INVESTMENT MANAGER FEES
The Investment Manager bears the expense of providing its services, and
pays the fees of the Sub-Adviser (if any). For its services, each Fund pays the
Investment Manager a monthly fee in arrears equal to the following as a
percentage of the Fund's average daily net assets during the month:
13
<PAGE>
<TABLE>
<CAPTION>
SERIES ANNUAL INVESTMENT MANAGEMENT FEE
------ --------------------------------
<S> <C>
SmallCap Growth Fund 1.00% of the Fund's average net assets
MidCap Growth Fund 0.75% of the first $500 million of the Fund's average net
assets, 0.675% of the next $500 million of average net
assets, and 0.65% of the average net assets in excess of $1
billion
LargeCap Growth Fund 0.75% of the first $500 million of the Fund's average net
assets, 0.675% of the next $500 million of average net
assets, and 0.65% of the average net assets in excess of $1
billion
High Yield Fund II 0.60% of the Fund's average net assets
Convertible Fund 0.75% of the first $500 million of the Fund's average net
assets, 0.675% of the next $500 million of average net
assets, and 0.65% of the average net assets in excess of $1
billion
Balanced Fund 0.75% of the first $500 million of the Fund's average net
assets, 0.675% of the next $500 million of average net
assets, and 0.65% of the average net assets in excess of $1
billion
Strategic Income Fund 0.45% of the first $500 million of the Fund's average net
assets, 0.40% of the next $250 million of average net
assets, and 0.35% of the average net assets in excess of
$750 million
Emerging Countries Fund 1.25% of the Fund's average net assets
Worldwide Growth Fund 1.00% of the first $500 million of the Fund's average net
assets, 0.90% of the next $500 million of average net
assets, and 0.85% of the average net assets in excess of $1
billion
International SmallCap 1.00% of the first $500 million of the Fund's average net
Growth Fund assets, 0.90% of the next $500 million of average net
assets, and 0.85% of the average net assets in excess of $1
billion
International Core 1.00% of the first $500 million of the Fund's average net
Growth Fund assets, 0.90% of the next $500 million of average net
assets, and 0.85% of the average net assets in excess of $1
billion
Money Market Fund* 0.50% of average net assets if the Fund has not invested
substantially all of its assets in another investment
company, If the Fund invests substantially all of its assets
in another investment company, the Adviser does not charge
an advisory fee.
MidCap Value Fund 0.85% of the Fund's average daily net assets
LargeCap Leaders Fund 0.85% of the Fund's average daily net assets
</TABLE>
----------
* The Money Market Fund will also pay advisory fees to Reserve Management
Company, Inc., the investment adviser of Primary Institutional Fund, a
series of Reserve Institutional Trust, the investment company in which the
Money Market Fund invests substantially all of its assets.
17
<PAGE>
<TABLE>
<CAPTION>
SERIES ANNUAL INVESTMENT MANAGEMENT FEE
------ --------------------------------
<S> <C>
Asia-Pacific Equity Fund 1/12 of 1.25% of the Fund's average daily net assets during
the month (approximately 1.25% on an annual basis)
MagnaCap Fund 1.00% of the Fund's average daily net assets on the first
$30 million of net assets. The annual rate is reduced to
0.75% on net assets from $30 million to $250 million; to
0.625% on net assets from $250 million to $500 million; and
to 0.50% on net assets over $500 million
High Yield Fund 0.60% of the Fund's average daily net asset value. Prior to
April 17, 1998, the Investment Management fee was an annual
fee at a rate of 0.75% on the first $25 million in net
assets, 0.625% on net assets over $25 million up to $100
million, 0.50% on net assets over $100 million up to $500
million, and 0.40% for net assets over $500 million
Bank and Thrift Fund 1.00% of the first $30 million of average daily net assets,
0.75% of the next $95 million of average daily net assets
and 0.70% of average daily net assets in excess of $125
million. The fees are computed and accrued daily and paid
monthly
Government Securities 0.50% of the Fund's average daily net assets on the first
Income Fund $500 million of net assets. The annual rate is reduced to
0.45% on net assets from $500 million to $1 billion, and to
0.40% on net assets in excess of $1 billion
SmallCap Opportunities Fund 1.00% of the Fund's average daily net assets
MidCap Opportunities Fund 1.00% of the Fund's average daily net assets
Growth Opportunities Fund 0.95% of the Fund's average daily net assets
Growth + Value Fund 1.00% of the Fund's average daily net assets
International Value Fund 1.00% of the Fund's average daily net assets
Emerging Markets Value Fund 1.00% of the Fund's average daily net assets
Research Enhanced Index Fund 0.70% of the Fund's average daily net assets
High Total Return Fund II 0.60% of the Fund's average daily net assets
High Total Return Fund 0.60% on the first $1 billion of aggregate average daily net
assets of each Fund. The annual rate is reduced to 0.55% for
any amount in excess of $1 billion on the remaining
aggregate daily net assets
</TABLE>
SUB-ADVISORY AGREEMENTS
The Investment Management Agreement for certain Funds provides that the
Investment Manager, with the approval of the Company's Board of
Directors/Trustees, may select and employ investment advisers to serve as
Sub-Adviser for any Fund ("Sub-Adviser"), and shall monitor the Sub-Advisers'
investment programs and results, and coordinate the investment activities of the
Sub-Advisers to ensure compliance with regulatory restrictions. The Investment
Manager pays all of its expenses arising from the performance of its obligations
under the Investment Management Agreement, including all fees payable to the
Sub-Advisers, executive salaries and expenses of the Directors/Trustees and
18
<PAGE>
officers of the Company who are employees of the Investment Manager or its
affiliates and office rent of the Company. The Sub-Advisers pay all of their
expenses arising from the performance of their obligations under the
sub-advisory agreements (the "Sub-Advisory Agreements").
Subject to the expense reimbursement provisions described in this Statement
of Additional Information, other expenses incurred in the operation of the
Company are borne by the Funds, including, without limitation, investment
advisory fees; brokerage commissions; interest; legal fees and expenses of
attorneys; fees of independent auditors, transfer agents and dividend disbursing
agents, accounting agents, and custodians; the expense of obtaining quotations
for calculating each Fund's net asset value; taxes, if any, and the preparation
of each Fund's tax returns; cost of stock certificates and any other expenses
(including clerical expenses) of issue, sale, repurchase or redemption of
shares; fees and expenses of registering and maintaining the registration of
shares of the Funds under federal and state laws and regulations; expenses of
printing and distributing reports, notices and proxy materials to existing
shareholders; expenses of printing and filing reports and other documents filed
with governmental agencies; expenses of annual and special shareholder meetings;
expenses of printing and distributing prospectuses and statements of additional
information to existing shareholders; fees and expenses of Directors/Trustees of
the Company who are not employees of the Investment Manager or any Sub-Adviser,
or their affiliates; membership dues in trade associations; insurance premiums;
and extraordinary expenses such as litigation expenses.
The Sub-Advisory Agreements may be terminated without payment of any
penalties by the Investment Manager, the Directors/Trustees, on behalf of a
Company, or the shareholders of such Fund upon 60 days' prior written notice.
Otherwise, the Sub-Advisory Agreements will remain in effect for two years and
will, thereafter, continue in effect from year to year, subject to the annual
approval of the appropriate Board of Directors/Trustees, on behalf of a Fund, or
the vote of a majority of the outstanding voting securities, and the vote, cast
in person at a meeting duly called and held, of a majority of the
Directors/Trustees, on behalf of a Fund who are not parties to the Sub-Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of any such
Party.
Pursuant to a Sub-Advisory Agreement between ING Pilgrim Investments and
Navellier Fund Management, Inc. ("Navellier"), Navellier acts as Sub-Adviser to
the Growth + Value Fund. In this capacity, Navellier, subject to the supervision
and control of ING Pilgrim Investments and the Trustees of such Fund, manages
the Fund's portfolio investments, consistently with its investment objective,
and executes any of the Fund's investment policies that it deems appropriate to
utilize from time to time. Fees payable under the Sub-Advisory Agreement accrue
daily and are paid monthly by ING Pilgrim Investments. Navellier is wholly owned
and controlled by its sole stockholder, Louis G. Navellier. Navellier's address
is 1 East Liberty, Third Floor, Reno, Nevada, 89501.
Pursuant to Sub-Advisory Agreements between ING Pilgrim Investments and
Brandes Investment Partners, L.P. ("Brandes"), Brandes acts as Sub-Adviser to
the International Value Fund and the Emerging Markets Value Fund, respectively.
In this capacity, Brandes, subject to the supervision and control of ING Pilgrim
Investments and the Trustees of the Funds, manages each Fund's portfolio
investments, consistently with each Fund's investment objective, and executes
any of the Fund's investment policies that it deems appropriate to utilize from
time to time. Fees payable under the Sub-Advisory Agreements accrue daily and
are paid monthly by ING Pilgrim Investments. Brandes' address is 12750 High
Bluff Drive, San Diego, California 92130. Charles Brandes, who controls the
general partner of Brandes, serves as one of the Managing Directors of Brandes.
Pursuant to a Sub-Advisory Agreement between ING Pilgrim Investments and
J.P. Morgan Investment Management Inc., ("J.P. Morgan"), J.P. Morgan acts as
Sub-Adviser to the Research Enhanced Index Fund. In this capacity, J.P. Morgan,
subject to the supervision and control of ING Pilgrim Investments and the
Trustees of the Fund, on behalf of the Fund, manages the Fund's portfolio
investments, consistently with the Fund's investment objective, and executes any
of the Fund's investment policies that it deems appropriate to utilize from time
to time. Fees payable under the Sub-Advisory Agreement accrue daily and are paid
monthly by ING Pilgrim Investments. J.P. Morgan's address is 522 Fifth Avenue,
New York, New York 10036.
19
<PAGE>
Pursuant to a Sub-Advisory Agreement between ING Pilgrim Investments and
Nicholas-Applegate Capital Management ("NACM"), dated October 29, 1999, NACM
acts as Sub-Adviser to the International SmallCap Growth Fund. In this capacity,
NACM, subject to the supervision and control of ING Pilgrim Investments and the
Trustees of the Funds, manages the Fund's portfolio investments, consistently
with the Fund's investment objective, and executes any of the Fund's investment
policies that it deems appropriate to utilize from time to time. NACM's address
is 600 West Broadway, 30th Floor, San Diego, California 92101. Its general
partner is Nicholas-Applegate Capital Management Holdings, L.P., a California
limited partnership, the general partner of which is Nicholas-Applegate Capital
Management Holdings, Inc., a California corporation owned by Arthur Nicholas.
Former Sub-Adviser for LargeCap Growth Fund, Convertible Fund, Emerging
Countries Fund, Worldwide Growth Fund, International Core Growth Fund, SmallCap
Growth Fund and MidCap Growth Fund. Nicholas-Applegate Capital Management
("NACM") served as Sub-Adviser to LargeCap Growth Fund, Convertible Fund,
Emerging Countries Fund, Worldwide Growth Fund and International Core Growth
Fund through September 30, 2000. NACM served as Sub-Adviser to SmallCap Growth
Fund and MidCap Growth Fund through March 31, 2000. Prior to May 24, 1999, NACM
was the investment adviser of the Funds, and neither the Funds nor NACM paid
portfolio management fees.
Former Sub-Adviser for Asia-Pacific Equity Fund. Prior to January 2, 2001, HSBC
Asset Management (Americas) Inc., HSBC Asset Management (Hong Kong) Limited and
HSBC Asset Management (Europe) Limited (collectively "HSBC"), HSBC acted as
Sub-Adviser to the Asia-Pacific Equity Fund. HSBC is part of HSBC Asset
Management, the global investment advisory and fund management business of the
HSBC Group. Effective January 2, 2001, ING Pilgrim will directly manage these
Funds under its existing Investment Management Agreement.
As compensation to each Sub-Adviser for its services, the Investment
Manager pays the Sub-Adviser a monthly fee in arrears equal to the following as
a percentage of a Fund's average daily net assets managed during the month:
SERIES ANNUAL SUB-ADVISORY FEE
------ -----------------------
International SmallCap 0.50% of the first $500 million of the Fund's
Growth Fund average net assets, 0.45% of the next $500
million of average net assets, and 0.425% of the
average net assets in excess of $1 billion
Growth + Value Fund 0.50% of the Fund's average daily net assets
International Value Fund 0.50% of the Fund's average daily net assets
Emerging Markets Fund 0.50% of the Fund's average daily net assets
Research Enhanced Index Fund 0.20% of the Fund's average daily net assets
20
<PAGE>
Former Sub-Adviser for LargeCap Leaders Fund. Ark Asset Management Co., Inc.
(Ark) served as Sub-Adviser to the LargeCap Leaders Fund from September 1, 1995
through October 31, 1997. For the fiscal year ended June 30, 1997, the
Investment Manager paid portfolio management fees to Ark of $60,843. For the
period from July 1, 1997 through October 31, 1997, the Sub-Adviser paid
portfolio management fees to Ark of $48,365.
Former Sub-Adviser for MidCap Value Fund. Cramer Rosenthal McGlynn, LLC (CRM) or
its predecessor served as Sub-Adviser to the MidCap Value Fund through September
30, 1999. For the fiscal years ended June 30, 1999, 1998 and 1997, the
Investment Manager paid portfolio management fees to CRM of $343,208, $339,347,
and $193,080, respectively.
Former Sub-Adviser for SmallCap Opportunities Fund. Navellier Fund Management,
Inc. ("Navellier") served as Sub-Adviser to SmallCap Opportunities Fund through
July, 1998. For the fiscal years ended December 31, 1997 and 1998, the
Investment Manager paid portfolio management fees to Navellier of $1,498,283 and
$789,408, respectively.
Former Sub-Adviser for Asia-Pacific Equity Fund. HSBC Asset Management
(Americas) Inc., HSBC Asset Management (Hong Kong) Limited and HSBC Asset
Management (Europe) Limited (collectively "HSBC"), HSBC acted as Sub-Adviser to
the Asia-Pacific Equity Fund through January 1, 2000. For the fiscal years ended
June 30, 1998, 1999 and 2000, the Investment Manager paid portfolio management
fees to HSBC of $221,487, $307,103, and $166,558 respectively. For the period
from July 1, 2000 through October 31, 2000, the Adviser paid portfolio
management fees to HSBC of $____.
Former Sub-Adviser for LargeCap Growth Fund, Convertible Fund, Emerging
Countries Fund, Worldwide Growth Fund and International Core Growth Fund.
Nicholas-Applegate Capital Management ("NACM") served as Sub-Adviser to LargeCap
Growth Fund, Convertible Fund, Emerging Countries Fund, Worldwide Growth Fund
and International Core Growth Fund through September 30, 2000. For the fiscal
year ended June 30, 1999, the Investment Manager paid portfolio management fees
to NACM of __________, and for the three-month period ended September 30, 1999
paid portfolio management fees of __________.
Former Sub-Adviser for SmallCap Growth Fund and MidCap Growth Fund.
Nicholas-Applegate Capital Management ("NACM") served as Sub-Adviser to SmallCap
Growth Fund and MidCap Growth Fund through March 31, 2000. For the fiscal year
ended March 31, 2000, the Investment Manager paid portfolio management fees to
NACM of __________.
Investment Adviser of the Primary Fund. The Money Market Fund invests
substantially all of its assets in the Primary Fund. The Primary Fund is managed
by Reserve Management Company, Inc. Reserve Management Company, Inc. currently
manages assets in excess of $5 billion and has over 27 years of investment
experience. The Investment Management Agreement for the Primary Fund provides
that Reserve Investment Management Company, Inc. shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a fund in
connection with the matters to which the Agreement relates, except a loss
resulting from the willful misfeasance, bad faith or gross negligence on the
part of Reserve Management Company, Inc. or from reckless disregard by it of its
duties and obligations thereunder. Reserve Management Company, Inc. may make
such advertising and promotional expenditures, using its own resources, as it
from time to time deems appropriate.
21
<PAGE>
ADMINISTRATION
ING Pilgrim Group, Inc. serves as Administrator for the Funds, pursuant to
an Administrative Services Agreement with Equity Trust, Mayflower Trust, ING
Pilgrim Mutual Funds, SmallCap Opportunities Fund and Growth Opportunities Fund.
Subject to the supervision of the Board of Trustees, the Administrator provides
the overall business management and administrative services necessary to the
proper conduct of the Funds' business, except for those services performed by
the Investment Manager under the Investment Advisory Agreements, the custodian
for the Funds under the Custodian Agreements, the transfer agent for the Funds
under the Transfer Agency Agreements, and such other service providers as may be
retained by the Funds from time to time. The Administrator acts as liaison among
these service providers to the Funds. The Administrator is also responsible for
ensuring that the Funds operate in compliance with applicable legal requirements
and for monitoring the Investment Manager for compliance with requirements under
applicable law and with the investment policies and restrictions of the Funds.
The Administrator is an affiliate of the Investment Manager.
Prior to May 24, 1999, ING Pilgrim Mutual Funds had an Administration
Agreement with Investment Company Administration ("ICA"), 4455 East Camelback
Road, Suite 261-E, Phoenix, Arizona 85018. Pursuant to an Administration
Agreement with ING Pilgrim Mutual Funds, ICA was responsible for performing all
administrative services required for the daily business operations of ING
Pilgrim Mutual Funds, subject to the supervision of the Board of Trustees of ING
Pilgrim Mutual Funds. For the fiscal years ended March 31, 1999 and 1998, ICA
received aggregate compensation of $1,059,155 and $848,799, respectively, for
all of the series of the ING Pilgrim Mutual Funds.
Also, prior to May 24, 1999, ING Pilgrim Mutual Funds had an Administrative
Services Agreement with NACM under which NACM was responsible for providing all
administrative services which are not provided by ICA or by ING Pilgrim Mutual
Funds' Distributor, transfer agents, accounting agents, independent accountants
and legal counsel. For the fiscal years ended March 31, 1999 and 1998, NACM
received aggregate compensation of $1,603,130 and $1,972,037, respectively, for
all of the series of the ING Pilgrim Mutual Funds pursuant to the Administrative
Services Agreement.
The amounts of the advisory and administrative fees paid by each Fund for
the fiscal years ended June 30, 2000, 1999, and 1998 were:
TOTAL ADVISORY AND ADMINISTRATIVE FEES PAID TO THE FUNDS WHICH COMPRISE THE
BANK AND THRIFT FUND, ADVISORY FUNDS, INVESTMENT FUNDS, ING
PILGRIM MUTUAL FUNDS,(1) AND THE GOVERNMENT SECURITIES INCOME FUND
<TABLE>
<CAPTION>
JUNE 30 JUNE 30 MARCH 31 MARCH 31
-------------------- ---------------- ---------------------- -------------------
2000 2000 1999 1999 1999 1999 1998 1998
---- ---- ---- ---- ---- ---- ---- ----
ADVISORY ADMIN. ADVISORY ADMIN. ADVISORY ADVISORY ADMIN.
FEES FEES FEES FEES FEES ADMIN. FEES FEES FEES
---- ---- ---- ---- ---- ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
International Core Growth Fund (4) .. $ 698,942 N/A $253,063 N/A $1,061,288 $173,481 $ 308,562 $ 33,687
Worldwide Growth Fund(4) ............ 4,327,642 N/A 589,768 N/A 1,472,492 224,190 1,251,181 143,214
International SmallCap Growth Fund(4) 4,285,711 N/A 327,972 N/A 1,149,529 183,409 658,893 74,259
Emerging Countries Fund(4) ......... 2,773,339 N/A 716,000 N/A 3,476,180 384,714 2,790,216 353,322
LargeCap Growth Fund(4) ............. 2,997,541 N/A 115,161 N/A 178,627 95,257 32,530 2,326
MidCap Growth Fund(4) ............... 3,101,608 N/A 549,879 N/A 3,049,230 546,605 3,422,148 290,286
SmallCap Growth Fund(4) ............. 4,206,863 N/A 811,208 N/A 5,334,833 656,416 6,613,874 424,276
Convertible Fund(4) ................. 2,652,928 N/A 438,229 N/A 1,997,038 386,381 1,427,198 140,734
Balanced Fund(4) .................... 476,583 N/A 66,601 N/A 261,803 110,065 220,025 28,299
Strategic Income Fund(2) ............ 59,874 N/A 23,699 N/A 124,514 90,504 94,359 15,378
High Yield Fund II(4) ............... 634,448 N/A 132,246 N/A 466,926 113,645 36,505 5,938
Money Market Fund ................... N/A 80,974 N/A N/A N/A N/A N/A N/A
</TABLE>
22
<PAGE>
OCTOBER 31
------------------------
2000 2000
---- ----
ADVISORY
FEES ADMIN. FEES
--------- -------
International Core Growth Fund (5) ............. $ 308,562 $ 33,687
Worldwide Growth Fund(5) ....................... 1,251,181 143,214
International SmallCap Growth Fund(5) .......... 658,893 74,259
Emerging Countries Fund(5) ..................... 2,790,216 353,322
<TABLE>
<CAPTION>
OCTOBER 31, 2000 JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 1998
ADVISORY FEES ADVISORY FEES ADVISORY FEES ADVISORY FEES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
LargeCap Leaders Fund ....................... N/A $ 382,174 $ 300,494 $ 286,830
MidCap Value Fund ........................... N/A 396,010 670,780 678,816
Asia Pacific Equity Fund(5) ................. _______ 413,123 303,920 553,589
High Yield Fund ............................. N/A 2,204,503 2,176,246 977,868
Bank and Thrift Fund(3) ..................... N/A 3,609,716 5,893,806 2,446,063
MagnaCap Fund ............................... N/A 3,251,123 3,200,909 2,846,061
Government Securities Income Fund............ N/A 263,407 189,816 144,487
</TABLE>
----------
(1) Prior to the Reorganization, the ING Pilgrim Mutual Funds had not engaged
the services of an investment adviser for the Trust's A, B, C and
Institutional Portfolios because these portfolios invested all their assets
in master funds of the Master Trust. Consequently, the amounts of the
advisory fees reported below for the ING Pilgrim Mutual Funds were for
services provided to the master funds of the Master Trust.
(2) Includes the advisory fees, fee reductions and expense reimbursements of
the Government Income Fund, the assets and liabilities of which were
assigned to and assumed by the Strategic Income Fund.
(3) Prior to October 17, 1997, the investor manager was paid management fees
based on average weekly net assets. 1998 includes management fees for a
six-month period ended June 30, 1998.
(4) Reflects three month period from April 1, 1999 to June 30, 1999.
(5) Reflects four month period from July 1, 2000 to October 31, 2000. Effective
____________, 2000, the Funds changed their fiscal year end to October 31
from June 30.
TOTAL ADVISORY AND ADMINISTRATIVE FEES PAID BY THE FUNDS WHICH COMPRISE
MAYFLOWER TRUST DURING THE FISCAL YEAR ENDED OCTOBER 31
<TABLE>
<CAPTION>
2000 2000 1999 1999 1998 1998
ADVISORY ADMIN. ADVISORY ADMIN. ADVISORY ADMIN.
FEES FEES FEES FEES FEES FEES
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Growth + Value Fund $2,711,399 $358,875 $ 1,696,786 $169,679
International Value Fund (1) 7,164,823 931,067 3,501,309 486,422
Emerging Markets Value Fund 145,031 20,184 45,079 4,508
Research Enhanced Index Fund(2) 690,257 122,493 N/A N/A
High Total Return Fund II 1,877,964 308,071 1,470,229 196,031
High Total Return Fund 4,228,374 726,605 5,691,286 995,897
</TABLE>
----------
(1) Prior to April 21, 1997, the International Value Fund was managed by
Brandes Investment Partners L.P. The administrator for the Fund was the
Investment Company Administration Corporation.
(2) The Research Enhanced Index Fund commenced operations on December 30, 1998.
23
<PAGE>
TOTAL ADVISORY AND ADMINISTRATIVE FEES PAID TO THE FUNDS WHICH COMPRISE THE
EQUITY TRUST, SMALLCAP OPPORTUNITIES FUND AND GROWTH OPPORTUNITIES FUND
DURING FISCAL YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
2000 2000 1999 1999 1998 1998
ADVISORY ADMIN. ADVISORY ADMIN. ADVISORY ADMIN.
FEES FEES FEES FEES FEES FEES
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SmallCap Opportunities Fund ......... $1,915,854 $255,447 $2,033,840 $392,303
MidCap Opportunities Fund(1)(2)...... $ 483,746 $ 48,903 73,797 7,380
Growth Opportunities Fund(1) ........ $1,865,457 $248,728 1,541,921 239,970
</TABLE>
----------
(1) Does not reflect expense reimbursement of $37,687 for the MidCap
Opportunities Fund for the year ended December 31, 1998.
(2) The MidCap Opportunities Fund commenced operations on August 20, 1998.
DURING THE FISCAL YEARS ENDED OCTOBER 31, 2000, 1999, AND 1998, THE FUNDS
LISTED BELOW PAID THE FOLLOWING SUBADVISORY FEES:
TOTAL SUBADVISORY FEES PAID DURING FISCAL YEAR OCTOBER 31
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Growth + Value Fund ........................ $1,355,700 $ 998,812
International Value Fund ................... 3,582,411 1,750,654
Emerging Markets Value Fund (1) ............ 56,232 26,985
Research-Enhanced Index Fund ............... 199,666 N/A
</TABLE>
----------
(1) For the period December 1, 1998 through February 28, 1999, Brandes
Investment Partners, L.P. agreed to waive the subadvisory fee for Emerging
Markets Value Fund.
DURING THE FISCAL YEARS ENDED JUNE 30, 2000, 1999, AND 1998, THE INVESTMENT
MANAGER PAID SUB-ADVISORY FEES TO THE FOLLOWING:
TOTAL SUBADVISORY FEES PAID DURING FISCAL YEAR ENDED JUNE 30 AND
OCTOBER 31, WHERE APPROPRIATE
<TABLE>
<CAPTION>
OCTOBER 31 JUNE 30 JUNE 30 JUNE 30
2000 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Asia-Pacific Equity Fund(3) $ 166,558 $307,103 $221,487
International Core Growth Fund (1)(2)(3) 350,301 N/A N/A
Worldwide Growth Fund (1)(2)(3) 2,175,740 N/A N/A
International SmallCap Growth Fund (1)(2)(3) 2,137,981 N/A N/A
Emerging Countries Fund (1)(2)(3) 1,386,268 N/A N/A
LargeCap Growth Fund (1)(2) N/A 1,495,813 N/A N/A
MidCap Growth Fund (1)(2) N/A 1,085,388 N/A N/A
SmallCap Growth Fund (1)(2) N/A 1,520,438 N/A N/A
Convertible Fund (1)(2) N/A 1,324,939 N/A N/A
</TABLE>
----------
(1) Prior to May 24, 1999, the funds were managed by Nicholas-Applegate and had
no Sub-Advisor fees.
(2) Reflects three month period between April 1, 1999 to June 30, 1999.
(3) Reflects four month period between July 1, 2000 and October 31, 2000.
Effective ________, 2000, the Funds changed their fiscal year end to
October 31 from June 30.
24
<PAGE>
EXPENSE LIMITATION AGREEMENTS
The Investment Manager entered into expense limitation agreements with the
following Funds, pursuant to which the Investment Manager has agreed to waive or
limit its fees. In connection with these agreements and certain U.S. tax
requirements, the Investment Manager will assume other expenses so that the
total annual ordinary operating expenses of the Funds (which excludes interest,
taxes, brokerage commissions, extraordinary expenses such as litigation, other
expenses not incurred in the ordinary course of each Fund's business, and
expenses of any counsel or other persons or services retained by the Company's
Directors/Trustees who are not "interested persons" (as defined in the 1940 Act)
of the Investment Manager) do not exceed:
<TABLE>
<CAPTION>
FUND CLASS A CLASS B CLASS C CLASS M CLASS Q CLASS T
----- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific Equity Fund 2.00% 2.75% N/A 2.50% N/A N/A
SmallCap Growth Fund 1.95% 2.60% 2.60% N/A 1.50% N/A
MidCap Growth Fund 1.60% 2.25% 2.25% N/A 1.25% N/A
MidCap Value Fund 1.75% 2.50% 2.50% 2.25% 1.75% N/A
LargeCap Growth Fund 1.60% 2.25% 2.25% N/A 1.25% N/A
LargeCap Leaders Fund 1.75% 2.50% 2.50% 2.25% 1.75% N/A
Convertible Fund 1.60% 2.25% 2.25% N/A 1.25% N/A
Balanced Fund 1.60% 2.25% 2.25% N/A 1.25% 1.75%
Strategic Income Fund 0.95% 1.35% 1.35% N/A 0.85% N/A
High Yield Fund II 1.10% 1.75% 1.75% N/A 1.00% 1.40%
Emerging Countries Fund 2.25% 2.90% 2.90% N/A 1.90% N/A
Worldwide Growth Fund 1.85% 2.50% 2.50% N/A 1.60% N/A
International SmallCap Growth Fund 1.95% 2.60% 2.60% N/A 1.65% N/A
International Core Growth Fund 1.95% 2.60% 2.60% N/A 1.65% N/A
Money Market Fund 1.50% 2.25% 2.25% N/A N/A N/A
High Yield Fund 1.10% 1.85% 1.85% 1.60% 1.10% N/A
</TABLE>
Each Fund will at a later date reimburse the Investment Manager for
management fees waived and other expenses assumed by the Investment Manager
during the previous 36 months, but only if, after such reimbursement, the Fund's
expense ratio does not exceed the percentage described above. The Investment
Manager will only be reimbursed for fees waived or expenses assumed after the
effective date of the expense limitation agreements. Nicholas-Applegate Capital
Management will bear 50% of any fees waived and other expenses assumed pursuant
to the expense limitation agreement with respect to any Fund for which it serves
as sub-adviser, and will receive 50% of any recoupment amount with respect to
such Funds.
Each expense limitation agreement provides that these expense limitations
shall continue until October 31, 2001. Thereafter, the agreement will
automatically renew for one-year terms unless the Investment Manager provides
written notice of the termination of the agreement to the Fund at least 30 days
prior to the end of the then-current term. In addition, the agreement will
terminate upon termination of the Investment Management Agreement, or it may be
terminated by the Fund, without payment of any penalty, upon ninety (90) days'
prior written notice to the Investment Manager at its principal place of
business.
For Pilgrim Mutual Funds (other than the Money Market Fund which is a new
fund), prior to the expense limitation agreement described above, the Investment
Manager voluntarily agreed to waive all or a portion of its fee and to reimburse
operating expenses of the Funds, excluding distribution fees, interest, taxes,
brokerage and extraordinary expenses, up to 0.75%.
25
<PAGE>
The voluntary fee reductions are as follows:
<TABLE>
<CAPTION>
OCTOBER 31 JUNE 30 JUNE 30 MARCH 31
FUND 2000 (1) 2000 1999(2) 1999 1998
---- -------- ---- ------- ---- ----
<S> <C> <C> <C> <C>
SmallCap Growth Fund N/A $204,352 $29,487 $518,164 $675,970
MidCap Growth Fund N/A $ 10,354 1,010 301,613 591,684
LargeCap Growth Fund N/A $ 0 4,314 154,098 132,912
Convertible Fund N/A $ 0 0 318,025 339,803
Balanced Fund N/A $179,601 12,611 132,033 182,871
Strategic Income Fund N/A $208,068 31,139 232,922 419,604
High Yield Fund II N/A $218,609 54,363 318,323 111,479
Emerging Countries Fund $346,154 69,001 816,718 628,044
Worldwide Growth Fund $ 0 0 242,660 381,568
International SmallCap Growth Fund $ 0 3,405 168,199 389,240
International Core Growth Fund $212,567 11,093 253,811 204,723
</TABLE>
OCTOBER 31 JUNE 30
2000 (1) 2000 1999 1998
-------- ---- ---- ----
LargeCap Leaders Fund N/A $ 31,375 $ 76,094 $151,645
MidCap Value Fund N/A $ 48,900 21,944 21,934
Asia-Pacific Equity Fund ___ $145,502 249,734 355,259
High Yield Fund N/A $423,592 441,770 269,351
----------
(1) Reflects four month period from July 1, 2000 to October 31, 2000. Effective
________, 2000, the Funds changed their fiscal year end to October 31 from
June 30.
(2) Reflects three month period from April 1, 1999 to June 30, 1999.
The Investment Manager has entered into an expense limitation agreement
with the High Yield Fund, pursuant to which the Investment Manager has agreed to
waive or limit its fees and to assume other expenses so that the total annual
ordinary operating expenses of the Fund (which excludes interest, taxes,
brokerage commissions, extraordinary expenses such as litigation, other expenses
not incurred in the ordinary course of such Fund's business, and expenses of any
counsel or other persons or services retained by the Company's Directors who are
not "interested persons" (as defined in the 1940 Act) of the Investment Manager)
do not exceed the following ratios for the periods indicated:
<TABLE>
<CAPTION>
PERIOD LIMIT APPLIES CLASS A CLASS B CLASS C CLASS M CLASS Q
-------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Through 12/31/1999 1.00% 1.75% 1.75% 1.50% 1.00%
From 1/1/2000 through
termination of Agreement 1.10% 1.85% 1.85% 1.60% 1.10%
</TABLE>
The High Yield Fund will at a later date reimburse the Investment Manager
for management fees waived and other expenses assumed by the Investment Manager
during the previous 36 months, but only if, after such reimbursement, the Fund's
expense ratio does not exceed the percentage described above. The Investment
Manager will only be reimbursed for fees waived or expenses assumed after the
effective date of the expense limitation agreement.
26
<PAGE>
Prior to the expense limitation agreement described above, the Investment
Manager voluntarily agreed to waive all or a portion of its fee and to reimburse
operating expenses of the High Yield Fund, excluding distribution fees,
interest, taxes, brokerage and extraordinary expenses, to 0.75%.
Government Securities Income Fund. Pursuant to the terms of the Investment
Management Agreement of the Government Securities Income Fund, the Investment
Manager will reimburse the Fund to the extent that the gross operating costs and
expenses, excluding any interest, taxes, brokerage commissions, amortization of
organizational expenses, extraordinary expenses, and distribution (Rule 12b-1)
fees on Class B and Class M shares in excess of an annual rate of 0.25% of the
average daily net assets of these classes, exceed 1.50% of its average daily net
asset value for the first $40 million of net assets and 1.00% of average daily
net assets in excess of $40 million for any one fiscal year. This reimbursement
policy cannot be changed unless the agreement is amended, which would require
shareholder approval.
DISTRIBUTOR
Shares of each Fund are distributed by ING Pilgrim Securities, Inc. ("ING
Pilgrim Securities" or the "Distributor") pursuant to a Distribution Agreement
between each Company and the Distributor. Each Distribution Agreement requires
the Distributor to use its best efforts on a continuing basis to solicit
purchases of shares of the Funds. Each Company and the Distributor have agreed
to indemnify each other against certain liabilities. At the discretion of the
Distributor, all sales charges may at times be reallowed to an authorized dealer
("Authorized Dealer"). If 90% or more of the sales commission is reallowed, such
Authorized Dealer may be deemed to be an "underwriter" as that term is defined
under the Securities Act of 1933, as amended. Each Distribution Agreement will
remain in effect for two years and from year to year thereafter only if its
continuance is approved annually by a majority of the Board of
Directors/Trustees who are not parties to such agreement or "interested persons"
of any such party and must be approved either by votes of a majority of the
Directors/Trustees or a majority of the outstanding voting securities of the
Company. See the Prospectus for information on how to purchase and sell shares
of the Funds, and the charges and expenses associated with an investment. The
sales charge retained by the Distributor and the commissions reallowed to
selling dealers are not an expense of the Funds and have no effect on the net
asset value of the Funds. The Distributor, like the Investment Manager, is a
subsidiary of ReliaStar.
For the fiscal year ended June 30, 2000, the Distributor received the
following amounts in sales charges, after reallowance to Dealers in connection
with rates of shares of Bank and Thrift Fund, Advisory Funds, Investment Funds,
Mutual Funds, and Government Securities Income Fund: $1,608,367 with respect to
Class A shares; $0 with respect to Class B shares; $405,740 with respect to
Class C shares; and $11,385 with respect to Class M shares.
For the fiscal year ended October 31, 2000, the Distributor received the
following amounts in sales charges, after reallowance to Dealers, in connection
with sales of shares of Mayflower Trust: $_____ with respect to Class A shares;
$____ with respect to Class B shares; and $______ with respect to Class C
shares.
For the fiscal year ended December 31, 2000, the Distributor (or Advest)
received the following amounts in sales charges, after reallowance to Dealers in
connection with sales of shares of SmallCap Opportunities Fund, Equity Trust,
and Growth Opportunities Fund: $_______ with respect to Class A shares; $______
with respect to Class B shares; $_________ with respect to Class C shares; and
$________ with respect to Class T shares.
27
<PAGE>
RULE 12b-1 PLANS
Each Company has a distribution plan pursuant to Rule 12b-1 under the 1940
Act applicable to most classes of shares offered by each Fund ("Rule 12b-1
Plans"). The Funds intend to operate the Rule 12b-1 Plans in accordance with
their terms and the National Association of Securities Dealers, Inc. rules
concerning sales charges. Under the Rule 12b-1 Plans, the Distributor may be
entitled to payment each month in connection with the offering, sale, and
shareholder servicing of Class A, Class B, Class C, Class M, Class Q and Class T
shares in amounts as set forth in the following table. The Funds do not have a
12b-1 Plan with respect to the Institutional Class.
<TABLE>
<CAPTION>
FEES BASED ON AVERAGE DAILY NET ASSETS
-------------------------------------------------------------
NAME OF FUND CLASS A CLASS B CLASS C CLASS M CLASS Q CLASS T
------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific Equity Fund 0.25% 1.00% N/A 0.75% N/A N/A
MidCap Value Fund 0.25% 1.00% 1.00% 0.75% 0.25% N/A
LargeCap Leaders Fund 0.25% 1.00% 1.00% 0.75% 0.25% N/A
MagnaCap Fund 0.30% 1.00% 1.00% 0.75% 0.25% N/A
High Yield Fund 0.25% 1.00% 1.00% 0.75% 0.25% 0.65%
Bank and Thrift Fund 0.25% 1.00% 1.00% N/A N/A N/A
Government Securities Income Fund 0.25% 1.00% 1.00% 0.75% 0.25% 0.65%
International Core Growth Fund 0.35% 1.00% 1.00% N/A 0.25% N/A
Worldwide Growth Fund 0.35% 1.00% 1.00% N/A 0.25% N/A
International SmallCap Growth Fund 0.35% 1.00% 1.00% N/A 0.25% N/A
Emerging Countries Fund 0.35% 1.00% 1.00% N/A 0.25% N/A
LargeCap Growth Fund 0.35% 1.00% 1.00% N/A 0.25% N/A
MidCap Growth Fund 0.35% 1.00% 1.00% N/A 0.25% N/A
SmallCap Growth Fund 0.35% 1.00% 1.00% N/A 0.25% N/A
Convertible Fund 0.35% 1.00% 1.00% N/A 0.25% N/A
Balanced Fund 0.35% 1.00% 1.00% N/A 0.25% 0.75%
High Yield Fund II 0.35% 1.00% 1.00% N/A 0.25% N/A
Strategic Income Fund 0.35% 0.75% 0.75% N/A 0.25% N/A
Money Market Fund 0.25% 1.00% 1.00% N/A 0.25% N/A
SmallCap Opportunities Fund 0.30% 1.00% 1.00% N/A 0.25% 0.95%
Growth Opportunities Fund 0.30% 1.00% 1.00% N/A 0.25% 0.95%
MidCap Opportunities Fund 0.30% 1.00% 1.00% N/A 0.25% N/A
Emerging Markets Value Fund 0.30% 1.00% 1.00% N/A N/A N/A
Growth + Value Fund 0.30% 1.00% 1.00% N/A 0.25% N/A
High Total Return Fund 0.30% 1.00% 1.00% N/A N/A N/A
High Total Return Fund II 0.30% 1.00% 1.00% N/A N/A N/A
International Value Fund 0.30% 1.00% 1.00% N/A 0.25% N/A
Research Enhanced Index Fund 0.30% 1.00% 1.00% N/A 0.25% N/A
</TABLE>
The Rule 12b-1 Plan for the Money Market Fund provides that the
distribution fee is reduced by that amount, if any, paid to the Distributor or
any affiliate of Distributor from the investment adviser or distributor of any
investment company in which the Money Market Fund invests.
These fees may be used to cover the expenses of the Distributor primarily
intended to result in the sale of Class A, Class B, Class C, Class M, Class Q,
and Class T shares of the Funds, including payments to dealers for selling
shares of the Funds and for servicing shareholders of these classes of the
Funds. Activities for which these fees may be used include: promotional
activities; preparation and distribution of advertising materials and sales
literature; expenses of organizing and conducting sales seminars; personnel
costs and overhead of the Distributor; printing of prospectuses and statements
of additional information (and supplements thereto) and reports for other than
existing shareholders; payments to dealers and others that provide shareholder
services; interest on accrued distribution expenses; and costs of administering
28
<PAGE>
the Rule 12b-1 Plans. No more than 0.75% per annum of a Fund's average net
assets may be used to finance distribution expenses, exclusive of shareholder
servicing payments, and no Authorized Dealer may receive shareholder servicing
payments in excess of 0.25% per annum of a Fund's average net assets held by the
Authorized Dealer's clients or customers.
Under the Rule 12b-1 Plans, ongoing payments will be made on a quarterly
basis to Authorized Dealers for both distribution and shareholder servicing at
rates that are based on the average daily net assets of shares that are
registered in the name of that Authorized Dealer as nominee or held in a
shareholder account that designates that Authorized Dealer as the dealer of
record. The rates, on an annual basis, are as follows: 0.25% for Class A, 0.25%
for Class B, 1.00% (0.75% for Strategic Income Fund) for Class C, 0.65% (0.40%
for Government Securities Income Fund and High Yield Fund) for Class M, 0.25%
for Class Q, and 0.15% - 0.95% for Class T. Rights to these ongoing payments
begin to accrue in the 13th month following a purchase of Class A, B or C shares
and in the 1st month following a purchase of Class M, and Class T Shares.
The Distributor will be reimbursed for its actual expenses incurred under a
Rule 12b-1 Plan with respect to Class A shares of MagnaCap Fund, High Yield Fund
and Government Securities Income Fund. The Distributor has incurred costs and
expenses with respect to Class A shares that may be reimbursable in future
months or years in the amounts of $994,817 for MagnaCap Fund (0.30% of its net
assets), $272,149 for High Yield Fund (0.25% of its net assets), and $69,487 for
Government Securities Income Fund (0.25% of its net assets) as of June 30, 2000.
With respect to Class A shares of each other Fund and Class B, Class C, Class M,
Class Q, and Class T shares of each Fund that offers the class, the Distributor
will receive payment without regard to actual distribution expenses it incurs.
In the event a Rule 12b-1 Plan is terminated in accordance with its terms, the
obligations of a Fund to make payments to the Distributor pursuant to the Rule
12b-1 Plan will cease and the Fund will not be required to make any payments for
expenses incurred after the date the Plan terminates.
In addition to providing for the expenses discussed above, the Rule 12b-1
Plans also recognize that the Investment Manager and/or the Distributor may use
their resources to pay expenses associated with activities primarily intended to
result in the promotion and distribution of the Funds' shares and other funds
managed by the Investment Manager. In some instances, additional compensation or
promotional incentives may be offered to dealers. Such compensation and
incentives may include, but are not limited to, cash, merchandise, trips and
financial assistance to dealers in connection with pre-approved conferences or
seminars, sales or training programs for invited sales personnel, payment for
travel expenses (including meals and lodging) incurred by sales personnel and
members of their families, or other invited guests, to various locations for
such seminars or training programs, seminars for the public, advertising and
sales campaigns regarding one or more of the Funds or other funds managed by the
Investment Manager and/or other events sponsored by dealers. In addition, the
Distributor may, at its own expense, pay concessions in addition to those
described above to dealers that satisfy certain criteria established from time
to time by the Distributor. These conditions relate to increasing sales of
shares of the Funds over specified periods and to certain other factors. These
payments may, depending on the dealer's satisfaction of the required conditions,
be periodic and may be up to (1) 0.30% of the value of the Funds' shares sold by
the dealer during a particular period, and (2) 0.10% of the value of the Funds'
shares held by the dealer's customers for more than one year, calculated on an
annual basis.
The Rule 12b-1 Plans have been approved by the Board of Directors/Trustees
of each Fund, including all of the Directors/Trustees who are not interested
persons of the Company as defined in the 1940 Act. Each Rule 12b-1 Plan must be
renewed annually by the Board of Directors/Trustees, including a majority of the
Directors/Trustees who are not interested persons of the Company and who have no
direct or indirect financial interest in the operation of the Rule 12b-1 Plan,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such Directors/Trustees be committed to the
Directors/Trustees who are not interested persons. Each Rule 12b-1 Plan and any
distribution or service agreement may be terminated as to a Fund at any time,
without any penalty, by such Directors/Trustees or by a vote of a majority of
the Fund's outstanding shares on 60 days written notice. The Distributor or any
dealer or other firm may also terminate their respective distribution or service
agreement at any time upon written notice.
29
<PAGE>
In approving each Rule 12b-1 Plan, the Board of Directors/Trustees has
determined that differing distribution arrangements in connection with the sale
of new shares of a Fund is necessary and appropriate in order to meet the needs
of different potential investors. Therefore, the Board of Directors/Trustees,
including those Directors/Trustees who are not interested persons of the
Company, concluded that, in the exercise of their reasonable business judgment
and in light of their fiduciary duties, there is a reasonable likelihood that
the Rule 12b-1 Plans as tailored to each class of each Fund, will benefit such
Funds and their respective shareholders.
Each Rule 12b-1 Plan and any distribution or service agreement may not be
amended to increase materially the amount spent for distribution expenses as to
a Fund without approval by a majority of the Fund's outstanding shares, and all
material amendments to a Plan or any distribution or service agreement shall be
approved by the Directors/Trustees who are not interested persons of the
Company, cast in person at a meeting called for the purpose of voting on any
such amendment.
The Distributor is required to report in writing to the Board of
Directors/Trustees at least quarterly on the monies reimbursed to it under each
Rule 12b-1 Plan, as well as to furnish the Board with such other information as
may be reasonably be requested in connection with the payments made under the
Rule 12b-1 Plan in order to enable the Board to make an informed determination
of whether the Rule 12b-1 Plan should be continued.
During their fiscal year ended December 31, 2000, expenses incurred by the
Distributor for distribution-related activities with respect to each class of
shares of each Fund listed below were as follows:
DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C
--------------------- ------- ------- -------
SmallCap Opportunities Fund
Salaries/Overides
Commissions Paid
Marketing, RMM, & Convention Expense
Total
MidCap Opportunities Fund
Salaries/Overides
Commissions Paid
Marketing, RMM, & Convention Expense
Total
Growth Opportunities Fund
Salaries/Overides
Commissions Paid
Marketing, RMM, & Convention Expense
Total
Total distribution expenses incurred by the Distributor for the costs of
promotion and distribution of each Fund's Class A, B, C and Q shares for the
fiscal period ended June 30, 2000 were as follows:
<TABLE>
<CAPTION>
DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T
--------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
International Core Growth Fund
Advertising $ 230 $ 209 $ 404 $ 176 N/A
Printing 4,375 3,974 7,667 3,347 N/A
Salaries & Commissions 77,226 70,159 135,349 59,083 N/A
Broker Servicing 11,488 10,347 20,134 8,789 N/A
Miscellaneous 31,555 28,668 55,304 24,142 N/A
-------- -------- -------- -------
TOTAL 124,874 113,447 218,858 95,537 N/A
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Q CLASS T
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Worldwide Growth Fund
Advertising $ 1,587 $ 829 $ 4,248 $ 374 N/A
Printing 30,150 15,744 80,706 7,103 N/A
Salaries & Commissions 556,664 290,685 1,490,070 131,140 N/A
Broker Servicing 79,730 41,634 213,419 18,783 N/A
Miscellaneous 212,685 111,062 569,311 50,105 N/A
---------- ---------- ---------- ----------
TOTAL 880,816 459,954 2,357,753 207,504 N/A
Int'l SmallCap Growth Fund
Advertising $ 3,412 $ 1,654 $ 2,853 $ 2,582 N/A
Printing 64,835 31,425 54,210 49,065 N/A
Salaries & Commissions 678,625 328,924 567,411 513,562 N/A
Broker Servicing 168,263 81,556 140,688 127,336 N/A
Miscellaneous 444,873 215,626 371,966 336,666 N/A
---------- ---------- ---------- ----------
TOTAL 1,360,008 659,184 1,137,128 1,029,211 N/A
Emerging Countries Fund
Advertising $ 580 $ 675 $ 802 $ 205 N/A
Printing 11,017 12,834 15,237 3,896 N/A
Salaries & Commissions 239,420 278,900 331,116 84,655 N/A
Broker Servicing 32,700 38,092 45,224 11,562 N/A
Miscellaneous 61,529 71,675 85,094 21,755 N/A
---------- ---------- ---------- ----------
TOTAL 345,245 402,176 477,473 122,073 N/A
LargeCap Growth Fund
Advertising $ 1,700 $ 3,277 $2,483 $ 294 N/A
Printing 32,306 62,270 47,178 5,580 N/A
Salaries & Commissions 331,241 638,465 483,727 57,214 N/A
Broker Servicing 83,999 161,907 122,667 14,509 N/A
Miscellaneous 229,160 441,704 334,653 39,582 N/A
---------- ---------- ---------- ----------
TOTAL 678,406 1,307,623 990,709 117,179 N/A
MidCap Growth Fund
Advertising $ 624 $ 455 $ 2,718 $ 83 N/A
Printing 11,848 8,653 51,639 1,578 N/A
Salaries & Commissions 418,813 305,882 1,825,421 55,787 N/A
Broker Servicing 31,276 22,841 136,311 4,166 N/A
Miscellaneous 67,823 49,533 295,597 9,034 N/A
---------- ---------- ---------- ----------
TOTAL 530,402 387,364 2,311,686 70,648 N/A
SmallCap Growth Fund
Advertising $ 832 $ 423 $ 2,630 $ 54 N/A
Printing 15,814 8,030 49,967 1,027 N/A
Salaries & Commissions 539,657 274,020 1,705,123 34,930 N/A
Broker Servicing 41,807 21,228 132,094 2,706 N/A
Miscellaneous 87,480 44,419 276,405 5,662 N/A
---------- ---------- ---------- ----------
TOTAL 685,589 348,120 2,166,217 44,375 N/A
Convertible Fund
Advertising $ 778 $ 890 $ 2,483 $ 261 N/A
Printing 14,787 16,908 47,186 4,952 N/A
Salaries & Commissions 354,327 405,144 1,130,663 118,671 N/A
Broker Servicing 39,321 44,960 125,473 13,169 N/A
Miscellaneous 85,941 98,266 274,238 28,783 N/A
---------- ---------- ---------- ----------
TOTAL 495,154 566,168 1,580,044 165,837 N/A
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS Q CLASS T
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balanced Fund
Advertising $ 338 $ 224 $ 512 $ 4 $ 150
Printing 6,424 4,264 9,722 69 2,858
Salaries & Commissions 176,821 117,351 267,574 1,903 78,673
Broker Servicing 16,289 10,811 24,649 175 7,247
Miscellaneous 29,417 19,523 44,515 371 13,088
-------- -------- -------- ------- --------
TOTAL 229,290 152,173 346,971 2,468 102,018
High Yield Fund II
Advertising $ 219 $ 698 $ 402 $ 37 $ 350
Printing 4,170 13,263 7,647 694 6,653
Salaries & Commissions 113,340 360,504 207,848 18,874 180,824
Broker Servicing 10,672 33,945 19,571 1,777 17,027
Miscellaneous 20,929 66,569 38,380 3,485 33,390
-------- -------- -------- ------- --------
TOTAL 149,330 474,979 273,849 24,867 238,243
Strategic Income Fund
Advertising $ 119 $ 190 $ 243 $ 7 N/A
Printing 2,260 3,614 4,620 131 N/A
Salaries & Commissions 28,784 46,028 58,843 1,666 N/A
Broker Servicing 5,898 9,431 12,057 341 N/A
Miscellaneous 9,096 14,545 18,594 526 N/A
-------- -------- ------- --------
TOTAL 46,157 73,809 94,357 2,672 N/A
Money Market Fund
Advertising $ 394 $ 289 $ 99 N/A N/A
Printing 7,494 5,490 1,886 N/A N/A
Salaries & Commissions 63,799 46,735 16,061 N/A N/A
Broker Servicing 21,317 15,615 5,366 N/A N/A
Miscellaneous 37,563 27,516 9,456 N/A N/A
-------- -------- --------
Total 130,568 95,645 32,869 N/A N/A
</TABLE>
Total distribution expenses incurred by the Distributor for the costs of
promotion and distribution of each Fund's Class A, B, C and Q shares for the
fiscal period ended October 31, 2000 (reflects the four month period from July
1, 2000 to October 31, 2000) were as follows:
<TABLE>
<CAPTION>
DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T
--------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
International Core Growth Fund
Advertising N/A
Printing N/A
Salaries & Commissions N/A
Broker Servicing N/A
Miscellaneous N/A
TOTAL N/A
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS Q CLASS T
--------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Worldwide Growth Fund
Advertising N/A
Printing N/A
Salaries & Commissions N/A
Broker Servicing N/A
Miscellaneous N/A
TOTAL N/A
Int'l SmallCap Growth Fund
Advertising N/A
Printing N/A
Salaries & Commissions N/A
Broker Servicing N/A
Miscellaneous N/A
TOTAL N/A
Emerging Countries Fund
Advertising N/A
Printing N/A
Salaries & Commissions N/A
Broker Servicing N/A
Miscellaneous N/A
TOTAL N/A
</TABLE>
During their fiscal year ended October 31, 2000, expenses incurred by the
Distributor for distribution-related activities with respect to each class of
shares of each Fund listed below were as follows:
<TABLE>
<CAPTION>
DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C
--------------------- ------- ------- -------
<S> <C> <C> <C>
Growth + Value Fund
Salaries+Overides
Commissions Paid
Marketing, RMM, & Convention Expense
Total
International Value Fund
Salaries/Overides
Commissions Paid
Marketing, RMM, & Convention Expense
Total
Emerging Markets Value Fund
Salaries/Overides
Commissions Paid
Marketing, RMM, & Convention Expense
Total
Research Enhanced Index Fund
Salaries/Overides
Commissions Paid
Marketing, RMM, & Convention Expense
Total
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C
--------------------- ------- ------- -------
<S> <C> <C> <C>
High Total Return Fund II
Salaries/Overides
Commissions Paid
Marketing, RMM, & Convention Expense
Total
High Total Return Fund
Salaries/Overides
Commissions Paid
Marketing, RMM, & Convention Expense
Total
</TABLE>
Total distribution expenses incurred by the Distributor for the costs of
promotion and distribution of each Fund's Class A, B, C, M, and Q shares for the
fiscal year ended June 30, 2000 were as follows (the Funds did not offer Class C
or Class Q shares until May 24, 1999, and certain Funds did not offer Class T
shares until January 4, 2000):
<TABLE>
<CAPTION>
DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS M CLASS Q CLASS T
--------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific Equity Fund
Advertising $ 288 $ 286 N/A $ 174 N/A N/A
Printing 5,478 5,442 N/A 3,312 N/A N/A
Salaries & Commissions 76,473 75,976 N/A 46,234 N/A N/A
Broker Servicing 13,966 13,875 N/A 8,443 N/A N/A
Miscellaneous 19,192 19,068 N/A 11,603 N/A N/A
---------- -------- --------
Total 115,397 114,647 N/A 69,766 N/A N/A
MidCap Value Fund
Advertising $ 169 $ 241 $ 11 $ 136 $ 2 N/A
Printing 3,212 4,574 213 2,588 38 N/A
Salaries & Commissions 64,463 93,232 4,348 52,746 784 N/A
Broker Servicing 8,381 11,937 557 6,753 100 N/A
Miscellaneous 19,347 27,554 1,285 15,589 232 N/A
---------- -------- ------- -------- -------
Total 96,573 137,537 6,415 77,812 1,157 N/A
LargeCap Leaders Fund
Advertising $ 115 $ 304 $ 19 $ 119 $ 2 N/A
Printing 2,179 5,778 361 2,261 46 N/A
Salaries & Commissions 37,891 100,471 6,275 39,320 799 N/A
Broker Servicing 5,687 15,079 942 5,901 120 N/A
Miscellaneous 9,017 23,908 1,493 9,357 $ 190 N/A
---------- -------- ------- -------- -------
Total 54,888 145,540 9,090 56,958 1,157 N/A
MagnaCap Fund
Advertising $ 2,560 $ 842 $ 61 $ 256 $ 25 N/A
Printing 48,643 15,994 1,156 4,869 481 N/A
Salaries & Commissions 968,875 318,567 23,019 96,982 9,586 N/A
Broker Servicing 124,216 40,842 2,951 12,434 1,229 N/A
Miscellaneous $ 176,412 58,004 4,191 17,658 1,745 N/A
---------- -------- ------- -------- -------
Total 1,320,706 434,249 31,377 132,199 13,066 N/A
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS M CLASS Q CLASS T
--------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
High Yield Fund
Advertising $ 1,067 $ 2,080 $ 145 $ 276 $ 13 N/A
Printing 20,270 39,254 2,757 5,236 245 N/A
Salaries & Commissions 314,434 613,112 42,771 81,225 3,796 N/A
Broker Servicing 52,157 101,700 7,095 13,473 630 N/A
Miscellaneous 94,251 183,780 12,821 24,347 1,138 N/A
-------- -------- ------- -------- ------
Total 482,179 940,196 65,589 124,558 5,821 N/A
Bank and Thrift Fund
Advertising $ 2,171 $ 2,167 N/A N/A N/A N/A
Printing 41,255 41,170 N/A N/A N/A N/A
Salaries & Commissions 681,184 679,787 N/A N/A N/A N/A
Broker Servicing 103,829 103,616 N/A N/A N/A N/A
Miscellaneous 171,514 171,163 N/A N/A N/A N/A
-------- --------
Total 999,955 997,904 N/A N/A N/A N/A
Gov't Securities Income Fund
Advertising $ 507 $ 246 $ 25 $ 10 $ 3 $ 274
Printing 9,636 4,665 482 192 61 5,198
Salaries & Commissions 211,475 102,386 10,572 4,223 1,342 114,070
Broker Servicing 26,699 12,926 1,335 533 169 14,401
Miscellaneous 79,476 38,478 3,973 1,587 504 42,869
-------- -------- ------- -------- ------ --------
Total 327,792 158,702 16,388 6,546 2,080 176,812
</TABLE>
Total distribution expenses incurred by the Distributor for the costs of
promotion and distribution of the Asia Pacific Equity Fund's Class A, B, C, M,
and Q shares for the fiscal year ended October 31, 2000 were as follows
(Reflects the four month period between July 1, 2000 and October 31, 2000):
<TABLE>
<CAPTION>
DISTRIBUTION EXPENSES CLASS A CLASS B CLASS C CLASS M CLASS Q CLASS T
--------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific Equity Fund
Advertising N/A N/A N/A
Printing N/A N/A N/A
Salaries & Commissions N/A N/A N/A
Broker Servicing N/A N/A N/A
Miscellaneous N/A N/A N/A
Total N/A N/A N/A
</TABLE>
SHAREHOLDER SERVICING AGENT
ING Pilgrim Group, Inc. serves as Shareholder Servicing Agent for Advisory
Funds, Investment Funds, Bank and Thrift, Government Securities Income and
Pilgrim Mutual Funds. The Shareholder Servicing Agent is responsible for
responding to written and telephonic inquiries from shareholders. Each Fund pays
the Shareholder Servicing Agent a monthly fee on a per-contact basis, based upon
incoming and outgoing telephonic and written correspondence.
OTHER EXPENSES
In addition to the management fee and other fees described previously, each
Fund pays other expenses, such as legal, audit, transfer agency and custodian
out-of-pocket fees, proxy solicitation costs, and the compensation of
Directors/Trustees who are not affiliated with the Investment Manager. Most Fund
expenses are allocated proportionately among all of the outstanding shares of
that Fund. However, the Rule 12b-1 Plan fees for each class of shares are
charged proportionately only to the outstanding shares of that class.
35
<PAGE>
CODE OF ETHICS
The Funds have adopted a Code of Ethics governing personal trading
activities of all Directors/Trustees, officers of the Funds and persons who, in
connection with their regular functions, play a role in the recommendation of
any purchase or sale of a security by the Funds or obtain information pertaining
to such purchase or sale. The Code is intended to prohibit fraud against a Fund
that may arise from personal trading. Personal trading is permitted by such
persons subject to certain restrictions; however they are generally required to
pre-clear all security transactions with the Funds' Compliance Officer or her
designee and to report all transactions on a regular basis. The Sub-Advisers
have adopted their own Codes of Ethics to govern the personal trading activities
of their personnel.
SUPPLEMENTAL DESCRIPTION OF INVESTMENTS
Some of the different types of securities in which the Funds may invest,
subject to their respective investment objectives, policies and restrictions,
are described in the Prospectus under "The Funds," "Investment Objectives and
Policies," and "Investment Practices and Risk Considerations." Additional
information concerning the characteristics and risks of certain of the Funds'
investments are set forth below. There can be no assurance that any of the Funds
will achieve their investment objectives. References to the Money Market Fund
include investments by the Primary Fund in which it invests.
TEMPORARY DEFENSIVE AND OTHER SHORT-TERM POSITIONS
Each Fund's assets (other than the Money Market Fund whose investments are
typically short-term) may be invested in certain short-term, high-quality debt
instruments (and, in the case of Bank and Thrift Fund, investment grade debt
instruments) and in U.S. Government securities for the following purposes: (i)
to meet anticipated day-to-day operating expenses; (ii) pending the Investment
Manager's or Sub-Adviser's ability to invest cash inflows; (iii) to permit the
Fund to meet redemption requests; and (iv) for temporary defensive purposes. A
Fund for which the investment objective is capital appreciation may also invest
in such securities if the Fund's assets are insufficient for effective
investment in equities.
Although it is expected that each Fund will normally be invested consistent
with its investment objectives and policies, the short-term instruments in which
a Fund (except Government Securities Income Fund) may invest include: (i)
short-term obligations of the U.S. Government and its agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities; (iii) commercial paper, including master notes; (iv) bank
obligations, including certificates of deposit, time deposits and bankers'
acceptances; and (v) repurchase agreements. LargeCap Leaders Fund, MidCap Value
Fund and Asia-Pacific Equity Fund may also invest in long-term U.S. Government
securities and money market funds, while Asia-Pacific Equity Fund may invest in
short-term obligations of foreign governments and their agencies,
instrumentalities, authorities, or political subdivisions. The short-term
instruments in which Government Securities Income Fund may invest include
short-term U.S. Government securities and repurchase agreements on U.S.
Government securities. The Funds will normally invest in short-term instruments
that do not have a maturity of greater than one year.
COMMON STOCK, CONVERTIBLE SECURITIES AND OTHER EQUITY SECURITIES
Each Fund (other than Government Securities Income Fund and the Money
Market Fund) may invest in common stocks, which represent an equity (ownership)
interest in a company. This ownership interest generally gives a Fund the right
to vote on issues affecting the company's organization and operations. Such
investments will be diversified over a cross-section of industries and
individual companies. For Funds other than the LargeCap Growth Fund, some of
these companies will be organizations with market capitalizations of $500
million or less or companies that have limited product lines, markets and
financial resources and are dependent upon a limited management group. Examples
of possible investments include emerging growth companies employing new
36
<PAGE>
technology, cyclical companies, initial public offerings of companies offering
high growth potential, or other corporations offering good potential for high
growth in market value. The securities of such companies may be subject to more
abrupt or erratic market movements than larger, more established companies both
because the securities typically are traded in lower volume and because the
issuers typically are subject to a greater degree to changes in earnings and
prospects.
Each Fund (other than the Money Market Fund) may also buy other types of
equity securities such as convertible securities, preferred stock, and warrants
or other securities that are exchangeable for shares of common stock. A
convertible security is a security that may be converted either at a stated
price or rate within a specified period of time into a specified number of
shares of common stock. By investing in convertible securities, a Fund seeks the
opportunity, through the conversion feature, to participate in the capital
appreciation of the common stock into which the securities are convertible,
while investing at a better price than may be available on the common stock or
obtaining a higher fixed rate of return than is available on common stocks. The
value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The credit standing of the issuer and other factors
may also affect the investment value of a convertible security. The conversion
value of a convertible security is determined by the market price of the
underlying common stock. If the conversion value is low relative to the
investment value, the price of the convertible security is governed principally
by its investment value. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value.
The market value of convertible debt securities tends to vary inversely
with the level of interest rates. The value of the security declines as interest
rates increase and increases as interest rates decline. Although under normal
market conditions longer term debt securities have greater yields than do
shorter term debt securities of similar quality, they are subject to greater
price fluctuations. A convertible security may be subject to redemption at the
option of the issuer at a price established in the instrument governing the
convertible security. If a convertible security held by a Fund is called for
redemption, the Fund must permit the issuer to redeem the security, convert it
into the underlying common stock or sell it to a third party. Rating
requirements do not apply to convertible debt securities purchased by the Funds
because the Funds purchase such securities for their equity characteristics.
As a matter of operating policy, each fund which comprises the ING Pilgrim
Mutual Funds will invest no more than 5% of its net assets in warrants. A
warrant gives the holder a right to purchase at any time during a specified
period a predetermined number of shares of common stock at a fixed price. Unlike
convertible debt securities or preferred stock, warrants do not pay a fixed
dividend. Investments in warrants involve certain risks, including the possible
lack of a liquid market for resale of the warrants, potential price fluctuations
as a result of speculation or other factors, and failure of the price of the
underlying security to reach or have reasonable prospects of reaching a level at
which the warrant can be prudently exercised (in which event the warrant may
expire without being exercised, resulting in a loss of the Fund's entire
investment therein).
Each fund which comprises the ING Pilgrim Mutual Funds (other than the
Money Market Fund) may invest in "synthetic" convertible securities, which are
derivative positions composed of two or more different securities whose
investment characteristics, taken together, resemble those of convertible
securities. For example, a fund may purchase a non-convertible debt security and
a warrant or option, which enables the fund to have a convertible-like position
with respect to a company, group of companies or stock index. Synthetic
convertible securities are typically offered by financial institutions and
investment banks in private placement transactions. Upon conversion, the fund
generally receives an amount in cash equal to the difference between the
conversion price and the then current value of the underlying security. Unlike a
true convertible security, a synthetic convertible comprises two or more
separate securities, each with its own market value. Therefore, the market value
of a synthetic convertible is the sum of the values of its fixed-income
component and its convertible component. For this reason, the values of a
synthetic convertible and a true convertible security may respond differently to
market fluctuations. A Fund only invests in synthetic convertibles with respect
to companies whose corporate debt securities are rated "A" or higher by Moody's
or "A" or higher by S&P and will not invest more than 15% of its net assets in
such synthetic securities and other illiquid securities.
37
<PAGE>
The MidCap Value Fund will invest substantially all of its assets, and
LargeCap Leaders Fund, Asia-Pacific Equity Fund, and Bank and Thrift Fund may
invest, in the equity securities of certain midcap companies. Midcap companies
will tend to be smaller, more emerging companies and investment in these
companies may involve greater risk than is customarily associated with
securities of larger, more established companies. Midcap companies may
experience relatively higher growth rates and higher failure rates than do
larger companies. The trading volume of securities of midcap companies is
normally less than that of larger companies and, therefore, may
disproportionately affect their market price, tending to make them rise more in
response to buying demand and fall more in response to selling pressure than is
the case with larger companies.
PREFERRED STOCK
Each Fund (other than the Money Market Fund) may invest in preferred stock.
Preferred stock, unlike common stock, offers a stated dividend rate payable from
a corporation's earnings. Such preferred stock dividends may be cumulative or
non-cumulative, participating, or auction rate. If interest rates rise, the
fixed dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as call/redemption provisions prior to maturity, a negative
feature when interest rates decline. Dividends on some preferred stock may be
"cumulative," requiring all or a portion of prior unpaid dividends to be paid
before dividends are paid on the issuer's common stock. Preferred stock also
generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation, and may be
"participating," which means that it may be entitled to a dividend exceeding the
stated dividend in certain cases. The rights of preferred stocks on the
distribution of a corporation's assets in the event of a liquidation are
generally subordinate to the rights associated with a corporation's debt
securities.
EURODOLLAR CONVERTIBLE SECURITIES
Each fund which comprises the ING Pilgrim Mutual Funds (other than the
Money Market Fund) may invest in Eurodollar convertible securities, which are
fixed-income securities of a U.S. issuer or a foreign issuer that are issued
outside the United States and are convertible into equity securities of the same
or a different issuer. Interest and dividends on Eurodollar securities are
payable in U.S. dollars outside of the United States. The Funds may invest
without limitation in Eurodollar convertible securities that are convertible
into foreign equity securities listed, or represented by ADRs listed, on the New
York Stock Exchange or the American Stock Exchange or convertible into publicly
traded common stock of U.S. companies. The Funds may also invest up to 15% of
its total assets invested in convertible securities, taken at market value, in
Eurodollar convertible securities that are convertible into foreign equity
securities which are not listed, or represented by ADRs listed, on such
exchanges.
EURODOLLAR AND YANKEE DOLLAR INSTRUMENTS
Each fund which comprises the ING Pilgrim Mutual Funds may invest in
Eurodollar and Yankee Dollar instruments. Eurodollar instruments are bonds that
pay interest and principal in U.S. dollars held in banks outside the United
States, primarily in Europe. Eurodollar instruments are usually issued on behalf
of multinational companies and foreign governments by large underwriting groups
composed of banks and issuing houses from many countries. Yankee Dollar
instruments are U.S. dollar denominated bonds issued in the U.S. by foreign
banks and corporations. These investments involve risks that are different from
investments in securities issued by U.S. issuers. See "Foreign Investment
Considerations."
SECURITIES OF BANKS AND THRIFTS
The Bank and Thrift Fund invests primarily in equity securities of banks
and thrifts. A "money center bank" is a bank or bank holding company that is
typically located in an international financial center and has a strong
international business with a significant percentage of its assets outside the
United States. "Regional banks" are banks and bank holding companies which
provide full service banking, often operating in two or more states in the same
geographic area, and whose assets are primarily related to domestic business.
Regional banks are smaller than money center banks and also may include banks
conducting business in a single state or city and banks operating in a limited
number of states in one or more geographic regions. The third category which
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constitutes the majority in number of banking organizations are typically
smaller institutions that are more geographically restricted and less well-known
than money center banks or regional banks and are commonly described as
"community banks".
The Bank and Thrift Fund may invest in the securities of banks or thrifts
that are relatively smaller, engaged in business mostly within their geographic
region, and are less well-known to the general investment community than money
center and larger regional banks. The shares of depository institutions in which
the Fund may invest may not be listed or traded on a national securities
exchange or on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"); as a result there may be limitations on the Fund's
ability to dispose of them at times and at prices that are most advantageous to
the Fund.
The profitability of banks and thrifts is largely dependent upon interest
rates and the resulting availability and cost of capital funds over which these
concerns have limited control, and, in the past, such profitability has shown
significant fluctuation as a result of volatile interest rate levels. In
addition, general economic conditions are important to the operations of these
concerns, with exposure to credit losses resulting from financial difficulties
of borrowers.
Changes in state and Federal law are producing significant changes in the
banking and financial services industries. Deregulation has resulted in the
diversification of certain financial products and services offered by banks and
financial services companies, creating increased competition between them. In
addition, state and federal legislation authorizing interstate acquisitions as
well as interstate branching has facilitated the increasing consolidation of the
banking and thrift industries. Although regional banks involved in intrastate
and interstate mergers and acquisitions may benefit from such regulatory
changes, those which do not participate in such consolidation may find that it
is increasingly difficult to compete effectively against larger banking
combinations. Proposals to change the laws and regulations governing banks and
companies that control banks are frequently introduced at the federal and state
levels and before various bank regulatory agencies. The likelihood of any
changes and the impact such changes might have are impossible to determine.
The last few years have seen a significant amount of regulatory and
legislative activity focused on the expansion of bank powers and diversification
of services that banks may offer. These expanded powers have exposed banks to
well-established competitors and have eroded the distinctions between regional
banks, community banks, thrifts and other financial institutions.
The thrifts in which the Bank and Thrift Fund invests generally are subject
to the same risks as banks discussed above. Such risks include interest rate
changes, credit risks, and regulatory risks. Because thrifts differ in certain
respects from banks, however, thrifts may be affected by such risks in a
different manner than banks. Traditionally, thrifts have different and less
diversified products than banks, have a greater concentration of real estate in
their lending portfolio, and are more concentrated geographically than banks.
Thrifts and their holding companies are subject to extensive government
regulation and supervision including regular examinations of thrift holding
companies by the Office of Thrift Supervision (the "OTS"). Such regulations have
undergone substantial change since the 1980's and will probably change in the
next few years.
SHORT-TERM INVESTMENTS
The Funds may invest in the following securities and instruments:
Bank Certificates of Deposit, Bankers' Acceptances and Time Deposits. The Funds
may acquire certificates of deposit, bankers' acceptances and time deposits.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning in effect that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Certificates of deposit and bankers' acceptances acquired by the Funds will be
dollar-denominated obligations of domestic or foreign banks or financial
institutions which at the time of purchase have capital, surplus and undivided
profits in excess of $100 million (including assets of both domestic and foreign
branches), based on latest published reports, or less than $100 million if the
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principal amount of such bank obligations are fully insured by the U.S.
Government. The Primary Institutional Fund in which the Money Market Fund
invests substantially all of its assets, requires that the foreign banks whose
obligations it acquires have capital, surplus and undivided profits of $25
billion.
A Fund holding instruments of foreign banks or financial institutions may
be subject to additional investment risks that are different in some respects
from those incurred by a fund which invests only in debt obligations of U.S.
domestic issuers. See "Foreign Investments" below. Domestic banks and foreign
banks are subject to different governmental regulations with respect to the
amount and types of loans which may be made and interest rates which may be
charged. In addition, the profitability of the banking industry depends largely
upon the availability and cost of funds for the purpose of financing lending
operations under prevailing money market conditions. General economic conditions
as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of the
banking industry. Federal and state laws and regulations require domestic banks
to maintain specified levels of reserves, limited in the amount which they can
loan to a single borrower, and subject to other regulations designed to promote
financial soundness. However, such laws and regulations do not necessarily apply
to foreign bank obligations that a Fund may acquire.
In addition to purchasing certificates of deposit and bankers' acceptances,
to the extent permitted under their respective investment objectives and
policies stated above and in their Prospectuses, the Funds may make
interest-bearing time or other interest-bearing deposits in commercial or
savings banks. Time deposits are non-negotiable deposits maintained at a banking
institution for a specified period of time at a specified interest rate.
Savings Association Obligations. The Funds that comprise the Pilgrim Mutual
Funds may invest in certificates of deposit (interest-bearing time deposits)
issued by savings banks or savings and loan associations that have capital,
surplus and undivided profits in excess of $100 million, based on latest
published reports, or less than $100 million if the principal amount of such
obligations is fully insured by the U.S. Government.
Commercial Paper, Short-Term Notes and Other Corporate Obligations. The Funds
may invest a portion of their assets in commercial paper and short-term notes.
Commercial paper consists of unsecured promissory notes issued by corporations.
Issues of commercial paper and short-term notes will normally have maturities of
less than nine months and fixed rates of return, although such instruments may
have maturities of up to one year.
Commercial paper and short-term notes will consist of issues rated at the
time of purchase "A-2" or higher (A-1 for the Primary Institutional Fund in
which the Money Market Fund invests substantially all of its assets) by S&P,
"Prime-l" or "Prime-2" by Moody's (Prime-1 for the Primary Institutional Fund in
which the Money Market Fund invests substantially all of its assets), or
similarly rated by another nationally recognized statistical rating organization
or, if unrated, will be determined by the Investment Manager or Sub-Adviser to
be of comparable quality. These rating symbols are described in Appendix A.
Corporate obligations include bonds and notes issued by corporations to
finance longer-term credit needs than supported by commercial paper. While such
obligations generally have maturities of ten years or more, the Funds (other
than Money Market Fund) may purchase corporate obligations which have remaining
maturities of one year or less from the date of purchase and which are rated
"AA" or higher by S&P or "Aa" or higher by Moody's.
U.S. GOVERNMENT SECURITIES
The Funds may invest in U.S. Government securities which include
instruments issued by the U.S. Treasury, such as bills, notes and bonds. These
instruments are direct obligations of the U.S. Government and, as such, are
backed by the full faith and credit of the United States. They differ primarily
in their interest rates, the lengths of their maturities and the dates of their
issuances. In addition, U.S. Government securities include securities issued by
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association, which are also backed by the full faith and credit of the
United States. Also included in the category of U.S. Government securities are
instruments issued by instrumentalities established or sponsored by the U.S.
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Government, such as the Student Loan Marketing Association, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation. While these
securities are issued, in general, under the authority of an Act of Congress,
the U.S. Government is not obligated to provide financial support to the issuing
instrumentalities, although under certain conditions certain of these
authorities may borrow from the U.S. Treasury. In the case of securities not
backed by the full faith and credit of the U.S., the investor must look
principally to the agency or instrumentality issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the U.S. itself in the event the agency or instrumentality does not meet its
commitment. Each Fund will invest in securities of such agencies or
instrumentalities only when the Sub-Adviser is satisfied that the credit risk
with respect to any instrumentality is comparable to the credit risk of U.S.
government securities backed by the full faith and credit of the United States.
MUNICIPAL SECURITIES
The Funds that comprise the ING Pilgrim Mutual Funds (other than the Money
Market Fund) may invest in debt obligations issued by state and local
governments, territories and possessions of the U.S., regional government
authorities, and their agencies and instrumentalities ("municipal securities").
Municipal securities include both notes (which have maturities of less than one
year) and bonds (which have maturities of one year or more) that bear fixed or
variable rates of interest.
In general, "municipal securities" debt obligations are issued to obtain
funds for a variety of public purposes, such as the construction, repair, or
improvement of public facilities including airports, bridges, housing,
hospitals, mass transportation, schools, streets, water and sewer works.
Municipal securities may be issued to refinance outstanding obligations as well
as to raise funds for general operating expenses and lending to other public
institutions and facilities.
The two principal classifications of municipal securities are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit, and taxing power
for the payment of principal and interest. Characteristics and methods of
enforcement of general obligation bonds vary according to the law applicable to
a particular issuer, and the taxes that can be levied for the payment of debt
service may be limited or unlimited as to rates or amounts of special
assessments. Revenue securities are payable only from the revenues derived from
a particular facility, a class of facilities or, in some cases, from the
proceeds of a special excise tax. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals. Although the principal security behind these bonds
may vary, many provide additional security in the form of a debt service reserve
fund the assets of which may be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent subsidized and
collateralized mortgages, and the net revenues from housing or other public
projects. Some authorities are provided further security in the form of a
state's assistance (although without obligation) to make up deficiencies in the
debt service reserve fund.
The Funds may purchase insured municipal debt in which scheduled payments
of interest and principal are guaranteed by a private, non-governmental or
governmental insurance company. The insurance does not guarantee the market
value of the municipal debt or the value of the shares of the Fund.
Securities of issuers of municipal obligations are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Bankruptcy Reform Act of 1978. In addition,
the obligations of such issuers may become subject to laws enacted in the future
by Congress, state legislatures or referenda extending the time for payment of
principal or interest, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. Furthermore, as
a result of legislation or other conditions, the power or ability of any issuer
to pay, when due, the principal of and interest on its municipal obligations may
be materially affected.
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MORAL OBLIGATION SECURITIES
Municipal securities may include "moral obligation" securities which are
usually issued by special purpose public authorities. If the issuer of moral
obligation bonds cannot fulfill its financial responsibilities from current
revenues, it may draw upon a reserve fund, the restoration of which is moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
INDUSTRIAL DEVELOPMENT AND POLLUTION CONTROL BONDS
The Funds that comprise the ING Pilgrim Mutual Funds (other than the Money
Market Fund) may invest in tax-exempt industrial development bonds and pollution
control bonds which, in most cases, are revenue bonds and generally are not
payable from the unrestricted revenues of an issuer. They are issued by or on
behalf of public authorities to raise money to finance privately operated
facilities for business, manufacturing, housing, sport complexes, and pollution
control. Consequently, the credit quality of these securities is dependent upon
the ability of the user of the facilities financed by the bonds and any
guarantor to meet its financial obligations.
MUNICIPAL LEASE OBLIGATIONS
The Funds that comprise the ING Pilgrim Mutual Funds (other than the Money
Market Fund) may invest in lease obligations or installment purchase contract
obligations of municipal authorities or entities ("municipal lease
obligations"). Although lease obligations do not constitute general obligations
of the municipality for which its taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate and
make the payment due under the lease obligation. A Fund may also purchase
"certificates of participation," which are securities issued by a particular
municipality or municipal authority to evidence a proportionate interest in base
rental or lease payments relating to a specific project to be made by the
municipality, agency or authority. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in any year unless
money is appropriated for such purpose for such year. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of default and foreclosure might prove
difficult. In addition, these securities represent a relatively new type of
financing, and certain lease obligations may therefore be considered to be
illiquid securities.
The Funds will attempt to minimize the special risks inherent in municipal
lease obligations and certificates of participation by purchasing only lease
obligations which meet the following criteria: (1) rated A or better by at least
one nationally recognized securities rating organization; (2) secured by
payments from a governmental lessee which has actively traded debt obligations;
(3) determined by the Investment Manager or Sub-Adviser to be critical to the
lessee's ability to deliver essential services; and (4) contain legal features
which the Investment Manager or Sub-Adviser deems appropriate, such as covenants
to make lease payments without the right of offset or counterclaim, requirements
for insurance policies, and adequate debt service reserve funds.
SHORT-TERM MUNICIPAL OBLIGATIONS
The Funds that comprise the ING Pilgrim Mutual Funds (other than the Money
Market Fund) may invest in short-term municipal obligations. These securities
include the following:
TAX ANTICIPATION NOTES are used to finance working capital needs of
municipalities and are issued in anticipation of various seasonal tax revenues,
to be payable from these specific future taxes. They are usually general
obligations of the issuer, secured by the taxing power of the municipality for
the payment of principal and interest when due.
REVENUE ANTICIPATION NOTES are issued in expectation of receipt of other kinds
of revenue, such as federal revenues available under the Federal Revenue Sharing
Program. They also are usually general obligations of the issuer.
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BOND ANTICIPATION NOTES normally are issued to provide interim financing until
long-term financing can be arranged. The long-term bonds then provide the money
for the repayment of the notes.
CONSTRUCTION LOAN NOTES are sold to provide construction financing for specific
projects. After successful completion and acceptance, many projects receive
permanent financing through the Federal National Mortgage Association or the
Government National Mortgage Association.
SHORT-TERM DISCOUNT NOTES (tax-exempt commercial paper) are short-term (365 days
or less) promissory notes issued by municipalities to supplement their cash
flow.
VARIABLE AND FLOATING RATE INSTRUMENTS
The Funds that comprise the ING Pilgrim Mutual Funds (other than the Money
Market Fund) may acquire variable and floating rate instruments. Credit rating
agencies frequently do not rate such instruments; however, the Investment
Manager or Sub-Adviser will determine what unrated and variable and floating
rate instruments are of comparable quality at the time of the purchase to rated
instruments eligible for purchase by the Fund. An active secondary market may
not exist with respect to particular variable or floating rate instruments
purchased by a Fund. The absence of such an active secondary market could make
it difficult for the Fund to dispose of the variable or floating rate instrument
involved in the event of the issuer of the instrument defaulting on its payment
obligation or during periods in which the Fund is not entitled to exercise its
demand rights, and the Fund could, for these or other reasons, suffer a loss to
the extent of the default. Variable and floating rate instruments may be secured
by bank letters of credit.
INDEX AND CURRENCY-LINKED SECURITIES
The Funds that comprise the ING Pilgrim Mutual Funds (other than the Money
Market Fund) may invest in "index-linked" or "commodity-linked" notes, which are
debt securities of companies that call for interest payments and/or payment at
maturity in different terms than the typical note where the borrower agrees to
make fixed interest payments and to pay a fixed sum at maturity. Principal
and/or interest payments on an index-linked note depend on the performance of
one or more market indices, such as the S&P 500 Index or a weighted index of
commodity futures such as crude oil, gasoline and natural gas. The Funds may
also invest in "equity linked" and "currency-linked" debt securities. At
maturity, the principal amount of an equity-linked debt security is exchanged
for common stock of the issuer or is payable in an amount based on the issuer's
common stock price at the time of maturity. Currency-linked debt securities are
short-term or intermediate term instruments having a value at maturity, and/or
an interest rate, determined by reference to one or more foreign currencies.
Payment of principal or periodic interest may be calculated as a multiple of the
movement of one currency against another currency, or against an index.
Index and currency-linked securities are derivative instruments which may
entail substantial risks. Such instruments may be subject to significant price
volatility. The company issuing the instrument may fail to pay the amount due on
maturity. The underlying investment or security may not perform as expected by
the Investment Manager or Sub-Adviser. Markets, underlying securities and
indexes may move in a direction that was not anticipated by the Investment
Manager or Sub-Adviser. Performance of the derivatives may be influenced by
interest rate and other market changes in the U.S. and abroad. Certain
derivative instruments may be illiquid. See "Illiquid Securities" below.
CORPORATE DEBT SECURITIES
Each Fund may invest in corporate debt securities. Corporate debt
securities include corporate bonds, debentures, notes and other similar
corporate debt instruments, including convertible securities. The investment
return on a corporate debt security reflects interest earnings and changes in
the market value of the security. The market value of a corporate debt security
will generally increase when interest rates decline, and decrease when interest
rates rise. There is also the risk that the issuer of a debt security will be
unable to pay interest or principal at the time called for by the instrument.
Investments in corporate debt securities that are rated below investment grade
are described in "High Yield Securities" below.
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Debt obligations that are deemed investment grade carry a rating of at
least Baa from Moody's or BBB from Standard and Poor's, or a comparable rating
from another rating agency or, if not rated by an agency, are determined by the
Investment Adviser to be of comparable quality. Bonds rated Baa or BBB have
speculative characteristics and changes in economic circumstances are more
likely to lead to a weakened capacity to make interest and principal payments
than higher rated bonds. The Primary Fund in which the Money Market Fund invests
will invest only in corporate debt securities rated A-1 or above.
RISKS OF INVESTING IN DEBT SECURITIES
There are a number of risks generally associated with an investment in debt
securities (including convertible securities). Yields on short, intermediate,
and long-term securities depend on a variety of factors, including the general
condition of the money and bond markets, the size of a particular offering, the
maturity of the obligation, and the rating of the issue. Debt securities with
longer maturities tend to produce higher yields and are generally subject to
potentially greater capital appreciation and depreciation than obligations with
short maturities and lower yields.
Securities with ratings below Baa and/or BBB are commonly referred to
as "junk bonds." These bonds are subject to greater market fluctuations and risk
of loss of income and principal than higher rated bonds for a variety of
reasons, including the following:
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. The economy and interest
rates affect high yield securities differently from other securities. For
example, the prices of high yield bonds have been found to be less sensitive to
interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and interest obligations, to meet
projected business goals, and to obtain additional financing. If the issuer of a
bond defaults, a Fund may incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and changes can be expected to result
in increased volatility of market prices of high yield bonds and the Funds'
asset values.
PAYMENT EXPECTATIONS. High yield bonds present certain risks based on payment
expectations. For example, high yield bonds may contain redemption and call
provisions. If an issuer exercises these provisions in a declining interest rate
market, a Fund would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a high
yield bond's value will decrease in a rising interest rate market, as will the
value of the Fund's assets. If a Fund experiences unexpected net redemptions, it
may be forced to sell its high yield bonds without regard to their investment
merits, thereby decreasing the asset base upon which the Fund's expenses can be
spread and possibly reducing the Fund's rate of return.
LIQUIDITY AND VALUATION. To the extent that there is no established retail
secondary market, there may be thin trading of high yield bonds, and this may
impact the Investment Manager's or Sub-Adviser's ability to accurately value
high yield bonds and the Funds' assets and hinder the Funds' ability to dispose
of the bonds. Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of high yield
bonds, especially in a thinly traded market.
CREDIT RATINGS. Credit ratings evaluate the safety of principal and interest
payments, not the market value risk of high yield bonds. The rating of an issuer
is also heavily weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. Also, since credit rating agencies may
fail to timely change the credit ratings to reflect subsequent events, the
Investment Manager or Sub-Adviser must monitor the issuers of high yield bonds
in the Funds' portfolios to determine if the issuers will have sufficient cash
flow and profits to meet required principal and interest payments, and to assure
the bonds' liquidity so the Funds can meet redemption requests.
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BANKING INDUSTRY OBLIGATIONS
Each Fund may invest in banking industry obligations, including
certificates of deposit, bankers' acceptances, and fixed time deposits. The
Funds will not invest in obligations issued by a bank unless (i) the bank is a
U.S. bank and a member of the FDIC and (ii) the bank has total assets of at
least $1 billion (U.S.) or, if not, the Fund's investment is limited to the
FDIC-insured amount of $100,000.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS
In order to secure prices or yields deemed advantageous at the time, the
Funds may purchase or sell securities on a when-issued or a delayed-delivery
basis generally 15 to 45 days after the commitment is made. The Funds will enter
into a when-issued transaction for the purpose of acquiring portfolio securities
and not for the purpose of leverage. In such transactions, delivery of the
securities occurs beyond the normal settlement periods, but no payment or
delivery is made by, and no interest accrues to, the Fund prior to the actual
delivery or payment by the other party to the transaction. Due to fluctuations
in the value of securities purchased on a when-issued or a delayed-delivery
basis, the yields obtained on such securities may be higher or lower than the
yields available in the market on the dates when the investments are actually
delivered to the buyers. Similarly, the sale of securities for delayed-delivery
can involve the risk that the prices available in the market when delivery is
made may actually be higher than those obtained in the transaction itself. Each
Fund will establish a segregated account with the Custodian consisting of cash
and/or liquid assets in an amount equal to the amount of its when-issued and
delayed-delivery commitments which will be "marked to market" daily. Each Fund
will only make commitments to purchase such securities with the intention of
actually acquiring the securities, but the Fund may sell these securities before
the settlement date if it is deemed advisable as a matter of investment
strategy. A Fund may not purchase when issued securities or enter into firm
commitments, if as a result, more than 15% of the Fund's net assets would be
segregated to cover such securities.
When the time comes to pay for the securities acquired on a delayed
delivery basis, a Fund will meet its obligations from the available cash flow,
sale of the securities held in the segregated account, sale of other securities
or, although it would not normally expect to do so, from sale of the when-issued
securities themselves (which may have a market value greater or less than the
Fund's payment obligation). Depending on market conditions, the Funds could
experience fluctuations in share price as a result of delayed delivery or
when-issued purchases.
HIGH YIELD SECURITIES
The High Yield Fund, High Total Return Fund II, and High Total Return Fund
each may invest in high yield securities, which are debt securities that are
rated lower than Baa by Moody's Investors Service or BBB by Standard & Poor's
Corporation, or of comparable quality if unrated.
High yield securities often are referred to as "junk bonds" and include
certain corporate debt obligations, higher yielding preferred stock and
mortgage-related securities, and securities convertible into the foregoing.
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 to be investment grade. They are
regarded as predominantly speculative with respect to the issuing company's
continuing ability to meet principal and interest payments. Also, their yields
and market values tend to fluctuate more than higher-rated securities.
Fluctuations in value do not affect the cash income from the securities, but are
reflected in a Fund's net asset value. The greater risks and fluctuations in
yield and value occur, in part, because investors generally perceive issuers of
lower-rated and unrated securities to be less creditworthy.
The yields earned on high yield securities generally are related to the
quality ratings assigned by recognized rating agencies. The following are
excerpts from Moody's description of its bond ratings: Ba -- judged to have
speculative elements; their future cannot be considered as well assured. B --
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generally lack characteristics of a desirable investment. Caa -- are of poor
standing; such issues may be in default or there may be present elements of
danger with respect to principal or interest. Ca -- speculative in a high
degree; often in default. C -- lowest rate class of bonds; regarded as having
extremely poor prospects. Moody's also applies numerical indicators 1, 2 and 3
to rating categories. The modifier 1 indicates that the security is in the
higher end of its rating category; 2 indicates a mid-range ranking; and 3
indicates a ranking towards the lower end of the category. The following are
excerpts from S&P's description of its bond ratings: BB, B, CCC, CC, C --
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with terms of the obligation; BB indicates the lowest
degree of speculation and C the highest. D -- in payment default. S&P applies
indicators "+," no character, and "-" to its rating categories. The indicators
show relative standing within the major rating categories.
Certain securities held by a Fund may permit the issuer at its option to
call, or redeem, its securities. If an issuer were to redeem securities held by
a Fund during a time of declining interest rates, the Fund may not be able to
reinvest the proceeds in securities providing the same investment return as the
securities redeemed.
The medium- to lower-rated and unrated securities in which the Fund invests
tend to offer higher yields than those of other securities with the same
maturities because of the additional risks associated with them. These risks
include:
HIGH YIELD BOND MARKET. A severe economic downturn or increase in interest rates
might increase defaults in high yield securities issued by highly leveraged
companies. An increase in the number of defaults could adversely affect the
value of all outstanding high yield securities, thus disrupting the market for
such securities.
SENSITIVITY TO INTEREST RATE AND ECONOMIC CHANGES. High yield securities are
more sensitive to adverse economic changes or individual corporate developments
but less sensitive to interest rate changes than are Treasury or investment
grade bonds. As a result, when interest rates rise, causing bond prices to fall,
the value of high yield debt bonds tend not to fall as much as Treasury or
investment grade corporate bonds. Conversely when interest rates fall, high
yield bonds tend to underperform Treasury and investment grade corporate bonds
because high yield bond prices tend not to rise as much as the prices of these
bonds.
The financial stress resulting from an economic downturn or adverse
corporate developments could have a greater negative effect on the ability of
issuers of high yield securities to service their principal and interest
payments, to meet projected business goals and to obtain additional financing
than on more creditworthy issuers. Holders of high yield securities could also
be at greater risk because high yield securities are generally unsecured and
subordinate to senior debt holders and secured creditors. If the issuer of a
High Yield Security owned by the Funds defaults, the Funds may incur additional
expenses to seek recovery. In addition, periods of economic uncertainty and
changes can be expected to result in increased volatility of market prices of
high yield securities and the Funds' net asset value. Furthermore, in the case
of high yield securities structured as zero coupon or pay-in-kind securities,
their market prices are affected to a greater extent by interest rate changes
and thereby tend to be more speculative and volatile than securities which pay
in cash.
PAYMENT EXPECTATIONS. High yield securities present risks based on payment
expectations. For example, high yield securities may contain redemption or call
provisions. If an issuer exercises these provisions in a declining interest rate
market, the Funds may have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Also, the value of high
yield securities may decrease in a rising interest rate market. In addition,
there is a higher risk of non-payment of interest and/or principal by issuers of
high yield securities than in the case of investment grade bonds.
LIQUIDITY AND VALUATION RISKS. Lower-rated bonds are typically traded among a
smaller number of broker-dealers rather than in a broad secondary market.
Purchasers of high yield securities tend to be institutions, rather than
individuals, a factor that further limits the secondary market. To the extent
that no established retail secondary market exists, many high yield securities
may not be as liquid as Treasury and investment grade bonds. The ability of a
Fund's Board of Directors/Trustees to value or sell high yield securities will
be adversely affected to the extent that such securities are thinly traded or
illiquid. Adverse publicity and investor perceptions, whether or not based on
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fundamental analysis, may decrease the values and liquidity of high yield
securities more than other securities, especially in a thinly-traded market. To
the extent the Funds owns illiquid or restricted high yield securities, these
securities may involve special registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties. At times of less liquidity, it
may be more difficult to value high yield securities because this valuation may
require more research, and elements of judgment may play a greater role in the
valuation since there is less reliable, objective data available.
Taxation. Special tax considerations are associated with investing in high yield
securities structured as zero coupon or pay-in-kind securities. The Funds report
the interest on these securities as income even though it receives no cash
interest until the security's maturity or payment date.
LIMITATIONS OF CREDIT RATINGS. The credit ratings assigned to high yield
securities may not accurately reflect the true risks of an investment. Credit
ratings typically evaluate the safety of principal and interest payments, rather
than the market value risk of high yield securities. In addition, credit
agencies may fail to adjust credit ratings to reflect rapid changes in economic
or company conditions that affect a security's market value. Although the
ratings of recognized rating services such as Moody's and S&P are considered,
the Investment Manager primarily relies on its own credit analysis, which
includes a study of existing debt, capital structure, ability to service debts
and to pay dividends, the issuer's sensitivity to economic conditions, its
operating history and the current trend of earnings. Thus, the achievement of
the Funds' investment objective may be more dependent on the Investment
Manager's own credit analysis than might be the case for a fund which invests in
higher quality bonds. The Investment Manager continually monitors the
investments in the Funds' portfolio and carefully evaluates whether to dispose
of or retain high yield securities whose credit ratings have changed. The Funds
may retain a security whose rating has been changed.
Congressional Proposals. New laws and proposed new laws may have a negative
impact on the market for high yield securities. As examples, recent legislation
requires federally-insured savings and loan associations to divest themselves of
their investments in high yield securities and pending proposals are designed to
limit the use of, or tax and eliminate other advantages of, high yield
securities. Any such proposals, if enacted, could have a negative effect on the
Funds' net asset values.
DERIVATIVES
The Funds may invest in derivative instruments. 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. Types of
derivatives include options, futures contracts, options on futures and forward
contracts. Derivative Instruments may be used for a variety of reasons,
including to enhance return, hedge certain market risks, or provide a substitute
for purchasing or selling particular securities. Derivatives may provide a
cheaper, quicker or more specifically focused way for the Fund to invest than
"traditional" securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit a Fund to increase or decrease the
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by making
investments in specific securities.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives.
Exchange-traded Derivatives generally are guaranteed by the clearing agency
which is the issuer or counterparty to such Derivatives. This guarantee usually
is supported by a daily payment system (I.E., margin requirements) operated by
the clearing agency in order to reduce overall credit risk. As a result, unless
the clearing agency defaults, there is relatively little counterparty credit
risk associated with Derivatives purchased on an exchange. By contrast, no
clearing agency guarantees over-the-counter Derivatives. Therefore, each party
to an over-the-counter Derivative bears the risk that the counterparty will
default. Accordingly, the Funds will consider the creditworthiness of
counterparties to over-the-counter Derivatives in the same manner as they would
review the credit quality of a security to be purchased by a Fund.
Over-the-counter Derivatives are less liquid than exchange-traded Derivatives
since the other party to the transaction may be the only investor with
sufficient understanding of the Derivative to be interested in bidding for it.
In the case of the MidCap Value Fund, LargeCap Leaders Fund and Asia-Pacific
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Equity Fund, it is expected that derivatives will not ordinarily be used for any
of the Funds, but a Fund may make occasional use of certain derivatives for
hedging. For example, MidCap Value Fund, LargeCap Leaders Fund and Asia-Pacific
Equity Fund may purchase put options to attempt to preserve the value of
securities that it holds, which it could do by exercising the option if the
price of the security falls below the `strike price' for the option. The
Advisory Funds will not engage in any other type of options transactions.
MORTGAGE-RELATED SECURITIES
The Government Securities Income Fund may invest up to 100% of its assets
and High Yield Fund may invest up to 35% of its assets in certain types of
mortgage-related securities. The ING Pilgrim Mutual Funds and the funds which
comprise the Mayflower Trust, Equity Trust, SmallCap Opportunities Fund, and
Growth Opportunities Fund may also invest in Mortgage-Related Securities. One
type of mortgage-related security includes certificates that represent pools of
mortgage loans assembled for sale to investors by various governmental and
private organizations. These securities provide a monthly payment, which
consists of both an interest and a principal payment that is in effect a
"pass-through" of the monthly payment made by each individual borrower on his or
her residential mortgage loan, net of any fees paid to the issuer or guarantor
of such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying residential property, refinancing, or
foreclosure, net of fees or costs that may be incurred. Some certificates (such
as those issued by the Government National Mortgage Association) are described
as "modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgage pool, net of certain fees,
regardless of whether the mortgagor actually makes the payment.
The Funds indicated above may invest in U.S. Government agency
mortgage-backed securities issued or guaranteed by the U.S. Government or one of
its agencies or instrumentalities, including GNMA, FNMA, and FHLMC. These
instruments might be considered derivatives. The primary risks associated with
these instruments is the risk that their value will change with changes in
interest rates and prepayment risk.
A major governmental guarantor of pass-through certificates is the
Government National Mortgage Association ("GNMA"). GNMA guarantees, with the
full faith and credit of the United States government, the timely payments of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
are backed by pools of FHA-insured or VA-guaranteed mortgages. Other
governmental guarantors (but not backed by the full faith and credit of the
United States Government) include the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA
purchases residential mortgages from a list of approved seller/services that
include state and federally chartered savings and loan associations, mutual
saving banks, commercial banks, credit unions and mortgage bankers.
The Government Securities Income Fund will purchase only U.S. Government
Agency Mortgage-Backed Securities. These securities are obligations issued or
guaranteed by the U.S. Government or by one of its agencies or
instrumentalities, including but not limited to GNMA, FNMA or FHLMC. Although
their close relationship with the U.S. Government is believed to make them
high-quality securities with minimal credit risks, the U.S. Government is not
obligated by law to support either FNMA or FHLMC. However, historically there
have not been any defaults of FNMA or FHLMC issues. Mortgage-backed securities
consist of interests in underlying mortgages with maturities of up to thirty
years. However, due to early unscheduled payments of principal on the underlying
mortgages, the securities have a shorter average life and, therefore, less
volatility than a comparable thirty-year bond.
The prices of high coupon U.S. Government Agency Mortgage-Backed Securities
do not tend to rise as rapidly as those of traditional fixed-rate securities at
times when interest rates are decreasing, and tend to decline more slowly at
times when interest rates are increasing. The Government Securities Income Fund
may purchase such securities at a premium, which means that a faster principal
prepayment rate than expected will reduce the market value of and income from
such securities, while a slower prepayment rate will tend to increase the market
value of and income from such securities.
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The Funds indicated above, except the Government Securities Income Fund,
may also purchase mortgage-backed securities issued by commercial banks, savings
and loan institutions, private mortgage insurance companies, mortgage bankers
and other secondary market issuers that also create pass-through pools of
conventional residential mortgage loans. Such issuers may in addition be the
originators of the underlying mortgage loans as well as the guarantors of the
pass-through certificates. Pools created by such non-governmental issuers
generally offer a higher rate of return than governmental pools because there
are no direct or indirect governmental guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance. The insurance and guarantees are issued
by government entities, private insurers and the mortgage poolers.
It is expected that governmental or private entities may create mortgage
loan pools offering pass-through investments in addition to those described
above. As new types of pass-through securities are developed and offered to
investors, the Investment Manager may, consistent with the Funds' investment
objectives, policies and restrictions, consider making investments in such new
types of securities.
Other types of mortgage-related securities in which the Funds may invest
include debt securities that are secured, directly or indirectly, by mortgages
on commercial real estate or residential rental properties, or by first liens on
residential manufactured homes (as defined in section 603(6) of the National
Manufactured Housing Construction and Safety Standards Act of 1974), whether
such manufactured homes are considered real or personal property under the laws
of the states in which they are located. Securities in this investment category
include, among others, standard mortgage-backed bonds and newer collateralized
mortgage obligations ("CMOs"). Mortgage-backed bonds are secured by pools of
mortgages, but unlike pass-through securities, payments to bondholders are not
determined by payments on the mortgages. The bonds consist of a single class,
with interest payable periodically and principal payable on the stated date of
maturity. CMOs have characteristics of both pass-through securities and
mortgage-backed bonds. CMOs are secured by pools of mortgages, typically in the
form of "guaranteed" pass-through certificates such as GNMA, FNMA, or FHLMC
securities. The payments on the collateral securities determine the payments to
bondholders, but there is not a direct "pass-through" of payments. CMOs are
structured into multiple classes, each bearing a different date of maturity.
Monthly payments of principal received from the pool of underlying mortgages,
including prepayments, is first returned to investors holding the shortest
maturity class. Investors holding the longest maturity class receive principal
only after the shorter maturity classes have been retired.
CMOs are issued by entities that operate under order from the SEC exempting
such issuers from the provisions of the 1940 Act. Until recently, the staff of
the SEC had taken the position that such issuers were investment companies and
that, accordingly, an investment by an investment company (such as the Funds) in
the securities of such issuers was subject to the limitations imposed by Section
12 of the 1940 Act. However, in reliance on SEC staff interpretations, the Funds
may invest in securities issued by certain "exempted issuers" without regard to
the limitations of Section 12 of the 1940 Act. In its interpretation, the SEC
staff defined "exempted issuers" as unmanaged, fixed asset issuers that: (a)
invest primarily in mortgage-backed securities; (b) do not issue redeemable
securities as defined in Section 2(a)(32) of the 1940 Act; (c) operate under the
general exemptive orders exempting them from all provisions of the 1940 Act; and
(d) are not registered or regulated under the 1940 Act as investment companies.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. SMBS may be issued by agencies or instrumentalities of the
U.S. government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing.
SMBS are structured with two or more classes of securities that receive
different proportions of the interest and principal distributions on a pool of
Mortgage Assets. A common type of SMBS will have at least one class receiving
only a small portion of the interest and a larger portion of the principal from
the Mortgage Assets, while the other classes will receive primarily interest and
only a small portion of the principal. In the most extreme case, one class will
receive all of the interest (the interest-only or "IO" class), while the other
class will receive all of the principal (the principal-only or "PO" class). The
yield to maturity on an IO class is extremely sensitive to the rate of principal
payments (including prepayments) on the related underlying Mortgage Assets, and
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a rapid rate of principal payments may have a material adverse effect on such
security's yield to maturity. If the underlying Mortgage Assets experience
greater than anticipated prepayments of principal, a Fund may fail to recoup
fully its initial investment in these securities. The determination of whether a
particular government-issued IO or PO backed by fixed-rate mortgages is liquid
is made by Pilgrim or a Sub-Adviser under guidelines and standards established
by the Board of Trustees. Such a security may be deemed liquid if it can be
disposed of promptly in the ordinary course of business at a value reasonably
close to that used in the calculation of net asset value per share.
Investments in mortgage-related securities involve certain risks. In
periods of declining interest rates, prices of fixed income securities tend to
rise. However, during such periods, the rate of prepayment of mortgages
underlying mortgage-related securities tends to increase, with the result that
such prepayments must be reinvested by the issuer at lower rates. 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. Because investments in mortgage-related securities are interest sensitive,
the ability of the issuer to reinvest favorably in underlying mortgages may be
limited by government regulation or tax policy. For example, action by the Board
of Governors of the Federal Reserve System to limit the growth of the nation's
money supply may cause interest rates to rise and thereby reduce the volume of
new residential mortgages. Additionally, although mortgages and mortgage-related
securities are generally supported by some form of government or private
guarantees and/or insurance, there is no assurance that private guarantors or
insurers will be able to meet their obligations. Further, stripped
mortgage-backed securities are likely to experience greater price volatility
than other types of mortgage securities. The yield to maturity on the interest
only class is extremely sensitive, both to changes in prevailing interest rates
and to the rate of principal payments (including prepayments) on the underlying
mortgage assets. Similarly, the yield to maturity on CMO residuals is extremely
sensitive to prepayments on the related underlying mortgage assets. In addition,
if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are made. A Fund could fail to fully recover its initial investment
in a CMO residual or a stripped mortgage-backed security.
Each of the Mid-Cap Opportunities Fund, Growth + Value Fund, International
Value Fund, Emerging Markets Value Fund, Research Enhanced Index Fund, High
Total Return Fund II and High Total Return Fund III may invest up to 5% of its
net assets in Privately Issued Collateralized Mortgage-Backed Obligations
("CMOs"), Interest Obligations ("IOs") and Principal Obligations ("POs") when
Pilgrim believes that such investments are consistent with the Fund's investment
objective.
The ING Pilgrim Mutual Funds, Mayflower Trust, Equity Trust, SmallCap
Opportunities Fund, and Growth Opportunities Fund may invest in foreign
mortgage-related securities. Foreign mortgage-related securities are interests
in pools of mortgage loans made to residential home buyers domiciled in a
foreign country. These include mortgage loans made by trust and mortgage loan
companies, credit unions, chartered banks, and others. Pools of mortgage loans
are assembled as securities for sale to investors by various governmental,
government-related and private organizations (e.g., Canada Mortgage and Housing
Corporation and First Australian National Mortgage Acceptance Corporation
Limited). The mechanics of these mortgage-related securities are generally the
same as those issued in the United States. However, foreign mortgage markets may
differ materially from the U.S. mortgage market with respect to matters such as
the sizes of loan pools, pre-payment experience, and maturities of loans. The
Primary Fund in which the Money Market Fund invests substantially all of its
assets will not invest in foreign mortgage-related securities.
ASSET BACKED SECURITIES
The non-mortgage-related asset-backed securities in which certain Funds
invest include, but are not limited to, interests in pools of receivables, such
as credit card and accounts receivables and motor vehicle and other installment
purchase obligations and leases. Interests in these pools are not backed by the
U.S. Government and may or may not be secured.
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The credit characteristics of asset-backed securities differs in a number
of respects from those of traditional debt securities. Asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to other debt obligations, and there is a possibility that recoveries
on repossessed collateral may not be available to support payment on these
securities. The Primary Fund in which the Money Market Fund invests
substantially all of its assets will not invest in asset-backed securities.
GNMA CERTIFICATES. Certificates of the GNMA ("GNMA Certificates") evidence an
undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds, in that principal is paid back monthly as payments of principal,
including prepayments, on the mortgages in the underlying pool are passed
through to holders of GNMA Certificates representing interests in the pool,
rather than returned in a lump sum at maturity. The GNMA Certificates that the
Funds may purchase are the "modified pass-through" type.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or the Farmers' Home
Administration ("FMHA") or guaranteed by the Veterans Administration ("VA").
GNMA is also empowered to borrow without limitation from the U.S. Treasury, if
necessary, to make payments required under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is likely to
be substantially less than the stated maturity of the mortgages underlying the
securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal investment
long before the maturity of the mortgages in the pool. Foreclosures impose no
risk of loss of the principal balance of a Certificate, because of the GNMA
guarantee, but foreclosure may impact the yield to shareholders because of the
need to reinvest proceeds of foreclosure. As prepayment rates of individual
mortgage pools vary widely, it is not possible to predict accurately the average
life of a particular issue of GNMA Certificates. However, statistics published
by the FHA indicate that the average life of single family dwelling mortgages
with 25 to 30-year maturities, the type of mortgages backing the vast majority
of GNMA Certificates, is approximately 12 years. Prepayments are likely to
increase in periods of falling interest rates. It is customary to treat GNMA
Certificates as 30-year mortgage-backed securities that prepay fully in the
twelfth year.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest of GNMA
Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the certificates, by the amount of the fees
paid to GNMA and the issuer. The coupon rate by itself, however, does not
indicate the yield that will be earned on GNMA Certificates. First, GNMA
Certificates may be issued at a premium or discount rather than at par, and,
after issuance, GNMA Certificates may trade in the secondary market at a premium
or discount. Second, interest is earned monthly, rather than semi-annually as
with traditional bonds; monthly compounding raises the effective yield earned.
Finally, the actual yield of a GNMA Certificate is influenced by the prepayment
experience of the mortgage pool underlying it. For example, if interest rates
decline, prepayments may occur faster than had been originally projected and the
yield to maturity and the investment income of the Fund would be reduced.
SUBORDINATED MORTGAGE SECURITIES
Subordinated mortgage securities have certain characteristics and certain
associated risks. In general, the subordinated mortgage securities in which the
Funds may invest consist of a series of certificates issued in multiple classes
with a stated maturity or final distribution date. One or more classes of each
series may be entitled to receive distributions allocable only to principal,
principal prepayments, interest or any combination thereof prior to one or more
other classes, or only after the occurrence of certain events, and may be
subordinated in the right to receive such distributions on such certificates to
one or more senior classes of certificates. The rights associated with each
class of certificates are set forth in the applicable pooling and servicing
agreement, form of certificate and offering documents for the certificates.
The subordination terms are usually designed to decrease the likelihood
that the holders of senior certificates will experience losses or delays in the
receipt of their distributions and to increase the likelihood that the senior
certificate holders will receive aggregate distributions of principal and
interest in the amounts anticipated. Generally, pursuant to such subordination
terms, distributions arising out of scheduled principal, principal prepayments,
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interest or any combination thereof that otherwise would be payable to one or
more other classes of certificates of such series (i.e., the subordinated
certificates) are paid instead to holders of the senior certificates. Delays in
receipt of scheduled payments on mortgage loans and losses on defaulted mortgage
loans are typically borne first by the various classes of subordinated
certificates and then by the holders of senior certificates.
In some cases, the aggregate losses in respect of defaulted mortgage loans
that must be borne by the subordinated certificates and the amount of the
distributions otherwise distributable on the subordinated certificates that
would, under certain circumstances, be distributable to senior certificate
holders may be limited to a specified amount. All or any portion of
distributions otherwise payable to holders of subordinated certificates may, in
certain circumstances, be deposited into one or more reserve accounts for the
benefit of the senior certificate holders. Since a greater risk of loss is borne
by the subordinated certificate holders, such certificates generally have a
higher stated yield than the senior certificates.
Interest on the certificates generally accrues on the aggregate principal
balance of each class of certificates entitled to interest at an applicable
rate. The certificate interest rate may be a fixed rate, a variable rate based
on current values of an objective interest index or a variable rate based on a
weighted average of the interest rate on the mortgage loans underlying or
constituting the mortgage assets. In addition, the underlying mortgage loans may
have variable interest rates.
Generally, to the extent funds are available, interest accrued during each
interest accrual period on each class of certificates entitled to interest is
distributable on certain distribution dates until the aggregate principal
balance of the certificates of such class has been distributed in full. The
amount of interest that accrues during any interest accrual period and over the
life of the certificates depends primarily on the aggregate principal balance of
the class of certificates, which, unless otherwise specified, depends primarily
on the principal balance of the mortgage assets for each such period and the
rate of payment (including prepayments) of principal of the underlying mortgage
loans over the life of the trust.
A series of certificates may consist of one or more classes as to which
distributions allocable to principal will be allocated. The method by which the
amount of principal to be distributed on the certificates on each distribution
date is calculated and the manner in which such amount could be allocated among
classes varies and could be effected pursuant to a fixed schedule, in relation
to the occurrence of certain events or otherwise. Special distributions are also
possible if distributions are received with respect to the mortgage assets, such
as is the case when underlying mortgage loans are prepaid.
A mortgage-related security that is senior to a subordinated residential
mortgage security will not bear a loss resulting from the occurrence of a
default on an underlying mortgage until all credit enhancement protecting such
senior holder is exhausted. For example, the senior holder will only suffer a
credit loss after all subordinated interests have been exhausted pursuant to the
terms of the subordinated residential mortgage security. The primary credit risk
to the Funds by investing in subordinated residential mortgage securities is
potential losses resulting from defaults by the borrowers under the underlying
mortgages. The Funds would generally realize such a loss in connection with a
subordinated residential mortgage security only if the subsequent foreclosure
sale of the property securing a mortgage loan does not produce an amount at
least equal to the sum of the unpaid principal balance of the loan as of the
date the borrower went into default, the interest that was not paid during the
foreclosure period and all foreclosure expenses.
The Investment Manager will seek to limit the risks presented by
subordinated residential mortgage securities by reviewing and analyzing the
characteristics of the mortgage loans that underlie the pool of mortgages
securing both the senior and subordinated residential mortgage securities. The
Investment Manager has developed a set of guidelines to assist in the analysis
of the mortgage loans underlying subordinated residential mortgage securities.
Each pool purchase is reviewed against the guidelines. The Funds seek
opportunities to acquire subordinated residential mortgage securities where, in
the view of the Investment Manager, the potential for a higher yield on such
instruments outweighs any additional risk presented by the instruments. The
Investment Manager will seek to increase yield to shareholders by taking
advantage of perceived inefficiencies in the market for subordinated residential
mortgage securities.
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CREDIT ENHANCEMENT. Credit enhancement for the senior certificates comprising a
series is provided by the holders of the subordinated certificates to the extent
of the specific terms of the subordination and, in some cases, by the
establishment of reserve funds. Depending on the terms of a particular pooling
and servicing agreement, additional or alternative credit enhancement may be
provided by a pool insurance policy and/or other insurance policies, third party
limited guaranties, letters of credit, or similar arrangements. Letters of
credit may be available to be drawn upon with respect to losses due to mortgagor
bankruptcy and with respect to losses due to the failure of a master service to
comply with its obligations, under a pooling and servicing agreement, if any, to
repurchase a mortgage loan as to which there was fraud or negligence on the part
of the mortgagor or originator and subsequent denial of coverage under a pool
insurance policy, if any. A master service may also be required to obtain a pool
insurance policy to cover losses in an amount up to a certain percentage of the
aggregate principal balance of the mortgage loans in the pool to the extent not
covered by a primary mortgage insurance policy by reason of default in payments
on mortgage loans.
OPTIONAL TERMINATION OF A TRUST. A pooling and servicing agreement may provide
that the depositor and master service could effect early termination of a trust,
after a certain specified date or the date on which the aggregate outstanding
principal balance of the underlying mortgage loans is less than a specific
percentage of the original aggregate principal balance of the underlying
mortgage loans by purchasing all of such mortgage loans at a price, unless
otherwise specified, equal to the greater of a specified percentage of the
unpaid principal balance of such mortgage loans, plus accrued interest thereon
at the applicable certificate interest rate, or the fair market value of such
mortgage assets. Generally, the proceeds of such repurchase would be applied to
the distribution of the specified percentage of the principal balance of each
outstanding certificate of such series, plus accrued interest, thereby retiring
such certificates. Notice of such optional termination would be given by the
trustee prior to such distribution date.
UNDERLYING MORTGAGE LOANS. The underlying trust assets are a mortgage pool
generally consisting of mortgage loans on single, multi-family and mobile home
park residential properties. The mortgage loans are originated by savings and
loan associations, savings banks, commercial banks or similar institutions and
mortgage banking companies.
Various services provide certain customary servicing functions with respect
to the mortgage loans pursuant to servicing agreements entered into between each
service and the master service. A service duties generally include collection
and remittance of principal and interest payments, administration of mortgage
escrow accounts, collection of insurance claims, foreclosure procedures and, if
necessary, the advance of funds to the extent certain payments are not made by
the mortgagors and are recoverable under applicable insurance policies or from
proceeds of liquidation of the mortgage loans.
The mortgage pool is administered by a master service who (a) establishes
requirements for each service, (b) administers, supervises and enforces the
performance by the services of their duties and responsibilities under the
servicing agreements, and (c) maintains any primary insurance, standard hazard
insurance, special hazard insurance and any pool insurance required by the terms
of the certificates. The master service may be an affiliate of the depositor and
also may be the service with respect to all or a portion of the mortgage loans
contained in a trust fund for a series of certificates.
ZERO COUPON AND PAY-IN-KIND SECURITIES
The Funds may invest in zero coupon securities. The Convertible, Balanced,
and High Yield II Funds will limit their investments in such securities to 35%
of their respective net assets. Zero coupon, or deferred interest securities are
debt obligations that do not entitle the holder to any periodic payment of
interest prior to maturity or a specified date when the securities begin paying
current interest (the "cash payment date") and therefore are issued and traded
at a discount from their face amounts or par value. The discount varies,
depending on the time remaining until maturity or cash payment date, prevailing
interest rates, liquidity of the security and the perceived credit quality of
the issuer. The discount, in the absence of financial difficulties of the
issuer, decreases as the final maturity or cash payment date of the security
approaches. The market prices of zero coupon and delayed interest securities
generally are more volatile than the market prices of securities that pay
interest periodically and are likely to respond to changes in interest rates to
a greater degree than do non-zero coupon securities having similar maturities
and credit quality. Current federal income tax law requires holders of zero
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coupon securities to report as interest income each year the portion of the
original issue discount on such securities (other than tax-exempt original issue
discount from a zero coupon security) that accrues that year, even though the
holders receive no cash payments of interest during the year.
The Funds may also invest in pay-in-kind securities. Pay-in-kind securities
are securities that pay interest or dividends through the issuance of additional
securities. A Fund will be required to report as income annual inclusions of
original issue discount over the life of such securities as if it were paid on a
current basis, although no cash interest or dividend payments are received by
the Funds until the cash payment date or the securities mature. Under certain
circumstances, the Funds could also be required to include accrued market
discount or capital gain with respect to its pay-in-kind securities.
The risks associated with lower rated debt securities apply to these
securities. Zero coupon and pay-in-kind securities are also subject to the risk
that in the event of a default, the Fund may realize no return on its
investment, because these securities do not pay cash interest.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS
The Advisory Funds, High Yield Fund, MagnaCap Fund, and the ING Pilgrim
Mutual Funds (other than the Money Market Fund) may invest in securities of
foreign issuers in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") or other similar securities representing securities
of foreign issuers. These securities may not necessarily be denominated in the
same currency as the securities they represent. ADRs are receipts typically
issued by a United States bank or trust company evidencing ownership of the
underlying foreign securities. EDRs are receipts issued by a European financial
institution evidencing a similar arrangement. Generally, ADRs, in registered
form, are designed for use in the United States securities markets, and EDRs, in
bearer form, are designed for use in European securities markets.
FOREIGN AND EMERGING MARKET SECURITIES
Each Fund may invest in securities of foreign issuers. Each of these Funds
other than International Value, Emerging Markets Value, High Yield, High Total
Return II and High Total Return Funds may invest up to 20% of its net assets in
foreign securities, of which 10% of its net assets may be invested in foreign
securities that are not listed on a U.S. securities exchange. High Yield Fund
may invest up to 35% of its total assets and High Total Return Fund II and High
Total Return Fund may each invest up to 50% of its assets in foreign securities.
International Value Fund and Emerging Markets Value Fund may each invest up to
100% of its assets in securities of foreign issuers. The Worldwide Growth Fund,
International Core Growth Fund, and Emerging Countries Fund each invest s at
least 65% of its assets in foreign securities.
The Asia-Pacific Equity Fund invests primarily, and the MagnaCap Fund may
invest up to 5% of its total assets, in certain foreign securities (including
ADRs). The International Value Fund may invest up to 25% of its assets and the
Emerging Markets Value Fund may invest greater than 65% of its assets in
securities of companies located in countries with emerging securities markets.
The High Yield Fund may invest up to 10% of its total assets in debt obligations
(including preferred stocks) issued or guaranteed by foreign corporations,
certain supranational entities (such as the World Bank) and foreign governments
(including political subdivisions having taxing authority) or their agencies or
instrumentalities, including ADRs. These securities may be denominated in either
U.S. dollars or in non-U.S. currencies. The Asia-Pacific Equity Fund will invest
substantially all of its assets in the equity securities of companies based in
the Asia-Pacific region. The Asia-Pacific countries include, but are not limited
to, China, Hong Kong, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan
and Thailand, although the Fund will not invest in Japan and Australia.
Foreign financial markets, while growing in volume, have, for the most
part, substantially less volume than United States markets, and securities of
many foreign companies are less liquid and their prices more volatile than
securities of comparable domestic companies. The foreign markets also have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions.
Delivery of securities may not occur at the same time as payment in some foreign
markets. Delays in settlement could result in temporary periods when a portion
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of the assets of a Fund is uninvested and no return is earned thereon. The
inability of the Funds to make intended security purchases due to settlement
problems could cause the Funds to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems could
result either in losses to the Funds due to subsequent declines in value of the
portfolio security or, if the Funds have entered into a contract to sell the
security, could result in possible liability to the purchaser.
As foreign companies are not generally subject to uniform accounting,
auditing and financial reporting standards and practices comparable to those
applicable to domestic companies, there may be less publicly available
information about certain foreign companies than about domestic companies. There
is generally less government supervision and regulation of exchanges, financial
institutions and issuers in foreign countries than there is in the United
States. A foreign government may impose exchange control regulations that may
have an impact on currency exchange rates, and there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments that could affect U.S. investments in those countries.
Although the Funds will use reasonable efforts to obtain the best available
price and the most favorable execution with respect to all transactions and the
Investment Manager or Sub-Adviser will consider the full range and quality of
services offered by the executing broker or dealer when making these
determinations, fixed commissions on many foreign stock exchanges are generally
higher than negotiated commissions on U.S. exchanges. Certain foreign
governments levy withholding taxes against dividend and interest income, or may
impose other taxes. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received by the Funds on these investments. However, these foreign
withholding taxes are not expected to have a significant impact on the Fund,
since the Fund's investment objective is to seek long-term capital appreciation
and any income earned by the Fund should be considered incidental. The risks of
investing in foreign securities may be intensified in the case of investments in
issuers domiciled or doing substantial business in emerging markets or countries
with limited or developing capital markets. Security prices in emerging markets
can be significantly more volatile than in the more developed nations of the
world, reflecting the greater uncertainties of investing in less established
markets and economies. In particular, countries with emerging markets may have
relatively unstable governments, present the risk of sudden adverse government
action and even nationalization of businesses, restrictions on foreign
ownership, or prohibitions of repatriation of assets, and may have less
protection of property rights than more developed countries. The economies of
countries with emerging markets may be predominantly based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Local securities markets may trade a small number of securities and may
be unable to respond effectively to increases in trading volume, potentially
making prompt liquidation of substantial holdings difficult or impossible at
times. Transaction settlement and dividend collection procedures may be less
reliable in emerging markets than in developed markets. Securities of issuers
located in countries with emerging markets may have limited marketability and
may be subject to more abrupt or erratic price movements.
INTERNATIONAL DEBT SECURITIES. The Funds indicated above may invest in debt
obligations (which may be denominated in U.S. dollar or in non-U.S. currencies)
of any rating issued or guaranteed by foreign corporations, certain
supranational entities (such as the World Bank) and foreign governments
(including political subdivisions having taxing authority) or their agencies or
instrumentalities, including American Depository Receipts. No more than 10% of
the High Yield Fund's total assets, at the time of purchase, will be invested in
securities of foreign issuers. These investments may include debt obligations
such as bonds (including sinking fund and callable bonds), debentures and notes,
together with preferred stocks, pay-in-kind securities, and zero coupon
securities.
In determining whether to invest in debt obligations of foreign issuers,
the Fund will consider the relative yields of foreign and domestic high yield
securities, the economies of foreign countries, the condition of such countries'
financial markets, the interest rate climate of such countries and the
relationship of such countries' currency to the U.S. Dollar. These factors are
judged on the basis of fundamental economic criteria (e.g., relative inflation
levels and trends, growth rate forecasts, balance of payments status and
economic policies) as well as technical and political data. Subsequent foreign
currency losses may result in the Fund having previously distributed more income
in a particular period than was available from investment income, which could
result in a return of capital to shareholders. The Fund's portfolio of foreign
securities may include those of a number of foreign countries, or, depending
upon market conditions, those of a single country.
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Investments in securities of issuers in non-industrialized countries
generally involve more risk and may be considered highly speculative. Although a
portion of the Fund's investment income may be received or realized in foreign
currencies, the Fund will be required to compute and distribute its income in
U.S. dollars and absorb the cost of currency fluctuations and the cost of
currency conversions. Investment in foreign securities involves considerations
and risks not associated with investment in securities of U.S. issuers. For
example, foreign issuers are not required to use generally accepted accounting
principles. If foreign securities are not registered under the Securities Act of
1933, as amended, the issuer does not have to comply with the disclosure
requirements of the Securities Exchange Act of 1934, as amended. The values of
foreign securities investments will be affected by incomplete or inaccurate
information available to the Investment Manager as to foreign issuers, changes
in currency rates, exchange control regulations or currency blockage,
expropriation or nationalization of assets, application of foreign tax laws
(including withholding taxes), changes in governmental administration or
economic or monetary policy. In addition, it is generally more difficult to
obtain court judgments outside the United States.
INVESTING IN DEVELOPING ASIA-PACIFIC SECURITIES MARKETS AND ECONOMIES. The
securities markets of developing Asia-Pacific countries are not as large as the
U.S. securities markets and have substantially less trading volume, resulting in
a lack of liquidity and high price volatility. Certain markets, such as those of
China, are in only the earliest stages of development. There is also a 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. Many of such markets
also may be affected by developments with respect to more established markets in
the region, such as in Japan. Developing Asia-Pacific brokers typically are
fewer in number and less capitalized than brokers in the United States. These
factors, combined with the U.S. regulatory requirements of open-end investment
companies and the restrictions on foreign investments discussed below, result in
potentially fewer investment opportunities for Asia-Pacific Equity Fund and may
have an adverse impact on the investment performance of the Fund. The Fund's
investment restrictions permit it to invest up to 15% of its net assets in
securities that are determined by the Sub-Adviser to be illiquid.
The investment objective of the Asia-Pacific Equity Fund reflects the
belief that the economies of the developing Asia-Pacific countries will continue
to grow in such a fashion as to provide attractive investment opportunities. At
the same time, emerging economies present certain risks that do not exist in
more established economies. Especially significant is that political and social
uncertainties exist for many of the developing Asia-Pacific countries. In
addition, the governments of many of such countries, such as Indonesia, have a
heavy role in regulating and supervising the economy. Another risk common to
most such countries is that the economy is heavily export oriented and,
accordingly, is dependent upon international trade. The existence of
overburdened infrastructure and obsolete financial systems also presents risks
in certain countries, as do environmental problems. Certain economies also
depend to a significant degree upon exports of primary commodities and,
therefore, are vulnerable to changes in commodity prices which, in turn, may be
affected by a variety of factors. In addition, certain developing Asia-Pacific
countries, such as the Philippines, are especially large debtors to commercial
banks and foreign governments.
Archaic legal systems in certain developing Asia-Pacific countries also may
have an adverse impact on the Asia-Pacific Equity Fund. For example, while the
potential liability of a shareholder in a U.S. corporation with respect to acts
of the corporation is generally limited to the amount of the shareholder's
investment, the notion of limited liability is less clear in certain developing
Asia-Pacific countries. Similarly, the rights of investors in Asia-Pacific
companies may be more limited than those of shareholders of U.S. corporations.
Certain of the risks associated with international investments and
investing in smaller capital markets are heightened for investments in
developing Asia-Pacific countries. For example, some of the currencies of
developing Asia-Pacific countries have experienced devaluations relative to the
U.S. dollar, and major adjustments have been made periodically in certain of
such currencies. Certain countries face serious exchange constraints. In
addition, as mentioned above, governments of many developing Asia-Pacific
countries have exercised and continue to exercise substantial influence over
many aspects of the private sector.
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In certain cases, the government owns or controls many companies, including
the largest in the country. Accordingly, government actions in the future could
have a significant effect on economic conditions in developing Asia-Pacific
countries, which could affect private sector companies and the Asia-Pacific
Equity Fund, as well as the value of securities in the Fund's portfolio.
In addition to the relative lack of publicly available information about
developing Asia-Pacific issuers and the possibility that such issuers may not be
subject to the same accounting, auditing and financial reporting standards as
are applicable to U.S. companies, inflation accounting rules in some developing
Asia-Pacific countries require, for companies that keep accounting records in
the local currency, for both tax and accounting purposes, that certain assets
and liabilities be restated on the company's balance sheet in order to express
items in terms of currency of constant purchasing power. Inflation accounting
may indirectly generate losses or profits for certain developing Asia-Pacific
companies.
Satisfactory custodial services for investment securities may not be
available in some developing Asia-Pacific countries, which may result in the
Asia-Pacific Equity Fund incurring additional costs and delays in providing
transportation and custody services for such securities outside such countries,
if possible.
As a result, the Sub-Adviser of the Asia-Pacific Equity Fund may determine
that, notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular developing Asia-Pacific
country. The Fund may invest in countries in which foreign investors, including
the Sub-Adviser of the Fund, have had no or limited prior experience.
RESTRICTIONS ON FOREIGN INVESTMENTS. Some developing countries prohibit or
impose substantial restrictions on investments in their capital markets,
particularly their equity markets, by foreign entities such as a Fund. As
illustrations, certain countries may require governmental approval prior to
investments by foreign persons or limit the amount of investment by foreign
persons in a particular company or limit the investment by foreign persons to
only a specific class of securities of a company that may have less advantageous
terms (including price) than securities of the company available for purchase by
nationals. Certain countries may restrict investment opportunities in issuers or
industries deemed important to national interests.
The manner in which foreign investors may invest in companies in certain
developing countries, as well as limitations on such investments, also may have
an adverse impact on the operations of a Fund that invests in such countries.
For example, the Fund may be required in certain of such countries to invest
initially through a local broker or other entity and then have the shares
purchased re-registered in the name of the Fund. Re-registration may in some
instances not be able to occur on timely basis, resulting in a delay during
which a Fund may be denied certain of its rights as an investor, including
rights as to dividends or to be made aware of certain corporate actions. There
also may be instances where a Fund places a purchase order but is subsequently
informed, at the time of re-registration, that the permissible allocation of the
investment to foreign investors has been filled, depriving the Fund of the
ability to make its desired investment at that time.
Substantial limitations may exist in certain countries with respect to a
Fund's ability to repatriate investment income, capital or the proceeds of sales
of securities by foreign investors. A Fund could be adversely affected by delays
in, or a refusal to grant, any required governmental approval for repatriation
of capital, as well as by the application to the Fund of any restrictions on
investments. No more than 15% of a Fund's net assets may be comprised, in the
aggregate, of assets that are (i) subject to material legal restrictions on
repatriation or (ii) invested in illiquid securities. Even where there is no
outright restriction on repatriation of capital, the mechanics of repatriation
may affect certain aspects of the operations of the Fund. For example, funds may
be withdrawn from the People's Republic of China only in U.S. or Hong Kong
dollars and only at an exchange rate established by the government once each
week.
In certain countries, banks or other financial institutions may be among
the leading companies or have actively traded securities. The 1940 Act restricts
each Fund's investments in any equity securities of an issuer that, in its most
recent fiscal year, derived more than 15% of its revenues from "securities
related activities," as defined by the rules thereunder. The provisions may
restrict the Fund's investments in certain foreign banks and other financial
institutions.
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FOREIGN CURRENCY RISKS. Currency risk is the risk that changes in foreign
exchange rates will affect, favorably or unfavorably, the U.S. dollar value of
foreign securities. In a period when the U.S. dollar generally rises against
foreign currencies, the returns on foreign stocks for a U.S. investor will be
diminished. By contrast, in a period when the U.S. dollar generally declines,
the returns on foreign securities will be enhanced. Unfavorable changes in the
relationship between the U.S. dollar and the relevant foreign currencies,
therefore, will adversely affect the value of a Fund's shares.
The introduction of the euro (a common currency for the European Economic
and Monetary Union) in January 1999 could have an adverse effect of the Fund's
ability to value holdings denominated in local currencies and on trading and
other administrative systems which affect such securities.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Funds that invest in foreign
securities may buy and sell securities denominated in currencies other than the
U.S. Dollar, and receive interest, dividends and sale proceeds in currencies
other than the U.S. Dollar, the Funds may enter into foreign currency exchange
transactions to convert to and from different foreign currencies and to convert
foreign currencies to and from the U.S. Dollar. The Funds either enter into
these transactions on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or uses forward foreign currency contracts
to purchase or sell foreign currencies. Asia-Pacific Equity Fund may not invest
more than 5% of its assets (taken at market value at the time of investment) in
forward foreign currency contracts. A forward foreign currency exchange contract
is an agreement to exchange one currency for another -- for example, to exchange
a certain amount of U.S. Dollars for a certain amount of Korean Won -- at a
future date. Forward foreign currency contracts are included in the group of
instruments that can be characterized as derivatives. Neither spot transactions
nor forward foreign currency exchange contracts eliminate fluctuations in the
prices of the Fund's portfolio securities or in foreign exchange rates, or
prevent loss if the prices of these securities should decline.
Although these transactions tend to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they tend to limit
any potential gain that might be realized should the value of the hedged
currency increase. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible because the
future value of these securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain. Use of currency
hedging techniques may also be limited by management's need to protect the
status of the Fund as a regulated investment company under the Code.
FOREIGN BANK OBLIGATIONS
Through its investment in the Primary Fund, the Money Market Fund invests
in obligations of foreign banks and foreign branches of U.S. banks. Obligations
of foreign banks and foreign branches of U.S. banks involve somewhat different
investment risks from those affecting obligations of U.S. banks, including the
possibilities that liquidity could be impaired because of future political and
economic developments; the obligations may be less marketable than comparable
obligations of U.S. banks; a foreign jurisdiction might impose withholding taxes
on interest income payable on those obligations; foreign deposits may be seized
or nationalized; foreign governmental restrictions (such as foreign exchange
controls) may be adopted which might adversely affect the payment of principal
and interest on those obligations; and the selection of those obligations may be
more difficult because there may be less publicly available information
concerning foreign banks. In addition, the accounting, auditing and financial
reporting standards, practices and requirements applicable to foreign banks may
differ from those applicable to U.S. banks. In that connection, foreign banks
are not subject to examination by any U.S. government agency or instrumentality.
SOVEREIGN DEBT SECURITIES
Certain Funds may invest in sovereign debt securities issued by governments
of foreign countries. The sovereign debt in which the Funds may invest may be
rated below investment grade. These securities usually offer higher yields than
higher rated securities but are also subject to greater risk than higher rated
securities.
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BRADY BONDS
Brady bonds represent a type of sovereign debt. These obligations were
created under a debt restructuring plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady, in which foreign entities issued these
obligations in exchange for their existing commercial bank loans. Brady Bonds
have been issued by Argentina, Brazil, Costa Rica, the Dominican Republic,
Mexico, the Philippines, Uruguay and Venezuela, and may be issued by other
emerging countries.
RISKS OF INVESTING IN FOREIGN SECURITIES
Investments in foreign securities involve certain inherent risks, including
the following:
MARKET CHARACTERISTICS. Settlement practices for transactions in foreign markets
may differ from those in United States markets, and may include delays beyond
periods customary in the United States. Foreign security trading practices,
including those involving securities settlement where Fund assets may be
released prior to receipt of payment or securities, may expose the Funds to
increased risk in the event of a failed trade or the insolvency of a foreign
broker-dealer. Transactions in options on securities, futures contracts, futures
options and currency contracts may not be regulated as effectively on foreign
exchanges as similar transactions in the United States, and may not involve
clearing mechanisms and related guarantees. The value of such positions also
could be adversely affected by the imposition of different exercise terms and
procedures and margin requirements than in the United States. The value of a
Fund's positions may also be adversely impacted by delays in its ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States.
LEGAL AND REGULATORY MATTERS. In addition to nationalization, foreign
governments may take other actions that could have a significant effect on
market prices of securities and payment of interest, including restrictions on
foreign investment, expropriation of goods and imposition of taxes, currency
restrictions and exchange control regulations.
TAXES. The interest payable on certain of the Funds' foreign portfolio
securities may be subject to foreign withholding taxes, thus reducing the net
amount of income available for distribution to the Funds' shareholders. A
shareholder otherwise subject to United States federal income taxes may, subject
to certain limitations, be entitled to claim a credit or deduction of U.S.
federal income tax purposes for his proportionate share of such foreign taxes
paid by the Funds.
COSTS. The expense ratios of the Funds are likely to be higher than those of
investment companies investing in domestic securities, since the cost of
maintaining the custody of foreign securities is higher.
In considering whether to invest in the securities of a foreign company,
the Investment Manager or Sub-Adviser considers such factors as the
characteristics of the particular company, differences between economic trends
and the performance of securities markets within the U.S. and those within other
countries, and also factors relating to the general economic, governmental and
social conditions of the country or countries where the company is located. The
extent to which a Fund will be invested in foreign companies and countries and
depository receipts will fluctuate from time to time within the limitations
described in the Prospectus, depending on the Investment Manager's or
Sub-Adviser's assessment of prevailing market, economic and other conditions.
SECURITIES SWAPS
The Funds that comprise the ING Pilgrim Mutual Funds (other than the Money
Market Fund) may enter into securities swaps, a technique primarily used to
indirectly participate in the securities market of a country from which a Fund
would otherwise be precluded for lack of an established securities custody and
safekeeping system. The Fund deposits an amount of cash with its custodian (or
the broker, if legally permitted) in an amount equal to the selling price of the
underlying security. Thereafter, the Fund pays or receives cash from the broker
equal to the change in the value of the underlying security.
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OPTIONS ON SECURITIES AND SECURITIES INDICES
PURCHASING PUT AND CALL OPTIONS. Each Fund (other than the Money Market
Fund, Advisory Funds, Investment Funds, Bank and Thrift Fund, and Government
Securities Income Fund) is authorized to purchase put and call options with
respect to securities which are otherwise eligible for purchase by the Fund and
with respect to various stock indices subject to certain restrictions. The
Advisory Funds may only purchase put options on portfolio securities. Put and
call options are derivative securities traded on United States and foreign
exchanges, including the American Stock Exchange, Chicago Board Options
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange and New York Stock
Exchange. Except as indicated in "Non-Hedging Strategic Transactions," the Funds
will engage in trading of such derivative securities exclusively for hedging
purposes.
If a Fund purchases a put option, the Fund acquires the right to sell the
underlying security at a specified price at any time during the term of the
option (for "American-style" options) or on the option expiration date (for
"European-style" options). Purchasing put options may be used as a portfolio
investment strategy when the Investment Manager or Sub-Adviser perceives
significant short-term risk but substantial long-term appreciation for the
underlying security. The put option acts as an insurance policy, as it protects
against significant downward price movement while it allows full participation
in any upward movement. If the Fund holds a stock which the Investment Manager
or Sub-Adviser believes has strong fundamentals, but for some reason may be weak
in the near term, the Fund may purchase a put option on such security, thereby
giving itself the right to sell such security at a certain strike price
throughout the term of the option. Consequently, the Fund will exercise the put
only if the price of such security falls below the strike price of the put. The
difference between the put's strike price and the market price of the underlying
security on the date the Fund exercises the put, less transaction costs, is the
amount by which the Fund hedges against a decline in the underlying security. If
during the period of the option the market price for the underlying security
remains at or above the put's strike price, the put will expire worthless,
representing a loss of the price the Fund paid for the put, plus transaction
costs. If the price of the underlying security increases, the premium paid for
the put option less any amount for which the put may be sold reduces the profit
the Fund realizes on the sale of the securities.
If a Fund purchases a call option, it acquires the right to purchase the
underlying security at a specified price at any time during the term of the
option. The purchase of a call option is a type of insurance policy to hedge
against losses that could occur if the Fund has a short position in the
underlying security and the security thereafter increases in price. The Fund
will exercise a call option only if the price of the underlying security is
above the strike price at the time of exercise. If during the option period the
market price for the underlying security remains at or below the strike price of
the call option, the option will expire worthless, representing a loss of the
price paid for the option, plus transaction costs. If a Fund purchases the call
option to hedge a short position in the underlying security and the price of the
underlying security thereafter falls, the premium paid for the call option less
any amount for which such option may be sold reduces the profit the Fund
realizes on the cover of the short position in the security.
Prior to exercise or expiration, an option may be sold when it has
remaining value by a purchaser through a "closing sale transaction," which is
accomplished by selling an option of the same series as the option previously
purchased. The Funds generally will purchase only those options for which the
Investment Manager or Sub-Adviser believes there is an active secondary market
to facilitate closing transactions.
WRITING CALL OPTIONS. Each Fund (other than the Money Market Fund,
Investment Funds, Bank and Thrift Fund, and Government Securities Income Fund)
may write covered call options. A call option is "covered" if a Fund owns the
security underlying the call or has an absolute right to acquire the security
without additional cash consideration (or, if additional cash consideration is
required, cash or cash equivalents in such amount as are held in a segregated
account by the Custodian). The writer of a call option receives a premium and
gives the purchaser the right to buy the security underlying the option at the
exercise price. The writer has the obligation upon exercise of the option to
deliver the underlying security against payment of the exercise price during the
option period. If the writer of an exchange-traded option wishes to terminate
his obligation, he may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. A writer may not effect a closing purchase transaction after it has
been notified of the exercise of an option.
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Effecting a closing transaction in the case of a written call option will
permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. Also, effecting a
closing transaction allows the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments of the Fund.
If the Fund desires to sell a particular security from its portfolio on which it
has written a call option, it will effect a closing transaction prior to or
concurrent with the sale of the security. A Fund realizes a gain from a closing
transaction if the cost of the closing transaction is less than the premium
received from writing the option or if the proceeds from the closing transaction
are more than the premium paid to purchase the option. A Fund realizes a loss
from a closing transaction if the cost of the closing transaction is more than
the premium received from writing the option or if the proceeds from the closing
transaction are less than the premium paid to purchase the option. However,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, appreciation of the
underlying security owned by the Fund generally offsets, in whole or in part,
any loss to the Fund resulting from the repurchase of a call option.
The staff of the Securities and Exchange Commission (the "SEC") has taken
the position that purchased over-the-counter options ("OTC Options") and the
assets used as cover for written OTC Options are illiquid securities. A Fund
will write OTC Options only with primary U.S. Government Securities dealers
recognized by the Board of Governors of the Federal Reserve System or member
banks of the Federal Reserve System ("primary dealers"). In connection with
these special arrangements, the Fund intends to establish standards for the
creditworthiness of the primary dealers with which it may enter into OTC Option
contracts and those standards, as modified from time to time, will be
implemented and monitored by the Investment Manager. Under these special
arrangements, the Fund will enter into contracts with primary dealers that
provide that the Fund has the absolute right to repurchase an option it writes
at any time at a repurchase price which represents the fair market value, as
determined in good faith through negotiation between the parties, but that in no
event will exceed a price determined pursuant to a formula contained in the
contract. Although the specific details of the formula may vary between
contracts with different primary dealers, the formula will generally be based on
a multiple of the premium received by the Fund for writing the option, plus the
amount, if any, by which the option is "in-the-money." The formula will also
include a factor to account for the difference between the price of the security
and the strike price of the option if the option is written "out-of-the-money."
"Strike price" refers to the price at which an option will be exercised. "Cover
assets" refers to the amount of cash or liquid assets that must be segregated to
collateralize the value of the futures contracts written by the Fund. Under such
circumstances, the Fund will treat as illiquid that amount of the cover assets
equal to the amount by which the formula price for the repurchase of the option
is greater than the amount by which the market value of the security subject to
the option exceeds the exercise price of the option (the amount by which the
option is "in-the-money"). Although each agreement will provide that the Fund's
repurchase price shall be determined in good faith (and that it shall not exceed
the maximum determined pursuant to the formula), the formula price will not
necessarily reflect the market value of the option written. Therefore, the Fund
might pay more to repurchase the OTC Option contract than the Fund would pay to
close out a similar exchange traded option.
Stock Index Options. Each Fund (other than the Money Market Fund,
Investment Funds, Bank and Thrift Fund, and Government Securities Income Fund)
may also purchase put and call options with respect to the S&P 500 and other
stock indices. The Funds may purchase such options as a hedge against changes in
the values of portfolio securities or securities which it intends to purchase or
sell, or to reduce risks inherent in the ongoing management of the Fund.
The distinctive characteristics of options on stock indices create certain
risks not found in stock options generally. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss on the purchase
or sale of an option on an index depends upon movements in the level of stock
prices in the stock market generally rather than movements in the price of a
particular stock. Accordingly, successful use by a Fund of options on a stock
index depends on the Investment Manager's or Sub-Adviser's ability to predict
correctly movements in the direction of the stock market generally. This
requires different skills and techniques than predicting changes in the price of
individual stocks.
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Index prices may be distorted if circumstances disrupt trading of certain
stocks included in the index, such as if trading were halted in a substantial
number of stocks included in the index. If this happens, the Fund could not be
able to close out options which it had purchased, and if restrictions on
exercise were imposed, the Fund might be unable to exercise an option it holds,
which could result in substantial losses to the Fund. The Funds purchase put or
call options only with respect to an index which the Investment Manager or
Sub-Adviser believes includes a sufficient number of stocks to minimize the
likelihood of a trading halt in the index.
RISKS OF INVESTING IN OPTIONS. There are several risks associated with
transactions in options on securities and indices. Options may be more volatile
than the underlying instruments and, therefore, on a percentage basis, an
investment in options may be subject to greater fluctuation than an investment
in the underlying instruments themselves. There are also significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objective. In addition, a liquid secondary market for particular options may
be absent for reasons which include the following: there may be insufficient
trading interest in certain options; restrictions may be imposed by an exchange
on opening transactions or closing transactions or both; trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of option of underlying securities; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the facilities of
an exchange or clearing corporation may not at all times be adequate to handle
current trading volume; or one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or a particular class or series of options), in which event the
secondary market on that exchange (or in that class or series of options) would
cease to exist, although outstanding options that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves the exercise
of skill and judgment, and even a well-conceived transaction may be unsuccessful
to some degree because of market behavior or unexpected events. The extent to
which a Fund may enter into options transactions may be limited by the Internal
Revenue Code requirements for qualification of the Fund as a regulated
investment company. See "Dividends, Distributions and Taxes."
In addition, foreign option exchanges do not afford to participants many of
the protections available in United States option exchanges. For example, there
may be no daily price fluctuation limits in such exchanges or markets, and
adverse market movements could therefore continue to an unlimited extent over a
period of time. Although the purchaser of an option cannot lose more than the
amount of the premium plus related transaction costs, this entire amount could
be lost. Moreover, a Fund as an option writer could lose amounts substantially
in excess of its initial investment, due to the margin and collateral
requirements typically associated with such option writing. See "Dealer Options"
below.
LIMITS ON USE OF OPTIONS. A Fund may not purchase or sell options if more
than 25% of its net assets would be hedged. The Funds may write covered call
options and secured put options to seek to generate income or lock in gains on
up to 25% of their net assets.
DEALER OPTIONS. The Funds indicated above may engage in transactions
involving dealer options as well as exchange-traded options. Certain risks are
specific to dealer options. While the Funds might look to a clearing corporation
to exercise exchange-traded options, if a Fund purchases a dealer option it must
rely on the selling dealer to perform if the Fund exercises the option. Failure
by the dealer to do so would result in the loss of the premium paid by the Fund
as well as loss of the expected benefit of the transaction.
Exchange-traded options generally have a continuous liquid market while
dealer options may not. Consequently, a Fund can realize the value of a dealer
option it has purchased only by exercising or reselling the option to the
issuing dealer. Similarly, when a Fund writes a dealer option, the Fund can
close out the option prior to its expiration only by entering into a closing
purchase transaction with the dealer. While the Fund seeks to enter into dealer
options only with dealers who will agree to and can enter into closing
transactions with the Fund, no assurance exists that the Fund will at any time
be able to liquidate a dealer option at a favorable price at any time prior to
expiration. Unless the Fund, as a covered dealer call option writer, can effect
a closing purchase transaction, it will not be able to liquidate securities (or
other assets) used as cover until the option expires or is exercised. In the
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event of insolvency of the other party, the Fund may be unable to liquidate a
dealer option. With respect to options written by the Fund, the inability to
enter into a closing transaction may result in material losses to the Fund. For
example, because a Fund must maintain a secured position with respect to any
call option on a security it writes, the Fund may not sell the assets which it
has segregated to secure the position while it is obligated under the option.
This requirement may impair the Fund's ability to sell portfolio securities at a
time when such sale might be advantageous.
The Staff of the Securities and Exchange Commission (the "Commission")
takes the position that purchased dealer options are illiquid securities. A Fund
may treat the cover used for written dealer options as liquid if the dealer
agrees that the Fund may repurchase the dealer option it has written for a
maximum price to be calculated by a predetermined formula. In such cases, the
dealer option would be considered illiquid only to the extent the maximum
purchase price under the formula exceeds the intrinsic value of the option. With
that exception, however, the Fund will treat dealer options as subject to the
Fund's limitation on illiquid securities. If the Commission changes its position
on the liquidity of dealer options, the Fund will change its treatment of such
instruments accordingly.
FOREIGN CURRENCY OPTIONS. The Funds that comprise the ING Pilgrim Mutual Funds
(other than the Money Market Fund) may buy or sell put and call options on
foreign currencies. A put or call option on a foreign currency gives the
purchaser of the option the right to sell or purchase a foreign currency at the
exercise price until the option expires. The Funds use foreign currency options
separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price or an in-the-money strike price. Foreign currency
options are derivative securities. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of the
Funds to reduce foreign currency risk using such options.
As with other kinds of option transactions, writing options on foreign
currency constitutes only a partial hedge, up to the amount of the premium
received. The Funds could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against exchange
rate fluctuations; however, in the event of exchange rate movements adverse to a
Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs.
FORWARD CURRENCY CONTRACTS. The Funds that invest in foreign securities may
enter into forward currency contracts in anticipation of changes in currency
exchange rates. A forward currency contract is an obligation to purchase or sell
a specific currency at a future date, which may be any fix number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. For example, a Fund might purchase a particular currency or
enter into a forward currency contract to preserve the U.S. dollar price of
securities it intends to or has contracted to purchase. Alternatively, it might
sell a particular currency on either a spot or forward basis to hedge against an
anticipated decline in the dollar value of securities it intends to or has
contracted to sell. Although this strategy could minimize the risk of loss due
to a decline in the value of the hedged currency, it could also limit any
potential gain from an increase in the value of the currency.
Each of the Funds (other than the Money Market Fund, Advisory Funds,
MagnaCap Fund, Bank and Thrift Fund, and the Government Securities Income Fund)
may invest in futures contracts and in options on futures contracts as a hedge
against changes in market conditions or interest rates. As a general rule, no
Fund will purchase or sell futures if, immediately thereafter, more than 25% of
its net assets would be hedged.
FINANCIAL FUTURES CONTRACTS AND RELATED OPTIONS
A Fund may use financial futures contracts and related options to hedge
against changes in the market value of its portfolio securities or securities
that it intends to purchase. The Fund could purchase a financial futures
contract (such as an interest rate futures contract or securities index futures
contract) to protect against a decline in the value of its portfolio or to gain
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exposure to securities which the Fund otherwise wishes to purchase. Hedging is
accomplished when an investor takes a position in the futures market opposite to
his cash market position. There are two types of hedges -- long (or buying) and
short (or selling) hedges. Historically, prices in the futures market have
tended to move in concert with cash market prices, and prices in the futures
market have maintained a fairly predictable relationship to prices in the cash
market. Thus, a decline in the market value of securities in the Fund's
portfolio may be protected against to a considerable extent by gains realized on
futures contracts sales. Similarly, it is possible to protect against an
increase in the market price of securities that the Fund may wish to purchase in
the future by purchasing futures contracts.
A Fund may purchase or sell any financial futures contracts which are
traded on a recognized exchange or board of trade. Financial futures contracts
consist of interest rate futures contracts and securities index futures
contracts. A public market presently exists in interest rate futures contracts
covering long-term U.S. Treasury bonds, U.S. Treasury notes, three-month U.S.
Treasury bills and GNMA certificates. Securities index futures contracts are
currently traded with respect to the Standard & Poor's 500 Composite Stock Price
Index and such other broad-based stock market indices as the New York Stock
Exchange Composite Stock Index and the Value Line Composite Stock Price Index. A
clearing corporation associated with the exchange or board of trade on which a
financial futures contract trades assumes responsibility for the completion of
transactions and also guarantees that open futures contracts will be performed.
An interest rate futures contract obligates the seller of the contract to
deliver, and the purchaser to take delivery of, the interest rate securities
called for in the contract at a specified future time and at a specified price.
A stock index assigns relative values to the common stocks included in the
index, and the index fluctuates with changes in the market values of the common
stocks so included. A stock index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. An option on a financial futures contract
gives the purchaser the right to assume a position in the contract (a long
position if the option is a call and short position if the option is a put) at a
specified exercise price at any time during the period of the option.
In contrast to the situation when a Fund purchases or sells a security, no
security is delivered or received by the Fund upon the purchase or sale of a
financial futures contract. Initially, the Fund will be required to segregate
with its custodian bank an amount of cash and/or liquid assets. This amount is
known as initial margin and is in the nature of a performance bond or good faith
deposit on the contract. The current initial margin deposit required per
contract is approximately 5% of the contract amount. Brokers may establish
deposit requirements higher than this minimum. Subsequent payments, called
variation margin, will be made to and from the account on a daily basis as the
price of the futures contract fluctuates. This process is known as marking to
market. At the time of purchase of a futures contract or a call option on a
futures contract, an amount of cash, U. S. Government securities or other
appropriate high-grade securities equal to the market value of the futures
contract minus the Fund's initial margin deposit with respect thereto will be
segregated with the Fund's custodian bank to collateralize fully the position
and thereby ensure that it is not leveraged. The extent to which the Fund may
enter into financial futures contracts and related options may also be limited
by the requirements of the Internal Revenue Code for qualification as a
regulated investment company.
The writer of an option on a futures contract is required to deposit margin
pursuant to requirements similar to those applicable to futures contracts. Upon
exercise of an option on a futures contract, the delivery of the futures
position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance in the writer's margin
account. This amount will be equal to the amount by which the market price of
the futures contract at the time of exercise exceeds, in the case of a call, or
is less than, in the case of a put, the exercise price of the option on the
futures contract.
Although financial futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery. Closing out
is accomplished by effecting an offsetting transaction. A futures contract sale
is closed out by effecting a futures contract purchase for the same aggregate
amount of securities and the same delivery date. If the sale price exceeds the
offsetting purchase price, the seller immediately would be paid the difference
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and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller immediately would pay the difference and would realize a loss.
Similarly, a futures contract purchase is closed out by effecting a futures
contract sale for the same securities and the same delivery date. If the
offsetting sale price exceeds the purchase price, the purchaser would realize a
gain, whereas if the purchase price exceeds the offsetting sale price, the
purchaser would realize a loss.
The Fund will pay commissions on financial futures contracts and related
options transactions. These commissions may be higher than those that would
apply to purchases and sales of securities directly.
LIMITATIONS ON FUTURES CONTRACTS AND RELATED OPTIONS. The Funds may not engage
in transactions in financial futures contracts or related options for
speculative purposes but only as a hedge against anticipated changes in the
market value of its portfolio securities or securities that it intends to
purchase. The High Yield Fund may not purchase or sell financial futures
contracts or related options if, immediately thereafter, the sum of the amount
of initial margin deposits on the Fund's existing futures and related options
positions and the premiums paid for related options would exceed 2% of the
market value of the Fund's total assets after taking into account unrealized
profits and losses on any such contracts. No Fund of the Pilgrim Mutual Funds
may purchase or sell futures or purchase related options if, immediately
thereafter, more than 25% of its net assets would be hedged. Those Funds also
may not purchase or sell futures or purchase related options if, immediately
thereafter, the sum of the amount of margin deposits on the Fund's existing
futures positions and premiums paid for such options would exceed 5% of the
market value of the Fund's net assets. At the time of purchase of a futures
contract or a call option on a futures contract, an amount of cash, U.S.
Government securities or other appropriate high-grade debt obligations equal to
the market value of the futures contract minus the Fund's initial margin deposit
with respect thereto will be segregated with the Fund's custodian bank to
collateralize fully the position and thereby ensure that it is not leveraged.
The extent to which a Fund may enter into financial futures contracts and
related options also may be limited by the requirements of the Internal Revenue
Code for qualification as a regulated investment company.
RISKS RELATING TO OPTIONS AND FUTURES CONTRACTS. The purchase of options
involves certain risks. If a put option purchased by a Fund is not sold when it
has remaining value, and if the market price of the underlying security remains
equal to or greater than the exercise price, the Fund will lose its entire
investment in the option. Also, where a put option is purchased to hedge against
price movements in a particular security, the price of the put option may move
more or less than the price of the related security. There can be no assurance
that a liquid market will exist when a Fund seeks to close out an option
position. Furthermore, if trading restrictions or suspensions are imposed on the
options markets, a Fund may be unable to close out a position. Positions in
futures contracts and related options may be closed out only on an exchange that
provides a secondary market for such contracts or options. A Fund will enter
into an option or futures position only if there appears to be a liquid
secondary market. However, there can be no assurance that a liquid secondary
market will exist for any particular option or futures contract at any specific
time. Thus, it may not be possible to close out a futures or related option
position. In the case of a futures position, in the event of adverse price
movements the Fund would continue to be required to make daily margin payments.
In this situation, if the Fund have insufficient cash to meet daily margin
requirements it may have to sell portfolio securities at a time when it may be
disadvantageous to do so. In addition, the Fund may be required to take or make
delivery of the securities underlying the futures contracts it holds. The
inability to close out futures positions also could have an adverse impact on
the Fund's ability to hedge its portfolio effectively.
There are several risks in connection with the use of futures contracts as
a hedging device. While hedging can provide protection against an adverse
movement in market prices, it can also preclude a hedger's opportunity to
benefit from a favorable market movement. In addition, investing in futures
contracts and options on futures contracts will cause the Funds to incur
additional brokerage commissions and may cause an increase in the Fund's
portfolio turnover rate. The successful use of futures contracts and related
options also depends on the ability of the Investment Manager to forecast
correctly the direction and extent of market movements within a given time
frame. To the extent market prices remain stable during the period a futures
contract or option is held by the Fund or such prices move in a direction
opposite to that anticipated, the Fund may realize a loss on the hedging
transaction that is not offset by an increase in the value of its portfolio
securities. As a result, the return of the Fund for the period may be less than
if it had not engaged in the hedging transaction.
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The use of futures contracts involves the risk of imperfect correlation in
movements in the price of futures contracts and movements in the price of the
securities that are being hedged. If the price of the futures contract moves
more or less than the price of the securities being hedged, a Fund will
experience a gain or loss that will not be completely offset by movements in the
price of the securities. It is possible that, where a Fund has sold futures
contracts to hedge its portfolio against a decline in the market, the market may
advance and the value of securities held in the Fund's portfolio may decline. If
this occurred, the Fund would lose money on the futures contract and would also
experience a decline in value in its portfolio securities. Where futures are
purchased to hedge against a possible increase in the prices of securities
before the Fund is able to invest its cash (or cash equivalents) in securities
(or options) in an orderly fashion, it is possible that the market may decline;
if the Fund then determines not to invest in securities (or options) at that
time because of concern as to possible further market decline or for other
reasons, the Fund will realize a loss on the futures that would not be offset by
a reduction in the price of the securities purchased.
The market prices of futures contracts may be affected if participants in
the futures market elect to close out their contracts through off-setting
transactions rather than to meet margin deposit requirements. In such a case,
distortions in the normal relationship between the cash and futures markets
could result. Price distortions could also result if investors in futures
contracts opt to make or take delivery of the underlying securities rather than
to engage in closing transactions due to the resultant reduction in the
liquidity of the futures market. In addition, due to the fact that, from the
point of view of speculators, the deposit requirements in the futures markets
are less onerous than margin requirements in the cash market, increased
participation by speculators in the futures market could cause temporary price
distortions. Due to the possibility of price distortions in the futures market
and because of the imperfect correlation between movements in the prices of
securities and movements in the prices of futures contracts, a correct forecast
of market trends may still not result in a successful transaction.
Compared to the purchase or sale of futures contracts, the purchase of put
or call options on futures contracts involves less potential risk for a Fund
because the maximum amount at risk is the premium paid for the options plus
transaction costs. However, there may be circumstances when the purchase of an
option on a futures contract would result in a loss to a Fund while the purchase
or sale of the futures contract would not have resulted in a loss, such as when
there is no movement in the price of the underlying securities.
INDEX WARRANTS
The Research Enhanced Index Fund may purchase put warrants and call
warrants whose values vary depending on the change in the value of one or more
specified securities indices ("Index Warrants"). Index Warrants are generally
issued by banks or other financial institutions and give the holder the right,
at any time during the term of the warrant, to receive upon exercise of the
warrant a cash payment from the issuer, based on the value of the underlying
index at the time of exercise. In general, if the value of the underlying index
rises above the exercise price of the Index Warrant, the holder of a call
warrant will be entitled to receive a cash payment from the issuer upon
exercise, based on the difference between the value of the index and the
exercise price of the warrant; if the value of the underlying index falls, the
holder of a put warrant will be entitled to receive a cash payment from the
issuer upon exercise, based on the difference between the exercise price of the
warrant and the value of the index. The holder of a warrant would not be
entitled to any payments from the issuer at any time when, in the case of a call
warrant, the exercise price is greater than the value of the underlying index,
or, in the case of a put warrant, the exercise price is less than the value of
the underlying index. If the Research Enhanced Index Fund were not to exercise
an Index Warrant prior to its expiration, then the Fund would lose the amount of
the purchase price paid by it for the warrant. The Research Enhanced Index Fund
will normally use Index Warrants in a manner similar to its use of options on
securities indices. The risks of the Fund's use of Index Warrants are generally
similar to those relating to its use of index options. Unlike most index
options, however, Index Warrants are issued in limited amounts and are not
obligations of a regulated clearing agency, but are backed only by the credit of
the bank or other institution that issues the warrant. Also, Index Warrants
generally have longer terms than index options. Although the Research Enhanced
Index Fund will normally invest only in exchange-listed warrants, Index Warrants
are not likely to be as liquid as certain index options backed by a recognized
clearing agency. In addition, the terms of Index Warrants may limit the Fund's
ability to exercise the warrants at such time, or in such quantities, as the
Fund would otherwise wish to do.
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FOREIGN CURRENCY FUTURES CONTRACTS
Each Fund (other than the Money Market Fund, Advisory Funds, MagnaCap Fund,
Bank and Thrift Fund, and the Government Securities Income Fund) may use foreign
currency future contracts for hedging purposes. A foreign currency futures
contract provides for the future sale by one party and purchase by another party
of a specified quantity of a foreign currency at a specified price and time. A
public market exists in futures contracts covering several foreign currencies,
including the Australian dollar, the Canadian dollar, the British pound, the
German mark, the Japanese yen, the Swiss franc, and certain multinational
currencies such as the European Currency Unit ("ECU"). Other foreign currency
futures contracts are likely to be developed and traded in the future. The Funds
will only enter into futures contracts and futures options which are
standardized and traded on a U.S. or foreign exchange, board of trade, or
similar entity, or quoted on an automated quotation system.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks related to the use of futures as a hedging device.
One risk arises because of the imperfect correlation between movements in the
price of the futures contract and movements in the price of the securities which
are the subject of the hedge. The price of the future may move more or less than
the price of the securities being hedged. If the price of the future moves less
than the price of the securities which are the subject of the hedge, the hedge
will not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, a Fund would be in a better position than if
it had not hedged at all. If the price of the securities being hedged has moved
in a favorable direction, this advantage will be partially offset by the loss on
the future. If the price of the future moves more than the price of the hedged
securities, the Fund will experience either a loss or a gain on the future which
will not be completely offset by movements in the price of the securities which
are subject to the hedge.
To compensate for the imperfect correlation of movements in the price of
securities being hedged and movements in the price of the futures contract, a
Fund may buy or sell futures contracts in a greater dollar amount than the
dollar amount of securities being hedged if the historical volatility of the
prices of such securities has been greater than the historical volatility over
such time period of the future. Conversely, the Fund may buy or sell fewer
futures contracts if the historical volatility of the price of the securities
being hedged is less than the historical volatility of the futures contract
being used. It is possible that, when the Fund has sold futures to hedge its
portfolio against a decline in the market, the market may advance while the
value of securities held in the Fund's portfolio may decline. If this occurs,
the Fund will lose money on the future and also experience a decline in value in
its portfolio securities. However, the Investment Manager or Sub-Adviser
believes that over time the value of a diversified portfolio will tend to move
in the same direction as the market indices upon which the futures are based.
When futures are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead. If the Fund then decides not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, it will realize a loss on the futures
contract that is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the securities
being hedged, the price of futures may not correlate perfectly with movement in
the stock index or cash market due to certain market distortions. All
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions, which
could distort the normal relationship between the index or cash market and
futures markets. In addition, the deposit requirements in the futures market are
less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price distortions. As a result of price distortions in the futures
market and the imperfect correlation between movements in the cash market and
the price of securities and movements in the price of futures, a correct
forecast of general trends by the Investment Manager or Sub-Adviser may still
not result in a successful hedging transaction over a very short time frame.
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Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange or board of trade will exist for any
particular contract or at any particular time. In such event, it may not be
possible to close a futures position, and in the event of adverse price
movements, the Funds would continue to be required to make daily cash payments
of variation margin. When futures contracts have been used to hedge portfolio
securities, such securities will not be sold until the futures contract can be
terminated. In such circumstances, an increase in the price of the securities,
if any, may partially or completely offset losses on the futures contract.
However, as described above, there is no guarantee that the price of the
securities will in fact correlate with the price movements in the futures
contract and thus provide an offset to losses on a futures contract.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Successful use of futures by a Fund depends on the Investment Manager's or
Sub-Adviser's ability to predict correctly movements in the direction of the
market. For example, if the Fund hedges against the possibility of a decline in
the market adversely affecting stocks held in its portfolio and stock prices
increase instead, the Fund will lose part or all of the benefit of the increased
value of the stocks which it has hedged because it will have offsetting losses
in its futures positions. In addition, in such situations, if the Fund has
insufficient cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in futures contracts or options, the Fund could experience delays
and losses in liquidating open positions purchased or sold through the broker,
and incur a loss of all or part of its margin deposits with the broker.
INTEREST RATE AND CURRENCY SWAPS
The Funds that comprise the ING Pilgrim Mutual Funds (other than the Money
Market Fund) may enter into interest rate and currency swap transactions and
purchase or sell interest rate and currency caps and floors, and may enter into
currency swap cap transactions. An interest rate or currency swap involves an
agreement between a Fund and another party to exchange payments calculated as if
they were interest on a specified ("notional") principal amount (e.g., an
exchange of floating rate payments by one party for fixed rate payments by the
other). An interest rate cap or floor entitles the purchaser, in exchange for a
premium, to receive payments of interest on a notional principal amount from the
seller of the cap or floor, to the extent that a specified reference rate
exceeds or falls below a predetermined level. A Fund usually enters into such
transactions on a "net" basis, with the Fund receiving or paying, as the case
may be, only the net amount of the two payment streams. The net amount of the
excess, if any, of a Fund's obligations over its entitlements with respect to
each swap is accrued on a daily basis, and an amount of cash or high-quality
liquid securities having an aggregate net asset value at least equal to the
accrued excess is maintained in a segregated account by the Trust's custodian.
If a Fund enters into a swap on other than a net basis, or sells caps or floors,
the Fund maintains a segregated account in the full amount accrued on a daily
basis of the Fund's obligations with respect to the transaction. Such segregated
accounts are maintained in accordance with applicable regulations of the
Commission.
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A Fund will not enter into any of these derivative transactions unless the
unsecured senior debt or the claims paying ability of the other party to the
transaction is rated at least "high quality" at the time of purchase by at least
one of the established rating agencies (e.g., AAA or AA by S&P). The swap market
has grown substantially in recent years, with a large number of banks and
investment banking firms acting both as principals and agents utilizing standard
swap documentation, and the Investment Manager or Sub-Adviser has determined
that the swap market has become relatively liquid. Swap transactions do not
involve the delivery of securities or other underlying assets or principal, and
the risk of loss with respect to such transactions is limited to the net amount
of payments that the Fund is contractually obligated to make or receive. Caps
and floors are more recent innovations for which standardized documentation has
not yet been developed; accordingly, they are less liquid than swaps, and caps
and floors purchased by a Fund are considered to be illiquid assets.
INTEREST RATE SWAPS
As indicated above, an interest rate swap is a contract between two
entities ("counterparties") to exchange interest payments (of the same currency)
between the parties. In the most common interest rate swap structure, one
counterparty agrees to make floating rate payments to the other counterparty,
which in turn makes fixed rate payments to the first counterparty. Interest
payments are determined by applying the respective interest rates to an agreed
upon amount, referred to as the "notional principal amount." In most such
transactions, the floating rate payments are tied to the London Interbank
Offered Rate, which is the offered rate for short-term Eurodollar deposits
between major international banks. As there is no exchange of principal amounts,
an interest rate swap is not an investment or a borrowing.
CROSS-CURRENCY SWAPS
A cross-currency swap is a contract between two counterparties to exchange
interest and principal payments in different currencies. A cross-currency swap
normally has an exchange of principal at maturity (the final exchange); an
exchange of principal at the start of the swap (the initial exchange) is
optional. An initial exchange of notional principal amounts at the spot exchange
rate serves the same function as a spot transaction in the foreign exchange
market (for an immediate exchange of foreign exchange risk). An exchange at
maturity of notional principal amounts at the spot exchange rate serves the same
function as a forward transaction in the foreign exchange market (for a future
transfer of foreign exchange risk). The currency swap market convention is to
use the spot rate rather than the forward rate for the exchange at maturity. The
economic difference is realized through the coupon exchanges over the life of
the swap. In contrast to single currency interest rate swaps, cross-currency
swaps involve both interest rate risk and foreign exchange risk.
SWAP OPTIONS
The Funds indicated above may invest in swap options. A swap option is a
contract that gives a counterparty the right (but not the obligation) to enter
into a new swap agreement or to shorten, extend, cancel or otherwise change an
existing swap agreement, at some designated future time on specified terms. It
is different from a forward swap, which is a commitment to enter into a swap
that starts at some future date with specified rates. A swap option may be
structured European-style (exercisable on the pre-specified date) or
American-style (exercisable during a designated period). The right pursuant to a
swap option must be exercised by the right holder. The buyer of the right to
receive fixed pursuant to a swap option is said to own a call.
CAPS AND FLOORS
The Funds indicated above may invest in interest rate caps and floors and
currency swap cap transactions. An interest rate cap is a right to receive
periodic cash payments over the life of the cap equal to the difference between
any higher actual level of interest rates in the future and a specified strike
(or "cap") level. The cap buyer purchases protection for a floating rate move
above the strike. An interest rate floor is the right to receive periodic cash
payments over the life of the floor equal to the difference between any lower
actual level of interest rates in the future and a specified strike (or "floor")
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level. The floor buyer purchases protection for a floating rate move below the
strike. The strikes are typically based on the three-month LIBOR (although other
indices are available) and are measured quarterly. Rights arising pursuant to
both caps and floors are exercised automatically if the strike is in the money.
Caps and floors eliminate the risk that the buyer fails to exercise an
in-the-money option.
RISKS ASSOCIATED WITH SWAPS
The risks associated with interest rate and currency swaps and interest
rate caps and floors are similar to those described above with respect to dealer
options. In connection with such transactions, a Fund relies on the other party
to the transaction to perform its obligations pursuant to the underlying
agreement. If there were a default by the other party to the transaction, the
Fund would have contractual remedies pursuant to the agreement, but could incur
delays in obtaining the expected benefit of the transaction or loss of such
benefit. In the event of insolvency of the other party, the Fund might be unable
to obtain its expected benefit. In addition, while each Fund will seek to enter
into such transactions only with parties which are capable of entering into
closing transactions with the Fund, there can be no assurance that a Fund will
be able to close out such a transaction with the other party, or obtain an
offsetting position with any other party, at any time prior to the end of the
term of the underlying agreement. This may impair a Fund's ability to enter into
other transactions at a time when doing so might be advantageous.
NON-HEDGING STRATEGIC TRANSACTIONS
A Fund's options, futures and swap transactions will generally be entered
into for hedging purposes -- to protect against possible changes in the market
values of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets, currency or interest rate fluctuations, to
protect the Fund's unrealized gains in the values of its portfolio securities,
to facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchase or
sale of particular securities. However, in addition to the hedging transactions
referred to above, the Strategic Income Fund may enter into options, futures and
swap transactions to enhance potential gain in circumstances where hedging is
not involved. Each Fund's net loss exposure resulting from transactions entered
into for each purposes will not exceed 5% of the Fund's net assets at any one
time and, to the extent necessary, the Fund will close out transactions in order
to comply with this limitation. Such transactions are subject to the limitations
described above under "Options," "Futures Contracts," and "Interest Rate and
Currency Swaps."
RESTRICTED AND ILLIQUID SECURITIES
Each Fund may invest in an illiquid or restricted security if the
Investment Manager or Sub-Adviser believes that it presents an attractive
investment opportunity, except that MagnaCap Fund may not invest in restricted
securities. Generally, a security is considered illiquid if it cannot be
disposed of within seven days. Its illiquidity might prevent the sale of such a
security at a time when a Sub-Adviser might wish to sell, and these securities
could have the effect of decreasing the overall level of a Fund's liquidity.
Further, the lack of an established secondary market may make it more difficult
to value illiquid securities, requiring the Funds to rely on judgments that may
be somewhat subjective in determining value, which could vary from the amount
that a Fund could realize upon disposition.
Each Fund (except MagnaCap Fund) may purchase restricted securities (i.e.,
securities the disposition of which may be subject to legal restrictions) and
securities that may not be readily marketable. Because of the nature of these
securities, a considerable period of time may elapse between the Funds' decision
to dispose of these securities and the time when the Funds are able to dispose
of them, during which time the value of the securities could decline. The
expenses of registering restricted securities (excluding securities that may be
resold by the Funds pursuant to Rule 144A) may be negotiated at the time such
securities are purchased by the Funds. When registration is required before the
securities may be resold, a considerable period may elapse between the decision
to sell the securities and the time when the Funds would be permitted to sell
them. Thus, the Funds may not be able to obtain as favorable a price as that
prevailing at the time of the decision to sell. The Funds may also acquire
securities through private placements. Such securities may have contractual
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restrictions on their resale, which might prevent their resale by the Funds at a
time when such resale would be desirable. Securities that are not readily
marketable will be valued by the Funds in good faith pursuant to procedures
adopted by the Company's Board of Directors.
Restricted securities, including private placements, are subject to legal
or contractual restrictions on resale. They can be eligible for purchase without
SEC registration by certain institutional investors known as "qualified
institutional buyers," and under the Funds' procedures, restricted securities
could be treated as liquid. However, some restricted securities may be illiquid
and restricted securities that are treated as liquid could be less liquid than
registered securities traded on established secondary markets. The Funds may not
invest more than 15% of its net assets in illiquid securities, measured at the
time of investment. Each Fund will adhere to a more restrictive investment
limitation on its investments in illiquid or restricted securities as required
by the securities laws of those jurisdictions where shares of the Funds are
registered for sale.
The Emerging Countries Fund may invest in foreign securities that are
restricted against transfer within the United States or to United States
persons. Although securities subject to such transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions. Unless these securities are
acquired directly from the issuer or its underwriter, the Fund treats foreign
securities whose principal market is abroad as not subject to the investment
limitation on securities subject to legal or contractual restrictions on resale.
OTHER INVESTMENT COMPANIES
Certain Funds may invest in other investment companies ("Underlying
Funds"). Each Fund may not (i) invest more than 10% of its total assets in
Underlying Funds, (ii) invest more than 5% of its total assets in any one
Underlying Fund, or (iii) purchase greater than 3% of the total outstanding
securities of any one Underlying Fund. The Funds (except the Money Market Fund)
may also make indirect foreign investments through other investment companies
that have comparable investment objectives and policies as the Funds. In
addition to the advisory and operational fees a Fund bears directly in
connection with its own operation, the Fund would also bear its pro rata
portions of each other investment company's advisory and operational expenses.
INVESTMENT COMPANIES THAT INVEST IN SENIOR LOANS. Certain Funds may invest in
investment companies that invest primarily in interests in variable or floating
rate loans or notes ("Senior Loans"). Senior Loans in most circumstances are
fully collateralized by assets of a corporation, partnership, limited liability
company, or other business entity. Senior Loans vary from other types of debt in
that they generally hold a senior position in the capital structure of a
borrower. Thus, Senior Loans are generally repaid before unsecured bank loans,
corporate bonds, subordinated debt, trade creditors, and preferred or common
stockholders.
Substantial increases in interest rates may cause an increase in loan
defaults as borrowers may lack resources to meet higher debt service
requirements. The value of a Fund's assets may also be affected by other
uncertainties such as economic developments affecting the market for Senior
Loans or affecting borrowers generally.
Senior Loans usually include restrictive covenants which must be maintained
by the borrower. Under certain interests in Senior Loans, an investment company
investing in a Senior Loan may have an obligation to make additional loans upon
demand by the borrower. Senior Loans, unlike certain bonds, usually do not have
call protection. This means that interests, while having a stated one to
ten-year term, may be prepaid, often without penalty. The rate of such
prepayments may be affected by, among other things, general business and
economic conditions, as well as the financial status of the borrower. Prepayment
would cause the actual duration of a Senior Loan to be shorter than its stated
maturity.
CREDIT RISK. Information about interests in Senior Loans generally is not be in
the public domain, and interests are generally not currently rated by any
nationally recognized rating service. Senior Loans are subject to the risk of
nonpayment of scheduled interest or principal payments. Issuers of Senior Loans
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generally have either issued debt securities that are rated lower than
investment grade, or, if they had issued debt securities, such debt securities
would likely be rated lower than investment grade. However, unlike other types
of debt securities, Senior Loans are generally fully collateralized.
In the event of a failure to pay scheduled interest or principal payments
on Senior Loans, an investment company investing in that Senior Loan could
experience a reduction in its income, and would experience a decline in the
market value of the particular Senior Loan so affected, and may experience a
decline in the NAV or the amount of its dividends. In the event of a bankruptcy
of the borrower, the investment company could experience delays or limitations
with respect to its ability to realize the benefits of the collateral securing
the Senior Loan.
COLLATERAL. Senior Loans typically will be secured by pledges of collateral from
the borrower in the form of tangible assets and intangible assets. In some
instances, an investment company may invest in Senior Loans that are secured
only by stock of the borrower or its subsidiaries or affiliates. The value of
the collateral may decline below the principal amount of the Senior Loan
subsequent to an investment in such Senior Loan. In addition, to the extent that
collateral consists of stock of the borrower or its subsidiaries or affiliates,
there is a risk that the stock may decline in value, be relatively illiquid, or
may lose all or substantially all of its value, causing the Senior Loan to be
undercollateralized.
LIMITED SECONDARY MARKET. Although it is growing, the secondary market for
Senior Loans is currently limited. There is no organized exchange or board of
trade on which Senior Loans may be traded; instead, the secondary market for
Senior Loans is an unregulated inter-dealer or inter-bank market. Accordingly,
Senior Loans may be illiquid. In addition, Senior Loans generally require the
consent of the borrower prior to sale or assignment. These consent requirements
may delay or impede a fund's ability to sell Senior Loans. In addition, because
the secondary market for Senior Loans may be limited, it may be difficult to
value Senior Loans. Market quotations may not be available and valuation may
require more research than for liquid securities. In addition, elements of
judgment may play a greater role in the valuation, because there is less
reliable, objective data available.
HYBRID LOANS. The growth of the syndicated loan market has produced loan
structures with characteristics similar to Senior Loans but which resemble bonds
in some respects, and generally offer less covenant or other protections than
traditional Senior Loans while still being collateralized ("Hybrid Loans"). With
Hybrid Loans, a fund may not possess a senior claim to all of the collateral
securing the Hybrid Loan. Hybrid Loans also may not include covenants that are
typical of Senior Loans, such as covenants requiring the maintenance of minimum
interest coverage ratios. As a result, Hybrid Loans present additional risks
besides those associated with traditional Senior Loans, although they may
provide a relatively higher yield. Because the lenders in Hybrid Loans waive or
forego certain loan covenants, their negotiating power or voting rights in the
event of a default may be diminished. As a result, the lenders' interests may
not be represented as significantly as in the case of a conventional Senior
Loan. In addition, because an investment company's security interest in some of
the collateral may be subordinate to other creditors, the risk of nonpayment of
interest or loss of principal may be greater than would be the case with
conventional Senior Loans.
SUBORDINATED AND UNSECURED LOANS. Certain investment companies may invest in
subordinated and unsecured loans. The primary risk arising from a holder's
subordination is the potential loss in the event of default by the issuer of the
loans. Subordinated loans in an insolvency bear an increased share, relative to
senior secured lenders, of the ultimate risk that the borrower's assets are
insufficient to meet its obligations to its creditors. Unsecured loans are not
secured by any specific collateral of the borrower. They do not enjoy the
security associated with collateralization and may pose a greater risk of
nonpayment of interest or loss of principal than do secured loans.
There are some potential disadvantages associated with investing in other
investment companies. For example, you would indirectly bear additional fees.
The Underlying Funds pay various fees, including, management fees,
administration fees, and custody fees. By investing in those Underlying Funds
indirectly, you indirectly pay a proportionate share of the expenses of those
funds (including management fees, administration fees, and custodian fees), and
you also pay the expenses of the Fund.
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REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements with respect to its
portfolio securities. Pursuant to such agreements, the Fund acquires securities
from financial institutions such as banks and broker-dealers as are deemed to be
creditworthy by the Investment Manager or Sub-Adviser, subject to the seller's
agreement to repurchase and the Fund's agreement to resell such securities at a
mutually agreed upon date and price. The repurchase price generally equals the
price paid by the Fund plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the underlying
portfolio security). Securities subject to repurchase agreements will be held by
the Custodian or in the Federal Reserve/Treasury Book-Entry System or an
equivalent foreign system. The seller under a repurchase agreement will be
required to maintain the value of the underlying securities at not less than
102% (100% for the Money Market Fund) of the repurchase price under the
agreement. If the seller defaults on its repurchase obligation, the Fund holding
the repurchase agreement will suffer a loss to the extent that the proceeds from
a sale of the underlying securities is less than the repurchase price under the
agreement. Bankruptcy or insolvency of such a defaulting seller may cause the
Fund's rights with respect to such securities to be delayed or limited.
Repurchase agreements are considered to be loans under the Investment Company
Act.
Pursuant to an Exemptive Order under Section 17(d) and Rule 17d-1 obtained
by the SmallCap Opportunities and Growth Opportunities Funds, on March 5, 1991,
such Funds may deposit uninvested cash balances into a single joint account to
be used to enter into repurchase agreements.
As an alternative to using repurchase agreements, each of the funds which
comprise the Mayflower Trust, Equity Trust, SmallCap Opportunities Fund, and
Growth Opportunities Fund, may, from time to time, invest up to 5% of its assets
in money market investment companies sponsored by a third party for short-term
liquidity purposes. Such investments are subject to the non-fundamental
investment limitations described herein.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLL TRANSACTIONS
The Government Securities Income Fund and each of the funds which comprise
the Pilgrim Mutual Funds, Mayflower Trust, Equity Trust, SmallCap Opportunities
Fund, and Growth Opportunities Fund, may enter into reverse repurchase agreement
transactions. Such transactions involve the sale of U.S. Government securities
held by the Fund, with an agreement that the Fund will repurchase such
securities at an agreed upon price and date. The Fund will employ reverse
repurchase agreements when necessary to meet unanticipated net redemptions so as
to avoid liquidating other portfolio investments during unfavorable market
conditions. At the time it enters into a reverse repurchase agreement, the Fund
will place in a segregated custodial account cash and/or liquid assets having a
dollar value equal to the repurchase price. Reverse repurchase agreements are
considered to be borrowings under the Investment Company Act of 1940 (the "1940
Act"). Reverse repurchase agreements, together with other permitted borrowings,
may constitute up to 33 1/3% of the Fund's total assets. Under the 1940 Act, the
Fund is required to maintain continuous asset coverage of 300% with respect to
borrowings and to sell (within three days) sufficient portfolio holdings to
restore such coverage if it should decline to less than 300% due to market
fluctuations or otherwise, even if such liquidations of the Fund's holdings may
be disadvantageous from an investment standpoint. Leveraging by means of
borrowing may exaggerate the effect of any increase or decrease in the value of
portfolio securities or the Fund's net asset value, and money borrowed will be
subject to interest and other costs (which may include commitment fees and/or
the cost of maintaining minimum average balances) which may or may not exceed
the income received from the securities purchased with borrowed funds.
In order to enhance portfolio returns and manage prepayment risks,
Government Securities Income Fund and the funds which comprise the ING Pilgrim
Mutual Funds, Mayflower Trust, Equity Trust, SmallCap Opportunities Fund, and
Growth Opportunities Fund, may engage in dollar roll transactions with respect
to mortgage securities issued by GNMA, FNMA and FHLMC. In a dollar roll
transaction, a Fund sells a mortgage security held in the portfolio to a
financial institutional such as a bank or broker-dealer, and simultaneously
agrees to repurchase a substantially similar security (same type, coupon and
maturity) from the institution at a later date at an agreed upon price. The
mortgage securities that are repurchased will bear the same interest rate as
those sold, but generally will be collateralized by different pools of mortgages
with different prepayment histories. During the period between the sale and
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repurchase, the Fund will not be entitled to receive interest and principal
payments on the securities sold. Proceeds of the sale will be invested in
short-term instruments, and the income from these investments, together with any
additional fee income received on the sale, could generate income for the Fund
exceeding the yield on the sold security. When a Fund enters into a dollar roll
transaction, cash and/or liquid assets of the Fund, in a dollar amount
sufficient to make payment for the obligations to be repurchased, are segregated
with its custodian at the trade date. These securities are marked daily and are
maintained until the transaction is settled.
Whether a reverse repurchase agreement or dollar-roll transaction produces
a gain for a Fund depends upon the "costs of the agreements" (e.g., a function
of the difference between the amount received upon the sale of its securities
and the amount to be spent upon the purchase of the same or "substantially the
same" security) and the income and gains of the securities purchased with the
proceeds received from the sale of the mortgage security. If the income and
gains on the securities purchased with the proceeds of the agreements exceed the
costs of the agreements, then a Fund's net asset value will increase faster than
otherwise would be the case; conversely, if the income and gains on such
securities purchased fail to exceed the costs of the structure, net asset value
will decline faster than otherwise would be the case. Reverse repurchase
agreements and dollar-roll transactions, as leveraging techniques, may increase
a Fund's yield in the manner described above; however, such transactions also
increase a Fund's risk to capital and may result in a shareholder's loss of
principal.
PARTICIPATION INTERESTS
The High Yield Fund may invest in participation interests, subject to the
limitation on its net assets that may be invested in illiquid investments.
Participation interests provide the Fund an undivided interest in a loan made by
a bank or other financial institution in the proportion that the Fund's
participation interest bears to the total principal amount of the loan. No more
than 5% of the Fund's net assets can be invested in participation interests of
the same issuing bank. The Fund must look to the creditworthiness of the
borrowing corporation, which is obligated to make payments of principal and
interest on the loan. In the event the borrower fails to pay scheduled interest
or principal payments, the Fund would experience a reduction in its income and
might experience a decline in the net asset value of its shares. In the event of
a failure by the bank to perform its obligations in connection with the
participation agreement, the Fund might incur certain costs and delays in
realizing payment or may suffer a loss of principal and/or interest.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each Fund 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
(up to 30% of the value of the total assets in the case of the International
Value and the Emerging Markets Value Funds). No lending may be made with any
companies affiliated with the Investment Manager. The Funds may lend securities
only to financial institutions such as banks, broker/ dealers and other
recognized institutional investors in amounts up to 30% of the Fund's total
assets. These loans earn income for the Funds and are collateralized by cash,
securities or letters of credit. The Funds might experience a loss if the
financial institution defaults on the loan. Loans by the Primary Fund in which
the Money Market Fund invests will not exceed 25% of the Fund's total assets.
The borrower at all times during the loan must maintain with the Fund cash
or cash equivalent collateral or provide to the Funds an irrevocable letter of
credit equal in value to at least 100% of the value of the securities loaned.
During the time portfolio securities are on loan, the borrower pays the Funds
any interest paid on such securities, and the Funds may invest the cash
collateral and earn additional income, or it may receive an agreed-upon amount
of interest income from the borrower who has delivered equivalent collateral or
a letter of credit. Loans are subject to termination at the option of the Funds
or the borrower at any time. The Funds may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
income earned on the cash to the borrower or placing broker. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower fail financially.
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LOAN PARTICIPATIONS AND ASSIGNMENTS
Each Fund may invest in loan participations and loan assignments. A Fund's
investment in loan participations typically will result in the Fund having a
contractual relationship only with the Lender and not with the borrower. The
Fund will have the right to receive payments of principal, interest and any fees
to which it is entitled only from the Lender selling the Participations and only
upon receipt by the Lender of the payments from the borrower. In connection with
purchasing Participations, the Fund generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
Loan, nor any right of set-off against the borrower, and the Fund may not
directly benefit from any collateral supporting the Loan in which it has
purchased the Participation. As a result, the Fund may be subject to the credit
risk of both the borrower and the Lender that is selling the Participation. In
the event of the insolvency of the Lender selling a Participation, the Fund may
be treated as a general creditor of the Lender and may not benefit from any
set-off between the Lender and the borrower.
When a Fund purchases a loan assignment from Lenders, it will acquire
direct rights against the borrowers on the Loan. Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an Assignment may differ from, and be more limited than, those held
by the assigning Lender. Because there is no liquid market for such securities,
the Fund anticipates that such securities could be sold only to a limited number
of institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and a Fund's ability to dispose
of particular assignments or participations when necessary to meet redemptions
of Fund shares, to meet the Fund's liquidity needs or when necessary in response
to a specific economic event, such as deterioration in the creditworthiness of
the borrower. The lack of a liquid secondary market for assignments and
participations also may make it more difficult for a Fund to value these
securities for purposes of calculating its net asset value.
PAIRING-OFF TRANSACTIONS
Government Securities Income Fund engages in a pairing-off transaction when
the Fund commits to purchase a security at a future date ("delayed delivery" or
"when issued"), and then prior to the predetermined settlement date, the Fund
"pairs-off" the purchase with a sale of the same security prior to, or on, the
original settlement date. At all times when the Fund has an outstanding
commitment to purchase securities, cash and/or liquid assets equal to the value
of the outstanding purchase commitments will be segregated from general
investible funds and marked to the market daily.
When the time comes to pay for the securities acquired on a delayed
delivery basis, Government Securities Income Fund will meet its obligations from
the available cash flow, sale of the securities held in the separate account,
sale of other securities or, although it would not normally expect to do so,
from sale of the when-issued securities themselves (which may have a market
value greater or less than the Fund's payment obligation).
Whether a pairing-off transaction produces a gain for Government Securities
Income Fund, depends upon the movement of interest rates. If interest rates
decrease, then the money received upon the sale of the same security will be
greater than the anticipated amount needed at the time the commitment to
purchase the security at the future date was entered. Consequently, the Fund
will experience a gain. However, if interest rates increase, than 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. Consequently, the Fund will experience a loss.
ING Pilgrim Mutual Funds, Mayflower Trust and Equity Trust, may enter into
To Be Announced ("TBA") sale commitments wherein the unit price and the
estimated principal amount are established upon entering into the contract, with
the actual principal amount being within a specified range of the estimate. A
Fund will enter into TBA sale commitments to hedge its portfolio positions or to
sell mortgage-backed securities it owns under delayed delivery arrangements.
Proceeds of TBA sale commitments are not received until the contractual
settlement date. During the time a TBA sale commitment is outstanding, the Fund
will maintain, in a segregated account, cash or marketable securities in an
amount sufficient to meet the purchase price. Unsettled TBA sale commitments are
valued at current market value of the underlying securities. If the TBA sale
commitment is closed
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through the acquisition of an offsetting purchase commitment, the Fund realizes
a gain or loss on the commitment without regard to any unrealized gain or loss
on the underlying security. If the Fund delivers securities under the
commitment, the Fund realizes a gain or loss from the sale of the securities,
based upon the unit price established at the date the commitment was entered
into.
FLOATING OR VARIABLE RATE INSTRUMENTS
The Funds that comprise the Mayflower Trust, Equity Trust, SmallCap
Opportunities Fund, and Growth Opportunities Fund may purchase floating or
variable rate bonds, which normally provide that the holder can demand payment
of the obligation on short notice at par with accrued interest. Such bonds are
frequently secured by letters of credit or other credit support arrangements
provided by banks. Floating or variable rate instruments provide for adjustments
in the interest rate at specified intervals (weekly, monthly, semiannually,
etc.). A Fund would anticipate using these bonds as cash equivalents, pending
longer term investment of its funds. Other longer term fixed-rate bonds, with a
right of the holder to request redemption at certain times (often annually,
after the lapse of an intermediate term), may also be purchased by a Fund. These
bonds are more defensive than conventional long-term bonds (protecting to some
degree against a rise in interest rates), while providing greater opportunity
than comparable intermediate term bonds since the Fund may retain the bond if
interest rates decline. By acquiring these kinds of bonds, a Fund obtains the
contractual right to require the issuer of the security, or some other person
(other than a broker or dealer), to purchase the security at an agreed upon
price, which right is contained in the obligation itself rather than in a
separate agreement with the seller or some other person.
A Fund will purchase securities on a when-issued, forward commitment or
delayed settlement basis only with the intention of completing the transaction.
If deemed advisable as a matter of investment strategy, however, a Fund may
dispose of or renegotiate a commitment after it is entered into, and may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. In these cases the Fund may realize a taxable
capital gain or loss. When a Fund engages in when-issued, forward commitment and
delayed settlement transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in a Fund's incurring a loss or
missing an opportunity to obtain a price credited to be advantageous.
The market value of the securities underlying a when-issued purchase,
forward commitment to purchase securities, or a delayed settlement and any
subsequent fluctuations in their market value is taken into account when
determining the market value of a Fund starting on the day the Fund agrees to
purchase the securities. A Fund does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date.
SHORT SALES
The ING Pilgrim Mutual Funds (except High Yield Fund II), Mayflower Trust
(except High Total Return Fund and High Total Return Fund II), Mid-Cap Value
Fund, Equity Trust, SmallCap Opportunities Fund, and Growth Opportunities Fund
may make short sales of securities they own or have the right to acquire at no
added cost through conversion or exchange of other securities they own (referred
to as short sales "against the box") and short sales of securities which they do
not own or have the right to acquire.
In a short sale that is not "against the box," a Fund sells a security
which it does not own, in anticipation of a decline in the market value of the
security. To complete the sale, the Fund must borrow the security generally from
the broker through which the short sale is made) in order to make delivery to
the buyer. The Fund must replace the security borrowed by purchasing it at the
market price at the time of replacement. The Fund is said to have a "short
position" in the securities sold until it delivers them to the broker. The
period during which the Fund has a short position can range from one day to more
than a year. Until the Fund replaces the security, the proceeds of the short
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sale are retained by the broker, and the Fund must pay to the broker a
negotiated portion of any dividends or interest which accrue during the period
of the loan. To meet current margin requirements, the Fund must deposit with the
broker additional cash or securities so that it maintains with the broker a
total deposit equal to 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).
Short sales by a Fund that are not made "against the box" create
opportunities to increase the Fund's return but, at the same time, involve
specific risk considerations and may be considered a speculative technique.
Since the Fund in effect profits from a decline in the price of the securities
sold short without the need to invest the full purchase price of the securities
on the date of the short sale, the Fund's net asset value per share tends to
increase more when the securities it has sold short decrease in value, and to
decrease more when the securities it has sold short increase in value, than
would otherwise be the case if it had not engaged in such short sales. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with the short sale. Short sales theoretically involve unlimited
loss potential, as the market price of securities sold short may continually
increase, although a Fund may mitigate such losses by replacing the securities
sold short before the market price has increased significantly. Under adverse
market conditions the Fund might have difficulty purchasing securities to meet
its short sale delivery obligations, and might have to sell portfolio securities
to raise the capital necessary to meet its short sale obligations at a time when
fundamental investment considerations would not favor such sales.
If a Fund makes a short sale "against the box," the Fund would not
immediately deliver the securities sold and would not receive the proceeds from
the sale. The seller is said to have a short position in the securities sold
until it delivers the securities sold, at which time it receives the proceeds of
the sale. To secure its obligation to deliver securities sold short, a Fund will
deposit in escrow in a separate account with the Custodian an equal amount of
the securities sold short or securities convertible into or exchangeable for
such securities. The Fund can close out its short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund might want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
A Fund's decision to make a short sale "against the box" may be a technique
to hedge against market risks when the Investment Manager or Sub-Adviser
believes that the price of a security may decline, causing a decline in the
value of a security owned by the Fund or a security convertible into or
exchangeable for such security. In such case, any future losses in the Fund's
long position would be reduced by a gain in the short position. The extent to
which such gains or losses in the long position are reduced will depend upon the
amount of securities sold short relative to the amount of the securities the
Fund owns, either directly or indirectly, and, in the case where the Fund owns
convertible securities, changes in the investment values or conversion premiums
of such securities.
In the view of the Commission, a short sale involves the creation of a
"senior security" as such term is defined in the Investment Company Act, unless
the sale is "against the box" and the securities sold short are placed in a
segregated account (not with the broker), or unless the Fund's obligation to
deliver the securities sold short is "covered" by placing in a segregated
account (not with the broker) cash, U.S. Government securities or other liquid
debt or equity securities in an amount equal to the difference between the
market value of the securities sold short at the time of the short sale and any
such collateral required to be deposited with a broker in connection with the
sale (not including the proceeds from the short sale), which difference is
adjusted daily for changes in the value of the securities sold short. The total
value of the cash, U.S. Government securities or other liquid debt or equity
securities deposited with the broker and otherwise segregated may not at any
time be less than the market value of the securities sold short at the time of
the short sale. Each Fund will comply with these requirements. In addition, as a
matter of policy, the Trust's Board of Directors/Trustees has determined that no
Fund will make short sales of securities or maintain a short position if to do
so could create liabilities or require collateral deposits and segregation of
assets aggregating more than 25% of the Fund's total assets (no more than 5% for
the Mid-Cap Value Fund), taken at market value.
The extent to which a Fund may enter into short sales transactions may be
limited by the Internal Revenue Code requirements for qualification of the Fund
as a regulated investment company. See "Dividends, Distributions and Taxes."
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INVESTMENT TECHNIQUES AND PROCESSES
The investment techniques and processes used by the Sub-Adviser for the ING
Pilgrim Mutual Funds, which it has used in managing institutional portfolios for
many years, are described generally in the Funds' prospectus of the Funds it
manages. In making decisions with respect to equity securities for the Funds,
growth over time is the Sub-Adviser's underlying goal. It's how the Sub-Adviser
built its reputation. Over the past ten years, the Sub-Adviser has built a
record as one of the finest performing investment managers in the United States.
It has successfully delivered growth over time to many institutional investors,
pension plans, foundations, endowments and high net worth individuals. The
Sub-Adviser's methods have proven their ability to achieve growth over time
through a variety of investment vehicles.
The Sub-Adviser emphasizes growth over time through investment in
securities of companies with earnings growth potential. The Sub-Adviser's style
is a "bottom-up" growth approach that focuses on the growth prospects of
individual companies rather than on economic trends. It builds portfolios stock
by stock. The Sub-Adviser's decision-making is guided by three critical
questions: Is there a positive change? Is it sustainable? Is it timely? The
Sub-Adviser uses these three factors because it focuses on discovering positive
developments when they first show up in an issuer's earnings, but before they
are fully reflected in the price of the issuer's securities. The Sub-Adviser is
always looking for companies that are driving change and surpassing analysts'
expectations. It seeks to identify companies poised for rapid growth. The
Sub-Adviser focuses on recognizing successful companies, regardless of their
capitalization or whether they are domestic or foreign companies.
DIVERSIFICATION
Each Fund (other than the Money Market Fund) is "diversified" within the
meaning of the Investment Company Act. In order to qualify as diversified, a
Fund must diversify its holdings so that at all times at least 75% of the value
of its total assets is represented by cash and cash items (including
receivables), securities issued or guaranteed as to principal or interest by the
United States or its agencies or instrumentalities, securities of other
investment companies, and other securities (for this purpose other securities of
any one issuer are limited to an amount not greater than 5% of the value of the
total assets of the Fund and to not more than 10% of the outstanding voting
securities of the issuer). The Primary Institutional Fund in which the Money
Market Fund will invest substantially all of its assets is a non-diversified
fund. However, the Primary Institutional Fund intends to comply with the
diversification requirement of Rule 2a-7 under the Investment Company Act which
generally limits a money-market fund to investing no more than 5% of its total
assets in the securities, except U.S. government securities, of any one issuer.
The equity securities of each issuer that are included in the investment
portfolio of a Fund are purchased by the Investment Manager or Sub-Adviser in
approximately equal amounts, and the Investment Manager or Sub-Adviser attempts
to stay fully invested within the applicable percentage limitations set forth in
the Prospectus. In addition, for each issuer whose securities are added to an
investment portfolio, the Investment Manager or Sub-Adviser sells the securities
of one of the issuers currently included in the portfolio.
BORROWING
Each Advisory Fund may borrow money from banks solely for temporary or
emergency purposes, but not in an amount exceeding one-third of the value of its
total assets. The ING Pilgrim Mutual Funds may each borrow up to 20% (other than
the Money Market Fund which is limited to 5%). MagnaCap Fund and High Yield Fund
may borrow from banks solely for temporary or emergency purposes, but not in an
amount exceeding 5% of the value of its total assets. Bank and Thrift Fund may
borrow, only in an amount up to 15% of its total assets to obtain such
short-term credits as are necessary for the clearance of securities
transactions. Government Securities Income Fund may borrow money from banks
solely for temporary or emergency purposes, but not in an amount in excess of
10% of the value of its total assets.
For the Government Securities Income Fund, no additional investment may be
made while any such borrowings are in excess of 5% of total assets. For purposes
of this investment restriction, the Fund's entry into reverse repurchase
agreements and dollar-rolls and delayed delivery transactions, including those
relating to pair-offs, shall not constitute borrowings. Such borrowings,
together with reverse repurchase agreements, may constitute up to 33% of the
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Fund's total assets. The Government Securities Income Fund may not mortgage,
pledge or hypothecate its assets, except to the extent necessary to secure
permitted borrowings and to the extent related to the deposit of assets in
escrow in connection with the Fund's purchasing of securities on a forward
commitment or delayed delivery basis, entering into reverse repurchase
agreements and engaging in dollar-roll transactions.
Under the Investment Company Act of 1940, each Fund is required to maintain
continuous asset coverage of 300% with respect to such borrowings and to sell
(within three days) sufficient portfolio holdings to restore such coverage if it
should decline to less than 300% due to market fluctuations or otherwise, even
if such liquidations of the Fund's holdings may be disadvantageous from an
investment standpoint.
When a Fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. If a Fund makes additional
investments while borrowings are outstanding, this may be construed as a form of
leverage.
Leveraging by means of borrowing may exaggerate the effect of any increase
or decrease in the value of portfolio securities or the Fund's net asset value,
and money borrowed will be subject to interest and other costs (which may
include commitment fees and/or the cost of maintaining minimum average balances)
which may or may not exceed the income received from the securities purchased
with borrowed funds.
INVESTMENT RESTRICTIONS
INVESTMENT RESTRICTIONS -- THE ADVISORY FUNDS
The Funds have adopted the following investment restrictions as fundamental
policies that cannot be changed without approval by the holders of a majority of
its outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. None of the Funds may:
(1) Invest in a security if, with respect to 75% of the total assets, more
than 5% of the total assets (taken at market value at the time of such
investment) would be invested in the securities of any one issuer,
except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities;
(2) Invest in a security if, with respect to 75% of its assets, it would
hold more than 10% (taken at the time of such investment) of the
outstanding voting securities of any one issuer, except securities
issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities;
(3) Invest in a security if more than 25% of its total assets (taken at
market value at the time of such investment) would be invested in the
securities of companies primarily engaged in any one industry, except
that this restriction does not apply to securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities
(or repurchase agreements with respect thereto);
(4) Lend any funds or other assets, except that a Fund may, consistent
with its investment objective and policies:
(a) invest in debt obligations, even though the purchase of such
obligations may be deemed to be the making of loans;
(b) enter into repurchase agreements; and
(c) lend its portfolio securities in accordance with applicable
guidelines established by the SEC and any guidelines established
by the Board of Directors;
(5) Borrow money or pledge, mortgage, or hypothecate its assets, (a)
except that a Fund may borrow from banks, but only if immediately
after each borrowing and continuing thereafter there is asset coverage
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of 300%; and (b) and except that the following shall not be considered
a pledge, mortgage, or hypothecation of a Fund's assets for these
purposes: entering into reverse repurchase agreements; transactions in
options, futures, options on futures, and forward currency contracts;
the deposit of assets in escrow in connection with the writing of
covered put and call options; and the purchase of securities on a
"when-issued" or delayed delivery basis; collateral arrangements with
respect to initial or variation margin and other deposits for futures
contracts, options on futures contracts, and forward currency
contracts;
(6) Issue senior securities, except insofar as a Fund may be deemed to
have issued a senior security by reason of borrowing money in
accordance with that Fund's borrowing policies, and except for
purposes of this investment restriction, collateral or escrow
arrangements with respect to the making of short sales, purchase or
sale of futures contracts or related options, purchase or sale of
forward currency contracts, writing of stock options, and collateral
arrangements with respect to margin or other deposits respecting
futures contracts, related options, and forward currency contracts are
not deemed to be an issuance of a senior security;
(7) Act as an underwriter of securities of other issuers, except, when in
connection with the disposition of portfolio securities, a Fund may be
deemed to be an underwriter under the federal securities laws;
(8) Purchase or sell real estate (other than marketable securities
representing interests in, or backed by, real estate or securities of
companies that deal in real estate or mortgages).
The Funds are also subject to the following restrictions and policies that
are not fundamental and may, therefore, be changed by the Board of Directors
(without shareholder approval). Unless otherwise indicated, a Fund may not:
(1) Invest in securities that are illiquid if, as a result of such
investment, more than 15% of the total assets of the Fund (taken at
market value at the time of such investment) would be invested in such
securities;
(2) Invest in companies for the purpose of exercising control or
management;
(3) Purchase or sell physical commodities or commodities contracts (which,
for purposes of this restriction, shall not include foreign currency
or forward foreign currency contracts), except any Fund may engage in
interest rate futures contracts, stock index futures contracts,
futures contracts based on other financial instruments or securities,
and options on such futures contracts;
(4) Invest directly in interests in oil, gas or other mineral exploration
or development programs or mineral leases (other than marketable
securities of companies engaged in the business of oil, gas, or other
mineral exploration).
(5) Invest more than 5% of its total assets in warrants, whether or not
listed on the New York or American Stock Exchanges, including no more
than 2% of its total assets which may be invested in warrants that are
not listed on those exchanges. Warrants acquired by a Fund in units or
attached to securities are not included in this restriction;
(6) Purchase securities of issuers which are restricted from being sold to
the public without registration under the Securities Act of 1933
(unless such securities are deemed to be liquid under the Company's
Liquidity Procedures) if by reason of such investment the Fund's
aggregate investment in such securities will exceed 10% to the Fund's
total assets;
(7) Invest more than 5% of the value of its total assets in securities of
issuers which have been in continuous operation less than three years;
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(8) Invest in puts, calls, straddles, spreads or any combination thereof
if, as a result of such investment, more than 5% of the total assets
of the Fund (taken at market value at the time of such investment)
would be invested in such securities;
(9) Loan portfolio securities unless collateral values are continuously
maintained at no less than 100% by "marking to market" daily;
(10) Invest in real estate limited partnerships.
Other non-fundamental policies include the following: each Fund may not
purchase securities on margin; make short sales, except for short sales "against
the box," or purchase or retain in its portfolio any security if an officer or
Director of the Company or the Investment Manager or any Sub-Adviser owns
beneficially more than 1/2 of 1% of the outstanding securities of such issuer,
and in the aggregate such persons own beneficially more than 5% of the
outstanding securities of such issuer.
INVESTMENT RESTRICTIONS -- THE MAGNACAP FUND
The Fund has adopted the following investment restrictions as fundamental
policies that cannot be changed without approval by the holders of a majority of
its outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. The Fund may not:
(1) Engage in the underwriting of securities of other issuers.
(2) Invest in "restricted securities" which cannot in the absence of an
exemption be sold without an effective registration statement under
the Securities Act of 1933, as amended.
(3) Engage in the purchase and sale of interests in real estate,
commodities or commodity contracts (although this does not preclude
marketable securities of companies engaged in these activities).
(4) Engage in the making of loans to other persons, except (a) through the
purchase of a portion of an issue of publicly distributed bonds,
debentures or other evidences of indebtedness customarily purchased by
institutional investors or (b) by the loan of its portfolio securities
in accordance with the policies described under "Lending of Portfolio
Securities."
(5) Borrow money except from banks for temporary or emergency purposes,
and then not in excess of 5% of the value of its total assets.
(6) Mortgage, pledge or hypothecate its assets in any manner, except in
connection with any authorized borrowings and then not in excess of
10% of the value of its total assets.
(7) Purchase securities on margin, except that it may obtain such
short-term credits as may be necessary for the clearance of its
portfolio transactions.
(8) Effect short sales, or purchase or sell puts, calls, spreads or
straddles.
(9) Buy or sell oil, gas, or other mineral leases, rights or royalty
contracts, or participate on a joint or joint and several basis in any
securities trading account.
(10) Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of
assets.
(11) Invest more than 25% of the value of its total assets in any one
industry.
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(12) Purchase or retain in its portfolio any security if an Officer or
Director of the Fund or its investment manager owns beneficially more
than 1/2 of 1% of the outstanding securities of such issuer, and in
the aggregate such persons own beneficially more than 5% of the
outstanding securities of such issuer.
(13) Issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security by reason of borrowing money in
accordance with the Fund's borrowing policies or investment
techniques, and except for purposes of this investment restriction,
collateral, escrow, or margin or other deposits with respect to the
making of short sales, the purchase or sale of futures contracts or
related options, purchase or sale of forward foreign currency
contracts, and the writing of options on securities are not deemed to
be an issuance of a senior security.
The Fund is also subject to the following restrictions and policies that
are not fundamental and may, therefore, be changed by the Board of Directors
without shareholder approval. The Fund will limit its investments in warrants,
valued at the lower of cost or market, to 5% of its net assets. Included within
that amount, but not to exceed 2% of the Fund's net assets, may be warrants that
are not listed on the New York or American Stock Exchange. The Fund will not
engage in the purchase or sale of real estate or real estate limited
partnerships. The Fund also will not make loans to other persons unless
collateral values are continuously maintained at no less than 100% by "marking
to market" daily. The Fund also may not invest more than 5% of its total assets
in securities of companies which, including predecessors, have not had a record
of at least three years of continuous operations, and may not invest in any
restricted securities.
INVESTMENT RESTRICTIONS -- THE SMALLCAP
OPPORTUNITIES FUND, AND GROWTH OPPORTUNITIES FUND
The Funds have adopted investment restrictions numbered 1 through 12 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of such Fund's outstanding voting shares. Investment
restrictions numbered 13 through 21 are not fundamental policies and may be
changed by vote of a majority of the Trust's Board members at any time. Each
Fund may not:
(1) Borrow money, except from a bank and as a temporary measure for
extraordinary or emergency purposes, provided the Fund maintains asset
coverage of 300% for all borrowings;
(2) Purchase securities of any one issuer (except U.S. government
securities) if, as a result, more than 5% of the Fund's total assets
would be invested in that issuer, or the Fund would own or hold more
than 10% of the outstanding voting securities of the issuer; PROVIDED,
HOWEVER, that up to 25% of the Fund's total assets may be invested
without regard to these limitations;
(3) Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the Fund
may be deemed to be an underwriter;
(4) Concentrate its assets in the securities of issuers all of which
conduct their principal business activities in the same industry (this
restriction does not apply to obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities);
(5) Make any investment in real estate, commodities or commodities
contracts, except that these Funds may: (a) purchase or sell readily
marketable securities that are secured by interest in real estate or
issued by companies that deal in real estate, including real estate
investment and mortgage investment trusts; and (b) engage in financial
futures contracts and related options, as described herein and in the
Fund's Prospectus;
(6) Make loans, except that each of these Funds may: (a) invest in
repurchase agreements, and (b) loan its portfolio securities in
amounts up to one-third of the market or other fair value of its total
assets;
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(7) Issue senior securities, except as appropriate to evidence
indebtedness that it is permitted to incur, provided that the deposit
or payment by the Fund of initial or maintenance margin in connection
with futures contracts and related options is not considered the
issuance of senior securities;
(8) Borrow money in excess of 5% of its total assets (taken at market
value);
(9) Pledge, mortgage or hypothecate in excess of 5% of its total assets
(the deposit or payment by a Fund of initial or maintenance margin in
connection with futures contracts and related options is not
considered a pledge or hypothecation of assets);
(10) Purchase more than 10% of the voting securities of any one issuer,
except U.S. government securities;
(11) Invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than 7 days, that
cannot be disposed of within the normal course of business at
approximately the amount at which the Fund has valued the securities,
excluding restricted securities that have been determined by the
Trustees of the Fund (or the persons designated by them to make such
determinations) to be readily marketable;
(12) Purchase securities of any issuer with a record of less than 3 years
of continuous operations, including predecessors, except U.S.
government securities and obligations issued or guaranteed by any
foreign government or its agencies or instrumentalities, if such
purchase would cause the investments of a Fund in all such issuers to
exceed 5% of the total assets of the Fund taken at market value;
(13) Purchase securities on margin, except these Funds may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities (the deposit or payment by a Fund of initial
or maintenance margin in connection with futures contracts or related
options is not considered the purchase of a security on margin);
(14) Write put and call options, unless the options are covered and the
Fund invests through premium payments no more than 5% of its total
assets in options transactions, other than options on futures
contracts;
(15) Purchase and sell futures contracts and options on futures contracts,
unless the sum of margin deposits on all futures contracts held by the
Fund, and premiums paid on related options held by the Fund, does not
exceed more than 5% of the Fund's total assets, unless the transaction
meets certain "bona fide hedging", criteria (in the case of an option
that is in-the-money at the time of purchase, the in-the-money amount
may be excluded in computing the 5%);
(16) Invest in securities of any issuer if any officer or Trustee of the
Fund or any officer or director of Pilgrim owns more than 1/2 of 1% of
the outstanding securities of the issuer, and such officers, directors
and Trustees own in the aggregate more than 5% of the securities of
such issuer;
(17) Invest in interests in oil, gas or other mineral exploration or
development programs, (although it may invest in issuers that own or
invest in such interests);
(18) Purchase securities of any investment company, except by purchase in
the open market where no commission or profit to a sponsor or dealer
results from such purchase, or except when such purchase, though not
made in the open market, is part of a plan of merger, consolidation,
reorganization or acquisition of assets;
(19) Purchase more than 3% of the outstanding voting securities of another
investment company, invest more than 5% of its total assets in another
investment company, or invest more than 10% of its total assets in
other investment companies;
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(20) Purchase warrants if, as a result, warrants taken at the lower of cost
or market value would represent more than 5% of the value of the
Fund's net assets or if warrants that are not listed on the New York
or American Stock Exchanges or on an exchange with comparable listing
requirements, taken at the lower of cost or market value, would
represent more than 2% of the value of the Fund's net assets (for this
purpose, warrants attached to securities will be deemed to have no
value); or
(21) Make short sales, unless, by virtue of its ownership of other
securities, the Fund has the right to obtain securities equivalent in
kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions, except in
connection with arbitrage transactions.
INVESTMENT RESTRICTIONS -- THE MIDCAP OPPORTUNITIES FUND
The Fund has adopted investment restrictions numbered 1 through 11 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting shares. Investment restrictions numbered 12 through 15 are not
fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Fund may not:
(1) Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks up
to 10% of its net assets for temporary purposes but only if,
immediately after such borrowing there is asset coverage of 300%, and
(b) enter into transactions in options, futures, and options on
futures and other transactions not deemed to involve the issuance of
senior securities;
(2) Underwrite the securities of others;
(3) Purchase or sell real property, including real estate limited
partnerships (the Fund may purchase marketable securities of companies
that deal in real estate or interests therein, including real estate
investment trusts);
(4) Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
(5) Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to
brokers or dealers or other financial institutions not affiliated with
the Fund or Pilgrim, subject to conditions established by Pilgrim),
and may purchase or hold participations in loans, in accordance with
the investment objectives and policies of the Fund, as described in
the current Prospectus and SAI of the Fund;
(6) Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts will not be deemed to be purchases of securities on
margin);
(7) Sell short, except that the Fund may enter into short sales against
the box;
(8) Invest more than 25% of its assets in any one industry or related
group of industries;
(9) With respect to 75% of the Fund's assets, purchase a security (other
than U.S. government obligations) if, as a result, more than 5% of the
value of total assets of the Fund would be invested in securities of a
single issuer;
(10) Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of
an issuer, would be held by the Fund;
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(11) Borrow money in excess of 10% of its net assets for temporary
purposes;
(12) Purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that the Fund may purchase shares of other investment companies,
subject to such restrictions as may be imposed by the 1940 Act and
rules thereunder or by any state in which shares of the Fund are
registered;
(13) Make an investment for the purpose of exercising control over
management;
(14) Invest more than 15% of its net assets in illiquid securities; or
(15) Borrow any amount in excess of 10% of the Fund's assets, other than
for temporary emergency or administrative purposes. In addition, the
Fund will not make additional investments when its borrowings exceed
5% of total assets.
INVESTMENT RESTRICTIONS -- THE GROWTH + VALUE FUND
The Fund has adopted investment restrictions numbered 1 through 11 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of such Fund's
outstanding voting shares. Investment restrictions numbered 12 through 15 are
not fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Fund may not:
(1) Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks but
only if, immediately after such borrowing there is asset coverage of
300%, and (b) enter into transactions in options, futures, and options
on futures and other transactions not deemed to involve the issuance
of senior securities;
(2) Underwrite the securities of others;
(3) Purchase or sell real property, including real estate limited
partnerships (each of these Funds may purchase marketable securities
of companies that deal in real estate or interests therein, including
real estate investment trusts); (4) Deal in commodities or commodity
contracts, except in the manner described in the current Prospectus
and SAI of the Fund;
(4) Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
(5) Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 33% of net assets at the time the loan is made, to
brokers or dealers or other financial institutions not affiliated with
the Fund or Pilgrim, subject to conditions established by Pilgrim)
(See "Lending Portfolio Securities" in this SAI), and may purchase or
hold participations in loans, in accordance with the investment
objectives and policies of the Fund, as described in the cur-rent
Prospectus and SAI of the Fund;
(6) Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts will not be deemed to be purchases of securities on
margin);
(7) Sell short, except that these Funds may enter into short sales against
the box;
(8) Invest more than 25% of its assets in any one industry or related
group of industries;
(9) With respect to 75% of the Fund's assets, purchase a security (other
than U.S. government obligations) if, as a result, more than 5% of the
value of total assets of the Fund would be invested in securities of a
single issuer;
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(10) Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of
an issuer, would be held by the Fund;
(11) Borrow money except to the extent permitted under the 1940 Act;
(12) Purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that these Funds may purchase shares of other investment companies,
subject to such restrictions as may be imposed by the 1940 Act and
rules thereunder or by any state in which shares of the Fund are
registered;
(13) Make an investment for the purpose of exercising control over
management;
(14) Invest more than 15% of its net assets in illiquid securities; or
(15) Borrow any amount in excess of 10% of their respective assets, other
than for temporary emergency or administrative purposes. In addition,
the Fund will not make additional investments when its borrowings
exceed 5% of total assets.
INVESTMENT RESTRICTIONS -- THE INTERNATIONAL
VALUE FUND AND THE EMERGING MARKETS VALUE FUND
The Funds have adopted investment restrictions numbered 1 through 6 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of such Fund's
outstanding voting shares. Investment restrictions numbered 7 through 12 are not
fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Funds may not:
(1) Issue senior securities, except to the extent permitted under the 1940
Act, borrow money or pledge its assets, except that the Fund may
borrow on an unsecured basis from banks for temporary or emergency
purposes or for the clearance of transactions in amounts not exceeding
10% of its total assets (not including the amount borrowed), provided
that it will not make investments while borrowings are in excess of 5%
of the value of its total assets are outstanding;
(2) Act as underwriter (except to the extent the Fund may be deemed to be
an underwriter in connection with the sale of securities in its
investment portfolio);
(3) Invest 25% or more of its total assets, calculated at the time of
purchase and taken at market value, in any one industry (other than
U.S. government securities), except that the Fund reserves the right
to invest all of its assets in shares of another investment company;
(4) Purchase or sell real estate or interests in real estate or real
estate limited partnerships (although the Fund may purchase and sell
securities which are secured by real estate, securities of companies
which invest or deal in real estate and securities issued by real
estate investment trusts);
(5) Purchase or sell commodities or commodity futures contracts, except
that the Fund may purchase and sell stock index futures contracts for
hedging purposes to the extent permitted under applicable federal and
state laws and regulations and except that the Fund may engage in
foreign exchange forward contracts;
(6) Make loans (except for purchases of debt securities consistent with
the investment policies of the Fund and except for repurchase
agreements);
(7) Make short sales of securities or maintain a short position, except
for short sales against the box;
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(8) Purchase securities on margin, except such short-term credits as may
be necessary for the clearance of transactions;
(9) Write put or call options, except that the Fund may (i) write covered
call options on individual securities and on stock indices; (ii)
purchase put and call options on securities which are eligible for
purchase by the Fund and on stock indices; and (iii) engage in closing
transactions with respect to its options writing and purchases, in all
cases subject to applicable federal and state laws and regulations;
(10) Purchase any security if as a result the Fund would then hold more
than 10% of any class of voting securities of an issuer (taking all
common stock issues as a single class, all preferred stock issues as a
single class, and all debt issues as a single class), except that the
Fund reserves the right to invest all of its assets in a class of
voting securities of another investment company;
(11) Invest more than 10% of its assets in the securities of other
investment companies or purchase more than 3% of any other investment
company's voting securities or make any other investment in other
investment companies except as permitted by federal and state law,
except that the Fund reserves the right to invest all of its assets in
another investment company;
(12) Invest more than 15% of its net assets in illiquid securities.
INVESTMENT RESTRICTIONS -- THE RESEARCH ENHANCED INDEX FUND
The Fund has adopted investment restrictions numbered 1 through 8 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of the Fund's outstanding
voting shares. Investment restrictions numbered 9 through 14 are not fundamental
policies and may be changed by vote of a majority of the Trust's Board members
at any time. The Fund may not:
(1) Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks up
to 33 1/3% of its net assets for temporary purposes but only if,
immediately after such borrowing there is asset coverage of 300%, and
(b) enter into transactions in options, futures, and options on
futures and other transactions not deemed to involve the issuance of
senior securities;
(2) Underwrite the securities of others;
(3) Purchase or sell real estate, including real estate limited
partnerships (the Fund may purchase marketable securities of companies
that deal in real estate or interests therein, including real estate
investment trusts);
(4) Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
(5) Make loans to other persons (but the Fund may, however, lend portfolio
securities, up to 33 1/3% of net assets at the time the loan is made,
to brokers or dealers or other financial institutions not affiliated
with the Fund or Pilgrim, subject to conditions established by
Pilgrim) (See "Lending Portfolio Securities" in this SAI), and may
purchase or hold participations in loans, in accordance with the
investment objectives and policies of the Fund, as described in the
current Prospectus and SAI of the Fund;
(6) Invest more than 25% of its assets in any one industry;
(7) With respect to 75% of the Fund's assets, purchase a security (other
than U.S. government obligations) if, as a result, more than 5% of the
value of total assets of the Fund would be invested in securities of a
single issuer;
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(8) Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of
an issuer, would be held by the Fund;
(9) Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts will not be deemed to be purchases of securities on
margin);
(10) Sell short, except that the Fund may enter into short sales against
the box;
(11) Purchase securities of other investment companies, except in
connection with a merger, consolidation or sale of assets, and except
that the Fund may purchase shares of other investment companies,
subject to such restrictions as may be imposed by the 1940 Act, rules
thereunder or any order pursuant thereto or by any state in which
shares of the Fund are registered;
(12) Make an investment for the purpose of exercising control over
management;
(13) Invest more than 15% of its net assets in illiquid securities; or
(14) Borrow any amount in excess of 33 1/3% of the Fund's assets, other
than for temporary emergency or administrative purposes.
As a fundamental policy, this Fund may borrow money from banks to the
extent permitted under the 1940 Act. As an operating (non-fundamental) policy,
this Fund does not intend to borrow any amount in excess of 10% of its assets,
and would do so only for temporary emergency or administrative purposes. In
addition, to avoid the potential leveraging of assets, this Fund will not make
additional investments when its borrowings, including those investment
techniques which are regarded as a form of borrowing, are in excess of 5% of
total assets. If this Fund should determine to expand its ability to borrow
beyond the current operating policy, the Fund's Prospectus would be amended and
shareholders would be notified.
In addition to the above noted investment policies, the Research Enhanced
Index Fund's Sub-Adviser intends to monitor the sector and security weightings
of its portfolio relative to the composition of the S&P 500 Index. In that
regard, the Sub-Adviser intends to manage the Fund so that its sector weightings
and securities holdings closely approximate the sector and securities weightings
of the Index. As noted in the prospectus, the Sub-Adviser may vary modestly the
weightings of portfolio securities so that index securities that appear to be
overvalued may be underweighted and securities that may appear to be
underweighted may be overvalued. Steps will be taken periodically to rebalance
positions consistent with maintaining reasonable transaction costs and
reasonable weightings relative to the Index. While the Fund seeks to modestly
outperform the S&P 500 Index, the Fund expects that its returns will have a
coefficient correlation of 0.90% or better to the S&P 500 Index.
INVESTMENT RESTRICTIONS -- HIGH
TOTAL RETURN FUND II AND THE HIGH TOTAL RETURN FUND
The Funds have adopted investment restrictions numbered 1 through 11 as
fundamental policies. These restrictions cannot be changed without approval by
the holders of a majority (as defined in the 1940 Act) of such Fund's
outstanding voting shares. Investment restrictions numbered 12 through 18 are
not fundamental policies and may be changed by vote of a majority of the Trust's
Board members at any time. The Funds may not:
(1) Borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that it may: (a) borrow from banks but
only if, immediately after such borrowing there is asset coverage of
300%, and (b) enter into transactions in options, futures, and options
on futures and other transactions not deemed to involve the issuance
of senior securities;
(2) Underwrite the securities of others;
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(3) Purchase or sell real property, including real estate limited
partnerships (each of these Funds may purchase marketable securities
of companies that deal in real estate or interests therein, including
real estate investment trusts);
(4) Deal in commodities or commodity contracts, except in the manner
described in the current Prospectus and SAI of the Fund;
(5) Make loans to other persons (but the Funds may, however, lend
portfolio securities, up to 33% of net assets at the time the loan is
made, to brokers or dealers or other financial institutions not
affiliated with the Funds or Pilgrim, subject to conditions
established by Pilgrim) (See "Lending Portfolio Securities" in this
SAI), and may purchase or hold participations in loans, in accordance
with the investment objectives and policies of the Fund, as described
in the current Prospectus and SAI of the Fund;
(6) Participate in any joint trading accounts;
(7) Purchase on margin (except that for purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts will not be deemed to be purchases of securities on
margin);
(8) Sell short, except that these Funds may enter into short sales against
the box;
(9) Invest more than 25% of its assets in any one industry or related
group of industries;
(10) Purchase a security (other than U.S. government obligations) if, as a
result, more than 5% of the value of total assets of the Fund would be
invested in securities of a single issuer;
(11) Purchase a security if, as a result, more than 10% of any class of
securities, or more than 10% of the outstanding voting securities of
an issuer, would be held by the Fund;
(12) Purchase a debt security if, as a result, more than 10% of the
outstanding principal amount of the issuer's debt securities would be
held by the Fund, except that this restriction does not apply to
securities issued or guaranteed by the US. Government or its agencies
or instrumentalities.
(13) Invest in a security if, as a result of such investment, more than 5%
of its total assets (taken at market value at the time of such
investment) would be invested in securities of issuers (other than
issuers of federal agency obligations) having a record, together with
predecessors or unconditional guarantors, of less than three years of
continuous operation;
(14) Purchase securities of other investment companies, except in
connection with a- merger, consolidation or sale of assets, and except
that these Funds may purchase shares of other investment companies,
subject to such restrictions as may be imposed by the 1940 Act and
rules thereunder or by any state in which shares of the Fund are
registered;
(15) Purchase or retain securities of any issuer if 5% of the securities of
such issuer are owned by those officers and directors or trustees of
the Fund or of Pilgrim who each own beneficially more than 1/2 of 1%
of its securities;
(16) Make an investment for the purpose of exercising control over
management;
(17) Invest more than 15% of its net assets (determined at the time of
investment) in illiquid securities, including securities subject to
legal or contractual restrictions on resale (which may include private
placements and those 144A securities for which the Trustees, pursuant
to procedures adopted by the Fund, have not determined there is a
liquid secondary market), repurchase agreements maturing in more than
seven days, options traded over the counter that a Fund has purchased,
securities being used to cover options a Fund has written, securities
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for which market quotations are not readily available, or other
securities that, legally or in the Adviser's or Trustees' opinion, may
be deemed illiquid; or
(18) Invest in interests in oil, gas or other mineral exploration
development programs (including oil, gas or other mineral leases).
As a fundamental policy, these Funds may borrow money from banks to the
extent permitted under the 1940 Act. As an operating (non- fundamental) policy,
these Funds do not intend to borrow any amount in excess of 10% of their
respective assets, and would do so only for temporary emergency or
administrative purposes. In addition, to avoid the potential leveraging of
assets, neither of these Funds will make additional investments when its
borrowings, including those investment techniques which are regarded as a form
of borrowing, are in excess of 5% of total assets. If any of these three Funds
should determine to expand its ability to borrow beyond the current operating
policy, the Fund's Prospectus would be amended and shareholders would be
notified.
As a non-fundamental restriction, High Yield Total Return Fund II and High
Yield Total Return Fund may not purchase a debt security if, as a result, more
than 10% of any class of debt securities would be held by the Fund.
In addition to the restrictions described above, each of these Funds may,
from time to time, agree to additional investment restrictions for purposes of
compliance with the securities laws of those foreign jurisdictions where that
Fund intends to offer or sell its shares.
INVESTMENT RESTRICTIONS -- THE ING PILGRIM MUTUAL FUNDS
The Funds have adopted the following fundamental policies that cannot be
changed without the affirmative vote of a majority of the outstanding shares of
the appropriate Fund (as defined in the Investment Company Act).
All percentage limitations set forth below apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage resulting from market fluctuations will not require elimination of
any security from the relevant portfolio.
The investment objective of each Fund is a fundamental policy. In addition,
no Fund:
(1) May invest in securities of any one issuer if more than 5% of the
market value of its total assets would be invested in the securities
of such issuer, except that up to 25% of a Fund's total assets may be
invested without regard to this restriction and a Fund will be
permitted to invest all or a portion of its assets in another
diversified, open-end management investment company with substantially
the same investment objective, policies and restrictions as the Fund.
This restriction also does not apply to investments by a Fund in
securities of the U.S. Government or any of its agencies and
instrumentalities.
(2) May purchase more than 10% of the outstanding voting securities, or of
any class of securities, of any one issuer, or purchase the securities
of any issuer for the purpose of exercising control or management,
except that a Fund will be permitted to invest all or a portion of its
assets in another diversified, open-end management investment company
with substantially the same investment objective, policies and
restrictions as the Fund.
(3) May invest 25% or more of the market value of its total assets in the
securities of issuers in any one particular industry, except that a
Fund will be permitted to invest all or a portion of its assets in
another diversified, open-end management investment company with
substantially the same investment objective, policies and restrictions
as the Fund. This restriction does not apply to investments by a Fund
in securities of the U.S. Government or its agencies and
instrumentalities or to investments by the Money Market Fund in
obligations of domestic branches of U.S. banks and U.S. branches of
foreign banks which are subject to the same regulation as U.S. banks.
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(4) May purchase or sell real estate. However, a Fund may invest in
securities secured by, or issued by companies that invest in, real
estate or interests in real estate.
(5) May make loans of money, except that a Fund may purchase publicly
distributed debt instruments and certificates of deposit and enter
into repurchase agreements. Each Fund reserves the authority to make
loans of its portfolio securities in an aggregate amount not exceeding
30% of the value of its total assets. This restriction does not apply
to the Money Market Fund.
(6) May borrow money on a secured or unsecured basis, except for
temporary, extraordinary or emergency purposes or for the clearance of
transactions in amounts not exceeding 20% of the value of its total
assets at the time of the borrowing, provided that, pursuant to the
Investment Company Act, a Fund may borrow money if the borrowing is
made from a bank or banks and only to the extent that the value of the
Fund's total assets, less its liabilities other than borrowings, is
equal to at least 300% of all borrowings (including proposed
borrowings), and provided, further that the borrowing may be made only
for temporary, extraordinary or emergency purposes or for the
clearance of transactions in amounts not exceeding 20% of the value of
the Fund's total assets at the time of the borrowing. If such asset
coverage of 300% is not maintained, the Fund will take prompt action
to reduce its borrowings as required by applicable law.
(7) May pledge or in any way transfer as security for indebtedness any
securities owned or held by it, except to secure indebtedness
permitted by restriction 6 above. This restriction shall not prohibit
the Funds from engaging in options, futures and foreign currency
transactions, and shall not apply to the Money Market Fund.
(8) May underwrite securities of other issuers, except insofar as it may
be deemed an underwriter under the Securities Act in selling portfolio
securities.
(9) May invest more than 15% (10% in the case of the Money Market Fund) of
the value of its net assets in securities that at the time of purchase
are illiquid.
(10) May purchase securities on margin, except for initial and variation
margin on options and futures contracts, and except that a Fund may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of securities.
(11) May engage in short sales (other than the MidCap Growth, SmallCap
Growth, Worldwide Growth, International Core Growth, International
SmallCap Growth, Strategic Income and High Yield II Funds), except
that a Fund may use such short-term credits as are necessary for the
clearance of transactions.
(12) May invest in securities of other investment companies, except (a)
that a Fund will be permitted to invest all or a portion of its assets
in another diversified, open-end management investment company with
substantially the same investment objective, policies and restrictions
as the Fund; (b) in compliance with the Investment Company Act and
applicable state securities laws, or (c) as part of a merger,
consolidation, acquisition or reorganization involving the Fund.
(13) May issue senior securities, except that a Fund may borrow money as
permitted by restrictions 6 and 7 above. This restriction shall not
prohibit the Funds from engaging in short sales, options, futures and
foreign currency transactions.
(14) May enter into transactions for the purpose of arbitrage, or invest in
commodities and commodities contracts, except that a Fund may invest
in stock index, currency and financial futures contracts and related
options in accordance with any rules of the Commodity Futures Trading
Commission.
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(15) May purchase or write options on securities, except for hedging
purposes (except in the case of the Strategic Income Fund, which may
do so for non-hedging purposes) and then only if (i) aggregate
premiums on call options purchased by a Fund do not exceed 5% of its
net assets, (ii) aggregate premiums on put options purchased by a Fund
do not exceed 5% of its net assets, (iii) not more than 25% of a
Fund's net assets would be hedged, and (iv) not more than 25% of a
Fund's net assets are used as cover for options written by the Fund.
This restriction does not apply to the Money Market Fund.
For purposes of investment restriction number 5, the Trust considers the
restriction to prohibit the Funds from entering into instruments that have the
character of a loan, I.E., instruments that are negotiated on a case-by-case
basis between a lender and a borrower. The Trust considers the phrase "publicly
distributed debt instruments" in that investment restriction to include, among
other things, registered debt securities and unregistered debt securities that
are offered pursuant to Rule 144A under the Securities Act of 1933. As a result,
the Funds may invest in such securities. Further, the Trust does not consider
investment restriction number 5 to prevent the Funds from investing in
investment companies that invest in loans.
INVESTMENT RESTRICTIONS -- THE HIGH YIELD FUND
The Fund has adopted the following investment restrictions as fundamental
policies that cannot be changed without approval by the holders of a majority of
its outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. The Fund may not:
(1) Issue senior securities. Good faith hedging transactions and similar
investment strategies will not be treated as senior securities for
purposes of this restriction so long as they are covered in accordance
with applicable regulatory requirements and are structured consistent
with current SEC interpretations.
(2) Underwrite securities of other issuers.
(3) Invest in commodities except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies,
indexes and options on futures contracts or indexes and currencies
underlying or related to any such futures contracts.
(4) Make loans to persons except (a) through the purchase of a portion of
an issue of publicly distributed bonds, notes, debentures and other
evidences of indebtedness customarily purchased by institutional
investors, (b) by the loan of its portfolio securities in accordance
with the policies described under "Lending of Portfolio Securities,"
or (c) to the extent the entry into a repurchase agreement is deemed
to be a loan.
(5) Purchase the securities of another investment company or investment
trust, except as they may be acquired as part of a merger,
consolidation or acquisition of assets.
(6) Purchase any securities on margin or effect a short sale of a
security. (This restriction does not preclude the Fund from obtaining
such short-term credits as may be necessary for the clearance of
purchases and sales of its portfolio securities.)
(7) Buy securities from or sell securities to its investment adviser or
principal distributor or any of their affiliates or any affiliates of
its Directors, as principal.
(8) Buy, lease or hold real property except for office purposes. (This
restriction does not preclude investment in marketable securities of
companies engaged in real estate activities.)
(9) As to 75% of the value of its total assets, invest more than 5% of the
value of its total assets in the securities of any one issuer (other
than the United States Government) or acquire more than 10% of the
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outstanding voting securities of any one issuer; but as to the
remaining 25% of its total assets, it retains freedom of action.
(10) Borrow money except from banks for temporary or emergency purposes and
not for investment purposes, and then only in amounts not in excess of
5% of the value of its total assets.
(11) Invest in the securities of any company that, including its
predecessors, has not been in business for at least three years.
(12) Invest more than 25% of the value of its total assets in any one
industry.
(13) Invest in securities of any one issuer for the purpose of exercising
control or management.
The Fund is also subject to the following restrictions and policies that
are not fundamental and may, therefore, be changed by the Board of Directors
without shareholder approval. Notwithstanding the restrictions above, the High
Yield Fund will not, so long as its shares are registered for sale in the State
of South Dakota: (i) have more than 10% of its total assets invested in
securities of issuers that the Fund is restricted from selling to the public
without registration under the Securities Act of 1933, as amended; (ii) have
more than 10% of its total assets invested in real estate investment trusts or
investment companies; (iii) have more than 5% of its assets invested in options,
financial futures or stock index futures, other than hedging positions or
positions that are covered by cash or securities; (iv) have more than 5% of its
assets invested in equity securities of issuers that are not readily marketable
and securities of issuers that have been in operation for less than three years;
and (v) invest any part of its total assets in real estate or interests in real
estate, excluding readily marketable securities and real estate used for office
purposes; commodities, other than precious metals not to exceed 10% of the
Fund's total assets; commodity futures contracts or options other than as
permitted by investment companies qualifying for an exemption from the
definition of commodity pool operator; or interests in commodity pools or oil,
gas or other mineral exploration or development programs.
The High Yield Fund will not, so long as its shares are registered for sale
in the State of Texas, invest in oil, gas or other mineral leases or in real
estate limited partnerships. The Fund will limit its investments in warrants,
valued at the lower of cost or market, to 5% of its net assets. Included within
that amount, but not to exceed 2% of the Fund's net assets, may be warrants that
are not listed on the New York or American Stock Exchange. The Fund will not
make loans unless collateral values are continuously maintained at no less than
100% by "marking to market" daily.
The High Yield Fund will not, so long as its shares are registered for sale
in the State of Ohio: (i) purchase or retain securities of any issuer if the
officers or directors of the Fund, its adviser or manager owning beneficially
more than one-half of one percent of the securities of an issuer together own
beneficially more than five percent of the securities of that issuer, or (ii)
borrow, pledge, mortgage or hypothecate its assets in excess of 1/3 of total
Fund assets. The Fund will only borrow money for emergency or extraordinary
purposes.
INVESTMENT RESTRICTIONS -- THE BANK AND THRIFT FUND
The Fund has adopted the following investment restrictions as fundamental
policies that cannot be changed without approval by the holders of a majority of
its outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. The Fund may not:
(1) Invest more than 25% of its total assets in any industry or group of
related industries other than the banking and thrift industries,
except for temporary or defensive positions.
(2) Borrow, except that it may borrow in an amount up to 15% of its total
assets to obtain such short-term credits as are necessary for the
clearance of securities transactions.
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(3) Invest in repurchase agreements maturing in more than 7 days, if as a
result of such investment more than 10% of the Fund's total assets
would be invested in such repurchase agreements.
(4) Purchase securities for which there are legal or contractual
restrictions on resale, if as a result of such purchase more than 10%
of the Fund's total assets would be invested in such securities.
(5) Invest more than 5% of the value of its net assets in marketable
warrants to purchase common stock.
(6) Purchase securities of any one issuer, other than U.S. Government
securities, if immediately after such purchase more than 5% of the
value of the Fund's total assets would be invested in such issuer or
the Fund would own more than 10% of the outstanding voting securities
of an issuer or more than 10% of any class of securities of an issuer,
except that up to 25% of the Fund's total assets may be invested
without regard to the restrictions in this Item 6. For this purpose,
all outstanding bonds and other evidences of indebtedness shall be
deemed within a single class regardless of maturities, priorities,
coupon rates, series, designations, conversion rights, security or
other differences.
(7) Act as an underwriter of securities of other issuers, except, to the
extent that it may be deemed to act as an underwriter in certain cases
when disposing of restricted securities (See also Item 4 above.).
(8) Purchase or sell real estate, commodities, commodity futures
contracts, or oil or gas exploration or development programs; or sell
short, or write, purchase, or sell straddles, spreads or combinations
thereof.
(9) Make loans, except that the Fund may purchase or hold Debt Securities
in accordance with its investment policies and objectives.
(10) Purchase securities on margin or hypothecate, mortgage or pledge any
of its assets except for the purpose of securing borrowings permitted
by Item 2 above and then only in an amount up to 15% of the value of
the Fund's total assets at the time of borrowing.
(11) Issue senior securities, except (1) insofar as the Fund may be deemed
to have issued a senior security by reason of borrowing money in
accordance with the Fund's fundamental restriction on borrowing and
(2) as permitted by the Investment Company Act of 1940, as amended,
and the rules and regulations promulgated thereunder or an exemption
therefrom.
The following investment restrictions are not fundamental and may be
changed by the Board of Directors without shareholder approval. Appropriate
notice will be given of any changes in these restrictions made by the Board of
Directors. The Fund may not:
(12) Participate on a joint or joint and several basis in any trading
account in securities.
(13) Purchase securities of any issuer for the purposes of exercising
control or management, except in connection with a merger,
consolidation, acquisition or reorganization.
(14) Invest more than 5% of the Fund's total assets in securities of any
issuer which, together with its predecessors, has been in continuous
operation less than three years.
(15) Purchase or retain the securities of any issuer if those officers or
Directors of the Fund or officers or Directors of the Investment
Manager who each own beneficially more than 1/2 of 1% of the
securities of that issuer together own more than 5% of the securities
of such issuer.
(16) Invest in illiquid securities if, as a result, more than 15% of the
Fund's net assets would be invested in such securities.
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<PAGE>
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in a percentage from a change in values of portfolio
securities or amount of total assets will not be considered a violation of any
of the foregoing restrictions.
INVESTMENT RESTRICTIONS -- THE GOVERNMENT SECURITIES INCOME FUND
The Fund has adopted the following investment restrictions as fundamental
policies that cannot be changed without approval by the holders of a majority of
its outstanding shares, which means the lesser of (1) 67% of the Fund's shares
present at a meeting at which the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the Fund's
outstanding shares. The Fund may not:
(1) Purchase any securities other than obligations issued or guaranteed by
the United States Government or its agencies, some of which may be
subject to repurchase agreements. There is no limit on the amount of
the Fund's assets that may be invested in the securities of any one
issuer of such obligations.
(2) Make loans to others, except (a) through the purchase of debt
securities in accordance with its investment objective and policies,
(b) to the extent the entry into a repurchase agreement is deemed to
be a loan or (c) by the loan of its portfolio securities in accordance
with the policies described under "Investment Objective and Policies."
(3) (a) Borrow money, except temporarily for extraordinary or emergency
purposes from a bank and then not in excess of 10% of its total
assets (at the lower of cost or fair market value). No additional
investment may be made while any such borrowing are in excess of
5% of total assets. For purposes of this investment restriction,
the entry into reverse repurchase agreements, dollar-rolls and
delayed delivery transactions, including those relating to
pair-offs, shall not constitute borrowing.
(b) Mortgage, pledge or hypothecate any of its assets except to the
extent necessary to secure permitted borrowing and to the extent
related to the deposit of assets in escrow in connection with (i)
the purchase of securities on a forward commitment or delayed
delivery basis, and (ii) reverse repurchase agreements and
dollar-rolls.
(c) Borrow money, including the entry into reverse repurchase
agreements and dollar roll transactions and purchasing securities
on a delayed delivery basis, if, as a result of such borrowing,
more than 33-1/3 of the total assets of the Fund, taken at market
value at the time of such borrowing, is derived from borrowing.
For purposes of this limitation, a delay between purchase and
settlement of a security that occurs in the ordinary course for
the market on which the security is purchased or issued is not
considered a purchase of a security on a delayed delivery basis.
(4) Purchase securities on margin, sell securities short or participate on
a joint or joint and several basis in any securities trading account.
(Does not preclude the Fund from obtaining such short-term credit as
may be necessary for the clearance of purchases and sales of its
portfolio securities.)
(5) Underwrite any securities, except to the extent the Fund may be deemed
to be an underwriter in connection with the sale of securities held in
its portfolio.
(6) Buy or sell interests in oil, gas or mineral exploration or
development programs, or purchase or sell commodities, commodity
contracts or real estate. (Does not preclude the purchase of GNMA
mortgage-backed certificates.)
(7) Purchase or hold securities of any issuer, if, at the time of purchase
or thereafter, any of the Officers and Directors of the Fund or its
Investment Manager own beneficially more than 1/2 of 1%, and such
Officers and Directors holding more than 1/2 of 1% together own
beneficially more than 5%, of the issuer's securities.
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<PAGE>
(8) Invest in securities of other investment companies, except as they may
be acquired as part of a merger, consolidation or acquisition of
assets.
(9) Issue senior securities, except insofar as the Fund may be deemed to
have issued a senior security by reason of borrowing money in
accordance with the Fund's borrowing policies or investment
techniques, and except for purposes of this investment restriction,
collateral, escrow, or margin or other deposits with respect to the
making of short sales, the purchase or sale of futures contracts or
related options, purchase or sale of forward foreign currency
contracts, and the writing of options on securities are not deemed to
be an issuance of a senior security.
The Fund is also subject to the following restrictions and policies that
are not fundamental and may, therefore, be changed by the Board of Directors
without shareholder approval. The Fund will not invest more than 5% of the net
assets of the Fund in warrants, whether or not listed on the New York or
American Stock Exchanges, including no more than 2% of its total assets which
may be invested in warrants that are not listed on those exchanges. Warrants
acquired by the Fund in units or attached to securities are not included in this
restriction. The Fund will not, so long as its shares are registered in the
State of Texas, invest in oil, gas, or other mineral leases or real estate
limited partnership interests. The Fund will not make loans to others, unless
collateral values are continuously maintained at no less than 100% by "marking
to market" daily.
OPERATING RESTRICTIONS - FOR THE ING PILGRIM MUTUAL FUNDS
As a matter of operating (not fundamental) policy adopted by the Board of
Trustees of the Trust, no Fund:
(1) May invest in interests in oil, gas or other mineral exploration or
development programs or leases, or real estate limited partnerships,
although a Fund may invest in the securities of companies which invest
in or sponsor such programs.
(2) May lend any securities from its portfolio unless the value of the
collateral received therefor is continuously maintained in an amount
not less than 100% of the value of the loaned securities by marking to
market daily.
PRIMARY FUND RESTRICTIONS - FOR THE ING PILGRIM MUTUAL FUNDS
The following are the fundamental operating restrictions of the Primary
Institutional Fund in which the Money Market Fund invests substantially all of
its assets:
The Primary Institutional Fund cannot:
(1) Borrow money except as a temporary or emergency measure and not in an
amount to exceed 5% of the market value of its total assets;
(2) Issue senior securities except in compliance with the Investment
Company Act;
(3) Act as an underwriter with respect to the securities of others except
to the extent that, in connection with the disposition of portfolio
securities, it may be deemed to be an underwriter under federal
securities law;
(4) Concentrate investments in any particular industry except to the
extent that its investments are concentrated exclusively in U.S.
government securities and bank obligations, including obligations of
foreign branches of domestic banks where the domestic parent would be
unconditionally liable in the event that the foreign branch failed to
pay on its instruments for any reason, and Municipal Obligations or
instruments secured by such obligations;
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<PAGE>
(5) Purchase, sell or otherwise invest in real estate or commodities or
commodity contracts;
(6) Lend more than 33 1/3% of the value of its total assets except to the
extent its investments may be considered loans;
(7) Sell any security short or write, sell or purchase any futures
contract or put or call option; and
(8) Make investments on a margin basis.
Notwithstanding the foregoing investment restrictions, the Primary
Institutional Fund may invest substantially all of its assets in another
open-end investment company with substantially the same investment objective as
the Primary Institutional Fund.
PRIMARY INSTITUTIONAL FUND OPERATING RESTRICTIONS
As a matter of operating (non-fundamental policy) the Primary Institutional
Fund may not invest for the purpose of exercising control.
In addition to the restrictions described above, each of these funds may,
from time to time, agree to additional investment restrictions for purposes of
compliance with the securities laws of those foreign jurisdictions where the
Fund intends to offer or sell its shares.
PORTFOLIO TRANSACTIONS
Each Investment Management Agreement and Portfolio Management Agreement or
Sub-Advisory Agreement authorizes the Investment Manager or Sub-Adviser to
select the brokers or dealers that will execute the purchase and sale of
investment securities for each Fund. In all purchases and sales of securities
for the portfolio of a Fund, the primary consideration is to obtain the most
favorable price and execution available. Pursuant to the Investment Management
Agreements and Portfolio Management Agreements or Sub-Advisory Agreements, each
Investment Manager or Sub Advisor determines, subject to the instructions of and
review by the Board of Directors/Trustees of the Fund, which securities are to
be purchased and sold by the Funds and which brokers are to be eligible to
execute portfolio transactions of the Fund. Purchases and sales of securities in
the over-the-counter market will generally be executed directly with a
"market-maker," unless in the opinion of the Investment Manager or a
Sub-Adviser, a better price and execution can otherwise be obtained by using a
broker for the transaction.
In placing portfolio transactions, the Investment Manager or Sub-Adviser
will use its best efforts to choose a broker capable of providing the brokerage
services necessary to obtain the most favorable price and execution available.
The full range and quality of brokerage services available will be considered in
making these determinations, such as the size of the order, the difficulty of
execution, the operational facilities of the firm involved, the firm's risk in
positioning a block of securities, and other factors. With respect to Bank and
Thrift Fund, such other factors would include the firm's ability to engage in
transactions in shares of banks and thrifts that are not listed on an organized
stock exchange. The Investment Manager or Sub-Adviser will seek to obtain the
best commission rate available from brokers that are believed to be capable of
providing efficient execution and handling of the orders. In those instances
where it is reasonably determined that more than one broker can offer the
brokerage services needed to obtain the most favorable price and execution
available, consideration may be given to those brokers that supply research and
statistical information to a Fund, the Investment Manager, and/or the
Sub-Adviser, and provide other services in addition to execution services. The
Investment Manager or Sub-Adviser considers such information, which is in
addition to and not in lieu of the services required to be performed by the
Investment Manager or Sub-Adviser to be useful in varying degrees, but of
indeterminable value. Consistent with this policy, portfolio transactions may be
executed by brokers affiliated with the Pilgrim Group or the Investment Manager
or Sub-Advisers, so long as the commission paid to the affiliated broker is
reasonable and fair compared to the commission that would be charged by an
unaffiliated broker in a comparable transaction. The placement of portfolio
brokerage with broker-dealers who have sold shares of a Fund is subject to rules
adopted by the National Association of Securities Dealers, Inc. ("NASD")
Provided the Fund's officers are satisfied that the Fund is receiving the most
favorable price and execution available, the Fund may also consider the sale of
the Fund's shares as a factor in the selection of broker-dealers to execute its
portfolio transactions.
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<PAGE>
While it will continue to be the Funds' general policy to seek first to
obtain the most favorable price and execution available, in selecting a broker
to execute portfolio transactions for a Fund, the Fund may also give weight to
the ability of a broker to furnish brokerage and research services to the Fund,
the Investment Manager or the Sub-Adviser, even if the specific services were
not imputed to the Fund and were useful to the Investment Manager and/or
Sub-Adviser in advising other clients. In negotiating commissions with a broker,
the Fund may therefore pay a higher commission than would be the case if no
weight were given to the furnishing of these supplemental services, provided
that the amount of such commission has been determined in good faith by the
Investment Manager or Sub-Adviser to be reasonable in relation to the value of
the brokerage and research services provided by such broker.
Purchases of securities for a Fund also may be made directly from issuers
or from underwriters. Where possible, purchase and sale transactions will be
effected through dealers which specialize in the types of securities which the
Fund will be holding, unless better executions are available elsewhere. Dealers
and underwriters usually act as principals for their own account. Purchases from
underwriters will include a concession paid by the issuer to the underwriter and
purchases from dealers will include the spread between the bid and the asked
price. If the execution and price offered by more than one dealer or underwriter
are comparable, the order may be allocated to a dealer or underwriter which has
provided such research or other services as mentioned above.
Some securities considered for investment by a Fund may also be appropriate
for other clients served by that Fund's Investment Manager or Sub-Adviser. If
the purchase or sale of securities consistent with the investment policies of a
Portfolio and one or more of these other clients serviced by the Investment
Manager or Sub-Adviser is considered at or about the same time, transactions in
such securities will be allocated among the Fund and the Investment Manager's or
Sub-Adviser's other clients in a manner deemed fair and reasonable by the
Investment Manager or Sub-Adviser. Although there is no specified formula for
allocating such transactions, the various allocation methods used by the
Investment Manager or Sub-Adviser, and the results of such allocations, are
subject to periodic review by the Board of Directors/Trustees. To the extent any
of Funds seek to acquire the same security at the same time, one or more of the
Funds may not be able to acquire as large a portion of such security as it
desires, or it may have to pay a higher price for such security. It is
recognized that in some cases this system could have a detrimental effect on the
price or value of the security insofar as a specific Fund is concerned.
Each Fund does not intend to effect any transactions in its portfolio
securities with any broker-dealer affiliated directly or indirectly with the
Investment Manager, except for any sales of portfolio securities that may
legally be made pursuant to a tender offer, in which event the Investment
Manager will offset against its management fee a part of any tender fees that
may be legally received and retained by an affiliated broker-dealer.
Purchases and sales of fixed income securities will usually be principal
transactions. Such securities often will be purchased or sold from or to dealers
serving as market makers for the securities at a net price. Each Fund may also
purchase such securities in underwritten offerings and will, on occasion,
purchase securities directly from the issuer. Generally, fixed income securities
are traded on a net basis and do not involve brokerage commissions. The cost of
executing fixed income securities transactions consists primarily of dealer
spreads and underwriting commissions.
In purchasing and selling fixed income securities, it is the policy of each
Fund to obtain the best results, while taking into account the dealer's general
execution and operational facilities, the type of transaction involved and other
factors, such as the dealer's risk in positioning the securities involved. While
Pilgrim generally seeks reasonably competitive spreads or commissions, the Funds
will not necessarily pay the lowest spread or commission available.
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Brokerage commissions paid by each Fund for previous fiscal years/periods
are as follows:
<TABLE>
<CAPTION>
Oct. 31 June 30
------- --------------------------------------
2000 2000 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
International Core Growth Fund(1) ___ $ 627,554 $ 337,039 1,150,595
Worldwide Growth Fund(1) ___ $2,562,446 $ 390,084 $1,166,321
International SmallCap Growth Fund(1) ___ $3,660,023 $ 247,580 $ 873,671
Emerging Countries Fund(1) ___ $2,767,514 $1,036,293 $3,945,783
LargeCap Growth Fund N/A $1,017,307 $ 58,467 $ 115,558
MidCap Growth Fund N/A $ 677,532 $ 344,683 $1,291,517
SmallCap Growth Fund N/A $ 545,288 $ 156,586 $ 974,722
Convertible Fund N/A $ 134,086 $ 15,340 $ 158,049
Balanced Fund N/A $ 102,510 $ 38,023 $ 25,782
Strategic Income Fund N/A $ 11,424 $ 3,257 $ 0
Money Market Fund N/A N/A N/A N/A
High Yield Fund II N/A $ 27,105 $ 0 $ 0
Asia-Pacific Equity Fund(1) ___ $ 270,650 $ 203,029 $ 302,383
MidCap Value Fund N/A $ 246,608 $ 364,903 $ 16,687
LargeCap Leaders Fund N/A $ 29,863 $ 551,028 $ 50,835
MagnaCap Fund N/A $ 301,665 $ 300,524 $ 456,000
High Yield Fund N/A $ 4,080 $ 0 $ 0
Bank and Thrift Fund(2) N/A $359,31 $ 584,160 $ 316,000
Government Securities Income Fund N/A $ 0 $ 0 $ 0
</TABLE>
----------
(1) For the four month period of July 1, 2000 to October 31, 2000. Effective
________, 2000, the Fund changed its fiscal year end to October 31 from
June 30.
(2) For the Bank and Thrift Fund, for the years ended December 31, 1997 and the
six-month period ended June 30, 1998.
For The Fiscal Years
Ended October 31
--------------------------
2000 1999 1998
---- ---- ----
Growth + Value Fund ........... $ 374,786 $339,495
International Value Fund(1) ... $1,316,582 $995,910
Emerging Markets Value Fund(2) $ 47,474 $ 33,868
Research Enhanced Index Fund(3) $ 103,616 N/A
High Total Return Fund II ..... $ 5,659 N/A
High Total Return Fund ........ $ 26,963 N/A
----------
(1) Prior to April 21, 1997, the International Value Fund was operated as the
Brandes International Fund, a series of the Brandes Investment Trust, and
distributed by Worldwide Value Distributors, L.L.C.
(2) Pilgrim Emerging Markets Value Fund commenced operations on January 1,
1998.
(3) Pilgrim Research Enhanced Index Fund commenced operations on December 30,
1998.
For The Fiscal Years Ended December 31
----------------------------------------
2000 1999 1998
---- ---- ----
SmallCap Opportunities Fund............. $ 429,651 $957,784
Mid-Cap Opportunities Fund.............. $ 144,341 $ 54,968
Growth Opportunities Fund............... $ 1,091,033 $423,680
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Of the total commissions paid during the fiscal period ended June 30, 2000,
$2,028,435 (15%) were paid to firms which provided research, statistical or
other services to the Investment Manager. The Investment Manager has not
separately identified a portion of such commissions as applicable to the
provision of such research, statistical or otherwise.
During the year ended June 30, 2000, the following Funds (or their
predecessor master funds) acquired securities of their regular brokers or
dealers (as defined in Rule 10b-1 under the Investment Company Act) or their
parents: Worldwide Growth Fund-Goldman Sachs Group; MidCap Growth Fund-Donaldson
Lufkin & Jenrette; Convertible Fund-Merrill Lynch & Co., Morgan Stanley Dean
Witter Discover Co.; Balanced Fund-Donaldson Lufkin & Jenrette, Goldman Sachs
Group, Merrill Lynch & Co., Morgan Stanley Dean Witter Discover & Co.; Strategic
Income-Donaldson Lufkin & Jenrette, J.P. Morgan & Co., Goldman Sachs Group,
Morgan Stanley Dean Witter Discover & Co.; LargeCap Growth Fund-Goldman Sachs
Group. The holdings of securities of such brokers and dealers were as follows as
of June 30, 2000: Convertible Fund- Morgan Stanley Dean Witter Discover Co.
$4,653,766; Balanced Fund-J. P. Morgan & Co. $825,937, Merrill Lynch & Co.
$776,250; SmallCap Growth Fund-Dain Rauscher Corp. $2,059,200; LargeCap Leaders
Fund-Merrill Lynch & Co., $804,425
As of October 31, 2000, the following Funds held securities of their
regular brokers or dealers:
ABOUT THE MONEY MARKET FUND
With respect to the Primary Fund in which the Money Market Fund invests its
assets, Reserve Management Company, Inc. is responsible for decisions to buy and
sell securities, broker-dealer selection and negotiation of commission rates. As
investment securities transactions made by the Primary Fund are normally
principal transactions at net prices, the Primary Fund does not normally incur
brokerage commissions. Purchases of securities from underwriters involve a
commission or concession paid by the issuer to the underwriter and after market
transactions with dealers involve a spread between the bid and asked prices. The
Primary Fund has not paid any brokerage commissions during the past three fiscal
years.
The Primary Fund's policy of investing in debt securities maturing within
13 months results in high portfolio turnover. However, because the cost of these
transactions is minimal, high turnover does not have a material, adverse effect
upon the net asset value ("NAV") or yield of the Primary Fund.
Subject to the overall supervision of the officers of the Primary Fund and
the Board of Trustees, Reserve Management Company, Inc. places all orders for
the purchase and sale of the Primary Fund's investment securities. In general,
in the purchase and sale of investment securities, Reserve Management Company,
Inc. will seek to obtain prompt and reliable execution of orders at the most
favorable prices and yields. In determining best price and execution, Reserve
Management Company, Inc. may take into account a dealer's operational and
financial capabilities, the type of transaction involved, the dealer's general
relationship with Reserve Management Company, Inc., and any statistical,
research, or other services provided by the dealer to Reserve Management
Company, Inc. To the extent such non-price factors are taken into account the
execution price paid may be increased, but only in reasonable relation to the
benefit of such non-price factors to the Primary Fund as determined by Reserve
Management Company, Inc. Brokers or dealers who execute investment securities
transactions may also sell shares of the Primary Fund; however, any such sales
will be neither a qualifying nor disqualifying factor in the selection of
brokers or dealers.
When orders to purchase or sell the same security on identical terms are
simultaneously placed for the Primary Fund and other investment companies
managed by Reserve Management Company, Inc., the transactions are allocated as
to amount in accordance with each order placed for each fund. However, Reserve
Management Company, Inc. may not always be able to purchase or sell the same
security on identical terms for all investment companies affected.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
A complete description of the manner in which shares may be purchased,
redeemed or exchanged appears in the Prospectus under "Shareholder Guide."
Shares of the Funds are offered at the net asset value next computed following
receipt of the order by the dealer (and/or the Distributor) or by the Company's
transfer agent, DST Systems, Inc. ("Transfer Agent"), plus, for Class A and
Class M shares, a varying sales charge depending upon the class of shares
purchased and the amount of money invested, as set forth in the Prospectus. An
investor may exchange shares of a Fund for shares of the same class of any ING
Fund, without paying any additional sales charge. Shares subject to a CDSC will
continue to age from the date that the original shares were purchased.
Certain investors may purchase shares of the Funds with liquid assets with
a value which is readily ascertainable by reference to a domestic exchange price
and which would be eligible for purchase by a Fund consistent with the Fund's
investment policies and restrictions. These transactions only will be effected
if the Sub-Adviser intends to retain the security in the Fund as an investment.
Assets so purchased by a Fund will be valued in generally the same manner as
they would be valued for purposes of pricing the Fund's shares, if such assets
were included in the Fund's assets at the time of purchase. Each Company
reserves the right to amend or terminate this practice at any time.
SPECIAL PURCHASES AT NET ASSET VALUE
Class A or Class M shares of the Funds may be purchased at net asset value,
without a sales charge, by persons who have redeemed their Class A or Class M
Shares of a Fund (or shares of other funds managed by the Investment Manager in
accordance with the terms of such privileges established for such funds) within
the previous 90 days. The amount that may be so reinvested in the Fund is
limited to an amount up to, but not exceeding, the redemption proceeds (or to
the nearest full share if fractional shares are not purchased). In order to
exercise this privilege, a written order for the purchase of shares must be
received by the Transfer Agent, or be postmarked, within 90 days after the date
of redemption. This privilege may only be used once per calendar year. Payment
must accompany the request and the purchase will be made at the then current net
asset value of the Fund. Such purchases may also be handled by a securities
dealer who may charge a shareholder for this service. If the shareholder has
realized a gain on the redemption, the transaction is taxable and any
reinvestment will not alter any applicable Federal capital gains tax. If there
has been a loss on the redemption and a subsequent reinvestment pursuant to this
privilege, some or all of the loss may not be allowed as a tax deduction
depending upon the amount reinvested, although such disallowance is added to the
tax basis of the shares acquired upon the reinvestment.
Class A Shares of the Funds may also be purchased at net asset value by any
person who can document that Fund shares were purchased with proceeds from the
redemption (within the previous 90 days) of shares from any unaffiliated mutual
fund on which a sales charge was paid or which were subject at any time to a
CDSC, and the Distributor has determined in its discretion that the unaffiliated
fund invests primarily in the same types of securities as the Pilgrim Fund
purchased.
Additionally, Class A or Class M Shares of the Funds may also be purchased
at net asset value by any charitable organization or any state, county, or city,
or any instrumentality, department, authority or agency thereof that has
determined that a Fund is a legally permissible investment and that is
prohibited by applicable investment law from paying a sales charge or commission
in connection with the purchase of shares of any registered management
investment company ("an eligible governmental authority"). If an investment by
an eligible governmental authority at net asset value is made though a dealer
who has executed a selling group agreement with respect to the Company (or the
other open-end Pilgrim Funds) the Distributor may pay the selling firm 0.25% of
the Offering Price.
Shareholders of Pilgrim General Money Market Shares who acquired their
shares by using all or a portion of the proceeds from the redemption of Class A
or Class M shares of other open-end Pilgrim Funds distributed by the Distributor
may reinvest such amount plus any shares acquired through dividend reinvestment
in Class A or Class M Shares of a Fund at its current net asset value, without a
sales charge.
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The officers, directors/trustees and bona fide full-time employees of each
Company and the officers, directors and full-time employees of the Investment
Manager, any Sub-Adviser, the Distributor, any service provider to a Fund or
affiliated corporations thereof or any trust, pension, profit-sharing or other
benefit plan for such persons, broker-dealers, for their own accounts or for
members of their families (defined as current spouse, children, parents,
grandparents, uncles, aunts, siblings, nephews, nieces, step-relations,
relations at-law, and cousins) employees of such broker-dealers (including their
immediate families) and discretionary advisory accounts of the Investment
Manager or any Sub-Adviser, may purchase Class A or Class M Shares of a Fund at
net asset value without a sales charge. Such purchaser may be required to sign a
letter stating that the purchase is for his own investment purposes only and
that the securities will not be resold except to the Fund. Each Company may,
under certain circumstances, allow registered investment adviser's to make
investments on behalf of their clients at net asset value without any commission
or concession.
Class A or M shares may also be purchased at net asset value by certain fee
based registered investment advisers, trust companies and bank trust departments
under certain circumstances making investments on behalf of their clients and by
shareholders who have authorized the automatic transfer of dividends from the
same class of another open-end fund managed by the Investment Manager or from
Pilgrim Prime Rate Trust.
Class A or Class M shares may also be purchased without a sales charge by
(i) shareholders who have authorized the automatic transfer of dividends from
the same class of another Pilgrim Fund distributed by the Distributor or from
Pilgrim Prime Rate Trust; (ii) registered investment advisors, trust companies
and bank trust departments investing in Class A shares on their own behalf or on
behalf of their clients, provided that the aggregate amount invested in any one
or more Funds, during the 13 month period starting with the first investment,
equals at least $1 million; (iii) broker-dealers, who have signed selling group
agreements with the Distributor, and registered representatives and employees of
such broker-dealers, for their own accounts or for members of their families
(defined as current spouse, children, parents, grandparents, uncles, aunts,
siblings, nephews, nieces, step relations, relations-at-law and cousins); (iv)
broker-dealers using third party administrators for qualified retirement plans
who have entered into an agreement with the Pilgrim Funds or an affiliate,
subject to certain operational and minimum size requirements specified from
time-to-time by the Pilgrim Funds; (v) accounts as to which a banker or
broker-dealer charges an account management fee ("wrap accounts"); and (vi) any
registered investment company for which Pilgrim Investments, Inc. serves as
adviser.
Shares of the MagnaCap Fund are acquired at net asset value by State Street
Bank & Trust, Kansas City, Missouri, as Custodian for Pilgrim Investment Plans,
a unit investment trust for the accumulation of shares of the Fund. As of June
30, 1999, less than 2% of the Fund's then total outstanding shares were held by
said Custodian for the account of such plan holders.
The Funds may terminate or amend the terms of these sales charge waivers at
any time.
LETTERS OF INTENT AND RIGHTS OF ACCUMULATION
An investor may immediately qualify for a reduced sales charge on a
purchase of Class A or Class M shares of any of the Funds which offers Class A
shares, Class M shares or shares with front-end sales charges, by completing the
Letter of Intent section of the Shareholder Application in the Prospectus (the
"Letter of Intent" or "Letter"). By completing the Letter, the investor
expresses an intention to invest during the next 13 months a specified amount
which if made at one time would qualify for the reduced sales charge. At any
time within 90 days after the first investment which the investor wants to
qualify for the reduced sales charge, a signed Shareholder Application, with the
Letter of Intent section completed, may be filed with the Fund. After the Letter
of Intent is filed, each additional investment made will be entitled to the
sales charge applicable to the level of investment indicated on the Letter of
Intent as described above. Sales charge reductions based upon purchases in more
than one investment in the Pilgrim Funds will be effective only after
notification to the Distributor that the investment qualifies for a discount.
The shareholder's holdings in the Investment Manager's funds (excluding Pilgrim
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General Money Market Shares) acquired within 90 days before the Letter of Intent
is filed will be counted towards completion of the Letter of Intent but will not
be entitled to a retroactive downward adjustment of sales charge until the
Letter of Intent is fulfilled. Any redemptions made by the shareholder during
the 13-month period will be subtracted from the amount of the purchases for
purposes of determining whether the terms of the Letter of Intent have been
completed. If the Letter of Intent is not completed within the 13-month period,
there will be an upward adjustment of the sales charge as specified below,
depending upon the amount actually purchased (less redemption) during the
period.
An investor acknowledges and agrees to the following provisions by
completing the Letter of Intent section of the Shareholder Application in the
Prospectus. A minimum initial investment equal to 25% of the intended total
investment is required. An amount equal to the maximum sales charge or 5.75% of
the total intended purchase will be held in escrow at Pilgrim Funds, in the form
of shares, in the investor's name to assure that the full applicable sales
charge will be paid if the intended purchase is not completed. The shares in
escrow will be included in the total shares owned as reflected on the monthly
statement; income and capital gain distributions on the escrow shares will be
paid directly by the investor. The escrow shares will not be available for
redemption by the investor until the Letter of Intent has been completed, or the
higher sales charge paid. If the total purchases, less redemptions, equal the
amount specified under the Letter, the shares in escrow will be released. If the
total purchases, less redemptions, exceed the amount specified under the Letter
and is an amount which would qualify for a further quantity discount, a
retroactive price adjustment will be made by the Distributor and the dealer with
whom purchases were made pursuant to the Letter of Intent (to reflect such
further quantity discount) on purchases made within 90 days before, and on those
made after filing the Letter. The resulting difference in offering price will be
applied to the purchase of additional shares at the applicable offering price.
If the total purchases, less redemptions, are less than the amount specified
under the Letter, the investor will remit to the Distributor an amount equal to
the difference in dollar amount of sales charge actually paid and the amount of
sales charge which would have applied to the aggregate purchases if the total of
such purchases had been made at a single account in the name of the investor or
to the investor's order. If within 10 days after written request such difference
in sales charge is not paid, the redemption of an appropriate number of shares
in escrow to realize such difference will be made. If the proceeds from a total
redemption are inadequate, the investor will be liable to the Distributor for
the difference. In the event of a total redemption of the account prior to
fulfillment of the Letter of Intent, the additional sales charge due will be
deducted from the proceeds of the redemption and the balance will be forwarded
to the Investor. By completing the Letter of Intent section of the Shareholder
Application, an investor grants to the Distributor a security interest in the
shares in escrow and agrees to irrevocably appoint the Distributor as his
attorney-in-fact with full power of substitution to surrender for redemption any
or all shares for the purpose of paying any additional sales charge due and
authorizes the Transfer Agent or Sub-Transfer Agent to receive and redeem shares
and pay the proceeds as directed by the Distributor. The investor or the
securities dealer must inform the Transfer Agent or the Distributor that this
Letter is in effect each time a purchase is made.
If at any time prior to or after completion of the Letter of Intent the
investor wishes to cancel the Letter of Intent, the investor must notify the
Distributor in writing. If, prior to the completion of the Letter of Intent, the
investor requests the Distributor to liquidate all shares held by the investor,
the Letter of Intent will be terminated automatically. Under either of these
situations, the total purchased may be less than the amount specified in the
Letter of Intent. If so, the Distributor will redeem at NAV to remit to the
Distributor and the appropriate authorized dealer an amount equal to the
difference between the dollar amount of the sales charge actually paid and the
amount of the sales charge that would have been paid on the total purchases if
made at one time.
The value of shares of the Fund plus shares of the other open-end funds
distributed by the Distributor (excluding Pilgrim General Money Market Shares)
can be combined with a current purchase to determine the reduced sales charge
and applicable offering price of the current purchase. The reduced sales charge
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apply to quantity purchases made at one time or on a cumulative basis over any
period of time by (i) an investor, (ii) the investor's spouse and children under
the age of majority, (iii) the investor's custodian accounts for the benefit of
a child under the Uniform gift to Minors Act, (iv) a trustee or other fiduciary
of a single trust estate or a single fiduciary account (including a pension,
profit-sharing and/or other employee benefit plans qualified under Section 401
of the Code), by trust companies' registered investment advisors, banks and bank
trust departments for accounts over which they exercise exclusive investment
discretionary authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity.
The reduced sales charge also apply on a non-cumulative basis, to purchases
made at one time by the customers of a single dealer, in excess of $1 million.
The Letter of Intent option may be modified or discontinued at any time.
Shares of the Fund and other open-end Pilgrim Funds (excluding Pilgrim
General Money Market Shares) purchased and owned of record or beneficially by a
corporation, including employees of a single employer (or affiliates thereof)
including shares held by its employees, under one or more retirement plans, can
be combined with a current purchase to determine the reduced sales charge and
applicable offering price of the current purchase, provided such transactions
are not prohibited by one or more provisions of the Employee Retirement Income
Security Act or the Internal Revenue Code. Individuals and employees should
consult with their tax advisors concerning the tax rules applicable to
retirement plans before investing.
For the purposes of Rights of Accumulation and the Letter of Intent
Privilege, shares held by investors in the Pilgrim Funds which impose a CDSC may
be combined with Class A or Class M shares for a reduced sales charge but will
not affect any CDSC which may be imposed upon the redemption of shares of a Fund
which imposes a CDSC.
REDEMPTIONS
Payment to shareholders for shares redeemed will be made within seven days
after receipt by the Fund's Transfer Agent of the written request in proper
form, except that a Fund may suspend the right of redemption or postpone the
date of payment during any period when (a) trading on the New York Stock
Exchange is restricted as determined by the SEC or such exchange is closed for
other than weekends and holidays; (b) an emergency exists as determined by the
SEC making disposal of portfolio series or valuation of net assets of a Fund not
reasonably practicable; or (c) for such other period as the SEC may permit for
the protection of a Fund's shareholders. At various times, a Fund may be
requested to redeem shares for which it has not yet received good payment.
Accordingly, the Fund may delay the mailing of a redemption check until such
time as it has assured itself that good payment has been collected for the
purchase of such shares, which may take up to 15 days or longer.
Each Fund 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, an investor may incur brokerage costs in
converting such securities to cash. However, each Company has elected to be
governed by the provisions of Rule 18f-1 under the 1940 Act, which contain a
formula for determining the minimum amount of cash to be paid as part of any
redemption. In the event a Fund must liquidate portfolio securities to meet
redemptions, it reserves the right to reduce the redemption price by an amount
equivalent to the pro-rated cost of such liquidation not to exceed one percent
of the net asset value of such shares.
Due to the relatively high cost of handling small investments, each Company
reserves the right, upon 30 days written notice, to redeem, at net asset value
(less any applicable deferred sales charge), the shares of any shareholder whose
account has a value of less than $1,000 in the Fund, other than as a result of a
decline in the net asset value per share. Before the Fund redeems such shares
and sends the proceeds to the shareholder, it will notify the shareholder that
the value of the shares in the account is less than the minimum amount and will
allow the shareholder 30 days to make an additional investment in an amount that
will increase the value of the account to at least $1,000 before the redemption
is processed. This policy will not be implemented where a Fund has previously
waived the minimum investment requirements.
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The value of shares on redemption or repurchase may be more or less than
the investor's cost, depending upon the market value of the portfolio securities
at the time of redemption or repurchase.
Certain purchases of Class A shares and most Class B and Class C shares may
be subject to a CDSC. Shareholders will be charged a CDSC if certain of those
shares are redeemed within the applicable time period as stated in the
prospectus.
No CDSC is imposed on any shares subject to a CDSC to the extent that those
shares (i) are no longer subject to the applicable holding period, (ii) resulted
from reinvestment of distributions on CDSC shares, or (iii) were exchanged for
shares of another fund managed by the Investment Manager, provided that the
shares acquired in such exchange and subsequent exchanges will continue to
remain subject to the CDSC, if applicable, until the applicable holding period
expires.
The CDSC or redemption fee will be waived for certain redemptions of shares
upon (i) the death or permanent disability of a shareholder, or (ii) in
connection with mandatory distributions from an Individual Retirement Account
("IRA") or other qualified retirement plan. The CDSC or redemption fee will be
waived in the case of a redemption of shares following the death or permanent
disability of a shareholder if the redemption is made within one year of death
or initial determination of permanent disability. The waiver is available for
total or partial redemptions of shares owned by an individual or an individual
in joint tenancy (with rights of survivorship), but only for redemptions of
shares held at the time of death or initial determination of permanent
disability. The CDSC or redemption fee will also be waived in the case of a
total or partial redemption of shares in connection with any mandatory
distribution from a tax-deferred retirement plan or an IRA. The waiver does not
apply in the case of a tax-free rollover or transfer of assets, other than one
following a separation from services, except that a CDSC or redemption fee may
be waived in certain circumstances involving redemptions in connection with a
distribution from a qualified employer retirement plan in connection with
termination of employment or termination of the employer's plan and the transfer
to another employer's plan or to an IRA. The shareholder must notify the Fund
either directly or through the Distributor at the time of redemption that the
shareholder is entitled to a waiver of CDSC or redemption fee. The waiver will
then be granted subject to confirmation of the shareholder's entitlement. The
CDSC or redemption fee, which may be imposed on Class A shares purchased in
excess of $1 million, will also be waived for registered investment advisors,
trust companies and bank trust departments investing on their own behalf or on
behalf of their clients. These waivers may be changed at any time.
REINSTATEMENT PRIVILEGE
If you sell Class B, 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. The
amount of any CDSC also will be reinstated. To exercise this privilege, the
written order for the purchase of shares must be received by the Transfer Agent
or be postmarked within 90 days after the date of redemption. This privilege can
be used only once per calendar year. If a loss is incurred on the redemption and
the reinstatement privilege is used, some or all of the loss may not be allowed
as a tax deduction.
CONVERSION OF CLASS B SHARES
A shareholder's Class B shares will automatically convert to Class A shares
in the Fund on the first business day of the month in which the eighth
anniversary of the issuance of the Class B shares occurs, together with a pro
rata portion of all Class B shares representing dividends and other
distributions paid in additional Class B shares, except that Class B Shares
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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. The conversion of Class B shares into Class A shares is
subject to the continuing availability of an opinion of counsel or an Internal
Revenue Service ("IRS") ruling, if the Investment Manager deems it advisable to
obtain such advice, to the effect that (1) such conversion will not constitute
taxable events for federal tax purposes; and (2) the payment of different
dividends on Class A and Class B shares does not result in the Fund's dividends
or distributions constituting "preferential dividends" under the Internal
Revenue Code of 1986. The Class B shares so converted will no longer be subject
to the higher expenses borne by Class B shares. The conversion will be effected
at the relative net asset values per share of the two Classes.
CDSC SCHEDULE FOR SHARES OF THE EQUITY TRUST, SMALLCAP OPPORTUNITIES FUND,
GROWTH OPPORTUNITIES FUND, AND MAYFLOWER TRUST PURCHASED BEFORE
NOVEMBER 1, 1999
Effective November 1, 1999, the above listed Funds adopted a new CDSC
schedule, as set forth in the prospectus. Class B shares of those Funds
purchased before November 1, 1999 are subject to the following contingent sales
deferred change schedule:
YEARS AFTER YOU CDSC AS A PERCENTAGE
BOUGHT THE SHARES OF AMOUNT REDEEMED
----------------- ------------------
1st Year 5.00%
2nd Year 4.00%
3rd Year 3.00%
4th Year 2.00%
5th Year 2.00%
After 5 Years ---
DEALER COMMISSIONS AND OTHER INCENTIVES
In connection with the sale of shares of the Funds, the Distributor may pay
Authorized Dealers of record a sales commission as a percentage of the purchase
price. In connection with the sale of Class A and Class M shares, the
Distributor will reallow to Authorized Dealers of record from the sales charge
on such sales the following amounts:
EQUITY FUNDS
DEALERS' REALLOWANCE AS A PERCENTAGE OF OFFERING PRICE
------------------------------------------------------
AMOUNT OF TRANSACTION CLASS A CLASS M
--------------------- ------- -------
Less than $50,000 5.00% 3.00%
$50,000 - $99,999 3.75% 2.00%
$100,000 - $249,999 2.75% 1.00%
$250,000 - $499,000 2.00% 1.00%
$500,000 - $999,999 1.75% None
$1,000,000 and over See below None
INCOME FUNDS
DEALERS' REALLOWANCE AS A PERCENTAGE OF OFFERING PRICE
------------------------------------------------------
AMOUNT OF TRANSACTION CLASS A CLASS M
--------------------- ------- -------
Less than $50,000 4.25% 3.00%
$50,000 - $99,999 4.00% 2.00%
$100,000 - $249,999 3.00% 1.25%
$250,000 - $499,000 2.25% 1.00%
$500,000 - $999,999 1.75% None
$1,000,000 and over See below None
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The Distributor may pay to Authorized Dealers out of its own assets
commissions on shares sold in Classes A, B and C, at net asset value, which at
the time of investment would have been subject to the imposition of a contingent
deferred sales charge ("CDSC") if redeemed. There is no sales charge on
purchases of $1,000,000 or more of Class A shares. However, such purchases may
be subject to a CDSC, as disclosed in the Prospectus. The Distributor will pay
Authorized Dealers of record commissions at the rates shown in the table below
for purchases of Class A shares that are subject to a CDSC:
DEALER COMMISSION AS A PERCENTAGE OF
AMOUNT OF TRANSACTION AMOUNT INVESTED
--------------------- ---------------
$1,000,000 to $2,499,000 1.00%
$2,500,000 to $4,999,999 0.50%
$5,000,000 and over 0.25%
Also, the Distributor will pay out of its own assets a commission of 1% of
the amount invested for purchases of Class A shares of less than $1 million by
qualified employer retirement plans with 50 or more participants.
The Distributor will pay out of its own assets a commission of 4% of the
amount invested for purchases of Class B shares subject to a CDSC. For purchases
of Class C shares subject to a CDSC, the Distributor may pay out of its own
assets a commission of 1% of the amount invested of each Fund other than
Strategic Income Fund and 0.75% of the amount invested of Strategic Income Fund.
The Distributor may, from time to time, at its discretion, allow a selling
dealer to retain 100% of a sales charge, and such dealer may therefore be deemed
an "underwriter" under the Securities Act of 1933, as amended. The Distributor,
at its expense, may also provide additional promotional incentives to dealers.
The incentives may include payment for travel expenses, including lodging,
incurred in connection with trips taken by qualifying registered representatives
and members of their families to locations within or outside of the United
States, merchandise or other items. For more information on incentives, see
"Management of the Funds -- 12b-1 Plans" in this Statement of Additional
Information.
DETERMINATION OF SHARE PRICE
As noted in the Prospectus, the net asset value and offering price of each
class of each Fund's shares will be determined once daily as of the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m. New York
time) during each day on which that Exchange is open for trading. As of the date
of this Statement of Additional Information, the New York Stock Exchange is
closed on the following holidays: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Portfolio securities listed or traded on a national securities exchange or
included in the NASDAQ National Market System will be valued at the last
reported sale price on the valuation day. Securities traded on an exchange or
NASDAQ for which there has been no sale that day and other securities traded in
the over-the-counter market will be valued at the mean between the last reported
bid and asked prices on the valuation day. Portfolio securities underlying
traded call options written by the High Yield Fund will be valued at their
market price as determined above; however, the current market value of the
option written by the High Yield Fund will be subtracted from net asset value.
In cases in which securities are traded on more than one exchange, the
securities are valued on the exchange designated by or under the authority of
the Board of Directors as the primary market. Short-term obligations maturing in
less than 60 days will generally be valued at amortized cost. This involves
valuing a security at cost on the date of acquisition and thereafter assuming a
constant accretion of a discount or amortization of a premium to maturity,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
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lower than the price a Fund would receive if it sold the instrument. See "How
Net Asset Value is Determined" in the Prospectus. The mortgage securities held
in a Fund's portfolio will be valued at the mean between the most recent bid and
asked prices as obtained from one or more dealers that make markets in the
securities when over-the counter market quotations are readily available.
Securities for which quotations are not readily available and all other assets
will be valued at their respective fair values as determined in good faith by or
under the direction of the Board of Directors of the Company. Any assets or
liabilities initially expressed in terms of non-U.S. dollar currencies are
translated into U.S. dollars at the prevailing market rates as quoted by one or
more banks or dealers on the day of valuation.
The value of the foreign securities traded on exchanges outside the United
States is based upon the price on the exchange as of the close of business of
the exchange preceding the time of valuation (or, if earlier, at the time of a
Fund's valuation). Quotations of foreign securities in foreign currency are
converted to U.S. dollar equivalents using the foreign exchange quotation in
effect at the time net asset value is computed. The calculation of net asset
value of a Fund may not take place contemporaneously with the determination of
the prices of certain portfolio securities of foreign issuers used in such
calculation. Further, the prices of foreign securities are determined using
information derived from pricing services and other sources. Information that
becomes known to a Fund or its agents after the time that net asset value is
calculated on any business day may be assessed in determining net asset value
per share after the time of receipt of the information, but will not be used to
retroactively adjust the price of the security so determined earlier or on a
prior day. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the time when the Fund's net
asset value is determined may not be reflected in the calculation of net asset
value. If events materially affecting the value of such securities occur during
such period, then these securities may be valued at fair value as determined by
the management and approved in good faith by the Board of Directors.
In computing a class of a Fund's net asset value, all class-specific
liabilities incurred or accrued are deducted from the class' net assets. The
resulting net assets are divided by the number of shares of the class
outstanding at the time of the valuation and the result (adjusted to the nearest
cent) is the net asset value per share.
The per share net asset value of Class A shares generally will be higher
than the per share net asset value of shares of the other classes, reflecting
daily expense accruals of the higher distribution fees applicable to Class B and
Class C. It is expected, however, that the per share net asset value of the
classes will tend to converge immediately after the payment of dividends or
distributions that will differ by approximately the amount of the expense
accrual differentials between the classes.
Orders received by dealers prior to the close of regular trading on the New
York Stock Exchange will be confirmed at the offering price computed as of the
close of regular trading on the Exchange provided the order is received by the
Distributor prior to its close of business that same day (normally 4:00 P.M.
Pacific time). It is the responsibility of the dealer to insure that all orders
are transmitted timely to the Fund. Orders received by dealers after the close
of regular trading on the New York Stock Exchange will be confirmed at the next
computed offering price as described in the Prospectus.
SHAREHOLDER INFORMATION
Certificates representing shares of a particular Fund will not normally be
issued to shareholders. The Transfer Agent will maintain an account for each
shareholder upon which the registration and transfer of shares are recorded, and
any transfers shall be reflected by bookkeeping entry, without physical
delivery.
The Transfer Agent will require that a shareholder provide requests in
writing, accompanied by a valid signature guarantee form, when changing certain
information in an account (i.e., wiring instructions, telephone privileges,
etc.).
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Each Company reserves the right, if conditions exist that make cash
payments undesirable, to honor any request for redemption or repurchase order
with respect to shares of a Fund by making payment in whole or in part in
readily marketable securities chosen by the Fund and valued as they are for
purposes of computing the Fund's net asset value (redemption-in-kind). If
payment is made in securities, a shareholder may incur transaction expenses in
converting theses securities to cash. Each Company has elected, however, to be
governed by Rule 18f-1 under the 1940 Act as a result of which a Fund is
obligated to redeem shares with respect to any one shareholder during any 90-day
period solely in cash up to the lesser of $250,000 or 1% of the net asset value
of the Fund at the beginning of the period.
SHAREHOLDER SERVICES AND PRIVILEGES
As discussed in the Prospectus, the Funds provide a Pre-Authorized
Investment Program for the convenience of investors who wish to purchase shares
of a Fund on a regular basis. Such a Program may be started with an initial
investment ($1,000 minimum) and subsequent voluntary purchases ($100 minimum)
with no obligation to continue. The Program may be terminated without penalty at
any time by the investor or the Funds. The minimum investment requirements may
be waived by the Fund for purchases made pursuant to (i) employer-administered
payroll deduction plans, (ii) profit-sharing, pension, or individual or any
employee retirement plans, or (iii) purchases made in connection with plans
providing for periodic investments in Fund shares.
For investors purchasing shares of a Fund under a tax-qualified individual
retirement or pension plan or under a group plan through a person designated for
the collection and remittance of monies to be invested in shares of a Fund on a
periodic basis, the Fund may, in lieu of furnishing confirmations following each
purchase of Fund shares, send statements no less frequently than quarterly
pursuant to the provisions of the Securities Exchange Act of 1934, as amended,
and the rules thereunder. Such quarterly statements, which would be sent to the
investor or to the person designated by the group for distribution to its
members, will be made within five business days after the end of each quarterly
period and shall reflect all transactions in the investor's account during the
preceding quarter.
All shareholders will receive a confirmation of each new transaction in
their accounts, which will also show the total number of Fund shares owned by
each shareholder, the number of shares being held in safekeeping by the Fund's
Transfer Agent for the account of the shareholder and a cumulative record of the
account for the entire year. Shareholders may rely on these statements in lieu
of certificates. Certificates representing shares of a fund will not be issued
unless the shareholder requests them in writing.
SELF-EMPLOYED AND CORPORATE RETIREMENT PLANS
For self-employed individuals and corporate investors that wish to purchase
shares of a Fund, there is available through the Fund a Prototype Plan and
Custody Agreement. The Custody Agreement provides that State Street Bank &
Trust, Kansas City, Missouri, will act as Custodian under the Plan, and will
furnish custodial services for an annual maintenance fee of $12.00 for each
participant, with no other charges. (This fee is in addition to the normal
Custodian charges paid by the Funds.) The annual contract maintenance fee may be
waived from time to time. For further details, including the right to appoint a
successor Custodian, see the Plan and Custody Agreements as provided by the
Company. Employers who wish to use shares of a Fund under a custodianship with
another bank or trust company must make individual arrangements with such
institution.
INDIVIDUAL RETIREMENT ACCOUNTS
Investors having earned income are eligible to purchase shares of a Fund
under an IRA pursuant to Section 408(a) of the Internal Revenue Code. An
individual who creates an IRA may contribute annually certain dollar amounts of
earned income, and an additional amount if there is a non-working spouse. Simple
IRA plans that employers may establish on behalf of their employees are also
available. Roth IRA plans that enable employed and self-employed individuals to
make non-deductible contributions, and, under certain circumstances, effect tax-
free withdrawals, are also available. Copies of a model Custodial Account
Agreement are available from the Distributor. Investors Fiduciary Trust Company,
Kansas City, Missouri, will act as the Custodian under this model Agreement, for
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which it will charge the investor an annual fee of $12.00 for maintaining the
Account (such fee is in addition to the normal custodial charges paid by the
Funds). Full details on the IRA are contained in an IRS required disclosure
statement, and the Custodian will not open an IRA until seven (7) days after the
investor has received such statement from the Company. An IRA using shares of a
Fund may also be used by employers who have adopted a Simplified Employee
Pension Plan.
Purchases of Fund shares by Section 403(b) and other retirement plans are
also available. Section 403(b) plans are arrangements by a public school
organization or a charitable, educational, or scientific organization that is
described in Section 501(c)(3) of the Internal Revenue Code under which
employees are permitted to take advantage of the federal income tax deferral
benefits provided for in Section 403(b) of the Code. It is advisable for an
investor considering the funding of any retirement plan to consult with an
attorney or to obtain advice from a competent retirement plan consultant.
TELEPHONE REDEMPTION AND EXCHANGE PRIVILEGES
As discussed in the Prospectus, the telephone redemption and exchange
privileges are available for all shareholder accounts; however, retirement
accounts may not utilize the telephone redemption privilege. The telephone
privileges may be modified or terminated at any time. The privileges are subject
to the conditions and provisions set forth below and in the Prospectus.
(1) Telephone redemption and/or exchange instructions received in good
order before the pricing of a Fund on any day on which the New York
Stock Exchange is open for business (a "Business Day"), but not later
than 4:00 p.m. eastern time, will be processed at that day's closing
net asset value. For each exchange, the shareholder's account may be
charged an exchange fee. There is no fee for telephone redemption;
however, redemptions of Class A and Class B shares may be subject to a
contingent deferred sales charge (See "Redemption of Shares" in the
Prospectus).
(2) Telephone redemption and/or exchange instructions should be made by
dialing 1-800-992-0180 and selecting option 3.
(3) Pilgrim Funds will not permit exchanges in violation of any of the
terms and conditions set forth in the Funds' Prospectus or herein.
(4) Telephone redemption requests must meet the following conditions to be
accepted by Pilgrim Funds:
(a) Proceeds of the redemption may be directly deposited into a
predetermined bank account, or mailed to the current address on
the registration. This address cannot reflect any change within
the previous thirty (30) days.
(b) Certain account information will need to be provided for
verification purposes before the redemption will be executed.
(c) Only one telephone redemption (where proceeds are being mailed to
the address of record) can be processed with in a 30 day period.
(d) The maximum amount which can be liquidated and sent to the
address of record at any one time is $100,000.
(e) The minimum amount which can be liquidated and sent to a
predetermined bank account is $5,000.
(5) If the exchange involves the establishment of a new account, the
dollar amount being exchanged must at least equal the minimum
investment requirement of the Pilgrim Fund being acquired.
(6) Any new account established through the exchange privilege will have
the same account information and options except as stated in the
Prospectus.
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(7) Certificated shares cannot be redeemed or exchanged by telephone but
must be forwarded to Pilgrim at P.O. Box 419368, Kansas City, MO 64141
and deposited into your account before any transaction may be
processed.
(8) If a portion of the shares to be exchanged are held in escrow in
connection with a Letter of Intent, the smallest number of full shares
of the Pilgrim Fund to be purchased on the exchange having the same
aggregate net asset value as the shares being exchanged shall be
substituted in the escrow account. Shares held in escrow may not be
redeemed until the Letter of Intent has expired and/or the appropriate
adjustments have been made to the account.
(9) Shares may not be exchanged and/or redeemed unless an exchange and/or
redemption privilege is offered pursuant to the Funds' then-current
prospectus.
(10) Proceeds of a redemption may be delayed up to 15 days or longer until
the check used to purchase the shares being redeemed has been paid by
the bank upon which it was drawn.
SYSTEMATIC WITHDRAWAL PLAN
You may elect to make periodic withdrawals from your account in any fixed
amount in excess of $100 ($1,000 in the case of Class Q) to yourself, or to
anyone else you properly designate, as long as the account has a current value
of at least $10,000 ($250,000 in the case of Class Q). To establish a systematic
cash withdrawal, complete the Systematic Withdrawal Plan section of the Account
Application. To have funds deposited to your bank account, follow the
instructions on the Account Application. You may elect to have monthly,
quarterly, semi-annual or annual payments. Redemptions are normally processed on
the fifth day prior to the end of the month, quarter or year. Checks are then
mailed or proceeds are forwarded to your bank account on or about the first of
the following month. You may change the amount, frequency and payee, or
terminate the plan by giving written notice to the Transfer Agent. A Systematic
Withdrawal Plan may be modified at any time by the Fund or terminated upon
written notice by the relevant Fund.
During the withdrawal period, you may purchase additional shares for
deposit to your account, subject to any applicable sales charge, if the
additional purchases are equal to at least one year's scheduled withdrawals, or
$1,200 ($12,000 in the case of Class Q), whichever is greater. There are no
separate charges to you under this Plan, although a CDSC may apply if you
purchased Class A, B or C shares. Shareholders who elect to have a systematic
cash withdrawal must have all dividends and capital gains reinvested. As shares
of a Fund are redeemed under the Plan, you may realize a capital gain or loss
for income tax purposes.
DISTRIBUTIONS
As noted in the Prospectus, shareholders have the privilege of reinvesting
both income dividends and capital gains distributions, if any, in additional
shares of a respective class of a Fund at the then current net asset value, with
no sales charge. The Funds' management believes that most investors desire to
take advantage of this privilege. It has therefore made arrangements with its
Transfer Agent to have all income dividends and capital gains distributions that
are declared by the Funds automatically reinvested for the account of each
shareholder. A shareholder may elect at any time by writing to the Fund or the
Transfer Agent to have subsequent dividends and/or distributions paid in cash.
In the absence of such an election, each purchase of shares of a class of a Fund
is made upon the condition and understanding that the Transfer Agent is
automatically appointed the shareholder's agent to receive his dividends and
distributions upon all shares registered in his name and to reinvest them in
full and fractional shares of the respective class of the Fund at the applicable
net asset value in effect at the close of business on the reinvestment date. A
shareholder may still at any time after a purchase of Fund shares request that
dividends and/or capital gains distributions be paid to him in cash.
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TAX CONSIDERATIONS
The following discussion summarizes certain U.S. federal tax considerations
generally affecting the Funds and its shareholders. This discussion does not
provide a detailed explanation of all tax consequences, and shareholders are
advised to consult their own tax advisers with respect to the particular
federal, state, local and foreign tax consequences to them of an investment in
the Funds. This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations issued thereunder, and judicial and
administrative authorities as in effect on the date of this Statement of
Additional Information, all of which are subject to change, which change may be
retroactive.
Each Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, each Fund
must, among other things: (a) derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock or securities and gains
from the sale or other disposition of foreign currencies, or other income
(including gains from options, futures contracts and forward contracts) derived
with respect to the Fund's business of investing in stocks, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the value of the Fund's total assets is
represented by cash and cash items, U.S. Government securities, securities of
other regulated investment companies, and other securities, with such other
securities limited in respect of any one issuer to an amount not greater in
value than 5% of the Fund's total assets and to not more than 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of the Fund's total assets is invested in the securities (other than U.S.
Government securities or securities of other regulated investment companies) of
any one issuer or of any two or more issuers that the Fund controls and that are
determined to be engaged in the same business or similar or related businesses;
and (c) distribute at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest and net short-term capital
gains in excess of net long-term capital losses) each taxable year.
The U.S. Treasury Department is authorized to issue regulations providing
that foreign currency gains that are not directly related to a Fund's principal
business of investing in stock or securities (or options and futures with
respect to stock or securities) will be excluded from the income which qualifies
for purposes of the 90% gross income requirement described above. To date,
however, no such regulations have been issued.
The status of the Funds as regulated investment companies does not involve
government supervision of management or of their investment practices or
policies. As a regulated investment company, a Fund generally will be relieved
of liability for U.S. federal income tax on that portion of its investment
company taxable income and net realized capital gains which it distributes to
its shareholders. Amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement also are subject to a nondeductible 4%
excise tax. To prevent application of the excise tax, each Fund currently
intends to make distributions in accordance with the calendar year distribution
requirement.
DISTRIBUTIONS
Dividends of investment company taxable income (including net short-term
capital gains) are taxable to shareholders as ordinary income. Distributions of
investment company taxable income may be eligible for the corporate
dividends-received deduction to the extent attributable to a Fund's dividend
income from U.S. corporations, and if other applicable requirements are met.
However, the alternative minimum tax applicable to corporations may reduce the
benefit of the dividends-received deduction. Distributions of net capital gains
(the excess of net long-term capital gains over net short-term capital losses)
designated by a Fund as capital gain dividends are not eligible for the
dividends-received deduction and will generally be taxable to shareholders as
long-term capital gains, regardless of the length of time the Fund's shares have
been held by a shareholder, and are not eligible for the dividends-received
deduction. Net capital gains from assets held for one year or less will be taxed
as ordinary income. Generally, dividends and distributions are taxable to
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shareholders, whether received in cash or reinvested in shares of a Fund. Any
distributions that are not from a Fund's investment company taxable income or
net capital gain may be characterized as a return of capital to shareholders or,
in some cases, as capital gain. Shareholders will be notified annually as to the
federal tax status of dividends and distributions they receive and any tax
withheld thereon.
Dividends, including capital gain dividends, declared in October, November,
or December with a record date in such month and paid during the following
January will be treated as having been paid by a Fund and received by
shareholders on December 31 of the calendar year in which declared, rather than
the calendar year in which the dividends are actually received.
Distributions by a Fund reduce the net asset value of the Fund shares.
Should a distribution reduce the net asset value below a shareholder's cost
basis, the distribution nevertheless may be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by a Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
ORIGINAL ISSUE DISCOUNT
Certain debt securities acquired by a Fund may be treated as debt
securities that were originally issued at a discount. Original issue discount
can generally be defined as the difference between the price at which a security
was issued and its stated redemption price at maturity. Although no cash income
is actually received by the Fund, original issue discount that accrues on a debt
security in a given year generally is treated for federal income tax purposes as
interest and, therefore, such income would be subject to the distribution
requirements of the Code.
Some of the debt securities may be purchased by a Fund at a discount which
exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
The gain realized on the disposition of any taxable debt security having market
discount generally will be treated as ordinary income to the extent it does not
exceed the accrued market discount on such debt security. Generally, market
discount accrues on a daily basis for each day the debt security is held by a
Fund at a constant rate over the time remaining to the debt security's maturity
or, at the election of a Fund, at a constant yield to maturity which takes into
account the semi-annual compounding of interest.
FOREIGN CURRENCY TRANSACTIONS
Under the Code, gains or losses attributable to fluctuations in foreign
currency exchange rates which occur between the time a Fund accrues income or
other receivable or accrues expenses or other liabilities denominated in a
foreign currency and the time a Fund actually collects such receivable or pays
such liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain financial contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the date
of acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains and losses, may increase or decrease the amount of a
Fund's net investment income to be distributed to its shareholders as ordinary
income.
PASSIVE FOREIGN INVESTMENT COMPANIES
A Fund may invest in stocks of foreign companies that are classified under
the Code as passive foreign investment companies ("PFICs"). In general, a
foreign company is classified as a PFIC if at least one-half of its assets
constitute investment-type assets or 75% or more of its gross income is
investment-type income. Under the PFIC rules, an "excess distribution" received
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with respect to PFIC stock is treated as having been realized ratably over the
period during which a Fund held the PFIC stock. A Fund itself will be subject to
tax on the portion, if any, of the excess distribution that is allocated to that
Fund's holding period in prior taxable years (and an interest factor will be
added to the tax, as if the tax had actually been payable in such prior taxable
years) even though the Fund distributes the corresponding income to
shareholders. Excess distributions include any gain from the sale of PFIC stock
as well as certain distributions from a PFIC. All excess distributions are
taxable as ordinary income.
A Fund may be able to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently may be available, a Fund generally would
be required to include in its gross income its share of the earnings of a PFIC
on a current basis, regardless of whether any distributions are received from
the PFIC. If this election is made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. Alternatively, another
election may be available that involves marking to market the Funds' PFIC stock
at the end of each taxable year with the result that unrealized gains are
treated as though they were realized and are reported as ordinary income; any
mark-to-market losses, as well as loss from an actual disposition of PFIC stock,
are reported as ordinary loss to the extent of any net mark-to-market gains
included in income in prior years.
FOREIGN WITHHOLDING TAXES
Income received by a Fund from sources within foreign countries may be
subject to withholding and other income or similar taxes imposed by such
countries. If more than 50% of the value of a Fund's total assets at the close
of its taxable year consists of securities of foreign corporations, that Fund
will be eligible and may elect to "pass through" to the Fund's shareholders the
amount of foreign income and similar taxes paid by that Fund. Pursuant to this
election, a shareholder will be required to include in gross income (in addition
to taxable dividends actually received) his pro rata share of the foreign taxes
paid by a Fund, and will be entitled either to deduct (as an itemized deduction)
his pro rata share of foreign income and similar taxes in computing his taxable
income or to use it as a foreign tax credit against his U.S. federal income tax
liability, subject to limitations. No deduction for foreign taxes may be claimed
by a shareholder who does not itemize deductions, but such a shareholder may be
eligible to claim the foreign tax credit (see below). Each shareholder will be
notified within 60 days after the close of the relevant Fund's taxable year
whether the foreign taxes paid by the Fund will "pass through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it
may not exceed the shareholder's U.S. tax attributable to his foreign source
taxable income. For this purpose, if the pass-through election is made, the
source of a Fund's income flows through to its shareholders. With respect to a
Fund, gains from the sale of securities will be treated as derived from U.S.
sources and certain currency fluctuation gains, including fluctuation gains from
foreign currency denominated debt securities, receivables and payables, will be
treated as ordinary income derived from U.S. sources. The limitation on the
foreign tax credit is applied separately to foreign source passive income (as
defined for purposes of the foreign tax credit), including the foreign source
passive income passed through by a Fund. Shareholders may be unable to claim a
credit for the full amount of their proportionate share of the foreign taxes
paid by a Fund. The foreign tax credit limitation rules do not apply to certain
electing individual taxpayers who have limited creditable foreign taxes and no
foreign source income other than passive investment-type income. The foreign tax
credit is eliminated with respect to foreign taxes withheld on dividends if the
dividend-paying shares or the shares of the Fund are held by the Fund or the
shareholders, as the case may be, for less than 16 days (46 days in the case of
preferred shares) during the 30-day period (90-day period for preferred shares)
beginning 15 days (45 days for preferred shares) before the shares become
ex-dividend. Foreign taxes may not be deducted in computing alternative minimum
taxable income and the foreign tax credit can be used to offset only 90% of the
alternative minimum tax (as computed under the Code for purposes of this
limitation) imposed on corporations and individuals. If a Fund is not eligible
to make the election to "pass through" to its shareholders its foreign taxes,
the foreign income taxes it pays generally will reduce investment company
taxable income and the distributions by a Fund will be treated as United States
source income.
OPTIONS AND HEDGING TRANSACTIONS
The taxation of equity options (including options on narrow-based stock
indices) and over-the-counter options on debt securities is governed by Code
Section 1234. Pursuant to Code Section 1234, with respect to a put or call
option that is purchased by a Fund, if the option is sold, any resulting gain or
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loss will be a capital gain or loss, and will be short-term or long term,
depending upon the holding period of the option. If the option expires, the
resulting loss is a capital loss and is short-term or long-term, depending upon
the holding period of the option. If the option is exercised, the cost of the
option, in the case of a call option, is added to the basis of the purchased
security and, in the case of a put option, reduces the amount realized on the
underlying security in determining gain or loss.
Certain options and financial contracts in which the Funds may invest are
"section 1256 contracts." Gains or losses on section 1256 contracts generally
are considered 60% long-term and 40% short-term capital gains or losses
("60/40"); however, foreign currency gains or losses (as discussed below)
arising from certain section 1256 contracts may be treated as ordinary income or
loss. Also, section 1256 contracts held by a Fund at the end of each taxable
year (and on certain other dates as prescribed under the Code) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized.
Generally, the hedging transactions undertaken by a Fund may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by a Fund. In addition, losses
realized by a Fund on positions that are part of the straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to a Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gain realized by a Fund which is taxed as ordinary income when
distributed to shareholders.
A Fund may make one or more of the elections available under the Code which
are applicable to straddles. If a Fund makes any of the elections, the amount,
character, and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
election(s) made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
shareholders and which will be taxed to shareholders as ordinary income or
long-term capital gain may be increased or decreased as compared to a fund that
did not engage in such hedging transactions.
Notwithstanding any of the foregoing, a Fund may recognize gain (but not
loss) from a constructive sale of certain "appreciated financial positions" if
the Fund enters into a short sale, notional principal contract, futures or
forward contract transaction with respect to the appreciated position or
substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment does not apply to certain transactions closed in the 90-day
period ending with the 30th day after the close of the Fund's taxable year, if
certain conditions are met.
Requirements relating to each Fund's tax status as a regulated investment
company may limit the extent to which a Fund will be able to engage in
transactions in options and foreign currency forward contracts.
SHORT SALES AGAINST THE BOX
If a Fund sells short "against the box," unless certain constructive sale
rules (discussed above) apply, it may realize a capital gain or loss upon the
closing of the sale. Such gain or loss generally will be long- or short-term
depending upon the length of time the Fund held the security which it sold
short. In some circumstances, short sales may have the effect of reducing an
otherwise applicable holding period of a security in the portfolio. The
constructive sale rule, however, alters this treatment by treating certain short
sales against the box and other transactions as a constructive sale of the
underlying security held by the Fund, thereby requiring current recognition of
gain, as described more fully under "Options and Hedging Transactions" above.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will recognize gain at that time as though it
had closed the short sale. Future Treasury regulations may apply similar
treatment to other transactions with respect to property that becomes
substantially worthless.
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OTHER INVESTMENT COMPANIES
It is possible that by investing in other investment companies, a Fund may
not be able to meet the calendar year distribution requirement and may be
subject to federal income and excise tax. The diversification and distribution
requirements applicable to each Fund may limit the extent to which each Fund
will be able to invest in other investment companies.
SALE OR OTHER DISPOSITION OF SHARES
Upon the sale or exchange of his shares, a shareholder will realize a
taxable gain or loss depending upon his basis in the shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands, which generally may be eligible for reduced Federal tax
rates, depending on the shareholder's holding period for the shares. Any loss
realized on a sale or exchange will be disallowed to the extent that the shares
disposed of are replaced (including replacement through the reinvesting of
dividends and capital gain distributions in a Fund) within a period of 61 days
beginning 30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized by a shareholder on the sale of a Fund's
shares held by the shareholder for six months or less will be treated for
federal income tax purposes as a long-term capital loss to the extent of any
distributions of capital gain dividends received by the shareholder with respect
to such shares.
In some cases, shareholders will not be permitted to take sales charges
into account for purposes of determining the amount of gain or loss realized on
the disposition of their shares. This prohibition generally applies where (1)
the shareholder incurs a sales charge in acquiring the stock of a regulated
investment company, (2) the stock is disposed of before the 91st day after the
date on which it was acquired, and (3) the shareholder subsequently acquires
shares of the same or another regulated investment company and the otherwise
applicable sales charge is reduced or eliminated under a "reinvestment right"
received upon the initial purchase of shares of stock. In that case, the gain or
loss recognized will be determined by excluding from the tax basis of the shares
exchanged all or a portion of the sales charge incurred in acquiring those
shares. This exclusion applies to the extent that the otherwise applicable sales
charge with respect to the newly acquired shares is reduced as a result of
having incurred a sales charge initially. Sales charges affected by this rule
are treated as if they were incurred with respect to the stock acquired under
the reinvestment right. This provision may be applied to successive acquisitions
of stock.
BACKUP WITHHOLDING
Each Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to shareholders if (1) the shareholder
fails to furnish a Fund with the shareholder's correct taxpayer identification
number or social security number and to make such certifications as a Fund may
require, (2) the IRS notifies the shareholder or a Fund that the shareholder has
failed to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he is not subject to backup withholding. Any
amounts withheld may be credited against the shareholder's federal income tax
liability.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder. If the income from the Fund is not effectively connected with a
U.S. trade or business carried on by a foreign shareholder, ordinary income
dividends (including distributions of any net short term capital gains) will be
subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) upon
the gross amount of the dividend. Such a foreign shareholder would generally be
exempt from U.S. federal income tax on gains realized on the sale of shares of
the Fund, and distributions of net long term capital gains that are designated
as capital gain dividends. If the income from the Fund is effectively connected
with a U.S. trade or business carried on by a foreign shareholder, then ordinary
income dividends, capital gain dividends and any gains realized upon the sale of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
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The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund,
including the applicability of foreign taxes.
OTHER TAXES
Distributions also may be subject to state, local and foreign taxes. U.S.
tax rules applicable to foreign investors may differ significantly from those
outlined above. This discussion does not purport to deal with all of the tax
consequences applicable to shareholders. Shareholders are advised to consult
their own tax advisers for details with respect to the particular tax
consequences to them of an investment in a Fund.
PURCHASES IN-KIND OF THE INTERNATIONAL VALUE FUND
Investors may, subject to the approval of the International Value Fund, the
Investment Manager and Brandes, purchase shares of the International Value Fund
with liquid securities that are eligible for purchase by the Fund and that have
a value that is readily ascertainable. These transactions will be effected only
if the Investment Manager or Brandes intends to retain the securities in the
Fund as an investment. The Fund reserves the right amend or terminate this
practice at any time.
REDEMPTIONS
The right to redeem shares may be suspended and payment therefor postponed
during periods when the New York Stock Exchange is closed, other than customary
weekend and holiday closings, or, if permitted by rules of the SEC, during
periods when trading on the Exchange is restricted, during any emergency that
makes it impracticable for any Fund to dispose of its securities or to determine
fairly the value of its net assets, or during any other period permitted by
order of the SEC for the protection of investors. Furthermore, the Transfer
Agent will not mail redemption proceeds until checks received for shares
purchased have cleared, but payment will be forwarded immediately upon the funds
becoming available. Shareholders will be subject to the applicable deferred
sales charge, if any, for their shares at the time of redemption.
The contingent deferred sales charge will be waived with respect to Class T
shares in the following instances: (i) any partial or complete redemption of
shares of a shareholder who dies or becomes disabled, so long as the redemption
is requested within one year of death or the initial determination of
disability; (ii) any partial or complete redemption in connection with
distributions under Individual Retirement Accounts ("IRAs") or other qualified
retirement plans in connection with a lump sum or other form of distribution
following retirement within the meaning of Section 72(t)(2)(A) (iv) or (v) of
the Code, disability or death, or after attaining the age of 59 1/2 in the case
of an IRA, Keogh Plan or custodial account pursuant to Section 403(b)(7) of the
Code, or on any redemption that results from a tax free return of an excess
contribution pursuant to Section 408(d)(4) or (5) of the Code or Section 4979(f)
of the Code; (iii) redemptions effected pursuant to the Funds' right to
liquidate a shareholder's account if the aggregate net asset value of the shares
held in the account is less than $500; (iv) redemptions effected by (A)
employees of The Advest Group, Inc. ("AGI") and its subsidiaries, (B) IRAs,
Keogh plans and employee benefit plans for those employees, and (C) spouses and
minor children of those employees, so long as orders for shares are placed on
behalf of the spouses or children by the employees; (v) redemptions effected by
accounts managed by investment advisory subsidiaries of AGI registered under the
Investment Advisers Act of 1940; and (vi) redemptions in connection with
exchanges of Fund Class T shares, including shares of the Class T account of the
Money Market Portfolio.
EXCHANGES
The following conditions must be met for all exchanges among the Funds and
the Money Market Portfolio: (i) the shares that will be acquired in the exchange
(the "Acquired Shares") are available for sale in the shareholder's state of
residence; (ii) the Acquired shares will be registered to the same shareholder
account as the shares to be surrendered (the "Exchanged Shares"); (iii) the
Exchanged Shares must have been held in the shareholder's account for at least
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30 days prior to the exchange; (iv) except for exchanges into the Money Market
Portfolio, the account value of the Fund whose shares are to be acquired must
equal or exceed the minimum initial investment amount required by that Fund
after the exchange is implemented; and (v) a properly executed exchange request
has been received by the Transfer Agent.
Each Fund reserves the right to delay the actual purchase of the Acquired
Shares for up to five business days if it determines that it would be
disadvantaged by an immediate transfer of proceeds from the redemption of
Exchanged Shares. Normally, however, the redemption of Exchanged Shares and the
purchase of Acquired Shares will take place on the day that the exchange request
is received in proper form. Each Fund reserves the right to terminate or modify
its exchange privileges at any time upon prominent notice to shareholders. Such
notice will be given at least 60 days in advance. It is the policy of Pilgrim to
discourage and prevent frequent trading by shareholders among the Funds in
response to market fluctuations. Accordingly, in order to maintain a stable
asset base in each Fund and to reduce administrative expenses borne by each
Fund, Pilgrim reserves the right to reject any exchange request.
CONVERSION FEATURE
Class B and Class T shares of each Fund will automatically convert to Class
A shares without a sales charge at the relative net asset values of each of the
classes after eight years from the acquisition of the Class B or Class T shares,
and as a result, will thereafter be subject to the lower distribution fee (but
same service fee) under the Class A Rule 12b-1 plan for each Fund.
CALCULATION OF PERFORMANCE DATA
Each Fund may, from time to time, include "total return" in advertisements
or reports to shareholders or prospective investors. Quotations of average
annual total return will be expressed in terms of the average annual compounded
rate of return of a hypothetical investment in a Fund over periods of 1, 5 and
10 years (up to the life of the Fund), calculated pursuant to the following
formula which is prescribed by the SEC:
n
P(1 + T) = ERV
Where:
P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period.
All total return figures assume that all dividends are reinvested when
paid.
From time to time, a Fund may advertise its average annual total return
over various periods of time. These total return figures show the average
percentage change in value of an investment in the Fund from the beginning date
of the measuring period. These figures reflect changes in the price of the
Fund's shares and assume that any income dividends and/or capital gains
distributions made by the Fund during the period were reinvested in shares of
the Fund. Figures will be given for one, five and ten year periods (if
applicable) and may be given for other periods as well (such as from
commencement of the Fund's operations, or on a year-by-year basis).
Prior to October 17, 1997, the Bank and Thrift Fund operated as a
closed-end investment company. Upon conversion of the Fund to an open-end
investment company on October 17, 1997, all outstanding shares of Common Stock
of the Fund were designated as Class A shares. Performance information for the
period prior to October 17, 1997 reflects the performance of the Fund as a
closed-end fund. Performance information presented by the Fund for all periods
is restated to reflect the current maximum front-end sales load payable by the
Class A shares of the Fund. Performance information for the period prior to
October 17, 1997 has not been adjusted to reflect annual Rule 12b-1 fees of
Class A shares plus additional expenses incurred in connection with operating as
an open-end investment company. Performance would have been lower if adjusted
for these charges and expenses. Performance information for all periods after
October 17, 1997 reflects Class A's annual Rule 12b-1 fees and other expenses
associated with open-end investment companies.
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<PAGE>
Government Securities Income Fund earned income and realized capital gains
as a result of entering into reverse repurchase agreements during the six-month
period from July to December 1992 that caused the Fund to exceed its 10%
investment restriction on borrowing. Therefore, the Fund's performance was
higher than it would have been had the Fund adhered to its borrowing
restriction.
Current yield for the Money Market Fund will be based on the change in the
value of a hypothetical investment (exclusive of capital charges) over a
particular seven-day period, less a pro rata share of Fund expenses accrued over
that period (the "base period"), and stated as a percentage of the investment at
the start of the base period (the "base period return"). The base period return
is then annualized by multiplying by 365/7, with the resulting yield figure
carried to at least the nearest hundredth of one percent. "Effective yield" for
the Money Market Fund assumes that all dividends received during an annual
period have been reinvested. Calculation of "effective yield" begins with the
same "base period return" used in the calculation of yield, which is then
annualized to reflect weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return + 1)(365/7)] - 1
The current and effective seven-day average yields as of June 30, 2000 for
the Money Market Fund were 4.24%,3.48% and 3.48%, respectively, for each class
(Class A, Class B and Class C.)
Quotations of yield for the other Funds will be based on all investment
income per share earned during a particular 30-day period (including dividends
and interest), less expenses accrued during the period ("net investment income")
and are computed by dividing net investment income by the maximum offering price
per share on the last day of the period, according to the following formula:
a-b 6
Yield = 2[(--- + 1) -1]
cd
where
a = dividends and interest earned during the period,
b = expenses accrued for the period (net of reimbursements),
c = the average daily number of shares outstanding during the period that
were entitled to receive dividends, and
d = the maximum offering price per share on the last day of the period.
Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (1) computing the yield to maturity of each obligation
held by the Fund based on the market value of the obligation (including actual
accrued interest) at the close of business on the last day of each month, or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued interest), (2) dividing that figure by 360 and multiplying the
quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation for each day of the subsequent month that the obligation is in the
Fund's portfolio (assuming a month of 30 days) and (3) computing the total of
the interest earned on all debt obligations and all dividends accrued on all
equity securities during the 30-day or one month period. In computing dividends
accrued, dividend income is recognized by accruing 1/360 of the stated dividend
rate of a security each day that the security is in the Fund's portfolio. For
purposes of "b" above, Rule 12b-1 Plan expenses are included among the expenses
accrued for the period. Any amounts representing sales charges will not be
included among these expenses; however, the Fund will disclose the maximum sales
charge as well as any amount or specific rate of any nonrecurring account
charges. Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price calculation required pursuant to "d" above.
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<PAGE>
A Fund may also from time to time advertise its yield based on a 30-day or
90-day period ended on a date other than the most recent balance sheet included
in the Fund's Registration Statement, computed in accordance with the yield
formula described above, as adjusted to conform with the differing period for
which the yield computation is based. Any quotation of performance stated in
terms of yield (whether based on a 30-day or 90-day period) will be given no
greater prominence than the information prescribed under SEC rules. In addition,
all advertisements containing performance data of any kind will include a legend
disclosing that such performance data represents past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
A Fund may also publish a distribution rate in sales literature and in
investor communications preceded or accompanied by a copy of the current
Prospectus. The current distribution rate for a Fund is the annualization of the
Fund's distribution per share divided by the maximum offering price per share of
a Fund at the respective month-end. The current distribution rate may differ
from current yield because the distribution rate may contain items of capital
gain and other items of income, while yield reflects only earned net investment
income. In each case, the yield, distribution rates and total return figures
will reflect all recurring charges against Fund income and will assume the
payment of the maximum sales load, including any applicable contingent deferred
sales charge.
ADDITIONAL PERFORMANCE QUOTATIONS
Advertisements of total return will always show a calculation that includes
the effect of the maximum sales charge but may also show total return without
giving effect to that charge. Because these additional quotations will not
reflect the maximum sales charge payable, these performance quotations will be
higher than the performance quotations that reflect the maximum sales charge.
Total returns and yields are based on past results and are not necessarily
a prediction of future performance.
PERFORMANCE COMPARISONS
In reports or other communications to shareholders or in advertising
material, a Fund may compare the performance of its Class A, Class B, Class C,
Class I, Class M, Class Q, and Class T shares with that of other mutual funds as
listed in the rankings prepared by Lipper Analytical Services, Inc.,
Morningstar, Inc., CDA Technologies, Inc., Value Line, Inc. or similar
independent services that monitor the performance of mutual funds or with other
appropriate indexes of investment securities. In addition, certain indexes may
be used to illustrate historic performance of select asset classes. The
performance information may also include evaluations of the Funds published by
nationally recognized ranking services and by financial publications that are
nationally recognized, such as Business Week, Forbes, Fortune, Institutional
Investor, Money and The Wall Street Journal. If a Fund compares its performance
to other funds or to relevant indexes, the Fund's performance will be stated in
the same terms in which such comparative data and indexes are stated, which is
normally total return rather than yield. For these purposes the performance of
the Fund, as well as the performance of such investment companies or indexes,
may not reflect sales charges, which, if reflected, would reduce performance
results. Prior to October 17, 1997, the Bank and Thrift Fund was rated as a
closed-end fund, which had a different fee structure. Fee structures are
incorporated into certain ratings. If the Fund had been rated using the fee
structure of an open-end fund, ratings for those periods may have been
different.
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<PAGE>
The yield for the various classes of ING Pilgrim fixed income funds for the
month ended June 30, 2000 (October 31, 2000 for Mayflower Trust) was as follows:
<TABLE>
<CAPTION>
FUND CLASS A CLASS B CLASS C CLASS M CLASS Q
---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
High Total Return Fund II
High Total Return Fund
High Yield Fund II 10.81 10.66 10.67 N/A 11.40
Convertible Fund 1.56 1.01 1.01 N/A 1.76
Strategic Income Fund 7.12 7.09 7.09 N/A 7.56
Balanced Fund 2.98 2.47 2.47 N/A 2.72
High Yield Fund 12.43 12.29 12.31 12.14 14.49
</TABLE>
The average annual total returns, including sales charges, for each class
of shares of each Fund for the one-, five-, and ten-year periods ended December
31, 2000, if applicable, and for classes that have not been in operation for ten
years, the average annual total return from for the period from commencement of
operations to December 31, 2000, is as follows:
<TABLE>
<CAPTION>
1 Year 5 Year 10 Year Since Inception Inception Date
------ ------ ------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Asia-Pacific Equity Fund
Class A 9/1/95
Class B 9/1/95
Class M 9/1/95
LargeCap Leaders Fund
Class A 9/1/95
Class B 9/1/95
Class C 6/17/99
Class M 9/1/95
Class Q 4/4/00
MidCap Value Fund
Class A 9/1/95
Class B 9/1/95
Class C 6/2/99
Class M 9/1/95
Class Q 1/3/00
MagnaCap Fund
Class A 8/30/73
Class B 7/17/95
Class C 6/17/99
Class M 7/17/95
Class Q 10/22/99
High Yield Fund
Class A 7/1/74
Class B 7/17/95
Class C 5/27/99
Class M 7/17/95
Class Q 6/17/99
Bank and Thrift Fund
Class A 1/24/86
Class B 10/20/97
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
1 Year 5 Year 10 Year Since Inception Inception Date
------ ------ ------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Government Securities Income Fund(1)
Class A 1/1/85
Class B 7/17/95
Class C 6/11/99
Class M 7/17/95
Class Q 4/5/00
Class T 3/31/00
International Core Growth Fund
Class A 2/28/97
Class B 2/28/97
Class C 2/28/97
Class Q 2/28/97
Worldwide Growth Fund
Class A 4/19/93
Class B 5/31/95
Class C 4/19/93
Class Q 8/31/95
International SmallCap Growth Fund
Class A 8/31/94
Class B 5/31/95
Class C 8/31/94
Class Q 8/31/95
Emerging Countries Fund
Class A 11/28/94
Class B 5/31/95
Class C 11/28/94
Class Q 8/31/95
LargeCap Growth Fund
Class A 7/21/97
Class B 7/21/97
Class C 7/21/97
Class Q 7/21/97
MidCap Growth Fund
Class A 4/19/93
Class B 5/31/95
Class C 4/19/93
Class Q 6/30/94
SmallCap Growth Fund
Class A 12/27/93
Class B 5/31/95
Class C 12/27/93
Class Q 8/31/95
</TABLE>
122
<PAGE>
<TABLE>
<CAPTION>
1 Year 5 Year 10 Year Since Inception Inception Date
------ ------ ------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Convertible Fund
Class A 4/19/93
Class B 5/31/95
Class C 4/19/93
Class Q 8/31/95
Balanced Fund
Class A 4/19/93
Class B 5/31/95
Class C 4/19/93
Class Q 8/31/95
Class T 3/31/00
High Yield Fund II
Class A 3/27/98
Class B 3/27/98
Class C 3/27/98
Class Q 3/27/98
Class T 3/31/00
Strategic Income Fund
Class A 7/27/98
Class B 7/27/98
Class C 7/27/98
Class Q 7/27/98
Growth + Value Fund
Class A 11/18/96
Class B 11/18/96
Class C 11/18/96
Class Q
International Value Fund
Class A 3/06/95
Class B 4/18/97
Class C 3/06/95
Class Q
Emerging Markets Value Fund
Class A 1/1/98
Class B 1/1/98
Class C 1/1/98
Research Enhanced Index Fund
Class A 12/30/98
Class B 12/30/98
Class C 12/30/98
Class I 12/30/98
Class Q
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
1 Year 5 Year 10 Year Since Inception Inception Date
------ ------ ------- --------------- --------------
<S> <C> <C> <C> <C> <C>
High Total Return Fund
Class A 11/8/93
Class B 2/9/94
Class C 3/21/94
High Total Return Fund II
Class A 1/31/97
Class B 1/31/97
Class C 1/31/97
SmallCap Opportunities Fund
Class A 6/5/95
Class B 6/5/95
Class C 6/5/95
Class T 2/3/86
Class I 4/1/99
MidCap Opportunities Fund
Class A 8/20/98
Class B 8/20/98
Class C 8/20/98
Class I 8/20/98
Growth Opportunities Fund
Class A 6/5/95
Class B 6/5/95
Class C 6/5/95
Class T 2/3/86
Class I 3/31/97
Money Market Fund
Class A
Class B
Class C
</TABLE>
----------
(1) Government Securities Income Fund earned income and realized capital gains
as a result of entering into reverse repurchase agreements during the
six-month period from July to December 1992 that caused the Fund to exceed
its 10% investment restriction on borrowing. Therefore, the Fund's
performance was higher than it would have been had the Fund adhered to its
borrowing restriction.
Reports and promotional literature may also contain the following
information: (i) a description of the gross national or domestic product and
populations, including but not limited to age characteristics, of various
countries and regions in which a Fund may invest, as compiled by various
organizations, and projections of such information; (ii) the performance of
worldwide equity and debt markets; (iii) the capitalization of U.S. and foreign
stock markets prepared or published by the International Finance Corporation,
Morgan Stanley Capital International or a similar financial organization; (iv)
the geographic distribution of a Fund's portfolio; (v) the major industries
located in various jurisdictions; (vi) the number of shareholders in the Funds
or other Pilgrim Funds and the dollar amount of the assets under management;
(vii) descriptions of investing methods such as dollar-cost averaging, best
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<PAGE>
day/worst day scenarios, etc.; (viii) comparisons of the average price to
earnings ratio, price to book ratio, price to cash flow and relative currency
valuations of the Funds and individual stocks in a Fund's portfolio, appropriate
indices and descriptions of such comparisons; (ix) quotes from the Sub-Adviser
of a Fund or other industry specialists; (x) lists or statistics of certain of a
Fund's holdings including, but not limited to, portfolio composition, sector
weightings, portfolio turnover rate, number of holdings, average market
capitalization, and modern portfolio theory statistics; (xi) NASDAQ symbols for
each class of shares of each Fund; and descriptions of the benefits of working
with investment professionals in selecting investments.
In addition, reports and promotional literature may contain information
concerning the Investment Manager, the Sub-Advisers, Pilgrim Capital, Pilgrim
Group, Inc. or affiliates of the Company, the Investment Manager, the
Sub-Advisers, Pilgrim Capital or Pilgrim Group, Inc. including: (i) performance
rankings of other funds managed by the Investment Manager or a Sub-Adviser, or
the individuals employed by the Investment Manager or a Sub-Adviser who exercise
responsibility for the day-to-day management of a Fund, including rankings of
mutual funds published by Lipper Analytical Services, Inc., Morningstar, Inc.,
CDA Technologies, Inc., or other rating services, companies, publications or
other persons who rank mutual funds or other investment products on overall
performance or other criteria; (ii) lists of clients, the number of clients, or
assets under management; (iii) information regarding the acquisition of the
Pilgrim Funds by Pilgrim Capital; (iv) the past performance of Pilgrim Capital
and Pilgrim Group, Inc.; (v) the past performance of other funds managed by the
Investment Manager; and (vi) information regarding rights offerings conducted by
closed-end funds managed by the Investment Manager.
GENERAL INFORMATION
CAPITALIZATION AND VOTING RIGHTS
The authorized capital stock of the Advisory Funds consists of
1,000,000,000 shares having par value of $.01 per share. The authorized capital
stock of Pilgrim Investment Funds, Inc. consists of 500,000,000 shares of $.10
par value each, of which 200,000,000 shares are classified as shares of MagnaCap
Fund, 200,000,000 shares are classified as shares of the High Yield Fund, and
100,000,000 are not classified. The authorized capital stock of the Bank and
Thrift Fund, Inc. consists of 100,000,000 shares of common stock having a par
value of $0.00/per share. Holders of shares of the Advisory Funds and Bank and
Thrift Fund have one vote for each share held, and a proportionate fraction of a
vote for each fraction of a share held. The authorized capital stock of the
Government Securities Income Fund, Inc. consists of 50,000,000 shares. The
authorized capital of the Pilgrim Mutual Funds, Equity Trust, SmallCap
Opportunities Fund, Growth Opportunities Fund, and Mayflower Trust, is in each
case an unlimited number of shares of beneficial interest. All shares when
issued are fully paid, non-assessable, and redeemable. Shares have no preemptive
rights. All shares have equal voting, dividend and liquidation rights. Shares
have non-cumulative voting rights, which means that the holders of more than 50%
of the shares voting for the election of Directors/Trustees can elect 100% of
the Directors/Trustees if they choose to do so, and in such event the holders of
the remaining shares voting for the election of Directors/Trustees will not be
able to elect any person or persons to the Board of Directors/Trustees.
Generally, there will not be annual meetings of shareholders. There will
normally be no meetings of shareholders for the purpose of electing
Directors/Trustees unless and until such time as less than a majority of the
Directors/Trustees holding office have been elected by shareholders, at which
time the Directors/Trustees then in office will call a shareholders' meeting for
the election of Directors/Trustees. Shareholders may, in accordance with a
Fund's charter, cause a meeting, of shareholders to be held for the purpose of
voting on the removal of Directors/Trustees. Meetings of the shareholders will
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<PAGE>
be called upon written request of shareholders holding in the aggregate not less
than 10% of the outstanding shares of the affected Fund or class having voting
rights. Except as set forth above and subject to the 1940 Act, the
Directors/Trustees will continue to hold office and appoint successor
Directors/Trustees.
The Board of Directors/Trustees may classify or reclassify any unissued
shares into shares of any series by setting or changing in any one or more
respects, from time to time, prior to the issuance of such shares, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or qualifications of such shares. Any such
classification or reclassification will comply with the provisions of the 1940
Act. The Board of Directors/Trustees may create additional series (or classes of
series) of shares without shareholder approval. Any series or class of shares
may be terminated by a vote of the shareholders of such series or class entitled
to vote or by the Directors/Trustees of the Company by written notice to
shareholders of such series or class. Shareholders may remove Directors/Trustees
from office by votes cast at a meeting of shareholders or by written consent.
CUSTODIAN
The cash and securities owned by the Asia-Pacific Equity, International
Value, Emerging Markets Value, International Core Growth, Worldwide Growth,
International SmallCap Growth and Emerging Countries Funds are held by Brown
Brothers Harriman, 40 Water Street, Boston, Massachusetts 02109-3661, as
Custodian, which takes no part in the decisions relating to the purchase or sale
of a Fund's portfolio securities.
The cash and securities owned by the Growth + Value, High Total Return I,
High Total Return II, Research Enhanced Index, LargeCap Growth, MidCap Growth,
SmallCap Growth, Convertible, Balanced, High Yield, MidCap Value, LargeCap
Leaders, Strategic, Money Market, MagnaCap, High Yield II, Government Securities
and Bank and Thrift Funds are held by State Street, 801 Pennsylvania, Kansas
City, Missouri 64105, as Custodian, which takes no part in the decisions
relating to the purchase or sale of a Fund's portfolio securities.
LEGAL COUNSEL
Legal matters for each Company are passed upon by Dechert, 1775 Eye Street,
N.W., Washington, D.C. 20006.
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP acts as independent auditors for Asia-Pacific
Equity, International Value, Emerging Markets Value, International Core Growth,
Worldwide Growth, International SmallCap Growth and Emerging Countries Funds for
the fiscal year ending October 31.
PricewaterhouseCoopers LLP acts as independent auditors for High Total
Return, High Total Return II, High Yield, Strategic Income, Money Market, High
Yield II and Government Securities Income Funds for the fiscal year ending March
31.
KPMG LLP acts as independent auditors for Growth + Value, Research Enhanced
Index, LargeCap Growth, MidCap Growth, SmallCap Growth, Convertible, Balanced,
MidCap Value, LargeCap Leaders, MagnaCap, and Bank and Thrift Funds for the
fiscal year ending May 31.
OTHER INFORMATION
Each Company is registered with the SEC as an open-end management
investment company. Such registration does not involve supervision of the
management or policies of the Company by any governmental agency. The Prospectus
and this Statement of Additional Information omit certain of the information
contained in each Company's Registration Statement filed with the SEC and copies
of this information may be obtained from the SEC upon payment of the prescribed
fee or examined at the SEC in Washington, D.C. without charge.
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<PAGE>
Investors in the Funds will be kept informed of their progress through
semi-annual reports showing portfolio composition, statistical data and any
other significant data, including financial statement audited by independent
certified public accountants.
REPORTS TO SHAREHOLDERS
The fiscal year of the Funds which comprise the Mayflower Trust ends on
October 31. The fiscal year of the Funds which comprise the Bank and Thrift
Fund, Advisory Funds, Investment Funds, Pilgrim Mutual Funds, and the Government
Securities Income Fund, ends on June 30. The fiscal year of Funds which comprise
the Equity Trust, SmallCap Opportunities Fund, and Growth Opportunities Fund,
ends on December 31. Each Fund will send financial statements to its
shareholders at least semiannually. An annual report containing financial
statements audited by the independent accountants will be sent to shareholders
each year.
DECLARATION OF TRUST
The Equity Trust, SmallCap Opportunities Fund, Growth Opportunities Fund,
and Mayflower Trust are organized as Massachusetts business trusts. The
Declaration of Trust of each of these Funds provides that obligations of the
Fund are not binding upon its Trustees, officers, employees and agents
individually and that the Trustees, officers, employees and agents will not be
liable to the trust or its investors for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee, officer, employee or
agent against any liability to the trust or its investors to which the Trustee,
officer, employee or agent would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of his or her
duties. The Declaration of Trust also provides that the debts, liabilities,
obligations and expenses incurred, contracted for or existing with respect to a
designated Fund shall be enforceable against the assets and property of such
Fund only, and not against the assets or property of any other Fund or the
investors therein.
FINANCIAL STATEMENTS
The financial statements from the Funds' June 30, 2000 Annual Reports (for
Advisory Funds, Investment Funds, Bank and Thrift Fund, Government Securities
Income Fund, and ING Pilgrim Mutual Funds), and December 31, 2000 Annual Report
(which includes SmallCap Opportunities Fund, Growth Opportunities Fund, and
Equity Trust), and October 31, 2000 Annual Report (for Mayflower Trust) are
incorporated herein by reference. Copies of the Funds' Annual and Semi-Annual
Reports may be obtained without charge by contacting ING Pilgrim Funds at 7337
E. Doubletree Ranch Road, Scottsdale, Arizona 85258, (800) 992-0180.
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<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Declaration of Trust(1)
(b) By-laws(1)
(c) N/A
(d)(1) Investment Advisory Contracts(2)(5)(6)(8)(9)(11)
(2) Form of Investment Management Agreement between Registrant and
Pilgrim Investments, Inc.
(e)(1) Form Underwriting Contracts - Class B Shares(12)
(2) Form of Underwriting Agreement between Registrant and
Pilgrim Securities, Inc.
(f) N/A
(g) Custodian Agreements(4)(10)(11)
(h) Other Material Contracts(3)(7)(11)
(i) Legal Opinion(10)
(j)(1) Consent of Dechert
(2) Consent of Independent Public Accountants - to be filed
by amendment
(k) N/A
(l) N/A
(m) Form of Rule 12b-1 Plan(12)
(n) Form of Rule 18f-3 Plan(12)
(p)(1) Pilgrim Group Funds Code of Ethics(13)
Form of Brandes Investment Partners, L.P. Code of Ethics(13)
(2) Form of Brandes Investment Partners, L.P. Amendment to
Code of Ethics(13)
(3) Form of J.P. Investment Management Inc. Code of Ethics(13)
(4) Form of Navellier Fund Management Inc. Code of Ethics(13)
----------
(1) Included in Registrant's Registration Statement filed August 24, 1993 and
incorporated herein by reference.
(2) Included in Registrant's Pre-Effective Amendment No. 1 filed October 7,
1993 and incorporated herein by reference.
(3) Included in Registrant's Pre-Effective Amendment No. 2 filed November 3,
1993 and incorporated herein by reference.
(4) Included in Registrant's Post-Effective Amendment No. 7 filed December 29,
1995 and incorporated herein by reference.
(5) Included in Registrant's Post-Effective Amendment No. 9 filed August 5,
1996 and incorporated herein by reference.
(6) Included in Registrant's Post-Effective Amendment No. 13 filed December 13,
1996 and incorporated herein by reference.
(7) Included in Registrant's Post-Effective Amendment No. 19 and incorporated
herein by reference.
(8) Included in Registrant's Post-Effective Amendment No. 19 filed April 30,
1997 and incorporated herein by reference.
(9) Included in Registrant's Post-Effective Amendment No. 33 filed December 29,
1997 and incorporated herein by reference.
(10) Included in Registrant's Post-Effective Amendment No. 35 filed February 27,
1998 and incorporated herein by reference.
(11) Included in Registrant's Post-Effective Amendment No. 36 filed October 23,
1998 and incorporated herein by reference.
(12) Included in Registrant's Post-Effective Amendment No. 41 filed on January
4, 2000 and incorporated herein by reference.
(13) Included in Registrant's Post-Effective Amendment No. 43 filed on April 28,
2000.
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ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
There are no persons controlled by or under common control with the Fund.
ITEM 25. INDEMNIFICATION - PILGRIM MAYFLOWER TRUST
(formerly the "Northstar Trust")
Section 4.3 of Registrant's Declaration of Trust provides the following:
(a) Subject to the exceptions and limitations contained in paragraph (b)
below:
(i) every person who is, or has been, a Trustee or Officer of the
Trust shall be indemnified by the Trust to the fullest extent permitted by
law against all liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred by
him in the settlement thereof; and
(ii)the word "claim", "action", "suit" or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, administrative
or other including appeals), actual or threatened; and the words
"liability" and "expenses" shall include without limitation, attorneys
fees, costs, judgments, amounts paid in settlement, fines, penalties and
other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or Officer:
(i) against any liability to the Trust, a Series thereof, or the
Shareholders by reason of a final adjudication by a court or other body
before which a proceeding was brought that he engaged in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in reasonable belief that his
action was in the best interest of the Trust; or
(iii) in the event of a settlement or other disposition not involving
a final adjudication as provided in paragraph (b) (i) or (b) (ii) resulting
in a payment by a Trustee or Officer, unless there has been a determination
that such Trustee or Officer did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office:
(A) by the court or other body approving the settlement or other
disposition; or
(B) based upon the review of readily available facts (as opposed to full
trial-type inquiry) by (x) vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the Disinterested Trustees
then in office act on the matter) or (y) written opinion of independent legal
counsel.
(c) The rights of Indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Trustee or Officer may now or hereafter be entitled, shall
continue as to a person who has ceased to be such Trustee or Officer and shall
inure to the benefit of the heirs, executors, administrators and assigns of such
a person. Nothing contained herein shall affect any rights to indemnification to
which personnel of the Trust other than Trustees and officers may be entitled by
contract or otherwise under law.
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(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the matter)
or an independent legal counsel in a written opinion shall determine, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately
will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is not
(i) an Interested Person of the Trust (including anyone who has been exempted
from being an Interested Person by any rule, regulation or order of the
Commission), or (ii) involved in the claim, action, suit or proceeding insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to Trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, Officer or controlling person of the Registrant in
connection with the successful defense of any action suit or proceeding) is
asserted by such Trustee, Officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy, as expressed in the Act and be governed by final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF ADVISER
Information as to the directors and officers of the Adviser, together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by the directors and officers of the Adviser in
the last two years, is included in its application for registration as an
investment adviser on Form ADV (File No. 801-48282) filed under the Investment
Advisers Act of 1940 and is incorporated herein by reference.
Information as to the directors and officers of the sub-advisers, together
with information as to any other business, profession, vocation or employment of
a substantial nature engaged in by the directors and officers of the
sub-advisers in the last two years, are included in their application for
registration as investment advisers on Form ADV (Brandes Investment Partners,
L.P. (File No. 801-24896); and Navellier Fund Management, Inc. (File No.
801-50932).
ITEM 27. PRINCIPAL UNDERWRITER
(a) ING Pilgrim Securities, Inc. is the principal underwriter for the
Registrant and for Pilgrim Advisory Funds, Inc., Pilgrim Investment Funds, Inc.,
Pilgrim Bank and Thrift Fund, Inc., Pilgrim Prime Rate Trust, Pilgrim Mutual
Funds, Pilgrim Equity Trust, Pilgrim SmallCap Opportunities Fund, Pilgrim Growth
Opportunities Fund, Pilgrim Mayflower Trust, Pilgrim Government Securities
Income Fund, Pilgrim Global Corporate Leaders Fund, Pilgrim Global Technology
Fund, Pilgrim GNMA Income Fund, Pilgrim Growth and Income Fund, Pilgrim
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International Fund, Pilgrim Silver Fund, Pilgrim SmallCap Asia Growth Fund,
Pilgrim Troika Dialog Russia Fund, Pilgrim Worldwide Emerging Markets Fund,
Pilgrim Global Income Fund and Lexington Money Market Trust.
(b) Information as to the directors and officers of Pilgrim Securities,
Inc., together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by the directors and officers
of the Distributor in the last two years, is included in its application for
registration as a broker-dealer on Form BD (File No. 8-48020) filed under the
Securities Exchange Act of 1934 and is incorporated herein by reference thereto.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
State Street Bank and Trust Co. maintains the records at 1776 Heritage
Drive, North Quincy, MA 02171 as Custodian and Fund Accounting Agent Registrant:
(1) Receipts and delivery of securities including certificate numbers;
(2) Receipts and disbursement of cash;
(3) Records of securities in transfer, securities in physical possession,
securities owned and securities loaned; and
(4) Fund Accounting Records
DST Systems Inc. ("DST") maintains the following records at 210 West 10th
Street, 8th Floor, Kansas City, MO 64105, as Transfer Agent and Blue Sky
Administrator for the Registrant:
(1) Shareholder Records;
(2) Share accumulation accounts; Details as to dates, number of shares and
share prices of each account;
(3) Fund Accounting Records; and
(4) State Securities Registration Records
All other records required by item 30(a) are maintained at the office of
the Administrator, 40 North Central Avenue, Suite 1200, Phoenix AZ 85004 and the
office of the appropriate Subadviser, Brandes Investment Partners, L.P., 12750
High Bluff Drive, San Diego, CA 92130, J.P. Morgan Investment Management Inc.,
522 Fifth Avenue, New York, NY 10036 or Navellier Fund Management, Inc., 1 East
Liberty, Third Floor, Reno, NV 89501.
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
(a) Registrant hereby undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee or Trustees when
requested in writing to do so by the holders of at least 10% of the Trust's
outstanding shares of beneficial interest and in connection with such meeting to
comply with the provisions of Section 16(c) of the Investment Company Act of
1940 relating to shareholder communications.
(b) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders, upon request and without charge.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Registrant has duly caused this
Post-Effective Amendment No. 44 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Scottsdale and the State of Arizona on the 22nd day of December, 2000.
PILGRIM MAYFLOWER TRUST
By: /s/ James M. Hennessy
---------------------------------------------
James M. Hennessy,
Senior Executive Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ John G. Turner Trustee and Chairman December 22, 2000
-----------------------------
John G. Turner*
/s/ Robert W. Stallings Trustee and President December 22, 2000
----------------------------- (Chief Executive Officer)
Robert W. Stallings*
/s/ Al Burton Trustee December 22, 2000
-----------------------------
Al Burton*
/s/ Paul S. Doherty Trustee December 22, 2000
-----------------------------
Paul S. Doherty*
/s/ Robert B. Goode Trustee December 22, 2000
-----------------------------
Robert B. Goode*
/s/ Alan L. Gosule Trustee December 22, 2000
-----------------------------
Alan L. Gosule*
/s/ Walter H. May Trustee December 22, 2000
-----------------------------
Walter H. May*
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/s/ Jock Patton Trustee December 22, 2000
-----------------------------
Jock Patton*
/s/ David W.C. Putnam Trustee December 22, 2000
-----------------------------
David W.C. Putnam*
/s/ John R. Smith Trustee December 22, 2000
-----------------------------
John R. Smith*
/s/ David W. Wallace Trustee December 22, 2000
-----------------------------
David W. Wallace*
/s/ Michael J. Roland Senior Vice President and December 22, 2000
----------------------------- Principal Financial Officer
Michael J. Roland*
* By: /s/ James M. Hennessy
-----------------------------
James M. Hennessy
Attorney-in-Fact**
----------
** Powers of Attorney for the Trustees are incorporated by reference to
Post-Effective Amendment No. 41 to the Registration Statement on Form N-1A as
filed on January 4, 2000 and are incorporated herein by reference. A Power of
Attorney for Michael J. Roland is incorporated by reference to Post-Effective
Amendment No. 42 to the Registration Statement on Form N-1A as filed on February
25, 2000 and is incorporated herein by reference.
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
(d)(2) Form of Investment Management Agreement between Registrant
and Pilgrim Investments, Inc.
(e)(2) Form of Underwriting Agreement between Registrant and
Pilgrim Securities, Inc.
(j)(1) Consent of Dechert
